February 20, 2018

How to Avoid Credit Card Interest, Penalties and Fees

how-to-avoid-credit-card-interestHave you ever opened your credit card statement only to find that despite last month’s payment, your unpaid balance has actually increased because of credit card interest, penalties or fees?

As a practicing consumer bankruptcy attorney in Atlanta, Georgia for over 25 years, I know that out of control credit card debt can force people in to Chapter 7 or Chapter 13 bankruptcy. In many cases credit card debt that was manageable becomes unmanageable because of common mistakes made by individuals in how they handle their credit card debt.

If you can avoid these mistakes you may be able to avoid the stress and financial distress caused by excessive credit card debt.

How Credit Card Debt and Credit Card Interest can Get Out of Control

The first step towards controlling your credit card debt involves your spending. This may seem obvious but many of my bankruptcy clients fail to recognize this reality. If you find yourself carrying a balance (rather than paying off your debt in full at the end of the month) you need o change your usage habits.  If you carry a balance you will end up paying unnecessary and expensive credit card interest.

Your credit card is not a substitute for cash – instead your credit cards represent a high interest loan with a 20 days repayment term. Interest on unpaid balances will eat you alive. Most cards obligate you to pay an 18 to 20% annual interest rate on balances carried more than 20 days. To give you some perspective, your interest rate on mortgage debt will end up in the 3 to 4% per year range, and the annual percentage rate on your car note will generally be 5 to 6% per year.

As a rule, if you make only the minimum payment, your balance will stay the same, or actually increase month to month indefinitely. And if you are 1 day late, you will likely get hit with a penalty (often $35 or more) plus your interest rate may be increased to 28% or higher. [Read more…]

Has “Financial Repression” Stopped You from Filing Bankruptcy?

paperworkpileEditors note:  In this compelling post, Charleston bankruptcy lawyer Russ DeMott describes what he calls “financial repression” – the tendency of honest, hardworking men and women to delay or forego bankruptcy protection because of the administrative and expense burdens added to the bankruptcy filing process by the 2005 BAPCPA changes to the bankruptcy laws.

When you meet with your bankruptcy lawyer, you’ll be given a lot of information.  You’ll also be given many tasks to complete before you file your bankruptcy case.

Our new bankruptcy law, BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act), created a tremendous amount of busy work for debtors.  You must complete a credit counseling session prior to filing your case, you must provide the trustee with the last tax return you filed, and you must give your bankruptcy lawyer six months’ worth of pay stubs, just to get started.  There’s lots of work to be done.

Debtors are already stressed out when they come to their lawyer’s office.  The law is often confusing.  There are many new terms thrown around: CMI, DMI, discharge, First Meeting of Creditors, 341, 362, median income, means test, trustee, and on and on.  Even if they have a lawyer who explains things well, there’s a large amount of new information to absorb.

On top of all this, they must provide their lawyer with numerous documents.  Some of these are easily accessible; some are not.

In my Charleston, South Carolina bankruptcy practice, I have noticed that many clients seem worn down by this process.  We regularly check on open files to notify the clients of the information we need to file their cases.  Sometimes they respond, but sometimes they don’t.  It’s as if they believe that if they ignore the financial mess they are in, the problems will magically disappear.  They won’t, of course.  In fact, they’ll continue to get worse.

I call this financial repression.  Like any other repression, it delays a resolution.  Whatever the problem is, it doesn’t get solved. [Read more…]

Can I File a Chapter 7 By Myself, Without an Attorney

This morning, I received an email from a gentleman named Jim, who writes:

How can I file chapter 7 by myself without paying someone, anyone $ 99.00 $199.00, $299.00 etc… Three different people( with a financial intrest of course) said representation is required.

Here is my response: Jim, you certainly have the right to file a Chapter 7 case by yourself.  The forms are available either on-line or at an office supply store.  There are also several books about how to do this.  I am currently reviewing a book entitled The Complete Chapter 7 Personal Bankruptcy Guide by attorney Edward Haman that is published by Sphinx Publishing that is quite comprehensive.

Here are the issues:

1. the bankruptcy process has become significantly more complicated since October, 2005, when the BAPCPA changes to the bankruptcy laws were enacted.   I know a number of lawyers who used to file the occasional Chapter 7 here in Atlanta, but who have now given up the practice because of the complications.  In particular, you need to fully understand how the median income test and the means test works – if you do the calculations incorrectly, you could end up in a deposition at the United State’s trustee’s office, face a motion to dismiss or face a motion to convert to Chapter 13.

2. you need to understand about the pre-filing credit counseling requirement as well as the pre-discharge financial management course requirement

3. in order to actually file your case, you will need to go to the Clerk of Bankruptcy Court and scan your pages to get your case filed.  I suspect that this process is not particularly complicated, but I have not used the scanning equipment at the Clerk’s office.

4. you cannot dismiss a Chapter 7 voluntarily if you change your mind.  For example, if you file, but it turns out that you earn too much or own too many assets the judge may not let you out of your case, at least until after your assets are liquidated.

5. you need to understand how the Georgia exemption law works and how it applies in Chapter 7 to protect property that the law allows you to protect.  If you don’t properly declare property as exempt even if the law would otherwise allow you to protect it, then you could lose your property anyway.

6. do not expect to receive advice from the Chapter 7 trustees or the U.S. Trustees.  Their interest is to maximize the recovery of the estate (i.e. your creditors).

While folks contemplating bankruptcy obviously do not have a lot of money, I think that in most situations the complexity (which, no doubt is unnecessarily complex) makes a pro se filing a mistake.

File Your Bankruptcy by the End of the Month or Start the Process Over

If you read this blog and other consumer bankruptcy blogs like Scott Riddle’s Georgia Bankruptcy blog or the Bankruptcy Law Network blog, you know that preparing for filing a case involves a great deal of effort on your part to collect information and documents.  Are there any steps that you as the potential bankruptcy debtor can take to speed up the process and to keep costs down.

My Bankruptcy Law Network colleague, Michael Doan, has posted a very useful article about the timing of filing.  Specifically, Michael points out that if you start the bankruptcy information gathering process towards the end of a month, and the process rolls over to the next month, then a lot of the work has to be redone.  For example, the six month medican income test look back would involve a new six month period, your credit counseling certificate validity date may run out and the required tax return might change.  I encourage you to take a look at Michael’s well thought out post entitled "File by the End of the Month or Start Over."

I think that in a big picture sense, what Michael is saying is that you need to communicate regularly and accurately with your lawyer.  If you meet with your lawyer on the 20th of the month and promise to have all necessary documentation by the 27th, but you end up rescheduling your appointment to the 5th of the following month, don’t be surprised if you have to pay a higher fee to account for all the new calculations.

In my practice, I do not start the time consuming process of analyzing pay stubs and figuring out the median income and/or means test until I have pretty much all of the required documentation.  This means that I can’t give my client bottom line numbers unless and until my client provides me with pay stubs and tax returns.  I can still give a "big picture" analysis based on my experience, but the actual number crunching has to wait.   This is a major shift from pre-BAPCPA practice where I could run numbers almost immediately.

Some of my colleagues are more willing to tolerate the risk of not getting documentation in time and they end up running their calculations two or three times.  If you are a lawyer and this is how you have set up your practice, I would advise you to keep your notes so at least your’ll have a head start on the calculations.

Financial Managment Course Requirement – Filing Deadline

The bankruptcy law requires debtors to attend two educational courses.  The first requirement calls for a "debt management course" and must be completed prior to filing – your certificate of completion is your "ticket in" to the bankruptcy process.

The second course, which is the subject of this post, is the "ticket out."  Known as the "financial management course," this educational requirement involves education about budgeting, interest rates and other financial managment tools that will, hopefully, keep you out of bankrutpcy in the future.

In a Chapter 7 case, you are supposed to complete your financial  management course within 45 days from the 1st date set for your  Section 341 meeting of creditors hearing.  In a Chapter 13 case, you must complete the financial managment course prior to making your last Chapter 13 payment or prior to the closing of your case.

If you do not complete your financial managment course requirment and file your certificate of completion (your attorney will file this for you), you will not be eligible for a discharge.

In my practice I recently represented a Chapter 7 debtor who did not complete her course prior to her case being closed and we had to reopen her case for the sole purpose of filing the financial  management course certificate.  So far, it appears that most bankruptcy judges will permit such reopenings, but be aware that there is a filing fee to do this as well as an attorney’s fee for the time involved.

Most of the vendors who provide pre-filing debt counseling will also provide financial managment courses as well.  The list of vendors that I provide to my clients can be found on my BankruptcyWorksheet web site.

I always advise my clients to get the Financial Management course out of the way.  You are not likely to think about this requirement 4 years into your Chapter 13 and the only notice set out by the clerks’ office is done a couple of months into your case.

The Financial  Managment course can be taken by phone or over the Internet and it will last only a few hours.  I would be interested to hear from anyone who has taken this course to get your observations and thoughts about its value.

Top Time Wasters in the Bankruptcy Process

If you have read my blog at all, you know that I have been quite critical of many of the changes brought about by the BAPCPA changes to the bankruptcy law.  In general these changes have make the process of filing bankruptcy more complicated and more expensive.  Sometimes, I have to decline representation in cases with complications because the potential client cannot afford to pay me for the time it would take to untangle his/her mess.

Lest you think that I am alone in my attitude about the current bankruptcy law, take a look at this blog post by South Carolina bankruptcy lawyer Däna Wilkinson on the Bankruptcy Law Network blog.  Däna entitles her post "Top Ten Wastes of Time After BAPCPA" and she discusses the wastes of time for both debtors and their lawyers.

In my view the whole median income/means test income calculation using gross income numbers from the six months prior to filing is the biggest waste of time.  Why should your eligibility for Chapter 7 today be a function of your income over the past six months.  At least in the Northern District of Georgia, bankruptcy judges have been open to the idea of tossing out the six month lookback if your current income situation has changed.

These medican income/means test calcuations can take several hours and, at the end of the day, the results tell us nothing about the debtor’s current capacity to pay creditors.  But, because I have to spend my time processing the numbers, my fees have gone up.  What a waste of time for no good purposes.

Close behind the median income/means test requirement are the credit counseling/financial managment course requirements.  Basically these required education courses offer very little useful information to a bankruptcy filer, but they do add around $100 to the cost of filing – $50 for the certificate to get in and $50 for the certificate to get out.   If there is a point to this surcharge, it escapes me.

Take a look at Däna’s article – it would be interesting to hear from both debtors and debtor’s lawyers – what do you think?

[tags] credit briefing, financial management, means test, median income test, bankruptcy law network [/tags]

Credit Counseling on the Day of Your Bankruptcy Filing May be Invalid

Consumer Bankruptcy News recently published an article discussing the holding of a Tennessee Chapter 13 case called In re Cole in which the Bankruptcy Judge dismissed a case because the debtor filed his consumer bankruptcy case the same day as he received his credit counseling.

Judge Richard Stair held that Section 109(h)(1) of the Bankruptcy Code provides that a debtor must obtain credit counseling “during the 180 day period preceeding the date of filing of the petition.”   Judge Stair interpreted the phrase “preceding the date of filing” to not include the actual day of the filing.  If Congress had meant to include the date of filing, the statute would have said “on or within the 180 day period.”  Judge Stair further observed that the credit counseling requirement was intended to give debtors a chance to think about their actions and that filing bankruptcy that same day gave little time for such contemplation.

Judge Stair’s decision is yet another example of the absurd application of our new bankruptcy laws.  Bankruptcy Court statistics show that less than 5% of potential bankruptcy filers end up not filing because of the mandatory credit counseling.  As a practical matter, therefore, the credit counseling requirement simply serves as a $30 to $50 tax on debtors and provides limited if any benefit.

My own clients report that the credit counseling is basically a waste of time.  If Courts around the country adopt Judge Stair’s reasoning, deserving but unfortunate debtors – especially those facing home foreclosure – will find the doors of the courthouse closed to them.

According to the SplitCircuits blog, several other bankruptcy judges have refused to follow Judge Stair’s interpretation of Bankruptcy Code Section 109(h)(1).  Until we see how this shakes out, my advice is to get your credit counseling early and avoid this 109(h) issue altogether.

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