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I Assume You'll Take Care of These Seven Lawsuits for the Seven Months Before We File Bankruptcy. Wrong, Insolvency Breath!

By Joseph McDaniel, Esq.

The guys who voted for the 2005 Amendments have a lot to answer at some point or another.

Used to be pretty easy, and I could file a fairly "good" kinda bankruptcy for just about anybody, and it didn't require leaping backwards through flaming hoops.

But that was before the dreaded 2005 Amendments, which introduced levels of irrationality into the process, and unfairly treated some debtors more kindly than others (if your debt is "primarily business debt", the means test doesn't even apply to you!).

These days, somebody will wait too long before they come to see me (don't be sad; everybody waits too long), and will walk into my office with their homework (that's very good) and with a stack of lawsuits in various states of disrepair.

Now, the reason that I won't be answering for you is simple: litigation is expensive. And both of us want to find a stop-gap solution for you that minimizes legal fees as much as we can.

So either you are going to file answers in your seven lawsuits (which you're capable of doing, and in some ways better suited to doing than a lawyer, which I'll explain), or I can send you to one of three grades of lawyers to get it done for you, quick and easy. 

Or you can let the suits go to judgment against you.

I don't much like that third option, because lawyers are eternal optimists, and if they get a judgment against you, they'll try to collect on that judgment. With judgment debtor exams, and garnishments, and judgment liens.

Oh, my!

But don't judgments just evaporate after you file a bankruptcy? Maybe not. Your personal liability will probably go away with your discharge, but there may be a properly perfected judgment lien on your house or other property that survives the bankruptcy.

A judgment lien on your house may or may not be a problem for you, depending on whether you ever want to sell your house.  And a judgment lien on your house may be able to be scraped off in a bankruptcy specific sort of suit against the judgment holder, but that costs more in fees and costs, and is not included in any sort of "flat-fee" bankruptcy, or uncontested bankruptcy.

A garnishment, while rotten, might help you pass the means test faster, and on the other hand, might only reduce your quality of life.

A judgment debtor's exam will scare you to death and burn up a few hours that you'll never get back.

And a final judgment against you prior to your bankruptcy filing means that we can't argue amount in a Complaint to Determine Dischargeability lawsuit inside your bankruptcy case.

Here's what you need to know about this issue: when you come in to see me after you do your homework, we'll talk about your lawsuits. I won't be litigating for you, because that's the lowest and worst use of my time, and there are better and more economical solutions for you than that.

But I prefer it if a judgment is not taken against you until we file, unless we need the reduction in your income so you can pass the means test (and yes, that does mean that one technique for passing the means test is to permit a judgment and wait six months. Pretty unpleasant way to do it, but it's one way, and it works in some cases).

And I'd rather make you suffer bankruptcy purgatory for six months prior to filing your Chapter 7 Bankruptcy than stick you in bankruptcy hell for five years in a Chapter 13 Bankruptcy, even though I'll charge you more for a Chapter 13!

Why?

Because I like debtors, and I hate to watch them suffer for five years!

Unlike the Congress that passed the steenking 2005 Amendments. 

You know?

.

Full post as published by Arizona Bankruptcy Attorney Blog on October 26, 2010 (boomark / email).