US bankruptcy laws summary for consumer debtors
Before delving into specific Code provisions, all debtors should be familiar with the basic operation of bankruptcy laws. In both Chapter 7 and 13, the legal mechanics are similar, and require notice, temporary protection, a means of case review, and a final decision regarding requested relief.
- Filing - All cases must be submitted to the Clerk's Office in conforming format, including the payment of a filing fee. Chapter 7 and 13 are Federal lawsuits which require strict compliance with all applicable bankruptcy laws.
- Automatic Stay - All debtors are automatically protected from collection efforts upon filing. The Automatic Stay acts as an injunction, prohibiting creditors from collecting debts, unless the Court grants permission to "lift the stay."
- Schedules, Documents & Disclosures - All cases require a Petition, Statement of Financial Affairs, plus various notices, schedules and disclosures. If any items are missing or incorrect, the case will probably be dismissed.
- Meeting of the Creditors - All debtors must attend a "341 Meeting" to allow the trustee and creditors to ask questions. Failure to attend usually results in dismissal.
- Hearings for Discharge or Confirmation - The trustee conducts a thorough review of the debtors case, and may (if all objections are satisfactorily resolved) recommend the Court grant relief. The Trustee may also oppose the debtor, creditors, or both, and make specific recommendations for alternate orders. Courts rely heavily upon the recommendations of Trustees as a representative of the interest of the United States.
Bankruptcy Laws & Problem Resolution
If problems arise before a final order of relief, debtors, creditors, the Trustee, the Court, or any party in interest may exercise several options allowed by current bankruptcy laws. In the most basic sense, these options are:
- Objections - Any party in interest or court upon it's own motion may object to the legal sufficiency of the debtors proposals. Usually, a written motion is filed with clerk. Written notice of hearing is required by applicable bankruptcy laws. During the hearing, thee judge usually allows oral arguments before rendering a decision.
- Adversary Proceedings - If objections require complex consideration, that is, require extraneous evidence from third-parties or physical evidence, Judges may require all issues to be submitted formally in an Adversary Proceeding. This proceeding is similar to a lawsuit within a lawsuit, that requires a full range of litigation processes to submit disputed issues of law and fact for consideration.
- Conversion - Debtors may request conversion of a Chapter 13 case to Chapter 7, and vice versa. This option is frequently used by debtors in Chapter 13 when payments fall in arrears.
- Dismissal - Any party in interest or court upon it's own motion requesting dismissal of the debtors case. Any material misrepresentation, omission, or non-compliance with applicable bankruptcy laws may result, at a minimum, in dismissal of the case. This request is resolved similarly to an Objection, requiring notice and hearing before the Court grants requested relief.
- Reopening - For a period of one year after the final order, any party in interest or court upon it's own motion may request reopening a case to set aside relief granted. Creditors sometimes file these motions if later discovering the debtor hid assets, fraudulently transferred assets or misrepresented material facts. The Court may set aside final orders, reinstate debts and/or sanction debtors. Occasionally, debtors request reopening their own case if discovering an omitted debt.