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.

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.

Auto Redemption in Chapter 7 Bankruptcy

During a Chapter 7 bankruptcy all unsecured debts are discharged.  Debts that are secured by collateral (e.g. car loans) must be paid or the collateral must be returned to the lender.  Occasionally an individual considering Chapter 7 bankruptcy will own a vehicle that is worth less than what is owed.  This situation is often referred to as “upside down” and usually involves a late model vehicle that has depreciated faster than the person has paid on the loan.  It doesn’t make any sense to pay for something that is “upside down,” but often an individual needs to keep the vehicle for transportation to work and for family use. 

Fortunately, a provision of the Chapter 7 bankruptcy code allows an individual to keep a vehicle and pay only its current market value.  This process is called “redemption.”  During a redemption the value of the vehicle is determined (either by agreement between the debtor and creditor or by the bankruptcy judge after a hearing) and a court order is issued directing the creditor to accept a sum from the debtor in exchange for a release of its lien.  In plain terms the lender is paid a lump sum and the lien on the vehicle is released.  For example, a debtor that owes $15,000 on an auto that is worth $10,000 will only pay $10,000. 

Unfortunately, the payment must be made in a one-time lump sum to the lender at the time of the redemption order.  If the debtor is unable to pay for the vehicle, there are finance companies that make redemption loans for debtors in bankruptcy.  Before making a redemption loan these finance companies require a loan application and certain assurances of repayment.  The interest rate can be high for a redemption loan, however the resulting monthly payment is often lower than the original payment.  It is important to carefully consider all of the advantages and disadvantages before making a decision to redeem a vehicle: 

Advantages of a redemption loan:

• Retention of the vehicle;
• Vehicle is no longer “upside down;”
• The creditor cannot repossess the vehicle;
• Usually results in a lower monthly payment. 

Disadvantages of a redemption loan:

• High interest rate. 

Redemption is not the only option for keeping a vehicle after a bankruptcy.  A skilled bankruptcy attorney can explain all of your options and help you obtain the best deal for your family.

Lien Stripping An Auto Loan In Chapter 13

Chapter 13 of the Bankruptcy Code contains many useful provisions that are not available to Chapter 7 debtors.  One of the most useful is the ability to cram-down an over-secured auto loan to the actual market value of the vehicle, and pay the auto loan over the duration of the Chapter 13 bankruptcy plan. 

The Bankruptcy Code recognizes that a lien is only secured to the extent of the value of the property.  If the amount of the lien is more than the value of the property, the debt is separated into two parts: secured and unsecured.  During a Chapter 13, the amount of the loan that exceeds the value of the vehicle can be stripped away. 

For instance, if your vehicle is worth $10,000, but the secured auto loan balance is $13,000, the bankruptcy will separate the auto loan into a secured debt of $10,000 and an unsecured debt of $3,000.  The secured portion must be paid in full during the Chapter 13 case, and the unsecured $3,000 amount will be paid along with other unsecured creditors (usually pennies on the dollar, if anything). 

Another potential benefit to the Chapter 13 debtor is that the contract terms can be modified during the Chapter 13 repayment period.  In some cases the repayment period can be lengthened or contract interest rate can be lowered by the bankruptcy court.  Changing the contractual terms can make a significant difference in the ability of the debtor to repay the debt. 

If you are struggling with debts you cannot pay and own a vehicle that is worth less than you owe, you may be eligible to reduce your principle and your monthly payment on your vehicle loan.  Speak with an experienced bankruptcy attorney and discuss how a Chapter 13 bankruptcy can help you reduce your debt and make your finances work for you and your family.

If Debtor Dies During Bankruptcy

When a debtor dies during a pending bankruptcy case, the case may or may not be dismissed depending on a few factors.  The first factor is the bankruptcy chapter that controls the case.  For a Chapter 7 case, the death of the debtor does not terminate the bankruptcy.  For an individual bankruptcy case filed under Chapters 11, 12, or 13, the death of the debtor will affect the bankruptcy case, but does not necessarily terminate it. 

During a Chapter 7 bankruptcy the court will continue the bankruptcy proceedings despite the death of the debtor.  The reasoning is that all of the debtor’s assets, exemptions, and debts are determined at the time the case was filed, and the trustee is now in charge of liquidating any non-exempt assets.  The participation of a debtor is not necessary.  Bankruptcy Rule 1016 directs that “the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.” 

Death of the debtor during a Chapter 11, 12 or 13 case poses different complications.  Bankruptcy Rule 1016 states that “the case may be dismissed; or if further administration is possible and in the best interest of the parties, the case may proceed and be concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.”  While dismissal of the bankruptcy is common in Chapter 11, 12, or 13 cases, the trustee may seek to continue the case per Rule 1016, the case could be converted to a Chapter 7, or the executor or administrator of the decedent’s estate may petition the bankruptcy court for a hardship discharge. 

Since the bankruptcy discharge will only prohibit collection against the debtor personally, the question becomes, how will the debtor’s discharge affect the heirs to the estate?  In most cases, an unsecured debt that is not a joint obligation will not pass to the decedent’s heirs.  However, a creditor could obtain a judgment against the deceased debtor’s estate and attempt to collect from any available property.  Consequently, the discharge is important to provide peace of mind and avoid any potential debt litigation or collection action. 

The federal bankruptcy laws are very broad in scope and provide for benefits even under unusual circumstances, such as the death of a bankruptcy debtor.  If you are struggling with debt you cannot afford to pay, speak with an experienced attorney and discover how the bankruptcy laws can help.

When A Landlord Files Bankruptcy

When a landlord files a bankruptcy case, both the landlord and the tenant have a great deal of anxiety.  How will the bankruptcy affect the tenancy?  Does the tenant continue to pay rent?  Is the landlord still obligated for repairs?  Fortunately the Bankruptcy Code contains specific provisions for dealing with the rights of both the landlord and the tenant during a bankruptcy.  

The Bankruptcy Code seeks to balance the contractual rights of the tenant against the interest of the bankrupt landlord in discharging overwhelming financial obligations.  Section 365 of the Bankruptcy Code allows a bankrupt landlord to either assume or reject a lease.  In the majority of the cases the landlord accepts the lease and the tenancy continues with the mutual promises and obligations of the lease contract remaining fully enforceable. 

If the landlord rejects the lease, then the tenant may treat the lease as terminated and “walk away” without further obligation.  Alternatively, the tenant may choose to stay, however the landlord no longer has any obligation under the lease contract.  The tenant treats the lease as breached and may offset any damages resulting from the breach from rent payments.  If the damages incurred exceed the amount of rents due under the contract, the tenant may be able to submit a proof of claim and participate in the landlord’s bankruptcy as a creditor. 

To make matters more complicated, section 363 of the Bankruptcy Code permits a landlord to sell the rental property “free and clear” of any contractual interest, such as a tenant’s lease.  However, the Bankruptcy Code also enables the tenant to ask the bankruptcy court to “prohibit or condition” any sale to protect the tenant’s interest. 

Sorting out the legal rights of a landlord and tenant can become highly complex when the landlord files bankruptcy.  If you are a landlord seeking to file bankruptcy, or the tenant of a bankrupt landlord, discuss your case with an experienced bankruptcy attorney.  The federal bankruptcy laws are flexible on this subject and a resolution that is mutually beneficial can be reached.  Make sure your legal interests are protected by retaining qualified counsel.

Inheritance and Bankruptcy

When a bankruptcy debtor inherits money from someone who dies within 180 days of the date the debtor filed bankruptcy that money becomes part of the debtor’s bankruptcy estate.  The inherited money that becomes part of the bankruptcy estate is used to pay your creditors.  This is true even if you have received a discharge and your Chapter 7 bankruptcy case has closed.  

For instance, if you file a Chapter 7 bankruptcy on April 1, and your great aunt dies on September 28 (within 180 days of the bankruptcy filing date), any money you receive from your great aunt’s estate must be turned over to the bankruptcy trustee.  It does not matter when you receive the money or when your case was discharged.  You might receive the inheritance years later, and it must be turned over to the bankruptcy trustee for payment to creditors.  You may be charged with bankruptcy fraud (a federal crime) if you fail to inform the trustee of your inheritance or turn over the money. 

If the trustee receives inherited money, your case will be reopened and a bankruptcy estate is formed.  Notices to creditors are sent and the trustee will distribute the funds to creditors.  In some cases you will be able to keep some of the money, and in other cases some of the funds may be returned.  

Inherited property is treated the same as cash.  If you receive a car or a family heirloom, the property must be turned over to the trustee.  In some cases you may be able to exempt inherited property or the trustee may consider the value of the inheritance too small or burdensome to liquidate and distribute. 

If you are considering bankruptcy and are aware of a significant chance of someone leaving you inheritance money, speak with your attorney.  There are options to avoid turnover including rewriting the will to cut you out, or setting up a spendthrift trust.  A spendthrift trust cannot be reached by creditors.  Consult with an attorney to properly create a spendthrift trust or rewrite a will.  There is nothing illegal or immoral about estate planning and your loved one may prefer leaving money to you rather than your creditors.

Bankruptcy Fraud is a Federal Crime

Bankruptcy fraud is a federal felony that carries a sentence of up to five years in prison and/or a fine of up to $250,000. Some examples of bankruptcy fraud include concealing assets, intentionally filing false or incomplete forms, and providing false information while under oath. Often bankruptcy fraud is accompanied by other serious offenses like identity theft, mortgage fraud, tax fraud, or money laundering.

Bankruptcy fraud can become very complex and may involve the IRS or FBI. The penalty may involve many years of incarceration when coupled with other criminal charges. Other cases are relatively simple like a recent case in Pennsylvania:

A husband and wife were each sentenced to fifteen days in prison by U.S. Magistrate Judge J. Andrew Smyser in the Middle District of Pennsylvania after finding contempt of court for untruthful conduct in their joint bankruptcy case.

According to a press release issued by the U.S. Attorney’s Office, Tammy Beecher and Wyatt Beecher filed a chapter 7 bankruptcy petition in May 2007. The filing stated that the Tammy Beecher had no income and that neither debtor operated a business within the previous six years. In fact, the Beechers owned a family business, “Fun 4 Kids Entertainment.” Only after the Beecher’s were presented with a coupon for $5 off any party, and reminded by the chapter 7 trustee that they signed the bankruptcy petition under penalty of perjury, did the Beecher’s admit that they owned and operated the business.

Bankruptcy fraud can be reported by ex-spouses, banks, and even your neighbors. The Executive Office of the United States Trustees (EOUST) recently launched an internet site that will allow the public to report suspected instances of bankruptcy fraud to the EOUST at http://www.usdoj.gov/ust/eo/fraud/index.htm.

The moral here is: tell your bankruptcv attorney everything. Your attorney can work with you to protect your assets and avoid criminal charges, but only if you tell all. The information you share with your attorney is shielded by attorney-client privilege, a powerful and time-honored protection. While your attorney cannot counsel or assist you in an illegal act, there are many legal options available in every case. If you are in over your head, speak with an attorney and understand your legal options.

Bad Credit Can Cost Your Job

The effects of debt can affect your credit, your health, and even your job.  Calls to your work from debt collectors can interfere with your job performance.  Requesting payday advances from your employer can cost you a raise or promotion.  In some extreme cases your debt problem can even get you fired.  

The Cleveland Plain Dealer recently reported that 39 Defense Finance and Accounting Service employees will lose their jobs as a result of their bad credit ratings.  In each case the employee mismanaged finances and failed to meet standards the government requires of employees who have access to sensitive information like Social Security numbers.  While you may not have a government job that requires a security clearance, if your debt issues are affecting your job, it is time to get help. 

Government and many private employers hold the opinion that excessive indebtedness increases the temptation to commit unethical or illegal acts in order to obtain funds to pay off debts.  Private employers that are especially sensitive to their employees’ debt include banks and other financial institutions, retail stores, and any business where the employee might handle cash on a routine basis. 

The federal bankruptcy laws can help you solve your debt problem without losing your job.  Section 525 of the Bankruptcy Code prohibits a government or private employer from terminating or discriminating against an employee who files bankruptcy.  The federal law clearly forbids an employer from firing you on account of your bankruptcy. 

Many employers view bankruptcy as a resolution of a debt problem through a government approved process, which may positively reflect on the employee as an indication of financial responsibility.  Eliminating your debts through bankruptcy may also decrease financial pressures and lessen the risk of unethical or illegal acts. 

If your debts are affecting your job, consult with a bankruptcy attorney and explore your options.  Bankruptcy is a federally guaranteed legal process that helps individuals recover from overwhelming financial hardship.  Protect yourself and your job by getting the help and relief you need.

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