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Answers To Your New Beginning

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Bankruptcy is technically defined as the legal status of a person or other legal entity that cannot repay the debts it owes to other.

In the US, bankruptcy is generally understood as system specifically authorized by the Constitution which helps people, businesses, and government entities recover from excessive debts. This system is part of the United States Code and is available in all US States and Territories. While bankruptcies proceed in different fashions from State to State, overall they help eliminate or repay some or all of the debts while they are protected from harassment and lawsuit from their creditors.

This system has a special Federal court created, the Bankruptcy Court. The judges which sit on the court help guide the bankruptcy by providing decisions on major intersections and conflicts within the bankruptcy. They can, for example, decide which claims creditors make are, or are not allowed into the bankruptcy; when debtors can receive a fee waiver; and even the likely outcome of a trial. These judges have a wide variety of authority within the bankruptcy and ultimately provide the guidance on the heaviest of issues. That said, other Federal courts can hear bankruptcy appeals, even the Supreme Court of the United States occasionally writes opinions on bankruptcy issues.

For consumer and some business cases, a trustee provides the routine oversight of each case. This includes reviewing accuracy of financial and asset statements and income disclosures. If there are assets that need to be sold and distributed, which usually occurs in business bankruptcies, the trustee is the person who will handle that. They take in and distribute payments as call for by the bankruptcy; this is particularly true in Chapter 13 bankruptcies. For most consumer cases, the trustee is the only official, besides their attorney, who they routinely interact with.

The common aspects to all bankruptcies are the fresh start and the protection from creditors.

Bankruptcy provides filers with a fresh start by providing different varieties of debt relief. In some cases, it is a discharge that provides the relief. A bankruptcy discharge relieves the debtor from various debts owed that are listed on their bankruptcy schedules. Usually these discharge what are called unsecured, non-priority debts which are the bulk of what people worry about in credit situations. Other types of debts have other options available, such as abandonment where a bankruptcy filer can set aside leases and contract that they no longer want. In other cases, regular payments are made so that the debtor can further rely on and maintain existing obligations that provide benefits to the debtor, like mortgages and car notes. This allows the debtor to focus on maintaining their life and improving it rather than fighting off banks and other lenders. Ultimately, the goal with the fresh start is to provide a new, unburdened life for the individual or company. This will allow that debtor to enter into new financial relationships that are healthier and promote long term growth for the debtor and the community at large.

Bankrupt debtors also receive initial protection from creditors through the Automatic Stay imposed by the Bankruptcy Code. This stay works by preventing creditors from initiating collection proceedings or actions. Things like lawsuits and garnishments are clearly stopped, but even collection calls and utility shut-offs are avoided by filing bankruptcy. In order for a creditor to proceed during the bankruptcy proceeding, they must be granted court permission to do so. Debtors have the opportunity to challenge the creditors at those proceedings and seek to prevent the judge from granting permission. In addition, if the creditor acts without receiving court permission, then the debtor can sue the creditor and seek any damages incurred due to their action as well as attorney’s fees for bringing the lawsuit. Overall, creditors act very cautiously with the automatic stay and it provides breathing room so the debtor can focus on the decisions at hand and how to improve their life.

Bankruptcy, in sum, is a system that helps people move past their debts, whether they are business or individual debts. It does so by providing a framework that lets the debtor deal with the debts in various manners that help the debtor regain their stability and let’s them flourish.

Bankruptcy Chapters and Their Key Features

There are six different types of bankruptcy. Each type has its own chapter in the United States Code, so they are called bankruptcy chapters. The first two chapters, Chapter 7 and Chapter 13, are most commonly filed by individuals. Some other chapters are also used by individuals but are only done so in specific situations. All of them help provide the filing person, either a business or individual, a “fresh start” by removing old financial burdens. 

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The cost of your bankruptcy filing is hard to determine. The costs vary depending on which chapter of bankruptcy you file under, which attorney you hire, and other various choices that occur over the course of developing your bankruptcy. To answer the question, we’ll look at the most common costs associated with bankruptcy filings.

Attorney’s Fees

Attorney’s fees have the largest ranges of bankruptcy costs. It is hard to say what a particular attorney will charge. Usually, attorneys charge a flat rate fee for all the work that is common in a bankruptcy case. If they take the payment on installment or in lump sum and whether or not they start work before their fee is paid varies from law firm to law firm.

Chapter 7 filings generally have the lowest attorney fees. In Milwaukee, they usually range between $500 and $1,500, but they can go above and below that too depending on the case. The majority of attorneys charge between $500 and $1000 for just the attorneys fee portion. Chapter 7 fees are usually required to be paid before the case is filed. Some attorneys offer split-representation where they only are hired to do some of the work upfront and then are hired again after the filing to finish the case.
Chapter 13 filings are more uniform. Milwaukee attorneys usually charge around $3,500 for the 3 to 5 years of representation required of a Chapter 13 bankruptcy. These fees can be paid over time during the bankruptcy and a portion of the monthly payments can go to the attorney. Even though the number is higher, most people find paying for the attorney fees in Chapter 13 far easier than other cases.

Chapter 11 filings are much more complicated and do not usually charge flat fees. Each attorney bills at their hourly rate against a large retainer. However, most consumers don’t file for Chapter 11 bankruptcy protection.

Be aware if your attorney includes the filing fee in their fees or if they just are quoting their fee. An attorney who charges $950 with filing fee included results in a smaller bill than the attorney who has a $700 fee separate from filing fees.

Credit Counseling and Financial Management Class

If you are and individual filing for bankruptcy, you will need to take a Credit Counseling Class before you can file and a Financial Management Class before the discharge. These classes are usually taken over the phone or online, but are available in person as well. Most classes are between $10 and $25. If you shop around you can find a good rate.

Bankruptcy attorneys usually have a preferred provider who offers a deal to the clients. Ask your attorney if they are part of such a program.

Filing Fees

Filing fees are fixed costs that are set by the courts. They are $335 for a Chapter 7 and $310 for a Chapter 13.

Fees are most often paid in full when the case is filed. There are options to pay the fees in installments and to waive the fee entirely. You must motion the court to request these options and the judge decides if they are appropriate for your case. Ask your attorney about whether or not these options work for you.

Each chapter of bankruptcy has a different timeline that determine how quickly the bankruptcy will be over. The cases also vary considerably depending on each individual debtor’s needs and requirements. The amount of time it takes can also be measured in several different parts.

The first portion of any total bankruptcy timeline begins at the initial consultation. This time varies considerably depending on the particular debtor. Preparing a bankruptcy filing involves significant amounts of information regarding the person’s assets, income, creditors, and financial history. How quickly those documents are provided to the attorney determines how fast the attorney can prepare the bankruptcy petition. In our firm’s experience these complete filings take between three and four weeks for the client to bring all the requested documents in; however this is determined entirely by the bankruptcy debtor’s responsiveness. In certain cases, the debtor can file skeleton petitions which take an experienced attorney minimal time to prepare; however these have several disadvantages that should be discussed with your attorney.

The second portion, which is the post-filing timeline varies largely upon the type of bankruptcy filed. A Chapter 7 bankruptcy filing usually are over in 3 to 6 months. There is a fairly short timeline that is followed. When a Chapter 7 case is filed, the last day to oppose a discharge is set around three months after the filing date. Usually the bankruptcy is closed shortly after that date assuming all other pending issues are resolved. Cases can be extended due to US Trustee objections, pending sales, or other last minute adjustments that impose their own timeline on the bankruptcy case.

Chapter 13 bankruptcies have a much longer timeline due to the fixed repayment period. Chapter 13 plans must run at least 3 years, but no more than 5. The majority of cases will fall within that two year range depending on how much debts need to be repaid and the income of the debtor. In certain cases the debtor can end the Chapter 13 bankruptcy in less than 3 years, you can talk with your attorney regarding this option and if it is available to you. In the event that some motion or filing is done near the end of the bankruptcy that imposes its own timeline on the case, then that would stretch out the matter longer.

In consumer cases, it is possible to switch between Chapter 7 and Chapter 13 cases, thus adjusting the expected timeline to the relevant type of case.

Often people want to exclude creditors from their list of creditors included in their bankruptcy schedules. Some people wish to avoid informing various creditors of the bankruptcy, others wish to not cause problems with their relationship with the creditor, and some other want to pay back the debt to that specific creditor. While these reasons may have merit, the general rule is to provide a complete and accurate list of creditors in the bankruptcy schedules.

The primary reason for listing all debts is for the discharge purposes. If a debt is not listed on the bankruptcy schedules, it will not be discharged. Attorneys generally advise that a discharged debt is best. Even if you are on good terms with the creditor now, if things go sour or there is some change in the relationship, being able to walk away from the creditor is an excellent option to have. Given that you can only receive discharges so often with up to eight years following a chapter 7 to receive another, taking advantage of the opportunity when it is presented will prevent future problems.

If you have a discharged debt, you can still repay it after the bankruptcy. If a debtor insists that they repay a particular creditor, they may freely pay back any money from a former debt even though a bankruptcy discharge occurred. During the bankruptcy you aren’t allowed to provide preferential payments to creditors, but afterwards you are free to do so. In other words, if you absolutely feel that you must repay that debt, the bankruptcy filer is not prevented from doing so after the case is closed. There is no reason not to list creditors since you are free to repay them.

It is unlawful to fail to file a complete list of creditors to the bankruptcy court. When you finalize your bankruptcy petitions, you sign under penalty of perjury that you have listed all of your creditors. It is a Federal crime to commit perjury in bankruptcy cases. If you know of a creditor and fail to list them, then you are committing perjury. It is always best to avoid criminal actions and this is no exception.  Furthering this point, some creditors are considered “insiders” and they have special rules about how and when they could be paid before the bankruptcy is filed. If a trustee discovers that there were payments made to insiders prior to the bankruptcy that were not properly disclosed, then the debtor can be charged with bankruptcy fraud. If a person is convicted on Federal perjury or bankruptcy fraud charges they can receive a sentence of up to 5 years. As such, it is better to be completely upfront with the list of creditors and any special treatment they received. If you are unaware of a creditor, or you have reason to believe that the list is complete, then you will have committed perjury. That said, it’s best to be careful and perform your due diligence by searching for all creditors.

In the event that you fail to list a creditor, you can add them into the case after the initial filing. When you add a creditor, it is your obligation to meet any and all notice requirements. Usually there is also a filing fee charged by the clerk, although it is far less than the initial fee.

Overall, there is benefit to the debtor to disclose all of their creditors and this are potentially severe penalties for failing to disclose the complete list of creditors. As always, consult with your attorney about disclosing creditors and who should be included in that list.

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