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Bankruptcy Hacks

In the past 28 years, consumer bankruptcy has never ever been good. The debtor pays several thousand dollars to an attorney, and signs a petition and schedules under oath, which are filed with the bankruptcy court. If all goes as planned, the debtor will be discharged of unsecured debts, generally credit card debts. But the debtor probably could have done this without a bankruptcy, by contacting creditors and working out compromises. Often debts can be compromised for as little as 50 cents on the dollar, without interest. This approach avoids the stigma of bankruptcy on the debtor’s credit.
Often a consumer bankruptcy does not go as planned. The debtor may unexpectedly lose his house or other property. This can happen, for example, if the debtor aggressively undervalues property for the purpose of fitting it under available exemptions. The bankruptcy trustee can seize the house, sell it, and pay the debtor the understated value he claimed for it.
If there are representations in the bankruptcy filing that are false or arguably false, the case can be dismissed. The debtor can even be prosecuted.
A bankruptcy almost never resolves tax obligations. A taxpayer has many effective options in dealing with tax liabilities, and bankruptcy is not among them. These include an offer in compromise, currently not collectible posting, and an installment agreement. I have previously written on this subject. It is a fact that consumer bankruptcies have a high rate of legal malpractice.
Whenever someone consults an attorney about personal bankruptcy, attorneys are always there to counsel them around it and they have also been thanked for it.
It seems that often the only person benefitting from a consumer bankruptcy is the debtor’s attorney, collecting a fee for the proceeding. Therein lies the impetus for this post. The other day I was talking with a representative of my bank concerning accepting payments from clients by credit card. She happened to mention that some attorneys accept payment of retainers by credit card to represent the client in a bankruptcy which will discharge that very credit card debt. She added that when the bank discovers such an attorney, it immediately disables him from receiving payment via credit cards issued by that bank. Such conduct by an attorney, while reprehensible, is not surprising in consumer bankruptcy cases.

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