OK, I filed...Now What?
Posted by: Michael Schwartz
September 11, 2007
Topic: During the Bankruptcy

Chapter 7

Once the Chapter 7 bankruptcy petition has been filed, the next step is the 341 Meeting of Creditors.  At the Meeting of Creditors, you and your attorney will meet with the Trustee assigned to your case.  The Trustee is appointed by the Judge to oversee your case.  All of your creditors are invited to this Meeting and are allowed to ask questions to the Debtor.  Very often, creditors do not appear.  In a case where there is no assets to distribute (all of the debtor's assets are exempted), there is little purpose for the creditor to appear at this meeting - they will receive nothing in the bankruptcy regardless.  Sometimes, a creditor will appear to ask questions if they believe there may be some kind of fraud involved with the bankruptcy filing.  At the Meeting of Creditors, the Trustee will ask questions of the Debtor to establish that the information provided in the petition is accurate and that the Debtor is a good candidate for a Chapter 7 discharge.  The Trustee will also ask questions to ensure that all of the property owned by the Debtor is exempt and that there are no assets to distribute.

It is important that the Debtor continue to make payments to all secured creditors for property that the Debtor wants to keep.  Sometimes, a creditor will stop sending statements to the Debtor to comply with the no-contact requirement.  This is not a reason to stop making payments.  Debtors must maintain their payments current with their secured creditors to avoid repossession or foreclosure of property.

Within five months of filing the Chapter 7 bankruptcy, the Debtor should receive his discharge (provided there are no complications in the case, i.e., objections filed by creditors).  Once the discharge order is executed by the Judge, the Debtor is legally no longer obligated to repay their unsecured debts.

Chapter 13 

After filing the Chapter 13 bankruptcy, notices are required to be sent to creditors.  If the Chapter 13 bankruptcy was filed under an emergency situation (i.e., pending sheriff sale), your attorney will provide the appropriate notifications to stop the action and preserve your property.

Payments on all secured creditors (mortgages, car loans) are required to be paid with the next payment due after filing for the remainder of the bankruptcy.  It is critical to note the date of filing of the bankruptcy.  The day your payment comes due on the mortgage/car loan following the petition filing date, a payment must be made.  Additionally, thirty days after the filing of the bankruptcy, the first payment to the Trustee becomes due.  The amount of your payment to the Trustee is determined by your Chapter 13 Plan.  Your lawyer should notify you where to send this payment and how much the payment needs to be.  The Trustee will only accept certified funds (bank check or money order).  If a personal check is sent, it will be returned and not be credited.  It is critical to keep good records of your payments to the Trustee and mortgage.  If a dispute arises about missing payments, it is important that the Debtor have good records of the payments made to withstand and challenge.  Sometimes, it becomes necessary to trace money orders to verify receipt of payment.

After about five months, the confirmation hearing will be held.  At the confirmation hearing, your bankruptcy will either be approved or denied.  The Trustee will examine your payment history to ensure that you are making your payment timely.  Additionally, your Chapter 13 Plan must pay all necessary creditors over the length of the bankruptcy.  Often, your lawyer will need to file amendments to the Chapter 13 Plan to ensure that there is adequate funds in your plan to pay your creditors (the original plan was based on estimates; the amended plan will be based upon the actual claims filed by the creditors).  Accordingly, it is not unlikely that your payment to the Trustee will change prior to the confirmation hearing.  Once the Chapter 13 Plan is confirmed, the payment usually remains constant for the remainder of the bankruptcy.

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Advantages/Disadvantages to Filing for Bankruptcy
Posted by: Michael Schwartz
August 29, 2007
Topic: Bankruptcy Filing Considerations

When I meet a potential client for the first time, it is necessary to determine whether or not a bankruptcy is beneficial for that potential client.  Part of that analysis it reviewing the advantages and disadvantages to filing for bankruptcy.

ADVANTAGES

The Discharge - The principal goal of most Chapter 7 bankruptcies is to achieve a discharge of unsecured debts.  By obtaining a discharge in bankruptcy, the Debtor (person filing for bankruptcy) is no longer legally obligated to repay the debt.  The bankruptcy is a quick and easy way to end creditor harrassment, anxiety, and financial stress normally associated with a high amount of debt.

Protection of Property - When a creditor sues and obtains a judgment, their next step is usually execution on that judgment.  When executing on a judgment, a creditor can force the sale of personal property and garnish bank accounts.  Bankruptcy is a sure way to stop the creditor from execution and protect the Debtor's property. It is important to note that the amount of property that bankruptcy will protect is limited by the allowed exemptions under the bankruptcy code.

Modification or Elimination of Secured Debt - Bankruptcy gives Debtors ways to deal with secured creditors.  In some instances, judgment liens against one's home can be eliminated in bankruptcy.  In a chapter 13 case, payments on secured debts may be reorganized and a reasonable time can be gained to cured any defaulted secured debt.  Often, this will allow a client to keep a home or car that would otherwise be lost to foreclosure or repossession. 

The Automatic Stay - Once a bankruptcy is filed, the automatic stay forces an abrupt halt of most creditor actions, including repossessions, garnishments, sheriff sales, foreclosures, utility shut-offs, lawsuits, and in many cases, evictions.

DISADVANTAGES

Dispite all the the advantages that bankruptcy offers, there are reasons for choosing not to file a bankruptcy petition.  Sometimes, particular facts to a case would cause a negative effect in bankruptcy; sometimes, someones issues can be addressed without the need for filing bankruptcy.

Loss of Property in Bankruptcy - A possible outcome in a chapter 7 bankruptcy is the loss of unexempt property.  It is critical when I meet a client to analyze their assets and compare those assets to the available exemptions to determine whether or not property of the client is exposed to sale by the Trustee.  For most cases, the loss of property is not a problem.  In the vast majority of chapter 7 cases, all of the filing Debtor's assets are exempt.  In cases where there is unexempt assets, Chapter 13 may be a viable option.  In Chapter 13, the amount of unexempt assets is merely used as one of the variables to determine how much needs to be paid to the unsecured creditors.  In a Chapter 13 bankruptcy, unexempt property is not exposed to sale by the Trustee.

Effect on Credit - A notation of the bankruptcy filing will be part of the Debtor's credit report for ten years.  However, the bankruptcy may have some positive effect on credit.  Once the bankruptcy is discharged, the Debtor is legally no longer obligated for the debt.  This has to help the Debtor's ability to pay in the future.  It has been the recent trend that creditors will extend credit after the discharge.  Of course, the interest rate may not be at the best rates.  Some creditors actually solicit recent bankruptcy Debtors.

Cost of Filing Bankruptcy - The costs of attorney fees and filing fees dictate that a client would need substantial debt, threats of legal action (foreclosure/repossesion), or unbearable harrassment to justify the filing of a bankruptcy.  Generally, for a Chapter 7 bankruptcy, one could expect to pay anywhere from $1000 to $1500 for attorney fees alone.  Therefore, when a potential client has debt under $5,000 I rarely recommend filing bankruptcy because of costs.  In these cases, it is usually best to attempt to negotiate settlements with the creditors.

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