Chapter 7 Specific Questions

Under Chapter 7, the debtor is immediately discharged of the obligation to pay the dischargeable debts. While the debtor may have to surrender non-exempt property in exchange for the discharge of debts, there is a prompt and relatively final end to the procedure. Under Chapter 13, the debtor usually retains his or her non-exempt property while paying off as much of his or her debts as is possible over a three to five year period.

After you have retained your attorney, it generally will take a couple of weeks to have everything typed up, assembled, carefully reviewed and filed with the bankruptcy court. However, before filing, you must participate in an individual or group briefing that outlines opportunities for credit counseling. This briefing is mandatory. (Knowing this, you may wish to participate in this counseling even before seeing your attorney for the first time. You may decide that non-bankruptcy alternatives will meet your needs.)

If you decide to retain an attorney to assist you in filing for bankruptcy protection, most will be willing to accept phone calls from your creditors that you refer to his or her office. This will give you more or less immediate relief from the creditor calls.

Usually not. Keep in mind that what the creditors and the trustee who is processing your case are really looking for is money to pay off your debts. Newly purchased houses and automobiles generally have insufficient equity in them for the trustee to want these items. You are generally allowed to “reaffirm” the contracts for the purchase of these items. Since creditors want your money and not your house (or refrigerator, lawnmower, etc.), they will usually work out an arrangement (“reaffirmation agreement”) to allow you to buy back the property over time. Further, most individual debtors have sufficient allowances under the exemption statutes in their home states to protect the rest of their property.

In Virginia, a debtor is allowed to exempt (“protect”) a significant amount of property, including $5,000 worth of household goods (augmented by an additional $500 for each dependent residing in the household), $6,000 worth of equity in an automobile, tools needed in one’s trade (up to $10,000), and an additional $5,000 worth of equity in any other property.

Each partner in a marriage can claim a separate exempt estate, essentially doubling the value of the property that can be protected.

Non-exempt property is that property which is not protected by law from being taken by creditors (or the trustee) in a bankruptcy. In most cases, the available exemptions are sufficient to protect all of the debtor’s property. But not always. Occasionally, a debtor will have property that exceeds the amount that can be exempted (for example, a large equity stake in a home, or a fully paid for, and valuable, automobile). In such cases, careful planning must be done to determine how, if at all, a bankruptcy should be approached. If need be, the non-exempt property can be “redeemed” in the Chapter 7 proceeding by paying to the creditor the current fair market value for the item (a fairly rare occurrence) or it can be “bought back” from the creditors with a properly drafted Chapter 13 plan. Your attorney will discuss fully with you which is the best method for retaining property which is essential to your livelihood. See Questions and Answers Regarding Chapter 13.

In the typical case, the first thing that happens upon filing your bankruptcy (if this is the first time you have filed for bankruptcy protection) is that an “automatic stay” arises, temporarily prohibiting your creditors from trying to collect the debts or harassing you for payment. (If this is not your first time filing for bankruptcy protection, you should talk with your attorney about the availability of this “automatic stay.”

If one of your creditors holds a valid security interest in certain property, the creditor may seek to lift the “automatic stay” and then proceed against the collateral (by repossession, foreclosure, etc.). However, you usually can negotiate (preferably with the assistance of your attorney) with the creditor to buy back the property after the bankruptcy is completed. After all, the creditor probably would want your money instead of taking back your used property.

The process moves along with regard to your other debts until you receive what is called a “discharge.” The debts still exist, but your obligation to pay them is “discharged.” This means that creditors are permanently forbidden from trying to collect the debts from you or against your property. (See the following section about non-dischargeable debts.)

Because the debts are not extinguished, any co-signers or guarantors on the debt are still liable, and the creditor may proceed against them.

In a nutshell, no. But most are. Examples of non-dischargeable debts include: spousal and child support, recently incurred taxes, student loans, intentionally inflicted damage and personal injuries caused to another while the debtor was intoxicated. Other “non-dischargeable” debts are listed in the Bankruptcy Code, and a debtor who is concerned about the dischargeability of a debt should address specific concerns with his or her attorney.

Yes, in most cases. If you have never filed for bankruptcy protection before, the automatic stay prevents bill collectors from taking any action to collect debts. The automatic stay is effective immediately upon the filing of the bankruptcy papers (called a “petition”). However, for a period of time shortly after you file, creditors may still call you because they are not aware that you have filed. Immediately after the petition is filed, the court will mail a notice to all the creditors listed in your bankruptcy schedules. It usually takes several days for this notice to get to your creditors. Once a creditor or bill collector becomes aware that you have filed for bankruptcy protection, they will stop collection efforts.

If this is not the first time that you have filed for bankruptcy protection, you should consult with an attorney regarding the availability of the automatic stay. If a sufficient amount of time has passed since the earlier filing, it may still be available.

Creditors will generally stop calling even before the bankruptcy is filed if you retain an attorney to file for bankruptcy protection, and you advise the creditor of that fact. The creditor will ask for the name and phone number of the attorney you have retained to verify that an attorney really has been hired.

Note: some attorneys do not provide this “pre-filing” service. Check with your attorney to make sure it is okay. (It is perfectly okay with Denbigh Law Center to have your creditors contact us if you have formally retained our services.) Note also, in this “pre-filing” situation, you have not filed for bankruptcy. The creditors are not required to stop calling you. But they almost always do stop calling.

If a creditor continues to use collection tactics against you once it has been informed of the bankruptcy, it may be liable for court sanctions and attorney fees for such conduct.

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Any person may file under Chapter 7. One may only file for Chapter 7 protection once in 8 years. If a debtor needs the protection of the court before the 8 year period expires, the debtor may file for relief under the provisions of Chapter 13 of the Bankruptcy Code.

Recently, a ‘means test’ was added to the mix for Chapter 7 eligibility. Simply put, if you have sufficient money to repay a meaningful sum to your creditors over the next three to five years, you may not be allowed to continue in your Chapter 7 case. (And you should therefore consider filing a Chapter 13.) But there is a lot more to this ‘means test’ than meets the eye. It is quite a complicated formula. State and federal based average expenses for housing and transportation and food (as opposed to your personal actual expenses) must be used in detemining eligibility. The means test does not even apply if your current average monthly income for the last six months multiplied by 12 is equal to or less than the state’s median annual income. But even that (not so simple) statement is full of potential issues. What is ‘current monthly income’? What is the ‘state’s median annual income’ at any given time?

The resolution to all of these sometimes challenging issues go far beyond what we can possibly accurately set out in this kind of discussion. You should take specific questions regarding the ‘means’ analysis to an attorney experienced in bankruptcy for answers and guidance. That way, you can have better, and more personalized, information for making the decision regarding filing for bankruptcy protection.

This is a tough question, because the answer is sometimes ‘yes’ and sometimes ‘no.’ It really depends upon the timing. Generally, unpaid income taxes which were filed (but not paid) on time are dischargeable if the taxes were filed more than 3 years ago. Other taxes may be dischargeable, but the rules are complicated.

The best discussion regarding the dischargeablilty of taxes that I have found is at this link:

‘Lectric Law Library: Discharging Tax Debts in Bankruptcy’ (article written by Richard Armknecht,III). It is a somewhat difficult article to read for a non-attorney (it’s even difficult for attorneys), but it is still the best one I’ve seen. The bottom line: taxes can be dischargeable under certain circumstances. A particular situation can be addressed well only by an attorney knowledgeable with the facts of your case and the relevant bankruptcy laws.

The process in our office begins with your call to schedule an appointment to see an attorney. The initial consultation takes only about a half an hour, during which we cover the essentials of bankruptcy law and apply them to your particular situation. You do not have to bring anything to the interview, except perhaps a brief listing of your largest creditors and an approximation of how much you owe them. You will have a good idea at the end of that interview of your various options, and to the extent that non-bankruptcy options were suggested, you will be encouraged to pursue those before scheduling another interview in our office. We will give you several forms to complete and list of items to return if you decide that bankruptcy protection is your best option. You will feel no pressure to retain one of our attorneys when you come in to talk with us. Except in emergency cases, you cannot even retain the attorney at this initial consultation. We want to make sure that you do not feel pressured into filing bankruptcy or retaining our services. (Given the stressful circumstances, it is easy for an attorney to sway a person into doing something that he or she may not really feel good about doing. We want to make sure that you have a lot of time to think about this important decision.)

If you decide to file for bankruptcy protection, we will schedule a second appointment to review the paperwork you completed and begin filling out the extensive paperwork for the filing. After the attorney completes your petition/paperwork, you’ll need to carefully review and sign it. Accuracy is key, and you will sign the papers under penalty of perjury. So let’s make sure that everything is correct. The bankruptcy petition and schedules are filed with the bankruptcy court after you sign them.

The Court will schedule a hearing with a trustee and your potential creditors. Although creditors are invited to attend the hearing, they rarely do. We, of course, will be with you at the meeting.

At the hearing, the trustee will ask you questions about the accuracy of your filing, your present financial situation and may request additional information and documentation from you.

After the hearing, you must complete a “debtor education” course. (This is different from, and in addition to, the “credit counseling” course you took before the bankruptcy filing.) If you fail to take this course, your discharge will not be granted. Don’t worry — we will remind you of this requirement.

About three months from the date of filing, and assuming you have completed the “debtor education” course and no complications arose in your case (e.g., creditors haven’t filed claims to declare debts non-dischargeable, no property to surrender, etc.), and that you attended the required “debtor education” course, your case will come to an end. You will be granted your discharge in bankruptcy and a notice of this will be sent to you by the bankruptcy court.

Possibly, but not by us. Bankruptcy petitions are public records. However, under normal circumstances, unless your employer or landlord is a creditor, he/she/it will not know you filed a bankruptcy petition. If your employer or landlord is a creditor, he/she/it must be listed as a creditor on the schedules and receive notice of the bankruptcy proceeding. In Virginia, Chapter 13 debtors are required to make payments through wage garnishment. The employer will learn about the bankruptcy because of this.

No. 11 U.S.C. sec. 525 prohibits government units and private employers from discriminating against you because you filed a bankruptcy petition or because you failed to pay a dischargeable debt. Let us know if you get fired or harassed because you filed for bankruptcy.

Yes. And if the debts owed by the married couple are primarily joint debts, this probably is the best way to proceed.

No. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable, then it might be advisable to have only one spouse file. However, even if only one spouse files, that spouse will have to report his or her spouse’s income in order to determine whether the household has sufficient means to repay creditors at least something (the ‘means test’) during the course of the bankruptcy. See next question.

‘Yes’ as to income. ‘No’ as to separate property. Unless you and your spouse are separated in a legal sense (by court order or living apart with a bona fide intent to divorce), income sources for both spouses must be reported as part of the filing. (The impact of this is minimized, however, by the provision that the spouse’s separate expenses can also be reported.) You can read more about this ‘means test’ in the section above entitled “Who is eligible to file under Chapter 7?”

Yes. If the business is operated as a sole proprietorship, the bankruptcy may have a direct effect on the operation of the business. Talk with your attorney about this. If the business is a corporation, it can continue to operate independently of the bankruptcy. (The value of the shares of stock the debtor holds in the business is considered an asset of the debtor.)

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Attorney’s fees for Chapter 7 filings vary depending upon the complexity of the case, but generally hover around the $700 to $800 range. (If an attorney is quoting you a low fee, ask about any hidden charges, or if more money will be due after the case is filed. Some attorneys have been known to quote a low attorney’s fee, and when you get to the office, they tack on an “administrative” or “document preparation” fee. You should expect to pay a reasonable fee for legal services, and be wary of a quote that seems too cheap. The attorney’s staff should be able to quote an accurate fee for a routine case over the telephone.) Specific fees will be set in advance after consultation with your attorney. There is also a $299 filing fee payable to the Clerk of the Bankruptcy court when the case is filed, as well as a $35 fee for recording a “homestead deed” to protect certain properties from being taken by the trustee. See also: Bankruptcy Fee Schedule.

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Chapter 7 will have a negative effect on your credit rating. A Chapter 7 bankruptcy will remain on record for 10 years. The decision to file for bankruptcy, therefore, will have long term consequences. It must be made thoughtfully and with a full understanding of how the bankruptcy will affect you. You will need to balance, as well, how much worse off you will be if you don’t file compared to what happens if you do. You should also consider the options available under bankruptcy and non-bankruptcy procedures.

It depends on the credit reporting company rules. A Chapter 7 (liquidation) bankruptcy can stay on your credit report for up to 10 years. A Chapter 13 (wage earner plan) can stay on your credit report for up to 7 years after the completion of the plan.

Each bank or credit card company makes its own decision about to whom and when to give new credit. Some creditors may wait until a record of steady paying on another loan appears on the report. Your income and job stability at the time you apply for new credit will be critical factors. Others may grant credit soon after the bankruptcy filing because they know the debtor cannot discharge any new debts for 8 years.

If you file for bankruptcy under Chapter 7, a creditor can immediately begin pursuing anyone who co-signed the debt with you. Under the provisions of Chapter 13, you have the ability to better protect co-debtors, and arrange (if this is your choice) to pay off co-signed debts ahead of certain other creditors. Talk with your attorney about this if it applies. See Frequent Questions asked about Chapter 13 Bankruptcy.

Choosing the right attorney to represent you at this difficult time is an important decision. You want an attorney with experience. You want an attorney who will sit down with you face to face to discuss your particular situation and to propose to you an individual solution, not just put you in front of a TV set to watch a video. You want an attorney who will fully discuss with you your bankruptcy and non-bankruptcy options so that you can make the most informed choice possible at a difficult time. At Roy H. Lasris & Associates, P.C., we have helped clients with serious financial difficulties for over 20 years. We have no videos, and no high pressure techniques to get you to retain us — just knowledgeable, experienced lawyers who will meet with you face-to-face to learn your situation and, with your help, develop the appropriate solution for your individual needs. Please call us if we can be of assistance.