Bankruptcy Discussion

Archive for December, 2011

While I do, of course, explain the bankruptcy process to my clients, once in a while I forget to explain to them what happens in the immediate aftermath of filing. We’ll file a bankruptcy petition on Monday. The world does not seem to change. Tuesday comes. Now what? Are we just waiting until the meeting with the trustee?

Interestingly enough, the very moment we file your bankruptcy petition with the court, something does happen. Most, and many times all, of your creditors are automatically stayed from action against you and your property. What exactly does that mean? That means that creditors may NOT contact you with regard to collecting a debt without breaking the law, whether they actually know about your bankruptcy case or not.

So, Bank of America or Portfolio Recovery Services calls you Tuesday, the day after you file your bankruptcy petition, and the representative starts to speak with you about your $7,000.00 credit card balance. They are breaking the law. However, before you begin dreaming of revenge and suing the company for sanctions, you should keep in mind that we live in the real world and honest mistakes are made. A good representative of one of these companies will be polite and simply ask you for your case information. Have it handy.

When you are contacted by a creditor after you file your bankruptcy petition, simply be ready to offer him or her the following information:
1. Date of Filing
2. Chapter
3. Case Number
4. Name of Court (e.g., Eastern District of New York)
5. The name and contact number of your attorney

Eventually, all the telephone calls should cease, and the letters will stop invading your mailbox. Save all post-petition correspondence from your creditors. If a particular creditor does not seem to get the message that communications with you must stop, contact your attorney about it. He or she will set them straight or sue for sanctions.

THIS ARTICLE will inform you on some ways to prepare for a bankruptcy filing, both legally and logistically. Without exception, potential clients ask me what they need to bring to me in order for me to do my job and prepare their petitions. The following are some of the items I need and the reasons for which I need them:

1. PRIOR 2 YEARS OF TAX RETURNS – federal and state
Why?
* You must have filed tax returns for the past two years in order to file bankruptcy. If you were not required to file, you must have an accountant’s letter or at least sign an affidavit to the effect that you had insufficient income to require a filing.
* Tax returns tell me a client’s gross income for the prior 2 years and the source or sources, such as unemployment or distributions from retirements accounts. They tell me about deductions, dependents and spousal relationships. They also reveal whether the client will be entitled to a tax refund in the coming year. Lastly, they offer evidence of the degeneration of a person’s financial situation.
* Some jurisdictions require more than 2 years of tax returns. Some only require 1 year.
* If you haven’t filed tax returns in the past couple of years, the trustee will want to see tax returns for the last year you filed
2. PAY STUBS FOR DEBTOR FOR LAST 6 MONTHS – and recent pay stubs for non-debtor spouse living in same household
Why?
* They allow me to average the client’s income for the means test
* They allow me to get an idea of average overtime or bonuses
* The non-debtor spouse’s pay stubs are necessary if the non-debtor spouse resides in the same household as the client. His or her income is included on the income schedule of the petition. A client cannot file a chapter 7 bankruptcy if the client and his or her spouse’s combined income substantially exceed the household expenses.
3. LAST 6 MONTHS OF STATEMENTS FOR ALL FINANCIAL ACCOUNTS
Why?
* This tells me if there have been large transactions recently. Making large payments to one or more creditors while snubbing the others is not allowed. Also, hiding money by emptying accounts at the eleventh hour is not allowed. By the way, I’ve seen trustees ask for the last 3 years of financial account statements, but they only do so when they feel the debtor might be hiding something.
4. DEED TO REAL PROPERTY
Why?
* You’d be surprised how clients do not know who owns what and how, whether their spouse is on a deed, whether they own as a tenant in common, etc.
5. LEASES TO REAL PROPERTY (both as landlord and as a tenant)
Why?
* When the client is a tenant, the client cannot just come up with an arbitrary number for rent to make his expenses higher. There has to be evidence of an agreement.
* When the client is a landlord, the client cannot just come up with an arbitrary number for rent to make his income lower.
6. LAST MORTGAGE STATEMENT(S)
Why?
* The mortgage statement tells me a lot – the name and address of the lender or servicer, the amount of the mortgage payment, what the principal balance is, whether the taxes and homeowner’s insurance are part of the mortgage payment and whether the mortgage is in default
7. TITLE TO ALL VEHICLES IN DEBTOR’S NAME
Why?
* Like the deeds to real property, clients sometimes do not know who owns which vehicle, especially between spouses. It is important to note that each debtor gets only one vehicle to exempt, so if one spouse owns both vehicles, it may be important to divide the ownership.
8. LAST STATEMENT FOR LEASE OR FINANCE AGREEMENT ON VEHICLES
Why?
* The last lease or finance statement tells me the creditors name and address, the principal balance owing, the amount of the payment and sometimes the maturity date of the agreement. It is extremely helpful for me to have the original lease or retail contract also.
9. HOMEOWNER’S INSURANCE POLICY
Why?
* The homeowner’s insurance policy sometime reveals that a client has insured a collection, a collector’s item, an expensive piece of jewelry like an engagement ring or some other asset. A trustee can always ask to see the policy.
10. BILLS AND STATEMENTS FOR MONTHLY HOUSEHOLD EXPENSES (home heating bills, cable, internet, home phone, cell phone, lawn maintenance, car insurance, health insurance, life insurance statement, real estate taxes, estimated tax payments, child care, medical co-pays, student loans, back tax plan payments)
* I also ask for estimates of food, gas, car repairs, etc. (the more members of your household, the higher the food bills should be, the closer you are to your job, the lower your gasoline bills should be)
* the expensive habit of smoking can usually be accounted for
11. EVIDENCE OF YOUR UNSECURED DEBTS (medical bills, credit cards, promissory notes)
* I want as many as you can offer me, up to 12 months
* I want statements, invoices, collection letters, lawsuit documents
* These give me the names and addresses of creditors, balances, chain of title of the debts as well as a general idea of whether there was abuse of credit cards just prior to the bankruptcy
* You should stop using your credit cards well before filing a bankruptcy petition
12. OTHER QUESTIONS
* Do you have life insurance
* Do you own a time share, guns, coin collection, boat, trailer, jetski, unregistered car (you wouldn’t want a trustee to drive by your house and see a boat and trailer in the side yard)
* Does anyone owe you any money?
* Did someone die and you may be entitled to inherit?
* If you received a tax refund in the past, are you expecting a similar refund next time?

A bankruptcy case filed under Chapter 7 of the Bankruptcy Code is the type of case in which a debtor seeks to discharge all of his or her unsecured liabilities (credit cards, personal loans, medical bills, judgments that are not liens on an asset, even personal liability on secured loans) without paying a percentage of those debts through a multi-year plan. Typically, one will file a Chapter 7 petition with the bankruptcy court (e.g., April 20th) and then meet with the Chapter 7 trustee about thirty days later (e.g., May 20th). At the meeting, the Chapter 7 trustee gets to ask you any and all questions about your financial situation, both present and past. The meeting with the trustee also is a forum in which the creditors are able to attend and ask you questions.

If all goes well at the meeting with the trustee . . . well, what does that mean? From your standpoint, “if all goes well” means if the trustee confirms that you have no assets that the trustee can sell to pay some of your debt or if the trustee finds that you do not have disposable income sufficient to convert your case into one under chapter 13. So . . . , if all goes well at the meeting with the trustee, then you must wait about sixty more days (e.g., to July 20th) for the period to run in which interested parties are able to object to the dischargeability of a particular debt or to the discharge of your debts globally. If that additional sixty or so days runs without an extension or the filing of a lawsuit by the trustee or a creditor, then the court will usually issue your discharge order and then administratively close the case shortly thereafter (e.g., July 21st to August 20th).

Therefore, to sum up, an uncontested Chapter 7 bankruptcy case will usually run from 90 to 120 days, from the filing of the petition to the close of the case. The momentous dates are the petition filing date, then the meeting with the trustee about 30 days later, then an additional 60-day period during which the trustee or creditors can object, then the discharge order and close of case. Be warned, though, that a Chapter 7 case can run many more months if the trustee must dispose of an asset to pay some of your debt.