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.

What to Expect at the Meeting of Creditors

The Meeting of Creditors (MOC) in a Chapter 7 case is held between 20 and 40 days from the filing date of the bankruptcy petition, and is presided over by the Chapter 7 Trustee who was assigned at the time of filing. In San Diego, the MOC is held in a meeting room in an office building rather than in a courtroom, and so is less formal and therefore less stressful than a court proceeding. Before the MOC, the Trustee will have reviewed the papers that were filed and the supporting documents the debtor has provided.

If all required information and documentation has been provided and everything is in order, the meeting will last only a few minutes. Just before the meeting begins you must read an information sheet and complete a questionnaire. Once the meeting starts you will be sworn in and the Trustee will check your identification and social security number, then ask: if you understand you’re testifying under penalty of perjury; if you’ve ever filed a bankruptcy case before; if you gave to your attorney the information in the papers filed with the bankruptcy court; if you disclosed all your assets and liabilities in those papers; if there are any errors or omissions in the papers to call to the Trustee’s attention; and if anything has changed since the filing. Finally, the Trustee will ask those in attendance whether there are any creditors present, but creditors typically do not attend these meetings, and at this point you are excused.

Date Debts Were Incurred

One of the most difficult questions clients have to answer in their pleadings relates to the date a debt was incurred. The bankruptcy pleadings, and the local chapter 7 trustees, require the disclosure of this imformation.

It is a difficult disclosure because clients want to be careful with their disclosures, but don't know these dates with precision. The important thing to remember for this disclosure is that the client will certify that the dates are accurate to the best of the person's information, knowledge, and belief.

So, precision is not exactly what is required. Absent remarkable record keeping, all we may need is an estimate of the approximate date the account balance was last zero (or if it's a one time event, when that event took place), and, approximately the last date a purchase was charged to the account. So, for a car loan there would be one date. And for a credit card account there would be two.

The more time that has passed since the starting date of a credit card balance the more general the estimate may be. For example, if a Visa debt started to accumulate 5 years ago we wouldn't expect an estimate of the month, and day. Conversely, we would expect more details on an account balance that were incurred within the last few months. (I.e., started 2005, ended 7/29/2011).

Dischargeability of Income or Property Taxes

One common misconception of bankruptcy is that the discharge of debt does not reach income tax or property tax claims. But so long as tax debts satisfy certain conditions these claims are discharged in the ordinary course of the bankruptcy case.

An income tax debt is discharged in the ordinary course of a bankruptcy case if it satisfies all the following conditions:
1. The income tax debt became due more than three years prior to the filing of the bankruptcy case. So, for cases filed now, income tax debts that become due before June of 2008 would be dischargeable as long as they satisfy the other conditions listed here.
2. The income tax returns were filed on time, or no later than two years prior to the fling of the bankruptcy case. So, for cases filed now, and on income tax debts that become due prior to June 2008, returns must have been filed no later than June 2009 for debts to be dischargeable.
3. The income tax debt was not assessed withing the last 240 days prior to filing the bankruptcy case.
4. The income tax debt is not the result of fraud or willful evasion.

Property taxes merely have to have become due more than 1 year prior to the filing of a bankruptcy case, and they would be discharged in the ordinary course of the bankruptcy case.

Taxes that do not satisfy the above-described conditions are not discharged in bankruptcy, and after the case closes are still collectible by the federal or state taxing authority.