Bankruptcy Disclosures
DISCLOSURES REQUIRED UNDER SECTION 527 AND 342 OF THE BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005.
NOTICE NO. 1
Notice Mandated By Section 342(b)(1) and 527(a)(1) Of The Bankruptcy Code
The United States Constitution provides a method whereby individuals, burdened by
excessive debt, can obtain a "fresh start" and pursue productive lives unimpaired by
past financial problems. It is an important alternative for persons strapped with more
debt and stress than they can handle.
The federal bankruptcy laws were enacted to provide good, honest, hard-working
debtors with a fresh start and to establish a ranking and equity among all the creditors clamoring for the debtor's limited resources.
Bankruptcy helps people avoid the kind of permanent discouragement that can prevent
them from ever re-establishing themselves as hard-working members of society.
To the extent that there may be money or property available for distribution to
creditors, creditors are ranked to make sure that money or property is fairly distributed
according to established rules as to which creditors get what.
This discussion is intended only as a brief overview of the types of bankruptcy filings
and of what a bankruptcy filing can and cannot do. No one should base their decision as
to whether or not to file bankruptcy solely on this information. Bankruptcy law is
complex, and there are many considerations that must be taken into account in making
the determination whether or not to file. Anyone considering bankruptcy is encouraged
to make no decision about bankruptcy without seeking the advice and assistance of an
experienced attorney who practices nothing but bankruptcy law.
Types of Bankruptcy
The Bankruptcy Code is divided into chapters. The chapters which almost always apply to consumer debtors are chapter 7, known as a "straight bankruptcy", and chapter 13,
which involves an affordable plan of repayment.
An important feature applicable to all types of bankruptcy filings is the automatic stay.
The automatic stay means that the mere request for bankruptcy protection
automatically stops and brings to a grinding halt most lawsuits, repossessions,
foreclosures, evictions, garnishments, attachments, utility shut-offs, and debt collection
harassment. It offers debtors a breathing spell by giving the debtor and the trustee
assigned to the case time to review the situation and develop an appropriate plan. In
most circumstances, creditors cannot take any further action against the debtor or the
property without permission from the bankruptcy court.
Chapter 7
In a chapter 7 case, the bankruptcy court appoints a trustee to examine the debtor's
assets to determine if there are any assets not protected by available "exemptions".
Exemptions are laws that allow a debtor to keep, and not part with, certain types and
amounts of money and property. For example, exemption laws allows a debtor to
protect a certain amount of equity in the debtor's residence, motor vehicle, household
goods, life insurance, health aids, retirement plans, specified future earnings such as
social security benefits, child support, and alimony, and certain other types of personal
property. If there is any non-exempt property, it is the Trustee's job to sell it and to
distribute the proceeds among the unsecured creditors. Although a liquidation case can
rarely help with secured debt (the secured creditor still has the right to repossess the
collateral if the debtor falls behind in the monthly payments), the debtor will be
discharged from the legal obligation to pay unsecured debts such as credit card debts,
medical bills and utility arrearages. However, certain types of unsecured debt are
allowed special treatment and cannot be discharged. These include some student loans,
alimony, child support, criminal fines, and some taxes.
Additional information about chapter 7 is available at the Site.
In addition to attorney fees, there is a filing fee that must be paid to the Bankruptcy
Court.
Chapter 13
In a chapter 13 case, the debtor puts forward a plan, following the rules set forth in the
bankruptcy laws, to repay certain creditors over a period of time, usually from future
income. A chapter 13 case may be advantageous in that the debtor is allowed to get
caught up on mortgages or car loans without the threat of foreclosure or repossession,
and is allowed to keep both exempt and nonexempt property. The debtor's plan is a
document outlining to the bankruptcy court how the debtor proposes to dispose of the
claims of the debtor's creditors. The debtor's property is protected from seizure from
creditors, including mortgage and other lien holders, as long as the proposed payments
are made and necessary insurance coverages remain in place. The plan generally
requires monthly payments to the bankruptcy trustee over a period of three to five
years. Arrangements can be made to have these payments made automatically through
payroll deductions.
Additional information about chapter 13 is available at the Site.
In addition to attorney fees, there is a filing fee that must be paid to the Bankruptcy
Court.
Chapter 11
By and large, chapter 11 is a type of bankruptcy reserved for large corporate
reorganizations. Chapter 11 shares many of the qualities of a chapter 13, but tends to
involve much more complexity on a much larger scale.
However, since chapter 11 does not usually pertain to individuals whose debts are
primarily consumer debts, further information about chapter 11 will be provided by reference to the following resource: The A Bankruptcy Basics @ brochure prepared by the Administrative Office of the United States Courts, dated June 2000, and which can
be accessed over the internet by visiting the following website:
www.uscourts.gov/bankruptcycourts.html .
Chapter 12
Chapter 12 of the Bankruptcy Code was enacted by Congress in 1986, specifically to
meet the needs of financially distressed family farmers. The primary purpose of this
legislation was to give family farmers facing bankruptcy a chance to reorganize their
debts and keep their farms.
However, as with chapter 11, since chapter 12 does not usually pertain to individuals
whose debts are primarily consumer debts, further information about chapter 12 will be
provided by reference to the same "Bankruptcy Basics" brochure referred to above,
which can be accessed over the internet at the same said website as mentioned for
chapter 11.
What Bankruptcy Can and Cannot Do
Bankruptcy may make it possible for financially distressed individuals to:
- Discharge liability for most or all of their debts and get a fresh start. When the debt is
discharged, the debtor has no further legal obligation to pay the debt. - Stop foreclosure actions on their home and allow them an opportunity to catch up on
missed payments.
- Prevent repossession of a car or other property, or force the creditor to return
property even after it has been repossessed.
- Stop wage garnishment and other debt collection harassment, and give the individual
some breathing room.
- Restore or prevent termination of certain types of utility service.
- Lower the monthly payments and interest rates on debts, including secured debts
such as car loans.
- Allow debtors an opportunity to challenge the claims of certain creditors who have
committed fraud or who are otherwise seeking to collect more than they are legally
entitled to.
Bankruptcy, however, cannot cure every financial problem. It is usually not possible to:
- 2.
- Discharge types of debts singled out by the federal bankruptcy statutes for special
treatment, such as child support, alimony, student loans, certain court ordered
payments, criminal fines, and some taxes.
- Protect all cosigners on their debts. If relative or friend co-signed a loan which the
debtor discharged in bankruptcy, the cosigner may still be obligated to repay whatever
part of the loan not paid during the pendency of the bankruptcy case.
- Discharge debts that are incurred after bankruptcy has been filed.
Bankruptcy's Effect on Your Credit
By federal law, a bankruptcy can remain part of a debtor's credit history for 10 years.
Whether or not the debtor will be granted credit in the future is unpredictable, and
probably depends, to a certain extent, on what good things the debtor does in the
nature of keeping a job, saving money, making timely payments on secured debts, etc.
Services Available From Credit Counseling Agencies
With limited exceptions, Section 109(h) of the Bankruptcy Code requires that all
individuals who file for bankruptcy relief on or after October 17, 2005 receive a briefing
that outlines all available opportunities for credit counseling and provides assistance in
performing a budget analysis. The briefing must be given within 180 days prior to the
bankruptcy filing. The briefing may be provided individually or in a group (including
briefings conducted over the Internet or over the telephone) and must be provided by a
non-profit budget and credit counseling agency approved by the United States Trustee
or bankruptcy administrator. The clerk of the bankruptcy court has a list that you may
consult of the approved budget and credit counseling agencies. In addition, after filing a
bankruptcy case, an individual debtor generally must complete a financial management
instructional course before he or she can receive a discharge. The clerk also has a list of
approved financial management instructional courses.
If you're not disciplined enough to create a workable budget and stick to it, can't work
out a repayment plan with your creditors, can't keep track of mounting bills, or need
more help with your debts than can be achieved by merely having a few of your
unsecured creditors lower your interest rates somewhat, it probably makes little sense
to consider contacting a credit counseling organization.
If, on the other hand, you meet all or most of those criteria, there are many non-profit
credit counseling organizations that will work with you to solve your financial problems.
But be aware that, just because an organization says it's "nonprofit," there's no
guarantee that its services are free, affordable or even legitimate.
Most credit counselors offer services through local offices, the Internet, or on the
telephone. If possible, it probably best to find an organization that offers in-person
counseling. Many universities, military bases, credit unions, housing authorities, and
branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling
programs. Your financial institution, local consumer protection agency, and friends and
family also may be good sources of information and referrals.
Reputable credit counseling organizations can advise you on managing your money and
debts, help you develop a budget, and offer free educational materials and workshops.
Their counselors are certified and trained in the areas of consumer credit, money and
debt management, and budgeting. Legitimate counselors will discuss your entire
financial situation with you, and help you develop a personalized plan to solve your
money problems. An initial counseling session typically lasts an hour, with an offer of
follow-up sessions.
If your financial problems stem from too much debt or your inability to repay your
debts, a credit counseling agency may recommend that you enroll in what is knows as a
"debt management plan" or "DMP". A DMP alone is not credit counseling, and DMPs are
not for everyone. You should sign up for one of these plans only after a certified credit
counselor has spent time thoroughly reviewing your financial situation, has offered you
customized advice on managing your money, and has analyzed your budget to make
sure that the proposed DMP is one you can afford. However, remember that all
organizations that promote DMP's fund themselves in part through arrangements with
the creditors involved, which are called "fair share", so you have to be wary as to whose
best interest the counselor has in mind. Even if a DMP is not appropriate for you, a
reputable credit counseling organization still can help you create a budget and teach you
money management skills.
In a DMP, you deposit money each month with the credit counseling organization, which
uses your deposits to pay your unsecured debts, like your credit card bills and medical
bills, according to a payment schedule the counselor develops with your creditors. Your
creditors may agree to lower your interest rates or waive certain fees, but it's always
best to check with all your creditors, just to make sure they offer the concessions that a
credit counseling organization is promising you. A successful DMP requires you to make
regular, timely payments, and could take 48 months or more to complete. Ask the credit
counselor to estimate how long it will take for you to complete the plan. You may have
to agree not to apply for C or use C any additional credit while you're participating in the
plan, and a DMP is likely of little value if your problems stem from or involve your
secured creditors holding your car, truck or home as collateral. DMP's are also likely of
little value if your problems stem from alimony, child support or overdue taxes.
The bottom line is this: If all you need is a little lowering of your interest rates on some
unsecured debts, a DMP might be the answer. However, if what you really need is to
reduce the amount of your debt, bankruptcy may be the solution.
NOTICE NO. 2
Notice Mandated By Section 527(a)(2) Of The Bankruptcy Code
NOTICE OF MANDATORY DISCLOSURE TO CONSUMERS WHO CONTEMPLATE FILING BANKRUPTCY
You are notified as follows:
- All information that you are required to provide with the filing of your case and
thereafter, while your case is pending, must be complete, accurate and truthful. - All your assets and all your liabilities must be completely and accurately disclosed in
the documents filed to commence your case, and the replacement value of each asset
(as defined in Section 506 of the Bankruptcy Code) must be stated in those documents
where requested after reasonable inquiry to establish such value.
- Some sections of the Bankruptcy Code require you to determine and list the
replacement value of an asset such as a car or furniture. When replacement value is
required, it means the replacement value, established after reasonable inquiry, as of the
date of the filing of your bankruptcy case, without deduction for costs of sales or
marketing. With respect to property acquired for personal, family or household
purposes, replacement value means the price a retail merchant would charge for "used"
property of that kind considering the age and condition of the property. Again,
replacement value is defined in the Bankruptcy Code as the price that a retail merchant
would charge for property of the same kind, considering the age and condition of the
property at the time its value is determined. This is not the cost to replace the item with
a new one or what you could sell the item for; it is the cost at which a retail merchant
would sell the used item in its current condition. In many cases (particularly used
clothing, furniture, computers, etc.), this would be “yard sale” value, or what the item
might sell for on eBay. In other cases, such as jewelry, antiques or collectables, it may
be retail value. For motor vehicles, it would be the third party purchase value. For real
property, it is what the real property would sell for, at current Market value. For cash
and bank accounts, it is the actual amount on deposit. For stocks and bonds, it is their
market value as of the date your case is filed. You must make a reasonable inquiry to
determine the replacement value of your assets.
- Before your case can be filed, it is subject to what is called "Means Testing". The Means Test was designed to determine whether or not you qualify to file a case under
chapter 7 of the Bankruptcy Code, and if not, how much you need to pay your
unsecured creditors in a chapter 13 case. For purposes of means test, you must state,
after reasonable inquiry, your total current monthly income, the amount of all expenses
as specified and allowed pursuant to section 707(b)(2) of the bankruptcy code, and if
the plan is to file in a Chapter 13 case, you must state, again after reasonable inquiry,
your disposable income, as that term is defined.
- Information that you provide during your case may be audited pursuant to the
provisions of the Bankruptcy Code. Your failure to provide complete, accurate and
truthful information may result in the dismissal of your case or other sanctions, including
criminal sanctions.
NOTICE NO. 3
Notice Mandated By Section 527(b) Of The Bankruptcy Code
IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES
If you decide to seek bankruptcy relief, you can represent yourself, you can hire an
attorney to represent you, or you can get help in some localities from a bankruptcy
petition preparer who is not an attorney. THE LAW REQUIRES AN ATTORNEY OR
BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT SPECIFYING
WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND
HOW MUCH IT WILL COST. Ask to see the contract before you hire anyone.
The following information helps you understand what must be done in a routine
bankruptcy case to help you evaluate how much service you need. Although bankruptcy
can be complex, many cases are routine.
Before filing a bankruptcy case, either you or your attorney should analyze your
eligibility for different forms of debt relief available under the Bankruptcy Code and
which form of relief is most likely to be beneficial for you. Be sure you understand the
relief you can obtain and its limitations. To file a bankruptcy case, documents called a
Petition, Schedules and Statement of Financial Affairs, as well as in some cases a
Statement of Intention need to be prepared correctly and filed with the bankruptcy
court. You will have to pay a filing fee to the bankruptcy court. Once your case starts,
you will have to attend the required first meeting of creditors where you may be
questioned by a court official called a > trustee = and by creditors.
If you choose to file a chapter 7 case, you may be asked by a creditor to reaffirm a
debt. You may want help deciding whether to do so. A creditor is not permitted to
coerce you into reaffirming your debts. It may not be in your best interest to reaffirm a
debt.
If you choose to file a chapter 13 case in which you repay your creditors what you can
afford over 3 to 5 years, you may also want help with preparing your chapter 13 plan
and with the confirmation hearing on your plan which, if held, will be before a
bankruptcy judge.
If you select another type of relief under the Bankruptcy Code other than chapter 7 or
chapter 13, you will want to find out what should be done from someone familiar with
that type of relief. However, please be advised that in most cases, you will only be
concerned with chapter 7 and chapter 13.
Your bankruptcy case may also involve litigation. You are generally permitted to
represent yourself in litigation in bankruptcy court, but only attorneys, not bankruptcy
petition preparers, can give you legal advice.
NOTICE NO. 4
Notice Mandated By Section 342(b)(2) Of The Bankruptcy Code
FRAUD & CONCEALMENT PROHIBITED
If you decide to file bankruptcy, it is important that you understand the following:
- Some or all of the information you provide in connection with your bankruptcy will be
filed with the bankruptcy court on forms or documents that you will be required to sign
and declare as true under penalty of perjury.
- A person who knowingly and fraudulently conceals assets or makes a false oath or
statement under penalty of perjury in connection with a bankruptcy case shall be
subject to fine, imprisonment, or both.
- All information you provide in connection with your bankruptcy case is subject to
examination by the Attorney General.
More information about bankruptcy:
Discover if bankruptcy is right for you
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