Disclaimer: This page is intended neither as legal advice, nor does it create nor attempt to create an attorney-client relationship. The person viewing this page is admonished that an attorney-client relationship may only be created with the express consent to the parties to it. Bankruptcy law is complicated and these "FAQ's" should only be used to give the reader a preliminary introduction to Chapter 7 law. As always, the reader should consult with bankruptcy counsel before taking any action in this regard. Mr. Rubin does provide free initial consultations regarding bankruptcy matters in Pennsylvania. Mr. Rubin is licensed to practice law in PA, NJ & NY (inactive in NY). Referrals can often be made to attorneys in other states. Call Mr. Rubin at (610) 565-6660. Revisions are marked as such.
Summary. Chapter 7, or "straight bankruptcy" is a way to obtain a fresh start under the laws of the United States. It is available for virtually any individual. It is also available to certain businesses, however, this FAQ will not concern itself with the business aspect of Chapter 7. The successful result of a Chapter 7 is a bankruptcy discharge. A bankruptcy discharge cancels all listed debts, with certain exceptions (listed below). Most people lose no property when filing Chapter 7. They can keep their household possessions, their car, bank account, etc. Of course there are exceptions and I attempt to clarify these. And now, on to the more commonly asked questions:
I heard the Congress has drastically changed the bankruptcy code. What's that all about? Well actually, if you just heard this, then I suppose you really did not think much about bankruptcy before reading this. The law changed in 2005. A summary of the changes are found on this special page. The law is called called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The "abuse" in "abuse prevention" under the act can be really be read as "credit card company loss" prevention. The "consumer protection" in the name of the act is pretty much read the same way as "democratic" is in the "Democratic People's Republic of North Korea." A better name for the act would be the "30% Interest Rate is Not Enough if We have a 3% Default Rate Act." or the "Look What the Credit Card Industry Bought Act."
Feel sorry for all the money the credit card industry was losing through "bankruptcy abuse"? Read this interesting article about the differences between a credit card company and a loan shark. This article was written in 2006 so it may not be current.
I was told that bankruptcy is pretty much impossible now for the average person. Is that true?
No! As a matter of fact, most people filing a chapter 7 before the act, will be able to file a chapter 7 after the act. Notwithstanding the new (anti-consumer) changes, filing is still a good option for people under a crushing debt load. It is true that filing will be harder, and probably be more expensive, but it will still be easier than paying the entire debt burden that most people endure. In fact, most people will find that, but for the credit counseling and financial management courses, they can still easily qualify under the mean (oh, I am sorry, "means") test. Speak to your attorney first before writing off bankruptcy as an alternative. Don't let the new act frighten you if you really need help!
What is Chapter 7?
Chapter 7 is a way to legally discharge or cancel your indebtedness. Chapter 7 gives you a fresh start on your economic life within certain limitations (see below). A person cannot file a Chapter 7 more than once every 8 years and certain types of debts are not dischargeable (also see below). Chapter 7 is not for everyone. For example, it is not for people who run up their credit cards with the intent of shortly thereafter going into bankruptcy. Likewise, it is not for people who charge much more than they could ever pay just to discharge those debts. It is likewise not for anyone who basically acts in a dishonest or fraudulent manner. It is for the honest debtors, who, for circumstances they cannot control, find themselves overwhelmed in debt. It is not required that the debtor prove that he did not make errors in judgment. However, it is possible that the debtor, if challenged (which is rare), show that errors were not fraudulent. Chapter 7 is also not for someone trying to save his house from a mortgage foreclosure. Generally, if you are about to lose your home for any reason, a Chapter 13 should be filed. Further, Chapter 7 is not for someone with the ability to make some reasonable payment on a month basis to unsecured creditors. For instance, if your budget would allow you to pay ten cents on a dollar to creditors, you should generally file a Chapter 13 instead.
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Who pays my debts if I file?
No one. Everyone. Confused? Look at it this way. When someone files a chapter 7, the creditors suffer a loss. This is a hard and cold fact of life for companies and individuals in business. There are almost no companies or persons in business that can claim a 0% loss rate. And yet, there are no shortage of businesses. That is because these losses are a part of doing business that is included in the price you and everyone pays. Similarly, the losses insurance companies pay out are included in everyone's premiums. The risks are spread out and become sustainable. In summary, losses are part of doing business - there are and forever will be people who cannot and do not pay. It is predictable, expected, and anticpated.
What is the "automatic stay" and why should I be concerned about it? Can I recover money for its violation.
This is discussed in the Chapter 13 FAQ's here. Chapter 7 and chapter 13 stay violations are treated similarly under bankruptcy law. Therefore, in order not to be repetitive please refer to this topic under the Chapter 13 FAQ's
Should I seek credit counseling before bankruptcy?
Although the law's purpose is to have the debtor avoid the bankruptcy, keep in mind certain things. First, when you come to a credit counselor you will be asked to provide detailed income and asset data, living expenses, household information, lists of creditors and other debt information. Most creditors do not stop charging interest (unless you have a prior agreement respecting that) and may even report negative information on your credit report. This is notwithstanding the fact that you may be current in you payment plan. Creditors may also, and most likely will, cancel your charge privileges.
Credit counselors entering into a plan of repayment for you get paid by a percentage. known as a "fair share," of what is paid to the creditors, by the creditors receiving the funds. This sum usually amounts to between 0% to 15% of the payment you make to the creditor. The client creditor does credit you with the full amount of the payment, however.
Credit counselors have a monetary incentive to keep you out of bankruptcy. They may try to dissuade you from filing because they are simply getting paid by the credit card companies to do so. For instance, MBNA has written to credit counselors that they will provide them with a "fair share," i.e. kickback, if they get paid in full. Here is a copy of a letter obtained from MBNA. You may wonder, if credit counseling is so good, why do the credit counselors need to be bribed to get debtors to accept a plan? Whose interests do the counselors represent, yours or their own? Whose interests were to be protected by this law?
Why should you care what the credit counselor receives, especially if it is not coming from your share? You should care because the credit counselors have an interest in seeing that the creditors get the maximum. Credit counselors do not have a "confidential relationship" with you. They are not attorneys. who are legally obligated to protect you, and only you. A confidential relationship is created when you hire legal counsel. The attorney is obligated by law to avoid conflicts and represent only your interests. An attorney could be disciplined or disbarred from accepting payments from adverse parties, such as your creditors; something counselors routinely do. Statements made to attorneys are always confidential, if made in private (between you, your spouse and the attorney, with no one else present). Statements made to a counselor are not. Credit counseling can be good for some people. It helps some people avoid bankruptcy, however, it is an open question whether is makes much of a difference on your credit record.
I owe a lot of money to the electric company, will they shut off my power if I file a bankruptcy?
Not unless you fail to make post-filing payments. Your electric company may not discriminate against you because you have filed a bankruptcy case. This means they must continue supplying you with power and may not cut you off. Please note that your power company will probably request a deposit from you for continued service. The deposit remains your money, but is held by the electric company as security for service. The deposit is usually equal to approximately twice your average monthly bill. If you owe no money to your electric company and do not list them as a debt, then electric companies may waive the requirement for a deposit.
What happens after my case is filed?
After your case is filed, you will be asked to attend a "meeting of creditors." This "meeting" is actually not much of a meeting at all. Generally, no one attends, with a few exceptions: you (and your spouse if this is a joint filing) must attend; I will be there because I include this in your fee, and the Interim Trustee will be there. The trustee is an attorney who is appointed to ask you questions about your case, which you will be required to answer under oath. The trustee then reports to the bankruptcy judge as to whether he recommends a discharge. All this may sound scary, but it is actually a brief and routine procedure. Most people are amazed at how easy it is. You will learn more of this later in the case. Naturally, your creditors may attend the meeting, but they rarely do. Once the meeting of creditors is concluded, the trustee will make his report to the court and will usually recommend a discharge. If there is a problem with the case, it will be my job to fix it. However, it is a rare client who encounters a problem that I cannot quickly correct. After the trustee makes his recommendation, the court will enter a "discharge" within three months. The reason you will not be granted a discharge immediately, is that the creditors are given some time to object to your discharge, or tell the court why their particular debt should not be discharged. Again, few do take advantage of this opportunity.
What about my credit record?
There is no question that a bankruptcy will hurt your ability to get credit in the future. The fact that you filed a chapter 7 will appear on your credit record for ten years. Generally, the best (and probably the only) way to get good credit is to pay your bills on such terms as you originally agreed when they become due, i.e. pay at least the minimum payment. Bankruptcy, as you probably have figured out already does not pay your bills. it only releases you from responsibility on them. In effect, the debt will still exist, but your creditors will be legally stopped from collecting anything from you. In other words, and for all intents and purposes, the indebtedness is canceled.
While the bankruptcy will be listed on your credit record, you may be fortunate enough to find a creditor willing to overlook this, but then again, you may not; this question is entirely left up to the creditor. No one can be forced to give you credit and you may not contract for credit while this case is pending! By the way, the bankruptcy trustee will require you to cut your credit cards in half and return them to the creditors.
If you pay your post-bankruptcy case bills after the case is closed, you may find some creditors that are willing to give you credit -- possibly as soon as a year or two after you get your discharge. When you use credit again, it is in your best interests to use it with great restraint. In order to reduce the risk that you will have to ask the court for relief again, it is better to pay cash until you are very certain that circumstances are substantially changed from the way they were when you filed. Since you cannot ask the court for a Chapter 7 discharge more than once every six years (Chapter 13 may still be available though), you may put yourself and your family into jeopardy unintentionally and unnecessarily.
What if my creditors have been harassing me ?
Federal law has been greatly expanded in this area. This law, known as the Fair Debt Collection Practices Act ("FDCPA") gives you specific legal rights to sue creditors who threaten or harass you, call you at off-hours, or make false representations to you including saying that they are going to attach your wages (illegal in Pennsylvania), sue or bring any kind of legal action when they are not. After I am retained, no creditor may contact you without your permission after they are advised that I represent you. You must first say that I am representing you and that they should contact me. Give them my telephone number. If the creditor contacts you by any means (phone, letter, personal contact) again, NOTIFY THIS OFFICE AT ONCE. You may have a right of action. Also, each contact that a creditor makes must contain words to the effect that: "I am _________. I am a debt collector representing ____________(creditor). Information obtained during the course of this call will be used for the purpose of collecting the debt. If the creditor has not been advising you as above, you may have a right to sue.
When you come to my office, bring your letters attempting to collect from you. They too must contain warnings such as
This is an attempt to collect a debt. Any information obtained will be used for that purpose. Unless within 30 days of your receipt of this notice, you notify us that you dispute the validity of this debt, it will be assumed to be correct. If you notify this office within thirty days that you dispute the validity of the debt, we will obtain verification of the debt or a copy of the judgment. If you request it within 30 days, we will provide you with the name and address of the original creditor (if different from the current creditor).
If the letter does not state the above, or words similar or close to the above, you may also have a right of action.
Lawsuits under FDCPA allow for counsel fees, damages, and costs. You should be diligent in protecting your rights. The statute of limitations for bring such actions is only one year, so don't wait to bring up the situation to me.
How does a discharge affect me?
If no objections are filed, you will receive a discharge in bankruptcy. The discharge "cancels" certain debts that you had at the time the bankruptcy was filed. A bankruptcy discharge also has the following effects:
- It voids any judgment determining personal liability on a debt; and
- It prohibits creditors from taking any action to collect a debt as a personal liability of yours.
However, if a debt is secured by a lien on any property belonging to you (e.g. a home mortgage or lien on a title to a vehicle), the discharge does not prevent the creditor from repossessing that property. Generally speaking, you must pay a secured debt according to its terms to avoid repossession.
Also, while a discharge relieves you of responsibility, it does not relieve anyone else who may be responsible with you on that debt, i.e. a cosigner or co maker. Therefore, if your parent, friend, or relative cosigned on the loan papers, guess who that creditor will go after? Right, your cosigner may be sued by the creditor, and that creditor does not even have to wait until the case is over. This can be an embarrassing situation for both parties.
You will not be required to appear in court to get your discharge order. However, if you want a discharge hearing, you must advise me and I will file a written request with the court. This must be done before the last date set to object to the discharge. If the court receives no objections to your discharge, you can expect to receive an order, signed by the Judge, in the mail in approximately three months after your creditor's meeting. When you receive the discharge order, you should put it in a safe place with your other valuable and important papers because you may have to show it to creditors later.
Probably a lot less than you think. Most of the damage to your credit is probably done already. In most cases, it is not going to get a lot worse. Most credit scores actually increase upon filing because the debtor has lost all of his debt. That usually makes it a lot less risky to lend the person money. A good article on the subject can be read here. At any rate, I find that most people recover from bankruptcy relatively quickly. You need to keep one thing in mind though: bankruptcy is usually a resort that is almost last. No one should file bankruptcy just to improve their credit. Try paying on time, if you can, first. It is usually never too late to file bankruptcy, unless you are about to lose a valuable piece of property (house, car, etc.).
Are all my debts discharged by the court?
Most will be, however, there are exceptions. The next sections list these:
- Only debts listed on your bankruptcy schedules can be discharged. However, recent court cases seem to have changed this. If your case was a "no-asset" case (as almost all are) then even if you forgot to list a debt, it may be discharged anyway. Why should you bother to list all your debts then? Because, if you do not list a debt, the creditor will not know you filed, and may continue to harass you and perhaps even sue you. You will then need to hire a lawyer to prove the discharge; this can be a real pain. It is much much more expedient and prudent to list all your debts in the first place. How can you be sure all your debts are listed? In my office, I usually obtain a quick credit report that integrates right into the bankruptcy filing software. This report gives you a credit score, and a prognosticated credit score one year out. Usually, after a year, a person with a low credit score will see a drastic improvement in their score, since after filing bankruptcy, the person will have no debts and his score will increase.
- Only debts owed from the period before the bankruptcy was filed will be discharged. This bankruptcy discharge will not discharge debts that you became obligated to pay during the bankruptcy. Your discharge will only cover your personal obligation to pay debts. It will not cover cosigners on your debts and it will have no effect on most security interests, like home mortgages and encumbrances on motor vehicles.
Are there s ome debts that are never discharged?
- Recent real estate (approximately two years old-real estate taxes always remain a lien) and income taxes (approximately three years old).
- Student loans (unless an undue hardship is proven).
- Certain fines and costs (approximately three years old). Criminal fines are NOT dischargeable.
- Debts arising from a judgment against you as a result of your operation of a motor vehicle while you were intoxicated.
- Consumer debts owed to a single creditor for "luxury goods" in excess of $500 or a cash advances in excess of $750 within 90 days for luxury goods or 70 days for cash advances.
- If a creditor files a complaint and proves that your debt to them arises from fraud, breach of fiduciary duty, larceny, embezzlement, defalcation or a material lie on an application for credit, a drunk driving accident restitution for damage you caused, or for willful injuries you caused to another.
- Alimony, maintenance and support to a spouse, former spouse or a child.
- If a creditor and you later have a dispute as to whether a debt was discharged, either of you can ask the court to make that determination for you and enter judgment accordingly.
What about property with liens on it? Is that debt also discharged?
Yes, but the lien remains; and it is still subject to seizure once the case is finished (see above). However, the following may be of interest to you:
- Certain liens (judgments, levies, non-purchase-money interests in household goods) can be eliminated entirely by asking the court to do so. There is an additional fee for this service. If you are interested in this service, let me know and I will quote such a fee.
- Other liens, like mortgages, motor vehicle encumbrances, and purchase money security in other goods cannot be eliminated. If you want to keep the mortgaged house, encumbered vehicle, or secured item, you may have to enter into an agreement to pay a part of the debt (reaffirmation) or the value of secured consumer debts (redemption).
- If you think any of these agreements or motions should be filed in your case, or if you want additional information, contact me. Remember, if you want to reaffirm a debt, avoid a lien, or redeem property, you must do so before the discharge order is signed.
Note: You can pay anybody you want after your discharge, however, few debtors do. It is important that you know the significance of your discharge order. If a debt is discharged, that creditor cannot force you to pay that particular debt. This means that the creditors cannot legally file an action against you (for that debt), continue an action they had filed before the bankruptcy, send you collection letters or harass you in any other way. If this type of harassment occurs, you may be able to sue the creditor.
N.B. If you have moved out of your home with the intention of having the mortgage company take possession of it and the mortgage company does not act to take title (change the name on the deed from your name to their name) for any reason, you still have legal responsibility to maintain your property so that it does not violate local, county, state or federal laws. That is, you cannot let your property deteriorate to such an extent that it becomes a danger to the community.
Will filing a
bankruptcy stop a wage attachment (a pay garnishment)?
Yes. All wage orders, garnishments, etc. excepting for child support are vacated by the automatic stay provisions under section 362 of the Bankruptcy Code, (11 U.S.C. 362). This section stops almost all collection activity as well.
Do the automatic stay provisions of the Bankruptcy Code protect money I have in the bank, or is it seized by the court?
Money in the bank may or may not be taken by the trustee, depending on the bankruptcy exemptions claimed. Your exemptions may be either federal or state (see above ). Most ordinary debtor's bank accounts should be exempted, but you must consult your attorney about this issue. Ordinarily, the trustee is the only party that can seize your account once you have filed your bankruptcy case with the court; however, there is one important exception. If you have an account in a bank, credit union, savings and loan or other financial institution to whom you also owe money. that institution may refuse to release account funds to you once you have filed bankruptcy. This is a very important, and often overlooked aspect that must be considered prior to filing. By the way, there is nothing that prevents a debtor from simply closing an account before he or she files a bankruptcy case.
Are there any circumstances where I could make myself liable on a debt after my discharge? Yes. Such circumstances occur when the debtor signs a reaffirmation agreement . Reaffirmation agreements are legally binding contracts between the debtor and a creditor wherein the debtor agrees to be liable once again to the creditor after the entry of the discharge order. Such agreements must always be approved by the court. This approval is necessary to discourage unscrupulous creditors from coercing a debtor to become liable to the creditor after the debtor has been discharged (which legally cancels indebtedness). The court usually discourages reaffirmation agreements, except for good cause. After all, these are generally the same debts that got the debtor into trouble in the first place. Reaffirmation agreements:
- must be voluntary;
- must not place too heavy a burden on you or your family;
- must be in your best interests; and
- can be canceled anytime before the Court issues your discharge or within 60 days after the agreement is filed with the Court, whichever gives you the most time.
If you are an individual and not represented by an attorney, the Court must hold a hearing to decide whether to approve the agreement. The agreement will not be legally binding until the Court approves it. If you reaffirm a debt, which the Court approves and fail to pay it, it is the same as if you never filed bankruptcy respecting that debt (your other debts are still discharged). This means the creditor can sue you and take your property! This is not a good position to be in!
Should I reaffirm any of my debts to "build up" my credit after bankruptcy? In my opinion, this course is foolhardy. Many debtors are approached with a reaffirmation agreement by creditors offering the debtor a chance to re-establish credit. Examples of creditors trying this tactic are Sears, Macy's and certain banks. This list is not exhaustive, by any means. Sears has recently been punished by the courts for not obtaining court approval on their reaffirmations, an illegal and highly improper course of conduct. Sears has been made to repay millions of dollars to consumers who paid such amounts under non-approved agreements; you may be one of these debtors. In that case, you could be entitled to a refund. At any rate, after 19 years of bankruptcy practice, I have recommend reaffirmation one time. And, I later changed my mind and requested the court to debt my own request for reaffirmation approval! It is NOT NECESSARY TO REAFFIRM TO REBUILD YOUR CREDIT. If you are thinking about it, make sure you and your attorney understand the ramifications. It is also not required that you reaffirm your debt on a car loan. Simple payment of the debt (as well as keeping proper insurance on it) is usually sufficient to protect the rights of the lender, and hence defeat any rights it may have to repossess your vehicle. Of course this advice is all "out the window" if you default on your car payments! As always, the number one rule is: CONSULT WITH LOCAL COUNSEL! By the way, nothing prevents you from paying your debts without a reaffirmation agreement to rebuild credit. Then, if you default, there is no legal liability, because the debt was already discharged in your bankruptcy case. By the way, certain jurisdictions may require that you reaffirm a debt to retain an item of secured property. You should check with local counsel to determine the law in your district. Since I only practice in the Eastern District of Pennsylvania, I cannot necessarily speak for your jurisdiction.
Do I need to reaffirm my debt to keep consumer goods?
Regarding simple low-value household items: Ever buy on credit in Best Buy? Best Buy and other stores like, Sears, Levitz Furniture (are they even still in business?) (there are others) claim a security interests in the items you purchase. This means that if you go into bankruptcy, they or their law firm will send you a letter like this one. Simple consumer goods, such as computers, consumer electronics, clothing, furniture, etc. are rarely repossessed in this are (northeast USA). There is almost never a good reason to reaffirm a debt to keep consumer goods. You should take a look at the Chapter 13 FAQs to see why we believe this letter is wrong and possibly unlawful. In short, the answer is a qualified NO (subject to the next paragraph; there is always time to negotiate later should the creditor become insistent or file a lawsuit. You should also be aware that the creditor is not entitled to anything more than the actual used value of the item. This may not be very much. Ever have a garage sale? How much would the item bring? That may be the actual used value of the collateral.
Special rule for vehicles and other secured property other than simple low-value consumer household goods, especially vehicles. Please see the new changes in the bankruptcy code on that special page.
My spouse has a lot of debts but I do not. Will her filing a bankruptcy affect my credit? Every bankruptcy case is an individual bankruptcy case. Bankruptcy is not like owning real estate where both spouses are in it together. Each spouses' debts are only that spouse's debt; each bankruptcy filing affects the spouse that filed. It should not affect the credit of the other (non-filing) spouse. Notice I said should. This is because there is no accounting for credit bureau errors, although I can say that these types of errors are rare. Errors of this type are far more common with a father and son with the same name. Spouse's almost never have the same name and never have the same social security number. Credit bureau's usually go by these numbers to keep errors to a minimum. In short, I would not be concerned if your spouse files and you do not. However, if your spouse files and you are a co debtor. the creditor will absolutely look to you, the non-filing spouse, for payment!
What is a trustee, and who will be appointed? After a bankruptcy case is filed, the court appoints a trustee. The trustee has many functions, but primarily, he is appointed to examine your case, as well as the debtor, orally, to determine whether there would be any assets available for creditors. Most people can take the necessary exemptions to protect their property from their creditors and the trustee, who, after his examination makes a determination as to whether he will take physical possession of, or abandon (return legal control) to the debtor. In the vast majority of cases, the trustee will abandon all property to the debtor. Rarely will the trustee take actual possession of property in a consumer case. However, if a debtor owns a valuable piece of non-exempt property, the trustee will take the item and expose it to public sale for the benefit of creditor.
A list of Chapter 7 trustees for the Eastern District of Pennsylvania Bankruptcy Court can be found here.
Will the trustee take my property if I file?
This is a rare occurrence. The reason is that the Bankruptcy Code affords debtors broad exemptions. You can read them by clicking here. What this means is that the vast majority of never loose anything. Please note that certain states do not permit a debtor to take the federal exemptions. Check with local counsel to determine whether or not your state has "opted out" of the federal exemption scheme.
What are my bankruptcy exemptions.
The bankruptcy exemptions allow a debtor to protect property from the reach of the trustee and from creditors. The federal exemptions can be found here. See above answer respecting your state's opting out of the federal exemption scheme.
Can I still file a Chapter 7 if I have a house?
The answer is a qualified yes. You can file a case no matter what you own, however, the trustee is entitled to take possession and ownership of all "non-exempt" property. Non-exempt property are assets of the debtor (the person filing the case) that cannot be claimed as exempt under bankruptcy law. Some stated permit debtors to elect state or federal exemptions; some allow the debtor to choose only state exemptions. Most debtors, if given a choice would choose federal exemptions because they are usually broader. If a debtor owns a home, there will most likely be a mortgage on the property. The debtor would then claim an exemption in his remaining equity. For example, where the debtor owns a $100,000 home and there exists a mortgage balance of $90,000, the debtor's equity would be $10,000. Under the federal exemptions, the $10,000 equity would be exempt. Some states may not permit an exemption of that size, if and only if that state has elected not to allow the federal exemptions. Therefore, if the same debtor with $10,000 of exempt equity files a chapter 7, the trustee would abandon the property meaning that the trustee would permit the debtor to remain as owner of the real estate
This does not mean that the debtor can take a vacation from payments. The lien on the real estate remains unaffected and valid. Were the debtor to stop making mortgage payments, even for a month, the mortgagee (bank) could ask the Bankruptcy Court for relief from the automatic stay and receive permission to foreclose against the real estate. Therefore, in order to file a chapter 7 where the debtor owns real estate, the real estate equity must be exempt under state or federal law, and, the payments must be current upon filing and maintained current.
What if the debtor fails to maintain current status due to circumstance beyond his control?
Unfortunately, mortgagees (banks) generally do not care much for excuses, no matter how compelling. Banks are concerned with profits for their shareholders. Banks are not charitable organizations and will happily foreclose on any mortgagor who is delinquent, regardless of the reason. When a debtor falls behind in a chapter 7, the debtor may elect to convert the case to a chapter 13. A chapter 13 case has provisions for curing, among other things, a mortgage default over a maximum period of 60 months. Many or even most attorneys may charge additional legal fees for conversion of your bankruptcy case. This is because the converted case is pretty much started from scratch.
What if the debtor forgot to list a creditor in his bankruptcy schedules?
Generally debts that are not listed in a debtor's bankruptcy schedules are discharged anyway, but still there is good reason to list them. Without being listed, the creditor will not receive notice may still harass you for money. They may even sue. It is always a good idea to make sue all debts are listed.
Will I have to explain myself in court?
No, because you will not have to go to court. You will have to attend what is termed a section 341 Meeting of the Creditors before a trustee (not a judge). Usually no one shows for the meeting. It will therefore be between you, your lawyer and the trustee. The meeting is usually less than 10 minutes long. The trustee may ask you what caused our financial difficulties, but that is about it. The meeting is a "low stress" event and no special preparation is required in most consumer cases, but you should consult with your lawyer prior to the meeting to verify this. If you are filing the greater Philadelphia area, click here for a list of places that 341 Meetings are held.
Can I just list and discharge the debts I want and keep the "good debts."
No. All debts must be listed. Even debts to people you like, or feel a special obligation. After the case is discharged, nothing prevents you from paying anyone at all. If you fail to list a creditor, you chances of a discharge are decreased and they are eliminated for the debt you did not list.
Can I keep my credit cards? I need at least one!
That may be true, but the trustee will demand that you cut up all your credit cards. You may absolutely not charge anything on any credit card after you file. There is an exception. If you are not indebted to a creditor, you may keep their card if the permit you to do so. However, you should first check with your lawyer.
Once I file a Chapter 7, what if I need to do it again? Is there a limit to my refiling?
Once you receive your discharge in a chapter 7 case, you cannot file another bankruptcy and get another discharge, in a chapter 7 case unless eight years have passed between the date this bankruptcy was filed and the date on which the new bankruptcy (chapter 7) is filed. This does not mean you cannot file for relief under Chapter 13 of the Bankruptcy Code, also known as a "Wage Earner Plan," however, you will not receive a discharge of your debts if you received a chapter 7 discharge within the preceding four years. Why then, if you had a chapter 7 discharge, would you want to file a chapter 13 if you could not receive a discharge?
The answer is that you may wish to save your home from foreclosure. You can still file a chapter 13 and a chapter 13 plan, which will reinstate your mortgage. Since your mortgage would not be discharged anyway, it would not matter of you did not receive a discharge. This means you would reinstate your mortgage, but you would not get a discharge of your other debts. At least you would still have a house to pay them in!
This information sheet is intended as a summary of certain points only. The terms used in this information sheet are intended to be simple so that they can be understood, the law is much more detailed. This information therefore is not "the law" and is designed only to help you understand basic bankruptcy concepts. Each bankruptcy is unique. Your case may have special facts making further discussion necessary. Feel free to raise any issue if you feel uneasy or unsure about it. I do not charge for telephone time in a chapter 7 case.
What are the filing requirements and court fees for filing a bankruptcy?
The Bankruptcy Court for the Eastern District Of Pennsylvania has supplied us the answers to this question. Click here.
Where are section 341 Meetings of Creditors held in the Delaware Valley, PA region?
For a list of meeting locations, click here.
What should I bring to my meeting of creditors?
Your trustee will usually contact you or your lawyer with a list. It is recommended that your bring:
- Current pay check stub;
- Bank statements as of the date of filing;
- Copies of deeds and mortgages (with promissory notes-sometimes called bonds);
- Copies of other asset accounts;
- A list of pending lawsuits that you are bringing or ones in which you are a defendant;
- Any other proof of income or assets that the trustee directs.
You MUST also bring:
- Required before the meeting: Not later than 7 days before the date first set for the meeting of creditors the debtor must supply to the trustee a copy of the Federal income tax return required under applicable law (or at the election of the debtor, a transcript of such return) for the most recent tax year ending immediately before the commencement of the case and for which a Federal income tax return was filed. Your attorney will ask you for these in advance and he will usually send them to the trustee.
- Proof of identity (original driver's license or original governmental photo ID) and
- Your original social security card; paycheck stub with social security number on it or a W2.
- See this list as a guide as to what to bring for ID purposes. This list was prepared by Fred Reigle, a Chapter 13 Standing Trustee for the Eastern District of Pennsylvania. This guide was prepared under the old law and is subject to update.
I think I need to file right away. How do I start?
Normally, we do not require clients to fill out a myriad of forms before a case is filed. Our method of case preparation is to subject the client to as little "busy work" as possible and the interview is usually accomplished orally. However, if you wish to get a jump on the process it would help if you do the required credit counseling (1st or pre-filing course) at any number of bankruptcy credit counseling providers. Currently, an inexpensive on is DebtorCC which offers counseling for about $10. There are many others. Just Google it.
It would also help if you came to the office with:
- Your social security card and driver's license (or picture ID) ;
- At least 60 days pay advices;
- Your tax returns (PA and IRS) from last year;
C an I get bankruptcy forms on the internet?
Yes, but we do not encourage self-representation. You only get one chance in eight years to file a chapter 7. Representing yourself leaves your case open for possible serious irreparable error. Competent legal counsel. is a must in a bankruptcy case. However, you can obtain any form in Adobe PDF format here, from the Federal Judiciary homepage..
I received a bankruptcy and one or more creditors are still bugging me for money! I thought they my debts were cancelled; what do I do now?
When you receive a discharge in your bankruptcy case, what prevents your creditors from suing you again? What prevents them from asking, begging, or threatening you for the money you owed them? What if they just ask you nicely? What if they offer you a "special promotion," or perhaps gift if you pay your discharged debt; or perhaps just make a promise to pay? What if they say, "the discharge does not apply to us because you forgot to list us."
The Bankruptcy Code provides for this type of problem. 11 U.S.C §524 states:
(a) A discharge in a case under this title—
(1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under section 727. 944. 1141. 1228. or 1328 of this title, whether or not discharge of such debt is waived;
(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived;.
There is more to this section, but these are the relevant parts.
This means that it is illegal for your creditors to request payment after discharge. "Don't even ask," says the law, and if you do, we will punish you.
Punish how? With a contempt finding, and money awarded to the debtor including, actual damages (lost income, lost money wrongfully collected from the debtor, payment for medical bills for enduring stressful harassment, etc.; possibly emotional distress (in some districts), attorney's fees, and sometimes punitive damages in extreme cases.
We recently litigated an action against Cardiology Consultants of Philadelphia, ("CCP") whose main office is in Philadelphia. CCP had a patient which was a client of mine. The patient suffered from multiple disorders, several of which were cardiac in nature. The client filed a bankruptcy in 2010, and realized that CCP was not on the schedules. Normally, in a chapter 7 case, not adding an unsecured debt would still cause it to be discharged, but the client added CCP to the schedules nonetheless, albeit about 10 days before he received a discharge.
CCP received notice of the bankruptcy case and ceased billing the client until March, 2012, when collection began again in earnest. The amount of the obligation was only about $120. The client told CCP that the debt was included in the case and discharged. CCP was sent a copy of the discharge and later wrote to the client that the discharge did not apply to them because the debt was not included in the bankruptcy case. The client stated to CCP that the debt would have been discharged anyway, but yes, the debt was actually included. CCP tactics began to become more aggressive and stressful on their own cardiac patient (yes, over $120). The ping-ponging debates went back and forth for 10 days. Each time CCP asserting that they were somehow exempt from the discharge, and, yes, the very injunction discussed above. CCP then stated that they had "checked into" the bankruptcy case and sorry, the client still had to pay. There were perhaps 3-4 calls from CCP and just as many returned. All the bickering and acrimonious debating increased the client's blood pressure and diminished his health. Finally, on the 10th day of bickering, the client's blood pressure reached critical levels and hospitalization was indicated. The irony here is obvious, cardiologists hire collectors which cause cardiac problems, but seriously folks.
Case resolutiuon: CCP agreed to pay $10,000 to settle the claim, which was accepted as fair by all parties.
Of course, nothing in this case was indicative of the competency of the physicians employed by CCP. It is believed that they are all good and compentent doctors. This is simply a dispute between a patient and CCP's billers. Billers are not physicians. It is impossible to draw a conclusion as to the skill of any physician based upon his or her biller. To do otherwise would be clearly illogical and ridiculous.
This page has been active since 1/15/96.