Who Is the U.S. Trustee in the Bankruptcy Process?

Someone You Hope You Will Not Meet in Your Chapter 7 or Chapter 13 Case

The U.S. Trustee’s Office is a division of the U.S. Department of Justice tasked with overseeing the bankruptcy process in the United States. The Role of the U.S. Trustee encompasses a number of different tasks, but the primary focus tends to be on a couple of different areas of specific concern to you as a consumer considering filing for bankruptcy:

• “Safeguarding” Chapter 7 eligibility by scrutinizing the Means Tests and income and expenses of each Chapter 7 filed;
• Ensuring that the people who you pay to help you prepare your petition are doing so within the framework of the law;
• Appointing and supervising the Chapter 7 and Chapter 13 Trustees who you actually interface with in your bankruptcy proceedings; and
• Prosecuting criminal cases related to bankruptcy matters when required.

The U.S. Trustee is tasked with policing not only the behavior of the real human beings actually filing bankruptcies in the U.S. but also the creditors responding to and filing claims for the debts they are allegedly owed within bankruptcy cases, but, as with Chapter 7 and Chapter 13 Trustee, the scrutiny laid upon creditors is very cursory relative to the amount of energy they spend policing the Means Test and the fees paid to debtors’ attorneys and (quite rightly) non-attorney “petition preparers.”

Should I Worry About the U.S. Trustee?

The vast majority of Chapter 7 and Chapter 13 cases filed do not involve any interaction with the U.S. Trustee. Although the staff and trial attorneys employed by the U.S. Trustee do review the transcripts of every 341 Meeting of Creditors meeting and Means Test and other petition Schedules filed in Chapter 7 cases, the reason that their role stops there in most cases is  because the filing debtor has hired a good bankruptcy attorney to assist them.

If you have retained an experienced bankruptcy attorney to assist you with your Chapter 7 or Chapter 13 filing, you will in all likelihood have little reason to be concerned about the U.S. Trustee. Your attorney will guide you through the assembly of the documentation required to accurately, honestly, and fully disclose all of the assets, debts, income, expenses, and other past and expected future financial transactions that are required to be disclosed in the bankruptcy petition. If you are eligible for Chapter 7 and it is the best option for you relative to other non-income considerations, your attorney will so advise you and guide you through that process. If you are not or Chapter 13 is the better option for you for a variety of reasons, your attorney will expertly guide you through that process.

The guidance of a knowledgeable bankruptcy lawyer is what will keep the U.S. Trustee away from your case. Attempting to draft your petition yourself or to calculate your own Means Test or paying a non-attorney “petition preparer” a few hundred bucks to “fill in the blanks” on the “bankruptcy forms” is a good way to put yourself in the cross-hairs of the U.S. Trustee.  It is potentially a good way to encounter Federal criminal charges, depending upon what you decide you don’t have to disclose.

If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact  The Hilla Law Firm, PLLC at (866) 674-2317 or click the button below to schedule a free, initial consultation.

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If you enjoyed reading “Who or What Is the U.S. Trustee,” please browse Attorney Hilla’s other articles on his main Michigan Bankruptcy Blog.

Bi-weekly does not equal semi-monthly: Why the difference matters so much

By Peter Bricks , a Cumming, Georgia bankruptcy attorney.

I recently was replaced another attorney in the middle of a Chapter 13 bankruptcy case in the Northern District of Georgia. My new client mentioned that she had trouble making the plan payments of her confirmed Chapter 13 plan, which were $560 per month.

This client had employer deduction order for her monthly trustee payments. This means the payments were essentially garnished out of her paycheck and mailed to her bankruptcy trustee, which is fairly typical of Chapter 13 plans.

After reviewing the deduction order, I noticed something odd. The deduction order called for the debtor to pay $280 per paycheck. Why was this wrong? The debtor’s employer pays her bi-weekly and not semi-monthly.

While debtors often use the term interchangeably, they mean vastly different things. Someone paid bi-weekly gets paid 13 times over 6 months (26 times in a year), whereas someone paid semi-monthly only gets paid 12 times over 6 months (24 times a year).

In reviewing the debtor’s account ledger, I realized the debtor had overpaid her trustee payments by over $1,000, because this mistake had been going on for over a year.

A similar problem I face is when reviewing people’s monthly budgets, they often tell me what they spend weekly and then multiply that amount by four to get a monthly figure. This is also incorrect, because there are 4.33 weeks in a month.

Math mistakes like this can lead to all sorts of problems, particularly incorrect figures on a means test. Additionally, it can cause great interference with a Chapter 13 trustee payment, because the debtor is going to struggle to make payments if the figures he is using are incorrect.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Atlanta, Woodstock, Dunwoody, Cumming and Jonesboro, Georgia.

Where should you file bankruptcy if you are about to move states?

By Peter Bricks , an Atlanta bankruptcy attorney.

I sometimes get calls from debtors who are interested in filing bankruptcy and have either recently moved into town or are planning moving away. The first thing they need to decide is whether they should file bankruptcy in Atlanta or wherever they plan on moving next.

Bankruptcy venue is dictated by 11 USC 1408. That code section says “a case under title 11 may be commenced in the district court for the district—(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principle place of business, in the United States, or principal assets in the United States, of such person were located in any other district.

Therefore, the first thing we need to decide is whether the debtor is even eligible to file in his current location. He might have just moved into town several weeks ago and is only eligible to file in the city he just moved from. He also might be eligible to file in two cities because his principal assets might be a different place than his domicile.

Once it’s been established whether the debtor is eligible to file at the moment in his current location, he should determine whether to do so makes sense. Take the example of the debtor who wishes to file Chapter 13 and is moving away in two weeks. Does that debtor want to establish venue in a place he will no longer live and then have to return for the meeting of creditors, confirmation hearing and other miscellaneous court hearings that might take place over the course of the case?

On the other hand, maybe the debtor cannot wait to file because he needs to immediately stop a garnishment or repossession.

Conversely, the Chapter 7 debtor in the same position might be more open to filing in the city he is leaving because he is likely to only need to make one court appearance in his case.

The point is there are a variety of factors the debtor should consider if he is changing residences, and he needs to think it through with a competent attorney and pick the right court to file the case.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Atlanta, Woodstock, Dunwoody, Cumming and Jonesboro, Georgia.

Chapter 13 Hardship Discharge

In a Chapter 13 bankruptcy, you promise to pay creditors, via the Trustee, a certain amount of money in exchange for your discharge. But what happens if you can’t make all the plan payments?

Normally, your case would get dismissed if you don’t make all your plan payments. But §1328(b) allows what is called a hardship discharge.

To qualify for a hardship discharge, you must show three things. First, you must show that your inability to make the full plan payment is “due to circumstances for which the debtor should not justly be held accountable”. So things like disability, loss of a job, natural disaster, etc… should qualify you.

The second is “the value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7 of this title on such date”. In a nutshell, your creditors must have already received, via your plan payments, as much as they would have received in a chapter 7 liquidation.

Lastly “modification of the plan under section 1329 of this title is not practicable”. This can mean you are already at month 60 of a 60 month plan or you income is so low that you can’t afford any plan payments or other factors which make a plan modification unfeasible.

Since granting a hardship discharge is at the discretion of your Bankruptcy Judge, you should discuss this with your attorney to determine if it is appropriate and if the judge is likely to grant it.

Can I Discharge a Personal Injury Judgment in Bankruptcy?

By John Hilla, Michigan Bankruptcy Attorney

On Purpose or While Intoxicated—Or Neither?

A personal injury judgment is as dischargeable as any other unsecured debt, such as credit card or medical debt, so long as the judgment against you wasn’t for an “intentional tort” or for death or personal injury caused by your intoxication.

That is, if the judgment is based in an allegation of mere negligence, as is commonly the case with automobile, slip-and-fall, dog-bite, and other typical personal injury judgments, the judgment will be able to be fully discharged in either a Chapter 7 or Chapter 13 bankruptcy.

Non-Dischargeability for Intentional Torts

So what is an “intentional tort?” A tort is the name of an action one person may take which may allow another person some level of legal remedy against them under civil law. It is the part of the US legal system from which nearly all legal actions which are not criminal claims or breach of contract claims arise. The commission of a tort by one person against you would be the basis for a lawsuit you might file against them in civil court for which you might claim money or other damages as a remedy.

All personal injury lawsuits are lawsuits based upon the commission of a tort, or tortious act. The first question with regard to dischargeability in bankruptcy of a judgment received after the filing of a personal injury lawsuit is, “Was this an intentional tort?

An intentional tort is an act you committed on purpose, not by accident.

The vast majority of personal injury lawsuits are based on negligence or other non-intentional torts. You didn’t mean to let your dog get out of the yard and bite that guy, but you didn’t adequately lock your gate or post any warning signs. You were negligent in keeping a dog that might be prone to biting somebody … You didn’t mean to drive your car into that lady’s swimming pool, where she just 523to be floating in an inner tube. You were negligent in the operation of your vehicle.

Those sorts of negligent, non-intentional torts are dischargeable in bankruptcy.

An intentional tort is something you intended to do to someone else, actually did, and which caused damage: assault, battery, false imprisonment, and others. If you punch somebody in the face, and they end up with their jaw wired shut for a year, destroying their up-and-coming career as a nose model for sinus medication advertisements, you will be the proud owner of a judgment for an intentional tort if they sue you and win.

That judgment will not be dischargeable in bankruptcy.

Non-Dischargeability for Death or Injury Arising from Intoxication

Additionally, a personal injury judgment for injury or death which occurred because you were intoxicated from the use of alcohol or some other drug will also not be dischargeable in bankruptcy, regardless of whether you intended to be drunk or intended to cause damage while drunk or intoxicated.

This is because Section 523(a)(9) of the US Bankruptcy Code (the Federal statute governing the bankruptcy process in the US) says this is the case. This Section of the Code makes it clear that a debt originating from “death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance” is not dischargeable.

Chapter 13 Bankruptcy Can Help Even if the Debt Is Non-Dischargeable

Even if your personal injury judgment is not dischargeable in bankruptcy, you can still receive assistance from the bankruptcy process in dealing with it. A Chapter 13 “payment plan” or “reorganization” bankruptcy will allow you to repay the debt in full at 0% interest over 3-5 years.

Chapter 13 bankruptcy is, essentially, a payment plan in which you repay to your creditors what you can afford to repay over 36-60 months, after your necessary household expenses are taken into account. Debts that are dischargeable, such as credit card debt, receive whatever you are able to pay into the plan over that time-period, and then the unpaid balance is totally discharged just as it would be in a Chapter 7 bankruptcy.

Non-dischargeable debts must be paid 100% of what the creditors holding those debts are owed, in contrast. Thus, while your credit card creditors may only be paid 0.5% of what you owe them by the end of the plan, a non-dischargeable personal injury creditor will be paid 100% of what you owe—and in priority over the dischargeable creditors.

A Chapter 13 can be of great assistance in forcing even a creditor holding a non-dischargeable claim to accept a reasonable monthly payment that still allows you to keep food on your table.

Can You Discharge a Personal Injury Judgment in Bankruptcy? The Bottom-Line

The bottom-line is that, if you are being sued for a personal injury, particularly if the suit is for an amount of money above your insurance limits or if you had no insurance if there is an auto or homeowners insurance claim involved, you should contact an experienced bankruptcy attorney immediately to explore your options.

Means Test: Impact of the 2013 payroll tax increase

Means test: Impact of the 2013 payroll tax increase

By Peter Bricks, an Atlanta bankruptcy attorney

While one could write a novel about all of the various intricacies of the means test in Chapter 7 or Chapter 13 bankruptcy, I’m going to narrowly focus this blog on the increase in the payroll tax, which took effect January 1, 2013.

The means test is used to determine whether someone is presumptively unable to qualify for a Chapter 7 discharge due to having too much disposable household income, as well as to at least partially determine how much disposable income the debtor has to pay unsecured creditors in Chapter 13.

While these figures are subject to potential reconfiguration and challenges due to change in circumstances, the numbers on paper are determined by considering the debtor’s gross income over the previous six months subtracted against various allowable deductions. As expected, one of those deductions is the amount the debtor pays in payroll tax.

When the payroll tax increased by 2% of the debtor’s overall salary on January 1, 2013 (up to a $113,700 cap (up from $110,100 in 2012), the debtor therefore began taking in less income, which in turn left less money for the debtor to repay creditors. A January 2013 means test reflected income from July-December 2012, and therefore did not accurately reflect the debtor’s new situation in regards to an increased payroll tax liability.

As we get further away from January 2013, this increase becomes less relevant in means test calculations, because each new month added to the test includes the new tax and replaces a month that does not. However, it will not be until July 1, 2013 where a test will no longer at least be partially skewed by this tax increase. Furthermore, it’s important to consider that those closest to the cap are impacted more than those making less.

Because a Chapter 7 does not include a repayment and simply comes down to qualification for discharge, this increase is arguably more important to Chapter 13 cases, because many debtors in active Chapter 13 bankruptcies have had their trustee payment based upon a lower tax base. As such, some of those changes in circumstance might even need post-confirmation modifications to address the fact the debtor now has less disposable income and might not be able to make plan payments anymore.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Woodstock, Dunwoody, Cumming and Jonesboro, Georgia.

Trustee Motion to Dismiss in Chapter 13: How to Handle It

Trustee Motion to Dismiss in Chapter 13: How to Handle It

By Peter Bricks

In a lot of Chapter 13 cases I handle as an Atlanta bankruptcy attorney, my clients get served with a motion to dismiss their case by the trustee. My clients normally panic when they see the motion, but a lot of times the initial stress is unwarranted and the issue resolves itself.

A trustee usually files a motion to dismiss because the debtor is behind on plan payments, or there is something structurally wrong with the case. Although not always the case, dismissal motions related to technical defects will usually come pre-confirmation. That is because these defects are raised by the trustee right after the meeting of creditors and need to be corrected to get the case confirmed.

Therefore, it is less likely that a technical problem would occur post confirmation. That being said, these problems certainly do happen. Examples will vary be district, but can include- the debtor not turning over a post-petition tax refund or inheritance, a late filed creditor claim that alters the amount the debtor must repay in his plan, or undisclosed change in circumstances to the debtor’s income.

Should the debtor not be current in the plan payments, the debtor can expect a motion to dismiss soon thereafter. The timing will vary be district, but a Northern District of Georgia bankruptcy lawyer usually sees these after 2-3 missed trustee payments.

Not surprisingly, delinquent payment problems are solved by making payments. Therefore, if you get a motion to dismiss for lack of funding, immediately get with your attorney to negotiate a resolution with your trustee. A motion to dismiss is usually set for a hearing about 3-4 weeks after it is filed, so the debtor will get an opportunity to object and cure the problem.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Dunwoody, Woodstock, Cumming and Jonesboro, Georgia.

Landlord and Tenant Issues in Bankruptcy, What happens when a Debtor is current in a Chapter 13?

The Phillips Law Offices practicing bankruptcy in Maryland, Massachusetts and Rhode Island

Chapter 13 cases are always a bit more complex when dealing with any issue that arises in comparison to Chapter 7 cases.  In Chapter 13 cases, lease agreements are dealt with in a much different way than in Chapter 7 cases.  However, unlike a Chapter 7 case, there are some core principles in a Chapter 13 case that do not change, whether the Debtor is current or behind, that must be followed and do not differ.

In a Chapter 13 case, the Debtor may assume or reject an unexpired lease of residential property anytime up to the confirmation of a Chapter 13 plan.  What does this mean?  The Debtor could have anywhere from 30 days to 60 months to either reject or assume the lease agreements.  Comparing this time frame to the Chapter 7 case, the Debtor only has 60 days to reject or assume.  Why such a difference in structure?  Each jurisdiction deals with confirmation of Chapter 13 plans differently.  In Maryland, the court schedules a confirmation hearing on a Chapter 13 plan within 60 days of the 341 meeting.  In Massachusetts, however, the court does not schedule a hearing regarding the Chapter 13 plan; instead, it could be months before a Trustee recommends confirmation to a court.  So you see with just these two jurisdictions, the deadline to reject or assume could differ greatly for the Debtor.

Therefore, a landlord needs to pay attention to the plans that the Debtor is filing.  Remember, a Debtor does not have to file just one plan.  Often Debtors file several plans in order to deal with amounts of arrears owed, priority tax amounts, etc.  Amounts owed to creditors often change on a plan because the Debtor may not be absolutely clear as to the correct amount until a creditor files a proof of claim.

If a Debtor rejects a lease agreement, the landlord should file a Motion for Relief of Stay and get possession of the property so as to minimize damages.  However, the landlord should also file a proof of claim with the amount due and owing on past due rent and for any unmitigated damages.  The Debtor will only have to pay a pro-rata portion of the past due rent and any other damages to the landlord.  The Debtor is no longer required to pay the terms of the full contract and any monetary damages listed in the proof of claim will be thrown in with the rest of the unsecured claims.

If a Debtor assumes a lease agreement, the landlord will look for the Debtor to provide adequate assurances that all defaults on rent payments will be cured or compensate the landlord for any financial loss resulting from the default.  The Debtor will also need to prove that there are adequate assurances of future performance of paying the rent on time and in full.

Debtors will often attempt to cure the past-due rent through the plan with all other unsecured claims.  The issue with this approach is that it is wrong.  A landlord has the right to object to any plan that does not provide for immediate cure of past due rents owed if the Debtor wants to assume the lease.  This raises the primary issue in these types of situations.

The Debtor is in a Bankruptcy case because he is financially challenged.  The real hope in going into a Chapter 13 case is that the Debtor will get some relief from some of the debt owed and will be able to pay certain debts in full on time each month as well as pay a plan payment that will account for the past due arrears on the debts that the Debtor wants to keep such as mortgages, car payments and rents.  The problem is that a Debtor, although experiencing some financial relief, does not have the ability to cure a large amount of rent payments prior to the confirmation of a plan.

How does one fix this cross roads?  I often work with the landlord if I am representing the Debtor, and vice versa if I am representing the landlord, by asking that the debt be considered a priority debt and the arrears be paid in full through the plan payments.  Some landlords can, and may, take this type of arrangement a step further pursuant to Title 11 by asking the court to require a wage garnishment of the Debtor’s pay for both the rent payments and a payment towards the arrears owed.  This seems like an extreme measure taken by the landlord; however, the Debtor often is on board with the wage garnishment because it is voluntary and it helps the Debtor stay current and reorganize.  Debtors often look for help in getting back on track with payments and staying current and this arrangement gives the Debtor one less thing to worry about.

Irrespective of what side I am on, I try to recommend a solution be worked out for either side if the Debtor really wants to stay in the rental property and if the landlord knows that Debtor is a good tenant.  Often if the burden of the unsecured debt is taken off the Debtor, the Debtor is able to cure past due rental payments and would be able to stay current, so for a landlord it is a good risk to take.

Bankruptcy and Businesses

Sometimes debtors have businesses they wish to retain through a bankruptcy proceeding or are self-employed. There is additional information these debtors will need to complete in order for the trustee to evaluate their case. When a debtor is in a Chapter 7 or Chapter 13 bankruptcy and they are self-employed, the debtor will need to include their self-employment information in the Statement of Financial Affairs portion of the petition. They will also need to include their income in Schedule I and include any business expenses in Schedule J. They will need to account for any income in the last six months for the means test and deduct any expenses that are related to their self-employment.

A debtor who owns a business will have to complete the same information so the trustee can determine how much income they have received, as well as how much they have spent on business related expenses. The difference between these two is considered their income for purposes of the means test and will also be used in Schedule I, J, and the Statement of Financial Affairs. If a debtor owns a business, they will need to fill out a supplemental form in the petition titled “Business Income and Expenses” which itemizes the income for the last 12 months and the individual expenses, such as utilities, maintenance, etc. They will also need to fill out a Business Case Questionnaire and send it to the trustee. This form asks for the name of the business, the description of the business, whether it is incorporated, the federal ID number, bank accounts for the business, tax returns, monthly budget, employees of the business, inventory, whether the business is cyclical (i.e. landscaping, snow removal, etc.), whether the business owns or leases office space and/or equipment, the insurance policies for the business, and whether they have business licenses, etc. The debtor is required to fill out this information sheet and provide it at the creditor meeting. The trustee will generally not conduct the creditor meeting without this information sheet. Additionally, any debtor conducting business will generally need to be put on the business docket for the creditor meeting. The debtor’s attorney will need to call the court to arrange any cases for the business docket.

If you live in Missouri or Illinois and you have any questions about bankruptcy and business, please contact a St. Louis or St. Charles bankruptcy attorney.

Can I Have Too Much Debt to File Chapter 13 Bankruptcy?

By John M. Hilla, a Michigan Bankruptcy Attorney

Unlike in Chapter 7 bankruptcy, in which there are no limits to the amount of debt that may be discharged, in a Chapter 13 reorganization bankruptcy, it is possible to have “too much debt” to file a Chapter 13.

Under Section 109(e) of the US Bankruptcy Code, a debtor is, by definition, an individual with less than $360,475 in unsecured debt and less than $1,081,400 in secured debt in Chapter 13 bankruptcy. This means that, if you owe more than either of these limits (or both), you may not be eligible to file a Chapter 13 bankruptcy and would be required to file either a Chapter 7 bankruptcy, provided that you are eligible for that Chapter under the Means Test eligibility standard, or an individual Chapter 11 bankruptcy, which is the form of “reorganization” bankruptcy that is usually reserved for corporations and which, for individuals, is a complex and expensive process.

In other words, the question of whether a debt is “secured” or “unsecured” is vitally important in analyzing what form of bankruptcy is most appropriate for you.

“Secured” debt is just that: debt that is secured by collateral of some sort. An auto loan is a “secured” loan, for example, because the automobile that is being purchased also serves as collateral for the loan that is extended by the lender. If you default on your payments, the lender has the right to reclaim the collateral, or to repossess the car, in this case. A mortgage note is a personal loan secured by the collateral that is the house that is being purchased under the terms of the mortgage agreement. Some credit unions extend what would otherwise be unsecured personal loans by “cross-collateralizing” the loan, making the collateral for some other loan (a car loan, say) that they have extended to a customer also serve as collateral for the personal loan.

“Unsecured” debt is everything else: medical bills, credit card debt, personal loans from family members or friends, lines of credit (other than Home Equity Lines of Credit and other secured forms), and so on. These are debts that have no collateral: they were just loans extended, with the consequence of default being the collection lawsuit and other remedies for breach of contract as provided by your state’s law.

The trick in Chapter 13 for determining some finer points here lies in the classification of debt done by you and your attorney in preparing your petition and your Chapter 13 repayment plan. In a Chapter 13, a second mortgage or HELOC on a primary residence that is worth less than is owed on a first mortgage can usually be “stripped off” and treated, upon completion of the Plan, as unsecured debt—even though it is, by the terms of the contractual note providing the guidelines of the original loan, secured by collateral: the home in question.

So is that debt, upon the initial filing of the petition and Plan, an unsecured debt or a secured debt?

The answer is that it depends on the rulings made by the Bankruptcy Court in your local area. In the Eastern District of Michigan, where I practice, although I am regularly able to have such second mortgages stripped off and declared to be “unsecured” debt by my local Bankruptcy Court, such debts are classified as secured debt for initial filing purposes. The actual stripping of the lien (conversion to “unsecured” classification) does not occur until the end of the 3-5-year Chapter 13 payment Plan. If I, as a filing debtor’s attorney, were able to pick and choose which classification to give a debt upon filing. it would certainly make a difference from time to time as to the eligibility of a client for Chapter 13.

This practice and and these rules vary significantly from jurisdiction to jurisdiction around the country.

The bottom-line is that it is vitally important to seek out and retain an experienced bankruptcy attorney who is familiar with the analysis that is appropriate for your geographic area. In a Chapter 13 bankruptcy, especially, going it alone or with a non-specialist attorney, you can easily trip on such nuances.

Why The Theory That Americans Are Too Broke To Go Bankrupt Is A Very Dangerous Suggestion For Consumers and Simply Not True

I am writing this piece in response to an article entitled Americans: Too Broke To Go Bankrupt by Blake Ellis | CNNMoney.com published on Mon, May 7, 2012 6:55 AM EDT. See http://finance.yahoo.com/news/americans-too-broke-bankrupt-105500347.html.  In this article, Mr. Ellis suggests that the pricing for filing a bankruptcy case is too high and that Americans cannot afford the prices. Money is important whether it is one dollar or a million dollars.  However, the amount of money that a Debtor pays for a Bankruptcy case verses the benefits received from the case is clearly something that Mr. Ellis has failed to mention in his article.  Mr. Ellis also fails to mention that most jurisdictions placed limits on the amount of fees that an attorney can charge a Debtor to prepare and administer the case.

Nevertheless, let us really examine what Mr. Ellis is trying to say in his article.  He is suggesting that $1,500.00 is too much for Debtors to pay to get relief of debt that could range from $20,000.00 to more than $100,000.00.  Let us put a fee of $1,500.00 into perceptive for Debtors with $30,000.00 of debt owed to unsecured creditors.  I use $30,000.00 as example because this is the average amount of unsecured debt that our clients come into our office seeking relief from.  We find that the average monthly minimum payment that our clients are paying each month on this amount of debt adds up to nearly $1,100.00 a month.

If you take a step back from this debt you realize that, for the same price to pay on the minimum payments each month, a bankruptcy case can be filed.  This issue is very concerning for me because often our clients do not want to spend $1,500.00 for a fee to resolve their debt, however, they find it ok to continue to pay almost the same amount to their credit card companies while struggling each month to pay their basic utilities or put food on the table for their children.

Bankruptcy was designed to help Debtors deal with their debt so that they do not have to make the choice of paying for food or paying their credit cards.  Mr. Ellis’ article fails to address the value that a bankruptcy case can bring to a Debtor.  Instead, he wants us all to believe that it is too expensive for Debtors to even think about filing.  This is very dangerous.

The reason this is dangerous is because it gives Debtors the idea that they cannot file, which is simply inaccurate.  If Debtors do not file when they should, they could suffer a lifetime of creditors always coming to collect against them, court judgments, and bad credit.  Bankruptcy was designed to allow people who fall on hard times to protect themselves from collections, court judgments, and bad credit for life.  Debtors can turn their whole lives around in only three months in a Chapter 7 case or three to five years in a Chapter 13 case.

Our firm works with Debtors when it comes to fees.  We understand that Debtors may not be able to pay a full fee immediately.  We often set fees arrangements based upon what our client can pay each month.  Most of our clients realize that once they eliminate high monthly payments, which go mostly to interest on credit cards, they have the ability to live on their income without the need of credit cards and can afford the fee to pay for a bankruptcy case.

My major concern with Mr. Ellis’ article is that it misses the practical point of bankruptcy and the benefits that should never be overlooked.  Yes, it does cost some money to complete a bankruptcy cases with an attorney, but the amount is affordable and no one should use a price for services to deter people from getting a fresh start with a bankruptcy case.

Do I need Trustee’s approval to get a new job?

By Massachusetts bankruptcy lawyer, Michael Goldstein

Consumer debtors who file for bankruptcy protection under Chapter 13 do so in order to propose a plan to demonstrate the ability to pay back their creditors to the extent that their disposable income will allow, within the guidelines of the law. A Chapter 13 plan under the Bankruptcy Code requires the Debtor to propose a plan which demonstrates the best effort to pay back all of the creditors over the course of the plan. This “best efforts test” requires a Debtor to devote all disposable income to the plan. 11 U.S.C. § 1325. In order to determine how much money a debtor can afford, a Debtor must calculate how much money the household brings in each month after the employer, or other revenue generating source, withdraws taxes, insurance, and mandatory payroll deductions; otherwise known as the Debtor’s net income. From that net income, the Debtor then also deducts all reasonable and necessary household expenses.

The difficulty of proposing a Chapter 13 reorganization plan is that this type of debt relief is not typically a short process from start to finish. In general, these plans propose payments from anywhere between three and five years. That is a long time for anyone to continue to do the same thing. As a matter of fact, the Bureau of Labor Statistics of the U.S. Department of Labor reported in a study spanning three decades in September, 2010 that the average person between the ages of 18 – 44 keeps a job for 2.36 years. Moreover, in the current economy, the sad fact is that many people lose their jobs due to corporate downsizing and, as a result, many Americans are moving from job to job much more frequently these days then they have in the past.

Changing jobs, especially where your income remains substantially the same, is not something that is of great concern in a bankruptcy case. However, there are times when you may wish to change jobs and, as a result, it is either required or, at least a very good idea, to discuss your plan with the Chapter 13 Trustee. For example, in the event that your hours at work are going to be temporarily cut, or you are going to start a new job and your income will need to ramp up in order to pay your Chapter 13 plan payment, you want to let the Trustee know what is going on. In these cases, your attorney can file a Motion with the court to suspend or modify your payments on a temporary basis.

In a more typical scenario, a Debtor will either lose a job or need to voluntarily resign due to a hostile work environment. In this situation, you may be able to work with the Trustee to again suspend your payments for a short time. If, however, the Trustee does not know that you are struggling to make your payments and you either fail or refuse to make the payments, the Trustee may file a Motion to dismiss your case for failure to stay current with the proposed and confirmed plan.

Finally, there is the scenario where a Debtor obtains new employment and receives an increase in income. Many people believe that once a Chapter 13 plan is confirmed there is no need to disclose anything about having more money. The problem with this concept is that, unless the Debtor is already in a 100% plan, the Debtor still has an obligation to put forth the best effort of paying back the creditors. As such, if a Debtor’s income increases significantly, a modified plan may be required by the Trustee.

The bottom line in all of this is that, if you are in a Chapter 13 bankruptcy case and your income changes or is certain to change in the near future, you need to communicate this fact with your attorney to ensure compliance with in the guidelines of Title XI.

Will My Friends and Neighbors Know If I File Bankruptcy?

by John M. Hilla, a Michigan Bankruptcy Attorney

Concern for one’s reputation is one of the most widely expressed misgivings that potential clients want to talk about when we initially meet to explore the option of a personal bankruptcy. This concern is particularly strong among people in professions requiring licensure, such as insurance agents or stock traders or real estate professionals (not to mention military security clearances, on occasion!), as well as those who simply interact regularly with the public and whose livelihoods depend upon them being viewed as trustworthy individuals: attorneys, medical professionals, teachers, and others.

It is a basic fact that bankruptcy is a public process and that the components of your bankruptcy petition that are filed with the US Bankruptcy Court are publically available on the Federal Court System’s PACER document website (with the exception of the single page of a typical bankruptcy petition containing your full Social Security Number—this page is not viewable on PACER). Thus, the safe assumption is that, if it is required to be disclosed in the bankruptcy petition (and all assets and liabilities—or debts—are), it is susceptible to being discovered by someone you might not rather have discover that information.

Generally speaking, however, when we are concerned about public reputation and friends and neighbors, there is not much to be concerned about from a practical standpoint. If you are a politician or celebrity or someone whom the media has a general interest in writing about, it is a virtual certainty that a bankruptcy filing would be discovered and publicizied. But for the rest of us, even those of us with real estate or other licenses, it is fairly unlikely that anyone will bother to think to go to the PACER website, apply for and receive a user-ID and log-in password, and arbitrarily search you out. Should you file bankruptcy and should someone be motivated to do that (and know how the not-always-very-user-friendly PACER system works), they will find you. But, in most instances, people we casually or socially or even professionally know are not quite so motivated.

Further, given the state of the economy over the past ten or more years, you may be surprised to discover who among your friends and acquaintances has already availed themselves of this legitimate and legal process, the roots of origin of which date back through the US Constitution, the Magna Carta, and the Book of Deuteronomy. The “taint” of bankruptcy is not what it used to be, as I am repeatedly reminded when I receive a phone-call or email from a new potential client who has been referred by one of my prior clients.

Once upon a time, bankruptcy clients did not offer referrals because they were too embarassed to admit that they had undergone the process. This is no longer the case as more and more people have moved forward with the most effective form of debt-relief available under American law.

Will you friends and neighbors know if you file bankruptcy? If you tell them that you did so, yes. Otherwise, odds are against it. But, even if they discover that you have gone forward to find a fresh start for yourself and your family, the chance that they will view you with disfavor because you have done so is, in this day and age, far more slim than it has ever been.

The initial bankruptcy consultation with the attorney: What should be discussed

I recently met with a potential client at my Cumming, Georgia bankruptcy lawyer office who made clear that he had previously discussed his situation with another attorney. This did not offend me in the least, as I recommend debtors visit multiple attorneys to discuss their bankruptcy options.

However, what intrigued me about our conversation was at the end when I mentioned to the client that the more appropriate chapter for him to file would be Chapter 7, he said the other attorney he met with recommended Chapter 13. I felt that he did not have sufficient income to support a Chapter 13 repayment plan, and knew he did not have assets he would likely lose in Chapter 7, so I recommended Chapter 7.

I asked the potential bankruptcy filer why the other attorney said Chapter 13, and he said because the other lawyer told him he could not keep everything in Chapter 7. After reviewing his list of assets, I knew that was not true and a Chapter 7 filing would most likely be a no distribution case, so I asked him what assets the other attorney felt like he would lose. He said he was not sure, as him and the other attorney did not go over his list of assets.

This made no sense. Either something was lost in translation in their conversation, the other attorney did not know enough about bankruptcy law or was perhaps purposefully steering him into the wrong chapter.

Whatever the reason, there simply is no way to determine whether someone belongs in Chapter 7 or 13, without knowing the following: (1) the debtors assets and equity position in those assets (2) income and ability to qualify under the means test (3) arrearage amounts on secured debts the debtor wishes to retain (i.e., home or car)(4) previous bankruptcy filings of the debtor (5) an accounting of the debtor’s secured, priority and unsecured debts.

Without going over all of those in full, the attorney cannot accurately tell the debtor: (1) whether a Chapter 7 discharge is likely (3) whether the debtor can retain all property in a Chapter 7 (3) what a Chapter 13 repayment plan would look like.

So if you meet with an attorney who does not go over all of those with you, it’s time to get a second opinion.

This article was written by Peter Bricks. He is an Atlanta bankruptcy attorney, with offices in Jonesboro and Cumming, Georgia.

Child Support and Bankruptcy

by St. Louis bankruptcy attorney Tobias Licker

Financial stress is something that many people are forced to deal with at some point in their lives. While bankruptcy may be the only option for someone whose debt has gotten out of control, it does not ever serve to discharge past or current child support obligations.

Additionally, any sums unpaid that result from “the nature of support” are also ineligible for discharge. Items deemed “in the nature of support” are any and all debts resulting from your child’s care such as educational or medical bills.

As the parent receiving child support, this is good news. It can also be good news for the parent paying the child support.

If you have been unable to make your child support payments due to all of the other debt payments demanded of you, bankruptcy may provide a viable way for you to eliminate some or all of your other debt so that you can make your child support payments.

By filing a Chapter 7 bankruptcy petition, if you fit the criteria, you may discharge some or all of those other debts. By filing a Chapter 13 bankruptcy petition, you may eliminate all of your unsecured debts and lower your secured payments, such as car payments or other installment payments on home furniture or electronics. In both cases you would be freeing your income to pay your child support.

Child support obligations receive top priority in a Chapter 7 asset case. If there are assets available to pay creditors, any funds from the sale of assets will go to pay the child support arrears first. The debtor should make sure that a proof of claim is filed so that the first proceeds are used to pay off the child support obligation. If the person who receives child support does not file a claim, the trustee will pay only to the creditors who actually filed a claim. Your bankruptcy attorney would need to monitor the claims and might have to file on behalf of the person who receives child support.