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.

Making Your First Chapter 13 Payment

In a Chapter 13 bankruptcy case the debtor proposes a plan to pay back creditors.  That plan is composed of monthly payments to satisfy all or part of the creditors’ claims over three to five years.  Monthly payments are made to the Chapter 13 Trustee, who then pays your creditors. 

There is often confusion over when the first plan payment due. Section 1326 of the Bankruptcy Code directs that the first payment must be made within 30 days after filing the bankruptcy case, even if the debtor’s bankruptcy plan has not yet been approved by the court.  Often the first meeting with the Trustee (also known as the “341 meeting” or “meeting of creditors”) is scheduled more than 30 days after the filing date, so the Trustee expects your first payment before that meeting.  The Trustee will hold all payments until the plan is approved by the Bankruptcy Court (called “confirmation”), and then make distributions to creditors. 

It is critical that you make this initial payment within thirty days after filing.  It is especially important to monitor the status of this first payment when you have instructed your employer to pay the Trustee from your wages.  It is your responsibility to ensure that this first payment is made, and neither the Trustee nor the Bankruptcy Court gives much latitude to a debtor who misses the first deadline in the case.

Making a timely first Chapter 13 payment allows your plan to proceed to confirmation and will expedite the bankruptcy process.  Failure to commence making payments can result in delays, additional expenses, or even dismissal.  Consult with your bankruptcy attorney regarding payment details, and make that first payment on-time!

How Bankruptcy Can Stop A Wage Garnishment

Garnishing a debtor’s wages is one of the most common and effective means a creditor has to get paid.  A garnishment is a typically a court order (in some rare cases a garnishment can come from another source), and directs the debtor’s employer to withhold a certain amount or percentage from the employee’s pay.  This amount may be limited by state or federal laws, depending on the type of debt and the income source, and the debtor may be able to assert certain “exemptions” that restricts the amount of the garnishment each pay period.  The garnishment usually comes unannounced and is delivered just before the debtor’s payday, to ensure that the creditor receives the maximum amount from the garnishment. 

Certain income sources receive increased protection from garnishment like Social Security, retirement plan benefits, public assistance, workers’ compensation, and unemployment or disability benefits.  However, certain debts like child support can collect from most of these income sources. 

When a garnishment is taking more than you can afford to pay, it may be time to consider filing bankruptcy.  The federal bankruptcy laws will stop debt collection including garnishments.  The moment the bankruptcy case is filed a temporary injunction known as the “automatic stay” stops all creditor actions immediately and automatically – even if the creditor has no knowledge of the bankruptcy filing!  This stay continues throughout your bankruptcy case unless terminated or modified by the bankruptcy court.  For most garnishments, the debt will be discharged at the end of the bankruptcy case and the creditor can no longer collect from you. 

Once you have filed your bankruptcy and the garnishment has stopped, it may be possible to have wages that were withheld from your check returned to you, provided your employer has not already sent the funds on to the court or to the creditor.  Ask your attorney whether you can have funds returned once you file your case. 

If you have a wage garnishment, consider your options by consulting with an experienced bankruptcy attorney.  Your attorney can explain how the federal bankruptcy laws can stop your wage garnishment and put your wages back into your pocket.

The Medical Bankruptcy Myth

Each year many Americans find themselves facing bankruptcy through no fault of their own.  The American Journal of Medicine reported in 2009 that medical bills contributed to more that 60 percent of U.S. personal bankruptcies.  A catastrophic medical condition can wipe out savings, assets, and even cause loss of income. 

The study conducted by researchers from Harvard Law School, Harvard Medical School and Ohio University found that more than 75 percent of these bankrupt filers had some form of health insurance, two-thirds were homeowners, and three-fifths had gone to college.  Many of the debtors were average middle-class families who saw their lives tossed upside-down after a serious illness. 

“Our findings are frightening. Unless you’re Warren Buffett, your family is just one serious illness away from bankruptcy,” said lead author Dr. David Himmelstein, an associate professor of medicine at Harvard Medical School. 

While medical expenses can lead to bankruptcy, the federal law requires the debtor to include all debts in a bankruptcy case, including auto loans, mortgages, and credit cards.  A “medical bankruptcy,” when the debtor only discharges medical debt, is a myth.  The bankruptcy laws do not allow the debtor to pick and choose which debts are included and which are excluded.  Debts are treated fairly and equally in bankruptcy, and the debt classes are structured to avoid preferential treatment of one creditor over another within the same class. 

For example, a hospital and a credit card company are generally classified as unsecured creditors and will receive the same treatment during the bankruptcy.  If there are no assets available to pay these debts, both debts are discharged at the end of the case.  However, while a debt may be discharged and no longer legally enforceable, the debtor may always voluntarily repay the creditor. 

If your family is faced with high medical expenses, consult with an experienced bankruptcy attorney and discover your options.  The federal bankruptcy laws can discharge your medical bills and provide a fresh start on a better financial future.