How to File and Manage Debtor Cases

How to File and Manage Debtor Cases
The Client Selection Process
The first step to a successful debtor bankruptcy practice is to establish your own criteria
for selection of your clients. Many attorneys will take any client that walks in the door, if
they are able to retain you.
The Rule of 80/20
Eighty percent of your revenue will be generated by twenty percent of your clients. And
twenty percent of your clients will cause eighty percent of your problems! To have a
successful and less stressful practice, consider declining representation on occasion.
Stealing Your Time
As a debtor's attorney, generally you are working on a flat fee basis. Problem clients
steal your time, energy and profitability. They always have issues (either with payment,
providing documentation, lack of forthright disclosures, etc.) are sometimes referred to as
"needy" clients – they steal your time. They require more follow-up, more hand holding,
impair your productivity (you will have less time for your "good" clients or to take on
additional matters), and they will cause you higher anxiety and stress.
There ARE Good Bankruptcy Clients
Most debtors are good people in a bad situation. Not unlike any other client seeking an
attorney during a trying time, clients seeking assistance with their debt are most often
good people – but some undoubtedly have bad habits. Analyze whether they regularly
pay their bills, but for reasons beyond their control they have been overwhelmed with
debt. If they are in this category, they may have excessive debt due to a loss of
employment, or a medical condition resulting in catastrophic medical bills. But beware
of the clients who simply have neglected their bills. They are typically procrastinators
who will also procrastinate on delivering the documentation necessary for you to assist
them with the filing of their bankruptcy petition. Or, perhaps they may be the "victims"
who have developed the attitude that the world is against them. Perhaps they believe that
you should help them even without being fully retained. Believe it or not, some debtors
have asked if they can pay the filing fee to be filed (as they know that the courts will not
allow their case to be filed without it), but want their attorney to prepare and file their
petition without payment in full. These clients may have perception problems that you
need to identify and deal with.
Client Expectations
Sole practitioners and small law firms may experience debtors that do not expect to pay
as much as if they went to the larger firms. Establishing clients' expectations is very
important at the beginning of the attorney/client relationship. Understanding the client's
needs and how you can meet their needs is a crucial part of your representation. Without
communicating your expectations of the client and explaining how you intend to meet
your client's needs, you do not have a "meeting of the minds" and your client's
expectations may be far different than yours.
Payment Expectations
Retainer fees, pricing of your services, filing fees, and payment arrangements are an
important part of client expectations. Your retainer agreement should not only set forth
what you will do for the client, but also your expectations of the client. Go over your
retainer agreement completely and thoroughly with the client, and discuss not only your
fees and costs, but also include the method and timing of payments you expect from
them. My typical retainer agreement advises the client that they must provide the
necessary retainer fees, filing fees and information necessary to complete and file their
bankruptcy case within four months, or we will close their file. I also explain that the
bankruptcy process begins "right now" and that the process is paperwork intensive. I
have had clients decide not to proceed with their bankruptcy case and want a refund. I
even had a client try to tell me that since we hadn't filed their bankruptcy case, that we
"haven't really done anything yet!" To eliminate that mentality, we now discuss the steps
that we go through in preparing a bankruptcy petition and schedules, and the fees
incurred even if their case is not filed.
Fire Your Problem Clients
Bad clients drive out good clients. If you have a client that just does not have the ability
to pay you, do not let them retain you, yet! Have them set aside money for a retainer so
that your representation can be completed in a reasonable period of time. If the client
retains you but cannot get the required information to you, consider disengaging from
representation or "firing" your client!"
Train Your Clients

Make sure that your clients know what you will do for them, and when.

What do you expect of the client? How and when will they need to respond?

What are the client obligations?

What are your usual practices?

When are you available? (return phone call policy and appointments).

Introduce your staff and explain how they will assist in your representation of the client.

Eliminate unrealistic expectations of the client.

Anticipate obstacles, roadblocks, and detours. How will you deal with them?

Provide a schedule of when you expect to be able to file their case, and provide dates and
deadlines for them to provide information to you.

Provide them with a questionnaire to complete to provide basic information to you and let
them know that they are responsible for the content of their responses. Let them know
that incomplete answers or no response to questions will negatively affect their case. It
impairs your ability to provide proper legal advice, and may be misleading to you as their
attorney, or to the trustee or creditors.

Advise the client that they will be ultimately responsible for the final content of their
bankruptcy petition and schedules. Let them know that they will be provided a copy of
the petition to review, and that their attorney will review it with them page-by-page to
answer their questions. Let them know that they need to ensure that all of the
information contained in the petition and schedules is accurate, including the listing of all
of their creditors (make sure the client does not have the ability to blame you for a
missing creditor). They must review every question and answer, every creditor, every
asset and every budget item. They need to know their own income (many bankruptcy
clients do not even know how much money they make!)

Train your clients by your own actions. If you inform your clients that they are expected
to have something done at a certain time, follow-up with them at that time to show them
that they will be held accountable. You, too, need to be held accountable to have their
work done when you tell them it will be.
Attached Forms:
PCF (prospective client forms) Packet
Less Than Obvious Assets
Prior Bankruptcy Filing Time Requirements
Client Intake Sheet
Red Flag Checklist
Client Signing Check Off Form
Attorney Check Off Form
Filing Checklist
Consumer Alert
Welcome to our office.
Please take a few minutes to complete this questionnaire.
Thank you.
INFORMATION ABOUT YOU
Date: / /
Name (First, Middle, Last):
Mailing Address:
City, State, Zip Code:
Home Telephone:
Surname: Sr., Jr., other:
(if any)
Work Telephone:
Cell Telephone:
(include extension)
(area code and number)
Social Security #:
Date of Birth:
INFORMATION ABOUT YOUR SPOUSE
Name (First, Middle, Last):
Mailing Address:
City, State, Zip Code:
Home Telephone:
Surname: Sr., Jr., other:
(if any)
Work Telephone:
Cell Telephone:
(include extension)
(area code and number)
Social Security #:
Date of Birth:
EMERGENCY CONTACT INFORMATION
(Only to be used when you cannot be reached at any of the above contact. Discretion will be used).
Full Name:
Address:
Telephone Number:
(rev. 03/18/09)
Filing Status:
J
SF
SM
IMPORTANT
QUESTIONS:
PLEASE READ THE FOLLOWING QUESTIONS AND ANSWER
EACH QUESTION TRUTHFULLY. IF YOU ARE UNSURE OF
ANY ANSWER, PLEASE PLACE A QUESTION MARK “?” NEXT
TO THE QUESTION TO REVIEW WITH THE ATTORNEY.
Circle
Yes
No
1.
Do you receive any money from an annuity or a trust?
Yes
No
2.
Do you have anything in your possession that really belongs to someone else?
Yes
No
3.
Does anyone have possession of anything that really belongs to you?
Yes
No
4.
Do you have any property titled in your name that really belongs to someone else?
Yes
No
5.
Have you sold or transferred any property in the last 48 months?
Yes
No
6.
Have you made any large purchases in the last 90 days?
Yes
No
7.
Have you taken out any loans or cash advances in the last 90 days?
Yes
No
8.
Have you paid back friends or relatives more than $200.00 in the last 12 months?
Yes
No
9.
Has any creditor ever taken back, repossessed or foreclosed on your car, truck or home?
Yes
No
10.
Is anyone threatening to take your car, truck, or home?
Yes
No
11.
Are you separated from your spouse or contemplating separation? Spouse’s Name:
Yes
No
12.
Are you required to pay any debts under a Separation Agreement or Divorce Decree?
Yes
No
13.
Do estranged or ex-spouses have any claims against you?
Yes
No
14.
Do you owe any overdue child support or alimony? If yes, how much: $
Yes
No
15.
Are your wages being garnished to pay current or overdue child support?
Yes
No
16.
Did you transfer any of your property to your ex-spouse?
Yes
No
17.
Have you had any car accidents in the last 6 years that were your fault?
Yes
No
18.
Are any of your debts being paid by payroll deduction or military allotment?
Yes
No
19.
Are you repaying any 401k loans or other loans against your retirement?
Yes
No
20.
Have you given any loan company a list of your household goods?
Yes
No
21.
Have you listed any motor vehicles as collateral for a personal loan?
Yes
No
22.
Have you co-signed a loan or credit card for anyone?
Yes
No
23.
Has anyone co-signed a loan or credit card for you?
Yes
No
24.
Has anyone put up a CD, bank account, house or other property so you could get a loan?
Yes
No
25.
Has anyone served you with Court papers or filed a lawsuit against you in the last 3 years?
Yes
No
26.
Does anyone have a judgment against you?
Yes
No
27.
Have you owned a business at any time within the last 6 years?
Yes
No
28.
If so, do you owe any taxes because of that business (income, withholding, employment or
Yes
No
29.
Are there any tax returns which you have not filed? For which years?
Yes
No
30.
Do you owe any federal or state income taxes?
Yes
No
31.
Do you owe any real estate or personal property taxes?
Yes
No
32.
Are your wages being garnished? If so, what is the name of the creditor garnishing?
Yes
No
33.
Do you own any property in another County or State?
Yes
No
34.
Do you expect any gifts or an inheritance in the next 12 months?
Yes
No
35.
Do you have any unpaid student loans?
Yes
No
36.
Have you ever filed bankruptcy before? How many times?
Yes
No
37.
If so, have you had a bankruptcy case dismissed (kicked out) in the last 12 months?
Yes
No
38.
Do you have any car accident, Worker’s Comp, or other personal injury claims?
Yes
No
39.
Do you have any DUI tickets or owe money as a result of an accident while DUI?
Yes
No
40.
Do you owe any Court ordered restitution or fines?
Yes
No
41.
Do you have any unpaid bad checks? If so, how many?
42.
What caused you to fall behind on your bills?
43.
Are you still having the same problems that caused your to fall behind?
Yes
No
When?
What about pay-day loans?
Total amount of checks?
I have read the above questions and have answered each question
truthfully. I understand this information is confidential.
_________________________________
Client
Spouse
After you turn these forms in, you will be shown a short video that provides you some
basic information about the Bankruptcy process.
B201 (03/08)
UNITED STATES BANKRUPTCY COURT
NOTICE TO INDIVIDUAL CONSUMER DEBTOR UNDER § 342(b)
OF THE BANKRUPTCY CODE
In accordance with § 342(b) of the Bankruptcy Code, this notice: (1) Describes briefly the services available from credit
counseling services; (2) Describes briefly the purposes, benefits and costs of the four types of bankruptcy proceedings
you may commence; and (3) Informs you about bankruptcy crimes and notifies you that the Attorney General may
examine all information you supply in connection with a bankruptcy case. You are cautioned that bankruptcy law is
complicated and not easily described. Thus, you may wish to seek the advice of an attorney to learn of your rights and
responsibilities should you decide to file a petition. Court employees cannot give you legal advice.
1. Services Available from Credit Counseling Agencies
With limited exceptions, § 109(h) of the Bankruptcy Code requires that all individual debtors who file for
bankruptcy relief on or after October 17, 2005, receive a briefing that outlines the available opportunities for credit
counseling and provides assistance in performing a budget analysis. The briefing must be given within 180 days
before the bankruptcy filing. The briefing may be provided individually or in a group (including briefings conducted by
telephone or on the Internet) and must be provided by a nonprofit budget and credit counseling agency approved by the
United States trustee or bankruptcy administrator. The clerk of the bankruptcy court has a list that you may consult of the
approved budget and credit counseling agencies.
In addition, after filing a bankruptcy case, an individual debtor generally must complete a financial management
instructional course before he or she can receive a discharge. The clerk also has a list of approved financial
management instructional courses.
2. The Four Chapters of the Bankruptcy Code Available to Individual Consumer Debtors
Chapter 7: (Filing Fee $306)
1. Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts.
Debtors whose debts are primarily consumer debts are subject to a “means test” designed to determine whether the case
should be permitted to proceed under chapter 7. If your income is greater than the median income for your state of
residence and family size, in some cases, creditors have the right to file a motion requesting that the court dismiss your case
under § 707(b) of the Code. It is up to the court to decide whether the case should be dismissed.
2. Under chapter 7, you may claim certain of your property as exempt under governing law. A trustee may have the
right to take possession of and sell the remaining property that is not exempt and use the sale proceeds to pay your
creditors.
3. The purpose of filing a chapter 7 case is to obtain a discharge of your existing debts. If, however, you are found
to have committed certain kinds of improper conduct described in the Bankruptcy Code, the court may deny your discharge
and, if it does, the purpose for which you filed the bankruptcy petition will be defeated.
4. Even if you receive a general discharge, some particular debts are not discharged under the law. Therefore, you
may still be responsible for most taxes and student loans; debts incurred to pay nondischargeable taxes; domestic support
and property settlement obligations; most fines, penalties, forfeitures, and criminal restitution obligations; certain debts which
are not properly listed in your bankruptcy papers; and debts for death or personal injury caused by operating a motor
vehicle, vessel, or aircraft while intoxicated from alcohol or drugs. Also, if a creditor can prove that a debt arose from fraud,
breach of fiduciary duty, or theft, or from a willful and malicious injury, the bankruptcy court may determine
that the debt is not discharged.
Chapter 13: (Filing Fee $281)
1. Chapter 13 is designed for individuals with regular income who would like to pay all or part of
their debts in instalments over a period of time. You are only eligible for chapter 13 if your debts do not exceed certain dollar
amounts set forth in the Bankruptcy Code.
B 201 Page 2
2. Under chapter 13, you must file with the court a plan to repay your creditors all or part of the money that you owe
them, using your future earnings. The period allowed by the court to repay your debts may be three years or five years,
depending upon your income and other factors. The court must approve your plan before it can take effect.
3. After completing the payments under your plan, your debts are generally discharged except for domestic
support obligations; most student loans; certain taxes; most criminal fines and restitution obligations; certain debts which
are not properly listed in your bankruptcy papers; certain debts for acts that caused death or personal injury; and certain
long term secured obligations.
Chapter 11: Reorganization
Chapter 11 is designed for the reorganization of a business but is also available to consumer debtors. Its
provisions are quite complicated, and any decision by an individual to file a chapter 11 petition should be reviewed with an
attorney.
Chapter 12: Family Farmer or Fisherman
Chapter 12 is designed to permit family farmers and fishermen to repay their debts over a period of time from future
earnings and is similar to chapter 13. The eligibility requirements are restrictive, limiting its use to those whose income
arises primarily from a family-owned farm or commercial fishing operation.
3. Bankruptcy Crimes and Availability of Bankruptcy Papers to Law Enforcement Officials
A person who knowingly and fraudulently conceals assets or makes a false oath or statement
under penalty of perjury, either orally or in writing, in connection with a bankruptcy case is subject to
a fine, imprisonment, or both. All information supplied by a debtor in connection with a bankruptcy case
is subject to examination by the Attorney General acting through the Office of the United States
Trustee, the Office of the United States Attorney, and other components and employees of the
Department of Justice.
WARNING: Section 521(a)(1) of the Bankruptcy Code requires that you promptly file detailed
information regarding your creditors, assets, liabilities, income, expenses and general financial
condition. Your bankruptcy case may be dismissed if this information is not filed with the court within
the time deadlines set by the Bankruptcy Code, the Bankruptcy Rules, and the local rules of the court.
Certificate of the Debtor
I (We), the debtor(s), affirm that I (we) have received and read this notice.
X___________________________________
Printed Name(s) of Debtor(s)
Date
X___________________________________
Signature of Debtor
Date
Case No. (if known) ____________________
X___________________________________
Signature of Joint Debtor (if any)
Date
Section 527(a) Notice
NOTICE TO CLIENT WHO CONTEMPLATES FILING BANKRUPTCY
All of the information that you provide with a bankruptcy petition, and thereafter during
a case, is required to be complete, accurate and truthful;
All assets and all liabilities are required to be completely and accurately disclosed in the
documents filed to commence the case. The replacement value of each asset must be stated in
the documents, where requested. Replacement value is the value of property as of the date of
filing of the petition without deduction for costs of sale or marketing. With respect to property
acquired for personal, family, or household purposes, replacement value means the price a
retail merchant would charge for property of that kind, considering the age and condition of
the property at the time value is determined. You must make reasonable inquiry to establish
such value.
You must provide the following information: (a) your current monthly income, (b) your
monthly income for each of the past six months, and (c) your disposable income. Each must
be stated after reasonable inquiry.
Information that you provide during a bankruptcy case may be audited. The failure to
provide the information may result in dismissal of your case. If you fail to provide
information, or provide false information, you may be sanctioned, including being subjected
to criminal sanctions.
I HAVE READ AND I UNDERSTAND THE ABOVE NOTICE.
Date: _____________________________
X___________________________________
Debtor
Date:________________________________
X___________________________________
Joint Debtor
Section 527(b) Notice
IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN
ATTORNEY OR BANKRUPTCY PETITION PREPARER
If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to
represent you, or you can get help in some localities from a bankruptcy petition preparer who is not an
attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE
YOU A WRITTEN CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION
PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask to see the contract before you
hire anyone.
The following information helps you understand what must be done in a routine bankruptcy case to
help you evaluate how much service you need. Although bankruptcy can be complex, many cases are routine.
Before filing a bankruptcy case, either you or your attorney should analyze your eligibility for
different forms of debt relief available under the Bankruptcy Code and which form of relief is most likely to
be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a
bankruptcy case, documents called a Petition, Schedules and Statement of Financial Affairs, as well as, in
some cases, a Statement of Intention need to be prepared correctly and filed with the bankruptcy court. You
will have to pay a filing fee to the bankruptcy court. Once your case starts, you will have to attend the
required first meeting of creditors where you may be questioned by a court official called a "trustee" and by
creditors.
If you choose to file a chapter 7 case, you may be asked by a creditor to reaffirm a debt. You
may want help deciding whether to do so. A creditor is not permitted to coerce you into reaffirming your
debts.
If you choose to file a chapter 13 case in which you repay your creditors what you can afford over
three (3) to five (5) years, you may also want help with preparing your Chapter 13 plan and with the
confirmation hearing on your plan which will be before a bankruptcy judge.
If you select another type of relief under the Bankruptcy Code other than chapter 7 or chapter
13, you will want to find out what should be done from someone familiar with that type of relief.
Your bankruptcy case may also involve litigation. You are generally permitted to represent
yourself in litigation in bankruptcy court, but only attorneys, not bankruptcy petition preparers, can give you
legal advice.
Date:____________________
X__________________________________
X___________________________________
Debtor
Joint Debtor
For Office Use
DEBTS:
For Office Use
Type/Intention/Treatment
7
Name of Creditor
Asset
#
Property
listed as
Collateral
FHA/VA
Garnishments
Old Landlords
Repossession
Payroll Deductions
Furniture Stores
Ex-spouses
Overdraft Protection
Jewelry Stores
Medical Bills
Credit Union Loans
Old Creditors
Assumed Loans
Debts/Credit Reports
Military Allotments
Debts Guaranteed
Disputed/Contingent
AAFES/Esprit
Debts Co-signed
Payoff Amount
if Paid Now
Monthly
Payment
1
13
7
2
13
7
3
13
7
4
13
7
5
13
7
6
13
7
7
13
7
8
13
7
9
13
7
10
13
7
11
13
7
12
13
7
13
13
7
14
13
7
15
13
7
16
13
7
17
Office Use
13
18
FHA / VA
$0.00
Re: Mortgage Guaranty (If applicable, circle the one that applies)
Months
Behind
Names of Cosigners/
Guarantors
19
(Estranged/Ex-Spouse)
Re: Alimony / Other Possible Obligation (circle what applies)
20
(Parent of child)
Re: Past due Child Support
Do you need more space to list your debts? Please ask the receptionist for a Debt Continuation Sheet
TAX DEBT
For Office Use
Type/Treatment
Kind of Tax
Name of Creditor
Asset
#
7/13
1
I.R.S.
Income/Withholding
7/13
2
ND/MN Dept. Rev.
Income/Withholding
7/13
3
Co.
Real Property Tax
7/13
4
Co.
Personal Property Tax
Tax Years
Involved
Return
Filed?
Amount Due
or Estimated
Do you need more space to list taxes? Please ask the receptionist for a Debt Continuation Sheet.
The above is a list of my debts. I have not intentionally left anything out. I have even listed debts
that I want to pay. I have listed debts even if they are current. I have even listed debts even if I
dispute the debt, or the amount of the debt.
I understand that this list is not necessarily a complete and final list of my debts, and that I may add
additional creditors if I become aware of any others prior to the filing of my bankruptcy petition.
I have read the foregoing, and have answered each question truthfully. If I was unsure of any answer, I put
a question mark “?” next to the question and will review the question with the interviewer. I understand that
this information is confidential.
Please sign here: _______________________
Client
__________________________
Spouse
For Office use only:
PROPERTY
Asset #
In Year
For Office
use only
REAL ESTATE
Type
Paid
Improv.
Rent: $
Tax
Who is
What could I
on
sell it for?
the Title?
Address
How much is
owed on it?
1. Single Family
2. Condo/Town
3. Land/Time
Year
Make
Model
Size
4. Mobile Home
MOTOR VEHICLES/BOATS/OTHER VEHICLES
Type
Year
Make
Model
Style
Mileage
What could I
sell it for?
How much is
owed on it?
5. Car
6. Car
7. Car
8. Truck
9. Truck
10. Boat
Motor/Trailer? Yes/No
CASH AND ACCOUNTS
Type
14. Money in bank accounts
15. Money owed to you (or Inheritance)
16. Certificates of Deposit
17. Money Market Accounts
18. Stocks / Bonds / Mutual Funds /
19. IRAs & 401(k)s
20. Loans or Mortgages paid to you
21. Rents paid to you
22. Cash on hand
23. Tax refunds expected (State & Federal)
Dollar Amount
Description
Do you need more
space to list property?
Please ask the
receptionist for a
Property
Continuation Sheet
(rev. 3/17/08)
OTHER PROPERTY
Type
Description
What could I sell
it for?
23. Ownership in a business
24. Ownership in a another business
25. Tools of trade and Business Equipment
26. Business Inventory
27. Car Leases
28. Valuable collections
29. Car accident/Work Comp/Person Injury
30. Other property of any kind
31. Anything other than usual Household Goods? Yes
No
Explain:
I have read the foregoing, and have answered each question truthfully. If I
was unsure of any answer, I put a question mark “?” next to the question
and will review the question with the attorney. I understand that this
information is confidential.
Please sign here: ______________________ _________________________
Client
Spouse
Thank you for completing this Interview Questionnaire.
Please give this form to our receptionist when you have
completed it. An attorney will review this
information with you.
Thank you.
Less than obvious assets
Let’s start a list of assets that may elude us:
1. Accrued vacation pay
2. Paypal accounts
3. Insurance claims
4. Class action membership
5. Health savings accounts
6. Liquor licenses
7. Timeshares or vacation club points
8. Claims for as yet unreimbursed business expenses
9. Domain names and websites
10. Trade marks or trade secrets
11. Book royalties
12. Renewal commissions
13. Realtor commissions on pending transactions
14. Loans made to closely held businesses
15. Vested rights in trusts and estates
16. Stock or options in companies not (yet) public
17. Business leases in the individual’s name
18. Season tickets
19. Airline tickets or paid for vacations
20. Security deposits for utilities or rentals
21. Legal claims not yet filed
Keep digging. There are undoubtedly more.
Prior Bankruptcy Filing Time Requirements
Chapter 7:
Was a Chapter 7 or Chapter 11 previously filed?
YES
NO
Date Filed:______________
Discharge Date:_____________
A debtor may not receive a Chapter 7 discharge if one has been received in a Chapter 7 or Chapter 11
case “commenced within EIGHT years before the date of the filing of the [current] petition.” (11 U.S.C.
727 (a)(8))
Was a Chapter 13 previously filed?
YES
NO
Date Filed:__________________
Discharge Date:______________
The court will not grant a Chapter 7 discharge “if the debtor has been granted a Chapter 13 discharge in a
case commenced within SIX years before the date of the filing of the current petition unless payments
under the previous Chapter 13 plan totaled at least:
–100 percent of the allowed unsecured claims in such case or
–70 % of such claims and the plan was proposed by the debtor in good faith and was the debtor’s
best effort.” (11 U.S.C. 727 (9))
Chapter 13:
Was a Chapter 7, 11, or 12 previously filed?
YES
NO
Date Filed: ________________
Discharge Date: ____________
The court will not grant a discharge in a Chapter 13 case if the debtor has received a prior Chapter 7, 11,
or 12 discharge within FOUR years preceding the filing of the current Chapter 13 case.
(11 U.S.C. 1328 (f))
Was a prior Chapter 13 filed?
YES
NO
Date Filed: ______________
Discharge Date: ___________
The court will not grant a discharge in a Chapter 13 if the debtor has received a prior Chapter 13
discharge during the TWO year period preceding the date of such order case. (11 U.S.C. 1328(f))
Client Intake Sheet - Bankruptcy
INDIVIDUAL FILE STATUS:
_____ 1. Bankruptcy File Opened
_____ Payment Received/Receipted
_____ Open File Rolodex Card Made
_____ Open File Number Assigned
_____ Information Entered into BkyPro
_____ General Client Information
_____ User Defined Fields Tab
_____ DoingTIME Link Created
_____ Retainer Info Put in DoingTIME
_____ Client Computer File Folders Created
- Pleadings; Costs; Statements; Correspondence
_____ Client Intake Sheet Entered
_____ Client File Folder Opened & Label Affixed
_____ Scan documents and place in “Scanned
Documents Envelope”
_____ Place “Originals Envelope in File
_____ 2. Entry and Filing of Information from PCF Packet
_____ PCF Questionnaire I (with all pages signed)
_____ Signed §342(b) Notice
_____ Signed §527(a) Notice
_____ Signed §527(b) Notice
_____ Info. About Our Non-Lawyer Prof.
_____ Initialed & Signed Consultation Agmnt
_____ PCF Questionnaire II
_____ Signed Contract for Legal Services
_____ Initialed In Every Location
_____ 3. Provided Bankruptcy File to the Attorney for Review
_____ 4. Receipt of Bankruptcy Questionnaire I
_____ 5. Initial Packet to Client
_____ Enclose Initial Letter
_____ Enclose Contract for Legal Services (if not
completed already)
_____ Enclose Documentation Checklist
_____ Enclose Bankruptcy Questionnaire II
_____ 6. Preparation of Draft Bankruptcy Petition
_____ Client Intake Sheet Entered
_____ 7. Receipt of Documentation
_____ Signed Contract for Legal Services
_____ Initialed In Every Location
_____ Copy of Social Security Card & Drivers License
_____ NADA valuation of all vehicles
_____ 2012 Tax Return w/ W-2 forms
_____ 2011 Tax Return w/ W-2 forms
_____ 2010 Tax Return w/ W-2 forms
_____ 2009 Tax Return w/ W-2 forms
_____ Paystubs for the last 7 months
from each employer
_____ Proof of insurance (vehicle)
_____ Copy of most recent bank statements
_____ Copy of most recent other financial
accounts, stocks, bonds, IRA’s, mutual
funds, etc.
_____ Copy of Real Estate documents, Deeds,
Promissory Notes, Contracts, etc.
_____ Copy of most recent credit card statements
_____ Copy of most recent telephone bill
_____ Copy of most recent utility bills (electricity,
water, garbage, heating fuel, natural gas)
_____ Copy of apartment/house rental/mortgage
documents to show payment amount
_____ Copy of all life insurance policies (with
a cash value)
_____ All judgments, court orders against you
_____ All judgments, court orders in your favor
_____ All executory contracts; (i.e., leases, rental
contracts, contracts for sale, contracts for
deed, lease-purchase contracts, rent-to-own
contracts, rental contracts, etc.)
_____ 8. All Personal Injury/Lawsuit/Claim Documents
_____ All judgments, court orders against you
_____ All judgments, court orders in your favor
_____ Written explanation of the nature of claim
_____ Name, address and phone number of atty
_____ All documentation concerning that claim
_____ All compensation received/expect/possible
_____ 9. Schedule Client for Credit Counseling
_____ 10. Receipt of All documents listed on the form
“Documents to be provided to the Attorney
by the Debtor(s)”
_____ 11. Continued Preparation of Bankruptcy Petition
_____ 12. Initial Attorney Review of Bankruptcy Petition
_____ 13. Review of Petition with Client
_____ Review SSN with Client
_____ Client to Review & Initial Each Page
_____ Review Status of Attorney Fees
_____ Review Status of Filing Fees
_____ Review Status of Credit Counseling
_____ Review All Documents for Completeness
_____ Ensure All Required Documents Are In File
_____ Review Status of Garnished Wages
_____ Provide Client with Brochure
_____ Review Necessity of Lien Avoidance
Motion
_____ Provide Client with Brochure
_____ Review Potential Reaffirmations w/Client
_____ Provide Client with Brochure
_____ 14. Attorney Review of Petition (with staff)
_____ 15. Preparation of Documentation
_____ Review Status of Client Funds
_____ Update all Checklists
_____ 16. Update of File
_____ 17. Attorney Review and Sign with Client
_____ Sign Reaffirmation Agreements
_____ Have Client Sign CYA “Declaration”
_____ Review Status of Garnished Wages
_____ Review Lien Avoidance Motion with Client
_____ 18. Place “Filing Checklist”in the client's file
_____ Complete “Filing Checklist”
_____ 19. E-File Bankruptcy Petition
_____ 20. Preparation of Documentation
_____ Reaffirmation Agreements (secured debts)
_____ Complete Letters Re: Garnished Wages
_____ Employer Letter
_____ Creditor Letter
_____ Prepare Lien Avoidance Motion/Notice/AOS
_____ Prepare Reaffirmation Agreements
_____ 21. 341 Meeting
_____ Receipt and Review of Notice
_____ Calendar 341 Meeting/Hearing
_____ Letter to Client
_____ 22. Attorney Appearance at 341 Meeting
_____ 23. Respond to Trustee Request for Information
_____ 24. Prepare Amendment (if necessary)
_____ 25. Receipt and Review of Discharge
_____ 26. Review of Client File for Closing
_____ Order Billing Statement from Bookkeeping
_____ 27. Prepare Client File for Closing
_____ Closing Letter to Client
_____ Enclose Billing Statement
_____ Assign Closed File Number
_____ Closed File Rolodex Card Made
_____ Archive BkyPro File
_____ Archive Client Computer File Folders
_____ Closed File Sheet Prepared
_____ Closed File Folder Prepared (& Label Affixed)
_____ Originals Returned to Client
_____ 28. Approval by Attorney to Close File
RED FLAG Checklist
Instructions: Complete this checklist and attach to the front of the file prior to submitting the
file to the attorney for approval for filing. Regardless of whether it is or is not listed here, be sure
to note any unusual items or any matters which should be brought to the attention of the attorney
on the Red Flag List.
1. Which applies to the client:
Client is the only income earner in the household.
YES
NO
A. If your answer is “yes”, proceed to question 2.
B. If your answer is “no”, complete the following:
(1) Did you include the other income earner(s) incomes on Schedule I? YES NO
(2) Did you include both income earner’s expenses on Schedule J? YES NO
(a separate Schedule J must be completed as if they were “legally seperated”).
(3) What is the percentage of household income that the debtor earns? _______%
(Debtor’s income divided by total income)
(4) What is the total combined expenses of both debtor and other income earner(s)?
$_____________ (Total of all Schedule J sheets)
(5) Multiply dollar amount in (4) by debtor’s percentage of income in (3) above.
$_________ X ________% = $ ___________
2. What is the total of Schedule I? $__________
What is the total of Schedule J? $__________
What is the total of Form B-22? $__________
What is the difference between Schedules I & J? ___________
What is the difference between Schedule I and Form B-22? ____________
3. Did client lose any money or property within last 90 days due to garnishments, repossessions,
foreclosures or levy on bank accounts or other property of the debtor? YES NO
(Statement of Affairs #4, 5)
4. Any payments to creditors totaling $600 or more within 90 days?
YES
NO
5. Any payments totaling $600 or more to “insiders” within 1 year?
YES NO
(“Insiders” refer to close personal friends, family members or close business relationships)
(Statement of Affairs #3a (creditors over the last 90 days) and #3b (insiders over the last year)
6. Statement of Affairs #1:
A. Year to date income: ______________
B. Last year’s income: ______________
C. Year before income: ______________
7. Divide client’s year to date income by the number of months to date: $______________
(For example, 8.5 would be September 15th; 6.75 would be July 20th approximately)
8. Schedule I income:
A. Gross Income of Debtor: _____________
B. Gross Income of Spouse/Other Income Earner: ______________
9. Schedule J should be “in-line” with the guidelines established for expense reasonableness.
Any
“out-of-the-ordinary” expenses should be explained on the Red Flag Checklist. In addition, it
may be appropriate to add a comment at the bottom of Schedule I.
A. Are all of the expenses listed in Schedule J reasonable?
YES
NO
B. Are any comments added to the bottom of Schedule I?
YES
NO
C. Any Red Flag notations? YES
NO
10. Are the following documents signed and dated by the client and filed in the client file:
A. Retainer agreement? .............
YES NO
B. Pension waiver? ....................
YES NO
C. Declaration? .........................
YES NO
D. Bankruptcy filing options? ...
YES NO
11. Are the following documents requested/completed by you and in the file:
A. Client’s most recent billing? ....................... YES NO
B. Trust account disbursement form? ...............
YES NO
12. Are there any liens (other than judgments) which impair exempt property?
13. Is a garnishment of wages in effect or soon to be in effect?
YES
YES
NO
NO
14. Are their pension plans, 401K plans, retirement accounts, annuities,
individual retirement accounts (IRA), or other such retirement plans?
YES NO
A. If yes, are the documents tabbed and filed showing the IRS Code under which the
retirement plan was established?
YES NO
B. If not, what documentation is there, and why are the required documents missing?
_________________________________________________________________
_________________________________________________________________
15. Is there a life insurance policy or policies?
YES NO
If so, state:
Name of Beneficiary
Relationship to Debtor
Who owns the policy
_________________________________________________________________
_________________________________________________________________
16. Are there purchase money security agreements?
YES NO
If so, have you obtained the fair market value (FMV) from the client? YES NO
How much is the client willing to pay in negotiating for the property? $____________
Have you completed the PMSI sheet? YES NO
17. Are there debts the client wishes to reaffirm? YES NO
If yes, have you completed the reaffirmation agreement?
YES
NO
BANKRUPTCY CLIENT
SIGNING CHECK-OFF FORM
Dated:____________
Client(s): _____________________________________________________
Staff Person: __________________________
CLIENT(S) TO INITIAL AFTER REVIEWING PETITION & SCHEDULES (BEFORE FILING)
Debtor
Co-Debtor
CLIENT ACKNOWLEDGMENTS SECTION: Have clients initial each item
I understand that I am filing a Chapter ___ bankruptcy.
I reviewed the documents to be filed in my bankruptcy case. The documents are complete
and accurate to the best of my knowledge, including the values, if any, listed for my
personal property, my home and other real estate.
The name I now use is spelled correctly and all other names by which creditors have
known me are also listed and spelled correctly.
My social security number is correct on the Statement of Social Security Number.
My mailing address is correct. If it changes, I understand that I must advise my attorney
(your attorney will advise the Bankruptcy Court).
I will contact my attorney immediately if my home, work or cell numbers change.
I see the names of all my creditors. None are left out.
I understand which debts and monthly expenses I need to continue paying, and a list
of these debts have been provided to me by my attorney.
Reaffirmation. I understand that secured debt may require repayment or the creditor may
be entitled to the return of collateral (property pledged to secure the debt). I have been
provided a list of secured debts and I have discussed whether to retain, reaffirm and pay
these debts, or to surrender and discharge the debt, and the consequences of this decision.
I understand that it would be unethical for a paralegal, secretary or any other non-lawyer
to recommend that I file bankruptcy or to recommend one type of bankruptcy over
another. I acknowledge that no one, other than an attorney, made any such
recommendations.
I (have) (have not) been divorced or legally separated, nor have I entered into any
marital separation agreement, divorce agreement, or been involved in any other legal
proceeding or had a judgment entered against me, since I was initially interviewed in this
law office. I understand that all legal matters must be disclosed as they may effect
whether debts in my bankruptcy are discharged.
I understand that my attorney maintains only electronic client files, and all documents
provided to my attorney have been scanned and returned to me. I acknowledge that all
documents provided have been returned to me.
I have been provided a copy of the Section 342(b) Notice to Individual Consumer Debtor.
ATTORNEY CHECK-OFF
Staff
ATTORNEY DUTIES: Please initial or write “N/A”, whichever applies
AUTHORIZATION FOR LEGAL SERVICES (Our fee contract): I have checked and made sure it is
filled out and signed by all clients.
All Up-Front Money Received: I verify: (1) That all up-front money required by the fee contract has
been received and (2) That there are payments receipts that add up to the same amount.
POWER OF ATTORNEY: If a client is signing the filing documents using a Power of Attorney, a copy
of the Power of Attorney has been made for the file and the proper Certification has been affixed to it (or
filled out if already affixed) and signed. (Note: The Certification is necessary since we cannot
electronically submit to the Court the original Power of Attorney.)
PROPERTY CLAIMED AS EXEMPT: All property with any equity has been listed on this schedule,
and there is NO equity above exemptions, OR if there is equity above exemptions, there are clear
indications in the file that the plan is to sacrifice the extra equity to the Trustee.
CHAPTER 7 - DOCUMENT PREPARATION CHECKLIST: To get ready for the signing
appointment, I have drafted, printed out, and compiled all the necessary documents using this checklist.
Verification of correct: (1) Client names, (2) Social Security Numbers, and (3) Chapter:
I have reviewed every document printed out for the signing, and I verify that the clients names are correct
on every document and that and the social security numbers listed on the Statement of Social Security
Number) are correct.
Signature of Attorney
HOT FILE: If this is a HOT FILE, I have reviewed the case to determine why it is a "HOT FILE" and I am
properly complying with the HOT FILE conditions and requirements. Attorney Initials:
CLIENT ACKNOWLEDGMENTS Section: I read out loud to the clients each item noted above. The
clients understand the meaning of each item. The clients have initialed each item, signifying that the items
are true.
Client Signature on Electronic Filing Documents: The clients have signed the:
[
] Petition (B-1, page 3 client’s signature); (B-1, page 2 attorney signature)
[
] Statement of Social Security Number (B-21 form)
[
] Declaration Concerning Debtor’s Schedules
[
] Statement of Financial Affairs
[
] Statement of Current Monthly Income and Means Test Calculation (B-22 form, Line 57)
[
] Disclosure of Compensation of Attorney for Debtor (attorney’s signature)
[
] Notice to Individual Consumer Debtors Under 342(b) (clients and attorney sign)
[
] Statement of Intention
[
] Verification of Creditor Matrix
The CLIENT DECLARATION form was filled out, explained and signed. I stressed importance of
reading this form carefully.
I explained the §341 Meeting is a MANDATORY COURT APPEARANCE and stressed that failure to
appear could result in dismissal of the bankruptcy. I also advised that in the case of an emergency, if the
§341 Meeting was allowed by the court to be rescheduled due to the client’s failure or inability to appear,
the client would be required to pay extra additional attorney fees (2nd appearance; Continuance; Service).
Filing Fee Installment Payments: I provided a copy of the motion to pay filing fees in installments,
explained the requirement that all filing fees must be paid prior to any further attorney fee payments, and
explained the dates the payments are to be made to the Bankruptcy Court.
Date Payment 1 is to be made:
Amount of Payment #1: $
Date Payment 2 is to be made:
Amount of Payment #2: $
Date Payment 3 is to be made:
Amount of Payment #3: $
All post-filing payments must be made by MONEY ORDER OR CASHIER'S CHECK, payable to
"U.S. Bankruptcy Court."
Copy of Documents for Client: I have copied and have given (or mailed to) the client(s) a copy of the
following documents:
(1) Petition and all Schedules being filed with the Court.
(2) Notice to Individual Consumer Debtors Under 342(b)
(3) Important Notice to Client (10 page form)
(4) All original documents provided by the client (after having scanned them into our computer file).
I have placed this completed “Attorney Check-Off Form" in the client file.
I have placed the completed “Red Flag Sheet” in the client file.
I have placed the “Filing Checklist” in the client file.
MADLOM LAW OFFICE
Filing Checklist
Client(s):___________________________________________
In House No.______________________ Chapter: ( 7 ) ( 13 )
Preparation for Filing:
Filing Requirements:
____ Review File - Ready for Filing?
Fees Paid:
____ Filing Fee Installments? Form Completed?____Filed?
____ Trust Disbursement Form Completed
____ Attorney Fees Paid
____ Client Signing Checkoff completed and in file
____ Attorney Checkoff completed and in file
____ Pay Advices for last 6 months scanned.
____ Create PDF - Last 60 Days of Paystubs for filing
____ Exemptions completed and reviewed
____ Certificate of Counseling scanned/saved
____ “Filing Checklist” placed in file
____ Current tax return and W-2's scanned/saved for Trustee
____ Check B-22 Income Calculations
____ File Petition & Schedules (Date Filed:_____________)
(Bankruptcy File No.: _______________________)
34 I Meeting Date/Time:___________/___________)
____ Judge/Trustee Assignment (Chapter 7 only)
____ File Certificate of Credit Counseling
____ File Paystubs (60 days) (REDACTED)
____ File all ECF Documents in Client File
Chapter 13 Cases:
____ File Ch 13 Plan
____ Confirmation Hearing Date/Time: (________/_______)
____ Serve Chl3 Plan on all creditors
____ File Certificate of Service for Ch 13 Plan
MN Cases Only:
____ Pro Hac Vice Form Prepared / Filed
____ Signature Declaration Prepared / Filed
____ Motion for Atty Fees (Ch 13) Prepared / Filed
____ Paystub Cover Sheet Signed / Filed
Chapter 13 Cases:
____ Delete any draft copies of Ch 13 Plans
____ Prepare Certificate of Service for Ch 13 Plan
____ Schedules Can Support Plan Payments
____ Attorney Fees Included in the Plan (and top priority)
____ Direct Pay Creditors on Section M
Drivers License and SS Card in the File? _______
Immediately After Filing:
Trustee Documents: (Scan & Email the following documentation to Trustee) (E-mailed on ______________)
____ Federal Tax Return - 2012
____ State Tax Return - 2012
____ Most recent property tax statement for any real estate debtor owns or has an interest in (if applicable)
____ Property tax return (Minnesota residents only)
____ Most recent retirement account statement showing the balance and pension type (e.g., PERA, 403B, 401 (k), Simple IRA)
____ Divorce decree (if executed within the past 12 months)
____ For all real estate purchased or sold within the preceding one year, all mortgages or contracts for deed the debtor signed within
one year prior to the date of filing, including copy of the settlement statement from the mortgage closing and any appraisal done within
the two years preceding the bankruptcy filing.
____ An itemization of payments made on any mortgage or contract for deed within two years prior to the bankruptcy filing date,
other than regular scheduled monthly payments, including the source of monies for the payments.
____ Bank account statement for ALL accounts reflecting the balance in the account(s) as of the date of the bankruptcy filing.
____ Letter to Clients (341 Meeting & Required Documents) (Sent on _____________)
____ Lien Avoidance Letter to Clients (If Owns or is Purchasing Real Property) (Sent on _____________)
Garnishment In Progress:
____ Employer Letter (Sent on ______________)
____ Creditor Letter (Sent on _______________)
____ Place the 341 Meeting Financial Document Folder in Client File (Completed on ____________)
____ Schedule FMC Appointment (Scheduled for _________________ or Instructions Mailed on _________________)
Calendar:
____ Reaffirmation Agreement Filing Deadline (Ch 7 cases only)
____ FMC Appointment
____ Confirmation Hearing Date/Time (Ch 13 cases only)
____ 341 Meeting Date/Time
____ Partial Filing Deadlines (“Partial” or “Incomplete” Filings only)
____ To-Do for Potential Discharge Date
____ To-Do for FMC Completion Deadline
____ Bar Date for FMC Filing Deadline
Reaffirmation Agreements Signed by Clients and Sent to Creditors
____ 1. ____________________________________ (Date Sent: ____________________)
____ 2. ____________________________________ (Date Sent: ____________________)
____ 3. ____________________________________ (Date Sent: ____________________)
____ 4. ____________________________________ (Date Sent: ____________________)
Pre-341 Meeting:
____ Review file for 341 Meeting
____ All documents from341 Meeting folder are client file
____ FMC completed
____ File FMC Certificate & Form 23 with Court
Post-341 Meeting
____ Review file for amendments, etc.
____ Make sure original documents have been returned to client
____ Prepare Discharge Letter to client (Ch 7)
____ Prepare Confirmation Letter to client (Ch 13)
____ Close File / Deactivate Case
Reaffirmation Agreements filed with Court
____ 1. ____________________________________ (Date Filed: ____________________)
____ 2. ____________________________________ (Date Filed: ____________________)
____ 3. ____________________________________ (Date Filed: ____________________)
____ 4. ____________________________________ (Date Filed: ____________________)
CONSUMER ALERT
THE DEBT SETTLEMENT TRAP:
THE #1 THREAT FACING
DEEPLY INDEBTED AMERICANS
October 2012
Already struggling with home foreclosures, harsh bank and credit card fees, and other
major financial challenges, America’s most deeply indebted consumers are now falling
victim to a major new threat: so-called “debt settlement” schemes that promise to make
clients “debt free” in a relatively short period of time. Unfortunately, most consumers who
pursue debt settlement services find themselves facing not relief but even steeper financial
losses.
Even the industry acknowledges – though not in its ever-present radio and online
advertising–that debt settlement schemes fail to work for about two thirds of clients.
Federal and state officials put the debt-settlement success rate even lower – at about one in
10 cases – meaning that the vast majority of unwary and uninformed consumers end up
with more red ink, not the promised debt-free outcome.
There is now widespread documentation of the danger that debt settlement schemes pose to
consumers. The Better Business Bureau has designated debt settlement as an “inherently
problematic business.”1 Similarly, the New York City Department of Consumer Affairs
called debt settlement “the single greatest consumer fraud of the year.” Across the country,
the U.S. Government Accountability Office (GAO),2 the Federal Trade Commission (FTC),
41 state attorneys general,3 consumer and legal services entities,4 and consumer
The Better Business Bureau provided data to State attorneys general showing that since 2007, debt settlement
and debt negotiation companies have annually generated the most complaints received by the Bureau. See
Comments of the National Association of Attorneys General to Federal Trade Commission re Telemarketing
Sales Rule - Debt Relief Amendments, Matter No. R411001 at n.5 and text (Oct. 23, 2009, available at
http://www.ftc.gov/os/comments/tsrdebtrelief/543670-00192.pdf.
2 Debt Settlement: Fraudulent, Abusive, and Deceptive Practices Pose Risk to Consumers (U.S. Gov’t
Accountability Office Rep. No. GAO-10-593T Apr. 22, 2010) [hereinafter U.S. GAO Report], available at
http://www.gao.gov/new.items/d10593t.pdf.
3 Comments of National Association of Attorneys General to Federal Trade Commission re Telemarketing
Sales Rule – Debt Relief Amendments, Matter No. R4110011 (Oct. 23, 2009), available at
http://www.ftc.gov/os/comments/tsrdebtrelief/543670-00192.pdf.
4 Comments of South Brooklyn Legal Services to Federal Trade Commission re Telemarketing Sales Rule
Debt Relief Amendments, Matter No. R411001 (Oct. 26, 2009), available at
http://www.ftc.gov/os/comments/tsrdebtrelief/543670-00216.pdf; Comments of Consumer Federation of
1
bankruptcy attorneys have all uncovered substantial evidence of abuses by a wide range of
debt settlement companies.
The debt settlement industry is regulated by state attorneys general and the FTC. Though
state laws vary widely in terms of overseeing the industry and its practices, experts agree it
is very risky and that consumers should proceed with extreme caution before entering into
a contact with a debt settlement company.
KNOW THE HALLMARKS OF DEBT SETTLEMENT TRAPS
Debt settlement companies are for-profit entities that offer to negotiate with creditors to
reduce the amounts owed by a debt-strapped consumer. They typically charge steep fees for
every settlement they achieve. In some cases, they charge very high fees even without
obtaining any settlements.
Here are the “red flags” that consumers need to know about when dealing with debtsettlement firms:

Debt-settlement schemes encourage consumers to default on their debts.
Because creditors frequently will not negotiate reduced balances with consumers who
are still current on their bills, debt settlement companies often instruct their clients to
stop making monthly payments, explaining that they will negotiate a settlement with
funds the client has paid in lieu of their monthly debt repayments. Once the client
defaults, he or she faces fines, penalties, higher interest rates, and are subjected to
increasingly aggressive debt-collection efforts including litigation and wage
garnishment. Consequently, consumers often find themselves worse off than when the
process of debt settlement began: They are deeper in debt, with their credit scores
severely harmed.

Debt settlement often makes a bad problem even worse. When a consumer
defaults on his or her debt, the overall debt burden can rise quickly. As accumulating
penalties and interest charges inflate the consumer’s debt-load, creditors begin
collection efforts and many eventually sue. This is why debt settlement is always a
gamble: If any of the creditors refuse to settle, the consumer is left worse off than when
they started.

The painful bottom line is that most consumers lose the debt settlement gamble.
In most cases, the consumer loses the gamble: The debt settlement company is unable
to settle with all the consumer’s creditors, so the consumer’s unsettled debts rapidly
America to Federal Trade Commission re Telemarketing Sales Rule - Debt Relief Amendments, Matter
No.R411001 (Oct. 16, 2009), available at http://www.ftc.gov/os/comments/tsrdebtrelief/543670-00161.pdf;
Comments of Consumers Union to Federal Trade Commission re Telemarketing Sales Rule - Debt Relief
Amendments, Matter No. R411001 (Oct. 9, 2009), available at
http://www.ftc.gov/os/comments/tsrdebtrelief/543670-00139.pdf; Comments of Queens Legal Services to
Federal Trade Commission re Telemarketing Sales Rule - Debt Relief Amendments, Matter No. R411001
(Oct. 22, 2009), available at http://www.ftc.gov/os/comments/tsrdebtrelief/543670-00185.pdf; Comments
of Southeastern Ohio Legal Services to Federal Trade Commission re Telemarketing Sales Rule - Debt
Relief Amendments, Matter No. R411001 (Sept. 25, 2009), available at
http://www.ftc.gov/os/comments/tsrdebtrelief/543670-00029.pdf.
grow out of control. Even debt settlement companies acknowledge that only about a
third (34.4 percent) of debt settlement clients have at least 70 percent of their debts
settled after three years in the program.5 The industry acknowledges that debt
settlement is unsuccessful for two-thirds of their clients. According to a
Government Accountability Office investigation of debt settlement, even the industry’s
extremely low success rate is overly optimistic.6 The FTC and state attorneys
general found that less than 10 percent of consumers successfully complete
these programs.7

Even “successful” debt settlements can come with a high price. The few
consumers who are successful in debt settlement may find themselves with another
unexpected bill: tax liability. Depending on the consumer’s financial condition, the
amount of savings realized from debt settlement can be considered taxable income.
Credit card companies and other creditors may report a debt reduction to the IRS.
Unless the consumer is considered insolvent, the IRS considers it income and the
consumer will be on the hook to pay taxes on it.

The problem is not limited to “bad actors” since the debt-settlement approach
itself is flawed. Debt settlement schemes are a trap for most consumers because
inherent in the industry’s standard business model is the requirement that clients
breach their contractual obligations with creditors.
CASE STUDIES OF DEBT-SETTLEMENT VICTIMS

When Cipriano and Shelia, of Vallejo, CA, approached a Florida-based debt settlement
company, the couple had approximately $60,000 in credit card debt. While grossly
miscalculating the couple’s monthly expenses and income, the firm advised them that
they need only pay a total of $31,200.00, including the firm’s fees, and that they’d save
approximately $28,800 as a result. The firm took an initial service fee of $6,900 and
continued collecting monthly “set-aside” funds in payments of $460 and later $230. The
firm’s method of evaluating the couple’s ability to participate in a debt repayment plan
not only was flawed, but the firm never provided any information to prove that they
could secure more favorable terms from the settlement than the couple might obtain on
their own or through bankruptcy. Ultimately they could not afford to save enough
money to settle their debts and received none of the benefits from the debt settlement
program that they expected.

Sewnarine, of Newark, NJ, is a hardworking immigrant limo driver who owns his house
and rents out rooms to make ends meet. When he lost his job for a short period,
Sewnarine saw an ad by a debt settlement company and called. Sewnarine had limited
literacy skills and could not read and understand the agreements he signed. Even
Letter of Andrew Houser of The Association of Settlement Companies (American Fair Credit Council) to
the Federal Trade Commission (Mar. 8, 2010), available at
http://www.ftc.gov/os/comments/tsrdebtrelief/543670-00334.pdf at 10 (describing the result of TASC’s
survey of its members, including the 14 of its 20 largest members).
6 GAO Report at 10-11 (“[F]ederal and state agencies have raised concerns with the methodology behind
TASC’s data.” “When these agencies have obtained documentation on debt settlement success rates, the
figures have often been in the single digits.”)
7 Ibid.
5
though he was unemployed and had no income other than his rental income, the debt
settlement company took $1,200 from his account and eventually lowered his payments
to $567 per month. Sewnarine paid a total of $5,152 to the debt settlement company.
He quit the debt settlement when he was sued by his creditors for debts of $13,000 and
$5,000. Despite having paid over $5,000 to the debt settlement company, Sewnarine was
told he didn’t have enough funds to settle either debt. The debt settlement company
kept over $5,800 in fees when Sewnarine quit the program, despite having settled none
of his accounts. Shortly after, the debt settlement company filed for bankruptcy, leaving
Sewnarine with no recovery whatsoever.

Perry of Highland Lakes, NJ, is a union glazier who started out with $60,000 in
unsecured debt. Although he was current on all of his debts, Perry saw an
advertisement for a debt-settlement company in November 2009, and jumped at their
offer that for $500 per month he could be debt free in three to four years. He started
paying into their “savings account” and was immediately sued by two large credit card
companies. Although Perry paid $9,510 to the debt settlement company, they told him
he didn’t have enough money in his “account” to settle so he’d have to have a default
entered or file an answer. Perry is now filing a Chapter 13 bankruptcy. His credit has
been ruined as a result of his dealing with the debt-settlement company.
WHAT TO AVOID
Steer clear of any companies that:

Make promises that unsecured debts can be paid off for pennies on the dollar.
There is no guarantee that any creditor will accept partial payment of a legitimate debt.
Your best bet is to contact the creditor directly as soon as you have problems making
payments.

Require substantial monthly service fees and demand payment of a
percentage of what they’ve supposedly saved you. Most debt settlement
companies charge hefty fees for their services, including a fee to establish the account
with the debt negotiator, a monthly service fee, and a final fee-- a percentage of the
money you’ve allegedly saved.

Tell you to stop making payments or to stop communicating with your
creditors. If you stop making payments on a credit card or other debts, expect late fees
and interest to be added to the amount you owe each month. If you exceed your credit
limit, expect additional fees and charges to be added. Your credit score will also suffer
as a result of not making payments.

Suggest that there is only a small likelihood that you will be sued by creditors.
In fact, this is a likely outcome. Signing up with a debt settlement company makes it
more likely that creditors will accelerate collection efforts against you. Creditors have
the right to sue you to recover the money you owe. And sometimes when creditors win a
lawsuit, they have the right to garnish your wages or put a lien on your home.

State that they can remove accurate negative information from your credit
report. No company or person can remove negative information from your credit report
that is accurate and timely.
HOW TO GET REAL HELP FOR DEBT RELIEF
Many different kinds of services claim to help people with debt problems. The truth is that
no single solution will work for everyone. Bankruptcy is an option that makes sense for
some consumers, but it’s not for everyone. For example, the National Association of
Consumer Bankruptcy Attorneys and its individual consumer bankruptcy attorney
members do not encourage every person who looks at bankruptcy to enter into it. What
makes sense for each consumer will depend on their individual circumstances:

If you have just a single debt that you are having trouble paying (a single credit card
debt for example) and you have cash on hand that can be used to settle the debt, you
may be able to negotiate favorable settlement terms with the creditor yourself.
Creditors typically require anywhere from 25 to 70 percent on the dollar to settle a debt
so you will need that much cash for a successful offer. Be sure to get an explicit written
document from the creditor spelling out the terms of the debt settlement and relieving
you of any future liability. Also be prepared to pay income taxes on any of the forgiven
debt.

If, like most people, you owe multiple creditors and do not have the cash on hand to
settle those debts, you may want to consult a non-profit credit counseling agency to see
if there is a way for you to get out of debt. But make sure to check it out first: Just
because an organization says it’s a “nonprofit” there is no guarantee that its services are
free, affordable or even legitimate. Some credit counseling organizations charge high
fees (which may not be obvious initially) or urge consumers to make “voluntary”
contributions that may lead to more debt. The federal government maintains a list of
government-approved credit counseling organizations, by state, at www.usdoj.gov/ust.
If a credit counseling organization says it is government-approved, check them out first.

Consult with a bankruptcy attorney about your options. Bankruptcy is a legal
proceeding that offers a fresh start for people who face financial difficulty and can’t
repay their debts. If you are facing foreclosure, repossession of your car, wage
garnishment, utility shut-off or other debt collection activity, bankruptcy may be the
only option available for stopping those actions. There are two primary types of
personal bankruptcy: Chapter 7 and Chapter 13. Chapter 13 allows people with a
stable income to keep property, such as a house or car, which they may otherwise lose
through foreclosure or repossession. In a Chapter 13 proceeding, the bankruptcy court
approves a repayment plan that allows you to pay your debts during a three-to-five year
period. After you have made all the payments under the plan, you receive a discharge of
all or most remaining debts. For tax purposes, a person filing for bankruptcy is
considered insolvent and the forgiven debt is not considered income. Chapter 7 also
eliminates most debts without tax consequences, and without any loss of property in
over 90 percent of cases. To learn more about bankruptcy and whether it makes sense
for you, go to http://www.nacba.org/Home/AttorneyFinderV2.aspx.
ADDITIONAL RESOURCES:

Center for Responsible Lending: Debt Settlement
(http://www.responsiblelending.org/other-consumer-loans/debt-settlement/)

Federal Trade Commission: Debt Relief Services
(http://ftc.gov/bcp/edu/microsites/moneymatters/dealing-with-debt-relief-services.shtml)

National Association of Consumer Bankruptcy Attorneys
(http://www.nacba.org)