Bankruptcy Questions Answered

Bankruptcy Filings Rise 33 Percent in Third Quarter

The number of bankruptcy filings in the third quarter of 2009 reached their highest point since 2005, and soared 33% above the total from the previous year, according to statistics from the American Bankruptcy Institute.

Consumer and business bankruptcies filed between August and October reached 388,485 compared to 292,291 for Q3 2008. Total filings between January and October, 2009, reached 1,100,035 compared to 841,496 in the same period in 2008, and close to the total 1,117,771 bankruptcies filed in 2008.

October saw the most personal bankruptcy filings since October, 2005, when more than 600,000 consumers filed to meet the deadline before the new bankruptcy law took effect.

"The spike in bankruptcy filings for both consumers and businesses reflect the continuing effects of today's weak economy," said Samuel Gerdano, ABI executive director.

"With unemployment surpassing 10% and credit to businesses remaining tight, consumers and businesses are increasingly turning to the financial relief of bankruptcy."

Bankruptcy filings are expected to exceed 1.4 million in 2009.

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Bankruptcy For Small Businesses

These are hard times especially for small businesses. I frequently hear from small business owners who want to "file bankruptcy for their business." The small business owner usually has personally guaranteed most of his business debts. For some reasons, the troubled small business owner often thinks his first step in a bankruptcy solution is to file bankruptcy for his business. Then, he thinks, he may also file bankruptcy personally for his guaranteed debt and his personal credit cards. This is often the wrong strategy.

I read a good blog post on this subject by Maryland bankruptcy attorney Brett Weiss. People thinking of filing bankruptcy for their small business should read this article.  I agree with what Mr. Weiss has written. In most cases, corporate bankruptcy for a small business is not necessary- its a waste of the client's money.

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Bankruptcy Court Requires Reaffirmation Agreement For Homestead Mortgage

Chapter 7 bankruptcy debtors often own cars subject to a car loan and lien. The new bankruptcy law states that debtors must reaffirm loans on all personal property in order to maintain the property through their Chapter 7 bankruptcy. So, debtors who want to keep automobiles must sign a reaffirmation agreement making them personally liable to pay the loan until paid in full. The Chapter 7 bankruptcy discharge will not discharge the debt and will not protect the debtors if they cannot pay the loan after the bankruptcy is closed.

Real property is different. The new bankruptcy law does not expressly require reaffirmation of debts secured by real property such as mortgage debt. Therefore, I have advised my clients not to reaffirm home mortgages in bankruptcy because they were not so required. I did not think debtors should obligate themselves personally on mortgage debt if not legally required to do so. That way, if after their bankruptcy the debtors could not pay the mortgage and had to walk away from their house the mortgage lender could not sue them personally.

A new ruling by an Orlando bankruptcy judged ends the option to "ride through" a mortgage debt. The judge said that if a debtor wants to keep real property after bankruptcy the debtor has to reaffirm their personal obligation to pay the mortgage debt just like they have to do with their cars and other personal property. The judge cited a ruling by the Eleventh Circuit Court of Appeals that debtors mus act to either surrender or reaffirm a debt if the debtor desires to retain the collateral. The judge said the Eleventh Circuit made no distinction between real property and personal property and that no distinction is merited.

As a consequence of this ruling debtors (at least Orlando Division debtors) must reaffirm personal liability for a mortgage if they want to retain their homestead and other real property after a Chapter 7 bankruptcy. If they are not willing to reaffirm the mortgage they must surrender the house to the lender in which event the bankruptcy discharge would shield them from liability. But, you can’t keep the house without accepting the responsibility and risk for future defaults.

Reaffirming a mortgage debt is not a problem in a good or even normal housing market when housing values increase. In today’s real estate market bankruptcy debtors will have to seriously consider the risks of retaining their homestead and other real property since a future default may subject themselves to substantial legal liability. The case is In re Linderman, 09-BK-02087

Posted in Chapter 7, Court Decisions | Comments Off

Late Credit Card Payments Dip in Third Quarter

According to an article from the Associated Press, fewer Americans were late on their credit card payments in the third quarter of this year than in the second quarter, signaling that consumers may be getting more responsible at managing their debt.

While the decrease isn’t staggering (1.10% of payments compared to 1.17%), the statistic itself is: this is apparently the first time in a decade that late payments have decreased between the second and third quarters.

The Bigger Picture

Here’s a look at how this decrease fits into the larger context of credit card payments and debt in the United States:

• Steady decline: The 6% drop comes after an 11% decline in late payments between the first and second quarters, suggesting that, as a nation, our debt management skills are improving.
• Trend follower: The highest late payment levels occurred in states where the housing bust was biggest (California: 1.33%; Arizona: 1.35%; Florida: 1.47%; and Nevada: 1.98%).
• Outstanding balance: Average amounts due have also declined from earlier quarters and last year: in Q3, the average was $5,612, down from $5,719 in Q2.
• Savings down: The third quarter also saw a slightly lower rate of savings among U.S. consumers, suggesting we’re putting money toward debt rather than in the bank.

So What Does It Mean?

While no definitive explanation can be offered for the drop in late payments, the trend may be affected by a variety of factors, including:

• Unemployment: Both those who have lost their jobs and those who are still working (but are perhaps more aware of the threat of layoffs) tend to cut back on discretionary spending and focus on paying down debt rather than accumulating new “stuff.”
• Tightened credit: Many credit card issuers have pulled way back on their offerings of consumer credit and have gotten stricter about raising interest rates for late and missed payments. This may “scare” consumers into taking their debt more seriously, or into paying down balances to have more wiggle room.
• The holidays: For many of us, a major shopping and/or traveling season is upon us. The dip in late payments could represent a sort of collective preparation for the financial stresses of the season.
• Increased caution: The drop could also point to a more cautious American consumer – one who’s a bit less cavalier about taking on masses of revolving debt.

Additional Resources

Putting Credit Card Debt on Notice (PDF)

How Credit Card Debt Ensnares Consumers (PDF)

Posted in Credit Cards, Credit and Bankruptcy, consumer debt, revolving debt, statistics | Comments Off

Creditors Leave Annoying Messages On Debtor’s Telephone Answering Machine

Its a question all bankruptcy attorneys are asked by their clients- What can I do to stop these creditors from harassing me? Creditor harassment is not a bankruptcy issue. Everyone knows that after a debtor files for bankruptcy- Chapter 7 or 13- the court issues a Notice of Commencement to all creditors warning them that any further effort to collect a debt violates the automatic stay and subjects an offending creditor to sanctions. There are separate laws protecting all individuals against unfair collections. The main law is the Fair Debt Collection Practices Act.

A particularly annoying collection tactic I have heard from my clients is that of creditors leaving messages on the debtor's voice mail at home or at work. I read an interesting blog post on this topic by Georgia bankruptcy attorney Jonathan Ginsburg. FDCPA Does Not Give Debt Collector the Right to Leave Messages on Your Phone Answering Machine. Mr. Ginsburg discusses a decision by the 11th Circuit Court of Appeals which is the federal appeals court with jurisdiction over Georgia law.This court also controls Florida law so the cases he discusses is applicable to Florida debtors too.

If you believe you are a victim of an FDCPA collection violation you may list the claim on your bankruptcy petition. The trustee may decide to pursue the claim against the offending creditor. If you do not file bankruptcy you can consult with an attorney who works in the area of consumer protection law; some bankruptcy attorneys also litigate consumer protection complaints. Most bankruptcy attorneys do not prosecute FDCPA violations outside of bankruptcy court.

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Creditors Leave Annoying Messages On Debtor’s Telephlne Answering Machine

Its a question all bankruptcy attorneys are asked by their clients- What can I do to stop these creditors from harrassing me? Creditor harrassment is not a bankruptcy issue. Everyone knows that after a debtor files for bankruptcy- Chapter 7 or 13- the court issues a Notice of Commencement to all creditors warning them that any further effort to collect a debt violates the automatic stay and subjects an offending creditor to sanctions. There are separate laws protecting all individuals against unfair collections. The main law is the Fair Debt Collection Practices Act.

A particularly annoying collection tactic I have heard from my clients is that of creditors leaving messages on the debtor's voice mail at home or at work. I read an interesting blog post on this topic by Georgia bankruptcy attorney Jonathan Ginsburg. FDCPA Does Not Give Debt Collector the Right to Leave Messages on Your Phone Answering Machine. Mr. Ginsburg discusses a decision by the 11th Circuit Court of Appeals which is the federal appeals court with jurisdiction over Georgia law.This court also controls Florida law so the cases he discusses is applicable to Florida debtors too.

If you believe you are a victim of an FDCPA collection violation you may list the claim on your bankruptcy petition. The trustee may decide to pursue the claim aginst the offending creditor. If you do not file bankruptcy you can consult with an attorney who works in the area of consumer protection law; some bankruptcy attorneys also litigate consumer protection complaints. Most bankruptcy attorneys do not prosecute FDCPA violations outside of bankruptcy court.

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Two Frequent Issues Discussed In Recent S. Florida Bankruptcy Court Opinion

This week I read a decision from a south Florida bankruptcy court which dealt with a few issues I frequently see in my own bankruptcy practice. Many of my clients have borrowed money from their 401k to help pay their bills before bankruptcy.. The tell me they have to make a minimum amount of loan repayments each month to avoid having to declare the loan balance as a withdrawal subject to income tax. The clients state that their loan repayments are "required" and ask is the minimum monthly loan repayment is deductible as an expense in their means test.

The 401 k payments are not allowable bankruptcy expenses. This bankruptcy judge pointed out that most courts which have previously considered this issue have disallowed 401 k loan repayments as means test expenses. The court followed the majority of opinion and ruled that this debtor’s monthly loan repayments to his own 401 k plan is not permissible as an involuntary expense deduction for means test purposes.

The means test permits debtor to deduct on their means test the money they pay each month for transportation. The law provides for a standard transportation expense. The debtor deducts either the standard expense or proven actual expenses. What happens if a debtor owns a car free and clear? Should debtors with no car payments get the same deductions as other debtors with monthly car debt. This court reported that on this issue there is a heavily litigated split among different appellate courts and bankruptcy courts. Our appellate circuit, the 11^th Circuit, has not ruled on this issue. After reviewing arguments on either side of the issue this bankruptcy court held that the debtor with a car owned outright may deduct the applicable standard monthly allowance for vehicle ownership cost. The case is In re Michael Koch Case No. 08-29122 from the Souther District of Florida.

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True Bargains: What Makes a ‘Good Deal’

While looking for low prices is an important part of financial responsibility, it’s only one component: getting the value you need is the other half. For example, buying the cheapest brand of conditioner may seem frugal, but if you have to use twice as much as any other brand, it may end up costing just as much.

Value Vs. Price

The "value" of an item is subjective, while price is relatively fixed. Two people may see the same item as having different values even when the price is the same.

• Value: How much an item is worth to a buyer/seller (usually determined by how much you need or want an item).
• Price: How many dollars an item costs. Dollars are sort of a generic value unit we’ve all agreed upon.

In many cases, value and price line up pretty well, and merchants will try to keep the two in line. Value really shoots up when a seller is asking for less than you’re willing to pay.

Maximizing Value

So how can you make sure you spend your dollars to maximize their value? Here are some tips.

• Buy second-hand: Thrift stores, flea markets and garage sales are all excellent places to find good values because they’re filled with items that haven’t declined in intrinsic worth but whose owners grew tired of them. Gently used items are often steeply discounted and still perfectly functional (but avoid super-cheap items that are simply junk).
• Spread the word: Let your friends and family members know what you’re looking for – someone may be trying to “get rid of” exactly what you need. When you’re in a store, tell the sales associate what you’re looking for. Ask for advice and find out if any discounts might be available.
• Shop ahead & behind: If you know you’ll need a new pair of sneakers once a year, keep your eyes peeled at all times for bargains – many staples won’t “go bad” from sitting around a while. Take advantage of end-of-season sales to stock up for the next year (think Halloween decorations on November 1st).
• Use the Internet: Craigslist, eBay, Freecycling, Amazon and other websites often offer significant discounts from retail prices. But if you don’t want to buy online or don’t like to pay for shipping, you can still use the Internet to get an idea of what various vendors charge for the item in question (and use that knowledge to bargain).

If you start thinking in terms of value, you'll be able to save money while getting your true dollar's worth—particularly important if you're struggling with debt or rebuilding your finances after bankruptcy.

Posted in Budget, Financial Literacy, after bankruptcy, saving money, spending money | Comments Off

How much do it cost to file bankruptcy ?

Posted in Other - Education | 4 Comments »

After you file bankruptcy when can you rent another apartment or home?

Posted in Personal Finance | 3 Comments »