Tuesday, March 30, 2010

Can a Discharged Debt Be Repaid?

The Bankruptcy Code provides, “Nothing contained in. . . this section prevents a debtor from voluntarily repaying any debt.” 11 U.S.C. § 524(f). You are free to make voluntary payments on all or part of your discharged debts. These payments do not invalidate the discharge order and do not create a new legal obligation. The creditor is still prohibited from contacting you in any way and cannot take any collection action against you, including sending you a bill or even encouraging your continued payments. In this case the term “voluntary” means free from creditor influence or inducement.

Any payments you make on a discharged debt are the result of a moral obligation as the legal obligation to pay the debt has been discharged by the bankruptcy court. In a Chapter 7 case, you are free to pay whomever you want. “Debtors who file under [Chapter 7] can dispose of their post-petition earnings as they choose, including voluntary repayment of debts otherwise dischargeable in bankruptcy.” In re Hellums, 772 F.2d 379, 381 (7th Cir. 1985).

If you are interested in making voluntary repayments after your discharge, discuss the matter with your bankruptcy attorney. While there are generally few down-sides to voluntary repayment, your bankruptcy attorney can discuss the pros and cons with you and help you reach the right decision for you and your family.

Friday, March 26, 2010

A Fresh Start to a Bright Financial Future

While working on the electric light bulb Thomas Edison was asked by a reporter, “How does it feel to have failed seven hundred times?”

Edison replied, “I have not failed seven hundred times. I have not failed once. I have succeeded in proving those seven hundred ways will not work. When I have eliminated the ways that will not work, I will find the way that will work.”

As businessman Harvey Mackay says, “Failure is an attitude, not an outcome.”
When a person makes a decision to file bankruptcy, the decision is largely based on a recognition that something hasn’t worked and changes need to be made. Fortunately, the bankruptcy laws provide the tools to make those financial changes. Through bankruptcy you can have a fresh start at a new financial life without the burdens of overwhelming debt. The Supreme Court has stated many times that “[t]he principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the honest but unfortunate debtor.” Marrama v. Citizens Bank of Massachusetts.

Does the fresh start work? Yes! A study by the Executive Office of the United States Trustee found that “[m]ost chapter 7 debtors have a substantial negative net worth at filing, but have a small positive net worth after discharge.” Bankruptcy works to put you on the right financial track with the hope for a better tomorrow.

A Chapter 7 bankruptcy releases the debtor from personal liability for certain types of debts. Unsecured debts (usually the most burdensome type like high interest credit card debt and medical bills) are discharged by the bankruptcy case without payment. The discharge is a court-ordered injunction that prohibits your creditors from collecting from you in the future. The creditor can no longer call, write, or take any collection action against you.

If you are ready for a fresh start, speak with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can help. An experienced bankruptcy attorney can explain your legal options and help you find a way that works for a bright financial future.

Wednesday, March 24, 2010

Loading Up on Debt Prior to Bankruptcy

For most, the decision to file a bankruptcy is a tough choice. It is the final step in a long journey that has included great compromise and sacrifice. A person usually experiences a sense relief when deciding to file bankruptcy, and there may be a tendency to "let go" of your debt problem. Unfortunately, in some cases people will “let go” by recklessly spending money and running up credit card balances.

It is generally not a good idea to incur any new debt before a bankruptcy filing. The Bankruptcy Code has several provisions prohibiting the debtor from loading up on debt prior to filing bankruptcy. One of the most commonly cited is a spending spree prohibition against purchasing “luxury goods or services” totaling more than $550.00 within 90 days prior to filing a bankruptcy case. Another provision makes credit card cash advances presumptively non-dischargeable if taken within 70 days prior to the bankruptcy filing.

Recently the United States Supreme Court in Milavetz, Gallop & Milavetz, P. A. v. United States reiterated that incurring new debt before bankruptcy with the intent to discharge the debt is not only prohibited, but may also amount to civil fraud or a criminal act. The high court said that bankruptcy attorneys cannot instruct or encourage debtors to take on more dischargeable debt before bankruptcy, but attorneys “remain free to talk fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case.”

There are many situations where taking on additional debt is beneficial and permissible. The Supreme Court cited three of those situations in the Milavetz opinion: (1) refinancing a mortgage; (2) purchasing a reliable car; and (3) incurring “additional debt to buy groceries, pay medical bills, or make other purchases ‘reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor[.]’”

The bankruptcy process can relieve you of many financial worries. However, your path to financial recovery can be complicated without the sound advice from an experienced bankruptcy attorney. Don’t make any significant financial decisions prior to filing bankruptcy without consulting your attorney.

Loading Up on Debt Prior to Bankruptcy

For most, the decision to file a bankruptcy is a tough choice. It is the final step in a long journey that has included great compromise and sacrifice. A person usually experiences a sense relief when deciding to file bankruptcy, and there may be a tendency to "let go" of your debt problem. Unfortunately, in some cases people will “let go” by recklessly spending money and running up credit card balances.

It is generally not a good idea to incur any new debt before a bankruptcy filing. The Bankruptcy Code has several provisions prohibiting the debtor from loading up on debt prior to filing bankruptcy. One of the most commonly cited is a spending spree prohibition against purchasing “luxury goods or services” totaling more than $550.00 within 90 days prior to filing a bankruptcy case. Another provision makes credit card cash advances presumptively non-dischargeable if taken within 70 days prior to the bankruptcy filing.

Recently the United States Supreme Court in Milavetz, Gallop & Milavetz, P. A. v. United States reiterated that incurring new debt before bankruptcy with the intent to discharge the debt is not only prohibited, but may also amount to civil fraud or a criminal act. The high court said that bankruptcy attorneys cannot instruct or encourage debtors to take on more dischargeable debt before bankruptcy, but attorneys “remain free to talk fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case.”

There are many situations where taking on additional debt is beneficial and permissible. The Supreme Court cited three of those situations in the Milavetz opinion: (1) refinancing a mortgage; (2) purchasing a reliable car; and (3) incurring “additional debt to buy groceries, pay medical bills, or make other purchases ‘reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor[.]’”

The bankruptcy process can relieve you of many financial worries. However, your path to financial recovery can be complicated without the sound advice from an experienced bankruptcy attorney. Don’t make any significant financial decisions prior to filing bankruptcy without consulting your attorney.

Monday, March 22, 2010

Protecting Your Attorney Client Privilege in Bankruptcy

Most bankruptcy clients are aware of the attorney-client privilege, an evidentiary rule that protects confidential communications between an attorney and client. It encourages candid communication between clients and attorneys without fear that the discussion will be used against the client. This privilege belongs to the client and the client determines when to waive it. The privilege exists generally in every legal forum in the United States, however its application can vary.

In a Chapter 7 bankruptcy case, a trustee is appointed to administer the case and liquidate the debtor's nonexempt assets. In performing these duties it may become important for the trustee to have certain information and the trustee may seek to have the debtor’s attorney disclose information obtained during a confidential attorney client discussion.

To compel the disclosure of this information, the trustee may invoke section 542(e) of the Bankruptcy Code which states that “[s]ubject to any applicable privilege, after notice and a hearing, the court may order an attorney, accountant, or other person that holds recorded information. . . relating to the debtor’s property or financial affairs, to turn over or disclose such recorded information to the trustee.” In opposing this disclosure, the debtor may assert the attorney-client privilege and argue that the trustee does not have the power to waive this privilege.

Bankruptcy Courts have taken three different approaches to resolving the issue of whether the trustee can waive the attorney-client privilege: (1) the trustee can waive attorney-client privilege; (2) the attorney-client privilege is absolute and cannot be waived by the trustee; and (3) whether the trustee is entitled to waive the attorney-client privilege depends upon the circumstances in the case. Bankruptcy courts using this last test generally balance the benefit to the bankruptcy estate against the potential harm to the debtor. See In re Courtney, 372 B.R. 519 (Bankr. M.D. Fla. 2007).

The bottom line is “let the client beware!” Discussions with your bankruptcy attorney, personal injury attorney, or other attorney may be subject to disclosure during your bankruptcy case. While most financial records would not be subject to the attorney-client privilege, the discussion of these records with your client may be privileged. Be warned that protecting this privileged communication may be at the discretion of the bankruptcy court.

The bankruptcy laws are constantly changing. Make sure that your fresh start is not a false start and hire an experienced and knowledgeable bankruptcy attorney who can protect your rights.

Thursday, March 18, 2010

Employment Discrimination and Bankruptcy

Most bankruptcy clients worry about how a bankruptcy might disrupt their lives. While many of these fears are unfounded, it is important for you to know the truth about the bankruptcy process and how it may affect you after your case. One serious matter is how a bankruptcy may affect an individual’s employment.

The first concern is how a bankruptcy can affect your current job. An employer will not receive notice of your bankruptcy except under two circumstances. First, you owe a debt to your employer, the bankruptcy court will notify your employer. Second, if you file a chapter 13 debt repayment bankruptcy, and choose a voluntary wage garnishment to pay creditors, your employer will be notified.

Additionally, section 525 of the Bankruptcy Code prohibits a government or private employer from terminating or discriminating against an employee who files bankruptcy. You cannot be fired from your current job because you filed bankruptcy.

A second concern is how a bankruptcy may affect your ability to get a job. Government employers are absolutely prohibited from denying employment to a person solely on the basis of a bankruptcy filing. As for private employers, most courts have found that the bankruptcy code does not prohibit a private employer from denying a person employment because of a bankruptcy filing.

Refusing to hire a person solely because of a bankruptcy filing seems like a very short-sighted and na├»ve policy. Consider that the U.S. Census Bureau estimates there are around 308 million people in the United States. From 2000 to 2009, there were over 13 million non-business bankruptcy filings (source: American Bankruptcy Institute). That is over four bankruptcy filings per one hundred people. That figure rises substantially once you take into account that the census includes many that are not in the “working” population, and that many of the non-business bankruptcy filings were joint husband and wife filings. Add to the fact that there are many legitimate and blameless reasons for filing bankruptcy, and it is no wonder that most employers do not discriminate based upon a bankruptcy filing.

If you are experiencing financial difficulty, consult with a bankruptcy attorney and explore your options. Bankruptcy is a federally guaranteed legal process that helps individuals recover from overwhelming financial hardship. Get your financial fresh start today.

Tuesday, March 16, 2010

Options When Sued Over Credit Card Debt

Receiving a lawsuit summons is a very scary thing. Whether served by a law enforcement officer, private process server, or received by mail, the idea of facing a judge and a skilled attorney is very intimidating. Fortunately, your legal options are very clear: (1) do nothing; (2) defend the law suit; (3) negotiate a settlement; or (4) file a bankruptcy.

The first option, do nothing, is obviously a bad choice. The court will enter a judgment against you and your wages may be garnished or property seized (e.g. the contents of a bank account). Even if the debt is ultimately paid or discharged in bankruptcy, the judgment will remain on your credit report for at least seven (7) years.

The second and third options, defend the law suit and/or negotiate a settlement, are very difficult to accomplish. Once the creditor has hired an attorney and filed a lawsuit there is very little that a person or non-attorney debt settlement firm can do to “settle” the debt. The collection attorney will use the legal processes to its advantage and knows that an unrepresented person is generally unable to successfully defend the lawsuit. Even the lay-person-friendly small claims process can be filled with pitfalls. Additionally, the cost of hiring an attorney and defending a lawsuit can get very expensive and the collection attorney is betting that you will not pay $3,000 to an attorney to contest a $3,000 credit card debt. The collection attorney believes (rightly) that it has the advantage and will ultimately obtain a legally enforceable judgment against you. Depending on your cardholder agreement, you may be liable for the principal, interest, penalties, court fees, and attorney fees. Why would they settle for less?

The final option, bankruptcy, is a very powerful tool. Bankruptcy immediately stops the lawsuit and prevents the entry of a judgment. Once the individual’s obligation to pay the debt is discharged by the bankruptcy court, the lawsuit must be dismissed and cannot be refilled. Filing bankruptcy prevents almost all future lawsuits from being filed and can discharge the obligation to pay most court judgments.

If you have been sued by a credit card company, discuss your situation with an experienced bankruptcy attorney. There are many options for dealing with your financial difficulty, and a bankruptcy attorney can help you select the best course of action for you and your family.

Thursday, March 11, 2010

Popular Half-Truths About Bankruptcy

The internet is full of half-truths that feed the speculative fears of the evils of bankruptcy. Most of this information comes from sources outside the bankruptcy process, like debt counselors, or financial planners who often are selling alternatives to bankruptcy. The most commonly stated “reasons to avoid bankruptcy” are:

1. It will ruin your credit
2. You will lose property
3. Not all debts are eliminated
4. You may be subject to repossession or foreclosure
5. You may not be able to get a job
6. You cannot get credit

Those are serious allegations, so let’s look at them.

First, bankruptcy is typically a last-resort option, so the average bankruptcy filer’s credit is already ruined. The bankruptcy wipes the slate clean and stops future adverse reporting for past debts. In other words, if you are 120 days late on a credit card, your credit report will continue to show that you are 120 days late month after month. A bankruptcy stops that reporting from the day you file your case so your credit can improve.

Second, it is exceedingly rare that a debtor loses property unexpectedly. When it happens it is generally the result of poor communication with the client. In all other cases the debtor will only lose property that is voluntarily surrendered, meaning the debtor has made a financial decision to not keep a house or car.

Third, there are actually very few debts that cannot be eliminated. The most common types are child support, some IRS debts, and student loans. However, even these non-dischargeable debts can be managed within the bankruptcy.

Fourth, the bankruptcy automatic stay will stop any foreclosure or repossession. If the creditor wants to take possession of the property after the bankruptcy filing, it must petition the bankruptcy court for permission.

Fifth, it is against the federal law to discriminate against a job applicant solely on the basis of filing a bankruptcy.

Sixth, many bankruptcy debtors have rebuild their financial lives within a year or two of the bankruptcy filing. It takes time and effort to rebuild, but there are no past debts to drag you down!

Don’t get your bankruptcy information from internet sources that use scare tactics and half-truths. Talk to an experienced bankruptcy attorney and get the facts. Find out how bankruptcy can solve your debt problems today.

Monday, March 8, 2010

Oh, Those Misbehaving Debt Collectors

When Congress passed the Fair Debt Collections Practices Act (“FDCPA”) it stated that its purpose is “to eliminate abusive debt collection practices by debt collectors[.]” Congress cited the need for consumer protection because of the “abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors. Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.”

Abusive debt collection practices are just bad news.

On February 22, 2010, the United States Supreme Court declined to hear an appeal from the Fifth Circuit U.S. Court of Appeals on a FDCPA case: Kay v. Gonzales, U.S., No. 09-542. In that case the Plaintiff, Jose Gonzalez, received a letter from the Kay Law Firm. The letter, written on law firm letterhead and unsigned, told Gonzalez, “Please be advised that your account, as referenced above, is being handled by this office.” On the back of the letter was this statement: “At this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account.” Gonzalez sued the Kay Law Firm for violating the FDCPA which prohibits debt collectors from falsely representing or implying that the debt collector is an attorney or that the communication is from an attorney.

The federal district court found that the disclaimer was sufficient to notify Gonzalez that the collection matter was not being handled by an attorney and the Gonzalez’s case was dismissed. On appeal the Fifth Circuit Court of Appeals found that the letter’s disclaimer on the back was mixed in with “legalese” which may not be sufficient to notify the consumer of the attorney’s non-involvement in the case. The Fifth Circuit reversed the district court dismissal and remanded the case for trial. Gonzalez v. Kay, No. 08-20544 (5th Cir., 2009). Now that the Supreme Court has denied the Kay Law Firm’s appeal, Mr. Gonzalez will have his day in court.

The Fifth Circuit in its opinion cites the Seventh Circuit Court of Appeals for why it is important to protect against this type of deceptive collection practice:

“An unsophisticated consumer, getting a letter from an ‘attorney,’ knows the price of poker has just gone up. And that clearly is the reason why the dunning campaign escalates from the collection agency, which might not strike fear in the heart of the consumer, to the attorney, who is better positioned to get the debtor’s knees knocking.”

Avila v. Rubin, 84 F.3d 222, 229 (7th Cir. 1996).

If you receive a collection letter from a law firm, speak to an experienced bankruptcy attorney and learn your rights. Bankruptcy attorneys are trained in matters of debt defense and can help explain your rights under the FDCPA and the federal bankruptcy laws. Don’t let an unscrupulous debt collector get your “knees knocking.”

Friday, March 5, 2010

How to Find a Bankruptcy Attorney Online

While many attorneys advertise their qualifications on their web sites, NO ONE should hire legal counsel based solely upon the results of an online search. However, information you obtain from the internet can be useful in narrowing your search, provided you know what to look for in a prospective bankruptcy attorney.

First, is the attorney licensed to practice in your area? Usually the attorney’s biography will state his or her bar admissions. Each of the 94 federal judicial districts has a bankruptcy court, and these courts are defined by geographic jurisdictions. More information concerning federal court geographic boundaries can be found here.

An attorney who is not a member of the bar where you reside will have to petition the court for admission pro hac vice (“for this event only”). An attorney who is not active in a court may not have useful information regarding the bankruptcy judge, the trustee, local customs and rules, or contacts to make your case go smoothly.

Second, how long has the attorney been practicing bankruptcy law? The federal bankruptcy laws are complex and attorneys spend years learning how to successfully navigate a case from start to finish. Don’t be a test case or a learning experience for a new attorney.

Third, does the attorney belong to any professional associations? The National Association of Consumer Bankruptcy Attorneys and the American Bankruptcy Institute are two outstanding resources for attorneys to keep current on changes in the bankruptcy law. Member attorneys also receive training and information that is beneficial to their clients.

An experienced bankruptcy attorney is easy to find, if you know the tell-tale signs. Use these signs to narrow your search, and then interview your candidates either by phone or in-person. Your choice of a bankruptcy attorney is a serious matter and should be carefully considered, so get to know your attorney’s qualifications before your make a hiring decision.

Tuesday, March 2, 2010

The ABCs of Bankruptcy

Bankruptcy law has its own confusing language. It is a good idea to have a basic understanding of bankruptcy terms before your initial consultation with a bankruptcy attorney. While most bankruptcy attorneys are very skilled at explaining the bankruptcy process and its impact to their clients in plain language, sometimes technical terms can sneak into the conversation. Below is a very general explanation of the most common bankruptcy terms:

Automatic stay – a court injunction that stops all collection action against the debtor. The automatic stay is effective immediately upon filing the bankruptcy

Bankruptcy estate – the debtor’s legal and equitable interest in property at the time the bankruptcy case is filed

Chapter – a section of the bankruptcy code. Some chapters are general and apply to all cases; other chapters apply only to specific bankruptcy cases.

Debtor – an individual who files a bankruptcy petition

Discharge – a court permanent injunction prohibiting the collection action against the debtor personally for any debt discharged in the bankruptcy

Equity – the value of a debtor's interest in property after subtracting monetary liens

Exemptions – legal protections that shields property from creditor collection

Means test – a calculation of the debtor’s income and expenses meant to determine the debtor’s ability to pay creditors

No-asset case – a Chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims

Nondischargeable debt – a debt that cannot be absolved through bankruptcy and the debtor remains personally liable after the bankruptcy case has closed.

Petition – the papers filed by the debtor that commences the bankruptcy.

Plan – the debtor’s description of repayment of debt during a Chapter 13 bankruptcy

Preference – a debt that was paid prior to the bankruptcy when the debtor was insolvent and unable to pay other creditors

Proof of claim – the creditor’s claim and verification of a debt

Reaffirmation agreement – an agreement between the debtor and creditor that entitles the debtor to retain property in exchange for continued personal liability to pay a debt (common examples are a car or house loan)

Schedules – the detailed description of the property, debts, income and expenses of the debtor

Secured creditor – a creditor holding a lien against property of the debtor’s as security for payment of a debt

341 meeting – a mandatory meeting that the debtor must attend with the trustee. The debtor’s creditors are invited to the 341 meeting and are allowed to ask questions.

Trustee – an individual appointed to oversee the debtor’s bankruptcy case. This is not the bankruptcy judge.