Bankruptcy

A Few Recent Debt Collection Lawsuit Victories

December 2, 2020 by Attorney Judson E Crump 5 Comments

We fight debt collection lawsuits all the time, so it’s hard to keep track of all the cases we’ve handled. But here are a few recent ones that we’ve taken to trial and won.

First, Cavalry SPV I, LLC v. Johnson – Baldwin County, Alabama debt collection lawsuit based on a credit card account that our client did not recognize. We answered that the plaintiff lacked standing and that the account was the result of identity theft. We took it to trial and won.

Next, LVNV Funding, LLC v. Cenatiempo. Our client was sued by LVNV Funding, a debt collector owned by Resurgent Capital out of South Carolina. They alleged that he owed them for a $2400 Credit One Bank credit card. We answered the lawsuit, denying the allegations and demanding a trial. We went to trial in August 2020 and won.

Third, we have Credit Corp Solutions, Inc. v. Tapia. Credit Corp Solutions, Inc. is a debt buyer based in THE PHILLIPINES! But they’re registered in Alabama as a Delaware corporation. They sued our client for $15,000, based on an allegedly unpaid loan from BBVA Compass Bank. We answered, asserting a number of affirmative defenses and demanding a trial. The judge gave us a trial in October 2020 and we won.

Finally, we have Portfolio Recovery Associates, LLC v. Kirkpatrick. Portfolio Recovery Associates is a HUGE debt buyer based in Virginia. They purchase accounts all over the country, and sue thousands of people in Alabama. In this case, PRA sued my client for $8,533, which they claimed she owed them for an old Capital One credit card. We answered and asserted a few affirmative defenses. It finally got to trial on October 21, 2020, and we won.

Perhaps most importantly, all of these clients have been able to AVOID BANKRUPTCY. We continue to defend Alabama consumers from debt collection lawsuits all across the state. If you have received a summons and want to talk about it with a real lawyer who knows how to handle these cases, call us today. The consultation is free.

Don’t Let the Coronavirus Rush You Into Bankruptcy!

March 25, 2020 by Attorney Judson E Crump Leave a Comment

The current COVID-19 outbreak has caused massive layoffs and work shortages here in Alabama, just like everywhere else. Stores are closed, bars and restaurants aren’t making any money, and you can’t find the good toilet paper anywhere. Congress did finally pass an emergency bailout bill, but even getting an extra $1,200 won’t be enough to cover your lost wages, especially if you were working in a bar, restaurant, or store. A LOT of bankruptcy lawyers are amping up their advertising, hoping to convince you to go ahead and file for bankruptcy before your creditors start hounding you for the money. But I’m here to tell you to wait. Stay calm and think about this first. At least consider these three things before you rush into a bankruptcy lawyer’s office:

The Bailout Bill has increased unemployment benefits that you may be able to take advantage of to weather the storm. Part of the Coronavirus bailout bill is a federally funded $600/week bonus that you can get on top of your normal state unemployment benefits, AND an additional 13 weeks of unemployment. So if you’ve found yourself unemployed, go ahead and apply for unemployment benefits and see if that will get you enough to cover the next couple of months.

You May Fail the Chapter 7 Means Test. In order to qualify for a discharge in Chapter 7 bankruptcy, you have to provide your past six months’ pay stubs to the Bankruptcy Trustee and undertake a rigorous monthly income and expense calculation to show that, based on your most recent income, you can’t afford to pay your creditors in Chapter 13 (debtor’s reorganization). The mathematics are actually quite complex, but suffice it to say that if your past six months’ income was higher than the median in your state and you don’t have a lot of allowable expenses (like child support or secured debt payments) you could be forced into Chapter 13 instead, which requires you to devote 5 years of payments to your creditors. Because the means test calculation is determined mechanistically based on your past six months’ pay stubs, you could fail the means test even if you are currently unemployed! The wiser strategy in many instances may be to wait until you’ve been unemployed for a couple ofmonths and then file Chapter 7 when your 6 month average income is lower. Chapter 13 is fine for many cases, but it usually ends up being more expensive than Chapter 7 and it takes years to complete, as opposed to a few months.

Many mortgage companies are suspending foreclosures during the pandemic. Fannie Mae and Freddie Mac recently announced that they are suspending foreclosures until the end of April, and that date could possibly be extended in the future, depending on how long the nation remains in crisis mode. Most home mortgages in this country are backed by Fannie and Freddie, so if you fall behind on your mortgage payments, you may be able to find relief from foreclosure without resorting to Chapter 13, which is the traditional legal remedy for those seeking to stop a foreclosure. Most bankruptcy lawyers pitch the ability to stop a foreclosure as one of the chief benefits of Chapter 13 (and it is indeed a powerful remedy), but why take such a drastic step if you can avoid it by taking advantage of their voluntary programs? The bottom line is this: if foreclosure is the main reason you’re considering bankrupcy, don’t make a rush decision. See if your lender is one of the lenders that are stopping foreclosures right now. Apply for a hardship loan modification.

Finally, I need to point out one situation that may require you to file bankruptcy: if you are facing a repossession. Unlike the mortgage companies, auto lenders are generally much less generous when it comes to providing relief from repossessions. Foreclosures are slow and costly, so the mortgage companies have a financial incentive to avoid them if they can. Repos, however, only cost the lender a few hundred dollars and provide immediate value in the form of your car. As far as I know, the Coronavirus Bailout Bill did not provide any relief from repossessions (though in my opinion, something like this should have been included in the bill, which is mostly just a massive corporate welfare spending spree). So if you are behind on your car note and your vehicle is out for repossession, you may indeed need to file for Chapter 13 to keep your car.

Joint Bank Accounts in Bankruptcy – Alabama Bankruptcy Attorney Judson E. Crump

August 30, 2018 by Attorney Judson E Crump Leave a Comment

Here’s a question I recently received from a potential client considering Chapter 13 bankruptcy:

“My husband and I need to file Chapter 13 to save our business tools and other assets from credit card companies and their debt collectors. We don’t have much cash on hand or in the bank, but my elderly mother has a substantial savings account with my name on it. The money in there belongs to her and is used solely for her care and needs: my name is jointly on the account just to allow me to help handle her affairs. Will the bankruptcy court take that money?”

This is a great question that not only illustrates the difference between Chapter 7 and Chapter 13, but also touches on a very important issue for lots of people in this situation. If you’ve been an adult for long enough, chances are you have found yourself in the often difficult position of being responsible for the business affairs of an elderly relative. One of the more common ways that people manage money for others is by adding their name to a joint bank account with the relative. At first glance, this seems like a reasonable way to help manage a relative’s money, but if you’re facing financial troubles of your own, then it can be dangerous for both you and the owner of the money. If you end up drowning in debt and need to declare bankruptcy, then you will have to face the question of how to handle the bank accounts that are attached to your name.

You may be tempted to think that since the money in the account is “not really yours” and didn’t come from your own income or property, then that it shouldn’t be available to your creditors. But you’d be wrong. If your name is on the account, then legally you have access to all the money in the account. And so do your creditors.

This applies both to garnishments before you file bankruptcy and in a bankruptcy case itself. Section 541 of the Bankruptcy Code defines “property of the estate” to include “all legal or equitable interests of the debtor in property as of the commencement of the case.” Translation: if it has your name on it, it’s part of the bankruptcy estate. This means that unless the money can be claimed as exempt under your state’s law, then it belongs to your bankruptcy case and is under the power of the bankruptcy trustee.

However, this doesn’t mean that the money just automatically disappears when you file a bankruptcy. What happens to the money depends on what type of bankruptcy case you file. If you file a Chapter 13, for instance, then the money will remain in your account, but you’ll just have to account for it in your Chapter 13 Plan. In Chapter 7, however, the trustee is authorized to take and liquidate your assets, and if there’s a substantial amount of money in the account, he certainly will. So if your name is on a joint account for a loved one, then one option is to simply file Chapter 13 and have your attorney account for the value of the money in your payment plan.

The general rule in Alabama is that ALL of the money in a joint account is garnishable by your creditors, unless you can affirmatively prove that the money really belongs to someone else. Amarlite Architectural v. Copeland Glass, 601 So. 2d 414 (Ala. 1992). Under the Amarlite rule, it could be possible to prove that you didn’t really own the money in the account, but that could be a very difficult and risky undertaking.

“What if we just take my name off the account?”

Too late. There’s another provision in the Bankruptcy Code that specifically forbids this. Section 548 of the Bankruptcy Code requires you to disclose any transfers of property during the 2 years preceding your bankruptcy filing, and allows the trustee to recover any property transferred for the benefit of a relative during that time frame. So if you were to take your name off the account, the trustee could simply un-do that transaction and take back the money. If you have already taken your name off of a relative’s bank account, then you will need to wait 2 years before filing any sort of bankruptcy.

A better way to deal with this situation is to never put yourself in this position in the first place. Rather than put your name on a relative’s account, you could create a trust account with you named only as a trustee and the relative as the beneficiary. Any decent estate planning lawyer can help you with this. There are huge risks involved in putting your name on someone else’s account, and you need to think about it before you do so.

Can Child Support be Withheld from Your Paycheck After Filing Chapter 13? – Alabama Consumer Bankruptcy Lawyer Judson E. Crump

December 30, 2016 by Attorney Judson E Crump Leave a Comment

Only temporarily, says the Eleventh Circuit Court of Appeals.

Bankruptcy lawyers all know how much of a pain it can be to deal with child support in a bankruptcy case. The reason for this is a relatively recent addition to the Bankruptcy Code – §362(b)(2)(C), which says that “domestic support obligations” (like child support and alimony) are excluded from the automatic stay, unlike most debts, which absolutely cannot be collected after the bankruptcy petition has been filed. What does this mean in practice? Well, if you owe alimony or child support and it is automatically being deducted from your paycheck by DHR or a court order, then those deductions will continue even after the bankruptcy case has been filed.

Normal creditors don’t get to do this. So for instance, if you have a wage garnishment taking 25% of your paycheck, that MUST stop once you file bankruptcy, or the creditor deducting the money could potentially get into trouble.

So what can you do if the child support coming out of your paycheck is taking so much of your income that you can’t afford Chapter 13?

Alabama DHR processes most wage deduction orders for child support in this state. Chapter 13 may be able to get you some relief if you’re behind on payments.

Well thanks to a recent decision of In re Gonzalez by the Eleventh Circuit Court of Appeals, you can propose a Chapter 13 plan which pays your child support creditors in full, and if the judge confirms the plan, then the wage garnishments or payment intercepts have to stop.

So how did the Court get around 11 U.S. §362(b)(2)(C)? They didn’t. Instead, they looked to Section 1327 of the Bankruptcy Code, which says that the terms of a confirmed plan are binding on all creditors. So once the judge enters that confirmation order, the domestic support creditors – like everyone else – are stuck with the plan, even if it says they have to stop direct wage withholding and take payments through the Chapter 13 Trustee.

The best news? The Court in Gonzalez held that the Florida Department of Revenue was in contempt of court for taking the debtor’s money after his Plan was confirmed, and they made the DoR pay his money back and pay attorneys’ fees.

This is a very important decision for struggling debtors who need a short break from garnishments to find relief in Chapter 13. Let’s hope that the Supreme Court doesn’t overturn it.

Credit Reports & Mortgage Payments After Bankruptcy – Alabama Consumer Credit Attorney Judson E. Crump

July 27, 2015 by Attorney Judson E Crump Leave a Comment

“I filed bankruptcy a few years ago, but I kept my house and have made my mortgage payments. Why isn’t my good payment history being reported on my credit reports?”

A lot of consumers in Alabama have been noticing an unexpected problem with their credit reports after bankruptcy: their mortgage payments disappear! This is particularly distressing to some people because having gone through bankruptcy, they’re trying to work their way back towards financial stability, and making those mortgage payments on time every month isn’t always easy.

Most of us know that a bankruptcy filing will remain on your credit reports for 10 years from the day you file the petition with the bankruptcy court. That’s damage enough, right? So at the very least, it only seems fair that if you continue paying some of your debts after bankruptcy, you should get credit for that good behavior.

That’s true. But the law is a bit more complicated than that. Whether or not your mortgage payments should be on your credit report depends on several aspects of your bankruptcy proceeding, like what chapter you filed and whether a reaffirmation agreement was signed and approved by the Bankruptcy Court.

A common scenario looks like this: you file Chapter 7 bankruptcy. Your lawyer prepares the petition and does the paperwork, and you go to court for your 341 Meeting. You answer the Trustee’s questions and you are told that you’re free to go. You get your discharge a few months later. As for the mortgage, your lawyer only says: “Just keep making your payments and they can’t take your home.” But you don’t sign anything in writing stating that you’re going to keep paying the mortgage. You just do what your lawyer says and make your payments.

Then, a few months after you’ve gotten your discharge, you notice that all those good, current payments of hard-earned money aren’t even being reported on your credit. And worse, the mortgage that you’re paying every month is reported as having been discharged in bankruptcy! How is that possible? You’re living in the house and paying every month!

Well, it is possible. Because in order for a dischargeable debt to survive a Chapter 7 bankruptcy, you must sign a reaffirmation agreement and file it with the Bankruptcy Court. And the Court must approve the reaffirmation agreement. If you didn’t sign a reaffirmation agreement (or a “Re-Aff,” as we lawyers call it), then the debt is legally considered discharged. Which is both good and bad. It is good because that mortgage company cannot go after you for the money you owe if they end up foreclosing. Normally, if you owe $150,000 on a home mortgage and the home sells at foreclosure for $100,00, then the bank can sue you for that $50,000 deficiency balance. But if you didn’t sign a Re-Aff, you’re off the hook.

The downside is that the bank has a duty to report the real legal situation: that debt was discharged. Furthermore, the Fair Credit Reporting Act does not require any creditor to report positive information. It only prohibits creditors from reporting false negative information.

If that’s the case, then why doesn’t the bank foreclose immediately? Two reasons: First, their mortgage lien cannot be foreclosed unless you default on the contract, and if you never default, then they cannot take your vested interest in your own property. Second, mortgage companies lose money in foreclosures. If you’re paying, they have no reason to foreclose unless you have a LOT of equity in your home. And if you just filed bankruptcy, you probably don’t have much equity in your home.

Why didn’t your lawyer tell you this? I can’t say. Good lawyers explain these sorts of things to their clients. But a lot of bankruptcy lawyers just process their clients through the system as quickly and inexpensively as possible, because they run a volume practice.

If you’re thinking about filing Chapter 7 bankruptcy, then you need to consider the advantages and disadvantages of reaffirmation agreements. If you are fairly certain that you can afford to pay the mortgage and you know for sure that you want to keep that home, then a reaffirmation is probably a good idea, because the positive payment history will help you rebuild your credit faster. But if you’re not sure about keeping the home or your ability to maintain the payments in the future, then you should avoid a reaffirmation.

If you are considering Chapter 7 bankruptcy in South Alabama, call us at 251.272.9148.

Can you Keep your House if you file bankruptcy? – Alabama Bankruptcy Lawyer Judson E Crump

January 20, 2015 by Attorney Judson E Crump Leave a Comment

Can you keep your house if you file bankruptcy in Alabama?

Sometimes. Yes, that’s a disappointingly lawyerish answer and I hate that for you. I really do. Because i love straight answers as much as anyone else, and if you’re considering filing bankruptcy then things are probably not great in your life right now and the one thing you do need from a lawyer is a little bit of certainty. So what is the deal?

First, what sort of bankruptcy are you talking about? The kind where you get rid of everything but the bare necessities and come out fresh like a newborn baby? (Chapter 7).

Or the kind where you make payments for up to 5 years, but you get to keep most all of your stuff? (Chapter 13.)

In Chapter 7 bankruptcy, the amount of assets you get to keep depends on the law of your state. Some states like Florida have laws that are very generous to people in financial trouble. Other states, like Alabama, have laws that are very harsh on people in financial trouble. Here, we have a $5,000 homestead exemption. That means that you can keep your creditors from ever touching your home — if it is worth less than $5,000.

But who on Earth lives in a home worth less than $5,000? A lot of people, really. Because most people nowadays don’t own their homes. A bank owns their homes and most people, even those whose names are on their deeds, are virtually renting. See, if your home is worth $100,000, and the bank’s mortgage lien is $97,000, then your home is not a $100,000 asset, but a $3,000 asset.

So in Chapter 7, you can generally keep your home if you have less than $5,000 of equity. And generally you need to be current on the mortgage. And you’ll have to keep making those payments. And you may have to reaffirm the debt. NOTE: if you’re married and you and your spouse are both on the deed (not the Note, but the deed – this is a distinction that matters), then you each get a $5,000 exemption that you can combine into one awesome $10,000 exemption, so you can protect twice as much equity. Yay!

What happens if you have more equity than Alabama’s 1940 exemption statute allows?

Well, in Chapter 7, you have two options: 1. Surrender the property to the Trustee. Or 2: pay the amount of non-exempt equity to the Trustee from some other source of funds. Like borrowing from family after the bankruptcy is filed or using exempt money (like a 401k, which gets special federal protection and isn’t subject to Alabama’s crappy exemption statute).

The Chapter 7 trustee’s job is to gather up all your valuable stuff and sell it for the benefit of your creditors. He’ll do that if you have anything worth taking that isn’t specifically protected.

So can you lose your home by filing bankruptcy? Absolutely. It doesn’t always happen, and everybody seems to know somebody who filed bankruptcy and got to keep everything.

Now what about Chapter 13?

A thirteen gives you more flexibility than a seven, and you’re allowed to keep more assets. The trade-off is that you’re stuck making payments to the bankruptcy court for years to come. And Chapter 13 can really limit your financial freedom.

But, if you do have a little bit of equity, Chapter 13 lets you pay that off over time instead of just losing it outright. So in essence, you’re telling your creditors: “You know that $5,000 of home equity that you’ll theoretically get if I filed Chapter 7 and liquidated everything? Why don’t I pay you that amount over the next three years instead?”

And that’s basically what you can do. Chapter 13 has its drawbacks, to be sure. Your debts aren’t discharged until you finish paying, and if you don’t finish paying, then they basically pop right back up in your face. And you have very limited financial freedom. And the attorney’s fees are higher, and your credit takes longer to rebuild. I’m making it sound great, right?

But for some people, its the right move. In all honesty.

Alabama’s Exemption Statute – Why so stingy? – Alabama Debtor’s Lawyer Judson E Crump

January 13, 2015 by Attorney Judson E Crump 2 Comments

DID YOU KNOW? Alabama (No Longer) has the weakest exemption statute in the country.

This is a correction to a previous article I wrote, which has been made necessary by a positive change in Alabama law.

In January of 2015, I wrote the following article about Alabama’s exemption statute:

“What’s an exemption statute?

Say you get sued for a credit card bill. Or a medical bill. You either fail to answer the complaint or you lose a trial, and the court enters a judgment against you for $10,000. What can that creditor now take from you to get it? Wages can be garnished. But what if you have no wages? They can zap your bank account, but there is a limit: you are allowed to claim up to $3,000 of your property as exempt from execution. This means they can’t take it. You have to file a document with the court called a Claim of Exemption to ensure that this specific item of property (the bank account) is protected. But once you do that, they’ll have to look elsewhere to satisfy a judgment.

The law that allows you to protect a chosen $3,000 of personal property is called the exemption statute. Ours is found at Alabama Code Section 6-10-1, et seq.

Our exemption statute was written in 1876. It was part of the Alabama Constitution, really. Article XIV of the Alabama Constitution of 1876 provided that “the personal property of any resident of this state to the value of one thousand dollars, to be selected by such resident, shall be exempted from sale on execution, or other final process of any court…”

So back in 1876, Alabama citizens could protect $1,000 of personal property from their creditors. What is that today? $21,000. Yet our exemption statute today allows us to protect only $3,000. So during the past 138 years, our protections for people in financial trouble have dropped to 1/7th (that’s 14.2%) of what we gave struggling working folks back in 1876. We like to think that legal rights and government regulation have only increased since 1876. Not so, my dear friends.

Similarly, the homestead exemption was $2,000. In today’s money, that is $43,000. Today it is $5,000. So the past 138 years has been even worse for people trying to protect their homes. Their protections have gone down to less than 1/8 of what they were back in the days of Jim Crow.

I hereby call on the legislature to pass a law that automatically updates the state’s exemption statutes each time the Crimson Tide wins a national championship, such that for every crystal football (or historical equivalent) added to the collection in Tuscaloosa, the amount of exempt personal and real property increases by $1,000. If this policy were enacted in 1900, the citizens of this fair state would enjoy not the bullshit $3,000 and $5,000 (personalty and realty, respectively) exemptions that now drive them into penury, but $15,000 of personal property and $15,000 of homestead exemptions. This would put us about right in the middle of the pack nationwide as far as debtor-friendliness goes. And it would be attributable to the Bear and Saint Nick. Roll Tide.”

To my shock and delight, the Alabama Legislature has changed the law. On June 11, 2015, Governor Bentley signed Ala. Act No. 2015-484, which raised the homestead exemption to $15,000, and the personalty exemption to $7,500. Even better, the law now requires these amounts to be adjusted for inflation every three years. This improves the protections that our laws provide to struggling working folks. Now, Alabama debtors have protections that are similar to those in the rest of the country.

At this point, I wonder something: the legislature re-wrote the exemption statute in June 2015 – five months after I published my article. Coincidence? Probably. I’m 99% sure that no member of the Alabama legislature cares what I think. But I’m happy for all of our working folks nonetheless. A few years ago, I’d have never believed Robert Bentley would do anything for the poor. Turns out, I was wrong on that. Thank God.

Payday lenders keep calling me after filing bankruptcy. What do I do? – Alabama Bankruptcy Attorney Judson E Crump

October 20, 2014 by Attorney Judson E Crump Leave a Comment

We’ve all seen the TV commercials:

“Stop foreclosures, wage garnishments, and repossessions NOW! Call Alabama Bankruptcy Attorney Passem Tuaparalegal TODAY!”

And if you’ve filed bankruptcy, the primary reason you did so was to stop all of your creditors from calling you, taking your paycheck, taking your house, and doing all the annoying stuff that creditors do when they want your money. What you paid for was this thing called the Automatic Stay.

The Automatic Stay.

Section 362(a) of the Bankruptcy Code says that the filing of a bankruptcy petition “acts as a stay, applicable to all entities of —

(6)any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;”

It means exactly what it says. Your bankruptcy petition stops all collection attempts. ALL COLLECTION ATTEMPTS.

But as we well know, just because a law exists does not mean that everyone follows it. Sometimes, creditors keep calling and pestering you anyway. Why? They don’t think you’re going to do anything about it. They think that they’re immune to the bankruptcy because you didn’t tell them about it before you filed. They may think that they can keep going after you as long as you have some property that you pledged them as collateral for the loan. Sometimes they just don’t care.

So what do you do?

You sue the bastards.

Section 362(k) – probably my favorite part of the Bankruptcy Code – says that if a creditor willfully violates the automatic stay, you can sue them for whatever damages it causes, plus punitive damages and attorneys’ fees. That’s great news. Willfully, according to the U.S. Supreme Court in Safeco v. Burr (2006), includes any action taken “in reckless disregard” for the law. What does that mean? If they know about your bankruptcy and continue to try and collect anyway, it’s willful.

Here’s an example. A payday lender keeps pestering you. Calling you at home, calling you at work, threatening to call your references, threatening to show up at your job and embarrass you in front of your co-workers and friends and family. So you file bankruptcy. The next time the jerk calls, you say “I’ve filed bankruptcy and my attorney is Judson Crump. His number is 251.272.9148. Don’t call me again.”

And the payday lender employee just laughs in your face and keeps asking you for money. You hang up. They call again. They have violated the automatic stay. Willfully. You can drag them into court to answer for that. If the court finds that they’ve broken the law, they have to pay you and your attorney for whatever damage it causes: including emotional distress damages.

Some bankruptcy specialists really only specialize in the routine aspects of filing and managing bankruptcy cases, and don’t have the staff or the time for litigation against creditors. When my clients inform me that a creditor with definite knowledge of the bankruptcy has continued to call or otherwise seek to collect, I file suit immediately. There is no need for a warning shot or a cease and desist letter. Those are for creditors that accidentally sent a letter or billing statement before they knew about the bankruptcy.

If you call your lawyer to report a creditor that keeps calling you after learning of the bankruptcy, and doesn’t want to take any action against the creditor or collector, you can hire another lawyer to represent you just for the stay violation case. I’ve handled several stay violation cases and enjoy them. If you are looking for an attorney in Alabama to take action against an auto dealer, payday lender, collection agency, or other creditor who is violating your rights in bankruptcy, call me at 251.272.9148 today.

My Bankruptcy Lawyer Sucks: What can I do about it? – Alabama Consumer Bankruptcy Attorney Judson E Crump

September 25, 2014 by Attorney Judson E Crump Leave a Comment

Should I fire my bankruptcy lawyer?

So an unfortunate reality of life is that when you hire a professional to provide an expensive, specialized professional service, unless you or a really close friend or relative is part of that specialized profession, you have no idea if you’re getting a decent lawyer or a horrible one. I, for instance, am not a doctor. I cannot tell a good urologist from a bad one. I have to rely on the reviews I see online, the recommendations of those doctors I do know, and what I hear from friends and family.

We’ve spent time on how to pick a bankruptcy lawyer. But what about after you’ve already gone and done it – and picked a loser? Is there anything you can do about it? If so, what?

Well, this is not an easy place to be in, and your options are going to be limited by certain professional realities that discourage clients from switching lawyers too easily. That said, you do have the right to be represented by counsel of your choosing and you CAN do something about it.

1. Talk to your Lawyer first. Give the guy the benefit of the doubt. Maybe he just had a new child. Maybe he had to fire a secretary for stealing. Maybe he had the flu. Most problems you have with your lawyer can and should be resolved with a phone call.

What if they don’t answer your phone call? You should try at least three times and give at least a week or two for a response. Not every problem can be addressed immediately – a thought-out answer is better than a hasty one, even if you must wait for it. And you’re not the lawyer’s only client.

2. Second, write your lawyer a letter. Even if you can’t get a return phone call, you should not rush to find a new lawyer. If you have left messages for two weeks and still can’t get a response, write a letter. Not an email (to me, an email is about 1/3 of the way between a voicemail and a real paper letter). Sit down and compose your thoughts. Explain your concerns in a calm, friendly manner. Remember, you are both on the same team, and he works for you. Give him a week or two to respond.

3. Write a letter to the bankruptcy court. Writing a letter to the Court is a pretty serious step, so be sure that it is what you want to do before you do it. But I put it here for a reason. In most Chapter 13 cases, the attorney’s fees are paid very early on in the case, and if you do end up having to hire a second lawyer, you’ll have to either fork out money to pay a new lawyer or ask the court to disgorge your previous attorney’s fees. Unless you live in a very large city with a relatively cutthroat bar, there are very few lawyers who will file a motion to disgorge fees from one of their colleagues. So if you are going to make a move, it is better to do it sooner than later. If all your lawyer did was meet you once and file a petition, you have a pretty good argument for asking the court to award 1/2 the total attorneys’ fees to your new counsel.

That said, if you have the income or cash on hand, you can just write off the fees your old lawyer got and agree to pay your new lawyer $1,000 or so from your future Chapter 13 payments.

Even if you don’t end up hiring a new lawyer, a letter to the court will definitely get your lawyer’s attention. Lawyers HATE being called out in front of a judge. Of course, some lawyers deserve it. If your lawyer wishes to withdraw, the bankruptcy judge may not allow them to quit until you’ve found a new attorney.

4. Talk to a second attorney (and maybe a third). If you’ve decided that your first attorney is a hopeless case, it is best to make a fast and clean break. Make appointments with at least one or two other lawyers in your area and meet with them. Learn from your past mistake and look for a lawyer that doesn’t share the weaknesses or sloppiness that so upset you in your previous lawyer. Ask all the questions you wish you’d have asked the first guy. And most importantly – be humble and open to bad news. Lawyers are immediately suspicious of any client who blames their problems on their lawyers. Unless the lawyer you left was a total hack or somebody nobody’s ever heard of, you’re going to be presumed to be a problem client. And nobody wants a problem client. If you fired a previous attorney and embarrassed him in front of the judge for a minor issue, you’ll have trouble finding a new lawyer to take over your case. Assuage the new lawyer’s fears. Explain what efforts you put into resolving the problem peacefully, and why it was important enough to you to change. Figure out what you’ll need to pay the new lawyer. Ask if the new lawyer thinks your concerns were justified or overblown.

5. Write a termination letter to your old lawyer. A lawyer should always be fired in writing. Demand a refund of all unearned fees, and an accounting of all fees which the lawyer claims to have earned. This should be written into the original retainer agreement. Mine, for instance, has several benchmarks built into the attorney fee provision, such that a client who fires me (it has never happened, but one day it might) owes me less for a case that was just filed than one that has been confirmed and running for a year. Don’t expect a detailed description of every single phone call or email that was made on your behalf, but at the very least, the fees should reasonably relate to the amount of work provided. If your lawyer only met you for 30 minutes and then a paralegal did 4 hours of work putting your petition together, then you shouldn’t be paying more than $1,000.

6. If your previous lawyer’s conduct was really horrible, file a bar complaint. This is a serious step. Filing a bar complaint can create serious problems for a lawyer. Even a frivolous bar complaint demands a response and potentially a time consuming and embarrassing hearing. Bar complaints are only appropriate when your attorney has done something unethical, unfair, or grossly negligent. For instance, if your mortgage company filed a motion for relief to foreclose on your house and your lawyer consents without even calling you to evaluate possible defense, that is negligence that could cost you a lot of money. If your lawyer steals your money and doesn’t even try to do what he said he would, that is a problem. In general, I would not file a bar complaint without first asking another lawyer in the same field if your previous lawyer’s conduct was truly a breach of professional duties. Even if you are really disappointed with a particular outcome, it may not have been your lawyer’s fault. Some cases are hopeless from the outset, and you may be too emotionally involved to realize that your case was a loser. That said, I have personally seen a lot of crappy lawyering in bankruptcy court, and the repeat offenders need to be called to account for their actions.

Cost of Chapter 13, Part 2: How Your Lawyer Calculates your Plan Payment – South Alabama Bankruptcy Lawyer Judson E. Crump

September 16, 2014 by Attorney Judson E Crump Leave a Comment

Part 2 – How Your Lawyer Calculates Your Chapter 13 Plan Payment

So just how does the lawyer arrive at that number? Now, as much as I love to warn people about the signs of a bad bankruptcy lawyer, there usually is no pressing need for the lawyer to explain to you how exactly your plan payment is calculated. It can be quite complicated, really, and your time would be better spent discussing whether or not bankruptcy is your best option in the first place, or who is going to with the National Title in the first post-BCS College Football Playoff.

First, a disclaimer: every case is different and there are other factors that go into the monthly payment. If you want to know what your bankruptcy should cost – then you need to talk to a good lawyer. Or two. Lawyers like to think that they’re special and that the calculation of a bankruptcy plan payment is some arcane craft that one can only comprehend after years of grueling training. That, of course, is not true. Most people don’t learn bankruptcy in law school, and even those that do spend most of their free time drinking beer and eating pizza at Mellow Mushroom or trying to romance hot undergrads. The truth is that it takes about a week for a young bankruptcy lawyer to learn how to calculate a plan payment. Less than that if they’re decent at math.

Basically, what your lawyer does is this:

Add up the amount of debt that must be paid: (Secured debt, Priority debt, and a percentage of unsecured debt) plus their attorney’s fees, and they come up with a subtotal. Multiply the subtotal by the trustee’s fee, which is a fixed portion of every single monthly payment. Then you have the total amount of money that must be paid into your plan. Divide that number by the total number of payments, and bingo. There’s your monthly payment amount.

Of course, determining what must be paid is the trick. But it isn’t magic at all.

Here’s the math formula:

{[P + S(1+rn) + Ud]Ft}/n

Where:

P = Priority Debt
S = Secured Debt
r = Till Interest (usually around 5%)
U = Unsecured Debt
d = Unsecured pro rata dividend
Ft = Trustee’s Fee (usually between 5 and 10%)

and d (the number of pennies per dollar that your unsecured creditors receives is the greater of Ie/Ut or An/Ut

Where Ie is your excess disposable income based on the means test and An is your nonexempt asset value.

Simple, right?

Don’t get lost in the symbols. When you use real facts, it is easy.

You have a 2007 Silverado worth $10,000, and you owe $10,000 on it. You owe $5,000 of taxes. You have $25,000 of unsecured debt, but unsecured debt is easy to deal with because it gets paid at anywhere between 0% and 100% of the amount owed, based on how much income and assets you have. Most debtors have few nonexempt assets and no excess disposable income, so the unsecured guys get paid like 3% of their claims. In this example, say the debtor also has $5,000 of nonexempt home equity.

So the calculation would go like this:

$10,000 (plus interest at 5%) = $11,320 of secured debt. This must be paid in full.

$5,000 of taxes = $5,000 of priority debt. This must be paid in full.

$25,000 of unsecured debt. This is not paid in full, but only in proportion to the total value of your nonexempt assets or excess income over the next 5 years. Unless your income is well above average for your family size, it will be your assets that drive the payment. Here, debtor has $5,000 in nonexempt assets, so he pays $5,000 to unsecured creditors, whether he has $10,000 of unsecured debt or $10,000,000 of unsecured debt, they share the same $5,000 pie.

Attorney’s fee = $3,000 (standard in Southern District of Alabama circa 2014). This must be paid in full.

Subtotal = $24,320.

Trustee’s fee here is 9%. $24,320 x 1.09 = $26,509. This is the total cost of Chapter 13.

$26,509/60 = $442. This is the monthly payment for a 5 year (60 months) Chapter 13 bankruptcy case.

See, I told you it wasn’t impossible. Now, it can be more complicated, and your situation is certainly going to differ from this hypothetical debtor, but the basic process is the same, and anyone can do it.

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