Chapter 7 Bankruptcy Process Part 1

Chapter 7 Bankruptcy Process Part 1

The first thing that needs to be done in the chapter 7 bankruptcy process is the compilation and preparation of the information needed to file the bankruptcy petition. The petition is signed under the penalty of perjury, therefore it is important that the information that you provide is truthful and accurate. A questionnaire will be provided to you to assist you with the preparation of the required information. The information will then be reviewed with you, and then given to a legal staff member to enter into a computer system which will allow for the electronic filing of most or all of your bankruptcy papers. Your bankruptcy protections do not begin until the original paperwork is filed with the Court and the filing fees have been paid. That is when the protection of the Automatic Stay begins.

In 2005, Congress added new requirements for people filing consumer bankruptcies. They were concerned that bankruptcy attorneys were not exploring enough non-bankruptcy options with their clients, and developed a requirement that anyone seeking to file bankruptcy must first be screened by an independent non-profit credit counseling agency at least one calendar day before a bankruptcy petition is filed. This class normally takes about thirty minutes, and focuses on the consumer’s monthly income and expenses. A certificate is then issued and must be included when the bankruptcy petition and other initial papers are filed with the Bankruptcy Court. This initial certificate is often referred to as the “ticket in.” Additionally, Congress also requires people who have filed bankruptcy to take a second class, the Debtor Education class, and upon completion of this 45-minute class, to file a Certificate with the Court showing the course was completed. This certificate is often referred to as the “ticket out.” Finally, Congress also now requires that attorneys representing people filing bankruptcy pull an independent credit report which lists the names and addresses of a filer’s creditors. Accordingly, this has also added an additional layer of costs to the filing of a bankruptcy case (about $50 each for the “ticket in,” “ticket out,” and the credit report).

We will discuss more of the Chapter 7 Bankruptcy Process in our next few articles, so make sure to come back for more!

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By: Joel S. Treuhaft, Esquire

What are you allowed to keep when filing bankruptcy?

What are you allowed to keep when filing bankruptcy?

Real Property

The catch is that you are only allowed to keep a limited amount of property. What are you allowed to keep when filing bankruptcy? In Florida, as of now, you are allowed to keep your homestead, regardless of its value, as long as you continue to make the regular monthly payments on it. Other forms of real property, such as rental property are generally not exempt from administration by the Bankruptcy Court and Trustee, and most likely will be turned over to the Trustee, liquidated, and the proceeds applied to the administration of the bankruptcy estate, and to the repayment of creditors.

Personal Property

Everything but real property is personal property. What are you allowed to keep when filing bankruptcy under Florida law? Under Florida law (which is adopted for exemption purposes, or the things you are allowed to keep), each person who files is entitled to keep: (i) up to 6 months’ worth of wages if they are not co-mingled with other monies, (ii) the Cash Surrender Value of your Life Insurance or Annuities, (iii) ERISA qualifying pension plans, 401K or similar plans, (iv) some pre-paid college tuition plans, (v) $1,000.00 of equity (the value of the vehicle versus what is owed on the vehicle) in one vehicle, plus (vi) $1,000.00 of other personal property based on garage sale or other liquidation values. Jewelry or higher value items could be based on pawn shop or jewelry store values.

Antiques, collections, objects of art, gold, silver, precious metals, stocks, bonds diamonds, crystal, china, or other objects of value are generally not exempt, and are not able to be kept in a Chapter 7 bankruptcy. Stocks, bonds and/or small businesses also will usually be taken by the Trustee. This type of property may be kept in a different form of bankruptcy, such as a Chapter 13, which envisions that you will pay back money over a period of time, in addition to its other advantages. However, when you base things on a garage sale or liquidation value, most people keep most or all of their personal property, and are able to discharge their unsecured debt.

We will discuss more common bankruptcy issues in our next few articles, so make sure to come back for more!

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By: Joel S. Treuhaft, Esquire

Debt Responsibility

Debt Responsibility

A fourth category of debt responsibility which is not wiped out in a Chapter 7 or 11 bankruptcy is fraud in a fiduciary capacity, larceny or embezzlement. An example of this type of non-dis-chargeable activity would be an Escrow Agent, or one who holds property in trust, who then uses that property to finance a trip to Europe instead of its intended purpose. Suffice it to say this type of debt would not be discharged in bankruptcy. A fifth category of debt which is not wiped out by bankruptcy is Alimony/Maintenance/ Support or Child Support. Property settlements may be discharged under certain circumstances, but alimony or support is never dis-chargeable.

The sixth form of non-dis-chargeable debt is willful or malicious injury or damage to persons or property, such as when you take a crow bar and break your neighbor’s kneecaps or their car’s windshield. Other types of intentional conduct may also not be discharged in bankruptcy. Guaranteed Student Loans are only dis-chargeable in bankruptcy if they constitute an undue hardship. An undue hardship has been interpreted as not only being a debt that you cannot pay back now, but one you will never be able to pay back. Accordingly, this is a standard that is incredibly difficult to meet. A seventh form of non-dis-chargeable debt are fines imposed by state agencies (ex. polluting) or by criminal Courts for restitution. A similar type of non-dis-chargeable debts are fines or restitution from drunk driving convictions and/drug abuse offenses.

Another type of non-dis-chargeable debt is a debt which could have been discharged in a prior Chapter 7 bankruptcy, but for one of these reasons was not. Funding commitments of officers, directors or shareholders of failed saving & loans institutions or banks are not discharged in bankruptcy. Condominium association or homeowner’s dues or assessments for property you continue to live in after you file bankruptcy will continue to be your responsibility. All the rest of your credit card, medical bills or unsecured debt will be wiped out completely.

We will discuss more common bankruptcy issues in our next few articles, so make sure to come back for more!

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By: Joel S. Treuhaft, Esquire

Bankruptcy Notification

Bankruptcy Notification

Another category of debt which bankruptcy law does not wipe out, is for people or institutions which do not have complete names and/or addresses, so as to be unable to give them notice of the pending bankruptcy or bankruptcy notification. If the creditor, real or disputed, does not receive notice of the bankruptcy, they have no opportunity to participate in or object to the bankruptcy within the 90-day period the bankruptcy law provides. If these creditors do not receive notice and are excluded from having the opportunity to object to your bankruptcy while your bankruptcy is pending, the presumption is that the debts to these creditors are not wiped out.

Under certain circumstances, it may be possible to re-open your bankruptcy case to add additional creditors once the discharge has been issued. This procedure requires the filing of an adversary proceeding where the burden of proof is on the debtor to show that the failure to include the additional creditors was due to an inadvertent mistake, and that the creditor was not prejudiced by your failure to include them in the original bankruptcy filing. The filing fee to the bankruptcy Court to reopen a closed case is nearly as much as the filing fee for the original case, and the cost of prosecuting the adversary proceeding is more extensive and requires an additional, separate fee as great or greater than the cost of the filing of your original bankruptcy case. Therefore, you are greatly encouraged to list any and all persons that you think you might owe as the cost of obtaining their complete names and addresses now is a lot less than trying to add it in the future. This is especially true since the electronic bankruptcy filing software allows us to directly import the names and addresses of your creditors and collection agencies from at least two of the credit reporting agencies.

We will discuss more exceptions of debt in our next few articles, so make sure to come back for more!

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By: Joel S. Treuhaft, Esquire

Bankruptcy Notification

Bankruptcy Notification

Another category of debt which bankruptcy law does not wipe out is for people or institutions which do not have complete names and/or addresses so as to be unable to give them notice of the pending bankruptcy, or the bankruptcy notification. If the creditor, real or disputed, does not receive the bankruptcy notification, they have no opportunity to participate in or object to the bankruptcy within the 90-day period the bankruptcy law provides. If these creditors do not receive notice and are excluded from having the opportunity to object to your bankruptcy while your bankruptcy is pending, the presumption is that the debts to these creditors are not wiped out.

Under certain circumstances, it may be possible to re-open your bankruptcy case to add additional creditors once the discharge has been issued. This procedure requires the filing of an adversary proceeding where the burden of proof is on the debtor to show that the failure to include the additional creditors was due to an inadvertent mistake, and that the creditor was not prejudiced by your failure to include them in the original bankruptcy filing. The filing fee to the bankruptcy Court to reopen a closed case is nearly as much as the filing fee for the original case, and the cost of prosecuting the adversary proceeding is more extensive and requires an additional, separate fee as great or greater than the cost of the filing of your original bankruptcy case. Therefore, you are greatly encouraged to list any and all persons that you think you might owe as the cost of obtaining their complete names and addresses now is a lot less than trying to add it in the future. This is especially true since the electronic bankruptcy filing software allows us to directly import the names and addresses of your creditors and collection agencies from at least two of the credit reporting agencies.

We will discuss more exceptions of debt in our next few articles, so make sure to come back for more!

Contact Us Here!

By: Joel S. Treuhaft, Esquire

Exceptions of Debt

Exceptions of Debt

There are several categories of debt which are individually accepted from discharge under certain circumstances. These exceptions constitute a basis for objecting to your bankruptcy, in part, or automatic exceptions of debt which you will continue to owe despite the fact that you have filed bankruptcy. These exceptions of debt are grouped into several categories, and are discussed below.

The first category of debt which the bankruptcy law does not wipe out is most state, local and federal taxes.

Income taxes which were due at least three years prior to the bankruptcy’s petition filing date and which were filed at least two years prior to the filing date may be dischargeable, however, this requires an additional, separate procedure and fee in order for this to be accomplished.

It’s important to understand, however, that most taxes which are owed prior to filing bankruptcy will not be discharged. They will still be due and owing after the bankruptcy.

The next category of debt which bankruptcy law does not wipe out is property, credit or service that is obtained by fraud. For instance, selling someone the Brooklyn Bridge when you really do not own it, or filling out a false financial statement to induce someone or some institution to extend credit based on false information, such as you own the all the Beatles’ guitars or the Eiffel Tower. Another example of debt considered to be incurred by fraud is purchasing at least $1000 worth of luxury goods, or taking at least a $1000 cash advance, on a particular credit card within 60 days of filing a bankruptcy. These types of debt are considered to be made with knowledge that you were in financial trouble, or that you knew you had no ability to repay them at the time that the charges were made. Any debt in this category is not wiped out in bankruptcy, however, the creditor must file an adversary proceeding (which is a lawsuit inside your bankruptcy), which makes your bankruptcy a contested matter, and for which to defend will require an additional, separate fee.

We will discuss more exceptions of debt in our next few articles, so make sure to come back for more!

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By: Joel S. Treuhaft, Esquire

Exceptions to Discharge

Exceptions to Discharge

In our previous article, unsecured debt, we spoke of exceptions to discharge, i.e. an exception to the debt being able to be completely wiped out. In this article we will quickly go over this topic. The first requirements to obtain a discharge are disclosure and cooperation. Congress is willing to give an honest debtor a fresh start in exchange for complete disclosure. The documents filed with the Bankruptcy Court are signed under the penalty of perjury, and they require an honest and diligent effort to supply the information requested in the preliminary papers, as well as to the trustee (or United States Trustee) who is appointed to your case. Debtors are also required to make a reasonable attempt to maintain records, and explain any loss of assets in the recent past. Attempts to deceive a trustee or creditors by intentionally concealing or failing to disclose assets or financial records are grounds to deny a discharge in total.

So as we can see, the court system will work with us, as long as we provide complete disclosure and honesty to the legal system. While this may be a difficult time you are going through we are always here to help, and know just the right questions to ask to help you provide all the needed information. Helping our clients is of the utmost importance to us, and we want to deliver to them the best legal counsel we can provide. The exceptions to discharge rules will always apply, but we will work diligently to make sure our clients are informed, so as to not run into any further hiccups throughout the bankruptcy process. Do not be confused or scared about contacting us and getting started today! The first step in the process is to call our office and have a consultation. From there we can help you best to determine the next steps to be taken.

Remember if you have any questions on Exceptions to Discharge please contact our office below:

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By: Joel S. Treuhaft, Esquire

Unsecured Debt

Unsecured Debt

In this article I will discuss the different types of unsecured debt. Unsecured debt is debt that does not have collateral attached to it. Collateral for example. could be a house or car, or any other type of physical property that can be repossessed if the payment agreement is not withheld. If you do not pay on your unsecured debt, property cannot be seized without the debtor first obtaining a court judgement against you. There are a few exceptions to this rule, contact us to speak about any exemptions to unsecured debt, or pay attention to the next article where we will discuss this topic. Unsecured debt differs from secured debt in that, secured debt will have a piece of property acting as collateral for the debt. With secured debt, if you do not make your payments as agreed, the property can be seized by the creditor.

Types of Unsecured Debt

There are many types of unsecured debt, here are just a few examples; i.e., credit cards, medical bills, signature loans, informal agreements, installment payment agreements without a valid security agreement, etc. These forms of debt can be discharged completely (wiped out). There are other forms of unsecured debt that can be identified when we speak. This means that when filing for bankruptcy there is not specific property tied to these types of debt, so the debt can be erased. There are several exceptions to this rule, and that will be discussed in our next article. The major exceptions will be set forth as follows, in our next article, however, if you have any particular concerns, be sure to bring it to the attention of the attorney you speak to.

Remember if you have any questions on Unsecured Debt please contact our office below:

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By: Joel S. Treuhaft, Esquire

Priority and Secured Debt part 2

Priority and Secured Debt

In this article I will continue the Priority and Secured Debt discussion as was started here: Priority and Secured Debt

If a Response is filed, and the value of the collateral is not agreed upon, the Court will conduct a hearing. To return to the example of the desk, let us say a Response was filed to my Motion to Redeem whereby the secured creditor alleged that the resale value of my desk was $200.00. My motion supported by an appraisal alleges that the fair market value of the used desk is $50.00. The appraiser would testify to this based on the age and condition of the desk, its original value, and the value that similar desks in the local marketplace would bring. Although there may be evidence to support that in a retail establishment a used desk similar to mine might bring $200.00, that would constitute the retail price after the cost of repossession, reconditioning, storage, re-advertising and commission. The Court will consider all the evidence before it to determine the value of the desk.

The same concept works with regard to a vehicle. Let us say I purchase a new car which costs $26,000.00. The minute I drive it off the lot I am lucky to get $20,000.00 for the same car. The problem is, if I have $20,000.00 lying around, I probably do not need to file a Chapter 7 bankruptcy. However, in a reorganization, such as a Chapter 13, a high value item such as a vehicle (but not real property) can be valued through a Motion to Value Collateral, and paid for, at the Court-determined value, plus a reasonable interest rate over 36 months or less (more time may be available if the secured creditor consents to payments over a period greater than 36 months). However, in the reorganization, a portion of the unsecured balance of the item being valued must be paid as well.

The fourth way secured debt can be treated is called a lien avoidance. A lien avoidance occurs in one of two instances. First, for people who own homesteads, if a judgment is obtained against them, and then re-recorded in the county where their homestead is situated, most title companies in the State of Florida will consider the judgment a cloud on title until there has been a judicial determination that the real property was homestead at all times the judgment lien attached to the subject property. The bankruptcy Court has the jurisdiction and power to determine homestead property and avoid judgment liens which purport to attached to them. To accomplish this, a Motion to Avoid Lien is required to be filed.

The second method of lien avoidance is when you go to a finance company and they agree to loan you money, but require that you pledge items in your house or tools of your trade as collateral for the loan. This type of loan is different from the purchase money security interest loan, because, unlike the P.M.S.I., you already own the property you pledged as collateral to the finance company. In this case, as long as you retained possession of your household goods or tools of the trade, a loan of this type (non-purchase money, non-possessory security interest) can be determined to be an avoidable lien in bankruptcy. Once again, the appropriate Motion to Avoid Lien must be filed. Once the Bankruptcy Court determines that a loan is this type, it can enter an order avoiding the lien, and treat the debt as unsecured, usually wiping it out completely.

Remember if you have any questions on Priority and Secured Debt please contact our office below:

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By: Joel S. Treuhaft, Esquire

Priority and Secured Debt

Priority and Secured Debt

In this article we will begin discussing Priority and Secured Debt. Not surprisingly, the largest form of priority debt is clearly taxes, especially federal taxes. The same government which collects those federal taxes is the same government which enacted the bankruptcy laws, and which determined that most of those taxes would not be dis-chargeable (wiped out) in bankruptcy. With secured debt, the Court gives a petition filer four choices: (1) the petition filer can keep the item which secures the indebtedness and continue to make the regular monthly payments; (2) the petition filer can surrender (give it back) the item which secures the indebtedness, and owes no more money for that item; (3) the petition filer can “redeem” the item which secures the indebtedness, and only pay the fair market value for the item being redeemed and; (4) the petition filer can file a Motion for Lien Avoidance (discussed below). To better understand the concept of redeeming collateral, bankruptcy law only allows a creditor to be “secured” up to the value of its collateral. Any debt which is owed in excess of the value of the collateral would be considered an unsecured debt, and treated the same as all other unsecured debts. An example would be my desk. My favorite desk sells for about $900.00 new. If a furniture store were to sell me that desk on credit and retain a purchase money security interest (P.M.S.I.) in the desk, I would have to make regular monthly payments, including interest, until the desk was paid off. However, in bankruptcy, I could pay the holder of the P.M.S.I. the fair market value of the desk and treat the remaining balance as an unsecured debt. Now you may ask, what is the fair market value of my desk? My response would be that, in a garage sale, I would be lucky to get $50.00 for my executive desk. Now, you want to know, how do you get my desk for $50.00?

In order to get the desk for fair market “used desk” value, a Motion to Redeem must be filed in a Chapter 7 case, or a Motion to Value Collateral must be filed in a reorganization case (Chapter 11, 12 or 13). In order to file this motion, a basis for the opinion of the value must be attached to the motion requesting the bankruptcy Court to determine value. One method of valuation is the opinion of the owner of the property. However, unless the owner of the property has some special or expert knowledge with regards to the property owned, it is likely be determined that somebody who deals on a regular basis in the property to be valued would have a more credible opinion of that property’s value. Therefore, in order to establish values, a person filing a motion to redeem or motion to determine secured status usually needs to get an appraisal from somebody who deals in used goods of the kind, or to hire a professional appraiser (professional appraisers often work with bankruptcy attorneys, and a professional appraiser who works in your area can be referred to you upon request). Once a written estimate of value is obtained, it is attached to the motion, filed with the Court, and served on the party which holds the security interest in the collateral being valued. The party holding the security interest then gets a period of time to file a response which either agrees with the proposed value, or to suggest a value of the collateral that it thinks is more reflective of the fair market value (if no response is filed, the Court will generally grant the motion based on the value alleged in the motion).

Please keep tuned, as I will be finishing this article in the next blog post. Remember if you have any questions regarding Priority and Secured Debt please contact our office below:

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By: Joel S. Treuhaft, Esquire

Continued here: Priority and Secured Debt part 2