Clients often ask if they should stop paying their credit card bills before we file their bankruptcy case.
There are at least two issues. The case to continue payments is that there is an argument that the more "lates" you have on your credit report, the lower your credit score will be.
The counter argument is that if you need to file bankrupcy, you need to be saving your money to, for instance, catch up your home mortgage payments. Money paid to the credit card company is gone.
There is another "legal" issue, which is as follows: Bankruptcy trustees are on the lookout for payments to unsecured creditors which exceed $600 per creditor in the 90 days before the case was filed (one year for 'insiders'-- basically, people who are relatives or close friends.) The reason is that such a payment may be a "preference". I usually say that there is nothing immoral, illegal or fattening about a preference, but the point from the trustee's standpoint is that he or she can recover the preferential payments and earn a commission for doing so.
So, you don't get the money back and the company you paid doesn't get to keep the money.
Sort of a lose-lose proposition.
So, I think as a general matter, once you have decided that you have to file bankruptcy, stop paying the credit cards.
As usual, there are exceptions to every rule; be sure to ask about your specific question.
Monday, March 7, 2011
Sunday, February 20, 2011
Your trustee meeting
About a month after your case is filed, you must meet with the trustee. This meeting is usualy called "the first meeting of creditors" or "the 341 meeting". It is called the "first meeting of creditors" because, in the old days, creditors apparently would come to the meeting. It is very unusual for a creditor to attend nowadays (unless it is someone who is personally mad at you, like an ex-spouse!) It is sometimes called the "341 meeting" because that is the section of the bankrupcy code that requires you to come to the meeting.
Most of my trustee meetings are in St. Cloud. We meet at the Red Cross building, across the street from the new public library. Depending on the trustee, there are between three and five creditors schedules per-half half, so the trustee is only allocating between six and ten minutes per case. The room is set up with tables at one end, where the trustee sits, and movable chairs at the other end, where we sit and wait for your name to be called.
When your name is called, we get up, go to the tables, and sit down across from the trustee. You must show the trustee the following: a) your driver's license, b) your Social Security card; c) the bank statement(s) that show your bank balance on the date you filed; and d) your most recent paystub (if you are employed).
The trustee will ask you around twenty questions. The questions are, generally, as follows:
1) what is your name; 2) what is your address; 3) what is your phone number; 4) have you read the "bankruptcy information sheet"; 5) did you sign the bankruptcy papers? 6) did you read the papers before signing them; 7) is all of the information true and correct; 8) are there any mistakes to bring to the trustee's attention; 9)) within the 90 days before you filed bankruptcy, did you pay an unsecured creditor amounts that would add up to $600 or more; 10) within the year before you filed, did you pay a relative or friend $600 or more; 11) within the 90 days before you filed did someone take something from you, as by a garnishment or repossession; 12) within the six years before you filed, did you transfer something to a relative or friend that would have been worth $1,000 or more; 13) if you own a home, do you live there? 14) if you own a home, what is it worth, and how much do you owe against it; 15) how did you determine the value of your home; 16) do you intend to stay in the home; 17) have you ever been in business for yourself; 18) if you have, when did you start and when did you stop; 19) if you have been in business, are there any assets remaining from that business?; 20) do you own anything not listed in your bankruptcy papers; 21) do you expect to inherit within the next year; 22) if you do inherit, do you understand that you have to notify the trustee of that fact.
Once the trustee has finished, he or she will usually say "Thank you" and (hopefully) "That concludes this meeting. You are then free to leave.
Most of my trustee meetings are in St. Cloud. We meet at the Red Cross building, across the street from the new public library. Depending on the trustee, there are between three and five creditors schedules per-half half, so the trustee is only allocating between six and ten minutes per case. The room is set up with tables at one end, where the trustee sits, and movable chairs at the other end, where we sit and wait for your name to be called.
When your name is called, we get up, go to the tables, and sit down across from the trustee. You must show the trustee the following: a) your driver's license, b) your Social Security card; c) the bank statement(s) that show your bank balance on the date you filed; and d) your most recent paystub (if you are employed).
The trustee will ask you around twenty questions. The questions are, generally, as follows:
1) what is your name; 2) what is your address; 3) what is your phone number; 4) have you read the "bankruptcy information sheet"; 5) did you sign the bankruptcy papers? 6) did you read the papers before signing them; 7) is all of the information true and correct; 8) are there any mistakes to bring to the trustee's attention; 9)) within the 90 days before you filed bankruptcy, did you pay an unsecured creditor amounts that would add up to $600 or more; 10) within the year before you filed, did you pay a relative or friend $600 or more; 11) within the 90 days before you filed did someone take something from you, as by a garnishment or repossession; 12) within the six years before you filed, did you transfer something to a relative or friend that would have been worth $1,000 or more; 13) if you own a home, do you live there? 14) if you own a home, what is it worth, and how much do you owe against it; 15) how did you determine the value of your home; 16) do you intend to stay in the home; 17) have you ever been in business for yourself; 18) if you have, when did you start and when did you stop; 19) if you have been in business, are there any assets remaining from that business?; 20) do you own anything not listed in your bankruptcy papers; 21) do you expect to inherit within the next year; 22) if you do inherit, do you understand that you have to notify the trustee of that fact.
Once the trustee has finished, he or she will usually say "Thank you" and (hopefully) "That concludes this meeting. You are then free to leave.
Tuesday, January 11, 2011
Bad, bad mortgage company
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.
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.
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.
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