What is the minimum amount of debt required to file for bankruptcy?

By doug | Published: March 7, 2010

A very common bankruptcy question concerns the minimum debt levels required to file a case.

There aren’t any.

The bankruptcy code has no formal cutoff points for filing a case under any chapter. Many folks are often confused about this because they have read about tough new requirements that Congress enacted in 2004 to try to make bankruptcy harder. Those requirements, however, deal with income levels, not debt levels.

Debt levels affect people differently, though, according to their life styles. Elderly people in particular sometimes file bankruptcy cases with what others might consider “small” amounts of debt, but if you are trying to survive on a fixed income in senior housing, there aren’t a lot of great reasons for suffering throughout the “golden years.” On the other hand, younger people just graduating from school often have a preponderance of student loan debts (which aren’t dischargeable anyway), a higher tolerance for risk, and more flexibility to take another job to “work it off.”

While there are no fixed minimums, curiously, Chapter 13 cases do have an upper debt limit, and you can be denied relief under this chapter just for being too much in the hole! Chapter 13 was originally intended as a “wage-earner’s” version of the Chapter 11 reorganizations troubled businesses use, and the maximum limits apparently try to serve to exclude large businesses from Chapter 13 filings.

Posted in Chapter 13, Chapter 7, The Bankruptcy Code | Comments closed

Racehorse Owner Tries Bankruptcy, But Still Has Troubles

By doug | Published: March 6, 2010

One of America’s leading owners of thoroughbred racehorses has recently filed for bankruptcy, but that may not be the end of his woes.

New Jersey businessman Ahmed Zayat campaigns more than 200 thoroughbreds under the name of Zayat Stables, and has had many prominent winners, including last year’s two year old champion, Lookin’ at Lucky, who at this writing is the current favorite for the Kentucky Derby.

But the loans Zayat took out to purchase many of those horses have come back to haunt him. Last month Zayat filed a Chapter 11 bankruptcy case to seek protection from creditors.

New York Times sportswriter Joe Drape reports one creditor has particularly riled Zayat — Kentucky’s Fifth Third Bank, which sued him last December claiming he was in default on $34 million in loans. Zayat counter-sued, claiming predatory lending practices, but ultimately decided bankruptcy court offered a better forum for the dispute.

But Zayat may have more problems than Fifth Third’s loans. Among his assets are loans he made himself to Michael and Jefferey Jalinsky, brothers who were recently convicted of illegal bookmaking in Nevada.

Association with known bookmakers is a common ground for state racing agencies to suspend a horse owner’s license. Federal bankruptcy protection, however, often takes precedence over state rulings. It will be interesting to see if Zayat can avoid licensing trouble with bankruptcy court strategies as he seeks victory in North America’s biggest race, the Kentucky Derby.

Posted in Bankruptcy News | Comments closed

What is a bankruptcy discharge, and what should I do with it?

By doug | Published: March 5, 2010

Anyone enrolled in high school knows what the ultimate goal of those four years is — to graduate and earn a diploma, a key step toward the next goal in life.

For those seeking bankruptcy protection, the goal of the case is typically a discharge of most of the debts that have been troubling them. Like a high school diploma, the bankruptcy court’s discharge of your debt is symbolized by a piece of paper (nowhere near as fancy, though) that memorializes the court’s act of forgiving the bulk of your debt.

With a diploma, you can frame it, shine it up, look at it with pride everyday, or put it in a box an forget about it. I bet few people would be so callous as to purposely throw it away, however.

You should have the same basic attitude toward your discharge paperwork. It’s certainly not necessary to frame it, but debtors are well advised to keep it in a safe place, alongside passports, birth certificates, deeds, and other important life documents.

How long to keep it, you ask? Well, why not forever? What debtors certainly don’t want want is their creditors popping up years or decades later trying to collect the same old stale debt. It doesn’t happen often, but it does happen. Keeping the discharge (a one-page piece of paper) with your important effects is your defense against this. Sure, the information can be accessed through the courts if need be, but you may find that your case has been shipped to storage at a military base in the meantime, and that a steep fee needs to be paid to get it out.

In Massachusetts, in the simplest Chapter 7 case, the bankruptcy discharge is usually issued about four months after the case is filed. It is mailed to the debtor’s home in a envelope that is similar to all of the other bankruptcy court notices that get mailed out, so be careful not to miss it.

Your bankruptcy discharge in many ways IS your fresh start on a new life without debt. Don’t just throw it away.

Posted in The Bankruptcy Code | Comments closed

did the bad weather cost you your job?

By doug | Published: March 4, 2010

Every year we say that March “comes in like a lion and goes out like a lamb.” But this year, February was the troublesome month, which came in with a Deep South snowstorm and went out with a Hawaiian tsunami.

The extreme weather across the continent probably cost some Americans work, or at least the chance to look for work, according to government officials. Their best estimate of the employment losses for February 2010 will be announced Friday morning.

The “jobs report” typically roils the stock market and currency trading exchanges, so officials are usually mum about the numbers until the official release of the data at 8:30 AM Eastern time on the first Friday of the month. But Larry Summers, the president’s top economic advisor, has been leaking the news that the upcoming report is going to be bad, and he is blaming it on the weather. “The blizzards that affected much of the country during the last month are likely to distort the statistics,” Summers told business news outlet CNBC.

Weather-related distortions to government statistics may be far from the minds of the unemployed residents in greater Lawrence and southern New Hampshire. Beset with a wave of foreclosures and bankruptcies, people around here are hoping for a more permanent ecomonic spring, one with the return of enough jobs so that most folks can pay their bills. Lets hope we see it soon.

Editor’s note: The jobs report released this morning said that 36,000 American jobs were lost in February, and that the national unemployment rate held steady at 9.7%, numbers that were generally considered to be a little better than expected. — DB

Posted in Bankruptcy News, The Bankruptcy Code | Comments closed

Limits on credit card penalties in the works

By doug | Published: March 4, 2010

The next wave of credit card reform could include strict limits on the penalites that credit card issuers love to tack on to your bills. These new rules will not take effect until the summer.

Under a proposal outlined by the Federal Reserve, one big change would be to cap over-the-limit fees to the dollar amount of the violation.

This would prevent a card user from being hit with a $40 fee for going $1 over the stated card limit.

The new rules will not go in to effect until August 22nd.

Posted in Credit cards | Comments closed

Massachusetts Bankruptcy Court cracks down on terms of loan modification agreements

By doug | Published: March 3, 2010

The bankruptcy courts in Massachusetts have begun a crackdown on loan modification agreements that seek to reduce the court’s power over lenders.

In a standing order issued on March 2nd, the court has nullified any provision in a loan modification agreement that tries to eliminate a debtor’s automatic stay if they default after filing a bankruptcy case.

The “automatic stay” provisions protect debtors by requiring creditors to get explicit court approval for any actions they want to take against debtors who have filed for bankruptcy protection.

The new order makes it clear that in Massachusetts, a lender will have to get a bankruptcy judge’s approval before taking any aggressive action against a homeowner with an active Chapter 7 or Chapter 13 case in court, and they cannot rely on fine print in loan modification deals that try to waive this requirement.

Posted in Bankruptcy News, Real estate | Comments closed

Foreclosures slowing down in Massachusetts?

By doug | Published: March 3, 2010

The Warren Group, peripatetic observers of the Massachusetts real estate lending scene, report that the number of foreclosure petitions filed in Massachusetts in January was the lowest monthly level in a year.

Foreclosure deeds, however, have risen to a four year high. A foreclosure deed is recorded at the end of the foreclosure process, after the home has been auctioned and the owner evicted.

Foreclosure petitions are court documents that are filed towards the start of the process, when there still might be a chance of the homeowner saving his property and staying put. Under Massachusetts state law, lenders have to provide owners with a 90-day warning letter declaring their intent to start the foreclosure process. The petition can only be filed after the ninety days expire and the loan is still in default.

Homeowners who recieve a 90-day letter (usually by certified mail) may qualify for Chapter 13 bankruptcy relief. Filing a Chapter 13 case during the 90-day period would stop the foreclosure process cold, and allow the homeowners to propose a plan for catching up on missed payments. If you have received either a 90-day warning letter or a foreclosure petition, contact a Massachusetts bankruptcy attorney to see if a Chapter 13 bankrupty case is a viable option in your situation.

Posted in Bankruptcy News, Chapter 13, Real estate | Comments closed

Tree Huggers

By doug | Published: March 2, 2010

If you cut down your neighbor’s trees, and then get sued for it, can the bankruptcy court bail you out?

The answer may depend on whether you cut down the trees mistakenly or maliciously.

Surprisingly, this very issue has now been litigated in the Massachusetts bankruptcy courts at least three times. The latest decision, in the Abramowitz case, 09-04020, heard by Judge Rosenthal in the Worcester division of the court, involved homeowners in Acton, Mass. who hired a logger to clear the plot they bought for their new home. The only problem was the logger was unable to determine where the property line was, leading to the slaughter of eleven of their new neighbor’s hemlock trees. The neighbors sued and won triple damages under a generous-but-obscure Massachusetts law that covers these situations.

When the Acton homeowners filed for bankruptcy, their tree-loving neighbors refused to give up easily. The neighbors started another lawsuit in the bankruptcy court, seeking to block the homeowner’s Chapter 7 discharge. But Judge Rosenthal didn’t do that, finding that while the home owners may have been “fool hardy” when sending a logger out without a detailed property map, the mistake was not “willful and malicious” enough to prevent a discharge of the judgment under the bankruptcy code.

The debtors in the Abramowitz case were lucky to prevail, because the other two Massachusetts bankruptcy cases involving butchered trees were won by the tree huggers, er, owners. In those cases, the judges ruled that the debtors had acted specifically to spite their neighbors through the act of destroying their vegetation.

If you live in Massachusetts, better think twice before pulling the cord on that chain saw!

Posted in Bankruptcy News | Comments closed

Sifting through the fine print of the new credit card rules

By doug | Published: March 2, 2010

Now that the new federal credit card rules are in effect, card issuers have to give consumers advance warning of upcoming rate increases, right?

Not so fast. If the rate is one that is tied to another variable rate or financial index, such as “prime plus X percent,” no warning is required. Also, if you have an introductory rate, no warining of its impending expiration is required. Just a couple of the maddening loopholes in the law, the sort of non-relief which will probably keep Massachusetts consumers heading towards bankruptcy court for quite a while.

If you enjoy such things, the Boston Globe has recently put together a slide show that outlines many of the loopholes.

Posted in Credit cards | Comments closed

Can I keep a credit card when I file for bankruptcy?

By doug | Published: March 1, 2010

It is the eternal question at any bankruptcy attorney’s office: “If I file a bankruptcy case, can I keep one of my credit cards?”

Unfortunately, the short answer is probably no.

We live in an age of increasing communication speeds. Most major credit card companies are wired into both the credit reporting agencies and the bankruptcy court computer system. When you file a bankruptcy case, they will receive alerts almost immediately. And then they will typically cut off your existing credit lines.

So it is counter-productive to try and “save” one of your credit cards during the bankruptcy process. Any balance on any card should be declared so that you get the maximum benefit of the discharge that the court will be granting you.

Above and beyond that, the Bankruptcy Code requires that you list all your debts and creditors on the forms when you file, and that you not try to favor one creditor over another. When you are seeking important relief from a court system, it is important to play along with their rules. ‘Nuff said.

Please note that “keeping” a card outside of the case is a different question from “Will I be able to get a credit card after I file?” Many Chapter 7 debtors see their credit ratings improve after bankruptcy, and some even report that they can obtain more credit after the filing than they could before.

 

By Doug Beaton

Posted in Credit cards | Comments closed
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