US Households Owe Record Amount – More Than During Recession

The New York Times and the Associated Press have been reporting new statistics just released by the “New York Fed.” I’m sorry, but I talk Minnesotan and “New York Fed” is not something in my vocabulary.  So I looked that up and find that it’s the Federal Reserve Bank of New York.  If you can’t believe them, then who can you believe.

The New York Fed says that consumer debt in the US now exceeds the level it was at before the recession.  I will admit that I’ve been wondering a bit, because over the past couple months my phone has been ringing a lot more than it did in 2015 and 2016.  I think the ringing of my phone might be a better barometer of what’s going on than the financial reports in the media.  I remember in 2008 when it started ringing like never before, they were still saying on the financial news networks that there was no sign of a recession.   The media in general wants to downplay economic problems.  So I figure if they are actually reporting a story like this, things are probably worse than they are admitting.

The New York Fed goes on to say, however, not to worry.  The new debt is proportionately more auto loans and student loans than it was in 2008, and besides the people with the debt are more credit worthy now.  In addition, home ownership is down and a higher percentage of mortgage debt is held by people over 65, as if that somehow was good news.  They admit that the student loan debt is getting up there and could be a bit high.  Also it might be that defaults on those auto loans are on the rise.  But a lot of the language in these stories is very soothing, so not to worry.

My opinion, based more on what I see with my own eyes, is this.  I think it is time to worry.  People may be back to work, but their earnings are down.  They still need to drive and the old car can only go so far, so they are getting car loans that they can’t really afford.  If they are not back to work they are back to school, getting student loans that they can’t afford.  Getting credit might be a bit more work than it used to be, but with the help of Credit Karma and other similar sites the lenders can still be manipulated into granting credit to people who really can’t afford it.  Maybe on paper they look more credit worthy, but that could be as much a fiction now as it was in 2008.  In other words, I believe individuals in this country are getting overextended again.  For many, another bubble may be about to burst.

This post is for general information purposes only, is not legal advice and does not create and attorney-client relationship.

 

Nothing is More Expensive Than A Cheap Bankruptcy Lawyer

Recently I had a bankruptcy case where a seemingly small and innocent circumstance turned up after the case was filed. It seemed normal to my client at the time and certainly not dishonest in any way.  It wasn’t illegal, immoral or fattening.  It just happened, however, to be one of those things which can run afoul of some of the more nonsensical provisions of the bankruptcy code.

I could have just said well that’s too bad and let things land wherever.  Fixing the situation was probably beyond the scope of what I had signed on for in my retainer agreement.  Many of the larger law firms, particularly the mills that crank out large volumes of cases for cheap, would have just let it go.  Lawyers don’t promise that everything will be perfect; we don’t promise that nothing will go wrong.  Sometimes it’s just too bad, isn’t it?

But that kind of approach is just not how I do things.  I really care about the outcome of my work and I really care about my clients. I just could not let it go.  It would, and actually did, keep me awake at night. I started asking my client more questions, started asking for more documentation, more history.  I explained that there was a problem, but I was aware of two or three exceptions, loopholes if you like, and I was determined to find one that fit.

I found what I was looking for and put it together for presentation to the bankruptcy trustee.  When I was finished, the trustee agreed with me that the issue was settled in my client’s favor and the case should proceed in the usual boring way.

On a forum at AVVO.com, Las Vegas bankruptcy attorney Dorothy Bunce said it best in answer to a question about how to find a cheap bankruptcy lawyer:

“If you have $70,000 in debt, why do you care ‘how much does it cost?’ Talk about being penny wise and pound foolish. Whatever the bankruptcy attorney charges, if the attorney takes care of you and eliminates as many of your debts as legally possible, protects your assets, and answers your questions, price is immaterial. When “how much” is someone’s first question to me, I get rid of them as soon as I can because they are telling me they don’t value what I do and will have to learn the hard way that NOTHING IS MORE EXPENSIVE THAN A CHEAP LAWYER.” Quoted with Ms. Bunce’s permission.

That sure as heck says it all.

This response is for general purposes only, is not legal advice and does not create an attorney-client relationship.  I am a debt relief agency.  I help people file for relief under the federal bankruptcy code.

The Minnesota Bankruptcy Responsibility Forms

In fall of 2010 the bankruptcy judges in the Minnesota were getting upset. Their phones were ringing with calls from people who had questions that should have been answered by their lawyers; but these people were complaining that their lawyers would not return the calls.

At about the same time the judges started hearing complaints from the trustees about lawyers not showing up for the hearings (meeting of creditors). It didn’t take long for them to figure out that there were a large number of new lawyers on the scene who didn’t know what they were doing. Just out of law school, they were trying to pay their student loans by jumping into what was at that time a booming bankruptcy market. Worse than that, however, many of these lawyers had been hired by fly by night petition preparation mills who were asking them to just sign off on bankruptcy petitions which had been prepared in India or who knows where. So although there was a lawyer’s name on the bankruptcy case, it had actually been prepared by an automated service. This resulted in many cases being filed on behalf of clients who had never actually talked with or met the person who supposedly was their lawyer.

Lots of things were going wrong with these cases. This made it harder for everyone in the system. In an effort to remedy the situation, our judges created and began to require the use of the following “responsibility forms.” Although I was embarrassed for my profession – that it had come to this – when they first came out, I can now see that they have some value. I reproduce them here. Please note that the form for Chapter 7 is slightly different than the one for Chapter 13. Now that it’s been over six years since all that happened, it may be old news; but both the lawyer and the client are still required to sign these forms at the time a case is filed.

By the way, usually when I discuss these forms with my clients, I refer to them as “the dummy checklist.”  If it weren’t for some real dummies, we would not need them.

NOTICE OF RESPONSIBILITIES OF
CHAPTER 7 DEBTORS AND THEIR ATTORNEYS
This Notice lists certain responsibilities of debtors and their attorneys. Nothing in this document changes, limits, or in any way alters the debtor’s or the debtor’s attorney’s obligations under the Bankruptcy Code, the local and national rules, or any rule of professional responsibility.

UNLESS THE COURT ORDERS OTHERWISE:

I. Before the case is filed, the attorney for the chapter 7 debtor shall, at a minimum:

A. Meet with the debtor to review and analyze the debtor’s real and personal property, debts, income, and expenses and advise the debtor on whether to file a bankruptcy petition;

B. Explain the various bankruptcy and non-bankruptcy options, the consequences of filing under chapters 7, 11 or 13 and answer the debtor’s questions;

C. Explain to the debtor how the attorney’s fees are paid;

D. Advise the debtor of the requirement to provide to the trustee the most recently filed tax return(s) at least seven days prior to the scheduled meeting of creditors. In addition, advise the debtor of the requirement to attend the meeting of creditors and identify the documents the debtor must bring to the meeting;

E. Advise the debtor that providing false information in the bankruptcy schedules or false testimony at the meeting of creditors or other hearing or trial may expose the debtor to criminal prosecution and denial of discharge;

F. Advise the debtor of the necessity of maintaining liability, collision, and comprehensive insurance on vehicles securing loans or leases;

G. Timely prepare and file the debtor’s petition, plan, schedules, statements, certificates, and other documents required to commence a case, and review them for accuracy contemporaneously with the filing.

II. After the case is filed, the attorney for the chapter 7 debtor shall, at a minimum:

A. Ensure that the debtor is adequately represented by an attorney at the meeting of creditors;

B. Prepare, file, and serve any necessary amendments to the petition, schedules, and statements;

C. Promptly respond to the debtor’s questions throughout the case;

D. Consider and advise the debtor concerning the debtor’s options to buy, sell or refinance real or personal property and assume or reject executory contracts or unexpired leases;

E. Prepare and file a proof of claim for a creditor when appropriate to protect the debtor’s interest;

F. Fully advise the debtor of the legal effect and consequences of proposed reaffirmation agreements and any defaults thereunder and, where appropriate, negotiate alternate terms with secured creditors, ensure that any agreement is fully and properly completed and filed and appear at any hearing, if required;

G. Advise the debtor in motions for relief from the automatic stay, file objections when appropriate, and appear, when required, at any hearing;

H. Prepare, file, and serve responses to motions for dismissal of the case;

I. Advise the debtor of the requirement to complete an instructional course in personal financial management and the consequences of not doing so;

J. Represent the debtor in connection with any audit request; and

K. Represent the debtor in bringing and defending any and all other matters or proceedings in the bankruptcy case as necessary for the proper administration of the case.

III. The attorney shall comply with Local Rule 9010-3 and represent the debtor in bringing and defending all matters in the bankruptcy case until a substitution of attorneys is filed or an order is entered allowing the attorney to withdraw.

Unless otherwise agreed, the attorney has no responsibility to represent the debtor in adversary proceedings. However, if an adversary proceeding is filed against the debtor, the attorney will explain to the debtor the estimated cost of providing representation in the adversary proceeding, the risks and consequences of an adverse judgment, and the risks and consequences of proceeding without counsel, as well as the sources, if any, of possible pro bono representation.

IV. Before the case is filed, the chapter 7 debtor shall:

A. Fully disclose, review and analyze with the attorney the debtor’s real and personal property, all debts, income, expenses and all other financial information needed to properly complete the schedules and statements;

B. Prior to and throughout the case respond promptly to all communications from the attorney;

C. Prior to and throughout the case, timely provide the attorney with full and accurate financial and other information and documentation the attorney requests, INCLUDING BUT NOT LIMITED TO:

1. A Certificate of Credit Counseling and any debt repayment plan;

2. Proof of income received from all sources in the six-month period preceding filing, including pay stubs, social security statements, workers’ compensation payments, income from rental property, pensions, disability payments, child and spousal support, and income from self-employment;

3. The most recently filed federal and state income tax returns, or transcripts of returns, as well as any other returns requested by the attorney, the trustee, the court, or a party in interest;

4. A government-issued photo identification and proof of social security number, such as a social security card or W-2;

5. A record of interest, if any, in an educational individual retirement account or a qualified state tuition program;

6. The name, address, and telephone number of any person or state agency to whom the debtor owes back child or spousal support or makes current child or spousal support payments, and any and all supporting court orders, declarations of voluntary support payments, separation agreements, divorce decrees, or property settlement agreements;

7. Any insurance policies requested by the attorney;

8. Vehicle titles for all cars, trucks, motorcycles, boats, ATVs, and other vehicles titled in the debtor’s name;

9. Legal descriptions for all real property, wherever located, owned by the debtor or titled in the debtor’s name, or in which the debtor has any interest whatsoever, including but not limited to, a timeshare, remainder interest, or life estate;

10. Documents relating to any inheritance to which the debtor is entitled or may be entitled;

11. Information relating to any foreclosures, repossessions, seizures, wage garnishments, liens, or levies on assets which occurred in the preceding 12 months or continues after the filing of the case;

12. Information and documents relating to any prior bankruptcies filed by the debtor(s) or any related entity;

13. Any changes in income or financial condition, such as job loss, illness, injury, inheritance, or lottery winnings before or during the case;

14. Information and documents relating to any lawsuits in which the debtor is involved before or during the case or claims the debtor has or may have against third parties;

15. Information relating to any seizure of tax refunds by the IRS or Department of Revenue;

16. All information or documentation needed to respond to any motion or objection in the bankruptcy case;

17. Any tax returns, account statements, pay stubs, or other documentation necessary to timely comply with requests made by the United States Trustee or the Chapter 7 Trustee or any audit requests.

D. Cooperate with the attorney in preparing, reviewing, and signing the petition, schedules, statements, and all other documents required for filing a bankruptcy case.

V. After the case is filed, the chapter 7 debtor shall:

A. Timely and promptly comply with all applicable bankruptcy rules and procedures;

B. Appear punctually at the meeting of creditors with recent proof of income, a government-issued photo identification card, proof of social security number, and copies of all financial account statements covering the date the bankruptcy petition was filed;

C. Contact the attorney before buying, refinancing, or contracting to sell real property and before entering into any loan agreement until the debtor receives a discharge;

D. Keep the court, the trustee, and the attorney informed of the debtor’s current address and telephone number; and

E. Complete an approved debtor education course and provide the certificate of attendance to the attorney for filing.

VI. The chapter 7 debtor’s attorney shall, both before and after the case is filed, comply with all applicable professional and ethical rules and shall exercise civility in dealings with all entities with which the attorney comes in contact. The attorney shall also advise the chapter 7 debtor to likewise act in a civil and courteous manner, to dress in a manner appropriate for a federal proceeding and debtors shall do so.

Signatures. By signing this acknowledgment, the debtor and the attorney certify they have read it and understand what is required of the debtor and the attorney in this bankruptcy case.

A fully executed copy of this document must be filed with the petition commencing the bankruptcy case of the debtor(s).

NOTICE OF RESPONSIBILITIES OF
CHAPTER 13 DEBTORS AND THEIR ATTORNEYS

This Notice lists certain responsibilities of debtors and their attorneys. Nothing in this document changes, limits, or in any way alters the debtor’s or the debtor’s attorney’s obligations under the Bankruptcy Code, the local and national rules, or any rule of professional responsibility.

UNLESS THE COURT ORDERS OTHERWISE:

I. Before the case is filed, the attorney for the chapter 13 debtor shall, at a minimum:

A. Meet with the debtor to review and analyze the debtor’s real and personal property, debts, income, and expenses and advise the debtor on whether to file a bankruptcy petition;

B. Explain the various bankruptcy and non-bankruptcy options, the consequences of filing under chapters 7, 11 or 13 and answer the debtor’s questions;

C. Explain to the debtor how the attorney’s and trustee’s fees are paid;

D. Explain what payments will be made directly by the debtor and what payments will be made through the debtor’s chapter 13 plan, with particular attention to mortgage and vehicle loan payments, as well as any other claims with accrued interest;

E. Explain to the debtor how, when, and where to make the chapter 13 plan payments;

F. Explain to the debtor that the first plan payment must be made to the trustee within 30 days of filing the case;
G. Advise the debtor of the requirement to provide to the trustee the most recently filed tax return(s) at least seven days prior to the scheduled meeting of creditors. In addition, advise the debtor of the requirement to attend the meeting of creditors and identify the documents the debtor must bring to the meeting;

H. Advise the debtor that providing false information in the bankruptcy schedules or false testimony at the meeting of creditors or other hearing or trial may expose the debtor to criminal prosecution and denial of discharge;

I. Advise the debtor of the necessity of maintaining liability, collision, and comprehensive insurance on vehicles securing loans or leases;

J. Timely prepare and file the debtor’s petition, plan, schedules, statements, certificates, and other documents required to commence a case, and review them for accuracy contemporaneously with the filing.

II. After the case is filed, the attorney for the chapter 13 debtor shall, at a minimum:

A. Ensure that the debtor is adequately represented by an attorney at the meeting of creditors and make every effort to obtain confirmation of the plan;

B. Prepare, file, and serve any necessary amendments to the petition, schedules, and statements;

C. Respond to any objection to plan confirmation and, where necessary, prepare, file, and serve a modified plan, and appear, as required, at any hearing;

D. Prepare, file, and serve post-confirmation documents necessary to modify the plan;*

E. Promptly respond to the debtor’s questions throughout the case;

F. Prepare, file, and serve necessary motions to buy, sell, or refinance real or personal property;*

G. Prepare and file a proof of claim for a creditor when appropriate to protect the debtor’s interest;

H. Object to improper or invalid claims when appropriate to protect the debtor’s interest;*

I. Advise the debtor in motions for relief from the automatic stay, file objections when appropriate, and appear, when required, at any hearing;*

J. Consider and advise the debtor concerning lien avoidance and, if appropriate, prepare, file, and serve necessary motions to avoid liens on real or personal property;

K. Prepare, file, and serve responses to motions for dismissal of the case;*

L. Advise the debtor of the requirement to complete an instructional course in personal financial management and the consequences of not doing so;

M. Prepare, file, and serve the Chapter 13 Debtor’s Certifications Regarding Domestic Support Obligations and Section 522(q) and the Certificate of Debtor Education immediately after completion of plan payments;

N. Represent the debtor in connection with any audit request;* and

O. Represent the debtor in bringing and defending any and all other matters or proceedings in the bankruptcy case as necessary for the proper administration of the case.

III. The attorney shall comply with Local Rule 9010-3 and represent the debtor in bringing and defending all matters in the bankruptcy case until a substitution of attorneys is filed or an order is entered allowing the attorney to withdraw.

Unless otherwise agreed, the attorney has no responsibility to represent the debtor in adversary proceedings. However, if an adversary proceeding is filed against the debtor, the attorney will explain to the debtor the estimated cost of providing representation in the adversary proceeding, the risks and consequences of an adverse judgment, and the risks and consequences of proceeding without counsel, as well as the sources, if any, of possible pro bono representation.

IV. Before the case is filed, the chapter 13 debtor shall:

A. Fully disclose, review and analyze with the attorney the debtor’s real and personal property, all debts, income, expenses and all other financial information needed to properly complete the schedules and statements;

B. Prior to and throughout the case respond promptly to all communications from the attorney:

C. Prior to and throughout the case, timely provide the attorney with full and accurate financial and other information and documentation the attorney requests, INCLUDING BUT NOT LIMITED TO:

1. A Certificate of Credit Counseling and any debt repayment plan;

2. Proof of income received from all sources in the six-month period preceding filing, including pay stubs, social security statements, workers’ compensation payments, income from rental property, pensions, disability payments, child and spousal support, and income from self-employment.

3. The most recently filed federal and state income tax returns, or transcripts of returns, as well as any other returns requested by the attorney, the trustee, the court, or a party in interest;

4. A government-issued photo identification and proof of social security number, such as a social security card or W-2;

5. A record of interest, if any, in an educational individual retirement account or a qualified state tuition program;

6. The name, address, and telephone number of any person or state agency to whom the debtor owes back child or spousal support or makes current child or spousal support payments, and any and all supporting court orders, declarations of voluntary support payments, separation agreements, divorce decrees, or property settlement agreements;

7. Any insurance policies requested by the attorney;

8. Vehicle titles for all cars, trucks, motorcycles, boats, ATVs, and other vehicles titled in the debtor’s name;

9. Legal descriptions for all real property, wherever located, owned by the debtor or titled in the debtor’s name, or in which the debtor has any interest whatsoever, including but not limited to, a timeshare, remainder interest, or life estate;

10. Documents relating to any inheritance to which the debtor is entitled or may be entitled;

11. Information relating to any foreclosures, repossessions, seizures, wage garnishments, liens, or levies on assets which occurred in the preceding 12 months or continues after the filing of the case;

12. Information and documents relating to any prior bankruptcies filed by the debtor(s) or any related entity;

13. Any changes in income or financial condition, such as job loss, illness, injury, inheritance, or lottery winnings before or during the case;

14. Information and documents relating to any lawsuits in which the debtor is involved before or during the case or claims the debtor has or may have against third parties;

15. Information relating to any seizure of tax refunds by the IRS or Department of Revenue;

16. All information or documentation needed to respond to any motion or objection in the bankruptcy case;

17. Any tax returns, account statements, pay stubs, or other documentation necessary to timely comply with requests made by the United States Trustee or the Chapter 13 Trustee or any audit requests.

D. Cooperate with the attorney in preparing, reviewing, and signing the petition, schedules, statements, and all other documents required for filing a bankruptcy case.

V. After the case is filed, the chapter 13 debtor shall:

A. Timely and promptly comply with all applicable bankruptcy rules and procedures and with the terms of the chapter 13 plan;

B. Appear punctually at the meeting of creditors with recent proof of income, a government-issued photo identification card, proof of social security number, and copies of all financial account statements covering the date the bankruptcy petition was filed;

C. Make all required payments to the Chapter 13 Trustee, and to such creditors as are being paid directly, and inform the attorney if required payments cannot be made;

D. Contact the attorney before buying, refinancing, or contracting to sell real property and before entering into any loan agreement;

E. Keep the court, the trustee, and the attorney informed of the debtor’s current address and telephone number;

F. Complete an approved debtor education course and provide the certificate of attendance to the attorney for filing;

G. Pay all required domestic support obligations;

H. Cooperate with the attorney to complete and sign the Chapter 13 Debtor’s Certifications Regarding Domestic Support Obligations and Section 522(q) immediately after making the final plan payment.

VI. The chapter 13 debtor’s attorney shall, both before and after the case is filed, comply with all applicable professional and ethical rules and shall exercise civility in dealings with all entities with which the attorney comes in contact. The attorney shall also advise the chapter 13 debtor to likewise act in a civil and courteous manner, to dress in a manner appropriate for a federal proceeding and debtors shall do so.

Signatures. By signing this acknowledgment, the debtor and the attorney certify they have read it and understand what is required of the debtor and the attorney in this bankruptcy case.A fully executed copy of this document must be filed with the petition commencing the bankruptcy case of the debtor(s).

* Local Rule 2016-1(d)(2) provides that an attorney who performs these services after confirmation of the plan may request additional attorney’s fees and expenses in connection with such services.

Motorcycles, Boats or Horses Can be Toxic to your Chapter 7 or Chapter 13 Minnesota Bankruptcy

I recently posted on Google Plus about how certain things tend to be toxic to a possible bankruptcy. The most common one I see is a Harley Davidson. Other items in this category would include boats and horses, especially if they are fancy and not paid for. This statement resulted in questions being asked about exactly what I meant.  If the problem is that a Harley, a boat or a horse are assets which would be lost in a Chapter 7 bankruptcy, then wouldn’t it be better for them to not be paid for.  If they weren’t paid for, after all, they wouldn’t be much of an asset.

My answer was that such items make a bankruptcy difficult whether paid for or not. If they are paid for, they are assets that very likely would be lost in a Chapter 7 or would increase the required payments in a Chapter 13.

If they are not paid for, you have a situation where the Debtor will want to tell the bankruptcy trustee that he or she can’t afford to pay debts, except that somehow they CAN afford to keep paying for the Harley, the boat or the horses. This does not play well. The only thing to do if they really need the bankruptcy is to sell or surrender before filing, or state in the bankruptcy petition an intention to surrender the items after the case is filed.

Many have been the times when I have had a potential client disappear never to be heard from again when I said that the Harley has to go. There’s a whole subculture where any kind of misery is preferable to giving up the Harley. Boats are usually a bit easier to let go, but horses are also very hard to give up.

One exception might be a case with a 100% Chapter 13 plan. That would be a plan where 100% or the unsecured debts are to be paid. Since the bankruptcy trustee can’t ask for more than 100%, the Debtor would have more wiggle room when it came to something like keeping a motorcycle. Even then the trustee would not like it, but more than likely the trustee could not prevent it. I see very few cases where the payout is 100%. Most people who can afford to do that don’t need a bankruptcy.

This post is for general information purposes only, is not legal advice and does not create an attorney-client relationship.  I am a Debt Relief Agency.  I help people file for relief under the federal bankruptcy code.

Consumer Warning from NACBA

Here verbatim is a consumer warning I have been asked to post from the National Association of Consumer Bankruptcy Lawyers.

Telephone-Scam Soliciting Wire Transfers Prompts NACBA and Vermont Attorney General to Issue Consumer Warning

Across the country, consumers are falling prey to a new scam targeting people who have filed for bankruptcy and others just getting started with the process. Bankruptcy attorneys are joining forces with public officials to sound the alarm bell to unsuspecting consumers.

The con artists are using software that “spoofs” the Caller ID system so that the call appears to be originating from the phone line of the consumer’s bankruptcy attorney. Victims of the scam are being instructed to immediately wire money to satisfy a debt that supposedly is outside the bankruptcy proceeding. Some consumers have been threatened with arrest if they fail to wire money to pay the debt.

In some instances, the perpetrators are using personal information from public filings to identify consumers, assume the identity of their attorneys and sound more convincing by phone. These calls are typically placed during nonbusiness hours, making it difficult for clients to verify the call by getting in touch with their attorney to ask about it.

The National Association of Consumer Bankruptcy Attorneys (NACBA) and its individual members want consumers to know that under no circumstance would a bankruptcy attorney or staff member telephone a client and ask for a wire transfer immediately to satisfy a debt. Nor would the bankruptcy attorney and staff ever threaten arrest if a debt isn’t paid.

Consumers should be advised that legitimate debt collectors and agencies cannot threaten arrest in order to satisfy. If you or a family member receive this kind of call, the best thing to do is to hang up and contact your bankruptcy attorney as soon as possible. Do NOT give out any personal or financial account information to the caller.

Losing Ground on Payday Loans? Perhaps Bankruptcy is the Answer

If you’ve been reading my stuff, you know I’ve said this before.  My clients are good people.  Prior to giving up and deciding to come see me, they have tried just about everything and anything to avoid bankruptcy.  Among the various desperate measures many have tried is the payday loan.  What is a payday loan?  It’s one of the worst, most despicable, predatory schemes ever devised by the greedy and clever.

How does a payday loan work?  Well, it’s aimed of course at people who are employed and who as a result have a regularly scheduled payday.  It can be done at a storefront or on a web site.  These days most of the payday loans I see have been done on line.  One starts by providing bank account information along with employment information.  This includes the amount of a  typical paycheck and when it is ordinarily received. One site I just looked at claims to be able to approve the loan within two minutes.  Typically the amount will be about $500, but sometimes it can be more.  The money will be deposited into the borrower’s checking account within a day or less.

The borrower doesn’t have to repay the loan until after his or her next paycheck is deposited into the checking account.  What can be the harm?  At about the time the pay check from the borrower’s job is deposited into his or her account, the whole loan is automatically repaid by an automatic withdrawal, with interest – lots of interest.  One site I just reviewed states that the annual interest rate will run somewhere between 261% and 1304%.  At first it doesn’t seem that bad.  For example, at an annual rate of 300% the interest on a $500 loan over two weeks is “only” about $58.

The trouble is that once a person starts doing this, it can become very addictive.  As soon as it’s been done it once, when payday comes there’s a big hole missing from the paycheck as soon as the automatic payment of the loan is made.  So what’s the obvious temptation?  Do another one, of course, to make up for the missing money.  Pretty soon it’s not hard to start taking multiple payday loans from the multiple web sites that are available for this purpose.  Then the extremely high interest, rate which didn’t look so bad at first, can really becoming quite a burden.  It can become a treadmill of dependency on these loans.  It can interfere with one’s ability to eat, pay rent or buy gasoline.  Much like the psychology involved in the slot machines at a casino, somebody has figured out just exactly what is required to keep people coming back and paying in. Usually if I see one payday loan it means my client has been at it for a long time.  It may only be one loan, one loan at a time that is.  Sometimes it’s two or three or four at a time, enough to entirely consume each paycheck.

Even after my client has hired me to do a bankruptcy, and after I have advised the client that this is the point at which they should stop paying many of their debts, there is a tendency to assume that this advice somehow does not apply to the payday loan.  It can be a surprise when I say, “it’s your account and it’s your bank and you can stop that automatic withdrawal any time you want”  I have had a few clients leave my office in a rush to try to make it to the bank in time to stop the next withdrawal.

The StarTribune recently published a feature article about payday loans and one of the big businesses in Minnesota that makes them.  According to the article the average interest rate customers in Minnesota pay for a payday loan is 277%.  Sounds like theft to me, but Minnesota is among 36 states which allow it.  If you find yourself going nowhere and losing ground on this payday loan treadmill, it’s probably time to call me for a free over the phone screening as to whether you qualify for a Chapter 7 or Chapter 13 bankruptcy.

This post is for general information purposes only, is not legal advice, and does not create an attorney-client relationship.  Nothing on this site is intended to be a substitute for retaining a competent attorney.  I am a debt relief agency.  I help people file for relief under the federal bankruptcy code.

 

Bankruptcy is Legal – But is it Moral?

I usually don’t give much thought to the question of whether filing a bankruptcy is the moral or ethical thing for a person to do.  I decided a long time ago that it  is, at least for my clients in the kind of cases that I accept.  For one thing, I don’t recommend bankruptcy unless it’s the last resort.  In other words, if the client has other alternatives, I recommend against filing bankruptcy and suggest that other avenues be tried first.  I have referred hundreds of people to Lutheran Social Services Financial Counseling and to Family Means financial counseling, my two favorite alternatives to bankruptcy.  Lots of debt settlement companies are operated by crooks, and you really have to watch out for them; but these two are strictly legitimate.

Most of my clients are absolutely overwhelmed and buried in debt.  If they are going to keep paying their unsecured debt, they don’t get to eat – and vice versa.  I believe that a person’s first duty is to himself or herself and his or  her family, and his or her second duty is to the community.  Under both duties, it is your obligation to take care of yourself well enough that you and your family don’t become homeless wards of the state.  If you can at least support yourself, you are saving the community the cost of supporting you. Your duty to continue paying your debts to a bunch of bankers is much lower on the hierarchy of values, and the value of self preservation will trump that every time.  If you need to file a bankruptcy to be able to properly care for yourself and your family, it could even be a moral obligation that you do so.

In biblical times all debts were canceled every seven years. (Deuteronomy 15:1-2) Everyone was given a fresh start at the same time every seven years whether they were current with their debts or not. Even citizens who had sold themselves into slavery were set free in the year of jubilee, which occurred every fifty years. (Leviticus 25: 10-13) Selling oneself or one’s family into slavery was apparently one approach to raising money to pay debt.  We no longer have slavery these days, but sometimes what I see my clients doing prior to filing bankruptcy seems to have similarities to slavery.  Seems like slavery to me if you spend all your time and resources working in the service of Capitol One or Discover.   It also seems to me that the sort of debt forgiveness practiced in Biblical times has similarities to bankruptcy today – except bankruptcy can usually be done only every eight years.

Here in the United States, bankruptcy is provided for in Article 1, Section 8, Clause 4 of the United States Constitution.  This authorizes  Congress to enact “uniform laws on the subject of Bankruptcies throughout the United States.”  Our founding fathers obviously thought that Congress should have the power to provide laws for the kind of safety net that is found in bankruptcy.  Under those laws for most individuals the only way to get your debts canceled is to file a Chapter 7 bankruptcy or Chapter 13 bankruptcy.  Even then some debts (most taxes, child support, alimony, most student loans, etc.) are not dischargeable.  

If things have gotten so bad that the debtor really can’t pay, bankruptcy is a good thing for the debtor and the creditor too, since the creditor is now able to stop wasting resources trying to collect. Large debts can be like quick sand. The harder one tries to get out, the deeper one gets.  Most bankruptcies seen in my office are filed long after they should have been.

This post is for general information purposes only, is not legal advice, and does not create an attorney-client relationship.

Don’t be Tricked by Misleading Bankruptcy Attorney Fee Advertising

A lot of the advertising about attorney fees for bankruptcy is misleading – even tricky. Today I checked on a Google ad and the web page it leads to which says a certain law firm will file a bankruptcy after a payment toward the attorney fee of only $99.  I found this to be not exactly accurate.

The web page says that $99 toward the attorney fee, along with the court filing fee and counseling program fees, would be all one would have to pay prior to filing.  It was a slick web page, obviously done at considerable expense, where I found the following statement:

“You only have to pay the court filing fee of $335 and the credit report / credit course fees of $65 and an attorney fee of $99 to file.”  It also said:  “Only $99 Down, No Co-Signer Needed, File Now/Pay over Time, Affordable Payment Plans” in big blue letters.

I wondered how can these people can be doing this. I could never cover my office rent, malpractice insurance, phone and internet bills and office supplies if I didn’t charge a lot more than that.   So I went to the bankruptcy court web site and ran a search for actual cases they had filed.  This is not free, so I didn’t look very far.  All I did was check the last two cases this law firm filed to see what the attorney fee had been.  Attorney fees have to be disclosed on the bankruptcy petition.  What I found was that for the last two cases they filed, both Chapter 7s, their fee was $990. And the court filings also said they had received all of the $990 before filing the case.   That’s lower than what I would usually charge, but it’s a lot more than $99.

Now one thing you should understand about attorney fees in a Chapter 7 bankruptcy is this. If the attorney does not collect his or her fee prior to filing, any part of the fee that is still owing is just another debt in the bankruptcy case. The attorney is just another creditor.  The attorney, like all the other creditors, is under an immediate court order requiring that he or she do nothing to try to collect.  It is illegal and unethical for the attorney to collect anything from the client once the case is filed.  That’s why you may see references to a co-signer in some advertising.  The lawyer can still try to collect the fee from a co-signer as long as the co-signer is not his bankruptcy client.  This of course puts the bankruptcy lawyer in the position of being a bill collector. I don’t EVER want to be a bill collector.

I went back to the web page thinking it must be referring to Chapter 13 bankruptcy only. When it comes to paying attorney fees after the case is filed, a Chapter 13 bankruptcy is a very different animal from a Chapter 7. If you file a Chapter 13 bankruptcy it is possible to pay part of the attorney fee through the Chapter 13 payment plan.  I hit Control F to search the page and typed “13” into the search box.  No mention of “13” or “Chapter 13” appears anywhere on the page.  The page seems to be talking about Chapter 7.  The only filing fee the page mentions is $335, which is the Chapter 7  court filing fee. The court filing fee for a Chapter 13 is slightly lower.

When I look at their web page I can see that it is very slick, and at the bottom is the name of a web development company that designed the page.  I can remember a few years back when I hired a person to redesign my page.  The person I hired started adding all sorts of new key words and content, which was submitted to me for review.  There was a whole lot of it, and it was hard to keep up with what the designer was doing.  Is it possible that the web designer wrote up this stuff while the law firm was not paying attention?  It could happen.  I’m now back to doing all my own web design work. I found that having my web page in the hands of a professional design and marketing person was scary.

So maybe they just have a busy marketing person who they can’t keep up with.   Maybe it’s not entirely the law firm’s fault.  But I do want to suggest to you that you should be very wary when you see something like this and don’t be taken in by it. If it seems to good to be true, it probably is.

This posting is for general information purposes only and is not legal advice. It does not create an attorney-client relationship.  I am a debt relief agency. I help people file for relief under the federal bankruptcy code.

Dave Kelly, Kelly Law Office, Minnetonka, MN 952-544-6356

Close any Extra Bank Accounts Before you File Personal Bankruptcy

When it comes to what bank accounts you have open at the time of filing a personal bankruptcy, the adage “keep it simple” certainly applies.  In either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, the trustee is going to want to see a statement for every bank account that you have open on the day the case is filed. The more bank accounts you have, the more complicated that can get.  It seems as if every time I have a case where my client has more than three bank accounts, that client has trouble getting the required statement for at least one of them.

If the bank is also one of the creditors which you have listed in your case, you might find them particularly uncooperative when you try to get a statement. I was making a video on another subject when I made a few parenthetical remarks about how, before filing personal bankruptcy, you should close as many bank accounts as possible.  I thought the remarks were good enough to post them as a separate video on their own.  This is that video: There are enough other things that can go wrong in any bankruptcy case, without having to worry about not being able to get a statement from some obscure bank that has no offices nearby and which has shut down your on line access. In this video I explain that prior to filing a bankruptcy case, it is prudent to close as many of your bank accounts as possible. It’s best to go into your bankruptcy case with only has one bank account – a checking account at a bank or credit union which is not a creditor.

Your bankruptcy lawyer should know where the best places to bank are from a bankruptcy perspective. Some banks and some credit unions are more bankruptcy friendly than others. We have one bank in particular in the Twin Cities Minnesota area which will freeze your accounts when they find out you filed a bankruptcy, and they tend to do that whether you owe them money or not. That bank of course is to be avoided. This posting is for general information purposes only and is not legal advice. It does not create an attorney-client relationship.

I am a debt relief agency. I help people file for relief under the federal bankruptcy code.

Dave Kelly, Kelly Law Office, Minnetonka, MN 952-544-6356

What if You Have a Rental Property and Need to File Bankruptcy?

Here’s a video I posted at YouTube where I comment about how rental properties should be dealt with in a personal bankruptcy.  I talk primarily about Chapter 7 personal bankruptcy, but I also get into Chapter 13 bankruptcy to some extent.  Unless it is properly handled, the filing of a bankruptcy may result in the property being taken away from you. It’s complicated and you would be well advised to find and consult a good lawyer about the exact situation you have with your rental property.   The video is only three and a half minutes long, and only scratches the surface if it even does that.

These days it has become common for families to have a former home that they could not sell. Maybe they outgrew the old house, or maybe they had to move because of their employment. Not being able to sell the old place, the best they could do was to rent it out. It seems as if most of the time these places have a negative cash flow, although not always.

When the time comes to look into filing a personal Chapter 7 or Chapter 13 bankruptcy, the rental property can become quite a problem. Typically the trustee will not find it acceptable to say on your budget sheet that you intend to continue to pay the expenses of a property that is losing money.

Even if the place has a positive cash flow, trying to keep it in a bankruptcy situation tends to be more trouble than it’s worth. The extra income might be just enough to disqualify you from filing a Chapter 7 bankruptcy, especially if you have stopped paying the mortgage on the property.

The best way to hang on to a rental property, if that is something that you really want to do, may be to do a Chapter 13 bankruptcy instead of a Chapter 7. For that to work you would need to have the equity in the property not amount to much and to have it producing a positive cash flow.

Unless it is properly handled, the filing of a bankruptcy may result in the property being taken away from you. It’s complicated and you would be well advised to find and consult a good lawyer about the exact situation you have with your rental property.

This is for information purposes only and is not legal advice. Neither the video nor these comments create an attorney-client relationship. Please consult the attorney of your choice concerning the details of your case.  I am a debt relief agency. I help people file for relief under the federal bankruptcy code.

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