The Bankruptcy Lawyers Blog

You have finally secured a bankruptcy discharge for your client. However, your client informs you that after the discharge he or she is still receiving billing statements from the mortgage company. This may even leave you a little perplexed because you assured your client that upon receiving the discharge all communications from creditors had to cease and any communication by a creditor was in violation of the discharge.

However, an exception under 11 USC 524(j) may sanction this type of communication if the following factors are present:

• The creditor retains a security interest in real property that is the principal residence of the debtor
• Such an act is in the ordinary course of business between the creditor and the debtor
• Such act is limited to seeking or obtaining periodic payments associated with a valid security interest in lieu of pursuit of in rem relief to enforce the lien.

If the communication meets the standards above, the lender is not in violation of the discharge. However, if your client has surrendered the residence and vacated the property in bankruptcy, the argument can be made that is it no longer the principal place of residence. Also, this provision does not apply to rental or investment property. No such provision allows this type of communication while the bankruptcy petition is pending.

So, as you advise your clients before, during, and after the bankruptcy filing be sure to make note of this limited exception.

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One issue you may need to cover with your bankruptcy clients concerns the bank account(s) he or she may have at the time of filing. The moment your client files for bankruptcy, the funds within the bank account(s) become the property of the bankruptcy estate established by the filing.

The issues faced by your client in this dilemma could be two-fold. First, the bank may freeze the account once it has notification of the bankruptcy. Second, checks that were written on the account may be returned unpaid due to the fact that the account has been frozen.

To avoid these unpleasant events, your clients should consider using cashier's checks or money orders to make last minute payments. You may also want to suggest to your clients to limit the amount of money in the bank to a sum that he or she can afford to have frozen for an extended period of time.

Providing these tips to your bankruptcy clients may prevent even greater financial distress during the bankruptcy process.

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The Department of Justice is currently accepting comments on a rule for proposed procedures and criteria that U.S. Trustees would use to determine if applicants seeking to become or remain an approved provider for personal finance management courses satisfy all the requirements of the U.S. Bankruptcy Code.

The current rule establishes mandatory prerequisites and minimum standards for applicants seeking to become an approved provider for personal finance management courses. Under the proposed new rule, the U.S. Trustees will approve applicants for inclusion on provider lists available to the public in one or more federal judicial districts. Inclusion on the provider lists will turn on whether the applicant has met all the requirements of the U.S. Bankruptcy Code.

All comments for the proposed rule should be submitted prior to January 13, 2009. For more information, please see the Notice of Proposed Rule Making.

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If you are in the process of developing a website for your bankruptcy firm or you already have a website for your firm, make sure that you include the mandatory bankruptcy disclosure notices on your website.

The disclosures are required under Section 527 and Section 342 of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The notices cover the following topics:

• Purposes, Benefits, and Costs of Bankruptcy (Section 342(b)(1)) and (Section 527(a)(1)),
• To Consumers Who Contemplate Filing Bankruptcy (Section 527(a)(2)),
• Important Information About Bankruptcy Assistance Services (Section 527(b)), and
• Fraud and Concealment Prohibited (Section 342(b)(2)).

To review the disclosure sections in their entirety, please see the U.S. Bankruptcy Code.

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Senator Dick Durbin (D-IL), will hold a press conference on Tuesday, December 9th, at 12:30 p.m., in order to announce that his first order of business on the first day of the 111th Congress will be to introduce his Helping Families to Save Their Homes in Bankruptcy legislation. Senator Durbin will further announce his plans to see to it that this legislation will be included in the economic stimulus package that will be reviewed by the new Congress.

You can read more about the bill at Govtrack.us.

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Now that you know that your bankruptcy clients may be randomly selected for a debtor audit, the next order of business is a working knowledge of the types of documentation that the auditing firm will request.  The document categories for an audit are:

• Federal income tax returns for the two most recent tax periods;
• Depository and investment account statements for the month of filing and six months prepetition;
• Payment notices for the month of filing and for six months prepetition;
• Divorced debtors must submit the divorce decree, related property settlement, and support orders;
• Self-employed debtors must submit documents for business operations from which the debtor receives an income.

After scanning the list above, you probably notice that you have already prepared and reviewed the documents in preparation for submitting the bankruptcy petition on behalf of your individual clients. Your next step is to simply keep the information of each bankruptcy client organized and available just in case one of your clients is chosen for an audit.

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Perhaps in your legal career, you may have the "pleasure" of assisting a client with a debtor audit. These audits were commenced under the  Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). The focus of the audits are to determine the accuracy, veracity, and completeness of the schedules and other information provided by the debtor under Sections 521 and 1322 of the Bankruptcy Code.

Cases are selected at random and the audits are performed by independent firms selected by the United States Trustee, using the auditing standards developed by the United States Trustee Program. You can access the Debtor Audit Standards at www.usdoj.gov/ust.

Procedure

If your client is selected for an audit, you will receive a letter stating this information. The letter will also identify the firm that will conduct the audit and the documents that must be produced to the audit firm. Your client with then have 21 days to provide the audit firm with the requested documents.

Once the audit is complete, the audit firm will issue a report which must specify any material misstatements of income, expenses, or assets that were identified by the audit firm. However, before including a material misstatement in an audit report, the audit firm is responsible for contacting you in writing concerning your client's file. This notification will give you and your client the opportunity to provide an immediate written explanation for the item(s) in question.

Final Notes

The most important thing you can do to assist your client if he or she is selected for an audit is to make sure all requested information is submitted in a timely fashion and offer any explanations that may be necessary to the audit firm. Your client will be depending on your skills and expertise to handle the matter and the more you understand about the auditing process, the better off your client will be.  

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