Chapter 7 and 13 Bankruptcy Blog

– Victoria Ring, Colorado Bankruptcy Training

For those of you just entering the field of debtor bankruptcy, this article will be very helpful to you because it addresses a very common problem that occurs when working with debtors.  The common problem is that debtors want their cake and eat it too. This statement may sound a little harsh but allow me to explain:

I am finding that many new attorneys entering the bankruptcy field do not have the training to screen their clients before sending us the petitions for input.  One of the easiest methods for an attorney to screen their clients is to find out how much equity is in their home before taking the case. During the intake it only takes a minute or two to find out approximately how much the debtors owe on their mortgage.  Then, while the client is still in the office, go to a computer and do a search on www.zillow.com.  Although Zillow is certainly not a court authority by any stretch of the imagination, it will tell you immediately the approximate amount of unexempt equity the debtor may have.

For example: I had a case today for a California debtor who had just divorced. There was $200,000 of equity in the home.  Since the debtor was divorced, he only had to claim $100,000 of this equity.  Under the 704 California exemptions, the debtor was provided with a healthy $75,000, leaving him with $25,000 that was UNEXEMPT.  Was the debtor happy about the $75,000 exemption?  Of course not.  The debtor was angry because he wanted to keep the $25,000 plus have all his debts excused.  Although most debtors may not realize it at the time, in reality they are being unfair and asking the attorney to commit fraud by making this selfish demand.

Unfortunately, most of the new bankruptcy attorneys that I work with do not understand the bankruptcy law well enough to properly advise their client.  Instead, they accept the case, have the client fill out the intake forms, pay the fees and send the paperwork to my team.  We input the petition and discover the problem with the equity in the home.  By this time, the attorney has invested his or her time, the debtor has spent several hours gathering information and we have worked inputting the case.  When we discover this problem we alert the attorney, the attorney talks to the client and the debtor decides not file bankruptcy.  The attorney is forced to refund some of the money because the attorney did not know how to properly explain the advantages to the debtor of filing a Chapter 13 instead.  In fact, if the attorney had called to discuss this case with me, I could have taught him how to turn this unhappy client from a Chapter 7 to a positive Chapter 13 because I deal with these issues all the time.

For example, this particular debtor had $38,000 in Schedule F debts and $25,000 of unexempt equity in his home.  The debtor did not want to surrender his interest in the property because he wanted to make sure his ex-wife and children had a home to live in.  This is admirable, but the court and creditors look at numbers because they are not emotionally tied to debtors. New attorneys must learn these types of skills so they can help the debtor understand why it may or may not be to their advantage to file bankruptcy at this time.

But for the particular debtor in our scenario, it would have been to his advantage to file a Chapter 13.  First of all, we could have proposed a 100% Plan which would have more than likely protected the $25,000 of unexempt equity.  Secondly, the Chapter 13 would have eliminated $73,000 in interest charges over the 5 year Plan period, the debtor would have paid off his student loan in full as well as the unpaid personal income taxes from 2002.  By presenting these positive factors to the debtor, the attorney may have saved this case and never had to refund money.  Plus the debtor would be happier once he understood the advantages.

(Note:  A key to good marketing is to point out advantages for the client.  If you can show a client how much money you can save them and how, they often will do whatever is necessary to comply with your requests and invest their time and money making it happen.  This is what makes a happy client and this is what generates referrals.)

But in this case, the attorney did not call to discuss the matter with me.  He simply told the client that he would have to pay $25,000 or lose his home.  This naturally scared the debtor to death and he decided not to file. Who can blame him?

It amazes me when things like this happen; and they happen quite frequently.  In fact, it may be shocking to you also.  I hope so, because I want this article to be shocking enough to help to prevent this from happening to you.  Also, please understand that this article is not intended in any manner to provide legal advice.  I am not an attorney and I am not trying to predict what a bankruptcy court to do by writing this article.  I am simply trying to help you understand the concept of fairness so you will know how to better deal with situations exactly like this in the future.

I wish you the best of success and encourage you to continue learning and working hard to protect the debtor; but in a fair and balanced way.

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STEPS FOR CHANGING A CHAPTER 7 PETITION TO A CHAPTER 13

1.   Prepare the petition as you would a Chapter 7.

2.   Complete the Means Test to make sure the debtor qualifies for a Chapter 13.

Additional qualifications of debtor to be eligible to file a Chapter 13:

a.   an individual (no corporations or partnerships); b.   have a regular income greater than reasonable living expenses; c.   have liquidated, unsecured debts not exceeding $336,900 and secured debts not exceeding $1,010.650.

3.   To change a Chapter 7 to a Chapter 13, the following adjustments need to be made within the Chapter 7 bankruptcy petition:

a.   Change to a Chapter 13 on the Voluntary Petition b.   Also on the Voluntary Petition, under the Statistical Information tab, the box needs checked to indicate there will be funds left over to pay creditors.

c.   Item 9 on the Statement of Affairs needs changed from a filing fee of $299 for a Chapter 7 to $274 for a Chapter 13.

d.   On the average, most attorneys charge $1,000 extra for a Chapter 13 compared to a Chapter 7.  Therefore, attorneys can place this additional fee into the Chapter 13 Plan. If so, change:

i.   Attorney Compensation Statement to show money is owed by debtor. ii.   Add in the additional Attorney Fees into the Chapter 13 Plan to match the Attorney Compensation Statement

4.   Classify all secure debts on Schedules A and B.

5.   Balance out Schedule J and use the amount left over as your beginning Chapter 13 Plan payment.  This is your starting point.

6.   Enter in the Chapter 13 Plan payment into the Chapter 13 Plan calculator.  Make adjustments until you balance out the Chapter 13 Plan.

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Notice: If you are an attorney also seeking to open a Chapter 13 bankruptcy practice, Chapter 13s are my specialty.  I love doing them and there is no doubt that I can teach you the skills you need to start offering Chapter 13 services to your clients and immediately increase your law firm profits.  My training costs are very low, starting at $100 per hour for online training.  So contact me at

http://www.coloradobankruptcytraining.com/contact.html

Note: This article is not written with the intent of taking business away from bankruptcy software companies who sell Local Forms and Chapter 13 Plans as “add on” packages. Instead, I am writing this article because I personally do not believe that anyone should be forced to buy something simply because they lack knowledge of other options available to them. Therefore, this article is written to inform you of the different options available so that you can make an informed decision before spending your money. –Victoria Ring

Why Are There Local Forms if Bankruptcy is Federal Law?

Local forms can be confusing at first. However, you need to remember that the United States government was developed in a manner so that each individual state could govern itself. Although Federal Law takes precedence over State law, the Federal forms of a bankruptcy petition remain standard throughout all 50 states. But, some state laws require additional State forms to be included along with the Federal forms when a bankruptcy petition is filed. That is why you need to keep up to date on the local rules of any bankruptcy court you are working in when preparing bankruptcy petitions.

Why Doesn’t My Bankruptcy Court Have a Chapter 13 Plan on Their Website?

Not all bankruptcy courts have a required format for their Chapter 13 Plan. If the bankruptcy court you are preparing a bankruptcy petition for does not have a Chapter 13 Plan form listed under “Local Forms” on the court’s website, you should be able to use the standard Chapter 13 Plan included free with the bankruptcy software you purchased.

In the list I provide at: http://www.coloradobankruptcytraining.com/links_chapter13plans.html you can scroll down through the list and see that some jurisdictions, as well as some States do not have a link for a Chapter 13 Plan. Again, this tells you that that particular state or jurisdiction accepts the standard Chapter 13 Plan provided free in the bankruptcy software program you are using.

Should You Buy Local Forms for Your Bankruptcy Software?

The choice is up to you. However, I believe it is important for you to understand all the facts so that you can make an informed decision before spending your money on something that is available to you free.

Most bankruptcy software programs provide you with a standard Chapter 13 Plan when you select a specific bankruptcy jurisdiction for the bankruptcy court you are preparing a bankruptcy petition for.

However, the company who developed the software also sells additional local forms that you can purchase separately. Some of these local forms are $150 to $300 each; which can get quite expensive if you purchase them for all the different States the bankruptcy attorneys you work for are located in.

But, the majority of bankruptcy courts have a specific format for their Chapter 13 Plans. When they have any form requirement they post the form on their website. Often, these forms are available in Word, WordPerfect and almost always PDF format.

In fact, the PDF is the best form to use because it is form fillable. This means, you simply download the form, click on a blank area and begin typing. In fact, some of the bankruptcy courts even provide Chapter 13 Plan forms that are not only form fillable but they also do calculations for you. These types of Chapter 13 Plans are really nice.

So Why Does Bankruptcy Software Companies Charge For Free Forms?

Bankruptcy software companies are not actually selling you the form. Instead, you are paying for the ability to have the form appear inside your bankruptcy software program. Plus the purchased forms normally will perform calculations within your bankruptcy software program. In other words, purchasing Chapter 13 Plans and additional court forms as “add ons” through the company who you purchased your bankruptcy software from is more of a convenience; it certainly is not a requirement.

Does This Matter to You?

That is a decision you will have to make for yourself. However, I will tell you what I did back in the old days, when I started The Lawyer Assistant and worked for attorney nationwide. The first time I began working for an attorney in a new jurisdiction I had not prepared a bankruptcy petition in, I would go to the court’s website and read the Local Rules. I also would review their Local Forms and find out if there were any additional forms I needed to file with the bankruptcy petition.

If I found a Local Form that needed filed with the bankruptcy petition I would print it out and type it in Microsoft Word. Then I would save the document as a template and use it every time I had to prepare a bankruptcy petition in that particular court district.

But the Hard Work is Eliminated for You

Today, you do not need to print out forms and individually type them. Instead, you simply download a PDF from the bankruptcy court’s website and fill it in on your computer screen. The process has been made simple, easy and quick for you. Plus, you save money and do not need to purchase additional forms from your bankruptcy software company.

What If You Don’t Have a Registered Version of Adobe Acrobat?

Normally it doesn’t matter if you have a registered version of Adobe Acrobat or not. The PDFs that you download from the bankruptcy court’s website are viewable in Adobe Reader (which is free.) You simply download the document, do a SAVE AS, and name the document (such as Chapter13Plan_JohnDoe.pdf.) Then, you fill in the PDF form and save it in John Doe’s file on your computer for filing electronically once your attorney has approved it. Next time you need to develop another Chapter 13 Plan in this court’s jurisdiction, go back to their website, download another PDF template and repeat the process.

What Do I Do With Documents in MS Word or WordPerfect Instead of PDF?

If you have Microsoft Word or WordPerfect, you can convert any document to a PDF within the software program. This function also eliminates the expense of purchasing Adobe Acrobat. However, do not underestimate the power of the registered version of Adobe Acrobat. I have the Professional Version and I absolutely love it. I use my Adobe for developing eBooks that I sell on the internet as well as the development of fillable forms. But, if you are going to only use Adobe for reading PDF documents, filling in forms that have already been developed and saving the documents for filing with the bankruptcy court, you will not need to purchase the registered version of Adobe Acrobat.

How Do I Get the PDF Into My Bankruptcy Software?

I have downloaded most of the major bankruptcy software programs and I found that all of them have the ability to insert a PDF into the bankruptcy petition during the electronic filing process. Simply open up your bankruptcy software, click on the HELP menu and search for something like “insert PDF” or “add PDF” or some other similar phrase. If you cannot find the answer in the HELP menu, call the bankruptcy software company and ask them how to perform the function in your particular program.

Another alternative would be to file the PDF separately from the bankruptcy petition. This is accomplished by logging into PACER (under your attorney’s ECF username and password) and electronically filing the PDF document. If you have never filed a separate document through PACER this process may appear intimidating at first because one-touch filing methods will make you lazy. But don’t despair. Learn how to do the process correctly as it will be a skill you will use over and over again.

(See step-by-step instructions below to help you get started.)

How to File a Chapter 13 Plan Through PACER

You will need to know the case number to file the Chapter 13 Plan so the Plan and Certificate of Service (if applicable) may only be filed after the Chapter 13 case is open and the number assigned.

File the Chapter 13 Plan and the Certificate of Service (if applicable) together as one document. Have it prepared and saved as a PDF document.

Step 1: Login to PACER under the attorney’s ECF login. Step 2: Click Bankruptcy on the Main Menu Bar. Step 3: Select the Plan Category Step 4: Check your case number and Click Next. Step 5: Click on Chapter 13 Plan event and Click Next. Step 6: Unless you are filing this document with another attorney, Click Next. Step 7: Select the Party Screen will open. Highlight the debtor(s) and click next. Step 8: Click on the Browse button to locate your document. Once verified, highlight it and click Open.

Note: Do not use the attachment feature for the Certificate of Service. Keep the document together as a single document.

Step 9: Modify the text using the drop down boxes to indicate whether you have included the required certificate of service and click next.

Step 10: Proof-read your entry and Click Next.

If you have any problems, feel free to call the bankruptcy court and ask them to help you. Most bankruptcy court employees are more than willing to help you because they would rather you do the job right, versus them finding an error, contacting the bankruptcy attorney and starting over again. They realize it is a time-saver for them to help you so do not be afraid to call. Just remember to be courteous, humble and gracious. Thank them for their time and let them know you appreciate them. Your attitude is important because you are representing your attorney. If you should get the bankruptcy court upset due to your unprofessional behavior, the bankruptcy court will have no problem contacting your attorney and voicing their complaint. Therefore, make sure you stay cool, calm and collected and everything will work just fine. In fact, you may make a friend at the bankruptcy court and use them as a contact in the future for additional information and help you or your attorney may need.

Can I Prepare Bankruptcy Petitions for Attorneys Without Buying Bankruptcy Software?

Of course you can. However, I must warn you, the process will be more time consuming. Bankruptcy software automates many processes which in turn saves you a great deal of time. For example: If you fill out each individual Forms and Schedule in a bankruptcy petition there is a lot of information you must enter over and over again (such as the debtor’s name.) Also, you will have to do your own mathematical calculations compared to bankruptcy software programs that do that for you.

There are many other pluses to purchasing bankruptcy software but you can decide for yourself which method you prefer to use. If you want to download the fill-in-the-blank Federal Bankruptcy Forms, visit: http://www.uscourts.gov/bkforms/bankruptcy_forms.html#official

Helpful Hints

1. Visit http://www.coloradobankruptcytraining.com/links.html

2. Click on the Chapter 13 Plans and More section

3. Find the bankruptcy court you are preparing a bankruptcy petition for

4. Click on the LOCAL RULES, print them out or read them online

Note: You may not completely understand everything you read in the LOCAL RULES for the bankruptcy court. Most LOCAL RULES are written in legalese and are directed to attorneys who have been to law school and understand the lingo. However, there is a lot you will understand and by reading the LOCAL RULES you will become more familiar with that particular bankruptcy court. This knowledge will increase your value to the attorney you are working for as well as preventing problems that can come up because you did not follow a LOCAL RULE.

5.    Visit the link to the LOCAL FORMS AND TEMPLATES and look them over.

Note: The first time you look down through the list of LOCAL FORMS AND TEMPLATES you will undoubtedly be confused. Just take it slow. Many of the LOCAL FORMS will only be for cases AFTER the bankruptcy petition is filed. Other forms are for creditors and still others for appeal cases. Instead of being confused with the list of LOCAL FORMS remember this: Very often, the LOCAL FORMS you need for preparing a bankruptcy petition for your attorney are included inside the bankruptcy software you purchased. But if you find out that the software company is offering to sell you a specific LOCAL FORM, review the LOCAL FORMS on the bankruptcy court’s website before spending your hard earned money.

6.    Rather than use the direct bankruptcy court link, the CHAPTER 13 PLAN link provided on the LINKS PAGE was downloaded and placed on the 713Training.Com website for ease of use. It was current at the time the web page was developed. However, court rules change often; therefore, it is to your advantage to check the LOCAL FORMS of the particular bankruptcy court’s website to make sure you are using the most recent Chapter 13 Plan if you will be using it to file for your bankruptcy attorney.

Note: Also, some bankruptcy courts require Chapter 13 Plan Cover Pages and even Chapter 13 Orders to be filed with the Chapter 13 Plan. Again, check the bankruptcy court website to make sure you have the current information.

Summary

My goal in providing this information to you is to save you $1,000s of dollars versus purchasing local forms offered by the major bankruptcy software companies. You should always keep in mind that Federal and State Bankruptcy Forms are provided free of charge to the public. Just like bankruptcy filing information is available for public knowledge. You should never be forced to pay for Federal and State Forms regardless if it is for incorporating your business, copyrighting a book, preparing income taxes or bankruptcy petitions, or any other Federal or State form required by the government. However, if you choose to purchase the forms, at least you will be making an informed decision and not being taken advantage of because you were not aware Federal and State forms were available free.