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.
What is involved with the typical consumer bankruptcy?”
A typical consumer bankruptcy filing consists of 40 to 100 pages of paperwork; depending on your 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. A business bankruptcy has mounds of paperwork, 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. 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 Ms. Drain then all your creditors are required by federal law to stop calling you, but instead they are to call Ms. Drain. Ms. Drain and her staff will guide you through the required classes, documents and information gather process. Ms. Drain meets personally with every client for at least 3-4 hours before any bankruptcy is filed. Ms. Drain is always available to answer any questions you may have.
There may be issues that must be taken care of before a bankruptcy can be filed, if it can. All those issues will be clarified and paths designed to deal with each. If a bankruptcy is not appropriate, then Ms. Drain will assist you with other alternatives. Once both you and Ms. Drain 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. Also, 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. 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.
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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