Bankruptcy Overview-- What it can and can't
If you think a Bankruptcy is most
likely the route that your
Did you know that back taxes of 3 years or
more are usually dischargeable in bankruptcy?
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If your collections bills in
general are around 2 or more years old,
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How Bankruptcy Works-
In spite of the intimidating nature of legal codes
and legalese and the things that happen in the background within the courts,
for your part, the fact is that 99.9% of the time, bankruptcy is this
File your petition with the
Attend your "Creditors Meeting"-
(Usually about 45 days after you file). Unless
there is obvious cause to do to so (which
is rare unless there is apparent and provable fraud, which has
NEVER been the case with any of our clients),
your creditor's won't show up.
Less than 1% of our client's creditors even attend.
When they do, it's usually to ask "if
in return for them increasing your CC's credit limit (i.e.
letting you borrow more money), are willing to reaffirm your
debt to us?". (in other words don't discharge
meeting, the bankruptcy trustee will ask you and
record the answers to these few questions:
What is your name?
Is the information contained on your petition true and
correct to the best of your knowledge?
Obviously, you say "yes".
He will then say "Absent objection
of creditors, I hereby, order that on XXXX date, all
dischargeable debts of the petitioner are discharged".
You are dismissed and go
home. It's over! Your
time with the Trustee is usually less than 10 minutes!
That's it! The process is
literally that quick and simple. Whether doing it totally
on your own or letting us help... Don't
be afraid of the process.
Is Bankruptcy Right for You?-- Click here for
True stories of it's benefits and limitations
See what our clients are saying...
From Kimberly in MO
can't believe how amazing you are-- this is
nightmare paperwork --I would've NEVER been able to
do this-- Thank You again so very much!
From Vivian in CA
Last Tuesday, I went for my appointment with the
Creditors. After waiting for approximately
35 minutes, the interview took only about 5
minutes. The Judge was very cordial. None of
the Creditors were present. It was not stressful, as I had anticipated. There were
many people there for the same reason as
me, so that gave me a level of comfort to
know that I am not alone in this critical
From Clarence in FL
From Roger in MI
did a SMASHING job of reading what I wrote and
turning it into this very organized and beautifully
written petition--Thank You
From Chrissy in OH
rock!! Thanks so much for your help. I wasn't sure
what to expect doing this myself but you have been
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The following is an outline of select areas of
bankruptcy law which are significant as you contemplate a filing under Chapter
7. Often, someone who considers bankruptcy is unaware of the nuances of
bankruptcy or certain creditors' rights in bankruptcy. You should be familiar
with some of the applicable provisions as you prepare for filing. What follows
is not, by any means, an exhaustive review of bankruptcy law; nor does it fully
explain each provision of the bankruptcy code or rules which might apply because
each individual's situation is unique and sometimes unanticipated events occur;
however, this overview will provide you with broad guidelines so that you may be
comfortable with your decision. I will begin with an outline of basic procedures
in Chapter 7 case and conclude with a discussion of various Chapter 7 pitfalls.
A. Upon filing, you will be required to file a sworn list of creditors, a
schedule of assets and liabilities, a list of exempt property, a schedule of
current income and expenditures, a statement of your financial affairs and a
statement of intent regarding consumer debts secured by property of the estate.
You will also be required to surrender to the trustee all property of the
estate. 11 U.S.C. 521. The order of relief is granted when you file. What this
means, among other things, is that an automatic stay is triggered, prohibiting
creditors from pursuing you or your property
outside of the bankruptcy proceeding.
B. The clerk of court will give notice of the bankruptcy to your creditors. 11
C. There will be a meeting of creditors called to question you about your debts
and ability to pay. The U.S. Trustee calls this meeting and you are required to
attend. The judge may not question you at this time. Other creditors and the
trustee may question you. Unlike a trial, your attorney may not "object" to
questions in a formal sense. It is an open opportunity for creditors to question
you and you are required to respond in good faith. 11 U.S.C. 341.
D. A creditor of the trustee assigned to your case may object to your listed
exemptions within 30 days after the meeting of creditors.
E. A creditor must file a proof of claim within 90 days after the first date set
for the meeting of creditors. At the end of the case, if a surplus remains after
all of the claims are paid in full, the court may grant an extension of time for
filing of claims not filed during the initial 90 day period.
The trustee may object to any claim.
F. An objection to your receiving a general discharge of all of your debts must
be filed by thetrustee or a creditor within 60 days following the first date set
for the creditors meeting If no objections are filed, and if no motion to
dismiss is pending, the court will ordinarily grant a discharge upon expiration
of the 60 day period. Bankruptcy Rules 4004 and 1017; 11 U.S.C. 727.
G. A creditor may object to the dischargeability of a particular debt at any
time if the debt: (1) is for a tax or customs duty; (2) is not listed in the
schedules so that a creditor could file a proof of claim; (3) is related to
alimony or child support; (4) is a government fine or penalty; or (4) is a
government insured student loan. Any student loans guaranteed or insured by the
government will not be dischargeable. This means that you will continue to be
liable for the payment even if you file bankruptcy.
A creditor may object to the dischargeability of a particular debt only within
60 days of the first date set for the meeting of creditors, if the debt: (1) is
a consumer debt created close to filing; (2) is a result of fraud; (3) is a
result of a wilful and malicious injury to a person or property of another.
Bankruptcy Rule 4007; 11 U.S.C. 523.
The debtor's goal in any Chapter 7 is to have as many debts discharged as
possible. The general rule is that all debts created before the bankruptcy
filing are discharged. Discharge destroys any person liability you may have on a
claim or debt. (Discharge will not destroy liens; liens survive the bankruptcy.)
There are some very significant exceptions to the general rule that all debts
will be discharged. As stated above, a creditor can try to have his claim
excepted from discharge pursuant to the provisions of 11 U.S.C. 523. If the
claim is not discharged, the debtor continues to be responsible for its payment;
obviously, this could have severe consequences to the debtor seeking a "fresh
start" which is the very purpose of the Chapter 7 filing.
There are ten categories of debt excluded from discharge under 523. These fall
into two areas: debts that are not dischargeable due to the wrongful conduct of
the debtor and debts that are not dischargeable due to public policy.
The debts not dischargeable due to the debtor's misconduct include those created
by intentional torts, fraud, larceny, embezzlement, fiduciary violations, and
drunken driving. The debts not dischargeable due to public policy include
alimony and child support, taxes and customs duties, governmental fines,
penalties and forfeitures, educational loans, unscheduled debts and certain
debts surviving a prior bankruptcy case. A claim must fall within one of these
exceptions to be
To prevail on a fraud exception, the creditor would need to show that there was
a false, material representation of fact made by the debtor that the debtor knew
was false at the time he made it, made with the intention of deceiving the
creditor. Some courts have held that when a credit card is used, the debtor
impliedly represents that the debtor has the ability and intention to pay for
the goods and services charged. Those courts have therefore found that some
credit card debt is
non-dischargeable under the fraud exception.
This is not the only potential problem that can arise with credit card or
similar debt. 523 also provides that there is a presumption that certain
consumer debt created right before filing a Chapter 7 is non-dischargeable. The
presumption of non-dischargeability will apply if the debt is a consumer debt
for so-called "luxury goods or services" incurred or within 40 days before the
filing, owing to a single creditor aggregating more than $500. Further, the
non-dischargeability will apply if there are cash advances made by a creditor
for more than $1000 that are extensions of consumer credit under an open end
credit plan within 20 days of filing bankruptcy.
Luxury goods and services are not defined by the Bankruptcy Code and the
determination of same will be contingent upon the facts and circumstances of
each case. I can tell you that courts have characterized such items as a person
computer, coffee maker, floral arrangements and three-wheel recreational vehicle
as "luxury" items.
Any credit extended based on false financial statements is subject to exception
from discharge. Statements made in the financial statements have to be
materially false with the intent to deceive the creditor to fall within this
exception. Note that a credit application should not qualify as a "financial
statement" if it does not require a disclosure of debts.
It is crucial for the debtor to include all creditors in his schedules filed
with the court. If a debtor knows of the creditor and does not schedule him, the
creditor is denied participation in any distribution; to protect the creditor
from this type of problem, the code provides that unscheduled claims may be
Debts created by willful and malicious injury will also be excepted from
discharge. These types of claims arise from intentional actions by the debtor,
done with malice which causes damage. It is important to note that ordinary
negligence claims are dischargeable. A plaintiff with a personal injury claim
would need to allege significantly more than simple negligence to have his or
her claim deemed non-dischargeable in the bankruptcy court.
Not only may a single creditor attempt to have a particular debt found
non-dischargeable pursuant to 523. Chapter 7 debtors also need to be aware that,
pursuant to U.S.C. 727, upon motion by the trustee or a creditor, the court may
disallow a final discharge of all debts, of whatever nature, if the debtor,
among other things:
(1) destroys or conceals his property within one year before filing or after the
date of filing, with the intent to hinder, delay or defraud a creditor;
(2) conceals, destroys, falsifies or fails to preserve records of his financial
(3) knowingly in a bankruptcy case makes a false account, oath or claim;
(4) gives, offers, receives, or attempts to obtain money, property or an
advantage for acting or forbearing to act;
(5) withholds from an officer of the estate records related to his property or
(6) fails to satisfactorily explain any loss of assets; or
(7) refuses to obey court orders or refuses to respond to questions posed by the
Finally, the court may dismiss a Chapter 7 case if the debtor:
(1) unreasonably delays the proceedings to the creditors' prejudice;
(2) fails to pay necessary fees or payments; or
(3) fails to file his schedules.
Dismissal may also be justified if the debtor is an individual who has primarily
consumer debt and the court finds that the granting of relief would be a
substantial abuse of the bankruptcy process. Substantial abuse has been found by
courts if the debtor is actually able to pay his
debts when due.
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