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The ironic feature of the bankruptcy system is that a debtor must come up with a lot of money to file a case. Indeed, it costs a lot of money to go broke!
According to bankruptcy law professors Pamela Foohey, Robert M. Lawless, Katherine Porter (now Congresswomen Katie Porter), and sociology professor Deborah Thorne in their 2017 article No Money Down Bankruptcy, the high cost of filing chapter 7 bankruptcy is causing many debtors to file even more expensive, but less successful, chapter 13 cases that can be filed for “no money down.”
Attorneys charge an average of $1,229 to file and represent a debtor in a chapter 7 case and an average of $3,217 to file and represent a debtor in a chapter 13 case.
The study reveals that while 95% of Chapter 7 debtors receive a discharge of their debts, only one-third of chapter 13 debtors obtain a discharge.
Why is this happening? Why are lower-income debtors filing expensive chapter 13 cases instead of the cheaper and more successful chapter 7 cases?
You can fault the drafters of the bankruptcy code and the Bankruptcy Reform Act of 2005 for this mess.
When a debtor files a chapter 7 case, all debts–including fees owed to their bankruptcy attorney–are wiped out. The debtor’s attorney may not accept payment for services performed prior to filing the bankruptcy petition.
That’s a big problem. Attorneys cannot accept payments for their services after the case is filed, so attorneys typically charge ALL their fees up front. And lower-income debtors just can’t afford to come up with the money so they wind up filing chapter 13 for no money down.
So why can’t debtors just save up to file chapter 7? Well, they can and most attorneys will accept payments before a case is filed. In fact, most debtors break the chapter 7 fee into installments.
The problem is that debtors usually hire a bankruptcy attorney after they have been sued and wage garnishments are imminent. They have run out of time to save up to file the less expensive chapter 7 option. So even though they are a better fit for a chapter 7 case, they opt to file the “no money down” chapter 13 case to stop garnishments, repossessions and foreclosures.
Geography & Race Factors:
A very disturbing fact of bankruptcy cases is that the filing of a chapter 13 case has more to do with a person’s location and race than it does with anything else. Debtors in Southern states and African American debtors filed a disproportionate number of chapter 13 cases, suggesting that the decision of which chapter to file has more to due to with the attorney they hire than what is best for a particular debtor.
In some districts as many as 80% of the cases are filed as chapter 13, whereas in 2015 in the Northern District of Iowa only 6.7% of the cases were chapter 13. That difference cannot be explained by determining what was best for the debtor. Rather, the authors suggest that attorneys are doing what is best for their bottom line at the expense of lower income Americans.
Correct observations but wrong conclusions.
Although the authors correctly point out the problems with No Money Down cases, they reach the wrong conclusions much of the time.
The basic problem here is compensation. Attorneys are more than happy to file chapter 7 cases if they can be compensated. The only reason attorneys are pushing chapter 13 cases is so they can get paid. The solution is to figure out how to compensate chapter 7 attorneys.
The professors make the following statements in their report:
- “Given that attorneys facilitate “no money down” bankruptcy, the best way to ensure that all debtors have equal access to bankruptcy is to cabin attorneys’ incentives and role in chapter choice, while still allowing debtors access to this filing option if they so choose.”
- “One solution to combat the effects of the “no money down” bankruptcy is to allow debtors to pay bankruptcy attorneys’ fees in installments during their chapter 7 cases.”
- “Standing orders could provide that only if the debtor has paid twenty-five percent (or some other percentage) or more in attorneys’ fees prior to filing will the “no look” fee apply.”
- “A similar solution would be to revise the requirements for confirmation of chapter 13 plans to include a condition that the plan must contemplate making a substantial repayment to creditors.”
So, the professors suggest that attorneys who steer their low income clients into chapter 13 cases should be denied their fees unless a substantial amount of the creditor claims are paid. Well, that would DRASTICALLY reduce the number of chapter 13 cases filed. But is that a good result?
That is actually a horrible idea. How does this help low income debtors? They can’t afford to file chapter 7 so chapter 13 is their only option. Their paychecks are being garnished so they must do something, but these professors just focus on the low success rate of chapter 13 cases instead of the debtor’s immediate need for relief. Filing chapter 13 does offer IMMEDIATE relief from garnishments, repossessions and foreclosures.
There are two real problems here. First, we have a chapter 7 compensation problem. Second, we have a chapter 13 success rate problem.
How can we compensate chapter 7 attorneys so they will file cases now and not make a debtor wait to file? Well, as the professors suggest, legislative changes to allow that would be great, but when is that supposed to happen?
The Bifurcation Solution:
A current option to help allow debtors to file chapter 7 cases for a small retainer fee is to open up the doors to a bifurcated case. That is, allow attorneys to charge a small payment down to file an incomplete case consisting of nothing more than a debtor’s name and a list of creditors and then allow attorneys to charge monthly payments after the case is filed for completing the remaining schedules.
This solution is available now, but the US Trustee has been extremely hostile to allowing this process even though court decisions say it is allowable. The problem is, those firms attempting this approach have gone too far and have charged high fees and interest rates making the cost similar to chapter 13. But if courts develop Local Rules creating Safe Harbor zones for reasonable fees and payment schedules, this solution could be implemented right now with no Congressional action.
Chapter 13 Success Rate Solution:
The fact that only one-third of chapter 13 cases nationwide result in a discharge is outrageous. In Nebraska the success rate is about 60% and our firm has normally trended towards 70%. If the success rate of chapter 13 were higher nationally I doubt the authors would be complaining about no money down bankruptcies.
Why do some states have such low success rates for chapter 13? That is the key question not addressed by this article–a glaring omission. Success rates depend on cooperation between the courts, the trustees that supervise the case, and the attorneys who file them. Chapter 13 cases require fertile soil created by sensible Local Rules that give the system flexibility.
Sometimes debtors cannot make the monthly payment. They lose jobs or file divorce or suffer health problems. Local rules must allow debtors to suspend payments easily. Attorneys must be properly compensated for keeping the case alive when a debtor encounters trouble, and that means allowing for supplemental fees when amendments to plans or motions to suspend payments are filed. And courts need simple rules that are easy to enforce. Combine all those ingredients and chapter 13 success rates soar.
The professors also fail to mention many of the benefits of those more expensive chapter 13 cases. For example, car loans can be paid off for what a vehicle is worth instead of what is owed and at lower interest rates. That savings can more than offset the higher cost of chapter 13. In addition, new debts incurred after the case is filed–especially ongoing medical bills–may be discharged if the case is converted to chapter 7 later. Income tax debts may be paid off at lower interest rates as well. No mention of these cost savings is mentioned in the article.
Yes, we need reforms to help lower-income debtors file successful bankruptcies. But attacking attorneys–the gatekeepers to the justice system–or attacking debtors by making it more expensive to file chapter 13 is not the answer to the problem.
Image courtesy of Flickr and CafeCredit.com
The Best Way to Use a Credit Card? Treat It Like Cash from New York Times February 12, 2020
Fewer people than ever carry cash these days, it seems. Life can seem ultraconvenient when you don’t have to worry about a wad of bills in your pocket (or even a wallet in your pocket, for that matter).
But it can hurt people with low incomes when businesses go cashless, it can hurt workers who rely on cash tips and — even if you’re not in either of these groups — it can hurt you because it’s easy to get into financial trouble with credit cards.
Studies prove that people spend more when using credit vs. cash, and late payments are on the rise.
“You have an out-of-sight, out-of-mind phenomenon with credit cards,” said Amy Bucher, the director of behavior change design at Mad*Pow, a design consultancy group. “Unless they’re checking their credit card balance on a daily basis, most people don’t have an awareness of how much debt they’re in.”
But if used responsibly, credit cards are a fast way to build credit without paying a dime of interest. Good credit scores can save you money down the road, typically qualifying you for lower mortgage or auto loan interest rates. Credit card rewards can make things you buy a little cheaper.
The good news: Mental tricks, apps and tools can make spending with credit cards similar to cash, giving you the best of both worlds.
Editorial note: The assessments of financial products in this article are independently determined by Wirecutter, a New York Times company that reviews and recommends products, and have not been reviewed, approved or otherwise endorsed by any third party.
Make credit card purchases feel tactile
Cash requires you to shop at a physical store, grab your physical wallet and hand over physical money. Giving a cashier a $20 bill in exchange for an $18 item is a tangible transaction. In exchange for a $20, you now have $2 left and a physical bauble.
But a credit card looks the same before and after the transaction, obfuscating what was actually given up for that bauble. Add online shopping to the mix, and you might not even think about your credit card or where the money is coming from.
Grab a receipt. Beverly Harzog, a credit card expert and consumer finance analyst for U.S. News & World Report, always takes a receipt. “It’s just one more thing to help you keep a grip on reality,” she said. “When they ask if you want a receipt, just say yes so you have that feeling of payment in your hand.”
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Remove payment information from your computer. Consumer psychologists refer to creating friction — meaning barriers to doing something — as an effective way to stop an impulse buy. “If you’re sitting on your couch, you’ve had two glasses of wine, you see rain boots on sale, and your credit card information auto-populates, you’re probably going to buy it, because you really only needed to hit two buttons to make that purchase,” Ms. Bucher said. “If you had to get off your couch, pull out your credit card and type in the numbers, that’s friction. You have to commit a little more to make the purchase.” In contrast, digital payments like Apple Pay offer convenience when you’re at the cash register, but they take cash and physical cards out of the equation. If you’re nervous that holding your phone next to the scanner to complete a transaction could turn you into a spendthrift, don’t partake.
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Set spending limits
You can’t buy $300 headphones if your wallet contains only $100. But you can if you’ve got a card with a credit limit over $300 (even if $300 exceeds your budget).
Let robots count your money. Budgeting apps like You Need a Budget ($84 a year) or Mint (no fee) track balances across all your accounts, giving you a clearer picture of your actual balance even if you have multiple cards and accounts from different banks. Some banks, such as Bank of America, also let you sync other accounts, even if those accounts are with competing banks. Check your balance in the app to ensure your next purchase fits your budget.
Try “action planning.” Determine your budget, then implement measures that prevent you from exceeding it. The Uber Credit Card has a feature that lets you create a self-imposed spending limit for certain categories or merchants, which could remove the temptation to stop at Starbucks on the way to work. Other companies, like Discover, allow you to set up alerts if your credit card balance exceeds a certain amount or you near your credit limit.
Section 108 of the Internal Revenue Code Relief of Indebtedness Income and WorkoutsOne of the most overlooked areas of the law when doing a workout is Section 108 of the Internal Revenue Code (“IRC”). Section 108 is a trap for the unwary and unless the attorney or lawyer is aware of this tax code section, it can upend a workout or result in a taxpayer having to recognize, report, or pickup unknowingly a significant amount of taxable income. This could ruin the attorney-client relationship or worse yet a malpractice lawsuit by the client against the attorney.
Let's begin this post with an explanation of Section 108 of the IRC.
IRC § 108 provides that if an individual or an entity that owes money (the “Debtor”) is relieved of indebtedness, then that indebtedness is deemed to be ordinary income to the Debtor. The Debtor must report that income on their tax return and the Creditor is required to file a 1099 with the IRS. There are two exceptions to this rule: first, if the Debtor files for bankruptcy protection, then the relief of indebtedness income is not picked up; and second, on a balance sheet basis, if the individual’s liabilities exceed their assets and they are insolvent, then they do not have to pick up the income.
The goal of a workout from the perspective of the Debtor (the person who owes money) is to pay less than the balance due to the Creditor (person or company owed money).
An example of the application of IRC § 108 will help to explain the above. Let’s assume that an individual owes a financial institution $1,000,000. The individual is unable to pay the $1,000,000, so the parties enter into a workout (an out of court settlement) in which the individual repays the financial institution $600,000. According to IRC § 108, the taxpayer must pick up the $400,000 differential between what he or she owed and paid as ordinary income.
Unless the client is made aware of this fact in advance of or during a workout, the client may walk away from the workout. If not told at all, when the client receives the 1099 from the Creditor or worse gets audited by the IRS, they will point a finger at the attorney or sue the attorney for malpractice.
Many clients and some lawyers assume that the $400,000 of income is capital gains, but it is ordinary income.
Another question raised by clients is how does the IRS find out about this relief of indebtedness income? The answer is that the Creditor is required to file a Form 1099-C with the IRS reporting the relief of indebtedness income for more than $600 of forgiven debt.
Yet another question asked by clients is whether the Creditor will file the 1099 with the IRS? The answer is that the Creditor is legally required to do so and most institutional investors will do the 1099 filing.
Section 108 of the IRC comes up in almost every workout, but is currently most prevalent in taxi medallion and restaurant workouts. Both of these industries are struggling and are areas we are doing a lot of workouts.
Clients should review all workouts with their CPA’s or accountants.
At Shenwick & Associates, we are not tax lawyers, but we are familiar with the IRC and James Shenwick has an LLM in Taxation from the NYU School of Law.
Clients who are doing or contemplate doing a workout, are encouraged to consult with James Shenwick to discuss their strategy. Jim Shenwick 212 541 6224 [email protected]
The 8th Circuit Court of Appeals has affirmed a Bankruptcy Appellate Panel’s opinion regarding whether a retirement account awarded to a spouse in a divorce case is exempt in a bankruptcy proceeding.
Last year the BAP court ruled that a retirement account awarded in a divorce case was not earned by the debtor and was therefore not protected in a bankruptcy case under federal exemption laws. (See Lerbakken decision 2019). This opinion came as a shock to many since funds in a retirement account are traditionally protected.
The BAP court explained that although funds earned and saved in the debtor’s retirement accounts are protected, retirement funds awarded to an ex-spouse are not earned by that debtor and are therefore unprotected under federal exemption laws. (State exemption laws, however, may extend such protection.)
Although the 8th Circuit has now affirmed the BAP’s Lerbakken opinion, it appears that the 8th Circuit is being careful to narrowly limit the scope of that opinion.
The 8th Circuit Court underscored the fact the debtor had failed to transfer the retirement accounts into his own seperate account prior to filing bankruptcy. The BAP opinion mentioned this fact but did not emphasize it. So, had the funds been fully transferred to his own account, would the funds be protected? The 8th Circuit seems to suggest that.
Secondly, the 8th Circuit Appeals Court pointed out that true retirement accounts are not subject to creditor claims but the Lerbakken account was subject to a lien for unpaid attorney fees. So, if the funds were not subject to a lien of a current creditor, would they have been protected as an exempt retirement account? That fact seemed to make a difference to the appeals court.
Lerbakken’s interest in the IRA was a sum of money in his ex-wife’s IRA, not an account “set aside for the day when an individual stops working.”
The Takeaway:
First, it appears that had Lerbakken delayed filing his bankruptcy until after the retirement accounts were transferred to his own separate account, the funds might have been protected under federal exemption laws.
Second, had Lerbakken satisfied the claim of his divorce attorney prior to filing bankruptcy, the court may have viewed the accounts as retirement savings.
Nebraska Exemption Laws May Protect Retirement Accounts Awarded in a Divorce
The Lerbakken case was filed in Minnesota where the debtor was using federal bankruptcy exemption laws. However, Nebraska has opted out of the federal exemption scheme and uses a different exemption law to protect retirement accounts.
Nebraska Statute 25-1563.01 protects retirement accounts in bankruptcy cases, but what about accounts awarded to a debtor in divorce? Are those accounts protected?
In an unpublished opinion the Nebraska bankruptcy court did rule that a retirement account awarded to a debtor pursuant to a divorce decree was exempt under Nebraska statute 25-1563.01. (See In re Reohrs, Case No. 18-41831).
Until there is a written opinion issued in Nebraska, debtors should be careful about filing chapter 7 cases if they own substantial retirement funds received in a divorce case.
Image courtesy of Flickr and Michael.
Chapter 13 bankruptcy can be used to save your home or investment property from a mortgage or association foreclosure. The filing of a chapter 13 case generally stops the foreclosure case and gives you the opportunity to propose a plan to reorganize your mortgage or association payments. The chapter 13 case though must be filed before the foreclosure sale.
Cure Mortgage Arrearages
One typical Chapter 13 Plan provides for the catching up-to-date of your past due mortgage or association payments. The Chapter 13 Plan usually involves paying off the mortgage or association arrearages over a 3 to 5 year period in addition to making your regular ongoing monthly mortgage or association payments.
The Bankruptcy Court's Mortgage Modification Mediation Program
The Bankruptcy Court in Miami started a new mortgage mediation program on April 1, 2013. Under this program a mediator is appointed by the Bankruptcy Court to assist in the process and documents and communications are exchanged over a special internet portal.
Avoid Second Mortgage
If your home has decreased in value, sometimes you are able to wipe out or "avoid" your second mortgage. For example, if you owe $300,000 on your first mortgage and $100,000 on your second mortgage and your home has gone down in value to $250,000, there is no equity or value to "secure" the second mortgage. Under these circumstances, the Chapter 13 Plan may provide to wipe out or avoid the second mortgage lien. The $100,000 debt owed on the second mortgage will be wholly unsecured and usually only receive a small dividend together with other general unsecured creditors.
Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
Chapter 13 bankruptcy can be used to save your home or investment property from a mortgage or association foreclosure. The filing of a chapter 13 case generally stops the foreclosure case and gives you the opportunity to propose a plan to reorganize your mortgage or association payments. The chapter 13 case though must be filed before the foreclosure sale.
Cure Mortgage Arrearages
One typical Chapter 13 Plan provides for the catching up-to-date of your past due mortgage or association payments. The Chapter 13 Plan usually involves paying off the mortgage or association arrearages over a 3 to 5 year period in addition to making your regular ongoing monthly mortgage or association payments.
The Bankruptcy Court's Mortgage Modification Mediation Program
The Bankruptcy Court in Miami started a new mortgage mediation program on April 1, 2013. Under this program a mediator is appointed by the Bankruptcy Court to assist in the process and documents and communications are exchanged over a special internet portal.
Avoid Second Mortgage
If your home has decreased in value, sometimes you are able to wipe out or "avoid" your second mortgage. For example, if you owe $300,000 on your first mortgage and $100,000 on your second mortgage and your home has gone down in value to $250,000, there is no equity or value to "secure" the second mortgage. Under these circumstances, the Chapter 13 Plan may provide to wipe out or avoid the second mortgage lien. The $100,000 debt owed on the second mortgage will be wholly unsecured and usually only receive a small dividend together with other general unsecured creditors.
Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
The Final Report of the American Bankruptcy Institute on Consumer Bankruptcy offers suggestions to make paying for bankruptcy more affordable. The report does a good job of explaining why fees are so high, but the suggested remedies are generally lame and at times just plain wrong.
In what way? Well, the report correctly diagnoses the problems of escalating legal fees faced by debtors filing Chapter 7 cases, but the proposed recommendations to solve this problem are just bizarre. The ABI commission makes the following recommendations:
- Online Data Input Forms.
- Increasing Provisions for Bro Bono Cases.
- Reducing Court Filing Fees.
- Video Attendance at 341 Hearings.
- Hire Government Attorneys to Prepare Case.
- Make Chapter 7 Attorney Fees Nondischargeable.
Online Data Input Forms.
The ABI suggests that if debtors could enter their own schedules online using easy-to-understand forms then attorneys could use this information to prepare cases less expensively.
First off, this already exists. There are multiple websites that provide forms a debtor can enter online and the cost is usually less than $100.
Second, most attorneys use software that allows debtors to input their creditors, property, income etc. Few attorneys utilize the service. Why? The truth is, debtors do a poor job of entering information. In fact, most do such a poor job that asking them to enter information is generally counterproductive.
This is not to belittle clients, but unless you work with bankruptcy schedules on a regular basis you will not understand what is being requested and why it is important. The ABI’s recommendation that new online data input forms be created is just a waste of time and money. The service already exists.
Increasing Provisions for Pro Bono Cases.
It is interesting that an organization comprised of law professors, attorneys and judges is actually suggesting that debtors would be better off by not having a competent attorney represent them. The ABI is suggesting that more funds be paid to Legal Aid clinics to help debtors file their own case.
First, it is unethical for Legal Aid attorneys to prepare pro se petitions and then abandon the client to file their own case. Bankruptcy Rule 9011 requires that attorneys who help prepare a bankruptcy petition must actually sign the petition. Multiple attorneys have been sanctioned by the court for attempting to contract away the duty to attend court and to provide “core and fundamental” services. Ghostwriting bankruptcy petitions is unethical under current court rules, but that is what Legal Aid clinics do.
Second, filing bankruptcy is a complex process even for attorneys, let alone a pro se debtor. The ABI is encouraging legal clinics to draft petitions and then abandon the debtor in court. I’ve seen pro se debtors lose homes, cars, and tax refunds because they were not properly represented. To encourage more of this is simply unwise. Filing bankruptcy is a dangerous process and debtors need competent (i.e., compensated) attorneys representing them.
Reducing Court Filing Fees.
Yes, reducing the $335 court fee to file Chapter 7 would help lower income debtors. But it would also deprive courts of their main source of revenue. Defunding our bankruptcy court system is probably not in the best interest of debtors. The ABI report does not state how this decrease in court funding would be addressed.
Video Attendance at 341 Hearings.
The move towards video court hearings is valid and that is actually starting to take place in rural communities. I’ve heard that this practice is already occurring in the Wyoming bankruptcy court and the US Trustee’s Office in Nebraska says they will start experimenting with it for rural cases. However, whether the hearing is live or on video, the debtor and their attorney must attend the meeting and I doubt this will result in much cost savings.
Hire Government Attorneys to Prepare Case.
The ABI commission suggests that an agency similar to a Public Defender office be established to help lower income debtors file cases. Gosh, isn’t that what Legal Aid clinics already do? I see nothing but disaster with this idea. First, this is never going to happen. Congress is not going to spend billions of taxpayer money to help people file bankruptcy. Second, does anyone actually think a government attorney is going to crank out a large number of petitions in any given week? Really, this idea is just plain dumb.
Make Chapter 7 Attorney Fees Nondischargeable.
This idea makes sense, but I doubt it will be approved by Congress anytime soon.
Once a bankruptcy petition is filed with the court, bankruptcy laws prohibit an attorney from accepting payment for work prepared prior to filing. So, Chapter 7 attorneys routinely demand that ALL fees be paid before the case is filed.
Excepting attorney fees from the bankruptcy discharge would encourage attorneys to accept monthly payments for their services after the case is filed, and that would greatly help lower-income debtors.
Interestingly, the bifurcation of legal fees into pre-filing and post-filing services is gaining momentum and this practice does allow attorneys to accept monthly payments after the case is filed. For lower income debtors who cannot come up with large retainer fees, a bifurcated legal fee arrangement may be their best option to make the process affordable.
The ABI Report gives negative reviews of the bifurcation process, but there is no substantial difference between bifurcating fees and making Chapter 7 legal fees nondischargeable. It is really the same thing. Bifurcation merely employs the legal trick of filing an incomplete petition that only provides a debtor’s name and list of creditors while the majority of the legal work is prepared immediately after the case is filed.
Bifurcation achieves the ABI’s goal of making legal fees nondischargeable and thus affordable. And since this procedure is already available, no laws need to be passed to make this a reality.
It would seem that the ABI Commission may have better spent its time creating guidelines to make the bifurcation process more available to lower income debtors. Bifurcation does not require more government programs or changes to the law. There is no shortage of competent bankruptcy attorneys, but there is a shortage of compensated attorneys in this field. That’s the real problem. Most bankruptcy attorneys I know are desperate for more business. This is strictly a compensation problem. Solve the attorney compensation problem and you solve the low income debtor problem.
Chapter 13 Benefits Overlooked.
The ABI Commission is apparently distressed about lower income debtors being lured into expensive chapter 13 cases. Yes, legal fees in chapter 13 cases are significantly higher than fees chapter 7 cases. However, the ABI Commission is overlooking significant advantages offered in the chapter 13 process.
First, debtors are represented by extremely competent attorneys in chapter 13 cases. (Again, compensated = competent.) That means attorneys are aggressive at stopping garnishments, foreclosures and judgment liens. Their fees are generally contingent on getting a chapter 13 plan approved, so attorneys are diligent in proposing feasible payment plans within a debtor’s ability to pay. A dismissed chapter 13 case results in the attorney not receiving compensation, so filing successful plans is the goal.
Second, chapter 13 plans have the power to cram down car loans to the value of a vehicle and to reduce interest rates as well. Those savings often pay for the additional cost of the chapter 13 case.
Third, new medical bills and other debts incurred after the chapter 13 case is filed may be added to the case if it is converted to chapter 7 later. Converting chapter 13 cases to chapter 7 is extremely common and the ability to add new debts provides a debtor with a longer-term benefit, especially for debtors who lack health insurance coverage.
Forth, chapter 13 fees are not that expensive. For a lower income debtor with no secured or priority debts, a 3-year chapter 13 case can be field for $310 of court fees down and a monthly payment of $100 per month. That seems damn reasonable to most folks.
Fifth, the ABI Commission reports that only 46% of chapter 13 cases are successful. Really? Then perhaps the ABI Commission should focus on that dismal success rate. In Nebraska the rate is closer to 60% and our firm has traditionally achieved a 70% discharge rate. Compared to Credit Counseling agencies that report a 25% to 40% success rate, that is actually pretty good. And why do some courts have such poor success rates? That’s the real question. Are the procedures streamlined? Does the court provide a framework of Local Rules that make the process simple? Do the Chapter 13 Trustee’s nitpick the cases and basically make the process miserable? Chapter 13 is an incredibility powerful tool to help lower income debtors when used properly and the fact that attorneys are compensated for providing that service is not a problem but is actually a mark of success. Imagine that, attorneys who work for lower income America actually can earn a decent income. That’s a problem? Gee wiz, clean your glasses ABI.
Image courtesy of Flickr and New Media Consortium.
Few conversations load in more emotion than those about finances. Wynn at Law, LLC, knows that the tensions and fears only escalate when the topic is bankruptcy. Knotted in the dialogue are important things like transportation, child support, student loans, and medical care.
A beater with a heater
In our section of Wisconsin, a car is less of a luxury and more of a necessity since only the larger metros have public transportation. Finding/Keeping a job is contingent (usually) on have reliable wheels.
Discharging some debt in bankruptcy might free up enough income so you can pay cash for something more substantial than a ‘beater with a heater.’ Most people will need a loan. Because there is a waiting period before you can file for bankruptcy again (see previous article) and you should have a better debt to income ratio to help raise your credit score, you can likely find a lender willing to lend you money for a car after a bankruptcy. Set your expectations accordingly: It’s probably going to be at a much higher interest rate.
Take care of the kids
Child Support is off the table in both Chapter 7 and Chapter 13. The obligation will not be discharged.
However, freeing up some income may make it easier to make on-time child support payments. This is critical since your on-time payments will avoid arrears and costly interest. The arrears and interest can build and lead into the same financial situation that contributed to bankruptcy to begin with.
Student loans are nearly untouchable
Just like child support, student loans are off the table in a bankruptcy filing. Well, usually that’s the case. To get a student loan all or partially discharged, you have to prove undue hardship.
The standard for undue hardship is tough. The American Bankruptcy Law Journal notes that less than 0.1 percent of student loan borrowers declaring bankruptcy try to get student loan debt discharged. Of that fraction, only 2 in 5 succeed. Just 4 in 10,000 people who filed for bankruptcy and sought to have their loans discharged received even a partial discharge.
Will my doctor dump me after I discharge his bill?
Unexpected medical bills are right up there with job loss when it comes to the reasons for filing bankruptcy. Yet at the same time, we spend years building a relationship with our primary healthcare providers. They might be annoyed by having most if not all their outstanding bills discharged.
There is an odd dichotomy here. On one hand, yes, they can drop you unless you’re seeing the provider for emergency care. (The Emergency Medical Treatment and Labor Act is federal law. It requires anyone coming to an ER to be stabilized and treated, regardless of their insurance status or how much money they have… or have discharged.) On the other hand, a doctor or nurse practitioner likely has no idea of your billing account and large healthcare facilities are very accustom to bankruptcy filings. They understand that any new services will be paid for and no changes are made when it comes to your care. For smaller offices, like a local dentist, he/she may actually understand your situation – and it’s not that uncommon – because you have built that relationship. Most of Wynn at Law LLC clients are able to continue seeing their regular providers without issue.
Image by Gaj Rudolf, used with permission.
The post From Cars to ERs, Bankruptcy Questions Answered appeared first on Wynn at Law, LLC.
Few conversations load in more emotion than those about finances. Wynn at Law, LLC, knows that the tensions and fears only escalate when the topic is bankruptcy. Knotted in the dialogue are important things like transportation, child support, student loans, and medical care.
A beater with a heater
In our section of Wisconsin, a car is less of a luxury and more of a necessity since only the larger metros have public transportation. Finding/Keeping a job is contingent (usually) on have reliable wheels.
Discharging some debt in bankruptcy might free up enough income so you can pay cash for something more substantial than a ‘beater with a heater.’ Most people will need a loan. Because there is a waiting period before you can file for bankruptcy again (see previous article) and you should have a better debt to income ratio to help raise your credit score, you can likely find a lender willing to lend you money for a car after a bankruptcy. Set your expectations accordingly: It’s probably going to be at a much higher interest rate.
Take care of the kids
Child Support is off the table in both Chapter 7 and Chapter 13. The obligation will not be discharged.
However, freeing up some income may make it easier to make on-time child support payments. This is critical since your on-time payments will avoid arrears and costly interest. The arrears and interest can build and lead into the same financial situation that contributed to bankruptcy to begin with.
Student loans are nearly untouchable
Just like child support, student loans are off the table in a bankruptcy filing. Well, usually that’s the case. To get a student loan all or partially discharged, you have to prove undue hardship.
The standard for undue hardship is tough. The American Bankruptcy Law Journal notes that less than 0.1 percent of student loan borrowers declaring bankruptcy try to get student loan debt discharged. Of that fraction, only 2 in 5 succeed. Just 4 in 10,000 people who filed for bankruptcy and sought to have their loans discharged received even a partial discharge.
Will my doctor dump me after I discharge his bill?
Unexpected medical bills are right up there with job loss when it comes to the reasons for filing bankruptcy. Yet at the same time, we spend years building a relationship with our primary healthcare providers. They might be annoyed by having most if not all their outstanding bills discharged.
There is an odd dichotomy here. On one hand, yes, they can drop you unless you’re seeing the provider for emergency care. (The Emergency Medical Treatment and Labor Act is federal law. It requires anyone coming to an ER to be stabilized and treated, regardless of their insurance status or how much money they have… or have discharged.) On the other hand, a doctor or nurse practitioner likely has no idea of your billing account and large healthcare facilities are very accustom to bankruptcy filings. They understand that any new services will be paid for and no changes are made when it comes to your care. For smaller offices, like a local dentist, he/she may actually understand your situation – and it’s not that uncommon – because you have built that relationship. Most of Wynn at Law LLC clients are able to continue seeing their regular providers without issue.
Image by Gaj Rudolf, used with permission.
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By: Christy Bieber
From: The Motley Fool
https://www.fool.com/student-loans/paid-off-student-loans-early/
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