Questions from Attorneys Regarding Bankruptcy Petition Preparation

The following questions were submitted by bankruptcy attorneys during the past week. The answers are provided by Victoria Ring who is not an attorney.  Therefore, the information provided in this material is for training purposes only and no whole or part should be conceived as legal advice.


I am a new attorney doing my first bankruptcy petition where I am proposing a cram down.  The appraised value of my clients home is $185,000.  They owe $170,000 on the first mortgage and $45,000 on the second.  How can I do a cram down?


You cannot do a cram down.  A cram down is when the house is worth LESS than the amount that is owed.  The amount that is owed is crammed down to the appraised value.  In your clients case, the opposite is true.

Perhaps it will help you to understand the concept better if you think of it this way:

If the house had to be sold and it sold for $185,000; there would be plenty enough money to pay off the first mortgage of $170,000. In fact, you would have $15,000 left over after the sale and the pay off.  Therefore, a cram down is impossible to do since there is nothing to cram down.

However, on the second mortgage, you may be able to propose a reduction since there is only $15,000 left.  Instead of the client paying $45,000, they may only need to pay $15,000 on the second mortgage.  The remaining $30,000 from the second mortgage is actually unsecured equity.

But let us not forget the exemption allowance provided for by your state.  If the exemption allowance is $50,000 the figures change for both mortgage companies.  Therefore, I would need to review Schedule A of your clients petition in order to determine the different strategies available in this particular case.


How can I find the IRS Guidelines so I can accurately calculate Schedule J of the bankruptcy petition?


The main page of links I put together to help you when preparing bankruptcy petitions is at:

The links to the IRS guidelines are at:,,id=104627,00.html,,id=104696,00.html,,id=104623,00.html

Keep in mind that the government wants you to think outside the box.  Many of the guidelines are lumped into categories that are not consistent with Schedule J.

The only purpose in reviewing the IRS guidelines and comparing them to the Schedule J figures the clients provide is to make sure the figures are accurate.  For example, gasoline prices fluctuate from week to week.  If the clients tell you they spend $200 a month on gas this month and the IRS guidelines allow them $800; it is an indication that the client may have provided you with a wrong figure and you should ask them to provide a more accurate one.

Why is this important? Because if you give your clients a Chapter 13 Plan payment they cannot afford, they will be unable to stay in the Chapter 13.  This escalates costs as well as other problems for attorneys, clients and the bankruptcy court.

However, this is not a skill that you learn preparing one bankruptcy petition.  This is why I incorporate the training of this skill when I train attorneys.  Believe me, I did not learn the skill overnight myself.


The liquidation analysis says that the unsecured debts get nothing but I am not sure how to adjust for that since the plan wants to automatically pay them. Do I use: not in plan, for each to stop the computation?


Unsecured debts should NEVER be removed from a Chapter 13 Plan.  That is one of the main purposes of filing a Chapter 13 in the first place.  The solution is not to trick the software into not calculating unsecured debts.  The solution is to fix what you did wrong and make sure that the unsecured creditors are paid a minimum percentage.  The minimum percentage varies from state to state.  In California, attorneys can have as low as a 2% Plan but in Ohio they never allowed any Plan less than 10%.  As an attorney, you need to call the Chapter 13 Trustee’s office or consult with an experienced attorney in your area to find out the minimum Plan percentage accepted in your state.


When you switch from a Chapter 7 to a 13, why does the dialog box come up in the software asking if you want to change your answer on funds available to the unsecured creditors? Are you supposed to have funds in a 13 and not for a 7?


I assume you are referring to the Voluntary Petition.  There are two checkboxes on this form with the following two choices:

Box 1: YES.  Debtor estimates that funds will be available for distribution to unsecured creditors.
Box 2: NO. Debtor estimates that, after any exempt property is executed and administrative expenses paid, there will be no funds available to unsecured creditors.

Yes, your assumption is correct.  If there are no funds available to pay unsecured creditors, the debtor is filing a Chapter 7.  One of the requirements to file a Chapter 13 is that there is money left over to pay unsecured creditors.  Besides, if there is no money left over, how could the debtor be filing a Chapter 13 anyway?  They would have no Plan payment to make if they have no money left.  This is a Chapter 7.


Where, if anywhere, are there widely accepted interest rates for the secured debt published?  Is this an area where there are lots of disputes?


I called an attorney in California to get a good answer for this question.  The attorney told me this: The interest rate currently paid by the debtor should be used on secure debts unless it is excessive.  To have figures to compare she suggested you find out the average percentage people with good credit pay to purchase a new home (or other asset) in your area.  Suppose you find out this percentage is 2% but the clients are paying 27%.  This is excessive; and in bankruptcy, you may consider proposing the 2% instead of 27% and hopefully there will be no objection from the mortgage company.


With all the information you know about bankruptcy and law firm operations, do you plan to publish a book?


Yes.  Two attorneys in Georgia (J. Jeffrey Williams and Patricia Lyda Williams) and myself are putting together the materials now.  The name of the book will be: What They Did Not Teach You in Law School About Chapter 7 and Chapter 13 Bankruptcy.  We hope the book will be ready for sale within 90 days.


I am a California attorney. If I attend your web training seminar how many MCLE credits do I receive?


The MCLE credits permitted by the State of California are only for seminars that you physically attend. MCLE credits are not provided for the web training seminars I develop and offer to help your law firm.  Besides, the purpose of the web training seminars Michael and I provide is to teach you skills that will improve your bottom line and help you to have a well run and organized law firm.  If we have to force attorneys to attend our seminars through the lure of giving them credits, I really do not think those attorneys would appreciate the training they receive.


If you are a new bankruptcy attorney, spend 1 hour with me online and I guarantee I can help solve many problems with your petitions that you are encountering. The cost is only $100 for a full hour and we meet via a web meeting. This means that you will login to the internet and be able to view my computer screen.  This way, I can provide you with visual training, which has more impact than talking solely on the telephone.

Call 719-465-2442 or email to schedule your training.


Check us out for only a $25.00 investment. Attend the June 5, 2010 Bankruptcy Cram Down Web Training Seminar.  Sign up at:

If you have any questions you would like answered in this forum, send them by email to Your name or contact information will never be used unless you specifically request it.  And if I do not know the answer, I will ask an attorney and get an answer for you.

Have a wonderful week.

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