November 7th, 2009

Chapter 7 Bankruptcy Exemptions at Heart of Supreme Court Case

Earlier this week, the U.S. Supreme Court heard arguments in a case that could affect many Americans who seek financial relief from Chapter 7 bankruptcy. Here’s a look at what’s going on.

Background: Chapter 7 Bankruptcy

Chapter 7 bankruptcy (sometimes called liquidation), works by giving debtors a complete discharge of many non-secured debts. Though the debts are forgiven, some filers must sell off some of their property to raise money to pay whatever they can against the debts.

Filers are also entitled to keep specific items of property; these exemptions are determined by state law.

The Case: A Caterer’s Equipment

In the case before the Court…

A caterer filed for Chapter 7 bankruptcy. When she filed in 2005, she indicated on her forms that the equipment required to run her catering business was worth $10,718 – exactly the value of property her state permitted in exemptions.
An auctioneer valued her equipment. He estimated that her gear was worth closer to $17,000, which would mean she’d have to auction some of it off to repay her creditors.
Her trustee never filed an objection. William Schwab, the bankruptcy trustee assigned to the case, failed to file an objection before the deadline. Though he reportedly filed a motion in court to have the caterer sell her equipment to raise $10,718, she countered that, because of the missed deadline, this request was unfounded.

So far, the bankruptcy court and the appellate courts have sided with the caterer here, essentially ruling that, because the trustee did not file his motion in time, it cannot stand.

Possible Implications

It seems the Supreme Court justices have expressed two major concerns:

Trustees have insufficient time to review all their cases. This could lead to more oversights like the one in the caterer’s case and could promote bankruptcy fraud among unscrupulous filers.
Filers have motivation to undervalue their possessions. Naturally, if there’s a chance your trustee isn’t reviewing your case that carefully, that provides an incentive to underestimate the value of your possessions so you have a chance of keeping more stuff.

Take-Home Lesson

Reports indicate that the caterer who filed for bankruptcy clearly filled out her forms and indicated that she had no exempt property, which suggests that the error of careless oversight may indeed be her trustee’s. If you are filing for Chapter 7 bankruptcy, you may want to speak with a bankruptcy lawyer who can help make sure you take necessary steps to protect yourself and your property when you file.

Additional Resources

Summary of Significant Changes Implemented by BAPCPA in 2005 (PDF)

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November 5th, 2009

Senate Passes Unemployment Extension Bill

Unemployed Americans will receive up to 20 additional weeks of unemployment benefits under a bill passed by the Senate this week, according to CNN.

The Senate voted 98-0 Wednesday to provide continued relief to the estimated 15 million Americans currently drawing unemployment benefits. The bill provides at least 14 additional weeks of benefits, and 20 weeks in those states where unemployment is 8.5% or greater.

The bill now moves to the House, which passed a similar bill in September providing up to 13 additional weeks of benefits. President Obama has shown support for extending unemployment benefits, and is expected to sign the bill.

In the Senate bill, benefits would be extended to those who exhaust their current benefits before December 31. Those whose benefits have already run out could reapply for additional benefits.

The additional unemployment would be funded by a supplemental unemployment tax on employers that would run through June 30, 2011.

7,000 Unemployed Lose Benefits each Day

CNN reports that 7,000 unemployed workers exhaust their benefits every day. And with just 3 million jobs for 15 million unemployed (a figure that doesn’t include under-employed or those who’ve given up on looking), that rate isn’t expected to slow soon—without help.

In September, the unemployment rate reached a 26-year high at 9.8%. October’s unemployment rate, due out tomorrow, isn’t expected to decline. Most experts expect unemployment to crest above 10% in 2010.

Unemployment and Bankruptcy

Unemployment is also closely tied with the bankruptcy filing rate. Personal bankruptcy filings reached a four-year high in October, with 135,914 consumer filings, according to the American Bankruptcy Institute. That total is the highest since the new bankruptcy law went into effect in October, 2005.

Update: The House passed the Senate’s unemployment benefit extension bill Thursday afternoon with a vote of 403-12. President Obama is expected to sign the bill Friday.

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Tags: bankruptcy, unemployment, unemployment benefits
Posted in Bankruptcy and the Economy | 5 Comments »

November 4th, 2009

Layoffs: Johnson & Johnson to Cut 7% of Jobs

Health care giant Johnson & Johnson announced Tuesday that it would eliminate up to 8,000 jobs worldwide, or 7% of its workforce, as a cost-savings measure, according to CNN.

Many of the cuts will come from management levels as the company revises its corporate structure. As a result, Johnson & Johnson expects to save between $800 million and $900 million this year.

Johnson & Johnson manufacturers household health and beauty products, like soaps and mouthwash, along with pharmaceuticals and medical devices. The recession has impacted both sides of J&J’s business.

The majority of the job cuts will occur outside of the U.S., according to CEO Bill Weldon, and will occur across all aspects of the business.

Johnson & Johnson’s restructuring has been occurring over the past few years, as it attempts to fight off competing drug manufacturers and generic versions of its own drugs. In July, 2008, J&J cut 4% of its workforce. In April, 2009, about 900 U.S. sales jobs were eliminated.

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Tags: johnson & johnson, mass layoffs, unemployment
Posted in Financial Literacy | 1 Comment »

November 3rd, 2009

Commercial Bankruptcy Filings Jump 7% in October

On the heels of bad news for small businesses with the bankruptcy of CIT Group Inc. comes news from The Wall Street Journal that business bankruptcy filings rose 7% in October, after falling for several consecutive months.

A total 7,771 businesses filed for bankruptcy protection in October, up from the 7,271 in September. The increase continues a yearly trend of rising bankruptcies from the same time last year, despite what had been a drop in filings from month-to-month in August and September.

A report from the business information company Equifax Inc. suggests that, from the third quarter of 2008 to the third quarter of 2009, commercial bankruptcy filings among small businesses increased by 44%.

The Wall Street Journal cites the same tight credit market and decreases in consumer demand for products fueling the wider recession as continued causes for businesses going into bankruptcy.

Retail, Real Estate Hardest Hit

Retail businesses and real estate are the industries that continue to lead in bankruptcy filings. The impact of flagging success in these areas, however, can lead to a trickle-down effect with a much broader reach and negative financial impact on industries like home building and manufacturing, according to Georgia State University College of Law bankruptcy professor Jack Williams, who spoke to WSJ.

Bankruptcy filings are a lagging economic indicator so it’s likely that we’ll see bankruptcy filings increase for the next several quarters, Williams told the journal.

The bankruptcy of CIT Group Inc., one of the largest lenders to small- and medium-sized businesses, will only serve to tighten credit markets, many believe, in an already troubling environment for small businesses. CIT finances a wide array of businesses, from retail operations like Dunkin’ Donuts store operators, to energy companies.

In a positive turn, the Equifax report did note that bankruptcy rates seem to be improving in some metropolitan areas like Charlotte, North Carolina, New York-White Plains, and Atlanta, also indicating that the East Coast may be experiencing an earlier recovery from the recession than the West Coast.

According to the report, California continues to be the state hit hardest with bankruptcy filings, with eight of the top 15 metro areas in terms of bankruptcy filings.

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Tags: bankruptcy statistics, business bankruptcy, CIT Group bankruptcy
Posted in Bankruptcy News and Events | 4 Comments »

November 2nd, 2009

Consumer Financial Protection Agency Moves Forward in House

Last week, the House of Representatives Financial Services Committee voted 39-29 for the creation of a federal agency that would provide consumer protection. The proposed agency (called in bills the Consumer Financial Protection Agency) has been in the news since its proposal earlier this year.

This vote is seen as an important step, but the bill must still face votes before the full House of Representatives and the Senate.

Who Wants It, Who Does Not

For the past few months, lobbyists from both sides of the debate have been pushing legislators to make a decision about the potential consumer protection group.

A Yea from consumer advocates: Generally speaking, supporters of consumer rights favor the agency’s creation. If approved, the agency would regulate certain financial products like mortgages, credit cards and loans, and would provide oversight rules for some banks and lenders.
A Nay from big business: Supporters of large businesses and big financial firms oppose the agency, claiming that it would introduce too much government regulation into the business sector, thus hampering trade and profitability.

What The Agency Would and Wouldn’t Do

Though many democrats and consumer advocates have reportedly lauded the Financial Services Committee’s initial vote, the bill has apparently changed significantly since its introduction by the Obama administration.

Here’s a look at what the House has outlined so far for the potential agency:

Limited regulatory reach: While the CFPA would be able to regulate certain lenders and issuers of financial products, the Financial Services Committee’s version of the bill exempts many groups, such as lawyers, car dealers, cable companies, retailers, accountants and real estate brokers.
No state overrides: Though the original version of the bill would have allowed stricter state regulations to trump the national rules, this version does not.
Most banks can keep current regulators: Perhaps the most significant change to the bill from its earlier version was one that would allow the vast majority of American banks (about 98 percent, sources estimate) to keep their current regulators for overseeing enforcement of consumer protection laws.

Baby Steps Forward

Though passage of a House committee is only the first step in what may be a long journey, the forward motion of the bill can be viewed as a positive sign for American consumers.

While it’s unfortunate that a massive collapse of the real estate industry and stock market was required to incite lawmakers to bolster consumer protections, it’s good that they’re taking action now.

Additional Resources

H.R.3126 (PDF)

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Tags: consumer protection, Consumer protection agency, house of representatives
Posted in Financial Literacy | 4 Comments »

November 1st, 2009

Bankruptcy Median Incomes Change Today

Debtors May Have 21 Days to File Under Old Income Levels

The U.S. Trustee Program and Department of Justice announced new bankruptcy median income numbers for the Chapter 7 means test, which affect bankruptcy petitioners who file on or after November 1.

For debtors who income now falls above the new median income, a 21-day grace period may be granted to file under the previous levels. For more information or to begin bankruptcy proceedings to meet the 21-day deadline, connect with a local bankruptcy attorney.

Median Income Tables

One part of the Chapter 7 means test, introduced in the 2005 bankruptcy reform laws, is to compare the income of the debtor with income levels for similar family sizes in the state. In each state (plus Washington, D.C., Puerto Rico and other territories), there is a set median for families of one-to-four people, plus additional levels for families of more than four.

The median income is the middle point of all incomes for each state and family size—half of families will fall above, and half below, the median income. The provision was introduced to help prevent abuse of chapter 7 bankruptcy.

Perhaps a sign of the current recession, with unemployment rising and many workers working below full-time hours, median incomes levels in many cases have fallen. However, income levels have also risen in certain cases. For more information, compare the new median incomes with the previous incomes at the U.S. Trustee web site.

Window to File Bankruptcy Under old Incomes

Under the means test, a debtor compares his income to the median for his state and family size; if his income is below the median, he “passes” that part of the test. Debtors whose incomes are above must look at state exemptions to possibly continue under Chapter 7, or must file under a Chapter 13 debt reorganization plan.

In the rare cases where an income level has lowered (such as a single-earner in Maine, which fell from $40,618 to $38,812) and now excludes a debtor whose income falls in that range, the bankruptcy court allows for a brief 21-day window to “pass” the means test under the previous median income levels.

While most income levels only changed a small amount, for those close to the median, the change could be the difference between a debt discharge under chapter 7 and a 3-to-5 year repayment plan under chapter 13.

For more information on the chapter 7 means test, new median income levels, and if you need to file in the next 3 weeks to qualify for chapter 7 bankruptcy, visit Total Bankruptcy and connect with an attorney about filing bankruptcy.

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Tags: bankruptcy qualifications, bankruptcy requirements, Chapter 7, means test, median income
Posted in Bankruptcy Filing Requirements, Bankruptcy News and Events | 3 Comments »

October 30th, 2009

Stalemate in Real Estate Sector has Increased Bankruptcy Filings

Guest Author: Peter Gomes

The real estate sector received a jolt when the sub-prime mortgage crisis eroded the US economy. The mortgage market was in doldrums and the upheaval so great that the government had to intervene with its series of mortgage bailout programs.

Consumers bankruptcy filings increased, and so did the number of foreclosures. Many Americans considering bankruptcy filing received more information on bankruptcy by connencting with a bankruptcy attorney.

The Obama Administration introduced a series of mortgage bailout programs to assist homeowners facing foreclosure. The program, known as the Making Home Affordable Plan, was expected to help as many as 7 million to 9 million homeowners. However, due to few limitations, the program has yet to help as many homeowners as anticipated.

There is a vicious cycle of debt that has led to the recession, which has affected consumer spending as well as investor sentiment.

In the easy-credit boom, people started using their credit cards even for making payments for grocery shopping and for utility bills. As employers went on a cost cutting and job cutting spree, it became difficult for consumers to make ends meet.

For consumers considering filing bankruptcy, it can be Chapter 7 bankruptcy or Chapter 13 bankruptcy. In Chapter 7 bankruptcy, a court-appointed trustee will liquidate your non-exempt assets so that the proceeds can help in paying off creditors. As per the new federal bankruptcy laws, certain changes have been introduced. The prominent ones are Means test and credit counseling.

If you are planning to file Chapter 7 bankruptcy, you have to find out if you qualify for the same by taking the Means test. Consumers also must take a credit counseling session prior to filing bankruptcy.

In case of Chapter 13 bankruptcy, you are given a repayment schedule according to which you are expected to make payments to your creditors.

In either bankruptcy chapter, there is one advantage of filing: an Automatic Stay or Order for Relief that prevents creditors from coming after you for their dues.

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Tags: chapter 13 bankruptcy, debt, foreclosure, real estate, recession
Posted in Bankruptcy and the Economy | 9 Comments »

October 28th, 2009

GMAC May Get Third Bailout

GMAC Financial Services,the former financing arm of General Motors Corp., may be in talks with the U.S. Treasury to receive a third financial lifeline, according to the Wall Street Journal.

GMAC has received $12.5 billion in bailout funds since December, 2008, and could receive an additional $2.8 billion to $5.6 billion in a third injection.

As part of the initial bailout, GMAC, which finances three-fourths of General Motors car loans and provides mortgages, insurance and other services, transformed into a bank holding company, which enabled it to receive Treasury aid. After the May, 2009 bailout, the U.S. government became the majority shareholder in the company.

Because GMAC backs so many new auto loans, it plays a vital role in revitalizing the auto industry, in which the government has already invested $25 billion.

General Motors, which filed bankruptcy this year, began selling off its interest in GMAC in 2006. The automaker maintained a small interest in GMAC before transferring many of its assets to the “new GM” as part is its Chapter 11 filing.

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Tags: bailout, business bankruptcy, economy, GMAC
Posted in Bankruptcy and the Economy | 3 Comments »

October 26th, 2009

Foreclosure Auctions Finding Few Bidders in Detroit

A recent auction of foreclosed and abandoned properties in and around Detroit, Michigan, saw only one-in-five properties sold—despite an opening bid of only $500.

Almost 9,000 homes and lots were on the auction block at the Wayne County tax auction, according to Reuters, with a total land area almost the size of Boston. At the end of the four-day auction, less than 1,800 properties were sold.

The auction was held by Wayne County to recoup unpaid property taxes, many for homes that had been abandoned or foreclosed.

With unemployment over 27%, Detroit is by far one of the hardest-hit cities in America. Detroit’s population has dwindled from a peak of nearly 2 million in the 1950s to an estimated 800,000 today. Despite efforts by the city to revitalize the downtown, much of the city is turning into a ghost town, according to Reuters.

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Tags: Detroit, foreclosure, michigan, unemployment
Posted in Mortgage Foreclosure | 4 Comments »

October 24th, 2009

Beware of ‘Free’ Trial Offers from Online Ads

A recent report from msnbc.com tells the cautionary tale of online shoppers who were intrigued by ads offering “free samples” of a new kind of toothpaste. Many of these people clicked the ad to receive a sample – and instead lost hundreds of dollars.

After entering their credit card numbers for “shipping costs,” victims found that monthly deductions of $58 showed up on their accounts.

Warning Signs & Red Flags

This scam had elements in common with other online scams we’ve written about here before. Generally speaking, any of the following should signal to you that the “free” offer in question is most likely a way to take your money.

Minimal payment upfront. In the case most recently documented (in the article), victims were asked to pay a five dollar shipping charge.
Use of credit card. If an offer requires you to enter your credit card information, close that screen and walk away from the computer. Any truly free offer should not involve payment.
Fine print. Many Internet users skip right over “terms of agreement” texts, often because they’re long and boring-looking. But that section contains important information – and it may reveal the “free” offer to be a costly deal.

The Internet can be difficult to navigate, because nefarious links often appear on otherwise trustworthy sites – in fact, in the msnbc.com story, victims reported just such an occurrence.

So take caution: Just because you trust a site doesn’t mean you can trust the ads that appear on it.

What to Look Out For

Online scams often sound tempting to consumers because they’re designed to appeal to our weaknesses. Products commonly seen as part of online scams include:

Beauty and weight-loss products: Supplements, diet systems and even whitening toothpaste may be presented in “free trial” form.
Work at home offers: Bogus opportunities for self-employment (with guaranteed hefty paychecks) crop up frequently.
Fads and trends: Products or services that allow you to sample a new trend for “free” can be fraudulent, too.

Remember: if something is really worth having, it’s worth paying for. And if you wouldn’t pay for it in the first place, you really don’t want to overpay in hidden costs and “membership fees” that offer you little or no real benefit.

Additional Resources

How to Avoid a Scam (PDF)

Avoiding Online Fraud (PDF)

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Tags: credit cards, online fraud, scams
Posted in Financial Literacy | 3 Comments »

The Bankruptcy Blog

Chapter 7 Bankruptcy Exemptions at Heart of Supreme Court Case

Background: Chapter 7 Bankruptcy

The Case: A Caterer’s Equipment

Possible Implications

Take-Home Lesson

Additional Resources

Senate Passes Unemployment Extension Bill

7,000 Unemployed Lose Benefits each Day

Unemployment and Bankruptcy

Layoffs: Johnson & Johnson to Cut 7% of Jobs

Commercial Bankruptcy Filings Jump 7% in October

Retail, Real Estate Hardest Hit

Consumer Financial Protection Agency Moves Forward in House

Who Wants It, Who Does Not

What The Agency Would and Wouldn’t Do

Baby Steps Forward

Additional Resources

Bankruptcy Median Incomes Change Today

Debtors May Have 21 Days to File Under Old Income Levels

Median Income Tables

Window to File Bankruptcy Under old Incomes

Stalemate in Real Estate Sector has Increased Bankruptcy Filings

GMAC May Get Third Bailout

Foreclosure Auctions Finding Few Bidders in Detroit

Beware of ‘Free’ Trial Offers from Online Ads

Warning Signs & Red Flags

What to Look Out For

Additional Resources

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