Filing Documents and Discharge of Debt in Bankruptcy

Studio shot of pencil erasing the word bankruptcy from piece of paper
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Bankruptcy applications, like Bankruptcy Pro and Best Case, are not essential to an efficient practice. If the attorney has access to a typewriter, she can still type each page by hand. But who would want to? These programs have interactive screens that can take one piece of information and populate many forms. They contain up to date figures for exemption limitations, median incomes, and expenses for the means test.

They also contain local forms, like special Chapter 13 plans. They convert the completed forms into PDFs and even allow direct filing with the court from the application. Most will also contain a word processing program for creating forms like motions, orders, letters, worksheets, and checklists.

Filing the Papers

No most last minute runs to the courthouse to get in under the wire the day before a foreclosure. Now, all attorneys are required to file electronically through the bankruptcy court’s electronic case filing (ECF) system. Usually integrated into PACER (the court’s information website that allows access to case dockets and public documents), ECF is a fast, efficient upload of every document required to be filed in a case.

Court Time

In a typical Chapter 7 straight bankruptcy case, the debtor will probably never set foot in a courtroom to testify before the bankruptcy judge. That doesn’t mean that the debtor never has to give testimony.

First and foremost, debtors sign the bankruptcy schedules under penalty of perjury, as are most documents that the debtor will file in court. Second, the court assigns a trustee to each Chapter 7 and Chapter 13 case (Chapter 11 cases are handled differently). The trustee has many jobs, but one is to see that the information provided the court is accurate and complete.

The trustee will preside over a meeting of creditors in the case. For most debtors, ironically, there are no creditors at the meeting. But it does give the trustee an opportunity to question the debtor about any discrepancies in her schedules or to ask for clarification or additional documentation, if helpful. That testimony is given under oath and becomes a part of the record of the case, and can be used later to support or to rebut later testimony. The meeting of creditors, however, by law is never conducted by or before a bankruptcy judge.

The debtor’s attorney will accompany the debtor and sit with the debtor during the meeting of creditors, and in fact should be with the debtor for any contact he or she might have with the trustee. Although most of the questions at the meeting will be routine, the attorney should prepare the client ahead of time on what to expect and should be ready to question the debtor to clarify or provide additional information to ensure complete and accurate records.

The 60-Day Waiting Period

After the meeting of creditors, the law prescribes that the debtor must wait 60 days before the court will issue the discharge. This is not, however, just a waiting period.

The trustee and creditors are using this time to review the debtor’s papers, investigate and decide if further action is necessary.

The trustee will be considering whether the exemptions that the debtor claimed are appropriate in type and value. If he has an issue, he can request additional information from the debtor. He can file an objection to exemptions if he has an issue that isn’t immediately resolved. He only has 30 days after the conclusion of the meeting of creditors to file the objection.

If there is non-exempt property that the trustee can liquidate for the benefit of the creditors, he will start the process of marshaling the assets. This process is independent of and can go on long after the court issues the discharge.

A debtor could lose her right to a discharge if she commits a fraud on the court, abuses the bankruptcy process by filing a Chapter 7 when she can afford to make payments in a Chapter 13, refuses to cooperate with the trustee, fails to attend the meeting of creditors or for other reasons.

The trustee will use this time to determine whether grounds exist to support a motion to deny the debtor’s discharge.

During the 60-day waiting period, the creditors can also be busy. Most unsecured debt is dischargeable without question, thanks to the clarity and thoroughness of the bankruptcy code. Likewise, some debts are automatically not dischargeable, like recent taxes. Some debts fall in the middle. Usually, they are discharged unless the creditor or the debtor brings it before the court. For instance, student loans are usually not discharged, but the debtor can bring it before the court and ask that the student loans be declared discharged. A creditor can file an action in the bankruptcy court to have the debt declared not discharged. These might include recent luxury purchases or cash advances or debts that the creditor believes were obtained by fraud.

Unless extended, the deadline to file an action to determine dischargeability of a certain debt is 60 days after the conclusion of the meeting of creditors, hence the deadline.

While the creditors and the trustee are busy assessing the case, the debtor’s attorney gets a breather, right? Not exactly. If the debtor has secured property, she is required to file a form with her schedules called a Statement of Intention. That statement tells the court and creditors what she intends to do with the property: surrender, reaffirm, or redeem. The Statement of Intention must be filed no later than 30 days after the case is filed or by the date of the meeting of creditors, whichever is earlier. The bankruptcy code requires that action be taken on the Notice of Intention within 45 days of the meeting of creditors. Usually, the creditor will initiate any action to surrender or redeem the property (pay its value in full satisfaction of the debt). Creditors usually take the lead on reaffirmations, providing the form to the debtor’s attorney, who will review it and counsel the client on whether it is in the client’s best interest to reaffirm or continue paying that secured debt. Attorneys are required to certify on the reaffirmation form that the reaffirmation poses no “undue hardship” on the debtor. If the attorney believes otherwise or for whatever reason cannot certify, the client can still sign the form, but the court will schedule the reaffirmation for a hearing so that the court can determine for itself whether the reaffirmation is appropriate. See The Discharge below.

If the trustee will be gathering and administering assets, the trustee will ask the court to send a notice to creditors to file claims. Normally, the trustee will review and object to improper claims, but It may also behoove the debtor’s attorney to do the same. It is possible, although admittedly rare, for enough claims to be knocked out that the remaining assets—those not necessary to satisfy claims—could be returned to the debtor.

The Discharge

In days past, courts would require that the debtors attend a court hearing sometime shortly after the 60-day waiting period had run in order to qualify for the discharge. At that hearing, the judge would usually give the assembled debtors a pep talk about their “fresh start”. That has gone the way of over-the-counter document filing. Now, the only debtors required to appear in court at the time of discharge are certain debtors who are reaffirming debts. Those are pro se debtors (not represented by attorneys) or debtors whose attorneys have refused to certify that the reaffirmation poses no “undue hardship” on the debtor. Although it is not strictly necessary for the attorney to attend the hearing on the reaffirmation, some will. Unfortunately, this can put the attorney into an awkward position of conflict with their on debtor, especially if the judge asks the attorney to explain why she refused or could not certify as to “undue hardship.”