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Wednesday, February 8th, 2012

More than $500K in Debt, Bookstore Chooses Bankruptcy

An Atlanta-area bookstore surprised its fans last week when it filed for Chapter 7 bankruptcy protection to deal with its $508,673 in debts. At the time of the filing, it seems, Outwrite Bookstore had less than $300 in its checking account, a circumstance that underscored the dire financial straits the bookstore found itself in.

Part of a Larger Trend

While Outwrite’s Chapter 7 filing in particular came as a surprise (the bookstore had admitted financial troubles in recent months, but had apparently held a fundraiser to help with relocation costs even as it was paying a bankruptcy lawyer to help it draw up plans for winding down), its place in the grand scheme of booksellers these days is nothing new.

With online giants like Amazon underselling most of its competition, many independent (and even not-so-independent, ahem, Borders) brick-and-mortar sellers have felt a serious strain.

Individual Chapter 7 vs. Business Chapter 7

When Outwrite filed its Chapter 7 petition, the bookstore cited only $78,311 in assets, compared with its debts exceeding $500,000. Most of those assets, it seems, took the form of office supplies and inventory the store still had on hand.

It’s not entirely uncommon to see individual Chapter 7 bankruptcy cases with similar disparities in debt and assets. Here’s why Chapter 7 bankruptcy tends to work well for those with few assets to their name:

  • Chapter 7 bankruptcy offers a full discharge of certain debts, meaning that filers are not required to repay those debts. For a business like Outwrite, choosing Chapter 7 makes sense when there’s no clear way to earn the money needed to repay creditors. For individuals, Chapter 7 can provide relief from debts that are unrealistically higher than a filer’s income (such as exorbitant medical bills or credit card debts).
  • Filers can keep their necessities. Chapter 7 bankruptcy is a form of protection, not punishment. Filers are granted several “exemptions,” which outline property a filer can keep in order to make a fresh financial start after the bankruptcy case is finished. Any property or assets that the court deems unnecessary to reasonably make a living may be sold in a liquidation sale.
  • Chapter 7 offers relief from creditors. Chapter 7 filers enjoy the legal protection of the automatic stay during their bankruptcy cases. This stay prevents creditors from taking any collection actions against them. Once a debt is discharged in bankruptcy, creditors have no legal claim to it, and cannot rightly take collection action.
  • Chapter 7 moves quickly. In a matter of months, filers can complete the bankruptcy process and restart their lives uninhibited by the debts of their past. In their lives after bankruptcy, filers are free to rebuild their wealth.

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Posted in Economic News: How Are We Doing? | 1 Comment »

Wednesday, February 1st, 2012

Bankruptcy Class Action Settlement Update

In 2009, a class action lawsuit brought in California challenged credit-reporting bureaus TransUnion, Equifax, and Experian with improperly reporting debts that had been discharged in bankruptcy. The defendants (that is, the credit-reporting bureaus) eventually came to a settlement with the plaintiffs (the people responsible for bringing the suit), to the tune of $45 million.

The court approved the settlement by issuing an Order Granting Final Approval, but on August 12, 2011, the defendants filed a brief challenging that order, in regards to attorney fees and costs of the case. The result of this appeal won’t be known until at least later this year: the deadline for Appellants to file relevant briefs with the court is January 23, 2012, and Appellees have until February 24, 2012.

Will You Get Settlement Money?

The lawsuit was brought because Equifax, Experian, and TransUnion improperly reported debts that had been discharged in bankruptcy on consumers’ credit reports. Rather than noting that these debts were “discharged through bankruptcy,” the credit bureaus noted that they were “120 days late” or that they had been charged off by the credit issuer.

Incorrectly reporting the status of a debt is illegal (which is why the lawsuit was filed), but it also caused a lot of grief for the people affected. When a debt is still reported as active, debt collectors may try to collect on that debt.

The result was that people who had filed for bankruptcy and gone through the entire bankruptcy process precisely to eliminate their debts and stop getting hassled by debt collectors were having to deal with debt collectors anyway (along with the stress of trying to sort out why their credit reports were incorrect).

You are eligible to collect some of the settlement if…

  • You are a member of the “class” represented by this class action case. To be a part of the class, you must have received a Chapter 7 bankruptcy discharge AND had a credit report issued by one of the defendants (i.e. the three credit reporting bureaus) between March 15, 2002 and May 11, 2009 with incorrectly reported discharged debts.
  • You must have submitted a claim form with relevant information no later than November 30, 2009.

If you missed the deadline, however, don’t worry too much. Even though the settlement amount seems large, it will be spread out over so many individuals that it likely won’t result to more than a few dollars per person.

If, however, you’re interested in exploring other legal options regarding errors on your credit report, you may want to consult with a lawyer about the recourse available to you.

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Posted in Miscellaneous News, The Law and Your Money | 1 Comment »

Tuesday, October 18th, 2011

New Bankruptcy Court Fee Schedules

Effective November 1, 2011, a new fee schedule will apply to all bankruptcy cases. The Judicial Conference of the United States agreed on the fee increases in mid-September and will use the proceeds generated to fund Judiciary needs.

Here’s a look at the new fees, the old fees, and what the changes might mean for you.

New Bankruptcy Fees

Most bankruptcy filers’ primary concern is the fee charged to file the bankruptcy petition with the court.

  • Chapter 13 bankruptcy: Formerly $274, the fee is now $281.
  • Chapter 11 bankruptcy: Formerly $1,039, the fee has been raised to $1,046.
  • Chapter 7 bankruptcy: Formerly $299, the fee has been raised to $306.

Luckily for most filers, the total increase in basic filing fees is not drastic; however, some critics of the bankruptcy system have complained that the fees were already prohibitively high for individuals truly struggling to make ends meet.

Other Bankruptcy-Related Fee Increases

In addition to the basic filing fee increases, the Judicial Conference also hiked fees associated with other parts of the bankruptcy process. The services whose fees have been altered include:

  • Certification: Formerly $9, now $11;
  • Exemplification: Formerly $18, now $21;
  • Audio Recording: Formerly $26, now $30;
  • Amended Bankruptcy Schedules: Formerly $26, now $30;
  • Record Search: Formerly $26, now $30;
  • Adversary Proceeding Fee: Formerly $250, now $293;
  • Document Filing/Indexing: Formerly $39, now $46;
  • Title 11 Administrative Fee: Formerly $39, now $46;
  • Record Retrieval Fee: Formerly $45, now $53;
  • Returned Check Fee: Formerly $45, now $53;
  • Notice of Appeal Fee: Formerly $250, now $293; and
  • Lift/Stay Fee: Formerly $150, now $176.

Which Fees Apply to My Case?

Because no two bankruptcy cases are exactly alike, it’s not easy to determine which of the fees listed might affect your bankruptcy case. As a bankruptcy lawyer can explain to you, the complexity and intricacy of your bankruptcy filing can affect the duration and costs of the case, which is affected not only by bankruptcy court fees but often by certain legal fees as well.

One way to keep bankruptcy fees to a minimum is to pay careful attention to the advice you receive from your lawyer. A lawyer may guide filers on what paperwork to prepare, how to complete bankruptcy forms, and otherwise how to proceed with a case.

Taking note of the rules and regulations that govern bankruptcy court early on in the proceedings may prevent you (and the bankruptcy judge, your trustee, or creditors) from having to return to the bankruptcy case to investigate or contest part of the information.

If you are truly unable to afford the fees associated with filing for bankruptcy, you may qualify for a bankruptcy fee waiver, about which a bankruptcy lawyer can tell you more.

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Posted in Filing Requirements, The Bankruptcy Courts | No Comments »

Tuesday, September 6th, 2011

Solar Panel Producer Announces Bankruptcy Plans

Last week, Silicon Valley-based solar company Solyndra laid off more than 1,000 workers and announced plans to file for Chapter 11 bankruptcy. The move made waves in part because the company had appeared promising to many investors: Solyndra attracted more than $1 billion in venture capital and a $535 million loan guaranteed by the federal government.

The company appeared to have everything going for it: it had developed new technology to improve the design of existing solar panels and it emerged at a time (2008) when investors were eager to back “green” technology.

But a number of factors got in its way of success:

  • Changing solar equipment prices: Solyndra apparently entered the market at a time when materials to make solar panels were expensive and watched the value of its equipment decline over time.
  • Increased competition from China: When Solyndra was in its early stages, competition from China was reportedly shaky and not well established. Over the course of Solyndra’s growth, solar panels produced in China gained credibility on world markets. Plus, the Chinese government subsidizes production.
  • Oversupply: Globally, more solar panels have been produced than people have been interested in buying. Part of the diminished demand can be blamed on the recession.

Learning from Bigger Bankruptcy Filings

If nothing else, the fate that Solyndra is facing serves as a welcome reminder to individuals considering filing bankruptcy. Many factors that lead people to choose bankruptcy protection are beyond any individual’s control.

In fact, bankruptcy filing surveys consistently note that top reasons people file for bankruptcy include:

  • Divorce;
  • A birth or death in the family;
  • Job loss or reduction;
  • An unexpected illness or injury; and
  • Natural disasters.

As part of its Chapter 11 bankruptcy, Solyndra will likely sell off parts of itself (such as its thin-film solar technology) that are valuable, if not workable for the company at present. Individuals can learn from this, too, and consider some of the following cash-raising techniques before or during bankruptcy:

  • Get a part-time gig: Many people have talents from which they make no money. As part of a bankruptcy recovery, consider selling those services.
  • Lighten the load: In Chapter 7 bankruptcy, filers’ non-exempt assets are sold to raise money for creditors as part of the bankruptcy process. Chapter 13 filers could try something similar, by selling unneeded items online or via a yard sale.
  • Don’t be discouraged: A number of high-profile investors (including the federal government and the Walton family of Wal-Mart fame) supported and helped fund Solyndra. Sometimes, even the best-laid plans end badly. Bankruptcy gives individuals and businesses a chance to move forward.

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Posted in Economic News: How Are We Doing? | 1 Comment »

Monday, August 22nd, 2011

How Can Social Media Affect Bankruptcy?

Most of us have heard warnings about how social media can affect our lives in unexpected ways (e.g. robberies that occur when people post their out-of-town status on Facebook), but the effect of social media on bankruptcy filings is less well known.

Here’s a look at how your online presence might affect your bankruptcy case (and why it’s so important to avoid bankruptcy fraud).

Social Media: Assets, Spending Habits, Income

The bankruptcy petition all filers must complete and submit to the bankruptcy court requires a lot of information about the state of the filer’s personal finances. Putting incomplete or incorrect information on a bankruptcy petition could result in charges of bankruptcy fraud (which can come with jail time and fines of up to $500,000) or the dismissal of a bankruptcy case.

When you’re filing out your bankruptcy paperwork, keep in mind that social media can affect all of the following.

  • Asset list: You may not think of Facebook as a place where you catalog your possessions, but pictures from birthdays and holidays (and even shots around the house) often include our stuff. If you fail to mention new electronics, jewelry or other valuable items in your bankruptcy petition, a savvy trustee could comb through your Facebook pictures and find evidence that your paperwork was wrong. This could prevent you from getting your discharge or mean you have to pay for the non-exempt portion of those assets.
  • Luxury expenses: In Chapter 7 bankruptcy, credit card debt is usually dischargeable (i.e. the bankruptcy court can eliminate most credit card debt). The exceptions to this rule include credit card purchases for luxury goods or services made within 90 days of filing the bankruptcy petition. So pictures online of you and your family on vacation just before you filed for bankruptcy could raise some uncomfortable questions with your bankruptcy trustee. And if the vacation was on a credit card and was within three months of submitting the bankruptcy petition, there’s a good chance you’ll have to pay those debts.
  • New jobs: In Chapter 13 bankruptcy, filers are required to make repayments to their creditors over a period of three to five years. Those payments are calculated based on a filer’s disposable income at the time of the filing, although if that income changes during the course of the repayment plan, the amount of the monthly payments should change too. So if you get a raise or a great new job and tweet about it or post about it on Facebook but don’t tell your bankruptcy trustee, you could still end up having to pay more to your creditors.

Privacy in Social Media

Even if you keep your social media profiles private, you aren’t in a “protected” zone. That’s because the bankruptcy court can subpoena your online information and thus uncover anything you’ve posted online.

Bottom line: don’t lie on your bankruptcy forms. And don’t post anything online you don’t want your bankruptcy trustee to know.

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Posted in Economic News: How Are We Doing?, Finance 101: Secure Your Future | No Comments »

Monday, August 8th, 2011

Can Bankruptcy Help with an Underwater Car?

The housing crisis has led to plenty of attention for homeowners who are underwater on their mortgages – that is, who owe more on their homes than the properties’ current value. Less press time has been devoted to other types of underwater loans, particularly those for cars.

The good news? Filing for bankruptcy may help you out of an underwater car loan (also sometimes called an “upside down” loan). Here’s a look at how things might work.

Underwater Car Loans in Chapter 7 Bankruptcy

Those who file Chapter 7 bankruptcy may handle an underwater car loan in one of three ways:

  • Surrender the car. This option means giving up the vehicle and eliminating the debt connected to it. While this isn’t a practical option for those who need a vehicle, it may be useful for folks who have other transportation options.
  • Redeem the car. This option lets filers repay creditors the remainder of the car’s fair market value in a lump sum. In other words, you pay your lender the car’s current value minus whatever amount you’ve already paid. This tends to benefit those with underwater loans and enough cash on hand.
  • Renew the loan. This choice may work for those who do not have the cash to redeem their cars and who need them for transportation. Loan renewal equals an agreement to continue making payments as outlined in the original loan papers. Chapter 7 bankruptcy may make these more manageable by discharging other debts and thus freeing up enough money to allow for car payments.

Underwater Car Loans in Chapter 13 Bankruptcy

Chapter 13 bankruptcy requires filers to make monthly payments to their creditors over a three- to five-year period. In Chapter 13, car loans:

  • Older than 910 days may be eligible for “cramming down.” This requires filers to continue making car payments, but only for the vehicle’s fair market value (not for the entire loan amount).
  • Less than 910 days old generally require full repayment. However, some Chapter 13 filers are able to repay their car loans at lower interest rates than those outlined in their original loan agreements.

Determining a Car’s Real Value

If you plan on including an underwater car loan in your bankruptcy filing, it’s important to make sure you understand how car values are assessed for the court’s purposes. You have to provide a value for your car as part of your bankruptcy petition and you must swear to the accuracy of that value as part of your case.

Misleading or blatantly false information could lead to charges of bankruptcy fraud, so you may want to do some research and/or consult with your lawyer before settling on a value.

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Posted in Filing Requirements, The Law and Your Money | 1 Comment »

Wednesday, August 3rd, 2011

Payday Lender Pays Big for Misdeeds

The Federal Trade Commission has scored another win for consumers. Last week, it convinced a federal court to rule that payday lending company Swish Marketing must pay $4.8 million as a penalty for tricking consumers into buying expensive debit cards they didn’t want.

The case highlights abuses that consumer advocates continue to fight against, including deceptive online advertising and negative-option marketing. Here’s a look at the case and what the FTC’s action might mean.

  • Online payday lending: The company’s web site reportedly claimed that it matched online consumers with payday lenders to meet their needs.
  • Hidden products attached: When consumers completed the online loan application, they were apparently directed to a screen that included four additional offers. Of these, three offers had a “no” box checked and one had the “yes” box checked. In some cases the additional offers were presented as a “bonus.”
  • Automatic charges: Customers who didn’t notice the “yes” box or who didn’t read the fine print ended up with a debit card that automatically connected to their bank account and charged them $54.95.

Expensive Products, Debt-Ridden Buyers

In addition to being illegal, deceptive marketing practices like the ones Swish Marketing engaged in tend to prey on those who can least afford them. In many Chapter 7 cases, for example, some of the unsecured debt that filers discharge comes from payday loans.

Payday loans are short-term, high-interest loans that often lead to serious debt for those unable to make ends meet. They provide an immediate source of cash but come with a high price tag in the long run.

Penalties for the Payday Lender

Thanks to the FTC’s action, Swish Marketing and its owners are now prohibited from:

  • Misrepresenting relevant facts about a product or service. Its improper sale of debit cards failed to explain how customers would be charged and how much the product would cost.
  • Improperly identifying a product as a “bonus.” The previous offer didn’t provide sufficient information about the “bonus” debit card, which left consumers unable to make an informed decision about whether or not they wanted such a “bonus.”
  • Charging consumers without disclosing privacy plans. Related charges against the company addressed the fact that it reportedly sold or shared customer information without warning that it would do so.
  • Failing to make sure affiliates follow the rules. From now on, Swish will be held responsible for the actions of any company it works in tandem with.

The FTC did not report how the $4.8 million will be distributed. In many similar cases, funds are used to refund money consumers lost as part of the scam.

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Posted in Predatory Lending | 1 Comment »

Wednesday, July 27th, 2011

Bankruptcy Fraudster Finally Headed for Jail

Bankruptcy fraud is a serious crime, as the story of Brent Farris illustrates.  According to the Kansas City Star, St. Louis resident Farris pleaded guilty to bankruptcy fraud in 2004 but fled the country and avoided getting caught until earlier this year.

Here’s a look at his somewhat sensational case.

  • In 2002, Farris, who at the time owned an art gallery in St. Louis, reportedly filed for bankruptcy.
  • During the case, he concealed from his bankruptcy trustee a painting worth about $300,000 with the intention of selling it later and keeping the profits.
  • The trustee suspected fraud and when Farris faced charges in 2004, he pleaded guilty and was sentenced to 20 months in prison and a fine of $300,000.
  • Farris reportedly fled the country before his sentence began and spent the next five years (from 2004 to 2009) on the lam, hopping between 14 countries.
  • In 2009, sources note that Italian authorities apprehended Farris, but he managed to break his house arrest and flee again.
  • Last year, Farris was discovered in Mexico. In March, he apparently pleaded guilty to the charges of failing to appear in court and was sentenced to 14 months in prison.

Who Does Bankruptcy Fraud Hurt?

In order to understand why the penalties for bankruptcy fraud are so severe (the maximum sentence is a five-year prison sentence and damages or fines up to $500,000), it helps to understand who’s hurt by bankruptcy fraud.

Consider this:

  • Bankruptcy protection is designed to help consumers. By giving consumers an alternative to repaying their financial obligations as originally agreed, bankruptcy provides a sort of emergency exit for those who get in over their heads financially.
  • Bankruptcy can hurt creditors. Of course, when a person does not repay a debt, someone loses out. Both Chapter 7 and Chapter 13 bankruptcy are designed so that creditors are often able to recover some of the money they lent to filers, though usually not the full amount the filer owes.
  • Bankruptcy fraud cuts into the creditors’ repayment. Concealing or transferring property before bankruptcy (or otherwise engaging in fraudulent behavior) reduces the amount of money creditors get from a bankruptcy case. And while it’s easy to paint the creditors as the bad guys, it’s important to remember that they’re often powerful organizations. Translation: if too many big companies are unhappy with the way bankruptcy laws work, they’ll likely lobby Congress until those laws are changed. After all, such changes were already introduced in the form of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

If you’re considering a bankruptcy filing, it’s important to make sure you avoid committing fraud, either intentionally or accidentally. A bankruptcy lawyer in your state can explain the laws more explicitly and help you keep your paperwork aboveboard.

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Posted in The Bankruptcy Courts, The Law and Your Money | No Comments »

Tuesday, July 26th, 2011

Borders’ Bankruptcy: Reorganization to Liquidation

The Borders bankruptcy case currently making headlines provides a helpful illustration of the difference between the two main forms of bankruptcy, reorganization and liquidation. Here’s a look at what we can learn about personal bankruptcy from the Borders situation.

Reorganization: Chapter 11 and Chapter 13 Bankruptcy

Reorganization bankruptcy is exactly what its name suggests: it allows filers to reorganize their debts and assets to catch up on overdue payments. When a business files for reorganization (usually under Chapter 11 of the U.S. Bankruptcy Code):

  • It continues operating. Some store branches may close and the company may “streamline” its operations to make itself leaner and more likely to turn profits when the bankruptcy concludes.
  • It repays creditors. Chapter 11 cases, like Chapter 13 cases, include a plan that allows the filing company to compensate its creditors at least in part for its debts.
  • It tries to emerge stronger. The goal of a business reorganization is to trim the fat and let the company get back on its feet with a more workable model.

The Borders situation, though, seems unable to benefit from a Chapter 11 bankruptcy. Sources suggest that this is because of a number of factors, including the weak economy, the changing face of books and the fierce competition it faces from online booksellers.

When an individual enters a reorganization plan (usually under Chapter 13 of the U.S. Bankruptcy Code), she also makes payments to her creditors. At the end of the repayment period (usually three to five years), her goal is to emerge debt-free and with financial habits that will keep her that way.

Liquidation: Chapter 7 Bankruptcy

When a company liquidates (under Chapter 7 of the U.S. Bankruptcy Code), it sells off its assets and ceases operations. In other words, if Borders does indeed file for Chapter 7 bankruptcy, it will no longer be around. Business liquidations usually:

  • Involve a sale: This might come in the form of an “everything must go” sale of merchandise in stores, an auction to other businesses, or some combination of the two.
  • Lead to partial repayment: The proceeds from the sales are generally used to repay in full or part any creditors to which the company owes money at the time of filing.
  • Mean job losses: In Borders’ case, the company would have to close its 399 remaining stores and likely lay off the more than 10,000 people it currently employs.

Individuals who file for Chapter 7 usually don’t have enough income to make repayments to creditors. The liquidation part of an individual bankruptcy filing involves the bankruptcy trustee selling a filer’s non-exempt assets to raise money to repay creditors in part.

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Posted in Bankruptcy News and Events, The Truth about Bankruptcy | No Comments »

Wednesday, July 13th, 2011

Personal Bankruptcy Filings Down This Year

Recently released data show that consumer bankruptcy filings in the first half of 2011 fell by eight percent compared with the first half of 2010. The numbers, reported by the American Bankruptcy Institute, paint a potentially hopeful picture for the overall rate of economic recovery:

  • From January 1, 2011 to June 30, 2011, a total of 709,303 personal bankruptcy cases were filed in the U.S.
  • In the first six months of 2010, 770,117 personal bankruptcy cases were filed.
  • This year has seen eight percent fewer personal bankruptcy filings than last year.
  • Personal bankruptcy filings in June 2011 also fell compared to those in June 2010: 119,768 cases were filed this year; 126,270 cases were filed in June 2010.
  • Compared to May of 2011, June filings rose by four percent.

What Do Personal Bankruptcy Filings Mean for the Economy?

It’s impossible to measure the health of the economy by looking at only a single indicator. But still, these bankruptcy numbers seem to follow other trends in economic factors:

  • Overall, unemployment has been steadily decreasing for several months. The pace of the decrease has been slow – this seems to mirror the slight decrease in personal bankruptcy filings and suggest a gradual economic recovery.
  • The last two months have shown slight upticks in the unemployment rate, which might also be reflected in the May-to-June increase in bankruptcy filings.
  • Bankruptcy filings are still on pace to hit or surpass a million this year, meaning that the economy is still a long way from fully healthy.

What Can Personal Bankruptcy Do for Unemployed Americans?

Surveys given to those who file for bankruptcy in the U.S. almost always indicate that unemployment plays a contributing role in prompting people to file for bankruptcy protection. And it’s no wonder: bankruptcy can offer powerful protections to those who have lost their job or had their hours reduced.

Specifically, bankruptcy offers:

  • Protection of assets: Once filers submit their bankruptcy petition, the court protects certain assets from repossession and/or garnishment. In Chapter 7 bankruptcy, these protections are called “exemptions.”
  • Protection from creditors: For the duration of any bankruptcy case, a legal protection called the automatic stay prevents creditors from making contact with or collecting from filers. The automatic stay can halt foreclosure, vehicle repossession, wage garnishment, debt lawsuits and more.
  • Discharge of debts: At the end of a successful bankruptcy case, the court discharges (that is, eliminates) all eligible debts. Filers are not responsible for repaying discharged debts.
  • Time to catch up on payments: In Chapter 13 bankruptcy, filers get a chance to catch up on late payments with help from the court.

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Posted in Economic News: How Are We Doing?, Year in Bankruptcy | No Comments »

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