Bankruptcy Blog from Los Angeles Attorney » Bankruptcy Fees

You Can Still Eliminate Credit Card Debts and Taxes in Chapter 7

Mark Markus — Thu, 18 Feb 2010 00:58:53 +0000

Contrary to popular understanding, in most cases credit card debts are still dischargeable in bankruptcy without a repayment plan (in a Chapter 7 bankruptcy case). In many cases, tax debts can also be discharged. This is not new information, so why am I writing this? Because not a week goes by that I don’t get a prospective client in my office who tells me they thought that when the bankruptcy laws changed in 2005 (yes, 2005) it eliminated the ability to get rid of credit card debt in a Chapter 7 case (as opposed to a Chapter 13 repayment plan).

This is NOT true. While it was clearly the intent of Congress to appease the credit card lobby and make it more difficult to eliminate credit card debt, the new bankruptcy laws which went into effect in 2005 made filing bankruptcy more complicated, but certainly did not eliminate the ability to do so.

Credit card debts are just as dischargeable as they were for at least 30 years prior to the recent law change. They are not dischargeable if incurred through fraud or other exceptions to discharge (see http://www.bklaw.com/discharge.html for more information on this), but otherwise you can still file a Chapter 7 case (or a chapter 13 or Chapter 11) and eliminate credit card debt.

Income taxes may also me discharged under certain circumstances. The law has not change on this in over 30 years. It is a very complicated analysis, and dischargeability can only be determined after analysis by a professional of ACTUAL internal transcripts from the taxing agency, but the basic rule is that if the taxes are older than 3 years from the date the return was last due to be filed, and the return was filed more than 2 years ago, and not assessed in the last 270 days, then they may be dischargeable. To see more on tax discharge in bankruptcy, visit http://www.bklaw.com/taxes_bankruptcy.html

The bottom line is, don’t believe rumors. Talk to a bankruptcy attorney about your options.

For more interesting bankruptcy myths, visit http://www.bklaw.com/bankruptcy_myths.html

It Costs Money to Go Broke

Mark Markus — Tue, 08 Jul 2008 03:39:30 +0000

A bankruptcy client of mine recently made a statement that I obviously already knew, but had never heard it phrased quite the way he said it. The husband and wife’s situation had been deteriorating for a long time. They had amassed a large debt, which they previously had sufficient income to pay, but one of them lost their job, and the other had to take a pay cut, and the problems started mounting. They used all their savings, sold assets, borrowed from their retirement and survived as long as possible before seeking a bankruptcy consultation. By the time they got to me, they had exhausted all their resources.

After a lengthy consultation with them about their financial situation, analyzing their assets and debts and determining that bankruptcy would likely be their best option, I gave them a fee quote for my services (which was actually for a lower amount than normal for a case of their complexity). The husband said out loud–to nobody in particular–”Guess it costs money to go broke.” He said it with a slight smile, but I felt his pain.
The truth, however, was that they were already broke. What cost money was filing bankruptcy to get rid of their debts (or in other cases, to reorganize them). But the client raised an important point. Other than the moral kudos they get for paying their creditors as long as possible by depleting all their resources and assets, they simply waited far too long before seeking advice on their situation. All States have exemption laws which enable debtors, inside and outside of bankruptcy, to protect certain assets, including–at times–cash in bank accounts, etc. It rarely makes sense to deplete your assets below the applicable exemption amounts. (see more on California exemptions. You are going to need those assets! Not just because you may need to hire an attorney, but also to assist you in living as you try to rebuild after a bankruptcy case.

One recurring theme I see over and over again is clients that wait too long to seek advice. Whether it be out of guilt, fear, hope that circumstances will change, or whatever….it is important to analyze your options before your options have disappeared.

How Much Will This Chapter 13 Cost You?

Mark Markus — Sat, 28 Jun 2008 21:58:51 +0000

I often get asked this important question by concerned potential clients. It is very difficult, if not impossible, to answer how much the attorneys fees for any bankruptcy will be before having a consultation and getting all the relevant information. It’s even more difficult to do in a Chapter 13 bankruptcy case.

Why?

Let’s say that the base bankruptcy attorney’s fee is $4,000 for a regular, non-business debtor Chapter 13 case, plus the $274 filing fee and necessary credit counseling courses. In most cases, that is NOT how much you have to pay to your attorney before filing your case. Why not? Because part of the attorneys fees can be taken from your monthly plan payments that you will have to make anyway in your Chapter 13 case. How much can be taken through your plan payments? That depends on 1. What your monthly plan payment is, which is determined by the complex means test analysis; 2. Whether by making the additional payments for attorneys fees, it would render you unable to pay certain necessary debts which need to be paid 100% in your plan (such as taxes, or mortgage arrears, etc.).

For example, if the means test is showing that your monthly plan payment is $200 per month for 36 months, and you are filing the bankruptcy case in order to repay $7,200 of past due amounts on your mortgage (arrears), then you do not have any more income available to pay your attorneys fees through your plan. If you added another $3,000 of attorneys fees, it would raise your monthly payment by approximately $100 per month. (Plus, most attorneys aren’t going to wait that many months to be paid their fees).

This was just a quick example, but I think it illustrates why it is necessary to have a complete consultation with an attorney before they can give you an accurate fee quote and let you know how much you’ll have to pay up front to file a Chapter 13 case for you.