April 20, 2014

Bankruptcy Often the Least Desireable Option to Eliminate Student Loan Debt

elimination of debtI recently received this email from a prospective client (“Jane”) seeking to have her student loans discharged in bankruptcy.  Do you see the problems with this case?

I am permanently disabled due to cognitive decline resulting from a craniotomy to repair one of three aneurysms. I also suffer from back pain, anxiety, depression and panic attacks. In addition to my 2012 brain and gallbladder surgeries, I underwent back surgery in 2011 and two foot surgeries in 2010, and due to complications from my back surgery I have not been able to return to work. . I was very recently approved for disability retirement after 25 years as an employee with the federal government.  I also receive SSI.   I filed a chapter 7 in 2008 and am unsure what my options are in regard to having my student loans forgiven. I am seeking a full discharge.

Let’s start with the most immediate problem – currently, Jane’s eligibility to file bankruptcy.  Under Bankruptcy Code Section 727(a)(8), Jane is not eligible to file Chapter 7 for eight years after previously filing a Chapter 7 1.  Depending on when in 2008 she filed, she would have to wait until at least 2016 before filing a second case. [Read More...]

  1. assuming that the previous Chapter 7 resulted in a discharge

How to Stop a Wage Garnishment in Georgia and Get Your Money Back

judgment creditorAlmost without exception my clients who are subject to wage garnishment in Georgia report that they feel “violated” or “horrified” by discovering that 25% of their take home pay 1 has been seized by a creditor.  I can certainly understand this emotion – especially if you depend on every penny of your paycheck to cover monthly expenses like rent, utilities, car payments and insurance costs.

How Wage Garnishment Happens in Georgia

With limited exceptions, you can only be wage garnished in Georgia if your creditor has first filed a lawsuit and obtained a judgment.  More than a few of my garnishment clients claim that they do not remember being sued – this is an issue for another blog post but anytime you find out that a sheriff’s deputy or process server is looking for you, it is time to take action because this means that you have been sued. [Read More...]

  1. Click here to review the details about wage garnishment in Georgia.

Why Must my Chapter 13 Include an Employer Payroll Deduction?

employer deduction order in chapter 13Have you made the decision to file a Chapter 13 bankruptcy?  If so, you should understand that Chapter 13 serves as a bankruptcy court approved and supervised payment plan.  The court approved and supervised part is important because the bankruptcy court will protect you from creditor actions as long as you stay current with your plan.  By contrast, non-court supervised payment plans offer no legal protection – even if you pay every month on time payment plans that are not Chapter 13 will not stop lawsuits, wage garnishments, bank levies, vehicle repossessions or foreclosures. [Read More...]

I Never Want to See You Again….

avoid future debt problemsI enjoy meeting with my clients to discuss solutions to debt problems.  And over the years I have met some really pleasant and interesting people.  That being said, I hope that when your bankruptcy case is over, I will never see you again – at least for another bankruptcy filing.

If you win the lottery and need legal help setting up a charitable foundation or a corporate structure to organize your investments, please call me.   If you know someone who needs to file an injury claim, I can help you there too.  But I really hope that this bankruptcy case will be your last.

Here are several suggestions that will absolutely help you avoid the need to file another bankruptcy:

  • set up online access to your credit accounts – you will be able to schedule payment reminders, fraud alerts and other control reminders.
  • set up automatic payments from your checking account to cover minimum payments – most of the time your minimum payment will be $25 or $35.   When this is paid automatically, you avoid late charges and late payment downgrades to your credit score.
  • pay off your entire balance each month – if you find yourself running a balance, this means that you are spending more than you are earning.  This should be a warning sign.   Stop spending until you get your balance down to zero.  Spending more than you earn will lead you back to…..bankruptcy!
  • never, ever, ever, ever (apologies to Taylor Swift) co-sign a loan for someone else – nothing good ever arises from co-signing for someone else – your brother, your sister, your kid, your mom.  Just say “no.”
  • write out a budget – if you can use a spreadsheet, do so.  When you see your income and expenses in black and white on paper, you will have a much clearer idea where your money goes
  • set aside funds for emergencies – you are going to have to replace tires, your kid will break a tooth, you will need to make an emergency plane trip.   Start setting aside $50, $100, or whatever you can in a savings account.  Try to build up 3 or 4 months equivalent to your monthly take home pay.  Forget that this money exists for any purpose other than a true emergency.
  • start planning for retirement.  Create an IRA account.  Contribute to your company’s 401(k) or pension.  Besides bankruptcy I represent people in Social Security disability claims and I will advise you not to rely on Social Security to pay for your retirement

There is an old saying that if you fail to plan, you are planning to fail and this is especially true when it comes to personal finances.  The difference between a comfortable and manageable life and a stressful,  unpleasant life can boil down to $200 or $300 per month.  My hope for all of us as we enter 2014 is to live below our means and to prepare for the unexpected.

Debt Consolidation Not Always a Good Idea

 

exchange secured debt for unsecured debt

The New York Times recently ran an article in its business section entitled The Risk of Transferring a Car Loan to a Credit Card.  The Times reported noted that several credit card issuers now promote programs in which you can transfer the outstanding balance on your car loan to a credit card.

 

At first blush, this seems like an interesting concept.  Car loans are secured debts, while credit cards are unsecured loans.  If you default on a car loan, you run the risk of repossession, whereas a credit card issuer would have to sue you to collect a default, thereby giving you months to refinance or find additional money.

Further, some of the credit card lenders are offering teaser rates such as zero interest for up to 18 months.

Credit card issuers are desperate for new business.  The great credit crunch of 2008 and new federal consumer protection laws have resulted in a significant decline in consumer credit.  Credit card lending is an extremely profitable business but it depends on numbers – specifically, it depends on borrowers who pay, but who sometimes pay late, thereby racking up late fees and interest charges.

And these late fees and interest charges are exactly why trading your car loan for a credit card balance may not be such a good idea.

If you are extremely disciplined and can pay off the transferred balance in full when interest rates are zero or very low, you could save hundreds or thousands of dollars of interest charges.

However, credit card agreements usually contain “gotcha” provisions that jack up interest rates if you are late, along with hefty late fee charges.  A $10,000 loan at zero percent is one thing, but a $10,000 loan with a 25% interest rate is something else entirely.  You could find yourself making minimum payments for years and never see the principal balance go down.

Further, the psychology of credit card debt works against you.  When you have a car loan, you know that if you start missing payments, you car or truck is going to be repossessed.   Repossession is costly and embarrassing and if you are facing a cash flow shortfall you are likely to do what is necessary to protect your transportation.

By contrast, credit card debt does not have the same urgency.  Since you have the option to pay a minimum payment, and you know that losing the vehicle is months away, it is far more likely that you will end up with a large, high interest credit card debt.

I have not seen these debt transfers yet in a bankruptcy context but one of these transfers would be considered recent use of unsecured debt and could be deemed non-dischargeable if you filed bankruptcy within a few months after making the transfer.

My sense is that this type of transfer deal could make sense for a person with excellent credit, steady income and financial discipline.  Such a person could also, presumably, pay off his car loan early anyway, which makes the credit card transfer option less likely anyway.  My gut tells me that there are no free lunches in life and this looks like a “free lunch” proposal.  So I say “stay away.”

How Does Foreclosure Law Work in Georgia

 

non-judicial foreclosure + GeorgiaThe Atlanta newspaper recently published an article reporting that over 40% of homes in the metro Atlanta area are “underwater,” meaning that they are worth less than what is owed.  In such a climate, homeowners faced with years of payments on real estate with no chance for even a break even sale, much less profit are deciding to simply walk away.

Abandoned homes, of course, cause neighborhood values to decline even more, continuing the downward cycle.   Presumably, at some point property values will level off but it may take years, if ever, for values to rise to pre-2008 levels.

In years past, mortgage lenders would act quickly to secure their rights by initiating foreclosure proceedings against homeowners who defaulted on their loans.   We have seen far less foreclosure action in the metro Atlanta area over the past few years because lenders are worried about potential liability arising from procedural irregularities (the “robo-signing” problems) and because the federal government has put a great deal of pressure on the big mortgage companies not to foreclosure during a bad recession.

Because foreclosure activity has been restricted, real estate markets in large metro areas like Atlanta have stagnated.   Thousands of homes remain in limbo – payments are not being made but foreclosures are not being processed.  Towards the end of 2012 and on-going, however, we are starting to see an uptick in foreclosure activity.

Demand for housing is increasing, especially for homes in the $75,000 to $150,000 range and lenders want to clear out their inventory.   Foreclosure numbers are trending upwards and will likely to continue to do so.  As such, it may be helpful to you to  understand a bit more about how foreclosure law in Georgia works.

Foreclosure law in Georgia is governed under Georgia Code Section44 Title 14. These laws are very specific about notifications to borrowers, deficiency judgments and rights of redemption. 1

No Requirement for Court Involvement in Georgia

Georgia is considered a title theory state, which means that the mortgage lender actually holds the title to a property until such time as the borrower has paid his debt in full.  Mortgages in Georgia almost always contain a power of attorney clause which says that in the event of default, the borrower (you) authorizes the lender to sell the property at public sale in the event of default.  Again, no court involvement is required but lenders are required to provide notification of the foreclosure sale to the borrower.

There are two steps required for notification:

First, the lender must send you a written demand notice outlining all past due amounts allowing the borrower 10 days to pay in full. If the borrower does make this payment, the lender cannot assess any foreclosure fees.

The second step is a foreclosure schedule notification which must be published for at least four consecutive weeks in the local newspaper. In addition, the borrower must be re-notified within 15 days of the sale via certified mail.

Once the notification requirements are met, a foreclosure sale must only take place on the first Tuesday of the month at the courthouse steps of the county where the property is located.  If you were to visit your local county courthouse on foreclosure Tuesday you will see mortgage company lawyers auctioning off property to the general public.

In many foreclosure sales, however, the only bidder for the property is the foreclosing mortgage company.  This is because a third party purchaser or investor would have to satisfy the outstanding first mortgage before taking title.   If the first mortgage debt on the property is greater than the value, a buyer would have to pay more than the property is worth to take title – obviously no one will do this, so in underwater mortgages, the lender “bids in” an offer equal to the outstanding principal balance.

Deficiency Claims

If the lender “buys” the property for the outstanding first mortgage balance, that lender can pursue a deficiency claim against the borrower.  However, under Georgia law (O.C.G.A. Section 44-14-161(a) the only way a lender can pursue a deficiency judgment is to file a lawsuit in Superior Court asking a judge to confirm the deficiency.  This “confirmation” basically means that the superior court judge agrees that the lender’s assertion about fair market value is legitimate and that the lender’s calculations about its outstanding balance are accurate.

A confirmation judgment is a very serious problem for the borrower/former homeowner.  Once this judgment is issued, the former homeowner’s assets area at risk, his bank account is subject to levy and his paycheck is subject to wage garnishment.

If have received a notice of foreclosure out any deficiency claim along with the rest of your unsecured debt., it would be wise to talk to a lawyer about your options.  Ginsberg Law Offices is a bankruptcy law firm and we can counsel you about Chapter 13 - which you could use to stop the foreclosure, and Chapter 7 – which you could use to wipe.

We can also answer your questions about timing and non-bankruptcy options.   We can be reached at 770-393-4985 and we are standing by to answer your questions.

  1. The Georgia Attorney General’s web site contains an easy to read summary setting out the rules for foreclosure in Georgia.  You can visit the Attorney General’s site here.

Your Decision to File Bankruptcy Should Reflect Business Considerations Only

bankruptcy filing considerationsJust over three years ago, I received a phone call from an old acquaintance who seemed extremely stressed out.   This gentleman had previously been in sales and I had done business with him over 20 years ago.   During our dealings we had discovered that we shared several mutual friends and over the years I had run into him several times on social occasions.

Now, he needed advice about some significant debt problems.  His small business was failing and he owed tens of thousands of dollars to multiple creditors.   After reviewing his paperwork I suggested that Chapter 7 would work and should be considered.   My friend agreed but did not want to file because he felt very guilty about not paying back his debts.

For the next two and a half years, I would talk to my old friend on the phone about his debt problems.   He was sued by several creditors but because he was unemployed there were no wages to garnish.   He had no bank account so the judgments just sat there waiting for his financial situation to improve.

Finally, about two months ago, my friend called to say that he was ready to file.   It turned out that he had a new job and his prospects were improving.  I ran the means test numbers and….determined that he no longer qualified for Chapter 7 because he had too much disposable income.

My friend’s situation is, unfortunately, all too common.   He did not want to file bankruptcy and avoided it successfully for over two years.   His concerns were somewhat vaguely stated misgivings as opposed to a firm moral conviction.  When his financial situation changed for the better, it was too late.   Now, he is faced with the prospect of losing 25% of his take home pay to a wage garnishment and, given that he owes well over $200,000, he’ll be paying for a long time.

I would submit to you that my friend made a poor financial decision.   I also do not think that he made a particularly good moral decision as he never articulated a thought out moral objection to filing bankruptcy (a fact he has acknowledged to me).   From a purely business standpoint, my friend has subjected himself and his family to a great deal of hardship.

Everyone has heard of Donald Trump.   A business tycoon, reality TV star and sometimes politician, the Donald has filed bankruptcy on corporate debt dozens of times over the past few years.   Mr. Trump structured his business deals to avoid personal liability and I’m sure that the interest rates he paid on borrowed funds reflected that.  I am equally certain that for every bad deal, Trump was successful on ten others and paid back his loans in full.

Trump recognizes that bankruptcy functions as a financial tool.   The banks that loaned his corporations money also understood that not every deal works and that there is a risk of default.   Banks are in the business of evaluating risk and charging fees and interest to reflect that risk.

When you are in financial distress you should make your decision about whether or not to file bankruptcy in the context of a business decision.  When your creditor made the decision to loan you money that decision was based on business calculations and you should keep the transaction in this same arena.  If you allow personal feelings of guilt to creep into your decision making you will almost certainly not make the best business decision for yourself.

As a bankruptcy attorney I help my clients evaluate their bankruptcy options as a good or not so good business choice.   My friend allowed non-business considerations to influence his decision making and he will pay the consequences.   Don’t you make the same mistake.

 

Middle Class Debtors Often Victims of Falsehoods and Misrepresentations

Man shoutingLast week, a former client called and tried to refer me a new Chapter 13 client who was facing foreclosure.  While I appreciated the referral, I could not take the case because the potential client was calling from out of town at 5pm on the Monday before his house was schedule to be sold at a foreclosure sale on the courthouse steps.  The potential client did not have a credit counseling certificate and because he had filed before twice, the automatic stay would not go into effect even if he did file.

During our conversation, the potential client told me that he had been negotiating with his mortgage company and that until that Friday, he was led to believe that a modification and restructuring of his loan was likely.

I hear the same story from vehicle owners who have fallen behind by two or more payments but who are talking to the customer service reps at their lenders.  I remember one case involving a woman who had never had any credit problems before but was struggling to pay her car note because of a job layoff. [Read More...]

How do I Know if Filing Bankruptcy is the Right Decision for Me?

If you are facing a looming debt crisis, the idea of filing for bankruptcy may have crossed your mind.   For many of our clients, it can be very difficult to take that first step of calling or emailing a bankruptcy lawyer.

In this Google “Hangout” video, Atlanta bankruptcy attorneys Jonathan Ginsberg and Susan Blum discuss a threshold question of their bankruptcy practice – how does an honest, hardworking family know that it is time to call a bankruptcy lawyer.

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You can read more about filing bankruptcy in the Atlanta area, please visit our web site.

Why Some People Face More Bill Collection Harassment than Others

bill collection harassmentWere you aware that credit reporting agencies (Equifax, Experian and Trans Union) have assigned you a score which reflects the likelihood that you will pay a delinquent bill?  This collection score 1 helps bill collectors decide where to focus their collection efforts.

Credit reporting agencies also offer “bankruptcy risk scores” which offer credit grantors a numerical rating score to determine whether a customer or potential customer is more or less likely to file bankruptcy.

Financial data that may be buried in credit applications or public records can now be analyzed instantly by computer and reduced to a simple score 2 [Read More...]

  1. The collection score product is described in more detail here, in a brochure published by the Fair Isaac Company, the organization that also provides credit scoring algorithms for the credit reporting agencies.
  2. My professional colleague, Long Island, New York bankruptcy lawyer Craig Robins writes more about bill collection and bankruptcy in his excellent Long Island Bankruptcyblog.  Thanks to Craig for his excellent post about automated bill collection systems, which you can read here.

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