Archives for February 2018

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.