Walter A. Metzen, Michigan Bankruptcy Attorney
Board Certified Consumer Bankruptcy Specialist
American Board of Bankruptcy Certification
The process of bankruptcy allows citizens of the United States that are burdened with excessive debts to get relief from those debts and get a FRESH START financially.
Through debt relief a debtor (the person that owes the money) can get several forms of relief:
These are general ideas of what a debt relief bankruptcy can do for you.
CHANGES IN THE LAW,
EFFECTIVE OCTOBER 17, 2005
A means test has been designed to force those debtors who have the ability to pay some of their debts into Chapter 13 as opposed to liquidating their debt under Chapter 7 and wiping the slate clean. The Act eliminates the presumption that, without a finding of substantial abuse, a debtor is entitled to relief under Chapter 7. Instead, a debtor's Chapter 7 case will be dismissed or, with the debtor's consent, converted to a Chapter 13 upon a finding of abuse. The Act lowers the "substantial abuse" standard for dismissal or conversion to one of simple abuse. Whether abuse is presumed depends on the outcome of the means test. This test is complicated, but in a nutshell, once the debtor's current monthly income (CMI) is determined and reduced by all of the allowances, actual monthly expenses, and secured and priority claimed deductions, the number resulting from those calculations is multiplied by 60 months. Abuse is presumed if that number is not the lesser of 25% of the debtor's non-priority unsecured claims or $6,000.00, whichever is greater, or $10,000.00. The debtor will be required to show the calculations to determine whether a presumption of abuse arises. (Sec. 707 (b)(2)(C)). The presumption of abuse may only be rebutted with detailed documentation of "special circumstances" requiring additional expenses or adjustment of current monthly total income for which there is no reasonable alternative. (Sec. 707(b)(2)(B)(ii)).
The United States Trustee must review all materials filed by Chapter 7 debtors, and not later that ten days after the meeting of creditors, file a statement as to whether the presumption of abuse is triggered. If the debtor has income in excess of the of the median income, the United States Trustee must either file a motion to dismiss or convert the case or file a statement setting forth the reasons why the motion is not appropriate, within 30 days of the filing of the notice.
1. Effective October 17, 2005, no individual may be a debtor under Title 11 unless, within 180 days prior to filing the petition, the debtor has received an individual or group briefing from an approved non-profit entity that outlines the opportunities for credit counseling and assists the debtor in performing a personal budget analysis. Counseling can be individual, group, telephone or even possibly over the internet.
2. Debtors must file a certificate from the budget and credit counseling agency that describes the services provided to the debtor and the debtor must file a copy of the debt repayment plan, if a repayment plan was created prior to filing. The debtor may file a sworn statement that states the exigent circumstances that prevented the filing of the certificate. (Sec. 109(h)(l). However the debtor would need to attend counseling within 30 days after filing the petition.
3. Debtors must file a statement showing any anticipated increase in income or expenditures anticipated within the year after filing. (Sec. 521(a)(1)(B)(iv)).
4. Debtor must deliver to the trustee a copy of the debtor's latest tax return or a transcript prior to the meeting of the creditors or the debtors case "shall" be dismissed. (Sec. 521 (e)(2)(A) ).
5. Debtor must provide a copy of the tax return or transcript to any creditor that requests a copy at the same time the debtor provides such to the trustee. (Sec. 521 (e) (2) (A) (ii) )
6. Debtor is under a continuing duty to provide tax returns during the case, from commencement to termination; the case may be dismissed or converted for failure to comply.
7. Debtors must choose their intent to surrender, reaffirm or redeem a debt secured by property of the estate within 30 days after the first date set for the meeting of creditors.
8. In the case of personal property secured by purchase money security interest, within 45 days after the first meeting of creditors, debtors must reaffirm, redeem, or surrender the property. Failure to do so will result in an automatic lifting of the stay without creditor motion. (Sec. 521 (a)(6)).
9. A debtor can be denied a discharge if the debtor fails to complete an educational course concerning personal financial management, (Sec. 727(a)(11)) unless the court determines that the debtor is unable to complete this requirement because of incapacity, disability, or active military service in a combat zone.
Non-Dischargeable Debts Expanded
1. Debts for money, credit, etc. , obtained through fraud or false statement in writing.
2. Debts incurred within 90 days of filing that aggregate at least $500.00 for luxury goods or services and cash advanced aggregating more than $750.00 within 70 days. (Sec. 523(a)(2)).
3. The exception to discharge for student loans is expanded to encompass all student loans, as defined by the IRC Sec. 221(e)(1).
4. If an individual is drunk or impaired due to drugs or any substance, and causes death or personal injury by operating a motor vehicle, vessel or aircraft, then debts relating to that incident are non-dischargeable. (Sec. 523(a)(9)).
5. Domestic support obligations are non-dischargeable. Sec. 523(a)(5) and 523(a)(15)).
6. Debts incurred to pay state and local taxes. Sec. 523(a)(14)).
7. Debts incurred to pay fines and penalties.
8. Debts from homeowner association, condominium and cooperative dues.
Sec. 527. Disclosures
`(a) A debt relief agency providing bankruptcy assistance to an assisted person shall provide--
`(1) the written notice required under section 342(b)(1); and
`(2) to the extent not covered in the written notice described in paragraph (1), and not later than 3 business days after the first date on which a debt relief agency first offers to provide any bankruptcy assistance services to an assisted person, a clear and conspicuous written notice advising assisted persons that--
`(A) all information that the assisted person is required to provide with a petition and thereafter during a case under this title is required to be complete, accurate, and truthful;
`(B) all assets and all liabilities are required to be completely and accurately disclosed in the documents filed to commence the case, and the replacement value of each asset as defined in section 506 must be stated in those documents where requested after reasonable inquiry to establish such value;
`(C) current monthly income, the amounts specified in section 707(b)(2), and, in a case under chapter 13 of this title, disposable income (determined in accordance with section 707(b)(2)), are required to be stated after reasonable inquiry; and
`(D) information that an assisted person provides during their case may be audited pursuant to this title, and that failure to provide such information may result in dismissal of the case under this title or other sanction, including a criminal sanction.
`(b) A debt relief agency providing bankruptcy assistance to an assisted person shall provide each assisted person at the same time as the notices required under subsection (a)(1) the following statement, to the extent applicable, or one substantially similar. The statement shall be clear and conspicuous and shall be in a single document separate from other documents or notices provided to the assisted person:
`IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER.
`If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help in some localities from a bankruptcy petition preparer who is not an attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask to see the contract before you hire anyone.
`The following information helps you understand what must be done in a routine bankruptcy case to help you evaluate how much service you need. Although bankruptcy can be complex, many cases are routine.
`Before filing a bankruptcy case, either you or your attorney should analyze your eligibility for different forms of debt relief available under the Bankruptcy Code and which form of relief is most likely to be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a bankruptcy case, documents called a Petition, Schedules and Statement of Financial Affairs, as well as in some cases a Statement of Intention need to be prepared correctly and filed with the bankruptcy court. You will have to pay a filing fee to the bankruptcy court. Once your case starts, you will have to attend the required first meeting of creditors where you may be questioned by a court official called a `trustee' and by creditors.
`If you choose to file a chapter 7 case, you may be asked by a creditor to reaffirm a debt. You may want help deciding whether to do so. A creditor is not permitted to coerce you into reaffirming your debts.
`If you choose to file a chapter 13 case in which you repay your creditors what you can afford over 3 to 5 years, you may also want help with preparing your chapter 13 plan and with the confirmation hearing on your plan which will be before a bankruptcy judge.
`If you select another type of relief under the Bankruptcy Code other than chapter 7 or chapter 13, you will want to find out what should be done from someone familiar with that type of relief.
`Your bankruptcy case may also involve litigation. You are generally permitted to represent yourself in litigation in bankruptcy court, but only attorneys, not bankruptcy petition preparers, can give you legal advice.'.
`(c) Except to the extent the debt relief agency provides the required information itself after reasonably diligent inquiry of the assisted person or others so as to obtain such information reasonably accurately for inclusion on the petition, schedules or statement of financial affairs, a debt relief agency providing bankruptcy assistance to an assisted person, to the extent permitted by non-bankruptcy law, shall provide each assisted person at the time required for the notice required under subsection (a)(1) reasonably sufficient information (which shall be provided in a clear and conspicuous writing) to the assisted person on how to provide all the information the assisted person is required to provide under this title pursuant to section 521, including--
`(1) how to value assets at replacement value, determine current monthly income, the amounts specified in section 707(b)(2) and, in a chapter 13 case, how to determine disposable income in accordance with section 707(b)(2) and related calculations;
`(2) how to complete the list of creditors, including how to determine what amount is owed and what address for the creditor should be shown; and
`(3) how to determine what property is exempt and how to value exempt property at replacement value as defined in section 506.
`(d) A debt relief agency shall maintain a copy of the notices required under subsection (a) of this section for 2 years after the date on which the notice is given the assisted person.'.
(b) CONFORMING AMENDMENT- The table of sections for chapter 5 of title 11, United States Code, as amended by section 227, is amended by inserting after the item relating to section 526 the following:
`Sec. 528. Requirements for debt relief agencies
`(a) A debt relief agency shall--
`(1) not later than 5 business days after the first date on which such agency provides any bankruptcy assistance services to an assisted person, but prior to such assisted person's petition under this title being filed, execute a written contract with such assisted person that explains clearly and conspicuously--
`(A) the services such agency will provide to such assisted person; and
`(B) the fees or charges for such services, and the terms of payment;
`(2) provide the assisted person with a copy of the fully executed and completed contract;
`(3) clearly and conspicuously disclose in any advertisement of bankruptcy assistance services or of the benefits of bankruptcy directed to the general public (whether in general media, seminars or specific mailings, telephonic or electronic messages, or otherwise) that the services or benefits are with respect to bankruptcy relief under this title; and
`(4) clearly and conspicuously use the following statement in such advertisement: `We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.' or a substantially similar statement.
`(b)(1) An advertisement of bankruptcy assistance services or of the benefits of bankruptcy directed to the general public includes--
`(A) descriptions of bankruptcy assistance in connection with a chapter 13 plan whether or not chapter 13 is specifically mentioned in such advertisement; and
`(B) statements such as `federally supervised repayment plan' or `Federal debt restructuring help' or other similar statements that could lead a reasonable consumer to believe that debt counseling was being offered when in fact the services were directed to providing bankruptcy assistance with a chapter 13 plan or other form of bankruptcy relief under this title.
`(2) An advertisement, directed to the general public, indicating that the debt relief agency provides assistance with respect to credit defaults, mortgage foreclosures, eviction proceedings, excessive debt, debt collection pressure, or inability to pay any consumer debt shall--
`(A) disclose clearly and conspicuously in such advertisement that the assistance may involve bankruptcy relief under this title; and
`(B) include the following statement: `We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.' or a substantially similar statement.'.