Category Archives: Bankruptcy

Don’t Be Afraid to Sue Somebody

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A friend of mine, Louis Green, and I were talking last week about talking to clients about being a plaintiff, i.e., suing somebody.  Louis is a consumer law attorney.  He handles many of the same kinds of issues that I deal with, but he practices in District Court rather than the Bankruptcy Court.

A while ago Louis had a man come to see him – who was seriously embarrassed.  He was an older man, who felt like he should have known better; but — to be blunt — he was suckered by a car dealership.

The first thing he needed to understand is that he was taken advantage of by professionals.  This can be hard for a lot of us to grasp (umm, that would include me), but people who are truly professionals at things tend to be better at them than those of us who are really just amateurs.  I hate this.  There are all kinds of things that I think I ought to be just as good at as anybody else — but I’m not, and my kidding myself is hurting no one but myself.  (Why, yes, I do self-manage my IRA — your point?  Sigh.)

This man was old enough to know better.  He had bought cars before.  He knew better than to sign things without reading them, but the print was small; and his eyesight isn’t what it used to be; and the pros made him feel rushed and uncomfortable.  Well, even though he should have known better, that wasn’t his fault.  He was damaged by it, and he stuck to his guns.  He hired a good lawyer; and he won — an award large enough the car dealership required that it be kept confidential for fear anyone might find out how much they were having to pay.

Was all of this embarrassing?  Yes.  Did his adult children find out he had been scammed?  Yes.  Did he have to take the time to go to court and participate in discovery and deal with lawyers?  Yes.  Was it worth it?  That is a question that only he can answer, but I can say it was the right thing to do.

When people come to see me, they are tired of dealing with it all; and they just want it over.  Bankruptcy is good at that, but sometimes, they really do need to step up and be a plaintiff.  Sometimes, you just need to say — No, what you’ve done is wrong; and I am going to put up with the embarrassment and the inconvenience to make you pay for it.  Is it worth it?  More often than not, yes.  Is it the right thing to do?  Yes.

So, think about it.  Sure, you can file a bankruptcy and discharge the underlying debt, but if someone has been incorrectly reporting on your credit report or illegally harassing you about a debt, if a car is a lemon (for information on Oklahoma’s lemon law) or you were scammed by the dealer, at least consider whether or not you should be a plaintiff, as well as, a debtor.

Elaine

Private Student Loans Do Have Some Limits

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One of the nastier changes made to the Bankruptcy Code in 2005 was to make private student loans (i.e., not Federally insured) as non-dischargeable in a Bankruptcy as Federally insured student loans. That change did not, however, extend all student loan protections to private loans. So, private student loans are still subject to State law statutes of limitations.

A statute of limitation is the period of time within which a lawsuit must be brought or it may not be brought successfully. That statement is a little overly broad. In Oklahoma, although not in all States, a statute of limitation is an affirmative defense. That means that it must be raised by the defendant. If the defendant doesn’t raise it, the plaintiff can still win.

Anyway, back to the point. I got a call today from a woman who took out a private student loan some years ago. She filed a Chapter 7 Bankruptcy with another attorney in 2012. The student loan was obviously not discharged. She is now being sued on that loan by a local collection law firm. I checked the case on the Court’s online docket, and from the petition and attached documents I could tell that the first payment on the loan was due in May, 2009. No payments were made. The woman filed for Bankruptcy, and it was discharged 115 days later. If the bankruptcy did not toll the running of the statute, it ran last May. If it did, it ran 115 days later – sometime in September. The lawsuit was filed in December.

Unfortunately, it was in a different County. So, I have referred her to a lawyer closer to the action. Still, this one could be fun.

Elaine

Christmas Bills, a New Year and Bankruptcy

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There are a number of reasons why Bankruptcy filings surge after the first of the year. The New Year brings introspection and the desire to finally find a way out of the hole you have been trying to climb out of for years. Christmas bills can be the last straw. Then, of course, there is the impending tax refund, which can be a helpful way to pay for the bankruptcy filing.

There are a few things to consider, though.

First, let’s talk about Christmas bills. The general rule is that you want to wait at least 70 days and preferably 90 days after you have last used your credit cards before filing a bankruptcy. There are exceptions to this, but those are sufficiently fact specific, that you will want to talk to a lawyer about your particular facts. What you should remember is, if you haven’t already stopped using your cards – do it now, before you call the lawyer. Then, go ahead and schedule the appointment. You will want some time to get things ready to file anyway, but have a good idea what your card usage has looked like during the last 30 – 60 days so you can discuss it with your lawyer in detail.

There are actually a couple of issues with tax refunds. First of all, you will be happier if you have your tax return for the completed year prepared before you file your Bankruptcy. In some cases, you will have to have it, but you will always want to have it in hand. One reason for that is that if you have not received your tax refund before you file your bankruptcy, your Trustee may be entitled to the refund. The solution to that, of course, is to have already received it and done something constructive with it before the case is filed. I will caution you that you will want to discuss exactly what you do with that refund with your lawyer before you do it – not after. Of course, I think that one of the best things to do with that refund is to pay your attorney for filing the bankruptcy – but I might be prejudiced.

Finally, there is that decision to start a new year finally freeing yourself from the unending cycle of debt that you have been mired in. Finally, it is time to put yourself back in a place where you can take care of yourself, your family, put something aside for retirement – yes, it is time! Not so fast. Is it time? Are you through getting into trouble? If you have lost a job, do you have a stable pay check coming in? With health insurance? If you’ve had health problems, are they behind you? If so, then, yes. It is time. Time for a New Year and a new start.

Elaine

How to Go to Jail for Filing Bankruptcy

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It doesn’t happen often, but about once a year I read about someone in this part of the Country going to jail for being stupid.  I’m sorry, I shouldn’t be rude about it; but there just isn’t much you can call smart about going to jail for Bankruptcy fraud.

The most recent fact scenario happened in Arkansas, but I have seen very similar facts several times in Oklahoma.  (Fortunately, none have been my clients.)  Here is how this particular story plays out.  Client has something he doesn’t want to lose.  Client also has a ton of debt.  The client is concerned (rightly or wrongly) that if he files for bankruptcy and owns this asset he wants to keep that the Trustee will take it away from him.  Maybe the client is right, and maybe he isn’t.

Where the client goes really, really wrong is the client decides that he is smarter than the system.  Instead of talking to a good, Bankruptcy lawyer about how to best protect this asset and still get relief from his debts, the client decides to transfer the asset to someone else and just say nothing.  The client is gambling that no one will ever be the wiser.  Maybe the transfer is even semi-legitimate.  Possibly the client transfers the asset to someone to whom he owes a significant debt, and maybe if that had been properly disclosed it would have been a viable pre-bankruptcy plan; but NOTHING is viable if it is concealed.

So, client goes to lawyer.  Lawyer asks client if he has sold or given away anything of value in the last two years that hasn’t already been discussed.  Client says, no, of course not.  Bankruptcy is filed with none checked on the question on the Statement of Financial Affairs regarding transfers.  Bankruptcy trustee appointed to administer the case finds a record of the asset in question — trust me, they have ways.

At this point nothing good is going to happen.  The Debtor MIGHT just lose his discharge — or he might go to prison.  It really depends on the facts.  The point here is that this is completely avoidable.

If you have an asset you really don’t want to lose, call a good, bankruptcy lawyer sooner rather than later.  Give yourself some time, because even if (and this is a big if) you would, in fact, lose that asset if you were to file for bankruptcy; there may be a legal and legitimate way to change that result.

Regardless, it isn’t worth going to prison over.  Talk to a lawyer.  Be honest and up front with the lawyer.  Sometimes they really do know the solution to that which scares you.

Elaine

What if the Trustee Wants My STUFF?

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I explain to my clients that a Chapter 7 Bankruptcy is a deal. If you (the debtor) have any non-exempt property of any value that the Trustee wants, the Trustee is entitled to it; and my clients are expected to put it on the front porch, with a red bow on it and invite the Trustee in for a celebratory drink when he comes by to pick it up. Why? Because, in exchange for whatever non-exempt property the Trustee chooses to administer, you get out of that pile of debt that drove you to my office in the first place. That’s the deal, and if that deal isn’t worth doing – then, don’t file. Bankruptcy is the old Pearl of Great Price story told in a different setting.

Sound harsh? It really isn’t. I practice exclusively in Oklahoma, and Oklahoma has very generous exemptions. Remember, the deal is only for non-exempt property and most of what we own is exempt in Oklahoma. The vast majority of all people who file for Bankruptcy in Oklahoma have no non-exempt property of any real value; and when they do there are generally enough legitimate pre-bankruptcy planning techniques to protect those assets.

Sure, occasionally, a client loses something. They always know the risks. We go over that extensively and in great detail. Sometimes, though, when going over the possibilities, I can’t quite get past the, “BUT THAT’S MINE” response.

So, here is the story I tell. I had a client who had a $2,000 red toolbox. It held specialized tools that really didn’t qualify as household goods (which are exempt), and they were from a former career, so they didn’t qualify as tools of the trade (which are also exempt), but the toolbox was red, and it was really spiffy. Client loved this toolbox, and he really didn’t want to think about any mean, old Trustee taking it. Now, this client also had over $70,000 in unsecured debt that he needed to get out of.

So, I asked him. “If someone offered you $70,000 for that tool box, would you take it?” He looked at me like I was crazy. Seventy grand for a $2,000 tool box? Well, of course, he would take it. That is a fabulous deal! Then his brain made the connection, and the previous look of worried panic turned into a grin.

Turns out his Trustee wasn’t nearly as impressed by that toolbox as the debtor was, and the debtor wound up getting out of the $70,000 in debt and keeping the toolbox; but I have used this story (details have been changed, of course) for years.

So, first of all, remember that most people who file for bankruptcy in Oklahoma lose no assets. Just about everything that any of us owns of any real value is exempt if you are using Oklahoma exemptions, but even if you do own something that isn’t exempt – is it worth a discharge of all of your debt? If yes, then congratulations on driving such a great bargain – $70,000 in debt in exchange for a shiny, red toolbox. If, on the other hand, it isn’t the best deal you’ve had in a long time; then, talk to your lawyer about other options. Remember, you always have choices; and it is your lawyer’s job to help you find them.

Elaine

What if the Trustee Wants My STUFF?!?

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I explain to my clients that a Chapter 7 Bankruptcy is a deal. If you (the debtor) have any non-exempt property of any value that the Trustee wants, the Trustee is entitled to it; and my clients are expected to put it on the front porch, with a red bow on it and invite the Trustee in for a celebratory drink when he comes by to pick it up. Why? Because, in exchange for whatever non-exempt property the Trustee chooses to administer, you get out of that pile of debt that drove you to my office in the first place. That’s the deal, and if that deal isn’t worth doing – then, don’t file. Bankruptcy is the old Pearl of Great Price story told in a different setting.

Sound harsh? It really isn’t. I practice exclusively in Oklahoma, and Oklahoma has very generous exemptions. Remember, the deal is only for non-exempt property and most of what we own is exempt in Oklahoma. The vast majority of all people who file for Bankruptcy in Oklahoma have no non-exempt property of any real value; and when they do there are generally enough legitimate pre-bankruptcy planning techniques to protect those assets.

Sure, occasionally, a client loses something. They always know the risks. We go over that extensively and in great detail. Sometimes, though, when going over the possibilities, I can’t quite get past the, “BUT THAT’S MINE” response.

So, here is the story I tell. I had a client who had a $2,000 red toolbox. It held specialized tools that really didn’t qualify as household goods (which are exempt), and they were from a former career, so they didn’t qualify as tools of the trade (which are also exempt), but the toolbox was red, and it was really spiffy. Client loved this toolbox, and he really didn’t want to think about any mean, old Trustee taking it. Now, this client also had over $70,000 in unsecured debt that he needed to get out of.

So, I asked him. “If someone offered you $70,000 for that tool box, would you take it?” He looked at me like I was crazy. Seventy grand for a $2,000 tool box? Well, of course, he would take it. That is a fabulous deal! Then his brain made the connection, and the previous look of worried panic turned into a grin.

Turns out his Trustee wasn’t nearly as impressed by that toolbox as the client was, and the client wound up getting out of the $70,000 in debt and keeping the toolbox; but I have used this story (details have been changed, of course) for years.

So, first of all, remember that most people who file for bankruptcy in Oklahoma lose no assets. Just about everything that any of us owns of any real value is exempt, but even if you do own something that isn’t exempt – is it worth a discharge of all of your debt? If yes, then congratulations on driving such a great bargain – $70,000 in debt in exchange for a shiny, red toolbox. If, on the other hand, it isn’t the best deal you’ve had in a long time; then, talk to your lawyer about other options. Remember, you always have options; and it is your lawyer’s job to help you find them.

Elaine

Bankruptcy Attorneys Fees – What is it that I am Paying For?

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So, when a bankruptcy attorney quotes you a fee, what is it, exactly, that you are paying for? What is included, what is not included, at some point will you have to come up with more money or be left abandoned in the midst of a Federal Court proceeding that strikes even a lot of lawyers as confusing and arcane?

The answer to that question is (drum roll, please) – that depends.

I know, and lawyers wonder why it is that people seem to think you can’t get a straight answer out of us. Sigh.

Here is the interpretation. When you hire a Bankruptcy lawyer (or anyone else for that matter) you do need to find out what it is that you are hiring him to do for you. Your attorney should give you some kind of agreement, that might be a letter, that outlines what he will do for you, what he won’t do for you and what he reserves the right to charge extra for.

Here are some things that go into a basic, consumer chapter 7 Bankruptcy:

  • Interview;
  • Explanation of Bankruptcy, the terminology, the players, what it will do for you, what it won’t do for you, assets, expenses, Means Test qualifications, explanation of different chapters;
  • Research into your facts and circumstances;
  • Advising you of any potential problems in your case and options for dealing with them;
  • Preparation of Petition, Schedules and Means test;
  • Filing the case;
  • Providing documents to the Trustee;
  • Attendance at First Meeting of Creditors;
  • Dealing with secured creditors as specified in the Statement of Intention;
  • Dealing with other creditors;
  • Responding to any requests for information from the U.S. Trustee or the Panel Trustee
  • Filing the post petition debtor education certificate.

Please, understand, that list is not intended to be all-inclusive.  That would take far too much time to put together for a blog post.  It is intended to be illustrative of the kinds of things that go into a Bankruptcy case.

Now, here are some things that aren’t included in that list, because they happen, but they don’t necessarily happen in most basic, consumer cases:

  • Pre-Bankruptcy exemption planning, i.e., converting a non-exempt asset (i.e., an asset you would lose when you file) into an exempt asset (an asset you get to keep even though you file for bankruptcy);
  • Dealing with creditors before the case is filed;
  • Adding creditors or correcting addresses after the case is filed;
  • Disclosing additional assets after the case is filed;
  • Defending a motion to dismiss or convert based on the Means Test figures;
  • Defending a Motion to dismiss for bad faith;
  • Appearing at a 2004 examination (basically, a deposition);
  • Defending other motions brought by creditors, most commonly a motion for relief from stay brought by a secured creditor who would rather have the collateral than the payments you may or may not be making timely;
  • Defending an adversary proceeding, which is basically a separate lawsuit filed within the scope of the bankruptcy;
  • Filing an adversary proceeding got for any reason including to determine if a certain debt, like some taxes, is dischargeable;
  • Determining value of assets if scheduled value challenged.

There will be considerable variance between what different attorneys do and don’t include in a flat fee, and there will be wide variance if you compare attorneys from different parts of the Country.

I don’t know anyone who includes an Adversary Proceeding in a flat fee. However, the nature of Adversary Proceedings is such that your Attorney should at least suspect one might be filed before the Bankruptcy is filed – unless there is something really important he doesn’t know about. So, that should be discussed specifically at the time the attorney quotes a fee.

I generally quote a fee that I expect will be sufficient to cover the things that I expect to come up in the case. What my fee specifically does not include, other than Adversary Proceedings, is anything that the client got wrong or should have told me about and didn’t.

The easy part of that is fixing addresses and listing additional creditors. I give my clients multiple opportunities to get their list of creditors complete, and I tell them to include all addresses that might be current or correct. So, if someone is left off and needs to be added; well, I will charge extra for that.

If a client is being sued locally odds are pretty good I will find out about it before the case is filed. If the client is being sued under a name he didn’t mention or in another jurisdiction, I might not find out about it – unless the client tells me – when I ask about other names, about lawsuits, about people who might think that the client owes them money – even if the client disagrees. If the client still doesn’t think to mention it and it becomes an issue in the Bankruptcy (and it almost certainly will), then, the client shouldn’t be surprised that I will expect additional compensation for dealing with it.

Sure, mistakes happen and omissions happen; and most of them are simple mistakes. If I make the mistake, I fix it. If the client makes the mistake, then I am going to expect the client to pay me to fix it. Sure, some mistakes and omissions can be expensive to fix (some can’t be fixed at all), but most of them can be fixed for a relatively small amount of money.

However, my fee is pretty all encompassing. Not everyone’s is, but it should be spelled out in the engagement agreement what will and won’t be covered. If it isn’t, ask. If it is, but you do’t understand it, then ask. It is your job to provide the lawyer with the information he needs. It is his job to make sure that you understand what is going on, and that includes the fee agreement.

Elaine

Why Things Aren’t Like They Appear

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I read a lot of business news.  I do for a lot of reasons.  One of those reasons is that I need to know what the larger, economic trends are as they unfold around me.  That is part of my business.  One thing that I have been noticing for a long time is that what I see in my office and what I read in the National business news has never quite seemed to match up.  The news talks about economic growth, increased productivity, skyrocketing executive pay and returns for shareholders.  What I see is people struggling really hard to hang on to where they used to be.

Marketwatch had an article today that caught my eye.  I read the article, because of the title, “Your Paycheck Has Been Shrinking for the Last Five Years.”, but it was the last sentence that really grabbed my attention.

“So wage growth has been generally weak for more than 15 years.”

Yea, or maybe even more than that.  It is nice to know, sort of, that it isn’t just the little microcosm that is my office; but it is still getting old to keep watching people come in who are making the same or less than they were 5 — 10 — even 15 years ago.  I’m not adjusting for inflation, here.  I am talking real wages.  I’d say wage growth has been slow all right.

What scares me is what this has to say about future social and economic stability.

Elaine

Student Loans, Auto Default Clauses: or, Everything Old is New Again

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I was recently discussing issues with student loans, and private student loans in particular, with a staffer for one of my Congressmen. The staffer said something along the lines of, but isn’t student loan debt good debt? My response? Student loans, especially private student loans, may be the worst kind of debt – even worse than credit cards. His expression was fun. He did keep his coffee off his tie, though. Points for that.

There are a lot of reasons I’m not just real gung ho on student loans – especially private student loans. One of those reasons has been getting some press this week. Here is a link to a NY Times article on auto default clauses in private student loans. There have been several others recently, but this was the first one I saw.

http://m.washingtonpost.com/business/economy/us-agency-urges-private-lenders-to-ease-automatic-default-rules-on-student-loans/2014/04/21/d06adeee-c97f-11e3-95f7-7ecdde72d2ea_story.html

Most private student loans require a co-signer, usually a parent or grandparent. Many of those loan documents also include language known as an auto default clause. An auto default clause means that the loan is deemed to be in default if a particular event happens – EVEN IF PAYMENTS ON THE LOAN ARE CURRENT. The current press is about auto default clauses that trigger an event of default if the co-signer files for bankruptcy or dies.

To be quite blunt:
Bad news – Dad is dead.
More bad news – your student loans are now being reported in default to the credit reporting agencies, even though you’ve never missed a payment.

There is a good argument that the an auto default triggered by a bankruptcy filing of the co-signer is unenforceable, and I foresee some interesting litigation on that issue. The death of the co-signer, though, is going to be valid unless some lawyer who is far more creative than I am comes up with something I haven’t thought of.

A lot of the NY Times article referenced above has to do with encouragement from the Consumer Financial Protection Bureau for lenders (or, more accurately the loan servicers) to find ways to avoid placing otherwise performing loans into default status. There are a number of problems with that encouragement. First of all, it is just that, encouragement. I am not aware of any authority the CFPB has to require anything. Second, the same problem is showing up here that we had getting loan modifications during the mortgage crisis. Most of these loans have been securitized. The entity that the borrower deals with (Sallie Mae, AES, etc.) isn’t actually the lender. They are the servicer, they just manage the loans on behalf of the ultimate investors, and they do so pursuant to the terms of a contract that limits their ability to modify the loans.

Part of the securitization process is taking a large body of loans, pooling them together and using their income stream to support payments to investors who invest in the large pool. To do that, the individual loans that go into a pool must share certain qualities; and one of the qualities that makes a pool of loans like this more attractive to investors is the presence of co-signers – or, having more than one person responsible for repaying the loans. So, encouragement from the CFBP is nice, but I don’t think I will hold my breath on seeing any real changes here.

Of course, the real victims are the college graduates who are making their loan payments and then find out that the interest rate on a car loan is going to be sky high or they can’t qualify for a mortgage; why? Because their student loans are in default – yea, the ones they are PAYING every month.

I’m sorry, but that sucks.

They took out those loans (for the most part) when they didn’t have a lot of experience with financial products. Their parents (or grandparents) signed. Their school told them to sign. So, they signed. Even if they read the fine print, they very well might not have realized with an automatic event of default means. Their school should have. Their parents (or grandparents) should have, and they might have; but they saw no other (or no better) way to pay for college.

There isn’t much I can do about people dying; but filing bankruptcies for people who might have co-signed student loans is part of my job. I’m currently thinking through some ideas with other attorneys to mitigate the consequences of a bankruptcy filing when the debtor has co-signed private student loans. Keep in touch.

Elaine