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.

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.

Motorcycles, Boats or Horses Can be Toxic to your Chapter 7 or Chapter 13 Minnesota Bankruptcy

I recently posted on Google Plus about how certain things tend to be toxic to a possible bankruptcy. The most common one I see is a Harley Davidson. Other items in this category would include boats and horses, especially if they are fancy and not paid for. This statement resulted in questions being asked about exactly what I meant.  If the problem is that a Harley, a boat or a horse are assets which would be lost in a Chapter 7 bankruptcy, then wouldn’t it be better for them to not be paid for.  If they weren’t paid for, after all, they wouldn’t be much of an asset.

My answer was that such items make a bankruptcy difficult whether paid for or not. If they are paid for, they are assets that very likely would be lost in a Chapter 7 or would increase the required payments in a Chapter 13.

If they are not paid for, you have a situation where the Debtor will want to tell the bankruptcy trustee that he or she can’t afford to pay debts, except that somehow they CAN afford to keep paying for the Harley, the boat or the horses. This does not play well. The only thing to do if they really need the bankruptcy is to sell or surrender before filing, or state in the bankruptcy petition an intention to surrender the items after the case is filed.

Many have been the times when I have had a potential client disappear never to be heard from again when I said that the Harley has to go. There’s a whole subculture where any kind of misery is preferable to giving up the Harley. Boats are usually a bit easier to let go, but horses are also very hard to give up.

One exception might be a case with a 100% Chapter 13 plan. That would be a plan where 100% or the unsecured debts are to be paid. Since the bankruptcy trustee can’t ask for more than 100%, the Debtor would have more wiggle room when it came to something like keeping a motorcycle. Even then the trustee would not like it, but more than likely the trustee could not prevent it. I see very few cases where the payout is 100%. Most people who can afford to do that don’t need a bankruptcy.

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.  I help people file for relief under the federal bankruptcy code.

“Thank you” Recently Received from Client after Bankruptcy Discharge

During the holidays several of my clients received their bankruptcy discharge.  The discharge is a court order which states that the Debtor is no longer legally obligated to repay most if not all of  his or her debts.  In most cases the only debts that are not discharged are student loans and taxes.  Sometimes even taxes can be discharged, but that’s a topic for another blog post.

When that discharge comes out,  many of my clients thank me profusely.  For some reason I often have a hard time accepting thanks.  When I was growing up I think it was part of the culture to assume that when somebody was just doing their job, there was no need to thank  them.  And if somebody thanked me I tended to say “no need to thank me” or “it was nothing” or other similar words which more or less blew it off.  Later in life I learned that such responses diminish the importance of the gratitude being expressed and the person expressing it, and a simple “you’re welcome” is a much better way to respond.

Gratitude is one of the most noble of feelings and it should always be acknowledged – still it remains hard for me to do.  Even so, with the client’s permission I’d like to share with you the following somewhat poetic excerpt from an email I received from one of the clients who recently got that discharge:

“This is the best holiday present ever!
That difficult experience of the past few years can now finally be a ghost….So many sleepless nights.
Thank you David for helping us to straighten out our lives..
We still have a hard road a head to try to prepare for being too old to be employed…
It would have been impossible with the mess we were in and it is still a long shot but we do have better odds now.
You were our guiding light and we will always be grateful.
Many many thanks to you David, …….”

I tend to get a little emotional around the holidays anyway, but this email really touched me.

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 any Extra Bank Accounts Before you File Personal Bankruptcy

When it comes to what bank accounts you have open at the time of filing a personal bankruptcy, the adage “keep it simple” certainly applies.  In either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, the trustee is going to want to see a statement for every bank account that you have open on the day the case is filed. The more bank accounts you have, the more complicated that can get.  It seems as if every time I have a case where my client has more than three bank accounts, that client has trouble getting the required statement for at least one of them.

If the bank is also one of the creditors which you have listed in your case, you might find them particularly uncooperative when you try to get a statement. I was making a video on another subject when I made a few parenthetical remarks about how, before filing personal bankruptcy, you should close as many bank accounts as possible.  I thought the remarks were good enough to post them as a separate video on their own.  This is that video: There are enough other things that can go wrong in any bankruptcy case, without having to worry about not being able to get a statement from some obscure bank that has no offices nearby and which has shut down your on line access. In this video I explain that prior to filing a bankruptcy case, it is prudent to close as many of your bank accounts as possible. It’s best to go into your bankruptcy case with only has one bank account – a checking account at a bank or credit union which is not a creditor.

Your bankruptcy lawyer should know where the best places to bank are from a bankruptcy perspective. Some banks and some credit unions are more bankruptcy friendly than others. We have one bank in particular in the Twin Cities Minnesota area which will freeze your accounts when they find out you filed a bankruptcy, and they tend to do that whether you owe them money or not. That bank of course is to be avoided. 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

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.

Those Troublesome Timeshares

A vacation timeshare can become like a stone around your neck.  I would say if you are thinking of getting one, don’t.

Vacation Timeshares can be like a stone around your neck.

A vacation timeshare can be like a stone around your neck.

A while back I heard from some people  I had done a Chapter 7 bankruptcy for in 2006.  After hearing nothing for years, out of the blue they were being sued for dues and maintenance fees by a timeshare company. The vacation  timeshare was owned at the time of filing the bankruptcy.  My clients were asking me the obvious questions:  Wasn’t that taken care of when we filed the bankruptcy?  How can they be suing us now?

Timeshares are unusual animals and a bankruptcy discharge might not apply to the maintenance fees and ownership association dues which accumulate AFTER the filing of the bankruptcy.  Any fees owing from before the filing of the bankruptcy would, however, ordinarily be discharged.

When it comes to fees which accumulate after the filing, the reason they might not be dischargeable is a provision among those that Congress added to the bankruptcy code in 2005, Section 523 (a) (16).  If you go here you can see it, just scroll down to (16).  This was written mostly to apply to condo and homeowner association fees, but it also says “in a share of a cooperative corporation … for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation or such lot …”

Some timeshares involve real estate ownership and are a version of a condominium or townhouse setup.  Others are cooperatives that own the property and the customer gets a membership in the coop.  If you have either of these, you are probably liable for the fees which are accumulated AFTER the bankruptcy filing and continue to accumulate until you are no longer an owner.  This is or can be a terrible spot to be in, because many of these places have quit trying to take back the units when they are not being paid for.  Most of them are worth little or nothing and can’t be sold.  A timeshare owner might be stuck with it indefinitely.

However, if you merely have a contract that gives you a license to use the facilities during a certain time, without any sort of ownership of the property, then liability for the fess would probably not continue after the bankruptcy filing.  The bankruptcy should kill it for good.  So exactly how the timeshare is set up makes a big difference.   I have looked over many stacks of timeshare documents, some of them even in foreign countries.  Those papers tend to be very hard to wade through, very hard to figure out.  I can read and write, and I even went to law school, but sometimes it can be hard to figure which category a certain timeshare setup belongs in.

If you have a timeshare of any kind and are considering bankruptcy, be sure to tell your lawyer all about it. If you can sell it before filing the case, you probably should.  Make your best effort to figure out whether it has a market value and what that is.  Provide your lawyer with all the paperwork you may have about it.  Make sure it is properly listed and properly described in your bankruptcy petition, and make sure that whoever is running the organization gets notice of your bankruptcy filing.

Then cross your fingers, hold your breath, or better yet –  pray a lot.  Hope the darn thing goes away.

As with any other financial matter, if you are considering a bankruptcy, don’t make any serious moves without consulting your attorney first.

This post is for general information purposes only and is not legal advice.  It does not create an attorney-client relationship.  If you need legal advice, please consult the attorney of your choice. 

Should I File for Bankruptcy?

Should I file for Bankruptcy?This is a difficult question. As you can imagine, I get asked this a lot. Usually “Should I File For Bankruptcy?” is asked as one of the first questions when a new prospective client calls or emails me. Most of the time, the question is too complicated for dealing with by email, so early on in the exchange of emails I am very likely to suggest that the person just call me on the phone.

I usually break the conversation down into two issues: First, can these people file for bankruptcy – are they eligible; and second, we answer the question “should I file for bankruptcy”.

For details of the technicalities of eligibility, you should look at my pages devoted specially to Chapter 13 and Chapter 7. Almost everyone qualifies for one or the other, although I do run into a few who don’t qualify for either.

Assuming that a person qualifies, the question of should I file for bankruptcy is probably harder to figure out. In my opinion nobody should file any kind of a bankruptcy if they have any other options available to them. How does one know if there are any other options? After all there are adds on the TV and the radio for debt management programs and debt consolidation programs.

In my opinion you are out of other choices if your dischargeable unsecured debt – the debt that usually can be gotten rid of in a bankruptcy – equals or exceeds one half of your annual gross income.

So first I will try to figure out how much your annual income is right now, and then I will want to start adding up the debts. When I add up the unsecured debt, I do not include the student loans, because they will still be there after the bankruptcy is finished. I also would not include child support arrearages and most taxes for the same reason. As a practical matter, however, lots of student loan debt or other nondischargeable debt may lower ratio of how much other debt as compared to annual gross income would justify filing in my opinion. The higher the student loan debt, the lower the dischargeable unsecured debt to income ratio I would want to see before taking the case.

What Does The Law Say about Filing for Bankruptcy?

The law doesn’t help answer the question of Should I File for Bankruptcy. It provides for no minimum amount of debt which is required to be there before one can file a bankruptcy.

Every case is different, and there has never been a foolproof mathematical formula that has seemed to work for me. But here’s what I am really trying to figure out:  as a practical matter can these people live long enough and work hard enough to pay off this debt by some time within their reasonable life expectancy?

If the answer is no, then I recommend that either a Chapter 7 or Chapter 13 be filed. What I find is that most of the people who call me have passed the point of no return some time ago.

If you need to talk to a professional about whether or not you should file for bankruptcy, give me a call today at: 952-544-6356

Or Fill Out Our Contact Form Here

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