Bankruptcy Filing Fees Increase on June 1, 2014

The Bankruptcy court currently charges $306 in total fees to file for Chapter 7 Bankruptcy, and $281 in total fees for Chapter 13 Bankruptcy.  These fees include the filing fee, administrative fee and a trustee surcharge. A notice was just sent that the Bankruptcy court filing fees are increasing as of June 1, 2014.

After June 1, 2014, the Bankruptcy Court will charge the following fees to file for Chapter 7 Bankruptcy:

Filing Fee of $335.00, plus
Administrative Fee of $46.00, plus
Trustee Surcharge of $15.00
TOTAL FILING FEE: $396.00

After June 1, 2014, the Bankruptcy Court will charge the following fees to file for Chapter 13 Bankruptcy:

Filing Fee of $310.00, plus
Administrative Fee of $46.00, plus
TOTAL CHAPTER 13 FILING FEE: $356.00

Other fees that will also increase on June 1, 2014 are the filing fees for:

• Chapter 9: $1717
• Chapter 11: $1717
• Chapter 12: $275
• Chapter 15: $1717
• Adversary Proceeding: $350

IMPORTANT NOTE: The above fees are in addition to any attorney's fees and/or fees for the preparation of the Bankruptcy Documents, appearance at a Section 341 Creditor's Meeting, or representation in Bankruptcy Court. Any fees for legal services must be agreed to in writing between you and your attorney prior to the commencement of any bankruptcy proceeding.

Can a Mortgage Prevent you from Filing for Bankruptcy?

Individual bankruptcies, typically Chapter 7 or Chapter 13, are limited in certain ways.  For instance, Chapter 7 bankruptcy has income limitations, while Chapter 13 bankruptcy has debt limitations.   Below we will explain how your mortgage could disqualify you from filing Chapter 13 bankruptcy under the debt limitations.

A mortgage is a legal instrument typically securing a debt against real property, such as your residence. In our current real estate market, many homes are underwater. Not in the literal sense.  Figuratively, when a home is described as "underwater" it refers to the mortgages on said home having a value greater than the current fair market value of the home.

When filing a Chapter 13 bankruptcy, a wholly unsecured second mortgage or even the unsecured portion of an under-secured first mortgage should be listed as unsecured debt. Depending on other circumstances you may or not be able to discharge this "unsecured" debt, however that doesn't change the fact that the Court will consider it unsecured.

Why does this matter?

When filing a Chapter 13 bankruptcy, there are debt limits defined by 11 U.S.C. §§ 109(e). Said debt limits were recently raised, effective April 1, 2010. Under the current limits, a Chapter 13 bankruptcy will be dismissed if the debtor has unsecured debt greater than $336,900 and/or secured debt greater than $1,010,650. As of April 1, 2010, those figures rose to $360,475 and $1,081,400 respectively.

Consider the following scenario:
A debtor owns a $600,000 home but has $900,000 in mortgages. The debtor has a car with a lien of $20,000 (secured debt) and credit card (unsecured debt) of $100,000.

If the entire mortgage debt was considered secured then the debtor would be under the debt limits with a total secured debt of $920,000 and a total unsecured debt of $100,000. Unfortunately, because the Court considers the $300,000 of "underwater" mortgages unsecured, the debtor has a total unsecured debt of $400,000, which is above the debt limits. This debtor would, therefore, be ineligible to file for relief under Chapter 13 and be forced to seek other relief (possibly filing for bankruptcy under Chapter 7 or Chapter 11).

This is the exact scenario articulated by a California Court in an unpublished decision: In re Estrada.

Estrada refers to a Ninth Circuit decision: In re Scovis, 249 F.3d 975, 982 (9 th Cir. 2001). In Scovis, the Court stated that a "vast majority of courts, and all circuit courts that have considered the issue, have held that the unsecured portion of undersecured debt is counted as unsecured for 13 § 109(e) eligibility purposes."

It appears that this is also the law in Massachusetts. In re Marrama, 345 B.R. 458, 472 n.23 (Bkrtcy.D.Mass. 2006) In Marrama the court referenced Scovis and noted that the debtors failed to list the unseured portion of an undersecured mortgage as unsecured debt, which would have resulted in a greater unsecured debt.

What is the difference between Chapter 7 and Chapter 13 bankruptcy?

Generally speaking, a Chapter 7 Bankruptcy involves a total liquidation of the debtor’s assets (although the debtor may keep certain allowable exempt assets), and any non-exempt assets are used to satisfy the debtor’s unpaid debts.  Any remaining dischargeable debts are discharged, meaning they are no longer owed.  A Chapter 7 case places no limits on the amount of debt that may be discharged; however, there are income qualifications in order to be eligible for Chapter 7 as a result of the 2005 changes to the Bankruptcy law.

A Chapter 13 case places no income restrictions on the debtor, so if you cannot file Chapter 7 because you do not pass the means test, you can likely file Chapter 13.  Chapter 13 begins much like a Chapter 7 case, but after the liquidation of non-exempt assets, if any, the debtor will pay a certain amount based on his available income and after deduction of living expenses to the U.S. Trustee, who will distribute payment to creditors on a pro-rata basis.  The debtor will make monthly payments for 3-5 years, depending on certain factors, and then, as long as the debtor makes payments every month, the remaining unpaid portion of most debts will be discharged (though some debts, such as student loans may still be owed even after completion of the plan).

Chapter 13 has the benefit of permitting the debtor to spread out the repayment of certain debts over a 3-5 year period that would be otherwise non-dischargeable, such as tax debt, or student loans.  Additionally, the debtor could use Chapter 13 to avoid foreclosure and pay back mortgage arrearages over the term of the plan, which is helpful in cases where the lender is demanding a high “cure” amount to voluntarily get a house out of foreclosure.

Bankruptcy & Litigation Series: #7 Foreclosures and Short Sales

Foreclosures are down for the sixteenth straight month in Massachusetts (Source: Massachusetts Real Estate: Foreclosure Activity down yet again).  Whether you credit government intervention programs, improvements in the economy, or something else, this is good news for most people.  However, not everyone will be able to avoid a foreclosure of their property.

Homeowners encounter serious problems when they cannot pay (and have not paid) the mortgage especially if they have negative equity in the property (meaning that the mortgage is more than the fair market value).

Whether you took on a mortgage payment that you could not afford - i.e., purchased "too much house" - or some other temporary situation has impacted your finances such as an unexpected medical expense, loss of a job or other significant interruption in income, the bank will begin threatening foreclosure when you get behind on payments.  At this point, you must weigh your options.

If you can afford your mortgage payment and have just gotten behind then you may be able to work out a mortgage modification directly with your bank, but if they are not willing or able to work with you then bankruptcy can forestall a foreclosure proceeding.  In a Chapter 7 bankruptcy, you will have to pay any mortgage arrears if you want to keep the property, but the foreclosure will likely be delayed partially during the process.  In a Chapter 13 bankruptcy, the mortgage arrears can be included in your payment plan so long as they will result in a full payoff of the arrears by the end of the plan.

If you can't afford the payments, and your financial situation does not permit a mortgage modification, then your options may include bankruptcy, short sale, or foreclosure, or some combination of those.

Short Sales:

In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the borrower. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. Borrowers are able to mitigate damage to their credit history, and partially control the debt. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer. The borrower must work directly with the lender to seek approval of the short sale by the bank, obtain a purchaser, and complete the transaction before any foreclosure proceedings are completed. (In some cases, the bank may have initiated foreclosure proceedings, in addition to contemplating consent for the short sale.) Timing is critically important, and the debtor is an important part of the short sale process.

However, if the individual does not then pay off the deficient portion of the mortgage (the unpaid portion of the mortgage after the short sale proceeds were applied to the balance), the lender can take further legal action against the debtor to collect the unpaid portion of the mortgage, which may include trustee process attachments, garnishments, or seizure of other assets, depending on the debtor's other property. The debtor may, after the short sale is complete, file for Bankruptcy upon completion of the short sale to discharge any deficiency and extinguish any further liability to the lender.  If the homeowner is already in bankruptcy, they will need the trustee or court's approval to transfer the property in a short sale.

Foreclosure and Bankruptcy:

A final option is to simply file for bankruptcy, and indicate that the debtor's intention is to surrender the property to the bank. Procedurally, the Bankruptcy case will progress through the Bankruptcy Court, and eventually the secured lender will seek permission from the Bankruptcy Court to be relieved of the automatic stay protections, and begin foreclosure proceedings. Regardless of whether the foreclosure auction is completed by the bank before or after the debtor's discharge (meaning they no longer owe certain debts, including the mortgage debt), any deficiency from the foreclosure auction is discharged by the bankruptcy court. From the debtor's perspective, the whole process is completed through the bankruptcy, and does not require any specific participation directly with the lender.

This option provides a swift resolution to the issue of past-due mortgage debt, the pending foreclosure on the property, and any mortgage deficiency all in one process that, in the case of a Chapter 7 bankruptcy, can be completed from filing to discharge in under six months. It is best utilized when the lender will not agree to a short sale, when there is insufficient time to arrange a short sale, or when the debtor's other financial concerns (such as collection actions on other debt) require immediate action. It also does not require the lender's permission or cooperation - provided you qualify for bankruptcy, the Bankruptcy Laws dictate the result, not the lender's business decision.

The credit implications of a foreclosure and bankruptcy (or in the context of bankruptcy) are more detrimental than a short sale followed by bankruptcy, if the debtor wants to obtain a mortgage again in the future.

What to do when you receive a Notice of Bankruptcy? Step 1: Identify the Chapter

If you receive a Notice of Bankruptcy, like the samples shown below, the first step is to identify what chapter the debtor is requesting relief under.  There are multiple types of bankruptcy and each has different rules and requirements.

The title of the Notice identifies the Chapter that the bankruptcy is filed under.  Below we have included samples from the two most common bankruptcies:

A Chapter 7 Notice for a no-asset case:

A Chapter 13 Notice for a payment plan case:

As you can see the title of the Notice identifies whether it is a Chapter 7 or Chapter 13 case.  The notices differ as well in terms of the instructions they may provide because of the differences in these types of cases.  Below we explain a little more about why the type of case matters.  If you would like more information about bankruptcy visit our website.

The most common types of bankruptcy that you will encounter are Chapter 7, 11 and 13.

Chapter 7 Bankruptcy sometimes referred to as "liquidation", is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. Chapter 7 is available to both individuals and businesses. Under Chapter 7 the debtor may claim certain property as exempt under the governing law. A trustee may have the right to take possession of and sell the remaining property that is not exempt and use the sale proceeds to pay your creditors. After liquidation of these non-exempt assets, all remaining qualified debts are then discharged and the creditors are out of luck.

Chapter 11 Bankruptcy sometimes referred to as "reorganization", is designed for debtors in financial difficulty who may have the ability to pay their existing debts in part. Chapter 11 is available to both individuals and businesses, though is more typical for businesses. Under Chapter 11 the debtor must propose a plan that results in more payments to debtors than they would get under a liquidation. The plan must be approved by a council of creditors.

Chapter 13 Bankruptcy involves the repayment of all or part of the debts of an individual with regular income. Chapter 13 is designed for individuals with regular income who desire to pay their debts in installments over a period of time. Debtors are only eligible for Chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code. Under Chapter 13, the debtor must file with the Bankruptcy Court a plan to repay their creditors all or part of the money they owe, using future earnings. The period allowed by the court to repay the debts may be three (3) to five (5) years. The court must approve the plan before it can take effect.

Our next post will address the following step for identifying what you should do with this notice after you have identified the type of bankruptcy: Are you actually a creditor, or did you receive the Notice for some other reason? 

A Step-By-Step for Bankruptcy Creditors: What to do when you receive a Notice of Bankruptcy.

If you receive a Notice of Bankruptcy, like the sample shown below, you should ensure that you know why you received it and what your rights are.  The first step is to read the Notice.  It contains much of the information you need to know, as well as instructions on what to do if you wish to respond.

Receiving a Notice such as this one, likely means that you are a creditor and the debtor is trying not to pay the debt they owe you.  But you may have remedies if you take action and know your rights.

Over the next series of posts we will help you understand the steps you should take when you receive a Notice of Bankruptcy.  The questions you need answered include:

What kind of Bankruptcy is it (most likely options include 7, 11 and 13)?

Are you actually a creditor, or did you receive the Notice for some other reason?

What are the important dates and deadlines I should keep in mind?

What is your exposure to liability if the debtor receives their discharge?

Should you hire a bankruptcy attorney to help you evaluate your claims?

Once you answer these questions you will be prepared to respond to the Notice of Bankruptcy, appropriately.

FAQ #28: Can I file Chapter 7 Bankruptcy Even if I Have Filed Before? How many times can I file bankruptcy?

Whether or not you may re-file (and the amount of time that must pass before you may re-file bankruptcy) depends on whether or not you received a discharge under your most recent bankruptcy filing.

If you received a discharge under a Chapter 13 bankruptcy case, then you cannot file for relief under Chapter 7 unless:

1. Six (6) years have passed since the discharge in the Chapter 13 case; or
2. You paid at least 70 percent of your allowed unsecured claims in the Chapter 13 case, and your plan was proposed in good faith and represented your best effort to pay.

If you received a discharge under a Chapter 7 bankruptcy case, then you cannot file for relief under Chapter 7 unless eight (8) years have passed since the discharge in the previous Chapter 7 filing.

If you filed a Chapter 7 or Chapter 13 case that was dismissed because you failed to obey court orders or you voluntarily requested a dismissal and did not obtain a discharge, then you cannot file for relief under Chapter 7 unless 180 days have passed since the dismissal of the previous filing.

Assuming that you meet the above time restrictions for re-filing, there is no limit to the amount of times you can file bankruptcy.

FAQ #23: Why would I choose bankruptcy over debt consolidation or settlement?

Debt consolidation involves getting one loan to pay off multiple smaller loans. The advantages are that the debts are paid off in full, often at little to no damage to credit, and the new loan may have more favorable terms over the old loan, such as a reduced monthly payment, a larger monthly payment (that will insure the loan is paid off quickly) or a lower interest rate.

Consolidating loans takes the logistical hassle in making sure that multiple loans are paid on time and ensures that the debtor only has to make one payment, and gives the debtor the ability to “shop around” for the best deal. However, since debt consolidation requires a new loan, someone with excessive or past-due debt may not be able to obtain a consolidation loan. Additionally, depending on the debtor’s situation, debt consolidation may not provide enough relief, especially if the borrow cannot afford the payments on the new loan.

Debt settlement is the process of attempting to pay your existing debts for less than you owe. No creditor is required to settle a debt, but for financial and practical purposes many companies will compromise the amount owed. If your creditors agree to accept less than you owe, you must usually make a lump-sum payment, which may be difficult. Also, paying a debt for less than you owe has tax consequences – the “forgiven” portion of the debt is considered to be income by the IRS, and, with certain exceptions, you will be required to pay taxes on that income.

Bankruptcy, on the other hand, ultimately involves the discharge of the obligations, meaning that you are not required to pay them back. Bankruptcy also provides other legal protections that may be beneficial to someone needing financial assistance. For example, the automatic stay in bankruptcy is a useful tool in temporarily stopping foreclosure proceedings brought by your mortgage holder(s), as well as halting collection efforts, collection calls and lawsuits filed by your creditors. Click here for more information on chapter 7 and chapter 13 bankruptcy.

FAQ #12: What is the difference between a Chapter 7 and a Chapter 13 Bankruptcy?

Chapter 7 Bankruptcy, sometimes referred to as "liquidation" or “straight bankruptcy”, is designed for people who do not have the ability to pay their existing debts. To prove that you cannot pay your debts, you are subject to a "means test" designed to determine whether the case should be permitted to proceed under Chapter 7. The means test generally looks at the debtor’s gross income from all sources over the past six months, and if it is over the median income for your state, then you cannot file Chapter 7 bankruptcy because the formula has determined you have enough excess income to pay your debts over time. There are some exceptions to the “means test” so you should consult with an attorney to be sure.

At the end of a Chapter 7 Bankruptcy (usually about 6 months) you receive a discharge of your debts and you no longer owe those debts (except for some debts like student loans which cannot be discharged).

Chapter 13 Bankruptcy involves the repayment of all or part of your debts with your excess monthly income. Chapter 13 is designed for individuals with regular income who can pay at least some of their debts in installments over a period of time.

Under Chapter 13, you must file with the Bankruptcy Court a plan to repay your creditors all or part of the money that you owe them, using your future earnings. The period allowed by the court to repay your debts may be three (3) to five (5) years, depending on your income and other factors. The court must approve your plan before it can take effect.

Provided that you have complied with the plan and made all payments required under the plan, at the end of a Chapter 13 repayment plan (3-5 years) you will receive a discharge of the unpaid portion of your debts (except for some debts like student loans which cannot be discharged).

Because a Chapter 13 requires some payments of your debt, it is not usually a person’s first choice. However there are some good reasons to file Chapter 13:

A Chapter 13 is often filed:

1. To stop foreclosure and cure mortgage arrears, allowing someone to keep a house they might lose in a Chapter 7 case;

2. If the debtor is over the means test limit for a Chapter 7 case, but still wants a fresh start debt after 3-5 years;

3. To pay tax debt over time;

4. To protect property from creditors and avoid a Chapter 7 liquidation of assets;

5. To sell property to maximize price, rather than let it go to Chapter 7 auction; and

6. To avoid dischargability problems with creditors that might occur in a Chapter 7 (although the 2005 changes to the Bankruptcy Code have reduced Chapter 13 filing's ability to avoid dischargability problems).

What happens to my Cosigner if I file for Bankruptcy?

Update:  Because of the extensive interest in this topic, we have written two follow-up posts which more specifically address these issues from the standpoint of either the primary borrower (i.e. the person who is gaining the advantage from the loan, whether it be an education, car, home, etc.) or the co-signer (i.e. the person who signed the loan usually just to assist the other person in qualifying):


I co-signed a loan and the primary borrower has filed for bankruptcy. What should I do to protect myself?

I am the primary borrower on a loan and my cosigner has filed for bankruptcy. What should I do to protect myself?

Original Post:

When you file for bankruptcy you are required to disclose if any of your debts have co-debtors. A co-debtor is someone who also agreed to pay that debt, which includes co-borrowers, co-signers, and guarantors. Even if the debtor is discharged of their obligation for a debt, the co-debtor still owes the debt.

In many cases, the filing of bankruptcy of one of the borrowers will constitute a default on the loan and the creditor can then accelerate the loan against the co-debtors if the debtor does not reaffirm. Accelerating the loan means that the lender requests full payment or in the case of a mortgage, forecloses. Despite this ability, in most cases lenders will not accelerate a loan, but will allow it to remain under the current terms if the co-debtor continues to make timely payments.

If the creditor has already sued both the debtor and a co-debtor that collection action can usually continue against the co-debtor, except in the case of a Chapter 13 which specifically protects co-debtors from collection actions during the pending bankruptcy.

If you are a co-debtor on a loan and the borrower is filing for bankruptcy, you should consult with an attorney about what your rights and obligations may be. It is important that you at least find out whether or not the debtor intends to reaffirm their obligation to the creditor or whether you will be left owing the full amount yourself.

Supreme Court Decision: Not All Consumers can use Car Ownership Deduction

The means test is a test required under the new bankruptcy law to determine a debtor's eligibility to file for bankruptcy under Chapter 7 of the Bankruptcy Code. If your income is greater than the median income for your state of residence and family size then you fail part A of the means test and must refer to part B.

In part B of the means test, you must take into consideration certain expenses as defined by the Bankruptcy Code and IRS relating to allowable housing expenses, utility expenses and other deductions, such as regular charitable donations (up to 15% of your income), school expenses, payments on 401(k)/IRA loans, and health insurance. If you are filing for Chapter 13 Bankruptcy, part B of the means test is also used to determine the amount of money left over in your budget for payment on a Chapter 13 Plan.

In either instance, there are two allowable deductions for owning a car: the "ownership" deduction and the "operating" deduction. If you own a car you can take the operating deduction in which the IRS standard estimates your cost for use of your car. If you owe money on your car then you can take the amount of your loan as an "ownership" deduction as well, and the court also provides an IRS standard estimate for the "ownership" deduction. But what if you don't owe any money on your car, or your lien expense is less than the standard "ownership" deduction?

This question was answered differently by a number of appeals courts in the U.S., and on Tuesday, January 11, 2011, the U.S. Supreme Court resolved the inconsistency by upholding a 9th Circuit decision on this issue. The Supreme Court in Ransom v. Fia Card Services (Judge Kagan's first decision on the high court), decided that a consumer who does not have a lien on their car in a Chapter 13 case cannot use the "ownership" deduction to reduce their payment. Although, not addressed directly by the Court, this decision would also presumably apply to use of this deduction to meet the Chapter 7 Part B Means Test.

The Court rejected the debtor's argument that this application of the law would result in unfair policies favoring people who owed money on their car (i.e. bought newer cars before filing bankruptcy), and based their decision primarily on the Court's interpretation of the use of the word "applicable" in the statute. Judge Scalia in his dissent points out the absurdity of this reading and the confusion it may create. Specifically, this ruling does not clarify whether the "ownership" deduction can be taken in whole when the lien payment is less. Although meeting the standard of being an "applicable" deduction, this result would not really make sense in light of the court's ruling.

Regardless of whether the ruling is completely consistent, it is now the law, and for Chapter 13 consumers that have paid off cars, this means they will be making higher payments to their creditors.

Should I Reaffirm my Mortgage Debt? What about a Second Mortgage?

Addressing mortgage debt is often a primary concern in many consumer bankruptcies. Debtors that decide to continue to pay the mortgage on their current house may be setting themselves up for future financial problems if they have difficulty paying the mortgage, post-bankruptcy. Alternatively, a debtor may be able to discharge the underlying mortgage and surrender the house back to the bank if the payments are not affordable, but is then faced with finding a new place to live. The decision of whether or not to re-affirm comes down to the specific facts of your case and what is a realistic future budget for your household.

Popular mortgage packages offered in the past ten years often featured “jumbo” financing: that is, financing of nearly one-hundred percent of the purchase price of the home. In many cases, this was done with a primary traditional mortgage, which financed approximately 80% of the purchase price, then a second mortgage or home equity line of credit that financed the balance.

Today, with the decline in home prices, many borrowers find themselves owing more on their homes than they are worth; in extreme cases, the second mortgage may be completely unsecured because the home is worth less than the balance of the first mortgage, without even adding in the balance of the second. In some cases, it is possible to “strip off” an unsecured second mortgage in bankruptcy, leaving the borrower with only one mortgage to pay. It is generally accepted that in Chapter 13 bankruptcy, a second mortgage can be avoided, and treated as unsecured debt.

Although, most attorneys believed that this could be done in a Chapter 7 case, an Eastern District of New York bankruptcy case may suggest otherwise. Here, the Debtors owned a house, where the fair market value was less than the balance of the first mortgage, leaving the second mortgage unsecured. After filing bankruptcy, the bank requested for permission to foreclose on the second mortgage the debtors opposed; arguing that the bank could not foreclose because the second mortgage should be avoided as wholly unsecured and not treated as secured debt.
The Court agreed.

The bank was not permitted to foreclose, and the lien was permanently voided. Judge Eisenberg explained that the well-recognized holdings in Chapter 13 clearly demonstrate that under the Bankruptcy Code it is appropriate to distinguish partially secured liens from wholly unsecured liens, and that there is no reason why in a Chapter 7 context the same language in the Bankruptcy Code should not void the lien of a wholly unsecured claim.

Of course, this is the outcome of a single New York case, and the bankruptcy Judges in Massachusetts are not obligated to follow this outcome. However, given the proper circumstances, it may be an option to consider. If you would like

Kelsey & Trask, P.C. would like to thank Dan Press, Esq., a Maryland Bankruptcy Attorney, for inspiring this article.

What are the Costs of Bankruptcy?

Bankruptcy in the United States is permitted by the United States Constitution (Article 1, Section 8, Clause 4) which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." As such, Constitutional recognition of bankruptcy law is amongst the oldest in the United States, predating even the bill of rights. Even 223 years ago, the Founding Fathers and the draftsmen of this Country’s earliest laws recognized that sometimes people got in over their heads as a result of insufficient planning or factors beyond their control. They understood that it was in the best interests of both debtors and the economy as a whole to provide people with a fresh start in the event someone found themselves with debts they were unable to pay.

Despite the fact that the Constitution specifically permits Congress to enact bankruptcy legislation, there is still a significant cost, both economic and emotional, to seeking the protection of the Bankruptcy Court. So, if you or someone you know is considering bankruptcy, let’s take a look at the undocumented costs of bankruptcy.

First, the most obvious: Court Fees.

Court filing fees (the fee for filing your petition) for bankruptcy vary depending on the chapter you are filing under, but initially plan on $274.00 for Chapter 13 and $299.00 for Chapter 7. If you need to change your petition after it is a filed, there is an additional $26.00 filing fee.

In addition to court fees, there will be Legal Fees, i.e. what you pay to your Bankruptcy Attorney to analyze your case, review your purchase history to avoid nondischargability issues (meaning you still owe money to a creditor after bankruptcy), make recommendations regarding when you should file and under which chapter, preparing your petition, schedules and disclosures, and representing you at the §341(a) Creditor’s Meeting. Each attorney offers slightly different services, and charges different amounts. You should speak with your attorney to understand his or her fee structure, and always get the fee agreement in writing.

Rebuilding Credit: Assuming your bankruptcy goes to discharge without objection and you receive your Order Discharging Debtor, debtors now finds themselves with the daunting task of rebuilding their credit, post-bankruptcy. The costs here are more difficult to identify specifically. Because bankruptcy negatively impacts your credit, borrowing money may be more difficult, and when possible, may be more expensive.

For example, assume that the debtor has an old car and would like to trade it in for a new car, post-bankruptcy. The debtor may find themselves unable to qualify for a car loan for some time after discharge, thereby incurring the increased maintenance costs and fuel costs of an old, inefficient vehicle for longer than originally anticipated. When the debtor does qualify for a new car loan, the increased interest rate assessed to borrowers with negative marks on their credit score will cost the borrower more in interest over the term of the loan. Similarly, a borrower seeking to obtain a home loan may be required to pay “points” in addition to a higher interest rate, adding thousands of dollars in closing costs.

However, there are potential savings and benefits to a bankruptcy filing. The costs of bankruptcy should be weighed against the benefits. First, bankruptcy offers a debtor a fresh start, and a responsible debtor can begin repairing their credit immediately after discharge, and may qualify for a prime rate mortgage in as little as 3 years after filing. Since the debtor’s previous debts were discharged, the debtor no longer has the burden of making monthly installment payments on consumer credit cards or other non-retained property.

Finally, potential bankruptcy petitioners should be aware of the noneconomic costs of bankruptcy: A bankruptcy filing remains on your credit report for 10 years, and individual debts discharged in bankruptcy for 7 years following your discharge. Therefore, whenever you apply for credit, a new loan, and more frequently, a job or undergo a background check, a previous bankruptcy will be visible to the loan officer, hiring manager or credit card company. While many debtors are encouraged by a “light at the end of the tunnel” or feel as though a weight has been lifted from their shoulders upon discharge in bankruptcy, there may be the lingering feeling of personal failure or shame in filing for bankruptcy. To that, I recommend the debtor consider my opening remarks in this post, and make a decision about what is best for them and their family in the long term.

If you need help weighing your options and if bankruptcy can help you if you are in over your head, contact Attorney Matthew Trask at 508.655.5980 to schedule a one-hour consultation.

I Just Filed My Chapter 13 Case - Now What?

As you may have read in our similarly entitled post "I Just Filed My Chapter 7 Case - Now What?", our clients often ask us after the filing of a bankruptcy petition:

"So what happens next?"

Just like in a Chapter 7, what happens next is a flurry of deadlines and court control dates, some of which require the client's participation (such as responding to the Trustee's requests for additional information), some do not require the client's participation, and others may require the attorney's participation, depending on how the case progresses.

Often, the client is overwhelmed with the detail and the numerous dates, and simply wants to know where to send the plan payments. However, some clients with more complex cases appreciate the added detail, which is why we have added a convenient Chapter 13 Timeline to our website.

The new addition allows a client or prospective client to input their Chapter 13 Filing Date and Section 341(a) hearing date (if known), and will output a scaled timeline with the important dates. Links to the relevant portions of the U.S. Bankruptcy Code and the Federal Rules of Bankruptcy Procedure are also included for cross reference at the bottom of the timeline page.

For those of you reading this post on your smartphone, you can also check out our mobile version of the calculator.

We hope this tool will help clients, prospective clients and attorneys alike better understand and navigate the meticulous and often trap-ridden world of bankruptcy law.

If you have any questions regarding Kelsey & Trask, P.C.'s Chapter 13 Timeline, please contact Attorney Matthew Trask at 508.655.5980.

Should I Pay My Student Loan with a Credit Card?

Under Section 523(8) of the Bankruptcy Code student loans are excluded from discharge in bankruptcy. This means that in most cases after you go bankrupt (Chapter 7 or Chapter 13) you will still owe your student loans.

So you have a great idea, right? Why not pay your student loans with a credit card, which you could then discharge? WRONG!

Credit card debts can be discharged except for a few exceptions. For example, credit card debt is non-dischargeable when the funds were obtained with the intention of filing bankruptcy, or otherwise fraudulently (like filing a false application).

Furthermore, if a credit card is used to pay a non-dischargeable debt like a student loan or taxes, that portion of the debt will be treated the same as the original debt.

This means that even if the credit card company doesn't object to the discharge, they still might be able to pursue you after the discharge, just like a student loan company could (although best practice for the credit card company would be to object prior to the discharge).

Even worse, if the bankruptcy court found that you were attempting to commit a fraud upon the Court by moving this debt, the Court could deny your discharge altogether.

If you are looking for creative ways to pay down your student loans you should consult with an attorney regarding your options.

Is my mortgage secured or unsecured debt? How does this effect Chapter 13 debt limits?

A mortgage is a legal instrument typically securing a debt against real property, such as your residence. It would seem obvious, therefore, that a mortgage is a secured debt. But this is not always true.

In our current real estate market, many homes are underwater. Not in the literal sense (although this is also true for many homeowners in Massachusetts after the storm this past week). Figuratively, when a home is described as "underwater" it refers to the mortgages on said home having a value greater than the current fair market value of the home.

When filing a Chapter 13 bankruptcy, a wholly unsecured second mortgage or even the unsecured portion of an undersecured first mortgage should be listed as unsecured debt. Depending on other circumstances you may or not be able to to discharge this "unsecured" debt, however that doesn't change the fact that the Court will consider it unsecured.

Why does this matter?

When filing a Chapter 13 bankruptcy, there are debt limits defined by 11 U.S.C. §§ 109(e). Said debt limits were recently raised, effective April 1, 2010. Under the current limits, a Chapter 13 bankruptcy will be dismissed if the debtor has unsecured debt greater than $336,900 and/or secured debt greater than $1,010,650. As of April 1, 2010, those figures rise to $360,475 and $1,081,400 respectively.

Consider the following scenario:
A debtor owns a $600,000 home but has $900,000 in mortgages. The debtor has a car with a lien of $20,000 (secured debt) and credit card (unsecured debt) of $100,000.

If the entire mortgage debt was considered secured then the debtor would be under the debt limits with a total secured debt of $920,000 and a total unsecured debt of $100,000. Unfortunately, because the Court considers the $300,000 of "underwater" mortgages unsecured, the debtor has a total unsecured debt of $400,000, which is above the debt limits. This debtor would, therefore, be ineligible to file for relief under Chapter 13 and be forced to seek other relief (possibly filing for bankruptcy under Chapter 11).

This is the exact scenario articulated by a California Court in an unpublished decision: In re Estrada.

Estrada refers to a Ninth Circuit decision: In re Scovis, 249 F.3d 975, 982 (9 th Cir. 2001). In Scovis, the Court stated that a "vast majority of courts, and all circuit courts that have considered the issue, have held that the unsecured portion of undersecured debt is counted as unsecured for 13 § 109(e) eligibility purposes."

It appears that this is also the law in Massachusetts. In re Marrama, 345 B.R. 458, 472 n.23 (Bkrtcy.D.Mass. 2006) In Marrama the court referenced Scovis and noted that the debtors failed to list the unseured portion of an undersecured mortgage as unsecured debt, which would have resulted in a greater unsecured debt.

This also indicates the importance of completing your bankruptcy schedules correctly. To consult with an attorney regarding filing for bankruptcy, click here.

New Median Income Figures Released for all Bankruptcy Cases Filed after March 15, 2010

The United States Trustee Program has released new Census Bureau, IRS Data and Administrative Expenses Multipliers which are used for means testing calculations regarding Chapter 7 and Chapter 13 bankruptcy petitions. Due to the updated IRS Data, the various standards for the expenses in the "means test" form will change for all bankruptcy cases filed on or after March 15, 2010.

In Massachusetts, the new Median Family Income figures are as follows:

Family Size of 1: $53,315
Family Size of 2: $69,204
Family Size of 3: $82,297
Family Size of 4: $99,239

For cases filed on or before March 31, 2010, add $6,900 for each individual in excess of 4. For cases filed on or after April 1, 2010, add $7,500 for each individual in excess of 4.

For a list of the updated median family income figures for other states, a complete list is provided here.

In addition, the Kelsey & Trask, P.C. bankruptcy website has been updated to reflect the new figures, including updates to theKelsey & Trask P.C. Means Test Calculator, and also our Mobile Means Test Calculator, optimized for use on smartphones. We will also be making the same updates to our Means Test Calculator iPhone App in the near future, so be sure to update your App.

When and how do I make Chapter 13 Plan Payments?

The first Chapter 13 Plan payment is due on or before the Section 341 Creditors Meeting and every month thereafter for 36 or 60 months depending on your plan. Most debtors just bring the first payment to the 341 meeting. The payments are made payable to your Trustee, who will provide you with directions at the 341 meeting on where to send your further payments. Plan payments must be made by bank check and not personal check.

How much does it cost to file for Bankruptcy?

The Bankruptcy Court charges the following fees to file for Chapter 7 Bankruptcy:

Filing Fee of $245.00, plus
Administrative Fee of $39.00, plus
Trustee Surcharge of $15.00
TOTAL FILING FEE: $299.00

The Bankruptcy Court charges the following fees to file for Chapter 13 Bankruptcy:

Filing Fee of $235.00, plus
Administrative Fee of $39.00, plus
TOTAL CHAPTER 13 FILING FEE: $274.00

IMPORTANT NOTE: The above fees are in addition to any attorney's fees and/or fees for the preparation of the Bankruptcy Documents, appearance at a Section 341 Creditor's Meeting, or representation in Bankruptcy Court. Any fees for legal services must be agreed to in writing between you and your attorney prior to the commencement of any bankruptcy proceeding.

What Do I Need To File With My Chapter 13 Bankruptcy Petition? Are There Any Deadlines?

The bankruptcy court is very strict regarding deadlines. Often, missing a deadline will result in the dismissal of your Bankruptcy Case. Therefore, it is very important that all documents are filed accurately and on time with the Bankruptcy Court.

No more than 15 days after filing the Chapter 13 petition, you must file all required financial schedules with the court. The Schedules are documents declaring your assets, liabilities, expenses, income, and a statement of your financial affairs, which is very similar to a budget sheet or an explanation of your personal finances. In most cases, these schedules are filed along with your petition. The schedules also set forth to the trustee and bankruptcy court what property is "exempt" (meaning you can retain the property following the conclusion of your case) and what property is "non-exempt", meaning it must be surrendered to the trustee for sale, with the proceeds used to pay any debts.

Within 15 days of filing the Chapter 13 petition, you must file your Chapter 13 repayment plan. The repayment plan is a schedule of how much of your remaining available monthly income (as determined by IRS figures) is available to repay creditors, in what amounts, and in what order. Your Chapter 13 attorney will assist you in preparing your repayment plan, determining the available monthly income, and the proper repayment schedule.

Within 30 days after filing the Chapter 13 Repayment Plan, you must make your first payment as set forth in the plan to the U.S. Trustee. Failing to make the first payment will result in the dismissal of your Chapter 13 petition.