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

By Cathy Moran

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

Filed Under: Consumer Rights, True Stories Tagged With: 2017, do it yourself

Bankruptcy No Place For DIY

By Cathy Moran

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

Filed Under: Consumer Rights, You & your lawyer Tagged With: do it yourself

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About The Soapbox

You've arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said "try").

Here, I allow myself to tell stories and express strong opinions on how I think law should work for the consumer and small businesses when it comes to debt.

Moran Law Group
Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area

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