There are a number of things you should do while deciding to file bankruptcy. There are a number of steps and things you should do while waiting for your bankruptcy papers to be completed and filed.  These things can prevent unnecessary problems. These steps can prevent property from being taken, accounts being garnished and other bad things

• 1. Read your mail.  Your mail may contain court notices about hearings, garnishments, attachments and other things of immediate concern.  You may also learn that your debts have been sold, transferred or being handled by another creditor. Knowing who these new creditors are are important.
• 2.  Learn to Navigate the Courts’ Websites.  Many courts out there have websites with easy access for anyone.  A person can then watch the websites for court actions that affect them.   Checking the courts websites often can prevent bad things from happening.  The court websites will contain information about foreclosure sales, garnishment and attachments and lawsuits.  
• 3. Direct Deposits.  It is always a good idea to make sure your direct deposit of paychecks, government assistance, child support, etc are not being directly deposited into a bank account in a bank that you owe money.  Most credit union loans and some bank loans allow the lender to help themselves to the money in your account. It is a good time to move your direct deposits into a bank you don’t owe money to. 
• 4.  Automatic payments.  See above.  If your life insurance or mortgage payment are coming out of a bank or credit union you owe money too this can create problems.  The bank may help itself to funds on hand before the automatic withdrawal occurs.  You may have automatic payments coming out of your accounts to pay your creditors. You want to stop this as soon as possible.  This way you are controlling when you pay someone.  This way people don’t get people who shouldn’t.

 Many years ago I went to law school and dreamed of being a criminal defense lawyer.  In fact when I started practicing law that is what I primarily did.  I thought this was the way to use my law degree and my knowledge to help people.  One day the lawyer I worked for gave me a file and sent me to bankruptcy court.  I saw people there that needed help and a system that could provide help to them.

Slowly over the next few years I began to handle more and more bankruptcy cases and less and less criminal cases.  The ability to help people under extreme stress and under pressure provided so much more satisfaction to me.  I found I was able to have a bigger impact on more individuals’ lives as a bankruptcy lawyer then a criminal lawyer.

I love coming into the office each day and dealing with the new problems.  There are always new people to meet and try to help.  My day is always interesting.  So I begin with a cup of coffee and wait for the first new people.

The very first thing I try to do in my appointments is determine the level of stress the people are under and what I can do to lighten that burden.  The people are often nervous, frightened and ashamed of being in my office.  Clearly no one ever wants to meet the bankruptcy lawyer.  I need try to understand what brings them to my office.  I have a questionnaire to guide me a bit but I prefer to let my clients tell me their story.  Are they here due to loss of job, medical issues, family problems or combination of everything?  Are they here because of phone calls and threatening letters?  Has it gotten more serious are there lawsuits and garnishments, foreclosures and other legal matter pending.

My goal at this point now is to try to make the client comfortable and make sure the client understands the process.  Not just the process of bankruptcy but the process of what is happening in their world right now.  They need to know that they aren’t bad people because they have debt problems.  It is important to note that often it is only by the grace of god that I sit in my seat and they sit in theirs.  Most of my clients are here because of things they could not control.  They need to know that the world is going to explode tomorrow.  They need to know that they are not going to jail for not paying their bills.  They need to know that there alternatives to the situation they are in.

We are going to spend the next part of the appointment going over those alternatives and explaining how collection and bankruptcy works.  It is very important at this point to make sure that the people in my office (my clients) fully understand the system and what their options are.   I have to explaining away the mythology and misinformation about bankruptcy.  No they aren’t coming into your house to take your possessions.  It is possible to stop the foreclosure and save your house.  The garnishment can be stopped.  The phone calls can be stopped.  Bankruptcy can give you a breathing space to try to get your life back in order.  Bankruptcy is designed to give you a fresh start. 

The first appointment is often spent as much trying to give the client away to control the stress as it is to control the debt problems.  I know I have accomplished something with my clients when they come back to thank me for at least helping to relieve some of the stress.

1099 C forgiveness of debt is really income to you in the year the debt was written off.  WHAT?  You bet.  A creditor is required by law to issue a 1009 C to any individual who settles a debt or has a debt written off that is in excess of $600.   This is a very big trap that people with lots of debt find themselves in.  If you have received one of those in the mail, you may have to declare the amount on that form as income. (see  your tax person)  Then you will have to pay tax on it.

Using a debt management firm to settle your debts?  don’t be surprised when the 1099  C comes in the mail.  House sells at foreclosure sale ,the bank has not  been paid all the money.  You should be on the look out for a 1099 C.

The 1099 c is required to be issued by any creditor that settles a debt, or writes the debt off and the amount is over $600.  You settle your $5000 credit card bill for $3000.  You will eventually get a 1099 c for $2000 and you will have to declare that as income  on your return.  You will end up paying tax on it.  The balance left on the mortgage after your property is sold at sheriff sale or by a short sale.  The mortgage company will issue you a 1099 C for the difference.

There are 2 exceptions to the 1099 C rule for most debt.  The first applies when you are insolvent as the time the debt is written off.  This is defined by the IRS.  The second is if you file bankruptcy before the debt is written off and the 1099 c is issued, there is no income to declare.  If you file bankruptcy after the 1099 C is issued you still have to declare that as income.

There is a third exception that is only good for real estate.  It is the Mortgage Forgiveness Act of 2007.  It applies to the homeowners of residential real estate only.  It also only applies to homeowners who had the debt written off during 2007 to 2012.  The IRS’s website has examples to help you determine if you can qualify for this exception.

The 1099 C and its consequences are often overlooked before making the decision to file bankruptcy.  Its impact should be considered and can be reason to choose to file bankruptcy.

It is very important for an individual to see their own credit report as they make financial decisions.  Bankruptcy lawyers look over their clients credit report for information as to who is owed, type of debt, responsible party, payment history, etc.  Television, radio and the Internet are constantly sending people to Freecreditreport.com and this appears to be a free website.  Most people who go there soon learn that  the only way to get a free credit report there  is to purchase and or subscribe to many of the  pay services being offered.  

Experian was sued recently for misleading people into going to freecreditreport.com to obtain a free credit report.  The suit alleges that to get the free credit report the user had to sign up for other services.  In the instant case the individual did not even realize they had signed up for these services until charges started appearing.

The Federal Trade Commission has cited freecreditreport.com several times for this misleading advertising and has even started its own videos to make fun of  freecreditreport.com.  The FTC directs you to use annualcreditreport.com

AnnualCreditReport.Com actual lets you receive one free credit report each year from each of the three credit reporting agencies.  You can obtain this report by going on line or by calling (1-877-322-8228) or by mail.  The reports are free.  They are also very easy to read.  I direct my clients to obtain their reports from annualcreditreport.com in preparation for their bankruptcy. As is often the case you have to read closely to make sure what is free is really free

How do I protect the tax refund.  In part one we discussed why the tax refund can be a problem in bankruptcy.  The refund can be a part of the bankruptcy estate and the trustee can take part of your refund and pay your unsecured creditors.

Here are some tips to protect  most if not all your tax refund.

1.  If you typically get a large refund change your exemptions.  This is a step that you can take in the months prior to filing your bankruptcy.  You can increase your exemptions even in the middle of the year.  This will reduce the amount of money you get as a refund. The government should not be viewed as a piggy bank.  If you are seeing a bankruptcy attorney and get a large refund your probably can use the money each month.  Remember a $5000 tax refund equals $400 a month in your pocket

2.  Apply for Advanced Earned Income.  If you receive earned income you can give your employer a W-5.  This will allow you to receive your Earned Income credit monthly, weekly or quarterly.  Again the money in your pocket is better then in the government pockets.

3.  Do not file your bankruptcy until you know what your refund is.  If you are getting a large refund then hold off filing until you have spent the refund on necessities.  You can spend the money on food, clothing, medical services, car repairs, etc.  Make sure you keep receipts.  DO NOT PAY RELATIVES BACK. This would cause a preference and a problem with your filing a bankruptcy.  The trustee will be able to get the money back from your relatives.

4.  Depending on the state you live you can exempt part or all of the refund.

It is very important for you to review your situation as the year comes to a close and one the new year starts with a bankruptcy lawyer.  This way you can make sure your tax refund is protect the best way possible.

Its that time of the year when Trustees begin to look for the easy pickings, the hanging fruit of bankruptcy, THE TAX REFUND.   If you live in a state like Ohio with limited exemptions your TAX REFUND may be in jeopardy.  The Chapter 7 trustee get very excited at this time of the year. Often bankruptcy cases are filed with a non-exempt tax refunds waiting to be taken.  Here in Ohio opening a bankruptcy estate for $1000 is not uncommon.  There are important steps you can take to protect your refund.  Ohio has very poor exemptions.  On September 30 2008 they went from the dark ages to medieval times.  Exemptions are the amount of equity or value  that you can protect in an asset.   Ohio only allows a $400 cash on hand exemption and  a $1075 wild card exemption.   On September 2008 Ohio added the ability to exempt the child tax credit and the unearned income credit. Even with these exemptions the Chapter 7 trustee are now looking for big tax refunds. Sometimes they are even looking for little refunds.

How does this work:  Jerry G  files his bankruptcy on January 30 2010.  The tax refund is consider part of his bankruptcy estate under the following examples. ( The law views the refund as part of the bankruptcy even if the refund has not been received and even if you do not know if you are owed a refund.  Filing an extension does not help.)

1.  Jerry has not filed his return.  The refund would be property of the bankruptcy estate

2. Jerry has filed his return but has not received his refund.  The refund would be property of the bankruptcy estate.

The trap.  A bankruptcy filed in the second half of  year generally after September can create problems with the tax refund.  Example Jerry G fies his bankruptcy on  October 31.  83 % of that refund can be considered property of the bankruptcy estate.  Again even though no return has been filed the view is that on the day the debtor file his bankruptcy he is entitled to 83% of the refund.

The timing of the filing of the bankruptcy case  and the timing of the filing of the tax return are important to protecting the refund.  part two will show ways to protect the refund.

 

One of the greatest areas of concern in a Chapter 13 is the mortgage payment. The big question is to conduit or not to conduit. The big question is should the Chapter 13 trustee pay the mortgage or should the debtor pay the mortgage company directly. The jurisdiction I practice is has always encouraged that the debtor pay the trustee and the trustee pay the mortgage payments. The payments made by the trustee to the mortgage company are called conduit payments. Despite what my clients wish conduit payments are always the best way to go.

�

The benefits of the trustees making the payments are as follows:�

1. Record keeping. The trustee keeps an accurate record of all payments made to the mortgage company. There is a record of when the payments are made and record as to when the checks were applied.

2. No interest on the arrears(or past due amount). Some jurisdictions do not allow for interest or additional late fees to be charges while conduit payments are made.

3. �Property of the estate. Some jurisdictions and some plans allow all of the debtors assets to remain property of the estate until discharge. This makes it harder for the mortgage company to obtain relief from the automatic stay if the debtor misses one or two payments.

4. �Final Account: Conduit plans require the trustee to issue a final report showing all the payments made to the mortgage company. The trustee will issue a Motion to Deem the Mortgage Current. This allows the parties to review the mortgage before the debtor leaves the protection of chapter 13. Failure of the mortgage company to respond to the Motion to Find the Mortgage Current will block the mortgage company from raising those issues down the road. There are many cases where the mortgage company has to tried to collect additional money and has lost.

The disadvantages to the conduit plan is that the trustee charges an administrative fee that maybe as high as 10%. In jurisdictions with lots of conduit mortgages the trustee fees tend to be lower and often as low as 4% or less. The second disadvantage is that debtors do not like to have someone else make there mortgage payments.�

Conduit payment plans offer the debtor  many advantages. Debtors should always be in a conduit or trustee pay the mortgage plan.

Divorce and Bankruptcy present a daily problem to all including the bankruptcy lawyer.  Chapter 13 was designed to be a fluid bankruptcy in which it can change along with changes in the debtors lifestyle.  The case can be modified, converted, dismissed, and dismissed and refiled.  The options more then double when the client calls and ask what do I/ we do we are now getting divorced.  The easy and only answer  maybe call another bankruptcy lawyer.   A meeting is necessary with the clients. 

A review of the clients case should be done with updated information form the clients to determine what their options are.  Maybe everyone will get lucky amd only a few more dollars are needed to finish the Chpater13.  Most clients are not that lucky.

The clients need to be told they need to get a Relief From Stay from the bankruptcy to proceed with their divorce.  They must be told that they need to make each of their divorce lawyers aware that they are in a Chapter13.

Now the problems and the conflicts arise.  How do you determine what is each parties best interest.  Should they both finish Chapter 13 and who is going to pay for it?  Are they better off  both converting to Chapter 7.  Is one party better off converting while the other finishes Chapter 13?  Maybe they are both off in new separate Chapter13s or Chapter7s.  How do the new debts and the potential alimony and child support issues impact this decision. 

The questions can go on and on.  The conflict questions are the tough one:

1. Can one lawyer represent both parties?

2. Can the present bankruptcy lawyer continue to represent both parties?

3. Can the present bankruptcy lawyer represent either party?

The present lawyer may have  too much information about either party to allow continued  representation.  This knowledge may put the lawyer in a spot in which his advice benefits one debtor and harms the other.  The lawyer has to get out of the case.  Clearly if the debtors do not get along the present bankruptcy lawyer can not continue to represent either or both parties. 

Waivers are probably necessary even in the simple situation that can be wrapped up quickly.

The hardest part is that our clients (the debtors) typically do not have a lot of money to splash out on more legal fees at this time. It is going to be difficult for the current client to find a lawyer to take over their representation.  The clients trust the current lawyer.  The lawyers are not trying to make it more difficult on the debtors.  Their are many unanswered questions in these situations.  The easy road and the only road  for the present bankruptcy lawyer is to send his debtor/clients onto new bankruptcy counsel.  This maybe the only way the debtors get good advice for themselves.

Your sitting at your desk at the next client comes in.  A couple sits down in front of you and you begin the interview.  Fifteen or Twenty minutes into the interview you suspect something is up and the couple announce not only do they wish to file bankruptcy but they are going to get a divorce.  Can you represent them?  Do they each need another bankruptcy attorney.  Is there way to help them and keep there costs down.

Mr and Mrs. Jane Doe have been successfully paying their Chapter 13 when they both one of them appears in your office and tells you they are getting divorced.  She then asks the big questions What happens to my Chapter 13?

This is a difficult but everyday occurrence in the world of bankruptcy lawyers and creates many problems in how to handle this The simple answer is that this is a conflict.  Clearly the two parties interests are not aligned.  These type cases are often a problem and not worth the headache,  The simple thing to do in each circumstance is to tell the two debtors to seek out other counsel and good luck.

In the first situation can you represent either party? Is the first person through the door your client?  Did you gain too much information about the parties fro your consultation.  These are ethical questions that are difficult to answer.  I often will send both clients off to other attorneys if I have sense a problems.  I will sometimes stop the appointment and suggest that if one of the parties want me to represent them I will then represent that party.

I am often asking myself am I sometimes creating a problem for these people making them spend too much money on legal fees.  What if the couple is clearly below median income,  have no assets and no secured debt.  Can I file that case and save them money.  Do they really need two lawyers?  I have represented both individuals in these type of cases and have specifically gotten them to understand the potential conflicts.

If the case is complex with above median income debtors and lots of assets, I see too many problems.  Is Chapter 13 better for one and Chapter 7 for the other.  How can the support be balanced so they both are under medium.  How are transfer handled. I  always try to send at least one of the individuals to another attorney

In part 2 the chapter 13 divorcing clients

How carefully should I be reviewing my bankruptcy papers before I sign them.  Boy that sounds like a silly question.

However after reviewing hundreds of cases with my own clients, reviewing papers filed by other lawyers and observing hundreds of more cases at 341 meeting, I think it is important one.  The answer to it is very very closely.  Remember you are signing under oath.

The debtor signs in several spots that they have reviewed the information contained and they verify the truthfulness of the information.  Debtor is subject to penalties for committing perjury.

The bankruptcy discharge could be denied because of false or incomplete schedules. The debtor must sign the petition, the schedules, the statement of financial affairs, the means test and the declaration of prior cases.

The debtor should review every line, statement, numbers and anything else that is presented to the court.  I have seen many petitions fail to list any clothing yet the debtor clearly appears in court dressed.  Yesterday I had a women in my office that provided me no information as to her jewelry.  I even asked twice and she still insisted she had none when she clearly was wearing earrings.  There is nothing worse then appearing in court and realizing you have forgotten to list that other car or some other large valuable asset.

The debtor must verify that all the creditors are listed.  Failure to list a creditor can cause problems with the debt and your case.  The debtor should review their budget and read and answer every questions in the statement of financial affairs.

My office provides the debtor with a draft of the petition prior to the signing appointment to review and correct.  We do it by email and by mail if necessary.  Even under emergency situations we try to provide the debtor with a copy to review before they sit down to sign the papers.  Yet I am amazed how few people read the papers thoroughly,  This is one of the most important steps in the preparation of your bankruptcy.

Read every line, make sure it is accurate and question your attorney to make sure that you understand everything before you sign your name.  I know I try to go over it line by line with my clients.  Still I see glazed looks or feel the client just wants to get the papers filed.   However I do believe that if the client would read the papers very closely many errors and many problems would go away.