BANKRUPTCY, WHAT THE PETITIONER NEEDS TO KNOW

 

 I. Introduction

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II. Who May File?

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III. Should I File a Claim?

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IV. I Received a Bankruptcy Notice, Does This Mean I am Stayed?

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V. Can My Clients File on This Debt?

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VI. Can I Object to the Discharge of This Obligation? The Axis of Evil BC523(a)(2)(4) & (6)

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VII. What Is a Domestic Support Obligation?

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VIII. Miscellaneous Issues

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I. Introduction

 A. Thank you for reviewing this material. The rules requre that I meet with you at this initial consultation.

The topics discussed in this presentation were selected because they are the ones clients ask frequently call and inquire about.

 B. I have also included brief comments on provisions of the new Bankruptcy Law (BAPCPA). questions because it is a new law.

 II. Who May File?

A. You can probably file. There are a few exceptions.

CHAPTER 7- A person who has been a resident of the district for the greater part of 180 days.

CHAPTER 13 -An individual with a regular income with unsecured debnt of less that $336,900 and secured debt of less that $1,010,650.00 and has been a resident of the district for the greater part of 180 days.

B. Have you received a Chapter 7 Bankruptcy Discharge within the previous eight years they cannot file Chapter 7 and receive a discharge (BC727(a)(8)).

A Chapter 13 filing is available if four years have expired since the Chapter 7 discharge, but that may not be  a good choice for  you. Often the best course of action is to wait until you can file a Chapter 7 bankruptcy.

C. You may be unable to pass the Means Test of BC 707(b). Http://www.uscourts.gov/rules/BK_Forms_08_Offical/B_022A_1208.pdf

This test is required of every debtor who ha primary consumer debts and wants to file under Chapter 7. 1.

Passing the means test is a completely new requirement implemented by BAPCPA. If your debts are mostly business related you don’t have to pass the Means Test. If your debts are primarily consumer debts you must pass.

A. IF THE DEBTOR ANNUALIZED INCOME FALLS BELOW THE ANNUAL INCOME MEDIAN THERE IS NO PRESUMPTION OF ABUSE AND THE DEBTOR WILL BE ABLE TO CONTINUE WITH A CHAPTER 7 CASE.

If income is above the annual median income further calculations must be performed to determine whether the debtor has passed the means test and qualifies for bankruptcy under Chapter 7.

Software will do this application. If after expenses the net income is less that $109.58 per month then the case is not presumptively abusive under 11 USC 707 (b)(2)(A)(iv).

It is presumptively abusive is there is a net $182.50.Special circumstances must be shown. Expenses follow local , state and national standards. See http://www.irs.gov/irm/part5/irm_05-015-001.html

 B. IF YOUR ANNUALIZED INCOME IS GREATER THAN THE ANNUALIZED ANNUAL MEDIAN INCOME YOUR EXPENSES ARE THEN CALCUALTED TO SHOW YOUR INCOME INSUFFICIENT TO PROVIDE A MEANINGFUL REPAYMENT PLAN UNDER CHAPTER 13 2. The test is based on IRS data.

The goal is to ensure that debtors are in good faith and do not have sufficient resources to pay any significant amount to their creditors. The paperwork required to complete the means test is one of the reasons that the legal fees for a relatively simple bankruptcy have risen dramatically.

3. If you make $50,000 – 60,000 a year you might have a problem. You can still file a Chapter 13 unless you have too high a level of debt. BC 109(e) ($1,000,650 for secured debt, $336,900 for unsecured).

4. Even if you pass the Means Test you must still be in good faith. The U.S. Trustee will still analyze the budget to verify that the debtor has no disposable income available for creditors (BC 707(b)(1)).

5. You must now receive debtor education before they can file. Under the Bankruptcy code the family income dictates the form of relief (either Chapert 13 or Chapter &) available to you.

Annual income, calculated based upon the income for the 6 month prior to the filing is the first look determiner on the availabile bankruptcy remedies. The Court looks to the IRS for income data by state. 11 USC 707 (b)2 and 11 USC 1322 (d)(1). The Current median income for Michigan is,

One Earner- $43,611

Family 2 – $52,620

Family 3 $61,737

Family 4 $74,824

 The first step of a bankruptcy analysis then starts with this median income. As the unemployment rate increases , and income decreases, the eligibility for bankruptcy increases.

NON FILING SPOUSE

 The non filing spouse income is incorporated into the means test.

CHAPTER 7 ATRUSTEE COLLECTS AND SELLS DEBTORS NON-EXEMPT PROPERTY AND DISTRIBUTES THE PROCEEDS TO CREDITORS.

 CHAPTER 7 PROCESS Filing 341 hearing Sometimes claims Adversary proceedings Discharge Dismissal-Conversion Trustee duties

DOMESTIC SUPPORT HAD PRIORITY IN 7 AND 13 CHAPTER 13 INDIVIDUAL REORGANIZATIONS

 The individual agrees to a repayment plan and uses future earnings to pay creditors. The debt amount must be less that $250,000 unsecured or $750,00 in secured.

WHEN IS A CHAPTER 13 ADVISABLE Recent Chapter 7 Default on secured debt -mortgage -car loan -prevent forfetute of taxes on real property -needs to strip away junior mortgage -goal is to keep real property with unsecured mortgage cross collateralized can be crammed down in a payment plan -keep unexempt property -compell a short sale of unsecured collateral -manage non dischargeable student loan -payment plan on on non dischargeable tax debt -did not pass the means test

CHAPTER 13 PROCESS Filing 341 Hearing -documents to support all entries on the schedules -certificates of title, vehicles, boats, mobile homes, – currents statement from each secured creditor -origional bankbooks, check registers credit card statements, -copies of leases, mortages, deeds, and land contracts -copies of leases, mortgages, deeds, and land contracts -current property tax statements -assets appraisals -keys to non exempt buildings andvehicles -divorce judgements and property settlement agreements -casualty insurance policies -documents establishing joint debt and entirities excemption -name address and phone of domestic support obligation Claims Adversary Procedings Creditor objections and confirmation Dismissal or converstion Discharge up to 66 months after filing.

 CHAPTER 13 BENEFITS Chapter 13 bankruptcy allows you to repay debtors over the course of three to five years. There are many benefits to chapter 13.

1. STOPPING THE FORECLOSURE SALE Chapter 13 is a vehicle to allow you to stay in your home and repay overdue amounts while continuing to pay the on-going mortgage. The chapter 13 must be filed before the foreclosure sale.

2.INCREASING THE PAYMENT TIME ON RETAIL INSTALLMENT CONTRACTS The court in a chapter 13 requires repayment of secured creditors whose collateral is being retained by the lender, this repayment may be made over the course of 60 months in equal monthly payments. 11USC 1325 (a) (5) (B) (II)(iii)

3.STRIPPING A JUNIOR LIEN ON PROPERTY If you have two mnortgages on your property and the second one because of declining property values leave the mortgager little or no value equity on which the second mortgage can attach, it can then be treated as unsecured.When the debtro completes the chapter 13 and recieves a discharge the junior liens is removed.

 IN CHAPTER 7 AND 13 An automatic stay is created immediatley at the time of filing and lasts until proiperty no longer is property of the estate. Or the case is dismissed, closed, or a discharge is granted or denied. STOPS collection on pre-existing debt STOPS judgement enforcement STOPS other collections except DOES NOT STOP Paternity establishment Domestic support order or modification Child custody or visitation dissolution of marraige except division of property Domestice violence proceedings Collection of domestic support order from property not of the estate. Lic Suspensions Reporting back child support to credit agency Interception of income tax enforcement of a medical obligation BANKRUPTCY JUDGE MAY ALLOW domestic support obligation 101(14a) DEBT THAT accures before, on or after the date of the order for relief including interest that accures on the debt owed to or recoverable by a spouse, former spouse, child of bdebtor, or childs parent, legal guardian or responsible relative., or a governmental unit. To include alimony or maintenance or support.

 What Is a Domestic Support Obligation?

A. If it looks like support it is almost certainly a domestic support obligation and therefore non-dischargable in Chapter 7 (BC 101(14)(A) and (523 (a)(5).

 B. Even if an obligation in a divorce judgment is not a Domestic Support Obligation it is still non-dischargable in Chapter 7 (BC 523 (a)15.

C. The practical ramifications of this are significant for divorce lawyers. If you execute a divorce judgment containing hold harmless language and other financial obligations to a future ex-spouse, a bankruptcy filing will not help your client if the former spouse demands payment.

 D. If you are is in financial trouble do not agree to hold harmless language and do not agree to pay large amounts of money. It may be wise to disclose in the divorce judgment that a bankruptcy may be necessary.

 E. In the Sixth Circuit the plain language of a divorce judgment is effective even if it can be unfair. While a client can still file Chapter 13 on property settlement obligations, this is rarely an option due to the “Merlin Clause” almost all divorce judgments contain. These clauses provide that property settlement becomes a Domestic Support Obligation if a bankruptcy is filed. If a client has stipulated to that language, he or she is probably not entitled to any relief in bankruptcy.

NON DISCHARGEABLE DEBT -TAXES FILED WITHIN TWO YEARS -DEBTS OBTAINED BY FRAUD -DOMESTIC SUPPORT OBLIGATION -DEBTS FOR WILLFUL INJURY INITIAL CONSULTATION AGREEMENT, fee agreement Provided to the Client 5 business days after the consultation takes place. 11 USC 528 (a) (1). To be signed.

 WHEN YOU FILE A BANKRUPTCY ESTATE IS CREATED EXEMPTIONS 7&13 Choose federal or state Must disclose PROPERTY FEDERAL EXEMPTION MICHIGAN EXEMPTION

HOUSEHOLD 1 ITEM 525 525

 HOUSEHOLD AGGREGATE 10755 3450

BURIAL NA 575

CROPS, ANIMAL, FEED NA 2300

PETS NA 575

VEHICLE 3225 3175

COMPUTER NA 575

TOOLS/TRADE 2025 2300

 ASSOCIATION SHARE NA 1150

 HOMESTEAD 20200 34,450

 HOMESTEAD TENANCIES NA UNLIMITED HOMESTEAD 65 NA 51,650

 WILD CARD 10125[UNUSED RESIDENTIAL] 1075 N/A

JEWLERY 1350 N/A

 LIFE INSURANCE 10775 N/A

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