My Friend Says…

07 Mar My Friend Says…

Almost every bankruptcy attorney can testify that they have heard “my friend says…” from a potential client or a current client. I explained in my Pigs get Fat and Hogs are Slaughtered in Bankruptcy article that bankruptcy cases are like snowflakes. No two cases are ever alike. Therefore just because your friend was able to file a Chapter 7 the facts specific to your individual case will vary and may prevent you from filing the same type of case. For me if someone starts a sentence with “my friend says”, this is a warning sign.

If someone constantly compares their case to another it makes it difficult to work the case because they are not trusting your advice. That is not to say that you should not ask questions, do research or ask how does your case differ from the friend’s case. It just means you need to obtain all the facts before you pass judgment. There are many factors that come into play when a case is filed. Let’s say your friend files for bankruptcy and they were able to keep their boat and fishing tackle but the trustee wants your 4-wheeler. You don’t understand and you think it is just not fair that you are losing stuff and he gets to continue to go play every weekend at the lake.

Does this sound extreme? It is not. I hear accusations on a monthly basis of “other” people being to able to get off scot free without paying their creditors or giving up any assets. Does this happen? Yes. How does this happen? Well the answer can be as varied as snowflakes themselves but let’s run through a couple of scenarios.

The first and foremost is a debtor who thinks they are smarter than the system and does not list the boat and/or some of their creditors. Is this penalty of perjury under bankruptcy law? Yes, and it is a punishable offense. The trustee does their best to ferret out the truth but if the debtor does not disclose their assets or if the asset is not listed in a public database then the trustee may never know that the asset exists. But before you even consider lying about your creditors and/or assets ask yourself is it worth doing a nickel in Leavenworth in order to keep that boat? For those who don’t speak prison slang a nickel equals five years. I do not know of any asset that is worth doing five years in the federal penitentiary. Further it strikes me as funny that I never hear that is not fair that my friend is paying back all their debt but I do not have to.

The next scenario is a an attorney who does not list the asset and or creditor for whatever reason. You know the fact that the documents are not right but you figure oh well the attorney will be in trouble and not you. This line of thinking is dangerous because not only will the attorney be in trouble if they are caught but so will you because you are signing the documents under penalty of perjury that everything is truthful and accurate. The only time the debtor is not going to be charged with a crime is when they have absolutely no clue what the attorney filed nor did they give permission for the documents to be filed.

You may be thinking that no attorney would ever do such a thing because they can lose their license to practice law. Unfortunately, it can and does happen as I represented a debtor where the attorney filed the case that was fraudulent without her knowledge. She was able to get her Chapter 7 discharge but she had to prove she had no knowledge of the false documents that were filed on her behalf with the court.

Another scenario where you case may differ from your friend’s is where your friend has a boat and let’s say that the boat is worth $5,000. You have a 4-wheeler worth $4,000. Both of you attempt to file a Chapter 7 bankruptcy. Additional facts show that your friend has five kids and is married. You are single and have no children. Both the boat and the 4-wheeler are owned outright so the assets have equity and can be sold to pay your respective creditors. The trustee is going to let the boat go but he wants to take your 4-wheeler and sell it for your debt. No fair, how can this happen? This can happen under the law because your friend may be able to protect his boat through exemptions.

I describe an exemption as a magic blanket that makes the asset invisible to the creditor. Another way to explain this is an exemption will match dollar to dollar to the value of the asset and may prevent this asset from being sold.

In Missouri the main two exemptions I would use to exempt this boat is the wild card and head of household. The wild card is $600 per person. So if your friend files with his wife he now has a $1,200 exemption he can use to reduce the amount of funds the trustee is entitled to take from the sale of the boat. This means that if the boat sold for $5,000 the trustee can only keep $3,800 of those funds. In addition to the wild card your friend will receive $1,250 credit for being the head of the household and $350 a piece for each of his children if they are under the age of eighteen. So he now will have an additional $1,250 + ($350*5 children) = $3,000 to use to protect that boat. So we take the $1,200 for the wild card exemption plus the $3,000 for the head of household and he has a total of $4,200 to protect the boat. The trustee will generally abandon their interest at this point because it is not worth their time to sell the boat and only receive $800.

So in our scenario we made you a single person filing with a $4,000 4-wheeler. The only exemption that you are entitled to is the wild card because you do not have kids and you are not married. So you can only protect $600 of that $4,000 that is if and only if you do not have $600 sitting in your bank account that needs protection as well on the day of filing. So the bottom line is the trustee has a potential asset worth $3,200 to $4,000 and that amount of money is more appealing to them than the $800 in equity that your friend has.

Confused yet? It is not meant to be. But I do want to show you that there are many different scenarios as to why your friend’s bankruptcy differs from yours. No matter what anyone says bankruptcy cases are not cut and dry. Similarly I do not think that any case is easy because each and every case has the potential to go belly up if the facts are not disclosed and/or the right questions are not asked.

You should always ask questions in your case or when you are deciding to hire an attorney. Try and obtain as many facts as you can before you start comparing your case to someone else’s so that you can make a true comparison.

Remember that knowledge is power. The more knowledge you have about why your case is filed in a particular way the more power you will have to run your own race and have a successful bankruptcy.

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Former Bankruptcy Attorney to the Kansas City UAW: Ford and GM workers, now assisting the general public in Missouri and Kansas with regaining financial control using the Bankruptcy Code. 816-472-HELP (4357).

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