Indiana Bankruptcy Process
2005 Bankruptcy Act Credit Counseling
The 2005 Bankruptcy Act requires all individual debtors who file bankruptcy on or after October 17, 2005, to undergo credit counseling within six months before filing for bankruptcy relief and to complete a financial management instructional course after filing bankruptcy.
2005 Bankruptcy Act Means Test
Under the 2005 Bankruptcy Act your income and expenses will be analyzed to determine if you qualify to file a Chapter 7 or if you must file Chapter 13. To apply the means test, the courts will look at your average income for the 6 months prior to filing and compare it to the median income for that state as reflected by the most recent census as adjusted for inflation. If the income is below the median, then you may choose to file a Chapter 7. If your income exceeds the median income for the state the remaining parts of the means test will be applied to your particular financial situation to determine if you should file a Chapter 13.
It is quite possible that you may be able to file a Chapter 7 bankruptcy if the means test calculation shows you are unable to pay at least $6,000 over the next five years ($100 per month) to your unsecured creditors. However, if the means test calculation shows that you can pay at least $10,000 over five years ($166.67 per month or more) you will probably be ineligible to file a Chapter 7 case.
If you could afford to pay your unsecured creditors more than $6,000 but less than $10,000 over five years, then a mathematical calculation determines whether you can qualify for a Chapter 7. If the means test calculation shows that you could afford to pay 25% or more of your unsecured debt, your Chapter 7 filing will likely be acceptable to the United States Trustee. Examples of unsecured debt would include medical and credit card bills. Be advised that you can still opt for Chapter 13 relief even if you qualify to file under Chapter 7.
To begin the bankruptcy process you must itemize your current income sources; major financial transactions for the last two years; monthly living expenses; debts (secured and unsecured); and property (all assets and possessions, not just real estate). You should also collect your tax returns and the documents representing your credit card debt, medical and other bills.
Once you have gathered this information, either on your own or with the help of an attorney, you should then determine which property you believe is exempt from seizure based on the Indiana exemptions. To actually file a bankruptcy petition, either you or your attorney, will need to file a multiple-page petition and several supporting documents with the appropriate bankruptcy court. These forms, collectively are referred to as the schedules and ask you to describe your current financial status and recent financial transactions (typically those within the last two years). If your creditors or the Bankruptcy Judge discovers that you have not been truthful in your bankruptcy filing, you will lose the protection accorded by the Bankruptcy Code.
The court cost for filing a Chapter 7 bankruptcy is $299. This fee may not be waived but you may be able to pay it in installments. The fee of $274 for a Chapter 13 bankruptcy cannot be waived.
Chapter 13 Requirements
If you are filing a Chapter 13 bankruptcy, a plan to repay your creditors must also be submitted with your petition. This plan is based on your monthly expenses and income. Usually the difference between your income and reasonable expenses will be paid by the Chapter 13 Trustee to your creditors. Priority claims (such as taxes and back child support) must be paid in full; unsecured debts (like credit card debt and medical bills) are usually paid in part. Depending upon the individual financial situation, unsecured debts can be paid off for as little as 10 cents on the dollar.
In addition to the general requirements listed above, the Chapter 13 plan must pass three tests:
1) It must be proposed in good faith.
2) Unsecured creditors must be paid at least as much as if a Chapter 7 bankruptcy had been filed. Generally, this is the value of all the nonexempt property you own (see Indiana bankruptcy exemptions).
3) All disposable income must be paid into the plan for at least three years (you may use up to five years in order to meet the second test that you pay at least as much as in a Chapter 7).
If you have filed Chapter 13, you must begin making your plan payments to the Chapter 13 Trustee within 30 days of the filing of your petition. Generally these payments will be withdrawn directly from your wages.
Once you have filed your paperwork with the bankruptcy court, a stay of creditor activity immediately goes into effect. This automatic stay prevents creditors from making direct contact with you or staking a claim on any of your property from the date of filing forward. This will stop any foreclosure proceedings. If you have filed a Chapter 13 Case, the automatic stay is conditional on your meeting your obligation to make payments to your Chapter 13 Trustee.
Upon the filing, of a bankruptcy petition, the Bankruptcy Court assumes jurisdiction over your debts and property not covered by Indiana exemptions. The United States Trustee will appoint a trustee to your case. The job of the trustee is to see that your creditors are paid as much as possible. This person will thoroughly review your paperwork, particularly the assets you have in your possession and the exemptions you wish to claim, and can object to the documentation provided to the Court.
341 Meeting of Creditors
Approximately a month after filing your paperwork with the Court, the trustee will schedule and hold a first meeting of creditors, which the debtor must attend. This proceeding is also referred to as the § 341 meeting, named after the corresponding section of the bankruptcy code. Creditors rarely attend a Chapter 7 bankruptcy meeting; but sometimes creditors may attend a Chapter 13 meeting, especially if there is a question as to the legitimacy of some aspect of the plan. Objections are typically resolved by negotiation between the debtor or the debtor’s counsel and the creditor. If a compromise cannot be reached, then the issues will be considered by a bankruptcy judge.
The meeting of creditors typically lasts 5 – 10 minutes. You will receive notice of the location of the meeting but you may contact the court to confirm the address and time. (See Indiana Bankruptcy Court Directory). Most Chapter 7 filings involve no non-exempt assets, however, if you filed for Chapter 7 and do have non-exempt assets, you will have to turn over non-exempt property (or its fair market value in cash) to the trustee after the meeting. The trustee will sell this property and distribute the proceeds to your creditors. If the property isn’t worth a great deal or would be hard to sell, the trustee may decide to abandon the property (and return it to you). Trustees and creditors have 60 days to challenge the debtor’s right to a discharge. If there are no challenges, you will receive a notice from the court that your dischargeable debts have been discharged within about three to six months.
Chapter 13 Plan Confirmation
If you filed a Chapter 13 plan you may need to attend what is called a confirmation hearing before a bankruptcy judge who will either confirm or deny the repayment plan. If your plan is confirmed and you make good on it, the balance (if any) on the dischargeable debts you owe will be discharged at the end of your plan.