How to Go to Jail for Filing Bankruptcy

It doesn’t happen often, but about once a year I read about someone in this part of the Country going to jail for being stupid.  I’m sorry, I shouldn’t be rude about it; but there just isn’t much you can call smart about going to jail for Bankruptcy fraud.

The most recent fact scenario happened in Arkansas, but I have seen very similar facts several times in Oklahoma.  (Fortunately, none have been my clients.)  Here is how this particular story plays out.  Client has something he doesn’t want to lose.  Client also has a ton of debt.  The client is concerned (rightly or wrongly) that if he files for bankruptcy and owns this asset he wants to keep that the Trustee will take it away from him.  Maybe the client is right, and maybe he isn’t.

Where the client goes really, really wrong is the client decides that he is smarter than the system.  Instead of talking to a good, Bankruptcy lawyer about how to best protect this asset and still get relief from his debts, the client decides to transfer the asset to someone else and just say nothing.  The client is gambling that no one will ever be the wiser.  Maybe the transfer is even semi-legitimate.  Possibly the client transfers the asset to someone to whom he owes a significant debt, and maybe if that had been properly disclosed it would have been a viable pre-bankruptcy plan; but NOTHING is viable if it is concealed.

So, client goes to lawyer.  Lawyer asks client if he has sold or given away anything of value in the last two years that hasn’t already been discussed.  Client says, no, of course not.  Bankruptcy is filed with none checked on the question on the Statement of Financial Affairs regarding transfers.  Bankruptcy trustee appointed to administer the case finds a record of the asset in question — trust me, they have ways.

At this point nothing good is going to happen.  The Debtor MIGHT just lose his discharge — or he might go to prison.  It really depends on the facts.  The point here is that this is completely avoidable.

If you have an asset you really don’t want to lose, call a good, bankruptcy lawyer sooner rather than later.  Give yourself some time, because even if (and this is a big if) you would, in fact, lose that asset if you were to file for bankruptcy; there may be a legal and legitimate way to change that result.

Regardless, it isn’t worth going to prison over.  Talk to a lawyer.  Be honest and up front with the lawyer.  Sometimes they really do know the solution to that which scares you.

Elaine

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There May Be Some Justice in this World After All

CNN is reporting that the FBI has arrested the owner of a debt collection business in Georgia and six of his employees.  The collectors in this case were lying to people, telling them that the collectors were Federal agents, and if this debt wasn’t paid the person they were calling was going to be arrested.

There are two things that make this story unusual.  First, of course, the arrest of seven people by the FBI.  The second, however, is what enabled that arrest — the debt collectors were inside the United States.

It is not uncommon for me to get calls from terrified clients, because they have just gotten a call like this; and some of these callers are very good and very persuasive.  In most cases, however, if you could trace the call you would find that it came from a VoIP number — in Pakistan, Eastern Europe or Northern Africa — take your pick.

So, it is really refreshing to see the FBI getting involved in one of these scams when the scammers are within reach.

If you get a phone call like this.  The first question I tell my clients to ask is for a mailing address to send a cashier’s check to pay this debt.  Now, since these people were in Georgia they might have given out a mailing address; but the overseas scammers won’t.  They will tell you that there is no time for that, the debt must be paid right now by electronic funds transfer out of your bank account.  I tell my clients to take a deep breath and try to think of any legitimate creditor who won’t take a cashier’s check drawn on a Federally insured financial institution.  That is a dead giveaway that you aren’t dealing with someone legit.

The next thing, though, is to try and remember the last time you knew someone who was arrested for not paying their credit cards.  Now, you can be arrested for ignoring or disobeying an order of the Court (like failing to appear at a Hearing on Assets); but you won’t get a phone call giving you an out for that.  So, keep thinking, the last time you knew someone who was arrested for not paying an old credit card account was when?

Now, consider what it costs a State to incarcerate someone.  So, the State is going to do that to collect a debt owed to some debt collector?  Really?

The long and the short of this is, if you get a phone call from someone claiming to be collecting a credit card or medical bill, and that person threatens to have you arrested if you don’t pay — and probably if you don’t pay RIGHT NOW.  Your first thought really should be that this is probably a scam.

Elaine

Categories: Consumer Credit | Tags: , , , , , | Leave a comment

What if the Trustee Wants My STUFF?

I explain to my clients that a Chapter 7 Bankruptcy is a deal. If you (the debtor) have any non-exempt property of any value that the Trustee wants, the Trustee is entitled to it; and my clients are expected to put it on the front porch, with a red bow on it and invite the Trustee in for a celebratory drink when he comes by to pick it up. Why? Because, in exchange for whatever non-exempt property the Trustee chooses to administer, you get out of that pile of debt that drove you to my office in the first place. That’s the deal, and if that deal isn’t worth doing – then, don’t file. Bankruptcy is the old Pearl of Great Price story told in a different setting.

Sound harsh? It really isn’t. I practice exclusively in Oklahoma, and Oklahoma has very generous exemptions. Remember, the deal is only for non-exempt property and most of what we own is exempt in Oklahoma. The vast majority of all people who file for Bankruptcy in Oklahoma have no non-exempt property of any real value; and when they do there are generally enough legitimate pre-bankruptcy planning techniques to protect those assets.

Sure, occasionally, a client loses something. They always know the risks. We go over that extensively and in great detail. Sometimes, though, when going over the possibilities, I can’t quite get past the, “BUT THAT’S MINE” response.

So, here is the story I tell. I had a client who had a $2,000 red toolbox. It held specialized tools that really didn’t qualify as household goods (which are exempt), and they were from a former career, so they didn’t qualify as tools of the trade (which are also exempt), but the toolbox was red, and it was really spiffy. Client loved this toolbox, and he really didn’t want to think about any mean, old Trustee taking it. Now, this client also had over $70,000 in unsecured debt that he needed to get out of.

So, I asked him. “If someone offered you $70,000 for that tool box, would you take it?” He looked at me like I was crazy. Seventy grand for a $2,000 tool box? Well, of course, he would take it. That is a fabulous deal! Then his brain made the connection, and the previous look of worried panic turned into a grin.

Turns out his Trustee wasn’t nearly as impressed by that toolbox as the debtor was, and the debtor wound up getting out of the $70,000 in debt and keeping the toolbox; but I have used this story (details have been changed, of course) for years.

So, first of all, remember that most people who file for bankruptcy in Oklahoma lose no assets. Just about everything that any of us owns of any real value is exempt if you are using Oklahoma exemptions, but even if you do own something that isn’t exempt – is it worth a discharge of all of your debt? If yes, then congratulations on driving such a great bargain – $70,000 in debt in exchange for a shiny, red toolbox. If, on the other hand, it isn’t the best deal you’ve had in a long time; then, talk to your lawyer about other options. Remember, you always have choices; and it is your lawyer’s job to help you find them.

Elaine

Categories: Bankruptcy | Tags: , , , , , | Leave a comment

What if the Trustee Wants My STUFF?!?

I explain to my clients that a Chapter 7 Bankruptcy is a deal. If you (the debtor) have any non-exempt property of any value that the Trustee wants, the Trustee is entitled to it; and my clients are expected to put it on the front porch, with a red bow on it and invite the Trustee in for a celebratory drink when he comes by to pick it up. Why? Because, in exchange for whatever non-exempt property the Trustee chooses to administer, you get out of that pile of debt that drove you to my office in the first place. That’s the deal, and if that deal isn’t worth doing – then, don’t file. Bankruptcy is the old Pearl of Great Price story told in a different setting.

Sound harsh? It really isn’t. I practice exclusively in Oklahoma, and Oklahoma has very generous exemptions. Remember, the deal is only for non-exempt property and most of what we own is exempt in Oklahoma. The vast majority of all people who file for Bankruptcy in Oklahoma have no non-exempt property of any real value; and when they do there are generally enough legitimate pre-bankruptcy planning techniques to protect those assets.

Sure, occasionally, a client loses something. They always know the risks. We go over that extensively and in great detail. Sometimes, though, when going over the possibilities, I can’t quite get past the, “BUT THAT’S MINE” response.

So, here is the story I tell. I had a client who had a $2,000 red toolbox. It held specialized tools that really didn’t qualify as household goods (which are exempt), and they were from a former career, so they didn’t qualify as tools of the trade (which are also exempt), but the toolbox was red, and it was really spiffy. Client loved this toolbox, and he really didn’t want to think about any mean, old Trustee taking it. Now, this client also had over $70,000 in unsecured debt that he needed to get out of.

So, I asked him. “If someone offered you $70,000 for that tool box, would you take it?” He looked at me like I was crazy. Seventy grand for a $2,000 tool box? Well, of course, he would take it. That is a fabulous deal! Then his brain made the connection, and the previous look of worried panic turned into a grin.

Turns out his Trustee wasn’t nearly as impressed by that toolbox as the client was, and the client wound up getting out of the $70,000 in debt and keeping the toolbox; but I have used this story (details have been changed, of course) for years.

So, first of all, remember that most people who file for bankruptcy in Oklahoma lose no assets. Just about everything that any of us owns of any real value is exempt, but even if you do own something that isn’t exempt – is it worth a discharge of all of your debt? If yes, then congratulations on driving such a great bargain – $70,000 in debt in exchange for a shiny, red toolbox. If, on the other hand, it isn’t the best deal you’ve had in a long time; then, talk to your lawyer about other options. Remember, you always have options; and it is your lawyer’s job to help you find them.

Elaine

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Bankruptcy Attorneys Fees – What is it that I am Paying For?

So, when a bankruptcy attorney quotes you a fee, what is it, exactly, that you are paying for? What is included, what is not included, at some point will you have to come up with more money or be left abandoned in the midst of a Federal Court proceeding that strikes even a lot of lawyers as confusing and arcane?

The answer to that question is (drum roll, please) – that depends.

I know, and lawyers wonder why it is that people seem to think you can’t get a straight answer out of us. Sigh.

Here is the interpretation. When you hire a Bankruptcy lawyer (or anyone else for that matter) you do need to find out what it is that you are hiring him to do for you. Your attorney should give you some kind of agreement, that might be a letter, that outlines what he will do for you, what he won’t do for you and what he reserves the right to charge extra for.

Here are some things that go into a basic, consumer chapter 7 Bankruptcy:

  • Interview;
  • Explanation of Bankruptcy, the terminology, the players, what it will do for you, what it won’t do for you, assets, expenses, Means Test qualifications, explanation of different chapters;
  • Research into your facts and circumstances;
  • Advising you of any potential problems in your case and options for dealing with them;
  • Preparation of Petition, Schedules and Means test;
  • Filing the case;
  • Providing documents to the Trustee;
  • Attendance at First Meeting of Creditors;
  • Dealing with secured creditors as specified in the Statement of Intention;
  • Dealing with other creditors;
  • Responding to any requests for information from the U.S. Trustee or the Panel Trustee
  • Filing the post petition debtor education certificate.

Please, understand, that list is not intended to be all-inclusive.  That would take far too much time to put together for a blog post.  It is intended to be illustrative of the kinds of things that go into a Bankruptcy case.

Now, here are some things that aren’t included in that list, because they happen, but they don’t necessarily happen in most basic, consumer cases:

  • Pre-Bankruptcy exemption planning, i.e., converting a non-exempt asset (i.e., an asset you would lose when you file) into an exempt asset (an asset you get to keep even though you file for bankruptcy);
  • Dealing with creditors before the case is filed;
  • Adding creditors or correcting addresses after the case is filed;
  • Disclosing additional assets after the case is filed;
  • Defending a motion to dismiss or convert based on the Means Test figures;
  • Defending a Motion to dismiss for bad faith;
  • Appearing at a 2004 examination (basically, a deposition);
  • Defending other motions brought by creditors, most commonly a motion for relief from stay brought by a secured creditor who would rather have the collateral than the payments you may or may not be making timely;
  • Defending an adversary proceeding, which is basically a separate lawsuit filed within the scope of the bankruptcy;
  • Filing an adversary proceeding got for any reason including to determine if a certain debt, like some taxes, is dischargeable;
  • Determining value of assets if scheduled value challenged.

There will be considerable variance between what different attorneys do and don’t include in a flat fee, and there will be wide variance if you compare attorneys from different parts of the Country.

I don’t know anyone who includes an Adversary Proceeding in a flat fee. However, the nature of Adversary Proceedings is such that your Attorney should at least suspect one might be filed before the Bankruptcy is filed – unless there is something really important he doesn’t know about. So, that should be discussed specifically at the time the attorney quotes a fee.

I generally quote a fee that I expect will be sufficient to cover the things that I expect to come up in the case. What my fee specifically does not include, other than Adversary Proceedings, is anything that the client got wrong or should have told me about and didn’t.

The easy part of that is fixing addresses and listing additional creditors. I give my clients multiple opportunities to get their list of creditors complete, and I tell them to include all addresses that might be current or correct. So, if someone is left off and needs to be added; well, I will charge extra for that.

If a client is being sued locally odds are pretty good I will find out about it before the case is filed. If the client is being sued under a name he didn’t mention or in another jurisdiction, I might not find out about it – unless the client tells me – when I ask about other names, about lawsuits, about people who might think that the client owes them money – even if the client disagrees. If the client still doesn’t think to mention it and it becomes an issue in the Bankruptcy (and it almost certainly will), then, the client shouldn’t be surprised that I will expect additional compensation for dealing with it.

Sure, mistakes happen and omissions happen; and most of them are simple mistakes. If I make the mistake, I fix it. If the client makes the mistake, then I am going to expect the client to pay me to fix it. Sure, some mistakes and omissions can be expensive to fix (some can’t be fixed at all), but most of them can be fixed for a relatively small amount of money.

However, my fee is pretty all encompassing. Not everyone’s is, but it should be spelled out in the engagement agreement what will and won’t be covered. If it isn’t, ask. If it is, but you do’t understand it, then ask. It is your job to provide the lawyer with the information he needs. It is his job to make sure that you understand what is going on, and that includes the fee agreement.

Elaine

Categories: Bankruptcy, Litigation, Taxes | Tags: , , , , , , | Leave a comment

Why Things Aren’t Like They Appear

I read a lot of business news.  I do for a lot of reasons.  One of those reasons is that I need to know what the larger, economic trends are as they unfold around me.  That is part of my business.  One thing that I have been noticing for a long time is that what I see in my office and what I read in the National business news has never quite seemed to match up.  The news talks about economic growth, increased productivity, skyrocketing executive pay and returns for shareholders.  What I see is people struggling really hard to hang on to where they used to be.

Marketwatch had an article today that caught my eye.  I read the article, because of the title, “Your Paycheck Has Been Shrinking for the Last Five Years.”, but it was the last sentence that really grabbed my attention.

“So wage growth has been generally weak for more than 15 years.”

Yea, or maybe even more than that.  It is nice to know, sort of, that it isn’t just the little microcosm that is my office; but it is still getting old to keep watching people come in who are making the same or less than they were 5 — 10 — even 15 years ago.  I’m not adjusting for inflation, here.  I am talking real wages.  I’d say wage growth has been slow all right.

What scares me is what this has to say about future social and economic stability.

Elaine

Categories: Bankruptcy, Consumer Credit | Tags: , , | Leave a comment

Student Loans, Auto Default Clauses: or, Everything Old is New Again

I was recently discussing issues with student loans, and private student loans in particular, with a staffer for one of my Congressmen. The staffer said something along the lines of, but isn’t student loan debt good debt? My response? Student loans, especially private student loans, may be the worst kind of debt – even worse than credit cards. His expression was fun. He did keep his coffee off his tie, though. Points for that.

There are a lot of reasons I’m not just real gung ho on student loans – especially private student loans. One of those reasons has been getting some press this week. Here is a link to a NY Times article on auto default clauses in private student loans. There have been several others recently, but this was the first one I saw.

http://m.washingtonpost.com/business/economy/us-agency-urges-private-lenders-to-ease-automatic-default-rules-on-student-loans/2014/04/21/d06adeee-c97f-11e3-95f7-7ecdde72d2ea_story.html

Most private student loans require a co-signer, usually a parent or grandparent. Many of those loan documents also include language known as an auto default clause. An auto default clause means that the loan is deemed to be in default if a particular event happens – EVEN IF PAYMENTS ON THE LOAN ARE CURRENT. The current press is about auto default clauses that trigger an event of default if the co-signer files for bankruptcy or dies.

To be quite blunt:
Bad news – Dad is dead.
More bad news – your student loans are now being reported in default to the credit reporting agencies, even though you’ve never missed a payment.

There is a good argument that the an auto default triggered by a bankruptcy filing of the co-signer is unenforceable, and I foresee some interesting litigation on that issue. The death of the co-signer, though, is going to be valid unless some lawyer who is far more creative than I am comes up with something I haven’t thought of.

A lot of the NY Times article referenced above has to do with encouragement from the Consumer Financial Protection Bureau for lenders (or, more accurately the loan servicers) to find ways to avoid placing otherwise performing loans into default status. There are a number of problems with that encouragement. First of all, it is just that, encouragement. I am not aware of any authority the CFPB has to require anything. Second, the same problem is showing up here that we had getting loan modifications during the mortgage crisis. Most of these loans have been securitized. The entity that the borrower deals with (Sallie Mae, AES, etc.) isn’t actually the lender. They are the servicer, they just manage the loans on behalf of the ultimate investors, and they do so pursuant to the terms of a contract that limits their ability to modify the loans.

Part of the securitization process is taking a large body of loans, pooling them together and using their income stream to support payments to investors who invest in the large pool. To do that, the individual loans that go into a pool must share certain qualities; and one of the qualities that makes a pool of loans like this more attractive to investors is the presence of co-signers – or, having more than one person responsible for repaying the loans. So, encouragement from the CFBP is nice, but I don’t think I will hold my breath on seeing any real changes here.

Of course, the real victims are the college graduates who are making their loan payments and then find out that the interest rate on a car loan is going to be sky high or they can’t qualify for a mortgage; why? Because their student loans are in default – yea, the ones they are PAYING every month.

I’m sorry, but that sucks.

They took out those loans (for the most part) when they didn’t have a lot of experience with financial products. Their parents (or grandparents) signed. Their school told them to sign. So, they signed. Even if they read the fine print, they very well might not have realized with an automatic event of default means. Their school should have. Their parents (or grandparents) should have, and they might have; but they saw no other (or no better) way to pay for college.

There isn’t much I can do about people dying; but filing bankruptcies for people who might have co-signed student loans is part of my job. I’m currently thinking through some ideas with other attorneys to mitigate the consequences of a bankruptcy filing when the debtor has co-signed private student loans. Keep in touch.

Elaine

 

 

Categories: Bankruptcy, Consumer Credit, Credit Reports, Student loans | Tags: , , , , , | Leave a comment

Filing Fees – and They Say There is No Inflation

There are three things that you have to pay for when you file for bankruptcy. They are: the attorneys fee, the filing fee and the credit counseling fee. The attorneys fee is pretty self-explanatory. The filing fee is paid to the Court at the time that the case is filed. It will probably look like you are paying this to your attorney; because you will pay it by handing your lawyer the money; but your lawyer will then pay the Court when he files your case. The credit counseling fee is ultimately paid to the pre-petition credit counseling company that you use to do your mandatory pre-petition credit counseling course. This you may pay directly, and you may pay it to your lawyer so that your lawyer can pass it on. Regardless, ultimately, you are the one paying for these things.

What brought this subject to mind this week is that the Administrator of the Courts just announced an increase in filing fees. A bankruptcy filing fee is generally divided between the Court for services provided by the Court and its clerk and the Trustee for services provided in administering your case. This increase is all going to the Courts.

The two most common filing fees for consumer debtors both went up $29 apiece, which is a substantial jump. What makes this a bit of a shocker is that fees just went up in November, 2011. Here is how fees have changed over just the last few years.

………………..  3/2006                Pre 11/2011                          2011 – 5/31/2014                      6/1/2014
Ch. 7                   $209                         $299                                         $306                                          $335
Ch. 13                 $194                          $274                                        $281                                           $310

There are all kinds of reasons and explanations for the increases, but the bottom line remains that it is becoming more and more expensive to file for Bankruptcy. I’ve practiced in many areas of law during the last 24 years, and I remain very proud of the Bankruptcy bar’s dedication to keeping attorneys fees as low as possible. When you file a Bankruptcy, you are filing a highly specialized, Federal Court case; and in most cases it will be substantially cheaper than any other significant legal event you have ever been a party to.

Bankruptcy attorneys were the first to really embrace automation. We have gotten very good at efficiently explaining complex legal concepts to our clients. That is not to say that Bankruptcy attorney fees haven’t gone up. The 2005 Bankruptcy Reform Act pretty well doubled the amount of work required to file a Bankruptcy and sent the lawyer’s liability soaring. Needless, to say – fees went up. Although I will say that they haven’t gone up in this office since then.

Elaine

 

Categories: Bankruptcy | Tags: , , , , | Leave a comment

How Long Before They Repo My Car?

I get asked this question a lot, and the answer varies pretty widely depending on the facts. Most commonly, though, I am asked this question by someone who needs to file for Bankruptcy and has made the decision that he cannot afford to keep his car. In other words, the client is going to surrender his interest in the car to the car lender during the bankruptcy.

There are a number of options in a Chapter 7 Bankruptcy for dealing with secured debt (i.e., debt that is secured by a lien on a piece of property, like a car loan or a mortgage). One of them is to surrender the property to the lender. So, the question being asked is really – so, how does that surrender thing work and how long does it take anyway?

Well, that depends.

I’m a lawyer, you were expecting a definite answer?

When the bankruptcy is filed the Debtor files a Statement of Intent that states what he intends to do with his secured debt. So, in this case, the Debtor will indicate that he intends to surrender the vehicle. However, at the instant that the case is filed the Automatic Stay goes into effect, and that stays (or temporarily stops) all collection activity against the debtor or property of the debtor – including the car in this illustration. So, even though the Debtor is indicating his intention to surrender his car to the lender, the lender can’t take it; because taking it would be an effort to collect a debt, and that is prohibited by the Automatic Stay. Are we having fun yet? Thought so.

Now the ball is in the lender’s court. They can either wait until the Bankruptcy is over with and then repossess the vehicle., or they can file a Motion with the Bankruptcy Court asking the Court to lift the automatic stay and abandon any interest that the Bankruptcy estate might have in the vehicle. The creditor can do that as soon as he learns of the Bankruptcy filing or not until later. It isn’t uncommon for creditors to wait until after the First Meeting of Creditors, which is generally about 30 days post-petition, to file their motion. Given these facts, once that motion is filed, it will be granted in about 3 or 4 weeks – kind of depending on how excited the creditor’s lawyer is to get it done. The net effect of this motion being granted is the Bankruptcy Court gives the creditor permission to collect his debt against the property – not the debtor, just the property. The stay remains in effect as to the Debtor, and assuming that no objections to discharge are granted; the stay will be replaced by the discharge injunction at the conclusion of the Bankruptcy. The discharge will prohibit the car lender from EVER trying to collect money from the debtor again. The creditor is welcome to the car, because he has a lien on it; but that is all he gets.

After the creditor gets permission to repossess the car, and he will – eventually. Some creditors will have someone out looking for it the next day. Others take longer to get around to it. In my office I point out to my clients that they don’t want to be driving this car if a repo guy might be looking for it. Walking out of the grocery store with ten sacks of groceries including 2 gallons of ice cream and finding no car to put them in is not a situation most of my clients want to find themselves in. So, I will generally arrange for the debtor to deliver the car to the lender. Not everyone does it that way.

The long and the short of this is that even if you want to give the car back it will take just under a month or . . . longer, to do so. On the other hand, if the Debtor wants to keep the car as long as possible, that is a completely different analysis and one that is going to vary widely depending on the specific facts, the creditor involved and even the court in which the case is filed.

Elaine

Categories: Bankruptcy, Consumer Credit | Tags: , , , , , , , , | Leave a comment

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