Philadelphia Bankruptcy Lawyer Blog

The Means Test is a way of making sure that a debtor who seeks a discharge through Chapter 7 bankruptcy is not "abusing the system." In fact, the law does use the term "abuse" in connection with the means test formulation. Consider that, as a general statement, it would be "unfair" for people who make a million dollars a year to file a bankruptcy and receive a quick discharge. To do so, using the language of the law, would mean that a "presumption of abuse" exists. To overcome this presumption, the Means Test is filled out to show that the debtor is, indeed, using the law as it was intended: non-abusively.

Continue reading "Norristown Bankruptcy Lawyer Discusses The Means Test" »

As a bankruptcy attorney, King Law Center regularly fields questions about what property one can keep when filing for Chapter 7 bankruptcy. Since Chapter 13 is known as a repayment plan, it makes sense that property owned by a debtor who files for Chapter 13 gets to keep it. But a Chapter 7 is called a liquidation, and that word connotes surrendering everything but the clothes on your back. In practice, that simply is not how it is. Most debtors keep everything they own...including their cars (whether they are paid off or not).

Continue reading "Can I Keep My Car and Other Property in a Chapter 7?" »

It is a good question. Some people believe that they can go at it alone, without hiring a Berwyn bankruptcy lawyer. Others would say that the low cost and high benefit of hiring a bankruptcy lawyer makes the thought of trying to file alone a foolish proposition. The best way to answer that question is to ask yourself a few other questions. For instance, do you know how to fill out the paperwork? Do you know how to list your exemptions in Schedule C? Do you know how to interact with the trustee (i.e., comply with 11 USC § 521)?

Continue reading "Do I Need a Bankruptcy Lawyer to File Chapter 7 (in Berwyn, PA)?" »

The case was not filed in Philadelphia, or even Pennsylvania, but it is safe to call the incredibly tragic journey of Lenny Dykstra a "Philadelphia Bankruptcy," nonetheless. Dykstra is a Phillies legend, of course. But his post-baseball career has been checkered, including a "not guilty" plea on Monday, August 8, 2011, to charges of grand theft auto, and a Chapter 11 bankruptcy filing in 2009 which lead to his conviction of bankruptcy fraud (albeit by plea deal) and sentencing to house arrest in May 2011.

Continue reading "Philadelphia Bankruptcy: Phillies Legend Lenny Dykstra's Fall Continues" »

As a bankruptcy attorney who has spoken with hundreds of debtors over the last few years, I find it troubling that some people view those who file for bankruptcy - especially Chapter 7 bankruptcy - as somehow the type of people that mismanage money. Generally, this is just not the case. Of course, there is the occasional person who makes poor decisions and lives beyond their means, but this truly is a very small number of the bankruptcy filers. The truth is, the vast majority of debtors are the average person on the street, going to work everyday, trying to make things work. When the economy struggles, it is the folks who work for a living that struggle. The rich people somehow seem to stay rich. The factor worker, retail salesperson, waitress all suffer because there are less people buying cars, less people buying clothes, and less people eating out. Today's sad news that Saab may be headed for bankruptcy proves the point: specifically, Saab does not have enough money to make payroll.

So now, the person who did nothing wrong will suffer. Homeowners will miss house payments, credit cards will go unpaid, gas and food may have to be cut back...all because the innocent party will not be receiving their paycheck, through no fault of their own. This is the prime illustration of how bankruptcy can be forced on people who are not making bad choices but were simply in the "wrong place at the wrong time" when something went bad for someone else.

Saab is saying that about 1500 factory workers and 2200 office workers may go unpaid; and this is right before a national Swedish holiday hiatus. Hopefully, the Swedish automaker will be able to secure private financing to get out of the hole and pay their employees what the employees deserve, but, if not, this could be only the beginning for the 3700 Saab employees who may be looking for work. Imagine not getting paid what you are owed, being denied a severance or final paycheck for being laid off, and then having to find work all while, perhaps, you have a mortgage, children, insurance, taxes, car payments, and the need to eat. Some of the displaced workers will surely find it difficult to get employment immediately after the likely plant closure. Trollhättan is not New York; it is even Detroit; it is not even Flint, Michigan.

Continue reading "Bankruptcy Rarely Your Fault -- Saab May Not Make Payroll (Fortunately Not a Philadelphia Factory)" »

Fortunately, retirement accounts like IRAs are generally fully exempt from bankruptcy liquidation. Specifically, that means that when you file for a Chapter 7 (which is known as "liquidation" despite the fact that keeping all of your property is common), you will be able to keep 100% of your retirement savings - the trustee cannot sell it to pay off your debts like they could if you filed for bankruptcy with $50,000 cash in a checking account instead, for example. The only real caveat is that the retirement account be of a particular kind. You cannot argue that your $50,000 cash you have in a savings account at your local bank is a "retirement account that I promise not to touch until I'm 65." Even if this were true, it clearly opens up the door for bankruptcy abuse and fraud. Therefore, any retirement account you have must be like the typical IRA, 401(k), or 403(b) type account. Generally, if it has tax-exempt status, it has bankruptcy-exempt status. The IRS Code details those accounts which are afforded this status.

The term "exemption," then, refers to that which is outside of your so-called bankruptcy estate. Consider that when you file for a Chapter 7, a new entity is created called "John Doe's Bankruptcy Estate" and in it goes all your assets...except those which are exempt from inclusion. The list of these exemptions includes, for the most part, your household furnishings, your clothes, your retirement accounts, and various other items as defined by statute. Some states (despite the fact that bankruptcy is a federal filing) protect their citizens differently; debtors in Pennsylvania can choose to use these state exemptions or elect to use the enumerated federal exemptions. A state like California has broad, discretionary exemptions (though no option to use the federal exemption schema) whereas a state like Oregon is a bit tighter with what it allows its citizens to exempt. Pennsylvania is in the middle and, fortunately, provides for a federal exemption option. Indeed, most Pennsylvania debtors elect to use the federal exemptions.

This John Doe's Bankruptcy Estate, if it has anything in it (again, only non-exempt assets are put in), is then sold by the bankruptcy trustee who oversees your case to provide some degree of cash payout to your listed creditors. Most filings are called "no asset" cases as there are no assets within the Bankruptcy Estate to sell and, therefore, nothing to sell for the benefit of the creditors. Incidentally, the trustee makes a few dollars off those things which are sold, which is why it behooves the trustee to be sure you have listed everything in your bankruptcy petition: they get a percentage of that which is liquidated. Any money collected by the trustee is distributed proportionally to the listed creditors based upon the size of the debt you owe them versus the overall debt that you owe.

Knowing how to maximize these exemptions is one of the key functions of a bankruptcy attorney. An experienced bankruptcy attorney can guide you to list your assets correctly and apply the appropriate exemptions to those assets (in the form called Schedule C). While you must list everything you own in your bankruptcy petition - for failure to do so constitutes fraud and subjects you to bankruptcy penalties - you should also be armed with an understanding of how to list your assets and the value to assign them. Again, a bankruptcy attorney can help you do this.

Periodically, it is a good idea to push the boundaries. This not only establishes where those boundaries are but also signifies a desire (by some, at least) to expand them. Such was the case in McNeal v. GMAC, a case out of Atlanta, Georgia. Heard before the United States District Court, Northern District of Georgia was case number 1:10-cv-1612-TCB. Ms. Lorraine McNeal argued that her wholly unsecured second mortgage should be subject to a lien strip in a Chapter 7 bankruptcy case. The result was unsurprising: a lien strip is not appropriate in a Chapter 7 bankruptcy case. This upholds the status quo of a case called Dewsnup, which specifically denied a lienstrip under the auspices of 11 USC §506 strip-off. Nonetheless, it is good to ask the question. When one domino falls - that is, when one judge grants the relief - the door becomes slightly cracked, allowing other judges to rely on it, thereby opening the door ever so gradually. Ultimately, a case which fundamentally changes the established framework of lienstrips will find its way up the ladder to, presumably, the United States Supreme Court, but it takes a case to get a case heard before the court.

I can only assume that the lawyer who filed this case for Ms. McNeal understood the law and was, indeed, seeking to challenge the precedent of Dewsnup and the legacy of section 506 (and 1322). Nonetheless, the need for competent legal counsel is apparent when reading a ruling which so resoundingly denied the requested relief as though the debtor, Ms. McNeal, was silly to have even asked. Again, though, this case was likely a knock at the door with a hope of finding a crack.

This leaves, then, the status quo: a lienstrip is available in Chapter 13 bankruptcy only. Recall that a lienstrip allows a debtor to treat their second mortgage (or any junior lien) as unsecured debt - like a credit card debt - and get it discharged in their Chapter 13 bankruptcy, the same as the discharge granted in Chapter 7 bankruptcies. The only caveat is that the junior debt must be wholly unsecured. That is, the value (balance owed) of the senior loans must exceed the value of the home itself. Where a boat or other secured debt is concerned, there may be a way to do a "cram down" but that is for another posting (that would essentially be the court forcing the lender to accept the current market value for the property as opposed to the contract amount). Say, then, that the home is worth $300,000 but $350,000 is owed on the "first mortgage" and $50,000 is owed on a home equity line or "second." This $50,000 could be totally extinguished (like medical bills, for instance) if the debtor successfully completes their payment plan. Most Chapter 13 payment plans are between three to five years in length.

Continue reading "Chapter 7 Bankruptcy Lien Strip Denied (Applicable to Philadelphia and Surrounding Areas) - McNeal v. GMAC" »

Perfectly timed on the heels of yesterday's blog comes this sad, though partially comical, story about a couple from Florida. Mr. and Mrs. Warren and Maureen Nyerges from Cleveland, Ohio decided to move to Florida; they bought a foreclosed home and paid cash for it. There was no resulting mortgage on the property. Bank of America foreclosed anyway, apparently as a result of some in-house error which assigned the debt of the former homeowners who, in fact, defaulted and lost the home to foreclosure to the Nyerges. Whatever the reason, you would think it would be a simple matter of highlighting the error to Bank of America when they called or wrote a letter and the issue would clear up. Since this is about Bank of America, which recently purchased the troubled Countrywide Home Loans, the resolution is not that simple. Bank of America and whatever inept staff they had working on the matter filed paperwork for the foreclosure. Needing to stop the process, the Nyerges hired a lawyer; they won. The judge awarded the Nyerges about $2000 in attorneys fees, but Bank of America did not pay. In a wonderful irony and a serendipitous turn of events (at least from a bankruptcy attorney's view in having advocated for years on behalf of debtors), the Nyerges pursued debt collection remedies and showed up at a local Bank of America branch with sheriffs and a moving company empowered by a judge to take the bank branch's furniture and random other effects to satisfy the debt. An hour later, Bank of America wrote a check for $5000 or so to cover the original attorneys fees plus additional costs incurred since their failure to comply with the order (like hiring a moving truck!). Bank of America blamed their attorney. Indeed, this is not just a lesson in the failures of Bank of America (though it is especially that) but also a reminder that effective legal counsel is important to those on both sides of the creditor/debtor equation.

Here is a link to the news story from ABC News.

I do not know the lawyer that Bank of America is condemning but rote attorney work is never appropriate. Each client deserves unique attention, be it a typical consumer seeking a discharge via a Chapter 7 bankruptcy or even a big corporation such as Bank of America. When paying for a lawyer, be sure you are getting what you deserve: personalized attention to your matter by someone who cares and is not treating you like a mere paycheck. The attorney-client relationship matters and any lawyer you hire should be well versed with your case.

The main point here is that creditors either always have been or have become increasingly unable (or unwilling) to do their homework correctly. This well may be because their sheer size makes it difficult to monitor themselves. This is no excuse, however, as it is the obligation of any business to correctly audit itself. Households attempt to keep their money managed; a business dedicated to taking your money out of your pockets should be especially attentive to doing it correctly. But this is not the case. Yesterday I discussed how businesses fail to have original signatures evincing a guarantee for the debt, or the amount is miscalculated, or the debt is for someone else, or is paid off already, etc. etc. Be vigilant in your record keeping. True, it is probably not practical to track the interest that your debt generates and you do have to take some of it on faith that it is being calculated correctly, but do all that you can to monitor yourself as best able. Of course, the lesson of the Nyerges is that, even if you do not owe a debt, that may not stop the debt collectors from attempting to collect -- or even foreclose on the home you paid for with cash. It is a sad state of affairs. Hopefully, the pressure being put on the debt collectors and the debt industry will yield real results in mandating certain proofs at the lawsuit-initiating, complaint-filing stage.

New rules about mortgage claim disclosures become effective on December 1, 2011, and, as there is in many legislative arenas, the opportunity to comment on, and make recommendations about, those future changes is open to the public. Not surprisingly, the National Association of Consumer Bankruptcy Attorneys (NACBA) submitted its comments. Similarly not surprising is the focus of that commentary. It is well known -- to both bankruptcy attorneys, non-attorney industry practitioners, and the public at large -- that creditors do a poor job of properly auditing the debts they claim they are owed.

Very often, the debts themselves are miscalculated. Sometimes, and this is especially unfortunate due to the unnecessary headache it creates for the debtor, there does not actually exist a debt at all, or it has been paid off, or the statute of limitations (the period within which a potential plaintiff must bring a lawsuit or be barred from doing so by the passage of time) has run. Another issue is the inability of the creditor to produce the original, signed statement by the debtor proving a link to the debt. Imagine being sued for your neighbor's debt: it just would not make sense; you are not your neighbor, so why should you pay his debt? You should not, of course. The only way you would be legitimately responsible for such a debt is if you signed as a guarantor or otherwise evinced a willingness to assume that person's debt.

The Federal Trade Commission issued a report about this topic. It is titled Repairing a Broken System.

From a bankruptcy attorney's perspective, I want to see the paper which shows my client's assumption of the debt. Of course, in the common Chapter 7, you really need not worry about owing debt after the discharge has been granted, but you do want to list everything you know you owe. And in the case of litigation -- the real focus of the NACBA et al. commentary -- the document which shows the assumption or guarantee of the debt is absolutely crucial.

Continue reading "Bankruptcy Rules and Recommended Changes: Improving the Consumer Side of Philadelphia Bankruptcy (Especially in Litigation)" »