Unfortunately, the discharge of a judgment does not remove the judgment from property to which it might have attached before the discharge.  The judgment cannot be used to collect against you personally, but it may still be used against property which you owned before the discharge. This is the case when a judgment is recorded, as it then becomes a lien, similar to a mortgage, on property that you own. Even though your personal liability on the judgment will be discharged, the lien will remain on the property. You will not be able to sell the property until the lien is paid or removed, and in some cases the creditor may sell the property to pay the lien. If the property is exempt (i.e. your homesteaded house, or mobile home) that lien can be removed pursuant to 11 U.S.C. Sec. 522(f).   This is not part of the ordinary bankruptcy procedure. While your bankruptcy is open, you must request your attorney to file a Complaint to Avoid a Judgment Lien; there is typically an extra charge for such an action.

Drew Broaddus

Chapter 7 Bankruptcy: It All Begins

A chapter 7 bankruptcy case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets.  In addition to the petition, the chapter 7 debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007(b). Chapter 7 bankruptcy debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). 11 U.S.C. § 521. Individual debtors with primarily consumer debts have additional document filing requirements. They must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife may file a joint chapter 7 petition or individual petitions. 11 U.S.C. § 302(a). Even if filing chapter 7 bankruptcy jointly, a husband and wife are subject to all the document filing requirements of individual debtors. (The Official Forms may be purchased at legal stationery stores or downloaded from the internet atwww.uscourts.gov/bkforms/index.html. They are not available from the court.)

Chapter 7 Administrative Fees

The courts must charge a $245 case filing fee, a $39 miscellaneous administrative fee, and a $15 trustee surcharge. Normally, the fees must be paid to the clerk of the court upon filing. With the court’s permission, however, individual debtors may pay in installments. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8. The number of installments is limited to four, and the debtor must make the final installment no later than 120 days after filing the petition.Fed. R. Bankr. P. 1006. For cause shown, the court may extend the time of any installment, provided that the last installment is paid not later than 180 days after filing the petition. The debtor may also pay the $39 administrative fee and the $15 trustee surcharge in installments. If a joint petition is filed, only one filing fee, one administrative fee, and one trustee surcharge are charged. Chapter 7 debtors should be aware that failure to pay these fees may result in dismissal of the case. 11 U.S.C. § 707(a).

If the debtor’s income is less than 150% of the poverty level (as defined in the Bankruptcy Code), and the debtor is unable to pay the chapter 7 fees even in installments, the court may waive the requirement that the fees be paid. 28 U.S.C. § 1930(f).

Chapter 7 Document Production Requirements

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must provide the following information:

1. A list of all creditors and the amount and nature of their claims;

2. The source, amount, and frequency of the debtor’s income;

3. A list of all of the debtor’s property; and

4. A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

 Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household’s financial position.

Protecting Property in Chapter 7 Bankruptcy

Among the schedules that an individual chapter 7 debtor will file is a schedule of “exempt” property. The Bankruptcy Code allows an individual debtor to protect some property from the claims of creditors because it is exempt under federal bankruptcy law or under the laws of the debtor’s home state. 11 U.S.C. § 522(b). Many states have taken advantage of a provision in the Bankruptcy Code that permits each state to adopt its own exemption law in place of the federal exemptions. In other jurisdictions, the individual debtor has the option of choosing between a federal package of exemptions or the exemptions available under state law. Thus, whether certain property is exempt and may be kept by the debtor is often a question of state law. The debtor should consult an attorney to determine the exemptions available in the state where the debtor lives.

Stopping Creditor Collection Calls

Filing a bankruptcy under chapter 7 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. 11 U.S.C. § 362. But filing the petition does not stay certain types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.

Chapter 7 341 Meeting

Between 20 and 40 days after the chapter 7 petition is filed, the case trustee will hold a meeting of creditors. If the U.S. trustee or bankruptcy administrator schedules the meeting at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the order for relief. Fed. R. Bankr. P. 2003(a). During this meeting, the trustee puts the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding the debtor’s financial affairs and property. 11 U.S.C. § 343. If a husband and wife have filed a joint petition, they both must attend the creditors’ meeting and answer questions. Within 10 days of the creditors’ meeting, the U.S. trustee will report to the court whether the case should be presumed to be an abuse under the means test described in 11 U.S.C. § 704(b).

It is important for the chapter 7 debtor to cooperate with the trustee and to provide any financial records or documents that the trustee requests. The Bankruptcy Code requires the trustee to ask the debtor questions at the meeting of creditors to ensure that the debtor is aware of the potential consequences of seeking a discharge in bankruptcy such as the effect on credit history, the ability to file a petition under a different chapter, the effect of receiving a discharge, and the effect of reaffirming a debt. Some trustees provide written information on these topics at or before the meeting to ensure that the debtor is aware of this information. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the meeting of creditors. 11 U.S.C. § 341(c).

Converting a Chapter 7 Case to Another Chapter

In order to accord the debtor complete relief, the Bankruptcy Code allows the debtor to convert a chapter 7 case to case under chapter 11, 12 or 13 as long as the debtor is eligible to be a debtor under the new chapter. However, a condition of the debtor’s voluntary conversion is that the case has not previously been converted to chapter 7 from another chapter. 11 U.S.C. § 706(a). Thus, the chapter 7 debtor will not be permitted to convert the case repeatedly from one chapter to another.

Drew Broaddus

In light of the Defense of Marriage Act (“DOMA”), the answer is likely no. Traditionally, the definition and regulation of marriage was an issue properly left to the states under our federalist system of government and the 10th amendment. As an unfortunate example, due to the anti-miscegenation laws, interracial marriage was illegal in some states prior to 1967.  In 1996, through DOMA, Congress broke with tradition and specifically defined marriage as a union of one man and one woman for the purpose of federal law. As a federal body of law, the Bankruptcy Code borrows its definition of the term spouse from DOMA. As a result, section 302 of the Bankruptcy Code must be read to allow joint petitions only on behalf of heterosexual couples.

In In re Kunda, 315 B.R. 123 (Bankr. W.D. Wash. 2004), a gay couple, legally married in British Columbia, challenged the constitutionality of DOMA after their attempt to file a joint bankruptcy petition was denied. Despite the argument that DOMA is an improper use of federal power that infringes upon a state’s right to regulate marriage, the Court rejected constitutional challenges on the grounds that DOMA’s definition of marriage applies only to federal law, and therefore does not interfere with a a state’s ability to simultaneously define and regulate marriage. The court reasoned that the federal government can permissibly maintain its own definition of marriage so long as state legislatures are afforded the same corresponding right. If conflicting definitions of “spouse” and “marriage” result, they can constitutionally co-exist when states retain their right to regulate marriage as well. Under the current state of the law, DOMA defines the term spouse for purposes of section 302 of the Bankruptcy Code. Like it or not, gay couples, even if legally married in their state, do not fit the federal definition and are therefore not eligible to file joint bankruptcy petitions.

John O’Connor

Obviously, creditors prefer that contracts are assumed and that the pre-existing agreement remains in place after bankruptcy. However, if a debtor is not able to meet the obligations under the contract it should be rejected. This is also an opportunity for a debtor to negotiate a better contract with the creditor or seek out competitors who can offer better terms. Debtors must keep in mind however, if a financial background check is required, the existence of a bankruptcy on your credit history may hinder efforts to obtain a new contract. Although this can apply to any contract, it will likely only affect contracts involving significant assets such as an apartment or vehicle. Given the competition for sales for smaller contracts such as cellular phone and internet connections, a prior bankruptcy is not likely to affect a debtor’s ability to obtain new service.

How long have you been practicing in the area of bankruptcy?

John: I have been practicing in this area of law extensively since about 1992

What do you enjoy most about your job?

John: Without question, helping folks to enjoy their life free of the stress, both economically and physically, that excessive debt can bring on. Also, helping folks to save their homes for their families and children is also very rewarding! I have learned from many years of bankruptcy practice that folks health can be damaged by the stress of debt. Nothing is worth losing your health over.

How many years of experience do you have?

John: I received my law degree in 1989 and have been in private practice since 1991. Prior to entering private practice, I served as a legal counsel to the Governor of Kentucky. Is this the worst you have seen the economy in Kentucky? Yes, without a doubt. Kentucky has fared better than most states, but there is no question we have been impacted by the national and world financial collapse. I think folks have thought that the economy would begin to improve this summer, but we have not seen that improvement in this area. South central Kentucky continues to lose industrial jobs and we don’t see any new jobs coming back into the area.

Where is your office located in Kentucky?

John: We are in Glasgow, Kentucky which is centrally located in South Central Kentucky. Our bankruptcy division serves counties as far north as Casey County, as far east as Russell County, as far south as Monroe County on the state line, and as far west as Logan County. Geographically we are a very diverse district, but our office in Glasgow is about an hour drive or so from most folks in these counties. We are 1 block off of the square in Glasgow, Kentucky. We routinely represent folks from all areas of the bankruptcy division, which is called the Bowling Green division as the court is located in Bowling Green, Kentucky.

Are you active in consumer law organizations?

John: Yes, I am a member of the National Association of Consumer Bankruptcy Attorneys. I also serve as chair of the Kentucky Chapter of this organization. NACBA, as it is more commonly known, is a large national organization that is comprised of attorneys that only primarily represent consumers involved in bankruptcy. The organization is very active and holds two meetings a year in which topics of interest to practitioners are discussed and continuing education is obtained. One of the meetings is the annual convention and the other is a workshop. Many of the members stay connected throughout the year on a listserv which allows members to network and share information and current issues related to bankruptcy law.

If there was one thing you wish the public knew about the bankruptcy process what would it be?

John: Most definitely that filing bankruptcy does NOT completely destroy your credit and that filing bankruptcy does not have the economic and social impact that most folks think that it does. Yes, bankruptcy will have some impact on your credit, but because almost 1.5 million folks annually file bankruptcy, if the banks and financial institutions had a policy of never lending to folks that have filed bankruptcy, they would not be in business. Also, from a social standpoint, although filing bankruptcy is a matter of public record, it is very rare that folks in your community would have specific knowledge of your having filed bankruptcy. Bankruptcy is not something to undertake lightly, but likewise, it is not the “black mark” that many folks think it is.

What types of professions are typically filing for bankruptcy in south central Kentucky?

John: We have clients ranging from self employed farmers, factory workers, insurance agents, clerical office employees, self employed business owners and every profession in between. Financial issues are not unique to any profession or socioeconomic status. It can and does affect us all !

What is the number one type of debt that is causing problems for your clients?

John: I would have to say that it is close race between credit card debt and health care debt. Now let me point out that I rarely, if ever, see folks that have “run up” their credit cards through foolish purchases. Since credit cards can now routinely be used for such common items as groceries and gasoline, and any other common necessities, it is most often the case that a family will suffer a job loss, or other catastrophe, and the credit card is used to supplant the lost income. The thought is that when the job is recovered, they can then pay off the credit card. As we all know, of course, often the job is not returned quickly, and the exorbitant interest rate on the credit card runs the balance up to an unmanageable amount which could never be paid off even in the lifetime of the debtor, or even their children’s lifetime, through minimal monthly payments.

What will it take for the economy of south central Kentucky to survive?

John: A combination of several things must occur. First, the national economy must improve so that banks will begin to loosen their lending capacity and be able to lend again to businesses and industry to enable them to expand to offer new jobs to our workforce. Secondly, our government leaders need to recognize that our economy has changed greatly, probably permanently, and that the recruitment of the large factory to an area is a thing of the past. Government incentives need to be provided to small, family businesses, as 80% of the jobs in an area such as south central Kentucky are in small locally owned businesses.

How would you solve the housing crisis?

John: Impose a one year national moratorium on all pending foreclosures. Then, institute required federal mediation where the mortgage company is required to mediate the dispute between the homeowner and mortgage company and report the results of the mediation on a monthly basis to the state foreclosure judge and court.

For more information on Kentucky bankruptcy attorney John Rogers, visit his National Bankruptcy Forum profile.

The whole concept of a short sale is predicated on waiver of at least some portion of your mortgage. It’s a SHORT sale, meaning the sale price is short of what you’ve guaranteed on the mortgage. Let’s be clear, you don’t owe money after a true short sale. In exchange for bringing a buyer to the table capable of taking out much of the existing mortgage (either through a new source of financing or cash) your lender agrees to release you from the remaining portion of the debt. That’s a short sale. A true short sale involves some degree of debt forgiveness. Any other arrangement, while potentially helpful to a struggling homeowner, is not a short sale. My friend was describing a situation where a bank is willing to allow a closing to proceed as long as the borrower agrees to pay back any left over mortgage debt. In this scenario, the house sells for less than what is owed on the mortgage and the difference becomes the amount the borrower will now make payments on. If $300,000 is owed on the mortgage and the house sells for $270,000, the seller will now owe the bank $30,000. Funny, that doesn’t sound like a short sale, it sounds much more like a foreclosure sale  with a corresponding deficiency judgment.

In light of the fact that a short sale will do almost as much damage to your credit as a foreclosure and requires considerably more effort, why go to the trouble unless you’re gaining some debt forgiveness? Isn’t owing the bank after you no longer own your home a common characteristic of a foreclosure proceeding?

MORE SHORT SALE ARTICLES:

I’ve decided to file for bankruptcy, do I need to go through with my short sale?

Tax consequences of a short sale; the bankruptcy “cure.”

Short Sale Traps

The mortgage modification program is a complete disaster, despite promises of relief for homeowners, the Federal Reserve reports that only a very few are getting relief. People are still losing their homes. The number of families filing bankruptcy increases every year.

Although the economy may be growing, its growth is not sustained and this indicates there is no strength in our economy. Jobs continue to be scarce, bank loans are difficult to obtain, and the people remain generally upset and frustrated with the government.

So, where do you fit into all of this? Clearly, you must do what’s needed for yourself and for your family. Hang onto your job if you have one and ask yourself honestly if you should be giving another dime to the credit card companies. If you’ve got more debt than you can realistically pay off in the next 12 months, you might want to sit down and take a look at your future. You probably should contact a bankruptcy attorney to discuss your options. As a bankruptcy attorney in Cincinnati, I’m seeing more and more people file bankruptcy proactively, as they realize that without some additional help, their financial future will remain as uncertain as our economy.

There are two types of fraudulent transfers in bankruptcy law, which include actual transfers and constructive transfers. What this means is that the court may find that you engaged in a “fraudulent” exchange even if you did not intentionally deprive your creditors from securing their debt. As a consequence the trustee may reposess the property or the value of the property as part of the bankruptcy estate. Protecting yourself from fraudulent transfers will allow a faster discharge.

This law does not necessarily bar all types of transfers, but before you sell or give any of your assets away, including real property, make sure to consult a knowledgeable bankruptcy attorney to help you assess your available options. The laws on transfers can be quite complicated, so make sure to get some expert advice.

Stephen Trezza, Tucson Bankruptcy Attorney

Under normal circumstances, failure to make your plan payments during the 3-5 year period will result in your case being dismissed without a discharge. However, problems may arise that prevent the debtor from completing the plan. In such situations, the debtor may ask the court to grant a “hardship discharge” 11 U.S.C. § 1328(b). A hardship discharge allows debts to be wiped clean even though the repayment plan has not been completed and is available only under limited circumstances. Generally, such a discharge is allowed only if: (1) the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor; (2) creditors have received at least as much as they would have received in a Chapter 7 liquidation case; and (3) modification of the plan is not possible. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the normal Chapter 13 discharge (discussed here) and does not apply to any debts that are nondischargeable in a Chapter 7 case.  See 11 U.S.C. § 523, entitled “Exceptions to Discharge.”

If you have a pending Chapter 13 and believe that you may be entitled to a hardship discharge, talk to your bankruptcy attorney.

Drew Broaddus

I am often asked if it is important for attorneys to be Board Certified in Consumer Bankruptcy Law by the American Board of Certification.  There is no requirement by any bankruptcy court that you be board certified to practice in that court.  In fact, it is very likely that most attorneys that do practice bankruptcy law are not board certified by this organization. So, why is it important for your attorney to have this certification.

First of all, it demonstrates to you, the consumer,  that the attorney has decided to take it upon his or her self to take an extra step to undergo a rigorous testing process to become initially certified.  The American Board of Certification takes very seriously their responsibility to certify attorneys and the tests that they conduct are very rigorous. Also, to become certified, the candidate is required to prove to the selection committee that they have litigated a large number of cases in bankruptcy court within a certain time frame.  Also, the candidate is required to be peer reviewed by fellow attorneys.

Secondly, and probably more importantly, the attorney that becomes certified is required, in order to maintain their certification, to complete a large number of continuing education courses within a certain time frame.  Those courses must be in the area of consumer bankruptcy law.  Also, continued peer review is required to be certain that the attorney is proficient and practicing regularly in the are of consumer bankruptcy law.

I would be remiss if I did not say that there are many, many attorneys that are not board certifed that are extremely competent and qualifed attorneys in the area of bankruptcy law.  But, as a consumer, you are faced with a tough decision and often need a filter to help you decide.  The board certification designation can assist you in making that determination.

John Rogers, Kentucky Bankruptcy Attorney