Much of the fear or uneasiness associated with bankruptcy stems from not knowing or understanding what to expect and what the actual process will be.  With that in mind I thought I would go step by step through the bankruptcy process in your typical Chapter 7 and Chapter 13 bankruptcy cases.

The Process of Pre-Filing

Much of the work in your bankruptcy is completed prior to your case actually being filed with the bankruptcy court.  Initially, it is vital that you meet with an attorney to discuss the various Chapters available under the Bankruptcy Code and to further discuss the best way to protect assets throughout the bankruptcy process.  While there are people who file bankruptcy without an attorney, it is not recommended.  The Bankruptcy Code is very large and quite technical, making it very easy for those unacquainted with it to make a misstep that could prove very costly in the long run and even possibly get your case dismissed.

At Jackson White, after you call in we will set up a free consultation with you to discuss your particular financial situation and to help you determine what chapter under the Bankruptcy Code you should file under (or if you should even file bankruptcy).  Once the decision has been made to move forward, you will be given a questionnaire to fill out that covers all of your debts, income, assets, and financial history.  It is vital to the process that you disclose all assets and all debts accurately in the early stages of bankruptcy.  You will also be asked to get documents together such as tax returns, bank statements, and pay stubs.

After this information has been provided, it will be used to prepare the bankruptcy petition and schedules.  The bankruptcy petition is a document that contains information such as your name, address, and any prior bankruptcies.  The schedules contain information on your assets, debts, income, and monthly expenses.  Once complete, you and your attorney will review the documents for any errors.

Prior to filing your bankruptcy case, the Bankruptcy Code mandates that you take a credit counseling class.  At Jackson White we work with credit counseling providers to help you in getting this requirement taken care of and can even be done online or over the telephone.  This is an important step as your case cannot be filed until the credit counseling course has been completed.

Now that the bankruptcy documents and credit counseling course have been completed, your case is ready to be filed.  In bankruptcy court in the District of Arizona all case filings are done electronically over the Internet.

The Post-Filing Process

Upon filing your case, you will receive a case number from the court and pursuant to the Bankruptcy Code the “automatic stay” is in effect.  The automatic stay bars any collection efforts against your or any of your property.  This is a powerful tool and will stop foreclosures, repossession, even telephone calls.

U.S. Trustee

Your case will be assigned a trustee who represents the United States Trustee’s Office, a division of the Department of Justice.  The trustee’s purpose is to review your case and make sure that you are in compliance with relevant sections of the Bankruptcy Code.  In a Chapter 7 bankruptcy case, the trustee will review your assets and if warranted, can seize non-exempt assets for liquidation.  In Chapter 13 cases, you will make your monthly plan payment directly to the trustee.

Shortly after you file you will receive a letter from your assigned trustee that contains a questionnaire and makes requests for items such as bank statements, copies of titles to vehicles, and tax returns.  It is important to gather all requested documents and return them to the trustee in the requested time.  Failure to do so will delay your case and even possibly result in your case being dismissed.

Chapter 13 Plan

If you have filed a Chapter 13 case, you will have a Chapter 13 plan payment that must be paid monthly.  The first plan payment is due 30 days from the date your case was filed.

Meeting of Creditors

Approximately 30 days after your case is filed you will be required to go to the Bankruptcy Court to attend the Meeting of Creditors.  The Bankruptcy Code provides that creditors and the trustee are to have an opportunity to ask questions.  It is rare that a creditor will actually make an appearance at the Meeting of Creditors.  However, the trustee will place you under oath and ask questions about your bankruptcy filing and the documents you provide in response to the trustee’s letter.  Most of these questions are centered on the truthfulness of your documents and information as well as any transfer of assets.   I attend this meeting with all clients and am there to answer any questions a client may have.  This meeting it typically 5-10 minutes long.  While the Meeting of Creditors is an important day and something that must be taken seriously, it is nothing to lose sleep over.

Discharge

The goal of the bankruptcy case is to obtain a discharge.  Upon discharge, you are no longer liable for the debts that are provided for in your bankruptcy schedules.  Prior to receiving your discharge you must complete a second credit counseling class.  This second course is actually a Financial Management course.  Again, at Jackson White we will provide you with a course that can be completed online.

In Chapter 7 bankruptcy cases, you should receive your discharge approximately 90 days after your Meeting of the Creditors.  In Chapter 13 cases, you will not receive your discharge until after you successfully make all payments provided for in your Chapter 13 Plan.  This occurs after the plan is complete.  Most plans are in the 36 month to 60 month range.

Closing of Case

The fact that you have received your discharge does not mean that your case is now closed with the bankruptcy court.  However, once your discharge has been issued, in most cases the bankruptcy court will close your case out within 30 to 60 days.

While not every case is the same, understanding the basic process of filing bankruptcy can reduce a great amount of stress and give you greater insight into how your case is being handled by the court.

Arizona Bankruptcy Attorney John Skiba offers free consultations on all bankruptcy matters.  If you would like to meet with Mr. Skiba call (480) 464-1111.

A common question I receive from clients is whether they must include all of their debts or all of their assets in their bankruptcy.  The short answer is yes, you must include all debts and all assets.   Many would like to keep a credit card out of the bankruptcy because they have had it for an extended period of time or due to the fact that they don’t have a balance and have consistently paid the balance in full.  However, even though debts such as credit cards that have a zero balance are generally not included in the bankruptcy filing, the credit card company will be notified of your bankruptcy filing through the credit reporting bureau and they will terminate your credit line at that point.

Likewise, you must disclose all of your assets to the bankruptcy court.  Sometimes people tell me that they don’t want to include their car or their house in the bankruptcy.  While you may elect to keep your car or keep your house, you must always disclose the car or the house as an asset that you own.  Merely disclosing that you own a car or own a house does not mean that you are going to surrender that particular asset or “lose” that asset in the bankruptcy.

It is important to remember that once your bankruptcy Petition has been drafted, that you are signing it under penalty of perjury.  That you are attesting that the information included in the bankruptcy documents is not only accurate, put complete and that their are no omissions.  Failure to include all of your assets could result in the Court revoking your discharge down the road.

In almost all cases we can protect what you own through the application of Arizona’s exemptions statutes and most people lose no property through the bankruptcy process.  It is important to disclose all assets to your attorney so that the bankruptcy documents that are filed with the Court are complete and truthful.

The integrity of the bankruptcy process is based upon complete disclosure.  Many are surprised to learn that when you file bankruptcy that no one will come to your house to take an inventory of what you own.  The Court, and your attorney, rely on you to provide the information as to what you own.  It is vital that you be completely honest with your bankruptcy attorney.  Failure to do so could have devastating consequences and end up costing you the fresh start you are seeking.

Arizona Bankruptcy Attorney John Skiba offers a free consultation in bankruptcy matters.  If would you like to discuss your particular situation with Mr. Skiba, feel free to call at 480-464-1111.

Chapter 13 bankruptcy cases require a serious commitment.  While the Chapter 7 case is a relatively short (4-6 months) and straight forward process, a Chapter 13 cases commits the filer to a minimum of 36 months and possibly up to 60 months.  Further, the Chapter 13 requires repayment of a small portion of the unsecured debt.  Despite these perceived drawbacks, Chapter 13 of the bankruptcy code has powerful tools that get you back on track financially while allowing you to keep your property.

Lien Stripping

In meeting with people on a daily basis regarding financial problems, the number one issue facing most people is the fact that their house is upside down in value and the payments are way too high.  Many people’s homes have dropped 50% in value over the last couple of years, leaving many to wonder if it is even worth staying in their homes. 

A Chapter 13 bankruptcy can do two things for home owners in this current market: (1) get caught up on any missed payments.  In fact you will be given 3-5 years to catch up on missed payments; (2) remove or “strip off” your second mortgage, Home Equity Line of Credit, or other junior lien on your home.  For some, just having additional time to catch up on missed payments is all that is needed.  The payments are spread out over the three to five year period and no interest accrues over the life of the Chapter 13 plan.

If your problem is that your house is upside down in value, then you may be able to remove and discharge your second mortgage or HELOC.  In order to qualify, the value of your house must be less than what you owe on your first mortgage.  For example, if you owe $200,000 on your first mortgage, and have a second mortgage of $50,000, but your house is only worth $150,000, then in a Chapter 13 we can remove the second mortgage completely, leaving only the first mortgage to pay.  In determining the value of your home it may be necessary to get an appraisal.  However, there are a couple of online websites that can give you an idea of what your home value is:  www.zillow.com and www.cyberhomes.com .

Cram-Down

A second powerful tool in a Chapter 13 case is the “cram-down.”  The typical situation where we see the cram-down used is on vehicles that are upside down.  If you have a car that you owe more than it is worth, then in a Chapter 13 case you “cram-down” the amount owed to the fair market value of the vehicle.  For example, if you have a truck that is worth $10,000, but you still owe $15,000, in a Chapter 13 case we can implement the cram-down and you would only be required to pay the value of the vehicle, or $10,000.

The only requirement under the bankruptcy code is that you must have purchased the vehicle at least 910 days (2 1/2 years) prior to filing your bankruptcy case.  Further, not only can we reduce the principal amount owed, but we can lower the interest rate to a more reasonable rate.  Currently we can usually get rates of 5.25%.

While a Chapter 13 case requires more of commitment than the Chapter 7, there are many tools that we simply don’t have in a Chapter 7 case.  If you would like to learn more about the Chapter 13 bankruptcy process, lien stripping, a cram-down, or any other bankruptcy related question, Arizona Bankruptcy attorney John Skiba offers a free consultation.