Part 1: The Basics of Chapter 7 Bankruptcy
Part 2: The Basics of Money Management
Part 3: The Basics of Credit Management
Part 4: Additional Resources
Personal Financial Choices
Note: Bankruptcy is generally a matter of federal law; however, in some instances state laws may apply. This booklet is not intended to give legal advice. All legal questions should be presented to an attorney.
PART 1: THE BASICS OF CHAPTER 7 BANKRUPTCY
At the conclusion of this lesson you should be able to:
You may be a little overwhelmed at this moment, wondering how you ever got to this point in your life. And you may be wondering, "Where do I go from here? How do I get back on my feet?" The video you viewed, "The Basics of Chapter 7 Bankruptcy," was prepared to help you understand the Chapter 7 Bankruptcy process and to introduce you to the people who will be working with you for the next 4 to 6 months.
The second video we have prepared for this series, "The Basics of Money Management," is designed to help you get back on financial track. It introduces you to useful information and gives you tips on how to manage your money resources so that you will never have to repeat this process.
We are not offering you legal advice. Everyone's situation is different. Only your attorney can give you legal advice.
Let's start with a clear understanding of what Chapter 7 Bankruptcy is. When you file a Chapter 7 Bankruptcy petition, you are asking the Court to give you a "discharge" of your debts - you want relief from as much of your debt as possible. If you receive the discharge, many of your debts will be eliminated, but there are certain financial obligations that you will have to continue to pay.
There are many different types of bankruptcy, called different "chapters." Most people file either Chapter 13 or Chapter 7. Those who file Chapter 13 agree to repay some of the debt they owe, and in return they keep most of their property.
Chapter 7 Bankruptcy, which is what you have filed, is known as the "Straight Liquidation Chapter" because in return for eliminating your debts, you agree to turn over your non-exempt property to your Chapter 7 Trustee, who will then collect and sell your non-exempt assets and pay as much as possible to your creditors. In most cases, however, there are no non-exempt assets to sell, so creditors receive nothing.
Let's explain what we mean by "exempt," because that's important. Most state legislatures have historically wanted to make sure that the property that a debtor needs to assure his or her family's future is protected in bankruptcy, such as their house, tools of trade, car, or farm animals. This property cannot be taken away by creditors, which is what "exempt" means. However, if the property is mortgaged and it's worth less than what is owed to the lender, there might not be an "exempt" part.
Exemptions are different in every state, so be sure to ask your attorney about exemptions.
Let's first get acquainted with the people who will be involved in your case. So far, we've referred to your "attorney" and your "Trustee." Here is a little information about who they are and what they do.
Some of you may not have an attorney. You may have had a petition preparer or a paralegal help you file your bankruptcy. If someone other than an attorney helped you, then you are responsible for filing all the papers and providing necessary and correct information about your property and liabilities. If you have questions about your bankruptcy case, you should call an attorney.
Another person you will meet is the Chapter 7 Trustee. Your Trustee is appointed by a United States Trustee - who works for the Department of Justice. The (Chapter 7) Trustee's job is to make sure that you, and your creditors, are treated according the rules and procedures established in the United States Bankruptcy Code. The Trustee protects the rights of all parties in the case. Here are some of the things that your Trustee will do:
Remember that the Trustee administers your case. He or she is not your attorney and cannot give you legal advice.
You will read about the "Court" and the "Judge" as we describe the process of Chapter 7 Bankruptcy. The judge will make the final decision about whether your debts are discharged based on the law. But in most cases you will probably not see the judge unless there is a problem.
Your creditors are the people, banks, institutions, and stores to whom you owed money when you filed for Chapter 7 Bankruptcy. Creditors don't usually know you personally, and they don't know your situation. All they know is that you owe them money for the things you bought from them, and it is their goal to collect the money you owe them. It is possible that your creditors have been trying to get you to pay your debts with phone calls and letters, or even by repossessing your property.
When you file your Chapter 7 Bankruptcy petition, your creditors are sent a Notice informing them that you have filed for Chapter 7 Bankruptcy and that they must stop trying to collect the debts you have listed. You should also get a copy of this Notice which tells you when you must appear for your First Meeting of Creditors and who the Trustee is.
After you file your bankruptcy case, your creditors are not allowed by law to write or call you about the money you owe them. This is called the "Automatic Stay," i.e., they are automatically "stayed" from contacting you. If they do contact you, tell them that you filed for Chapter 7 Bankruptcy and give them your case number. If they continue to call you, tell your attorney and he or she will help you with that situation.
There are two different types of debt that you may owe: Secured and Unsecured. Most of your debt is probably "unsecured." These debts include most credit card bills, most medical bills, and most personal loans.
A secured creditor is one who lends you money after you have agreed that if you don't meet your obligation to repay the loan, some of your property will be taken away from you and used to replay the lender. Most home loans, car loans, and some lines of credit are secured loans. Some stores may have a secured interest in an item you bought on a store credit card, like your refrigerator, television, or expensive jewelry. The important thing to remember is that whenever you pledge property you buy as collateral or security for a loan, you give the lender the right to repossess or take back that property if you do not repay the loan. You must file a "Statement of Intentions" along with your Chapter 7 Bankruptcy petition. This document will tell your Trustee and your creditors whether you want to keep or give up the property which secures a debt.
You have several options with respect to "secured debt."
You may be asked to sign a Reaffirmation Agreement. If you are, be sure to get advice from your attorney.
If you want to sign a Reaffirmation Agreement and you do not have an attorney, you must go to court and convince the judge that it is in your best interest to pay the debt, you can afford to pay it, and that the payment of debt will not impose an undue hardship on you or your family. Remember, your debt will be discharged if you do not sign a Reaffirmation Agreement. Also remember that you can reconsider and cancel your decision to reaffirm a debt at any time prior to discharge or within 60 days after the agreement is filed with the Court, whichever is later.
WHAT DEBT CAN BE DISCHARGED?
Some debts are not discharged by bankruptcy, which means that you will still owe them even after you receive your discharge. Here are the kinds of debts that are not discharged:
The goal of your filing bankruptcy is to obtain a discharge of your debts - a "fresh start." Discharge means that the debt is eliminated. In the majority of cases the Court enters an order granting a discharge 60 days after the Meeting of Creditors. A discharge of your debts will automatically be granted unless someone specifically objects to your case. You should receive a copy of your Discharge in the mail. Keep a copy of your Discharge papers in case any of your creditors later try to collect on a debt that has been discharged in bankruptcy.
Complaint to Determine Dischargeability
In addition, some of your other debts may be subject to a "Complaint to Determine Dischargeability". A "Complaint to Determine Dischargeability" is a lawsuit filed by a creditor who believes that you have been dishonest, committed fraud, larceny, embezzlement, or willful injury.
For instance, if you misrepresented any of your financial information on a credit application and if the creditor gave you credit based on that information and then discovered that the information you provided was not correct, he may file a complaint in court and serve you and your attorney with a copy.
If the Court grants the creditors Complaint against you, that debt may not be discharged and you will still have to pay it. You do have the right to contest the Complaint at a hearing before the Bankruptcy Judge, and each Complaint must be determined by the Bankruptcy Judge.
It is important to remember to contact your attorney as soon as you receive a Complaint. We will talk more about "Complaints to Determine Dischargeability" when we discuss important legal documents.
Remember, just because your unsecured debts are probably going to be eliminated, it doesn't mean that you can go off and have a last minute shopping spree before you file for Chapter 7 Bankruptcy! The Court and your creditors will look closely for those kinds of debts that were made 60 days prior to filing. A creditor could file a Complaint and the Court may decide that you have acted "fraudulently" or were intentionally deceitful. If that happens you will be held responsible for those debts or the Court may dismiss your case.
It is very important to always be completely truthful with your attorney, your Trustee, and with the Court. You have to make sure that all the information you give your Trustee and file with the Court is accurate and complete. You must attend your "341 Meeting" (your "First Meeting of Creditors") and you must cooperate in every way possible.
Make sure you let your attorney know about all your debts, no matter how large or small. Debts that are not listed in the Bankruptcy Schedule may not be discharged or eliminated. If you forget to list a creditor but remember the debt later, contact your attorney to determine what should be done, if anything.
There are some very important legal documents that you must watch for, such as the "Notice of Meeting of Creditors" or the "Motion to Lift Stay."
When you filed your Chapter 7 Bankruptcy, the "Automatic Stay" went into effect. The Automatic Stay stops almost all types of collection action against you. If a creditor feels that he is being treated unfairly, he may decide to file a Motion with the Bankruptcy Court asking for permission to proceed against you anyway.
Motion for Relief from Automatic Stay
If a creditor decides to take such action, he must serve you and your attorney with a "Motion for Relief from Automatic Stay." If you receive a Motion, call your attorney right way. If you ignore it and the Court allows this creditor's Motion, you could lose the property in question, such as your house or car!
Complaint to Determine Dischargeability of Debt
Another important legal document that we have already talked about is "The Complaint to Determine Dischargeability of a Debt." That means that a creditor may believe that you have been dishonest, committed fraud, larceny, embezzlement, or willful injury. If you ignore it or if the Court grants it, you will remain liable for that debt.
Motion to Dismiss
Another important document is the "Motion to Dismiss." Your case may be dismissed by the judge for many different reasons, including a failure to file correct papers. This means that you may be back where you started before you filed your bankruptcy papers. If you get served with a "Motion to Dismiss," you should immediately contact your attorney.
We've covered a lot of the legal and administrative aspects of your filing Chapter 7 Bankruptcy. Let's just do a quick review.
QUESTION AND ANSWERS
1. What are my responsibilities when filing Chapter 7 Bankruptcy?
You have to be completely truthful with your attorney, your Trustee, and the Court. You have to make sure that all the information you give your attorney and file with the Court is accurate and complete. You must show up at your "341 Meeting" (your "First Meeting of Creditors") and you must cooperate.
2. Which debts should I continue to pay?
You should continue to pay your regular monthly expenses such as rent, utility bills, and any payments for your secured property that you want to keep, like your house or car.
3. Can I sell any of my assets while I'm in bankruptcy?
If you wish to sell your home or any other asset, contact your attorney first.
4. What if I inherit some money?
If you inherit money or receive money through a life insurance policy within 6 months of filing for bankruptcy, you've got to report it to your Trustee.
5. What if I move?
If you move before your case is finished, you must notify your attorney, your Trustee, and the Bankruptcy Court of your new address in writing. You can usually find a change of address form at the courthouse.
6. What is my life going to be like after Chapter 7 Bankruptcy?
Bankruptcy laws were designed to give you a new financial beginning! A fresh start! Chapter 7 Bankruptcy is a way for you and your family to get back on your feet. However, you have to rebuild your financial life so that you will have a future to which to look forward.
It doesn't matter if you're single, married, retired, or supporting your children by yourself. You might be the CEO of your own company or unemployed because of downsizing. Chapter 7 Bankruptcy can happen to anyone. It can also give everybody the same opportunity to change. Make a promise to yourself that you'll learn the financial skills that will help you become more successful.
Lesson 2 >>
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