Bad Legal Advice Will Not Save Your Bankruptcy Case

When something bad happens in your bankruptcy case, who gets the blame?

You do.

The responsibility for your bankruptcy case is first and foremost squarely on your own shoulders. Your attorney works on your case. It is not your lawyer’s case – it is your case. Sure, when something goes wrong you can complain about your attorney. You may even sue your attorney or cry “foul” to the office of chief disciplinary counsel. Unfortunately, none of that will get you out of trouble.

Just ask Teresa Giudice who is suing her former bankruptcy lawyer for $5 million. The Real Housewives of New Jersey star claims it is the malpractice of her attorney that is responsible for her sentence of 15 months in federal prison for fraud. Giudice’s husband, Joe, was also convicted of federal fraud. But claims of malpractice or a lawsuit against her lawyer will not stop Ms. Giudice or her husband from serving their sentences.

Pointing the finger at your attorney is not usually a defense to a criminal act; in fact, it is often evidence of your own culpability and guilt. Your bankruptcy petition and schedules are signed under threat of perjury. Testimony at a 341 Meeting of Creditors or in court is given under oath and recorded. Signing your name and giving testimony are your own free acts, so be sure that you are stating the full and complete truth.

Consider the case of James Roti. After a creditor obtained a $400,000 judgment against him, Mr. Roti hid his assets and lied to his creditors, to the federal bankruptcy court, and to the bankruptcy trustee. Roti was charged with bankruptcy fraud. At trial Roti testified that his lawyer put him up to it. He argued that he should be acquitted of bankruptcy fraud charges because he was following the advice of counsel, and that his attorney managed the scheme’s details.

The jury rejected Roti’s defense of “not me, him” because it is not a defense at all. In fact, Roti freely admitted committing bankruptcy fraud. Roti was convicted of bankruptcy fraud and of concealing assets from the bankruptcy trustee. He was sentenced to 21 months’ imprisonment.

If you are considering lying, hiding assets, or some other dishonest act during bankruptcy – don’t do it! Once you are discovered you will pay the price and no amount of blaming your attorney will help you. 

Many Americans Walking on the Edge of Financial Ruin

Recently Bankrate.com released a survey suggesting that many American adults are walking the edge of financial disaster. Bankrate surveyed more than 1,000 adults and discovered that 37% had credit card debt that equals or exceeds their emergency savings. 

Credit card debt is old news to most Americans. According to Federal Reserve statistics from December 2014, Americans owe more than $880 billion on credit cards. The average American household (with a credit card balance) owes more than $15,000 to credit cards. 

What this all means is simple: many Americans are living day-to-day hoping that nothing goes wrong. One thing is for certain: unexpected expenses should be expected. A 2014 survey by American Express found that half of all Americans had experienced an unforeseen expense in the past year: 44% reporting an unforeseen health care expense and 46% for car trouble. 

Does this sound like you? 

There are many ways to turn your finances around, including reducing or eliminating monthly expenses; paying off credit cards; contributing to a savings account; or taking extra work or a second job to pay down debts. If your finances are seriously upside down, it is a good idea to obtain a free consultation with a bankruptcy professional before taking extreme actions to correct your finances. Certain provisions of Bankruptcy Code can actually work against the well-intended debtor. For instance:

  • Reducing or eliminating monthly expenses prior to filing bankruptcy may result in an increase of disposable income, which can lead to a greater repayment for unsecured creditors who may be otherwise discharged outright.
  • A debt that is paid off immediately prior to filing bankruptcy may be recouped by a Chapter 7 bankruptcy trustee. This is a common trap, especially when the repayment is to a friend or family member.
  • Contributing to a savings account may lead to non-exempt property that may be taken by a Chapter 7 trustee and distributed to creditors.
  • By temporarily increasing your income to pay down debts, you are also increasing your average income for the six month period prior to filing bankruptcy. This can mean disqualification from filing Chapter 7 or increased monthly payments in a Chapter 13.

 Debt is serious business and major changes in your family finances should be made only after consulting with a seasoned professional. While it is important to “right your ship” and provide for a better financial future for your family, don’t make things worse by acting rashly. Call today for a free consultation with an experienced bankruptcy professional, consider your options, and make the best plan for your family.

Save Money Today

Many families who struggle to make ends meet talk about establishing a family budget and reducing expenses. Some suggest “sacrificing” and “tightening the belt” to save money. While admirable, sometimes it is not necessary to do without in order to save money. Below are three easy ways to immediately save money without changing your lifestyle.

Pay TV

The entertainment world is changing. Last year almost 200,000 Americans cancelled their pay TV subscriptions. More and more people are moving away from pay TV and using internet services such as Hulu, Amazon, and Netflix for cheaper entertainment. The younger a person is, the more likely that person is to watch shows on a wireless device or computer and not subscribe to pay TV. The consequence is that satellite providers, cable companies, and even phone companies are hurting for business.

You can save money today by starting a bidding war for your dollars. Contact Dish TV, DirecTV, your area cable company, and your local phone/internet television providers and tell them that you are willing to subscribe to company with the best deal. Be sure to get the offer in writing (by email or otherwise) and review any contract before signing up.

Cell Phone

The cellular carrier marketplace is crowded. The prize these companies covet is the two-year plan -- the customer that obligates for two years of service. Some companies will even buy out an existing obligation at a competitor, just to earn your business. This all adds up to a powerful bargaining position for you.

If you are a “free agent” without a contract, then you can shop around for the best deal. Be sure to investigate additional hidden discounts such as company or military discounts. If you are not a free agent, research competitor deals that include buying out your contract, then use that information to negotiate better terms with your cellular company’s customer retention department.

Gasoline

Gas prices are lower, that’s good. However, you can still save more money at the pumps by being a watchful consumer. A ten cent difference in price per gallon between filling stations can mean a $1.60 savings for a 16 gallon tank. Fill up once a week and that’s $83.20 a year. “Big deal,” you say? Well, it’s your money.

GasBuddy, a free cell phone app can save you money with each fill up. GasBuddy uses user feedback to track the current prices of local gas stations, making it easy to quickly find the best deal. GasBuddy is especially useful for premium gas, where prices may not be displayed on a road sign and can vary by $.20 or more between stations.

Statute of Limitations and Foreclosure

Every state has a statute of limitations for filing a foreclosure action. A statute of limitations is a state law that tells the lender that a foreclosure must be filed within a certain time after default on a promissory note. If the foreclosure is not filed by that date, it is not valid and may be stopped or dismissed by a court. A statute of limitations is an “affirmative defense” and must be raised by the homeowner in defense of a foreclosure action. If it is not raised, it is generally considered “waived” and will not be considered in future lawsuits.

The time limit depends on the type of action and the claim that is involved. There are different statutes of limitations for oral contracts, written contracts, personal injury, and fraud. Generally, the statute of limitations for home foreclosures applies to written contracts (i.e. promissory notes). Some states (e.g., New Jersey), have a specific statute of limitations for foreclosure.

Each state has its own statute of limitations, which ranges from three years to 15 years. Most states fall within the three to six year range. The statute of limitations clock for a mortgage foreclosure usually starts when the default occurred, which is generally dated from the last payment.

A foreclosure must be initiated before the expiration of the statute of limitations period. For example, if the expiration of the statute of limitations is March 30, 2015, and the foreclosure is started on March 15, 2015, then the statute of limitations does not apply, even if the foreclosure is not completed before March 30, 2015. However, if the foreclosure action is dismissed or stopped by the lender after March 30, 2015, the time will have expired and the statute of limitations defense is effective against a future foreclosure.

If you have a home that is under threat of foreclosure, consult with an experienced bankruptcy attorney and consider your options.  In some cases, a statute of limitations defense may save your home from foreclosure.

Number of Bankruptcy Cases Drop

The total number of bankruptcy cases filed in the United States fell 14 percent from a year ago, according to a recent press release from Epiq Systems, Inc. Bankruptcy filings in January 2015 totaled 59,037 compared to 68,271 cases filed in January 2104. The number of consumer filings declined 13 percent and commercial filings are down 16 percent. Total commercial Chapter 11 filings, however, are up 33 percent. January 2015’s commercial Chapter 11 filings increased to 518 from January 2014's 391 filings. 

American Bankruptcy Institute Executive Director Samuel J. Gerdano offered this as a reason for the decline, “High costs to file and sustained low interest rates continue to reduce the number of consumers and businesses seeking the fresh financial start of bankruptcy.” According to Gerdano. “The year-over-year filing totals have now declined for 50 consecutive months." 

States with the highest per capita filing rate (total filings per 1,000 population) in January 2015 were:

1. Tennessee (5.25)

2. Alabama (4.61)

3. Georgia (4.57)

4. Illinois (3.89)

5. Mississippi (3.33)

During 2014, the total number of bankruptcy cases filed was 910,090, a decline of almost 12 percent from calendar year 2013. The number of bankruptcy filings have steadily decreased since 2010, when the total number was 1,561,008. One analyst predicts further decreases in the number of bankruptcy filings for 2015, projecting around 800,000 total filings, another 12 percent decline.

How Long You Must Stay in Chapter 13 Bankruptcy

The chief feature of a Chapter 13 bankruptcy is the repayment plan. A Chapter 13 bankruptcy gives a debtor time to restructure personal finances through monthly payments. How much time is the subject of today’s post.

100% Repayment

In general, a proposed Chapter 13 repayment plan must last between three and five years (36 and 60 months). However, there are exceptions. Some jurisdictions allow debtors to propose a repayment plan that is less than 36 months, if the debtor is paying back 100% of all debts (including nonpriority unsecured claims). 

Three to Five Year Plan

The length of a Chapter 13 repayment plan is often dictated by the debtor’s average income for the six-month period preceding the bankruptcy filing. When the debtor is below his state’s median income for a similar household, the plan can usually be anywhere from 36 to 60 months long. Median income for each state can be found on the U.S. Trustee’s website. A “below median” Chapter 13 debtor has flexibility in adjusting payments during the bankruptcy case.

Five Year Plan

If the debtor has an income that is above his state’s median income for a similar household, the debtor is typically stuck with a 60-month plan. Some courts allow above-median debtors to propose shorter repayment periods if there is no disposable income. By law, a Chapter 13 plan cannot exceed 60 months.

Hardship Discharge

When a change occurs during the bankruptcy case which makes it impossible to complete the debtor’s Chapter 13 repayment plan, the debtor may request a “hardship discharge” and end the case early. To qualify for a hardship discharge, the debtor must show:

  • A financial change that makes the debtor unabile to continue making the scheduled Chapter 13 plan payments;
  • The change in finances must be beyond the debtor’s control;
  • The change must be serious and on-going;
  • Modification of the repayment plan is not practical or feasible; and
  • If a hardship discharge is granted, creditors will receive at least as much as they would have received during a Chapter 7 case.

Hardship discharges are only granted for the most extreme cases. The Bankruptcy Code also limits the scope of the hardship discharge to that of a Chapter 7 discharge, so some debts that would be discharged in a Chapter 13 case may not get discharged if the case ends early. 

As Long as You Need

Finally, many debtors only remain in Chapter 13 for as long as it takes to solve their financial difficulties.  For instance, if the only reason the debtor files Chapter 13 bankruptcy is to stop a foreclosure, once the debtor cures an arrears or modifies loan payments, there may not be a need to remain in bankruptcy. A Chapter 13 debtor is generally able to dismiss the bankruptcy case almost as a matter of right, as long as there is no “bad faith” involved in the dismissal. See Marrama v. Citizens Bank, 127 S.Ct. 1105 (2006).

 

 

Contingent, Unliquidated and Disputed Debts, and Why It Matters

During your bankruptcy you will account for your debts on official bankruptcy forms. The bankruptcy code requires you to list all debts and indicate whether the debt is contingent, unliquidated, or disputed. Below is a quick primer on these types of debts and why you should accurately list the debt.

Contingent debt

A contingent debt is a debt owed to the creditor that depends on some event that hasn’t yet occurred. This includes a debt that may never arise because the event may not occur. Contingent debts are only identified when the contingency that creates the debt is probable and the amount of the liability can be estimated.

Why would you list a debt in your bankruptcy that may or may not arise? Simple, a contingency debt means that certain obligations exist currently that may give rise to a debt in your future. In many cases you can discharge those obligations. For instance, suppose you have co-signed for a car loan for your brother-in-law. Even though you have no liability until your brother-in-law defaults (which may never occur), you may still discharge that potential liability during bankruptcy.

Unliquidated debt

An unliquidated debt means that the exact amount of the debt has not yet been determined. For example, suppose you sue someone for personal injuries. Your attorney agrees to take the case under a contingency fee agreement (1/3 of the recovery, for instance). The debt to your attorney is unliquidated because you don’t know how much, if anything, you’ll win and, consequently, what you will owe your attorney.

Like contingent debts, it is important to list unliquidated debts even though the exact amount is not yet determined. Once the amount is clear and undisputed, the debt is “liquidated.” Liquidated and unliquidated debts are often dischargeable during bankruptcy.

Disputed

A debt is disputed when you and the creditor do not agree about the existence or amount of the debt. For instance, suppose you believe you owe Capital One $1,000 for a credit card debt, and Capital One asserts that you owe $2,000. You would list Capital One as a creditor, list the full amount asserted by Capital One, and identify the debt as “Disputed.”

Listing the debt makes it eligible for inclusion in the bankruptcy discharge. It also alerts the bankruptcy trustee that the creditor may not be entitled to a full distribution of any estate assets. 

How Bankruptcy Affects Your Credit Score

Almost every potential bankruptcy client will ask, “How will filing bankruptcy affect my credit score?” Unfortunately, this important question is often answered flippantly, as in: “If you need to file bankruptcy, isn’t your credit already ruined?” or “What do you need credit for?”

Instead, of brushing aside this question, let’s tackle it head-on and examine what happens to a credit score after bankruptcy.

Bankruptcy’s effect on an individual’s credit report depends on a number of factors. Perhaps the best way to get to the truth of the matter is to view an example posted on myfico.com, the consumer division of Fair Isaac. The FICO score is the credit score that lenders use most often today. In this example, two consumers, Alex and Benecia are compared:

 

Alex has a FICO score of 680 and:

Benecia has a FICO score of 780 and:

Has six credit accounts, including several active credit cards, an active auto loan, a mortgage, and a student loan

Has ten credit accounts, including several active credit cards, an active auto loan, a mortgage and a student loan

An eight-year credit history

A fifteen-year credit history

Moderate utilization on his credit card accounts (his balances are 40-50% of his limits)

Low utilization on her credit card accounts (her balances are 15-25% of her limits)

Two reported delinquencies: a 90-day delinquency two years ago on a credit card account, and an isolated 30-day delinquency on his auto loan a year ago

Never has missed a payment on any credit obligation

Has no accounts in collections and no adverse public records on file

Has no adverse public records on file

 

 

Alex

Benecia

Current FICO score

680

780

Score after one of these is added to credit report:

 

 

Maxing out a credit card

650-670

735-755

A 30-day delinquency

600-620

670-690

Settling a credit card debt

615-635

655-675

Foreclosure

575-595

620-640

Bankruptcy

530-550

540-560

Note that after filing bankruptcy (any chapter) both Alex and Benecia have credit scores in the mid-500s. Consequently, most bankruptcy debtors can expect a credit score in the 500s immediately after filing bankruptcy.

Fortunately, that’s not the end of the story.

Most bankruptcy debtors are able to rebuild relatively quickly. Some analysts project an individual with a 680 credit score can rebuild to a 680 credit score in approximately five years after filing bankruptcy. The truth is that it depends on the individual and the situation, sometimes taking less than two years with active attention to re-establishing credit and paying bills on time.

 

1970's Teen Idol Files for Bankruptcy Protection

Is it hard to file bankruptcy? You bet.

Is it hard to file bankruptcy when you have sold of 30 million records?

Or starred on a hit television show?

Or been a teen heartthrob?

Or been featured in books, magazines, trading cards, and lunch boxes?

Oh, yeah.

David Cassidy, former teen idol and star of the ‘70s TV series “The Partridge Family,” recently filed for Chapter 11 bankruptcy protection. Cassidy, now 64, filed bankruptcy in Florida and reportedly owes hundreds of thousands of dollars to various creditors, including $292,598 to Well Fargo, $21,952 to American Express and $17,150 to Citi. Cassidy experienced numerous legal difficulties in recent years including substance abuse issues, three DUI arrests in less than four years, an on-going divorce, and a lawsuit against Sony Pictures Television, Inc which he was awarded a disappointing $157,964.84. The lawsuit sought millions to compensate Cassidy for use of his image on “Partridge Family" merchandise. This merchandise reportedly generated nearly $500 million for the defendants over the past four decades, but Cassidy claimed he was only paid $5,000.

On February 12, 2015, Cassidy announced his bankruptcy filing on his website, DavidCassidy.com. Cassidy said, “I am going through bankruptcy proceedings at the moment. I wanted to let you know personally. This is necessary for practical reasons to reorganize my life as I go through divorce and to restructure my finances.”

Chapter 11 bankruptcy is often filed by corporations, but is available to individuals seeking to reorganize with high debts or complex finances. Typically, debtors seeking to restructure and not liquidate their assets through Chapter 7 will file Chapter 13 bankruptcy. However, the Bankruptcy Code restricts Chapter 13 debtors to debt limits of $383,175 in total unsecured debts and $1,149,525 in secured debts. An individual who exceeds one of those debt limits is disqualified from filing Chapter 13, but can file under Chapter 11.

Practical Concerns Regarding Wage Garnishment and Bankruptcy

When an individual files a personal bankruptcy case, the bankruptcy automatic is triggered and most collection actions, including garnishments against the debtor, must immediately cease. Further creditor activity generally violates the automatic stay protection – even where the creditor is unaware of the bankruptcy filing!

While the automatic stay casts a long shadow of protection, it is not magical. As a practical matter, a garnishment will continue at least until notice of the bankruptcy filing is received. Therefore, it’s in the debtor’s best interest to send notice to all parties involved in the garnishment to ensure that money is not taken after the bankruptcy case is filed.

Creditor and Collecting Attorney

Faxing notice of the bankruptcy filing to the garnishing creditor and counsel is the first step in stopping a garnishment after a bankruptcy filing.  While the clerk of the bankruptcy court will send out notices, it may be a few days until the creditor and attorney receive them.

Once a creditor is informed of a bankruptcy filing, it is the creditor’s responsibility to ensure that no further collection action takes place while the automatic stay is in effect. Most courts consider “doing nothing” to stop a wage garnishment is effectively a violation of the stay injunction and is penalized by contempt of court. The automatic stay is “intended to stop the snowballing,” and “all who have a part in the garnishment must take such positive action as necessary to give effect to the automatic stay. No action is unacceptable; no action is action to thwart the effectiveness of the automatic stay.” See In re Elder, 12 B.R. 491 (Bkrtcy.M.D.Ga. 1981).

State Court

In some jurisdictions, the debtor can obtain an order from the bankruptcy court quashing a state court wage garnishment order. Most state court judges are aware of the automatic stay’s effect on a wage garnishment order and will rescind the order without bankruptcy court direction. Unfortunately, most employers are not experts on the bankruptcy automatic stay. Failure to revoke or rescind the state court order may lead to confusion at the employer payroll office and delays in stopping a wage garnishment.

Sherriff

Garnishment orders must be enforced. In many areas that means the sheriff’s office is responsible for collecting garnished wages and turning the money over to the court for distribution to a judgment creditor. Consequently, it is always a good idea to send the law enforcement collector notice of the bankruptcy filing.

Employer

Wage garnishment orders direct an employer to withhold money from the debtor’s paycheck for a certain time period. The employer will continue to withhold wages in accordance with the state court order until either the end of the garnishment period or directed otherwise. It is imperative to send notice of the bankruptcy case filing to the debtor’s payroll office and direct it to stop all wage garnishment. As noted above, notice of the bankruptcy filing alone may not be enough to stop the wage garnishment.

Stopping a wage garnishment after a bankruptcy filing is generally a matter of notifying the appropriate parties. While it is ultimately the creditor’s responsibility, leaving the notice procedure to the garnishing creditor is often a risk, and could lead to delays in stopping the garnishment.