Bankruptcy

When it comes to debt relief, there are good guys and bad guys. Unfortunately, the number of scammers entrenched in the debt relief industry is growing, and well-meaning Americans are facing disastrous consequences for working with so-called “credit counselors” and “consolidation specialists” -- all of whom are out to make a quick buck.

As practitioners of bankruptcy law, we know the options available to consumers -- and we are here to help. However, as one recent case points out, many debtors -- unaware of their choices -- turn to unscrupulous con artists for help with their fledgling financial situation, only to end up worse off than when they started.

Earlier this month, the federal Consumer Financial Protection Bureau (CFPB) reigned victorious over one such “debt relief” company, referred to in pleadings as “Morgan Drexen.” And, the verdict is hardly one to scoff at: $173 million.

According to the details of the lawsuit, Morgan Drexen offered clients “bankruptcy” services -- promising to help debtors avoid bankruptcy, or to minimize their exposure once the process began. However, Morgan Drexen performed “little to no” work on the clients’ files, and is even alleged to have falsified bankruptcy pleadings on clients’ behalf.

In essence, struggling debtors relied on the services of this “debt relief” company, and were ultimately taken advantage of in the process. If you are facing a difficult financial situation, the best resource is an experienced bankruptcy attorney that can offer realistic advice and reasonable solutions. As always, if it sounds too good to be true, it probably is.

For anyone defrauded by Morgan Drexen, the CFPB promises to forward letters to all former clients explaining their options moving forward. The letters will contain information as to whether certain debts have been repaid (or not) and what debtors need to do to rectify the situation.

What is being done about the wave of mortgage foreclosures in Ohio? 

The U.S. Department of Treasury recently announced that Ohio will be provided with another $96.6 million under the "Hardest Hit Fund," a federal program designed to help states recover from the foreclosure debacle stemming from the Great Recession. The state is eligible for an additional $250 million in taxpayer funds to bulldoze houses and fight housing blight.  

What is a mortgage foreclosure? 

A foreclosure occurs when a homeowner fails to make full principal and interest payments on a mortgage. A borrower who misses a payment and does not pay it within one month is in "default." After the lender notifies the borrower that the payment must be made in full, and the mortgage remains delinquent after 3 to 6 months, the lender can initiate a foreclosure proceeding. At that point, the lender can evict the homeowner, seize the property and sell it at a public auction. 

The Housing Blight in Ohio 

The additional funds from the Hardest Hit Fund will enable Ohio and other states to clean up the mess from the housing market collapse by demolishing abandoned homes in depressed towns across the state, including 158 vacant apartment buildings in East Cleveland. Ohio previously received $570 million for not only blight removal, but also foreclosure prevention programs. 

The money is used by the state, cities and nonprofit groups in Ohio to counsel or provide financial relief to homeowners who are facing foreclosure, and to tear down abandoned homes. The vacant property is then turned into green space or sold for new development. As homeowners defaulted on their mortgages and walked away from their homes, banks and other lenders were unable to sell many properties in foreclosure auctions. Lawmakers believe the additional funding will help Ohioans recover from the lingering devastation of the financial crisis. 

The White House has employed a number of tools to help Americans who were swept up in the recession and the housing downturn and views the Hardest Hit Fund as a program that will strengthen the housing recovery. Whether there has been a recovery in the housing market so far is arguable, but abandoned and blighted homes certainly have a ripple effect on the values of other homes in the neighborhood. 

Can I save my home by filing for bankruptcy? 

A Chapter 13 Bankruptcy petition may enable you to set up a plan to pay the mortgage payments that are in arrears. The homeowner and lender can agree to a time period for the repayments to be made, but the delinquent payments must be made simultaneously with the current payments. Provided that all of the required payments are made according to the repayment plan, you can avoid foreclosure. If you are having trouble making your mortgage payments, you should consult with a bankruptcy attorney to explore your options. 

What is a fraudulent transfer in a bankruptcy?

Individuals who cannot meet their financial obligations can be relieved of repaying some or all of their debt by filing for bankruptcy. Since the new bankruptcy law was enacted in 2005, however, there are more restrictions and individuals must meet additional requirements to be eligible, including attending credit counseling. Nonetheless, bankruptcy laws have always been complicated and prohibited certain conduct, particularly fraudulent transfers.

This is the overarching issue in a bankruptcy case working its way through the Lenawee County Circuit Court. The case involves creditor claims against a bankrupt Ohio businessman, his son, and nine businesses they own. A complaint by three heating and air-conditioning companies alleges fraudulent transfers of real estate and vehicles by Phillip Cargnino to his son, Zacahari Cargnino, in an effort to avoid payment of debts.

What is a fraudulent transfer?

A fraudulent transfer (or fraudulent conveyance) is an illegal transfer of property by one individual to another party in an effort to defer, hinder or defraud creditors. In bankruptcy law there are two types of fraudulent transfers: actual fraud and constructive fraud.

Actual fraud involves the intent to defraud creditors that occurs when a transfer is made within one year before the date of a bankruptcy filing. Constructive fraud is the transfer or sale of property for an insignificant amount of money to a spouse, relative, business partner or friend. If a trial in bankruptcy court reveals a transfer of property was fraudulent, the judge can order the person holding the assets to surrender the assets to the creditor or make an equivalent monetary payment.

The Lenawee Case

The three companies originally sued Phillip Cargnino before he filed for bankruptcy in 2012. Then, in 2013, a consent judgment allowed him to make monthly payments on debts to these companies that were not discharged in the bankruptcy. The companies began an enforcement action last May after no payments were made, alleging that the son fraudulently received four vehicles, a boat, a Jet Ski and two properties. 

The complaint asks for a judgment against the son for debts owed by the father for about $175,000. The question in this case is if and when the transfers were actually made and whether or not they will be found to be fraudulent conveyances. Lawyers for the Cargninos denied the allegations.

The bottom line

An individual who files for bankruptcy must comply with federal law and regulations. An error can result in the court refusing to discharge the debts. Intent to defraud creditors can have devastating consequences. If you are considering filing for bankruptcy, you should consult with a qualified attorney to make sure you avoid any possible pitfalls.

How do economic trends impact the rate of consumer bankruptcy filings?

While the the American economy continues to show signs of improvement since the Great Recession, some experts believe there will be an an upsurge in filings over the next several months. This prediction is contrary to data that shows that filings in Ohio are down as a whole. More specifically, in the Southern District of Ohio filings were down four percent in 2015, and a whopping 46 percent since 2009.

Why do bankruptcy filings rise when the economy is improving?

According to bankruptcy analysts, a strengthening economy can entice debtors to take greater risks, including pursuing personal bankruptcy protection under Chapter 7 or Chapter 13 of the Bankruptcy Code. One certified bankruptcy analyst recently recently told the the Dayton Daily News, that when the economy is doing better, there are more bankruptcies.

One possible reason for this is that people in better economies tend to be more optimistic about their earnings, so they leverage future earnings by incurring credit debt.

In other words, when bankruptcies are on the rise, consumers have more credit, take more risk, and more go bankrupt.”

Nationwide, trends are showing a “deceleration” in the number of bankruptcy filings, and national averages reveal a 42 percent decline since 2009. In 2015, there were 860,182 bankruptcy petitions filed nationally, a number which has declined just 20 percent since the year before. However, national data also reveals that nearly 62 percent of Americans have no cash reserves on hand in the event of an emergency, and the majority of households are continuing to live paycheck-to-paycheck.

Overall, analysts believe the number of filings will stabilize in 2015, and begin to rise in 2016 and beyond – especially considering the lending trends allowing for easier access to credit.

If you are considering a personal bankruptcy and would like to discuss your options, should you consult with a qualified bankruptcy attorney. 

Is it true that bankruptcy can stop the foreclosure process?

When it comes to consumer bankruptcy, there are more benefits to the Chapter 13 bankruptcy process than eliminating defaults and discharging unwanted debts. Under the rules of Chapter 13 bankruptcy protection, the filing of a petition opts to “stay” -- or, delay – the home foreclosure process, as well as halt the collections measures on any other secured or unsecured debts in place at the time of filing.

Under the rules, Chapter 13 debtors can enjoy an “automatic stay” of debt collections, which will temporarily put a stop to the unrelenting phone calls, letters and harassment techniques of unscrupulous debt collectors. In the context of foreclosure, this can be a much-welcomed relief for those who are struggling to make ends meet -- and fear losing their homes as a result.

Of course, Chapter 13 will not automatically relieve a debtor of his or her obligations under a promissory note and mortgage because these documents remain in place to govern the terms of the loan and encumbrance. Filing the bankruptcy petition, however, essentially “buys time” for the harried homeowner. In essence, the bankruptcy process is designed to help wipe the slate clean for overburdened debtors, which could help free up enough monthly income to resume mortgage payments and stay on the road to financial peace.

In some instances, bankruptcy can eliminate certain junior liens and mortgages in place on a property, such as a home-equity line of credit (HELOC) or similar encumbrance. As well, many unsecured debts such as credit cards or unsecured personal loans will be discharged, creating a much brighter financial future for the Chapter 13 bankruptcy debtor.

If the automatic stay seems like a viable, desirable option for you in light of your current financial situation, you should contact a highly competent bankruptcy attorney.

What are some of the disadvantages of filing for personal bankruptcy?

If you are overwhelmed by personal or business debt, you might be considering filing for bankruptcy.  You are not alone.  Many people have been turning to bankruptcy for a fresh start, especially in this economy.  But, it is important to be aware that with all of the advantages bankruptcy can bring, there are certain disadvantages as well. 

One drawback associated with bankruptcy is that many of the rules vary from state to state.  So, you must be aware of these state specific rules and regulations before moving forward with your filing.  It is also important to understand that you must list all of your property and debts when filing a bankruptcy petition.  Everything, with the exception of exempt property, will be considered part of your bankruptcy estate.

Another pitfall of filing for bankruptcy is the effect it has on your credit report.  The bankruptcy will be noted on your report for 10 years.  This can make it difficult to get credit cards, loans and other types of credit in the future.  You will also have to work extra hard to establish a good credit score moving forward.

Secured debts, or those that involve collateral, will not go away in bankruptcy.  They will still have to be paid, albeit, most likely not according to the original terms.  Bankruptcy also does not get co-signors off the hook.  They will still be liable for the entire debt whether you are released from it or not.  In addition, any collateral can still be repossessed and used to pay back the debt.

One of the largest disadvantages of filing for bankruptcy is that it does not get rid of all debts.  Certain debts are usually non-dischargeable including student loans, taxes and domestic relations payments (alimony and child support)

While there are certain drawbacks associated with bankruptcy, it is important to determine whether the advantages outweigh the disadvantages in your specific situation.  If you would like to discuss your case, please do not hesitate to contact our Miami Valley bankruptcy attorneys today by calling (937) 262-4789 for a consultation today.

 

What is the meeting of creditors and how does it work?

Many people turn to bankruptcy to obtain relief from overwhelming debt. While bankruptcy can give you a fresh start, it usually doesn’t come easily. There are many hoops a debtor must jump through in order to have the slate wiped clean. One of these hoops is the meeting of creditors.

The meeting of creditors, also known as the 341 hearing, after section 341 of the United States Bankruptcy Code, is a scheduled conference where you meet with the bankruptcy trustee assigned to your case. At this meeting, you might also meet the representatives of some of your creditors, but, contrary to what you might think, creditors usually don’t appear at the meeting unless they have a specific reason to do so.

At the meeting, you will be sworn in by your bankruptcy trustee and required to answer questions under oath. The trustee, not a judge, will be the one asking the questions, along with any creditors who choose to appear.

The purpose of this meeting is to ensure that you have been totally forthcoming on your bankruptcy petition with regard to your assets and income. The trustee will usually inquire as to whether you are due any money that could be used to pay creditors. Essentially, the trustee wants to make sure that you have not committed fraud and see if there is any way to get more money for your creditors. The trustee will ask you standard questions. But, the questions may vary if any of your creditors appear. The meeting will usually only last about 10 to15 minutes.

Many people worry needlessly about the meeting of creditors. They are afraid they will be subjected to a lengthy and intolerable inquisition. This is not the case. As long as you have an experienced bankruptcy attorney to prepare you, you have nothing to be anxious about.

Will my co-signer’s bankruptcy negatively affect me?

Perhaps you are, or have been, in this situation. Here is the nightmare scenario: You are signing for a loan, and you have a co-signer, as is sometimes required. Years later, though you have been diligently making your payments as they come due, your loan provider declares you in default. The institution will no longer accept any payments from you or provide any information about the account. The reason given is bankruptcy. You panic; you know you haven’t declared bankruptcy. So what is the problem?

Perhaps the cause of the default status on the loan is that the loan servicer has learned that your co-signer has declared bankruptcy. While it is commonplace for a loan servicer to call an entire loan due if the borrower declares bankruptcy, it is generally not proper to call an entire loan due because a cosigner has declared bankruptcy. This is true of Chapter 13. For the purposes of Chapter 7 and Chapter 11, however, it can depend.

One thing you can do on your own is monitor your credit. This is a proper course of action no matter what your financial situation. You can request your free credit report and look for any reported default. Requesting your free credit report is easy. You can visit annualcreditreport.com to get one free credit report every year from each of the credit bureaus. Be careful, because there are many imitation websites out there that look similar to the real ones.

If you find a default on a report that is due to a co-signer's financial problem, you can file a complaint with the credit bureau to have the default removed from your report. It is important to diligently monitor your reports on a regular basis to protect yourself, hopefully becoming aware of such a situation before it becomes unmanageable.

It is also beneficial to consult with an experienced bankruptcy attorney in your area. This is especially true when your case involves Chapter 7 or Chapter 11 bankruptcy. The laws covering this issue differ depending on which jurisdiction’s laws apply in your situation, and can, therefore, be more complicated to resolve.

In addition to revolving and secured debts, I owe quite a bit in back taxes. Is this amount dischargeable in consumer bankruptcy?

With all the stress associated with substantial outstanding debts, dealing with the IRS on top of it all can bring about significant added anxiety and frustration. Fortunately, for some debtors, it may be possible to discharge a portion of outstanding tax liabilities – provided certain conditions are met.

First, tax debts eligible for discharge must be income-based. In other words, only taxes incurred as a result of regular employment income or gross receipts are dischargeable in consumer bankruptcy. In addition, the following requirements are also in place concerning the dischargeability of income tax debt in a consumer bankruptcy action:

• An outstanding tax debt cannot be the result of a willful tax evasion or intentional misconduct. One important caveat, however, is that the court must find (for joint filers) that both conspired to intentionally evade tax liability – and this requirement may be waived for any spouse who truly was not aware of the other’s criminal behavior.
• The liability must be at least two years old – meaning, the tax return must have been filed at least two years prior to the bankruptcy filing. As well, the return must have been due at least three years ago.
• The taxing authority – state or federal – must have entered the tax debt against the bankruptcy filer at least 240 days prior to filing for relief in a U.S. Bankruptcy Court.

By and large, the requirements surrounding the discharge of income tax liability involve the age of the debt and whether the debtor had an opportunity to try and repay the outstanding tax bill. Keep in mind, as well, the following types of tax are not dischargeable under any circumstances: tax liens, property taxes, taxes an employer is required to withhold (e.g., Medicare, FICA), or non-punitive tax penalties.

Can I represent myself in Bankruptcy Court?

While representing oneself in Bankruptcy Court is permissible, it is not recommended. Self representation is known by lawyers as “pro se.” There are several reasons why representing oneself is inadvisable.

One reason is that the opposing parties will undoubtedly be represented by experienced counsel. It is all but guaranteed that the opposing counsel will have a greater understanding of the procedure and substance, and will use such understanding as an advantage. Opposing counsel is not obligated to be fair to the pro se litigant. Therefore, being represented by an experienced attorney is essential.

Another reason is that court staff, court officers, judges and opposing counsel are forbidden to  assist a pro se litigant. No accommodations can be made. Therefore, in the courtroom, there is nobody who can answer a pro se litigant’s questions about the conduct of the case, and outside of the courtroom, there is nobody to counsel the pro se litigant about the consequences of any proposed actions. Unfortunately, many pro se litigants may not understand these components of  our adversarial system -- that the judge and any court personnel must remain neutral, and that opposing counsel must remain loyal to her or his client. This is another important reason to have an experienced attorney on one’s side.

Perhaps the best reason why not to proceed pro se is that the major questions involved in the bankruptcy process are very difficult to answer without knowledge and experience. Should you file for bankruptcy in the first place? What chapter should you file under? Should you stop paying your creditors? Will you be able to discharge all of your debts in bankruptcy? These are preliminary questions that should be answered by an expert.

The federal courts make resources available to those litigants who wish to handle their own cases on their website at: http://www.uscourts.gov/services-forms/bankruptcy/filing-without-attorney. Here, pro se litigants can view the United States Bankruptcy Code and the Federal Rules of Bankruptcy Procedure. The local court rules are available on the individual court websites. Pro Se litigants can also access Bankruptcy petitions and find out about non-attorney petition preparers.

In spite of the fact that resources are available to assist pro se litigants, in most cases, you are wise to consult with, and avail yourself of, the services of a competent bankruptcy attorney. If you are convinced that proceeding with an experienced attorney is the best course of action for you, call Miami Valley Bankruptcy today at 937-262-4789.

How will the Bankruptcy Court calculate my monthly income if I am 100 percent commissions-based?

Working solely for commission has its highs and lows. On one hand, employees may be able to make significantly lucrative sales deals with clients, resulting in major lump-sum cash payments each month. On the other, the sales sector can be unpredictable, leaving some of the best sales associates without significant income for weeks or months on end. For an employee whose salary is based 100 percent on commissions, this can be extremely difficult to manage – particularly as monthly bills and obligations continue to loom.

For the commissions-based employee who is struggling to make ends meet, consumer bankruptcy may be a viable option to gain financial traction. However, there are some nuances to the practice that may distinguish the commissions-based bankruptcy debtor from a traditional wage earner.

In one pivotal case, a debtor appealed a decision entered by the U.S. Bankruptcy court holding that a commission earned eight months after filing should be considered part of the bankruptcy estate – and therefore subject to disbursement to creditors. In the court’s opinion, it pointed to the language of the Bankruptcy Code that entitles the trustee to encumber the debtor’s legal and contractual interests as part of his assets – and concluded that a pending commission sale would be included in that mandate. In objection, the debtor asserted that, at the precise time of filing, the commission was not in his possession and therefore not a countable asset. The appeals court disagreed, and held that the imminent commission had “value” at the time of the filing, even if not yet realized – and should have been counted in the estate. See, In re Ryerson, 739 F.2d 1423 (1984).

In another similar case, the court held in the opposite after concluding that the debtor still had remaining “post-petition services” to render before collecting the entire commission. In other words, the debtor’s legal interest in the sum had not yet vested at the time of filing as she had not yet fulfilled the terms of the contract in their entirety. Accordingly, the commission was not counted as part of the bankruptcy estate. See, In re Wu, 173 BR 411 (1994).

If you are considering a consumer bankruptcy in Ohio and have questions about how the court will treat your commissions-based earnings, please contact a competent Miami Valley Bankruptcy today at 937.262.4789.