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Bankruptcy IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER. If you decide to seek bankruptcy, relief, you can represent yourself, you can hire an attorney to represent you, or you can get help in some localities from a bankruptcy petition preparer who is not an attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask to see the contract before you hire anyone. The following information helps you understand what must be done in a routine bankruptcy case to help you evaluate how much service you need. Although bankruptcy can be complex, many cases are routine. Before filing a bankruptcy case, either you or your attorney should analyze your eligibility for different forms of debt relief available under the Bankruptcy Code and which form of relief is most likely to be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a bankruptcy case, documents called a Petition, Schedules and Statement of Financial Affairs are prepared. In some cases a Statement of Intention needs to be prepared correctly and filed with the bankruptcy court. You will have to pay a filing fee to the bankruptcy court. Once your case starts, you will have to attend the required first meeting of creditors where you may be questioned by a court official called a 'trustee' and by creditors. If you choose to file a chapter 7 case, you may be asked by a creditor to reaffirm a debt. You may want help deciding whether to do so. A creditor is not permitted to coerce you into reaffirming your debts. If you choose to file a chapter 13 case in which you repay your creditors what you can afford over 3 to 5 years, you may also want help with preparing your chapter 13 plan and with the confirmation hearing on your plan which will be before a bankruptcy judge. If you select another type of relief under the Bankruptcy Code other than chapter 7 or chapter 13, you will want to find out what should be done from someone familiar with that type of relief. Your bankruptcy case may also involve litigation. You are generally permitted to represent yourself in litigation in bankruptcy court, but only attorneys, not bankruptcy petition preparers, can give you legal advice. THREE BASIC TYPES OF BANKRUPTCY CHAPTER 7: Chapter 7 is an economic catharsis whereby a Debtor walks away from general unsecured debts to start anew. A Chapter 7 proceeding theoretically entails the collection by a Court-appointed liquidator (i.e., the Trustee) of all assets of a Debtor that exists as of the date the Chapter 7 is filed, sale of those assets by the Trustee, and payment in the following order: First, to all creditors holding valid and enforceable liens on particular assets to the extent of the value of the collateral; Second, to the Debtor to the extent of an applicable exemption interest in the asset; Third, to pay certain expenses associated with the administration of the case as well as claims given a special status under the Code; and Last (and often least) the balance is paid to the general unsecured creditors, usually on a pro rata basis since there are rarely sufficient assets to pay general unsecured claims 100%. As long as the Debtor does not defraud or hinder the Court by attempting to conceal assets or refusing to cooperate with the Court, the Debtor is granted a discharge of all but a few specified unsecured debts, which discharge acts to enjoin any further legal (or other) action to collect on the debt. CHAPTER 13: Chapter 13 bankruptcies are sometimes referred to as “wage earner” bankruptcies, and are intended as an alternative to liquidation to the individual consumer with relatively small amounts of debt. The Chapter 13 proceeding involves the formulation of a “plan” to pay back secured and unsecured debt, and the plan is confirmed by the Court order. A Trustee is appointed, but his role is not to liquidate assets, but rather to act as a disbursing agent for the funds paid into the Court for payment to creditors under the plan. The three general classes of creditors are still present in a Chapter 13 (i.e., secured, priority, and unsecured). The discharge in a Chapter 13 occurs generally upon completion of payments under the plan, which is usually between 3 to 5 years after confirmation. The Chapter 13 discharge is broader in its scope than the Chapter 7 or 11 discharge. CHAPTER 11: A Chapter 11 proceeding is commonly referred to as a “business reorganization,” although most Courts agree it is not limited to reorganization. Although a Chapter 11 contemplates the continuation of an ongoing business entity, most Courts recognize that a corporation (or individual) may liquidate in a Chapter 11. EXEMPTIONS: The law provides that in a Chapter 7 liquidation, certain of the Debtor’s property is exempt from the Trustee. Generally speaking, a Debtor can exempt from the grasp of his creditors $3,000 worth of personal property (cash, equity in vehicles, furniture, etc.) and $5,000 worth of equity in his/her homestead real estate. A man and wife can file a joint petition and double their exemptions, i.e. $6,000 personal property and $10,000 real estate. REAFFIRMATION: A Debtor can reaffirm a secured debt. That is, he/she may be able to keep the collateral and keep paying the monthly payments. On the other hand, the Debtor can reject the deal, return the collateral, and be free of the payments.
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