BANKRUPTCY

CAN YOU FILE BANKRUPTCY ON YOUR OWN?

Let us paint a scenario that is all too common today: an individual has been persevering, but can finally take it no longer as far as the mounting debt and the inability to save enough to even put a dent in outstanding obligations. So you stand in line to file a Chapter 7 bankruptcy. But can or should you do it yourself?

You certainly can, but be careful. First, from a strictly legal standpoint, an individual may represent himself or herself in bankruptcy and it is not a requirement to have an attorney. You would be appearing as a Pro Per for Pro Se litigant. Note how this is different if you are filing a business bankruptcy and have an LLC or Corporation. In those cases, that business is considered a separate person or entity. If John Jones, the President of ABC Corporation were to represent himself on behalf of the Corporation, you would actually be practicing law without a license. In other words, representing someone else. But in your individual name, it is legally permissible.

Proceedings under Chapter 7First, some basics. Proceedings under Chapter 7 (known as straight bankruptcy or liquidation) is where the debtor keeps certain exempt assets, liquidates the rest, and typically is able to discharge all its unsecured debts (an example of a secured debt would be a mortgage or judgment lien). California examples of exempt assets, that cannot be sold or distributed are: ordinary and reasonably necessary household items and personal effects; jewelry, heirlooms and works of art (up to $7,625); bank accounts holding Social Security payments (up to $3,050); 75% of wages; retirement accounts; unemployment, Worker’s Compensation and disability benefits; and tools of your trade and one commercial vehicle (up to $7,625).  Other states have similar exemptions.  By definition, these individuals usually have little if any bank accounts or assets and the creditors receive nothing. However, certain assets cannot be discharged, including taxes, secured debts, student loans, alimony and child support, debts for personal injury and debts or judgments based upon intentional misconduct.

The equity in a vehicle is also exemptThe equity in a vehicle is also exempt and depends upon state law. The exemptions can be from $2,000 to $5,000 (California is between $2,900 and $5,100, depending upon the nature of the exemption). So assume the car has a fair market value of $10,000 and the exemption in the state is worth $5,000. The trustee cannot force a sale to pay off the balance. But if the equity value is above the exemption, the trustee could require the sale.

How do you get the forms? In days gone by, you would go to a stationery store and fill them out manually in hard copy format. But because of the prevalence of pro se filings, you can get a hold of the bankruptcy forms online at: Courts at www.uscourts.gov/FormsAndFees/Forms/BankruptcyForms.aspx.

This will allow you either to print them out or even still, fill the forms out online.

Obviously, bankruptcy courts are federal in nature and therefore, you go to the District Court in your jurisdiction. To find out your specific jurisdiction, go to: to www.justice.gov/courtlinks.

bankruptcy attorneyActually, there is a better way of proceeding. Instead of having an attorney represent you through the entire proceeding which could easily cost, even for a simple chapter 7, $5,000 plus, use an experienced bankruptcy attorney as a coach. Agree to pay the attorney for a couple hours consultation before the filing. So he or she will show you the ropes. They will go over exemptions, the overall procedure, the right forms, schedules to fill out, let you know what to expect, which debts to include, which ones are dischargeable or nondischargeable, and other general advice.  At the meetings, bring along a set of the bankruptcy papers and the attorney will go over it with you briefly so you are checking the right boxes. Frankly, the filling out the forms themselves, as long as you have the requisite knowledge, is rather ministerial and be can be done by most people.

There will also be advice as to what debts you do not want to discharge. For example, if have been using a charge card for the last 10 years and it has always been current, you want to preserve it. It should not be included in the bankruptcy schedules. Especially if you are discharging all other charge cards and credit cards. You need to have at least  one for future charges. This will also help you rebuild credit because of those repeat timely payments.

credit counseling classIn most bankruptcy courts, you will be required to take and pass a credit counseling class, followed by financial management classes. You must file completed certificates in order to receive your final discharge. They certainly give good information, but is not it is nothing in comparison to the advice given by an experienced bankruptcy attorney. These classes only give general information.

Your bankruptcy attorney can also warn and counsel you about potential adversary motions. In other words, if you attempt to discharge a debt improperly, you’ will be stuck with an adversary proceeding which requires legal advice. For example, assume you have been sued for breach of contract, negligence and one of the causes of action in the complaint is for fraud or misrepresentation. Even though you deny it, the plaintiff in that action could bring a motion for non-dischargeability. But if you had discussions with your attorney before filing, you could develop a strategy.

So who is the perfect candidate for a pro se Chapter 7 filing? Typically people with lower income, high debt, little or no equity or assets, no creditors alleging fraud.

spreading out your mortgage paymentsBut also bear in mind the possibility of a Chapter 13. This is useful if you need help spreading out your mortgage payments, reducing a car loan, or paying back non-dischargeable priority debts. But remember, these proceedings are much more complicated. They require you to thoroughly design a repayment plan, which is not required in Chapter 7. And if you do not submit the correct paperwork, your Chapter 13 can be dismissed.

In conclusion, you certainly can file your own Chapter 7 bankruptcy, but it is highly recommended that you have advice before jumping into this proceeding.

 

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