Chapter 7

Published on: December 6, 2011

Have a Credit Card Company Complaint?

Is your credit card company driving you crazy? Think they are trying to rip you off or aren’t taking your complaints seriously? The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB), an agency to whom you can voice concerns regarding your credit card companies. Since their opening in July 2011, the office has fielded more than 5,000 consumer complaints. Some of the most common complaints dealt with collection practices, debt protection services, account closures, identification theft, fraud, and fees.

After a complaint is filed, the CFPB acts as a go-between in order to resolve the issue between you and your credit card company. So far, approximately three quarters of the complaints have been either partially or fully resolved by the credit card company. The rest are either still under review or there was no relief found.

Consumers can submit their complaints either online with Consumer Finance’s Government Site or by calling 855-411-CFPB (855-411-2372). In the near future, CFPB will be fielding complaints for all kinds of consumer financial products, including mortgages and other loans.

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Published on: December 1, 2011

Jacksonville Debtors Stripping Second Mortgages with Chapter 7

By David M. Goldman

Strip Second Mortgage, Chapter 7 Bankruptcy I admit that the title of this blog, “Jacksonville Debtors Stripping Second Mortgages with Chapter 7” is technically inaccurate. An older post addresses how lien stripping and cram-downs actually work. This blog post is going to tell you how we can get an effect similar to “lien stripping” but in a Chapter 7 case instead of a Chapter 13.

When a person files Chapter 7 bankruptcy, they have the opportunity to keep their debt on a secured loan in a Chapter 7 as long as their current on payments. This, along with the Florida Constitution allow people to keep their financed homes through a bankruptcy.

The problem most people have these days is that their home is under water and their second mortgage is no longer secured by equity. To make things easier, let’s use the following example:

Home Value	Mortgage Amount	Secured Amount
$110,000	1st Mortgage $120,000	$110,000
	2nd Mortgage $80,000	$0

In this example, the debtor owes $120,000 + $80,000 or $200,000 on their home, but the home is now only worth $110,000. This means that the debtor is underwater $90,000. A smart debtor might choose to give up their home in a bankruptcy because it’s horribly underwater. After all, no one in their right mind would knowingly agree to pay $90,000 more than something is worth. Back to the example: If the debtor did surrender the home in bankruptcy, the first mortgage holder would get the whole $110,000 from the sale (first mortgage holders always get paid first) and the second mortgage holder would get $0.

The second mortgage holder knows that they will get zero if the debtor bankrupts as it happens all of the time. They also know that the debtor is likely to go bankrupt if they’re under water because it makes financial sense to do so. What we do is negotiate with the second mortgage holder. We tell them that they can either lose their entire interest in a bankruptcy, or we will offer to settle their lien for a paltry sum. If they accept, the bank can still write off the remaining unpaid amount on their taxes and get cash in the meantime. The debtor can then wait 90 days to avoid the transaction being classified as a “Preferential Payment” and then file a Chapter 7, reaffirming the up to date first mortgage, discharging their other unsecured debts and going on with their life.

If you think you might be a candidate for the “stripping” of a Chapter 7 mortgage contact a Jacksonville Bankruptcy Attorney or call us at (904) 685-1200 for a free consultation.

Published on: November 29, 2011

Jacksonville Bankruptices Paid with Tax Returns

By David M. Goldman

Tax Return, Bankruptcy Tax time is coming soon. Employers are required to get W2s to their employees by January 31st so that they can file their federal income taxes. According to the website Bankrate, 30% of those getting tax returns plan to use it to “pay down debt”. Some of those tax returns will be used to fund bankruptcies.

One of the biggest benefits to filing bankruptcy just after receiving your tax return is that you have the opportunity to spend your return on reasonable and necessary things instead of turning it over to the bankruptcy trustee. You see, if a debtor was to file bankruptcy in July, they would have already earned 1/2 of their tax return for that year. The trustee would then ask for half of their tax return once it was received. As long as the debtor spends the return on reasonable and necessary things and then files bankruptcy, the money is both well spent and protected.

While I’d still argue that it’s Better to File Your Bankruptcy Before the Holidays, attorney’s fees do count as reasonably necessary expenditures which are allowed just before a bankruptcy. Many debtors have difficulty coming up with money to pay an attorney to file their case. A tax return gives them the opportunity to come up with that money in one lump sum. A New Year and hopefully a new financial life with a bankruptcy discharge.

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Published on: November 24, 2011

Can I File Under Chapter 7 If I Make $1,000,000 a year?

By David M. Goldman

Though few Jacksonville bankruptcy filers make a million dollars a year, it is still possible for such a debtor to get a discharge in a Chapter 7 liquidation bankruptcy. In 2005 Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) which instituted all sorts of hoops debtors now have to jump through to successfully file a Chapter 7 bankruptcy. The most common “hoop” is known as the “Means Test“.

The Means Test requires under 11 U.S.C. § 707(b) that a debtor whose debts are primarily consumer show that their gross income is less than the average gross income for their family size in their geographic region. Let me say that again in English, “If your debts are mostly from non-business transactions you have to prove to the court that you, your spouse and one kid make less than the average married couple with one kid in Jacksonville.” Most people skip over the first part of this paragraph and focus on the income and family size. However, if you can show that your debts are primarily non-consumer or “Business related” debts you can bypass the means test altogether. For example, if you make $1,000,000 a year and you are a family size of one, you far exceed the median income as stated by the IRS, but if you can show that your debts are more business than consumer, you can file Chapter 7 anyway.

This loophole was put into place by Congress to encourage businesses. We’ve all heard stories of a large percentage of small business failing within their first year. Apparently Congress heard this too and decided to allow business debtors to file Chapter 7 instead of forcing them into a long, costly Chapter 13 to encourage people to take risks and open businesses. Whether it is actually good for the economy is up for debate, but Congress thought so, so we now have the 11 U.S.C. § 707(b) exception to the means test.

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Published on: November 23, 2011

Jacksonville Debtors Can Take Credit Counseling With Dave Ramsey

By David M. Goldman

Before receiving a discharge in bankruptcy, debtors must first take a Debtor Education Course (or it’s equivalent) per 11 U.S.C. § 707(b). There are hundreds of Debtor Education providers out there for a variety of prices from free to $50.00. They can be in person, over the internet or telephone. People tend to go for the least expensive one just to get it over with, but I wanted to see what they might get out of such a course so I decided to take a couple of them myself.

A few weeks ago I went to Douglas W. Neway’s free debtor education course for Jacksonville’s Chapter 13 filers. This class was informative and gave debtors the opportunity to ask questions directly to the trustee’s staff, however it was mostly engineered to help debtors get through the Chapter 13 process rather than budget and survive life after the bankruptcy.

Dave Ramsey also provides debtor education. He’s energetic, intelligent and best of all, he’s been there. Back in the late 80’s Dave went through a bankruptcy and has made multiple millions since. His course covers every topic, negotiating purchases, insurance, home mortgage interest, car purchases, credit reports, etc. He even provides short comprehensive quizzes after each section.

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Published on: November 22, 2011

Redemption: A Unique Way For Married Jacksonville Residents to Keep Their Vehicles

By David M. Goldman

Bankruptcy, Redemption, Jacksonville Jacksonville residents have several options when it comes to dealing with secured assets when filing bankruptcy. They can redeem the property by paying the creditor it’s fair market value, reaffirm the debt by offering the creditor the same loan terms or surrender the item by giving it back to the creditor.

Redemption is an attractive choice for debtors because it allows them to pay what a secured asset is worth instead of what they owe on it. There can be a significant savings here as vehicles plummet in value as soon as they roll of the car lot. However, there are two conditions precedent that often get in the way.

First, if the car is being used for personal consumer use, the date of purchase (or refinance), must be longer than 910 days before filing the bankruptcy to redeem. If the car was purchased for business use, there is no waiting period. The second, and more difficult issue, is that the money to pay for the vehicle’s value must be paid for at the time of redemption. This is a problem because the debtors are bankrupt and rarely have enough cash to meet the payoff amount.

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Published on: November 21, 2011

Bankruptcy Chapters Available for Jacksonville Residents

By David M. Goldman

When people think of bankruptcy they often think of it as being one thing, a bankruptcy. However there are actually six different “Chapters” in the bankruptcy code, four of which are available to individuals in the United States. The other two being for non-residents who want to file an international bankruptcy case or for a municipality that needs to reorganize.

The most common bankruptcy to file is Chapter 7. Chapter 7 is the liquidation form of bankruptcy. You are allowed to keep a certain amount of exempt property, the remainder of your assets are liquidated and dispersed to your creditors on a pro rata basis. Your unsecured creditors are generally discharged and your case is usually closed in four to five months. This can be limited by how much money you make per month. If you make too much money, you may not be able to file this chapter.

The next most common bankruptcy is Chapter 13. This is a reorganization bankruptcy where your debts are characterized and given priority based on those characterizations. Debtors in this kind of bankruptcy have to make payments toward their unsecured debts of their disposable monthly income for three to five years. There is a so called, “debt ceiling” to file this kind of bankruptcy, i.e. if you owe too very much money, you cannot file.

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Published on: November 18, 2011

Bad Advice: Bankruptcy Attorney Suspended and Client’s Discharge Risked

By David M. Goldman

George Sadorus could have been more careful when he hired an attorney over the internet to file his bankruptcy case. However he really should have been suspicious when his attorney told him to lie to the Trustee about why he could not attend his 341 Meeting of Creditors.

Sadorus was advised by a paralegal that $8,000 he had in a bank account would be exempt in his bankruptcy. His attorney later filed his case not disclosing the account holding the $8,000 because the paralegal hadn’t informed the attorney of the account. Once the attorney realized his mistake, he advised the client to not attend the mandatory 341 hearing and to lie about his reasons for not attending. The theory was that if the client’s case was dismissed, he could spend the money on reasonable and necessary living expenses and then refile.

The attorney then refiled the case without discussing whether any funds were remaining in the client’s account. $5,000 remained in the account when case #2 was filed. This time the client attended the 341 hearing, disclosed to the trustee what had gone on and fired his attorney. The trustee, surprised by the revelation sued the debtor for the contents of that account as well as the lawyer for sanctions and discouragement (refund) of his fee. The attorney was suspended from practicing law in that state upon the condition that he take educational courses in ethics and general practice and was forced to return to the debtor his retainer fee.

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Published on: November 15, 2011

Jacksonville Residents Filing Bankruptcy Due to Medical Debt

By David M. Goldman

One of the most common reasons for filing a bankruptcy is due to illness or other medical problem. In fact, according to the Census Bureau, one in six Americans lives without health insurance.

Most of us live on the edge in the current economic climate. According to Census data the average American cardholder carries about $5,100 in revolving debt at any one time. All it takes is one accident or illness and we’re behind on our bills. Then the credit card companies increase interest rates and it quickly becomes impossible to get back on our feet.

Declaring bankruptcy is not an easy decision, but sometimes it’s the only thing that can get life back on track. Medical debts incurred for reasonable health and welfare can almost always be discharged in a bankruptcy and as long as you’re well enough to return to work, your life can start getting back to normal.

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Published on: November 14, 2011

Jacksonville Residents Opportunity to Lower Mortgage Principle Owed

By David M. Goldman

To say that the state court run Residential Mortgage Foreclosure Mediation program has been a failure is an understatement. This program was created by the Florida Supreme Court in an attempt to help Florida citizens modify their home loans so that they’d not be foreclosed upon for being unable to pay. With only a 3.6 success rate, the Supreme Court of Florida is now considering termination of the program.

On the heels of this debate comes an attractive Federal Court alternative: forcing modification in a Chapter 13 bankruptcy and using the threat of giving the home to the bank as a means of lowering principle and interest payments. This method started last year in Orlando, it appears to be working, and it makes total sense.

For a long time banks have been foreclosing on the homes of good people who can’t make their payments only to be unable to sell the property for anywhere near the debt owed. The banks can write-off this difference as a tax loss, but they can only claim so much tax loss each year. Jacksonville judges are now allowing debtors to file motions to force the lenders into mediation where we can show them what they’ll get if the debtor gives the house up in the bankruptcy vs. what they’ll get if they willingly drop principle and interest on the loan.

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