Is debtor’s prison making a return to Massachusetts?

By doug | Published: April 11, 2011

Money maven Clark Howard has just posted an interesting article on the return of debtor’s prison to some states.

Howard writes that “the Wall Street Journal reports that more than one-third of U.S. states allow borrowers who can’t pay a debt to be jailed. Capital One is among the companies having people locked up for not being able to pay their credit card.”

The scary thing is that this is even happening to people who don’t owe a debt. As the Journal writes, “Arrest warrants generally can be issued if a borrower defies a court order to repay a debt or doesn’t show up in court.”

Could it happen here? It could. Both Massachusetts and New Hampshire have procedures on the books for issuing a “capias,” which is an arrest warrant on a bad debt case.

Fortunately, no one needs to be locked up for credit card debts, however. Filing a simple Chapter 7 bankruptcy case will stop this nonsense before it starts, or if it has started, “freeze” any legal action pending against a debtor before anyone gets hauled off to jail.

If credit cards debts are troubling you, and you want to explore a bankruptcy case as a way of ending the problem, give me a call at my office in North Andover. Your problem can be eliminated in a matter of days (and before any pending court appearances), without the need to pack a toothbrush for a trip to the big house.

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed

In praise of cash

By doug | Published: April 8, 2011

Cash is a great thing. Bankruptcy lawyers are always telling clients to use it instead of plastic, but most people don’t actually do it.

The reason you should do it is that most people won’t spend as much money if they are actually spending money. Ever wonder why casinos encourage players to use chips instead of currency?

Your mind knows that money is precious, but it gets fooled into thinking a casino chip or a credit card is not.

So it’s easier to spend without thinking, whether it is with credit cards, debit cards, or stored-value gift cards.

So put the plastic away. Every kind of plastic. Put actual currency in your pocket. And watch how much harder it is to actually buy things. And remember — that’s not a bad thing after all!

Now if you’re already deep in the hole with credit cards, and you live in either Massachusetts or New Hampshire, give me a call and I can help you with a bankruptcy filing that will give you a “do over” or fresh start. But since you can’t be filing bankruptcy cases every day of the week, it’s up to you to make the most of the fresh start. Do yourself a favor and get in the habit of operating on a cash basis!

 

By Doug Beaton

Posted in Practical tips | Comments closed

If you have no assets, should you file bankruptcy anyway?

By doug | Published: April 7, 2011

Some people pass around a common bit of bad advice, to the effect that a person with no assets is “judgment proof” and therefore never needs to file a bankruptcy case.

While there is a grain of truth in this assertion, as always, there is another side to the story.

First, if a “no asset” debtor avoids bankruptcy and stops paying their credit card debt, the creditor may still decide to file a lawsuit and get a judgment. With a judgment the creditor will be able to go after the debtor’s future assets if the debtor doesn’t file bankruptcy. And you had better enjoy making multiple trips to the Lawrence District Court, Haverhill District Court, etc., instead of the one trip to bankruptcy court that a bankruptcy case usually entails.

Second, if the “no asset” debtor owes the IRS money, they may be putting their social security benefits at risk. The IRS has the power to garnish social security benefits and other assets which may have received some protection in bankruptcy.

Third, no one really knows what the future holds. If a debtor files bankruptcy, the debts they owe may be discharged and any future income from a job, inheritance or other assets would be protected. It the debtor avoids bankruptcy, they have no protection for future assets which could be seized by creditors seeking repayment on old debts. Debts don’t go away; they simply get old, unless you pay them off or discharge them in bankruptcy.

And the ultimate reason for filing a bankruptcy is simply to stop the awful harassment that debtors are subject to. Debtors who simply stop paying their debts instead of filing bankruptcy end up avoiding their phone and mailbox. The stress of knowing that you owe money and are receiving hostile creditor calls can be relieved by bankruptcy. Even if a debtor has no assets, it could be worth their peace of mind to file bankruptcy anyway.

 

By Doug Beaton

Posted in Chapter 7, Practical tips | Comments closed

The federal government may shut down, but bankruptcy survives

By doug | Published: April 6, 2011

It is unclear as of this writing whether the federal government will really shut down on April 8th or not, but even it does, the bankruptcy court system, which is part of the federal judiciary, is expected to stay open for business.

Bankruptcy courts are funded in part by fees (if you’ve already filed your case you are well aware of this) and both the Massachusetts and New Hampshire offices should have funds available to stay open while deals are being brokered in Washington’s smoke-filled rooms.

The bankruptcy courts also use an electronic filing system, which is available to bankruptcy lawyers 24 hours a day and 7 days a week, so if you need to file a case in the upcoming few days rest assured that it will be done for you.

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed

How to avoid a tax bill following a foreclosure

By doug | Published: April 5, 2011

What could be worse than the foreclosure of your home?

How about a whopper tax bill resulting from the “forgiveness” of the unpaid debt!

Following a foreclosure that does not recoup the value of the property being seized — pretty typical, in today’s housing market — the foreclosure will generate a 1099 for the difference between the loan balance and the lender’s opinion of what the house is worth.

Fortunately, there ways to avoid listing this 1099 on your income tax form. But you had better find one of these ways, because otherwise the amount on the 1099 is includable as income on your tax return. And no one wants that.

One of the loopholes is for “cancellation of debt due to a discharge in a Title 11 case.” Title 11, in turn, is shorthand for the federal bankruptcy code. In other words, if you file for bankruptcy, any deficiency from the loss of your home will NOT be counted as income on an income tax form!

This gives bankruptcy a massive advantage over dealing with debt settlement firms, which along with charging you higher rates for their services in the long run than most bankruptcy lawyers will, may also leave you with a massive tax-induced headache down the road.

 

By Doug Beaton

Posted in Foreclosure, Taxes | Comments closed

Is renting out your house a way to save it?

By doug | Published: April 4, 2011

Under the present bankruptcy law, it is very difficult to use a Chapter 13 bankruptcy plan to impose your own mortgage modification on the primary lender for a residential home. There have been near constant efforts to get the Congress to change this, but so far the pleas have fallen mostly on deaf ears.

The source of the problem is the language in Chapter 13 saying the debtor’s plan can “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence.”

Bankruptcy lawyers, naturally, are constantly on the alert for loopholes that get around this limitation. Recently, a bankruptcy court ruling in the District of Columbia focused on the language “IS a debtor’s principal residence.”

What then, could happen if a debtor could prove that he legitimately moved out of his home several months prior to filing the bankruptcy case? In the Roemer case, the DC court ruled that the home was no longer the debtor’s principal residence, and that the mortgage balance COULD be reduced by the debtor through his Chapter 13 plan!

There is no word yet on whether this approach will fly with the Massachusetts bankruptcy court judges. And it also raises another yet-to-be answered question: can a debtor purposely move out of the home, rent it out to tenants, and then modify the loan in a Chapter 13 bankruptcy? Stay tuned.

 

By Doug Beaton

Posted in Chapter 13, Real estate, Secured loans | Comments closed

The Bankruptcy rumor mill is cranking again: this time Sbarro’s might file

By doug | Published: April 1, 2011

The bankruptcy rumor mill is back in high gear again, with today’s newsbeing that Sbarro’s franchise chain, with their ubiquitous sandwich and pizza outlets in the Northeast and Midwest, will be filing for bankruptcy protection shortly.

The chain has $300 million in debt, mostly bonds, and has been in default since February. Senior lenders have signed off on three forbearance agreements so far, but when the third one expires, this chain could be knocking on the door down at bankruptcy court.

As always, we hope that local damage is minimal, and that the Danvers and Salem, N.H. outlets emerged unscathed from a Chapter 11 bankruptcy proceeding.

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed

The worst day to file for bankruptcy in Massachusetts?

By doug | Published: March 31, 2011

Massachusetts debtors face possibly the worst day ever to file a bankruptcy case on March 31st.

Your grandmother told you patience is a virtue; she was right.

Massachusetts debtors who wait even one day will be able to take advantage of increased federal bankruptcy exemptions, which are bumped up every year on April 1st to account for inflation.

And those debtors who are using the Massachusetts exemptions instead of the federal ones (typically homeowners with equity in their houses) should wait another week.

That’s because the Massachusetts exemptions will be significantly increased on April 7th, and debtors will be able to keep cars owned outright up to $7,500, and $2,500 in a bank account.

One more time: patience is a virtue!

 

By Doug Beaton

Posted in Practical tips | Comments closed

Struggling Massachusetts bio-tech firm files for bankruptcy

By doug | Published: March 30, 2011

PeptiImmune, Inc., a Massachusetts biotech concern, has had to declare Chapter 7 bankruptcy.

The Somerville company was trying to develop and market long-lasting drugs to treat multiple sclerosis. Unfortunately, they had stiff competition from generic version of MS drugs that are about to hit the market.

When a corporation files for Chapter 7, it involved liquidation of the company, which then is no longer in business. It’s different with individuals; since their beating hearts can’t be “liquidated,” Chapter 7 gives individual debtors (and married couples) a fresh start financially.

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed

The worst day ever in bankruptcy court

By doug | Published: March 29, 2011

How do you know that you have just suffered the worst day ever in bankruptcy court? It’s probably when the judge tells you you that despite your bankruptcy filing, you still have to pay your attorney fees to your ex-wife’s divorce lawyer!

That was the sad fate of the debtor in the Johnson case, recently decided by Massachusetts bankruptcy judge Joan Feeney.

Now in a typical divorce case you don’t have to pay the, ahem, “other sides,” lawyer, and in a typical bankruptcy you don’t either. But before filing bankruptcy, the Johnson’s had apparently been before the Massachusetts Probate Court, which ruled that the husband in this case was liable for the wife’s attorney fees.

Judge Feeney, in a highly technical 24 page opinion, essentially ruled that the Probate Court’s ruling survives the bankruptcy because it is a form of DSO.

A DSO is not an orchestra, it is the bankruptcy acronym for “domestic support obligation.” This term came in to the law with the 2005 amendments to the bankruptcy code, and the original and laudable idea was to make sure there were no loopholes in the code that would allow child support to be discharged under any circumstances.

However the definition of DSO has been gradually extended by bankruptcy judges in their opinions, and now it has been stretched in Massachusetts to possibly include an ex-spouse’s divorce lawyer. Divorced debtors beware!

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed
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