Introduction to Bankruptcy Consumer Bankruptcy Who files and why? Assets and debts Automatic Stay Discharge
Consumer Bankruptcy Chapter 7 – straight bankruptcy or liquidation Chapter 13 – wage earner’s bankruptcy or repayment – also special structuring of debts Different requirements and outcomes
Process for Clients Collect a LOT of documents (paystubs, tax returns, bills, bank statements, etc.) Meet with attorney to answer questions (my questionnaire is 50 pages long) Wait while we draft everything Meet to review and sign For a Chapter 7 bankruptcy it takes three months once the case is filed and the client will probably never see a bankruptcy judge; a Chapter 13 lasts 3-5 years
Pre and Post Bankruptcy Counseling Part of the Great Bankruptcy Reform Clients are required to take credit counseling prior to filing bankruptcy Clients are required to take financial management prior to getting a discharge $20-$50 a class
Means Test Another solution to the great Bankruptcy Problem You can’t file a Chapter 7 bankruptcy if your average income over the six months prior to filing is over the median income for a family of your size Deductions are allowed
341 Hearing/First Meeting of Creditors Debtor’s SideCreditor’s Side Represented by the Trustee Trustee and his office have read and analyzed all the bankruptcy documents prior to the hearing May ask to inspect property May object to objections May seize property to sell and distribute to creditors
Why do people file? 42% of personal bankruptcies are due to medical expenses (78% of those who filed had insurance!) 22% of personal bankruptcies are due to job loss or change (credit cards, payday loans, nagging creditors) 15% of personal bankruptcies are due to over spending – credit cards, mortgages, expensive cars, etc.
Real Estate Homestead up to $60,000 You have to reside in the house You have to be married, have a dependent or be 65 years of age Trailers included Proceeds of the sale of your homestead for up to six months
Nondischargeable Some tax debts Child support Alimony Fraudulently obtained debts – ex: unemployment overpayment or personal loans Property Settlements from a divorce
Why file? Advantages Protection Assistance Clear debts Peace of mind Rebuilding Quality of life Time Disadvantages Fees Restrictions Business closure Hard to get credit Still have debts Career Income Assets
Discharge Order Does not list specific debts discharged If there is not a specific order regarding fraud or value or the treatment of a secured claim, then the debt is generally discharged Sent to all creditors and codebtors Violation of the discharge order can result in sanctions
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