Bankruptcy Questions Answered

Bankruptcy Woes for Liverpool Football Club?

There has been considerable buzz in the news lately about the financial woes of one of the world’s best-known soccer teams, England’s Liverpool Football Club. The trouble involves loan defaults, ownership issues and lots of other juicy bankruptcy-related news – of course, Liverpool’s fans probably aren’t too thrilled.

Loan Defaults and Contract Breaches

According to Bloomberg news, Liverpool Football Club’s money problems are somewhat thorny:

• Parent company behind on its loan: It seems that Kop Holdings, the parent company of Liverpool FC, has fallen behind on a loan agreement with Wells Fargo bank. In fact, sources note that the loan is in default (more than 30 days past due).
• Potential buyout by an American company: According to reports, the American company New England Sports Ventures LLC has proposed a buyout plan that would let England’s most successful soccer team avoid bankruptcy.
• Contract breach might prevent the sale: But, news outlets report, the current owners of the team made eleventh-hour changes to the board to ensure that its members voted against the buyout. Royal Bank of Scotland, however, has challenged the board member change in court, apparently calling it a breach of contract.

So what might happen to the celebrated soccer team from across the pond?

Business Bankruptcy and Its Effects

When businesses file for bankruptcy, the court’s protection tends to work slightly differently than when individuals seek such protection. For example:

• Chapter 11 reorganization: In a Chapter 11 bankruptcy filing, businesses get the opportunity to reorganize their finances and agree to pay off creditors from future earnings. In rare cases, individuals can file for Chapter 11 bankruptcy, but it’s a more common move for corporations. When businesses are in Chapter 11 protection, they can still operate, selling their goods and services as usual.
• Chapter 7 liquidation: When businesses file under Chapter 7 of the U.S. Bankruptcy Code, a bankruptcy trustee generally sells off their assets and uses the money to repay creditors (much like a Chapter 7 filing for individuals). If a company files for Chapter 7 bankruptcy, it cannot continue operations.
• Automatic stay: As in personal bankruptcy filings, businesses that seek bankruptcy protection are protected by the automatic stay for the duration of their case. This legal stay prohibits all collection action against the filing company.

According to Bloomberg, the Royal Bank of Scotland (RBS) is not looking forward to actually enforcing any sanctions against the soccer team itself because of potential negative effects such sanctions might have.

While this story may not resonate with American readers quite the same way it would with those more familiar with England’s soccer leagues, it is a big deal. Consider the same thing happened to the Chicago Cubs last year when its parent company, The Tribune, filed bankruptcy.

Posted in Bankruptcy, Bankruptcy News and Events, Chapter 11 Bankruptcy | Comments Off

Should Medical Debts Show Up on a Credit Report?

In recent weeks, the U.S. House of Representatives passed a piece of legislation that would require credit reporting bureaus to remove medical debts from consumers' credit reports if those debts were paid or settled more than 45 days before the release of the report.

If the Senate passes a similar bill, this could mean good news for millions of Americans who have seen their credit rating suffer because of medical bills they were unable to pay.

Medical Bills & Bankruptcy

Sources note that, in recent years, medical debt has ranked as the most common contributing factor to personal bankruptcy filings in the U.S. And, according to insiders, that's partly because of the following reasons.

• Unclear medical billing techniques: As you've probably noticed, most medical care facilities don't send you out the door with a bill for their services – instead, the bill comes weeks or sometimes months later, and you have to sift through it to figure out what you were charged for.
• Limited or absent medical insurance: As recent debates over healthcare reform reminded us, millions of Americans don't have adequate medical insurance, meaning that even relatively minor procedures can have severe financial consequences for the uninsured.
• Persistently high unemployment: Because health coverage in this country is generally linked to employment, the currently high unemployment rate means that more Americans than ever are uninsured or underinsured. Expensive medical bills, coupled with limited income, often mean serious financial distress.

Medical Bills & Credit Reporting

So what would be the benefit of removing paid or settled medical debts from credit reports?

• Improved credit: With fewer negative actions on a credit report, more Americans would qualify for more attractive loan terms (like lower interest rates). This, in turn, would set the stage for people acquiring less debt overall and perhaps mean fewer people would need to seek bankruptcy protection.
• Improved incentives to pay: Knowing that paying or settling medical debts could have a seriously positive impact on their credit scores could push more consumers to negotiate payments on medical bills. The long-term benefits associated with an improved credit score might provide the motivation to work through confusing language and overwhelming bill totals.

Medical Bankruptcy

The Senate's action on this bill could play an important role on the finances and credit health of millions of Americans. According to one study, as many as 40 percent of Americans have medical collections on their credit reports – and such information is harming their overall credit health.

If you're worried about medical debts or think you may need bankruptcy protection to address your financial concerns, take action now by connecting with a bankruptcy lawyer for a free consultation.

Posted in Bankruptcy, Consumer Credit, Consumer Protection, Credit and Bankruptcy, Creditors, Legal Info | Comments Off

When It’s Time to File for Bankruptcy: How to Know

Bankruptcy protection is often cited as a crucial part of the fabric of American capitalism – with the safety net of bankruptcy available, entrepreneurs and risk-takers can proceed without worrying that following their dreams will have devastating financial consequences.

Recognizing the important role bankruptcy plays in our economy, two bankruptcy analysts have developed a color-coded system to help consumers gauge their level of financial health and help them figure out whether they should be seriously considering a bankruptcy filing to protect their financial future.

Financial Warning Signs that You Might Need Bankruptcy

The various colors in this code, much like those in the code used by the feds to communicate the current level of threat of a terrorist attack, work like this:

• Green zone (no need to file bankruptcy): If you're in this category, you have no real need for bankruptcy protection. You probably make more than you spend, pay your bills on time, have assets and insurance, have no credit card debt and save money regularly.
• Blue zone (financial changes might be needed): Here, you don't quite need bankruptcy protection, but your financial habits, if continued, may lead you to a place where you will. People in this zone may be worried about losing their job, have trouble paying bills in full each month, have credit card debt and secured debt, and may not by able to save money regularly.
• Yellow zone (bankruptcy is an option): At this level, you need to evaluate your situation and consider your debt-relief options, bankruptcy being chief among them. People in the yellow zone are often experiencing some financially difficult life change (like divorce, injury or layoff), have begun to miss payments on both unsecured and secured debts, have few or no assets, are getting calls from debt collectors and may not have insurance. If you're in the yellow zone, you need to take some sort of action, whether that's negotiating with your creditors or consulting with a bankruptcy lawyer.
• Orange zone (bankruptcy should be seriously considered): Here, your debt is getting out of control. People in the orange zone tend to be delinquent (more than 60 days late) on at least one bill, use one credit card to pay off another, owe serious tax or medical debts but cannot afford them, have been out of work more than three months and may have had creditors initiate lawsuits against them. While there are still alternatives to bankruptcy available at this stage, it's generally a good idea to consult with a lawyer to see what the best option for your finances and legal status is.
• Red zone (file for bankruptcy right away): At this stage, you're no longer in a position to negotiate and need the protection of the court to prevent having your assets repossessed, your wages garnished, your home foreclosed or similar actions taken. Many people in this phase are unemployed and may have run out of unemployment benefits. Under these circumstances, filing for bankruptcy is often helpful because it may halt all collection action.

Posted in Bankruptcy, Credit and Bankruptcy, Filing Bankruptcy, Financial Literacy, consumer debt, debt | Comments Off

New Debt Relief Rule Means More Truth in Advertising

If you’re struggling with debt and looking for a way to improve your finances, there’s good news on the horizon: beginning Monday, September 27, new rules issued by the Federal Trade Commission prevent advertisers from deceiving potential customers about their ability to offer financial relief.

Here are some of the new protections the FTC’s latest consumer protection rule outlines.

More Honest Disclosures

While bankruptcy is a well-known debt relief option, many consumers try to avoid filing for bankruptcy by opting for debt settlement or credit counseling. While both options work well in many instances, in some cases, dishonest companies pitch too-good-to-be-true offers and consumers end up with more debt than they had before.

Now, advertisers will have to:

• Announce proposed fees & refund policies No longer will companies be able to get away with advertising how low a price might be (“as little as…”). Now, advertisers will have to base their proposed fees on actual results they can realistically expect to get from a person’s creditors.
• Estimate likely time frame: After consulting with a customer, debt-settlement companies must offer a good-faith estimate about the likely length of time the process will take, based on a debtor’s individual circumstances.
• Estimate savings required to settle debts: As with the other new requirements, companies must make estimate how much money an individual customer must save before he has a realistic chance of settling debts based on that customer’s individual circumstances.
• Disclose potential negative side effects: Rather than glossing over the downsides of debt settlement, companies are now required to review with customers the potential negative impact on their credit reports, the chance that creditors will bring lawsuits against them and any potential tax consequences.

More Honest Advertising

In addition to the above requirements, debt settlement firms are now required to advertise likely savings based on all their clients, not only the most successful ones. Theoretically, this should give potential customers a more realistic picture of how much debt settlement could actually help their finances.

Debt Settlement Vs. Bankruptcy

While there is no one-size-fits-all debt relief option, bankruptcy protection does have some obvious advantages over debt settlement and some other bankruptcy alternatives, which include:

• Legal protection from creditors: Because bankruptcy functions as part of the federal government, those who file for bankruptcy are legally protected from creditor contact once they file their cases.
• Federally and state regulated processes: While anyone can start a debt settlement firm, regardless of qualifications, bankruptcy attorneys and judges must meet very specific requirements, so you won’t have to question the background of the people you’re working with.
• Federally regulated costs: The fees associated with filing for bankruptcy are set by federal laws, so you know you aren’t getting ripped off when you start a case (although fees that lawyers charge may vary). Debt settlement firms, on the other hand, can charge whatever they want – and some unscrupulous firms do, to the detriment of their clients.

Posted in Bankruptcy, Consumer Protection, Credit and Bankruptcy, Debt Relief, Debt Settlement, FTC, Financial Literacy | Comments Off

Study: Americans are Spending Smarter… Sort Of

A study recently conducted by the National Foundation for Credit Counseling has found that, as a result of the Great Recession, Americans are more interested than before in paying down our debts. But, it seems, we still don’t quite have the financial habits that will get us to that goal.

Eliminating Debt by Watching Your Money

The study found some interesting nuggets of information about the way we tackle debts in this country:

• More than half of poll respondents reportedly noted that the economic slowdown had inspired them to pay down their debts; but
• Only 37 percent of those polled indicated that they had a good idea of how they spent their money each month; and
• Only 20 percent said that they planned to begin budgeting their expenses in order to get on track financially.

The good news from the poll’s findings is that we seem to have had a collective wake-up call about the real cost of debt. But, clearly, we aren’t all on the same page about what kind of financial habits will get us to a debt-free lifestyle.

Steps for Getting out of Debt

Representatives from the NFCC and other financial gurus often offer similar advice for getting on target with financial goals. In fact, the steps to debt elimination are almost identical to those for rebuilding and maintaining healthy finances after filing for bankruptcy:

• Track your spending: In order to seriously pay down debt, you have to know where your money goes each month. Luckily, this step is fairly easy to accomplish, once you decide to do it: for a month, write down everything you spend money on, including rent, utilities, food, clothes and entertainment. No purchase is too big or too small to count – and if you leave anything out, you won’t have a realistic idea of where your finances stand.
• Create a budget: Armed with the information about how you currently spend your money, you can devise a plan for spending and saving your money more effectively – that might mean putting more money toward credit card bills and less toward new shoes, or switching to home-cooked meals most nights of the week. Be sure to give yourself some breathing room so you don’t feel deprived by your budget and give up.
• Start saving money: Now that you’re actively, consciously managing your finances, it’s important to put some money aside each month so you’re ready for any unexpected event (such as illness, injury or job loss). Don’t be daunted if you can only save a little each at a time – anything at all is better than nothing, and your funds will build up over time.

Remember: good intentions are important, but they won’t get you out of debt and back on track financially unless you act on them.

Posted in Bankruptcy, Bankruptcy and the Economy, Financial Management, paying down debt, saving money | Comments Off

Student Loan Debt Tops Credit Card Debt in U.S.

The Wall Street Journal reported this month that the amount of money Americans owe on student loans has officially surpassed what we they owe on credit cards.

How did student loan debt come to outweigh credit card debt, which seems to dominate the headlines and personal finance blogs?

Here’s a look at the numbers behind the scenes:

• Americans currently owe $826.5 billion in revolving credit  -essentially means credit card debt. This is actually down from a high of $975.7 billion two years ago.
• Current educational debt - student loans - comes to $829.9 billion. Analysts estimate that More than  $300 billion of that was accrued in the last four years.

These numbers suggest a variety of explanations and ramifications. Here’s a look at some of the issues and likely outcomes of the new balance of personal debt.

• Paying down debt: Because credit card debts tend to have higher interest rates than student loan debt, it seems that people tend to pay off their credit cards before worrying about their student loans. That could be part of the reason why student debt has crept up in recent years while credit card debt has inched down.
• New credit card requirements: Another potential explanation for the shift is that many credit card issuers have increased minimum payments in recent months, which translates to people paying down more of their debt, whether they like it or not.
• Attention: Credit card debt generally gets more media attention than student loans, which may make paying it off a bigger priority for some people.
• Rising cost of college: The cost of attending college continues to rise. And with graduates entering a tough job market many are finding it difficult to pay down large student loan debts.

Bankruptcy and Student Loan Debt

One especially interesting element of the shifted debt load is the role that personal bankruptcy has to play.

Bankruptcy filing rates are on the rise, and the use of bankruptcy as a credit card debt elimination tool has become more common and accepted. However, bankruptcy cannot typically clear student loan debts.

• Student loans in bankruptcy: Except in cases of extreme financial hardship, student loans are not dischargeable in bankruptcy court. This means that even if a person files for bankruptcy and has other loans discharged she will still be responsible for paying her educational lenders.
• Credit cards in bankruptcy: Credit cards, on the other hand, can be discharged during a bankruptcy filing. With a Chapter 7 bankruptcy, some people clear their credit card debt in only a few months.

So what does all this mean for you? If you’ve found yourself saddled with student debt, credit card debt or both, it’s important to consider all of your options for easing your debt burden. Consider talking with a local bankruptcy attorney to explore your options.

Posted in Bankruptcy, Bankruptcy and the Economy, Credit Card Debt | Comments Off

Credit Scores in the U.S. at Record Lows

A recent report from the Associated Press notes that Americans’ credit scores have dropped to all-time lows, with 25.5 percent of the country scoring below 600. Here’s a closer look at that figure and what it might mean for future borrowing.

Credit Scores & Borrowing

When you apply for a loan, most lenders review your FICO credit score, which can range from 300 to 850 and is based on the information in your credit report (available to view at www.annualcreditreport.com). Higher scores qualify borrowers for larger loans and loans with more attractive terms (like lower interest rates); lower scores indicate that a borrower might be a greater risk to a lender, and so qualify borrowers for smaller loans and ones with higher interest rates.

The recently released data on credit scores reportedly show the following figures:

• Scores of 599 and below: The number of people in the “low” range of credit scores has apparently jumped since the Great Recession hit—while a typical year finds that about 15 percent of those with active credit (about 25.5 million people) fall into this category, currently 25.5 percent (about 43.4 million people) reportedly score in this range.
• Scores in the middle range (650 – 699): Sources indicate that this group traditionally comprises about 15 percent of active credit users, but has fallen to 11.9 percent in recent years. The shift suggests that those most likely to take out home and car loans might now be deterred from doing so because of lowered credit scores and thus more costly loans.
• Scores in the high range (800 and above): The good news, it seems, is that the number of people with very high credit scores have increased: while the typical average hovers close to 13 percent, recent research found the group to comprise 17.9 percent of credit users.

So what does this mean for individual consumers and the larger economy?

A Slow Recovery?

Sources note that much of the economic growth in the boom years before the Great Recession was fueled by borrowing—also known as debt. While Americans were spending plenty of money, much of it was money they didn’t actually have (in the form of credit cards, mortgages, car loans, etc.).

The sky-high foreclosure rate and steadily climbing number of personal bankruptcy filings suggests that we’ve learned a lesson or two about debt as a nation, which may mean two things: first, that lenders will be a bit more discerning when issuing loans; and second, that borrowers will be a little more cautious when applying for them.

This could translate to a slow recovery, as we pare back our spending in favor of building up safety nets.

Posted in Bankruptcy, Credit Score, Credit and Bankruptcy, borrowing, recession | Comments Off

Ruling by Supreme Court Impacts Bankruptcy Exemptions in Georgia

The United States Supreme Court rarely accepts cases that affect consumer bankruptcy debtors.  Recently, however, the Court considered an issue that potentially impacts all debtors – the treatment of exemptions.

The term "exemptions" refers to property you own that is protected from the reach of the trustee or creditors.   For example, every state provides for exemptions that include your clothes, a certain amount of household goods, a certain amount of equity your car, and a certain amount of equity in your home.   Georgia has fairly stingy exemptions – you can read the Georgia exemption law by clicking on the link.

When property is declared as exempt, it does not count for purposes of counting up your assets.   If you own property that exceeds the exemption available to you, that property could be seized and sold by a Chapter 7 trustee or it could force you to pay back a higher percentage of your unsecured debt in a Chapter 13.  Exemption planning and exemption calculation are important functions for consumer bankruptcy lawyers.

The Supreme Court decision in Schwab v. Reilly requires debtors and their attorneys to be more exact when identifying exemptions, and applies to cases filed in Georgia and everywhere else in the United States.   The article that follows is a guest post written for this blog by Brandon Moreno, Vice President of the Utah Bankruptcy Hotline.  The Utah Bankruptcy Hotline maintains a network of unaffiliated Utah bankruptcy lawyers who provide debt relief and bankruptcy counsel to consumers in Utah.

On June 17, in Schwab v. Reilly, the U.S. Supreme Court issued a decision that limits the extent to which individuals filing under Chapter 7 can exempt their property from the bankruptcy estate.  The case arose out of the interplay between two important rules.  One imposes dollar-value limits on the extent to which a debtor can exempt certain types of property.  The other requires interested parties to object to a debtor's claimed exemptions within 30 days after the conclusion of the creditors' meeting, or else lose the ability to retain any of that property for the bankruptcy estate.

The question in Schwab was, what happens when a debtor both reports an asset with an estimated market value and claims an exemption for the asset equal to the market value, the trustee does not object because the claimed exemption falls within the applicable-dollar value limit, and it later becomes apparent that the asset's true market value exceeds the claimed value and the applicable dollar-value limit?  According to some lower courts, the trustee's failure to object entitled the debtor to an exemption equal to the entire market value, regardless of whether that value exceeded the limit imposed by the rules.  In Schwab, however, the Supreme Court rejected that approach.  According to the Court, the trustee need not have objected to the exemption to preserve the estate's ability to recover value in the asset beyond the value the debtor declared exempt.  The rationale for this conclusion was that the trustee had no basis for objecting in the first place–on its face, the exemption appeared to comply with the limit imposed by the rules, and there was no way of knowing beforehand that the asset would appreciate in value beyond the limit.

The Court's analysis was somewhat complex, but an example helps to illustrate the effect of the ruling.  Imagine that an individual files for Chapter 7 protection and reports an asset–in this example, office equipment–to which he assigns an estimated market value of $5,000, that he claims a $5,000 exemption for the equipment, and that the applicable dollar-value limit on office equipment exemptions is also $5,000.  Given the dollar-value limit, the trustee concludes that the claimed exemption is appropriate and therefore does not object.  The thirty-day objection period then passes, and a third-party appraises the equipment and assigns a market value of $8,000.  Under the prior approach of some lower courts, the trustee's failure to object would have entitled the debtor to an $8,000 exemption for the equipment.  But Schwab invalidates that approach and establishes that the debtor will be entitled to an office equipment exemption of $5,000, even though the true value of the equipment exceeds that amount by $3,000.  The $3,000 remainder goes to the bankruptcy estate, to be distributed among the creditors.

For individuals contemplating Chapter 7 bankruptcy, the lesson of Schwab is twofold:  First, even if you accurately report an asset's value and claim a valid exemption equal to that value, you cannot later capture any serendipitous increase in value beyond the limits imposed by the rules.  Second, if for some reason it is important to you to exempt the full market value of an asset or the asset itself, rather than a particular monetized interest in the asset, Schwab suggests that it might be appropriate to claim an exemption for "full fair market value (FMV)" or "100% of FMV."  Thus, going back to the example above, the debtor might try to claim an exemption of "100% of FMV" for his office equipment, rather than $5,000.  A court could reject this claim if it later became apparent that fair market value exceeds the $5,000 limit.  But Schwab also suggests that phrasing an exemption claim in this manner effectively places other parties on notice that the debtor seeks to exempt the entirety of the asset's value. If a debtor provides this notice and others nevertheless fail to object, the debtor may be able to keep a subsequent increase in market value beyond the otherwise applicable dollar limit.

Posted in 13  , Bankruptcy, Chapter 7, Chapter 7 issues, Debtors, Exempt Property, Protected property issues, a, accepts, an, and, appraises, assigns, bankruptcy exemptions, calculation, cases, chapter, claimed, court, entitled, equipment, exemption, falls, hotline, hotline  , maintains, market, network, object, office, passes, planning, rarely, reilly, rejected, requires, schwab, states, supreme, the, third party, united, united states supreme court bankruptcy decision, utah, v, the | Comments Off

Examples of Bankruptcy Fraud

Last October, I wrote a post on this blog about bankruptcy fraud, and pointed out that everything included in a bankruptcy filing is subject to scrutiny by the office of the United States Trustee, which is an arm of the United States Department of Justice.  In other words, false statements on a bankruptcy petition could land a debtor in hot water – dismissal of the bankruptcy case, fines and even prison.

Because the bankruptcy process can seem informal, it can be easy to forget that a Chapter 7 or Chapter 13 filing is made up of documents filed in a federal district court and subject to investigation by the F.B.I.

Attorney Gini Nelson, a New Mexico bankruptcy lawyer, recently published a post about bankruptcy fraud in the Bankruptcy Law Network blog.  Gini's post includes a link to the IRS.gov site containing examples of bankruptcy fraud investigations.   I found the IRS.gov link especially interesting in that one can get a sense of the type of fraud that bankruptcy debtors have attempted and the level of fraudulent activity that generated prosecution.  Given the highly interconnected and electronic public record access that is available to bankruptcy trustees as well as government investigators I can't believe any of these folks believed that they would not be caught.

Posted in Bankruptcy, Blog, Chapter 13 issues, Chapter 7 issues, Debtors, Fraud, Fraudulent Transfers, access, and, bankruptcy and perjury, bankruptcy fraud, department, easy, electronic, examples, examples of prosecution for bankruptcy fraud, f b i attorney, gini, highly, informal, interconnected, investigation, investigations   , nelson, public, record, states, the, united | Comments Off

Congressional Disputes Hamper Unemployment Extensions

Despite some signs of economic recovery across the United States, the nation's unemployment level remains near 10 percent and, according to recent reports, concerns in the Senate over the country’s budget deficit and expansive recovery spending could prevent unemployed Americans from seeing extensions to their benefits.

So how large are the ramifications of Congress’s failure to act? Sources indicate that:

• As many as 900,000 people have already seen some decrease in the unemployment benefits they receive
• If no congressional action is taken, an estimated 1.2 million people will lose some or all of their unemployment benefits by the end of June
• If Congress doesn’t act by the end of July, more than 2 million could be affected

The lack of action —or rather, lack of productive action—:on this matter in Congress will likely mean only temporary halts to unemployment support, but those affected could see their finances take a serious hit, particularly because so many Americans are in financial situations that mean they’re only a few late bills away from default, foreclosure or filing for bankruptcy.

Unemployment Benefits and Extensions

Because of the country’s unusually high unemployment rate and difficult job market, the federal government has extended the 26-week state- and employer-sponsored unemployment insurance programs with three other forms of assistance, all of which could expire without Congressionally approved extensions. The forms of unemployment insurance in jeopardy include:

• Extension of benefits: This program allows those on unemployment to receive benefits for between 60 and 99 weeks, rather than the half-year state standard.
• Extra weekly money: Another program offers an additional $25 weekly to certain unemployment beneficiaries.
• Extension of COBRA benefits: The third program allows those who have lost their jobs to continue the health coverage they had at their last job and subsidizes the cost of that coverage, paying 65 percent for up to 15 weeks.

As some analysts have pointed out, for the millions of Americans unable to find a paying job, these extended benefits can mean the difference between good health and unmanageable medical bills.

Perhaps unsurprisingly, Senate Republicans are reportedly concerned that these extensions, while giving invaluable aid to many American families, are contributing ever more to the United States’ budget deficit, which is skyrocketing thanks in part to recovery efforts.

Though the situation may be sticky for some families, sources note that Congress still has time to act to renew the extensions.

Posted in Bankruptcy, Congress, Economy, unemployment | Comments Off