Bankruptcy Petition Review Report

I have had a wonderful week doing eight (8) bankruptcy petition reviews.  One of the reviews I worked on involved a case that is a very typical in bankruptcy today and I thought I would share it with you.

What do you do when a debtor has very little income but he or she is 20 months behind on their mortgage?  Some attorneys do not take the case in the first place.  Other attorneys take the case but in order to save the home, change Schedule I and J so that a Chapter 7 debtor turns into a Chapter 13. Other attorneys will advise the client to surrender their home and get a fresh start in a Chapter 7.  As a paralegal, my job is not to tell you what to do, but rather, present you with the different options so you can make your own decision.

Case in Review

The debtor is a woman drawing $1,873.00 per month in a pension and $829.00 in social security income; giving her a total monthly income of $2,702.00 per month.  Her monthly mortgage payment is $4,225.00 and she is 20 months behind in her mortgage.

When this debtor first retained the attorney she said she wanted to surrender her home; so the attorney prepared a Chapter 7 (which the Means Test qualified her for.)  When the debtor came back to the office to sign her paperwork she changed her mind and decided to keep the home.  At this point, the attorney had several choices:

1.  The attorney could find out why the debtor changed her mind and offer positive reasons for the debtor to surrender her property.  This would keep the debtor in a Chapter 7 and no further work would need to be done.

2.  The attorney could lower the debtor’s expenses on Schedule J or increase the income on Schedule I (or both) so that the debtor qualifies for a Chapter 13 and can make the Plan payment.  But this would involve charging the client more money (which would be paid up front or inside the Plan); plus the attorney and staff would have many more hours of work that would need to be done before the petition could be filed.

3.  The attorney could order a recent appraisal; call the mortgage company and attempt to negotiate the debt down; and hopefully, get the arrearages eliminated or added to the back of the loan.  Many mortgage companies will consider these requests if they know they can avoid the debtor filing a Chapter 13 bankruptcy (where they receive their money over a longer period of time.)  Or, if the mortgage company will not play ball properly, the attorney can file a Chapter 13 and propose a Plan with the arrearages stripped.  Utilizing this method will force the mortgage company to enter into litigation, which is something they do not enjoy either.

If the mortgage company and attorney reach an agreement, the attorney could then still file a Chapter 7 for the debtor because the only reason the debtor needs to file a Chapter 13 in the first place, is due to the arrearages on the house.  If the debtor had not been neglectful in allowing the debt to get this far behind, she would not be in this situation.  Besides, she cannot continue to afford paying $4,225 per month at her present income.  Getting the Chapter 13 Plan to balance in a scenario like this is a nightmare.

Lesson to Be Learned

The scenario described above is the reason the attorney sent me this particular petition for review.  She could not get the Chapter 13 Plan to balance.  Therefore, you need to remember that if you are working on a bankruptcy petition and the debtor is really close to the line between qualifying for a Chapter 7 and needing to file a Chapter 13, you are going to have problems when you try to balance out the Chapter 13 Plan.  This just goes to show you how precise it has become to prepare a bankruptcy petition.  The work that goes into each bankruptcy petition is not simply ‘filling in the blanks’ as some of the old-fashioned attorneys tend to believe.  Instead, the proper preparation of a bankruptcy petition is the foundation for the entire bankruptcy case.

Do You Need a Bankruptcy Petition Reviewed?

It does not matter what bankruptcy software program you use.  We can review a PDF of your petition but if changes need to be made, you will have to make them.  If you have Best Case or Bankruptcy 2009 we can pull in your actual case file and make changes for you during the review.  Bankruptcy petition review services are designed for both attorneys and virtual bankruptcy assistants.

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