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.

A typical consumer bankruptcy filing consists of 60 or more pages of paperwork, so what is involved depends on your unique situation.

It involves many state laws and federal laws, both bankruptcy and non-bankruptcy. There are bankruptcy classes required for consumers; tax returns and payroll information which must be file with the court. Failure to do any of these things will mean the automatic dismissal of your bankruptcy.  In addition to the mounds of paperwork, there are strict deadlines and procedures, which if not followed will lead to the bankruptcy being dismissed.

“If you are going to file bankruptcy, do it right the first time. Hire an experienced bankruptcy attorney. It is not expensive, and in the long run you will save money, protect your property, as well as your sanity. There is no substitute for quality and experience.” Diane L. Drain

There is little consistency between the laws of various jurisdictions.

Sometimes the state laws or procedural rules within one state differ dramatically from their neighboring state. Many of the bankruptcy laws vary from state to state and, sometimes, from debtor to debtor. Each state has a list of property that is protected for the residents of that state – referred to as exempt property.  What may seem perfectly reasonable for one debtor may cause another to lose his or her car or bank account. For example, in one state a person can file a bankruptcy and live in a million dollar house while in another state that person could risk their second TV set.

If the forms are not filled out correctly, or if you have failed to properly protect your assets, it may be too late to correct the problems once the documents are filed with the court.

The documents are examined by officials of the court and your creditors – some of whom are representing interests that do not coincide with yours and would like nothing better but to take away assets because you did not protect them properly.

Once you retain our firm then all your creditors are required by federal law to stop calling you, but instead they are to call us.  Diane and Jay (Diane’s paralegal) will guide you through the required classes, documents and information gather process.  All clients meet with Diane for at least 4 to 6 hours before any bankruptcy is filed. Diane or Jay are always available to answer any questions you may have.

There are usually issues that must be taken care of before a bankruptcy can be filed, if possible.

Pre-bankruptcy Planning is important for everyone, even the simplest of bankruptcies.  Payments made to family can result in a suit against that family or friend.  Filing bankruptcy can result in the loss of the tax refunds or other monies owed to the person filing bankruptcy.  All those issues will be clarified and paths designed to deal with each.

If a bankruptcy is not appropriate Diane will explain the alternatives.  If bankruptcy is appropriate Diane will explain the options.

Once both you and Diane have decided the best time for filing your bankruptcy, then our office will take care of filing the documents with the Bankruptcy Court. You will receive a copy of all documents sent or received by our office. At the time of the filing your documents will be assigned a case number That number is important. You can give that number to any creditors that call. Technically, from the date of filing all creditors, including the IRS, are prohibited from contacting you. They are restricted to working directly with your attorney.

Appointment of the Bankruptcy Trustee

At the time your documents are filed a bankruptcy Trustee will be appointed. That Trustee’s job is to make sure that your documents are complete and review your list of assets for items that are not protected by law.  All of this will be explained during your meetings with Ms. Drain.

The meeting of creditors.

A creditor’s meeting will be scheduled and you will receive notice from the Bankruptcy Court and this office as to that date, time and location. It is absolutely imperative that you attend that meeting.