Guide to Filing Bankruptcy in Southwest Florida
—From the Debtor’s Perspective—
What Can I Expect? What is the Process?
Which Chapter Should I Choose?
What is the Best Strategy?
Life After Bankruptcy
Christopher D. Smith
Attorney at Law
First and foremost, you should expect to be able to breathe from the constant harassment from creditors that may have occurred prior to your filing. Federal law prohibits creditors from contacting you in any way in an effort to collect previous debts, so long as you have scheduled those debts on your bankruptcy petition. This prohibition is called “The Automatic Stay," and is very powerful.
It usually takes about one week for the Court to mail notice of your case to all of your scheduled creditors, at the address you provided on your petition. Scheduling a proper address for your creditors is important to ensure that they receive the notice in a timely manner. Sophisticated creditors, such as credit card companies and mortgage lenders, know the rules and usually comply by ceasing all communication. However, some lenders, especially vendors and small personal lenders (such as friends, family, and neighbors) may need to be reminded of the rules by your attorney.
In a Chapter 7, if you have a car or house that you are keeping, then you may not receive monthly statements from these creditors, but you should still send in your normal payment. Your vehicle lender will eventually prepare a Reaffirmation Agreement which will be sent to your attorney for review before you sign it. In a Chapter 13, if you have a car or house that you are keeping and NOT paying through your plan, you should make arrangements to continue to pay those creditors even if you do not receive monthly statements.
About a month after the filing of the case, you can expect to attend a short meeting called the “341 Meeting of Creditors." This meeting is held so that creditors and the trustee (the person who will preside over the meeting) can ask questions about your financial situation. Creditors will rarely attend this meeting, but they have the right to attend and ask you questions.
We recommend that you remain polite and respectful at all times with the trustee and the US Trustee’s representative. Answer their questions truthfully, but do not add unnecessary or irrelevant banter to the discussion, or attempt to joke with them. Your trustee probably has a room full of cases and is pressed for time, and will want to proceed as efficiently as possible. They are not there to be your friend or confidant, but they are human, so if you are polite and respectful and answer truthfully without being vague, you will likely receive polite and respectful treatment in return. If you appear evasive, you will invite greater scrutiny and further questioning. Your trustee can take a more thorough deposition of you at a later date if there are unanswered questions or unresolved issues that remain from your meeting. Remember, it is a serious crime to lie to your trustee.
If you hire SmithLaw, we will provide you with a list of the questions that the Trustee will probably ask at the 341 meeting, so that you can prepare. The Chapter 7 hearings are slightly more antagonistic than the Chapter 13 hearings, on average, although most hearings are smooth and uneventful. You should review your petition in detail before attending the hearing, so that your assets, liabilities and income are fresh in your mind. Also, arrive early to your scheduled meeting and listen to the types of questions your trustee is asking other debtors. Chances are those questions will be fairly consistent with the questions you will be asked. Remember tobring your social security card and driver’s license! Your attorney will meet you at the hearing location.
The bankruptcy trustee is the person you will meet at your 341 Creditors’ Meeting. This person will question you about your finances. The job of the trustee is to represent the interests of your creditors and to administer a bankruptcy estate for their benefit, which consists of all of your non-exempt property owned on the date of filing of your case. Bankruptcy trustees are compensated based on the amount of property they recover from you, so they are incentivized to recover as much property from you as legally permissible. We find the trustees to be reasonable and rational, and nearly every trustee will work out repayment options with you if you have property that is not exempt.
Chapter 7 trustees are very powerful and can invoke the powers of the Court to take possession of your property, sell your property, and even recover property from persons who previously received your property. They can investigate your finances to determine if you have previously transferred property with fraudulent intent (to conceal it or to keep it out of the hands of the trustee), and can have professional appraisers examine your property if they believe you have undervalued it. There are approximately 20 trustees in the Tampa District and 3 in the Ft. Myers District. They are not government employees, but they work closely with the U.S. Department of Justice and are closely monitored by the federal government.
If your trustee should recover property or money from you, they will make a detailed accounting of that property, and ultimately will distribute that money to your creditors on a pro rata basis. Certain creditors, such as taxing authorities (IRS) and beneficiaries of child support or alimony orders get paid before your general unsecured creditors (credit cards, medical debts, deficiency judgment holders). You will not be closely involved in this process, but you will receive notice of the accounting and payments. The trustee may occasionally file interim accountings before making a final accounting.
The Chapter 13 trustee has many of the same responsibilities as the Chapter 7 trustee, but because of the different “flavor" of this type of case, this trustee has a different role. The Chapter 13 trustee is more concerned with your income than your assets (as long as you do not have a significant amount of non-exempt assets). This trustee is unlikely to send an appraiser to your house or investigate the value of your assets (although he still technically could), but he will be very interested in determining the precise amount of your income and what it will likely be in the future. He will also be very interested in how you spend your money and about your expenses.
The Chapter 13 trustee will collect a monthly payment from you in order to distribute to your creditors pro rata, and will determine what the appropriate amount of your plan payment should be to make a recommendation to the judge. The trustee will evaluate your income and deductions, examine your future income and future anticipated deductions, to determine your disposable income in accordance with government formulas and the law. Once he is comfortable with his calculation of your disposable income, the Chapter 13 trustee will recommend that your plan be confirmed by your judge at your “confirmation hearing." In reality, the judge will almost always defer to the recommendation of the Chapter 13 trustee on the issue of confirmation and plan payment, unless your attorney raises an objection. It is usually not productive to argue with the trustee (unless there is an obvious mistake of fact), and we find the trustees to be very knowledgeable and well-versed in bankruptcy law, plus they are generally well respected by the judges. In short, it is almost always better to negotiate informally with the Chapter 13 trustee before the confirmation to iron out any remaining issues than to try and fight them in front of the judge.
Your confirmation hearing is the formal hearing where the judge will approve or reject your plan. Your creditors could object to the plan, and if so, the judge will hear those objections and render a ruling. In reality, this is rare, since by the time of confirmation almost all of the issues regarding the plan have already been negotiated and confirmation then becomes a ministerial act. In fact, it is highly unlikely that you will have to attend your confirmation hearing, and most of the time your attorney will not even be present. In almost every Chapter 13 case, the initial confirmation hearing is rescheduled, so that the trustee can first see all the claims filed by creditors before determining a plan payment amount. This delay is welcomed by debtor’s counsel because it gives debtors more time to file motions to value property and motions to strip junior liens.
If you do not make all of your plan payments in a timely manner, your Chapter 13 trustee will have your case dismissed. If you miss one of your first few payments, your case can be dismissed very quickly. If you are further into your case and have a good payment history with the trustee, your counsel can usually work out an arrangement to get you caught up with payments if you missed one, as long as you stay in communication with your attorney and the trustee. This could result in additional attorney’s fees being owed, however, so it is better to stay current with your payment. Also, your plan payments will probably change as the case progresses. The initial plan payment proposed by your attorney is rarely the same payment that is determined by the trustee and judge at confirmation, so be prepared to adjust your payment amount. You may be able to pay by direct debit from your bank account by filling out one of the trustee’s authorization forms, which can be obtained from your trustee’s website. In some cases, you may be able to pay off your plan early, but this is not common.