87 Things You Need to Know Before You File Bankruptcy Written and Published by Victoria Ring, Bankruptcy Paralegal 1601 W Fifth Avenue, #123 Columbus, Ohio USA Voice: (614) 486-7642 Fax: (614) 486-8840 updated April 22, 2002 email: victoria@victoriaring.com website: http://www.bankruptcyparalegalservices.com An Important Message to the Readers: This free ebook provides information from the knowledge and viewpoint of a bankruptcy paralegal. However, laws and procedures change frequently, and they can be interpreted differently by different people. For specific advice geared to your particular financial situation, consult a qualified bankruptcy attorney. No book, software, or other published material is a substitute for personalized advice from a knowledgeable attorney licensed to practice law in your state. An Important Message to Legal Professionals: Since this book is provided free, you also have the author’s permission to reproduce it in any manner you feel will benefit your client base. All that is required is that you mail a copy to Victoria Ring, 1601 W Fifth Ave #123, Columbus OH 43212-2303. Also, please email or call Victoria at 614-486-7642 if you would like a version of this book printed that is customized with your name and address. This book may also be distributed over the internet as a PDF document as long as it is it not offered for sale. Interested in Starting a Business? If you would like to offer bankruptcy petition preparation services in your area, we have developed a program which allows you to make extra money from your home. There is no cost to get started. Simply go to http://www.lawyerassistant.com to review our services for legal professionals. Fill out the online form and you will receive a free personalized set of bankruptcy intake forms, customized with your name and address. Make copies of the forms, charge the fee allowable in your state as a petition preparer and send the forms to us for processing. Some legal professionals using our service charge as much as $200, pay us $99.95 and make a healthy $100 profit from each petition. Please call Victoria Ring at 614-486-7642 after you have reviewed the website if you are interested in performing this service as a home business or add-on to your established practice. Earn a $15.00 Referral Bonus: If you have a friend, relative or co-worker interested in filing bankruptcy, please make a copy of the forms in this book (starts on Page 16) and give them to fill out and return to us. Be sure to write your name and address on the “Referred By” line at the top of the GENERAL INFORMATION form. When we receive the petition with your name and address on the “Referred By” line, we send you a $15.00 referral bonus check. There is no limit to the number of referral checks you can receive, so if you like our service -- get paid for it by referring clients to us. TABLE OF CONTENTS Page Who Will Benefit From This Information . 1 Overview 1 Free Forms Included 2 Paid Services . 2 How to Determine if you Should Hire Victoria Ring to Prepare Your Bankruptcy Petition 2 Summary of Skills and Experience of Victoria Ring . 3 How Hard is it to File a Bankruptcy Petition? . 4 Some Terms You Need to Know Concerning Bankruptcy . 4 Chapter 7 Bankruptcy 6 Chapter 13 Bankruptcy 6 Changes in Payments During a Chapter 13 Bankruptcy 7 Chapter 11 Bankruptcy 7 Steps That Occur for Either a Chapter 7 or Chapter 13 Bankrupcty 8 Other Facts that You Need to Know 8 Debts That Cannot Be Discharged . 9 The First Steps in Preparing a Bankruptcy Petition 9 How Your Credit Will be Effected by Bankruptcy . 11 Other General Questions and Answers 11 Websites to Help you Learn More About Bankruptcy . 14 Summary 15 Information-Gathering Forms for the preparation of Your Bankruptcy Petition 19 87 Things You Need to Know Before Filing Bankruptcy WHO WILL BENEFIT FROM THIS INFORMATION This ebook that you downloaded from the internet is dedicated to helping the following types of people: (a) Consumers — people who are interested in learning more about bankruptcy and/or interested in filing their own bank- ruptcy petition. (b) Paralegals — legal professionals working for an attorney/boss who is consid- ering offering bankruptcy services to clients and is unfamiliar with some of the basic procedures. (c) Attorneys — legal professionals who do not normally offer bankruptcy ser- vices to clients, but are interested in doing so. The forms included in this ebook can be printed and used in your own law office as master intake interview forms for your own clients. OVERVIEW A person just doesn’t wake up one morning and say, “Hey, I think I will file bankruptcy today.” Instead, it is normally a long process of worry, struggle and guilt before people reach this point. However, the decision to file bankruptcy is the legal right of every citizen in the United States. To give you a quick history lesson — the bankruptcy law is derived from the same type of laws the Jewish nation enacted back in the Old Testament period. Every 7 years their debts would be forgiven and they could start fresh. (It was called the “Year of Jubi- lee.) These laws were not enacted because the society wanted to be “nice and sweet to people”; it was done because they knew that keeping people under debt forever was not good for their society as a whole. By “forgiv- ing” debts every 7 years, those experiencing the heavy burden of debt could now afford to put money back into the economy and hopefully stay out of debt so the problem did not occur again — thereby causing the society as a whole to grow and prosper. Our United States government knows that if there is no way to forgive heavy, burden- some debts, many people will eventually end up on welfare just to survive, thereby raising taxes, causing high unemployment, effecting prices and causing other companies to go out of business because the majority of people couldn’t afford to buy their products or much less, anything else — even if they wanted to. This situation would eventually collapse the economy of our society. Therefore, don’t believe everything your friends, neighbors and high-pressured debt relief companies tell you. Instead, read the information in this ebook and ask questions of competent bankruptcy attorneys who are available free of charge on the internet or through a group of legal professionals such as Pre-Paid Legal. (Most bankruptcy attor- neys provide a free initial consultation, so feel free to consult with one about your particular financial situation who practices law in your state and jurisdiction.) Always remember that “fear of the unknown” is a natural reaction for human beings who are unsure about a subject. However, this ebook was written to take the fear out of the word “bankruptcy.” Most importantly, it will educate you so you can make a more informed decision about whether filing bankruptcy is in your best interest or not. Filing bankruptcy is not necessarily for everybody, as you will soon see; and after reading this ebook, you will be in a better position to make an educated decision about your present financial condition. If you decide to go ahead with the process of filing bank- ruptcy, at least you will know what to expect after reading this ebook. FREE FORMS INCLUDED Beginning on Page 19 of this ebook, a com- plete set of intake interview forms are pro- vided for you to print out, fill out and mail in at your convenience if you decide you want to file your own bankruptcy and have Victoria Ring prepare your official bankruptcy petition. You may also use them to “sort out” your financial situation or take with you to a free consultation with the attorney of your choice. Or, if you are an attorney or paralegal, you have the author’s permission to print out the forms, remove Victoria’s name from them and use them for your own law office for your own clients. PAID SERVICES Victoria Ring is employed as a full-time bankruptcy paralegal for a medium-sized law firm in Columbus, Ohio. She has experience working on the debtor, as well as the creditor “side of the fence,” and is very knowledgable in many areas of bankruptcy. In an effort to “give back” to the legal commu- nity and to help the average consumer, Victoria provides pro bono services over the internet to low-income or no-asset individuals and families for a fee of $99.95. This fee is then donated or given back to the legal community and/or Christian organizations Victoria has chosen to support, depending on the current need. In this manner, Victoria Ring can remain bias and not violate any laws relating to the unau- thorized practice of law, which is not her intention in any way. HOW TO DETERMINE IF YOU SHOULD HIRE VICTORIA TO PREPARE YOUR BANKRUPTCY PETITION: As stated before, Victoria Ring is a bankruptcy paralegal. If she reviews your intake forms (included in this ebook) and determines that your case may require litigation that only an attorney can provide, she will return your intake forms and pay- ment with a letter explaining why she has made this decision. The best way to determine if hiring Victoria as a bankruptcy paralegal to pre- pare your bankruptcy petition paperwork is by using the following guidelines: 1. Do you have less than $500 per month left after you pay your normal living expenses (rent, car payment, food, clothing, insurance and utilities)? 2. Do your debts mainly consist of credit cards, medical bills, repossessions, and/or wage garnishments? 3. Have you recently lost your job, or had a decrease in your normal income? 4. Have you recently divorced or separated from your spouse and the debts are too much for you to handle? However, if you own several automobiles with a market value of $1,500 or more each, own several properties, have a large amount in a 401K or other investment, own expensive furs and jewelry, or have col- lectibles, art and other items that have a high cash value — I strongly urge you to seek the advice of a bankruptcy attorney in your area. (Check your local phone direc- tory and call each one until you locate an attorney that specializes in bankruptcy law; preferably one that does nothing except debtor bankruptcy.) “87 Things You Need to Know Before You File Bankruptcy” Page 2 The reason for this is because if you have a large amount of money in assets (items you own free and clear), you may be asked to have those items appraised and a portion of that money paid by you to satisfy some of the creditors you owe money to. In a situation like that, a good bankruptcy attorney can help you to protect more of your assets than a parale- gal has power to do. But, regardless of your financial situation, I hope you enjoy reading this ebook because it will help you understand about bankruptcy. Then you can decide which direction is best for you to go in at this time. OnLine Information Visit the website of your local bankruptcy court, take the virtual consumer tour, read bankruptcy articles, questions and answers from consumers, purchase a training CD for your paralegal and a lot more. Visit: http://www.bankruptcyparalegalservices.com/ “87 Things You Need to Know Before You File Bankruptcy” Page 3 Short Resume of Victoria Ring Summary of Skills:  Typing speed of 95-110 words per minute with 97% accuracy rate  22 years of part-time, full-time and independent contract experience with a variety of law firms  5 years of solid experience in bankruptcy law as a paralegal  19 years experience in administra- tive and office management, business operations, organization, communication and customer/employee relations  Author and publisher of 17 booklets, 2 full-length videos and 6 training CDs.  Seminar speaker and paralegal trainer for debtor bankruptcy topics. Educational Background:  Constitutional Educational Research Foundation (CERF), Paralegal Certificate  Ashworth College, Associates Degree in Paralegal Studies  Columbus Business University, Major: Business Management, Minor: Accounting  After graduation from Columbus Business University, was employed as instructor for the Secretarial Procedures class for 2 semesters. Affiliations :  Columbus Bar Association, associ- ate paralegal member since 2000.  Paralegal Association of Central Ohio, served on the Board of Directors as editor of The Citator for one term.  National Federation of Paralegal Associations.  National Notary Association.  Licensed as a Notary Public in the state of Ohio. HOW HARD IS IT TO FILE BANKRUPTCY? Filing a bankruptcy petition is as simple as taking the original and four (4) copies of your entire bankruptcy petition to the Bankruptcy court in your area. You will simply walk up to the desk of the Clerk of Court, hand him/her your paperwork and pay the required filing fee. (Chapter 7, $200; Chapter 13, $185.) The Clerk will look through your petition to make sure you have all the papers in order. He/she will then place them into a machine that stamps the current date and time. (Some smaller courts use a hand stamp and others use a rubber stamp and hand write the date and time on the blank line.) The Clerk will keep the original and 2-3 copies for their own use. They will hand you back the extra copies for you to keep and make copies of (if needed) by creditors who request it. A Judge will also be assigned to your case at this time. The whole process of filing your own bank- ruptcy petition normally only takes about 10 minutes to complete (about the same amount of time it takes to renew your driver’s li- cense.) But the very moment your bankruptcy petition is stamped with the date and time by the Bankruptcy Court, you have just put into effect a type of “umbrella” for yourself. This is called the “bankruptcy stay” law. What this means is that: 1. Any company or person(s) you owe money to is not permitted to contact you in any way (once they receive notice in the mail from the court) without petitioning the Bank- ruptcy Court to remove the “bankruptcy stay” (which you would have advance notice of, if it occurred, and be allowed time to answer the motion.) 2. Any wage garnishments taken out of your check will cease to be lawful. If the garnishment is taken out of your check after you file bankruptcy you may be en- titled to a refund. 3. Any foreclosure or replevin action currently taking place on your home or other real property is stopped. Money judgments cannot be collected from you but the creditor may petition the court to re- move the “bankruptcy stay” (depending on the circumstance) in order to try and repos- sess the home or piece of real property. 4. Any Sheriff’s sales are stopped immediately. 5. Any taxes you owe that are currently being collected on by the govern- ment are put on hold (while your debts are being reorganized.) 6. Any individual or company who is in the process of repossessing your auto, boat, furniture, appliances, or anything else you own are stopped immediately and they cannot remove anything without the Bank- ruptcy Court’s permission. SOME TERMS YOU NEED TO KNOW CONCERNING BANKRUPTCY 7. Creditor — This is the person or company you owe money to because they extended credit to you. 8. Debtor — This is YOU. You owe debts, so you are a debtor. 9. Secured Debt — This is a debt you owe for an item that could be taken away from you if you don’t pay the bill. For instance, if you don’t make your house payment, the creditor (or bank) you owe can repossess your house. “87 Things You Need to Know Before You File Bankruptcy” Page 4 10. Unsecured Debt — This is a debt you owe for something that cannot be taken from you. For instance, anything you charge on a credit card is an “unsecured debt.” If you don’t pay the MasterCard bill this month, they cannot come and take whatever you bought with the credit card. All they can do is harass you on the telephone until you pay the bill, turn the bill over to a collection agency, or attempt to get a judgement against you (depending on the amount you owe them.) 11. Asset — This is something you own that has resale value. Your car, TV set, computer, stocks, bonds, bank accounts, piggy bank, clothes, bed, etc. are all things that have some type of value that could be turned into cash. These types of things are your assets. 12. Discharge — This is what happens when your debts are erased and you have completed your bankruptcy. 13. Exemption — There are exemp- tion allowances allowed by the Bankruptcy Court to protect the assets you own that you need to keep in order to live a normal life. For instance, you need a house to live in, a car to drive, transportation to maintain the car, clothes to wear, medicine refills, personal care items, etc. The law allows you to keep these types of items by allowing you exemp- tions on them. Each state has it’s own exemp- tion allowances. However, when anything you own is totally exempt from the bankruptcy, no one can take it away from you. 14. Automatic Stay — We covered this before, but to reinterate, the moment a bankruptcy is filed, all creditor activity to collect debts, obtain judgments, or obtain property of a debtor to satisfy a debt is com- pleted stopped. This is the protection pro- vided to you as a person or company under the Bankruptcy law in the United States. 15. Relief From Stay — This is a court order, requested by a creditor, who asks the court to lift the “Automatic Stay” that was immediately put in place when you filed your bankruptcy petition. If a creditor is granted a “Relief from Stay,” the debtor (you) will receive notice from the court of its existence and the bankruptcy attorney can prepare a Motion on the debtor’s behalf to request the court to remove the Relief from Stay. (Of course, there must be a lawful reason to do so.) 16. Reaffirmation Agreement — This is what you file with the court if you decide to pay a creditor outside your bank- ruptcy. For example, you may want to reaffirm with Bob’s Auto Sales when you file your Chapter 7 bankruptcy petition, be- cause you want to keep making payments on your car since you need it to get back and forth from work. The creditor (i.e., Bob’s Auto Sales) will normally send you an Agreement to sign and mail back to them. In turn, they will sign it and send to the bankruptcy court for filing. This assures the creditor that they will receive all money you owe them. 17. Trustee — This is a real “live” person that works for the Bankruptcy Court. When you attend your first hearing, you will meet the Trustee assigned to your case. He/she will review your bankruptcy petition, ask you some questions, ask questions of any creditors who may be present, and then tell you if he/she needs any additional documents from you before recommending your case for confirmation to the Judge. 18. Conversion — This is when you start out by filing one chapter of bankruptcy and decide later to file another chapter. For example, you originally file a Chapter 7 but decide to convert to a Chapter 13. “87 Things You Need to Know Before You File Bankruptcy” Page 5 19. Dismissal — Among other things, your bankruptcy case can be dismissed at any time if you fail to comply to any rules, don’t turn over asset monies that are re- quested by the Trustee or if you convert from one Chapter of bankruptcy to another. Your case is “discharged” if you completely pay off your Chapter 13 or when your Chapter 7 is legally finished. CHAPTER 7 BANKRUPTCY 20. In order to be eligible to file a Chapter 7 bankruptcy, you must be able to meet the following guidelines: • You must reside or have a domicile, a place of business, or property in the United States. • You must not have received a bankruptcy discharge within the last six (6) years or have had a bankruptcy case dis- missed within the last 180 days. 21. People who file a Chapter 7 bank- ruptcy do so in order to discharge their debts and get a “fresh start” in life. There are no income requirements to file a Chapter 7 and people who file this type of bankruptcy are those who can no longer afford to repay all their debts due to illness, unemployment, marital problems, unexpected medical ex- penses, over-extended credit or other large expenses. However, not all debts can be discharged. For example, alimony, student loans, child support and taxes that are less than 3 years old are non-dischargeable and must be repaid in full. 22. Most consumers file a Chapter 7 bankruptcy and then reaffirm on the debts they want to continue paying. For instance, you can file a Chapter 7 and reaffirm on your house. This could possibly erase your other debts and you would continue making your house payments like you normally do now, outside the bankruptcy. (Note: There is pending legislation currently being debated in Washington D.C. to change this law, making it harder for people to file a Chapter 7 and forcing them to file a Chapter 13, but the law has not been enacted as of the date this ebook is written.) CHAPTER 13 BANKRUPTCY 23. In order to be eligible to file a Chapter 13 bankruptcy, you must be able to meet these guidelines: • You must reside or have a domicile, a place of business, or property in the United States. • Have a steady source of income so that you can make regular payments to the Trustee. • The total amount of your debts cannot exceed $750,000.00 and unsecured debts cannot be more than $250,000.00. 24. People who file a Chapter 13 bankruptcy do so in order to keep property in which a creditor has a lien — like a house or car, or if payments are behind and the creditor is about to foreclose or repossess the property. The filing of a Chapter 13 will stop the foreclosure sale and allow the person 3 to 5 years to repay some, but not all of their debts. Rather than wiping out all their debts in a Chapter 7 proceeding, Chapter 13 allows a person to reorganize and pay a certain percentage of their debts over a period of 3 to 5 years. The unpaid balance is discharged after the payment plan is completed. Payments are made from each paycheck to the Chapter 13 Trustee, normally through employer wage deduction. 25. A Chapter 13 is NOT a bill con- solidation loan, although many people look at it that way. Although it is a similar con- “87 Things You Need to Know Before You File Bankruptcy” Page 6 cept, a bill consolidation loan is money actu- ally loaned to you to repay other creditors and you in turn pay back the lender. In a Chapter 13, no money is loaned to you because you make your monthly payments to the Bank- ruptcy Trustee, who disburses the money among your creditors. No money is loaned to you. 26. Your priority claims are paid first in a Chapter 13. Priority claims include debts for things like taxes, child support, etc. 27. The amount you owe unsecured creditors, like medical bills, credit cards, etc. can normally be paid back as low as 10¢ on the dollar. (This figure is not written in stone. It is subject to change depending on your individual State laws, type of debt it is, as well as the income and budget of the debtor.) 28. You are allowed to keep your home, car and everything else you own when you file a Chapter 13 as long as you make regular payments to the Chapter 13 Trustee. 29. Your attorney or paralegal will also file a Chapter 13 Plan with your bankruptcy petition that details the amount of your monthly payments and the length of time you are going to be in the Chapter 13 Plan. 30. This amount you pay each month to the Trustee is determined by the amount of money you currently make and how much money you need to live on each month. A good Chapter 13 bankruptcy attorney or his paralegal is skilled at balancing these two figures so you can easily afford the Chapter 13 payment each month. It is not to the advantage of the attorney or paralegal to give you a payment you can’t afford. This would cause problems later down the road. So don’t be afraid that your payment will be too high for you to afford. CHANGES IN PAYMENTS DURING A CHAPTER 13 BANKRUPTCY 31. Nothing stays the same. During the 3-5 years that you are making regular payments to the Chapter 13 Trustee any- thing could happen. You may lose your job. Your spouse may lose their job. You may have a new baby, which brings on added expenses. You may inherit some money. Your old car may conk out and you will have to replace it in order to continue getting back and forth to work. In fact — a million different things could happen, which means your Chapter 13 payment can be lowered or raised depending on the circum- stance. For most people, when some- thing occurs where they cannot make a Chapter 13 payment one month, will simply not pay it. This is a very bad idea. All you need to do is contact your attorney and ask them to file a Motion to Modify the Chapter 13 Plan. You will need to go to their office and supply the attorney with new, updated income and budget information, which explains why you cannot make your normal Chapter 13 payment. It will take a couple of months to get all the paperwork approved through court, but it will save you from defaulting on your Chapter 13 payments. 32. If you need to go into debt and purchase something on credit while you are going through a Chapter 13 bankruptcy, your attorney can file a Motion to Incur Debt for you. This will allow you the needed money to purchase the item. (Example: Sell one car and purchase another one.) CHAPTER 11 BANKRUPTCY 33. Chapter 11 is similar to a Chapter 13, but it is used by larger businesses or individuals with a large amount of assets or debts that exceed one million dollars. In a Chapter 11 bankruptcy you are allowed to still operate your business but your credi- tors and the court must approve a plan to repay your debts. There is no Trustee “87 Things You Need to Know Before You File Bankruptcy” Page 7