The primary goal of a bankruptcy for an individual debtor is to receive a discharge order at the end of the case. By receiving the bankruptcy discharge, the debtor obtains a fresh financial start - free of the burden of debt. The discharge eliminates the personal liability of the debtor with respect to all dischargeable debts. Generally speaking, the discharge does not affect security interests or mortgages. The underlying debt survives the bankruptcy discharge, and the creditor can file a proof of claim in a Chapter 7 case to receive its pro-rata distribution from the bankruptcy estate.
When a debtor files any bankruptcy case, a feature of bankruptcy known as the automatic stay goes into effect immediately. The automatic stay protects the debtor, the debtor's property, and property of the bankruptcy estate by prohibiting further collection activities. A creditor has an affirmative duty to stop all collection activity - including garnishments, repossessions, foreclosures, evictions, and utility shut-offs.
The automatic stay does not apply to some categories of court actions or proceedings. Examples of those include such things as criminal actions, custody/paternity/support actions, set-offs, and withholding or suspension of a driver's, professional, or occupational license as specified under §466(a)(7) of the Social Security Act.
With respect to property of the estate, the automatic stay continues until the earlier of: the date the property is no longer property of the estate (when abandoned by the trustee); or the date on which the stay is terminated by operation of law or order of the court.
With respect to the stay against any other act, the stay continues until the earliest of: the date the case is closed; the date the case is dismissed; the date a discharge is granted or denied; or the date the stay is terminated by order of the court or by operation of law.
If the debtor filed another bankruptcy case that was pending but dismissed within a year of the current filing, the automatic stay terminates after 30 days.
If the debtor has two prior bankruptcy cases dismissed within a year of the current filing, the automatic stay does not go into effect at all (absent a court order).
A creditor can file a motion for relief from the automatic stay by requesting that the stay be terminated, annulled or modified. The court will grant such a motion for cause, including lack of adequate protection.
A Chapter 7 bankruptcy is commonly referred to as a liquidation. In a Chapter 7 bankruptcy, all assets a debtor owns, including legal or equitable rights, are put into a bankruptcy estate. A court-appointed trustee is then assigned to see if any of those assets are available to sell to repay the creditors. Many of the assets in the bankruptcy estate can be protected by applying what are called exemptions. Exempt property is property that is beyond the reach of creditors. In United States Bankruptcy Court for the District of Minnesota, a debtor may choose either the Minnesota state exemptions or the federal bankruptcy exemptions.
A debtor whose debts are primarily consumer debts must meet eligibility requirements before filing a Chapter 7 petition. Eligibility is determined by a mathematical formula known as the means test. Typically, a debtor will pass the means test (and be eligible to file a Chapter 7 petition) if the household income is below the median income for a household of a similar size in the state of Minnesota. If a debtor's household income is over the median income, the Chapter 7 filing is a presumed abuse of the bankruptcy code. Even if a debtor does not pass the means test, it may be possible to overcome that presumption in certain instances.
Prior to filing a bankruptcy case, each debtor must obtain a briefing from an agency approved by the United States Trustee. This course can be completed in person, on the internet, or over the telephone. Upon completion of the course, the approved agency provides a certificate to the debtor and her attorney. The certificate must be dated within 180 days prior to the date the petition is filed.
Chapter 13 bankruptcy involves reorganization or a repayment plan for individuals or small proprietary business owners (not corporations or partnerships) who meet certain income and debt criteria. Chapter 13 bankruptcy allows a debtor to reduce debt through a payment plan while retaining certain assets that would otherwise be liquidated in a Chapter 7 bankruptcy. The amount the debtor has to pay in a Chapter 13 bankruptcy depends on the debtor's income, expenses, and assets.
To start a bankruptcy case, a debtor must file a petition and set of schedules with the United States Bankruptcy Court. The schedules must list all of the debtor's assets, debts, income, and expenses. The debtor must file a statement of financial affairs (designed among other things to alert those who oversee bankruptcy cases whether there are any preference payments or fraudulent transfers) and other documents with the court. In a Chapter 7 case, the debtor also files a statement of intention with respect to secured property and leases. In a Chapter 13 case, the debtor files a Chapter 13 plan of reorganization.
Upon filing a bankruptcy petition, all the debtor's assets become property of a separate legal entity known as the bankruptcy estate. However, under state law and under the bankruptcy code, up to a certain value in various categories of a debtor's assets is exempt (that is, beyond the reach of creditors). At any given moment, approximately 85% to 90% of Chapter 7 cases filed in Minnesota are no asset cases, meaning that the values for all of the debtor's assets fall below the maximum value that can be claimed as exempt. No property is liquidated and no funds are paid out to creditors in a no asset case.
Some Chapter 7 cases are asset cases, meaning that the value of some of the debtor's assets is above the amount that the debtor may claim as exempt. In those cases, the assets must be turned over to the Chapter 7 trustee. The Chapter 7 trustee liquidates the non-exempt assets and pays the funds to the unsecured creditors who file a proof of claim in the case. In a typical asset case, the value of the assets the debtor must turn over to the Chapter 7 trustee is very small compared to the amount of debt that is discharged.
In Minnesota and under federal law, a debtor may protect equity in the family home. In Minnesota, the maximum amount of equity that is protected in bankruptcy is $360,000. In addition, if you sell your home and intend to purchase another home with the proceeds of the sale, you possibly may use the exemption to protect that money for up to one year after the sale. It is important, however, to consult with a qualified bankruptcy attorney as there are certain conditions that have to be met in order to be able to claim the homestead exemption. Contact our office to learn more.
Certain debts survive the bankruptcy discharge order as a matter of law. Examples are recent, unpaid tax liabilities, child support and alimony, student loans, judgments incurred as a result of injuring someone while operating a motor vehicle, boat, or plane while under the influence of drugs or alcohol, and criminal restitution agreements.
Certain other debts may survive the bankruptcy discharge if the creditor asserts certain fraud based claims against the debtor. In those circumstances, the creditor files a complaint (adversary proceeding) in the bankruptcy case to determine whether its particular debt is dischargeable. If the creditor is successful, that creditor's particular debt or judgment will survive the discharge.
Claims for such an exception to discharge are most often fraud based. Examples are obtaining money or credit fraudulently, or by giving false representations regarding assets or income on financial statements or credit applications; stealing money from an employer while acting in a fiduciary capacity; and willful and malicious injury. If a state court judgment creditor has obtained a judgment that is based on fraud, and those fraud claims are similar to the claims outlined in section 523 of the United States Bankruptcy Code, the underlying judgment may constitute res judicata or collateral estoppel as to the creditors claim that its debt should be excepted from (i.e., survive) the bankruptcy discharge.
If a judgment is the result of an ordinary breach of contract claim in state court, the bankruptcy discharge eliminates the personal liability of the debtor on the underlying debt but does not remove the judgment from the state court docket. However, there is a very simple state court procedure to remove such a judgment from the docket if a debtor has received a bankruptcy discharge. The forms are available on the state court website.
Each debtor must complete a debtor education/financial management course from an approved agency approved by the United States Trustee. The certificate must be filed with the court within 45 days of the 341 hearing, or the debtor will not receive a discharge. The course can be completed in person, on the internet, or over the telephone.
A debtor may be able to enter into an agreement to reaffirm a particular debt with a particular creditor. Reaffirm means that the debtor will remain liable for a debt that would be otherwise discharged in the bankruptcy case, but the debtor will be able to keep the collateral securing that debt so long as the payments remain current. However, the circumstances under which a debtor may be able to enter into such an agreement are very limited, and the rules are tricky. Generally speaking, reaffirmation is only practical if a debtor needs a vehicle, there is equity in the vehicle, and the debtor has the ability to pay for the vehicle in her budget.
The bankruptcy code mandates that all creditors must be included in the bankruptcy petition and, if they are in the same class, must be treated equally during bankruptcy. Following the bankruptcy proceeding, however, the debtor may make voluntary repayments to any creditor without reaffirming the entire debt.
A debtor cannot obtain a Chapter 7 discharge for a period of 8 years after filing a prior Chapter 7 case in which she received a discharge. Different time periods apply to filing a Chapter 7 after a Chapter 13 or filing a Chapter 13 after a Chapter 7.
No. However, the non-filing spouse's income and expense information will be relevant to the case. Also, if there is any joint debt and only one spouse files, only the filing spouse is protected by the discharge. As such, it may not make sense for only one spouse to file. At Running Law Firm, we can advise you on the best way to proceed.
Pursuant to the Bankruptcy Code, the debtor has a duty to list all creditors, all co-debtors, and all child support recipients, which means they will all receive notice of the bankruptcy filing.
Although most bankruptcy proceedings are not published in newspapers, as foreclosure notices are, bankruptcy proceedings are a matter of public record. However, because accessing court records is a cumbersome process, it is unlikely that others will find out about your bankruptcy proceeding, unless you choose to tell them.