Blogs

5 years 6 months ago

I'd like to share a paper that I wrote earlier this year for ABI's student writing competition.  It's about the lack of life tenure for Bankruptcy Judges.

Thirty Years Later: Revisiting Marathon and the Case for Allowing Bankruptcy Judges Life TenureJohn P. MorganCatholic University of America School of LawWashington, D.C.15morgan@cardinalmail.cua.edu
            On June 28, 1982, a divided United States Supreme Court decided the case of Northern Pipeline Construction Co. v. Marathon Pipe Line Co.,[1]immediately sending Bankruptcy Judges throughout the country into a panic over the future of their jobs.  The Marathon Court’s holding that the Bankruptcy Courts could not constitutionally be vested with the powers they received under the 1978 Bankruptcy Act because they were not Article III judges limited the power of bankruptcy judges, such that they could hear only “core proceedings” under the bankruptcy code resulted in a period of uncertainty over a number of issues including the jurisdiction of bankruptcy judges to hear cases and the ability of bankruptcy judges to preside over jury trials, some of which still have not received definitive answers to this day.             The concern of this paper, however, is the lack of Article III status for bankruptcy judges, which would result in those judges having life tenure, along with other benefits such as protection against salary reduction.  This paper argues that an overreaching opinion in the Marathon case, combined with political pressures bestowed upon Congress, has wrongfully deprived bankruptcy judges from reaching the status of Article III judges.  This result is unfortunate, given that giving bankruptcy judges Article III protection would be both more efficient for bankruptcy litigants, and more equitable for the bankruptcy judges themselves.  On the thirtieth anniversary of the Marathon case, it is worthwhile to take another look at its decision, as the lasting impact of its holding continues to affect the authority and power of bankruptcy judges today. The Marathon Case
            1978 marked significant changes in the law of Bankruptcy with Congress’ passage of the Bankruptcy Reform Act.[2]  This changed the prior system of Bankruptcy Jurisdiction that had previously existed in the United States, under which bankruptcy referees were entrusted with powers such as adjudicating legal disputes and confirming the appointment of a trustee.[3]  The new 1978 system, while declining to extend Article III status to bankruptcy judges,[4]established a system of expanded jurisdiction for bankruptcy jurisdiction where the bankruptcy courts were “adjuncts” to the district courts, and additionally gave the judges extended protections, including 14-year appointments by the President,[5] restrictions on removal under which the judges could be removed only for “incompetency, misconduct, neglect of duty, or physical or mental disability,”[6]and a salary, subject to adjustment under the Federal Salary Act of 1967.[7]  Additionally, under the 1978 Act bankruptcy judges had the broad powers “to hear and adjudicate all claims arising in or relating to bankruptcy cases.”[8]            These circumstances led to the issue in the Marathon case.  Northern Pipeline Construction Co. was a Chapter 11 debtor in the United States Bankruptcy Court for the District of Minnesota, and subsequently brought suit in that same court for breach of contract and breach of warranty against Marathon Pipe Line Co.[9]  In response, Marathon moved to dismiss the suit, arguing that the 1978 Bankruptcy Act conferred unconstitutional authority to bankruptcy judges which are reserved to Article III courts.[10]  The court denied this motion,[11]and the case was eventually appealed to the Supreme Court.             The Court held that the Bankruptcy Act of 1978 “carries the possibility of such an unwarranted encroachment” upon Article III’s principle of separation of powers, since a non-Article III “adjunct” such as the bankruptcy court cannot infringe upon the cases and controversies reserved to Article III courts.[12]  Additionally, the Court found that the jurisdiction given to bankruptcy judges under the 1978 Act infringed upon rights created by state law in breach of contract and misrepresentation.[13]  In short, the Court held that § 1471 of the 1978 Act, which granted broad jurisdiction to bankruptcy judges, “impermissibly removed most, if not all, of ‘the essential attributes of the judicial power’ from the Art. III district court, and has vested those attributes in a non-Art. III adjunct,”[14]and was accordingly struck down as unconstitutional.            Having decided that the jurisdiction granted to bankruptcy judges under the Act was unconstitutional, the Court next considered whether the holding “should be applied retroactively to the effective date of the Act.”[15]  The Court declined to apply it retroactively, reasoning that such application would incur hardship, and instead chose to have its holding take effect on October 4, 1982, in order to give Congress an opportunity to “to reconstitute the bankruptcy courts or to adopt other valid means of adjudication, without impairing the interim administration of the bankruptcy laws.”[16]  The result of this was an Emergency Model Local Rule taking effect for the next two years until Congress passed the Bankruptcy Amendments and Federal Judgeship Act (BAFJA) in 1984.[17]            Although Marathon holds that the system as established by Congress was unconstitutional, the Court nevertheless holds in dicta that it cannot “discern any persuasive reason, in logic, history, or the Constitution, why the bankruptcy courts here established lie beyond the reach of Art. III.”[18]  Thus, had Congress decided to go all the way with the protections afforded to bankruptcy judges and extended Article III  status to them, the Marathon  Court strongly suggests that such a decision would have been constitutionally valid.  Although “the functions of the adjunct must be limited in such a way that ‘the essential attributes’ of judicial power are retained in the Art. III court,”[19]that is not to say that the bankruptcy court itself could not be one of those Article III courts.             The main problem with the holding in Marathonis perhaps best explained by the dissent written by Justices White, joined by Chief Justice Burger and Justice Powell.  Justice White dissented from the plurality’s opinion on the basis that, among other reasons, “there is no basis for doing more than declaring the section unconstitutional as applied to the claim against Marathon, leaving the section otherwise intact.”[20]  Essentially, White’s charge is that the plurality failed to exercise constitutional restraint in rendering their opinion.  Beyond that, however, Justice White gave reasons for which he felt that the new system established by Congress in 1978 was not a significant departure from the bankruptcy procedure previously in place: he noted that bankruptcy referees could “adjudicate counterclaims against a creditor who files his claim against the estate,”[21]and that “under both the old and new Acts, initial determinations of state-law questions were to be made by non-Art. III judges, subject to review by Art. III judges,”[22]concluding that “there is very little reason to strike down § 1471 on its face on the ground that it extends, in a comparatively minimal way, the referee’s authority to deal with state-law questions.”[23]  In sum, then, Justice White believed that the Court’s plurality answered a question they were not called on to ask in Marathon, and further failed to see the Bankruptcy Act of 1978 in its accurate historical context.In subsequent years, the Court itself has narrowed the initially-broad holding of Marathon,[24]giving further weight of authority to these dissenting opinions.  Perhaps, then, Marathon represents the high watermark of the Court’s willingness to remove jurisdiction from bankruptcy judges, and Justice White’s dissenting opinion is more accurate of the way in which the Court would adjudicate an issue such as the one in Marathon today: with a greater degree of judicial restraint. Political Pressure
Justice White wrote in his Marathon dissent that “[b]ankruptcy matters are, for the most part, private adjudications of little political significance.”[25]  Unfortunately, Congress did not feel the same way.  Due to the fears that the current Republican Congress would have over the bankruptcy judges that President Obama would likely appoint to the courts, many of the political reasons that existed nearly thirty years ago to stop bankruptcy judges from receiving Article III status likely continue to exist today.  In 1978, Congress did discuss and consider giving bankruptcy judges life tenure, consistent with the privileges associated with Article III judges.  In fact, the bill that passed through the House of Representatives would have given bankruptcy judges life tenure.[26]  The Senate, however, did not accept this provision, and instead gave them a fixed term of fourteen years.[27]  The Senate apparently declined to give life tenure to bankruptcy judges, at least in part, due to then-Chief Justice Burger’s urging them not to, on the thought that an overload of Article III judges would diminish the prestige of the courts,[28]which is interesting givien the lengthy dissent he joined in Marathon, as well as the short dissent he wrote on his own.[29]  While such concerns comprise the official explanation as to why Congress declined to extend Article III status to bankruptcy judges, there is a plausible argument to be made that the refusal was made more as a result of political concerns.  Specifically, one suggestion is that “expansion of the federal judiciary occurs during political alignment because expansion offers the controlling party an opportunity to appoint judges who share its political views and to dilute the influence of the sitting judges who do not.”[30]  While a response to this argument is that it is unlikely that Congress is overly concerned over the political stances of bankruptcy judges,[31] it is worth noting that if bankruptcy judges were appointed Article III judges, they would once again have the broad grant of jurisdiction which they enjoyed pre-Marathon, and would also be appointed by the President for life terms to adjudicate such broad claims.  Having so many hundreds of judges appointed by a single President at one point in time would be a frightening proposition for any Congress in opposition to the sitting President’s political party. In addition to refusing to give bankruptcy judges Article III status in the original Bankruptcy Act of 1978, Congress once again decided not to make bankruptcy judges Article III judges when it had another chance to in 1984.  At this point, it passed the Bankruptcy Amendments and Federal Judgeship Act (BAFJA) of 1984, the time at which the Emergency Model Local Rule expired.[32]  As a result of BAFJA, although bankruptcy judges are still appointed for fourteen-year terms, they are now appointed by the United States Courts of Appeals, rather than the President.[33]  Rather than allowing bankruptcy judges Article III status under the Constitution, Congress decided to term bankruptcy judges as non-Article III “units” of the district court.[34]  Under the 1984 system, when district courts received bankruptcy cases, they would refer the cases to their adjuncts in the local bankruptcy court.  Additionally, BAFJA kept the bankruptcy court’s broad jurisdiction of matters “related to” a bankruptcy case, although the bankruptcy judge’s adjudication of a matter related to, but not a “core proceeding,” has limited precedential value in the federal court system.[35]  Interestingly, although it took only four years for the constitutionality of the Bankruptcy Reform Act of 1978 to reach the United States Supreme Court, the constitutionality of the BAFJA still has not reached the high court to this day, twenty-eight years later. Should Bankruptcy Judges Have Life Tenure?Giving Article III status to bankruptcy courts would be both practical and efficient.  A cogent explanation for the reasons why bankruptcy judges should be reclassified under Article III can be found in a 1997 report by the National Bankruptcy Review Commission.[36]  Two of the main purposes for which the report advocates are to make the system “more efficient and [to] reduce its costs.”[37]  The current jumbled system for bankruptcy adjudication has several characteristics which are well-described as inefficient, such as the determinations which must be made about whether a case is a “core” or “noncore” proceeding, and the referral from the district court to the bankruptcy courts in appropriate cases. Recharacterizing bankruptcy courts as Article III courts would allow such proceedings to move directly to the bankruptcy courts, rather than having to be referred by the district courts, since, as Article III courts themselves, they would not need to be put through that filter, nor would they have to spend time determining which cases are and are not core proceedings. The substantial costs and labors of these processes would also be eliminated, a characteristic the system should strive for in a less-than-ideal economy where bankruptcy filings are relatively common.  That time and expense would better be served by solving the merits of bankruptcy cases, but, unfortunately, Congress has yet to give any signs that it is considering such a move. The Federal Constitutional specifically mentions that the Congress has the power to “establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States.”[38]  Bankruptcy law, thus, is an enumerated power of federal law, meant to be uniform throughout the country, which the states may not legislate upon.  With that being the case, it makes more sense for these judges of federal law to have the same benefits as do the district court judges, for whom the bankruptcy judges serve as adjuncts. Further, among the Article I courts, bankruptcy courts are geographically unique.  Other Article I courts are largely territorial.  Several of them, including the United States Court of Federal Claims,[39]and the United States Tax Court,[40]are located in Washington, D.C. exclusively, and adjudicate matters of federal law.  Other Article I legislative courts have been created for federal territories to adjudicate matters that would otherwise take place in state courts, including the courts in Guam, the Northern Mariana Islands, the Virgin Islands, and the District of Columbia.[41]  Thus, bankruptcy courts are unusual in their geographic disbursement throughout the country; although federal magistrates, too, fall under the category of Article I judges,[42]  they do not fuse together to form their own court.  For this reason, with their condition of being dispersed throughout the United States as a “unit” to each of the district courts, the federal courts that are, at least geographically speaking, the most similar to the bankruptcy courts, it would be equitable to give these bankruptcy judges the same status and benefits for their counterparts in the district courts. One argument against giving bankruptcy judges Article III status is to preserve the prestige of the Article III federal courts.  Essentially, the thought is that in order to maintain esteem on the federal bench, the raw number of judges who hold the distinction of Article III judges should be kept low, in order to keep the positions competitive, attracting the best candidates.[43]  This argument fails for a number of reasons.  First, it presumes that bankruptcy judges, individuals who also hear claims under federal law, are for some reason inferior to United States district court judges.  Constitutionally speaking, both the district courts and the bankruptcy courts are “inferior” courts to the Supreme Court;[44]there is no reason to believe that the bankruptcy courts are similarly inferior to the district courts.  Rather, many current bankruptcy judges (as well as litigants) would likely find offense to such a notion, considering the frequency of bankruptcy claims, as well as the fact that bankruptcy law is also federal law. Another argument put forward against giving bankruptcy judges Article III status is that their position does not require it in order to achieve judicial independence.[45]  The thought is that since bankruptcy judges are appointed by other federal judges, as opposed to the President, the appointments and reappointments of judges to the bankruptcy courts are less likely to be made with political considerations, and, instead, are more likely to result in judges who are appointed because of their higher qualifications.[46]  There is, however, a valid counterargument to these points.  Rather, judges who are in the position of being appointed for a certain period of time, and then have the possibility of later being reappointed, are more likely to act in a partisan manner which would more safely assure their reappointments.  Although the appellate judges who choose such appointments concededly may be less likely to let such political factors influence their decisions than the President or the electorate,[47]this by no means establishes that the bankruptcy judges will not act in ways simply to enhance their chances of being reappointed by the appellate judges, even if they are mistaken in their beliefs. Conclusion
While Marathon is clear that bankruptcy judges may not adjudicate certain issues because they lack Article III status, the solution to this problem is relatively simple: Congress should use its constitutional authority to make bankruptcy courts “inferior Courts” under Article III of the Constitution.  Although bankruptcy judges in the United States enjoy a position in the federal court system that is structurally more similar to the U.S. District Court than any other, bankruptcy judges have been denied life tenure and other benefits seemingly for political, rather than legal, reasons.  Although Congress declined to extend Article III status to bankruptcy judges in either 1978 or 1984, the current Congress should nonetheless retreat from its prior choice and extend the protections to bankruptcy judges.  Though the bankruptcy courts are currently characterized as “units” of the District Courts, this is not to imply that they are inferior to their counterparts.  To the contrary, the fact that they are so-called “units” of the District Court, as well as the fact that the bankruptcy judges are appointed by Article III judges themselves in the Federal Court of Appeals judges, shows that the position of the bankruptcy courts is more analogous to Article III courts than to Article I courts, with the obvious exception to that being the lack of Article III protections for bankruptcy judges.  Unfortunately, due to the overbreadth of the plurality opinion in Marathon, as well as the political fear of the President’s choosing bankruptcy judges who fail to satisfy Congress, bankruptcy judges are unlikely to be granted Article III protection at any time in the near future, despite the efficiency and equitable results which would occur if Congress decided to do so.  In the end, the issue is not whether bankruptcy judges may become Article III judges; the Supreme Court has said relatively clearly than they can.  However, it appears that the Supreme Court’s decision in Marathon is that Congress should pick one: bankruptcy judges fall under the category of either Article I judges or Article III judges, and some sort of hybrid status between the two, such as that found in the Bankruptcy Reform Act of 1978, is unconstitutional.  Regardless of whether or not the Supreme Court was right to answer the questions that it did with the facts before it in Marathon, it has left Congress to decide what to make of the bankruptcy judges. Unfortunately, based on its declining to give Article III status in both 1978 and 1984, and with no indications of a change in stance, the current, relatively inefficient system appears to be in place for the foreseeable future.
[1]458 U.S. 50 (1982).  The Court failed to reach a majority opinion, and instead issued a plurality opinion authored by Justice Brennan, joined by Justices Marshall, Blackmun, and Stevens. [2]Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549 (1978)(repealed 1984). [3]Troy A. McKenzie, Judicial Independence, Autonomy, and the Bankruptcy Courts, 62 Stan. L. Rev. 747, 758 (2010). [4]Charles J. Tabb & Ralph Brubaker, Bankruptcy Law Principles, Policies, and Practice 757 (3rd ed. 2010). [5]Erwin Chemerinsky, Federal Jurisdiction 244 (4th ed. 2003).  .
[6]Id.  This standard is much narrower than Article III’s allowing judges to stay in offices “during good Behavior.” See U.S. Const. art. III, § 1. [7]Id. [8]Charles S. Custer, Bankruptcy Judges: Article III Beckons, 16 Pac. L.J. 957, 957 (1985). [9]Marathon, 458 U.S. at 56. [10]Id. at 56-57. [11]Id. [12]Id. at 84. [13]Id. [14]Id. at 87. [15]Marathon, 458 U.S. at 87. [16]Id. at 88. [17]Tabb & Brubaker, supra note 4, at758. [18]Marathon, 458 U.S. at 76. [19]Id. at 81. [20]Id. at 95. (White, J., dissenting). [21]Id. at 99. [22]Id. at 100. [23]Id. [24]Susan Block-Leib, The Costs of a Non-Article III Bankruptcy Court System, 72 Am. Bankr. L. J. 529, 530 (1998).  For a case that gives an example of this, see generally Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568 (1985). [25]Marathon, 458 U.S. at 116. [26]Chemerinsky, supra note 5, at 244. [27]Id. [28]Id. [29]This divergence can best be reconciled as positing that while Chief Justice Burger did not believe that bankruptcy judges need Article III status, they could adjudicate with the same authority while remaining Article I judges.   [30]Eric A. Posner, The Political Economy of the Bankruptcy Reform Act of 1978, 96 Mich. L. Rev. 47, 87 (1997). [31]Id.  This is the position that the author of the referenced Article, Professor Posner, takes. [32]Tabb & Brubaker, supra note 4, at 758. [33]Chemerinsky, supra note 5, at 249. [34]Tabb & Brubaker, supra note 4, at 758-759. [35]Tabb & Brubaker, supra note 4, at 759.  Such decisions are restricted to submissions of proposed findings of fact and conclusions of law, unless the parties consent otherwise.  Similarly, this standard of both parties consenting to it is the standard used for determining whether bankruptcy judges can hear jury trials, along with the additional requirement that the bankruptcy judge has been “specially designated” by the district judge.  See 11 U.S.C.A. 157(e). [36]National Bankruptcy Commission, Bankruptcy: The Next Twenty Years (1997). http://govinfo.library.unt.edu/nbrc/report/01title.html.  [37]Id.  See Section: Preface. [38]U.S. Const. art. I, § 8. [39]United States Court of Federal Claims, http://www.uscfc.uscourts.gov/ (last visited Mar. 1, 2012). [40]United States Tax Court, http://www.ustaxcourt.gov/taxpayer_info_start.htm (last visited Mar. 1, 2012). [41]Chemerinsky, supra note 5, at 29. [42]Id. at 30. [43]For a fuller discussion of this argument, seeAnthony Michael Sabino, Jury Trials, Bankruptcy Judges, and Article III: The Constitutional Crisis of the Bankruptcy Court, 21 Seton Hall L. Rev.258, 330-331 (1990).  This article also discusses how at that time, twenty-two years ago, it was all the more important for bankruptcy judges to have Article III status because of the economy at the time, and that more entities would be seeking protection under the bankruptcy laws as a result.  This point is even more exacerbated today with the dramatic increase in the number of bankruptcy filings since that point in time. [44]U.S. Const. art. III, § 1, supra note 6.               [45]For a complete discussion of this argument, see generally Thomas A. Plank, Why Bankruptcy Judges Need Not and Should Not be Article III Judges, 72 Am. Bankr. L.J. 567 (1998). [46]Id. at 623-624. [47]Id. at 622-623. 


4 years 10 months ago

RC Willey is a very common creditor of bankruptcy filers. However, RC Willey is not your common unsecured creditor. Rather, RC Willey is a secured creditor, like the lien holder on your car or home. As a secured creditor, RC Willey has the right to repossess the collateral (the items you purchased) if you stop making payments, even if you have filed bankruptcy. RC Willey is often the only creditor to show up to the 341 meeting of creditors with the bankruptcy trustee. RC Willey likes to send a representative to the meeting to ask the debtor if he/she wants to reaffirm the debt and keep the items, or arrange for a time to surrender the items. These representatives are usually quite nice, and aren't there to badger you, but rather to present options to you. Often, if the items were purchased a long time ago, you have the option to pay a lesser amount then the contract amount.  Your attorney will help you decide which options is the best for you.

Adam Brown is a bankruptcy attorney for Dexter & Dexter, a debt relief agency helping people file for bankruptcy.


5 years 6 months ago

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Sometimes simpler is not better.  Sometimes cheaper is more expensive in the long run.  Those thoughts occurred to me after meeting with a new client regarding her financial problems.  The client, a 61-year-old single women earning $14 per hour, was struggling to pay $9,000 of credit cards.   Her income had declined after a change in jobs and there was simply not enough money left over to pay the credit cards after paying the mortgage, utilities, the car payment and a home equity loan she obtained to pay off previous credit card balances.
On the surface, this was an easy Chapter 7 case.  I say that because she was well below the Nebraska median income level of $40,429 and she had no unprotected assets.  To file Chapter 7 a person’s income  cannot be too high and they can protect only so many assets.  This client had no problems with either of these issues and I believe most attorneys would have recommended that she file Chapter 7 to alleviate the monthly credit card payments. 

this client did not belong in a Chapter 7 case and the cheapest attorney hired would probably be the most expensive choice in the long run

Some clients may have elected to file their own case based on these factors to save themselves the cost of hiring an attorney, and since this is an easy Chapter 7 the only real difference in the attorney chosen would be the price they would charge.  The only problem with this view is that this client did not belong in a Chapter 7 case and the cheapest attorney hired would probably be the most expensive choice in the long run.
My recommendation is that the client file Chapter 13.  I make this recommendation based on the following facts:
Chapter 13 Lien Stripping: The client owned a home worth $86,000 that was subject to a mortgage loan of $96,000 and a Home Equity Line of Credit (i.e., a second mortgage) of $8,500.  By filing Chapter 13 the client would be able to strip the home equity loan.  Lien Stripping is a procedure to discharge and remove a second mortgage through the bankruptcy process, and that option is not available in Chapter 7.  So, filing Chapter 13 removes an additional $8,500 debt.
Chapter 13 Cramdown: The client owed $18,000 for a truck purchased in 2007, and the value of the truck today was only $12,000.  Chapter 13 allows a debtor to pay only what the vehicle is worth today if the vehicle was purchased more than 910 days (about 2.5 years) prior to the bankruptcy.  In addition, Chapter 13 allows a debtor to pay a lower interest rate on the vehicle loan of 5.25%.  In this case, the monthly bankruptcy payment would be less than what the client was currently paying on the truck loan each month.
As you can see, Chapter 13 saves the client an additional $8,500 on the home equity loan and $6,000 on the vehicle loan plus all the associated interest savings.  Although Chapter 7 is faster (cases are completed in about 90 days) and cheaper in the short run, a 3 to 5 year Chapter 13 is clearly the better option in this case.  Sometimes simpler is not better.  Sometimes cheaper is more expensive in the long run. 


5 years 6 months ago

Living from paycheck to paycheck?  Had a major expense recently but not enough funds to cover it?  Are you frequently overdrawn at the bank?  Being desperate for cash can turn you into a victim.  Here are three things to do to avoid letting desperation keep you broke.
 
EVEN IF YOU ARE DESPERATE DON’T GET PAYDAY LOANS
Deferred presentment agreements, or as we all know them, payday loans, have become the modern day loan sharks.  Typically, the agreement requires you to write a check to the business to hold and, in exchange, the company loans you amount of the check for a short time then they deposit the check to pay themselves back for the loan. The problem is, if you have to renew the loans, the company will charge you an astronomical interest rate just for holding your check.  Recently, I saw a contract from a local Montgomery, Alabama payday lender that charged the customer 425.83% interest!  The customer signed the contract because he was desperate for the money to pay his power bill.  Remember, desperation is never a good reason to sign a contract.
 
SIT ON THE FLOOR TO AVOID RENT-TO-OWN CONTRACTS
Ok, let’s say you need a sofa but you don’t have the $600 to buy one from the quality furniture store.  Then let’s say someone told you they had a couch that was not made well but they will let you rent it for a year for $200 a month.  If we do a little simple math, we can see that in three months’ time, you have paid enough for the low quality sofa to have purchased the new sofa outright.
That’s not the worst part, however.  You are still stuck with the sofa you are renting for another year.  Would you rather pay $2400 for a low quality sofa or $600 for a high quality sofa?  Save the money you would pay the rent-to-own company and sit on the floor until you have the money to purchase a good sofa for cash.
 
MAKE SMALL CHOICES TO SAVE BIG MONEY
The number one way to avoid predatory lenders is to not be desperate for money in the first place.  Desperation is expensive.  When you don’t have savings to fall back on, your desperation can cause you to enter into some really abusive contracts.  Don’t let it happen.  If you have even a small nest egg, you can avoid being a victim of your desperation.  Start now to cut back on those things you don’t really need and put the money you save in a savings account. Here is an example.
Recently, my husband and I made the decision to cancel cable and keep the internet.  We invested in a $30 Leaf HD antenna for our local Montgomery news and weather (in HD, no less!) and use Netflix for movies.  In a year’s time we will be saving $840.  If you had that much in savings, chances are you would never have to go to a predatory lender.
 
 
 


5 years 6 months ago

Living from paycheck to paycheck?  Had a major expense recently but not enough funds to cover it?  Are you frequently overdrawn at the bank?  Being desperate for cash can turn you into a victim.  Here are three things to do to avoid letting desperation keep you broke.
 
EVEN IF YOU ARE DESPERATE DON’T GET PAYDAY LOANS
Deferred presentment agreements, or as we all know them, payday loans, have become the modern day loan sharks.  Typically, the agreement requires you to write a check to the business to hold and, in exchange, the company loans you amount of the check for a short time then they deposit the check to pay themselves back for the loan. The problem is, if you have to renew the loans, the company will charge you an astronomical interest rate just for holding your check.  Recently, I saw a contract from a local Montgomery, Alabama payday lender that charged the customer 425.83% interest!  The customer signed the contract because he was desperate for the money to pay his power bill.  Remember, desperation is never a good reason to sign a contract.
 
SIT ON THE FLOOR TO AVOID RENT-TO-OWN CONTRACTS
Ok, let’s say you need a sofa but you don’t have the $600 to buy one from the quality furniture store.  Then let’s say someone told you they had a couch that was not made well but they will let you rent it for a year for $200 a month.  If we do a little simple math, we can see that in three months’ time, you have paid enough for the low quality sofa to have purchased the new sofa outright.
That’s not the worst part, however.  You are still stuck with the sofa you are renting for another year.  Would you rather pay $2400 for a low quality sofa or $600 for a high quality sofa?  Save the money you would pay the rent-to-own company and sit on the floor until you have the money to purchase a good sofa for cash.
 
MAKE SMALL CHOICES TO SAVE BIG MONEY
The number one way to avoid predatory lenders is to not be desperate for money in the first place.  Desperation is expensive.  When you don’t have savings to fall back on, your desperation can cause you to enter into some really abusive contracts.  Don’t let it happen.  If you have even a small nest egg, you can avoid being a victim of your desperation.  Start now to cut back on those things you don’t really need and put the money you save in a savings account. Here is an example.
Recently, my husband and I made the decision to cancel cable and keep the internet.  We invested in a $30 Leaf HD antenna for our local Montgomery news and weather (in HD, no less!) and use Netflix for movies.  In a year’s time we will be saving $840.  If you had that much in savings, chances are you would never have to go to a predatory lender.
 
 
 


5 years 6 months ago

What Happens in a Chapter 7?
Clients often ask me what happens if they get a big raise or a start a business that does really well after filing a  Chapter 7 in Atlanta. Chapter 7 bankruptcy is literally a snap-shot in time of your finances at the time of the filing of your petition. The purpose of bankruptcy is to give you a new lease on life – a fresh start on your finances free from bill problems in the future. The Supreme Court has stated this as recently as 2007:  “The principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest but unfortunate debtor.”
What this essentially means is that whatever money or property you obtain after bankruptcy belongs to you.  When you file, a bankruptcy estate is created, and all property of the Debtor on the date of filing  becomes property of the estate to be administered by the Chapter 7 trustee.  Most cases are called “no-asset” cases, meaning that the debtor is able to exempt under Georgia law all property of any value from the reach of the Chapter 7 trustee.  This means that any weddings rings, musical instruments, household goods, clothes, etc. will be safe from liquidation.
What Happens in a Chapter 13?
A Chapter 13 bankruptcy is often called a wage-earners’ bankruptcy. This is because you will propose a payment plan to be approved by the court in which an amount equal to your disposable income will be deducted from your pay check each month.  While the confirmation of a plan is binding on all parties (debtor and creditors included), if you receive a large raise, win the lottery, or receive some other windfall, such as a large inheritance, the Chapter 13 trustee could request that your payments be increased to match your new disposable income.  Unfortunately, this is why is does not necessarily pay to work hard during a Chapter 13 plan. You may not get to enjoy the fruits of your labor, though often times the Chapter 13 trustee will not move the court to increase plan payments unless the change in income is substantial.


4 years 10 months ago

You need an attorney and you have scheduled initial consultations with multiple attorneys. What questions should you ask him/her to find out which attorney to choose?  I recommend the following:

  • What do your clients like most about you?
    • This question allows the attorney to highlight his strengths. By asking what his clients think of him rather than what he thinks of himself, he is more likely to answer candidly.
  • Do you prefer email or phone calls?
    • Often this is a generational matter. But, too many clients who won't do email are frustrated when their attorney won't quickly return calls, and vice a versa. It is important to know how you like to communicate, and make sure your attorney is a match.
  • How fast should I expect responses from you?
    • The number one bar complaint for attorneys is the failure to respond to clients' requests for information. Sometimes the complaints are valid, and sometimes the clients have unreasonable expectations. Find out before hiring an attorney what you can expect in terms of communication, and whether you are okay with his/her approach.   
  • Will I be able to find someone else who can do it cheaper?
    • I like this question because it can elicit a number of different responses.  Some attorneys will bristle, and I think that is a telling response.  Other attorneys will say "you get what you pay for," which is kind of a cop-out.  Look for honest answers since you want an attorney who will be honest with you and tell it like it is.  And if the honest answer is that the attorney firmly believes you can't find it cheaper anywhere else, then you probably found a cheap attorney in more sense than one. 

    Adam Brown is a bankruptcy attorney for Dexter & Dexter, a debt relief agency helping people file for bankruptcy.


    5 years 6 months ago

    This is a little bit more advanced than the usual topic, but I had a client come in who put her personal residence in a qualified personal residence trust.  Unfortunately, she got behind on her second mortgage, and the house had a moderate amount of equity in it; therefore, the second mortgage holder had no problem filing a foreclosure action against her.
    She paid me a visit in hopes of filing a Chapter 13 because she’s heard it can halt the foreclosure process. This is true: for property of the Debtor.  When she transferred her residence years ago into a qualified personal residence trust in an attempt to shield herself from personal liability, she also took away the biggest weapon she had against a home foreclosure.  You see, when you file bankruptcy, a statutory beast called the automatic stay creates a literal “stay” against all creditor collection activity against property owned by the Debtor or the bankruptcy estate. In this situation, the woman did not own the property; the QPRT did! As a result, even if she filed bankruptcy, the automatic stay would not have prevented the second mortgage lender from foreclosing on her residence since she did not technically own the residence.  And for those of you who think a possessory interest (having mere possession of the property) is enough, it probably is not.
    Her only recourse was to try to work something out with the second mortgage lender outside of bankruptcy. While there are some very valid reasons to put your home into a QPRT, the benefits for most individuals with moderate net worths outweigh the con of no being able to protect the house in the event of a foreclosure.


    5 years 6 months ago

    Before some people actually make an appointment for a free consultation their lives arecan't pay credit card bills, overwhelmed with debt, so stressful.  Finances - especially large amounts of debt often force people to make decisions that they know instinctively are wrong, but they make them because of fear and desperation.   Most people juggle their finances robbing Peter to pay Paul for as long as they can.  At some point you  face the inevitable, your financial life is in chaos and has become totally unmanageable. 
    Now you've defaulted on your credit cards one by one. Sometimes it's because of having to make tough choices; food on the table to feed your family or putting gas in the car so you can get to work or making a credit card payment. Too many tough decisions and then that awful day comes when a lawsuit arrives on your front doorstep.  Panic, dread, anxiety sets in and you don’t really know what to do.  Many people tend to stay in denial and ignore the lawsuit. Doing nothing allows creditors to take a judgment which could later allow them to garnish your wages. One way to stop this is, is by filing a Chapter 7 Bankruptcy. This is an exact situation where Chapter 7 would be a really good option.  Chapter 7, if you qualify, is a legal and logical way to handle a large amount of unsecured debt (i.e. credit cards, payday loans, medical bills). Many people fear this solution or even refuse to consider it because they are afraid of the damage it may cause to their credit.  The reality of it is if you have a high amount of credit card debt that you have defaulted on then, your credit score is more than likely already effected. Chapter 7 bankruptcy, in some cases, will actually cause your credit score to increase anywhere from 50 to 100 points within the first year.  Most clients are able to buy vehicles and even homes two years after filing if their income is sufficient. Chapter 7 bankruptcy can really give you the fresh start you dared to dream was possible.


    5 years 6 months ago

    Our San Jose Bankruptcy Attorneys Defend the Automatic StaySome creditors just don’t get it. They just keep calling and harassing you with demand letters even after you have filed bankruptcy. Sure, the Automatic Stay contained in Bankruptcy Code section 362 is supposed to prevent creditors from continuing with all such collection efforts, but whether due to reckless disregard for bankruptcy law, pure sloppiness, or stubborn willfulness, some creditors just keep right on calling. But that’s a violation of a federal court order, you say, indignantly!
    Yes, it is. But the Bankruptcy Court has no idea this is going on unless your bankruptcy attorney is willing and able to do something about it. Sadly, not all self-styled bankruptcy lawyers these days have much experience in what to do to defend and enforce the Automatic Stay for their clients. So, before hiring a bankruptcy attorney, you should ask him or her bluntly: What will you do if one of my creditors keeps up their collection efforts against me after we file bankruptcy?
    The bankruptcy attorney should have in place systems to deal with such violations of the Automatic Stay. Of course, he or she won’t know such violations are happening unless you inform your attorney about the calls, letters, or other creditor harassment. It’s critical that you help your bankruptcy lawyer to ensure that all of your creditors are listed in your bankruptcy petition as well so that they get notice from the court that you have filed. While we primarily rely on our clients’ credit reports to obtain the names, addresses, and account numbers of our clients’ creditors, the client must likewise supplement this information with any additional known creditors—such as third party collection agencies who may have only recently purchased a debt—by carefully reviewing the credit report that we pull for the client, and giving us such other statements, bills, and lawsuits that the client may possess before we file the bankruptcy petition.
    If he or she is to protect you from further creditor harassment in your bankruptcy, your attorney will also need you to keep logs of phone calls, including dates, times, and the phone numbers of those calling after you file bankruptcy. Any bill, statement, or demand letter you receive should also be promptly given to your attorney.
    Now, assuming that you help your bankruptcy attorney by ensuring a complete list of creditors appears in your petition, and by informing him of all violations of the Automatic Stay, your attorney should be ready to aggressively defend the Court’s order that such collections stop. She should be ready to review the known addresses of the creditor, immediately send out cease and desist letters to that creditor, inform the United States Trustee of such violations, and, if necessary, sue that creditor in Bankruptcy Court.
    The U.S. Trustee’s Office in San Jose does take action against creditors for egregious violations of the Automatic Stay, but here again, the US Trustee’s Office only knows about such violations to the extent that bankruptcy debtors and their attorneys inform them about them. After ensuring that the creditor has been warned not to continue with its harassment, we will always file an adversary proceeding against the creditor seeking injunctive relief against the creditor, monetary damages, attorneys’ fees, and sanctions for their contempt of the bankruptcy stay. Unless he or she is willing to follow through and enforce the Automatic Stay in this way, then you should find another bankruptcy attorney to file your case. Creditor violations of the stay are becoming more common, unfortunately, with some third party collection firms showing real contempt for the law and the Bankruptcy Court. Our San Jose bankruptcy attorneys take violations of the stay very seriously, and we have a long track record of recovering damages and settlements for our clients against big banks and credit card companies.


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