I love doctors.  I can explain the bankruptcy rules but they never listen, ask or follow directions.  Other clients learn and follow directions but doctors won’t.  It’s like watching train wrecks on you tube.  An attorney told me about an easy Chapter 13 to 7 Bankruptcy.  I give you Exhibit A his doctor case.  The names/specific facts were changed to protect the guilty and demonstrate principles.

The client was a 64-65 year old doctor with a significant salary, who hired him for a Chapter 13 Bankruptcy.  He filed her Chapter 13 bankruptcy, got budget and plan confirmed, and life went on.  She had a low payment thanks to the large deductions allowed for Louisville Kentucky, and no non-exempt property to lose.  She was in a Chapter 13 because she’d filed a Chapter 7 a few years earlier due to an oncoming disability and didn’t qualify yet for another Chapter 7 discharge.   Start as Chapter 13 and then dismiss and refile as Chapter 7 after disability.  An easy case.

Until it wasn’t.

He later received a Motion to Dismiss the Chapter 13 bankruptcy for failure to make Chapter 13 plan payments.  She hadn’t made a payment in 9 months.  No explanation why it took so long for the Chapter 13 Trustee to file a motion to dismiss and the mortgage company to file a motion to terminate the stay and foreclose but that’s another story.

He called to find out what was going on and was told his client lost her job.  .  .  Ten months ago.  The attorney could have filed a motion to temporarily reduce or suspend plan payments; perhaps she could have converted to Chapter 7 or gotten an early discharge.  However she never called or came in to talk. 

Instead, the client cashed her 401 k and got a severance package.  It was enough to continue making plan payments and live on for a year in case another job didn’t roll around quickly.  What she did, however, was completely different.

First, she sent a large check the student loan company. (Although she was becoming disabled and would have soon been able to discharge the student loan).

Second, she gave a sizable sum to repay her mother to be a good daughter.  (creating a preferential and fraudulent transfer)

Third, she bought a new car.  A really nice 40,000 dollar one (retail therapy is too expensive to cover with an exemption).

Fourth, she lived on the balance (creating a non-dischargeable tax problem).

Now, she has no money left, the client will probably have her Chapter 13 bankruptcy dismissed.  Her creditors will resume foreclose and collections, she will not be able to file a new Chapter 13 until she gets an income, and may not qualify for a Chapter 7.  If she does, the money she gave to her mother, the car and the taxes are problems.  Learn the rules, ask questions.

Nick C. Thompson Louisville Kentucky Bankruptcy Attorney

You thought that you could just let a home go back in foreclosure and ignore a Kentucky lawsuit and submit to default judgment.  Wrong you can go to jail for contempt of court in Kentucky.  You assumed Debtor’s prisons for Kentucky was abolished in 1833 so except for child support or taxes, jail is never used to punish someone for not paying.  But Kentucky debt collectors have found that default judgments and contempt allow an exception and continue to use contempt and jail as a debt collection technique.

Here is how they do it:

1. The debt collector files a lawsuit legitimate or not so legitimate.
2. If a Debtor is served with the complaint that also requests that the Debtor files an answer within 20 days.   The Debtor ignores the judge’s order to answer within 20 days, then the debt collector gets a default judgment.
3. Then the debt collector’s attorney files discovery after his judgment which includes interrogatories and a request for production of documents asking the debtor for information about where his assets are.  Sometimes the Debt collector will ask for a hearing requesting that the Debtor appear to answer these question.
4. The Debtor ignores and does not answer or appear in court (this attitude angers the judge).   
5. The Debt collector , then asks for an order of contempt of court and specifically jail, with the bail equal to the amount of the debt to get out of jail.
6. The Debtor has to raise bail money to get out of jail, but the Debt collector simply attached the bail money who has always expected the Debtor to assume and ignore these requests.

This technique is popular with debt buyers that purchase charged off debts for pennies and later sue collecting the interest, attorney fees and full principle.    There are cases of what are completely uncollectible debts being collected by “zombie debt” buyers who buy even bankrupted debts.   These Zombie debt buyers purchase debts after the statute of limitations has run, Debtors have filed bankruptcy or that lack any of proof that Debtor even owes the debt.   What Collectors and foreclosure servicing companies are doing is legal but they are relying on Debtors to give up and ignore lawsuits.  The collection process involves weeks and months of work.  Just because don’t hear anything doesn’t mean the clock isn’t ticking and you can ignore a lawsuit.

Nick C. Thomspon Lousiville Kentucky Bankruptcy Attorney

I Can’t Afford a Chapter 13 Bankruptcy Attorney?

Attorney fees in a Chapter 13 Bankruptcy come out of the money that would have been paid to unsecured creditors!  If you file Chapter 13 Bankruptcy on your own, you are normally working for free.   Poorly filed petitions can cause Bankruptcy Debtors to lose money, property or spend added time in court.  The court monitors and authorizes fees to insure you are never overcharged.

How do you file exemptions for property you own or how do you compute the means test.  That and 100 other rules of how to file have to be memorized to prepare a petition.   The Bankruptcy Code is a complicated federal statute that involves technical terms, accounting principles and rules of law that even non-bankruptcy attorneys have problems with.  If average attorney can’t properly file petitions, why do people believe they know how to file their own.  Sure some people have done it. 

The job of a panel Trustees is to take your property away.  He is paid a commission to take property away from you.   The failure to properly file your petition is a common reason for losing property.  Often a Trustee will just smile while he takes the property of a debtor who didn’t use an attorney and how to file.   Pleading I didn’t know how to file won’t prevent losaing property. 

When a Debtor prepares their own case, it often unravels. A paralegal is not supposed to offer assistance (offering advice is practicing law without a license).  A paralegal can’t tell you whether or not you would lose property and only works under the supervision of an attorney.  An experienced bankruptcy attorney will review the debtor’s financial file, obtaining documents to ensure security interests are properly filed and that property wasn’t improperly transferred.    

The bankruptcy attorney cannot always accomplish goals  some clients demand like a free home.   But a bankruptcy attorney can advise you and warn you about potential problems like the possible loss of a home and outline to you how you should file a bankruptcy. 

It is worth the time and money to have an experienced  attorney help you plan and file.  Some Debtors try to save money by not hiring a lawyer.  But often they end up having it costing more work, time and property.  You can’t afford not to file with an experienced bankruptcy attorney.

Nick C. Thompson Louiville Kentucky Bankruptcy attorney

How do you file a small business bankruptcy.   You never want to continue a failing small business that continues to lose assets. But how do you file?  Do you file bankruptcy personally or does just the small business or corporation file.  Can you restructure the business in a Chapter 11 or 13 so it will make a profit?  

If you have a sole proprietorship, you can’t file Chapter 11, or Chapter 7 bankruptcy for just the business.   You have to file yourself to eliminate the personal liability.   Personally filing Chapter 7, 13 or Chapter 11 allows you a “fresh start” and new budget to live on.  You can work with your attorney on how to  start a new business that is operated profitably and differently.   When a proprietorship files a Chapter 7, 11 or 13 bankruptcy, all debts; personal and business; are discharged.

A Corporation or a Limited Liability Company (LLC) is a separate entity.  Filing Chapter 7 or 11 bankruptcy for a corporation does not involve personal assets or debts.   A Chapter 7 will shut down a business but you may start a new one in it’s place.   A Chapter 11 will allow a business to restructure and continue if it can make a profit.   But if you have guaranteed debts you probably have to personally file Chapter 7, 11 or 13. 

There are generally three options for a failing business.  

1.    Abandoning a business often means ruining your name worse than filing bankruptcy or dissolving a business.  Either abandoning or personally dissolving the business can mean later litigation in court.  If the business was not properly dissolved one person was paid improperly or more than others then you may be personally responsible. 

2.    Personally dissolving a business by notifying the state, selling assets and using the money to pay creditors pro-rata shares means you do the work and you are personally responsible for gathering  assets and distributing them to the creditors.   Do it improperly and you will be personally responsible for the debts.   It is less expensive than bankruptcy but it is full of personal liability and often the start of never ending problems.   

3.   Filing a Chapter 11 may allow you to determine how assets are disposed.  Filing a Chapter 7 bankruptcy means a Trustee who understands how to sell assets will take charge assets, sell them and distribute the proceeds properly with as little personal liability to the creditors as possible.   Often this is worth the cost.  It eliminates the work, and liability to dissolve the business.  You can get on with life and a new business or career.  Creditors more likely to give up efforts to collect when a bankruptcy is filed.  Without it, some creditors won’t give up coming after the owner.  Whichever option you take hire an excellent attorney to guide the process.

Nick Thompson Louisville Kentucky Bankruptcy Lawyer