AUTOMATIC STAY

The filing of a Bankruptcy automatically, by operation of law, implements a STAY of ALL activity by creditors to collect a debt from you. Note that thought the Automatic Stay prohibits creditors from taking any steps to collect a debt, creditors will not know about the filing of the Bankruptcy Petition for at least a week to ten days from the date of filing.

THE AUTOMATIC STAY APPLIES TO FORECLOSURES, WAGE GARNISHMENTS, ONGOING CIVIL CASES, ATTACHMENTS AND REPOSSESSIONS.

Note that there are EXCEPTIONS TO THE AUTOMATIC STAY. First, a bank, savings and loan, credit union or institution in which you have a deposit, is allowed to take that deposit and setoff against any outstanding debts you have with that institution. Second, there are special rules regarding utilities. The utility may not cut off service to you for a certain period after the date of your filing. Basically, though the utility cannot collect pre-petition debts from you it can require you to submit a deposit. Third the Automatic Stay does not stop the prosecution of a crime or the collection of ongoing alimony and child support.

There is a SPECIAL AUTOMATIC STAY provision that will protect co-debtors when you file a Chapter 13. Basically, a creditor may not collect a consumer debt from a co-debtor (individual who is shares liability for the debt with the debtor).

The AUTOMATIC STAY is further limited if within the last year you have filed for bankruptcy protection and it has been dismissed.

This list is by no means all-inclusive. The Automatic Stay rules can be very complex and we encourage you to contact us if you have any questions.

DISCHARGE

The main purpose of a Chapter 7 is the grant of DISCHARGE by the Bankruptcy Court. The DISCHARGE is a Federal Court order that provides, with the exception of reaffirmed debts or debts excepted from DISCHARGE, that all debts scheduled in the Bankruptcy are discharged. This essentially means that your creditors are PERMANENTLY PROHIBITED from collecting the discharged debts. Please note that you are not prohibited from repaying any discharged debt that you want. However, if you begin to repay a discharged debt and you change your mind then the creditor cannot force you to pay the balance.

In a Chapter 13 a discharge works similarly. However, the discharge is not granted until your completion of the Chapter 13 plan.

IF A CREDITOR IS ATTEMPTING TO COLLECT A DISCHARGED DEBT, PLEASE CONTACT US SO WE CAN TAKE ACTION TO STOP IT.

EXCEPTIONS TO DISCHARGE

Pursuant to the Bankruptcy Code, there are certain types of debts that are considered non-dischargeable. These include but are not limited to (1) taxes based on income where no return was filed (see further information regarding taxes below), (2) alimony and child support, (2) criminal fines/ restitution, (3) student loans, (4) debts incurred as a result of DWI/DUI, (5) fraud or misrepresentation, and (6) debts brought about as due to willful and malicious injury to another person or property. Note that this list is not all inclusive and there are numerous exceptions. Further, under Chapter 13 you may be able to receive a discharge for a debt that is not permitted under Chapter 7.

With respect to TAXES: (1) taxes are not dischargeable if the taxes are based on returns that were not filed or were filed within 3 years of the filing of the petition; (2) penalties for taxes not discharged are not discharged; (3) debts that are incurred in order to pay taxes that are not discharged are not dischargeable; (4) taxes assessed within 240 days prior to the filing of the Bankruptcy Petition are not dischargeable under Chapter 7 (240 days may be extended if there is an offer to compromise pending or a stay against collections)

Some consumer debts are PRESUMED to be non-dischargeable.

(1) Consumer debts that are owed to a single creditor and aggregating more than $550.00 for luxury goods or services incurred by an individual debtor on or within 90 days before the bankruptcy is filed are presumed to be non-dischargeable in Chapter 7. Note that a Chapter 13 works differently with respect to this type of debt.

(2) Cash advances aggregating more than $750.00 that are extension of consumer credit under an OPEN END CREDIT PLAN obtained by an individual debtor on or within 70 days before the bankruptcy are presumed to be non-dischargeable.

There are numerous assets that a debtor has that are EXEMPT from liquidation by the BANKRUPTCY TRUSTEE. For example, in Maryland you can exempt personal injury awards, cemetery plots, tools of your trade and up to $12,000.00 in property.

FORECLOSURE —-REPOSSESSION — WAGE GARNISHMENT

FORECLOSURE AND REPOSSESSION are actions that SECURED CREDITORS WILL take in order to secure the collateral which they have a security interest in. If you own a home and you are behind in paying your mortgage, your lender will exercise his rights to take the property from you (FORECLOSURE) in order to sell and recoup the value of the note you have on the property. A car or other vehicle can be REPOSSESSED. Basically, the lender will take it from you, sell it and apply the proceeds from the sale to the amount you owe. If you owe more than the property is worth or is sold for then the creditor can typically hold you responsible for the balance.

A WAGE GARNISHMENT is one method of collection by a creditor who has obtained a JUDGMENT against you in a Court of Law. The Judgment Creditor can petition the Court to order your employer to pay a percentage of your wages to the creditor.

MEANS TEST

The Bankruptcy Reform Act, which went into effect on October 17, 2005 includes a Means Test. The Means Test basically allows a Debtor to file a Chapter 7 only if the Debtor either has less income than the Median for the debtor’s state of residence (The Court will review your average income for the last 6 months prior to the commencement of the Bankruptcy), or the debtor can pay less than 25% of his or her unsecured debt from income remaining after meeting expenses over a 5 year period. If you are unable to file a Chapter 7 then you may still be able to file a Chapter 13.

MEETING OF CREDITORS

In roughly 4-6 weeks from the commencement of the Chapter 7 or Chapter 13 you will receive a notice from the Bankruptcy Court. This notice will contain information relevant to the discharge date and about the status of your case. Our office and your creditors will receive the same notice. You will further be given notice regarding the place, date and time for your meeting of creditors. Your attendance at the meeting of creditors is mandatory. Creditors rarely attend the meeting of creditors unless there is a question regarding secured property or other issues. Note that in a Chapter 13 creditors may attend to discuss the Plan. The meeting of creditors can last between 5 to 20 minutes depending on the complexity of the case or issues that the Trustee may find (normally the Trustee has a tight schedule).

REAFFIRMATION AGREEMENT OR REDEMPTION

A REAFFIRMATION is an agreement to reaffirm a secured debt. This is usually pursuant to the terms of the original contract, though in some cases, the terms of the contract may be altered. A reaffirmation agreement must be entered into before the discharge in order to be enforceable. Generally, if you want to reaffirm a secured debt, we need to analyze whether the agreement is feasible and does not cause you undue hardship. In a Chapter 7, we do not recommend reaffirmation agreements since we find that such agreements are contrary to the intent of a Chapter 7.

A REDEMPTION is a written offer to a secured creditor to pay cash to redeem the secured collateral for its value. For example, if you owe $500.00 on a washer/dryer and the actual value or liquidation value is $100.00 then you may attempt to redeem that item by offering the creditor $100.00 cash.

STATEMENT OF INTENTION REGARDING SECURED DEBT

The Statement of Intent for secured debt is used to indicate whether the debtor intends to: (1) reaffirm the debt and continue to make payments as obligated, (2) redeem the property by immediately paying the value of the property, or (3) surrender the property. This Statement should be filed with the petition; however it can be filed within 30 days o the petition. Further, a copy of the Statement must be served on the trustee and the creditors specified in the Statement on or before the filing of the statement.

TRANSFERS AND PREFERENTIAL TRANSFERS

It is important that you understand that the Bankruptcy Court may deny a DISCHARGE of ALL DEBT if the DEBTOR attempted to hinder, delay or defraud a creditor by transferring, removing, destroying, mutilating or concealing property within ONE YEAR prior to a Chapter 7 bankruptcy.

If you transfer property or pay money in excess of $600.00 to a creditor that is a RELATIVE OR INSIDER within ONE YEAR prior to your filing of the Bankruptcy then that transfer is considered to be a PREFERENCE. The BANKRUPTCY TRUSTEE may recover preferences and divide the money collected among creditors.

If you pay to a creditor $600.00 or more in money or property within 90 days prior to filing the Bankruptcy Petition such payment is considered to be a PREFERENCE. The Trustee may recover preferences and divide the money between all creditors.

There are numerous strategies and concerns that we need to discuss regarding PREFERENCES AND TRANSFERS. Please let us know if anything in this section applies to you.

** PLEASE NOTE THAT THESE TERMS AND DEFINITIONS ARE NOT COMPLETE — THEY ARE JUST MEANT TO GIVE YOU A SUMMARY. THE BANKRUTPCY CODE IS COMPLICATED AND YOU WOULD BE BETTER SERVED TO DISCUSS ANY QUESTIONS OR CONCERNS YOU HAVE WITH A BANKRUPTCY ATTORNEY.

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