Real Clients and Fake Clients, Real Friends and Fake Friends

Earlier this week I was meeting with a client who was in the process of hiring me to represent her in the Chapter 7 bankruptcy process. As we were both signing the retainer agreement, I explained as I usually do at that point that now I was her lawyer. This means she has my permission to use my name if she needs to in the event that creditors manage to reach her by telephone.

These days most of my clients are pretty good at avoiding the calls from creditors by just watching their caller ID. It’s not unusual to be receiving between twenty to fifty calls a day from bill collectors by the time someone finally decides to come see me. I’ve carried on before about how people tend to wait too long and most should have come in sooner. Some of the creditor calls are hard to avoid, however, because they are tricky and disguise their caller ID. One who called me recently had a caller ID that said “Swiss Miss.”

So I tell my clients when they hire me that when one of those creditors gets though on the phone for whatever reason, my advice is to say something like this: “I’ve hired a lawyer to represent me in Chapter 7 bankruptcy. He’s instructed me to not speak with you, to not say anything, except that his name is David Kelly and his number is 952-544-6356. If you have questions you should call him. Goodbye.”

Once they hear this and confirm that it’s true – by calling me – many of the creditors will stop calling. As far as I know there is no legal requirement that they do so until we actually file the case, but as a practical matter they know that they might as well focus their energy elsewhere.

When I went over this with the client who I referred to above, she made a remark to the effect that she wasn’t necessarily very happy about being able to say I was her lawyer. She wished she had not needed to hire me. I replied that, if this was any comfort, there seemed to be quite a few people out there who were happy to claim I was their lawyer even though they had never met me.

Yes that’s right, I have real clients like the woman who just hired me, and I also have fake clients. Besides the calls from creditors to confirm that I’ve been hired by my real clients, I am also receiving calls from creditors who have been given my name by people I have never heard of. There tend to be about two calls a week like that. I guess they must think I’m good if they want to take my name in vain like that.

So I said to my new client that I had real clients and fake clients, and at least she was a real client. To that she replied, “well I have real friends and fake friends.”

I thought my new client’s remark was quite profound. At least it seemed profound to me. I asked her permission to quote her here, anonymously of course.

What to Bring to a Bankruptcy Hearing

At the outset let me say that this post is about the practices that I encounter here in Minnesota, mostly for cases right here in the Twin Cities. If you are from somewhere else, please consult an attorney in your own jurisdiction. Even though bankruptcy is based on federal law and should be about the same everywhere in the country, there are in fact tremendous variations from one locale to another.

Usually the only hearing there is in a Chapter 7 or Chapter 13 bankruptcy is a little proceeding they call the “Meeting of Creditors.” Sometimes it’s also called the “341” or “341 Meeting,” after the section of the bankruptcy code that sets up the hearing process. In this post when I say “hearing,” I mean this meeting of creditors.

This week I have had a hearing nearly every day, except for Friday when I had two. It is usually simple and short, possibly just five minutes, if the lawyer and the clients are properly prepared. But there’s nothing that can delay it worse or mess it up more than not coming to the hearing with all the required documents.

For most of these the required doucments fall into four categories, sometimes five. Here they are:

1. Driver’s license or goverment photo ID for each debtor.

2. Social security card. It’s surprising how many people can’t find this or have lost it a long time ago. If you absolutely can’t find your card, there are some substitutes that are acceptable. In general you can use anything that you have that has your social security number on it, AS LONG AS IT WAS CREATED BY A THIRD PARTY.

So a pay stub would work, since that is created by your employer. So would a W-2. Trouble is that most pay stubs don’t have the social security number on them anymore. It’s getting harder and harder to find a document that has it. Health insurance cards used to have them, but now most don’t. In this day of identity theft, the items that have a social security number on them are disappearing. About the only thing that I can use reliably is a W-2 or 1099. I usully can’t use a tax return, because that’s considered a self generated document – it’s not from a third party.

3. Most recent paystub from employment for each debtor. That is the pay stub that is most recent as of the date of the hearing, not the most recent stub from before the date of filing. The handout from the court which I have posted on my site says to bring “evidence of current income,” but I’ve never seen a trustee ask for anything other than a pay stub. I’ve never seen a person who gets a pension or unemployment be asked to produce evidence of that at the hearing. My experience also is that self-employed people don’t have to produce anything in this category – not at the hearing at least.

4. Bank statements for all open accounts which show what the balance was on the day the case was filed. If the account is open, you have to produce a statement for it. However, unlike the pay stub, this is not necessarily the most recent statement as of the date of the hearing. Usually the statement that comes in the mail at the beginning of the month following the filing of the case will do the trick. You have to be sure, however, that the date of filing is covered in the period included in the statement. In cases where my clients are unable to get a statment that came in the mail, I tell them to go on line or actually go to the bank and get a statement that includes about two weeks before the date of filing and two weeks after that date. Some of the trustees like to snoop through these statements, and I’m concerned that they would be disappointed if we just came in with one page that gave the balance on date of filing.

5. Additional information if the trustee requests it. The above four items or categories of items are all that’s required for more than 90% of the cases I handle. However, every now and then there will be a case where the trustee sends us a letter asking for more information. This could be almost anything, but the rule I follow is that if the trustee wants it, I tell my clients that we better provide it. Often these letters ask that the material be emailed to the trustee several days before the hearing.

Going to Jail for Being in Debt

Everyone I have spoken with all this week has brought up the front page story in last Sunday’s Star Tribune about going to jail for debt. I’m glad that the newspaper is making people aware that this can happen. What you need to know about it, however, is that the procedure is rare and easy to avoid.

In Minnesota nobody is sent to jail for not paying a debt. You can wind up in jail, however, for not obeying a court order. A person who ignores a court order can be found in contempt of court, and the most common penalty for that is a little time – often just a few hours – behind bars. The kind of court order that’s usually involved is one that requires the debtor to respond to a request for information about his or her assets.

When you get sued for a debt in Minnesota, typically a judgment is entered. A judgment is a fancy piece of paper that says you owe the money. After getting a judgment, a creditor has a right to inquire into what assets the debtor has out of which the debt can be paid. Usually this inquiry takes place in the form of written questions or a demand for documents. Typically the debtor will ignore this – for one thing you probably need a lawyer to even figure out what it is. So when there’s no response, the creditor will bring a motion requiring a response. The creditor has a right to a response, so the judge will always order the debtor to respond.

Then the creditor serves the debtor with the court order. By now the debtor has received a large number of legal documents, and this one tends to look the same and just as incomprehensible as the others. The order should be served in person, and a good process server will make a point of showing the debtor that there is a judge’s signature on the document. Of course, a lot of the process servers aren’t so good.

When the debtor ignores the court order, the creditor is in a position to make a motion that the debtor be found in contempt. Another order is served, this one requiring the debtor to show up for the contempt motion hearing. If the debtor fails to show up for that, an arrest order can be issued.

Usually the judge will just have you held for a few hours. Sometimes in an extreme case that can become a few days, perhaps even a few weeks. One way to get a person in such circumstances released is to file a bankruptcy. The automatic stay from the bankruptcy court is usually all it takes to invalidate the legal process that is holding the person in jail. If one brings the receipt for the bankruptcy court filing fee to the judge who has ordered a person to jail, most judges will immediately order that the person be released. Since child support and spousal maintenance are not discharged in bankruptcy, I’m not sure this would work if the contempt of court involved nonpayment of child support or maintenance.

All week I have been trying to reassure people that it’s actually pretty difficult to have this happen and not see it coming in advance, so that we have plenty of time to get their bankruptcy filed before it would ever become a real danger. One moral of the story is that one should never let legal documents pile up without at least consulting somebody about what they mean.

Call to cancel your appointment. Help someone else stop the nasty bill collectors!

People are literally lining up to see me. In 2008 anybody could get in to see me within a week, but now it’s about twice that long.

This is, however, the second morning in a row where I have had a no-show appointment. I noticed not long ago that the Veteran’s Administration – when notifying someone of an appointment at one of their medical facilities – includes a few words about how they would appreciate it if those unable to show up would call in and either cancel or reschedule. They make a point that those who don’t call to cancel or reschedule are denying a fellow veteran of the opportunity to use that time for their appointment. The saying goes something like this: Help your fellow veteran – cancel or reschedule if you can’t get here.

I doubt that the person who failed to show up this morning has thought this through. He is not only messing up my schedule, but also denying an opportunity to the person I could have scheduled in this time slot. I have people begging to get in to see me. If I knew that the person scheduled for this morning wasn’t coming, I’d be meeting with someone else right now. At least two callers yesterday wanted to meet with me this morning. Best I could do was set up appointments for week after next.

"Avoid Bankruptcy" add on the radio this morning

The radio add starts out with a dramatization of a phone call where a job applicant is being asked about a bankruptcy by a prospective employer. Then the announcer cuts in and starts talking about avoiding bankruptcy by going to whoever was sponsoring the add. This angered me because I have never had a client complain to me about receiving such a call; and I hear lots of complaints about lots of things.

The bankruptcy statute has provisions prohibiting discrimination by employers because a person has filed a bankruptcy. My understanding of those provisions is that they prevent a current employer from changing employment status because of a bankruptcy filing. It is also my understanding, however, that they do not prevent a future employer from taking the filing into account. So at least in theory, a call like the one in the add is possible. I just don’t know anyone who it has ever happened to.

I do know people who have spent great amounts of cash on various debt management or debt consolidation schemes, only to ultimately wind up in my office doing a bankruptcy. When I am asked about where to go for credit or debt management counseling, I always say to avoid any outfit that you hear advertising on the radio, TV or other media. The best places to go are the nonprofit organizations such as Lutheran Social Services or Family Means. There are lots of crooked or questionable debt counseling operations. It is possible that they could do a lot of good, but great care should be taken in selecting such a service. If I were you I would avoid any service which does not have an office in Minnesota.

Just ventilating here. I think the add is way inappropriate.

Mortgage Modification Amendment Defeated in Senate

I just received an email from NACBA – National Association of Consumer Bankruptcy Lawyers. They say that the mortgage modification in Chapter 13 Bankruptcy amendment which NACBA was trying to get passed was defeated today in the Senate. The amendment in question was to be part of the Helping Families Save Their Homes Act.

I think that means it’s totally dead for this session of Congress. Had it passed, I was going to have to find a class or seminar to attend to learn what all the bill contained as finally passed. NACBA has it’s convention in Chicago at the end of this month, and I would have had to be sure that I got there. As it is, I can probably wait till next year without missing anything essential.

A sales tax for filing bankruptcy? Some change!

It seems that the leadership of our Minnesota state legislature is considering slapping a sales tax on legal services. If they have to do that, I would suggest that there be an exception for legal services connected with bankruptcy filings. I just sent the following email to Minnesota State Representatives Kelliher, Sertich, Lenczewski and Benson; and to State Senator Bonoff:

I am a lawyer who does bankruptcy work. Many people who contact me cannot afford to file a bankruptcy the way it is. Adding a sales tax to my fee would make that much worse.
A sales tax for filing a bankruptcy. Some change that would be.

Consumer Bankruptcy Up 48% in July

A few weeks ago I bookmarked an article posted on Twin Cities Daily Planet which indicated that bankrupty filings in Minnesota are up almost 30% for May and June of 2008 as compared to May and June of 2007. I thought it has seemed to be pretty busy around here, but I still thought the percentage was surprisingly high. Had someone told me in January of 2006, right after the “reform” legislation had gone into effect that this was going to happen, I don’t think I would have believed it. The standard wisdom at that time was that bankruptcy lawyers might be about out of business. In fact, many lawyers quit practicing bankruptcy law at that time. The new law was called BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act). In my opinion, the only abuse that was going on was that perpetrated by the credit industry, and the only protection provided was for them and not consumers.

Earlier this week I received a copy of Consumer Bankruptcy News, one of those old fashioned publications that is still printed on paper. In the lower right corner of page 7 was an item stating that nation-wide bankruptcy filings were up 48% in July 2008 as compared to July 2007. There were 94,124 consumer filings in July and 82,770 in June this year. That would be as if everybody in Bloomington, Minnesota and in Duluth Minnesota combined had filed for bankruptcy in June or July. If that keeps up, I would assume that for August it would be as if everybody in Rochester, Minnesota had filed for bankruptcy.

If you should feel a need to come see me to talk bankruptcy, there’s sure no reason to feel alone.

Bankruptcy Petition Filed in Bad Faith

Can’t help myself. I have to share this.

I’m on an email list where I get all sorts of updates concerning bankruptcy law. My email this morning brought me news of a North Carolina bankruptcy court decision where the case was dismissed as having been brought in bad faith. What was the bad faith?

It seems that the petitioner, a woman who had just finished a divorce process, was filing the petition in bankruptcy primarily to make her attorney fees for the divorce go away. Through the divorce process she had obtained exempt assets in excess of $250,000 in value; and the lawyer’s bill was about $42,000; but the lawyer had already expressed a willingness to settle for $20,000.

The court appears to have reasoned that as this person went ahead with her contentious divorce, the lawyer had a reasonable expectation to be paid from the “equitable distribution recovery” of assets in the divorce case, and the filing of bankruptcy right after the divorce was in bad faith.

This is an example of what I hear referred to as the “smell test.” There is probably no specific provision in the bankruptcy code that says you can’t list your attorney fee bill in a bankruptcy right after the divorce. But under these particular circumstances, the bankruptcy court judge clearly did not like the way it smelled.

I have had several clients who have listed attorney fees in their bankruptcy petitions. However, that was not the only debt they had and that was not the reason why they filed. In addition, there had been a respectable period of time that had passed since the divorce was final; and it would have been something my client felt bad about and only listed because my advice was that all debts had to be listed.

Typically I find that my clients are very reluctant to list a debt that was for a personal service, where they have a relationship with the provider of the service. They really hate to list their doctor, dentist or plumber. If they need a bankruptcy, however, there’s no choice. All debts must be listed.

Youtube video Bankruptcy Update Part I

Yesterday, before that walk at the nature center, I spent a few hours in the office. I had brought a shirt, tie and jacket, as well as my Flip Video camera. I have been posting to a Youtube channel for almost a year, and I felt yesterday that I might be motivated to record a few new comments on video. Once I got started, I surprised myself about how much I had to say. I grabbed a few I items that were loose on my desk, and found that these made a more than full agenda of things to talk about.

I set up the Flip Video, punched record and walked around to sit in front of it. When I reviewed what I had when I was done, it was almost half an hour of stuff. This time it was all on the subject of bankruptcy. My idea was to supplement and update what I’ve already said on earlier videos. Now what I recorded is so long that I will have to edit it down into manageable pieces. By the time I’m done editing it will be a whole series of clips. The first of them is embedded here:

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