Bankruptcy Questions & Answers
Bankruptcy Glossary of Terms
Bankruptcy Questions & Answers Glossary of Bankruptcy Terms
Chapter 7 Bankruptcy: Also known as “liquidation bankruptcy”, a process provided under United States Federal Law where most kinds of unsecured debt are eliminated.
Chapter 13 Bankruptcy: An interest-free debt relief repayment plan through which people consolidate their debt and make repayment on their debt over a 3 to 5 year period.
Adversary Proceeding: A lawsuit filed with the Bankruptcy court which is related to the Debtor’s Bankruptcy case. Examples include, but are not limited to: complaints to determine dischargeability, complaints to determine validity of liens, and complaints alleging fraud on the part of the Debtor.
Arrears: The amount that is unpaid and overdue as of the date the Bankruptcy case is file. This phrase is usually used when referring to back child support, past due mortgage payments or attorney fees.
Assets: Personal possessions of value that have been paid for.
Automatic Stay: As of the exact date a Bankruptcy petition is filed, an injunction takes place which stops lawsuits, foreclosure, garnishments and other collection activity against the Debtor.
Bankruptcy Code: Title 11 of the United States Code governs Bankruptcy proceedings.
Bankruptcy Estate: The estate includes all of the legal and equitable interests of the Debtor, as of the commencement of the case.
Creditor: Any person or business that is owed money by a Debtor.
Debtor: Any person liable to another for a debt.
Default: The failure to make payments within a specified period of time governed by the original contract.
Delinquency: The failure to make payments when payments are due.
Denial of Discharge: Pursuant to 11 U.S.C. 727, this is the penalty for a Debtor’s misconduct with respect to the Bankruptcy case. When discharge is denied, the debts that could have been discharged now cannot.
Dischargeable: Debts that can be eliminated in Bankruptcy.
Discharge: The legal term for the Order which eliminates a debt through a Bankruptcy case.
Equity: The difference between the value of the property and the amount still owed.
Exempt: Property that is removed from the Bankruptcy estate and is not available to pay the claims of creditors.
Exemptions: Certain kinds and values of property that is legally beyond the reach of creditors of the
Bankruptcy Trustee: Exemptions are governed by state and federal statutes, and they vary from state to state.
Fair Market Value (FMV): The highest and fairest value one might pay for property.
Foreclosure: The legal process by which a bank, mortgage company, and/or lender must follow in order to take back property wherein the Debtor has defaulted on his/her obligation to pay. This usually involves a forced sale of the property at public auction where proceeds of the sale are applied to the mortgage debt to allow the mortgage company to become whole again.
Garnishment: A court-ordered method of debt collection in which a portion of the Debtor’s salary is paid to a creditor to gradually satisfy a debt.
Lien: A charge upon real or personal property for the satisfaction of a debt or discharge of an obligation.
Non-dischargeable: A debt that can not be eliminated in Bankruptcy.
No Asset Case: A Chapter 7 Bankruptcy case in which the Trustee determines, after the applicable exemptions, that there are no significant assets to liquidate. The Debtor retains al of their real and personal property.
Personal Property: Property that is not real property or affixed to real property.
Petition: The document that initiates a Bankruptcy case with the Bankruptcy court.
Property of the Estate: The property that is not exempt and belongs to the Bankruptcy estate. This type of property is usually sold/liquidated by the Trustee in order to satisfy the claims of creditors.
Reaffirm: The process by which a Debtor can choose to keep debts that would otherwise by discharged by the Bankruptcy. To reaffirm, the Debtor generally signs a Reaffirmation Agreement, which is a new contract between the Debtor and the creditor for the Debtor to continue to pay.
Relief from Stay: The way in which a creditor asks the Judge to lift the automatic stay and permit action against the Debtor or the property of the estate. If the motion is granted, the creditor can freely take whatever action the Court has allowed (ie: foreclosure).
Repossession: Once a creditor is in default, the creditor can take back the collateral.
Schedules: The Debtor must file the required lists of assets and liabilities to commence a Bankruptcy case, collectively called the Schedules.
Secured Debt: One where the creditor takes personal or real property as collateral.
Trustee: A private individual or corporation appointed to review Bankruptcy filings. A Trustee represents the interests of the creditors in the Bankruptcy estate and weighs those interests with the rights of the Debtor in a Bankruptcy.
U.S. Trustee’s Office: The office that watches over the rulings, orders and reports of the individual Trustees. While the actual Trustee has more direct contact with the Debtors, the U.S. Trustee’s Office serves to protect diverse interests and rights of all parties involved in the Bankruptcy, as wells to detect fraud or improper documentation on the part of the Debtors.
Unsecured: A claim or debt is unsecured if there is no collateral that is security for the debt.
Unsecured Debt: A debt is unsecured if you have promised to pay a creditor a sum of money at a particular time and you have not pledged any real or personal property as collateral for that debt.
Zombie Debt: Debt that still appears on the credit report after bankruptcy discharge.How long will this bankruptcy appear on my credit report?
Bankruptcy Questions & Answers Your bankruptcy can appear on your credit report for up to 10 years. However, this does not necessarily mean that you have “no credit” for that amount of time. Many clients see drastic improvement in their credit scores after 2 years or so. Remember, this is your fresh start! I received my discharge papers – what happens now?
Bankruptcy Questions & Answers You can start to rebuild your credit immediately! What do I do if I wish to stop a reaffirmation I have signed?
Bankruptcy Questions & Answers Contact our office if you wish to cancel your reaffirmation. As a debtor, you have a statutory right to cancel the reaffirmation within 60 days after the reaffirmation was filed or your discharge date, whichever is later. What happens if my lawyer does not sign the reaffirmation agreement and I choose to sign it?
Bankruptcy Questions & Answers This is a common scenario. If you receive the reaffirmation agreement and your lawyer has not signed it, you can still sign the agreement and forward it to your creditor. Your creditor can then set a court hearing. You must attend this court hearing and explain to the judge why reaffirming that particular item of debt will not be an undue burden or hardship on you. Where do I obtain a reaffirmation agreement?
Bankruptcy Questions & Answers Reaffirmation agreements are sent by creditors or their attorneys to your lawyer’s office approximately one month after your case is filed. Once our office receives the reaffirmation agreement, we review your bankruptcy schedules to see if signing the agreement would create an “undue hardship” for you. If a hardship exists based upon your personal financial circumstances, then your lawyer will not sign the agreement and it will be forwarded back to you. However, you can still choose to sign the reaffirmation agreement and submit it directly to your creditor. If your lawyer decides that signing the reaffirmation agreement will not be an “undue hardship” for you, then your lawyer will sign the agreement, forward it to you for your signature, and you again have the option of signing the agreement and sending the fully executed document to your creditor. Bottom line, with or without your lawyer’s signature, you have the option of signing and reaffirming your debt with the creditor. What is a reaffirmation agreement?
Bankruptcy Questions & Answers Generally, you will receive a reaffirmation agreement for vehicles and other large secured items of debt. A reaffirmation agreement is a document that enables your secured creditor to hold you personally liable on a debt you owe them AFTER the bankruptcy. That means if you fail to make payments in the future, or if the collateral is destroyed, the secured creditor can sue you in state court to collect the debt. However, the advantages of signing the reaffirmation agreement are that the secured creditor will send you statements every month, may work with you if you fall slightly behind, will allow you to make payments as you did prior to filing for bankruptcy, and will report the regular payments to the credit reporting agencies. Does the discharge mean my case is over?
Bankruptcy Questions & Answers Not necessarily. Just because you have received a discharge order in the mail does not always mean that your bankruptcy is complete. Your case is complete when you receive a discharge order in your case AND you have complied with any requests by the Trustee to turn over any requested documentation or information. Is there any guarantee of discharge?
Bankruptcy Questions & Answers Unfortunately, no one can ever guarantee that any given case will be granted a discharge. This is in the complete discretion of the courts. Generally speaking, if everything is properly filed (this is our job!) and there are no objections, suspicions of fraud or other related issues, things go smoothly. However, the ultimate decision does lie with the court, so it is out of our hands. When will I receive my discharge?
Bankruptcy Questions & Answers In a Chapter 7 case, the earliest you could receive a discharge is 60 days after your meeting of creditors (341(a) hearing) because your creditors are given this amount of time to object. It can take a few additional weeks or months after this period for the Bankruptcy Court to close your case and notify all parties of your discharge. In all honesty, the Bankruptcy Courts have been quite backed up lately, so we have noticed that it can take an average of 3-5 months after the hearing to be discharged. What is a discharge in bankruptcy?
Bankruptcy Questions & Answers A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls or letters. Is there anything else I need to do after I attend my 341(a) hearing?
Bankruptcy Questions & Answers YES! You will only receive a discharge if you have (1) taken a Financial Management Course AND (2) the Certificate of Completion and B23 form is filed with the court. These documents will be filed by your attorney. However, it is your responsibility to take the course and provide your attorney with the certificate before the deadline. If you ordered the complete package at your consultation, this cost of this class has been included in the fees you paid and you can simply log-in and take the class soon after your hearing. During my 341(a) hearing, the Trustee wanted some additional documents and/or changes to be made to my bankruptcy petition – what do I do now?
Bankruptcy Questions & Answers Generally speaking, there is no need to be alarmed as these requests occur quite frequently. While we work diligently to ensure we submit all necessary forms and documents, the Trustee has a lot of discretion to request additional information and or adjustments. If there is anything that the Trustee requested at your hearing, your attorney will contact you and either submit the requested documents or make the appropriate amendments. Amendments cost an additional $150. Remember, it is your responsibility to get any additionally requested paperwork to your attorney or else risk having your case be dismissed without discharge. What happens during the 341(a) hearing?
Bankruptcy Questions & Answers Your court hearing is an informal setting where you sit before the Trustee and are asked a series of questions. You will be sworn in under penalty of perjury and will not be meeting with a Judge. If you need a translator, you must bring this person with you. Your translator must be at least 18 years old and a non-family member. Please come dressed in business-casual attire. Where do I go for my hearing?
Bankruptcy Questions & Answers Your hearing will be held in the Federal Court closest to where you reside. It will likely be in San Diego, Santa Ana, Riverside or Los Angeles, depending on your address. We will know the exact location, day and time of your hearing the day we file your case. What happens after my case is filed?
Bankruptcy Questions & Answers About 30-40 days after your case is filed, a court hearing takes place - the 341(a) hearing or “meeting of creditors”. It is imperative that you are present for this hearing; the Trustee may dismiss your case if you are not present and on-time. Your attorney will be there to represent you. When am I protected from creditors, lawsuits and threat of garnishment?
Bankruptcy Questions & Answers When your case is filed with the Bankruptcy Court, an automatic stay goes into affect. From that day forward, creditors can not collect from you, initiate any legal action or contact you in any way. If you are being garnished, the garnishment ends once your case is filed. Remember, a case can not be filed until all fees have been paid in full. Can I file for bankruptcy jointly with someone other than my spouse?
Bankruptcy Questions & Answers No. Joint petitions can only be between spouses. The law is quite unclear about same sex marriages, but generally speaking, same sex couples would be filing separate petitions. Since I am married, should I file with my spouse?
Bankruptcy Questions & Answers As a general rule, we recommend that all spouses file jointly. If you decide to file without your spouse, it is possible for creditors to come after assets that belong to the non-filing spouse. Ultimately, it is the clients’ decision on how to proceed in this respect. What are the benefits of filing for bankruptcy?
Bankruptcy Questions & Answers What are the benefits of filing for bankruptcy? - Eliminate most types of unsecured debt
- Stop garnishment and bank levies
- Stop creditor harassment
- End a lawsuit
- Rebuild your credit with a “fresh start”
- Relieve financial, physical and emotional stress!
What is a Chapter 13 Bankruptcy?
Bankruptcy Questions & Answers Chapter 13 bankruptcies are generally reserved for those debtors who want to save their home from foreclosure and/or car from repossession. It also serves debtors who earn more than the state median income level for their household size. A Chapter 13 plan sets debtors up on a 3 or 5 year plan where they pay back a percentage of their unsecured debt. We are happy to refer our Chapter 13 clients to a firm that specializes in Chapter 13 affairs. Who qualifies for a Chapter 7?
Bankruptcy Questions & Answers The debtor may be an individual, a partnership, a corporation or other business entity. Please arrange a consultation at our office so we can determine if you are eligible for a Chapter 7 bankruptcy. What is Chapter 7 Bankruptcy?
Bankruptcy Questions & Answers In technical terms, a Chapter 7 or “liquidation bankruptcy” is a court-supervised procedure by which a trustee takes over the assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors. However, in most Chapter 7 cases there are little or no assets available for liquidation, as most assets are able to be protected or “exempted” under the Bankruptcy Code. In everyday language, Chapter 7 can be explained to be a complete elimination and discharge of most types of unsecured debt, without any type of repayment. Should I Consider Bankruptcy
Bankruptcy Questions & Answers Should You Consider Bankruptcy?
The idea of declaring bankruptcy, wiping out certain debts or repaying them over time with court protection—no more hassles or nasty phone calls from menacing creditors – and then moving on more or less debt free has undeniable appeal to anyone faced with overwhelming debt.
But be careful. Compelling as it may sound, bankruptcy has a lingering and far-reaching impact that touches every aspect of life. Bankruptcy ruins credit, makes it difficult, if not impossible, to keep bank accounts and credit cards, can take some valued, and valuable, possessions, and makes it difficult to get on with necessities of life such as buying or renting a home or car, getting insurance and finding a job.
In fact, most financial advisors look at bankruptcy as a desperate last resort, when budgeting, credit counseling and other efforts to get out of debt have failed, and then only with the advice and guidance of an experienced bankruptcy attorney.
There are two basic types of personal bankruptcy, Chapter 7 and Chapter 13. Each must be filed in federal bankruptcy court, but certain conditions must be met before filing for bankruptcy under either chapter. The moment you file a bankruptcy case, an immediate automatic restraining order kicks in and gives you protection from the relentless creditors and debt collectors.
You must get credit counseling at your own expense from a government-approved organization (list available at here) within six months before you file and you must satisfy a “means test” to confirm that your income does not exceed a specified amount. That amount differs by state (also available here).
The bankruptcy code was overhauled drastically in late 2005 to encourage people with a steady income to use Chapter 13 instead of Chapter 7. Chapter 13 allows those with a steady income to keep certain property, like a home with a mortgage or a car that might be lost during the bankruptcy process. Under Chapter 13, the court approves a repayment plan where you give up part of your future anticipated income to pay some or all of what you owe, rather than surrendering property. In return, certain debts must be repaid. These include overdue school loans, child support, taxes, car loans, and home mortgage payments and, in some cases, all of your debts.
Chapter 7 allows you to “discharge,” in effect to erase almost all of your debts. A trustee is appointed to collect non-exempt property, sell it, and dole out the proceeds to your creditors. This is not an absolute solution: certain debts, among them past due child and spousal support, may not be excused; you risk losing your property; and, if you had transferred property to avoid the loss, some transfers can be undone. Unlike Chapter 13, there is no filing of a repayment plan with the court.
Chapter 7 and Chapter 13 filings are administered by someone known as a trustee. The bankruptcy trustee, appointed by the US Department of Justice, investigates the financial affairs of each debtor, can sell non-exempt assets, and convenes a “meeting of creditors” about a month after a case is filed. Each bankruptcy case is assigned a judge who makes rulings if called upon. Lawyers are not required, but you may want an seasoned bankruptcy lawyer to advise you about when to file and to guide you through the complex, heavy-paperwork process.
Chapter 7 usually takes about three months to complete but the case stays on your credit report for 10 years. Chapter 13 lasts from three to five years, depending on your circumstances, and remains on your credit record for seven years. Before discharge of the case under either chapter, you must receive certification for a completed course in financial management from an approved counseling agency.
At Hyde & Swigart, we believe you should consider this a last resort. further, we have a number of strategies that might well keep you out of bankruptcy and cost you nothing. In fact, you might actually make money.