Bankruptcy is the legal method for a debtor to discharge debt while simultaneously obtaining relief from the collection efforts of creditors. While no debtor is guaranteed a total discharge, most debtors who file for bankruptcy are given relief. One of the primary purposes of the Bankruptcy Act is to relieve the honest debtor from the weight of oppressive indebtedness and to provide the debtor with a fresh start.

Title 11 of the United States Code regulates the filing of a bankruptcy. If the debtor initiates the bankruptcy, it is called a voluntary bankruptcy. If the creditor initiates the bankruptcy, it is called an involuntary bankruptcy. In an involuntary bankruptcy, the debtor has the opportunity to contest the petition.

While the debtor is either working out a plan or the trustee is gathering the available assets to sell, the Bankruptcy Code provides that creditors must stop all collection efforts against the debtor. The Bankruptcy Code regulates what chapter you must file under, what bills can be eliminated, how long payments may be extended, what possessions you may keep, and all other details concerning the bankruptcy.

Yes, providing the debtor has not had any other bankruptcies pending during the one (1) year period prior to filing. The “automatic stay” created by the filing stops such actions immediately.

If any funds are seized by a creditor after the petition is filed they must be returned. Any funds seized within the ninety day period prior to filing are known as “preferences” and can be recovered in many cases. This matter should be discussed with your attorney to determine its feasibility.

However, for repeat filers under BAPCPA the “automatic stay” is not as “automatic” as it used to be. Clearly, under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), a previously dismissed bankruptcy can have long-term, sometimes catastrophic effects. If you are going to file a bankruptcy, you better be sure that it is done correctly. The best way to achieve a good result is to hire competent bankruptcy counsel.

If a debtor has filed a Chapter 7 bankruptcy and received a discharge, he must wait 8 years before filing another Chapter 7.

A debtor cannot receive a discharge in a Chapter 13 case if they received:

1. A discharge in a prior case under Chapter 7, 11 or 12 that was filed within four years of the current Chapter 13
2. A Chapter 13 discharge in a case that was filed within two years of filing the current Chapter 13

A “Chapter 20″ filing (a Chapter 7 case to eliminate unsecured debt followed immediately by a Chapter 13 case to allow mortgage arrearages to be cured, etc.) should still be available under the above rules because the point of the follow-up Chapter 13 case is usually to repay a mortgage debt, and not to get a discharge from that debt.

The amendments enacted under BAPCPA suggest that the answer is “yes” if the collateral is personal property (i.e. automobile, etc.). A Reaffirmation Agreement signed by the debtor has the effect of reinstating your personal liability on the debt. This means that if you miss payment at a later date you will still be liable on the debt.

This may not sound like a good deal for a debtor, and it is not. But you must remember that it was lobbyists for the car loan and banking industry who wrote this law, and it was not your best interests that they had in mind. If a Reaffirmation Agreement is not signed in a timely fashion it appears that the automatic stay terminates after a period of time (either 30 or 45 days, depending on which one of two contradictory provisions is deemed to control) and the lender will be free to repossess the collateral, even if you are current on the loan payments.

It is expected that there will be considerable litigation in this area, but my advice to my clients will be to proceed cautiously and to sign Reaffirmation Agreements if personal property is the collateral.

Yes. A creditor is defined as anyone to whom you owe money, even relatives, family and friends. The most obvious example of a claim is a monetary obligation, such as a credit card bill or medical bill. If you do not owe a person any money, they are not a creditor and do not have to be listed on your petition.

Not usually, unless:

The employer is a creditor, and is listed on your petition
Your salary was being garnished, which stops upon the filing. The employer will usually find out the reason that he no longer has to honor the garnishment.

A Chapter 7 bankruptcy filing will remain on your credit report for 10 years, while a Chapter 13 filing is there for 7 years. In the case of a Chapter 7 filing, it is not unusual for a debtor to begin qualifying for loans (i.e. car loans, etc.) as early as one year after bankruptcy, providing the debtor meets the required income standards.

Be aware that the lender will undoubtedly charge you a much higher than normal interest rate. It is usually a good 5 to 7 years (depending on the particular policy of the lender in question) before a normal interest rate can be expected. While there is credit after bankruptcy, you have to be prepared to “pay through the nose” for it.

Section 524(f) authorizes a debtor to voluntarily repay any creditor that he or she chooses.

First, thoroughly search your records (and frequently, unopened envelopes). Another method to obtain some of this information is to contact one of the three (3) national credit reporting agencies: Experian (888) 397-3742 or www.experian.com; Trans Union (800) 916-8800 or www.transunion.com; pr Equifax (800) 378-2732 or www.equifax.com. If you order a credit report, be sure that you obtain one that has your creditors’ addresses. Without the addresses, it will not be of much use to your attorney.

In a Chapter 7 bankruptcy income tax obligations are dischargeable if the tax return for the year in question was filed and:

• The 3 Year Rule: The tax return was due more than 3 years prior to the bankruptcy filing. If the debtor obtained an extension, the due date would be the extension deadline
• The 2 Year Rule: For a late filed return (filed after its due date and any extensions), if the delinquent return was actually filed more than 2 years prior to the bankruptcy filing
• The 240 Day Rule: If there has been an assessment by a taxing authority, it was made more than 240 days prior to the bankruptcy filing
• The debtor did not file a fraudulent return or willfully attempt to evade paying taxes

Example #1 – Debtor timely filed their 1997 tax return (due on April 15, 1998). There have been no recent assessments by the government and the return was not fraudulent. The taxes still owed from the 1997 return are dischargeable if the bankruptcy is filed after April 15, 2001 (“the 3 Year Rule”).

Example #2 – Debtor files their 1994 tax return late, on April 30, 1999. There have been no recent assessments, and the return was not fraudulent. The taxes still owed from the late filed return are dischargeable if the bankruptcy is filed after April 30, 2001 (the “2 Year Rule”).

“Trust fund” taxes, such as payroll withholding and social security withholding by an employer and sales taxes are never dischargeable in Chapter 7.

In Chapter 7 if the underlying tax obligation is dischargeable, the interest and penalties thereon are also dischargeable. However, if the underlying obligation is non-dischargeable, so are the related interest and penalties.

Tax liens are not discharged in Chapter 7 even if the tax obligation that forms the basis of the lien is dischargeable. However, the remaining lien from a dischargeable tax obligation will only be enforceable against assets owned by debtor at the time of the bankruptcy filing, and only to the extent of the assets’ value. This is very important because if the underlying tax obligation is discharged, the remaining lien will not attach to any assets acquired by the debtor after the bankruptcy filing.

In Chapter 13, claims for priority taxes (i.e. do not meet the “3 Year Rule”) and secured taxes (tax liens filed) must be paid in full; however, secured claims are only paid in full up to the value of debtor’s assets. Your attorney can bring an application under Section 506(a) to determine what portion of the secured claim must be paid in full. The balance of the “unsecured portion” will be paid with the rest of the unsecured claims, often for a fraction of its full value.

Many tax liabilities can be successfully dealt with in both Chapter 7 and Chapter 13, and an experienced bankruptcy attorney can be of immeasurable assistance in this very tricky area.

A Chapter 7 bankruptcy usually involves:

• Attending one Meeting of Creditors before your Bankruptcy Trustee, which occurs 20-40 days after your petition is filed.
• If no objections are filed by creditors or your Trustee, your Discharge is entered about 60 days after the Meeting of Creditors (providing that you have filed your certificate evidencing your completion of the post-petition Debtor Education Course in Personal Financial Management.)

A Chapter 13 bankruptcy involves at least two appearances before your Trustee:

• The Meeting of Creditors
• Confirmation Hearing scheduled approximately 45 days after the Meeting of Creditors.

Court appearances are frequently required if extra relief is being sought. Your Discharge is entered after all required Plan payments have been made and your certificate evidencing completion of the Debtor Education Course in Personal Financial Management has been filed.

The conventional answers are:

• Get a co-signer on a loan
• Get a secured credit card, where you give a lender a sum of money (the “security”) and they give you a credit card with a limit up to the value of the security

However, you should be very cautious about future credit, being very mindful that it was your one-time “good credit rating” that set into motion events culminating in your reading this web site. As a bankruptcy lawyer, my suggestion is to only buy what you have cash to pay for.

Most credit cards will continue to do business with you after bankruptcy if they are not negatively impacted (i.e. lose money) by your filing.

Some predatory lenders may even offer you credit cards shortly after your discharge, figuring that since you can only file bankruptcy once every eight (8) years their risk is minimized. I would strongly suggest not using credit cards.

Yes. Chapter 7 cases are subject to dismissal under §707(b):

• If the Court finds that granting a relief would be “an abuse”
• If a “Presumption of Abuse” is determined after application of the Means Testing Formula

Please see our web page Changes in Bankruptcy Law, the section under Means Test Formula (MTF) for an explanation how “presumption of abuse” is determined.

It is confusing, and unfortunate, that the root word of “abuse” appears in both sections when there are really quite different standards at play. A creditor cannot only object to your discharge (§727), they can also object to the ability to discharge their particular debt (§523) in both Chapter 7 and in Chapter 13. This usually occurs if the debtor “loads up” on a particular credit card in the short period of time prior to filing.

Any of these objections, technically referred to as adversary proceedings, are lawsuits started against you in bankruptcy court that have a life completely separate and apart from your bankruptcy proper. The complaint objecting to the ability to discharge must be filed within 60 days of the date originally set for your Section 341 Meeting of Creditors, unless a Court Ordered extension of that deadline is obtained.

If adversary proceedings are filed it can get very expensive defending them, as these attorneys’ fees are beyond the scope of the flat fee being charged, and are controlled by a separate written retainer agreement that is signed by the debtor and attorney at the time our law firm is retained.

No, not under current bankruptcy law.

A co-signer is jointly liable with you on a debt, so if you file for bankruptcy the co-signer remains fully liable on the debt. If your bankruptcy is a Chapter 7, the creditor is free to pursue a collection activity against the co-signer immediately. If your filing is a Chapter 13, the creditor may be prevented from collecting from the co-signer during the term of the Chapter 13 Plan. If the co-signer is a friend or loved one, it may be possible in a Chapter 13 to put that debt in a special class so that it is paid in full, thereby protecting the co-signer from future collection activities.

Yes, to some degree. In Chapter 13, you can repay your past due child support obligations in full over as long as 60 months, via the monthly plan payments you make to your Chapter 13 Trustee. However, while receiving the automatic stay protection you must make all child support payments, as they fall due, after the bankruptcy is filed. The automatic stay protects you from pre-bankruptcy child support debt only.

There are some “subtle” warning signs, and some “not so subtle”.

Subtle Signs

Using your credit cards to cover basic cost-of-living expenses such as food
Your credit cards are maxed out.
Balance transfers from one card to another card that has a lower, “teaser-rate” interest (often good for only a short period of time)
Only able to make minimum payments on your credit cards
Taking “cash advances” from one card to make a payment on another – commonly referred to as “robbing Peter to pay Paul”
You need a co-signer before you can qualify for a car loan
Unable to afford health insurance because all of your money is going to service your revolving debt
Constantly refinancing your house to pay down debt
Not So Subtle Signs

Creditors calling you at all hours of the day or night at home or at work
Creditors calling your neighbors
Process servers lining up at your door to commence lawsuits against you
Your house is in, or on the verge of, foreclosure
The IRS filed a tax lien against you
19. Will I have to pay income taxes on debt that is canceled due to my bankruptcy Discharge?

No

Generally speaking, yes, providing the creditor receives some sort of notification of the bankruptcy filing, even if the notice is informal. As long as:

• The case is a No Asset Case (i.e. Trustee makes no distribution to creditors)
• The unlisted creditor did not have a basis for objecting to the ability to discharge the debt, it will be effectively discharged in bankruptcy

However, the better and more certain course of action is to list all of your creditors in your petition.

A corporate Chapter 7 debtor does not receive a Discharge of its debts, and cannot exempt any assets from the Trustee’s reach. However, a corporate Chapter 7 filing does provide for:

An orderly, Court-supervised liquidation of assets and disposition of proceeds by a Trustee, rather than the haphazard, first (creditor) come – first serve alternative.
Can prevent an aggressive creditor from seizing a valuable asset that could otherwise be utilized to pay certain “critical” creditors, such as trust fund taxes, wage claims, etc.
A Chapter 7 Trustee can also recover some preference payments made to, or seized by, certain aggressive creditors, resulting in the recovered funds being used to pay creditors with a higher priority (i.e. trust funds taxes, etc.) and whose debts will survive bankruptcy.
The corporate principals may not want to go through the bother of having to liquidate their company, and would prefer that a Chapter 7 Trustee do it. In some instances, there may be income tax benefits to a Chapter 7 filing. This should be explored with the corporation’s accountant.
The down side of a corporate Chapter 7 filing is the expense involved, and the fact that corporate transactions are laid bare for analysis by the Trustee and any creditor who asserts itself into the proceeding. If the corporate principals have been siphoning off money, or engaging in creative bookkeeping, a Chapter 7 filing may be ill advised.

Generally no, unless the debtor can establish an “undue hardship”, which is a very high standard. Essentially, a debtor must establish that if forced to repay the student loan he/she will be unable to:

Maintain a minimal standard of living for himself and his dependents.
This state of financial affairs will continue for a significant period of time.
The debtor has made a good faith effort to repay the loan prior to the bankruptcy filing.
In our experience, few debtors are able to meet this threshold.

This is commonly referred to as “exemption planning” and it is acceptable, up to a point. Unfortunately, this “point” is somewhat ill-defined. If you go too far your entire bankruptcy can be jeopardized. The most widely cited case on this issue stated the standard to be: “when a pig becomes a hog, it gets slaughtered”. Not a very precise standard, to say the least.

Yes.

If a debtor submits false information in his bankruptcy petition, or otherwise commits perjury in connection with the bankruptcy case. Only the “honest debtor” is entitled to receive a bankruptcy Discharge.
A debtor who transfers his assets within one year of the bankruptcy filing with the intent to hinder, delay or defraud his creditors could be denied a Discharge.
A Presumptively Abusive filing, as determined by application of the Means Testing Formula, can lead to a denial of a Discharge.
A debtor who fails to satisfactorily explain a loss of his assets can be denied a Discharge
A debtor who fails and refuses to cooperate with his Trustee can be denied a Discharge
25. What factors determine the exemptions that you can claim?

The property that you can exempt is determined under New York law if you have lived here for at least two years. If you have lived in New York for less than two years, the exemptions applicable to your case are either those available in the state where you were living for the six months prior to the two year period (i.e. 2-and-one-half years prior to the filing), or the federal exemptions provided in 11 USC §522(d)(1).

The credit reporting agencies are aware that you filed for bankruptcy, but they do not know which debts you listed on your petition. Creditors are supposed to advise the credit reporting agencies when their debts get discharged. Some creditors do this and some do not, which often results in discharged debts still appearing as unresolved on your credit report. To insure that your credit reports are as accurate as possible after you receive your Discharge, it is recommended that you forward to the three credit reporting agencies listed below a copy of your:

• Discharge of Debtor and Order of Final Decree
• Notice of Bankruptcy Case Filing (attached to the front of your petition)
• Schedules “D”, “E” and “F” of your bankruptcy petition, together with any amendments of said schedules:

Experian
PO Box 2104
Allen, TX 75013 Equifax Information Services
PO Box 105873
Atlanta, GA 30348 TransUnion
PO Box 1000
Chester, PA 19022

It is not your Bankruptcy Attorney’s job to clean up your credit report, unless you specifically hire him to do so. You can certainly take the above steps yourself, thereby saving the expense of additional attorneys’ fees.

Yes.

Absolutely, although it is strongly recommended that you retain competent legal counsel to get you through the rigorous process. I hope you will consider our firm for the job.