What does it cost to file for bankruptcy?
As of this writing, debtors must pay a filing fee of $245, an administrative fee of $39, and a trustee surcharge fee of $15 for a total of $299 in fees. Debtors will pay this in addition to the fees they will pay their attorney. Failure to pay the required fees can result in dismissal of the bankruptcy petition. However, there is a form for debtors who wish to seek a waiver of the fee because of extreme financial hardship. The form is available at uscourts.gov/rules/BK_Forms_1207/B_003B_1207f.pdf.
What is a bankruptcy trustee?
A bankruptcy trustee is someone appointed by the Office of the United States Trustee (a branch of the Department of Justice) who makes sure that unsecured creditors are paid and ensures compliance with bankruptcy laws. Often bankruptcy trustees are local attorneys or others well versed in the bankruptcy process.
What is the means test?
The "means test"—a requirement of the 2005 Bankruptcy Abuse Prevention Act— requires that a debtor show whether he or she has sufficient means to avoid bankruptcy. This test compares a consumer's debts with their income to determine if they have sufficient means to avoid Chapter 7 bankruptcy. The consumer provides his or her current monthly income as compared with their regular debts.
Congress adopted this requirement in the law to prevent abusive filings by those seeking Chapter 7 discharges when they really could pay their creditors. Sometimes the application of the means test results in individuals having to file Chapter 13 instead of Chapter 7, which means they have to pay a greater portion of their debts back to creditors. The form for the means test is available at uscourts.gov/rules/BK_Forms_08_Official/B_022A_1208.pdf.
What are exempt assets?
Remember that in bankruptcy a consumer must list all of his or her assets. Fortunately, some of these assets are exempt from the process, meaning that the consumer gets to keep those assets and not fear that they will fall into the hands of creditors. Some of these exempt assets include: $20,200 in the consumer's home, jewelry with a value up to $1,325, $2,025 in books or tools of a consumer's trade, up to nearly $10,000 in household appliances and items, though there is a maximum of $585 per item, and money in an Individual Retirement Account (IRA). For a full listing of exempt assets, see 11 U.S.C. § 522.
Exempt assets mean that unsecured creditors cannot touch them. However, secured creditors who have a security interest may still be able to recover.
Declaring bankruptcy should be a step taken only if one is completely without other options, and not just a convenient method to avoid paying back creditors (iStock).
LegalSpeak: Text of the "341 Meeting" Provision in the Bankruptcy Code—11 U.S.C. § 341.
Meetings of creditors and equity security holders:
(a) Within a reasonable time after the order for relief in a case under this title, the United States trustee shall convene and preside at a meeting of creditors.
(b) The United States trustee may convene a meeting of any equity security holders.
(c) The court may not preside at, and may not attend, any meeting under this section including any final meeting of creditors. Notwithstanding any local court rule, provision of a State constitution, any otherwise applicable nonbankruptcy law, or any other requirement that representation at the meeting of creditors under subsection (a) be by an attorney, a creditor holding a consumer debt or any representative of the creditor (which may include an entity or an employee of an entity and may be a representative for more than 1 creditor) shall be permitted to appear at and participate in the meeting of creditors in a case under chapter 7 or 13, either alone or in conjunction with an attorney for the creditor. Nothing in this subsection shall be construed to require any creditor to be represented by an attorney at any meeting of creditors.
(d) Prior to the conclusion of the meeting of creditors or equity security holders, the trustee shall orally examine the debtor to ensure that the debtor in a case under chapter 7 of this title is aware of.
(1) the potential consequences of seeking a discharge in bankruptcy, including the effects on credit history;
(2) the debtor's ability to file a petition under a different chapter of this
(3) the effect of receiving a discharge of debts under this title; and
(4) the effect of reaffirming a debt, including the debtor's knowledge of the provisions of section 524(d) of this title.
(e) Notwithstanding subsections (a) and (b), the court, on the request of a party in interest and after notice and a hearing, for cause may order that the United States trustee not convene a meeting of creditors or equity security holders if the debtor has filed a plan as to which the debtor solicited acceptances prior to the commencement of the case."
Are there exemptions under state laws?
Yes, while most of bankruptcy law is federal, there are state-law aspects to bankruptcy as well. An example is that some states have specific exemptions that might provide greater protection for consumers. For example, some states have greater homestead exemptions than the $20,200 provided for under federal law. Florida and several other states have no limit on homestead exemptions, meaning that consumers in those states get to keep their homes free and clear.
Are all debts dischargeable under Chapter 7?
No, not all debts are dischargeable under Chapter 7 bankruptcy. Some of these that are usually nondischargeable are child support and alimony, most student loans, back taxes, debts for personal injuries, and court-imposed fines.
What is a no-asset case?
A no-asset case is one in which all of the debtor's property is exempt and there is nothing for the trustee to sell off and pay the creditors. Many Chapter 7 bankruptcy cases are no-asset cases.
Is there a way to keep certain property by working out a deal with creditors?
Consumers filing bankruptcy do have the option of seeking to reaffirm debts. Under the reaffirmation process, a consumer-debtor promises to pay the creditor a certain amount in exchange for keeping the property. If the debtor adheres to his or her promises, he or she gets to keep the property. Federal bankruptcy law requires creditors to post the following statements on a reaffirmation agreement:
• "Reaffirming a debt is a serious financial decision. The law requires you to take certain steps to make sure the decision is in your best interest. If these steps are not completed, the reaffirmation agreement is not effective, even though you have signed it."
• "You may rescind (cancel) your reaffirmation agreement at any time before the bankruptcy court enters a discharge order, or before the expiration of the 60-day period that begins on the date your reaffirmation is filed with the court, whichever occurs later."
What is a 341 meeting?
A "341 meeting" is an initial meeting of creditors so-called because it is required under Section 341 of the Bankruptcy Code in a Chapter 7 case (see LegalSpeak, p. 209). The consumer-debtor also must attend the meeting. The bankruptcy trustee presides over the meeting and asks various questions of the consumer-debtor under oath regarding his financial affairs. Often creditors do not show up at these meetings.
Filing with bankruptcy begins with deciding between Chapter 13 and 7 based on your eligibility, finding an attorney, completing the paperwork, and working patiently with the court. This can be a long and complicated process (iStock).