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Satisfying the Debtor Education Requirement

Posted by Kevin on November 27, 2017 under Bankruptcy Blog | Comments are off for this article

In a prior blog, we talked about the credit counseling course that a debtor must take before he or she can file under Chapter 7 or 13.  After the petition is filed, the debtor must take the debtor education course.  This is sometimes called the personal financial management course.

The course is given by a non profit budget and credit counseling agency approved by the United States Trustee.  The course is usually taken online but, depending on the provider, can be done over the phone, or even in person.  The  purpose of the course is to provide the debtor with insight into his or her current financial situation which led to the bankruptcy, and how to budget income and expenses to avoid financial problems going forward.

The debtor education course requirement was part of the 2005 amendments to the Bankruptcy Code.  As I stated in the blog dealing with the credit counseling course, in my opinion, one of unspoken policies for the 2005 amendments to the Bankruptcy Code was to discourage bankruptcy filings by making them more time consuming and expensive.   The debtor education course requirement (just as the credit counseling course requirement) is an additional hoop through which a debtor is forced to jump.  Hate to sound cynical, but in the 12 years since the 2005 amendments, I have never had a debtor tell me how valuable either course was.

So, what happens if you decide to save a few bucks by not taking the debtor education course.  The punishment is draconian.  No course taken- no certificate of completion filed with the Clerk of the Bankruptcy Court, no discharge.  That means that your debts are not wiped out.

I remind my clients at the meeting of creditors that if they have not already taken the debtor education course, they should do so immediately.

Let’s say you mess up and don’t take the course.  Any recourse?  You may be able to re-open your case to take the course and file the certificate of completion.  However, you will incur additional legal and filing fees.  In the meanwhile, because your debts are not discharged, your creditors can take action to collect of their debts.  Finally, there is some risk that the judge will not let you reopen the case.  Don’t put yourself in that position.


Satisfying the Credit Counseling Requirement

Posted by Andy Toth-Fejel on November 20, 2017 under Bankruptcy Blog | Comments are off for this article

Since the 2005 amendments to the Bankruptcy Code, you can’t file an individual bankruptcy case  (Chapter 7, 13 or individual Chapter 11) without first taking the so-called “credit counseling.” course from an approved nonprofit budget and credit counseling agency.

What’s Actually Required?

Not much.  It’s actually a simple procedure you do on the internet, or by phone if you prefer. You simply provide some information about your debts, income, and expenses. Then are almost always told that your income is not sufficient to pay for your expenses.

180 Days before Filing

The “counseling” session must take place “during the 180-day period” before filing bankruptcy. So be sure that you’re going to be filing bankruptcy within that length of time after you do it. Otherwise, if your bankruptcy filing is delayed beyond the 180 days, you will  have to take the course again.

Usually people run into the opposite problem, putting it off too long.  Even though you can usually get the requirement out of the way within 24-48 hours, there are situations where debtors come to an attorney to file on the day of a foreclosure sale.  In that case, the debtor can be  SOL.

Reason for this Requirement

The supposed reason for this requirement was to encourage people to consider options other than bankruptcy.

The United States Government Accountability Office has issued a report which questions that viability of that rationale:

“The counseling was intended to help consumers make informed choices about bankruptcy and its alternatives. Yet… by the time most clients receive the counseling, their financial situations are dire, leaving them with no viable alternative to bankruptcy. As a result, the requirement may often serve more as an administrative obstacle than as a timely presentation of meaningful options.”

My opinion is that one of unspoken policies for the 2005 amendments was to discourage bankruptcy filings by making them more time consuming and expensive.   The credit counseling requirement (and the financial management course requirements, see below) are just additional hoops through which a debtor is forced to jump.

Costs/Where to Go ?

When the requirement first came out, it cost about $75-100 for the credit counseling course.  Now, the cost is down to $20-35 on the average.  You can find a list of approved providers on the US Trustee’s website, but it is easier to get a recommendation from your lawyer.

You also have to take a financial management course after the filing.  Same cost.  No course, no discharge.


Bankruptcy Is a Moral Choice

Posted by Kevin on August 26, 2017 under Bankruptcy Blog | Comments are off for this article

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.


Plan for Success

Posted by Kevin on August 5, 2017 under Bankruptcy Blog | Be the First to Comment

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.


Hey, I Finally Got a Job

Posted by Kevin on November 28, 2014 under Bankruptcy Blog | Be the First to Comment

You were downsized or your company went out of business, or your department was outsourced to India.  You lost your job and collected for as long as you could.  But what you collected in unemployment was not enough to pay all your bills, so you got sued, and some creditors got judgments against you.

While you were unemployed, it really did not make a difference that a few doctors, AMEX and Discover got judgments against you.  They could not levy on your unemployment benefits.  But, now the economy has gotten better and you just got an offer in your field at about 90% of what you were earning when things went sideways.

Now is the time for you to start thinking about how you are going to deal with those judgments (and other debts that have not been reduced to judgment).  With money in your pocket and a few new credit cards, your activity on the credit reporting agencies will increase.  Creditors will put 2 + 2 together and figure you have a job.  Then, the garnishments will start coming in.  Great way to impress a new employer.

Bankruptcy may be the answer.  Debt consolidation through a reputable credit counseling company may also keep the wolves away.  You owe it to yourself and family to look into these options.  Be pro-active.

Final word to the wise.  It is holiday season.  People are beating each other up at Macy’s all over the US today.  Maybe you are thinking that you can have one last fling and then take care of business after the New Year (if any of your credit cards still work).  Bad idea.  Why?  Because cash advances or purchase of luxury items over certain amounts within 70 to 90 days of filing can preclude a discharge of those debts.  In addition, it will make any bankruptcy more expensive.  So, play it straight.

Now is the time to speak with an experienced bankruptcy attorney.

Bankruptcy Filings Down- Better Economy?

Posted by Kevin on May 12, 2012 under Bankruptcy Blog | Be the First to Comment

According to a report issued by the Administrative Office of the US Courts, bankruptcy filings were down 11.5 percent in 2011.  Yippee, the economy must be getting better!  Not so fast.

As I have stated more than once on this blog, one of the purposes of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, also known as BAPCPA, was to get more debtors to file under Chapter 13 so that creditors could get some payments as opposed to a no asset Chapter 7 where there are no payments to creditors.

The stark reality is that under BAPCPA attorneys have to do significantly more work in a consumer Chapter 7 or in a Chapter 13.  Moreover, the attorney has to have a more complete understanding of the the statute and case law, because the reality is that there are fewer and fewer “easy cases”.  More attorney time means higher legal fees.  More complexity means higher legal fees.  In fact, under the old law, the average legal fee for  Chapter 7 in NJ was about $800-1200.  Now, it is $1500-2200.   A run of the mill Chapter 13 ran $1500-1800.   Now, the basic fee is $3500 usually with court approved add on fees of a few hundred.

Moreover, irrespective of whether the debtor files under Chapter 7 or 13, BAPCPA requires more papers to produced by the debtor (which takes time), useless counseling sessions which run about $100-150, credit reports and judgment searches so that the debtor’s attorney can prove to the trustee that he/she engaged in due diligence ($100), comparative market analysis and the like.

So my take is that the main reason that filings are down is because BAPCPA has made the process unnecessarily complex and expensive.  But that was just my take.  Recently, however, Professor Lois Lupica of the University of Maine School of Law conducted a study of some 11,000 consumer cases under BAPCPA and confirmed what most bankruptcy lawyers in NJ know- the process under BAPCPA is expensive.  Prof Lupica found out of pocket costs in no asset Chapter 7’s  are up over 50%, and what she termed Total Direct Access Costs (attorney fees, filing fees, credit counseling fees and the like) are up 37% in Chapter 7 and 24% in Chapter 13’s.  Finally, Lupica found that lawyers are put under increased stress because of the complexity of the law, and the perceived need to keep expenses down for the debtor.

So, is the economy getting better or has Congress made bankruptcy an alternative that is too expensive for many otherwise qualified debtors?