Posted by Kevin on August 26, 2017 under Bankruptcy Blog | 
Is Filing Bankruptcy a Moral Choice?
As a bankruptcy practitioner, I take for granted that filing for bankruptcy is a practical, economic choice. But for many of my clients, it is also a moral choice. They took the money or used the credit with the good faith expectation that they would pay back the creditor, and now they cannot. Does that make them a bad person? How do you reconcile this apparent disconnect?
For many of my clients with misgivings about filing, I advise to meet the issue head on. You’ll feel better (even good) about the decision only after you believe in your head and in your heart that it really is the right step to take.
How to Make a Good Moral Decision
1. What got you to this point of your finances?
You made legal commitments to pay your debts. What has changed so that you are having trouble now meeting those honest intentions to pay? What is making you seriously consider breaking those commitments permanently?
2. Understand your present: what are the costs and benefits of now trying to meet those financial commitments?
The moral benefit of not filing is that you would be keeping your promises to pay your debts. It’s easy to fixate on this and feel guilty about breaking these honest promises. But how about the real costs if you kept struggling to meet them? Consider your physical health, and your emotional health as you deal with the constant stress. Consider the debts’ effect on your marriage and family relationships. What financial and emotional responsibilities do you have to spouse, children, parents, siblings, community that you just can’t handle? You clearly have moral obligations to all these people in addition to obligations to your creditors.
3. You CAN make a good decision: you now have the opportunity to choose and act wisely.
Face your situation honestly. Don’t hide from the truth, even if it means accepting that you’ve made mistakes. Own them. But don’t beat yourself up about them. Focus on the future. Focus on what you have to do (or not do) to insure a better economic future. Not just generalizations but concrete steps. Resolve to make better economic (and other) decisions every day going forward. And then walk the walk.
4. Get good advice: you can only make good decisions if you know your legal and practical options.
You can’t make good economic or moral choices about how to attack your debts without knowing your legal alternatives for doing so. You can’t know whether the best way to deal with your creditors if you don’t know those legal options. It may turn out that credit counseling will allow you to manage your debts within your budget and without filing bankruptcy. It may turn out that a Chapter 13 payment plan fits your set of life obligation better than a Chapter 7 “straight bankruptcy”. But you cannot make those decisions unless you have the facts and options.
5. Weigh your legal options: consider effects on your creditors, yourself, your spouse, your family, and anyone else involved.
Get help from the right people and resources. Do whatever helps YOU make a good decision. Although bankruptcy attorneys are legal advisors, experienced bankruptcy attorneys have dealt with many people in their careers who have focused not only on the economic issues but the moral issues in filing bankruptcy. Discuss these concerns with your attorney. It will help you make the best, well informed decision which is the first step to a much better future.
Posted by Kevin on August 20, 2017 under Bankruptcy Blog |
You can usually get out of an ongoing Chapter 13 “adjustments of debts” bankruptcy case by simply asking to do so.
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Unlike Chapter 7, if you file a Chapter 13 case you can end it—“dismiss” the case—at any time, and in just about any circumstance. But why the difference?
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Explicit Right to Dismiss
Why can a Chapter 13 case be dismissed by the debtor? Because unlike with Chapter 7, Section 1307(b) of the Bankruptcy Code says so. And quite strongly.
“On request of the debtor at any time… the [bankruptcy] court shall dismiss a case under this chapter [13].”
Notice that the debtor can ask for a dismissal “at any time.” This implies that the request could come any time during the life of a Chapter 13 case, including when it might be particularly inconvenient for a creditor. Or whenever. Also notice that the court does not seem to have any discretion about whether or not to dismiss–it “shall” dismiss the case. Not “may” or “might” dismiss it, but “shall” do so.
An Absolute Right to Dismiss?
Actually there has been debate among bankruptcy judges about whether a court can ever prevent a Chapter 13 case from being dismissed on request of a debtor. And a number of judges have decided that in situations of serious abuse or fraud by the debtor, there are other provisions in the law that trump this section and prevent a Chapter 13 case from being dismissed. But still, in the vast majority of situations, a request by a debtor to dismiss a Chapter 13 case results in its near-immediate dismissal.
Why So Different Than Chapter 7?
But why does the Bankruptcy Code—the federal statute governing bankruptcy—provide for a right to dismiss a Chapter 13 case when it does not provide for Chapter 7 dismissal the same way?
Because (beyond the reasons given in the last blog related to Chapter 7) when Congress established the bankruptcy options, it wanted to encourage debtors to file Chapter 13 cases. This was in part so that they paid back at least some of their debts. Congress probably also recognized that filing a Chapter 13 case is generally riskier than filing Chapter 7. That’s mostly because it involves making payments diligently over the course of years, while not getting the reward of the discharge (legal write-off) of the debts unless successfully getting all the way to the end of it. To encourage taking on the risk of starting a Chapter 13 case, Congress made it easy to get out of it if things did not go as planned.
Posted by Kevin on August 5, 2017 under Bankruptcy Blog |
Although the Great Recession started in December, 2007 and ended technically in June, 2009, economic growth has been sluggish through the 2016 election and even to this day. Participation in the work place went from 66.4% in January, 2007 down to 62.5% in October, 2015. That means that people lost their jobs and withdrew from the work force for extended periods of time for a myriad of reasons.
In July, 2017, the Department of Labor indicated that US employers added 209,000 jobs. More importantly, wages are going up. This is bringing many people back into the work force.
It is not surprising that many of the people who had been sitting on the sidelines for extended periods of time have accumulated significant debt over the past few years. In the past, I would receive a steady stream of calls from people who were outsourced (or otherwise laid off) or downsized concerning lawsuits or threatened lawsuits, and garnishments from their creditors. In the last few years, however, I get less such calls. That does not mean that people have not accumulated debt. It probably reflects certain policy decisions made by creditors about the viability of suing people when they are out of work and, therefore, judgment proof.
Once you get a job, however, you may not be judgment proof. Granted, if you go from unemployment to a minimum wage job, you may not be subject to creditor harassment. But, what if you were unemployed for a year or more because your job was outsourced. You have education and skills that in the right job market, could translate into a sizeable salary. In that case, if you get back into your field, it is only a matter of time before debt collectors will be in touch with you.
So what do you do? Wait for the telephone call? Or the summons and complaint to be delivered by the sheriff? Probably, it would be better to be proactive. At the least you should do a personal financial audit. How much debt do you have? Is it unsecured like credit cards or medical bills, or secured (collateral involved). Is it student loan debt that may not be dischargeable in bankruptcy? How much are you going to have from each paycheck after your monthly expenses to pay those back debts? Are there areas where you can cut back?
When we deal with prospective clients, we try to tailor our advice to their specific economic situation. Some may have defenses to creditor action so fighting a collection action in State court may be the way to go. Others may find negotiation with specific creditors can get a payment plan or settlement at a reduced amount. Some are better served by engaging a reputable creditor counseling agency. Others may need the protection afforded by the Bankruptcy Code.
Congratulations. The economy is getting better and you are back in the job market. But, if you have accumulated debt over the last few years, have a plan to deal with it.
Posted by Kevin on August 3, 2017 under Bankruptcy Blog |
You can usually change from an ongoing straight Chapter 7 case into a Chapter 13 payment plan. But getting out of bankruptcy altogether is generally not allowed.
Most Chapter 7 cases are finished in about 3 months. For the most part, the bankruptcy trustee determines that everything you own is covered by property exemptions, so you get to keep it all—the trustee has “no assets for a meaningful distribution to the creditors.” You get your deb discharged and your case is closed. Not much time for your circumstances to change.
But sometimes things happen. Things do in fact change. Your uncle dies unexpectedly and even more unexpectedly you get a chunk of an inheritance. Or you find out you have an asset you didn’t know about. Or something you own is worth much more than you expected. Or you run up a major medical expense right after filing. So now you don’t want to be in the Chapter 7 case, or maybe not in that Chapter 7 case. What can you do?
Common sensically, you figure you can either end your case or switch it to some other kind of bankruptcy.
Dismissal of a Chapter 7 Case
But unlike Chapter 13, you don’t have a right to just end—“dismiss”—a Chapter 7 case.
Why not? You filed the case; why can’t you just end it?
Because the Bankruptcy Code does not give you that right. The theory is that if you submit yourself, and your assets, to the bankruptcy court in order to get the benefits you want from it—immediate protection from your creditors and a discharge (legal write-off) of all or most of your debts—then you’ve got to live with the consequences.
It’s as if you’ve created a new legal person—your “bankruptcy estate”—with the Chapter 7 trustee in charge of it. This new “person” does have a life of its own of sorts, and doesn’t disappear just because you change your mind.
That doesn’t mean you can’t ever get the court to dismiss your case. It just means that you have to have a really good reason. One that doesn’t just benefit you, but also your creditors.
Getting out of a Chapter 7 is a “depends-on-the-circumstances” situation. Honestly, having an experienced attorney at your side would be critical for knowing what to do if this kind of thing happened to you.
Conversion of a Chapter 7 Case
Changing your case from a Chapter 7 before it’s done into a Chapter 13 is much easier. The Bankruptcy Code says that the “debtor may convert a case under this chapter [7] to a case under chapter… 13… at any time, if the case has not been [already] converted… .” (Section 706(a).)
To do so, you do have to qualify for Chapter 13. Among other requirements, this means:
1) you can’t have more debt than certain limits—$394,725 in unsecured debts and $1,184,200 in secured debts (until these amounts are revised as of 4/01/13) (Section 109(e)); and
2) you must be an “individual with regular income,” meaning that your “income is sufficiently stable and regular to enable [you] to make payments under a [Chapter 13] plan.” (Sections 109(e) and 101(30).)
Whether or not you’d want to convert from Chapter 7 to Chapter 13 depends—naturally—on the circumstances. At first blush, changing from what you might have expected to be a three-month procedure into one that will likely take three years or more probably doesn’t sound so good. But if you are converting the case to preserve an asset, or to deal with a special creditor, Chapter 13 can be a very good tool for these purposes.
If either your financial circumstances significantly change after your Chapter 7 case is filed, or your case proceeds in an unexpected direction, Chapter 13 may have actually have been your better alternative at the outset. And if not, it can be a very sensible second choice.
