Bankruptcy Questions Answered

Words of Wisdom for High School Graduates

Yesterday, my son graduated from high school.   His class selected a math/environmental sciences teacher named Nicole Brite to deliver the faculty address to the senior class.  Ms. Brite delivered a spectacular address which was meaningful, witty and thoughtful (and she received a well deserved standing ovation from both the students and the audience).

In one part of her speech, Ms.  Brite turned to the graduates and said  "now I am going to offer you some words of advice that I wish someone had said to me when I was leaving high school."   One of the points she made I think is applicable to everyone, not just high school students.

"Stay away from credit cards," said Ms. Brite.  "When you get to college, you will see tents set up by the credit card companies.  They will offer you frisbees and t-shirts and free food to entice you to sign up for a credit card.  They'll tell you that a credit card will help you build up your credit and you can use it only for emergencies.   Don't believe it.   You will be tempted to decide that an emergency takes the form of a pizza at 2 in the morning, or putting your entire fraternity's dinner on your card because no one has cash.  Credit cards will mess you up."

I hope that each and every one of the graduates in my son's class heard these words of wisdom and I wish this advice could be included in the "welcome to school" packets given to incoming freshman.

Over the years I see dozens of young adults in their late 20's and early 30's who are still dealing with thousands of dollars of college years credit card debt and the associated damaged credit ratings.   It is so easy to find oneself behind the proverbial eight ball, and digging out from a credit hole is a lot more difficult than avoiding the problem in the first place.

If your son or daughter recently graduated from high school, congratulations on an accomplishment and a milestone.   Let your graduate know that while college isn't exactly the real world, they now have assumed the capacity to get themselves in adult level financial trouble. As uninteresting as household budgeting ten years hence may seem, they most definitely do not want their college aged mistakes to lead them to a bankruptcy lawyer's office in the future.

Posted in Advice, Consumer Protection, General consumer bankruptcy info, Georgia Bankruptcy, a, address, aged, and, applicable, brite, class, class  , college, credit cards for college students, dangers of credit cards, delivered, financial advice for high school graduates, graduated, graduates, high, leaving, math environmental, mistakes, ms, named, nicole, said , school, sciences, selected, senior, spectacular, students, teacher, the, wisdom, words, years | Comments Off

Bankruptcy Fraud: Don’t Cross that Line!

The Associated Press reports that former baseball star Lenny "Nails" Dykstra has been charged with bankruptcy fraud by a California based United States Attorney.  Dykstra filed for Chapter 7 bankruptcy in 2009, scheduling $31 million in debts and only $50,000 in assets.

In the complaint, prosecutors allege that Dykstra sold or destroyed over $400,000 worth of property.  Among the property that Dykstra allegedly sold – presumably to raise case – were sports memorabilia and furnishings from the home he lost in the bankruptcy.

Obviously most of the Chapter 7 cases filed in the Northern District of Georgia, or in most bankruptcy courts do not involve millions of dollars of debts incurred by a high profile debtor.  However, there is an important lesson that all bankruptcy filers can learn from the charges levied against Mr. Dykstra.

When you list assets on your bankruptcy petition, you are swearing that this list is accurate under penalty of perjury.  If your trustee discovers that items have been omitted, or worse, that they have been secretly sold, the trustee will refer the case to the U.S. Attorney for prosecution.

Sometimes, I overhear conversations in bankruptcy court in which a debtor expresses frustration with the bankruptcy process or anger at an ex-wife, a former business partner or even a former employer.  I also hear conversations expressing frustration with the rather stingy dollar limits set out in the Georgia exemption statute.   I sense that some bankruptcy filers believe that the circumstances that led to their having to file were unfair and out of their control and as such leaving out inherited jewelry that "no one will ever know about" or selling a few items for cash can be rationalized.

While it is probably true that Chapter 7 trustees generally do not have the resources to thoroughly investigate every Chapter 7 debtor, I caution any bankruptcy filer not to take the risk.

First and foremost, an intentional failure to disclose assets is illegal and constitutes a crime under federal law.  No asset is worth your freedom or personal integrity.

Second, you have no way of knowing if the United States trustee will select your case for a random review which can also mean much more intrusive scrutiny.

Third, it is possible that a third party – often an ex-wife or ex-business partner – might anonymously write the U.S. Trustee to report intentional errors on your petition.

Fourth, you might fall victim to "Murphy's law" – your trustee or someone from his office might see you walk into a pawn shop or might see your auction on eBay.   Believe it or not, these types of coincidences do happen.

Often, issues associated with assets that you cannot protect can be resolved if you do not have to file right away.   While the bankruptcy laws can be unforgiving, they will not punish you if you sell assets to raise money for food, shelter and clothing, as long as those sales are disclosed when applicable.  This is why I advise anyone who is even remotely considering bankruptcy to speak with a bankruptcy lawyer at the earliest possible date.  In my office, I regularly maintain files in "pre-bankruptcy" status for four, six, eight months or longer.  Often the delay arises from my client's need to gain lawful benefit from assets that would be seized if the case was filed early.

Posted in Bankruptcy, Chapter 7 issues, Denial of discharge - Section 727, Fraud, Fraudulent Transfers, General consumer bankruptcy info, Lenny Dykstra, a, allegedly, and, attorney  , bankruptcy fraud, baseball, based, california, charged, conversations, dykstra, examples of prosecution for bankruptcy fraud, expressing, filed, frustration, furnishings, hear, lenny, memorabilia, nails, sold, sports, star, states, united | Comments Off

Tiny, Hidden Credit Report Errors Can Lead to Bankruptcy

The Wall Street Journal recently published a new story entitled Hidden Medical Debt Trips Up Homeowners. The report documented several cases in which small medical bills that had been turned over to collection resulted in a more than 50 point drop in a homeowner's credit score.

In one situation, a homeowner attempted to refinance his mortgage, only to discover that two unpaid medical bills totaling less than $50 had caused his credit score to drop.  As a result of the lowered credit score the refinancing bank demanded over $4,000 in closing costs.

In another situation, less than $500 of medical debt reported to a collection agency disqualified a homeowner from a favorable interest rate, which would have resulted in tens of thousands of extra interest charges.

In many of these situations, the consumer never knew about the unpaid medical debt – the provider simply turned the claim over to a collection agency which immediately reported it to the credit reporting agencies as delinquent debt.

According to the Journal, "otherwise well-qualified borrowers with good loan-to-value ratios and steady employment are increasingly finding it difficult to refinance because of medical billing mistakes marring their credit."

If you or a loved one has been in the hospital, you probably know that a single visit can result in five, ten or even more bills from separate vendors – the hospital, the hospital pharmacist, the anesthesiologist, the ambulance service, etc.  I do not find it surprising at all that a patient would not know about one or more bills.

I think that an important point here has to do with the cascading effect of negative credit.   Even a small late payment on an account can result in a dramatic lowering of your credit score.  Other creditors will receive electronic notice about your lowered credit score and when permitted, they will increase your interest rate, lower your credit limit and increase penalties and fees.

Lenders Often Cause Delinquencies by Changing Terms Unexpectedly

On more than one occasion I have met with a potential bankruptcy client who was forced into Chapter 7 or Chapter 13 because of changed terms, not because of any delinquency.   These changed terms can arise from a tiny delinquency – like the unknown, unpaid medical bill issue discussed in the WSJ story, or for other reasons.  Recently I met with a small business owner who was completely current on his personally guaranteed revolving line of business credit.  His bank was taken over by another bank which conducted an audit and, without warning, the business loan was "called in."

One minute, my client was operating a viable, functioning small business that was current on its obligations – and literally within a matter of days, that business was shut down by a bank for no apparent reason.

The point here: examine your credit reports regularly and challenge even tiny delinquency reports as the damage to your credit will arise from the existence of the delinquency as opposed to the amount of the late payment.  Even small downgrades to your credit score can result in a negative debt snowball.

Posted in Consumer Protection, Credit, Credit Reports, Credit Scores, Credit reporting errors, Discover, FDCPA Claims, General consumer bankruptcy info, a, arise, bank, billing, bills, cases, claim, debt, delinquency, demanded, entitled, hidden, knew, lowered, marring, medical, medical debt and bankruptcy, medical debt and credit reporting problems, mistakes, provider, refinancing, reports, score, simply, small, story, the, tiny, totaling, trips, turned, unpaid | Comments Off

The Problem with 401(k) Loans and Consumer Bankruptcy

Most of the clients who I represent in Chapter 7 or Chapter 13 cases view bankruptcy as their absolute last resort.  Usually, by the time they get to me, these clients have exhausted every other alternative – they have borrowed money from relatives and friends, sold possessions on eBay and cashed out or borrowed against retirement plans.

All of these choices, by the way, create unintended consequences – if you are reaching that point of desperation where you are thinking about selling things, cashing out retirement plans, etc., I would rather that you call me  before taking any action because of the risk that you might unknowingly lose some of the benefit from your bankruptcy filing, or possibly disqualify yourself altogether.

Retirement plan loans such as 401(k) loans create a variety of issues and are almost always a bad idea in a bankruptcy context.   Presumably you borrow against your 401(k) because you need cash now, you expect to repay that loan in the near term, you want to preserve your 401(k) account for the future, and because you do not want the tax consequences associated with cashing out your 401(k).

Bankruptcy trustees, however, look at 401(k) loans in a different light.   They see any allocation to repay a 401(k) loan (and sometimes any ongoing contribution to a 401(k) plan) as an unnecessary reduction of disposable income that would otherwise be available to pay creditors.    401(k) loan payments cannot be counted as allowable deductions in your means test calculations.   And both Chapter 7 and Chapter 13 trustees and/or creditors will often object if you include a 401(k) loan repayment allocation in your Schedule I and J budget in either a Chapter 7 or Chapter 13.

Since 401(k) plan funds are generally considered "exempt" or sheltered property in a Georgia Chapter 7 or Chapter 13, your best choice often means not using your 401(k) as a last gasp source of cash.

401(k) loans and on-going 401(k) contributions do not make bankruptcy impossible, but they do complicate matters.  If you are in financial trouble and are thinking about raiding your 401(k) or retirement plan but have not done so, you should not take any action until you have spoken to a bankruptcy lawyer.   If you have already cashed out or borrowed against your 401(k), make sure that your attorney is aware of this fact.

Posted in 401 k, 401(k) loans in bankruptcy, Bankruptcy budgets, Consequences, General consumer bankruptcy info, Georgia Bankruptcy, Loans, Retirement, Trustee objections in Chapter 13, allocation, allowable, altogether retirement, borrowed, cashed, cashing, counted, create, deductions, loan, plan, plans, plans all, repayment, trustee objections, unintended | Comments Off

Inside the Mind of a Bankruptcy Lawyer – Should I File and if so, Why Should I Choose Your Firm?

There are dozens of lawyers out there who offer to prepare and file bankruptcy cases.  Some work in high volume "bankruptcy mill" firms that compete on price while others compete on experience, knowledge and service.  Usually the cost differential is a few hundred dollars, but when you are considering bankruptcy, every dollar counts – so why would you want a lawyer like me as opposed to a firm that would offer to represent you for a lower price?

I could offer a glib answer like "if you needed brain surgery, would you look for the cheapest surgeon on the one with the most experience and industry recognition" but that does not really answer the question.  Perhaps it would be helpful if you could look over my shoulder as I analyze a real life situation that came before me recently.

Earlier this month an email arrived from a couple who wanted information about bankruptcy.  The wife wrote that she was a stay at home mom raising 2 children and that her husband lost his job about a year ago, and recently started back to work at a lower paying job.  Their current household income is just under $50,000.  They own a house that is now worth less than what they paid for it – the house is worth about $200,000 – the first mortgage is $210,000 and the second mortgage is $35,000.  They own one older car outright and are financing a mini-van.  They have also incurred around $25,000 of credit card debt – most of which was used trying to keep the mortgage current.

Earlier this year they fell behind on both the first and second mortgage.  The first mortgage lender started foreclosure proceedings, but suspended foreclosure and offered to consider my potential clients for a mortgage modification.  They have been making modified payments for several months but when they called the lender to ask if they had been approved for a permanent modification, the account rep told them that their modification paperwork had not been approved but that their application had been sent to another department for a reconsideration.  News of this decision had not been provided to my prospective clients – the only reason they found out was from their call.  No one from the mysterious reconsideration division was available and their multiple calls have not been returned for over 2 weeks.

They decided to contact me because they are getting the sense that the mortgage company is unlikely to approve their modification and they want to be prepared for a possible foreclosure.  What are their options? Here is what I advised them through my conversation with the wife:

First, I asked what was their desire regarding the house – was keeping the house a priority?  The wife responded that they would like to keep their house but they were not sure they could afford it given the husband's reduced salary.

I explained that Chapter 13 is the type of bankruptcy that can stop a foreclosure but that Chapter 13 would not allow us to change the amount of the monthly payments, nor would it change the total balance due on the mortgage.  Chapter 13 would allow them to "cure" their arrearage by paying that arrearage (the past due payments) over a five year period of time, along with other debts that would also be included in the Chapter 13 payment plan. However, if they were not able to afford the regular monthly payments Chapter 13 probably did not make much sense.

The only possible justification for a Chapter 13 would arise from the possibility that they could use Chapter 13 to "strip" the second mortgage and make that unsecured.  Under Chapter 13 law, a second mortgage that is wholly unsecured, meaning that the balance due the first mortgage exceeds the fair market value of the home.  If the second mortgage is wholly unsecured, we can file a motion to strip the lien, thereby making the second mortgage debt an unsecured claim in the Chapter 13.  If our Chapter 13 plan called for paying unsecured debt at 5 cents on the dollar, then Chapter 13 might be something to consider.

In this case, the wife advised me that the monthly payment due the first lender was more than what they could afford, plus she did not seem enthusiastic about signing on for a five year payment plan, so we decided to remove Chapter 13 from consideration.

We then proceeded to discuss Chapter 7.

I pointed out that Chapter 7 would allow the couple to discharge their credit card debt as well as any potential liability arising from the surrender of their home.  I felt that the real danger came from the second mortgage lender as it has been my experience that first lenders rarely pursue deficiency claims because  of the Georgia law that requires them to go to court to certify the deficiency before a judge within 30 days of the foreclosure.  Second mortgage holders, by contrast, need only file suit on the promissory note associated with their loans.  I see far more deficiency balance claims from second mortgage lenders than from first mortgage lenders.

I also noted that since the foreclosure process could take several months, one strategy here would be to remain in the house and pay nothing – nothing to either mortgage lender and nothing to the credit card lenders.  This strategy would allow my prospective clients to reduce their budget outflow dramatically for several months while they built up a small cash reserve, and then file bankruptcy in four to six months when creditors were starting to take action.  I noted that this strategy was based on economics, and that they would have to be comfortable with the moral implications of this course of action.  I also noted that this "wait until the last minute" strategy would cause significant damage to their credit in addition to the bankruptcy.  By contrast, filing a Chapter 7 when there were few or no 120 day late references would make recovery from bankruptcy a little easier.  Credit reports document payment histories and while a bankruptcy discharge will put the balances at zero, it does not delete the negative payment histories.

On the other hand, I advised the wife that if she and her husband waited to file and the husband secured a better, higher paying job, their household income might leave them with disposable income in their budget, or it might cause their household income to exceed the median income for a family of four, thereby making Chapter 7 much more difficult or impossible.  It has been my experience that when household income exceeds the median (in Georgia the current median income for a family of 4 is $68,258) by $10,000 or more, it can be very difficult to qualify for Chapter 7 under the means test.  Thus, if the husband was actively looking for employment and his target income was $80,000 or more, waiting to file Chapter 7 might not be the best idea.

The wife then asked me about the credit report issue – how long would it take for she and her husband to rebuild their credit.  I responded by saying that it my experience, a Chapter 7 debtor can expect his credit score to remain depressed for eight months to a year following the Chapter 7 discharge.  However, Chapter 7 has the positive effect of eliminating all debt and thereby causing an improvement to the debt to income ratio.  Further, individuals can only file Chapter 7 once every eight years – so from a lender's perspective a recently discharged debtor has no debt and cannot file bankruptcy for at least 8 years.

I assured the wife that I made it my practice to follow up with my clients who had received a discharge to review their credit reports three to five months after discharge.  I have found that at least half of the time, there are errors on the credit reports that artificially depress post bankruptcy credit scores and sometimes, the errors are actionable, meaning that we can collect damages from creditors for Fair Debt Collection Practices Act violations.  In a few cases I have been able to collect enough in damages to cover the attorney's fees and filing fees associated with the original bankruptcy filing!

I ended by conversation with the wife by thanking her for contacting me.  I then followed up our conversation with a brief email summarizing what we had spoken about and providing her with the "get started" link to one of my web sites.

I hope you can see that even a "simple" fact pattern can give rise to a variety of options and pratical considerations.  Consumer bankruptcy is not a "one size fits all" practice and I am able to raise all of the points that I did because I have seen a lot of different issues over the past 23 years.  If you have any questions about what have written here or if you want to discuss your personal situation, I encourage you to contact attorney Susan Blum or me by phone at 770-393-4985 or send us an email.

Posted in Chapter 13, Chapter 7, Credit, Current, Foreclosure, General consumer bankruptcy info, Georgia Bankruptcy, Lenders, Mortgage, a, and, because , choosing a bankruptcy lawyer, claims, deficiency, document, easier  , exceeds, georgia, histories, house, household, in, income, keeping, lender, median, payment, priority  , proceedings, pursue, rarely, reports, responded, started, the, wife | Comments Off

Does Your Landlord have any Obligations to Mitigate Damages if You Breach Your Lease?

Not surprisingly, I get calls from small business owners who are contemplating personal bankruptcy when their businesses fail.  There are many issues that arise in these types of cases but I would like to focus on one problem that, more than any other, can force the business owner into bankruptcy.

Generally when the owner of a small business leases retail space, the landlord will demand a personal guarantee.  This means, of course, that in the event of a default, the business (which may be a corporation or LLC) faces liability and the business owner personally faces liability.

Given this reality, every small business owner should seek counsel to discussion asset protection options before starting his business, but that is a topic for another day.

If the business fails you might be surprised to learn that the landlord does not necessarily have to take any steps to "mitigate damages" by releasing the retail space.  Instead, the landlord can demand payment for the full value of the lease from the business owner personally.  If the business owner has a house with $100,000 of equity, that equity is therefore at risk, and given that Georgia's bankruptcy exemption statute is stingy ($10,000 for an individual or $20,000 for a married couple filing jointly), bankruptcy may not offer much protection.

I ran across two helpful resources that go into more detail about the landlord's obligations or lack thereof.  The first is a blog post from Atlanta lawyer David Pardue in his Georgia Real Estate Litigation blog.  In his post, David discusses a recent Georgia Court of Appeals case called Sirdah v. North Springs Assocs., LLLP, which was decided by the Court of Appeals in June, 2010.  In the Sirdah case, the Court restated its previous holding that a landlord is under no duty to mitigate damages unless (1) the landlord accepts the tenant's surrender, or (2) the tenant successfully terminates the lease.  In the Sirdah case, the tenant returned his keys to the landlord and argued that by accepting the keys, the landlord accepted the tenant's surrender.  The Court said that accepting the keys did not constitute an acceptance of the surrender.

Another helpful resource is a more extensive article written by attorney Stephanie Everett of the Bloom Law Firm in Atlanta.  In this paper, Stephanie examines the various scenarios that could arise when a tenant breaches a lease and the resulting consequences.  Although Stephanie's article is written for the benefit of landlords, tenants will find the information very helpful as well.

As the law in this area could change, you should not rely on these resources in the absence of counsel.  If you are a small business owner and you are coming to the realization that your business may not survive, you would be wise to consult with a lawyer to discuss your options both in business and in terms of bankruptcy.  I have seen far too many business owners who simply left and discovered after the fact that their bankruptcy options were limited, or too painful.

Posted in 1, Business, David Pardue, General consumer bankruptcy info, Georgia Bankruptcy, Protected property issues, Sirdah v. North Springs Associates, a, accepted, accepts, and, appeals, assocs, breach of lease, breaches, called, case, consequences  , damages, duty, faces, landlord, lease, lease  , leases, liability, liability given, llc, mitigate, mitigation of damages, north, owner, personally, resulting, retail, retail lease and personal liability, sirdah, small, space, springs, successfully, tenant, terminates, the, v | Comments Off

The Only Thing Certain is Change

No one starts his or her adult life expecting to file for bankruptcy.  Yet every week, I meet with men and women in their 30's, 40's, 50's, 60's and older who have become insolvent and need relief under the United States Bankruptcy Code.   I often hear the lament "I never in a million years thought I'd be sitting in a bankruptcy lawyer's office."  I usually respond by reassuring my clients that bankruptcy is a legitimate and legal financial tool that can offer hardworking families a kind of "do over" when unexpected circumstances finances to go south.

If this sounds familiar to you and you are struggling with the idea of finding anything positive from your bankruptcy experience, I would encourage you to take a few minutes to think about how and why you ended up in a bankruptcy lawyer's office.  I would also encourage you to consider what you can do differently in the future to make your bankruptcy a one time event.

I also think it is important to recognize that you are by no means alone in facing unsettled financial times.  You may have seen lists containing the names of famous historical figures who filed bankruptcy (like Walt Disney, Larry King, even Wolfgang Mozart).   Now think about the tremendous change that we are all experiencing now.  I recently ran across a blog called 24/7 Wall Street that issues a yearly list of companies or brands it expects to disappear in the next year.  This year's list includes:

• Readers Digest magazine
• Blockbuster Video Stores
• T-Mobile cell phone carrier
• Merrill Lynch stockbrokers
• Radio Shack
• Zales Jewelers
• Kia Motors

Now, I fully expect some of these brands to survive, but I am also certain that one or more may go away. 

Other well known brands that 24/7 says are in trouble include:

• Newsweek
• Eastman Kodak
• Motorola
• Palm (smartphones)
• E*Trade (discount stock brokers)

I am sure that you have heard of many of these companies, and if you think back, most of these businesses were thriving, dominant concerns run by experienced executives from the finest business schools.

The point here is that anyone, and I mean anyone, can get into financial trouble quickly.  Just the other week, for example, I met with two men about bankruptcy, each of whom formerly earned over $1 million annually.

Bankruptcy is certainly not a good thing to experience but in our economic system, a bad decision or two and an unexpected change in the business environment (think about those shrimpers in Louisiana) and there you will be – sitting in a bankruptcy lawyer's office.

Posted in Business, General consumer bankruptcy info, Stock, bankruptcy and personal failure, brands, brokers, carrier, cell, companies, discount, e trade, eastman, famous, famous people who filed bankruptcy, figures, finest, historical, kodak, motorola, newsweek, palm, phone, point, psychology of filing bankruptcy, schools the, smartphones, survive, t mobile, the | Comments Off

Failure to Disclose Assets Lands Chapter 7 Debtor in Prison

Because the bankruptcy system operates efficiently and quickly and it serves hundreds of people every day, I sense that many bankruptcy debtors forget that everything they submit to the bankruptcy court is done so under penalty of perjury. I recently ran across an article from a Texas newspaper about a Chapter 7 debtor who ended up in federal prison, convicted of bankruptcy fraud, because he failed to disclose an $84,000 insurance payment, proceeds from the sale of a vehicle and several bank accounts.  This particular debtor used Chapter 7 to discharge over $1 million in liabilities.

I bring this case to your attention for several reasons.  First, you should recognize that Chapter 7 trustees are very conscious of the likelihood that a certain percentage of debtors will fail to disclose assets.  While it may seem that your Chapter 7 trustee is not paying much attention to any particular case, I suspect that trustee training programs provide trustees with profiles of the types of debtors likely to omit important information as well as resources to search for evidence of hidden assets.

In the Texas debtor's case I wonder how he thought that a vehicle sale would be missed by the trustee, given that vehicle liens are public record, as are vehicle registrations.

These days almost any sale of real estate or motor vehicles will generate a paper trail of tax forms, insurance records and title documents.  Further I have personally seen situations where an unhappy ex-wife or a former friend will draft a "poison pen" letter to the trustee will allegations about improper activities by a bankruptcy debtor.

Second, be aware that Chapter 7 trustees and the U.S. trustee like to pursue fraud cases periodically to send a message to debtors and debtors' lawyers that the trustees are paying attention.   Bankruptcy lawyers may be tempted to say "don't worry about it," to avoid extra expense and complication but playing fast and loose with disclosure rules can create major problems for both debtors and their lawyers.

Occasionally I meet with a client who may say something like "between you and me, no one knows this but…."    This type of statement is the last thing that any bankruptcy lawyer wants to hear.  From my perspective that client is really saying "I am thinking about committing a federal crime and I want you to help me."  My license to practice law is not worth the fee for any one case and I have and will continue to decline representation for any client who wants to use my office to file inaccurate schedules.

Nobody likes to surrender assets, especially in a bankruptcy case that may have come about because of factors beyond one's control (such as a layoff, unfair treatment by a lender, a lawsuit judgment that you did not know about).   In most bankruptcy cases you will not lose in assets.   However, losing a few hundred or thousands of dollars is a far better fate than federal prison.

Posted in 84, Chapter 13 issues, Chapter 7 issues, Debtor, Discharge issues, Fraud, Fraudulent Transfers, General consumer bankruptcy info, Insurance, Trustee, a, an, and, assets in, assets nbsp, bankruptcy crime, bankruptcy fraud, cases, committing, crime, disclose, documents nbsp, ended, evidence, failed, failure to disclose assets in bankruptcy, federal, hidden, periodically, prison, programs, provide, pursue, records, texas, the, title, training, trustees | Comments Off

Afraid that You Could Lose Your Job if You File Bankrutpcy? The Law Says “No,” but….

Last month, my friend and colleague, Charleston bankruptcy attorney Russ Demott published an interesting article on his web site entitled "Fired for Filing Bankrutcy? No way!" This article was written by Elyria, Ohio bankruptcy lawyer Bill Balena, who notes that the Bankruptcy Code specifically forbids "employee discrimination" based on a bankruptcy filing if:

• You are, or have gone through a bankruptcy proceeding
• You are insolvent either before filing a bankruptcy or while your petition is pending;
• You have not paid a dischargeable debt

Let's take a closer look at what the Code actually says.  Pay particular attention to the different language that applies to government employers vs. private employers.

Section 525 of the Bankruptcy Code contains the following language:

As to governmental units:

[with limited exceptions] a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

As to private employers:

No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—

(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

As you can see, the restrictions on discrimination are not identical.

Specifically the limitation on governmental action against insolvent or bankrupt employees or job applicants includes the following prohibitions:

• deny employment to
• terminate the employment of
• discriminate with respect to employment against

By contrast the limitations on private employers against insolvent or bankruptcy employees includes the following prohibitions:

• terminate the employment of
• discriminate with respect to employment against

Now I have not litigated this issue – but I think that a private employer could make a strong argument that the Bankruptcy Code does not forbid denying employment to an insolvent or bankruptcy individual who is applying for a job.

Further, as Mr. Balena points out, if you are applying for a job as an "at will" employee, a prospective employer does not have to explain why he is not hiring you – it can be for any reason.  I can't imagine that too many employers would specifically put into writing that you are not being hired because of your credit issues.

In my view, within the context of private employment, Section 525 protections have much more relevance to an employee who already has a job as opposed to a job applicant.  Further, I think that Section 525 is somewhat of a toothless tiger in that few employers would specifically identify a bankruptcy as the sole reason for termination (note the language "solely because").

As a practical matter, I cannot recall the last time I observed or even heard of a bankruptcy debtor facing termination or a refusal to hire because of a bankruptcy filing.  The sheer numbers of bankruptcy filings in the Northern District of Georgia, for example, are such that almost every company of any size has had one or more employees go through the bankruptcy process.  Still, I counsel my clients that Section 525 offers very little in the way of real protection and that there is some risk, even if it is small, that their bankruptcy filing could have a negative impact on employment.

Posted in 525, Attorney, Bankruptcy, Consumer Protection, General consumer bankruptcy info, an, article, bankrupt, charleston, demott, deny, discriminate, discrimination, employees, employers, employers section, employers and bankruptcy filings, employment, government, identical specifically, includes, insolvent, interesting, job termination and bankruptcy filing, limitation, private, prohibitions, published, respect, russ, section 525 of bankruptcy code, terminate, the, vs | Comments Off

How Can Filing Bankruptcy Impact My Children?

It is commonly known that filing for bankruptcy can be a very trying and emotional time for those filing. But it is less common to hear about how a bankruptcy can impact the children of bankruptcy filers. If you have children or dependents and are considering bankruptcy, it is important that you understand the potential consequences bankruptcy can have on your children.

1) Unfortunately, if a debtor contributes money towards a child's college tuition or to a college fund, filing for bankruptcy could potentially prevent these contributions from occurring. When you file for bankruptcy, the court and creditors will attempt to limit the amount of your expenses and may prioritize their collection accounts above your child’s education. While bankruptcy courts will allow necessary expenses such as housing, utilities, and food, your child’s education may not be viewed as essential. If you find yourself in this situation, I strongly recommend that you consult with a bankruptcy lawyer to understand more about how your child’s education may be affected when filing for bankruptcy.

2) When you file for bankruptcy, the line can get blurred between your assets and your child's assets. For example, say you opened a bank account for your child but failed to take the adequate steps to set it up correctly to be protected from something like a bankruptcy. When it comes time to file bankruptcy, you may run the risk of the money in that account being considered your money and not your child’s. This type of problem can occur if the account is under just your name (and not your child’s) or if you have ever used it to pay your own bills. Your children’s assets can be better protected from bankruptcy if the accounts are opened under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). If your child’s assets are at risk of being affected by bankruptcy, I again recommend consulting a bankruptcy lawyer to help find the best means of fixing this problem.

3) Children are protected from bankruptcy whether or not an in-debt parent is behind on child support payments. Child support obligations are a top priority and are ineligible for bankruptcy debt discharge. If you file for Chapter 7 bankruptcy, child support payments become a top priority when assets are being liquidated. If you file for Chapter 13 bankruptcy, child support payments will be arranged in the repayment plan. In either case, the hope is that ex-spouses find it easier to pay child support since the bankruptcy may be able to lessen many of their other debt burdens.

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