Prior to Filing
Prior to filing a bankruptcy petition, debtors must obtain a “Pre-Bankruptcy Screening” or “Pre-Bankruptcy Counseling” from a credit counseling agency approved by the U.S. Trustee’s office. The agency issues a certificate which is provided to the debtor’s attorney to file with the bankruptcy petition. This certificate is valid for six months. It is best to meet with an attorney prior to obtaining the certificate in order to make sure that a bankruptcy filing is appropriate as well as to determine when the best time would be for filing. There are often considerations which can have an effect on the best time for a party to file, including income and asset issues.
Along with the certificate, the attorney will collect information from the debtor on his income, assets, liabilities, and expenses to prepare the petition to file on the debtor’s behalf. The law requires the debtor to submit proof of his or her income and to provide copies of their federal tax returns upon filing.
The attorney will need fairly detailed information on the assets owned by the debtor in order to determine if the assets are “exempt” under the Bankruptcy Code. Assets that are exempt are those that the debtor is able to retain. The attorney will help the debtor decide whether to file using state or federal exemptions.
This will depend on the amount and type of assets the party owns and what it is most important for him to protect. In general, the federal Bankruptcy Exemptions tend to be generous enough that the majority of Chapter 7 filers do not have to turn over any of their assets. For example, under the federal bankruptcy exemptions, all qualified retirement savings (pensions, IRAs 401(k)s are exempt.
There are exemptions available for a certain amount of equity in a home, for value in a car, for household goods and furnishings, and then there is a federal “wild-card” exemption which can be applied to any property up to a certain amount.
The attorney will also collect information on the debts owed. There are three major credit reporting agencies from which debts can be determined – Transunion, Experian, and Equifax. All through credit reports can be obtained at www.annualcreditreport.com at no charge. It is also important to let your attorney know of any other debts which might not appear on the credit report, such as loans from friends or relatives, medical bills and any other debts owed.
In order to determine if a debtor qualifies for a Chapter 7 filing, the attorney will evaluate his or her income and expenses. To qualify, a debtor’s income must either be at or below the median income of the geographical area of the country in which he or she lives – or – the debtor must have necessary but extraordinary expenses that qualify a debtor with higher income. If a debtor’s income is at or below the mandatory figures, they qualify for a Chapter 7 filing.
If their income is higher but they also have substantial and necessary medical expenses, they may still qualify even with the higher income. If the debtor does not qualify for a Chapter 7, he or she can discuss the ramifications of filing a Chapter 13 petition with their attorney.
The most important thing an individual can do prior to filing bankruptcy is to meet with a qualified attorney that can lead him or her through the process so that an initial determination can be made as to whether bankruptcy is the correct step.
Taking the time to make sure that the attorney as all of the needed information can make the entire process one that is much less stressful for the debtor and helps to make sure that the debtor emerges from bankruptcy with the “fresh start” the law was enacted to provide.
If you have questions regarding bankruptcy, call the bankruptcy expert in New Jersey, Robert Manchel, at (866) 503-5655 to discuss your options.