Saturday, 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)

Tags: chapter 7 bankruptcy, chapter 7 means test, means test
Posted in Bankruptcy Courts | 7 Comments »

Wednesday, September 23rd, 2009

10 Companies that Could Face Bankruptcy

Last week, Yahoo Finance had an interesting article about 10 big companies with troubled finances.

Citing a report by Audit Integrity, an independent corporate accounting researcher, these 10 publicly traded companies had the highest probability of declaring bankruptcy. Like many of their American customers, these companies may be seeing less income coming in and debts that just won't shrink. On the list:

Hertz: financing a fleet of new models while consumers cut travel and spending.
Sprint Nextel: phone customers are fleeing for rival carriers with more popular "smart phone" models.
Macy's: customers are shying away from higher-end department stores in favor of more affordable shopping.
CBS: TV advertising dollars aren't what they used to be, and CBS's difficulty may be a sign that other broadcasters could lose their footing as well.

Whether or not any of these companies end up filing bankruptcy remains to be seen. Signs of economic recovery could find investors sighing with relief.

Corporate Bankruptcy Chapters

Like consumers, businesses typically have two options when filing bankruptcy: Chapter 7 bankruptcy and Chapter 11 bankruptcy.

Chapter 7 corporate bankruptcy works like chapter 7 personal bankruptcy, in which assets are sold, or liquidated, to repay creditors.

Chapter 11 bankruptcy is similar to chapter 13 for consumers, in which corporation enter a structured plan to repay creditors over time.

Tags: bankruptcy, Chapter 11 bankruptcy, chapter 7 bankruptcy, corporate bankruptcy
Posted in Bankruptcy and the Economy | No Comments »

Wednesday, September 9th, 2009

Bankruptcy Filing Jeopardizes Prize Money Destined for the Blind & Deaf

Months after winning $1 million on a game show, Georgia’s state superintendent of schools and her husband reportedly filed Chapter 7 bankruptcy.

However, this isn’t a story of why they filed; it's a story about what happened afterward.

In fact, according to the Atlanta Journal-Constitution, Superintendent Kathy Cox was selected to appear on Fox’s “Are You Smarter than a Fifth Grader?” partly because she wanted to play to win money for Georgia schools.

Unfortunately, getting her prize money to the children of Georgia hasn’t been as easy as she hoped.

Background: She Wanted to Spend Winning on the Blind & Deaf

Sources indicate that Cox planned to donate her TV winnings to three state-run schools for children with vision and hearing impairment.

And, as the first person ever to win the top prize of one million dollars on “Fifth Grader,” it looked like the schools would be receiving some cash.

The Filing Bankruptcy Twist

But, three months after her winning, Cox’s husband filed for Chapter 7 bankruptcy protection, largely because of debt his construction company accrued.

In a Chapter 7 bankruptcy:

A filer’s non-exempt assets can be liquidated. The money raised from the liquidation sale is then distributed among the filer’s creditors to cover debts.
The trustee determines how to distribute funds. A bankruptcy trustee, who is a federal employee, makes decisions about how much money goes to which creditors.

In the Coxes’ situation, their trustee has reportedly sued the Coxes and Fox Broadcasting Corporation in an attempt to get the prize money paid to the Coxes’ creditors rather than the schools.

Indeed, most state bankruptcy laws consider cash above a certain amount to be a non-exempt asset and therefore destined for the filer’s creditors.

Naturally, a protest has been scheduled and people on both sides of the debate are fervently determined to fight for their cause.

The Underlying Issues

Part of the reason for the hullabaloo and confusion is that the various parties can’t agree about whether Cox participated in the game show as a representative of the state schools or as an individual.

The check she received from Fox was allegedly made out to her, which complicates matters.

Ultimately, the judge who presides over the court case between the two parties will have to decide whether the money Cox earned on the show is legally hers or the state’s.

Learn more about filing bankruptcy...

Tags: bankruptcy filing, bankruptcy laws, chapter 7 bankruptcy, filing bankruptcy, game show
Posted in Bankruptcy News and Events | 2 Comments »

Wednesday, August 19th, 2009

Bankruptcies Expected to Hit 1.4 Million for 2009

All those who think the economy is on the mend and those in jeopardy of bankruptcy can take a breath of relief, please raise your hands … no one?

Well, you would be correct.

Even though there are statements by our current administration that the economy is showing clear signs of recovery, there is still the malignant fact that both personal and business bankruptcy filings are on the rise.

Think Philadelphia

In fact, in a recent article by USAToday and Bloomberg News there is a gargantuan estimation at just how large these figures will reach by the end of the year:

“Bankruptcy filings may hit 1.4 million” by the year’s end.

1.4 million, that’s more than the population of San Antonio, Texas and roughly the population of Philadelphia, PA - the city of brotherly love.

It seems there will be significant love lost as the toll of bankruptcies continues to rise.

As loans continue to remain hard to acquire, jobs continue to be lost and personal debt finds no relief, more folks will be filing bankruptcy.

We Need Jobs to Get Out of Debt

To underscore this point, the ABI (American Bankruptcy Institute) released a statement which many news wires have used in their articles surrounding these facts:

“Personal bankruptcies show no sign of abating after rising more than a third this year and may hit 1.4 million by Dec. 31 as jobs are lost and loans are harder to get.”

When the facts are reviewed, there is a clear sign that relief is far from in sight.

Consider that during the first six months of 2009 the total number of U.S. bankruptcies filed increased 36% year over year.

That’s over 189,000 new personal bankruptcy cases filed in just six months from the previous year. Why is this?

According to ABI Executive Director Samuel Gerdano, it’s because of the increasing unemployment coupled with pre-existing debt.

“Rising unemployment on top of high pre-existing debt burdens is a formula for higher bankruptcies through the end of this year," Gerdano said in a statement.

Although these figures seemingly take the air out of our nation’s sails, the even more frightening thing is that they don’t even touch on our country’s business related bankruptcies.

Don't Forget About Businesses Filing Bankruptcy

For the same time period, business filings totaled 30,333. This represents a 64% increase over the first-half 2008 which totaled 18,456 cases.

Segmenting this figure, it was found that chapter 11 business reorganizations increased by 113% (7,396 compared to the 3,470 from 2008), and Chapter 7 bankruptcy business liquidations increased to 20,375 which was a 57% increase over the 13,002 filings from the same 2008 time period.

So it seems while certain figures can be released in an effort to cast a more favorable light on our current economic plight, possibly in an effort to prod consumers to spend more, maybe to encourage employers to get back on the hiring wagon or simply to offer a glimmer of hope for those close to the edge, it cannot hide the facts.

What is failed to be considered in these veiled attempts is that numbers don’t lie and we as a nation are far from separated from the disastrous financial uncertainty which will define this period in our nation’s history.

Tags: bankruptcies, chapter 7 bankruptcy, filing bankruptcy
Posted in Bankruptcy News and Events, Financial Literacy | 1 Comment »

Friday, July 24th, 2009

Celebrity Bankruptcy: 5 Baseball Players Who Went Bankrupt

Money troubles come to the best of us.

Check out these MLB players who turned to filing bankruptcy when their money troubles caught up to them:

Lenny Dykstra, former star center-fielder for the New York Mets and Philadelphia Phillies, filed for Chapter 11 bankruptcy protection this month. He has no more than $50,000 of assets and between $10 million and $50 million of liabilities.
Bill Buckner, a former Red Sox player, went bankrupt in 2008 after his post-athletic career car dealership failed.
Baseball Hall of Famer Gaylord Perry went bankrupt in 1987 after filing for Chapter 7 bankruptcy. Having played for an astounding eight different MLB teams over the course of his 35-year career, Perry’s post-MLB career farming endeavors failed in the mid-eighties.
Pitcher and predicted Hall of Fame nominee Tony Gwynn filed bankruptcy in his sixth season in the league, citing back taxes of slightly over $1 million and poor investments, which he blamed mainly on his agent.
Rollie Fingers, a Hall of Fame pitcher inducted in 1992, filed bankruptcy in 1989 after investments in pistachio farms, Arabian horses and wind turbines went awry. It’s said he owed more than $4 million and his assets were listed as less than $50,000. He was also involved in a tax scandal in 2007.

Tags: bankrupt, baseball players, celebrity bankruptcy, chapter 7 bankruptcy, filed bankruptcy, filing bankruptcy
Posted in Bankruptcy News and Events | No Comments »

Sunday, May 31st, 2009

Ex-Chicago Bull Bankrupt, Sells Championship Rings

Not so long ago, Randy Brown was a part of the most dominant force in basketball.

Brown, recently dismissed as an assistant coach of the Sacramento Kings, played guard for the ’96, ’97 and ’98 Chicago Bulls.

Those Bulls teams won consecutive championships, due largely to a legendary starting lineup that included Michael Jordan, Scottie Pippen and Dennis Rodman.

Brown was a supporting player, coming off the bench for the Bulls, but his contributions still helped the club achieve a best-ever record of 72 wins and 10 losses in ’96 and Brown received a championship ring each year, the same ring awarded to Jordan, Pippen and coach Phil Jackson.

But not even champions are immune to difficult financial conditions.

Brown filed for Chapter 7 bankruptcy last year, and his championship rings were recently put up for auction.

“It’s a tough situation,” says Dennis West, of West Auctions, the company responsible for the sale.

“Randy seems like a really good guy, and he was a great player. However, these are tough times for a lot of people from a variety of backgrounds. People are making difficult financial decisions, and for some, that means bankruptcy.”

On May 19, the auction began, with the bidding beginning at $19,000.

As a coach, Brown was known for getting the most out of his players and he worked hard throughout the Kings’ recent struggles.

Sacramento in the past five years is about as far from Chicago in the mid-nineties as a basketball player can be, but the assistant coach was well liked by players and fans in both cities.

When the bidding ended, the three rings sold for $58,833.

The winner is currently anonymous, using the online identity of “RingKing.”

Unlike a traditional auction, RingKing will not get to keep his secret—the identity of the winning bidder will be disclosed as part of the public record because the sale took place as part of a bankruptcy filing.

RingKing beat out several other motivated bidders.

One of the finalists was Estee Portnoy, who has served as Michael Jordan’s publicist for many years.

Portnoy’s top bid was $40,000, and she would not confirm that she was bidding on the rings in order to return them to Brown.

“I didn’t have any special motivation,” she said. “I’m just disappointed I didn’t win.”

Brown talked about the impending sale of his rings in an interview with the Sacramento Bee. He admitted that the loss of the rings was harder on him than most people suspected.

“People figure that here’s this guy…he’s played in the NBA, he just got fired, he’s broke, and here he is giving up his championship rings. That hurt me, because those [rings] meant a lot to me.”

The championship rings did not qualify as “essential personal belongings” in Brown’s bankruptcy liquidation, but most individuals going through the process do not have similarly valuable “unprotected” assets.

In any case, the message is clear: bankruptcy offers debtors protection, but often requires them to make difficult choices along the way.

Sources: Chicago Sun-Times, United Press International

Are you struggling to pay the bills? Learn more about filing bankruptcy

Tags: bankruptcy, Chapter 7, chapter 7 bankruptcy, Randy Brown
Posted in Bankruptcy News and Events | No Comments »

Tuesday, May 26th, 2009

New Credit Card Law Just Passed ~ Why It Matters to You

President Obama signed into law the Credit Card Accountability Responsibility and Disclosure Act of 2009 on May 22, a sort of “Bill of Rights” for credit cardholders that’s been in the works for some time.

Keeping with his campaign-style messages of individual responsibility, Obama reportedly called on both consumers and credit card issuers to act responsibly and fairly with credit.

In earlier posts about this bill, we outlined some of its potential benefits and drawbacks. Here’s what the final form of the law does.

Prohibits Unfair Changes in Interest Rates & Modifications, including:

Universal default on existing balances and arbitrary increases to interest rates
No interest rate increases without periodic reviews of a borrower’s status and decreases to the interest rate if shown necessary by the review
Interest rate increases in the first year of a card’s activation
Introductory rates and terms that last less than six months.

Prohibits Unnecessary and Excessive Fees, specifically:

Fees for certain electronic and digital payments
Over-limit fees for transactions not okayed by the cardholder
Penalty fees that are unreasonable or disproportionate to the offense
General excessive fees and penalties on low-limit, high-interest cards

Demands Fairness in Timing & Application of Card Payments, specifically:

Payments over the minimum must be applied first to balances with highest interest rate
Early morning payment deadlines are banned
Bills must be sent 21, rather than 14 days prior to their due date

Protects the Interests of Responsible Credit Users by:

Prohibiting double-cycle billing
Prohibiting late fees for billing postponed by the card issuer
Demanding same-day credits for payments posted at local branches
Requiring that card issuers consider a borrower’s capability to pay before issuing a card

Requires Improved Disclosures on Card Terms & Conditions, specifically:

45-day notice requirement for fee and interest increases
Issuer-provided notices to borrowers upon card renewal of any modification to terms
Issuer-provided estimate of length of repayment period if only minimum payments are made
Full late-fee disclosure in each bill.

Increases Oversight of the Credit Card Industry by:

Requiring issuers to post terms & agreements on the web and distribute a copy to the Federal Reserve Board to post as well
Requiring the Federal Reserve Board to review the current state of consumer credit
Requiring the FTC to prohibit advertising “free” credit reports other than those available at www.annualcreditreport.com

Improves Protections for Young Cardholders by:

Requiring parents or guardians to effectively cosign card agreements for those under 21
Limiting pre-approved card offers to young people
Restricting interest increases for young people’s cards unless adult cosigner approves the increase
Improving student protection against cards marketed at universities.

The Other Consumer Protections

The new credit card law also includes protections for small businesses, rules about gift cards and provisions for promoting financial literacy.

If you're struggling with credit card debt, consider filing bankruptcy.

Tags: chapter 7 bankruptcy, credit card, credit card law
Posted in Credit and Bankruptcy | 2 Comments »

Thursday, May 21st, 2009

Student Loans: Can They Be Discharged by Filing Bankruptcy?

For many recent college graduates in the United States, the party is over (or nearly over) and life in the “real world” is about to begin.

Thanks to historically high education costs and the struggling economy, graduates across the country are likely worried about paying off education loans.

In most cases, student loans can't be discharged in Chapter 7 bankruptcy, which means that students and recent graduates should stay on top of these loans if at all possible.

Here are a few tips for new grads looking to start their careers as degree-holders on the right financial foot.

Deferment & Forbearance

In many cases, graduates are not required to begin paying back student loans immediately after graduating. Some lenders offer a six-month “grace period” before payments come due.

Many borrowers also qualify for deferment or forbearance of their payments.

• Deferment: Deferment allows borrowers to postpone payment on their loans for a variety of reasons (for example, if the borrower remains a student by pursuing a second degree). When a subsidized loan is deferred, no payments are made and no interest accrues; when an unsubsidized loan is deferred, no payments are made but interest does accrue.
• Forbearance: Forbearance works by temporarily reducing (to as little as nothing) the amount of money a borrower owes each month. Various financial difficulties can qualify a borrower for loan forbearance.

Loan Consolidation

If you don’t qualify for forbearance or deferment, or if you’ve already exhausted your options, you may want to consider consolidating your loans to ease your payments.

The government’s borrower services Web site for student loans provides graduates with applications and instructions for consolidating their loans into a single payment.

Some advantages of loan consolidation include the following:

You’ll only have to write checks to a single lender each month, the Department of Education. Further, you’ll only have a single payment to make, rather than several.
You have four repayment plans to choose from, and you’re permitted to switch from one to another if your financial circumstances change.
You may be able to reduce the dollar amount of your monthly payments (although this will likely mean a longer repayment period).
There is no maximum or minimum dollar amount you can have to qualify for loan consolidation.

Finding a Job After Graduation

Of course, you can’t make any payments if you don’t have any money coming in. This BusinessWeek.com article details the best job markets for recent college graduates in the current economy.

And, finally: congratulations if you’ve just earned a degree and good luck with the next phase of your life!

---Learn more about filing bankruptcy

Tags: bankruptcy, chapter 7 bankruptcy, loan consolidation, student loans
Posted in Financial Literacy | 1 Comment »

Monday, May 4th, 2009

What Happens When Bankruptcy & Divorce Intersect?

Sometimes, one traumatic life event causes another – as when a serious illness, injury or divorce pushes you to file for bankruptcy.

Bankruptcy after divorce can be tricky to understand, largely because both involve complex legal systems. Here are the basics of what happens in a bankruptcy after a divorce:

No Joint Filing Bankruptcy Petitions after Divorce

Once you and your spouse are legally divorced, you no longer have the option of filing a joint bankruptcy petition. But, depending on which chapter of bankruptcy you choose, one spouse’s filing could still affect the other.

Filing Divorce: The Division of Debts and Assets

As you probably know, divorces usually involve a division of marital property and debts between the divorcing parties. Depending on the laws in your state, you and your spouse will take responsibility for various debts and possession of various belongings.

The Chapter 7 Debt Discharge

The bankruptcy court does not always recognize the designations of the divorce court, though.

If one spouse files for Chapter 7 bankruptcy and receives a discharge for a debt that was jointly held during the marriage, creditors may have legal recourse to collect that debt from the other spouse.

The Chapter 13 Repayment Plan

The Chapter 13 repayment plan often allows bankruptcy filers to protect cosigners (and co-debtors) who have not filed a bankruptcy petition. Because many debts are eventually repaid in Chapter 13 bankruptcy, the likelihood that the other spouse would have to take on responsibility for a debt is typically lower in Chapter 13.

But Keep in Mind...

Although bankruptcy offers financial relief for many types of debt, some debt cannot be discharged by the bankruptcy court, such as:

• Alimony/spousal maintenance
• Child support
• Most student loans
• Most tax debt
• DUI & other criminal penalties and fines

If you’re worried about being able to afford child support and/or alimony payments (for example, because of a recent reduction in your income), you may be better off consulting with your divorce attorney about modifying the terms of your divorce than filing for bankruptcy.

However, bankruptcy can offer you relief by excusing you from other, less essential debts and thus freeing up more of your money to put toward the maintenance of your children and former spouse.

As always, consider seeking legal counsel before proceeding with bankruptcy, either before or after a divorce case.

Tags: bankruptcy, bankruptcy and divorce, chapter 13 bankruptcy, chapter 7 bankruptcy
Posted in Setting the Record Straight about Bankruptcy | No Comments »

Tuesday, April 7th, 2009

When Businesses Are Filing Bankruptcy

As the economic tumult continues, news stories about businesses considering filing bankruptcy continue.

So what does it mean when a major company seeks the protection of the bankruptcy court?

Like personal bankruptcy, it depends what chapter the business files under.

Chapter 11 Bankruptcy

Chapter 11 is almost exclusively used by businesses in financial difficulty.

Like Chapter 13 bankruptcy for individuals, Chapter 11 allows businesses to reorganize their debts.

As with individual filings, the automatic stay protects companies during the process.

Notable differences between Chapter 11 and Chapter 13 bankruptcy include:

If a company is worth less than it owes - that is, its debts exceed its assets - ownership of the company reverts to the creditors after bankruptcy reorganization. This means that the company’s “owners” exit bankruptcy owning no part of their company.
A company can be in Chapter 11 for as little as a few months or as long as several years – it depends on the complexity of the plan agreed upon by interested parties.
Stocks for a company are generally delisted after a Chapter 11 bankruptcy filing. This means that shareholders are left with valueless stocks.

When a company is filing bankruptcy under Chapter 11, it can usually still conduct business, and, as a consumer, you may not notice too many differences in day-to-day operations.