A DESCRIPTION OF THE PROCESS FOR A BANKRUPTCY CASE FOR CLIENTS OF JAMES C. REED, P.A.
This is just a “brief ” (not complete) outline and description of the process. “Brief” for a lawyer, may seem like a long explanation to someone else, but this is an attempt to provide a fairly concise outline.
The process starts in my office, and is 50 – 75% complete when you file a chapter 7 bankruptcy case, perhaps only 40% complete when you file a chapter 13 bankruptcy. A chapter 7 case usually takes about 5 – 6 months from start to finish. Currently, many chapter 7 cases are completed in four months. The duration of a chapter 13 case is primarily the result of your chapter 13 payment plan, which is usually 3 – 5 years.
Initial consultation and data collection
At an initial consultation, I try to find out about your financial situation and examine possibilities for your situation. Increases in income, such as a second job; lowering expenses by doing things like eliminating unnecessary expenses, debt consolidation, mortgage modification, or other resolutions may be available. If bankruptcy is chosen, we can get you started on the process at the initial meeting.
We need to collect information about your debts, assets, income and expenses, to gather the information to prepare your petition. I give you “worksheets” to fill out to organize that information. I will also need: last year’s tax returns, copies of all pay stubs in the last 60 days, and documentation of any other income.
One of the most important things is to have an accurate name and address for every creditor: everyone that you owe money to – mortgage companies, car loans, credit cards, personal loans, medical bills, etc. You also need to list student loans, tax debts and other debts to the government, even if those debts are not being discharged in bankruptcy.
Before you return the worksheets to me, you may want to take the credit-counseling course, discussed in the next item on this list. You will need to give that provider income, expense and debt information.
I normally schedule a brief appointment to review the worksheets when you return them. We get a credit report and examine other records to independently document your information and try to insure that your petition is as accurate as it can be. We also want to try to insure that all of your debts are listed. Then, my assistant types up your petition and I review it, again.
Almost every individual who files a bankruptcy case is required to take a credit-counseling course, from an approved provider for Delaware, before the petition is filed. The U.S. Trustee maintains a list of about 20 companies that are approved to provide the course. Most people take the course on the Internet, and it should take about 90 minutes. You can also take the course by telephone. I will provide information for you to take the course. You must complete the course, and I must have a certificate of completion in order to file your petition.
In this course you will be required to provide income, expense and debt information, and the provider will attempt to develop a plan for you to repay your debts. Because you need this debt, income and expense information it may be helpful for you to take the course before you return the worksheets to me, since those worksheets will contain a lot of the information that you need in order to complete the course.
Filing of the petition
I then schedule an appointment for you to come into the office to sign the petition. The petition is then efiled through the Internet. Once the petition is filed, an automatic stay goes into effect prohibiting your creditors from doing anything to collect the debts: they can not call you, write you, send bills, sue you, proceed with a court case that is pending, or collect on a judgment. Bankruptcy stops wage attachments, Constable and Sheriff’s sales, and foreclosure sales. Because of the automatic stay some creditors will not send you a bill for your mortgage or car payment, they may even cancel your ability to make payments through the Internet. Therefore it is important that you keep track of the payments on debts for secured loans that you are keeping, and make sure that you pay the payments on those debts on time.
You should have the date and time of your creditors meeting within 2 – 10 days of the filing of your petition.
Chapter 13 plans, for chapter 13 cases only
Chapter 13 cases involve a plan for paying all or part of your debts. Usually, it is a plan to make equal monthly payments for 3 – 5 years. Sometimes there is a method for getting a lump sum to pay the plan faster.
A chapter 13 plan is often necessary in order to pay the arrears (payments that are behind, or past due) on your mortgage, or a car loan. In Delaware, the balance of your car payments is usually paid off through the plan. Taxes are a priority debt and tax debts are usually paid in full in a chapter 13 plan. Chapter 13 plans may also involve paying all or part of your unsecured debts.
In order to prepare a Chapter 13 Plan, I will need accurate amounts for any mortgage arrears, and current payoff information on car loans and other secured debts that are being paid through the Plan. Normally, you need to supply that information to me, since many creditors require written authorization before they will give me the information.
Once the Plan is prepared, you will need to sign it, and it must be filed with the court, no later than, 15 days after your chapter 13 petition is filed, if it is not filed at the same time as your petition.
Debtor Education or Financial Management Course
After your case is filed, you must take a debtor education, or financial management course. This course should also take about 1 ½ to 2 hours, if you use the Internet. A certificate of completion for this course, which you can take over the Internet or by phone, usually from the same provider that you used for the credit-counseling course, must also be filed with the court.
The creditors meeting
The creditors meeting is also known as a 341 hearing, because it is provided for under section 341 of the Bankruptcy Code. It is supposed to be an opportunity for creditors to ask you questions, but creditors very seldom appear.
The creditors meeting is currently being scheduled about 4 – 6 weeks after your petition is filed, and you should receive notice of the date and time of the hearing within 10 days after your petition is filed.
The court appoints a trustee to examine you. In Delaware there are five people who act as the chapter 7 trustee. One would be appointed in your case. Two are accountants and three are lawyers. The trustee for all chapter 13 cases is Michael Joseph, an attorney.
You need to provide identification at the beginning of the creditors meeting, usually a driver’s license and social security card. The hearing is recorded, and you answer the questions under oath. Therefore, you must give a verbal response.
The trustee will ask about a dozen standard questions that only require a short, simple answer. Then if there is anything that he does not understand about your case, he will ask. If you operated a business, that is usually a basis of some questions.
The hearing usually takes about 5 minutes for an individual chapter 7 case, maybe 10 minutes if you operated a business, but sometimes they are longer. Usually there are 6 – 8 meetings scheduled every hour, so the trustee does not have time to extend the hearing, and if more time is required, he may schedule a second hearing.
I will try to provide the information that the trustee needs, prior to the hearing. I will let you know what information you should take to the hearing. We should make every effort to conclude the trustee’s examination at the first scheduled creditors meeting. I recommend that you take the second education course, the debtor education or financial management course, prior to the creditors meeting so that the trustee in a chapter 7 case can conclude your hearing and complete his work when he returns to his office after the hearing.
Reaffirmations for chapter 7 cases
Your personal liability for debts is discharged in bankruptcy. When you want to retain personal property that is secured by a debt, such as a car loan, you may have to sign a reaffirmation agreement. A reaffirmation agreement is a new promise to pay the debt, which will make you personally liable for the debt, if the judge approves the agreement.
Regardless of whether or not the judge approves the reaffirmation agreement, if you continue to pay the payments on time, you can keep the property.
You do not need to attend the reaffirmation hearing, but a hearing will be scheduled, and the judge will decide whether or not to approve the agreement. In many cases, your income and expense information will not show that you are not able to pay the installment payment on the debt. In that case, the judge will normally not approve the reaffirmation agreement. In other cases, we may argue that the agreement should not be approved.
If the judge approves the reaffirmation agreement, you will remain personally liable for the debt, or become personally liable again. In that case, if you default on the loan in the future and the property is repossessed, the creditor will be able to sue you personally to recover any deficiency, or loss, that it suffers.
If the reaffirmation agreement is not approved, then if you default on the payments in the future, the creditor will be able to repossess the property, but the creditor will not be able to recover any deficiency, or loss, from you personally.
If the reaffirmation agreement is not approved, the creditor may not report your payments to the credit reporting agencies in the future. Therefore, you may have to get a payment history from the creditor in order to establish that you made the payments on time, and that you have paid off the debt.
Confirmation hearings for chapter 13 plans, and making the monthly payments
Chapter 13 cases normally involve a regular monthly payment, to pay the plan payments in 36 – 60 equal monthly payments.
The first payment is due, and must be paid, 30 days after your case is filed. The payment is paid to the chapter 13 trustee.
I will draft a Chapter 13 Plan that complies with the requirements in the bankruptcy code. You will need to sign the Plan before it is filed with the court.
The first confirmation hearing on your Plan is usually held about 45 days after your petition is filed. You do not need to attend any of the confirmation hearings. Subsequent confirmation hearings may be required. The plan may need to be amended. An interim confirmation should be approved, and then a final confirmation hearing will be scheduled. Normally all of this can be accomplished with the trustee, but if there are problems, a court hearing may be scheduled.
Your first payment is due 30 days after your petition is filed, and subsequent payments will have to be made every month thereafter until the Plan is fully paid or funded. Once you have a final confirmation of the plan, the court will require a wage order, deducting the payment from your paycheck, if you are employed and receive a regular paycheck. Otherwise, you will have to make the payment yourself, directly to the trustee.
If circumstances change, you may be able to modify the plan after final confirmation, with the judge’s approval.
In a chapter 7 case, you should normally receive a discharge within 90 days after your creditors meeting is concluded. A chapter 13 discharge occurs after your plan is fully paid.
The court’s discharge order is the discharge of your personal liability for the dischargeable debts. It is a permanent injunction, barring your creditors from doing anything to collect those debts, including listing that you owe any money on your credit report.
When the discharge order is received, I will send you a copy of the order, along with an explanation of the discharge. The court will send the discharge order to every creditor listed on your petition.
The discharge order gives you a fresh start: an opportunity for you to start over, without the debt that was overwhelming you.