the bankruptcy process.
Your bankruptcy will not ordinarily be filed the day you call a lawyer and speak to her for the first time. There’s still a little work to be done, by your attorney and by you, before you can take advantage of the benefits of bankruptcy.
Remember, a bankruptcy is a legal case filed in federal court. Much like other court cases, there are rules to follow, deadlines to meet, and other parties acting in their own interests.
Here’s a preview of how the bankruptcy process works:
1. Getting Ready
Whether you’re convinced that you need to file bankruptcy or you’re just curious whether it might help, there are certain things you can do to prepare even before calling a lawyer:
Learn what bankruptcy actually is. If you feel guilt or shame around the idea of filing for bankruptcy, educate yourself about what bankruptcy really is: a legal tool to adjust one’s finances.
Open all your mail. It’s tempting to try to avoid bad news, but there could be vital information — especially deadlines — buried in that pile of envelopes.
Catch up on unfiled tax returns. If you’ve been required to file income tax returns but have missed filing any in recent years, start preparing your missed returns.
Seek advice before taking on debt or moving around property. Borrowing money in the three months before filing bankruptcy can lead to complications in obtaining a discharge. Also, avoid repaying debts or transferring money or property to family, friends, business partners, or anyone else with whom you have a special relationship. Making big-ticket purchases, selling or transferring property, or adding or removing your name from real property can cause problems in a bankruptcy, depending on circumstances. It’s best to talk to a lawyer about what you want to do before rushing into anything.
Prioritize bills that matter most. If money is tight and you have to make tough decisions in the months leading up to bankruptcy, essentials like rent, water, and power should be priorities. Domestic support obligations like child support, maintenance, or alimony should be near the top of your list, followed by debts with collateral, if you plan to try to keep the collateral.
Consider stopping automatic payments on debts. You don’t have to wait until the bankruptcy is filed to stop automatic payments from your bank account to creditors or debt settlement companies. A federal law called the Electronic Funds Transfer Act (EFTA) gives consumers the right to stop these kinds of recurring electronic payments. If you are in Illinois and have voluntarily assigned part of your paycheck to a creditor, you have a legal right to stop that, too.
Possibly open an account at a different bank or credit union. If you deposit money at a bank or credit union that you also owe a debt to, it’s a good idea to open a new account at a different institution and make sure future paychecks and public benefits are deposited there. This can head off problems involving a bank or credit union’s right to “setoff” funds in your account after you file your bankruptcy.
2. Talking to an Attorney
You already know why you want to talk to an attorney. Perhaps it would be more helpful if I told you what I’m trying to do when I talk to a new client for the first time.
First and foremost, I’m trying to understand what is going on in your life and what you are trying to accomplish. I’m not necessarily trying to rush the process, but I am trying to get the big picture as quickly as possible. For this reason, I very often start out with a big, open-ended question: “Tell me what’s going on, and start with whatever feels most important to you.”
For better or worse, lawyers are trained to quickly spot legal issues and sort fact patterns into various categories. So, while I promise I really am listening to your story and trying to understand what you’re going through on a personal level, part of me will always be trying to figure out which “box” your case fits into. Chapter 7 bankruptcy? Chapter 13? Debt collection defense? Something else entirely?
After that first big open-ended question, it usually only takes me a few minutes to narrow down the possible “boxes.” At that point, I drill down and ask more specific questions to determine which legal options are on the table and which one will be most helpful to you.
Among other things, I am trying to determine: Does this client need bankruptcy, or is bankruptcy unnecessary because they are “judgment proof?” Are they eligible for Chapter 7 bankruptcy? Will any of their property be in jeopardy if they file? Is the client’s problem even one Chapter 7 can solve?
And even if Chapter 7 is an option, might there be benefits to filing a Chapter 13 instead? What monthly plan payment would we likely propose if we filed a Chapter 13?
If Chapter 13 bankruptcy is one of the options (or the only option), for most clients I can estimate what monthly plan payment we would propose when the case is filed. And in most cases — assuming the information I get from the client is accurate — my estimate turns out to be pretty darn close! But sometimes I can’t give a reliable estimate yet, either because I need more information, or because the payment will depend on a complex math problem Congress created called the “means test.” If that’s the case, I’ll tell you up front.
If during the initial consultation you decide you’d like to hire me to represent you, we’ll have an honest conversation about how much bankruptcy costs and the payment arrangements available in your case. I will also send you a retainer agreement laying out the terms of our attorney-client relationship and do my best to answer any questions you may have about it.
3. Collecting Documents and Completing the Questionnaire
The next step is to gather all the documents and information I need to prepare your bankruptcy petition. I will pull your credit report and send you a copy. Your job will be to look over the credit report and make a list of any debts and creditors that are missing.
I will also need copies of several documents from you. I will send you a detailed list of what I need. For most clients the list will include pay stubs, tax returns, and bank account statements.
I will also send you a questionnaire asking for additional information I need to prepare your bankruptcy papers. I may break the questionnaire up into multiple rounds to make it less overwhelming, and I may also have additional questions for you based on your responses.
There are a number of benefits to filing for bankruptcy, but with those benefits comes a responsibility: full disclosure. It is important that you answer all the questions I send you completely and honestly.
Contrary to popular belief, you cannot pick and choose which debts or which items of property to “put into” a bankruptcy. All of your creditors must be listed, and so must all of your property. Depending on the circumstances, you may have choices about how certain debts or property are treated in the bankruptcy, but that doesn’t change the requirement that you must disclose everything you own and everyone you owe.
Knowingly hiding property or other important information in a bankruptcy case is a crime.
There’s another reason why you should tell me everything. As your lawyer, it’s my job to protect your interests. But I can only protect you from problems I know about. If you give me incomplete information, I may not be able to protect all of your property in a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, missing information at the start of your case could mean that your plan has to be amended later to increase your monthly payment to the trustee.
4. Credit Counseling
When Congress revised the Bankruptcy Code in 2005, it added a requirement that anyone filing for bankruptcy complete “credit counseling” with an approved provider before filing. It can be completed online or over the phone, usually in about an hour, and the provider will usually charge a small fee. We will suggest a provider, but you can choose any provider that has been approved by the United States Trustee Program.
Don’t worry — there won’t be a pop quiz at the end of the course.
5. Signing and Filing the Bankruptcy Papers
Once I’ve prepared the bankruptcy papers, I will reach out to make an appointment for us to review the papers in detail and sign them. The signing appointment can be held remotely over Zoom or in-person at my office. Among other things, we’ll make sure that we’re on the same page about your plan for collateral, such as cars. For a Chapter 13 case, we’ll discuss the plan payment we’re proposing to the Court and the reasons we’re proposing it. At some point I will probably also show you a picture of my dog.
Because there is a lot of material to cover, signings generally take at least an hour, and sometimes they last longer.
After you have signed the bankruptcy papers, I will file the case electronically while you watch. The automatic stay will take effect immediately, and you will have a case number you can give to creditors to let them know you have filed for bankruptcy. We will also talk about the next steps in your case.
6. After Filing
Once the case has been filed, the next milestone is the “Meeting of Creditors,” which usually happens four to six weeks after filing. I will collect a few additional documents from you after the signing that will need to be turned over to the Trustee. This is also a good time to complete the required “financial management course,” which is a second round of counseling mandated by the 2005 Bankruptcy Code amendments.
Be careful about taking on new debt after filing. If you file a Chapter 7, debts you incur after filing are generally outside the bankruptcy and won’t be eligible for a discharge in your case. If you file a Chapter 13, you generally should not incur new debt without talking to me first. Depending on the circumstances, approval from the Trustee and/or the Court may be required.
For Chapter 13 filers, the first monthly plan payment is always due 30 days after the bankruptcy is filed, even though the Meeting of Creditors hasn’t happened and the plan hasn’t been confirmed. It’s important to make all payments at the beginning of the case, because the Court will not confirm the plan if payments are not current.
7. The Meeting of Creditors
The Meeting of Creditors — which lawyers sometimes call the “341 meeting,” because it is required by section 341 of the Bankruptcy Code — is an official proceeding in your case. The Bankruptcy Judge will not be present; instead, the Meeting is run by the Trustee assigned to your case. Currently, all 341 meetings are held by Zoom. You are allowed to join the Zoom meeting from anywhere, but you should be alone, in a quiet space, and stationary while the meeting is going on.
The Trustee will swear you in and ask you questions under oath. I will also be in the meeting, but I will be there mainly to observe. The Trustee will have a list of questions that he or she is required to ask everyone. For example, the Trustee will ask if you read the bankruptcy papers, signed them, and listed all your property and all your debts. The Trustee will also ask you basic questions about your finances — for example, questions about your income and about certain property you own. The Trustee may also ask you other questions raised by specific things listed in your bankruptcy papers.
A day or two before the 341, we will meet, probably over Zoom, to prepare for the meeting. We will review some information in the bankruptcy papers and make sure you are comfortable with the technology. I will do my best to anticipate specific issues the Trustee might ask you about and, if I think of any, I will tell you.
Your 341 testimony will likely last all of five to ten minutes. It is not a trial. You do not need to convince the Trustee or anyone else that you “deserve” to file bankruptcy. The Trustee’s purpose is to make sure that certain aspects of the bankruptcy are running smoothly, and to make sure that creditors receive what, if anything, they are entitled to receive from the bankruptcy.
After the Meeting of Creditors, the process splits depending on which chapter you’ve filed:
Chapter 7
Final Steps
In many Chapter 7 bankruptcies filed by consumers, the Meeting of Creditors is the only official proceeding the consumer is required to attend, and there is very little left to do after it ends. The Court typically issues its discharge order about two to three months after the conclusion of the Meeting of Creditors, and often the bankruptcy case is closed soon thereafter.
If you had an auto loan or other debt secured by collateral when you filed and chose to reaffirm the debt or redeem the collateral, there may be some additional steps to complete after the Meeting of Creditors, and in some circumstances perhaps another court hearing.
In cases where the Trustee believes there may be assets they are allowed to liquidate and distribute to creditors, this is the stage when that would happen. This would also be the stage of the case when the United States Trustee Program or individual creditors could object to a discharge. Both those situations are relatively rare, however, and in most cases I will know by the end of the 341 meeting whether either is a serious possibility. As long as your bankruptcy attorney has complete and accurate information about your property and finances from the beginning of your case, the chances of being surprised by either situation late in the case are very small indeed.
From filing to discharge, the length of a typical Chapter 7 consumer bankruptcy is three to four months.
Congratulations — your Chapter 7 bankruptcy is finished!
Chapter 13
Plan Confirmation
In a Chapter 13 bankruptcy, the next major step after the Meeting of Creditors is the confirmation of the Chapter 13 plan.
A Chapter 13 plan specifies how much the monthly payments to the Trustee will be, how many months the bankruptcy will last, and how the money that is paid to the Trustee is distributed. Sometimes the consumer filing the bankruptcy has choices as to how to treat a particular debt — for example, you might choose to keep a vehicle and pay the car loan, or you might surrender the vehicle instead — and there can be room for creativity at the margins. For the most part, however, a Chapter 13 plan must pay your creditors what (if anything) they are legally entitled to receive in the bankruptcy.
Whenever anyone files a Chapter 13, it is their responsibility (well, really their lawyer’s responsibility) to file a plan. We already did that back in Step 5, when the bankruptcy papers were filed. When we file a plan, however, it is only proposed; a plan does not become final until it is “confirmed” by the bankruptcy judge. Since bankruptcy is a legal proceeding involving other parties like the Trustee and your individual creditors, those other parties have an opportunity to object to the plan we’ve filed if they think there is a legal reason why it shouldn’t be confirmed.
Objections to Chapter 13 plans are common. In fact, the Chapter 13 Trustee files some kind of objection in a majority of cases, and there are different kinds of objections. Sometimes the Trustee files technical objections because they believe something was left out of the plan or was incorrectly labeled in the plan. Sometimes the Trustee objects simply because they want additional information before they consent to a plan. And sometimes the Trustee objects because they think a plan will not pay certain creditors everything they’re entitled to receive, and that the monthly plan payment should be higher.
The important thing to know is that if you receive a copy of an objection in the mail, I have also received a copy and I’m already working on resolving the objection. Depending on what the objection is, we may agree with the Trustee; we may argue the objection in court and let the bankruptcy judge decide; or we may reach a compromise.
The other thing to know about the confirmation process is that it is not about whether you “deserve” to be in bankruptcy or whether your bankruptcy will be “denied.” The main questions are whether the plan meets all the legal requirements, and whether you’ve started making the payments to the Trustee.
If the court holds a hearing on confirmation, I will attend on your behalf. There is no need for you to come unless I let you know otherwise. Many Chapter 13 plans are confirmed approximately three months after the case is filed, though sometimes the process takes longer.
Chapter 13 After Confirmation
After the bankruptcy court confirms the Chapter 13 plan, the case settles into a groove. The most important thing to do is to continue to make the required monthly payments. Except in very rare circumstances, all of the payments called for in the plan must be made to complete the case successfully and receive any discharge of debt not paid through the plan.
Do not make any extra unscheduled payments to the Chapter 13 Trustee without talking to me first. If you have extra money, the best thing to do is to save it. That way, if you have a blip in income or an unexpected expense later on in the case, you will be able to absorb it while still making the required monthly payment to the Trustee.
Keep an eye on your paychecks or bank accounts. If you notice that the payment to the Trustee is not being made as expected, please be proactive and let me know! Problems are easier to fix when they are caught and addressed early.
If you miss a few payments in a row without catching back up, eventually the Trustee may move to dismiss your case. Again, Motions to Dismiss are relatively common, and they do not necessarily mean your case is dead. If the Trustee moves to dismiss, I will be in touch to talk to you about possible ways of curing the delinquency.
If you own your home and are making mortgage payments apart from the Chapter 13 plan, be sure to make those payments, too. If more than one or two payments are missed, the mortgage servicer may ask the bankruptcy court for permission to conduct foreclosure proceedings. Again, there are options available to fix such problems, but the sooner we address the problem, the better.
Don’t forget to file any required income tax returns before the deadline every year you’re in the bankruptcy, and to send me a copy as soon as you file so I can turn it over to the Trustee.
And if your financial situation changes during the bankruptcy — if your income changes, if you inherit money or property, if you acquire the right to sue somebody, if you need to sell something or borrow money, if you’re thinking of divorce, or anything else — be sure to let me know. I’ll make sure the bankruptcy side of things is taken care of.
Once you have made the last required payment, the Trustee will conduct a final accounting. If all other requirements have been met, the bankruptcy court will enter any discharge for which you are eligible.
Congratulations — your Chapter 13 bankruptcy is finished!