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Posted by Ryan Blay on April 17th, 2013 in Bankruptcy, Bankruptcy Information, Bankruptcy procedures, Chapter 13, Chapter 7, Debt Settlement, Exemptions, Illinois, Wisconsin
As an attorney who’s been practicing in consumer bankruptcy for five years now (in Illinois and Wisconsin), it’s heartbreaking and frustrating to see the huge amount of lies and misinformation about bankruptcy.
Some of these mistakes come from gossip or bad experiences in bankruptcy (including lying, bad attorneys, or other frustrations). Others come from rumors spread by the financial services industry to try to keep people out of bankruptcy (even though lenders can write off the uncollectable debt and take a tax break for it). Even worse are errors from hacks – er, attorneys/writers – who blatantly skew statistics and facts about bankruptcy filings for their own purposes. We can assure you that while nothing is ever certain with the law, the overwhelming majority of bankruptcies are successful, peaceful, and bring financial relief to our clients.
Here are some common statements about bankruptcy and the truth.
Statement 1: Why not just settle debt? It’ll be better for your credit report and you won’t have to pay a lawyer to settle debts for 40-50 cents on the dollar.
Answer: If your sole major debt is a $4,000 credit card and you can afford to pay a lump sum of $2,000, a credit card company may take it and waive the rest. To do so, you’ll have to show you have a serious hardship (not just because you don’t feel like paying) and submit financial records to prove it. You’ll also have to come up with a lump sum or a few significant payments, not a long term payment plan. Unless you’re insolvent, you’ll have to pay tax on the forgiven debt. But in the situation above, that’s fine because bankruptcy’s costs for a lawyer and the filing fees would make a bankruptcy unnecessary. Where bankruptcy absolutely becomes necessary is if you are in the same financial situation but have $50,000 worth of credit card debt and medical bills.
Even if you get every card or hospital to settle for 10 cents on the dollar (an unrealistic goal for most clients), and even if you can avoid the tax on the 1099 for the forgiven debt, that’s still at least 2-3 times what you’d pay for a bankruptcy to discharge the debt altogether. With so much debt, settlement is not only unrealistic, but it costs significantly more than a bankruptcy filing. For an attorney not to disclose that is tantamount to malpractice.
2. You cannot discharge student loans in bankruptcy.
Answer: This is another major misstatement, largely perpetrated by student loan lenders. In order to discharge student loans, there is a very high standard (possibly relaxed by a recent decision in the 7th Circuit Court of Appeals for Illinois/Indiana/Wisconsin) where you have to demonstrate a good faith attempt to make payments and a serious reason why it’s impossible to pay anything back. Essentially the situation is for people who are unable to earn a significant income, will likely never have the means to do so, leaving the possibility of repayment fruitless. That’s a high standard for sure, but it’s by no means impossible. (Think a 60 year old disabled person with only $700 per month in social security/disability coming in, with expenses of $1000 per month and $60,000 of outstanding student loans). With or without an attorney, people have successfully discharged significant private and government-backed student loan debt.
3. I want to file bankruptcy, but if I do, I’ll lose my (car, boat, beagles, RV, bank account, retirement accounts, etc.)
This aggravates me this most because it assumes that the point of bankruptcy is to take everything from the debtor. The exact opposite is true: an honest but unfortunate debtor gets a fresh start (in Chapter 7, or a repayment plan in Chapter 13) in exchange for listing, valuing and exempting assets. Every state has a scheme of exemptions (with some, like Wisconsin, allowing federal exemptions, while others, like Illinois, do not). The easiest way to find out what you can maintain: Talk to a competent bankruptcy lawyer. Call us at Lakelaw or e-mail us. Even if we don’t practice in your jurisdiction, we can refer you to a qualified consumer attorney in another area. You’ll be surprised, but typically 90% of Chapter 7 cases or so are no-asset 7 cases where the filing debtor turns over nothing.
The moral of this story: Speak with an attorney and learn the truth before believing what people write and say to scare people away from bankruptcy. It may not be for everyone, but for most debtors, it’s a huge relief and worthwhile decision.
Posted by Ryan Blay on April 12th, 2013 in Bankruptcy, Bankruptcy Information, Chapter 13, Chapter 7, Wisconsin
When a bankruptcy is filed, any schedules and statements that aren’t filed with the basic paperwork are due within 14 days from the case filing. For almost everyone, that is plenty of time to gather paperwork, meet with an attorney, and get the rest of the documents in. The Court may extend the deadline on a motion by the debtor under Rule 1007, but it doesn’t automatically have to grant it. The Court needs “cause”. One judge in the Eastern District of Wisconsin has strongly suggested he won’t grant “boilerplate” motions without support.
Judge Halfenger’s decision in the Brown case expressed frustration when the motion simply stated the debtor was “gathering documentation”. There was no affidavit or explanation why the motion was filed on the very last day with no affidavit or support. In plain English, explain why 14 days is not enough, or the Judge may simply say it’s too late and dismiss the case for failure to file required documents.
Don’t let your case get dismissed. File your schedules on time or have a very good reason why not. Speak to a Lakelaw attorney to determine what falls under “cause” to extend the time frame.
Posted by Ryan Blay on March 20th, 2013 in Bankruptcy, Bankruptcy Information, BAPCPA, Chapter 13, Chapter 7, Wisconsin
A few years ago, the US Supreme Court decided a case called United Student Aid Funds, Inc. v. Espinosa. The decision held that even when a Chapter 13 plan violates the Bankruptcy Code, the creditor must object within a set time or else they won’t get to object later, when the bankruptcy is done. Apparently creditors still haven’t learned.
In a recent decision by Judge Kelley in the Eastern District of Wisconsin, the Court held that the creditor, American Family Mutual Insurance Company, was too late when it moved to reopen a long completed Chapter 13 to challenge an improper plan. Even though the case was completed before the Espinosa decision, the principle still applied.
Creditors who receive a Chapter 13 plan should ALWAYS review them. That is free advice from counsel for Chapter 13 debtors.
Posted by Ryan Blay on February 27th, 2013 in Bankruptcy, Chapter 13, Foreclosure - Saving Your Home, Mortgage Foreclosure Defense, Wisconsin
“After losing the standing argument in state court, it is beyond frivolous for the Debtors to file bankruptcy, reiterate the same losing arguments and now claim, not only that the Note is invalid, but that the foreclosing creditor and its attorneys are liable for RICO violations for filing the Note as an exhibit to the foreclosure complaint.”
- Rinaldi, et al. v. HSBC Bank USA, N.A., as Trustee, et al. (12-2412, Feb. 22, 2013, Hon. Susan V. Kelley)
As the Eastern District of Wisconsin has made clear over the last year, you cannot litigate and lose a state court foreclosure case, then turn around and relitigate the case in bankruptcy court. The Rooker-Feldman doctrine (as described here in this previous blog post) prevents this second bite at the apple.
This decision was quite thorough because in addition to standard objections to the proof of claim and standing arguments, the debtors/adversary plaintiffs also alleged common law fraud, RICO violations, and other claims against the original lender, the servicer/proof of claim filer, and numerous individuals and law firms. Thus, the judge was required to analyze the merits of each before ultimately dismissing each and every claim.
The moral here: If you believe you are the victim of foreclosure fraud, please contact us immediately. If you have a judgment of foreclosure entered in state court, it is extra important that this be discussed before you decide to challenge it in bankruptcy court. Contact a Lakelaw attorney for more information.
Posted by Ryan Blay on December 13th, 2012 in Bankruptcy, Bankruptcy Information, Chapter 13, Illinois, Wisconsin
Suppose you file a Chapter 13 Bankruptcy and list all of the creditors you can think of. All is well and good and the judges confirms (approves and signs) the plan to pay the creditors. But little did you know that there was one creditor that was lurking out there, or that was assigned a debt and never received notice of the bankruptcy. They didn’t file a proof of claim before the deadline (usually around 120 days from filing). What happens to them?
Well it depends on where you file. In Illinois, the case of In Re Wright suggests that the creditor is out of luck and can’t file a claim. That means they don’t get paid through the bankruptcy. However, that also means that the debt you owe to them doesn’t get discharged. That’s harsh to both the creditor (who could get paid something, and faster) and the debtor (who wants to discharge the debt, especially if it’s a low payment plan to the creditors!)
One of our Wisconsin judges, Judge Kelley, issued a ruling in a case called In re Washington in which she followed prior law from the Western District of Wisconsin. In her decision, she held that in the following conditions, the proof of claim should be allowed:
“In this case, it is apparent that (1) the Creditor did not receive notice of the Chapter 13 case until after the claims bar date expired; (2) upon learning of the case, the Creditor promptly filed a proof of claim; and (3) the prejudice to the Creditor of disallowing the claim outweighs the prejudice to the other creditors of allowing the claim.”
Unlike Chapter 7, where a failure to list a creditor may not prevent a discharge, Chapter 13 requires notice to creditors and has deadlines. Therefore, if you know of a debt you forgot to list, tell your lawyer and give the creditor notice as quickly as possible to file a claim!
Posted by Ryan Blay on November 9th, 2012 in Bankruptcy, Chapter 13, Foreclosure - Saving Your Home, Mortgage Foreclosure Defense, Mortgage Modifications
The Bankruptcy Court for the Eastern District of Wisconsin created the MMM (mortgage modification mediation) program about a year and a half ago to help make modifications in Chapter 13s easier. So far, it has had quite a few success stories, and the next step is making sure the program stays strong and allows mediation options for as many homeowners and servicers as possible.
Starting December 1, the fees for the program are increasing to allow mediators more recognition for their hard work. The fees for homeowners will now be $200 to the mediator and $25 to the portal used for document submission. Also, the portal is going to remain a preference, but servicers who don’t use the portal will see language allowing them, in some cases, to continue the mediation program while taking documents by e-mail or other means through their attorneys. The portal is effective and worth the extra cost, but some servicers still struggle to get approval to use it.
As has been our practice for quite some time, the law firm representing the Chapter 13 debtors will pay the fees and the work by the mediator will start only when the fees are in. We ask for the mediation fees from our clients in advance to start the process.
The MMM program can be a huge step to getting through the impossible hurdles some servicers have to get mortgages modified in a reasonable fashion. We hope to keep promoting and improvingthe program as time continues.
Posted by Ryan Blay on November 5th, 2012 in Bankruptcy, Chapter 13
In a Chapter 13, most of our clients have two options in making the Chapter 13 plan payments to the Trustee: Payment through a payroll deduction, or payments by certified funds sent monthly. Each works well, but neither is as simple and convenient as payments online.
One of the Eastern District of Wisconsin Chapter 13 Trustees, Thomas J. King, just began implementing an online payment system through his office. Debtors who have Thomas J. King as their trustee can go here to find out how to sign up. Again, this is voluntary, and payments can still be made in the other formats. But it never hurts to have another reliable and easy option.
Posted by Ryan Blay on October 29th, 2012 in Bankruptcy, Chapter 13, Chapter 7
Every bankruptcy case requires a filing fee. As mentioned last week, the filing fee for Chapter 11 bankruptcies is set to increase in November. Chapter 7 filing fees are currently $306, and Chapter 13 filing fees are $281. In nearly every case, the debtor filing the case pays their attorney the fee up front, and the attorney pays the fee online through the court’s administration system. It’s easy, reliable, and ensures a quick payment to everyone involved.
Sometimes, however, filers need help with the fee. The courts then allow two other options: paying the filing fee in 3-4 installments, or waiving the fee altogether. This is more common in Chapter 7 cases, since Chapter 13 cases involve a monthly payment to creditors, which cannot start until the filing fee is paid.
In a recent and bizarre case from Kentucky, a lawyer and his client clearly did not communicate well. The debtor paid the $281 filing fee to the attorney. The attorney, however, did not pay that fee to the court when he filed her Chapter 13. Instead, he kept the money and filed a motion to allow the filing fee be paid in installments. The case was dismissed when the debtor did not pay the fee in installments. As you can imagine, the debtor was quite confused when the case was dismissed. She had paid the $281 and her first plan payment of $100, and didn’t understand why the case was suddenly stuck.
She did what most people will do when their case is dismissed. She called the bankruptcy court. She faxed in the proof of the receipt from the $281 and the $100 payments. The court reinstated the case, and the lawyer called the client to find out what happened. That’s when the court stepped in.
The court was confused as well why the petition asked for a filing fee in installments, when the debtor clearly paid the filing fee in advance. It was unnecessary to ask since the debtor had the means to pay the fee in full at the time of filing. The court issued an order demanding a full audit of the attorney’s bank accounts!
The moral of the story – As attorneys, we should always seek to have the fee paid in full at the time of filing. But if that can’t be done, and the debtor needs time to pay in installments, communication is essential to prevent the court from punishing the lawyer for questionable practices.
Posted by Ryan Blay on October 24th, 2012 in Bankruptcy, Chapter 11, Chapter 13, Chapter 7
With October turning into November, we see new changes on the horizon in bankruptcy.
For one, the Temporary Bankruptcy Judgeships Extension Act of 2012 requires an increase to the filing fees for Chapter 11 cases beginning on November 21.
Also, on November 1st, the Means test numbers change. The Means Test, you’ll recall, is used in Chapter 7 to determine whether filing debtors are abusing the system by filing for Chapter 7 instead of a 13. In Chapter 13, the Means Test is one method of determining disposable monthly income to pay into the Chapter 13 plan. See the new numbers here.
As always, it’s critical to keep up with new changes in the laws. Lakelaw is here to help you with the most up to date information.
Posted by Ryan Blay on September 12th, 2012 in Bankruptcy, Chapter 13, Wisconsin
“Defer no time, delays have dangerous ends.” - William Shakespeare
Supreme Court and lower court decisions in recent years (including the United States Aid Funds Inc. v. Espinosa decision) have repeatedly emphasized the need for creditors to object to Chapter 13 plans in a timely fashion.
A Bankruptcy Court decision by Judge Shapiro in the Eastern District of Wisconsin confirms this. In the Cramer case, the debtors filed and completed a Chapter 13 plan. In the plan, they proposed to assume a contract with Citizens Bank for a loan and lien securing the travel trailer. Rather than pay the loan through the plan like traditional plans call for, the plan proposed a direct payment outside the plan. A little unusual perhaps, but not against the code.
The plan was confirmed without objection, and the debtors finished payments. They defaulted on the car payments, perhaps intentionally, and Citizens repossessed the car, sold the car, and came up with a deficiency balance. They then sued the debtors to get a judge’s order that this debt, arising after the case filing, was not dischargeable.
Unfortunately for the bank, they failed at any point to file an objection to dischargeability (which they most likely would have lost initially when the debt was secured) or any objection to plan confirmation. They received payments for years, and because the plan did not treat the debt under Section 1322(b)(5) of the Code, the creditor was severely late and could not claim a right to pursue the debtors any more.
The bank and its attorneys should remember their Shakespeare and act in a prompt matter to preserve their rights, remembering that time is often critical in the law.
Illinois Lawyer David P. Leibowitz handles business law, estate planning, probate, asset
protection, consumer bankruptcy, business bankruptcy, real estate, elder law, guardianships, identity theft, consumer protection, commercial collections and foreclosure defense matters from Chicago to Milwaukee with offices in Chicago, Skokie, Waukegan, Milwaukee and Kenosha.
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