McLeod Law Offices

Since the housing bubble that is deflating or exploding (depending on your perspective), it is becoming more and more common for debtors seeking to reorganize to be seeking bankruptcy protection. To be a chapter 13 debtor your debt cannot exceed a certain amount. As of this posting, a chapter 13 debtor cannot have more than $366,900 in unsecured debt, or have more than $1,010,650 in unsecured debt. If a debtor wants to reorganize and has higher debt, chapter 13 is not an option. With that said there are some facts you need to know about chapter 11.

It’s more expensive: the filing fee for a chapter 11 petition is (as of this writing) $1,079. Legal fees and expenses should be expected to be higher (if not significantly so) and most experienced bankruptcy attorneys will quote you a retainer based on the level of skill required, and the level of complexity anticipated in the case. In addition to those expenses, there are quarterly fees payable to the US Trustee.

In addition to the legal fees and costs, there are the tasks associated with being a chapter 11 debtor. Debtors need to prepare and file monthly operating reports with the US Trustee. If debtors are not already doing so, this means getting into the habit of keeping track of every penny of income, and every penny of expenditures.

It is an urban myth (or depending on where you are, suburban myth) that you can file under chapter 13 if you are over the debt limits. You either have to face chapter 11 with a brave face and a good attorney, or you have to accept the fact that you may not be able to afford the property you are trying to keep.

If you think you might be “in the ball park” of the debt limits, you need to get all of your documents in order. This includes bills, statements, as well as other potential claims, such as pending lawsuits. Let bankruptcy counsel review it and determine whether you can get into a chapter 13, versus a chapter 11. The sooner you can know which chapter or chapters you can proceed under, the sooner you can prepare. The time to do that is now, not on the eve of a foreclosure auction.

Storm Preparation is a weekly series appearing on Wednesdays and offers tips and information to people who think they may need bankruptcy protection in the future. Questions, comments or suggestions can be addressed to info@mcleodlawoffices.com.

I cannot tell you the number of times I have heard prospective clients tell me something like this:

“I have been wanting to file bankruptcy for several months, but I wanted to put my house into my relative’s name first.”

When I hear that, I usually cringe. Transferring property in contemplation of bankruptcy is a big no-no for two reasons: (1) the transfer and can be undone; and (2) the discharge can be denied.

Under Section 544, a trustee can avoid a transfer of property by the debtor. In other words, and using the above example, the trustee could get the house back from the relative.

Perhaps even more problematic for a debtor: tThe discharge can be denied. Section 727 provides for a denial of discharge if “the debtor, with intent to hinder, delay or defraud a creditor or an officer of the estate (such as the trustee) has transferred, removed, destroyed, mutilated, or concealed …property of the debtor, within one year before the date of the filing of the petition; or…after the date of the filing of the petition.”

It’s been my experience that debtors transfer property without first speaking to an attorney. While the motives for transferring propety may be questionable, the decision to transfer is usually fueled by a fear of losing the property in a bankruptcy proceeding. However, no one can really determine whether an asset would not be exempt from the bankruptcy estate unless all of the facts are analyzed by an attorney. Without an opinion from an attorney, it is impossible to determine whether the fear is actually legitimate.

Yet even if the fear is legitimate, the biggest reason – if not the only reason – why consumer debtors seek bankruptcy protection is the discharge. Going into the process, losing property and losing the discharge makes no sense. Also, a debtor who transfers property is likely going to find themselves pulled into an Adversary Proceeding, which only increases the costs and fees associated with filing bankruptcy. If you’re thinking of transferring property: speak to a bankruptcy lawyer first.

You might also want to read:
Unauthorized Post Petition Transfer Leads to Denial of Discharge

Storm Preparation is a weekly series appearing on Wednesdays and offers tips and information to people who think they may need bankruptcy protection in the future. Questions, comments or suggestions can be addressed to info@mcleodlawoffices.com.

When I was growing up, I was never made privy to my parents’ financial affairs. I never knew if things were “bad” (primarily because we were lead to believe they always were “bad”) and we never really knew if they were “good” (if for no other reason, because we assumed it was bad). We still had a black and white Zenith TV with no remote (unless you considered me being the remote). We were a one car family. We did not have cable TV. And we also did not face foreclosure.

If we had, I imagine there would have been some sort of a ‘family meeting.’ After all, if my parents were going to lose the family home, I would want to know why. I would want to know why I would have had to move into a new house – why I might have to change schools – and would want to talk about what I might have had to tell my friends. Of course, that was then; the black and white TV is long gone.

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