Yesterday, I was discussing a “Debt Relief Agency” as it is defined in the Bankruptcy Code. Part of the angst I have with the whole debt relief agency provisions is that I am – by definition – only a debt relief agencies to “assisted persons.” Debt relief agencies have certain specific obligations… but only to “assisted persons.” Before I continue writing, I’m going to take some aspirin; this analysis made my head hurt.
Posts Tagged ‘debt’
Guest Blog: Perspectives
Thursday, February 25th, 2010
Today, we have something a different… our first guest blogger: a former client who shares her perspectives on her journey into, through and out of bankruptcy.
Facing Bankruptcy with Nagging Regret
Wednesday, January 20th, 2010
I recently met with a bankruptcy client who had a lot of credit card debt, almost no equity in their home, and were unable to meet their obligations.
After getting some information, and assessing their situation, I learned that they had lived in their home for almost 25 years, but in the last 12 years had refinanced their home 3 times. The client told me that in no uncertain terms he would not be contemplating bankruptcy if he was able to refinance their home to pay the credit card debt.
Clearly, that wasn’t going to happen.
But then I started thinking, how does someone who has lived in a home for 25 years in the same home have almost no equity to show for it?
Relearning How To Buy Stuff
Tuesday, January 19th, 2010
When I meet with a debtor who has expressed a desire to file bankruptcy, once of the first things I start discussing is their use of credit. Many times, their use of credit also turns to their relationship with credit. If you’re going to file bankruptcy, you need to stop using credit cards. That seems like a bit of a no-brainer. But recently, I had a conversation that went something like this:
“You cannot use credit cards any more,” I told my client. “You need to start operating on a cash basis.”
I saw my client thinking about this, and then after a momentary pause, I heard this reply:
“But how will I buy food?”
Under Water, Walking Away & My Two Cents
Tuesday, December 1st, 2009
Over the holiday weekend, there were a number of press reports about a discussion paper, Under Water and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis. Reportedly Brent T. White, an Associate Professor at the University of Arizona’s James E. Rogers College of Law advocates that homeowners who are underwater (meaning, the outstanding mortgage balance[s] is more than the value of the home…is now, or in some cases, will ever be) should simply walk away from their obligations and not look back without feeling a bit of guilt. Obviously this all got my attention, but before I took to this here blog and declared “You Have Got to be Kidding Me!” (which at first glance seemed like the most expedient way to address it), I opted to read the discussion paper (rather than just the abstract). Before you click the link below, pour yourself a fresh cup of tea.
Here’s my take:
The Importance of an Informed Decision
Tuesday, June 16th, 2009
I recently met with clients who got some very bad advice from probably well-meaning but – to be perfectly blunt – clueless friends and family who thought they knew what was best. What happened to them is undoubtedly a lesson for others.
The married debtors have a large and unmanageable amount of credit card debt. A few years ago, one of the debtors was actively employed and making a good living until a work injury changed all that. Now, one of them is in chronic pain, has no income and is currently seeking disability benefits from the Social Security. The injured debtor had a workers compensation claim which was resolved through a $30,000 settlement about 9 months ago. There are children, and there are domestic support obligations.
Because this two-income family had been struggling as a one-income family for a few years, the debtors have been “robbing Peter to pay Paul.” Retirement accounts had been depleted or had loans against them. Credit cards were maxed out. Collectors are calling, and lawsuits have been filed. Before the settlement even arrived, they were thinking about the possibility of having to file bankruptcy.
The Decision-Making
Family and friends urged them not to file bankruptcy. Having not met the family and friends, I assume that they had good intentions and were ultimately well-meaning. None of the family and friends were bankruptcy attorneys. I didn’t ask if the friends and family were aware of this blog.
The debtors have vehicles and only own personal property. The current sole bread winner makes a respectable, but nevertheless modest income in light of their expenses. None of their expenses are extraordinary or raise a specter of bad faith. They seemingly qualify for chapter 7, and since they have no real estate, they could consider electing the federal exemption schemes. Had the debtors elected to file bankruptcy when they received the settlement, the federal exemption scheme would enable them to keep most if not all of the proceeds of the settlement and discharge their remaining credit card obligations. That’s not what happened.
Instead, they took the $30,000 and paid down the credit card debt. It did not get paid off. The credit cards and credit lines did not get closed. The debt was merely lowered. The credit card companies got some of that money. However, had they filed bankruptcy before opting to pay them, the credit card companies would have received nothing – or close to nothing.
I asked them “why didn’t you file bankruptcy back then when you were thinking about it?”
They told me that their friends and family were telling them that they should not file bankruptcy and that they emphasized it: “oh, you don’t want to file bankruptcy!” Apparently they were concerned about stigma and were concerned about being “one of those bankruptcy debtors that doesn’t pay their bills.”
Yet here they were. In my office. Not happy being there. And I’m willing to bet, sick to their stomach because of it (actually, one of them expressed that sentiment). Why? The simple answer is that they now thought of themselves as “one of those bankruptcy debtors who doesn’t pay their bills.” But I do think there maybe another reason.
After the cash was done, many of the credit lines were still open. So if they looked ahead to through the end of the month and saw that they were a few hundred dollars short, they knew where to get it.
And with the settlement, they were able to pay their debts and feel good about paying their debts – which is presumably what their friends and family had in mind when they conveyed their likely less-than-helpful advice. It’s good to pay debts. After all, no one wants to file bankruptcy. No one wakes up one morning thinking “hey…here’s something I haven’t done yet.” But life does not always work out the way we want, hope, expect, and in some cases need it to.
In their case, the credit has run dry. The retirement accounts are empty. And now the settlement is gone. And before me were two people who – like many others – had to struggle with an unexpected change in income, and who tried to do what they thought, and what their friends and family thought, was the right thing to do. But they should have elected to get bankruptcy advice from a bankruptcy attorney rather than bankruptcy advice from well-meaning friends and family more than 9 months ago.
What advice would I have given to them if they saw me 9 months ago? I would have advised them to take the time to explore their personal spending. I would have advised them that with one income earner disabled, they had to adjust their budget…or adjust their income. I would have determined that their credit card debt could be discharged in a 7, and depending on the amount of the settlement, and the value of their other personal property, the settlement proceeds would likely be exempt. I would have told them to stop using credit, to start using cash, and to view the cash as what it was: finite.
Instead, they now know that their personal spending must be adjusted, that very tough decisions need to be made, and some very difficult discussions with friends and family members might be in the foreseeable future. And the most important thing that has changed since they listened to their friends and family: there is no more cash they can tap into when they need that extra few hundred bucks to get them through the month.
For these good people, I think it could played out differently. And I am willing to bet that this realization is what is contributing to that awful feeling in their stomach.
Still Considering Debt Settlement?
Tuesday, May 12th, 2009
In the past, I have written and warned readers here about it. It is simply not all it is cracked up to be. From CBS News/The Early Show:
[C]onsumer advocates warn that a majority of the companies can’t or won’t deliver on their promises to reduce your debt. The National Foundation for Credit Counseling recently explained that, “A settlement company may suggest that you stop paying your creditors and instead begin making deposits into a special third-party account. The settlement company will attempt to negotiate a settlement offer with your creditor once enough money relative to the debt is on deposit. This may take six months or more, although the exact length of time will vary with circumstances. During this time, the balance on your debt can continue to grow if interest and various penalty fees continue to be charged by your creditor. As a result, you may owe more than when you started and your credit may suffer.”
Even worse, there have been many instances where none of this money ever makes it to creditors — the companies simply steal it, Gibbons points out. Plus, a growing number of credit card companies refuse to work with debt settlement groups. Of course, a group probably won’t tell you that until after you’ve paid them.
Knowledge is Power, Sort of
Tuesday, March 3rd, 2009
I find that many people who are thinking about it will want to investigate some facts about bankruptcy, and get some information about the process before they pick up the phone and speak with me. And certainly, there’s much information and content on this website – and it’s here for just that reason. But every lay person needs to maintain some perspective when researching, reviewing and digesting information about bankruptcy and the bankruptcy process. Today, I had a conversation with a client that reminded me to remind you to keep that perspective.
The most important thing to remember is that research should not replace speaking with counsel and getting a full and fair opinion. Nothing on this site is designed to be legal advice. As a matter of fact, you’re unlikely to find anything that amounts to legal advice on the internet.
What you will find is information. But sometimes, that information can lead to overload – and overload and can lead to confusion. And today I encountered confusion.
I spoke with a client on the phone who “had done a lot of research” about bankruptcy. He knew and understood terms like the “Means Test” and “Discharge.” But he did not quite understand how the Means Test worked – or that the Means Test applied in not just Chapter 7, but that a different version of the form (with entirely different consequences) applied in Chapter 13.
He asked what most might think is a rather straightforward question: “In a Chapter 13, how will they determine how much I can afford to pay back?” The problem with this seemingly straightforward question is that there is no straightforward answer. There are many variables, including whether you are over the state’s median income, whether you have payments on secured debt and the status of the case law at the time (and because it is ever-evolving, I tend to view the case law as a moving target). The other problem is that I cannot answer the question in a phone call or a short initial consult meeting. It requires information, documents, and an assessment of all of the factors at the time of the filing.
The client is already frustrated, and I can understand why. Struggling to make ends meet, the client is trying to determine what more will be expected of him and his family in the bankruptcy process. Yet, there is no easy answer I (or for that matter anyone else) can provide. At least not an honest one. The fact I could not provide a quick answer only fed that frustration.
I would not think of going to WedMD to learn how to perform a medical procedure on myself. I don’t call my dentist to explain why my mouth hurts (which is a good thing, because as I recently learned, it wasn’t what I thought it was). So with that said, please know I do not recommend using this site, or any others as a substitute for sitting down with a bankruptcy attorney and giving them all of the information they require. Then, armed with the facts and sound legal counsel, you can then make the best decision to protect your family from the oppressive debt you find yourself struggling with. After all, that is why you’re calling me. And that is why you’re researching bankruptcy information on the internet.
Rumor Control: Credit Reports and What’s Dischargeable in Chapter 7
Thursday, November 8th, 2007
I received a call today from someone with questions about Chapter 7. I receive many calls a day, but what made this call interesting was that the caller told me that they conferred with another attorney and was told that with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, only 50% of debt was now dischargeable in a Chapter 7. My response was “nope, not true.”
The caller also told me that according this other attorney there was no law that required a bankruptcy filing to appear on the credit report for 10 years. According to what the attorney purportedly stated: “Credit card companies want you to believe there is a federal law out there that requires it, but there is not.” My reponse was “that’s not my understanding.” Since this issue is not a primary one in my practice, it’s not something I can rattle off the tip of my tounge, like I might be able to with regard to discharge exceptions. So I decided to take a quick detour from my petition preparations and research the issue a bit further.
Let me start with the easy one: nothing in BAPCPA declared that only 50% of debt would be discharged in Chapter 7. If anyone is telling you that, they do not bankruptcy law.
The claim that there is no federal law that requires a credit card company to report a bankruptcy filing is also hogwash (I could think of another term, but this is a professional site). Title 15, Section 1681c(a)(1) of the United States Code states that credit reports may not contain information concerning “[c]ases under Title 11 or under the Bankruptcy Act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years.” And there is an exception. Under 1681(b)(2) a credit report may contain information about a bankruptcy that is more than 10 years old if the report is to be used in connection with a “(1) a credit transaction involving, or which may reasonably be expected to involve, a principal amount of $150,000 or more; (2) the underwriting of life insurance involving, or which may reasonably be expected to involve, a face amount of $150,000 or more; or (3) the employment of any individual at an annual salary which equals, or which may reasonably be expected to equal $75,000, or more.”
So the bankruptcy can stay on the credit report for up to 10 years, an din come cases, even longer. If any attorney tells you otherwise, invite them to call me.
Those People
I was recently chatting with an old friend who was sharing with me her recent trials and tribulations. She is on unemployment – has been for a while - and trying to sell her house. Her house is not priced to sell – but priced in line with what other houses in her neighborhood are going for… and are also not selling. She has also made some regrettable financial and life decisions that have lead her to the place she now finds herself in. It’s not a judgment – it’s more of an observation. Some of what she’s experiencing was avoidable. Some of it – like the unemployment, wasn’t. She asked me for my advice.
As I started offering some suggestions (among them, dropping the price on the house), I could tell she was getting upset. She then took a deep breath and said “you know, I’m not like those people you represent. Those people in bankruptcy.”
There was this period of awkward silence – I don’t think it was particularly long – but it was long enough for me to think something more serious than “really, Blanche. Really?” but not as dramatic as “oh. my. gawd!”‘
“Those people,” I said – and I could feel my eyes widening.
Being good friends, we could tell that we both hit a nerve in each other and we silently retreated to our respective corners. I did not have it in me to say what I wanted to say then.
I do now.
(more…)
Tags: Commentary, debt, Economy, Homes
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