Archives for 2018

A Dozen Surprising Benefits of Bankruptcy

Bankruptcy can go beyond giving you immediate and long-term relief from your debts. It comes with many other surprising benefits. 


The next 12 blog posts will be about some of the most powerful and surprising benefits of bankruptcy.

You’re likely considering bankruptcy because you’re financially overwhelmed and need relief. You need immediate relief from debt collection pressures. You need long-term relief from having to pay debts you can’t handle. Bankruptcy provides that immediate and long-term relief.

But bankruptcy can often also give you some other rather amazing benefits, beyond the basic relief you expect. The next dozen weekly blog posts will give you details about the following benefits:

1. Get Back Money Recently Paid to a Creditor

Through “preference” law you could get back money you’ve recently paid to a creditor—paid either voluntarily or not.  

2. Undo Judgment Liens on Your Home

Through judgment lien “avoidance” you can often permanently remove a judgment lien, a tremendous practical benefit.   

3. Get Back Your Driver’s License after an Unpaid Judgment

Reinstate your license if you lost it by not paying a debt from an uninsured or underinsured motor vehicle accident.

4. Reinstate Your Driver’s License from Failing to Pay Tickets

Reinstate your license if it had been suspended for unpaid traffic infractions.

5. Get Back Your Just-Repossessed Vehicle

Filing bankruptcy not only prevents vehicle repossession; it may be able to get your vehicle back to you after it’s already been repossessed.

6. Get Out of an Unaffordable Payment Plan with the IRS/State

Bankruptcy comes with a surprising array of tools to use against your tax debts, allowing you to prevent or get you out of an onerous monthly payment plan.

7. Prevent Debt Collections from Re-Starting after Being “Stayed”

Bankruptcy doesn’t stop or only temporarily stops certain select debts from being collected—such as child/spousal support arrearage, recent income taxes, student loans, and debts incurred through fraud. But there are tools bankruptcy provides for resolving special debts like these permanently.

8. Prevent an Income Tax Lien Recording and Its Potentially Huge Damage

An income tax lien can turn a debt that could be discharged—permanently written off—into a debt that you must pay in full. A timely bankruptcy filing can prevent this financial hit.            

9. Bankruptcy Can Often Reduce Some or All of a Tax Lien’s Financial Impact

In some situations a tax lien can be made either wholly or partially ineffective. Besides saving you lots of money you get the peace of mind that your home is not at risk.

10. Avoid Paying Your Ex-Spouse Most of Your Property Settlement Debts

Chapter 13 allows you to discharge—write-off—some or all non-support obligations of your divorce.

11. “Cram down” and Change the Payment Terms of Your Vehicle Loan

If your vehicle loan is more than two and a half years old, you can usually reduce your monthly payments and the total amount you pay on the loan.

12. Get Out of Your Vehicle Lease through Bankruptcy

Leasing is often the cheapest way to have a vehicle short term, but is actually usually the most expensive long-term. Bankruptcy can be the best way to get out of this expensive obligation.


Fully Complying with Your Chapter 13 Case

Besides fulfilling the terms of your Chapter 13 payment plan, you may need to make other payments and meet other requirements. 


The bankruptcy court’s approval of your payment plan (at the Confirmation Hearing) happens about 2-to-4 months after filing your case. At that point your Chapter 13 case is fully on its way. You likely have about 3 to 5 years altogether to finish the case. Having gotten to this crucial point, there are a few other crucial steps you need to fulfill to successfully finish your case.

Last time we got into three of these:

  • Do your “debtor education”
  • Avoid or defeat “nondischargeability complaints”
  • Pay your Chapter 13 plan payments

Today we lay out two other crucial steps.

Pay Any Obligations NOT Within Your Plan Payment

In many Chapter 13 cases you pay nothing to your creditors except the single plan payment each month. The trustee divides that payment among your creditors as laid out in your court-approved plan. You pay nothing else to any creditor.  

But in other cases, you pay one or more creditors directly. This may be referred to paying “outside the plan.”

To be clear, you are not paying these secretly. Your plan clearly refers to these debts and their payments. So the bankruptcy court approves these payments. They’re just not included within the single monthly plan payment, for various possible reasons. (See the explanation in paragraph 3.1 of the official Chapter 13 Plan form.)

Often these are ongoing payments on secured debts such as home mortgages or vehicle loans. Direct payments are more likely used when you’re current and are simply continuing to make the regular payments. In some jurisdictions it’s considered easier for everybody that you continue to pay such straightforward payments directly to the creditor. Paying them through the trustee is seen as causing too much delay and accounting confusion.

Naturally it’s essential that you know whether all of your creditors are being taken care of through the single plan payment, or whether there’s a creditor or two you need to pay directly. Your income and expense schedules should make that clear, as well as the plan itself. But if you have any doubt, be sure to ask your bankruptcy lawyer.

Do Anything Else Required

Two documents combined—your plan and the Order Confirming Plan signed by the judge—are the law of your case. These documents contain requirements beyond making payments. They include some standard ones that apply to just about all consumer debtors. There may also be some special requirements for you.

The standard requirements usually include:

  • providing the trustee with copies of your annual income tax returns (paragraph 2.3 of the official Chapter 13 Plan form)
  • turning over to the trustee “income tax refunds received during the plan term” (paragraph 2.3 of the official Chapter 13 Plan form)
  • avoid using credit without prior Chapter 13 trustee or bankruptcy court permission

Special requirements can include:

  • a specified deadline to sell an asset
  • permission for you to use an income tax refund for a specific expense, such as a vehicle repair
  • a requirement to report when an unemployed spouse gets employed

Notice that these special requirements often relate to anticipated changes to your income, expenses, or assets. These changes can directly affect your future obligations under your Chapter 13 case. They may well require you to adjust the payment terms of your plan in the future.


It does take consistent effort to complete a Chapter 13 case successfully. But that effort is worthwhile because it gains you tremendous benefits. Chapter 13 provides many tools that Chapter 7 cannot. Through those tools you can likely meet some otherwise impossible goals. Once you’ve decided that these goals are worthwhile, usually the effort will be worthwhile as well. 


Successfully Completing a Chapter 7 Case

Most bankruptcy cases are completed successfully. But you need to pay attention to a few crucial steps to make that happen. 


You’ve filed a Chapter 7 “straight bankruptcy” case, which stopped all creditor collections actions against you. About a month later you’ve gone through the Meeting of Creditors with the Chapter 7 trustee. Now within two more months you will very likely finish the case and get a discharge of your debts. “Discharge” is the legal and permanent write-off of most or all of your debts. You’re getting close. But now there are 5 things you need to watch out for to get that discharge and finish your Chapter 7 case successfully. We cover the first 3 of these today, and then the other 2 in our next blog post.

1) “Debtor Education”

You completed a “credit counseling” class before filing bankruptcy, usually online but sometimes by phone. Similarly, after filing you must also complete a “debtor education” class. Or as the U.S. Bankruptcy Code calls it, “an instructional course concerning personal financial management.” See Sections 111 and 727(a)(11) of the Bankruptcy Code.

This is also usually done online, by phone or even, rarely, in person). The procedure is similar to the earlier “credit counseling” you did before filing the Chapter 7 case. The information provided in “debtor education” may actually be helpful to you and your financial life going forward. 

No matter whether or not it is helpful, it’s mandatory. The law clearly says that if you don’t complete this requirement the court does not discharge your debts. It’s easy to forget; be sure not to.

2) Keep/Surrender Collateral

If you have any secured debts, you need to deal with the collateral. Your Chapter 7 documents included a Statement of Intention stating what you intended to do with the collateral securing each secured debt. You sign this document under penalty of perjury, and your lawyer sends a copy to every affected creditor. It gives you the following options:

  • surrender the collateral
  • keep it and “reaffirm” the debt,
  • keep it by “redeeming” the collateral
  • retain it some other way

It’s very important that you follow up on these intentions, especially if you want to keep the collateral. By law you have 30 days after the Meeting of Creditors to “perform [your] intentions with respect to such property.” Section 521(a)(2)(B) of the Bankruptcy Code. If that 30 days passes without you “perform[ing your] intentions,” the creditor can repossess or otherwise take back the collateral.

3) Address a “Dischargeability” Complaint

Most debts get discharged as long as they don’t fit some very specific categories. Examples of nondischargeable debts include child and spousal support and criminal debts. Others, such as income taxes and student loans, may get discharged depending on the circumstances. See Section 523 of the Bankruptcy Code for “Exceptions to discharge.”

As for debts that don’t fall within such non-dischargeable categories, creditors can still object to the discharge of the debt. Each creditor has until 60 days after the Meeting of Creditors to do so. Section 523(c)(1). Otherwise it forever loses its right to object.

A creditor objects by filing a formal complaint at the bankruptcy court. These complaints are not very common. That’s because the law allows such creditor complaints only on some relatively narrow grounds. Generally, a creditor must prove that the debt was incurred through your fraud or misrepresentation, or involves your “willful and malicious injury” of a person or property. Subsections 523(a)(2)(4)(6). If the creditor does not file a complaint within the 60-day period, then your debts are usually discharged immediately thereafter.


Next time we’ll cover the two other steps you need to be aware of to complete your Chapter 7 case successfully.


The Confirmation Hearing in a Chapter 13 Case

The Confirmation Hearing is where the bankruptcy judge approves, or “confirms,” your Chapter 13 payment plan.” You seldom need to attend

The Chapter 13 Plan

As we said last week about the Meeting of Creditors, a Chapter 13 case is all about “the plan.” The plan is your financial roadmap during the 3 to 5 years that you are in the case. It’s put together by you and your bankruptcy lawyer, outlining what debts you’ll pay, how much, and when. (See this Chapter 13 Plan form.)

At the Meeting of Creditors your Chapter 13 trustee discusses the plan with you and your lawyer. Sometimes a creditor or two are also there. The Confirmation Hearing is a month or so later. By that time any concerns or objections raised at the Meeting of Creditors should be resolved. If so, the bankruptcy judge signs an order approving the plan. That plan may be exactly as you and your lawyer first put it together or may have some changes negotiated with the trustee and/or creditors.

You Seldom Go

You must attend the Meeting of Creditors, but almost never go to the Confirmation Hearing. You could go if you wanted. It’s a court hearing that anybody can attend. But there would almost never be anything you’d need to do there other than to observe what happens. In rare circumstances your lawyer will recommend or ask that you be there for some special reason. If you have any doubt be sure to ask.

The Straightforward Confirmation Hearing

The goal of the hearing is to get the judge’s approval of the plan. That’s formalized by the judge signing a document (usually prepared by your lawyer) called the Order Confirming Plan. The trustee often signs off on the plan beforehand. Sometimes that happens verbally at the Hearing, if there have been last minute negotiations or changes. (See this sample Order Confirming Chapter 13 Plan.)

At a straightforward Confirmation Hearing any trustee/creditor objections would have been fully resolved before the Hearing. So the trustee reports to the judge that either there were no objections to the plan or they’ve been resolved. So the judge reviews the plan and approves it, usually signing the Order Confirming Plan. At that point your plan becomes legally effective and in effect becomes the law of your case.  (Note that usually you have already been paying into your plan from when it was filed a couple months earlier.)

The Not-So-Straightforward Confirmation Hearing

For lots of reasons a Chapter 13 plan may not be ready for the judge’s approval at the Confirmation Hearing. For example:

  • The trustee may be objecting to an expense in your budget that you think is necessary and appropriate. The trustee wants to lower or eliminate the amount and increase your monthly plan payment. Your lawyer has tried to resolve this by negotiation but that’s not worked. So the bankruptcy judge needs to rule on it.
  • A secured creditor may be disputing the value of its collateral and so how much you should pay it.
  • A creditor could raise an objection for the first time at the Confirmation Hearing itself, one which cannot immediately be resolved. Creditors almost always raise any objections long before the Hearing, which happens about two months after your case filing. But their final deadline to object to your plan is at the Confirmation Hearing. So there are occasional surprises.

Plan Still Approved at the Hearing

The judge can sometimes make a ruling at the Confirmation Hearing, resolving whatever is preventing plan approval. Then the plan could still get confirmed, right at the hearing. Or sometimes the judge gives one of the parties a certain amount of time to object to a tentative ruling. If there is no renewed objection within that time, the judge would sign an Order Confirming Plan without any further hearing.

Or the judge could schedule an Adjourned Confirmation Hearing. This could happen, for example, after the judge tells an objecting creditor and you to try to settle the matter. If the parties do settle, they can report that to the judge at the Adjourned Confirmation Hearing. The judge could then confirm the Chapter 13 plan, with any agreed amendments, at the Adjourned Confirmation Hearing. Or that Hearing could possibly be cancelled if the parties filed appropriate paperwork at court beforehand.

Cases Requiring Special Adjudication

Sometimes the disputing parties are simply not able to settle their dispute among themselves. It’s too complicated for the judge to rule on it during the few minutes allotted at an Adjourned Confirmation Hearing. So the issue is addressed in a separate proceeding, with both sides making their arguments. This is a Contested Matter, or an Adversary Proceeding if it goes so far as requiring a trial. After the judge’s decision, he or she will either confirm the plan, or in sometimes instead dismiss the Chapter 13 case or change it into a Chapter 7 one.

Most Chapter 13 Plans Get Confirmed

Most Chapter 13 plans do get confirmed, either at the initial Confirmation Hearing or within a few weeks afterwards. You and your lawyer need to prepare the plan carefully. Any objections should be addressed right away instead of waiting until right before the Confirmation Hearing. Of course you as the debtor need to do what your plan says you’ll do. If all these happen, very likely your plan will be confirmed and your case will be on its way.


The Meeting of Creditors in a Chapter 13 Case

At the Meeting of Creditors you, your lawyer, & the trustee review your proposed payment plan, and address any creditor & trustee concerns.  


The Chapter 13 Payment Plan

The core of your Chapter 13 “adjustment of debts” case is the payment plan. The plan is a detailed outline of who you will pay, how much, and when. A Chapter 13 plan has to follow many legal requirements. (See Section 1322 of the U.S. Bankruptcy Code on the “Content of a plan.”) Sometimes there’s some disagreement about whether your plan follows those requirements. Often there isn’t.

Just about everything in the Chapter 13 process, including the so-called Meeting of Creditors, revolves around the plan. You and your lawyer propose the plan, then the trustee and creditors review and can object to it.  Any such objections usually get resolved through negotiation, but sometimes require a ruling by the bankruptcy judge. Usually the plan, with or without any changes, gets approved, or “confirmed,” by the judge 2 or 3 months after you submit it.

The Meeting of Creditors

So let’s go back to the Meeting of Creditors, which happens about a month after filing your Chapter 13 case. It’s mostly you and your lawyer’s opportunity to meet with the Chapter 13 trustee to discuss your proposed payment plan. (See Section 1302 of the Bankruptcy Code about the Chapter 13 trustee.)

At the Meeting you find out if the trustee approves the terms of your proposed plan. By this time the trustee and his staff have reviewed the plan and its supporting documents. The trustee will ask you a list of standard questions. He or she may also have some questions about the plan.

Your lawyer will prepare you for the questions, most of which will likely be quite straightforward. The questions often are simply intended to confirm or clarify the information you have already provided in writing. Your lawyer will be there right next to you. In fact often a lot of the conversation during the Meeting ends up being between the trustee and your lawyer. That’s especially true when the discussion gets into more technical details of the plan. Your lawyer will advise and inform you before, during, and after the Meeting.

The Creditors

Often none of your creditors will attend the Meeting of Creditors. It can be just between you and your lawyer and the trustee and any assistants.       

Creditors do have a right to attend. But if your case is very straightforward, your plan may well not have anything they can object to.  Even if a creditor does have a concern, its lawyer often contacts your lawyer directly to work it out. Or it files a formal objection and then any unresolved disputes get worked out with and/or by the bankruptcy judge.

Even when a creditor or two does show up at the Meeting of Creditors, it’s usually not a bad thing. It gives you and your lawyer an efficient opportunity to address any concerns of the creditor. That can happen during the Meeting itself or sometimes right after in an informal conversation.

Be Sure You Attend

You are absolutely required to go to the Meeting of Creditors. Otherwise your case will get dismissed (thrown out). That would waste a lot of your time and money, and could restrict your ability to file bankruptcy again.

You will find out the date, time, and location of the Meeting of Creditors soon after filing your case. You might even find out from your lawyer on the day he or she files your case. Otherwise you’ll get a formal notice containing that information within about 10 days of the case filing. As soon as you know the date do everything you need to do to make sure that you will be there.

The Meeting is usually about 10 minutes long. You shouldn’t worry about it. If you have any concerns talk with your lawyer so that you are fully informed. Then go and get over this modest hurdle to a much more peaceful financial life.


The Trustee’s Role in any Opposition to a Chapter 7 Discharge

In most Chapter 7 cases nobody opposes your right to a discharge of your debts. But if so it would likely come from the bankruptcy trustee. 


Last week we discussed the role of the Chapter 7 trustee in reviewing your assets at the “meeting of creditors.” Today we get into the other main job of the trustee, to, “if advisable, oppose the discharge of the debtor.”  (See Section 704(a)(6) of the U.S. Bankruptcy Code.)

Discharge of Debts

“Discharge” is the legal and permanent write-off of your debts. It’s the primary purpose of filing bankruptcy, particularly a Chapter 7 “straight bankruptcy.”

You get two main forms of relief when filing a Chapter 7 bankruptcy: the “automatic stay,” and the discharge of your debts. The automatic stay is the protection from creditor collections that you get immediately upon filing your bankruptcy case. The discharge you usually receive about 3-4 months after filing. There’s not much point to filing most consumer Chapter 7 cases without the discharge of debts.

Opposing the Discharge

The overwhelming proportion of people who file a Chapter 7 case receive a discharge of their debts. They get no opposition to it by anyone.

The Bankruptcy Code Section on the discharge of debts under Chapter 7 says, the “court shall grant the debtor a discharge,” before listing some exceptions. (See Section 727(a).)  The listed exceptions do not apply to most people.

If there is any opposition it tends to be by a single creditor complaining about the discharge of its debt. This opposition would be based on your alleged inappropriate behavior as to just that specific debt. Such a creditor is not challenging your ability to get a discharge of your debts in general. It just doesn’t think you should avoid paying its one debt. Even these more modest challenges are relatively rare.

Challenges to the overall discharge of debts are based on your alleged wrongdoing about the bankruptcy process itself, not just as to one debt.

Wrongdoing that Causes Potential Opposition to Discharge

The exceptions to overall discharge essentially involve bankruptcy fraud. The bankruptcy system is quite generous about discharging debts, but can be harsh towards those who try to abuse the system.  Fortunately it’s usually not at all hard to avoid engaging in bankruptcy fraud.         

Here are the main types of bankruptcy fraud that could result in losing your ability to get a discharge:

The Chapter 7 Trustee’s Role in This

The bankruptcy trustee is not the only person who could raise objections to your discharge. He or she is just the one who’s probably the most likely to do so.

According to the Bankruptcy Code, “[t]he trustee, a creditor, or the United States trustee may object to the granting of a discharge.” (Section 727(c)(1))

As we said earlier, creditors tend to be more interested in just getting their particular debt excluded from the discharge. It isn’t usually to a creditor’s advantage for ALL the debts to not be discharged. Then that creditor is once again competing with all the creditors to get paid.

The United State trustee is an agency—part of the U.S. Department of Justice—tasked with enforcing bankruptcy laws. So it can and occasionally does raise discharge issues on its own.

But the Chapter 7 trustee is the person who reviews your bankruptcy documents, actually meets with you briefly, and likely spends more time on your case than any other potential adversary. So he or she would be the most likely to see any indication of possible bankruptcy fraud.

At the Meeting of Creditors

The main, and usually only, opportunity for the trustee to meet you and ask questions directly is at the so-called Meeting of Creditors. The trustee presides at this meeting. Often none of your creditors appear. So then it’s just a meeting between the trustee and you and your bankruptcy lawyer. It usually does not last more than 10 minutes.

The trustee, or his or her staff, will have reviewed your bankruptcy documents, and likely some other financial paperwork, beforehand. He or she will have a list of questions for you to answer. Your lawyer will prepare you for these questions and help at the meeting as needed.

The focus of the meeting and of the questions is usually to determine if you have any unprotected assets for the trustee to liquidate. The trustee is often just verifying that you have no such assets.

There are seldom questions relating to anything about bankruptcy fraud. But once in a while the trustee may have seen or heard something that needs clarifying, and will ask you to do so. You will also usually get a broad question asking you to verify that you stand by the accuracy of all of your bankruptcy documents.

You and Your Lawyer

If you do get into any questions that indicate that the trustee believes you may have done something wrong, your lawyer will be there to help you.

Usually there are no surprises, at the Meeting of Creditors or anytime during the case, as long as you have been honest and thorough with your lawyer throughout the process.

Chapter 7 is designed to result in the discharge of all or most of your debts. All you have to do is use the system as it was intended. If you have any doubt about what that means or how to go about it, discuss it with your lawyer. You should feel comfortable that you will get the discharge that you are filing the Chapter 7 case to get. And you will have nothing to be stressed about as long as you share any concerns with your lawyer.


The Trustee at the Chapter 7 “Meeting of Creditors”

At the “Meeting of Creditors” the bankruptcy trustee is mostly interested in your assets. Most often they’re all protected by exemptions. 


Last time we introduced the Chapter 7 “meeting of creditors” as mostly a meeting with your bankruptcy trustee. Often none of your creditors show up. So you and your bankruptcy lawyer often mostly just talk with the trustee for a few minutes.

So what do you talk about?

Assets and Discharge 

The U.S. Bankruptcy Code lists more than a dozen “Duties of trustee” in a Chapter 7 “straight bankruptcy” case. (See Section 704 of the Bankruptcy Code.) But at the Meeting of Creditors the focus is on two duties:

  • to “collect and reduce to money the property of the estate”
  • “if advisable, oppose the discharge of the debtor”

These sound more threatening than they usually are. We’ll explain the first one today; the second in our next blog post.

Asset Collection—Mostly Verifying There Are None

Chapter 7 is a liquidation type of bankruptcy. But most of the time you would have nothing to liquidate. That’s because everything you own (the property of your “estate”) is likely “exempt”—protected through property exemptions. Exemptions are categories of possessions and property that you are allowed to keep. Exemptions usually allow you to keep categories of assets up to certain maximum dollar amounts. (See Section 541 of the Bankruptcy Code on “Property of the estate” and Section 522 on “Exemptions.”)

One of the main things you’ll discuss with your lawyer at the beginning of your case is whether everything you own is exempt. (There are usually ways to protect those that aren’t, including by filing a Chapter13 case instead.) Assuming that all your assets are clearly exempt, very likely your trustee will agree. He or she will declare your case to be a “no-asset” case.

So at the meeting of creditors the trustee will mostly be going through the motions of verifying this. He or she will ask you a series of easy questions about what you own. These will mostly track the questions about assets that you answered in the paperwork you prepared with your lawyer. These are Schedules A and B about your real estate and personal property, and Schedule C about your exempt property. Your lawyer will prepare you for this, and will be there at the Meeting to help.

An Expected “Asset Case”

In some situations you may have one or more assets that you and your lawyer know are not exempt. You have chosen to offer the asset to the trustee because you don’t want it any more. An example might be a boat that you’ve gotten tired of paying the upkeep on.

The trustee than decides whether or not to accept the unprotected asset from you. He or she may decide it’s not worth enough to go through the trouble of transporting and selling the asset. The trustee has no obligation to take something just because it’s not covered by an exemption. In the example of the boat, if it’s in really bad condition the trustee may decide not to take it.

But if the trustee does accept the non-exempt asset, he or she will make arrangement to take and sell it. Out of the proceeds, after court approval the trustee pays the liquidation expenses and a fee to him- or herself. (See Section 326(a) on the “compensation of trustee” in a Chapter 7 case.)  The trustee then pays the remaining funds to your creditors.

The trustee pays the creditors in a specific order depending on the nature of the debt. Priority debts are paid first, and in a particular order. (See Section 507 of the Bankruptcy Code.) These include unpaid child or spousal support and recent income tax debts, for instance. Only if there is any money left over do your other, “general unsecured debts,” receive anything.

The Unexpected “Asset Case”

Sometimes—quite rarely—the trustee gets interested in an asset that you and your lawyer didn’t expect.

The trustee may believe that the value you place on something is too low. Or the trustee may find an asset that you had not disclosed. This could happen through the questions he or she asks you at the Meeting of Creditors. Or the trustee could learn about it through some other source.

Disputes such as these are usually resolved between your lawyer and the trustee. The asset at issue may be appraised, and the matter settled that way. Or it may have to be decided by the bankruptcy judge.

If after all this there is an unexpected unprotected asset, you have a number of options:

  • surrender the asset to the trustee for liquidation and payment to your creditors
  • pay the trustee for the right to keep the asset, with the funds going to your creditors
  • convert your case into a Chapter 13 one, paying enough into your payment plan to protect the asset


The Chapter 7 trustee has a number of duties, but dealing with assets is the primary one at the Meeting of Creditors. In most cases the focus is simply on verifying that all of your assets are protected by exemptions. But sometimes there are unprotected assets, either expectedly or—rarely—unexpectedly. If you are candid and thorough with your lawyer, it’s even less likely that the unexpected will happen.

Next week we’ll get into the trustee’s role in potentially challenging your right to a discharge of your debts.


The “Meeting of Creditors” in a Chapter 7 Case

No creditors come to most Chapter 7 “meetings of creditors,” and seldom more than one or two. But this short meeting is still very important.


In virtually every Chapter 7 “straight bankruptcy” case, you never go to court. But you DO go to a formal meeting, usually lasting 5 to 15 minutes, one that you absolutely have to attend. If you don’t your case gets thrown out.  (In extreme situations you and your bankruptcy lawyer may be able make special prior arrangements if you can’t make it, but it’s highly discouraged.)

This meeting is with your Chapter 7 trustee, but it is misleadingly called the “meeting of creditors.” It is sometimes referred to as the “341 hearing,” named after the Section 341 of the Bankruptcy Code which addresses it. If you understand what this meeting is about you won’t worry about it unnecessarily and will have a successful one.

It’s NOT What You Might Fear

This meeting is not one in which all your creditors attack you for filing bankruptcy. Although all creditors are given the opportunity to be there, most of the time most of them don’t go. As we said in the first sentence, often none of your creditors will go to it.

Why not? Because usually there is no reason for them to attend. The grounds for objecting to bankruptcy are very limited so most creditors can’t object. So they don’t waste their time.

The creditors that tend to be there are those which have collateral—such as your vehicle or furniture creditors. With them it’s actually often helpful to you that they are there, to make appropriate arrangements for the collateral. (Usually this is to do whatever you’ve decided to do about keeping or surrendering the collateral.) But with even these secured creditors usually these arrangements are handled more efficiently by phone or email so they don’t have to go to the meeting.

Troublemaking Creditors

Again, any creditor CAN be at the “meeting of creditors.” So if you have one who is personally angry with you—like an ex-spouse—he or she might attend.  Any creditor can ask pertinent questions, including ones that COULD be dangerous if you’ve been engaged in any fraud or other illegal behavior. That’s not common, but be sure to talk with your lawyer well in advance if you have any concerns. He or she will warn you if your circumstances raise any red flags, and will prepare you for the meeting.                                                                                 

Creditors can ask relevant questions. But the bankruptcy trustee in charge of the meeting usually won’t have the time or patience for irrelevant discussion. Your meeting will be just one of many packed into a tight schedule, about three or four cases every half-hour. That means each one lasts about 7 to 10 minutes. The trustee can’t get too behind on the meeting calendar.

Rarely, if there isn’t enough time for legitimate questions a second meeting of creditors can be scheduled. Or the conversation with a creditor might continue informally outside the hearing.

But, again, most meetings of creditors are quite short and uneventful. The biggest surprise for most Chapter 7 debtors is when there are no surprises and they can stop worrying about it.

Not a Court Hearing

There is one person who is NOT allowed to be at the meeting: the bankruptcy judge. As the Bankruptcy Code says: “The court may not preside at, and may not attend, any meeting under this [341] section… .” So the meeting is definitely not a court hearing.


At most Chapter 7 meeting of creditors there are no creditors, or at most one or two. It’s rare that a creditor will ask tough questions, but it can happen. Be sure to share any concerns with your lawyer so you won’t worry unnecessarily, and so you are prepared.


Bankruptcy’s Role If You Have Criminal Debts

Bankruptcy doesn’t discharge criminal debts—criminal fines or restitution. Still, consider bankruptcy if you owe, or will owe, these debts. 


The Practical Purpose of Bankruptcy

Bankruptcy isn’t a legal procedure used only for wiping out all of your debts. The main purpose for filing bankruptcy often is to get rid of some debts so you can pay other debts. That’s especially true of the debts you want to pay are extremely important to pay. That’s especially true if what’s at stake are your personal reputation and your freedom. That’s what you’re dealing with when dealing with a criminal charge or conviction.

Many bankruptcy cases do not discharge—write off—all your debts. In a Chapter 7 “straight bankruptcy,” there’s often a debt or two that you either legally can’t discharge—like a recent income tax debt–or you choose to pay—like a mortgage or vehicle loan. In Chapter 13 “adjustment of debts,” your payment plan favors certain special debts while paying less—maybe nothing—on others. Also, a big reason for bankruptcy is to stop paying creditors so you’ll have the money for crucial expenses.

So, bankruptcy can discharge most of your debts so that you have the money to pay criminal expenses and debts. If you’re fighting to avoid a criminal conviction, you have no more important expenses than your criminal defense costs. If you already have a criminal conviction requiring you to pay a criminal fine or restitution, you have no more important debts than these. And if you have ongoing expenses related to your conviction or probation, you absolutely must have the money for them.

After Being Charged with a Crime

Have you been charged with a crime? If so you need to fixate on paying for your defense attorney and related costs. You need to be creative and do everything you can to come up with the necessary funds. That may well include selling assets or not paying your creditors. Sometimes it’s best to get rid of your debts and quickly improve your cash flow by filing Chapter 7 bankruptcy.

After a Criminal Conviction

Have you already been convicted of a crime? Then you have some financial obligations you absolutely must pay to the criminal justice system. You could owe a criminal fine, restitution, probation/supervision fees, community service fees, drug treatment costs, and/or electronic monitoring charges. The fine and restitution could be significant and overwhelming to pay. Any ongoing fees and costs could be very challenging as well. If you don’t pay what your conviction judgment requires, you risk getting incarcerated. Or you risk getting re-incarcerated if you have been paroled or conditionally released. A Chapter 7 or Chapter 13 case could discharge your other debts so that you could pay the criminal obligations.

Paying Required NON-Criminal Debts and Expenses

Sometimes the criminal court will directly or indirectly require you pay other kinds of debts or expenses. These would be related to your criminal conviction but not owed directly to the criminal system.

For example, you may have to be consistently employed or do community service. You may have to meet with your parole or probation officer, and/or attend treatment or classes. These may require you have a vehicle. That means keeping current on your vehicle payments and insurance, and paying repairs and maintenance on that vehicle.

Filing bankruptcy can enable you to pay these kinds of debts or expenses when you could not afford to do so otherwise. Doing so may prevent breaking your conditions of parole or probation.


Filing bankruptcy can allow you to concentrate your financial energy where it needs to be—your criminal case. That allows you to focus your emotional energy there as well. If you’re being charged with a crime, bankruptcy can be an unexpected but necessary part of your game plan. Same thing if have already been convicted.

These are all very delicate issues which need to be thoroughly explored with an experienced and conscientious bankruptcy lawyer. Either meet with one yourself or make sure your criminal defense lawyer is in close discussions with one


Being Honest in Bankruptcy

It’s really not hard to do the most important thing to have a successful bankruptcy case—be honest with your lawyer and throughout your case. 


The U.S. Supreme Court described the purpose of consumer bankruptcy way back in 1934 as follows:

… it gives to the honest but unfortunate debtor…  a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.

Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). This case involved a loan of $300 made near the beginning of the Great Depression. Hunt, the debtor, had signed an assignment of future wages for payment of the debt to the Local Loan Company. The Supreme Court held that this assignment became invalid when the debt was discharged in bankruptcy. The Court rejected state laws to the contrary. It said:

The new opportunity in life and the clear field for future effort… would be of little value to the wage earner if he were obliged to face the necessity of devoting the whole or a considerable portion of his earnings for an indefinite time in the future to the payment of indebtedness incurred prior to his bankruptcy.

292 U.S. 234, 245. So, if you are an “honest but unfortunate debtor,” the very powerful tools of bankruptcy are available to you.

Receiving that “New Opportunity in Life”

In most consumer bankruptcy cases, the person filing the case gets a discharge of his or her debts. “Discharge” is the permanent legal write-off of debts. The law says that all debts get discharged, except those that fit specific exceptions.

The U.S. Bankruptcy Code says that in a Chapter 7 “straight bankruptcy” case the bankruptcy “court shall grant the debtor a discharge,” with only certain narrow exceptions. (See 11 U.S.C. Section 727(a).)

It’s very much the same in a Chapter 13 “adjustment of debts” case. The “court shall grant the debtor a discharge of all debts,” again with only certain narrow exceptions. (See Section 1328(a) of the Bankruptcy Code.)

As long as those exceptions don’t apply to your debts, they will get discharged in bankruptcy. As long as you discharge enough debts, you’ll have that new financial opportunity in life.

Exceptions to Getting a Discharge

There are two sets of exceptions to discharging your debts. There are those that determine whether you can discharge:

  1. certain specific debts, and
  2. any of your debts.

1. Non-Dischargeable Debts

You’ve more likely heard about the first set, the specific kinds of debts that can’t be discharged. These include certain taxes, criminal fines, and student loans. These various kinds of debts bankruptcy does not discharge for many reasons. These reasons fall into 3 groups. Bankruptcy does not discharge:

  • one group of debts ever, under any circumstances, such as unpaid child support (Section 523(a)(5) and Section 101(14A));
  • another group under certain conditions, such as income taxes (Section 523(a)(1)); or
  • a final group if a creditor objects AND successfully proves certain facts, such as debts incurred through misrepresentation or fraud by the debtor (Section 523(a)(2)).

2. NO Debts Discharged

The second, less familiar set of exceptions is actually more dangerous. That’s because these doesn’t affect just a specific debt or two. Rather this set of exceptions affects your ability to receive a discharge of ANY of your debts whatsoever. (Section 727(a)(2)-(7))

You cannot be dishonest in the midst of your bankruptcy proceeding itself. If you are you may lose the ability to discharge any of your debts. This goes back to the “honest but unfortunate” phrase in the Supreme Court case quoted above. In order to receive the benefits of bankruptcy, you must be honest in how you proceed through it.

The following kinds of dishonesty could result in not being able to discharge your debts:

  • Hiding or destroying assets during the year before filing bankruptcy
  • Hiding or destroying assets after the bankruptcy case is filed
  • Hiding, destroying, falsifying, or failing to keep records about your financial condition
  • Failing to satisfactorily explain a loss of assets before the filing of bankruptcy
  • Making a false oath


Most of the time, you’ll be able to discharge all the debts you expect to discharge. Furthermore, your right to an overall discharge of debts will very likely not be challenged. But if you have ANY reason for doubt about these, be sure to tell your bankruptcy lawyer. And do so right away, preferably early in your first meeting.