This webpage deals with bankruptcy (a federal court action (with Iowa exemptions) staying the actions of creditors and collectors, paying or dismissing debts to creditors, and allowing a debtor to "start over"), a synopsis of Chapter 7,13, 11, and 12 bankruptcies, filing requirements, and divorce implications.  Bankruptcy is an often misunderstood and complex activity (as you can see on this webpage), so I would strongly encourage people to have an initial consultation with an attorney concerning their rights and obligations. Because bankruptcy is complex, not all the information on this page is accurate for every debtor.  Debtors are cautioned to see an attorney to verify the accuracy of this information in their particular case. (Note: amounts in the codes change with the CPI. While every effort has been made to update these amounts on this webpage, amounts should be verified to determine if current.)

      There are several types of bankruptcies (which are often referred to by their respective Chapters in the Federal Bankruptcy Code (Title 11 of U.S. Code, with bankruptcy rules promulgated pursuant to 28 USCA § 2075). Personal Bankruptcies include Chapter 7 (liquidation) and Chapter 13 (reorganization), and Businesses include Chapter 7 (liquidation but no discharge of debts for businesses) and Chapter 11 (reorganization). There is also a Chapter 12 bankruptcy for farmers and fishermen.

 
CHAPTER 7: Chapter 7 is often called a liquidation because a trustee accumulates the non-exempt assets of the estate and liquidates them to pay off as many debts according to priorities, but most people filing Chapter 7 bankruptcies have no non-exempt assets. Certain assets are exempt per state or federal laws.  Chapter 7s can be filed by individuals, sole proprietors, partnerships, and corporations, but not insurance companies or banking institutions.

      To be eligible for Chapter 7, an individual must pass a means test in which six months of household income (not including unemployment, social security but includes income paid by a person other than the debtor on a regular basis for household expenses) is compared to the state median income. If your income is below the state median, you are not subject to the means test. If your income is higher than the state median income, a second part of the test is required to compare expenses and deductions under national standards. A means test calculator is available at: Means Test .  In Iowa the median income for Chapter 7 under the Means Test for bankruptcies filed after March 15, 2009 is:  $41,381 for a single wage earner, $54,628 for a family of 2, $63,888 for a family of 3, $74,047 for a family of 4, and add $6900 for each individual in excess of 4. (Note: dollar amounts in bankruptcy are adjusted every three years based on the CPI Index).. Even if only one spouse files, the income of both spouses is included to determine the household income for the Means Test.  However, only the actual contribution of non-spouse roommates or significant others are considered for the Means Test. 

    If the debtor has more than 50% non-consumer debts (that is debt incurred for your personal family needs, daily living expenses, and personal debts, then the Means Test may not apply.  Businesses can also file for Chapter 7 and the Means test is for individuals with primarily consumer debts.

      Most people are still eligible to file for Chapter 7 bankruptcy regardless of the means test. If an individual is not eligible for Chapter 7 bankruptcy, however, he may still be eligible for Chapter 13 bankruptcy.

      Chapter 7 debts are discharged usually after about 3-4 months. 

Meeting of the Creditors:
About 20-40 days after filing for a Chapter 7, there is a section 341 meeting (creditor meeting).  The Meeting of the Creditors usually takes about 10 minutes, and provides an opportunity for the trustee and creditors (although usually none show) to question the debtor.  The IRS will come if taxes are owed, and will usually request a deadline to file missing taxes.  (One item that is required to be provided to the trustee prior to the meeting is the latest tax return (provided t the trustee no later than 7 days prior to the Meeting of the Creditors). If the debtor was not required to file a tax return for the last taxable year prior to filing, a statement to that effect must be provided to the trustee. In addition, the latest filed return must be provided (even if that return is 10 years old).)  The U.S. Trustee's Office may send someone to clarify portions of the petition.  Creditors usually have 5 minutes to ask questions, but are not allowed high pressure questioning.

    This is usually the only "court" appearance that a debtor needs to attend, unless special circumstances require additional hearings.  
   
     At the Meeting of the Creditors, the trustee will call the debtors up one by one and will ask the debtor questions under oath and recorded.  The debtor will show his/her social security card (or other document with your social security number) and photo ID (make sure it is not expired) at the start of the questioning and show any other documents that the trustee asked for.  The Chapter 7 trustee is attempting to locate assets that are non-exempt or unprotected.  
    Prepare for the meeting by reading the petition to ensure that you are familiar with the contents.  If there are changes, notify your attorney.  Ensure that you are early to the meeting.  The meeting goes fast and if you miss your slot, your case could be dismissed.

    Questions to be asked at the meeting of the creditors by the trustee under penalty of perjury usually include:
            a.  Did you personally sign the bankruptcy documents after carefully reviewing them? 
            b.  Are there any additions or corrections to the documents?
            c.  To the best of your knowledge is the information in the documents true and correct?
            d.  Are all your assets identified on the schedules?
            e.  Have your filed your income taxes?  Do you have a return coming? What did you do with your return if it was received?
            f.  Have you listed all your creditors?
            g.  Have you previously filed for bankruptcy?  When?
            h.  Do you have any interest in real estate?  Sold any real estate in the last 12 months?
            i.  Do you have any interest in businesses in the last 6 years?
            j.  Does anyone owe you any money?  Is it collectable?
            k.  Are you involved in any lawsuits or have the potential for filing a lawsuit, or anyone filing against you?
            l.  Have you made any transfers of personal property or given away any property in the last year? Or to relatives in the last 2 years? Repaid any family loans in the past year?
            m.  Does anyone hold any property belonging to you?
            n.  Are you entitled to any life insurance proceeds or inheritance? (Note:  any life insurance or inheritance received within 6 months after filing is property of the estate.)
            o.  Are your bills primarily consumer bills?
            p.  Have you made any large payments over $600 in the past year? Or to creditors over $600 in the last 3 months?
            q.  Do you own any cash value life insurance?
            r.  Have you engaged in any business in the last 6 years?
            s.  Where do you live, and for how long?  Have you lived in Iowa for over the last 2 years?
            t.  Did you have on hand or deposit over $1000 at the time of filing?  (If so, the trustee will want copies of bank statements, etc.)
            u.  Do you owe any child support? (If you do owe any spousal or child support, you will fill out a form for the trustee.)
            v.  Did you have a written contract with your attorney on his fees?
            w.  Did your attorney explain the bankruptcy options under the various chapters 7, 13, etc.?

Note: The debtor has undoubtedly paid down bank accounts and other assets prior to bankruptcy.  However, it is forbidden to pay down these accounts to prevent money from going to a trustee or a creditor.  Under section section 727(a)(2) of the bankruptcy code, a discharge is granted to a debtor unless ...the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed...property of the debtor, within one year before the filing of the petition. Thus, the debtor must not pay down accounts to prevent the money from going to a creditor or the trustee.  A discharge of the debts can be denied and the bankruptcy closed and filing another case for years denied.  a criminal case can even be filed. One reason for the Meeting of the Creditors is to determine if assets have been hidden or transferred.  All debtors usually pay down their assets prior fling.  As long as the assets are used to pay bills (but not nrmally to insiders or family members), normal expenses, creditors, etc. this reason may be allowed.  It is not allowed to prevent the money going to a trustee or creditor!

After the meeting, if it went well, the meeting will be concluded.  If there were problems, the meeting may be continued to a later date to provide documents, etc.

Reaffirmation:
   
     Within 45 days after the section 341 meeting you have to reaffirm car loans or redeem the car by buying it with a single payment for the car's present value, otherwise you may not retain the vehicle.   Debtors can redeem secured claims in Chapter 7.  They must pay in full in a lump sum and redeem for value of asset or loan whichever is less.  This could be useful when a car is not worth much and the debtor couldn't find another car for similar value.

    The debtor can also reaffirm if the creditor agrees, thus keeping the debt.  This is not advised for credit cards no matter what the creditor promises, but might be worth it for a car with some equity that the debtor wants to keep. The creditor can require fees and require full value of loan- different from redemption.  The debtor's attorney must review the reaffirmation and sign off on the reaffirmation.  If the debtor does not have an attorney, the court will hold a hearing on the reaffirmation to determine that the debtor can afford to reaffirm the loan.

Assets of the Estate:
       Before discharge, the trustee collects property and pays priority claims before other claims.  Chapter 7 trustees are paid $60 per case plus a commission from distributions to creditors from the liquidated assets recovered (25% of the first $5000, 10% of the next $45,000, 5% of the next $950,000, and 3% of the balance). So trustees are basically paid to locate assets, as $60 is not really worth their time, and trustees usually lose money on the no assets case. If the trustee locates cash (which is already liquid) the trustee is very happy. This is also important if you have a nonexempt asset that you might want to keep but would have to be sold by the trustee. The trustee might accept a cash payment of lower value since the cash is already liquid, and the asset would have to be sold for an unknown value, storage fees, sale fees, etc. Thus, not only is timing of the bankruptcy essential in your planning, but exemption planning is also crucial.

Discharge:
    Sixty days after the section 341 meeting, the bankruptcy is usually discharged.  Some debts are not dischargeable due to exceptions, but all dischargeable debts have an injunction against collection action after discharge.  Creditors cannot require a new contract, but if there is new consideration, repayment can be required.  If there is no new consideration, collection is prohibited, but the debtor can voluntarily repay.  
     
    Failure to list a creditor in the petition may not be important if there are no assets to pay creditors, as the debt is still discharged. However, if there are assets available to pay creditors, failure to list a creditor preserves the creditor’s rights and the debt is not discharged.

Fraudulent concealment or false statements is punishable under law.  The federal government investigates bankruptcy fraud and prosecution can lead to a $250,000 fine and/or 5 years in prison, and the discharge denied, with no chance to refile for years.

Fees: 

    For a typical Chapter 7 Bankruptcy for an individual, my fees are $850 (plus court costs of $299).  Fees for a couple typically run $1000.  Fees for businesses may be higher.  Because debts are discharged during bankruptcy, fees must be paid prior to filing for bankruptcy.

 CHAPTER 13:  Chapter 13 is often called a reorganization because the debtor pays his way out of bankruptcy keeping property not surrendered to the trustee, and paying debts over time.  Chapter 13 is for individuals with regular income, fixed unsecured debts less than $360,475 (after April 1, 2010) and fixed secured debts less than $1,081,400 (after April 1, 2010).  (Note debt limits are adjusted every 3 years on April 1st, beginning April 1, 1998.)  The debtor has a monthly disposable income requirement- must have current monthly income less amounts reasonably necessary for maintenance or support.  Thus Chapter 11 may be the only possible bankruptcy for wealthy with high debts.

The Payment Plan:

    The key to Chapter 13 is to be able to develop a feasible payment plan to pay the creditors. The plan must be confirmed by the court.  If a feasible plan based on your income and debts cannot be developed, the case must be dismissed or converted to a Chapter 7.  The payment under the plan may fluctuate because the budget is fluid, and some bills vary monthly or over time.  If the expenses vary tremendously, the plan may need to be adjusted.  Good advice is if there is a 10% increase in expenses or income for 3 or more months, then the plan needs to be reviewed to see if it needs an adjustment. Under section 1329, the trustee, debtor, or one of the unsecured creditors can request an order to change the Plan payment anytime during the life of the case. Additionally, if an asset is surrendered or a new asset acquired (such as a car), then the plan should be reviewed as the expenses change.

    The plan provides for one payment to the trustee which is divided among the creditors.  The amount paid under the plan is determined under a complex four part test.  The first test is the Means Test.  The second test is the Chapter 7 Liquidation Analysis Test.  The debtor must pay as much to the unsecured creditors as he would have in a Chapter 7.  The third test is the Disposable Income Test (I minus J Test).  The debtor must take his net income, subtract allowable expenses and if the number is positive, must pay the creditors that amount.  The fourth test is the Required Payments Test.  You must pay the administrative expenses of the Chapter 13 plan, the priority debt, and any amounts to cure mortgage and car arrearages.  Adding up these costs, is the minimum to be paid under the plan.  The payment under the plan is the maximum amount indicated under the four tests.

    The first payment under the plan is due no later than 30 days after the date of filing of the plan or the order for relief (usually the payment is due on the first of the month after you file the case.)  This is normally before your meeting of the creditors which is your first "court" appearance. If payment is not made, the case can be dismissed or you may be required to make 2 payments together.

Chapter 13 versus Chapter 7:

    If the debtor's income is below the median state income, Chapter 7 may be better since it can be discharged sooner, the debtor makes less payments in Chapter 7, and must commit disposable income in a Chapter 13.
     The debtor may be able to modify secured loans in Chapter 13 (except for home loans).
     Priority claims must be paid in Chapter 13 (unlike in Chapter 7 where they are paid if there is money from assets available).

     The discharge is broader in Chapter 13 since there are not as many exceptions as in Chapter 7. In Chapter 13, but not in Chapter 7 the following are dischargeable:  
            a.  Willfull and malicious torts, if not reduced to judgment.
            b.  Marital property settlement debt not in the nature of support.
            c.  Debts from a prior Chapter 7 case in which a discharge was denied.
            d.  Restitution, unless convicted of a crime; and
            e.  Debts incurred to pay nondischargeable income taxes.

    If fraud, embezzlement, or larceny are involved, Chapter 13 is normally adviseable, even though section 523(a)(4) removes these issues from the scope of the chapter 13 discharge, but only so long as a complaint is timely filed by the creditor seeking a nondischargeability ruling.  Rule 4007(c) establishes the deadline for such complaints as 60 days from the date first established for a meeting of creditors.  Often, creditors fail to file such complaints and the debtor could find relief in chapter 13.

    One difficulty with Chapter 13 is that certain payments could be considered excessive.  For example, $16,000 for an automobile could be considered excessive by the court and violate the good faith requirement of section 1325(a)(3).

    Chapter 13 can be useful in handling mortgages.  If you are behind in payments, a payment plan can be developed to make the regular payment plus a catch-up payment.  Thus, Chapter 13 can avoid foreclosure if it is hanging over the debtor.

    Certain mortgages may be able to be modified under Chapter 13, although most mortgages cannot be modified. If the lien is totally unsecured (house worth less than the mortgages which come ahead of the lien that you want to eliminate), then the mortgage might be treated as if an unsecured debt.  The mortgage may also be able to be modified, if the loan can be broken into 2 parts, such as not only securing your home, but another property, or maybe even a tax escrow.  A second unsecured mortgage lien can also be stripped even if it is a joint mortgage with the other spouse not filing for bankruptcy.  To strip a second mortgage, an adversary proceeding suing the second mortgage company must be filed to prove that the second mortgage lien is unsecured.  Although section 1325 allows the debtor to surrender a home in bankruptcy, a debtor cannot force the creditor to take ownerhship or possession. Thus the owner remains liable for postpetition taxes and hazards on property until the credior accepts the property by deed or foreclosure. 

    Car loans may be "crammed down" in a Chapter 13 to reduce the loan to the value of the car.  This is important if you are upside down on the car loan.  This option is available if you file a Chapter 13 910 days or more after purchasing your car.  Filing sooner than 910 days, means that you will have to pay the full loan balance.  Additionally, the debtor may get more time to pay the loan (reducing the payments).  Expect a fight from the creditor on the value of the car.

    Reasons to file Chapter 13 instead of Chapter 7 include:
            a.  Flexibility:  can dismiss case or convert to Chapter 7.  Can modify plan if income changes.  Can refinance or sell home during plan.
            b.  House can be saved from foreclosure as long as you make payments.
            c.  Strip wholly unsecured second mortgage, or value car if you've had the car more than 910 days.
            d.  Won't lose non-exempt property
            e.  Stretch out payments for secured debts such as cars
            f.  Challenge costs added to mortgage by lender
            g.  Trustees want plan to succeed and work with you for confirmation
            h.  More debts can be discharged (see above)
            i.  Chapter 13 doesn't allow income challenges as does a Chapter 7
            j. Attorney's fees can be spread out (make payments)
           k.  Can keep a car without having to reaffirm it.
            l.  More advantages to having one spouse file Chapter 13.
            m.  Cure a tax problem or Domestic Support Obligation over 60 months.
     In Chapter 13, the debtor keeps collateral, unlike in Chapter 7 where the debtor loses property unless he reaffirms. In Chapter 13 then, the debtor may be able to save his house, car, property, or business. In particular, education IRAs are often included in the estate of the Chapter 7 and may be taken by the trustee. Inheritances received within 6 months of the filing are also considered assets of the estate in Chapter 7.
     Chapter 13 is voluntary only, unlike Chapter 7 in which creditors can force a debtor into Chapter 7.
     At the end of Chapter 13, a creditor's rights pick up again if the debt was not dischargeable.
     Chapter 13 includes assets accumulated after filing until the case is discharged.  Discharge occurs when payments are completed (3-5 years).

    A Qualified Domestic Relations Order (QDRO) may possibly be discharged in a bankruptcy depending upon timing. A QDRO divides up a pension following a divorce. Once the QDRO is finalized (signed by all parties, approved by the family law judge, and processed by the pension administrator), then the QDRO is not dischargeable. Before the finalization, it may possibly be discharged in a Chapter 13 since it could be argued to be a property division (but not in Chapter 7).

Problems with Payments under Chapter 13:

    If the debtor cannot continue making payments under Chapter 13, there are several choices.  One choice is to file for a hardship discharge under section 1328(b).  This type of discharge wipes out all debt that would have been discharged if the filer would have filed under Chapter 7.  Creditors must have been paid as much as they would have been paid under Chapter 7 (Best Interests of Creditors Test). Also the reason for not completing the plan must be beyond the filer's control such as death, ill health, job loss, or other catastrophe.  Another choice is to convert the Chapter 13 to Chapter 7.  The advantage of of hardship discharge, though, is that the debtor could file another Chapter 13 case immediately with no wait, as in a Chapter 7 discharge. Also some debt might not be dischargeable under Chapter 7, but another Chapter 13 can be filed  to finish paying the debts when the circumstances change. Conversion to Chapter 7 would allow new debt incurred while the case was pending to be discharged under the Chapter 7 since the debt is treated as if it arose before you originally filed the Chapter 13 case.  Conversion also has the advantage of not allowing the case to be dismissed for failure to make payments with no discharge, refiling with another filing fee, new paperwork, and new attorney fees. Conversion also might make since if the debtor has decided not to cure the default on a mortgage or property tax debts since the debtor could walk away from the house under Chapter 7. However, stripping off junior unsecured liens would no longer be available under Chapter 7.

Meeting of the Creditors:

    Chapter 13 also has a meeting of the creditors as does the Chapter 7 process (see above in Chapter 7), but the emphasis of the trustee is different.  Many of the same questions will be asked in a Chapter 13 meeting of the creditors, but the trustee's focus is on the debtor's monthly income and expenses to determine a feasible monthly plan payment.  The debtor should also bring a document with his/her social security number and an unexpired photo ID.  For a Chapter 13 debtor read the petition and the payment plan.  Bring money in a money order, certified check, or cashier's check.  At the end of the meeting, the trustee will announce whether he intends to recommend confirmation of your plan, or if not, then what he needs to give his recommendation.

Fees:

     For a typical Chapter 13 Bankruptcy for an individual, my fees are $950 (plus court costs of $274).  Fees for a couple typically run $1100.  Fees for businesses may be higher. Because payment plans are authorized during a Chapter 13 Bankruptcy, fees can be negotiated in a payment plan, but court costs must still be paid (as well as an initial retainer) prior to filing for bankruptcy.


CHAPTER 12: (family Farmers and Fishermen)

Chapter 12 bankruptcy covers family farmers and fishermen as defined in 11 U.S.C. section 101 (19)-(21). Farmers and fishermen eligible to file under Chapter 12 must have regular annual income sufficiently stable and regular to make payments under a Chapter 12 plan (similar to Chapter 13)..

In Chapter 12, mortgages can be modified by the court unlike Chapters 7 and mostly under Chapter 13.

As Chapter 12 filings are not frequent, contact Bob for more information. Filing fee for Chapter 12 is $239.  My fee varies depending upon the case,so call for an estimate.

CHAPTER 11 (Reorganization)

Chapter 11 allows businesses and individuals to reorganize and pay creditors through reorganization.  Chapter 11 bankruptcy is available if a debtor has more debt than allowed under the Chapter 13 rules.  Chapter 11 is also a possible option for someone who is land rich but cash poor.  In a Chapter 11, there is no requirement that monthly mortgages be paid between filing and confirmation, as opposed to Chapter 13 where the next payment is due right after filing.  This could mean in Chapter 11, that the debtor may not make a payment for six months or so.  Deferring the payments allows the debtor to catch up on his debts, sell the property, or other options to improve his financial situation.  In some Chapter 11 cases, the only payments could come from the sale of the property.  Additionally, if there is the prospect of property that will be sold, attorney fees might be deferred and paid from the proceeds unlike Chapter 13 where I would require a payment up front and/or a payment plan.

Filing fees for Chapter 11 run $1039.  As a Chapter 11 is complex and complicated, call for attorney fees.


GENERAL BANKRUPTCY TOPICS:


Debts Not Dischargeable:

     Certain debts are not discharged in bankruptcy including:
    1.  Alimony
    2.  Child Support
    3.  Most recent back taxes and government fines and penalties
    4. Most student loans
    5. Fraudulent debts
    6. Cash advances of up to $825 made within 70 days of filing ($875 after April 1, 2010).
    7. Recent large purchases of more than $550 made for luxury items within 90 days of filing ($600 after April 1, 2010).

    Student loans:
   To discharge in bankruptcy, you must show an extremely difficult standard of "undue hardship" to you, your family, and your dependents (although a recent Supreme Court decision stated that if a Chapter 13 plan discharges the student loan after the payment period and the lender does not object, then the remainder of the loan is discharged. United Student Aid Funds, Inc. v. Espinosa, 08-1134 (U.S. 2010)). To meet the undue hardship standard, you basically must be physically unable to perform any work and chances of gainful employment in the future is virtually nonexistent.  The standard must be met at the time of filing, not later during the bankruptcy process.  If this is the case, a separate motion must be filed with the bankruptcy filing, and you must appear before the judge to explain the hardship during an adversary proceeding. 
   Private loans are now treated the same as government insured loans under the 2005 reform act and are not dischargeable except under this undue hardship standard..
   Chapter 13 might be an advantage for student loans, as it could clarify how much is owed  by challenging the claim (often difficult to determine how much is owed when the loans are resold and transferred), and could make scheduled payments under Chapter 13.  However after the plan is completed in 3-5 years, you will still be required to payback the remaining loan amounts. There are no longer any statute of limitations for collection of student loans so the Department of Education has the right if the loan is not discharged or repaid to:
    1. Tack collection fees of up to 25%  and collection agency commissions of up to 28% onto the loan.
    2. Take your federal income tax return until the loan is repaid
    3. Garnish up to 15% of your income without suing you first.
    4. Take as much as $750/month (up to 15% of your income) in federal benefits to which you might be entitled (social security etc.)
    5. Sue you for your debt and place liens on your property.
   It may be best to work out a repayment plan over a longer period, consolidate the loans, or defer or forebear the loans, as bankruptcy will probably not help out student loans.

Student loan debt can be collected by garnishment without ever going to court.  The federal agency guaranteeing the student loans can issue the garnishment orders.  The agency must send you written notice (to your last known address) at least 30 days before issuing a garnishing order to the employer.  You are then entitled to a hearing before an administrative law judge, entitled to review and copy your student loan records, and entitled to enter into a payment plan in lieu of garnishment.  A student loan agency garnishment can take up to 15% of your disposable income (after tax income).  If you were involuntarily unemployed, garnishment cannot be issued until you have been continuously re-employed for more than 12 months.  Also, you can be sued in state or federal court concerning the student loan debt. However all collection activites are stayed by filing of bankruptcy and are stayed while you are in bankruptcy.  
  




Filing Requirements for Bankruptcy: (Section 521) (These are the items that must be filled out or completed prior to being able to file for bankruptcy. Please complete the requirements or draft lists of financial debts, creditors, income, etc. prior to your appointment with the attorney.

1. Prior to filing for bankruptcy, the debtor must attend credit counseling within 180 days before filing and a certificate from the counseling agency is required as part of the pleading for bankruptcy. List of approved credit counselors in Iowa.
2. Notice to debtor (will be completed by your attorney)
3. Two months of pay stubs or other payment advices (521 (a)(1)(B)(iv))  (Actually need 6 months for completion of the Means test).
4. List of creditors (521(a)(1)(A))
5. Schedule of assets and liabilities
6. Schedule of current income and current expenditures
7. Statement of debtor’s financial affairs
8. Certificate of attorney that delivered notice required under 342(b) (will be completed by the attorney).
9. Statement of monthly net income
10. Statement of anticipated income or expenditure increases
11. Copy of debt repayment plan, if any (your attorney will help develop, if necessary).
12. The attorney signs the petition after investigating and determining that the pleadings are accurate

The filing of the bankruptcy consists of the Petition, schedules, and statement of financial affairs.  To fill out the required paperwork, the filer should develop:
     1. a list of creditors with the amount and type of the claim; 
     2. income listing source, amount, and frequency of income;
     3. a listing of all property;
     4. A detailed list of all monthly living expenses.

For a look at sample bankruptcy forms, look at the official website of the bankruptcy court.

Automatic Stay of Collection Actions and Acts (Sect 362)

     Dates from time of filing, so don’t tell car lender or other secured lender that you will be filing bankruptcy because the asset might be repossessed to be utilized as a bargaining chip before bankruptcy.

     The automatic stay is comprehensive and includes virtually all creditor collection activity including garnishments (if notice given to proper subdivision), dunning letters, legal action to collect, disconnecting utilities, repossession, liens on property, foreclosure, filing or continuing collection suits, enforcing judgments obtained prior to bankruptcy, obtaining or exercising control over property of estate including secured creditor’s claim, informal collection actions, any act to create, perfect, or enforce any lien against property of estate, act to collect, assess or recover claim that arose prior to commencement of case, setoff of any debt owed to debtor that arose prior to commencement of case against any claim against debtor, commencement or continuation of any proceeding before U.S. Tax Court concerning debtor. Judgments obtained past date of filing, but before notice, are invalid.


Emotions:
     Bankruptcy can be an extrememly emotional decision.  Often the stigma of bankruptcy scares the client.  The fear of being published in the paper will often scare the client.  In larger cities, the chances of anyone noticing are slim.  In smaller cities, the rumor mill will be prominent anyway, so publishing the notice should not be a concern. 
    Bankruptcy should be viewed as a business decision.  It is smarter to have a fresh start or to reorganize than to struggle and owe more due to collection fees and interest.  Businesses and individuals with high incomes understand this concept and will utilize bankruptcy to start over.  It's usually the people with lower incomes that are more concerned about bankruptcy. Bankruptcy happens in all walks of life and affects good people who have had usually unexpected unfortunate circumstances.  The stigma of bankruptcy doesn't last long, and your credit is usually better after bankruptcy than immediately prior to bankruptcy.  Look at bankruptcy as a business decision, not an emotional decision, and determine whether it makes sense for you.
    Don't make promises that you cannot keep prior to filing bankruptcy.  A recent promise may require repayment after bankruptcy, but an older debt could simply be discharged. Comingling business and personal debts could also require repayment.  If you are struggling financially, it may be better to declare bankruptcy than to try extraordinary methods to survive financially (which may not work out anyway.) It may be better to get a fresh start after bankruptcy.

Bankruptcy and Divorce:
     Often bankruptcy follows a divorce and can affect the results of a divorce judgment or settlement.  Support is not affected by bankruptcy and is not discharged, but property settlements may be affected and may be discharged in bankruptcy (not in Chapter 7, but may be affected in Chapter 13).  Thus, if bankruptcy is anticipated, either all property settlements should be completed (quit claims signed in court or property exchanged prior to bankruptcy filing).  However, issues could still be identified by the bankruptcy trustee in certain cases to bring the property back into the bankruptcy estate, and removed from the ex-spouse.  Thus in some circumstances bankruptcy should be considered prior to a divorce settlement.

    Smart planning should occur to determine whether bankruptcy or divorce comes first. If bankruptcy is filed before the divorce is finalized, unsecured debts for both parties will be discharged, and the divorce can determine who pays for the undischarged debts. This could eliminate the problem of nonpayment of the divorce ordered debts (which the other spouse is liable for regardless of the divorce decree according to the creditor). This could eliminate the possibility of being sued by the creditor.  Additionally, the means test could be affected positively or negatively by filing jointly as opposed to individually, and income should be considered.  Contracts for items that neither party wants could be discharged and then the contracts don't need to be addressed in the divorce.  The type of bankruptcy should also be considered.  A chapter 7 would be finished in about 90 days (the same period required for a waiting period in Iowa).  Filing for bankruptcy first eliminates any debt argument during the divorce.  However, a Chapter 13 may affect a divorce as the payment plan will continue after the divorce and you both would be responsible for the payment plan and may be prevented from selling assets. 

    Divorce first might be preferable in certain circumstances.  If there is a big difference in income, the spouse with less income might qualify for a Chapter 7 when a Chapter 13 might be required with both incomes considered.  Divorce planning may move assets out of the bankruptcy estate and protect against creditors.  The divorce might require support that needs to be considered for income and expense purposes during bankruptcy.  Otherwise with bankruptcy first, you may be counting on income that you don't have.  Property settlements could be affected and discharged in bankruptcy (Chapter 13, but probably not Chapter 7). Possible contempt actions should be considered if the divorce is finalized first.  Will either party be able to pay their obligations without bankruptcy?  Are there any assets that might be seized in contempt actions that might be eliminated in a bankruptcy? However, by finalizing the divorce first, a joint bankruptcy cannot be filed.  Only spouses can file for joint bankruptcy. 

A Qualified Domestic Relations Order (QDRO) may possibly be discharged in a bankruptcy depending upon timing. A QDRO divides up a pension following a divorce. Once the QDRO is finalized (signed by all parties, approved by the family law judge, and processed by the pension administrator), then the QDRO is not dischargeable. Before the finalization, it may possibly be discharged in a Chapter 13 since it could be argued to be a property division (but not in Chapter 7).

Timing and Transfers of Property Prior to Bankruptcy

    Transfers of property prior to bankruptcy are not a good idea.  The bankruptcy trustee can reverse the transfer and you then lose any possible exemption when you may have been able to keep the asset before the transfer.  The trustee specifically looks for fraudulent conveyances and can go back differing amounts of time based on a number of factors including the time, financial situation and who you transferred to property to. You may also not receive a discharge if you transfer too many assets.  The general rule is not to make transfers prior to filing bankruptcy, and exempt the property to which you are entitled to exempt.

    A debtor is allowed to time his/her bankruptcy filing, however, and timing should be a smart part of planning the bankruptcy.  The trustee will inquire about income tax refunds, money owed to the debtor, income that is still due to the debtor, and any lawsuits. Timing may also affect whether the debtor passes or avoids the means test by timing the "window" looked at by the means test and possibly avoid the presumption of abuse.  Debtors are allowed to maximize their rights to the extent allowed by law, and filing the case at an opportune time is not an indicia of bad faith, but an acceptable exercise of rights granted by the Code.  In re Hageney, 2009 WL5217674 (Bky E.D.Wash. Dec 31, 2009).

     The debtor should also consider the possibility of a lawsuit.  There are many class action lawsuits that are ongoing in which the debtor could possibly be awarded money.  It is smart to determine if there are any class action lawsuits that the debtor is entitled to participate in, and to include the possibility of a lawsuit in the filing if a bankruptcy is possible.

Note: The debtor has undoubtedly paid down bank accounts and other assets prior to bankruptcy.  However, it is forbidden to pay down these accounts to prevent money from going to a trustee or a creditor.  Under section section 727(a)(2) of the bankruptcy code, a discharge is granted to a debtor unless ...the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed...property of the debtor, within one year before the filing of the petition. Thus, the debtor must not pay down accounts to prevent the money from going to a creditor or the trustee.  A discharge of the debts can be denied and the bankruptcy closed and filing another case for years denied.  a criminal case can even be filed. One reason for the Meeting of the Creditors is to determine if assets have been hidden or transferred.  All debtors usually pay down their assets prior fling.  As long as the assets are used to pay bills (but not nrmally to insiders or family members), normal expenses, creditors, etc. this reason may be allowed.  It is not allowed to prevent the money going to a trustee or creditor!


Income Tax Refund

    One asset that is often overlooked in a Chapter 7 filing is any income tax refund that is due to the debtor.  The trustee will ask about a refund during the section 341 creditor meeting.  If a refund is due at the time of filing (even if a tax return has not been filed), the trustee may grab the refund as a portion of the debtor's estate to pay creditors (subject to exemptions).  The debtor needs to have calculated the refund before filing, schedule the refund as an asset (even if the amount is unknown), and then exempt the refund under one of the exemptions, if possible. Otherwise, the debtor may lose the entire refund.  Better yet, don't file until after obtaining the refund.  However, the trustee will still ask about the refund, and what the debtor did with the refund.  Even if the bankruptcy is discharged, the refund could be due to the trustee! Find out for sure on the status of your refund.


Hiding Assets/ Lying on paperwork

Never lie on the bankruptcy paperwork. You swear that the filing is accurate in several locations.  Falsely filing a bankruptcy can lead to debts that are nondischargeable that may have otherwise been dischargeable, loss of exemptions when exemptions might have been allowed, fines, imprisonment, and possible closing of the case without discharge.

There are numerous documents that indicate property owned.  These include: financial statements to banks, prior bankruptcy schedules, depreciation schedules on tax returns, schedule of insured assets on insurance policies, inventories, credit card statements, bank account statements, and cancelled checks mong other documents.  The trustee can request documents (and will see your latest tax return) and if there are discrepancies, this can lead to an investigation and possible discharge and criminal problems.

The best bet and what is required, is to list all your property on te Schedules.  Use general categories for items such as clothing, furniture, appliances, etc.  But list all your assets. In most cases, you will be able to keep the majority (if not all) of your assets.  Even if the trustee wants the asset, it is possible to work out a deal with the trustee, subject to court approval, to allow the debtor to keep property that is not exempt (and most property will probably be exempt).  All property includes items such as cash on hand, bank accounts, money owed to you, retirement accounts, vehicles, deposits with utilities and landlord, possible lawsuits, income tax refunds, stocks, bonds, recreational items, boats, bicycles, house, rental property, items that you own with another person, and items that you owe money on.  If you do not list an item as an asset, you can lose the asset, not receive a discharge of your debts, possibly charged with a crime, and other issues.

    Fraudulent concealment or false statements are punishable under law. The federal government investigates bankruptcy fraud and prosecution can lead to a $250,000 fine and/or 5 years in prison, and the discharge denied, with no chance to refile for years.


Criminal Prosecution

    As stated above, the trustee can ask for various documents in a bankruptcy case. If there is a possibility of criminal prosecution, the debtor may be reluctant to turn over documents to the trustee.  The debtor has a Fifth Amendment right to remain silent and not incriminate himself.  By providing certain documents to the trustee, the debtor may incriminate himself and face criminal prosecution.  If there is a possibility of criminal prosecution, the debtor should see a criminal law attorney prior to filing bankruptcy.

    Documents may be incriminating but are already in the hands of other people, such as tax returns.  These documents would not be testimonial and are not protected by the Fifth Amendment.  Documents that are testimonial ad incriminating should not be turned over to the trustee, as they could be turned over to prosecutors. Even non-testimonial documents, if there is the possibility of prosecution, should not be turned over directly by the debtor, and the debtor may want to take the "Fifth".  It might be better to have a bankruptcy closed without discharge than to face a criminal prosecution.


Attorney-Client Privilege

    Attorney-Client privilege is limited in bankruptcy and may not even exist according to several court cases.  A few decisions on this point indicate that the privilege does not extend to matters intended to be disclosed in a public document such as a banktuptcy petition.  Additionally, if the debtor claims that he/she provided the correct information to the attorney, but the attorney incorrectly placed information on the petition, the attorney and his/her paralegal can be examined as to what was discussed.

    Attorneys are not required for filing bankruptcy if the debtor is filing as an individual.  But if a corporation or partnership is filing for bankruptcy an attorney is required. 

Discrimination

    Discrimination based on filing for bankruptcy is prohibited by U.S.C. section 525(b).  This section reads:  No private employer may terminate the employment of, or discriminate with respect to employment against an individual who is or has been a debtor under this title...because such debtor...is or has been a debtor under this title." 11 U.S.C. section 525(b).  However, in Banner v. ABF Freight System, Inc. 5216883 (Bky.N.D.Tex. Dec. 30, 2009), the court allowed the firing of an employee since the firing was not solely related to the bankruptcy.

Same Sex Marriages

     Quoting the Defense of Marriage Act, some bankruptcy courts have not allowed joint filing of a same sex marital couple even if allowed by the state.  To file bankruptcy, the couple may be required to file separately.

Bank Debts

    If the debtor owes money to a bank, he may consider setting up another bank account prior to filing bankruptcy.  Banks are allowed to "set-off" debts owed them from money in the debtor's accounts.  Thus, the bank is allowed to recoup money owed to them by the debtor by taking money out of the accounts.  This is not protected by the bankruptcy stay. Even cashing a check at the bank could allow the bank to recoup its loses.

    Another advantage to setting up a new bank account is that the old bank account is known to creditors.  Prior to bankruptcy (and after bankruptcy for nondischarged debts), the creditors are able to obtain judgments and execute by getting the funds from your bank account.  Another problem if the debtor owes money to a bank, he may not be able to set up another account after bankruptcy.  Thus, it makes sense for debtors to set up new accounts in different banks outside their local area (so that creditors have difficulty in locating assets).  Of course, these accounts must still be listed in the bankruptcy so after filing, the bank accounts will be "known" to creditors.

Discharged Debt

    The goal of bankruptcy is to discharge debt.  Discharged debt is no longer collectable by your creditors.  This does not mean that they might not try to get you to repay.  But you have a legal defense not to repay the discharged debt and if the creditor files suit, you can claim that the debt was discharged.  A judge in Laboy v. FirstBank Puerto Rico, 2010 Bankr. Lexis 345 (D. Puerto Rico 2/2/2010), held the original creditor liable for selling the debt years after discharge (zombie debt) to another debt collector who attempted to collect the debt.  The judge held that the very act of selling the account to someone who was expected to attempt collection was a violation of the prohibition of collection of a discharged debt. However, consumers often make mistakes in dealing with zombie debt.  Never admit the debt which could restart the debt obligation. See the Fair Debt Collection Practices Act for how to handle these collectors.

    One other issue with discharged debt in bankruptcy is that the debt discharged is not considered income by the IRS.  Debt cancelled by the creditor is usually considered as income.  The creditor will send the debtor a Form 1099-C stating the amount of debt cancelled.  This amount is considered income unless the debt was discharged in bankruptcy or the debtor was insolvent (and several other conditions).  If the creditor sends a Form 1099-C after the debt is discharged, the debtor can file form 982 to exclude the discharged debt from income.  This income issue is a major difference between bankruptcy and debt consolidation programs.  Under debt consolidation programs, the debt cancelled may be considered as income and taxes due on the income.

Real Estate

    All real estate interests must be listed on the bankruptcy forms, regardless of the interest, and the value of that interest must be calculated.  This can lead to complex issues depending upon how the real estate is owned.  On Schedule A, real estate interests are listed, except if real estate is owned under a partnership of limited liability company.  Prior to filing bankruptcy, it might be smart to conduct a title search to determine what liens are placed against the property.

    If real estate is owned, an attorney should be consulted to determine the effect on the real estate if bankruptcy is filed, or if bankruptcy is even needed to be filed.  In some cases, if there are no other debts, allowing foreclosure of the real estate might be a smart move (especially if there is no possibility of a deficiency judgment).  Homesteads are protected under Iowa law.

    if bankruptcy is anticipated, a short sale (selling the house for less than the mortgage with the permission of the lender) may not be advised.  A short sale can eliminate the deficiency judgment (shortfall) if the lender agrees, but surrendering the house in bankruptcy can do the same thing with possibily less risk to the debtor.  However, the house still must be foreclosed on after bankruptcy to surrender the house to the lender and this can affect credit, while a short sale might have less effect on the debtor's credit.

Debt Settlement Companies

Debt Settlement Companies offer an alternative to bankruptcy by accumulating money and after certain amounts are paid by the debtor then make payments to creditors (often paying much less than owed).  There are numerous problems with this system, often leading to the filing of bankruptcy anyway at a later date, and after paying hefty fees to the debt settlement company.  Usually, fees are paid first to the companies before any money is accumulated to pay debts.  These fees are often 6 months to a year's worth of payments.  Meanwhile, the creditors are often not being paid at all, and some companies have not communicated with the creditors.  Thus creditors still can sue the debtor, garnish wages, late fees and charges added to the account, credit is adversely affected, and creditors and collectors continue to call.  There is no obligation for a creditor to accept a debt settlement company offer (which is made only after a large amount has been accumulated in your account).  Many of these companies are not regulated, and some are outright scams.  Often, the debtor files bankruptcy after determining that payments for months have not improved their situation at all, just merely made payments for fees to the debt settlement company.  If the debtor decides to utilize a debt settlement company, investigate the company throughly first, and go forward only after you understand the problems that might be created. 

Adversary proceedings:
    Normally a bankruptcy case is a fairly straight-forward administrative procedure with one hearing (Meeting of the Creditors).  However, occasionally issues in the case require a court hearing to resolve.  This would involve an adversary proceeding.  A creditor may dispute the possible discharge for a debt (for example fraud or for nondischargeable reasons).  A debtor may try to discharge a debt that is normally nondischargeable, bring a claim, or obtain a determination from the court.  Either case would require a filed complaint to ask for a court decision.  There is a complaint, answer, discovery, possible depositions, and a trial, just like an ordinary lawsuit.

Means Test

     The Means test is required for all individual bankruptcy filers.  This is a complicated test to determine whether there is a presumption for abuse or not.  The Chapter 7 filer actually wants to "fail" the test to show that there is no presumption of abuse to allow filing.  However, even if you "fail" the means test, your case can still be dismissed under the "totality of circumstances" test, the trustee feels that your case is an abuse.  The means test takes your income for the past 6 months, averages that income, and then multiplies that average monthly income by 12 to get a yearly income.  This income is then compared to the median income for your family size in your state.  If your income is below the median, you can file Chapter 7.  If above, you may still be able to file Chapter 7, but you have to complete the rest of the complicated test to determine if your expenses qualify you to overcome the presumption of abuse.  If you are unable to overcome the presumption of abuse, you may be limited to filing under Chapter 13.

    Income under the means test includes not only income from work, but other income including interest, dividends, pension income, bonus payments, child support, alimony, maintenance payments, and disability payments under workers compensation or private insurance.  Income may or may not include withdrawals from IRA and 401K plans and income tax refunds.  Income does not include social security payments and unemployment benefits. Income can also include employer reimbursements for items such as mileage (but reimbursements can also be listed as an expense netting zero overall income- list under income from the operation of a business, profession, or farm under Gross receipts and the expenses under Oridinary business expenses.  The reimbursements must also be included under Schedules I and the expenses under Schedule J.

    To overcome the presumption of abuse in the first part of the Means Test, the debtor will need to have enough expenses leaving him/her with insufficient disposable income to fund a plan under Chapter 13. These allowances include:
        Size of the family
        Additional allowance if family member over 65 
        Housing (non mortgage) and utility expenses per IRS manual
        Average monthly mortgage (includes cure fees to catch up on the mortgage- even if not keeping the house under Chapter 7!  Cure fees include late fees, appraisals, drive by inspections, forced place insurance, attorneys fees, title charges, service charges for foreclosure if commenced-- the total owed to the mortgage company)
        Vehicle operation expense
        Public transportation expenses if utilized
        Vehicle ownership costs which vary from court to court

    Under part C of the Means Test, payments for secured and priority debts are calculated.  Secured claims are claims "secured" by property such as your car loan.  Priority loans are defined under Chapter 507.  These include priority taxes, child support, and alimony among other claims. Loans (even if the debtor owes less than 60 months of payments) are calculated on a 60 month payment schedule.

    These allowances and expenses are then deducted from the debtor's current monthly income, multiply the answer by 60 (the applicable commitment period) and if the result is more than $10,950 (which is adjusted for inflation periodically) then there is a presumption of abuse if a Chapter 7 case is filed.  If the result is less than $6575, then there is no presumption of abuse.  If between the two figures, then the debtor needs to pass a secondary presumption.