The following information is
a list of Frequently Asked
bankruptcy in Georgia.
Click on any of the questions
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explanation on the topic.
What is bankruptcy?
Bankruptcy is a legally declared inability of a debtor to pay his or her creditors. It is a legal option designed to alleviate financial crisis. Bankruptcies can usually be described as “reorganizations,” or “eliminations” of debt depending on which chapter you file. One of the main purposes of bankruptcy legislation is to afford the opportunity to a person, who is hopelessly burdened with debt, to free him or herself of the debt and start fresh and therefore obtain “a new lease on life.” One of the main aims of the United States bankruptcy law is to give a fresh start to honest debtors. To quote the United States Supreme Court, "It gives to the honest but unfortunate debtor ... a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt."
Will my creditors stop harassing me?
Yes, they will. By law - all actions against a debtor must cease once the documents are filed. Creditors cannot initiate or continue any lawsuits, wage garnishees, or even make telephone calls demanding payments. However, secured creditors such as banks holding a lien on a car or a mortgage on a home may try to get the stay lifted if you cannot make payments.
Will my spouse be affected by my filing bankruptcy?
Your wife or husband will not be affected by your bankruptcy if they are not responsible (did not sign an agreement or contract) for any of your debt. If you are co-borrower on any of your spouses’ debts, your spouse should continue to make payments on the debt unless they are also filing with you in a joint (Husband and Wife) case.
Can I file bankruptcy with my spouse?
Yes. Spouses can file together. These are called joint cases. Also, you can file alone. Your spouse is not required to file with you.
How does bankruptcy help?
From an individual debtor's standpoint, one of the primary goals of filing a bankruptcy case is to obtain relief from burdensome debt. Relief is attained through the bankruptcy discharge, the purpose of which is to provide a "fresh start" to the honest debtor.
Who will know that I filed bankruptcy?
Bankruptcy filings are public records. However, under normal circumstances, no one other than your creditors and people working on your case will know you if you have ever filed for bankruptcy.
Will I ever get credit again?
One of the fastest and surest ways to improve a credit score is to file a bankruptcy. Continuing to be responsible for debts you cannot pay will only continue to hurt your credit score. In general, the sooner someone files a bankruptcy case, the sooner they can begin to repair their credit rating.
One year after a bankruptcy discharge, debtors are eligible for automobile loans on terms as good as those of others, with the same financial profile, as those who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.
Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profile, as those who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.
The fact you filed bankruptcy becomes less significant the further in the past the bankruptcy is. The truth is that most banks will probably consider you a better credit risk after bankruptcy than before.
What is a discharge in bankruptcy?
Under the federal bankruptcy statute, a discharge is a release of the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer required by law to pay any debts that are discharged. The discharge operates as a permanent order directed to the creditors of the debtor that they refrain from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts. The experienced attorneys in our office can explain specifically which debts are dischargeable in a free consultation.
Although a debtor is relieved of personal liability for all debts that are discharged, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien. For more information about the process of avoiding a lien, please contact our capable attorneys for a free consultation.
When does this bankruptcy discharge occur?
The timing of the discharge varies, depending on the chapter under which the case is filed. In a Chapter 7 (liquidation) case, for example, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse which is sixty (60) days following the first date set for the 341 meeting of creditors. Typically, this occurs about four (4) months after the date the debtor files the petition with the clerk of the bankruptcy court. In a Chapter 13 (adjustment of debts of an individual with regular income) the court grants the discharge as soon as practicable after the debtor completes all payments under the plan.
Will filing bankruptcy affect my job?
A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law prohibits the following forms of governmental discrimination: terminating an employee; discriminating with respect to hiring; or denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.
What is the bankruptcy automatic stay?
The bankruptcy automatic stay is a bankruptcy court order that prohibits any creditor from collecting debt from a person who has declared bankruptcy. The filing of a petition under Chapter 7 or Chapter 13 "automatically stays" most actions against the debtor or the debtor's property. This stay arises by operation of law immediately when a bankruptcy case is filed. The bankruptcy automatic stay does not require judicial action or court hearing. As long as the bankruptcy stay is in effect, creditors generally cannot initiate or continue any lawsuits, wage garnishments, or even telephone calls demanding payments. Creditors normally receive notice of the filing of the petition from the clerk.
Will filing bankruptcy protect my property?
The automatic stay stops and prevents foreclosure, repossession, garnishments, collection calls, etc. Upon notice of the Chapter 7 or Chapter 13 case, creditors must cease attempting to collect from the debtor or the debtor's property until further order from the bankruptcy court.
What is the 341 meeting of creditors?
The 341 meeting of creditors is a required administrative hearing which allows the Chapter 13 or Chapter 7 trustee to ask you questions regarding your debts, assets, and finances.
Who can I include in my bankruptcy?
You should list anybody and everybody that you might owe money or who might assert a claim of any kind against you. This includes, but is not limited to: lawsuits, personal guarantees, taxes, child support, student loans, personal loans, business contracts, credit cards, medical bills, utilities, mortgages, car loans, finance companies, credit unions, and anyone who may want to sue you. They might not all be treated the same in your case, and some might not be discharged, but every one of your creditors should be listed.
I have filed bankruptcy before. When can I file again?
A person can file Chapter 7 again if it has been more than eight (8) years since he or she was discharged from the previous Chapter 7 bankruptcy. However, a Chapter 13 case can be filed if it has been more than four (4) years since a Chapter 7 discharge. The rules for filing successive cases are complex. We can explain the rules in a free consultation at a time that is convenient for you.
Do I have to use a lawyer to file bankruptcy?
No. You do not need to use a lawyer to file Chapter 7 yourself or Chapter 13. However, we advise that you use the services of an experienced bankruptcy attorney because bankruptcy is a highly complex area of the law. A bankruptcy petition, the forms filed with the Court, are very complex and the discharge in a filing can be denied or severely delayed by errors in the forms filed. Several clients have come to us after the Court has rejected their petition for bankruptcy and they have been advised to seek legal assistance. Retaining a competent and experienced bankruptcy lawyer is well worth the cost; mistakes in a bankruptcy petition can be costly in time and money. You will save the cost of an attorney's legal fees many times over through peace of mind, release of stress and probably actual money saved in following your bankruptcy attorney's advice.
What is the Income Means Test?
When Congress amended the Bankruptcy Code in 2005, it added a “means test” as a way to objectively measure which individuals are abusing the privilege of filing for relief in Chapter 7 bankruptcy. If an individual cannot pass a means text, a Chapter 13 case will usually have to be filed rather than a Chapter 7 case. The means test applies to individuals with primarily consumer debts. The test is administered with a review of the debtor’s average income over the preceding six months in order to determine the approximate average monthly income. If your business or non-consumer debt is greater than your personal debts, a means test may not be required in your personal case. This can be a great help to individuals that otherwise not qualify for a Chapter 7 case using the means test. Non-consumer debt can also include some types of judgments, investments and tax related debt.
What can I keep if I file bankruptcy?
You are allowed to keep certain assets, depending on the Georgia and Federal exemption law. In general, a debtor may claim exemption of his homestead and nonexempt personal property from attachment or execution of a judgment, or in a bankruptcy proceeding. Most cases filed in bankruptcy are no-asset cases, meaning that there are no assets that are available for the creditors.
A debtor generally is entitled to exemption from levy and sale by virtue of any legal process any real or personal property, or both, in the amount of Five Thousand Dollars ($5,000). (O.C.G.A. Section 44-13-1) If a debtor refuses to apply for exemption under this provision, his spouse, qualified representatives of his minor children or dependents, may make such application and the exemption is binding upon the debtor. (O.C.G.A. Section 44-13-2)
For the purposes of bankruptcy, a debtor may elect, in lieu of the exemption provided under O.C.G.A. Section 44-13-1, the exemption provided under Section 44-13-100 of the Official Code of Georgia. Some of the property which may be exempt include:
• The personal and real property used by a debtor or his dependents as a residence or a burial plot, in the aggregate value of Ten Thousand Dollars ($10,000). A married couple filing can double this exemption. This exemption refers to and is used to protect the actual equity of a residence and not it’s actual value. For example, if you owe more money on a home than it is actually worth, then there is no equity in the home that would need to be exempted;
• Social security benefits;
• Unemployment compensation;
• Local public assistance;
• Veteran's benefits;
• Disability benefits;
• Support or separate maintenance to the extent reasonably necessary for the support of the debtor and his or her dependents;
• Pension payments;
• Undistributed interest in a retirement plans(s) or pension plan(s); including a IRA, 401k or other qualified retirement plan;
• Automobiles in the aggregate value of Three Thousand Five Hundred Dollars ($3,500). This exemption refers to and is used to protect the actual equity of an automobile and not it’s actual value. For example, if you owe more money on an automobile than it is actually worth, then there is no equity in the automobile that would need to be exempted;
• Household furnishings and goods, wearing apparel, appliances, books, animals, crops, or musical instruments that are primarily for personal family or household use not to exceed Three Hundred Dollars ($300) in value in each item and not to exceed Five Thousand Dollars ($5,000) in a total aggregate value. A married couple filing can double this exemption;
• Jewelry in the aggregate value of Five Hundred Dollars ($500);
• The debtor's aggregate interest, not to exceed Six Hundred Dollars ($600) in value plus any unused amount of the homestead exemption in any property, to a maximum of Five Thousand Six Hundred Dollars ($5,600). A married couple filing can double this exemption;
• Professional books or tools of the trade in the aggregate value of One Thousand Five Hundred Dollars ($1,500);
• Unmatured life insurance contract;
• The debtor's aggregate interest in the loan value on any unmatured insurance contract not to exceed Two Thousand Dollars ($2,000);
• Professional health aids;
• An award under a crime victim's reparation law;
• Payment of not more than Ten Thousand Dollars ($10,000) from the recovery for personal injuries excluding pain and suffering or compensation for actual pecuniary loss; and
• Payment for compensation for loss of future earnings to the extent reasonably necessary for the support of the debtor and his dependents.
What don't I keep if I file bankruptcy?
In a bankruptcy, assets in excess of your allowed personal exemption, or non-exempt assets such as real estate, automobiles and boats may be liquidated by the trustee. However, most cases filed in bankruptcy are no-asset cases, meaning that there are no assets that are available for the creditors. You will want to discuss this with an attorney before filing.
What debts are not erased in a bankruptcy?
The following debts are not erased in both Chapter 7 and Chapter 13. If you file for Chapter 7, these will remain when your case is over. If you file for Chapter 13, these debts will have to be paid in full during your plan. If they are not, the balance will remain at the end of your case:
• Debts you forget to list in your bankruptcy papers, unless the creditor learns of your bankruptcy case;
• Child support and alimony;
• Debts for personal injury or death caused by your intoxicated driving;
• Student loans, unless it would be an undue hardship for you to repay; and
• Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution, and recent income tax debts and all other tax debts.
Tax issues are a complicated area of the bankruptcy law and an attorney should be consulted. You can usually discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of these five conditions are met:
• The IRS has not recorded a tax lien against your property. If all other conditions are met, the taxes may be discharged, but even after your bankruptcy, the lien remains against all property you own, effectively giving the IRS a way to collect. However, if you do not own much property at the time the case is filed, this may not be a real issue after the case is discharged;
• You didn't file a fraudulent return or try to evade paying taxes;
• The liability is for a tax return (not a Substitute or Return) actually filed at least two (2) years before you file for bankruptcy;
• The tax return was due at least three (3) years ago;
• The taxes were assessed (you received a notice of assessment of federal taxes from the IRS) at least Two Hundred Forty (240) days before you file for bankruptcy.
In addition, the following debts may be declared non-dischargeable by a bankruptcy Judge in Chapter 7 if the creditor challenges your request to discharge them. These debts may be discharged in Chapter 13. You can include them in your plan, and at the end of your case, the balance is wiped out:
• Debts you incurred on the basis of fraud, such as lying on a credit application;
• Credit purchases owed to a single creditor in the amount of Five Hundred ($500) or more for luxury goods or services made within sixty (60) days of filing;
• Loans or cash advances (per line of credit) in the amount of Seven Hundred Fifty Dollars ($750) or more taken within seventy (70) days of filing;
• Debts from willful or malicious injury to another person or another person's property;
• Debts from embezzlement, larceny or breach of trust, and
• Debts you owe under a divorce decree or settlement unless after bankruptcy you would still not be able to afford to pay them or the benefit you'd receive by the discharge outweighs any detriment to your ex-spouse (who would have to pay them if you discharge them in bankruptcy).
What is Chapter 7?
Chapter 7 bankruptcy cases contemplate an orderly, court-supervised procedure by which a trustee collects the non-exempt assets of the debtor's estate, reduces them to cash, and makes distributions to creditors, subject to the debtor's right to retain certain exempt property and the rights of secured creditors. However, because there is usually little or no nonexempt property in most Chapter 7 cases, usually there is no actual liquidation of the debtor's assets. These cases are called no-asset cases, meaning that there are no assets that are available for the creditors. A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case and the creditor files a proof of claim with the bankruptcy court. In most Chapter 7 cases, the debtor receives a discharge that releases the debtor from personal liability for certain dischargeable debts. The debtor normally receives a discharge just a few months after the petition is filed.
Who can file for Chapter 7?
In order to qualify for relief under Chapter 7 of the Bankruptcy Code, the debtor must be an individual, a partnership, or a corporation. An individual cannot file under Chapter 7 or any other chapter, however, if during the preceding One Hundred Eighty (180) days a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
What is a Chapter 7 trustee?
Upon the filing of the Chapter 7 petition, an impartial case trustee is appointed by the United States trustee to administer the case and liquidate the debtor's nonexempt assets. The Chapter 7 trustee will preside over the 341 meeting of creditors and determine whether there are any nonexempt assets available to liquidate for the benefit of creditors.
What are the key or major events in the Chapter 7 bankruptcy process and when will the bankruptcy be over?
Day Number 1: The bankruptcy petition is filed with the Bankruptcy Court. There is an immediate stay so that most actions by creditor are prevented, wages cannot be garnisheed, and legal actions cannot be continued.
Around Day Number 14: Creditors have usually been advised by the clerk that a bankruptcy petition has been filed. Specifically, the Court will mail your creditors notice of your bankruptcy filing.
Around Day Number 30: The 341 meeting of creditors hearing is held at the Court. The debtor must attend this meeting. Creditors can attend but usually do not attend the meeting. If they do attend, they usually only have a few minutes to ask questions. Note: The typical 341 meeting lasts about 4 to 5 minutes, but you should plan on arriving at court at least thirty (30) minutes to an hour early to find your attorney and discuss your case.
The trustee assigned to the case presides. The meeting is either tape recorded or recorded by a court reporter. The trustee asks you questions under oath such as:
• Did you read the schedules before signing?
• Did you list all of your assets?
• Did you list all of your debts?
• Are the schedules accurate?
• Do you want to make any corrections to the schedules?
• Are your cars insured?
• Have you destroyed your credit cards?
• The trustee either orally, or by giving the debtor written information, will ensure that the debtor is aware of the effect on credit history; the effect of receiving a discharge; the effect of reaffirming a debt; and the ability to file a petition under a different chapter.
This list of questions above is far from exhaustive. The more complex your case is, the more questions a Trustee may want to ask. In addition, if your case involves a business, self employment income, and/or non-consumer debts you may be asked several questions that are very specific to your case. Furthermore, you may be asked to produce documents and records to help explain and verify the information on your bankruptcy petition.
Around Day Number 30 and afterwards: The trustee will sell any nonexempt assets available for the benefit of the creditors. However, because there is usually little or no nonexempt property in most Chapter 7 cases, usually there is no actual liquidation of the debtor's assets. These cases are called no-asset cases, meaning that there are no assets that are available for the creditors.
The trustee has the authority to:
• pursue causes of action (lawsuits belonging to the debtor);
• set aside preferential transfers made to creditors within ninety (90) days before the petition;
• undo security interests and other pre-petition transfers of property that were not properly perfected.
Approximately Day Number 90 (after the 341 meeting): Usually, and if all goes well, the debtor is discharged and all debts (with some exceptions) are written off. Depending on the complexity of a case, a discharge may take longer than ninety (90) days.
What is Chapter 13?
Chapter 13 bankruptcy cases are designed for an individual debtor who has a regular source of income. Chapter 13 may be preferable to Chapter 7 because it enables the debtor to keep a valuable asset, such as a house with substantial equity, while still receiving bankruptcy protection. It is also favored because it allows the debtor to propose a "plan" to repay creditors over time - usually three to five years. At a confirmation hearing, the court either approves or disapproves the plan, depending on whether the plan meets the Bankruptcy Code's requirements for confirmation.
Chapter 13 is very different from Chapter 7, since the Chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor's anticipated income over the life of the plan. Unlike Chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor action while the plan is in effect. The discharge is also considerably broader (i.e., more debts are eliminated) under Chapter 13 than the discharge under Chapter 7.
Who can file for Chapter 13?
Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as the individual's unsecured debts are less than $336,900 and secured debts are less than $1,010,650. A corporation, limited liability company or partnership may not file a Chapter 13 bankruptcy case.
What is a Chapter 13 trustee?
Upon the filing of the Chapter 13 petition, an impartial case trustee is appointed by the United States trustee to monitor the case and administer the payments under the plan. An attorney from the Chapter 13 trustee's office will preside over your meeting of creditors to insure that you are making the payments under your plan and that it meets the requirements of the law.
What is the Chapter 13 confirmation hearing?
The confirmation hearing in a Chapter 13 case is when the judge approves the proposed repayment plan. After the plan is confirmed, the trustee will begin making payments to the creditors who have filed claims in the case. The confirmation hearing usually takes place about a month after the meeting of creditors. Chapter 7 cases do not have confirmation hearings.
When can a Chapter 13 be used?
Individuals may file Chapter 13 bankruptcy petitions if they: Reside, have a domicile, a place of business, or property in the United States, or a municipality; have a source of regular income; and on the date the petition is filed owe less than $336,900 in unsecured debts and less than $1,010,650 in secured debts. The dollar values given here are the published 2010 amounts. They are regularly adjusted to keep up with the cost of living. Corporations, Limited Liability Companies and partnerships may not file a Chapter 13 bankruptcy petition.
If you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition and should consult with an attorney and see 11 U.S.C. sec. 109(g).
THINGS YOU MUST KNOW IF FILING FOR BANKRUPTCY
There will be a mandatory 341 Meeting of Creditors hearing.
In every bankruptcy case, there is a mandatory hearing called the 341 Meeting of Creditors. This hearing usually takes place about one (1) month after your case is filed. It is run by an attorney from your trustee’s office. Our office will provide you with an attorney who will also be at the hearing to assist you. That hearing gives the trustee and your creditors the opportunity to ask you questions about your case and any collateral securing creditors’ claims. If you are filing a joint case (both husband and wife), then you both must attend. You should arrange to be in the hearing room a minimum of thirty (30) minutes early.
You must make your automobile and mortgage payments if you want to keep your automobiles and real property.
If you have a mortgage or mortgages on your residence, and you want to keep your home, you are required to make those payments directly to the creditor, every month, as they come due after your case is filed. Also, if you want to keep your automobiles, you will need to make your auto payments every month, as they come due after your case is filed. If you are behind on your auto and/or mortgage payments, you must let your attorney know before your case is filed.
You will need to continue to pay your child support and spousal support after filing.
All on-going child support and spousal support payments must be paid on time, every month, after your case has been filed.
The filing of a bankruptcy case does not stop criminal process.
Even though bad checks might be included in your Chapter 7 case, the Chapter 7 will not prevent creditors from pursuing bad check warrants against you. Furthermore, if you are under probation, you must abide by the terms of your probation order, failure to do so could lead to your probation being revoked. Finally, if you are ordered to appear in court for child support contempt, bad checks or any other court or administrative proceeding, you MUST appear in that court or a Bench Warrant may be issued for your arrest. Our representation of you does not extend to criminal matters.
You cannot borrow money while your case is open.
While your bankruptcy case is open, you cannot borrow money (even from family or friends), use credit cards, finance any purchases, mortgage assets, or otherwise incur new debt without first getting the trustee’s permission.
You cannot sell or quit claim your home while your case is open.
While your bankruptcy case is open, you cannot sell, quitclaim, give away or otherwise dispose of any assets, including real estate, without the Bankruptcy Court’s permission. If you need to sell an asset, you should obtain a proposed sales contract, make it subject to the Bankruptcy Court’s approval, and provide a copy to our office. We then can file a motion with the Court to have the sale approved. Typically, once we have received a copy of the contract, it takes 45 to 60 days to get it approved by the Court.
You must list all cosigners and cosigned debts on your bankruptcy petition.
Any debt that you are liable on, whether you have a cosigner or you cosigned for somebody else, must be listed in your schedules. You also must list the names and complete mailing addresses of the people who are liable on the debts with you.
You must list all taxes, law suits, child support, student loans, etc. on your petition for bankruptcy.
In a bankruptcy case, ALL of your debts or alleged debts MUST be listed on your petition. How they will be treated in your case may be a different story, but we need to know about all of your creditors (whether you agree with the debt or not) that you owe or may owe. If you have a question or are uncertain, err on the side of caution and list any and every debt you can think of.
You must list all claims you may have against third parties on your bankruptcy petition.
In a Chapter 7 case, all of your assets MUST be listed in your schedules. This includes any and all claims arising out of personal injury, workers compensation, breach of contract, employment discrimination, social security, etc., whether or not a lawsuit, complaint or claim has actually been filed. Further, if any such action arises while your case is pending, then you must notify our firm so that we may disclose it to the Bankruptcy Court, as well. Failure to list these claims could result in your losing the right to recover against them. If you have a claim against a third party and wish us to assist you with it, we will be more than happy to discuss it with you. If you have retained other counsel, please let us know so that we may help your attorney to be approved by the Bankruptcy Court.
You should include past-due utilities unless they are paid current before you file.
You can include back payments owed for utilities. If you do, however, the utility can require a double deposit within twenty (20) days after the filing of your case. More often than not, it is cost-effective not to include the utility and to simply work it out directly with that creditor before filing. If a utility is a problem, please be sure to discuss it with your attorney.
You should disclose all preference payments you may have made on you bankruptcy petition.
One of the goals of the entire bankruptcy system is “equality of distribution,” so that all creditors share equally in the limited assets that are available. The bankruptcy code has a number of provisions designed to equalize distribution among creditors, frustrate attempts by debtors and creditors to skew that distribution, or address a situation where such skewed distribution takes place through happenstance. None of those provisions is more important, or more frustrating to creditors and many debtors, than the preference provisions.
A preference is simply a transfer before bankruptcy that has the effect of paying one creditor more than that creditor would have received if the transfer had not been made. One of the things that is disclosed in a bankruptcy filing is whether any payments or other transfers were made shortly before filing. In addition, trustees will review records like bank statements, real property records, and the like, looking for such transfers. The trustee may make demand for the return of such assets, so that the value of the transfers may be shared with other creditors. The trustee also has the ability to file a civil suit and obtain a judgment for a preference.
It is important to understand that the preference statutes impose what lawyers call “strict liability,” i.e., a given set of circumstances gives rise to liability, regardless of the intent of the parties. The trustee does not have to prove that the debtor was trying to improve the position of the creditor, or that the creditor was trying to beat other creditors to the punch. If a payment or a transfer has the effect of improving one creditor’s position relative to other creditors, and no defenses exist, the trustee is entitled to recover the value of the transfer.
In general, a preferential payment to a third party is one that occurs within the 90 days prior to bankruptcy. Payments made within one year before bankruptcy to “insiders,” who are generally business partners, family members, and the like, can be set aside as preferential. There are some technical issues to consider–for example, a payment made by check is effective as of the date the check cleared, not the date on the check or the date it was mailed. There are also some defenses to preferences, usually available in a business rather than a consumer setting. Preferences can be voluntary payments, like a check sent in payment of an invoice, or involuntary, like attaching a bank account.
Preference recovery is generally a matter between the trustee and a creditor. When the creditor is a third party the debtor may not care very much. When the creditor in question is a relative, however, most debtors are very concerned indeed. One of the most common scenarios that lead to preference litigation is a debtor who tries to get debts to family members paid before filing bankruptcy. It is a natural thing to try to do. After all, no one wants their financial trouble to affect family members. But, that instinct can make plenty of trouble for debtors and those they try to pay. It is particularly frustrating when the debtor has taken money from something like a 401k plan or IRA, which a trustee cannot touch, used the money to pay a family member, and the result is a lawsuit against that family member. But that is just the most obvious kind of preference. They are not always that easy to identify; in fact, there are even “indirect” preferences. Trustees know them all–that’s what they are paid for.
There are different kinds of bankruptcy trustees.
Actually, there are several types of bankruptcy trustees:
• The United States Trustee is responsible for oversight of the bankruptcy process as a whole. The United States Trustee's duties are to maintain and supervise a panel of private trustees (usually, but not always, private attorneys) to serve in Chapter 7 cases, review fee applications filed in Chapter 11 cases, monitor plans and disclosure statements in Chapter 11 cases, monitor activities of creditors' committees, monitor the progress of Chapter 11 cases, and assist the United States Attorney in criminal prosecutions.
• In a Chapter 7 case, the United States Trustee appoints the trustee from a panel of private trustees. A Chapter 7 trustee is responsible for representing the interests of the debtor's estate and creditors as a whole.
• In a Chapter 13 case, the United States Trustee appoints a standing trustee to conduct the duties of the United States Trustee in Chapter 13 cases.
Recently incurred debts and use of credit cards may not be dischargeable.
Most credit card debt can be wiped out in bankruptcy. The most common way to lose that right is for a lender to prove they were defrauded. Only rarely do individuals intentionally charge up a credit card without having some intention of eventually repaying it and they are even less likely to confess it in Court. So when confronted with this issue, Judges have to look for evidence of fraud in the behavior of the person seeking a bankruptcy discharge.
A common indicator of fraud in a bankruptcy case is substantial credit usage in the months proceeding the filing of a bankruptcy. Creditors frequently try to discover if there were substantial credit usage and charges that occurred after you first consulted with a bankruptcy lawyer.
Bankruptcy law presumes fraud if cash advances over Seven Hundred Fifty ($750) were made during the seventy (70) days, or “luxury” purchases totaling more than Five Hundred ($500) during the ninety (90) days, before a case is filed. However, an adversarial proceeding filed in a bankruptcy case alleging fraud can look toward charges made outside of ninety (90) days. It is important for you to bring to your attorney’s attention any charges on your credit cards that fit the criteria above that were made at any time.
You should not tamper with your assets before filing a bankruptcy case.
Do not sell, buy, trade, or affirmatively do anything to any secured or unsecured assets before or immediately after the filing of your case before discussing with your attorney.
Do not sign a reaffirmation agreement without serious consideration of the potential consequences.
Do not reaffirm anything you cannot afford. If you are reaffirming multiple items, you must consider the total amount of your reaffirmations. Do not sign any reaffirmations without discussing with your attorney.
Thirty-Seven (37) Things NOT To Do In Preparation of Filing you Bankruptcy Case
- Don’t leave off any bank, checking, savings, brokerage, leases, and credit union accounts on your bankruptcy petition.
- Don’t file if your total income is greater than your total expenses.
- Don’t file if you can pay all of your bills and financial obligations as they come due.
- Don’t use your credit cards.
- Don’t take our credit card cash advances.
- Don’t use credit card convenience checks.
- Don’t do balance transfers between credit card accounts.
- Don’t pay money to family. If you must do so for support reasons, discuss with your attorney.
- Don’t pay money to friends. If you must do so for support reasons, discuss with your attorney.
- Don’t tell your creditors that you intend to pay them or enter into settlement negotiations with the creditors.
- Don’t leave assets off of your bankruptcy petition.
- Don’t file if you are about to receive a tax refund or inheritance. Discuss the timing of your case with your attorney.
- Don’t fail to tell your attorney about your small business, sole proprietorship, partnership, LLC, LLP, LC, corporation, or hobby, or your cosmetics sales.
- Don’t purchase a home shortly before filing bankruptcy without consulting your attorney.
- Don’t give or gift property to anyone and do not accept gifts of property.
- Don’t pay more than $600 on any past due bill without discussing with your attorney.
- Don’t transfer property to anyone without discussing with your attorney.
- Don’t cash out retirement plans or 401k’s without discussing with your attorney.
- Don’t take out a second mortgage.
- Don’t gamble.
- Don’t go on a spending spree.
- Don’t hide assets or debts.
- Don’t take out “payday loans”.
- Don’t put your money in your children’s bank accounts
- Don’t omit listing or try to "save" a credit card for use after your bankruptcy.
- Don’t fail to list debt to family or other "insiders."
- Don’t write bad checks.
- Don’t borrow money.
- Don’t forget to tell your attorney about liens you may have on your home or unpaid judgments so they can be avoided.
- Don’t make major financial decisions without talking to your attorney.
- Don’t get married just before filing without discussing with your attorney.
- Don’t misrepresent facts to your attorney.
- Don’t run up your credit cards in advance of filing bankruptcy.
- Don’t fail to appear at state court hearings, trial or proceedings; coordinate with your attorney.
- Don’t hide from your attorney. Keep your attorney up-to date with your address, phone number and email address.
- Don’t forget to list all personal guarantees and business debts that you may be responsible for.
- Don’t throw away any of your pay records, receipts or statements. The Trustee or Court may want to review these to verify the accuracy of your bankruptcy petition.
Special Considerations for Business Owners, Self-Employed and Business Cases
Deciding to file a bankruptcy is a big step that might help alleviate the financial situation for a business owner, self-employed individual or a business. It is important to consider several factors when deciding on filing a personal or business bankruptcy. A type and size of business in question determines what type of bankruptcy case a business or business owner may file. In addition, the option of filing two cases, a personal and business case, may be the best option. These are the questions we help people with in our initial consultations.
Proof of Income for Business Owners and Self Employed Individuals
When filing for bankruptcy, it is important to provide the necessary documentation showing proof of income. While this may be an easy task for somebody filing a personal bankruptcy, being a self-employed individual makes the process more involved. There are many self-employed individuals in Georgia who are facing financial difficulty and who are under a false assumption that they do not qualify under the new Chapter 7 and Chapter 13 bankruptcy laws. Being a self-employed individual can make your bankruptcy case more complex. When Congress amended the Bankruptcy Code in 2005, it added a “means test” as a way to objectively measure which individuals are abusing the privilege of filing for relief in Chapter 7 bankruptcy.
The means test applies to individuals with primarily consumer debts. The test is administered with a review of the debtor’s average income over the preceding six months in order to determine the approximate average monthly income. However, if your business (non-consumer debt) is greater than your personal debts, a means test may not be required in your personal case. This can be a great help to individuals that otherwise not qualify for a Chapter 7 case using the means test. Non-consumer debt can also include many types of lawsuits, judgments, real property ownership, investments, negligence claims and tax related debts.
For most debtors, income information comes from paycheck stubs. However, if you are a self-employed debtor, tracking your earnings can be quite complex and time consuming. As a general rule, the bankruptcy trustee is interested in the net income of the business, which consists of gross income of the debtor’s business minus the necessary business expenses. To obtain this information, the trustee will want to see your Profit and Loss Statement (P&L) showing gross income and gross expenses for the six (6) months prior to the case filing in order to fully analyze the business income. Therefore, as a self-employed debtor, it is important to be disciplined about tracking your expenses in order to take control and benefit from a fresh start offered from a discharge in bankruptcy.
We strongly recommend that if you are a business owner planning to file for bankruptcy, that you retain a Certified Public Accountant (CPA) early in a case to help determine an accurate income calculation for you and your business. A CPA can help you determine what are legitimate business expenses and can assist you in calculating accurate Profit and Loss Statements which will be necessary in a bankruptcy case.
If you decide that bankruptcy is an option, you need to determine your personal liability for any business debts. This depends on two things: how the business is structured and whether you personally guaranteed or secured any debts.
Corporations, limited liability companies, and some partnerships protect personal assets from being used to pay off business debts. However, if you are a corporate shareholder, LLC owner, or partner in a partnership and you have signed personal guarantees or pledged collateral for business loans, putting your business through bankruptcy will not protect your personal property. If you have placed your personal property at risk, you must file for bankruptcy separately for your business and yourself.
When you file for bankruptcy, creditors are prevented from collecting on debts until the process is completed. How much creditors can collect depends on the structure of the business. These issues can be very complex and are best discussed in our office in a confidential initial consultation.
If your biggest debt is a bank loan, there is a very high probability that you pledged your personal property and signed a personal guarantee as collateral for the loan. Also, if your business owes your landlord back rent, you are probably personally liable for the debt. Sole proprietors and business partners are automatically personally responsible for this type of debt. Most small business corporations and LLCs usually get bound to this type of debt by personally guaranteeing and signing for the lease payments. You can check your lease and other agreements to see if you signed a personal guarantee.
Unfortunately for small business owners, often times creditors require personal guarantees before they approve a lease or extend credit to a business. What this means is that the owner agrees to hand over his or her personal assets if the business cannot pay its debt and its assets are not worth enough to cover the debt. These are the kinds of issues that we frequently help clients out with in our initial consultations.
If your business owes suppliers, you will be responsible for this type of debt if you operated the business as a sole proprietorship or a partnership. Suppliers of goods usually have the right to take the goods back and they can also come after you personally for the unpaid amount which is why filing Chapter 13 could help you organize a payment plan. However, filing a Chapter 7 when the business is beyond being saved and reorganized is usually the best option. If your business is a corporation or an LLC, you may not be liable for this type of debt as it is often unsecured and usually not personally guaranteed. Therefore, if your corporation has only unsecured business debt that you did not sign personal guarantee, then there may be no need to file a personal bankruptcy.
Filing for a Business and Business Bankruptcy Eligibility
Corporations, Limited Liability Companies, Organized Partnerships and other types of organized businesses can file for a Chapter 7 or a Chapter 11 bankruptcy. However, proprietorships are an extension of the owner which means that they cannot file for bankruptcy alone. In this case, the owner may apply for Chapter 7 and Chapter 13 if the debt limits are met. Corporations, Limited Liability Companies and Organized Partnerships are legal entities separate from their shareholders or partners, which means that they may file Chapter 7 or Chapter 11 bankruptcy in their own right. These entities usually do not get a discharge on their debts but a bankruptcy filing may provide an orderly liquidation of assets under a trustee’s direction.
As a court approved debt relief agency, we help people file for bankruptcy relief under the U.S. Bankruptcy Code. This statement is required under the United States Bankruptcy Code pursuant to Section 528(a)(4).