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The folks at Fox Business are at it again, dishing out inaccurate personal finance information about debt settlement and bankruptcy.
In a column published on October 10, 2013, Fox Business columnist Jan McNamara addressed the question of whether bankruptcy was preferable to debt settlement.
She begins with the stunningly misinformed blanket statement that, “bankruptcy will damage your credit more than settling your credit card debt. ”
Unfortunately, McNamara forgets a few things along the very short road to her conclusion.
Bankruptcy’s Impact On Your Credit Is Variable
If you’re current on your debt repayment then your credit score is likely pretty good. In this situation, filing for bankruptcy will involve a hit to your credit rating.
But if you’re already past due on your debts then your credit rating is probably in the proverbial toilet. The credit impact of a bankruptcy filing likely won’t be good big because you’re already looking at a poor score.
In other words, look at where you are to see the impact on where you’ll be.
Debt Settlement Stretches Out The Pain
You don’t wake up in the morning, settle your debts by lunch, and enjoy the rest of the day.
The process of debt settlement takes months at best, years at worse. No creditor is going to be willing to give you a good deal on a settlement unless you’re past due on your account, which means the negative credit implications of being past due will drag you down for quite some time.
On the flip side, filing for bankruptcy stops your creditors from reporting the debt as past due. The minute your case is filed, the reporting stops. Depending on the type of bankruptcy case, you could be done in as little as a few months.
Multiple Creditors Makes Debt Settlement Problematic
If you owe money to a single creditor, you can try debt settlement without much trouble. Offer x% as a settlement and either the creditor accepts or declines.
When you have multiple creditors, however, it gets trickier.
Maybe a few creditors settle. Maybe a few don’t. And maybe the ones that don’t settle decide to sue you, getting a judgment and making you reconsider filing for bankruptcy.
In the end, you’ve paid out a bunch of money to settle some debts and you still file for bankruptcy. It’s like getting the worst of both worlds.
Bankruptcy? Debt Settlement? It Depends.
It’s nice to be able to tie things up with a bow, but this situation is neither neat nor pretty.
You can’t know whether bankruptcy is better or worse than debt settlement unless you analyze the entire situation.
Sit down with someone who understands the pros and cons of each solution before deciding.
There has been a definite change in the attitude of bankruptcy courts are taking towards the discharge of student loans in bankruptcy. I am reading cases throughout the nation that indicate a greater willingness of the Courts to discharge these debts. A case affecting debtors in Nebraska with student loan debt underscore this recent change in judicial attitude.
In the matter of Conway vs. National Collegiate Trust, 495 B.R. 416 (8th Cir BAP 2013), the Bankruptcy Appellate Panel for the 8th Circuit ruled that a single person with no dependants who graduated college in 2005 with a Bachelor of Arts degree in media communications was eligible to discharge her student loan debts even though she suffered from no physical or mental issues. The debtor was never able to find work in her field of media communications and she had wage income that varied between $22,000 to $25,000 per year in the eight years since she graduated college. She was employed in two part-time jobs as a server at local restaurants at the time her bankruptcy was filed. The case involved $118,579.66 owed on 15 private student loans. The debtor also owed another $18,000 of federally-guaranteed student loans that were not a part of this proceeding.
In the Eighth Circuit (which includes Nebraska), the courts utilize a Totality of the Circumstances Test to determine if a student loan may be discharged.
Reviewing courts must consider the debtor’s past, present, and reasonably reliable future financial resources, the debtor’s reasonable and necessary living expense, and “any other relevant facts and circumstances.” The debtor has the burden of proving undue hardship by a preponderance of the evidence. The burden is rigorous. “Simply put, if the debtor’s reasonable future financial resources will sufficiently cover payment of the student loan debt—while still allowing for a minimal standard of living—then the debt should not be discharged. Long. v. Educ. Credit Mgmt. Corp, 322 F.3d 549,554-55 (8th Cir. 2003)
The remarkable facts of Conway case is that the debtor was single, relatively young with no dependants, healthy, college educated and had only been out of school for 8 years. The court refused to consider the argument that the debtor had the “possibility” of earning higher income in the future. The court focused on her real income history and concluded that it was unlikely to change in the future. With the better part of 30 working years left in her career, the court focused on the actual income history of the past 8 years rather than a speculative future income. This represents a real change in how courts are to review student loan discharges in Nebraska.
The second remarkable feature of the Conway case is the court’s requirement that the lower court review each of the 15 student loans separately and complete a loan-by-loan analysis to see which loans should be discharged. Although the 8th Circuit does not permit a “partial discharge” of a single student loan (See Andresen v. Nebraska Student Loan Program Inc., 232 B.R.127 (B.A.P. 8th Cir 1999), the Andresen decision actually requires that each separate loan be reviewed for discharge independently.
It appears that the courts are taking a more realistic approach to the student loan problem these days. Debtors with multiple student loans, especially private student loans that do not provide for Income-Based Repayment plans (IBRs), should consider their rights to discharge these debts in bankruptcy.
Jordan E. Bublick is a Miami Bankruptcy Lawyer with over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. Office: 1221 Brickell Ave., 9th Fl., Miami, Florida. Tel.: (305) 891-4055
In 2009, the 11th Circuit Court of Appeals issued its opinion in the case of In re Baker, ___ F.3rd ___, 2009 WL 4912122 (11th Cir. 2009) in which it held that the involved Keogh plan did not have to comply with ERISA in order to be exempt under § 222.21 (2)(a)(1), Florida Statutes. The Court held that the Florida exemption statute only required that the Keogh plan qualify under section 401 (a) of the Internal Revenue Code (the "IRC") and did not require the further compliance with the provisions of ERISA.
Section 222.21 (2)(a)(1), Florida Statutes generally provides for the exemption of assets payable to or an interest of an owner, participant, or beneficiary in a "fund or account" that is maintained in accordance with a plan that has been preapproved by the IRS as exempt from taxation under section 401 (a), et seq. of the IRC. Section 401 (a) of the IRC provides for the exemption from taxation of certain retirement plans maintained for the benefits of "employees", which includes "a self-employed individual."
The lower courts had held that the Keogh plan was not exempt on a contention that it was not maintained in accordance with the ERISA provisions (29 U.S.C. sections 1001-1461) in addition to having been "preapproved by the Internal Revenue Service" as required by § 222.21(2)(a)(1), Florida Statutes. The lower courts rejected the debtor's argument that § 222.21 (2)(a)(1), Florida Statutes only required the Keogh plan to qualify under section 401 (a) of the Internal Revenue Code and did not require the additional complaince with ERISA. The lower courts based their decision on the case of Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1, 124 S.Ct. 1330, 158 L.Ed.2d 40 (2004), which held that the sole shareholder and president of a professional corporation could qualify as a "participant" in an ERISA pension plan as long as the plan cover other employees other than himself or spouse.
The 11th Circuit Court of Appeals reversed the lower courts and held that § 222.21(2)(a)(1) only required the preapproval by the IRS under section 401(a) of the IRC and did not require the additional compliance with ERISA. The court stated that Fla. Stat. § 222.21(2)(b) specifically provides that for the fund to be exempt it need not necessarily be maintained in accordance with a "governing instrument that is covered by any part of [ERISA]...".Jordan E. Bublick is a Miami Personal Bankruptcy Lawyer with over 25 years of experience in filing chapter 13 and chapter 7 bankruptcies. Miami Personal Bankruptcy Lawyer Jordan E. Bublick has filed over 8,000 chapter 13 and chapter 7 cases.
Fast as lightning.
It used to be that filing for bankruptcy took a lot of time.
Your lawyer needed to make a bunch of copies of your bankruptcy documents, hop on the train or jump in the car, and be sure the court was open.
If the bankruptcy court was closed, maybe there was an emergency mail drop. Some places had them, others didn’t.
Thankfully, things move a lot faster now.
Bankruptcy Filings Are Done Online
All bankruptcy papers must be filed electronically over the Internet. The system is called CM/ECF (short for case management-electronic case filing) and is administered through the federal court system.
Using CM/ECF is pretty simple; in fact, most of the bankruptcy lawyers use software that handles the filing with the press of a single button on the computer.
Getting To Filing Is Another Story Entirely
In order to file your bankruptcy case, six things need to happen. They are:
- you’ve got to provide all documents your lawyers asks for;
- you’ve got to pay your legal fees;
- you must complete your pre-filing credit counseling certification;
- your bankruptcy lawyer has to draft the court documents using the information and documentation you provide;
- you need to sign the bankruptcy court papers; and
- the case must be filed electronically.
Of the list, the final step is clearly the easiest one – press a button and you’re in the system.
See Also:
It’s the first five that will probably take you some time to complete.
Preparation And Organization Are Critical
Most of my clients have a tough time getting their documents together. Bills have been ignored or filed away in some dark corner, paystubs are routinely thrown out, and tax returns mysteriously disappear.
Set aside the time to get your ducks in a row, ideally before we sit down to talk. If you just can’t face the prospect of unearthing all that information right now, be prepared to spend a full weekend or more once you’ve made the decision to move ahead with a bankruptcy filing.
Because the faster you do your part, the quicker we can do ours.
Photo courtesy of Just Us 3.
Bringing you the most up-to-date news, tips and blogs throughout the web. Here’s your Bankruptcy Update for October 29, 2013 Billions in Debt, Detroit Faces Millions in Bills for Bankruptcy Gov. Rick Snyder takes stand in Detroit bankruptcy trial Batista’s OGX ends bondholder talks as bankruptcy looms
Every year over one million consumers use bankruptcy as a way to help resolve their debt obligations. Bankruptcy is a unique financial process that includes court-supervision to help stop legal action such as lawsuits, wage garnishment, collections, foreclosure and repossession. While bankruptcy is a powerful tool, you may wonder if it is the best option [...]
Bankruptcy Lawyer - Chapter 13 Bankruptcy Lawyer Jordan E. Bublick has an office in Miami and has over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. His office is located in Miami at 1221 Brickell Ave., 9th Fl., Miami and may be reached at (305) 891-4055. www.bublicklaw.com
Florida statutes section 222.11 provides for certain exemptions of "disposable earnings" of a head of family and non-head of family in three different situations as follows:
- All of the disposable earnings of a head of a family of $500.00 or less a week are exempt.
- Disposable earnings of a head of family greater than $500.00 are exempt unless the person has agreed otherwise in writing (also cannot exceed 15 USC 1673)
- Disposable earnings of a person that is not a head of family is exempt to the extent of 15 USC 1673
The case of Brock v. Westport Recovery Corp., 832 So. 2d 209 (Fla. 4th DCA 2002), the court found that the judgment debtor’s income from his own family's corporate business did not constitute exempt “earnings” within the meaning of §222.11(1)(a), Florida Statutes (2001). The issue presented to the court was whether his income constituted “earnings” which the statute defines as including “compensation, paid or payable, in money of a sum certain, for personal services or labor whether denominated as wages, salary, commission, or bonus.” § 222.11 (1)(a), Florida Statutes (2001). The court stated that in order to determine whether monies derived from employment qualified as “earnings”, the “relevant inquiry is often whether a person’s employment is a salaried job or is in the nature of running a business.” Brock, 832 So. 2d at 210.
The court noted that the court in In re Manning, 163 B.R. 380 (Bankr. S.D. Fla. 1994) held that a debtor who owns or controls a business cannot exempt the funds he distributes to himself from the business simply by calling the money ‘wages.’” Id. at 382. In Manning, the debtor owned 100% of the stock in the corporation, he was the corporation’s president, he had no written employment contract, and he established his own salarly, commissions, and bonuses. The court held that the debtor’s income was not exempt “earnings” as the income constituted discretionary distributions from the family owned business. Although the debtor performed personal services, he did not receive regular compensation pursuant to the terms of an arms-length employment agreement. Id., See also In re Harrison, 216 B.R. 451, 454 (Bankr. S.D. Fla. 1997). The court also noted the case of In re Zamora, 187 B.R. 783 (Bankr. S.D. Fla. 1995) where the court concluded that an attorney’s compensation from his own law practice did not qualify as exempt “earnings” as the debtor’s activities were not essentially a job but were in the nature of running a business. Id. at 785.
The court held that the judgment debtor’s income did not constitute exempt "earnings". The debtor ran his own business, had control over the timing and the amount of his compensation, and did not have a formal employment agreement. The court noted that the legislature did not intend to exempt all funds a person “draws” from a business.
Although the judgment debtor’s income did not constitute exempt “earnings”, the court held that they were not reachable at least by a continuing writ of garnishment pursuant to §77.0305 as the income did not constitute a “salary” or “wages” as required by the statute. The court noted that “salary” or “wages” under §77.0305 falls within §222.11(1)(a)’s definition of “earnings”. A continuing writ of garnishment is not available to garnish draws, expense reimbursements, and capital account disbursement. See Cadle Co. v. G & G Assocs., 737 So. 2d 1136, 1140-41 (Fla. 4th DCA 1999).Jordan E. Bublick is a Miami Personal Bankruptcy Lawyer with over 25 years of experience in filing chapter 13 and chapter 7 bankruptcies. Miami Personal Bankruptcy Lawyer Jordan E. Bublick has filed over 8,000 chapter 13 and chapter 7 cases.
(305) 891-4055 - 25 Years of Experience, Over 8,000 Cases Filed - Free Initial Consultation - 1221 Brickell Ave., Miami, Florida - Chapter 13 and 7 Bankruptcy - Miami Bankruptcy Lawyer - www.bublicklaw.com
On February 10, 2010, the Bankruptcy Court for the Southern District of Florida issued its opinion in the case of Deborah C. Menotte, Trustee v. Oxyde Chemicals, Inc., __ B.R. ___, 2010 WL 554900 (Bkrtcy.S.D.Fla.). The case involved a attempt to avoid and recover an alleged preferential transfer and the creditor's alleged a defense of "ordinary course of business" or "new value." The transfer in issue was a check dated within 90 days before the filing for payment of an invoice dated a few months earlier.
Elements of Preference Avoidance
The Court noted that the U.S. Supreme Court has explained that the purpose for the trustee's power to avoid preferences is to "discourage creditors from 'racing to the courthouse to dismember the debtor during bankruptcy,' and to facilitate an equality of distribution among creditors. The Court reviewed that section 547 (b) sets forth five elements to allow an avoidance of a preference.
- Payment was to or for the benefit of a creditor
- On account of an antecedent debt
- Made while the debtor was insolvent
- Made within 90 days before the bankruptcy petition date (one year for insider)
- Effective in allowing the creditor to receive more than it would have received in a chapter 7 distribution
Ordinary Course of Business Defense
The Court found that the five elements of a preference were met and that the payment could avoided unless one of the exceptions set forth in section 547 (c) applied. The creditor argued that the section 547 (c)(2)(A) "ordinary course of business" exception applied. The elements of this exception are that the (i) debt was incurred in the ordinary course of business or financial affairs of the debtor and creditor and (ii) the payment was made in the ordinary course of business of the debtor and creditor. The trustee argued that this exception did not apply as the payment was made later than payments made during the pre-ninety day period and was made in response to unusual collection activity.
The Court cited the 11th Circuit case of In re Globe Mfg. Corp., 567 F.3d 1291 (11th Cir. 2009) and explained that the "ordinary course inquiry is subjective" and requires the court to consider whether the transfer was ordinary in relation to other business dealings between the creditor and debtor. It further stated that courts consider the following in making this determination:
- Prior course of dealings between the parties during the pre-preference period - Transactions during the pre-preference are examined to determine the parties' ordinary course of business and then transactions occurring during the preference period are compared to the parties' pre-preference transaction to determine if they were made in a similar manner. Although courts have various mathematical tools available to make these analyses, there is no single formula the court must use and most tend to use the "range of terms that define the transaction, rather than considering only averages." The payment need not be rigidly similar to each past transaction, but need only demonstrate "some consistency with other business transaction."
- Amount of the payments
- Timing of the Payments - Untimely payments are more likely to be considered outside the ordinary course of business. The operative date is the date of delivery of the check and not the date the check is issued, but dishonored checks are considered delivered on the date the check is actually honored by the drawee bank.
- Circumstances surrounding the payments - Otherwise "normal" payments which result from "unusual debt collection or payment practices" are not protected. Marathon Oil Co. v. Flatau (In re Craig Oil Co.), 785 F.2d 1563, 1566 (11th Cir. 1986). In making this determination (as with aging of payments), courts "normally conduct a comparative analysis between the preference and pre-preference periods." The analysis in on a case by case basis and legal action or coercion is not required.
Although the Court found that the payment was within the range of the debtor's ordinary course of late payments, it found that the circumstances surrounding the payment indicated "unusual debt collection" and therefore took it outside of the ordinary course of business. In making this finding, the Court compared the emails between the parties during the preference and pre-preference periods and found that warning of imposition of prepaid credit status/request for next day payment and a placement of a "credit hold"(which triggered the payment herein) were substantively different types of collection activity.
New Value Defense
The Court also rejected the creditor's attempt to use the section 547 (c)(4) "new value" exception as the other credit that was extended was before and not after the challenged preference payment. The section 547 (c)(4) new value defense requires that (1) the creditor extend new value after receiving the challenged payments, 2. the new value must be unsecured, and 3. the new value must remain unpaid.
Prejudgment Interest
The Court found that pursuant to the 11th Circuit's decision in In re Globe Mfg. Corp., courts have the discretion to award prejudgment interest as a matter of federal common law, but that its award must be "equitable." As the Court found that the creditor's ordinary course of business defense was colorable although ultimately unpersuasive and that the creditor did not otherwise delay the proceedings, it declined to exercise its discretion to award prejudgment interest.Jordan E. Bublick is a Miami Personal Bankruptcy Lawyer with over 25 years of experience in filing chapter 13 and chapter 7 bankruptcies. Miami Personal Bankruptcy Lawyer Jordan E. Bublick has filed over 8,000 chapter 13 and chapter 7 cases.
Jordan E. Bublick is a Miami bankruptcy lawyer with over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. He has filed over 8,000 bankruptcy cases. His office is located at 1221 Brickell Ave., 9th Fl. Miami, Florida. Telephone: (305) 891-4055. www.bublicklaw.com
Chapter 13 and Mortgage Foreclosures
Chapter 13 bankruptcy may be the appropriate solutions for many homeowner's facing foreclosure of their mortgage.
In using chapter 13 to deal with a mortgage foreclosure, certain time deadlines and special considerations may be present.
Answer of Foreclosure Complaint. One time limitation is that once a foreclosure case has been served upon you, you should answer the foreclosure. It must be answered within the time period set forth in the summons. If you fail to answer it, you may lose all rights to contest the case and not receive any further notice before the Clerk of the Circuit Court sells your home.
b. Filing of Bankruptcy Case. A bankruptcy must generally be filed before the foreclosure sale takes place if you desire to cure a mortgage default and reinstate such mortgage under a chapter 13 or 11 plan.
c. Other Factors Regarding Filing of Bankruptcy Case. The first payment under a Chapter l3 bankruptcy plan is normally due 30 days after the bankruptcy case is filed. You should normally not file a Chapter 13 case unless you are in a position to begin making such timely payments.
d. Junior Mortgages. Junior mortgages (i.e. all mortgages besides a first mortgage) often have the right to payoff in full any senior mortgage (i.e. higher priority mortgages) if you are in default in order to protect their positions. Such advanced amount would then be part of the "reinstatement amount" due for such junior mortgage. This may make it difficult for you to reinstate such junior mortgage as such reinstatement amount may be a substantial sum--even when divided into installments over 3 or 4 years. This factor may make it wise for one with a junior mortgage to file a Chapter l3 bankruptcy case as soon as possible and before a junior mortgagee has an opportunity to payoff a senior mortgage.
e. Income Taxes. In addition, you should realize that there might be negative tax consequences in the event of a foreclosure sale. Your lender may report the foreclosure sale to the I.R.S. This firm was not consulted or retained for tax matters. You should review the tax consequences with a competent tax advisor at once.
f. Deficiency Judgment. Foreclosure of your mortgage loan may not relieve you of responsibility for your entire debt. If your property does not bring a price at the foreclosure sale sufficient to satisfy your debt, you may remain liable for balance owing after foreclosure, i.e. the "deficiency". Even though your lender may be insured against loss (for example, V.A. mortgages), their insurer may be in a position to sue you for the balance due.
.Jordan E. Bublick is a Miami Personal Bankruptcy Lawyer with over 25 years of experience in filing chapter 13 and chapter 7 bankruptcies. Miami Personal Bankruptcy Lawyer Jordan E. Bublick has filed over 8,000 chapter 13 and chapter 7 cases.
If you’re involved in a personal injury lawsuit – as a plaintiff or defendant – a bankruptcy filing could send the case off the rails.
People get hurt. Sometimes they sue someone in connection with that injury.
People get into debt. Sometimes they file for bankruptcy to get out of debt.
And sometimes, people who are in debt are also a party to a personal injury lawsuit.
That’s when things get complicated.
If You’re Suing Someone Else And File For Bankruptcy
When you file for bankruptcy, all of your property gets turned over to the control of the bankruptcy trustee.
If you’re in a Chapter 7 bankruptcy the trustee’s job is to take all non-exempt property, turn it into cash, and distribute that cash to your creditors.
If you file a Chapter 13 bankruptcy then the proceeds of any settlement or judgment are used to fund your Chapter 13 Plan.
This means that, in the absence of court permission, the right to collect the money is out of your hands. It’s only when the trustee gives up the property that you regain control of it.
See Also:
Just as important is the fact that under the bankruptcy laws you’re required to cooperate with the trustee assigned to your case. If the trustee decides to hire a lawyer to take over the case, you’ll still need to do your part.
If You’re Being Sued And File For Bankruptcy
So long as the debt is dischargeable, your personal obligation to repay the debt will be wiped out in a bankruptcy case.
In addition, the lawsuit has to stop while you’re in bankruptcy unless the other side gets relief from the automatic stay.
Once the bankruptcy case is over, the personal injury lawsuit against you will pick up where it left off. Your insurance company will still pay out to the extent that you’ve got coverage, but that’s all the other side can possibly get.
If The Other Side Files For Bankruptcy
Most civil lawsuits are subject to the automatic stay in a bankruptcy case. The minute the bankruptcy is filed, you can’t continue the action.
Like a children’s game of “red light, green light, 1-2-3-,” you’ve got to stop where you are. And if you want to continue with the lawsuit while the other side is in bankruptcy you’ll need to ask for court permission.
Disclose The Lawsuit, Disclose To Your Lawyer
When you file for bankruptcy, you’re required to disclose all of your assets – including the right to sue someone else.
You’re going to want to talk with your lawyer about the pending claim. Work together to put together a strategy to keep as much of the proceeds of settlement or judgment as possible.
See Also:
- Filing for Bankruptcy Means Showing Your Cards
- Walk Into Bankruptcy Naked – Or Walk Out Naked
- How To File Bankruptcy – Listing Your Property
If you don’t disclose the lawsuit on your schedules and Statement of Financial Affairs, you could lose the right to begin or continue the action.
Overall, it’s a tricky situation – but one you can resolve by being honest and accurate in your dealings with your lawyer as well as the trustee.
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Learn more about how Bankruptcy works and what you need to know.