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.

1.      A simple bankruptcy only has one source of income

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.

2.      In a simple bankruptcy, the source of income is employment, social security, or unemployment insurance

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. 

3.      In a simple bankruptcy, all debts appear on a credit report

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). 

4.      In a simple bankruptcy, debts are mostly credit cards and collection accounts for credit cards

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.

5.      In a simple bankruptcy, no one owns real estate

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.

6.      A simple bankruptcy only has non-exempt assets

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 3^rd 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.

7.      A simple bankruptcy has no more than 2 vehicles, and no non-exempt equity in those vehicle

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.

8.      Grab bag of other issues that make a bankruptcy not simple

• You haven’t used your credit cards for at least 90 days.
• You haven’t been sued.
• You have no judgments or garnishments against you.
• You haven’t paid any money to family members in the last 12 months
• All your tax returns have been filed.

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.

USURY can be traced back 4,000 years.  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 and email 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, in fact they make more money if the borrower is late.  They find all kinds of ways to make sure the payment is late – changing the date or time the payment is due, changing the location to make the payment or refusing to accept a payment because they know 98% of all borrowers will just pay the late fee rather than arguing. 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.