Nothing is More Expensive Than A Cheap Bankruptcy Lawyer

Recently I had a bankruptcy case where a seemingly small and innocent circumstance turned up after the case was filed. It seemed normal to my client at the time and certainly not dishonest in any way.  It wasn’t illegal, immoral or fattening.  It just happened, however, to be one of those things which can run afoul of some of the more nonsensical provisions of the bankruptcy code.

I could have just said well that’s too bad and let things land wherever.  Fixing the situation was probably beyond the scope of what I had signed on for in my retainer agreement.  Many of the larger law firms, particularly the mills that crank out large volumes of cases for cheap, would have just let it go.  Lawyers don’t promise that everything will be perfect; we don’t promise that nothing will go wrong.  Sometimes it’s just too bad, isn’t it?

But that kind of approach is just not how I do things.  I really care about the outcome of my work and I really care about my clients. I just could not let it go.  It would, and actually did, keep me awake at night. I started asking my client more questions, started asking for more documentation, more history.  I explained that there was a problem, but I was aware of two or three exceptions, loopholes if you like, and I was determined to find one that fit.

I found what I was looking for and put it together for presentation to the bankruptcy trustee.  When I was finished, the trustee agreed with me that the issue was settled in my client’s favor and the case should proceed in the usual boring way.

On a forum at AVVO.com, Las Vegas bankruptcy attorney Dorothy Bunce said it best in answer to a question about how to find a cheap bankruptcy lawyer:

“If you have $70,000 in debt, why do you care ‘how much does it cost?’ Talk about being penny wise and pound foolish. Whatever the bankruptcy attorney charges, if the attorney takes care of you and eliminates as many of your debts as legally possible, protects your assets, and answers your questions, price is immaterial. When “how much” is someone’s first question to me, I get rid of them as soon as I can because they are telling me they don’t value what I do and will have to learn the hard way that NOTHING IS MORE EXPENSIVE THAN A CHEAP LAWYER.” Quoted with Ms. Bunce’s permission.

That sure as heck says it all.

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

Who Owns and who gets to keep the Tax Refunds in a Chapter 7 or Chapter 13 Bankruptcy?

Well, tax season is finally over or at least winding down.  Most of my clients have already received their 2013 state and federal income tax refunds.  The Minnesota property tax refund and Minnesota rent credit refund won’t be sent, however, until later in the year.   Who owns the tax refunds is always a big issue in any kind of personal bankruptcy, whether it’s Chapter 7 or Chapter 13.  This is because refunds not yet received are considered an asset, even the tax refunds for this year that won’t be received until next year.  Most people don’t ordinarily think of these as assets, because they may be way out of reach at least for now.  But the Chapter 7 and the Chapter 13 bankruptcy trustees definitely count them as assets.

In a Chapter 7 bankruptcy the starting point in answering the above question is that the bankruptcy  trustee owns the refunds. This can be said because upon the filing of a Chapter 7 bankruptcy, ownership of everything – all the Debtor’s assets right down to his or her socks – is transferred to the trustee.  My job as a lawyer representing the Debtor is to keep the trustee from being able to keep as much of the assets as possible by claiming those assets as exempt.  Anything that’s exempt can’t be kept by the trustee.  When you see the term “no assets case,” that means it’s a case where all of the assets were exempt so that the trustee was not able to keep anything.  Most of the Chapter 7 cases I file fall into this category.  The ownership only passes to the trustee in theory, and then it comes right back to my client.  A relatively painless process.

In a Chapter 13 bankruptcy there is no passage of ownership to the trustee, but the trustee takes the assets into account when determining what the payments are to be in the Chapter 13 Plan.  If there are any non-exempt assets, the payment plan must provide enough so that the unsecured creditors receive an amount equal to at least the amount of the non-exempt assets.  This is referred to as the “best interests of the creditors rule.” When we know there are going to be non-exempt assets, sometimes a Chapter 13 can be preferable.  This is because it is usually easier to keep an asset and make some monthly payments than it is to give up the entire asset.

When it comes to tax refunds as you can see, the key to happiness in a Chapter 7 or Chapter 13 bankruptcy is to be able to claim them as exempt.  This can often be easier said than done.  First of all, if you are claiming the Minnesota State exemptions, there is no exemption for tax refunds.  There just was a case where the Debtor was claiming that the property tax refund was “relief based on need” and therefore exempt under the Minnesota state exemptions, but the court said no; so there remains no exemption under the Minnesota state exemptions for any kind of tax refunds, at least not that I know of.

Luckily most of my clients qualify to use the Federal exemptions.  Under the federal exemptions, each Debtor has what we call a wild card exemption under which up to $12,725 of anything can be claimed as exempt.  When the parties are married and filing a joint case, each of them has a wild card  (also called the catch all) exemption of up to $12,725.  It is often said that a married couple claiming the federal exemptions gets to double their wild card.  This is absolutely not true, and you really have to be careful about that kind of thinking.

When a married couple file a joint Chapter 7 or 13 case and claim the federal exemptions, the Debtor has a wild card exemption and the Co-Debtor has a wild card exemption – but that exemption  does not double.  I often find myself pulling out a note pad and making a “his” and “her” column to try to keep track of this.  Assets owned by “him” and claimed as exempt under the wild card go in one column and assets owned by “her” and claimed as exempt under the wild card go in the other.  Joint assets can be equally divided between the columns.  Neither column can total over $12,725.  And beware:  a lot of stuff you may think of as joint may be looked upon differently by the trustee.

When the assets include tax refunds, the question arises as to which of the two columns the tax refunds belong in.  Years ago I assumed that if the tax return was joint, then the refund should be split evenly between the spouses for purposes of claiming it as exempt.  Turns out this is not how the 8th Circuit Bankruptcy Appeals Panel sees it.  In the case of In re Carlson decided in 2008, they decided that the tax refunds have to be prorated between the spouses based on the each spouse’s income.  So if one spouse earned 80% of the income, then 80% of the refunds gets attributable to that spouse.    If one of the spouses is not working, then all the refunds belong to the spouse who works.  This can obviously be a problem if allocating it that way runs one spouse’s wild card exemption  above the magic $12,725 level.

It’s complicated.  Not properly claiming the exemptions for the tax refunds is one of the most common mistakes made by people who file their own case without a lawyer.  Most of the time I can manage to claim all of the tax refunds as exempt so my clients can keep them, but sometimes I just can’t get it all.  For one thing, there are always other assets in addition to the refunds for which the wild card exemption is needed.

This post  is for general information 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.

 

 

Getting Rid of that Judgment Once and For All

When you read about bankruptcy you are very likely to see quite of bit of carrying on about stopping garnishment, stopping foreclosure, ending harassment from creditors, stopping those nasty phone calls, and in general making the debts just go away.  Bankruptcy tends to be good for all those things.  You may not see as much about getting judgments cleared from your record, however, because the discharge of your debts from the bankruptcy court does not automatically do that.

The bankruptcy court discharge is an order from a bankruptcy judge which eliminates most personal liability for unsecured debts.  It contains among other things an order addressed to your creditors requiring that they make no further collection efforts.  It just requires the creditors to stop.  For the most part, it doesn’t require the creditors to take any other action.  One of the things it does not require is that they file a satisfaction of judgment with the state district court if they have a judgment against you.  So when your bankruptcy is done, the creditors will leave you alone.  You won’t hear from them again.  If the creditor has a judgment against you, the creditor is prohibited from trying to collect anything on the judgment.  But the judgment itself just sits there and continues to be a matter of public record just as it was before the bankruptcy.

Most of the time for most people that is a big “SO WHAT?”  As long as the creditor is paralyzed and can’t collect, who cares whether the judgment is still on the record?  After all, the judgment will expire when it is ten years old, and the bankruptcy discharge definitely prevents the creditor from renewing the judgment before it expires.  But sometimes a lender will care if you are trying to get a mortgage or refinance an existing mortgage.  In certain odd instances an employer or future employer might care too – judgments don’t look the best on a background check.

If you should be one of the relatively rare folks who really needs to get the judgment cleared from the state court record, there is a procedure for doing that.  It is not part of the federal bankruptcy statute, but is a matter of state law.  In Minnesota, the process is laid out in Minnesota Statutes Section 548.181.  The clerk of court in most Minnesota counties can provide you with a form for this and a set of instructions to go with it.  The form and instructions for Hennepin County can be found here.  The statute is fairly easy to understand and reads as follows:

“548.181 DISCHARGE OF JUDGMENTS AGAINST BANKRUPTCY DEBTORS.

Subdivision 1.Application for discharge.
 A judgment debtor who has received a discharge under United States Code, title 11, or an interested party, upon paying a filing fee of $5 for each judgment, may apply to the court administrator of any court for the discharge of all judgments entered in that court against the judgment debtor that were ordered discharged by the bankruptcy discharge.
Subd. 2.Application requirements; service. 
An application under subdivision 1 must identify each judgment to be discharged, must be accompanied by a certified copy of the judgment debtor’s bankruptcy discharge or a certificate by the clerk of the United States Bankruptcy Court of the discharge, must state the time the judgment creditor has to object as specified in subdivision 3 and the grounds for objection as specified in subdivision 4, must be served at the expense of the applicant on each judgment creditor either:(1) in the manner provided for the service of a summons in a civil action and must be accompanied by an affidavit of service; or(2) by certified mail to the judgment creditor’s last known address as it appears in the court record, and must be accompanied by an affidavit of mailing.
Subd. 3.Objection to discharge.
 The court administrator, without further notice or hearing, shall discharge each judgment except a judgment in favor of a judgment creditor who has filed an objection to discharge of the judgment within 20 days after service of the application on the judgment creditor. An objection to discharge of a judgment must be served on the judgment debtor in the same manner as an answer in a civil action.
Subd. 3a.Certification of discharge. 
Upon receipt of a filing fee of $5, the court administrator shall certify to the judgment debtor or other interested party the judgments against a person that have been discharged by the administrator.
Subd. 4.Court order. 
If a judgment creditor objects to the discharge of a judgment, on motion of the judgment debtor, the judgment creditor, or other interested party, the court shall order the judgment discharged except to the extent that: (1) the debt represented by the judgment was not discharged by the bankruptcy discharge; or (2) the judgment was an enforceable lien on real property when the bankruptcy discharge was entered. If the judgment was an enforceable lien on some, but not all, real property of the judgment debtor, the discharge shall only be entered as to real property not subject to an enforceable lien.

 

That looks pretty easy doesn’t it?

Well, IT’S NOT AS EASY AS IT SEEMS.  Here’s the catch. Even though the law clearly states that the filing fee is only $5.00, Hennepin County has started charging a regular district court filing fee of $324 as well as the $5.00.  As far as I know, they are the only county in the state that is doing that, but don’t be surprised if you run into it in some other county.  I expect that the idea is going to spread.  You have to pay one filing fee per judgment, so if you have a lot of judgments to get rid of this could really run into money.  It’s probably a violation of law for them to be doing this, but for a few hundred dollars nobody so far has been able to afford to challenge it.

Around the year 2000 the court clerks across the state came up with forms and instructions for this that are available to the public.  Since then nobody has hired me to do this procedure. You definitely need a lawyer to do the bankruptcy itself, but once the bankruptcy is completed most people can do this judgment discharge application themselves.

This post is for general information purposes only and does not create an attorney-client relationship.  It is not legal advice.  It is recommended that you consult the attorney of your choice concerning the details of your case.

How Much it Costs to File Bankruptcy

I often receive phone calls where the first thing I hear is “how much does it cost to file bankruptcy?” It’s very hard for me to provide a simple answer.  Bankruptcies aren’t like cans of beans which I keep here on a shelf already stamped with a price.

If the caller will let me ask a series of questions so that I can get an idea of what kind of case it would be, then I might be able to suggest what the fee would probably be. If the caller wants a number right away, the conversation usually ends fairly quickly. My fees are not the lowest in the area, and if that’s all someone is looking for, then I’m not the lawyer they want.  All I can do in this situation is say “Can I ask you a few questions?” and see if they want to discuss it or not.

Lawyer fees in bankruptcy are a matter of public record. In every case the petition includes information on what the lawyer has charged. When it comes to Chapter 13 cases, it’s true that there is what is called the “no-look fee.” This is the amount that the judges have agreed a lawyer can charge without having to provide a detailed explanation. In Minnesota this has not gone up for a long time, and I often hear complaints from my colleagues that it is too low. Several lawyers I know make it their policy to provide a detailed billing for every Chapter 13 case so they can go higher than the no-look fee. For many of the more complicated cases, such as a case involving a lien strip, I can certainly see this might be an appropriate thing to do.

Personally, however, I have always so far just charged the no-look fee. Right now as of the date of this writing, the no-look fee in Minnesota is $2,500 for a below median Chapter 13 and $3,000 for an above median Chapter 13. The court filing fee is always additional.  BUT in a Chapter 13 part of the lawyer’s fee can be put into the Chapter 13 Plan so that the client does not have to pay it before the case is filed. In most Chapter 13 cases, putting part of the attorney fee in the Plan just means that the creditors get that much less. So from the point of view of my client, the part that goes into the Plan might as well be free. The result is that in most of my Chapter 13 cases, I wind of asking for less before filing than I do in the Chapter 7s.  The current court filing fees are $281 for a Chapter 13 and $306 for a Chapter 7.  Whatever it is that I’m charging, the court filing fee has to be put on top of that.

For most of the Chapter 7 work that I do, my fees are lower than they are for the Chapter 13s. There’s a good reason for that: in the Chapter 13 case I am responsible for the case for between three and five years. Chapter 7s are over usually in a matter of months. My fees for the Chapter 7s are competitive, but not the lowest in town. I dare not say much more than that without having a specific situation in mind.  Every case is so much different from every other case that I’ve never been able to come up with a one size fits all fee schedule. But I’m always glad to discuss my fee with anyone who can take a few minutes to chat about their situation on the phone, and for those chats on the phone I don’t charge a thing.

I should mention here that there is a counseling requirement that must be satisfied in both Chapter 7 and 13. There is one counseling course that must be done before filing, and another that must be done after filing. That’s two (2) courses that must be done before the process is complete.  My clients can go anywhere they want for the counseling, as long as the agency has been approved by the US Trustee’s office. The agency I recommend charges $40 per course if I sign the client up for the course, and $10 more per course if the client goes there on their own. It can be done on line and over the phone without leaving home.  I don’t get any sort of commission or referral fee from the counseling people, although they did send me some cookies one Christmas. When you count the before filing and the after filing courses together, this is another $80 of total cost.

I am not comfortable with filing anything with the court unless I have given it the proper amount of attention, so I know it’s done right and likely to go smoothly. I tell my clients that we are going to do the work in my office before filing the case, so that we don’t have to do a lot of extra work at the courthouse after the case is filed.  By the time we get to the hearing, also known as the first meeting of creditors, I want the case to be the most boring and plain vanilla thing the Trustee has ever seen. If the Trustee almost falls asleep during the hearing, I did it right. My clients often say after the hearing, “is that all there is to this?” Most of the time at that point it is all there is, because I did all the sweating over the case before it was filed.

By the time I get to the courthouse, it is likely that I will have spent as many as 15 hours on a case, sometimes much more than that. I will have had at least four face to face meetings – often many more than that – with my client, probably a couple hours each time.  Recently I checked my calendar and found that I had met with one client 11 times before the case was ready to file.  A bankruptcy petition has somewhere in the range of 500 questions, and tends to run between 50 and 65 pages in length. These questions are answered under penalty of perjury.  An incorrect answer can be a crime for my client.  When I sign the petition, I also am certifying that everything in it is correct.  I can be sanctioned, perhaps severely, if it’s not. A client asked me recently, after the case was completed, “Kelly how can you sleep at night with all this stuff to keep track of?” All I can say is that I sleep better when I know I’ve given it my best.

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