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A Fresh Start: Understanding Chapter 7 Bankruptcy

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  • 1. A FRESH STARTUnderstanding Chapter 7 Bankruptcy 2nd Edition PETER J. LAMONT, ESQ.
  • 2. LEGAL DISCLAIMERThis book is intended to provide information about debt and bankruptcy. The information hereinshould be used only as a general guide and not as legal advice. Any information provided in thisdocument is not intended to create, nor does it create a lawyer-client relationship. While every efforthas been made to make this guide as complete and correct as possible, the author does not warrant itsaccuracy.The author and the publisher shall have neither liability nor responsibility to any person or entity withrespect to any loss or damage caused or alleged to be caused directly or indirectly by the informationcovered in this guideThe author is licensed to practice law only in New Jersey, the United States District Court of NewJersey the Bankruptcy Courts of New Jersey and in the Third Circuit Court of Appeals. You arestrongly encouraged to consult an attorney for individual advice regarding your own situation.The author is a bankruptcy lawyer who serves as a Debt Relief Agency and help people file forbankruptcy.
  • 3. ABOUT THE AUTHOR Peter J. Lamont is a nationally recognized business and commercial litigation attorney admitted to practice in the New Jersey State Courts, Federal District Court of New Jersey, Federal Bankruptcy Courts and the Third Circuit Court of Appeals. In addition to his business practice, Peter has developed a consumer bankruptcy and debt management practice group aimed at helping consumers regain control over their lives. Peter was born in Hawthorne, New Jersey. He graduated from William Paterson University with degrees in communications and business. He obtained his J.D. from Brooklyn Law School.
  • 4. TABLE OF CONTENTSA Fresh Start ........................................................................................................................................ 1You Are Not Alone .............................................................................................................................. 2Bankruptcy & Credit ........................................................................................................................... 3Myths & Facts .......................................................................................................................... 4New Jersey & Federal Exemptions ........................................................................................ 6Filing Steps .............................................................................................................................. 8Chapter 7 Basics ......................................................................................................................10Post Hearing Goals .................................................................................................................. 13Final Thoughts ........................................................................................................................................ 15 3
  • 5. A FRESH STARTYou have done all you can but you can’t put an end to the debt monster. You need help andyou know it. You have been living in fear for too long. You deserve a fresh start.Bankruptcy may be the only solution for you. Imagine for a moment living debt free.Imagine having an emergency fund so that you can afford those unexpected car repairs ordoctor visits. Imagine being able to save money for your retirement, or your children’scollege education. Imagine paying cash for purchases. Imagine freedom!Forget all of the negative things that you have heard about bankruptcy. If utilized correctlybankruptcy can provide you with the financial freedom that you have been longing for. Itmay be the fresh start that you and your family deserve. Our laws provide for thisopportunity, you need to take advantage of these protections. Page 1Law Offices of Peter J. LamontToll Free (855) 655-2901 4
  • 6. YOU ARE NOT ALONE According to reports prepared by the United States Federal Courts, approximately 1,571,183 people filed bankruptcy petitions in 2011, up signifigantly from prior years. The economic condition of the country, combined with skyrocketing costs for staples such as food and gas have made life difficult to say the least. You are not the only one using credit cards to supplement income. Credit card companies know this and benefit from it. They offer consumers a means to live “comfortably” and then hit them with outlandish interest charges and fees, making repayment impossible. There is no shame in filing for bankruptcy protection. It is often the responsible decision that can save your home and protect your family. Filing for bankruptcy does not mean that you are a bad or irresponsible person. To the contrary, it shows foresight and responsible thinking. Bankruptcy is an option provided by law to help consumers like you resolve, once and for all, your debt. In fact, many successful people sought bankruptcy protection and rose to become industry leaders. These people include, Abraham Lincoln, Henry Ford, Walt Disney, Larry King, and Donald Trump. Page 2Law Offices of Peter J. LamontToll Free (855) 655-2901 5
  • 7. BANKRUPTCY & CREDIT First, it is important to note that continued collection activity, judgments and liens may permanently ruin your credit. Often, bankruptcy can help restore your credit over time. In fact, many people are able to obtain new unsecured credit cards within 12 months from filing bankruptcy. In general, a bankruptcy will be reported on your credit report for up to 10 years. However, you will be able to build and obtain credit after bankruptcy. It may be at increased interest rates, but if you successfully change you spending habits and reliance upon credit, you will find that over time your credit may be better than it was before filing. Remember, bankruptcy is a fresh start. It is not advisable for you to go back to your old spending habits once you are out of bankruptcy. Just like someone who has dieted and lost 100 lbs, you need to change your old habits. We work with our clients to help them replace their old spending habits with new ones. Page 3Law Offices of Peter J. LamontToll Free (855) 655-2901 6
  • 8. . BANKRUPTCY MYTHS & FACTS 1. My friends and neighbors will read about me in the town paper. MYTH - While most court proceedings, including bankruptcies, are a matter of public record, they are not generally published in newspapers. In reality, the only people who will know about your bankruptcy are your creditors and the court. 2. I cannot afford it. MYTH - Bankruptcy is affordable. Our office works with you to set up payment plans and other alternative means of payment. We are with you every step of the way and promise to provide you with affordable, professional and personal service. 5. I will eventually have to repay my debt. MYTH - Typically, in a Chapter 7 proceeding, most, if not all, of your debts are discharged and forgiven, and thus, you are not obligated to repay them. . Page 4Law Offices of Peter J. LamontToll Free (855) 655-2901 7
  • 9. 6. I can’t file bankruptcy because my debt is from doctors and hospitals. MYTH - Medical debts are dischargeable in bankruptcy, just like credit card debt. 7. If I’ve been sued, or my wages are already being garnished, it’s too late to file. MYTH - This may be the perfect time for you to file. When a bankruptcy petition is filed, the court institutes an “Automatic Stay” of all collection activity and litigation. Debt relative to judgments, liens and lawsuits can effectively be wiped out by completing bankruptcy. 8. Filing for bankruptcy is irresponsible. MYTH – Debt is not something that you set out to create. Unfortunately, millions of people doggie paddle through debt every day. At some point, you will be unable to stay afloat without a life preserver. Bankruptcy is the life preserver and is the responsible course of action. When you acknowledge your financial situation and do something about it instead of sticking your head in the sand and hoping it gets better, you are being responsible and are worthy of a fresh start. 9. You lose everything you own in bankruptcy. MYTH – Well over 95% of bankruptcy cases filed by individuals are "no asset" cases in which the debtor keeps everything he owns. Thats because exemptions provide for assets that the debtor can keep and some assets, like pensions, are beyond the reach of bankruptcy trustees and creditors. Page 5Law Offices of Peter J. LamontToll Free (855) 655-2901 8
  • 10. CHAPTER 7 EXEMPTIONSIn a Chapter 7 Bankruptcy, you are allowed to keep certain assets. What you are not allowed tokeep is taken by the bankruptcy court and sold. The proceeds from the sale are applied to payyour creditors. This sounds harsher than it really is. In the typical Chapter 7 Bankruptcy, you areallowed to keep all or most of your assets.Assets that you are allowed to keep are exempt from your creditors. Such exemptions vary fromstate to state. New Jersey gives you a choice of accepting either the New Jersey bankruptcyexemptions or the federal bankruptcy exemptions. Most people are allowed to keep more assetsby using the federal bankruptcy exemptions. The New Jersey bankruptcy exemptions and thefederal bankruptcy exemptions are summarized below:New Jersey Bankruptcy Exemptions: • Personal property up to $1,000, including: clothing, goods, and stock or interest in corporations • Household goods and furniture up to $1,000 • Burial plots • 90% of earned but unpaid wages if income is less than 250% of the federal poverty level. If income is higher, then 75% • Wages and allowances of military personnel • Pensions: most pensions are exempt • Disability, death, medical and hospital benefits of civil defense workers • Health and disability benefits • Life insurance proceeds, dividends, interest, loans, cash, or surrender value if not the insured • Annuity contract proceeds up to $500 per month • Group life or health insurance policy proceeds • Life insurance proceeds if the policy prohibits use of the proceeds to pay creditors • Military member disability or death benefits. Page 6Law Offices of Peter J. LamontToll Free (855) 655-2901 9
  • 11. Federal Bankruptcy Exemptions • Homestead Exemption: Up to $21,625 of the equity in your home • "Wild Card" Exemption: unused portion of homestead, up to $10,825, may be used for other property • Disability and unemployment benefits • Life insurance policy with loan value up to $11,525 • Alimony and child support • Most pensions and IRA accounts • Personal possessions, such as clothing, appliances, books, furniture, household goods, musical instruments, each item up to $525 with a total up to $11,525 • Jewelry up to a total of $1,450 • Motor vehicles up to $3,450 • Personal injury recovery up to $21,625 • Payments in compensation for loss of future earnings • Workers compensation benefits • Wrongful death recovery for the death of an individual upon whom you depended • Unemployment, social security, public assistance, veterans benefits, and crime victims compensation • Tools of the trade up to a total of $2,175If a married couple is filing a joint bankruptcy, the state and federal exemptions are doubled. Page 7Law Offices of Peter J. LamontToll Free (855) 655-2901 10
  • 12. FILING STEPS These are the typical steps to completing a Chapter 7 bankruptcy. 1. Schedule a consultation with our bankruptcy attorneys. Bankruptcy is more than just filling out the forms. Hiring a good bankruptcy attorney means having an advocate, someone to walk you through this difficult process. It also means having someone who will review your situation to make sure that problems do not arise in your case and take care of any problems that do arise. 2. Gather all of the documents and information we request so that we can prepare your petition. Don’t leave anything out. One of the most important rules is to disclose everything. A good rule of thumb is that if you are hesitant about telling us something, it is probably something we need to know in order to help you. 3. Complete credit counseling. This is nothing more than a class you complete online or on the phone. It will take you less than an hour. It’s straight-forward and painless. Many clients even find it useful. Page 8Law Offices of Peter J. LamontToll Free (855) 655-2901 11
  • 13. 4. Preparing and signing your petition. We take the information and documents you provided us to prepare your petition. Then we meet with you to go over it line by line. It is critical that all the information contained in the petition is accurate. 5. File your petition. We file your case electronically. The moment your case is filed, you are under the protection of the bankruptcy court. This means the end of harassing calls, letters, emails, text messages, etc. 6. Attend your 341 hearing. Every person who files for bankruptcy must attend the Meeting of Creditors (or “341 hearing”). The most important thing to remember for the meeting is to bring a government-issued ID and your social security card. This meeting is conducted by the trustee, who is responsible for reviewing your bankruptcy petition. The trustee is not a judge. The trustee’s job is to screen the case and to question you about your assets, debts and fraud. Your meeting will not be in a courtroom. Despite the name of the hearing, creditors rarely show up. We will attend the meeting with you and will be able to address any issues that may arise. Typically, these meetings last less than 30 minutes. Wait 60 days. After the 341 hearing, unless there are additional document requests, there is nothing to do but wait. During this time, any creditor or the trustee may object. (This is rare; particularly because part of our job is to help you have a smooth ride.) 7. Complete post-bankruptcy course. This is similar to the first counseling class. You MUST complete this class in order to receive a discharge. 8. Receive Discharge. After the 60 days run, the Judge will sign your Order of Discharge. This happens automatically and we do not need to appear. 9. Start enjoying your fresh start. You are now debt free. We will be here to help you develop better spending habits. Page 9Law Offices of Peter J. LamontToll Free (855) 655-2901 12
  • 14. CHAPTER 7 BASICS Chapter 7 is the most commonly filed bankruptcy for consumers. It takes about 3- 4 months to complete from the date of filing through the date of discharge. TRUSTEE REVIEW When we file your Chapter 7 bankruptcy case, the trustee reviews your behavior prior to filing your bankruptcy. The most common issues are luxury purchases, transferring or selling assets, and insider repayments (paying money back to family members, friends or business associates) prior to filing. They also look forward for things such as whether or not you expect to receive an inheritance or expect to start or stop working. For these reasons, timing is crucial in filing your case. We need to carefully review your finances to make sure there are no red flags, or if there are, to deal with them appropriately. “MEANS TEST” Every person who files for Chapter 7 must pass the so-called “means test.” First, we look to see if your income is below or above the State median. If it’s below, you automatically pass the test. If your income is above the State median, you must pass the means test. Most of our clients are above the State median. Page 10Law Offices of Peter J. LamontToll Free (855) 655-2901 13
  • 15. Let’s assume you are above the median. We go through all of the steps of the means test. We start with your gross income and deduct every expense that we can. The most common expenses are: • Mortgage • Taxes • Vehicle—loan payments and operational expenses • Public transportation • Medical expenses • Term life insurance payments • Cost of living expenses—food, clothing, utilities, etc. • Child support • Child care expenses • Some of these items are deducted as actual expenses, but others are the IRS standard. For example, your actual income taxes are used, but you are given an IRS allowance for food. This is where an attorney who is familiar with bankruptcy law is crucial. The means test is the subject of much controversy and constant changes in what counts as income, and what can be deducted as an expense. The means test is crucial to qualifying for Chapter 7 bankruptcy. KEEPING YOUR PROPERTY The next issue is to value all of your belongings to see if we can protect them through Chapter 7 bankruptcy. The amount of property you can keep in bankruptcy is governed by the exemption laws of each state. When preparing your bankruptcy petition, we list all of your property and exempt it. What’s important to remember is that the value we list is the current fair market value, not what it cost to buy it when new. It is common for people who file Chapter 7 to keep all of their belongings because of the generous exemption scheme. Page 11Law Offices of Peter J. LamontToll Free (855) 655-2901 14
  • 16. FILING YOUR CASE When you give us all of the documents and information we need, we prepare your petition. In almost every case we contact you to seek clarifications or make adjustments to help ensure that the process goes smoothly. Once your petition is complete, we have you come in and sign your petition. You sit down with us, go through the petition page-by-page, and we discuss what it means and answer any questions. After the petition is initialed and signed, we file the case electronically. This triggers an automatic stay, and the random assignment of a judge and trustee to your case. AUTOMATIC STAY The automatic stay is one of the most powerful weapons in bankruptcy. Upon filing, all collection activities must stop. This means no one can garnish wages, sue, continue a lawsuit, call, write or otherwise harass you about debt. The automatic stay is like placing you inside a bubble that is under the protection of the Federal Bankruptcy Court. Violating the automatic stay can be very serious and costly to creditors. A few creditors are excluded from the stay, such as those collecting child support and alimony. 341 HEARING When your case is filed, a Chapter 7 trustee will be randomly assigned from a small pool of trustees. This assignment usually occurs within 48 hours of filing your case. Once the trustee is assigned to your case, it will trigger a hearing date approximately 30 days away; it can be a little more or a little less. Who is the Chapter 7 trustee? They are officers appointed by the United States Trustee, a division of the Department of Justice. Most are lawyers, and a few are other professionals such as accountants. Their job is to administer your estate. Essentially, the trustee is screening for fraud and looking at whether or not you can keep all of your property. The hearing with the trustee typically lasts less than thirty minutes, and often, less than ten. The trustee will ask to see your social security card and photo ID to verify your identity. Trustees have a typical list of questions they ask. As with all things in bankruptcy, all you have to do is answer truthfully. We will go over the typically asked questions with you prior to the hearing. Page 12Law Offices of Peter J. LamontToll Free (855) 655-2901 15
  • 17. POST HEARING GOALS After the 341 hearing concludes, we work towards two main goals, (1) keeping your property and (2) get rid of your debt. Property First, you want the trustee to return your property. The moment you file a Chapter 7 bankruptcy, a “bankruptcy estate” is created. All of your property is placed in the estate and essentially belongs to the Chapter 7 trustee until he or she determines there is nothing to take. This is why properly exempting your property is so important. Most Chapter 7 trustees will release your property within a few days of your 341 hearing if everything is exempt. Until that happens, it is important to not sell, give away or destroy any property because it is technically not yours until the trustee returns it to you. Page 13Law Offices of Peter J. LamontToll Free (855) 655-2901 16
  • 18. Discharge At the conclusion of your 341 hearing, a 60-day window is triggered. The bankruptcy code provides that the trustee and your creditors must be given a 60-day period of time to object. The most common objections are improper use of exemptions, deductions, and fraud. The most important strategy in bankruptcy is planning before we file your case, so that you have a smooth ride. When proper planning is exercised, objections are rare. At the conclusion of 60 days, the judge signs an order forgiving your debts that are dischargeable. This means that you can be debt free in less than four months. Page 14Law Offices of Peter J. LamontToll Free (855) 655-2901 17
  • 19. FINAL THOUGHTS Bankruptcy is not the Scarlet Letter. It is an opportunity for you to create a new financial life, one without harassing bill collectors and threatening letters. It is a chance for a fresh start and peace of mind. Getting out of debt can be a daunting and oftentimes impossible task, if you go it alone. Let us help guide you out of debt and down the path to financial freedom. We have helped thousands of people break the cycle of debt and fear and we can do the same for you. If you would like to schedule a free, no obligation, consultation please call us at (973) 949-3770 or Toll Free (855) NJLAW01 (855) 655-2901. Page 15Law Offices of Peter J. LamontToll Free (855) 655-2901 18
  • 20. APPENDIX 19
  • 21. Aadversary proceedingA lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A nonexclusive list of adversaryproceedings is set forth in Fed. R. Bankr. P. 7001.assumeAn agreement to continue performing duties under a contract or lease.automatic stayAn injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcypetition is filed.BbankruptcyA legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of title 11 ofthe United States Code (the Bankruptcy Code).bankruptcy administratorAn officer of the judiciary serving in the judicial districts of Alabama and North Carolina who, like the U.S. trustee, is responsible for supervisingthe administration of bankruptcy cases, estates, and trustees; monitoring plans and disclosure statements; monitoring creditors committees;monitoring fee applications; and performing other statutory duties. Compare U.S. trustee.Bankruptcy CodeThe informal name for title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal bankruptcy law.bankruptcy courtThe bankruptcy judges in regular active service in each district; a unit of the district court.bankruptcy estateAll legal or equitable interests of the debtor in property at the time of the bankruptcy filing. (The estate includes all property in which the debtorhas an interest, even if it is owned or held by another person.)bankruptcy judgeA judicial officer of the United States district court who is the court official with decision-making power over federal bankruptcy cases.bankruptcy petitionThe document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) by which opens the bankruptcy case. (There areofficial forms for bankruptcy petitions.)Return to TopCchapter 7The chapter of the Bankruptcy Code providing for "liquidation,"(i.e., the sale of a debtors nonexempt property and the distribution of theproceeds to creditors.) 20
  • 22. chapter 9The chapter of the Bankruptcy Code providing for reorganization of municipalities (which includes cities and towns, as well as villages, counties,taxing districts, municipal utilities, and school districts).chapter 11The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership. (A chapter 11 debtorusually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seekrelief in chapter 11.)chapter 12The chapter of the Bankruptcy Code providing for adjustment of debts of a "family farmer," or a "family fisherman" as those terms are defined inthe Bankruptcy Code.chapter 13The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keepproperty and pay debts over time, usually three to five years.)chapter 15The chapter of the Bankruptcy Code dealing with cases of cross-border insolvency.claimA creditors assertion of a right to payment from the debtor or the debtors property.confirmationBankruptcy judgess approval of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13.consumer debtorA debtor whose debts are primarily consumer debts.consumer debtsDebts incurred for personal, as opposed to business, needs.contested matterThose matters, other than objections to claims, that are disputed but are not within the definition of adversary proceeding contained in Rule 7001.contingent claimA claim that may be owed by the debtor under certain circumstances, e.g., where the debtor is a cosigner on another persons loan and that personfails to pay.creditorOne to whom the debtor owes money or who claims to be owed money by the debtor.credit counselingGenerally refers to two events in individual bankruptcy cases: (1) the "individual or group briefing" from a nonprofit budget and credit counselingagency that individual debtors must attend prior to filing under any chapter of the Bankruptcy Code; and (2) the "instructional course in personalfinancial management" in chapters 7 and 13 that an individual debtor must complete before a discharge is entered. There are exceptions to bothrequirements for certain categories of debtors, exigent circumstances, or if the U.S. trustee or bankruptcy administrator have determined that thereare insufficient approved credit counseling agencies available to provide the necessary counseling.creditors meetingsee 341 meeting 21
  • 23. current monthly incomeThe average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regularcontributions to household expenses from nondebtors and income from the debtors spouse if the petition is a joint petition, but not includingsocial security income and certain other payments made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A).Return to TopDdebtorA person who has filed a petition for relief under the Bankruptcy Code.debtor educationsee credit counselingdefendantAn individual (or business) against whom a lawsuit is filed.dischargeA release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. (A discharge releases a debtor frompersonal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against thedebtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephonecalls, letters, and personal contact.)dischargeable debtA debt for which the Bankruptcy Code allows the debtors personal liability to be eliminated.disclosure statementA written document prepared by the chapter 11 debtor or other plan proponent that is designed to provide "adequate information" to creditors toenable them to evaluate the chapter 11 plan of reorganization.Return to TopEequityThe value of a debtors interest in property that remains after liens and other creditors interests are considered. (Example: If a house valued at$100,000 is subject to a $80,000 mortgage, there is $20,000 of equity.)executory contract or leaseGenerally includes contracts or leases under which both parties to the agreement have duties remaining to be performed. (If a contract or lease isexecutory, a debtor may assume it or reject it.)exemptions, exempt propertyCertain property owned by an individual debtor that the Bankruptcy Code or applicable state law permits the debtor to keep from unsecuredcreditors. For example, in some states the debtor may be able to exempt all or a portion of the equity in the debtors primary residence (homesteadexemption), or some or all "tools of the trade" used by the debtor to make a living (i.e., auto tools for an auto mechanic or dental tools for adentist). The availability and amount of property the debtor may exempt depends on the state the debtor lives in.Return to Top 22
  • 24. FReturn to TopGReturn to TopHReturn to TopIinsider (of individual debtor)Any relative of the debtor or of a general partner of the debtor; partnership in which the debtor is a general partner; general partner of the debtor;or a corporation of which the debtor is a director, officer, or person in control.insider (of corporate debtor)A director, officer, or person in control of the debtor; a partnership in which the debtor is a general partner; a general partner of the debtor; or arelative of a general partner, director, officer, or person in control of the debtor.Return to TopJjoint administrationA court-approved mechanism under which two or more cases can be administered together. (Assuming no conflicts of interest, these separatebusinesses or individuals can pool their resources, hire the same professionals, etc.)joint petitionOne bankruptcy petition filed by a husband and wife together.Return to TopKReturn to TopLlienThe right to take and hold or sell the property of a debtor as security or payment for a debt or duty.liquidationA sale of a debtors property with the proceeds to be used for the benefit of creditors.liquidated claim 23
  • 25. A creditors claim for a fixed amount of money.Return to TopMmeans testSection 707(b)(2) of the Bankruptcy Code applies a "means test" to determine whether an individual debtors chapter 7 filing is presumed to be anabuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtors aggregatecurrent monthly income (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $10,950, or (ii) 25% of thedebtors nonpriority unsecured debt, as long as that amount is at least $6,575. The debtor may rebut a presumption of abuse only by a showing ofspecial circumstances that justify additional expenses or adjustments of current monthly income.motion to lift the automatic stayA request by a creditor to allow the creditor to take action against the debtor or the debtors property that would otherwise be prohibited by theautomatic stay.Return to TopNno-asset caseA chapter 7 case where there are no assets available to satisfy any portion of the creditors unsecured claims.nondischargeable debtA debt that cannot be eliminated in bankruptcy. Examples include a home mortgage, debts for alimony or child support, certain taxes, debts formost government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by drivingwhile intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtors conviction of acrime. Some debts, such as debts for money or property obtained by false pretenses and debts for fraud or defalcation while acting in a fiduciarycapacity may be declared nondischargeable only if a creditor timely files and prevails in a nondischargeability action.Return to TopOobjection to dischargeabilityA trustees or creditors objection to the debtor being released from personal liability for certain dischargeable debts. Common reasons includeallegations that the debt to be discharged was incurred by false pretenses or that debt arose because of the debtors fraud while acting as afiduciary.objection to exemptionsA trustees or creditors objection to the debtors attempt to claim certain property as exempt from liquidation by the trustee to creditors.Return to TopPparty in interestA party who has standing to be heard by the court in a matter to be decided in the bankruptcy case. The debtor, the U.S. trustee or bankruptcyadministrator, the case trustee and creditors are parties in interest for most matters. 24
  • 26. petition preparerA business not authorized to practice law that prepares bankruptcy petitions.planA debtors detailed description of how the debtor proposes to pay creditors claims over a fixed period of time.plaintiffA person or business that files a formal complaint with the court.postpetition transferA transfer of the debtors property made after the commencement of the case.prebankruptcy planningThe arrangement (or rearrangement) of a debtors property to allow the debtor to take maximum advantage of exemptions. (Prebankruptcyplanning typically includes converting nonexempt assets into exempt assets.)preference or preferential debt paymentA debt payment made to a creditor in the 90-day period before a debtor files bankruptcy (or within one year if the creditor was an insider) thatgives the creditor more than the creditor would receive in the debtors chapter 7 case.presumption of abusesee means testpriorityThe Bankruptcy Codes statutory ranking of unsecured claims that determines the order in which unsecured claims will be paid if there is notenough money to pay all unsecured claims in full. For example, under the Bankruptcy Codes priority scheme, money owed to the case trustee orfor prepetition alimony and/or child support must be paid in full before any general unsecured debt (i.e. trade debt or credit card debt) is paid.priority claimAn unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Priority refers to the order inwhich these unsecured claims are to be paid.proof of claimA written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money. (There is anofficial form for this purpose.)property of the estateAll legal or equitable interests of the debtor in property as of the commencement of the case.Return to TopQReturn to TopRreaffirmation agreementAn agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose ofkeeping collateral (i.e. the car) that would otherwise be subject to repossession. 25
  • 27. Return to TopSschedulesDetailed lists filed by the debtor along with (or shortly after filing) the petition showing the debtors assets, liabilities, and other financialinformation. (There are official forms a debtor must use.)secured creditorA creditor holding a claim against the debtor who has the right to take and hold or sell certain property of the debtor in satisfaction of some or allof the claim.secured debtDebt backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upondefault. Examples include home mortgages, auto loans and tax liens.small business caseA special type of chapter 11 case in which there is no creditors committee (or the creditors committee is deemed inactive by the court) and inwhich the debtor is subject to more oversight by the U.S. trustee than other chapter 11 debtors. The Bankruptcy Code contains certain provisionsdesigned to reduce the time a small business debtor is in bankruptcy.statement of financial affairsA series of questions the debtor must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc. (There isan official form a debtor must use.)statement of intentionA declaration made by a chapter 7 debtor concerning plans for dealing with consumer debts that are secured by property of the estate.substantive consolidationPutting the assets and liabilities of two or more related debtors into a single pool to pay creditors. (Courts are reluctant to allow substantiveconsolidation since the action must not only justify the benefit that one set of creditors receives, but also the harm that other creditors suffer as aresult.)341 meetingThe meeting of creditors required by section 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors, a trustee,examiner, or the U.S. trustee about his/her financial affairs. Also called creditors meeting.Return to TopTtransferAny mode or means by which a debtor disposes of or parts with his/her property.trusteeThe representative of the bankruptcy estate who exercises statutory powers, principally for the benefit of the unsecured creditors, under thegeneral supervision of the court and the direct supervision of the U.S. trustee or bankruptcy administrator. The trustee is a private individual orcorporation appointed in all chapter 7, chapter 12, and chapter 13 cases and some chapter 11 cases. The trustees responsibilities include reviewingthe debtors petition and schedules and bringing actions against creditors or the debtor to recover property of the bankruptcy estate. In chapter 7,the trustee liquidates property of the estate, and makes distributions to creditors. Trustees in chapter 12 and 13 have similar duties to a chapter 7trustee and the additional responsibilities of overseeing the debtors plan, receiving payments from debtors, and disbursing plan payments to 26
  • 28. creditors.Return to TopUU.S. trusteeAn officer of the Justice Department responsible for supervising the administration of bankruptcy cases, estates, and trustees; monitoring plansand disclosure statements; monitoring creditors committees; monitoring fee applications; and performing other statutory duties. Compare,bankruptcy administrator.undersecured claimA debt secured by property that is worth less than the full amount of the debt.unliquidated claimA claim for which a specific value has not been determined.unscheduled debtA debt that should have been listed by the debtor in the schedules filed with the court but was not. (Depending on the circumstances, anunscheduled debt may or may not be discharged.)unsecured claimA claim or debt for which a creditor holds no special assurance of payment, such as a mortgage or lien; a debt for which credit was extendedbased solely upon the creditors assessment of the debtors future ability to pay.Return to TopVVoluntary transferA transfer of a debtors property with the debtors consent.Return to TopWReturn to TopxReturn to TopYReturn to TopZReturn to Top 27
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  • 30. A Fresh Start: Understaning Chapter 7BankruptcyCopyright © 2013 by Peter J. Lamont, Esq.Law Offices of Peter J. Lamontwww.peterlamontesq.comPhone: (973) 949-3770Fax: (866) 603-0471Toll Free: (855) NJLAW01E-mail: plamont@peterlamontesq.comAcknowledgmentI want to thank my wife Dorothy, the greatest person in my life. She has enabled and encouraged mewith all that I do. She is the center of my world. My three boys, Brendan, Luke and Noah are myguiding light and propel me to new heights as an attorney, businessman and most importantly, as afather.All rights reserved. No part of this book may be reproduced in any form or by any electronic ormechanical means including storage and retrieval systems without permission in writing from Peter J.Lamont, Esq.The information contained in this book does not constitute legal advice and does not create an attorney-client relationship. Before making your choice of attorney, you should give this matter careful thought.The selection of an attorney is an important decision.Powered By Bookemon. www.bookemon.com