Is Bankruptcy A Wise Decision?

The decision to file a personal bankruptcy can be emotionally difficult for many individuals.  Sometimes these emotions can make it difficult to accurately assess your financial picture.  If you are facing a financial dilemma, it is a good idea to consult with someone skilled in evaluating your finances and obtain advice.  The answer to a financial problem can vary from reducing spending, to increasing income, to selling assets, and finally to reorganizing or liquidating in bankruptcy.  

Filing bankruptcy should always be your last good option.  Unfortunately, good people will make bad decisions when trying to avoid this last good option.  Bankruptcy attorneys see people regularly who have made bad decisions regarding their finances in the hope of avoiding bankruptcy.  These bad decisions always make matters worse.  Some of these bad decisions include: 

* Borrowing from retirement funds

* Borrowing money from a business, family, or friends

* Misappropriating money, kiting checks, or other illegal activities

* Borrowing from payday loan companies, taking cash advances from credit

* Selling assets that may be protected from creditors

It is true that desperate people do desperate things.  When things get desperate, it is time to consult with an experienced bankruptcy attorney and discover how the bankruptcy process can help you and your family.  Bankruptcy is a legal process that is authorized by the Constitution of the United States.  Its laws are drafted by Congress and a federal bankruptcy judge oversees your case along with a trustee appointed by the Department of Justice. 

One goal of the bankruptcy process is to return the debtor to financial health by relieving the burdens of overwhelming debt.  The great majority of debtors never file bankruptcy again and rebuild their financial lives by making good decisions after the bankruptcy discharge.  For these people, bankruptcy provides a second chance. 

If you need a second chance and a fresh financial start, speak with an experienced bankruptcy attorney and discuss your options.  Make wise decisions about your personal finances.  The bankruptcy laws help over a million families get a new financial beginning each year, and it can help you too!

Five Things To Know About Gift Cards

The National Retail Federation reports that gift cards are the most-requested holiday gift for the fourth consecutive year and expects gift card spending will reach nearly $25 billion this year.  A recent survey found that 77.3 percent of holiday shoppers intend to buy at least one gift card.  So chances are you received one as a gift, but do you know there are federal rules that govern these cards? 

As of August 22, 2010, provisions of the Federal Credit CARD Act took effect and impose many new regulations on gift card issuers.  These new regulations contain some powerful protections, and also a few surprises: 

First, gift cards purchased on or after August 22 must hold their value for five years.  The five year period restarts for each new dollar reloaded onto the card.  Be aware: the card itself may expire, but not your money!  If your gift card expires before five years and there’s still money left on it, contact the issuing company have your balance transferred to a new card.  Companies are required to do this for free. 

Second, the issuing company cannot charge an “inactivity fee” on your gift card until the card has not been used for 12 months.  Previously some cards charged inactivity fees of $2.50 each month until the card balance reached zero. 

Third, information concerning gift card fees, expiration date, and the company’s toll-free phone number or website must be printed on the card. 

Fourth, while the Credit CARD Act contains many strong consumer protections from unscrupulous companies, it does not apply to universal prepaid gift cards.  These cards typically have a major credit card company logo (e.g. Visa or MasterCard) printed on the front and can be used at any retailer.  These cards may still expire and assess fees. 

Fifth, federal and state laws don’t protect consumers who have gift cards to businesses that declare bankruptcy.  In the past some consumers have lost money on their gift cards when the issuing store filed for bankruptcy protection.  For example, when The Sharper Image filed bankruptcy in February of 2008, they stopped accepting gift cards from customers.  While technically you can file a claim in bankruptcy court for the value of your gift card, the chances of receiving payment is slim. 

The best advice for dealing with a gift card is: use it quickly.  Delay in use risks losing money through inactivity fees or bankruptcy.  Gift cards are not savings devices, they are meant to permit you to purchase a gift for yourself.  Use the card and enjoy your purchase.

Bankruptcy Can Help Build A Better Future

Pop quiz: What do Walt Disney, Mark Twain and Larry King have in common? 

A.     They each filed a personal bankruptcy and went on to have extraordinary success in life. 

Bankruptcy is not a professional or financial death sentence.  Just ask Donald Trump who has filed multiple Chapter 11 reorganization bankruptcies for his casinos.  Bankruptcy is a financial tool that uses the federal law to protect the honest, but unfortunate debtor.  Bankruptcy allows the debtor an opportunity to restructure finances and formulate a plan to repay or discharge debt.  Bankruptcy provides the debtor a fresh start to a new financial future – one free of the pressures from debt collectors. 

Here’s another question: What honor did Kim Basinger and Burt Reynolds receive after filing personal bankruptcy? 

A.     Each were nominated for an Academy Award in 1997.  Basinger won an Oscar for best supporting actress for L.A. Confidential, and Reynolds was nominated for best supporting actor for Boogie Nights. 

Bankruptcy can help you and your family build a more solid financial foundation.  Henry Ford created another automobile company after his first company filed bankruptcy.  It is safe to say that Ford Motor Company would not exist today without the help of the federal bankruptcy laws.  The same can be said for General Motors, which filed for Chapter 11 bankruptcy in 2009. 

How can bankruptcy help you?  The bankruptcy laws can stop a foreclosure sale, pending lawsuit, and creditor harassment.  Bankruptcy can protect your family assets and retirement accounts from creditors.  Bankruptcy can eliminate debt or give you time to repay loans including delinquent car and home payments.  The federal bankruptcy laws helped over a million people get relief during 2009, including celebrities Stephen Baldwin, Sinbad, and Bernie Kosar. 

As Abraham Lincoln (filed bankruptcy in 1833) once said, “The best thing about the future is that it comes only one day at a time.”  If you are experiencing overwhelming financial difficulty, take the first step to a better future by speaking with an experience bankruptcy attorney today.

Are People in Need Avoiding Bankruptcy?

Although bankruptcy filings are climbing back to the all-time high of 2 million reached in 2005, there is a growing concern that many Americans in need of bankruptcy protection are not filing.  A recent article in USA Today quotes Katherine Porter, associate professor of law at the University of Iowa who says, “[T]he filing rate doesn’t even begin to count the depth of financial pain.” 

Are you hurting financially?  Bankruptcy can help ease that pain. 

Bankruptcy is a federal legal process for declaring an inability to pay your creditors.  When you file bankruptcy you get immediate relief.  The bankruptcy court imposes an “automatic stay” prohibiting creditors from taking collection action against you while the bankruptcy case is pending.  The automatic stay is very powerful and stops lawsuits, wage garnishments, and even foreclosures.  Its purpose is to give the debtor some breathing room and an opportunity to decide how to resolve an overwhelming debt problem. 

There are typically two different types of bankruptcy cases: chapter 7 and chapter 13.  In chapter 7 you eliminate debt without payment while chapter 13 is a repayment plan over three to five years.  At the end of a bankruptcy case the court enters an order discharging eligible debts and permanently prohibits creditors from taking collection action against you. 

In some cases certain debts are not discharged.  The most common types are family support obligations, student loans, and taxes.  However, bankruptcy offers significant relief by discharging other debts and freeing up money to pay the non-discharged debt.  Chapter 13 can also be helpful by allowing payment of the non-dischargeable debt under the supervision of the bankruptcy court and without fear of lawsuits, wage garnishments, or other nasty creditor action. 

The bankruptcy process is very efficient.  For most chapter 7 debtors the case will last a few months and requires one meeting with the bankruptcy trustee.  The cost of bankruptcy is very reasonable compared to the relief that is given. 

If you are hurting financially, speak with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can help you.  There are many options available in the law and can give you real relief from overwhelming debt.

Surrendering Property During Chapter 7 Bankruptcy

The federal Bankruptcy Code provides many options for an individual to reorganize his finances.  In some cases, a Chapter 7 debtor may decide that he can no longer afford to make the monthly payments on a secured loan.  This may be a loan secured by real estate, a vehicle, or personal items.  When the monthly payment is not affordable, the debtor should consider his options.  These options may include restructuring the debt through Bankruptcy Code provisions such as re-writing the note in a reaffirmation agreement, lien-stripping, or redemption.  The debtor may also consider using a non-bankruptcy option such as refinancing.  Whatever the decision, the general rule in bankruptcy is that secured items must be paid for or returned to the secured creditor. 

The best financial decision for the debtor may be to simply “walk away” from a secured debt.  Surrendering property back to a creditor is not an easy decision, but in many cases it can be a very liberating experience.  Surrendering property is usually as simple as coordinating a time between your attorney and the creditor, and then delivering the property.  Once the creditor takes possession of the property, the debt is no longer secured and is discharged at the end of the Chapter 7 bankruptcy case.  It is important to continue to safeguard the property and maintain insurance until the property transfer is completed. 

The threat of surrendering the property can be a highly effective negotiating tool.  In most cases the creditor doesn’t want the property, it wants the money.  Taking property is a costly expense to the creditor and the threat of surrender may open the possibility for negotiating affordable terms during reaffirmation, redemption, or cram-down. 

If you have secured property you can no longer afford to keep, consider surrendering the property during a Chapter 7 bankruptcy and “walking away” from the debt.  Discuss your options with your attorney and learn how the federal Bankruptcy Code can help you restructure your finances.

Five Reasons to Choose Chapter 13

A Chapter 7 bankruptcy debtor receives a discharge and the case closes generally within four to six months.  Chapter 13 is a repayment plan that lasts three to five years.  Why in the world would anyone choose to file Chapter 13?  Below are five reasons why Chapter 13 may make sense: 

Reason 1: A Forced Repayment Plan under Court Protection.

When a creditor is unwilling to work with you, a Chapter 13 can force the creditor to accept payments on your terms.  Some debts, like child-support or taxes, are non-dischargeable through bankruptcy and must be paid.  Chapter 13 allows the debtor to propose a three to five year repayment plan according to what you are able to pay.  During this time the creditor is not allowed to take any collection action without permission of the bankruptcy court. 

Reason 2: The Cram Down. 

In some cases a vehicle or other secured loan can be reduced to the value of the collateral.  The debtor retains the property, but may pay a lower monthly payment and less in principle and/or interest.  The loan term may be also lengthened or shortened in a Chapter 13. 

Reason 3: Curing Home Loan Defaults and Lien Stripping

A debtor who has defaulted on a home loan can stop a foreclosure action and force the creditor to accept payments on the arrearage.  Some debtors can receive a substantial benefit by stripping away a second or third mortgage. 

Reason 4: The Effect of Bankruptcy May Be Shortened

While the federal law states that bankruptcy information can remain on your credit report for up to ten years, the “big three” credit reporting bureaus (Experian, Equifax, and Trans Union) will generally remove chapter 13 information seven years after the filing date.  That means the bankruptcy will drop off your credit report two to four years after your last Chapter 13 payment! 

Reason 5: Retain Non-Exempt Property

In some cases, a debtor may own property with equity that cannot be protected.  Say, for instance, that the debtor owns a Harley Davidson motorcycle free-and-clear and the non-exempt equity is $10,000.  In a Chapter 7 case the trustee will want either the motorcycle to sell, or a cash payment of $10,000 from the debtor.  In a Chapter 13 the debtor does not lose the motorcycle, but will pay $10,000 through the bankruptcy plan to unsecured creditors over three to five years.  

Deciding between Chapter 13 and Chapter 7 requires careful deliberation.  An experienced bankruptcy attorney can discuss the pros and cons of each bankruptcy chapter and help guide you to a healthy and successful fresh start.

Bankruptcy Versus Bad Debt Judgments

Bankruptcy attorneys know that owing a debt that you cannot repay causes the debtor many headaches.  First, there are the collection calls and letters.  These collection actions are meant to harass you into paying something on the debt.  Since the creditor only has a certain number of years to collect before the statute of limitations runs, after a few years the creditor will file a lawsuit against you.  After the creditor obtains a judgment, the statute of limitations clock is reset and the creditor has more time to collect by garnishing wages, or seizing bank accounts or property.  In some cases, the creditor may have twenty years or more to collect on a debt!  During this time fees and interest can increase the balance of the debt many times over. 

An unpaid debt has serious consequences to your credit report.  Any debt that is more than 90 days delinquent indicates that the individual is experiencing serious financial problems.  A debt stays on your credit report for seven years after the date of the last payment.  Even after the debt drops off your credit report, if the creditor sues you the judgment will be reported for an additional seven years. 

One of the chief benefits of a bankruptcy discharge is it provides a final resolution of your unpaid financial obligations.  The bankruptcy discharge is a permanent injunction ordered by the bankruptcy court against your creditors forbidding any collection action against you, forever.  The discharge order is extremely powerful and the penalties for a creditor who violates this federal court order can be severe. 

A report of your bankruptcy case will stay on your consumer credit report for ten years after the date you file bankruptcy (not from the date of your bankruptcy discharge as many believe).  While on the surface a bankruptcy stays on your credit report longer than a bad debt (ten versus seven years), the truth is that a bad debt can linger and significantly harm your credit score for much longer than ten years.  After a bankruptcy your debts are reported as “discharged in bankruptcy” with a balance of “zero.” 

If you are struggling with debts you cannot afford to pay, consider filing bankruptcy sooner rather than later.  The sooner you discharge your debts, the sooner you can begin your financial recovery.  Delay in filing usually results in further harassment, lawsuits, and difficulties.  Contact an experienced attorney today and discuss your legal options for discharging your debts.

“Foreclosure-Gate” Causing Chaos In The Mortgage Industry

Recently allegations have been made against several prominent mortgage lenders claiming the use of flawed and in some cases fraudulent documents during the foreclosure process.  In one GMAC Mortgage has been accused of using a “notary-mill” to crank out upwards of 10,000 foreclosure documents each month without reviewing the documents.  Similar accusations have been leveled at Bank of America.  In states that use judicial foreclosure, this activity amounts to a fraud upon the court and is illegal. 

JPMorgan Chase, Ally Bank’s GMAC Mortgage and PNC Financial have all suspended foreclosures in states that require a judge’s order.  Bank of America has suspended all foreclosures in all 50 states.  State attorney generals across the nation have joined an investigation into these foreclosure practices.  In Congress, Nancy Pelosi and Christopher Dodd, have called for a federal investigation, and U.S. Attorney General Eric Holder said he is looking into the matter.  

Potentially millions of foreclosures across the United States are subject to challenge.  In some cases courts are denying the lender’s foreclosure suit because it cannot produce clear title.  A recent lawsuit in federal court in Louisville alleges that banks participating in MERS (a mortgage document clearing house) conspired to produce false promissory notes, affidavits, and mortgage assignments to be used in mortgage foreclosures.  Similar class actions have been filed against MERS in Florida and New York. 

As a result of this mortgage document fiasco, one title insurance company, Old Republic National Title Insurance, has announced that it will no longer write new insurance policies for homes that have been foreclosed on by JPMorgan Chase and GMAC Mortgage.  Homeowners who have purchased foreclosed homes may not have clear title and may face difficulty in selling their homes in the future. 

If you are facing foreclosure, consult with an experienced bankruptcy attorney and discuss your options.  There are many options for homeowners who are unable to make their mortgage payments.  Your bankruptcy attorney can discuss your options and protect your legal rights.

How Much Do I Have to Pay In Chapter 13?

During a Chapter 13 bankruptcy you pay your creditors in accordance with your ability to pay.  Some creditors receive 100% of the debt, and others may receive a small sum or nothing at all.  The Bankruptcy Code establishes a priority of debt repayment. 

Administrative claims must be paid 100% and include your filing fee, the trustee’s compensation (3% to 10% of each monthly payment), and your attorney’s fees.  Other debts must be paid 100% during the debtor’s bankruptcy including alimony and child support, most tax debts, and mortgage arrears if you intend to keep you home. 

The lowest category of debt repayment is unsecured creditors.  The amount paid to unsecured creditors (e.g. medical bills, credit cards, and unsecured personal loans) is determined by several factors including (1) the amount of your nonexempt assets; (2) your disposable income; and (3) the length of your plan. 

The length of your plan and amount of your disposable income are largely determined by the Bankruptcy Means Test.  The Means Test was the subject of a recent United States Supreme Court case: Hamilton, Chapter 13 Trustee v. Lanning.  The issue in Hamilton is how a bankruptcy court calculates your ability to pay creditors during the bankruptcy case. 

The 2005 changes to the Bankruptcy Code included a requirement that Chapter 13 debtors commit all “projected disposable income” to the repayment plan.  Confusion arose over whether Congress meant to determine this amount through a mechanical approach, by averaging the debtor’s income for the past six months, or whether the determination is “forward looking” and should consider the debtor’s future ability to pay. 

Justice Samuel Alito, writing for an 8-1 majority, said the “forward looking” approach is correct.  The forward-looking approach starts with the debtor’s average monthly disposable income for the past six months multiplied by the number of months in a debtor’s plan.  This figure is ordinarily the debtor’s projected disposable income.  However, in some cases, the Court has authority to review the debtor’s actual and present monthly income in order to calculate the debtor’s ability to pay debts during the plan period. 

The Hamilton case will have great impact on Chapter 13 bankruptcy cases and places the power to determine a fair and affordable Chapter 13 payment plan in the hands of the bankruptcy court judges.  If you are in need of bankruptcy relief, but fear that you will be forced to pay a monthly sum you can’t afford, get the facts from an experienced bankruptcy attorney.  Bankruptcy is not a debtor’s prison and has helped millions get a fresh financial start.

Keeping A Credit Card During Bankruptcy

A credit card is a safe and convenient way to pay for life’s necessities.  In some cases a credit card is required to purchase goods or services.  Debit cards are often a poor substitute for a credit card as bank holds can tie up your account for days. 

If you want to keep a credit card during your bankruptcy, there are a few things to know.  First, the Bankruptcy Code requires that you list all of your creditors and debts owed on the date of the bankruptcy filing.  Consequently, if a credit card has a zero balance on the date that you file bankruptcy, it does not need to be listed and the credit card company does not receive notice.  

Second, the use of credit during a chapter 13 bankruptcy is prohibited without prior authorization from the trustee and bankruptcy court.  Usually credit approval is contingent upon a written agreement or statement from the credit card company.  Chapter 7 debtors do not have this restriction. 

Third, a payment on a credit card within 90 days before your bankruptcy filing may be considered a preference payment.  The bankruptcy trustee may seek a court order compelling the credit card company to turn over any pre-filing payments.  

Fourth, credit card companies conduct regular checks of their cardholders’ credit and your bankruptcy filing may result in the card issuer closing your account, reducing your credit line, or increasing your interest rate.  These actions may also occur if you choose to reaffirm your debt with the credit card company.  After reaffirming the debt the card may be cancelled and you are stuck with a non-discharged credit card balance. 

Fifth, intentional failure to list a credit card with a balance can result in dismissal of your bankruptcy case.  The bankruptcy court expects you to be entirely truthful concerning who you owe, regardless of your intention to pay the debt. 

Sixth, consider obtaining credit after your bankruptcy discharge.  Many debtors are offered unsecured credit cards shortly after their bankruptcy discharge.  Many creditors consider a recently discharged debtor a good credit risk because the debtor is unable to receive another bankruptcy discharge for several years, and likely has a good debt-to-income ratio.  Many post-discharge credit card offers carry high interest rates and fees, so choose wisely. 

Secured credit cards are another credit option after bankruptcy.  A secured credit card requires a security deposit placed with the credit card company who then issues a credit line secured by the deposit.  Many banks and credit unions offer their customers secured credit cards at reasonable interest rates. 

If you are interested in keeping a credit card during bankruptcy, consult with your bankruptcy attorney.  Your attorney can discuss your options and help you decide on the best way to maintain a credit card account during and after your bankruptcy.

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