1. Basic Bankruptcy How to file a case.
Is filing bankruptcy the best solution?
If so, Chapter 7 or Chapter 13?
When should case be filed?
Pre-bankruptcy planning
How to file a case.
How a bankruptcy affects other cases

2. Purposes of Bankruptcy Code
Fresh start
For the honest but unfortunate debtor
Who can’t afford to pay debts – see “means test”
Reorganization (Chapters 11, 12, 13)
Plan to pay at least some debts
Individual debtor retains property
Business can continued to operate and save jobs

3. Bankruptcy is for Creditors Too
Promotes fairness among creditors
Equal treatment of similarly situated creditors
Discourages race to the court house

4. Key concepts Automatic Stay Property of the bankruptcy estate
Protects debtor
Protects property of the estate
Property of the bankruptcy estate
Broad definition– all property rights & interests
Discharge
Injunction against collection of debts
Some debts may not be discharged

5. Property of the estate All legal or equitable interests of the debtor
Wherever located and by whomever held
Whether listed on bankruptcy schedules or not
Equitable vs. legal interest
If debtor has equitable interest but not legal title, this is property of the estate
Exception – does not include defined benefit pensions and spendthrift trusts

6. Exempt property Debtor keeps exempt property
Property must be listed and claimed as exempt
Illinois has opted out of federal exemptions
Debtor can claim
Illinois exemptions
Non bankruptcy federal exemptions

7. Illinois exemptions 735 ILCS 5/12-1001 & 12-1006
Necessary clothing
Child support reasonably necessary
In practice, 100%
Retirement plans or accounts – unlimited
Social security & public assistance
Includes earned income credit
Principal residence owned in tenancy by the entireties is exempt from unsecured debts owed only by one spouse
Except child support owed to former spouse?

8. Illinois Exemptions 735 ILCS 5/12-901 & 5/12-1001
Homestead - $15,000 one; $30,000 two or more
Wild card any personal property - $4,000
One motor vehicle - $2,400
Can stack unused wild card onto motor vehicle exemption

9. Exemption issues Limits on exemptions
Will not stop mortgage foreclosure
Purchase money security interests
Debts for child support or alimony
Non purchase money security interests
Can avoid liens on household goods, tools of the trade
Special rules if lived out-of-state in last 2 years
FTC credit practices rules

10. Discharge of debts Purpose – fresh start for debtor
Discharge is injunction against collection attempts
Remedy for violation is contempt
Can only get Chapter 7 discharges once every 8 years; Chapter 13 discussed later
Doesn’t cover post-petition debts
Must complete debtor education

11. Discharge Fresh start Utility service Drivers license
Cannot be denied because of dischargeable debt
Must pay deposit but not old bill
If stolen service, Chapter 13
Drivers license
Restored if suspended for nonpayment of tort debt
No discrimination by governmental units or employers

12. Discharge Exceptions to discharge
Some debts are never discharged
Creditor can collect once automatic stay ends, does not need express permission from court
Debts which are discharged unless creditor takes timely action in bankruptcy court
Student loans are only discharged if debtor proves undue hardship in bankruptcy court
Alternatives – loan consolidation, deferrals

13. Discharge Debts that are never discharged
Child support and alimony
Criminal fines and restitution orders
Drunk driving resulting in personal injury
Trust fund taxes

14. Discharge Debts that may be discharged
Income taxes
~ > 3 years, 3 months & 15 days old, return filed
Debts where creditor fails to timely object
Fraud
Theft, embezzlement, breach of fiduciary duty
Willful and malicious injury

15. Discharge Chapter 13 - enhanced discharge
Chapter 13 need not pay 100% of unsecured debts
Successful Chapter 13 discharges a few debts which would not be discharged in Chapter 7
Civil fines
Debts incurred to pay taxes
Property settlements and division of debts arising out of divorce

16. Discharge and secured debt Only personal liability is discharged
Personal liability on a debt is discharged
Non filing co-obligors are still liable
But valid liens on property survive
Debtor not liable for any deficiency after repossession or foreclosure

17. Serial filings – waiting periods for getting another discharge
Filing a Chapter 7 now, must wait
8 years since previous Chapter 7
6 years since previous Chapter 13
Previous Chapter 13 with % payment
Filing Chapter 13 now, no discharge if
Chapter 7 within 4 years
Chapter 13 within 2 years
Measured from filing date to filing date

18. Repeat filings Can file even if no discharge
Can file even if debtor would not be eligible for discharge
Chapter 13 filed within 4 years of Chapter 7
Not eligible for discharge but
Can save property
by catching up on mortgage
or by paying secured debt in full

19. Automatic Stay Automatic nature
Filing petition invokes stay
Exception if this is 3rd case pending during last 12 months
No court order is necessary
Actions in violation of stay are void

20. Automatic Stay Broad scope
Applies to acts against debtor
Lawsuits & other action to collect debts
Applies if debt nondischargeable unless DSO
Applies to acts against property
to recover property for pre-petition debts
to recover property of bankruptcy estate

21. Extension of time
Trustee has up to 60 days to take action if the time for such action had not expired when the case was filed. 11 USC §108(b)
This can be used to get more time to redeem property taxes
Debtor may get more time by filing Chapter 13.

22. Automatic Stay Notable exceptions
Criminal and regulatory
Domestic relations (almost everything)
Establishing paternity
Establishing or modifying alimony or support
Collecting alimony or child support
Stay does apply to division of property
Post-petition debts

23. Automatic Stay Relief from automatic stay
Grounds
No adequate protection of creditor’s interest
Debtor has no equity in property AND not needed for effective reorganization
Other “cause”
Examples
Recover car which is not insured
Foreclose when debtor not making payments

24. Repeat filings Limits on automatic stay
If case filed within 1 year after previous case dismissed, stay expires after 30 days
Stay can be extended by court.
Motion must be filed and granted within 30 days. Must show clear and convincing evidence of changed circumstances. Stay may still apply to property of the estate
If 2 dismissals in previous year, no automatic stay
Must file motion to impose stay

25. Automatic Stay Expiration
When discharge granted (or denied)
When case dismissed or closed

26. Sources of law – jurisdiction, venue & substance
Jurisdiction & venue in Title 28, U.S. Code Judiciary & Judicial Procedure
Substance - Bankruptcy Code, Title 11
“means test” use IRS collection standards and Census Bureau statistics
Property rights based on state law and nonbankruptcy federal law

27. Sources of law - procedure
Bankruptcy Rules
Incorporates some sections of Federal Rules of Civil Procedure
Bankruptcy code has some procedural rules
Administrative office of US Courts
N.D. Illinois local rules & general orders
mandatory electronic case filing (ECF)
Individual judges standing orders –
Web site – “judges” tab

29. Bankruptcy players Case Trustee United States Trustee *************
Chapter 7 – panel trustee
Chapter 13 – standing trustee
United States Trustee
*************
Auditors
United States Attorney

30. Bankruptcy events Creditors meeting (341 meeting) – all cases
Confirmation hearing – Chapter 13
No asset report by trustee - Chapter 7
Discharge (no hearing required)
Reaffirmation hearing when presumption of undue hardship
Closing of case
Dismissal of case,

31. Discovery & mandatory disclosures
Required documents – tax returns, pay advices, bank statements,
Debtor’s duty to cooperate with trustee (or auditor)
Failure to cooperate can lead to denial of discharge
Discovery – when there is a contested matter or an adversary proceeding
Rule 2004 exam. When discovery not available

32. Litigation Contested matters – within bankruptcy case
Adversary proceedings – separate case
More like normal litigation

33. Practice & procedure Important differences
Motions must be served on represented debtor in addition to debtor’s attorney
Motion filed by debtor’s attorney to withdraw or for approval of fees must be served on debtor
US Trustee and/or case trustee must be served

34. Important differences, cont.
Notice required - 5 business days, unless
Service by ECF- 3 business days
Personal delivery - 2 business days
Rules require longer period
Emergency - attorney must file Rule 9011 certification, give as much notice as possible

35. Important differences, cont.
Time to file motion to vacate or for “reconsideration” is only 10 days
Time to appeal is only 10 days
Jury trials rare;
by filing bankruptcy, debtor has waived jury
filing claim waives jury

36. Case analysis Alternatives; Chapter 7 or 13; cost
Doing “nothing”
“Judgment proof” client;
claiming exemptions, preserving exempt property
Negotiating workouts, refinancing
State court litigation, Fair Debt Collection Practices Act, etc.
Chapter 7 or Chapter 13
Costs – filing fee; opportunity cost; reduced access to credit

37. Access to credit Bankruptcy stays on credit record for 10 years
Effect on credit score
Paradoxically, can improve after bankruptcy
Usually 2 years before qualified for mortgage
Beware of post-discharge vultures
Credit during Chapter 13?
Requires court authorization

38. Secured debts Chapter 7 – approved ways to retain property
Lien avoidance, exempt property
Judicial liens that impair exemptions
Non purchase money liens on household goods
Redemption (redemption lenders for cars)
Has to be at retail value, not wholesale
Reaffirmation on original terms
As if bankruptcy never happened for this debt
Must perform choice stated on Form 8 (statement of intentions) within specified time

39. Secured debts Chapter 7 – other ways to retain property
Other options, not mentioned in Code
Reaffirmation on better terms than original contact?
Will creditor act in its own best interests?
Making all payments without reaffirmation?
Can lead to repossession of vehicles even if current

40. Secured debt Chapter 13 strategies
“Cram down”
If creditor is “under secured”
Pay value of collateral, not amount of debt
Plus interest – prime rate is starting point
Can’t cram down home mortgages
Unless creditor takes additional security
“Strip off”
Wholly unsecured junior lien (e.g. 2nd or 3rd mortgage) can be “stripped off”

41. Secured debt Chapter 13 strategies – limits
Can’t cram down
cars bought within 910 days of filing
personal property bought w/in 365 days
Will have to pay contract amount even though collateral worth much less
Can lower interest rate

42. Case analysis Chapter 7 Liquidation analysis Dischargeability analysis
Is there non exempt property?
Dischargeability analysis
Debts that can never be discharged
Debts that could be discharged in Chapter 13
Secured debts, leases
What property can debtor keep? At what cost?
Could debtor keep property in Chapter 13 at less cost?
Disposable income analysis

43. Case analysis Chapter 7 Disposable income – means test
If “current monthly income” > state median, debtor must pass means test or no Chapter 7
Based on 6 month average;
Even low-income must fill out part of form
If “current monthly income” < state median, disposable income should not matter

44. Case analysis Chapter 13 Best interests of creditors (cf. liquidation)
What debts will be discharged
Ch 13 discharges a few more debts than Ch 7
Secured debt options
Cure, cram down, strip off
Best efforts
Must pay all disposable income for 3 years

45. Case analysis Chapter 13
Debtor may want to file Chapter 13 even if no discharge, to save property
Unsecured debt that can be paid 100% even when other debts are paid less
Rent arrears if lease being assumed
Utility service obtained by fraud or theft (only the nondischargeable portion)
Long term debts not in default (student loans)

46. When to File Reasons to file sooner
Losing or about to lose property
Foreclosure sale
Tax deed
Garnishment/ offset of benefits [tax intercept]
Repossession / sale
Eviction – 5/10/14 day notice for rent
Utility shutoff/ restoration
Involuntary transfer <90 days/ 2 yrs / 4 yrs

47. When to file Reasons to wait
Expenses still exceed income
No health insurance
Recent credit card charges
over $500 for luxury goods within 90 days
Over $750 for cash advances within70 days
Recent voluntary transfers
Exemption planning
Tax refund
Income taxes owed will be dischargeable

48. Who can/should file ? Husband and wife can file joint petition Heirs
Joint filing fee same as for individual
Ch 13 codebtor stay protects non filing spouse
If only one files, non filing spouse will still owe joint debt, but can file own case later
Heirs
Debtor who owns property but didn’t sign mortgage can file Chapter 13 to save property

49. How to file What to file - paperwork
Forms require full financial disclosure
Credit counseling certificate
“Emergency” filing – can be done same day
If represented, electronic filing required
15 days to file the rest
(can move for more time)

50. Credit counseling Has to be from approved agency
Provided without regard to ability to pay.
Within 180 days before filing case
But not on same day?
Limited exception
can file petition if exigent circumstances & attempted to get counseling at least 5 days before. But Judge has discretion.

51. Credit counseling Avoiding Potential problems
LAF clients get automatic fee waivers from preferred providers
Can get certificate by
Language problems
Hearing impaired
LEP – not Spanish

52. How to file Fees Filing fee
Chapter 13 - $274
Chapter $299
Pay in installments – any chapter
If can’t pay in installments, waiver of fee?
Fee waiver only in Chapter 7 case
Income less than 150% of poverty guidelines

53. How to file Thorough investigation
Schedules must be complete & accurate
Can’t choose who to file bankruptcy against
Interviewing client
Client pre-conceptions
Use your common sense and experience
Benefits counseling
Reviewing public records
Lawsuits, previous filings, property records
Credit reports

54. Ethical issues Attorney client privilege is different in bankruptcy
LAF etc are not “debt relief agencies”
Attorney must certify that debtor has been informed of all options
Duty to conduct reasonable inquiry
In Chapter 7 only, signature on petition is certification that after “an inquiry” attorney has no knowledge that information in schedules is incorrect

55. How to file Reasonable inquiry
Procedures
Some things are easily done and should be done in all cases
Other steps should be taken if
client is not giving you accurate information
you haven’t filed many bankruptcies
your gut tells you that you should

56. How to file Listing all debts
Credit reports
Lawsuits – Cook County Clerk’s web site
Liens & judgments
Cook County Recorder of Deeds

57. How to file Listing all assets
Can’t exempt property unless listed. Trustee owns all unlisted property even after case closed
Broad definition of assets
Real property – cook county recorder
Personal property
Cars – secretary of state
Lawsuits – client as plaintiff

58. Pre-bankruptcy planning When is it proper?
Preventing or undoing client mistakes
Sanctions for improper actions are harsh
None of the benefits of bankruptcy, all of the burdens
Keep exempt & non exempt assets separate
Exemption planning is allowed (be reasonable)
Defrauding or hindering creditors is not
What are preferences, why does it matter?
Pay on nondischargeable debts first if possible
Don’t pay federal taxes with a credit card
File required tax returns

59. Dismissal of case Dismissal of case
Grounds, Ch 7 or 13: failure to file schedules and other required documents; failure to attend creditors meeting; failure to provide required documents to trustee; failure to pay filing fee
No absolute right to dismiss Chapter 7 case
Problem if trustee trying to sell assets
Chapter 13 – if payments not made or plan never approved

60. Denial of discharge and other sanctions
Sanction for hiding assets, destroying records, and other misconduct in the bankruptcy case
Can’t discharge any debts in later Chapter 7
Bar to refiling another case
180 day bar if case voluntarily dismissed after creditor files motion to lift automatic stay
Court can bar refiling for debtor abuse

61. Safety & privacy issues
Domestic violence
Bankruptcy filings are public records/ on internet
Sealing records/ protective orders – ex parte motion
Creditors meetings (§ 341 meetings) open to the public
Privacy
Protecting sensitive information in tax returns

62. Debtor’s post-filing duties
File all tax returns that come due
Chapter 13 debtors must file 4 years worth of returns.
Chapter 13 debtors must be current in post-petition child support
Take debtor education course, or else no discharge.

63. Post-filing financial education
In addition to pre-filing credit counseling
Case will be closed without discharge if course not completed
Costs $260 to reopen case; to avoid this, file motion for more time
When?
Chapter 7 – 45 days after 341 meeting
Chapter 13 – before last plan payment

64. When You Are Not the Attorney Filing the Bankruptcy Case
Why you need to know if your client has already filed bankruptcy
What should you do if an adverse party
Has filed bankruptcy?
Is a threat to file bankruptcy?
Your client may be filing bankruptcy
What you can do to preserve client’s ability to file bankruptcy

65. How a previous bankruptcy may affect current case
You may not be able to proceed with the lawsuit
Who owns the lawsuit?
Can the other side use judicial estoppel against your client?

66. Client is creditor of adverse party who has filed bankruptcy
How does the automatic stay affect your case?
Can/should you stop adverse party
From getting a discharge at all?
From discharging your client’s claim?
Can your client get any money from the bankruptcy case?

67. Traps for the advocate Don’t violate the automatic stay
Make sure client understands deadlines to
object to exemptions (341 mtg + 30 days)
object to discharge/dischargeability ( )
file proof of claim (341 mtg +90)
CAUTION: filing a claim waives right to jury trial
If you know bankruptcy was filed, you are on notice, even if not officially listed

68. Representing creditors Strategies
If debtor has assets, file a proof of claim
(1) secured (2) priority (3) general unsecured
unpaid wages, child support, alimony are priority debts
Object to incorrect exemptions
Get relief from automatic stay?
No fee for child support creditor otherwise $150
Chapter 7 & 13 - excepting debt from discharge
Requires adversary proceeding, $250 fee;
Chapter 13 – objections to plan

69. Anticipating a bankruptcy
Get and record judgments ASAP
Domestic relations negotiations
Get alimony and child support, not property settlement or agreement to pay debts
Get a property interest now, not an unsecured promise to pay out of a future sale
Which marital debts can be discharged by bankruptcy of one or both?
Can property awarded in divorce be saved through bankruptcy (probably Chapter 13)

70. Your client may file bankruptcy
Resolve lawsuit to preserve dischargeability
Collateral estoppel rules –same as in state court
Avoid damaging admissions
Identify timing issues
Avoid loss of exempt property
Minimize nondischargeable debt