Part of the bankruptcy work that Clark and Washington does with our Chapter 13 clients involves the creation of a budget that will become part of the bankruptcy petition and filed with the clerk of bankruptcy court.

By law, Chapter 13 cases must last a minimum of 3 years, although many of the Chapter 13 cases we file will end up lasting 5 years.

It is hard enough to prepare a budget for the next six months - how can anyone possibly predict 5 years into the future?  There is no absolute answer to this - here is how we approach this problem:

• the Bankruptcy Code does allow us to file an amended budget.  If your income goes down, or goes up, we can revisit your case and change your plan.  Generally it is more difficult if you want to reduce your plan payment - we will have to appear before your judge to explain why your plan payment needs to decrease.
• when calculating a budget, we try to identify expenses that you know you will have.  For example, if you know that you will need a $3,000 dental surgery within the next year, we can build that cost into your monthly medical budget.   Car maintenance issues like new tires, 100,000 mile service, etc. can also be planned.  You may need to gather documentation for these future expenses, but a little work on the front end can make your plan a lot more livable.
• you need to communicate with our office.  Our job as your attorneys is to prepare and file a workable Chapter 13 plan and to work with you to keep that plan working.  If you foresee a temporary layoff or a job change, you need to let us know.  In some instances we can get a short term suspension of your Chapter 13 payment.
• in preparation for filing, you should gather receipts and think very carefully about your Chapter 13 budget.  Budget estimates are appropriate in some circumstances but inaccurate estimates in the context of a bankruptcy case can get you in trouble.

After you file a Chapter 7 or a Chapter 13 bankruptcy, you will be required to attend a brief hearing called a Section 341 Meeting of Creditors.  Bankruptcy professionals usually refer to this hearing as a "341 hearing."

Your 341 hearing will be held between 30 and 45 days after you file and it will last about 5 to 10 minutes.  Although nothing final happens at your 341 hearing and most of the questions are fairly simple, you may be concerned about this hearing.   Assuming that you have never been thorough bankruptcy before, it is perfectly understandable that you would be a little nervous.  In this short video, Clark and Washington associate attorney Laura Post talks about 341 hearings.  If you have any questions about 341 hearings - please feel free to call Laura or any of our staff lawyers.

Every week, Clark and Washington gets calls from elderly clients asking for information about bankruptcy because of unmanageable debt.  And all too often, this debt arises because the senior overspent on television home shopping programs or because the senior succomed to the pitch of a telemarketer.

Last year the New York Times ran a story called "Bilking the Elderly, With a Corporate Twist."  The story documents the process of how mailing list vendors compile detailed information about seniors using telemarketing phone scripts, and how these lists are sold to unscrupulous companies who rip off elderly victims by selling useless products and services. 

One company, InfoUSA Info advertised lists of “Elderly Opportunity Seekers,” consisting of 3.3 million older people “looking for ways to make money,” and “Suffering Seniors,” 4.7 million people with cancer or Alzheimer’s disease. “Oldies but Goodies” contained 500,000 gamblers over 55 years old, for 8.5 cents apiece. One list said: “These people are gullible. They want to believe that their luck can change.”

Often bankruptcy can eliminate the debt that arises from these scams, but not before a senior loses his life savings or puts his home at risk.  If you are a senior or if you are a family member of a senior:

• put your name on the national no-call directory
• avoid revealing personal information if you enter sweepstakes as many sweepstakes are designed to collect personal information that will be sold to telemaketers
• create a "disposable" email address with Yahoo or Hotmail for use in any online form
• never reveal bank or credit card information to an unknown caller
• don't be afraid to hang up if you feel uncomfortable

As you may have read, one of the practical implications of the October, 2005 changes to the bankruptcy law has been to "push" debtors away from Chapter 7 and into Chapter 13.  Chapter 13 is still a form of bankruptcy and it is a very powerful tool, but you need to be very careful at the outset of your case to make sure that you and your lawyer create a liveable and reasonable budget.

Clark and Washington sees dozens of clients each month in our five Tampa/St. Pete offices and our attorneys regularly meet to compare notes and to discuss current cases.   One of the changes that we have implemented in our case evaluation process has been to emphasize to our clients the importance of giving us accurate information about what the client and members of his household actually spend each month.  Chapter 13 lasts between 36 and 60 months and we need to work hard to make sure that we do not commit our client to a Chapter 13 payment that our client cannot afford.

We now suggest that our new clients keep a "to the penny" diary about spending habits.  You should keep this diary for a minimum of two weeks, although 30 days would be better.  You need to write down every penny you spend and keep receipts whereever possible.

Based on experience, we find that:

• most people underestimate how much they spend on food - both groceries and eating out
   
• many people spend $25 to $100 per month on items like cigarettes, checkout line magazine or candy purchases and other items that don't otherwise make their way into a budget
   
• kids are expensive!

If we have receipts and documentation we have resources to argue for a Chapter 13 payment that reflects reality, rather than estimates.  Keeping track of what you spend is always important, but never more so than when you are considering bankruptcy.

Will Congress give bankruptcy judges the power to modify the terms of mortgage loans?  Scripps News reports that several bills have been introduced in Congress to do just that.  These bills would limit relief to homeowners who didn't earn enough income to afford mortgage payments, had a subprime or nontraditional loan or faced imminent foreclosure.  Bankruptcy judges would be required to set commercially reasonable interest rates on modified mortgages and not reduce loan balances to less than the market value of the property.

Needless to say, advocates for the mortgage industry are not happy about this prospect.  They envision a situation in which homeowners turn to bankruptcy to rewrite unfavorable mortgage loan terms and they fear a slippery slope in which the mortgage securities market becomes unstable because of a lack of certainty regarding the value of a mortgage backed security.

As a bankruptcy law firm, we see many situations in which the onerous terms of a mortgage note limit the scope of relief that a debtor can obtain.  Further, bankruptcy loan term modifications are commonplace in automobile, furniture, jewelry and other commerical loans, without causing havoc in those industries.

Despite the limited scope of this relief, President Bush has stated that he will not sign any change to the bankruptcy law that would give bankruptcty judges the power to modify mortgage loans.  We will keep an eye on this very controversial topic and report any significant developments.

When is the right time to file for Chapter 7?  Clark and Washington's Jamie Allen explain why Chapter 7 can provide the most benefit to you when are not expecting your financial situation to get much worse.

If you ask 10 bankruptcy lawyers why their clients file for bankruptcy, you are likely to get ten different answers.  I ran across this post from the Silicon Valley Blogger on the Digerati Life blog that offers the following reasons:

1. Bad luck - unexpected illnesses, accidents, crime, unexpected job loss
2. Lack of preparation - lack of emergency funds, insufficient insurance, poor estate planning
3. Bad Financial Decisions - divorce, bad investments, gambling, falling for something that sounds too good to be true

Here at Clark and Washington, we probably see more bankruptcies resulting from medical problems and related bills than from any other cause.  Our #2 reason would be bad decisions - such as buying too much house or a too-expensive car.

Of course some bad decisions are worse than others.  Take, for example the case of Tony Alleyne in England.  Tony is an interior designer and he came up with the idea of creating a house  who came up with the idea of decorating the interior of his house as an exact replica of the Starship Enterprise from Star Trek - The Next Generation.  Tony believed that fellow Trekkies would rush to hire his firm to redecorate their houses in a Star Trek motif.

After going through several hundred thousand dollars (and 1 wife), Tony discovered that this Trekkie market did not exist and that he had spent almost 10 years pursuing a business plan that had no chance for success.

If you have any thoughts about what causes bankruptcy, we'd love to hear from you.  If you want to replace your refrigerator with a "warp coil" let us know as well - we can set you up!

Can you save your home from foreclosure without filing for bankruptcy?  There has been a lot of news lately about possible voluntary actions by mortgage companies to re-write loans, to hold off on foreclosure and to "work with" cash strapped homeowners.  All these possibilities are out there, but if you are facing an actual foreclosure, Chapter 13 bankruptcy remains your most reliable tool to stop a foreclosure.

This does not mean that scamsters have not found a way to use Chapter 13 as a tool for their fraudulent activity.   We recently came across an article in a Kasas City newspaper that described the activities of a foreclosure scammer.  The scammer would contact homeowners facing foreclosure and offer to stop the process for several hundred dollars.  He would then file a "two page" emergency Chapter 13 petition, then disappear.

The two page Chapter 13 will stop a foreclosure, but the homeowner is left with an incomplete petition and, quite possibly, a bankruptcy that they did not want.  Further, if someone signs your name to a bankruptcy petition that you did not authorize, this is a form of identity theft.

The U.S. Trustee estimates that this scammer stopped foreclosures on over $50 million of property in four States.  Although this particular scammer does not appear to have operated in the Tampa area, we regularly speak with clients who have been approached or vicitimized by foreclosure scammers here as well.

If you are facing a foreclosure, don't take a chance with a non-attorney who makes unrealistic promises.  A legitimate consumer bankruptcy law firm will tell you about the good and the bad having to do with Chapter 13.   Remember - if something sounds too good to be true, it probably is.        

Would you be surprised to learn that there are collection agencies whose main purpose is to collect debt that has been discharged in bankruptcy.  Would you be even more surprised to learn that these collection agencies are not fly-by-night operations - that five of them are traded on NASDAQ, and two of the largest of these debt buyers are owned by the respected investment firm Bear Stearns.

In its November 1, 2007 issue, Business Week published a disturbing investigative report about the very robust market in discharged debt.  Discharged debt can be bought for pennies on the dollar.  Collection agencies rely on techniques like harassment, ignorance of the law and timing (if your closing is being held up by a $500 debt that was discharged, you might be inclined to pay the debt to avoid a delay).

Here's how big - and lucrative this market is:  Norfolk (Va.)-based Portfolio Recovery Associates (PRAA on the NASDAQ) earned $44 million in 2006 on $188 million in revenue, a margin of 23%.  Portfolio Recovery said in its 2006 annual report that it had paid $55 million to buy debts with a face value of $6.3 billion that had gone into bankruptcies since 2004.

Often these debt buyers claim that they did not know about the bankruptcy as grounds to justify their collection harassment.  Others contend that the Fair Credit Reporting Act does not obligate them to update credit reports.

Some debt buyers intentionally change the account number of the discharged debt in order to make it more difficult to link the original creditor's account with the new collection account.

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 Tampa/St. Pete 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 managment 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 quesitons about pre-bankruptcy credit counseling or about pre-discharge financial managment education, please contact our office at 813-345-5954 or visit out Tampa bankruptcy web site.