Bankruptcy Requirements
Filing for bankruptcy is a drastic step, but sometimes it is the only alternative left after exhaustive exploration of other options. If you decide to consider bankruptcy, learning how bankruptcy works and what it requires can be beneficial. If, after you have researched the topic, you feel comfortable with the workings and procedures and want to tackle it alone, there is ample information online or in print to help you along. But if your decision is to hire a lawyer, you can make the process simple for yourself and your attorney by doing your homework and knowing the requirements.
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Significance and Pitfalls
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In order to file for bankruptcy, it is required that a debtor or counsel prepare a document known as a petition. The petition is the formal request a debtor makes to the court for relief under the U.S. Bankruptcy Code. While the actual petition is only a few pages long, it is accompanied by 10 schedules, a statement of financial affairs and, depending upon the district in which you live, various accompanying documents. Most legal supply stores will have blank forms available for purchase, and some of the bankruptcy court websites will have forms available for download. Most bankruptcy practitioners have software programs that are used to generate forms and also allow the petition to be filed with the court electronically. One software provider will allow you to download the software and prepare a single bankruptcy petition for a nominal fee. (See Reference 3 for an example.)
The petition is straightforward and asks for basic background information, but it does require you to state, on the first page, the chapter of the bankruptcy code under which you will be filing. The 10 schedules ("A" through "J") require a debtor to detail his or her real property, personal property, exemptions, debt (secured, priority and unsecured), co-debtors, contracts and leases, and income and expenses, respectively. The information contained in the schedules reflects the date of the petition's filing, so when stating a bank account balance, it would be the balance as of the date the papers get to the courthouse.
The statement of financial affairs gives a more detailed view of matters that have transpired over the past several years. In it, a debtor is required to detail: income from employment or the operation of a business for the past two years; income from other sources during that time; recent payments to creditors; lawsuits; foreclosed or repossessed items; payments for attorneys and credit counseling; gifts; recently closed bank accounts; property held for others; property recently sold or transferred; and the debtor's address and name, including any previous addresses or names in the past two years.
While meeting these requirements might not be difficult, locating the information---particularly the names, addresses and account numbers of creditors---can be tedious. It is vital that all of a debtor's property be listed and that all of his or her creditors are named in the petition. A debtor's failure to list all of his or her property in the petition is a criminal offense and could expose a debtor to a fine or incarceration.
Prerequisites and Warnings
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Before a bankruptcy petition can be filed, it is required that the debtor undergo credit counseling. The local bankruptcy court website has a list of credit counselors who have been approved by the U.S. Trustee's Office. (See Reference 1 for an example.) Originally, it was required that the counseling take place in person or by phone, but over the past year, many of the organizations offer a credit counseling course online with the opportunity for a "live chat" if there are questions. (See Reference 2 for an example.) The course takes about an hour. Upon completion, the agency issues a certificate that is filed with the court. There is a fee for the course, which is paid by the debtor when the course is taken. The credit counseling course is mandatory. A petition filed without a credit counseling certificate will be dismissed, unless leave of court is obtained, and even then, the course must be completed on an expedited basis (usually within a week).
Before a discharge in bankruptcy can be issued, it is required that the debtor take a second course, known as the debtor education or financial management course. Often the same agency that provided the credit counseling course will conduct that debtor education course and, indeed, many offer discounted package deals. The agency issues a certificate to the debtor when the debtor education course is completed, and that certificate must be filed with the court. Failure to complete the debtor education/financial management course will result in the case being closed without a discharge---meaning the debtor is still obligated for his or her debt. -
Paperwork and Needed Documents
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The paperwork you will need (and keep in mind that if this will be a joint petition, husband and wife filing together, the information is required from both):
· Your two most recent income tax returns
· Your last four pay stubs detailing your income and all deductions
· Your most recent monthly statements from each of your creditors showing account balances, account numbers and mailing addresses (whether the debt is dischargeable or not, and whether or not you intend to continue making payments on the account, as you would with a car loan or home mortgage)
· Bank statements for the past six months for all of your bank accounts
· The deed to your home and any other real estate you might own
· All mortgage, property tax and homeowner's insurance statements; utility bills; and gas or heating oil bills related to your home and any investment property
· A recent appraisal of your home or a Realtor's letter of value
· The rent roll, if applicable, from your rental properties
· A benefit statement from pension, Social Security or disability benefits
· The titles and ownership documents to all of the cars titled to you
· Any court documents you might have received involving lawsuits---especially foreclosure actions---and information about personal injury actions in which you are suing someone else
· The credit counseling certificate
· A general inventory of household goods and furnishings, clothing, jewelry, collectibles, art objects, sporting goods, and hobby equipment
· An approximation of monthly expenses, such as food, clothing, medical and dental expenses, laundry and dry cleaning, transportation, health and auto insurance, car payments, and charitable donations
· Any information about prior bankruptcy filings
Types and Tests
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The different types of bankruptcies are referred to by their chapters. For consumer debtors, the types of bankruptcies are Chapter 7 and Chapter 13. Understanding their similarities and differences and determining which is right for a particular debtor is the topic of another article.
With respect to their requirements, Chapter 7 has few requirements or limitations. Any debtor is eligible to file under Chapter 7, provided he or she has not previously filed and received a discharge within the past eight years.
Chapter 13 has a number of requirements and certain debt limitations. Since Chapter 13 will require the debtor to make payments to a trustee, the debtor must have a regular and steady source of income and the income must be sufficient to meet the debtor's monthly obligations and plan payments. A debtor is also ineligible for Chapter 13 relief if he or she has more than $350,000 in unsecured debt (credit cards/personal loans) or more than $1 million in secured debt (home mortgages, car loans, etc.)
In both Chapter 7 and Chapter 13 cases, it is necessary to complete the means test. This test, a product of the 2005 amendments to the U.S. Bankruptcy Code, is intended to provide an objective standard that can be used to determine whether a debtor is entitled to have his or her debt canceled without paying creditors anything or whether, based on income and family size, the debtor should be required to file a plan and make payments. The means test uses community standards for income and expenses. So if a debtor's household income is above the mean for the community, then some provision must be made to repay creditors. Forms and further information about the means test is usually available at the local bankruptcy court's website.
Court Appearances and Time Frames
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In both Chapter 7 and Chapter 13 cases, it is required that the debtor appear before the trustee for a hearing known as the first meeting of creditors. The meeting is conducted approximately one month after the case is filed. Although there is no second meeting of creditors, in Chapter 13 cases, in most jurisdictions, the debtor must also appear a second time for what is known as a confirmation hearing. At such a hearing, if the Chapter 13 plan makes adequate provisions for creditors, the plan will be confirmed.
Sixty days must pass between the time of the Chapter 7 meeting and before a discharge may be issued. In Chapter 13 cases, the discharge does not issue until the plan's requirements have been fulfilled (which will, in turn, depend on the length of the plan). Within 45 days of the meeting, the debtor must take the debtor education/financial management course.
Payments and Preferences
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In a Chapter 7 bankruptcy, the debtor is not required to make payments to creditors, except for those secured creditors for which the debtor will be keeping the collateral (like home mortgages or car payments).
In a Chapter 13 case, once the case is filed, a debtor is required to make monthly payments to the Chapter 13 trustee for the duration of the Chapter 13 plan. These payments may be made voluntarily to the trustee directly, or the payments may be made via direct payment from the debtor's employer. A recent trend in Chapter 13 cases is to require that mortgage payments be made directly to the trustee and for the trustee then to forward them to the mortgage lender.
Payments over $600 made to unsecured creditors within 180 day of the bankruptcy filing have to be disclosed in the statement of financial affairs and may be considered "preferences." Under the U.S. Bankruptcy Code, if a debtor made a substantial payment to one creditor, but little or no payments to other creditors in the same category, within six months of filing, the payment is deemed a preferential transfer and may be recovered or avoided by the trustee. While preferences come in all shapes and sizes, the most common preference occurs when a debtor pays off a personal loan to a relative, in a lump sum, within 90 to 180 days of filing. Ironically, monthly payments on the same loan, spread over a year or two, might get in under the radar.
Considerations
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Knowing the requirements of a bankruptcy before starting down the road on your own or with a lawyer, helps you to get organized and saves you time. Knowing what will be required also helps you to better understand the process, and that, in turn, helps you to define your research and ask more meaningful questions.
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