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Bankruptcy Basics: Financial Education Course

To receive a discharge the debtor must submit proof of completion of an “instructional course concerning personal financial management.” 11 U.S.C. § 727(a)(11). A similar requirement is imposed on chapter 13 debtors. 11 U.S.C. § 1328(g). To satisfy the requirement the proof of the course’s completion must show that the debtor took the course after the petition was filed.

Bankruptcy Basics: Filing the Certification

The certification of completion of the course must be prepared by the debtor using Official Form 423 and filed with the court. As of the publication of this book, the actual certificate from the provider is not submitted to the court, however, a rule change likely to take effect in December 2024 will modify this requirement to permit submission of the certificate from the provider in lieu of Official Form 423. In a joint case each spouse must complete and file a separate certification.

Bankruptcy Basics: Costs of Education Course

Most approved providers charge between $25–$50 for the education course. Section 111(d)(1)(e) requires approved providers to provide the course without considering the consumer’s ability to pay. If the debtor cannot afford the fee, they should request that the agency provide the course free of charge or at a reduced fee. It may be helpful if the agency is informed that the debtor is being represented pro bono or if the court has approved the debtor’s filing fee waiver request, as most providers will waive the course fees for such debtors.

Bankruptcy Basics: Asking the Court to Waive or Defer the Education Requirement

Similar to the prepetition credit counseling requirement, there are limited exceptions to the debtor education requirement for debtors who are (1) disabled or incapacitated, if that renders them unable to complete the course, (2) on active military duty in a combat zone, or (3) if the courses are not available in the debtor’s district. 11 U.S.C. §§ 727(a)(11), 1328(g) (incorporating 11 U.S.C.

Bankruptcy Basics: Procedure for Obtaining Discharge

Obtaining the discharge is normally a simple matter once all of the steps discussed above are completed. In a chapter 7 case the discharge order is usually entered soon after the time period for objections to discharge has passed, which is sixty days after the first date set for the meeting of creditors. See Bankruptcy Rule 4004.

Bankruptcy Basics: Credit Reports

Credit reports should be checked sixty to ninety days after discharge to verify whether creditors are properly reporting information about discharged debts as required by the Fair Credit Reporting Act (FCRA), 15 U.S.C. §§ 1681–1681x. The reporting of discharged debt and methods for obtaining credit reports are discussed more fully in Chapter 9, infra.

Bankruptcy Basics: Random and Targeted Audits

The 2005 amendments to the Bankruptcy Code require that audits be conducted to determine the accuracy, veracity, and completeness of debtors’ petitions, schedules, and other information required by sections 521 and 1322. See Pub. L. No. 109-8, § 603(a), 119 Stat. 23 (2005); 28 U.S.C. § 586(f). The United States Trustee Program began conducting audits in cases filed on and after October 20, 2006. At least one out of every 1,000 individual chapter 7 and chapter 13 cases is randomly selected for audit.

Bankruptcy Basics: Audit Procedure

The debtor is notified that their case has been selected for audit by a letter sent by the United States trustee early in the case, usually before the meeting of creditors. The audits are performed by independent firms selected by the United States Trustee Program using auditing standards developed by the Program.

Bankruptcy Basics: Attorney Certification As to Schedules—Section 707(b)(4)(D).

Section 707(b)(4)(D) provides that the signature of an attorney for the debtor on the petition certifies that the attorney has “no knowledge after an inquiry that the information in the schedules filed with such petition is incorrect.” To the extent that the schedules filed in a bankruptcy case are subject to Bankruptcy Rule 9011(b), this provision does not appear to impose a more stringent standard than under Rule 9011.

Bankruptcy Basics: Waiver.

Official Form 103B is an application to waive the chapter 7 filing fee. The chapter 7 filing fee may be waived for persons whose income is less than 150% of the federal poverty guidelines based upon family size. See 28 U.S.C. § 1930(f)(1); Chapter 5, supra.

Bankruptcy Basics: Credit Counseling.

Part 5 of the petition is the debtor’s statement of compliance with the credit counseling requirement. The debtor should either check the box indicating that the debtor received a briefing and has the certificate of completion, or that the debtor received the briefing but does not yet have the certificate of completion. In either case, the debtor must file a certificate from an approved credit counseling agency stating that the debtor has received the prepetition briefing.

Bankruptcy Basics: SCHEDULES D AND E/F—LIABILITIES

Schedules D and E/F divide all of the debtor’s liabilities into three categories: those owed to secured creditors, those owed to unsecured creditors entitled to priority, and those owed to unsecured creditors without priority.

Bankruptcy Basics: Eligibility

Any individual who lives in the United States or has property or a business in the United States can file a chapter 7 bankruptcy. There are a few preconditions to a bankruptcy filing, including the requirement that the debtor obtain a briefing from an approved credit counseling agency within 180 days before filing the petition, as discussed in Chapter 5, infra.

Bankruptcy Basics: Determining If Safe Harbor Applies.

The final step is to compare the debtor’s current monthly income multiplied by twelve with the state median family income for the debtor’s household size. If the debtor’s income falls below the state’s median family income, the debtor is protected by the safe harbor and the means test does not apply.

Bankruptcy Basics: Official Form 103B.

Under 28 U.S.C. § 1930(f)(1), debtors are permitted to seek a waiver of chapter 7 filing fees. The filing fee cannot be waived in a chapter 13 case but can be paid in installments, as discussed below.

Bankruptcy Basics: B.1.2 The Initial Forms

It is common for offices that handle significant numbers of bankruptcy cases to use special computer programs that generate bankruptcy forms based on input data. There are a wide range of such programs now on the market. For offices which do not currently have ready access to such a program, the simplest alternative is to use the blank official forms that are available for download in Adobe Acrobat (PDF) fillable format on the website of the Administrative Office of the U.S.

Bankruptcy Basics: B.1.4.1 Overview

Almost every bankruptcy court requires the filing of bankruptcy forms electronically. Whatever format in which the documents were created, the forms must be filed in Adobe Acrobat (PDF) format. This format is similar to an electronic photograph of the original document. An exception to the PDF requirement is that the creditor mailing list is filed in ASCII text (.txt) format.

Bankruptcy Basics: How to Use the Completed Forms

Reprinted below are the initial forms required to institute a bankruptcy case, including all form changes through July 2023. The forms have been completed for a sample chapter 7 bankruptcy. The completed forms are based upon fact pattern described below. The completed forms are annotated to offer additional information.

Bankruptcy Basics: OVERVIEW

There are many factors a client will need to consider in deciding whether to file bankruptcy. The attorney’s role is to help the client understand the factors that are relevant based on the client’s specific financial situation. The attorney should discuss with the client what may and may not be possible in the bankruptcy process. This Chapter reviews some of the initial considerations that should be discussed with the client.

Bankruptcy Basics: Introduction

Official Form 101 is the petition used to commence a voluntary case under chapter 7, 11, 12, or 13 of the Bankruptcy Code. The filing of the petition constitutes an “order for relief.” 11 U.S.C. §§ 301, 302. It also invokes the automatic stay, which takes effect immediately upon the filing of the petition, subject to certain exceptions. 11 U.S.C. § 362; Chapter 3, supra.

Bankruptcy Basics: Other Forms After Case Filed

Once the initial documents have been filed certain other documents and forms, such as a certification of completion of the financial education course and copies of tax transcripts or returns, must be filed with the court or provided to the trustee. These document requirements are discussed in Chapter 7, infra.

Bankruptcy Basics: Prior Bankruptcies.

The debtor must provide information concerning any bankruptcy cases filed within the previous eight years, and any already pending bankruptcy cases filed by a spouse or other affiliated person. In limited situations, a prior bankruptcy may preclude filing a new case. In addition, dismissal of a prior case may result in certain limitations on the automatic stay if a new case is filed within one year after the dismissal. The availability of a discharge may also be limited if a discharge was received in a relevant previous case.