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Testimonial

“Kenneth is an innovative entrepreneur who has a passion for helping individuals navigate through the complex web of private and Federal student loans. His investment in FMI and commitment to his student clients’ success is testament to his success.”


Angel Beltran Integration Project Manager, Talmer Bank & Trust

Tuesday, June 5, 2012

Bankruptcy Law Firms And Collections Agencies

I really wanted to spend some time today talking about Chapter 13 Bankruptcy:  This form of bankruptcy allows a person to consolidate the debt while making convenient monthly payments to a trustee. A payment plan is proposed which repays the debt over a three to five year period.  The amount of the monthly payment and the length of the repayment plan is based upon the following factors:
  • Monthly income of the person
  • Monthly expenses of the person
  • Amount and nature of the debt
Note: The proposed payment plan may increase to an amount that is not affordable to the consumer
 The most common uses of Chapter 13 involve:
  • Repayment of mortgage arrears (back amounts owed) home
  • Restructuring of auto loans to save a vehicle
  • Assistance with Parking Tickets
  • Student Loans
  • IRS Repayment
Secured debts are paid 100% on the dollar, while unsecured debts may be paid as little as 10% on the dollar. A person receives a discharge under Chapter 13 once the payment plan is completed. Discharge is “NOT” to be confused with “Dismissed”
Note:  A Discharge means that you have complete your Chapter 13 or Chapter 7 Bankruptcy,A Dismissal means that you have “NOT” completed your Bankruptcy.

Some law firms do not charge all of their fees upfront; the only fee that may be required is the court cost. Once you agree to the services to be performed, the fees of the law firm and sign the contract, the firm then request that the fees are included into the proposed plan, the fees are approved and awarded by the judge.  

Example:
Attorney Fees: $3,500.00
Retainer Fee $350.00 (Varies)
Judge Awarded Fees $3,150.00 (Remaining Balance This Is The Amount Submitted To The Trustee, Actually The Consumers New Additional Debt)
Court Cost of $350.00 (Varies)
Month Payment: $500.00 Per Month (Example) 
(The Order of Payment)
a. Trustee Payment (6-10 Percent of the monthly trustee payment)
b. Law firm Fees
c. Creditors
  
Some consumers who have large amounts of debt are looking for a way out and aren't concerned with the details of the law firms contract they just signed and agreed to.  There concern is saving their home and vehicle.   The success rate of consumers completing a Chapter – 13 bankruptcy is very low.   A lot can happen during those 3-5 years;  consumers could lose their jobs, maybe hours were cut, something effects the income and consumers cannot afford to make the planned monthly payment and now your bankruptcy is dismissed (For Failure To Make The Planned Payments).  

When a consumer receives a dismissal notice creditors are privileged to that information.  Some law firms consumers trust to represent them are now amongst the list of creditors they owe money to.  In Attorney client contracts this is called (Disclosure of Compensation for Attorney Debtor Fees)

Some law firms will attempt to hold consumers contractually obligated to pay what ever amount is remaining in attorney fees and making lots of money collecting on their own dismissed bankruptcy fillings.  If a law firms hires just one highly skilled collector, that individual can collect upwards of $10-$15K in cash every month now multiply that by 4 - 5 debt collectors each averaging $10-$15K. and the firm is paying out 10-15 percent in commission. Not to mention-the collector getting the debtor to refile another case is not uncommon.  
   
Is it possible that law firms could start to look at debt collectors as ....paralegals, customer service representatives, accounts receivables management,sales and case builders, etc.... 
The Hybrid Debt Collector

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Financial Management Institute Inc
Kenneth Grayer CEO/President


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