So you want to get rid of your car?

By doug | Published: January 24, 2010

Not everyone is enamored with that All-American love for the motorcar, treating the machine in the driveway like a pet or a member of the family.

Especially if it comes with a whopper monthly payment, or worse yet, periodically doesn’t run.

While it is nowhere as common as the alternative, a few bankruptcy clients want to know if filing a case can help them get rid of their problem vehicle. For a few folks, getting rid of burdensome car payments might even be the primary motivation for filing for bankruptcy in the first place.

There is only good news on this front: for car owners with loans outstanding, once a case is filed, a vehicle can be returned to the lender without penalty. And a good bankruptcy lawyer will insist that the lender arrange (and pay for) the towing of the vehicle. End of payment, end of problem.

Consumers who have gotten themselves in over their heads on leased vehicles can also take advantage of the bankruptcy laws, which may be especially helpful if a whopper end-of-term charge for mileage or damage is looming. There are technical differences in these cases — since the car isn’t owned by the consumer, the laws that allow debtors to terminate uncompleted “executory” contracts are invoked instead — but the result is the same; consumers willing to say goodbye to the car can say good by to the payments and penalties as well.

 

By Doug Beaton

Posted in Secured loans | Comments closed

So you want to keep your car?

By doug | Published: January 22, 2010

Thinking about filing for bankruptcy, but worried that if you do, the “authorities” will leave you without a ride?

For the most part, those fears are unrealistic. The people you see walking home from the courthouse have DUI’s, not bankruptcies.

If you have a car with an outstanding loan (or cars with loans), and you are current on the payments, and you wish to keep the car(s) after you file for bankruptcy (if for no other reason than to get to work, or to look for work), this can usually be arranged.

It may take a little more paperwork than it used to, however. Auto lenders are increasingly insisting on having debtors sign formal reaffirmation agreements to keep their auto loan accounts active. These agreements are essentially binding contracts to pay the loans despite the bankruptcy.

Recent changes in the bankruptcy laws make it more likely that consumer debtors will want to reaffirm their auto loans. Under the current laws, filing the bankruptcy case only protects you from collection activity for 45 days on an auto loan. During that time, you and your attorney will want to iron out the arrangement with the auto lender so you can continue to drive in peace.

Recently, one driver in West Virginia found out the cost of procrastination the hard way; his vehicle was repossessed shortly after the 45 day period expired, because no reaffirmation agreement was in place. Although this sounds draconian (and it is), the case was litigated all the way to the Fourth Circuit court of appeals in Richmond, which sided with the repo man. You can read more about it here.

Although the Fourth Circuit’s opinion isn’t binding in Massachusetts or New Hampshire, drivers here will still want to make sure that all the i’s are dotted when they file their bankruptcy case; once the paperwork is taken care of, then they can use their vechicles without any unneccessary worries.

 

By Doug Beaton

Posted in Secured loans | Comments closed

Will a bankruptcy case stop a foreclosure cold?

By doug | Published: January 21, 2010

In the depths of the current housing crisis, more people than ever are interested in the intersection of foreclosure law and bankruptcy.

The short and skinny answer to the question posed above is “YES,” the filing of a consumer bakruptcy case will stop a forecloseure in its tracks. I am always a little amazed at how close some consumers at willing to cut it — it is usually best to seek counsel before the day of the foreclosure auction, one reason being that you are required to arrange for credit counseling before the case can be filed with the bankruptcy court.

Once the bankrutpcy is filed and the foreclosure auction called off, what happens going forward depends greatly on the type of bankruptcy case involved. Chapter 7 filers will usually get only a short repreve of perhaps a few weeks, until the lenders file with the bankruptcy judge a request to resume with the foreclosure process.

Chapter 13 filers, on the other hand, will be drafting a plan for repayment of the mortgage arrearages, which in some cases will buy them up to 60 months of time to catch up with their payments, during which time they live in and use their property. Chapter 13 filers may also be eligible to eliminate second mortgages or equity loans that are sapping their ability to make ends meet.

There are several qualification tests for Chapter 13 eligibility, and you will want to consult with a Massachusetts or New Hampshire bankruptcy attorney to see if you will qualify.

 

By Doug Beaton

Posted in Real estate | Comments closed

No good deed goes unpunished

By doug | Published: January 20, 2010

What began so simply in 1998 as a couple’s intent to help their struggling daughter establish a home has resulted in a bankrutpcy court nightmare that continues to this very day.

In that year Kenneth Duda and his then wife purchsed a two family home in Northfield, Massachusetts with the intention that their daughter Pamela would live in one of the units. The parents took title to the property, put up the down payment and took out the mortgage intheir own names; the daughter lived in her unit, rented the other,and paid as many of the bills as she could with her income and the rental income.

Eventually, Pamela’s problems reached the point where she filed a Chapter 7 bankruptcy case in Massachusetts. Not believing she was the “owner” of the house, she didn’t list it on her bankruptcy petition when she filed in 2005.

However, her father Kenneth was also contemplating bankruptcy, and he filed a Massachusetts Chapter 7 case in 2007. Because of several refinancings through the years, he believed Pamela owned the property, so he didn’t disclose it either. And to top it off Pamela attempted to transfer her share of the property to her father with a poorly written deed that was dated the very same day Kenneth filed his bankruptcy case.

Did this cause a bit of trouble? Well, you bet it did! The chapter 7 trustees for both father and daughter both claimed rights to the house, and they both sued the debtors as well as the mortgage company (Bank of America), who was also drawn into the fray. Allegations of fraud filled the air. The trustees bickered in court over who should get how much of the house. Pamela’s “simple” case from 2005 was re-opened.

Kenneth died; Pamela took the Fifth. The case streched on until 2010. Now U. S. Bankruptcy Judge Henry Boroff has ruled that the father’s bankruptcy trustee has a 50% share in the property which he can auction off to pay creditors. Barring further litigation or appeals, that may happen soon. The case is In re Duda, and was decided on January 15th.

For prospective bankruptcy clients, the take-away is this: when real estate is involved, you can never be too careful. Talk with you attorney about all the property you own, from the humblest timeshare to the grandest mansion, and if bankruptcy might be an option for you, don’t try to sell it or give it away without getting good legal advice first.

 

By Doug Beaton

Posted in Chapter 7, Real estate | Comments closed

Who owns your tax refund?

By doug | Published: January 15, 2010

If you decide to file a bankruptcy case, what happens to that tax refund check that you are expecting?

In most cases, the the answer is simple: most debtors will be able to have their attorney fill out the bankruptcy forms so that the refund is declared “exempt.” Even if the IRS or DOR issues them the refund check after the date that they file, the debtors will be able to cash the check and use the money as they see fit.

People filing Chapter 13 cases may run into complications, however. Typically, these filers propose a plan that allows them to pay down their debt over a three to five year period. So what happens to any income tax refunds received in years two, three, four or five?

For New Hampshire residents, recent rulings by the New Hampshire bankruptcy court (In re Michaud and In re Watson), say that tax refunds are excess income that must be paid to creditors through the Chapter 13 plan. Arguments that tax refunds are not income, but merely a return of income that has already been accounted for have apparently fallen on deaf ears. Chapter 13 debtors in New Hampshire should be prepared to turn over any future refunds to the trustee, who will pass them on to creditors.

Of course, the problem can be reduced or avoided by many by adjusting witholdings to more accurately reflect actual income. This would be a good topic to discuss with your New Hampshire bankruptcy attorney if you are considering filing under Chapter 13.

 

By Doug Beaton

Posted in Taxes | Comments closed

Thinking of erasing student loans by claiming hardship?

By doug | Published: December 19, 2009

Recent changes to the bankruptcy laws make the elimination of student loans through filing bankruptcy very difficult. In particular, once the debtor has filed her case, she must then file a separate lawsuit in the bankruptcy court against the lender, and then prove to the court that the student loans are causing an “undue hardship,” preventing financial rehabilitation. If the case cannot be settled by agreement with the lender, the debtor may have to conduct a full trial before a bankruptcy judge.

Some of the daunting challenges presented by this rather unusual procedure  were demonstrated by one of the last cases decided by the United States Bankruptcy Court in Massachusetts in 2009. The debtor had graduated from Stonehill College with her bachelor’s degree several years ago.  She worked a variety of jobs and paid down her student debt while working.

Then the problems came. The debtor married and with her husband had two small children. Her husband was eventully diagnosed with a “violent” seizure disorder, which put him on disability and put her in the position of being  unemployed and a full time care taker. By the time she filed for bankruptcy, she had $100 in the bank, about $25 left over in discretionary money left at the end of each month, and sometimes not even that, as she often had to visit pawn shops to make it until her husband’s check arrived.

One of the defenses raised by the lender at the trial was the availability of deferrment or forebearance options in lieu of a bankruptcy discharge. This is a common tactic. The law, however, does not prevent you from seeking a hardship discharge just because deferrment may be an option, and this was emphasized in the Massachusetts decision.

The bankruptcy judge in this case reiterated the strict standard that debtors will be held to before student loan debt will be discharged: they need to see “truly exceptional circumstances, such as illness or the existence of an unusually large number of dependents.”

Fortunately for this debtor, the court agreed that her woes were extraordinary, and she won her trial. The case is Torres v. Department of Education and you may want to read it if you think you are in a similar situation.

Consumers in the Merrimack Valley who find themselves burdened with student loans they can’t pay should seek the advice of a good bankruptcy attorney. Even then they may face a daunting challenge, but preferably they don’t go it alone.

 

By Doug Beaton

Posted in Student loans | Comments closed
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