Editors note: In this compelling guest 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.More on Has “Financial Repression” Stopped You from Filing Bankruptcy?
Filed under General consumer bankruptcy info, Pre-bankruptcy credit briefing by 
I have been representing debtors in bankruptcy cases filed in the Northern District of Georgia for over 20 years. Until the law changed in 2005, filing bankruptcy was a fairly straightforward process – often I would meet with a client, decide whether to file and select Chapter 7 or Chapter 13, collect information about creditors, develop a budget, then file that day.
Attorney’s fees and filing fees in those days were relatively low and relatively hassle free. Most Chapter 7 cases processed through to discharge, and Chapter 13 cases worked as long as the debtor remained employed and committed to making his case work.
Fast forward to October, 2005 – the time that the BAPCPA amendment to the Bankruptcy Code went into effect. The system became significantly more complicated. Clients were expected to gather page after page of documents, lawyers were charged with performing extensive budget calculations (the median income and means test).
Fees went up because both the attorney’s liability and the amount of work required increased greatly. And what is the end result? Many people with limited income and no hope of paying it back are filing Chapter 7. Others who would have fit into Chapter 7 sometimes do not qualify immediately and end up having to delay their filing for a few months. Folks with some capacity to pay end up in Chapter 13, but trustees are more demanding and Chapter 13 plans that would have worked under the old law do not always work now.More on BAPCPA at 4 Years – Has It Solved Anything?
Filed under General consumer bankruptcy info, Georgia Bankruptcy by
Earlier this month the U.S. Supreme Court heard arguments in a case involving the question of discharge of student loans in a Chapter 13 case. The case arose from a Chapter 13 petition filed in 1992 by Francisco Espinoza, an American Airlines baggage handler.
Mr. Espinoza’s story began in 1988. Sensing that airline baggage handling was not a great long term career, Mr. Espinoza enrolled in a technical school to learn computer drafting and design, and he financined his education with a student loan. Unfortunately, he was not able to find a job using his new education and he found himself in a financial bind when American Airlines froze wages and reduced his hours.
By 1992, Mr. Espinoza found himself living paycheck to paycheck and unable to pay down his $13,000 student loan. At that point, he contacted a lawyer and filed a Chapter 13 bankruptcy. The Chapter 13 plan prepared by Mr. Espinoza’s lawyer provided for full payment of the balance due on the student loan over the term of the plan but it did not provide for payment of $4,000 in accrued interest or for future interest.
More on Student Loan Discharge Case Heard by U.S. Supreme Court
Filed under Chapter 13 issues, Discharge issues, Student loans by
Filing bankruptcy reshapes America.
This chart from the EconomicCrisisBlog.com graphically illustrates what many of us in the Atlanta area already know – Georgia has one of the nation’s highest rates of bankruptcy filings.
Why is this and why has it been this way for years – long before the current recession? From my perch as an Atlanta debtor’s attorney, I believe that the following factors contribute to our state’s high filing rate:
- most people in Atlanta are not from Atlanta. As such, they do not have close family nearby who can help out with a loan or with a place to stay
- the economy in Atlanta is and has been primarily a service economy, with an emphasis on communications, IT infrastructure, and transportation. These industries tend to move through boom and bust cycles more quickly than the economy in general, making jobs in these areas less stable
- Atlanta is a young, somewhat flashy city that encourages conspicuous consumption. As a metropolitan hub, Atlanta exploded in the 1970′s meaning that most of the suburbs are 20 to 30 years old. There really isn’t much “old money” here – and the entrepreneurial class that drives much of the region’s business is inherently less financially sound
- bankruptcy filings tend to breed more bankruptcy filings. When you look at the total numbers of filings over the past 20 years, the totals add up to more than the total population of the metro Atlanta area! Now, obviously some folks have moved elsewhere but I sense that in general, the idea of filing a bankruptcy in Atlanta is seen as a financial tool rather than a badge of personal failure
- there is a lot of information out there about filing for and recovering from bankruptcy. Information empowers people to understand their options and to make reasoned choices. Although bankruptcy is and should be considered a last resort, it can offer a fresh start for honest, hardworking people who are facing an otherwise unmanageable financial crisis
Can you think of other reasons why Atlanta and Georgia have such high filing rates – I’d love to hear from you.
Filed under General consumer bankruptcy info, Georgia Bankruptcy by
As we approach the Christmas holiday season, I want to remind my readers of two things. First and foremost, I want to wish all of my clients and blog readers a happy and healthy holiday season. Financial struggles will come and go but if you have your family and your health, not a whole lot of other things matter.
Secondly, I would respectfully suggest that it is never too late to begin the process of tackling your financial issues. Over the years I have met with many potential clients in January and February who bring me credit card bills containing charges incurred for presents in November and December. They are ready to make a fresh start and want to file.
On more than one occasion I heard the explanation “well, I knew that I was going to have to file bankruptcy at some point – but I wanted my family to enjoy a nice Christmas first.”
From my perspective as a bankruptcy lawyer, this attitude will get you in trouble. Common sense should tell you that you cannot run up your credit cards buying gifts, then wipe out that debt a month or two later by filing bankruptcy.
Filed under Creditor discharge actions, General consumer bankruptcy info by
With a sluggish economy, I have met with an increasing number of small business owners who are considering personal bankruptcy to deal with credit card debt and personal loans, but who want to keep their business assets and credits separate. Is this possible.
First, it does make a difference whether the small business is incorporated. If your small business is a proprietorship (i.e. “Tom Smith d/b/a Tom’s Lawncare”) then there is no way to separate personal assets and debts from business assets and debts. In this situation, all debts are “personal” because the proprietorship does not have a separate identity from the individual. All debts would have to be listed – for bankruptcy purposes in this situation, there is no difference between your personal credit card debt that arises from gasoline and grocery purchases and a credit card that you use for business purchases.
Assets of the proprietorship would be considered personal assets – assets that do not fit within the Georgia exemption statute would be at risk.
In a Chapter 7, if you have non-exempt assets you would have to surrender those assets to the trustee or offer to buy the “estate’s interest” from the trustee (usually at a discount from fair market value).
Note that any receivables of the business or any other property with potential resale value (i.e. customer lists, pending contracts) could be claimed as estate assets.
In rare instances a Chapter 7 trustee could object to your small business bankruptcy using an “income suppression” argument. This argument asserts that you should not be eligible for bankruptcy relief because you have intentionally suppressed your income by leaving a highly paid job or intentionally refused to maximize income opportunities.
If you are incorporated, the shares of your business are assets and you may very well be asked to justify a de minimus (i.e. $500) valuation that you put on those shares. I see this issue frequently when clients own service businesses. More on Will a Personal Bankruptcy Affect my Small Business if I am Self Employed?
As you may know, there are both federal and state laws that offer a variety of protections to individuals who are in debt and who are being dunned by debt collectors. The Fair Debt Collection Practices Act offers a variety of protections in cases involving collection agencies (as opposed to the actual creditor). In other words, a credit card company can do and say certain things and remain legal, but if a collection agency does or says the exact same things, those actions would be a violation of the FDCPA and make the collection agency subject to a claim for damages.
Two of the protections provided by the FDCPA include:
- a prohibition against communicating with a debtor when the collection agency employee does not identify himself as a debt collector; and
- communicating about your debt with third parties
The 11th Circuit Court of Appeals (which provides controlling precedent for Georgia) recently issued an important decision that struck down a somewhat bizarre argument by a debt collector regarding phone messages. This case benefits consumers by clarifying the rules about telephone messages by bill collectors.
The case of Edwards v. Niagara Credit Solutions involved a situation in which the debt collector (Niagara) left “bare bones” messages on a phone answering machine asking Ms. Edwards to call back about an “important matter.”
Niagara argued that its employee did not identify itself as a debt collector because someone other than the debtor might hear the message, thus violating the “third party communications” prohibition.More on FDCPA Does Not Give Debt Collector the Right to Leave Messages on Your Phone Answering Machine
Filed under Consumer protection, FDCPA Claims by
For the first time since means testing was instituted in 2005, the median income number in Georgia have gone down. This means that potential Chapter 7 debtors will have a more difficult time avoiding a “presumption of abuse” and the extra cost and hassle of means test calculations.
Here is a comparison table
Current Median Income Numbers Median Income numbers
after November 1, 2009
Family size
1 $40,760 $40,691
2 $54,054 $55,258
3 $61,959 $61,104
4 $71,554 $68,502
Let’s consider how this change affects you if you have a family of 4. If you file by October 31, 2009, you can have household income of $71,554 and still qualify for Chapter 7 without having to qualify under the means test. As of November 1, 2009, if you earn $71,554, the presumption of abuse arises and you must try to qualify by rebutting the presumption using the means test.
If your six month average gross income (April-September) is close to the current median income numbers and you expect the May-October numbers to be similar, it may make sense to try to file prior to November 1 – or at least to discuss this possibility with your lawyer.
Filed under Means Test issues, Median income test issues by
If you have been hurt on the job in Georgia and rely on weekly wage benefits from workers’ compensation you know that temporary total disability benefits payable per Georgia law will require you to downsize your standard of living. Sometimes the financial strain caused by your loss of a regular paycheck may lead you to consider Chapter 7 or Chapter 13 bankruptcy. What are the implications of pursuing bankruptcy while you are receiving workers’ compensation benefits?
My wife and law partner, Jodi Ginsberg, was recently questioned about this subject by a man who she is representing in a Georgia workers’ compensation case. This gentleman had been in a Chapter 13, but his case was dismissed after over 3 years when he got hurt and lost his regular income. Now that his Chapter 13 has been dismissed, one of his creditors has filed suit.
Jodi’s client wants to know if he should refile his Chapter 13 case to avoid having a judgment rendered against him. He is rightly concerned that a judgment creditor could seize his bank account and/or place a lien on his home.
Here is my take on this: while I think that a refiled Chapter 13 could work, I would be very reluctant to pursue this course of action. First, there is the practical question of whether Jodi’s client has enough disposable income to make a Chapter 13 work at all. I have not run the numbers in this case, but it would not surprise me if there is zero or negative cash flow in this prospective debtor’s budget – and a Chapter 13 will not work without some positive cash flow.More on Should I File Chapter 13 While I am Receiving Workers’ Compensation?
Filed under Chapter 13 issues, Georgia Bankruptcy by
My Bankruptcy Law Network colleague Rachel Foley from Kansas City has written a useful article on the Bankruptcy Law Network blog that brings to light a problem that many debtors (and perhaps many debtors’ attorneys) don’t think about too much – bankruptcy fraud.
In my practice I observe that when they come to meet with me many prospective bankruptcy filers are angry – angry at harassing creditors, angry at their employer for cutting hours or jobs, and angry at some of the rules that apply when one files bankruptcy. Despite what some in Congress may say, no one wants to file bankruptcy and I have met many very nice, reasonable people who feel that they played by the rules and now they are going to have to start all over at age 40, 50 or older.
The net result of this anger sometimes is a sense of “us against them.” Sometimes this manifests itself in an attitude that the debtor will follow the rules mostly but who is going to harm if they don’t reveal a cash payment to a relative or the transfer of an old car to a brother.
As Rachel points out in her fine post, this sort of an attitude can really get you in trouble.
When you sign your name to a bankruptcy petition, you are declaring under oath that the information contained therein is truthful and accurate. If you leave something out intentionally you may not get caught, but, then again you may. The U.S. Trustee and the U.S. Attorney have been known to prosecute debtors to set precedent.More on FBI Warns Against Bankruptcy Fraud
Filed under Chapter 13 issues, Chapter 7 issues by
