Preparing the bankruptcy Lawyer Manual

If it appears that a bankruptcy will benefit the client and the client wishes to proceed, the following questions and issues need to be addressed:

• Have you ever filed a bankruptcy before? If so, when;
• Regardless of the answer A written statement used to respond to the complaint or petition in a lawsuit to the question, the attorney should conduct a search on PACER case locator to see if the debtor A person who owes money to someone else has filed before;
• Individuals who voluntarily dismissed Cases dismissed with no further action anticipated. a prior bankruptcy case within the past 180 days after a motion A request to the judge to make the court or a party in the case do something to lift the automatic stay was filed are excluded from seeking bankruptcy relief;
• Individuals who had a prior bankruptcy case involuntarily dismissed within the past 180 days for willful failure to appear before the court in proper prosecution of the case or failure to obey court orders are excluded from seeking bankruptcy relief; and
• Is there an order in a previous case barring the debtor from filing again for a specified time?

Which chapter?

If the client is not barred from filing or receiving a discharge, under what chapter can she file?  11 USC § 109 of the Bankruptcy Code provides the answer. You may find our bankruptcy summary program useful for your clients when helping them decide whether bankruptcy is the right option.

Different chapters of the Code are restricted to different entities. For example:

• Chapter 7 is available to individuals, business entities, property holdings, or municipalities, with certain specific exceptions, such as railroad companies, domestic insurance companies, and banks and savings associations; and
• Chapter 13 is available only to an individual or sole proprietorship, with regular income who owes less than $2,750,000, or an individual or sole proprietorship with regular income and such individual’s spouse owes less than $2,750,000.

A debtor with primarily consumer debts who files under Chapter 7 bankruptcy will be subject to the "means test." If the debtor does not pass the means test, the case may be dismissed as presumptive abuse. It involves a 2-step process.

First, a debtor’s average income over the past six months is compared to the median income of the state for a family of the same size as the debtor’s. If the debtor’s income is lower than the median income of the state, then the case can proceed. If the debtor’s income is higher than the median income of the state, then the second step of the means test is triggered. Under that step, a debtor’s projected disposable income over the next five years is found by subtracting certain expenses from the debtor’s total income. The median income numbers and allowable expenses can be found on the website of the Office of the United States Trustee.

There are three different outcomes to the test depending on the debtor’s projected disposable income:

• If the projected disposable income is less than $9,075 over the following five years, the debtor will remain eligible for Chapter 7 bankruptcy;
• If the debtor's projected disposable income is higher than $15,150 over the following five years, then there is a presumption that Chapter 7 bankruptcy is an abuse of the bankruptcy system;
• If the debtor’s projected disposable income is between $9,075 and $15,150 over the following five years, then the debtor’s projected disposable income is compared to the amount of the debtor’s unsecured debt. If the projected disposable income is greater than 25% of the unsecured debt, there is a presumption that Chapter 7 bankruptcy is an abuse of the bankruptcy system. If the debtor’s projected disposable income is less than 25% of their unsecured debt, then the debtor may file for Chapter 7 bankruptcy; and
• Even if the debtor does not pass the means test, the debtor may still be able to defeat a motion to dismiss the Chapter 7 case if he or she can demonstrate special circumstances. 

Note: While 11 USC § 109 requires a debtor to either reside in the US or be domiciled in the US, it does not require that a debtor be a citizen of the U.S.

Will it work?

The ultimate question of any bankruptcy is, will it accomplish the goal of the debtor, namely a fresh start free of the burden of debt? And if not, is it still worth filing?

Discharge v. dischargeability

A discharge is the release of all pre-bankruptcy liabilities. 11 USC § 727 provides that discharge shall be granted unless any one of ten specific grounds is shown to exist. In addition, 11 § USC 523 specifies which particular debts are not dischargeable even if a discharge is granted. It reduces the benefit the debtor may receive from the discharge.

Discharge

Of the ten grounds for not granting a Chapter 7 discharge is that the debtor has received a discharge in a Chapter 7 proceeding within the last 8 years or has received a discharge in a Chapter 13 proceeding within the last 6 years in which the debtor paid less than 70% of the unsecured debt. 11 U.S.C. § 727(a)(8) and (9). Discharge will not be granted for a Chapter 13 case if debtor received prior discharge for Chapter 7 within the last four years or in a Chapter 13 case within the last two years. 11 U.S.C. § 1328(f)(1) and (2).

Dischargeability

It is most important to look at the client’s debts and be aware of the red flags which may signal problems with dischargeability. The following are some typical debts that are not dischargeable under Section 523(a):

• Tax claims
• Debts not set forth by the debtor on the lists and schedules the debtor must file with the court
• Domestic support obligation
• Debts for willful or malicious injuries to person or property
• Debts to governmental units for fines and penalties
• Debts for most government funded or guaranteed educational loans
• Debts for personal injury caused by the debtor’s operations of a motor vehicle while intoxicated

Obligations affected by fraud The deception of someone(s) with intent to cause damage (not including  forgeries and counterfeiting). or maliciousness are not automatically excepted from discharge and require the creditor Someone who is owed money to ask the court to determine whether the debts are except from discharge.

A broader discharge of debt is available to debtors in a Chapter 13 case. Debts that can be discharged in a Chapter 13 case, but not a Chapter 7 case, include debts for willful and malicious injury to property, debts incurred to pay non-dischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings.

When does discharge occur?

Discharge under a Chapter 7 case typically occurs four months after filing with the court, whereas a Chapter 13 discharge may take three to five years following the completion of a repayment program.

Choice of Individual vs. Joint Husband/Wife Bankruptcy

One spouse can file for bankruptcy without the other spouse joining in the action, or a husband and wife can file jointly. In a joint filing, both spouses must sign the bankruptcy documents.