Paying for Your Bankruptcy

I am often asked by friends and colleagues, "how do you get paid when you file a bankruptcy for someone." Potential clients ask the same thing. It is a natural and reasonable question. If someone is declaring they don't have money to pay their creditors, where do they get the money to pay their attorney?

I try to be as flexible as possible when coming up with a payment plan for my clients. Very few have enough money put aside to pay all the legal fees and court costs at one time. One thing I will not do... file the case without being paid in full. This is a pretty standard stance in the field. If a bankruptcy attorney is not paid in full before filing, the debt owed by the client is lumped into the all other unsecured debt, such as credit cards and medical bills. Therefore, it becomes impossible to collect for the bankruptcy attorney.

However, despite this limitation, where there is a will, there is a way. The most common plan for my clients involves setting up a payment plan. Once a client retains me with some money down, I can begin to represent them by dealing with their creditors and preparing their petition. Payment plans can be as long as they need to be, and I will stand by my client the entire time. I will advise my clients on what bills need to be paid, and what bills do not. And I will always be available to answer questions.

Another common method to pay bankruptcy filing fees, at least early in the year, is to use a tax refund. This is entirely legal, and makes immediate payment (and filing) possible for many of my clients. The remaining refund can normally be exempted, so it is a win-win situation. Taxes are required to be filed before filing bankruptcy, anyways, so it is often a natural solution. It is something to keep in mind during tax season.

Third-parties, such as parents, spouses, siblings, and friends can also help with payments. This is not an option for everyone, and many of my clients are reluctant to ask for the help. However, when a Chapter 7 bankruptcy can save tens-of-thousands of dollars, it is usually help that close friends and relatives are happy to give. Getting help from friends and family to file a bankruptcy is preferable to continuing to struggle with debt and asking them indirectly for help with things such as child-care (while working a second job), or short-term loans that ended up not being repaid. It is something to strongly consider given the circumstances.

Contact us if you are considering filing a bankruptcy, but can't figure out how you would pay for it. I can help you consider which bills you will no longer need to pay, which may free up some money. I'll be happy to walk you through the situation and help you figure out a plan.

Does Bankruptcy Have a Debt Limit?

Is it possible to have too much debt to file bankruptcy? Can your creditors object because you owe them an especially large amount of money? It depends on the type of consumer bankruptcy you file, but in the vast majority of the cases, the answer is "no".

It is a reasonable question to ask. Whether you owe $5,000 to a couple of credit cards, or $200,000 in medical bills seems like two greatly varied scenarios that would be treated differently. However, in the vast majority of cases there is no difference, debts large and small get discharged just the same.

So, what are the narrow situations where the debt limit in consumer bankruptcy comes into play? Only in Chapter 13 bankruptcy is there an absolute limit or cap on debts that may be included. As of April 1st, 2016 (the limits are updated periodically, so always check at a later date) the limit on unsecured debts is $394,725, while the limit on secured debts is $1,184,200. Unsecured debts are generally credit cards, medical bills, and personal loans, secured debts are generally mortgages, and car payments (which tend to be larger obligations).

Clearly, the number is quite large and will not affect most bankruptcy filers, except perhaps those with very large mortgages, or high amounts of medical or business debt.

As for Chapter 7 bankruptcy, there is no cap. You may exceed these debt limits. For most debtors, this cap will not be a concern. Even seemingly massive debts can be included in a Chapter 7 bankruptcy. Debt amounts are usually not the issue. It is when, and how, these debts are accrued that may become a problem. If debts are run up through fraud or deliberately large purchases in the months preceding filing, there will be an issue, regardless of the size. 

If you are facing the bankruptcy debt limits, there are some options available. An experienced bankruptcy attorney can help you to classify your debts, or seek other bankruptcy options. Contact us with any questions about your debts, large or small.

You Can Keep Your Car In Bankruptcy!

One of the most common fears expressed to me by potential bankruptcy clients is, "but I don't want to lose my car!" The good news... as long as you can afford to make the payment and keep it current, you can always keep your car in bankruptcy.

In Chapter 7 bankruptcy, you can keep your car as long as you are current at the time of filing. You are not required to return your car or lose your right to continue to make payments. Bankruptcy law allows you to retain the vehicle and continue to make payments. In most Chapter 7 bankruptcies it is simply a matter of continuing to make current car payments as normal. Nothing changes (though, you must be aware sometimes finance companies will stop sending you payment books while you are in bankruptcy so as to not violate the Automatic Stay).

If you are one or two payments behind, it is often advisable to catch-up with the payments before filing the Chapter 7 bankruptcy. This is not always easy to do, but it is worth waiting to file if you protect your car.

Bankruptcy exemption laws allow you to protect the equity you have in your car. Equity is just the value of the car minus what you owe. So, a car is like the rest of your property that can be protected from creditors. You creditors cannot take away your vehicle to satisfy their debt.

What if you are further behind on a car payment, perhaps three or four months? You can always file a Chapter 13 bankruptcy, which allows you to catch up arrears spread out over 36-to-60 months. Chapter 13 bankruptcy can even be used to get back a car that has been repossessed! (As long as the vehicle has not been sold at auction yet). I have used this option numerous times to save cars for my clients, sometimes for cars where payments that haven't been made for almost a year. The arrears owed on the vehicle are paid at 0% interest, so repaying what you owe in this way is a very realistic option.

Whether you should catch-up a few payments and file a Chapter 7, or file a Chapter 13 and catch-up through a bankruptcy reorganization, will depend on the circumstances. If other circumstances point to Chapter 7 bankruptcy or Chapter 13 bankruptcy, those circumstances will often dictate. If you are only a single payment behind and otherwise qualify for Chapter 7, it is usually advisable to catch-up before filing, as Chapter 7 has significantly less legal fees. Regardless, as long as you can afford it, you can keep it.

Contact us if you are having issues with you car payment and want to seek advice on making the payment.

Electronic Filing of Bankruptcy Petitions

When I file a Pittsburgh bankruptcy in the Western District of Pennsylvania, I file it electronically, over the internet, as required by the Bankruptcy Court. This greatly simplifies the filing process, as attorneys no longer need to hand-deliver petitions and filings downtown. It creates an electronic record and history that is easy to follow and eliminates disputes as to the timing of filing. It also greatly simplifies things on the Court's end, which reduces inefficiency and costs, which in turn limits court fees.

However, electronic filing does raise a couple issues worth examining. While it is clearly preferable on the whole, certain precautions must be taken.

Clients must give me permission to file online. This is done with the "Declaration of Electronic Filing". The Declaration of Electronic Filing is a form which must be signed by both the debtor and the attorney, and it must be filed with the Court within 14 days of filing. This document is usually signed by the client at the time of filing, and forwarded immediately. If it is not filed with the Court on time, your case can be dismissed. So, it is safest and best practice to mail it out quickly.

In the Declaration of Electronic Filing, the debtor attests that all information in the filings are "true and correct." It also grants the attorney permission to file online. Finally, it declares that the Social Security number listed is true and correct. In summary, the debtor is attesting that he or she is familiar with the information being filed, and that it is honest and accurate.

The bankruptcy attorney also signs the document (also known as PAWB Local Form 1A), further attesting that the information is "complete and correct". In my office, we will review your petition closely before filing to assure we meet the requirements of the law. All the information must be correct when the "send" button is hit!

All documents, motions, orders, etc., will be filed electronically throughout the bankruptcy case. Once again, this is the only way filing is permitted. Privacy standards are followed, as personal information such as Social Security numbers must be redacted by the attorney if provided in online filings. The process has proven secure, and as long as potentially sensitive information is redacted, there should be no issues with cyber safety. Making sure the system remains secure is an important responsibility of the Court and bankruptcy attorneys.

Electronic filing reduces costs and inefficiencies, and makes the practice of bankruptcy law more simple in general. If you have any questions about the process, contact us. 

Updated Address for Chapter 13 Payments

There is a new address for making payments to the Chapter 13 trustee in the Western District of Pennsylvania. The address is effective immediately:

Ronda J. Winnecour

Chapter 13 Trustee W.D.P.A.

P.O. Box 84051

Chicago, IL 60689-4002

As always, the payments should only be made with certified checks or money orders. If you have any questions about your Chapter 13 payment (assuming you don't have a wage attachment in place) contact us immediately.