This is a common question that is asked by potential clients.  The short answer is “no”.  Bankruptcy law does not require that a debtor have an attorney in order to file a bankruptcy case.  However, the Bankruptcy Court clerk’s office is not permitted to give legal advice to anybody who files a bankruptcy case, or is a creditor.  In addition, the Bankruptcy trustee acts on behalf of the creditors, and many times may have an adverse interest to that of the Debtor.  As a result, a debtor who files a bankruptcy petition “pro se” often finds that there are no resources to consult if a petition is not prepared accurately, or if there is opposition from the trustee or creditors.

Why is it helpful to have the assistance of an attorney in filing a bankruptcy?  Here are some reasons:

-        Deciding on what type of case to file.  Are you trying to save a house from foreclosure?  Or are you trying to keep a car from being repossessed? Or are you trying to stop a wage garnishment?  Different types of bankruptcy offer different types of relief, and filing the wrong chapter of bankruptcy may not provide the protection or relief that you were seeking.

-        Accurate petition preparation.  The most common mistake by a pro se debtor is the failure to list all of their assets and debts.  Failure to list an asset (such as a bank account, potential lawsuit, or retirement plan) can result in the loss of that asset, or even the denial of a bankruptcy discharge.

-        Exemption planning.  Bankruptcy law does allow you to exempt (protect) certain assets.  However, if exemptions are not claimed, or are claimed improperly, a pro se debtor may forfeit property that they would have been able to keep.

-        Adherence to deadlines.  Personal bankruptcy cases have many requirements that are time sensitive, and failure to provide the required information by these deadlines will result in the dismissal of your case.

-        Negotiating with creditors.  Creditors do have the right to oppose or object to the filing of a bankruptcy case, or their treatment in a bankruptcy case.  In addition, there may be debts that you wish to maintain, such as a car payment or house payment, that require the execution and filing of a reaffirmation agreement.

-        Representation in court. A bankruptcy attorney will accompany you to court, and let you know what to expect during your testimony.

-        Motion filing.  In addition to the preparation of the bankruptcy petition and representation in court, a bankruptcy attorney can file all necessary motions to protect assets after the bankruptcy case is completed.  While a bankruptcy filing will stop any lawsuits that are pending at the time of filing, separate motions must be prepared and filed to avoid any liens created as a result of the lawsuits.

As I have explained to many clients in the past when asked if they needed an attorney to file a bankruptcy, “I could pull my own teeth if I wanted to, but I would rather pay a dentist to do it.”  Unfortunately, by the time that a pro se debtor realizes that they need an attorney, it may be too late to fix the problems that could have easily been avoided with the assistance of an attorney before the case was filed.

Eventually, tax preparers were required to more accurately disclose that the “rapid refund” was actually a loan extended by the tax preparer, to be repaid by the filer.  While an RAL will put money in the pocket of the filer much quicker, it comes at a price.  Often the tax filer will overpay for the cost of preparing the income tax return itself.  In addition, interest and convenience charges will further diminish the amount of money that the filer will receive.  Now that returns can be filed electronically, and the refunds can be deposited directly into a bank or credit union account, the amount of time between the filing of the return and receipt of the income tax refund has been significantly diminished.  As a result, the fees associated with a RAL may not be worth the convenience of receiving the refund a few weeks earlier.

Another thing to keep in mind in considering a RAL is that it is a loan, and in the event that your income tax refund check is less than what you received, you will be liable to repay the full amount of the loan, plus interest and penalties.  For instance, a filer may file an income tax return which generates a refund of $5000.  The tax preparer will “loan” the filer $4500, and accept the income tax refund later in full payment of the loan.  However, if the refund should be adjusted by the IRS for any reason – such as non-disclosure of additional income or disallowance of dependents – the filer would have to pay the difference.  So in this example, if the refund check is only $2500, then the filer will have to repay the $2000 difference, plus interests and fees.  In some instances, the income tax refund may be seized, either for student loan debt, child support or back taxes.  In that event, the filer will have to repay everything.  If you believe that your income tax refund may be subject to seizure, do not obtain a RAL.

While many people need the money immediately, to catch up rent, utilities and other expenses, the best thing is to avoid an RAL altogether.  The hundreds of dollars that you save by waiting for your income tax refund via electronic filing will be worth it.

-          Tackle the higher balance, higher interest rate accounts first.  If possible, pay more than the minimum payment in order to reduce the payment on the next billing cycle.

-          Stop using the credit cards until the balances have become manageable, otherwise, the debts will continue to grow.

-          If possible, use your income tax refund to pay off the higher balance, higher interest rate accounts.  A common mistake is for consumers to pay off the smaller retail store accounts, and still leave themselves with 1-2 large credit card balances.

-          Under no circumstances should you redirect funds for your house or car payment in order to pay a credit card bill.  While there are always repercussions to not paying a debt on time, the consequences of falling behind on your home mortgage or car payment are much more serious.

-          If paying all of the credit card accounts on time is not an option, consider consolidating the balances on a lower interest credit card.  However, remember to read the fine print or call the credit card company to determine what the interest rate will be on transferred balances, and how long it will last.

-          While there are income tax advantages to using a home equity line to pay off credit card balances, this should be a last option.  By adding this debt to an existing mortgage balance, you may run the risk of eliminating any equity in the house, or even being “upside down” where the debt against the house is greater than the house’s value.  This would make it difficult, if not impossible, to sell the house or refinance the house loans.

If after taking these steps you have lingering questions regarding your debt and the possibility of filing bankruptcy, schedule an appointment to discuss your options.

The accusations are as outrageous as they are plentiful: Hundreds of “robocalls” — in one case, 800 to a single person — to collect auto loan debts; illegal repossession of cars from active duty military deployed overseas; late fees assessed three years after the fact and then compounded into $2,000 or $3,000 bills; harassing calls to friends, neighbors, co-workers — even children — on cell phones. And now, a flurry of lawsuits filed around the country, and lawyers fighting over potential clients. Read More

• If your wages are being garnished, it will be because your employer has received a “summons of continuing garnishment”, directing them to forward a portion of your pay to the court that issued the garnishment.  However, keep in mind that the court that issued the garnishment may not be the same one that issued the original judgment.  So even if you have a copy of the original judgment, that is usually not sufficient to allow the bankruptcy court to stop the garnishment.
• While you may have received a copy of the garnishment yourself, many times it will not have the same information on the garnishment submitted to your employer.  For instance, your copy may not have the case numbers which are necessary to stop the garnishment.  Your payroll contact should be able to provide a copy to you.
• If your bank account has been garnished or “frozen”, your bank should be in possession of a similar garnishment or “attachment” order.  You will want to request a copy of that order from your bank.  Unfortunately, most bank account garnishments are submitted to bank branches in the Atlanta area, so your local branch may not have it immediately available.
• Remember that time is critical, as the longer the garnishment persists, the more money that will be lost.  In most cases, a prompt bankruptcy filing will prevent all money that has been frozen in a bank account from being forwarded to the judgment creditor.
• Likewise, a bankruptcy filing may allow a person to not only stop the garnishment of their wages, but also to recover garnishments from the previous 1-3 pay periods.

-          If you didn’t enter, you can’t win.  Period.  Nobody wins a “random” lottery.

-          If you have to pay anything to attain your winnings, it is a scam.  Scam artists will always claim that you have to pay some type of tax, duty, or transfer fee in order to claim your “grand prize.”

-          If communications are always by phone, especially an international number, then it is a scam.  Even worse, callers will use high-pressure tactics designed to make the victim feel like they are stupid or incompetent for “wasting an opportunity to receive millions”.

-          A lot of your personal information is available on the internet, so don’t be surprised if a caller is familiar with you, your employment, neighbors, etc.

-          Never, ever give any bank or credit union account information in order to receive a deposit of your winnings.  Scammers will use this information to drain all of your accounts.

-          Always remember, if it is too good to be true, then it probably is.

In Chapter 7 cases, it is common practice for a Debtor to “reaffirm” or keep a loan that is secured by their house. In almost every case, the reaffirmation agreement is prepared by the creditor, as it requires the disclosure of principal, interest, and repayment terms, which can vary from day to day. In addition, the reaffirmation agreement is for the creditor’s protection. It does not yield any benefit for the Debtor, as it means that if anything goes wrong and the debtor is unable to make the payments on the loan, they will be personally responsible for the debt. The reaffirmation agreement protects the creditor in the event that the Debtor should change their mind and “walk away” from the loan years after the bankruptcy case is over.

Attached is a response that our firm received to a standard request for a reaffirmation agreement from the GMAC Bankruptcy Department. No confidential information is in the document. Just for fun, read it aloud a couple of times. Even better, have one of your children in middle school offer a critique. I would be embarrassed if an employee of my office ever sent out a document so full of grammatical errors, and subject-verb disagreements. Remember that our government believed that GMAC and GMAC Mortgage was worthy of a $17.2 billion bailout, yet GMAC Mortgage would not merit a passing grade in a 6th grade writing class.

Before I discuss how the safeguards have assisted consumers, it is important to provide a highlight of key provisions of the act:

-          With a few exceptions, credit card companies were required to give consumers 45 days’ notice of any changes in interest rates or other material terms of the cardholder agreement.  This gives the consumer the option of closing the account, and making payments based upon the existing contract.

-          With a few exceptions, the credit card companies could not increase the interest rate within the first 12 months of issuance of the card.

-          Credit card companies must submit bills to consumers no less than 21 days before the due date.  This prevents credit card companies from creating an opportunity for a payment to be received late, and generating additional charges.

-          In response to one of the most common complaints of cardholders, interest rate increases only applied to new purchases, and could not be applied retroactively to existing balances.  In addition, payments must be applied first to charges with the higher interest rates, rather than to balances at the lowest interest rates. (there are exceptions for charges made under a deferred payment plan)

-          Recognizing that college students were becoming increasingly targeted by credit card companies, even though the majority of them had no independent source of income, the law requires that anyone under the age of 21 must either have a cosigner for the card, or demonstrate that they have sufficient income to make the payments.

-          Billing statements must disclose the expected repayment period if the consumer makes only the minimum payment (assuming no other charges are made).  In addition, they must also disclose the amount of the monthly payment necessary to pay off the balance within 3 years.

The 45 day notice requirement regarding any material changes was long overdue.  Many times consumers did not find out about changes to their account until they received a bill.  In addition, continued use of the credit card was deemed to be consent to the changed terms, even if the consumer was unaware of the changes.  Basically, this was a classic contract of adhesion, where one party (the credit card company) dictated the terms to the other party without any opportunity for negotiation.   While the advance notice of the changes is helpful, it may not assist a consumer who only has one credit card, and would have to apply for another one.

The prohibition against interest rate increases in the first year was directed at companies that offered “teaser” rates to consumers in order to induce them to transfer balances from other cards that presumably had higher interest rates.  The low “teaser” would only last for 6 months (or even less in some cases) at which time the rate could be increased.  Even worse, the low “teaser” rate may have only applied to the balance transfer, and subsequent charges on the account may have been billed at an interest rate that was actually higher than the balance on the previous card.  In fairness to the credit card industry, these terms were often included in the application, but were so buried in miniscule fine print that the average consumer would have been hard-pressed to find and understand it.

Most credit card companies provided consumers with ample opportunity to pay their bills, but there were some who endeavored to make prompt payment as difficult as possible for their customers.  For some credit card companies and banks, late fees and over-the-limit fees represented a majority of their profits.  By providing an inadequate amount of time for consumers to mail in payments (often at addresses across the country), the credit card companies made it more likely that payments would be received late, thereby triggering late fees on average of $29 per month.  Also, a late payment could provide the company with an excuse to raise the interest rate, further increasing the profits on the account.  Given the proliferation of online banking, the significance of this change is slowly diminishing.

While credit card companies maintain the right to increase the interest rate based on certain occurrences (such as a payment default, provide the minimum 45 day notice is given), they can no longer apply the higher rate retroactively to the existing balance.  In my opinion, this has probably generated the most savings for consumers.  Imagine buying a carton of milk for $4 at the grocery store, and then being told 2 days later that you needed to pay another $1 because the price had risen.  Essentially, this was what the credit card industry was doing when it raised the rates on all balances.  While this policy defied all the basic elements of contract law – where a consumer should be responsible for the terms of the contract at the time of purchase – it persisted for years.  The new law especially protects someone who may have a high credit card balance at a low rate, as an interest rate increase on the entire balance could easily accelerate the monthly payment well above their ability to repay.  Many of my clients were propelled into default, and eventually bankruptcy, when rates were increased in such a manner.

The follow-up to the prohibition on retroactively applying higher interest rates to previous charges deals with the apportionment of payments.  Even if credit card companies could no longer raise the interest rates on existing charges, they would still apply payments to the balances with the lowest interest rates first.  This would allow the charges made at higher interest rates to continue to accumulate interest at the higher rate.  Now, credit card companies (with exceptions for specific purchases) are required to post payments to the charges at the highest interest level first.  This means that consumers receive the biggest “bang for their buck” when paying on credit card accounts with varying levels of interest.

The Credit Card Reform Act also required that persons under the age of 21 cannot receive a credit card without either a cosigner, or proof of income sufficient to make the payments.  Many credit card companies targeted college campuses, recognizing that college students would often be in need of credit, and presumably would have the income after graduation to make the payments.  Of course, the darker logic behind the policy of extending credit to students with no income was that their parents would eventually step in to pay off the cards to protect their children’s credit, in the event of a default.  Many companies paid for the exclusive right to market their cards on specific campuses.  I am reminded of a client that I met with years ago who had graduated from college with credit card debt beyond his ability to repay.  While in the college cafeteria eating lunch, he dropped a piece of pizza on his shirt.  Not wanting to go to class with a pizza stain on his shirt, he went to a table in the cafeteria where students were taking credit card applications.  By applying for a card, he received a free t-shirt, which he then wore to his class.  If not for that random event, he said that he never would have even thought of applying for a credit card while in college.  Now, he might have received the t-shirt, but he would not have received the card without a source of income.  Also, by requiring a cosigner, it prevents the student from spontaneously applying for credit card, and also allows a parent who does cosign the opportunity to monitor charges and payments on the account.

The last change which I described is with regard to the mandatory notice that credit card companies are required to provide about the amount of time necessary to repay a credit card balance based on the minimum payment.  This was one of the provisions that the credit card industry fought for so long, and with good reason.  While it is not necessarily a consumer protection, it certainly has been very educational for consumers.  It motivates them to pay extra money on their accounts, which reduces the interest that credit card companies receive.  It also allows consumers to prioritize among their credit cards, to determine which should be paid off first.  It also provides feedback to consumers when their interest rate changes, and they can see the difference it makes in the repayment term.  Finally, and probably of most concern to the credit card companies, is that the repayment term requirement can often allow someone to see the futility in simply making the minimum monthly payment, especially when the repayment term is 10 years or more.  This is especially common among elderly and/or retired consumers who are on a fixed monthly income, and lack the ability to pay more than the minimum monthly payment.  They cannot see the “light at the end of the tunnel” with respect to their credit card balances, despite their best efforts.

The backlash from the credit card industry has mostly subsided.  Most of the punitive measures exacted upon consumers by credit card companies and banks took place in anticipation of the implementation of the Credit Card Reform Act.  Many consumers saw their credit limits reduced, or charging privileges eliminated entirely.  Others experienced interest rate hikes on open accounts.  But since the Act has taken effect, the consequences have been minimal.  Many companies are not willing to offer the credit limits that they have in the past, and some have eliminated perks that were commonly available.  More documentation of income is generally required in the application process, although it is still less than required for the extension of other forms of consumer credit.  All in all, the credit card industry seems to have adapted well to the additional regulation, and there is no question that consumers have benefited in the manner that Congress intended.  However, consumers still have to be mindful to monitor their accounts, and carefully read any notices that are enclosed with monthly statements, so that they are in a position to utilize the protections afforded by the Act.

AUTOMATIC STAY – The filing of a bankruptcy petition “automatically” stops or “stays” any debt collection activity pending against the debtor.  This would include letters, phone calls, lawsuits, garnishments, repossessions, foreclosures or any other activity designed to collect money from a debtor.  It is “automatic” because creditors in a consumer case do not have the right to be heard and prevent the filing of the case and the “stay” of their collection activity.  This is temporary relief which becomes final, after the debtor has either liquidated assets or re-organized.

DISCHARGE – Ultimately a “discharge” is the goal of any consumer bankruptcy filing, meaning that the case has been successfully concluded.  Unlike the “automatic stay” which is temporary, “discharge” is permanent and means that affected creditors are forever prohibited from collecting any money from the debtor.  However, some debts – such as child support, certain taxes and student loans – are protected from discharge, meaning that the debtor would still be legally responsible to pay those debts once the case is concluded.

DEBTOR – Anyone who files a bankruptcy petition, whether individually, or jointly as a married couple.

CREDITOR – Anyone who may have a claim for money or property against the Debtor.  There is no requirement that the debt has to be in writing, or otherwise commemorated.  In addition, a party can be a “creditor” even though the exact amount of the debt has yet to be determined.

PETITION – This is the document that is filed with the Bankruptcy Court to initiate the bankruptcy, and obtain the benefits and protection of the “automatic stay”.  It is usually assembled with the assistance of an attorney, and includes, among other things, information about the debtor’s assets (property), liabilities (debts), income, expenses, financial affairs and intentions with respect to property that they wish to retain.  Failure to provide all necessary information in the bankruptcy “petition”, or to testify truthfully about its contents, could lead to a denial of “discharge”.  This means that while the debtor will be protected by the “automatic” stay, he or she will lose the permanent protection afforded by the “discharge”, and will be subject to creditor collection attempts upon the end of their case.

SCHEDULES – These are specific portions of the bankruptcy petition, much like chapters in a book.  Each “schedule” describes a different part of the debtor’s financial situation.  Accuracy in the schedules will result in complete and through petition.

STATEMENT OF FINANCIAL AFFAIRS – Another portion of the “petition” in which the debtor identifies the sale or transfer of property, payments to creditors, pending legal proceedings, and information about the operation of a business, if applicable.  Like the “schedules”, accuracy is a must in preparing the “statement of financial affairs”.

STATEMENT OF INTENTIONS – In this portion of the bankruptcy petition, the debtor indicates their intentions with respect to secured debts only.  For instance, if a debtor wished to retain a house or car which was collateral for a loan, it would be indicated on the statement of intentions.  The three available options on the statement of intentions are to “reaffirm”, “surrender” or “redeem”.

SECURED DEBT – This is a debt which has collateral or “security” that the creditor can repossess in the event of nonpayment.  A mortgage on a house or car loan would be a “secured debt”.

UNSECURED DEBT – This is a debt that does not have collateral, such as a credit card, medical bill or personal loan.

REAFFIRM – This is the term used when a debtor agrees to retain the collateral on a secured debt.  By “reaffirming” the debt, the debtor allows it to survive the discharge.  Unlike discharged debts, a creditor on a debt that has been reaffirmed is allowed to collect money, and hold the debtor liable for any default on the debt.  As a result, it is very important to make sure that your budget will allow you to afford the payments on a secured debt in the future, after the case has been discharged.

SURRENDER – Another option with respect to a “secured debt” is to “surrender” the collateral.  While the creditor is allowed to repossess or foreclose on their collateral, any remaining portion of the debt will be discharged.

REDEEM – This allows the debtor to retain collateral on a secured debt without reaffirming.  Instead the debtor agrees to “redeem” the collateral.  Instead of ”reaffirming” on the debt and resuming the regular monthly payments, the debtor pays a lump-sum to the creditor to “redeem” the collateral.  In exchange, the creditor will release its lien on the collateral.  The debtor can save money in this manner as he or she is allowed to pay the fair market value of the collateral, which may be significantly less than the amount owed.  Since it requires a lump-sum payment to “redeem” collateral, it is most commonly used on furniture and older cars which have a low value.

TRUSTEE – This is the individual appointed by the court to supervise the debtor’s case.  Chapter 7 and Chapter 13 Trustees share similar responsibilities, in that they both will review the petition that is filed by the debtor, and question the debtor about the contents.  They are also both responsible for distributing money to creditors.  In a Chapter 13 case, the Trustee collects money from the debtor and distributes it to the creditors over a 3-5 year period.  In a Chapter 7 case, money is only distributed to creditors if the Trustee is able to recover money from the debtor’s non-exempt assets.

EXEMPTIONS – These are state and federal laws which designate what property that a debtor can “exempt”, or protect, from creditors.  Part of preparing the bankruptcy petition involves identifying all of the debtor’s assets, and determining what “exemptions” are available to protect them.  If property is “exempt”, then it cannot be liquidated for the benefit of creditors.  Applying exemptions to protect the debtor’s assets is the main goal of the bankruptcy attorney.

MEETING OF CREDITORS – Also referred to as the “341 Meeting” (referring to section 341 of the Bankruptcy Code), the “meeting of creditors” is where the debtor appears in front of the Trustee to testify under oath about the petition and other documents filed with the bankruptcy court.  Your attorney will appear with you, and your creditors are invited to attend.  The amount of time that the debtor will have to testify will vary, depending upon the simplicity or complexity of the case, or the accuracy of the petition.

DOMESTIC SUPPORT OBLIGATION QUESTIONNAIRE – If the debtor is required to pay any type of “domestic support obligation”, such as alimony or child support, then they must submit a “domestic support obligation questionnaire” (or “DSO”) to the Trustee at the meeting of creditors.  This identifies the recipient of any domestic support payments made by the debtor.

MOTION – Any time that a party requests something from the Court, they are required to file a motion.

OBJECTION – An “objection” is usually a response to a motion when an opposing party does not agree to the action requested in the “motion”.

ORDER – After a motion is filed, the Judge will rule on the motion, after considering the merits of the motion, and the law and facts in support of the motion.  If an objection is filed, the Judge will also consider the merits of the objection.  The Judge will then issue a ruling, known as an “order” which resolves the motion, and if applicable the objection.  The order will compel a party to do or not do some specific action, or require some other action.

DISMISSAL – An order of “dismissing” a case may be entered in response to a “motion to dismiss”.  A “dismissal” means that the debtor has failed to perform certain requirements in order to qualify for bankruptcy protection.  A “dismissal” could also be granted when the debtor is not eligible for bankruptcy relief, or has committed some act of fraud or omission (such as making false or incomplete statements in the petition).  A dismissal may also be voluntary, in an instance in which the debtor no longer wishes to remain in their case. Once a case is dismissed, the debtor no longer has the protection of the “automatic stay”, and creditors are allowed to resume collection of their debts.