Skip to main content

Search

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: 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.

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.