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Depriving local governments of tax revenue is like cutting off oxygen to the body–they can’t live without it.  Local governments and schools in Nebraska depend on a steady flow of real estate tax revenue to keep their doors open.

To prevent cash flow problems caused by homeowners who fail to pay real estate taxes on time, Nebraska county treasurers  sell Tax Lien Certificates to investors for the unpaid taxes.  The investors earn 14% interest on their investment and if the certificates are not redeemed by the homeowner within 3 years, the investor make take ownership of the property by requesting a Treasurer’s Deed.

Although the investments are subject to risk, the potential to earn staggering profits is significant.  I’ve seen homes worth $100,000 lost for unpaid taxes of less than $5,000.  Most taxpayers over the age of 65 are not required to pay real estate taxes if they apply for the Homestead exemption annually, but with advanced age comes a loss of memory and it is not uncommon for the elderly to lose their homes when they fail to apply for the exemption.

WILL FILING BANKRUPTCY RECOVER A HOME LOST TO UNPAID TAXES?

A recent case from the 7th Circuit Court of Appeals provides an example of how filing bankruptcy may allow a homeowner to recovery a home lost for unpaid real estate taxes.  In that case (In re Smith, 526 B.R. 737), Keith and Dawn Smith owed $4,046.26 of real estate taxes.  The Illinois county treasurer sold a tax lien certificate to an investor for the unpaid taxes and when the Smiths failed to redeem the certificate by not paying the tax and accrued interest within the required time, the investor became the owner of the home.  The investor subsequently sold the property to another investor for $50,000.  Wow, that is almost 10 times the original investment price!

The Smiths filed a Chapter 13 bankruptcy and commenced an adversary complaint seeking to avoid the tax sale of their property.

BANKRUPTCY CODE SECTION 548(a)(2)

Under Section 548 of the bankruptcy code a transfer of a debtor’s property made within 2 years of the bankruptcy petition for less than “reasonably equivalent value” may be avoided.  May a person in bankruptcy utilize section 548 to recover a home lost in the prior 2 years to a tax certificate sale?

CASE LAW BACKGROUND: BFP v RESOLUTION TRUST CORP

As a general rule, homes lost to foreclosure sales cannot be recovered even if the foreclosure sale price is significantly less that what a home would fetch if it were sold through a normal real estate listing.  In 1994 the Supreme Court issued a ruling in BFP v. Resolution Trust Corp (511 U.S. 531) stating that the sales price obtained in a foreclosure sale is considered “reasonably equivalent value” as a matter of law, even if the sales price is far below what a property would sell for under normal market conditions.  In other words, there is no opportunity to complain about the low price because that is just the nature of foreclosure sales where buyers must pay the full purchase price at the time of sale or shortly thereafter.  As long as the state foreclosure procedures were followed the sales price is final.

The 7th Circuit,  however, pointed out that the Illinois tax sale procedure is unlike the competitive bidding process present in the BFP case.  In fact, the Supreme Court specifically stated that the BFP opinion “covers only mortgage foreclosure of real estate.  The considerations bearing upon other foreclosure and forced sales (to satisfy tax liens, for example) may be different.” (page 537, footnote 3).

There is no competitive bidding process in the sale of tax certificates in Illinois.  Rather, Illinois utilizes an Interest Rate Method when selling tax certificates that does not involve competitive bidding between prospective investors. (Under the Interest Rate Method there is competitive bidding as to the interest rate paid, but not as to the price of the certificate.)  Because Illinois does not employ competitive bidding when selling tax certificates the sale is subject to being avoided in a bankruptcy proceeding if the sales price is substantially less than the true market value of the property.

TENTH CIRCUIT OPINION: SHERMAN V. ROSE

The 10th Circuit Court of Appeals has also allowed debtors to attack property transfers involving unpaid tax certificates.  In the case of In re Sherman, 223 B.R. 555, a Wyoming property was transferred to an investor for unpaid taxes of only $500.  Under Wyoming law, the tax certificate was sold to an investor “selected in a random lottery for the amount of the outstanding taxes. The Wyoming tax sale statutes do not permit a public sale with competitive bidding.”  Since there was no competitive bidding in the sale of the tax certificate the 10th Circuit ruled that the sale was subject to the bankruptcy court’s avoidance powers.

NEBRASKA TAX CERTIFICATE SALE PROCESS

Nebraska utilizes a “Round Robin” format very similar to Wyoming system in selling tax certificates.  The procedure is provided in Nebraska Statute 77-1807. (A good description of the process is provided here.) In a Round Robin auction investors must register to buy certificates that are sold on the 1st Monday of March each year.  The order of the auction is determined by randomly selecting an investor from the list of registered participants.  There is no competitive bidding on the price of the certificate.  Each certificate is sold for exactly the amount of the unpaid taxes.

There is no case law in Nebraska on this topic yet, but it would appear that the Nebraska procedure for selling tax certificates is substantially the same as the Illinois and Wyoming procedure and debtors (as well as Chapter 7 Trustees) should be able to recover their homes lost to a tax certificate sale if the sales prices is substantially less than the home’s fair market value.

Keep in mind that this option is only available when a tax certificate buyer obtains title to the property by acquiring ownership through a Treasurer’s Deed.  Property purchased by investors at a real tax foreclosure auction sale that involves competitive bidding would probably be protected under the Supreme Court’s BFP decision.

Have you lost a home in the past 2 years due to unpaid real estate taxes?  Contact our office for a free consultation regarding your options.

Image courtesy of Flickr and davitydave.

Is an agreement not to file bankruptcy enforceable?  Can you sign away your right to file bankruptcy?

A recent client asked that very question.  His payday loan agreement specifically stated that he could not discharge the loan in bankruptcy.  Contracts commonly state that a debt survives bankruptcy. Are those agreements valid?

Generally speaking, agreements to waive your right to file bankruptcy or to exclude a debt from bankruptcy are unenforceable and violate public policy.

Any attempt by a creditor in a private pre-bankruptcy agreement to opt out of the collective consequences of a debtor’s future bankruptcy filing is generally unenforceable. The Bankruptcy Code preempts the private right to contract around its essential provisions.” In re Pease, 195 B.R. 431, 434-35 (Bankr. D. Neb. 1996)

Terms in a contract that prohibit a person from filing bankruptcy are never enforceable.  Agreements that certain debts cannot be included in bankruptcy are also void.

In larger business bankruptcy cases, there is limited authority for a creditor to negotiate away some of the bankruptcy protection against collateral securing a business loan, but that is limited to larger business bankruptcy cases typically involving single-asset entities.  (For example, a corporation that owns a single apartment complex.)

“I CONFIRM AND PROMISE THAT I AM NOT CURRENTLY IN BANKRUPTCY PROCEEDINGS NOR AM I PLANNING ON FILING BANKRUPTCY IN THE FUTURE”

This provision is typically included in many payday loan agreements.  Does it have any legal consequence?  If you file bankruptcy after signing an agreement with this provision, does it mean you have committed fraud if you file a case?

First, if you are currently in a bankruptcy case and take out a payday loan, the debt is not discharged anyway since it was incurred after the case was filed.

What about the 2nd part of this statement–the part about not planning to file bankruptcy and then filing a case soon afterward?

Taking out a loan when you plan on filing bankruptcy is a bad idea. The creditor can object to discharging the debt if you knew you would be filing bankruptcy at the time the loan was made.   However, many folks desperately take out loans so that they can avoid filing bankruptcy in the first place, so the timing of the loan is not always conclusive as to a person’s intent.

It seems like payday loans and bankruptcy go hand in hand.  Such loans are the last stop before surrendering to the debts.  It is a desperate and final effort to keep the cash flow going, and lenders know their customers are just a step away from declaring bankruptcy.  For this reason they attempt to scare customers that filing bankruptcy after receiving a payday loan is fraud and that it cannot be discharged or that it is a crime to write a check with insufficient funds on deposit.

Can you contract away your right to file bankruptcy?  The answer is a resounding No!

Image courtesy of Flickr and Steve Snodgrass.

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The 8th Circuit Bankruptcy Appellate Panel issued a new opinion approving the discharge of 11 of the 15 private student loans owed by Chelsea Conway. (See In re Conway, 8th BAP 2015).

The court discharged $76,535 of the $95,499 owed, leaving the debtor to repay 4 loans totaling $18,964.

What is most interesting about this case is the method the court instructed the bankruptcy court to utilize in determining what private student loans to discharge.

The B.A.P. instructed this Court to conduct “a loan-by-loan undue hardship analysis” based on Debtor’s “present disposable income” which this Court must determine through analyzing Debtor’s ability to “service a loan or loans of NCT over the course of an entire year.”

Read a copy of the trial court’s ruling here.

All student loan discharge matters go through a standard analysis to determine if the loans constitute an “undue hardship.”  The courts look at the debtor’s past income, their age, future income potential, special family needs, health issues, mental health factors, etc.  That is the standard analysis.

What makes the Conway case different is the focus on determining a debtor’s “present disposable income” and then performing a “loan-by-loan undue hardship analysis.”

Distilling the court’s opinion, we derive a three-step process:

  1. Is the debtor’s income likely to increase?  In short, is the debtor’s income stuck in the mud? Is the debtor working to their best ability with an income that is not likely to increase, or is the debtor just making a half-hearted effort to earn income?  If it appears that the debtor has reached his or her maximum earning potential the court will consider the hardship discharge.
  2.  Present Disposable Income.  The court must determine the debtor’s current average income.  There is no specific time frame utilized, but the courts should generally look heavily at the last few years of income and the past 12 months in particular to determine a debtor’s average monthly income.  From that figure the court will deduct all necessary and reasonable monthly expenses to arrive at an average monthly disposable income.  Every case is unique, and what is reasonable for one debtor may vary from what is necessary for another.
  3. Loan-by-Loan Hardship Analysis.  Once the court has determined the monthly disposable income available the court should determine how many of the private student loan payments can be made with that payment.  In the Conway decision the court determined that $170.30 was available to pay private student loans.  Four of the 15 loans required a payment totaling $167.11.  Those 4 loans were preserved and the remaining 11 loans were discharged.

The key element in this analysis is to effectively argue that a debtor’s income has basically flatlined.  The career has not worked out as planned.  The degree earned is worthless or limited and despite loads of college learning the debtor is basically stuck in an hourly job with little room for advancement other than cost-of-living increases.

There appears to be a new trend on keeping the income analysis realistic.  In the past bankruptcy courts have dwelled on the possibility that a debtor’s income may increase in the future and that it was too soon to determine if efforts to repay a student loan were futile.  However, recent opinions across the nation seem to suggest that courts are becoming more sympathetic to stagnant wages and have opened their eyes to the reality of limited career advancement.

What remains consistent is the court’s preference for debtors who make a good faith effort to resolve the student loan problem before filing for bankruptcy.  Debtors who truly work at obtaining careers in their field of study while maintaining steady employment tend to receive better treatment than debtors who work part-time or debtors who make no real effort to pay the debt or to seek out income-based payment options.

For more information on discharging private student loans in Nebraska, contact Sam Turco Law Offices.

Image courtesy of Flickr and Susan Ruggles.

 

 

 

 

Winter Town

Last week the bankruptcy court for the Western District of Missouri discharged $37,243 of federal student loans for Michael Abney despite the fact that he was not required to make any payment on his account under an Income Based Repayment plan (IBR). (See In re Abney)

The facts of the case are as follows:

  • The debtor was approximately 40 years old.
  • He attended college from 1994 to 1998 but did not graduate with a degree.
  • The debtor was in good physical condition, but suffered bouts of depression stemming from child custody issues and financial problems.
  • He was employed as a truck driver earning $3,063 per month.
  • He paid child support of $750 per month for two children, ages 7 and 11.
  • He had previously paid $11,000 of student loan payments through an IBR.
  • The debtor was contributing to a voluntary retirement plan, but had only $500 saved.
  • His income was not expected to increase and his living expenses were modest. He had lived out of his work truck and a homeless shelters in recent years.  At the time his case was filed he rented a studio apartment for $640 per month.
  • The debtor was not represented by an attorney.

In the Eight Circuit (which includes Nebraska), courts apply a “Totality of the Circumstances Test” in determining whether student loans may be discharged.  As a general rule, student loans may not be discharged unless paying such debts would impose an “undue hardship” on the debtor.

The court will look at these factors when reviewing an application to discharge student loan debts:

  1. Total present and future incapacity to pay debts for reasons not within the control of the debtor;
  2. Whether the debtor has made a good faith effort to negotiate a deferment or forbearance of payment;
  3. Whether the hardship will be long-term;
  4. Whether the debtor has made payments on the student loan;
  5. Whether there is permanent or long-term disability of the debtor;
  6. The ability of the debtor to obtain gainful employment in the area of the study;
  7. Whether the debtor has made a good faith effort to maximize income and minimize expenses;
  8. Whether the dominant purpose of the bankruptcy petition was to discharge the student loan; and
  9. The ratio of student loan debt to total indebtedness.

A few items jump out as being remarkable in the court’s opinion.  First, based on his current income the debtor was not required to make any payment under the IBR and the court believed that no significant payment would be made in the future.  In addition, the debtor would eventually suffer possible income tax consequences at the end of the 25-year payment plan when the unpaid balance is treated as taxable income.  In short, the court felt the IBR was futile and would only drag out the process.  The court also noted that there was a substantial likelihood that the IBR would be unsuccessful since the program would be canceled if the debtor defaulted on future payments.

Holding that eligibility for a program such as IBRP ipso facto leads to denial of an undue hardship discharge would deprive the Court of the discretion granted by § 523(a)(8).

Second, the court did not object to the debtor claiming an expense for a modest retirement account. The debtor was about 40 years old and had only saved $500 for retirement.  The court believed the retirement savings was necessary and should not disqualify the debtor from discharging the loans.

Third, the debtor’s child support obligations would begin to end in about 7 years.  Despite the fact that this would free up income to pay student loans, the court emphasized that the debtor could not afford a car payment on his current income and that he was way behind in saving for retirement.

It appears that bankruptcy courts are becoming more willing to review student loan discharge applications these days and they are taking a more skeptical eye to the income-based repayment defenses.

Other bankruptcy commentators , such as Cathy Moran, have also written articles praising the Abney decision and call for a new approach to reviewing student loan discharge matters.

Income based repayment plans have done much to alleviate student loan stress, but it is clear that the availability of these payment plans is not always the controlling factor in student loan cases.

For help with student loans and bankruptcy, contact Sam Turco Law Offices.

Image courtesy of Flickr and Mary McGuire

 


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Cambridge Credit Counseling has released its 8th Transparency Report, the only such report available in the credit counseling industry.

One of the more disturbing aspects of the nonprofit credit counseling industry is the complete lack of disclosure about the success rate of their programs.  In recent years the industry has come under fire for keeping such statistics a secret.

A poll of National Foundation for Credit Counseling (NFCC) members that was provided to university researchers found that only 21% of repayment plans were completed. Another 21% of participants pulled out in order to finish paying on their own, a form of success, while 51% simply dropped out or filed for bankruptcy. The figures were based on plans that terminated in 2002.”  Behind the Credit Counseling Curtain.

Realizing the need for disclosure and the opportunity presented, Cambridge Credit Counseling began to release reports of its operations. Some of the highlights of its reports include:

  • Weak Graduation Rate.  Just 37.9% of enrollees from the first half of 2008 completed the full term of their program.
  • Repayment Plans Accepted by Creditors.  96.9% of the payment proposals have been accepted by creditors.
  • Reduced Interest Rates.  Those who enrolled during the first half of 2013 saw their interest rates reduced by an average of 54.6%, and their monthly payment reduced by 27.5%.
  • Number of Debts in Plan.  The average number of creditors per enrolled client was 5.65, and average debt enrolled per client was $20,464.41.
  • Length of Plan.  The duration of the typical payment plan was 49 months.
  • Majority of Customers Not Offered Payment Plans.  Consumers who contacted Cambridge in the first half of 2013 were only offered enrollment in a DMP 34.4% of the time, with only 21.0% actually enrolling.

Cambridge reports that a key factor in improving the success rate of their Debt Management Plans is the constant monitoring and follow up with newly enrolled clients.  The establishment of routine financial check-ups were cited as a vital factor in boosting plan success rates.

A few things jump out in this report.  First, the success rate of the Cambridge program is almost double the rate of the industry as a whole.  Is that a result of Cambridge doing a better job of managing the plans or is that because Cambridge will not offer a DMP to those customers who lack the income to complete the process?    Most likely it is a combination of these factors.

Why is no other credit counseling agency reporting the success rate of their payment programs? No doubt the chief reason is that their success rates are significantly lower and the only way to boost their results would be to turn away clients who are unlikely to complete the payment plan. Credit counseling agencies are funded primarily by DPMs, so to turn away customers would have a dramatic impact on their bottom line.  Said another way, large credit counseling agencies are enrolling customers into plans that are unlikely to succeed just to generate revenue.

Only 21% of the people who contact Cambridge for help enroll in a DMP.  Of that amount, only 37.9% complete the plan.  Thus, only 8% of the customers who contact Cambridge actually complete the debt repayment process.  The success rate for other agencies that do not report results is undoubtedly lower.

Those who are considering whether to enroll in a credit counseling payment plan may want to see if Cambridge would accept them into their program.  If Cambridge does not recommend a DMP that is a good sign that repayment is unlikely to succeed.

There is a need for more accountability in the credit counseling industry.  Independent audits should be conducted and publicly disbursed. A uniform standard of reporting should be adopted. Nonprofit status should be automatically denied to those agencies associated with for-profit companies controlled by their executives. Those who claim to serve the public should have no objection to having a light shone on their activities.

Image courtesy of Flickr and Phil Comeau

I see way too many Default Judgments being awarded to creditors.  Judgments are wrecking balls that obliterate the walls of your financial house.

Judgments give creditors the power to garnish up to 25% of your paycheck and 100% of your bank account.  Once that happens it becomes impossible to pay the rent, daycare, or car payment.  A financial death spiral ensues and that is when I meet a lot of new clients–at the breaking point.

There is a terrible assumption that it is somehow dishonest or wrong to fight against a lawsuit when you know you owe the money.  It seems like lying to oppose a lawsuit that is basically correct–you owe the money.

Here is why you need to file a written response to a lawsuit even when you owe the money:

  • YOU NEED TIME.   For no other reason, filing a written response to the lawsuit will delay a judgment for at least 60 to 90 days. When you fail to file a response the creditor gets a default judgment within 30 days, but if you file a response they have to go through extra steps that drag out the process.  With that extra time you may be able to pay off the debt before it becomes a judgment or perhaps you will be able to work out a payment plan with the creditor.
  • THE AMOUNT THEY SAY YOU OWE IS INFLATED.   Does a single aspirin really cost $20?  Are medical creditors “piling on” the charges?  Has the credit card company charged excessive interest?   Even if you agree that you owe a debt, are they suing for the correct amount?  Filing a response gives you the opportunity to challenge their accounting.  
  • HEALTH INSURANCE SHOULD HAVE PAID THE BILL.  Are you being sued for a debt that health insurance should have covered?  Was a claim filed?  Have you appealed the denial of a claim?  A recent client had to be transported by a medical helicopter and the insurance company denied the $30,000 flight as being “unnecessary.”  Creepy, right? The client appealed and won.  If you can drag out the lawsuit perhaps you will find enough time to get insurance to pay the debt.
  • NEGOTIATE THE DEBT.  Collection companies just want to get paid, and they want to be paid with the least amount of effort.  By filing a response you make their job more difficult and expensive.  After filing a response reach out to the collection attorney and offer a settlement.  Offer 50% of the balance payable in 30 days or whatever you think is fair. Start a conversation.  They best way to start the process is to email the collection attorney.
  • STATUTE OF LIMITATIONS HAS EXPIRED.  Most debts expire after 4 to 5 years of no payments being made on the account.  Perhaps you are being sued by a junk debt buyer who purchased a credit card account you held 7 years ago during a prior marriage.  The Nebraska statute of limitations laws give you an affirmative defense.  In fact, if you have been sued on an expired debt you may have a claim against the collector for violating the Fair Debt Collection Practices Act (FDCPA) and you may be entitled to damages plus reimbursement for attorney fees.  However, you must respond to the lawsuit and specifically claim this defense.

How do you respond to a court summons?

  1. The response must be in writing.
  2. The response must be filed with the clerk of the court.
  3. The response must be filed within 30 days of receiving the Summons.
  4. A copy of the response must be mailed to the creditor’s attorney.

Read this article to learn how to respond to a court summons in Nebraska.

Image courtesy of Wikipedia and Ammodramus.

To be in the credit counseling business you have to be a nonprofit.  Credit card companies will frequently refuse to set up repayment plans with for-profit debt counselors.  Mandatory bankruptcy credit counseling courses may only be sponsored by nonprofits.  And the common perception is that “real” credit counselors should be nonprofit agencies.

There are historical reasons for these perceptions.  At one time credit counseling was sponsored by donations from banks and community grants.  Small community agencies offered face-to-face counseling that went beyond the financial issues as counselors delved into the personal issues that caused financial distress.  Counselors acted as social workers who taught basic budgeting concepts and sought to redeem the wayward debtor.

Jane McNamara, GreenPath CEO. Earned $590,883 in 2010
Jane McNamara, GreenPath CEO. Earned $590,883 in 2010

The reality of today’s credit counseling industry are much different.  Personal credit counseling is a thing of the past.

Oh sure, they still go through the motions.  A budget worksheet may be prepared and handouts about saving money, cutting coupons, establishing savings accounts, etc, are shared, but that is just the window dressing.  No real face-to-face counseling occurs.

In fact, the majority of people who are in Debt Management Plans (DMP) have never met their credit counselor in person.   The “counseling” they receive is a 30 minute phone call or an online chat.

Credit counseling agencies are primarily funded by enrolling clients into Debt Management Plans.  They charge clients a flat dollar amount each month to manage the plan (typically $25 to $50 per month) and they also keep a percentage of the amounts paid through the plan, what the industry calls Fair Share.  The more clients enrolled in the payment plan the higher the income of the agency.  It is not uncommon for credit counselors to be paid bonuses based on the number of DPMs they sell.

Ivan Hand, CEO of Money Management International
Ivan Hand, CEO of Money Management International. Earned $889,870 in 2010

Managing a credit counseling agency turns out to be a very profitable occupation.  According to a report published by professor Robert D. Manning, in 2010 the CEO of Money Management International, Ivan Hand, earned a hefty $889,870 while GreenPath Debt Solutions‘ CEO, Jane McNamara, earned $590,883.  The average income of the CEOs of the top 10 credit counseling agencies in 2010 was $456,116.

Over the past 30 years a real change has taken place in the credit counseling industry.  Newer credit counseling agencies have entered the market with a business model based on setting up a conglomerate of for-profit companies that connect to the nonprofit agency.  The basic idea is that they sign up new clients in the nonprofit company and then farm out the work to a network of for-profit affiliates.  The services are advertised as being offered by a nonprofit, so it is difficult for consumers to figure out the real nonprofits from the phony nonprofits.

Congressional hearings on this new trend in credit counseling were conducted in 2004.  (See Profiteering in a Non-Profit Industry; Abusive Practices in credit Counseling.) Despite the attention the industry received and despite an IRS crackdown that stripped nonprofit tax status to several agencies, the trend has continued and intensified.  The agencies lawyered up and fought back, and it appears that the IRS has basically surrendered the issue except in the worst cases.  Many agencies continue to operate as “telemarketing sweatshops” that are designed to set up payment plans while providing little to no financial education.

To make matters worse, debt settlement companies also incorporate themselves as nonprofit debt counselors.  These agencies are very appealing to customers since the monthly payment in these programs are often half the cost of a traditional debt management plan.  The problem is, consumers fail to understand that true nature of these agencies and that no payment is made to their creditors until a debt is settled.  Our firm routinely meets clients enrolled in these debt settlement programs who are being sued because the creditor refused the offered settlement or, more likely, no settlement was even offered because not enough money was saved up in the settlement escrow account.  Consumers are confused since everyone is calling themselves a nonprofit and they are unable to distinguish the true nature of the agency.

What the credit counseling industry lacks is a system of independent audits conducted by outside accounting firms, something similar to what publicly traded companies provide.  Search as I have, there is not a single independent and trustworthy source of information comparing the effectiveness and cost of competing credit counseling agencies.  The only bright light in this industry is the Transparency Report provided by Cambridge Credit Counseling.  To my knowledge, Cambridge is the only agency that publicly publishes information on the success rate of their programs.

An industry that refuses to be accountable cannot be trusted.  It is time for credit counselors to submit to public audits and to be measured and compared by a uniform set of standards.

 

 

You are searching for a cheap bankruptcy attorney.  I get it.  Money is tight.  You need those garnishments to stop right now but you can’t come up with the money to file bankruptcy. All bankruptcy attorneys do the same basic function, so why not hire the cheapest guy out there?

In fact, there is some truth to this thinking.  All bankruptcy attorneys do perform the same basic function.  They list your debts, property, income and expenses on the bankruptcy petition and attend the court hearing with you.  So why not hire a cheap Omaha bankruptcy attorney?

In my experience, the most expensive you will ever hire is a cheap bankruptcy attorney.

Cheap bankruptcy attorneys work alone.

Cheap attorneys can’t afford to pay rent at a decent law office, so they wind up isolated in a cheap office suite or they work out of their home.  They are isolated.  They lack colleagues to talk to and therefore they don’t get the chance to talk about your case before filing it.  Great bankruptcy attorneys work in teams.  They help each other, they teach each other and they have their buddies review cases before the pull the trigger and file a case. Older colleagues share their horror stories and help young attorneys avoid the same mistakes they made.

Cheap attorneys take wild risks and are often clueless about the risks they take.  They lack experience and are desperate for money, so they cross their fingers, say a prayer and file the case hoping everything “works out.”  At the other end of the line is the experienced and aggressive Chapter 7 Trustee who is paid on a commission when he finds unprotected assets, tax refunds, voidable payments to family members, and unprotected business assets. The cheap attorney is no match for the experienced Trustee.

Cheap bankruptcy attorneys lack resources.

Great bankruptcy firms share overhead and they are able to hire the best staff, the best computer technology and legal research resources.  They purchase specialized credit reports to ensure all creditors are listed and they pay for expensive online court subscriptions to search for lawsuits, garnishments, judgments and liens.  They purchase specialized background reports to ensure all assets and property transfers are reported on the bankruptcy schedules.

Cheap attorneys cut corners to save costs.  They often report only the debts provided by their clients and fail to pay the additional expense to acquire credit reports, asset reports and legal research.  They are frequently surprises in court when the Trustee asks questions about asset transfers they failed to uncover.

Cheap bankruptcy attorneys lack quality-check systems.

Great firms spend years training their attorney and paralegal staff.  They establish standard procedures to ensure that every case is prepared correctly. They hold regular meetings to review procedures, new cases, and they use quality control checklists. They continuously attend and sponsor legal education courses and share their knowledge with their team.

Cheap attorneys frequently lack any staff let alone an experienced one. They do much of the paperwork themselves and they have nobody to review their work.  They never bother to establish quality control systems since there is no team to manage.  In the process, they overlook small details that turn into big problems.

Cheap bankruptcy attorneys lose assets.

About 30 days after the bankruptcy case is filed you must attend a meeting with the bankruptcy trustee.  The meeting is held at the federal courthouse, and the meetings are public.  We all get to watch each other in this profession.  We see who does good work and we witness those cheap attorneys who basically run their clients into a grinder.  Cheap attorneys lack experience and training.  They constantly lose tax refunds because they fail to anticipate the amount and timing of the refund.  They loose vehicles because the file to properly value the vehicle.  They fail to ask their clients important questions and the bankruptcy trustees often uncover voidable transfers to family members and business associates.  Bankruptcy trustees know who these cheap attorneys are and they instinctively attack their cases because they know the attorney did not perform a detailed investigation of the debtor.

Cheap bankruptcy attorneys often lack insurance.

Nebraska does not require attorneys to purchase professional insurance  Cheap attorneys frequently cannot afford the premium. Cheap attorneys often lack significant personal assets so they are not worried if they make a big mistake–they have nothing to lose.

Want to hire a cheap bankruptcy attorney?  Think again.  The most expensive attorney you will ever hire is the cheapest one out there.

Image courtesy of Flickr and Eric E. Castro.

My Landlord is trying to evict me because I defaulted on my payment arrangements.  My hands were tied because I didn’t get a paycheck for 2 weeks in a row.  Will filing bankruptcy stop the eviction?

The short answer to this question is Yes, filing bankruptcy will stop an eviction.  But what happens next? Is it worth the cost? How long does it stop the eviction?

When a bankruptcy case is filed a federal order immediately comes into existence that stops all collection action, including evictions, garnishments, repossessions, creditor phone calls, etc.  We call this order the Automatic Stay because it automatically comes into existence when the case is filed.

Evictions in Nebraska can completed within about 3 weeks!

In Nebraska, the eviction process is very swift.  When a payment default on a lease agreement occurs the landlord will send the tenant a Three Day Notice to Quit.  If the delinquent rent is not paid within three days, the landlord has the right to file an eviction lawsuit (called a “Forcible Entry & Detainer”) .  Once the eviction lawsuit is filed, the court will schedule an eviction hearing, typically within 14 days.  On the day of that hearing the court will sign an eviction order (called a Writ of Restitution) and the sheriff will then be called to carry out the eviction.  So, evictions in Nebraska can completed within about 3 weeks.

Filing Bankruptcy Before the Landlord Obtains a Judgment of Possession.

If a bankruptcy case is filed before the eviction hearing is held, the eviction is placed on hold.  However, the landlord may file a motion with the bankruptcy court to obtain permission to continue with the eviction and the bankruptcy court will typically grant this request unless the tenant is able to cure the default quickly. If the landlord files this motion the bankruptcy court will scheduled a hearing within 30 days on average.

How quickly must the past due rent be paid?  It varies from case to case, but more than likely the tenant will be required to pay future rent on time and then cure the existing default within a short period of time.  The court will take into consideration many factors such as the length of the tenancy, the frequency of default, the debtor’s current income level and job tenure, whether minor children or elderly persons reside in the home, and the likelihood of the default being paid quickly.

As a practical matter, you must take into the consideration the cost of filing bankruptcy.  To file a Chapter 7 case the entire court fee and legal fee must be paid in advance.  The typical chapter 7 case costs $1,200 to $1,500 in Nebraska.  So, if a tenant is behind $800 on rent, it would be wiser and cheaper to pay the rent than to file bankruptcy.  Chapter 13 cases are 3 to 5 year repayment plans and the cost of filing is much less, typically around $400.

Filing Bankruptcy After the Landlord Obtains a Judgment of Possession.

Nebraska law does not permit a tenant to cure a rent default after an eviction order is entered, so filing bankruptcy after a judgment of possession is entered is not helpful.  Unless the eviction judgment allows for the curing of the default (something I have never seen in Nebraska) filing bankruptcy after the Writ of Restitution is entered will not stop the eviction.

Will filing bankruptcy wipe out the debt to the landlord?

Yes, bankruptcy will discharge the debt owed to a landlord for past and future rent.  If a judgment for money has been given to the landlord, the bankruptcy will be able to discharge that judgment as well.

Will bankruptcy allow me to terminate my lease early?

Bankruptcy will discharge any unwanted executory contract, such as a rental agreement or vehicle lease. So, if you wish to terminate your lease, even if you are current on the payment, the bankruptcy will discharge the lease obligation.  If the landlord has been provided notice of the bankruptcy, the lease agreement is discharged and the agreement is basically converted to a month-to-month tenancy.  If you continue to pay rent and the landlord accepts the payment you may continue to reside in the property until you or the landlord elect to end the relationship.  To end a voluntary month-to-month rental agreement usually requires 30 days written notice to the other party.

Legal Aid Landlord & Tenant Handbook.

Legal Aid of Nebraska has written a wonderful handbook regarding landlord and tenant rights.  The handbook has lots of useful information on how to respond to an eviction lawsuit.  If you are being evicted or if you are just having problems with a difficult landlord, this handbook is a must read.

Image courtesy of Flickr and Mark Turnauckus.