Eligibility Requirements for Filing a Chapter 7 Bankruptcy Petition

Debt Relief, MN BankruptcyIf you are one of many people across the country who are suffering from more debts and obligations than your budget can seem to handle, you are probably thinking about seeking the protection of a Chapter 7 bankruptcy. Like most, you may also be wondering if there are specific rules or regulations that determine your eligibility to file a petition.

In order to file a petition for a Chapter 7 bankruptcy, you need to meet certain conditions defined within the bankruptcy codes. To begin with, your level of income must fall below a specific amount, and if so, you next have to pass another set of eligibility standards called the ‘means test’. However, the bankruptcy laws also state that the bankruptcy court can dismiss your petition if you have previously filed for bankruptcy during a specific length of time. The bankruptcy court can also dismiss your petition if feels you might be defrauding your creditors.

In previous bankruptcy laws prior to 2005, the judge presiding over the case could dismiss any Chapter 7 petition if you had enough disposable income to finance a Chapter 13 Bankruptcy repayment schedule to your creditors. With the new bankruptcy laws in effect, there are much clearer guidelines that determine if you will be allowed to remain in Chapter 7 bankruptcy, or if you might be required to petition for a Chapter 13. Only disabled veterans who have built up debts while on active duty, and people who have taken on too much debt because of a struggling business are allowed to submit an uncontested Chapter 7 petition.

These new guidelines for filing a Chapter 7 petition begin by determining how your ‘current monthly income’ amount compares to a standard or ‘median’ income level, and is it also based on your particular household size in your state. This amount is also calculated by averaging your total earnings during the previous six months prior to filing your petition. If your earnings happen to fall below or are equal to this median amount, you will certainly be able to qualify for a Chapter 7 petition.

On the other hand, if your earnings are above this median figure, then you must meet the next challenge by passing the ‘means test’ required in the up-dated bankruptcy guidelines. The means test is used to find out whether you have enough disposable income, after deducting living expenses and other debts like child support or alimony for instance, to repay your creditors over a three to five year repayment plan in a Chapter 13 petition. These guidelines were designed to keep people with higher levels of income from filing for a Chapter 7 bankruptcy.

The new bankruptcy laws also state that you may not file a Chapter 7 petition if you have already received a discharge of your debts in a Chapter 7 case within the previous 8 years, or in a Chapter 13 within the previous 6 years. In addition, you cannot file if either a previous 7 or a 13 was dismissed anytime within the previous six months because you violated a court order, you committed any fraudulent activities, or you dismissed your case because a creditor sought relief from the protection provided by the automatic stay.
Finally, the bankruptcy court can also have your case dismissed if it is felt you attempted to commit fraud against your creditors, or tried to conceal your assets or personal property from the bankruptcy court in order to avoid the liquidation process. The liquidation of your assets is necessary so that the court-appointed trustee on your case can repay as much of your unsecured debts as possible to your creditors.

It is important to remember that simply because you qualify under the means test guidelines does not mean you should automatically file a petition for a Chapter 7 bankruptcy. The test is only intended to confirm that you are eligible to file. Any decision to file for Chapter 7 bankruptcy should be made only after considering all other options and possible alternatives, and only after discussing these options with knowledgeable and qualified bankruptcy attorney.

If your would like to know more about Chapter 7 Bankruptcy and your Eligibility, Call David Kelly Today at: 952-544-6356

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Bankruptcy court NOT shutting down -at least not for now

I’ve been concerned all week over what to expect with the anticipated federal government shut down. The bankruptcy court is federal, so this shut down could affect me and my clients in a very direct way.

I went on line and tried to research it a bit around noon today. I found announcements that the Nevada bankruptcy courts were going to stay open, along with a statement from one of the bankruptcy judges in another state – Colorado if I recall correctly – stating that they would not be closing. In an interview a lawyer from New York said that they were going to try to keep essential services concerning life and property going, and the bankruptcy court would be in that category.

Then a few minutes ago the Minnesota bankruptcy court sent out the following email:

“In the event that a lapse in appropriations – sometimes referred to as a “government shutdown” – occurs on April 9, 2011, the United States Bankruptcy Court, District of Minnesota will remain open for business as usual, and hearings, trials and 341 meetings will be held without interruption. Applications, hearings and other matters may be scheduled with the Court as usual. Public access to the Court, in person and through the Court’s electronic filing system, CM/ECF, will not be affected.

If a lapse in appropriations continues after April 22, 2011, the Court will continue to conduct hearings and trial. As to continuation of services in the Clerk’s office, notice will be posted on the Court’s website at www.mnb.uscourts.gov.”

At least now I can tell my clients who are scheduled for hearing next week that we are still on and nothing has changed. I’m still a bit anxious about a few cases I was planning on filing toward the end of the month, however, for obvious reasons.

A Fresh Start for the New Year

I always keep an eye on the traffic to my web site. As the holidays approached last month, I could see that the traffic was dropping off significantly. On the Monday after Christmas, however, there was a sharp spike upward. Traffic stayed high all that week and then jumped even higher following the New Years weekend. The Tuesday after New Years Day was the highest traffic day I have had for months.

These traffic statistics plus the incoming phone calls and emails confirm that a lot of people are considering using the bankruptcy process to make a new start for the new year. That’s exactly what the bankruptcy laws were originally designed to do. Instead of putting you in debtor prison or turning you into a completely homeless person, you get to clear the slate of the old debts and start fresh – if you qualify.

The original version of the United States Constitution, the one they read this week on the floor of the House of Representatives, included the power to create a nationwide bankruptcy system. This is not a new idea. The founding fathers recognized bankruptcy as a thing of value, and wanted it to uniform for the whole country instead of being different in each state. When I was first out of law school back in the 1970s the process was extremely simple. A bankruptcy petition was less than 15 pages of material. There were few restrictions on who could file. The primary concern was whether there would be a lot of assets that could not be claimed as exempt. Since then every few years additional red tape and limitations have been added. Finally in 2005 there was a massive rewrite of the law which was so severe that we were wondering if the whole process may finally have been killed.

Well, if the intent was to completely remove bankruptcy as an option, it didn’t work. The American Bankruptcy Institute reports that bankruptcy filings jumped by 9% in 2010. Last week the Wall Street Journal carried a detailed article about the increase in filings. The article includes a graph showing bankruptcy filings between 2000 and 2010. On the graph one can see the spike in 2005 right before the effective date of the 2005 law, followed by a dramatic drop in filings, followed by a steady increase. When I saw news releases last summer stating that the first half of 2010 had broken some sort of a record for bankruptcy fillings, I commented that I didn’t think it could possibly have exceeded 2005. This graph shows I was right. Nevertheless, it is quite clear that filings are back up to pre-2005 levels.

So if you are considering such a fresh start, you certainly are not alone. I’d sure be glad to talk it over with you. I can do a screening over the phone which you give you a pretty good idea of what you qualify for. I don’t charge for those phone calls. If you just can’t seem to get ahead, you might want to look into it.

Get your bankruptcy for $187.00!

While checking how my website was being ranked on Google, I noticed an ad for an outfit that said it would prepare and file your bankruptcy for $187. Well, that would be a heck of a deal. It certainly piqued my curiosity.

So I went and took a look at their site. For one thing, I was wondering who the lawyer was who was doing this. I quickly found that the site provides no way of figuring out who is running the company or whether there is a lawyer involved at all. There is no address and no phone number provided. No names of any real person.

So I tired a Google search. I typed in who is and the name of the web site at Google. The first item on the list was the web site itself. The second item listed was a page at ripoffreport.com about these guys.

You can see for yourself what they have to say. You do yourself a disservice if you use price as your only criteria.

Stopping Garnishment by filing a Bankruptcy

A lot of people have had their bank accounts garnished this week. My phone has been buzzing about it. I think the law firm of Messerli and Kramer must have been cleaning up their garnishment backlog over this past weekend or something.

So now I am having to explain that I can’t just create a bankruptcy filing to stop the garnishment inside of a few hours or even a few days. To be sure I am getting it right, I need somewhere around six weeks, maybe more, to put one of these bankruptcy cases together. A bankruptcy petition is a document that usually exceeds 50 pages. There are hundreds and hundreds of questions to be answered. The penalty for not answering correctly can include criminal felony charges. It just is not the sort of thing that should be slapped together in a rush.

There is a procedure for an emergency filing. It involves filing part of the bankruptcy petition, and then being allowed 14 days to get the rest done. I have done this in the past prior to the passage of the 2005 “reform” legislation, but since then I have been of the opinion that it’s too hazardous. It’s best to let them garnish away and get the bankruptcy done properly.

The filing of a bankruptcy does stop garnishment – immediately upon the filing of the case. It’s really nice that way. But if you may be vulnerable to a garnishment, don’t let it go. Get to a competent bankruptcy lawyer and get started now.

Real Clients and Fake Clients, Real Friends and Fake Friends

Earlier this week I was meeting with a client who was in the process of hiring me to represent her in the Chapter 7 bankruptcy process. As we were both signing the retainer agreement, I explained as I usually do at that point that now I was her lawyer. This means she has my permission to use my name if she needs to in the event that creditors manage to reach her by telephone.

These days most of my clients are pretty good at avoiding the calls from creditors by just watching their caller ID. It’s not unusual to be receiving between twenty to fifty calls a day from bill collectors by the time someone finally decides to come see me. I’ve carried on before about how people tend to wait too long and most should have come in sooner. Some of the creditor calls are hard to avoid, however, because they are tricky and disguise their caller ID. One who called me recently had a caller ID that said “Swiss Miss.”

So I tell my clients when they hire me that when one of those creditors gets though on the phone for whatever reason, my advice is to say something like this: “I’ve hired a lawyer to represent me in Chapter 7 bankruptcy. He’s instructed me to not speak with you, to not say anything, except that his name is David Kelly and his number is 952-544-6356. If you have questions you should call him. Goodbye.”

Once they hear this and confirm that it’s true – by calling me – many of the creditors will stop calling. As far as I know there is no legal requirement that they do so until we actually file the case, but as a practical matter they know that they might as well focus their energy elsewhere.

When I went over this with the client who I referred to above, she made a remark to the effect that she wasn’t necessarily very happy about being able to say I was her lawyer. She wished she had not needed to hire me. I replied that, if this was any comfort, there seemed to be quite a few people out there who were happy to claim I was their lawyer even though they had never met me.

Yes that’s right, I have real clients like the woman who just hired me, and I also have fake clients. Besides the calls from creditors to confirm that I’ve been hired by my real clients, I am also receiving calls from creditors who have been given my name by people I have never heard of. There tend to be about two calls a week like that. I guess they must think I’m good if they want to take my name in vain like that.

So I said to my new client that I had real clients and fake clients, and at least she was a real client. To that she replied, “well I have real friends and fake friends.”

I thought my new client’s remark was quite profound. At least it seemed profound to me. I asked her permission to quote her here, anonymously of course.

What to Bring to a Bankruptcy Hearing

At the outset let me say that this post is about the practices that I encounter here in Minnesota, mostly for cases right here in the Twin Cities. If you are from somewhere else, please consult an attorney in your own jurisdiction. Even though bankruptcy is based on federal law and should be about the same everywhere in the country, there are in fact tremendous variations from one locale to another.

Usually the only hearing there is in a Chapter 7 or Chapter 13 bankruptcy is a little proceeding they call the “Meeting of Creditors.” Sometimes it’s also called the “341” or “341 Meeting,” after the section of the bankruptcy code that sets up the hearing process. In this post when I say “hearing,” I mean this meeting of creditors.

This week I have had a hearing nearly every day, except for Friday when I had two. It is usually simple and short, possibly just five minutes, if the lawyer and the clients are properly prepared. But there’s nothing that can delay it worse or mess it up more than not coming to the hearing with all the required documents.

For most of these the required doucments fall into four categories, sometimes five. Here they are:

1. Driver’s license or goverment photo ID for each debtor.

2. Social security card. It’s surprising how many people can’t find this or have lost it a long time ago. If you absolutely can’t find your card, there are some substitutes that are acceptable. In general you can use anything that you have that has your social security number on it, AS LONG AS IT WAS CREATED BY A THIRD PARTY.

So a pay stub would work, since that is created by your employer. So would a W-2. Trouble is that most pay stubs don’t have the social security number on them anymore. It’s getting harder and harder to find a document that has it. Health insurance cards used to have them, but now most don’t. In this day of identity theft, the items that have a social security number on them are disappearing. About the only thing that I can use reliably is a W-2 or 1099. I usully can’t use a tax return, because that’s considered a self generated document – it’s not from a third party.

3. Most recent paystub from employment for each debtor. That is the pay stub that is most recent as of the date of the hearing, not the most recent stub from before the date of filing. The handout from the court which I have posted on my site says to bring “evidence of current income,” but I’ve never seen a trustee ask for anything other than a pay stub. I’ve never seen a person who gets a pension or unemployment be asked to produce evidence of that at the hearing. My experience also is that self-employed people don’t have to produce anything in this category – not at the hearing at least.

4. Bank statements for all open accounts which show what the balance was on the day the case was filed. If the account is open, you have to produce a statement for it. However, unlike the pay stub, this is not necessarily the most recent statement as of the date of the hearing. Usually the statement that comes in the mail at the beginning of the month following the filing of the case will do the trick. You have to be sure, however, that the date of filing is covered in the period included in the statement. In cases where my clients are unable to get a statment that came in the mail, I tell them to go on line or actually go to the bank and get a statement that includes about two weeks before the date of filing and two weeks after that date. Some of the trustees like to snoop through these statements, and I’m concerned that they would be disappointed if we just came in with one page that gave the balance on date of filing.

5. Additional information if the trustee requests it. The above four items or categories of items are all that’s required for more than 90% of the cases I handle. However, every now and then there will be a case where the trustee sends us a letter asking for more information. This could be almost anything, but the rule I follow is that if the trustee wants it, I tell my clients that we better provide it. Often these letters ask that the material be emailed to the trustee several days before the hearing.

Trouble over what to bring to the bankruptcy hearing.

I call it a “hearing.” The official name for the event which takes place about a month after filing a bankruptcy is “First Meeting of Creditors.” Since creditors hardly ever come, I have always thought this was a misleading name. It usually takes place at a federal courthouse in a room which looks very much like a courtroom. My clients are sworn in and questioned. If that isn’t a “hearing,” I don’t know what is.

There are certain things that a debtor is required to bring to this event. They include a picture ID, social security card, most recent pay check and bank statements covering the date the case was filed. It any of these items is missing, there is a big problem. Until the items are produced and given to the bankruptcy trustee, the whole process is held up.

Although I explain this as clearly as I can, both in direct conversation and in email, I seem to be having an increase in the percentage of clients who show up at the hearing without everything they need. One common problem is that my clients will assume that if a bank account has a negative balance, a low balance, or no activity for a long time, the trustee won’t want a statement for that account. I have recently started adding to what I used to tell my clients a whole extra spiel about these bank statements.

The trustee doesn’t care if the account has been there five years with only five dollars in it and no deposits or withdrawals. The trustee doesn’t care if the bank has quit sending statements and cut off on line access – which they sometimes do after a bankruptcy is filed when it’s a case where that bank is one of the creditors. If it’s any kind of bank account at all, and it was open on the day the case was filed, you have to have a statement for that account at the hearing, and that statement has to include the date of filing.

I am starting to tell my clients that if there is no other way to get a statement, please actually go to the bank in question and have them print you one. Even the banks that won’t send a statement, and who have cut off on line access, will still give you a statement if you go to the bank in person.

So that’s my rant for today.

Businesses and Personal Bankruptcy

I keep saying bankruptcy is like pregnancy. You can’t be a little bankrupt. When you file a bankruptcy, you are in it 100%. It is all-encompassing.

I just got off the phone – again – from a conversation with someone who wants to do a personal bankruptcy but who is the owner or part owner of a small business. Over and over again I hear from people who seem to think that because their bankruptcy is personal, it will have absolutely nothing to do with their business. They want their business to stay in a separate compartment and be unaffected and untouched.

First thing I usually mention is that the business is an asset and has to be listed along with all the other assets that the debtor has. A value has to be placed on the business, and then we have to figure out if it can be claimed as exempt. If it can’t be claimed as exempt, and if we are talking a Chapter 7 bankruptcy, then the business will become property of the bankruptcy trustee – or it will have to be bought back from the trustee if the debtor wants to keep it. As a practical matter, most of the small businesses I hear about are virtually worthless, so that claiming them as exempt is not much of a problem – but it is a question that has to be dealt with.

Second thing I bring up is that we will probably be required to list the business name among the names used by the debtor; and once that is done, it is very likely that the bankruptcy filing will be picked up by the Star Tribune and published in their Monday business section. Typical question at this point: “What if I just transfer the business to my boyfriend?” My answer is that then we would have to disclose the transfer, which could possibly be reversed as fraudulent; and the “doing business as” would be changed to “formerly doing business as” and it still gets published in the Star Tribune.

And if you have a business partner, the “doing business as” business name can get listed in the Star Tribune even though your partner is not filing any bankruptcy. Partners in that position tend to be irate to say the least.

This is not the only circumstance, but one of many, where the bankruptcy process does involve a some pain. Those considering bankruptcy should not expect that there will be absolutely no inconvenience.

Recession Sing Along

While you are waiting to come down with the swine flu, you might want to have a good laugh. The funniest thing I’ve seen in a long time is a recession sing along at the Newsday web site. Click the following for a direct link to the animated video.

Maybe you have to be old enough to remember the West Side Story movie from the 1960s to fully appreciate this thing. I don’t see how the mortgage broker singing “I Feel Greedy” could quite have the full intended impact unless the viewer is familiar with the original “I Feel Pretty” from the movie.

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