Here is an interesting question I received this morning from one of my former clients. She raises several important points so I thought I would answer it on the blog rather than simply by email.
"My friend signed bankruptcy papers yesterday…she was in a rush. She's filing Ch. 13 with 100% payback because she makes too much money to do anything else, allegedly. Later she found some errors that is making it where what she will pay out on the debts plus regular monthly bills, she pays out more than she's bringing in. Called her lawyer at 6:30 this morning, left a message — DON'T FILE IT, IT'S NOT RIGHT. Called all day and couldn't get anyone. Messages at the lawyer's office weren't listened to until 3 PM — AFTER FILING. Is here a 3-day right of recission for this, or an amendment/revision possibility, or is this something that would be addressed at the hearing? "
My response: There is no "right of recission." once a case is filed it is filed. She can voluntarily dismiss the case but if she does so any subsequent filing within the next year would be slightly more difficult. In a second case filed within a year, the automatic stay, which is the core protection of bankruptcy, expires after 30 days unless the debtor and her lawyer file a Motion to Extend Stay and convince the Judge to extend the stay because of changed circumstances.
Further, if she is going to dismiss, she should do so soon, before any creditor files a Motion for Relief from Stay. If she was to dismiss after a creditor files a Motion for Relief from Stay, she would be barred from refiling for 180 days. She can and should sit down with her lawyer and discuss the budget tosee if it can be fixed. Budgets and plans are amended all the time.
By the way, if your friend had filed a Chapter 7, she would not have the right to voluntarily dismiss. Chapter 7 cases can only be dismissed if the Court permits. Chapter 13 cases can be dismissed as of right (unless the Court orders otherwise).
You have highlighted a couple of very important points. First, every bankruptcy debtor needs to carefully review each page of his or her petition to check for accuracy. I think it is also the responsibility of the bankruptcy lawyer to explain exactly what is going to happen and what the debtor must do, but ultimately, the debtor is the one who has to live with the Chapter 13 for the next five years.
Second, when one is sitting in a bankruptcy lawyer's office discussing Chapter 7 or Chapter 13, everything needs to be on the table. Cars, houses, time shares, furniture – everything. I have noticed a significant change in the way both the courts and the trustees approach bankruptcy.
Under the old law, bankruptcy was a kind of financial tool. Chapter 13 was sort of like Consumer Credit Counseling on steriods – you had the power of the Court in your corner to force creditors to accept a reasonable repayment plan. Now, bankruptcy is more about pain. What does it take for you to survive? Luxuries – and by luxuries I am referring to a car payment of $500 or a house payment of $2000 – may not be acceptable.
The trustees in bankruptcy now expect you to change your lifestyle and to live under a very basic budget. Bankruptcy consultations now remind me of tax problem consultations. I am not the reassuring, optimistic counselor that I used to be because I would be misleading my clients if I took that attitude. Although bankruptcy remains a very powerful tool, the issue is not what you want to do, but can we structure a plan that lets you keep your house or car or furniture.
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