Bankruptcy FAQ

BANKRUPTCY

Frequently Asked Questions

CHAPTER 7 BANKRUPTCY

Q: HOW DOES CHAPTER 7 WORK

A chapter 7 bankruptcy case starts with your attorney filing your bankruptcy petition, which includes detailed schedules of your assets and liabilities, and a detailed statement of financial affairs. A married couple may file jointly or if there are numerous separate assets, they may file two individual cases. If you previously have filed bankruptcy within the past 8 years, there may be some restrictions as to your ability to file a chapter 7 bankruptcy case. Please call us to discuss whether you are able to file your chapter 7 case.

This petition is filed electronically through the Nevada bankruptcy court’s ECF system. Alternatively, you may, personally, prepare and file your own (in ‘proper person’ or ‘pro per’) bankruptcy petition on paper using the forms provided on the bankruptcy court’s website at http://www.nvb.uscourts.gov/. Because of the complexity of the bankruptcy petition, and the potential penalties for mistakenly or intentionally omitting certain information on your bankruptcy petition, we recommend that you hire a bankruptcy attorney to file your bankruptcy case. The total court fees for filing a chapter 7 bankruptcy petition is $299 per case, so an individual filer or a married couple filing jointly are only charged $299, whereas a married couple filing individually will each pay the $299 filing fee.

Upon filing your chapter 7 bankruptcy petition, a bankruptcy “trustee” is appointed by the Office of the U.S. Trustee and this bankruptcy trustee will coordinate with your attorney and the assigned bankruptcy judge to administer your case. Immediately upon filing your petition, the bankruptcy court will issue a Notice of Filing Bankruptcy to all of the creditors that are listed in your bankruptcy petition. Moreover, immediately upon filing a ‘bankruptcy stay’ is created which is a court mandated restriction against any creditor or debt collector to contact you with the intent of collecting the debt you owe them.

IMPORTANT: If a collector ever contacts you after filing bankruptcy, you should inform them that you have filed bankruptcy, give them your bankruptcy case number, and tell them to contact your bankruptcy attorney at your attorney’s office number (be sure to give the creditor that phone number as well.)

MORE IMPORTANTLY: If the creditor contacts you again and attempts to collect on the debt, after you have told them that you filed bankruptcy, contact us. We may be able to pursue the creditor for violating your bankruptcy stay order and get the bankruptcy court to punish the creditor and require the creditor to pay you for each collection call, collection letter, and most other forms of contact attempting collections, even veiled attempts to collect after you tell them about your bankruptcy. Even if you are told that you cannot sign-up for a monthly service unless you pay your pre-bankruptcy debt, that can be a violation. Contact the us if this occurs.

WHAT CAN CHAPTER 7 BANKRUPTCY DO AND WHAT CAN IT NOT DO?

What can Chapter 7 Bankruptcy do?

•Eliminate most or all of your debts with the bankruptcy ‘discharge’ upon completion of your bankruptcy case.
•Stop the foreclosure on your home and allow you to catch-up on missed payments. NOTE: Bankruptcy does not generally provide you with the ability to keep your home and eliminate your mortgage or other liens on your home.
•Prevent the repossession of your car or other property, or force the creditor to return your car or property if it has already been repossessed.
•Stop wage garnishments, harassment by debt collectors, and other creditor related actions to collect the debt.
•Restore recently disconnected utilities such as electricity, water, & gas, and/or stop the utility company from disconnecting utilities when you are behind on payments.

What Bankruptcy does not do:

•Eliminate certain rights of ‘secured’ creditors such as your mortgage company’s right to foreclose on your property or your bank’s ability to repossess your car if you are unable to continue to pay your mortgage or car payment during and after bankruptcy, even after you stop paying your credit cards and other unsecured creditors.
•Discharge certain family related debts and debts created by criminal and fraudulent acts by you, if any. These include child support, spousal support/alimony/palimony, criminal fines, criminal victim restitution, and court judgments for fraud.
•Discharge IRS taxes that are less than three (3) years old, or other state or government taxes.
•Discharge debt owed by a co-signer of your debt, such as a sibling or parent who cosigned for your credit card. Although the creditor is prohibited from collecting the debt from you, the creditor will not be prohibited from collecting the debt from the cosigner if the cosigner has not filed bankruptcy as well.
•Discharge new debts incurred after you file for bankruptcy.

Q: I MAKE X,0000.00/YR, CAN I STILL FILE CHAPTER 7 BANKRUPTCY? or WHAT IS THE MEANS TEST?

The ‘newest’ hurdle for filing bankruptcy is called the ‘means test’ (newest because it was issued in 2005 and ‘hurdle’ because it is a huge waste of time but can keep you from filing.) The means test restricts access to Chapter 7 bankruptcy to those households that make less per year than the ‘mean’ income level of a household of your size in your state. If you make more than that, you must do an extensive calculation (based on bankruptcy court form 22A), almost like a full 1040A tax return with schedules, to determine if the Bankruptcy Court will ‘allow’ you to file bankruptcy. Most people who are in the situation where they cannot pay their bills and need to file bankruptcy do not have a problem with this ‘test’.

For example, in Nevada as of November 2009, a single person living on his/her own can make up to $46,316.00 gross income per year ($3,859.67/month) and still file Chapter 7 bankruptcy. For a married couple with one child (household size of three) the total household income can be up to $67,052.00 gross income per year ($5,587.66/month). For a household of five (married, 3 kids) the maximum household income is $78,004.00 per year ($6,500.33/month).

For different size households, and to do a rough quick check to see if you would qualify to file Chapter 7 bankruptcy based solely on your income and your state, please visit: http://www.bestcase.com/OnlineTools/cmiCalc.aspx

WHAT INFORMATION IS REQUIRED TO FILE BANKRUPTCY?

Your attorney will provide you with a questionnaire for you to complete which will assist you in collecting all the information necessary to file your bankruptcy case. To assist your attorney in preparing your petition, please bring as many of the documents listed in the list of documents [LINK TO LIST] to your initial consultation. Your attorney will need to review those documents before filing anyway, so you should consider that list of documents [LINK TO LIST] as your homework. If you do not have all of the documents, bring as many of the documents that you have on the list.

In order to obtain the relief available in a Chapter 7 bankruptcy, you must provide the following detailed information to the bankruptcy court in your bankruptcy petition.

A detailed listing of all your creditors and collection companies and/or collection attorneys that have communicated with you about you paying your debts. This list must include complete addresses, account numbers, the amount owed or that the creditor claims you owe, and the date you incurred the debt.

Generally this can be accomplished by providing your bankruptcy attorney with a copy of the most recent bill or statement from each creditor, a credit report from all three major credit reporting agencies or authorizing your attorney to retrieve this information electronically, and a detailed list of other creditors not included in the previous two statements/reports.

A detailed listing of all of your real property and personal property, which must include a reasonably accurate fair-market-value for the property.

This personal property list must include things such as your furniture, your computers, your televisions and other electronics such as game systems and DVD players, your tools, your cars / trucks / motorcycles / boats / RVs, clothing, furs, jewelry, kitchen items and appliances, etc. Certain categories of personal property may be grouped together. Your attorney will explain to you which property may be grouped together as well as assist you in determining the value of the property if you are unsure.

An accurate amount of your monthly household income, including providing your attorney with the past six months of all of your paystubs. If you do not have paystubs, please provide your attorney with the past six months of your bank statements.

A detailed listing of your monthly living expenses including accurate estimates of what you spend on rent/mortgage, insurance, food, clothing, utilities, vehicle expenses (monthly payment/gas/repairs), child care, and medical expenses.

WHAT HAPPENS AFTER FILING CHAPTER 7 BANKRUPTCY?

When your bankruptcy case is filed, all creditors that are listed in your chapter 7 bankruptcy petition will receive a notice from the bankruptcy court that you have filed bankruptcy, and that you are now protected by the bankruptcy court’s “automatic stay”. This means that all of your creditors, by law, are no longer allowed to continue their efforts to collect money from you that you owed to them prior to filing bankruptcy. This includes stopping any lawsuits, stopping wage garnishments, and most importantly, they must stop contacting you via email, mail, phone, or in person demanding payment on those debts.

IMPORTANT: If a collector ever contacts you after you have filed bankruptcy for a debt that existed before you filed bankruptcy, you should inform them that you have filed bankruptcy, give them your bankruptcy case number, and tell them to contact your bankruptcy attorney at your attorney’s office number (be sure to give the creditor that phone number as well.) Your attorney can provide you with a convenient note card to place next to your phone or to carry with you that lists all of this information.

MORE IMPORTANT: If the creditor contacts you again and attempts to collect on the debt, after you have told them that you filed bankruptcy, contact the us. We may be able to pursue the creditor for violating your bankruptcy stay order and get the bankruptcy court to punish the creditor and pay you for each collection call after you tell them about your bankruptcy.

After your attorney has filed your bankruptcy petition, the assigned bankruptcy trustee will schedule a mandatory first meeting of the creditors, also called a Section 341 meeting, so named after the Bankruptcy Code section 341 which requires this first meeting. Your attendance at this §341 meeting is MANDATORY. NO EXCUSES. If a situation arises where you are unable to attend the meeting on the date scheduled, notify your attorney IMMEDIATELY so the meeting can be rescheduled.

WHAT HAPPENS AT THE §341 CREDITOR’S MEETING?

In most chapter 7 cases, no creditors ever show up at these meetings, but if a creditor does, the creditor is allowed to ask you questions regarding your financial situation and property. These questions may be about what was included in your bankruptcy petition or which was omitted from your petition. Again, though; it is rare that creditors ever attend §341 meetings in chapter 7 bankruptcy cases.

At this meeting, the assigned bankruptcy trustee will ask you some standard questions regarding your bankruptcy petition to ensure you are fully aware of the contents of the petition, and to ensure you signed the petition. The bankruptcy trustee may ask some specific questions about the petition if the trustee is concerned about the accuracy f some information included in the petition.

WILL I LOSE MY HOME/CAR/MOTORCYCLE/ROLEX/LIFE INSURANCE/401K RETIREMENT DUE TO FILING BANKRUPTCY?

Usually no, no, yes, yes, no, and no…

The real and personal property exemptions in Nevada are substantial compared to other states. For example, if you have less than $550,000.00 in equity in your home then the trustee can not take your home to pay your creditors. Of course, if you don’t continue to pay your mortgage while in bankruptcy then your mortgage company can still take your house. The same goes for your car – you are protected for up to $15,000 in equity in one car per debtor filing bankruptcy, but if you don’t keep paying your car note on a car you want to keep, the bank can take the car.

A motorcycle and Rolex, though, are different. Each debtor is provided a ‘wildcard’ exemption of $1,000.00 per debtor, which is usually used to exempt cash-on-hand but may be used to exempt the fair-market-value of another item of personal property or a portion of the value of personal property that is over the Nevada exemption for that piece of property.

If you are unable to exempt a piece of real or personal property, the bankruptcy trustee may require you to ‘turnover’ the real/personal property to the trustee. The trustee will then sell the property and use the proceeds of the sale to pay a pro-rata amount of your debts to your creditors.

In Nevada, a life-insurance policy with a cash value is 100% exempt if the annual premiums for the policy were no more than $15,000.00 per year. Moreover, a qualified retirement account, such as a 401k or IRA, is exempt up to $500,000.00.

WHAT IS A CHAPTER 7 DISCHARGE?

Usually within 60-90 days after the first 341 meeting of creditors is scheduled, you will receive a ‘discharge’. Even if your 341 meeting is rescheduled, the 60-90 days is based on the first scheduled meeting. The discharge is a court ordered injunction the prohibits creditors and collectors from even contacting you about collection of a debt that existed prior to you filing bankruptcy. The exceptions are debts that you reaffirmed such as a car note or a mortgage, as well as certain debts that are not discharged in bankruptcy – i.e. domestic support obligations, criminal restitution payments, and other debts that the bankruptcy rules do not allow to be discharged in bankruptcy without paying them in full through a Chapter 13 bankruptcy [Link to Ch13 page].

There are some exceptions to obtaining a discharge in bankruptcy, most of which are tied to some bad act by the debtor when filing for bankruptcy, or bad acts during bankruptcy, but can include something as simple as forgetting to file a certificate of completion of the required post-filing financial management course. The court may also deny an individual debtor in Chapter 7 the right to a discharge if the Court finds that the debtor: failed to keep or produce adequate books or financial records; failed to explain satisfactorily any loss of assets; committed a bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court; and fraudulently transferred, concealed, or destroyed property that would have become property of the estate. One of the most common reasons to deny a discharge in a Chapter 7 is failing to file all required schedules (usually only occurs if you choose to prepare and file your own bankruptcy), and the all-too-common failure of the debtor to attend the required §341 creditors meeting. If you’re going to pay for an attorney to file your bankruptcy, at least show up for the §341 meeting so you don’t have to pay him/her to re-open your case when your case gets dismissed by the U.S. Trustee’s office.

WHAT IS A REAFFIRMATION AGREEMENT?

A reaffirmation agreement is an agreement that you would normally sign after you file bankruptcy to ‘re-affirm’ that you want to be liable for the debt so you can keep the property that secures the debt. For example, if you are making payments on a car and you want to keep the car, you would normally reaffirm the loan on your car and keep making the payments during bankruptcy and afterwards. If you do not continue to pay on a loan that you reaffirmed, you will still to be liable for that debt even after bankruptcy because you basically renewed the loan after you filed bankruptcy.

WHAT IS §722 REDEMPTION?

In a Chapter 7 bankruptcy, if you owe more than your car is worth, you can force the company that holds your car loan to accept a one-time payment for the appraised fair-market-value (FMV) of your car in exchange for you continuing to pay more than the car is worth. This benefit is provided by Section 722 of the Bankruptcy Code, hence the name ‘722 redemption’. The trick is you have to obtain the loan or the money AFTER you file bankruptcy, when your credit has been hit hard by your bankruptcy filing. There are companies that specialize in this type of loan. One of the more popular ones is named after the code “722 Redemption”(.com). They only work with attorneys to ensure that the loan paperwork is done properly and to ensure that they comply with the rules of the local bankruptcy court, since each bankruptcy court can have different procedures for redeeming a vehicle after filing bankruptcy.

CHAPTER 13 BANKRUPTCY

WHY SHOULD I FILE CHAPTER 13 INSTEAD OF CHAPTER 7 BANKRUPTCY?

If you are a few months late on your mortgage, or a few months late on your car payment and want to keep both your house and your car, you can file Chapter 13 to allow you to pay these late payments over an extended period of time instead of within only a few months as required in Chapter 7.

No Interest & Penalties on IRS back taxes during Chapter 13

Another major benefit of Chapter 13 is if you owe large IRS back taxes that are less than 3 years old (i.e. non-dischargeable in bankruptcy), during your 3-5 year bankruptcy plan, the IRS cannot charge you interest and penalties. As such, all of your payments go directly to the principal of your taxes that are due instead of the 8-12% or more that you would pay if you were in a repayment plan with the IRS that could take you 5-10 years, which might only take 3-5 years in bankruptcy.

You may be able to “Strip Off” your 2nd and 3rd mortgage or home equity loans

If the value of your home has fallen such that your 1st mortgage is more than your home is worth, we may be able to convert your 2nd mortgage, 3rd mortgage, and/or any home equity loans or home equity lines of credit (HELOC) to an unsecured loan – i.e. just like a regular credit card. By doing so, you can completely get rid of your 2nd/3rd mortgage and HELOCs. Once you complete your 3-5 year payment plan, you will only owe the balance of your 1st mortgage on your home and be free of the burden of a high 2nd/3rd mortgage.

You can ‘Cram Down’ the total amount paid on your car to only what it is worth

If you owe more on your car than it is worth and you have owned it for more than 910 days prior to filing Chapter 13, we can setup your ‘plan’ such that during the 3-5 year payment ‘plan’ you only have to pay what your car is worth instead of your current loan amount owed.

DO YOU NEED AN ATTORNEY TO FILE CHAPTER 13 BANKRUPTCY?

If you think that preparing a Chapter 7 petition and schedules is a complex process – just wait until you try to prepare a comprehensive Chapter 13 plan as required by the bankruptcy trustee.

Yes, we strongly suggest that if you intend to file for Chapter 13 Bankruptcy you hire a knowledgeable attorney to represent you during the process.

WHAT HAPPENS WHEN I FILE CHAPTER 13?

After filing Chapter 13 bankruptcy, the Bankruptcy Court will appoint a Trustee – a representative of the U.S. Trustee’s office. The Trustee’s job is to work with your bankruptcy attorney and your creditors to establish a mutually agreeable repayment plan and a timeframe over which a portion of your debts will be repaid. Depending on what your monthly payment will be, and the types of debt you have, your plan may last from 36 months (3 years) to 60 months (5 years). Once you have completed the repayment plan, and presuming you have followed the rules set forth by your bankruptcy attorney and the Trustee, you will receive a discharge of the remaining of your dischargeable debts.

MORE IMPORTANTLY: If the creditor contacts you again and attempts to collect on the debt, after you have told them that you filed bankruptcy, contact the us. We may be able to pursue the creditor for violating your bankruptcy stay order and get the bankruptcy court to punish the creditor and require the creditor to pay you for each collection call, collection letter, and most other forms of contact attempting collections, even veiled attempts to collect after you tell them about your bankruptcy. Even if you are told that you cannot sign-up for a monthly service unless you pay your pre-bankruptcy debt, that can be a violation. Contact our offices IMMEDIATELY if this occurs.

WHAT CAN CHAPTER 13 BANKRUPTCY DO AND WHAT CAN IT NOT DO?

What can Bankruptcy do?

•Eliminate most or all of your debts with the bankruptcy ‘discharge’ upon completion of your bankruptcy case. In a Chapter 13 this will occur after you have completed your 3-5 year payment ‘plan’.
•Stop the foreclosure on your home and allow you to catch-up on missed payments. NOTE: Bankruptcy does not generally provide you with the ability to keep your home and eliminate your 1st mortgage but in a Chapter 13 we might be able to eliminate your 2nd/3rd mortgages and any HELOCs.
•Prevent the repossession of your car or other property, or force the creditor to return your car or property if it has already been repossessed.
•Stop wage garnishments, harassment by debt collectors, and other creditor related actions to collect the debt.
•Restore recently disconnected utilities such as electricity, water, & gas, and/or stop the utility company from disconnecting utilities when you are behind on payments.

What Bankruptcy does not do:

•Eliminate certain rights of ‘secured’ creditors such as your mortgage company’s right to foreclose on your property or your bank’s ability to repossess your car if you are unable to continue to pay your mortgage or car payment during and after bankruptcy, even after you stop paying your credit cards and other unsecured creditors.
•Discharge certain family related debts and debts created by criminal and fraudulent acts by you, if any. These include child support, spousal support/alimony/palimony, criminal fines, criminal victim restitution, and court judgments for fraud.
•Discharge IRS taxes that are less than three (3) years old, or other state or government taxes.
•Discharge debt owed by a co-signer of your debt, such as a sibling or parent who cosigned for your credit card. Although the creditor is prohibited from collecting the debt from you, the creditor will not be prohibited from collecting the debt from the cosigner if the cosigner has not filed bankruptcy as well.
•Discharge new debts incurred after you file for bankruptcy.

WHAT INFORMATION IS REQUIRED TO FILE CHAPTER 13 BANKRUPTCY?

In order to obtain the relief available in a Chapter 13 bankruptcy, you must provide the following detailed information to the bankruptcy court in your bankruptcy petition.

A detailed listing of all of your real property and personal property, which must include a reasonably accurate fair-market-value for the property.

Chapter 13 repayment ‘plans’ are much more extensive than just your bankruptcy petition. Because of this, there can be more documents required by your Attorney and the Bankruptcy Court Trustee.

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