Law Offices of David P. Leibowitz LLC
Lakelaw is a registered assumed name for Law Offices of David P. Leibowitz LLC
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.
I like to offer free initial consultations because I believe it’s only fair to know what your options are before paying for legal representation. I meet with many people who would benefit from Chapter 7 Bankruptcy relief. The only problem is that they are not eligible to file and get a discharge because they filed in late 2005, or 2006, or later.
The rules are very clear and simple: Measured from the date the prior bankruptcy was filed (not converted), a debtor must wait 8 years before filing another Chapter 7 bankruptcy and receiving a discharge.
Sure, there are other options available in the meantime – debt consolidation programs, Chapter 13 Bankrupty plans, Chapter 128.21 Debt Amortizations (for Wisconsin residents). These all require a steady income with disposable money to pay creditors. In this economy, not everyone has that.
My two cents: Meet with me (or another well-trained bankruptcy attorney) and look over your finances. If you make so little money you can’t be garnished, you may simply want to wait to file. If a small Chapter 13 plan payment is possible, that might work as well, but you should never file a Chapter 13 plan unless you know in good faith you can make it work. It’s simply too much time for you, an attorney, the court and trustee, not to mention money and a toll on the system. Also, you should never try to file a Chapter 13 bankruptcy and plan without an attorney – I was in court recently when a judge told a pro se debtor that she wouldn’t even file a bankruptcy without an attorney!
Still, there may be options available. Call us or e-mail us to discuss.
Most rulings come from state courts, not from federal courts. State courts hear all sorts of claims, from criminal claims to civil claims to foreclosures in “equity”.
We don’t always like the outcomes, and occasionally judges do make errors in their rulings or rule based on information that later turns out to be wrong. So what can we do in Bankruptcy Court about it?
The Rooker-Feldman doctrine, based on two Supreme Court cases, says federal court s (like bankruptcy courts) can’t sit as appellate courts for state court decisions we don’t like. If a trial court judge in the Circuit Court of Ozaukee County, Wisconsin rules against a client and says a foreclosure is proper, we can’t appeal that decision in Bankruptcy Court. It’s a final order and would have to be appealed in state court.
This is very important because many people look to not only file for bankruptcy, but also to ask the judge to avoid a mortgage or cancel a judgment that could turn into a non-dischargeable debt. In many cases, these decisions come when clients, who can’t afford to hire lawyers to investigate and defend them adequately, are held in default or easily lose in summary judgment.
This is why the first level is so important and why, if the client wants to fight their case in Bankruptcy Court, lawyers must make sure there isn’t a final judgment to try and set aside.
The moral of the story: Fight early or else you might not get to fight at all.
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!
I am pleased to announce the upcoming CLE event, Advanced Asset Protection Planning produced by the Illinois Institute for Continuing Legal Education (IICLE®). As you may be aware, I will also be serving as a faculty member for this program on February 1, 2013, presenting the session, Breaking the Lock: Accessing Protected Assets. Enclosed please find a flyer with more information about this event.
The Illinois Institute for Continuing Legal Education is a not-for-profit 501(c)(3) organization dedicated to supporting the professional development of Illinois attorneys through Illinois-focused practice guidance. My work on this project is on a volunteer basis. If you would like to learn about volunteer opportunities at IICLE® please visit: https://www.iicle.com/volunteer/.
I would greatly appreciate it if you would share this announcement with your colleagues, and I would be honored if you would consider attending the program. If you have any questions about the event, please contact IICLE® Customer Service at 800-252-8062 or firstname.lastname@example.org.
David P. Leibowitz
When Residential Capital LLC (or “ResCap”) filed for Chapter 11 Bankruptcy relief a few months ago, it left a lot of bankruptcy attorneys confused. Because GMAC held many debts, including a substantial number of mortgages, the company was the subject of a large number of bankruptcy lawsuits or “adversaries”. The company would file proofs of claim in Chapter 11, 12 and 13 cases and debtors would try to remove their mortgages through “lien-stripping”. But because of the automatic stay in bankruptcy, lawyers didn’t know how far they could go with these actions.
Fortunately, the National Association of Consumer Bankruptcy Attorneys negotiated with the attorneys for ResCap and the Chapter 11 Bankruptcy Judge in New York signed an order allowing limited relief, including the right to object to a proof of claim or file a lien stripping action or other adversary.
Now this doesn’t mean that we can file actions in the Chapter 11 or get involved in the reorganization process, but it means that our day to day work representing borrowers in bankruptcy has become a little easier, thanks to NACBA’s work.
Every state has a regulatory body that oversees regulation and registration for lawyers. For Illinois, that body is the Illinois Attorney Registration and Disciplinary Commission, or ARDC. In June, the ARDC filed a complaint against the principal attorneys, Thomas Macey and Jeffrey Aleman. The complaint alleges that the attorneys breached a fiduciary duty, failed to consult with clients, assisted non-lawyers in the practice of law, and commited other acts that breached Illinois professional duties.
At least 36 individuals paid them anywhere from $150 to $2258 to assist with debt resolution. Guess what? They weren’t happy with the results.
There are other solutions out there to resolve debts in an appropriate way, in Illinois and elsewhere. For an ethical consultation with our Illinois attorneys about debts and options in addressing them, please contact Lakelaw at (847) 249-9100.
As you probably heard, last Thursday the Supreme Court ruled on the Patient Protection and Affordable Care Act, otherwise known as “Obamacare”. The court found the Act to be constitutional. This decision means that should the Act stay in place, over the next few years many new changes will be enacted in an attempt to provide affordable healthcare to every American and to reform the healthcare insurance industry. Politics aside, many questions remain about exactly how this Act will affect the country. Specifically, we at Lakelaw are wondering what the effect of PPACA will be on bankruptcy.
At first glance you might not think that a bill about healthcare would have much to do with bankruptcy, but in the U.S. today a large percentage of bankruptcies filed are “medical bankruptcies.” Medical bankruptcies are bankruptcies which are largely the result of expenses like hospital or doctor’s bills or the cost of prescriptions. Such medical costs can be financially devastating for almost any family.
Enter Obamacare. Supporters argue that PPACA will greatly decrease the number of medical bankruptcy filings because those who previously did not have insurance will now be covered, greatly reducing the amount of out-of-pocket medical expenses for the family should medical problems arise. Additionally, in the long run PPACA should lower the cost of healthcare overall, which would reduce medical costs for everyone. This could help ease the burden that so many families face when they are hit with unexpected medical costs.
On the other hand, critics of the Act point out that the majority of those who file for “medical” bankruptcy” already had health insurance when their medical difficulties began. In addition, PPACA does not eliminate all co-pays or other out-of-pocket medical costs, so some medical expenses would remain. Finally, they argue, Massachusetts’s recently reformed healthcare system, which PPACA was modeled after, has not been shown to have significantly lowered the number of medical bankruptcies in that state.
Both arguments have merit and certainly the results of PPACA remain to be seen. We at Lakelaw simply hope that as many families as possible are able to achieve solid financial footing. If you are considering bankruptcy as a route for moving forward financially, especially to deal with medical debt, please contact us to discuss your options.
This post was authored by Lakelaw summer intern Tatiana Barry
So you filed for bankruptcy and now learn that you are required to attend a “Creditor’s Meeting,” also known as 341 Meeting. That sounds pretty intimidating. The last thing that you want right now is to go to court or meet with your creditors. Don’t worry; this meeting is not nearly as scary as it sounds, once we clear up some misconceptions.
So what is a Creditor’s Meeting?
This meeting generally occurs a month or two after you file for bankruptcy, and you are required to attend. For a Chapter 7 bankruptcy a 341 is basically a time for the Trustee to make sure that the information in your bankruptcy petition is correct and that you have listed all of your non-exempt assets. For a Chapter 13 bankruptcy the Trustee also wants to make sure that your repayment plan is feasible. Technically, this is also a time reserved for creditors to ask questions about your finances and your bankruptcy petition. Not to worry, though, creditors almost never come.
What is the meeting actually like?
The actual meeting is much less frightening and much less glamorous that you probably imagine. First, this meeting does not take place in a courtroom, but rather in a relatively bland room inside a government building. As you walk in you will see the trustee at a table in the front of the room, probably in the middle of another debtor’s 341 Meeting. You and your attorney will sit in that room and wait to be called; this will give you a chance to hear what the meeting will be like before you are called up.
When the Trustee calls your name, you and your attorney go up to the table. You will be put under oath and the Trustee will verify your identity. After this, the Trustee will proceed to ask a number of yes/no questions and may ask you to clarify a point or two on your petition. All in all, the meeting will last about 15 minutes and, if your petition is in order, it will be relatively painless. Follow up work may be necessary, but in all likelihood you will not have to meet with your trustee again.
That is the 341 Meeting. It is not meant to intimidate or test you, in fact, it is mostly a formality on the way to a fresh financial start. Just remember to arrive a few minutes early, bring your driver’s license and social security card (or W2 form), and not to worry.
This post was the first by Lakelaw summer intern Tatiana Barry.
Best Buy is a fun place to shop. It has lots of gadgets, gifts, and games for men and women, boys and girls. It’s very tempting to overspend or try to finance purchases we can’t afford.
In bankruptcy, the goal is to shed the debt that bothers us. In order to get a fresh start in Chapter 7, that means making tough choices about what debts to hold on to and keep paying. The majority of our clients need a car to get to and from work, working appliances and adequate furniture. The bigger issues come with electronics and gadgets.
Best Buy wants to sell you things. They do a good job of it. One way they do this is by offering financing on their Best Buy cards, typically through HSBC. HSBC is a huge banking company, and Best Buy is the local brand that makes folks happy by selling TVs, iPads, and gaming systems.
Schedules I and J of the bankruptcy petition are the budget for the debtors in bankruptcy. Sometimes, the budget does show a small positive amount every month. Subtracting fixed expenses (food, utilities, rent/mortgage, car payment, insurance, etc.) from net income, we get a final number. If that number is “-$400″, that means that our clients are still running a $400 budget deficit per month – even with their credit cards, medical bills, and unsecured loans excluded. So when our clients then ask if they can keep the 3D TV and Wiis they financed, it comes time for tough decisions.
With secured goods like electronics, we have 3 options to present to our clients: They can surrender the goods and let Best Buy pick them up at their own expense. We can have them offer a lump sum amount in a redemption for the fair value of the item. Or they can reaffirm the debts through long term payments that now survive the bankruptcy.
As an attorney, I am really reluctant to recommend this last option, because typically it means another $2000 or so in debt that remains after bankruptcy. If there is no car payment, mortgage payment, or other long term debt, then maybe it’s workable. But these items are not as essential to living as, say, a car is to get from work to home and pick up the kids.
We’re not here to make these decisions, but it is part of our job to advise our clients as to how to proceed. Like any other debt, we must look at the whole picture and make a choice that won’t put our clients in a bad situation in the future.
If you have an item or two financed on a Best Buy card, and bankruptcy is an option in the near future, call or e-mail us to discuss.