Chapter 7 and 13 Bankruptcy Blog

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If the video does not automatically appear in the area above, click here: http://www.youtube.com/watch?v=oInwBLMGvKA

DO YOU ENJOY MY VIDEOS?

If you enjoy my short videos specifically designed for Chapter 7 and Chapter 13 bankruptcy attorneys, you can subscribe to my YouTube channel at: http://www.youtube.com/user/MsVictoriaRing Click on SUBSCRIBE at the top of page

– by Victoria Ring, Colorado Bankruptcy Training

I worked on a bankruptcy petition this week that involved a couple who had worked at the same job for 25 years.  They owned no real property and no unexempt personal property.  Their credit card debts totaled only $33,000 and they owned 2 older cars with very low market values.

What would be your first question when faced with a bankruptcy petition like this?

Your first question should be:  Why are these people filing bankruptcy? There has been no change in their income; they own very little and owe very little debt.  Something is missing from the puzzle and before I could go any further I had to find out what it was.

I immediately contacted the attorney by email as well as a voice mail (never totally rely on email) about the problem.  He called the debtors and found out that one of the reasons for the additional expenses was that their son graduated from college and they were paying back his student loans.

This is a typical example of an INSIDER DEBT in bankruptcy!  Learn how to recognize these and you will help to prevent fraud.

Although the debtors I prepared the petition for were probably honest people, many people could say that they are making the student loan debt for their son, when in actuality the son is making the payment and the debtor’s are pocketing the extra cash.  Creditors look for loop holes like this and this is a typical example of why bankruptcy cases are held up in court for many months.

Think about this: Typically, it is the son’s responsibility to pay the student loan debt.  Even if the debtors produce proof of payment that they actually paid the student loan payment, it would be impossible to prove that the son did not give them the cash to reimburse the payment they made.  This would give the debtors extra money each month to spend that the creditors would prefer to have.

Keep learning, take care and have a wonderful week!

** This article will help you to understand important basic information if you are an attorney just getting started or transitioning to the field of debtor bankruptcy law.

An attorney called me today.  She was in a hurry and wanted to know what software she needed that would prepare a bankruptcy petition in about an hour.  I told her that none existed.  She then proceeded to tell me about an attorney who had a software program that imported credit reports, filled in all the creditor addresses and did everything, including filing her petition at the press of a button.  I explained to her that almost all bankruptcy software programs perform these same functions; but there is no bankruptcy software program that is going to practice law for her.  She was disgusted at my response but it is the same response I get from new attorneys quite often.

Remember the old saying: What looks too good to be true, probably is?  All adults should know by now that anything that appears to be simple and easy actually requires a skill.  I wrote an article one time about how horrible I was at trying to bag my own groceries at the store.  I explained that even something that sounds like it could be simple (like bagging groceries) still takes a skill that is only learned by practice.

Therefore, every person reading this article needs to reprogram their brain to understand that no bankruptcy software program is going to THINK for you.  Software programs only make some jobs easier.  You still need to go in and check data, categorize it, determine priorities and much more.  No software program is going to do that no matter how much you pay for it.

HOW DID THIS RUMOR GET STARTED?  LETS EXAMINE A REAL LIFE SITUATION:

John Q Public is sitting at home watching television.  He hears the rumor (started by the new media) that he can save his home if he files a Chapter 13 bankruptcy.  John Q Public is 9 months behind on his mortgage and facing a foreclosure because he lost his job.  Mr. Public rushes to the phone to call Ms. Attorney and tell her he wants to file a Chapter 13.

Note: For those of you who work within the bankruptcy system, you already know this statement by the media is only partially true.  The media conveniently leaves out the fact that a person cannot qualify to file a Chapter 13 if they are unemployed and have no money left after paying their basic living expenses.  That is the catch; however, John Q Public does not know that.

Ms. Attorney, who, through a lack of training, offers to file a Chapter 13 for John Q, Public.  Ms. Attorney uses her bankruptcy software program to prepare the bankruptcy petition.  Ms. Attorney has little or no training in preparing the petition and she spends from 6 to 8 hours just correcting and adjusting information (that the software cannot do).  She was unaware of this when she purchased the software because she was under the assumption that it did everything for her.

Next, Ms. Attorney is overwhelmed by the fact that she has also not been properly trained in how to gather all the necessary information for preparing petitions, properly counseling her clients and how to filter out clients who do not qualify for bankruptcy and help them through debt counseling or some other form of assistance.  Without this basic knowledge, new bankruptcy attorneys are going to be in for a very rocky road ahead; especially since there is no software program that is going to do all of this for them.

What happens next is another nightmare.  After Ms. Attorney enters in all the income for John Q Public and his wife, John Q Public does not qualify for a Chapter 13.  In a situation like this some attorneys will try to still push the bankruptcy through by finding an income from another source or suggest the debtor get a part-time job so he or his wife can qualify to file a Chapter 13.

Or, if Ms. Attorney manages to get the bankruptcy petition filed by some other method, she will still risk extreme embarrassment at the 341 Meeting when she is in front of the client, creditors and the Trustee.  When the Trustee finds these issues and brings them to the table, many attorneys will simply stop accepting Chapter 13s or stop doing bankruptcy altogether rather than face this situation again.  This is sad; because the result was only caused from a lack of training and knowledge in building her practice.  Another old saying: An ounce of prevention is worth a pound of cure.

LOGICAL POINTS TO CONSIDER

If you are a seasoned bankruptcy attorney, I urge you to pass this information on to new attorneys.  In doing so, you and I are helping to improve professionalism and positive growth within the bankruptcy field.  If you are a new attorney, I urge you to study the following logical points:

1.   If a bankruptcy software program existed that could do all the thinking for you, why would someone need to hire a bankruptcy attorney?  Why not just buy the software and call it a day?

2.   If the bankruptcy court allows an attorney to charge $1,000 or more for a Chapter 13, do you not think there must be more work involved?  Some attorneys think the software does the work for them; but remember that the court does not just grant a large sum like this to an attorney without good reason.

3.   If you were going to open a pizza shop, would it be a good idea to learn how to make pizza first?  If you are going to start a new bankruptcy practice, would it be a good idea then to learn about the process first?  The least a new attorney can do is login to the American Bankruptcy Institute and view the free training videos at:

http://www.uscourts.gov/video/bankruptcybasics/bankruptcyBasics.cfm

Although these videos were made for attorneys to place on their websites to inform their clients about bankruptcy, they are still excellent in helping new attorneys understand the basics.  I always tell my students to study the law from a legal perspective as well s the consumer perspective.  It provides you with a better balance of knowledge that will carry throughout the life of your law career.

ONE SOLUTION TO CONSIDER

The videos from the American Bankruptcy Institute will NOT show you how to gather information from your clients, prepare the petition or run your practice.  That education has never been taught to attorneys and either they learn the skill through trial and error or from an experienced paralegal.

As the author of this article, I would be more than happy to talk with any attorney who is considering getting involved in the bankruptcy field. You can email me at: victoriaring1958@gmail.com

I hope this information helps you.

I am very happy to report that the Law Firm of John H Spurgeon in Pasadena, California has opened a new debtor law bankruptcy practice and will be accepting new clients soon.  Attorney John Spurgeon worked as a Certified Public Accountant for many years before graduating from the California Bar approximately 10 years ago.

Since that time, John Spurgeon has been specializing in family law.  He had been referring all bankruptcy requests out to other attorneys in the area.  However, when he found the requests were growing in number, he decided to open up a bankruptcy law practice to compliment his existing customer base.

A quick search on the American Bankruptcy Institute website at www.abiworld.org will show you the high level of increase in bankruptcy filings within the state of California.  For example: in the Second Quarter (April, May and June) of 2009 there were a total of 53,505 filings in the state of California alone.  These figures result down to almost 600 California residents PER DAY filing bankruptcy.  That is the most extreme I have ever seen in my entire 30+ year legal career.  The numbers are mind boggling and you may not understand the level of significance unless you are working in the bankruptcy field.

Due to these high numbers of filings, many homes in California are owned by banks.  Although the state of Florida is also suffering and filings are extremely high there also, the difference between the appraisal amount and the amount owed to the bank is much smaller in Florida compared to California.  For example: In California, there are many homes (priced at $100,000 in other areas of the country) originally selling for $700,000 and up.  Now that the housing market has collapsed, California home owners are finding the same property is appraised at $200,000 and they are underwater a half million or more.

In an effort to stabilize the housing problems in California, many California bankruptcy courts are putting provisions in place so that debtors may stay in their homes and this helps to prevent more criminal activity within the neighborhood as well as protecting the investment of other homeowners.  For example, did you know there are unscrupulous people who pick the locks of bank-owned homes, change the locks and rent the property to innocent victims?  If the person(s) owning the home would have stayed in it instead of moving the moment they received a foreclosure notice, this would not have happened.  It is unfortunate that people often do things that hurt them simply out of panic.

WHAT PROVISIONS IS CALIFORNIA BANKRUPTCY COURTS PUTTING IN PLACE FOR PEOPLE?

Victoria Ring is putting together a training package that will teach California attorneys how to propose strip downs of second mortgages and cram down first mortgages.  This is a new procedure that has been tested and approved by the Central District of California (the most difficult district to file a petition in).  Look for a future email announcement regarding the training package so that you can save your clients literally millions of dollars and help them get a fresh start in these hard financial times.

DO YOU KNOW OF ANYONE FACING FORECLOSURE?

One of the goals and focuses of Victoria Ring is to educate as many people as possible during these hard financial times.  If you know of anyone who has received a foreclosure notice, tell them NOT TO MOVE.  Stay in their home and keep it well maintained.  There are many opportunities for homeowners who are behind in their mortgage (and many are coming down the pike); simply because the bank would prefer to preserve their investment by having the property owner stay in the home instead of leaving and have the home subject to criminal activity.

ARE YOU AN ATTORNEY?

If you are receiving this notice and you are interested in discussing the establishment of a bankruptcy law firm for your practice, so that you can help 100s of people facing foreclosure also, feel free to call Victoria Ring at 719-659-0743.  What is the cost?  It depends on your training needs, which is why you must call for a free consultation and assessment.  Some attorneys only require training by teleconference and over the web, while others prefer that we physically come to their location.

CONTACT REFERENCE

Contact Information for John Spurgeon http://www.jsfamilylaw.com/

Free Federal Forms at http://www.713attorney.com/links/forms.html

The paralegal to a bankruptcy attorney in Pennsylvania called me today to tell me about her experience with Best Case software.  Her attorney is a registered user of Best Case and the paralegal had called them because they had to upgrade their license from a Chapter 7 to a Chapter 7 and 13.

While the paralegal was on the phone with Best Case, she asked the sales person about preparing petitions for attorneys outside of her area.  The sales lady told the paralegal that she could NOT prepare Chapter 13s for any other district except the district the attorney was in.  Even if she prepared a bankruptcy petition that was not in the same district but within the state of Pennsylvania she would have to pay another $150 to $200 for the Chapter 13 Plan.

The paralegal called me because she felt something was wrong and that Best Case had misrepresented the federal forms.  She asked me how Best Case could do this; so I explained to her the scam some bankruptcy software companies are using to sell federal forms.  Of course this scam is one of those legitimate scams.  In case you did not know, a legitimate scam is one where the customer is still ripped off, but the thief operates the scam legitimately.  Best Case is using this age old scam and eventually it will harm them; but who am I to judge?

What is the Scam?

First, you need to be aware that every federal form pertaining to bankruptcy is provided free by the government because consumers have the right to represent themselves. (This is why the first form in a bankruptcy petition is called a Voluntary Petition; the petition is filed by the debtor voluntarily).

Back to the subject, you should never be required to pay for a federal form.  The bankruptcy software companies like Best Case know this; so they sell the federal forms under the disguise that their forms work with their software.  Big deal!  But they will make you think their forms are the best thing since sliced bread so they can sell them to you and laugh all the way to the bank.

The Proof

You can verify that my statements are true by viewing the FREE federal forms I provide on the 713 website at:

http://www.713attorney.com/links/forms.html

Every one of these forms are fillable; which means that you can open up the document, click on a line and begin typing in the information on your computer.  This is often faster compared to printing out the document and filling it out by hand.  One tip though:  Only Adobe provides software that makes forms fillable; therefore, you must download the free Adobe Reader in order for the fill-in-the-blank capability to properly work.

How To Use the PDF Version Instead of the Paid Version

Prepare the petition in your bankruptcy software as you normally would. For any forms that are blocked out (such as the Chapter 13 Plan) simply download them from the website link above.  Allow the software to still compile the data and figures for the form; but instead of spending $150 or $200 to purchase an unlock code, simply transfer those figures onto the PDF document and you are good to go.  The PDF will need to be filed separately with the court, but who cares?  For most people, spending 2 extra minutes to save a great deal of money is worth it.

Of course, if you want the convenience of purchasing an unlock code for your bankruptcy software; there is nothing wrong with that.  The part that bothers me is that software companies like Best Case are forcing law firms to believe they cannot even do a Chapter 13 outside of their district unless they purchase a $150 or $200 module of the Chapter 13 Plan.  This is a lie and I would certainly question the integrity of a company that implemented these types of sales tactics just to take money from people.

Pass This Information Along

If the paralegal had not contacted me about this topic today, the law firm could have ended up paying out thousands of dollars for forms they can obtain free from their local bankruptcy court website.

Please pass along this information to any legal or paralegal related groups that you belong to.  Knowledge is power and knowledge in this area will prevent scams like this continuing.  Thanks for your help and support.

The following questions and answers were submitted to Victoria Ring either at a teleconference or by email during this past week. The best of the best were chosen to be published below.  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 regarded as legal advice.

DEAR VICTORIA:

If a lady is filing bankruptcy and she is pregnant at the time of filing, is the unborn child considered a dependent on Schedule I of the bankruptcy petition?

ANSWER:

No. An attorney explained it like this to a client one time who asked the same question: We do not know if your child will die at birth, be given up for adoption, raised by a family member or any other number of factors that could alter the dependent status of the unborn child.  Therefore, the child is not eligible to be a dependent until after the birth.

But, if the bankruptcy is still ongoing at the time the child is born and the child will be the dependent of the female filing bankruptcy, Schedule I and J would need to be Amended to allow for the dependent claim as well as the monthly expenses to care for the infant.

DEAR VICTORIA:

Am I to understand that I do not have to use a Certificate of Service when I initially file the bankruptcy petition?  That means I only need to use the Certificate of Service afterwards?

ANSWER:

You are correct.  The Creditors Matrix within the bankruptcy petition serves the place of the Certificate of Service.

DEAR VICTORIA:

If a bankruptcy case is closed, can it be reopened so the attorney can file an amendment?

ANSWER:

It depends on several factors.  How long has the case been closed? What are the reasons for reopening the case? Can the attorney prove to the Judge that there is good enough reason to reopen the case?  Was the case discharged or dismissed? (There is a big difference.)  Therefore, in order to sufficiently answer this question, you need to contact the Help Desk of your local bankruptcy court and obtain the rules for reopening a closed bankruptcy case so that your attorney can review them and make a decision whether to do so or not.

DEAR VICTORIA:

During an online search I found a motorcycle that was titled in the name of the debtor but the motorcycle was not reported on the client intake forms.  When I asked the debtors about it, the wife said it was repossessed and the husband said it was sitting in their garage.  Who should I believe?

ANSWER:

No one.  Your job as a non-attorney is not to make legal decisions. Make sure you document this problem and point it out to the attorney.  The attorney will need to determine the best way to handle the situation.

DEAR VICTORIA:

Do you really train attorneys?  I find that hard to understand.

ANSWER:

Why is it so hard to understand? Attorneys do not obtain training in how to prepare bankruptcy petitions and pleadings when they attend law school. They are trained in the legal aspects of the various chapters within bankruptcy; but they are not trained in the actual day-to-day operation of the bankruptcy law firm.  This is where I provide the service and it is one of the most fulfilling jobs I have.

DEAR VICTORIA:

I am interviewing a prospective attorney client whose full-service bankruptcy practice includes Chapters 7, 11, and 13, and creditor representation.  He is a solo practitioner (25 yrs in bankruptcy) and is done with the hassle of training staff.  Do you (at a fee, of course) provide any personalized training in Chapter 11 and creditor representation?

ANSWER:

I would never recommend that a Chapter 11 be done virtually.  You must be able to work in the law firm office.  Why?  In a Chapter 11 there is no trustee so the rules change considerably compared to a Chapter 7 and 13.  Additionally, a CPA is normally hired to maintain bookkeeping records and report to the bankruptcy court every month.  Finally, you also should have some working knowledge of corporate law to work with Chapter 11s.

As you know, I am solely dedicated to John Q public which is why I ONLY provide training in Chapter 7 and Chapter 13. Perhaps you have a Chapter 11 confused with a small business owned by a debtor.  Unless a debtor owes $1 million in Schedule F debts, the debtor still can file a Chapter 7 or Chapter 13 for their sole proprietorship business.

The following questions and comments were submitted through email to Victoria Ring. The answers are provided by Victoria Ring who is not an attorney.  Therefore, the information provided in this article is for training purposes only and no whole or part should not be regarded as legal advice.

DEAR VICTORIA:

I have a debtor that owns a home based business.  In addition to what her company grosses, she has paid herself a salary for the past 6 months from her business.  On the Means Test, do I have to average the amount she paid herself from the business (Line 3), and in addition, average the monthly net business income (Line 4)?  Or, do I fill in Line 4, only?  Please help!!! First time I’ve had this situation.   My attorney is waiting for Form.

RESPONSE FROM VICTORIA:

First of all you need to fill out the Business Income and Expense worksheet that is included in most of the bankruptcy software programs. If you are using Best Case software, scroll down to the VERY BOTTOM of the list of forms. There is a folder named SUPPLEMENTAL FORMS.  Inside that folder is a form named BUSINESS INCOME AND EXPENSES.

Fill this form out and make sure it is filed as an attachment to Schedule I when the petition is filed.

Take the AVERAGE NET INCOME (Line 23) and enter this figure into Line 3 of the Means Test.  If you refer to the form you will see that Line 3 states: Net Payroll Other Than Debtor.)  Therefore, you will NOT include the money the debtor pays herself from the business on this particular worksheet form.

Since we now understand this information, we can reasonably deduce that the money the debtor pays to herself needs to be listed on LINE 7 or LINE 13 of Schedule I.  Check with your attorney to be sure.

Also remember to remind the attorney that he or she needs to obtain 6 months of bank statements from the debtor’s business account as well as her personal account.  The attorney will need this to verify the debtors’ earnings reported within the bankruptcy schedules.

Note: In some states, the attorney will simply take the bank statements with them to the 341 Meeting and hand to the Trustee. In other states, when the bank statements are used as pay advices, they would need to be filed with the bankruptcy petition (sometimes the court even requires a cover sheet.)  Always check your local rules of procedure to address questions at this level.

DEAR VICTORIA:

The debtor is married but is filing as an individual.  I included the husbands’ income in the Means Test because they do not live in separate households.  My problem is that I am not sure how to complete the Statement of Affairs for the husband.  I put the wifes income for 2009, 2008, and 2007 but do I also need to include the husband income for the same years even though he is not filing bankruptcy?  I was told only put 2009 for the husband because its only this year that counts for CMI.  It just does not look right to me and I wanted to run it by you.

RESPONSE FROM VICTORIA:

They may do things different in California but in all the petitions I have done (if the husband is not filing) we would place the husband’s income under Item 2 of the Statement of Affairs.  It would be listed as Spousal Contribution.  The husbands income would also be listed under Schedule I as well as the Means Test.

However, you may want to call your local California Help Desk because I have found that California has many strange customs that is totally different from other states.  I learn so much when I visit California, so make sure you check out my response to make sure you are complying with the court rules.

DEAR VICTORIA:

This is my first bankruptcy petition and I need some help.  I am filing a petition for my client and I am in California.  As you know, this is a community property state.  If a husband and wife are divorced and living in separate residences, and the husband wants to file bankruptcy without his wife, will the wife be responsible for the debts that are discharged and the husband does not pay?

RESPONSE FROM VICTORIA:

I did a little online research and I found the following information at http://bankruptcy-law.freeadvice.com/consumer_bankruptcy/spouse_bankruptcy.htm which states (in part):

…. Community property and common law (also called “equitable distribution”) are the two types of martial property ownership. The vast majority of states apply the equitable distribution rules; nine states apply the community property rules. If you live in a common law property state, your spouse’s bankrupt estate will include his/her separate property and half of the jointly-held marital property. The non-bankrupt spouse will not have to worry about the effects of the bankruptcy on his or her separate property.