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Bankruptcy No Place For DIY

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price tag public domainThe do- it- yourself spirit seems especially strong in bankruptcy courts these days.

Only it often comes with a big price tag.

Nearly 45% of the Central District CA Chapter 7 cases were filed by individuals doing it themselves.  The national rules committee drafted the new bankruptcy forms with the unrepresented in mind.

Why do people take such a momentous step as filing bankruptcy without an attorney?

They go it alone, without a lawyer, for three reasons:

  1. They assume they can’t afford a lawyer.
  2. They assume that there are no consequences for doing it badly.
  3. They assume it’s “just filing out forms”.
All of these assumptions are wrong.  But let’s look at the third assumption, that it’s “just filling out forms”.

What bankruptcy filing entails

Southern California bankruptcy lawyer Jay Fleischman outlined the steps in a bankruptcy case.  Each of those decisions is one a pro per ( a person representing themselves in court) has to make  to file their own bankruptcy case.

It’s a pretty daunting list.

You have to

  • decide if bankruptcy is the best choice;
  • choose a chapter;
  • list all your tangible and intangible assets and your property transfers
  • get the right credit counseling

An industry has sprung up to “serve” those bankruptcy filers who don’t want to do it entirely alone, but think they don’t need, or can’t afford a bankruptcy lawyer.  They’re called petition preparers.

Enter the petition preparer

It takes no training or competence to hang out a shingle as a petition preparer.  Anyone can call themselves a bankruptcy petition preparer.

A petition preparer is supposed to do nothing but type up the information provided by the debtor.  They are not supposed to explain the forms or the choices those forms require.  To do more than type is the unauthorized practice of law.

The wide spread harm that untrained preparers caused to their customers triggered special provisions in the 2005 bankruptcy “reform” law.  At least now they have to disclose their involvement in drafting the bankruptcy schedules.

Special local rules limit what a preparer can charge and require that they identify themselves on the cases they handle or, more often, mishandle.

Sometimes, to avoid exposure, they coach their clients to lie about their involvement in the case.

Just for the record:  lying in a bankruptcy case is never a good thing.

Exposed in public

So I get a  really mixed feeling when  a debtor appears at a 341 meeting in Oakland without a lawyer.

What happens when you go to court for bankruptcy

The trustees there ask the debtor to turn to Schedule C, read the code sections from the California Code of Civil Procedure  beside each asset they’ve claimed exempt and tell him how they chose that exemption.

The trustee usually gets a blank stare or some confused stammering.  The debtor has no idea how to answer.

Most people who have filed bankruptcy are scared to death about the first meeting of creditors anyway.  But this question from the trustee is designed to flush out the fact that either, the debtor had “help” with their petition that wasn’t disclosed, or that the preparer did more than they are legally allowed to.

The preparer obviously told the debtor what exemption choices there were, and selected exemptions for the client.

This scene is particularly painful, since badly done exemptions may cause unrecoverable damage to the debtor.

While it’s the petition preparer who has broken the law, it’s the debtor who may pay for the bad advice.

My advice:  confine your do-it-yourself inclinations to craft projects.  Get competent legal help before filing bankruptcy.

Without a lawyer you may find you can’t get out of bankruptcy, no matter the cost of remaining.

More

Botch your bankruptcy and lose your house

Questions to ask a bankruptcy lawyer

What should bankruptcy cost

Should you wait to file bankruptcy

 

Image courtesy of  Crisg and OpenClipArt

Two Strikes & You’re Out (Of Your Home)

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bankruptcy stay

Three strikes and you’re out.  Anyone familiar with baseball knows that one.

The rules are different in bankruptcy.

Two strikes and you’re out.

And for one couple, they’re not only out of bankruptcy, they’re out of their house.

Foreclosed the day after they filed bankruptcy number three.

Because, what they didn’t know is that there is no automatic stay of foreclosure in a third bankruptcy filing.

Without a lawyer, they gambled and lost.

Bankruptcy reform is cruel

When Congress “reformed” bankruptcy law a decade ago, it limited the availability of the automatic stay in cases where the filer had had prior cases dismissed during the year.

Under the new law, the stay is automatic in a first case;  lasts for 30 days in a second case; and doesn’t exist at all in a third case.  See 11 U.S.C. 362(c)(3).

The rule looks at cases pending during the year and dismissed in the twelve months before the case at hand.

The change was intended to stop abuse of bankruptcy law by folks who filed bankruptcy only to get the stay of collection, folks who didn’t intend to follow through with a complete filing in accordance with the rules.

And certainly, there are a few examples of deliberate abuse of the law.

What you don’t know

The elderly couple in this story wanted to put off the foreclosure long enough to sell their home.  For reasons I haven’t figured out, with their house on the line, they opted to file a Chapter 13 without the help of a lawyer.

In each case, they filed a “skeleton” case, the bare bones necessary to initiate a bankruptcy case.

And in each case, they failed to file the balance of the schedules within the two week extension provided by the rules.

Under the “reformed” statute, the filing of their third case within the last 12 months didn’t trigger a stay against foreclosure.

So, when the lender foreclosed the day after they filed the third case, the lender was good under the law.

And the house was gone.

Do it yourself is dangerous

Usually, we admire the independent, the tenacious, the resourceful.  We applaud the d0-it-yourself ethic.

But law is not like carpentry or car maintenance.

Like it or not, law is complicated, rule-driven, and often inflexible.

Hiring a lawyer seems particularly painful when the problem you need to solve is not enough money.

But the pain of paying for help is minor next to losing your house, unnecessarily.

Bankruptcy lawyers are used to clients with few funds.  Chapter 13 provides a way to legally pay  your lawyer after you file your case.  We can often find a way to make it work.

In many ways, bankruptcy is a team sport: you and your lawyer. Victory is unlikely when you take the field short-handed.

More

How much should bankruptcy cost?

Timeline for foreclosure in California

How to interview a bankruptcy lawyer

The Difference Between Good Bankruptcy Lawyer and Great Bankruptcy Lawyer

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question-markFinding the right bankruptcy lawyer may be the difference between a successful bankruptcy and a nightmare.

Choosing a lawyer you can talk to is critical.

You’ll be disclosing lots of information normally held confidential.

But there’s more.

It’s not just a lawyer you can tell your secrets to.

You need to find a lawyer willing to answer your questions, over and over, if necessary, until you understand the choices that you must make in filing bankruptcy.

Until you understand the issues and the consequences, you can’t play your position on the bankruptcy team.

Choices after deciding to file

Some things a client doesn’t have to truly understand to file bankruptcy: how the means test works, or doesn’t work, is one of them.

The debtor need only validate some of the information in the form.

But other bankruptcy issues require the client to make choices and perhaps confront risks.

Is the loan repayment to your parents a recoverable preference?

Does the recent use of your credit card make you susceptible to the charge of incurring debt by fraud?

Are you at risk of a UST challenge to your Chapter 7 case as an abuse?

Decisions surrounding these issues are, in the end, the client’s decision. The factors are complex, and in this day of “new” bankruptcy law, sometimes uncertain.

The client needs to feel absolutely comfortable asking their counsel to explain the issue, assess the risks, and explore alternatives with them.

The lawyer needs to be capable of explaining without jargon or presumption.

The bankruptcy problem your lawyer can’t handle

So I would add to the list of qualities in superior bankruptcy counsel: openness to the layman’s questions.

Great bankruptcy lawyers are willing to restate and reanalyze the options until the client understands.  You need to feel comfortable saying you don’t understand and asking that the lawyer try another way to say it.

A lawyer who is not capable of making you a partner in the conduct of the case may end up excluding you from considerations that rightfully belong to you, the client.

More

Questions to ask a prospective bankruptcy lawyer

What should bankruptcy cost

Can you afford the bankruptcy alternatives

What Should Bankruptcy Cost?

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pay for bankruptcyPick the cheapest bankruptcy lawyer and it could really cost you.

It seems the newest specialty for bankruptcy lawyers is fixing mucked-up cases from other  lawyers.

The extra cost of repairing a case gone bad is only half the problem. Not all the problems created by the bargain basement lawyer can be fixed.

Even when the case can be saved,  the clients will end up paying twice: one to the cheapo lawyer, and once to us to clean it up.

Undoubtedly, they’ll pay more than if  they’d paid for competent counsel to do it right the first time.

Bankruptcy mistakes

Right now, in my office we have three conversions from Chapter 11 to Chapter 7 involving significant real estate assets.

We have cases where big ticket assets were omitted.  We have cases where the initial attorney just didn’t persist with the debtor to get the schedules right, and ones where counsel didn’t explore the choice of chapter.

Almost without exception, the debtors chose counsel based on price.  They went with the lower price for their bankruptcy case, and they bought a rat’s nest.

Cost conscious only at the end

Why is it that notions of economy only surface after a client has wracked up tens of thousands of dollars in debt?

Many of the debtors gave more thought to credit card expenditures or purchases of investment real estate during the boom than they give to picking a bankruptcy lawyer.

The influx of lawyers to this field and the prevalence of lawyer advertising suggest bankruptcy law is a commodity.  Lawyers with no track record to tout or past clients to spread the word  compete on price.  If you can buy a $15 toaster, why pay $30? goes the thinking.

What a lawyer adds

The existence of non lawyer petition preparers and do-it-yourself books reinforce the idea that bankruptcy is more like playing Go Fish than contract bridge.

Bankruptcy no place for do-it-yourself

Then, there are the official forms, suggesting that filing bankruptcy is all about the paper and not about the disclosure the paper requires.

What the bankruptcy papers require

And disclosure is what the forms are all about, and the system wants disclosure because there may be consequences to the stuff disclosed.

Quality of counsel is not reliably correlated with price:  I’ve seen some utter newbie lawyers charging more than highly skilled veterans for an inferior product.  But capable counsel is seldom the cheapest.

So, my charge to those needing bankruptcy relief is to consider that hiring the least expensive lawyer is a poor bargain.

Figure how much should you pay for bankruptcy

Another time, I’ll talk about how to assess a lawyer’s suitability for your case.

Questions to ask a bankruptcy lawyer before you file

Image courtesy of purpleslog.

Why You Don’t Want A Bankruptcy Attorney To Fight For You

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3450729206_c8aaf9ceaaWe Fight For You! screamed the on-line headline for a bankruptcy law firm.

While I applaud the firm’s energy and commitment, I question their focus.

Filing for bankruptcy shouldn’t result in a fight.

It’s a remedy, not a rumble.

If you’ve struggled with yourself about with the decision to file bankruptcy, actually doing it may seem mundane by comparison. No fights necessary.

So, I thought about what was wrong with the “bankruptcy as a fight” analogy.

Turns out, it was simple.

My motto:  We Analyze So There Won’t Be A Fight.

Kinda nerdy, isn’t it.  It lacks drama, and doesn’t suggest any vivid photos.

But it represents much better client service.

What a bankruptcy lawyer does for you

A skilled bankruptcy lawyer gathers more facts about you, your debts, your assets, your prospects, your marriage, your income and your dependents than you can imagine.

Having determined what brings you to consider bankruptcy, the lawyer assesses three big things:

  1. Which chapter of bankruptcy furthers your goals
  2. Is there anything that creditors or trustees could challenge to keep you from your goal
  3. What things could make it easier to reach that goal.

Your lawyer should be looking for those issues which might provoke a fight, and figuring out how to keep you out of a tussle with any party in the bankruptcy system.

Tools for avoiding conflicts include better information, choice of timing and refining your goals.

A good bankruptcy attorney uses each tool to avoid the fight.

What fights arise in bankruptcy

The most common disputes in bankruptcy cases, Chapter 7’s and Chapter 13’s, revolve around

  • Values of assets
  • Means test income and deductions
  • Transfers of assets made before filing

Careful collection of information and analysis of that information will tell a good bankruptcy lawyer where disputes might arise.

You and your lawyer need to discuss any points of possible conflict and find the best way around them.

Bankruptcy fights I love

The only kind of fight in bankruptcy that I relish is the fight that a creditor picks with my client.  The fight usually arises when the creditor does something the law doesn’t allow.  Often it involves failing to honor the automatic stay.

The stay requires each and every creditor to stop collection action against the person who has filed bankruptcy and against the person’s property.  In Chapter 13, it also protects guarantors and co signors on consumer debts.

Some creditors are too pig headed, ill organized, or simply spiteful to honor the stay.  I love a fight to get creditors to do what the law provides.  My clients are entitled to the peace the law contemplates.

Most bankruptcies are a snooze not a fight

A well thought out bankruptcy case is generally without conflict or dispute.

Carefully prepared schedules tell the whole story.  The trustee reads them, sees no issues, and moves on.

And that’s how it ought to be.  It’s not Fight Night.  It’s more like yoga.  You work hard, but you leave without bruises.

A bankruptcy lawyer friend says her motto is “Do it right, and avoid the fight”.  Suits me to a T.

Read more

How to find a good bankruptcy lawyer

What you have to do to file a bankruptcy case

What happens at the bankruptcy hearing

Image courtesy of Kate.Gardiner.

 

The Bankruptcy Problem Your Lawyer Can’t Fix

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ThreatThe problem even the best bankruptcy lawyer can’t fix is the one you hide.

Sometimes  it’s a problem you don’t want to face yourself, or a debt your spouse doesn’t know about.

Maybe it’s a claim you hope to bring after the bankruptcy.

You’re tempted just to say nothing to your bankruptcy lawyer.  Who will know?

Think again.

When the truth is threatening

You’ve probably heard lots of the myths about bankruptcy floating around.

Then there are the stories from people who knew someone whose friend’s cousin  filed bankruptcy some time back.

He didn’t tell everything and it worked out.

Maybe or maybe not.

People visiting a bankruptcy lawyer for the first time often are tempted to conceal debts, property, or transactions from their lawyer in the belief that if the lawyer had the facts, they would be barred from bankruptcy relief. That is seldom so.

Your lawyer can’t protect you from problems created by secrets you keep. With all the facts, your lawyer can provide meaningful advice that maximizes the relief available in bankruptcy.

Hide your secret from your bankruptcy lawyer and you may have a problem far bigger than the one you’re trying to hide.

Full disclosure is the price of relief

Bankruptcy is grounded in full disclosure to the court and creditors.  In exchange for transparency about your finances, you get a discharge of your dischargeable debts.

More importantly, your bankruptcy papers are signed under penalty of perjury.  Get caught in a deliberate lie and you may lose the opportunity for a discharge of all of your current debts.  One of the grounds for denial of discharge is “false oath”.

Perjury is a federal crime.  You could find yourself the guest of Uncle Sam for up to five years.

The time-worn saying in bankruptcy is that it’s the X’s that will get you:  the ex-spouse, the ex-partner, or the ex-friend.

Those folks may have a motive to call you out in court.

The trustee has a right to examine your tax returns, your bank statements, and your check register.

Secrets are hard to keep.

Get your money’s worth from your lawyer

Usually the things people hope to keep from me are penny-ante things.  When it is disclosed, I often find that what the client was worrying about  isn’t really a worry at all.

When the secret does present a complication, we can look for a work around:

  • undoing the transfer,
  • filing Chapter 13,
  • waiting to file til the secret is no longer a problem.

But I can’t fix things I don’t know about.

Start by making full disclosure to your bankruptcy lawyer. Your lawyer is on your side.

Image courtesy of Sandilya Theuerkauf and Wikimedia.

When Bankruptcy Lawyers Get The Basics Wrong

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The Lawyers Have Bankruptcy Wrong?I cringe when a client says that they’ve researched bankruptcy on the internet before making an appointment with me.

For every sound, balanced, nuanced article on consumers and their debts, there are bunches of sloppy, inaccurate sites, often trying to make bankruptcy so frightening that you’ll buy whatever they’re selling.

But when a group of bankruptcy lawyers, trying, I’d assume, to provide useful information on bankruptcy get it so wrong, I’m perplexed.

Bankruptcy Home, which identifies itself as a group advertising site for bankruptcy lawyers, has community property absolutely wrong.  At least California community property, which is all I’m licensed to deal with.

When one spouse in a community property state files bankruptcy, the site says, the debtor must include the value of one half of the community property.  Wrong, wrong, wrong!

I don’t know whether these lawyers haven’t read the bankruptcy code or haven’t read the site that they pay for.  Neither alternative is flattering to them.

All Community Property Comes In

Here’s what  section 541 of the bankruptcy code says:

 (a) The commencement of a case …creates an estate. Such estate is comprised of all the following property…

(2) All interests of the debtor and the debtor’s spouse in community property as of the commencement of the case that is—

 (A) under the sole, equal, or joint management and control of the debtor; or
(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor’s spouse, to the extent that such interest is so liable.
So, while the spouses may each get one half of the community property upon divorce, in bankruptcy, all of the community property comes into the estate.
In exchange for bringing all of the community property into the bankruptcy estate, all of the prefiling community claims are discharged and the non filing spouse’s interest in future community property is protected from pre filing community claims.  We call that the community property discharge.
I know it’s complex, but the complexity of community property doesn’t lie in what comes into the estate, as stated by Bankruptcy Home.  To be credible, bankruptcy lawyers need to get the basics right, and to acknowledge that there are  further complexities.
I first wrote this piece in 2012.  I checked the Bankruptcy Home site before republishing this post. That site remains uncorrected.

Image courtesy of Tambako the Jaguar.

Free Bankruptcy Advice: 5 Reasons Why I’m Not Free

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free bankruptcy consultationThere’s no free initial bankruptcy consultation in my office.  Unlike many, we charge for that initial meeting with a lawyer.

(There’s no free lunch either.)

That makes us different from lots of other bankruptcy lawyers.

Different enough to offend a prospective client who called up this week.  He was unwilling to pay for a consultation, and stormed off and wrote a negative review of the firm,  without ever having talked to me.

Apparently I can’t be any good at bankruptcy law if I want to be paid for my expertise.

So, for the man so offended, here are the reasons I charge for that initial consultation.

 1.  Maybe you don’t need to file bankruptcy

I don’t want you to file bankruptcy for me to make a living.

I want to be free to say to a client:  you don’t need me. [Read more…]

Are You Stuck With The Lawyer Who Filed Your Bankruptcy Case?

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New lawyer as life saver

Your bankruptcy case is filed.  It’s not going as smoothly as you expected.

In fact, you’re worried you’re going under.

Can you change bankruptcy lawyers after your case is filed?

Certainly, you can always fire your lawyer.  It may be disruptive.  It will certainly cost more money.

To decide you need to know how big are the stakes?  Are your worries real?

How do you know if you need a new lawyer? [Read more…]

Four Factors Drive The Cost Of Bankruptcy

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When you’re flat broke and thinking about bankruptcy, cheaper sure looks better.

If a lawyer will do your Chapter 7 for $600, what’s the point of paying $1000? Or even $2000?

Like answers to many legal questions, it depends.

Bankruptcy relief depends on your facts

Whether to file bankruptcy, or whether to file now, rather than later, depends on how the facts of your financial situation interact with bankruptcy law.

Your bankruptcy lawyer is charged with gathering those facts and analyzing them so that you get the most debt relief the system can offer.

If your bankruptcy lawyer doesn’t dig deep enough, or think broadly enough, you may hit avoidable snags in your case.

With the caveat that there is no direct and sure-fire connection between cost and quality, let’s talk about what it costs to escape from broke. [Read more…]

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Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

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