“The Bankruptcy Process – Part I”

The Bankruptcy Process – Part I

I quite often get inquiries about “how do I file bankruptcy”?  This article is designed to answer this question, describe the process, and review what information and documents are needed for an individual bankruptcy filing.

People generally file for bankruptcy relief in order to obtain a discharge of most if not all of their debts.  (Please see my related blogs on the Bankruptcy Discharge, which describes in detail which debts are eliminated and which debts may survive a bankruptcy filing).  In order to obtain a discharge, you cannot have filed for bankruptcy relief in the recent past and must make full disclosure of all of your assets (everything you own or have an interest) and list all of your creditors (so that they are given notice of the Bankruptcy proceedings and have an opportunity to participate therein).

To such end, when I speak with individuals I tell them to make a list of all assets, placing a present fair market value (what they would get for that item if it were sold) next to that particular item, and also make a list of all creditors, including their name, address, amount owed, account number, when the debt was incurred, and the nature of such debt (credit card, medical, etc.).  I also have them make out a monthly budget and  list all payments made of over $600 to any creditor in the past 90 days as well as transfers of any property to relatives in the past 2 years.  I then tell them to gather their vehicle titles, recorded deed and mortgage on any real property they own, copies of tax returns (state and federal) for the past 2 years, copies of pay stubs for the past 6 months, and bank statements for the past 3 months. Once they have all these documents and information in hand we then set up a meeting so that it is a meaningful opportunity to review, in detail, their financial situation.

After I review the financial data, I then discuss the various forms of relief available to an individual under the Bankruptcy Code. Usually, one of the first questions that arises is under what chapter of the bankruptcy code are they eligible to file for relief, and why.   For most individuals, a Chapter 7 (a liquidating proceeding) or Chapter 13 (a wage earner plan) filing are typically the only viable options.  (A Chapter 11 filing is also available to individuals who might be outside the Chapter 13 debt limits and Chapter 12 might be necessary for a family farmer.  These filings are extremely rare and will not be addressed in this article).

Whether one files for relief under Chapter 7 or Chapter 13 principally turns on your income and whether you meet the “means based testing” test for relief under Chapter 7.  This is a test whereby the debtor’s (the person who files for bankruptcy relief) income is basically compared to an individual (or a family) of the same size, living in the same county of residence as the debtor.  After taking into account the average income over the past 6 months, which figure is then doubled to annualize it, and factoring in the household size, and various allowed deductions, a determination is made as to whether such filing would be abusive.  The idea here is that those individuals with a good paying job with sufficiently high income should not be filing for relief under Chapter 7 (where they are not making any payments to a Trustee) but, rather, should be compelled to file for relief under Chapter 13 (whereby they will be making payments to a Chapter 13 Trustee  of their disposable income for the next 3- 5 years).  If one files for relief under Chapter 7 when they should be in a Chapter 13 proceeding, per the means based testing analysis, a presumption of abuse will likely exist and the Bankruptcy Court may subsequently dismiss such case as an abusive filing if the debtor does not want to “voluntarily” convert his or her case to a Chapter 13 proceeding.

Once a determination has been made as to what chapter to file under, I then discuss the ramifications of such filing and review the procedures involved.  Assuming the client wants to proceed, I then begin the process of drafting the requisite Petition (which basically lists the debtor’s name, address and last 4 digits of their social security number), Schedules (they show all the assets /liabilities and a budget), Statement of Financial Affairs (a historical lookback a the debtor’s finances), as well as a host of other related documents.

While I am preparing these documents, I have the client take a pre-bankruptcy credit counseling class, which is mandatory before most individuals can file for bankruptcy relief.  This class is typically taken on-line or over the phone and takes less than an hour.  A certificate of Completion is issued once the class is completed and is good for 6 months.   This certificate is incorporated into the bankruptcy papers when they are filed with the court.

I will continue with a description of this bankruptcy process in the next segment.  In the meantime, should you need to look at making a bankruptcy filing because of a job loss, unexpected medical bills, overwhelming credit card debt, an accident in which you were found liable for a large amount of damages, or the like, please contact the bankruptcy professionals at Damon, Ver Merris, Boyko & Witte, PLC at (616) 975-9951.  We are here to set your mind at ease and guide you through the process.  – Larry A. Ver Merris / December 18, 2017

While this posting originates from a law office, none of the contents should, in any way, be considered legal advice. If you have not signed a retention letter describing the legal services to be provided and the amount to be paid for such services, you are not a client of this firm