I saw that Katie Porter over at Credit Slips posted a blog that new, simplified forms for consumer bankruptcy cases are being considered by the Bankruptcy Rules Advisory Committee.  The proposed forms can be accessed here and start at page 189 through page 315.  One item of note is that the forms are being divided into two categories:  a set of forms for “business” cases and a set of forms for “consumer” cases.

I looked through the forms and it seems as if the forms for “consumer” cases are designed to make it simpler for people to file bankruptcy without the assistance of an attorney.  I fully acknowledge that people are entitled to represent themselves in legal proceedings, of which, bankruptcy is one.  However, it bothers me a bit that the forms are billed as “simple”.  Without expressing an opinion on the forms themselves, bankruptcy is not a “simple” legal proceeding.

As a case in point, I met with a client who was elderly and could exempt $60,000 in his $80,000 house.  He also had a mortgage on his home of approximately $11,000, a judgment lien of about $11,000 against the house along with $50,000 in unsecured debt.  He stated that he did not wish to have his house involved in the bankruptcy and that his adult children would pay off the mortgage.  That way, when he came out of bankruptcy, he would have a place to live and not have to worry about creditors again.  Right?

Not exactly.  If the debtor paid off his mortgage, he would then have excess equity in his home.  The chapter 7 trustee would then seek to either sell the debtor’s home or demand the excess equity so that funds could be distributed to unsecured creditors.  Also, the judgment lien would be entitled to payment in full because the liens plus exemptions are less than the value of the property so the judgment lien could not be avoided.  The debtor has just put himself into a mess.

However, a bankruptcy lawyer could have avoided this mess.  The bankruptcy lawyer would tell the debtor not to pay off the mortgage but to file bankruptcy anyway.  This way, the the debtor’s allowed exemption and the liens against the property including the judgment lien exceed the value of the property (the debtor’s interest) so the judgment lien can be avoided in its entirety.  That is, the judgment lien is removed (or avoided) and treated as just another unsecured creditor.  The trustee has no excess equity to go after and the case is treated as a “no-asset” case.  The debtor’s debts are discharged, including the judgment lien, and his only debt remaining would be his mortgage debt.  Then, after the bankruptcy case is over, if the adult children want to pay off the mortgage, they are free to do so.

This example, I’m sure, occurs many times every day across the country.  It is the difference between obtaining the assistance of an experienced practitioner with trying to go it alone merely to save a couple thousand dollars in attorney’s fees (the adage penny wise but pound foolish springs to mind).  Simplified bankruptcy forms do not “simplify” the Bankruptcy Code and there are many, many pitfalls that a consumer may fall into if they try to go it alone.

Even though I applaud the efforts of the Rules Committee to “simplify” the forms (particularly the “consumer”/”business” distinction), simple forms should not be construed by a potential consumer debtor that bankrupcy is an easy process to navigate.  In that respect, an experienced bankruptcy attorney will be your best investment.

Recently, I had cause to go back to re-visit some of the provisions in the Bankruptcy Code relating to when a discharge is entered.  Since this is the start of a New Year, perhaps a review of some basics is in order.

For a chapter 7 case, the operable statute is 11 U.S.C. § 727.  Section 727 says that a discharge shall not be granted if a debtor has received a discharge under § 727  in a case commenced within 8 years before the date of the filing of the current bankruptcy case.  Seems straightforward enough.  If you filed a chapter 7 case 8 years ago, you can’t file another chapter 7 case until those eight years have passed.

Well, not exactly.  As most bankruptcy practitioners know, a lot of people will file a chapter 13 case and then, for some reason or another, have to convert their case to a chapter 7.  In that instance, do we look at 8 years from the date of filing or 8 years from the date of conversion?

The statute itself supplies the answer–

“in a case commenced within 8 years . . .”

That means that if the debtor files a 13, that is the date the case was commenced and the correct date for calculating when a debtor then becomes eligible for a chapter 7 discharge.  So, if a debtor filed a chapter 13 on 2-1-2004 and converted his case to a chapter 7 on 4-1-2004, the debtor would be eligible for another chapter 7 discharge on 2-1-2012.

If a debtor has previously received a chapter 7 discharge and less than 8 years have passed, does that mean the debtor cannot file another chapter 7 case?  Not exactly.

Section 109 describes who may be a debtor.  There is no provision in § 109 that says a person who had previously been granted a chapter 7 discharge may not file another chapter 7 case even though less than eight years have passed since the prior filing.

These two provisions taken together merely mean that, if a debtor files a chapter 7 case before eight years have passed since his prior filing, he will not get a discharge of his debts.

Admittedly, receiving a discharge of debts is normally the whole purpose of filing for bankruptcy, there may be reasons for choosing this course of action.

As an example, suppose the debtor has assets that he would like to sell in order to pay his creditors.  In particular, if the debtor were to be able to sell his assets and it would be enough to pay the creditors in full, the debtor could file a chapter 7 and allow the trustee to sell the assets.  All creditors would then be paid in full and the debtor walks away from his troubles.  The chapter 7 trustee deals with all the creditors and the burden of liquidating the assets, that is, selling them.

This can happen when there are secured creditors threatening repossession or foreclosure on an asset with sufficient value to satisfy the claims of other creditors but the debtor lacks the cash to stave off the secured creditor’s actions.

The foreclosure/repossession is stopped by the automatic stay and the chapter 7 trustee is there to say to the secured creditor, “whoa buddy!  Let’s see if we can’t sell this collateral in a more orderly manner to generate money for all creditors.”  Chapter 7 trustees, who also get a commission on assets that they sell, have an incentive to maximize the value of the property to the bankruptcy estate (and themselves).

But, let’s also be clear that this can be a risky maneuver on the part of the debtor.  If the claims of the creditors are not satisfied, the debtor may still owe some of the creditors and will not receive a discharge.

Another interesting provision involves the timing of chapter 13 cases. 

Under 11 U.S.C. § 1328(f), if the debtor received a discharge under a case filed under chapter 7, he may not get a chapter 13 discharge unless 4 years have passed.  If a case was filed under chapter 13 and a discharge entered, the debtor is not eligible for another discharge under chapter 13 for two years.

So, if a bankruptcy case was originally filed under a chapter 13 case and then converted to a chapter 7, which is the correct date?  Again, the statute provides the answer.  Under either provision, you must determine under which chapter was the prior case filed. 

• If it was filed under a chapter 7, then the debtor must wait four years for a Chapter 13 discharge.
• If it was originally filed under a chapter 13, the debtor must wait two years.

It does not matter under which provision of the Bankruptcy Code the debtor received his discharge.

So, if you had previously filed a bankruptcy case, it is very important to know under which chapter you filed in addition to knowing under which provision your debts were discharged.

It is very important to you discuss any prior bankruptcy filings with an experienced bankruptcy lawyer so he or she can make sure that you are eligible for a discharge.

When you are considering a trip, usually, you make substantial preparations in anticipation of   that trip.  You make travel arrangements; you make sure you have a place to stay; you make reservations for any activities in which you wish to participate.  You will often make significant plans and preparations for any “big” event.  Bankruptcy is no different.  It is a significant life event that demands some thought and preparation before you embark on it.

In talking with potential bankruptcy clients, it seems that a lot of them wait until the last minute before contacting a bankruptcy lawyer to find out how bankruptcy may help them.  While visiting a bankruptcy lawyer most likely does not rank high on most people’s “bucket list,” if you are struggling financially, it most likely makes sense to determine if and how bankruptcy can help you sooner rather than later.

So, how can “preparing” for bankruptcy help?  First, you will need to have the fees for the lawyer and for the court available.  For now, for a chapter 7 filing, just the filing fee is $306.00.  Additionally, before you file, you must complete a consumer credit counseling session and get the certification that must be filed with the court.  If you “fail to plan” for your bankruptcy filing by finding out what you need ahead of time, when your car is on the verge of getting repo’d, you may not have the time and/or money to retain a bankruptcy lawyer.

Second, you can carefully go over your income and expenses and see where the trouble lies.  Certainly a bankruptcy lawyer can help you identify the problem (with appropriate information) but you also need to know how you got into this financial mess.  Some problems are easy to identify–temporary loss of income; extraordinary medical bills; overspending for a bit, etc.  Bankruptcy can assist in overcoming those past problems but you need to be aware of the problem so that you can avoid it in the future.  Bankruptcy is designed to be a “fresh start.”  You can greatly assist in obtaining that “fresh start” by breaking or modifying some of the habits that perhaps got you here in the first place.

Third, make sure you know who you owe and how much.  Find out if there is any collateral associated with the debts and gather up loan documents.  Your lawyer will need this but, more importantly, you need to know your own financial picture.  Credit reports are freely available and can be a big help.  Also, if lawsuits or foreclosures have been filed against you, make sure you have that paperwork–all of it!  It is important!

Finally, change your mindset.  In dealing with individuals facing financial problems, it is often much more difficult instead of dealing with distressed businesses.  That is because a business looks at assets and liabilities and can make a rational decision as to whether keeping an asset is worth the corresponding liability.  Understandably, people are attached to their “things.”  But, after all, they are just “things” and you have to consider carefully whether retaining a “thing” is worth the potential stress and headache.  As an example, if you suffered a decrease in income and you have two relatively late model cars.  No one wants to give up one or two cars but sometimes it is better to surrender a vehicle or two in order to keep your house (if that is important to you).  There will be some emotional attachment to some “things” but it is imperative that you do this.  Determining what is important to you is important for your bankruptcy lawyer in setting achievable goals for your bankruptcy filing.

Finally, do some research.  There is a lot of information about bankruptcy that is freely available.  However, you should exercise extreme caution in considering the information.  Not that the information is inaccurate (some info may be outdated or simply inapplicable) but it takes an experienced profession to know what is appropriate and what is not.  But, by familiarizing yourself with some basic bankruptcy information, you will be in a better position to appreciate and assist your bankruptcy lawyer in setting realistic and achievable goals.

After all, the real goal of a bankruptcy filing is a “fresh start.”

The latest recession has spawned a whole industry of websites crowing about how to properly deal with too much debt.  For example, if your house is worth less than what you owe on your mortgage, perhaps a website will promise to negotiate a short sale–that is, the lender will accept less than the pay-off but will release the mortgage on the property.  Or, as another example, if you owe a lot in credit card debt, the website will promise to reduce your balances or “settle” the credit card accounts for less than what is owed.  Unfortunately, many of these websites or “programs” omit to tell you one very important detail:  tax implications!

When debt is cancelled or forgiven, the creditor must report the amount of debt cancelled or forgiven to the IRS through a Form 1099-C.  The amount of forgiven debt is then attributed to you as “income” for tax purposes.  This means that if you have a credit card or mortgage (more on this later) and $20,000.00 is cancelled or forgiven, then you will receive a Form 1099-C for that amount and it will also be reported to the IRS.  When you figure your taxes, basically, your income will increase by the amount of the forgiven debt.

So what does this really mean?  Potentially, if you are a single filer and, before you include the amount of cancelled debt, your adjusted gross income is $48,000.00, you will be obligated to pay $8,188.00 in taxes according to the 2010 tax tables.  But, if you had debt cancelled of $20,000.00, then, potentially, your adjusted gross income is $68,000.00.  This is because you add the $20,000.00 in cancelled debt to your income.  You would then be obligated to pay $13,188.00 in taxes–$5,000.00 more!!!  Of course, this is a simple example and for a lot of folks, cancelled debt may or may not make a big impact on their tax liability but nevertheless, the impact can be real and significant!

There are exclusions to the cancelled debt being included in your taxable income.  The exclusions are contained in the Internal Revenue Code under Title 26 of the United States Code at Section 108.  See here.  The biggest exclusion is (A) “the discharge occurs in a Title 11 case” which is bankruptcy.  If debt is discharged in bankruptcy, it is not attributed to you as income.  You may still receive a Form 1099-C but you can include another form with your tax return.  See here for a Form 982 and see here.

There is another major exclusion that is geneally applicable to consumer debtors.  If the cancellation of the debt occurs while the debtor/taxpayer is insolvent, then you may reduce the amount of the cancelled debt from your gross income.  See 28 U.S.C. § 108(a)(1)(B).  This may require substantial documentation of your insolvency.

Another major exclusion that is particuarly relevant to short sales is set forth under (a)(1)(E).  This provision states that if you have cancelled debt that stems from the a qualified principal residence, then the cancelled debt will not be included in your income for tax purposes.  So, if you negotiate a short sale for $50,000.00 less than what you owe on your home, under this provision of the tax code, the amount of the cancelled debt will not count towards your income for tax purposes.  HOWEVER–this provision expires at midnight on December 31, 2012!  If a mortgage creditor is negotiating with you for a short sale, be sure to include a cancellation of indebtedness in the negotiation.  If the cancellation comes after January 1, 2013, you could be facing a big tax liability if some other exclusion does not apply.

As you can see, negotiating debt issues can be a minefield just waiting to blow up in your face.  While bankruptcy may not always be the best option, it is certainly worth discussing your debt issues with a qualified, experienced bankruptcy attorney to explore your options.

An often overlooked component of a bankruptcy case is whether the debtor is entitled to receive an inheritance.  This can be very, very important because if the debtor becomes entitled to an inheritance within certain times, the inheritance could go to a bankruptcy trustee and the payment of a debtor’s creditors.

Under 11 U.S.C. § 541(a)(5), if a debtor acquires or becomes “entitled” to receive any property through inheritance or as the beneficiary of a life insurance policy or property settlement “within 180 days after” filing for bankruptcy protection, then that property becomes “property of the estate.”  What this means is that if a debtor filed a chapter 7 case on January 1, 2011, and the debtor’s father passed away on March 1, 2011, then if the debtor becomes entitled to receive the proceeds from a $50,000.00 life insurance policy, then the trustee can claim those funds as part of the bankruptcy estate.

Similarly, if the debtor is entitled to an inheritance during that time period, the trustee will then be able to take that interest.  For example, if the debtor has two siblings and on Day 150 after the debtor filed bankruptcy, the debtor’s mother passed away and left the home place to the three children, the debtor then acquired a 1/3 interest (or whatever specified in the will) in the home place and now the trustee has that interest as part of the bankruptcy estate.

It is important to note that the operative phrase is when the debtor “acquires” or “becomes entitled to acquire” such property within 180 days.  If the decedent passed away prior to the debtor filing bankruptcy, the debtor already “acquired” or became entitled to her inheritance even though the debtor has not actually received anything.  If the decedent passes away less than 180 days after the debtor filed bankruptcy, then even though the debtor may not receive anything for quite some time (remember the Anna Nicole Smith case and prior case dragged on for over fifteen years!), it is the decedent’s passing that entitled to the debtor to her “inheritance.”

Things are a bit different in a chapter 13 case.  Normal chapter 13 cases can go on for several month to up to five years.  If a debtor becomes entitled to an inheritance at any time during that time period, the trustee will seek to have the money go to the payment of creditors.  That is because under 11 U.S.C. § 1306, “after-acquired” property becomes “property of the bankruptcy estate.”

It is important to know if a debtor is entitled to receive an inheritance or other property such as life insurance proceeds or property settlements.  As such, when a debtor is speaking with their bankruptcy counsel, it is important to think about people from whom the debtor is likely to inherit property.  It can make a big difference in how a bankruptcy case is handled.

So, where might that hidden treasure be located.  While we at Bankruptcy Law Network have repeatedly stressed the importance of listing all assets that you own (such as here).  Sometimes, you may have a claim to property and not even know it.

One instance may be if you inherit property (that is, be entitled to receive property even though you may not actually receive the property) within 180 days after you file bankruptcy.  If so, then the trustee will have a claim on this money or property.  For most people, if there is any expected inheritance, it comes from their parents or other known family members.  So, if a family member has passed on or may be expected to, this asset can be listed.

However, some family members will create an estate plan that may skip a generation or even two.  You may run into what professionals in the estate planning community call the "laughing heir."  This is someone who may be related to the decedent but does not really know the decedent so as to be greived by the decedent's passing.  In fact, you may not even know that you are entitled to receive anything at all until the funds arrive.

Another particular item involves escheat property.  Escheat property is something that you were entitled to receive but for some reason, the obligor, that is the person required to give you something, could not locate you.  After a few attempts, the obligor will transfer the property over to the Unclaimed Property fund for a state.  The state will maintain the property (and earn interest) while maintaining the property until the rightful owner claims it.  You can access various websites that can be searched such as North Carolina's here to see if you are entitled to any unclaimed or escheat property.  If you do not check this prior to filing bankruptcy, the trustee may check it and make a claim for whatever you were entitled to receive.

These are just a couple of examples of property in which you would have an interest that, in bankruptcy, the trustee will now seek to use to pay your creditors.

Yes, it is quite a lot of fun to be skimming across the water heading to that secret spot where you know the big lunker is lurking.  You have had a lot of fun fishing over the years and if you could just get your financial issues behind you, you would spend more time fishing.  But things have been tight lately with reduced hours at work and the way gas prices have gone through the roof.

So, you mention your difficulties to a friend or two.  Your friends mention that they had to file a chapter 7 case and they got rid of all of their debt.  Your friends didn’t even have to give up their house or car or anything!  You think that sounds like an excellent plan.  Get rid of your debt in a chapter 7 case and keep everything.

So, you make an appointment with a bankruptcy lawyer and your lawyer tells you that, because your bass boat is paid for and is worth about $13,000.00, if you file a chapter 7 case, the chapter 7 trustee is going to sell your bass boat.  But wait!  My friends filed chapter 7 and they didn’t lose anything!  Your lawyer then politely tells you that he is sure that your friends would be more than willing to prepare your bankrutpcy case for you but nevertheless, if a chapter 7 is filed, the boat will be sold.  See here for explanation.

So, what can we do to avoid that situation?  Well, a chapter 13 case may just fit the bill.

As stated above, if you have assets over and above what you may exempt, a chapter 7 trustee may sell those assets to generate money to pay your creditors.  In North Carolina, bass boats are not exempt and the only exemption that you can claim is under the wildcard exemption of $5,000.00.  So, if your bass boat is paid for (you have the title) and it is worth more than $5,000.00 ($10,000 if married and jointly titled), the trustee may be interested in selling the boat to pay your creditors.

Of course, you can offer to pay the trustee the excess equity for your boat and still file a chapter 7.  For example, if you offer the trustee $7,000.00 which is the value of the boat ($13,000) less your exemption ($5,000) less the costs of the sale ($1,000), the trustee would probably take the cash and leave your boat alone.  The problem is, if you had $7,000 in cash lying around, you would not have been talking to a bankruptcy lawyer in the first place.  Of course, the chapter 7 trustee is not interested in “payments.”

Again, a chapter 13 bankruptcy case may just fit the bill.

In a chapter 13 case, if you have assets over and above what you can exempt that you wish to keep, you must pay the value of those assets through your chapter 13 plan over the course of several months (depending on the length of your plan) which would be paid out to your general unsecured creditors, then you can keep your bass boat!  This is referred to as the “best interests of the creditors” test and is set out at 11 U.S.C. § 1325(a)(4).  Basically, if a chapter 7 were filed and the unsecured creditors could expect $7,000.00 to be distributed to them because your boat was sold, then as long as the unsecured creditors are paid $7,000 through your chapter 13 plan, you do not have to sell your boat.  Sort of a “no harm, no foul” type thing.  (There are other requirements to a chapter 13 plan that must also be met.)

What can create a problem though is your monthly cash flow.  Other posters have talked about the importance of cash flow on this blog here.  You have to have sufficient income less your reasonable expenses and to make the payments required under your chapter 13 plan to make this work.  For example, if you had to pay $7,000.00 to your unsecured creditors, you could expect approximately $135.00 a month to be allocated to your unsecured creditors over a 60 month period.  If you do not have that $135.00 a month, then your chapter 13 plan will not work and your case is subject to a dismissal.

If the extra money that you must pay through your chapter 13 plan that is allocated to your unsecured creditors because of the excess assets is more than you can afford, what are your options?

First option:  prioritize the assets that are most important to you.  If the boat is very, very important to you, then perhaps you should consider surrendering a secured debt such as a car in order to free up cash to make the required payments.  Or, go through your monthly expenses and cut expenses so as to free up cash to make the required payments.  If having a roof over your head is more important, well, it may be time for the boat to go.

Second option:  don’t file bankruptcy but lose the boat anyway.  If you don’t file bankruptcy, you do not face this problem.  Or do you?  If you try to hide out from your creditors, they will sue you and eventually will find your bass boat that you have parked behind your brother-in-law’s shed.  They will have a deputy seize the boat to be sold at a sheriff’s execution sale.  After the boat is sold, you still have your debt problems but now, you no longer have your boat.

Contrary to what a lot of “friends” will tell you, there really is no such thing as a free lunch in bankruptcy.  If you have assets over and above what you can exempt, then in order to keep those assets, you must pay for them.  A chapter 13 plan allows you to keep those assets as long as you can afford to pay for them under the “best interests of the creditors’ test.

The last thing you are thinking about is bankruptcy.  It’s early in the morning and you are just stepping out of the door to go to work and your car is not where you left it!

First thought:  Was it stolen?

Oh, no!  You knew that you were a couple of months behind on your car payments and the creditor was calling but you didn’t quite expect this!  So, you go back inside and call the creditor who says that you can get the car back by paying the amount of the debt in full.  What now?

Chapter 13 bankruptcy does offer the potential to get your car back.  But you have to act quickly!

Normally, once a car is repossessed, the creditor will send a notice to you telling you that you have a certain amount of time in which to pay the debt in full (redeem the collateral) or make arrangements to retrieve any personal property in the vehicle.  The notice will also say that the creditor will dispose of the car with ten days (time periods may vary depending on state law).  This is set forth under each state’s statutory scheme under the Uniform Commercial Code under Article 9.  If you do not redeem the car or make some arrangements with the creditor, the vehicle will be sold.  At that point, there is not much anybody can do including a bankruptcy attorney.

So, you have a limited amount of time.  You immediately make an appointment with a bankruptcy attorney.  After paying the required attorney’s fees and the costs for filing bankruptcy and credit counseling, the attorney needs files your case quickly.  The creditor is contacted along with the repossession agent and informed not to dispose of the collateral.

At this point, districts across the country have their own requirements about how to deal with the situation but a fairly standard resolution is that upon presentation of proof of insurance and payment of the repossession and storage fees, the vehicle will be returned to the debtor.  Sometimes, these fees and costs can be made part of the “secured claim” for the vehicle and paid through your bankruptcy plan.  However, it is best to be prepared to pay the storage fees and repossession fees up front.  Sad to say that this situation occurs on a frequent basis.  In fact, it has been the subject of numerous posts on this blog such as here and here.

So, what can be done to avoid having to file for bankruptcy to save your car?  Without sounding too flippant, pay the car creditor and the vehicle probably will not get repossessed.  If that is just not working, you know that you are behind on your car payments–consult with a bankruptcy attorney sooner rather than later.  Many people think that things will turn around and hope that, with just a little more time, they can catch up the missed payments.  Hopefully, that will be true but if not, by talking with an attorney, you can have a back-up plan.

As indicated above, if your car is repossessed prior to filing bankruptcy, it can be expensive to get it back.  It can be expensive for two reasons.  First, in order to file bankruptcy, you will have to pay the attorney and the filing fees to the court along with the credit counseling fees.  Then, depending on how your district handles things, you may have to pay several hundred more dollars for the storage and repossession fees in order to get the car back.

To quote Benjamin Franklin, “an ounce of prevention is worth a pound of cure.”  If you know that your finances are spiraling down, talk with a bankruptcy attorney before your car gets repossessed.

So, you meet with an attorney to discuss your options in bankruptcy.  The attorney discusses a chapter 13 and says that you can “cram-down” your car in a chapter 13 case.  Cram what!?  I like the thought of cramming something somewhere for a particular creditor but what exactly is a “cram-down”?

Under chapter 13, a debtor may “modify the rights of holders of secured claims.  This means we can change the terms of the contract, that is, “modify” the deal between you and the creditor (typically a car creditor) in your chapter 13 bankruptcy case. 

For example, as we all know, as soon as you drive a new car off the lot, it loses quite a bit of value.  See here.  So, unless you put a big down payment on a car, as soon as you drive off the lot, you are now “upside down” on the car.  That is, you owe more on the car than what it is worth.   

According to the papers you signed, you agreed to pay the entire debt and it really does not matter that the car is worth less than what you owe.  That is why, outside of bankruptcy, if a car is repossessed and the car is sold at an auction, there often still is a substantial amount of money owing on the contract or “note” (which is an “I promise to pay . . . “). 

In a chapter 13 bankruptcy case, we are going to split the car creditor’s claim into two different components.  We will first determine the value of the car through standard value guides and call that a “secured claim.”  Then, if the value of the car is less than what is owed, the remaining difference between what is owed and the value of the car will be called an “unsecured claim.”  We call this process “bifurcation” because we are dividing the claim into two separate components.

So how does this work?  Suppose you have a 2008 Chevy Blazer that is worth $14,000.00 but you owe $18,567.00 to the car creditor.  Instead of paying the entire $18,567.00 through your chapter 13 case, you will pay $14,000 at the district interest rate (called the Till rate after a U.S. Supreme Court opinion) over the life of your plan.  The remaining $4,567.00 will be classified as an unsecured claim and will be paid pennies on the dollar (typically).  The creditor is only getting $14,000 plus interest at the Till rate which represents the value of the car while getting only get a very small percentage of the remaining amount owed, that is, the $4,567.00.  Thus, a “cram-down”!  

It must be stressed that a “cram-down” is limited.  If you are attempting to cram-down a motor vehicle, you must have owned the vehicle for at least 910 (approximately 2 and 1/2 years) before you can cram it down (if it financed the purchase of the vehicle).  Also, it does not apply to real estate that you use as your primary residence.  

Oftentimes, a cram-down may mean the difference between a successful reorganization or plan failure.  Understanding what a “cram-down” is will help to understand what your bankruptcy attorney is trying to accomplish in your chapter 13 case.

Much has been written about what potential debtors should look for in a bankruptcy lawyer.  Well, it is a two-way street and bankruptcy lawyers will also be sizing you up to determine if you will be a good bankruptcy client.  Remember, both the lawyer and the client have the shared goals of getting you through the bankruptcy process successfully and with a minimum of fuss.  As such you, as the client, will have some responsibilities for your case as well.

So, what makes a good client?  Number One–listen to your lawyer and do what he or she says.  You would think that since you are paying for your lawyer’s advice and assistance in handling your bankruptcy case, you would follow your attorney’s directions.  If you have sought out reputable and competent counsel, there should not be any question about following your attorney’s advice.  Most likely, your lawyer has been involved in many more bankruptcy cases than you have.

Number Two–read the materials that your attorney provides to you.  As with most bankruptcy attorney offices, different clients will often ask the same questions concerning the process.  That is understandable–most of my clients have never filed for bankruptcy.  Yet, the attorney or staff may have answered that same question hundreds of times.  The answer does not change.  As such, the attorney can provide the appropriate information (and answer your question) in a handout for you to read at your leisure.  Of course, if you do not read the information, you may be missing out on something very important that can adversely impact your case.

As an example, in chapter 7 cases, it is mandatory that the debtor complete a Personal Financial Management course and file a certificate before a discharge is entered.  This is true in every chapter 7 case.  If you don’t do the PFM course, your case will be closed without a discharge.  We have this requirement in multiple handouts and we tell our clients of this requirement.  Failure to comply with this requirement will mean that you incur additional legal fees and costs (the cost to re-open your bankruptcy case is $260.00).  Read what your lawyer provides to you!

Number 3–Stay in contact with your attorney’s office.  This is obvious but unfortunately clients will sometimes change their phone numbers; move or just not have a way for the attorney to contact them.  Your lawyer needs to have a way to get in contact with you.  Things may come up in your case that requires your input.  If you are not available, it can materially affect your case.  For example, if the trustee wants certain documents in your case, you need to provide them to the trustee.  If you are unavailable, the trustee may decide that you are stonewalling or have something to hide.  Your case could rapidly go downhill.

Number 4–Get requested information to your lawyer as quickly as possible.  Bankruptcy involves a lot of information that is your personal information.  Your attorney cannot get this information unless you provide it.  In order to get your case done as quickly and expeditiously as possible, get the requested information to your attorney as quickly as possible.

Number 5–Ask questions.  If you feel like you do not understand what is being requested of you in terms of information needed, ask questions.  As your lawyer, we are invested in getting your case to a discharge as quickly and efficiently as you are.  If you need an explanation as to what is needed, just ask.  We will be happy to explain.

A bankruptcy case is a joint effort between you and your attorney.  With due apologies to Jerry Maguire, help your attorney to help you and do what is requested.