Utah Bankruptcy

Beware the Petition Preparers

2011-05-24T15:16:00.000-07:00

If you are considering bankruptcy, you may have seen ads in the newspaper by organizations that will help you with all of the bankruptcy paperwork, then let you represent yourself through the actual process. These organizations can be very tempting because they seem to provide an option for bankruptcy that is very cheap compared to what you would pay an attorney to represent you.

These organizations are called "Bankruptcy Petition Preparers." They are recognized as legitimate organizations by the courts, the trustees, and the bankruptcy code. I am sure there are some good bankruptcy petition preparers out there, but I am equally certain there are some really bad apples right here in the Utah market. I see the results of these bad apples when I got to creditor meetings and watch the Trustee rip the poor unrepresented people a "new one" because their bankruptcy case is in such disarray.

You see, the process of bankruptcy requires a whole lot more than simply filing the statements and schedules. There are a LOT of other forms that have to be provided, classes to be taken, declarations to make, and a virtual minefield of rules and regulations to follow. Many of the rules require automatic dismissal of your case if you don't follow them on time. It's clear to me that the bankruptcy petition preparers do not know or fail to tell their customers all of these rules.

Unless you have the simplest and most vanilla possible chapter 7 case, using a bankruptcy petition preparer instead of a lawyer is almost certainly a very bad idea. If you decide to use such a service, ask them to guarantee in writing that your case will go off without a hitch if you follow their directions.

Huge Tax Refunds Require Careful Planning

2011-03-14T17:15:00.000-07:00

This time of year, a lot of my clients are getting big tax refunds. Like, HUGE tax refunds. In the last few days I've had clients call me and tell me of refunds in the $7,000 $8,000 and even a few with over $9,000 in state and federal tax refund. Thankfully, most of my clients call me before they spend those refunds because how they spend the money can have major complications and consequences in either a chapter 7 or chapter 13 bankruptcy.

If you have already filed your case and are now getting the refund back, your options are very limited. In almost every chapter 7, you'll probably need to hand over most of the refund to your chapter 7 trustee. In a chapter 13, you'll need to give the trustee everything over $1,000 (or possibly $2,000 if your chapter 13 was filed after 12/1/10.)

If you haven't yet filed your case, you definitely need to consult with a bankruptcy lawyer about how to spend the money. DO NOT pay any of the money to friend or family members you might owe. That' is the single biggest problem people get into with their bankruptcy trustees. Paying friends or family is called a preferential transfer to an insider and doing so allows the Trustee to sue that person to get the money back.

So what to do with all the tax refund money? Spend it and keep your receipts. Ask your lawyer what is a safe way to spend it, but here are a few generally safe categories: food, medicine, medical procedures like braces or glasses, clothes, one months' worth of regular bills like gas and electricity, home improvements, car repairs and certain kinds of home furnishings and appliances. Again, it is always safer to ask a lawyer what to spend it on.

"Will My Bankruptcy Petition Be Approved?"

2011-02-28T12:29:00.000-08:00

This question has come up a lot recently during my intakes with clients. Fortunately, the question is totally irrelevant. Bankruptcy does not require you to submit all of the details of your financial life for "approval" or "disapproval" by a bankruptcy judge. Instead, all of the qualifying factors for bankruptcy are already set forth in the statutes and cases that govern bankruptcy law. If you have a good bankruptcy attorney, he or she can tell you before the case is ever filed (or any fees are ever paid) if you meet the qualifications to have your debts discharged in bankruptcy.

By the time your lawyer has reviewed your case and filed your petition in bankruptcy, all of the guesswork should be long gone and there should be no reason you have to wait to find out if your case will "be approved."

Can a Creditor "Opt Out" of the Bankruptcy?

2011-02-10T17:00:00.000-08:00

So many of my clients have been subject to outrageous scare/humiliation tactics by unscrupulous creditors that I could easily write a short novel about it. Nearly all of these tactics are illegal under the Fair Debt Collection Practices Act so the methods must be working pretty well for creditors to keep using them.

Today I had a client tell me that a creditor called her at work and demand payment. We had listed the creditor in the bankruptcy and my client told that to the person on the phone. The creditor said they had "denied" the bankruptcy and were seeking to collect anyway.

WRONG! Creditors do not get to choose whether to "accept" or "deny" a bankruptcy. Unless the creditor is a government agency or a secured creditor (like a home or a car lender, for example), the creditor won't be getting to "deny" a bankruptcy. A bankruptcy filed in the United States Bankruptcy Court applies to all debts and includes all creditors.

Official bankruptcy is different from these so-called "debt settlement" programs you see advertised all over the place. Those non-governmental programs do not require a creditor to participate and all too often some of the creditors in those programs do not participate. Instead, they go after the debtor directly, garnishing her wages and bringing the whole "settlement" program crashing down. Not going to happen in Bankruptcy.

So what happened to my client in the illustration above? As with most bullies, once you stand up to them they leave you alone. I advised my client that the next time the creditor called, my client should tell the creditor that she was keeping a log of all the illegal contacts and that we would be filing a motion in bankruptcy court to get sanctions of $5,000 for every attempt to collect that creditor made. My client told the creditor she hoped the creditor would keep calling so she could get enough to put her kids through college at the creditor's expense!

No more phone calls. :)

"But When I Got This Loan I Signed a Promise NOT to File Bankruptcy!"

2011-02-09T13:40:00.000-08:00

I hear this sometimes from my clients who have loans with payday lenders or other smaller mom-n-pop type loan shops. When my clients got their loans from these creditors, the clerk had them sign a document that says they promise not to file bankruptcy or include this particular loan in their bankruptcy.

It is NOT enforceable. It's a scare tactic only. Bankruptcy is extremely powerful. It trumps all promises or contracts you may have previously made and gives you a clean break from those debts. Don't let the fact that you might have signed a document like this prevent you from filing bankruptcy.

The Constitutional Right to File Bankruptcy

2011-02-08T09:11:00.000-08:00

I get a lot of clients in my office who are relieved to be ridding themselves of a lot of debt, but beset with feelings of failure and the vague sense that filing bankruptcy is somehow "wrong." Frequently a person will say, "I really wish I could pay back these debts. I know I incurred them and I would pay them if I could, but I just can't do it! I feel so horrible about filing bankruptcy."

Stop! If you need to file bankruptcy, you need to file bankruptcy. There is nothing blameworthy about it. I strongly believe that choosing to file bankruptcy is a smart business decision. It has nothing whatever to do with what kind of a person you are. It is simply a frank and honest assessment of your personal financial situation. If you reach the conclusion that you cannot possibly pay off your debts, then you owe it to yourself and society to file bankruptcy. Why? Because if you don't get out from the under those debts they will crush you. You will suffer wage garnishments, leading to possible loss of your home, transportation, and even your job itself. You will never be able to save for retirement or college for the kids. Your ability to purchase goods and services in your surrounding community is vastly diminished or extinguished altogether. Furthermore, the stress of a debt laden life has a huge negative impact on your health and your relationships. In summary, a person or family that is slowly dying from out of control debt must get the fresh start or risk becoming a burden on society at large.

The Founding Fathers foresaw that in a capitalist society like ours, there must be a constitutional right to file bankruptcy. (See for yourself here, fourth line down). Without it, citizens could suffer their whole lives under crushing debt. Exercising your constitutional rights is not amoral or in any way wrong. Do a Google search for "big companies that have filed bankruptcy" and see for yourself that bankruptcy is a business decision embraced by the biggest and most successful companies in the United States. Why should a person feel badly about making the exact same choice?

Interplay Between Median Income and Means Test

2011-02-07T14:03:00.000-08:00

If you are on line searching for information about bankrutpcy, you have probably come across information about the "Means Test" and "Median Income." You may be wondering what these are.

In bankrutpcy, you cannot file a chapter 7 unless your combined family income is less than the median income for a family of your size in your state. There are very few exceptions. The median income is determined using IRS figures and it is adjusted a couple times a year. The most recent figures can be found here. (You have to navigate through a couple of links from that page.)

If you are over the median income, then you are looking at a chapter 13. The question arises: "how much do I have to pay back to my creditors in a chapter 13 bankruptcy?" The answer to that question depends in part on how much surplus income you have after running your earnings through the means test. The means test requires you to take the last six months' worth of your income and subtract from it standard deductions formulated by IRS. Some of the deductions you get to take even if you don't actually have such expenses, like recurring monthly medical bills. Other deductions you have to prove, like past due taxes. If you end up with no surplus income after taking all these deduction off your gross earnings, then your monthly chapter 13 payment is going to be a lot lower. Conversely, if the deductions on the means test arent's enough to eliminate all of your income, then the law requires that you pay your creditors more.

The means test is a bear. It is a very complicated government formula that has been the subject of a lot of litigation between bankrupty lawyers, creditors, and the US Trustee's office. A lot of the words that you might think have plain meaning on the means test have been given unusual definitions by the courts.

If you want to take a peek at the bear, you can see the chapter 7 version of the means test here and the chapter 13 version here.

Utah Bankruptcy Court Website is Useful

2011-02-04T12:29:00.000-08:00

The Utah Bankruptcy Court has a website. It is located here.

Unlike a lot of government websites, this one has some pretty useful information. If you click around in there you can find links to the Court's calender for hearings and creditor meetings as well as filing statistics for Utah. There are also all the forms you might need if you are going to try to file bankruptcy by yourself and all of the local rules you have to follow when filing a bankruptcy case. There is also an archive of local bankruptcy court decisions handed down by our three bankruptcy judges in the district of Utah.

OK so maybe most of the stuff on this website isn't interesting unless you are a bankruptcy lawyer.

Thunderbolts and Lightning at the Confirmation Hearing

2011-02-03T09:36:00.000-08:00

Last Monday I was attending a confirmation hearing for one of my chapter 13 clients in the Ogden federal building. The hearings are held in the court room, but the judges who preside over the hearing are actually sitting in their Salt Lake courtrooms and they appear in Ogden via video conference.

For years and years, the video conferencing used by the bankruptcy court has been plagued with problems. Sometimes you can't hear what is being said in Salt Lake or you can't see the video down there. It just never seems to be working perfectly. Last Monday was no exception--there seemed to be some kind of lag in the feed that made it so you could only hear about 4 out of every ten words the judge or the trustee said.

The thing that was new this last time was a picture of a lightning bolt that appeared on the monitor showing Judge Mosier. I am guessing the lightning bolt was supposed to signify some problem with the feed to or from Judge Mosier's camera. It looked like a lightning bolt you would see in a cartoon. It showed up right next to his head and every time it appeared, it gave the impression that he was very angry about what he was hearing. I thought it was really funny and I was glad that it did not appear while I was talking to the judge.

Tax Refunds and Bankruptcy

2011-02-01T16:18:00.000-08:00

It's tax refund time and a whole lot of my clients are wondering what they should do with their tax refunds. The answer is: it depends.

If you have already filed your chapter 7 case, it's highly likely that your trustee has or will direct you to turn over at least a large portion of your refund. That's his right and your failure to do so will put your case in serious jeopardy.

If you haven't yet filed your case and you are thinking about chapter 7, you should talk to your attorney about the tax refund. Tell your lawyer how much you expect to receive and when you expect to receive it. If you can hold your creditors off for a while longer until you get your refund, it often makes sense to delay filing your bankruptcy until you get your tax refund and spend it down. The bankruptcy trustees don't like it because they want that money, but with a bit of planning this technique is permissible.

There are quite a few things you can usually safely spend your tax refund on: one month's worth of regular utility bills, mortgage, rent or car payment, medicine, medical procedures, home or car improvements (within certain limits), bankruptcy fees and costs, and other outstanding bills less than $600. Make sure you keep your receipts for how you spent it. DO NOT spend the money to pre-pay regular monthly bills. DO NOT use the money to pay back friends or family on loans they might have given you up to this point. As long as you spend the money on permissible expenditures and keep records of your payments, the bankruptcy trustee will probably leave you alone. You should always talk to your lawyer before you spend even one cent of your tax refund just to make sure it's not going to come back and bite you in your subsequent chapter 7 case.

If you are in a chapter 13, you need to ask your attorney how much of your refund you are entitled to keep. In Utah, for cases filed before December 1, 2010, you ordinarily get to keep $1,000 of your state and federal combined refund, and the rest the you must send in with your regular monthly bankruptcy plan payment. For cases filed after November 30, 2010, the bankruptcy trustee is allowing people to keep up to $2,000 of your state and federal combined refund so long as at least $1,000 of that refund is from the earned income or dependent child credit. These are just general guidelines applicable to most chapter 13 cases; check with your lawyer to get the specifics applicable to your case.

Representing Yourself In Bankruptcy = Herculean Task

2011-01-31T11:31:00.000-08:00

This morning I was at a chapter 13 confirmation hearing before Judge Mosier. The case that was on the docket before mine was a married couple in chapter 13 bankruptcy who had decided not to hire an attorney to represent them in bankruptcy. They were doing it pro se to use our fancy lawyer gobbledygook.

As usual, things were not going well for the pro se debtors. They were asking the judge to issue an emergency order to stop an impending foreclosure of their home. The judge said he was sympathetic to their plight but that they had not filed papers showing the necessary four elements to obtain the order they wanted. He denied their request and their home will now be foreclosed.

You are not required to hire a lawyer in order to file bankruptcy. About once a month I see some brave person on the court's docket who has decided to go it alone. There are checklists on the Utah Bankruptcy Court's website and you might think if you just follow the checklists, you should be good to go. Unfortunately, it is never so simple and the pro se debtor's name on the docket sheet is almost always followed by this unfortunate epitaph: Case Dismissed.

It sounds self-serving coming from me, a bankruptcy lawyer, but bankruptcy is no place to go it alone. Bankruptcy is extremely complex and the process is filled with very strict deadlines. Things you might think are no big deal can cause your case to be dismissed out of hand. Quite often when I go to a meeting of creditors with my clients, I will see a pro se debtor there who does not know his or her case has already been dismissed for failure to file some trivial but mandatory document.

I know it's not cheap to hire a lawyer but this is an area where having a seasoned professional on your side is really going to make a huge difference in the outcome.

Keeping "Luxury Items" in a Chapter 13 Bankruptcy

2011-01-28T09:56:00.000-08:00

This week I have been working on a chapter 13 case in which my clients would like to keep and pay for their two four-wheelers. The chapter 13 trustee was initially opposed to this plan, claiming that four wheelers are considered recreational luxuries that a person in bankruptcy should not be allowed to keep. The trustee argued that money the debtors would pay toward keeping the four wheelers should instead be paid to unsecured debts like credit cards and medical bills, and my clients should have to give up their four wheelers.

My clients explained that they do not use the four wheelers primarily for recreation. Instead, one of the four wheelers is affixed with a snow plow to clear the driveway because both clients are medically unable to shovel snow. My clients further explained that they use both the four wheelers to help maintain their in-laws' nearby ranch and the livestock on the ranch. In return, the in-laws give my clients a freezer full of meet every six months, helping to save on expensive grocery bills.

I told the trustee about these extenuating circumstances, and we reached a compromise. If my clients agreed to pay another $75 per month toward their unsecured debts in the chapter 13 repayment plan, the trustee would not try to make them give up their four wheelers. Done! The clients are thrilled with the deal.

The point is, in bankruptcy as in most other parts of life, everything is negotiable.

Utah Bankruptcy Clinic Wins Court Approval For Payment of Student Loans in Chapter 13.

2010-12-14T09:56:00.000-08:00

Last week before Utah bankruptcy Judge Mosier, and again this week before Utah bankruptcy Judge Marker, I was able to successfully argue that my chapter 13 clients should be permitted to pay off their student loans through their bankruptcy repayment plans. Why is this a big deal? Because historically, the bankruptcy judges and trustees have been very reluctant to allow student loans to be paid through bankruptcy payments plans. The judges and trustees want people with student loans to put their loans into deferment while they are in a chapter 13, so that all the extra money can go to unsecured creditors like credit cards, medical bills, and payday loans. The problem is, the interest on student loans continues to compound even while it is in deferment so that when you emerge from bankruptcy you've got a nasty surprise of increased student loan debt. In the two student loan cases I had confirmed in the last two weeks, my clients will emerge from bankruptcy with their student loans paid and their unsecured debts discharged! A good result and hopefully a new trend that will be allowed here in the Utah district.

Chapter 13 Filings Going Through the Roof in Utah and Across the Country.

2010-12-09T07:04:00.000-08:00

Today I attended a seminar given by Kevin Anderson, the chapter 13 trustee for the district of Utah. He was giving us bankruptcy lawyers an update on some changes to the local bankruptcy rules and forms. During the meeting he showed a chart that demonstrates a dramatic rise in the number of chapter 13 cases that are being filed. The reason he showed this chart to us was, in part, so that we would have more patience in dealing with his office and the bankruptcy court's staff while everyone adjusts to the demands upon the system cause by all these filings. He speculated that the high unemployment rate and ongoing recession caused so many filings, but I think there may be other factors at work. Increasingly, bankruptcy lawyers are pushing for their clients to file chapter 13 instead of chapter 7 and this trend may be part of the reason more people entering bankruptcy are choosing chapter 13 instead of 7. Chapter 13 does require you to pay back a (usually very small) portion of your debts over a 3 to 5 year repayment plan, but in a chapter 13 you don't have to worry about a chapter 7 trustee trying to take your non-exempt assets. I know in my own practice I will recommend a chapter 13 in a heartbeat if I am even remotely worried about my client losing an asset. It's just not worth the unpleasant tangling with a chapter 7 trustee if there is a risk of property loss.

Telephone Harassment From "Mystery" Creditor May be a Scam.

2010-12-07T15:50:00.000-08:00

Over the last few months an alarming number of my clients have reported an unusually belligerent creditor calling them on the phone to demand payment for debts. Telephone harassment by creditors isn't all that unusual, but in this case there are some common features to the call that suggest it is part of a fraudulent pattern designed to scare you into coughing up some money to someone you don't owe! The biggest tipoff is that the caller does not care that you have filed for bankruptcy and have a bankruptcy case number. Any legitimate creditor based in the United States knows that a debtor who has filed bankruptcy is fully protected and cannot be harassed or even spoken to. To disregard the protection of bankruptcy puts the creditor in grave risk of huge sanctions; no real creditor would knowingly do so. Also, the creditor will not identify which debt they are calling about. Instead, they will say something like, "You owe $3,500 for an Internet loan. I will accept $500 right now as payment in full." My clients tell the caller they do not have any Internet loans and ask for the date and the website of the loan, but the caller will angrily say he does not have to provide that information. Huh? Usually these calls devolve into shouting matches with the caller angrily listing all of the consequences he will rain down on my client if they don't give him a credit card or other immediate form of payment. He will say things like he is sending in the federal marshals to take you to jail and other nonsense that is totally impossible but also very scary. Clearly, this technique is working to scare some people into giving him the cash. Remember: once you file bankruptcy you are completely protected from this kind of stuff, so don't give in to it. Contact your lawyer if it happens to you.

What to Expect at the Meeting of Creditors

2010-11-30T11:40:00.000-08:00

Everyone who files bankruptcy must attend a meeting of creditors. When I explain this necessity to my clients, some of them are understandably nervous about what to expect at such a meeting. Not to worry, the meeting of creditors is no big deal if you have some idea what it's about. First of all, "meeting of creditors" is something of a misnomer as very rarely do any creditors show up. Instead, the people who are present are usually you (and your spouse if a joint filing), your attorney, maybe another ten or so people who are also filing bankruptcy and their attorneys, and finally the trustee. The meeting is held in an office rather than a courtroom. There is no judge present (the trustee is not a judge-just a court-appointed lawyer who has the job of making sure the paperwork is in order). The trustee will call off the names of everyone who is scheduled to appear, give a little introductory statement about how he is going to conduct the meeting, and then call the first case. When your case is called, you and your attorney go and sit near the trustee at a desk. The first thing you do is hand over your picture ID, proof of SSN, last paycheck you received, and a bank statement showing what was in your account on the date you filed. Some trustees want some additional documents but your attorney will go over that with you before hand. Then the trustee will ask you a handful of very simple questions like, "State your name and your address. Did you read and sign the bankruptcy papers your lawyer prepared? Does it list all of your assets and debts? Do you need to make changes?" That's usually it. Occasionally the the trustee will question you about a particular debt or piece of property. The questioning on average lasts less than three minutes and you're done. See, nothing to worry about!

Putting a Pay Day Loan into Bankruptcy.

2010-11-20T18:55:00.000-08:00

As the economy continues to sputter and money remains tight for everyone, even creditors seem to be feeling the pinch. Some of these creditors who are short of cash are resorting to lying about whether the debt you owe them can be put into bankruptcy. Pay day lenders seem to be the main culprit in this area. When my clients tell a pay day lender who keeps calling to collect that they are going to file bankruptcy, the pay day loan rep will say, "You can't put our loan in bankruptcy!" Some pay day lenders will even make you sign a document when you get the loan where you promise not to put that loan in bankruptcy. Don't worry about those tactics. It's not true; it's just a ruse designed to get you to pay them. Pay day loans, like medical bills and credit cards, are all considered unsecured debts that are easily discharged in a bankruptcy. The only exception would be if you obtained the pay day loan during the period of time right before you filed bankruptcy. If that's the case, talk to your lawyer about whether your pay day loan can be discharged in your bankruptcy.