My colleague, Boston bankruptcy attorney Nick Ortiz, has written a helpful post on his Massachusetts Bankruptcy and Consumer Protection blog summarizing your right to refuse to speak with a debt collector under the Fair Debt Collection Practices Act.
If you have ever been the target of aggressive collection efforts, you know that bill collectors use applied psychology to intimidate the debtor. If you did not yet know this, bill collectors follow a script that was developed by psychologists to trigger certain emotional responses in you. For example the word “promise” is much more emotionally charged than words like “debt,” “outstanding balance” or “financial obligation.”
Debt collection scripts are also designed to suggest that your failure to pay a debt will result in a form of “punishment,” which could lead a stressed out debtor that he could end up in jail (despite the fact that there have never been debtor’s prisons in the United States not been federal debtor’s prisons in the United States since 1833 or state debtor’s prisons shortly thereafter).
In my bankruptcy practice, I encourage my clients to make thoughtful, informed decisions about whether to file a Chapter 7 or Chapter 13. Recognizing the tactics used by bill collectors can help a debtor avoid emotional decisions, or, worse, bad decisions. I cannot tell you how many times I have met with clients who partially or totally cashed out a 401(k) to pay a credit card or other unsecured debt. In Georgia, 401(k) accounts are 100% sheltered from creditors, so any encroachment one of these protected accounts is usually a bad idea.
If you want to learn more about the psychology of influence, I can recommend the work of noted psychologist Robert Cialdini. I saw Dr. Cialdini speak a few years ago at a tax problem seminar and his work is truly groundbreaking. His book, entitled “Influence: Science & Practice” is available at Amazon and I recommend it highly no matter what you do for a living. You can read more about Dr. Cialdini at his InsideInfluence.com web site.
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I ran across an interesting post called "How the Red Flags of Debt Can Save You" on a blog called the DebtFree blog. I think what is interesting here is that the author recognizes that most spending arises from emotional buying decisions – i.e. a new car when the current vehicle works fine or a desire for a new plasma TV right before the Super Bowl.
In the 20 years I have been in bankruptcy law practice, friends and colleagues often ask me what factors drive my clients into bankruptcy. Although personal finance crises – like unexpected medical expenses, a job loss or a divorce lead people into bankruptcy, almost always there is an underlying problem.
Although most of the people I see are honest, hardworking and sincere people, very few have ever sat down to actually write out a budget. Less than 5% of my clients use a personal finance program like Quicken or Microsoft Money to track where their money goes. When we actually sit down to prepare a budget as required by the bankruptcy schedules, my clients are shocked to discover that they have routinely been spending more than their household income.
Expenses that you should watch carefully include the following, many of which can be trimmed or eliminated in a time of budget crunch:
- car insurance
- tires, oil changes and routine maintenance done by a dealer
- medical expenses not reimbursed by insurance
- cable TV
- monthly cell phone expenses
- recreation/entertainment
- dry cleaner
- cigarettes
- lottery tickets
Do not forget to include in your monthly budget expenses that arise once or twice a year. Once you have a budget, you will know what you need on a monthly basis and you can start thinking about a debt reduction plan. Another interesting blog to check out is the No Credit Needed Network blog, which is an on-line community where members track their debt reduction plans and goals anonymously but publicly using a neat charting application. Another blog I like is called, appropriately enough StopBuyingCrap.com – where you can vote about whether various purchases are frivolous or appropriate (i.e. was that widescreen monitor a wise purchase??
Maybe you will find that bankruptcy does make sense – or maybe, a part time job for 8 or 9 months might be enough to get you out of significant debt. The point here – you cannot know if you do not have a handle on your numbers.
Technorati Tags: red flags + debt, creating a budget, bankruptcy, debt reduction plan
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I loan a family member a large sum of money a year ago. Now this family member is filing for bankruptcy and has ask for my name and address and the amount borrowed from me. According to the family member the courts can list this as a debt owed and I would be included in this repayment plan. Is this true? I did not think personal debt owed to family and friends could be file under bankruptcy.
– Alice
Jonathan Ginsberg responds: Alice, when someone files bankruptcy, he must list and include all debts, including debts owed to family members. There is no exception for family members.
In fact, if your relative had paid you back within a year of filing, there is a good chance that the bankruptcy trustee would demand that you return the money as a "preference."
If your relative is filing a "repayment plan," it means that he is in a Chapter 13 bankruptcy. Assuming that the loan you made was a "handshake" loan, then your claim would be unsecured. In Chapter 13 case, unsecured debts are paid after priority (taxes, child support) debts and after secured (cars, houses, furniture) debts. You may not get a check from the Chapter 13 trustee for two or three years. You also may not get paid at 100% as many Chapter 13 cases call for less than 100% payouts to unsecured creditors.
When you get the bankruptcy notice, you will see a Proof of Claim form included in the letter. If you want to get paid something, even if you won’t see any money for a few years, you need to fill out this proof of claim and send it to the Clerk of Bankruptcy Court.
Finally, be aware that the automatic stay of bankruptcy prohibits you from trying to collect your money outside the bankruptcy process. You do not, however, have to send this relative Christmas cards or invite him over for dinner!
Technorati Tags: debt owed to family or friends in bankruptcy, proof of claim, unsecured claims in Chapter 13
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My colleague, California bankruptcy lawyer Cathy Moran, has written an interesting blog post about debt settlement companies. I regularly meet with clients who pay debt settlement services fairly hefty fees to "negotiate" debt settlements.
Often, the debt settlement company can do little to actually resolve the debt, especially if the debtor has limited cash resources. Cathy brings up a point that I had not previously considered – some of these debt settlement companies market their services as an "alternative" to bankruptcy and may prey on the natural aversion many hard-working consumers have to the entire idea of bankruptcy.
Most of the clients I see make statements like "I never in a million years thought I’d be talking to a bankruptcy lawyer." No doubt the sales training in the debt settlement industry encourages the sales operators to emphasize that their solution is not bankruptcy.
Unfortunately, as Cathy points out, when a debt settlement plan does not work, the debtor is not only out a large fee, but he may have multiple judgments, pending garnishments and other problems that would never have happened if the debtor had been steered to bankruptcy in the first place.
Because of its power, bankruptcy can address advanced debt problems like judgments, foreclosures and garnishment, but make no mistake – cases that require multiple motions to avoid lien, complaints for turnover or other litigation will be most costly, time consuming and stressful.
Forums like Cathy’s blog (and a new multi-lawyer bankruptcy blog where both Cathy and I participate) are designed to remove the mystery from the bankruptcy process and allow debtors to make informed decisions. One of the themes you will see over and over on this blog has to do with timing – begin your research into bankruptcy and non-bankruptcy alternatives before your situation becomes an emergency.
Technorati Tags: debt settlement companies, Cathy Moran, bankruptcy blogs, debt negotiation
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I often get questions about creditor collection practices. Can I be sued for an old debt? Did the bill collector do something illegal? What is the significance of a "charge off?"
California lawyer Jonathan Stein has gathered many of these questions together and has answered them quickly and eloquently. Here is a link to the FDCPA section of his new blog – the California Debt blog.
Technorati Tags: FDCPA, collection practices, Jonathan Stein, old debt and lawsuits
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My colleague, attorney Chip Parker from Jacksonville, has written a timely post in the BankruptcyLawNetwork blog about how to save your income tax refund if you are thinking about filing for bankruptcy. Chip suggests that you file your tax returns sooner rather than later, then spend your refund on ordinary and necessary expenses. You would have to reveal receipt of the income tax refund on your bankruptcy schedules, but you would have the benefit of the money and the odds are very small that your bankruptcy trustee would challenge your use of this money.
Chip’s advice falls into the general category of "pre-bankruptcy planning." Under the current bankruptcy law, pre-bankruptcy planning has become increasingly important. Now, more than ever before, the bankruptcy laws empower trustees and creditors to try to squeeze whatever they can from debtors. All the paperwork your file will be scrutinized. "Good faith" and "best efforts" have been replaced by demands for documents, proof of income and expenses, and tax returns.
In some cases, the means test will show "disposable income" when in real life, there is nothing there. In this unfriendly environment, you, as the debtor, need to look for every opportunity to protect and preserve your assets and cash flow. Do not assume that the bankruptcy system will give you any breaks.
I know I sound like a broken record, but START EARLY. Don’t wait until the lawsuits are filed or the repo man in circling before talking to a lawyer. If I could send one message out to people in even mild financial distress, it would be to find a bankruptcy attorney long before you are facing any sort of emergency. In January alone, I met with over ten potential debtors who could file now, but who will have a much better result if they wait for two or three months. Sometimes, the goal is to create a paper trail of payments to creditors to show good faith, and sometimes the goal is to water down the effect of a one-time bonus for median income purposes.
There are enough pressures on bankruptcy debtors under the new law. Find a lawyer who will act aggressively on your behalf and fight back!
Technorati Tags: income tax refund and bankruptcy, Chip Parker, Bankruptcy Law Network, pre-bankruptcy planning
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This past week the U.S. Supreme Court heard oral argument on an interesting Fair Credit Reporting Act issue. In the case of Geico vs. Edo, the Supreme Court will be deciding whether insurance companies can be liable for punitive damages if they fail to notify customers that the customer’s credit score has led to higher rates.
Regardless of what the Supreme Court does, I think that the bigger issue for consumers relates to how insurance companies use your credit history in setting the price that a consumer pays for auto or homeowner’s insurance.
According to the AJC, drivers with the worst credit histories will pay almost double the price paid by a driver with very good credit. However, Georgia law permits the insurance companies to keep secret the formulas they use to decide what credit factors impact insurance premiums.
All of this begs the question of what relevance bad credit has on a driver’s likelihood to be involved in an accident.
If you thought that a bad credit score only affected your ability to finance a house or a car, think again. Even if you are not using credit, your cost of insurance will be affected by a bad credit history.
This credit score/insurance cost link serves as yet another reason for you to check your credit reports at least once a year. Since most credit reports have some errors, there is a good chance that you can improve your score simply by challenging these errors and demanding that the credit reporting agency remove the mistakes from your report.
Finally, take a look at this interesting post I found on attorney Grant Griffith’s Kansas Creditor Harassment blog about specific steps you can take to remove an old bankruptcy from your credit report.
Technorati Tags: credit reports, bad credit and insurance costs, Geico v. Edo, Fair Credit Reporting Act, attorney Grant Griffiths
Today’s Atlanta Journal-Constitution reports that Georgia now leads the nation in bankruptcy filings. More bankruptcies were filed in Georgia in 2006 than in any other State. Over 29,000 petitions were filed in Georgia during the first three quarters of 2006, surpassing California (27,000 petitions), Texas (almost 26,000 petitions) and Ohio (25,000 petitions).
Even more significant, Georgia ended up just behind Tennessee in the number of bankruptcy petitions filed per 1,000 residents.
Compared to 2005 – the last year of filing under the "old" law, bankruptcy filings throughout the country are way down. From January – September, 2006, 29,202 cases were filed. For the same time period in 2005, however, 60,143 cases were filed. Thus, filings in Georgia dropped 51% – almost 30,000 filings.
What exactly does this all mean?
From my perspective as a consumer bankruptcy lawyer, I can make several observations:
- during the run-up to the new law – January through October 16, 2005 – a lot of people made the decision to file because of (legitimate) concerns about the impact of the new law. Thus, the "inventory" of potential filers in 2006 decreased greatly.
- there is a perception in the general public that bankruptcy relief has become much harder to obtain. There is some anecdotal evidence that bill collectors perpetuate a number of inaccuracies about the availability of bankruptcy relief.
- the bankruptcy process has become much more burdensome and expensive. From the useless requirement of credit counseling to the need to produce tax returns, pay stubs and expense receipts, many individuals who might benefit from filing continue to procrastinate because they do not want to spend the time gearing up for a filing. Similarly, the amount of work done in my office has easily doubled, and I have had to increase my fees to account for the added work.
- as a practical matter, bankruptcy relief is no longer available to a significant slice of the population. Families with household income that slightly exceeds the State median (i.e. $65,000 for a family of 4) cannot qualify for Chapter 7 without a stressful and expensive fight, yet these same families cannot afford a Chapter 13 payment.
- fewer lawyers are willing to brave the chilly waters of bankruptcy. Many experienced and capable attorneys are dropping the practice because they cannot find clients who can pay for their time and because the law has become so internally inconsistent as to make it all but impossible to offer clear advice. Most bankruptcy petitions will be filed by one or two high volume firms in a particular jurisdiction.
- many debtors who have been forced into Chapter 13 because of the strict limitations on Chapter 7 will end up with failed repayment plans because their Chapter 13 plans are not feasible over the long term. Taken in combination with the limitations on refilings, we will soon see a class of "permanent debtors" who will live with the burden of constant wage garnishment and involuntary liens.
In many ways, bankruptcy practice has become like tax problem practice. I can offer my clients relief, but not without significant pain. Bankruptcy is no longer about getting a fresh start – it is about managing pain.
Technorati Tags: BAPCA changes, bankruptcy filings in Georgia
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Much has been written about the changes to Chapter 7 and Chapter 13 practice and procedure in the months since the new bankruptcy law went into effect. From my perspective as a debtor’s lawyer, one of the biggest practical changes that I have faced arises from a significant increase in the amount of work that is involved in preparing a case on behalf of a client.
Under the old law, we used a "best efforts" + "good faith" analysis. I sometimes put relatively wealthy debtors into Chapter 7 cases and had little problem with discharge. I recall distinctly filing a Chapter 7 case for a physician who earned well over $100,000 but who had numerous expenses for his children’s private school, college education and special medical needs. More frequently, I received referrals from other lawyers that involved families earning $70,000 to $90,000 who were living in a $300,000 house and who had cash flow problems. These cases were generally not a problem.
Under the new law, we can no longer argue for a general "best efforts" bankruptcy. IRS tax collection standards tell us what is "reasonable" and whether a debtor can fit within a Chapter 7 or Chapter 13.
Preparation of the cases has also undergone a significant change. We now have to document household earnings, budgets and expenses. Those cases on the edge – where families are earning slightly more than the mean income for their family size – almost always require meetings with the U.S. Trustee and significant time expenditures.
Because the document gathering and information verification procedures have become much more burdensome, the attorney fee cost for filing bankruptcy has gone up as well. Even a basic, seemingly straightforward case, requires twice as much time as the same case would have required pre-BAPCA.
Chapter 13, in particular, has become significantly more burdensome. Under the old law, when a debtor filed a Chapter 13, we set out a budget that provided for a reasonable lifestyle. There was no income verification to speak of and once a case was filed, no one looked too closely at increases to household income over the course of three to five years.
Although I have seen no statistics to support my contention, I suspect that very few Chapter 13 debtors were taking advantage of the old system. Even though the old law did not set out budget limits per se, there was no way to build in one-time expenses like a flight across the country to attend a funeral or unexpected car repairs.
The new law, however, not only does mandate what constitutes reasonable monthly spending, but it gives debtors even less wiggle room for those unexpected expenditures. As debtor’s attorneys, we have to squeeze our clients into extremely tight budgets and we have to adjust those budgets to wring out every last penny in the event of a raise or bonus.
The practical implications of this change has been that debtors face more motions for relief, motions to dismiss and require much more of the attorney’s time.
To their credit, the bankruptcy judges of the Northern District of Georgia have recognized that debtor’s attorneys have significantly more responsibilites under the new law. In years past, the bankruptcy judges effectively limited attorney’s fees in Chapter 13 cases through a standing Order. The most recent Order permitted a "no look" fee of $2,500.
As of October, 2006, there is a new standing order regarding attorney’s fees that permits debtor’s counsel to use our best judgment in charging a fee that is appropriate for a particular debtor’s situation. Most experienced debtor’s lawyers are setting fees in the $4000 to $5,000 range. Most of these fees, of course, are paid through the Chapter 13 plan, but the debtor ultimately has to bear the cost.
Besides increased attorney’s fees, the filing fee paid to the court has gone up and is expected to go up again. Currently, the Chapter 7 filing fee is $299 and Chapter 13 is $274. By contrast, when I started practicing bankruptcy law 20 years ago, the filing fee for Chapter 13 cases was $90.
So, as a practical matter, one of the most significant effects of the new bankruptcy law has been to make the filing of a bankruptcy case significantly more expensive both in terms of attorney fee cost and filing fee cost. I have no doubt that this cost issue was an expected consequence of the new law and is part of the underlying policy to discourage bankruptcy filings.
Perhaps our new Congress will address the source of bankruptcy problem in this country – the over-availability of debt and the absence of consequence to lenders who extend credit to non-debt-worthy customers. I will not, however, be holding my breath.
Technorati Tags: bankruptcy northern district of georgia, atlanta attorney bankruptcy, georgia attorney bankruptcy, atlanta lawyer bankruptcy, georgia lawyer bankruptcy, cost for filing bankruptcy
Filed under General consumer bankruptcy info, Georgia Bankruptcy by
As a consumer bankruptcy lawyer, I hear stories all the time from clients about harassing bill collectors and unresponsive customer service representatives. After a while, most of these stories lose their impact because I hear them so often. Recently, however, I was treated to my own experience in customer service hell courtesy of the good folks at AT&T long distance.
I wish I had recorded my half hour plus conversations with the eight customer service representatives I spoke to. At least two were in India or Pakistan and each time one of the reps realized that he or she could not help me, I was transferred to an automated attendant where I had to enter my account number.
What was the problem? I have two phone lines coming into my house – one is my residential line and the second is a DSL line. Each one apparently has AT&T as the long distance carrier. Last month, I paid the bill for line 2 and AT&T applied the payment to the account for line 1. Line 1 now has a credit balance and line 2 has a balance due of $32.40.
I started getting collection calls from AT&T last week, even though my online access showed that $32.40 had been cashed. The collection rep insisted that I mail (not fax or email) a copy of my canceled check to some special address that I would have to call yet another number to get. Since my bank no longer returns my calcelled checks I had to order a copy.
When I called this morning to find out where to mail the check, I discovered what had happened and I asked if AT&T could transfer $32.40 from account 1 to account 2.
30 minutes and 8 representatives later, I have come to the conclusion that AT&T does not have the technical wherewithal to transfer $32.40 from one account to another.
My solution – I mailed AT&T $32.40 (to clear account 2) and I am going to cancel my service with AT&T. Will any other vendor be any better? Probably not. But given the incompetence I experienced this morning, I am going to have to try.
Technorati Tags: AT&T customer service, poor service AT&T, AT&T phone service
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