BANKRUPTCY LAW
Beware Cut-Rate Bankruptcy Advice From Preparers and Mills
If you are wondering whether you should file bankruptcy, the first question you need to ask yourself is who should advise you. Do you really want to trust a non-attorney bankruptcy petition preparer to guide you? Do you really want to look for the attorney with the lowest fee to assist you with this important decision? It is always possible to find a cheap lawyer who is just starting out but when your family home or financial future is at stake, it is a serious mistake to try to save a few dollars on fees. Bankruptcy Law is a very complex area of law and for many inexperienced lawyers, it can be a minefield. For many unfortunate debtors, it is a classic example of being “penny wise and pound foolish” which means that trying to save a few dollars often ends up costing many more later.
Bankruptcy-petition preparers are notorious for getting into trouble with Bankruptcy Courts and trustees. The do not know the laws or the court procedures. Very often they prepare schedules but leave the client helpless and without anyone to handle the case or appear in court, since preparers are not licensed or allowed to do that work. Very often they give incorrect information because they are not trained or qualified to give legal advice about the Federal Bankruptcy Laws, other legal strategies and alternatives, which bankruptcy chapter is appropriate, or even whether filing bankruptcy at all is the best choice. The end result is a case that almost always fails. These preparers are street-corner paralegals who try to practice law without a license and in the end it is the client that always pays the price.
Bankruptcy-mill attorneys are not much better, very often sending junior attorneys to court hearings. We have witnessed distressed individuals at hearings searching around the halls to look for their attorney only to meet a junior associate that the firm sent to cover the case. This happens all the time where a beginner lawyer shows up in court from a bankruptcy mill. If you hire a mill, expect that you may have an inexperienced attorney mishandling your case. Or, you may have a per diem attorney who is unfamiliar with your file. A per diem attorney is someone who makes a living by appearing daily in court to cover multiple hearings for several different lawyers. Per diem lawyers work as independent contractors for bankruptcy mills. Typically the per diem lawyer who handles a court case has never even met the client before until the day of a court hearing. Most bankruptcy debtors do not become aware that they will treated this badly until it is too late.
At Lanin Law P.C., we do not do this to our clients. We handle client’s cases personally.
We routinely hear horror stories from individuals who had a bad financial situation to begin with and then chose the wrong lawyer or non-lawyer to help, only to find themselves with a worse situation. We help many clients fix problems that others have created, particularly in the loan modification area where many non-lawyers and “consultants” are being investigated or indicted by the Attorney General. We never send a stranger or inexperienced beginner to court to meet the client.
When you retain a bankruptcy attorney, ask the attorney who will be handling your case and appearing in court with you.
So how do you know if a bankruptcy firm is a mill or factory? The primary red flag is that the firm advertises that they may have handled thousands of bankruptcy cases. You should ask yourself how a firm can handle so many cases. For a small firm to handle thousands of cases, it can only mean that they use per diem attorneys to appear in court and that they routinely ignore their client’s needs. It is just not possible to give clients personal attention and quality service if a law firm’s main focus is on volume. We believe that Lanin Law P.C. strikes the right balance between quality and quantity. We are experienced but we do not want to handle hundreds of bankruptcy cases at a time. It is simply not possible to provide a high level of service with that many cases.
We also recognize that legal fees should be reasonable and we believe that we offer rates that are very competitive when compared to the few other firms that are experienced in this field. We do not compare our rates to bankruptcy preparers or mills – clients who base their decision on price alone and not on experience or quality, will always be disappointed with the poor service they receive from a bankruptcy mill. It is our goal to to represent our client’s properly. We do not try to low-ball our fees by cutting corners. Bankruptcy is a serious business and we treat it that way.
Bankruptcy Chapters
Generally, individuals might consider filing bankruptcy under Chapters 7 or 13, although they can also file under Chapter 11. Businesses can consider Chapter 7 or 11. For the individual, Chapter 7 results in a discharge, wiping out debts. It is not an easy process and many people are no longer eligible as a result of the 2005 changes to the Bankruptcy Code that added the “means test. If your income is too high you will not qualify for Chapter 7 but you may be able to file under Chapter 13 (discussed below). In Chapter 7, valuable assets are not protected and the trustee has the right to collect and sell things like your home, car or accounts. The trustee also can commence litigation against your friends and family members to recover transferred assets and can sue to block your discharge under certain circumstances. Most of our individual clients prefer Chapter 13 which involves a 3 to 5 year repayment plan and protects all assets. In 13, the debtor repays part or all of the debts by paying a trustee a monthly payment which is determined based on their income and expenses, assets and liabilities. Clients interesting in Chapter 13 can schedule a budget analysis with our office where we will review this in detail and calculate the monthly payment that they can expect in a Chapter 13 case. Chapter 13 is usually best for the homeowner in foreclosure because it gives you a chance to reinstate a mortgage loan and to resolve all other debt problems in one place while freezing all creditor collection action. Businesses can also file Chapter 7 and liquidate their assets – this is for the company that wants to close down in an orderly fashion. An alternative is to simply file for dissolution of the business. Our firm can assist with either of these alternatives. A business that wants to reorganize debts in a repayment plan, or an individual who exceeds the debt ceilings for Chapter 13 eligibility, might consider Chapter 11, a complex and lengthy proceeding that ultimately depends on getting creditors to vote in favor of a plan.
Factors To Consider
Avoiding bankruptcy is always a valid concern. As a general rule, we will always try to keep our clients out of bankruptcy if possible. That is why we always review a client’s financial situation thoroughly before recommending a course of action. Some clients call and simply say I want to file bankruptcy, what do you charge? We never answer that question until we first review the situation. Some lawyers may just put all of their financially troubled clients into bankruptcy. Not us. We find solutions wherever they are. Solutions to financial problems are not a one size fits all type of thing. Some clients may be able to negotiate with their creditors (i.e., obtain a mortgage forbearance agreement). Others may be able to refinance. Others may not be able to afford to carry their property any longer and may be better off selling. I try to work help my clients find the best choice for them. And for some, bankruptcy may be the best or only alternative. If that is the case, it is also necessary to determine which Chapter (7 or 13) will work best for you. This is not a simple area of law. There are many factors to consider, including whether any pre-bankruptcy purchases or transfers you may have made will cause you a problem later in bankruptcy. Is there sufficient income to fund a Chapter 13 repayment plan? Will the plan be 3 or 5 years (36 or 60 months)? Will the dividend to unsecured creditors be less than 100% (meaning that you could repay less than what you owe in Chapter 13)? Do you have all of the required documents that your trustee will require? There is a lot to consider! Making this decision without the advice of an experienced attorney is risky.
Pros and Cons
There are benefits and burdens for those who file bankruptcy. On the plus side, you get the protection of the automatic stay. This stops all collection activity against you, all litigation and foreclosures. In Chapter 7 you can wipe out (discharge) many, but not all, debts. In Chapter 13, you can get 3 to 5 years to make a monthly repayment plan to catch up on debts in exchange for all this protection, a bankruptcy debtor must disclose all information pertaining to his or her financial condition. This disclosure includes all assets, liabilities, income and expenses. In addition, the assigned bankruptcy trustee must be given copies of the debtor’s last two tax returns and proof of income for the last six months, usually in the form of pay stubs. Self-employed debtors must also file a monthly operated report indicating their income and expenses. With the help of experienced counsel, most debtors find that the benefits far outweigh these obligations. Individuals who try to represent themselves in Bankruptcy Court are called “pro se debtors” and their cases almost always fail because they are not equipped to handle the responsibilities of Chapter 13. In Bankruptcy Court, it is a very foolish mistake to try to save some legal fees and represent yourself in a very complex area of law.
Chapter 13
In Chapter 13, a debtor must propose a monthly repayment plan with a 36 to 60 month term. The duration of the plan is determined by reference to the new Statement of Current Monthly Income form 22Cthat was created by the Bankruptcy Reform Act in 2005. As a general rule, debtors whose income exceeds the state median level must repay their debts over a five-year period (60 months). Debtors who fall below the state median can propose a 36 month plan. For the typical homeowner, a Chapter 13 plan will propose to repay all of the mortgage arrears over the life of the plan in order to reinstate the mortgage. If the payments under the plan are all made and the debtor is successful, at the conclusion of the plan the loan will be fully reinstated and current as though it had never fallen behind. Because a Chapter 13 plan only includes prepetition mortgage arrears, the debtor is obligated to continue to make the current monthly mortgage payments directly to the lender during the case. While lenders will almost always return monthly payments that made prior to a bankruptcy filing – because the loan has been fully accelerated as a result of the default – once a Chapter 13 case is started the lender is required to accept monthly payments again. Many mortgage lenders have a separate department to handle these payments. The plan must also repay other debts such as car loan or lease debts, credit cards, medical bills, student loans, taxes, and monies owed for other reasons. In some cases, the debtor may be allowed to pay less than 100% to unsecured creditors such as credit cards, depending on whether or not the debtor has equity in his property and surplus income. Preparation and calculation of a Chapter 13 plan should be handled by and its variants bankruptcy lawyer in order to give you the best possible chance of confirming the plan. Once your lawyer prepares the plan, you acknowledge your approval by signing it and is then filed with the court electronically. Plans may be changed for one reason or another at a later time by filing an amendment. Debtors are required to begin making their monthly plan payments to their Chapter 13 trustee within 30 days after their case is filed on a monthly basis. This means that there will be several payments already made before the debtor attends the confirmation hearing to request approval of the plan.
Here is a useful government site that explains Chapter 13 bankruptcy.
Chapter 7
A Chapter 7 discharge allows you to legally wipe out certain debts, meaning that you will not have to pay them back. Typical debts that can be discharged include credit cards, unsecured personal loans, medical bills, phone bills, utility bills, cable bills, charge card bills, gas card bills and other unsecured debts. Student loans are not dischargeable. In order to get a discharge you must meet certain requirements, including satisfying the means test and being able to provide sufficient documentation to your assigned trustee to justify or explain your financial condition. Many clients find that Chapter 7 is too burdensome because it can subject them to an audit by the US Trustee and because they may face overly aggressive Chapter 7 trustees looking to find or sell assets. Chapter 7 also can result in litigation in the bankruptcy court called an adversary proceeding. Types of suits possible include fraudulent conveyance litigation and preferential transfer litigation. A thorough review of a client’s asset transfer history should be done before considering Chapter 7. Many clients find that Chapter 13 is preferable because it may be possible to file a plan that repays only part of the debt and discharges the rest, while avoiding many of the hassles of Chapter 7 bankruptcy. Chapter 13 has its own eligibility requirements but is almost always preferable for someone who has at least some income and can repay part or all of their debts.
Here is a useful government site that explains Chapter 7 bankruptcy.
Credit Cards And Unsecured Loans
Credit cards are dischargeable and can be wiped out in Chapter 7 or 13 cases. Of course, Chapter 13 involves a repayment plan, but it may not always have to be 100%, so in some Chapter 13 cases a portion of credit cards may be discharged. Credit card companies sometimes fight back and try to prevent discharge in Chapter 7 cases by suing the debtor in an adversary proceeding alleging that their was some kind of fraud. Chapter 13 debtors very rarely face litigation with credit card companies and get 3 to 5 years to repay these debts while protecting all of their assets. Personal and business loans can be discharged or repaid in bankruptcy and are always included in bankruptcy schedules.
Bankruptcy Documents
Some of the documents you will need to provide are listed here:
- Proof of income for the last 6 months
- Last 2 years’ tax returns
- ID – usually a social security card and driver’s license
- List of assets and liabilities and budget (monthly income and expenses) – we have a special worksheet/questionairre for clients to complete
Credit Counseling – The Useless Requirement
Congress decided in 2005 to revise the Bankruptcy Law and make credit counseling a requirement. Working in the legal field since 1988, we have never seen nor heard of a single case of any person who has ever saved their home because of a credit counselor. While untrained counselors who work off of scripts may offer some marginal benefit to a renter with credit card debt, the entire process of counseling is totally useless to the homeowner with mortgage arrears. Counselors simply cannot stop mortgage foreclosure and are powerless to modify loan terms. Yet, Congress imposed this requirement for bankruptcy. Many believe it was done to put “gatekeepers” in place to prevent abusive filings. But who are the gatekeepers? What qualifies them to do this and have they really helped anyone with a mortgage default? As non-attorneys, counselors are not legally permitted to give legal advice, yet the entire process is perilously close to just that. It is a dangerous practice and misleading to clients but it is somehow still the law. Failure to comply can have serious consequences. Courts are debating whether to strike a case or to dismiss it when the counseling certificate has not been filed. Dismissal is serious because the automatic stay protections are limited in repeat filings under the new laws. For now, since we are all stuck with this silly ritual, any clients who are considering bankruptcy or who may need to file a case quickly to stop a foreclosure sale should absolutely and immediately make arrangements for counseling either by phone or online. Contact our office for more information about this. We will recommend the counseling service that we prefer and can give you our firm code so that the counselor can email a certificate of completion directly to us. This certificate is required to be filed with the rest of the bankruptcy papers.
Your Office Consult
Here’s what to expect at a typical office consultation. First, we will review your alternatives and solutions and try to decide on the best strategy. Then, we will need to formalize the attorney-client relationship by preparing and signing a retainer agreement. This is intended to protect the attorney and the client and to avoid disputes – by clearly spelling out the scope of services to be provided and the fees and costs involved. Other documents that will be signed or reviewed include our Free Debtor’s Handbook, containing frequently asked questions and answers; a series of disclosures on bankruptcy law, a worksheet or questionairre, and the client’s documents, including bills, court papers, tax returns and paystubs. We will also make copies of your ID, typically a driver’s license and social security card. Time permitting, and if you have sufficient information available, we will conduct a preliminary review of your budget for a possible Chapter 13 payment plan. We will prepare a list of items that you still need to provide and we will follow up with letters, calls and/or emails. Once a draft of the petitions and schedules are available, we will email you a copy in adobe acrobat pdf format or we can mail you a hard copy to review.
Bankruptcy Filing
A lot of work goes into filing a bankruptcy case. We use the premier bankrutpcy software package made by EZ Filing (www.ezfiling.com). We work with our clients to gather all of the necessary information and we draft the petition and all schedules. These are the papers that must list all assets and liabilities, income and expenses. There are also many questions that must be completed. In Chapter 13 cases, we calculate the monthly plan payment based on a client’s budget and debts. In some cases, clients do not have to repay 100% of their unsecured debts and can save a lot of money. Sometimes the savings is far more than the legal fees or costs (which, in any event, are very reasonable – usually equal to about one month’s payments on mortgages and debts). For example, if a client has limited equity in a home or the equity is completely protected under the New York homestead exemption, and if the client has limited other assets, and uses most of his or her income to pay for recurring monthly living expenses, the client may be able to confirm a Chapter 13 plan that pays as little as 5% to unsecured creditors like credit cards and discharges the other 95%, while still keeping the family home. Sometimes, this can be done in conjunction with a mortgage loan modification that reduces the monthly mortgage payments as well. In Chapter 13 or with loan modification, the client can get extra time to catch up on any mortgage arrears while the home is protected from foreclosure. The process of working with our firm starts with a free phone consult and then an in-office meeting. We explain the entire process clearly and in plain English, and we are always available to answer questions by phone and email. Drafts of papers can usually be emailed to clients as adobe acrobat pdf documents if that is convenient or mailed and clients can review the papers and make corrections in thier own home. Once the papers are finalized, we will arrange for another “signing” meeting to review everything. Then we scan the papers and attorney Scott Lanin files them electronically on the Court’s ECF system (electronic case filing). If there is a pending foreclosure sale we will also fax notice of the automatic stay to the attorneys for the lender and call them to make sure the sale is stayed (stopped).
Taxes
Chapter 13 debtors are required to produce evidence that both Federal and State Income Taxes have been filed for the last four years (last three years in Chapter 7 cases). Satisfactory evidence would include a signed copy of your tax returns. (Most people have unsigned copies that their accountant gave them so please remember to sign your own copies too!) If you do not have them, you can also obtain a Tax Transcript by calling 1 (800) 829-1040. You will need your Social Security Number (SSN) for this. You can also request a Federal Tax Transcript by mail. Form 4506T allows tax returns to be mailed to a third party, for example their bankruptcy lawyer.
Learn More
Check Out Our Bankruptcy Video Page
