Attorney Molina Bankruptcy Talk: September 2011

Friday, September 30, 2011

Bennding Bankruptcy Exemptions (Part II)

In the previous installment, we discussed the 8th Circuit's Benn decision which began a sea change in Missouri bankruptcy exemptions.

To see how Benn's unusual opinion created uncertainty in Missouri bankruptcies, one need look no further than our state teacher pension plans. Prior to 2010, almost no one seriously imagined a state employee's pension plan would be unprotected in bankruptcy. Well-established pensions are like battleships, with layer after layer of armor protecting them from creditors typically. And no single attack can get through.

In Missouri the pension plan law itself provides protection:

Neither the funds belonging to the retirement system nor any benefit accrued or accruing to any person…shall be subject to execution, garnishment, attachment or any other process whatsoever, nor shall they be assignable…. (169.090 RSMo.)

Yet Bankruptcy Judge Arthur Federman of the Western District of Missouri applied Bennand found Missouri's laws wanting. He reasoned Benn's reading of the Bankruptcy Code command that the state's lawmakers use precise language — "magic words" in lawyer parlance — in order for a law to be an exemption in bankruptcy cases.

Benn said:

"Exemption" is a term of art in bankruptcy, and we agree with the dissenting judge of the BAP that "[w]hile exemption may mean different things in different contexts, in the context of Sec. 522, it refers to laws enacted by the legislative branch which explicitly identify property [that] judgment-debtors can keep away from creditors for reasons of public policy. (Benn at 814)

It is interesting to note however that the Bankruptcy Code itself does not actually define the word "exemption" but only defines how (and from what sources of law) a debtor may "exempt" property from the estate.

Judge Federman's In re Nathan Smith opinion argues that the legislature enacted specific exemption laws for other pension plans but the teacher pension at issue did not use the magic word "exempt." And further the judge could find no legislative history to indicate the Missouri General Assembly intended to protect the pensions in bankruptcy cases. (The lack of evidence is not surprising as the Missouri legislature does not maintain legislative history, though.)

Before any Missouri teacher panics, even Judge Federman acknowledges in a final footnote that there are other means than the statute at issue to preserve the pension in bankruptcy. But he did expand on the dictum in the Benn decision and conclude that Missouri in fact does have a separate system of protections for consumers, inside or outside of bankruptcy, because the 8th Circuit "was quite clear that, in order to create an exemption in bankruptcy, the Missouri legislature must use that word [exemption]."

So prior to Benn, the laws of exemptions had generally been interpreted expansively to benefit the debtor because bankruptcy is considered a remedial process to help debtors obtain a fresh start. Indeed, prior to Benn, this same statute had been upheld as a bankruptcy exemption in In re Olson, 108 B.R. 232 (Bankr.W.D.Mo. 1989). Indeed, the ruling seems to presuppose that the pension plan was even property of the estate, which seems unlikely under the Supreme Court's 1992 Patterson v. Shumate decision.

Yet after Benn, the law of exemption became a narrowly-defined process. In the next installment, we'll discuss other issues created and then how things may recover in the future. By Wendell Sherk

For more information on these matters, please call our office at 305 548 5020.

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Thursday, September 29, 2011

Means Test and Attorney Fees

I wrote about attorney fees as a means test deduction some time ago. BAPCPA's provision, codified at section 707(a)(2)(A)(iv) of the Bankruptcy Code, says that priority claims are deducted from income. Priority claims include a Chapter 13 debtor's counsel's fees. See sections 507(2), 503(b)(2), and 330(a)(4)(B). Therefore, our attorney fees are a means test deduction.

Oddly, the Means Test form B22C does not have a line for deducting our fees. TheOfficial Forms Committee, at Page 17 of its report on its new forms, said that none was needed.

"The Chapter 13 form does not provide a deduction from disposable income for the
Chapter 13 debtor's anticipated attorney fees. No specific statutory allowance for such a
deduction exists, and none appears necessary. Section 1325(b)(1)(B) requires that disposable income contributed to a Chapter 13 plan be used to pay "unsecured creditors." A debtor's attorney who has not taken a security interest in the debtor's property is an unsecured creditor who may be paid from disposable income."

Thus the form has no place to deduct attorney fees. See the means test form for Chapter 13, B22C, at Line 49 which is limited to prepetition priority claims, and also at Line 50 which limits deductible administrative expenses only to the Chapter 13 trustee's commission. I question whether the form complies with section 707(a)(2)(A)(iv), but perhaps it makes no difference. The fees get paid from B22C's bottom line, the projected disposable monthly income.

Some attorneys shoe-horn in a deduction for their Chapter 13 fees onto B22C. This will comply with section 707(a)(2)(A)(iv) even if it violates the form. Then, an argument would go, the fees are still unsecured claims which share in the resulting projected disposable monthly income under section 1325(b)(1)(B).

Astute readers will see that this is double-dipping a deduction for attorney fees, although it is a sound conclusion from the clear statutory text.

It won't fly. At least, it hasn't flown in the two cases I've seen. In re Wilbur, 344 B.R. 650 (Bankr. D. Utah 2006); In re Alexander, 344 B.R. 742 (Bankr. E.D. N.C. 2006). This plain reading would reach an absurd result contrary to Congress' manifest intent.

In the Chapter 7 context for above median debtors, I believe that the shoe-horn approach to insert priority anticipated Chapter 13 attorney fees in the Chapter 7 means test form B22A is not only lawful but it can be an important benefit to the debtor if it leads to zero disposable income and the absence of a presumption of abuse.

(Lines 44 and 45 of the Chapter 7 means test form B22A parallels Lines 49 and 50 of theChapter 13 means text form, B22C. I believe that neither form comply with the required deduction for priority claims of 707(a)(2)(A)(iv) . )

By, L. Jed Berliner

Wednesday, September 28, 2011

Can I Go to Jail For Not Paying My Bills?

Yup.

Scared? Well, it just not so simple as that, so don't believe the collectors when they call and say they will have you arrested and put in jail for not paying a debt. While it is possible, there are a lot of safeguards for consumers in financial trouble.

Let's start with the basics. Debtor's Prison is jail time for failing to pay a bill. There is a famous line in the Charles Dickens' story, A Christmas Carol, as he is asked for a donation to the poor and he retorts. "Are there no prisons? Are there no workhouses?" If you did not pay your bills, you could be sentenced to prison or to a factory to work off your debt. Even Dickens' family ended up there for a while. The United States and most individual states outlawed the practice in the early 1800′s.

So, if its illegal, how can I go to jail for not paying my bills? Easy, ignore a court order. When a creditor sues you, the court will order that you pay the bill most times in weekly installments. The Judges recognize that you probably don't have the money to pay it all at once. But beware, most judgments do carry interest at various rates set by rule or statute. If you don't pay the installments, the Court won't order you to jail, but it will give the creditor some power to pursue your assets. This can come in various forms such as a lien on your home, a pay garnishment, an attachment of your bank account or some other seizure of your property. If you have nothing to seize, no worries; still no jail time.

The final step in frustration for the creditor who has a judgment is to subpoena you to an examination to see what they can recover from you. This is where you get into trouble. Ignore that subpoena and no you are in contempt of court. You are ignoring a judge's order to appear and that IS punishable by jail time and sometimes a hefty bail bond.

Now if you file for bankruptcy first, the Federal Bankruptcy system preempts the state court system and you've avoided going to jail. You can think of bankruptcy as a 'Get Out of Jail free' card. By, Eugene S. Melchionne.

For more information on these matters, please call our office at 305 548 5020.

Tuesday, September 27, 2011

Bankruptcy and Identity Theft: Protect Your Confidential Data

Bankruptcy and identity theft? How can this be an issue if someone is discharging debt? There are debtors who file for bankruptcy protection due to someone having stolen their identity. There are bankruptcy debtors whose identity is stolen and the thief files for bankruptcy. Then, there are those folks who worry about their identity being stolen while in bankruptcy due to creditor's who treat confidential information casually. When creditors release confidential data in public records, identity theft risk increases dramatically. What can the average person do to protect themselves, whether in or out of bankruptcy court?

In the September 2011 issue of Money, Ann Carrns provided excellent steps that could be taken by the average person to protect their identity from being stolen in her article, "Defend Your Data After a Breach." Ms. Carrns pointed out that the Privacy Rights Clearinghouse had tracked 313 corporate breaches of data by hackers or by compromising confidential information by the corporation — during the first 8 months of 2011. While only 4% of Americans have been the victims of identity theft, Ms. Carrns reports that when a breach is involved, that statistic jumps to 17%, or nearly 1 in 5 persons.

Ms. Carrns recommends the following if you are notified of a breach in your personal confidential data:

1. Password. If your password is compromised, change it immediately. Make each account's password unique.

2. E-mail Address: The main risk is phishing attempts — where an email purportedly from one of your creditors asks for a response which provides confidential information or other data. If you are suspicious of any email, call the creditor or company instead of responding to the email.

3. Credit Card number: Monitor your accounts. If you are notified of a breach by a credit card company, ask for a new account number and card.

4. Debit or Bank Information: If your debit card number is compromised, cancel that card and cancel the PIN. If the account number is compromised, close the account and open another with a new number. Ms. Carrns suggests asking for a flag to be put on the account for a verbal password.

5. Brokerage Account Information: If account number is exposed, close that account and get another with a new number.

6. Social Security Number: Get a fraud alert on your credit report to let lenders know to request additional information if any new account is attempted to be opened. A regular fraud alert will last for 90 days and can be renewed. A more rigid alert, a "security freeze" prevents anyone from opening any new account (even you). The freeze has to be removed in order to open a new account. There is a fee for a security freeze.

7. Credit Report Monitoring. If any of the above breaches happen, you may be offered free credit report monitoring. There are services that also provide this service for a fee. At the very least, you should obtain a copy each year of your credit report. You are entitled to one free copy each year, available at www.annualcreditreport.com.

As my colleague, David Leibowitz' article on this site states, redaction is the answer. If you receive notice that your confidential information has been released in a document filed in the bankruptcy court, consider taking the steps outlined by Ms. Carrns to protect yourself from future identity theft problems. By, Karen Oakes

For more information on these matters, please call our office at 305 548 5020.

Monday, September 26, 2011

Benn And The Tax Refund Exemption In Bankruptcy

Sometimes a strategy causes more harm than good. Many long-accepted Missouri bankruptcyexemptions have become uncertain or been lost due to one such case. This is the story of how one strategy blew up to create dangerous uncertainty for consumers.

Bankruptcy exemptions dictate what stuff is protected from a bankruptcy trustee. As allowed by federal law, Missouri has"opted out" and require debtors to use only its bankruptcy exemptions when they file.

In most places, the "opt out" is a simple law. And Missouri's "opt out" simply says a debtor can protect "any property that is exempt from attachment and execution under the law of the state of Missouri…"

This language seems simple and caused no trouble for over 25 years when it came to Missouri bankruptcy exemptions. But some felt that "exempt from attachment and execution" meant any property that could not be attacked via the exact technical process of "attachment and execution."

Specifically, income tax refunds not yet received because a creditor cannot "attach" a tax refund in Missouri — even though some creditors could get at them in other ways.

The reading, if it prevailed, would benefit consumers when determining their bankruptcy exemptions. But the strategy would allow attorneys to file cases in Missouri without any concern about large tax refunds coming in soon. That in turn would streamline bankruptcy practice and avoid a major exemption issue we all deal with each Winter and Spring.

It would also take a regular source of assets away, frustrating bankruptcy trustees and creditors alike.

Ultimately the question reached the federal Eighth Circuit Court of Appeals in In re Benn in 2007. The circuit concluded that the bankruptcy exemptions could not be used to protect tax refunds under the "opt out" law, Sec. 513.427 RSMo.

In essence, the circuit reasoned that the words "from attachment and execution" should not be read separately from the word "exemption." Reading it as a whole, it implied that the "opt out" law requires a separate Missouri law that would protect the property. Essentially, "exempt" was crucial while "attachment and execution" was not.

This was actually the prevailing wisdom concerning bankruptcy exemptions. Unfortunately, the Benn court went on to reach additional conclusions — which seems to be dicta — that played havoc in consumer Missouri bankruptcy cases ever since. It is not clear the implications of the additional Benn comments were intended, though. For example, Benn says

[The opt out law] does not create an exemption for tax refunds, and no other Missouri statute or non-bankruptcy federal exemption statute permits a debtor to exempt tax refunds from the bankruptcy estate.

Missouri does provide "wildcards" (e.g. 513.430.1(3) RSMo.) which are bankruptcy exemptions for any property the consumer chooses and has always been allowed for refunds. Yet a literal reading of this Benn dictum means the Missouri wildcards have been struck down (at least as used for refunds).

It's clear Benn did not really intend to disallow exemption wildcards. And no bankruptcy court has so ruled as yet. But a strict obedience to every phrase in Benn would result in no exemption for any tax refund in the future. And some courts have gone some way down this road in following other Benn dicta, as we will see in the next installment. By Wendell Sherk

For more information on these matters, please call our office at 305 548 5020.

Thursday, September 22, 2011

No Mo’ DOMA? Don’t Know! Can Same Sex Couples File Bankruptcy? Go for it.

The Defense of Marriage Act [DOMA] , 1 U.S.C. 7, defines the word spouse in federal law to only include a person of the opposite sex. DOMA has been cited to preclude same sex married couples or couples joined by same sex civil unions from jointly filing bankruptcy. A February 23, 2011 order from President Barack Obama prevents the Justice Department from enforcing this law and now clouds the issue. Same sex couples might now be permitted to file bankruptcy. At least they should try.

The Justice Department of the United States of America, which oversees federal bankruptcy cases through its U.S. Trustee Program, vigorously defends DOMA against same sex couples filing bankruptcy and against constitutionality arguments. Or at least it did until President Obama instructed the Justice Department to end that practice.

Laws regarding marriage are generally determined by states, however, DOMA prevented federal recognition of state authorized same sex marriages. Does this mean same sex couples can file bankruptcy? No, not necessarily. DOMA remains on the books and Courts are free to uphold and apply the restrictive definition of an opposite sex 'spouse' to existing cases. Also nothing prohibits creditors from raising the issue. The test or death of DOMA may soon occur as federal courts in three states, Connecticut, Massachusetts and New York, are considering the constitutionality of DOMA in various cases, now without opposition from the Justice Department.

With the US Department of Justice out of the way, will same sex couples enjoy unfettered access to courts or will a cottage industry of creditors spring up to defend DOMA for moral reasons? Time will tell, but the time is now for same sex married couples, and those joined under state civil unions, to seek equal treatment under bankruptcy law.

See Same Sex Marriages and Bankruptcy: A Benefit for a contra discussion of the benefit of not filing jointly.

by Andy Miofsky

For more infromation on these matters , please call our office at 305 548 5020.

Wednesday, September 21, 2011

Bankruptcy Might Get Your Car Back, But Why Wait?

Bankruptcy may be able to get a car back that has been picked up by the Sheriff to sell to pay on a judgment claim, but it would be better not to wait until you see your car (or other property) being taken away to call a lawyer. You might be able to do something to save it, but your options and time are limited.

"Hello, do you represent people in bankruptcy? Could it help get back a car from the Sheriff who took it because of a credit card?

That was the point of the call I just got from a shocked person who had just watched the Sheriff take away a car, and from those few words I knew that someone

1) had not paid a credit card

2) had not made arrangements with the creditor

3) had [probably] ignored a lawsuit

4) had [most likely] ignored a notice to claim exemptions which would [likely] have protected the car from this creditor and

5) had never consulted a lawyer or at least investigated on the internet what happens when you ignore a judgment.

Many people think that credit cards can't hurt them or affect their property, but once someone is sued and the creditor gets a judgment, all property from cars, personal property and even homes can be taken if the borrower doesn't take action to protect themselves.

This debtor has to see someone NOW. If bankruptcy can help, doing everything needed to file for emergency bankruptcy at the last minute can be difficult. Bankruptcy can be filed within 24 hours, but it isn't easy. It just isn't something that you want to be forced to rush into.

You might not be able to find a lawyer to take your case at the last minute, it might be hard to pay your bankruptcy lawyer, or you might not be able to get the information needed to prepare your documents on such short notice. Not only do you have to find a lawyer who has an open appointment to see you right away, but paperwork which is complicated has to be prepared.

It can be unnerving to rush through a legal process without time to digest the implications of the process. Your choice of lawyers will be limited to those who can see you right away. While you may be able to find a good lawyer at the last minute, many experienced attorneys are booked days or weeks in advance. If you find yourself facing an emergency situation, try to find a good experienced attorney but better yet, don't wait until you are up against a wall to deal with financial problems.

Yes, a credit card creditor can have your property, your car or your house sold. Don't ignore lawsuits or you may find yourself watching your car being taken away.

For more information on these matters please call our office at 305 548 5020.

Tuesday, September 20, 2011

Engineer A Prison Break With Chapter 13

by Cathy Moran

Anti debtor attitudes in the "reformed" bankruptcy law make Chapter 13 resemble debtor's prison, claims my BLN colleague Carmen Dellutri. Let me counter thatbeing in debt is itself debtor's prison, and if the escape route out of debt has some rough spots, it's still better to end up debt-free throughChapter 13.

As a society, we provide a legal means to walk away from debts in the form of bankruptcy because we believe that the society is better off if debtors can start over, financially. People have an incentive to work; we don't drive the indebted into an underground economy.

The supposed bankruptcy "reform" act is a Congressional expression of hostility to those in debt and the lawyers who help them, without doubt. And how that hostility plays out in bankruptcy courtrooms across the country varies widely.

The atmosphere in the Northern California bankruptcy courts where I practice is not nearly as pinched and extractive as the atmosphere that Carmen describes. Here, the debtor usually keeps any increase in income he experiences during the life of the plan.

Even if my Chapter 13 trustees chased the debtor for every penny of improvement in their income during the plan, I'd still be advising clients to file Chapter 13. Remaining in debt is a virtual life sentence. Take a look at my analysis of how long it takes to retire a modest amount of credit card debt by making minimum payments: 37.5 years!

Suppose you could devote more than minimum payments to paying off your debt and you shortened the time it took to become debt-free in half. That's still more than 18 years, years in which you probably save nothing for retirement, short your emergency fund, and sentence your kids to crippling student loans if they want to go to college.

Being in debt is extremely stressful and stress is deadly. A Chapter 13 plan provides certainty and the protection of the bankruptcy court while the debtor with some disposable income makes payments to some fraction of his debt. The debtor can relax and focus on family and work. The plan is completed in 3 to 5 years.

What is required to be paid to the plan is the money that is left after a basic budget. My experience with families trying to pay off their debts outside of bankruptcy is that they make terrible choices about which creditor to pay first, shorting the taxing authorities to pay the unsecured credit cards because the credit card collectors call multiple times a day. That doesn't happen in Chapter 13, where the debtor writes the plan, within the statutory rules, and the support and tax claims get paid first, before consumer debts.

Carmen has it right that too much of the change in the law is mean spirited and without compassion or perspective on the consequences of discouraging bankruptcy relief. People get into debt for a variety of reasons, some by bad judgment and others by bad luck. The recession around us wasn't caused by any action of an individual, yet individuals are among its chief victims.

But the fact that the operation of Chapter 13 in some locales is less than optimal should not blind us to the positives of using the law to escape perpetual economic servitude.

For more information on these matters, please call our office at 305 548 5020.

Monday, September 19, 2011

Bankruptcy Petition Preparers: A Really Bad Idea

Bankruptcy Petition Preparers. Should you hire one?

Let's face it. Folks with financial problems aren't exactly flush with cash.

So it's tempting to cut corners in purchasing legal advice and to opt for the services of a bankruptcy petition preparer. But as with most things, you get what you pay for.

Preparers really can't–at least if they follow the law–do much of anything except serve as data entry clerks.

Most notably, they can't:

Give legal advice–including advising debtors whether to file or what chapter to file; or
Advise debtors about what exemptions to claim (state, federal, or what state's exemptions apply).

They're also subject to state unauthorized practice of law statutes. As the U.S. Trustee's office states, "bankruptcy petition preparers can only type documents and must charge a reasonable fee." And you're supposed to tell them what to type!

Section 110 of the Bankruptcy Code is devoted to them, the problems they cause, and what you can do if you're harmed by one to get compensation for your damages–assuming, of course you can find the preparer and he's collectible.

Interestingly, courts set a very low value on the services of petition preparers. The Bankruptcy Court for the Eastern District of Michigan limits a preparer from charging more than $100 without filing a request with the court. Likewise, the Northern District of California limits preparer fees to $150, along with publishing guidelines specifying what a petition preparer may and may not do. Numerous other courts have also limited compensation to similar nominal amounts. Courts, therefore, don't place much value on the services of bankruptcy petition preparers. And bankruptcy judges have first hand knowledge of the quality and value of bankruptcy petition preparers work.

The United State Trustee's Office frequently takes action against preparers. Preparers are unlicensed, unregulated, uninsured and are often the subject of U.S. Trusteeenforcement action. For one example, read Craig Andresen's post entitled, "Bankruptcy Petition Preparer Slammed by New Mexico Bankruptcy Court."

Hiring a Bankruptcy Petition Preparer is a Really Bad Idea

I've been licensed as an attorney now for 18 years, and I've practiced law for 16 years. (I worked as a judicial law clerk for the first two years.) I'm licensed in two states, and, because of the strict requirements of the state in which I practice now–South Carolina–I had to take the full bar exam (multistate, federal, and professional responsibility) and attend a three-day "Bridge the Gap" course prior to being admitted. All this followed ten years of practicing law in Michigan, which, in turn, followed seven years of higher education–three of which were solely dedicated to the study of law.

Throughout my career, I've done a substantial amount of family law, criminal defense, and litigation. I've also practiced bankruptcy law throughout my career and now solely practice in that area. Bankruptcy law is–by far–the most legally complicated area of law in which I've practiced. This is compounded by the bankruptcy "reform" act passed in 2005. The law is poorly written–perhaps the most poorly written statute ever passed by Congress–and, consequently, is applied very differently from bankruptcy district to bankruptcy district and even sometimes differently by judges within the same district. Bankruptcy law is complicated–very complicated.

Think About This

You stand the to gain the most from filing bankruptcy, not your lawyer, your trustee, or your bankruptcy judge. (See "Bankruptcy Clients Make More than Bankruptcy Judges and Lawyers.") Clients I see are discharging substantial sums of debt–most hundreds of thousands–some millions. The real benefit goes to the client. And even if you only have $20,000 of debt you're discharging, getting rid of that debt is a huge relief. Why hire a bankruptcy petition preparer who isn't qualified to give you legal advice and who answers to no one? Why try to save $1,000-$3,000 on legal fees (in most cases) when you're trying to discharge many many times more than this in debt? It makes no sense.

Hiring a bankruptcy petition preparer is a really bad idea. And it's not a cost-effective use of your hard-earned money. Instead, hire an experienced bankruptcy lawyer to guide you through the process.

By,Russel A. DeMott

For more information on these matters, please call our office at 305 548 5020.

Sunday, September 18, 2011

Bankruptcy and Divorce

All too often money problems lead to divorce. So it's normal that a bankruptcy (or two) will be part of the picture.

Should you file bankruptcy first, or wait until the divorce is filed or concluded? A good question. The answer depends entirely on where you live and what issues need to be resolved in the divorce.

A married couple, even if they aren't living together, can file for bankruptcy together. After the divorce, they can no longer file together, so two cases might need to be filed. Thus, you can save a filing fee if you file before the divorce. But, and this is a big but, you can't expect to maintain a Chapter 13 bankruptcy if you are divorced and you should be aware of a number of issues that could adversely affect one of the spouses in a bankruptcy. So, it's best to talk to a competent bankruptcy attorney and be completely honest about the domestic situation before filing. And, you might find that the bankruptcy attorney, upon learning that a divorce is imminent, won't represent both of you, because of the potential conflict of interest.

Additionally, if you are still living together, even if the divorce is imminent, the income of both spouses, at least to some extent, will need to be included in the calculation of themeans test to determine if a Chapter 7 bankruptcy is a viable alternative. So, if the combined income is too much, it might be better to wait until you have separated before filing bankruptcy.

Generally, there are three things that get sorted out in a divorce: property division; child custody; and spousal and child support. (Spousal support is also called "alimony.") The automatic stay in bankruptcy will stop any property division but won't stop the determination of child custody or the payment of child or spousal support. Thus, if you file for bankruptcy before the property is fully divided up, that process will go on hold for a while. Since the determination of property rights includes the payment of debts, the bankruptcy will often help resolve some of those issues.

If your marriage is breaking up, it might be nice to clean up your debts too and get a true fresh start.

by Douglas Jacobs

For more information on these matters, please call our office at 305 548 5020.

Friday, September 16, 2011

Converting a Chapter 13 to a Chapter 7

The decision of whether to convert a Chapter 13bankruptcy case to a Chapter 7 bankruptcy case is not simple. There are many, many reasons why people convert their Chapter 13 to a Chapter 7. Once your case is converted, you may be concerned that you might lose your house or a car. You may be concerned about the effect of the conversion on your credit. You want to know whether you will have to pay additional legal fees for the conversion. You may simply want to know what is involved when you convert your case. This blog will give you at least some of the answers to your questions.

When Can I Convert My Case? Section 1307(a) of the Bankruptcy Code says that, assuming you haven't previously converted your case from another chapter and are eligible for a Chapter 7, you can convert a Chapter 13 case to a Chapter 7 case at an time, for any reason. Assuming you qualify, this is an absolute right, and there are no restrictions.

Why Would I Want to Convert My Case? There are many, many reasons why people convert their Chapter 13 to a Chapter 7. Some common ones are:

'Inability to Make Chapter 13 Plan Payments. If you can't pay the Chapter 13 Trustee your regular monthly Trustee payment, he or she will file a Motion to Dismiss your case. Conversion to a Chapter 7 may be a good option in such circumstances.

Inability to Make Mortgage/Car Payments. Many Chapter 13 cases are filed in an attempt to catch up payments on a mortgage or car. But you are also required to resume making those payments after the case is filed. If you don't, the lender will usually file a Motion for Relief From the Automatic Stay, asking the Court to allow a foreclosure or repossession. If you're going to lose the house or car anyway, conversion to a Chapter 7, where any liability for a shortage or deficiency when the sale occurs is wiped out, often makes sense.

Desire to Simply Have the Case Over. Sometimes, simply having to be in a bankruptcy case for the 3-5 years that a Chapter 13 takes can be stressful. Some people are willing to surrender some assets in a Chapter 7 instead of making to make the monthly Chapter 13 payments for an extended period of time.

How Do I Convert My Case? Conversion is easy. A Notice of Conversion or Motion to Convert, depending on your Court's local procedures, is filed. The Court enters a Conversion Order in a day or two. Again, depending on local practice and the details of your case, you may have to file a new Means Test form and amended schedules. You may be entitled to a refund of some or all of the payments held by the Chapter 13 Trustee that haven't been sent to your creditors.

What Happens When I Convert My Case? You have to attend a new Meeting of Creditors (341 Meeting), and comply with the requirements for a Chapter 7.

Can I Add Creditors? Yes. You can add debt you have incurred since your Chapter 13 case was filed.

Will I Have to Pay My Attorney More Money? There is a $25 conversion fee that has to be paid to the Court. Depending on the status of your Chapter 13 case, you may or may not have to pay your lawyer additional fees for him or her to handle your Chapter 7 case. Generally, the earlier in your Chapter 13 case you convert the less money (if any) that would have to be paid in additional attorney's fees. Check with your attorney.

Can I Do This Myself? You can legally represent yourself in Court. You can also legally remove your own appendix, troubleshoot your gas furnace and design and build a bridge. But if things go wrong by not having someone whose job it is to do these things, the results can be both more painful and expensive to correct than it would have been to hire someone good in the first place.

by Brett Weiss, Maryland Bankruptcy Attorney

For more information on these matters, please call our office at 305 548 5020.