Editors note:  In this compelling guest post, Charleston bankruptcy lawyer Russ DeMott describes what he calls "financial repression" – the tendency of honest, hardworking men and women to delay or forego bankruptcy protection because of the administrative and expense burdens added to the bankruptcy filing process by the 2005 BAPCPA changes to the bankruptcy laws.

When you meet with your bankruptcy lawyer, you’ll be given a lot of information.  You’ll also be given many tasks to complete before you file your bankruptcy case.

Our new bankruptcy law, BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act), created a tremendous amount of busy work for debtors.  You must complete a credit counseling session prior to filing your case, you must provide the trustee with the last tax return you filed, and you must give your bankruptcy lawyer six months’ worth of pay stubs, just to get started.  There’s lots of work to be done.

Debtors are already stressed out when they come to their lawyer’s office.  The law is often confusing.  There are many new terms thrown around: CMI, DMI, discharge, First Meeting of Creditors, 341, 362, median income, means test, trustee, and on and on.  Even if they have a lawyer who explains things well, there’s a large amount of new information to absorb.

On top of all this, they must provide their lawyer with numerous documents.  Some of these are easily accessible; some are not.

In my Charleston, South Carolina bankruptcy practice, I have noticed that many clients seem worn down by this process.  We regularly check on open files to notify the clients of the information we need to file their cases.  Sometimes they respond, but sometimes they don’t.  It’s as if they believe that if they ignore the financial mess they are in, the problems will magically disappear.  They won’t, of course.  In fact, they’ll continue to get worse.

I call this financial repression.  Like any other repression, it delays a resolution.  Whatever the problem is, it doesn’t get solved.

I know financial problems are stressful.  And I also know clients feel overwhelmed and beaten down.  To be honest, I hate asking my clients for many of the documents I have to request.  Much of the information is, as my high school history teacher would say, merely academic.  I need the information to fill in a spot on a form, even though it’s really not relevant to their financial situation.

But I didn’t make these rules.  And your bankruptcy lawyer didn’t, either.  Think of the process as just a bunch of hoops you must jump through.  The Credit Industrial Complex, as one of my colleagues calls it, wrote much of our bankruptcy law.  The goal of the new law—or at least one of its primary consequences— was to make the process expensive and miserably labor-intensive.  But if you allow yourself to repress your financial problems, you will be letting your creditors win.

Roll up your sleeves, start digging for those documents, and give your lawyer what he or she asks for.  The sooner you do that, the closer you are to getting the fresh start you need and deserve.

About Russ DeMott:  Russell A. DeMott is a bankruptcy lawyer representing clients in Chapter 7 and Chapter 13 bankruptcy cases.  He practices in Charleston, South Carolina.

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.

My Bankruptcy Law Network colleague, Michael Doan, has posted a very useful article about the timing of filing.  Specifically, Michael points out that if you start the bankruptcy information gathering process towards the end of a month, and the process rolls over to the next month, then a lot of the work has to be redone.  For example, the six month medican income test look back would involve a new six month period, your credit counseling certificate validity date may run out and the required tax return might change.  I encourage you to take a look at Michael's well thought out post entitled "File by the End of the Month or Start Over."

I think that in a big picture sense, what Michael is saying is that you need to communicate regularly and accurately with your lawyer.  If you meet with your lawyer on the 20th of the month and promise to have all necessary documentation by the 27th, but you end up rescheduling your appointment to the 5th of the following month, don't be surprised if you have to pay a higher fee to account for all the new calculations.

In my practice, I do not start the time consuming process of analyzing pay stubs and figuring out the median income and/or means test until I have pretty much all of the required documentation.  This means that I can't give my client bottom line numbers unless and until my client provides me with pay stubs and tax returns.  I can still give a "big picture" analysis based on my experience, but the actual number crunching has to wait.   This is a major shift from pre-BAPCPA practice where I could run numbers almost immediately.

Some of my colleagues are more willing to tolerate the risk of not getting documentation in time and they end up running their calculations two or three times.  If you are a lawyer and this is how you have set up your practice, I would advise you to keep your notes so at least your'll have a head start on the calculations.

The second course, which is the subject of this post, is the "ticket out."  Known as the "financial management course," this educational requirement involves education about budgeting, interest rates and other financial managment tools that will, hopefully, keep you out of bankrutpcy in the future.

In a Chapter 7 case, you are supposed to complete your financial  management course within 45 days from the 1st date set for your  Section 341 meeting of creditors hearing.  In a Chapter 13 case, you must complete the financial managment course prior to making your last Chapter 13 payment or prior to the closing of your case.

If you do not complete your financial managment course requirment and file your certificate of completion (your attorney will file this for you), you will not be eligible for a discharge.

In my practice I recently represented a Chapter 7 debtor who did not complete her course prior to her case being closed and we had to reopen her case for the sole purpose of filing the financial  management course certificate.  So far, it appears that most bankruptcy judges will permit such reopenings, but be aware that there is a filing fee to do this as well as an attorney's fee for the time involved.

Most of the vendors who provide pre-filing debt counseling will also provide financial managment courses as well.  The list of vendors that I provide to my clients can be found on my BankruptcyWorksheet web site.

I always advise my clients to get the Financial Management course out of the way.  You are not likely to think about this requirement 4 years into your Chapter 13 and the only notice set out by the clerks' office is done a couple of months into your case.

The Financial  Managment course can be taken by phone or over the Internet and it will last only a few hours.  I would be interested to hear from anyone who has taken this course to get your observations and thoughts about its value.

Lest you think that I am alone in my attitude about the current bankruptcy law, take a look at this blog post by South Carolina bankruptcy lawyer Däna Wilkinson on the Bankruptcy Law Network blog.  Däna entitles her post "Top Ten Wastes of Time After BAPCPA" and she discusses the wastes of time for both debtors and their lawyers.

In my view the whole median income/means test income calculation using gross income numbers from the six months prior to filing is the biggest waste of time.  Why should your eligibility for Chapter 7 today be a function of your income over the past six months.  At least in the Northern District of Georgia, bankruptcy judges have been open to the idea of tossing out the six month lookback if your current income situation has changed.

These medican income/means test calcuations can take several hours and, at the end of the day, the results tell us nothing about the debtor's current capacity to pay creditors.  But, because I have to spend my time processing the numbers, my fees have gone up.  What a waste of time for no good purposes.

Close behind the median income/means test requirement are the credit counseling/financial managment course requirements.  Basically these required education courses offer very little useful information to a bankruptcy filer, but they do add around $100 to the cost of filing – $50 for the certificate to get in and $50 for the certificate to get out.   If there is a point to this surcharge, it escapes me.

Take a look at Däna's article – it would be interesting to hear from both debtors and debtor's lawyers – what do you think?

Technorati Tags: credit briefing, financial management, means test, median income test, bankruptcy law network

Judge Richard Stair held that Section 109(h)(1) of the Bankruptcy Code provides that a debtor must obtain credit counseling "during the 180 day period preceeding the date of filing of the petition."   Judge Stair interpreted the phrase "preceding the date of filing" to not include the actual day of the filing.  If Congress had meant to include the date of filing, the statute would have said "on or within the 180 day period."  Judge Stair further observed that the credit counseling requirement was intended to give debtors a chance to think about their actions and that filing bankruptcy that same day gave little time for such contemplation.

Judge Stair's decision is yet another example of the absurd application of our new bankruptcy laws.  Bankruptcy Court statistics show that less than 5% of potential bankruptcy filers end up not filing because of the mandatory credit counseling.  As a practical matter, therefore, the credit counseling requirement simply serves as a $30 to $50 tax on debtors and provides limited if any benefit.

My own clients report that the credit counseling is basically a waste of time.  If Courts around the country adopt Judge Stair's reasoning, deserving but unfortunate debtors – especially those facing home foreclosure – will find the doors of the courthouse closed to them.

According to the SplitCircuits blog, several other bankruptcy judges have refused to follow Judge Stair's interpretation of Bankruptcy Code Section 109(h)(1).  Until we see how this shakes out, my advice is to get your credit counseling early and avoid this 109(h) issue altogether.