This morning, I received an email from a gentleman named Jim, who writes:

How can I file chapter 7 by myself without paying someone, anyone $ 99.00 $199.00, $299.00 etc… Three different people( with a financial intrest of course) said representation is required.

Here is my response: Jim, you certainly have the right to file a Chapter 7 case by yourself.  The forms are available either on-line or at an office supply store.  There are also several books about how to do this.  I am currently reviewing a book entitled The Complete Chapter 7 Personal Bankruptcy Guide by attorney Edward Haman that is published by Sphinx Publishing that is quite comprehensive.

Here are the issues:

1. the bankruptcy process has become significantly more complicated since October, 2005, when the BAPCPA changes to the bankruptcy laws were enacted.   I know a number of lawyers who used to file the occasional Chapter 7 here in Atlanta, but who have now given up the practice because of the complications.  In particular, you need to fully understand how the median income test and the means test works - if you do the calculations incorrectly, you could end up in a deposition at the United State's trustee's office, face a motion to dismiss or face a motion to convert to Chapter 13.

2. you need to understand about the pre-filing credit counseling requirement as well as the pre-discharge financial management course requirement

3. in order to actually file your case, you will need to go to the Clerk of Bankruptcy Court and scan your pages to get your case filed.  I suspect that this process is not particularly complicated, but I have not used the scanning equipment at the Clerk's office.

4. you cannot dismiss a Chapter 7 voluntarily if you change your mind.  For example, if you file, but it turns out that you earn too much or own too many assets the judge may not let you out of your case, at least until after your assets are liquidated.

5. you need to understand how the Georgia exemption law works and how it applies in Chapter 7 to protect property that the law allows you to protect.  If you don't properly declare property as exempt even if the law would otherwise allow you to protect it, then you could lose your property anyway.

6. do not expect to receive advice from the Chapter 7 trustees or the U.S. Trustees.  Their interest is to maximize the recovery of the estate (i.e. your creditors).

I do not think it is a good idea to try to file bankruptcy without counsel.   My practice is not designed for people looking for the least expensive option but there are many fine firms in the Atlanta area who would be a better choice for the Chapter 7 debtor with a straightforward case and not a lot of money.  There are Atlanta bankruptcy law firms that will prepare and file your case without a large up front payment and who will take terms on payment of attorneys fees.

The United States Supreme Court does not frequently hear cases involving consumer bankruptcy law.  However, this past February, the Supreme Court considered the case of Robert Marrama, a Chapter 7 debtor in Massachusetts.

Mr. Marrama filed a Chapter 7, but failed to disclose on his schedules that he had put title to a Maine vacation house into a trust. He also failed to disclose an income tax refund.  Interestingly, it appears that Mr. Marrama did reveal the existence of the house, but listed his ownership interest (equity) as zero.

The Chapter 7 trustee checked property records and discovered the transfer (it is unclear to me when this transfer occurred, although the transfer itself does not seem to be an issue here).  The trustee filed a motion to undo the transfer and take title to the house for the purpose of selling it.

Mr. Marrama then moved to convert his case from Chapter 7 to Chapter 13.  The trustee objected and the bankruptcy judge ruled against Mr. Marrama as did several other appeals courts.  The case eventually made its way to the Supreme Court, where Justice John Paul Stevens writing for the majority, stated that while honest debtors were entitled to convert their Chapter 7 cases to Chapter 13, a bankruptcy judge is entitled to take away that right because of “fraudulent conduct."

The case will be sent back to Massachusetts where Mr. Marrama will no doubt lose all of his non-exempt property.  Chapter 7 cases cannot be dismissed without permission of the court and this is clearly not a case where such permission will be granted.

The point here - it is vital that you reveal all of your assets and debts to your attorney and to the courts.  Over the past few years, the United States trustee and Chapter 7 trustees have become much more vigilant in looking for assets.  Recently one of the attorneys for the United States trustee told me that her office's goal is to push people out of Chapter 7 and into Chapter 13.  Chapter 7 trustees are being strongly encouraged to look closely for hidden assets.

Thanks to Scott Sagaria of the California Bankruptcy blog for writing about the Marrama case.

Not that it is any surprise, but disgraced Falcon's quarterback Michael Vick has filed for bankruptcy.  The case was filed as a Chapter 11 reorganization in the Eastern District of Virginia.  Chapter 13 was not available to Vick because his debts far exceed the debt limits imposed by the Bankruptcy Code on Chapter 13 cases.

Under a Chapter 11, Vick will propose a repayment plan for creditors.  Generally, plans in Chapter 11 cases are filed within the first year after filing.  Here, I don't see that Michael Vick can possibly know about his future earnings.  If he gets past state charges, if the NFL reinstates him and if a team is willing to pay him for his services, then a Chapter 11 would be feasible.

If there was ever any question that a debt crisis can happen to anyone, Michael's story shows that bad choices and bad luck can land anyone in bankruptcy court.   Until the money starts rolling again, however, Michael Vick has just created on-going employment for a lot of lawyers on both the debtor and creditor side.

Thanks to my friend Scott Riddle for reporting the Vick filing on his excellent Georgia Bankruptcy blog.

Whenever I file a Chapter 13 on behalf of a client, I remind my client that five years is a long time, and that a lot can happen during the term of a Chapter 13.  Marriage counselors reguarly opine that financial stress often leads to marital discord, so it should come as no surprise that the stresses inherent in a Chapter 13 will result in marital problems.

What should you do if your marriage begins to unravel during the course of your Chapter 13.  There are obviously many scenarios that I could discuss, but I am going to start with a real life example that I am watching develop currently.

The case study I am presenting involves a Chapter 13 client who was married at the time we filed over two years ago.  Because the debts at issue were hers alone, she filed individually.   Over the course of the past two years, her marriage has floundered and she has been separated from her husband for well over 6 months.  She advises me that there is no hope for rehabilitation.

My client has primary physical custody of her children, and she has moved into a rental home.  Her estanged husband lives in the former marital domicile.  As best I can tell, there is a small amount of equity in the home - perhaps $10,000 to $15,000.

My client is also struggling financially.  Although she receives child support, she is having a difficult time making ends meet.  Gas prices, of course, are through the roof, as are the costs of other essentials like food and clothing.

The only secured debt in our case was a vehicle loan, but now the vehicle is non-operational and she is prepared to surrender it.  There is a small amount of outstanding tax debt and around $25,000 or unsecured debt.

If there was no divorce issue, this would clearly be a case that is appropriate for conversion to Chapter 7.  My client's income is below the median income for a 3 person household and all of her debts are now unsecured.

The problem, of course, has to do with the pending divorce issues.  If my client was to convert to Chapter 7, it would be in her best interest - in a bankruptcy context - to surrender all interest in her house.  She is not living there and it does not make any sense for her to reaffirm a financial obligation on someone else's house.  After all she has no control over whether her soon-to-be ex-husband will make payments regularly or even maintain insurance on the property.   If the property insurance should lapse and the house burns down, my client could find herself with hundreds of thousands of dollars of liability, not to mention devastating derogatory marks on her credit.

From a divorce perspective, however, the decision is not so clear.   Right now, the ex-husband is living in the house and presumably wants to stay there.  If there was no bankruptcy complication, my client could use her title and equitable interest in the house as a negotiation point.  Ever dollar that the ex-husband spends to pay down the mortgage is creating equity that my client may have a claim against.  Arguably, my client could ask a divorce court judge to award her possession of the house, so as to provide a stable living environment for her kids.  The estranged husband most likely does not want to live with the uncertainty.  My client could bargain away her equitable interest in the house in exchange for a larger property settlement or perhaps for some other concession.

If my client was to convert to a Chapter 7 now and surrender all interest in her house, she would be giving up that leverage.  In addition, the estranged husband could use the bankruptcy filing against my client - perhaps questionning her financial stability or arguing that his credit has been damaged if the mortgage lender forces him to refinance.

Everything else being equal, my advice to my client is to consult with her divorce lawyer as soon as possible and to get that process moving.   The bankruptcy trustee and judge usually will not have a problem with a property transfer in a Chapter 13 that is pursuant to a divorce.   If she is going to convert to Chapter 7 - and she really does need to do so - she should wait until her divorce case is more settled.

Ideally, she should not have waited to finalize the divorce, but she did.  Now she may have to wait several months, but, in my view, this is her best course of action.

This past Saturday, June 21, 2008, I went to a bankruptcy auction of a Chapter 7 debtor's property.  The sale arose from the bankruptcy of a business promoter who filed bankruptcy after his project failed.  I recorded a short video describing the type of property that was being auctioned, which is at the top of this post.

The business was a media company that was going to stream on-line videos to individuals - kind of a self-help program delivered by video.  The promoter apparently solicited investments from dozens of people, but apparently the money ran out before subscription income could sustain the business.

Originally the promoter filed a Chapter 11, reorganization, but it was converted to Chapter 7 because there were insufficient income streams to reorganize.

This case was set up as an "asset case" as the debtor owned personal assets beyond what he could claim as exempt property that could be liquidated for the benefit of creditors.  The trustee hired an auction company and the auction was scheduled for 9:00 am on June 21 at the debtor's house.

I found out about this because a good friend of mine lives in the same neighborhood as the debtor and he had heard rumours about what might be inside.  I decided to join him at the auction.

We arrived at the debtor's house around 8:30 AM and there was a line of about 30 people in front of us.  Some were from the neighborhood, but most were not.  Cars were lining the streets in the subdivision, and security was present.

Right at 9am, the doors opened and people streamed in.   The first thing I noticed upon entering was that all of the items for sale were tagged.  This was not an auction in the traditional sense - basically the auctioneer had priced the various items and if you got there first, you could buy the item.  I suspect that as the week goes on, the liquidator would be open to offers, but I wonder how much stuff will be left at that point.

While there was plenty of stuff left by the time I got in, there were people there who obviously knew what they wanted.

Because the proceeds of the auction go to the bankruptcy estate (to pay creditors and the Chapter 7 trustee), the liquidator was not giving anything away, but I suspect that there were some decent deals if you knew what you wanted.  If I had to guess, I would say that most of the small items were going for 60 to 70 cents on the dollar.

The second thing I noticed - the debtor's house was pretty much left as it was found when the trustee seized possession.  There was food in the refrigerator, dirty clothes in the hamper, etc.  It was a little creepy, to be honest.

I walked around for about 30 minutes, but did not buy anything.  There were a couple of items that seemed like good deals, but nothing that was worth standing in a 30 minute line to pay.

I would like to stress that this type of situation - an auction of personal belongings at one's house - is fairly unusual.  Firstly, most Chapter 7 cases are "no-asset" cases, meaning that all of the debtor's personal property is exempt.  Secondly, this case involved an investment promotion failure (the Chapter 7 trustee refers to it as a Ponzi scheme in his pleadings), and the trustee in this case may have been trying to send a message.

We have all heard about the "sub-prime" mortgage crisis, but do you really understand what it is all about and why the collapse of the sub-prime market has lead to a decline in your local real estate market as well as a decline in the American economy in general.

The BankruptcyProf blog, edited by Professor Jonathan Hayes of the West Los Angeles School of Law explains why sub-prime mortgages are a problem and why this market collapsed.  The explanation consists of a PowerPoint presentation using stick figures.  If only Economics 101 was so clear and enlightening.

Take a look and let me know what you think.

Bankruptcy attorneys like me will frequently refer to something called the "new bankruptcy law." The "new" law is now 3 years old and not really so new. Officially named (or misnamed) the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or "BAPCPA," this law has been the subject of many posts on my blog, on bankruptcy lawyer blogs all over the country and on multi-author blogs like the Bankruptcy Law Network Blog and the Credit Slips blog, which is written by law professors and other academics.

Although the commentary about BAPCPA is not likely to stop soon, I thought it might be helpful to take a break from the analysis in order to review the history. With important elections on the horizon, this might be a good time to let your elected representatives know what you think. In case you were wondering, I think BAPCPA is an awful law, punitive in nature, and causing the cost and complexity of consumer bankruptcy filings to increase unnecessarily. If there is any "consumer protection" in this law, I have yet to find it!

Attorney Mark Neis, the husband and law partner of my Bankruptcy Law Network colleague Jill Michaux, has written an informative post about the history of BAPCPA. If you were ever of the opinion that our laws were crafted by diligent lawmakers concerned only for the public good, you will be disappointed to find out that is not how it works.

I received a call today from a reporter at the Atlanta Journal/Constitution.  He is looking to speak with homebuilders (small or large) who are struggling financially.  He is preparing a feature on the local real estate market and the struggles of local homebuilders and developers.  You would not have your name published if you prefer.  If you would like to speak with this reporter, please contact me offline and I'll put you in touch.

The video below was recorded by my friend and colleague Darrin Mish of Tampa, Florida as part of the video section of his Get IRS Help web site. I met Darrin several years ago at a tax problem resolution seminar and I regularly refer tax problem clients to him. Unlike most areas of the law, tax problem lawyers can represent taxpayers all over the country - Darrin's office happens to be in Tampa, Florida, but he assists clients all over the country.  Darrin also publishes a helpful blog about solving IRS problems.

In this video, Darrin discusses how bankruptcy can be used to discharge tax debts. He was nice enough to mention this blog in his video and I am reproducing it below:

My husband and I are filing a chapter 7 bankruptcy in Georgia. During the 1st consultation our lawyer notified us that the court would notify his ex-wife about us filing bankruptcy. She resides in South Carolina. We are up to date on child support and have never been late. The child support is not included in the bankruptcy. Why does she have to be notified? Shouldn't this be our personal business? Please explain if this is a law or something. Thanks!

Jonathan Ginsberg responds: the 2005 changes to the bankruptcy laws added a requirement that if there is a claim for a domestic support obligation in a case, the trustee (either the Chapter 7 trustee or the Chapter 13 trustee) must provide written notice (with certain required information) to (1) the holder of the domestic support obligation claim, and (2) the applicable State Child Support Enforcement Agency established by §§ 464 and 466 of the Social Security Act. A notice at the time of filing and a second notice at the time of discharge are required. In the notice to the holder of the domestic support obligation, the trustee must provide contact information for the State Child Support Enforcement Agency.

You can read more about this requirement on the U.S. Trustee's website.

In Chapter 13 cases filed in the Northern District of Georgia, the standard plan used by all three trustees has a place where the debtor has to check off that he does or does not owe a domestic support obligation and if he does, the address where he sends the money.

You cannot get your Chapter 13 case confirmed if there is a domestic support delinquency that is either unresolved or not addressed in your case.

If you did not realize this, the information contained in your bankruptcy filings is public record. Other than Social Security numbers, your credit card account numbers, and the names of children, pretty much everything else in your bankruptcy petition can be accessed by anyone.

When the BAPCPA changes were being debated in Congress, a number of elected representatives expressed concerns about the plight of custodial parents and instances where debtors used the bankruptcy laws to avoid paying support. Previously, for example, debt arising from a divorce that was in the nature of property division could be discharged - this has been changed and this type of debt is now non-dischargeable.