Walter A. Metzen, Michigan Bankruptcy Attorney

WHAT IS CHAPTER 7 BANKRUPTCY?

Chapter 7 and Chapter 13 are legal proceedings that are available to a person to cope with a financial crisis. One of the main purposes of bankruptcy is to afford the opportunity to a person who is hopelessly burdened with debt to free himself of the debt and start fresh - " a new lease on life."

WILL MY CREDITORS STOP HARASSING ME?

Yes, they will! By law, all actions against a debtor are automatically stayed and must cease once the documents are filed. Creditors cannot initiate or continue any lawsuits, wage garnishments, or even telephone calls demanding payments. Secured creditors such as banks holding a lien on a car or a mortgage encumbering your home must ask the Court for relief from the automatic stay if you cannot make the regular monthly payment(s).

WILL MY SPOUSE BE AFFECTED?

Your wife or husband will not be affected by your bankruptcy if they are not responsible (did not sign an agreement or contract) for any of your debt. If they have a supplemental credit card, they may be responsible for that debt.

Your lawyer will be able to guide you.

WHO WILL KNOW?

Bankruptcy filings are public records and are often reported in local newspapers. However, under normal circumstances, the only parties that receive notice from the Bankruptcy Court that you filed a bankruptcy petition are your creditors. The credit bureaus will note your bankruptcy. It will remain on your credit record for ten years. However, this is not an indelible mark on your credit. Often you will be able to re-establish credit within six months to a year. You are a better credit risk after you file bankruptcy than before.

WHAT ARE THE MOST COMMON REASONS FOR A CHAPTER 7 BANKRUPTCY?

The most common reasons for filing bankruptcy are:

1. Unemployment;
2. Large medical expenses;
3. Seriously overextended credit;
4. Marital problems; and
5. Other large unexpected expenses.

CAN I KEEP ANY CREDIT CARDS?

Whether a debtor keeps credit cards after filing bankruptcy is up to the credit card company. If you are discharging debts owed to a credit card, the company will cancel the card unless you reaffirm the debt. If you have a zero balance at the time of filing bankruptcy, you need not list that credit card company because it is not a creditor of yours at that time. However, even if you have a zero balance, the credit card company has the right to cancel the card.

WILL I EVER GET CREDIT AGAIN?

Yes! Certain banks now offer "secured" credit cards where a debtor puts up a certain amount of money (as little as $200) in an account at the bank to guarantee payment. Usually the credit limit is equal to the security given and is increased as the debtor proves his or her ability to pay the debt.

Within two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others with the same financial profile who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.

The fact you filed bankruptcy stays on your credit report for ten years. It becomes less significant as time passes. You are a better credit risk after bankruptcy than before.

CAN MY BOSS FIRE ME FOR FILING BANKRUPTCY?

No. Federal law prohibits any employer from discriminating against you because you filed bankruptcy.

HOW MUCH AM I ALLOWED TO KEEP?

You are allowed to keep certain assets depending on the state in which you reside. The Indiana exemption scheme is more fully described herein.

WHAT DON'T I KEEP?

In a bankruptcy case, assets in excess of your allowed personal exemptions (so-called nonexempt assets) will be liquidated by the trustee.

HOW DO I GO INTO BANKRUPTCY?

There are two ways a person can become a debtor in a bankruptcy case. The first and more common way is the person voluntarily files a bankruptcy petition. The second, and rarely used way, is by creditors asking the Court to enter an Order that a person should be declared a bankruptcy debtor. In both these cases, a bankruptcy trustee is appointed to administer and otherwise liquidate the nonexempt assets of the debtor.

DO I HAVE TO USE A LAWYER TO FILE A BANKRUPTCY?

No. You do not need to use a lawyer to file Chapter 7 or Chapter 13. However, we advise that you use the services of an experienced bankruptcy attorney as bankruptcy proceedings and the bankruptcy laws are complex. A bankruptcy lawyer is well worth the cost. You will save the cost of the legal fees many times over through peace of mind, relief from stress, and probably actual money saved in following your attorney's advice.

WHAT ARE THE KEY OR MAJOR EVENTS IN THE BANKRUPTCY PROCESS, AND WHEN WILL THE BANKRUPTCY BE OVER?

Day No. 1

The bankruptcy documents are filed with the Bankruptcy Court. There is an immediate automatic stay imposed on all creditors and creditor actions so that actions by creditors are prevented and/or discontinued. Wages cannot be garnished, and other legal actions cannot be continued.

Day No. 14

Creditors are advised by the clerk that a petition has been filed.

Day No. 20 to 40

A meeting of creditors is held ("the 341 meeting"). The debtor must attend the 341 meeting. Creditors can attend but usually do not. If they attend, they usually only have a few minutes to ask questions. The trustee assigned to the case presides. The 341 meeting is either tape recorded or recorded by a court reporter. The trustee will ask you questions under oath such as:

1. Did you read the schedules before signing?
2. Did you list all of your assets?
3. Did you list all of your debts?
4. Are the schedules accurate?
5. Do you want to make any corrections to the schedules?
6. Are your cars insured?
7. Do you own real estate?

The trustee either orally or by giving the debtor written information will ensure that the debtor is aware of:

• the effect on credit history;
• the effect of receiving a discharge;
• the effect of reaffirming a debt;
• the ability to file a petition under a different chapter.

Note: The typical 341 meeting lasts about 4 to 5 minutes.

The trustee will sell any nonexempt assets of the debtor available for the benefit of creditors.

The trustee has the authority to:

1. pursue causes of action (lawsuits belonging to the debtor);
2. set aside preferential transfers made to creditors within days before the filing of the petition;
3. unwind secured transactions and other pre-petition transfers of property that were not properly perfected.

Day No. 60 to 90 after the 341 meeting

The debtor is discharged of all debts (with some exceptions).

More than 99 percent of all debtors who file bankruptcies receive discharge Orders from the Court.

WHAT IS CHAPTER 13, AND WHEN CAN IT BE USED?

Individuals may file Chapter 13 bankruptcy petitions if they reside, have a domicile, a place of business, or property in the United States, or a municipality; have a source of regular income; and on the date the petition is filed owe less than $307,675 in unsecured debts and less than $922,975 in secured debts. Note: The amounts given here are amounts as of October 2005. 

Corporations and partnerships may not file a Chapter 13 bankruptcy petition.

If you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition, and you should read 11 U.S.C. Section 109(g).

WHAT DEBTS ARE NOT DISCHARGED BY A BANKRUPTCY?

The following debts are not discharged in both Chapter 7 and Chapter 13. If you file under Chapter 7, these will remain due and owing when your case is over. If you file under Chapter 13, these debts will have to be paid in full during your plan. If they are not, you will still owe the balance at the end of your case:

1. debts you forget to list in your bankruptcy papers unless the creditor learns of your bankruptcy case; see In re Madaj
2. child support and alimony;
3. debts for personal injury or death caused by your intoxicated driving;
4. student loans unless it would be an undue hardship for you to repay;
5. fines and penalties imposed for violating the law such as traffic tickets and criminal restitution;
6. recent income tax debts and all other tax debts. This is a complicated area of the bankruptcy law, and an attorney should be consulted. You can discharge debts for federal income taxes in Chapter 7 bankruptcy only if all of these five conditions are met:
   1. The IRS has not recorded a tax lien against your property. (If all other conditions are met, the taxes may be discharged, but even after your bankruptcy, the lien remains against all property you own effectively affording the IRS a way to collect.)
   2. You did not file a fraudulent return or try to evade paying taxes.
   3. The liability is for a tax return (not a substitute return) actually filed at least two years before you file for bankruptcy
   4. The tax return was due at least three years ago.
   5. The taxes were assessed (you received a notice of assessment of federal taxes from the IRS) at least 240 days (eight months) before you file for bankruptcy. (11 U.S.C. Sections 523(a)(1) and (7).

In addition, the following debts may be declared non-dischargeable by a bankruptcy judge in Chapter 7 if the creditor challenges your request to discharge them. Some of these debts may be discharged under Chapter 13. You can include them in your plan, and at the end of your case, the balance is discharged:

1. debts you incurred on the basis of fraud such as lying on a credit application;
2. credit purchases of $500 or more for luxury goods or services made within 90 days of filing;
3. loans or cash advances of $750 or more taken within 70 days of filing;
4. debts from willful and malicious injury to another person or another person's property;
5. debts from embezzlement, larceny, or breach of trust; and
6. debts you owe under a divorce decree or settlement unless after bankruptcy you would still not be able to afford to pay them or the benefit you would receive by the discharge outweighs any detriment to your ex-spouse (who would have to pay them if you discharge them in bankruptcy).

WHAT DOES IT COST?

A bankruptcy lawyer's fee for Chapter 7 consumer representation varies but should be in the range of $1000 to $2,000. In addition, the filing fee for a Chapter 7 required by the Bankruptcy Court is presently $299. The cost of Chapter 13 representation and business representation is higher than the fees charged for Chapter 7 consumer representation. We will give you a free initial consultation. You can keep the fees down by being well-organized and well-prepared for your initial consultation and Court.