I came across a woman recently who was considering chapter 7 bankruptcy. She had a home that was underwater by more than $175,000. She had absolutely no intention of keeping the home. Her goal was to stay in the home for as long as possible, surrender it to the lender after a sheriff sale, and+ Read More
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There is a lot of chatter going on among Nebraska bankruptcy attorneys about reports of court hearings where debtors are being told they can keep a car even if they choose not to reaffirm the car loan as long as payments are kept current.
That’s news to me and many of my colleagues. The Bankruptcy Reform Act of 2005 was supposed to end the Ride-Through option. A “ride-through” is where a lender cannot legally repossess a vehicle even if the debtor does not sign a formal Reaffirmation Agreement as long as the loan was paid current.
A reaffirmation agreement is an agreement to pay a debt (typically a home or auto loan) listed in a bankruptcy case. Reaffirmations basically pull a debt out of the bankruptcy and makes a debtor liable again for the payment. Secured debts tend to be reaffirmed in Chapter 7 and unsecured debts almost never. Clients tend to reaffirm their car loans because if they don’t the banks may repossess a vehicle regardless if the loan is paid current.
In contract to the reaffirmation agreement, a “ride through” gives the debtor the best of both worlds: they keep the vehicle but are not liable for the debt in the event they can not afford future payments. Keep the vehicle if you can afford the payments, but surrender it without being responsible for the debt if you cannot. Everybody loved the ride through, except the banks.
BANKRUPTCY REFORM ACT ENDS THE RIDE-THROUGH?
Along comes the Bankruptcy Reform Act of 2005, and the bankers finally got what they wanted. The automatic bankruptcy stay rule was modified to ban the ride-through option:
11 U.S.C. 352(h)(1):
In a case in which the debtor is an individual, the stay provided by subsection (a) is terminated with respect to personal property of the estate or of the debtor securing in whole or in part a claim, or subject to an unexpired lease, and such personal property shall no longer be property of the estate if the debtor fails within the applicable time set by section 521(a)(2)—
(A) to file timely any statement of intention required under section 521(a)(2) with respect to such personal property or to indicate in such statement that the debtor will either surrender such personal property or retain it and, if retaining such personal property, either redeem such personal property pursuant to section 722, enter into an agreement of the kind specified in section 524(c) applicable to the debt secured by such personal property, or assume such unexpired lease pursuant to section 365(p) if the trustee does not do so, as applicable; and
(B) to take timely the action specified in such statement, as it may be amended before expiration of the period for taking action, unless such statement specifies the debtor’s intention to reaffirm such debt on the original contract terms and the creditor refuses to agree to the reaffirmation on such terms.
And with that 2005 amendment to the Bankruptcy Code, we all waived goodbye to the ride-through. You want to keep that car? Sign here please.
But now our court seems to be saying something else. Several bankruptcy attorneys report of hearings where the court is saying they can keep their vehicle as long as the loan is paid current. Is the Ride-Through back?
It appears that Nebraska Statute 45-1,107 is the key law in question.
Consumer credit transaction; default; consumer’s right to cure.
(1) With respect to a consumer credit transaction, after a default a creditor may neither accelerate maturity of the unpaid balance of the obligation nor take possession of collateral, except voluntarily surrendered collateral, because of such default until twenty days after a notice of the consumer’s right to cure is given. The consumer shall have twenty days after the notice is given to cure any default by tendering the amount of all unpaid sums due at the time of the tender, without acceleration, plus any unpaid charges, or by tendering any other performance necessary to cure the default as specified in the notice of right to cure. Cure shall restore the consumer to his or her rights under the agreement as though the default had not occurred.
(2) With respect to defaults on the same obligation after a creditor has once given notice of the consumer’s right to cure, the consumer shall have no further right to cure and the creditor has no obligation to proceed against the consumer or the collateral.
Okay, so a consumer has 20 days to cure a default. But how exactly does this law help when a car loan is not reaffirmed in bankruptcy? There are no cases in Nebraska even mentioning this law. Most auto loan contracts contain a “bankruptcy clause” which states that filing bankruptcy itself constitutes a breach of the agreement. How does one cure that type of breach?
Based on the complete lack of case law on this statute, it is very unclear that Nebraska state law permits a general ride-through option.
Perhaps the court is referring to something called a “Back Door Ride-Through.” To qualify for a backdoor ride-through, a reaffirmation agreement must be filed with the court and the court must then disapprove the agreement. By filing the reaffirmation agreement with the bankruptcy court, the technical requirements of §521(a)(2) and §362(h) are satisfied. See Coastal Fed. Credit Union v. Hardiman, 398, B.R. 161, 166 (E.D.N.C. 2008); In re Baker, 390 B.R. 524, 532 (Bankr. D. Del. 2008); In re Blakely, 363 B.R. 225, 2230 (Bankr. D. Utah 2007). See Debtor’s Dilemma: The Economic Case for Ride-Through in the Bankruptcy Code, Amber J. Moren,The Yale Law Journal.
A backdoor ride-through creates a binding nonrecourse loan subject to the automatic bankruptcy stay protection.
Why would a court deny a filed reaffirmation agreement? Generally, if it appears that a debtor does not have sufficient income to justify the monthly expense or if the the loan balance significantly exceeds the value of the vehicle, a court may decline to approve a reaffirmation agreement.
Is the backdoor open in Nebraska? Does a reaffirmation agreement filed with the bankruptcy court that is not approved give rise to a ride-through? There is no written opinion stating this, but it would seem from reported court hearings that such an option may exist.
Image courtesy of Flickr and Anders Ljungberg.
Nobody wants to file for bankruptcy. However, circumstances can spiral out of control and you can find yourself without any choice. You were laid off from work or had unexpected medical bills. You had to make a choice between paying the monthly credit card bills or putting food on the table. The choice is easy. + Read More
The post Taxes Owed To The IRS Could Be Discharged In A Chapter 7 Bankruptcy appeared first on David M. Siegel.
By Ron Lieber
So someone has asked you to co-sign for a student loan.
Chances are, it’s your child or grandchild, or perhaps a niece or nephew. You have unrelenting faith in this teenage freshman, or near certainty that graduate school will lead to a lifetime of gainful employment. And maybe you feel badly that the family has not been able to save enough to pay the bills outright.
Fine. But be very, very careful.
When you co-sign for a loan, you, too, are responsible for it. If the primary borrower can’t pay, you have to. If that borrower pays late, your credit could get nicked as well. And the mere existence of the loan on your credit report may keep you from being able to get other kinds of loans, since lenders don’t always want to do business with people who already have a lot of debt.
In some cases, the lender will try to collect from a co-signer even if the primary borrower is dead, as a recent collaboration between ProPublica and The New York Times revealed. Legislators in New Jersey held hearings on the matter this week.
After a postrecession lull, the so-called private loans — which generally have less favorable rates and terms than federal loans, and tend to require co-signers — are making a comeback of sorts. About one in 10 undergraduates takes one out, according to Sallie Mae, the biggest lender. Undergraduate and graduate students together borrow $10 billion to $12 billion in new private loans each year, according to MeasureOne, a market research and consulting firm, and the trajectory has been upward since the 2010-11 school year.
The $102 billion in outstanding private student loans make up just 7.5 percent of the $1.36 trillion in total student loan debt; the rest is made up of federal student loans. Undergraduates, however, can borrow only so much each year from the federal government before hitting limits.
So for anyone who wants to borrow more, there are the private loans, which usually come from Sallie Mae, banks and credit unions or other entities. The Consumer Financial Protection Bureau has a helpful guide on its site that explains the difference between federal and private loans in some detail.
Most private lenders require borrowers to have a co-signer to get a loan at all or to get a better rate. During the 2015-16 academic year, 94 percent of new undergraduate private loans had a co-signer, while 61 percent of graduate school loans did, according to MeasureOne’s analysis of data from six large lenders that make up about two-thirds of the overall market.
Tempted to help out by lending your signature and good credit history to someone? Your participation could indeed make a difference. Credible, an online loan marketplace, examined about 8,000 loans and found that undergraduates looking for loans who had co-signers qualified for loans with (mostly variable) interest rates averaging 5.37 percent. Students flying solo got a 7.46 percent quote.
For graduate students, the numbers were 4.59 percent for duos and 6.21 percent for people going it alone. For its average undergraduate loan — $19,232, paid off in eight years — the savings over time would be $1,896, which comes to about $20 a month.
But co-signing comes with plenty of risk. The Consumer Financial Protection Bureau outlined a number of them in a report it issued last year. In theory, most lenders provide a process by which the co-signer can be removed from the loan at the primary borrower’s request.
Perhaps the biggest concern for co-signers ought to be the bureau’s assertion last year that lenders turn down 90 percent of the borrowers who apply for these releases. The bureau’s director, Richard Cordray, described the process as “broken.”
But Sallie Mae said that more than half of its borrowers who make this request succeed. For PNC, the figure was 45 percent for the last 12 months. Citizens Bank reported a 64 percent number, while Wells Fargo said so few people had asked for a release that it did not track the number. (It’s possible that many don’t know that it’s possible, as the bureau chided lenders for not making the rules clear.)
What accounts for this gap? The bureau’s sample includes many loans that the original lenders sold to investors. These anonymous loan owners may not have the same incentive to be customer-friendly as big-name banks.
Some co-signers can’t get a release because the primary borrower doesn’t have sufficient income or a good enough credit score — fair and square. But sometimes it’s neither fair nor square. The bureau reports numerous instances where people make several months’ worth of payments in a lump sum but then don’t get credit for the consecutive monthly payments that some lenders use to keep score on people who are aiming to release their co-signers.
Worse still, co-signers who make payments themselves may discover after the fact that the lender requires the primary borrower to make years of on-time monthly payments before it will consider a release. So efforts by the co-signer to help the primary borrower stay on track may foil their very attempt to get themselves off the loan later.
There are rarer horrors, too, where the death or the bankruptcy of the co-signer causes an automatic default, according to the bureau. At that point, a mourning child can receive a bill for the full balance, and debt collectors may chase after the executor of the estate for a dead grandfather who co-signed a loan years ago. The big banks that offer private student loans say they do no such things.
As for more likely events, like credit-sullying late payments, just 4.37 percent of borrowers were at least 30 days late on their loans at the end of the first quarter, according to MeasureOne’s look at the big private lenders. But it’s not necessarily the same 4.37 percent who are overdue at any given moment. Moreover, that number will go higher during the next downturn, and there might be more than one bad economic cycle during any individual’s tenure as a co-signer.
A CreditCards.com survey of people who had co-signed on loans of all sorts found that 38 percent ended up paying at least some money, 28 percent were aware of damage to their credit and 26 percent saw relationships suffer as a result.
So where does this leave someone trying to help and tempted to co-sign? The tough-love reply goes like this: If you need a private loan as an undergraduate especially, then your college of choice is simply not affordable. Federal loans plus savings and current income should be enough to pay all of your costs, and if they aren’t, then it’s community college and living at home for you. And no, we won’t take the debt on in our names only or yank money from home equity, since we need to think about retirement and not be a burden to you later.
But can you really bring yourself, as a parent in particular, to deny a teenager or an ambitious graduate student a shot at the better opportunities that a more prestigious and expensive school might bring, as long as the debt isn’t outsize? Even an aspiring engineer who will earn plenty?
Many people simply will not be able to say no. So a few words for them. First, keep in mind that the teenagers you’re betting on may never graduate. And if they don’t, the odds are higher of the co-signer being liable for the private loan while the college dropout earns a modest hourly wage. So be especially wary if you think there is even a chance that your child or grandchild is not committed to college.
Finally, look the primary borrower in the eye and draw out a commitment of total and utter transparency. “Don’t assume that the primary borrower is making the payments, and make sure you have an open enough dialogue that they will tell you about it before they miss that payment,” said Dan Macklin, co-founder of SoFi, a company that helps many people refinance older student loans. “I’ve seen too many people where it’s an embarrassment and not spoken about, and it’s not very healthy.”
Copyright 2016 The New York Times Company. All rights reserved.
Loan modifications come in many different forms and at many different times as they relate to a bankruptcy filing. The most common loan modification is one that avoids bankruptcy entirely. I’m referring to a person or couple that fall behind on their mortgage, reach out to their lender for loss mitigation opportunities and are lucky+ Read More
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Bankruptcy is The Best Credit Repair for Most People Is bad credit costing you thousands of dollars every year? It is, if you are paying more than 5% on your car loan. People with great credit are paying less than 3.0%. The difference between 3% car loan and an 18% car loan on a $24,000 car […]The post Bankruptcy: The Best Credit Repair for Most People by Robert Weed appeared first on Robert Weed.
This is the bankruptcy case study for Ms. Jones who resides in Joliet, Illinois. Ms. Jones was in the office today to determine whether or not Chapter 7 or Chapter 13 bankruptcy will provide some needed relief. Let’s go through the facts and details of her case. Ms. Jones is not a homeowner. She is+ Read More
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Mistakes can cost you big time when it comes to filing for bankruptcy. Whether you attempt it alone or hire a knowledgeable Walworth County bankruptcy attorney, making mistakes is something you definitely want to avoid. One little mistake could cost you everything. Our Walworth County bankruptcy attorney, Shannon Wynn, shares common mistakes people make when filing for bankruptcy.
1. Not Being Honest. Lying about your income or assets will get your bankruptcy case dismissed. It could also land you in jail. Walworth County bankruptcy attorney, Shannon Wynn, can assist you with filing your bankruptcy at the best time.
2. Giving Away Assets And/Or Money Right Before Filing Bankruptcy. It is unlawful to hide any money or assets from the bankruptcy trustee, including money you know will be available, but you haven’t received it yet. For instance, you cannot give away your truck to your brother for the sole purpose of hiding it from the bankruptcy trustee. Giving away assets or money right before filing bankruptcy is illegal. Walworth County bankruptcy attorney, Shannon Wynn, can assist you with correctly listing your monies and assets to avoid any conflicts.
3. Maxing Out Credit Cards. When you file your bankruptcy petition, the trustee will look over everything with a fine toothed comb. If the trustee feels that you purposely ran up or maxed out credit card balances with the intention of filing bankruptcy, the credit card company has the legal authority to ask the court not to have those charges discharged.
4. Purposely Omitting Information. If you purposely leave out important information when filing your bankruptcy petition, such as loan or lawsuit information, you are committing fraud. You could be charged with fraudulent activity and have your entire bankruptcy case dismissed without a discharge of your debts. When you speak with our Walworth County bankruptcy attorney, Shannon Wynn, it is imperative that you are honest about your situation. Attorney Wynn will know exactly how to handle your specific situation.
5. Not Listing All Creditors. When you don’t list all of your creditors on your bankruptcy petition, it only hurts you. Not listing a creditor could lead to you needing to pay the debt back without a discharge.
6. Reaffirming Loans You Cannot Afford. It is understandable that you may want to salvage a relationship you have with a particular bank or mortgage lender. However, it is not advisable to reaffirm any loans or mortgages that are not within your reasonable budget. It may come back to haunt you in the end. Most people realize the excessive payments catch up with them quickly. You do not want to end up in the same boat, needing to file bankruptcy again, in just a few short years. Take the complete fresh start. Our Walworth County bankruptcy attorney, Shannon Wynn, highly recommends it.
Contact Our Walworth County Bankruptcy Attorney
Filing a Walworth County bankruptcy is a complicated legal process. One little mistake can dismiss your entire bankruptcy case. It is important to know what those mistakes are. To avoid any pitfalls, it is most beneficial to hire an experienced Walworth County bankruptcy attorney. Call Wynn at Law, LLC for a free bankruptcy consultation at 262-725-0175. Wynn at Law, LLC has bankruptcy offices located in Salem, Muskego, Delavan, and Lake Geneva, Wisconsin.
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A bankruptcy judge for the Eastern District of California sanctioned attorney Pauldeep Bains for filing a bankruptcy petition signed with digital signatures. (See In re Mayfield, Case #16-22134).
The attorney sent completed bankruptcy documents to the debtor to sign via a digital signature service called DocuSign. Bankruptcy judge Robert Bardwil imposed sanctions for violations of bankruptcy rule 9004-1(c)(1)C) & (D). Those rules state the following:
(C) The Use of “/s/ Name” or a Software Generated-Electronic Signature. The use of “/s/ Name” or a software-generated electronic signature on documents constitutes the registered user’s representation that an originally signed copy of the document exists and is in the registered user’s possession at the time of filing.
(D) Retention Requirements When “/s/ Name” or a Software-Generated Electronic Signature Is Used. When “/s/ Name” or a software-generated electronic signature is used in an electronically filed document to indicate the required signature(s) of persons other than that of the registered user, the registered user shall retain the originally signed document in paper form for no less than three (3) years following the closing of the case. On request of the Court, U.S. Trustee, U.S. Attorney, or other party, the registered user shall produce the originally signed document(s) for review. The failure to do so may result in the imposition of sanctions on the Court’s own motion, or upon motion of the case trustee, U.S. Trustee, U.S. Attorney, or other party.
Judge Bardwil ruled that digital signatures do not constitute “original signatures” and thus imposed sanctions.
The problem with this ruling is that the above rules do not specifically state that digital signatures are not valid “original signatures.” The court assumes this is obvious, but it is not, especially to a generation of lawyers who live in a digital universe. What we have here is a generational divide, or as one writer has said, a bifocal divide.
Counsel, as the registered user filing the documents, did not accurately represent that originally signed copies of the documents existed and were in his possession at the time of filing, as required by Rule 9004-1(c)(1)(C), and could not have produced and did not produce the originally signed documents for review when requested by the UST, as required by Rule 9004-1(c)(1)(D), because originally signed documents never existed.”
To the contrary, originally signed documents are created by use of digital signatures. The E-sign act specifically validates digital signatures. The State of California (as well as Nebraska) also have laws supporting digital signatures.
What becomes confusing for courts is that the E-sign act does not require courts to use digital signatures. The federal preemption that requires states to recognize and give legal effect to electronic signatures is not imposed on court pleadings. In other words, courts are free to establish rules to allow or banish the use of electronic signatures. What the E-sign act does not say, however, is that electronic signatures are invalid in all court proceedings. It is merely the mandatory federal preemption that does not apply to court pleadings. The courts have freedom to make their own policy on their use due to the sensitive nature of legal documents.
Judge Bardwil expresses grave concern that allowing digital signatures would open up a Pandora’s Box of document fraud because of “the ease with which a DocuSign affixation can be manipulated or forged.” He repeats the United States Trustee’s question: “What happens when a debtor denies signing a document and claims his spouse, child, or roommate had access to his computer and could have clicked on the “Sign Here” button?”
And therein lies the grave worry of the Judge. Somebody my click the “Sign Here” button by accident or with fraudulent intent. Why, anybody could click a button. That’s too easy! It’s not formal enough. It’s the end of civilization as we know it!
Hang on there, Judge. Doesn’t this problem already exist? If I mail a paper copy of a bankruptcy pleading to a client, isn’t there a risk that a spouse, child or evil roommate would have access to the mailbox and then–faster than you can power up a computer–forge a signature and drop it in the return envelope? Gosh, should we outlaw the mailing of bankruptcy documents for fear of the evil roommate? Should we require every page of a bankruptcy document to be signed and notarized at the courthouse? I’m just saying, the whole thing is wide open for fraud Judge, and we need to stop these Millennial lawyers from mucking up the integrity of the institution!
Of course, we could consider some of the key advantages of digital signatures and the very long process of getting to the point of even signing a bankruptcy document in any format.
Bankruptcy petitions are not filed 2 minutes after having an online chat with prospective client. This is an involved process with many steps.
- Initial consultations with a client in person or over the phone or through emails occur.
- Alternative courses of action are generally outlined.
- Debtors must take a Credit Counseling class and obtain a certificate before any bankruptcy may be filed.
- Written retainer agreements between the attorney and client must be signed and fees must be paid in full before any work is prepared.
- Investigations of assets, income and debts are prepared.
- Income averages for the past 6 months are prepared. Debtors must send their attorneys bank statements, paycheck stubs, credit reports, tax returns, collection letters, lawsuits and other documents before a bankruptcy petition can even be drafted.
- Multiple phone calls and emails are exchanged during this process to create property lists and creditor lists and statements of income and expenses.
- A written court notice is mailed to debtors immediately after a case is filed to inform them of the case number and court date.
- Following the filing of a case the debtor actually attends a court hearing and testifies that they actually signed the bankruptcy documents.
What happens when a debtor denies signing a document and claims his spouse, child, or roommate had access to his computer and could have clicked on the “Sign Here” button? Filing bankruptcy is not as simple clicking on a “Sign Here” button. IT’S A PROCESS. A long process that takes days, weeks, months and sometimes years to complete. The fear of debtors clicking “Sign Here” buttons recklessly is irrational. This is a long, difficult and considered process. Whether a document, after all this process is completed, is signed on sheep skin in blood or on 50% cotton fiber paper in blue ink or digitally is trivial. This fear of older jurists is unjustified.
Here is why truly concerned jurists should support digital signatures in bankruptcy cases.
- Debtors receive a written notice mailed to them days after the case is filed. If a signature is forged, this is their first clue to the debtor.
- Debtors attend court hearings within 30 days of filing the case and testify that they actually signed the documents.
- Digitally signed documents cannot be altered after they are signed, unlike paper documents with one or two signature pages buried within an 80-page document. The truth is, bankruptcy attorneys routinely make material changes to signed documents without getting updated signatures from their clients. They just print out new pages and stick them underneath the signed declaration page. That, my dear Judge, is the true fraud issue in bankruptcy documents. Digitally signed documents, however, are encrypted and they display alerts if the contents are altered. Can your paper pleadings do that?
- Audit Trails. Digitally signed documents provide “audit trails” showing where the documents were emailed and the IP address of the sender and receiver.
- Immediate Copies to Debtors. Many bankruptcy attorneys fail to provide their clients with copies of what they sign, especially attorneys who know in advance that they will alter the signed documents. Digitally signed documents, however, are immediately distributed to all signing parties and the debtors have evidence of exactly what they signed.
- Third Party Verification. Digitally signed documents have a third party (DocuSign, for example) that can verify what was signed and who signed the document.
- Updated pleadings can be signed fast. Yes, the key advantage of digital signatures is that they make it easy to get updated signatures in a matter of minutes. That is actually a good thing. Bankruptcy attorneys often discover errors in the originally signed pleadings, and making it easier to get corrections signed actually improves the integrity of bankruptcy documents.
Protecting the integrity of court documents. Reducing fraud and forgery. Improving the accuracy of court documents. Ensuring debtors know what they are signing and that they receive copies of the signed documents. These are worth goals we can all agree on, whether we sign off with fountain pens or “Sign Here” buttons.
It is very true that a Chapter 7 bankruptcy case can be filed without having the full attorney fees paid up front. In fact, there are some attorneys that are willing to advance even the filing fees in certain circumstances. However, for a valid Chapter 7 bankruptcy case to be filed, there are certain documents+ Read More
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