Bill McLeod is a Boston-based bankruptcy attorney, representing creditors and debtors with over 15 years of experience. You can learn more about this and read more of his blog posts at www.mcleodlawoffices.com. Follow him on Twitter.  Find him on Facebook.

In recent months, I’ve been hearing from and speaking with attorneys young and old who express a desire to practice consumer bankruptcy law. Only some express a desire to enter into a practice area that is evolving, intellectually fascinating, and in this economy extraordinarily relevant. Virtually (but not) all express their belief that this is one practice area that is expected to grow in the coming years. Some mention that as the only motivation to consider it. I guess they have mortgage payments too.

If you’re considering changing practice areas, adding practice areas, or entering the consumer bankruptcy arena as a newly minted attorney fresh off the bar exam lawyer, here’s my…

Top Ten Things You Need to Know Before You Become a Bankruptcy Lawyer

1. Own a copy of the bankruptcy code. If you do not have a copy of the bankruptcy code and you’re already practicing (or perhaps better said, think you’re practicing) bankruptcy law, you’re already doing a bad job. Actually, you’re flirting with a malpractice claim. I have two: one at the office, and one which is always in my brief case, and my brief case is almost always with me (except when I leave it home). In addition to owning it, you should read it.

2. Never forget the basics. Attorneys have rules. You cannot lie, nor can you help a client lie. You cannot steal, nor may you help a client steal. You cannot violate your oath. There is no “winking” in bankruptcy.

3. Join a bar association. If you’re fortunate enough to practice law in an area that has a strong local bankruptcy bar, join it and get involved. You should also join at least one of these two groups: the National Association of Consumer Bankruptcy Attorneys and the American Bankruptcy Institute.

4. Attend CLEs. Most states require CLEs, so fulfilling that requirement may not be particularly onerous. In states that do not require it, be aware that bankruptcy law is ever changing, ever evolving, and full of traps for those who could and should have known better. NACBA and ABI both offer great CLE opportunities.

5. Get to Court. Call the clerk and find out when “motion day”, “chapter 13 day”, or “confirmation hearing day” is. Sit in on a trial (yes, there are trials in bankruptcy court). Observe, listen and learn. And bring your copy of the code with you. Believe me; this will pay off in spades.

6. Remember this: bankruptcy court is not state court. Deadlines are real. Rules are to be followed. Orders are to be obeyed. Period.

7. Consider volunteering. Probably one of the best ways to learn some of the nuances of bankruptcy practice is to take a pro bono case. By and large, legal aid agencies that service the poor are unable to meet the high demand for bankruptcy attorneys. The cases do not typically involve complex legal issues and it is a good way to cut your teeth.

8. Get involved. Write bankruptcy related articles. Present at CLEs. Join committees. You will learn much interacting with colleagues and those learning experiences will expand when you are the one researching, writing and presenting. And that will make you a better bankruptcy attorney.

9. Keep perspective. If you think practicing consumer bankruptcy law is just completing forms, then you will find yourself at the wrong end of a malpractice complaint, a sanctions motion, or perhaps worse, an ethics violation charge. Think I am being a bit melodramatic? Think about this: In the last 12 months, I have personally participated in malpractice claims against two attorneys who bungled debtors’ cases because they did not take their responsibilities seriously. They thought it was just forms to complete for a fee. In both cases, the debtors almost lost their interests in the homes that they live in. Which brings me to this point:

10. Always remember this: what you do will affect peoples lives. Learn to do your job well. Respect your limitations. Know the law and the rules. Respect the law and the rules. And respect yourself.

This is a challenging economy and people are in need of real help from attorneys who have taken the time and made the commitment to want to help them. There are a lot of self-proclaimed consumer bankruptcy attorneys out there, but there are not nearly enough good ones.  The good ones lose sleep the night before hearings. The good ones care.  Americans in a debt crisis need good consumer bankruptcy attorneys:  professionals who are committed to helping them get the help they need.

If you’re truly up for it, you’ll find resources to help you help people navigate through this often tricky legal terrain during what history books might someday describe as the most difficult economic period our country has faced.

"So I ran into Bill in the clerk's office in Boston recently..."

Friends of Bankruptcy Bill (FOBB) are experienced consumer bankruptcy lawyers willing to share their thoughts and answer bankruptcy questions on this site. Feel free to get in touch if interested in contributing as a FOBB.

Bill McLeod is a Boston-based bankruptcy attorney, representing creditors and debtors with over 15 years of experience. You can learn more about this and read more of his blog posts at www.mcleodlawoffices.com. Follow him on Twitter.  Find him on Facebook.

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When you discover that you are a creditor in a bankruptcy case…

Bill McLeod, Esq.

Recently, I was in the clerk’s office in Boston and overheard two people ask the clerk which forms needed to be filed in a bankruptcy case.  But this person was not a debtor – they were a creditor.  Their landlord had filed bankruptcy.  The former tenant was looking for their security deposit back, and was going to sue the debtor in small claims.  I couldn’t help myself – and I butted in.

“You need relief from the automatic stay.”

“The stay applies even to me?” one asked.

“It applies to everyone.”

After that short exchange, I thought I would put together a short checklist of things to do when your landlord – or someone else you know who also happens to owe you money – files a petition seeking bankruptcy protection.

• Don’t panic.

People have the right to seek bankruptcy protection.  Simply because they do does not mean that you’re not going to get paid.  On the other hand, simply because I am encouraging you not to panic should not be read to mean that you are going to get paid.  But still, don’t panic.  In my experience, panic can lead to actions that can get you into more trouble…such as violating the automatic stay…so with that said…

• Don’t violate the automatic stay.

The automatic stay applies to all creditors.  It does not matter if you’re a big bank or a friend or neighbor of the debtor, the same rules apply.  There are very limited exceptions to the automatic stay and you should not assume that you fall under one of those exceptions.

If you know that someone has filed bankruptcy, do not call the debtor and ask about payment.  Do not send them a letter.  Do not sue them – even in small claims court.   Don’t assume that just because you heard about it from a third party and did not receive any written notice does not mean that the automatic stay does not apply to you.  Stay violations can be costly.  Willful violations of the stay can be very costly.

Call an experienced bankruptcy attorney to determine what your next course of action should be (such as filing a motion for relief from the automatic stay).  And remember, the court clerk’s office cannot give you legal advice.

• Consult with an attorney.

At a very minimum, talk to a bankruptcy attorney.  Be prepared to explain the basis of your claim against the debtor and why you are entitled to payment. Have the docket number or the debtor’s name handy so the attorney can review the filings on-line.   Let the attorney determine whether you should seek relief from the stay, or whether you may need to file an Adversary Proceeding – seeking a court determination that the discharge injunction will not apply to your claim.   Both have costs associated with them (at a minimum, a filing fee).  There are a number of discharge exceptions in the bankruptcy code.  Some require the creditor to file an Adversary Proceeding.  Check with an attorney as soon as possible to explore your options.  But again, you should…

• Consult with your own attorney.

Many times a creditor has called me directly and said “what do I do now?”  If I am not representing the debtor, I can review the facts and answer the question.  But if I am representing the debtor – or perhaps even another creditor in that case – my response needs to be very limited.  Debtor’s attorney cannot tell you what to do – or what not to do.  Meet with your own bankruptcy attorney and get an opinion you can rely on.

• Be mindful of deadlines.

When a petition for bankruptcy is filed, deadlines are established.  There are deadlines to file claims.  Deadlines to file Adversary Proceedings.  Deadlines to object to a debtor’s claimed exemptions. Deadlines to object to a debtor’s plan.   Miss those deadlines and you may lose your rights.

• If you want to challenge the bankruptcy filing, or challenge the discharge, consult with an attorney and proceed wisely.

Just because people seek bankruptcy protection does not mean they deserve it.  However, just because you – as a creditor – may think the filing unfair does not mean that the debtor’s case should be dismissed or the discharge be denied.  If you’re thinking of challenging a debtor’s bankruptcy case, meet with an experienced bankruptcy litigator – or two (as I tell my own clients, it never hurts to get a second opinion).

A few years ago, I represented a chapter 13 debtor in a contentious case where an individual creditor sought to challenge the filing.  The creditor chose not to have an attorney.  Despite my warning the creditor that there was no legitimate basis to challenge the debtor’s bankruptcy filing, the creditor persisted.  The end result: the debtor’s plan was confirmed (after a long process and a trial) and the creditor’s fight against confirmation of the debtor’s plan proved unsuccessful.  Almost all of the funds paid into the chapter 13 plan went to the debtor’s attorney’s fees.  The creditor ended up with nothing.

• Bookmark this.

If your landlord, friend, relative, ex, former roommate or former client or customer files bankruptcy, take a deep breath, and then re-read these 6 tips.  The bankruptcy filing might mean that things aren’t going to get better in that you’re not going to get your money.  But following these tips may ensure that things will not get any worse.

"...and they tried to collect the debt right on the ski lift."

Friends of Bankruptcy Bill (FOBBs) are experienced consumer bankruptcy lawyers willing to share their thoughts and answer bankruptcy questions on this site. Feel free to get in touch if interested in contributing as a FOBB.

Gailyn Wink handles personal and small business Chapter 7 and Chapter 13 bankruptcies for Wink & Wink, P.C. She focuses on adversary proceedings and other bankruptcy litigation.  For more information, go to www.winkandwink.com.

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Debt Collection in Colorado:  Know your rights

If you are struggling with debt, there’s a good chance you are also struggling with unwanted contact from debt collectors. Sometimes these are your actual creditors, the ones you signed a contract with, but often the person calling you works for another company altogether because your debt has been sold to a debt collection agency. No matter who is contacting you about your debts, it’s not a good feeling. And when debt collectors cross the line, it can be downright scary. Knowing your rights where debt collection is concerned is important and empowering. Here’s some information about debt collection in Colorado that can help you get some control back if you are in that situation.

THE FAIR DEBT COLLECTION PRACTICES ACT

The Fair Debt Collection Practices Act, often referred to as the “FDCPA” was passed by Congress to reduce abusive, deceptive and unfair practices by debt collectors and to give consumers affected by that abusive behavior a remedy for violations: cash damages.

The FDCPA applies to debt collectors working to collect debts due to someone other than themselves. This means that the Act does not apply to in-house collections, such as when a department store with whom you have a credit card contacts you directly. There is an exception if the collector uses any name other than his own which would indicate that a third person is collecting or attempting to collect the debt.

WHAT THEY CANNOT DO

Talking to Other People: When contacting a third party (anyone other than you), debt collectors can only attempt to find out where you live and where they can contact you. They must correctly identify themselves, but they cannot tell the third party that they are calling about debt collections. They cannot call third parties if they already know where to find you. They cannot call third parties more than once (unless that person asked them to call back).

Talking to You: Debt collectors cannot contact you at unusual or inconvenient times. This means no calls before 9:00am or after 8:00pm (unless you or a court has authorized times outside of these boundaries). Debt collectors cannot contact you if you are represented by an attorney. Debt collectors cannot call you at work if they know your work does not allow you to receive such calls (tell them this the first time they call!). And very importantly, they have to tell you who they are and, if you ask, who they are working for, and that anything you tell them is going to be used to collect on the debt.

They Must Play Nice: The FDCPA prohibits abusive and harassing behavior. That means that debt collectors cannot threaten you, your reputation or your property. They cannot use obscene language. They can’t keep calling you with the intent to harass, annoy or abuse you. Along these same lines, debt collectors cannot mislead, deceive or lie to you about 1) the type, amount and character of the debt, 2) who they are (eg. saying they are an attorney when they are not ), 3) what they can do to you (eg. they cannot say that they will call your boss and disclose your debt situation, they cannot say they are going to have you arrested, and they cannot threaten to take your property unless they are allowed to do that under the law).

Additionally, debt collectors cannot report false information about your debts to anyone, including the credit bureaus, and they can’t send you letters on official-looking letterhead that pretends to be from someone it is not.

WHAT TO DO

Put it in Writing!: Write the debt collector and tell them you want them to cease all communications with you. Once you do this they cannot contact you anymore except to 1) tell you they are stopping their collection efforts, or 2) to notify you they are going to, or did take another action (such as wage garnishment or pursuing a judgment) to collect the debt, as long as they normally do take that action (in other words, they can’t say they are going to take you to court if they have never done that in the normal course of their business).

Don’t Do Nothing!: Within five days of the initial contact, debt collectors must send you a document identifying the amount of the debt, who they are collecting it for and a summary of the actions you must take if you want to dispute the debt. If you think they have the amount wrong, or the dates wrong, or anything wrong, follow those instructions and protect your rights!!! Keep copies! Send things registered mail!

Keep Records: If you have unscrupulous debt collectors making you miserable and you think their actions violate the FDCPA, keep records. Record the time, date, content of the communication and the name of any caller. Why? Because these violations come with a remedy: cash damages. You can receive $1,000 per  violation if you can prove it in Court! That is not only money for you, but a huge slap in the face for the nasty pieces of work that Congress had in mind when the drafted the FDCPA. Going after those (oh, I could really get colorful here) jerks keeps them from getting away with it again and again.

COLORADO STATUTES OF LIMITATION

There is one very important piece of advice when dealing with debt collectors: Beware of extending the statue of limitations! Colorado puts a limit on how long creditors can seek to collect on old debts.  These statutes of limitations range from Three Years for certain contracts to 20 years for District Court judgments. (An attorney can answer questions about specific cases.) What debt collectors try to do when your debt is about to expire (meaning no one can bother you about it ever again) is to attempt to get you to pay some small amount on the debt. Why? Because if you do, the statute of limitations starts all over again. Gotcha!

In conclusion, if you are struggling with debt, don’t allow yourself to become a victim of illegal debt collection practices. Make sure you know your rights under the FDCPA, and if someone is breaking the law make sure to keep track of it in detail. A bankruptcy attorney can help you pursue a claim against anyone who violated your legal rights while collecting a debt. Additionally, bankruptcy can help you wipe out that debt and wipe out the possibility that someone will violate your rights trying to collect.

"So I says to Greg..."

Gregory A. Holbus, Esq. is a Green Bay, Wisconsin-based bankruptcy attorney licensed to practice in both Wisconsin and Michigan. To learn more about Greg, you can visit his website (www.holbuslaw.com) or his blog (wisconsinbankruptcy.blogspot.com).

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Greg Holbus, Esq.

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

Before I get to the heart of the story, allow me to give you a quick refresher about the Means Test and what it means for a bankruptcy petitioner.

To grossly over-simplify the Means Test, it is basically Congress’ attempt to create a mathematical formula to objectively determine how much money, if any, a debtor can afford to pay to creditors holding unsecured claims. It (Form B22) determines whether you qualify for a Chapter 7, in which all of your unsecured creditors are discharged. And if you don’t qualify for Chapter 7, the same form determines how much income is available to those creditors.

A number of statutory deficiencies exist which have given rise to disputes and some bizarre interpretations to several aspects of the Means Test, often resulting in gross inequities. One example is whether a Chapter 13 debtor can take deductions on the Means Test for payments on a secured debt which the debtor intends to surrender because the payments are contractually due at the time of filing. In re: Dionne, in the Eastern District of Wisconsin says they can. I feel awkward writing about that decision because for one thing – this decision is favorable to debtors, and I am a debtors’ counsel. Also, I have nothing but respect for the judge who rendered the decision.

But I respectfully disagree that a debtor should be allowed to deduct payments on a loan that the debtor knows full well they will not pay again in the future.  Fortunately for me, the 7th Circuit took the conflict out of my control with In re: Turner and ruled the opposite.

But, the bigger issue we have had with the Means Test is that – in Chapter 13, the Means Test spells out what the debtor can afford to pay over the next sixty months after the case is filed. And it does so by calculating the debtor’s income from the six months prior to filing. Relying solely on the Means Test results in inequities. Debtors pay less than they can afford if they experience a decrease in expenses or an increase in income. Debtors pay more than they can afford if they experience an increase in expenses or a decrease in income.

Fortunately, the bankruptcy code allows for post-confirmation amendments based on these changes in circumstances. However in my case (In re: Hilton; 08-25540), the debtors’ change in circumstances occurred simultaneously with the filing of the bankruptcy petition, and so they were not eligible for a post-confirmation amendment, because we hadn’t gotten the case to confirmation. Furthermore, the plan could not be confirmed because it was not feasible, since the debtor’s budget did not show they could afford what the Means Test required.

We took this to hearing, and after briefs were filed, the Judge rendered a decision indicating that the Means Test is merely the starting point, and that other factors may be determined in computing disposable monthly income. However, courts across the country have been split over whether the Means Test should be strictly applied or whether other factors may be considered. And again, this generally arises from lack of clear definition of disposable income in the bankruptcy code.

On Monday, November 2, 2009, the United States Supreme Court granted certiorari in the case of Jan Hamilton v. Stephanie Kay Lanning (08-998). So, come next June, we might finally have a universal answer as to whether we should be strictly applying the Means Test or if other factors may be considered.

How the court will rule, I have no clue. But I will make the following observations and predictions:

Any ruling that indicates that Form B22C is the alpha and omega of calculating plan payments – will sometimes work in the debtor’s favor and sometimes work against the debtor. In only a very small fraction of cases will the debtor be paying what they can afford – no more and no less, because it is very rare that the six months prior to filing will mirror or otherwise be indicative of the debtor’s income in the sixty months after filing.

Furthermore, continued strict adherence to the forms will continue to result in a lopsided amount of Chapter 13 failures, which seems contrary to what Congress hoped for when it passed BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005), as it was quite clear that they wanted to encourage people to file Chapter 13 over Chapter 7.I advocate, as I did in Hilton, for the Means Test to be a starting point, but allowing other factors to be considered in computing disposable monthly income. This will help increase the success rate of Chapter 13s, and ensure that debtors are paying what they can afford – not more, and not less.

However, one must acknowledge the inherent danger that deviating from Form B22C will open the door to creative budgeting by debtors and their lawyers, which will lead to certain abusive practices.

"So I says to Russ..."

Friends of Bankruptcy Bill (FOBB) are experienced consumer bankruptcy lawyers willing to share their thoughts and answer bankruptcy questions on this site. Feel free to get in touch if interested in contributing as a FOBB.

Russell A. DeMott, Esq. is a Charleston, SC-based bankruptcy attorney with over 14 years of experience representing debtors in wide range of bankruptcy matters.  Originally from Michigan, he is licensed to practice in both South Carolina and Michigan.  To learn more about Russ, you can visit his website (www.scbankruptcyattorney.com) or his blog (www.scbankruptcyattorney.com/blog) and also find him on Facebook and Twitter.

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Russell A. DeMott, Esq.

Filing Bankruptcy to Surrender Assets (Sometimes it’s best)

When evaluating your financial situation, don’t let your emotions get in the way.  Chapter 7 or Chapter 13 bankruptcy may be the right solution, especially if you have assets with no equity.

I recently met a very distressed client.  He had three houses that he had been trying to keep for over two years.  Two of the properties were worth over $400,000 each.  One was worth about $200,000.   However, on each of the properties, the mortgage balances far exceeded the value.  The client had over a million dollars in property, but he owed far more than that.

As we discussed his financial goals and ability to pay his debts, I explained to him that the calculator on my desk was worth more than all three of these properties combined.  He looked puzzled.  After I explained that the calculator was worth something–at least a dollar–and that I owned it free and clear of any liens, I could see that he finally understood.  He also understood that the house payments he’d been paying were nothing more than rent.  It would be years and years before he even got to the break even point with the properties.

Photo by Michael Mulligan

He had been struggling for years to keep the properties.  He’d tried the HAMP (“Home Affordable Modification Program”), he’d tried negotiating, and he’d written letters.  All this was to no avail.  He was emotionally exhausted.  My recommendation was that he file a Chapter 7 bankruptcy and surrender the properties.

He left relieved.  He looked like a weight had been lifted from his shoulders.  He understood that he couldn’t go on like this and was glad he took time to learn that the bankruptcy laws could give him a fresh start.

Keep in mind that the value of your property is in the equity (fair market value less what you owe on it in mortgages and other liens).  If you have no equity and you can’t afford the monthly payments, you need to take a hard look at just why you are trying to keep these properties.  Think with your head and not your heart.  And keep focused on what’s really important in life.

"So I says to Bill..."

Friends of Bankruptcy Bill (FOBB) are experienced consumer bankruptcy lawyers willing to share their thoughts and answer bankruptcy questions on this site. Feel free to get in touch if interested in contributing as a FOBB.

Bill McLeod is a Boston-based bankruptcy attorney, representing creditors and debtors with over 15 years of experience. You can learn more about this and read more of his blog posts at www.mcleodlawoffices.com. Follow him on Twitter.  Find him on Facebook.

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Bill McLeod, Esq.

Who really files for bankruptcy?

What leads a person to the steps of the bankruptcy court seeking relief from debt? That is not an easy question to answer – although there are some out there who may think they know the answer. But as I was digesting a recent opinion out of the Bankruptcy Court in the Northern District of Texas, I read the following:

Anecdotally, this court notes that it sees all sorts of consumer debtors come through the bankruptcy system. At one end of the spectrum, there are individuals who have been plagued with many bad circumstances that have led to their financial demise-such as health problems, injuries, medical bills, job loss or instability, divorce, or death of a bread winner. At the other end of the spectrum, there are individuals who have been blessed with good health and adequate jobs and resources, and yet have somehow created a mountain of consumer debt that they (and probably their creditors) should have known could never be repaid. Some of these latter individuals have even engaged in some sort of fraud along the way-perhaps in a loan application at some point, or with intentional avoidance and nonpayment of taxes, or by hiding assets before entering into bankruptcy.

But the vast majority of debtors this court sees fall somewhere between the two extremes. They are individuals who probably cannot honestly blame “bad luck” as the cause of all of their woes. And many of them have made more poor choices than wise ones, and such choices have finally caught up with them.

So what does this mean, and why am I sharing it with you? The easiest answer is that it is my experience that the court is right. However, there’s a rather significant “but…”

Unless we’re talking about a nefarious character with no sense of right and wrong, most people do not cheerfully enter the bankruptcy process. By the time they enter bankruptcy, or are at least considering it, they regret decisions they made. They know some of their choices were unwise. However, that does not mean that a debtor is not deserving of a chance to start over.

As I continued to read the Texas decision, I learned that the debtors had inconsistent income, high expenses, and some peculiar explanations for their debt. Also, the facts seemed to indicate a bit of ambivalence as to how they came into the financial predicament they were in, and why they sought bankruptcy relief. T heir case was dismissed because the court deemed it to be an abuse of Chapter 7. I did not summarize the case because I do not want people to read more into the facts but also because I want to assure readers who are facing bankruptcy that there’s something far more important in this case than the kind of car the debtor was driving or when they bought it. What’s more important is that they have a sense of who files bankruptcy and who is entitled to the relief afforded by the code.

Far too many talking heads (and readers know who they are) characterize people who file bankruptcy as buffoons with entitlement complexes. Making bad decisions is not evidence of an entitlement complex. Making bad decisions, standing alone, is also not evidence of fraud or other unscrupulous activity. Making bad decisions is evidence of being human (which by all appearances, some of those talking heads might be similarly viewed as such…although I often wonder).

Of course, whether a decision is so bad that it would effectively rule out bankruptcy as an option can only be determined after a careful review of the facts by someone who knows the law. As this court decision points out, there is no one cause that pushes people into bankruptcy and there is no bright line profile of a person who files bankruptcy. Those that attempt to convince the masses otherwise only breed prejudice and fear where it need not exist.