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What Happens at the Hearing: Phoenix Bankruptcy

The second biggest hurdle and source of anxiety for many of my clients is the hearing.  (The first of course is making the decision to file for bankruptcy).   Some clients have told me they imagine the hearing will be a judge sitting high in his black robe – the courtroom silent as people stare while you walk towards the witness stand, and then a bombardment of questions and creditors protesting.  I can assure you that no matter what idea a person had before the hearing, almost every person says to me as we are leaving the hearing: “THAT was it?  I was worried for nothing!”

I know this is your first bankruptcy and you don’t know what to expect.  Fear comes from the unknown, so this blog is to help you get a better picture of what the hearing entails.  Every person filing for bankruptcy must attend this hearing.  It is required by the Bankruptcy Code Title 11 USC §341 – which is why we often refer to it as the “341 Hearing”.   The hearing serves the purpose of putting you on the record, under oath to affirm that you have been honest in all of your written paperwork filed with the court.  (This is why I ask so many questions and get so much paperwork before we even file your case).

The hearing is not held in a typical courtroom.  The room is more like a big conference room.  There are two tables (or three) set up in an “L” or “U” shape.  The trustee (there is no judge at this hearing) sits at one table, we sit at another, and the last table (if there is one) is usually empty – but it is where creditors can sit if they appear for the hearing.  There are individual chairs in two rows in front of the tables where people wait for their cases to be called.

The trustee handles about 6 to 8 cases every half hour.  At your scheduled hearing time, we will be called into the hearing room, along with all of the other people whose cases are to be held in that half hour.  The trustee introduces himself and provides information regarding his role as the trustee.  You will be called up to the table, and I will go with you.

At that time, the trustee will have you swear or affirm to tell the truth.  The trustee will ask questions similar to these.  Most questions can be answered “Yes” or “No”.

1.       Please state your name for the record.

2.       What is your current address/phone number?

3.       Have you read the Bankruptcy Information Sheet I sent you? Did you understand it?

4.       Have you lived in Arizona for 2 years before the bankruptcy was filed?

5.       Have you previously filed for bankruptcy (if yes, when? Where? What Chapter?)

6.       Did you sign the petition, schedules, statements and related documents? Did you read the petition, schedules and related documents before you signed them?

7.       Are you personally aware of the information provided in the petition? To the best of your knowledge is that information true and correct? Are there any errors you want to bring to my attention at this time?

8.       Are all of your assets listed in the petition?

9.       Are all of your debts listed in the petition?

10.   Do you pay any domestic support obligations (child support/alimony)? If yes, what is the name and address of the person who is to receive those payments?

11.   In the 4 years before you filed this bankruptcy, did you reject (refuse to accept) any inheritance or interest in a trust?

12.   Do you understand that if someone dies within 180 days after you filed bankruptcy and a result you might receive an inheritance, life insurance or interest in a trust, then you must immediately notify the trustee?

13.   Are you a plaintiff in a lawsuit? (Do you have any claims pending that you could make for personal injury or property damage or any other reason?)

14.   If you are married and filing jointly, the trustee will ask your spouse this: Did you hear the questions I asked your spouse? If I asked you those same questions, would your answers be the same?

The trustee may have additional questions for you to clarify any information that was listed in your petition.  He concludes by asking if any creditors are present and wish to be heard in your case. It is very rare that a creditor will show up to your hearing.

It is still the unknown, but hopefully this helps develop a slightly different picture.  Important things to remember: 1) I will be there with you; 2) No decisions are made, this is just a formality to see that you were truthful when you submitted your petition for bankruptcy; 3) It doesn’t take long; 4) you aren’t alone.  You’ll find the room packed with many other people who have made the same decision as you, to free themselves from overwhelming debt.   Remember, the hearing means this part of your life is almost over.   You too, will probably say, “THAT was it?  I was worried for nothing!”

In my Chandler, Arizona office, I’ve sat with many people with questions about Chapter 13 bankruptcy.  A Chapter 13 bankruptcy is sometimes referred to as a “reorganization plan”.  With that type of name, it begs the question, “What’s the difference between a Chapter 13 bankruptcy and a debt consolidation company?”

The most important difference between the two is THE AUTOMATIC STAY.  Once your bankruptcy case is filed, the Automatic Stay is, well… AUTOMATIC.  It is protection from creditors, prohibiting any creditor from suing you, obtaining a judgment, garnishing wages, foreclosing on your house, repossessing your car or other personal property and protects you from their overwhelming phone calls. THIS is why you see, “STOP FORECLOSURE, STOP WAGE GARNISHMENT, STOP CREDITOR PHONE CALLS”, when you read about bankruptcy.  The Automatic Stay is such an important and basic right of a debtor (YOU) and is not available outside of bankruptcy.  Debt companies do not tell you this and so, here’s how I’ve seen those type of debt companies work:

John is drowning in debt, but he wants to pay it back.  He thinks that doing so will be better for his credit report and conscience.  So he calls one of those phone numbers he hears on a radio commercial (you know the ones: “Don’t file for bankruptcy, call us! We have secrets creditors don’t want you to know”).  Well, it sounds so promising; John thinks he’ll give it a try.  He talks to a super nice representative at the debt company – we’ll call it “Company” for now.  John is supposed to pay monthly fees to “Company” which will be automatically withdrawn from his checking account.  “Company” has promised that once enough money is collected from John, “Company” will begin making settlement offers and his debt will be paid off in a couple of years.  This sounds great to John, and he signs the papers, gives his checking account number and his money starts flowing to “Company”.  Creditors are supposed to be notified, but there is nothing obligating the creditors to agree to be part of “Company’s” plan.  Eventually, (usually after thousands of dollars have been paid into John’s consolidation plan – yes, after a year or two) a creditor decides they’ve waited long enough, and they sue John. The creditor gets a judgment and starts wage garnishment proceedings.  John calls “Company” to cancel his service, stop automatic withdrawals from his checking account, and get a refund of any money that wasn’t used to settle with creditors.  This is difficult.  Now, John can’t find that original super nice representative.  Instead, he talks to people who are often rude and unsympathetic to what is happening to him.  They often make it very difficult to cancel, sometimes even failing to stop their automatic withdrawals.  Worst of all, the clever folks at “Company”, drafted their contract to require “Company’s” fees be paid first – meaning most (if not all) of the money paid by John over the months or years, is non-refundable.  That’s when John calls me and files for bankruptcy.

Bankruptcy, on the other hand, is a legal process, set in place for people just like John (and you).  It’s a legal right to discharge debt that has become too overwhelming.  When you file for chapter 13 bankruptcy:

• You will have an attorney, bound by ethical rules to be YOUR advocate, and keep YOUR best interests in mind at all times.
• Your attorney is also required, by bankruptcy law and state ethical rules, to set forth a written contract specifying what the attorney will do for you and how much it will cost.
• You will have TRUE legal protection from all of your creditors through the “Automatic Stay.”
• If any creditor crosses the line, you have your advocate working for you to stop those creditors, and you have the law on your side.
• You will have someone working to protect your assets and ensure an affordable and realistic payment.
• At the end of your Chapter 13 Plan, any unpaid unsecured debt, is discharged.

Contact me to get started.

Every person I’ve met has asked, “what will bankruptcy do to my credit?”  If you are considering chapter 7 or Chapter 13 bankruptcy, chances are that late payments, charge-offs, judgments, garnishments, and foreclosures may have already taken a significant hit to your credit.  Bankruptcy is often a more productive tool at increasing your credit score than trying to make arrangements with creditors.

Let me back up.  Bankruptcy will be on your credit for 10 years.  The time begins from the day of filing your bankruptcy case.  Other negative items (for instance, late payments) stay on your credit for 7 years.  That looks better, right?  7 years instead of 10 years?  But, if you take a closer look you will see that negative reporting that lasts for 7 years is usually staggered on your credit report.  Let’s say that you have a credit card with Big Bank.  You stop paying the credit card.  After 3 months, Big Bank sends your account to collections.  You now have a new negative item on your report.  This goes on for a long period of time – passing your account along to new collections agencies, until finally one of them files a law suit against you.  This will be true for most of your credit cards with all of the other Big Banks.  When bankruptcy is listed on your credit report, it envelops those other debts.  There is now a “last day” to begin counting the 10 years.

I know, that sounds like a long time.  The good news is, you will be able to begin reestablishing your credit almost immediately.   Even before you are out of bankruptcy, you can sign a reaffirmation agreement with your car lender.  Your monthly payments will then be reported on your credit report. So make sure to make those payments on time.  The debts discharged in your bankruptcy will no longer be part of your debt-to-income ratio.  Therefore, your debt-to-income ratio will improve dramatically – a positive thing for your credit score.  After your discharge, you can obtain a secured line of credit from your bank.  It’s essentially a savings account that you borrow against.  Be conservative, and gradually increase your credit score.