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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.

Bankruptcy Basics: Checking, Savings, or Other Financial Accounts

If the debtor has funds in a bank or credit union account, pension, or other savings instrument when the bankruptcy is filed, then they must be listed as assets in item 17. You do not need to include a full account number for each account, but the last four digits of the account number should be listed pursuant to Bankruptcy Rule 9037(a)(4). If the funds in the account cannot be exempted, then the debtor should consider converting them to exempt property, if possible, prior to the bankruptcy.

Bankruptcy Basics: Meeting of Creditors

The meeting of creditors, also sometimes referred to as the section 341 meeting, is conducted by the trustee. It gives the trustee and others a chance to examine the debtor and ask questions about the debtor’s financial affairs. Despite the name, few creditors appear at the meeting of creditors in a consumer bankruptcy. However the debtor (or both debtors in a joint case) must attend.

Bankruptcy Basics: Meeting of Creditors

The meeting of creditors is conducted by the trustee. The meeting of creditors gives the trustee and others a chance to examine the debtor and ask questions about the debtor’s financial affairs and the feasibility of the debtor’s plan. As in chapter 7 cases, few creditors appear at the meeting of creditors.

Bankruptcy Basics: Tax Information.

Copies of the debtor’s tax returns for the past two years should be obtained prior to filing a bankruptcy petition. If the debtor was not required to file a tax return (for example, because of insufficient income) that fact should be noted for each applicable year. If the debtor has debts owing to the Internal Revenue Service, tax transcripts for the years in question should be obtained to determine if the debts may be dischargeable.

Bankruptcy Basics: Bank Statements.

Obtaining bank statements for the three months prior to filing is advisable if the debtor has them. Bank statements can be reviewed to identify any unusual withdrawals from deposit accounts that may raise concerns about preferential transfers. Additionally, the debtor will be required at the meeting of creditors to provide the trustee with a bank statement that covers the date on which the petition was filed.

Bankruptcy Basics: Miscellaneous Court Fees.

In addition to the initial fees for filing the petition, the Judicial Conference of the United States approves fees to be charged for the filing of other documents and for various services provided by the bankruptcy court, such as fees for certifying documents, for amendments to the debtor’s schedules of creditors, and for motions to convert a case to chapter 7.

Bankruptcy Basics: Overview

Bankruptcy is a process under federal law designed to help individuals and businesses get protection from their creditors. In the short term, bankruptcy prevents continued efforts by creditors to collect debts. In the long term, bankruptcy can eliminate repayment obligations or provide for a restructuring of the debtor’s obligations, thus enabling the debtor to obtain a fresh financial start.

Bankruptcy Basics: What Bankruptcy Can and Cannot Do

One of the first steps in advising a client about whether to file bankruptcy is to review what is and is not possible in bankruptcy. Very often a decision not to file will be made quickly once the client becomes aware that certain perceived benefits cannot be achieved by filing bankruptcy. Similarly, for a debtor struggling to make do with the reduced income left over after a wage garnishment, a decision to file will be made with little hesitation when the client is informed that bankruptcy will stop the garnishment.

Bankruptcy may make it possible for the debtor to:

Bankruptcy Basics: Introduction.

There are many other factors the debtor will need to consider in deciding whether bankruptcy is the right choice. The debtor will need to weigh the advantages and disadvantages of filing. The following are some of the key reasons why consumers decide to file bankruptcy. Many of these considerations are discussed in more detail in Chapter 4, infra.

Bankruptcy Basics: Introduction

Most consumers file bankruptcy only as a last resort after carefully considering alternatives to bankruptcy. Still, it is advisable for the attorney to review possible alternatives with the debtor as well as to review the consequences of not filing bankruptcy. Debtors struggling to keep up with unmanageable debt will need to weigh alternatives such as those described below against the hardships that may be avoided by obtaining bankruptcy relief. In some cases these alternatives are not practical and bankruptcy simply may be the best or only realistic choice.

Bankruptcy Basics: Debt Settlement

Unlike credit counseling agencies, most debt settlement and debt negotiation agencies are for-profit businesses. Negotiation and settlement services are different from debt management services mainly because the debt settlement agencies do not send regular monthly payments to creditors. Instead, these agencies generally maintain the debtor’s funds in separate accounts, holding the money until the agency believes it can settle debts for less than the full amount owed.

Bankruptcy Basics: Mortgage Debt Issues.

Clients often have multiple debt problems and multiple objectives. For these clients, bankruptcy may be the first choice because of the centralized forum it creates to resolve all of the debtor’s financial problems and because of the benefits of the discharge. However some clients may have a problem with only one debt, often a home mortgage, which they have fallen behind on because of a temporary loss of income. In that situation the most effective way to resolve the problem and avoid foreclosure may be for the client to enter into a workout agreement with the mortgage lender.

Bankruptcy Basics: Protection from Debt Collection Harassment

Consumers with debt problems often want to file bankruptcy primarily to stop collection harassment. While this desire can be a good reason for seeking bankruptcy protection, there may be other ways to stop the harassment or to ease the consumer’s fears about the collection process. For some clients simply being advised that that they are “judgment proof” may reduce their stress and desire to file bankruptcy. Others are comforted in knowing that they can take steps to stop the collection calls.

Bankruptcy Basics: Introduction.

While most of the debtor’s expenses are incurred when the petition is filed, there are some additional costs that may arise after the bankruptcy is filed.

Bankruptcy Basics: Trustee Fees.

In addition to court fees, the trustee in a chapter 13 case is usually entitled to a commission of up to ten percent of the payments made through the plan. These payments are typically included in the amount that is paid by the debtor to the trustee under the plan. The standing trustee for your district should be contacted to determine the current percentage commission required to administer a chapter 13 plan.

Bankruptcy Basics: Introduction

Section 603(a) of the 2005 bankruptcy amendments, Pub. L. No. 109-8, 119 Stat. 118 (2005), required the United States Department of Justice to establish procedures to audit petitions, schedules, and other information in consumer bankruptcy cases filed on or after October 20, 2006. Pursuant to 28 U.S.C. § 586(f), the Executive Office of the United States Trustees (EOUST) contracted with private accounting firms to audit cases selected by the EOUST. In October 2006, the EOUST issued a notice containing debtor audit standards, 71 Fed. Reg. 58,005 (Oct. 2, 2006). It is reprinted below.

Bankruptcy Basics: Information on Debtor Audits

Pursuant to section 603 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, individuals who file for relief under chapter 7 or chapter 13 of the Bankruptcy Code are subject to audit. At least one out of every 1,000 individual chapter 7 and chapter 13 cases will be randomly selected for audit. In addition, a case may be selected for an exception audit (audit of a case with income or expenditures above a statistical norm).

Bankruptcy Basics: Listing of Forms

This subsection contains the forms required to institute a typical chapter 7 case. Also listed but not reprinted here are other official bankruptcy forms that may be required later in the case and selected forms promulgated by the Administrative Office of the United States Courts that are relevant to consumer bankruptcies.

Bankruptcy Basics: Notice Required by 11 U.S.C. § 342(b) for Individuals Filing for Bankruptcy

Section 342(b) requires the clerk of the bankruptcy court to give each consumer debtor a notice prior to the filing of the petition describing the chapters of the Bankruptcy Code under which the debtor may proceed, the services of credit counseling agencies, and the possible consequences of bankruptcy fraud. However, because section 521(a)(1)(B)(iii) requires the debtor’s attorney to file a certification that the attorney delivered the notice to the debtor, a represented debtor will receive the notice from their attorney rather than from the court.

Bankruptcy Basics: Individual and Joint Cases

An individual may file a bankruptcy case alone, even if the individual is married. Only an individual and their spouse may file a joint bankruptcy case. 11 U.S.C. § 302. A legally married same-sex couple may file a joint bankruptcy petition. Couples in certain other formal relationships may not file jointly, such as a domestic partnership or a civil union, or a marriage in a foreign jurisdiction that is not recognized in the United States (such as a non-consensual marriage).

Bankruptcy Basics: Amendments to Forms

Despite using best efforts to obtain complete and accurate information in preparing the forms, it is not uncommon for errors or omissions to be discovered after the documents are filed. If an amendment is needed, Bankruptcy Rule 1009 provides that the debtor may amend the filed documents as a matter of course at any time before the case is closed.