Blogs

Some 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.

Under New York bankruptcy law (In re Boodrow) a debtor does not have to sign a Reaffirmation Agreement for a mortgage on real estate. This is a good thing (especially when dealing with second or third mortgages), since a signed Reaffirmation Agreement causes you to remain personally liable for the mortgage debt after bankruptcy, and for any resulting deficiency judgment determined to be due after a foreclosure of the “reaffirmed” mortgage.
Is there any downside to not signing a Reaffirmation Agreement on your mortgage? Depending upon the policy of your mortgage holder (ie., how much do they want to “bust your chops”), the answer sometimes can be “Yes”. Some mortgage lenders take the position that since bankruptcy discharges your personal liability for debts, they no longer have to report your post-bankruptcy mortgage payments to the Credit Reporting Agencies (CRA’s) because the underlying debt is discharged. This can cause a problem if someone is examining your Credit Report for certain purposes, including future mortgage refinance efforts. If your post-bankruptcy mortgage payment history does not appear on the Credit Report it can certainly prejudice, and probably doom, your refinance efforts.
Fortunately there is a solution to this quandary, although it involves a two-step process:
Step 1: Pursuant to § 2605(e) of the Real Estate Settlement Procedures Act (“RESPA”), make a Qualified Written Request to your mortgage servicer that they provide to you an accounting of all mortgage payments that you have made. This accounting should establish that you have been making timely mortgage payments post-bankruptcy.
Step 2: File a dispute with the CRA complaining that the reported mortgage payment information is inaccurate, attaching thereto the accounting received pursuant to the Qualified Written Request. Assuming that you are in fact current on your mortgage payments, this should result in the Credit Report entries being corrected, pursuant to the procedures established in The Fair Credit Reporting Act ( 15 USC § 1681i ).
There is another way to correct inaccurate Credit Report entries concerning your mortgage payment history, but it is very labor intensive and involves much photocopying and record keeping (which is not always a bad idea). As soon as you file bankruptcy begin (1) making copies of every check or bank draft that you use to pay your mortgage, and (2) keeping copies of your bank statements showing that said mortgage payments were received and cashed by your mortgage lender or servicer. You then file your dispute with the CRA complaining that the reported mortgage payment history is inaccurate, and attach thereto all check photocopies and bank statements evidencing that the required payments were made by you and received by the lender. This should result in the Credit Report entries being corrected.
Wouldn’t it just be easier to sign a Reaffirmation Agreement concerning your mortgage, as this would result in your post-bankruptcy payments being correctly reported to the CRA? It might be easier, but the downside to signing one is so onerous, as above noted, that you would be crazy to do so. In addition, it is highly unlikely that a Bankruptcy Judge would ever approve such a Reaffirmation Agreement unless it resulted in the debtor was receiving a substantial, favorable modification of the mortgage terms, which rarely happens in the context of Reaffirmation Agreements.

The answer to this question may surprise you.  You actually do not have to be destitute to file bankruptcy. Ideally, my clients would come to me before the bottom drops out from under them, but many wait until they are almost a year behind on their mortgage payments or a car has already been repossessed before seeking counsel from a bankruptcy attorney.  In fact, you can even file a Chapter 7 case and have whatever non-exempt property (property that is not capable of being protected from the Chapter 7 trustee and our creditors) you own liquidated by the Chapter 7 trustee administering your case to pay your unsecured creditors. I have seen creditors get paid out at 100% in Chapter 7 cases, though this is rare. Most are “no-asset” cases in which creditors receive nothing.
In Chapter 13 cases, you will have the option to pay back some of your debts over a 3-5 year period.  In some cases, unsecured creditors will receive nothing, while in others, all of your creditors will receive 100% of what you owe them, only with no fees and interest accruing during the plan period.
Chapter 11 is another animal entirely, as businesses need sufficient cash reserves to be able to whether a reorganization effort through bankruptcy.  Individuals filing for Chapter 11 should take this same advice to heart, as Chapter 11 fees are much higher and cannot be paid out over the life of a plan like in a Chapter 13.
The bottom line is this: Seek the counsel of a bankruptcy attorney well before you receive a foreclosure notice on your home.  The earlier your problems can be addressed, the more likely bankruptcy can be avoided. If bankruptcy is still required, the less issues you have, the smoother your case will go through the system.

Frequently I meet with people seeking Chapter 13 or Chapter 7 bankruptcy protection who are surprised that the actions they take prior to filing for bankruptcy can have a lasting impact on their bankruptcy. For instance, let’s say the debtor’s mother “helped her out” by loaning her money for several months. Later on the debtor comes into some money and repays the family member in full but then subsequently has to file for bankruptcy protection.
Two bankruptcy provisions come into play in this situation. First, Sec. 547 allows the Trustee to avoid any transfer of an interest of the debtor in property made within 90 days before the filing of the petition or up to one year prior to the filing if the transfer was made to an insider. So that means if Debtor wants to file Chapter 7 , the price of admission is that she understands the Trustee can and will recover that money from the mother for the benefit of the creditors she is trying to discharge. The law will not allow the debtor to pay off her mom in full when other unsecured creditors would receive nothing in Chapter 7, which brings me to the second provision which comes into play if the debtor files a Chapter 13. According to Sec. 1322, a Chapter 13 repayment plan cannot discriminate unfairly against any class of creditor, i.e., paying the mother in full while the other unsecureds get zip. Furthermore, Sec. 1325 states that a Chapter 13 plan cannot even be confirmed unless the unsecured creditors received at least what they would have received under a Ch. 7, in this case, that would have included the amount of the preferential transfer.
So, that seemingly harmless repayment can become a can of worms in a bankruptcy setting. Invariably the debtor asserts that they didn’t know they were going to file at the time of the payment, they don’t want their family member involved and that it’s “not fair”. Those may be valid points, however, they won’t get you out of the preferential transfer quagmire.  That doesn’t mean you won’t be able to file Chapter 13 or Chapter 7 if you have repaid loans to friends or family members, however, if you have and need to file bankruptcy, discuss the matter with your attorney.  An experienced bankruptcy attorney will know how to properly address the payments in your bankruptcy.