I have written about this before, but it bears repeating. I am not offering smoke and mirrors here, but just straight up information. There is a competitor’s ad campaign that has garnered considerable attention and it promises to get a bankruptcy started for $78.00. The ad goes on to note that certain restrictions and qualifications apply to this offer. And, I am sure they do explain those once your come in to meet with them. I have not interviewed my competitors on this issue, so I cannot say with certainty, but I can only contemplate one way that they can actually get a bankruptcy started for $78.00 and that is in a Chapter 13. It just so happens that you can pay the $310.00 filing fee that the court charges for a Chapter 13 (or the $335.00 for a Chapter 7) in four monthly installments. Each installment for the Chapter 13 would be $77.50 and thus we have you entering into a Chapter 13 paying only that first installment (and rounding it up gives you the $78).
I can do this for you also. However, I would need to figure out how much of a plan payment you would be able to afford because paying payments each month makes up a Chapter 13 in contrast to a Chapter 7. That would be the restriction. The Chapter 13 can run as short as 36 months or as long as 60 months depending on your household income. Attorney fees run higher in a 13 than a 7 but those higher fees can be paid through the plan itself. I only recommend going this route if it is the only way you can get into a bankruptcy and get the relief you need. You must qualify for a Chapter 13 which includes having a regular source of income and that income must be sufficient to pay enough in a plan payment to cover the attorney fees, trustee commission, certain tax debts, and certain secured debt arrears. The hitch with going this route is that the less your pay up front on attorney fees, the higher the plan payment has to be after filing. That may be perfectly fine and work well, I just want you to know that in advance rather than when I have you already in my office. There is also a credit counseling course that must be done through a third party prior to filing and this can run anywhere from $10 to $25 directly to that company. This a legal requirement of the law and not something that can be circumvented.
How would I be able to go beyond a firm that can get you into a bankruptcy for $78.00? Well, I do all the work myself. From the initial phone call to the initial meeting all the way through to the discharge order being issued at the end of the bankruptcy – it is all with me personally. That is to say, you will not be interacting with secretaries, paralegals or other attorneys (unless there is a true emergency); you will be interacting with me. I will be the familiar face that shows up with you at the meeting of creditors and the same voice on the phone who helps explain things along the way. That is simply how I chose to practice law, by keeping overhead low and doing it myself rather than shooting for high volume. That competitor does a fine job from what I can tell; it just done using lots of staff. If my individualized and personal approach appeals to you, then come in to see me and I will see if I can match any competitors’ offer for a bankruptcy or even go beyond what they have to offer. There is no charge for that initial consultation and I do NOT limit it to 1/2 an hour.
There is a nice little Kentucky Supreme Court opinion called Howard v Howard, 336 S.W.3d 433 (Ky. 2011) every Kentucky family lawyer and consumer bankruptcy lawyer should read. The first part of the opinion addresses child support and contempt sanctions, which to be sure are fun things to know about, but the meat of the opinion spells out the concurrent jurisdiction of Kentucky Courts with the Federal Bankruptcy Courts and how that effects discharge of certain kinds of debt.
Under 28 U.S.C. Sect. 1334(b), a state court has the same and concurrent jurisdiction as a bankruptcy court to make a determination as to whether a particular debt is discharged by a bankruptcy. In the Howard case, the ex-husband had agreed to be responsible for certain debts the ex-wife had also co-signed. However, he went into a Chapter 7 and received a discharge of that debt. Even though the ex-wife had notice of the bankruptcy and did NOT file any objection in the Chapter 7, she was still able to go to the Kentucky Circuit Court where the divorce had occurred and get a ruling that ex-husband still owed the obligation to her.
You see, the divorce decree created an obligation between the ex-husband and ex-wife even though a third party was the direct creditor. This obligation was found to be an 11 U.S.C. Sect. 523(a)(15) obligation as a result of a divorce. Therefore, by operation of that law, that obligation to the ex-wife was not touched by the bankruptcy. When the original creditor came back to collect from the ex-wife, she was able to pursue contempt against the ex-husband and win. This saved ex-wife from having to pay for a lawyer in the bankruptcy in addition to paying for a lawyer in the Circuit Court case.
Bankruptcy continues to evoke this notion of getting something for nothing. For some,that results in feeling a bit of judgment or disdain towards the whole idea of filing bankruptcy or the people who end up there. To that I say, “There, only by the grace of God go I”. Others see it with a bit of a glimmer in their eye as a great way to get free stuff. Both views are askew. Bankruptcy is a tough process to go through that is humbling and often anxiety provoking which is why people prefer to hire a lawyer than attempt it pro se. Few people actually abuse the system; most who file have tried everything they could think of to avoid it, but life’s curve balls and the accumulation of mistakes here and there just prove too daunting without assistance. For those hard working folks who end up in a bad spot, I do what I can to make the process smooth and effective so they can get on rebuilding their lives financially.
One of the things I do to ease the way is to stress the imperative in Chapter 13 bankruptcies that if you want to keep it, you must pay for it. This applies to bigger ticket items with a loan secured against it like a house or a car. Many people opt for a Chapter 13 because they fell behind in their house payments or their car payments but they do not want to lose that property. Well, a Chapter 13 can certainly make that happen, but they must still pay for the house or the car. There are NO free houses out there – and the only free cars are ones your would not want to drive.
Chapter 13 only halts the secured lenders collection process (and helps reduce interest costs in certain ways). That means that foreclosure proceedings for a house are stopped and repossession of a car is nixed. Then, the arrears that had accumulated must still be paid through the Chapter 13 plan payments as well as each ongoing payment as it comes due. Unfortunately, many home owners had the pre-bankruptcy experience of months going by without making house payments before the bank took legal action. That will NOT be the experience in the bankruptcy. The secured lenders are much quicker to file a Motion for Relief from the Stay (the automatic collection halting part of a bankruptcy). This motion allows them to then resume the foreclosure in state court if it is granted.
Often, this motion is filed by the lender quickly after a payment or two is missed as a wake-up call to the debtor. They really just want the debtor to get caught up on their payments and so they typically will enter into an agreed order with the debtor to do just that over the next few months rather than force their motion through. However, this is an exceedingly expensive process. The lenders insist on getting reimbursed for the hundreds of dollars they spent on an attorney and filing fees for that motion. So, you may have used that $1,000.00 house payment or two to buy Christmas gifts or cover an unexpected medical bill, but you will end up eating around $600 or $700 on top of catching up those missed payments.
To make it through your Chapter 13 smoothly and retain your house and car, those payment simply have to be a non-negotiable. There is no wiggle room on secured debt payments in a Chapter 13. If you want to keep it, you must pay for it.
Having a sheriff or constable hand you a summons and complaint (a lawsuit) is an awful feeling. If you have been served with a lawsuit, then you really should consult a lawyer about the particulars of the complaint. This post should not be a substitute for obtaining individualized legal advise. However, I also know that not everyone has access to legal representation. If you are being sued for non-payment of a debt, then you likely have a hard time finding the funds to retain counsel. So, I am offering a few pointers in filing an answer to a complaint in order to protect your interests.
First, though, I want to suggest you reach out to a modest means or pro bono legal clinic if you cannot obtain private counsel. In the Bluegrass area and Eastern Kentucky you can contact: Legal Aid of the Bluegrass, The Fayette County Bar Association, and AppalReD.
Again, this is not a substitute for legal advice:
In Kentucky, a state court lawsuit must be answered within twenty (20) days of being served with the complaint. If the 20th day falls on a weekend or holiday, you have until the next weekday to file your answer, though I always err on the side of filing it a day or two early. If your goal is to delay the lawsuit as long as possible while you pull things together for bankruptcy, then you will wait until the last day of your time before filing your answer (again, I shave a day off just for an abundance of caution). Filing an answer consists of delivering your original, signed answer to the clerk and mailing a copy to each lawyer (or unrepresented party) listed on the complaint you received by first class mail. You do not need to send it certified mail.
The answer consists of three parts. The first part is the “style” of the case. It is all the stuff on the heading of the complaint, except you do not have to list the addresses of the parties – just their names – and you call it an “Answer” rather than “Complaint”. The case number is the most important part because you want the clerk to file your answer in the right case.
The second part is where you either admit or deny the allegations in the complaint. This is where a bit of lawyer speak comes in: if do not know something for certain, but suspect it may be true, you can still deny it by saying “I cannot confirm or deny such and such allegation of the complaint, therefore I deny the same.” You must do this because anything you admit in your answer is not longer a controversy. So, if the lawsuit is filed by the original creditor that you borrowed money from, then you can admit that you owe them a debt, but still deny the exact amount they are claiming is owed. However, if the lawsuit is brought by a collection agency or a party claiming that the debt was assigned to them, you may suspect that to be true, but you really do not know for sure that it was assigned to them correctly. So, you can deny owing that party a debt altogether as well as the amount they claim is owed. You must sign this part of the answer, but do NOT sign for anyone else. If you and your spouse are being sued for the same debt, you each must sign the answer or risk being found to be practicing law without a license.
The third part must also be signed (so you will sign your answer twice). This part simply is a statement saying that you put a copy of your answer into the mail, US Post, first class postage, and then list each party or their lawyer and the address you mailed it to. Again, sign after this statement and make sure you actually do send a copy to that party or lawyer.
Filing the answer can either be hand delivery to the clerk or by mailing your answer in to the clerk. Either way, you also want to submit a cop of your answer along with the original so that the clerk can stamp it and hand the copy back to you. This is your proof of filing the answer just in case the clerks misplace the answer (they do have lots of cases to manage by the way). If you mail your answer in, send a self-addressed, stamped envelope along with the original and copy so the clerk can mail it back to you.
Filing an answer in a lawsuit simply prevents the plaintiff from a quick and easy default judgment against you. It forces them to produce proof to the court. They may do this by way of a Summary Judgment or it may end up being a hearing (especially if it is small claims court). Either way, it typically gains you extra time to either file bankruptcy or prepare a defense.
A debtor filing bankruptcy can apply to the court to pay the filing fee in installments AFTER filing the petition. For example, the filing fee now for a Chapter 7 bankruptcy is $335.00. It can be really hard for a person to come up with that AND their attorney fees. Since their unpaid attorney fees would be discharged along with everything else in the bankruptcy, those nearly always have to be paid up front. But, the filing fees are a different matter since the court retains the power to dismiss the case if they go unpaid.
In the Eastern District of Kentucky, installment applications taking up to 120 days post-petition to pay the fees are routinely granted. However, there has been a shift in how the court handles those installments. Until recently, the clerks had a lot of latitude as to when those payments were made so long as they all were paid by the final deadline. NOW, though, if debtors run late on ANY of the installments, a Show Cause Order is being issued to make the debtor appear in court. If they cannot convince the judge that they have a good reason for running late, their bankruptcy may be dismissed.
So, if you are going the installment fee route and paying monthly payments of $83.75 for a Chapter 7, make sure you give yourself reminders. Also, you cannot pay by personal check. You either have to show up in person with exact change or you must mail in a money order for the exact amount. The courts system does not account for payments that are even a penny off. You can double or triple up (i.e. $167.5 or $251.25) or even pay it in full early. Just do not round up to $84.00.
I posted awhile ago about a neighboring high-volume bankruptcy firms TV advertisements to “get your bankruptcy started for just $71.00”. I speculated on how they did that, but I have since learned what the deal is from a client who went to them first. She clearly was a candidate for a Chapter 7: below median income, no secured debt arrears, no priority debt, and nothing else that would lend itself to Chapter 13. However, she could not come up with the attorney fees to do the Chapter 7 right then. So, they offered to put her into a Chapter 13 with just $71.00 up front.
This seems like an acceptable approach. Basically the attorney is using the ability to have their fees paid through the Chapter 13 as administrative expenses. The up side for the debtor is that they get the relief from creditors including garnishment right away. The downside is that this is a much more expensive and involved process than the Chapter 7. Debtors need to be made aware of how much more they would pay in the long run for the Chapter 13 as compared to the Chapter 7 – sort of fair credit act kind of disclosure. Perhaps my colleague is giving that kind of disclosure – I have no reason to doubt that they are. If so, then I give them props for giving another option for debtors that needs relief from debt right away, but whom cannot afford the attorney fees.
I write about this every year because it is a recurring issue for people facing bankruptcy. Taxes have a bearing on bankruptcy whether you are owed a refund or whether you owe the IRS. Therefore, they must always be taken into account, but it is especially important during this first handful of months each year.
The first thing to remember is that if you are owed a refund at the time of filing, that refund is an asset of the estate and must be reported in Schedule B and hopefully exempted in Schedule C. If you owe taxes, they are reported on either Schedule F or E depending on whether they are priority debts or not. Your attorney can help sort that out. Tax debt and tax refunds arise on December 31st each year. So, if you file a bankruptcy on January 1st, then you must account for the tax situation that arose from just the day before. So, even if you do not file your tax return until April 15th (or October if you file an extension) you either owe taxes for the year that just ended or you are getting a refund (rare indeed is the person who lands right at zero, but I suppose it happens).
If you owe taxes for the preceding year, they will be considered a “priority” debt and a debt that cannot be discharged. In a Chapter 7, the IRS and any state agency you owe taxes to will begin collection activity after your Chapter 7 is closed. In a Chapter 13, you will have to make sure you pay enough into the plan for those taxes to be paid in full over the life of the Chapter 13 along with 4% interest for federal income taxes and 5% interest on Kentucky income taxes.
If you are owed a refund, you need to report the refund as accurately as possible in your schedules of assets. This means you will likely have to run at least a rough draft of your tax return to get a good faith estimate of what is due back to you. Then, you will attempt to cover the entire amount in “wild card” exemptions. If you cannot exempt the entire amount, you will need to make a determination with help from your attorney as to whether you should wait until you receive the refund or press on.
If you decide to wait until you receive the refund, then the smart thing to do would be to pay for the bankruptcy and spend the money on necessities, such as food or needed repairs to you car. Do NOT use it to pay unsecured debt, especially not to relatives. Your attorney can help you know how much you can hold onto and exempt.
Your attorney can also help you determine if older income tax debts, such as those that arose a few years prior to the bankruptcy, will be discharged in your Chapter 7 or 13. All of this is acceptable pre-petition planning to make the most of the fresh start bankruptcy allows.
First, I want to give a shout-out to my law school compatriot and all ’round helpful attorney, Ben Carter, for his pointers in the consumer protection arena. I recently was approached by a young lady for help with a particular debt. Other than this one liability, she had no debt to speak of and so bankruptcy really would not be the most cost-effective way of dealing with the issue. Bankruptcy will definitely extinguish a debt that arose out of bad practices by the creditor, so if the particular debt is high enough or if there are several issues that could be wrapped up at one time, then bankruptcy would be a route to consider. But when the only issue is a liability that came about by unlawful practices of the creditor, then one can consider another line of attack – pursuing an action under the Kentucky Consumer Protection Act (KCPA).
In my client’s situation, she was approached by a home security company. I do not want to go into the details at the moment because this matter is still pending, but I will say the salesperson for the home security company engaged in some bait-and-switch tactics and made some representations that she relied upon that turned out to be false. She quickly decided to cancel the contract but, as a result of one of those misrepresentations and deceptive acts, she missed the window in which the company (actually it turned out there were two separate companies which made it even harder to know what was what) claimed they would have honored the cancellation. Further, they claimed the damages for stopping the contract were the exact same amount as it would cost for the home monitoring service over three years. I did some research online via the Google (if I call it “the Google” it just sounds more impressive don’t you think?). Apparently complaints of this nature against these two cohort companies is quite widespread.
Now, the really nice thing about pursuing a company for a violation of the KCPA is where suit can be brought. The ordinary rule of procedure in a civil lawsuit is that the suit must be brought where the defendant is located. However, if a person buys stuff or services mainly for personal use, and is subjected to “unfair, false or deceptive acts or practices” (KRS Sect. 367.170) then they can bring suit in their own county’s Circuit Court (KRS Sect 367.220). This is incredibly helpful when, as in this young lady’s situation, both companies are non-Kentucky based businesses. If she had to sue them on their home turf, the cost would be astronomical.
That same statute, KRS 367.220, goes on to make sure judges know that they can award attorney fees to the consumer if they prevail and they can even award punitive damages against the offender. However, to position oneself the best way possible to make either of those things happen, the consumer must document extensive efforts to settle the matter along the way.
Given the generous jurisdiction, venue, and damages provisions of the KCPA, one would think more suits would be brought. This is where the economics of fraud come into play. Businesses that engage in fraudulent practices typically do not go after huge amounts of money. I venture to say that, other than that deposed prince of Nigeria, nearly all businesses who are fraudulent seek to acquire well under $2,000.00 from the consumer. That means that someone seeking to redress the wrong through court could end up spending about as much on a lawyer as the debt itself. And, as with all litigation, there is no certainty of prevailing nor of being awarded attorney fees. Attorneys rarely will pursue one of these cases without some assurance that their time will be compensated and so the “cost-benefit analysis” often favors the dishonorable business. And, there is a dearth of low-income or pro bono legal advocacy programs because our society does not wish to fund them.
There is one more avenue a consumer can take if they cannot find a lawyer. Although there is absolutely no guarantee it would right their own personal injury, they can report the matter to the Attorney General’s Office and that office may investigate the businesses practices. Even if they do investigate and pursue an action, they would not be representing you individually. Furthermore, they state several steps to take first on their website.
All this considered makes bankruptcy a more attractive option to get out from under a debt arising from fraudulent or unfair business practices. When bankruptcy does not make sense, though, it is good to know that other avenues are available.
I saw a TV ad yesterday afternoon by a law firm that does a high volume of bankruptcy filings. I had just finished a five-hour evidentiary hearing and so I took off a little early to refuel. Those evidentiary hearings require tremendous and sustained concentration. Anyway, this ad surprised me. The attorneys at the firm stated in the commercial that they knew how tight people’s budgets were so they would “get started with your bankruptcy for only $71.00.” I got out my calculator and started crunching numbers to see how they could stay in business.
You see, that law firm has a high overhead. They spend thousands and thousands every month in television commercials and billboards. They also utilize paralegals and support staff to prepare petitions and other necessary documents to file a bankruptcy. They have a nice, decent sized building in a strategic main thoroughfare. And, of course the attorneys want to make a decent living also. All that adds up to high overhead costs that have to be covered somewhere.
In my situation, I do all the work myself and so I have no support staff. My partner and I have a reasonable lease on a 200-year-old “mansion” (a.k.a. farmhouse) in the middle of a subdivision. Our advertising budget… well, this is it. You are looking at it. Sure, I also want to make a decent living, but still this all adds up to very low overhead and this gets passed on to you.
So, basic math dictates that the big law firm must make much more money than the small law firm. They are either charging more for each case than I do, they are cutting costs somewhere, or both. I cannot say anything more specifically about that law firm because I do not know more. I can say that, in general, businesses that do volume business build in costs reduction by standardizing everything. Think McDonald’s.
So, how can they advertise this $71.00 deal? Go back to McDonald’s and think dollar menu. The dollar menu offers a very low-cost option that is small and bare bones. But, that still does not explain it all. True, they are likely basing that $71.00 on their most basic services in the simplest of Chapter 7s. And, that still cannot possibly be done for $71.00. So, the key is in the phrase “get started for….” Lawyers know to listen for such phrases, but the general population over skips over them. This is how marketing is so effective.
Easy enough. I do free consults already and then I typically ask for $200.00 to be paid into escrow before I actually am “retained”. This means that I will then take creditor calls when necessary, you can tell creditors to leave you alone and contact me, and I will complete the means test. I suspect that for $71.00, they will only have their paralegal gather paper work and perhaps even do a rudimentary means test, but then they will work out a payment plan for the rest. Well, I will match that. I will even beat it. For $70.00 I would also be willing to gather your paper work and do a means test. Then, we can make a plan for the rest, but I will not be able to deal with creditors for you. Just mention this blog post for this special offer.
Do not be fooled, though – the $71.00 (or my $70.00 offer), will NOT get you a bankruptcy. It just gets things started. You will have to come up with several hundred dollars prior to filing for attorney fees whether you come to me or go to the firm with the advertising. Fees not paid prior to filing a Chapter 7 would be a debt owed in the bankruptcy and discharged just like every other debt. The difference to consider: my partner and I actually do all the work ourselves and ensure high quality of work.
I was wrapping up final preparations on a Chapter 13 petition and proposed plan today for filing next week. As I ran through the plan and made provisions for the adequate protection payments (in this region they are typically 1% of the value of depreciating assets), I realized it would be some time before I began getting paid for my work. You see, in a Chapter 13, one can put much of the attorney fees into the plan to be paid as administrative costs. This is a priority class of creditors that can be paid in full through the course of the plan. As a priority class, that also means they can be paid ahead of many other kinds of debt.
However, they do not get paid ahead of adequate protection payments. I had been very diligent in this person’s plan to make their budget workable so they could keep their family running while still saving their house and paying off the family car. That car, a family vehicle worth over $10k, meant that adequate protection payments would be over $100 per month right out of the gate. However, due to repaying some retirement plan debts (allowed to avoid tax penalties) their first several months of plan payments would not be much more than the adequate protection amount.
I breathed a sigh and reassured myself that it was just a matter of time and I would be compensated for the post-petition work. I felt good that I was helping the family and that they would be able to cover the arrears on their house and stave off foreclosure. And, I made a mental note that in the future I needed to be mindful of high value cars and tight budgets so that I asked for a smidgen more in up front fees on such matters.
This is a round about way to explain why, in discussing a Chapter 13 with your attorney, she or he may seem to waffle a little on the attorney fees. There is a $3,500.00 “no-look” fee in the Eastern District of Kentucky. This does not mean that is a set, required fee. Rather, if your attorney charges that much or less, the court is not going to ask your lawyer to prove up the time she or he spent as an attorney. If more is charged, then an application detailing the work must be produced. Most attorneys will charge the $3,500.00. Where the waffle comes in is how much will be required to be paid up front prior to filing. I tend to go on the low-end because I know things are so tight for people and I make it as affordable as a Chapter 7, but I have to off-set that with the demand of my own expenses.
- CAUTION: Tax Refund
- When Business Owners Should File Bankruptcy
- To File or Not to File: Attorney decision making
- Deadlines for Filing Prepetition Tax Returns in Chapter 13 Cases
- Delinquent Property Tax Claims in Chapter 13 Cases
- Lessons Learned the Hard Way
- Miscellaneous Hot Topics in the EDKY
- ‘Tis the Season
- How to Choose a Bankruptcy Lawyer
- The Entrepreneurship – Bankruptcy Intersection
- Making Chapter 13 Plan Payments in the E.D. Ky. – New Online Payment Option
- “I’ve Changed My Mind – I Want to Surrender My House”: What Effect Does Post-Confirmation Surrender Have on the Debtor’s Discharge?
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