A debtor education course by an approved provider should include information on developing a budget, managing money, using credit wisely, and other resources. Like pre-filing counseling, debtor education may be provided in person, on the phone, or online. The debtor education session might last longer than the pre-filing counseling – about two hours – and the typical fee is between $50 and $100. As with pre-filing counseling, if you are unable to pay the session fee, you should seek a fee waiver from the debtor education provider. Check the list of approved debtor education providers at www.usdoj.gov/ust/eo/bapcpa/ccde/de_approved.htm or at the bankruptcy clerk’s office in your district.
Once you have completed the required debtor education course, you should receive a certificate as proof. This certificate is separate from the certificate you received after completing your pre-filing credit counseling. Check the U.S. Trustee’s website to be sure that you receive the certificate from a debtor education provider that is approved in the judicial district where you filed bankruptcy. Unless they have disclosed a charge to you before the counseling session begins, debtor education providers may not charge an extra fee for the certificate.

Changes to the bankruptcy law in 2005 added a “means test.” The means test keeps filers with higher incomes from filing for Chapter 7 bankruptcy. Some people believe you must be completely broke to file chapter 7, but that is not the case. Actually, most people who would have qualified before the changes, will still qualify under the new law.

The means test deducts specific monthly expenses from the debtor’s income to find the debtor’s “disposable income.”  The higher the disposable income, the harder it is to file Chapter 7 bankruptcy. The first step is to compare the debtor’s income to the median income of the state in which the debtor resides.

Qualifying under the means test does not guarantee on qualifies for Chapter 7 bankruptcy, but it is the important starting point. If a debtor does not pass the means test, he/she may seek protection under a Chapter 13 bankruptcy.

“At the end of every seven years you shall grant a remission of debts. This is the manner of remission: every creditor shall release what he has loaned to his neighbor; he shall not exact it of his neighbor and his brother, because the LORD’S remission has been proclaimed.” – Deuteronomy 15:1,2

The origin of the word “bankruptcy” are the Latin words bancus (bench) and ruptus (broken). When a banker could no longer continue lending money, his bench was broken as a sign of inability to negotiate and lend.

The Unites States Constitution gives congress the power to establish “uniform laws on the subject of Bankruptcies” throughout the United States. There were several bankruptcy laws past in the 1800’s. These early bankruptcy laws were usually enacted in response to bad economic times. Before the 20th century, bankruptcy rules were more concerned with recovering the debts for creditors, and nearly all bankruptcies were involuntary. Modern rules for bankruptcy are more concerned with reorganizing the debtor’s finances rather than punishing the debtor. Although involuntary bankruptcies still exist, they are much less common than voluntary bankruptcy.

The  Bankruptcy Reform Act of 1978 created the current United States Code related to bankruptcy.

Former Kentucky Wildcat filed for personal bankruptcy on May 18.  The former NBA star lists over 1 million dollars in gambling debts in the filing.  Walker made more than $110 million during his NBA career, but is currently reporting only $4.3 million in assets.  See the story in the Wall Street Journal.

There are two common types of personal bankruptcy in the U.S. They are called Chapter 7 bankruptcy and Chapter 11 bankruptcy because of their location in the bankruptcy code.  If one considers filing for bankruptcy, a bankruptcy attorney will help determine the best option after reviewing assets, debts, life situation, and local and federal law.

A filing under Chapter 7 is called liquidation, and it is the most common.  In a chapter 7 proceeding, a trustee collects the non-exempt property of the debtor, sells it, and distributes the proceeds to creditors.  A personal bankruptcy attorney helps the debtor identify the proporty which is exept.  An attorney is important for the debtor to protect his/her house, car, and other property. Under Chapter 13 a trustee supervises the assets of the debtor and payment replans are set.

Bankruptcies are often entered into voluntarily by the debtor, but bankruptcy proceedings can be initiated by creditors.  Either way, once a bankruptcy filing is made, creditors can no longer seek to collect debts outside of the bankruptcy process.

adversary proceeding
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A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A nonexclusive list of adversary proceedings is set forth in Fed. R. Bankr. P. 7001.

assume
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An agreement to continue performing duties under a contract or lease.

automatic stay
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An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.

bankruptcy
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A legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of title 11 of the United States Code (the Bankruptcy Code).

bankruptcy administrator
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An officer of the judiciary serving in the judicial districts of Alabama and North Carolina who, like the U.S. trustee, is responsible for supervising the administration of bankruptcy cases, estates, and trustees; monitoring plans and disclosure statements; monitoring creditors’ committees; monitoring fee applications; and performing other statutory duties. Compare U.S. trustee.

Bankruptcy Code
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The informal name for title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal bankruptcy law.

bankruptcy court
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The bankruptcy judges in regular active service in each district; a unit of the district court.

bankruptcy estate
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All legal or equitable interests of the debtor in property at the time of the bankruptcy filing. (The estate includes all property in which the debtor has an interest, even if it is owned or held by another person.)

bankruptcy judge
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A judicial officer of the United States district court who is the court official with decision-making power over federal bankruptcy cases.

bankruptcy petition
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The document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) by which opens the bankruptcy case. (There are official forms for bankruptcy petitions.)

chapter 7
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The chapter of the Bankruptcy Code providing for “liquidation,”(i.e., the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors.)

chapter 9
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The chapter of the Bankruptcy Code providing for reorganization of municipalities (which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts).

chapter 11
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The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership. (A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.)

chapter 12
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The chapter of the Bankruptcy Code providing for adjustment of debts of a “family farmer,” or a “family fisherman” as those terms are defined in the Bankruptcy Code.

chapter 13
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The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.)

chapter 15
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The chapter of the Bankruptcy Code dealing with cases of cross-border insolvency.

claim
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A creditor’s assertion of a right to payment from the debtor or the debtor’s property.

confirmation
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Bankruptcy judges’s approval of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13.

consumer debtor
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A debtor whose debts are primarily consumer debts.

consumer debts
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Debts incurred for personal, as opposed to business, needs.

contested matter
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Those matters, other than objections to claims, that are disputed but are not within the definition of adversary proceeding contained in Rule 7001.

contingent claim
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A claim that may be owed by the debtor under certain circumstances, e.g., where the debtor is a cosigner on another person’s loan and that person fails to pay.

creditor
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One to whom the debtor owes money or who claims to be owed money by the debtor.

credit counseling
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Generally refers to two events in individual bankruptcy cases: (1) the “individual or group briefing” from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing under any chapter of the Bankruptcy Code; and (2) the “instructional course in personal financial management” in chapters 7 and 13 that an individual debtor must complete before a discharge is entered. There are exceptions to both requirements for certain categories of debtors, exigent circumstances, or if the U.S. trustee or bankruptcy administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.

current monthly income
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The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and income from the debtor’s spouse if the petition is a joint petition, but not including social security income and certain other payments made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A).

debtor
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A person who has filed a petition for relief under the Bankruptcy Code.

defendant
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An individual (or business) against whom a lawsuit is filed.

discharge
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A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. (A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.)

dischargeable debt
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A debt for which the Bankruptcy Code allows the debtor’s personal liability to be eliminated.

disclosure statement
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A written document prepared by the chapter 11 debtor or other plan proponent that is designed to provide “adequate information” to creditors to enable them to evaluate the chapter 11 plan of reorganization.

equity
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The value of a debtor’s interest in property that remains after liens and other creditors’ interests are considered. (Example: If a house valued at $100,000 is subject to a $80,000 mortgage, there is $20,000 of equity.)

executory contract or lease
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Generally includes contracts or leases under which both parties to the agreement have duties remaining to be performed. (If a contract or lease is executory, a debtor may assume it or reject it.)

exemptions, exempt property
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Certain property owned by an individual debtor that the Bankruptcy Code or applicable state law permits the debtor to keep from unsecured creditors. For example, in some states the debtor may be able to exempt all or a portion of the equity in the debtor’s primary residence (homestead exemption), or some or all “tools of the trade” used by the debtor to make a living (i.e., auto tools for an auto mechanic or dental tools for a dentist). The availability and amount of property the debtor may exempt depends on the state the debtor lives in.

insider (of individual debtor)
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Any relative of the debtor or of a general partner of the debtor; partnership in which the debtor is a general partner; general partner of the debtor; or a corporation of which the debtor is a director, officer, or person in control.

insider (of corporate debtor)
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A director, officer, or person in control of the debtor; a partnership in which the debtor is a general partner; a general partner of the debtor; or a relative of a general partner, director, officer, or person in control of the debtor.

joint administration
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A court-approved mechanism under which two or more cases can be administered together. (Assuming no conflicts of interest, these separate businesses or individuals can pool their resources, hire the same professionals, etc.)

joint petition
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One bankruptcy petition filed by a husband and wife together.

lien
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The right to take and hold or sell the property of a debtor as security or payment for a debt or duty.

liquidation
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A sale of a debtor’s property with the proceeds to be used for the benefit of creditors.

liquidated claim
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A creditor’s claim for a fixed amount of money.

means test
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Section 707(b)(2) of the Bankruptcy Code applies a “means test” to determine whether an individual debtor’s chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor’s aggregate current monthly income (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $10,950, or (ii) 25% of the debtor’s nonpriority unsecured debt, as long as that amount is at least $6,575. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.

motion to lift the automatic stay
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A request by a creditor to allow the creditor to take action against the debtor or the debtor’s property that would otherwise be prohibited by the automatic stay.

no-asset case
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A chapter 7 case where there are no assets available to satisfy any portion of the creditors’ unsecured claims.

nondischargeable debt
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A debt that cannot be eliminated in bankruptcy. Examples include a home mortgage, debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime. Some debts, such as debts for money or property obtained by false pretenses and debts for fraud or defalcation while acting in a fiduciary capacity may be declared nondischargeable only if a creditor timely files and prevails in a nondischargeability action.

objection to dischargeability
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A trustee’s or creditor’s objection to the debtor being released from personal liability for certain dischargeable debts. Common reasons include allegations that the debt to be discharged was incurred by false pretenses or that debt arose because of the debtor’s fraud while acting as a fiduciary.

objection to exemptions -

A trustee’s or creditor’s objection to the debtor’s attempt to claim certain property as exempt from liquidation by the trustee to creditors.

Personal bankruptcy is an option when an individual has too much debt and cannot keep up with their financial obligations. The US Bankruptcy Code was amended in 2005 and added new requirements for those filing bankruptcy. As a result, many fewer Americans filed bankruptcy in 2006. However, the housing market bust, recession, credit crunch and other factors in personal finance are driving the rate of bankruptcy back up, despite the changes in the law.

party in interest -

A party who has standing to be heard by the court in a matter to be decided in the bankruptcy case. The debtor, the U.S. trustee or bankruptcy administrator, the case trustee and creditors are parties in interest for most matters.

petition preparer -

A business not authorized to practice law that prepares bankruptcy petitions.

plan -

A debtor’s detailed description of how the debtor proposes to pay creditors’ claims over a fixed period of time.

plaintiff -

A person or business that files a formal complaint with the court.

postpetition transfer -

A transfer of the debtor’s property made after the commencement of the case.

prebankruptcy planning -

The arrangement (or rearrangement) of a debtor’s property to allow the debtor to take maximum advantage of exemptions. (Prebankruptcy planning typically includes converting nonexempt assets into exempt assets.)

preference or preferential debt payment -

A debt payment made to a creditor in the 90-day period before a debtor files bankruptcy (or within one year if the creditor was an insider) that gives the creditor more than the creditor would receive in the debtor’s chapter 7 case.

priority -

The Bankruptcy Code’s statutory ranking of unsecured claims that determines the order in which unsecured claims will be paid if there is not enough money to pay all unsecured claims in full. For example, under the Bankruptcy Code’s priority scheme, money owed to the case trustee or for prepetition alimony and/or child support must be paid in full before any general unsecured debt (i.e. trade debt or credit card debt) is paid.

priority claim -

An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Priority refers to the order in which these unsecured claims are to be paid.

proof of claim -

A written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money. (There is an official form for this purpose.)

property of the estate -

All legal or equitable interests of the debtor in property as of the commencement of the case.

reaffirmation agreement -

An agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car) that would otherwise be subject to repossession.

schedules -

Detailed lists filed by the debtor along with (or shortly after filing) the petition showing the debtor’s assets, liabilities, and other financial information. (There are official forms a debtor must use.)

secured creditor -

A creditor holding a claim against the debtor who has the right to take and hold or sell certain property of the debtor in satisfaction of some or all of the claim.

secured debt -

Debt backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default. Examples include home mortgages, auto loans and tax liens.

small business case -

A special type of chapter 11 case in which there is no creditors’ committee (or the creditors’ committee is deemed inactive by the court) and in which the debtor is subject to more oversight by the U.S. trustee than other chapter 11 debtors. The Bankruptcy Code contains certain provisions designed to reduce the time a small business debtor is in bankruptcy.

statement of financial affairs -

A series of questions the debtor must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc. (There is an official form a debtor must use.)

statement of intention -

A declaration made by a chapter 7 debtor concerning plans for dealing with consumer debts that are secured by property of the estate.

substantive consolidation -

Putting the assets and liabilities of two or more related debtors into a single pool to pay creditors. (Courts are reluctant to allow substantive consolidation since the action must not only justify the benefit that one set of creditors receives, but also the harm that other creditors suffer as a result.)

341 meeting -

The meeting of creditors required by section 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs. Also called creditors’ meeting.