Lawyers for both corporate and personal bankruptcies are in higher demand than ever before. The precipitous freefall of the economy that caused drastically reduced corporate revenues has also impacted jobs and the incomes of families. So, what does a bankruptcy attorney do?
What is Bankruptcy Law?
A bankruptcy case begins with the filing of a petition in the U.S. Bankruptcy Court seeking relief from debt. Creditors are allowed to seek at least a portion of whatever is owed to them. There are consumer bankruptcies and business bankruptcies. They’re referred to by the section of the U.S. Bankruptcy Code that the debtor is filing under. Those are Chapter 7, 9, 11, 12 and 13 bankruptcies. A brief description of each follows:
This is usually a consumer bankruptcy, and the most frequently filed debt relief action filed in the United States. It’s known as a liquidation or straight bankruptcy. Businesses might file for Chapter 7 liquidation too.
Municipalities and other taxing entities are also eligible for debt relief. A Chapter 9 bankruptcy is a reorganization of debt. A payment plan is submitted for the bankruptcy court’s approval.
A Chapter 11 bankruptcy petition for restructuring of debt can be filed by a business. This form of relief allows the debtor to propose a plan to keep its business up and running while paying its creditors over time.
Not seen very often on Wall Street or any of the nation’s other financial centers, this is also a reorganization plan, but its objective is to save the family fishing business or farm. It also contemplates a 3 to 5 year reorganization plan.
This form of bankruptcy is for people who are employed, but are over their heads in debt and are unable to pay it off. A family home and car might be saved through a Chapter 13 bankruptcy.
Negotiations Between Debtors and Creditors
Lawyers representing debtors often attempt to avoid having their clients file for bankruptcy. When there are negotiations between debtors and creditors, the debtor must have money or something of value to negotiate with.
Whether the debtor is an individual or a business, a creditor is more likely to be amenable to restructuring a debt when the debtor can show available debt for a lump sum settlement or that there is enough income to pay a settled amount off in the future. Funds for this purpose are often placed in escrow with the debtor’s attorney, so that if he or she is able to reach a deal, the appropriate amount can be paid.
Bankruptcy lawyers are professional negotiators who have made a comprehensive analysis of the likelihood of a settlement offer being accepted.
Reorganization of Debts Under Chapters 11 and 13
When a business files for bankruptcy, it typically files for Chapter 11 protection that allows it to keep the doors open and do business while attempting to negotiate its financial obligations and restructure its debt. A reorganization plan is filed by the debtor that might include trimming of personnel and expenses. That plan is then submitted to creditors and the bankruptcy court for approval.
Many household names like General Motors have gone into Chapter 11 bankruptcy and come out of it operating strong. Given the coronavirus pandemic, it’s certain that you’ll be hearing of other Fortune 500 companies seeking protection in the bankruptcy courts.
Chapter 13 Bankruptcy Protection
Individuals and sole proprietors of businesses are eligible to file a petition for Chapter 13 bankruptcy. If a debtor owns a home, a car, has a steady job and is current on their mortgage and car payments, he or she might be able to avoid foreclosure on the home and repossession of the car under Chapter 13.
Those debts would be consolidated into a single payment plan that must be approved by the bankruptcy court. Payments must be paid to a bankruptcy trustee every month. Chapter 13 plans last from 3 to 5 years. During that time, debtors aren’t allowed to incur any major debt without court approval.
Liquidation Under Chapter 7
The U.S. Bankruptcy Code allows both individuals and businesses to file for a Chapter 7 bankruptcy. Although bankruptcy course are federal courts, each state has its own laws on what property might be exempt from sale in a Chapter 7 liquidation.
All non-exempt property of the debtor is sold by the bankruptcy trustee and distributed to creditors on a priority basis. Creditors with secured claims are given first-priority. Once all assets are sold, the debtor is discharged from his or her remaining debts.
What Does a Bankruptcy Attorney Do?
Whether representing a debtor or creditor, a bankruptcy lawyer’s objective is to navigate the client’s case through court proceedings and obtain the best possible result under difficult circumstances. Given the pace of bankruptcy cases, bankruptcy lawyers always seem to be on their toes. Here are some of the things that they do in relation to the litigation they’re always confronted with:
Opening the Safety Valve
Bankruptcy laws operate as a release valve for the national economy. The bankruptcy safety valve releases pressure on both consumers and big businesses. When that final order is entered, and the case has been concluded, cash is infused into the economy, and that fosters economic growth.
Maintaining Order in the Court
A morning in bankruptcy court might seem routine to a seasoned bankruptcy lawyer, but a wide variety of legal issues might arise at any time that requires a broad base of legal knowledge. These might include but aren’t limited to real estate, divorce, negotiable instruments, secured transactions, fraudulent conveyances, criminal law, and of course, bankruptcy law.
It’s at the office that the day might become chaotic. The lawyer already has their day planned out, but there are always interruptions, especially phone calls from creditors, opposing counsel, clients, along with interaction with the attorneys within the law firm. Then, there is the drafting of pleadings, motions, responses to motions, and replies to responses to motions and appellate briefs that are all drafted by bankruptcy lawyers.
The Professional Life of a Bankruptcy Attorney
Most bankruptcy lawyers work in law firms, but others might work at banks, motor vehicle financing companies, credit card companies, or large corporations.
Those who work with consumer bankruptcies generally work as sole practitioners or in small law firms. Their work primarily consists of Chapter 7 and Chapter 13 cases. Those who work with corporate bankruptcies are usually in large law firms in large cities. Their practices might range from corporate work outs to Chapter 7, 9, or 11 bankruptcies.
Training or Skills Important to Practicing Bankruptcy Law
To become a bankruptcy lawyer, a person must first earn a bachelor’s degree and attend law school. Upon graduating from law school, the individual must first pass the bar exam in the state that he or she intends on practicing in. Other than the basic credentials, there are other skills and certifications that a successful bankruptcy attorney should have.
- Recommended Skills: A quality bankruptcy attorney will have strong transactional and litigation skills. Bankruptcy lawyers are called upon to use incisive analysis along with strong math, negotiation, and writing skills. As bankruptcy law and procedure can be confusing for clients, a successful bankruptcy lawyer will also have strong communication abilities.
- Certification as a Bankruptcy Attorney: Various boards of legal certification certify lawyers as consumer or business bankruptcy lawyers. Although board certification is not required to practice in the area of bankruptcy law, it’s recommended that practitioners obtain board certification for purposes of demonstrating their level of competency and standing in their bankruptcy law community. Lawyers should check with their state first to determine whether such certification is recognized there.
How Much Does a Bankruptcy Lawyer Charge for a Chapter 7?
Along with legal fees, there are certain costs that must be paid in any Chapter 7 case. The filing fee that is charged by the bankruptcy court is presently $335. Anybody seeking a Chapter 7 bankruptcy must also attend credit counseling. The cost of that varies widely across the country, so plan on an extra $50 to $100 for that.
Attorney fees also vary widely across the country. You should be able to obtain a specific base fee from any bankruptcy lawyer in your area. The average lawyer’s fee across the country for a Chapter 7 bankruptcy lawyer is $1,250, but much depends on where you are filing, the complexity of your case and the skill and reputation of your lawyer.
One of the general rules in life is that you get what you pay for. Don’t be penny wise and pound foolish in your selection of a bankruptcy lawyer. Select a well-qualified and respected attorney to represent you. He or she could save you thousands of dollars in the end.
Elena Steers is a highly experienced bankruptcy attorney, the founder of Law Offices of Steers & Associates, and previously worked as a Bankruptcy Trustee Assistant at the Office of the Chapter 13 Trustee in Los Angeles. Her current affiliations include the State Bar of California, National Association of Consumer Bankruptcy Attorneys, and Central District Consumer Bankruptcy Attorneys Association.