Bankruptcy Basics: Introduction.
Although the debtor in most cases will be the primary source of the information needed to complete the petition and schedules, the following are some other sources of information that may prove helpful.
Although the debtor in most cases will be the primary source of the information needed to complete the petition and schedules, the following are some other sources of information that may prove helpful.
A recent credit report is essential for checking and supplementing the information provided by the debtor. Because credit reports often contain errors, however, the debtor should be asked to review the report for inaccuracies.
The consequences of repeated bankruptcy filings can be significant. See Chapter 4, supra. As a result, it is important to verify through the Public Access to Court Electronic Records (PACER) system whether the client has any prior bankruptcy filings.
The United States Department of Education’s central database for student aid can be found at http://studentaid.gov. This database receives data from schools, guaranty agencies, the Direct Loan program, and other Department of Education programs. Clients that have outstanding student loans should be asked to use the website to obtain a complete list of the client’s federal student loans by logging in with their Federal Student Aid (FSA) ID.
The debtor may have or may be able to obtain various documents that will assist in preparing the bankruptcy filing. Some of these documents may also be needed to satisfy a filing or document production requirement.
The Bankruptcy Code provides special treatment for child support payments and other domestic support obligations. Regardless of whether your client pays or receives support, obtain a copy of the divorce judgment or support order. In addition, an early estimate of any support arrearage will be helpful in determining the best course of action for the client. If your client was awarded property in a domestic relations court order, you should inquire about whether your client still owns and has possession of the property.
In many cases an automobile is not only the debtor’s most significant asset from a financial standpoint, but also in terms of day-to-day use. Many people rely on their motor vehicle to get to work, to take the children to school, and even to go to the grocery store. Loss of a car can have an enormous effect on the debtor’s ability to obtain a fresh start. Information about the car’s value and any applicable security interests will be needed to determine whether the debtor will be able to retain the car.
Certain limitations on the application of the automatic stay apply in cases in which a landlord has obtained a judgment for possession of the debtor’s residential, leased property before a bankruptcy case is filed. See Chapter 4, supra. If the client is behind on rent payments, it is critical to determine whether the landlord has taken any action to evict a client.
With the increase in housing opportunities and the availability of mortgage products designed to provide homeownership opportunities to low-income people, it is more likely that clients qualifying for pro bono assistance may own real property. Such debtors may be unaware that some of their debts are secured by mortgages, municipal liens, or judgment liens. A lien or title search will identify any encumbrances on the property and a determination can then be made as to how to deal with these claims in bankruptcy.
Some debtors may come to your office with a shopping bag full of credit card and other billing statements they have been collecting for months. You will not need all of these documents, though the debtor should be asked to provide you with a copy of the most recent statement for each account. These will help in listing creditor addresses, account numbers, and approximate balances on the bankruptcy schedules. Collection letters may be helpful in determining who is the current holder of the account, especially if the account has been sold to a debt buyer.
Certain types of information are frequently overlooked in the initial fact gathering stage. Given the broad definition of property and claims in the Bankruptcy Code, the Official Forms cannot be exclusively relied upon as a means of inquiring into nontraditional types of assets and debts. Some of the most commonly missed items in consumer bankruptcy cases are listed below. Inquiry should always be made into the following matters:
Whether, how, and when to file a bankruptcy petition is probably the most important single decision made in a bankruptcy case. Like most questions of legal strategy, it is rarely simple. It involves the interplay of a number of factors. Many of these factors are unique to each client; others turn on state law, custom, or practice in a community, or on the provisions of the Bankruptcy Code. While a more detailed discussion of chapter 7 and chapter 13 can be found below, there are some basic reasons to choose one chapter over another.
The following factors may favor filing a chapter 7 case:
The following factors may favor filing a chapter 13 case:
One factor to be considered when deciding upon a course of action is the timing of the petition. It is often stated that bankruptcy should be considered as a “last resort” for financially troubled consumers. This advice is oversimplified. In some cases, legal rights may be lost by delay. In many other cases, even after the debtor decides that a bankruptcy should be filed, it is advisable to wait before filing.
If the debtor is currently “judgment proof,” there may be little advantage to filing at a time when creditors’ attempts to collect will not result in the loss of the debtor’s property or income. Moreover, if a bankruptcy is filed at a time when the debtor does not have adequate auto or health insurance, the debtor may be worse off should they face a catastrophic event resulting in substantial obligations after filing.
Timing concerns may arise about potential avoidable transfers. If a debtor has made payments to an unsecured creditor that total more than $600 over the ninety days prior to the bankruptcy filing (or one year prior, if the creditor is an insider), this is considered a preferential transfer to the creditor (because this creditor is getting better treatment than the other unsecured creditors). The trustee can recover these preferential transfers from the creditor unless the creditor can assert certain defenses set out in section 547.
Most debtors who have given serious thought to filing bankruptcy have probably already considered other options and concluded that the alternatives to bankruptcy are not feasible. Even though this decision may have been reached, an amendment added to the Bankruptcy Code in 2005 requires that the debtor must receive a “briefing” from an approved budget and credit counseling agency within 180 days before a bankruptcy case is filed. This eligibility requirement for all individual debtors is found in section 109(h).
Section 521(b) requires an individual debtor to file a certificate from an approved credit counseling agency stating that the debtor has received the briefing required by section 109(h). If the agency developed a debt management plan for the debtor, the debt management plan must be filed as well. The certificate and the debt management plan, if any, should be attached to the debtor’s statement of compliance with the credit counseling requirement, which is Part 5 of the petition (Official Form 101) filed to start the case.
Most approved agencies charge between $20 and $50 for the pre-filing briefing (some agencies charge the same amount for a married couple if both spouses are counseled at the same time). However, section 111(c)(2)(B) requires approved agencies to provide bankruptcy counseling and the necessary certificates without considering the consumer’s ability to pay. If the debtor cannot afford the fee, they should request that the agency provide the briefing 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.
Approved agencies are allowed to provide the briefing in person, by telephone, or over the internet. Some agencies are able to provide the briefing immediately in an emergency case. At the counseling session, which usually takes less than an hour, the agency will prepare a budget that reviews the debtor’s income and expenses. Based on this budget, the agency will review possible options available to the debtor in credit counseling.
There are a few limited situations in which the debtor can request a permanent or temporary waiver of the briefing requirement. The request for a waiver or deferral must be in the form of a signed certification, which has been made part of Part 5 of the bankruptcy petition, and must be accompanied by a written motion. Courts have been very reluctant to grant waivers or deferrals, so every effort should be made by the debtor to complete the briefing before filing the bankruptcy petition.
There are several fees related to the initial filing of a bankruptcy case. For low-income debtors, these fees can be substantial. Thus it is important to discuss all anticipated fees with the debtor early on so that the debtor can begin saving funds or making other arrangements for payment, or so that the attorney can determine whether applicable fee waivers may be sought.
In addition to attorney fees, the debtor will need to pay approximately $20–$50 for the prepetition credit counseling briefing (discussed above) and approximately $30–$50 for the postpetition financial education course (discussed in Chapter 7). These fees may be waived if the debtor does not have the ability to pay them.
Finally, a bankruptcy petition presently requires a $313 filing fee in a chapter 13 case and a $338 filing fee in a chapter 7 case. The Bankruptcy Code and Rules permit the filing fee to be paid in installments or waived entirely for some debtors.