Credit Card Defendant Wins Lawsuit, Collects $120,000!

Most of the debt collection industry is based on bully tactics. Each stage of the collection process is designed to intimidate and harass until the individual simply surrenders and pays the debt. Collectors send embarrassing letters in pink envelopes marked “URGENT!” or “IMMEDIATE ATTENTION REQUIRED!” They make scores of phone calls at home and work, until you are afraid to pick up your own phone.

Even when there is a valid defense, a credit card company will sometimes seek to bury the defendant with the enormity of its size. Take for example the recent Palm Beach County, Florida, case of Capital One Bank USA, NA v Pincus. Capital One sued Steven Pincus for a credit card debt of $803.95. Pincus offered to settle the debt for a few hundred dollars, and Capital One refused. Pincus then hired an attorney to defend. Capital One responded with a barrage of court filings that ran up Pincus’s legal expense tab to over $100,000.

Pincus moved for summary judgment and dismissal claiming the lawsuit was barred by the statute of limitations. Pincus asserted that the Capital One cardholder agreement states that Virginia law shall have control, and, since the contract was not signed by either party, whatever agreement existed between Pincus and Capital One must be an oral contract. Pincus further argued that since the statute of limitations for oral contracts in Virginia is three years and since Capital One’s lawsuit was filed three and a half years after the date of the last transaction, Capital One’s case is time barred. Capital One defended by arguing that Florida law and its five year statute of limitations should control because Florida was the state where the contract was made.

The Palm Beach County Court found that Virginia law controlled and the credit card agreement was an oral contract based on Virginia law. The opinion cited several similar Florida cases finding the choice of law provision in a cardholder agreement applies to a statute of limitations defense. In granting Pincus’s summary judgment motion and dismissing the case, the Florida court opinion said the credit card company is “‘master of its complaint’ and cannot disavow the choice of law provision contained in the document it attaches to its Complaint so it can take advantage of the longer statute of limitations.”

The Pincus case did not end there. Pincus and his attorney filed a Fair Debt Collection Practices Act lawsuit in federal court against Capital One’s attorneys to recover his attorney fees (Capital One, as an original creditor, is exempt from the FDCPA, but collection attorneys are not). The case was settled after contentious litigation for $120,000.

The moral of the story is “Don’t be bullied!” If you are sued for a credit card debt, seek legal advice from an experienced debt defense attorney. Many bankruptcy attorneys are experts in debt defense and can explain your legal options.

Will I Lose My Tax Refund by Filing Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is a repayment plan that lasts three to five years.  During that time the debtor is required to devote all disposable income to the repayment of debt.  Most bankruptcy trustees and courts consider tax refunds part of the debtor’s disposable income that is over-withheld and should be paid into the Chapter 13 plan.  However, instead of reducing the amount payable under the debtor’s plan, tax refund money is paid to unsecured creditors that would otherwise not be paid.  If the debtor is paying a 100% repayment plan, the trustee will not request turnover of any tax refunds.

Some courts have approved a provision in the Chapter 13 plan that requires the Internal Revenue Service to forward any tax refund to the trustee’s office.  However, at least one bankruptcy court has found this practice to be unlawful.  In United States v. Carroll, No. 2:09-cv-13505 (E.D.Mich. Jan. 20, 2010), the bankruptcy court concluded that the IRS was not a party to the debtor’s chapter 13 case and did not have an opportunity to object to the plan.  Additionally, as a part of the United States government the IRS possesses sovereign immunity that it did not waive. 

Keeping your money and avoiding an income tax turnover may be as simple as adjusting your paycheck withholding.  By speaking to a tax professional you may be able to predict your tax liability and put more money in your pocket each payday.  However, be careful to avoid a situation where you do not withhold enough taxes and end up with a large tax bill at the end of the year. 

If your tax refund is largely due to an Earned Income Tax Credit (EITC), the IRS allows tax payers to request an advance payment of the EITC.  Information regarding this advance payment program can be found on the IRS website.   If you qualify, your employer will add additional money to your take-home pay each paycheck. 

If you want to avoiding surprises during your Chapter 13 bankruptcy, seek out and hire an experienced bankruptcy attorney.  An experienced bankruptcy attorney can discuss your financial situation with you and help you keep your hard-earned money for your family.

How Taking Financial Actions Without Court Approval May Affect Your Chapter 13 Case

Before people file for bankruptcy they are free to handle their finances as they see fit.  You can choose which debts to pay when you want or opt not to pay at all.  In addition, you can apply for credit to purchase things, like a car or furniture or a home, and open up new credit card accounts.

After you file for bankruptcy all of this changes.  In essence, the court becomes your financial overseer.  Any financial move you make besides paying your debts as designated through the Chapter 13 plan and paying for your regular living expenses will require court approval. 

So what does this include? Any loan, even something as small as taking out a 401k loan through your employer, will require court approval.  The idea behind this is that the court wants to make sure that you are not putting yourself in a worse financial position than you were in before you filed the bankruptcy. 

What happens if you do take a loan without court approval?  First, a new loan reduces money that is already earmarked to take care of the things in your budget, like food, clothing, shelter, insurance, which may cause a monthly financial shortfall.  Secondly, if you need to request a reduction of your monthly plan payment to the court because of a decrease in income, then the court is likely to deny your request because of the loan you have taken out without prior approval.  Thirdly, the court may even dismiss your case.

As you can see, this can be detrimental to your case.  Be mindful of this as you embark on a Chapter 13 case filing.

Help! My Car Has Been Repossessed!

Imagine this: you are behind on your car payments.  Heck, you are behind on a lot of bills, and perhaps you have been considering bankruptcy for some time.  Then one day you walk out the door for work and discover. . . 

Your car has been repossessed! 

Don’t despair!  Bankruptcy can still help.  Call an experienced bankruptcy attorney immediately because you may be able to get your vehicle returned to you. 

The law in most areas (including the Sixth, Seventh, Eighth, Ninth, and Tenth Circuits) is when a debtor files a Chapter 13 bankruptcy, the creditor must immediately return a repossessed vehicle to the debtor.  This is because even though the creditor has taken possession of your vehicle, you are still the legal owner.  The Bankruptcy Code states that in a Chapter 13, a creditor in possession of a debtor’s asset must ordinarily relinquish the asset back to the debtor. 

However, this begs the question: what if your car is sold at auction or the creditor transfers the vehicle title out of your name?  If this transfer is done after the Chapter 13 bankruptcy is filed, it is typically a violation of the automatic stay and the vehicle will be returned.  If the transfer is done before the Chapter 13 bankruptcy is filed, you are out of luck.  You no longer have ownership of the vehicle. 

If the creditor refuses to return the vehicle, or does not return the vehicle in a timely manner, most courts will sanction the creditor.  Once your vehicle is returned you must provide “adequate protection” to the creditor to assure that the property will be safeguarded and that the creditor will be adequately compensated.  This usually takes place by submitting a Chapter 13 plan of repayment to the bankruptcy court. 

If your vehicle has been repossessed, take immediate action!  Call an experienced bankruptcy attorney and discuss your options.  Your attorney can help you make the right financial choice for yourself and your family.

What Is A Reaffirmation Agreement?

A reaffirmation agreement is a new contract between a debtor in bankruptcy and a creditor in which the debtor agrees to continue personal liability on a secured loan and the creditor agrees to not repossess the property.  Reaffirmation agreements are only available to Chapter 7 debtors and the agreement must be executed before the bankruptcy discharge is entered.  The debtor can revoke the agreement with 60 days after the agreement is signed. 

Reaffirmation agreements are typically used to continue payments on secured property the debtor wishes to retain, like a car or house. A debtor that reaffirms a debt is personally liable for any subsequent default on the loan, and can be sued by the lender and the property may be repossessed.  This is a serious consideration since the debtor is not eligible for another Chapter 7 bankruptcy discharge for eight years, and is not eligible for a Chapter 13 discharge for 4 years. 

The Bankruptcy Code requires that the agreement contain many disclosures concerning the contract terms.  The debtor must also file a statement of current income and expenses.  If the debtor’s income after expenses is not enough to pay the monthly loan, the court may decide to not approve the reaffirmation agreement. The debtor’s attorney must also certify to the bankruptcy court that the debtor was advised of the legal effect and consequences of the reaffirmation agreement, and that the reaffirmed debt will not create an undue hardship for the debtor or the debtor’s family.

Since reaffirmation agreements are new contracts, the parties are able to change the terms of the original agreement. This could mean a reduction of principal, interest, or a change in payment length in order to make the monthly payments more affordable to the debtor.  While the reaffirmation process is a voluntary process, the creditor is generally not anxious to repossess the property, and the debtor usually has more leverage in bankruptcy to negotiate a better deal with the creditor. 

If you are considering a bankruptcy and a secured car or house loan, discuss your individual situation with an experienced bankruptcy attorney.  There are many options to retain property both during and after bankruptcy.  Your bankruptcy attorney can help you select the best course of action.

Discharging Student Loans In Bankruptcy

Recently the House of Representatives Judiciary Subcommittee on Commercial and Administrative Law held a hearing to initiate legislation to change provisions of the federal bankruptcy law that give student loan lenders an advantage over other consumer loans.  Current bankruptcy law provides that student loans are generally not dischargeable under any chapter of the bankruptcy code unless the debtor can show that repayment of the loan creates an “undue hardship.”  Unfortunately, Congress did not define “undue hardship” in the bankruptcy code, so this interpretation has been left to the individual bankruptcy court judges. 

During the Committee hearing Rafael I. Pardo, an associate professor at the Seattle University School of Law who has studied the discharge of student loans in bankruptcy, challenged Congress “to clarify the undue hardship standard.”  Many courts view “undue hardship” as a high bar that is only met by a showing of exceptional circumstances (like physical or mental disabilities, or poor or no future earning potential) that result in an inability to both repay the student loans and provide a minimum standard of living for the debtor and the debtor’s family.  This is a very difficult burden for most debtors to meet, and consequently bars the discharge of student loans in most cases – even while other consumer debts like auto loans, credit cards, medical debts, mortgages, and even taxes are discharged in the debtor’s bankruptcy. 

Consumer bankruptcy attorney Brett Weiss, who testified on behalf of the National Association of Consumer Bankruptcy Attorneys and the National Consumer Law Center, called the situation “unfair” when other consumer loans are forgiven in bankruptcy proceedings while student loans are not.  As a result of these hearings, Rep. Steve Cohen (D-Tenn.) announced his plans to file legislation to “give private student loan borrowers more equitable treatment during the bankruptcy process.” 

For the time being it remains extremely difficult to discharge student loans.  However, there are other non-bankruptcy programs for debtors unable to repay their loans.  In some cases debtors may qualify for reduced payments, deferment, forgiveness or cancellation.  Chapter 13 bankruptcy can also provide a way to cure defaulted student loans, or pay them off during the bankruptcy.  If you have student loan debt, discuss your situation and options with a qualified bankruptcy attorney.

Is There Any Way You Can Get Rid Of A Second Mortgage By Filing Bankruptcy?

The short answer is NO if you file a Chapter 7 bankruptcy unless you are surrendering your house. However, if you want to keep your house, you might be able to strip off the second mortgage if you file a Chapter 13 bankruptcy. It works like this. Under current bankruptcy law there is no mechanism to modify a first mortgage secured by a debtor’s home. However, many homeowners have found relief for their home mortgage woes by filing a Chapter 13 bankruptcy case, which allows a bankruptcy judge to strip away an entirely unsecured second mortgage lien.

For example, let’s say you purchased your home for $400,000, and obtained two mortgage loans. Today your home is worth $300,000 and you owe $305,000 on the first mortgage and $70,000 on the second. During a Chapter 13 bankruptcy case a bankruptcy court can strip away the second mortgage lien on your home because it is entirely unsecured by your home (i.e. the value of your home is not more than the first mortgage debt). The above example is only possible when the second mortgage is not secured at all by the value of the home. If the home is merely under-secured, lien stripping is not authorized. For instance, if the value of the home in our example is $305,001, then the loan is partially secured (by one dollar) and its second mortgage lien cannot be stripped.

By stripping the lien from your home, the second mortgage loan becomes an unsecured, non-mortgage debt. Unsecured debts receive the lowest payment priority during a Chapter 13 bankruptcy and typically receive pennies on the dollar, if anything. If you believe that Chapter 13 bankruptcy lien stripping could benefit you and your family, call me at 339-0222 so that I can advise as to whether you can strip off your second mortgage.

When Your Back Is Against The Wall Because Of Debt, What Can Filing Bankruptcy Do For You?

Have you ever gotten behind on paying a monthly debt and then stopped paying altogether? Did you begin to avoid phone calls from your creditors or the monthly billing statement you get in the mail? Did you ever begin to ignore the debt and pretend it didn’t exist? Have you ever cashed out all or part of a retirement account to catch up on your bills?

Many people who owe money to their creditors can answer “yes” to one or more of these questions. Owing debts that you can’t pay can become overwhelming, stressful, and add unnecessary pressure to your life.  But ignoring the debt can cost you more in the long run.  Pretending that it doesn’t exist or ignoring it doesn’t make it go away. Filing bankruptcy can stop creditors from collecting debts that they are owed.  Below are a few instances of how filing bankruptcy can help.

IRS Tax Levy/Garnishment of wages or bank accounts – Filing bankruptcy can stop money from being involuntarily taken from your paycheck or bank account.  If a creditor sues you for a debt and gets a judgment against you, then they can execute on that judgment and garnishment may occur.  It is better to file bankruptcy once you are sued rather than waiting until you are being garnished simply because you have full access to your money without restrictions.  

Suspended driver’s license – If you are involved in a motor vehicle accident and are determined to be the responsible party who must pay for damages, then you could be sued by a plaintiff insurance company to pay the debt arising from the accident.  You risk your license being suspended if you don’t pay.  If you bankrupt such debt, you can prevent or have the suspension of your license lifted.

Past due utility accounts – If you are on the verge of having your utilities shut off due to non-payment, chances are you may have other debts that you haven’t paid as well.  Filing bankruptcy can prevent a shut off of your utilities.  You may then have continued utility service and start fresh with a zero balance account. 

Does any of this apply to you? It is always best to seek counsel before things get too far out of control.

Is An Inheritance Part Of A Chapter 13 Bankruptcy Estate?

Facts:  Client is in the final few years of a 15% Chapter 13.  He inherits ½ interest in a home worth about $85,000 and $50,000 in stocks.  He only has about $20,000 of total unsecured debt left in his bankruptcy.  His Chapter 13 payments are only $200 per month.  The Trustee filed a motion to increase his plan to 100%.  Result:  Debtor sells stock and pays off his Chapter 13 at 100%.

At first glance, the bankruptcy statues would lead you to believe that any inheritance acquired by the debtor at least 180 days after the filing is the debtor’s property.  Section §541 describes property of the estate and mentions only those inheritances acquired within 180 days after filing a petition – 11USC §541(a)(5)(A). 

However, Section §1306(a)(1) states that property of the estate includes everything listed in §541, and all property acquired by the debtor after the filing of the petition but before the case is closed.  Compare that to Section 1327(b) which states “confirmation of a plan vests all of the property of the estate in the debtor”.  Further, §1327(c) says that property vesting in the debtor is “free and clear of any claim or interest of any creditor provided for in the plan” (11USC §1327(c)). 

Basically, in order to reconcile §1306(a)(1) and §1327(b) and (c), and to capture newly acquired property for the purposes of the bankruptcy estate, Courts rely on §1325(b) –the plan must provide that all of debtor’s “disposable income” be applied to make payments, and then §1329 is used as authority for the Trustee to modify a debtor’s plan after confirmation.  The basic argument is that although property vests within the Debtor pursuant to §1327(b), a windfall will be captured for the creditors on a motion to modify under §1329.  Is an inheritance this late into a Chapter 13 “disposable income” under §1325(b)?  I would think that property excluded by §541, or property otherwise exempted from the estate would not be, but case law seems to result in the opposite analysis. 

A few debtor friendly cases indicate use of the ‘best interest of the creditors’ analysis under 11 USC §1325(a)(4) – basically are the creditors better off than they would be under Chapter 7?  And in Chapter 7, creditors would most likely not be entitled to an inheritance received over 180 days past the filing date.  However, in spite of the Code, Courts have increasingly held that the Chapter 13 estate includes gifts, inheritances, and windfalls that are acquired after the filing.  There are several cases where acquiring property (like lottery winnings – see In re Koonce, 54 BR 643 (Bankr DSC 1985), law suit settlements, insurance settlements, inheritances– see In re Nott, 269 BR 250, 257, 258 (Bankr. MD Fla 2000) and In re Euerle, 70 BR 72 (Bankr DNH 1987), large gifts or loans – see Doane v Appalachian Power Co, 19BR 1007 (Bankr WD Va 1982)) has forced Debtors to pay more to their creditors than originally planned for in the Chapter 13.  In a recent case in the Western District of Kentucky, a Motion by filed the Trustee resulted in a debtor turning over $205,431.43 to complete his plan at 100% because he won the lottery. 

I imagine basic public policy concerns might be behind most of these Court rulings, but isn’t a Chapter 13 supposed to give the debtor a fresh start?  It seems like under the Code, any property acquired after the filing should be property of the debtor giving him complete right to control the property.  And if so, why is it considered disposable income?  Are real property and stocks considered “disposable income”?  Why is a debtor penalized for falling into good fortune after filing a Chapter 13?  After all, this is not property that was committed to funding the plan.  Shouldn’t post-petition acquisitions be used for post-petition obligations?  What if Debtor’s case was converted to Chapter 7?  Then the property would not be part of the estate – he could keep the inheritance and the creditors wouldn’t even get their promised 15%.  Would the conversion be considered in “bad faith” after the Trustee’s motion has already been filed?  Hmmm.

Can I Contribute To My 401K After My 401K Loan Ends While In My Chapter 13 Bankruptcy?

In these times of uncertainty about whether social security will be available in the future, it is more important than ever that contributions to retirement accounts be done.  One Judge in the Eastern District of Kentucky has decided that you can contribute to your 401K plan after your 401K loan ends rather than pay the extra amount into your bankruptcy.  This is a big change in the practice of Chapter 13 bankruptcy in the Eastern District of Kentucky.  In the past the Trustee has required that once a 401K loan is paid off the plan payment would then have to increase by the amount of the monthly 401K loan amount.  For debtors who were not contributing to their 401K because of the loan, this meant that they could not contribute to their 401K during the Chapter 13 plan.  If a debtor is making a payment on a 401K loan and contributing to the 401K at the same time, this will not apply to that debtor.  They will still be required to increase their plan payments when the 401K loan ends.

 Example: Debtor is filing a Chapter 13 plan on January 1, 2010 with payments of $500 per month for 5 years.  He has a 401K loan of $250 per month that ends in December of 2012.  He is not currently contributing to his 401K.  The past practice would require that he increase his payment to the Chapter 13 plan in January of 2013 to $750 per month. Under the new opinion, he would not have to increase his payment to the Chapter 13 plan and instead could apply the $250 per month to a 401K contribution.

 The Trustee has asked that in these cases the debtor be required to notify the Trustee within 10 days of the ending of the 401K loan with proof that the amount was now being contributed to the 401K.  If this does not occur then the debtor may be required to turn over the funds to the Trustee as part of the plan payment.

In Re: Seafort and Schuler   08-22380/08-22417

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