14th edition How to File for Chapter 7 Bankruptcy by Attorneys Stephen Elias, Albin Renauer & Robin Leonard FOURTEENTH EDITION MAY 2007 Editor LISA GUERIN Book Design TERRI HEARSH Cover Photography TONYA PERME (www.tonyaperme.com) Production SARAH HINMAN Proofreading ROBERT WELLS Index JANET PERLMAN Printing CONSOLIDATED PRINTERS, INC. Elias, Stephen. How to file for Chapter 7 bankruptcy / by Stephen Elias, Albin Renauer & Robin Leonard 14th ed. p. cm. Includes index. ISBN-13: 978-1-4133-0627-9 (alk. paper) ISBN-10: 1-4133-0627-6 (alk. paper) 1. Bankruptcy United States Popular works. I. Renauer, Albin. II. Leonard, Robin. III. Title. I V. Title: Chapter 7 bankruptcy. KF1524.6.E4 2007 346.7307'8 dc22 2006047025 Copyright © 1989, 1990, 1991, 1993, 1994, 1995, 1996, 1998, 1999, 2000, 2001, 2002, 2004, 2005, 2006, and 2007 by Stephen Elias and Nolo. ALL RIGHTS RESERVED. Printed in the U.S.A. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the publisher and the author. R eproduction prohibitions do not apply to the forms contained in this product when reproduced for personal use. Table of Contents I Introduction How to Use This Book 2 What This Book Doesn’t Cover 4 If You Need More Help 5 The New Bankruptcy Law: A Work in Progress 6 1 Should You File for Chapter 7 Bankruptcy? Bankruptcy in America: The Big Picture 9 An Overview of Chapter 7 Bankruptcy 10 Who Can File for Chapter 7? 17 Does Chapter 7 Bankruptcy Make Economic Sense? 23 Alternatives to Chapter 7 Bankruptcy 28 2 The Automatic Stay Actions Prohibited by the Stay 36 When the Stay Doesn’t Apply 37 Evictions 40 3 Your Property and Bankruptcy Property in Your Bankruptcy Estate 44 Property That Isn’t in Your Bankruptcy Estate 49 Property You Can Keep 50 Property Exemption Worksheet 58 Selling Nonexempt Property Before You File 62 4 Your House How Bankruptcy Affects a Typical Homeowner 68 If You’re Behind on Your Mortgage Payments 70 Will You Lose Your Home? 73 Ways to Prevent the Loss of Your House 82 5 Secured Debts Secured Debts 86 What Chapter 7 Bankruptcy Does to Secured Debts 89 Ways to Deal With Secured Debts in Bankruptcy 90 Choosing the Best Options 98 Step-by-Step Instructions 102 6 Complete and File Your Bankruptcy Paperwork Gather the Necessary Documents 125 Get Some Information From the Court 127 For Married Filers 129 Required Forms and Documents 131 Form 1—Voluntary Petition 133 Form 6—Schedules 141 Form 7—Statement of Financial Affairs 182 Form 8—Chapter 7 Individual Debtor’s Statement of Intention 193 Form 21—Statement of Social Security Number 196 Form 22A—Statement of Current Monthly Income and Means Test Calculation 196 Form B201: Notice to Individual Consumer Debtor Under § 342(b) of the Bankruptcy Code 209 Mailing Matrix 209 How to File Your Papers 210 After You File 212 7 Handling Your Case in Court Routine Bankruptcy Procedures 216 Amending Your Bankruptcy Papers 225 Filing a Change of Address 229 Special Problems 229 8 Life After Bankruptcy Newly Acquired or Discovered Property 248 Newly Discovered Creditors 249 Postbankruptcy Attempts to Collect Debts 250 Attempts to Collect Clearly Discharged Debts 252 Attempts to Revoke Your Discharge 253 Postbankruptcy Discrimination 253 Rebuilding Credit 254 9 Which Debts Are Discharged Debts That Will Be Discharged in Bankruptcy 260 Disputes Over Dischargeability 270 10 Help Beyond the Book Debt Relief Agencies 278 Bankruptcy Petition Preparers 280 Bankruptcy Lawyers 282 Legal Research 286 Glossary Appendixes 1 State and Federal Exemption Tables 2 Worksheets and Charts 3 Tear-Out Forms Index Introduction I How to Use This Book 2 What This Book Doesn’t Cover 4 If You Need More Help 5 The New Bankruptcy Law: A Work in Progress 6 2 HOW TO FILE FOR CHAPTER 7 BANKRUPTCY T his book shows you how to file for Chapter 7 bankruptcy, a legal remedy that provides a fresh financial start to consumers and businesses by canceling all or many of their debts. The typical Chapter 7 bankruptcy is a routine process that requires no special courtroom or analytical skills. Under the new bankruptcy law that went into effect on October 17, 2005, most filers will have to: • get credit counseling from an agency approved by the United States Trustee’s office (filers must complete this counseling before filing for bankruptcy) • file a packet of official forms and evidence of their recent wages (if they’ve been working) • attend a five-minute, out-of-court meeting with a bankruptcy court official (called a “trustee”) • give the trustee a copy of their most recent tax return at least seven days before this meeting • take a two-hour budget management course, and • wait for three to six months for their bankruptcy to become final and their debts to be discharged. Higher-income filers face an additional hurdle. Some Chapter 7 filers—about 15%, according to a recent study—will also have to do some calculations to find out whether they could afford to pay back a portion of their debt over a five-year period. This additional requirement is called the “means test,” and filers who could afford to repay some of their debts according to its calculations may not be allowed to file for Chapter 7. The means test won’t affect most filers, however, because it applies only if your average income in the six months before you file is more than the state median income for a family of your size—a category into which most Chapter 7 filers don’t fall. Ch.1 explains how to calculate your income and compare it to the state median; Ch. 6 explains the means test in detail. You may be thinking, “If this process is so straightforward for most people, why is this book so big?” The answer is that few people will need the whole book—most will use only a few chapters. However, the more property, income, and debts you have, the more information you’ll need to fully understand your options. This book is designed both for the routine cases and for cases that have one or more complicating twists. How to Use This Book This book provides detailed information on Chapter 7 bankruptcy, including who is eligible to file; what happens to your property when you file; which debts are wiped out by your bankruptcy discharge; how to complete the required paperwork; how to handle routine court appearances; what kinds of help are available from lawyers, bankruptcy petition preparers, and legal reference books; and what to expect after your bankruptcy case is over. Not every reader will need all of this information, however. If you have already decided to file for Chapter 7 and you understand what will happen to your property and debts, you can proceed straight to Ch. 6 for step-by-step instructions on completing the official bankruptcy forms. If you don’t own a home or any other valuable property, you might want to skip Chs. 3 and 4, which explain how your property is handled in bankruptcy. And if none of your debts are “secured” (that is, you haven’t pledged collateral or otherwise given the creditor the right to take your property if you don’t pay the debt) you can certainly skip past Ch. 5. Use this chart to figure out where to find the information you need. INTRODUCTION 3 Question Where to Find the Answer How does Chapter 7 bankruptcy work? Ch. 1, “An Overview of Chapter 7 Bankruptcy” Am I eligible to file for Chapter 7? Ch. 1, “Who Can File for Chapter 7” Is my income low enough to qualify for Chapter 7? Ch. 1, “Who Can F ile for Chapter 7, ” and Ch. 6, “Form B-22A” Does it make sense for me to use Chapter 7? Ch. 1, “Does Chapter 7 Make Economic Sense?” Do I have options other than filing for bankruptcy? Ch. 1, “Alternatives to Filing for Bankruptcy” Can I avoid being evicted by filing for bankruptcy? Ch. 2, “Evictions” Does bankruptcy stop my creditors from trying to collect what I owe them? Ch. 2 What will happen to my car if I file? Ch. 3 and Ch. 5 What will happen to my house if I file? Ch. 4 What personal property might I lose if I file? Ch. 3 Can I keep property that I’ve pledged as collateral for a debt? Ch. 5 Should I sign a reaffirmation agreement promising to repay a debt even after I file for bankruptcy? Ch. 5 Will I lose my retirement account or pension? Ch. 3, “Property That Isn’t in Your Bankruptcy Estate” Where can I get the credit counseling required by the new bankruptcy law? Ch. 1, “An Overview of Chapter 7 Bankruptcy” Where can I get the budget counseling required by the new bankruptcy law? Ch. 1, “An Overview of Chapter 7 Bankruptcy” Can I get my student loans cancelled or reduced in bankruptcy? Ch. 9, “Debts That Survive Chapter 7 Bankruptcy” Is there any way I can keep valuable property when I file for Chapter 7? Ch. 3, “Property You Can Keep” Which debts will be wiped out after my bankruptcy? Ch. 9, “Debts That Will Be Discharged in Bankruptcy” Which debts will I still have to pay after my bankruptcy? Ch. 9, “Debts That Survive Chapter 7 Bankruptcy” Can I get my tax debts wiped out in bankruptcy? Ch. 9, “Debts That Survive Chapter 7 Bankruptcy” How will my bankruptcy affect someone who cosigned for one of my debts? Ch. 1, “Does Chapter 7 Make Economic Sense?” What will happen I forget to list a debt on my bankruptcy papers? Ch. 8, “Newly Discovered Creditors” Can I give property away to friends or relatives to avoid losing it in bankruptcy? Ch. 1, “Who Can File for Chapter 7” How will bankruptcy affect my child support obligations? Ch. 2, “When the Stay Doesn’t Apply” and Ch. 9, “Debts That Survive Chapter 7 Bankruptcy” 4 HOW TO FILE FOR CHAPTER 7 BANKRUPTCY What This Book Doesn’t Cover This book explains routine Chapter 7 bankruptcy procedures. You must be an individual, married couple, or small business owner with personal liability for your business debts to use this book. If your situation proves to be complicated, you might need more help than we can provide here. Throughout the book, we alert you to potential problems that might merit seeking some assistance. (See Ch. 10 for more on help beyond this book.) This book doesn’t cover the following situations: • Chapter 13 bankruptcies (repayment plans). Chapter 13 allows people to repay a portion of their debts, with court supervision. Whether you are eligible to file for Chapter 13 bankruptcy depends on what type of debts you have and how much income you can devote to repaying them over a three- to five-year period. This book doesn’t tell you how to file a Chapter 13 bankruptcy. (For that, you’ll need a copy of Chapter 13 Bankruptcy: Repay Your Debts, by Stephen Elias and Robin Leonard (Nolo). However, it does help you figure out whether you might qualify to file for Chapter 13 and how to choose between that and Chapter 7, if both are available to you. Most of the forms you must complete for a Chapter 7 bankruptcy are also used in Chapter 13, so any work you do to prepare for a Chapter 7 bankruptcy won’t be wasted if you later decide to file for Chapter 13 bankruptcy instead. • Bankruptcies for people in business partnerships. If you’re a partner in a business (with someone other than your spouse), filing for a personal bankruptcy will affect your business; we don’t address that situation in this book. However, if you are partners with your spouse and are filing jointly, then this book will work just fine. • Bankruptcies for people who are major stockholders in privately held corporations. If you are a major owner of a privately held corporation, filing for bankruptcy could affect the corporation’s legal and tax status. This book doesn’t cover your situation. • Business reorganizations. This book doesn’t cover procedures under Chapter 11 of the bankruptcy laws, which allow a business to continue operating while paying off all or a portion of its debts under court supervision. • Farm reorganizations. A special set of bankruptcy statutes, called Chapter 12, lets family farmers continue farming while paying off their debts over time. This book doesn’t cover Chapter Question Where to Find the Answer How do I fill out the bankruptcy forms? Ch. 6 How do I file my bankruptcy forms? Ch. 6, “How to File Your Papers” What happens at the meeting of creditors? Ch. 1, “An Overview of Chapter 7 Bankruptcy” and Ch. 7, “Routine Bankruptcy Procedures” What documents do I need to bring to the creditors’ meeting? Ch. 1, “An Overview of Chapter 7 Bankruptcy” and Ch. 7, “Routine Bankruptcy Procedures” Can I change my bankruptcy papers once I file them? Ch. 7, “Amending Your Bankruptcy Papers” Will I need an attorney to handle my bankruptcy? “If You Need More Help,” below How can I find a bankruptcy lawyer? Ch. 10, “Bankruptcy Lawyers” If I can’t afford a lawyer, what other types of help are available to me? Ch. 10 Can I be fired because I filed for bankruptcy? Ch. 8, “Post-Bankruptcy Discrimination” How can I rebuild my credit after bankruptcy? Ch. 8, “Rebuilding Credit” INTRODUCTION 5 12 bankruptcies or the potentially complex question of whether a farmer is better off filing for Chapter 7, Chapter 12, Chapter 11, or Chapter 13 bankruptcy. If you’re a farmer, check with a bankruptcy lawyer. If you decide to file for Chapter 7 bankruptcy, this book should give you the information you need. Icons Used in This Book When you see the “fast track” icon, you’ll be alerted to a chance to skip some material you may not need to read. Information following this icon is for married couples only. This icon cautions you about potential problems. This icon highlights good advice or suggests time-saving tips. This icon refers you to related information in the book. Suggested references for additional information follow this icon. This icon tells you that it would be a good idea to consult a bankruptcy lawyer. If You Need More Help If you need help with your bankruptcy, you have a number of options. Getting help may be as simple as using a bankruptcy petition preparation service to provide you with clerical and filing assistance. Or, it may involve consulting a bankruptcy attorney for advice or representation, or hitting the law library and figuring things out for yourself. In Ch. 10, we explain how to find the kind of help you need. Throughout the book, we do our best to point out where you may need assistance, although only you can judge whether you’re in over your head. When you’re looking for a bankruptcy lawyer, act locally. Bankruptcy law comes primarily from Congress and is meant to be uniform across the country. But when disputes arise about those laws, bankruptcy courts must decide what the laws mean—and they don’ t all decide the issues in the same w ay. Also, the property you can keep in a Chapter 7 bankruptcy is determined primarily by state—not federal—laws. As a result, bankruptcy law and practice vary significantly from court to court and from region to region. This book can’ t possibly address ev ery variation. When you need a bankruptcy lawyer, find someone who’s familiar with your local bankruptcy court and the state exemption laws available to you. Most Chapter 7 bankruptcies sail through without a hitch. However, there are some situations in which you may require the assistance of a bankruptcy lawyer: • Your average income during the six months before you file is more than your state’s median income, and it looks like you won’t be able to pass the means test. (See Ch. 1 and Ch. 6 for more information on these calculations.) • You want to hold onto a house or motor vehicle and the information we provide on these subjects doesn’t adequately address your situation or answer all of your questions. • You want to get rid of a student loan or income tax debt that won’t be wiped out in bankruptcy unless you convince a court that it should be discharged. • A creditor files a lawsuit in the bankruptcy court claiming that a specific debt should survive your bankruptcy because you incurred it through fraud or other misconduct. • The bankruptcy trustee (the court official in charge of your case) seeks to have your whole bankruptcy dismissed because you didn’t give honest and complete answers to questions about your assets, liabilities, and economic transactions. • The U.S. Trustee asks the court to dismiss your case—or force you into Chapter 13—because your income is high enough to fund a Chapter 13 repayment plan, or because the trustee believes that your filing is an abuse of the Chapter 7 bankruptcy process for other reasons. [...]... car note You can’t file for a subsequent Chapter 7 bankruptcy until eight years have passed since your last filing date You can file for Chapter 13 bankruptcy any time, but you can’t get a Chapter 13 discharge until four years have passed since you filed for Chapter 7 Who Can File for Chapter 7? Filing for Chapter 7 bankruptcy is one way to solve debt problems—but it isn’t available to everyone Here... wish to file for bankruptcy to get a fresh start, nothing bad will happen to you if you don’t file, no matter how much you owe For more on what it means to be judgment proof, see “Alternatives to Chapter 7 Bankruptcy, ” below Even though you may be judgment proof, you may want to file for bankruptcy to stop harassment by your creditors In most cases, you can stop creditors from making telephone calls to. .. 1: should you file for chapter 7 Bankruptcy? I n the chapters that follow, we explain how to complete the required bankruptcy paperwork, what happens to your debts and property when you file for bankruptcy, how to get help with your bankruptcy, and how to pick up the financial pieces once your bankruptcy is final, among other things But before you get to these important topics, you need to figure out... Chapter 7 bankruptcy (See “Who Can File for Chapter 7? ” below, and Ch 6, for detailed information about these calculations.) chapter 1: should you file for chapter 7 Bankruptcy? After you file, you may want to amend some or all of your forms to correct mistakes you discover or to reflect agreements you reach with the trustee Amending these forms is fairly simple—we explain how to do it in Ch 7 Emergency... relationship to the credit industry) An Overview of Chapter 7 Bankruptcy This book explains how to file for Chapter 7 bankruptcy Its name comes from the chapter of the federal statutes that contains the bankruptcy law (Chapter 7 of Title 11 of the United States Code) Chapter 7 bankruptcy is sometimes called “liquidation” bankruptcy it cancels most of your debts, but you have to let the bankruptcy trustee... feasible, you aren’t required to agree to it However, if the agency does come up with a plan, you must file it along with the other required bankruptcy paperwork See Ch 6 for more information on the credit counseling requirement, including how to get the certificate of completion that you’ll have to file with your other bankruptcy papers 12 How to File for Chapter 7 bankruptcy Rules Counseling Agencies... this chapter Remember, you’ll also have to show that your actual income and expenses don’t allow you to afford a Chapter 13 plan So, even if you qualify for Chapter 7 based on the means test, you may face another hurdle down the road chapter 1: should you file for chapter 7 Bankruptcy? 21 If you can’t pass the means test, you might consider filing for Chapter 13 bankruptcy, with the help of Nolo’s Chapter. .. rule that you really need to know about To make sure you have the most up -to- date information and forms, check Nolo’s website (go to www.nolo.com, use the “Search for Products” feature to find the page for this book, then select the “Updates” tab) ■ CHAPTER 1 Should You File for Chapter 7 Bankruptcy? Bankruptcy in America: The Big Picture .9 Why People File for Bankruptcy 9 Why... you’re willing to sell, you may be a lot better off negotiating with your creditors than filing for bankruptcy Through negotiation, you may be able to come up with a new payment plan that allows you to get back on your feet Or you may be able to settle your debt for less than you owe 3 0 How to File for Chapter 7 bankruptcy Negotiating with creditors How to negotiate with your creditors is covered... Dated: September 10, 19 97 Alan Jaroslovsky Alan Jaroslovsky U.S Bankruptcy Judge, N.D Cal., Santa Rosa 23 Does Chapter 7 Bankruptcy Make Economic Sense? If you are inclined to file for Chapter 7 bankruptcy, take a moment to decide whether it makes economic sense If filing for Chapter 7 won’t help you out of your current debt problems, will force you to give up property you want to keep, or is unnecessary . 3 Question Where to Find the Answer How does Chapter 7 bankruptcy work? Ch. 1, “An Overview of Chapter 7 Bankruptcy Am I eligible to file for Chapter 7? Ch. 1, “Who Can File for Chapter 7 Is my income. New Bankruptcy Law: A Work in Progress 6 1 Should You File for Chapter 7 Bankruptcy? Bankruptcy in America: The Big Picture 9 An Overview of Chapter 7 Bankruptcy 10 Who Can File for Chapter 7? . income low enough to qualify for Chapter 7? Ch. 1, “Who Can F ile for Chapter 7, ” and Ch. 6, “Form B-22A” Does it make sense for me to use Chapter 7? Ch. 1, “Does Chapter 7 Make Economic Sense?” Do