Bankruptcy can be a tough pill to swallow, especially if you have historically been a responsible consumer. However, this law was put into place for your protection, and you must understand that sometimes bad things happen to good people. It is not a moral or ethical decision, it is a financial decision and when asking, “Can I file bankruptcy?” it must be kept in that perspective.
The credit card companies don’t care about you; their only concern is money, even if you’ve been a customer for years. Below we have outlined the basic process of filing, as well as some important information for you to consider.
Important Pre-Filing Information
If you are thinking about filing for financial insolvency, it is best to have not used your credit cards within the months leading up to the filing of your case. If you do so with the intent to file (not having the intent to repay at the time you charged), a creditor can challenge the discharge of that debt or even your right to discharge any debt.
If you obtained the debt knowing that you could not repay it, you may not be able to discharge that debt if the creditor challenges it through a lawsuit or adversary proceeding. Only a lawyer can give you legal advice on such issues.
Different Types of Bankruptcy
The most common forms are: Chapter 7, Chapter 11, and Chapter 13. In a Chapter 7 case, the trustee will determine whether or not there are assets that can be liquidated and used to repay your creditors or if yours is a “no-asset” case. If the trustee determines that all your assets are exempt, a report of no distribution will be issued and filed with the court. Over 90 percent of chapter 7 cases are “no asset” cases where the consumer retains all their assets and possessions.
If the trustee determines that there are non-exempt assets, these assets will be sold and payments may be made to your creditors. In most Chapter 7 cases, there is no repayment to creditors. In a Chapter 13, you will be required to enter into a three to five year plan, in which you will pay creditors as much as you can over that time pursuant to an insolvency procedure.
Step #1 Get a Lawyer
A consumer should research their options as it relates to how to file bankruptcy. Some people choose to file without the aid of a lawyer; this is dangerous as creditors often seek to take advantage of unrepresented consumers. It is highly recommended to hire a lawyer by nearly all consumer rights groups, if you can’t afford a lawyer right now, save and wait until you can, it will be well worth it.
Insolvency is complex and often counter-intuitive. Lawyers spend years in school and then years practicing before fully understanding the procedure and how to file. A non-lawyer is not going to be able to understand, even at a basic level, the procedures without making a massive time commitment to learning what it is.
The first step is to consult with the lawyer you’ve selected, or their staff, and go over your “case.” A series of simple questions will determine whether you can file and under which Chapter. Generally, these questions relate to assets, liabilities, income, and expenses. Recent transfer of property and other financial qualifications also affect what Chapter to file.
Step #2 Pre-Filing Credit Counseling
Under the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”), which substantially amended the U.S. Bankruptcy Code effective October 17, 2005, prior to filing a case, you must obtain consumer credit counseling from an entity approved by the U.S. Trustee within 180 days of the date of the filing.
This counseling requirement is nothing more than a deterrent for consumers filing for insolvency and runs up the cost and complexity for consumers. You can complete this counseling online. There is a small fee for the counseling, but in some cases if you are filing with your spouse you get a discount on the price.
Step #3 Filing
Once your case is filed, you should refer all creditors to your lawyer’s office, once he or she has been retained. Your lawyer’s office will then be able to speak on your behalf (which means no more annoying calls). Once your lawyer has filed your case, the “automatic stay” goes into effect. This means that NO creditor can legally contact you about your debt.
Once your attorney has submitted your petition, you will be notified by mail (most often) of the date for your meeting of creditors (or a “341 meeting,” named after the section of the Bankruptcy Code requiring it).
Step #4 Post-Filing Credit Counseling
After your attorney files your case you will need to get post-filing credit counseling. Again, you can do this easily online for a small fee. You will need to provide proof of this counseling, usually in the form of a printed certificate upon completing the credit-counseling course.
Step #5 The Meeting
This meeting allows the trustee to ensure that you have given truthful answers on your petition, and that you understand and agree to filing. Your creditors may also ask questions of you at this meeting, but it is rare that creditors actually show up.
Your lawyer, or a representative from their office, should attend the meeting of creditors with you to ensure everything goes smoothly. Prior to the meeting, you should have reviewed your petition so that you are familiar with what’s listed, and you understand the procedure. Once you are sworn in at the meeting, you will answer questions that are recorded. The meeting goes very quickly in most cases and can last under 1 minute.
Step #6 Discharge From Your Debts
The final step is to receive a legal discharge from your debts. A discharges means that you have no further obligation to repay the discharged debt, and that your creditors can never collect the debt from you. If you filed Chapter 13, you will receive the notice of discharge approximately 30 to 60 days after your final payment has been made on your Chapter 13 plan.
Not all debts are discharged in a Chapter 7 or even a Chapter 13 case. Non-dischargeable debt can include student loans, certain taxes or government debt, and alimony and child support, among others. Whether or not a debt is discharged depends on certain Code provisions and procedure, this will be mailed to you from by your attorney. It usually takes four to six months after filing to receive this discharge. At this point you have reached your fresh start!
Ready to File? Let Us Assist You
At McFarlin LLP, we want to help you through the filing process, every step of the way. We understand that filing for financial insolvency can be a difficult decision for most people to come to. If you are not sure if filing is right for you, don’t worry. We offer free consultation to prospective clients. Let us give you the best legal advice we can to help guide you to your best option.