The Supreme Court might help you out with the dreaded means test

By doug | Published: July 6, 2010

Just before adjourning for their summer recess last month, the United States Supreme Court issued its decision in another bankruptcy case on its docket — and this one might be of some benefit to consumer debtors down the line.

In Hamilton v. Lanning, the Supremes took on issues concerning the dreaded “means test” that nearly all debtors must now complete when they file a bankruptcy case.

The Court backed away from endorsing a completely mechanical interpretation of the means test rules, allowing local judges for the first time to take into account a debtor’s extraordinary or unusual circumstances.

In Lanning, the debtor had recently received a buyout offer from a previous employer, which greatly inflated the means test calculation of her disposable income because the formula used looks back at all income received in the six months prior to filing.

But the debtor argued that the means test calculation wasn’t realistic in her circumstances, because going forward she wasn’t going to get that kind of large payment again. Using only the government’s backward looking test for disposable income produced a Chapter 13 payment figure that she couldn’t possibly hope to pay.

The Supreme Court then stepped in, and said that the local bankruptcy judge should have been allowed the leeway to determine the debtor’s true disposable income without slavishly adhering to the results produced by standard-issue government forms. In an unusual case, the Court said, judges should have the ability to consider a forward-looking estimate of what the debtor is expected to earn when determining “disposable income” and plan Chapter 13 plan payment amounts.

If you are thinking of filing for bankruptcy and have had some big life changing events occur in the last six months of so, this Supreme Court decision could be useful in your case. If you live in the Merrimack Valley, give me a call at (987) 975-2608 and we can talk it over, with no charge for an initial consultation.

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed

On the fence? A few reasons to consider filing bankruptcy

By doug | Published: June 14, 2010

Have you been thinking about possibly filing a bankruptcy case to relieve financial pressures, but aren’t sure what the pros and cons are?

Many of the cons are discussed in the various posts on this blog and you can search all the posts with the “search for info” box on the lower right of this web page.

This is just a quick reminder of the basic “pros” behind most people’s cases:

1. With a bankruptcy, you can stop your creditors from calling you, writing to you, and from taking you to court. For some people, this benefit alone may be worth it!

2. Existing lawsuits against you are stopped in their tracks. No more trudging down to District or Superior Court for endless hearings. The bankruptcy case itself usually involves only one hearing of its own.

3. Bankruptcy can stop a foreclosure proceeding as well. For some people, this may give them time to see if they can save their home. For everyone, it buus them a little extrsa time anyway.

4. Unsecured debts are discharged in bankruptcy. Credit cards, personal loans and medical bills are erased, so that you can start over again with a clean slate.

5. Once the discharge is granted, creditors with discharged debts can not re-new their collection efforts. They could get in severe legal trouble if they try. A debt that is discharged is discharged forever.

If you are considering a bankruptcy case and you live in Massachusetts or southern New Hampshire, I would be happy to discuss both the pros and the cons with you. Give my a call at my office, my name is Doug Beaton and my number is (978) 975-2608!

 

By Doug Beaton

Posted in Practical tips | Comments closed

Responsible lending and bankruptcy

By doug | Published: June 10, 2010

I heard a commentator on CNBC mention a “left-wing group” called the Center for Responsible Lending today (they were talking about financial reform legislation pending in Congress), so I decided to check them out.

I wondered if this group had any opinions on bankruptcy, and I found this post from last year on their website:

“Perhaps among all loss mitigation alternatives, bankruptcy may have the least moral hazard. … [B]orrowers who chose bankruptcy to deal with negative equity have to really want to stay in their homes, have to be able to service the secured portion of the mortgage, be willing to live on a budget for five years and have expenses tightly controlled, etc. … Borrowers who are looking for a ‘free ride’ and want to expunge their negative equity should find foreclosure a more palatable alternative.”

Doesn’t sound too radical to me; CRL mentioned that giving bankruptcy judges the power to modify first mortgages (an idea that has been proposed several times but not yet passed) would “save hundreds of thousands of families from foreclosure.” It would also probably lead to more voluntary modifications by banks, which has been a troubled area for several years now.

CRL also believes that there wouldn’t be too much of an impact on future mortgage interest rates from such a plan.

“Left-wing” or not, I’m glad I learned about the Center for Responsible Lending!

 

By Doug Beaton

Posted in Chapter 13 | Comments closed

How long does a bankruptcy take?

By doug | Published: June 9, 2010

“How long does a bankruptcy take?”

This seemingly innocuous question is asked of me several times a day, it seems. Although my clients may not realize it, it is actually several questions rolled in to one.

The first is “how long will it be until I can get my bankruptcy case filed with the court?” In an emergency situation (like a foreclosure scheduled for right now) a basic filing can be accomplished in a day or two, with the client obligated to cough up complete information on his debts and assets within the next two weeks.

For a non-emergency situation, how long filing takes depends on how good of a record keeper you are. If your records are in order, and you have paid your attorney, I can usually file in 2-3 days (some time is necessary for you to review the filing yourself). If you hire an attorney, pay him, and the documents are not filed quickly, consider changing attorneys unless you can get a good explanation of what the hold-up is!

The next part to the question is “how long until my creditors stop hounding me?” This has a simple answer: harassment should stop upon filing. Much of it will stop as soon as you file, with many creditors receiving e-mail notice of your case form the court instantly. For those creditors who still depend on mail notifications, calls from them should drop off in a week or two as the case notices get sent out. If you are still being bugged more than two weeks after filing, talk to your lawyer, he can probably put a stop to it.

Still another part of the question is “how long until I get my discharge?” This depends on the type of case. An average Chapter 7 client usually gets her discharge in four months or less.

Chapter 13 clients, however, propose plans to pay off certain creditors over a period of time, usually three to five years. So their cases are a little different, and it may literally take five years before this type of bankruptcy case is closed.

 

By Doug Beaton

Posted in Practical tips | Comments closed

Beware of phony foreclosure aid!

By doug | Published: June 8, 2010

A plethora of phony foreclosure aid and debt relief scams are everywhere it seems. And everywhere includes Massachusetts.

Jenifer McKim reported in today’s Boston Globe that a watchdog group called NeighborWorks America has begun warning Massachusetts homeowners about the scams.

“Loan modification scams are reaching epidemic proportions across the nation,’’ said Thomas J. Curry, a board member of NeighborWorks America, a Washington, D.C., nonprofit spearheading the nationwide program. “Countless fraudulent companies are making a great deal of money by preying on the fears of worried homeowners.’’

Mortgage loan schemes in Massachusetts typically fall into one of three categories, according to the state attorney general’s office.

They include attempts to dupe homeowners into transferring ownership of their properties to someone else; programs that charge hefty fees but provide little or no help; and for-fee bankruptcy filings that are intended to help an owner keep their house, but are rejected by the courts because of improper paperwork.

Concerning the latter problem, you can avoid it entirely by dealing with a local Massachusetts bankruptcy attorney who you trust. Going to someone who is not a lawyer and paying them to prepare your bankruptcy papers is a recipe for frustration at the best and disaster at the worst.

You can get more information about how to avoid foreclosure and report suspected scams, visit www.loanscamalert.org or call 1-888-995-4673.

 

By Doug Beaton

Posted in Bankruptcy News, Foreclosure | Comments closed

Be careful if you are an authorized user on a credit card (or married to one)!

By doug | Published: June 7, 2010

Are you aware of the differences between an authorized user of a credit card and a joint account holder?

Texas attorneys Allmand & Lee have put together a great post explaining these differences in detail.

For people considering a bankruptcy filing (especially married people), the differences can be crucial. A joint account holder is just as legally obligated to pay the entire outstanding balance on a credit card as the primary holder is. In a bankruptcy situation, that may mean they both may need to file (or one might choose to file a Chapter 13 case to get the benefit of a co-debtor stay), in order to prevent further collection activity by the card issuer.

Authorized users are not treated the same by the law, however. An authorized user can run up charges on a particular account, but only the cardholder is responsible for payment. In bankruptcy, the cardholders’s filing alone will discharge the entire debt. The authorized user doesn’t need to file for bankruptcy herself, unless she has other pressing debt problems.

One problem, pointed out by Allmand & Lee, is that over-agressive collection agencies don’t necessarily make these fine distinctions. They often just bully authorized users into paying on the assumption that they may not know their rights. So if you are thinking of bankruptcy and “have someone” on your credit cards with you, take a few minutes and research what that relationship really is.

 

By Doug Beaton

Posted in Credit cards | Comments closed

You might not want to file for bankruptcy if you have a shiny new suit . . .

By doug | Published: June 4, 2010

Lawsuit, that is.

You will be surprised when you get to your creditors meeting at what the trustees are interested in. Several of the questions you will be asked to answer may have to do with whether you have any lawsuits pending — or if you have any plans to file one.

Why the primary interest in litigation? One reason, often overlooked by consumer debtors, is that lawsuits are property, and property, in whatever form, may sometimes become the trustee’s property when a bankruptcy case is filed.

In a nutshell, if you have a juicy car accident or worker’s compensation claim outstanding, you may find you bankruptcy trustee eager to become your silent partner in the case, looking to share some of your expected recovery. If the trustee does get some money out of your legal case, he splits it between his office and your unsecured creditors according to a preset formula.

How much of a settlement can a trustee get his hands on? That depends on how much of a wild-card exemption you have left over after protecting your other property. You might have enough exemptions left over to protect the entire anticipated recovery; on the other hand if you have used up you exemptions on hard goods, then the trustee would essentially own your entire claim. Only a bankruptcy attorney would know for sure; a good attorney should be able to come up with an exemption strategy that allows you to keep most of any litigation proceeds for yourself.

 

By Doug Beaton

Posted in Practical tips | Leave a comment

Retirement accounts, 401(K)’s and how they are handled in a bankruptcy case

By doug | Published: June 3, 2010

Retirement savings accounts such as IRA’s, 401(K) accounts, and most private and government retirement plans have a special place in the bankruptcy code.

In most instances, the balances in these accounts are fully protected, meaning that the consumer debtor can keep the entire account even after a bankruptcy filing.

This is because of a Supreme Court ruling several years back that says that properly qualified retirement accounts are not even part of a debtor’s bankruptcy estate.

The “bankruptcy estate” typically consists of all the property a debtor owns — outright, or in “partnership” with a bank or other secured lender — on the day the case is filed.

By keeping retirement savings accounts outside of the bankruptcy estate, debtors do not have to use up their precious allotment of exemptions to protect them. They are already fully protected!

This is a great relief to debtors who have worked steadily before some circumstance forced them to consider filing bankruptcy, as well as debtors who may be nearing retirement age.

If you are thinking about maybe filing for bankruptcy and have questions about whether your IRA, 401(k), or pension will be protected if you do file, you can give me a call.

 

By Doug Beaton

Posted in Practical tips | Comments closed

Some facts and figures from the recent credit nightmare

By doug | Published: June 2, 2010

Here’s a quick rundown of some of the latest trends from the world of bankruptcy and debt, compiled by syndicated columnist Ylan Q. Mui of the Washington Post:

The number of late payments on credit cards dropped to a six month low in March.

Over $100 billion in credit card debt has been slashed in teh past year. But that includes debt discharged in bankruptcy as well and written off as uncollectible by banks, as well as additional payments made by consumers.

Almost 6% of people are one month behind on a credit card bill, and a little more than 4% are more than two months behind.

American Express is seeing more customers making the minimum payments on their cards.

The stubbornly high jobless rate and small gains in incomes still make it difficult for consumers to keep digging themselves out of debt.

According to government data, the amount of disposable income that consumers must use to pay off their debt has dropped to less than 6 percent for the first time in more than a decade, an indication that our debt load is dwindling.

The personal savings rate has stabilized at around 3.6% for the past couple of months. This rate was negative during the boom years when many Americans were overspending.

John Ulzheimer, president of consumer education for Credit.com, has summed up the overall situation just about right; “If we’ve learned anything from the credit nightmare it’s that we were partially responsible for it ourselves.’’

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed

File for bankruptcy without seeing a judge

By doug | Published: June 1, 2010

Did you know that most people who file a bankruptcy case will never see a bankruptcy court judge?

There are exceptions, of course, but the vast majority of people filing bankruptcy in Massachusetts or New Hampshire never appear before a judge.

They all have a meeting with a trustee, however, which is required by the bankruptcy code. Creditors can attend this meeting as well, but they rarely do, unless there is some specific issue they want answered (such as the current location of collateral for the loan in question).

It is important for debtors to realize that the trustee is not a judge. trustees are usually bankruptcy attorneys themselves, and they are hired by the government to perform most of the administrative duties in processing each case. If a debtor has assets that are eligible to be sold (not typical), the trustee can get a commission on the sale, otherwise they are paid a stipend out of your filing fee. Chapter 13 trustees are paid a commission out of each monthly plan payment you make.

Back to the judge: if for some reason your case involves litigation, you certainly will see him or her, but these are a tiny minority of cases. The average debtor “sees the judge” only once — when he or she receives a discharge with the judge’s signature at the end of the case!

 

By Doug Beaton

Posted in Chapter 7, Practical tips | Comments closed
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