Legal Aid of Nebraska

Lea Wroblewski(402) 435-2161

lwroblewski@legalaidofnebraska.comwww.legalaidofnebraska.com

Introduction to Bankruptcy

• Consumer Bankruptcy• Who files and why?• Assets and debts• Automatic Stay• Discharge

Consumer Bankruptcy

• Chapter 7 – straight bankruptcy or liquidation• Chapter 13 – wage earner’s bankruptcy or

repayment – also special structuring of debts• Different requirements and outcomes

Process for Clients

• Collect a LOT of documents (paystubs, tax returns, bills, bank statements, etc.)

• Meet with attorney to answer questions(my questionnaire is 50 pages long)

• Wait while we draft everything• Meet to review and sign• For a Chapter 7 bankruptcy it takes three months

once the case is filed and the client will probably never see a bankruptcy judge; a Chapter 13 lasts 3-5 years

Pre and Post Bankruptcy Counseling

• Part of the Great Bankruptcy Reform• Clients are required to take credit counseling

prior to filing bankruptcy• Clients are required to take financial

management prior to getting a discharge• $20-$50 a class

Means Test

• Another solution to the great Bankruptcy Problem

• You can’t file a Chapter 7 bankruptcy if your average income over the six months prior to filing is over the median income for a family of your size

• Deductions are allowed

341 Hearing/First Meeting of Creditors

Debtor’s Side Creditor’s Side• Represented by the Trustee• Trustee and his office have

read and analyzed all the bankruptcy documents prior to the hearing

• May ask to inspect property• May object to objections• May seize property to sell

and distribute to creditors

Who files bankruptcy?

2013 – 5, 557 (3,557) consumers2012 – 5,788 (4,066) consumers2011 – 6, 556 (4,679) consumers2010 – 7, 843 (5,771) consumers

At least three people you know personally!

Why do people file?

42% of personal bankruptcies are due to medical expenses (78% of those who filed had insurance!)

22% of personal bankruptcies are due to job loss or change (credit cards, payday loans, nagging creditors)

15% of personal bankruptcies are due to over spending – credit cards, mortgages, expensive cars, etc.

Declaring Bankruptcy

• Stops wage garnishment• Stops collection calls• Prevents foreclosure• Prevents utility shut offs or evictions

Giant Pause Button

• Everything stops• Start over• Establish a financial plan

Wait.

What about my stuff?

Real Estate

• Homestead up to $60,000• You have to reside in the house• You have to be married, have a dependent or

be 65 years of age• Trailers included• Proceeds of the sale of your homestead for up

to six months

Life Insurance Proceeds

Immediate Personal Possessions

• Wedding rings

Burial Plots, tombs, crypts

Personal Injury Awards

• No limit• Must not be comingled or lose it’s identity

Retirement Benefits

• Vary based on profession and source• Reasonable and age based

Clothing

• Reasonable

Professionally Prescribed Health Aids

• No limit• Wheelchairs, oxygen tanks, etc.

Furniture and Household Goods

• $1500 per debtor• Fair market value

Public Benefits

• Worker’s compensation• Aid to blind, aged, and disabled

Tool of the Trade

• $2400 per debtor• Tools for work (hair dresser and mechanic)• Vehicle used for transportation to and from

work

Wildcard

• $2500 per debtor• Can be any kind of property but real estate• Bank accounts, a second vehicle or equity,

Mickey Mantle baseball, etc.

Exemptions

What about the debt?!

• Secured• Unsecured• Nondischargeable

Secured Debt

• Purchase Money Security Agreements• Non-purchase Money Security Agreements• Reaffirmation• Redemption• Retain and Continue Payments• Relinquishment

Co-Debtors

• Automatic Stay does not apply in a Chapter 7 but does in a Chapter 13

• Can collect from the co-debtor in most cases• Property settlements will not stop creditors in

state court

Mortgages

• Can cure a defaulted mortgage in a Chapter 13• Can strip off an unsecured mortgage• Modify terms of mortgage

Unsecured Debts

• Medical bills, credit card bills, student loans, personal loans, child support

• Being unsecured does not guarantee that the debt is discharged

Repo Man for the Department of Education

Nondischargeable

• Some tax debts• Child support• Alimony• Fraudulently obtained debts – ex:

unemployment overpayment or personal loans

• Property Settlements from a divorce

Why file?

Advantages• Protection• Assistance• Clear debts• Peace of mind• Rebuilding• Quality of life• Time

Disadvantages• Fees• Restrictions• Business closure• Hard to get credit• Still have debts• Career• Income• Assets

Discharge Order

• Does not list specific debts discharged• If there is not a specific order regarding fraud

or value or the treatment of a secured claim, then the debt is generally discharged

• Sent to all creditors and codebtors• Violation of the discharge order can result in

sanctions

Resources

• National Consumer Law Center• Surviving Debt: Counseling Families in

Financial Trouble• US Bankruptcy Court for the State of Nebraska

website• Local consumer bankruptcy attorneys