Questions and Answers About Bankruptcy

"The Law Office of Eric C. Rajala is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code."

Is consumer bankruptcy still available under the new bankruptcy law?

In 2005, Congress made sweeping changes to the Bankruptcy Code, primarily in connection with consumer bankruptcy. These changes mostly became effective on October 17, 2005. In general, the new law makes consumer bankruptcy more difficult, time-consuming, and expensive. Still, Chapter 7 relief is still available for 90 to 95% of the consumers who need it. Those who are not be eligible for Chapter 7 may be able to find relief by way of a Chapter 13 payment plan.

I'm having trouble paying my bills. Should I file bankruptcy?

Many people run into financial problems from time to time. Sometimes, the situation is temporary, and can be resolved before it gets out of control. But if you are hit with an expense that was never anticipated, such as a large, uninsured medical bill, you may find it impossible to work it into your monthly budget.

In some cases, what appears to be a small problem may be a symptom of a larger problem. For instance, you may be making your monthly payments on time, but find it necessary to borrow money (for instance, by taking cash advances on credit cards) to meet your living expenses. If this pattern continues over a period of time, at some point, the debt will build up to the point where you cannot borrow enough money fast enough to stay current in your payments.

Like a snowball rolling downhill, when debts are not paid on time, extra interest and penalties can build up to a crushing weight. This can lead to collection letters, harassing telephone calls, and even lawsuits, judgments and wage garnishments. If you feel that your debt problem is heading in this direction, you should review the situation with an attorney experienced in bankruptcy law, to help you decide whether bankruptcy would be appropriate for you.

In some instances, bankruptcy may not solve the problem, or it may involve potential risks and expenses which would make it inappropriate. A good bankruptcy attorney will take the time to understand the facts of your particular situation, and will give you advice tailored to meet your specific needs.

What is the purpose of the initial meeting with the attorney?

We offer an initial consultation for several reasons. First, it gives you, the potential client, an opportunity to find out about the bankruptcy process, whether it would solve your financial problems, and the cost of the procedure. Second, it helps us understand the facts of your situation, so that we can help you decide upon the proper course of action. Otherwise, our advice is likely to be no more helpful than the general information about bankruptcy law available online or in bookstores - interesting, but of limited personal value.

Perhaps most importantly, the consultation allows you to evaluate the Firm's competence, as well as our compassion and concern for your well-being in what can be a very stressful situation.

How can I find out whether filing bankruptcy would be the right decision for me?

Just call me at (913) 339-9806 to set up an initial consultation meeting. I will ask you to bring in a list of your debts, by name of creditor and amount due. The meeting takes approximately one hour. At the meeting, I will offer my suggestions and advice, and give you a packet of documents for your use in gathering the information necessary to prepare a bankruptcy filing, if you decide to go that route. The packet includes a set of Client Questionnaire, Disclosures, Checklists, an Attorney Fee Agreement, and a cover letter explaining the procedure for starting the case.

After our initial meeting, if you decide to proceed with a bankruptcy filing, you will need to do the following:

• Fill out the Client Questionnaire as completely and accurately as you can.
• Collect the documents listed in Checklist No. 1 (Documents Needed For Preparation of Bankruptcy Case).
• Review and sign all six Disclosures included in the packet.
• Attend a pre-bankruptcy consumer credit counseling session from a credit counseling agency approved by the United States Trustee (a list of approved agencies is provided in the packet), and obtain a Certificate of Counseling from the agency.

When you have completed these tasks, call me to set up another appointment to review all of the documents and information with you. At this meeting, we should be able to determine your eligibility for bankruptcy relief, and help you decide whether you should file bankruptcy under Chapter 7, Chapter 13, or possibly under Chapter 11. We usually can produce bankruptcy papers for your review and signature within a few days of making this decision.

The following instructions will assist you in filling out the worksheets:

1. Be sure to list all of your creditors, with the name, address, account number and balance due for each one (spouses filing jointly must show who is obligated on each debt - husband, wife or joint).
2. Don't forget to include the names and addresses of any attorneys or collection agencies, along with the name of the creditor they represent.
3. Bring to our next meeting copies of your pay stubs, or other summary of your earned income for the past six months (spouses filing jointly must report separate incomes). You will also need to document and account for other income received during the previous six months, such as rents, royalties, dividends, and other non-employment related income.
4. Be sure to state the legal description of any real property that you own; for instance: Lot ___, Block ___, [name of subdivision], City of ______, ________ County, Kansas.
   Special note with respect to real estate: If there are any judgments recorded against you in the county where your real property is located, they will cloud the title to the property. To remove the cloud, it may be possible to "avoid" the lien of a recorded judgment on your residence. Please be sure to identify any such judgments, so that we can take steps to avoid the judgment lien. You should bring copies of any court papers to our next meeting.
5. Some monthly living expenses rise and fall according to the time of the year. For instance, the electric bill may be high in the summer and low in the winter; the heating bill is just the opposite. When you list your monthly living expenses, use a monthly average based on a normal year's expenses in each expense category. For example, if your highest electric bill is $200, and the lowest is $100, use an average figure of $150 per month.
6. When placing values on your property, please try to estimate what the property would bring in a well advertised sale. For household goods, use a "garage sale" estimate. For vehicles, use a compromise between the trade-in value and the retail value. The Kelly Blue Book "private party" sale value is used by the Bankruptcy Court in the District of Kansas to determine the value of used vehicles. It can be found online at www.kbb.com.

If you have any questions concerning the Client Questionnaire, please write them down and bring them with you to your next appointment.

What happens after I sign the papers?

BANKRUPTCY FILING PROCEDURE: Once you have reviewed and signed the petition, schedules and statement of financial affairs, these documents will be copied and filed with the Court. You will receive a hard copy of the filing from me by mail, which you should keep in your permanent records, along with all other documents you will receive from me or the Court. The Court will mail a notice of the filing of the case to your creditors; we'll each get a copy, too. It will tell us the date, time and location of the meeting of creditors.

MEETING OF CREDITORS: The meeting of creditors is usually held about 30 days after the filing of the case. You are required to attend, and I will be there to assist you. The purpose of the meeting is to allow the bankruptcy trustee to question you under oath concerning the information in your bankruptcy petition, schedules, and statement of financial affairs. Creditors may also attend and ask questions. Nobody will be permitted to harass or abuse you - it's simply an opportunity for the trustee and the creditors to get information from you about your financial situation.

ROLE OF THE BANKRUPTCY TRUSTEE: The trustee's job in a Chapter 7 case is to investigate your financial circumstances, in order to verify that you have followed the rules, and to administer your non-exempt property for the benefit of your creditors. This means that the trustee may seize and sell your non-exempt property, so that he can pay a dividend to your creditors.

Exemptions are generally determined under state law. State law exemption statutes generally apply in bankruptcy cases to allow debtors to keep exempt property from being liquidated by the trustee. Other exemptions may be claimed under federal non-bankruptcy law, such as Social Security benefits.

Generally, the Chapter 7 trustee can only liquidate nonexempt property you owned on the day the case was filed. You will be allowed to keep your exempt property, as well as any property you acquire after the filing of the case, with some exceptions. For instance, the trustee may be entitled to all or part of a tax refund which you may receive after the case is filed, or to an inheritance you become entitled to receive within 180 days of the filing of the case. The trustee may also try to recover preferential payments, or fraudulent transfers.

In a Chapter 13 case, the trustee's job is primarily to review your petition, schedules, statement of financial affairs, and the Chapter 13 Plan, to determine whether your plan should be confirmed by the Court. For instance, the plan must be feasible (i.e., you must be able to make the required payments). Also, the plan must offer to pay unsecured creditors at least as much as they would receive in a Chapter 7 liquidation case. If the trustee recommends confirmation, the Court will usually confirm the plan, unless a creditor objects. In that event, we'll either negotiate a settlement of the objection, or let the Court decide whether the plan should be confirmed.

Will the bankruptcy discharge all of my debts?

Some debts are not dischargeable in bankruptcy, or may only be discharged under particular circumstances. A discussion of the more common nondischargeable debts follows, along with other topics which may be pertinent to your situation. Please review these carefully, and be sure to bring any unusual matters affecting your case to my attention. If you don't tell me that one or more of these issues may be involved in your case, I won't be able to advise and assist you concerning those issues.

TAX LIABILITIES: Income tax debts are not dischargeable until more than three years has passed since they became due. The three years begins running on the last day the tax can be paid without penalty. There are exceptions to this rule, which we can discuss in more detail, if necessary. Withholding tax and sales tax debts are never dischargeable.

If you know or suspect that you may have income tax or other tax liabilities, you should obtain a copy of the transcript of your account with the IRS or other tax authority for the year or years in question. Depending on the type of tax and when it was incurred, you may be able to discharge the tax debt in bankruptcy, or you may need to set up a special class of tax indebtedness for payment in a Chapter 13 plan. Because of the complex issues involved in determining how tax debts should be handled in bankruptcy, I cannot give you an opinion as to the treatment of any tax debt unless you specifically ask for it, and you must provide a copy of the account transcript for my review.

STUDENT LOANS: Under legislation passed in October 1998, student loans cannot be discharged, regardless of how old they are, except in cases of "undue hardship." Generally speaking, undue hardship means that (1) the debtor is incapable of making enough money to both make the required payments and meet minimum living standards (i.e., food, shelter, clothing and medicine, etc.); (2) the debtor has made some payment on the loan, or at least a good faith effort to pay; and (3) this condition is likely to persist for the foreseeable future.

In most cases, a finding of undue hardship requires some type of disability or other health problem which prevents the debtor from earning sufficient income to meet basic living expenses and also make the monthly payments on the student loan.

ALIMONY AND CHILD SUPPORT: These are never dischargeable.

DIVISION OF DEBTS OR PROPERTY IN DIVORCE CASES : Debts incurred in connection with a divorce or other domestic relations proceeding can no longer be discharged under Chapter 7. Such debts remain dischargeable under Chapter 13, but the former spouse may file a complaint asking the Court to determine whether they are nondischargeable, because they are actually in the nature of support or alimony.

CRIMINAL RESTITUTION ORDERS: These are never dischargeable.

DEBTS INCURRED THROUGH FRAUD, EMBEZZLEMENT, LARCENY, OR WILLFUL AND MALICIOUS DAMAGE TO PERSON OR PROPERTY: These include debts incurred through the use of a false financial statement, and debts for personal injury or wrongful death arising from a motor vehicle or boating accident while under the influence of alcohol or drugs. The creditor must file a timely complaint in order to have his case heard by the Court, otherwise, the debt will be discharged.

UNSCHEDULED DEBTS: What happens if you forget to list a creditor in your bankruptcy case? If the case was treated as a "no asset" case (i.e., the trustee determines that there are insufficient assets available to pay a dividend to the unsecured creditors), then debts which are not listed in the bankruptcy filing are discharged, unless they are nondischargeable for some other reason. But if the case was treated as an "asset" case - in other words, where the trustee has notified creditors to file claims - unscheduled debts cannot be discharged.

You can amend your schedules at any time to add creditors which should have been listed in the first place, up until the time the case is closed, as long as the new creditors have an opportunity to share in any dividend paid by the trustee. If any creditor - scheduled or unscheduled - attempts to collect after the case is closed, you may need to reopen the case to deal with the problem.

What property can I keep in spite of filing for bankruptcy?

EXEMPT PROPERTY: As described above, exempt property cannot be seized from a debtor in order to pay a debt, unless the creditor has a mortgage or lien on the property, or holds a claim for taxes, alimony, maintenance, or support. Exemptions are generally determined under state statutes. These state laws are applied in bankruptcy cases to allow debtors to keep exempt property from being liquidated by the trustee. Other exemptions may be claimed under federal law, such as Social Security benefits.

One of your attorney's jobs is to evaluate your property, to help you determine whether any of it would be at risk if a bankruptcy case were filed.

The Bankruptcy Code allows the debtor to claim the exemptions available in the state in which he has resided during the two years before the case is filed. If he has not lived in a single state for the entire two year period, then his exemptions will be determined under the laws of the state in which he resided during the greater portion of the 180 days before the start of the two year period.

For example, if a debtor living in Kansas files a bankruptcy case on January 1, 2006, then he can claim the exemptions allowed in Kansas, but only if he lived in Kansas during all of 2004 and 2005. If he moved to Kansas from another state in either 2004 or 2005, he would be required to claim the exemptions allowed in the state where he lived the longest during the 180 day period ending on December 31, 2003.

Some states limits the application of their exemption laws to current residents of the state. If the debtor lived in such a state during the 180 day period, he may be prevented from using the exemptions available in that state. In that case, the debtor must use the federal Bankruptcy Code exemptions, instead of the exemptions allowed under state law.

PROPERTY GIVEN AS COLLATERAL FOR SECURED DEBTS: Even though you may discharge your debts in bankruptcy, this only means that the creditors holding dischargeable debts cannot demand payment of money from you. If a creditor holds a security interest in your car or other personal property, or a mortgage on your home or other real estate, the discharge won't prevent the creditor from repossessing the personal property, or foreclosing on the mortgage. If you wish to stay in possession of property under these circumstances, you'll have to make arrangements to continue paying the creditor, even though your personal obligation to pay has been discharged.

This can be as simple as just continuing to make the ongoing payments as they come due. However, the creditor may require you to reaffirm the debt (see below). You might be able to come to an agreement with the creditor to pay a lump sum, to redeem the property. Or, if the creditor's lien is a non-purchase money, non-possessory lien on exempt household goods, you may be able to "avoid" the lien (see below). If none of these alternatives will work, you may need to file a Chapter 13 plan in order to restructure the secured debt and maintain possession of the property.

REAFFIRMATION AGREEMENTS (CHAPTER 7 ONLY): In some circumstances, it may be in your best interest to maintain your relationship with a creditor, despite the bankruptcy filing, especially if you wish to keep possession of the collateral securing the debt.

Under the pre-BAPCPA version of the Bankruptcy Code, as a general rule, if you remained current in your payments to the creditor, it wasn't necessary to reaffirm the debt in order to keep the creditor's collateral, as long as there is no other default (for instance, vehicles must remain insured for collision and comprehensive coverage).

However, under BAPCPA, even if you have not defaulted in payment (or in some other way), unless you surrender or redeem the collateral, or reaffirm the debt, within 45 days after the meeting with the trustee, as of day number 46, the automatic stay disappears, and the creditor will be able to exercise its rights under state law to take possession of the collateral. In this situation, you may be required to reaffirm the debt, in exchange for the creditor's promise to leave you in possession of the collateral. In the case of furniture and appliances, secured creditors will sometimes allow substantial discounts from the current balance, to encourage you to reaffirm.

Reaffirmation is the process of signing a new promise to pay, which generally must be approved by your attorney and filed with the Court prior to the entry of your discharge order. Reaffirmation is strictly voluntary, and the written agreement must comply with the provisions of section 524 of the Bankruptcy Code. You have either 60 days from the date you signed the agreement, or until the date of your discharge (whichever is later) to change your mind and rescind the agreement. Recission must be in writing and mailed to the creditor. We recommend that the notice of recission also be filed with the Court.

HOUSEHOLD GOODS OR TOOLS OF THE TRADE AS COLLATERAL FOR LOANS (LIEN AVOIDANCE): Some lenders ask you for a list of your appliances, TVs, VCRs, stereos, and other household items or tools of your trade or business when you apply for a loan. In many cases, the lender will have you sign a security agreement, in which you put up these goods as collateral for the loan. In some cases, you may be able to "avoid" the lien on these items, which turns the loan into an unsecured debt.

PRE-BANKRUPTCY ESTATE PLANNING: One option available to you is the process of pre-bankruptcy estate planning, whereby you have the right to transform equity in non-exempt assets into exempt assets. For instance, if you have a boat at the lake, it would not be exempt under Kansas law, and if a bankruptcy case were filed, the trustee could sell it. However, if you sell the boat yourself, before filing the case, and use the sale proceeds to pay down your home mortgage or purchase a car, you could then file the case and claim the homestead (or the car) as exempt.

This process can be quite useful, but there are traps for the unwary; an improper transfer can trigger a complaint to recover the property, or a complaint to deny your discharge. Because of the technical nature of this process, and the potential problems involved in making property transfers on the eve of bankruptcy, you should obtain a legal opinion concerning the merits of any such transfer before you do it.

Does it make any difference when my case is filed?

TIMING OF THE BANKRUPTCY PETITION: With some exceptions, no matter when you file, the automatic stay goes into effect to stop all pending collection actions. However, as a practical matter, unless you have reason to believe that your debt problems can be fixed without filing a bankruptcy case, the sooner you start the process, the more control you will have over the situation. The specific timing of the filing of the case will depend on a number of factors, including

• the level of collection activity you are experiencing, such as telephone calls at work, pending lawsuits, or potential wage garnishments;
• the status of your property, and whether you could benefit from pre-bankruptcy estate planning; and
• your personal circumstances, such as your ability to tolerate the situation, or the timing of an expected relocation to another city.

Although we are accustomed to getting started on these cases on very short notice, we have found that bankruptcy filings can be accomplished much more efficiently when we have adequate lead time to prepare paperwork. Also, having more time to prepare allows us to help plan your financial affairs to your advantage prior to filing. If we are forced to file on short notice, we may not have enough time to advise you how to arrange your finances, and you may not have time to make these arrangements.

How much does it cost to file a bankruptcy petition?

The cost depends in part upon the nature of the case, and the complexity of the debts, assets, and financial transactions which took place before the filing of the case. For instance, reorganizing an ongoing business under Chapter 11, or processing a Chapter 13 filing, is considerably more time-consuming and difficult than obtaining a Chapter 7 discharge for an individual consumer.

For this reason, it is difficult to quote set fees until we've had a chance to discuss the situation in more detail at the initial meeting. However, I do quote standard fees for certain types of cases, which cover the basic activities which must take place in every such case. [NOTE: These are the Law Firm's current minimum fees. They may not apply in all cases, and they may be adjusted from time to time.]

• Generally, the standard fee for consumer cases under Chapter 7 is $1,500. In addition, there is a $299 filing fee.
• The standard fee for Chapter 13 consumer cases is $2,500, and the filing fee is $274.
• Cases involving debts incurred in connection with a small business will generally require somewhat higher fees, depending on whether the business is still open, and whether the client wishes to keep the business open during the bankruptcy case.

The standard fee covers all of the typical procedures required to obtain bankruptcy relief. It does not cover problems which may not arise. If problems do arise, they may require additional time and effort to resolve. Services provided over and above those covered under the standard fee will be billed at hourly rates for attorney and paralegal time, as explained in the Attorney Fee Agreement. The attached Attorney Fee Agreement is used in all Chapter 7 and Chapter 13 cases, and describes the procedure for determining how fees are billed in more detail.

Still have questions? Please call me at (913) 339-9806 to set up an initial consultation. We'll answer every question you can think of, and probably some that you didn't know you had.

ATTORNEY FEE AGREEMENT

I understand and accept the following terms:

1. The standard attorney fee for my bankruptcy is $2,500 (Chapter 13), or $1,500 (Chapter 7), and the Court's filing fee is $274 (Chapter 13) or $299 (Chapter 7). I understand that both the attorney fee and the filing fee must be paid in full before services will be provided, unless other arrangements are made in writing. This standard attorney fee represents my attorney's best estimate of the amount of work which will be required to successfully resolve my debt problems, based on the information provided to him at the initial consultation.
   In a Chapter 7 case, the standard fee covers general counseling concerning my rights under bankruptcy law, the preparation of my petition, schedules, and other documents, representing me at the meeting of creditors, and answering any questions I may have concerning these procedures. In a Chapter 13 case, the standard fee also includes the preparation of the Chapter 13 plan, and attendance at the hearing on confirmation of the plan (if necessary). I will receive copies of all pertinent papers filed in the case, as well as copies of any correspondence between my attorney and other parties. I understand that, if I decide not to proceed with a bankruptcy filing after paying the fee, I will only be responsible for the time and expenses incurred up to that point, as calculated in paragraph 2(c) below.
2. I understand that the standard fee is based on my attorney's estimate of the complexity of the case, and the amount of time and effort it will take to resolve the case. I realize that my attorney has no control over some aspects of the case, such as (for instance) my creditors' reactions and responses to the bankruptcy filing, or changes in my situation as the case develops. I also realize that, because of these factors, it is not always possible to predict in advance how much time and attention will be required to successfully resolve any particular case. For this reason, I understand additional court appearances or other work may be necessary to resolve problems which may arise in the case, including but not limited to the following:
1. (In a Chapter 7 case) - Extensive pre-petition planning and counseling (beyond the initial consultation meeting); negotiation of reaffirmation agreements; repre-sentation at court hear-ings; amending my schedules to make corrections, or to add an addi-tional creditor that I forgot to list before the petition was prepared; dealing with creditors who violate the law by harassing me after the filing of the case; negotiating reaffirmation agreements; the redemption of property subject to a creditor's lien; or legal challenges to my right to keep property I have claimed as exempt.
2. (In a Chapter 13 case) - Same as above, plus preparing and filing amendments to my Chapter 13 plan; attending court hearings concerning amended plans; responding to motions to dismiss or convert; objecting to claims of creditors; or other matters arising in the course of the case.
3. Because my case might involve ques-tions such as these, which may require more time, effort and expense to resolve than anticipated under the stan-dard fee, Eric C. Rajala will be keep-ing track of his time at the rate of $200 per hour, plus any ex-penses which he may advance, such as photo-copies, long distance telephone, mileage or court costs. I understand that some matters can be handled more economically by his legal assistant, and that she will keep track of her time at the rate of $75 per hour. I understand that all time will be billed in tenths of an hour (i.e., six minute intervals), and that billable time includes but is not limited to telephone conferences, reviewing documents, writing letters, drafting and responding to e-mail messages, drafting pleadings and other documents, preparation for and attendance at court hearings, office meetings, and travel time.
3. If the standard fee becomes exhausted before the case is concluded, my attorney will notify me of the situation at the end of the next billing cycle. If my attorney is caused to incur more time or expense than is covered under the standard fee, I will thereafter receive a monthly statement, describing the total time and expenses incurred each month. Payment of any balance due will be required upon receipt of the statement, except in a Chapter 13 case where my attorney has obtained a Court order allowing such fees and expenses to be paid from my payments to the trustee under the Chapter 13 plan. Interest at the rate of 10% per annum shall accrue on any balance over thirty (30) days past due.
4. Notwithstanding any of the above and foregoing, it is expressly understood that, in the event that an adversary proceeding is filed against me or should be filed on my behalf, whether for the purpose of determining the dischargeability of a debt, objecting to my discharge, or otherwise, I agree that my attorney is under no obligation to represent me in such proceedings. Arrangements for representation in such proceedings may be made separately.
5. I have received and reviewed Disclosures #1 through #6 provided to me by my attorney. I understand that, as a debtor under the Bankruptcy Code, I will be responsible for providing complete and accurate information and documents to my attorney concerning my assets, debts, income, business expenses and living expenses.
6. The case will be concluded, and my attorney's obligation to represent me will end, upon the entry of the Final Decree closing the Court's file. Upon the conclusion of the case, my attorney will close his file, return all of my original documents in his possession to me, and will keep the file in storage for a period of six (6) years from the date the file is closed. During this time, I may request additional copies of my petition, discharge order, and other papers, which will be furnished upon payment of any unpaid attorney fees or expenses, plus the file reopening and photocopying charge in effect at the time the request is made. I acknowledge that my attorney has a retaining lien on all documents in my file and money held in his trust account to secure payment of any outstanding attorney fees or expenses, and that he is not required to release any documents or funds to me until all such fees and expenses are paid.

After five years has expired, the file will be destroyed.

UNDERSTOOD AND ACCEPTED THIS ___ DAY OF _______________, 200__.

APPROVED:	_________________________
	_________________________
_________________________ Eric C. Rajala, KS #10082/MO #42417