Articles Posted in Chapter 7

Bankruptcy is a very effective tool to deal with financial problems. There are times, however, when it just does NOT make sense. The following facts are from a consultation where I advised AGAINST a filing.

The gentleman had a condominium which had become a financial burden. Like a lot of property purchased shortly before the financial crisis, this one had depreciated significantly. It was a small, 840 square foot condo purchased for about $300,000 in 2006. Upon listing with a realtor, the best offer he could draw $185,000, but the lender would not approve the short sale. He had two mortgages. The payment on the first was about $1,400/month, and the second was about $400/month. The monthly condo fee was $275/month. With rent coming in at $1,500/month, he had to put in $575 a month from his own pocket to carry it. He had recently been pre-approved for a loan to purchase a larger $400,000 for his wife and new baby. He complained he could not afford to keep on paying the condo.

Given his income of $82,000 a year and wife’s $51,000 a year, if they declared bankruptcy, they would likely not qualify for a simple Chapter 7 and would have to pay all disposable income into the court for the next five years. Furthermore, the wife had $16,000 in a money market fund, so the minimum contribution over time would have to be a minimum of $11,000.

Practicing bankruptcy law in the greater Washington, DC area, we often get this question from nervous government employees and defense contractors: “If I file bankruptcy, will I lose my security clearance?”

The answer is: It’s not the bankruptcy itself that is the problem. It’s the underlying circumstances leading to the bankruptcy that is the determining factor.

Think about it. If you got a very serious illness and racked up a million dollars in medical bills you could not pay, and needed bankruptcy relief to stop the collection calls, lawsuits and garnishments, does the bankruptcy — in any way — reflect upon you personally as a security risk? Was the illness your fault? Is it evidence of a personality defect that would make it more likely you would breach security? I think you know the answer.

Sometimes it is worthwhile to put up a fight when you’re being sued on a credit card or mortgage loan deficiency. The truth is, many times, the lender does not have the evidence available to prove the case, or does not have the means to get the proof admitted into evidence — a crucial step to win a judgment for the debt against the borrower.

J.P. Morgan Chase & Co. tacitly admitted this recently when it voluntarily dismissed more than a thousand of its credit card lawsuits across the country. The company won’t admit WHY it took this step which was reported in last week’s Wall Street Journal.

It has been coming to light in the courts, however, that, just like the “robo-signers” that surfaced with the foreclosure mess, credit card lawsuit affidavits of the debt allegedly owed have been signed by employees who are not personally-familiar with the company records and have not verified the debt.

It’s a little known, but extremely valuable, technique employed by experienced bankruptcy lawyers: Using the “automatic stay” feature of bankruptcy to get a repossessed car back into the hands of its owner.

Our DC-based bankruptcy law firm used it the other day to get a car back for a young man who needed his car to get around and commute to his job.

When a car is repossessed, physically it comes under the control of the lender. However, legal title does not pass, and remains with the owner, until a legally-valid auction has been conducted and title then conveyed to the winning bidder, which oftentimes is the lender.

Here are the facts:

  1. All bankruptcy attorneys filing in a specific court charge within a few hundred dollars of each other. This goes for the bankruptcy courts in DC, suburban Maryland. The reason: Bankruptcy fees are disclosed in all cases and they are easily available for viewing on-line by attorneys e-filing in that court. Any attorney wanting to see what the other guy or gal is charging? Go to the court’s website, a few clicks and voila, you know! Everybody charges within that range.
  2. Lawyers are not stupid. (OK, no jokes!) They have to run a business and earn a profit to make a living. The guys or gals who charge low-ball prices and tout inexpensive bankruptcy make up for the lower margins by running more cases through the office in less time. It’s what’s known as a “mill.” Expect less attention and time answering your questions and concerns. You get what you pay for. We get way too many calls from disappointed customers who got no service from such firms.

The new credit card law that went into effect on Monday, February 22, 2010 is one of the few good things to come out of the economic mess. In particular, I like the disclosures in the new statements. So many times clients come to office and they are fooling themselves. I ask about credit card debt, and they answer: “No problem. I’m paying on it.” The minimum I ask? And they say yes. The new statements tell them the truth. Here’s an example from a client’s most recent statement:

– New balance: $6,798.80

– Minimum payment due: $136.00

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