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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.

Consumer Bankruptcy Law and Practice: 3.2.1.1 General Rules, Including Credit Counseling Requirement

Any individual residing, domiciled, or having property or a place of business in the United States may file a petition to commence a chapter 7 bankruptcy case.3 To be eligible, the individual must, with certain limited exceptions, have received a credit counseling briefing from an approved nonprofit budget and counseling agency within the 180 days before filing the bankruptcy petition.4 The individual need not be insolvent.

Consumer Bankruptcy Law and Practice: 7.3.13.4 Application for Waiver of Filing Fees in Whole or in Part

A chapter 7 debtor whose income is below 150% of the poverty level based upon family size may apply for a waiver of all filing fees.307 The form for the application is Official Form 103B, which also contains a proposed order. The form requests information about the debtor’s income, expenses, major assets, and payments for bankruptcy services. Parts of the form need not be completed if the debtor’s schedules are filed with the petition and copies of the requested completed schedules are attached to the form.

Consumer Bankruptcy Law and Practice: 12.10.1 Availability of a Discharge

One important distinction between chapter 13 and chapter 7 is the debtor’s right to file a chapter 13 case that will result in a discharge within eight years of a prior chapter 7 case that resulted in a discharge. This right exists because sections 727(a)(8) and (9), barring a chapter 7 discharge within eight years after any chapter 7 case resulting in a discharge and six years after many chapter 13 cases in which a discharge was granted, are clearly inapplicable to chapter 13.

Consumer Bankruptcy Law and Practice: 12.9.1 Definition of Executory Contract

Another important feature of chapter 13 is found in section 1322(b)(7). This section provides that the debtor has the power to assume or reject any executory contract or unexpired lease. Prior to 2005 this power could be exercised in a chapter 7 case only by the trustee.479 Indeed, a default or anticipated difficulties with respect to an executory contract or lease may be a prime reason for choosing to file under chapter 13.480

Consumer Bankruptcy Law and Practice: 9.7.3.3.1 Valuation problems

Necessarily, the tactics to be followed in litigating to preserve the automatic stay vary from case to case. Certain issues, however, are likely to recur frequently, and certain strategies are likely to be repeatedly useful.

One problem that will very often arise is that of proving the value of property.524 Although the party seeking to lift the stay has the initial burden on the question of equity, it will normally be necessary to have evidence ready to rebut that party’s proof. Obtaining such evidence is not always easy.

Consumer Bankruptcy Law and Practice: 7.3.7.2.3 Schedule C—property claimed as exempt

Schedule C is the debtor’s list of property claimed as exempt. Normally, it is permissible to incorporate by reference much of the listing in Schedules A/B, by referring to the applicable line on Schedule A/B, in order to avoid repetition, and most bankruptcy software programs are designed to avoid the need to re-enter the debtor’s assets.109 As always, though, local practice should be checked.

Consumer Bankruptcy Law and Practice: 10.2.1.1 Generally

In many states, a debtor may choose from two sets of exemptions. As under the prior law, a debtor in any state may choose to utilize the exemptions provided by state law, as enhanced by section 522(b)(3)(C), and the exemptions provided by federal nonbankruptcy law (for example, laws protecting Social Security benefits and veterans benefits, and so forth). If the debtor chooses the state exemptions, then certain other property of the estate not normally subject to process under state law may also be claimed as exempt.21

Consumer Bankruptcy Law and Practice: 10.2.3.4.1 Introduction

The 2005 Act added three new subsections to section 522 that prevent the debtor from taking full advantage of state homestead exemptions under certain circumstances. These provisions deal with the prepetition conversion of nonexempt property with fraudulent intent (section 522(o)), the acquisition of homestead property within 1215 days before the bankruptcy filing (section 522(p)), and the commission of certain bad acts by the debtor (section 522(q)).

Consumer Bankruptcy Law and Practice: 7.3.7.3.2 Schedule D—secured debts

Schedule D lists all secured creditors. This schedule should include all creditors that hold liens, even if they are undersecured or have a completely unsecured lien, and even if their liens can later be avoided by the debtor or trustee.140 Creditors holding security deposits also should be listed here, as well as creditors holding less noticeable types of security interests, such as those in the refunds of credit insurance.

Consumer Bankruptcy Law and Practice: 7.3.7.4 Schedule G: Unexpired Leases and Executory Contracts

Schedule G, the schedule of unexpired leases and executory contracts, is required in all cases. It 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.159 Although the issues that might be raised by the schedule are rarely of great importance in consumer cases, the schedule is not difficult to complete.

Consumer Bankruptcy Law and Practice: 7.3.7.5 Schedule H: Codebtors

The debtor’s codebtors, other than a spouse in a joint case, should be listed in Schedule H. The instructions for the Official Form provide that, in community property states, a married debtor not filing a joint case should always report the name and address of the non-debtor spouse, together with any other names used by the non-debtor spouse within the previous eight years. As discussed above, codebtors may also be listed as creditors in Schedule F due to any potential subrogation claims that could arise if the codebtors later pay off the obligation.

Consumer Bankruptcy Law and Practice: 9.3.3.2.2 Demonstrating good faith for extension of stay past thirty days

On the motion of a party in interest, after notice and a hearing held before the thirty-day period expires, the court may extend the stay as to all or some creditors upon a showing that the case was filed in good faith.25 If the court extends the stay, it may impose conditions or limitations upon it.26 The provision does not define good faith for purposes of this stay limitation, but good faith with respect to the filing of a case has been given a recognized meaning by existing case law.

Consumer Bankruptcy Law and Practice: 9.3.3.3 Two or More Cases Dismissed Within Previous Year

If an individual debtor has had two or more cases dismissed within the year before the petition is filed, section 362(c)(4) of the Code provides that the automatic stay under section 362(a) does not go into effect upon the filing of any case, other than a case refiled under section 707(b).50 Because the provision applies to each debtor individually, the expiration or inapplicability of the stay as to one debtor does not apply to a joint debtor who has not filed a prior case.51 On a motion filed by a

Consumer Bankruptcy Law and Practice: 9.4.6.1 Generally

The breadth of the automatic stay is narrowed by twenty-eight exceptions listed in section 362(b). Many of these exceptions have little bearing in consumer cases (such as those concerning commodity futures or Department of Housing and Urban Development foreclosures on multi-family dwellings). Some, though, are significant in particular cases.