Much has been written about the 2005 changes to the United States bankruptcy laws, very little of it being positive – at least from the perspective of the struggling families who find themselves seeking counsel with a Clark and Washington attorney discussing bankruptcy options.
One trend we have noted has to do with the unforgiving nature of many of the requirements now set forth in the law. For example, the credit counseling and financial management education requirements of the law are generally seen as a waste of time, but bankruptcy judges from around the country have dismissed cases when debtors do not follow the law’s requirements exactly.
For example one of our Tennessee bankruptcy judges dismissed a Chapter 13 case because the debtor obtained credit counseling the same day as he filed his bankruptcy case. According to the judge, the law requires that you obtain credit counseling at least one day prior to actually filing so a same day counseling and filing does not meet the requirement.
Imagine the heartbreak of a debtor who was not aware of this interpreatation of the law and loses a house or a car because his bankruptcy filing was deemed invalid.
We recently came across another example of a very harsh interpretation of the rules contained in the bankruptcy law. The law requires that debtor file with the court copies of pay advices for the 60 days prior to the date of filing. A New York judge recently dismissed a case where a debtor filed all but one of his pay stubs. The debtor’s pay was exactly the same for each pay period but he was not able to find one of his pay stubs. The judge wrote that he had no discretion under the law to accept anything less than complete compliance. “While dismissal of this case may seem to be a harsh result, it is one that is mandated by the statute”.
If you get the sense that filing bankruptcy without experienced counsel can be difficult, you are correct.
Filed under Common pre-bankruptcy mistakes, Getting Started, Pre-bankruptcy planning by 
Not surprisingly, the financial strains that drive clients to our office also create problems in marriages. Clark and Washington regularly meets with clients who are separated from their spouses or who are actually going through a divorce.
Recently we met with a client who wanted and needed to file for bankruptcy, but who had just paid his divorce lawyer a $7,500 retainer. Despite the pressing need to file bankruptcy, we advised our client to wait until 90 days had passed from the date the check to his divorce lawyer cleared.
The basis for our advice arises from an area of bankruptcy law known as “preferences.” Simply stated, Section 547 of the Bankruptcy Code provides that the trustee may recover payments to non-insider creditors paid within 90 days prior to the date of filing when such payments are not in the “ordinary course of business” (for insiders – relatives, business relations, etc. the lookback period is 1 year). Section 541 of the Code provides that the unused retainer, sitting in the divorce lawyer’s trust account constitutes property of the bankruptcy estate.
In the case of our client, the $7,500 transfer would not be “ordinary course of business” unless there was a series of $7,500 payments. Our concern was that if we had filed a Chapter 7 on behalf of this client, the trustee would demand the $7,500 from the divorce lawyer. As you might imagine, this would make for a very unhappy divorce lawyer.
Preference issues arise in other situations, of course, meaning that you need to reveal to your lawyer any “out of the ordinary” payments to anyone made within the year prior to your projected filing date.
Filed under Bankruptcy and divorce, Common pre-bankruptcy mistakes by
