That’s how a lot of conversations with potential clients begin. I’m sure it’s said in the hope that because their case is “simple” it won’t be “expensive.” As Einstein taught us, everything is relative. In this post I’d like to explain a bit about what a simple bankruptcy is and why. It’s easier to explain why by looking at what makes a bankruptcy not simple.
Multiple Sources of Income
A simple bankruptcy has only one source of income. If a husband and wife file together and both have income, whether it’s from employment, retirement, disability or any source, it isn’t a simple bankruptcy. This is because the Means Test requires inputting and analysis of the last six months of income from ALL sources.
Self Employment Income
In a simple bankruptcy, the single source of income comes from wages or salary, social security, retirement or unemployment benefits. Self-employed individuals almost never have simple bankruptcies because they almost never have complete and accurate pay records from which the last six months of income can be determined.
Real Estate Ownership
Owning real estate compounds the time necessary to investigate and assess the risk of losing it. The exception to this is if the prospective client doesn’t care about keeping the house.
You Have Non-exempt Assets
This takes a bit of explanation. When you file bankruptcy, everything you own becomes “property of the estate” meaning it is subject to being sold by the bankruptcy trustee, who then uses the money she gets to make a partial payment to your creditors. State law provides a number of exemptions to creditors’ claims. An exemption is just that: the property is exempted, or excluded, from being taken by the trustee. In most Chapter 7 cases, the trustee files a “no asset” report, meaning there are no assets from which a distribution can be made. This is because the exemptions that are available to the debtor protect the property he owns.
Now, if you have non-exempt assets, such as an extra car (see below), an RV, a boat, a vacation home — anything not covered by the state exemptions, there is property that the trustee can reach. This means your case will remain open for months after you receive your discharge while the trustee gathers the property, liquidates it, notices the creditors to file claims, reviews the claims and eventually makes a distribution to the creditors. As long as your case is open, we have to monitor it, review the actions of the trustee, communicate with you and otherwise follow up. This adds to the cost.
More Than One Car Per Debtor
A debtor is entitled to a $3,000 exemption in an automobile. For a joint (husband and wife) filing, this means two cars with a total exemption of $6,000. Any more cars than that, or cars with more than $3,000 in equity in any one car, means the case is an asset case. The trustee will try to liquidate one or more of the cars. This requires us to spend more time negotiating with the trustee on your behalf to try to save as much as we can for you. Once again, the exception may be if you don’t care about losing one of the cars.
Grab Bag of Other Issues
In addition to the above, here is a list of things that may have occurred in your situation, any one of which means your case is not simple.
- You have used your credit cards in the 90 days prior to filing. This could raise a presumption that you defrauded the credit card company because it is assumed that you know you are insolvent at least 90 days before you file, and incurring new debt when insolvent is an indication of fraud.
- You have been sued. Being a party to a lawsuit means we have to give extra notice to each of the courts in each of the cases in which you are a party when you file.
- You have judgments or garnishments against you. If you’ve been garnished, you may be entitled to recover some of the garnishment. Assuming you want that, it requires more work from us.
- Your car or other property has been repossessed. Again, you might be entitled to recover the repossessed property, but that means more work for us to help you accomplish that.
- You have repaid a loan from a family member in the past 12 months. This constitutes a “preferential transfer” that we have to deal with in your bankruptcy.
- Not all your tax returns have been filed. This draws the scrutiny of the IRS and anytime the IRS gets involved, things get more complicated.
- You have transferred property to anyone in the last two years for less than fair market value. This could be considered a fraudulent transfer that the trustee will investigate. Investigation usually means, at the least, providing more documentation to the trustee and could mean attending a deposition (Rule 2004 examination) with you while he asks you questions.
“Simple” bankruptcies are actually quite rare.