Archive for the ‘Georgia Bankruptcy’ Category
Saturday, December 5th, 2009
Filing bankruptcy reshapes America.
This chart from the EconomicCrisisBlog.com graphically illustrates what many of us in the Atlanta area already know – Georgia has one of the nation's highest rates of bankruptcy filings.
Why is this and why has it been this way for years – long before the current recession? From my perch as an Atlanta debtor's attorney, I believe that the following factors contribute to our state's high filing rate:
- most people in Atlanta are not from Atlanta. As such, they do not have close family nearby who can help out with a loan or with a place to stay
- the economy in Atlanta is and has been primarily a service economy, with an emphasis on communications, IT infrastructure, and transportation. These industries tend to move through boom and bust cycles more quickly than the economy in general, making jobs in these areas less stable
- Atlanta is a young, somewhat flashy city that encourages conspicuous consumption. As a metropolitan hub, Atlanta exploded in the 1970's meaning that most of the suburbs are 20 to 30 years old. There really isn't much "old money" here – and the entrepreneurial class that drives much of the region's business is inherently less financially sound
- bankruptcy filings tend to breed more bankruptcy filings. When you look at the total numbers of filings over the past 20 years, the totals add up to more than the total population of the metro Atlanta area! Now, obviously some folks have moved elsewhere but I sense that in general, the idea of filing a bankruptcy in Atlanta is seen as a financial tool rather than a badge of personal failure
- there is a lot of information out there about filing for and recovering from bankruptcy. Information empowers people to understand their options and to make reasoned choices. Although bankruptcy is and should be considered a last resort, it can offer a fresh start for honest, hardworking people who are facing an otherwise unmanageable financial crisis
Can you think of other reasons why Atlanta and Georgia have such high filing rates – I'd love to hear from you.
Posted in General consumer bankruptcy info, Georgia Bankruptcy, bankruptcy northern district of georgia, economic crisis blog, georgia bankruptcy filings, rate of bankruptcy filings per state | Comments Off
Saturday, October 24th, 2009
With a sluggish economy, I have met with an increasing number of small business owners who are considering personal bankruptcy to deal with credit card debt and personal loans, but who want to keep their business assets and credits separate. Is this possible.
First, it does make a difference whether the small business is incorporated. If your small business is a proprietorship (i.e. "Tom Smith d/b/a Tom's Lawncare") then there is no way to separate personal assets and debts from business assets and debts. In this situation, all debts are "personal" because the proprietorship does not have a separate identity from the individual. All debts would have to be listed – for bankruptcy purposes in this situation, there is no difference between your personal credit card debt that arises from gasoline and grocery purchases and a credit card that you use for business purchases.
Assets of the proprietorship would be considered personal assets – assets that do not fit within the Georgia exemption statute would be at risk.
In a Chapter 7, if you have non-exempt assets you would have to surrender those assets to the trustee or offer to buy the "estate's interest" from the trustee (usually at a discount from fair market value).
Note that any receivables of the business or any other property with potential resale value (i.e. customer lists, pending contracts) could be claimed as estate assets.
In rare instances a Chapter 7 trustee could object to your small business bankruptcy using an "income suppression" argument. This argument asserts that you should not be eligible for bankruptcy relief because you have intentionally suppressed your income by leaving a highly paid job or intentionally refused to maximize income opportunities.
If you are incorporated, the shares of your business are assets and you may very well be asked to justify a de minimus (i.e. $500) valuation that you put on those shares. I see this issue frequently when clients own service businesses. For example, I recently represented a client in an incorporated service business that had about $75,000 worth of equipment, but also had around $80,000 of credit card debt, $2,000 of tax debt and was behind on rent and facing a possible eviction. What is the value of the shares in this case? Is it $75,000 under the theory that the equipment was not subject to any lien and could be liquidated? Is it zero under the theory that the business (and my client as personal guarantor) could be liable for a fraudulent transfer if it liquidated the equipment when the business was insolvent? Or is the value somewhere in between zero and $75,000 using a compromise argument?
The income suppression argument described above also applies when the individual debtor's business is incorporated. I have seen trustees take the position that a debtor with a certain level of education and training should make a reasonable effort to monitize that education rather than chase an entrepreneurial dream at the expense of creditors.
In the case of an incorporated business where the debtor has partners, the Chapter 7 trustee may become a replacement partner by virtue of his trustee powers and thereafter force a liquidation or a buyout.
I usually advise my clients who own small business clients that there is a possibility that the trustee may demand that the business close its doors and that they may have to find a new line of work. This possibility is less likely if the business is a service business that does not involve hard assets or inventory, and more likely if there are business assets with value or receivables.
Needless to say there are a myriad of potential issues for small business owners who are thinking about filing a personal bankruptcy. As always, you will benefit greatly by seeking counsel before your situation becomes critical.
Posted in General consumer bankruptcy info, Georgia Bankruptcy, Protected property issues, Tax issues, atlanta bankruptcy, jonathan ginsberg, small business and personal bankruptcy, solo practitioner bankruptcy | Comments Off
Friday, October 9th, 2009
If you have been hurt on the job in Georgia and rely on weekly wage benefits from workers' compensation you know that temporary total disability benefits payable per Georgia law will require you to downsize your standard of living. Sometimes the financial strain caused by your loss of a regular paycheck may lead you to consider Chapter 7 or Chapter 13 bankruptcy. What are the implications of pursuing bankruptcy while you are receiving workers' compensation benefits?
My wife and law partner, Jodi Ginsberg, was recently questioned about this subject by a man who she is representing in a Georgia workers' compensation case. This gentleman had been in a Chapter 13, but his case was dismissed after over 3 years when he got hurt and lost his regular income. Now that his Chapter 13 has been dismissed, one of his creditors has filed suit.
Jodi's client wants to know if he should refile his Chapter 13 case to avoid having a judgment rendered against him. He is rightly concerned that a judgment creditor could seize his bank account and/or place a lien on his home.
Here is my take on this: while I think that a refiled Chapter 13 could work, I would be very reluctant to pursue this course of action. First, there is the practical question of whether Jodi's client has enough disposable income to make a Chapter 13 work at all. I have not run the numbers in this case, but it would not surprise me if there is zero or negative cash flow in this prospective debtor's budget – and a Chapter 13 will not work without some positive cash flow.
Second, our prospective client will not face any kind of garnishment of his workers' compensation benefits as Georgia law protects weekly wage benefits from garnishment. I would think that this protection would extend to benefits even after they have been deposited into a bank account but I have not seen any statute or case law on this point – so, in my mind, a workers' compensation claimant should be careful about depositing wage benefits into a (possibly) unprotected bank account.
Thirdly, I think that a Chapter 13 filed on behalf of a workers' compensation claimant would be complicated and expensive. There is a strong likelihood that the case would become ripe for settlement at some point during the 3 to 5 year pendency of the Chapter 13. This means that the debtor's counsel would need to file a motion to ask the court to declare the settlement as "exempt" property. Further, since a settlement means that weekly wage benefits will stop, the Chapter 13 would fail if the debtor could not come up with another source of income. Then, there is the possibility that the debtor might apply for Social Security disability.
The bottom line – as a debtor's attorney, I see a filing by a debtor who is currently on workers' compensation as a time consuming project and I would hesitate to accept such a case without a substantial retainer up front (not a likely prospect for debtor in such a situation).
This is one of these situations where multiple areas of law overlap with the amount of legal work needed greatly in excess of what a prospective debtor can afford.
Posted in Chapter 13 issues, Georgia Bankruptcy, TTD benefits and Chapter 13, bankruptcy and Georgia workers' compensation, workers' compensation and chapter 13 | Comments Off
Sunday, October 4th, 2009
Last month, I wrote a post describing a case that was recently heard by one of the judges in the Northern District of Georgia. In this case, a debtor had filed a Chapter 13 the day of a foreclosure. The lender was not aware of the bankruptcy so it went ahead with the foreclosure sale. Like many foreclosure sales in Georgia, the amount of the mortgage was equal to the likely value of the house so there were no bidders at the foreclosure sale. Instead, the lender bid the amount of the mortgage and was, in effect, the winning bidder.
By the end of foreclosure Tuesday, the lender's law firm had learned of the Chapter 13 filing so the law firm did not "record" the foreclosure deed. Instead, the lender filed a motion to "validate foreclosure" asking the judge to permit the foreclosure to go through thereby divesting the debtor of title.
The debtor painted a very sad picture – he and his wife had four children of their own and a sister and her three children were also living in the home – and they faced homelessness if the foreclosure was allowed to go through. Further, the debtor claimed that he and his wife had been victimized by a "paralegal service" that had prepared emergency "two page" petitions then did nothing more.
The lender's attorney took a very hard line – between the husband and wife, these debtors had filed 5 previous cases only one of which actually worked for more than a few months. The debtor was trying to scam the system and the court ought not permit such an action. Further, the debtor had used the same paralegal service twice – if they were a ripoff why did he use them a second time?
The judge, who is a compassionate and decent man, was clearly struggling with what to do. I felt that the lender's attorney took the wrong approach. In my view the debtor and his wife came across more confused than pathologically dishonest. They clearly did not have entirely clean hands when it came to using the bankruptcy process to stop a foreclosure, but I could see that the judge was bothered by the idea that 7 children and two families might end up on the street.
In my previous post I asked what you thought would happen. Here's what the judge did:
The judge decided to validate the foreclosure and lift the stay. He was very concerned about the multiple filings and by the fact that there was no equity and an almost impossible likelihood that the debtor could actually fund a Chapter 13 that included over 2 years of mortgage arrearage. He did note that Georgia law now provides that foreclosure notices must include the name and contact information of a human being at the mortgage company who has the authority to enter into loan modifications. He directed the lender's lawyer to include this information in the order that would be issued granting the lender's motion (in most cases, the moving party in a motion hearing has the obligation to draft a proposed order for the judge to sign).
In case you are wondering, I would not have a lot of hope that the lender will be very cooperative in working out a deal with the debtor.
He also directed the debtor to cooperate with the U.S. Attorney in investigating the paralegal service.
What can you take from this case? First and foremost, any Chapter 13 case that you file must be viable on its face. In other words if you have only $200 disposable each month, and you have to pay $20,000 over five years, your case is not viable. You have to present a workable plan.
Second, multiple filings make judges very concerned. I am not a big fan of petition preparation services or paralegal services. Bankruptcy has become a lot more complicated over the past 10 years or so. I think that you take a very big chance when you use a non-attorney for your bankruptcy filing. If you are going back a second or third time you should never do so without a lawyer as the Bankruptcy Code has been amended specifically to make repeat filings more difficult.
Posted in Automatic stay issues, Chapter 13 issues, General consumer bankruptcy info, Georgia Bankruptcy, motion for relief from stay, motion to validate foreclosure, multiple chapter 13 filings, pro se debtor | Comments Off
Wednesday, September 9th, 2009
This afternoon (September 9), I had a chance to observe a very interesting case heard by one of the judges in the Northern District of Georgia. The issue at hand was a motion filed by a mortgage creditor to "validate" a foreclosure that had been cried out on the courthouse steps back in July.
The mortgage creditor went first and presented her client's case: the debtor had filed a bankruptcy on the morning of July 7, 2009 minutes before the lender sold the debtor's house on the courthouse steps. The lender was not aware of the filing and proceeded to foreclose. When the lender's attorney returned from the courthouse, he discovered that a bankruptcy had been filed, so he did not record the deed.
Instead, the lender retained bankruptcy counsel who filed a motion have the bankruptcy annulled and the foreclosure validated. If validated title would pass and the lender would now be the title owner of the property. In such a situation the debtor's bankruptcy would offer no protection and the debtor would be subject to eviction.
The mortgage company's attorney noted that this was the fifth bankruptcy filed by the debtor and his wife, and the third case filed this year to stop a foreclosure. In none of the cases filed this year did the debtor or his wife make any payments to the trustee or pay anything to the mortgage company. In none of these cases did the debtor or his wife file any of the required bankruptcy paperwork.
Clearly the debtor and his wife were acting in bad faith, argued the mortgage company's lawyer, and they should not be allowed to misuse the bankruptcy process.
What would the debtors have to say? The debtor and his wife appeared pro se (without an attorney). They told the judge that they filed this bankruptcy to save their home, where they lived with their 4 children, and the wife's sister and her 3 children.
They further explained that the bankruptcy paperwork they filed was prepared by a "paralegal" from a "foreclosure prevention" company. The paralegal had instructed them to file the Chapter 13 to stop the foreclosure and to give the company a chance to continue its negotiations with the mortgage lender. Now, however, the foreclosure prevention company did not seem to be in business anymore – its telephone number was disconnected and its st0refront abandoned.
Now, they just needed some time to obtain representation and to restart negotiations with the lender. They were victims of a foreclosure rescue scam (the same company that had misled them twice before this year) and now they finally realized that they were on their own.
What would you do in this situation? What did the judge do? The answer – see my next post….
Posted in Automatic stay issues, Georgia Bankruptcy, Mortgage modifications, mortgage modification scam, mortgage rescue scam, motion to annul a bankruptcy, motion to annul the automatic stay, motion to validate foreclosure | Comments Off
