The bankruptcy rules: changes in the wind

By doug | Published: February 7, 2011

Debtors file bankruptcy cases.

In response, creditors often file claims. A claim is just what you would think it is: a formal statement that the creditor is asserting a debt is owed. Bankruptcy court being a government bureaucracy, claims are made by filling out an official standardized government form.

Although claims can always be disputed, the claim process itself is not typically controversial. But there is now a movement afoot in Congress in Congress to change it in ways that could become important down the road.

First, there is a proposal to change the bankruptcy rule governing claims so that “debt buyers” (that is, collection agencies who have purchased your debts, as opposed to the original creditors) are clearly identified. If the new rule is adopted, in addition to the claim form the collectors would have to identify the original creditor, the date the debt was bought, the date of the latest payment, and when the account was charged off by the original creditor.

There are also proposed changes to the claim form itself. These mostly affect mortgages. On the new form, mortgage holders would have to itemize their claim, instead of just submitting one number that they are owed. The itemization would have to show principal and interest, whether the loan was fixed or adjustable rate, any fees or expenses being tacked on, whether the loan was in arrears prior to the bankruptcy filing, and an itemization of the loan’s escrow account if there is one.

The proposed changes are mostly pro-consumer. They are definitely rooted in the national “mortgage mess,” where dozens of banks have been taken to court and shown to have started foreclosures without an adequate paper trail.

These changes are just proposals at the present time. And even if they are approved, they probably will not take effect until December 2011.

 

By Doug Beaton

Posted in Bankruptcy News, The Bankruptcy Code | Comments closed

Should you file for bankruptcy or try to pay off those credit cards?

By doug | Published: February 4, 2011

As the February credit card bills start to pour in, a lot of folks are making that calculation for themselves.

Just how long will it take to pay off your credit cards? You can use this handy calculator from Bankrate to figure it out!

http://www.bankrate.com/calculators/credit-cards/credit-card-payoff-calculator.aspx

If the answer shocks you out of complacency, it might be time for a different kind of shopping — looking for bankruptcy counsel! I offer bankruptcy services in the Merrimack Valley, from the Lawrence and Haverhill areas to Derry and Salem in New Hampshire.

 

By Doug Beaton

Posted in Credit cards, Practical tips | Comments closed

Bordering on bankruptcy

By doug | Published: February 3, 2011

Borders — the book and music, cafe and store staple of strip mall America — is very close to bankruptcy. The filing could come next week. At least rumors are flying. Take a look at how their stock has been doing — not a pretty sight:

According to Missouri bankruptcy attorney Wendell Sherk, there is no need to worry if you got a Borders gift card for Christmas, or are enrolled in their Rewards Plus program. Although these are debts that are owed to you, and could legally be discharged in bankruptcy, the most likely outcome is that the creditors will take concessions, customers will be treated OK, but under performing stores may be closed. I wonder if the one near the Loop in Methuen or the outlet in the Rockingham Park mall in Salem, NH will make it.

As for the customers, attorney Sherk says “keeping customers coming back is how you stay in business. And if you’re closing a lot of stores — something that could be a key benefit for Borders in bankruptcy — then making those customers happy is going to be harder. So Borders won’t hurt the customers unless they have no other choices, after taking a bite out of their suppliers, lenders, and employees.”

Notice that one of the first things Borders did was hire experienced bankruptcy counsel. If you’re bordering on bankruptcy in the Andover, Methuen or Lawrence area, do the same thing and give me a call.

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed

Going to the well one more time for bankruptcy reform

By doug | Published: February 2, 2011

Its that time of year again — time to consider when and how to reform the Bankruptcy Code.

Specifically, should the bankruptcy code be amended to allow judges to force creditors to accept “cramdowns” — forced modifications — on first mortgages on a debtor’s house?

This idea has been floating around for years now, and has never really gotten off the ground. With a big turnover in Congress in the last election, it would be a little surprising, to say the least, to expect much positive reform from the newly installed Congress.

But at least one elected official, U.S. senator Jeff Merkley from Oregon wants to try. He has been speaking very loudly about the need for the current Congress to amend the Bankruptcy Code to allow cramdowns of first mortgages on primary homesteads. The same proposal was attempted by Senator Dick Durbin from Illinois back in 2009, but failed.

Senator Merkley’s proposed legislation is comprehensive. It will allow a homeowner to save their homes by reducing the principal to what the house is actually worth, and would also allow the homeowner to craft a financial plan to deal with all of their debts under the Bankruptcy Judge’s supervision. Accordingly, there will be no unfair and deceptive dealings. Everything will be in the open, and the homeowner will not have to live in fear of losing everything that they have ever worked for. As if they haven’t lost enough already.

Merkley’s plan contains another component: he wants to implement a refinancing option to provide homeowners facing foreclosure the option to refinance at current rates and home values.

One of the most important provisions in the Merkley plan would suspend foreclosures while the mortgage modifications were being considered. You never, and I mean never, find anyone who sends in their mortgage modification documents one time and gets an immediate decision. They may be out there, but I haven’t heard about them. More typical are individuals who sent in their paperwork multiple times.

We can only hope Sen. Merkley’s idea gains some traction with the new Congress. Failing that, a lot of folks are going to get mighty frustrated filling in HAMP applications that are bound to be rejected.

 

By Doug Beaton

Posted in Chapter 13, The Bankruptcy Code | Comments closed

Bankruptcy clients: not all of your creditors send you a bill!

By doug | Published: January 29, 2011

As a corollary to the idea that you may have more creditors than you think, prospective bankruptcy filers need to check to see if they have creditors who aren’t sending them a bill every month.

The most likely place to look for these low lying creditors is in the realm of liens filed against the debtor’s property. And the best way to do that is to take a trip, actual or virtual, to the county registry of deeds.

You might find income tax liens from either the state or federal government recorded against your home or other real estate. With tax liens, it is also possible for the IRS to place a lien against your “personal property” — your bank accounts and other “stuff” — so ordering a tax transcript from your bankruptcy attorney may be in order.

Property tax liens can be found through either the registry of deeds or your town tax collector’s office.

Then their are the “judgment” liens, which are essentially debts owed to any person or group who has taken you to court and won (a credit card company, for example). These may often be removed in the bankruptcy process. Sometimes they can be completely stripped off your record, and sometimes only partially, so be sure to ask your attorney about how it works.

When you file for bankruptcy protection, it is important to list all of your creditors! In fact, its required. So don’t forget about those creditors represented by liens, the ones who may not be sending you a monthly bill!

I can give bankruptcy assistance to persons in the Andover / Lawrence area, and to get started all you have to do is call me at 978-975-2608, or click the contact box on this page!

 

By Doug Beaton

Posted in Secured loans | Comments closed

Bankruptcy court: not clothing optional

By doug | Published: January 29, 2011

If you are going to file for bankruptcy, you don’t want to do it naked.

But you would be surprised at how many people leave the space for clothing blank on their bankruptcy petitions.

Really? Who is going to believe that? Certainly not the trustee who is questioning you under oath, and who can plainly see that you are (hopefully) wearing at least some clothes.

The point is not that the value of your clothing is enough to interest a trustee in putting it up for public sale, because in almost every instance the clothes will be exempt from seizure in a bankruptcy case.

Rather my point is the necessity of being complete when filling out the bankruptcy forms. There is a confidence issue at work here; if it looks like you have taken care to fill out the forms properly, and not made blatant mistakes (like omitting clothes entirely), the entire process is just bound to go smoother for you.

I’ve been filling out out these petitions for many years now, so if you are looking for a bankruptcy lawyer in the Andover – Lawrence – Methuen area, feel free to give me a call.

That way, when its your turn to go to bankruptcy court, you won’t feel like you’re going in naked.

 

By Doug Beaton

Posted in Practical tips | Comments closed

Misunderstanding the Chapter 7 means test rules for business debt

By doug | Published: January 28, 2011

Orlando bankruptcy lawyer Jonathan Alper has written a nice piece reminding us that debtors — and sometimes lawyers, too, often don’t apply the means test rules on business debt correctly.

A quick primer: Debtors usually must pass a Chapter 7 “means-test” in order to qualify to file under that chapter and discharge debt outright without monthly payments to a trustee. Some high income debtors, won’ t pass the test, and have to file under another chapter, usually Chapter 13.

But wait! The key word is “usually.” Some debtors don’t have to file a means test at all. First among them are debtors who have “primarily business debt.”

Attorney Alper mentions a case where a high income debtor had three rental properties — all with mortgages — in addition to his own home, which is mortgaged as well.

He went to see an attorney, who erroneously told him that he couldn’t file because his household income of $385,000 was too high for the means test. The mistake that this lawyer made was counting the three mortgages on rental property as “consumer” debt.

In truth, the rental property loans counts as “business debt,” invoking the rule that debtors with primarily business debt qualify for a 7 without taking the means test. The key points here are that “primarily” can mean a bare majority of debt, and that your bankruptcy lawyer should be on his toes as to what types of debts count as business, and what is counted as personal.

 

By Doug Beaton

Posted in Uncategorized | Comments closed

Can a bankruptcy judge force you to run a business?

By doug | Published: January 27, 2011

Could a bankruptcy judge force a debtor to keep operating a particular business?

In the usual course of practicing bankruptcy law, such a ridiculous question wouldn’t even come up. Bankruptcy judges see more failed businesses and their downcast owners then anyone else. And there is no way that they are going to make a business owner pursue a dead-end operation, unless the owners themselves are proposing to keep the place running.

But if you read enough bankruptcy cases, you will eventually find the oddest results hidden among them.

For example in the Rahim case in Michigan, a judge did something close to forcing the husband and wife debtors to keep working at their business:

He denied them a Chapter 7 discharge. And told them that they could afford to make payments under a Chapter 11 plan. Although Chapter 11 is usually reserved for when the titans of industry go bankrupt (think General Motors, or K-Mart), it is available to individuals as well.

Naturally, as you might suspect, there are some extreme facts involved here. These debtors were both doctors, and operate a medical practice together. Their monthly mortgage payment is over $15,000, then tack on another $2,000 for the mortgage on a second home in Florida, $4,500 (a month, remember) for school tuition for their kids, and so on. Their annual income is over $500,000 per year. And the their debts, while classified as business debts, didn’t come primarily from the medical practice, they came from failed real estate investments in Florida.

In this circumstance, Judge Steven Rhodes denied issuing a Chapter 7 discharge because he said a Chapter 11 plan was feasible — and would have the effect of providing more than $200,000 in payments to creditors.

By saying this, the judge effectively hinted that the case should be converted or refiled as a Chapter 11 — which means that the debtors will be packing lunch bags and heading off to their doctor jobs, if they have any intention of getting a bankruptcy discharge.

 

By Doug Beaton

Posted in Uncategorized | Comments closed

Student loan debtors need not go begging, and need not avoid bankruptcy either

By doug | Published: January 26, 2011

If you have been looking into bankruptcy, and have a lot of student loan debt, you probably have discovered that it isn’t easy to wipe out these loans in bankruptcy court.

Eliminating a student loan requires filing an adversary proceeding (a fancy name for a lawsuit) in addition to the basic bankruptcy case, and then getting yourself declared a special “hardship” case.

This is a difficult, although not impossible, task for most bankruptcy debtors.

But all is not necessarily lost: a bankruptcy in tandem with other proactive action might be a viable course of action.

Syndicated columnist Anya Kamenetz has written that there is no need to go begging just because you have student loan debt. In particular, she advises that you

* not try to avoid the problem by “forgetting” about it;
* investigate income based repayment programs. These are not bankruptcy, and some take 25 years to complete, but can be a way of managing unwieldy payments;
* investigate “forebearance” and “graduated repayment” clauses in the loans you have signed;
*if you (or a loved one) is still in school, avoid private student loans to the extent possible.

For those deep in debt, forbearance or income based repayment plus a bankruptcy filing may be all they need to relieve debt pressures, avoiding the long and costly adversary proceeding route.

 

By Doug Beaton

Posted in Student loans | Comments closed

Do you have more creditors than you think?

By doug | Published: January 24, 2011

Quite a few of the people who come in to my office for bankruptcy consultations are under the impressions that their list of creditors is comprised primarily — or entirely — of the major credit card companies and department stores where they have accounts.

If you are thinking of filing a bankruptcy case, don’t forget about other types of debt you have.

Utilities would be a good example. For example, in the Lawrence and Haverhill area, Verizon, Comcast and National Grid are often listed on bankruptcy petitions.

Former business partners, former employees with claims, and so on are also creditors in a bankruptcy case, although you may not think of them as such and may be listed on your petition.

If you have any questions about whether a particular type of creditor can be listed on a bankruptcy petition, you can call me at my North Andover office — (978) 975-2608.

 

By Doug Beaton

Posted in Practical tips | Comments closed
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