Post-Bankruptcy Survival: Why Debit Card Limits Could Be Bad News For Debtors-Image via Wikipedia

For debtors exiting bankruptcy, the ability to use debit cards for transactions requiring a credit card has been a lifesaver. From purchasing airline tickets to renting a car, post-bankruptcy debtors are depending on debit cards while they save enough cash for a secured credit card and build their credit so they can eventually qualify for an unsecured credit card. But some banks may be planning to limit how much debtors can charge onto their debit cards at one time because of proposed legislation designed to limit interchange fees. Interchange fees are the charges that retailers and other commercial ventures absorb so that they can use the debit card/credit card infrastructure provided by banks.

The revenue banks get from interchange fees helps to offset money lost from fraudulent transactions. So with the Fed’s proposed cap in place, banks argue they won’t have the money to protect themselves against fraud. And, of course, the bigger the purchase the bigger the risk, so banks are considering limiting consumers’ ability to pay by debit card.

“If banks cannot recapture their fraud-prevention costs, it is likely that a lower percentage of transactions at the point of sale would be approved,” Price said. “If the final rules that are issued in April look like the draft, there’s no question that it will impact how we and other issuers price deposit and payment services and what features and benefits are included.”

If banks limit transactions on debit cards we could see transactions being limited to as little as $100 or $50.  This would be a nightmare for bankruptcy debtors who need debit cards while they rebuild their credit.  Debtors exiting bankruptcy need to keep a close look at their bank’s debit card policy in the coming months.  It might even be wise for post-bankruptcy debtors to switch banks if debit card limits are instituted.

(source: http://money.cnn.com/2011/03/10/pf/debit_cards_limit/index.htm?iid=RNM)

Creating Viable Businesses After Chapter 11 Bankruptcy-Image via Wikipedia

The number of businesses filing bankruptcy has increased significantly over the past few years. But how does a company exiting Chapter 11 bankruptcy become truly viable? Let’s take a look at a few post-bankruptcy survival tips for businesses:

1. The secret to post-bankruptcy survival for businesses begins before they ever file bankruptcy. As you may have noticed, many companies work hard to pre-package their bankruptcy, complete with debtor-in-possession financing and creditor concessions. This type of bankruptcy planning can pave the wave for the type of smooth and speedy bankruptcy exit needed if a company plans to remain viable.
2. The next important step for businesses in Chapter 11 bankruptcy is to make sure that their business model is viable.  As we have seen with companies such as Blockbuster and Borders, a business model which is outdated can become a liability and can cause creditors to question the very survival of the company. This type of doubt can doom the company to a lengthy and arduous bankruptcy and/or to liquidation.
3. Companies in Chapter 11 bankruptcy must forge supplier, vendor and leasing agreements which will make it possible for the company to profitably exist after bankruptcy.  Companies such as Blockbuster and Borders found themselves battling to get out of expensive leases and unprofitable contracts with vendors.  But if they or any other bankrupt company wants to survive after bankruptcy, they will need to renegotiate these contracts.
4. Win favorable payment terms during your bankruptcy negotiations.  Post-bankruptcy survival is also dependent upon keeping your cashflow steady. In order to do this, bankrupt companies must negotiate payment terms which allow them to get paid quickly but also allow them to pay within a reasonable amount of time.  Borders is a perfect example of a company which is experiencing cashflow problems because of unfavorable payment terms.

What Will It Take To Eradicate The Need For Medical Bankruptcy?-Image by Getty Images via @daylife

Americans are in debt, and it’s not just credit card debt which is raising the ire of both citizen and politician. Medical debt continues to be a serious issue which offers no “traditional” answers; but instead requires radical thinking about how we approach healthcare in this country.

As it stands, a full 62 percent of all bankruptcy filings in this country are caused by medical bills.  That’s well over half and that’s not counting all of the debtors who don’t bother to file bankruptcy due to fear or ignorance about their rights. Compare that to Canada, which has a miniscule amount of medical bankruptcy filings but has a universal healthcare system which is paid for with taxes, not individually. In this country, many debtors who end up drowning in medical debt have health insurance. They either pay for it through their work or individually. However, with the exception of the most premium health insurance programs, the amount of healthcare actually covered is not enough to prevent a major illness from bankrupting the average American. The truth of the matter is that the average American cannot afford health coverage in this country; not the premiums and definitely not the out of pocket expenses which can run from a few hundred dollars a year to tens of thousands of dollars worth or medical debt after a major illness. The good news is that we have a bankruptcy system which is flexible enough to discharge medical debt. But the bad news is that for those who have ongoing healthcare needs which they can’t afford to treat; bankruptcy is only the beginning of their journey. For those who have exited bankruptcy, right now the best options are group plans which offer adequate coverage which will minimize the chances of accumulated more medical debt.

(source: http://www.cardiovascularbusiness.com/index.php?option=com_articles&article=26659&publication=29&view=portals)

Transfers Of Assets While Insolvent Considered Fraudulent-Image via Wikipedia

In a recent reversal of a bankruptcy judge’s decision on what he defined as “fraudulent transfers” the bankruptcy court found that judge was in error.

In October 2009 Judge John K. Olson of the U.S. Bankruptcy Court for the Southern District of Florida ruled that the payment to the lenders, which came from $500 million Tousa Inc. and its subsidiaries borrowed in July 2007, were fraudulent transfers made while the company was insolvent.

But U.S. District Judge Alan S. Gold of the U.S. District Court for the Southern District of New York reversed that decision on appeal by the lenders in an opinion that criticizes Judge Olson for making legally and factually unsupportable conclusions.

In particular, Judge Gold made repeated reference to Judge Olson’s having adopted in whole or in part 446 of the 448 proposed findings of fact and conclusions of law submitted by the debtors’ unsecured creditors.

Judge Gold said the practice of adopting one party’s proposed order almost verbatim “has been heavily criticized and discouraged by the U.S. Supreme Court and by the 11th Circuit.”

But what is a fraudulent transfer and why had the bankruptcy judge ordered the return of the money in the first place?  Well, the argument in this particular bankruptcy case was that Tousa (the debtor) was already insolvent and knew they were insolvent when they took out the loan and used it to make payments to their other lenders.  That is the key argument in why the transfers were designated as fraudulent.  If we were looking at a personal bankruptcy it would be the equivalent to a debtor taking out an unsecured personal loan to pay their mortgage without any intention of repaying that personal loan.  If the debtor then filed bankruptcy and attempted to discharge the personal loan, the lender could challenge the discharge and/or demand that the payments be returned if they could prove it was a fraudulent transfer and that the debtor was insolvent at the time they took out the loan and made the payments to the other lender.

(source: http://westlawnews.thomson.com/Bankruptcy/Insight/2011/03_-_March/Bankrupt_homebuilder%E2%80%99s_lenders_win_reversal_of_$400_million_award/)

The True Face Of Bankruptcy-Image by Getty Images via @daylife

As the headlines for bankruptcy focus on the sensationalized stories of individuals and companies who choose to engage in fraud and deception, it’s important for us to remind ourselves about the true face of bankruptcy. The true face of bankruptcy is NOT the former millionaire turned fraudster or slickster, it is the ordinary people in our society who have run into a bit of bad luck and misfortune. The true face of bankruptcy is:

• The single mother who has lost her job due to layoffs and now needs bankruptcy so that she can save her home from foreclosure.
• The elderly couple who is inundated with medical debt and now needs bankruptcy so that they can avoid depleting their savings and retirement trying to pay medical bills they can’t afford.
• The recent college graduate who has been unable to find work for the past two years and now they need bankruptcy relief so they can discharge high interest credit cards and other unsecured debt they accumulated during college.
• The businessman whose business took a nosedive after the recession caused customers to cut back and now he needs to restructure his debts in Chapter 11 bankruptcy so that his business can survive.

The true face of bankruptcy are all the ordinary men and women who have come to the end of their financial rope and now need the help of bankruptcy so they can start again. Most people who file bankruptcy use it as their last option and that’s after they have exhausted all other means of solving their debt troubles.  They have no interest in trying to “game” the system, they simply want a chance to start again, and bankruptcy gives them that chance.

Creditors Challenge To Bankruptcy Discharge Must Be Timely-Image via Wikipedia

In a recent Chapter 11 bankruptcy filing here in Texas a debtor’s bankruptcy discharge was challenged after the debtor failed to list a creditor on their bankruptcy petition.

Came on for consideration the motion of Kuldip Nijjar to late file a complaint under section 523(a)(2) against the debtor. Nijjar says that there is a lawsuit pending in Travis County, Texas, in which Nijjar is one of the defendants. In that suit, Nijjar has filed a counterclaim against the debtor. While the pendency of the lawsuit was noted in the debtor’s statement of financial affairs, the existence of Nijjar’s claim was neither listed nor acknowledged in the debtor’s schedules, nor was Nijjar even listed in the creditor matrix. As a result, says Nijjar, he was not even aware of the pendency of the bankruptcy case, much less aware of the deadlines that were then running on filing a complaint objecting to dischargeability.

In this bankruptcy case the creditor failed to file an objection to the bankruptcy discharge in a timely manner. According to the bankruptcy code, the creditor has 60 days from the meeting of the creditors to challenge the bankruptcy discharge.  The creditor in this bankruptcy case did not file their objection until after the 60 day time period had lapsed.  The bankruptcy court ruled that they would not deny the debtor a discharge because the creditor did not prove that the debt should be deemed nondischargeable and that the debtor’s simple act of failing to list the creditor is not enough to deny a discharge.

(source: http://www.leagle.com/xmlResult.aspx?xmldoc=In%20BCO%2020110304631.xml&docbase=CSLWAR3-2007-CURR

Post-Bankruptcy Survival: Stay-At-Home Spouses Could Be Denied Credit-Image via Wikipedia

The Federal Reserve is coming under fire after it proposed that credit card companies consider individual income and not household income when deciding whether they will issue a credit card. Many protested saying that married women (and some men) who don’t work outside the home would be unfairly penalized by the law.  The Fed responded by saying that the nonworking spouse could get a credit card if the working spouse co-signed. This can be especially damaging for married post-bankruptcy debtors who don’t earn an income in a job outside of their home. After bankruptcy, all debtors need to rebuild their credit, and that includes work-at-home spouses.

While it is understandable that the Federal Reserve wants to make sure that credit cards are only being issued to individuals who have an income and can repay the debt.  The Federal Reserve has failed to understand that the income of a working spouse is also the income of a non-working spouse.  Unfortunately, the Federal Reserve has not shown any signs of changing its position.  So what should a stay-at-home spouse do after they exit bankruptcy?  Let’s take a look at a few strategies:

1. The post-bankruptcy debtor who does not work outside of the home could apply for a secured credit card in their name and then slowly earn the right to have it converted to an unsecured credit card.
2. The stay-at-home spouse could ask for their spouse to co-sign their unsecured credit card after they exit bankruptcy.
3. The stay-at-home spouse may want to consider starting an at-home business or even receiving an “official” salary from their spouse as a way of securing their own line of credit after bankruptcy.

(source: http://www.businessweek.com/magazine/content/11_10/b4218030561940.htm)

Post-Bankruptcy Survival: Save For Retirement vs. Paying Off Debt-Image via Wikipedia

Many creditors would have you believe that retirement savings should be completely postponed if you have any outstanding debt. But this line of reasoning defies logic. Post-bankruptcy debtors who still have debts to pay after their discharge need to ask themselves a consider a few things so that they can both prepare for retirement, reduce and eventually eliminate their debt obligations.

1. Post-bankruptcy debtors should consider their age when deciding how much they should commit to retirement savings as opposed to debt repayment. Younger debtors have more time to save for retirement while older debtors will need to take an aggressive retirement savings approach after their bankruptcy discharge. Post-bankruptcy debtors don’t want to take the risk that they won’t have enough for retirement a situation that could force them to take on even more debt  in their elderly years.
2. Post-bankruptcy debtors need to make sure that they have a sufficient emergency fund.  We see what’s happening in this recession with long-term employment. Many debtors remaining jobless for a year or longer. That’s why post-bankruptcy debtors should create an emergency fund that’s able to cover at least 6 months of their living expenses before committing lots of money to retirement savings or to major debt repayment. Once again, failure to have a healthy emergency fund could be financial risky when the post-bankruptcy debtor is faced with a crisis.
3. Post-bankruptcy debtors should make sure that they are maximizing their employer’s matching plan for any 401k fund they have while simultaneously paying off debt.  It may be smarter to literally double your money in an employer matching plan than to spend all of your cash on paying down debt quickly as possible.

(source: http://moneywatch.bnet.com/retirement-planning/blog/money-life/should-you-save-for-retirement-or-pay-off-credit-card-debt/3063/?tag=content;col1)

Post-Bankruptcy Survival: Winning The Credit Card Game-Image via Wikipedia

One of the battles of a bankruptcy debtor’s post-discharge life is rebuilding their credit.  One of the tools of doing this is using credit cards strategically to gain an advantage in the credit rating system.  But how does a post-bankruptcy debtor win the credit card game, and is it even possible?

• Post-bankruptcy debtors must realize that dealing with the credit card industry is much like a game of musical chairs.  Just when you think you got it all covered, the music stops or suddenly changes.  So is the case with credit card companies who are making subtle and not so subtle changes to their terms which are designed to get as much money as possible out of you—the debtor.  That said, smart post-bankruptcy debtors will remain on high alert for changes and be prepared to react to those changes immediately so that they can avoid financial problems. Shopping around for the credit card with the lowest fees and best interest rates is a good starting point.
• Post-bankruptcy debtors must learn to use their credit cards; but to use them responsibly.  More credit card companies are becoming aggressive about cancelling the accounts of credit card consumers who do not use their credit cards.  This is the tricky part of maintaining your credit rating after bankruptcy. Human nature says that if you start to use the credit card you eventually begin to overspend. You’ve seen the studies which say that people who use plastic over cash spend 30 percent more.  Well, it’s true. Post-bankruptcy debtors must make it habit to use their credit card on a regular basis, while developing the discipline to pay it off before the balance accrues interest.

(source: http://moneywatch.bnet.com/saving-money/blog/devil-details/5-credit-card-tricks-for-2011/4081/)

Four Reasons Why Filing Pro Se In Bankruptcy Could Be Costly-Image by Nemo's great uncle via Flickr

As the recession drags on and more debtors turn to bankruptcy for help, many businesses are propping up offering bankruptcy “services” such as online “advice” and forms.  Some are suggesting that debtors skip the expense of working with a bankruptcy attorney and do a DIY bankruptcy filing Pro Se.  However, what they fail to mention that while these pro se debtors may save money in the short-term, the long-term costs of filing bankruptcy without a bankruptcy attorney can be costly. Let’s take a look at how a pro se bankruptcy filing could cost you:

1. Filing bankruptcy has always required the expertise of a professional but after the 2005 bankruptcy reform laws were passed, the process became even more complex.  Just filing the paperwork for bankruptcy is very involved and one mistake could put a debtor at risk for losing their automatic stay protection.
2. Creditors who are looking to squeeze every dime they can out of bankruptcy debtors see pro se filers as easy pickings.  A debtor without a bankruptcy attorney is more likely to have their bankruptcy case and discharge challenged.
3. Bankruptcy law is complex and often changes.  Different rulings by different judges could impact the debtor’s bankruptcy case in a way they cannot foresee unless they constantly stay on top of bankruptcy trends. This lack of knowledge increases the chances of a debtor’s bankruptcy case being dismissed due to debtor mistakes.
4. The bankruptcy trustee will not take responsibility for educating a pro se debtor.  The bankruptcy trustee is there to protect the interests of the creditors and the bankruptcy estate.  For example, if the debtor fails to claim an exemption, the trustee won’t remind them. Pro se debtors have no advocates when they step into bankruptcy without an attorney.

(source: http://www.mortgage11.com/2011/02/filing-bankruptcy-online-with-totally-free-bankruptcy-legal-advice/)