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August 13, 2014

Bankruptcy – a Legitimate Reset Button?

Any ethical bankruptcy lawyer will tell you that filing a Chapter 7 or Chapter 13 should be your last resort. It is something that needs plenty of meaningful thought and the advice of professionals who help good people to see debt relief as achievable. There are ways to deal with debt that will not involve a filing of bankruptcy, but one size does not fit all.  The main thing to remember:  if you do nothing, the problem will not disappear. [Read more...]

Bankruptcy Paperwork Requirements Can be Unforgiving

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.

What Are The Credit Counseling Course Requirements in Bankruptcy

At Clark and Washington, we get a lot of questions about the credit counseling and financial management course requirements set out in the bankruptcy laws.  When are these courses required?  How much do they cost?  Why are there two courses?  How long do the courses take?

Here is a brief overview of the credit and financial management courses that you are required to take as part of your bankruptcy filing:

Pre-Bankruptcy Credit Counseling

Before you file, you must complete a "credit counseling" course.  This counseling requirement applies whether you are filing Chapter 7 or Chapter 13.  The certification certificate that you receive upon completion of this course is part of our standard filing paperwork.  Pre-filing credit counselors must be Trustee approved.  Here is what will be covered:

  • the counselor will evaluate your financial situation
  • the counselor will provide information about consumer debts (i.e., credit cards and consumer loans) and will discuss alternatives to bankruptcy
  • the counselor will discuss budgeting and help you evaluate whether you have enough in your budget to pursue a debt workout rather than bankruptcy
  • if requested, the counselor will refer you to a debt management agency for the creation of a personal debt management plan
  • the counselor will attempt to offer a long term view of your financial activities and habits

Generally the credit counseling courses last anywhere from 60 to 90 minutes and can be done in person, on the web or via telephone.  Most of the credit counseling agencies we have seen offer this counseling for between $35 and $50 per person.  If you cannot afford to pay the counselor’s fee, you may request a fee waiver from the counselor’s office. All fees and payment should be discussed and agreed to prior to the session.

Pre-Discharge Financial management Course

If you successfully complete your bankruptcy, your judge will issue an official court document called an "order of discharge."  This discharge order formally terminates your obligation to pay the debts that were included in your case.  Before you can get this discharge order, however, you must complete a course called the Financial Management Education course.   As is the case with pre-bankruptcy credit counseling, the financial managment counselor must be approved by the Trustee in your filing jurisdiction.   The purpose of the financial management course is to educate you about:

  • developing a budget and living within your means
  • developing better spending habits
  • learning about money management, including saving, budgeting and checkbook control
  • wise use of credit – what to avoid when accessing available credit

Generally financial management courses last about two hours and can be done in person, on the web or via telephone.   As is the case with credit counseling, the fee will be in the $35 to $50 range.

The financial management counseling company will fax or email a certificate to you and/or your lawyer.  This certificate must be filed with the clerk of court.  If you do not file this certificate prior to the time your case is closed, you will not receive a discharge.

Both course completion certifications together prove that the debtor has been educated by professionals to understand proper budgeting, money management and how to use credit without ending up in trouble. Of course these aren’t the only bankruptcy filing requirements, but these are two of the mandatory steps.  If you have any specific questions about pre-bankruptcy credit counseling or about pre-discharge financial management education, please call our office in Chattanooga, Nashville or Knoxville.

What Information Do I Need to Start My Bankruptcy Case?

Once you have decided to file for bankruptcy, you will need to gather the following information and bring it to our office:

  • copy of your most recently filed federal income tax return – if you have filed for tax year 2007, bring that; otherwise, bring your 2006 returns
     
  • copy of pay stubs (also called "pay advices") for this month and the previous six months.  We need these pay advices to analyze your income numbers for the bankruptcy median income and means test.  We will need pay stubs for you and your spouse – whether or not your spouse is filing with you.  The Bankruptcy Court needs information about household income.  If you are self employed or a commissioned sales person, we will need information about your gross income
     
  • credit counseling certificate – the law requires that you obtain credit counseling prior to filing and you will need to bring us or fax us a copy of your certificate
     
  • completed bankruptcy intake questionnaire that includes a list of all of your creditors
     
  • evidence about the valuation of your vehicles and real estate – for cars and trucks, we recommend that you take your vehicle to CarMax, where you can get a written purchase offer at no cost.  For real estate, we recommend that you ask a local real estate agent for a "drive by" appraisal

Our friendly staff is always here to help – please do not hesitate to call us:

Nashville – (615) 254-3633

Knoxville – (865) 689-1777

Chattanooga – (423) 634-1910