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Bankruptcy Basics: Claims Against Third Parties

If the debtor has any potential causes of action, it is very important to list them both on Schedule A/B and on Schedule C (if an exemption can be claimed). The potential claims should be listed even if the debtor expects only to use the claim defensively (for example, as an objection or by way of recoupment to a creditor’s proof of claim). The debtor’s failure to list causes of action or claims may preclude the debtor from pursuing them after bankruptcy under the doctrines of standing and judicial estoppel.

Bankruptcy Basics: Other Contingent and Unliquidated Claims

Any other personal property not listed earlier should be listed in this category. For example, wages garnished prepetition should be listed here on Schedule A/B and exempted on Schedule C if an exemption is available. Wages in excess of $600 that were garnished in the ninety-day period before the bankruptcy filing, such as in the sample case, may be recovered as a preference pursuant to section 547.

Bankruptcy Basics: SCHEDULE C—EXEMPTIONS

Schedule C is the debtor’s list of property claimed as exempt. The goal in completing this schedule is to exempt as much as possible—preferably all—of the client’s property. In the case of most low-income clients that is generally not difficult. The items listed in Schedule C should be checked against Schedule A/B to be sure that nothing has been inadvertently omitted and that the current market values listed for the items are identical. Exemptions claimed on Schedule C shall be allowed unless a party in interest timely objects and the objection is granted by the court.

Student Loan Law: 11.4 Other Profession-Related Discharges

In addition to the Public Service Loan Forgiveness and Teacher Loan Forgiveness programs, there are several smaller, profession-related discharge programs. In addition to the programs described in this section, there are a number of profession-related discharge programs for Perkins Loans only, which are discussed at § 11.5, infra.

Consumer Bankruptcy Law and Practice: 12.3.6.1 Priority Claims

One group of unsecured claims must normally be paid in full through the chapter 13 plan. Section 1322(a)(2) of the Code requires that the plan provide for payment in full of all claims entitled to priority under Code section 507(a), unless the holder of the claim agrees otherwise.

A priority creditor who fails to object to a plan proposing less than full payment may be deemed to have agreed to it.277 In any case, if such a plan is confirmed, the creditor is bound by it.278

Bankruptcy Basics: SCHEDULE E/F—UNSECURED CREDITORS

Schedule E/F is broken down into two parts. Part 1 lists the different categories of debts that may have priority under the Bankruptcy Code, such as taxes and domestic support obligations. Part 2 is for creditors with nonpriority unsecured claims. Boxes on the official form should be checked to designate which types of priority debt the debtor has or to note that the debtor has no priority obligations.

Bankruptcy Basics: SCHEDULE G—EXECUTORY CONTRACTS AND UNEXPIRED LEASES

The debtor must list on Schedule G any unexpired leases and executory contracts. This schedule is designed primarily to put the trustee on notice of leases or other executory contracts that might be assumed or rejected because of their potential benefit or cost to the estate. An executory contract is broadly defined as one for which significant aspects of performance remain due on both sides. An unexpired lease is one that has not yet terminated according to its terms. If the debtor has no unexpired leases or executory contracts, the debtor should check the applicable box.

Consumer Bankruptcy Law and Practice: 12.8.4 Proof of Insurance

Under section 1326(a)(4), a debtor who is retaining personal property subject to a lease or that secures a purchase money claim is required to provide the lessor or creditor reasonable evidence of the maintenance of any required insurance coverage. Normally, such creditors or lessors already know if insurance lapses, as they are named as loss payees in the policy. Only when insurance has lapsed will such evidence be important to creditors or lessors.

Bankruptcy Basics: Schedule J—DEBTOR’S EXPENSES

Schedule J requires information about the expenses of the debtor and the debtor’s family. Many debtors have only a vague idea of what they spend for various items, and have often spent less than necessary for things like home maintenance and clothing because they were trying to make debt payments they no longer will have to make. The debtor’s expenses usually can be estimated, within the limits of realistic planning, in a way that presents the case in a favorable light.

Bankruptcy Basics: Part 1

Part 1 includes three questions about the debtor’s background. Question 1 asks for the debtor’s marital status. Question 2 requires the debtor to provide all prior addresses where the debtor resided within the previous three years. The debtor does not need to list their current residence. The answer to this question may help the trustee or other parties verify the identity of the debtor and determine whether the debtor’s claim of exemptions is proper under the domiciliary requirements of section 522(b)(3)(A). Ms. Reyes has listed her former residence.

Bankruptcy Basics: Part 3

Part 3 contains questions about prepetition payments or transfers of property by the debtor, particularly as they relate to the trustee’s avoidance powers under sections 547 and 548. Question 6 asks whether either debtor’s debts are primarily consumer debts. If so, the next question requests information from these consumer debtors about loans and other debts on which more than $600 was repaid within the ninety days prior to the bankruptcy.

Bankruptcy Basics: Part 4

Part 4 contains questions about legal proceedings involving the debtor or the debtor’s property. Question 9 asks the debtor to provide information about all lawsuits and administrative proceedings involving the debtor that are pending or were terminated within the previous year. When such pending proceedings involve claims brought by the debtor they should also be included on Schedule A/B as property of the debtor and on Schedule C as exempt, if possible.

Bankruptcy Basics: STATEMENT OF INTENTION

Another required document in chapter 7 cases (but not in chapter 13 cases) is the statement of intention (Official Form 108) regarding property securing debts and leased personal property. 11 U.S.C. § 521(a)(2)(A); Bankruptcy Rule 1007(b)(2). This document must state certain intentions of the debtor, as of the date of its filing, with regard to any property, real or personal, that serves as collateral for a debt. In addition, this form requires the debtor to state the debtor’s intentions with respect to leases of personal property.

Bankruptcy Basics: Part 1

Part 1 of Form 122A-1 is the calculation of monthly income for the purposes of section 707(b)(7), which creates a safe harbor from the means test for lower income debtors.

Bankruptcy Basics: Form 122A-2 and Form 122C-2

Those debtors who must complete Form 122A-2 or Form 122C-2 must consult the Internal Revenue Service living expense standards to answer the first few questions of Form 122A-2 and Form 122C-2.

Consumer Bankruptcy Law and Practice: 9.3.3.1 Generally

Generally, if a case is dismissed, and a new filing is appropriate, a new automatic stay comes into effect.17 However, counsel should take care that the subsequent filing is in good faith and not barred by the 180 day limit of 11 U.S.C. § 109(g).18 If relief from the stay is granted or the stay is terminated during a case, conversion of the case to another chapter does not create a new stay.19

Consumer Bankruptcy Law and Practice: 9.4.6.6.1 Introduction

The 2005 Act created two new limitations on the automatic stay in landlord-tenant matters. These are likely to cause hardship to some tenants seeking to avoid homelessness by curing rent arrearages through chapter 13 bankruptcy. They are also likely to cause confusion among landlords and lead to violations of the automatic stay.244

Bankruptcy Basics: Automatic Stay

The automatic stay is a fundamental cornerstone of the bankruptcy system established under the Bankruptcy Code. It is triggered instantly upon the filing of a bankruptcy petition. 11 U.S.C. § 362(a). With few exceptions the automatic stay stops creditors from taking collection action, pursuing or continuing a court case against the debtor, or seizing any property of the debtor based on debts that arose before the bankruptcy petition is filed. The stay covers, for example, repossessions, attachments, foreclosures, utility shut-offs, property tax sales, and evictions.

Consumer Bankruptcy Law and Practice: What Is Included?

This appendix summarizes state exemption statutes. It focuses on statutes that exempt property of consumer debtors from collection by creditors. Statutes that provide special exemption rules for child support or other family support collections, or for other special types of debts, such as reimbursements to the state, are not summarized here.

Bankruptcy Basics: Exempting Tax Refunds

Income tax refunds, including child tax credit and earned income tax credit (EITC) payments, can be significant and needed assets for many lower-income debtors. To the extent that tax refunds become property of the estate based on the timing of when the bankruptcy is filed, the debtor will want to claim some or all of the tax refunds as exempt. In non-opt out states, this is typically done by claiming the wildcard exemption under section 522(d)(5), which can exempt up to $15,425 in tax refunds depending upon how much of the unused homestead exemption is applied.

Bankruptcy Basics: Protection of Exempt Property from Lien Creditors

A chapter 7 or chapter 13 bankruptcy may protect the debtor’s exempt property from collection actions of a judgment creditor by providing for the avoidance of judgment liens under section 522(f), to the extent such liens impair the debtor’s exemptions. This provision also permits the avoidance of certain nonpossessory, nonpurchase-money security interests in exempt personal property. Moreover, a debtor may avoid certain prepetition involuntary transfers of property that the debtor could have exempted.

Bankruptcy Basics: Overview.

An individual whose debts are primarily consumer debts may face dismissal of their bankruptcy case if it is deemed to be an “abuse” of the bankruptcy system. This abuse may be established in one of two ways: First, and less commonly, if the movant can show the debtor is using bankruptcy for an improper purpose, such as stalling for time with no intent of obtaining a discharge or if the debtor clearly has the ability to pay all or most of the debts.

Bankruptcy Basics: Median Family Income.

The next step is to obtain the applicable median family income. These figures for each state and household size can be found on the United States Trustee Program’s website at https://www.justice.gov/ust. The specific income figure used will be for the debtor’s household size. As the Bankruptcy Code does not define household, some courts apply the Census Bureau definition, which generally includes all people who occupy a housing unit regardless of relationship.

Bankruptcy Basics: Application of the Means Test.

Once the allowed expenses are determined and totaled, this amount is subtracted from the debtor’s current monthly income and then multiplied by sixty. The debtor “flunks” the means test, meaning that a presumption of abuse exists, if this amount exceeds the lesser of: (1) $9,075 or 25% of nonpriority unsecured debt, whichever is greater, or (2) $15,150. Put another way, a debtor may file a chapter 7 case without a presumption of abuse arising if their monthly income after expenses is less than $151.25 per month ($9,075 ÷ 60).

Bankruptcy Basics: When Advisable.

A reaffirmation is an agreement entered into during bankruptcy by the debtor with a particular creditor in which the debtor agrees to remain legally obligated on some or all of a debt that would otherwise be discharged. Such agreements must meet specific requirements provided in section 524 to be enforceable.