Many debtors who file bankruptcy cases without the assistance of a bankruptcy attorney eventually receive a shocking notice in the mail which states: “Case closed without discharge.  Debtor has not filed a Financial
Management Course Certificate proving compliance with the required instructional course requirement for discharge.” However, they’ve done everything else required of them except for taking the required financial management course and filing the required Form 23.   All that time and work, and no discharge?

Fortunately, there is usually a solution if this happens in your case.  Pursuant to 11 U.S.C. 350,  and Federal Rule of Bankruptcy Procedure  5010 you can file a motion to reopen your case and, if granted, take and file the required financial management course certificate. The best way to accomplish this is to hire a bankruptcy attorney for this purpose to make sure the facts of your case are presented properly and maximize your chances to have the Motion granted and to get your discharge entered.

There is a court mandated filing fee for the Motion to Reopen for the purpose of filing official form 23 (presently $260) and attorney’s fees vary, but this is not the time to skimp and save.  You have now discovered one of the reasons why you should have hired a bankruptcy attorney in the first place; now is the time to do so and obtain your discharge.

The basic concept of the automatic stay is well-settled in bankruptcy law. But the precise scope of the stay is a matter of some dispute, and bankruptcy courts have issued numerous opinions attempting to clarify the types of creditor activities that the stay does and does not allow.

The Bankruptcy Appellate Panel for the Ninth Circuit (BAP) recently added to this body of case law in In re Zotow,  2010 Bankr. Lexis 2178 (9th Cir. BAP 2010).  The case involved a married couple whose assets included a home mortgage that required monthly payments of principal, interest, and approximately $185 in escrow items such as taxes and homeowners’ insurance. The couple fell behind on their payments and eventually filed for bankruptcy under Chapter 13. After receiving notice of the bankruptcy, the mortgage lender calculated a new escrow payment of approximately $300 per month. The lender then notified the couple in writing to explain the higher amount and its effect on the total monthly mortgage payment. The Chapter 13 trustee later made post-petition installment payments to the lender based on the new escrow amount.

The couple argued that the lender violated the automatic stay in two ways: (1) by increasing the required amount of the post-petition escrow deposits as a ruse to collect pre-bankruptcy escrow arrears, and then sending notice of this increase; and (2) by receiving the increased post-petition mortgage payments from the Chapter 13 trustee.

Before addressing these arguments, the court explained that a creditor communication generally violates an automatic stay where direct or circumstantial evidence shows that the communication was geared toward collection of a pre-bankruptcy debt, was accompanied by coercion or harassment, or otherwise put pressure on the debtor to pay. On the other hand, “mere requests for payment,” or statements providing information about a debt where the debtor has an interest in receiving the information to formulate a confirmable Chapter 13 plan, are generally permissible.

Applying these guidelines, the court rejected both of the couple’s arguments and held that the lender did not violate the automatic stay. The lender’s notice was permissible because it was not an invoice, merely set forth the facts of the debt, and was not accompanied by a payment coupon or envelope. The couple, moreover, had an interest in receiving the information in the notice to formulate an appropriate Chapter 13 plan, and neglected to challenge the higher escrow amount soon after receiving the notice.

The lender’s act of receiving the higher escrow payments was also acceptable under the stay because it did not involve any act to collect a pre-bankruptcy debt. Indeed, the lender did not act at all; the Chapter 13 trustee simply made the payments as required under a local rule for post-petition contract installment payments.

In re Zotow involves a fairly technical issue, but is an important case nevertheless. If you are contemplating bankruptcy, you should know your rights, and what creditors can and cannot do during the bankruptcy process. An experienced bankruptcy attorney can help you understand the types of relief you can expect from an automatic stay and take action to enforce the stay where necessary.

This is a guest post written by Brandon Moreno, Vice President of the Utah Bankruptcy Hotline. The Utah Bankruptcy Hotline maintains a network of unaffiliated Utah bankruptcy attorneys who provide debt relief and consumer bankruptcy counsel.

It seems to be human nature to procrastinate, particularly when faced with doing something as unappealing as filing a bankruptcy case.  Lately, however, I have seen an increase in people waiting too long to file.

It is understandable: Filing bankruptcy is not free and it’s not a fun path to take. People often need to save up money to file, and there may be other reasons to wait to file.   People also like to be hopeful that things are going to change and they won’t need to file.  However, there can be consequences, sometimes dire, if you wait too long.  I’ve had several such cases in the past few weeks.

One client had a consultation with me over a year ago, at which time I advised he should file a bankruptcy case, but should probably wait a couple of months to let more time go by since the last time charges were made on his credit cards (which is sometimes advisable to avoid possible objections).    But eligibility to file bankruptcy, particularly chapter 7, depends on both your income for the 6 months prior to filing, as well as your current income when your case is filed.

So, this client who was more or less unemployed for over a year,  received a job offer that paid a decent amount.  He hadn’t started the job yet.  One of his creditors finally  filed a lawsuit and at that point he contacted me back about filing the Chapter 7 case.  However,  due to the new job, he no longer qualified for Chapter 7, and was looking at doing a substantial repayment plan in a Chapter 13 bankruptcy case instead.     Now this, of course, is not a disaster, but it ended up costing him more in attorneys fees, plus about $30,000 in payments towards his credit cards,(which he could now afford, but if he had filed when I advised, he’d be able to save that money instead!

There are a lot more examples I could provide, but it is important to understand the consequences of waiting and be realistic in your assessment of those risks and to discuss them with your attorney.   This, of course, assumes one has already had a consultation with an attorney.   I could write a whole separate article for people who wait too long to even seek an initial consultation about their financial situation!

In the 9th Circuit (which includes California, Oregon, Arizona, Washington and Nevada, Idaho, Alaska, Hawaii and Guam) if your case was a Chapter 7 bankruptcy in which no assets were liquidated and sold by the Trustee, and you receive your discharge, there is no consequence for unintentionally failing to list a creditor.   Thus, if you get your discharge, you are discharged from ALL dischargeable debts regardless of whether they were listed or received notice of the bankruptcy.   The two main cases on this are In re Neilsen, 383 F.2d 922 (9th Cir. 2004) and In re Beezley, 994 F.2d 1433 (9th Cir. 1993).   (If the creditor in question has grounds to object to the discharge of the debt– for example, if the debt was incurred through fraud– they can still move to reopen the Chapter 7 case and litigate their nondischargeability claim if they received no notice of the original bankruptcy).

In a Chapter 11, Chapter 13 case or in a Chapter 7 case where assets are being distributed by the Trustee, the failure to list a creditor is more serious and can result in that debt not being discharged.

If your case is filed outside the 9th Circuit, you should consult with a bankruptcy attorney in your area regarding the law in your jurisdiction.

I have been unemployed for nearly a year now and will be running out of unemployment benefits in about 3 months which will leave me with no income at all and I am single. The prospects of finding a job in my line of work anytime soon is looking pretty grim so I am seriously considering launching another business of my own but that will take at least a year. I make about $960 a month on unemployment and have no residual savings other than my 401k and own no real property. My personal property is limited to my 13 year old car, my clothes and some minor furnishings which really aren’t worth anything. My dischargeable debts amount to about $35,000 and are comprised of strictly credit cards and medical expenses. I have never filed bankruptcy before and have spent the last 10 years rebuilding my credit after paying off debts from a business I was forced to close, so it’s heartbreaking for me to have to seriously consider bankruptcy now.

Here’s what I would like to know.

1. With little income which is on the verge of disappearing can I file directly for a Chapter 7 or do I need to file Chapter 13 first and complete the means test?

Answer: The “means test” must be completed if you are over the median income in your State, given your household size, in order to determine what you are eligible for. The so-called “means test form” must be completed in any bankruptcy case. You can file Chapter 13 first, but from the above facts it sounds like you would qualify for a Chapter 7 case, but you need to have a comprehensive consult with a bankruptcy attorney in your area to make that determination.

Student loan debt, as with ANY debt, factors into the debt limits for Chapter 13 under 11 USC 109(e).

A client asked me this question thinking that because student loans were non-dischargeable perhaps that affected whether the debt applies to the Chapter 13 debt limits.

The only way the student loan (or any) debt would not count towards the unsecured debt limit in a Chapter 13 is if one of the following occurred:

A. They already had a judgment against you (in the event of a default in payments) and created a lien against assets sufficient to cover the amount of the student loan. In this case, that amount would count towards the SECURED debt limit (which as stated above is just over $1 million);

B. The debt is contingent, meaning that you don’t owe it unless some pre-condition occurs; or

C. The debt is unliquidated, meaning that there is no way to readily determine the amount owed.

In general domestic support obligations, which are those obligations issued for the maintenance or support of a former spouse or child, including alimony, are not dischargeable in any bankruptcy case.  So the key element is determining if the type of debt is for alimony, maintenance or support of a child or spouse.    This is not always clear from the divorce decree or other family law order.

Marital equalization obligations, such as those where an award is made against one spouse to offset assets being given to the other, are generally not considered for support or maintenance.   Similarly, attorney’s fees awarded to the other spouse’s lawyer is likely not for support or maintenance.

Debts incurred as part of or in connection with a divorce decree or separation which are not for the alimony, support or maintenance of the spouse or children may be dischargeable in a Chapter 13 bankruptcy case, but not in any other chapter.

Thus, the key is determining whether the debt in question is for the support or maintenance of the spouse or child, and which chapter of bankruptcy is involved.

But what about those who have the ability to make some monthly payments to their creditors and don’t qualify for chapter 7?   Their primary bankruptcy option in many cases is Chapter 13, which allows for, usually, a partial repayment of the debt.   Armed with this choice, most people decide that debt consolidation, rather than filing a Chapter 13 bankruptcy case, is their optimal solution.   However, this is almost never true.

In Chapter 13, the amount you have to repay to your creditors will almost always be less than (or, at worst, equal) to what you will have to repay outside of bankruptcy.    This is true even if you are required to repay 100% of your debts in a Chapter 13 case.  Depending on various factors–primarily your income and expense– you can get a discharge of your debts in a Chapter 13 case repaying anywhere from 0% to 100% of your unsecured debts for 36-60 months.

Why is it better to repay 100% in a Chapter 13 rather than doing debt consolidation?  Because you do not have to pay for interest accrual on unsecured debts in a Chapter 13.   Even under the best consolidation deal outside of bankruptcy there is going to be interest paid.  Also, in Chapter 13 your repayment plan will be for a maximum of 60 months (and in many cases can be as little as 36 months).   This can result in significantly less paid out over time than one would have to pay in a debt consolidation arrangement.

So if you are in a position where you may have too many assets or income to qualify for a Chapter 7 case, but are having trouble managing your monthly payments on your credit cards or other unsecured debts, you should consult with a bankruptcy attorney about the possibility of filing a Chapter 13 case.   You very well may be able to pay off all your unsecured debts with affordable monthly payments in less than 5 years!

For example, if your home is worth $400,000 and you owe $350,000 to the First Mortgage and $100,000 to the second, you would theoretically be able to reduce the lien of the second mortgage down to $50,000, and then reamortize (modify) the payments based on that amount.  (The remaining $50,000 that was taken off would be treated as an unsecured claim and paid whatever percentage the other unsecured creditors were to receive in the case).

This is a potentially significant development and one can reasonably expect President Obama to sign this law if it passes both houses of Congress.  Check back often for the progress on this new legislation.