Bankruptcy FAQs

What is Chapter 7 Bankruptcy?

The Chapter 7 Bankruptcy is the liquidation of all your debts without the necessity of having to make payments on a monthly basis. Your case is filed and completed in approximately ninety days. Chapter 7 is filed when there is no money leftover to pay creditors like your credit cards each month.  You may file for Chapter 7 bankruptcy every eight years, measured from the date of the earlier bankruptcy filing.  Therefore, if you filed on August 1, 2000, you will not be able to file again until August 2, 2008.

Under The Bankruptcy Reform and Consumer Protection Act of 2005-what we will simply refer to it as the "new law", you must pass the "means test" in order to qualify for Chapter 7 bankruptcy.

What is the "means test"?

Under The Bankruptcy Reform And Consumer Protection Act of 2005-what we will simply refer to it as the "new law", you must pass the "means test" in order to qualify for Chapter 7 bankruptcy.  What this means is that your monthly income must be below the median income for your state. The median income for your state is the amount that is sort of middle of the road income for a family of your size, whether it is just you or you and a spouse. We have provided you with the median incomes for each state in your printed materials, and they are accurate as of January 1, 2006.  Your income is determined by calculating your income for the six months prior to the filing of your bankruptcy. It does not matter if you are currently making that amount or some kind of attention getting So, if you are unemployed at the time of your bankruptcy filing, but had employment for the six months immediately before, your income will not be zero... it will be the average of the prior six months. Your income includes regular income from all sources except social security, which is not counted in your budget.  Please fill out the income sheet provided with your written materials. Once you have calculated the average of your monthly net income after taxes and deductions for the six months prior to filing...you must compare this to your state's median income.  If your income is greater than the state's median income-you "fail" the means test and you will likely be required to file a Chapter 13 payment plan, which we will discuss further in a few moments. Now, if your income is less than the state's median income for your family size, you pass the means test and are able to file for Chapter 7 wipeout.

What is a Chapter 13 bankruptcy?

The Chapter 13 bankruptcy means you will make payments on a monthly basis for up to sixty months to a case administrator known as a Trustee. This is the bankruptcy you file when you either do not qualify for Chapter 7, or you have priority debts like the IRS, child support, etc. that cannot be eliminated under Chapter 7 bankruptcy. Your attorney may advise you to do a Chapter 13 if you have IRS taxes, child support or alimony arrearages, or other non-dischargeable debt.

What forms make up the Bankruptcy Petition?

There is the Petition itself, The Schedules, The Statement of Financial Affairs, The Statement of Intentions, The Attorney Statement, and in Chapter 13 there is also what is known as the Plan. The Petition itself is a short document that just gives the debtor's name, address, approximate number of creditors and approximate total amount, how long you have lived in the jurisdiction, and whether you have filed for bankruptcy before. The schedules go from A - J as follows:

What is schedule A?

Schedule A consists of real property that you have an interest in such as your home, raw land, etc. Mobile homes are often listed under real property.

What is schedule B?

Schedule B consists of basically all other property you have aside from your real property.  It also includes cash, bank accounts, household goods like your furniture, cars, motorcycles, guns, computers, appliances, collections like a doll or baseball card collection, interests in insurance policies, IRAS, ERISA, pension or profit sharing plans, stocks, bonds, interests in corporation, partnerships, accounts receivables, and investments of any kind...as well as things like security deposits to which you have an entitlement and even the proceeds of a personal injury claim that you may have that you have not yet received. This is true even if you never filed a lawsuit. Therefore, if you got into an accident and filed bankruptcy before you received a settlement...it is likely the settlement will be taken by the Trustee and distributed to your creditors. It is important that you list everything. Failure to list all of your assets may be considered fraud and could land you in jail. That is no exaggeration. Trust me, "oops, I forgot I owned that old clunker in the yard will not keep you out of jail".  List everything! An important point to remember is that in many if not most states cash is not a protected asset. If you own a bank account at the time you filed your bankruptcy case...any funds in the bank account on the day you file may be ceased by the trustee and distributed to your creditors. There are sometimes "wildcard exemptions" which protected a certain dollar amount worth of property regardless of what the property is, even cash.

What is schedule C?

What are exemptions and how do they work?

Exemptions  refers to what property a person gets to keep, that may not be seized by creditors. Exemptions apply whether someone is in a bankruptcy or not.  There are both federal and state exemptions. Most states do not allow the federal exemptions just the state exemptions. Those that allow both require a bankruptcy filer to choose one or the other, either the state exemptions or the federal bankruptcy exemptions. You cannot mix and match.  The state exemptions have been provided in your written materials for each state. These materials also indicate which states allow you to choose the federal exemptions if you like. For some people, the state exemptions protect more of the type of property that a debtor in bankruptcy may have, for others...the federal exemptions may be more helpful.  There is no across the board general rule of thumb. Look at what you own and see what the exemptions allow you to keep, and then consult your attorney.  Here is an example of how an exemption works. In Nevada vehicles are exempt up to $15,000.00--you owned a car that was completely paid off and worth $10,000...the car would be totally exempt meaning the bankruptcy trustee would not take it. But, if the car was worth $20,000 and was completely paid off...then this would be $5000 more than the state exemption allows and the Trustee would probably seize the car and auction the vehicle to pay the $5,000 difference to the creditors.  Personal property is valued at garage sale value not at replacement value.  For example, a couch you paid $1,000.00 for...may only have a value on the bankruptcy schedules of $100. It is the amount that a reasonable person would pay for the property in its current condition-not new.  So don't overvalue your stuff when listing your assets. But don't undervalue your stuff either...you do that and you risk attracting the attention of the Trustee who may thinking you are trying to pull a fast one. A special note on home exemptions...also known as homestead exemptions.  Equity in a home is protected up to a certain amount  which varies from state to state. Equity is the difference between the value and the amount you owe. If your home is worth $200,000 and you owe $140,000, your equity is the difference of $60,000.

Homes purchased within 1,218 days before filing are limited to a cap of $125,000 in equity. For example, Nevada allows up to $350,000 in equity as of the writing of this material. But if you purchased your home less than 1218 days ago you would only be entitled to the cap of $125,000. If the cap in your state is less than $125,000, it remains unaffected, meaning it does not increase to $125,000 just because you bought it less than 1218 days ago. By the way, I have no idea why they came up with this precise number of 1218 days. Home exemptions are also limited to $125,000 if the debtor has been convicted of a felony, is guilty of state or federal securities fraud, racketeering, or intentional torts that have caused serious bodily injury or death within five years of filing.

Are there certain assets that are typically not protected?

Yes, the following is a list of following

• - cash,
• - money in bank accounts,
• - money in joint bank accounts even if the joint holder is not filing,
• - stocks that are not part of a 401k or qualified retirement plan,
• - bonds, certificates of deposits,
• - annuities,
• - cash value insurance policies,
• - jewelry,
• - furs,
• - art,
• - valuable collections,
• - boats,
• - recreational vehicles like ATVs, jet-skis, dirt bikes, etc.

What happens if I do not list all of my assets?

Failure to list all of your assets may be considered fraud and could land you in jail. And that is no exaggeration. Trust me, "oops, I forgot I owned that old clunker in the yard will not keep you out of jail". List everything!

Is cash a protected asset?

An important point to remember is that in many if not most states cash is not a protected asset. If you own a bank account at the time you filed your bankruptcy case...any funds in the bank account on the day you file may be ceased by the trustee and distributed to your creditors. There are sometimes "wildcard exemptions" which basically protected a certain dollar amount worth of property regardless of what the property is, even cash.

How does the trustee value my property?

Personal property is valued at garage sale value not at replacement value.  For example, a couch you paid $1,000.00 for...may only have a value on the bankruptcy schedules of $100. It is the amount that a reasonable person would pay for the property in its current condition-not new.  So don't overvalue your stuff when listing your assets.

What is a homestead exemption?

Equity in a home is protected up to a certain amount  which varies from state to state. Equity is the difference between the value and the amount you owe. If your home is worth $200,000 and you owe $140,000, your equity is the difference of $60,000. Homes purchased within 1,218 days before filing are limited to a cap of $125,000 in equity.

For example, Nevada allows up to $350,000 in equity as of the writing of this material. But if you purchased your home less than 1218 days ago you would only be entitled to the cap of $125,000. If the cap in your state is less than $125,000, it remains unaffected, meaning it does not increase to $125,000 just because you bought it less than 1218 days ago. ANTHONY: By the way, I have no idea why they came up with this precise number of 1218 days. Home exemptions are also limited to $125,000 if the debtor has been convicted of a felony, is guilty of state or federal securities fraud, racketeering, or intentional torts that have caused serious bodily injury or death within five years of filing.

What is schedule D?

Schedule D...your list of Secured Creditors. Secured creditors are creditors that have a security interest in a tangible piece of property like a home or a car. A mortgage company is a secured creditor. The mortgage is secured against the home itself. If you don't make the payments, they foreclose on the home. You must make sure that if you plan on keeping the property like your house or your car that you must continue to make your payments on time. We recommend sending the payments by certified mail so you have proof they received the payment. Some unscrupulous mortgage companies have been known to claim they did not receive payments so they could move forward with foreclosures on homes.  You cannot list a secured creditor in a bankruptcy and expect to keep the property. If you don't make the payment the creditor will repossess the property. Otherwise, people would go out and buy a Lamborghini and then file bankruptcy.

What is schedule E?

Schedule E is where you list Priority Creditors, or creditors that cannot simply be wiped out in bankruptcy.  These include certain federal and state taxes, child support arrearages, alimony arrearages, and student loans, among others.

May taxes be eliminated in bankruptcy?

As a rough guide, taxes must be at least three years old, you must have filed them with the IRS at least two years before the bankruptcy, the IRS cannot have assessed them within 240 days, and the taxes must not have become an IRS lien. If the taxes meet this criteria, you may be able to eliminate them without repayment. IRS liens may sometimes be eliminated in Chapter 13, however, this website focuses on the Chapter 7 filing.  IRS liens will not be eliminated in a Chapter 7 bankruptcy.

What is schedule F?

Schedule F lists the unsecured Creditors such as credit cards, charge cards, personal loans, bank loans, payday loans, medical bills, cell phone bills, etc.  It is extremely important that you list all of your creditors on your schedules. If a creditor is not listed, it will not be discharged, and that creditor will still be able to pursue you after your bankruptcy is over.  Provide your petition preparer with as many creditors as you can find. Also, make sure you list the collection agencies even if the debt is already listed under the original creditor. So, if Bob's Electronics turned the matter over to Nasty Collectors, make sure you list them both. More is definitely better. List everyone that could conceivable claim you owe them money. Even if you got into an accident and your not sure whose fault it was, still list the other driver in the bankruptcy or anyone else in the accident that might sue you, including any passengers in your own car. Even if it is a friend or relative. Blame it on your lawyer, say your attorney required you to list all potential creditors. Actually, this is not a lie, you must list all of your creditors.

What is schedule G?

Schedule G is a list of debts for which you have a co-signer. For example, if good old Dad co-signed on your vehicle, you would list that here. Keep in mind, that if you list a debt for which you had a co-signer, your obligation will be discharged in the bankruptcy but the creditor will still be able to go after good old Dad because he will still be on the hook for the debt he co-signed on your behalf.

What is schedule H?

Schedule H is a list of your unexpired leases or contracts like a vehicle lease or apartment lease.

What is schedule I?

Schedule I is your current income from any sources including, wages, social security, pension, disability, roommate contribution, family support, alimony, child support, etc. In this section, you also give marital status information, list of dependents, and specific employment information.

What is schedule J?

Schedule J is a list of your expenses like mortgage, rent, food, car payments, utilities, insurance, clothing, laundry expenses, gas for your vehicle, entertainment charitable contributions, etc. The expenses must be reasonable. Below is a list of common areas where debtors sometimes list unreasonable amounts. A reasonable range has been included.

Please keep in mind that you are filing a bankruptcy and wiping out your obligation to pay your creditors. Exhibiting to the Trustee that you live the lifestyle of the rich and famous is not too smart. Provide accurate information but use your head! Sit down and try to determine what you could prove if the Trustee asks you for proof. Around the time you decide to file, keep receipts from your expenses. Keep copies of your utility bills, car payments, insurance payments, grocery receipts, gas receipts, etc.

What is the statement of financial affairs?

The Statement of Financial Affairs is sort of a history that gives the Trustees and creditors a picture of what has gone on in your financial life and life in general for the past number of years.

What is the Statement of Intentions?

The Statement of Intentions indicates what you plan on doing with property secured by a loan, like your house or car. You have two primary options. Reaffirm the debt, meaning you will keep the property and promise to make payments on it in the future. Second, surrender the property, not make any further payments and not owe anything further. Under certain circumstances, you may also redeem property. This means that if the trustee has the right to cease a piece of property, you may pay the value of the property to the Trustee in order to keep it. The idea being that the Trustee will get the same value from you for distribution to the creditors that he would have gotten from the sale of the property through an auction or outright sale.

What is a reaffirmation agreement?

A reaffirmation agreement is a contract you sign with your secured creditors you are your mortgage company for your home or your credit union for your car. Reaffirming the debt means, you will keep the property and promise to make payments on it in the future.

What does it mean to surrender property?

Surrendering the property means that you are giving up your interest in the property and allowing the property to be repossessed by the secured creditor. The property will then be sold to cover the amount owed to the secured creditor. If the amount the property is sold for is less than the amount owed, you will not owe the deficiency to the secured creditor under Chapter 7.

What does it mean to redeem property?

This means that if the trustee has the right to cease a piece of property because it is not protected by an exemption, you may pay the value of the property to the Trustee in order to keep it. The idea being that the Trustee will get the same value from you for distribution to the creditors that he would have gotten from the sale of the property through an auction or outright sale. For example, let us assume that you are single and have two vehicles that are both completely paid off. If your state only allows you to keep one of the two vehicles, you may pay the trustee to keep the second vehicle.

What is credit counseling?

Credit counseling is a one-time, one-hour session that everyone who files bankruptcy must participate in prior to filing bankruptcy. At the end of the session, a certification will be provided showing the debtor attended a mandatory consumer credit counseling session. This "session" may be attended in person, telephonically, or even via internet.  Only agencies recognized by the Office of the United States Trustee will be accepted.  Otherwise, you have just wasted your time and your money on a useless certification. A list of approved credit counseling agencies is provided.

What happens when the bankruptcy is filed?

The first thing is the Automatic Stay. The automatic stay makes it a violation of federal law for any of your creditors to pursue any remedies against you including filing a lawsuit, continuing an existing lawsuit, sending you letters requesting money, or even calling you on the telephone.  A creditor violating this rule may be brought before the Court and sanctioned.  However, a creditor may also file a motion with the Court seeking permission to continue to pursue collection actions. This typically only happens if you are delinquent on your payments on a house, car, or other secured loan. The Court will generally conclude that if you are not paying for it, than you do not deserve to keep it. This does not apply to property obtained with an unsecured credit card. For example, if you buy a toaster with a Visa card, Visa will not come and ask for the toaster back. Unless of course, you bought the toaster immediately before filing in which case they may ask for the money back for the charge, but you'll probably get to keep the toaster.

What is the 341 meeting of creditors?

About 30 - 35 days after filing you attend what is known as the 341 Meeting, commonly known as the Meeting of Creditors. This is a meeting of your creditors and its name refers to section 341 of the U.S. Bankruptcy Code. Your attendance is required. Creditors rarely show up for this meeting. It will be you, your attorney, and the U.S. Trustee.

The Trustee is the person who administers or handles your bankruptcy matter. He/she actually represents the creditors and their job is to find any property you have that is not protected by a federal or state exemption, and take that property so it may be sold and distributed to your creditors.  You're going to see other people at this meeting also. They are more than likely not your creditors, but instead other debtors and their lawyers. A creditor may be there for your case, but not usually. This is probably because there is little the creditors can do to hurt you in bankruptcy if you have honestly filed your schedules and have very little in the way of assets.  The meeting itself takes about five to ten minutes once your name is called.  The Trustee will ask you to provide identification in the form of a driver's license, or a state picture identification card, as well as a second form of social security identification such as a social security card, W-2 statement, or paycheck stub. The Trustee will then swear you in under oath. This oath states that you will tell the truth. The hearing is conducted under penalty of perjury just as if you were in a courtroom in front of a judge. The Trustee will ask you a series of questions that may vary from Trustee to Trustee and even from debtor to debtor in front of the same trustee. Typically, these questions involve confirmation of name, address, phone number, etc. They may also ask questions about assets that you have and whether you have listed any of your creditors. However, they may ask you questions about anything relating to your bankruptcy schedules or pertinent to your filing bankruptcy.

How should I answer the questions the Trustee asks?

Honestly and briefly. Do not give your entire life story if you are asked for a "yes" or "no" answer, just answer "yes" or "no." Answer the question and do not offer more than what you have been asked!

When will I receive my discharge?

The Debtor will typically receive a Notice of Discharge about sixty days after the 341 hearing. This notice does not come from your attorney's office. It is an order from the United States Bankruptcy Court indicating your debts have been discharged, meaning the creditors can no longer pursue you for the debts. The debts that were eliminated in the bankruptcy are not individually listed on the discharge order; so don't think something is wrong, or that all of your debts have not been wiped out, if you don't see them on this form.

What debts are not dischargeable in bankruptcy?

Certain debts are not dischargeable in bankruptcy. These include:

What is bankruptcy fraud?

There are four primary types of bankruptcy fraud.

1) Actual Fraud: let's say you fill out a loan application and lie, and say your income is $60,000 when you really only make $30,000. The creditor could say your debt was incurred through fraud meaning they relied on your false statement in making their decision to lend you money, and  they may claim you cannot discharge this amount in bankruptcy.

2) Debts for Luxury Goods which cost more than $500.00, and were purchased within  90 days of filing. If you decide to buy a big screen television and then go bankrupt this plan will not work, and will be presumed to be fraudulent if done within 90 days.

This does not mean wait 91 days. After 90 days, there is no presumption, meaning the debtor does not have the burden to show it was not fraud. However, the creditor can still show actual fraud by proving the debtor did not intend or did not have the means to pay for the purchase.  It is then on a case by case basis and the judge will decide. Do not think you are "home free" on day 91!

3) Cash advances in excess of $750.00 within 70 days. These are presumed fraudulent, meaning you as the debtor has the burden of proving that taking the money so close to filing the bankruptcy was not an intentional fraud.

4) Debts for Crimes like Embezzlement are considered fraud. This is where you are trusted with someone else's money and you decide to use it for your own purposes. For example, you collect and are in control of money for a charity and then buy a new car for yourself.  Theft is also considered a type of fraud under bankruptcy. Debts from any of these actions are considered fraud and may not be discharged in your bankruptcy filing.

What happens if I commit fraud?

First, you could be subject to criminal fines and potentially jail time! No joke.  The creditors may also object to your bankruptcy discharge or seek dismissal of your case. You will also not be able to wipe out those debts if your are conclusively found to have committed fraud.

How else may my case get dismissed?

Your creditors may object to the discharge of your case or seek dismissal if you engage in certain inappropriate conduct or fail to comply with the bankruptcy process requirements. This means they ask the court to enter an order which basically nullifies your bankruptcy filing and allows your creditors to pursue you again as if you never filed.Typical examples include making false statements in your bankruptcy schedules, concealing property or assets of any kind, falsification, destruction, or refusal to produce documentation.  It may also include an inexplicable loss of money or an asset. For example, you sell a house in February and make $50,000 off of the sale. You then file your bankruptcy two months later and can't explain what happened to the money or have a lame explanation.  The typical one used is claiming it was gambled. Believe me; the judges and trustees have heard this one before. Unless it is actually true and you can somehow prove it, do not make this claim. You may also receive an objection to our discharge if you transferred property just before filing.

What if I repaid a friend or family member money within one year of filing?

Repayments to friends or family members are considered insider transfers and are a big no, no. Therefore, you cannot take your $20,000 in cash in your bank account and then say, "Oh, I had to give that to my brother John because I happened to owe him $20,000.00."  Any repayments to friends or family members within one year are considered fraudulent. They will go after your friend or family member to get the money back!

What if I filed bankruptcy before?

There must be at least eight years from the earlier filing date to the later filing date. If you didn't wait the eight years since you filed your last Chapter 7 bankruptcy than the case will be dismissed.  Another thing to bare in mind is that the Trustee may also move to dismiss your bankruptcy which basically has the same affect of rendering your bankruptcy filing useless.

What if I miss my 341 meeting?

The most common reason for dismissal is failure to show up for your meeting of creditors. They may continue it one time if you miss your hearing but after that they will dismiss your case. Make sure you do not miss this meeting, it really makes the trustees angry sometimes. Also, if you have a lawyer, you may have to pay your attorney to attend the extra hearing.

What if I refuse to turn over an asset, like my tax refund?

Another common reason for dismissal is refusal to turn over an asset that is not protected by an exemption. For example, the Trustee finds out you have a jet ski that is not protected and you refuse to hand it over. The trustee will file a motion to dismiss your case.

What if the Trustee requests documentation and I do not respond?

Any noncompliance with a request of the Trustee such as for you to produce documentation, etc. may result in dismissal. If the Trustee or your attorney asks you for documentation, don't put it on your "to do" list, just get it to them immediately.