Bankruptcy Bits

Understanding why more people don’t walk away from their underwater mortgages

A recent report from the University of Arizona Law School’s Professor, Brent T. White addressed how homeowners are dealing with foreclosures. It was reported that although the public media reports that homeowners are increasingly abandoning their homes due to their inability to afford their mortgage payments, in fact the majority of homeowners are somehow able to keep making their payments, even if their properties are worth significantly less than the amount of their secured debts.

While logic might suggest that these borrowers would be defaulting on their loan obligations, the reality is that two strong emotional forces come into play. First, most people desire to avoid the shame and guilt of losing their home to a foreclosure sale, and secondly, they fear the unknown consequences of an involuntary sale, which may be over-exaggerated by both the lenders and the government.

This is opined to be the result of the lenders wanting to reap maximum profits and suffer minimum financial loss, even if the market conditions and legal remedies indicate that the borrowers might be much better off financially to walk away from these obligations.

This is another example of why people facing financial problems should consult with a lawyer or financial advisor who is able to independently advise them of all of their legal options.


by: Michael B. Katz, Esq.

Consumer bankruptcy filings continue at a record pace

Data released by the National Bankruptcy Research Center and the American Bankruptcy Institute conclude that consumers in the U.S. continue to face hard economic times, resulting in 126,434 new consumer bankruptcy cases having been filed in July 2009, which is over a 34% increase from the same period of time in 2008. Even comparing July’s numbers to June shows almost a 9% jump in the number of filings. The number of cases filed in July 2009 represents the largest number of cases filed in a single month since the new bankruptcy amendments became effective in October 2005.

While some “experts” say that the our country’s financial crisis has bottomed out and is now improving, the numbers disprove that for conclusion most consumers, who continue to battle the effects of high unemployment or underemployment, while trying to maintain servicing of their existing debts. It appears that the tidal wave of consumer bankruptcy filings will continue for longer than many people expected.


by: Michael B. Katz, Esq.

Can I lose my job as a result of my filing for bankruptcy?

The answer is clearly set forth in Section 525 of the Bankruptcy Code titled, "Protection against discriminatory treatment. Paragraph (b) of the Section is specific in its prohibitions:

 

No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt –

1. is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
   
2. has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or
   
3. has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act

 

The "no" answer to the individual contemplating bankruptcy is important to that individual but is equally important to employers who may not realize the statutory prohibition against a bankrupt person by terminating the individual or refusing to employ an individual who has been bankrupt.

 

While the "no" answer is comforting to the would-be-bankrupt, it is an answer to a question that should be posed by employers, or would-be employers, before they take action that would be in violation of Sec.525.

 

Alas, the law is not always without exceptions. Debts incurred as a result of defalcation of a fiduciary duty, larceny, fraud, deceit and other acts of dishonesty, malfeasance and criminal intent, while generally non-dischargeable, may well be justification for either terminating or not employing an individual where such conduct is related to the position of employment. Although "no" is the general, statutory answer, a prospective debtor and present and past employers are best advised to consult with counsel concerning specific facts and situations.

by: Eugene B. Berman, Esq.

 

 

New rules to protect credit card holders - Effective August 20, 2009

Yesterday, a new consumer protection law came into effect. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) is intended to protect consumers from unexpected and massive interest rate hikes on the terms of their credit cards.

"The new rules of the road established by the Credit CARD Act will shield credit cardholders from widespread abusive practices," Senate Banking Committee Chairman Chris Dodd, D-Conn., the bill's author, said on Wednesday.

The most significant changes anticipated by the new law actually are scheduled to take effect during February 2010, but below is a brief listing of those changes taking effect immediately:

• Consumers must be given at least a 21-day from the date a bill is mailed to make their payment (currently only a 14-day notice is required).

• Consumers must be given at least a 45-day notice before making significant contract changes, particularly with regard to interest rate and fee increases (currently only a 15-day notice is required). However, be warned of the following inapplicable scenarios, where you may not receive warning:
• an introductory rate that expired;
• variable interest rate cards; or
• if you have a reduced rate under a hardship or “workout” plan and fail to make payments as agreed.

Consumers shall have right to opt out of interest rate and fee increases. If a consumer chooses this option, the credit card at issue may be cancelled and any outstanding balance may be paid under the previous terms (currently, issuers are not required to offer this option).

                                                                                            

While these changes are significant and will hopefully help consumers to keep credit card payments under control, watch out for more stringent credit approval checks, decreased credit limits, sudden closing of credit cards by your cardholder, and more. There is even more to come on February 22, 2010, so stay tuned.

Still to come...

• What difficulties might consumers encounter as credit card companies are required to adhere to stringent Credit CARD Act requirements?
• What changes will be taking effect as of February 2010?
• Might these changes spare some people from the need to file bankruptcy?

by: Greta LaMountain, Esq.

Consumer bankruptcy filings continue at a record pace

Data released by the National Bankruptcy Research Center and the American Bankruptcy Institute concludes that consumers in the U.S. continue to face hard economic times, resulting in 126,434 new consumer bankruptcy cases having been filed in July 2009, which is over a 34% increase from the same period of time in 2008.

Even comparing July’s numbers to June, shows almost a 9% jump in the number of filings. The number of cases filed in July 2009 represents the largest number of cases filed in a single month since the new bankruptcy amendments became effective in October 2005.

While some “experts” say that the our country’s financial crisis has bottomed out and is now improving, the numbers disprove that conclusion for most consumers, who continue to battle the effects of high unemployment or underemployment, while trying to maintain servicing of their existing debts. It appears that the tidal wave of consumer bankruptcy filings will continue for longer than many people expected.


by: Michael B. Katz, Esq.

If I file bankruptcy, do I need to go to court?

It is understandable that most people filing bankruptcy are nervous about the bankruptcy process, including the need to appear in Court before a Judge. Luckily, a vast majority of consumer bankruptcy filers never step foot in a Courtroom.

Procedurally, after filing a bankruptcy, debtors are required to attend a short administrative meeting with their lawyer and a trustee (who usually is also a lawyer, hired to make sure there are no excess assets that would be available to pay creditors.)  This meeting, (called a 341 Meeting of Creditors,) held about 30-days after filing bankruptcy, is not presided over by a judge, and is usually only a few minuets long.

Filing bankruptcy can be a stressful event for debtors, however appearing in Court is not something most need to be worried about.

by: Justin H. Dion, Esq

The Berman Hook Theory – planning the timing of filing bankruptcy

 There are statistics that evidence that a substantial number of Chapter 11 plans fail, and that even in cases in which a plan is confirmed, the reorganized debtor fails shortly after confirmation.

An explanation for the phenomenon is contained in a theory that has become known as "The Berman Hook." Envision a hook: a line straight down, a perpendicular line at the bottom with another line headed up. Think of a fishhook.

The Berman Hook Theory incorporates the previously expressed viewpoint that timing can be everything. Like "location, location, location," the manta is, "timing, timing, timing" for debtors.

The theory is simple: during the period of declining business, the entity survives by using its capital (cash, inventory, accounts receivable) and available credit to survive. Debt is incurred and continues to be incurred during the downturn and at the leveling off phase. The cash flow and capital crisis really occurs when the business turns around and new capital and credit are required for new inventory, (or to finance the production of new product,) and to finance the accounts receivable created by new sales. The real crisis occurs when capital is depleted, debt is the highest and demands for capital, cash and credit are newly needed. A classic scenario.

The theory suggests that the filing of a petition in bankruptcy provides little long term relief when filed in the downward spiral but is best exercised when there is a realty of a fresh start, i.e. when relief from existing debts can be most beneficial. A successfully reorganized debtor is relieved of the burden of incurring additional debt and has the opportunity to engage in business when there is an opportunity to succeed. A simple, pragmatic theory.

And the concept is equally applicable to individuals. Timing is everything. You should not seek recourse in Bankruptcy Court until you have bottomed out. By means of example, you’re best advised not to file before you have the operation and will be out of work for a prolonged time or are unemployed with no early prospect of employment. Timing can be everything.

While the theory is valid, there are, of course, unusual circumstances under which you don’t have the luxury of choosing the time.

by: Eugene B. Berman, Esq.

Timing is everything when filing bankruptcy.

We are all aware that the timing of the filing of a petition - voluntary or involuntary - determines the time frame within which preference, fraudulent conveyance, and other claims can be asserted. A debtor may well delay a filing to protect a purported preference to a "friend" or to avoid claims ascertain insider preferences. Or visa versa: a petition may be filed to preserve the 90-day preference period so that an action can be undertaken. The consequences of when to file is one of the major considerations to be addressed by any entity contemplating the filing of bankruptcy.

One of the considerations frequently overlooked by debtors and their counsel is consideration of the most auspicious time to file for them. It is suggested that all too often a debtor files prematurely...at a time that things are bad but will probably get worse. An individual should not file when he loses his job...he should wait until he gets a new job. A business should not file at the first signs of trouble, it should wait until there is the beginning of a turn around.

The lesson is to bottom out before seeking relief in bankruptcy.

By: Eugene B. Berman, Esq.

Does it matter if a creditor gets a lien before I file bankruptcy?

If a debtor does not pay an unsecured debt, the creditor has several options. Specifically, after calling and generally harassing the debtor, the creditor may then pursue the debtor in court. If the creditor obtains a judgment against the debtor, the creditor may then look to put a lien on the debtor’s (i) bank account; (ii) car; (iii) real estate; and/or (iv) attach the debtor’s pay stub. Although a subsequent Chapter 7 bankruptcy filing will discharge the underlying debt, the debtor may wonder if the involuntary lien can subsequently be removed. Debtors will be happy to know that that the bankruptcy code provides them relief. Specifically, the code allows the debtor to file a Motion to Strip an Involuntary Lien in order to allow the debtor to get rid of the debts, keep their assets free of liens, and get a fresh financial start.

by: Justin H. Dion, Esq.

Medical bills - one of the key reasons people file personal bankruptcy

Harvard University has reported a study finding that medical bills and related health care expenses and problems, (such as loss of employment for the ill and their family caretakers,) were a major cause of personal bankruptcy in 62% of all consumer cases filed in the calendar year 2007.

Many of these people did have health insurance, but it was not enough of a safety net to keep people from falling into a financial hole. A combination of co-pays, non-covered services and high deductibles all combined to add to these people’s problems.

While often not the sole cause of people’s financial woes, the medical situations were often the burden that pushed people over the edge. These studies are adding support to the momentum for Congress to pass some form of heath care reform package, which would hopefully address the issues of co-payments, deductibles, out-of-network charges and caps on maximum annual benefits, thereby easing the burdens on the average working family.

by: Michael B. Katz, Esq.