THE BANKRUPTCY PROCESS
Thank you for contacting the Martella Law Firm for more information about bankruptcy and the bankruptcy process. The purpose of this post is to let you know how the bankruptcy process works, to take some of the mystery and fear out of the process and to get you acquainted with what we will do for you at the Martella Law Firm.
To start the process, we have an initial meeting with you and if you scheduled a meeting with us, we will send you an initial questionnaire. This questionnaire is basically to let us have a picture of your financial background concerning your situation and it asks questions in four general areas:
(i) what is your income? We need to know what your income has been for the last six months;
(ii) what are your expenses?
(iii) what are your assets? and
(iv) what are your liabilities?
Those are the four general areas that a bankruptcy Trustee is concerned with. Once you fill out the questionnaire and you come in for your initial consultation, we will meet in our conference room and we will go over that information with you. After we have a better idea of what your situation is and what your potential liability is, we can at that time discuss whether or not you qualify for a Chapter 7 or a Chapter 13.
Generally, the difference between a Chapter 7 and a Chapter 13 is that a Chapter 7 is what we call liquidation. You are allowed to keep a certain amount of exempt assets (that is, the stuff you get to keep). You get some exempt assets and anything over and above the exemptions would get turned over to the bankruptcy Trustee, liquidated and distributed among your creditors. In a Chapter 13, you get to keep everything but, you have to make payments to the Trustee in an amount equal to two things:
(i) You have to pay back at least as much as what you are keeping. For example, if you have $6,000 worth of non-exempt assets. We can propose a 60-month plan in a Chapter 13 where you pay back $100 a month over 60 months and at the end of the 60 months, you would get your Discharge.
(ii) You must pay out a least as much as what your disposable income is each month. Using the above example, if you have $3,000 and gross income and $2,800 in allowable expenses, you would have to pay out a minimum of $200 a month over 36 months for a total of $7,200 even though your non-exempt assets only total $6,000.
The initial process and procedure is pretty much the same for a Chapter 7 and a Chapter 13. Once we have made a determination as to whether or not you qualify for a Chapter 7 or a Chapter 13, we will give you a package that includes a number of items. One is our Retainer Agreement and, keep in mind that, whatever attorney you ultimately go to you have the right to get a full detailed Retainer Agreement before you agree to hire that person. We will give you the Retainer Agreement and we will give you a much more detailed Questionnaire. Everything that is asked in the Questionnaire is information that you will need to put into a bankruptcy Petition. It is quite lengthy, and in order to assist you right from the start we just don’t give you the Questionnaire and send you on your way, but you will meet with one of our bankruptcy paralegals before you leave our office, and she will review the Questionnaire with you to eliminate many of the questions that do not apply to you and assist you on how to gather the information to answer the questions so that we can properly put it into your Petition. Also, you can avoid some of the work by just giving us some of the documentation that we would be able to transfer that information into your Petition.
Additionally, in the package, you will receive a list of documents that we will need to prepare your Petition as well as documents that the Trustee will want to see as part of your filing. Finally, we will give you a form to complete so that we can request a copy of your credit report and also get you signed up for credit counseling. In 2005, Congress changed the law to require that before someone can file for bankruptcy, they have to go for credit counseling. It is nothing extraordinary and it is something that we assist you with by getting you signed up for it. You have the option of doing it either online or over the phone, whatever is easier for you. Once you complete the counseling, we get a Certificate of Completion and that Certificate is good for six months so, one of the first things you can do is take the credit counseling course.
Again, we will give you the Questionnaire that you will need to complete and give back to us, along with your signed Retainer Agreement. Once we get your Questionnaire in, we will put all of the information into a draft Petition. We will then send you the draft Petition to review. Once the Petition is in final form, you will come into the office to sign it. Immediately upon signing the Petition, we will file it electronically with the Bankruptcy Court and, the great thing about filing is that once we file the Petition, what kicks in is called the Automatic Stay. Under the Bankruptcy Code, once you file a Bankruptcy Petition, if you are being harassed by creditors, if you are being sued by creditors, if you are in a foreclosure action or the repo man is chasing you, all of those actions have to stop—that is the power of the Bankruptcy Code and the only creditors that could pursue you would be a secured creditor like a mortgage company. The Mortgage company would file what is called a Motion for Relief from the Stay. That would allow them to proceed with a foreclosure action, but the Order would state that they can only take the property back and not go against you for any deficiency.
Approximately 30 – 45 days after filing your Petition, a Creditor’s Meeting will be held. Depending upon where you live will depend on the location of the Creditor’s Meeting. For example, if you live in Charlotte County or south, the Creditor’s Meeting will be held at the Federal Courthouse in Fort Myers. If you live in North Port or Sarasota County or north, the Creditor’s Meeting will be held in Tampa. At the time of the Creditor’s Meeting you will need to show a photo I.D. and your Social Security Card. If you currently do not have your Social Security Card, you should make application to get it. That is very easy to do and we will be more than happy to assist you in giving you information on how you can go about doing your card. Again, at the start of the meeting, you will be required to show a photo I.D. and Social Security Card. You will be put under oath to tell the truth, the whole truth, and nothing but the truth. Also, keep in mind that when you sign the Bankruptcy Petition, you are also signing under penalties of perjury. So when you sign the Petition, you are certifying that everything in that Petition is true. Once you are sworn in, the Trustee will ask you questions such as: did you review the Petition before you signed it? Is everything in the Petition true? Does it contain all of your assets, liabilities, income and expenses? The Trustee will also ask you specific questions about your Petition. If there are any creditors there, they would also have the right to ask you questions, but the vast majority of time, there are no creditors there.
Assuming there are no issues raised at the Creditor’s Meeting, you will then go for a second round of credit counseling. In a Chapter 7 you will receive your Discharge approximately six months after we file depending upon how backlogged the Clerk’s office is at the time. Upon your Discharge, you are done with your creditors. You can then proceed to rebuild your credit and start on your new life.
If you were to file a Chapter 13, the procedures described above are the same. The additional issue presented in a Chapter 13 is we would need to get a Bankruptcy Plan confirmed; meaning how much are you going to pay and for how long. Depending upon what your income is, you might file a Plan anywhere from 36 to 60 months and the amount of that payment again is based upon the amount of assets that you are keeping that are non-exempt as well as your disposable income. If you have a higher disposable income, you might have to pay a little bit more than what is actually the amount of exempt assets that you are keeping. Whether or not certain income is exempt is also an issue. Those are things that we can speak about in more detail at our initial consultation, but one of the significant differences between a Chapter 7 and a Chapter 13 with regard to Discharge is that you will not receive your Discharge in your Chapter 13 until you complete your payments. Also, you will begin your payments within 30 days after you file.
The foregoing gives you a good overview of the process and procedure with regard to bankruptcy. In a Chapter 13, we will handle the Confirmation of the Plan. So whether you file a Chapter 7 or a Chapter 13, in 99% of all cases, you will only go to court once to meet with the Trustee and creditors and any additional court appearances are generally handled by us unless there would be some sort of adversary proceeding where a creditor may object to either a claim of exemption or a discharge and additional testimony is required. Again, actual additional appearances by you are extremely rare.
THE FIVE MOST FREQUENTLY ASKED BANKRUPTCY QUESTIONS
Next, what I would like to do is review the five most frequently asked questions. There are literally hundreds of questions that we are asked in our bankruptcy consultations, and you may have some that we do not touch on here. Of course, we will be more than happy to answer any additional questions at the time of our meeting.
1. The first question we are asked if someone owns a home, is can I keep my home? The answer is yes. The issue then becomes whether you can continue to make your payments because you would have to be able to continue to make your payments so you can keep your home. If you are in arrears, meaning you have not made your payments, you could still keep your home but it will require that you file a Chapter 13. In a Chapter 13, you can take the arrears that you owe and spread them out over the life of the Plan—again, anywhere from 36 to 60 months. Therefore, a Chapter 13 does allow you to keep your home and make up your arrears. If you are current on your payments, you can continue to make your payments under a Chapter 7 and keep your home.
2. The second question we are frequently asked is: can I keep my car? The answer again is yes. If you have a loan on the car, the issue becomes, are you current on your loan and can you afford the payments? If not, there are still ways to keep the car and make up the difference of the arrears in a Chapter 13. The biggest problem that we see with individuals wanting to keep their car is if they have a car that has a lot of equity in it. As we will talk about in the next segment, the exemptions that one receives in Florida, especially if you are claiming a homestead exemption are very limited, and for a car you only get to keep a $1,000.00 worth of equity in a vehicle. So if you have a car that is paid off and worth $7,000.00 and you only get a credit of $1,000.00 worth of exemptions, you have a $6,000.00 asset that would need to be addressed. More often than not, even if you qualify for a Chapter 7, you would have to buy that car back and if you have to pay back $6,000.00 in equity, you would most likely have to file a Chapter 13 and spread those payments out over 60 months for about $100.00 a month. Unfortunately, most people need their vehicle to continue to work so while someone may qualify for a Chapter 7, they may have to file a Chapter 13.
3. The third questions we are often asked is: do I have to pay a percentage of what I owe back to my creditors? The most common misconception with bankruptcy is that it does not matter how much you owe with regard to what you have to pay back. The issue is what is the value of what you are keeping. For example, If you have $30,000.00 worth of credit card debt and $10,000.00 worth of medical bills and are $50,000.00 upside down on your mortgage, but you only have $10,000.00 worth of non-exempt assets, you will only have to pay back $10,000.00. It does not matter what you owe, it is what you are keeping and/or what your disposable income is and again, your disposable income is what is left over at the end of the month after deduction of allowable expenses. These two items determine what, if anything, you must pay back to your creditors.
4. The fourth question we often get is: Will I lose everything? The answer is no. What I will talk about here in a little bit more detail is the property that you get to exempt or keep. The best exemption we have here in Florida is the homestead exemption. It exempts your home and any equity that you have in it. However, if you are claiming the homestead exemption, your other exemptions are very limited. You get a $1,000.00 towards personal property and personal property is basically everything that is not real estate. So your clothes, furniture, jewelry, cash, stock and bonds, interest in a business, boats, golf clubs, fishing poles, cd’s, are the types of things that fall under the $1,000 personal property exemption. You also get a $1,000.00 exemption toward equity in a vehicle. That is it. About $2,000.00 when you are keeping your home. If you are a couple, that would go up to $4,000.00 ($2,000.00 each). If you are not keeping your home, well then you get an additional exemption of $4,000.00 toward personal property and that also can be used toward exempting some of the equity you may have in a vehicle. So if you are a couple and you are not claiming a homestead exemption, you basically get to keep $12,000.00 worth of your personal belongings and assets. Other exemptions include a 401-K or an IRA, worker compensation benefits, are exempt generally and there may be some other unique exemptions depending upon what your situation is and the type of asset.
Now, one thing to also keep in mind especially here in Florida where we have a number of people who have relocated, the generally rule under the Bankruptcy Code is that you may only claim the Florida exemptions if you have lived in Florida for two years. If you have lived here for less than two years, then you have to claim the exemptions from the state where you came from unless that state does not allow their exemptions to be applied to non-residents. In that case, you then have to use the Federal exemptions. It gets quite complicated and is beyond the scope of this Chapter but I did want to mention it to you since there are a number of new residents here in Florida who may not qualify for Florida exemptions.
5. Finally, the fifth most often asked questions we receive is: will someone come to my home and search my house? The answer is that in a small percentage of cases, the Trustee may hire an appraiser to come and appraise your personal property. One way to avoid that is to have your own appraisal done prior to filing. Again, the burden is on you as the debtor to prove the value of your assets. If you do prove the value by providing the Trustee with an appraisal done by a licensed and recognized appraiser, whether it is for your personal property or your vehicle, generally the Trustee will accept that appraisal and allow you to use the value that you have placed on your bankruptcy schedules. The advantage of having appraisals done prior to filing is that it takes the uncertainty out of the valuation process and reduces the stress of filing and the creditor’s meeting.
These are the top five most frequently asked questions that we receive. Again, there are many more, you can find some additional ones on our website and we will of course, be happy to answer all of your questions if you choose to meet with us.