SCOTUS Bankruptcy Cases of 2015

Here is a blog entry I prepared for my firm’s website. I thought you might like it…

The Supreme Court of the United States (SCOTUS) issued some very controversial high-profile decisions in its 2015 session. It also ruled on five cases involving bankruptcy. There are approximately 10,000 cases from the lower courts that are appealed to the Supreme Court every year, and the Court might select 75-80 cases per year.

In 2015, five of those cases involved bankruptcy law. That might not seem like a lot, but it is. The SCOTUS does not hear many bankruptcy cases compared to other areas of law, and to select five cases in one session is quite significant.

It is likely these cases will NOT affect most consumer bankruptcies. But it is imperative yourbankruptcy attorney always keeps abreast of the rulings from the higher courts.

Here are the five cases:

  • Caulkett v. Bank of America, N.A.: A debtor in a Chapter 7 bankruptcy proceeding may not void a junior mortgage lien under 11 U.S.C. § 506(d) when the debt owed on a senior mortgage lien exceeds the current value of the collateral if the creditor’s claim is both secured by a lien and allowed under Section 502 of the Bankruptcy Code.

(This case will be the most likely of the five to affect a consumer debtor. It affects anyone with multiple mortgages on real estate)

  • Bullard v. Hyde Park Savings Bank: A bankruptcy court’s order denying confirmation of a debtor’s proposed repayment plan is not a final order that the debtor can immediately appeal.

(It can cost thousands of dollars to formally appeal a case; filing an untimely appeal can be a waste of money for most debtors)

  • Harris v. Veigelahn: when a debtor in good faith converts a bankruptcy case to Chapter 7 after confirmation of a Chapter 13 plan, undistributed funds held by the Chapter 13 trustee are refunded to the debtor (as the Third Circuit held inIn re Michael).

(Considering what a Chapter 13 debtor would have likely already paid in by this time, this is hardly ‘free money’ for the debtor)

  • Baker Botts, LLP v. ASARCO, LCC: Section 330(a)(1) of the Bankruptcy Code does not permit bankruptcy courts to award fees for defending fee applications to professionals hired under Section 327(a) of the Bankruptcy Code.

(An attorney or other professional should not be awarded fees for his time spent justifying his fees)

  • Wellness Int’l Network, Ltd. v. Sharif: Article III permits bankruptcy judges to adjudicate Stern claims (certain areas of law considered “core matters” under 29 USC 157(b) such as fraudulent transfers and state law counterclaims) with the parties’ knowing and voluntary consent.

(This is a complicated issue regarding what kinds of cases a bankruptcy judge can and cannot hear associated with a bankruptcy case. This eases the strict ruling from an earlier case called Stern v. Marshall)

The attorneys at Bankruptcy Clinic PC have fifty years of combined experience and have filed thousands of consumer bankruptcies in Southern Illinois. You can count on our attorneys to keep current on the law and case rulings of the courts that may affect your case. If you are in need of debt relief, call us at our Carbondale, Marion or Mount Vernon office for your first step to a financial fresh start

Budgeting, avoiding debt and getting out of debt, Part 2

budget

Budgeting, avoiding debt and getting out of debt

Part 2

            On January 27, 2015 I was asked to speak to families by the BCMW Head Start program in Centralia about budgeting, avoiding debt and getting out of debt.

            I prepared a thirty-minute speech with handouts and other documents. Most of my speech was cobbled together from notes online, and I thought I would write it up as a blog to share with you.

            Note that these are lecture notes and not originally done to be read. It’s like reading a play – something I always complained about in school when studying Shakespeare, etc. It’s like trying to “listen” to Mozart or the Beatles by only looking at the sheet music. So it is a little disjointed, but I hope you enjoy it.

            Check the first part of my speech here.

***

            Now that you’ve found a small pool of “extra” savings, how can you use that to get out of debt?

            Make a conscious decision to stop borrowing money. Right now. If you want to get out of debt fast, you have to stop using debt to fund your everyday expenses and lifestyle. This means no more financing furniture, no more signing up for credit cards, no more test driving brand new cars that you don’t have the cash to pay for. This will help you focus solely on the debt that you currently do have so that you can develop a game plan to pay it off quickly.

            DON’T take out a big loan to pay off all the smaller ones; you can’t borrow your way out of debt. Especially if you are still used to using debt to finance your everyday expenses. In a few years, or even months, you’ll be back to several loans and credit cards AND the big loan that paid off your previous debt…

            Ask for a lower interest rate: Frankly I usually have doubts about this working, but I’ve had people tell me they have had some success. Grab a bill from any account charging you more than 15% interest. Dial the toll-free number on the bill and ask to have your rate reduced — say, to 10%. Tell them that you’d really like to stay with them as a customer, but you are facing financial difficulty and have received offers for much-lower-rate cards. Stand firm and remember that, to them, you are both a customer and a means of profit. You have nothing to lose – all they can say is “No.” Thank them and hang up. But if they say yes, you could save some money. And always, always ask a letter from them confirming the new rate.

            Should you switch to a low-interest or no-interest credit card? Well, why not? If you stick to the payment plan it will save you money in the long run. One saying is applying for lots of credit cards at one time hurts your credit. Odds are your credit is already hurting right now … so where’s the real harm? And all the new credit cards can say is no and you can cancel them before charging anything on them – but watch out for the transfer fees. Is it worth paying no interest when they add a thousand dollars to your bill?

            Is there any way to earn extra cash? Books and financial gurus tell us to “go get a second job”. Yeah, right. I earn more money, I lose my aid.  Or “start your own business”. Seriously? How can they say that and keep a straight face?

            But maybe the older children can help with part-time jobs. And they can help with expenses. They can start learning about income and not using debt to fund living expenses. A habit they’ll get into that will benefit them the rest of their lives!

            Can you sell things? Don’t think of ways to make some extra money as a waste of time. You might spend all day on Saturday sitting at your yard sale for $40.00. But it’s $40.00! What else would you be doing? Watching TV? The kids can help count money and make change – my gosh they might learn something!

            Take old toys to consignment shops, sell old clothes on those online or Facebook yard sales.

            Once you have found some extra cash, it’s time to organize your debt and start paying it off.

***

            Financial gurus use two approaches:

  1. List your debts smallest to largest regardless of the interest rate. This helps build momentum. When we paid off our first debt it’s encouraging and exciting! Even though we had higher interest debts, this gave us something that was very powerful: the belief that we could get out of debt quickly if we stuck to the plan. Then when that debt is paid off, roll that monthly payment into the next debt.

            Example: you’ve found a pool of $75.00 extra per month and pay that on a bill until that is paid down. Then you go to the next bill and pay that bill the extra $75.00 plus its minimum payment, let’s say $30.00, too. So you have $105.00 going to pay that bill. Once that is paid off in a few months to a year roll that $105.00 to the next bill and add its minimum payment – let’s say $40.00 per month. So you are making $145.00 per month on that third bill!

  1. List your debts starting with the highest interest rate first and end with the debt with the lowest interest rate. This will save the most money in interest over time.

            Regardless of which process you choose, the key is to stick with it.

            Throw that excess cash at your debt

            I mentioned this before … if extra money comes to you, take this cash and use it to tackle your debt. Some good examples would be a tax refund, selling a car, selling toys at consignment shops or online. The more cash you can put towards your debt, the faster it will disappear.

            Be aggressive in paying down debt, but don’t get so ambitious that you risk missing minimum payments on your mortgage, automobile, or any other secured credit account. (Secured means that if you miss enough payments, the bank can show up and take away your stuff.)

***

            Then there is bankruptcy, this is what I do. I am a bankruptcy attorney. In this debt pay-off plan I consider this the nuclear option. Boom!  I’ll explain why in a bit.

            There are two kinds of bankruptcy you can file – the Chapter 7 and the Chapter 13. Why they are called that is because the bankruptcy code is like any book – it’s divided into chapters and the chapters that apply to people at 7 and 13. Chapter 13 is a consolidation of all your debt – kind of like what we are talking about right now. The Chapter 7 eliminates or liquidates all debt.

            There’s a lot more to it than that, such as car loans and house loans, but that would take up another half hour.

            The trouble with filing bankruptcy is the same as getting a big loan to pay off your debt. You need to get in the habit of not financing your everyday expenses with credit. Bankruptcy will eliminate your credit cards and loans, but if you don’t learn to live and spend without them – you’ll be back to owing more credit cards and loans in a few years, or months!

            Remember that originally credit cards were a safe substitute for cash – usually in bigger cities or stores. I charge on my account and pay it off at the end of the week. In rural areas people charged until they had the cash available. It’s too wet to cultivate the beans, but after ten days of sunshine I can harvest the crop and pay store or bank debt.

            Debit cards are now the substitute for cash. I use a debit card instead of cash. It’s safer and most places take them now. Don’t use credit cards for food or clothes. When Wal-Mart announced in the mid-1990s they would start accepting credit cards, I knew the impact it would have on people dependent on credit cards.

***

            OK, so I’ve paid off all my debt, now what? Establish a starter Emergency Fund of $1000.

            You might be wondering, ‘Why is having an emergency fund important’? Well, if you don’t have any money in the bank and an emergency does happen, how are you going to pay for it? For most people, credit cards become the funding source for those emergencies. If you are trying to get out of debt then you need to put a buffer between you and debt; that is exactly what an emergency fund does.

            A fun way to save money is to add money into a jar or piggy bank at the rate of the same amount of dollars as the week of the year beginning January 1st (we’re nearly in February so you will have to catch up quick). $1.00 the first week, $2.00 the second week, etc. This might get tight by the time you get to week 30 or so… (this will be mid-July), but by then you’ve collected $465.00 – in ten weeks that will be $820.00 (mid September): there’s your Christmas spending money. If you can make it to Week 48 (just after Thanksgiving), that’s $1,176.00. That’s a nice way to save up for your emergency fund. By the way, if you want to catch up, the end of January totals $15.00.

***

            When you have a huge debt load you feel isolated and bummed out. But if there is one thing to remember is that you are not alone. And there are people you can turn to for help. There are lots of books and financial gurus out there. You can check out books and DVDs from the library or buy them cheaply on ebay.

            And by the way, check your local libraries or museums or conservatories for free activities for kids and families – game days, reading nights, movie nights, etc. Substitute that instead of paying for the family to see a movie.

            When it comes to getting out of debt one of my favorites is John Cummuta. His earlier tapes and DVDs talk about this system of paying off your debt slowly and I like what he says and his down-to-earth style. Nowadays he also talks about what to do with all that extra money: invest in this, invest in that, start your own business, etc.; but his method to climb out of debt is still good advise.

            But there are also so many scam artists and charlatans out there, so be careful. You know, “I can help you make a millions dollars. Just send one dollar to “How to Make a Millions Dollars”…” and their secret is to get one million people to send them a dollar…

            And don’t put up with smarmy condescending jerks. The type that says it’s not your fault and then spend twenty minutes telling you why it’s your fault.

            Debt doesn’t have to be forever. Develop your financial game plan and start your journey toward being debt-free.

***

            (The suggestions and ideas of this blog are cobbled together from various internet sites and blogs. Some ideas and suggestions are original; some taken from various “un-cited” sources. Copyrights, if any, are held by the proper holders.) 

Michael Curry

Budgeting, avoiding debt and getting out of debt, Part 1

budget

Budgeting, avoiding debt and getting out of debt

Part 1

            On January 27, 2015 I was asked to speak to families by the BCMW Head Start program in Centralia about budgeting, avoiding debt and getting out of debt.

            I prepared a thirty-minute speech with handouts and other documents. Most of my speech was cobbled together from notes online, and I thought I would write it up as a blog to share with you.

            Note that these are lecture notes and not originally done to be read. It’s like reading a play – something I always complained about in school when studying Shakespeare, etc. It’s like trying to “listen” to Mozart or the Beatles by only looking at the sheet music. So it is a little disjointed, but I hope you enjoy it.

***

            If you do not have debt, congratulations. There aren’t many people out there that can say that. Most of us have debt and that can cause stress & anxiety.

            If you’re afraid to open letters, answer the phone or open the door, but they are ignoring the problem – but it won’t go away.

            Being in debt can be a stressful experience. No matter what your circumstance is, if you signed for a loan, you are obligated to pay it back even if you have a life altering experience like losing a job, getting into an accident, or even if you have increased expenses due to having a child.

            Money is the No. 1 cause of relationship breakdown.

            Ignoring it may also make you dread what tomorrow might bring. And it’s all because of money worries.

            Facing up to the problem can be a frightening thought, but it is the first step towards doing something about it.

***

            To avoid debt or to get out of the debt trap you are in is to know your income and expenses.  What you have coming in and going out…

            Few of us were taught the basics of money management.  Drawing up a budget is a mystery to many. Yet it has an impact on our day-to-day living.

            Look at your income; I made an income sheet that details your gross, your deductions and then you final net income – your take-home pay.

 Gross Income                                             $

Overtime (average):                                $

Total:                                                             $_____________

 DEDUCTIONS:

Taxes

            Federal                                              $

            State                                                   $

            Social Security                               $

            Medicare                                           $

            Other (FICA, etc.)                         $

 Insurance

            Health                                                $

            Life                                                      $

            Vision                                                 $

            Dental                                                $

            Disability                                          $

            Other                                                  $

 RETIREMENT                                            $

 UNIFORMS/SHOES/EQUIPMENT    $

 OTHER                                                          $

  

NET INCOME:                                             $

 Determine your monthly income:

            Paid weekly*?                                                         x 4 =

            Paid every other week*?                                     x 2 =

            Paid two times per month?                               x 2 =

            Paid monthly?                                                        x 1 =

 

*(actually, weekly is 4.33 and bi-weekly is 2.167, but this will give you a cushion)

***

            Know what your deductions are. Is this insurance? Is this a voluntary charity? It’s important to know where your paycheck is going.

            Is there a way you can adjust this?

            Can you adjust your withholding? Do you need that big tax refund or can you lower your withholdings to make more money during the year. You may get thousands of dollars in February but are eating Ramen noodles by November, and borrowing for Christmas and paying for it with those thousands of dollars in February – it’s a vicious circle of debt…

            You can even spread out your earned income credit through the year. This can be hundreds of extra dollars per month.

***

Then look to see where what you are spending. I’ve also included an expense sheet we use at our office. You can find lots of these online or in self-help books at the library you can copy for your own use.

EXPENSE
AVERAGE MONTHLY COST
RENT OR HOME MORTGAGE $
UTILITIES  
Electricity $
Heating Fuel; Gas or Propane $
Water and Sewer $

Telephone

$
Cell Phones $
Cable $
Satellite $
Trash $
HOME MAINTENANCE (repairs, lawn mowing, painting, etc.) $
FOOD $
NON-FOOD GROCERY ITEMS (laundry soap, diapers, toiletries, etc.) $
CLOTHING/SHOES (yearly average ¸ by 12) $

LAUNDRY / DRY CLEANING

$
MEDICAL AND DENTAL EXPENSE (do NOT include insurance premiums) $
TRANSPORTATION – include gas, oil, repairs ( do NOT include car payment or insurance) $
INSURANCE (do NOT include any payroll deductions)  

Homeowner’s /Renter’s (if not escrowed)

$
Life $

Health (Major medical, dental, vision, etc.)

$
Auto $
Other $
TAXES – do NOT include any payroll deductions or any that are included with your mortgage payment  $
INSTALLMENT PAYMENTS – only those you  intend to keep  
Automobile payment $
Automobile payment $
Other $
Other
$
ALIMONY, MAINTENANCE AND SUPPORT PAID TO OTHERS (do NOT list if this is a payroll deduction)  $
CHILD SUPPORT (do NOT list if this is a payroll deduction) $

MISCELLANEOUS

 

Tobacco

$
Postage $
Haircuts/Beauty Shop $
Pets $
School Supplies/Lunches/Expenses $
Charitable contributions $
Other __________________________ $

             Be realistic! This will help you see where your spending goes.

            Check the income minus the expenses – where are you at? Do you need to trim some expenses?

            Go over each line item on your budget and ask yourself, ‘how can I make this number smaller?’ It may involve cancelling services that you rarely use like a gym or swimming pool membership, Netflix subscription (although that is sometimes cheaper than cable), etc. It might even involve reducing the amount of times that you eat out at restaurants each month.  Maybe make it once per month – makes it more special.

            Stop buying non-essentials. Buying lunch every day? Coffee? Think how much you spend on high-end coffee per cup. $7.00 for a mocha froth? One of those a day for month equals an average car payment. A car payment … a cup of coffee. Get it?

            Use coupons or buy generic (although it is usually cheaper just to buy generic green beans rather than name brand even with coupons).

            If you decide you’d like to keep getting that big tax refund instead of spreading it out through the year: think hard about what you want to use it for. Don’t blow it on a vacation.  Remember the cute phrase some years ago – “Staycation?” Go to Springfield if you like history, camp out at Giant City or Rend Lake, St. Louis Zoo is still free, etc.

            Movies? Get them from the library. Games? Rent them, too. Cable? Can you watch shows you like online or though Hulu or Netflix (but watch out your not paying extra for the internet streaming. Netflix may be $7.00 per month, but if you go over your internet limit that will cost tons… see? You have to watch for those little things)? Cell phone? Get prepaid – you can reward yourself with a smartphone after a debt is paid off.

            And feel free to reward yourself when you hit a milestone and pay off a debt. Go to that movie, eat out someplace nice.

            Before buying an expensive item, count how many hours you will have to work to pay for it or how many months’ income it is. Rule of thumb: if you can’t afford it, you can’t have it.

            Other ways to shave off a few bucks from your expenses are old tropes or old ideas, but they happen to be true and happen to work: Your car’s most economic speed is likely to be between 50 and 55 mph.   When you buy a car, get one that is two years old – its price will have dropped by 40-50 per cent – and keep it three years.

            Never go shopping when you are hungry – and, if possible, don’t take the children. My secretary told me her cousin plans their meals for the week and writes it down in a notebook and takes it shopping – cuts down on the impulse buying and buying things you don’t need or impulse items.

            The amount that you slash depends upon your commitment level to getting out of debt.  The more committed you are, the easier it will be for you to give up some of the unnecessary amenities in life.  You might not even need to sacrifice much if you can find these items or services for less.

            But you will probably have to make changes in your life to climb out the hole. Think about how long did it take you to get here? This won’t happen overnight, or in a month or a year! It takes perseverance, patience, and dedication; it takes time and effort.

            From here you can now make a plan – by looking at the kind of debt you have – secured (fixed payment) and unsecured.

***

            End Part 1 …

            Fear not, Part 2 of this speech will be posted on my blog right away … if there’s no hyperlink at the end of this blog, you can click here.

            (The suggestions and ideas of this blog are cobbled together from various internet sites and blogs. Some ideas and suggestions are original; some taken from various “un-cited” sources. Copyrights, if any, are held by the proper holders.) 

Michael Curry

I am my own guest blogger!

bkc

This is a blog I prepared for the blog from my work. I hope you enjoy it!

http://www.bankruptcy-clinic.com/2014/10/23/smart-cards-new-ways-using-credit-cards/

Smart Cards – new ways of using your credit cards

You’ve probably read of the hacking of credit card accounts at Hobby Lobby recently. Other chain stores, as well as some bank ATMs, have been compromised over the past few years. You might have been affected by that – a letter from your bank or credit card company saying they will issue you a new card and pin number because your account “may have been compromised”.

Sometimes you get that letter more than once.  One client had to switch debit cards twice in a year – once because of the hacking of accounts at Target and later at her bank.

It’s a scary thought – you immediately check your balance and recent statements for debit and charges you may not have made.

The Bankruptcy Clinic PC, a Southern Illinois Bankruptcy Law Firm, has seen several clients who have been the victim of credit card fraud. This is one of many financial problems that lead them to our office for advice – along with outstanding medical bills, continuing divorce issues, suffering job loss, etc.

And credit card fraud is an issue of concern for anyone trying to rebuild their credit after filing bankruptcy.

It is an issue of concern for anyone and everyone.

Fortunately, the credit card companies and banks are taking positive steps to curtail fraud.

Most credit card fraud happens in America.  Changes that will be made by October 2015 will curtail that. It is modeled after Europe’s successful attempts to fight fraudulent credit and debit transactions.

The old “swipe and sign” method of paying with plastic will be replaced. You may still sign your name, but most credit cards will be using a personal identification number (pin) instead.

Also, instead of a metal strip on the back of a card, there will be a microchip. You will slide the card into a reader and put in your pin and/or sign (just like you do when you pay with a credit or debit card at, say, Wal-Mart).

With this new system, the information will NOT be stored by the company or business you are charging and such information is not released to the provider (and thus cannot be stolen by a hacker) by the secured microchip in your card.

This also allows for credit or debit transactions other than using a rectangular card. Your credit or debit card can be a small keychain fob (some credit cards are already using this system, but still with the magnetic strip on the back).

An exciting technological use will be your credit or debit card as an app on your cell phone or tablet – remote transfer of information similar to current apps that can read bar codes.

Businesses are encouraged to switch to this new system by October 2015. Companies still using the “swipe and sign” method may be held liable for any credit card fraud after the switch-over date.

If the success of the European model is any indication, the new “Smart Cards” will help fight credit fraud. For people who have filed bankruptcy, this will allow them to continue building up their credit after their fresh start without fear of their information being stolen from the businesses used.

If you have been the victim of credit theft – or are otherwise fighting an unmanageable debt load – please call our offices in Carbondale, Marion and Mount Vernon for a free consultation with a Southern Illinois Bankruptcy Law Firm on getting a fresh start by filing for bankruptcy.

Deep in debt? Contact a Southern Illinois Bankruptcy Law Firm

Call The Bankruptcy Clinic today at (618) 549-1100

The Business of Bankruptcy

The Business of Bankruptcy
                On September 9, 2013 I spoke at the monthly meeting of the Mount Vernon Business Women’s Club about bankruptcy.
                The person who invited me, Marilyn, was my wife’s boss for many years before she retired and is also a good friend of both of us. I said I would be happy to speak at their meeting. Considering the audience, we decided the topic should be about how bankruptcies affect businesses.
                Here is a transcript of the speech from my notes with details filled in and some details changed for a wider audience (“In my district courthouse” replaces “In Benton”, that sort of thing). I hope you enjoy it.
***
                As a business owner, bankruptcy can affect you in three ways: as a creditor, as an employer and as a debtor.
                Of the different types of bankruptcies available, there are three that you would see – the Chapter 7, Chapter 13 and Chapter 11.
                They are called that because the Bankruptcy Code is just like any book – it is divided into chapters, 1 … 2 … 3. And the Chapters that involve individuals are 7 & 13. Why 7 & 13 and not 1 & 2, who knows, that’s just the way it is laid out.
                Chapter 7 is what most people think of as bankruptcy – a liquidation of all unsecured debt. These are credit cards, medical bills, back utilities, book clubs, record clubs, finance company loans, bad checks, and cash advance businesses. Unless you’re in the business of giving loans to customers in exchange for collateral, debt owed to your business is unsecured debt.
                Chapter 7 lasts for 90 days. From the time of filing until it is finished, 90 days pass.  At the end of those 90 days the debtor receives a discharge and all of those unsecured debts are discharged.
                As for secured debts – where I have a lien on my house or car – I can either reaffirm with the bank and keep paying for the collateral or surrender the collateral. Banks usually will allow me to do that if I am current.
                Some bills survive bankruptcy – taxes, student loans, and child support – government-ordered debt. The federal government is saying, “We’ll forgive all debt you owe except for debt you owe to us.”  I would doubt any of your accounts receivable would qualify as that kind of debt.
                Chapter 13 is a consolidation of all debt into one payment. It includes all debt owed – even vehicles – except for your house payment if you are current. Otherwise the bankruptcy payment has to include that as well.
                Chapter 11 – I do not do Chapter 11s although the senior partner of our firm does once in a while – is similar to a Chapter 13 but it is for corporations or individuals who owe about $260,000.00 in unsecured debts.
                Corporations or LLCs cannot file Chapter 13. Only an individual or an individual doing business as can.
As a Creditor:
            You will receive notice in the mail that a customer/client/debtor has filed for bankruptcy in any of the available Chapters.
                At that time, all collection activity must cease. It’s called a “stay”. It’s automatic. Boom. No questions asked. Stop the collection. You might dispute the dischargeability of your debt, but that is an argument for another time. Right now, stop collecting it.
                To avoid anti-dun letters or even sanctions, contact your collection agency, department or individual in charge of trying to collect the debt and get it stopped. Press whatever button you need to press on your computer to stop that bill from being mailed out.
                You don’t have to write the bill off entirely – wait until you get the letter from the court discharging the debtor. If for some reason the bankruptcy is dismissed or the discharge is set aside, your debt is “revived” and you can go back to collecting it.
                A bankruptcy can be dismissed for several reasons – usually because the debtor has done something wrong.  He doesn’t qualify because he had filed before or his income is too high. He may have failed to appear in court or failed to provide the Court the documents required.
                You can dispute and fight someone’s discharge – if they wrote a bad check or if they committed fraud against you. It’s hard to do, and you should discuss the possibility with an attorney. And I don’t mean fraud in that someone left off a credit card on their application. I’m talking about if they said their income was double what it really was.
                But you will have to prove you had the wool pulled over your eyes to win. The first thing the court will ask is “did you pull a credit report? Was the missing credit card on there? Did you ask for paystubs? Didn’t you notice his income was substantially lower than what he said it was?”
                Here’s a tip – if he just got a loan from you five days before filing bankruptcy; unless there was a change of circumstances in between (he lost his job, his family went to the hospital), odds are he was insolvent when he got the loan and was considering filing bankruptcy when he was in your office.
                Sometimes if the Chapter 7 Trustee (this is the person in charge of investigating the facts of the case to make sure the person qualifies for the discharge of his or her debts) has an asset to sell you will be notified to file a claim.
                A Chapter 7 liquidation is not only the liquidation of debts but also liquidation of assets. If someone has a luxury item or property they do not need – a boat, a piece of land, a third car, expensive collections of coins or guns or comic books – those things can be liquidated and the cash from the sale will be disbursed to the creditors for one last payment. But to get any money, you have to fill in and file the claim form provided.
                It’s a simple form. Fill it in, mail it to the court, and send a copy to the Debtor’s attorney and you you’ll get a few bucks. You may have to file it electronically, which will mean a trip to the courthouse. Ask the clerks for help. That’s what they are there for.
                “It’s not worth the time and postage.” I don’t think that’s true, even if it only gives you a few dollars.  But I’m cheap that way…
                In Chapter 13, you will also be notified to file a claim. You will probably get substantially more than you would in a Chapter 7, so it is worth preparing the claim and sending it to the court and Debtors/counsel. It is possible after five years you will get a few dollars, if any at all. With the time-value of money it is easy to repeat, “It’s not worth the time and postage.” Five minutes to fill in the form, a stamp or a trip to the courthouse. If you complain about the gas spent, do something else during the trip to the courthouse. In my district the courthouse is next door to a wonderful city museum. See the radio DJ booth George Harrison visited in 1963.  See the jail cell of the last man hanged in Illinois – my grandfather was there and watched it.
                You should not send the Debtor a 1099 for the unpaid debt – a debt discharged in bankruptcy is not taxable income. It is not a forgiven debt. That IS a waste of time and postage.
                You can write it off as a loss. If you have insurance (most credit cards have bankruptcy insurance), you can submit a claim.
                The only thing you cannot do is try to collect the debt from a discharged debtor.
As an employer. 
                You’ll probably never know that your employee has filed a Chapter 7 unless his wages are being garnished.
                If an attorney knows what he is doing he will fax you a notice of the bankruptcy as soon as it is filed and ask you to stop withholding the funds. If you have already given the funds to the judgment creditor; that is nothing for you to worry about. If you are still holding funds and don’t know what to do about it – you can ask for a court order, you can call your attorney, the attorney for the creditor, the attorney for the debtor. “I’ll give this money to whoever the court tells me to…” Generally, though, if you stop the garnishment when you receive the notice of filing bankruptcy, you’ll be fine.
               
                An employer will receive notice if the employee does a Chapter 13.
                If you are employed the Chapter 13 payment comes directly out of your paycheck.
                The employer will be mailed a notice from the court to withhold a certain amount per month from this person’s paycheck. You should try to do it but if you simply cannot don’t worry about it. It is ultimately the responsibility of the Debtor to pay the Chapter 13 payment, not the employer.
                The withholding is an allotment, not a garnishment, so avoid assessing points against an employee or charging processing fees. You can do it, but … shame on you.  It would be best to simply not withhold it. If a Debtor’s attorney calls and asks why it isn’t being withheld, be honest: we don’t have the wherewithal to do that sort of thing; I don’t want to be responsible for any misplaced checks sent out, etc.
                If you do assess points or charge a fee the Debtor’s attorney will likely ask for direct payment and the court in this district is good about granting that. So, hey, maybe it IS a good idea to assess points or charge a fee, your employee will ask the court for direct pay and you’re out of it. No, don’t do that. It’s best just to contact the debtor’s attorney (and your employee) and tell them you just can’t withhold it.
                And remember – 525(B)(1) – (3) of the bankruptcy code says you cannot fire or discriminate against someone for filing bankruptcy.  Any employment attorney will tell you to keep a long paper trail when firing someone. You don’t want them to say, “You fired me because I filed bankruptcy,” any more than you want them to say, “You fired me because of the color of my skin or my religion or my gender.”
                “No, we fired you because you were late five days in a row or stole from us…” Keep a paper trail!
               
                And just as a favor to me – don’t blame the employee for collection calls. 
                “I get in trouble when I get personal calls at work.” I hear that a lot.
                “Then don’t take the call,” I say, “tell whoever is telling you that you have a call to hang up.”
                Boss:  “You have a call.”
                Employee: “You said I can’t take personal calls at work.”
                Boss: “That’s right.”
                Employee: “Then why are you telling me?  Tell them I can’t take calls. Yell at them the way you are yelling at me now.”
                It’s silly.  Imagine how easy it would be to get someone you don’t like fired. You just keep calling his work anonymously and after a week they’ll fire him for receiving personal calls. You can clear a factory floor in a few months.
                Don’t blame them for calls. They’re not the ones calling.
As a debtor
                Chapter 7 will eliminate the debts, but will also likely eliminate the business. People or corporations file Chapter 7 to walk away from their business. Let the Trustee dole out who owns what collateral and who gets what from the liquidated assets of the company. That way, it won’t be your fault if someone gets more than their fair share – you’ve dusted off your hands of the whole ordeal when you signed the paperwork.
                Chapter 13 (for non-corporations) or Chapter 11 (for corporations) – keeps the business going. You pay a trustee or an administrator; the trustee pays your creditors. It’s never that simple but that is the basics of it.
                You file a Chapter 7 to close the business; a Chapter 13 to keep it going.
                Results may vary.  In any of the three circumstances – if you have any questions, do some research and then ask an attorney. It’s worth paying an attorney for advice to avoid confusion and aggravation. As a creditor or employer you can always call the debtor’s attorney. They will USUALLY help answer your questions as long as you are courteous about it. You can always consult an attorney of your own.
                There are not many books out there about bankruptcy. The ones that do exist give only the most general and basic information. This is because a lot of bankruptcy law, although federal, depends also on the state laws in which the bankruptcy was filed. Plus it also depends on the individual trustee and judges. Some require specific documents, such as bank account statements; some do not. No book can cover every Trustee and judge’s rules and rulings. It’s like the old joke – a good attorney knows the law, a great attorney knows the judge. It’s true – in that a “great” attorney knows what will work and what will not. What works in Tennessee will not work in Missouri. What works in central Illinois will not work in southern Illinois. What works in Benton will not work in East St. Louis.
                The closest thing to a pamphlet is the 342(b) notice. That’s just the section of the code that says we have to give this paper to every debtor. It explains each type of bankruptcy, although it’s a little dry. You can each have a copy if you wish.
                I thank you for letting me speak with you today. I hope it informed you as a business owner of your rights and duties and responsibilities under the bankruptcy laws. Thank you for inviting me.
               
                And I hope you enjoyed reading it too. As a bit of a disclaimer – ALWAYS consult an attorney before attempting anything mentioned above. If you try to rely on the information above to file a bankruptcy alone or to try to fight a bankruptcy as a creditor, you are a very silly person and I will laugh at you if you blame me or this speech if something goes wrong …
 
Copyright 2013 Michael G Curry

 

Bankruptcy and the Mortgage Crisis – One Small Tale

Bankruptcy and the Mortgage Crisis – One Small Tale
                I wrote the following epistle to a Chapter 13 Trustee regarding a loan modification and I thought I would share it on my blog.
                I am a bankruptcy attorney. This summer marked twenty years of filing bankruptcies in the Southern District of Illinois. I have filed around 7,000 cases in my practice. At one point in the late 1990s, I accounted for 1% of all bankruptcies filed in the state of Illinois. Not the firm I worked for, me. I’m pretty proud of that.
                I could write pages upon pages about bankruptcy but for now I will only give some background information as to the following letter:
                A Chapter 13 bankruptcy is a consolidation of all debt under one payment. There are some exceptions – you can pay rent-to-own furniture directly, child support directly and your house payment directly if you are current. Otherwise all debts are included in the payment.
                You pay a trustee and the trustee pays all your creditors. After five years (or less) of payments, most of your debt is discharged.
                If you are behind on your house, the house payment and the arrears owed are also in the Chapter 13 plan. At the end of the payment term, the arrears owed are paid off and the mortgage is “contractually current”. You resume paying on your house directly and you are no longer behind.
                The bulk of Chapter 13s are filed because people are behind on their house and want to stop a future or current foreclosure. The trouble is, finding out the arrears owed is a guessing game. The mortgage company is entitled to their attorney’s fees, inspection costs, filing fees; you name it. It gets pretty expensive and some of the costs are ridiculous. As a Debtor’s attorney, I have the right to object to these claims, but the odds of winning are very small. I explain it by using the term “blank check” in my email to the Trustee below.
                The email came about because a Debtor of mine did a loan modification with the mortgage company. We filed the loan modification with the court for approval and the Trustee asked my opinion of it. My “take” on it.
                He does not approve of the modification – it adds $20,000.00 to the principal, but makes them contractually current – there will be no more arrears owed. If he does not approve the modification, the Debtor will be forced to pay on the old mortgage or surrender the house in the Chapter 13.
                That’s why he asked what “my take on it” was. Here was my reply.  Italics indicate additions to this blog to help explain legalese…
***
                For the past 70 years Americans have been bullshitted into thinking they HAVE to have a house. THIS house.
                In twenty years of filing bankruptcies I have come to the realization that convincing an average Debtor to give up their house is hopeless. I would have better odds convincing them to lop off a toe.
                Bank of America (or whoever has bought them out this week) has added $20,000.00 to their mortgage per the modification. In the past ten years mortgage companies have seen bankruptcy as a blank check. They can file any amount of fees and costs without fear of a sustained objection. Secretarial costs otherwise disallowed by Wiedau (this is an old case in my district that sets out what is and is not appropriate charges when applying for attorney’s fees – signing a letter is not, paralegal and secretarial work is not, meetings and phone calls with clients are acceptable, etc.), inspection fees for inspections never performed (I once objected to inspection fees and asked for copies of the inspection reports. There were none, so I argued no such inspections happened), and attorney’s fees for documents signed with a stamp; all have been allowed. The odds of winning such arguments are the same as a Toddler T-ball team winning the World Series.  And who is going to give the Debtors the thousands of dollars needed to appeal? Those judges will likely roll over in favor of the mortgage companies, too.
                So until judges decide to stand against the mortgage companies outrageous fees, they can charge as much as they want.  Why isn’t the Bank asked to account for the additional $20,000.00? Why must the Debtor defend their acceptance when the Bank does not have to defend its offer? The answer to the question (if there is one) only proves the point. The actions of mortgage companies are sacrosanct.
                The extra amount is just about what their arrearage claim is, by the way.
                Is this in their best interest? No.
                Will we be able to convince the client this is not in their best interest? No.
                If this is not approved by the Court will they likely voluntarily dismiss their bankruptcy case? If Bank of America will honor the agreement outside the bankruptcy, yes.
                We-the-People will do anything, ANYTHING, to keep these albatrosses around our necks. They will be willing to pay an extra $20,000.00 later to keep their payment down now. That’s how Wall Street wants it. If this extra $20,000.00 was filed as an amended claim for costs and fees, no one but the Debtor’s attorney would blink. And unfortunately that is all a Debtor’s attorney can do about it – blink. Objection is futile.
                Debtors file a Chapter 13 to keep their house. They would likely then dismiss a Chapter 13 to keep their house. If the Bank told them they had to stand naked on an Interstate and sing “Rue Britannia” to keep their house, they likely would. Dance, injun, dance!
                We might as well let them keep their split-level-two-car-garage-picket-fence-2.5-kids-and-a-dog-gotta-run-the-PTA-meeting-starts-in-an-hour house. Keeping THIS house has been indoctrinated into our DNA.
                Otherwise what is their option? If they dismiss, no one gets anything, other than the Debtors get to keep their house. We may as well help them get rid of the rest of the dischargeable debt and when they die of old age, let their kids worry about a house that still has a $50,000.00 mortgage on it.  If they are lucky.
                It’s the American Dream.
                But that’s my take on it. J And now you know, the REST of the story… Good day.
Copyright 2013 Michael G Curry