Bankruptcy Handbook (con’t):
This booklet is provided by the Office of the Clerk, United States Bankruptcy Court, Eastern District of California. It has been prepared to respond to the questions frequently asked of Clerk’s Office staff by non-lawyers. If you have a question that is not covered in this booklet and it goes beyond an explanation of filing requirements, or would not be answered by hearing the text of a rule or statute without comment, it probably requires the giving of legal advice and therefore can not be answered by Clerk’s Office staff. Individuals are not required to have an attorney to file bankruptcy; however, the law in this area is sufficiently complex that most individuals find it desirable to obtain legal representation. This booklet has been prepared with the assistance of the Clerk’s Office Attorney Advisory Committee and the Sacramento County Bar Association Bankruptcy Section, and is not designed to instruct the reader on how to handle a bankruptcy proceeding without representation by a qualified bankruptcy attorney. It is recommended that any individual, corporation or partnership considering the filing of a bankruptcy case first obtain the advice of a competent bankruptcy attorney. An initial consultation with a bankruptcy attorney is customarily available for a reasonable charge or for free. Debtors filing bankruptcy without legal representation will be held responsible to know the requirements of the Bankruptcy Code and Federal Rules of Bankruptcy Procedure and will be given no special consideration by the court. You should be aware that missing a deadline, failing to perform a required task, or failing to respond properly to an action could result in the dismissal of your case, denial of discharge, or losing property which you might otherwise have been entitled to keep. Please note that the Clerk’s Office is prohibited by law from providing legal advice. Debtors seeking assistance from bankruptcy petition preparers, including paralegals and typing services, are warned that such services are also prohibited by law from providing legal advice. Only an attorney may provide legal advice.
WARNING: BANKRUPTCY FRAUD IS A SERIOUS FEDERAL CRIME. (18 U.S. CODE, §§ 152 – 155.) PUNISHMENT CAN BE UP TO FIVE YEARS IN PRISON, AND A $25,000 FINE. THE FBI INVESTIGATES ALLEGATIONS OF BANKRUPTCY FRAUD. WHEN IN DOUBT ABOUT WHETHER AN ASSET OR FACT NEEDS TO BE DISCLOSED, OR IF WHAT YOU INTEND TO DO IS LEGAL, CONSULT AN ATTORNEY FOR ADVICE.
1. WHAT IS BANKRUPTCY?
Bankruptcy is a way for people or businesses who owe more money than they can pay right now, (a “debtor”), to either work out a plan to repay the money over time, under Chapter 11, 12 or 13, or for most of the bills to be wiped out (“discharged”), as in a chapter 7 case. While the debtor is either working out the plan or the trustee is gathering the available assets to sell, the Bankruptcy Code provides that creditors must stop all collection efforts against the debtor. When the bankruptcy petition is stamped “Relief Ordered” upon filing, you are immediately protected from your creditors. What chapter you choose to file under, what bills can be eliminated, how long payments can be stretched out, what possessions you can keep, and other details are controlled by the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure. These are federal laws, which means they apply all over the United States. The Code and Rules are found in Title 11 of the United States Code. The various sections of the Bankruptcy Code are referred to throughout this booklet as ” 11 U.S.C. § _”.
Any person, partnership, corporation or business trust may file a bankruptcy. If the person or entity who owes the money, referred to as the debtor, starts the bankruptcy, it is called a voluntary bankruptcy. The people or entities that are owed money, referred to as the creditors, can also file a petition against a person or an entity who owes them money, and that is called an involuntary bankruptcy. In an involuntary case, the debtor gets a chance to contest the petition and contend it should not be in bankruptcy. Involuntary cases can only be filed under chapters 7 or 11. Voluntary cases can be filed under chapters 7, 9, 11, 12, and 13. Certain types of entities, such as banks and insurance companies, may not be eligible to file bankruptcy, however, almost all other entities can file a bankruptcy. A business that is NOT a partnership, corporation or business trust, cannot file a separate bankruptcy on its own. Those assets and debts would be included in the personal bankruptcy of the owner(s).
A joint petition is the filing of a single petition by an individual and the individual’s spouse. Only people who are married on the date they file may file a joint petition. Unmarried persons, corporations and partnerships must each file a separate case. If you are an individual and have a business which is not a partnership, corporation or business trust, you should list the business as a “dba” (doing business as) on your petition. However, yours will not be considered a joint petition because the business is not an independently-recognized legal entity.
is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases are commonly referred to as “straight bankruptcy” or “liquidation” cases, and may be filed by an individual, corporation, or a partnership. Under chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain property exempt (see discussion in number 12 below). In exchange for this, the debtor gets a discharge, which means that the debtor does not have to pay certain types of debts (see discussion in numbers 19, 20, and 21 below). Corporations and partnerships do not receive discharges. Consequently, any individuals legally liable for the partnership’s or corporation’s debts will remain liable. Therefore, individual bankruptcies may be required as well as the corporation or partnership bankruptcy.
is only for municipalities and governmental units, such as schools, water districts, and so on.
is the debt repayment chapter for individuals with regular income whose debts do not exceed $1,000,000 ($250,000 in unsecured debts and $750,000 in secured debts), including individuals who operate businesses as sole proprietorships. It is not available to corporations or partnerships. Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income. Each chapter 13 debtor proposes a repayment plan which must be approved by the court. The amounts set forth in the plan must be paid to the chapter 13 trustee who distributes the funds for a small fee. Many debts that cannot be discharged can still be paid over time in a chapter 13 plan. After completion of payments under the plan, chapter 13 debtors receive a discharge of most debts.
offers bankruptcy relief to those who qualify as family farmers. There are debt limitations for chapter 12, and a certain portion of the debtor’s income must come from the operation of a farming business. Family farmers must propose a plan to repay their creditors over a period of time from future income and it must be approved by the court. Plan payments are made through a chapter 12 trustee who also monitors the debtor’s farming operations while the case is pending.
is the reorganization chapter available to businesses and individuals who have substantial assets and/or income to restructure and repay their debts. Creditors vote on whether to accept or reject a plan of reorganization which must be approved by the court. While the debtor normally remains in control of the assets, the court can order the appointment of a trustee for cause, such as when the debtor does not get a plan approved in a reasonable amount of time, or fails to follow some of the rules, or breaks the law. In addition to the filing fee paid to the Clerk, a quarterly fee shall be paid to the U.S. Trustee in all chapter 11 cases.
There is no debt limit under chapter 11. However, only a chapter 11 debtor that qualifies as a small business may request expedited treatment under chapter 11. To qualify as a “small business,” the debtor must be engaged in commercial or business activities, other than the ownership of real property, and the total of its secured plus unsecured debts must be less than $200,000. Due to the expense and complexity of chapter 11, the decision to file a chapter 11 petition should be made in consultation with an attorney.
You have a choice in deciding which chapter of the Bankruptcy Code will best suit your needs. The decision whether to file a bankruptcy, and under which chapter to file depends on the particular circumstances of the debtor. In general, chapter 7 is appropriate when the debtor has insufficient income to pay all or most of his/her debts. Otherwise, if the debtor has an income or property and can afford to pay all or a substantial portion of his/her debts, chapter 11, 12, or 13 may be appropriate depending on whether the debtor is an individual, partnership, corporation, or family farmer.
These are only a few of the factors to consider, however. There is no way that a simple booklet such as this can spell out all the different things to be considered. Also, considering your personal facts, comparing them to each chapter’s requirements, and deciding which chapter to select, would be giving legal advice. The Clerk’s Office staff and bankruptcy petition preparers, including typing services and paralegals, are prohibited from giving you legal advice. Only a lawyer can give you legal advice. Many lawyers charge a modest amount to help you (some less than bankruptcy petition preparation services) and most will give you a free consultation, in which they will go over your circumstances and needs and tell you what you should do and how much it will cost for them to do it. There are also several “do it yourself’ books that set out the details of each chapter and attempt to explain the bankruptcy process.
The decision whether to file a bankruptcy and under what chapter is an extremely important decision and should be made only with competent legal advice from an experienced bankruptcy attorney after a review of all of the relevant facts of the debtor’s case.
6. WHERE CAN I GET MORE INFORMATION CONCERNING BANKRUPTCY AND BANKRUPTCY PROCEDURE? IS THERE ANY PLACE I CAN GET FREE OR LOW COST LEGAL ADVICE BEFORE I FILE?
The easiest way to get low or no-cost bankruptcy advice is to make an appointment with a private attorney. Many will provide a free initial consultation during which you can have your questions regarding bankruptcy procedures and their application to your situation answered.
McGeorge Law School operates a community legal service that represents low income bankruptcy clients on a space available basis. Services are provided by law students with attorney supervision. The McGeorge Community Legal Service phone number is (916) 739-7161.
Low cost help in typing your petition and forms is available from “bankruptcy petition preparers.” “Paralegal” or “typing” services are considered bankruptcy petition preparers. Bankruptcy petition preparers are not attorneys. Likewise, they are not employed or supervised by attorneys and cannot represent you in your bankruptcy. Only a licensed attorney can give you legal advice in answering your questions or helping you with your forms. Bankruptcy petition preparation services are listed in the phone book.
Bankruptcy petition preparers are permitted to provide services limited to the typing of forms. These services are subject to various statutory requirements and limitations. The Bankruptcy Code requires a bankruptcy petition preparer, within ten (10) days after the date of the filing of the petition, to file a declaration under penalty of perjury disclosing compensation received from or on behalf of the debtor and any unpaid fee charged to the debtor. Additionally, the bankruptcy petition preparer is required to sign and print the preparer’s name, address and social security number on all documents prepared for filing.
Please note that although bankruptcy preparers are required to sign all documents prepared for filing, they are not authorized to sign any document on your behalf. Therefore, you and if filing a joint petition your spouse, must also sign all documents. Copies of all prepared documents should be furnished to you by the bankruptcy petition preparer at the time they are presented to you for signature. Likewise, bankruptcy petition preparers are prohibited by law from collecting or receiving any court fees connected with the filing of your case. Consequently, all court fees connected with the filing of your case, including the filing fee and miscellaneous administrative fee, should be paid directly by you to the court (see discussion in number 15 below). The failure of any bankruptcy petition preparer to comply with the law should immediately be brought to the attention of any trustee appointed in your case and the local Office of the United States Trustee.
A bankruptcy case is a legal proceeding affecting the rights of debtors, creditors and other parties in interest. Pursuant to 28 U.S.C. § 955, Clerk’s Office staff are prohibited from giving information which may be characterized as legal advice. Canon 2f and 3 of the Judiciary’s Code of Conduct also prohibits the providing of legal advice by the Clerk’s Office and further instructs the staff to remain impartial.
While there is no precise definition of legal advice, it includes at a minimum (1) acting on a person’s behalf in presenting a claim or defense to a court, and (2) advising a person on the merits of a claim or defense and the state of the law applicable to it. Clerk’s Office staff, therefore, will not provide information relating to:
- the application of laws and rules to individual claims or defenses
- whether jurisdiction is proper in a particular court
- whether a complaint properly presents a claim
- what the “best” procedures are to accomplish a particular objective
- the interpretation of case law
Clerk’s Office staff will not offer any opinion as to the probable disposition of any matter by the court. The information provided by Clerk’s Office staff is limited to explaining the filing requirements of the court and reading, without comment, the actual text of a bankruptcy rule, local rule or statute.
The Clerk’s Office provides a variety of services to the bankruptcy judges, attorneys and the public. Clerk’s Office staff provides clerical and administrative support to the court by filing and maintaining case-related papers, issuing process and writs, signing ministerial orders, collecting authorized fees, sending notices, entering judgments and orders, and setting hearings. The services provided by the Clerk’s Office to attorneys and the public include responding to requests for information and making copies of papers in bankruptcy court files.
Although Clerk’s Office staff cannot give you legal advice, the U.S. Bankruptcy Court is a source for many forms and local rules which you will need to file your bankruptcy petition and related documents.
A complete list of the documents and forms you will need to start a bankruptcy case under any chapter of the Bankruptcy Code is contained in Attachment 1. In addition to requiring certain Official Forms (Form 1 — Voluntary Petition, Form 6 — Schedules A through J, Summary, and Declaration, Form 7 — Statement of Financial Affairs, and Form 8 — Statement of Intention), the Eastern District of California requires the filing of the following local forms: Creditor Matrix, Verification of Creditor Matrix, in Sacramento Division chapter 13 cases, a Chapter 13 Work Sheet, and in Fresno Division chapter 13 cases, a Chapter 13 Wage Order.
The order in which these documents should be assembled, the number of copies to file and the time within which you have to file them is indicated on Attachment 1. Together these forms are generally referred to as your bankruptcy petition, although technically the petition is only Form 1.
If you need to start your case quickly, you can file only those documents indicated on Attachment 1 as minimum documents required for incomplete filing. All additional documents must be filed within the time indicated on Attachment 1. Your failure to timely file additional required documents or seek an extension of time to do so may result in dismissal of your case, denial of discharge, or the imposition of sanctions.
Official Bankruptcy Form sets may be purchased at local stationery stores. The Clerk’s Office does not supply Official Bankruptcy Forms or sample plans. However, Official Bankruptcy Form samples may be obtained at the public counters and photocopied. The Clerk’s Office will supply you with the local forms listed on Attachment 1.
Tips For Completing Forms
- Type the information on the forms, if possible. All forms should be legible, 8 1/2 by 11 inches in size, two hole punched at the top/center and printed on one side only.
- Put a response to every question. If your answer to a question is “none,” and there is no “none” box to check, put “N/A.” Use continuation pages when you run out of room. Sign each form where required. If filing a joint case, make sure that your spouse signs, too.
- Prepare your creditor matrix (a mailing list of all your creditors) according to the matrix format instructions found in Attachment 2. The Clerk’s Office uses an Optical Character Reader to scan matrices and if you do not follow the instructions exactly, the scanner will not be able to read the matrix properly.
- Make sure that you have the number of copies indicated in Attachment 1. Assemble original forms and all sets of copies in the order set forth in Attachment 1.
11. HOW DO I KNOW IF A DEBT IS SECURED, UNSECURED, PRIORITY OR ADMINISTRATIVE SO I CAN FILL OUT MY SCHEDULES CORRECTLY?
- Secured Debt: A secured debt is a debt that is backed by property. A creditor whose debt is “secured” has a right to take property to satisfy a “secured debt.” For example, most homes are burdened by a ” secured debt.” This means that the lender has the right to take the home if the borrower fails to make payments on the loan. Most people who buy new cars give the lender a “security interest” in the car. This means that the debt is a “secured debt” and that the lender can take the car if the borrower fails to make payments on the car loan.
- Unsecured Debt: A debt is unsecured if you have simply promised to pay someone a sum of money at a particular time, and you have not pledged any real or personal property to collateralize that debt.
- Priority Debt: A priority debt is a debt entitled to priority in payment, ahead of most other debts, in a bankruptcy case. A listing of priority debts is given, in general terms, in 11 U.S.C. § 507 of the Bankruptcy Code. Examples of priority debts are some taxes, wage claims of employees, debts related to goods and services provided to a debtor’s estate during the pendency of a bankruptcy case, and alimony, maintenance or support of a spouse, former spouse, or child. If you have questions deciding which of your debts are entitled to priority status, you should consult an attorney.
- Administrative Debt: An administrative debt is also a priority debt and is one created when someone provides goods or services to your bankruptcy estate. The best example of an administrative debt is the fees generated by attorneys and other authorized professionals in representing the bankruptcy estate. A priority debt is a debt entitled to priority in payment, ahead of most other debts, in a bankruptcy case. A listing of priority debts is given, in general terms, in 11 U.S.C. § 507 of the Bankruptcy Code. Examples of priority debts are some taxes, wage claims of employees, debts related to goods and services provided to a debtor’s estate during the pendency of a bankruptcy case, and alimony, maintenance or support of a spouse, former spouse, or child. If you have questions deciding which of your debts are entitled to priority status, you should consult an attorney.
11 U.S.C. § 522(b) allows an individual debtor to exempt real, personal, or intangible property from the property of the estate. Exempt assets are protected by state law from distribution to your creditors. The exemptions allowed under California state law, and the dollar amounts of those exemptions, are listed in sections 703 and 704 of the California Code of Civil Procedure. Typically, exempt assets include jewelry, vehicles up to a certain dollar amount, the equity in your home up to a certain amount, and tools of the trade. Under bankruptcy law, you are entitled to list the assets set forth in sections 703 or 704 of the California Code of Civil Procedure as exempt.
Exemptions are claimed on schedule C. As with all schedules, it is important to fully complete and provide all the information requested. If no one objects to the exemptions you have listed within the time frame specified by the bankruptcy court, these assets will not be a part of your bankruptcy estate and will not be used to pay creditors through your bankruptcy case.
Deciding which assets are exempt and how and if you can protect these assets from your creditors can be one of the more important and difficult aspects of your bankruptcy case. It is extremely important to consult an attorney if you have any questions regarding the issue of exempt assets.
The bankruptcy court is a federal court. The federal court system divides the United States into judicial districts. Every state has at least one federal judicial district. Many have more. In California, for example, there are four federal judicial districts. This is the Eastern District of California. Due to its size, the U.S. Bankruptcy Court for the Eastern District of California has been split into three divisions, each with a fully staffed Clerk’s Office. All three divisional Clerk’s Offices are open from 9:00 a.m. until 4:00 p.m. on all days except Saturdays, Sundays and legal holidays. The addresses and public telephone numbers for each divisional office are indicated below. Unless otherwise indicated, all correspondence should be mailed to the street address of the appropriate divisional office.
- Sacramento Division
U.S. Bankruptcy Court
501 I Street, Room 3-200
Sacramento, CA 95814
- Modesto Division
U.S. Bankruptcy Court
1130 12th St., Suite C
Modesto, CA 95354
P.O. Box 5276 (correspondence)
P.O. Box 5376 (claims)
Modesto, CA 95352
- Fresno Division
U.S. Bankruptcy Court
2656 U.S. Courthouse
1130 0 Street
Fresno, CA 93721
(Although there is a bankruptcy court in Bakersfield, where bankruptcy hearings are periodically held, there is no staffed Clerk’s Office in Bakersfield.)
As a general rule, you should file your bankruptcy case in the bankruptcy court for the federal judicial district where you have lived for the greater part of the previous 180 days. You can also file in the district where your principal place of business has been located during the previous 180 days or where the principal assets have been located for that period.
The Eastern District of California covers the 34 counties in northern California indicated below. If your residence, principal place of business or principal assets have been located in one or more of these counties for the necessary period of time, you should file your case in the U.S. Bankruptcy Court for the Eastern District of California. The specific county of your residence, principal place of business or principal assets determines in which of the Eastern District of California’s three divisions your case should be filed.
Sacramento Division: Petitions from Alpine, Amador, Butte, Colusa, El Dorado, Glenn, Lassen, Modoc, Mono, Nevada, Placer, Plumas, Sacramento, Shasta, Sierra, Siskiyou, Solano, Sutter, Tehama, Trinity, Yolo, and Yuba counties and the Postal Zip Codes of 95220, 95227, 95234, 95237, 95240, 95241, 95242, 95253, 95258, and 95686 within San Joaquin County, shall be filed in the Sacramento Division.
Modesto Division: Petitions from Calaveras, Stanislaus, and Tuolumne counties, and all Postal Zip Codes within San Joaquin County except those designated above for filing in the Sacramento Division, shall be filed in the Modesto Division.
Fresno Division: Petitions from Fresno, Inyo, Kern, Kings, Madera, Mariposa, Merced, and Tulare counties shall be filed in the Fresno Division.
Bankruptcy petitions, pleadings and other papers may be submitted for filing by mail or in person at the Clerk’s Office public counters. In the Sacramento Division, documents may additionally be tendered for filing by placing them in the document depository located at the front entrance to the Federal Building at 501 I Street. The depository is accessible twenty-four hours per day, seven days per week. For instructions concerning the use of the Sacramento Division document depository, please see Attachment 1
Absent extraordinary circumstances, all documents must be submitted for filing by mail, at a Clerk’s Office public counter during business hours, or by placing them in the document depository. When extraordinary, compelling circumstances require delivery of a document to the Clerk’s Office after hours, an emergency filing can be arranged by contacting the appropriate divisional Clerk’s Office during business hours. The Clerk’s Office does not accept documents for filing by facsimile.
After completing, assembling, and two hole punching the top/center of the original and all copies of your bankruptcy papers, mail or deliver them to the appropriate divisional Clerk’s Office accompanied by the filing fee payment or a completed application to pay fees in installments. The Clerk’s Office will file stamp and return one copy to you. If your petition is mailed, you must include a self-addressed, stamped envelope of sufficient size to obtain your file stamped copy. In the Sacramento Division, you must also enclose a self-addressed, stamped envelope if you use the document depository.
The fees for filing petitions under all chapters of the Bankruptcy Code are indicated on Attachment 1, entitled “Filing Requirements.” In addition to the filing fee, the court charges a $30.00 miscellaneous administrative fee in all chapter 7 and chapter 13 cases filed on or after December 1, 1992.
You must pay the required filing and administrative fees regardless of your income. If you cannot come up with the full amount at the time of filing, you may pay the filing fee and administrative fee in up to four installments over a period of one hundred twenty (120) days. To do so, you must complete an application to pay filing and administrative fees in installments and submit it with your petition. Application forms are available at each divisional Clerk’s Office.
You cannot apply to pay in installments if you have already paid an attorney, a “bankruptcy petition preparer,” or anyone else to help you with your bankruptcy. Additionally, you cannot pay anyone for help with your case until all installments have been paid.
The Clerk’s Office does not accept personal checks. All payments should be made in the division where the petition is filed by cash or cashier’s check, certified check, or money order payable to “Clerk, U.S. Bankruptcy Court” For your protection, do not send cash in the mail.