Filing a Petition in Bankruptcy

Filing a Petition

Overview of Bankruptcy Petitions

• Petition: The first step in initiating any bankruptcy proceeding, which may be filed voluntarily or involuntarily.

• Voluntary Petition: Initiated by a debtor filing a petition for relief, often used by individuals seeking relief from their debts.

• Involuntary Petition: Filed by creditors to place the debtor into bankruptcy against their will; referred to as an alleged debtor until the court enters an order for relief.

  • Alleged Debtor: The debtor in an involuntary proceeding.

Key Definitions

• Voluntary Petition: A bankruptcy proceeding initiated by the debtor.

• Involuntary Petition: A bankruptcy proceeding initiated by one or more creditors.

• Order for Relief: An official court order that signifies that the debtor has obtained bankruptcy relief; automatic in voluntary petitions.

Gatekeeper Provisions in Individual Bankruptcies

• Enacted by the BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act), mandates certain requirements before an individual bankruptcy can be filed.

1. Prepetition Credit Counseling

• Prepetition Credit Counseling: A counseling session that debtors must obtain from an accredited agency within 180 days before filing for bankruptcy relief.

• Required Documentation: Proof of attendance and repayment plan must be filed with the court.

• Exceptions: Exemptions are possible under certain circumstances:

  1. United States Trustee Exemption: Districts with no available counseling services may be exempted.

  2. Exigent Circumstances: Debtors can request a waiver if counseling is unattainable within five days.

  3. Mental or Physical Disability: Exemption for those unable to comply due to specific disabilities or active military service.

• Importance of Credit Counseling: Intended to ensure that debtors are aware of all options and to discourage abusive bankruptcy filings.

2. Debt Relief Agency Provisions

• Debt Relief Agency: Any person (including attorneys) providing bankruptcy assistance for compensation.

• Bankruptcy Assistance: Services including advice, documents preparation, and court appearances related to bankruptcy.

• Responsibilities: Debt relief agencies must provide clear written disclosures and retainers within specified time frames.

Voluntary Petitions

• To initiate a voluntary proceeding, a debtor must file Official Form 1 along with various supporting documents.

• Venue for Filing: Standard venue qualifications include:

  1. Where the debtor is domiciled or resides.

  2. Where the debtor's primary assets are located.

  3. Historically where the debtor spent the most time (180-day rule).

Required Documents for Filing a Voluntary Petition

1. Petition (Official Form 1)

2. Filing Fee (varies by chapter):

   • Chapter 7: $299

   • Chapter 11: $1,039

   • Chapter 12: $239

   • Chapter 13: $274

3. Statement of Social Security Number or declaration if not applicable.

4. List of creditors.

5. Prepetition credit counseling certificate.

6. Additional documents may be required based on the chapter and local rules, including a Statement of Financial Affairs and schedules of assets, liabilities, current income, and expenditures.

Timeframes for Document Submission

• Various deadlines for submissions post-petition:

  • Within 14 days: Statements and Schedules, including the Schedule of Current Income, Financial Affairs, and Claims of Exemption.

  • Within 30 days: Statement of Intent regarding secured collateral.

  • Failure to file required documents can lead to automatic dismissal of the case after 45 days.

Involuntary Petitions

• An involuntary petition may be filed by creditors under conditions outlined in Section 303 of the Bankruptcy Code.

  • Petitioning Creditors: Must meet specific criteria (e.g., 3 unsecured creditors with claims above $14,425).

• Involuntary petitions are treated similarly to lawsuits; creditors are akin to plaintiffs seeking an order for relief.

• Grounds for Order for Relief: Must prove either that the debtor is not paying debts as they become due or that a custodian had possession of debtor assets within 120 days prior to filing.

• Types of Entities Exempt from Involuntary Proceedings: Certain nonprofits, churches, family farmers, and anyone subject to involuntary servitude.

Joint Cases and Consolidation of Proceedings

• Joint Case: A bankruptcy case filed by both an individual spouse and their partner. No other combinations of debtors can file jointly.

• Bankruptcy proceedings may be consolidated for efficiency, subject to court approval; they may be administratively or substantively consolidated.

Summary Checklist for Bankruptcy Filings

• A checklist is available to assist in ensuring all necessary documents are properly submitted within specified timelines based on the type of petition filed.

Discussion Questions

1. Describe how a voluntary bankruptcy proceeding is commenced.

2. Explain the implications of a joint case.

3. Discuss the process and requirements for various consolidation methods.

4. Identify common documents that must be filed during a bankruptcy proceeding.

5. Highlight reasons for initiating involuntary bankruptcy.

6. Define the criteria petitioning creditors must meet for an order for relief.

7. Discuss protective provisions in place during pending involuntary bankruptcy.

8. Evaluate the rationale behind prepetition credit counseling requirements and potential drawbacks.