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Friday, March 12th, 2010

Supreme Court: Bankruptcy Law Doesn’t Violate Lawyers’ Rights

A case decided by the Supreme Court this week settles a question of attorneys' free speech rights raised by a Minnesota law firm concerned about restriction in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), according to the Washington Post.

Here are the pertinent details:

  • The law states that bankruptcy lawyers are prohibited from advising clients to take on more debt before filing for bankruptcy. In theory, the restriction is meant to prevent advice that would lead to actions that might constitute fraud under U.S. bankruptcy laws.
  • The question raised by the Minnesota law firm was one of free speech for lawyers. Apparently, the firm suggested that the aforementioned restriction amounted to an unconstitutional violation of the free speech rights of bankruptcy lawyers.
  • The court decided that the law was not, in fact, unconstitutional, and that lawyers can give their clients any advice that does not promote defrauding the bankruptcy court.
    • Filing incomplete or inaccurate information
    • Attempting to pay a "favorite" creditor in full before filing for bankruptcy
    • Failing to disclose assets or expected income
    • Attempting to “give away” assets before filing

    • The Broader Issue

    While the law firm’s concern with free speech may seem piddling here, in the context of bankruptcy cases, it has merit. In some cases, as the WSJ article points out, taking on certain kinds of debt immediately before a bankruptcy filing could benefit both the filer and his or her creditors.

    For example, refinancing a troublesome mortgage to better allow a debtor to make payments could benefit all parties. The Supreme Court Justices reportedly acknowledged the truth of this and agreed that taking on more debt can, at times, be the wisest decision for a potential bankruptcy filer.

    But, the court noted, the law can be read to mean that bankruptcy lawyers are restricted only from giving their clients advice that would lead to bankruptcy fraud.

    What Constitutes Bankruptcy Fraud?

    Bankruptcy fraud is a serious matter – in fact, it can lead a court to throw out your case (and thus eliminate your chances at receiving a debt discharge) and earn you fines and jail time. This is one reason why working with a bankruptcy lawyer can be helpful.

    Bankruptcy fraud includes:

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Posted in Setting the Record Straight about Bankruptcy | 6 Comments »

Wednesday, March 3rd, 2010

Handling Student Loans Outside of Bankruptcy

As a recent article from the Wall Street Journal highlights, student loan debt is a huge burden for many Americans. But, unlike credit card debts, student loans cannot typically be discharged in a bankruptcy filing.

And now, as layoffs and salary reductions become more and more common around the country, many once-comfortable graduates are finding themselves unable to meet the terms of their loans. Here are some ways you can handle your student debt.

Know Your Numbers

If you need to rework the terms of your student loans, consider contacting your lender. But before you do so, take these preparatory steps:

  • Outline your budget: Crunch the numbers and figure out what you can realistically afford to pay each month.
  • Read the fine print: Make sure you understand the terms of your loans as they now stand so that you’ll be ready to ask for specific modifications when you speak with your lender.

Once you’ve determined what kinds of payments you can make, familiarize yourself with your options for repayment. Depending on your circumstances, these may include the following:

  • Modify your repayment plan: Some lenders offer graduated repayment schedules, meaning you pay more per month as you go along (which can be useful if you expect to make more money in the future). If your loans are through the Federal Government, visit the Federal Direct Loan web site to see your choices.
  • Consider a deferment: Many lenders offer you a chance to defer payments for a variety of reasons (such as going back to school, working in certain fields, being unemployed, etc.). Check with your lender to see how to apply, but keep in mind that interest will likely still accrue during the deferral period.
  • Apply for forbearance: You may also be able to make reduced payments or suspend payments altogether for reasons of financial hardship but, as with deferments, interest will likely still build up.
  • Look at consolidation: Consolidation offers often prove helpful because they allow you to make a single payment each month and can even help lower interest rates. But be sure you understand the complete terms—some come with prepayment penalties.

If you’re just beginning school and considering loan options, remember that they may not seem like a big burden at this stage, but can add up quickly and should be considered carefully.

Additional Resources

Federal Student Loans: Learn the Basics and Manage Your Debt (PDF)

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Wednesday, February 10th, 2010

The Right Time to File Bankruptcy?

A refreshing article published recently in the Kalamazoo (Mich.) News underscores the role bankruptcy plays in helping filers overcome debt and draws attention to the oft-neglected question of when is the best time to file.

The article points out that too many people try to avoid filing bankruptcy at all costs and wait until they are financially desperate to file. Unfortunately, this is not always a good plan, as it may mean that filers use up retirement accounts (which are often exempt from creditors in bankruptcy court) and set themselves back for their post-bankruptcy life.

The article provides a helpful list of warning signs that filing for bankruptcy may be a good option sooner rather than later:

  • Borrowing money to pay debts: Whether you're using one credit card to pay another, relying on payday loans or hitting up family and friends for cash, this is a bad sign.
  • Dipping into retirement funds to pay debts: Again, your qualified retirement savings will likely be safe in bankruptcy court and heavily taxed if you take it out early. And once you spend that money, it's gone.
  • Falling short of minimum payments: If you cannot make even a minimum credit card payment each month, bankruptcy may be a good option.
  • Selling your goods to pay debt: If this is a one-time thing and you're shedding appliances you can do without, you may be fine. But if you're consistently scouring the house for stuff to trade for cash, you may be in trouble.
  • Getting contacted by bill collectors: Phone calls and mailings from your creditors, especially when they start to add up, can be halted by bankruptcy's automatic stay.
  • Having your wages garnished: If creditors are going straight to your employer to collect on debt, take it as a warning sign.
  • Dealing with increased tension or stress: Money can be tough on your home life. Whether you're having trouble sleeping, fighting more or just generally stressed out, you may need a serious solution for your debt.

A New Beginning

It's important to understand that filing for bankruptcy does not mean admitting defeat or failure. Rather, it is a proactive and difficult decision you must make to save your financial future. Filing for bankruptcy can:

  • Help you save your retirement fund so that you’re not destitute or a burden on taxpayers in your golden years.
  • Give you a chance to start over financially and the knowledge you need to make better decisions in the future.
  • Stop stressful contact from creditors.

Of course everyone's financial situation is different, and this post is not meant as advice for any one situation. If your finances are at their breaking point, considering contacting a local bankruptcy attorney for an evaluation.

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Monday, January 11th, 2010

When Others’ Bankruptcies Affect You

Filling for bankruptcy is a major financial decision that can impact all aspects of your finances. But, because of the way bankruptcy protection works, you can also be affected when other people file for bankruptcy, too. Here's a look at how and what you can do about it.

When a Business Files for Bankruptcy

Companies of all sizes file bankruptcy, and that move can affect employees, consumers and the community at large.

A recent article from mlive.com recounts the story of former Delphi employees who were receiving workers' compensation benefits. Since the firm's bankruptcy filing in 2005, though, the group responsible for those payments is in question, meaning that many intended recipients aren't getting their checks.

  • Contact a lawyer. If you aren’t sure about your rights or the benefits you’re entitled to, it may be a good idea to have a bankruptcy attorney on your side to ensure that someone is looking out for your best interest.
  • Know when you still pay. If you owe money to a company (say, for purchases on an installment plan or a store credit card) that has filed bankruptcy, you may still be responsible for that debt.
  • Know when you don't pay. If you bought something like an extended warranty or service plan from a company that has declared bankruptcy, you may be entitled to a refund for part or all of that purchase. It often depends on which type of bankruptcy protection the company enters.

When a Friend Files for Bankruptcy

If a friend or family member files for bankruptcy, you could be affected in a variety of ways, depending on your financial relationship with that person.

  • Cosigners: If you co-signed a loan for a person who files Chapter 7 bankruptcy, you may still be responsible for making payments on that loan. In a Chapter 13 bankruptcy, cosigners are often protected. However, it's important to recognize the financial implications of consigning a loan.
  • Former spouses: If an ex files for bankruptcy protection, you may be responsible for loans that the two of you initiated together; however, your spouse may still be responsible for child support and maintenance (alimony) payments, since these are typically not dischargeable in bankruptcy court.
  • Current spouse: If either you or your spouse decides to file for bankruptcy, it's important to decide whether you'll do so jointly or individually. A local attorney can help you make the final decision, which is usually influenced by factors such as the amount of community property you have and how your debt is allocated.

Additional Resources

Community Debt and Bankruptcy Issues (PDF)

2008 Annual Consumer Bankruptcy Demographics Report (PDF)

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Tuesday, December 29th, 2009

Top 10 Celebrity Bankruptcies of the Decade

It's been a rough decade economically, and not even celebrities were immune from financial turmoil. Some of the names on this list were no longer in the spotlight, while others encountered difficulty at the peak of their fame.

This list includes those who filed on personal debts as well as celebrity business owners who used bankruptcy to protect their brand.

  1. Randy Quaid (2000): The actor, famous for his role as Cousin Eddie in the National Lampoon's Vacation movies, had a rough decade. He ran into money problems and filed bankruptcy in 2000, ironically over a film called "The Debtors", which starred Quaid, was directed by his wife Evi, and was produced by the couple. The decade ended with Randy Quaid banned from stage acting, and the Quaids arrested for allegedly defrauding an innkeeper.
  2. Stan Lee (2001): Creator of Spider-Man, The Fantastic Four, The Incredible Hulk and The X-Men, Stan Lee got caught up in the dot-com bubble of the late 1990s. He and a business partner created Stan Lee Media, an internet-based comic book venture. However, the company quickly burned through its capital, Lee's partner was accused of securities fraud, and Lee and the company filed Chapter 11 bankruptcy.
  3. Mike Tyson (2003): After retiring from boxing and going through a divorce (plus getting a facial tattoo), the former Heavyweight champ found his finances in disarray. Tyson blamed lavish spending on cars, mansions and Bengals tigers, plus poor financial advice, for the state of his affairs, leading to his 2003 bankruptcy.
  4. Lorenzo Lamas (2004): The former Renegade and soap opera star filed bankruptcy for debts that included $200,000 for a private jet. He also owed on a Harley-Davidson motorcycle, a H2 Hummer, and alimony for his four ex-wives.
  5. Donald Trump (2004, 2009): Trump's Atlantic City hotel & resort company filed Chapter 11 bankruptcy twice this decade in order to reorganize debts related to construction. In the first bankruptcy in 2004, Donald Trump gave up his majority stake in his Trump Hotels & Casino Resorts company to creditors, which reemerged as Trump Entertainment Resorts. The second time around in 2009, Trump stepped down from the board. Trump has since reached a deal to reacquire the company.
  6. Michael Vick (2008): Vick's financial problems were directly tied to his legal ones. After being convicted on federal dog-fighting charges, Vick was left was heavy fines and no income to pay his obligations (or entourage). Vick, once of the highest-paid athletes in the country, filed bankruptcy from behind bars in 2008.
  7. Bill Buckner (2008): Sports fans will know that Bill Buckner is no stranger to bad luck. Despite a productive career in Major League Baseball, his error in Game 6 of the 1986 World Series became his legacy. After retiring, Buckner moved to Idaho and founded a car dealership. It was another error, and Buckner was forced to file bankruptcy in 2008 to recoup his losses.
  8. Lenny Dykstra (2009): Another baseball star, Dykstra became an entrepreneur after retiring from the Major League, and founded The Players Club, a glossy magazine for athletes, in 2008. The venture tanked, and led to at least 20 lawsuits. As a result, Dykstra filed Chapter 11 bankruptcy.
  9. Stephen Baldwin (2009): The youngest brother of the acting family, Stephen Baldwin had a resurgence this decade—as a professional reality show cast member. However, his appearance fees were not enough for the actor to keep up on his mortgage and other debts. Baldwin and his wife filed bankruptcy in New York in early 2009 as their home was in foreclosure.
  10. Sinbad (2009): The one-named comedian may have made a career as a family-friendly entertainer, but allegedly failed to pay taxes on his income from Jingle All The Way and his other hits. The state of California filed a lien for more than $2.5 million in unpaid taxes in 2008. Sinbad filed bankruptcy in December, 2009.

And an honorable mention goes to...

  • Jose Canseco (2008): The baseball star and New York Time best-selling author didn't file bankruptcy, but he did walk away from his Encino, Calif., mansion, which went into foreclosure after he stopped paying the $2.5 million mortgage. Canseco was one of the first celebrities to admit being caught up in the foreclosure crisis.
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Tuesday, December 22nd, 2009

What’s Forcing Americans to Consider Bankruptcy?

As America closes out 2009 with roughly 1.4 million bankruptcy filings, a new survey reveals the possible economic factors behind the surge.

Respondents were asked to select which economic factor forced them to consider bankruptcy, and how many people they know who had also considered bankruptcy in the past year.

Loss of wages and tight credit accounted for almost 90 percent of bankruptcy inquiries.

Add this graphic to your site:

One in three bankruptcy inquirers knew at least other other person who has considered bankruptcy.

Add this graphic to your site:

Read the full press release: Job Loss, Credit Crunch Driving Bankruptcy Inquiries

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Tuesday, December 15th, 2009

Shakira: I Made It Because of Bankruptcy

In a recent report from CNNWorld, Columbian-born pop singer Shakira declares that her family’s bankruptcy when she was a child motivated her to become the successful, world-famous pop star she is today.

In addition to having recorded record-breaking number of worldwide hits and a wildly successful career as a musical entertainer, Shakira founded the Barefoot Foundation, a charity that helps promote and fund education for poor children in Columbia, where she grew up.

Bankruptcy as a New Beginning

In the article, Sharkia shares her family's experience with debt, including having to sell all of their furniture. However, her parents wanted their young daughter to know that bankruptcy wasn't the worst position to be in. Shakira’s experience provides one example about what bankruptcy can and cannot do.

  • It IS a chance to start over. Those of us who have or have had problems with debt don’t need to be shamed or scolded. We know we’ve messed up. Bankruptcy offers us a chance for to start from the beginning, without the onerous weight of debt holding us back.
  • It IS NOT a life ruiner. Bankruptcy doesn’t ruin people’s lives. It provides a solution to an overwhelming problem. Yes, your credit will be temporarily hurt by a bankruptcy filing. But it—and you—can recover, assuming you heed the advice in the financial management course and develop a new relationship with money and credit.
  • It IS a major step. Shakira tells of her parents' bankruptcy as a life-changing event. And for many people, it is. Filing bankruptcy means you have to admit you’re over your head in debt and you need help getting out. But it also means you’re ready to start again and learn from your mistakes.
  • It IS NOT a scarlet letter. As Shakira shows (as well as other celebs including Larry King, Cyndi Lauper, and Abraham Lincoln), bankruptcy does not brand you for life. In fact, if you’ve got the right attitude, it can provide motivation to improve your finances and strive to reach other goals, as well.

True, most of us won’t become Shakiras or Abe Lincolns. But the lesson here is valuable just the same: debt does not define us unless we let it. So, instead of looking at your financial difficulties as a dead end, see them as an opportunity to start over and reinvent yourself. I know it’s not easy, but it’s also not impossible.

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Thursday, November 19th, 2009

Middle-Class the New Face of Bankruptcy

The middle class is increasingly resorting to bankruptcy despite college education, home ownership and other historical signs of success, according to a new study.

While the middle class's investments in higher education and real estate have typically shielded them from the hardest economic storms, that is no longer the case.

"The Vulnerable Middle Class: Bankruptcy and Class Status," a new study by Elizabeth Warren, Harvard Law School Leo Gottlieb professor of law, and Deborah Thorne, Ohio University associate professor of sociology illustrates how bankruptcy demographics have changed in recent decades.

An exclusive preview of Warren and Thorne's new book by USA Today shows how bad mortgages, rising unemployment, and the trappings of success led millions of Americans into debt.

Warren and Thorne compared annual bankruptcy filings from 1991 through 2007, and saw an increasing trend of middle class Americans, dispelling the myth that bankruptcy was a tool for the destitute or extreme spenders.

The article profiles several bankruptcy filers, including a single mother who went from earning $275,000 a year to filing bankruptcy after starting her own business, as well as a couple nearing retirement whose dropping home value left them without a safety net.

The study's authors admit that much of the data comes from recent "boom" years, and ends at the same point the recent recession began.

They expect that looking back at the past two years—and likely into the future—will show an even greater upswing in middle class Americans turning to bankruptcy protection.

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Tuesday, September 29th, 2009

5 Reasons to File Chapter 13

This guest blog entry was written by David Chang of Chang & Carlin, LLP. Chang & Carlin offer bankruptcy and real estate legal services for Chicago and its suburbs. Read David Chang's blog at http://changandcarlin.blogspot.com/

Many debtors view Chapter 7 bankruptcy as the "better" type of bankruptcy to file, and that Chapter 13 is forced upon them by the courts. However, filing bankruptcy under Chapter 13 has many benefits.

Here are 5 major reasons why people may choose file for Chapter 13 bankruptcy:

  1. Chapter 13 has protections designed to stop a foreclosure or repossession.
  2. Chapter 13 bankruptcy can protect an asset that would otherwise not be protected in Chapter 7, and would be sold to pay creditors.
  3. The debtor makes too much money to file for Chapter 7, and would not be able to file otherwise.
  4. The debtor has recently had debts discharged in a Chapter 7 case and is not eligible to file again.
  5. Chapter 13 can consolidate debts that would not be dischargeable in a typical Chapter 7 bankruptcy case.
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Thursday, August 6th, 2009

Are You Responsible for the Debt of a Deceased Relative?

When a dear family member dies, the last thing you want to think about is money – unfortunately, financial problems arise sometimes.

Besides funeral and burial costs, you may be forced to deal with the unpleasant question of financial obligations your loved one left unpaid.

Here’s what you need to know.

Protection from the Fair Trade Commission

The law that protects you from a family member’s debts is called the Fair Debt Collection Practices Act and is enforced by the FTC, a government consumer protection agency. Basically, the law outlines the following terms.

  • Who’s responsible for debts after death? In most cases, payment of any debts comes from the deceased’s estate. If money from the estate is insufficient to cover debts, they usually remain unpaid.
  • Is there a legal obligation to pay remaining debts? Most relatives are not legally required to pay debts. You may be obligated to cover debts left by a spouse; however, responsibility is often limited by state law. A bankruptcy lawyer in your state may help you learn more about state law and debt.
  • What should I do if debt collectors try to make me pay? First of all, don’t give out any of your personal information (SSN, bank account numbers, etc.). Some con artists stalk the obituaries and pose as debt collectors as a way to steal identities and money. Instead, direct the collector to the deceased’s representative (an executor of a will or an administrator).
  • Can I ignore debt collectors who contact me about debts? Technically, you can. But if you’re representing the deceased or otherwise responsible for his debts, you may want to negotiate with the collector to see if you can work out an arrangement.
  • How can I stop a creditor from contacting me? Write a letter to the collector asking her to stop attempting to collect the debt. Copy the letter and send it by certified mail so you’ll get a receipt when it arrives. After the creditor has received your letter, she can only contact you for two reasons: to announce a specific action (like a lawsuit) or to announce the end of collection attempts.
  • Can creditors tell others about a relative’s debt? Unless the creditor needs contact information for the representative of the deceased, he is generally prohibited from telling anyone besides a spouse, parent or guardian.

Learn more about filing bankruptcy and stoping creditor harassment.

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