Of course you love your sweetie.  Honeybunches is your best baby.  And I’m sure that snookums is true blue to you in every way. Have you checked your credit?

Financial infidelity is a leading cause for divorce, not to mention bankruptcy.  For better or worse, your marriage is a financial partnership as well as a legally recognized relationship.  While you are not necessarily liable for your spouse’s debts incurred during marriage, except in a community property state like California or Wisconsin, it’s really important to know where you and your spouse stand so far as money is concerned.  A third of American couples with combined finances say they have committed financial infidelity, with both sexes lying to their partners in equal numbers, according to a Harris Interactive poll released in January

During my first marriage, I frequently found myself unpleasantly surprised at the end of the year.  I’d get nice year-end bonuses and think that my family finances were in good shape. Then I would find out that my then-wife had been holding out on me the fact that she had run up substantial credit card bills.  Men are equally as bad as women in lying to their spouses about their finances.

Open and honest relationships are critical to the success of any marriage.  And openness and honesty about financial matters is just as important.

Here are some of my suggestions for a happy financial marriage:

• Both you and your spouse should have full on-line access to all financial accounts
• Both you and your spouse should review each other’s credit reports at least once a year
• Both you and your spouse should sit at the kitchen table periodically to agree upon the family’s financial objectives for the year.
• Both you and your spouse should design a mutually agreed upon family budget – maybe not down to the penny but at least as to the big items.
• Both you and your spouse should agree on major financial goals for the family and agree on actions you’ll take in order to reach them.

The family that saves together, plans together, and budgets together stays together – and avoids bankruptcy too.

by David Leibowitz, Illinois and Wisconsin Bankruptcy Attorney · Posted in Marriage and Debt

This year, it seems that more creditors than ever are sending IRS Form 1099-C to their debtors who have filed bankruptcy or settled debts with them.   While in many cases it is unnecessary for the creditor to do this, it is nothing to fear.  If a debt is discharged in bankruptcy, it is not treated as cancellation of indebtedness income, and it is not taxable.  The IRS has provided a simple fix for the seemingly unnecessary 1099-C: Form 982.

If you have received a 1099-C, you need to file IRS Form 982 to demonstrate to the IRS that it is not taxable.  While it seems complicated, it is very simple with regard to consumer debt discharged in bankruptcy, and even do-it-yourself tax filers should be able to do it.  You just need to check box 1a on the form ("Discharge of indebtedness in a title 11 case" - "Title 11″ being the Bankruptcy  Code, not to be confused with Chapter 11, which is just one type of case under Title 11).   You then list the amount discharged on line 2, and then list it again on Line 10a to reduce the basis in your property.  However, only list it on 10a to the extent the basis (generally, the purchase price) of the non-depreciable property that you retain after discharge exceeds the debt remaining after your discharge (which includes both existing mortgages and loans secured by property you still own and any non-dischargeable debt).  This reduction in basis can result in capital gains tax liability in later years, but because of the residential capital gains exclusion, for most people it has no effect.

This "reduction in attributes" can be more complicated for business debt: for that, you should to consult your tax advisor.

Why is it that these forms are issued?  The idea that cancellation of indebtedness is income is pretty simple, and is designed to avoid what could otherwise be a great way to defraud the IRS: instead of getting paid money that would be income, you could "borrow" the money (because a loan is not income), and then have the "lender" just write off the "loan".  To avoid this scam, the tax law generally treats cancellation of debt as income.

To avoid creating phantom income when there is no scam, but legitimate debt cancellation for non-fraudulent reasons, there are certain exceptions to the treatment of cancellation of indebtedness as income.  The most important for consumers are (a) discharge in bankruptcy; (b) insolvency; and (c) qualified principal residence indebtedness.

• Debt discharged in bankruptcy is simply not income for cancellation of indebtedness purposes. 

• Debt cancelled to the extent of a taxpayer's insolvency is not treated as taxable income.   Generally speaking, this means that if all of your liabilities exceed the fair value of all of your assets (including exempt assets and retirement plans), cancellation of indebtedness up to the amount by which you are insolvent is not taxable (once rendered solvent, the balance would be taxable). 

• Finally, through the end of 2012, cancellation of secured loans used to buy, build or substantially improve your principal residence, or to refinance loans incurred for those purposes, is not taxable.

Even though cancellation of indebtedness may not be taxable, the law in many cases requires, or permits, creditors to issue Form 1099-C to report that cancellation to the IRS.  The IRS regulation (26 C.F.R. 1.6050p-1(a)(3)) states "Except as otherwise provided in this section, discharged indebtedness must be reported regardless of whether the debtor is subject to tax on the discharged debt under sections 61 and 108 or otherwise by applicable law."  In other words, the fact that you get a 1099-C from a creditor does not mean that you owe tax on the money shown on the form.   That is the reason for the Form 982.

There are exceptions to reporting.  In particular, where a debt is discharged in bankruptcy, the IRS does not require issuance of a 1099-C unless it was incurred for business or investment purposes.   Cancellation or discharge of consumer debt in bankruptcy need not be reported on a 1099-C.   But it can be.

A few words of caution: if the debt, or part of it, was cancelled before you filed bankruptcy (through debt settlement or negotiation, for example), the creditor must issue the 1099-C unless another exception applies.   And that debt is not included on Line 1a of Form 982, because it was not discharged in bankruptcy.   As a result, even if you later file bankruptcy, you may owe tax on that debt cancellation income unless you were insolvent at the time you settled it.  For that reason, it may make sense not to settle your debtsbut to just file bankruptcy and discharge them.  Before entering into a debt consolidation or settlement program, or settling claims asserted against you, it is important that you discuss the tax aspects of your situation with an experienced bankruptcy attorney.\

by Dan Press, Virginia and D.C. Bankruptcy Attorney · Posted in *Bankruptcy Basics, Tax Issues In Bankruptcy

Business owners who find themselves liable for unpaid payroll taxes are in deep trouble.  The trust fund portion of the tax, the amount withheld from employees' checks, becomes a personal debt of anyone in the business who could have paid that money over to the IRS.  Usually, trust funds make up about 2/3rds of the payroll tax.  The balance is the business's share of Social Security.

Trust fund liability is not dischargeable in bankruptcy.  The statute of limitations is10 years and the IRS is a fearsome creditor.

If you find yourself in this pickle, you, and the business itself, can avail yourself of your right toearmark any payment you make on Form 941 liability. A taxpayer  who makes voluntary payments to the IRS has the right to designate to which liability the payment will be applied . In re Ribs-R-Us, Inc., 828 F.2d 199, 201 (3rd Cir. 1987).

An earmark is simply a direction as to how the payment is to be credited.  Pay voluntarily and you have the right to tell the IRS what to do with the money.

Without instructions, the IRS is free to apply payment it receives on the tax debt as it chooses.  And it chooses the manner of application that benefits it best.  Send a check for payroll taxes and if the check is not enough to pay the entire liability, the IRS applies it first to the dischargeable portion of the tax first, preserving the personal liability of the business owners for the remaining tax.

Likewise, if the IRS levies an account, they may apply the levied funds as they wish.

Write directions on the check, and you can insure that each dollar paid on payroll taxes is applied to the portion of the debt that will follow the individuals around, long after the business has failed.

Of course, the better course of action is to remain current on payroll taxes.  Use a payroll service that won't cut the checks unless the taxes are paid, or make a tax  deposit  with each payroll. Dip into the money withheld from employees and you've taken a "loan" that lives forever.

by Cathy Moran, California Bankruptcy Lawyer · Posted in *Bankruptcy Basics

Keep your emotions in check when dealing with your financial problems.  No one wants to file bankruptcy, but sometimes it's your only meaningful option.

"I don't want to file bankruptcy," a client said to me the other day.  "No one does," I replied.  I explained that any good bankruptcy lawyer will explain non-bankruptcy options-like debt settlement or even doing nothing-prior to recommending bankruptcy.  However, sometimes there really aren't any other real options.

Another client told me, "I know you'll recommend bankruptcy-your favorite option-but I'm not doing that."  I then told him that my "favorite option" was doing what was best for my clients.  That might be bankruptcy, but it might just as well not be bankruptcy.  In my Charleston, South Carolina practice, I regularly tell clients not to file bankruptcy.

Both of these clients are filing bankruptcy now after extended meetings with me to evaluate all their options.  Both are relieved and feel much better now that they have a solid financial plan for dealing with their debts.  To their credit, both kept open minds and will be better off for doing so.

I know going through financial problems is extremely stressful.  It's the number one cause of marital discord, and it leads all sorts of stress-related problems.  It causes problems in relationships of all sorts-with spouses, children, employers, and friends.  It's just plain no fun.

But a knee-jerk approach to your financial problems is a bad idea.  "I won't file bankruptcy" might be an appropriate answer to give after you have evaluated all your options, including exploring you rights under the Bankruptcy Code.  So keep your options open and be open minded.  Your bankruptcy lawyer's "favorite option" is what's best for you.  Get all the facts so you can make an informed decision.

by Russell A. DeMott, Charleston Bankruptcy Lawyer · Posted in *Bankruptcy Basics

The Fair Credit Reporting Act requires credit reports to be accurate. What is accurate reporting during a bankruptcy case?

In general, creditors have no duty to report anything at all to credit reporting agencies. Consequently, many will simply stop reporting any debt information once informed of a bankruptcy case.
However, sometimes a credit report will reflect a balance for a debt that was included in a bankruptcy. When should this balance be set to zero? During a bankruptcy, which in the case of a Chapter 13 can last several years, or only after the bankruptcy is concluded and a bankruptcy discharge appears?
The answer is that a debt does not need to be listed as having a zero balance until a discharge makes it so. While a bankruptcy is pending, the debt balance still exists while the debt cannot be legally collected. Having a pre-bankruptcy debt balance stay on a report during a bankruptcy is sometimes harmful to credit during that period.

However, the duration of a Chapter 7 case is brief-three to four months-and one cannot usually obtain new credit during a Chapter 13 bankruptcy. So, even though it lasts longer, credit during a Chapter 13 bankruptcy is usually not necessary. When it is necessary, like in the case of a proposed mortgage refinancing, sometimes it is possible to work with a mortgage broker or lender to do quick disputes and get disputed trade lines off a report to complete the transaction. Often a lender will not re-report the debt under those circumstances for fear of violating the automatic stay.

by Nicholas Ortiz, Boston Bankruptcy Attorney · Posted in *Life After Bankruptcy

Few concepts are as difficult to grasp for a potential bankruptcy debtor than the "means test," which Congress added to the bankruptcy law in 2005.  To be sure, the means test can be confusing, and it has been roundly criticized both by lawyers and by judges in bankruptcy court decisions.  While this brief article will not attempt to explain everything about the means test, it will explain the purpose of the means test, and help you to understand how to assist your lawyer in preparing it.

The key to understanding the means test is to know that it is financial formula, not unlike a tax return.  The means test aims to predict (1) whether you can afford to pay off some or all of your debts, and thus should be required to file chapter 13 bankruptcy rather than chapter 7, and (2), how much you can afford to pay each month into a chapter 13 payment plan.  The means test is a formula developed by Congress to answer the question of which type of bankruptcy, chapter 7 or chapter 13, is appropriate for you. 

What Congress attempted to do through the means test was to establish a uniform method to enforce its desire that bankruptcy debtors who could pay back part of their debts in chapter 13 be made to do so.  The means test is fundamentally an income and expenses test.  Those who can afford chapter 13, based on the means test formula, in nearly all cases cannot file chapter 7.

The means test is only half the inquiry into your income and expenses, because when Congress enacted the means test formula in 2005, it left untouched the "actual income and expenses" test it created in 1986.  Yes, that's right, there are two income and expenses tests in the bankruptcy law: the actual income and expenses test enacted in 1986, and the means test enacted in 2005.  Each of these separate tests is designed to tell if you should be forbidden from filing chapter 7 because of your ability to afford a monthly payment in a chapter 13 case.  It's little wonder, then, that people are confused about the income and expenses issue.

The important point to remember is that your lawyer will need to prepare two separate income and expenses statements for your chapter 7 or 13 bankruptcy: the means test and the actual income and expenses test.

The actual income and expenses test is based upon your current income and household expenses, projected into the near future.  Unlike the means test formula, it is based on common sense and you can often prepare most of this statement yourself, without much input from a bankruptcy lawyer.  The actual income and expenses test looks at your actual household budget, excluding the debts that would be discharged in a chapter 7 (or paid in a chapter 13).  The question is, after taking away these debts, do your actual income and expenses allow you to make a monthly payment in a chapter 13 case?  Just as with the means test, if the answer is yes, then you have file chapter 13 instead of chapter 7.

Because the means test is a formula using past income, along with a mixture of your actual expenses combined with arbitrary IRS-provided allowances for some of your expenses, it is next to impossible for you to prepare your means test without your bankruptcy lawyer's help.  However, you can help your lawyer in doing this for you by being diligent in providing both past income information, and current household expenses information, and by understanding why your lawyer needs this information.

by Craig Andresen, Minnesota Bankruptcy Attorney · Posted in Means Testing

Recently, Senator Jeff Merkley from Oregon has been speaking very loudly about the need for the current Congress to amend the Bankruptcy Code to allow cramdowns of first mortgages on primary homesteads.  If you recall, the same proposal was attempted by Senator Dick Durbin from Illinois back in 2009.

This time, Senator Merkley may have some additional ammunition in his arsenal.  The recent jobs report is horrible.  The housing market is in the toilet, and we are facing over a million additional foreclosures in 2011.  Likewise, we now learn that the Federal Government is considering scraping the HAMP Program.   Let's face it right now, this Country is in a mess and there is no plan to bring us out of it.  Most Americans are living paycheck to paycheck without the security of knowing if they can save their completely underwater homes.  Most Americans are still being told that they have to be behind 90 days before anyone will help them.

There are still over 300K mortgage foreclosure suits being filed in the United States, and that is unacceptable to me.  The HAMP program is a failure, I agree, but that doesn't mean we should stop looking at the situation to come up with better ideas.

Senator Merkley is proposing this legislation because it is comprehensive.  It will not only allow a homeowner to save their homes by reducing the principal to what the house is actually worth, it will also allow the homeowner to craft a financial plan to deal with all of their debts under the Bankruptcy Judge's supervision.  Accordingly, there will be no unfair and deceptive dealings.  Everything will be in the open, and the homeowner will not have to live in fear of losing everything that they have ever worked for.  As if they haven't lost enough already.

Merkley's plan contains another component.  He wants to implement a refinancing option to provide homeowners facing foreclosure the option to refinance at current rates and home values.

I think that one of the most important provisions in the Merkley plan would suspend foreclosures while the mortgage modifications were being considered.  I have never, and I mean never, spoke to one person who sent in their mortgage modification documents one time and a decision was rendered.  They may be out there, but I haven't heard about them.  I have heard from and about individuals who sent in their paperwork multiple times.

I agree with Senator Merkley's plan.  I believe it is well thought out and will not only create jobs, but will provide stability to the American public.  Sure, the number of personal bankruptcies will increase, but the number of foreclosures will drop.  The number of Americans paying their mortgages will increase.  The number of people working will increase.  Trust me, if you tell someone that they can save their homes by taking a less paying job.  The homeowners would be inspired to take any type of work knowing that they are providing for their families.

by Carmen Dellutri, Southwest Florida Bankruptcy Attorney · Posted in *Bankruptcy Basics

A Michigan bankruptcy court recently took the unusual step of denying a discharge under bankruptcy code section 707(a) to a debtor whose debts were primarly business debts, based upon the court's determination that the debtor could repay a portion of his debts in a chapter 11 reorganization case.  In re Rahim, 2010 WL 5128944 (Bky.E.D.Mich. Dec. 16, 2010),

Section 707(b) is the usual provision relied upon by bankruptcy courts to deny a chapter 7 discharge for ability to repay all or part of one's debts in a chapter 13 case.  Because section 707(b) expressly does not apply to debtors whose debts are primarly business debts, most lawyers have assumed that business chapter 7 debtors are immune from motions to dismiss based upon ability to repay a portion of the debts.  What makes this case unusual is that the court relied upon section 707(a) to bring about the dismissal of the business debtor's chapter 7 case.

In re Rahim involved married chapter 7 debtors who earned in excess of $509,000 annually from a medical practice.  Their unsecured debts consisted mainly of $6 million in guarantees arising from failed Florida real estate investments.  The debtors' budget showed monthly expenses of $15,714 for their home mortgage, nearly $5,000 for a second home in Florida, over $2,000 for luxury motor vehicle payments, $4,575 for private school tuition, and $540 for care for the debtors' elderly mother.  The court characterized these expenses as "extraordinary."

The chapter 7 trustee's lawyer testified that over $200,000 in assets would be administered for creditors if the case were allowed to proceed under chapter 7 rather than being dismissed.  However, the court noted that much more would be paid to creditors if the debtors converted the case to a chapter 11 reorganization.

The court held that given the debtors' income level and extravagant lifestyle, they simply were not in need of a chapter 7 discharge.  Therefore, section 707(a) applied, and the fact that the debts were primarly business debts was of no consequence.  The case was therefore dismissed for "cause" under section 707(a).

by Craig Andresen, Minnesota Bankruptcy Attorney · Posted in * Business Bankrtupcy, *Chapter 7

Five years after bankruptcy reform, and millions of cases later,  the Supreme Court is still deciding issues affecting the most basic administration of bankruptcy cases.  The latest case, In re Ransom, held a debtor may not deduct an ownership expense on the Statement of Current Monthly Income [B22C] for a vehicle that was not encumbered by a lien.

The court did not specify whether the Ransom decision, a chapter 13 case, applies to chapter 7 cases, yet the Court compared Ransom with two contrary chapter 7 Court of Appeal decisions, In re Ross-Tousey, and In re Tate, both of  which permitted that ownership deduction for a free and clear vehicle on the chapter 7 Means Test.  Did Ransom overrule Ross Tousey, Tate, and various District Court decisions?   Still today bankruptcy attorneys do not know how to answer that question.  At least one esteemed bankruptcy professor fashioned an argument that Ross-Tousey remains good law because means testing in Ransom looked to see how much money a chapter 13 debtor reasonably needed for support during the duration of the chapter 13 case.  Time and another case decision will only tell.

Well over a million bankruptcy cases are filed annually.  Prior to the Ransom decision, most debtors with one or two cars claimed an ownership deduction for each fully owned non-liened vehicle.  Ransom changed the landscape five years after the "new" bankruptcy law took effect.  But other questions remain unanswered.

In Ransom, the Supreme Court adopted a definition of 'ownership expense' as being limited to loan or lease payments.  On the issue whether a debtor may deduct the full ownership expense amount listed in the IRS Local Standards [used in bankruptcy calculations] if debtor does not actually spend that much, the Supreme Court directly, pointedly and matter of factually said "We decline to resolve this issue".

Equally disturbing is language in the Ransom decision that says a debtor may not claim actual expenses that exceed the amount of the allowance listed in the IRS tables.  In practice, a debtor with a car loan or lease payment higher than the allowance currently takes the higher expense as a secured payment deduction.  Does Ransom threaten payment of secured debt to car lenders?

2010 has been a busy bankruptcy year for the Supreme Court.  Just a few months back, in June 2010, that court issued a watershed decision, Hamilton vs Lanning, that changed the way debtors calculate projected disposable income available to pay unsecured creditors.  Bankruptcy reform legislation took effect on October 17, 2005.  Since then, courts have struggled to calculate "current monthly income",  which oddly enough averaged income over a six month period before bankruptcy, but resulted in a number that was not actually current, not fully monthly and not accurately income.  Bankruptcy Law Network contributor Dan Press analyzed the Lanning decision this way:  "rather than mechanically applying the calculation of current monthly income which looks at debtor's income for the 6 calendar months before the filing of the petition, the court can take into consideration changes in income that have occurred or are known or are virtually certain to occur at the time of confirmation."

Prior to Lanning, some courts decided to mechanically count income only during the 6 months, some courts only looked to actual income earned most recent to the time of filing bankruptcy, some courts looked to a combination of both the mechanical average 6 month look-back period with adjustment for recent increases or recent decreases, and some courts experienced contrary opinions by different judges within the same district.  Nearly 4 years 8 months after the first reform case was filed, the Supreme Court told us how to calculate debtor's income.  A chapter 13 bankruptcy plan may not last longer than 60 months.  Ironically, a case filed on or after October 17, 2005 and slated for the maximum 5 years could have been active at the time Lanning decided five years later how to calculate monthly plan payments for that case.

The highest court in the land is increasingly called upon to determine issues and answer questions of bankruptcy law.  In March 2010, the Supreme Court clarified that a lawyer could legally advise a client regarding appropriate situations where borrowing money prior to filing bankruptcy was in the client's best interest and where the client intended to repay the money after filing bankruptcy.  See In re Milavetz.

Are other issues pending?  Are major issues unresolved?  Certainly.  A few months before Christmas 2010, bankruptcy courts rendered opposite decisions in the Southern Illinois case of In re King, and in the Northern Illinois case of In re Davis, regarding whether modification of a confirmed chapter 13 plan required compliance via 1329 with the 1325b requirement that debtor pay unsecured creditors all projected disposable income during the applicable commitment period.

Litigation is expensive, time-consuming and delays justice for debtors and creditors alike.  Equally if not more importantly, unresolved issues frustrate judges and lawyers who are forced to speak about bankruptcy law in gray terms and with disclaimers of uncertainty.  Bankruptcy reform legislation has not been applied equally, certainly or consistently during its initial five years.  Though the Supreme Court is not in the business of issuing advisory opinions, more questions need answers, sooner than later

by Andy Miofsky, Illinois Bankruptcy Attorney · Posted in *Bankruptcy Basics, Means Testing

Lately, a number of clients coming to see me have just transferred real property (or their interest in real property) to a family member or friend, or they are inquiring about transferring their property to a family member or friend - and, of course, for no money in return.  AND, they want to file bankruptcy ASAP.  Bad decisions and bad ideas! Bankruptcy law has several provisions that penalize a transfer made with the intent to hinder, delay, or defraud creditors.   Any transfers made within two years of filing bankruptcy (and in some instances - further back than that) the bankruptcy trustee can undo those tranfers pursuant to his avoidance powers under Section 548 of the Bankruptcy Code. 

I recently turned down filing a case for a potential client who, after several months of being laid off from work and no foreseeable job offer coming, decided to transfer a second parcel of land (approximately 20 acres) - not his homestead to his son.  He wanted to protect his land from his creditors.  Unfortunately, this is considered a fraudulent transfer and the trustee could undo the transfer.  He, of course, was sick to learn that his actions had only made matters worse for him since he is unable to file a Chapter 7 bankruptcy now and keep his land.   

If you are thinking about filing for bankruptcy and are thinking about transferring or giving property of any value to someone else, PLEASE talk to a bankruptcy attorney before you take that action.

by Pamela Stewart, Attorney at Law · Posted in *Bankruptcy Basics, *Filing for Bankruptcy

Foreclosures have been getting a lot of media attention lately, but credit card debt probably accounts for more bankruptcies than foreclosures.  And a lot of people who fall behind on mortgage payments and end up in foreclosure do so trying to juggle credit card debt as well, so it’s probably responsible for a fair number of those as well.  Credit cards are like crack–addictive, hard to handle, and a hard habit to break.  It’s not an original thought.  My colleague and friend, Russ DeMott, has said for years that credit card issuers are the drug pushers of the financial world.

For years, credit card issuers have used extremely sophisticated marketing tactics to woo customers and promote the use of credit cards, often in completely irresponsible ways, at the same time that their collection departments maximize fees, unilaterally raise rates, and, in short, do all those things that cause customers to default.  Often at the same time.  Although it has some age on it, the PBS show Frontline did a report that outlines some of the history of the industry, as well as some of the things you should know about credit cards, but probably don’t.  In fact, some of those tactics were so abusive that Congress passed the Credit Card Accountability, Responsibility and Disclosure Act (sometimes referred to as the CARD Act).  What the act does not do, as some scammers try to maintain, is give anyone the “right” to avoid or settle all or part of their credit card debt.  That is called “bankruptcy.”

I often hear from my clients very real and heartfelt concern that they are somehow treating the credit card companies unfairly by filing bankruptcy.  I point out to them how, in many cases, the card issuers knew that they were overextended when they offered new credit, and how much they have paid over the years in interest and fees.  And I point out how aggressively the credit card companies market their cards.  In many cases my clients talk about trying to persuade credit card lenders to offer any lower interest rate or payment terms, while the account is being paid, but offer generous settlement terms after the account is in default and headed toward bankruptcy.  In other words, as long as you’re paying the minimum payments, they have no interest in working with you, but once they’ve trashed your credit, they’ll settle for pennies on the dollar.

I recently added another story to my repertoire, to demonstrate the essential irrationality of credit card marketing, which also explains a lot about credit card collection.  In the last several weeks I received in the mail an offer for a pre-approved credit card, from a very large bank.  The offer included a period of more than a year with no interest.  Only problem was that the offer was directed to a person who doesn’t exist.  The address on the offer was my business address, but my name appeared nowhere on the offer.  Instead, the last name on the offer was that of one of my clients, and the first name was that of the client’s bankruptcy trustee.  How the bank happened to put that together is a mystery to me, but is a perfect demonstration of the essential irrationality of their marketing efforts.  And no, I did not send it back.  I will admit to curiosity about what would happen, but common sense, and a sense of decency, prevailed.  I wish I could credit the credit card issuers with the same.

by Dana Wilkinson, Attorney at Law · Posted in *Filing for Bankruptcy,Consumer Credit Issues,Discharge of Debt,Personal Finance

People frequently ask  whether they can file a bankruptcy case without their spouse.

The simple answer is yes.  The complicated answer is that your spouse matters for several reasons.

Let's assume that you and your spouse are married and living together.  Then you have one household. There are at least two of you and maybe more in your household.  If that's the case, your spouse's earnings count and must be considered to determine if you are eligible to file a chapter 7 case - straight liquidation - or whether you must file a chapter 13 debt adjustment case - along with payments to creditors for up to 5 years.

A married person must take into account his or her spouse's income.  Of course, the spouse's separate expenses, like personal credit card bills, are deducted.  But anything left over is considered disposable income which is placed to  household uses and therefor available, at least in theory, to pay the filing spouse's debts.  If the non filing spouse makes enough money, then the filing spouse may be required to file a chapter 13 case or run the risk of having his or her chapter 7 case be subject to a motion to dismiss as abusive.

If you are married and living separately, you probably won't have to include your non-filing spouse's income.  Each of you now has your own household.  If you are married but estranged, you may be deemed to have separate households even if you live in the same dwelling.

The issue becomes more complex in community property states like Wisconsin or California, for example.  In such states, debts arising during marriage are typically considered community debts and property acquired during marriage is considered community property.  Community property can be subject to bankruptcy administration even if one of the spouses does not file jointly with the other.  On the other hand, the non-filing spouse benefits from the discharge of the filing spouse. That's because if one spouse is discharged from a community debt, the other spouse is automatically discharged from that debt - this is called a "phantom discharge."

So if you are married but are thinking of filing bankruptcy separately, ask a bankruptcy lawyer who understands marital law what this means to you and your non-filing spouse.

by David Leibowitz, Illinois and Wisconsin Bankruptcy Attorney · Posted in *Filing for Bankruptcy,Family Debt Problems

No one wants to file bankruptcy.  No one does it for fun.  It's like going to the dentist (or proctologist, or urologist-take your pick).  You do it only because you need to, and it will improve your life in the long run.  So how do you know when the time has come?  Here are some benchmarks for individuals (as opposed to businesses) who are wondering whether they need to file bankruptcy this year, to ensure their financial health for the future:

Have you been thinking about filing bankruptcy since this time last year?  Have you discussed it with your spouse, or other family members?  Have friends or family members, or your lawyer or accountant suggested that you need to consider bankruptcy?  If you have financial issues that remain unresolved over a long period of time, that's a pretty good indication that you should be considering bankruptcy.  Let's face it-if you are still struggling with debt after trying to deal with it on your own for more than a year, you may not be able to solve it by yourself.   That applies whether you have been paying minimum payments only (without reducing your overall debt), or borrowing from Peter to pay Paul, or whether you have been in default for some time.

One of the benchmarks I use in advising clients is to consider whether, with discipline and a little luck, they could pay off most or all of their debt over a period of five to seven years.  If not, I consider them good candidates for bankruptcy, for several reasons.  First, it is difficult for anyone to go through any given five-to-seven-year period without significant changes in financial situation-an illness, job change, the birth of a child, or a child starting college, retirement-the list goes on.  Some changes are positive, like a raise or a promotion, but many of those positive changes also come with increased responsibilities as well.  Second, a debt payment plan in Chapter 13 generally lasts five years, so while a Chapter 13 is a bankruptcy, it gives many people the opportunity to be debt free in five years or less.  Third, most people find that the effects of bankruptcy on credit scores fade within that time frame (although they can last longer).  In short, if you can't get your debt paid in five to seven years, it is unlikely you can do it at all, and it serves no useful purpose to prolong the inevitable.

Another benchmark to consider is whether you are headed toward one of those life-changing events, and you are barely making ends meet as you are.  Let's say you are making more than the minimum payments on your credit card accounts, but you're still using the credit cards for emergencies, and you are a couple years away from retirement, or sending your kid to college, or any of a dozen things that will upset your financial applecart.  If you are staring down the tunnel of your financial future, and the light you see is the train coming at you, it is probably time to consider bankruptcy.

The most important indicator, however, is the simplest:  Do you have any savings?  If you have so much of your income going toward debt service that you can't save for unexpected expenses, that should be a red flag.  Actually, a red flag with bells on.  And flashing lights.    I'm talking here about ordinary savings, too-not just retirement savings, like a 401k.  You need some savings for ordinary, everyday emergencies, like a hospital bill, or tires for your car, or your deductible if you're in a fender-bender.  If you don't have savings for ordinary emergencies (much less big emergencies like a serious illness, or a layoff), you are in an inevitable downward spiral, because those expenses are inevitable.  I can't tell you what the next thing will be-that's why they're called unexpected-but I can guarantee there will be something (like the "known unknowns a former vice-president spoke of).   We all have them-a car breaks down, a child is ill, your furnace needs repair, or the roof springs a leak.  Sometimes several of them happen at once.  If you are accustomed to using credit to deal with such unexpected expenses, you are in a downward spiral.  Eventually, you will use that credit card one too many times, and you won't be able to make the payment on time, which will cause you to incur more debt (for fees and interest).  Then, the next emergency comes up, and you still haven't been able to save anything, but this time you can't use the credit card because you're over your limit (or they've reduced your available credit because your payment was late).  So, you'll have to pay the unexpected expense out of cash, which means you can't make another payment, and the downward spiral continues.   If you have so much of your income going to debt service that you can't save for emergencies, you aren't just a good candidate for bankruptcy, you need help dealing with your existing situation, as well as planning for a better financial future, and changing your financial habits.

The New Year is a great time to start making those changes.

by Dana Wilkinson, Attorney at Law · Posted in *Filing for Bankruptcy,Discharge of Debt,Family Debt Problems

On more than one occasion, I have represented individuals in Chapter 7 and Chapter 13 bankruptcy cases when the debt that prompted the filing was wholly or in large part co-signed debt.   It seems that underwriting standards for most large loans have become tighter and nowhere is this more true than in the case of student loans.

From the lender's perspective, student loans can pose a significant risk.  Unlike mortgages, there is no collateral to secure the loan.  The borrower, of course, is a student who may or may not find suitable employment.   Given that college and trade school loans can easily top $100,000, the likelihood of slow pays or defaults is high.

I am also seeing more and more cases involving student loans from so-called "for profit" colleges - usually vocational schools.  According to the United States Department of Education, 34 million borrowers owe $713 billion, with $50 billion of these funds in default as of September 30, 2010.

Student loan debts are not dischargeable in a bankruptcy unless the debtor/borrower can show extreme hardship, which is a very hard result to accomplish.  In the Northern District of Georgia, where I practice, a debtor generally must show compelling evidence - usually in the form of a chronic medical problem - that would prevent repayment of the student loan, and the judges here have been very reluctant to grant this type of relief.

I am also seeing more cases where the student loan lender is demanding a co-signer, usually a parent, but possibly grandparents or siblings.  What happens when tragedy strikes and the primary borrower (the student) dies before he is able to pay back his loans?

If the loan is federally backed, (Stafford loans or PLUS loans), the student loan is discharged if the primary borrower (the student) passes away.  If the loan is private, the death of the primary borrower does not relieve the co-signer from his or her obligation to pay.   Since the rigorous "hardship discharge" standard applies to both federally backed and private student loans, a surviving parent or grandparent may be left with a lot of non-dischargeable debt.

by Jonathan Ginsberg, Atlanta Bankruptcy Attorney · Posted in *Filing for Bankruptcy,Student Loans

In earlier posts, two bankruptcies filed by debtors appearing in Bravo Television reality shows were discussed.   Terese Giudice who appears on Real Housewives of New Jersey and Sonja Morgan who appears on Real Housewives of New York City each filed banruptcy.   Ms. Giudice filed achapter 7 bankruptcy (consumer bankruptcy); Ms. Morgan filed a Chapter 11 bankruptcy (for high income consumers or bigger businesses).   My opinion was that Ms. Morgan chose wisely and that perhaps Ms. Giudice had not.    The events since the filing demonstrate the importance of filing accurate and thoroughly complete schedules.

On  June 30, 2010, the Chapter 7 Trustee filed an adversary proceeding, objecting to the discharge of debts for the Giudices.  The Chapter 7 trustee alleges that assets were concealed or withheld by the debtors and that as a consequence, their debts should not be discharged.  On August 3, 2010, the Giudices answered the lawsuit, denying that they had concealed any property or withheld any information from the court.  On September 2, 2010,  the United States Trustee filed an adversary proceeding in the Guidici case in New Jersey.   That adversary proceeding, or lawsuit, objects to the discharge of the debts of the Giudices.   The United States Trustee functions as a prosecutorial arm of the federal bankruptcy system and is a division of the United States Department of Justice.    The lawsuit paperwork recounts the actions of the Giudices from the inital papers filed through September.    The United States Trustee alleges that there were numerous inaccuracies in the initial papers and then lists the amendments.    Mr. and Mrs. Giudice appeared at their 341 meeting with the trustee and acknowledged some of their property was not listed.    Amendments were filed after that meeting.   The Giudices then appeared at a 2004 examination (separately).   At that examination, the Giudices acknowledged that additional property was not listed.   Amendments were filed which listed more property.   The UST alleges that even after the amendments that the Giudices still failed to list even more property.   Through their attorney, on October 4, 2010, the Giudices filed an answer to the lawsuit, admitting that there were errors but denying intential omissions were made.    The Giudice answer alleges that a further amendment will be filed with the Court which will complete their bankruptcy filing.   

Complicating matters further are other adverary proceedings filed against the Giudices in their bankruptcy case.   One of those was filed by Joseph Mastropole, Mr. Giudice's ex-business partner, who is objecting to any discharge as Mr. Mastropole alleges that Mr. Giudice is liable on a mortgage held by Mastropole and that a fraudulent document was recorded by Giudice releasing the Mastropole mortgage.     In that case, while on the stand, Mrs. Giudice testified that she did not sign the bankruptcy papers and was unaware of the bankruptcy until after it was filed.    Apparently, during a bankruptcy court hearing, Mr. Giudice admitted to the forgery of his wife's name on the bankruptcy papers; that admission has now caused theEssex County, NJ prosecutor to become interested in filing forgery charges against Mr. Giudice.   In the Mastropole adversary proceeding, Mr. Mastropole alleges that the Giudices have a pattern of fraud and deceit (Mastropole had filed a state court case which was put on hold when the Giudices filed for bankruptcy protection).   The Mastropole case was combined with another adversary proceeding filed by John Testa as the two cases were based on the same or similar facts.

According to the United States Trustee website:

The Program was established by the Bankruptcy Reform Act of 1978 (11 U.S.C. § 101, et seq.) as a pilot effort encompassing 18 districts.  It was expanded to 21 Regions nationwide, covering all  federal judicial districts except Alabama and North Carolina (those two states havebankruptcy administrators, as explained by my colleague, Susanne Robicsek). ... The Program is funded by the United States Trustee System Fund, which consists primarily of fees paid by parties and businesses invoking Federal bankruptcy protection.   The primary role of the U.S. Trustee Program is to serve as the "watchdog over the bankruptcy process."  As stated in the USTP Mission Statement, the USTP Mission is to promote integrity and efficiency in the nation's bankruptcy system by enforcing bankruptcy laws, providing oversight of private trustees, and maintaining operational excellence....The Attorney General is charged with the appointment of United States Trustees and Assistant United States Trustees. The Executive Office for U.S. Trustees in Washington, D.C., provides general policy and legal guidance, oversees the Program's substantive operations, and handles administrative functions.

The debtors are in a very bad position.  The local prosecutor is investigating criminal charges, the United States trustee is objecting to their discharge, and the Department of Justice is likely to become involved for federal criminal charges.  All of these agencies and the attorneys involved in the other two adversary proceedings are all paying attention to the answers given in any court proceeding.      Bankruptcy fraud is a serious matter, as explained by my colleague, Dana Wilkinson, even for small businessmen.  Back in 2006, the government announced "Operation Truth or Consequences", a cooperative effort by many federal agencies to work together to fight bankruptcy fraud.

by Karen Oakes, Southern Oregon Bankruptcy Attorney · Posted in *Bankruptcy Basics,Television and Media

I've been hearing from more and more people who have purchased small businesses on an installment basis from a previous owner and are now struggling to make the payments because of the downturn in the economy. What should you know and do if you are in this situation?
First, it makes sense to try to renegotiate. This is always tough, and the person who sold you the business may be intractable, but you should definitely try it. The unique circumstances of the deal will dictate the bargaining power of each party.
The chief threat you have is to shut down and declare personal bankruptcy. Your personal guarantee of the business loan will be discharged by the court, and the previous business owner will be left with the option of reclaiming a dying business that he or she wanted out of anyway. Note: it is very, very important to preserve business assets if you default, especially if the seller retained a lien on the assets of the business. Selling equipment subject to a lien out the back door and pocketing the cash will create serious problems for you in or out of bankruptcy.
Of course, bankruptcy as a threat and option will depend on your overall situation. If you have significant assets or pledged personal assets as collateral as part of the business purchase, bankruptcy may not be advisable. However, special bankruptcy rules make it easier to qualify for Chapter 7 bankruptcy for individuals who have primarily business debts, even if they have higher income, but not all business owners driven in bankruptcy due to business debt will be in this situation.
There are many complicated issues involved in winding down a business subject to a loan. It is best to see a lawyer as soon as possible if you are facing this situation.

by Nicholas Ortiz, Boston Bankruptcy Attorney · Posted in * Business Bankrtupcy

Unusual situations often show up in bankruptcy court eventually.  And sometimes they contain both humor and depression in equal measure.

Recently the 8th Circuit Bankruptcy Appellate Panel was called upon to rule on whether a horse trailer could be a mobile home under Missouri law.  The issue arose because the debtor who filed bankruptcy owned a small $3,000 trailer designed for hauling horses which he also happened to sleep in occasionally.  But for the generosity of friends and his girlfriend, this would be his only home.

Under Missouri law, a debtor can exempt - protect - up to $5,000 for a mobile home used as a residence (under some circumstances).  But there is virtually no protection for an unmotorized trailer.  So the court was called on to determine whether he could protect his sometime-abode from the clutches of his Chapter 7 trustee, collecting assets for his creditors.

Sadly for the debtor, the BAP concluded he could not.  The BAP relied on a relatively narrow definition in Missouri law for "Manufactured Homes (Mobile Homes)" to reason that the (equally narrow) horse trailer failed to meet the definition.  Granted, it took seven pages to reach this conclusion (although it would probably take me 12 pages to say the same thing) but the conclusion seems well-founded if terribly unfortunate.

In this holiday season, it's nice to read a few cases that bring a chuckle to the lips.  And to hope we never are so down on our luck as to rely on a horse trailer as the only roof over our heads - or to have a Chapter 7 trustee trying to take it from us.  And let us spare a moment to consider those who may be in even worse shape.

by Wendell Sherk, Missouri Bankrupcty Attorney · Posted in *Bankruptcy Basics,*Chapter 7

If you're paying minimum payments on credit card debt and have nothing saved for retirement, you are my favorite candidate for bankruptcy.

The most compelling reason to file bankruptcy is so you can spend money on retirement savings.  If you want to be self sufficient and live even a moderately comfortable life in retirement, it will take significant savings over time to make that happen.  Take this retirement calculator out for a spin.   For most people, attention to retirement can't happen while they are paying credit card debt at credit card interest rates.

Take a look at a comparison of paying off credit cards at minimum payments vs. saving that same money for retirement.

The older you are, the easier it is to think the task is too large,and the time remaining too small.  However, it is certain that if you don't save for retirement, you won't have anything.  Every bit you save is a cushion for the cost of living decades hence.  I like the attitude of this old man:

The great French Marshall Lyautey once asked his gardener to plant a tree. The gardener objected that the tree was slow growing and would not reach maturity for 100 years. The Marshall replied, 'In that case, there is no time to lose; plant it this afternoon!'

The means test is one of the first things that your attorney needs to prepare in order to file a consumer bankruptcy.  The results of this process will tell you whether you qualify to file a Chapter 7. And it will tell you what your monthly payments would be if you were to file a Chapter 13.

This is really a two part test.  First is the determination of whether or not you are under "median income."  If you are above "median income" then the more compressive "means test" needs to be completed.  This is a calculation starting with your income (and all income contributed to the household) less your normal living expenses.  Sounds easy.  But it's not.

Although the means test needs to be done, at least to some extent, in both a chapter 7 and a chapter 13 bankruptcy, it is perceived somewhat differently in each.  There just seems to be an easier, more cursory examination of the form in a Chapter 7 than in a 13.

The reason for this can be understood by examining the chief difference between the two types of bankruptcy.  In the Chapter 7, the means test is a snapshot of your financial condition on the day you file the bankruptcy.  Thus, if you owe money on a house payment, you have that expense, even if you are giving up the house or it is in foreclosure.

In a Chapter 13, however, the purpose of the means test is to measure the amount of money you will have available to pay your creditors over a three to five year period.  So, if you are giving up the house, that money will be available for you to use to pay creditors and therefore cannot be included in your expenses.  [Please note that there are a several districts that treat a Chapter 13 means test the same as in Chapter 7 - but such treatment is declining rapidly.]

The means test can be as simple as completing a comparison between your annual gross income and the "median income" allowable in your State for a family the same size as yours.  Or it can be as complicated as a 61 line tax return.  It's always best to have a competent bankruptcy attorney work through this for you to insure an accurate result.

by Douglas Jacobs, California Bankruptcy Attorney · Posted in *Bankruptcy Basics

According to the 2010 Fiscal Year statistics from the Administrative Office of the U.S. Courts, the number of bankruptcies filed between October 1, 2009 and September 30, 2010 increased from 1,402,816 to 1,596,355, an increase of 13.8%.

Chapter 11 (business and large individual) filings decreased, from 14,745 to 14,191, a 3.8% drop. Business filings overall also went down, from 58,721 last year to 58,322 this year, a 0.7% decrease.

Non-business filings went up under all other chapters of the Bankruptcy Code, rising from 1,344,095 to 1,538,033, or 14.4%.

Proprietary mortgage modifications, not HAMP mortgage modifications, lead the way according to HOPE NOW Loan Mod statistics.

120,000 modifications have been done by the mortgage companies themselves, compared to only 27,840 HAMP mortgage modifications, compared to

HAMP has been, and remains, a gigantic government failure.

It was supposed to lower the foreclosure rate.

There are three kinds of lies:  Lies, Damned Lies, and Statistics.

Homeowners have situations like this: home worth maybe $200,000, first mortgage, $350,000, second mortgage, $40,000.

So how are homeowners like these faring, even if they get a mortgage modification?

How many monthly mortgage payments are lowered by at least 10%?

by Kurt O'Keefe, Attorney at Law · Posted in Foreclosure News

A whopping 55%!

Wow!

So, that means, out of the 150,000 total, about 70,000 did not even get 10% knocked off their house payment, even temporarily.

How does that help avoid foreclosure?

Ten percent would not make much difference to the Michiganders I talk to.

The number that puzzles me is, 22% of the mortgage modifications did NOT even change the principal/interest payment.

Were these folks stuck with the same payment?

People try for a modification because they cannot afford the house payment, to avoid foreclosure.

The rest of the story:  September, 2010, foreclosures started:  250,000.

September completed foreclosure sales:  120,000.

Folks now two months, or more, behind on their mortgage payments:  3.2 million.

This story did not even cover how many people have already defaulted on the mortgage modification they were lucky enough to get.

The completed foreclosure sales the banks have not even gotten around to putting back on the market, so called shadow inventory:  7 million.

At the current rate of home sales, it would take 40 months to clear all of these out.

And home values?

One prediction:  down another 7 plus per cent to next June.

Even if you are one of the rare persons who gets a mortgage modification with a principal reduction, more of your home's value is probably going to just disappear.

So, get all the facts, assume your home's value will continue to decline, look at it like you are buying your home again.

How much is it worth, and, how much are you paying?

Make an accurate budget, then make a decision about mortgage modification.

Mortgage Modifications Fail To Slow Foreclosure Rate

Below poverty level income for five of the past six years was no basis for discharging a chapter 7 debtor's student loans, where she was voluntarily underemployed, had no dependents, and lived with her boyfriend, relying on his income as if they were married, according to the Bankruptcy Appellate Panel for the Eighth Circuit.

The debtor in Sederlund v. Educational Credit Management Corp., 2010 WL 4273243 (8th Cir. BAP Nov. 1, 2010), was a 42 year old college graduate who had obtained her degree in psychology, but had never worked in that field.  She graduated in 1992 owing $16,649.70 in student loan debt.  She paid $11,825.10 toward the student loans over the next twelve years, but was later granted deferrals on the payments.  At the time of her chapter 7 filing in 2008, she owed approximately $47,000.00 on her consolidated student loans.

In the years leading up to the case, the debtor's income had been minimal: in 2004, it amounted to $6,601; in 2005, $5,930; in 2006, $9,180; in 2007, $5,316; in 2008, $12,635; and in 2009, $6,506.  All these figures except that for 2008 fell below the federal poverty level for annual income.  The debtor had typically worked as a secretary for law firms and had an inconsistent employment history, working most recently at a catering company.

The court noted that the debtor had either quit some jobs, or had been fired from others, for reasons for which she was at least partly to blame.  She quit one job after arguing with her boss; she quit another because she disliked her supervisors' abusive attitudes; she quit another due to arguments with coworkers; she was fired from another job after having a dispute with a coworker over work hours. The debtor was currently working in food service, but despite having a low number of weekly work hours, she testified she was not seeking a better paying office job.

The court found that the debtor's "undue hardship" claim failed because she had simply quit jobs she did not like, and that she had lost jobs due to complaining too much.

The court also found that her boyfriend's income should be imputed to the debtor, because they lived together and their relationship was no more stable, nor was it less stable, than that of typical married couples.

Finally, the court noted that under an income contingent repayment plan (ICRP), the debtor's monthly student loan payments would be zero.  She had not applied for the ICRP due to her belief that there would be negative tax consequences to her if the student loans were forgiven.  However, the court rejected this argument and held that tax consequences could not form a basis for a finding of undue hardship.  It therefore affirmed the lower court's nondischargeability ruling.

by Craig Andresen, Minnesota Bankruptcy Attorney · Posted in Student Loans

A minimum payment in a Chapter 13 Bankruptcy will vary from district to district depending on the local rules.  However, the minimum payment must cover what you must pay within the applicable commitment period.   Like many things in the law that answer to that question is ” it depends.”

What is the applicable commitment period?  The factor that will determine whether you must go 36 or 60 months is your income.  Does your income fall above or below the median income breaking point.  If you are below the breaking point your are below median and can go 36 to 60 months.  If you are above median than you must go 60 months unless allowed otherwise by a court order. 

Whether you are above median or below is just the first point in determining what your minimum payment will be.  Once you have determined the length of your Plan 36 or 60 months you will need to determine what MUST be paid within that specific period of time.  Are you paying taxes a vehicle, home, child support, attorney fees and/or an asset that is NOT protected under an exemption?

Let’s say that you are below median.  In my district you have the choice to go a minimum of 36 months but you may extend that time to 60 months. The debt you must is a tax debt of $10,000 plus a vehicle with a principal balance of $15,000.  These two debts in this example are the only two debts that must be paid.  The principal balance of the vehicle will be paid at the Trustee localinterest rate, which in my district is 5.09%.

So for this math calculation you have $10,000 in tax debt + the principal of the vehicle of $15,000 + the 5.09% interest rate over 60 months.  That total equals $27,021.40.  You are not done yet.  You take this balance plus the trustee administration fee.  This figure also varies from district to district.  My Chapter 13 trustee is allowed to charge an 8% fee to make the payments each month.  

The easiest way to figure what must be paid is to take the total equalling $27,021.40 and multiply this by 8% and your final balance is $29,183.11 for this example.

So if your lucky enough to be able to choose 36 or 60 you can take the total balance divided by the number of months that you need to be in the Chapter 13.  If you go 60 months your payment will be $486.39.  If you go 36 months it will be $786.18 (keeping in mind the amortization schedule will take the vehicle principal at the trustee interest rate for 36 months plus the tax debt plus that total balance plus .08% divided by 36 months).  Keep in mind the maximum time you can be in a Chapter 13 Plan is 60 months per the law under 11 U.S.C. 1322(d).

Another factor to keep in mind is that the vehicle is accruing interest.  Just like in the non bankruptcy world if you do not make your vehicle payments the interest keeps accruing which increases your balance.  The same holds true during the bankruptcy.  It is critical that you make your Plan payment on time each and every month so that the interest accruing does not increase your balance.  The end result of an increased balance is that your monthly minimum payment will need to increase?  Why?  Because you only have a maximum of 60 months that you can payoff the balance of the debt due and owing.   Again this is the law under 11 U.S.C. 1322(d).

A common mistake of debtors is that they think that they get the house or vehicle for free.  Another common mistake is thinking that the judge must understand that you cannot make the payment and he/she will have to deal with it.  The judge will deal with it by either dismissing your case or allowing the creditor to remove the automatic stay that protects your assets and either foreclose on the home or reposes the vehicle.  

Bankruptcy does not allow you to get away scott free from paying your debts if you wish to keep secured assets.  You must pay to play in a Chapter 13 Bankruptcy. The minimum payment is just that. Is the minimum payment or the base of your Plan payment which means your payment maybe more. Talk to a qualified bankruptcy professional in your area to determine your specific payment.

Remember that knowledge is power and the more knowledge you have regarding what you must pay in a Chapter 13 the more power you will have in successfully completing your Chapter 13 Bankruptcy.

by Rachel Lynn Foley, Kansas City, MO, Bankruptcy Attorney · Posted in *Bankruptcy Basics

If you're running a business, filing bankruptcy involves preparing a profit and loss statement.  While this subject isn't terribly interesting or sexy, it's critically important to preparing accurate information for your bankruptcy lawyer.

What's a Profit & Loss Statement?

Relax!  This isn't algebra or calculus.  This is simply a statement showing income in and expenses out for a specific period of time.  And for bankruptcy purposes, we focus on a month-by-month time frame.  It shows whether you're making money or losing it.  This is important for your bankruptcy, and it's important for you to understand for life after bankruptcy.

Despite fancy finance terms we hear tossed around, business is about one thing: taking in more money than you spend.  If you do that, you make a profit.  If you don't, you have a loss.  And it doesn't matter if you're running a small mechanical company in East Nowhere, U.S.A. or you're running Ford, Wells Fargo, or Coca Cola.  You take in more than you spend, that's good.  You spend more than you take in, that's bad.

We've spend a lot of time here in Bankruptcy Law Network explaining the documents you must assemble prior to filing bankruptcy and the-sometimes silly-reasons why.

Consumer bankruptcy starts with CMI-"current monthly income."  Like I've said, this isn't really current monthly income, but an average of the income for the six months prior to the month in which you file bankruptcy.  So if you file in July, we need to know your income from January through June, broken down month by month.

If you have a job and get paid as an employee, we use pay stubs to figure this out.  If you are self-employed, you guessed it, that's where the profit and loss statements come in.

by Russell A. DeMott, Charleston Bankruptcy Lawyer · Posted in * Business Bankrtupcy

Modification of home loans in bankruptcy was promised by candidate Obama before his election as President.  Current bankruptcy law prohibits modification of a loan secured against the debtor's principal residence.  The idea was simple, if bankruptcy judges were allowed to adjust the balance due and payment terms of home loans in Chapter 13 cases, many homeowners facing foreclosure would be able to keep their homes.  The loan terms would become more affordable and the default leading to foreclosure would be eliminated.

Instead of judicial modification, the Obama administration created a different program.  HAMP, the Obama solution, is a voluntary program by which certain home loans can be modified if the lender agrees to do so.  The HAMP program is a failure.  Few loans are being modified and the modifications that are approved often result in a second default.  The program has been costly for lenders to administer and of little help to home owners.

Judicial modification of home loans by bankruptcy judges would cost the government no money.  It would allow an experienced judge to value the home and establish a payment schedule that would be affordable to the home owner.  Since the lender would receive at least the same amount of money it would recover from a foreclosure sale, it would take no loss. 

The HAMP program is costly.  It is subsidized with government money.  It requires a great deal of administration by the loan servicers.  Taxpayers are required to pay incentives to the borrower and the loan servicer if a modification is successful.  Of course, if few are successful, the cost in taxpayer funds is low.

Bankruptcy modification of home loans has been proposed in congress by advocates of judicial modification twice since President Obama was elected.  The bills received no help from the Obama administration and were not enacted.  Why has Obama chosen not to honor his promise to support this needed change to the bankruptcy law?

The current home finance system is a cash cow for large investment banks.  These giant financial institutions rely on sale of securities backed by home mortgages for much of their outrageous profit.  Big banks and their highly compensated executives have used their vast wealth to lobby against change.  If foreclosures stopped or were greatly reduced, there would be fewer new mortgages to package and sell.  In turn, there would be fewer multi-million dollar bonuses paid.

by Kent Anderson, Oregon Bankruptcy Attorney · Posted in *Chapter 13 Bankruptcy