Section 523 of the Bankruptcy Code sets out a number of situations in which credit card debt will not be discharged.  Section 523(a)(2)( c) makes non-dischargeable consumer debt totaling more than $500 for luxury goods and services owed to any one creditor that are incurred within 90 days of filing, or cash advances totaling $750 or more owed to any one creditor made within 70 days of filing.

Section 523(a)(2) makes non-dischargeable debt owed to a creditor that was incurred by false pretenses or by fraud.

Basically, then, Section 523 gives credit card lenders at least two arguments to challenge a debtor:

1. recent credit card use (within 3 months) for anything but necessities like food, clothing and shelter
2. any credit card use in the recent past (in my experience this can be up to a year prior to filing) if a debtor makes charges where there is no reasonable expectation of repayment.   

Another way to look at this – if you have lost your job and for the last year your sole source of support are credit cards and cash advances, you should not expect to avoid a challenge by the credit card issuer just because you wait 91 days after your last use of your cards.

What, then, should you do if you need to buy food or gasoline in the weeks before you actually file?

First, you should recognize that shortly after you file, there is a very good chance that your credit cards will all be canceled and you are going to have to find another way to pay for your food and gasoline.  A bankruptcy may eliminate old debt but it will not help you pay your current or on-going bills.

Second, I advise my client that if they have to access their credit in the weeks and days before filing, I would choose one card – preferably a low interest card – and use that one only.  Expect that even if this card was used for food, gasoline and other necessities that you will have to pay some or all of it back.  If you can walk away from bankruptcy with 90% of your debt discharged, you will be better off than you are today and it is possible that any one creditor may not pursue a non-dischargeability complaint.

Three, as a practical matter you are not going to want to spend the money litigating Section 523 dischargeability actions.  Bankruptcy litigation is expensive and if you are scraping to buy food and gasoline, you will be able to afford litigation.  The fee you pay your bankruptcy lawyer will almost never include litigation.

Four, it is not always the worst idea to reaffirm one credit card, especially if it has a low balance and low interest rate.  Keeping one card can help you rebuild your credit quickly and some lenders will be open to aggressive negotiation on your part about balances and interest rates.

In my Atlanta area practice I often meet with a potential client weeks or months before we actually decide to file.  As such I encourage potential clients to call me as soon as they have any thoughts that bankruptcy may be even an unlikely option.  The more time we have to evaluate options and engage in pre-bankruptcy planning, the better.

And don’t think that limiting access to your profile to “friends” only will help.  Facebook information can easily be subpoenaed – do not assume any right to privacy for your online materials.

How has Facebook and similar sites impacted the world of consumer bankruptcy.  In this guest post, Charlotte bankruptcy lawyer Damon Duncan, identifies three situations where your careless use of Facebook could have serious bankruptcy implications:

Over the past several years social networking sites have exponentially grown at an incredible rate. According to Facebook, they have over 500 million active users spending 700 billion (with a “B”) minutes per month on Facebook. Needless to say, it has a huge audience.  Could some of that audience be members of the United States Trustee’s office or your creditors? Here are three ways Facebook may ruin your bankruptcy:

1.     Personal Property Not Listed

As a part of your bankruptcy you are required to list out your personal property. This personal property may then be protected using federal or state exemptions. Any property not listed or not protected may be seized by the Bankruptcy Trustee.

If you have pictures posted from Christmas showing your new four-wheeler or new big screen television and that personal property is not listed in the bankruptcy petition that was filed in February, then the Trustee may have the ability to seize that property or require you to pay the non-exempt equity in the property.

Instead, what if you file in March and you forget to list the new engagement ring that you get on Valentines Day but have pictures showing your new “bling” and changed your Facebook status from “Dating” to “Engaged to…” the Trustee could (although unlikely) try to come after that engagement ring or make you pay back the non-exempt equity.

2.     Vacations, Trips and Luxury Spending

Another way your social media could damage your chances at a successful bankruptcy filing is if the Trustee or Bankruptcy Court finds out that you have been taking “luxury trips” with your credit cards or other funds. If you post pictures of family trips to the Caribbean or a romantic getaway to Paris, France the courts could require you to pay back the expenses incurred on the vacation. When posting pictures to Facebook then this could raise questions in the Trustee’s eyes as to how you have been spending your money.

3.     New or Unlisted Jobs

If you have filed a Chapter 13 bankruptcy then you should be making monthly payments to the bankruptcy Trustee. Those payments were largely determined by your income and the amount of disposable income you had at the end of each month at the time of your bankruptcy filing.

If you just received a new job offer and are excited to tell family and friends by posting an announcement on your wall about your new job and the pay raise the comes along with it then this could be information that the Chapter 13 bankruptcy Trustee may be able to use to increase your monthly payments. Again, the more money you make should result in more disposable income. The Trustee can then use that extra disposable income to pay back more of your debts.

Along the same lines of getting a new job – what if you have a side business but in your opinion, you don’t make a substantial amount of income from it so you don’t list it down on your bankruptcy petition. Well, if a Trustee finds out about this other business then this income could be recalculated into your monthly income which may push you above the Means Test forcing you to file a Chapter 13 bankruptcy and pay back at least a portion of what you owe to creditors.

Many people have grown to love social media, especially Facebook. It has been a great way to stay in touch with family and friends. Despite that, it has also opened a window that allows others to peer into your personal life. I doubtmany Trustees or creditors are looking up debtors to see if they are telling the truth about their personal assets. However, it can take less than two minutes to find out a lot about a person and their assets by simply lookingonline. Making your profile private is an easy way to keep people from finding out too much information about you. More importantly, be sure to disclose all of your assets and property to your attorney. If they know about your property then they can almost always protect it, or at least put you in the best situation to keep as much of it as possible.

Damon Duncan and Duncan Law, LLC are bankruptcy lawyers in Charlotte, NC.  Visit their web site by clicking on the link or call them at 704-563-1224 begin_of_the_skype_highlighting 704-563-1224 end_of_the_skype_highlighting.

In the complaint, prosecutors allege that Dykstra sold or destroyed over $400,000 worth of property.  Among the property that Dykstra allegedly sold – presumably to raise case – were sports memorabilia and furnishings from the home he lost in the bankruptcy.

Obviously most of the Chapter 7 cases filed in the Northern District of Georgia, or in most bankruptcy courts do not involve millions of dollars of debts incurred by a high profile debtor.  However, there is an important lesson that all bankruptcy filers can learn from the charges levied against Mr. Dykstra.

When you list assets on your bankruptcy petition, you are swearing that this list is accurate under penalty of perjury.  If your trustee discovers that items have been omitted, or worse, that they have been secretly sold, the trustee will refer the case to the U.S. Attorney for prosecution.

Sometimes, I overhear conversations in bankruptcy court in which a debtor expresses frustration with the bankruptcy process or anger at an ex-wife, a former business partner or even a former employer.  I also hear conversations expressing frustration with the rather stingy dollar limits set out in the Georgia exemption statute.   I sense that some bankruptcy filers believe that the circumstances that led to their having to file were unfair and out of their control and as such leaving out inherited jewelry that “no one will ever know about” or selling a few items for cash can be rationalized.

While it is probably true that Chapter 7 trustees generally do not have the resources to thoroughly investigate every Chapter 7 debtor, I caution any bankruptcy filer not to take the risk.

First and foremost, an intentional failure to disclose assets is illegal and constitutes a crime under federal law.  No asset is worth your freedom or personal integrity.

Second, you have no way of knowing if the United States trustee will select your case for a random review which can also mean much more intrusive scrutiny.

Third, it is possible that a third party – often an ex-wife or ex-business partner – might anonymously write the U.S. Trustee to report intentional errors on your petition.

Fourth, you might fall victim to “Murphy’s law” – your trustee or someone from his office might see you walk into a pawn shop or might see your auction on eBay.   Believe it or not, these types of coincidences do happen.

Often, issues associated with assets that you cannot protect can be resolved if you do not have to file right away.   While the bankruptcy laws can be unforgiving, they will not punish you if you sell assets to raise money for food, shelter and clothing, as long as those sales are disclosed when applicable.  This is why I advise anyone who is even remotely considering bankruptcy to speak with a bankruptcy lawyer at the earliest possible date.  In my office, I regularly maintain files in “pre-bankruptcy” status for four, six, eight months or longer.  Often the delay arises from my client’s need to gain lawful benefit from assets that would be seized if the case was filed early.

According to the Atlanta Journal-Constitution, Mr. Deal personally guaranteed bank loans totaling over $2 million that was used to build and finance a sporting goods store owned by his daughter and son-in-law called Wilder Outdoors, located on Highway 365 near Gainesville.   Unfortunately for the Wilders, the sporting goods business failed, leaving about $2.5 million due.  Mr. and Mrs. Wilder filed Chapter 7 bankruptcy in 2009, discharging their obligations on the outstanding bank loans, leaving Mr. Deal exposed as the guarantor.

Mr. Deal and the Wilders were able to refinance the business loan several years ago prior to the closing of the business but now, a $2.5 million debt will come due in February, which would be about a month after he takes office if he wins.

Mr. Deal asserts that his financial quandary is no different from that faced by many parents who offered financial support to the entrepreneurial dreams of their children.   He has put his primary residence and other property on the market and no doubt hopes to generate enough cash to satisfy the bank’s demands.  You can read more about the Wilder bankruptcy issues on my Bankruptcy Law Network post about this situation.

Democrats are pointing to Mr. Deal’s financial troubles as proof of his questionable judgment, especially since it turns out that Mr. Deal’s son-in-law, Clint Wilder, appears to have been ineligible to file Chapter 7 in July, 2009.  Mr. Wilder had filed an individual Chapter 7 case in Atlanta back in December, 2001.  Section 727(a)(8) of the Bankruptcy Code provides that a debtor must wait at least eight (8) years from the time a Chapter 7 case is filed before filing a second Chapter 7 – here the time period between the two filings was about 7 1/2 years.

Although the Wilders’ case was closed in December, 2009, the United States trustee has the right to reopen this case and petition the judge to revoke the discharge.  From what I am hearing, this is what is happening now.

Candidate Deal correctly points out that issues relating to his son-in-law’s bankruptcy are not his doings and should not be attributed to him.  On the other hand, the Deal campaign has to be concerned about the prospect of a candidate who could very well be insolvent the month after he takes office and who could face the prospect of filing a voluntary petition or having an involuntary bankruptcy file against him shortly after he takes office.  You may recall that former State school superintendent Kathy Cox chose not to run for re-election after she and her husband filed Chapter 7 following her husband’s failed business deals.

I think that the main lesson to glean from this situation has to do with the inherent problems associated with co-signing a loan for anybody, especially when the money put at risk is more than you can afford to lose.

What do you think?  Will Mr. Deal’s looming financial problems cost him your vote?  Or do his financial problems give him insight into the economic plight of struggling Georgians?

Setting aside the question of why a book publisher thinks it can make back a quarter of a million dollars on sales of  Teresa Guidice’s “Skinny Italian” cookbook, what Teresa and her husband are facing is a complaint under Section 727(a)(4) of the Bankruptcy Code, which bars a Chapter 7 discharge to a debtor who knowingly and fraudulently, in or in connection with the case—

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.

If the debtor misses payments, the lender would still have the right to foreclose or repossess based on the property lien.  The debtor would not have personal liability for any foreclosure or repossession deficiency because his personal liability was extinguished in the bankruptcy.

There is a downside to this “stay and pay” strategy.  First, the debtor does not get any credit report benefit for making payments.  Because the debtor’s personal obligations have been extinguished, the lender no longer reports either a positive or a negative payment history.   A positive payment history from a mortgage company can be a good way to restore credit after bankruptcy, and if you do not reaffirm, you will not get this benefit.

Second, there is the “uncertainty factor” if you do not reaffirm.  Most mortgage or vehicle finance installment notes contain a default provision that includes bankruptcy as a default trigger.  In theory, at least, once your bankruptcy is closed (and the automatic stay of bankruptcy terminated), your lender could declare your loan in default and take action under State law to recover the collateral.  In my experience, lenders would much rather have monthly payments than your collateral but this risk does exist.

Finally, many of my readers have asked me if there is such a thing as “constructive reaffirmation” meaning that by making payments, are you in effect re-obligating yourself?  Are you creating a contractual obligation by your actions?

I think that the answer to this depends on State law but I would suspect that a mortgage or vehicle lender would have a hard time making this argument.  In many States (such as in Georgia) a financial obligation related to real estate must be written and they must have specific terms.  As a matter of general contract law, a contract usually will not be enforceable if its terms are not specified.   I would argue therefore that a debtor’s actions of simply making payments and the lenders actions of accepting such payments should not be enough to create personal liability on the part of the debtor.  I would be interested to know if any of the attorneys who read this blog have a different opinion or if anyone is aware of any case law that says otherwise.

At a minimum, if a lender tries to make the argument that you have somehow re-obligated yourself personally by your act of making payments, I would insist that the lender provide you with case law or other support for its position, and you should consult with a lawyer before agreeing to any payment or taking any action (like signing a new, valid contract) that could create personal liability.

My reader states that his lender has proposed a refinance for $180,000.   He did not say, but I presume that his prior (discharged) mortgage was much higher than this and that his current payments under the “stay and pay” are based on this higher balance.  If he enters into a mortgage contract for $180,000, that contract will function like any other mortgage – and include both personal liability under a promissory note as well as a property lien.   It is not a reaffirmation because the bankruptcy is over – instead, the proposed $180,000 loan deal is equivalent to a new mortgage.  This proposed deal could result in lower payments plus positive credit history, but it will also create personal liability that currently does not exist.  I would certainly advise my reader to discuss his options with an attorney so that he will fully understand the implications of his decision.

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.

The question in Schwab was, what happens when a debtor both reports an asset with an estimated market value and claims an exemption for the asset equal to the market value, the trustee does not object because the claimed exemption falls within the applicable-dollar value limit, and it later becomes apparent that the asset’s true market value exceeds the claimed value and the applicable dollar-value limit?  According to some lower courts, the trustee’s failure to object entitled the debtor to an exemption equal to the entire market value, regardless of whether that value exceeded the limit imposed by the rules.  In Schwab, however, the Supreme Court rejected that approach.  According to the Court, the trustee need not have objected to the exemption to preserve the estate’s ability to recover value in the asset beyond the value the debtor declared exempt.  The rationale for this conclusion was that the trustee had no basis for objecting in the first place–on its face, the exemption appeared to comply with the limit imposed by the rules, and there was no way of knowing beforehand that the asset would appreciate in value beyond the limit.

The Court’s analysis was somewhat complex, but an example helps to illustrate the effect of the ruling.  Imagine that an individual files for Chapter 7 protection and reports an asset–in this example, office equipment–to which he assigns an estimated market value of $5,000, that he claims a $5,000 exemption for the equipment, and that the applicable dollar-value limit on office equipment exemptions is also $5,000.  Given the dollar-value limit, the trustee concludes that the claimed exemption is appropriate and therefore does not object.  The thirty-day objection period then passes, and a third-party appraises the equipment and assigns a market value of $8,000.  Under the prior approach of some lower courts, the trustee’s failure to object would have entitled the debtor to an $8,000 exemption for the equipment.  But Schwab invalidates that approach and establishes that the debtor will be entitled to an office equipment exemption of $5,000, even though the true value of the equipment exceeds that amount by $3,000.  The $3,000 remainder goes to the bankruptcy estate, to be distributed among the creditors.

For individuals contemplating Chapter 7 bankruptcy, the lesson of Schwab is twofold:  First, even if you accurately report an asset’s value and claim a valid exemption equal to that value, you cannot later capture any serendipitous increase in value beyond the limits imposed by the rules.  Second, if for some reason it is important to you to exempt the full market value of an asset or the asset itself, rather than a particular monetized interest in the asset, Schwab suggests that it might be appropriate to claim an exemption for “full fair market value (FMV)” or “100% of FMV.”  Thus, going back to the example above, the debtor might try to claim an exemption of “100% of FMV” for his office equipment, rather than $5,000.  A court could reject this claim if it later became apparent that fair market value exceeds the $5,000 limit.  But Schwab also suggests that phrasing an exemption claim in this manner effectively places other parties on notice that the debtor seeks to exempt the entirety of the asset’s value. If a debtor provides this notice and others nevertheless fail to object, the debtor may be able to keep a subsequent increase in market value beyond the otherwise applicable dollar limit.

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.

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.

Second, be aware that Chapter 7 trustees and the U.S. trustee like to pursue fraud cases periodically to send a message to debtors and debtors’ lawyers that the trustees are paying attention.   Bankruptcy lawyers may be tempted to say “don’t worry about it,” to avoid extra expense and complication but playing fast and loose with disclosure rules can create major problems for both debtors and their lawyers.

Occasionally I meet with a client who may say something like “between you and me, no one knows this but….”    This type of statement is the last thing that any bankruptcy lawyer wants to hear.  From my perspective that client is really saying “I am thinking about committing a federal crime and I want you to help me.”  My license to practice law is not worth the fee for any one case and I have and will continue to decline representation for any client who wants to use my office to file inaccurate schedules.

Nobody likes to surrender assets, especially in a bankruptcy case that may have come about because of factors beyond one’s control (such as a layoff, unfair treatment by a lender, a lawsuit judgment that you did not know about).   In most bankruptcy cases you will not lose in assets.   However, losing a few hundred or thousands of dollars is a far better fate than federal prison.