Bankruptcy & Financial Planning

Legal Overview

Bankruptcy is a set of federal laws and rules that can help individuals and businesses who owe more debt than they can pay by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy cases are filed in the bankruptcy court. Federal courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court. The vast majority of cases are filed under the three main chapters of the Bankruptcy Code, which are Chapter 7, Chapter 11, and Chapter 13. The primary purposes of the law of bankruptcy are:

• to give an honest debtor a “fresh start” in life by relieving the debtor of most debts, and

• to repay creditors in an orderly manner to the extent that the debtor has property available for payment.

A bankruptcy case normally begins by the debtor filing a petition with the bankruptcy court. A petition may be filed by an individual (a debtor), by spouses together (a debtor and joint debtor), or by a corporation or other entity (a non-individual). The debtor is also required to file statements listing assets, income, liabilities, and the names and addresses of all creditors and how much they are owed. The filing of the petition automatically prevents, or “stays,” debt collection actions against the debtor and the debtor’s property. As long as the stay remains in effect, creditors cannot bring or continue lawsuits, make wage garnishments, or even make telephone calls demanding payment.

Creditors receive notice from the clerk of court that the debtor has filed a bankruptcy petition. In many bankruptcy cases involving liquidation of the property of individual consumers, there is little or no money available from the debtor’s estate to pay creditors. As a result, in these cases there are few issues or disputes, and the debtor is normally granted a “discharge” of most debts without objection. This means that the debtor will no longer be personally liable for repaying the debts.

Why Hire An Attorney

The following is a list of ways your lawyer can help you with your case.

• Advise you on whether to file a bankruptcy petition.
• Advise you under which chapter to file.
• Advise you on whether your debts can be discharged.
• Advise you on whether or not you will be able to keep your home, car, or other property after you file.
• Advise you of the tax consequences of filing.
• Advise you on whether you should continue to pay creditors.
• Explain bankruptcy law and procedures to you.
• Help you complete and file forms.
• Assist you with most aspects of your bankruptcy case.

How Much Does It Cost to File

Required Forms

• Voluntary petition (B101)
• Verification of Matrix
• Creditor Mailing Matrix – MUST be typed in the required format; see instructions.
• Statement of Social Security Number (B121)
• Certificate of Credit Counseling – provided by a certified credit counseling agency
• Filing Fee Payment or Fee Application:
  • Filing fee payment, in the form of cash, certified check, or money order
  • Application for Filing Fee in Installments (B103A)
  • Application for Waiver of Chapter 7 Fee (B103B)
• Statement of Financial Affairs (B107)
• Summary of Your Assets and Liabilities and Certain Statistical Information (B106)
• Schedules A – J (B106A – B106J) – can be found on the forms page
• Declaration About an Individual Debtor’s Schedules (B106DEC)
• Statement of Intention (B108)
• Chapter 7 Statement of Current Monthly Income and Means Test Calculation (B122A-1) – Note: see information at Office of the US Trustee
• Personal Financial Management/Debt Collection Certificate (provided by a Certified Counseling Agency).

• Voluntary petition (B101)
• Verification of Matrix
• Creditor Mailing Matrix – MUST be typed in the required format; see instructions.
• Statement of Social Security Number (B121)
• Certificate of Credit Counseling – provided by a certified credit counseling agency
• Filing Fee Payment or Fee Application:
  • Filing fee payment, in the form of cash, certified check, or money order
  • Application for Filing Fee in Installments (B103A)
• Statement of Financial Affairs (B107)
• Summary of Your Assets and Liabilities and Certain Statistical Information (B106)
• Schedules A – J (B106A – B106J) – can be found on the forms page.
• Declaration About an Individual Debtor’s Schedules (B106DEC)
• Chapter 13 Plan (LBF-M)
• Chapter 13 Plan Certificate of Service (LBF-M-1)
• Chapter 13 Statement of Current Monthly Income & Disposable Income Calculation of Commitment (B122C-1)
• Personal Financial Management/Debt Collection Certificate

Glossary of Terms

341 Meeting 
A meeting of creditors at which the debtor is questioned under oath by creditors, a trustee, examiner, or the United States trustee about his/her financial affairs 

Adversary Proceeding 
A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the bankruptcy court. 

Assume 
An agreement to continue performing duties under a contract or lease. 

Automatic Stay 
An injunction that automatically stops lawsuits, foreclosure, garnishments and all collection activity against the debtor the moment a bankruptcy petition is filed. 

Bankruptcy 
A legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of title 11 of the United States Code (the Bankruptcy Code). 

Bankruptcy Code 
The informal name for title 11 of the United States Code (11 U.S.C. § 101-1330), the federal bankruptcy law. 

Bankruptcy Court 
The bankruptcy judges in regular active service in each district, a unit of the district court. 

Bankruptcy Estate 
All legal or equitable interests of the debtor in property, both real and personal, at the time of the bankruptcy filing. 

Bankruptcy Judge 
A judicial officer of the United States Bankruptcy Court who is the court official with decision-making power over federal bankruptcy cases. 

Bankruptcy Petition 
A formal request for the protection of the federal bankruptcy laws. (There is an official form for bankruptcy petitions.) 

Bankruptcy Trustee 
A private individual or corporation appointed in all Chapter 7, Chapter 12, and Chapter 13 cases to represent the interests of the bankruptcy estate and the debtor’s creditors. 

Business Bankruptcy 
A bankruptcy in which the debtor is a business or an individual involved in business and the debts were incurred primarily for business purposes. 

Chapter 7 
The chapter of the Bankruptcy Code providing for “liquidation,” i.e., the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors. 

Chapter 7 Trustee 
A person appointed in a Chapter 7 case to represent the interests of the bankruptcy estate and the unsecured creditors. (The trustee’s responsibilities include reviewing the debtor’s petition and schedules, liquidating the property of the estate, and making distributions to creditors. The trustee may also bring actions against creditors or the debtor to recover property of the bankruptcy estate.) The Trustee works under the general supervision of the court and the direct supervision of the United States Trustee. 

Chapter 11 
A reorganization bankruptcy, usually involving a corporation or partnership. (A Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time as a liquidating plan for the orderly sale of assets and distribution of proceeds. Individuals can also seek relief in Chapter 11.) 

Chapter 12 
The chapter of the Bankruptcy Code providing for adjustment of debts of a “family farmer” or a “family fisherman” as those terms are defined in the Bankruptcy Code. (Chapter is similar to Chapter 13, except for the specific classes of debt.) 

Chapter 13 
The chapter of the Bankruptcy Code providing for adjustments of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.) 

Chapter 13 Trustee 
A person appointed to administer a Chapter 13 case. (A Chapter 13 trustee’s responsibilities are similar to those of a Chapter 7 trustee; however, a Chapter 13 trustee has the additional responsibilities of overseeing the debtor’s plan, receiving payments from debtors, and disbursing plan payments to creditors.) The Trustee works under the general supervision of the court and the direct supervision of the United States Trustee. 

Chapter 15 
The chapter of the Bankruptcy Code dealing with cases of cross-border insolvency. 

Claim 
A creditor’s assertion of a right to payment from a debtor or the debtor’s property. 

Complaint 
The first or introductory document in a lawsuit that notifies the court and the defendant of the grounds claimed by the plaintiff for an award of money or other relief against the defendant. 

Confirmation 
Approval of a plan of reorganization by a bankruptcy judge. (Can be either a Chapter 11 or Chapter 13 Plan) 

Consumer Bankruptcy 
A bankruptcy case filed by a debtor who has primarily consumer debts. 

Consumer Debt 
Debts incurred for personal, as opposed to business, needs. 

Contingent Claim 
A claim that may be owed by the debtor under certain circumstances, for example, where a debtor is a cosigner on another person’s loan and that person fails to pay. 

Creditor 
A person or business to which the debtor owes money or that claims to be owed money by the debtor. 

Credit Counseling 
“Individual or group briefing” from a nonprofit budget and credit counseling agency that debtors must attend prior to filing under any chapter under the Bankruptcy Code. 

Current Monthly Income 
The average monthly income received by the debtor over six calendar months before the filing of the bankruptcy case, including regular contributions to household expenses from nondebtors and income from the debtor’s spouse if the petition is a joint petition, but not including social security income and other payments made because the debtor is victim of certain crimes. 

Debtor 
A person who has filed a petition for relief under the bankruptcy laws. 

Debtor Education 
The “instructional course in personal financial management” in Chapters 7 and 13 that an individual debtor must complete before a discharge is entered. 

Defendant 
An individual (or business) against whom a lawsuit is filed. 

Discharge 
A release of a debtor from personal liability for certain dischargeable debts. (A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor or the debtor’s property to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.) 

Dischargeable Debt 
A debt for which the Bankruptcy Code allows the debtor’s personal liability to be released. 

Disclosure Statement 
A written document prepared by the Chapter 11 debtor or other plan proponent that is designed to provide “adequate information” to creditors to enable them to evaluate the Chapter 11 plan. 

EIN (Employer Identification Number) 
A federal tax ID, typically used for a business to report its tax liabilities. 

Employee 
A person who is hired to work for someone else and is paid for that work. 

Employer 
An individual or business that hires another individual and pays a salary or wage to the hired person. 

Equity 
The value of a debtor’s interest in property that remains after liens and other creditors’ interests are considered. (Example: If a house valued at $60,000 is subject to a $40,000 mortgage, there is $20,000 of equity.) 

Executory Contract or Lease 
Generally includes contracts or leases under which both parties to the agreement have duties remaining to be performed. (If a contract or lease is executory, a debtor may assume it or reject it.) 

Exempt Property 
Property or value in property that a debtor is allowed to retain, free from the claims of creditors who do not have liens. 

Exemption 
Property that the Bankruptcy Code or applicable state law that permits a debtor to keep from creditors. 

Family Farmer or Family Fisherman 
An individual, individual and spouse, corporation or partnership engaged in farming or fishing operation that meets certain debt limits and other statutory criteria for filing a petition under Chapter 12. 

Fraudulent Transfer 
A transfer of a debtor’s property made with intent to defraud or for which the debtor receives less than the transferred property’s value. 

Fresh Start 
The characterization of a debtor’s status after bankruptcy, i.e, free of most debts. (Giving debtors a fresh start is one purpose of the Bankruptcy Code.) 

Insider (of corporate debtor) 
A director, officer, or person in control of the debtor; a partnership in which the debtor is a general partner; a general partner of the debtor; or a relative of a general partner, director, officer or person in control of the debtor. 

Insider (of individual debtor) 
Any relative of the debtor or of a general partner of the debtor; partnership in which the debtor is a general partner; general partner of the debtor; or corporation of which the debtor is a director, officer or person in control. 

Joint Administration 
A court-approved mechanism under which two or more cases can be administered together. (Assuming no conflicts of interest, these separate entitites or individuals can pool their resources, hire the same professionals, etc.) 

Joint Petition 
One bankruptcy petition filed by a husband and wife together. 

Lien 
A charge upon specific property designed to secure payment of a debt or performance of an obligation. 

Liquidated Claim 
A creditor’s claim for a fixed amount of money. 

Liquidation 
A sale of a debtor’s property with the proceeds to be used for the benefit of creditors. 

Means Test 
Calculation to determine whether an individual debtor’s Chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case to Chapter 13.
Abuse is presumed if the debtor’s aggregate current monthly income over 5 years is above the state median income for a family of a specific size. 

Motion To Lift Automatic Stay 
A request by a creditor to allow the creditor to take an action against a debtor or the debtor’s property that would otherwise be prohibited by the automatic stay. 

No-Asset Case 
A Chapter 7 case where no assets are available to satisfy any portion of the creditors’ unsecured claims. 

Nondischargeable Debt 
A debt that cannot be eliminated in bankruptcy. 

Objection to Discharge 
A trustee’s or creditor’s objection to the debtor’s being released from personal liability for certain discharged debts. 

Objection to Exemptions 
A trustee’s or creditor’s objection to a debtor’s attempt to claim certain property as exempt, i.e., not liable for any prepetition claim of the creditors. 

Party In Interest 
A party who is actually and substantially interested in the subject matter, as distinguished from one who has only a nominal or technical interest in it. 

Plaintiff 
A person or business that files a formal complaint with the court. 

Plan 
A debtor’s detailed description of how the debtor proposes to pay creditors’ claims over a fixed period of time. 

Postpetition Transfer 
A transfer of a debtor’s property made after the commencement of the case. 

Preferential Debt Payment 
A debt payment made to a creditor in the 90-day period before a debtor files bankruptcy (or within one year if the creditor was an insider) that gives the creditor more than the creditor would receive in the debtor’s Chapter 7 case. 

Priority 
The Bankruptcy Code’s statutory ranking of unsecured claims that determines the order in which unsecured claims will be paid if there is not enough money to pay all unsecured claims in full. 

Priority Claim 
An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. 

Proof of Claim 
A written statement describing the reason a debtor owes a creditor money. (There is an official form for this purpose). 

Property of the Estate 
All legal or equitable interests of the debtor in property as of the commencement of the case. 

Reaffirmation Agreement 
An agreement by a Chapter 7 debtor to continue paying a dischargeable debt after the bankruptcy, usually for the purpose of keeping collateral or mortgaged property that would otherwise be subject to repossession. 

Schedules 
List submitted by the debtor along with the petition (or shortly thereafter) showing the debtor’s assets, liabilities, and other financial information. (There are official forms a debtor must use.) 

Secured Creditor 
An individual or business holding a claim against the debtor that is secured by a lien on property of the estate or that is subject to a right of setoff. 

Secured Debt 
Debt backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default. 

Small Business Case (Subchapter V) 
A special type of Chapter 11 case in which the small business debtor has elected to proceed under a simplified and expedited process contained in subchapter V of the bankruptcy code. 

Statement of Financial Affairs 
A series of questions the debtor must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc. (There is an official form a debtor must use.) 

Statement of Intention 
A declaration made by a Chapter 7 debtor concerning plans for dealing with consumer debts that are secured by property of the estate. 

Abuse 
The characterization of a bankruptcy case filed by an individual whose debts are primarily consumer debts where the court finds that the granting of relief would be an abuse of Chapter 7 because, for example, the debtor can pay its debts. 

Substantive Consolidation 
Pooling the assets and liabilities of two or more related debtors into a single pool to pay creditors. (Courts are reluctant to authorize substantive consolidation unless the benefit that creditors receive outweighs the harm that other creditors suffer as a result.) 

Transfer 
Any mode or means by which a debtor disposes of or parts with his/her property. 

Petition Preparer 
A business or individual not authorized to practice law that prepares for compensation documents for filing bankruptcy. 

Undersecured Claim 
A debt secured by property that is worth less than the amount of the debt. 

United States Trustee 
An officer of the Justice Department responsible for supervising the administration of bankruptcy cases, estates, and trustees, monitoring plans and disclosure statements, monitoring creditors’ committees, monitoring fee application, and performing other statutory duties. 

Unliquidated Claim 
A claim for which a specific value has not been determined. 

Unscheduled Debt 
A debt that should have been listed by a debtor in the schedules filed with the court but was not. 

Unsecured Claim 
A claim or debt for which a creditor holds no special assurance or payment, such as a mortgage or lien; a debt for which credit was extended based solely upon the creditor’s assessment of the debtor’s future ability to pay.