Report on this coming economic disaster by the National Association of Consumer Bankruptcy Attorneys: Click here

“Thank you for all of your help and putting up with my countless questions. We are glad that part of it is over. Tell Bill that we really appreciate him offering this service to us while we are [in Europe]. No other attorney would even return e-mails after they found out we were out of the country.”

The husband was stationed in Germany on active military duty serving our country. Technically, he should have been protected from his creditors while on active duty but that’s an issue for another day. The bottom line is that this family needed bankruptcy relief but no one would bother to try and help them. The assumption was that they would be too difficult to deal with outside the United States.

Unlike most firms, Morris Law doesn’t require an extensive, think, hand-written questionnaire. Our questionnaire can be completed online from anywhere in the world. Using the online questionnaire, and gathering documents via email, we were able to put together a sound bankruptcy petition with schedules for this couple while serving overseas. We emailed the documents to the couple, conducted a telephone consultation to go over the documents in detail, then had the clients sign the bankruptcy documents and return them to us via Federal Express. After filing the case, we obtained the bankruptcy trustee’s consent to hold the bankruptcy hearing via telephone.

The clients received their bankruptcy discharge shortly thereafter and were off to a fresh start rebuilding their financial life.

When Congress passed bankruptcy “reform” in 2005, it created a complex method of determining which state laws a debtor can use for claiming property exemptions.  Exemptions are used to protect most property from the trustee when you file a Chapter 7 bankruptcy. Although a reading of the law is somewhat complex, it sets up scheme whereby one can determine whether the debtor can claim exemptions for the state where the debtor now lives — or alternatively whether the debtor must claim the exemptions for the state where he or she used to live.  It was intended to stop people like OJ Simpson from moving to a state like Florida where 100% of the value of the debtor’s home is exempt from creditor claims or claims of the bankruptcy trustee.

In actuality, there are a lot of states out there with exemption laws far more favorable from Colorado.  For instance, if you have a large income tax refund coming to you soon, Colorado provides no protection for that money.  The bankruptcy trustee might take every dime of it (except for EITC or child tax credit) unless you delay your bankruptcy case filing.  Sometimes a long filing delay isn’t feasible; for instance, if your paychecks are being garnished.

However, some other states have “wildcard” exemptions which apply to any property — including tax refunds.  William A. Morris P.C. recently represented a debtor from Virginia who was distressed to learn that Colorado law would not protect her $5,000 tax refund.  After tracing down her legal residence addresses for the past three years, and making the required statutory calculations under the bankruptcy code, it was determined that she could claim Virginia exemptions.  Using the wildcard exemption, she filed bankruptcy and her tax refund was safe.

We are always distressed when we see people at their bankruptcy hearings being grilled endlessly by the bankruptcy trustee after having either filed bankruptcy alone or with the help of a “document preparation service.”  Inevitably, the documents are incomplete or error-filled.  And in the end these debtors may lose thousands of dollars when they can least afford it.  It could have been prevented with competent legal help.

On one judge’s calendar this week, there were multiple pro se (without attorney) debtors actually trying to get reaffirmation agreements approved by the judge. Reaffirmation agreements are a promise to repay a debt after bankruptcy. Good legal counsel would have guided these people away from the mistaken impression that a reaffirmation agreement is required to keep their property. Now, on the hook for hundreds of thousands of dollars post-bankruptcy in some instances, these debtors will suffer a catastrophic event if they become disabled or unemployed (worse case) or are paying back debts for used furniture unnecessarily (best case) costing them thousands of dollars.

This is just one of many examples of what happens with self-help legal services. Hiring a licensed legal expert pays for itself many times over.

First, a bit of background. You may already know that you can file Chapter 7 bankruptcy only once every eight years. Perhaps you think that once is enough and for most people it is. However, sometimes families are hit hard with large uninsured medical expenses. Sometimes, these large uninsured medical expenses are compounded by the debtor’s inability to work due to the medical problem at hand. For example, a father of four, with a job that doesn’t offer medical coverage, has a heart attack. Two bypasses and six months of rehabilitation later, he owes the hospital and the doctors over $100,000. However, he filed bankruptcy only six years ago and isn’t eligible for Chapter 7 for another two years. Meantime, the creditor sharks are circling. (And of course, because he had no insurance, the hospital charged the debtor four times what he should have been charged. But that’s a subject for another day.)

Even though he cannot file Chapter 7 bankruptcy because the eight year time frame hasn’t run, he can still file Chapter 13 when he gets back to work. This enables him to prevent wage garnishments while making a very low monthly payment to a bankruptcy trustee.

But what happens if he loses his job, say, two years into the Chapter 13 bankruptcy plan? Now his case is in jeopardy of dismissal because he can’t pay the bankruptcy trustee anymore.

The question becomes: Can the Chapter 13 case be converted to Chapter 7? It has now been eight years since his first Chapter 7, however the Chapter 13 case originally was filed only six years after the Chapter 7.

Now, here’s the exercise in futility courtesy of the geniuses in Congress and in the US Trustee’s Office. This unfortunate debtor CANNOT convert to Chapter 7 which would be the simplest, most cost-effective solution, saving the debtor money and saving judicial resources on the federal level.

Instead, the debtor must simply wait until the Chapter 13 is dismissed, then file a new Chapter 7 case at substantial additional expense. Meantime, the courts are required to use their resources to administer a new case all over again.

Yes, dismiss and re-file the case, instead of simply converting the Chapter 13 bankruptcy to Chapter 7. The federal bureaucracy at its finest.

Warren, who advocated the creation of a new federal agency intended to protect consumers, was snubbed by Senate Republicans for appointment as the head of the new agency. Warren was an outspoken opponent to the ill-advised bankruptcy “reform” act in 2005 which passed Congress after being bankrolled by the big banks.

Political commentator Warren Graham recently noted that Bankruptcy “Reform” was the failure Elizabeth Warren predicted: “Four out of five would-be bankruptcy filers were forced into dire financial straits by circumstances beyond their control, such as the loss of a job, catastrophic medical expenses or the death of a spouse. It is almost certain that, due to the dramatic increase in administrative expenses and new hurtles to recovery of preferential transfers created in the new legislation, unsecured creditors are likely to be receiving less, not more, in bankruptcy dividends and distributions.”

Elizabeth Warren, in 2005, made substantially similar comments about the proposed new bankruptcy laws, noting that the vast majority of filers faced unemployment, crushing medical bills, medical disability, divorce, or a combination of all of these prior to filing bankruptcy. Despite all the clear evidence against the mean-spirited bankruptcy “reform” proposals, cash from the big banks funneled into the campaigns of Democrats and Republicans alike resulted in passage of yet another senseless piece of federal legislation.

It never ends. Congress for sale? Read more about bankruptcy reform (click here)..

Chapter 7 bankruptcy — usually the preferable way to go — means you are in and out of bankruptcy in only 90 days or so. Generally, you walk away from almost all of your debt and lose no property.

Most of our cases are still filed under Chapter 7. Even if your income is above the Colorado median income for your family size, frequently a Chapter 7 case is still possible by the time all allowable expenses are factored into the equation. Such expenses include, but are not limited to, day care, mortgage expenses, and health insurance.

In some cases, you might be better off filing Chapter 13 even if you qualify for a Chapter 7. For instance if you have a second mortgage and you want to keep your house, you can often eliminate your second mortgage in a Chapter 13 bankruptcy but not in a Chapter 7. Tax debts may also be a good reason to file Chapter 13 because you can pay the taxes over five years with no penalties and interest.  If the taxes are over three years old, and are not payroll taxes, they can usually be eliminated in Chapter 7 and Chapter 13.

Bankruptcy is one way to prevent entry of a judgment. On the other hand, if you don’t wish to file bankruptcy, a litigation attorney should set up a good defense to the complaint on your behalf by filing an answer to the complaint.

Even if you don’t have a good defense to the complaint, filing an answer and setting up potential defenses will usually enable you to reach a smaller settlement with the creditor. Once the creditor has a judgment and is garnishing your wages, the creditor has no incentive to settle. For help with county court lawsuits, read the information at this site: www.coloradocountycourts.com

Automatic stay – a court injunction that stops all collection action against the debtor. The automatic stay is effective immediately upon filing the bankruptcy

Bankruptcy estate – the debtor’s legal and equitable interest in property at the time the bankruptcy case is filed

Chapter – a section of the bankruptcy code. Some chapters are general and apply to all cases; other chapters apply only to specific bankruptcy cases.

Debtor – an individual who files a bankruptcy petition

Discharge – a court permanent injunction prohibiting the collection action against the debtor personally for any debt discharged in the bankruptcy

Equity – the value of a debtor’s interest in property after subtracting monetary liens

Exemptions – legal protections that shields property from creditor collection

Means test – a calculation of the debtor’s income and expenses meant to determine the debtor’s ability to pay creditors

No-asset case – a Chapter 7 case where there are no assets available to satisfy any portion of the creditors’ unsecured claims

Nondischargeable debt – a debt that cannot be absolved through bankruptcy and the debtor remains personally liable after the bankruptcy case has closed.

Petition – the papers filed by the debtor that commences the bankruptcy.

Plan – the debtor’s description of repayment of debt during a Chapter 13 bankruptcy

Preference – a debt that was paid prior to the bankruptcy when the debtor was insolvent and unable to pay other creditors

Proof of claim – the creditor’s claim and verification of a debt

Reaffirmation agreement – an agreement between the debtor and creditor that entitles the debtor to retain property in exchange for continued personal liability to pay a debt (common examples are a car or house loan)

Schedules – the detailed description of the property, debts, income and expenses of the debtor
Secured creditor – a creditor holding a lien against property of the debtor’s as security for payment of a debt

341 meeting – a mandatory meeting that the debtor must attend with the trustee. The debtor’s creditors are invited to the 341 meeting and are allowed to ask questions.

Trustee – an individual appointed to oversee the debtor’s bankruptcy case. This is not the bankruptcy judge.

The study conducted by researchers from Harvard Law School, Harvard Medical School and Ohio University found that more than 75 percent of these bankrupt filers had some form of health insurance, two-thirds were homeowners, and three-fifths had gone to college. Many of the debtors were average middle-class families who saw their lives tossed upside-down after a serious illness.

“Our findings are frightening. Unless you’re Warren Buffett, your family is just one serious illness away from bankruptcy,” said lead author Dr. David Himmelstein, an associate professor of medicine at Harvard Medical School.

While medical expenses can lead to bankruptcy, the federal law requires the debtor to include all debts in a bankruptcy case, including auto loans, mortgages, and credit cards. A “medical bankruptcy,” when the debtor only discharges medical debt, is a myth. The bankruptcy laws do not allow the debtor to pick and choose which debts are included and which are excluded. Debts are treated fairly and equally in bankruptcy, and the debt classes are structured to avoid preferential treatment of one creditor over another within the same class.

For example, a hospital and a credit card company are generally classified as unsecured creditors and will receive the same treatment during the bankruptcy. If there are no assets available to pay these debts, both debts are discharged at the end of the case. However, while a debt may be discharged and no longer legally enforceable, the debtor may always voluntarily repay the creditor.

If your family is faced with high medical expenses, consult with us and discover your options. The federal bankruptcy laws can discharge your medical bills and provide a fresh start on a better financial future.