Using Tax Refunds to Pay Attorney Fees

In 2004, the U.S. Supreme Court ruled that all attorney fees in a Chapter 7 bankruptcy must be paid by the client before the filing of their case.  The court’s rationale was based on the fact that once a Chapter 7 bankruptcy was filed, any debts that the client owed at that time of filing were eliminated, including owed bankruptcy attorney fees. This ruling therefore made any unpaid attorney fees uncollectible after the filing of the client’s Chapter 7.  The ruling also did away with the commonly-used “split fee”, where bankruptcy attorneys would allow their clients to pay a portion of the attorney fees pre-filing, and then pay the remainder of the owed fees after the filing of their Chapter 7 bankruptcy.

While the majority of bankruptcy attorneys nowadays offer a monthly payment plan for their attorney fees, a Chapter 7 bankruptcy can’t be filed until all the attorney fees are paid-in-full.  This can make it difficult for those people who need their cases filed immediately because of a garnishment, utility shutoff, etc., but don’t have the funds to pay theentirety of their attorney fees.  This is where tax refunds can come in handy.

The largest number of Chapter 7 bankruptcies and Chapter 13 bankruptcies are filed in the first-quarter of the calendar year, and this is largely due to the fact that most people receive their tax refunds around this time.  Many bankruptcy clients have discovered that it’s a good idea to use their tax refunds to pay their bankruptcy attorney fees in full and expedite the filing of their cases.  This can be especially beneficial for those who have
a “rush case” that involves a foreclosure, repossession, license suspension, frozen bank account, garnishment or utility shutoff.

So keep in mind it’s typically smart to take advantage of the lump-sum received from a tax refund to get your attorney fees paid. The faster your attorney fees are paid, the faster your case can be filed. The faster your case is filed, the closer you are to a financial fresh start.

Watch That Holiday Spending

This past weekend I read a great article by Diane Loupe in Atlanta’s Sunday Paper titled “Bankruptcy’s Back.”

The article states that while national bankruptcy filings plummeted this past year after the law change of October, 2005 — experts are now predicting that consumer bankruptcy filings will again surge after the upcoming holiday season.  The article reasons that after the holidays many consumers will struggle to make their mortgage payments as adjustable rate mortgages interest rates (ARMs) continue to rise and Christmas-season credit card bills start to kick in.Â

Having practiced consumer bankruptcy law myself for many years, I whole-heartedly agree with the opinions of the experts mentioned in this article.  The 1st Quarter of any year (January-March) is always the busiest time of year for bankruptcy lawyers and the Bankruptcy Court.  Overzealous holiday spending is often the cause of this surge of filings, but there are also a couple of other reasons that I believe contribute to this phenomenon.  First, many people use the changing of the calendar as an impetus to address their deteriorating financial situation or make a “New Year’s Resolution” to get themselves out of debt and get their finances on track.  Secondly, the 1st Quarter is usually the time of year that people receive their Holiday bonuses and/or tax returns.  Often people will use this recieved lump sum of money to pay for bankruptcy attorney fees and court costs so they can get their cases filed right away.

So, the moral of the story here is to try to exercise some forethought and not overdo it while you are out holiday shopping this season. I know it can be difficult, but remember that those credit card bills will come due in January!

Predatory Credit Card Companies

I recently read an article in Time Magazine written by Daniel Kadlec about how Credit Card companies were becoming even more predatory in regards to milking their customers.  It’s not as if they weren’t doing well-enough already, right?

Here are some of the ways credit cards companies are trying to maximize their potential and all the while sticking it to the people who use their credit cards:

  1. Late Fees have been increased to an average penalty of $30, going as high as $39.  In the mid-90’s the average late fee penalty was closer to $15.
  2. Balance Transfer Fees of typically 3%. So if you transfer $5000 in credit card debt to another card, it’ll cost you $150.
  3. Minimum payments have increased across the board, doubled in some cases.
  4. Foreign Currency Conversion Fees of also typically 3% every time you use your card abroad.  (Take it from my personal experience that they also charge this for purchases in Canada!)
  5. Closing down an open account with a zero balance due to inactivity.  This hurts because every time a line of credit is closed your credit score negatively takes a hit.

So while we can complain all we want, we have no one to blame but ourselves.  The Credit Card companies disclose all these money-making schemes to us in the 20 page, microscopic font “CardHolder Agreements” that they send us with their credit cards.

The only real solution if you don’t want to be taken advantage of by these predatory tactics is simply not to use the Credit Card companies’ products.

Easier said than done, I know.

Here’s the link for that Time Magazine article if you’d like to check it out:,9171,1546352,00.html

— Attorney Andrew Partridge

2005 Law Changes Haven't Affected Majority

Writer Jeanne Sahadi from recently wrote an article about how the 2005 law changes to the Bankruptcy Code have not affected bankruptcy filings as drastically as some experts initially predicted. Now one year since the new bankruptcy laws went into effect, this also seems to be the same concurrent opinion of many consumer bankruptcy attorneys from around the country.Â

It’s true that many of us bankruptcy lawyers were fearful that the law changes would legally prevent a certain percentage of our population from filing bankruptcy and leave those people no opportunity to get a fresh start financially.   However, most of us attorneys have now found a year later that a large majority of our new clientele who would have qualified for bankruptcy relief under the old law without any hassle, also still qualify for bankruptcy relief under the new current law as well.Â

The calendar year of 2005 saw a huge surge in bankruptcy filings nationwide as people rushed to get their cases filed before the law change went into effect.  This of course helps to explain why bankruptcy filings are significantly down nationally this year compared to last year or even 2004. Contributing to this decrease in filings has also been a widely spread rumor that bankruptcy was not available any longer and/or that our government did away with the bankruptcy law.  This of course is far from the truth and reminds one not to believe everything they hear.   Â

So while it may not be fair or accurate to compare the number of clients coming into our doors from last year (2005) to this year (2006), we as attorneys are still finding that a steady stream of people are still in need of some sort of financial assistance and that bankruptcy is still available to a vast majority of them.Â

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