Frequently Asked Questions
Below are questions frequently asked by individuals considering filing for bankruptcy. The responses are intended to provide you with a general understanding of various events occurring during the bankruptcy process. You should consult your attorney before taking any action regarding these matters.
Are certain debts non-dischargeable?
Yes. The most common non-dischargeable debts are alimony, child support, certain property settlement agreements, certain income tax liabilities, Department of Revenue sales tax liability, Internal Revenue Service pay roll tax liability or trust fund liability, and many student loans. In addition, certain debt created by fraud, embezzlement, or conversion can be found to be non-dischargeable.
Do I have to list all of my creditors?
Yes. Bankruptcy law requires a full and complete disclosure of all debts owed. Bankruptcy schedules are signed under the penalty of perjury and the debtor will be asked under oath at the meeting of creditors if all debts were disclosed.
Can I transfer ownership of my home, car, boat, collectibles, tools, etc. to someone else to keep those items out of bankruptcy?
No. Such transfers will almost invariably violate Florida's fraudulent transfer statute and 11 U.S.C. §548 of the federal Bankruptcy Code. A Chapter 7 debtor who has been found guilty of such transfers may lose his entire discharge. In addition, the debtor may be subjected to criminal prosecution. A trustee has the power to set these transfers aside. The trustee can also ask for the case to be dismissed for a bad faith filing. Moreover, federal law could be invoked to initiate criminal proceedings based on bankruptcy crimes.
Are NSF (non-sufficient funds) checks dischargeable in bankruptcy?
Often, the answer is yes because creditors usually elect not to go through the expense of challenging it under federal law. However, bankruptcy does not prevent the creditor from trying to get the State Attorney's Office to threaten prosecution to force restitution on the NSF checks.
Are certain debts dischargeable in Chapter 13 that are not dischargeable in Chapter 7?
Yes. Credit card fraud, embezzlement, larceny, defalcation, conversion, and certain IRS debt owed by non-filers can be discharged in Chapter 13. Alimony, child support, student loans, personal injury in DUI cases and certain IRS debt are not dischargeable in either Chapter 7 or Chapter 13.
Will my credit union or bank close my bank accounts if I file bankruptcy?
It depends. If a credit union is going to sustain a loss, most credit unions will ask the customer to leave the credit union. However, if the debtor reaffirms the debt to the credit union, the credit union usually will not ask the debtor to leave the credit union. Most banks will not take such action. This situation should be discussed with your attorney.
Will my bankruptcy affect a co-signer on the debt?
Yes. The bankruptcy will not protect the non-filing co-signer. The creditor may continue to try to collect against the co-signer. Creditors have this right even if the bankruptcy is never filed. Additionally, the co-signer's credit bureau report will almost always show the joint debt was included in bankruptcy. These situations should be discussed with your attorney.
Can my employer fire me for filing bankruptcy?
No. Federal law 11 U.S.C. §525 is the anti-discrimination section of the Bankruptcy Code that precludes a public or private employer from discriminating against any employee solely because he or she filed for bankruptcy. Employers almost always honor this section and there are remedies if they try to violate it.
How long does bankruptcy remain on my credit bureau report and can I obtain credit before that time period runs?
A bankruptcy can be kept in the public records section of your credit bureau report for 10 years. Once your discharge is entered, if certain income and employment conditions are met, new automobile financing is immediately available at most car dealerships in Florida. If certain conditions are met, new mortgage financing may be available after discharge with a substantial down payment. VA and FHA financing becomes available two years after discharge. Credit card solicitations usually begin almost immediately after discharge.
What is credit counseling and must I take it?
To be eligible to file a personal bankruptcy, all debtors must undergo credit counseling from an approved credit counseling agency. The course usually lasts about one hour and costs about $50.00. Upon completion of the course, the debtor will be issued a credit counseling certificate. This course is required to be taken in order to be able to file bankruptcy. If a debtor files bankruptcy without taking the course, the case will be automatically dismissed.
What is financial education and must I take it?
To be eligible for a bankruptcy discharge, all debtors must take a financial education course from an approved provider. The course usually lasts two hours and costs about $50.00. The course cannot be taken until after your bankruptcy has been filed and you have been assigned a case number. Upon completion of the course a certificate will be issued to you. The certificate must be filed with the bankruptcy court before your projected discharge date. If you become eligible for discharge and have not completed the course and filed the certificate with the court, your case may be closed without a discharge being issued. You must then pay to have your case re-opened for the sole purpose of filing your certificate of financial education completion.
Is there life after bankruptcy?
Absolutely. Credit can be re-established and should be used discreetly and only as reasonably necessary. Our firm conducts a Life After Bankruptcy workshop free of charge to the firm's clients.
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What is a discharge?
A Chapter 7 discharge is an order signed by the bankruptcy judge declaring all of your eligible debt to be discharged. The Order of Discharge creates a permanent injunction against a creditor whose debt is discharged from attempting to collect the debt from you. The Order of Discharge is normally entered about 110 days after the Chapter 7 case is filed. Your attorney should discuss with you what debts cannot be discharged.
What is a Chapter 7 trustee?
It is the trustee's responsibility to examine the debtor under oath and to review the paperwork filed with the court. It is the Chapter 7 trustee's responsibility to convert into money the non-exempt assets of the debtor. After administrative expenses are paid, the remaining money is distributed to the creditors according to the Bankruptcy Code. Your attorney will explain your exemptions to you.
What is a meeting of creditors and what happens there?
The meeting of creditors is conducted by the Chapter 7 trustee. The debtor is examined under oath concerning his assets and debts. Creditors who choose to attend the meeting, either in person or through their attorney, can ask questions relevant to the case. As a practical matter, creditors rarely attend the meeting of creditors. The average meeting of creditors lasts about three to five minutes and is held approximately 40 days after the Chapter 7 bankruptcy petition is filed. It is mandatory for all debtors to attend the meeting of creditors. Your attorney will accompany you to the meeting.
What is a Reaffirmation Agreement?
To avoid debt discharge in a bankruptcy action, mortgage companies and car, furniture, and appliance financers typically want the debtor to sign a document known as a Reaffirmation Agreement. Signing this agreement results in the debtor waiving his Chapter 7 discharge and agreeing to continue to make payments as called for by the original loan documents.
This allows the debtor to keep his home, car or furniture. The decision whether or not to reaffirm a debt is a serious one and needs to be discussed with your attorney so that all options are understood. If the debtor stops paying on the asset after a Reaffirmation Agreement is signed, then the asset can be foreclosed or repossessed and a deficiency judgment obtained for the difference. If a debtor changes his mind and wishes to terminate or rescind a Reaffirmation Agreement, then the debtor has 60 days to file a rescission agreement after a Chapter 7 reaffirmation is fully executed and filed with the bankruptcy clerk's office.
You should consult your attorney before making any decisions regarding reaffirmation.
What are exemptions?
Certain assets owned by the debtor have what is known as an exempt status. This means the debtor can protect them from the reach of creditors and the Chapter 7 trustee. The exemption will not apply to a mortgage or lien voluntarily placed on the asset by the debtor. The availability of exemptions and how to properly and effectively claim them should be discussed with your attorney.
What is a redemption?
In Chapter 7, if an asset is exempt, it can be purchased or redeemed from the creditor by paying its present market value in a lump sum. The balance of the debt will be discharged. An example would be furniture that has a depreciated value at the time of bankruptcy of $700 and the balance of the debt on the furniture is $2,000. The furniture can be redeemed for $700 and the $1,300 difference is discharged. The process of redeeming assets should be discussed with your attorney.
Can creditors ask to have their debt held non-dischargeable?
Yes. Creditors have approximately 100 days after the filing of the Chapter 7 bankruptcy case to file a lawsuit asking that the debt be held non-dischargeable. Certain debt has no such time limitation.
Can the trustee or a creditor object to my Chapter 7 discharge?
Yes. Objection to discharge is controlled by federal law. If an objection is made and the court sustains the objection, all of the debts owed by the debtor can never be discharged in bankruptcy. This issue generally comes into play where the debtor has transferred an asset within two years (and in some cases four or ten years) of filing bankruptcy with the intent to hinder, delay or defraud creditors or the Chapter 7 trustee. This can also happen if the debtor is unable to give a reasonable explanation for the reduction in assets occurring shortly prior to bankruptcy. Not having sufficient records to satisfactorily explain the debtor's financial position or change in position can also serve as a basis to object to discharge.
What is involved in a buy-back from the Chapter 7 trustee?
In some of the cases involving assets, the trustee will hire an appraiser to appraise the debtor's assets. A copy of the appraisal will be provided to the debtor and the debtor's counsel. Negotiations will follow concerning whether the value of the assets have exceeded the exemptions allowed by state and federal law. Depending on which trustee is assigned to your case, the approach on the buy-back may differ somewhat. Other differences may involve the length of time for the buy-back to be paid and how the buy-back amount is calculated. Your attorney will negotiate the buy-back for you.
Can one spouse file for Chapter 7 bankruptcy without the other spouse filing?
Yes. For example, our firm makes it a practice to pull three-way merged credit bureau reports on both husband and wife in order to advise our clients as to who should or should not file in the bankruptcy court. Your attorney will explain your options.
What happens if I inherit something after filing for a Chapter 7 bankruptcy?
If there is a death within 180 days of you filing a Chapter 7 bankruptcy, any inheritance or life insurance that you receive will come under the control of the Chapter 7 trustee and will be used to pay your creditors. If you anticipate a death within this period, you should discuss the situation with your attorney.
If I filed a Chapter 7 in the past, how long before I am eligible to file another Chapter 7?
Under the law that went into effect in October 2005, a debtor who previously received a Chapter 7 discharge is not eligible to receive another Chapter 7 discharge until eight years have passed from the date of filing the previous case.
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When do I get my discharge?
After completion of the payments under the Chapter 13 Plan that has been confirmed by the Bankruptcy Court. Normally, this will be a three year, four year, or five year plan.
What role does the Chapter 13 trustee play in the case?
The Chapter 13 trustee performs many roles. The trustee serves as a disbursing agent for payments under the plan. The trustee examines the debtor at the meeting of creditors. The trustee can also object to confirmation of the plan and makes a determination in each case whether the debtor has satisfied the disposable income test, the means test, and the best interest of creditors test. If one or more of these tests are not satisfactory, it is the trustee's duty to object to confirmation. The trustee can also file a motion to dismiss the Chapter 13 case for a bad faith filing or for failure to make payments called for by the plan.
What is the meeting of creditors and what happens?
The meeting of creditors is a scheduled meeting conducted by the Chapter 13 trustee where the debtor is examined under oath concerning his assets and debts. Creditors who choose to attend the meeting either in person or through their attorney can ask questions concerning anything relevant to the case. As a practical matter, creditors rarely attend the meeting of creditors. The average meeting of creditors lasts about three to five minutes and is held approximately 40 days after the Chapter 13 bankruptcy petition is filed. It is mandatory for all debtors to attend the meeting of creditors. An attorney will accompany you to the hearing.
What is the disposable income test in Chapter 13?
In some cases the debtor must commit all of his net take-home pay to the plan for the life of the plan. In practice, this means that the plan payment plus reasonable and necessary living expenses must account for all the net take-home pay. If there is any net take-home pay leftover the extra income is dedicated to the unsecured creditors. If the unsecured creditors are paid in full, the disposable income test does not come into play in most cases. Your disposable income should be calculated by your attorney prior to filing your plan.
What is the best interest of creditors test in Chapter 13?
This test requires the debtor to make sure that under the Chapter 13 plan, the unsecured creditors receive at least as much under Chapter 13 as they would receive if the case were handled under Chapter 7. This involves completing a liquidation analysis on paper in order to determine what the unsecured creditors would receive under Chapter 7. The Chapter 13 Plan must provide at least that much to the unsecured creditors. This analysis should be completed by your attorney.
When is the first plan payment due, who gets paid, and how are the payments made?
The first payment is due 30 days after the plan is filed. The payment is made by cashiers check or money order payable to the Chapter 13 trustee. The debtor's name and case number must appear on the face of the check or money order. The payments are sent to a lock box in Memphis, TN as instructed in a letter sent to the debtor by the Chapter 13 trustee at the beginning of the case. The trustee will send a coupon book to be used with each payment.
Can I obtain credit while I am making payments on my Chapter 13 plan?
You must obtain permission from the Chapter 13 trustee or the court to incur new debt while you are in a Chapter 13 bankruptcy. It is difficult to get the trustee or the court to approve new credit until the plan is confirmed, which normally occurs two to three months after the case is filed. Even after confirmation, the procedure requesting the trustee or court approval is quite cumbersome: the trustee has a form that must be filled out and a current income and living expense analysis must be provided along with a copy of the financing arrangement for which approval is being sought. This also assumes that a lender has been found who is willing to loan money to an individual in a Chapter 13 bankruptcy.
Can the trustee or a creditor object to confirmation of a Chapter 13 Plan?
Yes. It is the trustee's responsibility to object to Chapter 13 plans that are deficient. A creditor may also object, but generally most objections will come from the Chapter 13 trustee. Most objections are worked out or resolved prior to the confirmation hearing but occasionally the court has to take evidence and rule.
Can only one spouse file a Chapter 13 and stop foreclosure on a house owned by both spouses?
Yes. This occurs quite frequently. If one spouse does not need to be in bankruptcy other than for the foreclosure, then that particular spouse can be left out of the bankruptcy. Sometimes, we file Chapter 7 for one spouse and Chapter 13 for the other spouse. This permits the Chapter 7 spouse to get an automobile financed sooner. An attorney should be consulted concerning this type of situation.
What effect will a Chapter 13 have on a co-debtor who does not file bankruptcy?
The Chapter 13 will show-up on the non-filing co-debtors credit bureau report alongside of the joint debt. It won't show in the public records section. If it is not a consumer debt or if it is a consumer debt but will not be paid in full under the Chapter 13 plan, the creditor may proceed against the non-filer.
What is a co-debtor stay?
If the joint debt is a consumer debt and the plan proposes to pay the debt in full, the creditor is blocked by the Chapter 13 filing from taking collection action against the non-filing co-debtor.
What happens if I inherit something during the three to five years that I am paying creditors under my Chapter 13 plan?
The inheritance must be turned over to the Chapter 13 trustee to be distributed to the unsecured creditors up to the extent of the allowed unsecured claims. If the potential exists for this to occur, you need to discuss the matter with an attorney to look at some options.
If my Chapter 13 does not work, can I convert the case to Chapter 7?
Yes. If the Chapter 13 plan cannot be amended to handle changes in your financial affairs, you may find it advisable to convert to Chapter 7. You should consult your attorney before taking any such action.
What if I previously filed a Chapter 13 but my case was dismissed – can I file another Chapter 13?
Under the new Bankruptcy laws that went into effect in October 2005, if you have had a case pending within the 12 months of filing a new case, the automatic stay, which stops your creditors from taking actions to collect on your debts (i.e. foreclosure, repossession), is only in effect for 30 days. Within 30 days you must attend a hearing in front of a bankruptcy judge to explain why your previous case was dismissed and why your new case will be successfully completed. The court will determine whether or not to extend the automatic stay. However, if there are special circumstances which the court should be made aware of, we may be able to file an adversary proceeding in which we will be given the opportunity to explain your circumstances to the court and the court will decide whether or not to impose the stay.
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Means Test
Let us help you take the mystery out of the Means Test, Totality of Circumstances Test and Best Interest of Creditors Test.
The Means Test
Under the new bankruptcy laws that went into effect in October 2005, all debtors are required to file a Means Test Calculation along with their bankruptcy petition, schedules and statements, and other required documents.
Generally, a means test is performed by looking at all of the debtor’s income for six months preceding the date of filing, determining the average monthly income, and multiplying that figure by twelve.
The resulting figure is then compared to the median income in the state of Florida for a household of similar size. If the debtor is over the median income, then further tests are conducted to determine how much, if any, disposable income the debtor has at the end of month. Often the disposable income must be dedicated over the life of the bankruptcy plan to paying unsecured creditors. This analysis is completed by your attorney.
The Totality of Circumstances Test
The totality of circumstances test is used by a bankruptcy court to determine is a debtor has engaged in substantial abuse of the bankruptcy process by filing for Chapter 7 bankruptcy when he or she actually has sufficient income to repay debts under a Chapter 13 payment schedule. The totality of circumstances test is a flexible standard adopted by Congress and allows judges to consider the facts of each individual case.
The Best Interest of Creditors Test
This test requires the Chapter 13 debtor to make sure that under the Chapter 13 Plan, the unsecured creditors receive at least as much under Chapter 13 as they would receive if the case were handled under Chapter 7. This involves completing a liquidation analysis on paper in order to determine what the unsecured creditors would receive under Chapter 7. The Chapter 13 Plan must provide at least that much to the unsecured creditors. This analysis should be completed by your attorney.
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