BANKRUPTCY
Information Provided by Financial Credit Network
October, 2011
Disclaimer: The information provided by Financial Credit Network is not to be construed as legal advice. Although we go to great lengths to make
sure our information is accurate and useful, we recommend you consult your attorney if you want professional assurance that our information, and
your interpretation of it, is suitable to your particular situation.
Information Purposes Only
This material is provided for informational
purposes only and not as legal advice by
Financial Credit Network.
With respect to any specific information,
citations, or statements in these materials,
any person or agency with specific legal
questions must consult with legal counsel
of their choice.
What Exactly is Bankruptcy?
Bankruptcy is a federal court process designed to
help consumers and businesses eliminate their
debts or repay them under the protection of the
bankruptcy court.
The primary purpose of the law of bankruptcy is
to give an honest consumer a “fresh start” in life
by relieving the consumer of most debts and to
repay creditors in an orderly manner to the
extent the consumer has assets available.
Notice of Stay
Regardless of which Chapter the consumer
files, they are protected from further
collection efforts by the Notice of Stay.
All letters, calls, and collection efforts in
regard to debts listed by the consumer in
the bankruptcy must stop unless relief is
granted by the court.
Bankruptcy Terms
 A no-asset case is a Chapter 7 case where there are no
assets available to satisfy any portion of the creditors'
unsecured claims.
 A preference or preferential debt payment is a payment
made to a creditor in the 90-day period before a
consumer files bankruptcy that gives the creditor more
than the creditor would receive in the consumer's
Chapter 7 case.
 A 341 Meeting is the meeting of creditors required by
Section 341 of the Bankruptcy Code at which the
consumer is questioned under oath by creditors, a
trustee, examiner, or the U.S. trustee about his/her
financial affairs. Also called Creditors' meeting.
Public Record
Bankruptcy is a matter of public record
and reflects on the consumer’s credit
report for 10 years.
If a civil judgment has been secured prior
to the bankruptcy filing date, it continues
to credit report as an unsatisfied judgment.
In 2010 1,536,799 consumers
filed Chapter 7
Chapter 7
– In exchange for the discharge of debts, the
consumer’s nonexempt property is sold
allowing the consumer or business to liquidate
their assets and debts.
– 85% of consumers filing bankruptcy in 2010
chose to liquidate. Statistics at:
http://www.uscourts.gov/uscourts/Statistics/
BankruptcyStatistics/BankruptcyFilings/2010
What are the benefits of filing
Chapter 7?
Cost is much less than a Chapter 13 ($500 versus
$2,500 for example).
Debts may be discharged much faster (6 months
instead of 5 years).
Most debts are dischargeable.
Most states have a reasonable list of exemptions.
Bankruptcy is not designed to put consumers out
on the street.
Examples of what you can keep
when you file Chapter 7:
Home
– If current on payments
– The bankruptcy code allows for equity,
state laws vary
Transportation
– Motor vehicles, if payments are current
Tools, Clothes, Household Goods,
Wages
Items you must typically give up
when you file Chapter 7:
Second Home
Second car or truck
Family Heirlooms
Expensive musical instruments
Stamp, coin and other collections
Cash, bank accounts, stocks, bonds and
other investments
Certain debts are not dischargeable
through Chapter 7
Credit purchases for luxury goods or services
made within 60 days of filing.
Debts from willful or malicious injury to another
person or another person’s property.
Debts owed under a divorce decree.
Student loans or tax debts.
Debts for personal injury or death caused by
intoxicated driving.
Fines and penalties imposed for violating the law,
such as traffic tickets and criminal restitution.
In 2010 438,913 consumers
filed for Chapter 13
Chapter 13
– This type of reorganization bankruptcy
allows consumers to make payments
through a court appointed trustee.
Why would a consumer choose
to file Chapter 13?
Consumers may feel a moral obligation to
repay their debts.
If they have valuable nonexempt property.
If they have received a discharge within the
previous 6 years, they may not be able to
file Chapter 7.
If co-borrowers would be pursued for
payment.
Secured debts
Secured debt usually includes the right of
the creditor to seize real property (house,
car or furniture, e.g.) if there is a default, in
addition to the promise or ability of the
consumer to pay. A secured claim under
the Bankruptcy Code is an allowed claim,
secured by a lien on property of the
consumer.
Unsecured debts
A debt that is not tied to any property
(medical or utility services or cash advance,
for example).
Creditors who have a lien need to decide
whether to object to a consumer’s plan within
45 days after the filing of the bankruptcy case.
You cannot rely upon the Chapter 13 trustee
to object to a plan that does not fairly treat a
creditor’s secured claim.
What’s involved in reorganizing
debt?
Consumers or businesses filing Chapter
11, 12 or 13 will:
– File a plan with the bankruptcy court
proposing how creditors will be repaid
which must be approved by a judge.
Other Chapters:
Chapter 9 allows municipalities to
reorganize their debts.
Chapter 11 allows businesses to reorganize
their debts, but it is a complex and
expensive process.
Chapter 12 allows family farmers to
reorganize their debts.
Where can I get forms and
information?
www.uscourts.gov
This site will allow you to access the 9th
Circuit which includes Northern,
Southern, Eastern and Central Bankruptcy
Districts of California
Pacer – search engine for case information
Adobe Acrobat to access forms
Consumer’s attorney or the trustee
Filing deadlines
In a Chapter 13 case, unsecured creditors
who have claims against the consumer
must file their claims with the court within
90 days after the first date set for the
meeting of creditors.
A proof of claim needs to be filed to
receive payments and to make sure the
correct amount and classification is
provided to the trustee.
What is a discharge in bankruptcy?
A discharge is a release of the consumer
from personal liability for certain specified
types of debts.
It operates as a permanent order directed
to the creditors of the consumer that they
refrain from taking any form of collection
action on the discharged debt.
Dismissal of Bankruptcy
 When a consumer fails to follow the rules and procedures
of the bankruptcy court, the case may be dismissed.
 Unless the court dismisses for cause, the consumer may file
again, but, until that time, the dismissal vacates any order,
judgment or transfer ordered.
 Reinstates any proceeding suspended or lien voided.
 Credit counseling is generally required within 180 days
before filing a case and a statement of compliance and a
certificate of credit counseling must be furnished by the
provider. Failure to do so may result in dismissal of the
case.
Reaffirming
A consumer may choose to reaffirm a debt
by putting in writing their decision to
make payment on an account.
The consumer may find a benefit in
making payment, such as avoiding a large
deposit, keeping an established line of
credit or continuing an existing business
relationship.
Post Petition Debt
When a consumer files a Chapter 7
bankruptcy, the Notice of Stay applies to
accounts incurred prior to the filing date.
Consumers filing a Chapter 13 bankruptcy
may amend their plan or add creditors at
additional cost. Post-Petition claims are for
debts incurred after the filing date and may
be paid at the end of the repayment plan if
approved by the trustee.
The Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 was
intended to decrease repeat filings.
Consumers who had their debts discharged
through Chapter 7 are not supposed to be
granted another discharge within 4 years of the
filing date.
Consumers who had their debts discharged in a
Chapter 13 case are not supposed to be granted
another discharge within 2 years of the pending
case.
Judges consider debt collectors notified
when the original creditor receives
notice of the bankruptcy filing.
Financial Credit Network requests clients promptly
report each new bankruptcy filing for accounts
assigned to our office.
U.S. consumer bankruptcies increased 9 percent in
2010 from the previous year, according to the
American Bankruptcy Institute. The data showed
the overall consumer filing total for the 2010
calendar year (Jan. 1 – Dec. 31, 2010) reached
1,530,078, compared to the 1,407,788 total
consumer filings recorded during 2009.