How much does a Bankruptcy Cost?

      This is a frequently asked question in the bankruptcy world.  How much does a bankruptcy cost, and how am I supposed to pay for it?

     

      Well first it depends on under which chapter you are filing bankruptcy.  Chapter 7 is the least expensive, but you must first qualify, and there are lots of restrictions.  Chapter 13 is next highest, but with relatively low risk if you have a job and can afford your repayment plan.  As for Chapter 11, if you have to ask, you cannot afford it.

 

      Currently in the Middle District of Tennessee, which consists of Nashville and surrounding counties, the filing fee for a Chapter 7 is $306, Chapter 13 is $281, and Chapter 11 is $1,213 but also with quarterly fees that depend on how much debt is owed. 

 

      For Chapter 7 and Chapter 13 debtors, the filing fee does not need to be immediately paid. For Chapter 13 debtors, the trustee will pay the fee for you out of your monthly payments.   For Chapter 7 debtors, they have up to 4 months to pay the filing fee; however, failure to do so will result in closing of the case without a discharge.  Thus we recommend paying the fee up front.

 

      The attorney fees for bankruptcy are set by the court.  Chapter 7 fees can range from $1,000 to $1,500 depending on how complicated the case is.  Some newer attorneys and high volume law firms will charge less, but like most things in life, you get what you paid for. 

 

      As for Chapter 13 cases, the fee can range from $2,500 to $4,000, but these fees are paid through the monthly plan payments and are disbursed by the Trustee of the case.  Also, chapter 13 fees are higher because the case lasts from 3 to 5 years. 

 

      Lastly, are the counseling courses.  The 2005 amendments to the bankruptcy code requires that debtors attend 2 budgeting courses.  The course holder must be a non-profit agency and approved by the Bankruptcy court.  The agencies that we recommend our clients to charge $25 for the first course and $15 for the second course.  In a chapter 13, however, the trustee will teach the second course for free. 

 

      At our firm, we do take pro-bono cases and will charge less fees for individuals who truly cannot afford the fee.

How to File Bankruptcy?

      The easiest answer is to call a local attorney, explain your situation, and then see what she advises. However, the point of this post is to explain what you need to do in order to file a bankruptcy petition.

1)      Collect and compile all of your debts.  Pull your credit report, for free with no strings at annualcreditreport.com.  Gather all bills, statements, and collection letters from your creditors to make sure you have all account numbers, balances, recent payments made, their names and addresses.  All of this information, except for the account numbers, must be included in your bankruptcy petition. So get all of this organized.

 

2)      File your taxes.  Bankruptcy law does not allow you to file a bankruptcy unless you have filed your taxes.  It does not matter if today is February 3 and you have until April 15.  Bankruptcy law will not grant you a discharge unless you have filed your taxes.

3)      Collect and organize your previous 6 months of paystubs or other proof of income.  The Bankruptcy court requires that you disclosure all income received and its source from the previous six months prior to filing the case.  The court also requires that the previous 2 months of income statements be submitted to the US Trustee’s office for review. 

4)      Organize and know all of your assets.  In your petition, you will have to list everything you own.  The underlying, extremely simplified premise behind bankruptcy is: that when you file a trustee is appointed to your case who has the ability to take and sell everything you own, use that money to pay your debts, and whatever debts still remain are discharged, or “wiped away.”  Well, having everything you own being sold does not really help with a “fresh start,” therefore, federal and state law allow you to keep certain items to a certain amount.  That is why you need to tell the court everything you own, so the trustee can calculate the value of your assets and determine which ones are exempt and which ones are not exempt from seizure. 

5)      Property Identification.  The Bankruptcy Court requires government photo-id and government issued social security number.  You cannot use a tax return, because you send that to the government. You need your SSN card, Medicare Card, W-2, or Tax Transcript because those are from the government.

       Filing bankruptcy is a completed process and we strongly urge that you hire an attorney to represent you in a bankruptcy case instead of trying this on your own, but having the above things taken care of will significantly help with a smooth process. 

 

 

Can I Discharge my Traffic Tickets in Bankruptcy?

One of the questions we receive quite often is whether or not traffic tickets and other court costs are dischargeable in bankruptcy?  Many debts are not dischargeable such as some income taxes, child support, and most student loans.  For traffic tickets we have to look at the Bankruptcy in detail.

 

Section 523(a)(7) of the bankruptcy code states:

 

"a discharge under section 727, 1141, 1228(a), or 1328(b) of this title does not discharge an individual from any debt – to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty."

 

In a Chapter 7 case, government fines are not dischargeable, including criminal fines.  A Chapter 13 debtor, however, who completes his case and receives a discharge may be able to discharge certain non-criminal government fines.  Section 1328(a)(3) of the bankruptcy code states that a Chapter 13 debtor who completes all payments under the Plan receives a discharge "of all debts provided for by the plan or disallowed under section 502 of this title, except any debt – for restitution, or a criminal fine, included in a sentence on the debtor's conviction of a crime."

 

Therefore, if your fine is for a criminal act determined by state law, it is not dischargeable in Chapter 7 or Chapter 13. If the fine is considered a civil penalty, it is not dischargeable in Chapter 7, but  it is dischargeable in your Chapter 13 case.

 

 

What is a Chapter 20 Bankruptcy?

       A Chapter 20 Bankruptcy is the situation where a debtor files for Chapter 7, and then immediately refiles another case under Chapter 13.  The purpose are a few reasons why a debtor would want to take this strategy.  The first purpose is to reduce the monthly payments that will be required in a Chapter 13 plan.  If a person has $50,000 of general unsecured consumer debt (such as medical bills and credit cards) and also has $50,000 of student loans, which is not dischargeable, then chapter 13 payments to pay everyone in full would be $1,666.67 per month for 60 months.  However, if the debtor first files Chapter 7 bankruptcy, then $50,000 of the consumer debt would be discharged. After the case is closed the debtor can immediately refile under Chapter 13 in order to pay the nondischarged student loans.  That monthly payment would be $833.33 for 60 months. 

       Another reason to file a chapter 20 is because the debtor exceeds the Chapter 13 debt limits.  Currently, a debtor cannot file a Chapter 13 bankruptcy if the unsecured debt exceeds $360,475.  Chapter 7 has no debt limits.  Thus, a debtor may have $400,000 in unsecured debt, which is mixed with dischargeable and nondischargeable debt, as well as secured debt of a house and car.  The debtor (if he qualifies for a chapter 7) file the chapter 7 first reduce the overall debt to be under the debt limit.  Then the debtor could file a Chapter 13 bankruptcy in order to cram-down the car loan or strip off a second mortgage on a house.

       Now, one thing to remember is that by filing a Chapter 7 first, the debtor will not be eligible for a second discharge in the Chapter 13 bankruptcy.  All of the consumer debt would've already been discharged in the Chapter 7, but the debtor would be liable for any deficiency if he later choose to surrender the house or car in the chapter 13 bankruptcy.  

Student Loans and Hardship Test

Recent Case Updated from the 9th Circuit:
In re Jorgensen 2012 WL 3963339

       Under the Brunner “undue hardship” test, a debtor seeking discharge of student loan debt must prove that (1) she cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if required to repay the loans, (2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period, and (3) the debtor has made good faith efforts to repay the loans.

       The Court of Appeals held that the lower Bankruptcy court did not abuse its discretion by refusing to discharge $8,045.02 of Chapter 7 debtor's approximately $36,285 in student loan debt; the court refused to discharge $6,050 because debtor would not be paying rent during the five and one-half months that she was teaching abroad and she did not satisfactorily explain why the excess $6,050 was necessary to maintain a minimal standard of living, and the court refused to discharge $1,995.02 because debtor purchased a new vehicle prior to her trip and her car payment while abroad was not necessary to maintain a minimal standard of living.

When Can Someone File Bankruptcy Again?

       A common question we receive is: "I filed bankruptcy [x] years ago, does that affect me?"   Section 727 of the Bankruptcy Code lists the amount of time that a person must wait if he has received a bankruptcy discharge.  The following are the amounts of years that must be between the filing dates of the bankruptcy cases and their respective Chapters:

                                     Between Chapter 7 and Chapter 7:   8 Years
                                     Between Chapter 7 and Chapter 13:  4 Years
                                     Between Chapter 13 and Chapter 7:  6 Years
                                     Between Chapter 13 and Chapter 13: 2 Years

       The six year requirement between a Chapter 13 and a Chapter 7 has two exceptions: (1) the debtor paid all "allowed unsecured" claims in the earlier case in full, or (2) the debtor made payments under the plan in the earlier case totaling at least 70 percent of the allowed unsecured claims and the debtor's plan was proposed in good faith and the payments represented the debtor's best effort.

Bankruptcy Procedure: Conversion v. Dismissal

       A debtor in a Chapter 13 plan is allowed to dismiss her case at any time (Code §1307(b)) and allowed to convert her case to a Chapter 7 Bankruptcy at any time (Code §1307(a).  However, even though the Code states that one cannot be forced to remain in a Chapter 13 Bankruptcy and can either dismiss or convert the Chapter 13 Case, the procedure for each is quite different. 
      
      Rule 1017(f)(2) states that if a Debtor wishes to convert or dismiss her case under 1307(b) then it shall be by a motion governed by Rule 9013, which requires Notice, Motion, and a Hearing.  However, Rule 1017(f)(3) states that if a Debtor wishes to convert or dismiss her case under 1307(a), then all the Debtor has to do is file a notice of conversion; No motion, no hearing.  

       A closer look at this procedural process reveals an oddity in the requirements. The Bankruptcy Code specifically allows a debtor to voluntarily dismiss her case whenever she wants, and this right to dismiss is quite strong because the Code precludes any attempt to waive the right, yet the debtor must file a motion and have a hearing asking the Bankruptcy Court to dismiss the case; however, to convert the Chapter 13 case, the only requirement is Notice to the Court and parties, even though the right to convert is watered down.  For example, to convert a case to Chapter 7 from Chapter 13, the debtor must qualify to file Bankruptcy, must qualify for Chapter 7 under the Means Test, and must be in good faith (The Bankruptcy Code does not ask for good faith; this qualification was read into law by the Supreme Court 5-4 in Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007)).   Therefore it seems backwards that the unconditional right (dismissal) of the debtor requires more procedural process than the watered-down right (conversion) of the debtor.

Credit Cards in Bankruptcy

      When discussing bankruptcy, many clients often ask about credit cards. Typically, when a debtor is ready to file bankruptcy, they are in such a financial bind that they are living off their credit cards. Credit card debt is dischargeable, but it may be subject to the 90 day rule. The 90 day rule is that it is best to wait 90 days from the last purchase made with a credit card in order to discharge that credit card debt. However, it is not always necessary to wait the 90 days. The Bankruptcy Code states in pertinent part:

Consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable (§523(a)(2)(C)(i)(I))

       What this means is that your credit card debt is not discharged in a Bankruptcy if (1) it is totaling more than $500, (2) to the same creditor, (3) for non necessary purchases (such as food, clothing, bills, etc.), and (4) made within 90 days prior to filing Bankruptcy.

       This protects creditors from debtors who run up credit card debt just before filing bankruptcy, unless that debt was used for food and other necessary essentials.

For more information, please visit www.TheNevinLawFirm.com

Prepetition Attorney Fees Collected Post Petition Violate Automatic Stay

       There is a common practice that has long taken place in the Chapter 7 bankruptcy realm which attorneys and debtors need to be aware of has some problems.  The practice is the acceptance of attorney fees after the debtor's bankruptcy petition has been filed and case commenced.  A majority of courts, including the 6^th Circuit, have held that the requiring payment of attorney fees post petition is a violation of the automatic stay in section 362 of the Code.  Despite the 2009 Tennessee decision, I still see this practice continuing.  Maybe its because more young attorneys are entering the bankruptcy field and are unaware of this 2009 case, or local attorneys just did hear of it (The Nevin Law Firm is based in the Middle District of Tennessee in Nashville while the decision was in the Eastern District of Tennessee of Knoxville.)  No matter the reason, this practice openly continues despite the Bankruptcy Court's obvious using one law group as an example.

       The far reaching consequences of this decision, and the rich analysis of the Bankruptcy Code, make the case worthy of a law review article; however, tempted as I am to write a full-blown review of this decision, I will keep this article brief.

       The United States Bankruptcy Court of the Eastern District of Tennessee held that an agreement to pay attorney fees for the bankruptcy case, entered into prepetition, is a prepetition debt and is therefore dischargeable.  They also held that where an attorney makes the arrangement not to be paid in full upfront before filing the case creates a conflict of interest because the attorney then becomes a creditor of their own debtor-client once the case has been filed.  Moreover, any attempt to collect the unpaid balance from the debtor, the court held, would violate the automatic stay of section 362 and be cause for the debtor's own attorney to be issued sanctions by the court which would include a disgorgement of the fees already paid prepetition. 

       The court had multiple problems with the law group in this specific case including:  (1) the fact that the attorneys did not disclose to the client that such an agreement could at least potentially be dischargeable (since this was a case of first impression);  (2) the attorneys' disclosure to the court was that they had been paid in full prepetition, when in fact that was not true;  (3) after post-dated checks from the debtors had been returned, they made collection phone calls and sent collection letters. 

       However, the court did note that there are acceptable ways to receive proper compensation for attorney fees, for both post and prepetition payments.  The following are such options, which have been employed by other courts, and appear to fall within the scope of potential and allowable solutions: “(1) requiring Chapter 7 debtors to pay flat attorney’s fees in full prior to filing; (2) revising retainer agreements and expressly designating pre-petition services, which are paid pre-petition, and post-petition services, which shall be paid post-petition; or (3) accepting payment by third parties.”

       Therefore, if you are a debtor and your attorney is asking for post-petition payment, you might have found a way to have free legal service.  Attorneys! Make sure you get paid up front in full before filing the case! If, however, a debtor is in a bind and needs a case filed ASAP, then take either of the two following actions.  First either have a family member or friend of the debtor sign the fee agreement as a surety, since they would not fall under the protection of the Bankruptcy Code for your debtor's case.   

       Or, second, write two separate contracts.  The first contract should specifically delineate prepetition services, duties, and disclosures with fees scheduled next to each.  State specifically that any prepetition payments are for only the delineated services and that this contract does not bind the attorney to perform any post petition work on the case.  After filing the case, sign a second contract with the debtor which is for postpetition services.  Specifically delineate what those services are and how much you charge.  Also make full disclosure to the bankruptcy court of your fee arrangement on Form 7 Statement of Financial Affairs and the Compensation Statement of Attorney for Debtor. You must also disclose to your client the reason for the separate contracts, explaining to your client the automatic stay implications and the attorney fees. 

To read the case in full please see In re Waldo, 417 B.R. 854.

For more information, visit www.TheNevinLawFirm.com

Can Stockbrokers file for Bankruptcy?

            One issue in practicing bankruptcy that has come up time and time again is the rumor that stockbrokers are not allowed to file bankruptcy.  Most of the public, and many bankruptcy lawyers for that matter, are under the impression that the Bankruptcy Code precludes stockbrokers and commodity brokers from filing bankruptcy.  Well, like most rumors, this one is partially true. 

            To answer the question simply: stockbrokers and commodity brokers are allowed to file for bankruptcy under Chapter 7 of the code, but not under 11 or 13.  The relevant provisions belong in 11 U.S.C. 109, titled Who may be a Debtor.  Under section 109, subsection (b) deals with Chapter 7 filers, subsection (c) with Chapter 9 (municipalities), subsection (d) with Chapter 11, subsection (e) with chapter 13, and subsection (f) with farmers.  Thus the relevant subsections for our discussion are (b), (d), and (e).

             Subsection (b) is an expansive list that enumerates all those who may NOT file for bankruptcy under Chapter 7 of the code. Nowhere in this list are stockbrokers or commodity brokers mentioned.  Read for yourself:

(b) A person may be a debtor under chapter 7 of this title only if such person is not - (1) a railroad; (2) a domestic insurance company, bank, savings bank, cooperative bank, savings and loan association, building and loan association, homestead association, a New Markets Venture Capital company as defined in section 351 of the Small Business Investment Act of 1958, a small business investment company licensed by the Small Business Administration under subsection (c) or (d) (!1) of section 301 of the Small Business Investment Act of 1958, credit union, or industrial bank or similar institution which is an insured bank as defined in section 3(h) of the Federal Deposit Insurance Act, except that an uninsured State member bank, or a corporation organized under section 25A of the Federal Reserve Act, which operates, or operates as, a multilateral clearing organization pursuant to section 409 of the Federal Deposit Insurance Corporation Improvement Act of 1991 may be a debtor if a petition is filed at the direction of the Board of Governors of the Federal Reserve System; or (3) a foreign insurance company, bank, savings bank, cooperative bank, savings and loan association, building and loan association, homestead association, or credit union, engaged in such business in the United States.

            Therefore, the fact that they are not included in the prohibitive section indicates the intent of the legislature to allow stockbrokers and commodity brokers to file for relief under Chapter 7.  But our analysis does not stop here.

            Next let's look at subsection (d), which deals with filing under Chapter 11.  Read the following section and notice the language dealing with stockbrokers and commodity brokers.

Only a railroad, a person that may be a debtor under chapter 7 of this title (except a stockbroker or a commodity broker), and an uninsured State member bank, or a corporation organized under section 25A of the Federal Reserve Act, which operates, or operates as, a multilateral clearing organization pursuant to section 409 of the Federal Deposit Insurance Corporation Improvement Act of 1991 may be a debtor under chapter 11 of this title. (emphasis added)

            This section delineates who may file under Chapter 11, unlike Chapter 7, which lists who may not. This section allows railroads (who were excluded from protection of a Chapter 7 in subsection (b)) and all of those who are able to file under a Chapter 7 “except a stockbroker and a commodity broker.”  By implication, a stockbroker and a commodity broker must be able to file for protection under Chapter 7, otherwise that language is (1) superfluous and (2) inconsistent. 

             The drafters specifically excluded brokers from filing under Chapter 11.  They did so by allowing all those who qualify for  a Chapter 7 file a Chapter 11 with the exception of brokers.  Therefore, the writers are telling us that brokers do qualify for a 7 but are specifically exempted out of filing for an 11.  Furthermore, brokers are specifically precluded from filing an 11 in subsection (d), yet not specifically excluded in subsection (b).  This word choice demonstrates that in order to remain consistent with delineations and exclusions, and with the implication of the specific exclusion from qualifying 7 debtors, brokers are allowed to file bankruptcy under Chapter 7, but not Chapter 11.

            Finally is subsection (e), which deals with those allowed to file bankruptcy under Chapter 13.  This section reads as follows:

(e) Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000, or an individual with regular income and such individual's spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000 may be a debtor under chapter 13 of this title.  (emphasis added)

Subsection (e) makes it easy.  The Code here specifically says that a stockbroker and a commodity broker are not allowed to file a Chapter 13 bankruptcy case. No “ifs,” “ands,” or “buts” about it.

             To remain consistent with the rest of the language used in the other subsections a broker must be allowed to file for bankruptcy under Chapter 7.  Subsections (d) and (e) specifically exclude brokers from their filing bankruptcy under those respective chapters, while the one section, subsection (b), that delineates specifically who may note file under its respective chapter does not list brokers.  Therefore, the exclusion of brokers in subsection (b), coupled with the specific exclusions in (d) and (e), along with the implication created in (d)'s language of allowing all qualifying 7 filers, except brokers, to file an 11, lead to the conclusion that a stockbroker and a commodity broker are allowed to filed for bankruptcy under Chapter 7 of the Code, but not 11 or 13. 

Filing for Chapter 7 Bankruptcy

When it comes to the concept of bankruptcy, most people associate it with having their debts permanently relieved. In reality, there is more than one type of bankruptcy. In a Chapter 13 bankruptcy, the debtor keeps his assets but agrees to a payment plan to eliminate his debt within a few years. When faced with a major financial setback, however, such as a job loss or costly illness, many people choose to file for a Chapter 7 bankruptcy.

Discharge of Most Debts

Also called a "straight" bankruptcy, a Chapter 7 bankruptcy will result in a discharge of most debts. When debts are discharged, you are no longer legally required to pay them and creditors are prohibited from taking any kind of collection action against you. Chapter 7 can eliminate credit card debt, medical bills, payday loans, judgments against you, deficiency debts, or repossessed motor vehicles. A Chapter 7 bankruptcy does not, however, relieve you from child support responsibility, taxes or student loans.

Because bankruptcy is a federal law, filing for Chapter 7 bankruptcy in Tennessee is not much different than filing for bankruptcy in any other state. However, state law does play an important role in one area. The state in which you file for bankruptcy will determine the amount of money and assets you will be left with after your bankruptcy filing is complete.

Exemptions for Personal Property and Real Property

A portion of your assets will be exempt from your creditors when you file for bankruptcy. The exemption amounts in a bankruptcy filing are the amounts of money and assets you will have that are exempt from creditors. These assets and money are intended to help you get a fresh start after your bankruptcy.

There are separate exemptions for personal property and real property. Your personal property includes money you have in a bank, your household goods, any equity you may have in an automobile, or anything else of value that you own. When you file for bankruptcy, the amount of personal property you will be allowed to keep is determined by your state's personal property exemption limits. In Tennessee, the personal property exemption for a single filer is $10,000. For a married couple, the personal property exemption is $20,000. The exempt amounts are for the equity in personal property after deducting any amount of debt on the property such as an automobile.

The real property exemption amounts in Tennessee are $5,000 for an individual and $7,500 for a married couple. Some exceptions to this rule allow for greater exemptions for those people over 62 and for single parents. The real property exemption (or homestead exemption) is intended to allow you to stay in your home after your bankruptcy. This exemption, however, only applies to your primary residence. So, if you're filing for Chapter 7 and happen to own more than one home, you will only be allowed to keep the home in which you live most of the time.

Remember, before filing for bankruptcy in Tennessee, it's essential that you contact an experienced attorney to help you determine whether Chapter 7 bankruptcy is the best course of action for you.

For more information, visit www.TheNevinLawFirm.com