Some debt can not be discharged

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Points to keep in mind

As we wind down the series about Bankruptcy in Indiana, keep these major points in mind:

• Even if you drove your own private, financial wagon off the cliff, it’s part and parcel of the USA code of conduct that, having realized your mistakes, you get a chance to start over.
• That being said, if you’re really a schemer and a scammer, the trustee is empowered by the Bankruptcy Court and the Bankruptcy Code to bring you to justice.
• However, most people are neither schemers nor scammers. That’s why we have the very powerful protection of The Constitution, which gives Congress the authority to regulate bankruptcy.

That being said, following is more some stuff to know.

Some debt can not be discharged

Some debt simply can not be discharged, regardless of the chapter of the code under which the petition is filed. That being said, Chapter 13 is less restrictive than other chapters available to individuals. The good news is the debt does not have to be addressed until after the discharge; however, this happens quickly in a Chapter 7 case, comparatively speaking–within a few months after the original petition is filed. Compared to Chapter 13, often referred to as the “wage earner’s plan,” the few months’ wait fairly flies by–Chapter 13 cases are set up on either a three-year or five-year schedule.

According to the U.S. Court’s page on discharges, “There are 19 categories of debt excepted from discharge under chapters 7, 11, and 12. A more limited list of exceptions applies to cases under chapter 13.” The court also explains that “A slightly broader discharge of debts is available to a debtor in a chapter 13 case than in a chapter 7 case. Debts dischargable in a chapter 13, but not in chapter 7, include debts for willful and malicious injury to property, debts incurred to pay non-dischargable tax obligations, and debts arising from property settlements in divorce or separation proceedings. Although a chapter 13 debtor generally receives a discharge only after completing all payments required by the court-approved (i.e., “confirmed”) repayment plan, there are some limited circumstances under which the debtor may request the court to grant a “hardship discharge” even though the debtor has failed to complete plan payments. Such a discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor’s control.”

Advantages of Chapter 13 over Chapter 7

As I’ve written before (these criteria don’t vary from state to state, generally speaking):

In addition to the benefits of Chapter 7, you can:

• keep property that is secured by a contract by paying for it through the Chapter 13 plan. This can save a home from foreclosure, or stop repossession of a car;
• stop evictions, if filed before the 5 day notice or other lease termination expires and if you can pay the back rent owed through the Chapter 13 plan. If you cannot repay all of your debts, but have made the best effort to pay that you can, you can get a discharge of the balance left on your debts, although you cannot remove a lien unless you have paid it off through the plan;
• discharge all debts, except alimony, child support, criminal fines and restitution, damages to individuals caused by drunk driving or intentional torts, money owed due to fraud, theft or embezzlement, most taxes and long term debts, such as mortgages. Student loans are not discharged unless denying a discharge would cause an undue hardship to the debtor.

Special rules for Chapter 13

If you fall behind on your payments, the payments can be deducted directly from your paycheck. While you are in Chapter 13 you cannot get new credit without the trustee’s approval.

There are also limits the the amount of debt you can have and still be eligible for Chapter 13.  A debtor cannot have secured debts over $1,081,400 or unsecured debts over $360,475. However, Chapter 11 is available for debtors who exceed these limits–Chapter 11 is not restricted to business bankruptcies. If you need Chapter 11 protection, you really, really need a good bankruptcy attorney.

Consider free case evaluation

We can help: If you’re interested in learning more about the power of bankruptcy protection, please, browse our site for more information; if you need help filing for bankruptcy protection for yourself, consider signing up for a free case evaluation.

Indiana does not allow federal bankruptcy exemptions

mike hinshaw

State versus federal exemptions

Although bankruptcy is administered by federal law, the bankruptcy code (the “Code”) allows states to opt out of federal bankruptcy exemptions and to provide their own exemptions. These exemptions are what debtors claim in order to protect certain assets necessary to their ongoing lives and effort to start over. Exemptions include such obvious items as a home, an automotive vehicle, household possessions and tools but also include such assets as insurance policies, retirement accounts, child support and jury awards.

15 states and Washington, D.C. allow claimants access to federal exemptions

Indiana is not on the list; here’s the states that allow residents to claim federal exemptions instead of only state exemptions (Please notice: even in the following states, residents can’t “mix-and-match,” that is, they must choose one or the other):

States allowing federal exemptions

• Arkansas
• Connecticut
• Washington, D.C.
• Hawaii
• Massachusetts
• Michigan
• Minnesota
• New Jersey
• New Mexico
• Pennsylvania
• Rhode Island
• South Carolina
• Texas
• Vermont
• Washington, and
• Wisconsin.

Why do I list the states that allow federal exemptions?

Living in Indiana, you may rightly wonder: What do I care about federal exemptions if I’m not allowed to claim them because of Indiana state law?

First, you may be in a position to hold off. I know I first considered bankruptcy protection in the 1980s, when my publishing/management consulting practice got starved for cashflow when my top client (ARCO Oil & Gas) hit the skids. Oil prices plummeted, and I had to lay off people.

To them, it did not feel like a layoff.

It felt like they were getting fired.

What I tried to explain was this: You did no wrong, but I’m out of money–I would happily pay you to keep doing the good job you have been doing.

But when ARCO cut me off? I no longer had the $thousand$ of bucks a month to spread among my family and trusted employees. The result for my former employees? No jobs to return to.

You may be in a situation similar to my employees: Through no fault of your own, you no longer have a job. Yet, you may be in a position to move to a new state for a job. Perhaps you move for the job and it turns out the new state has better exemptions, or it allows claiming federal exemptions. Typically, you’ll need to be in the new state for several months to a couple of years.

Planning versus dodging

In short, there’s nothing wrong with planning the timing of your bankruptcy case, as long all actions are taken in good faith and there’s no attempt to hide assets or “temporarily transfer” title to assets to family members with them giving back the assets after your discharge from bankruptcy. Bottom line: in most cases, you can’t move then right away file bankruptcy merely to dodge Indiana exemptions law.

The court takes a dim view of anyone who seems to be “dodging” the requirements.

Don’t risk dismissal or fraud charges

Remember, your access to bankruptcy protection is not guaranteed. That is, yes, anyone can file for bankruptcy protection, regardless of income, from those living in poverty to those with millions in assets. However, everyone is subject to the means test (Chapter 7) or proof of assets versus liabilities and the income necessary to service a reorg/repayment plan (Chapters 13 and 11).

However, your case can be dismissed outright, leaving you exposed to all creditors. Or, worse, you can wind up facing charges of bankruptcy fraud, which can result in fines and even jail time.

These are all reasons for seeking counsel from an attorney experienced with Indiana bankruptcy courts and trained in both federal bankruptcy law as well as Indiana exemptions.

Next: Bankruptcy in Indiana, Part 5–Chapter 13 benefits over Chapter 7.

Consider free case evaluation

We can help: If you’re interested in learning more about the power of bankruptcy protection, please, browse our site for more information; if you need help filing for bankruptcy protection for yourself, consider signing up for a free case evaluation.

Continued from Bankruptcy in Indiana, Part 2

Effects of BAPCPA, the ‘reform’ act of 2005

Under intense pressure from credit-card companies (and the banks that own them) and their lobbyists for about five years of hard-corner, back-room negotiations, Congress passed BAPCPA, designed to make it more difficult for consumers to file for bankruptcy protection. The idea was to make it tougher for individuals to file Chapter 7 (so-called “liquidation bankruptcy”), steering them toward Chapter 13 (so-called “reorganization bankruptcy” or the “wage-earner” plan).

Trustees and the ‘means test’

According to the Justice Department’s BAPCPA page, the act gave “the U.S. Trustee Program new responsibilities in a number of areas, including:

• implementing the new “means test” to determine whether a debtor is eligible for chapter 7 (liquidation) or must file under chapter 13 (wage-earner repayment plan);
• supervising random audits and targeted audits to determine whether a chapter 7 debtor’s bankruptcy documents are accurate;
• certifying entities to provide the credit counseling that an individual must receive before filing bankruptcy;
• certifying entities to provide the financial education that an individual must receive before discharging debts; and
• conducting enhanced oversight in small business chapter 11 reorganization cases.”

Median income vs. finding of abuse

The trustee is now charged with more areas of ensuring the accuracy of filings and the determinations made under the means test and the disposable income test.

Before BAPCPA, income had no bearing on eligibility for Chapter 7. What comes into play now is the state’s median income, as determined by the Census Bureau (see Indiana QuickFacts, Census Bureau). Basically, if your household income is higher than the Indiana median income, you must satisfy the criteria of the means test in order to file under Chapter 7. This also puts you in the category of being subject to provisions against “abuse” of the bankruptcy code, whereas pre-BAPCPA law was framed in terms of “substantial abuse.” If abuse is found–subject to an appeal hearing–the Chapter 7 case can be dismissed (thereby exposing you once again to creditors) or converted to a Chapter 13 (or Chapter 11) filing.

Safe-harbor provisions, IRS criteria

If your household income (also relative to number of dependents) is below the median for Indiana, you have what is known as “safe harbor” from the abuse provisions and allows you to file under either Chapter 7 or Chapter 13. A sidenote: although Chapter 11 is commonly perceived as restricted to business reorganization, individuals with unsecured debt more than $336,900 are not eligible for Chapter 13 but can file under the more expensive–and more flexible–Chapter 11.) The means test uses the IRS national and local collection standards for determining household and living expenses.

Typically, a Chapter 7 bankruptcy turns out to be a “no asset” or “low asset” filing. In such cases, there’s simply not enough “stuff” for the trustee to sell (“liquidate”), and so the case proceeds onto discharge within a few months, usually about three or four. Also, in rare cases, a Chapter 7 filing can also help a debtor keep the home. Again, this varies from state to state, and is another reason to consult with an experienced bankruptcy attorney who’s not only familiar with the code but also with the asset exemptions in Indiana–plus the ins and outs of the various judges in the Indiana district courts.

Next: Bankruptcy in Indiana, Part 4–state versus federal exemptions.

Consider free case evaluation

We can help: If you’re interested in learning more about the power of bankruptcy protection, please, browse our site for more information; if you need help filing for bankruptcy protection for yourself, consider signing up for a free case evaluation.

Bankruptcy is in the U.S. Constitution

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In Part 1, we looked at some recent news showing bankruptcy filings in Indiana are down somewhat from this time a year ago, based on numbers for the fiscal year that ended Sept. 30.

You can safely disregard those numbers if you truly need bankruptcy protection

Although the numbers seem encouraging, those who still need bankruptcy protection are still hurting in this Wall-Street ravaged economy. Fortunately, bankruptcy protection is deeply embedded in the forgiving, ever-hopeful fabric of the United States of America.

In the USA, we long ago recognized the folly of sending people to debtor’s prison, where they could no longer service any debt at all and were removed both from the economy and the tax base.

Bankruptcy & The Constitution

In fact, bankruptcy is in Section 8 of the Constitution, listed among the several powers that Congress shall have (namely): “To establish a uniform rule of naturalization, and uniform laws on the subject of bankruptcies throughout the United States. . .”

The powerful protection of the Bankruptcy Code

In other words, we, the people, have not yet been recognized as being “too big to fail”–but every individual (and business) is recognized as “too important to jail.” That recognition has led to the codification of the federal bankruptcy laws contained in Title 11 of the United States Code. Known collectively as the Bankruptcy Code (or, simply, “the code”), together these statutes provide a powerful tool against harassment by creditors and illegal collection practices. Immediately upon filing, for example, creditors are ruled by an “automatic stay” from the U.S. Bankruptcy Court. This stay prevents them from contacting you anymore (i.e., ends creditor harassment) and says they must now work through the federally mandated procedures within the Bankruptcy Code.

Once the petition is filed, most creditors are forced to shut up, stand down

That, alone, is often cited by debtors as a great relief as they get on about their lives and the business of starting over. Despite many myths about bankruptcy–often perpetuated by the same credit-card industry that pushed so hard for the so-called Bankruptcy Reform Act of 2005 that made it tougher to file for bankruptcy protection–those who fulfill the court’s obligations and obtain their bankruptcy discharge often find their finances and credit in much better shape than they were before filing.

The bankruptcy courts in your state

Indiana has two, federal bankruptcy courts, serving the indicated divisions:

• United States Bankruptcy Court, Northern District of Indiana
  • Fort Wayne
  • Hammond
  • Lafayette
  • South Bend
• United States Bankruptcy Court, Southern District of Indiana
  • Indianapolis
  • Terre Haute
  • Evansville
  • New Albany

Advice from the Northern District (applies to all bankruptcies)

The following is from the Northern District’s page, “Filing Without an Attorney–Pro Se“:

CAUTION: It is very important that a bankruptcy case be filed and handled correctly. The rules are very technical and a misstep may affect your rights. Further, bankruptcy has long-term financial and legal consequences – hiring a competent attorney is strongly recommended. Even if you cannot afford to pay an attorney, you may be able to qualify for free legal services. For information about hiring an attorney, or about free legal services, contact your state or local bar association.

SPECIAL CAUTION REGARDING BANKRUPTCY PETITION PREPARERS: Beware of bankruptcy petition preparers who do not comply with all legal requirements. The role of non-attorney petition preparers is solely to type information on bankruptcy forms. They are barred by law from providing legal advice — they cannot explain how to answer legal questions or assist in bankruptcy court. Petition preparers must sign all documents they prepare; print their name, address, and social security number on such documents; and furnish copies to you. They cannot sign a document on your behalf or receive payment from you for court fees.

Consider free case evaluation

We can help: If you’re interested in learning more about the power of bankruptcy protection, please, browse our site for more information; if you need help filing for bankruptcy protection for yourself, consider signing up for a free case evaluation.

First in a five-part series about filing for bankruptcy protection in the Hoosier State

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The good news is bankruptcies in Indiana are down from a year ago.

The bad news is why.

Even though down, bankruptcy filings are still numerous

Of course, if you find yourself needing the powerful protection afforded by the U.S. bankruptcy code, it won’t matter to you that the number of Indiana filings are down a little bit from fiscal year 2010. In fact, if the Recession-ravaged economy has caught up with you, rest assured the numbers are still so high that your case certainly won’t attract undue attention–neither from the court nor from your similarly distressed friends and neighbors.

According to a Nov. 11 article in the Indiana Business Journal, “Indiana saw fewer bankruptcies for the fiscal year ending Sept. 30 than it did the year before, with the state improving its national ranking based on case filings.

“A report released this week  by the Administrative Office of the U.S. Courts showed an 8-percent decrease in the number of bankruptcy filings throughout the country between Oct. 1, 2010, and Sept. 30, 2011.

Chapter 7 filings drop 10%, Chapter 13 4%

“Nationally, courts saw 1,467,221 cases in the latest year compared to the 1,596,355 million filed the year before. Filings dropped during the fiscal fourth quarter, with 15 percent fewer than in the same three-month period in 2010. Overall for the year, Chapter 7 filings were down 10 percent, Chapter 13 filings dropped 4 percent, and Chapter 11 filings decreased 16 percent .”

More than 40,000 filings in-state during fiscal year

The Journal also reports actual numbers–and reasons for the drop in filings:

In Indiana during the 12-month period, 41,199 bankruptcies were filed, including 775 business filings. That was down from 48,438 bankruptcies, including 983 business filings, the previous year.

Business bankruptcies are down because banks are more willing to work with companies to give them more time to stage a turnaround rather than liquidating or reorganizing, said Jeff Hokanson, a bankruptcy attorney at the Indianapolis office of Frost Brown Todd LLC.

Banks are choosing forbearance agreements instead of bankruptcy because, quite frankly, there’s little value in the businesses or property to liquidate, he said.

“Equity is gone and bankrutpcy is about preserving value or what value is left for creditors, and there just isn’t any,” Hokanson said.

To an extent, the same holds true for consumers, local bankruptcy attorney Mark Zuckerberg said.

‘No reason’ to take anything away from folks who have nothing left to take, attorney says

“If people aren’t working, you can’t garnish unemployment,” he said. “[Bankruptcy is] to help protect assets. There’s no reason to file if there’s nothing to take from them.”

The 7th Circuit Court of Appeals, which includes Indiana, Illinois and Wisconsin, saw a 10-percent drop in bankruptcy filings overall, the figures show. A total 161,182 were filed lthe previous year compared to 145,018 in the most recent one.

Asset protection only one aspect of bankruptcy

Mr. Zuckerberg is correct. Bankruptcy certainly can protect certain assets (which we’ll address more specifically when we discuss “state versus federal exemptions”). However, asset protection is merely a benefit of the crucially important chief purpose of bankruptcy–it provides honest, hardworking citizens an opportunity to “hit the reset button” and start over, to reorganize one’s financial life and emerge with as nearly a clean slate as possible while remaining a productive, tax-paying member of the local community and the overall economy.

Next, in Bankruptcy in Indiana, Part 2: A brief history of U.S. bankruptcy, the power of “the code,” and an intro to bankruptcy court in Indiana.

Consider free case evaluation

We can help: If you’re interested in learning more about the power of bankruptcy protection, please, browse our site for more information; if you need help filing for bankruptcy protection for yourself, consider signing up for a free case evaluation.

Taxpayers let Wall Street off the hook, but individuals have to act for themselves

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Some bankruptcy basics

Chapter 7

Chapter 7 bankruptcy is often called “liquidation” bankruptcy because assets that can’t be protected by state exemptions or federal exemptions will be liquidated (sold off) by the bankruptcy trustee. (Fifteen states plus Washington D.C. allow choosing between either state or federal exemptions; businesses that choose Chapter 7 receive no exemptions.) In many cases, the debtor has few or no assets over and above the exemptions, so there’s nothing to sell.

Chapter 13

Chapter 13 bankruptcy is often called a “wage-earner plan” because the debtor has enough steady income to pay back (over three or five years) at least some of the total debt. Unlike Chapter 7, which is rarely used to protect a home with a mortgage, Chapter 13 is often able to prevent being forced into foreclosure. A debt cap exists in Chapter 13 filings: As of April 2010, the limit was increased about 7 per cent; the limit for a debtor’s unsecured debt is $360,475 and $1,081,400 of secured debt. A debtor who owes more has to file Chapter 11, the Chapter commonly thought of as a business-only vehicle.

Chapter 11

Chapter 11 is also a “reorg plan,” which can be quite versatile for individuals, but many business don’t like it because the plan, in effect, brings in outside forces who have quite a say in how the business operates–including creditors. Nevertheless, for a going concern with legit re-org chances, Chapter 11 is much better for everyone involved than Chapter 7 would be.

Chapter 9

Another kind of bankruptcy is called Chapter 9, and it’s made many a headline this year, most recently when Jefferson County, Alabama filed for Chapter 9 protection, the chapter in the bankruptcy code reserved for municipal entities (in this sense, municipal is not limited to a city or town but any governmental entity below state level; states can not file for bankruptcy protection).

Jefferson County ‘biggest in US history’

A Nov. 9 article at Bloomberg.com says, “Jefferson County, Alabama, filed the biggest U.S. municipal bankruptcy after an agreement among elected officials and investors to refinance $3.1 billion in sewer bonds fell apart.

“The county, home to Birmingham, the state’s most-populous city, listed assets and debt of more than $1 billion in Chapter 9 papers filed today in U.S. Bankruptcy Court in Birmingham.

“The county’s bankruptcy attorney, Kenneth Klee, said the filing was necessary because talks with creditors and the receiver in charge of the sewer system built by the bonds broke down.”

Harrisburg, Central Falls, Orange County

Other municipal bankruptcies this year include Harrisburg, PA (“debts of over $400 million that were largely tied to a trash incinerator project”), and Central Falls, RI, high-centered on pension debt. These bankruptcies are significant: first, the Jefferson County case is not only the largest-debt municipal bankruptcy but also it’s so much larger than the previous record holder, Orange County, CA, which filed owing creditors a tidy $1.7 billion; second, cash-strapped cities and counties around the recession-plagued nation will be closely following these cases to see what kinds of deals they might get.

No shame, no stigma in business decision

Third, and most important for individual consumers, is the recognition and realization that bankruptcy no longer carries the stigma and shame it once did. If tycoons, auto companies and even cities and counties can ask for bankruptcy protection as a business decision, why can’t individuals make a similar business decision without worrying about labels such as failure and deadbeat?

After all, we taxpayers bailed out the big banks who caused the financial crisis, in tandem with the lax government regulation that they bought via their lobbyists. Those same legion of banks own the credit-card companies, and they are the driving force behind such shoddy foreclosure practices that 14 of them have had to arrange settlement funds for people who lost their homes in 2009-2010.

‘This is why people hate Wall Street’

As Matt Taibi writes, in a Nov. 10 Rolling Stone piece, “This is why people hate Wall Street. They hate it because the banks have made life for ordinary people a vicious tightrope act; you slip anywhere along the way, it’s 10,000 feet down into a vat of razor blades that you can never climb out of.”

And he’s spot on about the emotional hell of that vicious tightrope scenario–but he’s wrong about never having a way out. If you’re up against the financial wall, you have to set emotion aside and realize that filing for the very powerful protection of bankruptcy may be the best business decision you’ve made in a long, long time.

Consider free case evaluation

We can help: If you’re interested in learning more about the power of bankruptcy protection, please, browse our site for more information; if you need help filing for bankruptcy protection for yourself, consider signing up for a free case evaluation.

Continued from Bankruptcy in Florida, Part 4

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If you’ve read from the beginning, you understand that the Constitutionally embedded notion of bankruptcy exists for honest citizens and businesses to be able to start over and to remain as viable, functioning citizens within the community and economy. We’ve covered such basics as the power of the federal bankruptcy code, as well as where and how to engage your U.S. Bankruptcy Court within the three divisional courts in Florida.

To wrap things up, we need to address:

• state versus federal exemptions
• the 341 meeting, and
• debt that can not be discharged.

Understanding exemptions

Although bankruptcy is administered via federal, civil law, provisions are made to allow states to opt out of the federal exemptions. In 15 states and Washington D.C., debtors can choose between the exemptions or the their home state’s exemptions–but there’s no mixing and matching; it’s either one or the other. Unfortunately, Florida does not allow the federal exemptions; fortunately, however, Florida is generally considered as one of the more generous states for debtor exemptions, especially homestead exemptions.

Unlike the federal exemptions, the various state exemptions are not gathered in one official listing but scattered throughout the states’ statutes. One version of the Florida exemptions is listed here, but the U.S. Courts advise that “The debtor should consult an attorney to determine the exemptions available in the state where the debtor lives.”

Meeting of the creditors

Once your petition is completed, including any exemptions and your plan for liquidation (or reasons why no assets are available for liquidation or your reorganization plan, you basically wait for the court to send you notice of your “341 meeting,” which typically occurs about a month after your initial filing. Notice: filings can be amended but even if you have an attorney, each amended filing adds to the total cost–so you want to be as complete as possible, meeting all deadlines and listing all creditors.

The 341 meeting is the opportunity for creditors to attend and ask you questions. The trustee can–and will–ask questions. By law, the trustee must ascertain certain basic information and may ask just about anything in order to ensure your filing is legitimate and the responses accurate. In most individual cases, however, creditors do not bother to attend. On the other hand, you will probably be spoken to, as a group, by a district judge and then listen to debt counseling program. Expect the whole affair, including a lunch break, to last a bit less than a regular business day.

Some debt can  not be discharged

Some of the myths that have spread about bankruptcy is that a successful discharge “wipes out” all debt. The most obvious debts that bankruptcy can not address are IRS taxes, child support and student loans. However, some tax debt can be included in a repayment plan, and student loans can be dismissed in rare cases of extreme hardship.

According to the U.S. Courts, “The most common types of nondischargeable debts are certain types of tax claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the court, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units for fines and penalties, debts for most government funded or guaranteed educational loans or benefit overpayments, debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated, debts owed to certain tax-advantaged retirement plans, and debts for certain condominium or cooperative housing fees.”

Consider free case evaluation

We can help: If you’re interested in learning more about the power of bankruptcy protection, please, browse our site for more information; if you need help filing for bankruptcy protection for yourself, consider signing up for a free case evaluation.

Continued from Bankruptcy in Florida, Part 3

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Effects of BAPCPA, the ‘reform’ act of 2005

Under intense pressure from credit-card companies (and the banks that own them) and their lobbyists for about five years of hard-corner, back-room negotiations, Congress passed BAPCPA, designed to make it more difficult for consumers to file for bankruptcy protection. The idea was to make it tougher for individuals to file Chapter 7 (so-called “liquidation bankruptcy”), steering them toward Chapter 13 (so-called “reorganization bankruptcy” or the “wage-earner” plan).

Trustees and the ‘means test’

According to the Justice Department’s BAPCPA page, the act gave “the U.S. Trustee Program new responsibilities in a number of areas, including:

• implementing the new “means test” to determine whether a debtor is eligible for chapter 7 (liquidation) or must file under chapter 13 (wage-earner repayment plan);
• supervising random audits and targeted audits to determine whether a chapter 7 debtor’s bankruptcy documents are accurate;
• certifying entities to provide the credit counseling that an individual must receive before filing bankruptcy;
• certifying entities to provide the financial education that an individual must receive before discharging debts; and
• conducting enhanced oversight in small business chapter 11 reorganization cases.”

Median income vs. finding of abuse

The trustee is now charged with more areas of ensuring the accuracy of filings and the determinations made under the means test and the disposable income test.

Before BAPCPA, income had no bearing on eligibility for Chapter 7. What comes into play now is the state’s median income, as determined by the Census Bureau (see Florida QuickFacts, Census Bureau). Basically, if your household income is higher than the Florida median income, you must satisfy the criteria of the means test in order to file under Chapter 7. This also puts you in the category of being subject to provisions against “abuse” of the bankruptcy code, whereas pre-BAPCPA law was framed in terms of “substantial abuse.” If abuse is found–subject to an appeal hearing–the Chapter 7 case can be dismissed (thereby exposing you once again to creditors) or converted to a Chapter 13 (or Chapter 11) filing.

Safe-harbor provisions, IRS criteria

If your household income (also relative to number of dependents) is below the median for Arizona, you have what is known as “safe harbor” from the abuse provisions and allows you to file under either Chapter 7 or Chapter 13. A sidenote: although Chapter 11 is commonly perceived as restricted to business reorganization, individuals with unsecured debt more than $336,900 are not eligible for Chapter 13 but can file under the more expensive–and more flexible–Chapter 11.) The means test uses the IRS national and local collection standards for determining household and living expenses.

Typically, a Chapter 7 bankruptcy turns out to be a “no asset” or “low asset” filing. In such cases, there’s simply not enough “stuff” for the trustee to sell (“liquidate”), and so the case proceeds onto discharge within a few months, usually about three or four. Also, in rare cases, a Chapter 7 filing can also help a debtor keep the home. Again, this varies from state to state, and is another reason to consult with an experienced bankruptcy attorney who’s not only familiar with the code but also with the asset exemptions in Arizona–plus the ins and outs of the various judges and local rules of the Florida district courts:

• Local rules, Northern District;
• Local rules, Middle District;
• Local rules, Southern District.

Next, in Bankruptcy in Florida, Part 5: state vs. federal exemptions, the meeting with creditors, undishchargeable debt.

Consider free case evaluation

We can help: If you’re interested in learning more about the power of bankruptcy protection, please, browse our site for more information; if you need help filing for bankruptcy protection for yourself, consider signing up for a free case evaluation.

Continued from Bankruptcy in Florida, Part 2

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Florida bankruptcy courts

As evidenced from the statistical data presented in Part 1, Florida has three  U.S. bankruptcy courts:

• Northern District of Florida;
  • map and counties served
  • Gainesville Division
  • Panama City Division
  • Pensacola Division
  • Tallahassee Division
• Middle District of Florida;
  • map and counties served
  • locations
• Southern District of Florida;
  • the Southern District’s site is not as well designed as those of the other two districts; for maps and locations, on its homepage, scroll to the bottom and click on either Claude Pepper Federal Building (Miami), U.S. Courthouse (Ft. Lauderdale), or Flagler Waterview Building (West Palm Beach).

FAQ from the Florida bankruptcy courts

Following are selected Q & A from the Northern District’s FAQ:

Where can I find the forms to file bankruptcy?
We have a link on our website to allow downloading and printing the most commonly used forms.  The Forms page is located here.  Here you can access both the National Bankruptcy Forms, the forms required for filing bankruptcy, and the local forms, which are forms required only by this court.  Be advised that the Clerk’s Office is not allowed to tell you which forms you must have for filing bankruptcy under each chapter.  For more information about what is required, you may refer to our “Guidelines & Requirements to Assist Pro se Debtors.”

Will filing bankruptcy stop creditors from calling me?
In most instances, the filing of the bankruptcy case will stop certain collection and other action against the debtor and the debtor’s property. Under certain circumstances, this protection, called an “automatic stay” or “stay,” may be limited to 30 days or not exist at all, although the court can request the court to extend or impose the stay. You should consult an attorney to determine your rights if a creditor attempts to collect a debt or take other action in violation of the Bankruptcy Code.

Can employees of the Clerk’s Office help me fill out my bankruptcy forms?
28 U.S.C. § 955 prohibits the staff of the Clerk’s Office from giving legal advice or assisting with the preparation of forms.

Here’s a couple of selected Q & A items from the Middle District’s FAQ page:

What is the difference between a chapter 7, 13 and 11?
Chapter 7 – In a Chapter 7, Debtors are permitted to retain certain “exempt” property, while the remaining assets are liquidated by the trustee. The trustee will distribute the funds from the liquidation to holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Accordingly, potential Debtors should realize that the filing of a petition under chapter 7 might result in the loss of non-exempt property.

Chapter 13 – Chapter 13 is designed for individuals with regular income to repay a portion or all of their debt over an extended period of time. Chapter 13 may be appropriate for Debtors who seek to retain certain assets through a repayment plan.

Chapter 11 – Chapter 11 allows corporations, partnerships, and certain individuals who do not qualify under Chapter 13, to reorganize without having to liquidate all assets. As in a Chapter 13, the Debtor (called the “debtor-in-possession” because a trustee is not normally assigned) is required to present a repayment plan. If the plan is accepted by the creditors and subsequently approved (“confirmed”) by the Court, this allows the Debtor to reorganize his/her/or its personal, financial, or business affairs.

NOTE: For further information on these Chapters, click here: General Information.

Next, Bankruptcy in Florida, Part 4: BAPCPA and the “Means Test.”

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Continued from Bankruptcy in Florida, Part 1

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Last time we examined some national trends versus specific statistics for Florida. We also pointed out that providing for orderly bankruptcy relief was charged to Congress in Section 8 (Clause 4) of the U.S. Constitution.

The powerful protection of the Bankruptcy Code

In other words, we, the people, have not yet been recognized as being “too big to fail”–but every individual (and business) is recognized as “too important to jail.” That recognition has led to the codification of the federal bankruptcy laws contained in Title 11 of the United States Code. Known collectively as the Bankruptcy Code (or, simply, “the code”), together these statutes provide a powerful tool against harassment by creditors and illegal collection practices. Immediately upon filing, for example, creditors are ruled by an “automatic stay” from the U.S. Bankruptcy Court. This stay prevents them from contacting you anymore and says they must now work through the federally mandated procedures within the Bankruptcy Code.

That, alone, is often cited by debtors as a great relief as they get on about their lives and the business of starting over.

In short, bankruptcy allows for the legal and orderly disposition of debt such that creditors can get paid anywhere from nothing to some percentage of the total debt. Once all the legal procedures are followed, any monies disbursed to creditors and all the details finalized, the debtor is said to receive “a discharge.” Here’s how the U.S. Courts explain it:

Bankruptcy laws help people who can no longer pay their creditors get a fresh start – by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation.

Most cases are filed under the three main chapters of the Bankruptcy Code – Chapter 7, Chapter 11, and Chapter 13. Federal courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court. More on bankruptcy cases.

Role of the bankruptcy attorney

Although the concept is straightforward, bankruptcy law can be quite confusing–especially since the so-called Bankruptcy Reform Act of 2005. That legislation was passed primarily at the behest of the credit-card companies (and their parent big banks) in an attempt to steer people away from filing for protection under Chapter 7 and steer them toward Chapter 13. That being said, it remains legal and possible for all qualifying debtors to file the paperwork themselves; that’s called filing pro se. However, in most cases, it’s much more efficient to retain a compatible, experienced attorney, especially if a valuable asset is on the line, such as a family home: mistakes that are simple and easy to avoid for an attorney could cost a pro se filer’s case to be dismissed. Even worse, if the court decides the filer has crossed the line into bankruptcy fraud, the filer could wind up in serious legal trouble.

A personal story

For example, in my case, besides my other problems, we were dealing with a bank that was trying to foreclose on my home–even though I had never missed a mortgage payment.  Because of the complications of my case, I was never sent notification of the foreclosure. Fortunately, my attorney was notified, and she immediately took action.

Later–even after the bankruptcy petition was filed–the bank once again attempted to foreclose. My attorney then informed the bank that it was in violation of federal law and unless they stopped immediately she would have no choice to but to file a Motion for Sanctions against the bank.

At that point, the bank hired its own bankruptcy attorney who basically told them, yeah, you have to follow the law, and if you don’t you can get in serious trouble–federal trouble. From that point until today, I simply make sure my bank account has enough to cover the monthly automatic withdrawal to the bankruptcy trustee. The relief and peace of mind has been almost incalculable, given the stress I was in before.

Next–Bankruptcy in Florida, Part 3: Florida bankruptcy courts, locations, maps & FAQ–answering common questions.

Consider free case evaluation

We can help: If you’re interested in learning more about the power of bankruptcy protection, please, browse our site for more information; if you need help filing for bankruptcy protection for yourself, consider signing up for a free case evaluation.