I seem to write some of these posts out of frustration. Recently I had a client who needed to file bankruptcy due to a pending garnishment, but was behind on their home loan with Wells Fargo bank. The client could borrow money from his 401(k) plan to catch up, but the plan administrator would not release funds without proof that the foreclosure really was imminent.
We filed the case to stop the garnishment, and I wrote the law firm which regularly represents Wells Fargo and asked if they would provide a "hostile-gram" for the purpose of showing it to the 401(k) plan administrator to enable the client to borrow money to catch up.
Well, the law firm did that just fine, but about ten days later also filed a motion to lift stay, for which they demanded payment of $800.00 for their attorneys fees and costs.
The motion is pretty much pointless -- the client would have been discharged in 90 days, so the motion for relief from stay "released" Wells Fargo from the bankruptcy by a whole 30 days or so.
Because the client wants to keep their home, and has always wanted to keep his home, he may well be stuck with what amounts to an $800 late fee.
I'm not sure what the moral of the story may be (obviously, one is to not bank with Wells Fargo, but it was too late to change mortgage companies when the client came to see me) -- so maybe this is just a cautionary tale to try your very best to be current with y our mortgage company if you file a chapter 7 and wish to keep your home.
Tuesday, January 11, 2011
Saturday, January 1, 2011
Chapter 7 or Chapter 13
There are six types of bankruptcy, chapter 7, chapter 9, chapter 11, chapter 12, chapter 13, and chapter 15. Chapter 9 is for cities; chapter 11 is a business reorganization; chapter 12 is for farmers, and chapter 15 is for foreign businesses. So, for most people, the choice is between chapter 7 and chapter 13.
A chapter 7 case allows an individual to wipe out most ordinary debts while keeping "exempt" assets. There are two sets of exemption laws, which are the state exemptions and the federal exemptions. Minnesota atate exemptions allow you to keep $330,000 of equity in your home, $4,400 of equity in your car, and about $9,000 worth of household goods. Federal exemptions let you keep $10,100 of equity in your home, $3,450.00 of equity in your car, about $9,000 of equity in household goods, and provide a wild card exemption of $11,875.00. In 2005 Congress enacted a "means test", which was intended to force more people into chapter 13 bankruptcies.
Generally speaking, in a chapter 7 you are "in and out" in about 90 days from the day we file the case with the trustee.
If you are behind on your house or car payments, although chapter 7 will temporarily stop a foreclosure or repossession, you will have to catch up on your house payments or car payments on your own.
A chapter 13 is put together much like a chapter 7, but instead of being "in and out" in 90 days, you make payments to a trustee for a period of three to five years.
A chapter 13 can be used to catch up on a home mortgage. Typically you have to pay those payments that come due after the case is filed with the court, but the payments which were behind when you filed can be stretched out over a three to five year period. For example, if your house payments are $1,000 a month and you are behind $9,000.00 when the case is filed on February 10th, you would pay the $1,000 regular payment directly to the mortgage company starting March 1st, and you would pay the chapter 13 trustee $200 a month starting March 15th. The trustee would take the $200.00 and deduct a commission and send it to the mortgage company to apply to the missed payments.
(The above is a very simplified version, by the way!).
A chapter 7 case allows an individual to wipe out most ordinary debts while keeping "exempt" assets. There are two sets of exemption laws, which are the state exemptions and the federal exemptions. Minnesota atate exemptions allow you to keep $330,000 of equity in your home, $4,400 of equity in your car, and about $9,000 worth of household goods. Federal exemptions let you keep $10,100 of equity in your home, $3,450.00 of equity in your car, about $9,000 of equity in household goods, and provide a wild card exemption of $11,875.00. In 2005 Congress enacted a "means test", which was intended to force more people into chapter 13 bankruptcies.
Generally speaking, in a chapter 7 you are "in and out" in about 90 days from the day we file the case with the trustee.
If you are behind on your house or car payments, although chapter 7 will temporarily stop a foreclosure or repossession, you will have to catch up on your house payments or car payments on your own.
A chapter 13 is put together much like a chapter 7, but instead of being "in and out" in 90 days, you make payments to a trustee for a period of three to five years.
A chapter 13 can be used to catch up on a home mortgage. Typically you have to pay those payments that come due after the case is filed with the court, but the payments which were behind when you filed can be stretched out over a three to five year period. For example, if your house payments are $1,000 a month and you are behind $9,000.00 when the case is filed on February 10th, you would pay the $1,000 regular payment directly to the mortgage company starting March 1st, and you would pay the chapter 13 trustee $200 a month starting March 15th. The trustee would take the $200.00 and deduct a commission and send it to the mortgage company to apply to the missed payments.
(The above is a very simplified version, by the way!).
Tuesday, December 14, 2010
A link to NACBA
Several years ago I joined NACBA (which stands for: National Association of Consumer Bankruptcy Attorneys). As the name says, it is a national organization of and for attorneys who represent consumers in bankruptcy. One of the services it provides is a very active (sometimes, too active!) listserv on which lawyers can discuss current issues. There are annual meetings, workshops, etc.
Why do I mentionNACBA here? Because their website also provides some basic information for consumers. Here is a link: http://www.nacba.org/consumer/
Hope over to their site and check it out.
Why do I mentionNACBA here? Because their website also provides some basic information for consumers. Here is a link: http://www.nacba.org/consumer/
Hope over to their site and check it out.
Tuesday, November 30, 2010
Keep track of your payments!
I recently had a frustrating chapter 13 case in which the mortgage company claimed that my client had not made some of the after-filing home mortgage payments.
Because the mortgage company claimed that my client was behind on payments, the mortgage company hired local attorneys to bring a "motion for relief from stay". This is a request to the court to permit the mortgage company to start a mortgage foreclosure, because the mortgage company claimed it is "not adequately protected".
The problem was that the client could not prove that they had made all of the payments when due.
Although I think we will eventually work things out and keep the mortgage company at bay, it is an important reminder to be able to document that you made the payments when due.
Keeping a folder with copies of your money orders, or print-outs of the cancelled checks, would make your life a lot simpler if the bank claims you have not made a payment.
Because the mortgage company claimed that my client was behind on payments, the mortgage company hired local attorneys to bring a "motion for relief from stay". This is a request to the court to permit the mortgage company to start a mortgage foreclosure, because the mortgage company claimed it is "not adequately protected".
The problem was that the client could not prove that they had made all of the payments when due.
Although I think we will eventually work things out and keep the mortgage company at bay, it is an important reminder to be able to document that you made the payments when due.
Keeping a folder with copies of your money orders, or print-outs of the cancelled checks, would make your life a lot simpler if the bank claims you have not made a payment.
Sunday, November 21, 2010
Don't leave things off your paperwork!
When you file bankruptcy, you must sign the papers "under penalty of perjury". By doing so, you swear that everything in them is true, including that your forms are a complete listing of all of your property, income, and debts. Filing incomplete or inaccurate bankruptcy forms could lead to your case being dismissed, or, as in a recent case here in Minnesota, the court refusing to let you claim your omitted assets as exempt when they come to light. In a worst case scenario the court could deny your discharge if if the court thinks you omitted information or made false statements intentionally.
If you accidentally leave something off your papers or misstate something, we can usually correct your papers . But if you leave out so many things that it appears that you were careless, the court could find that your actions demonstrate an "indifference to the truth" and can dismiss your case on that basis.
You must list everyone who claims that you owe them money -- even those creditors you believe you don't think you any money to. This would include pending lawsuits. In those cases the debt can be be listed as "contingent" or "disputed". When your bankruptcy is concluded, you will get a discharge and you will no longer owe any debts that have been discharged. If a debt listed as "disputed" debt is discharged, the (former) dispute will be irrelevant. The creditor will be legally barred from collecting from you regardless of who was right.
Also, do not leave out a "friendly creditor", such as a local business or a relative. You are always free to pay people back (after you file bankruptcy). However, leaving them out of the filing will mean, first, that your bankruptcy papers are not accurate and second, may give the omitted creditor an opportunity to come after you after the bankruptcy.
If you deliberately hide property, omit important information about your financial affairs, in a worst-case scenario you could be prosecuted criminally for bankruptcy fraud.
Sunday, November 14, 2010
Debt settlement programs
I recently had a new client tell me that they had been happy with their debt settlement program -- at least until Discover Bank had recently sued them and served a garnishment exemption notice. In fairness, they had about ten credit cards, and all but two of them were working with the debt settlement company.
This is not what I usually hear -- usually the client has sent six payments of $349.00 to the debt settlement company in Texas or California or wherever they are located -- and the client's home phone is now ringing off the wall with demands for payment and they are being sued by one or more of the credit card companies that the debt settlement program was supposed to settle. When the client tries to get out of the program, since it not working for them, they find that almost every dollar they sent to the debt settlement program was consumed by fees and they do not get a refund.
I suppose some debt settlement programs must work, or the companies could not stay in business. But there are many horrible failures -- such as Allegro Law, which itself filed bankruptcy.
My suggestion is that if you want to try to settle your debts without a bankruptcy, start with a legitimate consumer credit counseling agency, such as The Village or Lutheran Social Services. Don't send your money to someone in Texas. Use the fees you would otherwise have paid to the debt settlement company to actually settle your debts!
This is not what I usually hear -- usually the client has sent six payments of $349.00 to the debt settlement company in Texas or California or wherever they are located -- and the client's home phone is now ringing off the wall with demands for payment and they are being sued by one or more of the credit card companies that the debt settlement program was supposed to settle. When the client tries to get out of the program, since it not working for them, they find that almost every dollar they sent to the debt settlement program was consumed by fees and they do not get a refund.
I suppose some debt settlement programs must work, or the companies could not stay in business. But there are many horrible failures -- such as Allegro Law, which itself filed bankruptcy.
My suggestion is that if you want to try to settle your debts without a bankruptcy, start with a legitimate consumer credit counseling agency, such as The Village or Lutheran Social Services. Don't send your money to someone in Texas. Use the fees you would otherwise have paid to the debt settlement company to actually settle your debts!
Friday, November 5, 2010
Basic chapter 7 information
Chapter 7 is one of the types of bankruptcy (others are Chapter 11, Chapter 12, and Chapter 13). It is what people usually mean when they say "bankruptcy".
A chapter 7 case begins with the filing of a "petition" with the bankruptcy court. A husband and wife may file a joint petition or they may file individual petitions. If only one spouse owes money, the other does not have to file bankruptcy.
The petition is actually a three page document that invokes the protection of the court. Additional papers that must be filed are the schedules (a listing of assets, debts, income and expense) and the statement of affairs (a brief financial biography), a statement of intention, and a calculation of "current monthly income".
To prepare the bankruptcy papers to file with the court, we need copies of all bills or a list of all creditors and the amounts and nature of their claims; the amount and source of the your income; a list of all of the property you own, and a detailed list of your monthly living expenses, such as mortgage or rent payments, utilities, food, clothing, medical expenses, transportation, insurance payments, car payments, etc.
A "meeting of creditors" is held about 30 days after the paperwork is filed. Depending on which county you live in, the meeting will be in St. Cloud, Fergus Falls, Mankato, Duluth, Minneapolis, or St. Paul. The debtor (or debtors) must attend the meeting. Creditors are permitted to attend, but very seldom do so.
The trustee will swear you in and ask questions regarding the your financial situation and the contents of the paperwork you filed with the court. Sixty days after the meeting with the trustee, you receive a "discharge". This discharge releases you from most debt. Exceptions include child support, alimony, many taxes, debts incurred by fraud, personal injury stemming from a DUI, and student loans. Discharged creditors' claims are wiped out, and they cannot collect them after your discharge.
A chapter 7 case begins with the filing of a "petition" with the bankruptcy court. A husband and wife may file a joint petition or they may file individual petitions. If only one spouse owes money, the other does not have to file bankruptcy.
The petition is actually a three page document that invokes the protection of the court. Additional papers that must be filed are the schedules (a listing of assets, debts, income and expense) and the statement of affairs (a brief financial biography), a statement of intention, and a calculation of "current monthly income".
To prepare the bankruptcy papers to file with the court, we need copies of all bills or a list of all creditors and the amounts and nature of their claims; the amount and source of the your income; a list of all of the property you own, and a detailed list of your monthly living expenses, such as mortgage or rent payments, utilities, food, clothing, medical expenses, transportation, insurance payments, car payments, etc.
A "meeting of creditors" is held about 30 days after the paperwork is filed. Depending on which county you live in, the meeting will be in St. Cloud, Fergus Falls, Mankato, Duluth, Minneapolis, or St. Paul. The debtor (or debtors) must attend the meeting. Creditors are permitted to attend, but very seldom do so.
The trustee will swear you in and ask questions regarding the your financial situation and the contents of the paperwork you filed with the court. Sixty days after the meeting with the trustee, you receive a "discharge". This discharge releases you from most debt. Exceptions include child support, alimony, many taxes, debts incurred by fraud, personal injury stemming from a DUI, and student loans. Discharged creditors' claims are wiped out, and they cannot collect them after your discharge.
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