Helping a client file bankruptcy Lawyer Manual

This lawyer manual covers the bankruptcy process, the different types of bankruptcy, and common issues that arise after filing for bankruptcy. 

Overview

Federal statutes: 11 USC § 101 et seq. Note: specific statutory links are provided below

• 28 U.S.C. § 157
• 28 U.S.C. § 1334
• 28 U.S.C. § 1408
• 28 U.S.C. § 1930
• Federal Rules of Bankruptcy Procedure

What is bankruptcy

A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with the client’s financial problems. Bankruptcy is a legal proceeding in which people who cannot pay their bills can get a fresh financial start and/or reorganize their finances. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled exclusively in federal court. Filing for bankruptcy immediately stops almost all of a consumer’s creditors seeking to collect debts, at least until those debts are sorted out according to the law. Note: the collection of child support and other domestic support obligations are exceptions.

When should a client file for bankruptcy

As a general rule, there is little reason to file for bankruptcy if the total amount of debt is small, if your client is collection proof, or if your client’s debts are primarily not dischargeable (e.g., unpaid child support or support payments, unpaid fines, student loans, debts due to fraud, etc.), or if all of the client’s current income and assets are considered "exempt." Since Because there are limits on filing a subsequent bankruptcy, the client should not “waste” bankruptcy in a situation where the benefit of filing bankruptcy compared to other alternatives is small. Likewise, clients should not immediately file bankruptcy if they think they are at risk of going deeper into debt in the foreseeable future (for example, if the client is expecting a large medical bill or other dischargeable debt to arise in the near future). Bankruptcy may be appropriate if the client is in immediate danger of losing valuable property, such as a home, car or utility service.

It is also important to determine whether a client is eligible to file either Chapter 7 and/or Chapter 13, and which type of bankruptcy would best address the client’s needs. Note that if your client has ever filed for bankruptcy before, certain waiting periods may apply.

What Bankruptcy Can Do

Bankruptcy may make it possible for a client to:

• Eliminate the legal obligation to pay most or all of the client’s debts. This is called a "discharge" of debts. It is designated to give the client a fresh financial start;
• Stop foreclosure on the client’s house or mobile home, or repossession of a motor vehicle and allow an opportunity to catch up on missed payments. Bankruptcy does not, however, eliminate mortgages and other liens on property without payment;
• Prevent repossession of a car or other property, or potentially force the creditor to return property even after it has been repossessed;
• Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt; and
• Reinstate a driver’s license that was suspended for not paying a debt that is dischargeable in bankruptcy; and
• Restore or prevent termination of utility service (after paying a reasonable deposit, then paying only for current service).

What Bankruptcy Cannot Do

Bankruptcy, however, cannot cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:

• Eliminate certain rights of "secured" creditors. A secured creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. A consumer can force secured creditors to take payments over time in a Chapter 13 case, and Chapter 7 or Chapter 13 bankruptcy can eliminate the obligation to pay any additional money if the property is given to the secured creditor. Nevertheless, a consumer generally cannot keep the collateral unless the consumer continues to pay the debt, either by a "reaffirmation" agreement with the creditor in a Chapter 7 case or as part of a Chapter 13 plan;
• Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, court restitution orders, criminal fines, debts related to fraud, and some taxes; and
• Discharge debts that arise after a bankruptcy has been filed.