Finance

BANKRUPTCY 101

FACTS ABOUT BANKRUPTCY

http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/process.html

Article I, Section 8, of the United States Constitution authorizes Congress to enact "uniform Laws on the subject of Bankruptcies." Under this grant of authority, Congress enacted the "Bankruptcy Code" in 1978. The Bankruptcy Code, which is codified as title 11 of the United States Code, has been amended several times since its enactment. It is the uniform federal law that governs all bankruptcy cases.

The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure (often called the "Bankruptcy Rules") and local rules of each bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in bankruptcy cases. The Bankruptcy Code and Bankruptcy Rules (and local rules) set forth the formal legal procedures for dealing with the debt problems of individuals and businesses.

There is a bankruptcy court for each judicial district in the country. Each state has one or more districts. There are 90 bankruptcy districts across the country. The bankruptcy courts generally have their own clerk's offices.

The court official with decision-making power over federal bankruptcy cases is the United States bankruptcy judge, a judicial officer of the United States district court. The bankruptcy judge may decide any matter connected with a bankruptcy case, such as eligibility to file or whether a debtor should receive a discharge of debts. Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse. In cases under chapters 7, 12, or 13, and sometimes in chapter 11 cases, this administrative process is carried out by a trustee who is appointed to oversee the case.

A debtor's involvement with the bankruptcy judge is usually very limited. A typical chapter 7 debtor will not appear in court and will not see the bankruptcy judge unless an objection is raised in the case. A chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation hearing. Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the U.S. trustee. This meeting is informally called a "341 meeting" because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can question the debtor about debts and property.

A fundamental goal of the federal bankruptcy laws enacted by Congress is to give debtors a financial "fresh start" from burdensome debts. The Supreme Court made this point about the purpose of the bankruptcy law in a 1934 decision:

[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.

Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). This goal is accomplished through the bankruptcy discharge, which releases debtors from personal liability from specific debts and prohibits creditors from ever taking any action against the debtor to collect those debts. This publication describes the bankruptcy discharge in a question and answer format, discussing the timing of the discharge, the scope of the discharge (what debts are discharged and what debts are not discharged), objections to discharge, and revocation of the discharge. It also describes what a debtor can do if a creditor attempts to collect a discharged debt after the bankruptcy case is concluded.

Six basic types of bankruptcy cases are provided for under the Bankruptcy Code. However, the following are the most frequently filed bankruptcies:

• Chapter 7. Liquidation Under the Bankruptcy Code
• Chapter 13. Individual Debt Adjustment

CHAPTER 7 VS CHAPTER 13 BANKRUPTCY

Chapter 7

Chapter 7 bankruptcy, sometimes call a “straight” bankruptcy is a liquidation proceeding. Your debts are discharged and wiped out in a fairly short period of time. Many times if you have assets such as a mortgage loan or an auto loan you are able to keep these assets by reaffirming these loans with the creditor.

There are filing fees, miscellaneous admin fees, trustee fees, and if one chooses to have a lawyer, additional lawyer fees. A chapter 7 requires you to attend a hearing called a “meeting of creditors.” Your creditors are also able to attend if they choose. However, on average many or all of your creditors do not attend this meeting. It typically takes anywhere from 4-6 months from the date you file a chapter 7 for it to be completed and you are on your way to a fresh start.

Chapter 13

Chapter 13 bankruptcy is a reorganization of debt or debt adjustment bankruptcy. A chapter 13 bankruptcy acts like a consolidation loan under which the individual makes their planned payments to a chapter 13 trustee who then distributes payments to creditors. One will typically make these payments for a term of 3-5 years and once the payment plan is completed, the bankruptcy will then discharge. However, if one does not make the agreed upon payments, their bankruptcy will become dismissed.

Individuals may use a chapter 13 proceeding to save their home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as the individual files the chapter 13 petition. The individual may then bring the past-due payments current over a reasonable period of time.

There are filing fees, miscellaneous admin fees, trustee fees, and if one chooses to have a lawyer, additional lawyer fees. A plan and confirmation hearing will be scheduled and a debt repayment plan will be submitted to the courts for approval. This plan will include agreed upon payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.

INFORMATION ON LOCAL BANKRUPTCY COURTS

Locations:

Bellingham Federal Building – (sec. 341 meetings only)

http://www.wawb.uscourts.gov/view.htm?f=8&id=185&v=5

Marysville/Evertt (hearings and sec. 341 meetings only)

http://www.wawb.uscourts.gov/view.htm?f=8&id=187&v=5

Port Orchard/Bremerton (hearings and sec. 341 meetings only

http://www.wawb.uscourts.gov/view.htm?f=8&id=186&v=5

Seattle

http://www.wawb.uscourts.gov/view.htm?f=8&id=188&v=5

Tacoma

http://www.wawb.uscourts.gov/view.htm?f=8&id=189&v=5

Vancouver – (hearings and sec. 341(a) meetings only)

http://www.wawb.uscourts.gov/view.htm?f=8&id=190&v=5

EXAMPLE OF BANKRUPTCY DOCUMENTS

Note: The bankruptcy forms located on the U.S. Trustee Program site are examples of data enabled forms. While they were meant for vendor informational use, some courts may link to these forms as acceptable fill-able forms. Please consult the appropriate U.S. Bankruptcy Court to verify use of these forms. In addition, current copies of bankruptcy forms for filing purposes can be found on the U.S. Court's site at: http://www.uscourts.gov/bkforms/index.html.

WHAT CAN AND CANNOT BE INCLUDED IN BANKRUPTCY

• Most debts can be included in a bankruptcy especially the majority of unsecured debts. Theses debts may include, but are not limited to:
  • Credit Cards
  • Catalogue store cards
  • Unsecured loans
  • Overdraft fees
  • Shortfalls on secured debts such as mortgages, vehicles, or possessions
  • Old rent arrears
  • Utility bill arrears or current debt (your utility suppliers may start asking for upfront payments in the future)
  • Medical bills
• Most debts can be included in a bankruptcy. Certain debts cannot be written off in a Bankruptcy. These debts may include, but are not limited to:
  • fines
  • maintenance/child support payments
  • other family court orders such as matrimonial settlements
  • debts to some secured creditors
  • debts from personal injury claims
  • debts incurred through fraud
  • debts arising from certain other orders of the criminal court such as speeding/parking tickets or criminal fines
  • student loans
  • Non provable debts such as debts owed to family/friends
  • Benefit Overpayments such as overpayment on unemployment benefits

Note: A good rule of thumb is money owed to the government such as tax liens, student loans, benefits overpayments etc, cannot be included in a bankruptcy. Most every other debt can be included.

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