Chapter 7 and 13 Bankruptcy Blog

I had two attorneys this week send us bankruptcy cases where they wanted to propose a Cram Down on the FIRST mortgage and a Strip Down of the SECOND because the house was underwater. Unfortunately, both of the bankruptcy clients were not eligible for a cram down. I had to call both attorneys and let them know. They were shocked and were not aware that pre-qualification was necessary to propose a mortgage cram down and strip. This is when I decided to write this article to help other attorneys and their law firms. Read the rest of this entry »

– 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.

Click here to find out more about our online training classes

The first Chapter 7 Bankruptcy Petition Training Class began on July 5, 2010. The first class consisted of eight students; four attorneys and four non-attorneys.  I asked the students if the online class was different compared to purchasing the training videos.  Three comments I received were:

The online class is much different from the videos.  You provide different information in the online class so I would recommend someone purchase both for well-rounded training.

I really prefer the online class because I can ask questions directly to the instructor and get an immediate answer.  I also like the personal touch because a video is a recording and the online classes are LIVE.

I like the videos because I can watch the lessons over and over again; however, the online class does provide an advantage in the fact that different information is covered compared to the training videos.

The Cost Saving Advantage to Online Classes

The biggest advantage to attending online classes is the cost savings.  For example, to attend a one day seminar you could invest as much as $2,000 for airfare, hotel and meals; let alone the time spent away from work.  But by attending online classes you CAN SAVE 90%. The Chapter 7 class is only $275 and the Chapter 13 is $150.  Plus, you attend online and have absolutely no overhead costs.

I noticed this benefit immediately during the development of the Chapter 7 Bankruptcy Petition Training Class.  From 2004 until this year I traveled throughout the United States speaking at seminars.  The average overhead cost for me to book a hotel meeting room, rent the audio visual equipment, make copies of manuals and buy food for attendees was about $3,000.  That meant that I needed 10 people to sign up for a $300 seminar just to break even.  Rarely did I ever produce a profit, but I knew the training was necessary for attorneys and virtual bankruptcy assistants, so I continued doing the seminars as long as I broke even; but my business suffered because I was out of town; just like your law firm would suffer if you had to miss work to attend a seminar.

However, now, with the development of the online class, I can conduct a class if only one person signs up.  That’s because instead of paying $3,000 in overhead expenses for a one day seminar, I only pay $7 a month for hosting the website.  My costs are reduced – the costs for the student are reduced; and it is a win/win situation that I am sure more people are going to enjoy.

Why are some people apprehensive about online classes?

One reason people have trouble accepting online courses are that the quality of many of them is extremely poor.  I signed up for a class that had absolutely no live interaction from the instructor.  In fact, she would not even reply to my emails.  I had to actually call the school and complain just to get the instructor to respond.  Also, the materials were only available online, not in a classroom setting; and the materials were very scanty and contained poor content.  The information was only theory and contained nothing that I could actually put to use in my real work life.

These are just a couple of reasons why online schools and classes have a bad reputation and are destroying the reputation for professional schools like MyBankruptcySchool.com.  I hope you give us a chance because the materials we provide are the best in the field and are taught by the developer of the virtual bankruptcy assistant industry.  This is top level training at low prices designed for bankruptcy attorneys just starting a law firm and operating on a tight budget.

Questions from Attorneys Regarding the Online Classes

Q: Why is the Chapter 7 class so long?  Can I jump ahead and take the class in a few days?

A: The online courses that I developed are not intended to dictate to you like grade school.  If you want to download all the handouts and quizzes, never attend a class and complete your training in a few days; that decision is entirely up to you.  I will tell you that you get so much more from attending the live meetings because you learn a great deal from the instructor.  But whether you attend or not is your decision.

Q: What materials do I receive once I enroll in the course?

A: Prior to the first day of the course you will be emailed a username and password so you can have access to My Bankruptcy School online.  A video showing you a visual tour around the interface is provided at:  http://www.youtube.com/watch?v=Uc-598gBlxQ

Once logged into MyBankruptcySchool.com you will have access to:  (1) extensive handout materials; (2) quizzes to check your progress; (3) audios of previously recorded classes; plus (4) all the other features of the interface.

Q: What other topics do you cover in the course that are not listed on the website?

A: Every class is very intense and contains a great deal of information.  However, every class is different because the topics are structured around the needs of the particular students in that class.  However, some popular topics I cover to help attorneys are: (1) how to set up electronic files; (2) how to incorporate marketing techniques into your operational procedures to produce long term results; (3) client intake interview tips; and (4) social media for marketing.

Do you have any other questions?

Fill out the contact form at: http://www.coloradobankruptcytraining.com/contact-us

What classes are available?

Chapter 7 and Chapter 13 Classes are available at: http://www.bankruptcytrainingproducts.com/home/web-and-teleconference-training

How do I find the My Bankruptcy School website? http://www.mybankruptcyschool.com

Sample Bankruptcy Games

Bankruptcy Terminology Game http://www.quia.com/cc/1983817.html

Bankruptcy Hangman Game http://www.quia.com/hm/665546.html

Back in the old days (prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), many attorneys would advise their clients to incur debt in order to eliminate any possibility of having unexempt equity in an asset.  Whether this was right or wrong is not the focus of this article.  The focus instead is to simply state that this behavior existed.

To prevent this problem, the lawmakers implemented wording into Section 526(a)(4) of 11 USC when the BAPCPA law went into effect in 2005.  According to this Section, a debt relief agency shall not advise an assisted person or prospective assisted person to incur debt in contemplation of such person filing a case under this title . . . .

I am sure you agree that all this is well and good, but what does it have to do with the point of this article?  The point is that on March 8, 2010, the Supreme Court declared that attorneys for debtors are debt relief agencies pursuant to 11 USC Section 101(12A) of BAPCPA.  A Minnesota law firm by the name of Milavetz, Gallop and Milavetz filed a declaratory judgment action in the District Court against this ruling; but it was overturned.

What does this mean for your law firm? It could be a very good thing marketing wise.  The stigma most people have against the word bankruptcy is often one of depression and humility.  Therefore, if an attorney markets their law firm as a debt relief agency, it could have a more positive effect on consumers in that particular marketplace.

However, this is just my opinion.  Have a great week!

Victoria Ring Certified Paralegal and Instructor http://www.coloradobankruptcytraining.com

Michael Misenheimer, an experienced paralegal with over 10 years experience in bankruptcy has recently opened a new service for both creditor and debtor bankruptcy attorneys. Michael’s services include:

Foreclosure Services Creditor Services Collection Services Debtor Services

If you are a VBA and your attorney needs assistance with creditor matters, please refer them to Michael.  If you are an attorney, you may consider the services that Michael provides.  Not only is he experienced, reliable and professional, he is also entering law school in the fall to advance his legal career.

Visit Michael’s website at: http://www.bankruptcy-paralegal.com

Michael Misenheimer has been highly recommended by Victoria Ring, founder of the virtual bankruptcy assistant industry.

a lesson in client intake interviews and conflicting information

For the three weeks I have been working on one particular bankruptcy case.  Why is it taking so long?  The clients have been very difficult to interview and the husband and wife keep providing conflicting information.  Therefore, I decided to write this article to help you when you face the same problems, if you have not encountered them already.

The petition began like any other normal petition.  I entered the initial data into the bankruptcy software and compiled a list of questions to ask the clients.  When I called the client back I discovered the phone number the attorney provided was her work phone, so I apologized for the interruption and set up an appointment to talk with her after hours when she was at home.

The first problem I encountered was the inability to understand the clients due to their heavy Pilipino accent.  However, I did my best to get the answers to some of the questions.  For other questions, the wife handed the phone to her husband and I tried to communicate with him the best I could.  However, the husband could not understand who I was and was very reluctant to talk with me.  I had no choice at this time but to end the interview, let the attorney know my dilemma and ask him how he wanted me to proceed.

It took approximately 2 weeks before the attorney had the opportunity to talk with the clients and inform them of my role.  I was instructed by the attorney to call the clients and finish the interview.  Hint:  If you are an attorney, you should always let your clients know the names of people who may call them to obtain information.  This way you save a lot of time for your office and staff as well as confusion for your client.

Finally, after leaving voice mails for the clients and eventually getting in touch with them for a second interview, I was able to conduct 80% of the interview in about 2 hours time.  The reason I was unable to complete the interview is detailed in my notes to the attorney which are provided below.  However, the debtor(s) did nothing but hurt themselves by refusing to provide me with the crucial information I needed.  Now the attorney has to spend time getting it before we file the petition.  So eventually, they will have to answer the questions whether they want to or not.

When you encounter situations like this, it does not always mean that the debtor(s) are committing fraud or trying to be fraudulent in their answers.  Instead, some clients are reluctatant to answer questions because they are afraid it could get them in trouble, so they ask you or me to answer the questions for them.

For example: in one part of my conversation with the debtor, I asked him how much his family spent per month in food.  He said they spent $6,000.  You and I both know that this amount is too extreme and overinflated.  The IRS allowance for this family of 4 is only $1,370, so I immediately knew that this would not pass through the bankruptcy court without problems.  I told the debtor that $6,000 was much higher than the IRS allowance and that I needed a more realistic figure.  The debtor told me to make up any number that I needed to.  I told him that if I did, I would be committing unauthorized practice of law.  The debtor needed to provide me with a figure and that figure could not be $6,000.

But instead of trying to be sensible, the debtor became upset and started playing mind games.  He told me to try $5,000; but I told him this was too high.  Next he told me to try $4,500.  This immediately told me he was playing games and had no intention of providing me with an accurate figure to reflect his own household budget.  It was at this point that I stopped playing the game and told the debtor that he could discuss the matter with his attorney.

Remember: As a non-attorney, you should do everything you can (within your scope of power) to obtain the information you need to compile a well-detailed bankruptcy petition.  If the client refuses to provide that information or cooperate with you, do the best you can to get as much information as you can, then document details of the interview (as I have done below) and turn the matter over to your attorney. Ask your attorney how they want you to move forward and wait on their instruction.

MY NOTES TO THE ATTORNEY REGARDING THIS CASE provided for training purposes only

STUDENT LOAN ISSUES

From what I can understand, the clients have 2 sons with 2 separate student loans.  The first son (who is 21) has a student loan with Great Lakes for which the debtor co-signed.  This means that the debtor may need to start paying $300 per month for this student loan debt beginning in June 2010.

However, debtor claims that these are his student loans; however, he acknowledges that he did NOT attend school.  Because debtor did not attend school, the student loans must be in the name of the son who did attend.  I am sure that Great Lakes had to place the student loan in the name of the student, not the parent.  Yet, debtor says that I am totally wrong and became very upset.

Bottom line: We do not care if debtor wants to pay the student loan for his son who is able to work and pay his own debt; my ONLY concern is if the Chapter 7 bankruptcy will be over in order time to allow for this $300 monthly payment.  By allowing for this $300 monthly payment, Debtor’s income could be reduced on Schedule I; but the expense may not even be allowed by the court since the debt does not belong to debtor.  This is the part the debtor is not able to understand.  I do not believe the loan is solely in his name and that his son is the only one responsible for it; but if I am wrong, please let me know.

Since debtor is unable to clarify this information and provide me with a suitable explanation, I have NOT listed these loans since they are currently NOT due and at this point, are not in default and not the responsibility of the debtor(s).

DEPENDENT ALLOWANCE

The debtor(s) currently have both sons living with them.  One son is 21 and the wife said he has a job; however, the husband said he is still looking for a job.  The problem is, the 21 year old is NOT in school and therefore may not qualify as a dependent on the bankruptcy petition regardless of whether he is working or not.

However, the second son, who is 20 years old, is still in college and will not be graduating until 2012. Again, the student loan would not even be due until this date, yet debtor said he wants to plan ahead and include the amount in his bankruptcy.  In fact, he got angry because I told him the court may not allow for this student loan repayment and therefore I was not placing it on Schedule J unless the attorney advised me otherwise.  I tried over and over again to explain to the client that we were only concerned with TODAY not tomorrow; yet, he became more agitated and upset with me.

Therefore, I listed both sons on Schedule I but the attorney may receive objection from the trustee.  Hopefully the trustee will allow the son who is still going to college as a dependent but it cannot be guaranteed.  The clients both need to get their stories straight before they go to court.  You may want to counsel them only to say YES and NO and not to start telling stories since their stories are always conflicting.

GE MONEY BANK DEBT

The debtor(s) listed on their client intake forms that they had a debt owed to GE Money Bank in the amount of $6,194.47 but it was a credit card.  Since the account number they provided was not a credit card number, I talked with them about it.

I discovered that the debt was SECURE because they purchased 4 television sets.  However, the debtor was unable to describe the TVs to me.  I cannot believe that 4 televisions are worth over $6,000 unless they are of a better quality than the $800 the debtor claims.  First he told me the televisions were very OLD (but would not tell me how old).  Next he told me he owed GE Money Bank $3,000 but added some more stuff in January (less than 90 days ago) that brought the total to $6,000.  When I asked him what items he had previously purchased for the original $3,000 debt, he said it was for the television sets.  When I asked him what he purchased in January, he again said it was the television sets.

This conversation continued like this for almost 15 minutes and I tried every way to try and help the debtor understand that I needed a complete inventory of the GE Money Bank debt but he kept giving me conflicting information.

My thoughts: Since this debt is such a touchy subject, debtor may have purchased these items less than 90 days ago because he knew he was filing bankruptcy.  As you know, any debt made within the past 90 days could be subject to non-discharge and the clients may have to pay this debt or give up the televisions.

Please find out:

1.   A complete inventory of everything included in the $6,194.47 debt 2.   A complete inventory of any purchases made to GE Money Bank within the past 90 days, which includes January. 3.   A complete description (brand name and size of screen) for each television set 4.   The monthly payment made to GE Money Bank 5.   Are they behind in payments?  If so, which months? 6.   Do they plan to catch up the back payments or surrender the televisions?

THE RECENT FINE FOR SPEEDING TICKET

In general conversation debtor mentioned that he has a court appearance set for March 23 to appear for a speeding ticket.  When I tried to find out about the ticket the debtor refused to go into detail. The only information I could pull from him was the court date and the amount of the fine, which is $332.  I did a search online through PACER as well as the Los Angeles Traffic Court but I could not locate any records on this traffic violation.

Debtor stated that he already paid the fine but still he needed to appear in court.  I suggest you check this out.  If the $332 was the entire fine paid in full, it needs noted on the bankruptcy petition. If the $332 is only a partial payment, I need to know that also.  Additionally, I need to know the:

1.   Case number 2.   Case caption 3.   Parties in the case 4.   Date of ticket 5.   Name and address of the court handling this matter

ADDITIONAL QUESTIONS

Debtor could not tell me if he was behind in payments on the 2002 BMW.  If he is behind, he will need to catch up those payments before the 341 Meeting or a potential objection could be challenged by the creditor since this case will more than likely be a Chapter 7.  In the petition we have asked the creditor to accept a LOWER monthly payment as well as a CRAM DOWN.  The original amount owed was $14,474 on the 2002 BMW but the Nada Guides has a market value of $6,025.  We are saving the debtor(s) $8,449.00 but if they do not show a good faith effort to catch up any past due balances, the deal could be lost and receive an objection from the creditor.

If they are only 1 month behind in payments, this may not be an issue; however, debtor was unable to provide me with this information and became upset when I asked him the question several times so I gave up.

SUMMARY

I hope my notes help you when you work on future petitions.

Below are some updates I received from various sources that I wanted to pass on to you:

400,000 AMERICANS TO LOSE UNEMPLOYMENT BENEFITS WITHIN THE NEXT TWO WEEKS

According to the Labor Department, about 400,000 people will lose benefits in the next two weeks without action from Congress. The short-term extension was designed to tide over the program while lawmakers debate a $150 billion measure that would extend benefits through the rest of this year.

To read the complete article visit: http://www.businessweek.com/news/2010-03-02/republican-says-compromise-may-end-unemployment-benefits-fight.html

For those of you who enjoy statistical data, the following information published by the American Bankruptcy Institute will enlighten you:

TOTAL BANKRUPTCY FILINGS INCREASE 32 PERCENT IN 2009, APPROACH PRE-BAPCPA LEVELS

Total bankruptcy filings in the United States increased 32 percent in 2009 over calendar year 2008, according to data released today from the Administrative Office of the U.S. Courts (AOUSC). Bankruptcy filings totaled 1,473,675 for the 12-month period ending Dec. 31, 2009, a significant increase over the previous year’s total of 1,117,641. Business bankruptcies increased to 60,837 filings during calendar year 2009, representing a 40 percent increase in filings from the 43,533 filings made during the 12-month period ending Dec. 31, 2008. The 12-month business filing total for 2009 was the highest since the 62,304 filings recorded for the 1993 calendar year. The 1,412,838 consumer filings during the 2009 calendar year represented a 32 percent increase over the 1,074,225 recorded during the same period in 2008. The consumer chapter 7 total of 1,008,870 filings during the 12-month period ending Dec. 31, 2009, represented a 41 percent increase over the 714,389 consumer chapter 7 filings during 2008. The 2009 consumer chapter 7 filings comprised 71 percent of the total consumer filings for the 2008 calendar year, up from 67 percent the previous year.

BE SURE TO ATTEND THE BANKRUPTCY SEMINAR IN ATLANTA

One of the best ways to keep in touch with the world of consumer bankruptcy is to attend the TWO DAY, Chapter 7 and 13 Bankruptcy Seminar, scheduled to be held in Atlanta, Georgia.

For more information and to register, visit: http://www.713training.com/shop/cart.php?m=product_detail&p=120

– a perspective for the Chapter 7 and 13 bankruptcy professional

On February 25, 2010, President Obama proposed a bill that would prohibit foreclosures on home loans unless they have been screened and rejected by the governments Home Affordable Modification Program, also known as HAMP.

At the present time, companies have the ability to proceed with foreclosure actions against homeowners, even though they have registered with HAMP.  However, the proposed changes would prohibit lenders from initiating new foreclosure actions before loan screening by HAMP and would require lenders to halt existing proceedings for borrowers once they are in a trial repayment plan.

DOES THIS INCLUDE ALL HOME LOANS?

No.  Only home loans that are owned by Fannie Mae and Freddie Mac are eligible for this preferential treatment.  However, President Obama has asked the major banks to grant more loans to American citizens since it was all of us who donated the billions of dollars to save the banks less than 2 years ago; but that is a separate story.

HOW DO YOU KNOW IF A HOME LOAN IS OWNED BY FANNIE MAE OR FREDDIE MAC?

At the present time, if a mortgage loan is owned by Fannie Mae or Freddie Mac, the borrower may be eligible for a Home Affordable Refinance to take advantage of lower interest rates.  To find out if a loan is owned by Fannie Mae or Freddie Mac, visit: http://www.makinghomeaffordable.gov/loan_lookup.html

Additional eligibility requirements are provided at: http://www.homeloanlearningcenter.com/files/HAMPEligibilityRequirements.pdf

SUGGESTIONS FOR USE OF THIS INFORMATION WHEN PREPARING BANKRUPTCY PETITIONS

Bookmark the http://www.makinghomeaffordable.gov/loan_lookup.html website.  Make sure you add this to the links you use for online searches.  That way, when you start a new petition where the debtors are homeowners, you should automatically run the property address through both Fannie Mae and Freddie Mac to see if the home loan is owned by these two entities.  If so, alert your attorney to this at once by providing him or her with the Eligibility Requirements document referred to above.

The debtor may be eligible for a loan modification which may prove more advantageous than using the cram down or strip down method.  Because every bankruptcy petition is unique and different, you need to have a wide variety of options and resources available to you so that the attorney can utilize the best and appropriate action that is in the best interest of the debtor.

REFERENCE:

Direct link to Bloomberg news article: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahuuwBS8KYq8

Due to the rapid growth of the debtor bankruptcy industry, it has become necessary to separate 713Training and 713Attorney.

From 2004 to 2010 these companies served two separate markets. 713Training provides training and support for virtual bankruptcy assistants and 713Attorney provides training and support for the debtor bankruptcy attorneys.  For the past several years, Victoria Ring has been able to manage both of them with occasional support from virtual assistants she hired to answer phones and fill orders.  But at the alarming rate the bankruptcy industry is growing, a point occurred where the companies had to be separated or both of them would suffer.

Therefore, on February 1, 2010; Clay Holland of MyBankruptcyAssistant.Com will take over the management of 713Training.  Victoria Ring will then have the ability to direct her attention solely to the training and support of debtor bankruptcy attorneys and their law firms through 713Attorney.

HOW TO STAY CONNECTED TO VICTORIA RING

1.  Visit http://www.linkedin.com/in/coloradovictoria 2.  Click:  ADD VICTORIA TO YOUR NETWORK 3.  If you are not already logged into LinkedIn you will be asked to login 4.  When prompted to type in an email address, use:  victoriaring@lawyer.com 5.  Send the email invitation

If you are already subscribed to the 713Training LinkedIn list, by all means, DO NOT UNSUBSCRIBE.  Clay Holland works as a virtual bankruptcy assistant, who is also assisting an attorney in building his law practice; therefore, Clay has a great deal of knowledge to share with the group that will be beneficial to you.

I apologize for any inconvenience this change may cause but this is the procedure that LinkedIn has in place to prevent you from being subscribed to a network for an individual you are not interested in following.

Additional changes are being made to compensate for the rapid growth of 713Training and 713Attorney.  Make sure you stay connected for updated details.

Victoria Ring, CEO http://www.713Training.Com http://www.713Attorney.Com

The problem: There is not enough left over for the debtors to make a Chapter 13 Plan payment.

I talked with an attorney today who said:  For a Chapter 13 Plan, I thought all I needed to do was take the amount left over between Schedules I and J and this was the Plan payment.

Unfortunately, in 90% of the cases, it is not that simple.  For example: Today I had a married couple who owed three mortgages on their home.  Here are the particulars:

$420,000 – Current market value of home

$320,000 – First mortgage $  20,000 – Second mortgage $200,000 – Third mortgage $  20,725 – Exemption allowance

Adding up $320 + $20 + $200 we have a total of $540.  The home is valued at $420, leaving the debtors with $120 in equity.  Minus out the exemption allowance and the debtors are UNDERWATER by  approximately $100.  This means that the attorney could propose a cram down on the THIRD mortgage and save the debtors $100,000.

This is a good thing, right?  Wrong.  Even with the cram down, the debtors only have $2,300 left over every month to make a Chapter 13 Plan payment.  After plugging in the figures into the Chapter 13 Plan, it would take a MINIMUM of $3,000 in a monthly payment just to cover the mortgage obligation, and still then, the unsecure creditors would only be paid 9 percent  (which could be a problem.)

BAD SOLUTION:

Some attorneys, when faced with a problem like this will reduce the expenses on Schedule J just to get the case filed.  But these are the types of things that will drive a Trustee insane.  Also, these are the types of things that can embarrass an attorney in court in front of their clients because they have not done their job properly.  They took the easy way out and left the Trustee to figure it out.

GOOD SOLUTION:

The best approach to solving this dilemma is for the attorney to meet with the debtors and explain the situation.  The attorney should start by giving the debtors a copy of Schedule J and ask them to look over the figures and let them know if everything looks okay.   After the debtors approve the figures (or change them) the attorney can explain the problem to the debtors in terms they will be better able to understand.

The attorney may say something like:  Since the figures are correct on Schedule J, you can see that you have $2,300 left over per month.  However, since your house payment is almost $2,000 that leaves you with only $300 to pay on your cars and the $250,000 in credit card debt.  As you can see, there is not enough money to do that.  Can you look over Schedule I and J and let me know if you can find an extra $700 so that I can make the Chapter 13 Plan work?

This puts control in the debtors hands and allows them to feel they are taking an active role.  If debtors understand issues, they will be more cooperative in staying in the Chapter 13 Plan.  However, if the debtors are unable to come up with a solution, at least they will be able to understand the problem and the attorney can explain different options.

WHAT IS THE BEST SOLUTION TO THIS PROBLEM?

If the debtors are unable to afford their home or do not anticipate increasing their income, the best solution would be to surrender the home.  This would give the debtors a fresh start and since there are only two of them, they could downsize and still leave a comfortable lifestyle.

However, people are attached to their THINGS, like homes and cars.  In fact, they are so emotionally attached that they cannot stand for a day to pass unless they have that particular home or particular car in their possession.  I personally do not understand it.  Everything in life comes and goes.  Everyone has a time when they have money and a time when they do not.  During the times when I have less money, I spend less and adjust my spending habits.  When I have money again, I celebrate and spend more.

Unfortunately, many people today are not willing to make sacrifices, but I hope this article at least puts the problem into a more understandable perspective.