This article is part of my bankruptcy alphabet series

People are Not Numbers

When numbers are used to identify people, it’s usually when they are in prison.   The Bankruptcy laws used to be about helping out people (and businesses) in need.   They were about equitable solutions to serious financial problems.   Laws in general are designed to help society as a whole, but one must never forget it is always about people.   When a potential bankruptcy client comes into my office with debt problems, it is very personal to them.   Most of my clients never imagined being in this situation, and they would hope that the laws (and their attorney) are there to treat them as individuals, and not numbers.

The New Bankruptcy Laws

Back in 2005 the Republican controlled Congress and President G.W. Bush passed sweeping changes to the Bankruptcy Code that had been in existence for several decades prior.   These “new bankruptcy laws” were designed to reduce bankruptcy eligibility to a numbers game instead of basing it on need and the overall good for society.

Prior to 2005 the overriding purpose of the bankruptcy laws was one of equity.   I discussed courts of equity in my bankruptcy alphabet post on Justice.   Bankruptcy judges at that time had far more ability to balance the needs of a bankrupt debtor to get a fresh start with the rights of the creditors to get paid.

With the new bankruptcy laws, Congress instituted a very complex “means test” to determine threshold eligibility to file under Chapter 7.  The means test, in its base form, takes any and all income received by the debtor in the six calendar months prior to filing the bankruptcy case and subtracts from that certain expenses allowed under IRS guidelines (one size fits all, apparently).

The Saving Grace is Attorneys

While bankruptcy attorneys are of course bound by the laws, experienced ones have figured out where the laws can be applied beneficially for their clients and how to maximize the effectiveness for their specific case.   Similarly, while Congress tried to reduce the flexibility bankruptcy judges have to make equitable rulings, there is still plenty of room for Judges within the laws to do Justice and reach a fair and just result in each case, hopefully never forgetting these are people, not numbers in front of them.

The best way to avoid being just a number in the bankruptcy process is to hire a bankruptcy attorney that understands where the laws have been, where they are, and where they may be going.

Others Writing on the Letter “N”:

• Naked–New York Bankruptcy Lawyer Jay S. Fleischman
• Never–Cleveland Bankruptcy Attorney, William Balena
• No Asset–Metro Richmond Consumer and Bankruptcy Attorney, Mitchell Goldstein
• No Asset Report–Honolulu Bankruptcy Lawyer, Stuart T. Ing
• Non-PMSI–Philadelphia Suburban Bankruptcy Attorney, Chris Carr
• Nondischargeable–Northern California Bankruptcy Attorney, Cathy Moran
• Nondischargeable–Metro Richmond Consumer and Bankruptcy Attorney, Mitchell Goldstein
• Nondischargeable Debt–Omaha Nebraska Bankruptcy Attorney, Ryan D. Caldwell
• Notice–Colorado Springs Bankruptcy Attorney, Bob Doig
• Non-exempt Property–Miami Bankruptcy Attorney, Dorota Trzeciecka
• Notice–Taylor, Michgan bankruptcy Attorney, Chris McAvoy
• Negative Notice–Jacksonville Bankruptcy Attorney, J. Dinkins G. Grange
• NACBA–Wisconsin Bankruptcy Lawyer, Bret Nason
• California Nothern Bankruptcy Court, Cate Eranthe
• Non-Attorney Bankruptcy, Peter Behrmann

Image Courtesy of lrargerich

Contrary to popular understanding, in most cases credit card debts are still dischargeable in bankruptcy without a repayment plan (in a Chapter 7 bankruptcy case).  In many cases, tax debts can also be discharged.   This is not new information, so why am I writing this?   Because not a week goes by that I don’t get a prospective client in my office who tells me they thought that when the bankruptcy laws changed in 2005 (yes, 2005) it eliminated the ability to get rid of credit card debt in a Chapter 7 case (as opposed to a Chapter 13 repayment plan).

This is NOT true.   While it was clearly the intent of  Congress to appease the credit card lobby and make it more difficult to eliminate credit card debt, the new bankruptcy laws which went into effect in 2005 made filing bankruptcy more complicated, but certainly did not eliminate the ability to do so.

Credit card debts are just as dischargeable as they were for at least 30 years prior to the recent law change.  They are not dischargeable if incurred through fraud or other exceptions to discharge (see http://www.bklaw.com/discharge.html for more information on this), but otherwise you can still file a Chapter 7 case (or a chapter 13 or Chapter 11) and eliminate credit card debt.

Income taxes may also me discharged under certain circumstances.   The law has not change on this in over 30 years.   It is a very complicated analysis, and dischargeability can only be determined after analysis by a professional of ACTUAL internal transcripts from the taxing agency, but the basic rule is that if the taxes are older than 3 years from the date the return was last due to be filed, and the return was filed more than 2 years ago, and not assessed  in the last 270 days, then they may be dischargeable.  To see more on tax discharge in bankruptcy,  visit http://www.bklaw.com/taxes_bankruptcy.html

The bottom line is, don’t believe rumors.  Talk to a bankruptcy attorney about your options.

For more interesting bankruptcy myths, visit http://www.bklaw.com/bankruptcy_myths.html

I write this post to clarify the definitions of a “bankruptcy attorney” and a “debt relief agency” (“DRA”) because, at least according to one recent client, there is a substantial amount of confusion over these terms.

A bankruptcy attorney is an attorney (or lawyer), licensed to practice in the courts of whatever jurisdiction he is practicing, who handles bankruptcy related cases. (click here for an explanation of the differences–if any–between an attorney and lawyer)

A debt relief agency is a made-up designation that our Congress created as part of the 2005 Bankruptcy Reform Act and is defined in 11 U.S.C. 101(12A). It includes “any person who provides any bankruptcy assistance to an ‘assisted person’ in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer…”. Without getting too detailed about who an assisted person is and other nuances, this basically includes a very wide variety of “people”, including credit counselors, unlicensed petition preparers, and it can be argued that it can extend to accountants or anyone else who provides any assistance in connection to the filing or possible filing of a bankruptcy case or even giving financial advice. It may be even broader than that.

Subject ultimately to rulings by the appellate courts in this country, all bankruptcy attorneys are debt relief agencies (although this is being appealed in many different circuits at this time). However, as you can see above, not all debt relief agencies are bankruptcy attorneys.

It has been argued that one of the reasons Congress added this definition was to cause the precise confusion experienced by my client. It was implemented to add additional disclosure and paperwork requirements, to add costs to the bankruptcy process and to cause confusion between who is licensed to practice bankruptcy and who is not, and (it has been argued) it was designed to take business away from licensed attorneys as a result of this confusion.

In any event, in order to represent you in a bankruptcy case (or any other legal proceeding, for that matter) an attorney must be licensed to practice law in whatever state your case is in. Whether or not he/she is also a “debt relief agency” depends on the rulings of the courts in that jurisdiction. Perhaps more importantly, it is virtually meaningless.

Of the many important issues in this year’s presidential race, bankruptcy laws still rank among them, at least in Barack Obama’s view.

For those who don’t know, the bankruptcy laws were dramatically complicated in 2005 after years of lobbying by the credit card industry, and numerous vetoes (or at least threatened) by President Clinton. The laws made it more difficult to be eligible to file bankruptcy, and made all bankruptcy cases more expensive to file. Click here to see more about the new bankruptcy laws.

During his campaign, both in the primaries and now, Obama has repeated that he intends to change the current bankruptcy laws, at least by modifying it to allow more eligibility for those with medical debts. How much further he would go remains to be seen.

One interesting note is that while Obama consistently voted against the Bankruptcy Reform Bill that passed in 2005, his vice presidential running mate, Joseph Biden, voted in favor of it. Biden, who is a senator from Delaware where most of the major credit card companies are incorporated, apparently voted to curry favor from this longtime lobby.

John McCain, on the other hand, has mentioned nothing about the bankruptcy laws in his campaign, nor is it expected that modifying it would be on his agenda as president. McCain voted in favor of the 2005 law change.

The point of the above is not a political endorsement, but rather to let you know that if you think that the current bankruptcy laws are unfair, at least on that issue there is a clear choice.