Law Offices of David P. Leibowitz LLC
Lakelaw is a registered assumed name for Law Offices of David P. Leibowitz LLC
As an attorney who’s been practicing in consumer bankruptcy for five years now (in Illinois and Wisconsin), it’s heartbreaking and frustrating to see the huge amount of lies and misinformation about bankruptcy.
Some of these mistakes come from gossip or bad experiences in bankruptcy (including lying, bad attorneys, or other frustrations). Others come from rumors spread by the financial services industry to try to keep people out of bankruptcy (even though lenders can write off the uncollectable debt and take a tax break for it). Even worse are errors from hacks – er, attorneys/writers – who blatantly skew statistics and facts about bankruptcy filings for their own purposes. We can assure you that while nothing is ever certain with the law, the overwhelming majority of bankruptcies are successful, peaceful, and bring financial relief to our clients.
Here are some common statements about bankruptcy and the truth.
Statement 1: Why not just settle debt? It’ll be better for your credit report and you won’t have to pay a lawyer to settle debts for 40-50 cents on the dollar.
Answer: If your sole major debt is a $4,000 credit card and you can afford to pay a lump sum of $2,000, a credit card company may take it and waive the rest. To do so, you’ll have to show you have a serious hardship (not just because you don’t feel like paying) and submit financial records to prove it. You’ll also have to come up with a lump sum or a few significant payments, not a long term payment plan. Unless you’re insolvent, you’ll have to pay tax on the forgiven debt. But in the situation above, that’s fine because bankruptcy’s costs for a lawyer and the filing fees would make a bankruptcy unnecessary. Where bankruptcy absolutely becomes necessary is if you are in the same financial situation but have $50,000 worth of credit card debt and medical bills.
Even if you get every card or hospital to settle for 10 cents on the dollar (an unrealistic goal for most clients), and even if you can avoid the tax on the 1099 for the forgiven debt, that’s still at least 2-3 times what you’d pay for a bankruptcy to discharge the debt altogether. With so much debt, settlement is not only unrealistic, but it costs significantly more than a bankruptcy filing. For an attorney not to disclose that is tantamount to malpractice.
2. You cannot discharge student loans in bankruptcy.
Answer: This is another major misstatement, largely perpetrated by student loan lenders. In order to discharge student loans, there is a very high standard (possibly relaxed by a recent decision in the 7th Circuit Court of Appeals for Illinois/Indiana/Wisconsin) where you have to demonstrate a good faith attempt to make payments and a serious reason why it’s impossible to pay anything back. Essentially the situation is for people who are unable to earn a significant income, will likely never have the means to do so, leaving the possibility of repayment fruitless. That’s a high standard for sure, but it’s by no means impossible. (Think a 60 year old disabled person with only $700 per month in social security/disability coming in, with expenses of $1000 per month and $60,000 of outstanding student loans). With or without an attorney, people have successfully discharged significant private and government-backed student loan debt.
3. I want to file bankruptcy, but if I do, I’ll lose my (car, boat, beagles, RV, bank account, retirement accounts, etc.)
This aggravates me this most because it assumes that the point of bankruptcy is to take everything from the debtor. The exact opposite is true: an honest but unfortunate debtor gets a fresh start (in Chapter 7, or a repayment plan in Chapter 13) in exchange for listing, valuing and exempting assets. Every state has a scheme of exemptions (with some, like Wisconsin, allowing federal exemptions, while others, like Illinois, do not). The easiest way to find out what you can maintain: Talk to a competent bankruptcy lawyer. Call us at Lakelaw or e-mail us. Even if we don’t practice in your jurisdiction, we can refer you to a qualified consumer attorney in another area. You’ll be surprised, but typically 90% of Chapter 7 cases or so are no-asset 7 cases where the filing debtor turns over nothing.
The moral of this story: Speak with an attorney and learn the truth before believing what people write and say to scare people away from bankruptcy. It may not be for everyone, but for most debtors, it’s a huge relief and worthwhile decision.
I like to offer free initial consultations because I believe it’s only fair to know what your options are before paying for legal representation. I meet with many people who would benefit from Chapter 7 Bankruptcy relief. The only problem is that they are not eligible to file and get a discharge because they filed in late 2005, or 2006, or later.
The rules are very clear and simple: Measured from the date the prior bankruptcy was filed (not converted), a debtor must wait 8 years before filing another Chapter 7 bankruptcy and receiving a discharge.
Sure, there are other options available in the meantime – debt consolidation programs, Chapter 13 Bankrupty plans, Chapter 128.21 Debt Amortizations (for Wisconsin residents). These all require a steady income with disposable money to pay creditors. In this economy, not everyone has that.
My two cents: Meet with me (or another well-trained bankruptcy attorney) and look over your finances. If you make so little money you can’t be garnished, you may simply want to wait to file. If a small Chapter 13 plan payment is possible, that might work as well, but you should never file a Chapter 13 plan unless you know in good faith you can make it work. It’s simply too much time for you, an attorney, the court and trustee, not to mention money and a toll on the system. Also, you should never try to file a Chapter 13 bankruptcy and plan without an attorney – I was in court recently when a judge told a pro se debtor that she wouldn’t even file a bankruptcy without an attorney!
Still, there may be options available. Call us or e-mail us to discuss.
Every bankruptcy can take a different amount of time, but for each chapter of bankruptcy, we can usually give a very good guess for how long our clients will be in the process.
In a Chapter 7 Bankruptcy, from the time we file the petition and schedules with the court, the usual time to reach the Creditor’s Meeting (or 341 meeting) is about 30-45 days. From then, assuming our clients have no assets to be sold and divided among the creditors, they will take their second counseling session (debtor education or financial management), we will file the certificate, and there will be a discharge of the debts in 60-90 days from the creditor’s meeting. Even if there are assets, the case can proceed to a discharge in the same time period, but the case will stay open while the asset (a car, cash in a bank account, a house) will be sold and the creditors get paid.
The other chapters require a payment plan. So beyond the creditor’s meetings, the goal is to create a plan to pay creditors back over three to five years. The bankruptcy doesn’t have to last this long if the creditors can be paid back faster, but this is the general timeframe we have. The plans cannot last for longer than five years.
An e-mail recently circulated from another state. It asked what might happen in a case that had just opened. It seems that the filer had just filed a Chapter 7 bankruptcy in the past year. The debtor was about to be discharged, or released, from bankruptcy, with the case to be closed shortly. However, just before the debtor received the discharge, they filed a petition for Chapter 13 bankruptcy.
Different states might have ways of handling this situation. But from the responses received, it is pretty clear that this filer could be facing trouble for two big reasons. First, when a bankruptcy is filed, schedules D, E, and F, list all of the debts owed by the debtor. Debts to anyone for any reason. Because the debtor hadn’t received a discharge when this case was filed, those debts should be identical to those on the Chapter 7 petition. It’s possible the debtor might only have listed debts that would have survived the Chapter 7 – like mortgage debt, certain taxes, student loans, child support, and so forth.
The second, and more troublesome issue, is that for a time there were two bankruptcy estates open. If that sounds weird and confusing it is. A bankruptcy estate is the financial world of a debtor – whether an individual, or a business. Imagine if your beloved grandfather passed away peacefully. Everything he owned and all of his debts would be involved in his estate. Now suppose just as everything was to be divided and resolved with his family, you were told that your grandfather had a second estate that prevented this matter from being closed, and that the property couldn’t be divided until this second case was resolved. Well, other than the pain and sorrow of a death, this is very similar to two bankruptcy cases being open at once.
There are now questions of “bad faith” – whether the Chapter 13 was filed with the intention of paying back creditors, or simply to stall another process. This would have been much cleaner had the debtor simply wanted until the Chapter 7 was closed to file. Then a new estate, free from the Chapter 7, would be created and easier to manage. Unfortunately, that didn’t happen, and the court will have a very messy case to deal with.
I wouldn’t want to be that debtor or their attorney!
The moral of the story: The bankruptcy process has to be completed – either dismissed without a discharge, or closed after a discharge, in order to be started again. Consecutive bankruptcies may be ok, but two simultaneous bankruptices is not.
Lawyers, especially bankruptcy lawyers, are very aware of what is happening with the economy and how the average joe lives. We are much more in tune with the middle and lower classes than our wealthier congressmen. So when we hear questions like “Why are does it cost so much to file a bankruptcy?”, we understand and sympathize. We even get that some people who would like to file cannot afford to do so. This affects not only our clients in Wisconsin and Illinois, but consumers all across the country.
The price of filing a bankruptcy is set by Federal law. Right now, to file a Chapter 7 bankruptcy it costs $306, while a Chapter 13 bankruptcy runs $281. These fees go to pay the administrative fees of filing the case (things like the Trustee’s fees and the cost of processing paper work). While it is possible to petition the court to waive your fee for extreme financial difficulties, it is not easy to get a waiver. It can’t be. The courts depend on your payments in order to staff the courts, pay the judges, trustees, and other officials involved, and run everything smoothly. The courts receive woefully little funding and rely on these fees to make the system work well.
The second part of the price to file a bankruptcy comes from attorney’s fees. Your attorney does a lot of work for you when filing your bankruptcy petition. Some of the tasks in a simple bankruptcy include: preparing the petition, contacting creditors that are garnishing or may garnish your wages, attending the 341 meeting, answering questions you have, protecting assets from seizure, and preparing a means test. The means test, which first showed up in 2005, is a big reason why the cost of filing a bankruptcy has shot up in recent years. As you can see in other posts, the means test helps determine whether or not you can file a Chapter 7 bankruptcy. Before the means test requirement, people could file so long as they were not filing in “bad faith.” Now, with the means test requirement, attorneys have to perform a tricky mathematical test which measures whether or not our clients are deemed worthy of a Chapter 7 bankruptcy, based on income and expenses. What complicates the means test further is that there are now exceptions attorneys have to account for. To put it simply, the amount of work that goes into a bankruptcy is what makes the cost so high.
Even though there are high costs for filing a bankruptcy, we here at Lakelaw try and work with you to make bankruptcy affordable. If you have financial concerns but aren’t sure if bankruptcy is right for you, contact us for a free consultation in order to discuss your financial options. We promise to treat you with Care, Kindness, Courtesy, Respect, Professionalism and Dedication.
This article was co-authored by Lakelaw Senior Associate Ryan Blay and Associate Nicholas D. Strom
You may recall some previous blog entries about the “Means Test”, the math calculation that Congress forced the bankruptcy courts to use to help determine who belongs in Chapter 7 and who belongs in Chapter 13 – and how much should be paid to creditors.
As of yesterday, the Means Test numbers have changed. You can see the new amounts here. Every few months, there are adjustments depending on the economy and how much families are making.
Let’s say you come in to our office in Waukegan and tell us that you are a single parent with one child and live in Lake County, Illinois. We’d look to the state of Illinois, see that the median income level for a household size of 2 is $59,794. If you then told us that you are salaried, your income is steady and you gross around $45,000 per year, you shouldn’t have any issues with the means test. We would still look at the facts and your budget (as well as any prior bankruptcies) to see if you should consider filing in Chapter 13, but the Means Test is not going to be a concern in preparing the bankruptcy filing.
Now, perhaps, you are a resident of Racine, Wisconsin. You and your spouse have two delightful children. You and your wife together earn roughly $100,000 per year. Well you make more than the median line and would have to complete part 2 of the means test. You still might qualify for Chapter 7, but it will be a tougher hurdle to overcome. We’d have to consider what this means for a Chapter 13 payment as well.
Like many laws, this Means Test is constantly adjusting. We can tell you what this means for your chances of filing, but we need to know what was earned in the last 6 months, and any changes that might be happening in the near future (loss of overtime, large bonuses). With this information, we can advise you properly.
When we meet prospective clients for the first time, we try to make them feel welcome as guests of the firm. After all, a lawyer-client relationship is built on trust and comfort. The first meeting, which we offer free of charge, is meant to help our clients evaluate us and for us to evaluate the nature of our clients’ cases and what we can do to help.
Like most firms, we usually ask questions at the initial meeting. Other firms have lengthy questionnaires, whereas we prefer to ask direct questions to find out what we need to know. Some of these questions probably seem strange, especially since most folks come in with minimal money and assets and hefty debts. So why do we ask these questions?
Well, first off, bankruptcy is a complicated process. Try reading the 2005 “reform” of the bankruptcy laws passed by Congress. If you understood that, you’d be the first to do so. The point is that the bankruptcy laws don’t always mesh with common sense. When people do sensible things to avoid bankruptcy like sell off assets, borrow from relatives and pay them back or settle debts, it can cause problems in bankruptcy. So we need to know this before we prepare paperwork so that we’re not surprised and our clients aren’t either when the courts and trustees ask these questions.
They are routine questions to us, we’ve heard them hundreds of times. “Has anyone died leaving you money? Did you pay a relative a large sum of money for a loan or debt in the last year? Did you sell any big asset like a car or house for less than full value in the last 2 years? Did you pay any one of your creditors over $1000 in the last 3 months? Did you use a credit card or take out a loan in the last 90 days?”
As experienced attorneys, we know what the most common questions are going to be as we help people through the bankruptcy process. We’re not trying to judge or trick you, but trying to identify these issues and explain them. Sometimes that means waiting for a few weeks or months to file. Other times it means nothing is wrong and we can move ahead as we planned. Having experienced attorneys who know what questions to ask mean less “surprises”, and nobody likes those in the courtroom or bankruptcy hearings.
There are several different ways to prepare a bankruptcy petition in a bankruptcy court. The first is the most common – hire an attorney. Your attorney will be required to electronically file your bankruptcy schedules, plan (if you have a Chapter 11, 12, or 13) and other paperwork through your local court’s electronic service after helping prepare and review everything.
Courts also allow debtors without attorneys (“pro se” filers) to prepare and file the paperwork directly with the clerk of the Bankruptcy Court. This involves handing in the paperwork to a clerk, who will scan and input it into the court’s system. It’s a self-help system to allow people who cannot afford or do not want an attorney’s help to file.
Other non-attorneys called Bankruptcy Petition Preparers will charge a small fee to type the paperwork into bankruptcy software (or hand-write it in some cases). They advertise as being cheaper than attorneys and will claim to save time and skip the hassle of using an attorney. However, these preparers (sometimes called BPPs) can be more trouble than their fees.
The US Bankruptcy Court in Milwaukee has permanently barred 7 petition preparers from helping people out. They have been barred for a number of reasons, including passing themselves as real attorneys. They are not, and are barred by United States Law from giving legal advice or pretending to be lawyers. Other preparers have been ordered to attend court to explain their behavior to judges, but have not been barred. That step could come at any time.
As long as petition preparers disclose their fees in the schedules, sign the required forms, and avoid giving legal advice, the Bankruptcy Code allows them to help prepare petitions. But many times they fail to do so and lie to the courts, telling people not to inform the court that they were used to prepare the paperwork. Does committing a crime by lying to the court and your bankruptcy trustee sound like a good iea? It’s not.
The only source of legal advice is to see an attorney, preferably one with a long history of experience in bankruptcy. It is well worth the extra money to protect assets, stop creditors, and ensure a successful bankruptcy.
If someone charges you a fee to prepare paperwork and instructs you to hide that fact, do the smart thing and go see an attorney immediately. To contact Lakelaw and speak with a professional attorney with bankruptcy experience, please contact us at 866-LAKELAW, (262) 694-7300 in Wisconsin, or visit our website at www.lakelaw.com
Who is the Judicial Conference of the United States? It is a group of judges and other policy members who help shape how the courts run in our country. You may not have been aware of the Conference until today, but one of its recent decisions will affect thousands of bankruptcy filers each year.
Right now, the filing fee owed to the courts for filing a Chapter 7 bankruptcy petition is $299. The Chapter 13 filing fee is $274. There are also fees for certain actions taken during a bankruptcy – scheduling additional creditors ($26); filing an adversary proceeding ($250); filing an appeal ($250); and a creditor filing a Motion for Relief from the Automatic Stay ($150).
As of November 1, these fees are all set to rise. Chapter 7 and Chapter 13 fees will go up by $6, and the other actions will increase as well. These fees will allow the courts to balance their own budgets and handle the large number of bankruptcy cases filed each year.
With the costs of bankruptcy set to rise, now is a good time for both bankruptcy filers and for creditors to discuss how these news laws will affect them. For more information on bankruptcy and its filing fees, call Lakelaw at 1-800-LAKELAW or (262) 694-7300 in Wisconsin.
Another firm’s client paid over $26,000 in a chapter 13 plan. He was late a few payments. But he got a new job and had some money. Unfortunately, his former lawyer told the court that he had no defense to the Trustee’s motion to dismiss. The chapter 13 trustee was so concerned that he sent the client to Lakelaw to try to help. What can be done?
If a court enters an order, sometimes, it can be modified or even vacated. You have to act fast. Under Bankruptcy Rule 9023, you have only 14 days to ask the court to vacate an order which you think it should not have entered.
This can’t be done in every case. You have to have a good reason. The main reasons for changing an order are:
There’s another Rule, Bankruptcy Rule 9024, which allows post-judgment relief. But here, you would have to prove:
At Lakeaw, we want you to get things things right the first time. But if things go wrong, don’t give up. You may have hope. Call us at Lakelaw today at 1 866 LAKELAW (5253529)