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Kristine W. Holt provides a complete range of services related to Chapter 7 and Chapter 13 bankruptcy protection. Her experience with scores of cases ranges from basic no-asset cases to high-income and major asset cases. She has successfully represented debtors-in-bankruptcy in Department of Justice audits and defended against trustee and creditor challenges to discharge. Cases are usually handled on a flat rate basis, and include all filing fees and court costs. All payments for Chapter 7 cases must be made prior to filing the petition; time payments may be made and will be held in escrow until the total amount has accumulated. Chapter 13 cases require an initial payment with the remaining payments to be included in the repayment plan. Bankruptcies may not be paid for using credit cards!◦ Bankruptcy Basics -- Bankruptcy is the process of consolidating debts with all creditors and either discharging those debts, repaying or adjusting those debts over time, or a combination of the two. There are six different types of bankruptcy, Chapters 7, 9, 11, 12, 13, and 15 (so named after the sections of the federal Bankruptcy Code where they are found). These different types of bankruptcy deal with different types of debtors (individuals, businesses, partnerships, corporations, family farmers/fishermen, municipalities) and different processes and scenarios (liquidation, adjustment, repayment, restructuring, international). Consumer-related debts generally fall under Chapters 7 and 13, although businesses seeking to liquidate and close may also make use of Chapter 7. The mere fact of filing the petition, whether completed or not, can remain on an individual's credit report for up to 10 years. However, by the time someone gets to the point where they are contemplating bankruptcy, their credit rating is probably pretty poor already.
It should be noted that certain kinds of debts may not be discharged in bankruptcy. Non-dischargeable debt includes student loans, debts incurred as a result of fraud, assessment of damages as a result of driving while intoxicated, and several other narrow categories of debt. Also, liens attaching to property are not automatically voided, although personal obligation for repayment is discharged. This means that, while a debtor may not be personally liable for payment of a mortgage, the mortgage company can still seek foreclosure if payments stop.
Debtors can file bankruptcy either as individuals or as married couples. Prior to filing either a Chapter 7 or 13 bankruptcy petition, each individual must participate in a credit counseling session conducted by a court-approved agency. The agency will issue a certificate of completion, which is necessary in order to file the petition. Once you have the certificate in hand, the debtors would meet with their attorney and bring numerous financial documents, among them proofs of income, bank statements, credit account documents, and any other materials your attorney may feel are relevant. Once the material is collected, the attorney will determine, based on the debtor's income level, family size, state of residence and nature of the debts, which type of bankruptcy would be most appropriate, if any. After further questioning by the attorney, the petition and all the associated schedules and statements will be generated and the debtor signs off on them. All petitions are filed electronically. At this point, all collection activities by creditors and bill collectors must cease.
Once the petition is filed and a trustee is assigned to the case, the differences between a Chapter 7 and a Chapter 13 bankruptcy become readily apparent.
◦ Chapter 7 -- Chapter 7 bankruptcy is useful for the absolute discharge of all qualified debts, in effect creating a "fresh start" for debtors. In theory, the role of the trustee in a Chapter 7 case is to take possession of all the debtor's assets, liquidate them , and divide the proceeds among all the debtor's creditors. However, the bankruptcy code permits many different kinds of exemptions from liquidation of the debtor's assets, and in practice, most debtors are able to retain virtually all of their assets and property. One of the roles of the debtor's attorney is to discover what assets the debtor has and where they fit into the allowable exemptions; these determinations are included in the filed petition, so the court knows from the beginning whether the petition is an "asset" or "no asset" type of case.
Once the trustee is assigned, he or she will schedule a "Meeting of Creditors," a semi-formal hearing at which the debtor appears before the Trustee to give testimony and to answer any questions the creditors' representatives may ask. As a rule, very few creditors choose to be present, so the examination, which is under oath and recorded, is generally conducted solely by the trustee. The hearing may last anywhere from 5 minutes to half an hour, depending on the nature of the debt, the debtor's assets, and any other unusual or complex considerations the case might present.
Following the hearing before the Trustee, the debtor must complete a Debtor Education course, which is again offered by various court-approved agencies. Creditors have 60 days from the hearing to raise any objections to discharge of debt, which may happen on occasion. Other interested parties, such as the Department of Justice, may raise objections to discharge, again a rare occurrence in most cases. Objections must be addressed if they are raised. If no objections are raised, the court will grant the discharge, and the debtor will no longer be liable for most of the debt listed in the petition.
A Chapter 7 bankruptcy cannot be filed if a previous Chapter 7 bankruptcy has been discharged within the past 8 years.
Chapter 13 bankruptcy is a means of adjusting a debtor's existing debt, paying off some of it over time (36 to 60 months) and discharging other debt. The procedure for filing for a Chapter 13 bankruptcy differs from a Chapter 7 in that the petition also includes a proposed repayment plan. The idea behind the plan is that any excess income a debtor might have left over after paying reasonable living expenses is submitted to the Trustee, who then distributes it to the listed creditors on a pro-rata basis. It is a requirement for Chapter 13 that a debtor be employed or have some other means of regular income. In most cases, a Chapter 13 bankruptcy is useful for addressing a mortgage in arrears, to allow for repayment of the back amount owed over a period of time. Depending on the amount of excess monthly income available to the debtor, the plan may call for full repayment of creditors with liens against property, followed by either a smaller pro-rata payback or complete discharge of unsecured debt.
The role of the Trustee in a Chapter 13 case is more involved. At the hearing before the Trustee, for example, the expenses listed in the petition may be scrutinized more closely as to actual need, with an eye toward maximizing the amount available to distribute to creditors. The Trustee may also make suggestions as to making the Plan more inclusive and more likely to be successful over the payback period, and makes his recommendation to the court as to whether the Plan should be approved or not. The Trustee also administers the Plan, receiving the funds from the debtor and distributing it to creditors.
Following the meeting with the trustee, creditors may raise objections in the same manner as with a Chapter 7 case. The court then sets a date for a nominal hearing before the bankruptcy judge, at which time the Plan will either be approved or disapproved.
Payments under the Plan must be made beginning 30 days after filing the petition, and continue until all the scheduled payments are made or some other event occurs. In some instances, a debtor may be able to accelerate payments under the Plan and obtain discharge of remaining unsecured debt. Not all Chapter 13 cases proceed to discharge of debt; the Plan may be followed through to the repayment of all debts under terms that are palatable to the debtor. Some debtors find, through no fault of their own, that they cannot continue payments under the terms of the Plan, and convert their case to a Chapter 7 bankruptcy. And sadly, some debtors simply default under the terms of the Plan and their case is closed, re-exposing them to liability for the remaining debt.
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