Monday, September 8, 2008

What to Expect Once Bankruptcy is Filed

In a Chapter 7 bankruptcy, a Trustee is appointed. The Trustee has a duty to investigate the financial dealings of the debtor. This includes looking for assets, examining transfers, and objecting to exemptions. The Trustee is attempting to collect whatever assets that he or she can find and distribute any funds to the creditors.

The Trustee looks for assets such as cars, bank accounts, transfers to others, including family to see if any money can be recovered for the benefit of creditors.

The Trustee's first examines the debtor's schedules to see what the debtor has disclosed. The trustee will be looking at the listed assets, the creditors that have been paid and the transfers that are disclosed. The trustee will then receive the debtor's bank statements for a period of at least three months before the filing and the debtor's tax return for the previous year.

A tax return is very revealing. It includes interest income and income from other sources. The Trustee will look closely at the returns for anything revealing potential assets.

Debtors should also be aware that the Trustee will be looking for tax refunds. If you always get a tax refund, you should be careful as to when you file bankruptcy.

About 30 days after filing bankruptcy the debtor will attend a meeting of creditors. Creditors generally do not attend these meetings. Rather, the trustee asks a few questions, such as:

why did you file bankruptcy;
did you list all your assets;
have you transferred any assets to anyone in the last 2-4 years;
does anyone owe you money;
have you refinanced your property within the last year;
if so, what did you do with the money.

and other similar questions. The meeting usually takes no more than 10 minutes.

After the meeting of creditors, there is a 60 day period for a creditor, or the trustee to object to the entry of your discharge. As long as you provide all requested documentation to the trustee, the trustee will not normally object to the discharge. Creditors generally object to the discharge unless the debtor took money or bought high priced items with credit cards right before bankruptcy.

Assuming no creditors or the trustee file any objections to the discharge being entered, the debtors discharge will be entered 60 days after the meeting of creditors. The discharge means that the debtor is no longer legally obligated to pay the debts.

Monday, September 1, 2008

Christians Facing Bankruptcy

I have heard many ministers tell their faithful that bankruptcy is a sin and should be avoided. Christians are assured by the bible that God will provide. Perhaps what ministers are saying to their members is that before you consider bankruptcy as an option, look closely at your lifestyle.

Do you own a home that is more than you need? Are you sending your children to the "best" schools? Are you driving a car you can not afford?

After you have taken a hard look at your budget, you may find in these difficult times that you still cannot make ends meet. Or, overwhelming medical bills make it impossible for you to pay debts. Let's face the reality that creditors do not care whether you are a Christian, they only want their money. And, they are relentless pursuers.

When someone not in debt tells someone who is in debt, "God will provide", I am reminded of the story where a man being consumed by a flood tells different rescuers that he was waiting for God to save him. After dying, he asks God why He didn't save him. God responds that He provided rescuers to save him.

Likewise, God through our founding fathers, provides bankruptcy protection for relief from the harassing creditors. There are two forms of bankruptcy that can be used. If you have some money, and want to dedicate payments to creditors, you can use a Chapter 13 and pay what you can afford to pay creditors and not pay what creditors are demanding that you pay them. If you cannot afford to pay anything, Chapter 7 can be used to get rid of your debts.

See What Chapter is Right for Me for further guidance.

God commanded His people to forgive debts every seven years. Likewise, Congress allows you to file bankruptcy every eight years. I am not suggesting that you use bankruptcy every eight years. Rather, I am pointing out that as God commanded in the Hebrew Scriptures, He also allows through the bankruptcy code.

Another point I like to make to my clients that are struggling with the dilemma of bankruptcy is that bankruptcy is the perfect opportunity to witness. A discharge in bankruptcy does not prevent you from later paying your debts. Thus, you can choose to repay a creditor and tell them, "You didn't believe me when I said I would pay my debts to you. Despite the fact that I have no legal obligation to pay you, I am voluntarily paying this debt back."