Bankruptcy Terms

Last week, I was speaking to a client who was in Chapter 13, had fallen on some hard times, and was considering a conversion to Chapter 7.  In attempting to explain the various effects of the conversion (and her other options), a lot of confusion rapidly ensued because she was swapping out words interchangeably which had VERY different meanings.  Had I not stopped to make sure that she was using the correct terms, the confusion would only have compounded.  And earlier that day, another client was denied information that he needed from one of his creditors because he made a common mistake about the status of his case.
So let’s clarify a few things…
RETAINED, FILED, CONVERTED, DISCHARGED, and DISMISSED are all very different events.
RETAINING an attorney means that you have hired an attorney to work on your behalf.  Retaining an attorney is not the same as filing for bankruptcy.  Different attorneys have different procedures, but generally at the point of retainer, all you have done is to sign a retainer agreement with the attorney – a contract for work and services to eventually file a bankruptcy case.
FILING a bankruptcy case is the act of filing a voluntary petition, schedules, and statements with the bankruptcy court which initiates a series of protections under the bankruptcy code.
CONVERTING a bankruptcy case means changing the type of relief – corresponding to a chapter of the bankruptcy code – that you are seeking.  Conversion does not create a new filing date, it does not create a nor does it change the filing date of the original bankruptcy case.
DISCHARGED is what happens to debts at the successful conclusion of a bankruptcy case.  Debts do not get dismissed.
DISMISSED – in bankruptcy (other types of legal actions have a different meaning for dismissed) – means that a case was or is about to be closed without the benefit of a discharge.
So, in the case of this particular client, she was wondering what would happen with medical bills that she incurred after her bankruptcy case was filed.  The answer was as follows:
If she continued under Chapter 13 and received her DISCHARGE, any debts she incurred after her bankruptcy case was FILED would survive the bankruptcy.
If her Chapter 13 case were DISMISSED, then she would not receive a DISCHARGE, in which case both her pre-filing debts and her post-filing debts would survive the bankruptcy.
If her case were CONVERTED, then the debts incurred after her case was FILED but before her case was CONVERTED would be DISCHARGED, and any debts incurred after her case was CONVERTED would survive the bankruptcy.
My client kept switching up the terms “filing” and “converting”, and “dismissed” and “discharged” – and if she continued to interchange those words as if they meant the same thing when they have very distinct legal meanings – you can imagine how this would lead to severe confusion later on.

What Bills Do I Pay, and When?

What to Pay (& When)
PAY
DO NOT PAY
BEFORE YOUR BANKRUPTCY CASE IS FILED
·         any secured debts you intend to reaffirm (e.g. mortgages, vehicle loans, and other secured loans)
·         ongoing child support obligations
·         payments on any leases you intend to assume
·         ordinary living expenses (groceries, fuel, insurance, utilities, etc.)
·         any unsecured debts (credit cards, personal loans, payday loans, past-due medical bills, past-due utility bills, civil judgments, repo deficiencies, etc.)
WHILE YOUR BANKRUPTCY CASE IS PENDING
·         secured debts you will reaffirm
·         ongoing child support obligations
·         payments on assumed leases
·         ordinary living expenses
·         any unsecured debts
AFTER YOUR BANKRUPTCY CASE IS CONCLUDED
·         reaffirmed secured debts
·         payments on leases
·         ordinary living expenses
·         student loans
·         non-dischargeable debts (taxes, child support, etc.)
PAY
DO NOT PAY
BEFORE YOUR BANKRUPTCY CASE IS FILED
·         mortgage payments
·         vehicle & other secured loans
·         ongoing child support obligations
·         payments on leases
·         ordinary living expenses
·         any unsecured debts
WHILE YOUR BANKRUPTCY CASE IS PENDING
·         Chapter 13 Plan Payments
·         ongoing child support obligations
·         payments on leases
·         ordinary living expenses
·         mortgage (if plan has no conduit provision)
·         any unsecured debts
·         vehicle & other secured loans
·         mortgage (if plan has conduit provision)
AFTER YOUR BANKRUPTCY CASE IS CONCLUDED
·         mortgages
·         payments on leases
·         ordinary living expenses
·         student loans

Keeping Records

In recent days, I’ve had a few clients who have had to shell out a considerable amount of money to pay for copies of documents that they needed for their bankruptcy case.  These are documents that they had already received in the past for free, but instead of holding on to those documents, they chose to throw them in the garbage instead.  Replacing those documents came at quite a bit of cost – and it was all perfectly avoidable.

As a general rule, it is a good idea to keep copies of important documents – some permanently, and others for at least six years.  Even if you don’t intend to file for bankruptcy, this is a good habit to get into, because it’s not just bankruptcy attorneys who request these types of documents.

Here are some common documents you should always keep copies of in a safe location.

  • Vital documents, including birth certificates, marriage certificates, divorce decrees, bankruptcy discharge orders, death certificates, and social security cards – keep these forever.
  • Ownership records, including deeds, titles, and confirmations of ownership – keep these for as long as you own the property they reference.
  • Tax Returns (IRS 1040 and the corresponding state forms, plus any schedules and worksheets) – keep these for at least six years.
  • Insurance Policy Papers – keep these for as long as the policy is active.
  • Paystubs, Bank Statements, Receipts, and other Financial Documents – keep these for at least six years.

Act 376 Passed

The legislation I’ve mentioned in the past and have been tracking (2015 AB 720 / 2015 SB 629) was signed by Governor Scott Walker and published on April 26, 2016, becoming 2015 Wisconsin Act 376.  Accordingly, mortgages executed on or after that date are subject to the new redemption rules.  In the event of a default and a judgment of foreclosure, properties will have a 3 month redemption period (or 6 months if the lender seeks a deficiency) instead of a 6 (or 12) month redemption period.