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

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.

 

Student Loans in Bankruptcy

Student loans can sometime be written off in bankruptcy, but it can be quite hard to meet the necessary conditions to do so.

 

The Discharge of Student Loans

Student loans are NOT among those debts that can NEVER be “discharged”—legally, permanently written off on bankruptcy. Bankruptcy law does totally exclude certain kinds of debts from being discharged–one example is unpaid child support.

Instead student loans are among those debts that are discharged IF they meet certain conditions. They are somewhat like income taxes, which can definitely get discharged. With income taxes there is a list of conditions; with student loans there is only one to meet. Yet, discharging a student loan can be much more difficult than discharging an income tax debt. That’s because the conditions for discharging income taxes are mostly straightforward, compared to the much vaguer condition for student loans.

The Vague Condition of “Undue Hardship”

Bankruptcy law allows a student loan to be discharged if “excepting such debt from discharge… would impose an undue hardship on the debtor and the debtor’s dependents.” Section 523 (a)(8) of the U.S. Bankruptcy Code. So if you can show that your student loans are causing “undue hardship,” you can discharge those loans.

What’s “Undue Hardship”?

The problem is in figuring out what that phrase means.

In practical terms what does the statute consider a “hardship”? And what more does it take for a “hardship” to rise to the required level of an “undue” hardship?

The phrase “undue hardship” did not originate in Congress. It came from a Commission on the Bankruptcy Laws created by Congress way back in the early 1970s to help guide a total overhaul of our bankruptcy laws.

When Congress used that term in the statute on student loan discharge quoted above, it did not define it. Many other important terms used in the Bankruptcy Code are directly defined within the Bankruptcy Code. See Section 101 on “Definitions.” But not this one.

A Practical Standard for “Undue Hardship”

Congress left it to bankruptcy judges and courts of appeals to apply this term to people’s circumstances. They’ve focused on coming up with practical conditions required to have a hardship that is serious enough to be considered to be “undue.”

Over the decades most of the bankruptcy courts in the country have largely settled on three hurdles to jump for undue hardship:

1. To make the required payments on the student loan under your current income and expenses would leave you unable to maintain even a minimal standard of living.

2. This current situation of being unable to maintain a minimal standard of living is expected to continue over all or most of the repayment period of the student loan.

3. You’ve made a real effort at paying the student loan and/or qualifying for programs to address the debt responsibly.

Important Considerations

  • You must ask for a hardship discharge during your bankruptcy case or you’ll continue to owe your student loan(s). This is done through what is essentially a lawsuit in the bankruptcy court. You must convince the bankruptcy judge that you’ve jumped the above three hurdles to get a decision in your favor. 
  • The timing of your request can make all the difference. You may not qualify for undue hardship now, but you may do so in the future. An example would be if you have a worsening chronic medical condition. Talk with your bankruptcy lawyer about reopening your bankruptcy case later when you better qualify for undue hardship.
  • Consider filing a Chapter 13 “adjustment of debt” bankruptcy now if you may not qualify now but will in the next few years. You could likely not make any student loan payments for a few years. Then later in your 3-to-5-year case, or as soon as you’d qualify, you’d ask the court for an undue hardship determination, while your Chapter 13 case is still open.

Conclusion

It’s often not easy to meet all three conditions of the undue hardship standard. It can be a rather lengthy and expensive legal process. But an increasing number of people have large student loans as a major portion of their debts. If that’s you, get legal advice from an experienced and conscientious bankruptcy lawyer. The bigger your student loans, the bigger their impact on your future, and all the more important to understand your rights and options.

 

The Chapter 7 and 13 Trustees, and the U.S. Trustee

The Chapter 7 trustee decides whether to liquidate anything, the Chapter 13 oversees your case, and the U.S. Trustee is the enforcer. 

 

When you hear the term “trustee,” that could refer to various people or roles.

Some are not directly related to the bankruptcy process. For example, in many states the “trustee sale” is the final event of a home foreclosure. A trustee legally conducts the foreclosure instead of your lender.

More broadly, a trustee is a person given certain powers to administer property or to fulfill some other tasks on behalf of others.

In bankruptcy, a trustee gets assigned to your case when you file a Chapter 7 or Chapter 13 case. You and your bankruptcy lawyer will meet with that trustee briefly. Sometimes you’ll have more contact with the trustee, especially in a Chapter 13 case.  Generally speaking these trustees have certain powers over you and your property, and act on behalf of your creditors.

There is also the U.S. Trustee. He or she usually works behind the scene; in most consumer cases you’ll never meet this person.

The Chapter 7 Trustee

Chapter 7 “straight bankruptcy” is a liquidation procedure, although in consumer cases usually no liquidation takes place. (Nothing of yours gets liquidated and sold to pay your creditors if everything you have is “exempt,” or protected.) The Chapter 7 trustee is the person who determines whether or not you have any assets to liquidate. In those cases in which the trustee sells debtor assets, he or she is also responsible to distribute the proceeds to the creditors as required by law.  

The Chapter 7 trustee presides at the so-called “meeting of creditors.” That’s usually the only time you’ll see him or her. This 10 minute or so meeting takes place within about a month after you and your bankruptcy lawyer file your case. At this short meeting the trustee will ask you some (usually quite simple) questions about your bankruptcy documents. Your lawyer will prepare you for them and help at the hearing as needed.  

The trustee is assigned to your case from a “panel” of potential trustees. Generally your lawyer can’t predict or influence who will be your trustee. 

See Section 704 of the U.S. Bankruptcy Code about the duties of a Chapter 7 trustee.

The Chapter 13 Trustee

Chapter 13 “adjustment of debts” is a procedure involving the court approval and the implementation of a payment plan. The Chapter 13 trustee administers and oversees the process.

This trustee has a number of roles. The primary one is to enforce your obligations under Chapter 13 law. For example, the trustee tries to ensure that you pay your creditors what they are entitled to. The trustee

  • reviews your proposed payment plan and other court-filed documents,
  • presides at your so-called “meeting of creditors”
  • can raise objections to your plan with the bankruptcy court as appropriate
  • after court approval of your plan, receives your plan payments and distributes them to the creditors as specified under the terms of the plan
  • files motions with the bankruptcy court if you are not complying with the plan
  • at the end of your case tells the court when you have successfully completed your plan obligations

Unlike the Chapter 7 trustees, there is usually a single “standing Chapter 13 trustee” assigned to all the Chapter 13 cases filed in a particular area. Since most handle a large volume of cases most of them have a staff of assistants. Your lawyer will very likely have a long-standing working relationship with the trustee and staff. You’ll know in advance who will be your Chapter 13 trustee.

See Section 1302 of the Bankruptcy Code about the duties of the Chapter 13 trustee.

The United States Trustee

The U.S. Trustee is the enforcer within the bankruptcy system—the watchdog over the bankruptcy process.” You generally hope to avoid hearing from the U.S. Trustee—it’s often not good news.

As described on its website:

The United States Trustee Program is a component of the Department of Justice that seeks to promote the efficiency and protect the integrity of the Federal bankruptcy system.  To further the public interest in the just, speedy and economical resolution of cases filed under the Bankruptcy Code, the Program monitors the conduct of bankruptcy parties and private estate trustees, oversees related administrative functions, and acts to ensure compliance with applicable laws and procedures.  It also identifies and helps investigate bankruptcy fraud and abuse in coordination with United States Attorneys, the Federal Bureau of Investigation, and other law enforcement agencies.

The main responsibilities of the local U.S. Trustee in consumer cases is to:

  • appoint and supervise Chapter 7 and Chapter 13 trustees
  • take legal action to prevent fraud and abuse of the bankruptcy system
  • investigate and refer matters to the appropriate enforcement authorities (as mentioned above) for criminal prosecution

See 28 U.S. Code Section 586 for the duties of the U.S. Trustee.