The answer to this question depends on how one defines “success.”  Does success mean that the client gets everything on his/her “wish list” despite negative facts to the contrary?  Or does it mean a favorable outcome given the client’s fact situation?    Often, one who asks a question like this has unrealistic expectations and wants a miracle.    For example, is it a “success” in a murder case where the D.A’s office has nearly indisputable evidence of the crime and is likely to be able to show guilt beyond a reasonable doubt, and the defendant’s attorney bargains the jail time down from life to 10 years?  Or is only acquittal considered a success?   While bankruptcy doesn’t deal in the same terms as a criminal matter, this analogy is illustrative.

The goal of most (if not all) bankruptcy cases is to obtain a discharge of some or all of your debt, either without paying anything on it, such as in a Chapter 7 case, or by repaying a portion of it, such as in a Chapter 13 or Chapter 11 case.   However, in any bankruptcy case there are many things that can occur to limit or even eliminate the discharge of some or all of ones debts.  For example, creditors can object to the discharge of debts that were incurred through fraud, misrepresentation.  Most tax debts are not dischargeable.  Student Loan debts are usually not dischargeable.  As the attorney, if the client’s facts show fraud, I can do my best to limit or minimize the chances of a creditor objecting, but I can’t change the facts, nor can I dictate which Judge will get the case or how the judge will rule.

Another thing that can happen is that the US Trustee’s Office can file a Motion to Dismiss a case for any number of reasons, the most common being if they can show the filing is an “abuse” of the bankruptcy system.  This is usually shown if the debtor is showing an ability to repay their debts, either due to their current budget, or the means test analysis.   Now, a good attorney will usually not file a Chapter 7 case that is showing a “presumption of abuse” on the means test, but there is enough vague language and uncertain law in this area, that sometimes it makes good sense to try.   Does that mean that if the US Trustee objects and the the debtor decides to  convert their case to a Chapter 13 repayment plan that it wasn’t a success?   No, it means that a Chapter 13 was the most favorable outcome given that particular fact scenario.

The bottom line is, if you want to know a bankruptcy attorney’s “success rate”, you need to be prepared to define “success” as it relates to that case.   It is likely best to define it as “the most favorable outcome given the facts of a particular case.”  No attorney can guarantee ANY outcome (favorable or otherwise).  In fact, it’s legally prohibited for an attorney to do so.  That is because there are many variables in any legal case beyond the attorney’s control, not the least of which is….the Judge.

In bankruptcy, the common errors I see in this regard include the following: paying rent with cash (often to family or friends), not having a written rental agreement, paying childcare expenses (baby sitter) with cash (and usually not paying the required “nanny taxes“), making charitable contributions without getting receipts, selling assets without keeping records of the transactions, giving or receiving loans without a promissory note, etc.

Many times I have clients tell me that they are paying rent to their parents for allowing them to live there, but there is no rental agreement.  It could look to the bankruptcy court and creditors as though the debtor in question is merely gifting money to relatives to keep it out of the reach of creditors which is a big “no-no” (known as a “fraudulent transfer“).

Failure to have these items can result in all kinds of problems in your bankruptcy case, from as minor as having the expenses disallowed in your budget (thereby making it look like you have more disposable income than you really do) to having your entire discharge denied for failure to keep adequate books and records from which your financial situation can be be determined (11 U.S.C. 727(a)(3)).

It is very important to have and maintain records of your financial transactions.  If necessary, these can sometimes be created after the fact to properly memorialize the intent of the parties, but it’s obviously better (and more persuasive evidence) if they are done at the time the events take place.

Loans are particularly important.  Many times clients receive assistance from family members prior to filing a bankruptcy case.  Most assume they are going to repay it when they can, but since it’s family, there is nothing in writing.   Big mistake.   If it is not a loan, then the money received is income–at least as far as current monthly income is calculated for the means test.  This can result in a debtor who is otherwise eligible to file a Chapter 7 case, having to file a  Chapter 13 or Chapter 11 repayment plan case.

So, the rule is:  Always get things in writing and get receipts for payments you make.  It can save you lots of problems inside and outside of bankruptcy.

A charge-off is merely a bookkeeping entry. It has nothing to do with the legal status of the debt. Often, creditors will sell the accounts on which they are owed money to a third party collection company, who then owns all the rights to pursue the debt, just as the original creditor did. What ends up happening is that a debt you thought was long gone, suddenly resurfaces after several years, when the new owner of the debt commences a lawsuit to collect on it.

This can have an impact on your credit report as well, because if that creditor gets a judgment, then the judgment will be on your record for at least another 7 years.

It is important not to assume debts have gone away simply because they are “charged off.” More often than not, you will still have to deal with that debt whether through a bankruptcy or some other alternate means.

I think the real question most intend to ask is whether filing bankruptcy is prudent given the amount, and type, of debts they have. This can only be answered after a comprehensive analysis of a client’s complete financial situation.

For example, certain bankruptcies–such as a Chapter 13– can be filed when the only debt one has is secured debt, such as a mortgage, in order to allow time to catch up on payments.

For a Chapter 7 liquidation case, I have filed cases for debtors who have had as little as $5,000 of total unsecured debt to those with over $5,000,000. In the case of the young man who had $5,000 of debt, which is admittedly an unusual amount on which to file a bankruptcy case, the situation was such that it was in his best overall interest–after analyzing his entire situation–to file a bankruptcy case. He was relatively uneducated, had a part-time minimum wage job, and no credit to speak of (the debt was a judgment from a traffic accident). Filing bankruptcy enabled him to get rid of the debt, which he was going to have a very difficult time paying off, and it also enable him to clear off his credit record, obtain a fresh start, and commence rebuilding (or actually in his case, BUILDING) his credit. Several years later, he has several credit cards (on which he is current with payments), a wife, a house, a dog and enough income to survive.

I use that story–unusual though it may be–to point out that sometimes bankruptcy really is the best solution, regardless of how much debt there is. Now obviously if the man in that story had income of $75,000 a year, it would have been a ludicrous decision to file bankruptcy, but it is important to seek the advice of a qualified bankruptcy attorney and see if it is in your best interest to take advantage of the bankruptcy laws which are here to provide assistance in such situations.

1. Yes, debts that have been consolidated or are in a repayment program are dischargeable in bankruptcy, assuming that there are no independent grounds for objecting to the discharge. (see more on dischargeable debts)

2. When you enter into a debt consolidation program, you still owe the debts until they are paid in full (which presumably includes the fees to the consolidation agency). Thus, if you file a bankruptcy case, you must list any and all such debts. (See our recent related blog on picking and choosing which debts to include in bankruptcy.

3. Just because you have consolidated your multiple debts down into one payment does NOT mean that you don’t owe each of the individual creditors, unless they were paid off by a single consolidation loan that was taken out. What this usually means is that you are paying a company to make the payments to each of the creditors, while you make one single payment to the consolidation company, but you still owe each of the creditors until they are paid off.

First: There are numerous requirements to filing a bankruptcy case. One of them is that you must LIST ALL of your debts and ALL of your assets in your bankruptcy schedules.

Second: When you receive a discharge, you are discharged from any and all debts that are made dischargeable by the Bankruptcy Code (unless a creditor or other party successfully objects to the discharge).

Third: You can voluntarily repay any debt you want after the bankruptcy case is completed (in a Chapter 7 case, this is about 4 months after the case is filed, in Chapter 13, it’s 36-60+ months). See more on how the process works for each bankruptcy chapter.

Fourth: In a Chapter 7 case, you may, with the consent of the creditor and approval by the bankruptcy court, enter into a reaffirmation agreement. What this does is take the debt out of the bankruptcy and obligate you to the terms of the agreement (whatever they may be) despite the discharge you ultimately receive in the bankruptcy case. Reaffirmation agreements must be signed, executed, and filed with the court prior to the entry of discharge in your case.

The critical question to ask when trying to determine (or ask your attorney) whether you can discharge certain debts is: WHY do you want to do that (whatever “that” is)? In my experience, most debtors perceive that if they keep certain creditors off the bankruptcy, that they will magically be able to continue to have credit with them. Nothing could be further from the truth. In fact, with respect to credit card debt in particular, you have a much better chance of negotiating for a reaffirmation agreement with them (if that is your goal) to keep some credit on the card after your discharge is granted. Personally, I advise my clients strongly against doing that (because getting a new credit card after bankruptcy is about as difficult as finding mud after a rainstorm).

There is much more to say on this topic, such as how secured debts are handled in bankruptcy. If you have questions, you should schedule a consult with a bankruptcy attorney.

The following are some guidelines set forth by the Association of Independent Consumer Credit Counseling Agencies (AICCCA). If you find yourself fitting into more than one of these categories and you have more debt than you can afford to pay off within a short period of time (let’s say 6-12 months), then you should consider seeking advice on possibly filing a bankruptcy case:

• Living paycheck to paycheck — This is very dangerous since any slight reduction in income, or sudden increase in expenses, such as from a job loss, unexpected medical bills, can push you over the edge. Credit card payments are missed, the interest rates skyrocket and everything can fall apart very quickly.

• No savings cushion –This is a subset of the above. It’s important to have a cushion for unexpected expenses. In fact, you have to expect the unexpected. When was the last time you had an entire year with no unexpected expenses?

• More than 20% non-mortgage debt to income ratio — For those spending more than 20 percent of net income to satisfy non-mortgage debt, a drastic change in spending behaviors is needed.

• Making only minimum payments on credit cards — If you pay only the minimum amount due you are making virtually no principal reduction payments and, thus, no progress towards paying off the debt. All you’re doing is keeping your head barely above water and all it takes is a little wave to push you under.

• Not adequately insured — Some studies suggest that 50 percent of bankruptcies involve medical debt. Without adequate insurance, the high cost of medical, home or car expenses can ruin personal finances

For other types of bankruptcy, such as those precipitated by mortgage defaults, where you need time to catch up on the payments to prevent foreclosure, it is equally or more important to see a bankruptcy attorney sooner, rather than later, to allow sufficient time to prepare to file either a Chapter 13 or Chapter 11 case for you to save your home.

A full legal treatment of this subject can be seen in my article published in the Central District Consumer Bankruptcy Attorneys’ Association newsletter.

Do you Need to File your Bankruptcy From a Foreign Country?

The first question one must ask in this circumstance is whether it’s even necessary to file a bankruptcy case in the United States if you live abroad and plan to remain outside the USA. Filing bankruptcy in the USA basically protects your assets and income in the USA from your creditors by discharging the debts. It may or may not protect assets you have in foreign countries, depending on their laws. In most cases, US creditors are not going to come after your assets in a foreign country and, if they did, you can always avail yourselves of that country’s bankruptcy laws.

But, there are times when it is necessary, such as if you do still have assets in the USA or receive income from a US company, or plan to return in the near future. So then, the questions become A. Can you file bankruptcy in the USA and, if so, B. WHERE in the USA can you file?

Are you Eligible to be a Bankruptcy Debtor?

My article covers this in detail, but to summarize:

11 U.S.C. 109 allows any person to file bankruptcy in the USA if they reside, have a domicile, place of business OR property in the USA. What constitutes sufficient “property”? That depends on the court, but for most, even a simple bank account will suffice. Sometimes merely depositing funds into an attorney’s trust account meets the requirement. In other words, in most cases almost any asset here in the USA will make a person eligible to be a debtor in bankruptcy. (what chapter you’re eligible for is another matter altogether). For practical purposes, you also must have a mailing address in the USA where you regularly receive mail. This is not a legal requirement, but is practically necessary.

Where in the United States Can you File Your Bankruptcy Case (VENUE)?

The next question becomes WHERE in the USA you can file bankruptcy.   Typically, federal venue laws require that your case be filed in the district where you have resided  for the greater part of the 180 day period prior to filing your bankruptcy case. But what happens if you’ve lived outside the USA for more than 180 days?   Venue would then be where your principal assets in the USA were located for the greater part of the 180 days prior to filing your bankruptcy case.    In cases where a bank account is the only asset you have in the USA,  your case would need to be filed in the jurisdiction where the bank account was located during that period.  Theoretically, it may be possible to move the bank account to a location of your choosing and file there after 91 days.

None of the above affects which state’s exemption laws will apply to your case (which can be a very complicated analysis if you’ve lived outside the USA for more than 2 years)  but it does affect where you will have to appear for your mandatory meeting with the Trustee.

Ultimately, the need to appear for the 341a meeting and the costs associated therewith, may outweigh the benefits to filing the bankruptcy. In some cases, depending on the reasons why, the US Trustee’s office or the court may excuse physical appearance at the meeting, but this usually requires a showing of medical necessity or military obligations.

My favorite story of the week comes from a debtor who had two credit cards with the same Bank. She was diligently making her monthly minimum payment to them, but mixed up the checks and put them in the wrong envelopes.  One of the checks was insufficient for the payment on one account, so the interest rate increased resulting in a minimum payment she could no longer afford to make.  She ultimately had no choice but to seek information on possibly filing a bankruptcy case.

I see, all too often, people skating by on the edge and it takes very little to push them to the bankruptcy precipice. A good warning sign is: If you are barely able to make just the MINIMUM payments on your credit cards, you should already be considering bankruptcy as an option because even if you continue making only the minimum payments, you will never pay off those debts because nothing (or only a negligible amount) goes towards the principal.