bankruptcy blog
Zoom Cat & the Practice of Law
By now, millions of people have seen the viral video of the cat-filtered attorney appearing in court via Zoom. First, this video is hilarious, bringing much needed levity to the usual stuffy visuals of the practice of law. Second, it illustrates how technological innovation in the practice of law is here and isn't going anywhere.
In the last year, I have not met with one client or opposing counsel in person. I have not physically appeared in any courtroom. I haven't printed one document for a client to sign. Yet, my practice has still functioned and actually thrived. I've continued to gain and serve clients statewide - all through the use of technology.
In bankruptcy court, I had a trial via Zoom, which otherwise would have required all parties to travel to Lincoln. My client would have had to paid me for the two hours of travel to and from the trial, which is customary practice to pay your attorney for travel time. Instead, I commuted downstairs to my basement where I had a proverbial command station setup with an iPad, two laptops, iPhone, and a TV monitor ready to go. I could never have had such a setup in a physical courtroom. I had extra time to prepare for the trial instead of wasting it on commuting, finding parking, and the anxiety of driving to Lincoln from Omaha (a lot can happen driving on I-80).
The 341 Meeting of Creditors, usually the only court hearing in a consumer bankruptcy case, is now being conducted telephonically. In some jurisdictions, these 341 Meetings are being conducted via Zoom or Skype. The typical meeting lasts only 5-10 minutes. I used to jokingly inform my clients that the hardest part about those meetings was finding parking near the Federal Courthouse. Depending upon where a debtor lives, sometimes they'd have to travel several hours to the courthouse to appear in person. Now they don't have to. The purpose of the meeting is still achieved without the person needing to appear physically in Court. Putting 30-40 strangers in a room would seem to be a foolish return to normal. The same could be said of other courtroom formats such as with the traditional cattle call of eviction court.
The bankruptcy court in Nebraska has been a trailblazer when it comes to adapting to new technologies, being the first jurisdiction to permit electronic/digital signatures in lieu of "wet ink" signatures. The client pulls the document up and his or her phone and -BAM- the document is signed. A process that used to take days or weeks, obtaining client signature, sometimes now can only take seconds. More courts need to recognize that requiring "wet ink" signatures is antiquated, a bygone practice of a different time.
Clients have a much different set of expectations now. Technology has made everything instant (or nearly instant). The legal profession and the courts are notoriously slow to change and to adopt new ways of doing things, but the pandemic has forced adaptation. The pandemic has shown how adapting may have its hiccups (Exhibit A - Zoom Cat), but that making the leap to use of more technology was much closer to realization than many would have thought or wanted to admit. Right now, many consumers can do anything they need from their smartphone. They can pay bills, transfer money to friends, complete and file their tax returns, request prescription refills, schedule car maintenance, schedule an Uber or Lyft ride, etc. I could go on and on, but I think you get the point. Interacting with the Court or an attorney should be that easy. It is confusing that it isn't that easy.
Attorneys will need to adapt or fall by the wayside. Courts will need to continue to adapt by adopting technology to facilitate increased access to justice and efficiency. Numerous court hearings could and should be conducted without the need to physically appear in Court. At this point, it would be plain ridiculous to expect that we can put this cat back in its bag. Zoom Cat is here to stay.
Instead of worrying what will come next, meet with a bankruptcy attorney to discover your options tailored to your situation.
Chapter 7 Bankruptcy: Five Common Misconceptions
1. Chapter 7 bankruptcy will ruin my credit for 7 years
It is true that the bankruptcy is reported for up to 7 years after you file your bankruptcy. However, it does not negatively affect you for that long. At the end of your Chapter 7 bankruptcy, you will be debt free (with some exceptions like student loans), which positively impacts your credit. I’ve had clients finance car and home purchases without issue after their bankruptcy cases.
2. I’m going to lose my house and car
This almost never occurs . In Nebraska, you can protect and keep your home as long as you are current on payments when you file and your home has $60,000 or less in equity.
As for your car, you can retain and keep it, if you’re current on payments and your vehicle has less than $10,000 in equity. This is because in Nebraska, you can use the vehicle exemption, which is $5,000, and the wild card exemption, which is $5,000, to protect one vehicle. For a couple filing the Chapter 7 bankruptcy jointly, those amounts can be doubled.
3. Filing bankruptcy is only for people that are behind on making payments
You don’t have to be behind to file bankruptcy. Actually, the best time to look into whether to file is prior to or soon after defaulting on payments.
Example: Your monthly minimum payments are $1,000. You were able to keep up with the payments until your former girlfriend decided she was going to move out. With less income coming into your household, you won’t be able to make next month’s credit card payments.
4. I make too much money to file Chapter 7 bankruptcy
The bankruptcy law includes something called the Means Test, which takes an average of your monthly income for the last six (6) months from all sources (excluding Social Security income), annualizes it (multiplies by 12), and compares it to the median income for your household size. If you’re below the median, you are good to go with a Chapter 7 bankruptcy. If you are above median, you usually are not. However, the Means Test has a 2nd step if you’re above median income that takes into account qualified and allowed expenses (i.e. child support payments, taxes, child care, etc.). Sometimes you may still qualify for a Chapter 7 bankruptcy after this 2nd step even though initially your income was “too high”.
5. If I file, my spouse has to file bankruptcy with me
You are allowed to file a bankruptcy without your spouse. Sometimes this makes a lot of sense. Two common scenarios are when your debt was incurred prior to marriage or you have business-related debt that is only in your name. If you are married and decide to file Chapter 7 bankruptcy without your spouse, you may still have to provide your spouse’s income and assets. However, your spouse’s identifying information, such as Social Security number and name do not have to be disclosed.
There is a lot of misinformation and fear on the internet regarding Chapter 7 bankruptcy, much of which is false and keeps people from using a viable solution to address their debts and move forward.
Learn more about Chapter 7 bankruptcy.
Bankruptcy as a Financial Planning Tool
You want to save more for retirement. You want to save for your kid’s college. You want to plan for your financial future and set financial goals. Standing in the way is your debt. You can’t seem to get ahead or make a dent on the amount of debt you have. It is the ever growing gobstopper. Each month your debt seems to mount even though you never miss a payment. You are current on everything. However, that $50,000 credit card debt is now sitting at $75,000. Everything is maxed out.
As is human nature, we have two immediate responses fight or flight. For the fighters out there, you start searching for ways to solve this problem head on. You start looking at what you have that you could turn into cash to throw at the debt. Maybe it is your retirement account or the equity you have in your house. Maybe it is your mother’s wedding ring. Whatever it is, you’re willing to part with it to deal with the debt problem that you are faced with. That may be a shortsighted response.
A much overlooked financial planning tool is a personal bankruptcy. A bankruptcy is an opportunity for a fresh start, a new financial beginning. It allows you to address your debt and move forward with setting and achieving your financial goals. You no longer feel stuck.
Example 1: John is 50 years old, married, and the guardian of his two minor grandchildren, ages two and five. He qualifies for a Chapter 7 bankruptcy. He has $50,000 in credit card debt and is current on making the payments. However, he has now maxed out all of the cards and is stuck. He and his wife have a goal to start saving something for their grandkids college, but can’t because of their debt. He has $50,000 in a retirement account that he is thinking of withdrawing to pay down his debt. If he does this, he will have $0 saved for retirement and will have to pay taxes on the amount withdrawn. Alternatively, he could file a Chapter 7 bankruptcy and be debt free in as little as 3-4 months. At the same time, he could keep his retirement account in place because it is exempt (protected). The money he was spending making minimum monthly payments on credit cards can now be used to save for his grandchildren’s college.
Example 2: John has $250,000 in his retirement account and a house with $60,000 of equity. He has $100,000 in credit card debt and does not qualify for Chapter 7 bankruptcy because his income is too high. Rather, he qualifies to file a Chapter 13 bankruptcy, which involves a five (5) year repayment plan where he will pay some or all of his debt back. The amount paid on debt depends on John’s income and the value of his assets. At the end of the plan, he will be debt free. John gets to keep all of his assets, including his retirement account and his house, which will most likely continue to accrue value.
If you or someone you know is in financial distress because of debt, bankruptcy should be considered as a viable solution. Liquidating an asset may ultimately do more harm than good. A bankruptcy may allow you to move forward with setting and achieving your financial goals.
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A Creditor Has Sued You: Now What?
For many, the initial response to being sued is to panic and avoid the reality that the creditor has taken the steps to get paid by filing a lawsuit. Typically, before a creditor can garnish your wages or seize any assets, there needs to be a judgment against you, which is a court order stating that you owe the money. Filing the lawsuit is the first step for the creditor to obtain that judgment.
A creditor may take several months or years to finally file a lawsuit for an unpaid debt. You may have hoped that the creditor simply forgot about you. In reality the cause for delay is that the debt may have switched hands several times, being sold to debt collectors all over the country. A debt collector may also wait until it has acquired several of your debts from the original creditor or creditors.
When you know a creditor has or is about to file a lawsuit against you, the worst thing you can do is turn a blind eye and hope it goes away. Below are some simple steps you can take when a creditor sues you.
Step 1) Take a deep breath. You are going to have options to deal with the lawsuit.
Step 2) Do not avoid service. Typically, the sheriff will deliver the initial documents to you. If you avoid being served documents, the creditor will simply ask the court for permission to give you notice another way such as publishing it in the newspaper.
Step 3) Read the complaint. The complaint is the legal document that the creditor files with the court setting forth the facts and law for why you owe the money. The complaint will provide information such as the creditor’s name & location, amount of the claim (debt), and nature of the debt (e.g., goods, services, lease, or personal loan). It is important to understand who is bringing the lawsuit and the basis for the debt.
Step 4) File an Answer. In Nebraska, you have 30 days from the date you were served to file an Answer with the court, which is the document where you set forth the facts and reasons why you do not owe the money. It is also your opportunity to claim any defenses (e.g., that the statute of limitations has run). If you fail to file an Answer, the creditor can and most likely will obtain a default judgment, meaning that you will owe the money without having your day in court.
Step 5) Contact the creditor or their attorney and offer to settle the debt. In almost every case, the creditor is willing to work out a deal. A lump sum or repayment plan for less than 100% of the debt is very common. Many people, however, miss the opportunity to resolve the debt early on in the process, waiting until years of interest have accrued.
Step 6) Schedule a free consultation with a bankruptcy attorney to understand your options. If all of this seems overwhelming, an experienced bankruptcy attorney will be able to advise you of your bankruptcy and non-bankruptcy options for handling your debt.