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Chapter 7,Chapter 13, Garnishments & Other Collections
Garnishments & Other Collections
About Chapter 7
A Chapter 7 bankruptcy begins upon filing a bankruptcy petition. Once the petition is filed, the court will issue a case number and an automatic stay is invoked. The automatic stay prohibits creditors from collection activity. This affords the Debtor relief from phone calls, foreclosure, repossessions, garnishment or other collection activity. Approximately thirty days after filing the petition, a meeting is scheduled called the First Meeting of creditors. At this meeting, creditors may attend to ask questions about the case. The meeting is conducted by a Trustee who is appointed by the court. The purpose of the Trustee is to review the schedules and collect any unexempt property or preferences on behalf of the creditors.
As with all other collections, the immediate protection of the bankruptcy Automatic Stay will at least stop a garnishment, pending law suit, eviction, foreclosure, or any other type of collection activity. Whether a debtor files Chapter 7 bankruptcy or Chapter 13, he or she will get the immediate benefit of the Automatic Stay, at least until either the bankruptcy case is closed or the Court lifts the Stay for cause after a motion by an affected creditor through a motion for relief from stay.
This bankruptcy stay will stop the wage garnishment at least temporarily.
Provided that a wage withholding order or garnishment is not the result of non dischargeable tax debts, court ordered spousal or child support obligations, or any other debt that is not dischargeable in bankruptcy, the debtor may be able to recover wages garnished during the 90 day preference period that preceded a Chapter 7 bankruptcy filing. A well-versed bankruptcy attorney should ascertain from the client whether any involuntary payments to unsecured creditors (and wage garnishments are certainly "involuntary"), occurred during the 90 day preference period, and if so, the bankruptcy attorney should determine whether such garnished wages may be "set aside." A "set aside" of such payments is a court order compelling the unsecured creditor who received them to return such payments.
To the extent that the total of such garnished wages, if they came back into the Chapter 7 debtor's possession, would be exempt from the Chapter 7 Bankruptcy Estate, then the debtor would be able to recover and keep such wages garnished within 90 days prior to the Chapter 7 filing. If, on the other hand, such garnished wages would, if added to the aggregate of all the debtor's other assets, exceed the available Chapter 7 exemptions, then the debtor would have no right to "set aside" the involuntary payments or wage withholding.
Approximately sixty days after the first meeting, the court will issue a discharge. During the sixty day waiting period prior to discharge, the creditors can file objections to their claim being discharged. The most common reason for a creditor to file an objection is fraud. If no creditor files an objection which is called an adversary proceeding, all debts are discharged. The Trustee can also file an objection to discharge during the sixty day waiting period. The most common reason for a Trustee to file a complaint to deny discharge is hiding assets or failure to cooperate with the Trustee in providing documents and records. Even if a creditor files an objection to their debt being discharged, the court will still issue a discharge, which will apply to the remaining creditors. Once the discharge is issued creditors are permanently barred from any collection activity. Even after the discharge is entered the Trustee may hold the case open for collection of assets. This usually happens when the Debtor has some asset to collect such as an nonexempt tax refund or personal injury action that has not been resolved. The Trustee keeping the case open should have little effect on the Debtor. In general most Chapter 7 bankruptcy cases are completed in approximately ninety days.
In preparing a petition for a Chapter 13 bankruptcy, it is important to list all debts owed, even if the payments are current. If you do not list a debt, it will not be consolidated.
If you owe money for utilities (electricity, gas, water, garbage, etc.), you must also include these on the petition, and your services will not be terminated. You may, however, have to pay a deposit equal to 1 ½ times the highest monthly bill. You must also pay your future utility bills yourself. If your utility bills are current, it is not necessary to list them.
Foreclosure and Repossession:
Often times, clients seeking a Chapter 13 bankruptcy are at risk of losing their homes due to foreclosure. If your house is in foreclosure or at risk of foreclosure, it is important that you schedule an appointment with one of our attorneys as soon as possible. Your Chapter 13 bankruptcy petition must be filed before a sheriff's sale, or you will not be able to reinstate your mortgage.
When you sign your petition, one of I will prepare your repayment plan. Your assistance is required to determine the payments, which will be made over a period of 3 to 5 years, depending upon your income and expenses.
Payments to Bankruptcy Trustee:
After I file your petition, the Bankruptcy Court will assign your case to a Bankruptcy Trustee. As soon as you are notified of the Bankruptcy Trustee assigned to your case, you should start making payments to that Bankruptcy Trustee. The first payment must be made within 30 days of filing the case. Most cases are dismissed because of the Debtor's failure to start promptly making payments to the Trustee. Although most cases have wage assignments, these do not take affect immediately. Do not wait for the wage assignment to take effect to start making your payments. You should keep a record of all your payments.
After filing for Chapter 13 bankruptcy, you may not incur additional debt over $1,000.00 without court approval. If you seek to incur a debt to purchase a vehicle or repair a home, you should bring a copy of the proposed purchase agreement or repair quote to the attorney to present to the court. If you obtain new debts after you file such as utility bills etc., you may have to dismiss your case and re-file to include these debts in a new Chapter 13 repayment plan.
After your case is filed, the Court will send a notice of First Meeting of Creditors to you, your creditors, and to our office. Your creditors will stop calling you after they receive this notice. If they continue to call, explain to them that you filed bankruptcy and give them your case number and the date you filed.
Meeting of Creditors:
The First Meeting hearing lasts approximately 10 minutes, and you should appear well before the hearing called the confirmation hearing because you must complete paperwork at the court. The second hearing usually occurs approximately a month after your first meeting and generally lasts much longer.
After your case is filed, you may receive objections from your creditors or the trustee. I will also receive copies of these objections. My office will address these objections. I will contact you to obtain information necessary to resolve the objection or request that you make an appointment with our office to review our response to the objections.
Forwarding of Federal Tax Refunds to Trustee:
Most cases require that you send 100% percent of your Federal Tax refunds to the Trustee. It is your obligation to forward the refund to the Trustee if it is not intercepted by the Trustee. Failure to forward the refund to the Trustee will result in your failure to complete the case and obtain a discharge.
Filing of Tax Returns:
In a Chapter 13, you must file your tax returns timely every year and provide a copy to our office and the Trustee.
Refinancing Your Home:
If you have a home you may consider refinancing your mortgage at some point. You must obtain court authorization to refinance, and you should schedule an appointment with our office to review the procedure.
Statements from Trustee:
The Trustee will generally send you semi-annual statements regarding your progress in the case. You should contact the office if you are unable to make payments. I understand that this may be a difficult time for you and I will help to make the process run as smoothly as possible
Completing Your Plan:
Your Chapter 13 bankruptcy plan must be completed within the time proposed for your case. The plan will start running from the date your case is confirmed. No plan can extend more than 60 months after the confirmation date.
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