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Bankruptcy-- What It Can And Can't Accomplish
By Joe L.Golson, Fri Dec 9th
The following is an outline of select areas of lawwhich are significant as you contemplate a filing under Chapter7. Often, someone who considers is unaware of thenuances of or certain creditors' rights inbankruptcy. You should be familiar with some of the applicableprovisions as you prepare for filing. What follows is not, byany means, an exhaustive review of law; nor does itfully explain each provision of the code or ruleswhich might apply because each individual's situation is uniqueand sometimes unanticipated events occur; however, this overviewwill provide you with broad guidelines so that you may becomfortable with your decision. I will begin with an outline ofbasic procedures in Chapter 7 case and conclude with adiscussion of various Chapter 7 pitfalls. Basic Procedure A. Upon filing, you will berequired to file a sworn list of creditors, a schedule of assetsand liabilities, a list of exempt property, a schedule ofcurrent income and expenditures, a statement of your financialaffairs and a statement of intent regarding consumer debtssecured by property of the estate. You will also be required tosurrender to the trustee all property of the estate. 11 U.S.C.521. The order of relief is granted when you file. What thismeans, among other things, is that an automatic stay istriggered, prohibiting creditors from pursuing you or yourproperty outside of the proceeding. B. The clerk of court will give notice of the to yourcreditors. 11 U.S.C. 342.
C. There will be a meeting of creditors called to question youabout your debts and ability to pay. The U.S. Trustee calls thismeeting and you are required to attend. The judge may notquestion you at this time. Other creditors and the trustee mayquestion you. Unlike a trial, your attorney may not "object" toquestions in a formal sense. It is an open opportunity forcreditors to question you and you are required to respond ingood faith. 11 U.S.C. 341. D. A creditor of the trustee assigned to your case may object toyour listed exemptions within 30 days after the meeting ofcreditors. E. A creditor must file a proof of claim within 90 days afterthe first date set for the meeting of creditors. At the end ofthe case, if a surplus remains after all of the claims are paidin full, the court may grant an extension of time for filing ofclaims not filed during the initial 90 day period. The trustee may object to any claim. F. An objection to your receiving a general discharge of all ofyour debts must be filed by thetrustee or a creditor within 60days following the first date set for the creditors meeting Ifno objections are filed, and if no motion to dismiss is pending,the court will ordinarily grant a discharge upon expiration ofthe 60 day period. Rules 4004 and 1017; 11 U.S.C. 727. G. A creditor may object to the dischargeability of a particulardebt at any time if the debt: (1) is for a tax or customs duty;(2) is not listed in the schedules so that a creditor could filea proof of claim; (3) is related to alimony or child support;(4) is a government fine or penalty; or (4) is a governmentinsured student loan. Any student loans guaranteed or insured bythe government will not be dischargeable. This means that youwill continue to be liable for the payment even if you filebankruptcy. A creditor may object to the dischargeability of a particulardebt only within 60 days of the first date set for the meetingof creditors, if the debt: (1) is a consumer debt created closeto filing; (2) is a result of fraud; (3) is a result of a wilfuland malicious injury to a person or property of another.Bankruptcy Rule 4007; 11 U.S.C. 523. Debtor Pitfalls The debtor's goal in anyChapter 7 is to have as many debts discharged as possible. Thegeneral rule is that all debts created before the bankruptcyfiling are discharged. Discharge destroys any person liabilityyou may have on a claim or debt. (Discharge will not destroyliens; liens survive the bankruptcy.) There are some very significant exceptions to the general rulethat
all debts will be discharged. As stated above, a creditorcan try to have his claim excepted from discharge pursuant tothe provisions of 11 U.S.C. 523. If the claim is not discharged,the debtor continues to be responsible for its payment;obviously, this could have severe consequences to the debtorseeking a "fresh start" which is the very purpose of the Chapter7 filing. There are ten categories of debt excluded from discharge under523. These fall into two areas: debts that are not dischargeabledue to the wrongful conduct of the debtor and debts that are notdischargeable due to public policy. The debts not dischargeable due to the debtor's misconductinclude those created by intentional torts, fraud, larceny,embezzlement, fiduciary violations, and drunken driving. Thedebts not dischargeable due to public policy include alimony andchild support, taxes and customs duties, governmental fines,penalties and forfeitures, educational loans, unscheduled debtsand certain debts surviving a prior case. A claimmust fall within one of these exceptions to be foundnon-dischargeable. To prevail on a fraud exception, the creditor would need to showthat there was a false, material representation of fact made bythe debtor that the debtor knew was false at the time he madeit, made with the intention of deceiving the creditor. Somecourts have held that when a credit card is used, the debtorimpliedly represents that the debtor has the ability andintention to pay for the goods and services charged. Thosecourts have therefore found that some credit card debt isnon-dischargeable under the fraud exception. This is not the only potential problem that can arise withcredit card or similar debt. 523 also provides that there is apresumption that certain consumer debt created right beforefiling a Chapter 7 is non-dischargeable. The presumption ofnon-dischargeability will apply if the debt is a consumer debtfor so-called "luxury goods or services" incurred or within 40days before the filing, owing to a single creditor aggregatingmore than $500. Further, the presumption of non-dischargeabilitywill apply if there are cash advances made by a creditor formore than $1000 that are extensions of consumer credit under anopen end credit plan within 20 days of filing bankruptcy. Luxury goods and services are not defined by the Codeand the determination of same will be contingent upon the factsand circumstances of each case. I can tell you that courts havecharacterized such items as a person computer, coffee maker,floral arrangements and three-wheel recreational vehicle as"luxury" items. Any credit extended based on false financial statements issubject to exception from discharge. Statements made in thefinancial statements have to be materially false with the intentto deceive the creditor to fall within this exception. Note thata credit application should not qualify as a "financialstatement" if it does not require a disclosure of debts. It is crucial for the debtor to include all creditors in hisschedules filed with the court. If a debtor knows of thecreditor and does not schedule him, the creditor is deniedparticipation in any distribution; to protect the creditor fromthis type of problem, the code provides that unscheduled claimsmay be non-dischargeable. Debts created by willful and malicious injury will also beexcepted from discharge. These types of claims arise fromintentional actions by the debtor, done with malice which causesdamage. It is important to note that ordinary negligence claimsare dischargeable. A plaintiff with a personal injury claimwould need to allege significantly more than simple negligenceto have his or her claim deemed non-dischargeable in thebankruptcy court. Dismissal may also be justified if the debtor is an individualwho has primarily consumer debt and the court finds that thegranting of relief would be a substantial abuse of thebankruptcy process. Substantial abuse has been found by courtsif the debtor is actually able to pay his debts when due. About the author:Joe L.Golson, writer and Affiliate Marketeer For Freeinformation and services on Credit Repair and Bankruptcy. http://resultstracker.net/t.php?id=24165
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