The Minnesota Bankruptcy Responsibility Forms

In fall of 2010 the bankruptcy judges in the Minnesota were getting upset. Their phones were ringing with calls from people who had questions that should have been answered by their lawyers; but these people were complaining that their lawyers would not return the calls.

At about the same time the judges started hearing complaints from the trustees about lawyers not showing up for the hearings (meeting of creditors). It didn’t take long for them to figure out that there were a large number of new lawyers on the scene who didn’t know what they were doing. Just out of law school, they were trying to pay their student loans by jumping into what was at that time a booming bankruptcy market. Worse than that, however, many of these lawyers had been hired by fly by night petition preparation mills who were asking them to just sign off on bankruptcy petitions which had been prepared in India or who knows where. So although there was a lawyer’s name on the bankruptcy case, it had actually been prepared by an automated service. This resulted in many cases being filed on behalf of clients who had never actually talked with or met the person who supposedly was their lawyer.

Lots of things were going wrong with these cases. This made it harder for everyone in the system. In an effort to remedy the situation, our judges created and began to require the use of the following “responsibility forms.” Although I was embarrassed for my profession – that it had come to this – when they first came out, I can now see that they have some value. I reproduce them here. Please note that the form for Chapter 7 is slightly different than the one for Chapter 13. Now that it’s been over six years since all that happened, it may be old news; but both the lawyer and the client are still required to sign these forms at the time a case is filed.

By the way, usually when I discuss these forms with my clients, I refer to them as “the dummy checklist.”  If it weren’t for some real dummies, we would not need them.

NOTICE OF RESPONSIBILITIES OF
CHAPTER 7 DEBTORS AND THEIR ATTORNEYS
This Notice lists certain responsibilities of debtors and their attorneys. Nothing in this document changes, limits, or in any way alters the debtor’s or the debtor’s attorney’s obligations under the Bankruptcy Code, the local and national rules, or any rule of professional responsibility.

UNLESS THE COURT ORDERS OTHERWISE:

I. Before the case is filed, the attorney for the chapter 7 debtor shall, at a minimum:

A. Meet with the debtor to review and analyze the debtor’s real and personal property, debts, income, and expenses and advise the debtor on whether to file a bankruptcy petition;

B. Explain the various bankruptcy and non-bankruptcy options, the consequences of filing under chapters 7, 11 or 13 and answer the debtor’s questions;

C. Explain to the debtor how the attorney’s fees are paid;

D. Advise the debtor of the requirement to provide to the trustee the most recently filed tax return(s) at least seven days prior to the scheduled meeting of creditors. In addition, advise the debtor of the requirement to attend the meeting of creditors and identify the documents the debtor must bring to the meeting;

E. Advise the debtor that providing false information in the bankruptcy schedules or false testimony at the meeting of creditors or other hearing or trial may expose the debtor to criminal prosecution and denial of discharge;

F. Advise the debtor of the necessity of maintaining liability, collision, and comprehensive insurance on vehicles securing loans or leases;

G. Timely prepare and file the debtor’s petition, plan, schedules, statements, certificates, and other documents required to commence a case, and review them for accuracy contemporaneously with the filing.

II. After the case is filed, the attorney for the chapter 7 debtor shall, at a minimum:

A. Ensure that the debtor is adequately represented by an attorney at the meeting of creditors;

B. Prepare, file, and serve any necessary amendments to the petition, schedules, and statements;

C. Promptly respond to the debtor’s questions throughout the case;

D. Consider and advise the debtor concerning the debtor’s options to buy, sell or refinance real or personal property and assume or reject executory contracts or unexpired leases;

E. Prepare and file a proof of claim for a creditor when appropriate to protect the debtor’s interest;

F. Fully advise the debtor of the legal effect and consequences of proposed reaffirmation agreements and any defaults thereunder and, where appropriate, negotiate alternate terms with secured creditors, ensure that any agreement is fully and properly completed and filed and appear at any hearing, if required;

G. Advise the debtor in motions for relief from the automatic stay, file objections when appropriate, and appear, when required, at any hearing;

H. Prepare, file, and serve responses to motions for dismissal of the case;

I. Advise the debtor of the requirement to complete an instructional course in personal financial management and the consequences of not doing so;

J. Represent the debtor in connection with any audit request; and

K. Represent the debtor in bringing and defending any and all other matters or proceedings in the bankruptcy case as necessary for the proper administration of the case.

III. The attorney shall comply with Local Rule 9010-3 and represent the debtor in bringing and defending all matters in the bankruptcy case until a substitution of attorneys is filed or an order is entered allowing the attorney to withdraw.

Unless otherwise agreed, the attorney has no responsibility to represent the debtor in adversary proceedings. However, if an adversary proceeding is filed against the debtor, the attorney will explain to the debtor the estimated cost of providing representation in the adversary proceeding, the risks and consequences of an adverse judgment, and the risks and consequences of proceeding without counsel, as well as the sources, if any, of possible pro bono representation.

IV. Before the case is filed, the chapter 7 debtor shall:

A. Fully disclose, review and analyze with the attorney the debtor’s real and personal property, all debts, income, expenses and all other financial information needed to properly complete the schedules and statements;

B. Prior to and throughout the case respond promptly to all communications from the attorney;

C. Prior to and throughout the case, timely provide the attorney with full and accurate financial and other information and documentation the attorney requests, INCLUDING BUT NOT LIMITED TO:

1. A Certificate of Credit Counseling and any debt repayment plan;

2. Proof of income received from all sources in the six-month period preceding filing, including pay stubs, social security statements, workers’ compensation payments, income from rental property, pensions, disability payments, child and spousal support, and income from self-employment;

3. The most recently filed federal and state income tax returns, or transcripts of returns, as well as any other returns requested by the attorney, the trustee, the court, or a party in interest;

4. A government-issued photo identification and proof of social security number, such as a social security card or W-2;

5. A record of interest, if any, in an educational individual retirement account or a qualified state tuition program;

6. The name, address, and telephone number of any person or state agency to whom the debtor owes back child or spousal support or makes current child or spousal support payments, and any and all supporting court orders, declarations of voluntary support payments, separation agreements, divorce decrees, or property settlement agreements;

7. Any insurance policies requested by the attorney;

8. Vehicle titles for all cars, trucks, motorcycles, boats, ATVs, and other vehicles titled in the debtor’s name;

9. Legal descriptions for all real property, wherever located, owned by the debtor or titled in the debtor’s name, or in which the debtor has any interest whatsoever, including but not limited to, a timeshare, remainder interest, or life estate;

10. Documents relating to any inheritance to which the debtor is entitled or may be entitled;

11. Information relating to any foreclosures, repossessions, seizures, wage garnishments, liens, or levies on assets which occurred in the preceding 12 months or continues after the filing of the case;

12. Information and documents relating to any prior bankruptcies filed by the debtor(s) or any related entity;

13. Any changes in income or financial condition, such as job loss, illness, injury, inheritance, or lottery winnings before or during the case;

14. Information and documents relating to any lawsuits in which the debtor is involved before or during the case or claims the debtor has or may have against third parties;

15. Information relating to any seizure of tax refunds by the IRS or Department of Revenue;

16. All information or documentation needed to respond to any motion or objection in the bankruptcy case;

17. Any tax returns, account statements, pay stubs, or other documentation necessary to timely comply with requests made by the United States Trustee or the Chapter 7 Trustee or any audit requests.

D. Cooperate with the attorney in preparing, reviewing, and signing the petition, schedules, statements, and all other documents required for filing a bankruptcy case.

V. After the case is filed, the chapter 7 debtor shall:

A. Timely and promptly comply with all applicable bankruptcy rules and procedures;

B. Appear punctually at the meeting of creditors with recent proof of income, a government-issued photo identification card, proof of social security number, and copies of all financial account statements covering the date the bankruptcy petition was filed;

C. Contact the attorney before buying, refinancing, or contracting to sell real property and before entering into any loan agreement until the debtor receives a discharge;

D. Keep the court, the trustee, and the attorney informed of the debtor’s current address and telephone number; and

E. Complete an approved debtor education course and provide the certificate of attendance to the attorney for filing.

VI. The chapter 7 debtor’s attorney shall, both before and after the case is filed, comply with all applicable professional and ethical rules and shall exercise civility in dealings with all entities with which the attorney comes in contact. The attorney shall also advise the chapter 7 debtor to likewise act in a civil and courteous manner, to dress in a manner appropriate for a federal proceeding and debtors shall do so.

Signatures. By signing this acknowledgment, the debtor and the attorney certify they have read it and understand what is required of the debtor and the attorney in this bankruptcy case.

A fully executed copy of this document must be filed with the petition commencing the bankruptcy case of the debtor(s).

NOTICE OF RESPONSIBILITIES OF
CHAPTER 13 DEBTORS AND THEIR ATTORNEYS

This Notice lists certain responsibilities of debtors and their attorneys. Nothing in this document changes, limits, or in any way alters the debtor’s or the debtor’s attorney’s obligations under the Bankruptcy Code, the local and national rules, or any rule of professional responsibility.

UNLESS THE COURT ORDERS OTHERWISE:

I. Before the case is filed, the attorney for the chapter 13 debtor shall, at a minimum:

A. Meet with the debtor to review and analyze the debtor’s real and personal property, debts, income, and expenses and advise the debtor on whether to file a bankruptcy petition;

B. Explain the various bankruptcy and non-bankruptcy options, the consequences of filing under chapters 7, 11 or 13 and answer the debtor’s questions;

C. Explain to the debtor how the attorney’s and trustee’s fees are paid;

D. Explain what payments will be made directly by the debtor and what payments will be made through the debtor’s chapter 13 plan, with particular attention to mortgage and vehicle loan payments, as well as any other claims with accrued interest;

E. Explain to the debtor how, when, and where to make the chapter 13 plan payments;

F. Explain to the debtor that the first plan payment must be made to the trustee within 30 days of filing the case;
G. Advise the debtor of the requirement to provide to the trustee the most recently filed tax return(s) at least seven days prior to the scheduled meeting of creditors. In addition, advise the debtor of the requirement to attend the meeting of creditors and identify the documents the debtor must bring to the meeting;

H. Advise the debtor that providing false information in the bankruptcy schedules or false testimony at the meeting of creditors or other hearing or trial may expose the debtor to criminal prosecution and denial of discharge;

I. Advise the debtor of the necessity of maintaining liability, collision, and comprehensive insurance on vehicles securing loans or leases;

J. Timely prepare and file the debtor’s petition, plan, schedules, statements, certificates, and other documents required to commence a case, and review them for accuracy contemporaneously with the filing.

II. After the case is filed, the attorney for the chapter 13 debtor shall, at a minimum:

A. Ensure that the debtor is adequately represented by an attorney at the meeting of creditors and make every effort to obtain confirmation of the plan;

B. Prepare, file, and serve any necessary amendments to the petition, schedules, and statements;

C. Respond to any objection to plan confirmation and, where necessary, prepare, file, and serve a modified plan, and appear, as required, at any hearing;

D. Prepare, file, and serve post-confirmation documents necessary to modify the plan;*

E. Promptly respond to the debtor’s questions throughout the case;

F. Prepare, file, and serve necessary motions to buy, sell, or refinance real or personal property;*

G. Prepare and file a proof of claim for a creditor when appropriate to protect the debtor’s interest;

H. Object to improper or invalid claims when appropriate to protect the debtor’s interest;*

I. Advise the debtor in motions for relief from the automatic stay, file objections when appropriate, and appear, when required, at any hearing;*

J. Consider and advise the debtor concerning lien avoidance and, if appropriate, prepare, file, and serve necessary motions to avoid liens on real or personal property;

K. Prepare, file, and serve responses to motions for dismissal of the case;*

L. Advise the debtor of the requirement to complete an instructional course in personal financial management and the consequences of not doing so;

M. Prepare, file, and serve the Chapter 13 Debtor’s Certifications Regarding Domestic Support Obligations and Section 522(q) and the Certificate of Debtor Education immediately after completion of plan payments;

N. Represent the debtor in connection with any audit request;* and

O. Represent the debtor in bringing and defending any and all other matters or proceedings in the bankruptcy case as necessary for the proper administration of the case.

III. The attorney shall comply with Local Rule 9010-3 and represent the debtor in bringing and defending all matters in the bankruptcy case until a substitution of attorneys is filed or an order is entered allowing the attorney to withdraw.

Unless otherwise agreed, the attorney has no responsibility to represent the debtor in adversary proceedings. However, if an adversary proceeding is filed against the debtor, the attorney will explain to the debtor the estimated cost of providing representation in the adversary proceeding, the risks and consequences of an adverse judgment, and the risks and consequences of proceeding without counsel, as well as the sources, if any, of possible pro bono representation.

IV. Before the case is filed, the chapter 13 debtor shall:

A. Fully disclose, review and analyze with the attorney the debtor’s real and personal property, all debts, income, expenses and all other financial information needed to properly complete the schedules and statements;

B. Prior to and throughout the case respond promptly to all communications from the attorney:

C. Prior to and throughout the case, timely provide the attorney with full and accurate financial and other information and documentation the attorney requests, INCLUDING BUT NOT LIMITED TO:

1. A Certificate of Credit Counseling and any debt repayment plan;

2. Proof of income received from all sources in the six-month period preceding filing, including pay stubs, social security statements, workers’ compensation payments, income from rental property, pensions, disability payments, child and spousal support, and income from self-employment.

3. The most recently filed federal and state income tax returns, or transcripts of returns, as well as any other returns requested by the attorney, the trustee, the court, or a party in interest;

4. A government-issued photo identification and proof of social security number, such as a social security card or W-2;

5. A record of interest, if any, in an educational individual retirement account or a qualified state tuition program;

6. The name, address, and telephone number of any person or state agency to whom the debtor owes back child or spousal support or makes current child or spousal support payments, and any and all supporting court orders, declarations of voluntary support payments, separation agreements, divorce decrees, or property settlement agreements;

7. Any insurance policies requested by the attorney;

8. Vehicle titles for all cars, trucks, motorcycles, boats, ATVs, and other vehicles titled in the debtor’s name;

9. Legal descriptions for all real property, wherever located, owned by the debtor or titled in the debtor’s name, or in which the debtor has any interest whatsoever, including but not limited to, a timeshare, remainder interest, or life estate;

10. Documents relating to any inheritance to which the debtor is entitled or may be entitled;

11. Information relating to any foreclosures, repossessions, seizures, wage garnishments, liens, or levies on assets which occurred in the preceding 12 months or continues after the filing of the case;

12. Information and documents relating to any prior bankruptcies filed by the debtor(s) or any related entity;

13. Any changes in income or financial condition, such as job loss, illness, injury, inheritance, or lottery winnings before or during the case;

14. Information and documents relating to any lawsuits in which the debtor is involved before or during the case or claims the debtor has or may have against third parties;

15. Information relating to any seizure of tax refunds by the IRS or Department of Revenue;

16. All information or documentation needed to respond to any motion or objection in the bankruptcy case;

17. Any tax returns, account statements, pay stubs, or other documentation necessary to timely comply with requests made by the United States Trustee or the Chapter 13 Trustee or any audit requests.

D. Cooperate with the attorney in preparing, reviewing, and signing the petition, schedules, statements, and all other documents required for filing a bankruptcy case.

V. After the case is filed, the chapter 13 debtor shall:

A. Timely and promptly comply with all applicable bankruptcy rules and procedures and with the terms of the chapter 13 plan;

B. Appear punctually at the meeting of creditors with recent proof of income, a government-issued photo identification card, proof of social security number, and copies of all financial account statements covering the date the bankruptcy petition was filed;

C. Make all required payments to the Chapter 13 Trustee, and to such creditors as are being paid directly, and inform the attorney if required payments cannot be made;

D. Contact the attorney before buying, refinancing, or contracting to sell real property and before entering into any loan agreement;

E. Keep the court, the trustee, and the attorney informed of the debtor’s current address and telephone number;

F. Complete an approved debtor education course and provide the certificate of attendance to the attorney for filing;

G. Pay all required domestic support obligations;

H. Cooperate with the attorney to complete and sign the Chapter 13 Debtor’s Certifications Regarding Domestic Support Obligations and Section 522(q) immediately after making the final plan payment.

VI. The chapter 13 debtor’s attorney shall, both before and after the case is filed, comply with all applicable professional and ethical rules and shall exercise civility in dealings with all entities with which the attorney comes in contact. The attorney shall also advise the chapter 13 debtor to likewise act in a civil and courteous manner, to dress in a manner appropriate for a federal proceeding and debtors shall do so.

Signatures. By signing this acknowledgment, the debtor and the attorney certify they have read it and understand what is required of the debtor and the attorney in this bankruptcy case.A fully executed copy of this document must be filed with the petition commencing the bankruptcy case of the debtor(s).

* Local Rule 2016-1(d)(2) provides that an attorney who performs these services after confirmation of the plan may request additional attorney’s fees and expenses in connection with such services.

How Do I Get Started with Filing a Chapter 13 Bankruptcy?

I am a regular contributor to the “ask a lawyer” feature at avvo.com. Recently I answered “how do I get started with filing a Chapter 13 Bankruptcy?” With a few minor edits, my answer was as follows:

Step one is simple. Find the name and phone number of a competent bankruptcy lawyer in your state, preferably near your home. This web site (referring to avvo.com) is a good place to do that.

Step two: pick up the phone and call that person. Most provide a free consultation, at least over the phone. (I provide a free consultation over the phone.  After that, if things look promising, I’ll invite you to my office for a more heavy duty look at your situation.  For the in-office review, I charge a very small fee.)

Step three: disclose to that lawyer everything he or she asks, fully and without reservation. The lawyer needs to know everything about your income, assets and debts. Be ready with two years of tax returns, six months of pay stubs, and a list of your debts or a stack of statements for your debts that includes every last one of them. Your lawyer may also want to take a look at your bank statements for all your accounts, perhaps as much as six months worth.

When it comes to income, don’t forget your part time job. Don’t forget the money you make selling Mary Kay or doing photography on the side. Your lawyer will need to know about any large gifts you have made in the past couple of years, large items such as cars or boats that you may have sold in the past couple of years, and what debts you’ve been paying and what debts you have not been paying.

It’s a lot of work, which is why it’s not free. And it certainly can’t be done all at once. At least at my office, it is a process that takes several meetings. It’s way more complicated than just preparing a tax return. As with any large project, plan on getting started and doing it a little at a time.

Your lawyer can help you figure out whether you really want to do a Chapter 13.  A Chapter 7 might be better.  Every journey starts with just one step.

Bankruptcy by the Gallon: Time to Let Go of Old Closed Bankruptcy Files

dave-filesiiifilesvI’m not a paperless kind of guy.  Hard copies of everything in a file folder. That’s how I like to do things.  This of course means that I generate a lot of paper, and every few years I run out of storage space.  After a Chapter 13 or Chapter 7 case is completed, the discharge has been granted and the clerk’s office has closed the case, I move the file to a storage room in the back of my garage.  To me those files represent a lot of work, care, concern, blood and sweat.  Gosh I hate to get rid of them.  But a time comes when one has to let go.  One has to admit that those people really did get a fresh start, they don’t need me any more, and it’s really time to move on and let go – physically let go of the file.

proshred-truckSo it was with mixed feelings recently that I called Proshred, a locally owned shredding company near me.  Prior to their arrival on the appointed day, I spent probably at least 20 hours going through all my old files deciding what it was safe to shred and what I had better still keep.  I don’t remember for sure when I did this last, but I noticed right away that for the most part the oldest files I had dated from about 2006.  What I finally wound up with was a big pile of bankruptcy files ranging from about 2006 to about 2012 in the middle of my garage floor. There was no left room to park.

When the truck arrived as one would expect, the driver who was supposed to do all the loading work had just had back surgery.  He showed me the scar.  I was planning on helping him anyway, but it turned out to be more like he was helping me.  The files were moved from my garage to the truck using a full sized 64 gallon garbage can on wheels.  It took about eight trips.  I suppose that means I had about 512 gallons of files.  Never thought of measuring my work by the gallon before.

I could hear the shredding blades doing their work right there at the end of my driveway.  Kind of a strange or odd end to all that concern and pain I thought.  It was comforting to hear from the driver that the remains of the files were going to be recycled and would eventually be used to make new paper at a mill somewhere near Duluth.  As the truck pulled away I felt a bit of sadness, followed by a feeling of lightness and relief.

One of the Best 25 Bankruptcy Attorneys in Minneapolis?

Some outfit I have never heard of called “Expertise” has decided that I am one of the best 25 bankruptcy lawyers in Minneapolis.  Perhaps this is an honor, but I’m suspicious.  There’s a bunch of code they want me to post on my web pages.  It’s supposed to make an award badge appear, but I’m concerned that it might do other things in the background that I’m not aware of.  So for starters at least, I’m going to try posting it here on the blog.  I’ll keep an eye on it and see if it seems to be doing anything I wouldn’t like to have going on.

If anybody knows anything about “Expertise,” whether they are legitimate or not, I wish you would let me know.  When I cut and paste the code, what I get looks like this:

Best Bankruptcy
Lawyers in
Minneapolis
2016

I am a debt relief agency. I help people file for relief under the federal bankruptcy code.

Important Changes to the Essential Bankruptcy Numbers

I find myself today (April 14, 2016) in the process of updating what seems like way more than half of the numbers on my website. The Department of Justice just issued a major set of changes. I need to incorporate them into a series of updates. Otherwise about half of my web pages will be obsolete. With a check list of the changes in my hand, I’ve been going through my site page by page trying to find and correct everything that suddenly became out of date.

If you see “Copyright 2016” at the bottom of the page, that’s a good sign that it’s been updated. The ones I haven’t gotten to yet still say “Copyright 2015.”

Every six months, on October 1st and April 1st, the Department of Justice issues new median income numbers on a state by state basis. Those numbers serve as the starting point for the means test, which determines who is eligible for Chapter 7 bankruptcy. In Chapter 13 bankruptcy, the median income numbers determine whether the payment plan will run for 36 months or for 60 months. I have just gotten those numbers updated, and you can now see the new median income numbers for Minnesota on my Chapter 7 page.

The medain income numbers are not the only bankruptcy-related numbers that changed this year on April 1st.  While new median income numbers are issued every six months, there are multiple other sets of numbers which are updated by the Department of Justice only every three years.  That three year mark just came around on April 1, 2016.  Even though that was April Fools’ Day, these changes are no joke.  The changes most important to my practice are the ones they made to the federal exemptions.  You can find the updated federal exemption numbers on my exemptions page.  The federal exemptions in all categories appear to have increased a little, which of course is good news.  My favorite among the federal exemptions, the one we call the “wild card” or the “catch all,” increased from a possible maximum of $12,725 to a possible maximum of $13,100.  I’ve been saying for years that it’s about $13,000, now it really is.

There’s still one more item I need to update on the Filing Process page.  There under “Reasons to Delay Filing” is some material about how it is best to not have charged $650 or more on any one account within the 90 days before filing a bankruptcy, and about how it is best to not have taken a cash advance of $925 or more within the 70 days before filing.  Doing either of those things creates what amounts to a free objection that can be made by the creditor.  The April 1st update for those two numbers increases them to $675 and $950 respectively.  For most of my cases these particular changes make no real difference, since most of my clients have quit using credit many months before they come to see me.

This post is for informational purposes only and does not create an attorney-client relationship.  It is not legal advice.  Please consult the attorney of your choice concerning the details of your case. I am a debt relief agency. I help people file for relief under the federal bankruptcy code.

Why Everything Has to be Disclosed when Filing Bankruptcy

I recently noticed a familiar name and face in an article in the Star Tribune.  The headline was “Minneapolis Bankruptcy Trustee Smelled a Rat and Got the Goods on Jewelry Store Owner,” an article by reporter Randy Furst.  The article describes a situation  where a gentleman, Daniel Rohricht, apparently closed his jewelry store, went out of business and filed Chapter 7 bankruptcy.  This was about four years ago.  The debts listed in the bankruptcy came to over $250,000.

Mr. Rohricht claimed that all the jewelry was gone, having all been sold.  The bankruptcy seemed to go well.  One of our local bankruptcy trustees, a lawyer named Nauni Manty, was appointed as the trustee handling the case.  Ms. Manty knows a lot about jewelry and the jewelry business, but there was no evidence that anything was being hidden.  It is the trustee’s job to find assets for the creditors.  But after doing what investigation she could, she accepted a settlement of $17,500 from Mr. Rohricht.  The settlement agreement stated, however, that if Ms. Manty became aware of any undisclosed assets, the deal was off and they were back to square one.

Years passed, but Ms. Manty did not forget Mr. Rohricht.  Eventually she got wind that he had purchased a store in Wisconsin and had gone back into business.  She was able to prove that the jewelry and precious stones that he was hauling into the new store were items he had hidden in 2009 prior to filing his bankruptcy.  To make a long story short, he recently pled guilty to concealing assets and is now facing federal prison and a very large fine.

It’s not unusual that I will run into a person who has something he or she doesn’t want to disclose in their bankruptcy case.  They tend to believe firmly that it is something nobody would ever find out about.  That’s what Mr. Rohricht thought too.  I get asked why whatever it is must be disclosed.  Here’s why.  My understanding is that every year in Minnesota on average two or three people are convicted of bankruptcy fraud.  It’s never happened to any client of mine, and I really want to keep it that way.

This post is for general information purposes only, is not legal advice and does not create an attorney-client relationship.  I am a debt relief agency, helping people file for relief under the federal bankruptcy code.

 

What’s the Difference between a Debt and a Lien in Chapter 7 Bankruptcy?

I recently had a conversation with a person who had just received a discharge in a Chapter 7 bankruptcy.  He had also received what he thought was a very weird item from his mortgage company. The mortgage company had sent him a form for his signature which would give them permission to start sending monthly statements again even though the mortgage debt had been discharged. In the fine print on the back of the discharge there is a court order requiring all creditors – including the mortgage company – to make no attempt of any kind to collect the debt.   This includes mortgages, even if the homeowners want to keep the house.   But most homeowners who have mortgages want to continue paying the mortgage so they can keep their home.  Having a monthly mortgage statement helps a lot in keeping  track of that, but without permission to start sending statements again, the mortgage companies tend to be afraid to do so.

The permission to restart monthly statements form DOES look a little weird.  It usually will start off by saying something like: “Well, we know you’ve been discharged in a bankruptcy and you don’t owe this personally anymore, so don’t take this as attempt to collect a debt.  We were just wondering if maybe, not that you actually owe this anymore, you might still like updates on the status of the mortgage, for information purposes only, in case you might still want to make some payments on a strictly voluntary basis – not that we would really want the money or anything like that.”

This odd language is the result of there being two seemingly contradictory facts for a homeowner with a mortgage following a Chapter 7 bankruptcy discharge.  The first fact is that the personal obligation to pay the debt no longer exists.  The second fact is that the lender still has a mortgage lien on the house, and if you don’t pay the mortgage that lender will foreclose.

In the phone conversation I felt a bit put on the spot.  I was asked repeatedly to explain if the debt has been discharged, how can there still be a lien on the house that carries with it a right to foreclose.  I tired to explain that a mortgage lien is actually a property right  – a form of partial ownership – which the lender has.  The bankruptcy discharge takes away the personal obligation to pay the debt, but it does nothing to the ownership interest.  The discharge only affects personal obligations, not property interests.

So the bottom line is that when it comes to Chapter 7 bankruptcy, if you want to keep your house you better keep paying your mortgage or mortgages.

This was confirmed within the past few days by a decision of the U.S. Supreme Court issued on June 1, 2015.  In the case of Bank of America v. Caulkett, the court ruled that mortgage liens cannot be stripped off in a Chapter 7 Bankruptcy.  Under certain limited circumstances, the situation can be different in a Chapter 13 Bankruptcy.  More about that in my page about keeping your house.

This post is for general information purposes only and is not legal advice.  Interactions here do not create an attorney-client relationship.  Consult your own attorney concerning the details of your case.  I am a debt relief agency, helping people file for relief under the federal bankruptcy code.

Bankruptcy is Legal – But is it Moral?

I usually don’t give much thought to the question of whether filing a bankruptcy is the moral or ethical thing for a person to do.  I decided a long time ago that it  is, at least for my clients in the kind of cases that I accept.  For one thing, I don’t recommend bankruptcy unless it’s the last resort.  In other words, if the client has other alternatives, I recommend against filing bankruptcy and suggest that other avenues be tried first.  I have referred hundreds of people to Lutheran Social Services Financial Counseling and to Family Means financial counseling, my two favorite alternatives to bankruptcy.  Lots of debt settlement companies are operated by crooks, and you really have to watch out for them; but these two are strictly legitimate.

Most of my clients are absolutely overwhelmed and buried in debt.  If they are going to keep paying their unsecured debt, they don’t get to eat – and vice versa.  I believe that a person’s first duty is to himself or herself and his or  her family, and his or her second duty is to the community.  Under both duties, it is your obligation to take care of yourself well enough that you and your family don’t become homeless wards of the state.  If you can at least support yourself, you are saving the community the cost of supporting you. Your duty to continue paying your debts to a bunch of bankers is much lower on the hierarchy of values, and the value of self preservation will trump that every time.  If you need to file a bankruptcy to be able to properly care for yourself and your family, it could even be a moral obligation that you do so.

In biblical times all debts were canceled every seven years. (Deuteronomy 15:1-2) Everyone was given a fresh start at the same time every seven years whether they were current with their debts or not. Even citizens who had sold themselves into slavery were set free in the year of jubilee, which occurred every fifty years. (Leviticus 25: 10-13) Selling oneself or one’s family into slavery was apparently one approach to raising money to pay debt.  We no longer have slavery these days, but sometimes what I see my clients doing prior to filing bankruptcy seems to have similarities to slavery.  Seems like slavery to me if you spend all your time and resources working in the service of Capitol One or Discover.   It also seems to me that the sort of debt forgiveness practiced in Biblical times has similarities to bankruptcy today – except bankruptcy can usually be done only every eight years.

Here in the United States, bankruptcy is provided for in Article 1, Section 8, Clause 4 of the United States Constitution.  This authorizes  Congress to enact “uniform laws on the subject of Bankruptcies throughout the United States.”  Our founding fathers obviously thought that Congress should have the power to provide laws for the kind of safety net that is found in bankruptcy.  Under those laws for most individuals the only way to get your debts canceled is to file a Chapter 7 bankruptcy or Chapter 13 bankruptcy.  Even then some debts (most taxes, child support, alimony, most student loans, etc.) are not dischargeable.  

If things have gotten so bad that the debtor really can’t pay, bankruptcy is a good thing for the debtor and the creditor too, since the creditor is now able to stop wasting resources trying to collect. Large debts can be like quick sand. The harder one tries to get out, the deeper one gets.  Most bankruptcies seen in my office are filed long after they should have been.

This post is for general information purposes only, is not legal advice, and does not create an attorney-client relationship.

Questions Your Bankruptcy Trustee will Ask at the Meeting of Creditors

In most of my discussions with clients, the focus is on getting the bankruptcy petition filed.  Sometimes I am surprised to be asked by a client whether he or she will have to go to court.  This question always surprises me, because the answer is of course we have to make a court appearance.  I tend to thing everybody knows that, but obviously they don’t know about it if I don’t talk about it.  Filing a Chapter 7 or Chapter 13 bankruptcy petition is not like filing a tax return, where you file it and you’re done.  There’s a lot more to it than that.

After the bankruptcy petition is filed, you will receive a notice from the court of the scheduling of  a hearing called the meeting of creditors. The section of the bankruptcy code that requires it to take place is Section 341, so sometimes you will hear this hearing referred to as “the 341.”  The rules require that it be held no less than 20 and no more then 40 days after the case is filed.  It usually takes place about 30 days after filing.  Here’s a video I posted at YouTube recently where  I discuss what the trustee will be asking at this hearing.

Most attorneys have a handout listing the questions you can expect.  The trouble with such handouts is that every trustee has their own favorite questions and even special interests.  We have one trustee who seems to ask extra questions about whether somebody is going to die and leave you something.  Another trustee is very interested in jewelry and actually is known to carry a jeweler’s eye glass in her purse.  Some trustees always want copies of the car titles, while others don’t seem to care about them.  The questions in a Chapter 7 case will tend to be more focused on assets, while those in a Chapter 13 will have more about income and expenses.

Many of my clients expect that they will be given a chance to explain why they filed a bankruptcy.  They wish they could explain the series of events that led them to need a bankruptcy.  In my experience, the trustee almost never asks anything about that and probably does not what to hear about it.    Some of the questions may include something like the following:

  • Are you still living at the same address that is stated in your petition?
  • Have you read all the papers that you filed with the court?
  • Did you sign them?
  • Are they true and correct?
  • Are you personally familiar with what your papers contain?
  • Do you have any additions or corrections you wish to make at this time?
  • Did you list all your debts?
  • Did you list all your assets?
  • Have you filed for bankruptcy before?  When?  What kind of bankruptcy?  Were you discharged?
  • Do you have a domestic support obligation?
  • Have you sold or given anything away to a close friend or relative in the past six years?  Some trustees may ask for a shorter period of time.  If the answer is yes, there will additional follow-up questions.
  • Have you paid over $600 to any unsecured creditor within the 90 days before you filed your bankruptcy?
  • Have you operated a business any time in the past six years?
  • When did you purchase your home?  What was the purchase price?  How did you set the value of your home?  These are only asked if you own your home.

I start coaching my clients about what questions to expect almost as soon as I get hired. Then as we go through the process of preparing the petition, I can give a better idea as to what to expect based on the details of the case.  If you have a good lawyer, he or she will be making sure that you are prepared for everything that might be asked at this meeting of creditors.  Usually I just call it the “hearing,” because the last thing you are likely to see at the meeting of creditors is a creditor.

This post is for general information purposes only and is not legal advice. It does not create an attorney-client relationship. You need to talk with your own lawyer about this. The questions that one can expect vary from one part of the country to another, even though it’s set up under federal law. I am a debt relief agency. I help people file for relief under the federal bankruptcy code.

Dave Kelly

Kelly Law Office
11900 Wayzata Blvd. #116E
Minnetonka, MN 55305
952-544-6356
http://www.mn-bankruptcy.com

Don’t be Tricked by Misleading Bankruptcy Attorney Fee Advertising

A lot of the advertising about attorney fees for bankruptcy is misleading – even tricky. Today I checked on a Google ad and the web page it leads to which says a certain law firm will file a bankruptcy after a payment toward the attorney fee of only $99.  I found this to be not exactly accurate.

The web page says that $99 toward the attorney fee, along with the court filing fee and counseling program fees, would be all one would have to pay prior to filing.  It was a slick web page, obviously done at considerable expense, where I found the following statement:

“You only have to pay the court filing fee of $335 and the credit report / credit course fees of $65 and an attorney fee of $99 to file.”  It also said:  “Only $99 Down, No Co-Signer Needed, File Now/Pay over Time, Affordable Payment Plans” in big blue letters.

I wondered how can these people can be doing this. I could never cover my office rent, malpractice insurance, phone and internet bills and office supplies if I didn’t charge a lot more than that.   So I went to the bankruptcy court web site and ran a search for actual cases they had filed.  This is not free, so I didn’t look very far.  All I did was check the last two cases this law firm filed to see what the attorney fee had been.  Attorney fees have to be disclosed on the bankruptcy petition.  What I found was that for the last two cases they filed, both Chapter 7s, their fee was $990. And the court filings also said they had received all of the $990 before filing the case.   That’s lower than what I would usually charge, but it’s a lot more than $99.

Now one thing you should understand about attorney fees in a Chapter 7 bankruptcy is this. If the attorney does not collect his or her fee prior to filing, any part of the fee that is still owing is just another debt in the bankruptcy case. The attorney is just another creditor.  The attorney, like all the other creditors, is under an immediate court order requiring that he or she do nothing to try to collect.  It is illegal and unethical for the attorney to collect anything from the client once the case is filed.  That’s why you may see references to a co-signer in some advertising.  The lawyer can still try to collect the fee from a co-signer as long as the co-signer is not his bankruptcy client.  This of course puts the bankruptcy lawyer in the position of being a bill collector. I don’t EVER want to be a bill collector.

I went back to the web page thinking it must be referring to Chapter 13 bankruptcy only. When it comes to paying attorney fees after the case is filed, a Chapter 13 bankruptcy is a very different animal from a Chapter 7. If you file a Chapter 13 bankruptcy it is possible to pay part of the attorney fee through the Chapter 13 payment plan.  I hit Control F to search the page and typed “13” into the search box.  No mention of “13” or “Chapter 13” appears anywhere on the page.  The page seems to be talking about Chapter 7.  The only filing fee the page mentions is $335, which is the Chapter 7  court filing fee. The court filing fee for a Chapter 13 is slightly lower.

When I look at their web page I can see that it is very slick, and at the bottom is the name of a web development company that designed the page.  I can remember a few years back when I hired a person to redesign my page.  The person I hired started adding all sorts of new key words and content, which was submitted to me for review.  There was a whole lot of it, and it was hard to keep up with what the designer was doing.  Is it possible that the web designer wrote up this stuff while the law firm was not paying attention?  It could happen.  I’m now back to doing all my own web design work. I found that having my web page in the hands of a professional design and marketing person was scary.

So maybe they just have a busy marketing person who they can’t keep up with.   Maybe it’s not entirely the law firm’s fault.  But I do want to suggest to you that you should be very wary when you see something like this and don’t be taken in by it. If it seems to good to be true, it probably is.

This posting is for general information purposes only and is not legal advice. It does not create an attorney-client relationship.  I am a debt relief agency. I help people file for relief under the federal bankruptcy code.

Dave Kelly, Kelly Law Office, Minnetonka, MN 952-544-6356

close
Facebook IconYouTube IconTwitter Icon