BANKRUPTCY

 WHAT IS CHAPTER 7 BANKRUPTCY?

Chapter 7 Bankruptcy is the most common type of consumer bankruptcy.  This type of bankruptcy filing, if you are eligible, enables you to receive what is known as a Discharge Order from the United States Bankruptcy Court.  The Discharge Order is what erases your personal liability to pay unsecured creditors. 

HOW IS MY DEBT WIPED OUT?

If you choose to walk away from a mortgage, auto, furniture, or other secured loan, your liability will also be discharged.  The debt that is discharged in a bankruptcy is a tax-free transaction. 

In the case of unsecured creditors, these types of debts are simply erased by the U.S. Bankruptcy Court's Discharge Order, issued about 90 days after the date your case is filed.  

In the case of secured creditors, the lender will be able to repossess the collateral or foreclose on real estate regardless of your bankruptcy filing  if you choose not to Reaffirm these types of debts.  Reaffirming a secured debt involves your signing a separate agreement with the lender that generally will incorporate the original loan terms and condition (with credit given for all payments made prior to the bankruptcy).  

If you choose to surrender  the collateral for a secured loan, your personal liability on the underlying promissory note is discharged. The creditor can get the "stuff" back, but you will not be liable to pay anything once you receive your Discharge Order.   

For these reasons,  bankruptcy is commonly referred to as a Fresh Start legal proceeding. You will truly be financially "born again" through this process once you receive a discharge order.  

WILL MY CREDIT SCORE BE RUINED? 

The greatest myth surrounding Chapter 7 Bankruptcy is that your "credit score" will be ruined for years to come.  Your credit score is calculated with an algorithm run by a software application patented by FAIR ISAAC Corporation.  High balances, past-due payments and multiple credit applications, among other factors, are assigned certain numerical values that are deducted from the maximum score.  When you receive a bankruptcy discharge (90 days after the date of filing of a Chapter 7 case), all of the debt balances become zeros across the board.  Late payment history is erased.  This occurrence alone will drastically increase your credit score after a bankruptcy discharge.  In other words, the discharge causes less points to be deducted from the maximum score.  The bankruptcy filing will be listed under a separate "Legal Proceedings" section, but will be assigned only a minimal number of points.     This is why you will be bombarded with new credit and auto loan applications within a week of your filing a Chapter 7 Bankruptcy Case.   

WHAT ABOUT DEBT SETTLEMENT AND CREDIT COUNSELING?

Of course, bankruptcy is not always the best option.  If you have minimal debts, you may be able to reach settlements with the credit card or medical creditors directly.   As a rule of thumb, you should  seek advice from a bankruptcy attorney if your debt levels for consumer unsecured debt (credit cards, medical bills) are more than 15% of your annual net income.   You should also seek the advice of a bankruptcy attorney if you are being sued for non-payment of any consumer  debts, a deficiency claim after an auto repossession, or when creditor harassment has reached an intolerable level. Most bankruptcy attorney, including me, will provide basic credit counseling to a prospective client and discuss alternative options if bankruptcy is not the best available option. 

You should always consult with a bankruptcy attorney PRIOR to contacting a "debt settlement" firm.   Please note that a bankruptcy filing Stops all collection actions, collection calls, lawsuits, garnishments, and the creditor's ability to increase your balance(s). In most instances, a Chapter 13 bankruptcy filing is a better option than the Debt Settlement "plans" you see and hear on TV and radio. A Chapter 13 locks in all creditors under a payment plan (zero interest to unsecured creditors along with an unforgiving claims period which works to your advantage).   Keep in mind that these companies get paid a commission by the credit card companies for collecting for them!  Again, proceed with caution when looking into that type of option.  

AM I ELIGIBLE TO FILE A CHAPTER 7 BANKRUPTCY?

In October, 2005, major legislation was put into effect which changed many of the traditional aspects of consumer bankruptcy cases.  One of the most important changes is what is known as the "Means Test" for eligibility.   Within your bankruptcy schedules, a form known as the "22(A)"  must be completed.  This form is similar to an income tax return within your bankruptcy schedules.  Your gross income from employment wages and/or self employment must be documented and added for the 180 day period prior to your case filing.  A monthly figure is calculated based on this income and is then compared to the current IRS median income for this region.  If that income figure is under the median income, you automatically pass the means test and can proceed with the workup of your case (other issues may give rise to  filing under Chapter 13, such as too many non-exempt assets).  If you are over the median income, there are multiple sections of the Form 22(A) that you should have your attorney complete.  Many Debtors who are over the median income are still eligible for Chapter 7 bankruptcy once all of the applicable deductions are plugged into the analysis.  A competent attorney in this area is a must to ensure that all deductions are properly identified and applied in your matter. 

In addition to the foregoing, you currently must wait eight (8) years from the DATE OF FILING of a previous Chapter 7 Case (where you received a Discharge Order)  to file a subsequent Chapter 7 Case.  You may still have the option of proceeding under Chapter 13, which is discussed in another section of the web site.  

CAN I JUST FILE THE CASE MYSELF? 

One of the most important reasons you should consult with a competent and experienced bankruptcy attorney is that in a Chapter 7 Bankruptcy Case you are effectively causing a liquidation of your non-exempt assets.  It is your attorney's responsibility to identify all of the available exemptions for your property so that you know exactly what you can keep and what specific property (if any) you would lose.   A recommendation to file a Chapter 7 case at this office will never be made until a thorough investigation is completed as to the extent and identity of all of your personal assets.  

Personal assets such as basic household goods, wedding rings, clothing, most retirement and pension accounts, vehicles with existing loans or little equity, real estate with existing mortgages and/or limited equity are not taken from you in a Chapter 7 bankruptcy case.  It is very important, however, to consult with an experienced bankruptcy attorney who can properly value and schedule these assets so that they are not attached.

There are a myriad of procedural rules that must be complied with in a Chapter 7 Bankruptcy Case.  Failure to comply with these rules can lead to the issuance of Bankruptcy Court sanctions, contempt citation(s), and/or dismissal of your case, possibly with a time bar to refiling for 180 days (depending on how bad you screw it up).  It is therefore highly recommended that you retain a competent, experienced bankruptcy attorney to handle your case.  

WHO IS THE "TRUSTEE?"  

In every Chapter 7 bankruptcy matter there is an attorney assigned to represent your unsecured creditors.  This individual is known as the U.S. Panel Trustee.   In the Northern District of Ohio, the Panel Trustees are:  Marvin Sicherman, Alan J. Treinish, Richard Baumgart, Brian Bash, Virgil Brown, Sheldon Stein, Mary Ann Rabin, Lauren Helbling, Waldemar Wojcik, Steven Davis and David Simon.  Upon the filing of your Chapter 7 Case, the Office of the United States Trustee ( A Division of the United States Department of Justice) will assign one of these  Panel Trustees (if you reside in Lorain, Cuyahoga or Lake County) to your case. 

 The role of the Panel Trustee is to investigate in your matter for the purpose of locating non-exempt or fraudulently-transferred assets.  If assets are recovered by the Panel Trustee, your case is administered in a manner similar to a Probate Court Proceeding.  The Panel Trustee, like a Probate Attorney, must file accounts with the Court and may not disburse any funds without an Order from the Bankruptcy Court.  The Panel Trustee reports to the United States Department of Justice, through the Office of the United States Trustee.  The Federal Bureau of Investigation has primary jurisdiction to investigate bankruptcy crimes (such as fraud, theft, etc.).  

WHAT IS THE FIRST MEETING OF CREDITORS?

The First Meeting of Creditors is a simple meeting with the Panel Trustee assigned to your case. You will be sworn in and asked a series of questions concerning your bankruptcy petition.  Expect the Cleveland Trustees to be prepared and knowledgeable about your matter.   All of the preparation you will do in the work up of your case will prepare you for this interview.  I will be right there with you.  For purposes of this meeting, however, you will be swinging the proverbial clubs and I will be your caddy.  In other words, since you are the party in the case, only you can testify and provide the necessary factual information to the Panel Trustee.  It is my job to provide the necessary documents to the Trustee in advance of this meeting and have sufficient documents there with us in order to clarify any of your answers where needed.  I tell my clients the only thing you need to worry about with respect to the Meeting of Creditors is to simply be on time and bring your ID (Drivers' License and Social Security Card).  If you really have a hard time with this, feel free to call my office and schedule a time I can call you and give you a run through prior to the meeting.   You will see as you are sitting in the waiting room that an unfortunate number of Debtors are meeting their attorney for the first time.   

WHAT SHOULD I LOOK FOR IN A BANKRUPTCY ATTORNEY

The choice you make for your legal counsel is of the utmost importance.  A large number of my clients contact me after having consulted with larger bankruptcy firms.  Larger bankruptcy law firms are generally more expensive (on average, $300.00 more per case than fees I commonly charge).  More importantly, with a larger bankruptcy firm it is likely that you will be dealing with multiple tiers of non-lawyers and lawyers through the process.  This begs the question as to whether the attorney who appears in court with you will really know your file.  Sometimes the best legal representation occurs in counseling on the details of a case.  If an attorney has 10 minutes to review your file with you (before you enter the 341 exam!), are you being "represented" or herded through the process?  You should consider this issue when choosing your attorney.  I handle all of my cases directly, from start to finish.  I have significant involvement in your case from the first phone call, our initial office consultation, follow up phone conferences with you, the drafting of your bankruptcy petition and schedules, and at your appearance in the U.S. Bankruptcy Court for the First Meeting of Creditors.   My goal is to make your life easier, you have enough to worry about.