Santa Fe Bankruptcy Lawyer Blog

The Baltimore Sun today announced the following great news:

FTC Bans Advance Fees at Debt Relief Companies

The Federal Trade Commission announced that companies promising over the phone to reduce your credit card or other debt can’t charge you a fee until they do their job.

The rule affects for-profit businesses and will kick in Oct. 27th.

FTC Chairman Jon Leibowitz says the new regulation aims to prevent companies from taking money from consumers and never fulfilling a promise to reduce customers’ debt by half or more.

“Too many of these companies pick the last dollar out of consumers’ pockets – and far from leaving them better off, push them deeper into debt, even bankruptcy,” Leibowitz said in a prepared statement.

The United States Bankruptcy Code obligates you to make a full disclosure of your financial affairs when you file bankruptcy.  You must list all of your debts, reveal detailed information about your income and expenses, and you must reveal information about your assets.

In my 24 years of practice I have found that undisclosed asset issues arise far more often than unlisted debt problems or budget issues.  I suspect that it is easier to collect information about your debts – you can get a credit report, save collection letters and track the phone calls.  Hidden assets, however, can sometimes slip your mind, and can create huge problems.  Stated simply, any property that you own, or that you may have a right to own should be disclosed–at least to your lawyer for an opinion.

Here are some examples of assets that have created problems for my clients over the years:

Unexpected inheritance–the Bankruptcy Code provides that any inheritance received within 6 months of discharge is property of your bankruptcy estate.  Therefore, if you are thinking about filing for bankruptcy, think about the possibility that you could inherit money from a relative, especially if that relative is older or in poor health.  If a lot of money is at stake, you and/or your relative may wish to consult with an estate planning lawyer who can discuss estate planning tools that might protect your relative’s funds.  I recently had a case in which my client’s father created a “spend-thrift” trust that provided for distributions to my client at the discretion of a trustee but protected the corpus of the trust – which was several hundred thousand dollars – from seizure by a bankruptcy trustee.

Contingent claims–if you have been in an accident or otherwise have a claim for damages against another person, that claim is an asset and must be listed.  If you do not list the asset, then proceed through bankruptcy to discharge, and later attempt to pursue your claim, your failure to list the asset can serve as bar to recovery.  This will depend on your state’s law, but in general, let your bankruptcy attorney know if you have or may have any type of claim against any person.

Paper title–several years ago, I represented a debtor in Chapter 7 who discovered after he filed that his mother had added his name to the title of her paid-for home.  My client had filed his case “pro se” and came to me after the trustee made a demand for turnover of half of the equity.  In this case the trustee had checked the deed records at the local county courthouse and discovered the transfer.  My client’s mother had to take out a mortgage on the house to raise the funds to buy the trustee out of his interest – this problem could have been avoided if my client had thought to ask his elderly mother if she had made this transfer.

Accounts receivable–over the years I have represented a number of small business owners who have come to me to file bankruptcy because of cash flow problems.  Often this type of client’s personal and business lives are intermingled and a personal bankruptcy also serves to bankrupt the business as well.  In these cases I always ask about accounts receiveable.  Receiveables are assets and must be listed.  If the business is incorporated, the shares of the business may have a value equal to the receivables.  Often it can be hard to keep a business going when the owner files a personal bankruptcy – here is where you need good legal advice to help you decide if and when to file.

Often, issues that will become significant problems in bankruptcy can be resolved if your attorney knows about the potential problem before you file.  Sometimes, holding off a few months or engaging in attorney supervised pre-bankruptcy planning can make a big difference.  I hope that this blog post will help by making you think about situations in your own case that could, but need not, turn into a bankruptcy problem.

Special thanks to Atlanta Bankruptcy Lawyer Jonathan Ginsberg for this guest post.  Jonathan’s also member of Bankruptcy Law Network.  If you’re in Atlanta and need a bankruptcy lawyer, I’d highly recommend Jonathan.

The Bankruptcy Code requires that, when an individual files for bankruptcy protection under Chapter 13 and proposes a debt repayment plan to which the trustee or an unsecured creditor objects, the individual must either pay his or her unsecured creditors  in full or pay all “projected disposable income” he or she will receive over the duration of the plan.

The U.S. Supreme Court recently issued an important opinion in Hamilton v. Lanning, a case about how bankruptcy courts should calculate projected disposable income when a trustee or unsecured creditor objects to a proposed Chapter 13 bankruptcy repayment plan.  The question the Supreme Court addressed in Lanning was, how should bankruptcy courts calculate projected disposable income under this rule?

Prior to Lanning, lower courts had developed two different answers to this question.  Some calculated projected disposable income under a “mechanical approach” that–regardless of the bankruptcy petitioner’s circumstances–(1) multiplied average monthly income over the six months preceding the bankruptcy filing, (2) subtracted from that average reasonable expenses for maintenance and support, charitable contributions, and business expenditures, and then (3) multiplied the resulting figure by the number of months in the Chapter 13 repayment plan.  Other courts were more flexible and utilized the same formula as the mechanical approach in most cases, but also exercised discretion in exceptional cases to make adjustments where significant changes in a debtor’s financial circumstances were known or virtually certain.  The Supreme Court found the flexible approach to be more persuasive, and held that lower courts should calculate projected disposable income accordingly.

The facts of Lanning illustrate the effect of the ruling:  A woman was laid off and in exchange received  a one-time buyout from her former employer.  This payment significantly inflated her gross income for two months–one month she received nearly $12,000 and another she received over $15,000.  Shortly thereafter, she obtained a new job that paid less than $2,000 per month.  She then filed a Chapter 13 bankruptcy.  Based on only the income provided by her new job, the woman calculated monthly disposable income of $149.  The trustee, however, objected, arguing that the figure was too low because it failed to take into account the two months of inflated income from her prior employment.  Taking those months into account, the trustee argued that monthly disposable income was in fact $756.  The result of Lanning is that the bankruptcy petitioner’s calculation of $149 was correct.  Rather than mechanically calculate projected disposable income based on past income regardless of whether it is reasonable to extrapolate that income into the future, the Supreme Court encouraged bankruptcy courts to calculate in a way that makes sense in the circumstances of each case.

Special thanks for this guest-written by Brandon Moreno, Vice President of the Utah Bankruptcy Hotline.  The Utah Bankruptcy Hotline maintains a network of Utah bankruptcy attorneys who provide bankruptcy counsel to consumers in Utah.

Guest post by Charleston, South Carolina Bankruptcy Lawyer, Russell A. DeMott

Follow a few simple rules, and you’ll be dressed for success at your bankruptcy hearing.

I don’t know about you, but I never seem to know what to wear.  I wear suits to court, of course, but that’s expected of a bankruptcy lawyer.  But when I go to other functions, it seems I’m either overdressed–usually in a suit I’d wear to court–or underdressed in what I call my “casual homeless” attire.  (That is, unless my wife intervenes before I walk out the door!)

There’s No Judge at Your Hearing

Your bankruptcy hearing is called  “341 hearing” (after Bankruptcy Code section 341) or the “First Meeting of Creditors.”  (Note, this does not mean there’s a second or third meeing.  It’s just what the hearing’s called.)

A trustee–usually another bankruptcy lawyer in your area–will preside over the hearing.  It’s a rather informal, administrative affair that’s usually over in a few minutes unless you’ve got a complicated case.  So the hearing isn’t like a trial in court; it’s far less formal.

“You Blend!”

What you really want to do is blend.  I can’t help but remember that scene from the movie, “My Cousin Vinny:”

Mona Lisa Vito: [Vinny looks at her funny] What?
Vinny Gambini: Nothing. You stick out like a sore thumb around here.
Mona Lisa Vito: Me? What about you?
Vinny Gambini: I fit in better than you. At least I’m wearing cowboy boots.
Mona Lisa Vito: Oh yeah, you blend.

I confess that I really don’t know what folks wear in New Mexico.  I’ve never been to your fair state–unfortunately.  But if you live in New Mexico, you know what the “average Joe” or the “average Jane” wears.  You should blend. The rule of thumb is what I call a “happy medium.”  Don’t dress up in your Sunday finest or like your going to a funeral.  But don’t like slob, either.  No “casual homeless!”  It might not be full-blown court, but it’s not a day at the lake, either.

And Another (Few) Things

Here are some other things to keep in mind:

• Don’t wear flashy jewelry.
• Take stock in the jewelry you do wear.  Was it listed in your bankruptcy schedules?  If not, make sure it is. Every trustee has stories about debtors who wore expensive jewelry to their hearing when it wasn’t listed in their property schedules.
• Don’t wear anything that might distract or call attention to you.  Dress modestly.  Showing an inappropriate amount of skin isn’t a good idea; it will pique interest in your case and no good ever comes of that.

Your bankruptcy hearing is likely going to be an uneventful, quick hearing you’ll likely forget soon after you leave the hearing room.  And that’s a good thing.

I was speaking to a bankruptcy client from Taos the other day.  He asked me an interesting question, “Why do you have a bankruptcy blog?” This came up in conversations about various issues in the client’s bankruptcy, and I began referring him to various blog posts I’d done here on the Santa Fe Bankruptcy Lawyer Blog.

Why Do I Have the Santa Fe Bankruptcy Lawyer Blog?

My Taos bankruptcy client got me thinking.  Why do I write about bankruptcy law?

First, I must make a confession: I like to write.  I like being creative.  Bankruptcy law–in Santa Fe, Taos, or anywhere else–is largely about strategy.  It’s like a chess game of sorts.  And I like writing about bankruptcy law.  I like educating clients about their rights.  It’s a way I can help level the playing field for the little guy–or gal.  Corporate America has plenty of lawyers, bankruptcy and otherwise.  But the average New Mexican hasn’t got a fleet of lawyers at his disposal.  So I like being on the side of the consumer, and I like providing information to consumers to help level the playing field.

Second, I like writing.  Writing about bankrutpcy law might seem boring to some, but I know as a bankruptcy lawyer that knowledge is power. That makes writing about bankrutpcy law, well, fun, believe it or not!

Third, I use this bankruptcy blog to market my practice.  I represent clients all over northern New Mexico from places like Taos, Las Vegas, Espanola, Raton, Los Alamos, and, of course, Santa Fe.  You can look for a bankruptcy lawyer in the Yellow Pages, to be sure. But what can you really learn about a prospective bankruptcy lawyer in the Yellow Pages?  And what can you learn about bankruptcy law to help you in the Yellow Pages?  With this blog, I can let you know who I am, what I care about–like with this post!, and how I can help you.  I can also help empower you to help yourself.  Bankruptcy law is complicated, and if I can provide you with knowledge of how to help yourself and allow you to get to know me as well, that’s a  good thing.

I hope you find the Santa Fe Bankruptcy Lawyer Blog helpful.  If you have ideas for improvements or topics which should be covered, please let me know. And if you need an experienced and caring bankruptcy lawyer, I’m only a click or phone call away.

You have your “fresh start” after the bankruptcy.  Bravo! The goal was to get you set up to survive and thrive with your new life.

But what about the new opportunities, or enticements offered you? Are you ready, and practiced in making different, better choices than you may have made before?

A client called and asked: they are putting my car up to bid … should I try to buy it?

My response:

1. Ask yourself, “Can I afford it?” “What can I afford?”
2. Then, remember that knowing you can afford $300 month payments is not the same as being able to afford it when the additional costs (insurance taxes, etc.) increases your $300 payment.
3. Plus, what if they kept the $300 as the payment but extended payments out in time so that you paid more interest over time for it?
4. Plus, will it be possible you could afford to buy something without having to have payments?
5. And, re: affordability — gas mileage?
6. Finally, when you know what you can afford, then look at the process through which you are buying — a bid? where social pressures psychological pressures will make it very easy to increase your spending?  alittle more, then a little more, and suddenly you are 10 alittle mores over your “limit”.

You are making new habits, this takes time — a least a month of daily practice!

Foreclosure rates are as alarming as unemployment rates. Deciding what to do if your home is threatened in this way is a severe test of maturity. We don’t want to lose what is usually both our biggest financial investment and, truly, our safety and refuge.

One of my favorite legal self-help publishers has an article I’m running in a series on, Monday  2/15, 2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

Use the Standard Ratios

As a general rule, the housing industry considers a loan affordable if your overall monthly mortgage payments do not exceed somewhere between 29% and 33% of your gross monthly income. This is frequently called your income to mortgage debt ratio. For example, if your annual gross income is $75,000, then your mortgage payments should not exceed $2,062 if you use the 33% figure. They should not exceed $1,562 if you use a more modest 25% income-to-mortgage debt ratio.

You should tailor these numbers to your particular situation. If you have a child with special needs or two kids in college, for example, your mortgage payment might not be affordable even if it’s below the recommended 29-33% income to mortgage debt ratio. On the flip side, if you have few other expenses (perhaps you live simply, don’t own a car, or grow some of your own food), you might be able to afford a mortgage payment that exceeds the 29-33% figure.

Reprinted with permission from the publisher, Nolo, Copyright 2009.

Foreclosure rates are as alarming as unemployment rates. Deciding what to do if your home is threatened in this way is a severe test of maturity. We don’t want to lose what is usually both our biggest financial investment and, truly, our safety and refuge.

One of my favorite legal self-help publishers has an article I’m running in a series on, Monday  2/15, 2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

Are Your Monthly Payments Too High?

Many folks face foreclosure because their income has substantially decreased since first buying their home. Some were counting on the house’s value to increase, allowing them to replace an unfavorable mortgage with a more affordable one. Regardless of the reason for your troubles, before you decide to try to keep the home or move, you must determine if you can truly afford your current loan, or a refinanced loan. If you can’t, it may be time to let your home go.

There are several good ways to make this determination. Choose the one that works best for your situation, or use a few methods.

Reprinted with permission from the publisher, Nolo, Copyright 2009, NoloWh

Foreclosure rates are as alarming as unemployment rates. Deciding what to do if your home is threatened in this way is a severe test of maturity. We don’t want to lose what is usually both our biggest financial investment and, truly, our safety and refuge.

One of my favorite legal self-help publishers has an article I’m running in a series on, Monday  2/15, 2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

Consider the Real Estate Market

If you are upside down on your mortgage or have little equity in your home, take stock of the real estate market before making your decision to keep or walk away from your home. If the market is slumped, and appears to stay that way for some time, your best option may be to let your home go. If the real estate market appears to be perking up (meaning prices may rise quickly), it might make sense to try to keep your home even if you have negative equity.

But how to know what the market will do in the future? Even if the market is a bust, judging by history, home prices will ultimately rise again. As Mark Twain is reputed to have advised a young man, “Buy land! God isn’t making any more of it.” Of course, knowing when prices will rise is the key question.

No formula can predict how soon a particular real estate bust will be over. But watch for signs that the market is either improving or stagnating. If some or all of the following factors are present, there’s a good chance the market is not headed for a speedy recovery:

• a collapse of the subprime loan market
• high numbers of foreclosures predicted to continue for a year or two
• an accelerated decline in residential real estate values
• an overall tightness of the credit markets
• a high likelihood of recession, or
• consumers who are tapped out and increasingly unable to make good on any of their debts, mortgages included.

Remember, there is no guarantee that your house will ever recover its original value. As the old saw goes, you don’t want to throw good money after bad. If the housing market doesn’t rebound quickly, every sacrifice you make now to keep your house could be for naught if you ultimately lose it.

Reprinted with permission from the publisher, Nolo, Copyright 2009, NoloWh

This is the third and final post in a three-part series by Charleston Bankruptcy Lawyer, Russell A. DeMott.  Russ explains how you can use the Bankruptcy Code to strip liens from personal property.

You might be embarrassed to admit it, but you did it.  You went to what I call “Flakey Finance Company.”  You needed money.  You were in a bind.  And they were over there on the corner with a sign that said, “Need Cash Fast?” And you fell for it.  You also gave them a lien—called a “security interest”—in your household goods.

You gave them what bankruptcy lawyers call a non-possessory, non-purchase money security interest in household goods.  That’s a mouthful, but it means that your “stuff” has been pledged as collateral for that loan you needed so badly. Don’t feel bad.  It can be fixed.

The Bankruptcy Code Allows You to Avoid this Lien as Well

These liens are avoidable as well, as long as you could otherwise exempt those household goods.  This means your lawyer can file a motion to avoid the lien, serve Flakey Finance Company, and….voila, your household goods no longer have a lien against them.

There is a small catch.  What you think of household goods might not be what the Bankruptcy Code thinks of household goods under this particular provision.   Those three TVs, for example, well, you’re limited to only one.  Same goes for your radio and VCR (yes, it says “VCR”—though most courts would say a DVD player is now the equivalent).  But there are many household goods you can keep that are listed in this provision.  And with only a few household goods left for Flakey Finance Company to take, they usually won’t bother enforcing their lien.  They would need to sue you in a “claim and delivery” action.  It’s unlikely they will do this when you’ve avoided liens on, say, 80% of your household goods.

The bottom line: your lien avoidance motion will just about gut any claim Flakey Finance Company has on your household goods.  In effect, it transforms their claim from a secured claim to an unsecured claim.

Be sure to tell your lawyer if you visited Flakey Finance Company. She’ll be sympathetic and want to help you.  And avoiding these types of liens is a good way to getting you the fresh start the Bankruptcy Code is all about.

Russ also is a Contributing Author at the Bankruptcy Law Network, an ABA “Top 100 Law Blog.”