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

How Could A Government Shut Down Impact My Bankruptcy Case-Image via Wikipedia

As federal budget negotiations continue, federal courts are developing contingency plans that could keep the bankruptcy courts and other courts funded for at least two weeks in case there is a government shutdown.

As contentious budget negotiations on Capitol Hill raise the specter of a possible government shutdown this month, federal court official say they are preparing contingency plans that include funding the courts only with collected fees and not congressional appropriations.

Bankruptcy courts, which collect substantial fees from both businesses and consumers filing for relief from creditors, could be a key funding source, said Judge Randall L. Dunn of the U.S. Bankruptcy Court in Portland, Ore.

Dunn, the president of the National Conference of Bankruptcy Judges, said in the shutdowns of the mid-1990s, bankruptcy fees funded the rest of the court system for about two weeks.

But if a government shutdown continued for longer than two weeks, bankruptcy debtors and their attorneys could experience the following:

1. A delay in bankruptcy petition processing. An extended shutdown of the government could cause furloughs of employees, thus creating a shortage of staff available to process bankruptcy petitions.
2. A delay in bankruptcy hearings, including the meeting of the creditors and adversary hearings. Once again, the furlough of employees could significantly delay bankruptcy hearings.
3. The shutdown of the electronic processing of bankruptcy petitions as the court system runs out of money.
4. Finally, some bankruptcy courts may be temporarily closed if a government shutdown goes on for longer than two weeks.  Bankruptcy debtors located in affected locales could see their cases severely delayed due to closures.

(source: http://blogs.wsj.com/bankruptcy/2011/03/01/bankruptcy-fees-could-fund-courts-during-government-shutdown/)

When Is A Creditor In Violation Of A Bankruptcy Discharge Order?-Image via Wikipedia

In a recent Chapter 7 bankruptcy, a debtor was hounded and pursued by a bank after their bankruptcy discharge. The creditor in this case never challenged the bankruptcy discharge; but instead pursued unavoided liens post-bankruptcy.  The creditor had a state court judgment that said the debtor must return property to the creditor. However, the debtor said that they did not have possession of the property.  Once the creditor was informed that the debtor did not have possession of the property, an arrest warrant was issued for the debtor. The debtor was arrested and agreed to pay $750 per month to the creditor so that they could be released from jail.  Is this a violation of the bankruptcy discharge order? Yes.  While a creditor has the right to pursue liens which are not avoided during bankruptcy, they cannot make the debtor involuntarily pay a debt which has been discharged. For example, if there is a lien against the home of a debtor who has received a bankruptcy discharge, the creditor can repossess the home; but they cannot sue the debtor in an effort to make them pay the mortgage.  The debtor can voluntarily pay if they choose; but they cannot be put under pressure to pay by the creditor. Here’s what the bankruptcy code has to say about the bankruptcy discharge order:

The effect of the discharge is not to extinguish the debt, but rather to release the debtor from personal liability. Hall v. National Gypsum Co., 105 F.3d 225 (5th Cir. 1997). Thus the discharge voids the in personam liability of the debtor, but it does not affect the creditor’s in rem rights with respect to property. Matter of Paeplow, 972 F.2d 730 (7th Cir. 1992); Matter of Hunter, 970 F.2d 299 (7th Cir. 1992). It has long been a fundamental principle that unavoided liens pass through bankruptcy unaffected by the debtor’s discharge.⁹ Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992). Thus, a bankruptcy discharge does not affect a security interest that a creditor may have in the debtor’s property. Important here, the creditor’s lien “sticks” with the asset not withstanding transfer of the asset by the debtor. Matter of CMC Heartland Partners, 966 F.2d 1143, 1147 (7th Cir. 1992).

Since the debtor in this bankruptcy case no longer had the property in question it would have been in the best interest of the creditor to file an adversary proceeding with the bankruptcy court charging the debtor with an illegal transfer of assets.  However, the creditor took no such action. The debtor in this case was granted damages due to the creditor’s actions.

(source: http://leagle.com/xmlResult.aspx?xmldoc=In%20BCO%2020110302827.xml&docbase=CSLWAR3-2007-CURR)

Image by dok1 via Flickr

Some have come out against the practice of cramming down vehicle loans which are more than the value of the automobile. But where is the justice in asking bankruptcy debtors to pay inflated debt when they are suppose to be getting a second chance financially through bankruptcy?

As is often the case with about one-third of new vehicle purchases, the debtor trades in their vehicle or “trades up.” Unfortunately the trade in often comes with a hefty price tag, as was the case with one debtor in a Chapter 13 bankruptcy.

Like millions of car purchasers every year, Marlene Penrod went into a dealership with an old car, a 1999 Ford Explorer, wanting to purchase a new car, a 2005 Ford Taurus. She held only registered, not legal, title to the Explorer. Her lender for the Explorer held legal title until she paid off the remainder of the loan. To get legal title to her Explorer, which she needed to trade it in for the Taurus, Penrod needed the entire debt on the Explorer paid off.

Penrod owed more on the Explorer than its agreed trade-in value, and this difference is known in the auto trade as “negative equity.” The bankruptcy court ruled that the negative equity portion of the loan could be treated as unsecured debt. The BAP affirmed this ruling, and the three-judge panel affirmed the BAP.

In this case, the debtor ended up with a loan for $31,000 on a vehicle which was only worth $25,000, and that was at the time of the sale. By the time the debtor filed bankruptcy, the vehicle’s value had depreciated so its worth was significantly less than the loan amount. Some say that the debtor should have been made to pay the full amount in their Chapter 13 bankruptcy, but we say that forcing the debtor to repay the full amount of that bloated loan would have defeated the purpose of the bankruptcy.

(source: http://www.leagle.com/xmlResult.aspx?xmldoc=In%20FCO%2020110228144.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)