October 21, 2019

Secured Debt vs. Unsecured Debt

When it comes to debt there are two main types, secured and unsecured. In Chapter 7 and Chapter 13 bankruptcy knowing the difference between both is very important so you can implement a proper plan. Even if you aren’t filing bankruptcy it is still good to know what the differences are between the debts.

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First, what is secured debt? Secured debt is when something of value is used as collateral for a loan. If you fall behind on your loan payments the lender has the right to place a lien on what you used as collateral. This means they have the right to take ownership of it. Usually the lender will liquidate the asset and use that money to pay off what is due. However, if the selling price isn’t enough to pay off the debt completely the lender may then attempt to collect the difference from you, which is called a “deficiency.”

Examples of secured debt:

  • Mortgages – The loan is attached to the home and the home is the asset. If payments aren’t made the bank may take the home, known as a foreclosure
  • Car loans – The loan is attached to the car and if payments are not made the bank has the right to repossession
  • Auto loans and cash loans secured by a car title or other property
  • Boat loans
  • Furniture

So what do you do? You can obtain legal protection from creditors by filing bankruptcy. When you file Chapter 7 you have to decide if you will retain or surrender the property. You can only discharge secured debt if you surrender the property used as collateral. If you want to keep the property, you must continue making the payments. When you file Chapter 13 Bankruptcy it’s common that you will create a payment plan to make up the payments over a certain period of time while staying current on your regular monthly payments. For example, if you have a foreclosure on your house, filling a Chapter 13 bankruptcy will stop the foreclosure and implement a plan whereby you pay back the debt in increments until it is complete. To make the plan work you need to demonstrate that you will have enough income in the future to support the payment plan. If there were no legal proceedings or lawsuits brought against you before you file, filing bankruptcy sets forth a law that prevents the lender from bringing any lawsuits or legal proceedings, such as a foreclosure, against you. Additionally, you can sometimes use Chapter 13 bankruptcy to reduce debt to the replacement value of the property securing it, then pay off that debt through a plan. Therefore you are only paying what the asset is actually worth.

Next, what is unsecured debt? Unsecured debt is not tied to collateral and doesn’t result in repossession of the asset if you fall behind on payments. There is still an agreement to repay the lender but there is no asset. Therefore the debt isn’t attached to something that the lender can just take back. Instead lenders may take other actions in order to get you to pay. These actions may include the lender hiring a collection agency or taking you to court in order to get you to pay.

Examples of unsecured debt:

  • Credit card bills
  • Medical bills
  • Personal loans
  • Utility bills
  • Pay day loans

How can bankruptcy help unsecured debt? Once you file bankruptcy collection actions will be suspended and you may be allowed to temporarily or permanently avoid paying any debts. These debts may be eliminated or a plan can be formulated so you can repay creditors while remaining under the protection of bankruptcy. Under chapter 7 bankruptcy some debts may be completely discharged while others mat not. If some debts aren’t discharged there may be a plan created to help pay it back over a period of time. Filing bankruptcy sets forth a law which generates an automatic stay on the debt. This means the creditors or debt collectors cannot push for the collection of debt. Once you file bankruptcy the creditors can’t harass you to pay the debt. Filing bankruptcy prevents that and buys you time to negotiate a plan to pay back the debt you owe.

Overall, bankruptcy is a powerful tool for debtors and a lot can be done to help out if you are facing financial hardships. Debt is a serious issue and knowing the differences between the kids of debt and what can be done about each is very important. If you have any questions don’t hesitate to contact Attorney Theresa DeGray at 203-713-8877.

Bankruptcy and Retirement

Here you are in your golden years and you’re also in overwhelming debt.  The question now becomes “what should you do?” If you have retirement savings, you can use that to pay down debt, but then you won’t have anything left to live on.  Or, a smarter choice, would be to keep your retirement savings, protect your pension(s) and/or retirement account(s), and declare Bankruptcy.  This is also a very wise decision if you do not have retirement savings or pensions and you are counting on social security benefits only to support yourself and your family.

Some people are under the misconception that when they reach retirement age, they become what is known as “judgment proof.”  On one hand this is correct and on another hand it is false.  Creditors can still sue you for delinquent accounts and secure judgments against you even if you are over 62 and/or retired.  If you are sued and lose, and then you fail to pay the court-ordered judgment amounts then the creditors can serve you with executions of the judgment and they can sweep your bank accounts.  You will then have the right to request the court to “exempt” the funds if they were derived from social security, pension or retirement funds, and eventually have the funds returned to your account.  Creditors cannot get attachments on your benefits from social security, pension or retirement accounts, but they can put liens on your property.  Therefore, you are not fully protected or “judgment proof” just because you are retired and no longer have “wages.”

The alternative to this dilemma is Chapter 7 Bankruptcy.  If you are living on pension funds and/or social security benefits, you will likely qualify easily for Bankruptcy, and your social security benefits, pensions and retirement accounts will be totally exempt in the Bankruptcy process.  Ultimately, Bankruptcy will give you a “discharge” of your debts and you will be relieved of your obligation to pay your creditors.

Bankruptcy can also help you with delinquent or unpaid utilities, and foreclosures, as well.

Filing Bankruptcy in your golden years can help you wipe the slate clean so you can enjoy your retirement and have peace of mind.

Please contact Attorney Theresa Rose DeGray for more detailed information and a free consultation to discuss your specific situation at 203-713-8877.

New Case Law Regarding Acceleration

DEUTSCHE BANK NATIONAL TRUST COMPANY,TRUSTEE v.JOSEPH R. PONGER ET AL.(AC 41014) DiPentima, C. J., and Moll and Sullivan, Js.

Syllabus

The plaintiff bank sought to foreclose a mortgage on certain real property owned by the defendant T and her former spouse, P. T and P had executed a mortgage deed, and P had executed a note in favor of a predecessor in interest of the plaintiff. The note was later assigned to the plaintiff. After P failed to make payments pursuant to the note, the plaintiff advised him that the note and mortgage were in default, and mailed notice of the default addressed to him, but not to T, at the address of the property at issue, at which P no longer lived at the time that the plaintiff mailed the notice to him there. In the absence of a cure of the default, the plaintiff thereafter elected to accelerate the amount due under the note. T claimed that the plaintiff had failed to provide herewith proper notice of the default and acceleration of the note when it sent notice to the property that was addressed to P. The trial court rendered judgment of strict foreclosure for the plaintiff, concluding,inter alia, that the notice of default and acceleration was sent to T as a joint tenant of the mortgaged property and a joint obligor on the mortgage deed. On T’s appeal to this court,held that the trial court properly rendered judgment of strict foreclosure for the plaintiff, as that court correctly concluded that the notice requirement under the mortgage was satisfied because notice to one joint tenant or joint obligor constitutes notice to the other; because T conceded that, at all relevant times, she and P were joint tenants with respect to the subject property,it was not in dispute that T and P continued as joint obligors under the mortgage, and T did not dispute that her signature was on the mortgage,notice to P constituted notice to T.Argued November 29, 2018—officially released July 2, 2019Procedural History Action to foreclose a mortgage on certain real property of the named defendant et al., and for other relief,brought to the Superior Court in the judicial district of Stamford-Norwalk, where the court,Mintz, J., granted the plaintiff’s motion for summary judgment as to liability as against the named defendant; thereafter, the court,Hon. A. William Mottolese, judge trial referee,accepted the parties’ stipulation of facts, and the matter was tried to the court,Hon. A. William Mottolese, judge trial referee; judgment of strict foreclosure, from which the defendant Theresa Ponger appealed to this court.Affirmed.Colin B. Connor, for the appellant (defendant Theresa Ponger). Christopher J. Picard, for the appellee (plaintiff).

Opinion

SULLIVAN, J. The defendant Theresa Ponger appeals from a judgment of strict foreclosure rendered by thetrial court.1On appeal, the defendant’s principal claim isthat the court erred when it concluded that the plaintiff, Deutsche Bank National Trust Company, as Trustee, in Trust, for Registered Holders of Long Beach Mortgage Loan Trust 2006-WL3, Asset-Backed Certificates, Series2006-WL3, had provided notice of default and acceleration to her when it sent notice to the subject property addressed to her former spouse, Joseph R. Pongern (Ponger), who no longer resided at the property.Because the court correctly held that the notice requirement under the mortgage was satisfied because notice to one joint tenant or joint obligor constitutes noticeto the others, we affirm the judgment of the trial court.The parties stipulated to the following relevant facts.On September 7, 2005, Ponger executed a note in favor of Long Beach Mortgage Company in the principalamount of $420,000. The note was endorsed in blankand supplied to the plaintiff prior to the commencement of this action. Also on September 7, 2005, Ponger andthe defendant executed a mortgage deed in favor ofLong Beach Mortgage Company on property located at23 Macintosh Road, Norwalk. The mortgage was recorded in the Norwalk land records on September13, 2005.2The plaintiff is the present holder of the note.On or about December 6, 2013, by letter addressed to Ponger at 23 Macintosh Road, Norwalk, Connecticut06857, the plaintiff advised him that the note and mort-gage were in default due to his failure to make therequired monthly payments.3Notice of the aforemen-tioned default was not addressed to the defendant.4Inthe absence of a cure of the default, the plaintiff electedto accelerate the amount due under the note. On April15, 2014, the plaintiff provided Ponger and the defen-dant notice of their rights under the General Statutes as they relate to the Emergency Mortgage AssistanceProgram. See General Statutes § 8-265cc et seq. Therecord further indicates that Ponger failed to make pay-ments pursuant to the note from July 1, 2013, to thedate of the joint stipulation, May 9, 2017.The present action was commenced on October 13,2015, approximately eighteen months after the Emer-gency Mortgage Assistance Program notice was mailedto the subject property. On May 5, 2016, after the expira-tion of the court approved foreclosure mediation period, the defendant filed a timely answer asserting,as a special defense, that the plaintiff had failed toprovide her with proper notice of default and accelera-tion. Thereafter, on June 2, 2016, the plaintiff filed amotion for summary judgment as to both Ponger and the defendant. The court granted the motion with respect to Ponger but denied the motion with respect to the defendant. On May 16, 2017, the parties filed a joint stipulation of facts with the court as to the remaining issues in dispute. On September 6, 2017, the court issued its memorandum of decision finding in favor of the plaintiff. The court determined that ‘‘[r]esolution of this issue is controlled squarely byCiticorp Mortgage,Inc.v.Porto, 41 Conn. App. 598, 600–604, 677 A.2d 10(1996),’’5and, thus, concluded in relevant part that the‘‘notice of default and acceleration was sent to [the defendant] as a joint tenant of the mortgaged property and a joint obligor on the mortgage deed.’’ Thereafter,the court rendered judgment of strict foreclosure against both Ponger and the defendant, and set thelaw day for January 16, 2018. This appeal followed.Additional facts and procedural history will be set forthas necessary.The defendant’s principal claim on appeal is that the court erred when it concluded that the notice require-ment provision of the subject mortgage had been satis-fied as to the defendant when the plaintiff provided notice addressed exclusively to Ponger.6Specifically,the defendant claims that, because she is a ‘‘[b]orrower’’under the terms of the mortgage, and because the noticeprovision of the mortgage requires notice of defaultand acceleration to be given to the ‘‘[b]orrower,’’ the plaintiff was required to provide her individually withnotice. The defendant further claims that the courtimproperly applied the legal principles set forth inCiti-corp Mortgage, Inc. v.Porto, supra, 41 Conn. App. 600,because the present case is distinguishable, and, as aresult of the improper application ofCiticorp Mortgage,Inc., a necessary condition precedent to the foreclosure action was not met.7We disagree.As an initial matter, we note that the defendant’sclaim presents a mixed question of law and fact. ‘‘Wherethe question whether proper notice was given depends upon the construction of a written instrument or the circumstances are such as lead to only one reasonable conclusion, it will be one of law, but where the conclu-sion involves the effect of various circumstances capa-ble of diverse interpretation, it is necessarily one offact for the trier.’’ (Internal quotation marks omitted.)Sunset Mortgagev.Agolio, 109 Conn. App. 198, 202,952 A.2d 65 (2008). Because the plaintiff claims ‘‘thatthe facts found were insufficient to support the court’slegal conclusion, this issue presents a mixed question of law and fact to which we apply plenary review.’’Winchesterv.McCue, 91 Conn. App. 721, 726, 882 A.2d143, cert. denied, 276 Conn. 922, 888 A.2d 91 (2005).We begin by addressing the defendant’s claim thatthe court erred when it applied the legal principles setforth inCiticorp Mortgage, Inc., to the present case. InCiticorp Mortgage, Inc., this court addressed whether notice to one joint tenant constituted notice to the oth-ers under similar, but not identical, circumstances.

There, the defendant and his spouse were living apart,and neither the defendant nor the spouse resided at the subject property at the time notice was delivered.Similar to the notice provision in the present case, the relevant notice provision provided: ‘‘Unless applicable law requires a different method, any notice that must be given to me under this note will be given by deliveringit or by mailing it first class to me at the property address above or at a different address if I give thenote holder notice of my different address.’’ (Internalquotation marks omitted.)Citicorp Mortgage, Inc. v.Porto, supra, 41 Conn. App. 600 n.4. Unlike like thepresent case, in which the defendant is a signatoryonly on the subject mortgage, the defendant inCiticorpMortgage, Inc., was both a signatory on the note anda signatory on the corresponding mortgage.This court concluded that, although ‘‘proper noticeof acceleration is a necessary condition precedent toan action for foreclosure . . . the plaintiff provided thedefendant with proper notice by mailing the notice ofacceleration to [a joint tenant of the defendant].’’ Id.,603. This court further concluded that, ‘‘[w]hile itappears that service of a notice upon one tenant incommon is not usually regarded as binding upon theothers, unless they are engaged in a common enterprise,the rule is different where the relation is that of a joint tenancy. In such a case, it is said that notice to one ofthem is binding upon all. 20 Am. Jur. 2d, Cotenancyand Joint Ownership § 113 (1995).’’ (Internal quotation marks omitted.)Citicorp Mortgage, Inc. v.Porto, supra,41 Conn. App. 603.Largely informed by our Supreme Court’s decisioninKatzv.West Hartford, 191 Conn. 594, 600, 469 A.2d410 (1983), which reaffirmed long-standing precedent that ‘‘[i]n the case of cofiduciaries [and joint tenants]notice to one is deemed to be notice to the other,’’this court’s decision inCiticorp Mortgage, Inc., alsorestated the long-standing principle that ‘‘[n]otice toone of twojoint obligorsconveys notice to the otherwith respect to matters affecting the joint obligation.United Statesv. Fleisher Engineering & ConstructionCo., 107 F.2d 925, 929 (2d Cir. 1939).’’ (Emphasis added.)Citicorp Mortgage, Inc. v. Porto, supra, 41 Conn. App.603–604. Despite the foregoing, the defendant claimsthat the trial court misapplied the aforementioned stan-dards because, unlike the defendant inCiticorp Mort-gage, Inc., who was both a signatory on the note and corresponding mortgage, she was not a signatory onthe subject note. We find the defendant’s claim unper-suasive.In a recent decision, this court addressed a similarclaim. SeeCitibank, N.A. v. Stein, 186 Conn. App. 224,199 A.3d 57 (2018), cert. denied, 331 Conn. 903, 202A.3d 373 (2019).8InCitibank, N.A., the defendant argued that, because he was a signatory on the subject mortgage but not a signatory on the corresponding note,notice to his former spouse, who was the sole signatory on the note, was not effective as to him. Id., 250 n.21.This court held that, because the defendant signed the mortgage instrument, thereby pledging the property as security for the debt obligation created by the note,which was signed by the former spouse, the defendantwas a joint obligor as to the mortgage and that the notice provided to his former spouse, despite their contrasting endorsements, satisfied the notice requirements under the mortgage. Id., 249–50, 250 n.21.Critically, at oral argument before this court, the defendant conceded that, at all relevant times, she andPonger were joint tenants with respect to the subjectproperty. 9SeeKatzv. West Hartford, supra, 191 Conn.600. Furthermore, it is not in dispute that the defendant and Ponger continued as joint obligors under the sub-ject mortgage. SeevCiticorp Mortgage, Inc. v.Porto,supra, 41 Conn. App. 603–604. Further still, the defen-dant has not challenged the stipulation or otherwise disputed that her signature is on the mortgage. Accord-ingly, we conclude that the present case falls squarely within the ambit of this court’s decision inCiticorpMortgage, Inc., and, therefore,the notice to Pongerconstituted notice to the defendant.The judgment is affirmed and the case is remanded for the purpose of setting new law days.In this opinion the other judges concurred.1Joseph R. Ponger was also a defendant at trial but does not appeal fromthe judgment of strict foreclosure. In this opinion, we refer to Theresa Pongeras the defendant and to Joseph R. Ponger as Ponger. Several encumbrances also were named as defendants, but they are not parties to this appeal.2By virtue of assignments of the mortgage from Long Beach Mortgage Company to Deutsche Bank National Trust Company, as Trustee for Long Beach Mortgage Trust 2006-WL3, dated April 7, 2010, and recorded June 11,2010, in volume 7200 at page 113 of the Norwalk land records, and thereafter from Deutsche Bank National Trust Company, as Trustee for Long Beach Mortgage Trust 2006-WL3 to the plaintiff, dated August 20, 2015, and recordedOctober 9, 2015, in volume 8244 at page 101 of the Norwalk land records,the plaintiff became the mortgagee of record.3The notice provision of the subject mortgage provides in relevant part:‘‘Any notice to Borrower provided for in this Security Instrument shall be given by delivering it or by mailing it by first class mail unless applicablelaw requires use of another method. The notice shall be directed to the Property Address or any other address Borrower designates by notice toLender.’’ The subject mortgage defines the ‘‘[b]orrower’’ as ‘‘Joseph Pongerand Theresa Ponger.’’4Relatedly, the defendant claims that the court erred when it concluded that the plaintiff’s admission that notice was not individually addressed tothe defendant did not preclude judgment of strict foreclosure. Because the plaintiffs admission is not legally significant as to the defendant’s claim onappeal, we decline to address it.5The principal issue before the trial court essentially was identical to the issue now presented on appeal, namely, whether the plaintiff was required to provide the defendant with individual notice of default and acceleration pursuant to the notice provision in the subject mortgage.6In addition, the defendant claims that, even assuming arguendo that she received the notice sent by the plaintiff to Ponger, the notice failed to comply with certain requirements set forth in the mortgage deed and, thus, was deficient. The defendant failed to raise this distinct claim before the trial court and, therefore, we decline to review it. See DiMiceliv.Cheshire, 162

Conn. App. 216, 229–30, 131 A.3d 771 (2016) (‘‘Our appellate courts, as a general practice, will not review claims made for the first time on appeal.We repeatedly have held that [a] party cannot present a case to the trial court on one theory and then seek appellate relief on a different one . . . .[A]n appellate court is under no obligation to consider a claim that is not distinctly raised at the trial level. . . . [B]ecause our review is limited to matters in the record, we [also] will not address issues not decided by the trial court.’’ [Internal quotation marks omitted.]).7Additionally, in her brief the defendant argues that the court erred when it concluded that she and Ponger were joint tenants as to the subject prop-erty. At oral argument, however, the defendant conceded that, at all relevant times, she remained a joint tenant to the subject property.8Citibank, N.A. v. Stein, supra, 186 Conn. App. 224, was officially released two days prior to oral argument. We note that neither the plaintiff nor the defendant chose to submit invited post argument memoranda to address its relevancy. See Practice Book § 67-10.9See footnote 7 of this opinion.

Life After Chapter 13 Bankruptcy: A Serious Process for a Fresh Start

You have come a very long way, and I want to be the first person to CONGRATULATE you on completing all of your Chapter 13 Bankruptcy Plan Payments, and successfully receiving a Chapter 13 Bankruptcy Discharge!  I understand what an incredible accomplishment this is and admire your determination to clean up your debt and get a Fresh Start!

The day you receive your Chapter 13 Bankruptcy Discharge is the first Debt-Free day of the rest of your life.  I know, as awesome as that may sound, it may also seem a bit scary to think you will have no credit and not be able to fall back on credit cards in an emergency after the long years of being in the Chapter 13 Process, but it’s not forever and there is a healthy and productive way about living cash-only during and after the Chapter 13 Bankruptcy Process.

“Chapter 13 Bankruptcy is a process for people serious about getting a second chance at a financially healthy life.”

Through your Chapter 13 Bankruptcy Process you completed a Debtor Education/Personal Financial Management Course that taught you effective ways of rebuilding your credit.  One of those ways is by obtaining a secured credit card, which you can do almost immediately upon receiving your Discharge.  This is great for two reasons: (1) it will immediately help you rebuild your credit (as long as you pay at least the minimum payment on time each month) and (2) it will give you that safety net back of having a credit card (but it should be strictly for emergencies only).  The beauty of a getting a secured credit card  right after Bankruptcy is that you will only be allowed a very small limit (usually $200 at first), this will help you police your spending habits and force you to learn to live life cash-only.

After you start your new debt-free financial journey you will become confident that you can support yourself and have a healthy financial life without the crutch of credit cards and having the burden of the crushing debt that results from those credit cards.

The number one worry my clients have is that Bankruptcy is public information and it will be used against them.  Although Bankruptcy is public information, your filing is not printed in the newspaper or easily accessible to the community.

Your Bankruptcy filing will show up on your Credit Report and it will show up on a financial background search, however, filing for Bankruptcy is a constitutional right and you cannot be discriminated against solely on the basis of your Bankruptcy.

A few years after you are discharged from Bankruptcy you will able to obtain car loans and mortgages for real estate.  As time goes on, you will be given more favorable interest rates and your credit score will begin to grow.  In fact, some creditors even look favorably on people who have completed a Chapter 13 Repayment Plan, because they know you have the determination, perseverance and ability to make monthly payments on time.

The bottom line is that once you start over in Bankruptcy, learn healthy money management skills and begin to regain your credit, you can live a life of abundance with peace of mind and security.

I tell all of my clients: do not let the potential after-effects of Bankruptcy deter you from filing and getting your second chance at life.

For more information on the Chapter 13 Bankruptcy Process, please contactAttorney Theresa DeGray, at 203-713-8877.

Debtor Education Course

The last action you must take in your Chapter 13 Bankruptcy Process will be taking the Debtor Personal Financial Management Education Course.  This is actually fun and will be your first step on the road to a healthy financial life!

In order to receive your Discharge you must complete an “instructional course concerning personal financial management”1 after your Chapter 13 Petition is filed and before you make your last Chapter 13 Bankruptcy Plan Payment.  I suggest that you take the course before your 341 Meeting of the Creditors or shortly thereafter so you do not forget to do it, as the Chapter 13 Process is a lengthy one and you may not be making your last payment for 5 years.

This is the second and final course you must take to complete your Chapter 13 Bankruptcy Process.  The first course was “credit counseling.”  This second and final Debtor Education course is different as you will see below.

The Debtor Education course must be administered by an agency that is approved by the United States Trustee Program for the District that you reside in.  I will give you a list of the currently approved agencies during our initial consultation and gently remind you during the process when you should take the course.

The course may be taken in person or online.  It takes approximately two hours to complete, and costs anywhere from $15 to $50 depending on which agency you choose and if they have special promotional offers running at the time.  All you need to take the course is your Case Number.

I call this course “fun” because it teaches you some great tips on rehabilitating your damaged credit and can help you rebuild your credit to better than ever before with simple steps that you can take as soon as you receive your Discharge.

What you will learn in the Debtor Personal Financial Management Education Course is priceless, so if you take it in person, I strongly suggest that you take notes for future reference, and if you choose to take it on the internet, I urge you to save the information to your hard drive or print it out and create a reference guide for yourself.

Here is what you will learn in the Debtor Financial Management Education Course to help you rebuild strong credit:

  • How to Budget: The course will teach you the fundamentals of making a household budget.
  • Money Management: Unlike budgeting, which is big-picture and long-term, managing money is a daily activity in the short-term, and the course will offer you tips on how to manage your money, balance your checkbook and keep up with daily purchases.
  • Why You Should Get a Secured Credit Card: I know this sounds like contradictory advice but the best way to rebuild credit is to get another credit card! But not just any old credit card, you will be taught why and how to get a secured credit card.
  • Building Credit One Month at a Time: The only real way to build strong credit is to pay your bills ON TIME each and every month. By doing that, month after month, your credit builds back stronger and stronger and you will see results year after year as your credit score improves.
  • Saving for the Future: You will learn the importance of taking the money you would have otherwise been spending on credit card payments and saving portions of it to build some security and peace of mind in the form of a savings account, investments and a retirement account.
  • Other Important Consumer Information: You will also receive additional pre-discharge counseling to assist you in life after Bankruptcy.

At the end of your Debtor Personal Financial Management Education Course you will be given a Certificate of Completion.  You can instruct the agency to deliver a copy to me electronically and I will file it, along with your Official Form B23, with the Court for you.

The sooner you take this course during your Chapter 13 Bankruptcy Process, the better.  I believe it will serve you well in being able to budget around your Chapter 13 Bankruptcy Plan Payments.

Check in again soon for the next installment in this Chapter 13 Bankruptcy Blog Series to learn all about your Discharge!

Questions? Contact Theresa Rose DeGray at 203-713-8877.

11 U.S.C. § 727(a)(11)

Bankruptcy 341 Meeting of the Creditors

In my last blog entry of this Chapter 13 Series I explained who the Chapter 13 Trustee is and what role she plays in your Chapter 13 Bankruptcy Case.  In this blog I am going to stay with that topic, and add some information on just what to expect at a typical Section 341 Meeting of the Creditors.  I want you to be fully prepared and to allay any of your fears of testifying at a hearing.  That is why I am going to run through a typical Section 341 meeting step-by-step below.

During your Chapter 13 Bankruptcy Process, after you file your Petition and before you receive your Discharge, you will be required to attend a hearing called a Section 341 Meeting of the Creditors.  These meetings (or hearings) are called “Meetings of the Creditors” because they are an opportunity for creditors of your Bankruptcy Estate to object to your pending Discharge and question you with regard to their claims.  Despite the name, this is an extremely rare occurrence and I don’t usually expect it to happen.  But if it does, we will be prepared and I will alert you prior to the Section 341 Meeting if I am aware of any such claims.

One of the main duties of the Chapter 13 Bankruptcy Trustee is to: Conduct a 341 Meeting of the Creditors (a Hearing you must attend and testify at under oath).  Additionally, the Trustee has the power to refer cases to higher authorities to be investigated for Bankruptcy Fraud and/or other crimes, if appropriate.  Therefore, it is imperative that you fully disclose all of your income, assets and liabilities to me during your Bankruptcy process, so I may properly prepare your Bankruptcy Petition to avoid any improprieties.

You are obligated to attend your Section 341 Meeting and if you fail to do so your case will be dismissed.  At the meeting you will be expected to testify under oath as to the truth of the information provided in your Chapter 13 Bankruptcy Petition and documents provided to your Chapter 13 Trustee prior to your 341 Meeting.

Special Note to Married Couples Filing Bankruptcy Together: You both must attend the Section 341 Meeting.  Most Trustees will ask that only one of you speak and answer the questions for both of you, but if your spouse says something that you do not agree with, it is your responsibility to state your answer on the record separately.

All Section 341 Meetings are conducted at one of the three Federal Courthouses or Federal Government buildings in Connecticut located at Bridgeport, New Haven or Hartford.  The location you will be assigned to is usually randomly selected by the Court’s computer system but generally you can expect to attend the 341 Meeting at the Courthouse closest to your residence.  Section 341 Meetings are technically hearings but they are not formal and there is no Judge present.  It is a casual meeting with the Trustee, and I will be there as your representative.  The three of us (or four, if your spouse is filing as well) will sit around a conference room table.  These meetings are open to the public but usually the only people attending are other persons who have filed for Bankruptcy, or creditors that wish to pose questions to others who have filed.

Interpreters are available upon request and will be provided by the court at no cost to you.

Here is the sequence of events that leads up to, and includes, a typical Section 341 Meeting:

A few days before your scheduled Section 341 Meeting I will send you a letter with instructions, and a staff member from my office will follow-up with a phone call to you.  We will remind you to arrive 15 minutes early to observe other Debtors go through their 341 Meetings, as well as to remind you to bring your Driver’s License and Social Security Card.

When you arrive at the Section 341 Meeting location, I will greet you.  I will ask you if you have any questions for me and then have you sit and observe other Debtors testifying at their Section 341 Meetings.  Once your case is called we will move from the gallery to the conference room table where the Trustee will be sitting.  You will be asked to remain standing, the Trustee will swear you in and then you will be asked to state your name for the record and take a seat.  The Trustee will then introduce herself to us and I will announce my name for the record.

The Trustee will then ask you a series of questions under oath and you will be subject to the penalties of perjury.

Sample questions include but are not limited to the following:

  • Did you read the petition, schedules, statements, and related documents before you signed them?
  • Are all of your assets identified on the schedules?
  • Have you listed all of your creditors on the schedules?
  • Have you previously filed bankruptcy?
  • What is the address of your current employer?
  • Is the copy of the tax return you provided a true copy of the most recent tax return you filed?
  • Do you have a domestic support obligation?
  • Have you read the Bankruptcy Information Sheet provided by the United States Trustee?
  • Have you made any transfers of any property or given any property away within the last one year period?
  • Does anyone hold property belonging to you?
  • Do you have a claim against anyone or any business?
  • Are you the plaintiff in any lawsuit?
  • What is the status of each case and who is representing you?
  • Are you entitled to life insurance proceeds or an inheritance as a result of someone’s death?
  • Do you own an automobile?
  • Do you have any winning lottery tickets?
  • And there will be a few questions at the end about your Chapter 13 Bankruptcy Plan.

Please remember that the Trustee has the power to refer cases to higher authorities to be investigated for Bankruptcy Fraud and/or other crimes, if appropriate.  Therefore, it is imperative that you tell the truth while you are under oath at the Section 341 Meeting of the Creditors.

All in all, the Section 341 Meeting should last no more than 15 minutes and should be the first of the only two times you have to personally appear at any Hearings during your Chapter 13 Bankruptcy Process.  (The other time will be at your Chapter 13 Bankruptcy Plan Confirmation Hearing.)

Next up in this Chapter 13 Blog Series will be my blog about your Chapter 13 Confirmation Hearing!

If you have any questions in the meantime, contact Theresa Rose DeGray  at 203-713-8877.

Bankruptcy Petition Signing and Filing

In this blog we will explore a very important step in your Chapter 13 Bankruptcy process: Your Chapter 13 Bankruptcy Petition Signing and Filing.

Once you have met with me for your free initial consultation, retained me to file your Chapter 13 Bankruptcy Petition and delivered to me all of the required documents, I will then prepare your Chapter 13 Bankruptcy Petition and schedule a convenient time for you to come in to our office to sign your Petition.

Your Bankruptcy Petition signing is a very serious step in your Bankruptcy Process and you will be required to carefully read your Petition.  This appointment will take approximately one hour in which I will go over each and every page with you and answer any questions you may have.  Ultimately, you will be asked to sign several pages of the Petition under oath, swearing that the information provided is true and accurate to the best of your ability, and I will then electronically file your Petition with the Bankruptcy Court.

QUICK TIP: The name of the Bankruptcy game is disclosure.  You always want to make sure that you report every source of income, every asset and every liability you have because you are signing your Petition under oath and it will be examined by your Chapter 13 Trustee.

This blog is intended to give you a preview of the many parts of a typical Chapter 13 Bankruptcy Petition. Please keep in mind that your Petition may differ according to your specific financial circumstances and that it is vitally important to always disclose all of your income, assets, debts (liabilities).  A failure to fully disclose all of your information could be deemed Bankruptcy Fraud, which is a crime.

The first part of your Chapter 13 Bankruptcy Petition consists mainly of identification and general information.  It will list your name, address, and the last four digits of your social security number.  It will give a rough estimate of how many creditors, assets and liabilities you have.  It will also include your signature (as the “Debtor”) and mine (as your Attorney), affirming that the information provided is true and accurate.  Please note that your Bankruptcy Petition is a public document and because of that your Social Security Number will always be redacted to the last four digits to avoid identity theft.

The next several pages in your packet will be your Statement of Current Monthly Income, the assessment used to determine if you qualify for a Chapter 13 filing and calculate your disposable income.  For more information on your Statement of Income please consult me, and/or my previous Blog in this Chapter 13 Series as seen here [insert link to blog].

Your Statement of Income will be followed by Exhibit D which is your statement to the Court that you successfully completed your Credit Counseling requirement.  Credit Counseling is a mandatory course taken usually on the telephone or internet, which takes about one hour, analyzes your financial circumstances and helps you create a budget.  For more information on the Credit Counseling requirement please consult me, and/or my previous Blog in this Chapter 13 Series as seen here [insert link to blog].

The next part of your Chapter 13 Bankruptcy Petition will be a Summary of the Schedules to follow.  This is a snap-shot view of your income, assets and liabilities as more fully reported on each individual schedule (described in detail below).

The Summary will be followed by a series of Schedules as follows:

  • Schedule A – Real Property: This Schedule will list any Real Property that may be in your name according to the Land Records with a brief description and its location, along with the nature of your interest in the property (e.g. whether you own it solely or jointly), its current value and the amount of any liens (e.g. mortgages) against the property. This list may also include time shares, if any.
  • Schedule B – Personal Property: This Schedule will list all of your personal belongings, such as cash, contents of bank accounts and safe deposit boxes, security deposits with public utilities or landlords, clothes, jewelry, antiques, collectibles, firearms, sports equipment, household goods and furnishings, stocks, bonds, retirement accounts, patents, copyrights, or other intellectual property, future interests in any estates or life insurance policies, legal claims against other persons or entities, vehicles and any other personal property not already listed.
  • Schedule C – Property Claimed as Exempt: This Schedule will list all of your property that is exempt (or, in other words, immune) from being liquidated by your Chapter 13 Trustees in order to pay back your creditors. It will also list the specific law that provides for each exemption.  A typical exemption is that for the equity in your car, or home (usually referred to as a “homestead exemption”).  Depending on your specific set of financial circumstances, I will determine if it is in your best interests to use the State or Federal exemption scheme in order to maximize the protection of your assets under the law.  (Check back to the LadyBankruptcy Blog site in the future for an extended explanation of the exemption system!)
  • Schedule D – Creditors Holding Secured Claims: This Schedule will list any creditors you have holding a security interest in any of your property. Common examples of such interests are mortgages and car loans.
  • Schedule E – Creditors Holding Unsecured Priority Claims: This Schedule will list any of your creditors that are holding unsecured (for which they do not have a lien) priority claims. These types of claims arise when you have child support obligations, government student loans or tax debt.  These types of debts are considered “priority” and take precedence over your other debts.  They are usually not discharged in Bankruptcy and you will continue to pay them while your Chapter 13 case is pending.  Some exceptions apply, especially with regard to taxes. (Check back to the LadyBankruptcy Blog site in the future for an extended explanation of taxes in bankruptcy!)
  • Schedule F – Creditors Holding Unsecured Non-Priority Claims: This Schedule will list all of your unsecured debt, such as credit cards, personal loans and medical debt. Unless otherwise determined by the Bankruptcy Court, all of the debts listed on this Schedule will be discharged.  There will be an ancillary document related to this Schedule called the Verification of the Creditor Matrix.  This verification will include a list of your creditors in a matrix format for easy uploading to the Bankruptcy Court.
  • Schedule G – Executory Contracts and Unexpired Leases: This Schedule will list all unperformed contracts and leases that you may be subject to. The example I often give for an executory (or unperformed) contract is for snow plowing when it has not yet snowed and/or you have not yet paid the plowman.  A lease, for example, for an apartment or a car is an executory contract to the extent that it has not expired.
  • Schedule H – Codebtors: This Schedule will list any persons you have become liable with on a debt, other than a spouse in a joint petition. Examples often include parents who have co-signed a loan for a child.
  • Schedule I – Current Income of Individual Debtor(s): This Schedule will list all current income you are receiving at the time of the signing of the petition. If you are married, your spouse’s income must be included whether or not your spouse is filing Bankruptcy.
  • Schedule J – Current Expenditures of Individual Debtor: This Schedule will list all of your expenses that you will continue paying regardless of ever having filed for Bankruptcy, such as your mortgage, utilities, transportation and food expenses.

At the end of all of the Schedules there will be a “Declaration Concerning Debtor’s Schedules” which you will sign under oath stating that all of the foregoing information contained in the various schedules is true and accurate to the best of your ability.

Next there will be a document called “Statement of Financial Affairs.”  This statement will include information about such things as any pending lawsuits you are involved in, how much you paid for debt counseling and information related to any businesses you may own or have owned, among other pertinent information.

That statement will be followed by a Disclosure of Compensation of Attorney for Debtor.  On this document I will list the amount of money you have paid for my services.

The final document in your Chapter 13 Bankruptcy Petition will be your Form B21, otherwise known as your “Statement of Social Security Number.”  This statement is the only non-public part of your Bankruptcy Petition and will only be seen by you, me and the Bankruptcy Court.  It is not a public document and therefore, your entire Social Security Number will be protected against identity theft.  This is quite possibly the most important document you will read and sign at the time of filing.  In fact, I will require that you re-read this document several times, and even show me your Social Security Card to confirm the accuracy of your Social Security Number.  If your Social Security Number is wrong on this form, your debts will not be discharged…but someone else’s may be!  So always triple check…and then check again!

After you have read and signed all of the documents you will be given a copy of your entire Petition. After you go home, I will then electronically file your Petition.  During the e-filing process a Case Number, the Chapter 13 Trustee, and a date for your 341 Meeting will be randomly generated and assigned to your Chapter 13 Bankruptcy Case.  I will deliver this information to you by phone or email, and a Notice will be mailed to you by the Bankruptcy Court including this and other pertinent information about your Chapter 13 Bankruptcy Case.

In my next blog post, I will continue discussing what you will be reading and signing when you come in to see me with a full explanation of your Chapter 13 Bankruptcy Plan.

For more information on Chapter 13 Bankruptcy, contact us today at 203-713-8877.

Analysis of Financial Situation

During our initial Chapter 13 Bankruptcy consultation, I will go over a list of documents I need to analyze your financial circumstances.  Initially I will use these documents to prepare your Statement of Current Monthly Income and ultimately to prepare your Chapter 13 Bankruptcy Petition and Plan for repayment.

I will ask that you prepare and deliver copies of the documents requested, and that you retain your originals.  These documents, which will include items such as pay stubs, bank statements and household bills, will help me prepare your Statement of Current Monthly Income.  A Statement of Current Monthly Income is an assessment that I will perform for you as part of my package of services to determine the amount of your disposable income.  You disposable income is the money you will use to fund your Chapter 13 Plan.

There are three main categories of documents required to prepare your Chapter 13 Bankruptcy Case.

These categories are as follows:

INCOME: Your income information is the most important data that I will gather from you to perform your Statement of Current Monthly Income.  Your income will be the basis of your Chapter 13 Bankruptcy Plan.  Evidence of income includes such items as paystubs (also known as “pay advices”), unemployment benefit statements, social security payment reports, or if you are self-employed and own your own business, a profit and loss statement to provide evidence of your income sufficient to move your case along in the Bankruptcy process.

ASSESTS: Lists of assets and supporting documentation will help me determine what you own and what property is used as security for certain debts, if any, which may be repaid in a different manner from unsecured debt.  If you own a home, a vacation property or other real estate, I will ask that you provide me with a copy of your recorded deed, a HUD-1 settlement statement and proof of mortgages, if any.  If you own a timeshare, I will also request copies of maintenance fee invoices.  If you own a car, I will ask that you provide me with a copy of the current registration, proof of insurance including the declaration page of the policy and a premium statement showing how much you pay to continue the coverage.  If a car is leased, I will ask for a copy of the lease, or if a car is financed I will ask for a copy of the monthly payment coupon.  I also request that you provide us with a Kelly Blue Book value of any vehicle including boats, trailers and recreational vehicles such as motorcycles and quads.  Other documents requested regarding your assets will include appraisals of any antiques or collectibles you may own, copies of stock certificates and bond information.  I will also require that you furnish a list of the contents of your home with the date of purchase and the value for each item.

DEBTS (OR LIABILITIES): You will be required to give me copies of all your bills and I will request that you pull three credit reports (one from each major credit reporting bureau).  These bills and evidence of debts found on your credit report, will be used to list your creditors (people and entities you owe money to) on your Chapter 13 Bankruptcy Petition and Plan.  These will include secured debts (such as mortgages and car loans) and non-secured debts (such as credit card and medical bills), as well as household bills (those bills which you will continue to pay regardless of ever having filed for bankruptcy, such as your utility bills or daycare fees).  Debts that are repayable and/or dischargeable in Chapter 13 Bankruptcy may also include taxes.  (Stay tuned for future blog posts on what taxes are, in fact, dischargeable in Bankruptcy!)

Please keep in mind, that the foregoing blog is not a complete list of all documents necessary to analyze your financial circumstances and prepare your Chapter 13 Bankruptcy Petition and Plan.  This blog is only an overview of those documents.  Other documents may be required and requested by LadyBankruptcy or the Chapter 13 Bankruptcy Trustee during the Bankruptcy Process.

In our next blog I will deconstruct a Statement of Current Monthly Income and explain it step-by-step.

For more information, or to schedule your free consultation today, call us at 203-713-8877.

Chapter 12 – Bankruptcy Basics

Background

Chapter 12 is designed for “family farmers” or “family fishermen” with “regular annual income.” It enables financially distressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts. Under chapter 12, debtors propose a repayment plan to make installments to creditors over three to five years. Generally, the plan must provide for payments over three years unless the court approves a longer period “for cause.” But unless the plan proposes to pay 100% of domestic support claims (i.e., child support and alimony) if any exist, it must be for five years and must include all of the debtor’s disposable income. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. § 1222(b)-(c).

In tailoring bankruptcy law to meet the economic realities of family farming and the family fisherman, chapter 12 eliminates many of the barriers such debtors would face if seeking to reorganize 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 large corporate reorganizations. In addition, few family farmers or fishermen find chapter 13 to be advantageous because it is designed for wage earners who have smaller debts than those facing family farmers. In chapter 12, Congress sought to combine the features of the Bankruptcy Code which can provide a framework for successful family farmer and fisherman reorganizations.

The Bankruptcy Code provides that only a family farmer or family fisherman with “regular annual income” may file a petition for relief under chapter 12. 11 U.S.C. §§ 101(18), 101(19A), 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. But chapter 12 makes allowance for situations in which family farmers or fishermen have income that is seasonal in nature. Relief under chapter 12 is voluntary, and only the debtor may file a petition under the chapter.

Under the Bankruptcy Code, “family farmers” and “family fishermen” fall into two categories: (1) an individual or individual and spouse and (2) a corporation or partnership. Farmers or fishermen 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. The individual or husband and wife must be engaged in a farming operation or a commercial fishing operation.
  2. The total debts (secured and unsecured) of the operation must not exceed $4,153,150 (if a farming operation) or $1,924,550 (if a commercial fishing operation).
  3. If a family farmer, at least 50%, and if family fisherman at least 80%, of the total debts that are fixed in amount (exclusive of debt for the debtor’s home) must be related to the farming or commercial fishing operation.
  4. More than 50% of the gross income of the individual or the husband and wife for the preceding tax year (or, for family farmers only, for each of the 2nd and 3rd prior tax years) must have come from the farming or commercial fishing operation.

In order for a corporation or partnership to fall within the second category of debtors eligible to file as family farmers or family fishermen, the corporation or partnership must meet each of the following criteria as of the date of the filing of the petition:

  1. More than one-half 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 or commercial fishing operation.
  3. More than 80% of the value of the corporate or partnership assets must be related to the farming or fishing operation.
  4. The total indebtedness of the corporation or partnership must not exceed $4,153,150 (if a farming operation) or $1,924,550 (if a commercial fishing operation).
  5. At least 50% for a farming operation or 80% for a fishing operation of the corporation’s or partnership’s total debts which are fixed in amount (exclusive of debt for one home occupied by a shareholder) must be related to the farming or fishing operation.
  6. If the corporation issues stock, the stock cannot be publicly traded.

A debtor cannot file under chapter 12 (or any other chapter) if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e). In addition, no individual may be a debtor under chapter 12 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) (1) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

How Chapter 12 Works

A chapter 12 case begins by filing a petition with the bankruptcy court serving the area where the individual lives or where the corporation or partnership debtor has its principal place of business or principal assets. Unless the court orders otherwise, the debtor also shall file with the court (1) schedules of assets and liabilities, (2) a schedule of current income and expenditures, (3) a schedule of executory contracts and unexpired leases, and (4) a statement of financial affairs. Fed. R. Bankr. P. 1007(b). A husband and wife may file a joint petition or individual petitions. 11 U.S.C. § 302(a). (The Official Forms may be purchased at legal stationery stores or downloaded from the Internet at www.uscourts.gov/bkforms/index.html. They are not available from the court.)

The courts must charge a $200 case filing fee and a $75 miscellaneous administrative fee. Normally the fees should be paid to the clerk of the court upon filing. With the court’s permission, however, they may be paid in installments. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8. The number of such 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(b). 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 the filing of the petition. Id. The debtor may also pay the $75 administrative fee in installments. If a joint petition is filed, only one filing fee and one administrative fee are charged. Debtors should be aware that failure to pay these fees may result in dismissal of the case. 11 U.S.C. § 1208(c)(2).

In order to complete the Official Bankruptcy Forms which make up the petition, statement of financial affairs, and schedules, the debtor will need to compile the following information:

  1. A list of all creditors and the amounts 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 farming and living expenses, i.e., food, shelter, utilities, taxes, transportation, medicine, feed, fertilizer, etc.

Married individuals must gather this information for each 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 are required so that the court, the trustee, and the creditors can evaluate the household’s financial position.

When a chapter 12 petition is filed, an impartial trustee is appointed to administer the case. 11 U.S.C. § 1202. In some districts, the U.S. trustee appoints a standing trustee to serve in all chapter 12 cases. 28 U.S.C. § 586(b). As in chapter 13, the trustee both evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors. 11 U.S.C. § 1202.

Filing the petition under chapter 12 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. 11 U.S.C. § 362. Filing the petition does not, however, stay certain types of actions listed under 11 U.S.C. § 362(b). The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally cannot initiate or continue any 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 12 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a “consumer debt” from any individual who is liable with the debtor. 11 U.S.C. § 1201(a). Consumer debts are those incurred by an individual primarily for a personal, family, or household purpose. 11 U.S.C. § 101(8).

Between 21 to 35 days after the petition is filed, the chapter 12 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 debtor files. During the 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 the proposed terms of the debtor’s repayment plan. 11 U.S.C. § 343; Fed. R. Bankr. P. 4002. If a husband and wife have filed a joint petition, they both must attend the creditors’ meeting. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending. 11 U.S.C. § 341(c). The parties typically resolve problems with the plan either during or shortly after the creditors’ meeting. Generally, the debtor can avoid problems by making sure that the petition and plan are complete and accurate, and by consulting with the trustee prior to the meeting.

In a chapter 12 case, to participate in distributions from the bankruptcy estate, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 3002(c). A governmental unit, however, has 180 days from the date the case is filed file a proof of claim. 11 U.S.C. § 502(b)(9).

After the meeting of creditors, the debtor, the chapter 12 trustee, and interested creditors will attend a hearing on confirmation of the debtor’s chapter 12 repayment plan.

The Chapter 12 Plan and Confirmation Hearing

Unless the court grants an extension, the debtor must file a plan of repayment with the petition or within 90 days after filing the petition. 11 U.S.C. § 1221. The plan, which must be submitted to the court for approval, provides for payments of fixed amounts to the trustee on a regular basis. The trustee then distributes the funds to creditors according to the terms of the plan, which typically offers creditors less than full payment on their claims.

There are three types of claims: priority, secured, and unsecured. Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of bankruptcy proceeding. (2) Secured claims are those for which the creditor has the right to liquidate certain property if the debtor does not pay the underlying debt. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.

A chapter 12 plan usually lasts three to five years. It must provide for full payment of all priority claims, unless a priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless the debtor contributes all “disposable income” – discussed below – to a five-year plan. 11 U.S.C. § 1222(a)(2), (4).

Secured creditors must be paid at least as much as the value of the collateral pledged for the debt. One of the features of Chapter 12 is that payments to secured creditors can sometimes continue longer than the three-to-five-year period of the plan. For example, if the debtor’s underlying debt obligation was scheduled to be paid over more than five years (i.e., an equipment loan or a mortgage), the debtor may be able to pay the loan off over the original loan repayment schedule as long as any arrearage is made up during the plan.

The plan does not have to pay unsecured claims in full, as long as it commits all of the debtor’s projected “disposable income” (or property of equivalent value) to plan payments over a 3 to 5 year period ,and as long as the unsecured creditors are to receive at least as much as they would receive if the debtor’s nonexempt assets were liquidated under chapter 7. 11 U.S.C. § 1225. “Disposable income” is defined as income not reasonably necessary for the maintenance or support of the debtor or dependents or for making payments needed to continue, preserve, and operate the debtor’s business. 11 U.S.C. § 1225(b)(2).

Within 45 days after filing the plan, the presiding bankruptcy judge decides at a “confirmation hearing” whether the plan is feasible and meets the standards for confirmation under the Bankruptcy Code. 11 U.S.C. §§ 1224, 1225. Creditors, who receive 21 days’ notice, may appear at the hearing and object to confirmation. Fed. R. Bankr. P. 2002(a)(8). While a variety of objections may be made, the typical arguments are that payments offered under the plan are less than creditors would receive if the debtor’s assets were liquidated, or that the plan does not commit all of the debtor’s disposable income for the three-to-five-year period of the plan.

If the court confirms the plan, the chapter 12 trustee will distribute funds received in accordance with the terms of the plan.11 U.S.C. § 1226(a). If the court does not confirm the plan, the debtor may file a modified plan. 11 U.S.C. § 1223. The debtor may also convert the case to a liquidation under chapter 7. (3) 11 U.S.C. § 1208(a). If the debtor fails to confirm a plan and the case is dismissed, the court may authorize the trustee to keep some of the funds for costs, but the trustee must return all remaining funds to the debtor (other than funds already disbursed to creditors). 11 U.S.C. § 1226(a).

On occasion, changed circumstances will affect the debtor’s ability to make plan payments. A creditor may object or threaten to object to a plan, or the debtor may inadvertently have failed to list all creditors. In such instances, the plan may be modified either before or after confirmation. 11 U.S.C. §§ 1223, 1229. Modification after confirmation is not limited to an initiative by the debtor, but may also be made at the request of the trustee or an unsecured creditor. 11 U.S.C. § 1229(a).

Making the Plan Work

The provisions of a confirmed plan bind the debtor and each creditor. 11 U.S.C. § 1227. Once the court confirms the plan, the debtor must make the plan succeed. The debtor must make regular payments to the trustee, which will require adjustment to living on a fixed budget for a prolonged period. Furthermore, while confirmation of the plan entitles the debtor to retain property as long as payments are made, the debtor may not incur any significant new debt without consulting the trustee, because additional debt may compromise the debtor’s ability to complete the plan.11 U.S.C. §§ 1222(a)(1), 1227. In any event, failure to make the plan payments may result in dismissal of the case. 11 U.S.C. § 1208(c). In addition, the court may dismiss the case or convert the case to a liquidation case under chapter 7 of the Bankruptcy Code upon a showing that the debtor has committed fraud in connection with the case. 11 U.S.C. § 1208(d).

The Chapter 12 Discharge

The debtor will receive a discharge after completing all payments under the chapter 12 plan as long as the debtor certifies (if applicable) that all domestic support obligations that came due before making such certification have been paid. The discharge has the effect of releasing the debtor from all debts provided for by the plan allowed under section 503 or disallowed under section 502, with limited exceptions. Those creditors who were provided for in full or in part under the plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.

Certain categories of debts are not discharged in chapter 12 proceedings. 11 U.S.C. § 1228(a). Those categories include debts for alimony and child support; money obtained through filing false financial statements; debts for willful and malicious injury to person or property; debts for death or personal injury caused by the debtor’s operation of a motor vehicle while the debtor was intoxicated; and debts from fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny. The bankruptcy law regarding the scope of a chapter 12 discharge is complex, however, and debtors should consult competent legal counsel in this regard prior to filing. Those debts that will not be discharged should be paid in full under a plan. With respect to secured obligations, those debts may be paid beyond the end of the plan payment period and, accordingly, are not discharged.

Chapter 12 Hardship Discharge

The court may grant a “hardship discharge” to a chapter 12 debtor even though the debtor has failed to complete plan payments. 11 U.S.C. § 1228(b). Generally, a hardship discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor. Creditors must have received at least as much as they would have received in a chapter 7 liquidation case, and the debtor must be unable to modify the plan. For example, 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 does not apply to any debts that are nondischargeable in a chapter 7 case. 11 U.S.C. § 523.


Notes

  1. In North Carolina and Alabama, bankruptcy administrators perform similar functions that U.S. trustees perform in the remaining forty-eight states. The bankruptcy administrator program is administered by the Administrative Office of the United States Courts, while the U.S. trustee program is administered by the Department of Justice. For purposes of this publication, references to U.S. trustees are also applicable to bankruptcy administrators.
  2. Section 507 sets forth 10 categories of unsecured claims which Congress has, for public policy reasons, given priority of distribution over other unsecured claims.
  3. A fee of $60 is charged for converting a case under chapter 12 to a case under chapter 7.

SOURCE: http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-12-bankruptcy-basics

Frequently Asked Connecticut Bankruptcy Law Questions

Attorney Theresa Rose DeGray

Q: What is bankruptcy?

A: Bankruptcy is a legal process for people who cannot afford to pay their bills, and offers them a fresh start. The right to file for bankruptcy is granted by federal law, and all Connecticut bankruptcy cases are handled in federal courts located in New Haven, Bridgeport and Hartford.

Q: How can Bankruptcy help me?

A: Bankruptcy can eliminate unsecured debt, end collection harassment, stop foreclosures, prevent repossessions, stop wage garnishments and bank executions, and/or restore utility service.

Q: How often can I file bankruptcy?
A: You can file for a Chapter 7 Bankruptcy every eight (8) years. Chapter 13 Bankruptcies can be filed every six (6) years.

Q: What is the difference between a consumer bankruptcy and a corporate bankruptcy?

A: A consumer bankruptcy is for individuals or married couples that have personal, and not business, debt. A corporate bankruptcy is for a corporation, or non-human entity.

Q: What is the difference between Chapter 7 and Chapter 13?

A: A Chapter 7 results in a total discharge of most unsecured debt. A Chapter 13 is a repayment plan. Please see our Laws Page for an extended discussion on this topic.

Q: What does it cost to file for Bankruptcy?
A: We charge a fee for our services which will be quoted at our initial consultation. In addition to our fee for services, the bankruptcy court also charges filing fees.

Q: How can I pay for my Bankruptcy?

A: We offer affordable payment plans and accept all forms of payment, including cash, check, and debit cards from the person filing for bankruptcy. If a non-filer wishes to pay for our fees for their family member or friend, we will accept a credit card from that person. We honor MasterCard, Visa, Discover and American Express.

Q: What property can I keep?

A: You may keep all “exempt” property like your home, car, wedding rings, home furnishings, etc. All property that is not exempt is subject to liquidation and the resulting monies used to pay back your creditors. Do Not Be Alarmed: we strive to maximize your exemptions and protect all of your property.

Q: Will bankruptcy wipe out all my debts?

A: Yes, both Chapter 7 and 13 are designed to give you a fresh start with a clean slate.

Q: What is a discharge?

A: A discharge is a court order that says you do not have to repay your debts, but there are some exceptions, such as child support.

Q: Will I have to go to court?
A: Yes, in a Chapter 7 case, you will have to attend a proceeding once which is like a “court hearing,” although, it is very informal and presided over by a trustee and not a judge. A Chapter 13 case may require more than one court appearance, usually two or three.

Q: Will bankruptcy affect my credit?

A: Yes, but there are easy ways to rebuild your credit in a relatively short period of time following your final discharge.

Q: Will I be able to keep any credit cards?

A: No, you will have to fully disclose all of your debts and accounts, which will be closed and discharged. Bankruptcy is an all or nothing process. Full disclosure of your assets and liabilities is required and subject to penalties of perjury.

Q: Can I keep and use my debit card?

A: Yes, a debit card is not a credit card.

Q: Can I get a credit card after bankruptcy?

A: Yes, and you will be counseled on how and when to apply, and which type of card works best to rehabilitate your credit.

Q: Are utility services affected?
A: Current services will not be affected if the account is current or near current. Requests for new services after a bankruptcy may result in the utility company requiring a deposit.

Q: Can I be discriminated against for filing bankruptcy?

A: Absolutely not. Filing bankruptcy is a right given and protected by Federal Law.

Q: I am married, can I file by myself?

A: Yes, you may file as a married individual.

Q: If I am married and I file individually, will my spouse’s credit be affected?
A: No, your spouse’s credit will not be affected if he or she does not file.

Q: Can filing bankruptcy stop bill collectors from calling?
A: Yes, they will be prohibited from harassing you.

Q: Can I discharge my student loans by filing bankruptcy?

A: Generally student loans are not dischargeable in bankruptcy. There are a few exceptions to this general rule.

This firm is a debt relief agency. We help people file for bankruptcy relief amongst other things, under the Bankruptcy Code.

This firm is a debt relief agency. We help people file for bankruptcy relief amongst other things, under the Bankruptcy Code.