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The Bankruptcy Code, Title 11 United States Code, is designed to provide an economic fresh start to individuals and families who are unable to pay their debts. Additionally, the Bankruptcy Code ensures that all creditors in similar circumstances are treated equally. The decision to seek bankruptcy protection is often a difficult one and most consumers benefit from carefully considering their options with a qualified attorney.
In order to obtain protection from creditors through bankruptcy you must file a petition, listing everything you own and everyone you owe money to, with the Federal Bankruptcy Court. Upon the filing of a bankruptcy petition an automatic stay issued by the Court prevents creditors from lawfully attempting to collect the debts listed in the bankruptcy petition. Preparing and filing a bankruptcy petition properly is both challenging and complicated. Consumers attempting to file bankruptcy are encouraged to seek the assistance of a qualified attorney to assist them. Failure to properly file the petition or failing to comply with other pre-filing requirements, such as credit counseling, can result in the bankruptcy being dismissed and even a bar on re-filing for a period of time. Some important features of bankruptcy proceedings are the “automatic stay”, which prevents creditors from taking any action against the debtor, and the “discharge”, which permanently relieves the debtor who takes all required steps, of most pre-filing financial obligations.
There are four types of bankruptcies available to individuals: Chapter 7 liquidation, Chapter 11 reorganization, a Chapter 12 adjustment of debts for family farmers or fishermen, and a Chapter 13 adjustment of debts. It is important that a debtor carefully consider the appropriate type of bankruptcy for their particular circumstances. Some consumer debtors with incomes in excess of guideline income amounts may not be eligible for relief under Chapter 7, which allows the debtor to discharge most debts. Additionally, in some instances, such as where a debtor is seeking protection from a mortgage foreclosure, a Chapter 13 bankruptcy may be more appropriate. Chapter 13 allows you to reorganize and eliminate or reduce debt payments, by making regular monthly payments over a period from three to five years. The vast majority of consumer bankruptcies are filed under either Chapter 7 or Chapter 13.
Individuals and families seeking bankruptcy have a number of exemptions available which should allow them to protect personal property from their creditors. For example, retirement savings are often exempt from creditor’s claims. Home equity is usually protected by Florida’s homestead constitutional provisions. The Bankruptcy Code is designed to ensure that debtors have reasonable assets left with which to achieve their economic fresh start.
There are some types of debts which are often not dischargeable in bankruptcy. Some tax obligations, student loan debt, domestic support obligations, and criminal fines are generally not dischargeable in bankruptcy. However, it is important that these types of obligations be carefully reviewed with a qualified attorney to fully determine their exact nature and whether or not they are dischargeable, or, if the debtor is eligible, for a hardship discharge of an otherwise non-dischargeable debt. Additionally, if a debt were incurred through fraudulent means by the debtor, the Court may deny discharge of the debt.
Consumer debtors are required to complete a Credit Counseling Course given by a qualified provider within 180 days prior to filing of their bankruptcy petition and a Financial Management Course after filing. The law in this area is very strict and the Court is required to dismiss the bankruptcy case if the pre-filing requirement is not met and may not grant a discharge if the financial management course is not completed.
Once you have filed, the court will set a date for an appearance which is called the "Meeting of Creditors", or “341” meeting. The court will notify you and all of your creditors of the time and place of the meeting and you will be required to attend. Even if you are represented by an attorney you must personally attend this meeting along with your attorney. No judge is present at this meeting, which is conducted by the bankruptcy trustee. In most consumer cases this meeting is short with few, if any, creditors appearing. At the meeting, the trustee will place the debtor under oath and ask general questions regarding the bankruptcy petition to ensure that the debtor has truthfully and accurately disclosed all of his/her property and debts. Individual creditors, if they appear, are given an opportunity to ask limited questions of the debtor.
When a bankruptcy case is filed, a legal entity referred to as the “bankruptcy estate” is created, comprised of all your non-exempt property as of the date the bankruptcy petition is filed. In many consumer cases there is little to no non-exempt property. In Chapter 7 and 13 cases, the judge will appoint a trustee who will act as the representative of the estate. The trustee does not represent you. The trustee's duty is to take possession of the non-exempt property, to examine creditors’ claims, and to determine whether they are proper, and to sell the bankruptcy estate property in order to reduce it to cash for distribution to your creditors. It is also the duty of the trustee to determine whether you have properly listed all of your assets, to determine if there is a reason why you may not be entitled to discharge any of your debts, or whether there is some reason why he or she should ask the bankruptcy judge to deny your discharge. The trustee does not make the final decision on any of these matters, but has the responsibility of spotting and raising these issues with the Court.
In some cases the trustee or a creditor may object to the debtor’s eligibility to receive a discharge of your debts. If the trustee or a creditor objects to the discharge of a debt, for example, on the basis that the debt arose through the debtor's fraud, then the Court would hold a hearing on the objection during which the trustee or creditor would have to prove the case before the bankruptcy judge as with any other lawsuit. If there is no objection to the discharge of a particular debt, then it will be discharged. There are also instances where a discharge will be denied as to all debts; for example, where the debtor has purposely concealed records from the trustee in order to hide assets.
Any person contemplating bankruptcy should make every effort to ensure that their bankruptcy filing is done in good faith. That is, they should avoid incurring new debts such as willful running up of credit card balances in contemplation of filing bankruptcy. Property should not be transferred or concealed to avoid its loss to creditors during the bankruptcy proceedings. Bankruptcy fraud is a criminal act which can result in the debtor being denied a discharge of their debts and can even result in imprisonment in Federal Prison.
Under certain circumstances, payments by the debtor prior to filing the bankruptcy petition may be deemed “preferential.” The bankruptcy trustee may sue the recipients to claim back those payments into the estate for the benefit of all unsecured creditors. Disclosure of pre-petition payments is required in the bankruptcy petition and this is a subject that should be discussed by the debtor with his or her attorney before the petition is filed.
In 2005, Congress, at the request of the financial services industry, made many changes in the bankruptcy law. These changes made it more complicated for consumers to obtain the maximum benefit from filing for bankruptcy relief. Although you do not need an attorney to file a bankruptcy petition, you should consider seeking the advice of an attorney if you are unsure of your rights and duties under bankruptcy law; filing without the assistance of an attorney is probably a mistake.
Be advised that there are people called “bankruptcy petition preparers” who are legally allowed to assist you with completing bankruptcy forms, but, unless they are licensed attorneys, they are not legally qualified or permitted to give you advice concerning the law or to act as your lawyer.
If you believe you need legal advice, call your attorney. If you do not have an attorney, call The Florida Bar Lawyer Referral Service at (800) 342-8011, or the local lawyer referral service or legal aid office listed in the yellow pages of your telephone book.