FAQ - Bankruptcy Questions in General
- What is the difference between the different chapters of the Bankruptcy Code?
- How do I know which chapter is right for me?
- How do I even know whether I should file bankruptcy in the first place?
- Will I have to go to court?
- What can I expect from the process, if I decide that filing is right for me?
NOTE: If your question isn't answered here, you might try searching the archives of the South Carolina Bankruptcy & Consumer Law Blog.
Questions and Answers
What is the difference between the different chapters of the Bankruptcy Code?
Chapter 7 is sometimes referred to as "straight" or "liquidation" bankruptcy. In Chapter 7, certain property by law is exempt from liquidation and other property is nonexempt. After the debtor files a petition and various schedules listing all the property and debts, the Chapter 7 trustee then liquidates the nonexempt property that she elects to claim and sell on behalf of the creditors. The trustee can also choose to abandon the property back to the debtor, usually because the costs of liquidation would exceed whatever value she could get for the property in a sale.
Chapter 13 is sometimes referred to as a "reorganization plan" and is designed to help debtors pay off their debts over time - usually 3 years. After filing the petition and schedules, the debtor proposes a payment plan. The Chapter 13 trustee and the debtor's creditors have an opportunity to review the plan and to make any objections they feel appropriate. The court decides whether to accept the plan or to require the debtor to make changes. After the payment plan is completed, the debtor receives a discharge, which is somewhat broader than the discharge in Chapter 7.
Less utilized in the consumer context are Chapters 9, 11, and 12. Chapter 9 is for the exclusive use of municipalities and counties who need to file for bankruptcy protection, and doesn't apply to consumers at all. Chapter 11, while technically available to individuals, is used primarily by businesses to reorganize their debts. Chapter 12 is essentially a reorganization or payment plan chapter for family farmers and family fishermen.
How do I know which chapter is right for me?
The answer to this question is complex, and it depends on many factors which vary widely depending on your particular circumstances. This was always true, but it's even more true now, after the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). This law, widely acknowledged by consumer debtor attorneys and even many bankruptcy judges to be poorly written and based on questionable policy, made filing for bankruptcy protection in the consumer context more complicated. Certain individuals who, prior to BAPCPA, may have had a choice of which chapter to select, now may be forced into Chapter 13 on the basis of the so-called "means test."
Other factors that affect the decision of which chapter to file include whether a foreclosure on your home or car is imminent or foreseeable, what your intentions and preferences are with regard to your property, the amount and nature of your debts, the exemptions available to you, the amount of property you own compared to the liens and security interests others may claim in that property, and your income.
Because this is such a complex area of the law, and the decision of which chapter to file will affect the entire course of the bankruptcy as well as your future interests in property, it's crucial that you seek the advice of a bankruptcy attorney early. While the process may be more costly and complex now, after BAPCPA, a proactive approach will help alleviate the difficulties. Most debtors find that, while gathering the necessary information and documentation can be initially intimidating, there's a distinct feeling of empowerment that comes from the process. As they say: knowledge is power!
How do I even know whether I should file bankruptcy in the first place?
Again, this is a complex question and can only be answered after a full review of your financial situation. Consumer bankruptcy attorneys can help you here, too. Sometimes, you don't really need to file for bankruptcy protection. Instead, you might just need some relief from the constant haranguing telephone calls from an abusive debt collector. In situations like that, an attorney who's familiar with the Fair Debt Collection Practices Act and other state law sources of relief can assist you in solving the problem, which will allow you to focus your efforts on getting back on your feet financially. For more information about the FDCPA, click here, or contact Sheryl Sisk Schelin at (843)283-4840 for a free half-hour consultation.What can I expect from the process, if I decide that filing for bankruptcy is the right thing to do for me?
While each case is different, and there may be other events that take place within this time frame, depending on the facts of each case, what follows is a general description of the major steps in a bankruptcy case:The first thing you'll do is undergo a required credit counseling program. Required by the new law, this course must be taken from an entity approved by the US Trustee's office to provide this training, and it must be taken within the 180 days preceding your bankruptcy filing. This is a strict requirement, and failure to abide by it to the letter will almost certainly result in the dismissal of your case.
After you have taken this course and received a certificate evidencing your attendance, you will then begin to assist your attorney in collecting a large amount of documentation (more documents under the recent amendments than previously were required, unfortunately), and in preparing a list of your property and debts. Your attorney will work with you to plan your exemptions - property that is exempt from liquidation - if you're filing Chapter 7. There will be several documents you will have to sign, including several disclosures that are required under the new law (some of which may seem repetitive, but the law requires attorneys to ensure their clients have each of these notices).
Finally, if you are seeking to file Chapter 7, your attorney will explain the "means test" to you: if your current monthly income (defined as the average of the last six months' of all income received by the person filing, with certain exceptions) is at or below the median income for your state, you'll most likely proceed under Chapter 7. But if your income is higher than that median income, then in order to determine whether a so-called "presumption of abuse" arises, the "means test" is applied to your situation. The test is essentially a complex calculation taking the CMI figure used to compare to the state median income and subtracting certain allowable expenses to come up with a monthly amount presumed to be available to your unsecured creditors. If your income exceeds expenses by a certain amount, then you may be directed into Chapter 13.
After filing, which is generally accomplished electronically by your attorney, you will be required to attend the section 341 meeting of creditors. This meeting is an opportunity for the bankruptcy trustee (and creditors, although many creditors do not attend these meetings) to make certain inquiries of you about your case. Here, too, an attorney can be of special assistance, in helping you prepare for this meeting, which is nervously anticipated by many debtors. Despite the description, however, it is generally not a highly adversarial or uncomfortable process, assuming all assets, liabilities, and exemptions have been properly documented and the schedules are correct and complete.
Following the meeting, the next major event in chapter 13 cases is the confirmation hearing. This hearing is held by the bankruptcy court to hear objections to the debtor's plan and to rule on the plan's acceptability. If changes are required of the debtor, there is an opportunity to make revisions and submit the new plan for review. Also, you will need to take yet another course - a debtor financial education course. This is a different requirement from the credit counseling you're required to undergo pre-filing; failure to undergo this course will prevent the discharge from becoming effective.
Finally, there is a discharge hearing (for Chapter 13 filers, this will take place at the end of the payment plan, after all payments have been made). Following this event, your attorney will want to ensure that creditors have fulfilled their legal obligations with respect to this discharge and that your credit report accurately reflects what has transpired.
What is the discharge all about? How does it work?
The discharge, in both chapters 7 & 13, relieves the consumer debtor from personal liability from the debt discharged. It does not affect a valid lien or judgment which "carried through" the bankruptcy unmodified and unavoided. This means that you may have no personal obligation to pay an unsecured debt, if it was discharged, but, for example, your house (which has a valid mortgage that survived the bankruptcy) is still subject to your mortgage company's rights to foreclose if you stop making payments. The same is true of any secured property - typically, cars, large appliances, furniture, expensive electronics, etc.If I file, can my creditors keep hounding me for money?
The automatic stay prevents creditor efforts to obtain repayment of debts. The stay automatically applies (hence its name) upon filing, with certain exceptions for some repeat filers. While creditors can request and in some cases obtain relief from the stay, most debtors enjoy a respite upon filing. However, at any time, if collection agency contacts become harassing, you may have certain rights under the Fair Debt Collection Practices Act.Will I have to go to court?
The creditor's meeting does not take place in a courtroom, per se, but is a required appearance. Some judges require debtors to attend the confirmation and discharge hearings, while others see no need. It depends on the case. However, many jurisdictions no longer hold confirmation hearings for most cases unless there are unique aspects to the case requiring a hearing.DISCLAIMER: This website and its contents are meant as a general discussion of certain legal issues and not as a statement of fact, of legal advice, or as a legal opinion. No attorney-client relationship is formed by your visiting this site, clicking on its links, utilizing the resources provided herein, or otherwise, and no such relationship exists until a signed retainer agreement has been delivered to the Law Office of Sheryl Sisk Schelin with the appropriate fee. You should not rely on or act upon any information contained herein or on any other website without first seeking the services of a competent attorney licensed to practice in your jurisdiction. Sheryl Sisk Schelin practices law only in the State of South Carolina, and is not authorized to render legal services in any other jurisdiction.
The Law Office of Sheryl Sisk Schelin is a debt relief agency under the laws of the United States, including the Bankruptcy Code, and assists its clients by helping them to file for relief under the Bankruptcy Code, among other solutions, and as appropriate to their individual needs.