Maureen O'Malley, Bankruptcy Lawyer

It’s not unusual to see debtors at the First Meeting of Creditors who have filed Chapter 7 on their own or with the help of non-lawyers. They’re easy to spot because the trustee finds many problems with their petition, and the debtors are at great risk of losing property needlessly or having the petition dismissed because important parts are left out.

These Petition Preparers are not lawyers, and bankruptcy is about far more than filling out paperwork. It must be complete and it must be honest and it must be done with knowledge of the requirements. Many Preparers don’t help with all the information you need and don’t know all the requirements, such as how to save your property or whether certain debts can be discharged or not.

It’s tempting to see them because their fees are very low. But you’ll end up still seeing a lawyer to fix those errors and to save your bankruptcy, and it will cost you much more in attorney fees to fix the mess.

You need a lawyer who explains the law to you, who can prepare the petition according to your needs, who knows whether there are other requirements to get your discharge entered properly.

By the way, some of these people, or even friends, may tell you not to tell anyone you had help. This is fraudulent and illegal. Even if your petition is otherwise perfect, it could be dismissed and you could face further penalties for lying.

A word to the wise.

So many people try to avoid foreclosure and bankruptcy by selling their house at short sale. I don’t recommend this for many reasons.

First, it takes a very long time to get a short sale approved. So long, in fact, that potential buyers have been known to cancel their offer before the bank responds.

Second, a short sale is no better for your credit report than a foreclosure.

Third, you may receive a 1099 and be required to pay tax on the difference between your debt and the sale amount.

Fourth, real estate agents favor them because they get a commission; the buyer may get a good buy; but you get no benefit you wouldn’t otherwise get.

Fifth, instead of the stress of a a short sale, you can just stay in your house and save money until the foreclosure finally happens. This is usually a long time.

Finally, I suggest looking into bankruptcy as a way of handling the heavy credit load; you can stop paying for the house (but pay HOA until foreclosure) and eliminate other debt as well. The credit report will look no different than if you’d gone through a short sale, and you’ll be free from your debt as well.

Homes are emotional issues for debtors, and it’s very difficult to let it “just go.” But consider it from a financial perspective: if you owe far more than it’s worth, it’s unlikely to ever equalize and you won’t be able to sell. If the monthly mortgage is high, you could live elsewhere for far less and have a better quality of life.

Lots to think about.

Most debtors never need to go to court, but a Meeting of Creditors is held about 30 days after you file your Chapter 7 Bankruptcy, known as a “341 Meeting,” that’s very important. At this meeting, you’ll meet the trustee who’s been assigned to your case. His or her job is to figure out whether you have any assets that can be sold to pay some of your debts. Your lawyer will have reviewed all these and will have saved your assets for you, in most cases. The meeting, though, is your one requirement to appear officially. It’s normally a very simple, stressless procedure.

In our district, in Alexandria, VA, there’s a large meeting room, where the Trustee and his/her assistant sit up front and calls debtors and their lawyers to the front one by one. You’ll need to show a picture ID, usually a drivers license, and proof of social security, either with a social security card or a W-2.  The questions and answers are taped, and interpreters are available by phone if needed. Most of these interactions take only a minute or two, as the trustee will ask for name, address, place of employment, phone numbers, number of dependents, prior bankruptcy filings. S/he will ask if you own a home, and will generally already have determined if it has equity. S/he’ll ask about cars you own, life insurance with cash value, tax refunds due, any other money due, whether you stand to inherit any money in the next 6 months. Most will ask if you signed the petition, if you listed all of your debts and assets, and whether you left anything out.

Your lawyer will already have sent in your bank statement, tax return, and pay stubs so that the trustee can confirm your financial standing, and you’ll usually get those back.In most cases, unless there are issues unique to your case, or if a creditor shows up (very unusual), this concludes your meeting and you’re left simply to wait for discharge.

Creditors have 60 days from the date of this meeting to object, based upon fraudulent reasons, and if there are no objections you’ll be discharged 10 days later

Drivers who have been charged with a traffic violation in Virginia are usually concerned with a number of things, such as fines, DMV points, and insurance cost increases.  The  greatest concern is usually about whether they’ll lose their driver’s licenses. This is a realistic issue, especially in Northern Virginia and its heavy traffic, as courts are becoming impatient with the number of violations that occur.

Even an out-of-state driver may face legal repercussions, as the DMV of surrounding states will file the Virginia violation in their own state, assigning points according to their system.

If you have been charged with a traffic violation, such as:  DUI, reckless driving, drug possession while operating a motor vehicle, driving without a license, driving without insurance, leaving the scene of an accident, hit and run accident, outstanding warrants for unpaid tickets or multiple traffic infractions, or speeding, you need to speak with an  attorney.

The biggest mistake people make is taking their traffic ticket too lightly and then deciding to skip court or to represent themselves.  This is a very poor strategy, because if you are represented a lawyer will normally increase your of obtaining a successful outcome for you.

I received another call this morning from someone who wanted to file bankruptcy to stop a foreclosure that’s scheduled for tomorrow. He had decided to try for a short sale first, and of course that was disapproved. This is so disheartening for bankruptcy lawyers who want to help clients escape their financial worries. When you stop paying your mortgage you know there will be some action coming. That’s the best time to call, and get advice about how you can proceed and how you can protect yourself. Maybe we can talk about short sales and deeds in lieu while preparing for a bankruptcy. If you want to save your house, a Chapter 13 may be able to do that, by paying the late payments through the Court.

But keep in mind that preparing for bankruptcy takes some time. I need to see a number of documents, including pay stubs, taxes, bills. And you need to complete a pre-filing bankruptcy counseling session. So many problems can arise if you wait until the day before foreclosure because the documents can’t be confirmed in time to file an adequate petition.

I want to help. Please give me the time to do it in a way that provides you with possible options and that serves you best.

A lot of people want to know the answer to this question. But it can’t be answered without knowing other facts. Some people want to file Chapter 13 because they feel guilty and want to pay what they can. I discourage this kind of thinking.

The first thing is to talk about the difference between the two Chapters. Chapter 7 is called a “liquidation” because if you have assets that could be sold to pay creditors, the trustee would sell them (liquidate them) and distribute the proceeds among the creditors. It takes about 3 months from filing to discharge in this Chapter. Though you may have assets, such as a car or retirement plans or money in your checking account, these can be protected by your attorney. Most Chapter 7 cases are called “no-asset” cases because there’s nothing to distribute. Many people use this Chapter to surrender a house that’s worth far less than what is owed, and they’ll have no further personal liability on the mortgage notes.

Chapter 13 is called a “Wage Earner Plan” because the debtor must have regular income to pay into the trustee’s office each month for three to five years. Some portion of unsecured debts are paid from the debtor’s disposable income and the debts are discharged once the Plan is completed. Good reasons to file Chapter 13 are if the debtor owns a home with equity and doesn’t want to give it up, if taxes or domestic support or student loans are owed and the debtor wants affordable payments, if the debtor earns too much money to qualify for a Chapter 7.

Why do I discourage people from filing Chapter 13 out of guilt? It takes 3-5 years, for one thing, and during that time the debtor is in the same position as when s/he started. Financial decisions can’t be made without the approval of the court. Most important to me is that debtors don’t owe any allegiance to their creditors. The interest rates are so high that the original purchases have probably been paid many times over. The idea of bankruptcy is to get a Fresh Start, and to do that I encourage people to congratulate themselves for recognizing a problem and for making a hard decision. Then I like them to start over as soon as possible.

The economy is terrifying these days. Joblessness is high, mortgage default is high, income is low. Yet the debt collectors are as aggressive as ever. I’ve heard from a lot of people who’ve looked on the web to learn about bankruptcy and believe it’s pretty easy to file. Well, that’s true, as long as what gets filed is prepared correctly. That part is not so easy. There are so many big and little hurdles to leap and miscellaneous issues that are not readily available. I’ve sat in creditors’ meetings and seen trustees send debtors home because they didn’t file the correct documents. Others have lost assets to the trustee that could have been protected. One debtor was there for her third try on her own, and she exclaimed in horror, “you mean I’m going to lose my house?” People have asked me if they could put their car in someone else’s name so the trustee can’t get it, or if they can quit their job so they show no income, or if they can max out their credit cards before they file. These people are risking a referral to the Federal criminal authorities.

So many debtors pay $5,000.00 or more to “debt-consolidation” companies, only to learn that the companies take their own fee up front then hold the rest to pay- eventually- to creditors who probably won’t even agree to the companies’ plan. Then the creditors sue and the debtor is out of more money and in more trouble.

There are a lot of scams, and because consumers are so afraid of what they see as the stigma of bankruptcy, they’ll try everything before coming to see a lawyer. They’ve been taught not to trust. But here’s what everyone needs to know: an honest and properly-filed bankruptcy is absolute protection against creditors. Lawyers know how to protect your assets and how to protect clients from creditors. We know how to recover money that’s been garnished and how to stop lawsuits. Creditors know enough not to contact a bankrupt client who’s represented by counsel, but I’ve seen them continue to try to collect money from those who represented themselves. And a lawyer will tell you if bankruptcy is not the best option for you, rather than taking money that won’t help you.

Think about how much money you owe, and how much you’ll no longer owe after you file. Think about the peace of mind you’ll have when you have a lawyer explain how bankruptcy will help you and when you no longer have to deal with the stress of the debt and the calls. The pleasure you’ll have when you can take your kids to a movie without worrying whether you can afford it.  Isn’t that worth a lawyer’s fee?

The most important way you can help yourself get through the bankruptcy process is to trust your lawyer and to give him or her all information, even if you think it might hurt you. First, it might not be a problem. Second, if it could be a problem, your lawyer can offer some options to minimize or eliminate it. We’ve heard from so many people, and we’re here to help and not to judge. Nothing shocks us. So please don’t be embarrassed or try to second-guess your attorney. If you hold back information, the Trustee will surely learn about it and your lawyer will look like a liar and a fool and you can have your bankruptcy dismissed and you could even go to prison.