Tag Archives: bankrutpcy

Safer in Bankruptcy — Part 2 — The Automatic Stay

The instant that a bankruptcy is filed an order is entered automatically, and it stays (or temporarily stops) all collection activity against the debtor or property of the debtor.  Instantly.  Automatically.  Boom.  All collection activity must stop.  That means lawsuits, wage garnishments, nasty letters, annoying phone calls (Ok, so I don’t know any court that has managed to stop the car warranty calls, but we’re working on it.).

That order remains in place until either the Court modifies or lifts it, the Debtor’s discharge is entered or the case closes without a discharge.  The automatic stay is designed to give someone who has just filed for bankruptcy literally months of breathing room.

Where the automatic stay is most likely to get cut short is when someone files for bankruptcy and doesn’t continue making payments on a secured loan — most commonly a car payment.  In that case the lender has the right to ask the court to lift the stay and let them repossess the car.  A chapter 7 bankruptcy is not the right place to be if you are not current on a vehicle that you need to keep.  If that is the case, file a chapter 13 bankruptcy.

However, if you find yourself with more debt than you can pay, but you are current on your car loans and mortgage (if you have them), but your phone is ringing off the hook, you are afraid to open your mail, and your payroll office has just received a wage garnishment; the automatic stay is the legal equivalent of a Calgon bubble bath commercial from the 70’s.


A Friend Tried a Debt Management Plan – It Didn’t Work

There are a ton of debt management companies out there that will promise to consolidate your debt, or reduce your debt or give you ONE, LOW MONTHLY PAYMENT! All too often, they don’t work. Bankruptcy does, and there are really good reasons for that.

Remember two things. First, if it sounds too good to be true, it probably is; and second, there is a huge difference between a contract between you and a private company and Federal Law enforceable by the U.S. Court system with the assistance, if necessary, of the U.S. Marshals.

If you have tried a debt management plan or consolidation plan, one of those places that promises that it is every bit as good as a bankruptcy; only to find that the phone kept ringing, and the lawsuits kept coming? Well, first of all, actually read your contract. My guess is that if you sit down and actually read all the small print, you won’t like what you find. It also won’t promise results or relief. The problem with debt management or consolidation plans is that your creditors are not required to accept a deal that you cut with someone else. Think about it, if your creditors decline to go along with the plan, what is the debt management company going to do about it?

If creditors decide that the Bankruptcy Code doesn’t apply to them, the Bankruptcy Court’s orders are punishable by contempt of court. You won’t find that in the small print of a debt management contract.

Now, there are people who think that a Bankruptcy filing is too good to be true. It really isn’t for a variety of reasons. First of all, it is a public proceeding. Now, that doesn’t mean that your First Meeting of Creditors will be held in the middle of the local shopping mall. It does mean that your court file is a public record. Second, bankruptcy is an admission of failure. It hurts. It is hard to accept. It is hard to do. The for profit debt management companies know this. They play off of it. That is why people pay them and want to believe in them. Third, bankruptcy is about the worst thing you can do to your credit report (although, if you police your credit report post discharge, it won’t be nearly as bad as you expect). Finally, there is really good public policy in favor of our bankruptcy system.

One of many things that separates our economic system from most of the world is that we understand that not only does the freedom to succeed include the freedom to fail, the freedom to fail is necessary for the freedom to succeed. If you can’t afford to fail, you can’t afford to try. This makes more sense in a business context, but the consumer context is that someone with more debt than he can pay is not a contributing member of the economy. He is not taking care of himself and his kids. He isn’t saving for retirement and college. He isn’t out buying stuff, if he is too consumed with trying to pay for the past. Bankruptcy fixes this. That is serious economic policy that was recognized by our founding fathers, which is why the need for a Bankruptcy Code is one of the few areas of law specifically mentioned in the U.S. Constitution.

So, when a private company tells you that they are just as good as the United States Court system. Ask yourself, why you want to believe that.

Then, either contact Consumer Credit Counseling Services, which is one of the few legitimate debt consolidation companies that is non-profit and won’t misrepresent what they can and can’t do; or, admit that if you have too much debt to pay, you have too much to pay – consolidated or otherwise.


US Trustee Audits — They’re BACK!

One of the things lobbyists convinced Congress absolutely had to be added to the Bankruptcy system in 2005 were Debtor audits.  Well, this concept has come and gone a few times since then, generally due to budget fluctuations.  However, it is being reported that the US Trustee has found more money; and random audits are once again a fact of life.

Now, before you get too excited, I have not seen figures for the frequency of audits at this point.  One in every 250 cases being selected is pretty much the historical standard, but I have no idea how much funding the US Trustee has available at this point in time.

The purpose of the audits is to find “material” misstatements in the Debtors’ petition and schedules.  Now, you would think that material would mean material for purposes of the Bankruptcy process and to people who understand how the system works.  No, material at this point seems to mean material to the independent CPA’s from large CPA firms that the U.S. Trustee’s office contracts with to do these audits.  These guys aren’t accustomed to preferential transfers and median income calculations.  These are the same people who audit corporate financial statements.  (If you aren’t rolling your eyes by now, you haven’t been reading my blog long enough.)

Anyway, if your case is selected for an audit, you will have to begin by producing certain documents to the auditors.  The last list of documents I have seen for an audit is from 2008, but I don’t think it has changed much.  Here it is:

  • Payment advices or other evidence of payment from an employer for the six full calendar months preceding the date of the bankruptcy petition, plus those received in the calendar month in which the bankruptcy was filed, from the debtor(s), or from an individual debtor and the individual debtor’s non-filing spouse unless the debtor has checked Box 2.b on Form B22A (Chapter 7 cases only).
  • Federal income tax returns, including all schedules and all W-2, 1099, and K-1 forms, for the two most recent taxable periods prior to the date of the bankruptcy petition.  If either of the returns has not been filed, provide copies of the two most recently filed federal income tax returns.  (If joint case and debtors filed separate returns, provide both returns.)
  • Account statements for the six months preceding the date of the bankruptcy petition for all depository and investment accounts in which the debtor(s) had an interest in any of the six months, including statements (even if received post petition) that reflect activity in the month in which the petition was filed; along with sufficient documentation to explain the source of every deposit or credit over $500.  (Include information for checking, savings, money market, mutual fund, and brokerage accounts.  Examples of documentation for deposit transactions include check registers and annotations on or attached to the account statements.)  Audit firms may request that you provide additional documentation to sufficiently explain the source or purpose of an account statement entry or entries.
  • If the debtor(s) is divorced, (a) the divorce decree, (b) any orders regarding property settlements entered within the last three years, and (c) any alimony or child support orders currently in effect and amendments thereto.
  • If the debtor(s) is self-employed, then for each business owned by debtor or from which debtor derives self-employment income, (a) business tax returns for the two most recent taxable periods prior to the date of the bankruptcy petition, (b) most recent accounts receivable ledger and aging schedule/report, (c) most recent balance sheet prior to the date of bankruptcy petition, (d) income statement for the most recent period ended prior to the date of the bankruptcy petition, (e) quarterly sales tax return for the most recent period ended prior to the date of the bankruptcy  petition, if any, (f) account statements for business depository account(s) for the six months preceding the date of the bankruptcy petition, and the month in which the petition was filed, along with sufficient documentation to explain the source of every deposit or credit, and the purpose of every check, withdrawal, or debit, and (g) most recent business asset listing and depreciation schedule, if any.

My favorite requirement is that last one.  Accounts receivable ledgers, balance sheets, income statements, depreciation schedules — from a self-employed debtor?  Who are they kidding?  Anyone who has that sophisticated an accounting system isn’t self-employed.  They may operate a wholly owned professional corporation, but they aren’t self-employed.  Your self-employed debtors are lawncare people, electricians, oil field contractors, remodeling contractors, plumbers, oh and the next-door neighbor’s cousin who cleans your house. All of whom are, of course, famous for their detailed, double-entry accounting systems.

Yet another example of the 2005 Bankruptcy reform act and its ongoing quest for an abuse in need of a remedy.


Bankruptcy and the Holidays

Every year I expect for my phone to stop ringing right before Thanksgiving and not to start up again until after the first of the year.  After all, who wants to think about filing for Bankruptcy during the holidays?  Even better, who wants to come up with cash for attorneys fees in December?

Then, the phone rings; and it rings again.  Sure enough, the Oklahoma County Sheriff’s office scheduled Sheriff’s Sales for December 13.  Thanks, Sheriff!  “What?  Love, Beal and Nixon is about to garnish your wages and right before Christmas?  Really? ”  Thanks, guys!

The sad thing is that these phone calls don’t have to happen in December.  That foreclosure going to Sheriff’s Sale December 13?  It was filed early this year, and the home owner was missing payments before that.  The garnishment that will be coming out of the December 15th pay period?  Well, that lawsuit was filed last summer.

If those two callers had called earlier this year, they might have had more options.  They would have had more time to get some money together.  They wouldn’t have needed to add a Bankruptcy filing to their holiday to-do list.  Is it too late?  No.  In a very real sense will you more fully appreciate the Christmas story with a December Bankruptcy filing?  Well, quite possibly; but it really isn’t the kind of religious experience I recommend.

So, for this coming year — call earlier, because come December of next year, you won’t want to be having to find time and money for me when you could be enjoying the season of grace and expectation, of unconditional love and acceptance; instead of the automatic stay.

See you in January.


What if My Bankruptcy is Denied?

I love questions like this.  My standard answer (if I am feeling obnoxious) is, “Well, I don’t know.  How would that happen?”  The standard response to that is, “Well, I don’t know.  You’re the lawyer.”

Yea, I’m the lawyer; and the fact is, it is possible to have a discharge denied — but that isn’t really the question.  The real question has nothing to do with the Bankruptcy Code and everything to do with the fear of feeling backed into a corner, surrounded and overwhelmed.  This is what I classify as a monster under the bed question, because no matter how old we get, we still have irrational fears that keep us up at night and vanish instantly when hit by the beam of a flashlight.  So, here’s my flashlight.

To be eligible to file for bankruptcy you must meet certain criteria.  The most well known of these is that to file a Chapter 7 Bankruptcy, you must pass the so-called Means Test.  You also must be insolvent; but there are three insolvency tests, and if you don’t meet at least one of them, you aren’t talking to a bankruptcy attorney.

Assuming that you are a human being (and not, say, a non-business trust) and you are not able to pay your bills as they come due, you are going to be eligible to file some chapter of Bankruptcy.  Which chapter may depend on other things, but you will talk to your attorney about those in detail — and this isn’t what people are afraid of.

For most people this really is a monster under the bed fear.  What if the Court just says “NO!  Not YOU!  Anybody else, ok; but not YOU!”  Doesn’t happen that way.  If you are eligible to file, you are eligible to file.

The snag with answering this question is that it is possible to file a bankruptcy successfully and have your discharge denied at the end.  Those are truly extraordinary cases (and not in a good way).  In my 22 years of practicing law, I have never had a client had his discharge denied.  It is a great big, bad thing that doesn’t happen easily.

So, what does that mean?  First of all, it is fairly common for certain debts to be excepted from the discharge.  This is not the same as a denial of discharge.  Most people know that recent taxes, child support and student loans aren’t going away just because they filed for bankruptcy — and they are generally right.  However, if you incur a debt with the expectation of discharging it in bankruptcy (that is called fraud), and the creditor complains about it to the Bankruptcy Court (by filing something called an Adversary Proceeding) and wins; then, that particular debt will be excepted from the discharge, and the Debtor will still have to pay it.

I can hear the chorus now, “But, I’m a good person.  I didn’t plan this.  This debt is all years old, and if I hadn’t lost my job/gotten divorced/ or gotten sick I wouldn’t be here.  Well, then you shouldn’t have to worry about this.  Again, the real fear is that the world won’t see you for who you really are; but only through this stigma of bankruptcy.

Still, this isn’t really what my clients are afraid of.  They aren’t afraid of having to pay their child support or that one credit card that they used right before they filed (knowing good and well they were filing and that they would still have to pay it).

No, my clients are afraid of filing the Bankruptcy and just being told NO.  Go away.  You aren’t good enough, and that doesn’t happen — well, not exactly.

What can happen is a Debtor can get caught hiding assets, not telling the truth, concealing income, not disclosing things he doesn’t want the Trustee to know about.  BOOM!  Thou shalt NOT lie, cheat or steal in connection with a bankruptcy.  Don’t even go there.  That means if you have a nonexempt asset you don’t want the Trustee to administer, well, talk to your lawyer about your legal options.  Just deciding not to disclose it (i.e., Oh, I don’t want to list that) is not a valid response to your lawyer.  Not only will that cost you far more than honesty up front, it can cost you your discharge.  It can also cost you a criminal prosecution and an all-expense paid vacation to a Federal minimum security “camp”.  Don’t go there, because I promise you, your lawyer has no intention of sharing your jail cell.

So, be the person you know yourself to be — honest, above board and cooperative.  A Debtor has a duty to disclose all assets, expenses, debts, liabilities and financial transactions.  Keep your records.  Produce anything requested of you.  If the Trustee wants to see something, hand it over WITH A SMILE.

The name of the Bankruptcy game is disclosure.  It is the ultimate flashlight, and the world is a lot less scary in the light.