As you may know, last year Congress passed a law called the Credit Card Accountability Responsibility and Disclosure Act of 2009. This law, nicknamed the CARD Act of 2009, was designed to regulate a variety of unpopular credit card tactics, such as interest rate increases without notice, inactivity fees and unfair interest calculations.
According to credit card industry analysts, the CARD Act of 2009 will eliminate over $390 million in fees for credit card issuers. Not surprisingly, the credit card companies do not intend to walk away from this fee income. For every fee and penalty eliminated by the CARD Act, credit card issuers are finding replacements. For example the annual fee for many cards has been increased, sometimes dramatically. Card issuers are also sending corporate card applications (called "professional cards") to consumers. Corporate cards are not included in the CARD Act.
The Wall Street Journal recently ran a story explaining how the credit card companies intends to recoup their lost fee income. The bottom line: the CARD Act of 2009 will eliminate some consumer-unfriendly tactics used by the credit card companies, but it will trigger an equal number of new consumer-unfriendly tactics. Caveat Emptor.
Filed under Consumer protection by 
I recently received an email from a blog reader asking about his obligations to his mortgage company when he does not reaffirm:
I have read your blog and you are very through so I write you with hopes that you might answer this question for me. I file Chapter 7 in 08, and did not reaffirm my loan. I am still living in the house and did make some payments. However, i have not for the last 8 months. It is my understanding that I must sign a document to reaffirm and that continuing payment in itself is not a reaffirmation…or? Well it gets a little more complicated. My house is valued at $410,000 and the bank has offered me a deal that is going to be hard to refuse. They have agreed to let me do a short re-fi in the amount of 180k. If I agree to that is that in itself a reaffirmation?
Here is my response: in most cases, when you take out a mortgage loan, you are signing two different types of agreements. The first type is a promissory note whereby you personally agree to make the payments. The second type of obligation creates a property lien, meaning that you, as the owner of the property, pledges that property as collateral for the loan.
When you file a Chapter 7 and receive your discharge, your personal obligations are extinguished. However, a Chapter 7 discharge does not eliminate the mortgage company's lien against your property. If you "reaffirm" your mortgage, you are actually reaffirming the promissory note and your personal obligations to pay.
For years, many bankruptcy attorneys advised their clients to avoid signing reaffirmation agreements for mortgages, car loans or any other secured debt. The reasoning – even without a personal "guarantee" lenders are protected by the property lien. If the lender is willing to accept payments (the so-called "stay and pay" option), the now discharged debtor keeps his property, keeps making payment, but does not have personal liability on the note.More on Can You be Sued for Non-payment of your Mortgage if You Do Not Reaffirm?
Last month, I met several times with a potential Chapter 13 client who was facing a mortgage foreclosure. Over the course of the past few months he has been juggling his creditors and bills trying to stay afloat and during that time he fell behind to his mortgage company by more than four months, and found himself in the foreclosure process.
This individual earns over $100,000 annually, but, unfortunately he used to earn more than double this amount. His problem was not the mortgage, but his other bills, including a very high car payment and a mortgage payment arising from a failing real estate investment.
Not surprisingly the foreclosure notice got his attention. He immediately took action by calling me to discuss Chapter 13 bankruptcy and by contacting his mortgage company to discuss repayment options. By the Wednesday prior to the pending foreclosure sale scheduled for the following Tuesday, my client had provided me with enough information so that I could prepare a rough draft of a Chapter 13. In this case, by the way, my client and I entered into an agreement whereby he paid me around $300 to open a file and to start entering information into my petition preparation program.
On the pre-foreclosure Wednesday he called to say that after a lot of discussion he was expecting a decision the next day from his mortgage company but that if he did not hear from them by mid-day on Thursday, we would be proceeding with the Chapter 13. A few hours later he called back to say that his mortgage company had agreed to postpone the foreclosure until September and that the Chapter 13 was on hold for now.More on Can You Rely on a Verbal Promise that Your Foreclosure Will be Delayed?
Filed under Alternatives to bankruptcy, Debt negotiation, Foreclosure issues by
The United States Supreme Court rarely accepts cases that affect consumer bankruptcy debtors. Recently, however, the Court considered an issue that potentially impacts all debtors – the treatment of exemptions.
The term "exemptions" refers to property you own that is protected from the reach of the trustee or creditors. For example, every state provides for exemptions that include your clothes, a certain amount of household goods, a certain amount of equity your car, and a certain amount of equity in your home. Georgia has fairly stingy exemptions – you can read the Georgia exemption law by clicking on the link.
When property is declared as exempt, it does not count for purposes of counting up your assets. If you own property that exceeds the exemption available to you, that property could be seized and sold by a Chapter 7 trustee or it could force you to pay back a higher percentage of your unsecured debt in a Chapter 13. Exemption planning and exemption calculation are important functions for consumer bankruptcy lawyers.
The Supreme Court decision in Schwab v. Reilly requires debtors and their attorneys to be more exact when identifying exemptions, and applies to cases filed in Georgia and everywhere else in the United States. The article that follows is a guest post written for this blog by Brandon Moreno, Vice President of the Utah Bankruptcy Hotline. The Utah Bankruptcy Hotline maintains a network of unaffiliated Utah bankruptcy lawyers who provide debt relief and bankruptcy counsel to consumers in Utah.
On June 17, in Schwab v. Reilly, the U.S. Supreme Court issued a decision that limits the extent to which individuals filing under Chapter 7 can exempt their property from the bankruptcy estate. The case arose out of the interplay between two important rules. One imposes dollar-value limits on the extent to which a debtor can exempt certain types of property. The other requires interested parties to object to a debtor's claimed exemptions within 30 days after the conclusion of the creditors' meeting, or else lose the ability to retain any of that property for the bankruptcy estate.
More on Ruling by Supreme Court Impacts Bankruptcy Exemptions in Georgia
Filed under Chapter 7 issues, Protected property issues by
Last October, I wrote a post on this blog about bankruptcy fraud, and pointed out that everything included in a bankruptcy filing is subject to scrutiny by the office of the United States Trustee, which is an arm of the United States Department of Justice. In other words, false statements on a bankruptcy petition could land a debtor in hot water – dismissal of the bankruptcy case, fines and even prison.
Because the bankruptcy process can seem informal, it can be easy to forget that a Chapter 7 or Chapter 13 filing is made up of documents filed in a federal district court and subject to investigation by the F.B.I.
Attorney Gini Nelson, a New Mexico bankruptcy lawyer, recently published a post about bankruptcy fraud in the Bankruptcy Law Network blog. Gini's post includes a link to the IRS.gov site containing examples of bankruptcy fraud investigations. I found the IRS.gov link especially interesting in that one can get a sense of the type of fraud that bankruptcy debtors have attempted and the level of fraudulent activity that generated prosecution. Given the highly interconnected and electronic public record access that is available to bankruptcy trustees as well as government investigators I can't believe any of these folks believed that they would not be caught.
Filed under Chapter 13 issues, Chapter 7 issues, Fraudulent transfers by
On June 7, 2010, the United States Supreme Court released its decision in the case of Hamilton, Chapter 13 Trustee v. Lanning. The Supreme Court rarely hears argument in consumer bankruptcy cases so the Lanning decision is big news to consumer bankruptcy lawyers.
The issue in Lanning is one that has troubled bankruptcy lawyers since 2005, when the "means test" was added to the Bankruptcy Code. The means test functions as a test – do you have the "means" or disposable income to fund a Chapter 13 repayment plan? If the means test shows that you do not have sufficient disposable income to make a Chapter 13 work, then you qualify for Chapter 7.
As one of the assistant United States trustees once told me – the purpose of the means test is to disqualify as many people as possible from Chapter 7, and to force them into Chapter 13.
In practice, the means test does not work very well in predicting who can make a Chapter 13 work. One of the biggest complaints has to do with the mechanical nature of means testing. To run a means test, I have to gather pay stubs from the past 6 months. I then create a monthly average, which represents available income. Next I prepare a means test budget, but I do not use actual expense amounts. Instead, the means test tells me how much my clients are allowed to spend for food, medicine, utilities, etc. And where do these budget numbers come from? Means test numbers are based on IRS budgets used in delinquent tax repayment plans. In other words, the means test budget allocations are not especially generous.More on Supreme Court Issues Important Ruling About Chapter 13
Filed under Chapter 13 issues, Means Test issues, Trustee objections in Chapter 13 by
Not surprisingly, I get calls from small business owners who are contemplating personal bankruptcy when their businesses fail. There are many issues that arise in these types of cases but I would like to focus on one problem that, more than any other, can force the business owner into bankruptcy.
Generally when the owner of a small business leases retail space, the landlord will demand a personal guarantee. This means, of course, that in the event of a default, the business (which may be a corporation or LLC) faces liability and the business owner personally faces liability.
Given this reality, every small business owner should seek counsel to discussion asset protection options before starting his business, but that is a topic for another day.
If the business fails you might be surprised to learn that the landlord does not necessarily have to take any steps to "mitigate damages" by releasing the retail space. Instead, the landlord can demand payment for the full value of the lease from the business owner personally. If the business owner has a house with $100,000 of equity, that equity is therefore at risk, and given that Georgia's bankruptcy exemption statute is stingy ($10,000 for an individual or $20,000 for a married couple filing jointly), bankruptcy may not offer much protection.More on Does Your Landlord have any Obligations to Mitigate Damages if You Breach Your Lease?
Filed under General consumer bankruptcy info, Georgia Bankruptcy, Protected property issues by
No one starts his or her adult life expecting to file for bankruptcy. Yet every week, I meet with men and women in their 30's, 40's, 50's, 60's and older who have become insolvent and need relief under the United States Bankruptcy Code. I often hear the lament "I never in a million years thought I'd be sitting in a bankruptcy lawyer's office." I usually respond by reassuring my clients that bankruptcy is a legitimate and legal financial tool that can offer hardworking families a kind of "do over" when unexpected circumstances finances to go south.
If this sounds familiar to you and you are struggling with the idea of finding anything positive from your bankruptcy experience, I would encourage you to take a few minutes to think about how and why you ended up in a bankruptcy lawyer's office. I would also encourage you to consider what you can do differently in the future to make your bankruptcy a one time event.
I also think it is important to recognize that you are by no means alone in facing unsettled financial times. You may have seen lists containing the names of famous historical figures who filed bankruptcy (like Walt Disney, Larry King, even Wolfgang Mozart). Now think about the tremendous change that we are all experiencing now. I recently ran across a blog called 24/7 Wall Street that issues a yearly list of companies or brands it expects to disappear in the next year. This year's list includes:
- Readers Digest magazine
- Blockbuster Video Stores
- T-Mobile cell phone carrier
- Merrill Lynch stockbrokers
- Radio Shack
- Zales Jewelers
- Kia Motors
Now, I fully expect some of these brands to survive, but I am also certain that one or more may go away. More on The Only Thing Certain is Change
Filed under General consumer bankruptcy info by
With the news full of foreclosure statistics showing huge increases along with stories of self-righteous Members of Congress asserting their heartfelt concern for "struggling homeowners" little attention is paid to the question of whether a homeowner ought to fight to save his home. My friend and colleague, Charleston bankruptcy lawyer Russ DeMott were recently discussing this issue and I invited him to prepare a guest post about this very topic:
Chapter 13 bankruptcy is a tool that can be used to save your home from foreclosure. But the big question sometimes isn’t “can I save my home,” but “should I save it?"
We all know that there’s been an epidemic of foreclosure resulting from the recent economic downturn. Jobs were lost, values plummeted, and foreclosures have been on the rise.
So it’s natural to wonder, “can I file Chapter 13 bankruptcy to save my home from foreclosure?” However, when you meet with a bankruptcy lawyer to explore your options, you need to explore all your options—bankruptcy and otherwise. And that might be not saving your home.
When you’re having financial problems and seek advice, you should take the opportunity to review your entire financial situation. Can you afford your vehicle payments? Can you “tighten the belt” and cut back on some unnecessary expenses? And most significantly, “should you try to save your home?”
In my Charleston, South Carolina bankruptcy practice, I get calls every week from folks facing foreclosure. The potential bankruptcy client’s question is always a “can we?” Can we stop foreclosure? Can we make the lender listen? Can we catch up on these payments we’ve missed? Can we protect our home? Can Chapter 13 bankruptcy help?
More on Should You Save Your Home from Foreclosure, or Should You Let it Go
Filed under Chapter 13 issues, Foreclosure issues by
Because the bankruptcy system operates efficiently and quickly and it serves hundreds of people every day, I sense that many bankruptcy debtors forget that everything they submit to the bankruptcy court is done so under penalty of perjury. I recently ran across an article from a Texas newspaper about a Chapter 7 debtor who ended up in federal prison, convicted of bankruptcy fraud, because he failed to disclose an $84,000 insurance payment, proceeds from the sale of a vehicle and several bank accounts. This particular debtor used Chapter 7 to discharge over $1 million in liabilities.
I bring this case to your attention for several reasons. First, you should recognize that Chapter 7 trustees are very conscious of the likelihood that a certain percentage of debtors will fail to disclose assets. While it may seem that your Chapter 7 trustee is not paying much attention to any particular case, I suspect that trustee training programs provide trustees with profiles of the types of debtors likely to omit important information as well as resources to search for evidence of hidden assets.
In the Texas debtor's case I wonder how he thought that a vehicle sale would be missed by the trustee, given that vehicle liens are public record, as are vehicle registrations.
These days almost any sale of real estate or motor vehicles will generate a paper trail of tax forms, insurance records and title documents. Further I have personally seen situations where an unhappy ex-wife or a former friend will draft a "poison pen" letter to the trustee will allegations about improper activities by a bankruptcy debtor.More on Failure to Disclose Assets Lands Chapter 7 Debtor in Prison
