Today, December 29, 2009, was a cold and miserable day in Atlanta, Georgia. Unfortunately I had a Chapter 7 bankruptcy 341 hearing to attend at the federal courthouse in Atlanta. I bundled up the best I could, took the train to the nearest stop – about 1/2 a mile from the courthouse – and braved the cold windy weather.
As my client and I sat and waited for our case to be called, I noted case after case was called and heard by the trustee and that in none of them during my hour stay did any creditor show up.
My client seemed surprised by this – he was expecting to see representatives from several of the more aggressive credit card lenders who had been harassing him.
In fact, creditors rarely appear at Chapter 7 341 hearings – at least that is the case here in the Northern District of Georgia. Why? There is little that creditors can do at these hearings.
In the Atlanta district, Chapter 7 341 hearings are scheduled at the rate of 5 to 7 every 30 minutes. This means that the Chapter 7 trustee will devote all of 5 minutes to any one case.
Creditors who are familiar with the process don’t bother – knowing that there is not time to ask any significant questions, and creditors who are not familiar with the bankruptcy process will find themselves cut off by the trustee after just a few questions.
Occasionally a secured creditor will appear to ask for insurance proof or to ask the debtor if he wants to keep his property – but most of that is now being done prior to hearings by email and mail.
I also sense that creditors recognize the futility of objecting to dischargeability in most cases. Sure, they can spend several thousand dollars arguing that their debt ought not be discharged but the odds that the debtor will ever pay are slim.
Interestingly a fear that creditors will show up and use the 341 hearing to harass the debtor is pretty much unfounded. So, if you are facing a Chapter 7 341 hearing, the odds are pretty good that no one will show up to bother you.
There is little doubt that most people and businesses are glad to see 2009 pass, but what does 2010 hold in store particularly when it comes to bankruptcy filings? Let’s take a look.
The 2009 calendar year saw the bankruptcy filings of companies that were once thought impervious to such a development. Two that immediately come to mind are Chrysler and General Motors. Both filings were fairly quick because the nature of the reorganizations were figured out before the filings were made. This presents us with our first trend in 2010.
We can expect to see more pre-packaged bankruptcy filings this year by large businesses. This type of bankruptcy has always been around, but it was turned into an art form in 2009. The basic idea is to put the screws to the creditors while threatening a bankruptcy filing. Those creditors that don’t agree to the deal being offered are then washed away in bankruptcy while those that agree come out the other side with some interest still in the company, often an equity interest.
The second trend we will see in 2010 is the continuation of huge bankruptcy filings. The difference is you and I will not recognize many of the names. These companies will be behind the seen entities. The number on industry where this will occur is in commercial real estate. Everyone from mall owners to brokers to, well, anyone associated with the industry is going to be in big pain. 2009 started the commercial real estate market implosion, but 2010 will see the biggest bloodletting.
The third development will be the continued “hidden” second great depression. People say we were saved from a great depression, but this isn’t true. The key is the banks. More banks failed in 2009 than 2007 and 2008 combined. The government is just doing a good job of keeping the news under wrap. Ah, and what about unemployment? Well, the reported rate is just over 10 percent. In truth, it is closer to 20 percent. The official rate does not include people who are working part time or haven’t had a job in a year. All of this will lead to more personal and business bankruptcy filings.
Is there any economic hope in 2010? Yes. The good news is we’ve stabilized from a confidence stand point. That is important because it means people will go out and spend at least a bit on things. I just bought an exercise bike! Regardless, the panic of 2009 has ended and one can expect a bit of stability in 2010. Will there be a recovery? Technically, we are already in one, but the effects won’t be felt by people like you and I until the end of 2010 or early 2011. Still, that is better than where we were in January 2009.
This weekend’s AJC Business story entitled “Bankruptcies hit State Hard” confirmed what I have been seeing on a weekly basis in my Atlanta area bankruptcy practice – more people who were solidly “middle class” are finding themselves facing huge debt loads and the prospect of a Chapter 7 or Chapter 13 filing.
The newspaper story quoted a spokesperson from Consumer Credit Counseling who offered the following observation about the “typical” bankruptcy filer in the Northern District of Georgia:
I think that the most telling aspect of these statistics is the amount of credit card debt vs. annual income. If you are trying to service credit card debt that is equal to your annual before tax income, you will never dig out of that hole.
In my practice I often see men and women earning $8,, $9,, even $1, or more – and often their credit card debt will be double or even triple the household income. With interest rates anywhere between 14% to 28%, it is mathematically impossible to pay off credit cards without some large lump sum payments or remedial action by the credit card companies.
It would be interesting to know what percentage of bankruptcy filers in Atlanta have tapped into their 41(k) or other retirement plans (usually a big pre-bankruptcy mistake, by the way). It would also be interesting to know how long these bankruptcy filers waited between the time they first thought about bankruptcy and the time of actual filing.
If you have filed for bankruptcy or if you are thinking about filing, I would be interested to have you post a comment answering the above questions.
Does the following scenario sound familiar to you? The Smith family has had a difficult year financially. John Smith lost his lucrative career as a result of cutbacks to middle management at a previously thriving construction company and has been working two jobs in retail for several months. Jane Smith recently re-entered the workforce after twelve years of staying home to raise children in order to help make ends meet. As the year comes to a close, Mr. and Mrs. Smith realize that bankruptcy is inevitable and decide to have one more wonderful Christmas before confronting the legal steps that will need to be taken. The credit cards come out of the wallets to make this holiday the best one yet. Tickets are purchased for the entire family to attend the Houston Texans’ final game of the season. The girls get new iPods and cell phones. The Smith’s only son, true to his Texas roots, receives new gear to help him prepare for upcoming tryouts for his high school’s football team and a used truck to drive to the games.
The Smiths have no reason to worry because all of the mounting credit card bills will just be included in the bankruptcy settlement, right? In reality, this family may learn a hard lesson about the consequences of their spending practices.
If you are feeling overwhelmed by the debt that you are carrying and you believe that bankruptcy is your best solution, please know that some of the credit card debt you have accumulated may not be dischargeable. Section 523(a)(2) of the federal Bankruptcy Code addresses the problem of credit card binging. This clause exempts from discharge “debt that was obtained if an individual made material and false representations about his financial condition.” This may mean that a person submitted fraudulent information on the credit card application or knowingly made purchases for which he knew he would not be able to pay. The latter issue is the more common situation, and the exemption that describes the scenario involving the Smith family.
A credit card company is going to use Section 523(a)(2) to challenge the discharge of your debt if one or more of the following circumstances exist:
One specific point in the Bankruptcy Code, Section 523(a)(2)(C), deserves special attention from all of those shoppers who are determined to find the perfect gift regardless of cost. Consumer debts owed to a single creditor that total more than $500 for luxury goods or services within ninety days of filing for bankruptcy will be considered non-dischargeable. And, by luxury items the law is not referring to fur coats and yachts. Instead, luxury goods are defined as “goods or services reasonably not necessary for the support or maintenance of the debtor or a dependent of the debtor.”
What does this mean for people who overindulge with their spending during the Christmas season? If you spend thousands of dollars in December knowing all along that you plan to file for bankruptcy once the New Year rolls around, your plans for debt relief may be delayed. If you know that you will not be able to pay for the bills you created during Christmas, you will have to wait at least four to six months into 2010 to file for bankruptcy. In the meantime, you will be expected to make regular payments to your creditors. The bottom line is that you should not view an intended declaration of bankruptcy as an excuse to make everyone happy with the expensive gifts under the Christmas tree.
When it comes to issues of bankruptcy, Texans are in a better position than many others in our country. In 2008, our state ranked forty-sixth in the country for number of bankruptcies filed. While residents of the Lone Star State are proud of being the biggest and best in so many areas, this is one ranking for which we should take pride in being nowhere near the top. However, this relatively good standing does not mean that there are not thousands of Texans who are struggling to pay their bills every month. With the pressure to be a good consumer from the moment that the doors open on Black Friday until the exchanges are made and the clearance items are tagged the day after Christmas, the end of the year only makes already difficult situations even worse.
If you believe that you may be a candidate to file for Chapter 7 bankruptcy, which essentially offers a fresh financial start to those who qualify, make sure that you do not at this point begin to create debt that cannot be discharged. The time to consult with an experienced bankruptcy attorney is now. You need to receive solid legal advice concerning your financial options and any spending pitfalls to avoid while the paperwork is being drafted. Once you know where you stand, try to relax and enjoy the rest of the holiday season at home with family and friends and not at the local mall. Your credit rating and your legal counsel will thank you for it.
My question of the week comes from a client who wanted to know if private student loans he owed on were discharged in a bankruptcy case he filed in 2002.
For bankruptcy cases filed PRIOR TO October 17, 2005, if the PROGRAM under which a student loan was issued, insured, administered was a FOR-profit, PRIVATE (non-government) entity, the loan/debt may have been discharged. However, if the program itself, such as LAL, GSL, etc. received nonprofit funding by participation of nonprofit entities, the loan is not dischargeable in bankruptcy.
To see a ninth circuit case which examines the private vs. government distinction on student loans in bankruptcy, see In re Pilcher
For bankruptcy cases filed after October 17, 2005, the only way a student loan is dischargeable is if the debtor can prove “undue hardship” as that term is interpreted by the courts in whatever district the case is filed in. It is a difficult standard to meet, and the vast majority of student loan debts are not dischargeable.
To see more on how the undue hardship test is applied in the ninth circuit, see http://www.bklaw.com/chapter7/student_loans.html
For cases filed prior to October 7, 1998, student loans were dischargeable if they were in repayment status for a certain period of time.
Sadly, a longtime Jacksonville Beaches developer, Arthur Kirschman, took his own life on December 22nd because of his deteriorating financial condition. As a bankruptcy lawyer, I am always particularly disturbed by stories like this because I believe I could have given hope in a seemingly hopeless situation.
According to a St. Johns County Sheriff’s Office report, Kirschman was “depressed recently about his financial situation.” As the old saying goes, “The bigger you are, the harder you fall,” and in our current economic morass, the biggest are falling the hardest.
I have personally met with dozens of successful entrepreneurs who have lost nearly everything they’ve worked for. It’s one thing to lose your job, but it is something completely different to lose your business.
Plenty of people work 9 to 5 without really caring about their place of employment. As they say, “It’s just a job.” However, nobody owns a business without becoming emotionally immersed into the day-to-day operations, and if the business fails, it is as if your best friend died.
And then there’s the guilt. Small business owners are responsible for employing more than half of all private sector Americans. My little business directly contributes to the financial support of 20 families, and as the owner, I feel tremendous pressure to succeed.
I’m sure that’s how Kirschman felt.
However, maybe the business doesn’t have to die! Chapter 11 bankruptcy (or Chapter 12 for a family farmer) is designed to put the business on life support so that it can be nursed back to health. A business bankruptcy plan of reorganization will restructure all of the company’s debt so that repayment can occur as resources become available. This financial respite can provide peace of mind and an opportunity to return the business to happier days.
Bankruptcy can transform tragedy into opportunity. There are countless stories of companies and entrepreneurs bouncing back after filing bankruptcy, which explains why Chapter 11 filing are way up.
So, don’t give up on your business! Meet with a bankruptcy lawyer who has business reorganization expertise.
Sometimes, our clients are sick, elderly or infirm. Sometimes, they are mentally ill. Or out of the country. The law recognizes the right to act through a power of attorney. The Bankruptcy Rules also recognize the right to act through a power of attorney.
If you plan to file a bankruptcy case on behalf of somebody else utilizing a power of attorney, you’ll want to do some advance planning.
A bankruptcy trustee will want identification and social security information for both the debtor and the person who is exercising the power of attorney. So be sure that this is accomplished. Sometimes, a remote video through Skype or something similar will satisfy any concerns the trustee may have.
Bankruptcy cases through people exercising powers of attorney are possible but tricky. Plan in advance and you’ll be able to accomplish your objectives for those unable to speak for themselves.
Lakelaw represents people in bankruptcy cases in Illinois and Wisconsin. Call us at 1 866 LAKELAW (525-5329).
Most community property states are in the South and West. That’s because the idea of community property came from Civil Law in continental Europe rather than from Common Law in England. Some of the Southern and Western states originally were Spanish or French territory. So these states have some legal heritage from those countries, including the idea of community property.
Wisconsin adopted the idea of community property recently. So it comes as a surprise to many Midwesterners who move to Wisconsin from neighboring states like Michigan, Minnesota or Illinois to find out that their marriage has different economic consequences in Wisconsin.
This can be important in bankruptcy cases. That’s because bankruptcy allows a debtor to get rid of debt. And strictly speaking, debt means claims held against a debtor by a creditor.
Who is a “creditor” in bankruptcy? A creditor is someone who holds a claim. Claim includes a community claim.
So if you are married in a community property state, you are just as liable for your spouse’s debt, incurred during marriage, as your spouse is. That comes as a surprise to many people. The good news is that in bankruptcy, community claims are claims against your bankruptcy estate, even if you are the only debtor who files a bankruptcy case. You’ll eliminate claims against you by reason of your marriage to your spouse in a bankruptcy case because claims include community claims.
For more information about community claims click here.
Lakelaw represents people in bankruptcy cases from Chicago to Milwaukee in Wisconsin and Illinois.