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Attorney Stephen Elias Fourth Edition MAY 2011 Editor KATHLEEN MICHON Cover Design SUSAN PUTNEY Production MARGARET LIVINGSTON Proofreading ROBERT WELLS Index VICTORIA BAKER Printing DELTA PRINTING SOLUTIONS, INC. Elias, Stephen. e new bankruptcy : will it work for you? / By Stephen Elias. — 4th ed. p. cm. Includes index. Summary: “A guide to the most common types of consumer bankruptcy: Chapter 7 and Chapter 13. It provides information and strategies for making the right decisions about debt. e 4th edition includes updated exemption tables plus information on how Supreme Court cases have interpreted the laws”—Provided by publisher. ISBN-13: 978-1-4133-1391-8 (pbk.) ISBN-10: 1-4133-1391-4 (pbk.) ISBN-13: 978-1-4133-1500-4 (epub e-book) 1. Bankruptcy—United States—Popular works. I. Title. KF1524.85.E43 2011 346.7307'8—dc22 2010052793 Copyright © 2005, 2007, 2009, and 2011 by Nolo. All rights reserved. e NOLO trademark is registered in the U.S. Patent and Trademark O ce. 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Dedication To my son Rubin, who faithfully reminds me of what bankruptcy is all about. Acknowledgments anks to Robin Leonard, the original, superlative author of this book’s predecessor; Lisa Guerin, Nolo editor extraordinaire, who did such a great job helping me get this book into the world in a timely manner; Janet Portman, who edited the third edition; and Kathleen Michon, editor of the fourth edition. I’m perpetually grateful for my many friends at Nolo. To immerse myself in the new law, I attended two wonderful conferences sponsored by the National Association of Consumer Bankruptcy Attorneys. anks to Henry Sommer and the NACBA crew for doing such a great job. Many thanks to Sandy McCarthy and Herb Gura, both bankruptcy petition preparers, who read the manuscript and found that it played in Peoria. anks also to the thousands of bankruptcy debtors whom I’ve counseled over the years and who have, in return, schooled me on the various issues commonly encountered in the real world. I couldn’t have written the book without the support and love I received from my wife, coauthor, and partner in life, Catherine Elias-Jermany. Introduction e New Bankruptcy Law: A Work in Progress 1 1 What Is Bankruptcy? 3 Types of Bankruptcy 6 Chapter 7 Bankruptcy 7 Chapter 13 Bankruptcy 16 How Bankruptcy Stops Collection Efforts 22 e Bankruptcy Trustee 25 Business Bankruptcies 29 2 Who Can File for Bankruptcy 33 Credit Counseling 35 Calculating Your Income Status 38 Chapter 7 Eligibility Requirements 43 Special Circumstances 48 Individuals and Businesses Can File for Chapter 7 Bankruptcy 50 Prefiling Transfers of Real and Personal Property 52 Presumptions of Fraud 57 You Can Produce a Tax Return, Wage Stubs, and a Credit Counseling Certificate 57 You Have Taken an Approved Personal Financial Management Course 57 Chapter 13 Eligibility Requirements 57 3 How Bankruptcy Affects Your Debts 65 Debts at Will Be Discharged in Bankruptcy 66 Debts at Survive Chapter 7 Bankruptcy 68 Debts at Survive Chapter 13 Bankruptcy 78 Table of Contents Debts Discharged in Chapter 13 (But Not in Chapter 7) 81 How Joint Debts Are Handled 82 4 Your Property and Bankruptcy 87 Your Bankruptcy Estate 88 Inventory Your Property 91 Value Your Property 92 Understanding Exemptions 94 5 Your Home 101 Homeowners Filing for Bankruptcy Under Chapter 7 102 Homeowners Filing for Bankruptcy Under Chapter 13 118 Renters Filing for Bankruptcy 123 6 What Happens to Personal Property at Secures a Loan 127 What Are Secured Debts? 128 How Secured Debts Are Handled in Chapter 7 Bankruptcy 128 Eliminating Liens in Chapter 7 Bankruptcy 133 How Secured Debts Are Handled in Chapter 13 Bankruptcy 135 7 Making the Decision 137 8 Your Credit Cards 147 If Your Balance Is Zero 148 If You Owe Money but Are Current 149 9 Your Job, Freedom, and Self-Respect 151 Will You Lose Your Self-Respect? 152 Will You Lose Your Job? 153 Effect of Bankruptcy on Job Applicants 154 Other Forms of Discrimination Because of Bankruptcy 154 Effect of Bankruptcy on Child Custody 155 Effect of Bankruptcy on Your Freedoms 156 [...]... help you get the m right infor ation in your forms and make the choices that will be most appropriate for your t situa ion If, on the other hand, you are acting as your own lawyer, you will be responsible for these same tasks While print and online resources will give you the information you need to make informed decisions and properly complete the paperwork, you will be solely responsible for the. .. owe more on your house or car than it s worth, you have no equity and the trustee won’t be interested in selling them because proceeds from the sale would, by law, all go to the lender On the other hand, if you have equity in your house or car (or any other property, for that matter), the trustee will evaluate the property’s worth and consider selling it for the benefit of the creditors (and the trustee)... to you and all of your creditors 20 | The New Bankruptcy: Will it work for you? You (and your spouse if you have filed jointly) are required to attend You ll need to bring two forms of identification—a picture ID and proof of your Social Security number A typical creditors’ meeting in a Chapter 13 case lasts less than 15 minutes The trustee will briefly go over your paperwork with you No judge will. .. “moment of truth” in the creditors’ meeting will likely be 10 | The New Bankruptcy: Will it work for you? brief Creditors rarely show up at these meetings, and the bankruptcy trustee is typically the only one asking the questions The trustee may simply ask whether all the information in your papers is 100% correct and end the meeting if you say, “Yes.” The Role of Lawyers in Creditors’ Meetings Many people... attend your meeting The Big Choice: Use a Lawyer or Handle Your Own Case? When you file your bankruptcy, your case will automatically fall within one of two categories: • You will be represented by a lawyer who will sign your petition as your t represen ative • You will be representing yourself (that is, you ll be acting as your own lawyer) If you are represented by a lawyer, the lawyer’s responsibility... In addition to the requirement that you obtain credit counseling before you file for bank uptcy, you must also participate in a r two-hour course on budget management before you can get your discharge Most filers use the same agency for the budget counseling as they used for the prefiling credit counseling See Ch 2 for more infor mation about this requirement Changing Your Mind If you file for Chapter... tion, and you may not have the time to prepare them all Fortunately, you can file a skeleton petition, which requires just a few forms, and file the rest of your paperwork within 15 days The required forms in a skeleton filing are: • the petition (three pages plus exhibits) • a mailing list of your creditors • a form showing your complete Social Security number, and • the certificate showing you ve completed... because it would not be in the best interest of Jake’s 16 | The New Bankruptcy: Will it work for you? creditors The moral? Don’t file Chapter 7 unless and until you know what property you own and what will happen to it in bankruptcy If you do dismiss your case, you can file again later, although in some circumstances you may have to wait 180 days and pay a new filing fee Instead of dismissing your Chapter... who file for bankruptcy use the exemptions in the state where they file But if you haven’t been residing in that state for at least two years, you may have to use the exemptions from the state from which you came 12 | The New Bankruptcy: Will it work for you? In 15 states, you have a choice of exemptions you may use your state’s exemptions or a list of federal exemptions To find out whether your state... amount (The debts that qualify for discharge in a Chapter 13 bankruptcy are explained in Ch 3.) Modifying the Plan and Alternatives to Full Discharge If you can’t complete your Chapter 13 plan as written, you can ask the court to modify it As long as it s clear that you re acting in good faith, 22 | The New Bankruptcy: Will it work for you? the court is likely to approve your request If it isn’t . 13. In the chapters that follow, you ll 6 | THE NEW BANKRUPTCY: WILL IT WORK FOR YOU? nd more detailed information on the issues you are likely to be interested in, including: • whether you areeligibletole •. Name (but don’t take our word for it) L A W f o r A L L 4th Edition The New Bankruptcy Will It Work for You? Attorney Stephen Elias Fourth Edition MAY 2011 Editor KATHLEEN MICHON Cover Design. tenants. 8 | THE NEW BANKRUPTCY: WILL IT WORK FOR YOU? e Skeleton Petition Sometimes it s important to obtain a ling number pronto. For instance, if you re faced with an immi nent foreclosure