Bankruptcy is a term we often associate with extremely serious situations. It can be scary and it may seem like a last-ditch effort: something that no one wants to pursue. It’s a process that can wipe clean your financial slate, but it may have long-term repercussions.
In fact, filing for bankruptcy may often be a positive step in improving your financial health, and it can be used – both on individual and professional levels – in a strategic way.
Should you opt to file for bankruptcy, it is important to know that your case is not decided by a judge inside a court of law. Instead, you will attend a 341 meeting of creditors (also known as a 341 hearing). We compiled the information below as a resource to understanding the basics of bankruptcy filing as well as what to expect when attending your 341 hearing.
San Diego Bankruptcy Attorney can help you make the best decisions for your personal or business’s financial health, and one option may be to explore bankruptcy. We have helped clients throughout the San Diego area and we are experts at navigating bankruptcy filings as well as at preparing our clients for their 341 hearings. The information below is not legal advice, but merely a guide for bankruptcy basics. Contact an experienced lawyer to get legal advice that is specific to your situation.
Understanding bankruptcy
Bankruptcy is a process protected by federal law that provides individuals and companies a chance to start over or be forgiven for unmanageable or otherwise excessive debt.
For individuals, bankruptcy may be the option you need to clear away debts in order for you to live a more manageable lifestyle and provide for yourself and your family. For companies, bankruptcy may allow them to close down a business and liquidate assets in an organized fashion. For the purposes of this article, we are looking at options for individuals who file for bankruptcy, also known as debtors.
The United States Bankruptcy Courts oversee the bankruptcy system across all states, including California. The U.S. Bankruptcy Courts is a function of the U.S. federal court system, so each federal district maintains a separate bankruptcy court. Bankruptcy courts are overseen by federally-appointed judges.
Individuals who are filing for bankruptcy are most likely seeking a discharge. This is an order from the bankruptcy court that permanently prohibits creditors from attempting to collect a debt that is included in a bankruptcy. Importantly, a discharge, while permanent, does not include all types of debt. For instance, many types of tax debt as well as child support and spousal support (also known as alimony) cannot be included in discharge.
Importantly, if you have any cosigners or joint account holders for the debts you are seeking discharges, those other parties are still responsible for the debt. For example, if you and a business partner have a loan cosigned together but you are filing only as an individual, your bankruptcy proceedings may discharge your personal responsibility for the outstanding debt, but your cosigned business partner still has responsibility for it.
Because a bankruptcy discharge is very powerful, the process to file bankruptcy is lengthy and complicated. Federal laws that allow for bankruptcy actually distinguish six types of bankruptcy:
- Chapter 7 Bankruptcy, which allows for the liquidation of assets. This is the most common type of bankruptcy for individuals.
- Chapter 9 Bankruptcy, which applies to political subdivisions, such as towns, municipalities, and school districts.
- Chapter 11 Bankruptcy, which allows both individuals and companies to restructure their debts.
- Chapter 13 Bankruptcy, which allows a debtor to repay a minimum of debt over a specific period, often 3-5 years. This is the second most common type of bankruptcy filings.
- Chapter 12 Bankruptcy, which is specific to fishermen and family farmers.
- Chapter 15 Bankruptcy, which applies to foreign debtors, typically companies, with actions pending outside the U.S.
Depending on the Chapter bankruptcy you’re seeking, the processes and procedures that guide them vary.
Opting for bankruptcy can cause significant change to your credit score, which could hinder your future ability to finance large purchase. But, this negative impact does diminish as the years pass on. To more quickly rebuild good credit after a bankruptcy decision, check annually that your creditors are reporting that the appropriate debts have been discharged and indicate a zero balance. Opening a new line of credit may be useful, too.
What is a 341 hearing?
A 341 hearing, also known as a 341 meeting of creditors, is a procedure in bankruptcy filing. At the meeting, the debtor is questioned under oath by a bankruptcy trustee, examiner, a U.S. trustee, and/or creditors about the debtor’s financial affairs. The name of 341 comes from Section 341 of the U.S. Code, which covers federal bankruptcy law.
Importantly, the 341 meeting is not a court hearing and no bankruptcy judge will be in attendance, as per bankruptcy laws.
Attending the meeting is mandatory for any debtor involved in a bankruptcy proceeding. If you are seeking a bankruptcy decision, it is likely that you will attend a 341 hearing instead of meeting with a judge or entering a formal court of law. Depending on the type of bankruptcy chapter (Chapters 7 and 11 are most common), a bankruptcy trustee or U.S. trustee conducts the meeting. The location is typically decided based on the debtor’s county of residence. For clients in the San Diego area, the U.S. Bankruptcy Court for the Southern District of California serves San Diego County and Imperial County.
Once a debtor files for bankruptcy, the bankruptcy court clerk schedules the 341 hearing within 3-4 weeks. The clerk then notifies all involved parties of the meeting.
Parties involved in a 341 hearing
Several parties may be involved at a 341 meeting of creditors.
The bankruptcy filer, typically known as the debtor. The debtor must appear at the 341 hearing and provide any requested information. If your bankruptcy case has you and your spouse filing jointly, both spouses are required to attend the 341 hearing.
The attorney, who is responsible for helping the client (typically the bankruptcy filer) be prepared for and navigate both the overall bankruptcy filing process as well as the 341 hearing. You will likely want to seek an attorney’s services while exploring whether to seek bankruptcy. An attorney who specializes in bankruptcy cases will know which Chapter is best suited for your situation. Your lawyer should also be familiar with the local rules and know some of the bankruptcy trustees in the area. Importantly, your attorney should communicate both with you and with any other necessary parties clearly and often.
The bankruptcy trustee, who is responsible for conducting the meeting and seeking the final decision. The trustee is also responsible for verifying your identity, reviewing your paperwork for accuracy, investigating any potential for bankruptcy fraud, evaluating whether to convert your case to a different type of bankruptcy (for instance, from Chapter 7 to Chapter 13), and selling any nonexempt property for creditors. Depending on the type of bankruptcy, you may have an automatically court-appointed trustee or a U.S. trustee, who is an officer of the U.S. Department of Justice. Prior to your hearing, the trustee will have reviewed your case and standard documents (known as 521 documents) that can include bank statements, tax returns, and pay stubs as well as more specific items such as any real estate deeds, car titles, loan documents, and marital court orders and settlement agreements.
The creditors, who may or may not attend, but it is unlikely that any will show. Creditors are any parties that the debtor may owe. The creditors are notified in advance of the hearing and may choose to attend to ask questions of the debtor. Should creditors opt out of attending, they are not waiving any rights.
Other bankruptcy filers may be in attendance, as well. While these hearings do not take place in courtrooms, they sometimes function as such, so a 341 hearing is often a time when many bankruptcy filers are being questioned by the trustee and their creditors. A hearing docket is likely available so you can see where in the schedule your case falls.
Bankruptcy court judges are prohibited from attending 341 hearings.
What should I expect?
Typically, 341 hearings take place inside a federal building, perhaps in a meeting room or courtroom. If it is in a courtroom, you do not need to anticipate a judge being present.
The hearing isn’t limited to your bankruptcy filing, but likely will also include other individuals filing for bankruptcy. Like a courtroom, a docket is provided to list the daily case schedule; for instance, a 1- or 2-hour session of 341 hearings may see 15-25 individual cases. Each hearing rarely takes long – it can be as short as 10-15 minutes.
At the opening of the 341 meeting, the trustee will do a roll call to check who is present and to explain the procedures. The trustee may ask all filing parties to read an information handout and to complete a short form in the case of child support or those representing themselves.
When the trustee reaches your case, you’ll move to the front along with your lawyer, offer your identification documents, and take an oath that says you are answering your questions truthfully.
In Chapter 7 bankruptcy, the most common type of bankruptcy filing, the bankruptcy trustee will ask a series of questions. Standard examples include:
- Have you reviewed your petition and filing before signing it?
- Have you listed everything you own?
- Are you owed any money from other parties and why?
- Are you expecting to receive an inheritance?
- Have you previously filed for bankruptcy?
- Have any changes occurred since you filed your paperwork?
The trustee will also ask questions specific to your case, including specific numbers and figures for how much you make and how much you may owe. Your lawyer will likely have prepared you for these lines of inquiry before your hearing.
Once the trustee has completed his/her questioning, any creditors present can ask questions regarding your property and finances. After creditors are satisfied, the trustee determines whether to conclude the meeting or to continue the hearing on a future date to gather more information and/or to investigate further.
Assuming you are well prepared for your 341 hearing, the likely outcome is that the bankruptcy trustee will make a decision in your case and adjourn the meeting. In most cases, once the 341 meeting of creditors is complete, the bankruptcy proceeding automatically moves to a discharge of debt. When your debt is discharged will depend on the Chapter bankruptcy you’re seeking:
- In Chapter 7 bankruptcy, your debts are discharged immediately upon the decision from the 341 hearing.
- In Chapter 13 bankruptcy, your debts are discharged as soon as you have paid all the payments under your individual plan – typically between three and five years.
Attending your 341 hearing
It is vital to the bankruptcy process to attend your 341 hearing. If the debtor does not appear at the meeting or does not provide the appropriate information, the specified trustee can and is likely to dismiss your case.
If you know ahead of time that you will be unable to attend the meeting of creditors, notify your trustee right away. A trustee can consider rescheduling your hearing for good reasons such as a medical or family emergency, a serious health situation, a natural disaster, active military service, incarceration, etc. A trustee likely will not make a concession if you are missing your hearing due to work or travel commitments.
Should your case be dismissed, you likely can refile for bankruptcy immediately, but you do lose your automatic stay.
Making the decision to pursue bankruptcy is not one to take lightly. It is a serious legal and financial decision that will affect you, your finances, and possibly other parties for several years, even if the process may only take a few months. Speaking with an experienced legal team can help you reach the right decision for your situation.
At San Diego Bankruptcy Attorney, we assist clients across the San Diego region in determining whether bankruptcy is right for them and navigating the process if it is. If you want to understand your rights and options, contact our San Diego Bankruptcy Attorney today at 619-488-6168 and we can help you get started.
