Consumer bankruptcy lawyers are among the most unappreciated and underpaid people in the entire bankruptcy system.

On a time spent basis, we rarely get paid our full hourly rate for the time we put into each case.

On a benefit to our client basis, we usually get only a tiny percentage of the financial benefit received.

On a service to the entire bankruptcy court system, we generally don’t even get a “thank you”.  Instead our work is often questioned, our fees are often slashed, and we are often blamed when our clients don’t follow through on their commitments.

What do I do for you, my client?

I hire a staff that is both sensitive to your needs and thorough in their review of your paperwork

Along with my staff, I help you to organize your information so together we can understand and solve the entire puzzle that is your financial situation.

I listen carefully to your questions and concerns.

I explain all of your options including bankruptcy and non bankruptcy possibilities.  I explain Chapter 7 and Chapter 13, and if you are a farmer, Chapter 12.

I help you to set up and live by a budget that allows you and your family to live within your means.

I double check all of your paperwork to make sure it accurately reflects and discloses your complete financial picture.

I file your bankruptcy petition, talk to your creditors for you, “hold your hand” at the meeting of creditors, and stand up for you in court whenever needed.

In fact, I stand up for you against whatever is coming at you from your creditors and bankruptcy trustees.

What do I do for the bankruptcy system?

I am the gatekeeper for the entire bankruptcy system.

Although the “tall building lawyers” who work on Chapter 11 cases get most of the attention at seminars, and are allowed by the bankruptcy judges to receive huge legal fees, it is I, along with my fellow consumer bankruptcy attorneys, that file nearly 95 percent of all of the bankruptcy cases.

I am the one who makes my clients’ case presentable and understandable by the trustee, the judge, and the creditors.

I am the one who organizes and sends the documentation to the trustee.

And I am the one who has to answer to the US Trustee’s office if my client’s situation doesn’t fit into the little boxes they understand.

And I am the one who forces the Bankruptcy Court to interpret the bankruptcy law.

And I am the one who fights against the restrictions that Congress tried to impose to make it harder for financially struggling individuals and families.

And I am the one who works to get abusive creditors off their backs and truly achieve a fresh start.

And that is what filing for bankruptcy is all about.

Chapter 12 farm bankruptcy helps family farmers to keep their farms.  It allows family farmers to reorganize their finances and operations. Chapter 12 was originally enacted by Congress in 1986, and was made permanent in 2005.  It helps the farmer and the banker to sit down and work out alternatives for debt repayment.

But according to Senator Charles Grassley, recent IRS actions are threatening family farmers’ ability to properly reorganize in Chapter 12.  Grassley authored a provision which is supposed to allow farmers in Chapter 12 to sell some of their property without having to pay capital gains taxes to the IRS in full.  The provision, enacted in 2005 as 11 USC 1222(a)(2)(A) was intended to make capital gains taxes into unsecured claims (often paid at only a percentage of the total) rather than priority claims (required to be paid in full).

The US Supreme Court heard arguments on November 29^th in the case of Hall v. United States.  The IRS argued that capital gains taxes created by the sale of property during a farm bankruptcy proceeding are payable in full as an administrative expense under the Chapter 12 reorganization plan.  Although the 8^th Circuit in Knudsen v. IRS, 581 F.3d 697 (2009) rejected the IRS position and said there was an exception preventing the IRS having a priority claim on post petition claims, the 9^th Circuit agreed with the IRS position in deciding the Hall case (617 F.3d 1161 (2010)).

Grassley recently went onto the floor of the Senate to create a record of what the Congressional intent was in enacting section 122(a)(2)(a).  Grassley said the IRS position meant that a farmer couldn’t sell a portion of his farm to reorganize, pay creditors and become profitable again.  “Why should the IRS be allowed to veto a farmer’s reorganization plan?” Grassley asked.

“High taxes have caused farmers to lose their farms”. said Grassley, who believes that family farms are very important to the economic viability of rural  America. 

The policy reasons for this section of the farm bankruptcy law were that the farmers didn’t have enough money to pay everyone.  It would be better to allow them to sell some assets, which would generate cash and help them reorganize, keep farming and pay their creditors.  Congress, Grassley says, realized that someone would have to make a sacrifice and they decided to give farmers a break from government taxes in a very narrow set of circumstances.  The creditors that the IRS are trying to get ahead of are small businesses, suppliers and small local banks that extend credit and supplies to farmers according to Grassley. 

Grassley’s efforts on behalf of family farmers has made Chapter 12 the most debtor friendly chapter in the Bankruptcy Code.

If you are considering filing a bankruptcy petition you should consult with an experienced lawyer so you can do some planning.  But you should be careful; as with most of life, good planning will save you money  but sloppy planning can land you in hot water.

I often talk with people who are considering bankruptcy who have already tried to do some planning on their own.  They sold their car to a friend for ten dollars, or quit claimed their property to their spouse thinking that was the only way to protect it.  Sometimes they used their tax refund to pay off a loan from a relative, or “settled” a debt with one creditor.  Other times they borrowed from their retirement or took out a home equity loan to try to forestall the inevitability of having to file.

These are things you should NOT do before filing. 

A transfer for less than value is a “fraudulent conveyance” and can be reversed by a bankruptcy trustee for up to six years in New York.  Paying a debt before filing bankruptcy, especially to a relative, is a preference, and can be taken back by a trustee.  Tapping into retirement savings or home equity is needlessly depleting an asset that would have been protected in a bankruptcy.

Before filing for bankruptcy you should speak with your attorney about maximizing your exemptions.  You should discuss the best use of your funds, including the potential benefits of not paying your creditors prior to filing.

Sometimes you and your attorney need to discuss the timing of your bankruptcy filing.  If you have a potential “fraudulent conveyance” issue, you may want to transfer the property back into your name before you file.  There may even be times when it makes sense to move to another state before filing.

You can see why it is so important to consult with a knowledgeable and experienced bankruptcy attorney before you file.  Proper planning can make the entire process go smoother and leave you in better financial health at the end.  You should also take the opportunity to speak with your lawyer about planning for after your bankruptcy.

Image credit:  ZeRo`SKiLL

2011 has been called “The Year of the Natural Disaster”.  We have seen deadly tornadoes, massive floods, billion dollar blizzards, devastating drought, East Coast earthquakes, and Texas wildfires…oh my!

Millions of Americans have had their lives seriously disrupted this year.  Many of them were in Chapter 13 bankruptcy cases at the time of the disaster, and had to not only to pick up their lives, but also had to decide what to do with their Chapter 13 case.

Chapter 13 cases usually last between 3 and 5 years.  When you file a Chapter 13 you don’t always know what will happen in your life in the upcoming years.  Often there are unplanned events that cause the best Chapter 13 plans to fail, or need serious adjustment, which is one of the great advantages of a Chapter 13 over other forms of bankruptcy.

Such is the case in my area of the Southern Tier of New York State, where we had our second “500 year flood” in the last 5 years.  Here are some examples of the issues some Chapter 13 Debtors have had since the September 8^th flood:

1. The flood damaged three properties belonging to one Chapter 13 debtor.  She had severe damage to her residence, and suffered a near total loss to a rental property and to her business property.  She must now make decisions on what to do with each of the properties.  She had flood insurance for $203,000 on her residence, but the insurance company will only give her 50% of that figure and estimates are $147,000 for the repair.  She has been told to get an SBA loan for the remaining cost, but because she is in the Chapter 13, SBA will not loan to her.  The other two properties were being partially paid in the bankruptcy.  She will probably have to modify her Chapter 13 plan to surrender these properties.
2. One couple had no flood insurance for the damage to their finished basement.  FEMA said they would not help because their particular damage came from water runoff from the hills, not directly from the flood.  They will have to do all of the needed clean up and repair out of pocket, but all of their disposable money is designated to go to the Chapter 13 Trustee.  They have asked and received permission to skip their September and October payments to the Trustee, but that is not going to be enough to cover the costs.
3. Another couple had more damage to their home than FEMA is willing to give them, so they will have to walk away and file a modification to their Chapter 13 plan to surrender the property and stop paying arrears in the plan.
4. One Chapter 13 debtor is not paying mortgage arrears in her plan, but still owes close to what the house was worth prior to the flood.  She is hoping that her house is condemned so she can get a buy-out.  In the meantime her family has moved into her Mother’s house and wants to use the FEMA money she received to fix up her mother’s house so they can live in it permanently.   They also lost a car in the flood and want to use the insurance money to replace the car, if the trustee will allow it.
5. One couple had flood insurance and received $10,000 to replace their furnace, hot water heater and electrical system.  The insurance check was made out to them and their bank, but their bank will not release the money without making them go through many additional procedures because they are in a bankruptcy case.
6. One unfortunate woman had planned to sell her home and get a smaller home.  She had received permission for the sale from the bankruptcy court, and had a closing scheduled two days after Tropical Storm Lee came through.  The closing was cancelled and the home was destroyed.  FEMA gave her $33,000, which is only a fraction of what she had expected from the closing.
7. An elderly Chapter 13 couple received $26,000 from FEMA to make home repairs.  Instead, they want to walk away from their seriously damaged home and use the money to move into a senior housing unit.
8. Another Chapter 13 debtor who had flood insurance also received a two party check to her and her mortgage company.  The bank will not disperse any money until all of the work is completed, but she can’t come up with any money to lay out for the repairs.  To make matters worse, the property is a duplex and cannot be lived in until it is fixed up and approved by the town code department.  She not only has to live with her family, but has lost her rental income which she needs to keep up with her payments to the trustee.
9. One problem several Chapter 13 debtors are facing is that a month after the flood, they are still waiting to hear from FEMA and/or their town as to whether there will be any buyouts offered for their condemned former residences.

Many of the millions of people who were affected by natural disasters this year will be speaking to bankruptcy attorneys to find out their options.  Others, may feel that they shouldn’t consider bankruptcy under any circumstances.  If you know people like that, do them a favor and suggest that they find out all they can about ALL of the options open to them.  A trained, experienced bankruptcy attorney can help people through many of the difficult times that inevitably follow a natural disaster.

Natural disasters have recently destroyed countless homes and uprooted huge numbers of individuals and families.  When the flood/hurricane/tornado/wildfire is over you focus on the destruction to your home, car, and business.  You concentrate your concerns on whether or not you should rebuild, and on how to put your family’s life back together.

In upstate New York we have suffered through the wake of Hurricane Irene and Tropical Storm Lee.  The Binghamton, NY area experienced the second “500 year flood” in five years.  Entire neighborhoods and towns were under water.  Tens of thousands were evacuated, and many returned to condemned homes.

In the wake of this destruction many face the dilemma of what to do about their mortgage payments and other debts.  Usually, the credit industry puts out “public service announcements” reminding people in disaster areas to keep paying their mortgage, car payments and credit card debts or risk late payment fees, damaged credit scores and foreclosure.

But many people did not have or could not get flood insurance.  So in the overall scheme of things, how high a priority should it be to stay current on the mortgage and debt payments?  What help is available?  And what steps can you take to relieve some of the pressure?

1. Retrieve and organize your important papers such as deeds, wills, tax returns, bank
   statements and insurance policies.
2. Complete and file insurance claims as soon as you can.
3. Call your mortgage loan servicer.  Make notes of your conversation and be sure to follow up with any documentation requests they make.
4. Contact the credit reporting agencies and inform them that your house has been damaged by the disaster.
5. Speak with a lawyer to learn about all of your options.  After a natural disaster you should be able to get a free consultation with an experienced bankruptcy lawyer.  It will give you more peace of mind to find out all of your options as soon after the disaster as you can arrange it.

You may be able to get help from your mortgage servicer.  The Federal Housing Administration (FHA) often imposes a 90 day moratorium on foreclosures of FHA insured loans after a disaster.

Freddie Mac often “encourages” servicers of their mortgages that have been damaged in a disaster to postpone foreclosures and
evictions for up to one year, to waive penalties and late fees, and to suspend negative reporting to credit reporting bureaus.

Fannie Mae allows their servicers to suspend mortgage payments for up to three months, and sometimes allow longer term
reduced payments or modifications.

FEMA may be of help through their Disaster Housing Program if you have been forced out of your home as a result of the disaster
and through grants and low interest loans.

The Small Business Administration (SBA) also offers loans to homeowners to repair or replace damaged property.

It is bad enough to suffer through the physical damage of a natural disaster.  But after it has passed, you will need help and advice.
A trained, experienced bankruptcy lawyer can help you sort out your options and put you back on the right financial path.

See Part 2: “How Does a Natural Disaster Affect Me if I am in a Bankruptcy?”

While Congress and the White House debate raising the debt ceiling of the nation, many of us just plain citizens wonder if we too should borrow more money to get through our hard times.  The questions we need to ask are… can we borrow more? … and … should we borrow more?

Lending institutions drastically tightened the availability of credit during the recession, making it harder even for those of us with an excellent credit rating to borrow.  Mortgages, home equity loans, car loans, new or increased limits on credit cards all but disappeared.  As a result of this and the fact that more people were defaulting on their loans, overall credit card debt declined from $973 billion in 2008 to $790 billion last month.  Many people who couldn’t get loans any other way resorted to dangerous payday loans.

Some bankruptcy lawyers are attributing the recent decrease in the number of bankruptcy filings to the fact that most people are no longer able to overextend themselves in debt.  In reality, though, it is beginning to get easier to get credit again.  This trend began after the bailout of the auto industry.  New auto loans and lines of credit were responsible for many of the new auto sales.  The New York Times reported that in 2010, over 850,000 vehicles were purchased by people with less than stellar credit scores… an increase of 60 percent over 2009.

And now the banks are loosening their credit requirements and are allowing subprime borrowers to again get credit cards.  Equifax reports that the number of new credit card accounts increased by 35 percent this March over last March, and during that period there was a 62 percent increase in credit cards going to subprime borrowers. 

So perhaps the answer to the first question…Can I raise MY debt ceiling… is yes.  The more important question is … Should I? 

Any time you take on more credit you should be asking yourself… What is my ability to repay this (and my other) debt?  Even if you have come through the recession so far relatively unscathed, the uncertain economy and job market means that nobody’s job is safe anymore.  Recent college graduates are finding it very difficult to find jobs in their fields, yet they have often burdened themselves with massive student loans and credit card debt. 

Bankruptcy still remains an option for people who get to a point where they cannot pay their debts.  But there is great danger to rely on credit card purchases or cash advances to cover normal household operational expenses during tough economic times.  If you are expanding your debt ceiling without having the ability to repay your debt, you may find that even in a bankruptcy your creditors challenge your ability to discharge your debts.  

chart of filings nationally
Fewer people have filed bankruptcy petitions so far in 2011 than they did in 2010.  Last year there were over 1.5 million bankruptcies filed in the United States.  In the first quarter of 2011 there were 6% fewer cases filed than there were in the first quarter last year.  In March the decrease was 8.2% compared to last March.

The decrease is even greater in Upstate New York.  In the Northern District of NY, which includes Syracuse, Utica, Albany and Binghamton the decline in March was over 12.4%.  In the Western District of NY, which includes Buffalo and Rochester, the decline for the same period was 18.8%.

So why are there fewer people filing bankruptcy?  Has the economy improved that much?  Actually, even if the economy bounced back to its pre-2008 status, there has traditionally been a 6 month or greater delay in the effect on bankruptcy filings.

Some observers say that it is because of the reduction in the high unemployment rates.  Others speculate that because credit has been less available in the past few years, fewer people have been able to accumulate enough debt to warrant filing for bankruptcy.  Still others say that more consumer credit is available now which is allowing people to borrow and (if only temporarily) avoid the need to file bankruptcy.

I have thought that there were two reasons for the decrease.  Mortgage foreclosures are taking much longer than they used to which takes away the urgency to file right away.  I also thought that many people just didn’t have enough money to pay for the filing fees, credit counseling fees and attorney fees necessary to file bankruptcy.  Now I am not so sure.  The person at our local Legal Aid office who is in charge of sending bankruptcy cases to volunteer local lawyers to prepare pro-bono petitions (at no cost) told me that there has been a significant decrease in financially qualified people coming to her office seeking bankruptcy relief.

Whatever the reason for the decrease, I don’t believe it will last.  A glimpse of the bar chart above shows that while the number of bankruptcies filed in this country sometimes increases and sometimes decreases, it generally steadily increases.  (The huge increase and then dramatic decrease in 2005 was a result of Congress passing BAPCPA).

You always have options if there are significant changes in your life during your Chapter 13. If you’ve been laid off, become sick, split up with your spouse or just can’t keep up with the rising price of gas, don’t give up hope. Your Chapter 13 is flexible…it can be modified to adjust to life’s curve balls.

Your bankruptcy attorney knows how and when to modify your Chapter 13 plan. Of course your lawyer can’t help you unless you let them know about your situation and your concerns.

If your changes are only temporary – say a temporary layoff – you can modify your plan to excuse the payments you have missed, begin making reduced payments and increase payments later, when you are back to work. You can often lower the percentage you are paying to unsecured creditors which will allow you to lower your payments. I will usually wait until the Chapter 13 Trustee sends a warning letter. By then, your temporary change may have become resolved and the motion to modify can reflect that.

If the changes are more permanent, one option you may have is to convert the case to a Chapter 7. In a Chapter 7 you would not need to make any more payments to a trustee and your debts would be discharged. There are many issues to consider before converting such as: Can the Chapter 7 Trustee go after any of your property? 

If you were not finished paying mortgage arrears or a car in your Chapter 13 plan you must discuss with your lawyer what will happen if you convert to a Chapter 7. If you were paying non-dischargeable taxes in your Chapter 13, the taxing authority will go back and charge you interest.

Fully discussing the changes in your financial life with your bankruptcy attorney is the best way to know what your options are, and to be sure that you are going down the best path.

When you file a Chapter 13 bankruptcy case, you are asking the Bankruptcy Court to allow you to accept a payment plan that will pay off your debts in an affordable way. Your confirmed plan is an agreement that you will pay a monthly payment to the Chapter 13 Trustee for between 36 and 60 months, which will pay a certain percentage towards your unsecured debts.

For example, your confirmation order might say that you are to pay $300 per month for 60 months which will pay a minimum of 10% to your unsecured creditors. In this example, $300 times 60 months will total $18,000 over the course of your plan. This $18,000 is called your “base”.

After your creditors have filed their Proofs of Claim, it can be determined how much money is needed to pay off your claims according to your confirmed plan. This will include any secured claims plus interest paid inside the plan, any priority claims paid in the plan, legal fees, trustee’s payments and the 10% to the unsecured creditors.

If the amount needed to pay the claims turns out to be more than the “base”, your plan is “infeasible“. If this happens, the Chapter 13 trustee will usually contact you and your attorney and ask you to resolve this infeasibility. If you do nothing, then the Trustee will likely make a motion to dismiss your case.

There are several ways to deal with a feasibility problem. You can increase your monthly payments to the Trustee. You can pay in a lump sum during the course of your plan… for example from tax refunds…, you can make a motion to modify your plan to decrease the percentage to the unsecured creditors, you can extend the duration of the plan – but only if it is not already a 60 month plan, or you can propose that you step the payments up in the future.

It is helpful if you keep track of the status of your Chapter 13 case.  The more you know about your case, the more peace of mind you will have about the entire bankruptcy process.

What is the purpose of bankruptcy?  Is it to take a debtor’s assets or future income and pay at least something back to creditors?  Is it to give a debtor the opportunity for a “fresh start”?  The US Supreme Court has recently decided that the purpose of the 2005 amendments to the Bankruptcy law was to ensure that debtors repay creditors the maximum they can afford.

Historically, society used to want to force a debtor to pay back his/her creditors.  A person who could not pay thier debts would be put into debtor’s prison, not to punish them, but to hold them for ransom in hopes that their family would come up with the money to pay their creditors back.  Later, bankruptcy’s purpose was to gather a debtor’s assets and liquidate them so that creditors could be paid back on an equal basis.

In the last few decades, the focus of bankruptcy has been on the “fresh start“.  Society felt that giving a fresh start to a person who was deep in debt would be good not only to the debtor, but would be a benefit to us all.  Court decisions throughout the country held the ability to get a fresh start as the most fundamental purpose of bankruptcy.

In 2005, however, Congress passed a law that may have shifted the emphasis away from the “discharge” that bankruptcy gives to a debtor and back towards a system that maximizes the return to creditors.  Called the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), the law established a “means test“, which sets the rules on how much a debtor must pay back to his/her creditors, but only applies to people whose income over the past six months is above the median income for people in their state with the same household size.  Frequent postings on Bankruptcy Law Network have explained why the means test is not a fair way to determine how much people should pay back to their creditors.

One of the key expenses people are allowed to deduct on the means test is the automobile ownership deduction.  This deduction, if allowed, often means the difference between being able to file a Chapter 7 or a Chapter 13 case.  In a Chapter 13 case, taking the ownership deduction can make a difference of almost $30,000 in the amount that must be repaid to unsecured creditors.

Earlier this year the US Supreme Court decided the Ransom v. FIA Card Services, N.A. case which limits a debtors ability to deduct the automobile ownership expense to people that actually have an actual payment due on the vehicle to a secured creditor.  In making their decision, the Court has moved away from the concept that bankruptcy’s major purpose is to give people a fresh start, and back towards the idea that people who file bankruptcy should repay their creditors as much as possible.

The Ransom decision discriminates against people who enter bankruptcy without a vehicle loan.  It seems to suggest that it is better to borrow money against a vehicle before filing for bankruptcy.  Be sure to thoroughly discuss this issue with your experienced bankruptcy attorney.