On Tuesday, Gary Busey filed Chapter 7 bankruptcy.  That’s not all that shocking–plenty of celebrities have sought bankruptcy protection.  Entertainers like Gary Coleman, Burt Reynolds and Jerry Lee Lewis, businessmen like P.T. Barnum and Donald Trump, socialites like Patricia Kluge, professional athletes like Lenny Dykstra and Lawrence Taylor.  Even Abraham Lincoln and Walt Disney filed bankruptcy.  Their reasons for filing bankruptcy, like those of ordinary non-celebrity folks, run the gamut:  bad investments, bad economies, getting swindled, or getting sick.  It can happen to anyone, if the wrong thing happens at the wrong time.

What was a little shocking to me about Gary Busey’s filing was that his bankruptcy petition reports less than $50,000 in assets.  Busey’s manager issued a statement calling the filing the final chapter in a process of “jettisoning the litter of past unfortunate choices, associations, events and circumstances….”  I’m guessing it was a long process, if all that’s left of a fairly lucrative career is $50k, but that’s fairly typical, too.  Most people wait until they have jettisoned their assets and savings, along with their unfortunate choices, before filing bankruptcy.  It kind of goes with the territory.  By the way, read the whole statement by Busey’s manager.  It’s priceless, and I wish I could hire this guy to write a statement explaining the circumstances of all my clients’ bankruptcies.  With this guy on your side, you couldn’t help but believe you were on your way to better things.

And that brings me to the real point of writing about another celebrity bankruptcy.  Celebrities, and regular people, use bankruptcy to get their lives and businesses back on track.  To make a fresh start.  To move on to more stable and productive lives.  That’s the lesson, folks.  If you’ve been slammed by a bad economy or an illness, or victimized by a swindler, or if you just need to jettison the litter of unfortunate choices and associations, and start over fresh, bankruptcy may help you, too.

Happy Groundhog Day!

Lately the same refrain keeps cropping up in my practice:  why did you wait so long?  I understand that very few people want to file bankruptcy, and I agree that the decision to file bankruptcy is an important one.  And while it is common to hear that bankruptcy should be a last resort, it is also true that you can wait too long.  So, in honor of Groundhog Day, while we wait to find out when spring will arrive, here are some problems that might crop up if you wait too long to file bankruptcy.

You exhaust your reserves.  This is probably the most common consequence of just hanging on too long, trying to avoid bankruptcy.  You are trying to keep up with mortgage payments or credit card payments after a job loss, illness, divorce, or the like, and you exhaust your savings, tap into your 401k or IRAs, incur taxes and penalties as a result, which makes the whole financial situation still worse.  You use up the resources that would make it easier to make a fresh start, and make it harder to recover financially.  It is easy, and probably natural, to just try to hang on and keep doing what you have always done.  It’s smarter to take an honest look at your situation and ask yourself whether you are going to be able to deal with your debt without some help.

You may lose control of assets that might otherwise be used to help you make a fresh start.  That is often the case when creditors sue you and obtain judgments against you.  A judgment becomes a lien against real property, which can be especially significant if you have investment property, or have inherited property, or, God forbid, you are holding title to family property to “keep it safe.”  The effect of a judgment on property depends on several factors, including where the property is located, whether you are entitled to claim it as exempt, and even what state you are in, but you shouldn’t wait until its a done deal to figure out what the effect will be.  At that point it may be too late.

Other issues can be decided in a law suit that will affect your ability to make a fresh start.  The amount of a debt may be determined to be higher than you anticipate, for example, by the addition of attorney fees and expenses.  Or, the court may enter a finding a fraud against you that will allow a debt to survive bankruptcy.  Other findings may also impact your fresh start as well, and if you are already in financial distress, you may find that it is prohibitively expensive to fight a lawsuit, or worse, several lawsuits.

Don’t wait until the bitter end to consider bankruptcy, and seek out competent legal advice about your bankruptcy options.   You might think that if you go see a bankruptcy lawyer that lawyer is automatically going to recommend bankruptcy, but that is not the case.  Most reputable bankruptcy lawyers are also knowledgeable about alternatives, and will advise you about those options, as well as tell you what may happen if you do nothing.  I regularly advise clients against filing bankruptcy (and sometimes that advice is because there is nothing left to protect).  You have nothing to lose, and quite a bit to gain by talking to someone as soon as you recognize that there is a problem, rather than waiting until you have no options.

The headline caught my eye: “Is Bankruptcy ‘Business as Usual’ for Airlines.’ ”  On NPR, no less.  Reporting on the Chapter 11 filed by American Airlines, the article goes on to note:

You might say it’s almost business as usual for the airline industry. United, Northwest and Delta have all taxied down the Chapter 11 tarmac. US Airways did it twice in as many years.

Airlines use Chapter 11 as a normal business tool, like raising prices (baggage fees, anyone?) and layoffs. So do auto manufacturers, restaurant chains, department store chains, grocery store chains.  Even municipalities and churches are using bankruptcy to restructure their debt, in an attempt to stay afloat and continue to operate.  As noted in the NPR piece, there used to be a much greater stigma attached to Chapter 11 filings; now it seems to cause barely a ripple.

Yet while bankruptcy has become business as usual for businesses and even governments, personal bankruptcies are still highly stigmatized.  In more than twenty years of bankruptcy practice, I don’t think I’ve met more than a hand-full of people who aren’t troubled, or even traumatized, by the prospect of facing bankruptcy, even if their bankruptcies are the result, direct or indirect, of the actions of their banks, or employers, or health care providers.  Individual debtors facing bankruptcy often feel further traumatized by a system which treats them as inept at best, or foolish or criminal at worst.

Yet such attitudes are actually foreign to the foundations of bankruptcy laws in this country.  First and foremost is the recognition that allowing people, as well as businesses, to restructure their debt is productive for all of us.  Having learned something from the debtors’ prisons and colonies of Europe, as well as the “broken bench” of the guild system, both of which left a debtor’s family dependent on the alms of the church or wards of the state, our founders realized that a system which allows an honest debtor to periodically discharge overwhelming debt, and retain the tools to support his family and rebuild his financial future is a better outcome for us all.  And perhaps the single-most important premise underlying bankruptcy laws today is the idea that only an “honest but unfortunate” debtor is eligible for a bankruptcy discharge.

So, at a time of almost unprecedented financial hardship for individuals, and at a time when businesses use bankruptcy as just another way to improve their bottom line, shouldn’t the stigma associated with bankruptcy be fading?  Maybe so, but it hasn’t.  All my clients struggle with the morality of the decision to file bankruptcy; virtually all of them wait too long, and suffer either emotionally or financially as a result.    Personally, I admire them for it, even when I wish they would let me help.  And, though I understand that a corporation doesn’t have morals, or a conscience, the people who run them do, and I could wish some of them were a bit more like my clients.  But I also think it is important to consider the source of your financial problems in deciding whether to file bankruptcy.  If you are an honest but unfortunate person, who is dealing with an overwhelming debt load because of job loss, illness or medical expenses, divorce, or any of a dozen other reasons that are, to one extent or another, out of your control, come see me or one of my colleagues.  Like the airlines, manufacturers, retailers and municipalities, you may also benefit from bankruptcy.  Bankruptcy is a legitimate way to a more productive life.

Bankruptcy is not a dirty word.

Photo: drbimages/iStock

You tried every possible way to avoid it, but you finally decided that you had no choice–you filed a bankruptcy.  But you want to continue to pay some creditors, like your house payment and your car payment.  But when you go to make a payment online, or set up a bank draft, you find that your lender won’t let you do it.

It’s tempting to think that they want you to default so they can take your stuff, but I really don’t think that’s the case.  There is a reason why lenders won’t set up automatic payments, or continue to draft payments that you always paid that way, or sometimes even send you bills.  That reason is based in the automatic stay provisions of the Bankruptcy Code, which is one of the most powerful protections offered by the Code, and one of the main reasons people file bankruptcy.

The automatic stay provided for in section 362 of the Bankruptcy Code is effectively a court order that goes into effect, automatically, as the name would suggest, when the case is filed.  The automatic stay prevents creditors taking any action to collect a debt, including asking you to make a payment (i.e., send a bill) or draft your bank account.  So, in order to avoid even a technical violation of the stay, lenders will stop sending bills, stop drafting payments, and even stop allowing you to make online payment, depending on the type of draft.

Trust me, they want you to make your payments.  you may just have to do it the old fashioned way–by check or money order.

Photo credit: iStock/bluestocking

If you are thinking about filing bankruptcy, possibly the most important decision you’ll make will be which attorney to hire to represent you in that bankruptcy.  Your bankruptcy attorney will guide your decision-making throughout the process, from whether to file bankruptcy at all, when to file, and what type of bankruptcy is available, and most beneficial.  You bankruptcy attorney will help you navigate the intricacies of the means test, will determine what exemption scheme is available to you and help you decide how to apply those exemptions.  Your bankruptcy attorney will review your situation to identify any potential land mines, and should be there with you when you go to court, when you provide information to the trustee or your creditors, or in rare cases, when your case is audited.

Bankruptcy is one of a very few fields of expertise in the legal profession that is a recognized specialty.  Many bankruptcy lawyers (myself included) don’t practice any other kind of law.  In fact, I’ve never practiced any other kind of law.  I’ve been practicing bankruptcy law for twenty-five years, and I still study new cases, and talk to other bankruptcy lawyers on a daily basis to maintain my expertise.  I guess that’s why they call it “practice.”  Bankruptcy law is an enormously detailed and intricate subject.

That’s why I maintain that there is no such thing as a “simple” bankruptcy case.  Case in point:  I met with a fellow recently who has a regular job, some credit card debt and medical bills, and not much property.  His assets are fairly basic, too–a car and a boat.  So, you might think that I didn’t have to use much of my expertise to advise him.  Simple case, right?  Well, not so much.  In the course of our conversation, he mentioned moving, and when I checked with him, it turned out he had moved to South Carolina a little over two years ago.  You wouldn’t think that would make a difference, but it does, and it would have affected the property he wants to keep.  And that’s just one example; there are plenty of other surprising details lurking out there in bankruptcy land.

There is a great deal on ongoing discussion/controversy/moaning and groaning about the state of legal education right now.  In a nut shell, law schools are graduating a lot more newly-minted lawyers than there are jobs for them.  And traditionally the expectation has been that a lot of a new lawyer’s practical training would be provided by his first employer.  In other words, law schools focus on teaching people how to think like lawyers; they leave it up to law firms and mentors to teach people how to practice law.  The result: an awful lot of lawyers with minimal experience are being forced to fend for themselves.  I’m not blaming them–most of them have student loan debt that makes my head hurt.  But if I were out there looking for a lawyer (of any kind, but especially a bankruptcy lawyer) I wouldn’t necessarily want them to “practice” on me.

So how do you choose a bankruptcy lawyer?  There are certainly factors to consider in addition to experience, but in my opinion experience ought to be right at the top of your list.  Now, I can hear the cynics among you saying “Well, she’s experienced, of course she thinks experience should count.”  And I can imagine some thinking that filing bankruptcy is just filling out a bunch of forms.  But think back to what I said above.  Do you really think that courts and bars would go to the trouble to test and certify specialists is it didn’t really matter?  Do you think that there would be an entire division of the Justice Department whose job is to monitor and police bankruptcy cases if it was just filling out a bunch of forms?  Yes, you need to have a decent working relationship with your bankruptcy lawyer, and yes, you should be satisfied that your lawyer is going to be reasonably responsive to you.  But your lawyer’s personality isn’t going to get you through the bankruptcy process.  And it doesn’t really matter if your attorney is available to answer your questions night and day if he doesn’t know the right answers.  Experience and knowledge are key.

And now, to deal with the elephant in the room:  what about fees?  Isn’t an experienced bankruptcy lawyer going to cost more?  Well, yes and no.  An experienced bankruptcy lawyer might charge you a higher fee than someone who has little or no experience.  But he might save you a lot more money if he prevents a mistake, or identifies a potential problem, or a way to make bankruptcy relief more comprehensive.  And that really is the bottom line.  Lack of an experienced bankruptcy lawyer (or lack of a lawyer at all) can leave you vulnerable to all sorts of problems.  When it comes to choosing your bankruptcy lawyer, experience matters, and you really do get what you pay for.

So far this morning, I’ve gotten two calls from clients who received suit papers over the weekend.  Credit card companies (or the debt buyers who bought the accounts) have filed civil suits in state court, seeking a judgment for the amount owed.  One of the suits was accompanied by a letter from the law firm that filed the suit, insisting that the client contact them immediately.  Getting sued is a scary thing.  So, should you hit the panic button?  What does it mean, and what can you do?

A civil suit is nothing more than a request that a court decide that you owe the plaintiff money.  That’s it.  You are being put on notice, and you have the right to respond and dispute that you owe the money, or that the amount is incorrect, or that you don’t owe that particular claimant.  It is not an arrest warrant (there are no debtors’ prisons in this country–remember 9th grade civics class?).

If you don’t file a response to the suit (called, appropriately enough, an Answer) the court will usually find in favor of the plaintiff, granting them a civil judgment in the amount they requested.  If you don’t respond, you don’t usually have to attend court.  Once the court grants the plaintiff a civil judgment, however, you may effectively lose the right to challenge that the amount is correct, or that you actually owe the money.  As far as I know, the effect of a civil judgment in all fifty states is to become a lien on real property that you own in that jurisdiction.  But that’s pretty much it.  If you don’t dispute that you owe the debt, a judgment is pretty much a piece of paper that says you owe what you already knew you owed.

What comes after a judgment is granted depends on where you live and what you own.  If you want to know how a civil judgment will affect you and your property, you have to consult a lawyer in your state.  There is no other way to be sure, so I’m not even going to generalize here.   Go see someone who can tell you about your situation.  Don’t rely on your internet research skills or your brother-in-law (unless your brother-in-law is a lawyer) because every state is different, and your situation is not exactly like anyone else.

In fact, my advice to my two clients this morning was different.  One is what lawyers call “judgment-proof.”  That means what it sounds like–a judgment doesn’t change anything, because there is nothing the judgment creditor can do, no property for the judgment creditor to take, that will change anything for my client.   The second client, who owns real property, may need to respond differently.

Bankruptcy may also be a solution.  A bankruptcy can stop a suit that has been filed, and prevent a judgment from being granted.  Bankruptcy can also sometimes alleviate the affect of a judgment that has already been issued.  Whether is is necessary or advisable, again, depends on your situation.  Only an experienced bankruptcy lawyer can tell for sure. 

Oh, remember that letter I mentioned, insisting that my client contact the creditor’s lawyer immediately?  The language of the letter suggested that dire consequences could result if she did not contact them.  Leaving aside whether the letter is itself actionable, if you get such a letter (or phone call), remember that they are trying to get you to pay them money.  Their stock in trade is to create a sense of urgency, and stampede you into making a commitment that you wouldn’t otherwise make.  Again, your best defense is to consult with someone who is on your side, who can tell what you really need to worry about, and what is, as my Daddy used to say, “all bark and no bite.”

And, as a final note, don’t delay.  It may be tempting to just stick your head in the sand and wait to see what happens, but remember what part of your anatomy that strategy leaves exposed.  (If you need a reminder, see photo above.)  Check it out, and make sure you know what can happen, and what you can do about it.  You may be pleasantly surprised by the advice you receive.

Photo credit: jGroup/iStock

Nashville bankruptcy judge George C. Paine, II confronted one of the thorniest issues facing debtors in his district, and crafted a creative solution to deal with the problem.  The debtor in that bankruptcy case was caught in a situation more and more homeowners now face.  Having filed Chapter 7 bankruptcy and elected to give up her home, which was seriously damaged in the Nashville floods of 2010, she continued to face new debt because Bank of America, which holds her mortgage, refused to move forward with foreclosure, leaving her responsible for continuing homeowner’s association fees.

If you’ve read a few posts here at Bankruptcy Law Network, you have probably come across some criticism of the 2005 bankruptcy legislation referred to as BAPCPA.  One of the changes in the law probably seemed innocuous enough at that time had to do with HOA fees.  Instead of being responsible for HOA fees as long as you occupy your property, the law now says you are now responsible for HOA fees as long as you own the property.  

n 2005, however, special interests successfully lobbied for changes to the bankruptcy code so that debtors are still liable for homeowners association fees as long as they continue to legally own the home, whether they’ve abandoned it or not.

The issue has started creating headaches nationwide, with debtors arguing that the change denies them the fresh start a bankruptcy is supposed to provide. They accuse banks of intentionally dragging their feet to complete foreclosures so they don’t have to assume the costs associated with ownership. Last year’s flood has brought the issue to the forefront in Middle Tennessee, where flood-damaged homes are an even larger liability than other distressed properties. When Pigg declared bankruptcy in September, she owed $97,500 on a home that was worth only $55,000, according to her bankruptcy petition.

These days it is not unusual for lenders to wait months, if not years, to foreclose–if they ever do.  For someone whose HOA fees continue to accrue in a home that they can’t, or don’t, live in, that delay can be critical.  And the worse the market, or the condition of the house, the more likely it is to happen.

Despite the fact that the debtor no longer lives in the home, and Bank of America has taken possession of the home, Judge Paine concluded, as have other judges facing the same issue, that the law offers no way to force Bank of America to foreclose.  But, instead of leaving the debtor in zugzwang, he crafted a unique solution:

[T]he Court used its equitable powers under the Bankruptcy Code  to order a sale, under Section 363, of the property, with the Bank’s lien claim subordinated to the costs of the Trustee’s sale and to the HOA debts owed (and HOA attorney fees).  The Court expressly found that “the Bank and the HOA have consented to the sale by their inaction.”

This is an interesting ruling, because nothing in the Bankruptcy Code allows a Court to subvert the priority of a valid and properly perfected property lien. Here, using only its equitable powers, the Court fashioned a fair outcome, but a clear departure from state law lien priority statutes.

Chapter 7 trustees don’t usually sell property when there is no value over and above the mortgages, so this is a departure.  And because the court ordered Bank of America’s lien to be paid after the HOA fees and costs of sale, the bank will not recover the full value of the property.   I’m not sure how this approach would be viewed by an appellate court; Bank of America has elected not to appeal.  But a couple of things are clear.  This is a problem in need of a solution.  Frankly, it’s a problem Congress created, and they need to fix it.  But until they do, kudos to a bankruptcy judge innovative enough to find an answer in at least one case.

Experience Matters

How do you go about choosing your bankruptcy lawyer?  Most people never expect to be faced with bankruptcy.  Then there’s the embarrassment factor.  Facing bankruptcy is not something that most people are anxious to share with friends and neighbors. It’s not like asking for advice about a hairdresser or lawn service.  So how do you know who to choose?

The most important factor in choosing a bankruptcy lawyer is experience.  All you have to do is read a few posts on Bankruptcy Law Network to understand the difference experience can make.  From how to make your budget work in a chapter 13, to the key differences between Chapter 7 and Chapter 13, to what happens when the unexpected happens while you’re in Chapter 13,  to which exemption scheme applies to you, to how your business may be affected by bankruptcy, these posts are just a few examples of the questions that can arise in what may seem a simple ordinary bankruptcy case.

Bankruptcy is an extremely complex area of the law.  Proceeding without a lawyer can be extremely risky. Proceeding with a lawyer who is not well-versed in bankruptcy law and procedural rules can be just as, or perhaps more, risky.  And, though we all had to start somewhere, you would be quite justified in deciding that you don’t want to be the guinea pig for someone’s first foray into the Bankruptcy Court.  Your goal is to get to the end of your case, when the court enters an order that prohibits your creditors from continuing to try to collect from you. You want that order to resolve as much debt as possible, and you want to get there as efficiently as possible.  There are decisions and judgment calls to be made all along the way.  Contrary to what some people believe, it’s not just a question of filling out a set of forms and handing them in.

My office regularly receives calls from people who ask the same basic question: how much do you charge for a simple bankruptcy?  I can answer that question, but it would be misleading. Unless you have some expertise in bankruptcy law and practice, how do you know you have a simple bankruptcy case? Your bankruptcy case can be affected by questions as simple as how long you’ve been living at your current location, or how long it’s been since you filed your tax returns.

So how do you know how much experience is enough experience? And how do you find out how much experience a lawyer has? I don’t think there’s an easy answer to that.  I do think you need to do your homework, and find out something about the lawyer that you’re going to see. I also think that you have the right, and frankly the obligation to yourself, to ask questions. You can ask questions about the lawyer’s experience. You can look up a lawyer’s resume on her website, or on your state bar’s website.  You can and should ask questions about your case, and you should be comfortable with the attorney’s answers to your questions.  You should have some level of comfort that the lawyer is familiar with how bankruptcy will affect your situation.

You should also know who you are  meeting with, or talking to, whether by phone, in person, or online. Are you meeting with a lawyer, or are you meeting with a paralegal? When does a lawyer become involved in the decision-making process in your case? There are all kinds of ways to handle the decision-making process as it relates to a bankruptcy filing, but you have the right to know what that process is, and not be misled about who is making those decisions, and what level of expertise that person has.

I think my clients are often reluctant to admit it to me, but my impression is that many, if not most, visit more than one bankruptcy lawyer before choosing one.  I think that’s a good idea.  I also think that many prospective clients go into the process with one overriding concern, i.e., the cost of bankruptcy.  The outcome of your bankruptcy case may be proof positive of the old adage,” you get what you pay for.” The irony of the focus on cost for many people is that it backfires.  It always costs more to straighten out a mess than to prevent the mess in the first place.   It’s also important to compare apples to apples.  In districts where the practice of unbundling of legal services is permitted, (and even in some places where it isn’t) you may find that the difference in cost from one attorney to the next is the difference in the services the attorney is to provide.

Yes, an experienced bankruptcy attorney may (and I emphasize “may”) cost more than someone who just “dabbles,” or who has just hung out a shingle and will take whatever fee-producing matter comes along.  But remember this.  The reason you are hiring a bankruptcy lawyer is that you don’t know enough about bankruptcy to identify the pitfalls.  Find someone who does.

Image: Cimmerian/iStock

So, you’re in a Chapter 7 bankruptcy and you want to know whether you should reaffirm your car loan.  A reaffirmation agreement basically takes a secured loan, like a car loan, outside the effect of your bankruptcy discharge.  As to that one debt, it’s like you never filed bankruptcy.  You filed Chapter 7 bankruptcy in order to eliminate all the phone calls and threats and creditor harassment, and make a fresh start.  Then you have to decide whether to sign a reaffirmation agreement, which puts you right back on the hook for that debt.  Should you, or shouldn’t you?

Almost everyone wants to keep their car.  In South Carolina, where public transportation is virtually non-existent, it is an unfortunate reality that most people need a car to get or keep a job.  Currently, in order to be absolutely sure of keeping your car after a Chapter 7 bankruptcy, you have to do three things:  make the payments, keep it insured, and sign a reaffirmation agreement. But that should not end the inquiry.  You (and your attorney) should both be looking at whether signing a reaffirmation agreement is in your best interests.  We know you want to keep your car.  But a reaffirmation agreement can have serious consequences, and can seriously interfere with the fresh start that you filed bankruptcy to obtain. So, here are some key factors you should consider.

1.  First, look at the value of your car and how much you owe on it.  If you owe more than the car is worth, reaffirming is a risk.  My clients always tell me that they can and will make the payments.  Maybe so, but what if the car is in an accident and is a total loss?  What if the insurance pays off on the value of the car, leaving you owing the difference?  Then you may have to make payments on a different car, but be stuck owing thousands of dollars on the wrecked car.  You are right back in financial trouble, and you take another hit to your credit rating.  You can check to see of you can buy GAP insurance to cover that difference.  If so, you eliminate some of the risk.  If you can’t buy the insurance, that may be a pretty good indication that you are taking too much risk.

2.  The current state of the law gives the lender the option of repossessing your car if you don’t reaffirm, even if you are making payments.  But they don’t have to repossess.  Many lenders will let you keep the car as long as you continue to make payments on time, and keep the car insured.  In many cases, they are better off doing that, and they recognize that fact.  There are some who will stand on their rights, and who may decide to take the car even if your payments are current. Your attorney can help you evaluate the risk, depending on your lender.  Your attorney can also advise you concerning other issues that may make repossession unlikely.  For example, in some states, if you have a co-borrower who has not filed bankruptcy, there may be no default as to that person, and so no right to repossess.

3.  You should also carefully evaluate your budget, and the available funds to pay the car payments.  In a nutshell, if your budget is tight, you probably shouldn’t reaffirm.  The tighter your budget, the more likely that you will be forced to miss a payment at some point, and that you will lose some of the benefit of going through bankruptcy if you default on a debt that has been reaffirmed.  Consider the overall picture here, too.  How long are you going to be making the car payments?  Are you going to have the car paid off soon, or are you going to have to pay for another four or five years?  Is there some other change in your budget that will make it more difficult (or easier) to make the car payments?  If you have already filed bankruptcy, and you are still struggling to make ends meet, you may want to take that as a sign.

4.  Can you negotiate a better deal from your lender?  Some lenders are willing to listen to a proposal that makes a reaffirmation more favorable to you, either by reducing principal, reducing the interest rate, or capitalizing arrears.   If your concern is that you owe more than the car is worth, ask the lender to reduce principal.  If you are concerned that the payments are too high, ask for a lower interest rate.  Not all lenders will meet you in the middle like this, but there is no harm in asking, and you might get a deal that will make you (and your attorney) a whole lot more comfortable.

5.  Consider your lender, and your relationship with them.  One of the big differences in dealing with reaffirmation agreements depends on whether your lender is a credit union or not.  If the lender is a credit union, you get less protection from the court (and your attorney) and should therefore be more cautious about signing a reaffirmation agreement.  If your account was sold to a new lender after bankruptcy, you may also want to factor that unknown into your thinking.

6.  While you are considering a request to reaffirm a car loan, be brutally practical and honest with yourself.  As noted above, most people who live outside major metropolitan areas in this country need “a” car.  That doesn’t necessarily mean you need the particular car you are driving.  Do you have a friend or family member who would let you borrow (or buy) a car that is underused?  Do you have a source of cash (a tax refund, or a retirement account) that could be used to buy basic transportation for cash?  Remember, practicality and honesty are key here.  I have heard all kinds of explanations over the years for keeping cars (and trucks and motorcycles and motor homes) that basically boil down to “I don’t want to give it up.”  I know you don’t want to–I want you to consider whether you need to.  I recently had a client explain to me that he had to keep a new truck because he had to have a reliable vehicle to get to work.  Okay, I get that.  But then it turned out that his wife, who doesn’t work, also had a new car.  And his teenage son also had a vehicle.  It seemed to me that alternative transportation was available, and that he was confused between “want” and “need.”  Given the serious consequences that go along with reaffirming on a car, I think it’s important to eliminate that confusion.

Other considerations may also impact your decision, including whether your attorney is willing to sign off on your reaffirmation agreement, and whether you will have to attend a hearing and justify your decision to the judge, and whether the judge will approve your reaffirmation agreement or not (which may not be a bad thing).  Stay tuned to Bankruptcy Law Network for more on those issues coming soon.

Image credit:  Paphia/iStock

Bankruptcy fraud is back in the news today, with the indictment of Lenny “Nails” Dykstra on charges of bankruptcy fraud and obstruction of justice. The indictment accuses Dykstra of looting his mansion of furniture, fixtures and memorabilia that belonged to his bankruptcy estate, and selling or destroying those items.  Dykstra’s attorney maintains he did nothing wrong.

The story is interesting because of the outsized personality of the undersized major-league player, because of his reputation as a financial guru to other professional athletes, because of the outsized mansion, and because of the value of the property allegedly looted–$400,000, according to the bankruptcy trustee.

It may be tempting to dismiss the case as another instance of wealth and celebrity attracting the attention of law enforcement.  It may be tempting to assume that such prosecutions don’t affect the “little guys” who file bankruptcy.  Tempting, but wrong.

In the twenty-some years that I’ve been practicing bankruptcy I’ve had a lot of conversations with a clients who don’t want to make the full disclosure that the bankruptcy laws require.  Much of that reluctance is understandable, and isn’t based on any intent to deceive or defraud creditors.

They don’t see why they have to list debts they intend to continue to pay, or they don’t want family members or employers to find out about a bankruptcy.  Sometimes the intent is less innocent, as they try to retain some property to use to start over after bankruptcy.

But here’s the thing about bankruptcy:  Full disclosure is the price of admission.  Period.  There are no half measures.

You can’t list some of your creditors and leave out others, even if you intend to pay them.

You can’t list some of your assets, and keep quiet about others.  It doesn’t matter if the asset has no value to anyone but you.

You can’t give your property to someone else to hold for you until you get out of bankruptcy.  And you can’t file bankruptcy and then sell your stuff, assuming that no one will find out.  It’s really simple.

As in the old saying – if you want to play, you’ve got to pay.

In case you are wondering whether the little guys get charged with bankruptcy fraud, wonder no longer.  A hot dog vendor and a cosmetics saleswoman are two South Carolina defendants that come to mind.  The latter case occurred some years ago, but involved an inventory of cosmetics that would have had little or no value to a trustee had the debtor disclosed it, but she ultimately went to jail for concealing assets.

In my experience, those charged with policing the bankruptcy system are just as serious about the cases you’ll never hear about.

Trust me–it’s just not worth it.  Just ask Lenny Dykstra.

Image credit: Sportech/Flickr