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Posted by: National Bankruptcy Forum
Last updated Dec. 14, 2017.
For most people, lawyers and lawsuits conjure up images of wood-paneled courtrooms with scary judges presiding over heated exchanges. “ORDER IN THE COURT! OBJECTION, YOUR HONOR!” Many bankruptcy clients are concerned that a judge will be reviewing and second-guessing their petition.
This concern is usually unwarranted. In the vast majority of cases, debtors never step foot in a courtroom and do not appear before a judge.
Here’s what you need to know about filing for bankruptcy and what will be expected of you.
The 341 Meeting of Creditors
Debtors are required to attend what is known as the meeting of creditors or section 341 meeting, a proceeding at which the debtor testifies under oath that the information contained in their bankruptcy filing is accurate.
In many jurisdictions, the 341 meeting doesn’t even take place in the courthouse. It might be across the street or nearby the federal court. Your bankruptcy trustee (not a judge) will preside over the meeting of creditors, but don’t worry, your bankruptcy attorney will be there to guide you through the process.
In most Chapter 7 cases, the 341 meeting is fairly painless and only lasts between 30 seconds to five minutes. During that time, the trustee will ask you a series of questions about your property, debts, and financial history. Some debtors will receive very few questions; others with more complicated cases may receive more.
The key to success is being open and honest with your lawyer.
Here are five things to expect during your 341 meeting:
- Your attorney will attend the meeting with you, whether you filed for Chapter 7 bankruptcy or Chapter 13 bankruptcy;
- During the meeting, assets will be administered in a Chapter 7, and your disposable income will be verified in a Chapter 13 repayment plan;
- You’ll have to swear in. That means your testimony is under oath; you cannot lie, otherwise you will face severe consequences (least of which is having your bankruptcy denied);
- You’ll be asked if all of your financial documents are in order and accurate;
- In most Chapter 7 cases, no assets will be found. In Chapter 13 cases, you may be asked for additional verification of your income or expenses.
And that’s it!
See also: Don’t Fear Your Meeting of Creditors
When a Bankruptcy Court Appearance is Required
Although the likelihood of a court appearance is low, debtors must realize that filing for bankruptcy is more than just filling out some forms. A bankruptcy case can turn to litigation fairly quickly. Debtors may be required to appear in court when a trustee objects to one of their exemptions or the judge orders them to appear and show cause. In addition, an adversary proceeding will likely require a court appearance, as well.
Objections to Exemptions
When filing for bankruptcy, a debtor will state which of their property is exempt under bankruptcy laws. This allows the debtor to protect certain property, such as their house, car, retirement accounts, and more. However, debtors must carefully follow exemption rules in their state; in some states, you can choose between federal exemptions or state exemptions, while others only allow you to use state rules. Some states have better exemptions than others. A bankruptcy attorney will thoroughly review exemptions with you to determine which property you will be able to keep. The majority of Chapter 7 cases, if debtors qualify, will allow them to keep all their property.
Show Cause Order
A show cause order is typically used in cases of contempt, in which debtors can go to jail. Essentially, it’s used on either difficult debtors who have lied to the court, or debtors who simply forgot a step during their bankruptcy (failing to disclose assets, not providing documents to the bankruptcy trustee, etc.), who then have to show the court why their bankruptcy discharge should not be denied. While some debtors who have been given a show cause order have actually been honest, they may not have done their paperwork correctly. This happens often in pro se cases, in which a debtor tries to file bankruptcy themselves. This is when a good bankruptcy attorney needs to step in.
See also: Filing a Pro Se Bankruptcy is a Bad Idea
Adversary proceedings are lawsuits filed separate from your bankruptcy case, though it’s related. An adversary proceeding can be filed by anyone in a bankruptcy, including the debtor, when someone requires relief through a judge’s order.
Types of adversary proceedings include:
- Fraudulent transfers: Bankruptcy trustees will file these if you’ve moved around any money or property in the two years leading up to your bankruptcy.
- Preferential transfers: Bankruptcy trustees will file these if you pay back creditors more than $600 in the three months leading up to your bankruptcy, or a year in the case of family members.
- Lien stripping: Debtors will file these during a Chapter 13 bankruptcy if they have more than one mortgage on a house.
- Dischargeability of debt: Creditors will file these to request a debt not be discharged due to fraud of the debtor.
- Joint property sale: A trustee can file these to split property from you and your spouse in order to sell it.
- Objection to discharge: Trustees and creditors can file these when you’ve committed fraud or failed to comply with court order.
Bottom Line: Don’t Fear Bankruptcy
Fear not, as long as you’ve disclosed everything you own on your bankruptcy schedules and hired an experienced bankruptcy attorney to prepare your case, you likely won’t have to step foot in a courtroom if you file for bankruptcy. If you need to obtain the services of a qualified bankruptcy professional, contact National Bankruptcy Forum for a free debt evaluation today.