Charting The Course of A Case

Planning the bankruptcy often determines whether the case succeeds or fails.

To obtain good results for a bankruptcy client, sometimes you have to serve up unpleasant news and force the client to swallow that bitter pill. Hum a chorus of You Can’t Always Get What You Want.

Of course, you can’t really force them to do anything, but you should reconsider taking on a client who shrugs off your advice about planning the bankruptcy.

Plan doomed to fail

I saw this when a new bankruptcy lawyer brought me his first Chapter 13 filing to review before filing.

The debtors had

  • a home that was underwater,
  • a rental property that was further underwater, each with large delinquencies, and
  • a business that produced little profit and that profit, only episodically.

The debtor’s budget was unrealistically spartan.  A budget that formed the template for 5 years of plan payments provided nothing for medical care (and they had no health insurance), nothing for income taxes, and $60 a month for clothing for a family of four with two teenagers.

When I challenged the feasibility of this budget, my young lawyer friend repeated the client’s mantra:  we will do anything to save these properties. 

Why Chapter 13 plans fail

My response was that as a lawyer, my friend was not bound to adopt the client’s unreasonable world view.

Grounded bankruptcy advice

Planning the case is what distinguishes good bankruptcy lawyers from bankruptcy petition preparers.

A good bankruptcy lawyer has to spot, and challenge, magical thinking : just  we want something intensely, does not make having it necessarily possible.

There is a certain irrationality afoot among our clients about real estate. It is, they seem to believe, the end-all and be-all of their economic lives.

To provide real service, we have to offer them not what they want, but what they need.

In this case, the clients needed to hear that a Chapter 13 based on an unrealistic budget is doomed to failure.  The money spent to salvage these properties prior to the plan cratering was money wasted.

Scale back your plans, try to save one house, and chart a course that you might be able to complete.

Read on

Thinking beyond the means test

Exemption planning