Frequently Asked Questions

What is bankruptcy?
Bankruptcy is a legal proceeding where a person or company who is having difficulty meeting financial obligations can obtain a fresh start. The right to file for bankruptcy is provided by federal law, and all bankruptcy proceedings are handled in federal bankruptcy court. Filing bankruptcy generally stops most creditors from seeking to collect debts. The goal of most debtors is to obtain a discharge order from the bankruptcy judge. The discharge order has the effect of releasing the debtor from many forms of debt that were incurred prior to the bankruptcy filing.
 

When should bankruptcy be considered?
The amount of unpaid bills is such that repayment is unlikely or impossible in the foreseeable future.

A secured creditor is threatening foreclosure or repossession.

An unsecured creditor has commenced or threatened a lawsuit.

Creditors and/or collection agencies are making frequent calls to collect on unpaid bills.

The debtor’s credit report is irretrievably damaged.

To stop execution on a judgment or to stop wage garnishment.
 

What are some events that may lead to many bankruptcy filings?
Unemployment or underemployment.

Business reverses.

Health problems.

Divorce or separation.

What are the different types of bankruptcy that Geygan & Geygan, Ltd. handle?
Chapter 7. A debtor’s non-exempt assets are liquidated and many unsecured debts are discharged. Chapter 7 is sometimes referred to as straight bankruptcy.

Chapter 13. A debtor retains his or her assets but proposes a payment plan through which creditors are paid part or all of what is owed over a period of 3 to 5 years. Chapter 13 is sometimes referred to as a wage-earner plan or debt-adjustment plan. A chapter 13 debtor must have a regular source of income, unsecured debts of less than $307,675.00, secured debts of less than $922,975.00 and an ability to set out a budget where he or she can realistically afford a monthly payment plan to a trustee.
 

Why would a debtor choose to file chapter 13 over chapter 7?
The debtor owns nonexempt property that would be liquidated in chapter 7.

The debtor is behind on car or house payments and needs to cure arrears over time.

Under certain circumstances a debtor may be able to modify a secured debt such as a vehicle or mobile home.

The debtor is not eligible to file a chapter 7 or to obtain a chapter 7 discharge.

The debtor owes debts that can be discharged in chapter 13 but not chapter 7.

The debtor seeks to protect a codebtor from legal action.

The debtor may have the need for bankruptcy relief for future bills and wants to hold open the possibility for conversion or refilling [e.g. anticipated medical bills].
 

How much is the debtor required to repay in chapter 13?
It depends on numerous factors. The amount paid to unsecured, nonpriority creditors ranges between 0% to100% with interest depending on the case.
 

What are examples of clearly permissible expenses in chapter 13?
401(k) loan repayments.

Charitable contributions such as tithes and offerings will generally be allowed if the debtor has at least a minimal history of such payments.

Private school tuition up $1,500.00 per year per child under certain circumstances.
 

Is the debtor required to undergo a credit counseling program before a case is filed?
Debtors are normally required to undergo a credit briefing prior to filing for bankruptcy. This briefing generally takes no more than 90 minutes and can be conducted via the internet [For debtors filing their bankruptcy case through my office lacking access to a high speed internet connection, there is such a computer available for use at no additional cost]. Additionally, all debtors must undergo a debtor education program prior to the entry of the debtor’s discharge.
 

Does the debtor have to appear in court after filing for bankruptcy?
All debtors are generally required to appear at a meeting of creditors (also known as a 341 meeting) 20-40 days after their petition is filed. At the meeting a court appointed trustee will question the debtor in order to determine if the debtor was truthful on his petition and schedules. In chapter 7 cases the trustee will also be attempting to determine if liquidation of the debtor’s assets is appropriate among other things. In chapter 13 cases the trustee is often concerned with whether the debtor’s plan of reorganization complies with the applicable provisions of the bankruptcy code. There are situations where it is necessary to appear before a bankruptcy judge.
 

What if I previously filed for bankruptcy?
If the prior case was filed more than 8 years ago then it is not likely to have an impact on any new case. If the prior case was filed less than 8 years ago then there may be relevance in terms of the availability of a discharge or a stay against creditor action.
 

Are spouses required to file for bankruptcy together?
No. Married persons are permitted to file jointly or individually.
 

What effect does bankruptcy have on a codebtor?
A non-filing codebtor remains liable to pay the debt. However, by filing a chapter 13 case a debtor can protect a non-filing codebtor from legal action if the debt is a consumer debt.
 

What are examples of debts that cannot be discharged in chapter 13 bankruptcy?
Domestic support obligations.

Certain taxes.

Student loans unless repayment is found by the bankruptcy court to constitute an undue hardship on the debtor.

Criminal fines and restitution.

Debts arising from driving under the influence.

Debts found to have been incurred through fraud or defalcation of fiduciary duty.

Restitution or damages awarded in a civil action as a result or a willful or malicious injury by the debtor that caused personal injury to an individual or the death of an individual.

Debts where the creditor was not scheduled, listed or notified with regards to the chapter 13 case.
 

What are some examples of debts that cannot be discharged in a chapter 7 bankruptcy?
Domestic support obligations.

Certain taxes and debts incurred to pay nondischargeable taxes.

Student loans unless repayment is found by the bankruptcy court to constitute an undue hardship on the debtor.

Criminal fines and restitution.

Debts arising from driving under the influence.

Obligations incurred as part of a divorce or separation.

Debts found to have been incurred through fraud, defalcation of fiduciary duty and willful and malicious injury.

Certain homeowner association dues.

Debts associated with violations of security laws.
 

Why might a chapter 7 bankruptcy discharge be denied?
The debtor falsified his or her schedules or otherwise committed perjury in connection with the bankruptcy case.

A debtor whose debts are primarily consumer in nature and whose family income exceeds the median is required to complete a “means test” form. If, under standards contained in the bankruptcy code, the debtor is found to have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that a discharge is not appropriate unless there are extenuating circumstances.

The debtor transferred away assets in the one year prior to filing with the intention of hindering delaying or defrauding a creditor.

The debtor has failed to provide a satisfactory explanation for a loss of assets or otherwise failed to cooperate with the bankruptcy trustee.
 

Will I have to pay income taxes on the cancelled debt?
No.
 

What are the Ohio exemptions?
**If a debtor has lived in Ohio for less than 2.5 years then he/she may not be eligible to claim the Ohio exemptions and may be required to claim the federal bankruptcy exemptions or the exemptions of some other state.**

Other exemptions. The above list is not comprehensive. There are a number of other very significant exemptions available under Ohio law.
 

How is a debtor able to retain non-exempt assets?
File chapter 13.

Compensate the bankruptcy estate in lieu of liquidation.
 

Should a debtor sell or cashout nonexempt assets and purchase exempt assets prior to a bankruptcy?
This is a form of exemption planning. Exemption planning is not prohibited per se but problems can arise.
 

Should a debtor seek to protect nonexempt property by transferring it to friends or relations prior to the bankruptcy?
No.
 

What options exist with regards to secured property in a chapter 7 case?

Reaffirm the obligation with the secured creditor [both the debtor and creditor must agree to the reaffirmation].

Surrender the collateral.

Retain and keep current with creditor [a secured creditor with personal property for collateral may still be permitted to repossess the property should the debtor not reaffirm].

Redeem the property by paying the creditor the value of the collateral [only available with tangible personal property used for personal, family or household use].
 

What liens can be avoided in bankruptcy?
Certain judgment liens [except arising from domestic support obligations].

Nonpossessory, nonpurchase money security interest in certain household goods that the debtor has exempted.

Wholly unsecured mortgages can be avoided in chapter 13.
 

Can a federal tax lien be avoided in chapter 7?
No.
 

An incorporated business is ceasing operations. Should it be bankrupted?

A corporation filing bankruptcy is entitled to retain no property and receives no discharge of debts. There is no requirement that an insolvent corporation file for bankruptcy and for that reason state law dissolutions or simply walking away are common.

Good reasons to file a corporation into chapter 7 might include:

To stop a creditor from executing on valuable assets that could otherwise be utilized to pay favored creditors (e.g. trust fund taxes, wage claims or personally guaranteed debt).

To recover preference payments that could be used to pay favored creditors.

To help insulate the principals from allegations that the liquidation of the entity was handled improperly.

The principals would rather turn over liquidation of the entity to a trustee rather than handle it themselves.

Good reasons to avoid a corporate chapter 7 might include:

The assets of the corporation are very nominal.

The time and expense of bankruptcy.

The unwanted exposure the bankruptcy way trigger related to insider dealings.
 

How can a credit report be obtained?
www.annualcreditreport.com allows individuals to obtain one free credit report every year from Experian, Transunion and Equifax.
 

What are some alternatives to bankruptcy
Doing nothing. This may be an appropriate strategy where the debts are small and / or where the debtor is elderly, judgment proof and likely to remain so.

Negotiating. Creditors are sometimes willing to settle on delinquent debt for a percentage of the balance owed. The creditor typically requires that the settlement be paid in a lump sum. There may be tax consequences as the forgiven debt is treated as income unless the taxpayer is insolvent. There are companies in the business of “debt adjusting” that will represent you in such negotiations with creditors. These companies are always overpriced, often ineffective and on occasion, unscrupulous.

Credit counseling. Credit counselors are funded by creditors and will often set up a debt management plan to pay back unsecured consumer debts. Often times a credit counselor is able to negotiate reduced interest rates and late fees.

Offer in compromise. For individuals who have primarily tax debts, offer in compromise with the federal or state taxing authorities is a very legitimate alternative.

Foreclosure assistance services. There is nothing positive to say about companies that prey upon homeowners whose homes are in foreclosure.
 

Will a debtor’s family, friends or employer find out about the bankruptcy filing?
Although the bankruptcy case file is a public record that is accessible from the internet, usually only creditors will learn of the filing. Current employers and governmental agencies cannot legally discriminate against a debtor because of a bankruptcy filing. Employers may be notified if the debtor’s chapter 13 payments are made by payroll deduction.

How should a debtor prepare for bankruptcy?
Hire an attorney.

Withdraw funds from a bank or credit union to whom the debtor owes money.

Stop incurring additional debt.

Continue to pay on certain debts that will survive the bankruptcy.

Stop paying debts that will be discharged in bankruptcy.

Stop repaying debts to family members and/or friends.

Retain all pay stubs received over the past six months from all employers, credit statements and demand letters.

Prepare all tax returns that are not filed.

Is a debtor required to list all creditors and assets on the bankruptcy schedules?
Yes.

Is the debtor permitted to voluntarily pay debts owed to friends or family members after a chapter 7 is filed?
Yes.

How long does the process take?
A chapter 7 no-asset case where no adversary proceedings are filed generally takes about 3 ½ months.

A chapter 13 case normally takes 3-5 years.
 

What if my question is not answered here?
Please call us at 513-791-1673 or email at ThomasJr@geygan.com.

Geygan & Geygan, Ltd. is a Debt Relief Agency because we help people live without debt through various means including bankruptcy.