Happy Thanksgiving

Happy Thanksgiving

Happy Halloween!

Happy Halloween!

Being resilient in midlife debt crises

Many of the people we see and help are facing a debt crisis in midlife. This should not be surprising. Being laid off or having medical problems with high medical bills are common causes.

This article from the New York Times caught our eye as particularly helpful: “How to Boost Resilience in Midlife”. It contains many of the nuggets of advice we provide to clients.

We hope it is useful and helpful. If you are in a debt crisis, or are not sure whether a crisis is looming, I looking at your monthly net income and comparing it to what you have to spend to live and stay employed. We can help guide you and if you come to meet with us, we will ask you to do this beforehand so that we can help you get a handle on the finances. As always, we will explore the non-bankruptcy options, and if we recommend a bankruptcy we will explain why and what is involved.

Happy Independence Day

Happy Independence Day

Third Circuit Court of Appeals: Chapter 13 debtors may have a grace period to complete their plan after 60 months

The Bankruptcy Code specifies that Chapter 13 plans must provide for payments over no more than 5 years or 60 months. Yet it is not unusual even where the debtor has made all payments to end up with a shortfall at the end of the case due to increased fees or other expenses or other reasons. In Klaas v Shovlin, the Third Circuit Court of Appeals, in a ground-breaking ruling at the circuit court level, held that a bankruptcy court can give debtors in this situation a short but reasonable grace period to pay what is needed.

At the end of their 60 month plan, the Klaases owed another $1123 due to an increase in the trustee’s fee while the plan was underway. The Trustee moved to dismiss the case for that reason. Had that occurred, the Klaases would not have received the discharge they had paid for. Within 16 days after the motion was filed, they paid the difference and the Trustee withdrew the motion. However, a creditor who had joined in the motion objected that the late payment was invalid. The Bankruptcy Court disagreed.  The Creditor then filed a separate lawsuit in the bankruptcy court to deny the Klaases their discharge.  A year later the Bankruptcy Court ruled that as a matter of law the discharge was properly issued.

Both rulings ended up before the Third Circuit Court of Appeals, which ruled that a bankruptcy court has discretion, even after 60 months, to give debtors a grace period to complete plan payments and get a discharge. It found support for this in both the statutory language which limited the length of plans without a specific cutoff for completing payments, and in the purpose of Chapter 13 to afford debtors more flexibility in achieving a fresh start. It rejected the argument that a bankruptcy plan is akin to a contract, and strictly governed by its terms.

The Court cautioned that debtors do not have an absolute right to cure an arrearage after 60 months. Instead, a bankruptcy court can grant a grace period in its discretion applying various factors including how diligent the debtors have been in paying, the time needed to complete payments, what prejudice to creditors would be in allowing the late payment,  how late in the plan term did the issue come up, and whether the shortfall was caused by something the debtors did or failed to do.

Because the Klaases had been diligent and were not at fault, the Third Circuit held that the Bankruptcy Court got it right.

Chapter 13, in the right circumstances, can provide welcome and much-needed relief. However, it requires knowledgeable guidance, and care in fashioning a payment plan, diligence in payment, and attention to detail. We handle these cases regularly and are available to help those who need this special form of relief.

Bankruptcy and your credit report- when do bankruptcies or other adverse reports come off my credit report?

We have often been asked what impact a bankruptcy has on credit and how long it stays on the credit report. In a previous blog post we pointed to a NY Federal Reserve study that showed that a bankruptcy actually sped up the return of decent credit for those who need it. But the question remains. So here is the answer:

Under federal law (15 U.S. Code § 1681c) a consumer credit reporting agency is not permitted to report a bankruptcy for more than 10 years from the date of filing (if filed by the debtor and not by a creditor. We are informed some will remove it after 7 years for Chapter 13 bankruptcies that are successfully completed.

Most debts included in a bankruptcy must be removed after 7 years from the date the debt went to collections. Once the statute of limitations for the debt has expired, even if in less than 7 years, the debt must be removed. Paid tax liens must be removed 7 years after payment.

New Jersey residents can get a free annual credit report from www.annualcreditreport.com. This site has a lot of important information.

We encourage our clients who have gotten a discharge to check their credit report a month or two later to make sure that all the debts which were discharged are listed at a zero balance. (the debt stays on the report for 7 years but getting a zero balance report helps your credit score). If this is not on the report we recommend writing to each agency (addresses and contacts on annualcreditreport website), demanding a correction. The letter should be send certified mail and attach a copy of the discharge and schedule F.

There is a lot of information available about credit scores. See About credit scores

The most important thing, however, is to be proactive about your debt problems. We always start from your situation, and help you understand your budget and alternatives, so you can develop the plan that works best for you.

How to handle illegal or improper collection efforts during or after a bankruptcy

When a bankruptcy is filed, the automatic stay prohibits most efforts to collect a debt (with some important exceptions including criminal proceedings and several others). Collection of garden variety unsecured debts (ie no mortgage, car loan or other collateral) is prohibited. Even attempts to collect by demanding personal payment of a mortgage or secured debt are barred. Until the creditor gets a bankruptcy court order lifting the automatic stay, it cannot collect except by filing a claim in the bankruptcy case.

Once a discharge is entered, the debts that are discharged become uncollectable. Mortgage, auto lenders or leasing companies, and other creditors with collateral rights are free to pursue foreclosure or repossession. Even these are only permitted to make efforts to get back their collateral if the loan is in default. Special rules apply to auto loans. If you reaffirmed a car loan or other debt in the bankruptcy case, or if the debt is non-dischargeable, eg child support, alimony, student loans, most taxes, then collection post-discharge is permitted. Judgment liens on real estate may have to be removed by a motion. Debts which did not exist when the bankruptcy was filed or were not incurred during the bankruptcy process are not affected.

Despite these clear rules, we still see debt collectors trying to collect debts in violation of the automatic stay while the bankruptcy is pending. Continued medical bills, demands to pay back bills as a quid pro quo for continued treatment, billing notices, telephone calls and collection letters may continue even though the creditor got notice of the bankruptcy. Such violations provide a basis for a motion seeking sanctions against the offender, or in some cases, a lawsuit for a violation of the Fair Debt Collection Practices Act.

Once a discharge is entered, we have seen debt collectors violating the discharge order. When this happens, the offender can be sued for contempt of the discharge.

How should one handle these situations? First, document all the calls or collection efforts. Keep copies of all letters or notices. Keep recordings of any telephone messages. If a collector calls, pick up the phone, but be sure to demand the name of the person and company calling. Ask for a telephone number and extension “in case we get disconnected”. Politely verify exactly what debt they are calling about and the balance owed. Ask them specifically what they want you to do (you are looking for a demand for payment). Ask for an address to send payment or any letters etc. Do not give them any information at all about where you live, work etc. Write down all the information you get this way. Once you have this information, you want to tell them clearly that you are in a bankruptcy or have gotten a bankruptcy discharge, with the bankruptcy case number. Specifically ask them to “correct your records to show this”. Ask them to verify that they have done this. If there is any abusive language or threats write these down (“excuse me, let me see if I have this right…you are threatening me with [whatever it is].

Once they know that there is a bankruptcy or bankruptcy discharge, tell them that any attempt to collect the debt is illegal and violates your rights under federal law. Demand that they stop. If you have a bankruptcy attorney, refer them to that attorney. If not, you should consider getting one.

At a minimum, write down everything and keep a log. One strategy that can be used is to record the call, BUT you must TELL THE CALLER RIGHT AWAY THAT YOU ARE DOING SO. Recording telephone calls without notice is illegal in many states. If your caller is calling from California, it is a crime.

If you receive a collection demand, you should call or fax notice about your bankruptcy and include a demand to stop collection efforts.

While a single violation is illegal, we generally give collectors at least one “bite at the apple”. (Usually the creditor has gotten the court notice of a bankruptcy already) Once a collector continues  illegal efforts to get you to pay personally after your notice of a bankruptcy, it is time for legal action.

In these situations, it is wise to get proper legal advice.


Harry S. Truman- an example why bankruptcy is not a “badge of shame”

While a bankruptcy is something to avoid if possible, too many people we see fail to recognize that in the right circumstances, a fresh start through bankruptcy may be what is needed to move on to a successful future. Harry S. Truman, our 33rd President is a case in point. The New York Times recently posted an article which tells his story, For Truman, the Buck Stopped at a Failed Business .

After serving in World War I, Truman, buoyed by some earlier business success, set up a men’s haberdashery shop in Kansas City, selling fine men’s clothing and furnishings. But due to economic conditions beyond his control, namely the post war bust and unemployment (as well as other factors) the business failed. Truman was forced into bankruptcy. Creditors were paid over time at as little as 10 cents on the dollar.

Truman went on to a successful career, first as an administrative judge then as a U.S. Senator, then as Vice President, and finally as President following the death of Franlin Delano Roosevelt. Truman no doubt put the hard lessons of financial failure to good use.

Truman’s is not the only such story. He is joined by the likes of Henry Ford and Walt Disney, whose early business failures were surpassed by later success.

A bankruptcy allows, and indeed requires, that a debtor pay creditors out of assets or income to the extent these are available after payment of necessary living expenses or retention of property which is allowed to be kept through exemptions. Even paying creditors substantial or full percentages of the money owed can be a relief and big benefit. In a bankruptcy this payment is controlled, as are the collection efforts of creditors.

Time and again, we have seen success stories as our clients have been able to move past bankruptcy to overcome mistakes or misfortune and to move on to successful and productive lives.

The hidden hazards in failing to list every possible debt or claim in a bankruptcy- you might not be protected!

Recently I was confronted with a question as follows: This gentleman had a small business and filed personal bankruptcy. He neglected to list one of his disgrunteled business customers. The bankruptcy was concluded and he got a discharge.  A year later the customer sued him in state court. He claimed the bankruptcy discharge prevented his being sued but the state court judge had a trial anyway and hit him with treble damages for a violation of the Consumer Fraud Act. He is appealing, without a lawyer.

Here was my answer:

“There are several aspects of this. First, in a no asset case, the consequence of not listing a creditor whose debt arose before the bankruptcy filing is that the debt is still discharged, UNLESS the debt is one that arises from fraud or false pretenses, embezzlement, larcenty, or breach of fiduciary duty, or wilful and malicious intentional injury to another. See Third Circuit decision,  Judd v. Wolfe, 78 F.3d 110 (3d Cir.1996).

“However, the other consequence is that  ithe non listed creditor is never given a deadline to file an adversary proceeding to determine whether the debt was non-dischargeable. Since treble damages were awarded it sounds like the judgment in state court was based on the Consumer Fraud Act. If there was proof of actual fraud (and not just a violation of certain rules and regulations), AND had you listed the creditor in your bankruptcy,  her  claim would have been discharged unless she filed suit in the bankruptcy court to determine the issue within a short specified time. Since that did not happen, the state court could determine if the debt was dischargeable and finding a consumer fraud violation, determine it was not, IF there was actual fraud.  You need to consult with a qualified bankruptcy lawyer right away about this. You need to address this in your appeal.”

Poor guy. All this could have been avoided had he or his attorney been more careful. I always tell clients to list EVERYONE who MIGHT have a possible claim against you. If the client is a business owner, we list every business debt, even if the client thinks she is not personally liable.

Closing the First Meeting of Creditors- it is more important than you think

For anyone in bankruptcy the First Meeting is important. It is where the Trustee places the debtors under oath and asks questions to verify their bankruptcy disclosures, and sometimes to pursue a further investigation. What many people do not realize is that closing that  hearing is just as important. For the most part, the trustee has the discretion to keep the hearing open as long as he or she needs to continue investigating, but there are limits and procedures that must be followed.

Closing the hearing is important because it starts the clock running on the time for the trustee or creditors to object to a debtor’s claim of exemptions. One of the important protections available to individuals in bankruptcy is their right to claim certain types and amounts of property as “exempt”. The exemptions define what property the debtor gets to keep free of claims of most creditors. These exemptions become unchallengeable 30 days after the First Meeting of Creditors is closed, unless there is a written agreement or court order otherwise. F.R.Bankr.P. 4003

So establishing when the hearing is closed is very important. There was a time when trustees had the ability to keep the hearing open for an indefinite time,  simply by announcing that the hearing was being kept open without setting a new date. This left the debtor in limbo. Several courts then held that trustees could not keep the hearing open for an unreasonably long time. In December 2011, bankruptcy rule 2003(e) was amended to require that the notice of adjournment at the hearing include a specified date and time for the hearing. It also required the prompt court filing of a statement specifying the date and time to which the meeting is adjourned. .

So at the First Meeting of Creditors, it is important to ask the Trustee to advise on the record whether the hearing is closed, and if not when the new hearing date will be. Insist that the rule be complied with.

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