November 2007 Archives

November 28, 2007

About This Blog

Confused about the changes to bankruptcy laws? Deciding whether bankruptcy is right for you? Authors Steve Elias and Albin Renauer break down bankruptcy law into plain English to answer your bankruptcy queries and concerns.

Steve Elias is the author of many Nolo books, including The Foreclosure Survival Guide: Keep Your House or Walk Away With Money In Your Pocket, The New Bankruptcy: Will It Work for You? and Chapter 13 Bankruptcy: Repay Your Debts. Steve also practices law in his spare time, providing affordable attorney advice to people doing their own bankruptcies with the help of a non-lawyer bankruptcy petition preparer or by using his book How to File For Chapter 7 Bankruptcy.

Albin Renauer spent 17 years as an editor at Nolo, where he helped create numerous books and software programs, including the bestselling WillMaker. Albin's latest project is LegalConsumer.com, an online companion to his book How to File for Chapter 7 Bankruptcy designed to help debtors file for bankruptcy.

The opinions expressed in this blog do not necessarily reflect the views of Nolo, its clients, or its partners. This blog may provide legal information, but not advice. Consult a lawyer if you want professional assurance regarding how the law applies to your situation.

November 18, 2007

Chapter 7 Bankruptcy Still Affordable Under New Bankruptcy Law

In 2005, the bankruptcy laws underwent massive changes at the behest of the banks and credit card companies. In advance of the new law's taking effect, the nation's bankruptcy attorneys launched a scare campaign directed at potential filers. The message was, "You better do it now because it will be too late once the legislation kicks in."

Beaucoup bucks flowed to the lawyers. When the new law finally arrived, the public perception was that the bankruptcy safety net was gone forever. Not true. Chapter 7 bankruptcy is alive and well; it's only the attorneys who are suffering because they doubled their fees and nobody can afford them anymore.

In a recent interview with Lisa Scherzer on Smartmoney.com, Henry Somer, President of the National Association of Consumer Bankruptcy Attorneys, said that bankruptcy was no longer an available remedy for most people due to doubled attorneys fees and increased complexity. While it's true that bankruptcy attorneys have priced themselves out of the market, the supposed reason for doing that--added complexity--is horsepuckey. It's just as easy to get rid of debt such as credit card and medical bills under the new law as the old. And, most bankruptcies still are procedurally very straightforward. Somer, however, clearly believes you need an attorney to file bankruptcy, and if you can't afford one, oh well.

Apparently Somer hasn't heard of self-representation or non-lawyer assistance with bankruptcy forms--both of which are perfectly legal. Or maybe he has, but takes the prototypical lawyer position that doing your own bankruptcy is like doing your own brain surgery. Jeez, self-help law has been around for 35 years at least, but you would never know it from the Somer interview. There is help out there for folks who need bankruptcy but can't afford a lawyer.

A bankruptcy petition preparer (a non-lawyer) can prepare your petition for you for about $150. It's true that non-lawyers can't provide legal advice--or alert you to a problem with your petition --but there's nothing to stop bankruptcy lawyers from giving the public a break and providing the necessary legal information while letting the non-lawyers fill in the forms. For example, people doing their own bankruptcies can get all the legal help they need from me for a flat rate of $100. In this manner, self-represented filers can proceed in an informed manner with the help of an attorney and a forms expert (bankruptcy petition preparer)--and pay less than 25% of what they would pay an attorney for full representation.

Future blogs will cover such bankruptcy-related issues as:


  • best practices for people doing their own bankruptcies

  • why the new bankruptcy laws don't work

  • how bankruptcy can be used to stave off foreclosures

  • why Chapter 13 is only for people who think they'll go to heaven if they repay their debt, and

  • turf wars over non-lawyer bankruptcy form preparation services.


For more information about Chapter 7 bankruptcy and your options, take a look at How to File for Chapter 7 Bankruptcy, by Attorneys Stephen R. Elias, Albin Renauer, and Robin Leonard (Nolo).

November 9, 2007

When Credit Bureaus Report Debts Discharged in Bankruptcy: It Should be a Crime

An article entitled "Prisoners of Debt," by Robert Berner and Brian Grow, published in BusinessWeek, November 12, 2007, reports that the credit reporting bureaus and large creditors systematically violate the most important of all federal bankruptcy court orders; that is, you can't try to collect a debt that has been discharged in bankruptcy.

Debts are eternal. Thanks to the "great computer in the sky," debts don't go away anymore. They may grow old and be barred by statutes of limitation--laws that prevent stale claims from being litigated. They may have been paid up but not taken off the computer. And, they may have even been discharged in a federal bankruptcy proceeding. No matter. According to the BusinessWeek article, old and discharged debts alike are bundled together and sold to collection firms for pennies (or even parts of pennies) on the dollar. These collection firms then cast a wide net to collect these debts, often through economic intimidation or threats of ruining your credit.

Reporting bogus debts is extortion. Who among us hasn't suddenly received a bill in the mail from someone who we paid years ago, alleging that we still owe the debt plus umpteen dollars worth of interest and collection fees and that our credit will be ruined if we don't pay up. Often, bogus debts first come to light when people enter into transactions that require good credit right then and there--such as the purchase of a car or obtain a loan on a house. The bogus debts are paid off in a hurry to facilitate the transaction. Using the common meaning of the word, this is extortion pure and simple.

Credit bureaus willfully refuse to update reports. While this debt-collection-by-ambush can be avoided by incessant checking of one's credit report, many people have better things to do with their time and money, especially when they have no reason to think that anything is wrong. People who thought they got rid of their debts in bankruptcy are even more discombobulated, if that is possible, when bogus debts show up on their credit report. Even when the credit-reporting bureaus are informed about the bankruptcy, they often refuse to update the report to show that the debt has been discharged.

Remedy for victims of discharge violations. The remedy available to victims of federal bankruptcy discharge violators is to reopen the bankruptcy case and sue the violators to collect damages--and even fines if they can prove the errors were knowingly made. Needless to say, the companies defend on the basis that it was simple error. It can take some serious lawyering to overcome this defense.

Victims need a lawyer to recover for discharge violations. The main message I got from the BusinessWeek article was that, surprise surprise, you have to hire a lawyer to secure what rights you thought you had when you received your bankruptcy discharge. Most people who have recently gone through bankruptcy aren't in a position to pay a lawyer--even though attorneys' fees can be recovered if they are successful. In other words, even though you can do your own bankruptcy, you'll still have to pay a lawyer to get what's yours--a fresh start.

Intentional discharge violations should be crimes. If justice prevailed over big bucks, violations of the bankruptcy discharge would be crimes, punishable by truly large fines and even imprisonment of a company's CEO if a policy of reporting discharged debts were shown to exist--as is alleged in the BusinessWeek article. This type of behavior is, after all, garden-variety fraud. But, as we all know, financial theft isn't treated the same way as shoplifting. Wonder why? Anyway, let's not hold our breath on this one.

Procedures to invoke court remedies should be simplified. At the very least, the procedures for bringing the discharge violators into court to account for their debt collection practices can and should be greatly simplified to eliminate the need for a lawyer, at least in most cases. To ease the burden on the self-represented litigant, any reporting of a debt discharged in bankruptcy should be presumed to be willful, placing the burden on the credit reporting bureau to show that they made an innocent mistake. If the burden of proof is shifted in this manner, most credit bureaus will quickly act to correct their mistakes, innocent or not. In any event, a statutory fine of $1000 should be imposed on the bureau, innocent mistake or not.

For more information on this topic, check out a new article in the Nolopedia, "Time-Barred Debts: When Collectors Cannot Sue You For Unpaid Debts", as well Credit Repair, by Attorney Robin Leonard (Nolo), now in its 8th edition.