2010 February | Bankruptcy Questions Answered

Chapter 7 Trustees Offer Debtors Practical Tips Concerning Valuation And Buy-Backs Of Personal Property

Sunday, February 28th, 2010

The bankruptcy committee of our local Bar association holds monthly luncheons. At the most recent luncheon two Chapter 7 bankruptcy trustees discussed the bankruptcy process from the trustee’s point of view and offered a few good suggestions to debtors’ attorneys. One of there comments concerned the treatment of debtors’ household furnishings. Florida law provides each debtor with a $1,000 total exemption for all personal property including bank accounts and household furnishings. This exemption is small compared to most other state’s laws. In practice, few trustees pursue personal property valued slightly over the exemption nor challenge property valuations in most Chapter 7 petitions unless there is a clear reason to doubt the debtor’s property list.

At the bar meeting the trustees suggested that the Chapter 7 trustees may be taking a closer look at personal property lists and values. They indicated that most trustees may be sending an appraiser to the debtors homes to take an inventory whenever the debtor’s home is valued more than $500,000. It is hard to believe, they said, that a home worth more than a half million dollars in today’s real estate market contains less than $2,000 (joint filing) of furniture and electronic equipment. The trustees stated that bankruptcy debtors whose homes and personal property lists will likely be scrutinized consider hiring their own appraiser to value their property before they file their petition and submit their own personal property appraisal to the trustee.

It costs only two or three hundred dollars for an appraisal of household property. In the past, when my clients’ income or house size implied expensive furnishings I have suggested the client retain one of the appraisal firms used by the Chapter 7 trustees so that the trustee would not challenge the appraiser’s credentials.

Whenever a debtor suspects that his personal property schedules will be questioned by the bankruptcy trustee it is a very good ideal to get a preemptive appraisal. When you hire the appraisal you schedule the date and time of the appraisal. You’ll know well in advance when this appraiser will be going through your home to inspect your belongings. Your own appraisal is not binding, and you don’t have to use the results on your petitions is you disagree in good faith with the appraiser’s report.

The trustee speakers offered debtors another practical suggestion when the debtors know they have non-exempt personal property including furniture or automobiles. Typically, trustees and bankruptcy debtors negotiate the amount and terms of the debtor’s "buy-back" of non-exempt cars and personal property at or after the trustee meeting. These trustees suggested that debtors decide what they would like to offer the trustee in payment and then bring a cashiers check for the amount of their offer to the trustee meeting. In other words, make your offer an literally put the cash on the table. The trustees said they are usually willing to accept significantly lower valuations and buy-back offers when the offer is accompanied by certified funds.

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Shortcomings of Credit CARD Act

Saturday, February 27th, 2010

This week saw the much-anticipated date (February 22) on which the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) took full effect. And, while it theoretically introduces many new consumer protections, it leaves plenty room for “creativity” from card issuers.

Center for Responsibility Lending Responds

The Center for Responsible Lending released a humorous (though cynical) animated video that highlights some of the areas not addressed by the new act—and illustrates ways in which credit card issuers have adapted their policies to maintain profit levels. These include:

Interest rate hikes: To compensate for lost revenue, some card issuers have already raised users’ interest rates. Even users in good standing may be “forcibly eligible” for this, as the video claims.
Over-limit fees: If you accidentally exceed your credit limit, your cardholder likely charges a fee. And, with new restrictions in place on other charges they can assess, you might see this fee jump.
Inactivity fees: On the other hand, if you use your card too infrequently, you might see a fee for that, as well, because that means you’re less profitable for the company.
Increased minimum payments: Another technique some card issuers are using is to up the minimum amount you can pay each month. This could be profitable for those who won’t be able to afford the increased payments and can be charged an under-payment fee.

The Regulation-Creativity Relationship

As the video illustrates with a graph, more consumer protection may seem like a good thing, but in practice, it often means that card issuers just get more “creative” with fees they charge reasons they charge them.

If you’re thinking now is a good time to get out of credit cards altogether, you’re not alone, but, before you cancel your cards, consider this:

Your credit score: Part of your credit score is based on age of accounts (older ones are better); another part is based on diversity of credit (so eliminating one type entirely would hurt you).
Your reentry: If, at some future time, you decide you want a credit card again, you’ll likely have to contend with uber-high interest rates (above 70 percent) because you won’t have any recent credit card history.

The video exaggerates a little (by mentioning, for example, a “legibility fee” for left-handed users), but by doing so draws attention to the more serious matter of how significantly your credit card could change.

Be sure to read all correspondence from your card issuer, even mailings that seem like junk: some of them might contain important details about the new rates and fees you may have to pay. These statements will also come in handy if mounting fees and interest force you into bankruptcy.

Additional Resources

Credit CARD Act

Posted in Credit, Credit Cards, Credit and Bankruptcy, credit CARD act | Comments Off

Filing for Bankruptcy - These Things Are OK

Thursday, February 25th, 2010

Bankruptcy is filled with land-mines. Therefore, if you are thinking about filing for Bankruptcy, you must be careful. We previously listed this a list of Bankruptcy Don'ts. Here is a list of Bankruptcy Do's that we give to our clients.

· Do take the bankruptcy court seriously, and avoid making any financial decisions that may make your creditors suspect you of filing in bad faith.

· Do seek bankruptcy court counsel before you file any papers, and learn your rights and options under the United States bankruptcy code.

· Do maintain timely payments on any collateralized loans that you wish to keep the collateral for. In other words, if you have a mortgage or car payment and you intend to keep the house or car, you must remain current on the payment. (Please alert us if you are not current on a collateralized loan at the time we are preparing your case for filing.)

· Do file your tax returns. Even if you know that you owe the IRS a lot of money, it is still important to file your taxes in a timely fashion. Not filing will only exacerbate the problem.

· Do reduce the amount of future income tax refunds. Refunds are routinely taken in Chapter 7 cases, and may affect plan payments in Chapter 13. If you expect to get an income tax refund , reduce your withholding so that you do not get a refund . If much of the refund id from the Earned Income Tax Credit, apply to get that available at www.irs.gov/pub.irs-fill/fw5.pdf or through your employer. For more information, see the IRS web page. Caution: Do not reduce the withholding for tax so much that you will have a big tax bill to pay.

· Do be honest and forthcoming on your bankruptcy petition. Even if it is embarrassing, it is important that your attorney knows. Any creditors not listed on your petition may not be discharged.

· Do keep our office up to date with your contact information. Mailing address, phone and email.

· Do consider increasing your 401K contribution if you have excess income and you are filing a Chapter 13.

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