Archives for January 2018

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

Conclusion

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.

Conclusion

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.

Summary

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

Conclusion

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.

 

Get a New Financial Start with this New Year

Get a new financial start for 2018. Stop creditor pressures immediately, write off all or most debts, and responsibly deal with the rest.

 

An Overall New Financial Start

Get a new start by discharging (permanently, legally writing off) all or most of your debts. If you have mostly consumer or small business debts you have two main choices about how to make this happen.

A New Start with Chapter 7

With Chapter 7 “straight bankruptcy” you get a new start very fast. As soon as your case is filed most of your creditors can’t collect their debts against you. They can’t go after your money or your property. Then usually about 3-4 months later the bankruptcy court enters an order discharging your debts. As quick as that you become debt-free. The only exceptions would possibly be debts you want to keep and special debts you can’t discharge. Debts you might want to keep could include a vehicle loan or home mortgage. Debts you can’t discharge include recent income taxes, unpaid child and spousal support, and criminal fines.

Imagine if you filed a Chapter 7 case this month. Immediately your creditors could no longer chase you or anything of yours. All or most of your debts would forever be gone by April or May. The remaining critical debt or two you’d be able to handle sensibly. That quickly you’d have a new financial start.

A New Start with Chapter 13

With Chapter 13 “adjustment of debts” the new start is more nuanced, but sometimes much better.

Just as with Chapter 7 your creditors can’t take any action to collect their debts as of the moment you file your case. But under Chapter 13 that protection from creditors lasts not just a few months but for years. The final discharge of debts happens much later but in the meantime you can get many benefits unavailable under Chapter 7. You can deal in creative ways with special debts. You often have much more flexibility with secured debts like home mortgages and car loans. Same thing with income taxes and child support arrearages, among others, that can’t be discharged. Plus you get protection from collection actions against any co-signers that you don’t get under Chapter 7.

You finish your Chapter 13 payment plan in usually 3 to 5 years. Whatever debts you have not paid off get discharged. You are debt-free with limited exceptions like a home mortgage you want to still pay.

Under Chapter 13 you get immediate relief and a new start through a reasonable payment plan based on your budget. Then when that plan is done it’s followed by a full new start with (virtually) no remaining debts.

So, if you filed a Chapter 13 case this month, immediately your creditors could not chase you or any co-signers. You’d enter into a doable payment plan to handle your special debts in ways much better than Chapter 7. And when that plan is paid off you’ll have a full new financial start.