Bankruptcy has an official secrets law and it is contained in §526 of the bankruptcy code.  A lawyer can not advise a client to take out a new loan before filing bankruptcy.  The Bankruptcy Abuse and Consumer Protection Act of 2005 includes this rule and I am going to break it legally.

Why would someone want to borrow money before filing bankruptcy?  There are some obvious reasons.  The first reason would be to pay for the bankruptcy itself.  The money has to come from somewhere to pay the expenses involved in filing a bankruptcy. Read the rest »

Bankruptcy lawyers have grown accustomed to hearing alarming stories from clients about so-called mortgage loan modifications which never seem to be finalized: homeowners being strung along by disingenuous mortgage company reps until foreclosure, “trial modifications,” unreturned phone calls, never ending requests for documents, never getting the same mortgage company rep on the phone twice, being asked for the same documentation again and again, everything but a modified mortgage.

What if you knew that in return for $75 billion in HAMP funding, as of September 1, 2009, only 1,711 homeowners had received a permanent loan modication?  That is what a Congressional Oversight Panel reported last week, according to Ruth Simon of the Wall Street Journal, and Chris Serres of the Minneapolis Star Tribune (see “Mortgage Help? Maybe Not,” page D 1, November 11, 2009).

According to Serres, none of the HAMP funds goes to homeowners.  Instead, banks are given up to $4,000 for every loan they modify.  And the Treasury Department announced that as of November 10, 2009, a total of 650,994 mortgages had been approved for “trial modifications.”  Compare that figure with the miniscule number of actual modifications. Read the rest »

Much has been written on this blog about “reaffirmation” – the process by which a Chapter 7 debtor formally and in writing agrees to opt out of the protections inherent to a bankruptcy discharge and assume again contractual liability for secured (or unsecured) debts like mortgages and vehicle loans.

You should always speak to your lawyer about the wisdom of reaffirmation agreements.  In general, to qualify for a reaffirmation you need:

1. a lender who is willing to enter into a reaffirmation
2. you need to be current (or close to being current) on your loan
3. any equity that exists in the collateral should be exempt per the applicable exemption laws

What happens, however, if you and your lawyer disagree about the wisdom of reaffirmation, as evidenced by this email I recently received:

Hi Jonathan- I have enjoyed your writings. We are currently in a chapter 7- 341 set for 12/3. My attorney is very firm that we should not reaffirm 1st mortgage. We are current up to date, etc..is this my decision or hers? If I decide to reaffirm, will she have to sign the reaff as well? Will our difference of opinion on Mortgage Reaffs effect my case?

Here are my thoughts: First, I think that you should sit down with your lawyer to discuss why she is so adamant about not reaffirming.   She may have a very good and appropriate reason for her hesitation.  I do know some lawyers who discourage reaffirmation – especially if there is negative equity in the collateral – because the bankruptcy discharge serves to eliminate personal liability.  Read the rest »

On Friday the thirteenth, the Fed shut down Orion Bank.  The Orion Bank closing constitutes the 122nd bank failure this year.

Orion owns a branch across the street from my office.  I would like to say that this was shocking, but it wasn’t.  For years, my clients have been filing for bankruptcy on loans given by Orion which should never have been given.  I can think of one or two clients right now who had loans on less than desirable collateral. Read the rest »

Discharge in bankruptcy is good. Dismissal is generally bad.  Discharge is  what  most debtors seek when filing their bankruptcy.  Dismissal is what a debtor is  generally trying to avoid.

The discharge is the injunction granted by the bankruptcy court that keeps the creditors from enforcing their rights to collect personally on the debt.  More commonly, people say the discharge wipes out the debt.   Although that is not technically correct, it is what appears to happen to most debt.

Dismissal usually means something has gone wrong with the case. Read the rest »

New York City has noticed the percentage of people paying cab drivers with a credit cards has risen dramatically in the past two years.  The question is whether the use of credit cards has risen for convenience purposes or because of the economy?

Other cities have been slow on the take, and they have not implemented this program as aggressively as New York City.  But, they will slowly change their minds as consumers demand it and the credit card companies push the idea.

Unfortunately, for people who carry a balance on their credit cards, you have to wonder what that cab ride is really going to cost over time. Read the rest »

The first question for a business owner considering bankruptcy is:  do you have the time, energy, and desire to continue the business? (Read the other four questions for struggling businesses).

Entrepreneurs are the most optimistic, hard working, and determined individuals in the world.  Often my task is to puncture their irrational optimism:  they are convinced that if they hang on a little longer, work a little harder, things will improve.  So, when an entrepreneur tells me they are ready to hang it up, I listen.  No matter how many changes bankruptcy might make in the business financials, if the individual is spent, it’s time to move on.

Running a small business is incredibly hard, long before we got to our current, “challenging” economic environment.  When I hear the engine for that particular business is willing to quit, I seldom argue.  Then we look for avenues to wind down and maximize the value in the business.

The headlines yesterday all carried the same story.  The Health Care Bill passed by the House of Representatives died.  Life support cannot save this Bill.  So, why did our elected officials go through the motions knowing that the Bill did not have a chance of passing in the Senate?  Do you think they already knew the Bill would not pass in the Senate?  Sure they did.  However, it is the way Washington works.  The Democrats were allowed to flex their muscles for a while.  I don’t really care about who appears macho this week. I care about the cost of appearing macho. Read the rest »

What is a Pay Advice?

A pay advice is any document that provides written evidence of your income.

The most obvious example of a pay advice is a pay stub, but a pay advice can also be a printout of your income and withholding from your employer.  In fact, more and more often I will have clients that bring in a pay advice that they were able to download directly from their employer’s Human Resources website.

Why do you need to produce your Pay Advices?

You must produce your pay advices for two primary reasons:  1)  The pay advice is used to calculate your Current Monthly Income for the purposes of the Means Test, and, 2)  Your payment advice is produced to the Trustee in your bankruptcy.

How many pay advices are needed to file a bankruptcy?

You need to produce pay advices for the six month period leading up to the filing of your bankruptcy.  Read the rest »

The §341 Meeting, also called the meeting of creditors, is a meeting that takes place around 20 to 40 days after your bankruptcy case is filed. At this meeting the case trustee assigned to your case, and any creditors who wish to attend, will be present. The case trustee will ask you a series of questions, and any creditor who attends may ask questions of you as well, though creditors show up only rarely. 

Many debtors worry a great deal about the §341 Meeting. However, though the Meeting is extremely important, and required to receive your discharge, it is also very straightforward. The questions will be based upon the information in your petition and schedules, and since all of that information was sworn to under penalty of perjury, there should be no issues as long as you continue on the path of telling the truth.

The trustee will call your case, and you and your attorney will go forward. The trustee will place you (and your spouse, if filing jointly) under oath, verify your forms of identification, and go through a series of questions. He or she is looking to confirm that the information in the petition is true and complete, and that nothing has been intentionally—unintentionally—left out. If there are any errors, or any amendments need to be filed, this is your opportunity to tell the trustee. Listen carefully to the questions you are being asked, and answer truthfully.

Most meetings last only a handful of minutes, and provided you tell the truth, and cooperate with your attorney and the trustee afterwards, the meeting itself should not pose any issue in achieving your goal of receiving your bankruptcy discharge.