Questions concerning bankruptcy fees…

If you’re considering filing for bankruptcy, then obviously money is not something you possess in great abundance. There is no tougher field of law than bankruptcy when it comes to addressing attorney’s fees and costs. I’m not insensitive to your concerns, and I’ve prepared this frank and candid FAQ sheet to discuss the aspects of bankruptcy costs.
Why should I hire an attorney at all? Can’t I file bankruptcy on my own (pro se)?
You are certainly allowed to file a pro se bankruptcy and represent yourself. However, it is extremely difficult for a layman to complete the bankruptcy petition and schedules correctly. This is especially true of exemption planning (Schedule C) and the Means Test (Form B22A or Form B22C). As with most fields of law, trying to figure these forms out on your own is nearly impossible because of the terms of art that appear on these forms. Legal jargon exists not to confuse you, but because it has very specific definitions designed to close loopholes, reduce abuse, and protect the parties involved. Attorneys have the training necessary to translate these terms correctly. Further, the forms and statutes are not necessarily going to tell you about the ramifications of certain aspects of your case, nor will they be able to advise you which chapter of bankruptcy is appropriate for you.
I understand the value of having an attorney – but I’m bankrupt! Can you do this pro bono?
We couldn’t exist to help you if we did all of our work for free, as we have our own expenses to maintain. There are direct costs associated with the bankruptcy, such as the filing fee, office supplies, postage, and travel to court. In addition, we have our operating expenses to maintain. There’s not an alternate source of funds to reimburse our expenses, so we are left to charge and collect reasonable fees from the client for our services.
And remember, the amount of money you will pay to file a bankruptcy is a mere pittance compared to the money you will save once you have received your bankruptcy discharge.
I understand you can’t do it for free, but why must all fees be paid prior to filing my case?
The same stay and discharge you receive in your bankruptcy which protects you from your other creditors also prohibits us from accepting/collecting the balance of our fees from you. The exception to this is in Chapter 13 which allows for reasonable fee-splitting, and we collect a certain portion of the fees from the Trustee.
What tools can you give me to help me afford the bankruptcy?
I offer flexible installment plans with no set minimum payment. As a rule, you are instructed to stop paying all unsecured creditors once you have decided to proceed with bankruptcy – if you have remained current up until now, that will free-up some money in your budget. And a lot of people use their tax refunds as a quick way to get their bankruptcy paid off.
I found a cheaper attorney. Why should I hire you?
You get what you pay for. I hate clichés, but this one is so true. If your only criteria for hiring an attorney is cost, then you should hire the cheaper attorney. But beware of what you’re getting. Ethically, I’m prohibited from comparing my services to those of another professional, but let me outline some of perks you get if you hire me.
For my price, you are getting an attorney who has practiced [nothing but] bankruptcy law since 2006. That might not seem like a long time, but the first two years of my career were with a high-volume, national law firm. In a very short period of time, I had counseled thousands of individuals with diverse financial circumstances in bankruptcy, and rapidly gathered a large amount of experience doing so.
You are getting an ethical attorney with an established reputation among creditors, trustees, and judges. In establishing good relationships, respect, and trust with these parties, I make the bankruptcy process as smooth as possible for my clients. Of course, no attorney can ever guarantee a result or guarantee that there will never be a problem with your case. But by going with a higher quality attorney, you reduce the likelihood of problems which might not be addressed by a discount lawyer.
You are also getting incredible value in the Document Retrieval System. The vast majority of bankruptcy lawyers have no system in place, and require you to furnish all your own documents, credit reports, and arrange your own counseling courses. This can be incredibly costly and inconvenient for someone who is already stressed out from their financial problems. With the DRS, we eliminate the possibility of you obtaining wrong or incomplete documents, saving you time, money, and headache. And for the few law firms out there who do offer comparable products, rest assured that you get more documents for less money through my DRS.
Saving money is a good thing. Finding the grocery store with the cheapest milk and bread is good. Finding a store with the cheapest garbage bags and laundry detergent is good. But not all things are created equal. You get what you pay for. You wouldn’t go to a discount doctor for open-heart surgery. Why would you want to put your financial future in the hands of a discount lawyer?

What are the most common obstacles to confirmation and successfully completing my Chapter 13 plan?

In Chapter 13, you need the court to approve/confirm the terms of the Plan you proposed. In some jurisdictions, this requires a confirmation hearing. In my home district, we rarely have confirmation hearings. The judge ordinarily defers to the recommendation of the Trustee. I take personal pride in the number of cases I can get a recommendation for confirmation from the trustee at the first 341 hearing (meaning no adjournments) and as my career has proceeded, I have met that goal with a higher and higher success rate. Part of my success involves me being extremely strict and demanding when it comes to obtaining information and documents prior to filing the case. My philosophy is to get it done right the first time – more work now means less work later.
But, Chapter 13s last for 3-5 years, and they are based on a snapshot of your finances at the time of filing. Things change over time, and thus the nature of the beast is that Chapter 13s are complicated and prone to problems.
Some of the biggest problems facing the Chapter 13 debtor come after their case is confirmed. You might experience a decrease in income. For example, you could lose your job, lose over-time, get a pay-cut, change jobs, or become disabled due to illness or injury. You might experience an increase in expenses. Medical expenses and vehicle repairs tend to be the biggest whammies. If you have an adjustable rate mortgage, the filing of your bankruptcy might trigger that to spike. Any of these changes in your budget can make it difficult for you to keep up on your payments to the trustee and payments to secured creditors being paid outside of the Plan (such as a mortgage). If you default, you risk the trustee filing a motion to dismiss your case, or the mortgage company filing a motion for relief from stay. Depending on your case history and other specific facts about your case, your attorney may be able to file an objection and keep your case alive by proposing a way to cure the default. However, this almost always means that your Plan payments have to be increased and you might also face a “doomsday” which is a probationary period where all payments must be made on-time, and one slip-up could mean game-over.
It is going to be cheaper and easier for you if you address changes in your income and expenses before you default on a payment. Speak to your attorney. Depending on your case, he may be able to reduce your plan payments (or even convert your case) based on changes to your budget post-petition. Whether he can and to what extent he can will depend on the reason you filed Chapter 13 in the first place. If you only filed Chapter 13 because you made too much money to qualify for Chapter 7, modification is usually easy. If you filed for any other reason, you might not be able to modify at all, if you are paying the bare minimum necessary. More often in these circumstances, you might be able to modify, but it might require some sort of sacrifice (depends what the reason is).
Be cautious when converting to Chapter 7 if you have secured debts that are being paid in the Chapter 13 Plan. Usually, you are paying reduced interest rates, and sometimes reduced balances. Technically, you are in default of the original loan terms while in Chapter 13 (but protected by the stay from collection) and will remain in default until you receive your discharge. If you convert, you could easily trigger unwanted repossession or foreclosure proceedings. Discuss these risks with your attorney before converting.
Modifying your Chapter 13 Plan payments due to post-filing changes in income and expenses occurs under a particular statute in the bankruptcy code, and it presumes your Plan has been confirmed. So let’s discuss what could happen that would slow down the confirmation process.
The Trustee does not have all of the required documents. I won’t file a case unless I have all the documents that I know the trustee will request. This is the only way I can guarantee myself that I will have all the documents necessary. The trustees that I deal with are fairly reasonable in their document requests, and frankly, they don’t require anything that I shouldn’t have prior to filing anyway. Filing complete and accurate schedules usually requires that I have all of these documents when I review a case. January 1 – April 15 is a funny time for Chapter 13 bankruptcy, because you will get people who want to file but haven’t completed their tax returns for the prior year yet. I think the rule is universal, but at least in my home district, a case will not be confirmed until the prior year’s taxes are filed. Having taxes filed is not required before filing bankruptcy, but since tax returns often are needed for accurate Means Test calculations, I encourage my debtors to file taxes before filing bankruptcy, which results in me not filing too many Chapter 13 cases in January or February.
The trustee has not received the first Plan payment. The first Plan payment is due within 30 days of the date of filing, which is before the 341 hearing 90% of the time. Thus, Trustees will often withhold confirmation until that first payment is received. Many debtors wind-up on payroll deductions for Plan payments (some districts require this). However, I have found that it usually takes six weeks before a payroll order will take effect, which means that the debtors need to make that first (and perhaps second) trustee payment directly until the payroll deductions kick in. At any rate, the trustee should have received a payment prior to the 341 meeting.
The debtor has not made their first mortgage payment. In my home district, we ordinarily keep current mortgage payments outside of the Plan for administrative reasons. This means that the debtor must continue or resume making mortgage payments beginning with the first contractual due date after the case is filed (e.g. mortgage payments are due on the 15th of each month and the debtor files on the February 12, first mortgage payment is due February 15). The trustee himself won’t care much about the missed mortgage payment, but an early post-petition default will often trigger an Objection to Confirmation from the mortgage company, which will hold up confirmation. This early default often results from the fact that mortgage companies often stop sending billing statements once a bankruptcy case is filed as a result of the automatic stay. They do this to cover their own liability and to not be sued for violation of the stay, though in my humble opinion, if reaffirmation is clear from the Plan, this is a bit ridiculous. Nonetheless, we cannot force the mortgage company to send billing statements, and it doesn’t absolve you of the responsibility of making those payments.
The trustee has problems with the terms of the Plan or the Means Test calculations. Again, these are to be expected to a certain extent. Time and experience will reduce the number of these occurrences for an attorney, but there are perfectly valid reasons for attorneys to contest and dispute customary practices with respect to these two documents, and so even experienced attorneys might run into planned disputes with the trustee or creditor, with the full intent of bringing the issue before a judge to get a ruling.
Claims came in higher than scheduled. The reasons this might be an issue and solutions for resolving them are far too numerous to mention here. It often depends on the class of debt, whether the dispute is on the amount or treatment, the terms of the Plan.

What happens after I file bankruptcy? Do I have to go to court?

Post-petition procedure will vary slightly based on your jurisdiction and which chapter you file under. In Chapter 7, a “section 341 meeting of creditors” is scheduled approximately 4-6 weeks out after your case is filed with the court. With electronic filing, most attorneys would be able to tell you the date, time, and location of your hearing within minutes after your case is filed. Otherwise, you will get a notice of your hearing from the court in the mail a few days later. The location of your hearing is based on where you reside, and the date and time depend on how heavy the bankruptcy filing volume is. Your attorney largely has no control over the assignment and courts generally have a low tolerance for absence. You requested bankruptcy relief, and it is your responsibility to appear at the hearing.
We call this a meeting of creditors, but in reality, creditor appearances are rare, especially in Chapter 7. You and the hundreds of other people who file each day each have dozens of creditors, making a personal appearance very impractical. Also, there’s usually nothing for a creditor to gain by making an appearance. Ordinarily, the hearing will consist of you, the Trustee, and your attorney.
When can you expect a creditor to appear? Often, we get what I refer to as the “unsophisticated creditor” who knows nothing about bankruptcy, has not spoken to an attorney, and really has no idea why they are at the hearing. These types of creditors often come in the form of landlords, ex-spouses, and perhaps an individual who has obtained a civil judgment against you. These are my favorite types of creditors, because they are almost always entertaining to watch. Again, they have no appreciation for how bankruptcy works and have not consulted an attorney, and they come in with delusions of grandeur – thinking that their civil judgment or contract entitles them to special treatment over other creditors. More often than not, they leave disappointed. Some of them do so more theatrically than others, and that’s where the free entertainment comes from.
Sometimes, you might get a secured creditor who appears at the hearing to facilitate the signing of a reaffirmation agreement. Other times, you might get a creditor who wants to question you so that they can make a challenge on fraud. This is especially likely if they have reason to believe that you have not made a full disclosure, have transferred substantial property prior to filing, or incurred debt just prior to filing. It’s rare, but it does happen. This is why it is so important for you to be entirely honest with your attorney so that he can anticipate these problems and work to alleviate the problem as best he can before your case is filed. Once your case is filed, your attorney has much less control over the outcome.
The trustee has two primary functions in Chapter 7. The first is to examine you under oath to ensure that your petition and schedules are accurate. They may engage you in a line of questioning designed to flush out information that might have been omitted. Their second function is to examine your assets to determine whether there is any un-exempt equity in your property that could potentially be liquidated for the benefit of your unsecured creditors. These meetings are fairly routine and bureaucratic; often extremely boring. The average hearing lasts anywhere from 5-10 minutes. Sometimes, the trustee may adjourn your hearing to another date. Whether you have to appear (and whether your attorney needs to appear) depends on why your case is being adjourned. If the trustee is simply requesting some additional documentation, and if that documentation is provided, appearances are ordinarily not necessary. If further investigation or testimony is necessary, you would need to appear.
341 hearings may be held in a courtroom, but might also be held in a small conference room. The odds of you ever meeting the judge assigned to your case are slim, unless you need to attend a hearing to discuss a reaffirmation agreement you signed, or if other problems arise with your case.
After your 341 hearing, there is a 60 day period for creditors to file objections to your discharge (which, in my experience, are rare). Once that deadline has passed, assuming there are no objections, the court issues your discharge. Sometime after your case is filed and before your discharge is issued, you must complete a financial management course and make sure the certificate is filed with the court.
Chapter 13 is slightly different. The average length of the hearing is slightly longer, and the odds of creditor appearances are slightly higher. In Chapter 7, you had secured creditors appearing to discuss reaffirmation. They are more likely to make an appearance in Chapter 13 to verify that their collateral is insured and perhaps to discuss valuation for cram-down purposes.
The Chapter 13 Trustee focuses less on your property and the valuation, and more on the repayment plan that you proposed and to verify that Means Test calculations were done properly. His job is to ensure that both were done properly and with accordance to federal statutes and local rules. That having been said, Chapter 13s are far less rigid than Chapter 7s and many aspects of your case are more open to interpretation and challenge. It is not uncommon for additional amendments or negotiations to be necessary prior to confirmation. Therefore, adjournments are also far more common.
In Chapter 13, you will not receive a discharge until the end of the term of your repayment plan (assuming you are eligible for a discharge).
Some jurisdictions require a confirmation hearing, to be held in front of the judge. I am fortunate enough to practice in a district where those hearings are the exception, and not the rule. So, I can’t really tell you much about them, other than for this reason, and in the event you default during your repayment plan, you are more likely to appear in front of a judge in Chapter 13 than in Chapter 7.

Creditor Alert – Wells Fargo

For many years, I have advised my clients to zero-out and close any checking or savings account held at a bank that the client also owes a debt to. Why? Because before their bankruptcy case is filed, the bank can seize the banking assets to offset any perceived loss that will occur once their debts have been discharged in bankruptcy.
This advice becomes more urgent with debtors who have bank accounts and debts with Wells Fargo. The bank has recently begun asserting that they have an obligation under 11 U.S.C. § 541 and 542 to preserve the assets of the bankruptcy estate by freezing money held in debtors’ bank accounts. Though Wells Fargo cannot remove money from the accounts due to the automatic stay that goes into effect upon filing, the effect for account holders is similar

What sort of paperwork do I need to file for bankruptcy?

This answer will vary from jurisdiction to jurisdiction and from trustee to trustee. First, there are standard forms which need to be filed with the court – the bankruptcy petition and schedules, your Statement of Financial Affairs, and the Means Test. Each jurisdiction may have some supplemental forms, and your attorney should know which forms you will need to complete based on the district you are filing in.
In addition to those forms, there is ordinarily a packet of supplemental supporting documentation you will need to provide the trustee prior to your hearing. Your attorney should have enough experience with the trustees in your district to have a pretty good idea of which documents will be required. Below is a list of some of the most common documents that trustees have requested from me from each of the districts I practice in, from the not-so-demanding Eastern District of Wisconsin, to the very demanding Western District of Michigan. These are just examples – your particular list might be shorter or longer than this.

  • Recorded Deed(s) for real estate
  • Recorded Mortgages for real estate
  • Property Tax Bills and/or Appraisals
  • Titles for vehicles (or Confirmation of Security Interest or UCC Financing Statements)
  • Homeowner’s Insurance and Auto Insurance Policies
  • Copies of orders for domestic support
  • Federal and State Income Tax Returns going as far back as 4 years
  • Pay-stubs (or other evidence of income) for the previous six months
  • Bank Statements
  • Whole Life Insurance and Retirement Account statements
  • Credit Reports, and perhaps certain billing statements

U.S. Supreme Court to decide Means Test Issue, In re: Lanning

Before I get to the heart of the story, allow me to give you a quick refresher about the Means Test and what it means for a bankruptcy petitioner. To grossly over-simplify the Means Test, it is basically Congress’ attempt to create a mathematical formula to objectively determine how much money, if any, a debtor can afford to pay to creditors holding unsecured claims. It (Form B22) determines whether you qualify for a Chapter 7, in which all of your unsecured creditors are discharged. And if you don’t qualify for Chapter 7, the same form determines how much income is available to those creditors.
A number of statutory deficiencies exist which have given rise to disputes and some bizarre interpretations to several aspects of the Means Test, often resulting in gross inequities. One example is whether a Chapter 13 debtor can take deductions on the Means Test for payments on a secured debt which the debtor intends to surrender because the payments are contractually due at the time of filing. In re: Dionne, in the Eastern District of Wisconsin says they can. I feel awkward writing about that decision because for one thing – this decision is favorable to debtors, and I am a debtors’ counsel. Also, I have nothing but respect for the judge who rendered the decision. But I respectfully disagree that a debtor should be allowed to deduct payments on a loan that the debtor knows full well they will not pay again in the future. Fortunately for me, the 7th Circuit took the conflict out of my control with In re: Turner and ruled the opposite.
But, the bigger issue we have had with the Means Test is that – in Chapter 13, the Means Test spells out what the debtor can afford to pay over the next sixty months after the case is filed. And it does so by calculating the debtor’s income from the six months prior to filing. Relying solely on the Means Test results in inequities. Debtors pay less than they can afford if they experience a decrease in expenses or an increase in income. Debtors pay more than they can afford if they experience an increase in expenses or a decrease in income. Fortunately, the bankruptcy code allows for post-confirmation amendments based on these changes in circumstances. However in my case (In re: Hilton; 08-25440), the debtors’ change in circumstances occurred simultaneously with the filing of the bankruptcy petition, and so they were not eligible for a post-confirmation amendment, because we hadn’t gotten the case to confirmation. Furthermore, the plan could not be confirmed because it was not feasible, since the debtor’s budget did not show they could afford what the Means Test required. We took this to hearing, and after briefs were filed, the Judge rendered a decision indicating that the Means Test is merely the starting point, and that other factors may be determined in computing disposable monthly income.
However, courts across the country have been split over whether the Means Test should be strictly applied or whether other factors may be considered. And again, this generally arises from lack of clear definition of disposable income in the bankruptcy code.
On Monday, November 2, 2009, the United States Supreme Court granted certiorari in the case of Jan Hamilton v. Stephanie Kay Lanning (08-998). So, come next June, we might finally have a universal answer as to whether we should be strictly applying the Means Test or if other factors may be considered.
How the court will rule, I have no clue. But I will make the following observations and predictions. Any ruling that indicates that Form B22C is the alpha and omega of calculating plan payments – will sometimes work in the debtor’s favor and sometimes work against the debtor. In only a very small fraction of cases will the debtor be paying what they can afford – no more and no less, because it is very rare that the six months prior to filing will mirror or otherwise be indicative of the debtor’s income in the sixty months after filing. Furthermore, continued strict adherence to the forms will continue to result in a lopsided amount of Chapter 13 failures, which seems contrary to what Congress hoped for when it passed BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005), as it was quite clear that they wanted to encourage people to file Chapter 13 over Chapter 7.
I advocate, as I did in Hilton, for the Means Test to be a starting point, but allowing other factors to be considered in computing disposable monthly income. This will help increase the success rate of Chapter 13s, and ensure that debtors are paying what they can afford – not more, and not less. However, one must acknowledge the inherent danger that deviating from Form B22C will open the door to creative budgeting by debtors and their lawyers, which will lead to certain abusive practices.

Wisconsin residents could soon enjoy much larger property exemptions.

Exemption statutes are what we as bankruptcy attorneys use to protect property (real estate, vehicles, and other personal property) with positive equity from liquidation by a Chapter 7 Trustee.
Wisconsin is an opt-in state, which means that qualified residents may choose between either the federal exemptions or Wisconsin’s state exemptions. For the last several years, I have found federal exemptions to be superior to state exemptions in every way. Joint filers get $40,400 in federal homestead exemptions whereas they only get $40,000 if they elect state exemptions. Further, almost every other common exemption is greater in federal than its state counterpart. Generally, the only way that state exemptions were superior were for individual filers who were only entitled to a $20,200 exemption for their homestead under federal law – they were still entitled to the full $40,000 under state law.
However, rumors have circulated that legislation was in the state assembly and senate to increase a variety of exemptions, including exemptions for motor vehicles, depository accounts, and tools of the trade. Most notably, though, is that the homestead exemption would be raised to $75,000 and the “marriage penalty” would be removed, allowing each spouse to each take $75,000, thereby increasing the maximum for a joint couple from $40,000 to $150,000.
It appears that SB-259 passed late last night. A cursory read of the bill confirms that the marriage penalty is now indeed removed, but the $75,000 number might have been an exaggeration. The bill directs the exemption to be increased every 3 years, beginning in 2011, in accordance with the Consumer Price Index. Still, at minimum, it looks like state exemptions have suddenly become the favored set of exemptions for bankruptcy. Assuming all of the information is correct, all that should remain is the governor’s signature.

Can bankruptcy stop my utilities from being shut-off?

January 1 through April 15 of every year tends to be the busiest time of year for bankruptcy attorneys due to an alignment of financial events. First, we’re coming off of the holiday season and people are finding out just how bad a spot they’ve put themselves in with their credit cards from Christmas shopping. Second, this is the time of year when most of your recurring annual expenses come due, such as licenses, memberships, subscriptions, and most notably – income and property taxes.
Third, as we approach April 15, more and more consumers are realizing that they are on the chopping block to have their utility services shut-off. Wisconsin’s winter moratorium prevents utilities from being shut-off between November 1 through April 15. In recent years, the three major utility providers in this state – WE Energies, Wisconsin Power & Light, and Wisconsin Public Service – report rising numbers exceeding 100,000 customers who are at risk for losing their power after April 15. Many families struggling to make ends meet take advantage of the moratorium to divert funds to other necessary living expenses such as food and health care, but other customers merely free-load during the moratorium, and often find themselves unable to get caught back up before it ends.
Like wage garnishments, utility shut-offs can be prevented or service reinstated by filing a bankruptcy petition (see my previous post to learn some of the caveats to the automatic stay). However, the bankruptcy code permits utility companies to demand a security deposit, which is often equal to two or three months’ worth of peak service bills, to be paid within 20 days of filing for bankruptcy. Failure to pay that deposit can result in your power being shut-off anyway. The deposit is not applied to your past-due utility bills which are discharged in the bankruptcy, but are held as credit and generally refunded after you terminate your service or have established a record of paying your bills on-time after bankruptcy (usually about 12 months).