First, Does Filing Make Sense for You?
A bankruptcy discharge can bring enormous relief, and a fresh financial start. It's not for everyone, or for every financial situation, though.
Perhaps the most important thing a good bankruptcy attorney does for a client, is help that client decide whether filing for bankruptcy is a good idea in the first place. Sometimes there are non-bankruptcy alternatives available that won't do as much damage to our client's credit rating. Sometimes, there is no good reason to file, because the client is non-collectible, or the client's debts are time-barred. Sometimes, bankruptcy simply won't solve the financial problems our client faces. And sometimes, filing a bankruptcy case can have disastrous unintended results. We never file bankruptcy cases unless our clients fully understand what they're getting into.
We file cases under Chapter 13 if our clients "fail" the means test (discussed above), or if they are facing foreclosure, eviction, the repossession of a vehicle, or in certain situations, wage garnishment. Chapter 13 is also effective in helping our clients manage student loan debt, taxes or overwhelming domestic support obligations.
Chapter 13 is a repayment plan, that typically lasts between 3 and 5 years. While the debtor is under the repayment plan, the debtor pays his/her "disposable income" to a Trustee, who distributes those payments to the debtor's creditors. "Disposable income," simply speaking, is the difference between the debtor's monthly income, and his/her reasonable monthly expenses. A common misconception is that a debtor must repay 100% of their debts in Chapter 13 - this is usually not the case. Since a debtor is only required to pay over his/her disposable income, unsecured creditors (like credit card companies) often receive only pennies on the dollar.
Under a Chapter 13 repayment plan, the debtor can cure mortgage or car loan arrearages, without fear of foreclosure or repossession. Under certain circumstances, an underwater car loan can be "crammed down" to the value of the vehicle, and underwater second mortgages can be "stripped off."
The Process, in a Nutshell
As soon as you've entered into an agreement with us to provide bankruptcy services to you, we will ask you to provide copies of several financial documents. Here is our current list. Once we receive these documents back from you, your attorney will begin preparing your "Voluntary Petition" and "Schedules." As soon as your Voluntary Petition and Schedules are complete, we will arrange a second meeting and go through them with you, line-by-line, to make sure they are accurate and complete before filing. You'll have to sign that paperwork in a number of places. Both Chapters of consumer bankruptcy officially start with the electronic filing of your Voluntary Petition and Schedules.
Once your case is filed, the court almost instantaneously assigns a bankruptcy trustee (whose job it is to oversee the process) and schedules a "341 Meeting" (also called a "First Meeting of Creditors"). If your case proceeds smoothly, the 341 Meeting will be your only required appearance in court. Your attorney will attend the 341 meeting with you, and he/she will make sure you are prepared for that meeting. You will need a government-issued picture ID, as well as proof of your Social Security number at the 341 meeting. If you don't know where your Social Security card is, please discuss with your attorney at your earliest convenience.
Prior to filing a bankruptcy case under either Chapter, all debtors must complete a court-approved Debtor Education course. We have a short list of vendors that are affordable and prompt in the delivery of our clients' course completion certificates, and we'll provide you with promotional materials from those vendors during your initial consultation. If you file a case, a second debtor education course is required within 60 after the date first set for your 341 meeting. We understand that the online courses take about an hour each, and that you can start and stop as necessary.
The Automatic Stay, the Bankruptcy Discharge, and the Discharge Injunction
The second your case is filed, an "automatic stay" of collection activity is ordered by the court. That means, as soon as they get notice of your case, your creditors must stop all collection activity - all calls and threatening letters must stop, as must repossessions, evictions, wage garnishments, foreclosures, and the like. Further, any Sheriff's sales, evictions or repossessions that might have occurred after you filed your case but before your creditor received notice will generally be void, and can be undone by providing proof of filing.
At the end of your bankruptcy case, the court will enter an "Order of Discharge," meaning that you are no longer legally responsible for paying back any debt that was discharged in your bankruptcy case. Generally, credit card debt, medical bills, and even mortgage liability is discharged in bankruptcy. Certain debts are not discharged, however, most notably, student loan obligations, recent tax liability, and domestic support obligations. Prior to filing, your bankruptcy attorney will make sure you understand which debts are likely to be discharged, and which debts are not subject to discharge.
Once you receive your Order of Discharge, your creditors are forever barred from attempting to collect from you, provided they had notice of your case. Creditors who violate the Automatic Stay or the Discharge Injunction are subject to sanctions, including financial damages and reimbursement for your attorney fees.
Costs Involved; Due Dates
There are three general costs associated with filing a bankruptcy case: the legal/attorney fees, the court's filing fee, and the costs of the debtor education courses. These costs are also explained in the Fee Agreement.
In a Chapter 7 case, attorneys are strongly encouraged to charge a flat fee for services, and the law requires that we collect that fee in advance of filing the case. Otherwise, at the time of filing, we are a creditor, we potentially have a conflict of interest as a creditor, and the long and short of it is, the Automatic Stay applies to us, too. We regret that this is the state of things, and hope that this situation eventually changes.
In a Chapter 13 case, attorney fees can be paid after filing, through the Chapter 13 plan. Often, we are willing to file Chapter 13 cases for clients, without collecting any part of the attorney fee up front. Chapter 13 cases are considerably more labor-intensive, however, and for that reason, they have a higher attorney fee.
Under either Chapter, if you can't afford to pay the fee up front, then the court's filing fee can be paid in installments, after filing the case. Subject to court approval (which is usually given), the filing fee can be paid in up to four installments, over the course of 120 days, and no part of the filing fee is required in advance of filing. That being said, if you are in a position to pay the filing fee at the time of filing, we recommend that you do so. Your case will be dismissed if the full filing fee is not paid in a timely manner.