Bankruptcy Code § 527(a)
Disclosure
FULL DISCLOSURE
& ACCURACY
U.S. Bankruptcy Code
§ 527(a)(1) & § 342(b)(2)
If you file
bankruptcy:
A. The
information that you provide to your attorney, the
bankruptcy trustee, and the court in the course of
your bankruptcy, both before and after you file
your bankruptcy petition, must be complete,
accurate and truthful.
B. All of
your assets (everything you own that has value,
such as real estate, personal items, vehicles,
money, etc.) and all of your liabilities (all of
your debts) are required to be completely and
accurately disclosed in the documents filed to
start your case, and the replacement value of each
asset must be stated in those documents where
requested after reasonable inquiry to establish
their value. The value should be your best
understanding of how much it would cost you to
replace the item in the same or similar condition.
C. You must
provide your attorney with a monthly budget,
including your current monthly income, all of your
regular expenses, and the amount of your income
that is left over after deduction of expenses. In
listing your income and expenses, try to avoid
guessing or estimating, and do your best effort to
be accurate and truthful. For
income, you are required to provide information
about all sources of your income, including your
employment, any government assistance you may
receive, social security, pension or other
retirement income, income from side jobs,
investment income, and similar sources.
D. The
information that you provide to your bankruptcy
attorney, the bankruptcy trustee, or the
bankruptcy judge may be audited and will be
available for inspection by the office of the
United States Trustee, which is a branch of the
U.S. Department of Justice.
E. If you
fail to honestly and fully provide information
about your property, income, expenses, and other
financial circumstances, your case could be
dismissed, and you could be subject to criminal
sanctions. A person who knowingly and
fraudulently conceals assets or makes a false oath
or statement under penalty of perjury in
connection with a case under this title shall be
subject to fine, imprisonment, or both.
Acknowledgment
of Receipt
The undersigned
acknowledges that attorneys Serrano & Serrano,
LLC have given me a copy of this disclosure on
_____________________, 20___.
___________________________________
Client
PURPOSES, BENEFITS
AND COSTS OF BANKRUPTCY
Code § 527(a)(1)
& § 342(b)(1)
The
United States Constitution provides a method
whereby individuals, burdened by excessive debt,
can obtain a fresh financial start and pursue
newly productive lives unimpaired by past
financial problems.
It is an important alternative for persons
mired deep in financial difficulty.
The federal
bankruptcy laws were enacted to provide debtors
with a fresh start and to establish a ranking and
equity among all the creditors who are clamoring
for the debtor's limited resources.
Bankruptcy helps
people avoid the kind of permanent discouragement
that can prevent them from ever reestablishing
themselves as hard-working members of society. Also,
creditors are ranked so that the debtor's
nonexempt property can be fairly distributed
according to established rules guaranteeing
identical treatment to all creditors of the same
rank.
This discussion is
intended only as a brief overview of the types of
bankruptcy filings and of what a bankruptcy filing
can and cannot do.
Anyone considering this course of action is
encouraged to seek the advice and assistance of an
attorney specializing in bankruptcy law.
Types of
Bankruptcy
The Bankruptcy
Code is divided into chapters. The
chapters which usually apply to consumer debtors
are chapter 7, known as a Liquidation, and chapter
13, known as an Adjustment of the Debts of an
Individual with Regular Income.
An important feature
applicable to all types of bankruptcy filings is
the automatic stay. The automatic stay means that the mere request for bankruptcy
protection automatically "stays" or
forces an abrupt halt to repossessions,
foreclosures, evictions, garnishments,
attachments, utility shut-offs, and debt
collection harassment. It offers
debtors a breathing spell by giving the debtor and
the trustee assigned to the case time to review
the situation and develop an appropriate plan. Creditors
cannot take any further action against the debtor
or the property without permission from the
bankruptcy court.
Chapter 7
In a chapter 7,
or liquidation case, the bankruptcy court appoints
a trustee to examine the debtor's assets and
divide them into exempt and nonexempt property. Exempt property is limited to a certain amount of equity in
the debtor's residence, motor vehicle, household
goods, life insurance, health aids, specified
future earnings such as social security benefits
and alimony, and certain other personal property. The
trustee may then sell the nonexempt property and
distribute the proceeds among the unsecured
creditors. Although
a liquidation case can rarely help with secured
debt (the secured creditor still has the right to
repossess the collateral), the debtor will be
discharged from the legal obligation to pay
unsecured debts such as credit card debts, medical
bills and utility arrearages. However,
certain types of unsecured debt are allowed
special treatment and cannot be discharged. These include some student loans, alimony, child support,
criminal fines, and some taxes.
Chapter 13
In a chapter 13
case, the debtor puts forward a plan, following
the rules set forth in the bankruptcy laws, to
repay all creditors over a period of time, usually
from future income.
A chapter 13 case may be advantageous in
that the debtor is allowed to get caught up on
mortgages or car loans without the threat of
foreclosure or repossession and is allowed to keep
both exempt and nonexempt property. The
debtor's plan is a simple document outlining to
the bankruptcy court how the debtor proposes to
pay current expenses while paying off all the old
debt balances.
The debtor's property is protected from
seizure from creditors, including mortgage and
other lien holders, as long as the proposed
payments are made. The plan generally requires monthly payments to the
bankruptcy trustee over a period of three to five
years. Arrangements
can be made to have these payments made
automatically through payroll deductions.
What Bankruptcy
Can and Cannot Do
Bankruptcy may
make it possible for financially distressed
individuals to:
1. Discharge
liability for most or all of their debts and get a
fresh start.
When the debt is discharged, the debtor has
no further legal obligation to pay the debt.
2. Stop
foreclosure actions on their home and allow them
an opportunity to catch up on missed payments.
3. Prevent
repossession of a car or other property, or force
the creditor to return property even after it has
been repossessed.
4. Stop
wage garnishment and other debt collection
harassment, and give the individual some breathing
room.
5. Restore
or prevent termination of utility service.
6. Lower
the monthly payments on debts, including secured
debts such as car loans.
7. Allow
debtors an opportunity to challenge the claims of
certain creditors who have committed fraud or who
are otherwise seeking to collect more than they
are legally entitled to.
8. Bankruptcy,
however, cannot cure every financial problem. It is
usually not possible to:
Eliminate
certain rights of secured creditors. Although a
debtor can force secured creditors to take
payments over time in the bankruptcy process, a
debtor generally cannot keep the collateral unless
the debtor continues to pay the debt.
Discharge types of
debts singled out by the federal bankruptcy
statutes for special treatment, such as child
support, alimony, some student loans, certain
court ordered payments, criminal fines, and some
taxes.
Protect all cosigners
on their debts.
If relative or friend co-signed a loan
which the debtor discharged in bankruptcy, the
cosigner may still be obligated to repay the loan.
Discharge debts that
are incurred after bankruptcy has been filed.
Bankruptcy's
Effect on Your Credit
By federal law,
a bankruptcy can remain part of a debtor's credit
history for 10 years. Whether or not the debtor will be granted credit in the
future is unpredictable. In some
cases it may actually be easier to obtain future
credit, because new creditors may feel that since
the old obligations have been discharged, they
will be first in line. The also
recognize that the debtor cannot again file
bankruptcy for at least the next six years.
Debtors have the
option after bankruptcy of voluntarily paying some
creditors, such as a doctor or hospital, with whom
they wish to maintain credit. The
payments are voluntary and do not reaffirm the
past obligation.
Credit
Counseling
If you are not
disciplined enough to create a workable budget and
stick to it, cannot work out a repayment plan with
your creditors, or cannot keep track of mounting
bills, consider contacting a credit counseling
organization.
Many credit counseling organizations are
nonprofit and work with you to solve your
financial problems.
But be aware that, just because an
organization says it's "nonprofit,"
there's no guarantee that its services are free,
affordable, or even legitimate. In fact,
some credit counseling organizations charge high
fees, which may be hidden, or urge consumers to
make "voluntary" contributions that can
cause more debt.
Most credit
counselors offer services through local offices,
the Internet, or on the telephone. If
possible, find an organization that offers
in-person counseling. Many
universities, military bases, credit unions,
housing authorities, and branches of the U.S. Cooperative
Extension Service operate nonprofit credit
counseling programs. Your financial institution, local consumer protection agency,
and friends and family also may be good sources of
information and referrals.
Reputable credit
counseling organizations can advise you on
managing your money and debts, help you develop a
budget, and offer free educational materials and
workshops. Their
counselors are certified and trained in the areas
of consumer credit, money and debt management, and
budgeting.
Counselors discuss
your entire financial situation with you, and help
you develop a personalized plan to solve your
money problems.
An initial counseling session typically
lasts an hour, with an offer of follow-up
sessions.
Management
Plans:
If your financial
problems stem from too much debt or your inability
to repay your debts, a credit counseling agency
may recommend that you enroll in a debt management
plan (DMP). A
DMP alone is not credit counseling, and DMPs are
not for everyone.
You should sign up for one of these plans
only after a certified credit counselor has spent
time thoroughly reviewing your financial
situation, and has offered you customized advice
on managing your money.
Even if a DMP is
appropriate for you, a reputable credit counseling
organization still can help you create a budget
and teach you money management skills.
In a DMP, you deposit
money each month with the credit counseling
organization, which uses your deposits to pay your
unsecured debts, like your credit card bills,
student loans, and medical bills, according to a
payment schedule the counselor develops with you
and your creditors.
Your creditors may agree to lower your
interest rates or waive certain fees, but check
with all your creditors to be sure they offer the
concessions that a credit counseling organization
describes to you.
A successful DMP
requires you to make regular, timely payments, and
could take 48 months or more to complete. Ask the
credit counselor to estimate how long it will take
for you to complete the plan. You may have to agree not to apply for — or use — any
additional credit while you are participating in
the plan.
Chapter 11
Skip this section
unless (1) you want to file a repayment plan for a
business or (2) you want to file a repayment plan
and you do not qualify for Chapter 13 because your
debt is too high (over $336,900 in unsecured debt
or $1,010,650 in secured debt).
A case filed under
chapter 11 of the United States Bankruptcy Code is
frequently referred to as a “reorganization”
bankruptcy.
Upon the filing of a
voluntary petition for relief under chapter the
debtor automatically assumes an additional
identity as the “debtor in possession.” The
term refers to a debtor that keeps possession and
control of its assets while undergoing a
reorganization under chapter 11, without the
appointment of a case trustee. A debtor
will remain a debtor in possession until the
debtor’s plan of reorganization is confirmed,
the debtor’s case is dismissed or converted to
chapter 7, or a chapter 11 trustee is appointed. The
appointment or election of a trustee occurs only
in a small number of cases. Generally,
the debtor, as “debtor in possession,”
operates the business and performs many of the
functions that a trustee performs in cases under
other chapters.
11 U.S.C.
§ 1107(a).
A written disclosure statement and a plan
of reorganization must be filed with the court. 11 U.S.C. § 1121.
The disclosure
statement is a document that must contain
information concerning the assets, liabilities,
and business affairs of the debtor sufficient to
enable a creditor to make an informed judgment
about the debtor’s plan of reorganization. 11 U.S.C. §
1125. The
information required is governed by judicial
discretion and the circumstances of the case. The
contents of the plan must include a classification
of claims and must specify how each class of
claims will be treated under the plan. 11 U.S.C. § 1123. Creditors
whose claims are “impaired,” i.e., those whose
contractual rights are to be modified or who will
be paid less than the full value of their claims
under the plan vote on the plan by ballot. 11 U.S.C. §
1126. After
the disclosure statement is approved and the
ballots are collected and tallied, the bankruptcy
court will conduct a confirmation hearing to
determine whether to confirm the plan. 11 U.S.C. § 1128.
While individuals are
not precluded from using chapter 11, it is more
typically used to reorganize a business, which may
be a corporation, sole proprietorship, or
partnership.
A corporation exists separate and apart
from its owners, the stockholders. The
chapter 11 bankruptcy case of a corporation
(corporation as debtor) does not put the personal
assets of the stockholders at risk other than the
value of their investment in the company’s
stock.
A
sole proprietorship (owner as debtor), on the
other hand, does not have an identity separate and
distinct from its owner(s); accordingly, a
bankruptcy case involving a sole proprietorship
includes both the
business and personal assets of the
owners-debtors.
Like a corporation, a partnership exists
separate and apart from its partners. In a
partnership bankruptcy case (partnership as
debtor), however, the partners’ personal assets
may, in some cases, be used to pay creditors in
the bankruptcy case or the partners may,
themselves, be forced to file for bankruptcy
protection. Section
1107 of the Code places the debtor in possession
in the position of a fiduciary, with the rights
and powers of a chapter 11 trustee, and requires
the performance of all but the investigative
functions and duties of a trustee. These
duties are set forth in the Bankruptcy Code and
Federal Rules of Bankruptcy Procedure. 11 U.S.C. §§ 1106,
1107; Fed. R. Bankr. P. 2015(a). Such
powers and duties include accounting for property,
examining and objecting to claims, and filing
informational reports as required by the court and
the United States trustee, such as monthly
operating reports.
The debtor in
possession also has many of the other powers and
duties of a trustee including the right, with the
court’s approval, to employ attorneys,
accountants, appraisers, auctioneers, or other
professional persons to assist the debtor during
its bankruptcy case.
Other responsibilities include filing tax returns
and filing such reports as are necessary or as the
court orders after confirmation, such as a final
accounting. The
United States trustee is responsible for
monitoring the compliance of the debtor in
possession with the reporting requirements. in a small
business case.
11 U.S.C.
§ 1102(a)(3). A small business case proceeds faster than a regular chapter
11 case because the court may conditionally
approve a disclosure statement, subject to final
approval after notice and a hearing and
solicitation of votes for acceptance or rejection
of the plan.
Thereafter, the disclosure statement
hearing may be combined with the confirmation
hearing. 11 U.S.C.
§ 1125(f).
In addition, the debtor has a shortened
period of time (100 days from the date of the
order for relief) within which only the debtor may
file a plan.
Chapter 12
Skip this section
unless you want to file a repayment plan for a
family farm.
Chapter 12 of
the Bankruptcy Code was enacted by Congress in
1986, specifically to meet the needs of
financially distressed family farmers. The primary purpose of this legislation was to give family
farmers facing bankruptcy a chance to reorganize
their debts and keep their farms.
In tailoring
chapter 12 to meet the economic realities of
family farming, this law has eliminated many of
the barriers that family farmers had faced when
seeking to reorganize successfully under either
chapter 11 or 13 of the Bankruptcy Code. For example, chapter 12 is more streamlined, less
complicated, and less expensive than chapter 11,
which is better suited to the large corporate
reorganization.
In addition, few family farmers find
chapter 13 to be advantageous, because it was
designed for wage earners who have smaller debts
than those facing family farmers.
The
Bankruptcy Code provides that only a family farmer
with “regular annual income” may file a petition for
relief under chapter 12. 11 U.S.C. §§
101(18), 109(f).
The purpose of this requirement is to
ensure that the debtor’s annual income is
sufficiently stable and regular to permit the
debtor to make payments under a chapter 12 plan. Allowance is made under chapter 12, however, for situations
in which family farmers may have income that is
seasonal in nature.
Relief under this chapter is voluntary;
thus, only the debtor may file a petition under
chapter 12.
Under the Bankruptcy
Code, those eligible to file as “family farmers”
fall into two categories: (1) an individual or
individual and spouse and (2) a corporation or
partnership.
Those falling into the first category must
meet each of the following four criteria as of the
date the petition is filed in order to qualify for
relief under chapter 12.
1. More
than one-half of the outstanding stock or equity
in the corporation or partnership must be owned by
one family or by one family and its relatives.
2. The
family or the family and its relatives must
conduct the farming operation.
3. More
than 80% of the value of the corporate or
partnership assets must be related to the farming
operation.
4. The
total indebtedness of the corporation or
partnership must not exceed $1.5 million.
5. Not
less than 80% of the corporation’s or
partnership’s total debts which are fixed in
amount must come from the farming operation owned
or operated by 6.
If the corporation has issued stock, the
stock cannot be publicly traded.
Acknowledgment
of Receipt
The undersigned
acknowledges that attorneys Serrano & Serrano,
LLC have given me a copy of this disclosure on
_____________________, 20___.
___________________________________
Client
