A bankruptcy’s cost is based on the anticipated time to be spent on the case. Furthermore, the bankruptcy courts in Utah do not allow hourly fee arrangements, so all bankruptcies are on a flat fee basis, which means that attorneys have to estimate how much time a case will take so as not to either overstate or understate the fee to the client. As bankruptcy attorneys we understand that we are working with people in financial distress. So, our margins are razor thin and subject to fierce competition. Anything, at all, that adds time to a case, even if it is 12 minutes, increases the cost of a case.
Let’s put the issue to rest. Here is what a simple bankruptcy looks like. If you have anything more than what is stated here, you don’t have a simple bankruptcy.
1. A simple bankruptcy only has one source of income
A simple bankruptcy has no more than one source of income. If a husband and wife file a joint bankruptcy, and both work; you don’t have a simple bankruptcy. If you receive social security, and your spouse works, you don’t have a simple case. For every source of income, we need six months of payment documentation that must be reviewed, input and analyzed. In short, the more sources of income, the more time your case takes.
2. In a simple bankruptcy, the source of income is employment, social security, or unemployment insurance
If you are anything other than an employee, unemployed, or retiree whose only income is social security or other retirement income, you don’t have a simple case. The self-employed, business owner, or independent contractors never have a simple bankruptcy case.
3. In a simple bankruptcy, debts are mostly credit cards, medical bills and collection accounts.
In a simple bankruptcy, the debtor cannot have special debts. Special debts include back income tax, child support, spousal support, any sort of business related debt, restitution, etc.
4. In a simple bankruptcy, no one owns real estate
Owning real estate compounds the time we spend on the case. It is an additional asset, your home is important to you, and there is usually a mortgage associated with it. So, we must do the due diligence to make sure the home is not at risk, and add that information to the petition.
5. A simple bankruptcy only has exempt assets
This factor takes a bit to explain. Exemptions are the laws that allow you to keep your stuff notwithstanding the fact you are filing bankruptcy. Rest assured, in most chapter 7 bankruptcies, the person loses nothing or very little. In real terms, having only exempt assets means that you have the typical assets we would expect for a middle-class family in debt. These assets are furniture, clothing, television, computer, car, and a 401(k) or IRA.
If you own anything, even something minor, that is non-exempt (e.g. horses, a 3rd car, an RV, a vacation home), you don’t have a simple bankruptcy case. First, we have to take the extra time to explain the consequences and options for dealing with non-exempt assets. Second, if you have non-exempt assets, your chapter 7 bankruptcy will become an asset chapter 7 case. That means we will be doing significantly more work after the bankruptcy is filed to deal with the trustee, keep you informed, and instruct you on what to do. For Utah, the big category of non-exempt assets are tax refunds and home equity above the homestead exemption. Note that you WILL lose a portion of your tax refund depending on when you file.
6. A simple bankruptcy has no more than 2 vehicles, and $3,000 or less of equity in each vehicle.
If you are unmarried, you only have one vehicle. If you are married, you have no more than 2 vehicles. If you have car loans, you are current on payments and the equity in the vehicles is under $3,000 each, you are fine. If none of the above is true, you don’t have a simple bankruptcy case.
7. Grab bag of other issues that make a bankruptcy not simple
• You have used your credit cards in the last 90 days.
• You have been sued.
• You have judgments or garnishments against you.
• Your car or other property has been repossessed.
• You have paid any money to family members in the last 12 months
• Not all your tax returns have been filed.
• You have transferred any property to anyone for less than fair market value in the last two years.
A simple bankruptcy involves only one source income, no one has real estate, assets are all exempt, only one car per debtor and less than $3,000 equity in each car. In addition, the debtor cannot have done anything in the run-up to bankruptcy to create issues (paid family members, used a credit card in the 90 days prior to filing, haven’t filed all required tax returns, etc.). You can see, that a simple bankruptcy is actually rare.