BANKRUPTCY LAW UPDATE AND WHAT PARALEGALS SHOULD KNOW ABOUT CREDITORS PERSPECTIVES

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1 BANKRUPTCY LAW UPDATE AND WHAT PARALEGALS SHOULD KNOW ABOUT CREDITORS PERSPECTIVES Date: Time: Venue: October 23, :45am to 12:15pm WSPA Fall CLE Conference Seattle, Washington Instructor: Victoria Ring, CEO 713Training.Com LLC 1670 East Cheyenne Mountain Blvd, Suite F257 Colorado Springs, CO (Office) (Fax) Victoria Ring is a Certified Paralegal and Debtor Bankruptcy Specialist. She is also the CEO of the 713 Family of Companies which include 713training.com, 713attorney.com, 713university.com, 713marketing.com and 713bankruptcy.com. Victoria is also the founder of the National Association of Virtual Bankruptcy Assistants which can be viewed online at navba.org and developer of the first exam to test Chapter 7 petition preparation skills. More information about the VBA Exam is available online at vbacertification.com. Bankruptcy Law Update The Bankruptcy Abuse Prevention Consumer Protection Act ( BAPCPA ) went into law on October 17, The major differences in the Federal Forms within the bankruptcy petition are: a. Means Test (debate is currently being conducted in an effort to eliminate the Means Test) b. Exhibit D (Debt Counseling Certificate from an approved agency) Both of these new forms were solely developed at the urge of credit card companies in an effort to force more people into a Chapter 13 who would have normally been a Chapter 7 under the old bankruptcy law. There are some people that pose a very convincing argument that the credit card companies failed in their attempt.

2 Page 2 Updated Bankruptcy Statistics According to PACER (public access court electronic records), for the 30-day time period covering March 1, 2009 through March 31, 2009; a total of 134,282 bankruptcy petitions were filed in the United States with 99,575 of those being Chapter 7 and 33,123 being Chapter 13. The bankruptcy court was open 22 days during the month of March 2009, so this averages out to be 6,104 petitions filed per day, 254 per hour or per minute. During the same period of March 2008 (the previous year), a total of 92,173 bankruptcy petition were filed in the United States. The bankruptcy court was open 21 days during the month of March 2008, so this averages out to be 4,190 petitions filed per day, 175 per hour or 7.29 per minute. Online Resource: What does this tell you? It tells you that a lot of people are filing bankruptcy and it also tells you that the number of bankruptcy filings is significantly increasing. Just in the two statistics provided above, there was a just under a 46% increase. Statistics are projected to continue increasing throughout 2010, 2011 and even beyond. What should a paralegal know about the creditor s perspective? The number one goal for creditors is to collect the money owed to them. The number one goal for the debtor s is to pay creditor s according to the best of their ability. Most creditors are not always happy with this arrangement. Enter the Trustee who is supposed to be fair and balanced and work to the benefit of both the debtor and the creditor. However, creditors are becoming much more aggressive in their objections to expenses listed on Schedule J of the debtor s bankruptcy petition. Depending on the Trustee and the bankruptcy court, debtors may be asked to completely alter their lifestyle just so a creditor can obtain more money. Examples: In some states, debtors are required to cash in their 401K (even paying a penalty) just to pay creditor s more than what is proposed in the bankruptcy petition. In some states, expenses such as charitable contributions, money sent to an elderly parent to pay rent, tuition for children attending private school and other similar personal expenses are not allowed so that the debtor is thrown into a Chapter 13.

3 Page 3 And in some states, creditors even object to the IRS allowances and there are Trustees and bankruptcy courts who side with the creditor. Because of these reasons, paralegals working on the debtor side of bankruptcy need to always be aware of ways to protect the debtor. Some of these methods include: Immediately alert the attorney to any unexempt equity found on Schedules A or B, even if it is $1.00. Always keep your Attorney Cover Sheet document open at all times when you are working on the bankruptcy petition. Be sure to document EVERYTHING about the case, including questions that come to your mind. You may end up deleting some of these questions after you have finished the preparation of the petition because you will find the answers to them. But for the questions you did not find answers to, you will need to document them so there is a paper trail and the attorney can be alerted to any potential problems, thereby protecting the debtor. Document all the selections you made for the treatment of debts in a Chapter 13 Plan. It is important for the attorney to know this information in order to make adjustments if necessary. When adjusting Schedule J expenses in order to more closely match the IRS allowances, make sure you document these changes on your Attorney Cover Sheet for the attorney and ask him or her to let you know if any adjustments needs to be made. If possible, you may need to adjust figures on the Means Test to more closely match Schedule I and J in order to prevent any Objections due to the DMI (disposable monthly income.) However, in some cases the balancing act would be impossible. One example is a debtor who has no income this month due to a job loss but was earning $5,000 last month. There is no mathematical formula to make the Means Test match Schedule I and J in extreme situations like this. And this is just another example of why the elimination of the Means Test is being debated by legislators. Make sure to always obtain market value appraisals (normally referred to in most states as drive bys ) on Schedule A property, especially when a strip down is going to be proposed by the attorney. The whole negotiation with the lender depends on this appraisal so you want to make sure to get a market value versus a resell value that real estate agents provide. Learning how to improve your skills in balancing Schedule I and J of the bankruptcy petition will help your attorney to do the best job they can do for the debtors. Because this skill requires additional training to properly learn, 713Training.Com provides online training classes, videos and CDs to help you learn this skill. Visit Perform online searches for land records, deeds, liens, judgments, criminal records, Kelly Blue Book values for all motor vehicles and background searches so you can verify the different addresses debtors have lived at. Often, you will find they lived in another state and there could be property or even taxes owed that the debtors did not report. Getting all the facts in the beginning of the case will save your attorney a great deal of time as well as protect the debtors.

4 Page 4 Additional Topics to Be Covered: What are some quick tips to matching up Schedule I to the Means Test in order to reduce deficiency notices from the Trustee s office? Start by taking the total amount of income provided for on Schedule I. Enter that information into the income line of the Means Test. If the debtors qualify for a Chapter 7, you only need to fill in the income portion. Remember, the purpose of the Means Test is to qualify the debtors for a Chapter 7 or Chapter 13. If they qualify for a Chapter 7 by simply entering their income (and no expenses) they are a Chapter 7, no questions about it. You only need to fill in the rest of the data if the debtor s qualify for a Chapter 13. Often, a Chapter 13 on the Means Test will become a Chapter 7 after entering in all the data. What are some quick tips regarding exemption selections and how not to commit unauthorized practice of law if you are a non-attorney? Always do your exemptions last, after you have entered in all the assets and liabilities within the bankruptcy petition. Make sure you classify your exemptions correctly. Even seasoned attorneys have problems understanding exemptions. For example: One attorney had classified the tax refund for the debtor under Item 35 (All Personal Property of any kind not already listed.) It should have been listed under Item 18 (Other Unliquidated debts owing debtor including tax refund.) Listing it with a classification of Item 35 provided no exemption allowance to protect the debtor, where using Item 18 did. Feel free to make any changes to exemptions or any part of the petition. As long as you properly document the information for the attorney and let he or she know what you did so they can make the legal decision to change it or not, you are NOT violating UPL. What is the name of the Motion that attorneys must use when stripping a second mortgage in a Chapter 13 Plan? Motion to Avoid Secure Lien and Strip Second Mortgage When I first learned of a Motion to Avoid Secure Lien and Strip Second Mortgage I was doing a petition review for an attorney. I was told that many courts are requiring that the attorney file a Motion to Avoid Secure Lien along with the Chapter 13 Plan if they intend to propose a stripped mortgage due to unsecure equity. The attorney I was doing the bankruptcy petition review for did not have a copy of the Motion so I conducted online research to find the pleading for her. During my research I found that at this time there is not one specific Motion that is used for all fifty states. Instead, it is a pleading with a variety of different titles, making it difficult to find. This of course is due to the fact that the government is still debating the issue regarding the mortgage industry at this period in our history. Therefore, this information may change when these new laws are passed.

5 Page 5 You can purchase this pleading online for $18.95 at Click on the TEMPLATES category. Why is it important to document the benefits to the debtor for the Chapter 13 Plan? Knowing this information will significantly increase the profits for a law firm as well as improving the rate at which debtors stay in their Chapter 13 Plan. According to reports, the national average amount of debtors who have their cases dismissed for non-payment is 80%. As paralegals, we can make a significant difference by taking steps to keep the debtors informed and help them to fully understand their Chapter 13 Plan. Examples of detailing benefits of the Chapter 13 Plan so that the attorney can relate this information to the debtors are: a. The student loan owed to Wachovia Bank in the amount of $1, is proposed to be paid at 26%. This means the debtors will only pay back $402.97, saving the debtors $1, on this loan if the Chapter 13 Plan is approved. However, you may encounter an objection because the government may want this debt classified as a Special Class, Paid 100%. In that case, you can argue that this debt is 12 years old and the debtors qualify for a hardship situation. Hardship applications are available from the Sallie Mae website and debtors filing bankruptcy are often eligible for this reduction or elimination of their student loan debt, especially since it is so old. b. The payment for the VW was reduced from $350 per month to only $30 per month. This provided the debtors with more disposable income and I was able to increase their Chapter 13 Plan payment. c. $130,000 of the first mortgage is paid as UNSECURED. This means the debtors only will pay back $33,800 instead of $130,000; thereby saving them $96,200. d. The $5, in arrearages will be paid in full inside the Chapter 13 Plan. In fact, another angle would be to remove these arrearages and pay them as unsecured or remove them entirely. If the house is crammed down the arrears will probably not exist anyway. e. There is a total of $164, of unsecured debt. This entire debt will be paid in full for only $43, This saves the debtors $121,

6 Page 6 Bankruptcy Reference Links American Bankruptcy Institute Bankruptcy Courts by Zip Code Bankruptcy State Exemptions Criminal Records Search Chapter 7 Help Center Chapter 13 Network Become a Certified Bankruptcy Assistant Test Your Bankruptcy Knowledge National Association of Consumer Bankruptcy Attorneys National Association of Bankruptcy Trustees Bankruptcy Action Chapter 13 Information U.S. Bankruptcy Trustee Program Become a Certified Virtual Bankruptcy Assistant Bankruptcy Hangman Game 713Training.Com Reference Links Bankruptcy Blog 713bankruptcy.com Bankruptcy Client Intake Forms 713attorney.com/freeproducts.html Training Services for Law Firms 713attorney.com/training_services.html National Association of VBAs navba.org Chapter 13 Training Seminars 713training.com/workshop Bankruptcy Attorney Start-Up Kit 713attorney.com/freeproducts.html Bankruptcy Attorney Retainer Agreement 713attorney.com/freeproducts.html Attorney References 713attorney.com/references.html NAVBA Board Members navba.org/boardmembers Bio of Victoria Ring (Instructor) 713attorney.com/victoriaring.html