Tag: bankruptcy

What are the deadlines for filing a proof of claim with the Bankruptcy Court?

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What are the deadlines for filing a proof of claim with the Bankruptcy Court?

A proof of claim tells the bankruptcy court how much a debtor owes a creditor at the time the bankruptcy case is filed.

In a “no asset” Chapter 7 bankruptcy case, there is no deadline because the court will instruct creditors not to file proofs of claim. In other cases, the deadline is generally 90 days after the 341 meeting. Governmental units (e.g., the IRS) have 180 days measured from the commencement of the case. Since the 341 meeting is generally 30 days after commencement, the government basically gets an extra two months.

(Reviewed 11.14.08)

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Where do I file a bankruptcy petition?

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Where do I file a bankruptcy petition?

Bankruptcy courts are part of the federal judicial system. Each federal district has one or more bankruptcy courts, each of which is responsible for debtors within a certain geographic region. You can file a petition in a district where you have been domiciled or had a residence, principal place of business, or principal assets for 180 days OR for a longer part of 180 days than in any other district. You may also file in a district where an “affiliate,” general partner, or partnership has a pending case. If you’ve just moved from another district, you would need to wait until the 91st day after moving to file in your new district. If you file in the district where you used to live, you may be able to persuade the court to transfer the case anyway. Visit http://www.uscourts.gov/links.html to locate the web site for your local Bankruptcy Court. You may also reopen your case yourself.

(Reviewed 11.14.08)

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I can’t make the payments due under my Chapter 13 bankruptcy plan. What can I do?

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I can’t make the payments due under my Chapter 13 bankruptcy plan. What can I do?

On occasion, changed circumstances (e.g., divorce, unemployment, illness) will affect your ability to make plan payments. If you have been hit with hard times, notify your attorney immediately. If your problem is temporary, the trustee may give some leeway in meeting your payment commitment, such as reducing your payments or extending the repayment period. If it looks severe or long-lasting, the court may:

(1) modify the plan to deal with your changed circumstances; or

(2) discharge the rest of your debts on the basis of hardship; or

(3) convert to a Chapter 7 liquidation case; or

(4) dismiss your Chapter 13 case, which means you’ll owe what you owed before filing for Chapter 13, less any payments; or

(5) suspend payments.

(Reviewed 11.14.08)

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What is involved in the bankruptcy process?

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What is involved in the bankruptcy process?

Before you can file either Chapter 7 or 13, you must pass muster under a “means test”. The means test identifies those debtors who have the financial capacity to pay a significant portion of their bills to creditors. It involves comparing the debtor’s income to the median income of the state where the debtor is located. If the debtor’s income is higher, another set of calculations (based on ratios of debt to income) will identify whether he or she can file a Chapter 7 liquidation or Chapter 13 repayment case.

No matter where you are located, there is a bundle of paperwork requirements. A bankruptcy case begins with the filing of a petition and several forms with the bankruptcy court in your area. The forms contain lists of all your assets, debts, income, expenditures, as well as other personal background and financial information. In addition, you must file a certificate of credit counseling, tax returns (or transcripts) for the recent tax year; tax returns filed with the IRS while your bankruptcy case is open; copies of pay stubs or other proof of income received 60 days prior to filing; statement of currently monthly income and any reasonably anticipated changes in income or expenses after filing.

In a Chapter 7 (liquidation) case, the court will appoint a trustee to represent the interests of your creditors. A month or so after filing, you must attend a so-called “meeting of creditors” with the trustee to answer questions regarding your assets, debts, and so forth. Despite the name, creditors rarely attend these meetings. After the meeting, the trustee sells (“liquidates”) the property that can be taken from you, takes the cash and splits it among your creditors. At the end of liquidating your property, the court schedules a final hearing and discharges your debts. The effect of this is that you no longer legally owe your creditors and they are forbidden from trying to collect any unpaid percentage.

A Chapter 13 (wage earner) case begins by filing the same papers as under a Chapter 7. In addition, you must file a workable plan for repaying your debts with the bankruptcy court, which will approve the plan. You start sending payments directly to the chapter 13 trustee shortly after filing. The trustee then pays your creditors according to the terms of the court-approved plan. When you have repaid your creditors according to the plan, a court hearing will be held and you will be discharged. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect.

Chapter 13 is often preferable to chapter 7 because it enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor to propose a “plan” to repay creditors over time – usually three to five years. Chapter 13 is also used by consumer debtors who do not qualify for chapter 7 relief under the means test.

(Reviewed 11.14.08)

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I am in a same-sex relationship. How does that affect bankruptcy?

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I am in a same-sex relationship. How does that affect bankruptcy?

Two individuals who are not married may file separately for bankruptcy and then file a motion to have the two cases consolidated administratively. It’s up to the judge to decide whether, and to what extent, to allow that motion.

In a state that recognizes same-sex marriages, a same-sex couple might seek to file a joint petition in order to pay just one filing fee. (There is no other difference between a joint petition and two petitions that are administratively consolidated.) The federal Defense of Marriage Act would require the court to reject the joint petition because the word “spouse” appearing in the Bankruptcy Code must be construed as meaning two spouses of opposite gender. There will undoubtedly be a constitutional challenge to the Defense of Marriage Act, but it’s not possible to predict the outcome here. A bankruptcy case, where the fight would be over a mere $299 filing fee for a Chapter 7 filing (or $274 for a Chapter 13 case), may not be the best vehicle for such a challenge.

(Reviewed 11.14.08)

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How often can I file for bankruptcy?

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How often can I file for bankruptcy?

The technical answer is that you can file as often as you like, but you may not get the result you want, especially because of the post-October 17, 2005 changes in the bankruptcy law.

A debtor cannot obtain a discharge in a Chapter 7 case if the debtor obtained a discharge in (a) a Chapter 7 case filed within the past 8 years, or (b) a Chapter 13 case filed within the past 6 years. The time periods in either case are measured from the commencement dates of the respective cases. The dates of discharge have no bearing on the disqualification.

A debtor cannot obtain a discharge in a Chapter 13 case if the debtor obtained a discharge in (a) a Chapter 7 case filed within the past 4 years, or (b) a Chapter 13 case filed within the past 2 years. The time periods in either case are measured from the commencement dates of the respective cases. The dates of discharge have no bearing on the disqualification.

In addition to these changes in how often a debtor can obtain a discharge in bankruptcy, Congress also enacted changes intended to reduce or eliminate the effect of the bankruptcy stay for serial filers. To oversimplify the changes, the stay will last for just 30 days if a bankruptcy case of the debtor was pending within the preceding year but was dismissed. The stay will simply not come into existence at all if two or more cases were pending within the preceding year but were dismissed. If a Chapter 7 case is dismissed for abuse and the debtor files under a new chapter (such as Chapter 13), however, the stay has its normal duration.

Notwithstanding the above, you can be barred from filing a new case for 180 days after a case is dismissed, if the dismissal (a) is because you willfully failed to abide by an order of the court or to properly prosecute the case, or (b) was at your request after a creditor requested relief from the automatic stay.

(Reviewed 11.14.08)

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Is Social Security counted as income in the means test under the new bankruptcy law?

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Is Social Security counted as income in the means test under the new bankruptcy law?

No. Social security payments are excluded from the calculation of income for purposes of the means test.
Some consumer bankruptcy lawyers believe that unemployment compensation derives from the Social Security Act and should also be excluded from Current Monthly Income.
(Reviewed 11.14.08)

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Under the new bankruptcy law, how does means testing work?

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Under the new bankruptcy law, how does means testing work?

For cases filed on or after October 17, 2005, it remains the law that any individual may file a case under any Chapter of Title 11 for which they are qualified. It also remains the law that the court may dismiss a Chapter 7 case for “abuse,” which need no longer be “substantial.” Congress enacted a mechanical “means test” for determining whether a Chapter 7 filing should be presumed to be abusive.
Performing the means test is straightforward, but very tedious, using new form B22A. The first step is to average the debtor’s income from every source during the preceding six calendar months. A married debtor must also average his or her spouse’s income during the same period, unless the spouses are separated for purposes other than avoiding the means test. Regular contributions toward household expenses by persons other than the debtor are counted in this total. The resulting average is called Current Monthly Income (CMI), even though it is neither current, monthly, nor limited to actual income.
The second step in the means test is to compare CMI with the median income for households of the same size in the debtor’s state. Each state’s average is based on US census figures; click http://www.usdoj.gov/ust/eo/bapcpa/20081001/meanstesting.htm). If the debtor’s CMI (or the debtor’s plus the spouse’s CMI) is above the median income, creditors will later be permitted to file dismissal motions based on alleged abuse. If the total is less than the median income, only the United States Trustee (or the court acting on its own initiative) can file such a motion.
The third step in the means test is the most counterintuitive. If a married debtor is filing individually, the non-filing spouse’s income has so far been part of the CMI calculation. The B22A form directs the debtor to subtract back out all of the non-filing spouse’s income that is not a contribution to household expenses. When this part of the calculation is complete, the resulting “adjusted CMI” will include all of the debtor’s income for the six preceding calendar months plus any regular contributions made by the spouse to the debtor’s household expenses. This new number is compared to the state median income for households of the same size. If it’s smaller, no presumption of abuse arises. If it’s bigger, there are more calculations to perform.
The fourth step in the means test, which need only be done if the debtor’s adjusted CMI is above median, is to calculate deductions in many categories. It’s not possible in a short online discussion like this one to explain how to do this, and the B22A form is (unfortunately) not self-explanatory in every case. The result of subtracting deductions from adjusted CMI is the debtor’s Net Monthly Income (NMI).
The fifth and final step in the means test is to decide how much unsecured debt could be repaid over 60 months using all of the debtor’s NMI. In summary, the decision tree goes like this: . If NMI is less than $110, there is no presumption of abuse. . If NMI is greater than $182.50, there is a presumption of abuse. . If NMI is between those two numbers, one multiplies it by 240 and compares the result with the total of unsecured debt. (The figures of $110 and $182.50 increase periodically for inflation.) If the result is greater, there is a presumption of abuse; otherwise, there is no such presumption. (This calculation determines whether the debtor could repay at least 25% of unsecured debt over the course of a 60-month Chapter 13 plan, which is what the statute actually directs the debtor to figure out. The statutory test is harder to describe.)
A presumption of abuse just means that a Chapter 7 filing is presumed to be abusive in the absence of evidence proving otherwise. A debtor for whom the presumption arises may still rebut the presumption by offering evidence of special circumstances. For example, victims of natural disasters like Hurricane Katrina may show income loss, expense increase, and other adverse effects of the disaster in order to demonstrate special circumstances.

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What are the different chapters under which an individual can file?

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What are the different chapters under which an individual can file?

There are three different chapters of the Bankruptcy Code under which an individual can file, and they are called Chapter 7, Chapter 11, and Chapter 13. A Chapter 7 case is sometimes called a “straight” bankruptcy, or a “liquidation.” In Chapter 7, a court-appointed trustee sells your non-exempt assets and distributes the proceeds amongst your creditors.

In Chapter 13, you file a plan that obligates you to pay some or all of your debts over a multiyear period. Under the new bankruptcy law, many consumer debtors will be required to file a Chapter 13 bankruptcy and commit to a 5-year repayment schedule.

Chapter 11 is primarily used by businesses that need to reorganize in order to get out from under debt, but is also theoretically available to consumer debtors. (K-Mart and WorldCom are examples of two “big” names who have filed under Chapter 11.) In chapter 11, the debtor proposes a plan for paying some or all of his debts, and his creditors get a chance to vote on whether to accept or reject that plan. In some cases, it may be possible to “cram down” a plan against a dissenting class of creditors. Chapter 11 may be the only recourse for a consumer debtor with an extremely large mortgage that causes his secured debt to exceed the limit for Chapter 13.

A special chapter – Chapter 12 – is available to family farmers and under the new bankruptcy law now covers family fishermen. It was very similar to chapter 13, but without limits on the amount of debts. The new bankruptcy law made significant changes in Chapter 12.

(Reviewed 11.14.08)

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Do I have to list all of my debts?

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Do I have to list all of my debts?

Yes. Failure to list a debt is a serious matter, and in some cases the judge might deny your discharge or dismiss your case. You must list all debts on your schedules. Of course, you can choose to pay a debt that is discharged in bankruptcy. What you cannot do is conceal the debt from the court and your creditors.

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