Chapter 7 and 13 Bankruptcy Blog

I just got off the phone with an attorney in Florida regarding a case he was working on.  Believe it or not, these debtors actually had equity in their home (which is rare to find in this day and age.)  Their home was appraised at $400,000 and they owed $387,000.

Originally the attorney filed a Chapter 13 and tried to strip the second mortgage but the mortgage company filed a Motion for Relief from Stay based on the fact there was equity in the home.  The attorney then converted the case to a Chapter 7 and wanted my help to convert it back to a Chapter 13.

Since this can be a common problem, here is a quick tip I learned from one of the attorneys I worked for handling this issue:

1.  Take the total amount of arrearages owed on the home.  In the case discussed above, this amount was $115,000 (which included attorney fees, foreclosure proceeding fees and non-payment dues covering 24 months.)

2.  Divide the arrearage amount by 60; which is the maximum time a debtor can be in a Chapter 13.  In the case discussed above, this amount was $1,916 per month.

This simple calculation told the attorney that the debtors did NOT have enough disposable income to pay the arrearages; let alone the second mortgage payment itself.  And this saved the attorney in Florida a great deal of time.  Instead of filing a motion to convert the Chapter 7 back to a Chapter 13, the attorney was able to determine immediately that a Chapter 13 would not be possible.

This left the debtors with only two choices: (1) Surrender the home, or (2) Increase their income.

I hope this quick tip helps save you time and money when you encounter the same problem.  If you have any cases you would like for me to help you with, please contact me directly at:

Victoria Ring Cell: 719-659-0743 http://www.chapter713training.com Email: victoriaring1958@gmail.com

Have you noticed the ads in newspapers from law firms claiming to file a bankruptcy for only $300 or $200 or even as low as $150? Did you ever wonder how they can charge this low of an amount and still stay in business?  Here are two scams that use these techniques:

Scam 1: Pretending to do a loan modification

A law firm will advertise to do loan modifications for clients. They rent mailing lists of people facing foreclosure and target them with promises of helping to save their home.

Once the client has paid $4,000 or $5,000, the law firm will claim the mortgage company would not accept their offer. The only choice left for the client is to file bankruptcy. Of course the law firm will pretend to give the clients a deal and charge them $300 or less for filing the petition.  But remember, they just received $4,000 or $5,000 for doing nothing.

How do I know this happens? Because I have personally been involved with four law firms who used these tactics. I refused to work for them, but other virtual assistants worked for law firms like this and reported their horror stories to me.

Scam 2: The low price is only for a skeleton filing

Some law firms will advertise low prices for filing bankruptcy because this price is only for filing the Voluntary Petition and Creditor’s Matrix.  This type of filing will stop any legal action against the debtor but they will only have 14 days before they must file the remaining schedules of the petition.

Of course the law firm will charge extra for Schedule A, Schedule B and so forth.  By the time the clients pay for each remaining schedule, they have more money invested compared to paying an honest bankruptcy attorney the full fee in the beginning.

Summary

There are bad attorneys and good attorneys. There are bad doctors and good doctors. There are bad waiters and good waiters. There are bad people and good people.  No one is immune from scams because they exist everywhere.

But the next time you see one of those low-cost ads for filing bankruptcy, perhaps this article will help you shed some light on the possible truth behind the low price.  Also, you can use the information to educate your staff and your clients who may ask you about these ads.

Be sure to pick up your free tools from Chapter 7 and 13 Training.Com at:

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Issue 01 – October 20, 2010

This is the first issue of a new publication I plan to publish each week.  The information in this publication is made possible by the Chapter 7 and 13 bankruptcy petition reviews we do for attorneys nationwide.  We felt by sharing this information with other attorneys and law firms, it will help them to pick up specific tips and techniques to help them in their practice.  I hope you enjoy the case review this week that follows.

CRAM AND STRIP DOWNS

Some attorneys make the mistake of assuming that all mortgages are eligible for cram and strip downs.  First, we need to establish the fact that cram and strip downs have not been written into law and it is up to each bankruptcy court as to whether they accept them or not.

But let us suppose that cram and strip downs are permissible in your bankruptcy court.  The next step is to qualify the debtors.  Qualifying the debtors for a cram and strip down on their mortgage could take in a wide range of possible scenarios depending on the situation the debtors are in.  This week we encountered a situation where the debtors were unable to qualify for a cram and strip down so I wanted to share it with you.

THE CASE OF BOB AND SUE

The debtors (let us call them Bob and Sue) had their home appraised for $275,000.  They owed $200,000 on the first mortgage and $150,000 on the second.  The attorney asked us to prepare a Chapter 13 and propose a cram and strip down for the primary residence.

Now although we are paralegals and the final decision is always given to the attorney, we do warn attorneys when possible objections could occur based upon our many years of experience.  The main reason the cram and strip may not work for Bob and Sue is because they have $275,000 of SECURE property.  If the bankruptcy court seized the home and sold it for $275,000, they could completely pay off the first mortgage company and still have $75,000 left over.  This also means that since $75,000 is left over, the second mortgage company would be able to claim that as SECURE also.  The only amount of the mortgage debt that is underwater and UNSECURED is $75,000 of the second mortgage.

We suggested to the attorney to propose paying $275,000 as secure and $75,000 as unsecured, non-priority inside the Chapter 13 Plan.  This still saved Bob and Sue a great deal of money but it was not the $200,000 they had originally anticipated.  (Note: I am still amazed at how people work to push the bankruptcy system in their favor. Many people today appear to not understand what is meant to act in a fair and moral manner; but this is just my personal opinion.)

OTHER REFERENCES

Pre-Qualifying Debtors for a Mortgage Cram Down http://chapter7and13bankruptcyblog.com/archives/710

How Banks are Viewing Cram Downs Proposed in Bankruptcy http://chapter7and13bankruptcyblog.com/archives/18

Mortgage Cram and Strip Down Questions and Answers http://chapter7and13bankruptcyblog.com/archives/24

Recommended Book on Foreclosures from The National Consumer Law Center http://shop.consumerlaw.org/foreclosures.aspx

DO YOU NEED A BANKRUPTCY PETITION REVIEW?

You can save a great deal of money and ensure you have a well-detailed Chapter 7 or 13 bankruptcy petition before filing.  Here is how it works:  You prepare the petition with as much detail as possible. But before filing the petition, email it to us (PDF or Best Case format) and we provide you with a complete petition review.  This review is provided on the telephone and if a visual is needed for training purposes we will provide that at no additional charge. The costs are only $200 for a Chapter 7 and $275 for a Chapter 13.  To schedule your bankruptcy petition review call Victoria Ring at 719-659-0743.

Talk to you next week ….

Victoria Ring My Bankruptcy School http://www.mybankruptcyschool.com

Enroll at http://www.mybankruptcyschool.com

September 7 – Getting Started and Pre-Qualifying Debtors September 11 – Voluntary Petition, Schedules A and B September 15 – Schedules C, D, E and F September 20 – Schedules G, H, I and J September 24 – Statement of Affairs and Means Test September 28 – Miscellaneous Forms and Finalization Techniques September 30 – Marketing on the Internet

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The schedule above is for LIVE classes.  But when you enroll you gain immediate access to the online school.  Each class module is filled with training materials, videos and audios so you can get started learning right away.

However, during the LIVE classes you will be able to interact with the instructor, Victoria Ring.  You are also encouraged to bring problem petitions to the class so that everyone can learn through real world practice.

STUDENTS ALSO RECEIVE

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VIDEOS FOR REVIEW

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ENROLL AT http://www.mybankruptcyschool.com

My Bankruptcy School is for both attorneys, paralegals and legal professionals working for attorneys. We have attorneys sign up as individuals because they prepare their own petitions; or we have attorneys sign up with their paralegals.  We also have entire law firms of 5 or more sign up and take the classes together.  Regardless of whether you are a beginning or have experience with petitions, I hope you decide to join us and increase your current petition skills.

INSTRUCTORS

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– 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

– by Victoria Ring, Colorado Bankruptcy Training

In the old days (not long ago) when a person decided to file bankruptcy they normally really needed to file bankruptcy.  But today, a large number of cases are filed with the fraudulent intention of taking advantage of the bankruptcy system and it is up to every one of us working in this field to do our part to protect the system or we risk even more regulations and hoops to jump through.

The best way to accomplish this goal is to demand that debtors provide verifiable documentation about their income for the past six months.  During the last month I have witnessed four cases involving debtors who claim to work as a 1099 employee but they have no verification of income and expenses to back up their statements.  When confronted for additional data, normally the debtor (who is trying to hide something) will give the attorney and their staff conflicting stories.

One attorney we helped this past week told us that the debtor had given him 100 different stories.  The attorney wanted us to call the debtor and see if we could get the truth.  First of all the debtor would not answer the phone and gave the excuse that he avoided phone calls because of credit collectors.  Note:  Don’t fall for this. The debtor knew he was filing bankruptcy and that his attorney will need to get in touch with him during the process.  In my experience, debtors avoid phone calls because they: (1) Are too paranoid to face their problems and want to forget about them; or (2) They are hiding something and need time to think up a good excuse.  (Please understand that I am not trying to be harsh.  I am just stating facts.)

In all case scenarios we worked on this past week, the debtors were required to provide six months of income statements.  Of course 1099-employees do not receive a paycheck from an employer, but they must have some type of accounting system to show the income and expenses for their business.  If they do not, something is odd.   Keep in mind, that some debtors will tell you that they do not keep records to avoid providing you with information about their actual income, so you need to go a step further.  You need to get the debtors to provide you with a Profit and Loss statement for their business, regardless of whether they have one or not.  They can write one up and provide to their attorney.  And the income figures the debtors provide need to match the bank deposits from their business and personal checking accounts.  If not, creditor objections are very probable.

That’s right.  You need BOTH the business and personal checking account statements for the past six (6) months; and if you want to go an extra step, compare the figures with the IRS Income Taxes that were filed the year before.  Of course these figures may not be exact, but comparing them will often allow you to determine if the debtor is providing you with fraudulent data in an effort to hide their income.  For example:  If the IRS Tax Forms that were filed in 2009 showed a loss of $20,000, and the 2010 bank statements show the debtors are depositing $5,000 a month; something is wrong.  A business does not normally operate an entire year, go in the red $20,000 and suddenly make $5,000 every month.

Use logic in your analysis of the data the debtor provides whether you are an attorney or working for an attorney.  Doing so will protect the attorney, fulfill due diligence and protect the system from fraudulent debtors.

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Beginning on June 15, 2010, the federal government will begin mailing one-time $250 rebate checks to Medicare beneficiaries who have hit the drug plan’s coverage gap known as: the doughnut hole.

The payment is part of the new health care reform law and people on Medicare do not have to apply to receive the rebate.  Checks will be mailed roughly every six weeks until the end of the year.

Help with drug costs will continue in 2011 when those on Medicare will receive a 50 percent discount if they reach the doughnut hole.  Savings will continue to increase over the years until the doughnut hole is closed in 2020.

What Does This Mean For Those Who Prepare Bankruptcy Petitions?

If you have a debtor who receives an income from the federal government, you need to ask them if they receive Medicare.  If so, ask them if they received the $250 rebate check.  If so, this additional income will need to be added to Schedule I and the Means Test within the bankruptcy petition.

For more information visit: http://www.medicare.gov

Upcoming Bankruptcy Training Seminars

http://www.bankruptcytrainingproducts.com/home/web-and-teleconference-training

As you may be aware, cosigners and codebtors are people (or companies) who are obligated to pay a debt if the client does not pay it.  Therefore, when a client decides to file bankruptcy and that client owes a debt where a cosigner or codebtor is involved, it could potentially cause a major problem to develop.

This is why it is extremely important to obtain precise information about any cosigners or codebtors the client(s) have that are associated with their debts.  And to be certain you (or your attorneys) protects the client(s) in the best way possible, the attorney may need to review the contract that was signed regarding this debt.  You will need to find out:

1.   Was the debt secure or unsecure? 2.   Were the client(s) the primary or secondary client(s) on the contract? 3.   Were any items used for collateral no longer in the possession of the client(s), or that the client(s) are surrendering in the bankruptcy?

After obtaining the answers to each one of these questions the attorney will need to find out if this client qualifies for a Chapter 7 or Chapter 13.  Both Chapters treat debts somewhat differently but you need to verify the facts before the attorney can advise the client(s) properly.

Let me give you an example:  An attorney discussed a case with me that he was working on.  A lady had stopped by the office to ask about a debt she cosigned on a $27,000 credit card with her nephew.  The nephew was filing bankruptcy and he wanted to know how this would affect his aunt who was not filing.

If the nephew files a Chapter 13 and has enough income to pay back his unsecure creditors 100%, this issue could possibly be uneventful.  The debt could be paid in full through the Chapter 13 Plan which is filed with the bankruptcy petition.

However, a problem could occur if the nephew does not have enough money left over to pay the unsecured creditors 100%.  He may only have enough income to propose a 50% Chapter 13 Plan. What will happen to the remaining 50% that will not be paid through the bankruptcy?

One of the more interesting features of Chapter 13 law is something called the COCLIENT(S) STAY.  Set out in Section 1301(a) of the Bankruptcy Code, the CoClient(s) Stay disallows collection action on consumer debt against co-client(s) or the person filing for bankruptcy.

A TYPICAL SCENARIO

A client files a Chapter 13 bankruptcy and includes a debt owed to TV Centers of America for a new television.  The clients mother cosigned the loan for her son.  The clients Chapter 13 protects the mother from collection efforts for as long as the client remains in the Chapter 13 and continues making the payment to the trustee.

However, the obligation of the coclient(s) do not disappear.  If the client repays a consumer debt at 30 cents on the dollar in the Chapter 13, the clients cosigner will be liable for the remaining 70% after the bankruptcy case is discharged.   But, during the time the client(s) are in a Chapter 13, the coclient is protected.   Often in these cases, client(s) will establish special payment CLASSES in their Chapter 13 Plan to pay co-signed debts in full to protect the co-client(s).   In other situations; such as when the cosigner is an exspouse, the co-client(s) may be left exposed.

WOULD YOU LIKE MORE INFORMATION LIKE THIS?

Information like the article above are extremely valuable for attorneys and non-attorneys working in Chapter 7 and Chapter 13 debtor bankruptcy law.  To obtain your 75 page Operations Manual and Initial Intake Forms, visit:

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