2005 Bankruptcy Act and Credit Counseling
You may have heard or read that the Bankruptcy rules changed in 2005. It is a common mis-understanding that it is no longer possible to file for bankruptcy, or that it is harder to qualify. THIS IS WHAT YOUR CREDITORS WANT YOU TO BELIEVE, BUT this is simply not true. The rules changed the qualification process for filing for bankruptcy, but we are able to qualify and file the majority of our clients under Chapter 7, while others must be filed under Chapter 13. Some prefer to file under Chapter 13 in order to strip off their 2nd mortgage on their primary residence.
The 2005 Bankruptcy Act imposed new rules which both attorneys and debtors must follow. It requires all individual debtors who file bankruptcy on or after October 17, 2005, to undergo credit counseling within six months before filing for bankruptcy relief and to complete a financial management instructional course after filing bankruptcy. This is a simple process and does not take more than 30 minutes usually.
2005 Bankruptcy Act Means Test
Under the 2005 Bankruptcy Act you income and expenses will be analyzed to determine if you qualify to file a Chapter 7 or if you must file Chapter 13. To apply the means test, the courts will look at the your average income for the 6 months prior to filing and compare it to the median income for that state. If the income is below the median, then you may choose Chapter 7. If your income exceeds the median, the remaining parts of the means test will be applied to determine if you can file Chapter 7 or if you must file Chapter 13. Those remaining parts are to look at your expenses and your net income, are you in the black or the red each month? This is where using an experienced bankruptcy law firm will benefit you and your filing.
Note that you can still opt for Chapter 13 even if you qualify to file under Chapter 7.
To begin the bankruptcy process you must itemize your current income sources; major financial transactions for the last two years; monthly living expenses; debts (secured and unsecured); and property (all assets and possessions, not just real estate). You should also collect your tax returns for the last two years, deeds to any real estate you own, your car(s) titles, and the documents for any loans you may have. We have helpful staff and organized client data sheets to assist you in gathering this documentation.
Once you have gathered this information, with our help, we will determine which property we believe is exempt from seizure based on the California exemptions. To actually file, we will need to file a petition and several other forms at your California district bankruptcy court. These forms, collectively are referred to as the schedules and ask us to describe your current financial status and recent financial transactions (typically within the last two years). If your creditors or the judge feel or find out that you have not been entirely forthcoming in your bankruptcy filing, it could jeopardize the outcome of your petition and your discharge of any debt. We walk you through this process.
The cost for merely filing a Chapter 7 bankruptcy at the local district bankruptcy court is $306, to file a Chapter 13 bankruptcy it is $281. These filing fees may not be waived and we do not charge an additional filing fee. We pass on what it costs us to file your bankruptcy petition.
Chapter 13 Requirements
If you are filing a Chapter 13 bankruptcy, a proposed repayment plan must also be submitted. We write up this plan for you, and we look at your budget. We ask after reasonable monthly expenses have been paid, how much money will you have left over to put toward your outstanding bills? And how will this money be divvied up among those you owe? Priority claims (such as taxes and back child support) must be paid in full; unsecured debts (like credit card debt and medical bills) are usually paid in part. Depending upon the judgments of those involved with your case, unsecured debts can be paid off for as little as 10 cents on the dollar.
In addition to the general requirements listed above, the repayment plan must pass three tests:
- It must be delivered in good faith.
- Unsecured creditors must be paid at least as much as if a Chapter 7 bankruptcy had been filed. Generally, this is the value of all the nonexempt property you own (see California bankruptcy exemptions).
- All disposable income must be paid into the plan for at least three years (you may use up to five years in order to meet the second test that you pay at least as much as in a Chapter 7).
Plan payments will generally be withdrawn directly from your wages and you or your attorney should arrange with the court for these payments to be deducted from your wages.
Once we have filed your paperwork with the bankruptcy court, an automatic stay immediately goes into effect. This provision prevents creditors from making direct contact with you or staking a claim on any of your property from the day of filing forward. This will also stop any foreclosure proceedings. If you have filed Chapter 13, you must begin making your plan payments.
Upon filing, the court will assume legal control of your debts and property not covered by your California exemptions. A trustee will be appointed to your case by the court. The job of the trustee is to see that your creditors are paid as much as possible. This person will thoroughly review your paperwork, particularly the assets you have in your possession and the exemptions you wish to claim, and can challenge any element of your case. This is where it is extremely important to have worked with an experienced bankruptcy law firm, errors in your petition or plan could potentially result in your debt not being discharged, or in additional problems with creditors (which will end up costing you more money). We are impeccable with the preparation of our petitions and spend a lot of time with our clients in order to make sure that everything is right.
341 Meeting of Creditors
Approximately a month after filing, the trustee will call a first meeting of creditors, which the debtor must attend. We will inform you of this meeting, you will also receive a notice from the court. This proceeding is also referred to as the § 341 meeting, named after the corresponding section of the bankruptcy code. Creditors rarely attend a Chapter 7 bankruptcy meeting; one or two creditors may attend a Chapter 13 meeting, especially if there is a question as to the legitimacy of some aspect of the plan. Objections are typically resolved by negotiation between the debtor or the debtor's counsel and the creditor. If a compromise can not be reached, a judge will intervene. An attorney from or affiliated with our firm will typically be present at this meeting with you.
The meeting of creditors typically lasts about five minutes. You will receive notice of the location of the meeting but you may contact the court or our law firm to confirm the address and time. (see California Bankruptcy Court Directory). After the hearing trustees and creditors have 60 days to challenge the debtor's right to a discharge. If there are no challenges, you will receive a notice from the court that your dischargeable debts have been discharged within roughly three to six months.
Chapter 13 Plan Confirmation
If you filed a Chapter 13 plan you will need to attend a hearing before a bankruptcy judge who will either confirm or deny the repayment plan. An attorney from our firm will always be present at this meeting with you. If your plan is confirmed and you make good on it, the balance (if any) on the dischargeable debts you owe will be eliminated at the end of your term.
Types of bankruptcy are named after chapters of the bankruptcy code. Individuals may file under the provisions of Chapter 7 or Chapter 13.
For more information or to schedule an appointment with one of the Litchney Law Firm’s experienced Bankruptcy law attorneys please call us at 916-235-6979 or use the contact form on the website to schedule your free initial consultation!