Inside the Minds:
Chapter 7 Consumer Bankruptcy Strategies
Nationwide Book Published by Aspatore Books
CHAPTER TITLE: The Current Climate in Consumer Bankruptcy
By Carla M. Garcia, Esq. of GARCIA & GONZALES, P.C.
Introduction
I have been a licensed attorney in Colorado since May 1994. I entered into an established law practice, and the practitioner happened to be my husband. When I joined the firm, the practice handled various matters, including Personal Injury, Workers' Compensation, Collection and Business matters, as well as Bankruptcy. At that time about 50 percent of our practice was bankruptcy. As the country started experiencing more economic uncertainty, triggered primarily by the economic downturn following the 9/11 tragedy, bankruptcy became more prevalent and our caseload increased. In my experience, the 9/11 tragedy was a turning point for a great deal of people, although most recently our cases are related more to the recent mortgage crisis. While the number of filings has gone up and down over the years, at this time, bankruptcy constitutes about 95 percent of my practice.
My firm handles consumer issues: Chapter 7 and Chapter 13. We serve families, individuals, and many small business people in both Chapter 7 and Chapter 13. Our clients run the gamut, everybody from the unskilled and unemployed individuals to professionals such as doctors, chiropractors, lawyers, realtors, etc. Most recently, many of our clients are involved in the real estate industry in some way, either as investors, mortgage brokers, or real estate agents. Thus, we have seen the full spectrum, from every walk of life. I am a Spanish speaking attorney and there are few Spanish speaking attorneys in bankruptcy in my area so I draw from that community as well.
My practice is almost exclusively by referral via former clients or other bankruptcy practitioners. I am a licensed real estate broker as well, and I have been licensed as a real estate broker for approximately five years. I have also handled family law, personal injury and workers' compensation issues in the past. This varied background helps me with my bankruptcy cases because so many of those issues come into play in bankruptcy (foreclosures, family law issues, real estate issues).
Clients come to me stressed, overwhelmed and scared of both their debt situation, but also overwhelmed by the prospect of having to file bankruptcy and fearful of what lies ahead. My goal initially is to give the client the information they need to make better and more rational financial decisions moving forward, starting with their bankruptcy filing. We offer our clients hope and help. Once I have been retained, my goal in helping my clients is to ensure that deadlines, imposed both by the Court and by my clients' needs, are met, that my clients suffer little or no interaction with creditors, and that everything goes exactly to plan resulting in my clients obtaining their discharge allowing them to get their "fresh start". After almost 15 years of handling bankruptcy cases, we must be successful as almost all of our business at this point is by referral, presumably because we have done a good job.
The Basics of Chapter 13 and Chapter 7
The main difference between Chapter 7 and Chapter 13, aside from that fact that a Chapter 13 requires payment to creditors, is the role of the Trustee. The role of the trustee in Chapter 13 is significantly different than that of a Chapter 7 trustee. The Chapter 7 Trustee is a "liquidating" trustee while the Chapter 13 Trustee is a "non-liquidating" trustee. Trustees in the bankruptcy system are licensed attorneys who are employees of the U.S. Department of Justice. They are charged with a fiduciary duty on behalf of the creditors to liquidate non-exempt assets. In addition to their fiduciary duty, there is a compensation or commission schedule for trustees to liquidate assets, so there is a fiduciary as well as financial incentive to recover non-exempt assets for the benefit of creditors.
Chapter 7 can apply to an individual, a small-business person, or a business. It is a liquidation bankruptcy. The most common perception of people is if they file Chapter 7, they will lose all of their property (it will be "liquidated"). However, in my experience, few Chapter 7 cases result in the loss or liquidation of property as every state has exemption statutes that allow debtors to retain various properties, so long as they are within the exemption limits imposed by their state. Whether or not you will be able to keep your property in a Chapter 7 process depends on what the status of the debt is. Most people are concerned about losing a house or car. Debtors can keep houses or cars if they are current on those obligations and if they are within the equity limits imposed by the applicable state exemptions. (Note: Under the current Bankruptcy Code, you may have to apply the state exemption of the prior state you lived in if you have lived less than two (2) years in your current state or the Federal exemptions if your state has elected to follow Federal exemptions). If a client comes in and they are three months behind on their mortgage payment, they will have to surrender the house with Chapter 7, unless the mortgage company is willing to work with them outside the bankruptcy process. In the scenario that a Debtor has excess equity, we will most likely look at a Chapter 13 for that client if their intention is to keep their house. Car loans are similar; if the client comes in and they are not current, then they cannot retain it under a Chapter 7.
A Chapter 7 trustee has the ability to liquidate (seize and sell) assets that are outside the exemption limits or assets that are not specifically exempted. For example, in Colorado there is a $60,000 homestead exemption for individuals that are 59 years of age or younger ($90,000 if an individual is 60 or older, disabled or has a disabled dependent). If a client under 59 years of age has $90,000 equity in a house after the cost of sale, then they exceed the exemption limits and would not be a candidate for a Chapter 7 because the trustee would have the ability to seize and sell the house. The trustee would give the debtor the first $60,000, but then anything that is left over would be distributed to the unsecured creditors.
Typically, we use Chapter 7 when debtors are current on their assets or do not want to keep their assets. If they are surrendering a house or car, we can handle that through a Chapter 7. Chapter 7 also fits when the debtor exclusively has credit card debts, personal lines of credit or medical bills. Older taxes may also be discharged in Chapter 7 assuming tax returns have been filed on a timely basis. We write off debts that are not necessarily secured to creditors, and when they have completed their Chapter 7, they receive a complete discharge of all of those debts.
Chapter 13 is a debt reorganization or debt repayment plan. Businesses cannot file Chapter 13s, only individuals. In Chapter 13 a trustee is called a non-liquidating trustee, and that means they are not going to seize assets to pay creditors. The flipside: debtors are required to pay their available disposable income, or the value of non-exempt assets, into a 36 to 60 month plan which in turn, the Chapter 13 pays to the debtor(s) creditors according to the terms of the plan. In exchange the debtors are able to keep all property, exempt or non-exempt.
We typically use Chapter 13 to cure mortgage defaults, cure automobile defaults or "cram down" on vehicle repayments, pay recent taxes, or if a debtor is ineligible for a Chapter 7 due to income limits or due to ineligibility related to prior bankruptcy filings.
Alternatives
There are some alternatives to pursuing bankruptcy. People can always try to work directly with creditors and negotiate debts. I have had some success with this. In my experience with credit card debt, it depends on the amount of debt and the number of creditors. Unfortunately, we are seeing so many people so bogged down in debt that it is not practical to negotiate, even if the creditors were going to work with them, because it only makes sense if you get the agreement of ALL creditors. Some creditors offer our clients a discounted amount. If the client holds $10,000 in debt with three credit cards, they might be able to negotiate with creditors to accept $0.50 on the dollar which may be a reasonable amount, given the particular debtors situation. However, if you have a client $50,000 in debt and are able to negotiate down to $25,000, most middle class average consumers struggling to make ends meet, may not find even a significant discounted debt load manageable.
Some credit card counseling agencies offer debt reorganization or debt renegotiation. Over the years I have seen limited success with programs such as these so I am pretty skeptical about them. Again, I think it depends on the number of creditors and the amount of debt. In my experience with these programs, participation by creditors is voluntary, creditors continue to report negatively and interest often continues to accrue and budgets set out by such agencies are extremely rigid, leaving little available to the debtors.
With respect to mortgage work-outs, more and more mortgage companies are offering borrowers loss-mitigation programs that may allow a debtor to avoid bankruptcy related to their house. As part of this effort, they may offer loan modifications, debt-restructuring deals, rolling late payments back into the loan or putting all late payments at the end of the loan. Ultimately the mortgage company (less so with car loans) is focused on whether your situation is a temporary situation or more of a long-term on-going circumstance in determining whether or not the debtor can actually make the payment or not. Communications with a mortgage company, however, can be frustrating and time-consuming and mortgage companies frequently continue with the foreclosure process while the debtor is attempting a work-out option. Beware! Repayment terms are also often not very feasible to the debtors.
A common predicament now with clients (and why we are seeing so many Chapter 7s and foreclosures) concerns mortgages. Many people have adjustable rate mortgages that they cannot afford and coupled with the decline in home values, people find that they are literally upside-down on their houses. A creditor might be willing to work with a debtor and put $10,000 of back due mortgage payments on the back of your loan, but if you owe $300,000 and your house is only worth $275,000, any negotiation may not make sense. In many cases, bankruptcy might be their only option.
I review all options with clients and encourage clients to consider bankruptcy as their last option. Unfortunately, by the time people come to us their credit is already seriously tarnished. I have seen people try to avoid bankruptcy by working with creditors but have often seen that this unfortunately prolongs their issues and the creditors report negatively; thus, they have only succeeded in stretching out this issue of bad credit. From my perspective, bankruptcy appears to be the only method to, in effect, wipe the slate clean and start over. Unfortunately, or fortunately, depending on your perspective, it is often the first step in re-establishing good credit.
Initial Client Research
When first meeting with a client, I have standard questions that I ask that allow me to evaluate their situation. I am looking at both their property and their debts for potential issues. I must know if they have ever filed for bankruptcy before, because there are limitations on the timeframes between filings. Now, you can only file a Chapter 7 every eight years, and you are not eligible for a discharge under Chapter 13 for another four years after a previous Chapter 7 filing. I also ask how long they have been in the state of Colorado to determine which state's exemptions to apply. Bankruptcy candidates cannot shop jurisdictions; that is relocate and immediately file in a state that has more liberal exemptions than your resident state. If you just moved to Colorado from Texas and you are a bankruptcy candidate then I have to use the Texas state exemptions (the state that you lived in over the last two years) even though you are filing, and currently reside, in Colorado. That was one of the significant changes that came in under the new Bankruptcy Code of 2005. I inquire as to whether they have a tax liability, and if so, for what years and whether or not tax returns have been timely filed, as they all will help me determine if their situation is best handled by a Chapter 7 or a Chapter 13. In Colorado we must also consider whether or not tax refunds or exempt. This may determine timing of filing of the bankruptcy case.
Ultimately, I need to grasp a client's complete financial situation. I inquire about real and personal property values as I need to look at equity issues for exemption purposes. I ask about child support and maintenance obligations, student loan obligations, status of payments on real and personal property (houses and cars), and all unsecured debt such as credit cards, personal lines of credit, medical bills, utility bills, etc. I must also consider the amount of both secured and unsecured debts as there are debt limits in Chapter 13. I check to see if they are still using the credit cards and if they made any major purchases within the last ninety days. There may be issues if debtors are continuing to use their credit cards up to the date of filing or if they have made major purchases prior to filing. I may also consider their current circumstance to determine if there is any upcoming event that may lead them further into debt. As an example, if a client anticipates a major surgery, I may postpone the bankruptcy to see if insurance deems the condition a pre-existing condition and hence not cover it or if there is a significant co-pay. It doesn't make sense to file a Chapter 7 for a client and then have them incur an anticipated or unanticipated debt, as it may be, soon after filing. Thus, I calibrate the timing of filing issues to see if it makes sense to file now or wait for a more opportune time.
Obviously I consider any pending garnishments, foreclosures, and any other reason that I might need to file immediately. Timing is a major factor with clients looking to file at the end or beginning of the year, because tax refunds are a factor here in Colorado. Each state may be different, but in Colorado tax refunds are considered a non-exempt asset unless the refund results from an earned income credit component or an additional child tax credit. I typically look at their last year's tax return and inquire as to whether or not their circumstances have changed to help me anticipate any potential issues with respect to their tax refund. If the tax refunds are not from earned income credit or additional child tax credit and I file the case while the refund is pending, the debtor will have to turn over the refund to the Chapter 7 trustee as a non-exempt asset. The Chapter 7 trustee will then distribute the refund to participating creditors after notice.
For means tests purposes, I must also know the number of people in a household, the ages, and if they are dependents or adults, so I can determine the number of qualifying members of the household. Currently, due to recent economic circumstances, we see many kids over the age of majority who do not work and may not be qualifying members, even though they are a legitimate part of the household. The means test considers the income of the household, not just the debtor, over the six months leading up to filing. The income or expenses of the entire family unit will factor in to my evaluation.
The Means Test
The Bankruptcy Code, as revised in October, 2005, now has an "income qualifier" to be eligible for a Chapter 7 Bankruptcy. To make that determination, debtors, both husband and wife, whether or not they are both filing, must provide six months of pay stubs leading up to the filing. For example, for an individual filing in October, he/she must provide pay stubs ending through September 30th back through April. Even if a husband had a failed business, all the debt were in his name, and the bankruptcy will be filed in the husband's name only, I must still factor in the wife's six months of previous income. We calculate the average and reach an annualized income to see if they exceed the median income for families. The median income limits vary by state and change periodically. New income limits were effective October 1, 2008, so depending on the number in the household, every qualifying member of the household gets factored in.
Households under the median income for their size qualify for a Chapter 7.
The Means Test is a two-pronged test; if you exceed the median income based on the qualifying members in your household, then you must proceed to the second more detailed part of the test. Various deductions are available based on allowed expenses for housing, utilities, food, transportation, etc. The allowed amounts for these expenses have been derived by the collection standards devised by the IRS and as such, seldom approximate actual expenses. Nevertheless, it is what we are required to use. You can deduct out your secured payments and priority debts, which are typically tax obligations that are not eligible for discharge, and child support payments. After we calculate the more detailed means test, there is a second determination. If after deducting all allowable expenses, there is still disposable income available, it is deemed that there is a "presumption of abuse" in the filing and the debtor is ineligible for a Chapter 7 bankruptcy.
If it is determined that there is a "presumption of abuse", i.e., the client fails the means test, I must decide, in consult with the client, whether to prepare to defend the Chapter 7 filing against this presumption of abuse or to file the case as a Chapter 13. If I decide to proceed with the Chapter 7 I must anticipate that the U.S. Trustee will request further documentation to review the case. The additional documents vary case by case. They might ask to look at pay stubs beyond the six months, pay stubs since filing, two years' tax returns and other documents depending on the situation. A couple I recently helped did not meet the first test because their income exceeded the median income based on their household size. But because they were real estate investors and owned several pieces of real estate, we categorized them as a business Chapter 7 bankruptcy as business bankruptcies are exempt from the means test. Despite the designation of a business bankruptcy, after filing we still had to substantiate their business status to the U.S. Trustee's office. In their review of the case, the Trustee's office asked to see 401K statements, expense explanations, lease obligations, mortgage statements associated with the rental properties, and various other documents that substantiated their case.
Since the couple had separated just prior to filing, the Trustee's office also wanted documentation substantiating the status of their marriage, ie. they had to provide a copy of any divorce proceedings pending with the court, or provide an explanation of their current circumstances. Thus, Chapter 7's have become far more complicated due to the means test and the issues that may arise as a result. In this particular case, once they reviewed our additional documentation, they agreed with our analysis and withdrew their review, and let the case stand as a Chapter 7. The Debtors will proceed to a discharge of their debts.
Some cases are clearly Chapter 7 or 13, but others fall in the middle. In those cases we must weigh which approach is better, because Chapter 7s suffer far more scrutiny and the outcome is harder to predict than a 13. Some clients have converted to a 13 to simply avoid the hassle. For those clients that are borderline, I ensure that they understand that we may end up converting their case to a Chapter 13 simply because of means test issues. I have to consider the likelihood of success in proceeding with Chapter 7 and the cost, both financial and emotional, in doing so. I work closely with clients in making this determination and have to make sure if they decide to proceed with Chapter 7, that their documentation to support the filing is in order. If not, then I will recommend a Chapter 13.
Steering the Course
It happens infrequently, but sometimes after review, the U.S. Trustee's office will still determine that there is a "presumption of abuse" in the Chapter 7 filing and will file a Motion to Dismiss the case on those grounds. If the U.S. Trustee's office files a Motion to Dismiss a Chapter 7 case because they have determined that there is a presumption of abuse, we have the option of converting the case to a Chapter 13 as a means to move forward or may also proceed to hearing before the assigned Judge for the Judge to make a determination. One specific case in my office met with such resistance. After the Motion was filed, we arranged a meeting with the U.S. Trustee because we felt we had additional information that had not been adequately explained by the client in the first instance. We provided additional information in a face to face meeting. The U.S. Trustees' office accepted and reviewed the additional information and documents and ultimately allowed the case to go through as a Chapter 7. Less than 5 percent of the cases we file have been converted to 13s due to means test issues, and I have not had any cases that have been dismissed.
The means test always creates challenges as we develop a case as the means test provides information more from a historical perspective, because it is based on income six months prior to filing. It doesn't always reflect current or future income and expenses. Schedules I (Income Schedule) or J (Expense Schedule) speak to clients' current and/or anticipated financial pictures. We are usually trying to reconcile those two perspectives: what happened then and what is happening now? The Means Test doesn't always paint a complete and accurate picture of what has happened in the last six months, what is happening now, and what is happening going forward.
Trends
Foreclosures and taxes have typically driven people to seek Chapter 13 protection. We were filing 13s to help people pay non-dischargeable taxes (tax liabilities that are too recent to be written off), to help people make up past-due mortgage payment and car payments. We were also able to do a cram down under Chapter 13, but now there is a limitation on cram downs and on vehicles in Chapter 13s. We previously had a little more flexibility in 13s, but some of that was taken away under the revision of the bankruptcy code in 2005.
The biggest and most recent trend in Chapter 7s is people walking away from their houses because of declining house values. Because of adjustable rate mortgages and lenders not willing to work with their clients, more and more people are resigning themselves to walk away. The whole mortgage foreclosure debacle has driven this huge trend in people walking away from their mortgages as opposed to trying to keep their house. If a client is $50,000 under value on their house they often do not want to keep their house, even if they could.
Benefits and Process
Obviously, the immediate benefit of bankruptcy is the debt relief. Unfortunately, credit has been so easy for people to obtain over the last few years that it is the source of payment for many people's living expenses, such as groceries and prescription medicines. It is not uncommon to see people coming in with $20,000 to $60,000 in credit card debt. If people have had foreclosures, it is not uncommon for them to have outstanding balances on both their first and second mortgages, usually in insurmountable amounts. Often bankruptcy is the first step in reestablishing good credit if you have prior bad credit.
There are downsides to bankruptcy, however. Creditors can report the bankruptcy for seven to ten years from the date of discharge. The Chapter 7 process takes about three to four months from the time we file, and only then you can start building good credit. In a Chapter 13 your minimum repayment period could be thirty six months or as long as sixty months, and you do not actually get a discharge until you complete your payment term.
Both Chapter 7 and Chapter 13 have a credit counseling component as well, implemented in 2005. The Bankruptcy Code requires you to complete a pre-filing credit counseling class to review your financial situation, presumably to determine if there is an alternative to bankruptcy. The debtor is also required to complete a post-filing Financial Management course.
That first counseling session is similar to what I do in my initial intake; they calculate income, expenses, amount of debt, and search for possible alternatives such as credit counseling or a debt repayment plan. I cannot file a case without a credit counseling certificate. The case will be dismissed summarily if I do not have a valid and current credit counseling certificate, completed within one hundred and eighty days prior to filing of the case.
I prepare the bankruptcy petition based on the information I get from the client about their income, expenses, and debts. As part of my due diligence, I pull three credit reports and compare and supplement with information provided by the client. Part of helping the client to reestablish credit is to ensure that whatever is reporting on their credit report is also reported on their bankruptcy petition. That is going to help them reestablish credit after they get their discharge. When I have completed the petition, I meet with client for a face-to-face meeting to review and sign the petition. I confirm that they have done their credit counseling and we then file the case.
After the filing the client must attend a Creditors' Meeting. Clients and creditors get their notices simultaneously, about one week to ten days after we file their case. The Bankruptcy Court sends out the notices to the client and creditors as part of the filing fee. About five weeks after we file their case we have to attend the creditors meeting. All the creditors are given notice of the creditors' meeting, although in my experience very few creditors actually appear. I always tell my clients the only creditors I ever see appear are ex-spouses and ex-business partners. Credit card companies, mortgage companies, and car lien holders almost never appear. This meeting is an opportunity for creditors to ask questions and, if they appear, they make the same inquiry that the trustee is asking. Are the schedules true and correct? Did they list all of their assets? Are all the debts listed? As long as you are truthful, honest, and have not committed any fraud in incurring the debt, the client is going to get a discharge. They will forever be protected against any collection efforts as discharged creditors are barred from ever collecting the debt.
Once the case has been filed, the client must complete their second credit counseling class, the Financial Management Course (FMC). The FMC must be filed after the creditors meeting but within 45 days of the date of the creditors meeting. The FMC explains basic financial and financing terms and lease terms, and helps the debtor become a more informed consumer when it comes to financial transactions. This second class is a little more involved than the first and takes a little longer and it does require that the debtor take a short graded test based on a booklet mailed to them. The good news is that I have not had a client fail yet! A client is not eligible to receive a discharge unless they have completed the Financial Management course and filed it with the court. If the client fails to either complete the course or fails to file it with the court in a timely manner, the case will be closed without the client obtaining a discharge.
The Chapter 13 process is essentially the same to this point, except that the debtor's first payment will commence 30 days after the filing of the case and will continue with monthly payments for 36 to 60 months depending on the terms and duration of the plan. There is a subsequent Confirmation Hearing which will take place where the Judge determines if the case is filed in "good faith" and any/all objections filed by the Chapter 13 or creditors have been resolved or ruled on. Upon confirmation or approval by the Court, the Chapter 13 Trustee's office disperses payments to the creditors in accordance with the terms of the plan. The debtor is not eligible for discharge until they have completed the repayment plan and completed their financial management class. If the debtor has a child support or maintenance obligation, he must also affirm that such obligation is current to obtain a discharge, in either Chapter 7 or Chapter 13.
Documentation
The information I use when preparing the petition is only as good as the information I get from the client, so I give the client a checklist and place the responsibility back on the client. We spend a fair amount of time with clients and the joint effort is crucial. It is part of my due diligence to unearth all data. I rely both on credit reports and information provided by the client as not everything shows up on credit reports. I often have to refer to county records provided online or valuation websites such as NADA, Kelley Blue Book, Zillow for real estate values, etc. We share the responsibility with the client in making sure that I am getting the information I need. This is probably where we spend a great deal of time in dealing with clients.
Pay stubs seem to be our biggest headache as most people do not keep them. Collecting six months worth of pay stubs for both the husband and wife (whether it is a joint filing or an individual filing) is a lengthy and arduous process. Tax returns are easy to get and most people keep that paperwork. If a collection has been turned over to an attorney or collection agency, I want those notices as well as the last 60 days of billing statements from all creditors. I try to list any and all additional parties for notice and discharge purposes as well as to ensure that creditors do not continue to keep harassing the client.
Clients expect different things during the filing process. If they have a garnishment in process then timeliness is important as we can file a bankruptcy, Chapter 7 or Chapter 13 to stop a garnishment. If a client has a foreclosure and they want to keep their house, we have to file the Chapter 13 before the foreclosure sale. (Chapter 7 will only delay a foreclosure). Clients want to know we are monitoring their important dates. Client communication is also very important. Clients want to make sure that we can meet deadlines, answer questions, deal with creditors, and get notices out appropriately. They want an attorney that is knowledgeable, personable, sympathetic, and empathetic. I think most people are probably embarrassed to be in this situation and so I think one thing that I always strive is that we never pass judgment of a client's past or present financial decisions. In my experience most filings are due to circumstances outside the debtor's control and not mismanagement.
Especially due to the current mortgage crisis, we are seeing people from all walks of life in bankruptcy. Even more financially and educationally sophisticated people got caught up in the mortgage frenzy. These clients and process require more time and attention as the bankruptcy practice of law has become much more complex. Thus, communication, accuracy, organization, timeliness, the setting of reasonable expectations, and some level of sympathy build strong attorney/client relationships. I strive to be straight-forward in my advice and let people know up-front of any potential problems and what to expect from start to finish. To assist me in this endeavor, I have developed checklists, organizational systems, and written and verbal communications to expedite the preparation and filing process in a competent manner.
Bankruptcy is an emotional situation and it is not unusual to see clients go into depression over it. They are often not organized, and they have been so bogged down by it that they literally bury their head in the sand. Checklists are helpful by focusing clients and outlining their current obligations. I also structure my fee arrangement in a beneficial way. I usually get a deposit upfront and immediately they can start referring their creditors over to me. Creditor harassment is the most distressing part of debt, with phone calls at home and at work. People tell me they do not even answer their phone, but after the initial deposit they see immediate improvement in their quality of life, because they can answer the phone again. Under the Fair Debt Collections Protections Act once a creditor has been advised that the client is represented by an attorney, direct communications with the client must cease. Once the calls stop, clients' heads clear, and they can start thinking a little more clearly. The typical clients can function more easily with this first burden lifted from them and they are better prepared to participate in the preparation and filing of their case.
Clients must complete a bankruptcy organizer that I provide them once I am retained. In this organizer they list their income, property and debt information. I frequently advise clients to stop making payments on their unsecured debts and secured debts if they will not be keeping their house and/or car.
My clients are armed with a definite plan because I lay everything out with them very clearly at the initial consultation. I give them a good overview of the whole process. Once I am retained I advise them from one step to the next step until completion of the case.
Closing Advice
I think most importantly you have to be organized, as the paperwork is voluminous, particularly post-reform. Under the revised Code, I am responsible to review a lot more documentation in substantiating the information contained in the petition. There are now more deadlines to keep track of, some with dire consequences if they are missed. Organization is key!
New attorneys must also be strong and confident when asking for payment, and this is probably the biggest fear I see. I portray a level of confidence and competence, and in bankruptcy that is what people want. Clients gain confidence in your abilities and see that you are worth the money. I tell them they are putting their financial future in my hands, and that is a big deal. I set up specific parameters for payment and bill on a monthly basis leading up to filing. Law school neglects the business component of running a law practice and that is just as critical as good service when it comes to survival.
So you must be organized, confidently ask for money, and do not forget that in the end we are dealing with people, families, and businesses in a very stressful situation. If you maintain a sympathetic and empathetic quality with clients and still do a good job and remain competent to the court, you will succeed.
