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What is the meeting of creditors?

1. What is the Meeting of Creditors?
The Meeting of Creditors, also known as the 341 meeting, is a required hearing that takes place after your bankruptcy case is filed with the court. At this hearing a bankruptcy trustee will be asking you a series of questions as they relate to your case. That is the case whether you have filed a chapter 7 or a chapter 13 bankruptcy case.

2. Who is the bankruptcy trustee and what role does he serve?
The bankruptcy trustee is an attorney who represents the interest of your unsecured creditors. His job is to ensure that you have truthfully disclosed all information on your bankruptcy petition. The chapter 7 trustee is primarily interested in knowing if there are any non-exempt assets that you own that he can get his hands on and liquidate for the benefit of the creditors. He is also trying to figure out if by any chance you “forgot” to list certain assets that you own. The chapter 13 trustee primary focus is on your disposable income and determining how much you can “afford” to pay during the life of your chapter 13 case.

3. Can you be a little more specific about the kind of questions the bankruptcy trustee might ask me so that I can prepare for the hearing?
Certainly. The following link is a document created by the US Trustee Office (a branch of the Department of Justice). The first 10 questions are the exact questions that you will be asked at the hearing by the trustee. The Bankruptcy Information Sheet, made reference to in question number ten, is a document that will be handed out to you on the day of the hearing. After that the most common questions that you will be asked are: Do you own any real estate? Are you expecting an inheritance? Does anyone owe you money? Do you own any life insurance with cash value? Etc.

4. When will the Meeting of Creditors take place?
The hearing takes place about one month after your case gets filed with the court. The bankruptcy computer system determines the exact date and time of the hearing upon filing your case with the court.

5. Will I be going to court that day?
No, you will not. Please do not make the mistake of visiting the bankruptcy court in Alexandria. The hearing is not a formal court proceeding and will not be taking place at the bankruptcy courthouse.

6. So where does the Meeting of Creditors take place?
The hearing takes place at 115 South Union Street, Suite 206, in Alexandria, Virginia 22314. Please note that for everyone who filed their case with the Alexandria Bankruptcy Court (virtually everyone in Northern Virginia) this is where you will be going for your meeting of creditors. The best landmark is a Starbucks located half a block away. On the ground floor of 115 South Union Street is a travel agency. Do not worry. You are in the right place. Please go up to the 2nd floor.

7. Where will I park?
While there are several parking garages in the area, as well as metered parking on King Street, I recommend that you take advantage of the free 2 hour parking on Prince Street as well as Cameron Street located just a couple of blocks to the left and right of where the hearing takes place.

8. Will we be meeting at my office prior to the hearing?
Nope. I will meet you at the hearing and will do my best do get there a few minutes early.

9. How long will the hearing take?
In chapter 7 cases the waiting time can be anywhere from 5 minutes to 1 hour. The hearing itself however, that is your meet and greet with the bankruptcy trustee, typically lasts no more than 2 minutes. With chapter 13 cases, rather then taking the debtor education course online prior to the hearing, the course will take place in person on the day of the hearing. Hence, the need to be there at 9:45 am. The course takes about two hours and after a lunch break the afternoon hearings begin.

10. In what order will my case be called?
The higher caliber attorney that you have the quicker that your case will be heard. Kidding! The order is determined by the computer system. It is just a matter of luck. Your case could be the first one on the docket or could be the very last. The one exception is chapter 7 trustee Jason Gold who requires you to fill out a questionnaire. He calls the cases in the order that the questionnaire was turned in to him on the day of the hearing to serve as an incentive to be prompt and prepared.

11. How should I dress for the Hearing?
We are not going to court so you can leave the suit at home, though I certainly would not recommend shorts and a tang-top either. You can dress casually.

12. Will my creditors be at the hearing?
Highly unlikely. Despite the name, in the vast majority of cases no creditor ever shows up. The creditors realize that showing up for the hearing is usually pretty futile since there is not a whole lot that they can do. The ones that do show up are typically individuals like an ex-spouse or a former landlord who think that there is something to be gained by making an appearance.

13. What documents do I need to bring to the hearing with me that day?
Driver license and your Social Security Card, or a W-2 if you cannot locate your SS card. Please do not forget either at home as that can cause your case to be reconvened to a latter time. Do you really want to come back for this thing again?! IN ADDITION, unless you have done do in advance of the hearing, be sure to bring with you all bank statements, for all accounts, that show the balances on the day that your case was filed. Typically, about one month prior to the hearing is when your case was filed.

14. Should I be worried about the Hearing?
I know that it is easy for me to say because I am not going through exactly what you are going through, but I can tell you, that 8 out of 10 folks, upon exiting the room state: “Is that it?” You know how in life you can make something in your head a bigger deal than it actually is? Well this is one of those times.

15. So what if I forget or refuse to come to the hearing?
I said it is not as big of a deal as you have it made out in your head, but it is still a big deal. Failure to show can result in your case being dismissed! And please if you are going to be late (which you should not be) at least call me in advance.

16. The hearing ended. Now what happens?
Now you pop open a bottle of champagne and celebrate. Well, maybe hold off on the celebration, but let’s just say that the hardest part is behind you. In the vast majority of chapter 7 cases, sit back, relax, and in about 70 days you should receive your letter of discharge from the court and the case closes. Then, you can really celebrate. In chapter 13 cases, the festivities are just beginning. There will either be an objection to confirmation from the chapter 13 trustee which will have to be dealt with or the case will get confirmed about one month later. The discharge is three to five years away.


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Will I lose my house if I file for Bankruptcy?

The short answer is no. The bankruptcy court will not make you give up your house if you file for bankruptcy. If there is little or no equity in your home at the time that you are thinking about filing for bankruptcy, then you can safely file a chapter 7 bankruptcy case. The chapter 7 bankruptcy trustee is only interested in assets with equity that cannot be exempted. No equity means the house is all yours. Of course, you have to continue paying your mortgage if you do not want the bank to foreclose on the home.

However, if you live in Virginia and have significant equity in your home it may mean that your option will be to file a chapter 13 bankruptcy due to something in bankruptcy known as the “liquidation test.”

And what is the liquidation test? It is a mathematical formula used by the bankruptcy courts whereby the more equity you have in your home, the more you will be expected to pay into the chapter 13 plan. The principle behind the liquidation test is that the total amount you pay in a Chapter 13 bankruptcy plan needs to be at least as much as you would have paid had you filed for chapter 7 bankruptcy.  As a reminder, in a chapter 7, you must surrender all of your non-exempt assets. Your equity in your home is your primary asset.

So to use sophisticated legal jargon here, what the bankruptcy law is saying in this situation is: Hey buddy, if you have been paying your mortgage for a number of years and are sitting on $100,000 in equity don’t go thinking that you can purposefully file for chapter 13 and pay only say, $10,000 during the next 5 years instead of the $40,000 you owe to your creditors. Had you filed for a chapter 7 bankruptcy your unsecured creditors would have received the full $40,000.00 owed to them since the chapter 7 trustee would have had the right to sell your home and pay your creditors. As such, $40,000 is what the court will expect from you to contribute into the chapter 13 plan during the next five years.

So what is the lesson here? Well, for those seeking to file bankruptcy in Virginia, having equity in your home is a disadvantage, to put it mildly! The significant equity in your home may mean that a chapter 13 bankruptcy is your only bankruptcy option.

NOTE: If you do not have a ton of equity in your home you can always file a chapter 7 case in order to test the waters and see if the chapter 7 trustee “will bite.” If it turns out that there is in fact significant equity in your home and the trustee has made it clear that he is interested in liquidating your home, then you can convert your case to a chapter 13. Hope for the best but prepare for the worst is how to look at it.

 

 

 


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Bankruptcy Homestead Exemption in Virginia

When comparing bankruptcy exemptions here in Virginia versus those in Washington, DC, I cannot help but think of Charles Dickens’ opening line in his novel, A Tale of Two of Two Cities, “It was the best of times, it was the worst of times…,” as in, the best of times for Washington, DC and the worst of times for the Commonwealth of Virginia.

As a bankruptcy lawyer located in Alexandria, Virginia, one of the first questions that I will be asking you when we meet at my office is what state do you reside in (it is not uncommon for folks to live in Alexandria, VA but work in Washington, DC or vice versa). Why? Because it is always about location, location, location or more to the point, what state you live in. When filing for bankruptcy, the difference between residing in Alexandria, Virginia or just across the Potomac in Washington, DC can have a huge impact.

If you qualify for a chapter 7 bankruptcy based on your income, then the next immediate consideration is whether you have any assets. If you do, and you cannot exempt a particular asset, then the bankruptcy trustee has the right to seize and liquidate that asset. For virtually all bankruptcy filers, their home (as in the equity in their home) is their biggest asset. If you have equity in your home, then allow me to demonstrate the differences between filing in Washington DC versus filing in Virginia.

The legislatures in Washington, DC decided that if an individual has resided in their primary home in Washington, DC for more than 1,212 days (3.3 years), then the individual is allowed to exempt the entire equity in their home. For example, if you have $200,000 in equity in your home, then you may exempt the entire $200,000 in equity. Meaning, the bankruptcy trustee my not force the sale of your home and will not walk away with the proceeds as a result of you filing for chapter 7 bankruptcy. You get to wipe out all of your unsecured debt while fully protecting your home. If however, you have resided in your home in Washington, DC for more than 2 years but less than 3.3 years, then you are limited to approximately $140,000 in the amount of equity that you may exempt. Finally, if you have lived in your home in Washington, DC for less than 2 years, then unfortunately you will not be able to utilize the Washington, DC exemption laws; federal bankruptcy law requires that you reside in a state for at least 2 years before you can take advantage of the state’s exemption scheme.

Now, in case you are thinking that Washington, DC’s bankruptcy exemptions are the norm, I assure you, this is not the case. Washington, DC is among a handful of states that is extremely generous when it comes to home exemptions.

Unfortunately for Virginians, the state for lovers, the state’s bankruptcy exemption laws do not show a whole lot of love. In fact, you could say that Virginia’s bankruptcy exemption laws are darn right unfriendly to its residents. The stark difference between Virginia and Washington, DC is that Virginia does not have a primary residence exemption. All that Virginia has to offer individuals who reside in Virginia and who are filing for chapter 7 bankruptcy is the homestead exemption. Virginia’s homestead exemption allows you to exempt a whopping $5,000 in your home. If you are over the age of 65 or are disabled, Virginia generously increases that amount to $10,000. So, what happens if you have $200,000 in equity in your home in Virginia? You will have to file for a chapter 13 bankruptcy. Meaning, you will have to pay a large portion of your unsecured debt. There is one exception that could apply to married couples.

So there it is – when it comes to filing for bankruptcy in Washington, DC versus Virginia, it is most certainly a tale of 2 very different cities!


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Will I keep my home if I file for Bankruptcy in Virginia?

When people typically ask this question what they are really asking is: Can I file a chapter 7 bankruptcy case and wipe out all of my credit card/medical debt? After all, chapter 7 is the bankruptcy that allows you to have your cake and eat it too as they say. As in, wipe out all your unsecured debt and keep your stuff.

So, what’s the answer? Well, it depends. Do you have a bunch of equity in your house? These days the answer is typically “no.” If your house is “upside-down” and you have no other major assets, then you have nothing else to worry about. No need to keep reading.

But, if that is not the case, and your home does in fact have a substantial amount of equity, then the next question to ask yourself, are you married or single? If you are single, then regretfully your only option may be a chapter 13 bankruptcy. To read more about the dilemma of single people filing for bankruptcy when your home has a lot of equity, please see my other blog article titled Will I lose my House if I File for Bankruptcy?

If you are married, then the next question that you need to know the answer to is whether you own the house together with your spouse? If the house is in fact jointly owned, then you want to examine the deed to your home. The language in the deed will make all the difference in the world. In Virginia, when a husband and wife buy a home together they can title the property in one of three ways: Joint Tenants with rights of survivorship, Tenants in Common, or Tenants by the Entirety with rights of survivorship. I won’t bother putting you to sleep with the legal distinctions between each title, but hopefully when you examine your deed you will note that it says Tenants by the Entirety. If so, then great. By the way, fortunately, when married couples purchase homes in Virginia at closing the deed is almost always titled in this fashion by default.

So that leaves you with one last question: Other than the mortgage which might have been taken out by both spouses, or possibly the car loan that could be in both names, is the unsecured debt (that would be your credit cards, medical debt, personal business guarantees, etc.) in both names or in your own individual name? Hopefully, it is the latter. As in, each spouse has his/her own debt separate and apart from the other. If so, then fantastic; the equity in the home is fully protected regardless of amount. Whether only one of the spouses decide to file for bankruptcy alone, or if they choose to file for bankruptcy together they can safely file a chapter 7 bankruptcy and not have to worry about losing their home to the chapter 7 trustee. The home is exempted and protected.

So what is the lesson here? Yes, I am going to repeat myself since it is worth repeating.  If a married couple is going to purchase a home in Virginia, be absolutely certain that the deed to the home is titled as Tenants by the Entireties and during the course of the marriage be absolutely sure to never, ever take out any joint loans or credit cards. And what about those couples who at the time getting married already own a property in their own individual name? I suggest you do what I did and that is give your new “honey” a great wedding gift by adding their name to the deed and ensuring that it is titled Tennants by the Entirety. After all, as they say, you hope for the best, but want to be prepared for the worst!


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Will I pass the Means Test? Will I be able to file chapter 7 bankruptcy

This is a follow up to my last article titled Will I qualify for chapter 7 bankruptcy in Virginia? As stated in that article, if your median income based on your household size exceeds the amount that automatically qualifies you for a chapter 7 bankruptcy, then you will have to “pass” the Means Test. Basically, Congress is saying hmm…it looks like you are making a fair deal of money so let me scrutinize your finances a bit more before I make the determination that you do indeed  are deserving of a chapter 7 bankruptcy discharge.

As this blog will hopefully demonstrate, despite the name, the Means Test is really not all that mean of a test (pardon the pun…just could not resist). In fact, you might be surprised to learn that some people with relatively high income can still “pass” the means test and qualify for chapter 7 bankruptcy. In other words, do not diagnose yourself and do not assume that just because your income exceeds Virginia’s median figures that you will not be able to beat the means test.

For instance, you are a single individual living in Virginia and grossing $75,000 per year.  Virginia’s median income for a household of 1 at this time is only $52,247.00.  You will have to take the Means Test.  So at this point Congress says ok, take the Means Test and show me if you do indeed have any “disposable monthly income” left at the end of the month.  In other words, after giving you credit for a whole host of deductions each month, Congress wants to know, do you still have some money left over that you could apply to your creditors?  If the answer is no, then you have “passed” the Means Test and you may be granted a chapter 7 discharge.  If the answer is yes, then your only remaining option will probably be a chapter 13.

Think of the bankruptcy Means Test kind of like doing your taxes. You have to account for all your deductions.  Meaning, the gross amount that you make per year is only the beginning of the discussion.  It’s not the number that you will be taxed on when doing your taxes and for bankruptcy purposes, it is not the number that will ultimately determine if you can file a chapter 7 case.

When doing the Means Test certain deductions are automatically given to you and those figures are pre-determined by Congress, regardless of what your actual expenses for those items are.  For instance, food, clothing, household supplies, personal care, and other miscellaneous expenses are calculated based on your household size and the county you live in.   Same thing goes for your housing utilities and your mortgage/rental expense, already pre-determined by Congress. Ditto for your car operating expenses.

The rest of the deductions on the Means Test will require you to make a determination of how much you are spending on a monthly basis for those particular expenses. They will require “real numbers” instead of numbers assumed by Congress to be applicable to you and your housing size. The following are some key monthly expenses/deductions that you should utilize, assuming of course that you actually have these deductions:

  • Your payroll taxes. You can deduct your federal taxes, state taxes, Medicare,      and Social Security that is being taken out of pay check.
  • Your car payments if they are particularly high.
  • Your mortgage payments if they are especially high.
  • Your child support and/or alimony.
  • Your union member dues.
  • Your health insurance premium or other type of insurance expense.
  • Your HAS/FSA contribution.
  • Your child care expenses like day care, nursery, and preschool.
  • Your contributions to the church or other charitable contributions.

With all these deductions at your disposal you may very well be able to “pass” the Means Test.  Back to my single individual making $75,000 per year who let’s just say does not own a home, but does have car payments.  Let’s assume that this person has the following monthly expenses:

  • $1500      per moth in payroll deductions;
  • Mandatory      union dues of $100 per month;
  • Paying      $500 per month in child support to his ex-wife; and finally
  • $200      per month comes out of his paycheck as contributions towards his health      insurance plan.

Based on these figures, this individual “passes” the Means Test and qualifies for a chapter 7 bankruptcy.

The point is this: A good CPA can find you certain “loopholes” (I am talking about legally permissible tax deductions) and have you paying a whole lot less in taxes than you might have anticipated. Similarly, a good bankruptcy attorney, can very well use various deductions to ensure that you “pass” the means test. So, before you are ready to throw in the towel and assume that you do not qualify for a chapter 7 because of your relatively high income, go and speak with a bankruptcy attorney.  You may be surprised at what you discover.