What is a Debtor in bankruptcy?

A debtor is simply the person or entity which has filed bankruptcy. In bankruptcy terms, the debtor is the individual or entity responsible for the debt which is being discharged.

3.      What is a discharge in bankruptcy?

A discharge releases the debtor from liability from dischargeable debts. Upon discharge, the debtor will no longer be legally liable to pay these debts. This discharge is permanent and prevents creditors from taking any action to collect the debt including communicating with the debtor in any manner (telephone, letters, personal contact, etc.) or taking any legal action. A creditor who attempts to do so will be found liable for violation of the post-discharge injunction and can be sanctioned accordingly. The penalties for creditors for violating the automatic stay or post-discharge injunction are severe.

4.      What is the difference between a Chapter 7 and a Chapter 13 in bankruptcy?

A Chapter 7 bankruptcy is a total liquidation. The debtor in a Chapter 7 is entitled to keep certain exempt assets. All dischargeable debts are discharged. A Chapter 13 is a personal reorganization. Through a Chapter 13 bankruptcy, a debtor can reinstate a mortgage, reinstate automobile loans, strip down or eliminate mortgages and automobile loans as well as eliminate all dischargeable debt such as credit card debt, personal loans, lawsuits, medical bills, car accident liability, deficiency judgments for repossessed automobiles and foreclosed homes. However, in a Chapter 13 bankruptcy, a debtor must propose a Chapter 13 Plan. Under this plan, the debtor will be required to make payments to a Chapter 13 Trustee over a period of time such as 3 to 5 years. Sometimes if a debtor’s income is too high based on the median income for the state in which the debtor resides, the debtor may be required to file a Chapter 13 instead of a Chapter 7. This is based on something called the Means Test. The Means Test is explained below.

5.      Can a corporation or limited liability company file a Chapter 7 or 13?

A corporation or limited liability company can file a Chapter 7 but will be considered no longer doing business.  A corporation or limited liability company does not receive a discharge as a discharge is only reserved for individuals.  Some corporations choose to file a Chapter 7 to officially close down the company or to avoid time consuming depositions and other discovery of corporate officers who may themselves be subject to sanctions for non-compliance.  A corporation or limited liability company cannot file a Chapter 13. Chapter 13 bankruptcies are reserved for individuals.

6.      What is a Chapter 11 bankruptcy?

A Chapter 11 bankruptcy is similar in certain respects to a Chapter 13. However, Chapter 11 bankruptcies are for individuals meeting a certain high debt threshold and for corporations and limited liability companies. Just like a Chapter 13, a Chapter 11 bankruptcy requires the debtor to propose a Chapter 11 plan. Chapter 11 bankruptcies are much more complex than Chapter 13 bankruptcies.

7.     Will my credit be affected if I file a bankruptcy?

Yes. A bankruptcy will reduce your creditor score. After your bankruptcy, you will have to rebuild your credit.

Credit reporting agencies can report negative information on your credit report for 7 years and bankruptcy for 10 years.  However, clients can begin rebuilding their credit after filing bankruptcy by maintaining secured credit cards and making payments to post-petition creditors on time.

Will I be able to obtain credit after I file bankruptcy?

Debtors can seek secured credit cards to rebuild their credit. These are credit cards that are limited to an amount paid to the credit card lender. For example, a debtor can pay $500 to a credit card lender and receive $500 in credit. Hence, the $500 limit is secured by the $500 paid to the credit card lender. Debtors may also obtain credit after bankruptcy but at a higher interest rate.

10.  What if I don’t have a valid social security card?

If you have a valid social security card, you will need your original card to file bankruptcy. If you lost your valid social security card, you can have a new one reissued by the Social Security Administration. If you were not issued a social security number, you can still file bankruptcy, however, you would need to disclose that you do not have one. If you have a fake social security card, you cannot file bankruptcy as that would be a federal crime.

11.  What if I am unemployed, can I still file bankruptcy? 

Yes. This is one of the many reasons why people file for bankruptcy. However, even if you are unemployed, your income for the prior 6 months to filing or your household income may still create a Means Test issue. Also, your assets may create another bankruptcy issue even if unemployed. Each proposed filing must be reviewed on a case by case basis.

12.  What if I entered a settlement agreement with a creditor, can I still file bankruptcy and discharge the debt?

Yes. However, in some rare occasions a settlement agreement may create a security interest in certain assets. The settlement agreement will need to be reviewed to determine if a security interest exists in any assets and the timing of that security interest.

13.  What if I have a judgment entered against me, can I still file bankruptcy and discharge the debt?

Yes. However, if a perfected judgment lien exists on your property, the judgment lien will have to be avoided.

14.  Can I file bankruptcy more than once?

Yes. You can file a Chapter 7 petition once every 8 years. You can file a Chapter 13 as needed, however, you can only obtain a discharge upon filing a Chapter 13 if filed after: a) 4 years from a previous Chapter 7, 11 or 12 filing where a discharge was obtained; or b) 2 years from a previous Chapter 13 filing where a discharge was obtained. 11 U.S.C. § 1328(f). In order to strip mortgages or auto loans in Chapter 13, a discharge is required. A debtor may choose to file a Chapter 13, even though unable to obtain a discharge, for the purpose of reinstating a mortgage, automobile loan or other loan or obligation.

15.   If I am married, does my spouse have to be included in the bankruptcy?

No, your spouse does not have to file bankruptcy with you. However, certain circumstances may exist that would benefit from a joint filing with your spouse such as: joint debts and notes relating to real property for mortgage strip down purposes. In addition, if you are married, your spouse’s income may be included in calculating the Current Monthly Income (CMI) even if he or she does not file with you. These issues would need to be addressed on a case by case basis.

16.   If my spouse files for bankruptcy, what would I be liable for?

You would be liable for all debts that you are personally liable for regardless of your spouse’s filing. Your spouse would be discharged for any of his or her dischargeable liability, however, you would remain liable for what you personally owe. If you and your filing spouse have a joint debt, you would remain liable for the debt.

17.  What debts are not dischargeable in bankruptcy?

Some debts that are non-dischargeable under 11 U.S.C. § 523 include but are not limited to: a) certain taxes subject to certain conditions; b) money, property or services obtained by false pretenses or fraud; c) debt incurred through a false statement; d) debts based on fraud or defalcation; e) alimony, maintenance and support; f) debts based on willful and malicious injury; g) fines, penalties or forfeitures; h) student loans unless showing of undue hardship; i) liability based on death or injury caused by operation of a vehicle while debtor was intoxicated; j) restitution issued under title 18; k) certain non-support divorce obligations; etc. Each is subject to its own criteria and exceptions and each must be considered on a case by case basis.

18.  Can a bankruptcy that has already been discharged be reopened?

Yes. The Clerk of the Bankruptcy Court will charge a fee to do so. You would also have to consider the reason why you would like the case to be reopened.

19.  What is a bankruptcy Trustee?

United States Trustee is the “watchdog over the bankruptcy process”. The United States Trustee’s mission is to promote integrity and efficiency in the bankruptcy system by enforcing bankruptcy laws. They oversee the private trustees who are appointed to administer bankruptcy filings. They also investigate bankruptcy fraud. When you file a bankruptcy petition, a bankruptcy trustee will review your case and will be able to ask you questions at the First Meeting of Creditors (341 Meeting).

20.  How much does a bankruptcy cost?

The Southern District of Florida has capped Chapter 13 filings at: $3,500 attorney fees, $750 per motion to value real property, $500 per motion to value personal property, $150 costs and $274 filing fee. Other districts may vary. Payment plans are available. Chapter 7 pricing is determined on a case by case basis but is usually less than Chapter 13 filings for consumer debtors. Corporate debtor pricing varies based on the circumstances.

21.  Can I keep my vehicle or home if I file bankruptcy?

That question depends on the circumstances and the type of bankruptcy that will be filed. If you fell behind on your automobile loans payments or mortgage payments, you can use a Chapter 13 or Chapter 11 to reinstate the loans. The option may also exist to strip down the loans secured by your automobile and home. There are also certain exemptions that may be available to you that would allow you to keep your property. You can also consider reaffirming you debt with certain secured creditors. 

22.  What is an exemption in bankruptcy?

A Debtor is entitled to certain exemptions under state law and federal bankruptcy law. For example, certain exemptions exist for automobiles, qualifying retirement accounts, homestead real estate, personal property, etc. This means a Debtor may be able to keep certain types of personal and real property up to a certain limit. Each jurisdiction has its own rules relating to these exemptions.

23.  Can I keep my 401k if I file bankruptcy?

Yes. A 401k is exempt under Florida law and federal bankruptcy law. However, care must be taken to make sure that your account truly qualifies as a 401k or exempt account.

24.  Do I have to include all of my debts in the bankruptcy schedules or can I stay with certain credit cards or lines of credit?

All of your debts must be listed in your bankruptcy filing. Certain creditors can be approached to consider reaffirming the debt or a portion of the debt to continue the relationship with the creditor. However, the new terms may include a decrease in your credit limit or a higher interest rate. Creditors are not required to agree to reaffirmation of your debt.

25.  What if my bankruptcy is dismissed by the court?

Usually the dismissal will be with prejudice for 180 days. This all depends on the reason for the dismissal. The Court will enter an order upon dismissal stating what the prejudice period will be and the reason why the case was dismissed. Bad faith filings may result in a longer prejudice period.

26.  How much money do I have to owe in order to file bankruptcy?

There is no limit as to what the amount of debt you owe can be. However, the amount of debt may determine what type of Chapter you file in bankruptcy.

27.   Can I cancel my bankruptcy filing at any time?

The dismissal of a Chapter 7 bankruptcy filing is not absolute. A Chapter 7 can only be canceled or dismissed by order of the Court for cause and if certain circumstances apply. Chapter 13 cases may be voluntarily dismissed by the Debtor pursuant to 11 U.S.C. § 1307 which creates an absolute right outside of previous conversions and bad faith.

28.  What is a First Meeting of Creditors (341 Meeting) in bankruptcy?

The First Meeting of Creditors or 341 Meeting is a meeting with the trustee in which certain questions will be asked as to the accuracy of your schedules. It gives the trustee the opportunity to review your schedules with you. Creditors may be present who will also have the opportunity to question you for a short period of time. If the trustee or creditors request additional time, they will be required to request a Rule 2004 Examination.

29.  What if I can’t make it to the First Meeting of Creditors (341 Meeting)?

A valid reason for your absence would have to be provided in advance or a request to excuse your physical presence will have to be made. A request to reschedule the meeting can also be made with a valid reason. If the case is dismissed for failure to attend the meeting, a debtor may file a motion with the Court requesting the bankruptcy Judge to vacate the dismissal. The debtor would need to provide a valid reason for non-attendance.

30.  Can a creditor appear at the First Meeting of Creditors (341 Meeting)?

Yes. Creditors have the right to appear at the First Meeting of Creditors and ask a limited amount of questions. Creditors may also request a 2004 Examination which resembles a deposition should they be required to ask additional questions or require more detailed information.

31.  What are the requirements for filing a bankruptcy?

There are different requirements depending on the circumstances and under the Chapter filed. A typical deterrent for a bankruptcy filing may be an unusually high household income level, a large amount of non-exempt assets or the transfer of assets.

32.  What happens if I know I owe a creditor but I do not have their information?

You need to list each of your creditors to make sure they are provided notice of your bankruptcy filing. If you are having trouble locating a certain creditor, your attorney may be able to assist you in obtaining that information.

33.  How would a bankruptcy help me from losing my home in foreclosure?

You can use a Chapter 13 or Chapter 11 to reinstate your mortgage payments. You may also be able to strip down or strip off mortgages on your home or investment property. This means you may be able to reduce the amount of your mortgage or eliminate it altogether depending on the circumstances.

34.  Can I strip down my mortgage in bankruptcy?

Yes, depending on the circumstances. A strip down (reduction of the mortgage) or strip off (elimination of the mortgage) can occur if the real estate is worth less than what is owed on it. A determination of your ability to strip depends on a strict analysis of: a) the value of the real property; b) the outstanding amounts owed on the mortgage; c) who the obligors are; and d) whether the property is the primary or principal residence of the Debtor or if it is investment property. Along with a reduction of the mortgage, the interest rate may also be reduced and/or changed from an adjustable interest rate to a fixed interest rate.

35.  Can I strip down my car loan in bankruptcy?

Yes, depending on the circumstances. An automobile loan may be reduced to the value of the vehicle. Your ability to strip down your automobile loan depends on: a) the value of the vehicle; b) the outstanding amount owed on the vehicle; c) who the obligors are; d) how long you have had the loan; and e) the purpose for purchasing the vehicle and what is it primarily used for. Along with a reduction of the loan, the interest rate may also be reduced along with an adjustment of the repayment period.

36.  What is the Means Test under the bankruptcy code?

The Means Test is a set of calculations used to determine whether a presumption of abuse exists for a Chapter 7 consumer debtor. Under the Means Test, the Current Monthly Income (CMI) of the Debtor is compared to the state median income. If a presumption of abuse exists, certain allowances and actual expenses are reviewed. This test determines whether a consumer debtor may file a Chapter 7 or is required to file a Chapter 13 instead. The Means Tests is also used in determining the Debtor’s disposable income for purposes of plan payments in Chapter 13. In Chapter 7, non-consumer debtors are exempt from the Means Test in they can show that their debt owed is primarily business related. 

37.  Can I file for bankruptcy if I own a corporation or if I am self-employed?

Yes. Special attention will have to be made as to how you pay yourself and what benefits you derive, how much your corporation or equity interest is worth and what assets the corporation owns.

38.  What if I own a corporation but do not wish to include it in the bankruptcy?

If you file Chapter 7, the stock or interest you own in the corporation will become property of the bankruptcy estate in which the trustee may liquidate and administer. If you file a Chapter 13, you may be required to pay into the Chapter 13 Plan the value of your interest in the corporation. This analysis may differ significantly in the context of a Chapter 11 filing and would have to be considered on a case by case basis.

39.  Why is my corporation being sued if I filed for bankruptcy?

The debt is only discharged as to the Debtor and not as to the corporation. Corporations are treated as a separate entity from the Debtor. However, a lawsuit including a Debtor and a corporation may be subject to the automatic stay. Chapter 13 provides for a co-debtor stay. Further, in a Chapter 13 if a Debtor proposes to pay 100% of a joint debt with the corporation, the protection of the automatic stay will apply and the corporation along with the Debtor will be relieved from liability upon final payment under the Plan.

40.  What if I file bankruptcy on behalf of my corporation, will my name also be included in the bankruptcy?

Your name will be included for purposes of signing the bankruptcy schedules and as a representative of the corporation or a limited liability company. However, your credit will not be affected by the bankruptcy filing as long as you are not jointly liable for any of the corporation’s debts or a guarantor.

41.  What is a co-debtor stay in bankruptcy under Chapter 13?

A co-debtor stay means that a creditor cannot proceed against a person or business entity (the co-debtor) that is jointly liable for the debt of a Debtor. The co-debtor is protected under the automatic stay along with the Debtor. 11 U.S.C. § 1301 creates a co-debtor stay in Chapter 13 cases.   A creditor, however, may seek relief from the automatic stay by filing a motion for relief from co-debtor stay if the Debtor does not propose to pay 100% of the liability under the joint debt or if the Debtor’s plan is not confirmable.

42.  What is an adversary proceeding?

An adversary proceeding is a contested matter that will require a determination by the Bankruptcy Judge. In an adversary proceeding, evidence may be introduced and parties are permitted to take discovery and subpoena witnesses. An adversary proceeding is a separate action in conjunction with a main bankruptcy case. Adversary proceedings may be brought for judicial determinations as to non-dischargeability of certain debts, fraudulent transfers, preference payments, etc.