Frequently Asked Questions About the New Bankruptcy Laws
( DISCLAIMER: THE ANSWERS TO THE BELOW QUESTIONS ARE NOT INTENDED AS LEGAL ADVICE AND ONLY INTENDED TO GIVE GENERAL INFORMATION TO THE PUBLIC. WHETHER OR NOT THE ANSWERS BELOW APPLY TO ANY DEBTOR DEPENDS UPON THE SPECIFIC FACTS OF THEIR SITUATION, THE JURISDICTION IN WHICH THE BANKRUPTCY IS FILED AND MAY BE AFFECTED BY THE RAPIDLY CHANGING NATURE AND INTERPRETATION OF THE LAW. THE ANSWERS ASSUME THAT THE BANKRUPTCY WILL BE FILED IN VIRGINIA. NO DEBTOR OR OTHER PERSON CAN RELY ON THESE ANSWERS BUT SHOULD DISCUSS IN DETAIL THEIR SPECIFIC SITUATION WITH A QUALIFIED AND EXPERIENCED BANKRUPTCY LAWYER TO DETERMINE HOW BANKRUPTCY MAY APPLY TO THEM. IN NO EVENT WILL THE AUTHORS OR PUBLISHER OF THESE ANSWERS BE LIABLE FOR ANY DIRECT, INDIRECT OR CONSEQUENTIAL DAMAGES RESULTING FROM THE USE OF THESE MATERIALS.)
Where are your offices? Who do you represent ? How can I contact you to schedule an appointment?
A. Lorin D. Hay P.C. has an office located in Virginia Beach near Pembroke Mall. The majority of our clients reside in Virginia Beach, Chesapeake, Norfolk, Portsmouth, Suffolk, and on the Eastern Shore. See above for the address and telephone number of our office.
Do you have appointments on Saturdays?
Can my creditors refuse to permit me to file Bankruptcy?
A. Any creditor can attempt to challenge the dischargeability of all or part of the debt owed to them after you file a Bankruptcy if the debt was obtained through malice, fraudulently or dishonestly, or if there was “loading up.;”(that is if significant debt was incurred shortly before filing the Bankruptcy, particularly if the debtor knew or should have known he had no ability to repay it or had no intention of repaying the debt) and for certain other debts. Also, purchasing expensive luxury goods or taking large cash advances shortly before filing the Bankruptcy may raise a presumption that the debt is not dischargeable..
Such Complaints to determine dischargeability are relatively rare and most often occur when there has been large usage of credit within a few months of filing, particularly if no or very few payments were made after large debt was incurred. Usually, if such a challenge is made, only the discharge of the debt owed to that particular creditor is in doubt, not your right to a discharge of other debts, and the Court will rule whether or not the debt will be discharged after evidence is presented.
Even more rarely, a Complaint to deny any discharge is filed by a creditor or by the Trustee. Usually, this occurs when a debtor has done something outrageous or manifestly unfair or dishonest prior to filing Bankruptcy (such as transferring or hiding assets or repeatedly refiling Bankruptcies to the point that the Court might conclude “bad faith” on the part of the debtor in filing the Bankruptcy). Failure to make full and accurate disclosure, or lying in the Bankruptcy paperwork (this also may be grounds for criminal prosecution for perjury or Bankruptcy fraud) or failing to cooperate with the Bankruptcy Trustee also might be grounds for a “bad faith” Complaint requesting the Court to deny a discharge.
Fortunately, it is rare for these issues to arise. As long as you are an honest debtor who has not “loaded up” on credit recently and do your best to make truthful, complete and accurate disclosures in your Bankruptcy paperwork, it is not likely that this will be a problem for you. If you think you may have a problem in this area, be certain to be completely candid with your lawyer. Solutions may exist but your lawyer cannot even attempt to find them if you fail to disclose to him fully all the facts and circumstances which may be a problem.
Are all debts discharged by a Bankruptcy?
A. No, but many if not most honest debts are discharged unless the Court specifically rules otherwise.
Examples of debts that are usually discharged by Bankruptcy include credit cards, medical debt, unsecured loans, secured loans if you surrender the property on which the creditor has a lien or security interest and do not sign a reaffirmation agreement, some taxes, deficiency claims if your vehicle or other personal property was repossessed, claims for rent by old landlords, personal injury and property claims resulting from an accident. (but note that personal injury claims are not discharged if it is shown that alcohol or drug use was involved in causing the injury) and many other debts.
Examples of debts that are not discharged by a Bankruptcy include domestic support obligations, most taxes, student loans unless “undue hardship” is proven, personal injuries caused by the debtor as a result of the debtor driving under the influence of alcohol or drugs, debts in which you sign a reaffirmation agreement after the Bankruptcy is filed unless you rescind the reaffirmation agreement within 60 days, and certain other debts. Additionally, creditors may file a Complaint to determine dischargeability of debt incurred dishonestly, by fraud or by a false financial statement in writing or if significant credit was used recently or when the debtor knew or should have known they could not repay the debt (see below for a discussion of this issue), claims that arise through malice of the debtor and certain other debts.
You should discuss in detail with a qualified and experienced Bankruptcy lawyer which, if any, of your debts will not be discharged or which may be subject to a challenge.
A judgment lien was recorded against my real estate. Will Bankruptcy remove this lien?
A. Not automatically. Although Bankruptcy discharges your personal liability on dischargeable debts even if a judgment has been taken against you, it does not automatically remove judgment liens. In some cases a judgment lien can be avoided if it impairs an exemption. This depends on the amount of equity you have in the real estate and the exemptions that are available to protect the equity.
Since in Virginia judgments only become liens on real estate if recorded in the Clerk’s Office of the Circuit Court of the jurisdiction in which the real estate is located, it is essential that anyone filing a Bankruptcy determine if the judgment lien has been appropriately recorded to create a lien on their real estate. Otherwise, debtors may find that they must pay the lien when they sell or refinance the real estate even though the debt was listed in the Bankruptcy. This sometimes occurs years after they have received a discharge.
Whether or not their is a judgment lien on you real estate and whether it can be avoided may affect whether you should file a chapter 7 or a Chapter 13. Be certain to discuss this issue when consulting with your Bankruptcy lawyer.
Will Bankruptcy affect the credit of a co-debtor?
A. It may. Typically creditors report a debt is in Bankruptcy on the credit report of each person who is liable on the debt, even if that person was not the one who filed in Bankruptcy.
Will Bankruptcy affect my credit?
A. Bankruptcy does go on your credit report if reported (usually by creditors) and may remain on the report for up to ten years. Certainly, it is considered a negative item by most creditors. Many debtors, however, find that they are able to substantially restore their credit within a couple of years (sometimes sooner), even buying real estate and vehicles. Particularly if your credit is already bad, over time Bankruptcy may actually help you to obtain new credit if you need it.
When I value my personal property for the Bankruptcy, do I use garage sale value?
A. Not anymore. Under the prior law yard or garage sale value was often used for household items, however under the new law the standard is “replacement value,” that is what it would cost to purchase an identical item of the same age and condition. When you first consult with us we will give you detailed written instructions on how you may estimate the replacement value of your assets.
Do I have to list all my assets and property?
A. Yes. Failure to list all your assets not only will have serious repercussions in your Bankruptcy, which may even include dismissal of your Bankruptcy or denial of a discharge, but also could result in criminal prosecution for perjury and/or Bankruptcy fraud if a Court concluded that you intentionally or improperly failed to fully disclose your assets.
What if I want to leave a creditor out of the Bankruptcy?
A. All creditors must be listed in your Bankruptcy. Failure to list them all could be considered perjury or even Bankruptcy fraud if done on purpose. Additionally, under the new laws, a debt that is left off the Bankruptcy even by mistake may not be discharged by the Bankruptcy. Take care to ensure all debts you owe are listed, even if you dispute it (we can always mark it disputed in the Bankruptcy schedules) and even if there is a co-debtor or you are merely the co-debtor on the debt.
Should I obtain a copy of my credit report?
A Yes. This is essential. Under recent federal law changes, you are entitled to a free credit report annually from each of the credit reporting agencies. In many cases you can obtain the report online.
However, do not rely on credit reports alone. Some debts that you owe may not have been reported but still must be listed in your Bankruptcy.
When should I do the counseling? How long does it take?
A. We advise debtors not to do the Bankruptcy counseling until after they have consulted a Bankruptcy lawyer and have determined that Bankruptcy is the preferred solution to their problems. If you do counseling and wait too long before filing, you may have to do the counseling again. Also, understanding and collecting the information that will be required, which is similar to the information required for certain parts of your Bankruptcy schedules, likely will make the process easier.
Most of our clients indicate that the counseling takes 30-45 minutes if they have prepared for it by filling out the Bankruptcy worksheets we give them.
Is there a charge for the counseling?
A. Yes, usually the approved counselors charge around $50. If you have a low income you can request waiver of this fee.
Can I choose the counselor?
A. The counselor must be from a list approved by the Bankruptcy Trustee’s office. At the time of your initial visit with us we give you a listing of at least four approved counselors. Usually the counseling can be accomplished on the telephone (on a toll free number) and the counselor will often agree fax a copy of the certificate to your attorney if you request them to do so.
Counseling seems like a hassle. Isn’t that what I am paying my lawyer for?
A. Yes, however, Congress has imposed the independent counseling requirement and your Bankruptcy almost certainly would be dismissed unless a certificate of such counseling is filed with your Bankruptcy.
In practice , the requirement of counseling has not been a significant problem for our clients. It is merely a relatively simple “ticket in” to be able to file.
How have the procedures changed under the new laws?
A. The good news is that their still is Chapter 7 and Chapter 13 under the new laws, although some details of each have been changed.
The bad news is that the procedures have been made somewhat more complex both for the debtor and for their lawyer. The need to document disclosures will probably require more time and effort by debtors.
One area of which some clients have had some difficulty is obtaining “pay advices” (pay stubs or statements from employers) of gross income for the past 6 calender months prior to filing the Bankruptcy for the means test. Also, it is essential that all creditors be listed with good addresses to ensure they are discharged. Keep all bills and letters from your creditors. If the Creditor twice tells you in writing to use a particular address within 90 days of filing, we must use that as an address (it is fine, even preferable, to use all addresses you have for each creditor). Additionally, with rare exceptions, you are required to do counseling prior to filing and you will be required to take an instructional course on financial management during the Bankruptcy in order to receive a discharge.
Hiring a lawyer is too expensive. Can I represent myself in a Bankruptcy?
A. Yes, but unless you are an expert in Bankruptcy law, to do so would be exceedingly unwise and risky. Even under the old laws, debtors attempting to represent themselves (” pro se”) or using Bankruptcy preparers who are not permitted or qualified to give legal advice often ran into serious difficulties, sometimes subjecting their home, vehicles or other property to liquidation when it could have been protected or having their Bankruptcies needlessly dismissed. Under the additional requirements of the new laws, the likelihood of a satisfactory outcome for a pro se filing is even more remote. The old legal axiom that a person who represents themselves has a fool for a client seems particularly apt for Bankruptcy filings. Unfortunately, if you file pro se and your bankruptcy is dismissed or otherwise affected because of mistakes made in the filing, it may be too late to hire a lawyer to correct the problem. Certainly, it would be expensive even assuming a solution to the problem is possible.
Having an experienced Bankruptcy lawyer who is familiar with the requirements of the new laws is extremely important.
If you decide to retain Lorin D. Hay P.C., not only will you be represented by an experienced Bankruptcy lawyer, but we will allow you to pay the fees in a payment plan You will not be required to pay the entire fee before the Bankruptcy is filed. We will discuss with you the details of the payment plan during the free initial consultation. You are under no obligation whatever to retain us.
I recently had a Chapter 13 dismissed. Can I refile?
A. In many cases you can refile unless the Bankruptcy Court specifically restricted the right to refile.
However, the new Bankruptcy laws may limit the kind of protection you receive if you refile within one year of the dismissal. Specifically, if you have had one Bankruptcy pending within the past year, the “automatic stay” may only last for 30 days after the Bankruptcy is filed absent an order of the Bankruptcy Court after a hearing that extends the protection. If you have had more than one Bankruptcy pending within the past year, there probably is no automatic stay created when the latest Bankruptcy is filed unless the Bankruptcy Court imposes it after a hearing. Since hearings requesting the Bankruptcy Court to extend or create the automatic stay must be held within 30 days of the date your latest Bankruptcy is filed and will only be granted if you meet certain criteria, it is crucial that you have an experienced Bankruptcy lawyer to represent you. This is extremely important when you have had a Bankruptcy pending within the past year since failure to have a Court hearing within 30 days after the Bankruptcy is filed may allow foreclosures, repossessions and garnishments to continue or be reinstated even while you are in Bankruptcy.
Will a Bankruptcy stop garnishments of wages and bank accounts?
A. Generally speaking, the filing of a Bankruptcy creates an “automatic stay” which directs most creditors to promptly stop certain collection efforts at least temporarily, which may include law suits, garnishment of wages and bank accounts, harassing calls, repossessions and foreclosures. In some cases garnished wages withheld from pay but not yet paid to the creditor may be returned to you and bank accounts that have been frozen because of a garnishment are released if you file the bankruptcy in time. Note, however, that if your Bank has frozen an account because of a debt owed to them, this is a “set off” and you may not receive back the funds they have frozen. Indeed, you probably need to change banks to one to which you do not owe money.
Also note that the new Bankruptcy laws may limit the protection of the automatic stay for debtors who have had one or more Bankruptcies pending in the one year period prior to filing of a new Bankruptcy. If you have had a prior Bankruptcy, it is essential that you discuss this with an experienced Bankruptcy lawyer (see discussion in the next answer for additional details).
Are student loans discharged by a Bankruptcy?
A. Usually, they are not discharged. In theory, an exception to this exists if, after a hearing, the Court rules that repaying the student loan would impose an “undue hardship” on the debtor or debtor’s family; however, Courts in this and most jurisdictions have interpreted the undue hardship exception very strictly since presumably everyone who in good faith files a Bankruptcy has hardship. It is rare that a debtor can meet the requirements for undue hardship. If you believe you may meet the undue hardship exception, be sure to discuss the issue with an experienced Bankruptcy lawyer who will advise you of the requirements and procedures. Note that even if the student loan will not be discharged by the Bankruptcy, it must be listed in your Bankruptcy schedules. All debts must be listed.
Are income taxes dischargeable in Bankruptcy?
A. The general rule is that income taxes are not dischargeable in a Chapter 7; however, older taxes (that is taxes in which the tax return was due at least three years prior to filing the Bankruptcy, including extensions) in many cases may be discharged if the tax return was filed at least two years prior to filing the Bankruptcy. If the return was not filed, the tax will not be discharged (and your Bankruptcy may be dismissed).
In a Chapter 13, “priority” income taxes (generally speaking, income taxes that would not be discharged by a Chapter 7) must be scheduled to be paid in full by the Chapter 13 Trustee from your Chapter 13 Plan payments.
These are complicated issues for which you will need to consult with a Bankruptcy lawyer to determine the likelihood a tax may be discharged. It may affect which type of Bankruptcy you decide to file.
Note that the Bankruptcy Courts generally require you to have filed all of your tax returns even if you were unable to pay the tax you owe. Under the new laws, failure to have filed tax returns for any of the past four years will almost certainly result in dismissal of your Bankruptcy unless by law you were not required to file a tax return for that year. To successfully file a Bankruptcy, you should file all tax returns law required you to file, even for tax years past and even if you are unable to pay the tax.
How many payments will I make in a Chapter 13? When and how do I pay it?
A. Generally speaking, all Chapter 13 Plans must include at least 36 monthly payments. Depending upon your income, debt and ability to pay, some Plans may require as many as 60 monthly payments.
The first payment is due 30 days after your Bankruptcy is filed. You must mail this first payment to the Chapter 13 Trustee so that it is received by the Trustee on or before the due date. The Chapter 13 Trustee will certify your case for an automatic dismissal of the Bankruptcy if the first payment is not received by the Chapter 13 trustee on or before the due date. After the first payment, you mail payments to the Trustee until the payment is withheld from your wages. The wage withholding is arranged by the Trustee and the Bankruptcy Court as part of the confirmation process but you can expect to send at least the first two or three monthly payments to the Trustee yourself. In unusual cases, the Trustee may agree to allow you to make all of the payments directly without a wage withholding but this is unusual. (e.g. if you are self employed or your only source of income is Social Security).
If I file a Chapter 13, how much will I have to pay to the Trustee?
A. The monthly Chapter 13 payment cannot be determined without a thorough analysis of your financial situation. Generally speaking, the monthly payment is based on your “disposable income;” that is upon your ability to pay after you pay reasonable and necessary living expenses for yourself and your dependents.
Because there are other factors which must be considered in determining the monthly payment, how much you must pay and how long your payments will continue, it is important that you consult with an experienced Bankruptcy lawyer in preparing a Chapter 13 plan that is feasible and that will be accepted by the Court.
Why would anyone want to file a Chapter 13 instead of a Chapter 7?
A. Traditionally, the most common reasons for filing a Chapter 13, instead of a Chapter 7 are:
- to stop a home foreclosure;
- to stop a car repossession; or because under the new law it may be uncertain whether or not the lien holder will agree to a reaffirmation;
- to prevent liquidation of non-exempt assets in a Chapter 7 (often because a debtor has significant equity in their home or other real estate);
- to pay nondischargeable taxes and prevent future tax liens on assets or income;
- income exceeds actual and reasonable living expenses which would make it unfair to creditors to allow them to file a Chapter 7 when they have the ability to file a Chapter 13 in which their creditors would at least be paid some portion of the debt owed;
- because a recent Chapter 7 prevents the filing of a new Chapter 7.
Additionally, under the new laws, some debtors may be required to file a Chapter 13 instead of a Chapter 7 because of the means test (see discussion above).
An experienced Bankruptcy lawyer will help you to decide which Bankruptcy is most beneficial to you.
Do I have to appear in Court?
A. Everyone who files a Chapter 7 or a Chapter 13 must attend a hearing called a Section 341 hearing or “meeting of creditors” approximately a month or so after your Bankruptcy is filed. This hearing is conducted by your Trustee, not a Bankruptcy Judge, and typically is very brief. Indeed, in many if not most cases no creditors actually attend it and you will answer brief questions from the Trustee related to the Bankruptcy schedules you have filed and your financial situation. As many as fifteen to twenty or more such hearings may be scheduled for a one hour docket.
Most debtors filing Chapter 7 or Chapter 13 are not required to attend a hearing before the Bankruptcy Judge unless a contested matter arises.
What is a Reaffirmation Agreement? Should I sign one?
A. In a Chapter 7, Reaffirmation Agreements are legally enforceable agreements (contracts) in which you agree to pay a debt that may otherwise be discharged by the Bankruptcy. Proposed reaffirmation agreements may be mailed by a creditor to your Bankruptcy attorney after your Bankruptcy is filed. If signed by you and the creditor and filed with and approved by the Bankruptcy Court in time, it makes you liable to pay the debt reaffirmed; i.e the Bankruptcy does not discharge the debt unless you rescind the agreement within a short period established by the Bankruptcy laws.
The most common reason debtors sign Reaffirmation Agreements is to be able to keep secured property such as a vehicle or furniture on which there is a security interest or lien. Under the new law, you probably must sign a reaffirmation agreement in order to be allowed to keep the secured property. If you do not sign the agreement, the property is usually surrendered to the lien holder.
It is often unwise to sign Reaffirmation Agreements. If you sign such an agreement and after Bankruptcy you are unable to pay the debt as agreed, not only can the secured creditor who has a lien on the property repossess the property, but the creditor may file a law suit against you and garnish your wages or bank accounts just as if you had never filed a Bankruptcy. Be certain that you really need the property and that you will be able to afford to make the payments on it; that is that paying the debt will not impose an undue hardship on you or your family..
Do not sign a Reaffirmation Agreement until you have fully discussed the issue with your Bankruptcy attorney.
Does this mean that I will lose my home, vehicle or other personal belongings if I file a Chapter 7 Bankruptcy?
A. Most debtors who file Chapter 7 are able to keep their assets.
Liquidation only occurs in relatively small percentage of Chapter 7’s for two reasons. First, if you have no equity in the property (you owe as much on it as it could be sold for) there really is nothing for the Trustee to liquidate for the benefit of unsecured creditors since the secured creditor must be paid first Of course, in order to keep property on which there is a lien or security interest (e.g. a mortgage, or a car or furniture on which you are making payments) you must continue to pay that creditor and under the new law for furniture and vehicles etc. you actually may be required to sign a reaffirmation agreement in which you agree to pay the debt despite Bankruptcy or you may redeem the property by paying its value to the lien creditor in order to keep the property. If you want to walk away from that debt and have it discharged by the Bankruptcy, you generally must surrender the property to the creditor who has a lien or security interest on it, usually shortly after your Bankruptcy hearing.
Additionally, there are a number of exemptions which may protect your assets form liquidation by a Chapter 7 Trustee even if there is no lien on the asset or if you have some equity in it. The new Bankruptcy laws make the selection of correct exemptions more complex if you have not resided in Virginia for the past 2 years. In such cases you may be required to use exemptions provided by the state in which you formerly resided. Be sure to inform your attorney if you moved to Virginia in the last 2 years
In the event it appears that liquidation is possible if you file a Chapter 7, you may decide to file a Chapter 13. There is no liquidation in a Chapter 13. Again, consulting with an experienced Bankruptcy lawyer regarding these issues is extremely important.
What does liquidation mean?
A. In a Chapter 7, a Trustee is appointed who conducts a brief hearing a month or so after your Bankruptcy is filed. One of the Chapter 7 Trustee’s duties is to liquidate (sell your property or obtain funds you have or are owed) non-exempt assets for the purpose of paying your creditors at least some part of the debts you owe.
Which Bankruptcy is better?
A. The purpose of both Bankruptcies is to help debtors who are having significant financial problems. Which type is better for you can only be determined after a thorough consultation with an experienced Bankruptcy lawyer.
What is the difference between Chapter 7 and Chapter 13?
A. A Chapter 7 is known as liquidation or “straight” Bankruptcy. Its purpose is to give the honest debtor who is having financial difficulties a fresh start through the discharge of certain debt.
A Chapter 13 is a personal reorganization or repayment plan in which you make monthly payments to a Trustee appointed by the Bankruptcy Court. The Trustee then pays your creditors at least a portion of what you owe. At the successful completion of a Chapter 13, whatever listed debt that has not been paid by the Trustee (with a few exceptions such as domestic support obligations, certain “long term debt” and student loans etc.), is discharged.
(Of course, in order to keep real estate you must continue to pay your mortgages).
Does the new law require me to file a Chapter 13 instead of a Chapter 7?
A. This is probably true only in a relatively small percentage of cases. It is true that the time between filing Bankruptcies (if a discharge was successfully obtained, not if the case was dismissed without a discharge) has been lengthened somewhat (e.g. under the old law it was 6 years between filing Chapter 7s; while under the new law it is now eight years. Also you must wait four years from the time a Chapter 7 was filed, if you received a discharge in that case, to file a Chapter 13 and receive a discharge).
Additionally, under the new law there is a “means test” which compares your household income for the past six calender months with the state median income. Debtors whose income exceed the State median income for their household size, after certain deductions are made, may be required to file a Chapter 13 instead of a Chapter 7.
We have found, however, that the “means test” affects only a small percentage of our clients residing in the Va Beach, Chesapeake, Norfolk, Portsmouth, Suffolk and on the Eastern Shore. The Virginia State medium income is relatively high, apparently as a result of higher average income levels in Northern Virginia which raises the state medium. For example, as of February 1st, 2012, the Virginia State medium household income for a single person without dependents is currently $50,605 and the Virginia State medium income for a household of four is $87,498. If your household income is below these levels for your household size, the “means test” would not affect your eligibility to file a Chapter 7. Even if your income is somewhat higher, certain deductions of household expenses based on government guidelines may bring your income below the state medium which may allow you to file a Chapter 7.
In order to determine your eligibility, you should consult with an experienced Bankruptcy lawyer who will discuss with you in detail these and other eligibility issues.
I have heard that because of the change in Bankruptcy laws, I can no longer file. Is this true?
A. In the vast majority of cases this is not true. Although the Bankruptcy Abuse Prevention and Consumer Protection Act (“the new laws”) became effective in October of 2005 and does change certain aspects of filing, both Chapter 7 and Chapter 13 are still available to help many debtors who are having financial problems because of consumer and other debt. Many debtors have filed a Chapter 7 or a Chapter 13 since the law changed. If you are having financial problems, you should talk to an experienced Bankruptcy lawyer who can discuss with you whether Bankruptcy may help you to solve your financial problems and will discuss eligibility issues with you. At Lorin D. Hay P.C., we offer a free consultation with no obligation whatever so that you can determine whether Bankruptcy is the right solution for you.