Posted by Kevin on May 12, 2012 under Bankruptcy Blog | 
According to a report issued by the Administrative Office of the US Courts, bankruptcy filings were down 11.5 percent in 2011. Yippee, the economy must be getting better! Not so fast.
As I have stated more than once on this blog, one of the purposes of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, also known as BAPCPA, was to get more debtors to file under Chapter 13 so that creditors could get some payments as opposed to a no asset Chapter 7 where there are no payments to creditors.
The stark reality is that under BAPCPA attorneys have to do significantly more work in a consumer Chapter 7 or in a Chapter 13. Moreover, the attorney has to have a more complete understanding of the the statute and case law, because the reality is that there are fewer and fewer “easy cases”. More attorney time means higher legal fees. More complexity means higher legal fees. In fact, under the old law, the average legal fee for Chapter 7 in NJ was about $800-1200. Now, it is $1500-2200. A run of the mill Chapter 13 ran $1500-1800. Now, the basic fee is $3500 usually with court approved add on fees of a few hundred.
Moreover, irrespective of whether the debtor files under Chapter 7 or 13, BAPCPA requires more papers to produced by the debtor (which takes time), useless counseling sessions which run about $100-150, credit reports and judgment searches so that the debtor’s attorney can prove to the trustee that he/she engaged in due diligence ($100), comparative market analysis and the like.
So my take is that the main reason that filings are down is because BAPCPA has made the process unnecessarily complex and expensive. But that was just my take. Recently, however, Professor Lois Lupica of the University of Maine School of Law conducted a study of some 11,000 consumer cases under BAPCPA and confirmed what most bankruptcy lawyers in NJ know- the process under BAPCPA is expensive. Prof Lupica found out of pocket costs in no asset Chapter 7′s are up over 50%, and what she termed Total Direct Access Costs (attorney fees, filing fees, credit counseling fees and the like) are up 37% in Chapter 7 and 24% in Chapter 13′s. Finally, Lupica found that lawyers are put under increased stress because of the complexity of the law, and the perceived need to keep expenses down for the debtor.
So, is the economy getting better or has Congress made bankruptcy an alternative that is too expensive for many otherwise qualified debtors?
Posted by Kevin on April 1, 2012 under Bankruptcy Blog |
Say on St. Patty’s day, you go to the parade in Hoboken (not this year); hoist a few; drive home and get into an accident. Thank heavens, you did not kill anybody, but a couple of people were hurt and sue you. Moreover, the Bergen County police (or Passaic County, take your pick) nail you for DWI. The injured get judgments against you. You file bankruptcy.
You are not going to get a discharge from the debts associated with the injuries. Section 523(a)(9) excepts from discharge a debt associated with death or personal injury caused by the debtor’s operation of a motor vehicle, boat or aircraft if debtor were legally intoxicated on alcohol or drugs. Moreover, the creditor does not have to file a complaint in the bankruptcy to have the debt declared non-dischargeable. In a recent Kentucky case, the insurance carrier of a person injured in a car accident with the debtor who was DWI notified state authorities of a judgment after a discharge was granted. The insurance company never filed a dischargeability complaint in the bankruptcy. The debtor’s driver’s license was suspended. He incurred costs in getting his license reinstated including attorneys fees and sued the insurance company for violation of the discharge injunction. Held: FOR THE INSURANCE CARRIER. Under subsection (a) (9), the creditor does not need to file in bankruptcy court. In this case, the discharge order indicated that debts from personal injuries incurred while debtor is DWI are not discharged. In additon, the court held that the insurance carrier steps into the shoes of the injured party since it paid the injured party. The solution: DON’T DRINK AND DRIVE.
Posted by Kevin on March 14, 2012 under Bankruptcy Blog |
Bankruptcy gives the honest debtor a fresh start. We hear that often. Bankruptcy courts are courts of equity. Hear that too. We also hear words like “good faith”, “fairness”, and “substance over form”. These are not just empty platitudes but heart felt beliefs held by the court, trustees and a vast majority of practitioners.
The Code allows debtors to discharge most of their debts. That means that they go away. Chapter 13, which requires monthly payments over a period of 36 to 60 months, provides not only a discharge if all payments are made under a plan that was approved by the court, but also allows the debtor to adjust the obligations to certain secured creditors. A secured creditor is a creditor that has collateral. Like GMAC lends you money to buy a car and takes the car as collateral.
Now, in Chapter 13, you can adjust the interest rate on your car loan. So, if your loan is for 14%, you may, subject to court approval, reduce it to, say, 4%. The creditor can object to that treatment. Then, the court decides what is fair, what is good faith.
In a recent case in South Florida, a Chapter 13 debtor went too far. He bought a 2007 Suzuki and financed it at 19.95% interest. Less than 90 days later, he filed Chapter 13. In his plan, the debtor proposed to pay 5.25% interest. The debtor testified at the confirmation hearing and was cross-examined by the finance company’s lawyer. Debtor admitted that he conferred with and retained bankruptcy counsel just before he bought the car. Of course, he did not tell the car dealer that he was going to file. The court found that the debtor “pulled a fast one”, and bought the car knowing that he would knock down the interest rate in his plan. The court stated that good faith focuses on whether the filing is fundamentally fair to the creditors. Debtor was not fair. The Court found that the debtor must pay the contract rate of 19.95%. if he wanted the plan confirmed.
So play it straight.
Posted by Kevin on February 22, 2012 under Bankruptcy Blog |
I have spoken with a number of people who are in a tough economic situation because of the ongoing recession. The economy soured in 2008. They were laid off in 2009, and have been on unemployment since then. In the meanwhile, they have accumulated debt and fear legal action. Or have had judgments entered against them. Normally, the simple answer is that such a person would be a candidate for bankruptcy. But, there is an added wrinkle. The person filed Chapter 7 before and received a discharge. Can that person file bankruptcy again?
The law is that a person can file a Chapter 7 and receive a discharge but only if the second filing is 8 years after the first filing. How do you measure the 8 years? Say you filed Chapter 7 on August 1, 2004 and were discharged on January 15, 2005. When can you file Chapter 7 again and get a discharge? The answer is August 2, 2012. We measure the 8 years from filing date to filing date.
What if you accumulated new debt shortly after your first discharge or you fell behind on your mortgage.? Creditors are not going to wait 8 years. Well, you can file a Chapter 13 and obtain a discharge of debts if the Chapter 13 filing is 4 years after the Chapter 7 filing. Once again, the 4 years is measured from filing date to filing date.
These are the basic rules. In future blogs, we will explore situations where it may be advantageous to file a Chapter 13 within 4 years of filing a Chapter 7.
Posted by Kevin on February 13, 2012 under Bankruptcy Blog |
The New Bankruptcy Law (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) was adopted by Congress after a decade of lobbying by banks and the credit card industry. These groups argued that the Bankruptcy Code of 1978 allowed debtors who could afford to pay some of their debt off the hook by making Chapter 7 too available. They wanted more debtors to be required to file under Chapter 13 where they would have to make monthly payments for 36-60 months.
My position, which has been set forth in this blog and in an ezine article, is that the law is a failure, that Chapter 13 filings are down, and that the cost of bankruptcy has practically doubled. All you have to do is look at the yearly statistics compiled by the bankruptcy clerk in NJ. You will see that initially Chapter 13 filings were up, but now, the ratio of Chapter 13 to Chapter 7 filings is about the same as when BAPCPA was enacted. Costs are up because BAPCPA makes the lawyers do significantly more work, requires the debtor to take two dubious courses, and requires the debtor to pay for additional searches and credit reports to demonstrate due diligence.
Well, a recent study bears out my conclusions. A study conducted on over 11,000 bankruptcy cases from 90 judicial districts on cases filed from 2003 to 2009 indicated that costs had increased and distributions in Chapter 13 cases had gone down. Now, 11,000 cases is just a drop in the bucket since about 1,000,000 cases are being filed annually. But, it is a decent sample and goes beyond what is referred to as “anecdotal reporting”. The other thing the study found was that even though fees had increased, the lawyers doing Chapter 7′s and 13′s are being squeezed on fees by the courts and, at the same time, required to do more work. This is leading to more mistakes and more stress to both attorneys and their clients.
What does this all mean to a Bergen County resident who is considering filing bankruptcy. Well, on a philosophical level, it demonstrates that new may not mean better. Second, it should be an indication to the consumer that the process is not going to be particularly quick or cheap. Third, if you are content with getting it done on the cheap, beware, sometimes you do get what you pay for.
Posted by Kevin on January 29, 2012 under Bankruptcy Blog |
One on the advantages of Chapter 13 is that you can extend payments on long term debt. Section 1322 (b)(2) allows a debtor to modify the rights of holders of secured claims (collateralized claims) other than claims secured only by a security interest in the debtor’s principal residence. Section 1322 (b) (5) allows the debtor to cure defaults and make periodic payments during plan on debts where the last payment on the debt is due after the last payment under a plan.
Read more of this article »
Posted by Kevin on January 16, 2012 under Bankruptcy Blog |
Now, that my seem like a harsh title. You may have spent an extended period on unemployment because of the prolonged economic downturn. While you were on unemployment, you used up all your savings and went into debt. You sent out hundreds of resumes and spent hours on the net looking for a job- even if it was for less than your prior jobs. Things are now looking up. You are back to work. But, now is the time to be wary.
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Posted by Kevin on January 15, 2012 under Bankruptcy Blog |
If you file a bankruptcy under Chapter 7 and the case has assets to distribute (not a no asset case) or you file a Chapter 13 case, creditors are required to file a proof of claim to participate in the bankruptcy.
The burden is on the creditor to file before the bar date and provide sufficient backup to justify the claim. In today’s marketplace, however, many claims are sold to hedge funds or other companies for pennies on the dollar. In many cases, these claim purchasers do not have any backup to support their allegation that they have a claim. If challenged, the claim can be expunged and the creditor is SOL.
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Posted by Kevin on January 9, 2012 under Bankruptcy Blog |
It appears that the economy is getting better. On a national level, bankruptcy filings went from 132,173 in October, 2010 to 106,255 in October 2011. This is a reduction of 19.6%. In New Jersey, bankruptcy filings went from 3,511 to 2,995 over the same period of time. That is a reduction of 14.7%. Not as good as the national numbers, but still pretty good.
Now, does that mean the economy is getting better, or does it mean that people are so bad off that they don’t have enough money to file bankruptcy?
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Posted by Kevin on January 2, 2012 under Bankruptcy Blog |
Credit card debt is almost always discharged in bankruptcy. That means that you do not have to pay the debt. If a creditor tries to collect a credit card debt while the bankruptcy is pending, that is called a violation of the automatic stay. If it happens after the bankruptcy discharge and close of the case, it is a violation of the bankruptcy injunction against collecting discharged debts.
But there is another way to get a debt “discharged”. That occurs when a credit card company does not sue you before the statute of limitations runs. This is sometimes referred to as “expired debt”. In NJ the statute of limitations is usually 6 years. In the past, if a credit card company did not sue before the statute of limitations ran, they were SOL.
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