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Frequently Asked Questions
What is Chapter 7 Bankruptcy?
The Chapter 7 Bankruptcy is the liquidation of all your debts, period. Chapter 7 is filed when, after paying your living expenses, there is no money left-over to pay creditors such as your credit cards or auto loans. You may only file for Chapter 7 bankruptcy every eight years; therefore, if you filed on June 1, 2001, you will not be able to file again until June 2, 2009.
Under the rules of The Bankruptcy Reform and Consumer Protection Act of 2005 you must pass the Means Test in order to qualify for Chapter 7 bankruptcy.
What is the Means Test?
Under Bankruptcy laws, you must pass the income "Means Test" in order to be permitted to file for Chapter 7 protection. Your average gross monthly income must be at or below the median income for your state. This income is determined by the size of your household; for example a husband and wife with two children would be 4. Your income for this test is determined by calculating your income for the 6 months prior to filing for bankruptcy. If you are currently unemployed, but had a good job 4 months ago, your income is not zero, but an average for the entire 6 month period. Income includes money received from all sources except social security.
If you're 6 month income is greater than allowable, then you FAIL the means test and generally cannot file for Chapter 7. You may still file a Chapter 13 bankruptcy.
What is a Chapter 13 bankruptcy?
The Chapter 13 bankruptcy is a commitment to make payments every month for up to 5 years to a Bankruptcy Trustee. This is the bankruptcy you file when you either do not qualify for Chapter 7, or you have priority debts like the IRS, child support, etc. that cannot be eliminated under Chapter 7 bankruptcy. It may be advisable for you to file a Chapter 13 if you have IRS taxes, child support obligations, unpaid alimony, or other non-dischargeable debts.
What's included in a Bankruptcy Petition?
There is the Petition itself, The Schedules, The Statement of Financial Affairs, The Statement of Intentions, The Attorney Statement, and in Chapter 13 there is also what is known as the Plan. The Petition is a short form containing the debtor's name, address, estimated number of creditors and debts, a statement of how long you have lived in the jurisdiction, and whether you have filed for bankruptcy previously. The remaining schedules are alphabetical from A - J as follows.
What is schedule A?
Schedule A lists real property that you have an interest in such as your home or raw land. Mobile homes are often listed under real property.
What is schedule B?
Schedule B lists all other property you have except your real property. It also includes cash, bank accounts, household goods like your furniture, vehicles, guns, computers, appliances, collections like a coin or souvenir spoons, insurance policies, IRAS, ERISA, pension or profit sharing plans, stocks, bonds, interests in corporation, partnerships, accounts receivables, and investments of any kind. This schedule will also include things like security deposits to which you have an entitlement and the potential proceeds of a lawsuit that you may have even if you have not yet received it. It is critical that you list everything. Failure to list all of your assets may be considered fraud and could land you in jail. This is not to be taken lightly. List everything - even the most minor assets need to be listed - from the blankets you sleep on to the dog's bed. An important point to remember is that in Arizona most cash is not a protected asset - there are very specific limitations. If you have a bank account at the time you filed your bankruptcy case, any non-exempt funds in the bank account on the day you file will be seized by the Trustee and distributed to your creditors.
What is schedule C?
Exemptions refer to property a person gets to keep, property that may not be seized by creditors and sold. A brief example may help demonstrate how exemptions work. In Arizona, a married couple is permitted to retain 2 vehicles worth up to $10,000.00 total. Picture a situation where Vehicle A is worth $10,000.00 and you still owe the bank $6,000.00; Vehicle B is worth $6,000.00 and is completely paid off. The value that matters is your equity position; even though the cars are worth a combined $16,000, well above the exemption, your equity in Vehicle A is only $4,000 due to the lien. Thus, your equity position is only $10,000 and you will retain both vehicles. It is important when valuing your property to use the right reference. Blue Book value for vehicles is probably appropriate. For personal property, you use the neighbor's garage sale method - if you were to purchase your $1,000 sofa from the neighbor's garage sale, what would you pay? $100.00 - $200.00? While it is important not to overvalue your assets, be careful not to undervalue them either. Undervalued assets appear suspicious to the Trustee and may result in the dismissal of your case.
Assets that are typically not protected?
Cash, money in bank accounts, money in joint bank accounts even if the joint holder is not filing, stocks that are not part of a 401k or qualified retirement plan, bonds, certificates of deposits, annuities, cash value insurance policies, most jewelry, furs, art, valuable collections, boats, recreational vehicles like ATVs, jet-skis, dirt bikes, etc.
What happens if I do not list all of my assets?
Failure to list all of your assets may be considered fraud and could land you in jail. This is not to be taken lightly. List everything - even the most minor assets need to be listed - from the blankets you sleep on to the dog's bed.
How does the trustee value my property?
It is important when valuing your property to use the right reference. Blue Book value for vehicles is probably appropriate. For personal property, you use the neighbor's garage sale method - if you were to purchase your $1,000 sofa from the neighbor's garage sale, what would you pay? $100.00 - $200.00? While it is important not to overvalue your assets, be careful not to undervalue them either. Undervalued assets appear suspicious to the Trustee and may result in the dismissal of your case.
What is a homestead exemption?
Equity in a home is protected up to a certain amount which varies from state to state. Equity is the difference between the value and the amount you owe. If your home is worth $300,000 and you owe $200,000, your equity is the difference of $100,000. In Arizona, the exemption as of August 25, 2004 is $150,000.00 for both spouses.
What is schedule D?
Schedule D is your list of Secured Creditors. Secured creditors are creditors that have a security interest in a tangible piece of property like your home or your car. A mortgage company is a secured creditor. The mortgage is secured against the home itself. If you don't make the payments, they foreclose on the home. You must make sure that if you plan on keeping the property like your house or your car that you must continue to make your payments on time. If you fail to make the payments the creditor will repossess the property. As a rule of thumb, if the creditor can take the property back if you stop paying, you are dealing with a secured creditor. TIP Be wary of some specialty and electronics stores - for instance many items purchased on the stores credit card are secured, like that big screen TV you bought at 0% for 60 months.
What is schedule E?
Schedule E is where you list Priority Creditors. Priority creditors are creditors that cannot be wiped out through bankruptcy. These include most federal and state taxes, child support and alimony arrearages, student loans, and a few others.
May taxes be eliminated in bankruptcy?
As a general rule, taxes are not dischargeable unless: (1) they must be at least three years old; (2) you must have filed them with the IRS at least two years before the bankruptcy; (3) the IRS cannot have assessed them within 240 days; (4) and the taxes must not have become an IRS lien. If the taxes meet these criteria, you may be able to eliminate them without repayment. IRS liens will not be eliminated in a Chapter 7 bankruptcy. It is often critical to consult with a tax attorney or qualified CPA to ensure that your taxes qualify.
What is schedule F?
Schedule F lists your unsecured Creditors such as credit cards, personal loans, bank loans, payday loans, medical bills, cell phone bills, etc. It is important that you list all of your creditors on your schedules. If a creditor is not listed, that creditor will not be discharged, and that creditor will still be able to pursue you after your bankruptcy is over. Provide your attorney with as many creditors as you can find. Also, make sure you list the collection agencies even if the debt is already listed under the original creditor. So, if AJ's Automotive turned the matter over to Calls-a-lot Collectors, make sure you list them both. More is definitely better. List everyone that could conceivable claim you owe them money. Even if you got into an accident and you're not sure whose fault it was, still list the other driver in the bankruptcy or anyone else in the accident that might sue you, including any passengers in your own car; and even if it is a friend or relative. Blame it on your lawyer; tell them your attorney required you to list all potential creditors. In reality, this is not a lie; you must list all of your creditors.
What is schedule G?
Schedule G is a list of debts for which you have a co-signer. For example, if Dad co-signed on your vehicle, you would list that here. Keep in mind, that if you list a debt for which you had a co-signer, your obligation will be discharged in the bankruptcy but the creditor will still be able to go after Dad because he will still be on the hook for the debt he co-signed on your behalf.
What is schedule H?
Schedule H is a list of your unexpired leases or contracts like a vehicle lease or apartment lease.
What is schedule I?
Schedule I is your current income from any sources including, wages, social security, pension, disability, roommate contribution, family support, alimony, child support, etc. In this section, you also give marital status information, list of dependents, and specific employment information.
What is schedule J?
Schedule J is a list of your expenses like mortgage, rent, food, car payments, utilities, insurance, clothing, laundry expenses, gas for your vehicle, entertainment charitable contributions, etc. The expenses must be reasonable. Below is a list of common areas where debtors sometimes list unreasonable amounts. A reasonable range has been included.
| Expense | 1 Person | 2 People | 3 People | 4 People |
| Food | Up to $450 | Up to $650 | Up to $750 | Up to $800 |
| Entertainment | Up to $175 | Up to $175 | Up to $200 | Up to $200 |
| Clothing | Up to $75 | Up to $120 | Up to $150 | Up to $200 |
| Hygiene | Up to $40 | Up to $70 | Up to $100 | Up to $120 |
| Home Maintenance | Up to $100 | Up to $100 | Up to $100 | Up to $100 |
Please keep in mind that you are filing a bankruptcy and wiping out your obligation to pay your creditors. Exhibiting to the Trustee that you live the lifestyle of the rich and famous is not too smart. Provide accurate information but use your head. Sit down and try to determine what you could prove if the Trustee asks you for proof. Around the time you decide to file, keep receipts from your expenses. Keep copies of your utility bills, car payments, insurance payments, grocery receipts, gas receipts, etc.
What is the statement of financial affairs?
The Statement of Financial Affairs is a history that gives the Trustees and creditors a picture of what has gone on in your financial life and life in general for the past number of years.
What is the Statement of Intentions?
The Statement of Intentions indicates what you plan on doing with property secured by a loan, like your house or car. You have two primary options. Reaffirm the debt, meaning you will keep the property and promise to make payments on it in the future. Surrender the property, not make any further payments and not owe anything further. Under certain circumstances, you may also redeem property. This means that if the trustee has the right to seize a piece of property, you may pay the value of the property to the Trustee in order to keep it. The idea being that the Trustee will get the same value from you for distribution to the creditors that he would have gotten from the sale of the property through an auction or outright sale.
What is a reaffirmation agreement?
A reaffirmation agreement is a contract you sign with your secured creditors such as your mortgage company for your home or your credit union for your car. Reaffirming the debt means, you will keep the property and promise to make payments on it in the future.
What does it mean to surrender property?
Surrendering the property means that you are giving up your interest in the property and allowing the property to be repossessed by the secured creditor. The property will then be sold to cover the amount owed to the secured creditor. If the amount the property is sold for is less than the amount owed, you will not owe the deficiency to the secured creditor under Chapter 7.
What does it mean to redeem property?
This means that if the trustee has the right to seize a piece of property because it is not protected by an exemption, you may pay the value of the property to the Trustee in order to keep it. The idea being that the Trustee will get the same value from you for distribution to the creditors that he would have gotten from the sale of the property through an auction or outright sale.
What is the Attorney Statement?
The Attorney Statement is a short form that states the name of the attorney and the amount you paid for the legal services.
What is credit counseling?
Credit counseling is a one-time, approximately one-hour session that everyone who files bankruptcy must participate in prior to filing bankruptcy. At the end of the session, a certification will be provided showing the debtor attended a mandatory consumer credit counseling session. This "session" may be attended in person, telephonically, or even via internet. Only agencies recognized by the Office of the United States Trustee will be accepted. Otherwise, you have just wasted your time and your money on a useless certification.
What happens when the bankruptcy is filed?
The first thing is the Automatic Stay. The automatic stay makes it a violation of federal law for any of your creditors to pursue any remedies against you including filing a lawsuit, continuing an existing lawsuit, sending you letters requesting money, or even calling you on the telephone. A creditor violating this rule may be brought before the Court and sanctioned. However, a creditor may also file a motion with the Court seeking permission to continue to pursue collection actions. This typically only happens if you are delinquent on your payments on a house, car, or other secured loan. The Court will generally conclude that if you are not paying for it, than you do not deserve to keep it. This does not apply to property obtained with an unsecured credit card. For example, if you buy a toaster with a Visa card, Visa will not come and ask for the toaster back, unless of course, you bought the toaster immediately before filing in which case they may ask for the money back for the charge, but you'll probably get to keep the toaster.
What is the 341 meeting of creditors?
About 30 - 45 days after filing you attend what is known as the 341 Meeting, commonly known as the Meeting of Creditors. This is a meeting of your creditors and its name refers to section 341 of the U.S. Bankruptcy Code. Your attendance is required. Creditors rarely show up for this meeting. It will be you, your attorney, and the U.S. Trustee.
The Trustee is the person who administers or handles your bankruptcy matter. They actually represents the creditors and their job is to find any property you have that is not protected by a federal or state exemption, and take that property so it may be sold and distributed to your creditors. You're going to see other people at this meeting also. They are more than likely not your creditors, but instead other debtors and their lawyers. A creditor may be there for your case, but not usually. This is probably because there is little the creditors can do to hurt you in bankruptcy if you have honestly filed your schedules and have very little in the way of assets. The meeting itself takes about five to ten minutes once your name is called. The Trustee will ask you to provide identification in the form of a driver's license, or a state picture identification card, as well as a second form of social security identification such as a social security card, W-2 statement, or paycheck stub. The Trustee will then swear you in under oath. This oath states that you will tell the truth. The hearing is conducted under penalty of perjury just as if you were in a courtroom in front of a judge. The Trustee will ask you a series of questions that may vary from Trustee to Trustee and even from debtor to debtor in front of the same trustee. Typically, these questions involve confirmation of name, address, phone number, etc. They may also ask questions about assets that you have and whether you have listed any of your creditors. However, they may ask you questions about anything relating to your bankruptcy schedules or pertinent to your filing bankruptcy.
How should I answer the questions the Trustee asks?
Honestly and briefly. Do not give your entire life story if you are asked for a "yes" or "no" answer, just answer "yes" or "no." Answer the question and do not offer more than what you have been asked.
When will I receive my discharge?
The Debtor will typically receive a Notice of Discharge about sixty to ninety days after the 341 hearing. This notice does not come from your attorney's office. It is an order from the United States Bankruptcy Court indicating your debts have been discharged, meaning the creditors can no longer pursue you for the debts. The debts that were eliminated in the bankruptcy are not individually listed on the discharge order; so don't think something is wrong, or that all of your debts have not been wiped out, if you don't see them on this form.
What debts are not dischargeable in bankruptcy?
Certain debts are not dischargeable in bankruptcy. These include:
1) Actual Fraud: let's say you fill out a loan application and lie, and say your income is $60,000 when you really only make $30,000. The creditor could say your debt was incurred through fraud meaning they relied on your false statement in making their decision to lend you money, and they may claim you cannot discharge this amount in bankruptcy.
2) Debts for Luxury Goods which cost more than $500.00, and were purchased within 90 days of filing. If you decide to buy a big screen television and then go bankrupt this plan will not work, and will be presumed to be fraudulent if done within 90 days.
This does not mean wait 91 days. After 90 days, there is no presumption, meaning the debtor does not have the burden to show it was not fraud. However, the creditor can still show actual fraud by proving the debtor did not intend or did not have the means to pay for the purchase. It is then on a case by case basis and the judge will decide.
3) Cash advances in excess of $750.00 within 70 days. These are presumed fraudulent, meaning you as the debtor has the burden of proving that taking the money so close to filing the bankruptcy was not an intentional fraud.
4) Debts for Crimes like Embezzlement are considered fraud. This is where you are trusted with someone else's money and you decide to use it for your own purposes. For example, you collect and are in control of money for a charity and then buy a new car for yourself. Theft is also considered a type of fraud under bankruptcy. Debts from any of these actions are considered fraud and may not be discharged in your bankruptcy filing.
What happens if I commit fraud?
First, you could be subject to criminal fines and potentially jail time. The creditors may also object to your bankruptcy discharge or seek dismissal of your case. You will also not be able to wipe out those debts if your are conclusively found to have committed fraud.
How else may my case get dismissed?
Your creditors may object to the discharge of your case or seek dismissal if you engage in certain inappropriate conduct or fail to comply with the bankruptcy process requirements. This means they ask the court to enter an order which basically nullifies your bankruptcy filing and allows your creditors to pursue you again as if you never filed. Typical examples include making false statements in your bankruptcy schedules, concealing property or assets of any kind, falsification, destruction, or refusal to produce documentation. It may also include an inexplicable loss of money or an asset. For example, you sell a house in February and make $50,000 off of the sale. You then file your bankruptcy two months later and can't explain what happened to the money. The typical one used is claiming it was gambled. The judges and trustees have heard this one before; unless it is actually true and you can somehow prove it, do not make this claim. You may also receive an objection to our discharge if you transferred property just before filing.
What if I repaid a friend or family member money within one year of filing?
Repayments to friends or family members are considered insider transfers and are not allowed. Therefore, you cannot take your $20,000 in cash in your bank account and then say, "Oh, I had to give that to my brother John because I happened to owe him $20,000.00." Any repayments to friends or family members within one year are considered fraudulent. They will go after your friend or family member to get the money back.
What if I filed bankruptcy before?
There must be at least eight years from the earlier filing date to the later filing date. If you didn't wait the eight years since you filed your last Chapter 7 bankruptcy than the case will be dismissed.
What if I miss my 341 meeting?
The most common reason for dismissal is failure to show up for your meeting of creditors. They may continue it one time if you miss your hearing but after that they will dismiss your case. Make sure you do not miss this meeting.
What if I refuse to turn over an asset, like my tax refund?
Another common reason for dismissal is refusal to turn over an asset that is not protected by an exemption. For example, the Trustee finds out you have a jet ski that is not protected and you refuse to hand it over. The trustee will file a motion to dismiss your case.
What if the Trustee requests documentation and I do not respond?
Any noncompliance with a request of the Trustee such as for you to produce documentation, etc. may result in dismissal. If the Trustee or your attorney asks you for documentation, don't put it on your "to do" list, just get it to them immediately.
Please keep in mind this is not specific legal advice for your situation, this is general information only and should not be relied upon in making legal decisions. The information and even the laws may have changed by the time you are ready to file your own bankruptcy. The answers here are general in nature and the specific circumstances of your bankruptcy filing may require different results. It is critical that you consult with a Bankruptcy Attorney to ensure you qualify for filing and that your particular assets are exempt.