Volunteer Attorneys and Chapter 7 in Colorado, Montana and Utah - Transcript
Bankruptcy for Volunteer Attorneys
This training is designed to assist you in representing a debtor through the process of filing for Chapter 7 bankruptcy, which is primarily for consumer debt. It does not address additional chapters of the bankruptcy code in detail. We will call the debtor ‘he’ or ‘the client’ throughout this training. All of the links and resources referenced in this training will be available in a handout when you're finished.
This training has been funded by the Legal Services Corporation through a Technology Initiative Grant, and covers aspects of filing Chapter 7 Bankruptcy in Montana, Colorado, and Utah. This training is designed to cover the basics, and volunteer attorneys are encouraged to take CLEs, find mentors, and engage in other activities to increase their knowledge of bankruptcy code.
Types of Bankruptcy
Chapter 7 bankruptcy is a legal proceeding in federal court in which a client can discharge most of his debt. Completion of each step is essential. In addition to following all of the steps, it’s important to check with the bankruptcy court to make sure you have all the necessary documents, because requirements occasionally change.
This training will cover Chapter 7 Bankruptcy in detail, but there are several other kinds. Most bankruptcy code is part of federal law, but there are some states that deviate slightly from federal code, which affects the process and outcome of a Chapter 7 Bankruptcy. Click on a type of bankruptcy to learn more about it.
Chapter 7 is subject to property exemptions in your state, along with secured creditors’ rights. An appointed trustee liquidates any non-exempt assets a client has to split between the creditors, and the debt is discharged. For a general overview of Chapter, 7 see page 14 of Bankruptcy Basics, published by the federal courts.
Chapter 11 is primarily for businesses (though individuals whose debt exceeds the Chapter 13 debt limitations can also file for Chapter 11) which wish to reorganize their business to repay debt by reducing the debt or extending the time for repayment. For a general overview of Chapter 11 see page 29 of Bankruptcy Basics.
Chapter 13 is for individuals who have regular income and want to keep a valuable asset by continuing to make some payments through a court approved 3-5 year payment plan. This is a good option for clients who are facing foreclosure and have the ability to make payments. For a general overview of Chapter 13 see page 22 of Bankruptcy Basics.
Helping a Client Decide
You may be asked for help by clients who aren't sure if they should file for bankruptcy. There are several steps you can take to help a person decide if filing for bankruptcy is right for them.
First, ask your client to walk through the ‘Is Bankruptcy Right for Me’ Access to Justice interview. This interactive program will define Chapter 7 Bankruptcy, and help the client understand what he will need to consider prior to deciding to file.
Next, find out if the client is collection proof. Collection proof means he does not have any assets or non-exempt income. This means that even if a creditor gets a judgment against the client for the amount they owe, the client has nothing the creditor can take to satisfy that judgment. Therefore, the client has the option of simply ignoring the creditors and not paying. However, the client still needs to attend all court hearings and explain his financial situation if served with a new Summons and Complaint, or a subpoena by a creditor with a judgment.
If the client chooses to deal with their situation without filing a Chapter 7, you can help by suggesting that he send a letter to the collection agencies to help reduce the number of harassing phone calls the client receives. However, creditors can still call between 8:00 a.m. and 9:00 p.m., even on weekends, but only to notify the client they are seeking other remedies. The client should keep a log of any harassing phone calls they receive.
Is Bankruptcy Right for this Client?
While there are always pros and cons to filing for bankruptcy, there are several situations that can help a person decide if filing may or may not be a good idea. Do you know what they are? Click on a potential situation to see if it indicates that bankruptcy is a good or bad idea.
The client only has secured debt:
Maybe Not... If the client only has secured debt, bankruptcy may not be a good option if the client is attempting to save the asset. It would be better to try to negotiate with the creditor for a modified payment plan, or consider filing Chapter 13. However, if they are up to date on payments, they can still file Chapter 7 and reaffirm the debt. (Remember that a mortgage lender can’t foreclose on property unless the client is behind on payments, so even in a Chapter 7 it isn’t necessary to reaffirm the mortgage debt if the client is up to date on the payments.
The client will be inheriting valuable assets:
Maybe Not... Bankruptcy may not be a good option for someone who will soon be inheriting valuable assets, because once they receive the assets, the trustee will be able to seize their newly acquired assets to pay creditors. The trustee can take new assets for up to 6 months after discharge.
The debt is dischargeable:
Maybe Not... Consider how much of the clients debt is dischargeable. Credit card debt, medical bills, and business-related expenses are generally dischargeable. However, student debts, taxes, and child support are generally not . If the client files Chapter 7, the discharged debt should free up enough disposable income for s/he to make payments on non-dischargeable debt. Note: Even if the client is not eligible for a discharge, it doesn’t mean they cannot file a case. Seek an experienced bankruptcy attorney for mentorship with any questions, as this can be complicated..
The client recently received a discharge of debt:
Maybe Not...If the client previously filed a Chapter 7 and got a discharge in that case, they can not get another Chapter 7 discharged within 8 years from the date the previous case was filed. Remember, this training is to help with Chapter 7 filings only. The timeframe can be different is another type of bankruptcy (Chapter 11 or 13) was filed in the past, or will be filed.
The goal is to wipe out debt:
May be beneficial... If the client's primary goal is to wipe out debt, filing Chapter 7 Bankruptcy may be right for them if wiping out the debts will allow them sufficient disposable income to provide for themselves and pay any non-dischargeable debt..
Debt consists mostly of medical or credit card:
May be beneficial... If most of the client's debt is medical bills and credit card debt, filing Chapter 7 Bankruptcy may be right for them.
Unlikely for client to repay debt from current salary:
May be beneficial...If it is unlikely that the client could repay the debt from his current salary, making his debt "crippling", filing Chapter 7 Bankruptcy may be right for them.
Is being garnished and cannot make other payments:
May be beneficial...If the client is currently being garnished and is having a difficult time keeping up on other payments (and their debt is threatening house ownership, utilities, etc), filing Chapter 7 Bankruptcy may be right for them.
The client is collection proof:
Maybe Not... Bankruptcy may not be the right choice if the client is collection proof. Exceptions to this include: there is a mental health-related complication present, or the client is likely to come into money within the statute of limitations to allow the creditor to collect. However, make sure the client doesn’t make enough to be garnished.
Debt is less than $5,000, or not “crippling”:
Maybe Not... If the debt is less than $5,000 or not crippling enough and the client can pay it back. (But remember, filing Chapter 7 is like using a last option insurance plan - once the client cashes out he or she cannot file again for 8 years.)
Likely to be back in debt from ongoing expenses:
Maybe Not... If the client is likely to get right back into debt due to an ongoing expense. (For example, the client has medical bills and they are still being treated.)
No health insurance, likely to incur expenses:
Maybe Not... The client and/or family members do not have health insurance and are likely to incur expenses they cannot pay. (Even if the client does not currently face any medical expense, he or she never knows what could happen, and needs to understand the risks.)
Won’t be able to make payments, even after bankruptcy:
Maybe Not... If the client’s income will not allow them to continue to make payments on remaining debt or expenses, even after filing bankruptcy.
Assets could be at risk from filing:
Maybe Not... If the client has assets which could be put at risk by filing. For example, filing a bankruptcy late in the year, since the trustee could wait until the client files his tax return. The trustee would likely take the client’s tax refund. It is best to advise the client to file their taxes and spend the money on exempt items before filing, and to keep records of how it was spent.
Initial Consultation
When you have your initial consultation with a client, there are several things you should advise them to bring to the first meeting. Check off each item on the list to hear more about it.
• A list of all outstanding debts including what and who is owed, including monies owed to any collection agencies or attorneys.
• Also, the client needs to request credit reports from Equifax, Experian and TransUnion. If the client has not done this in the past year, it will be free at www.annualcreditreport.com. (If the client is asked for a credit card number during this process, the client is not on the right website.) If a client has moved a lot, the credit bureau may require a written request. The client should print a credit report from annualcreditreport.com to ensure they have not forgotten about a creditor.
• The client should also bring a list of assets, including all personal property owned by the client such as cars, boats, trailers, timeshares, all personal items in home, pensions and retirement accounts, recreation equipment, electronics, and more. They should also estimate the value for which they could sell their property at a garage sale.
• They should bring any documents pertaining to any real property they own, including mobile homes, residence and vacation homes
• If the client is currently employed or was in the past six months, have them bring their last three paystubs, including their employer’s name and location
• They should also bring a detailed budget for any income the debtor takes home, including any expenses such as utilities, andfood.
• The client should bring any other paperwork which could pertain to his financial situation and may be relevant to the bankruptcy. This should include any information about other legal actions which may affect the bankruptcy, such as divorce or paternity actions, criminal matters where there may be restitution ordered, or any collection actions already filed. In the case of divorce, it’s usually better to file for bankruptcy before the divorce, if possible.
Credit Counseling Course
Your client must complete an approved credit counseling course at least 180 days before filing the petition. Click on the link for a list of approved credit counseling agencies by state and judicial district. Many of them are available to take online, and many offer fee waivers. The Certificate of Completion will need to be filed with the original bankruptcy petition.
If your client decides to continue with the bankruptcy pro se, there are resources you can provide. Click on the pro se button to see more information, or click next to continue with information about how to represent a client in a Chapter 7 Bankruptcy.
Listing Property
To begin the process of filing for Chapter 7 Bankruptcy, the client will need to provide a list of all of their property, income sources, debts, and monthly expenses. The lists will help you fill out the paperwork that you will then submit to the Court on your client’s behalf. The client should include the information for members of the household, which means listing all of their spouse’s assets and debts, even if they are not filing bankruptcy jointly.
If the client is having a difficult time valuating their entire household, have them look on craigslist.com, ebay.com or at the online classifieds from the local newspaper website to see what other people are selling for similar items. Remember to check the Kelly Blue Book to determine the worth of the client’s car.
Forms and List of Creditors
You will need to submit a list of the client’s creditors and their addresses to the Court. The Court will notify the creditors that your client has filed for Bankruptcy and that an automatic stay is in place. If your client has any interest accumulated in an educational retirement account or a state tuition program, you will need to provide a record of that account in addition to the list. You may also have to file a statement of any anticipated increase in income or expenditures your client will have over the next twelve months.
Click on your state flag for links to downloading bankruptcy forms, and for information about how to submit a creditor's list in your state.
Reaffirming Debts