Here is a great blog from Matt Berkus, another bankruptcy attorney, in response to the statement we all heard “I have a simple bankruptcy”.
Invariably, two-thirds of prospects will preface a consultation with “I have a simple bankruptcy.” The transparent motive behind the comment is the belief that a simple bankruptcy case should be inexpensive. Let’s state two facts. First, 99.5% of prospective clients are not bankruptcy attorneys and have never filed bankruptcy; so they have no clue what goes into a bankruptcy and the time it takes. Second, simple bankruptcies are actually rare. Simple bankruptcies are the exception, not the rule.
A bankruptcy’s cost is based on the anticipated time to be spent on the case. As bankruptcy attorneys we understand that we are working with people in financial distress. So, our margins are razor thin and subject to fierce competition. Anything, at all, that adds time to a case, even if it is 12 minutes, increases the cost of a case. Let’s put the issue to rest. Here is what a simple bankruptcy looks like. If you have anything more than what is stated here, you don’t have a simple bankruptcy.
A simple bankruptcy has no more than one source of income. If a husband and wife file a joint bankruptcy, and both work; you don’t have a simple bankruptcy. If you receive social security, and your spouse works, you don’t have a simple case. For every source of income, we need six months of payment documentation that must be reviewed, input and analyzed. In short, the more sources of income, the more time your case takes.
If you are anything other than an employee, unemployed, or retiree whose only income is social security, you don’t have a simple case. The self-employed, business owner, or independent contractors never have a simple bankruptcy case.
To have a simple bankruptcy, all debts must appear on your credit report. There are two reasons why. (a) A credit report gives us an independent source for identifying your creditors. (b) Most bankruptcy preparation software will allows us to direct import the creditors from your credit report. Common creditors that do not appear on a credit report are medical bills and pay day loans. Those debts require us to verify those debts and manually input them (e.g. spend more time).
In a simple bankruptcy, the debtor cannot have special debts. Special debts include back income tax, child support, spousal support, any sort of business related debt, restitution, etc.
Owning real estate compounds the time we spend on the case. It is an additional asset, your home is important to you, and there is usually a mortgage associated with it. So, we must do the due diligence to make sure the home is not at risk, and add that information to the petition.
This factor takes a bit to explain. Exemptions are the laws that allow you to keep your stuff notwithstanding the fact you are filing bankruptcy. Rest assured, in most chapter 7 bankruptcies, the person loses nothing or very little. In real terms, having only non-exempt assets means that you have the typical assets we would expect for a middle class family in debt. These assets are furniture, clothing, television, computer, car, and a 401(k) or IRA.
If you own anything, even something minor, that is non-exempt (e.g. tax refund, a 3rd car or a business), you don’t have a simple bankruptcy case. First, we have to take the extra time to explain the consequences and options for dealing with non-exempt assets. Second, if you have non-exempt assets, your chapter 7 bankruptcy will become an asset chapter 7 case. That means we will be doing significantly more work after the bankruptcy is filed to deal with the trustee, keep you informed, and instruct you on what to do. For Colorado, the big category of non-exempt assets are tax refunds and firearms.
If you are unmarried, you only have one vehicle. If you are married, you have no more than 2 vehicles. If you have car loans, you are current on payments and the equity in the vehicles is break-even. If none of the above is true, you don’t have a simple bankruptcy case.
Even a simple bankruptcy (chapter 7 bankruptcy) takes about 15-20 man-hours. That time estimate assumes the client does what they are supposed to do. Here’s the thing, a typical bankruptcy attorney charges $250.00 per hour. That would mean that a simple chapter 7 bankruptcy, charged by the hour, would cost $3,750.00 to $5,000.00. However, most markets cannot support that fee. So, bankruptcy attorneys charge significantly less than their counterparts in almost any other area of law. When you see advertised bankruptcy fees of $699.00, take it with a grain of salt. Understand you will probably end up paying more (because of “add ons”) and an attorney is “barely” involved in your case.
A simple bankruptcy involves only one source income, debts that appear only on a credit report, no one has real estate, assets are all exempt, and only 1 car per debtor. In addition, the debtor cannot have done anything in the run-up to bankruptcy to create issues. I think you can see, that a simple bankruptcy is actually rare.
In re Rich Bankruptcy Number 10-21536 (District of Utah), Nice discussion about abandonment. Creditor obtained unopposed staylift order to foreclose on debtors residence. Debtor then filed motion to abandon so he could do a short sale, with no money to debtor. Trustee opposed abandonment but did not assert any equity in the property:
The Debtor’s stated purpose for seeking abandonment of the Real Property is to effectuate a short sale of the Real Property prior to a scheduled foreclosure sale. The Court finds that a party in interest’s motivation for seeking abandonment is irrelevant. The only question the Court should properly address under § 554(b) is whether the property is burdensome or of inconsequential value to the estate.
When faced with a § 554(b) motion a Trustee has two options: He may concede that the property is burdensome or of inconsequential value and abandon the property or he may demonstrate to the court that his administration of the property will result in a benefit to the estate and he should be allowed to administer the property. Failure to administer property that is of value and benefit to the estate is not an acceptable option and failure to abandon property that is burdensome is not an acceptable option.
The Trustee has had since November of 2011 to administer the Real Property which is an asset of this estate. There is no evidence in the docket that the Trustee has attempted to market the Real Property by employing the services of a real estate professional or appraiser, nor does the Trustee allege in his objection that he is attempting to sell, or intends to sell the Real Property sometime in the future.6 Importantly, the Trustee does not allege that there is equity or even the possibility of equity in the Real Property. Accordingly, the Court finds that the Real Property is burdensome to the estate and is of inconsequential value to the estate and the Debtor’s motion to abandon the Real Property shall be granted.
Self-help in the legal world is not always smart. You may have tried to take care of your financial situation in ways that the law prohibits. A year after a payment or transfer a court can set aside the payment or transfer and require that the asset or money be paid to your creditors. Lack of understanding of the law is not an excuse that the court will accept. For instances, your mother helps support your family while you are unemployed. Good news – you are back to work and get a large tax refund. You use the refund to pay your mother back. A few months later your new company goes out of business. You finally decide that bankruptcy is the only way to save your marriage and your home; so you file. A couple of months later you receive a copy of a complaint that has been served on your mother – she is being sued for all of the money you paid her. Yet, had you used the money to pay other expenses (see your lawyer for a list) then you would receive the coveted bankruptcy discharge, get your fresh start and your mother would never have been sued and forced to refinance her home in order to pay the creditors the money you paid to her. Plus, you can pay your mother back after your bankruptcy is discharged.
The same problem would arise if you sold, transferred or gave away property before filing a bankruptcy, or being sued by a creditor. I am not making any of this up – the legal issues are called preferential treatment and fraudulent conveyances.
If you are reading this article some of you may be thinking that I am trying to scare you in order to increase my business. Not so, I am happy to refer you to very good bankruptcy attorneys. In fact, I refer out a good number of folks who call my office. Why? Because another attorney is better equipped to address their specific issues. My fear is that you not understand the full breadth of the issues in bankruptcy and take that path without proper guidance.
USURY is traced back 4,000 years. But it has always been despised, condemned, restricted or banned by moral, ethical, legal or religious entities. The oldest references to usury are found in religious manuscripts of India, dating back to 2000-1400 BC where the ‘usurer’ is associated with any interest lender. In the Hindu Sutra (700-100 BC) as well as in the Buddhist Jatakas (600-400 BC) there are many references to the payment of interest, along with expressions of disdain for the practice. Vasishtha, a prominent lawmaker of the era, drafted a law that banned the high caste Brahmans and Kshatryas from being usurers or money-lenders. In the second century AD, the term usury becomes relative, meaning that interest above the legal rate could not be charged; that would be a usurious loan.
No one wants to file bankruptcy. Having said that, and in order to protect your health and peace of mind, along with that of your family, bankruptcy may be your only option. Very few of us have the ability to completely control the financial part of our lives. Companies fail, jobs are lost, people get sick and families are broken. The creditors are happy to give everyone credit, whether or not they qualify. These creditors have absolutely no regard to the person’s ability to repay the credit. The creditor makes more money when a borrower is late, defaults on a loan, or overdraws the credit limit or bank account. Therefore, that creditor is gambling that they will earn more from borrowers in interest, penalties and additional charges then that creditor will lose as a result of bankruptcy. They are leveraging their losses by giving out as much credit as everyone’s mail boxes can hold. Those same creditors will not work with the a borrower who is suffering a financial set back. That creditor does not care if the borrower has never been late. All that creditor wants is “their money”. Don’t believe me – just ask their collection agents. Today, it is an extremely rare creditor to have any loyalty to their customers.
You must make informed decisions and determine that is best for you and your family. The first step is to get good advice about your options. Feel free to call us for your free consultation.
Homeowner Association Receive Special Treatment in Bankruptcy
Homeowner Associations received special treatment in bankruptcy, based on both federal law and Arizona statutes. First, there is contract law – read your Conditions, Covenants and Restrictions “CC&R’S” to determine your liability. Most likely you are personally liable for the dues/assessments and the dues/assessments are liens on your property.
Here is an example: You live in a condo in Phoenix. You pay $300 a month for HOA dues/assessments. Unfortunately, you are behind in your payments for the last 3 months. This means you owed $900, plus interest and fines (as provided by the CC&RS). You just received notice that the HOA has assessed a $1,500 special assessment for the repairs to the common area; to be paid in three installments of $500 each over the next 6 months. The first payment is due immediately.
Let’s start the discussion with the premise that you want to keep the condo. Therefore, you need to make arrangements to pay the debt, including the fines provided by the CC&R’s. But, your neighbor just told you that you could file bankruptcy and eliminate those dues. This is partially true, but there are several twists and turns. Filing bankruptcy be a solution to your problem, but only a chapter 13. That type of bankruptcy will allow you to pay the HOA arrears over time, while you continue to pay all new dues/assessments current as they come due.
What your neighbor did not understand is that Arizona statutes provide that an automatic lien exists for any unpaid dues/assessments. So even if the dues/assessment was due and payable before the date the bankruptcy was filed, the lien would still attach to the condo. Thus, your personal obligation may be discharged, but there will still be a lien on the condo. The lien only lasts for 3 years, but the HOA can foreclose on the lien at any point prior. So, if you want to keep the condo you have to pay the assessment, or risk a foreclosure.
Now we change the premise that you do not wish to keep the condo. Depending on the CC&R’s both your and your property are “liable” for the debts so long as you own the condo. If you file a bankruptcy, the assessments, fines and interest that accrued before the filing of the bankruptcy will be discharged (the HOA cannot pursue you personally, but can foreclose on the condo). The problem is you still own the condo until the lender completes the foreclosure. So if you file for bankruptcy before the foreclosure is completed then under the bankruptcy law (11 U.S.C. 523(a)(16)) you are responsible for the new dues/assessments that arise after the date your bankruptcy was filed. Therefore, it is best to file your bankruptcy after the foreclosure is complete and the condo is no longer in your name.
Back to the fact pattern above: if you intend on surrendering the condo, the first part of the special assessment will be discharged in your bankruptcy. But all the new dues/assessments, including the the next two installments of the special assessment, are still your responsibility. If you did not pay this before the foreclosure completes and legal title transfers, the HOA can sue you, and collect on any judgment obtained. It is best to talk to a good bankruptcy attorney with expertise in real estate matters. Not many bankruptcy attorneys also have real estate experience. Diane Drain does – she has taught both areas of law since 1990. Feel free to call our office if you would like help.
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