Under this new Treasury Department rule, an electronic tag will be added to automatic deposits from government agencies. These funds include Social Security, Supplemental Security Income (“SSI”), Veteran’s Administration (“VA”) benefits, federal Railroad Retirement, federal Railroad Unemployment and Sickness benefits, federal Civil Service Retirement benefits and federal Employee Retirement System benefits. Banks are required to exempt all tagged deposits made during the previous two months and protect those deposits from garnishment. The consumer is no longer required to take any action to claim or identify exempt funds. The rule makes banks not liable to creditors for refusing to garnish the tagged funds, even if the money is co-mingled with other non-exempt money. 

The National Consumer Law Center estimates that more than 1 million people each year have accounts garnished that contain exempt federal funds. Recipients are often sick or elderly and may be forced to forego needed food and medicine when an account is frozen. 

This new rule applies to all federally chartered federal and state banks and credit unions. While there is no cap on the amount of protected funds, the automatic protection only applies to the previous two months. Exempt funds must be deposited electronically to receive the identifying tag. Deposits made by paper checks are still exempt, but the bank is under no obligation to identify these funds or protect them from garnishment. The rule does not apply to military retirement or state issued benefits. 

There are many powerful consumer protection laws. If you have a judgment against you and are at risk of a bank or wage garnishment, consult with an experienced bankruptcy attorney and discover how the law can help. Your attorney can discuss your legal options to make the best of a bad situation.

Disclosing ownership of an asset doesn’t mean you will lose that property. Statistically, only four percent of all Chapter 7 bankruptcy cases have an asset that is turned over to the trustee. Federal and/or state exemption laws protect most property during bankruptcy, however property exemptions are only recognized when the asset is listed and the legal exemption is properly claimed. An asset that is concealed during your bankruptcy case will not receive the full protection of the exemption laws. 

Likewise, disclosing income does not mean that you will be forced into a Chapter 13 repayment case. Most debtors pass the means test without much effort. In the remaining cases, most only require small adjustments. Disclose all of your income early during the bankruptcy process, and your attorney can discuss your legal options for discharging unsecured obligations without filing a Chapter 13 repayment case. 

Intentionally failing to disclose a debt means that the debt is not discharged. Unfortunately, it also means that you have committed perjury since you attested to having listed all of your debts. Perjury is a federal crime, and you may be denied a discharge. Occasionally a debtor wants to omit a creditor from the bankruptcy case. Your attorney can help you with this decision. For instance, a credit card with a zero balance is not a debt and there is no disclosure requirement. In theory, since the credit card company is not listed as a creditor, it does not receive notice of the bankruptcy, and the credit relationship is not disturbed. Realistically, the credit card company will discover the bankruptcy independently and may restrict the account. 

When it comes to bankruptcy it is important to be completely honest with your attorney. Your attorney can advise you on making the best disclosure decisions while staying within the legal requirements of the bankruptcy laws. Don’t hide a financial fact! Discuss it with your attorney and protect your legal rights.

Cross-what? 

Cross-collateralization is basically the use of collateral from one loan to secure other loans. The cross-collateralization clause from a recent Loanliner agreement reads: “the security interest also secures any other loans, including any credit card loan, you have now or receive in the future from us and any other amounts you owe us for any reason now or in the future.”  Credit unions are fond of using this clause in vehicle loan agreements to secure all other credit union debts with the vehicle.  This often causes surprises (and anger) when an unsuspecting credit union member tries to trade-in his car and discovers that the debt on the vehicle includes a personal loan, a line of credit, and credit card balances. 

There are a few options if you are faced with a cross-collateralized auto loan.  First, you can file a Chapter 13 and cram-down the loan to match your vehicle’s value. Any remaining debt is discharged at the end of the Chapter 13 case. During a Chapter 13 case, you can pay a cram-down over three to five years. 

During a Chapter 7 case, your attorney can simply ask the credit union to draft a reaffirmation agreement for the vehicle without regard to other debts. You are basically asking the credit union to voluntarily strip off the cross-collateralized loans.  If the credit union refuses your request, you have two options: (1) surrender the vehicle and discharge all debts to the credit union; or (2) redeem the vehicle. Redemption is a process exclusive to a Chapter 7 bankruptcy case where the debtor keeps a vehicle by paying the value of the vehicle, not the total debt that is owed. While similar to a Chapter 13 cram-down, redemption differs in that the payment to the secured creditor must be a lump sum. Payments are not permitted. 

If you have an auto loan through your local credit union, review the loan paperwork with your attorney for a cross-collateralization clause.  Your bankruptcy attorney can discuss your options with you and help arrive at the best financial decision for your family.

Critics have described this practice as a thinly disguised “payday loan,” since the loan is intended to provide cash to the borrower until his or her next payday and direct deposit.  With fees of 20% per $20.00 borrowed, the effective annual percentage rate is 130% when the loan is repaid on the thirtieth day.  U.S. Bank, Fifth Third Bank and Wells Fargo are three banks that offer this service to account holders. 

The checking advance repayment terms can have unexpected consequences for the borrower.  For instance, taking a checking advance two days before your direct deposit payday means that you have paid the bank between $10 and $50 for a two day loan.  The loan period is simply until the next direct deposit, or the expiration of thirty days.  At the end of thirty days the bank will withdraw the funds from your account, usually without notice.  This withdrawal may cause an overdraft of your account and additional fees.  Unlike payday loans, checking advance customers are unable to control and post-pone payment of the loan until the end of the loan period.  Some banking customers find themselves forced to take a series of advances until they are able to afford to repay the loan. 

Bankruptcy can discharge checking advance loans as well as payday loans.  These short term loans can cause significant damage to a families’ budget and cost hundreds of dollars in fees.  It is usually advisable for clients who wish to discharge a bank’s checking advance to open up another account at a different bank.  This will avoid any complications if the bank attempts to take money out of your account to repay the loan. 

If you need to get out from under checking advance loans, payday loans, or other high interest loans, speak with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can provide you with relief.  Your bankruptcy attorney can explain the best way to discharge these loans and set you on a course for a better financial future.

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.

A new federal banking regulation that took effect July 1, 2010 requires banks to obtain a customer’s consent before charging overdraft fees for debit card purchases whenever there are not sufficient funds to cover those purchases.  Consumers who do not “opt-in” may have their debit cards declined at the cash register.  

When an individual suddenly has a reduction of income, it is often difficult to keep track of monthly finances.  This could result in bank overdrafts.  A $5.00 burger and soda could wind up costing $35 or $40 after bank fees are assessed.  In some cases overdraft fees can quickly multiply to hundreds of dollars.  Additionally, some banks charge negative balance fees that may be assessed on a daily basis.  A prolonged negative balance could result in closure of the account and a consumer report to Chex Systems, making it more difficult to open another bank account. 

Bank fees are avoidable debts that can only complicate a bankruptcy case.  Many debtors in bankruptcy want to maintain a good relationship with their local bank, and consequently will pay the bank debt.  In cases where the debt is not paid, a new bank may not agree to open a new account for you until the debt to your former bank is paid – regardless of whether that debt was discharged in bankruptcy. 

When money is extremely tight, consider using cash to pay for ordinary purchases like lunch, groceries, or gas.  Cash may be less convenient than using your debit card, but it is easier to keep track of your money and see how it is being spent.

If you are experiencing financial difficulties due to a sudden reduction of income, consider opting out of overdraft fees from your bank.  A small inconvenience at the cash register could save you from a considerable headache later.  Your bankruptcy attorney can advise you on additional ways to avoid further difficulties by making to adjustments to your finances.  Consult with an experienced bankruptcy attorney and learn how the federal bankruptcy laws can help you.

In deciding whether to discharge a bank account debt, you must determine if repayment is feasible.  In cases where the debt is small, the account is still open, and you have the resources to pay the debt, repaying the debt is generally the best option.  Remember to consult with your attorney before repaying any debt prior to filing bankruptcy.  In many cases it is advantageous to wait until after the case is filed before repaying a debt. 

If paying the bank account debt is not feasible, you may face several negative consequences.  First, the bank will close your bank account.  Second, over eighty percent of all banks use Chexsystems, a consumer reporting agency that provides information regarding accounts at banking institutions.  Negative information may remain on your Chexsystems file for five years.  To view your Chexsystems report for free, visit: https://www.consumerdebit.com/consumerinfo/us/en/chexsystems/report/index.htm 

While a bankruptcy will discharge a bank account debt, factual information concerning the debt will remain on your Chexsystems report after the bankruptcy.  This information is available to financial institutions and may prevent you from opening another bank account.  

Fortunately, there are programs available to an individual with a derogatory Chexsystems report offered by banks, universities, and not for profit groups.  One of the most popular is the “Get Checking” program offered by several groups around the country.  The University of Missouri Extension offers a typical “Get Checking” program, which requires a debtor to pay all outstanding bank fees on the prior bank account and take a six-hour checking education class.  The debtor then receives a certificate of completion which can be used to open a new account at a participating financial institution.  If ChexSystems reports suspicion of fraud on a prior account, a certificate will not be issued and institutions are not required to open an account. 

If you have an overdrawn bank account and are considering bankruptcy, discuss your financial situation with an experienced bankruptcy attorney.  There are many options to deal with bank account debt, but the situation can only grow worse from procrastination.  Quick action is the best cure for this type of debt.