Important questions to ask before filing for bankruptcy in Rhode Island

by JOSHUA R KARNS on Jun. 11, 2020

Bankruptcy & Debt Bankruptcy Bankruptcy & Debt Bankruptcy & Debt  Collection 

Summary: If you are thinking about filing for bankruptcy in Rhode Island you should first get the answers to these important questions.

If you are struggling with debt and thinking about bankruptcy there is a lot to consider before you file a case.  These are some of the most important things that you should consider before filing for bankruptcy.

Do you pass the means test?

The means test is a financial analysis to determine if a debtor is eligible to file a Chapter 7 bankruptcy and receive a discharge of their general unsecured debts.  The means test checks if you are able to repay a certain level of your general unsecured debt taking into account your income, expenses and other factors.  If you do not pass the means test you will not be permitted to file a Chapter 7 bankruptcy.  If you do file a Chapter 7 the US trustee, case trustee or a party in interest may move to dismiss your case or convert the case to a Chapter 11 or 13.

If your bankruptcy case converts to another chapter, you must refile the appropriate Means Test for that Chapter.  If the Means Test is not included when you file your bankruptcy case you will be given a 14 day order to file it or your case will be dismissed. 

You can file a Motion for Exemption from the Means Test if you are a disabled veteran and the indebtedness occurred primarily during a period during which you were on: (1) on active duty or (2) performing a homeland defense activity.

What debts can you wipe out?

If you qualify for a Chapter 7 you will be able to wipe out most of your unsecured debts like credit cards, medical bills and money loans but some debts are not dischargeble.  That means that you will be responsible for repaying them after your bankruptcy case is closed.  

If you don’t qualify for a Chapter 7 bankruptcy and file a Chapter 13 you may not have any of your debt wiped out or you may only have a portion of certain debts wiped out.  Regardless of the outcome you should know exactly what debts will be wiped out and what won’t.       

Can you keep your home?

When you file a Chapter 7 bankruptcy for bankruptcy some of your property will be considered exempt and some not.  The property that is not exempt will be sold to pay off your debts.  Rhode Island has a homestead exemption of $500,000 but you will have to be sure you are entitled to use it before filing.  Once your bankruptcy case is filed it is too late to change your mind.  If you file a Chapter 7 bankruptcy case and your home is not exempt it will be sold to pay off your creditors.  

Will you lose any of your property?

Before filing your bankruptcy case it is absolutely crucial to know what exemptions you are entitled to use, what ones you will use and what property if any is not exempt.  If any of your property is not exempt you should be ready to turn it over to the case trustee as soon as your case is filed.  If you have lived in Rhode Island for a long time you will be entitled to use the Rhode Island bankruptcy exemptions but you can also use the Federal exemptions.  Before filing your bankruptcy case you should know what exemption set would be best to use.

What state should you file your bankruptcy case in?

Each state has its own bankruptcy court and some states have multiple bankruptcy courts.  You must file your bankruptcy case in the correct court or it will be thrown out.  Where you have lived, run your business or kept your property prior to filing your bankruptcy case will determine what bankruptcy court to file it.  You will then have to bring your bankruptcy documents to the clerk’s office of that court to file your case.  You will also have to pay a court filing fee or file additional documents asking the court for additional time to pay the filing fee or to waive the fee entirely. 

Have you completed credit counseling?

All individuals must complete a mandatory credit counseling course prior to filing their bankruptcy case.  It can be taken online, over the phone or in-person and there are many different companies that provide the course for under $25.00.  This is referred to as the pre-filing course and must taken within 180 days of the day you file your bankruptcy case.  If you have to wait over 180 days to file you must take it again or your case will be thrown out.

Have you filed for bankruptcy before?

If you have filed a bankruptcy case in the past you may not be able to discharge anymore debts for some time.  You cannot receive a Chapter 7 discharge if you have received one in the past 8 years.  If you file before sufficient time has passed since your previous filing, the Court will issue a Notice of Ineligibility to Receive Discharge or an Order to Show Cause why your case should not be dismissed.  You will have to wait and re-file your case to receive a discharge.  

Do you have all of the required bankruptcy schedules, statements and other documents completed?

In all bankruptcy cases, certain schedules and statements are required to be filed. Pursuant to Fed.R.Bankr.P.1007, 1008, 2016 and 3015(b), R.I. LBR 1002-1, 1007-1 and 5005-4, the debtor shall file such missing documents according to the time limits imposed by federal or local rule.

If all documents are not contained in the initial filing, a 7-day or (14 day) Notice of Missing Documents will be issued setting deadlines for filing required documents. If cause exists, you can move for an order extending the time to file required documents by filing a Motion to Extend Time explaining why more time is needed.

If you fail to file required documents by the deadlines set by the Court, the case will be automatically dismissed without further notice.

Have you sold real estate in the last 4 years?

If you have sold real estate in the last 4 years you should consult with a bankruptcy attorney before filing your bankruptcy case.  In Rhode Island the bankruptcy case trustee can look back 4 years at property you have sold.  They will want to determine if you sold the property for a reduced price to avoid the reach of your creditors.  The trustee will want to know the value of the home when it was sold and the sale price.  If the sale price is below what the home should have been sold for the bankruptcy case trustee can reverse the sale or file a lawsuit against the buyer for the difference in price.

What your signature means

Your signature on the bankruptcy petition, statements and schedules constitutes an oath that the information is accurate and complete.  The Bankruptcy Code provides serious penalties for false statements. You can be denied a discharge for false statements. It is a crime to knowingly and fraudulently conceal property, make a false oath or account, or make a false declaration or verification.

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