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Here at Shenwick & Associates, we play for both sides–both debtors and creditors.  One issue that both debtors and creditors are intensely concerned about is the “automatic stay” imposed by § 362 of the Bankruptcy Code.  The automatic stay is an injunction that tolls legal actions by creditors (with a few limited exceptions) against debtors.  The automatic stay takes effect when a bankruptcy petition is filed.

In many cases, debtors contact us prior to a court hearing or a foreclosure sale to invoke the protection of the automatic stay to stop these proceedings.  In the case of a debtor who’s a party to a collection action, once the bankruptcy petition is filed, the collection is stayed and barring a successful objection to the discharge of the debt, the debt will be discharged in bankruptcy (the exceptions to discharge are complex, vary from chapter to chapter and are beyond the scope of this article).  Although the automatic stay stops enforcement mechanisms in actions (such as debt collection and foreclosure sales) and the commencement or continuation of legal proceedings, it does not bar the ministerial act of entry of judgment against a debtor.

From the creditor’s perspective, the automatic stay serves to bar the creditor from exercising their rights and remedies under applicable non–bankruptcy law.  Fortunately, there are some strategies that creditors can use to obtain relief from the automatic stay.  If a debtor has a pending bankruptcy case and files a new case, a new filing will be presumptively considered to be in bad faith; the automatic stay in the new case will only last for 30 days, unless a request to continue the automatic stay is made by a party in interest and the debtor can demonstrate that the new case was filed in good faith.  And if a debtor has had two pending cases in the past year, the third filing will not trigger the automatic stay without an order from the bankruptcy court.

However, the primary method for creditors to circumvent the automatic stay is by filing a motion for relief from the automatic stay pursuant to § 362(d) of the Bankruptcy Code, which provides that:

On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—for cause, including the lack of adequate protection of an interest in property of such party in interest; with respect to a stay of an act against property under subsection (a) of this section, if—the debtor does not have an equity in such property; and such property is not necessary to an effective reorganization; 

“Adequate protection” is discussed in § 361 of the Bankruptcy Code, and is required to protect secured creditors from a decrease in the value of their collateral between a bankruptcy filing and confirmation of a plan.  Section 361 lists several examples of adequate protection, including single or periodic cash payments.

 Although § 362(d)(1) specifically references adequate protection, that’s only one example of “cause,” which can also include the filing of a Chapter 13 plan in bad faith or the Debtor’s failure to make post–petition payments on the secured claim.
With respect to § 362(d)(2), the Supreme Court has held that once a party moving for relief from the automatic stay establishes that a debtor has no equity in a property, it’s the burden of the debtor to establish that the collateral at issue is necessary to an effective reorganization.  Section 362(g) places the burden of proof regarding the Debtor’s equity in property on the party moving for relief from the automatic stay, but the burden of proof on all other issues is on the party opposing relief.

Whether you’re a debtor or a creditor, please contact Shenwick & Associates to discuss how the automatic stay in bankruptcy will affect your rights.

When Chapter 13 Makes Sense There are certain circumstances where chapter 13 makes perfect sense even though there may not be a lot of debt being repaid. A perfect example of this would be if a person’s driver’s license is suspended due to failure to pay parking tickets to the City of Chicago. Let’s say+ Read More
The post Chapter 13 Filing With Limited Debts appeared first on David M. Siegel.

Working with clients who fall into debt traps has made me cautious about using credit cards. That’s an understatement. I’m paranoid when it comes to debt. I pay off all personal and business credit card debts in full and never carry a balance.  In fact, I pay the accounts weekly so I don’t carry a balance on my credit report.  (That actually helps boost a credit score.)
So, I was surprised when the folks at the Debt Reduction Center sent me this advertisement letter.

How this company estimated that I might owe $25,000 of creditor balances is beyond me, but I’m sure it has something to do with what I could owe if I decided to maximize my lines of credit. However, as I said before, I don’t carry a balance and I never pay late, so it was surprising to get the letter.
I can only assume that everyone in America with a credit card is getting these letters, whether or not they are experiencing debt problems.
But even if I was $25,000 in credit card debt, is it really true that I could settle my way out of the problem for only $375 per month over 36 months?  Gosh, that seems hard to believe.  To pay off $25,000 of credit card debt with an average interest rate of 19% would require a $916 payment over 37 months.  I can see where many folks would find this offer attractive.
Will this settlement plan actually work?  Can you settle $25,000 of debt for $375 per month over 36 months?  In my professional opinion, not a chance!
WHY SETTLEMENT PLANS ALMOST NEVER WORK

• You don’t have 36 months to settle debts.  These programs require that you stop paying the credit card account and start paying into their settlement escrow account. After 6 to 12 months of no payments, banks file collection lawsuits or they sell the accounts to aggressive junk debt buyers.
• Settlement Fees:  Debt settlement companies typically charge a 15% to 20% settlement fee, so not only do you have to save up for the settlement but you need to save up to pay the settlement fees.
• Accruing Penalties & Fees:  While you are paying money into the debt settlement escrow account, interest and penalties are racking up on the debt.  So even if you settle the debt for 50 cents on the dollar, you are settling a higher account balance.
• Tax Consequenses:  When credit card companies settle debts they usually issue a 1099-C tax form to the IRS to report what you did not pay. That can result in additional income taxes you must pay.
• Garnishments:   When the banks obtain judgments they may garnish up to 25% of your paycheck.  That’s commonly when I meet new customers–when their paychecks get garnished and it becomes painfully obvious that the debt settlement program has failed.

 
SUCCESS RATE OF DEBT SETTLEMENT
You will never find a debt settlement company that publishes its success rate.   There is no standard for measuring success, no auditing of cases, no public records available to audit, and no public reporting requirement at all.  It is commonly believed that the success rate of debt settlement is below 10%.  Some have said the success rate is as low as 1%.
Jeff Meeks, a former Vice President of Recovery Operations for WaMu Card Services, had this to say about the debt settlement industry:

I have had numerous DSC’s admit they have no intention of settling debt and in fact it is counter productive to their purpose to do so; their main purpose being to enroll consumers, collect fees, and provide such poor customer service and results that most consumers drop from the program and thereby leave the DSC with thousands of dollars in unearned benefit.

The Federal Trade Commission has also written a great article warning consumers about the risks of debt settlement. An important FTC study showed that the success rate of debt settlement is less than 10%.
NEBRASKA DECEPTIVE TRADE ACT
The Nebraska Deceptive Trade Act states that a person engages in a deceptive trade practice when they make “false or misleading statements of fact concerning the reasons for, existence of, or amounts of price reductions.”  Neb. Rev. Stat. 87-302.
It is a also deceptive when a business “represents that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have.”
Debt settlement advertisements make false representations about price reductions.  They represent the ability to achieve results they clearly do not obtain.  The advertisements are misleading.  Representing that $25,000 of credit card debt can be settled for 36 monthly payments of $375 monthly is misleading.  Representing that these programs work when the success rate is less than 10% is misleading.
If you have been mislead by a debt settlement company about the success rate of their program you may have a claim for damages under the Nebraska Deceptive Trade Act, including a claim for attorney fees.
 

Jordan E. Bublick is a North Miami Bankruptcy Lawyer - North Miami - Aventura Office - (305) 891-4055

A short sale involves the mortgage lender agreeing to allow a homeowner to sell his real property for a price less than enough to payoff the mortgage in full. That is, the lender agrees to release its mortgage lien on the property for an amount less than a full pay-off so as to allow the sale of the real estate to proceed.  As the net proceeds of the sales price is less than the full amount due on the mortgage lien, the mortgage holder must agree to accept a "short" payoff in exchange for release of its mortgage lien.

Implications

Many homeowners facing foreclosure consider a "short sale", but have a difficult time understanding all of its implications. Some property owners that attempt to achieve a short sale are not successful in their efforts. Many seem to indicate frustration in the attempt to communicate with the mortgage lender(s) and/or actually complete a short sale. In addition, many lenders may be under contractual or regulatory restrictions that may not permit them to agree to a short sale.

Apparently the most difficult item in the short sale process is communicating with the lender and any second mortgage holder, such as the holder of a "home equity loan." In addition to the agreement of the first mortgage holder, the agreement of any junior mortgage holders must also be obtained. Outstanding judgments or tax liens may also be an issue as the buyer would need to receive clear title.

The process of obtaining a short sale usually takes several weeks to pursue and one needs to furnish substantial documentation, including personal financial information such as paycheck stubs, bank statements, 401(k) statements, and tax returns. One may also need to furnish information about a hardship.

Release from Liability
One of the most important issues in the short sale is whether the homeowner is actually released from liability for the "short" or unpaid amount. If the mortgage company and/or the second mortgage company do not release a person from liability for the unpaid portion, the benefit of a short sale to a homeowner may be questioned.

Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com