General Bankruptcy Information
THE FOLLOWING EXPLAINS SOME OF THE ISSUES THAT ARISE REGARDING BANKRUPTCY. THIS MATERIAL SHOULD NOT BE RELIED ON WITHOUT CONSULTING AN ATTORNEY, AS YOUR PARTICULAR FACTS AND CIRCUMSTANCES MAY VARY FROM THE GENERAL INFORMATION THAT IS PROVIDED HEREIN. THIS IS ONLY TO BE USED AS A GUIDELINE AS TO GENERAL BANKRUPTCY ISSUES; FURTHER, THIS INFORMATION MAY CHANGE FROM TIME TO TIME BECAUSE OF CHANGES IN BANKRUPTCY LAWS PASSED BY CONGRESS OR BECAUSE OF CASE LAW INTERPRETATIONS OF THOSE LAWS BY THE COURTS.
Any person considering whether or not to file bankruptcy faces a major decision. If you are faced with a large number of bills that you are not able to pay, then bankruptcy may be a solution for you. The purpose behind bankruptcy is to provide you with a "fresh start." You have a legal right to file bankruptcy. While bankruptcy should not be taken lightly, it should be used when necessary.
At the time of your initial office visit, we will go over all of your debts and assets. Once we have all the information we need from you, we will discuss your options (such as Chapter 7, 11, 13, etc.). It will then take about three to five days to prepare your papers. You will then come in and sign them and we will file them with the Court. After your bankruptcy petition is filed, your creditors are not allowed to make any efforts to collect their debts (such as by garnishment, foreclosure, etc.). If you get sued or receive threatening letters from your creditors, notify us. Secured creditors (i.e. home loans, car loans, etc.) may not foreclose or repossess property during the proceeding unless they get special permission from the Court.
There is normally one Court appearance in a Chapter 7 and Chapter 13 bankruptcy case, and there may be additional meetings in Chapter 11 cases. You will receive notification from the Court as to when to appear. Please note that this is a mandatory meeting. We will ask you to meet us at the Court before your hearing, and at that time we will go over what will occur, then go in and meet with the Trustee who will hear your case. If a joint bankruptcy is filed, you and your spouse must appear at this hearing.
Many people fear they will be turning over absolutely every item they own to the Court when they declare bankruptcy. This is not so. In Washington, you are entitled to certain exemptions; that is, property you get to keep even though you have filed bankruptcy. The amounts allowed by the State (which we will discuss with you), usually cover the property normally owned by an individual or family (such as clothing, household goods, personal items, your pensions, equity in your home up to the homestead amount of $40,000 under Washington law, and limited equity in the family car, etc.) Most consumers who file bankruptcy never lose any of their personal property to a Trustee and get to keep all of their assets. A few people may find they have to pay the Court to keep items owned which have a value in excess of the allowed exemptions. Corporations are not entitled to exemptions.
Items which have been pledged to secure a debt can be retained by agreeing to reaffirm the particular loan, such as a car or home loan. When you reaffirm a debt, you continue to pay the creditor and in return you get to retain the collateral secured by the loan. Accordingly, if you want to keep your car or your home, you must continue to make the monthly payments on the car to your bank/credit union, and to your mortgage company. However, this legally reinstates the debt, so please discuss reaffirmation with us before you sign or agree to anything.
You should be aware that some debts may not be discharged after the bankruptcy proceeding has ended. The most common examples of nondischargeable debts are: unpaid child support/maintenance, most taxes and most government insured student loans. In addition, debts based on fraud and claims for malicious injury to people and property may not be discharged. If you think that any of your debts fall into these categories, call this to our attention at once and we can review whether or not the debts may or may not be discharged.
In certain circumstances, you may wish to consider the possibility for relief under the provisions of Chapter 13 of the Bankruptcy Code. The remedy for relief under Chapter 13 is particularly suitable for individuals in the following four situations:
1. Those who have already obtained relief within the last six years under Chapter 7;
2. Those who may have debts which are not dischargeable under Chapter 7, a rare situation (such as debt obtained by fraud or by use of a false financial statement);
3. Those who have substantial assets that would be subject to control or sale by the Trustee;
4. Clients who wish to pay back all of their debts and have the ability to do so, if given time to do it.
Our fee for a Chapter 7 or Chapter 13 bankruptcy varies depending on the individual circumstances and complexity of the matter. A simple Chapter 7 can be as inexpensive as $1500 plus costs (as described below). A Chapter 13 can be as inexpensive as $1800 (plus costs). Generally, fees are flat rate. However, if any case is complex, fees will increase and should be discussed with the attorney. In addition to the attorney’s fees, there is a Court cost (filing fee) of $299.00 for Chapter 7 and $274.00 for Chapter 13.
Fees in Chapter 11 are fixed by the Court after we file a fee application, however, our pre-filing retainer generally is $10,000 for a small business Chapter 11 and the Court cost (filing fee) is $1039.
The total amount estimated must be paid prior to the filing of your case in a Chapter 7 proceeding; and, unless other arrangements are made, this is the same for a Chapter 13. In a Chapter 13, arrangements can be made for attorney's fees to be paid to us by the Trustee from your future payments to the Trustee. We require a deposit of $250 to start the paperwork process to get everything ready for filing in each and every case.
The purpose of bankruptcy generally is to obtain a discharge from your pre-filing debts. This may be accomplished under Chapter 7 in which you give up all of your non-exempt assets to a Trustee and in return obtain a discharge of all of your debts, except as described generally above. Alternatively, debt relief may be accomplished under a Chapter 13 in which you retain your assets, but must provide for a plan to pay all your creditors all or a portion of their claims within 36 to 60 months under Court supervision with an appointed Trustee. Under Chapter 11, you retain possession of your assets, continue in business, and act as your own Trustee while you propose a plan. If you are a family farmer you may file under Chapter 12 which is similar to Chapter 13.
In order to obtain a discharge, you must file truthful and complete schedules of assets and liabilities, current income and expenses and a statement of financial affairs. While we will assist you in preparing these documents, the ultimate responsibility for the completeness and accuracy is yours. Further, you must cooperate with your Trustee in bankruptcy and obey all orders of the Court. Certain acts may make you ineligible to receive a discharge in bankruptcy. The most common reason why debtors become ineligible to receive a discharge is that they have failed to tell the truth on the documents they file with the bankruptcy Court or at their creditors meeting. Concealment of assets is another common reason. If your discharge is denied, your bankruptcy case may nevertheless continue and your assets will be administered. You will not be eligible to file bankruptcy again for six years and your creditors will be entitled to continue their collection efforts. You may also be prosecuted for perjury. Alternatively, the Court may dismiss your case, and you may lose the benefit of the automatic stay and discharge. Moreover, you may be prohibited from refiling your case for 6 months. You should therefore carefully review all documents you have prepared for the Bankruptcy Court to make sure that all assets and transfers have been disclosed. Be sure to let us know if you have an asset which you fear that you will have to give up, or if you think you might have made a questionable transfer. We can explore all legal means to preserve the asset or the transfer.
When you file a Chapter 7 or 13 case, the Court will appoint a Trustee in bankruptcy. It is the function of your Trustee in a Chapter 7 case to take possession of your non-exempt property, sell it and use the money to pay a dividend to your creditors. In most cases, a debtor does not have to give up any assets because they are all exempt under state or federal law. In Chapter 12 or 13 case, the Trustee acts more like a disbursing agent to pay your creditors from monthly payments your make into the plan. You will retain possession of your property, but will be required to propose a plan to pay most, if not all, of your debts and to make payments and reports to the Trustees office. In a Chapter 11 case, you will retain your assets and in effect will be your own Trustee, although in certain circumstances the Court may appoint a Trustee.
We will discuss whether any of your property is non-exempt and will suggested any ways in which it might be retained. The Trustee may abandon, or permit you to retain, non-exempt assets dependent upon their value. He or she will contact you as needed to get property appraised. You must cooperate fully with the Trustees requests concerning such assets. Certain individual debts are not dischargeable in bankruptcy. Ordinarily, taxes, alimony and child support (and probably debts to a former spouse contained in a divorce settlement decree), and student loans are not dischargeable. These debts pass through the bankruptcy as if it had not occurred. Under certain circumstances, however, these debts may be discharged. Therefore, if you have any of these types of debts, we must have detailed information concerning them. If it appears they may be dischargeable, we will discuss that with you.
There are other types of debts which may be discharged if the creditor to whom the debt is owed fails to commence an adversary proceeding to determine the dischargeability of the debt. Debts incurred through fraud, embezzlement, theft, or assault give rise to such debts. If a particular creditor holding such a claim files suit in the Bankruptcy Court within the time prescribed by the Court, a trial will be held to determine whether the debt should or should not be discharged. If you have any of these types of debts, we must thoroughly discuss the details concerning how they were incurred. Under Chapter 13, you may be able to discharge debts which would be nondischargeable in a Chapter 7.
While you may be personally discharged from the obligation to repay a secured debt, if you wish to retain the collateral securing the debt, you must continue to pay the debt pursuant to its terms. A common example of these types of debts are car loans and home mortgages. In other words, if you want to keep your car, which is secured by a bank or credit union loan, then you must continue to pay the bank the monthly payment, or they can repossess the car. If you are in arrears on the repayment of that debt, it will be necessary for us to contact the creditor to whom the debt is owed in order to attempt to negotiate a reaffirmation agreement. Your reaffirmation of the debt will cause you to be liable for the debt as if bankruptcy had never occurred. If the collateral for the debt is a professionally prescribed health aid, household good or tool of your trade, it may be possible for you to redeem the property from the lien by paying its fair market value to the creditor
If you do not wish to retain the collateral, you do not need to repay the debt and we should make arrangements to return the collateral to the creditor. You should make your intention clear to us whether to surrender collateral, redeem it from the lien encumbering it or reaffirm the debt as secured. If that intention is not accurately reflected in the document entitled Chapter 7 Individual Debtors Statement of Intention, which we have asked you to fill out, let us know immediately. You must be prepared to act on your intention within 45 days of the day you file your petition. If any of the property that you have claimed as exempt is encumbered by liens, we will discuss whether or not the liens may be avoidable in the bankruptcy case. Judicial liens against real or personal property and consensual liens (like finance company liens on household goods) against certain types of personal property are avoidable. Affirmative action in the form of a motion to avoid these liens, however, is necessary. A lien is not automatically avoided simply because you have filed bankruptcy. Similarly, if property that you could otherwise have claimed exempt, was involuntarily transferred (for instance, by a garnishment), it may be possible to obtain possession of that property through turnover proceedings. Again, return of these assets must be affirmatively sought. These actions take additional legal work for which you will be billed at our hourly rate. Please bring to our attention whether you have signed any agreements giving creditors liens on your personal property, or if you have had any judgments taken against you, so that we can discuss these options. We do not obtain title reports or UCC reports for clients as part of our routine fee Chapter 7 or 13 cases, so it is important that you call these matters to our attention. If you have doubts about liens, you can obtain a title report on your real property or do a UCC check with the State and bring those documents in for our review.
Similarly, in Chapter 11 and 13 cases, you may be able to assume or reject leases and contracts. Generally, in order to assume a lease, you must cure any arrearages, so we will need to negotiate with the Lessor a cure plan. If you reject a lease, you must return the items subject to the lease. We will discuss all of your leases, and decide what to do on a lease by lease basis. However, landlord business leases (not residential leases) must be assumed or rejected within the first 60 days after filing, or the lease is deemed rejected. If you want to continue to operate your business in its current location, we will need to assume your lease very soon after filing. Please discuss this with us promptly, since the assumption and rejection of leases is based on our best business judgment, we need to know your decisions on this early in the case.
You can also reaffirm a debt that is not secured if you want to pay that creditor back even after the bankruptcy. Many companies, such as Visa or Master Card, may request that you reaffirm the debt with them, and they will let you keep your credit card with some nominal credit extended to you. Even though this is a good way to start reestablishing credit, we would caution your refinancing a general unsecured debt, as a reaffirmation reinstates the legal liability to repay that debt. If circumstances change after filing, and you find that you cannot repay that creditor, they would have all of their legal rights to sue and collect on that debt because of the reaffirmation; even though your bankruptcy would have otherwise discharged your legal liability to that creditor. In addition, the Court will not approve a reaffirmation where it will pose an undue hardship on you if you reaffirm it. We are not in a position to advise you on reaffirmations, as we do not monitor your current and future financial circumstances, so we must rely on you in the reaffirmation process. If you want to reaffirm a debt, with the knowledge that you would not otherwise have to pay the creditor back, and you want to pay them for whatever reason [reestablish credit, moral obligation to that particular creditor, etc.], we will not second-guess you, and we will file the reaffirmation agreement with the Court on your behalf In doing so, however, you must recognize the legal implications of such reaffirmation.
We will provide you with a complete copy of all documents prepared for filing with the Court. If we do not hear from you after your receipt of any of those documents, we will assume that the documents which we have prepared on your behalf and which we either have filed or will be filing in the Bankruptcy Court are correct, and require no amendment. We will next contact you when we have received notice that your meeting with the Trustee has been set. Meanwhile, if you are contacted by creditors, simply inform them that you have, or will shortly file a bankruptcy case, give them the bankruptcy case number of which we will advise you, and explain that they will soon be receiving official notice from the Bankruptcy Court as to whether or not a claim should be filed, and the date of the creditors meeting. The clerk will send you and your creditors a notice of the time and place of this meeting. You must advise us at once if you are unable to attend. Your attendance is mandatory.
Remember, creditors cannot continue to pursue collection actions against you such as foreclosures, garnishments or even telephone calls or letters without Court order. Some action against co-signers or guarantors of your debts are also prohibited under Chapter 12 or 13. Any violations should be reported to us so that we can deal with these problems for you.
CHAPTER 11 CLIENTS, PLEASE NOTE: One of the first things that need to be negotiated after filing Chapter 11 is the use of cash collateral. This is cash that comes into the business after filing in which a creditor has a security interest. An example of this is your bank or a factoring company that has a security interest in your accounts receivables. These funds belong to that creditor and cannot be used by the company to pay overhead and expenses without the permission of that creditor. It is important that you discuss this situation with us at the onset of the case so we can work out arrangements with your secured creditors, so there is no disruption in the operations of the business.
Finally, in order to continue your bankruptcy case with the minimum of expense, make sure you do the following:
1. Tell the truth to us, your Trustee, and to the Court.
2. Make a complete and truthful disclosure of all documents filed with the Bankruptcy Court.
3. Cooperate fully with all of your Trustees requests, and any Court orders but let us know if you are contacted by the Trustee.
4. Let us know immediately if you receive any letters, Court pleading or other documents relating to this bankruptcy or to your creditors collection efforts. Keep this office and the Bankruptcy Court informed of your address for at least one year.
5. Ask questions of us if you do not understand anything related to your bankruptcy case.
6. Review any requests by creditors for reaffirmation carefully, because they will have a legal right to collect from you if you agree to reaffirm the debt.
7. Obtain title reports for our review, and/or UCC searches for our review to discuss liens that may have been filed against you.
8. Obtain a new credit report from each of the three credit reporting agencies. You may have to pay a small fee for this service, but you are entitled to a free credit report if you have recently been denied credit. Also, it is becoming more common for each of the credit reporting agencies to offer you a free credit report once per year. The credit reporting agencies and their contact information is listed below:
Equifax 1-800-685-1111 http://www.equifax.com
Experian 1-800-682-7654 http://www.experian.com
TransUnion 1-800-888-4213 http://www.tuc.com
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