Chapter 7 and 13 Bankruptcy Blog

Issue 06 – December 11, 2010

RE: THE TRIED AND TRUE METHOD OF BUILDING YOUR LAW PRACTICE

We had a couple who originally wanted to file a Chapter 13 so they could keep their home. However, they were unable to pass the Means Test.

Is this a problem? You bet it is.  Many attorneys who are practicing consumer bankruptcy today did not obtain proper training before starting their practice. Many of them opened up a Chapter 7 and 13 practice because they wanted to make extra money without realizing the consequences of that decision.

Besides, the majority of attorneys believed that preparing the bankruptcy petition was nothing more than filling out a set of forms.  I know this because there are many virtual bankruptcy assistants today who are working for attorneys and charging them $300 for preparing the petition based upon the assumption the forms are easy to prepare. They do this because the majority of them provide poor quality work and have little or no law firm experience.  Any experienced, reliable virtual bankruptcy assistant who provides paralegal level quality is going to charge double or triple that rate.

Unfortunately, if you combine an attorney with no prior bankruptcy training with a virtual bankruptcy assistant who provides poor quality work, you end up with a big mess.  So, I decided to write this article, based around a very important topic and help you to avoid this situation.

Using the Means Test as the Qualifier

The Means Test was developed to provide a way for the legal system to determine if a client is eligible to file a Chapter 7 or 13.  However, when the debtors qualify for a Chapter 7 on the Means Test but want to keep their home, attorneys will do a wide variety of manipulation to either lower expenses or raise the income, just to satisfy the debtor.

This  is FRAUD and the attorney and possible the virtual bankruptcy assistant can get in a lot of trouble. Here are some things that could happen if the debtors qualify for a Chapter 7 and the attorney places them in a Chapter 13 just to save their home:

1.  The Trustee and/or the creditors may object to the Chapter 13 Plan simply because the debtors are below the median on the Means Test. If this happens and the trustee demands the case be converted, the attorney and staff have wasted a lot of time and money. It would have been less costly to do the Chapter 7 in the first place that the debtors qualified for.

2.  The debtors will be unable to make the Plan payment and everyone loses; the court, the attorney and the debtor.

3.  Once Schedule I and J of the bankruptcy petition is filed, if adjustments are later made to the Chapter 13 in order to qualify the debtors for a Chapter 7, the attorney will need to provide the court with detailed reasons as to why and precisely how the income and expenses changed from the original that was filed.  If not, the attorney could be sanctioned for filing a fraudulent bankruptcy petition.

4.  The debtors will be locked into the Chapter 13 Plan for a period of 3 to 5 years.  This could mean that they will be unable to earn more money without paying it to the court. This also means that if their income should drop, they may be forced by the court to convert to a Chapter 7.  And upon conversion, the assets and liabilities the debtor was paying back in the Chapter 13 could cause devastating financial results. Back to our debtors

An attorney I worked for encountered the problem that many attorneys across America encounter. He had debtors who qualified as a Chapter 7 but they wanted to file a Chapter 13. I was hired to act as the paralegal and convince them why it was to their advantage to file a Chapter 7 and let their house go.  Unfortunately, these are skills that need to be trained and attorneys with no bankruptcy experience and $300 per petition virtual bankruptcy assistants will often never question or catch this error; which is causing catastrophes in the lives of debtors nationwide. In fact, it is becoming an epidemic that my heart is hurting to solve.

It took two meetings before the couple were finally convinced to surrender their home, walk away and start over fresh again.  But once they made the decision, they knew it was right for them.  In fact, they were so overjoyed and happy it made all our efforts worthwhile.  In fact, here is an email the debtors recently sent me:

Dear Victoria:

My husband and I cannot thank you enough for taking time to work with us. We have heard many horror stories of attorneys who never care about their clients. It is rare to find someone like you and the attorney to actually take time to sit down and talk with us.  You both answered all our questions and made it so easy to get in touch with you by email or phone. We cannot thank you enough.  Without you taking the time to care about us, we would have mistakingly filed a Chapter 13 and be in the same situation we are in today in 5 years. By filing a Chapter 7, which we really qualified for and could afford, we are able to walk away from the past and begin all over again. We should be back on our feet this time next year and we owe it all to the honesty and concern you and your attorney showed to me and my husband.  We have already recommended two new clients to the law firm. These are friends who were scammed by bankruptcy attorneys and left in bad shape. We know you can help them because you helped us.  May God bless you. Summary of This Article

The email above was published to help you understand that the old tried and true method of providing high quality customer service to your clients is still the method that will work to build your law firm. Besides, good customer service will never cost you anything. It will do nothing except help you and your law firm grow by leaps and bounds.

REFERENCE LINKS

Free Attorney Training Videos http://www.youtube.com/user/msvictoriaring Free Tools for Attorneys http://www.bankruptcylinks.info/about/free-stuff and http://www.bankruptcylinks.info/about/free-supplies Enroll in the Chapter 7 or Chapter 13 Online School http://mybankruptcyschool.com/ Bankruptcy Research Links http://www.bankruptcylinks.info/about/research

Help When Preparing Petitions http://www.bankruptcylinks.info/about/prepare-petitions

Complete Bankruptcy Motion Package (over 300+ templates) http://www.bankruptcytrainingproducts.com/home/complete-bankruptcy-motion-package Initial Intake Form Package http://www.bankruptcytrainingproducts.com/home/initial-intake

Bankruptcy Attorney Help Line Main Office: 719-659-0743

– 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

If the video does not automatically appear in the area above, click here: http://www.youtube.com/watch?v=Ojn-TWS6aAA

This is an 8-minute excerp from our Means Test training class. This video provides you with great tips and information but it also lets you experience the type of online classes available to you through MyBankruptcySchool.com.

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A quick lesson in the Means Test, Schedule J and the Chapter 13 Plan.

http://www.youtube.com/watch?v=FoldzGDhV3I