Total Bankruptcy

MarketplaceMoney has an interesting story about the pitfalls of filing for bankruptcy without representation.  One U.S. Bankruptcy Court was so concerned about the mistakes made by pro bono debtors in bankruptcy--mistakes that can cause serious problems like the loss of the automatic stay protection or dismissals that in some cases result in the loss of homes or vehicles--that it created a position for a special clerk simply to help people who aren't represented by counsel.

Even in that court, though, the clerk can't give legal advice--and she says that she often ends up persuading pro bono bankruptcy petitioners that they need legal help after looking over their paperwork.

Marquita Hawkins was sentenced in St Louis Missouri on fraud charges in connection with providing false bankruptcy credit counseling certificates. The new bankruptcy law requires debtors to receive credit counseling before filing for bankruptcy. When filing for bankruptcy, the debtor must provide evidence she has received the required credit counseling and file a certificate with her court documents.

Credit counseling companies are part of the consumer credit industry, working to convince consumers to pay off their debts, regardless of a consumer’s right to file bankruptcy. The new bankruptcy law was passed after intense lobbying by the consumer credit industry.

Hawkins had helped two people complete their bankruptcy forms. After learning they needed the credit counseling certificates, she obtained two false certificates and filed them with the debtors’ documents.

The law certainly allows you to file your own bankruptcy petition, and you can even find forms with which to do so--but it can be a stressful experience and a risky proposition if you don't thoroughly understand the timing, requirements, procedures and terminology associated with a bankruptcy filing.   A local bankruptcy attorney can help you to untangle the requirements and choose the type of bankruptcy case most suitable to your circumstances.

The New York Bankruptcy & Consumer Law Blog has an enlightening post this week about some of the things the average person would never consider that can derail a bankruptcy case.

Individuals with assets and debts on both sides of the border are a special case. If they face possible bankruptcy, they should seek professional help in the country where their situation is desperate. However, if they have major assets in the other country, their bankruptcy attorney or trustee is likely to hold up the bankruptcy until those assets are liquidated.  Bankruptcy in either country does not wipe out debts in the other country.

Bankruptcy laws in Canada differ from those in the U.S., so it is important for consumers in Canada to get information and advice that are valid in the Canadian system.

Some of the major differences:

• The professionals who handle bankruptcy cases are known as bankruptcy trustees, and are not lawyers but chartered accountants, the Canadian equivalent of CPAs.
• Canadian bankruptcy trustees are permitted to provide credit counseling, although they commonly refer clients to non-profit credit counseling agencies.
• In Canada, personal "bankruptcy" is most similar to the American chapter 7 bankruptcy.
• The nearest Canadian equivalent to a chapter 13 bankruptcy is a "consumer proposal", a legally binding repayment arrangement between unsecured creditors and the consumer.

On the other hand, there are many similarities in Canada:

• Canadians have many of the same reasons as Americans for facing financial difficulty,  including unforeseen major expenses, loss of employment, and excessive credit card debt.
• Canadians can use the same initial solutions, such as debt consolidation and better personal financial management through credit counseling.
• Just as there are state and local differences in the application of American bankruptcy laws, there are provincial differences in Canada.

Bankruptcy Canada provides extensive information on bankruptcy and its alternatives in Canada. Those who don't readily find the answers they need can submit anonymous questions to the site's blog. The site is owned and advised by bankruptcy trustees, so that consumers can trust its accuracy and reliability.

Chattanooga bankruptcy attorney Tom Ray filed a lawsuit today on behalf of Bernard Francis Schultz and Elizabeth Mary Sabatine naming U.S. Attorney General Roberto Gonzales and U.S. Trustee Richard Clippard as defendants.  The lawsuit requests a permanent injunction be issued to stop the enforcement of the new bankruptcy law.

Tom Ray said this lawsuit challenges the constitutionality of the reformed U.S. bankruptcy law that went into effect October 2005.  Ray contends the "means test" is discriminatory since it is calculated based on median income levels which vary between the states.

The number of Delaware bankruptcy cases filed in the second quarter of this year increased 38% from the previous quarter. Consumers are getting the message that bankruptcy is still a course of action they can take to repair their financial situation.

Consumers have to qualify through a means test to file a Chapter 7 Delaware bankruptcy. If they don't qualify, they may still be eligible to file under Chapter 13. Either way, the Delaware bankruptcy courts will likely see even more bankruptcy filings in the last two quarters of the 2006.

Florida bankruptcy courts heard 73,622 cases from July 1, 2005 to June 2006. Only four other states had more bankruptcy cases than Florida. In the Middle District alone, attorneys filed more than 43,000 Florida bankruptcy cases.

The Southern District processed over 25,000 bankruptcy cases in the same period. The courts still have their hands full while consumers continue to see filing a Florida bankruptcy as a reasonable solution to their financial situation.

The Southern District of Georgia saw a dramatic decrease in Chapter 7 bankruptcy in the second quarter this year. However, the Northern and Middle Georgia bankruptcy districts reported large increases in the total number of bankruptcy filings for the same period.

Georgia bankruptcy courts in the middle district processed 191 more Chapter 13 bankruptcies from the first to the second quarters in 2006. The Northern district reported that attorneys brought 376 more Chapter 7 cases and 421 more Chapter 13 cases to the
Georgia bankruptcy courts in the second quarter of this year.

A total 76,570 Illinois bankruptcy cases were filed from July 1, 2005 to June 30, 2006. Even though the number of Illinois bankruptcy cases this period is nearly 7000 less than the previous twelve months, Illinois still ranks as the fourth highest state for the number of bankruptcies filed in the last twelve months.

California, New York, and Texas were the only three states to process more bankruptcy cases than Illinois in the same twelve month period.

The number of cases filed in the Arkansas bankruptcy courts increased by 38% from the first quarter of 2006. In fact, both the Eastern District and the Western District of Arkansas experienced a 38% increase in bankruptcy cases filed.

With these types of case increases, the Arkansas bankruptcy courts may start to get busier. However, the increases are not significant enough to prevent consumers from finding an available Arkansas bankruptcy attorney.

The dust has settled. The one year anniversary of the most dramatic bankruptcy reforms in U.S. history has come and gone. And the bottom line is this: if you could have filed for bankruptcy protection before, you probably still can.

Indiana bankruptcy cases increased 10.6% in the Northern district and 5.3% in the Southern district during the twelve-month period ending June 30, 2006 compared to the same period in the previous year.

Indiana bankruptcy courts in the Northern district processed 23,416 cases and the Southern district processed 36,553 cases for the twelve months ending in June 2006. The Indiana bankruptcy courts may continue to process increased numbers of bankruptcy cases in the last two quarters of 2006.

Arizona bankruptcy filings were up to 2261 for the second quarter of 2006. Arizona bankruptcy courts handled 1,430 cases in the first quarter of 2006. That is an increase of more than 50%.

Despite the bankruptcy law changes last year, Arizona bankruptcy filings have been rising throughout 2006. Increasingly, consumers are realizing that the impact of the law change has been overstated and that filing an Arizona bankruptcy is still an option for solving their financial troubles.

Alaska bankruptcy filings start to rise in 2006. Even though the laws passed in October 2005 continue to impact the number of bankruptcy cases in all the states, lawyers are beginning to see more Alaska bankruptcy filings in their caseload.

This 8.7% increase in the twelve-month period ending June 2006 shows that the new laws have not permanently impacted the number of Alaska bankruptcy cases. Anyone who is having financial challenges can still consider bankruptcy as an option.

The number of people filing for a California bankruptcy is nearly 8% of the total number of bankruptcies filed in the entire United States. Californians have learned that the new bankruptcy laws enacted in the fall of 2005 do not necessarily limit their ability to file a California bankruptcy.

The statistics show that California bankruptcy cases will likely continue to increase as more and more consumers learn about the benefits of bankruptcy and discover that they're still eligible to file.

The idea that discharged debts are no longer subject to collection action may seem obvious to most people. Unfortunately, the concept appears somewhat less clear to some creditors and third party collection agencies or debt purchasing companies.

In most cases, a creditor who attempts to collect a debt that has been discharged in bankruptcy is in contempt of court. If it's a third-party debt collection agency, the agency may also be in violation of provisions of the Fair Debt Collection Practices Act.

Recently, the Federal Trade Commission has reported action against debt purchasing companies that buy up invalid debts--debts that are too old to be collected legally, or have been discharged in bankruptcy--and then hound debtors with empty threats until those debtors feel they have no choice but to pay debts that are no longer owed.

If you're contacted about a debt that was discharged in bankruptcy, take action. The bankruptcy court may re-open your case to sanction the creditor, and if it's a third-party company (someone other than your original creditor), complain to the Federal Trade Commission.

When two or more people are jointly obligated for a debt, and one of those debtors files for Chapter 7 bankruptcy protection, only that debtor's obligation is affected.

This comes into play most often when a married person files for Chapter 7 bankruptcy but his or her spouse does not. If the couple has joint debts, even if the person filing for bankruptcy protection was the primary account holder, the other person is still obligated for the debt.

This is true whether or not the joint debtors are married, and applies even if the co-debtor was only a co-signer on the account. Debtors with outstanding joint debts should factor this in when considering Chapter 7 bankruptcy--if one spouse files without the other and there are significant joint debts, the practical impact of discharging those debts as to one spouse may be limited.

By now, most consumers know that the changes in the U.S. Bankruptcy Code in October of 2005 have created additional hurdles for people who want to file for bankruptcy protection. We've previously explained how those obstacles make a little additional work, but actually prevent very few people from filing for bankruptcy protection.

The most significant concern regarding the pre-filing Credit Counseling requirement is that a bankruptcy case can and usually will be dismissed outright if the certificate isn't filed in a timely manner. That means losing the protection of the automatic stay, which might allow time for creditors to foreclose on property or repossess vehicles.

However, the pre-filing requirement doesn't have to be a difficult hurdle. Start Fresh Today offers an interactive online Credit Counseling briefing that is easy to understand and complete. Start Fresh Today also offers the Debtor Education course required prior to discharge in a bankruptcy case. That course is also available in an affordable, interactive, online format.

Since the law change last fall, many consumers have been under the mistaken impression that they're no longer eligible for bankruptcy protection. Although requirements like the Credit Counseling and Debtor Education certifications and the Chapter 7 means test make preparing for and filing bankruptcy a bit more work, they actually preclude very few people from filing.

You may have heard people mention that they'd entered into a Chapter 13 plan and "paid it off" early. Getting out of bankruptcy early sounds great, but it may require more than simply paying the amount included in your original plan over a shorter period of time. That's because many Chapter 13 plans are not "100% plans". That means that in many Chapter 13 cases, unsecured creditors settle for a percentage of what is actually owed to them. If a debtor in a 100% plan "pays off" the bankruptcy early, then those creditors typically receive 100% payment and there is generally no reason the case can't be finalized early.

In many cases, however, the unsecured creditors have been promised only a portion of what was owed to them. If a debtor has entered into a plan that provides for payment of only a portion of outstanding debts, the debtor generally can't pay just that portion early and accelerate the case--instead, 100% payment would usually be required to terminate the case prematurely.

One factor to consider when determining whether to pursue a Chapter 7 bankruptcy or Chapter 13 bankruptcy petition is the impact of each on co-signers. If someone has co-signed a loan for you, that person has guaranteed payment of the loan. If the account is delinquent, your late or missed payments may already have harmed your co-signers credit. And if you discharge the loan in a Chapter 7 bankruptcy, the co-signer remains responsible for the full amount of the debt.

On the other hand, if you file for bankruptcy protection under Chapter 13, your co-signer will be protected so long as you make timely payments under your Chapter 13 plan.

There are other factors, of course, and not all debtors are eligible for both types of bankruptcy and so may have the decision made for them--but if you are considering bankruptcy and have loans co-signed by friends or family, you should be aware of the difference in the way they'll be impacted by Chapter 7 bankruptcy versus Chapter 13.

One year ago, it cost a consumer $209 plus attorney fees to file for Chapter 7 bankruptcy protection.

When the new bankruptcy law took effect in October of 2005, that cost jumped to an average of $354: Fees were increased by $45, and the credit counseling and debtor education course requirements were added, at an average cost of $50 each.

An "emergency supplemental spending bill" signed into law in May, 2005 increased those fees again, effective October, 17 2005--so the $354 price tag turned into $374 before it ever even took effect.

The Deficit Reduction Act further increased the fees, effective April 9, 2006. The total cost currently stands at an average of $399. The statutory filing fee, which makes up the bulk of the expense, was $155 one year ago and has increased to $200, then $220, and now stand at $245.

There is a movement afoot, however, to increase that filing fee to $300, which would bring the total average cost to $439 plus attorney fees.

The U.S. Court of Appeals for the 3rd Circuit rules this week that a former Air Force Cadet could not discharge his obligation to reimburse the government for his education.

Nathan Udell had completed three academic years at the Air Force Academy when misconduct led him to resign to avoid being involuntarily separated from the service. He filed a bankruptcy petition seeking to discharge $123,692 in reimbursement debt.

The bankruptcy court discharged the debt, relying on a provision in the Armed Forces Code which provided that such debt could not be discharged within a five year period.

The Court of Appeals, however, ruled that the prohibition on discharging debt within five years did not mean that the debt could be discharged after five years. Instead, the statute created a further restriction, preventing discharge of the debt within five years even if it would otherwise have been dischargeable in bankruptcy.

Once outside the five year period, the Court of Appeals ruled, the debt was subject to the same provisions as any other educational debt owed to or guaranteed by the U.S. government--and that meant no discharge unless "undue hardship" had been demonstrated.

Access to the required "ticket out" of bankruptcy--the Debtor Education Course required before final discharge in a bankruptcy class--is now available through Start Fresh Today Instructional, LLC.

Consumers can order the course directly at www.StartFreshTodayInstructional.com. The course, which is approved by the U.S. Trustee's Office, includes a component to be completed online and a follow-up call with a credit counseling service--no in-person appointment is required.

If New Mexico statistics give us any indication of bankruptcy filings across the country, then the number of debtors filing for bankruptcy protection without the assistance of an attorney has nearly doubled since October, 2005.

The Associated Press article reporting this trend speculates that it is the recent increase in bankruptcy attorney fees that's inspired more debtors to go it alone. Unfortunately, the reason that fees have recently increased is that new statutory requirements that went into effect in October, 2005 make the logistics of filing bankruptcy much tougher.

Although the vast majority of people who would have filed bankruptcy under the old law still qualify, there's a lot more paperwork involved. And, there are much harsher consequences for failing to complete all of the necessary prerequisites and documentation.

Since a debtor can lose the protection of the automatic stay, see his case dismissed, and face foreclosures and repossessions that might otherwise have been avoided, the risk of proceeding without adequate legal information is greater than ever.

Failing to complete credit counseling and file the required documentation before filing bankruptcy can have disastrous effects.

Consumers around the country have lost homes and cars when bankruptcy cases filed to prevent foreclosure or repossession were dismissed because of failure to complete pre-filing credit counseling.

Although there are some limited "emergency" provisions that allow filing before credit counseling is completed, those provisions have been very strictly interpreted. Recent decisions have determined that physical disability was not an adequate reason for not having completed pre-filing credit counseling (probably because of the availability of online and telephone programs), and that the inability to obtain credit counseling in time to prevent foreclosure did not constitute an emergency--at least under the circumstances of the case before the court.

When a bankruptcy case is dismissed, the automatic stay is lifted, allowing creditors to go ahead with foreclosure, repossession, and other collection action.