I’m getting ready to file a Chapter 13 case, but the attorney’s fees are so much higher than Chapter 7, why is that?

The reason why Chapter 13 attorney’s fees are much higher than Chapter 7 is that Chapter 7 is a fairly straight-forward and in the best-case scenario a 90 to 100-day process.

Whereas in Chapter 13 you have to do everything you would do in a Chapter 7 plus you have to get a plan confirmed, plus, you know, clients are living through their lives during Chapter 13, income rises and falls, expenses vary, sometimes you need to get a car, sometimes you need to move out of a house and the attorney needs to be prepared to manage all of those different circumstances that are going to come up during that 3 to 5 year period and that’s why the Chapter 13 attorney’s fees are significantly higher then Chapter 7 attorney’s fees.

Thoughts from a Maryland Bankruptcy Lawyer

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Thoughts from a Maryland Bankruptcy Lawyer

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“I owe a lot in taxes. Is that considered the kind of debt that will disqualify me from Chapter 7?”

Well, the short answer, and the very good news is, that is not considered consumer debt. The general rule is that if you have even 51 percent of your debt as consumer debt, then you have to deal with the means test if your income is above the median income for your state.

Now, consumer debt is defined as debt that was incurred primarily for personal, family, or household use. Bankruptcy courts around the country have determined that taxes do not fit into one of those three categories, therefore, if the majority of your debt or if enough of your debt is in tax obligations so when it’s added to your other non-consumer debt, non-consumer debt is 51 percent or higher, then you don’t have to worry about your income, you don’t have to worry about the median income, you don’t have to worry about the means test, and you’ll qualify for Chapter 7

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“You know, I do online banking so I don’t keep a check register anymore. Is that going to create problems in my Chapter 7 case?”

Well the answer is it might. There’s an obligation in Chapter 7 that you maintain records sufficient to enable creditors and the trustee to really ascertain your financial condition, so they may want to see where you’ve been spending your money, how you’ve been spending your money, and how you’ve been managing your finances over the year or two before you file bankruptcy.

If you don’t have a check register, if you keep everything online, you’re at the mercy of that bank in pulling everything together and explaining to the trustee where the money went. There is the obligation under the bankruptcy code that you maintain records so that they can ascertain your financial condition; and if you don’t, you will not get a discharge in bankruptcy, and that is the worst result of all.

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In a classic Chapter 7 case, where the debtor does not have equity in his assets over the exemption, which is called a no asset case, the typical Chapter 7 case will take about 100 days. You file bankruptcy then within 30 to 40 days, you have a meeting of creditors, although typically creditors never show up and I prefer to call it the meeting with the trustee and that gives the trustee a chance to talk to the debtor about the debtor’s bankruptcy schedules that have been filed under oath as part of the bankruptcy case.

If we assume that the trustee finds that there are no assets for creditors, he’s going to file a no-distribution report right away. Creditors have 60 days after the meeting with the trustee to file objections to the bankruptcy case, which usually only happens in the event of a fraud or an intentional harm or some other specified exception to the discharge laws. If nobody has filed that kind of complaint with the bankruptcy court within that 60 day window, on the 61st day, the bankruptcy court will issue a discharge order and the case will be closed and the court will enter what’s called a final decree.

The Chapter 7 process is a very short process and that’s one of the reasons why it’s such a favored remedy for debtors with unmanageable obligations.

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It is a requirement of the Bankruptcy Code that debtors reaffirm loans secured by personal property such as cars, computers, boats, etc. Reaffirmation means that even though you receive a discharge in bankruptcy, creditors holding reaffirmed debts can still get judgments and seize wages and bank accounts if the debtor fails to pay.

Many bankruptcy courts don’t favor reaffirmation agreements because they tend to defeat the very purpose of the Bankruptcy Code which is to give debtors a fresh start if they’ve fallen into financial difficulties. So what frequently happens in these cases is the debtor will do what the debtor is supposed to do, which is sign a reaffirmation agreement that’s been prepared by the car lender. Then the debtor’s lawyer will refuse to sign this document because I think it’s going to create an undue hardship on the client. Nevertheless the lender will almost always file that reaffirmation agreement with the Bankruptcy Court. The Bankruptcy Court will hold a hearing and the debtor and the debtor’s attorney have to appear. The bankruptcy judge may likely explain to the debtor that if their schedules show that their monthly income is less than their monthly expenses that the reaffirmation agreement really is creating an undue hardship on the debtor and the Bankruptcy Court will refuse to approve the reaffirmation agreement.

This doesn’t create a problem for the debtor because the debtor has done everything that they were supposed to do under the Bankruptcy Code. The order that the Bankruptcy Court will enter will provide that as long as the debtor is making payments on the car, the secured creditor can’t seize or repossess that car.

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