Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Dead Debts Haunt Home Purchase

By

Watch for old debtsEternal vigilance is the price of freedom.

It’s also the price of freedom from old debts, as my former bankruptcy client learned.

He was about to close escrow on a new home a couple of years after his discharge.

But the sale came to a screaming halt when an old, discharged debt reappeared on his credit report.

It hadn’t been there before;  it shouldn’t have reappeared.  But “shouldn’t” didn’t keep it from happening.

Meet zombie debt

As we fought to save the deal for his new home, we figured out that the debt that had reappeared long after the bankruptcy was a junior loan on a property he’d owned before bankruptcy.

The servicer on the loan had changed, and the servicer was clueless

  1. That the property had been foreclosed years ago; and
  2. That the bankruptcy had eliminated my client’s liability for the debt

But being clueless didn’t keep the servicer from reporting that this mortgage debt was enforceable and delinquent.  All of which threatened my client’s ability to get a new loan, or the price he’d pay for that loan. [Read more…]

Why Creditors Should Get Less in Chapter 13

By

Pink Piggy BankSpending every dollar they make, and then some, is often how our Chapter 13 clients got into financial trouble.

Yet Chapter 13, as practiced, validates the practice of continuing to spend 100% of each month’s income during the life of the plan. In doing so, we squander the chance to use Chapter 13 to teach new budgeting habits.

Shame on us.

It was more obvious before BAPCPA: we calculated the debtor’s projected income and living expenses, and all of what was on the bottom line was paid into the plan.

Now, we use Congress’ objective measure of what it should cost to live, and pay 100% of the arbitrary formula into the plan. There is no provision in the Chapter 13 means test for savings other than long term retirement savings required by an employer.

I’m not knocking saving for retirement. In fact, as debtor’s counsel, my most oft-repeated reason for clients reluctant to take the plunge and file bankruptcy is to provide for retirement.

American Express does not have to retire, and you do. What have you saved for that day?

But every household needs some savings for today, for tomorrow, and next month.

The Supreme Court’s Ransom decision reinforces the sense that saving is not a financial virtue.

A debtor with a paid for car is not reminded that the old car will need to be replaced, and saving toward that inevitability is a good thing. Rather, the car is paid for and we’ll indulge in the idea that the car will last another 5 years and devote that cash flow to unsecured creditors.

We have effectively mandated that, instead of putting a serious down payment on the next car, our client will again finance the next purchase at whatever interest rate is available to the newly discharged. The cycle of borrowing is perpetuated.

Debtors are required to take a class in personal financial management to get their discharge. Those classes surely do not promote consuming 100% of one’s income. Short term saving is needed to provide for the unexpected and the infrequent. Otherwise, you continue to live on the financial brink.

It is ironic, but true, that a Chapter 7 debtor can begin reforming the way she handles money almost immediately after filing bankruptcy. A Chapter 13 debtor lives for 3 to 5 years with a budget that makes no provision for an emergency fund.

I would like to think that Chapter 13 is rehabilitative, that it uses the duration of the plan to build new and better habits of money management. That isn’t what’s happening. As it is, the system’s distaste for savings while debts are unpaid perpetuates budgeting to spend every single dollar the debtor handles.

The language of our confirmation order provides that the debtor’s post petition income is submitted to the supervision and control of the Chapter 13 trustee. What kind of financial professional is the Chapter 13 trustee if that supervision and control doesn’t encourage some level of savings?

Or is the required financial management class just window dressing whose lessons don’t really apply until the creditors have gotten their pound of flesh?

This article was originally written for the Variety of Views feature at ConsiderChapter 13.org.

Image courtesy of kenteegardin

The New Rules Of Asset Protection

By

I coined a new rule about asset protection schemes after meeting with a bankruptcy prospect:

If the asset protection plan is too complicated for the owner to explain, it probably won’t stand up to challenge.

This man had paid an attorney a fistful of money to create LLC’s and limited partnerships, each of which held fractional interests in the other entities.  Some pieces of real estate were owned outright by one entity or another; others were held jointly.  One LLC was the general partner in another entity.

The client came with a chart, with arrows running back and forth.  He couldn’t explain how it worked, or why it was structured that way, other than to make it difficult to reach his wealth.

But it came down to this:  if there is no explicable business reason for this arrangement, it probably represents a scheme to hinder, delay, and defraud creditors.  One a bankruptcy trustee could penetrate.

What fraud?

One of the hardest concepts of debtor/creditor law for the public to grasp is that of fraudulent transfers.  Here’s the rule:  you cannot legally transfer property for less than its present value in order to keep the asset from creditors.

Put another way:  you can’t give your assets away to keep them from creditors.

At law, there are two kinds of fraudulent transfers:  ones with actual intent to hinder creditors, and ones that are constructively fraudulent. [Read more…]

Mix Old Debts & Good Faith Payments For Bad Results

By

mummy case wikimedia

Old debts don’t live forever.

The shell of the debt may hang around, like this mummy, but inside the shell, the debt is dead.

But just like a bad mummy movie, old, dead debt can be brought back to life.

All it takes is an attempt on your part to be honorable , or an attempt by a debt collector to con you, and you can give otherwise dead debt a new life.

Because, in many states, the statute of limitations is reset when you make a payment on a debt that is otherwise non collectible.

How old debts get new life

The debt collector on the phone has a tough job:  he has to convince you to write a check  on a debt you haven’t been paying.

Suing you takes a long time and costs money.

So it’s cheaper if he can persuade you to mail or wire him some money.

Often, the collector tries to frighten or shame you into paying.  He doesn’t care that you probably aren’t paying because the money isn’t really available under today’s circumstances.  That’s your problem.

After all, he’ll tell you, this is your debt and your responsibility.

Often as part of the conversation about settlement or payment over time, the collector asks that you make a small payment, to show your good faith.

Which of us doesn’t want to act in good faith?

It’s a great pitch.

Only, that payment may revive the debt and endow it with a brand new set of years in which the debt can be collected. [Read more…]

Can You Spot The Signs Of A Collection Scam

By

 

Burglar, Ninja

It’s pretty scary when a $300 payday loan turns into an investigation by the Federal Crimes Bureau.

Not only was the recipient of the letter  below being  “investigated for crimes”,  his Social Security number would be suspended, and a court case initiated against him immediately.

At great cost and embarrassment.

Unless, of course, he sent the writer money.

The writer assures him that it will go so much better for him if he just pays up.

Except, while the debt referenced may be real, the collector is not.

This is a scam.

How collection scam works

The scammer  here got possession of enough information about a real debt to construct a scary threat.  If my friend who got this letter didn’t send them money, “before his legal file is downloaded inside the courthouse”, all kinds of ugly things would happen.

And it managed to scare my friend, because he does have an unpaid pay day  loan.

Because the debt referenced is real, it’s easy to conclude that the rest of this parade of horribles is real as well.

The fake collector plays on guilt about not paying a real debt; on ignorance about how collection law works; and on fear of being exposed to friends and associates as a “bad person”.

Signature features of scam

Let’s look at each of the ways the scammer shaded the truth in the collection letter. [Read more…]

Money Troubles Plague My Vacation

By

I needed a vacation, badly. After a long year launching Money Health Central, practicing bankruptcy law through the Great Recession, and teaching new bankruptcy lawyers at Bankruptcy Mastery, I was drained. Three weeks away sounded like Nirvana.

I had three weeks in which I didn’t have to post a thing to the three or four sites I write for; three weeks without a phone number. Three weeks to turn my focus elsewhere.

Trouble was. I bought local newspapers as we visited England and Scotland. Consumer money issues were everywhere.

Not even the euro crisis and looming Greek default could push stories about individual money matters off the radar. What was in the newspaper ended up in my head.

The problems for the middle class seem to mirror those in the States, embellished in the UK with significant rises in prices for everything, especially energy.

Here’s a roundup of money matters from three weeks abroad.

  • The cost of university is rising so fast that British students are rushing to take exams to allow them into American universities which are cheaper than in the UK.
  • Increasing numbers of graduates have student loan debt and no job.
  • Payday lending is thriving, while a few Members of Parliament campaign against legal loan sharking.
  • Banks have been exposed added unwanted credit insurance to loans and made to establish a fund to make customers whole.
  • Over and over again stories of miserable customer service provided by banks are reported.
  • Card issuers cut available credit by 95% for someone who paid off the balance each month.
  • Debt settlement schemes thrive there too.

Sounds just like the things I fret about professionally here in California. It’s eery how similar the world is these days.

Image courtesy of Benson Kua.

Credit card “overspending” parallels housing crisis

By

Forbes has compiled a list of cities where credit card spending is highest.

My scan of the list suggests that this list is simply another version of the areas of the country where housing is in trouble.  Homeowners with outsized mortgage payments rely on credit cards to make up the difference needed to support the family.

Which leads me to those TV ads for attorneys or other services offering help with mortgage modification.  Assuming the advertiser is successful in negotiating a mortgage modification, the homeowner is still  left with the debt  that piled up while they struggled with the original loan terms.

Even without the ability to modify mortgages on principal residences, Chapter 13 is a superior tool for addressing the homeowner’s entire financial situation.

And the fees for the professional involved are subject to court supervision, something missing from those drumming up business on TV.

Taking my own advice Part Two

By

The return receipt on my “do not contact” letter to ATT arrived at my office showing receipt on July 6th.

Between July 7 and July 10, we got seven calls at home about the disputed account; on July 12th, we got a call from NCO who announce that the account has been turned over to them for collection.

As of yet, I have no contact information for NCO. When I get it, I will repeat my “do not contact” letter, invoking my rights to be free of collection calls under FDCPA and California’s Rosenthal Act.

They’ll get an invitation to call my lawyers, Moran Law Group, to discuss resolution of the dispute.

Check back for updates. The beginning of the tale.

Read the conclusion.

The Price of Keeping the Car

By

Car manufacturers lobbied Congress to make it harder for debtors to keep their cars through bankruptcy.  And they got what they sought.

In Chapter 7, that was accomplished by eliminating the “ipso facto” clause, which said that merely filing bankruptcy was not a breach of the purchase contract. The expectation was that debtors would reaffirm their car loans, giving the car lender the right to sue for a deficiency judgment against the debtor should the debtor later default, rather than risk losing the car.

Reaffirmations would diminish the debtor’s discharge and lock the debtor into paying for a car that might well be worth substantially less than the loan balance.

Debtor’s attorneys were expected to certify that repaying a car loan would not create a hardship for the debtor; if the attorney wouldn’t/couldn’t so certify, the reaffirmation agreement needed to be approved by the bankruptcy judge after a hearing. Most bankruptcy judges were less than enthusiastic about this new role.

Debtor’s lawyers have wondered about the continued existence of “pay and drive”, the practice of car lenders allowing the debtor to keep the car for so long as the payments were current and the car insured. Putting debtors to the test of reaffirming a badly upside down car or returning it to the lender might not be such a great idea for the auto industry if debtors shucked their greatly depreciated vehicles.

At last weekend’s banrkuptcy seminar, judges and lawyers reported that in practice, only Ford Motor company is routinely repoing vehicles where the post bankruptcy debtor has not reafffirmed the debt but remains current on payments and has insurance. All the rest of the lender community has apparently figured out that they do not want to “eat steel” and take possession of a flood of cars worth less than what is owed from debtors willing to continue paying for them.

Perhaps, a bit of common sense has inserted itself in the world of BAPCPA.

 

643 Bair Island Road
Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

Categories