Saturday, June 7, 2014

Current Bankruptcy Filing Fees

As of June 1, 2014 the filing fees are as follows:

  • Chapter 7:  $335.00
  • Chapter 13:  $310.00
  • Chapter 11:  $1,717.00

Sunday, August 26, 2012

Lien Stripping in Chapter 13

Chapter 13 involves the discharge of the personal obligation to pay most types of debt in exchange for the debtor’s best efforts to repay creditors over a 36 to 60 month reorganization of debt.  The duration of the reorganization plan and the amount of the monthly payments required are based on the application of a formula commonly known as the means test.

In addition to the elimination of the personal obligation to repay creditors, chapter 13 also allows homeowners to strip, or eliminate, junior liens (e.g., home equity line of credit or judgment liens) from their homes.  The end result is that the homeowner keeps the home but never has any further obligation to pay the stripped junior liens.  This lien stripping feature of bankruptcy is not available in chapter 7 cases.

To qualify for chapter 13 a homeowner must have regular income, secured debts under $1,081,400, and unsecured debts totaling less than $360,475.  And to qualify for a lien strip, the appraised value of the home must be less than what is owed on the first mortgage.

As an example of what is possible in these lien strip cases, one of my current clients is paying approximately $250 per month for 36 months, and at the end of that period she will retain all her property, be completely debt free, and only the first mortgage lien will remain.

It is crucial to consult with experienced bankruptcy counsel to ensure that the means test is properly calculated so that the lowest payment and shortest duration plan is approved.  For qualified homeowners, the attorney’s fees can be paid through the monthly plan payments (effectively coming out of what would otherwise go to the creditors of the case) so the “out-of-pocket” cost to the homeowner can be remarkably low.

Tuesday, January 24, 2012

Means Testing Outline

Means Testing  (Form B22A)
A.  Business vs. Consumer Debts
1.  If primarily business debt no means testing is necessary.
2.  "Primarily" means "majority."
B.  Calculate Current Monthly Income
1.  Includes all sources of income except Social Security Benefits for the six-month period ending on the last day of the month before filing.
C.  Compare Annualized Gross and  Median Family Income
1.  Means testing information available from the U.S. Trustee's Website.
2.  If debtor's annualized gross is below median income in the state the debtor resides compared to a family of the same size, no further means testing necessary.  Chapter 7 is available.
3.  Where debtor's annualized gross is above the median the consumer debtor must complete the means test to determine whether a presumption of abuse of chapter 7 arises due to the ability to repay debt.
D.  Deduct Categories of Allowed Expenses from Current Monthly Income
1.  Where 60-month disposable income is less than $7,025, no further means testing is necessary.
i. A short chapter 13 or 7 is available.
2.  Where 60-month disposable income is more than $11,725, a presumption arises that the debtor would abuse chapter 7 if granted a discharge.   A 60-month chapter  13 may be required.
3.  Where 60-month disposable income is more than $7,025, but not more than $11,725, and the available disposable income is sufficient to repay 25% of the debtor's general unsecured claims, a presumption arises that the debtor would abuse chapter 7 if granted a discharge.  A 60-month chapter 13 may be required.
E.  Rebuttal of the Presumption of Abuse
1.  The burden of proof shifts to the debtor to show granting a discharge under chapter 7 would not be abusive of the Bankruptcy Code.
2.  Atypical income events may unfairly skew means testing results.
i.  Lanning:  Current Monthly Income is usually all that is required, but courts can consider known or virtually known information regarding the debtor's income or expenses.

Friday, September 2, 2011

Waiver of Bankruptcy Filing Fees

If a client cannot afford to pay the bankruptcy filing fee either at the time of filing or in installments, a waiver of the filing fee is available only if the client’s gross monthly income is less than 150 percent of the official poverty line applicable to the client’s family size.

*2015 Income Poverty Guidelines:
Household of 1:  $1,471.25
Household of 2:  $1,991.25
Household of 3:  $2,511.25
Household of 4:  $3,031.25
Household of 5:  $3,551.25
Household of 6:  $4,071.25
Household of 7:  $4,591.25
Household of 8:  $5,111.25
For each additional person add:  $520.00

If the client's monthly income averages over the guideline amounts cited above the filing fee must be paid either in full when the case is filed, or in three monthly installments the first of which is due when the case is filed.

*These amounts are for the contiguous 48 states and Washington DC.  Alaska and Hawaii have higher monthly amounts.  

Friday, August 19, 2011

Why My Fees Are Less

During my 12 years of practice I have actually had a few clients tell me that my fees are too low. But there is a good reason why my rates are so much lower than firms that advertise on television:

By handling every aspect of your case personally, using a home office, relying on electronic communication, and using only free advertising, I’ve kept the costs of operating my practice far below my competitors’. I pass these savings on to you.

My flat-rate scale starts at $800.00 for cases in which the debtor has earned no income or has only received social security benefits during the six-month period just prior to filing. For wage earners my fee is $1,000.00, because these cases take a bit more time to prepare. Likewise, for independent contractors and small business owners my fee is $1,200.00 because these cases typically take a bit more time.

Introduction to Bankruptcy

The Bankruptcy Code is divided into chapters. The chapters that usually apply to consumers are Chapter 7, where most or all of your debt is wiped out, and Chapter 13, which involves a repayment plan. In most cases, once you file your case, the "Automatic Stay" immediately goes into effect. The Automatic Stay means that a bankruptcy filing automatically stops, or stays, and brings to a halt most lawsuits, repossessions, foreclosures, evictions, garnishments, attachments, utility shut-offs, and debt collection harassment. Generally, creditors cannot take any further action against you or your property without permission from the Bankruptcy Court.

Chapter 13 is a valuable tool that lets consumers catch up overdue mortgage or car payments, taxes and domestic support obligations. It also applies where a consumer has the ability to repay some or all of his or her debts over time. A consumer must have less than $360,475.00 in unsecured debt (such as credit cards and doctor's bills) and less than $1,081,400.00 in secured debt (such as mortgages and car loans) to qualify for Chapter 13. The filing fee for a Chapter 13 is $274.00.

Under Chapter 13, a consumer keeps all of his or her property, both exempt and non-exempt, as long as the consumer resumes making the regular payments on secured debt and keeps current under the bankruptcy repayment plan. A repayment plan can last for up to five years. After finishing the plan's payments, most of the consumer's unsecured debts are discharged.

Chapter 7 is designed for people who are having financial difficulties and are not able to repay their debts. Consumers can usually qualify for a Chapter 7 if the consumer's average gross monthly income for the last six months is below the state’s Median Income, the consumer's gross income less certain expenses is below the state’s Median Income, or the consumer can show "special circumstances" that would allow the consumer to qualify for Chapter 7. The filing fee for a Chapter 7 is $299.00.

Under Chapter 7, a consumer can usually exempt, or keep, most or all of the consumer's assets under California law, or, if the consumer has not lived in California for the past two years, under the state’s exemption law that applies to the consumer's case. Most retirement accounts and pensions are also exempt. Secured property, normally the consumer's car and house, may not have any net equity, in which case the consumer can keep it as well. The Trustee liquidates most non-exempt property and uses the proceeds to pay the consumer's creditors according to priorities of the Bankruptcy Code.

Once the Chapter 7 case is over, the consumer receives a Discharge. The discharge prevents creditors from taking any steps to try to collect their unsecured debt. They cannot call, write, sue, or take any steps that could be considered an attempt to collect its debt. If a consumer wants to keep property that has a lien on it, the consumer must keep payments current, and may be required to reaffirm the debt. Some debts can not be discharged. Typical examples are child support, alimony, and other domestic support obligations, some taxes, student loans, criminal restitution, and debts for death or personal injury caused by operating vehicles while intoxicated with alcohol or drugs.

Chapter 7 Timeline

To begin a Chapter 7 case, the debtor must gather financial information (such as proof of income, bank statements, tax returns, etc.) complete a questionnaire, take a credit counseling course (over the telephone or internet) and pay the required fees. We then prepare the bankruptcy pleadings and send a draft to the client for review and approval. The length of this process is mostly dependent upon how long it takes the client to provide to me the completed questionnaire, required documentation, and credit counseling certificate; but once I have the materials I need the pleadings can be finalized and filed in one day.

The moment the bankruptcy case is filed an automatic order issues from the bankruptcy court that stops creditors from taking action to collect on most types of debts arising prior to the filing of the bankruptcy case. A meeting of creditors ("MOC") is scheduled between 20-40 days after the filing date of the bankruptcy case. But "the meeting of the creditors" isn't a very good name for this event because creditors rarely make an appearance, and for consumers it's primarily an opportunity for the trustee (the person appointed by the court to administer the case) to make sure the consumer understands his or her rights and responsibilities in the bankruptcy case.

The second credit counseling certificate must be filed with the court within 60 days of the MOC. If a creditor or trustee wishes to object to the discharge, they must file a written objection within 60 days after the MOC or lose the right to do so.  In a typical case (no objection to discharge having been filed), the debtor receives a discharge of most types of debt within 120 days after the date of filing the petition.