Ten Steps of Obtaining Bankruptcy Protection
The fact that you are looking into and researching whether or not you need to seek protection under our Federal Bankruptcy Law indicates that you believe you are or are about to become “insolvent.”
“Insolvency” is having more in total debt than the fair market value of all of your assets. Put another way, that if you sold off everything you owned in an attempt to pay off all of your debt you would come up short and would need some form of special protection from your creditors because the only thing left for them to take is your paycheck.
1) Pat yourself on the back
The first step in seeking bankruptcy protection is one you should take some pride in; you are being proactive about your financial hardship and are looking for a workable solution BEFORE your creditors decide a solution for you. Good for you!
2) Consult an Attorney
Decide whether or not to hire an attorney or go it alone. Section 527(b) of the Bankruptcy Code states:
”IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER.
If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help in some localities from a bankruptcy petition preparer who is not an attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST.
Ask to see the contract before you hire anyone.” (Underlining emphasis added)
Even if you decide to “go it alone,” take advantage of the free initial consultation most professional bankruptcy attorneys provide.
If you choose to hire an attorney (a WISE choice!) seek out a bankruptcy “professional.” Now, all attorneys are “professionals” in the sense that they are “engaged in one of the learned professions.” A bankruptcy “professional” however, is an attorney who is participating for gain or livelihood in an activity or field of endeavor often engaged in by others as a side line or hobby. Now, this is not to say that an attorney who practices in four, five, six or more different areas of the law cannot provide great representation in a bankruptcy; in fact most of them do. But filing for bankruptcy is a HUGE decision and you owe it to yourself to find representation from an attorney that has committed his or her full attention to the area of law you need help in. There are three primary attributes of a bankruptcy professional that set us apart from the general category of “attorney”
Appears in the phone book under the heading of “bankruptcy attorney” and no more than two other categories;
Is a member in good standing with the National Association of Consumer Bankruptcy Attorneys (“NACBA”)
Offers a FREE, thorough, one-hour or more initial consultation
3) Attend a FREE, thorough initial consultation
Filing for bankruptcy is perhaps the single most difficult and important decision of your life. Do not go into to it lightly. When you meet with an attorney to discuss whether or not you qualify for bankruptcy protection and whether or not filing a petition in bankruptcy will benefit you more than any other alternative, you are asking the attorney to give you a binding, legal opinion. Please arrive prepared with all documents requested and prepared to answer all questions truthfully and honestly. Whether or not you have paid an attorney or signed a contract for legal services, attorney-client privilege exists during the FREE initial consultation, so being forthright and fully disclosing all of your assets and debts will only serve to protect you.
Before starting your initial consultation, you’ll be asked to read approximately seven pages of “mandatory disclosures.” These are documents that Congress has decided every person contemplating bankruptcy must receive and acknowledge having read before consulting a bankruptcy professional. If you set an appointment for a consultation with our office you will receive copies of these disclosures by e-mail to read through at your leisure.
During the initial consultation, we will discuss the origins of and a brief history of the concept and law of bankruptcy. You will learn how bankruptcy law provides protection for you against your creditors so you can, in most cases, keep your home, keep your car, keep your personal possessions, keep your 401(k), and prevent garnishment of your paycheck. Most importantly, you will learn whether or not there will be particular issues in your personal case that must be addressed and what the likely outcome will be should you decide to move forward with filing a petition in bankruptcy.
Next, we will conduct a thorough mathematical analysis of your Current Monthly Income (“CMI”) and determine whether or not you qualify to file for bankruptcy protection when compared to IRS and Census Bureau actuarial standards for your community. Put simply, there is an Income Threshold Test that determines eligibility under Chapter 7 of the bankruptcy code. You will know following this analysis whether or not you qualify. Even if you do not qualify under the Income Threshold Test, you may still qualify under the Means Test which allows credit for the exemplary or exceptional expenses that affect your personal budget. Again, following this analysis, you will know whether or not you qualify and, what alternatives exist, should you not.
Finally, you will be given the attorney’s professional, legal opinion of whether or not you will benefit by filing a petition in bankruptcy.
4) Hire an attorney and prepare your bankruptcy case
By now an hour and a half to two hours has gone by. Your head is spinning with numbers or numbness and the attorney across the desk is asking you if filing a petition in bankruptcy is what you want to do.
Three questions are in the front of your mind:
Q. Do I want to file bankruptcy?A. Yes
Q. Do I want to hire this firm to represent me?A. Yes
Q. What will it cost? A. ?
For most people, in the final analysis, the first two questions answer themselves. The third question simply begs more. You think to yourself: “I am too broke to pay my creditors, how on earth can I afford to file bankruptcy?”
This single aspect of contemplating bankruptcy plagues everyone equally. The answer to the question is answered with a question: How can you afford to NOT file bankruptcy? The cost of NOT filing bankruptcy is substantially more. For example, in the Chapter 7 context, let’s assume you have $35,000 in unsecured debt (credit card or personal loan debt). At current minimum monthly payment standards (4%), to keep the creditors from suing you and eventually garnishing up to 45% of your gross earnings from your paycheck, you will have to pay them at least $1,400 per month. Paying the minimum monthly payment is essentially an interest-only payment so, after paying the minimum on your $35,000 debt for say, two years, you will still owe $35,000 (after having paid interest of $33,600).
In total, the cost of filing for bankruptcy though this firm is approximately $1,700. How can you NOT afford to pay a one-time payment of 4.9% of your total debt in exchange for relief from ever having to pay off the principal balance – ever?
5) Filing a petition in bankruptcy
Your attorney will get busy inputting information from your payroll check stubs, income tax returns, creditor bills and statements, collection notices, etc. into the appropriate forms and schedules of your bankruptcy petition.
You will arrange for and take the mandatory credit counseling class and earn a certificate of completion. COMPLETING THIS COURSE AND RECEIVING A CERTIFICATE OF COMPLETION IS MANDATORY UNDER THE LAW. With a few extreme exceptions (active duty military combat service, unavailability of providers from whom to take the course, etc.) no attorney can file a petition for bankruptcy without the certificate of completion of the credit counseling course. There are hundreds of court approved providers of this essential course. You will be able to choose from in-person, by telephone or on-line method of delivery of the course. Plan on setting aside at least two hours to complete the course. If you and your spouse are filing together, you must both take the course, either together or individually. Most of the providers allow you to take the course 24/7. The purpose of the mandatory course is to help you understand how you came into your financial hardship and what alternatives there may be to filing bankruptcy.
Next, you and your attorney will get together to read over and review all the information contained in your bankruptcy forms and schedules. After reviewing some 60+ pages of documents and the information contained therein, you will sign the documents, section by section, verifying and attesting to the truth, accuracy and completeness of the information. Your signature on your petition in bankruptcy is made under penalty of perjury and the potential for a five-year prison term and/or a $500,000 fine if the information later proves to be false. If there are mistakes in those documents or something is left out, make sure they are corrected before you sign and before you attorney files your case.
The last document you will sign before your case is formally filed with the court is the Notice of Electronic Filing. Your signature on this form means you understand that all of the bankruptcy forms and schedules filed with the court will be filed electronically through the internet and that your signature for that purpose will be converted to an “electronic signature,” e.g. “/s/Robert S. Jones.”
Finally, your attorney will scan the Notice of Electronic Filing and your Certificate of Completion of the credit counseling course and electronically file your petition in bankruptcy. You should be able to leave with a copy of your documents and your bankruptcy case number.
Within three business days your case will be assigned to a local panel Trustee and a date and time for your Section 341 hearing will be set. Your attorney will then transmit copies of your paycheck stubs and income tax returns to both the local Trustee and the United States Trustee.
6) Notice of Bankruptcy to your creditors
At the exact moment in time that your case has been filed and a case number is assigned, an umbrella of protection opens up above you. This umbrella is referred to as the “Automatic Stay.” In simple terms, the automatic stay is a temporary restraining order imposed upon your creditors that prevents them from DOING VIRTUALLY ANYTHING to collect the debt you owe them. Literally, from the moment your case is filed, your creditors must stop calling you, writing to you or communicating with you in any way. They may not file law suits against you, continue to garnish your wages, repossess your car, foreclose on your home, or freeze your bank accounts.
The Notice contains all the information necessary to let all of your creditors know who you are, that you have filed bankruptcy, your bankruptcy case number, the date, time and place of your first meeting of creditors, and the deadline date (your presumptive discharge date) when it will be too late for anyone to file an objection to you earning a discharge of your debt.
To be fair to your creditors though, in as much as the protections described go into place at that exact moment in time, they do deserve to get NOTICE of your having filed for bankruptcy. Official Notice is sent out by the bankruptcy court clerk by regular U.S. Mail. This can take up to ten days following the filing of your case. This does not mean you have to endure ten more days of threatening creditor calls. Notice comes in many forms and the simplest of these is“from your lips to their ears.” When they call, thank them for their interest in your financial well-being and give them the “good news!” Give them your case number, invite them to look it up on the Court’s web site, and invite them to call our office for verification of filing. Be polite yet stern: “I have filed for bankruptcy protection; this is my case number; this is my attorney’s name and phone number; please do not call again.”
7) First Meeting of Creditors
Also referred to as the Section 341 hearing, approximately one month after filing your petition in bankruptcy, you will be required to submit yourself to an oral examination by two specific entities and, if they appear, any of your creditors.
You must bring your social security card and a government issued photo identification card to this hearing or it will be postponed for another month or may subject your case to being dismissed.
The two specific entities are represented by one person, the local panel Trustee assigned to your case. In his or her capacity as the local panel Trustee, this person is charged with the responsibility of discovering whether or not you are in possession of any assets that are not protected from your creditors by our state’s exemption law. He or she represents your creditors generally, with an eye to collecting non exempt property from you and distributing the value of that property to them on a pro rata basis. Simultaneously, the panel Trustee also asks questions posed by the regional United States Trustee whose job is to watch out for fraud and find out if a person has the appearance of the ability to pay into a Chapter 13 payment plan rather than earning a discharge of debt outright.
The Section 341 hearing is also an opportunity for any of your creditors to appear and ask you questions in an attempt to assert what it believes is a superior claim over your other creditors.The appearance of a creditor in a consumer bankruptcy case is a rare occurrence. Occasionally a representative from a home or car lender may appear just to confirm that you are carrying the insurance required under your loan contract.
If you have been honest about all of your assets and all of your debt and our firm has been thorough in its analysis of your financial status, any issues that might come about through the Trustee’s examination will have been dealt with ahead of time and there will be no surprises.
8) Debtor Education Course
Any time after the filing of your petition in bankruptcy but no later than 45 days following the first meeting of creditors, you are required to participate in a second education course. The first credit counseling course helped you to understand how you fell into financial hardship. The second course is designed to teach you planning and budgeting techniques to help you from getting into trouble moving forward.
As was the case with the credit counseling course, a Certificate of Completion must be scanned and uploaded to the court in order for you to earn a discharge of your debt.
9) Order of Discharge
Contrary to popular belief, once your presumptive discharge date has passed without any of your creditors filing an objection to the discharge of your debt to them, your debt is not “forgiven.” Instead, the Court orders that you are discharged of your personal liability for the debt and your creditors are permanently enjoined from trying to collect that debt from you. What once was a temporary “umbrella” has been converted into a permanent “iron shield.”
10) Enforcing the “iron shield” and rebuilding your credit
Congratulations! You’ve earned your discharge – it’s finally over! ALMOST.
The two most frequently overlooked post discharge things that happen to a person who has just earned a discharge in bankruptcy are:
Ignoring continued collection activity and hoping it goes away, and;
Doing nothing to repair the negative information still hanging out on one’s credit bureau report.
If your creditors are still calling you and not listening to you when you tell them not only did you file for bankruptcy but you have earned a discharge of your debt to them, they can be stopped and stopped forcefully.
Let our office know who is calling and about which debt. Keep a log of who calls, when they call and the name of the individual person who is calling. We will send out warning letters and call the collection people as necessary to make them stop. If they persist, the law allows us to “sue” them in bankruptcy and ask the court to enforce the injunction and in some cases, make them pay punitive damages for their behavior.
Just because you filed for bankruptcy and just because you have earned a discharge of your debt does not mean all that negative credit information on your credit bureau report will magically disappear. You have to make that information disappear yourself. Call for a free consultation on how we can help you make that happen for a nominal fee.