Philadelphia Bankruptcy Lawyer Blog

As a bankruptcy lawyer in Montgomery County, Pennsylvania, the issue of post-bankruptcy credit rebounding is important. Interestingly, some debtors who have successfully concluded their Chapter 7 bankruptcies by receiving the Notice of Discharge from the court are seeing an increase in post-discharge credit offers. This may be the case even despite a lack of income. The lending even includes offers for car loans as well as the typical unsecured credit card. The reason is two-fold.

Continue reading "Montgomery County Bankruptcy Attorney Notes Increased Subprime Lending" »

You are reading this online or on your phone. Such is the nature of an evolving world that embraces technology. We used to write on cave walls, then stone, scrolls, papyrus, etc. Now we write in digital cyberspace and write less and less on paper. No surprise then that Borders is finalizing its bankruptcy. Their Chapter 11 reorganization case was originally filed in February 2011 and they had sought, through the protections afforded by the filing (such as the automatic stay), to emerge restructured so as to become profitable. They closed a big chunk of stores right out of the gate. Today, their efforts to restructure proved a failure and now they must close their remaining stores, selling their inventory to liquidators Hilco Merchant Resources, LLC and Gordon Bros. Group. This includes, of course, the stores in the local Philadelphia area: Exton, Bryn Mawr, Plymouth Meeting, Pottstown, and Philadelphia city).

Continue reading "Borders Closing Local Stores (Exton, Pennsylvania) in Chapter 11 Bankruptcy" »

Bankruptcy is part of the American fabric. It's not quite apple pie, baseball, or a V-8 engine, but it's been with us longer than each of those, albeit in varying forms. Reference to it is found in Article I, Section 8, Clause 4 of the United States Constitution. It was first addressed by Congress in 1801, then amended, modified, and wholly redone in 1978 and 2005 (in 2005 Congress passed the Bankruptcy Abuse Protection and Consumer Protection Act which is Congress' most recent effort to enact substantive bankruptcy law changes; BACPA, among other things, established the means test and the mandate for credit counseling). And Bankruptcy Courts across the country make law almost every day in their application and interpretation of the law. Often, these rulings are inconsistent across differing jurisdictions of the country and may get resolved before the United States Supreme Court, eventually. As you can see, then, bankruptcy is all-American.

And that's good, too. Up until 1833, people could be put into debtor's prisons for failing to pay their obligations. A couple signers of the Declaration of Independence spent time incarcerated in debtor's prison as did the father of Charles Dickens (he was British, of course, but the best understanding of debtor's prison and its associated gloom can be deduced from reading Dickens; his dad was in this one.).

So, when we celebrate the Fourth of July, we celebrate all things that make us American. This includes bankruptcy. Fortunately it includes things more grand such as freedom, liberty, property, taxation WITH representation, and everything else that makes our nation the best in the world. But, indeed, it does include bankruptcy.

Continue reading "Philadelphia Bankruptcy And The Fourth Of July" »

Philadelphia-based business Deb Shops, Inc. filed for Chapter 11 Bankruptcy Court protection as it begins to restructure itself following a drop in sales since 2008. The company announced a likely buyout by a group led by Ableco Finance LLC in order to emerge from the bankruptcy. The company, which sells teen and plus-sized clothing both online and in over three hundred stores across the nation, originally began as a hosiery store in Philadelphia, Pennsylvania in the 1930s. The company traded publically since the early 1980s but became private in 2007 through a purchase by Lee Equity Partners. That company will retain a partial stake in the post-bankruptcy company wnen it comes out from under the bankruptcy umbrella presumably later this year. During the bankruptcy, the company will continue normal operations. The case was filed in Delaware.

As has been discussed regularly in this blog, a downturn in the economy results in bankruptcies; and this is just part of the capitalist business model. It has been regularly argued that bankruptcy - or rather the freedom to file bankruptcy - is actually beneficial to a national economy. Consider that bankruptcy as an outlet allows risk taking. Risk taking is the fundamental nature of capitalism. If debtors were not able to write off their debts, the incentive to try, the incentive to open new businesses, to improve existing products, to reach for the American dream would be severely depressed. The same holds true to any nation that allows bankruptcy; indeed, the concept rings true for the broader, interlinked First World. Here, for instance, is a similar - though appropriately parallel - argument from Denmark.

But even outside the scope of the argument related to bankruptcy-promoting business ventures is the idea that consumer bankruptcy is also a good thing. It is, in many ways, a market correction. It is the ultimate distribution of consequence where the underlying trouble is a nationally struggling economy. Specifically, if we bottom-end consumers were to be forced to hold debt (that is, be unable to file Chapter 7 bankruptcy or even Chapter 13 bankruptcy which both yield a discharge of debt) there would be a growing list of consumers that could be written off as potential customers.

There are over a million and a half bankruptcies filed per year in the United States alone. The bulk of these are Chapter 7s, then Chapter 13s. These are essentially consumer filings. This means that millions of Americans will be able to quickly turn from debtor-unable-to-purchase to debt-free consumer ready, willing, and able to shop and buy goods from producers. Yes, someone does not get paid in this model: the lending institutions usually, who "underwrite" (for lack of a better word) the credit card purchases. Medical debt is also high on the list of that which is discharged in bankruptcy.

The fact is, however, that these lending institutions, banks, hospitals, etc. already take this into account and charge their non-filing customers appropriate interest rates. The argument can therefore be that the ultimate payor of John Doe's bankruptcy debt is the fellow American who is not filing for bankruptcy. To this, it can simply be said that no one forces John Doe to either, first, buy on credit and accept those interest rates or, second, not join or create a credit organization which restricts membership to those most unlikely to file bankruptcy (i.e., a selective club).

Continue reading "Philadelphia Bankruptcy -- Teen Clothing Shop Files For Chapter 11 Bankruptcy Protection" »

While Act 47 is applicable to the state's capital, Harrisburg, as opposed to Philadelphia or one of the surrounding municipalities (such as Pottstown, Phoenixville, Exton, or Doylestown, for example), the proposed Senate Bill 1151 could have broader implications -- that is, future applicability -- to any city in Pennsylvania. Specifically, Act 47 was a "Financial Recovery Plan" for the cash-strapped, heavily indebted city of Harrisburg (county of Dauphin; again, not Bucks County, Montgomery County, or Chester County, but still possibly far reaching enough to have consequences here locally). Act 47, among other things, tried to reduce cost and save money by putting Park Maintenance into the Department of Public Works, outsourcing sanitation collection, freeze personnel costs, etc. Now, in order to add teeth to the plan so as to promote implementation, State Senator Jeffrey Piccola put forth SB 1151 which would empower the governor to create a management board to influence collective bargaining and force the sell-off of public assets. Importantly, the legislation would also prohibit any distressed city from filing for bankruptcy.

A city or municipality which files for bankruptcy does so, not in Chapter 7, Chapter 13, or even Chapter 11, but rather in Chapter 9. Chapter 9 does mirror Chapter 11 in some important ways and fully differentiates from Chapters 7 and 13. Specifically, Chapter 7 and 13 are primarily consumer outlets for debt management and discharge of personal debt. A Chapter 11, on the other, is just a reorganization. Chapter 11 does require the affected creditors to vote on a proposed change in debt structure and company performance moving forward -- whereas Chapter 13 allows the court to compel the creditor to accept the repayment plan even over its objection. The reorganizational aspect of Chapter 11 is similar to Chapter 9, then.

A town, for instance, cannot cease to exist like a company filing for Chapter 7. The town will continue to be there. The municipality, therefore, must rearrange its debt and create a long term exit strategy for paying off its obligations, though those obligations are regularly adjusted under the Chapter 9 umbrella. The city would then, assuming the major parties agree to the plan, emerge from Chapter 9 much as a Chapter 11 company would emerge from bankruptcy leaner and presumably headed to improved profitability.

Continue reading "Pennsylvania City Prevented From Bankruptcy -- Adding Teeth to Act 47; Future Applicability to Philadelphia Possible" »

Pennsylvania bankruptcies continue to rise. Despite some indications that the recession is ending, there are also signs that it is not, and, further, that consumer confidence is not strong, and, accordingly, that another recession - if the most recent one was really over - is on the horizon. This will inevitably lead to more bankruptcies; but, in some ways, the more bankruptcies that are filed, the better the long term economic outlook. Consider bankruptcy not from a defeatist viewpoint, but rather one of market correction. In other words, when debt is cleared out and debtors emerge with a fresh start, it is like pressing reset. Certainly, the debt holders (creditors) would rather get paid than to lose the debt to bankruptcy, but there is a statutory limit on the number of bankruptcies a person can file. Said more properly, there is a time limit within which one cannot receive a discharge with respect to a former bankruptcy. The law, under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, now states that one may not receive a second discharge of debt if a discharge was received in the prior eight years. The number was formerly seven years.

In 2009, the number of Pennsylvania Bankruptcies filed was 34,190; in 2010, the number jumped to 38,402. That is a 12.3% jump. Nationally, there were over 1,531,000 bankruptcies filed, most of which were Chapter 7 filings. Here are the statistics. Taking the perspective that these numbers are beneficial, then, consider how each of those debtors who received the discharged are going to be as they move forward: the will have no debt obligations and will be armed with the knowledge that they cannot file again for eight years, not that anyone seeks to plan for such an event. Bankruptcy is more of a safety net: it is there if you need it, but it is not something anyone aims for. [As an aside, perhaps business-folk like Donald Trump might use bankruptcy as a tool, but that is a Chapter 11 context and, accordingly, has very little relation to the standard consumer debt discussed within this blog.]

The future for bankruptcy is that it will always need to be there. There may be boom times when fewer matters are filed, but in an evolving technological world, it seems there will always be some person who loses their job to a robot, or someone overseas, or as a result of computer innovation which can replace the human worker.

Continue reading "Bankruptcy Numbers in Eastern Pennsylvania Remain High (Downingtown Included)" »

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)" »