Reason for Chapter 7
One of the primary reasons why people are filing Chapter 7 at this time seems to be the length of time that one or more members of the household have been unemployed or underemployed. Many people who used to earn decent money and could support their mortgage and household expenses have lost that income, and in many cases, these people have depleted their savings and their 401(k)/pensions to stay current on the mortgage payments. I have gotten calls from prospective clients who tell me that their paycheck is being garnished and their house is being sold at a sheriff sale the next day. All too often people do not take any action to stop collection until they are sued by the creditor or the bank initiates a foreclosure; in fact, it typically takes almost two years of struggling before clients are willing to contact an attorney for help.
The majority of people that come to my office are already behind on their mortgage payments and are facing lawsuits from other creditors. If a client is eligible to file for Chapter 7 and discharge their unsecured debt, including credit cards, medical bills, personal loans, and sometimes taxes, I will usually file the Chapter 7 because it only takes approximately four months from start to finish rather than a three- to five-year commitment like in a Chapter 13. Sometimes a Chapter 7 does not solve the main issue—i.e., mortgage modification. Although the loss mitigation program can be used in a Chapter 7 context, I do not feel that a Chapter 7 is the right vehicle for obtaining a loan modification because of the brevity of the case.
Initial Client Meetings
People typically file Chapter 7 because they want a fresh start. Many new clients admit that they cannot sleep, eat or focus on anything because their debt situation is creating too much stress. Therefore, my goal during our first meeting is to tell the client about their legal choices and options to resolve their problems. In some ways I need to act as the- client's psychologist. To that end, during our first meeting, I let that client talk and vent their emotions. At the same time, I want to find out about the client's background and what led up to their current situation; therefore, I try to keep them focused on providing me with the information that I need to obtain. In all cases I am compassionate and understanding and always provide my advice without judgment.
When explaining the bankruptcy process, I try to help the client understand that filing a bankruptcy is a government right that they are entitled to have, provided that they meet certain requirements. I explain the process to them in very simplistic laymen's terms, and I strive to empathize with the client and let them know that I do understand what they are going through, and that I will try to make the process as painless as possible. Again, even though I am willing to let the client vent when they tell me their story, I need to determine what I can do for them. I will redirect their attention to key questions about the Chapter 7 filing process. Many prospective clients are very nervous when they first come to see me; some even cry and all are embarrassed. Consequently, I try to bring a little levity to our discussion and that way I find that people open up to me and feel comfortable.
I always explain that there are two types of bankruptcy options for most individuals—Chapter 7 or 13. I explain that Chapter 7 is the simplest option—the process only takes approximately four months and eliminates all of the client's unsecured debts including credit cards, medical bills, personal loans and utility bills (but not mortgage and car payments). I explain that to qualify for Chapter 7 I have to show the court three things: that the client is in fact the individual who signed the petitions, that they understand what they are signing, and that I have given them all of the necessary disclosures as required by law. The client must be able to show the court that when you subtract what they spend from what they earn, they do not have enough money left over after paying reasonable and necessary living expenses. If, however, a potential client is over the means test calculation initially. I explain how I may still be able to bring them under median and file a Chapter 7. To qualify to simply walk away from your debt, you must show the court what you earn and what you own, including those that I will protect with property exemptions. If there is enough money left over (more than $180/month) to pay a portion of the client's debt then I will, or if the client owns an asset that cannot be fully protected then they must file a Chapter 13. Finally, I must be able to show the court that my client has not done anything in the last few years to delay, hinder or defraud any of their creditors—i.e., transferring a piece of property to a family member so client no longer owns any real estate.