Is bankruptcy granted by federal or state law?
Bankruptcy is a form of relief created by the U.S. Government, and therefore is federal law. Accordingly, all bankruptcy cases must be filed in the proper bankruptcy courts.
Each state is divided into federal districts, which contain federal bankruptcy courts.
Special bankruptcy courts
Bankruptcy cases are filed in the bankruptcy court of the federal district where the debtor resides. A bankruptcy petition cannot be filed in a state court, which has no jurisdiction over federal matters such as bankruptcy.
To file for bankruptcy in a particular district, the debtor must have resided there for at least six months or had a place of business in that district for at least six months.
The bankruptcy petition is filed with the clerk's office of the appropriate bankruptcy court. A nonrefundable filing fee is required, and the amount varies depending on the type of bankruptcy relief sought.
Although the petition and accompanying documents are generally the same for each court, each bankruptcy court has its own set of rules regarding filing procedures and formats.
Can creditors make you pay despite a bankruptcy?
Although a bankruptcy generally requires the filing of a bankruptcy petition and schedules (along with the appropriate filing fees), you may have other hurdles to overcome. For example, your creditors may institute proceedings that can aggravate your bankruptcy case, and cause you to incur more attorney's fees. This may mean you will be forced to pay certain debts, despite the bankruptcy. Creditor Proceedings Creditors have a number of procedures available to them to protect their interests. They can file for relief from the automatic stay provision if they meet the proper requirements. This is true in situations where you are a defendant in a lawsuit that would not affect your bankruptcy case, such as a child custody hearing. Creditors may institute adversary proceedings or file motions contesting an issue in the bankruptcy, particularly if they believe a particular debt is not dischargeable. For example, nondischargeable debts would be those incurred by fraud, false pretenses, willful or malicious injury, a result of intoxication, or if grounds exist, for dismissal of the bankruptcy altogether.
Hearings versus trials
While a contested matter usually involves a motion and hearing, an adversary proceeding is somewhat of a condensed civil litigation case. A complaint is filed, and you must respond to the complaint or a default may be entered. There is a period of discovery, when both sides collect facts. The court then holds a trial, with witnesses and evidence presented. A jury trial is even permitted in some cases. Defending a contested matter or an adversary proceeding can be costly, particularly where the amount in dispute is relatively small, especially compared to the additional attorney's fees that you may incur. Furthermore, you may also be liable to pay the creditor's attorney's fees if the creditor prevails.
Consider all creditors
It is very important when contemplating the filing of a bankruptcy to carefully examine all debts and creditors. If there is a possibility that a creditor will oppose the bankruptcy, contest matters within the bankruptcy, or institute adversary proceedings, you must be prepared to deal with these creditors accordingly.
Transfers just before declaring bankruptcy can cause problems
Bankruptcy trustees and courts are very suspicious of transfers of property or payments to creditors that occur just before a bankruptcy is filed. The unwary debtor risks the possibility of having these transfers and payments undone, and of having the bankruptcy dismissed altogether.
What is a fraudulent conveyance? It generally is a transfer of an asset in an attempt to hide the asset or to defraud creditors. Many times these transfers are made to "insiders," such as a spouse, other family member, or close friend. Usually these transfers are for much less than the value of the item. Common items of value that are fraudulently conveyed are:
- Expensive jewelry
These are payments to creditors made within 90 days prior to filing the bankruptcy petition. Usually, these payments are to creditors whose debts are dischargeable. The payments may also be made to insiders.
At the meeting of creditors, the trustee may ask the debtor, under oath, whether he or she has conveyed any items of value to anyone over the last year. The trustee may also inquire as to preferential payments.
If the debtor is later found to have committed perjury, fines or even jail time may be imposed. Obviously, the debtor risks losing the particular item, or even having the bankruptcy case dismissed for not testifying truthfully.
The bankruptcy trustee has the power to undo or "avoid" a fraudulent conveyance or preferential payment, and to recover the property or money paid. The trustee is permitted to look as far back as one year from the date the bankruptcy petition is filed. And in the case of fraudulent conveyances, where the property is generally exempt, the exemption is lost if the conveyance is indeed determined to be fraudulent.
Discrimination Prohibited by the Equal Credit Opportunity Act
While creditors are permitted to obtain certain personal information relevant to credit applications, such information may not be used against an individual for discriminatory purposes.
In 1974, the United States Congress enacted the Equal Credit Opportunity Act (ECOA) to prohibit discrimination in credit transactions based on sex or marital status. As amended by Congress in 1976, the ECOA extends coverage to prohibit discrimination based on age, color, national origin, race, receipt of public assistance and religion.
Consumer Rights under the ECOA
Aside from discrimination protection, the ECOA also affords consumers additional rights, including the right to:
- Receive public aid, alimony or child support, and opt not to list such income on credit applications
- Be notified by the creditor in writing if a credit application is denied, including reason(s) for application denial
- Not be directed to obtain a cosigner when an individual's income is sufficient for loan approval
- Apply for a loan under a married or maiden name and not be asked about marital status (unless the individual resides in a community property state)
Regulation B and the ECOA
The Federal Reserve System's Board of Governors issued Regulation B to pronounce the ECOA provisions applicable to many types of credit transactions. Regulation B also gives consumers the right to present the creditor with information they believe more accurately reflects their creditworthiness. Under these circumstances, creditors generally must take such additional information into consideration.
Violation of the ECOA
If a creditor violates any of the provisions of the ECOA, he may be required to pay actual damages, as well as punitive damages up to $10,000.
How Bankruptcy Can Help in an Emergency
Sometimes filing bankruptcy is necessary to stop a foreclosure, eviction, wage garnishment, or repossession of property. This can be accomplished through an emergency filing.
Details Come Later
An emergency filing is essentially the filing of a bankruptcy petition without the supporting schedules and other required documents, such as the statement of financial condition. Usually, the debtor must also file a list of all creditors as well, so the bankruptcy clerk can send proper notices to the creditors.
When an emergency petition is filed, all remaining schedules and other required documents must be filed within 15 days (usually) or the case will be dismissed. If the remaining documents are not filed and the case is dismissed, the debtor cannot file again for approximately six months.
Stops or Stalls Others
If you file an emergency bankruptcy petition to stop a foreclosure, eviction, wage garnishment, or repossession, it's important to obtain a certified copy of the petition and serve it on the proper creditor immediately.
Under the automatic stay provisions of the bankruptcy code, the creditor must stop further action against you. However, the creditor may ask permission from the bankruptcy court to proceed if it can show that you are far behind on your payments and will be unable to bring the payments current.
A Functional Tool
Even if your goal is to merely stall the creditor, and you don't intend to follow through with the bankruptcy, there are some things to consider:
- The mere filing of the bankruptcy may show up on your credit report, which may affect future attempts to obtain credit
- The filing fee is the same as for a bankruptcy; you will not be entitled to a refund even if you decide not to follow through with the bankruptcy
- Once your case is dismissed for failing to file the remaining documents, you will not be entitled to seek bankruptcy relief for 6 months. Therefore, if you work out an arrangement with a creditor, but still cannot meet the financial obligation, you will not be able to use the bankruptcy laws to your advantage.
Work It Out
An emergency bankruptcy filing should be your last resort. It's best to make a good faith effort to resolve the issues with a creditor before resorting to relief under bankruptcy.
Free bankruptcy consultation: Call 407-896-3077 or fill out our contact form to discuss your case with a Florida bankruptcy attorney at no charge.