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Today, I sat in Bankruptcy Court, as I have so many times done in the past and watched a pro se debtor lose her claimed exemptions on a challenge filed by the Chapter 7 trustee. In this particular case, the debtor tried to claim a multi-vehicle exemption under 34-26 of the Code of Virginia. In Virginia, a debtor may claim up to $6,000 exempt from creditor process the value of a motor vehicle. What this pro se debtor tried to do is claim 3 vehicles, which totaled less than $6000 combined under the exemption. This is a prohibited practice under the Virginia poor debtor exemptions. The code very specifically requires that the exemption may only be claimed on 1 vehicle. The net result is that the debtor could only protect 1 car. She cannot protect the other two. This was already after she lost $2,500 in tax refunds for next year and some money in the bank by not properly exempting her assets under 34-4 of the Code of Virginia and recording a homestead deed in the appropriate circuit court.
The net result for this pro se debtor, by my calculations, is she is going to lose about $5,000 in assets. Would things have been different had she paid an attorney to represent her? Absolutely. While the debtor was seeking the Court to dismiss her case, saying she no longer wanted to stay in bankruptcy (likely as a result of the fact she was losing so many assets), the judge said something that was so basic but yet so profound. Bankruptcy is easy to get into, but not near as easy to get out of. Under the Bankruptcy Code, debtors who file Chapter 13 have an absolute right to dismiss their case through a voluntary dismissal. If a debtor is unhappy with the direction of their case in Chapter 13, pulling the plug is almost a procedural guarantee. I say almost, because there are a few circumstances where the debtor cannot bail out of a Chapter 13, typically when there is fraud or prejudice to creditors. Conversely, in Chapter 7, debtors have no right to dismiss their case. Filing a motion to dismiss a Chapter 7 case requires the Court to weigh a lot of options, many of which involve prejudice to creditors. If a Chapter 7 trustee is hot on the trail of liquidating assets, to which creditors get paid some or all of their claim, a bankruptcy judge will unlikely dismiss a debtors’ case. In the case of today, the judge denied the debtors request to dismiss. However, the Court did give the debtor an opportunity to repay creditors in a voluntary conversion to Chapter 13. Whether the debtor today could convert will be incumbent on a variety of factors, but nonetheless, the judge did give the debtor a shot to avoid losing her assets. Whether that happens or not will be a topic for a future blog. When you represent yourself, you have a fool for a client. That is very true in bankruptcy where there are procedural pitfalls in many situations. Can a bankruptcy lawyer guide a debtor through the minefields of bankruptcy? Certainly. Will the lawyer do it perfectly, well we are all human. There is never a 100% assurance that a lawyer will not make a mistake. But at least if they do, you have the lawyer on the hook with you and likely their malpractice insurance. Typical attorney fees for a Chapter 7 bankruptcy should run from $750-$1500. People who try to represent themselves and then mess their case up often times lose significantly more money by losing vehicles, bank accounts and tax refunds. While representing yourself may seem like the economic decision, it often creates a situation where the pro se debtor messes up their paperwork and they lose thousands of dollars of assets.
If your tooth needed to be removed, would you go to the dentist or grab a pair of pliers from the toolbox? Why anyone would choose to represent themselves in bankruptcy is literally the same analysis.
Timothy Anderson 757-301-3636