Northern California Bankruptcy Lawyer

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Better To Live With Debts Than File Bankruptcy?

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living in debt

Locked up in debt?

Should you file bankruptcy?

Or, is it better to live with your debt and keep making minimum payments?

Does life get better or worse if you file bankruptcy?

That question sums up most people’s fears about shedding their debt through bankruptcy.

What will life be like, after bankruptcy?

Good questions.  And I applaud people who realize that debt and debt relief each have future consequences.  I’ve talked about it before.

People fear the “bankruptcy unknown”, closing their eyes to the precariousness of their current situation as though doing nothing is a worthy choice.

But let’s turn the question around:  what will life be like if you continue on as you’re doing now?

Life in debt

Servicing debt from the past cuts down your future options.  Your paycheck is already committed before it hits the bank.

Whether it’s payday loans or credit cards for this month’s necessities, you’re locked in.

A slight bump in the road, and you’re really in the soup.  Most Americans say they couldn’t handle a $500 emergency without borrowing.

But absolutely most compelling for me, you’re probably making no provisions for your old age.

Lots of folk tell me they don’t think they’ll ever retire. Some say it because they enjoy work;  most say it because they can’t make ends meet without a job.

But they will get old, working or not.  The job choices will contract, and their ability to be productive will diminish.  I see it personally with the elders I’m caring for now;  they can’t handle the mental or the physical sides of a job.

Of course, the stress of being in debt may shorten your life.  Stress impairs your decision making.  That’s a terrible way to meet the challenges of funding your old age.

After bankruptcy

So, what if you broke out of debt by filing bankruptcy.  What happens in the real world?

Let’s list the negatives of filing for bankruptcy.

  • Credit in the immediate future is more expensive
  • Bankruptcy shows up on your credit report
  • If you are a renter, some landlords are uncomfortable
  • Some new employers are put off

These negatives fade in importance over time.

They need to be weighed against the equally real consequences of not solving a debt problem.

For most considering bankruptcy, their credit record is already blotched; a bankruptcy filing is not going to be the first adverse entry on their credit report.

Your credit heals over time

But credit scores, the predictive formula, rather than the history that’s a credit report, may improve instantly:  your debt to income ratio gets better.

Bankruptcy benefits

Bankruptcy might be the first step to improved financial health.  You can start with more financial alternatives and the chance to do things differently.

Bankruptcy may even be a step in better physical health. Stress is a killer.

Bankruptcy enables saving.  You’ve proved you can live on what’s left after minimum payments.

Use that same discipline to set money aside for the unexpected, and for the inevitable old age.

Live long and prosper.

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When You Can’t Make Your Chapter 13 Payments

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going nowhere

When your wallet’s as flat as this tire and you can’t make your Chapter 13 plan payments, what do  you do?

Chapter 13 promised a chance to reorganize, keep what’s important, and get out of a financial hole.

But it just isn’t working. What now?

In good lawyer style, I’ve got to tell you:  it depends.

It depends on why you’re in Chapter 13;  what’s happened that you can’t make the Chapter 13 plan payment; and what your goals are/were for your bankruptcy case.

Is the money problem going to last?

First question:  is the problem with your cash flow temporary or longer term?  When the problem is an unexpected expense or a short interruption in income, your case may be easily salvageable.

CARES Act legislation allows confirmed Chapter 13 plans to extend their duration to 7 years, instead of five.

Some trustees allow an informal suspension of payments, or a plan to catch up on the court approved payment plan.

Others may require a formal plan modification, that confirms a payment schedule different than the one originally proposed.

Asset or income driven?

The degree of flexibility you have to adjust your plan payments depends in part on how the amount you’re paying to unsecured creditors was calculated.

To be confirmed, a plan has to provide unsecured creditors the larger of

  • what they would get if you had filed Chapter 7 instead of 13,

OR

  • your monthly disposable income calculated under the means test

If your plan is income driven, and your income goes down, it’s relatively easy to modify your plan.

On the other hand, if your plan is driven by the value of your non exempt assets, to get a Chapter 13 discharge, creditors need to get the total distribution originally calculated.  So, modification can restructure the payments, but the sum of those payments remains unchanged.

Goals of your Chapter 13

Over-optimism causes lots of plan breakdowns.

Often, those in bankruptcy start out determined to save the house from foreclosure, or to keep the timeshare, or the pricey car.  Reality, or later changes, may say that it simply isn’t possible.

Your goals may have to change if the income available simply doesn’t stretch that far.

Chapter 13 plan fixes

You’ve got four basic alternatives if you can’t catch up quickly and informally.

Modify your plan – figure out which goals are feasible and how much income is available.  Propose a plan that’s consistent.

Convert to Chapter 7 – consider whether under the present facts, you’d be better off in Chapter 7.

Dismiss your case – dismissal is always available in Chapter 13.  That’s why I like 13 so much.  Dismissal could be a chance to start a new case, with new timelines and new values.

Hardship discharge –  under certain circumstances, you can get the benefits of the Chapter 13 discharge without completing the payment plan.

So, the good news is that there are choices.  Get help from your bankruptcy lawyer evaluating which works best for you.

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Image courtesy of Michael Sclaldone under a Creative Commons license.

Which Bankruptcy Chapter Is Right For Me?

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choose bankruptcy chapter

Seven or Thirteen?

13 or 7?

When you have a choice, how do you decide which chapter of bankruptcy works best?

Usually, the choice is driven by the scope of the discharge and the kind of debts you have.

More kinds of  debts are dischargeable in Chapter 13 and the automatic stay protects you for the 60 month duration of the case.

So why did the client this week choose to walk out of Chapter 7 with fewer debts discharged than if he’d chosen 13?

It’s all about his  future.  And who will get to share in his growing earning capacity.

Chapter 7 over Chapter 13

On the surface, this client seemed a great candidate for Chapter 13, which is my favorite  bankruptcy chapter.

Some of his debts were only dischargeable in Chapter 13;  in Chapter 7, he’d emerge still owing some debts from a divorce.

So why choose the smaller discharge?

Because his earnings were likely to double or triple over the life of a Chapter 13 case.

If that happened, we anticipated that a Chapter 13 trustee would move to modify his payment plan to pay more to general unsecured creditors.

Credit card debt, which would get nothing in a Chapter 7, might well get a substantial repayment from his increased earnings.

He’d pay fewer dollars paying  the non dischargeable debt that survives a Chapter 7  directly than he would paying in a larger slice of his paycheck  to all of his creditors in a Chapter 13 plan.

Chapter 13 after confirmation

Judges approve Chapter 13 plans based on the situation when the bankruptcy case is filed.  The means test looks at recent income.  The liquidation test looks at non exempt assets at filing.

For this client, each of those numbers was modest and a repayment plan would be relatively cheap.

But Chapter 13 involves committing your future income to the supervision of the Chapter 13 trustee.

Now, that supervision is pretty minimal:  it usually means the trustee monitors your tax returns to see in your income has increased.

If there’s a significant increase, the trustee can file a motion with the court proposing increased monthly payments going forward.

The debtor gets to respond with updated expense schedules, and if the parties can’t reach a deal, a judge decides whether payments change.

In the Bay Area, this happens very infrequently.  I’ve seen it less than a half dozen times in 20+ years of doing lots of 13’s.

But it can happen, and for this client, it seemed quite likely that a new job in his usual profession would dramatically increase his income.

Chapter 7 looks at today

If Chapter 13 is a years long process, Chapter 7 is a single event.

The rights of the debtor and the creditors are determined by the situation on the day the case is filed.

If the means test says that Chapter 7 is an option, then the creditors get only what the debtor owns at the filing of the case.

And what the creditors share in is only what’s left after the debtor chooses his exempt property.  Most Chapter 7 cases make no distribution to creditors.

Future income belongs to the debtor.  The Chapter 7 trustee can’t come back a year later and ask for a slice of a larger paycheck.

So, much to my surprise, when we looked at this client’s current situation and his prospects, the more limited discharge was a better deal than Chapter 13.

He’ll get to enjoy a larger share of his future earnings and a fresh start.

More

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Figuring what you pay in Chapter 13

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Title Isn’t Everything: Watch Out For The Assets In Your Spouse’s Name

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community property surprise

But it’s titled to my spouse, sputtered the hapless debtor at the bankruptcy hearing. She hasn’t filed bankruptcy.

Not so, says the bankruptcy trustee.  It was purchased during marriage, wasn’t it?

And so, the trouble begins for those who don’t understand community property.

Turns out the debtor left out of his schedules the bank account in his wife’s name.  Ooops!

Which motivates a trustee to keep digging for what else was left out of the bankruptcy papers.  Not where you want to be.

Property character, community or separate, makes a difference because it determines what assets creditors of the spouses can reach.  And, it determines what property falls under the control of a bankruptcy trustee.

All of the community property of a marriage becomes property of the estate when one spouse files bankruptcy.

So the community or separate distinction matters not just in divorce, but it matters to those Californians who owe debts they can’t pay.

Property title doesn’t control

In a nutshell, if you are a married Californian, it doesn’t matter whose name is on the title.

  • Buy a car.
  • Buy a house.
  • Take out an insurance policy

No matter whose name is on the paper work, chances are it’s still community property of you and your spouse.

Because “stuff” acquired during marriage is presumed to be community property under California law.

A presumption in law means  legal inference that must be made in light of certain facts.  Most presumptions are rebuttable, meaning that they are rejected if proven to be false or at least thrown into sufficient doubt by the evidence.  

The legal inference that acquisitions during marriage are community can be rebutted with sufficient and convincing evidence.  But absent such evidence, the presumption of community stands.

So, the house bought during marriage whose title reads Jane Spouse is community property, not Jane’s separate property.  That means that Jim Spouse’s creditors can reach it to pay Jim’s debts.

Magic words make a difference

The words in the title documents can themselves be evidence of an asset’s character.

If you want an asset acquired during marriage to be the separate property of one spouse, the first step in overcoming the presumption of community is to take title like this:

Jane Spouse, a married woman as her sole and separate property

But courts have made it more difficult, because what if Jane buys something using community property and takes title as her separate property.  Maybe she’s trying to cheat her spouse out of his share of the community that was used to buy the asset.  If she bought it, how does a creditor or a bankruptcy trustee know that Jim Spouse agrees that it’s hers alone?

Changing the character of an asset is called transmutation.  California law requires transmutation to be accomplished in a writing, signed by both spouses.  Then others know that the deviation from the usual is OK with Jim.

Prenuptial agreement beats community property

An agreement between the spouses made before marriage (a “prenuptial” agreement) defeats the presumption.

A prenuptial agreement often says “we won’t have community property”.  The agreement lays out who is the owner of each kind of asset.  It may reject the legal cases that give the community an interest in property that either spouse brings to the marriage.

Because a properly drafted prenuptial agreement is in writing and signed by the spouses, it passes muster to rebut the presumption of community property.

Then, title plus the prenuptial beats the community property presumption.

More

What you need to know about community property

Image courtesy of Flickr  & Nathan Pilkington 

Get A Deal On Your Car After Bankruptcy

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wheels after bankruptcy

How are you going to keep your car after you file Chapter 7 bankruptcy?

Here in California , little is more essential to holding a job and really getting a fresh start than a car to get to work in.  

While the bankruptcy discharge will relieve you of liability for the loan on the car, the lender’s lien on the car survives the bankruptcy.

OK, let’s think. Who besides you wants the car?

If the car is worth less than you owe on it, the Chapter 7 trustee isn’t interested in it.

So, it’s you vs. the car lender.  What happens to the car after the bankruptcy case?

An underused section of the Bankruptcy Code  allows you to buy your car outright from the lender at its value today.

Your car loan in bankruptcy

So, what can you do about the lien on the car that survives the discharge? The car lender can repossess the car without violating the bankruptcy discharge.

The Bankruptcy Code gives you some choices for the car loan:

  • surrender the car;
  • reaffirm the loan; or
  • redeem the car.

We’re going to talk about redemption, and my recent client who saved more than $11,000 by redeeming the car.

How redemption works

In a nutshell, redemption in bankruptcy allows you to pay the lender the value of the car as of the filing of the case in a single payment, and get clear title.

It’s grounded in the idea that if you surrender the car, it’s only worth what it’s worth in the market to the lender.  Your discharge keeps the lender from looking to you for the difference between the loan balance and the car’s value.

A single payment is required for redemption:  you can’t buy the car back, and make the lender take payments over time.

So the availability of cash can limit the usefulness of redemption.  There are also commercial lenders whose business is financing redemptions.

Clear title versus more debt

The advantages of redemption hit me and my client in the face recently when we reviewed a proposed reaffirmation agreement for her car.

The lender prepared a reaffirmation agreement for her signature with the required disclosures.  Reaffirmation would have effectively waived the discharge as to the car loan.

With reaffirmation, the lender was bound to accept payments despite the bankruptcy.  The debtor became exposed to personal liability for a deficiency judgment should she default in the future.

Not a great deal for the debtor, but sometimes you have to choose between unattractive options.

What grabbed our attention was the gap between the $11,000 value of the car and the $22,000 balance on the loan.

Sign the reaff, and the client would pay twice what the car is worth, plus interest, to keep the car.

We chose to redeem the car instead.

The judge approved our motion to redeem.  Once the order is entered, my client must have $11,000 in hand to get title to the car.

In this case, she could come up with the money necessary.

The unpaid balance of the car loan is gone forever.  She has title to the car.

Fresh start ahead!

More

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Image courtesy of Peter and Flickr.

Chapter 13 Keeps You In Control

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steering your financial course

You can’t decide between bankruptcy chapters until you really understand how Chapter 13 works to keep you in control.  

Control of your assets, control of your payment plan, control of who gets paid.

You want to be at the helm of your case.  Chapter 13 can do that.

Chapter 13 protects more than assets

Chapter 13 bankruptcy is about protecting assets, I read somewhere on the internet.

That sells Chapter 13 short by half in my view.

It’s not just about assets.

Many of my Chapter 13 clients have no meaningful assets to protect.  Assets to protect isn’t what made 13 right for them.

It’s that Chapter 13 kept them in control.

  • Control of creditor interaction.
  • Control of income.
  • Control of whether to stay in bankruptcy

In the face of a creditor who is entitled to levy, garnish, and harass, Chapter 13 lets the debtor-client stay at the helm of their financial life.

You call the shots

The basic difference between Chapter 7 and Chapter 13 is the role of the bankruptcy trustee.  In Chapter 7, the trustee may take possession of your non-exempt assets to sell for benefit of creditors.

A Chapter 7 trustee is entitled to sue people you’ve paid off just before bankruptcy and to assert his own view of the value of your assets.  Chapter 7 can be uncomfortable and risky.

In Chapter 13, you commit to a payment plan that gives creditors at least what they would have gotten if a Chapter 7 trustee scooped up your stuff, sued your family members, and otherwise wreaked havoc in your life.

How a Chapter 13 plan is calculated

You stay in possession of your assets and in control of your income.

You write the plan that says how much you pay into your plan a month, within the requirements of the law.  The Chapter 13 trustee just cashes your check, and pays creditors as the plan directs.

The automatic stay prevents the continuation of litigation or collection action outside the court.

You’ve rounded up all the folks to whom you owe money and corralled them in the bankruptcy court, where the bankruptcy rules apply.

You’re on your way to getting control of the situation.

Even judgment creditors bound

The appeal of Chapter 13 for several of my recent clients involves the way Chapter 13 limits how much of their income going forward is exposed to judgment creditors.

Outside of bankruptcy, a creditor with a California judgment can reach 25% of a person’s after-tax paycheck.  I don’t know many individuals who can meet their other financial obligations with only 75% of their paycheck.

Sure, you can argue that you can’t live on 75%, but you have to work through the state courts to reduce the amount a judgment creditor can get.

In Chapter 13, the means test, which I usually detest, saves the day.  It has a formula for calculating what is genuinely available to pay run-of-the-mill creditors.

That’s creditors as a whole.

Lumped together, creditors share their slice of the available pie.

General unsecured creditors in Chapter 13, under the means test, get what’s left after:

  • Rent or mortgage payments
  • Car payments
  • Health care
  • Child care
  • Delinquent taxes
  • Support of dependent elders

I don’t think I’ve ever seen a Chapter 13 payment to general unsecured creditors that equaled 25% of my client’s after tax income.

So, in addition to simplifying the process of how much a legitimate creditor gets, almost invariably, Chapter 13 reduces the absolute amount that the creditors get.

And the Chapter 13 debtor is assured of having control of his paycheck so his current living expenses are met.

Note that this analysis applies even to debts like student loans:  while the student loan may survive the Chapter 13 discharge, the amount paid out on the loan is limited by the means test and the claims of other creditors.

Time is on your side

Chapter 13 has a maximum length of 5 years.  The life of a judgment is generally far longer.  A California judgment is good for 10 years, and can be renewed for another 10.

So a Chapter 13 plan can halve the length of time your earnings are exposed to your creditor.

It may not be pleasant to be in bankruptcy for 5 years, but it shortens duration of the pain considerably.

Another time-related benefit of 13 is the durability of the Chapter 13 plan.   Plan terms are worked out and approved by the court at the beginning of the case.  Absent a marked improvement in your ability to pay creditors, the plan controls.

Chapter 13 has none of the periodic  judgment-debtor examinations that are features of state law.  Your time commitment to managing old debts is limited.

Chapter 13 keeps you in control

So, Chapter 13 isn’t just about protecting assets.  If you have a paycheck, or a small business, and have creditors you can’t pay, Chapter 13 works to let you to chart a course out of debt, on your terms.

Image courtesy of Terence Faircloth under a Creative Commons license.

4 Compelling Reasons To File The Tax Return Even If You Can’t Pay

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Should you file the tax return if you can’t pay the tax?

You got to the bottom of your tax return and the amount you owe is bigger than your checkbook balance.

  • Scared of filing the return for fear of immediate collection action?
  • Scared of even calculating how much you owe?  think an extension of time to file looks good?
  • Fearful that you’ll be hanging a sign around your neck:  squeeze this guy?

Nope.  It doesn’t work that way.

The IRS does not start harassing nonpayers for money on April 16th.  Or even September 16th.  They haven’t even posted the returns that have been filed by then.

Relax, breathe deeply, and file the return.

There are far more advantages to getting the return on file than risks in admitting you owe money you can’t pay.

Easy tax payment plans available

If you can’t pay the full amount of the tax owed, send a partial payment with your return.  Reduce  your debt to the tax folks as much as you can.

Nothing requires that you enter into an installment agreement for payment.  Simply send money regularly toward retiring the tax.

Put your name, social security number and the tax year you want the money credited to on the check.

If you feel the need for a formal payment agreement with the feds, you can set up a payment plan, online, if you owe less than $50,000.

Separate penalties for failure to file

If you fail to file a tax return and don’t get an extension, you expose yourself to a separate penalty for failure to file the return.

That’s on top of the penalty for failure to pay as required.

So, it’s expensive to try to drop out of sight.

Filing returns start clock ticking on escape options

Taxes don’t live forever.

There’s a collection statute of limitations that makes taxes uncollectable.  Bankruptcy laws permit the discharge of taxes of a certain age long before they expire of old age.

But both escape routes for delinquent taxes start counting from the filing of your tax return.  (More precisely, the statute of limitations starts from assessment, but filing the return is a self assessment).

Last year’s figures drive this year’s withholding

The most important reason to prepare last year’s tax return now is to get your withholding right for the current year.

Extensions to file are seductive, but dangerous.  It delays adjusting your withholding long into the current tax year to match your actual tax liability.  You don’t want to be in the hole again, do you?,

If you put off calculating just how much you owe for last year til October, you have only a few months before next April to get this year’s taxes paid in.

Closing your eyes to an underwithholding problem won’t make it go away.

Calculate what you owe, make a plan to pay it if possible, and fix your withholding or quarterly payments so you’re OK next year.

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Tax Tips & Tidbits

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Tax filing deadline approaches, so I thought we’d gather up tax tips and little known tax strategies, especially useful if you’ve filed bankruptcy.

The Tax Deduction No One Tells You Aboutfan of bills

If you are paying mortgage interest, state taxes, back support, or business debt through a Chapter 13 plan, those payments made by the trustee may be deductible to you.  Just because the trustee cuts the check, doesn’t mean you aren’t the payor.

insolvent for tax purposesEscape Tax On Settled Debt

Proving to the IRS that you are insolvent is one way out of paying taxes on the canceled debt.  But watch out, the IRS’s definition of insolvent is different from most.

5930176734_380196d14c_zTax Software Makes A Lousy Purchase, When It Can Be Free

The IRS provides free, commercial tax prep software for those with an income of $62,000 or less.  And they partner with volunteers to provide free help with returns through VITA.

credit-squeeze-transparentHow To Escape The Flat Wrong 1099

You’ve got challenges when the creditor sends you a dead wrong 1099.  The IRS got the same, erroneous info.  What to do to avoid the tax consequence of someone’s mistake.

Tax Myth Saddles You WIth Tax ForeverShould You File The Return If You Can’t Pay The Tax

It’s a myth that filing a timely return without a check to pay the tax you owe makes you instantly exposed to collection.  Instead, here are four reasons to file the return whether or not you can pay right now.

?????Don’t Let The Tax Scammers Catch You

Stolen identities and stolen tax refunds are just two of the consequences of falling for the fake call from the “IRS”.  Here’s what to watch for to stay safe during tax season.

Spill the beans concept.The One Person You Must Tell That You Filed Bankruptcy

Hiding your bankruptcy discharge from your tax preparer can be an expensive mistake.  The bankruptcy discharge trumps (if we can still use the word) the tax on canceled debt.

chained businessman on white backgroundDitch The Tax Debt In Bankruptcy

You can get rid of tax debt in bankruptcy.  Walk through the rules that control when a tax is dischargeable without payment.  Also, help filing a return when you have no records.

More tax tips on Income Taxes in Bankruptcy on our sister site.

Bail Yourself Out Of Payroll Tax Trouble

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Business owners with unpaid payroll taxes are in deep trouble.

Even if the employer is a corporation, the corporation’s managers are personally liable for the trust fund portion of unpaid payroll taxes. There’s no corporate shield when it comes to payroll taxes.

The trust fund portion of the tax (the amount withheld from employees’ checks) can be assessed against anyone  who could have paid that money  to the IRS.

You are in the IRS’s cross hairs, personally, if the business hands out “net” checks to employees without sending the withheld money in.  A bankruptcy discharge is no help here.

What’s the payroll tax

What we refer to as “payroll tax” is really a combination of two elements:  the employee’s income and FICA taxes that the employer has withheld and the employer’s share of FICA  (Social Security) tax.

The portion of the “payroll tax” withheld from the employee’s check are the “trust fund” portion of the payroll tax. Usually, trust funds make up about 2/3rds of the payroll tax.  The balance is the business’s matching contribution to Social Security.

The liability of corporate officers or LLC managers for the business’s trust fund liability is not dischargeable in bankruptcy.  Like other federal taxes, the statute of limitations is 10 years and the IRS is a fearsome creditor.

Earmark tax payments

If you find yourself in this pickle, you, and the business itself, can bail yourself out of trouble with an earmark of any payment you make toward Form 941 liability.

A taxpayer  who makes voluntary payments to the IRS has the right to designate to which liability the payment will be applied.  In re Ribs-R-Us, Inc., 828 F.2d 199, 201 (3rd Cir. 1987).

Cooper-AZ-brand-cropped

An earmark allows the IRS to distinguish your payment from others, like a cropped ear lets a cattleman tell his cows from his neighbors.

It is simply a direction to the IRS as to how the payment is to be credited.  Pay voluntarily and you have the right to tell the IRS what to do with the money.

Without instructions, the IRS is free to apply payment it receives on the tax debt as it chooses.  And it chooses the manner of application that benefits it best.

Send a check for payroll taxes and if the check is not enough to pay the entire liability, the IRS applies it first to the dischargeable portion of the tax first, preserving the personal liability of the business owners for the remaining tax.

Likewise, if the IRS levies an account, they may apply the levied funds as they wish.

How to earmark

If the business finds itself with insufficient funds to pay the entire tax owed, you can reduce your personal liability for the unpaid tax by earmarking the payment.

Write directions on the check specifying how the payment is to be applied like this:  Trust Fund liability, 4th Quarter 2015 941.  Send a cover letter with the check with the same instructions.  Keep a copy of the letter for your records.

Of course, the better course of action is to remain current on payroll taxes.

Use a payroll service that won’t cut the checks unless the taxes are paid, or make a tax  deposit  with each payroll.

Dip into the money withheld from employees and you’ve taken a “loan” that lives very nearly forever.

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Laboring Over Bankruptcy Papers

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Why is filing bankruptcy so much work?

Paper.  Statements. Tax returns.  Car contracts.  Pay stubs.  Appraisals.  Title reports. Credit counseling.

It gets tedious fast.

So, why is bankruptcy so complicated?

Do you want the polite, professional answer, or the pointed, political answer?

Bankruptcy bargain

Polite answer first:  the bankruptcy bargain, your deal with the legal system & your creditors, is disclosure in exchange for the discharge.

Make full disclosure of what you have, who you owe, and what you’ve done with your money recently and you get a discharge.

You need to cooperate with the trustee and live with the legal consequences of the mix of assets, exemptions, and avoidance powers.

But tell the whole story honestly and you shed the dischargeable debts in your life.

Political answer

The more opinionated answer is that filing bankruptcy is lots of work because Congress and the businesses who funded Congressmen a decade ago wanted to discourage bankruptcy.

After all, creditors don’t get everything they bargained for when a consumer discharges their debt.  So big-money types didn’t want to let consumer off the hook through bankruptcy.

Some lawmakers believed that not paying your debts, regardless of the reason, was a moral failing.  Don’t want to make it easy to be immoral.

Senator Grassley just plain hates lawyers, so if he could make it difficult for bankruptcy lawyers and keep good lawyers out of the field, bankruptcy “reform” was a great deal.

BAPCPA, the bankruptcy law passed in 2005, added lots of additional things to file, exercises to complete, reasons to get kicked out of bankruptcy to discourage people from filing.

There’s even a theory out there that a creditor goal in the new law was to extend the time necessary to prepare a bankruptcy case for a couple of months more. while folks kept making minimum payments.  Minimum payments mean maximizing profits.

So bankruptcy is hard work because Congress wants it to be hard, so maybe you won’t file.

Client lament

One of my clients just complained that to prepare his bankruptcy papers,  my paralegal asked him for the same information I had asked him when we first met.

It may seem like duplication to the client, but not to the attorney.

As an attorney, I want to see the big picture for the client, the relationship between income, assets, and debts.  I want to know what the client expects in his financial future.

And what it is that brings them to my office TODAY rather than last month or next year.  What’s happening that you made an appointment to talk with a bankruptcy lawyer?

Having decided to file, the bankruptcy forms that my paralegal is drafting require the story in fine detail, not broad strokes.

How many payments left on your car loan?  Is your retirement account ERISA qualified?  Who else lives under your roof and do they pay for the privilege?

And on, and on.  Because Congress wants to make this hard.

Bankruptcy not hard

But at the end of the day, and after BAPCPA, bankruptcy relief is still broadly available.  It just takes a slog to get it done.

But on Labor Day, or any day,  we honor hard work.

And in my office, we help with the work required to wipe out debts.

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How to interview a bankruptcy lawyer

What should bankruptcy cost?

What’s life like after bankruptcy?

643 Bair Island Road
Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

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