Chapter Three.Filing a Petition After reading this chapter, you will be able to:

Describe the “gatekeeper” provisions in individual bankruptcy cases

Understand how a bankruptcy is initiated, by filing of a voluntary or involuntary petition

Define prepetition credit counseling Describe how a voluntary bankruptcy petition

is filed by a debtor Describe how an involuntary petition is filed by

creditors Define an “order of relief”

Prepetition Credit Counseling

Prerequisite to an individual debtor seeking bankruptcy relief.

An individual seeking bankruptcy relief may not be a debtor and must participate in an individual or group credit counseling session from an approved credit counseling agency within 180 days prior to the filing of a petition.

Exceptions to Prepetition Credit Counseling First, the United States Trustee may exempt a district from the

requirement if the Trustee determines that approved credit counseling services in a district are not reasonably able to provide counseling services to individuals.

Second, a debtor may file a certification with the court at the time of filing stating that ‘‘exigent circumstances’’ merit a waiver of the rule, provided that the debtor has made a request for counseling services and could not obtain them within five days of making a request from a counseling agency.

The third exception to the prepetition credit counseling requirement arises if, after notice and a hearing, the court finds that a debtor is not able to comply with the requirement due to mental incapacity, physical disability, or active military service in a military combat zone.

Practice Pointer

It is important to check the local rules for your jurisdiction. Some courts will dismiss the case automatically without a hearing if the certification seeking a waiver is not filed with the petition.

Debt Relief Agency

A debt relief agency is any person, including a bankruptcy attorney or bankruptcy petition preparer, providing bankruptcy assistance to assisted persons for money or other valuable consideration pursuant to 11 U.S.C. §101(12A).

Debt relief agencies are subject to written retainer and disclosure requirements of 11 U.S.C. §§527 and 528

Voluntary Bankruptcy

A bankruptcy proceeding initiated by a debtor filing a petition for relief.

Also known as a voluntary petition. Most bankruptcy proceedings are voluntary.

Order of Relief

A debtor is not legally bankrupt until the court enters an order for relief.

This order is automatic when a voluntary petition is filed.

It is the judgment that the petitioning creditors seek in an involuntary petition.

Venue

A proceeding may be commenced in any district meeting one of the following qualifications: (1) the district in which the petitioner is domiciled,

resides, or has its principal place of business (2) the district in which the debtor’s principal

United States assets are located (3) the district in which the debtor has complied

with either of the above for the greatest portion of the 180 days preceding the petition’s filing

Statement of Financial Affairs

The Statement of Financial Affairs is a questionnaire designed to elicit information sufficient to determine whether the debtor should receive a discharge or to reveal the existence of preferences or other avoidable transactions.

Schedules

Schedules are an extended form of an accrual-based financial statement disclosing all liabilities and all assets of the debtor.

Involuntary Bankruptcy

A bankruptcy proceeding initiated by one or more creditors by filing a petition seeking the entry of an order of relief, a judgment that the debtor is bankrupt.

Also known as an involuntary petition. Section 303 of the Bankruptcy Code governs

involuntary petitions.

Contested Involuntary Petition

When an involuntary petition is contested, the court must be able to make one of two findings to enter an order for relief: The first is that the debtor is not generally

paying its debts as they become due. The second is that within 120 days prior to the

filing, a custodian has been appointed to administer assets of the debtor.

Practice Pointer

Under the Code, ‘‘insolvent’’ means a financial situation in which the debtor’s debts are greater than the fair valuation of all of his/her assets, exclusive of any exempt property or property improperly transferred or concealed. See 11 U.S.C. §101(32).