St. Louis Bankruptcy Lawyers Blog

With the substantial decline in housing values, there has been a drastic increase in lien stripping. The Bankruptcy Code allows a Chapter 13 debtor to “strip” a second mortgage (or home equity loan) by turning it into an unsecured debt. Stripping a second mortgage eliminates the monthly payment and can reduce your total debt by thousands of dollars.

A Chapter 13 debtor can file paperwork asking the bankruptcy judge to strip his or her second mortgage when the value of the real estate is completely encumbered by the first mortgage. This means that if you were to sell your home, there would be no money remaining to pay the second mortgage after the first mortgage was paid. This means the second mortgage is completely unsecured. In order to strip a second mortgage, there cannot be a penny of equity securing the loan.

Here is an example: Your home is worth $200,000.00. The first mortgage is $225,000.00 and the second mortgage is $25,000.00. In this scenario, there is no equity in the real estate securing the second mortgage. Therefore, in a Chapter 13 bankruptcy, the second mortgage lien can be stripped.

It is important to note that lien stripping is only available to Chapter 13 debtors. It is not available to Chapter 7 debtors. Additionally, lien stripping only becomes permanent once the Chapter 13 case is discharged. If your Chapter 13 bankruptcy case is dismissed for failure to make plan payments or if you convert the case to a Chapter 7 bankruptcy, your second mortgage will not be stripped, and you will still owe it post-bankruptcy.

In St. Louis bankruptcy cases, lien stripping requires an adversary proceeding, which is a trial within a bankruptcy case. A debtor has to obtain an appraisal of the real estate in order to establish the value of the home at the time of filing. The mortgage creditor will be given an opportunity to respond and even obtain their own appraisal. However, in most instances the creditor does not respond to the complaint and the case is won by default.
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Tax refund season is upon us, and most of my bankruptcy clients are anxious to receive their refunds. In fact, some are so anxious that they take out refund anticipation loans. These loans are offered by some tax preparation services as a way to get your refund money to you faster. Unfortunately, quicker is not always better, and most consumer advocacy groups agree that these loans are not a good deal for the consumer.

A refund anticipation loan is essentially a cash advance loan with a high interest rate and high fees. These costs are in addition to whatever you must pay the tax service to prepare and file the returns on your behalf. These loans are actually very similar to payday loans, which have excessive fees and high interest rates, and are notoriously bad deals for the consumer.

When you take out a refund anticipation loan, you are effectively borrowing against your tax refund. You get your money now, and the tax preparer gets your refund when it arrives. But what happens if you do not get as much back as you had anticipated? There is always the possibility that a mistake was made on your tax return, but that will not eliminate your liability on the refund anticipation loan. If that happens, you are now in debt to the tax preparer, which will result in additional interest and fees being paid to the lender.

Even with these risks, most taxpayers are still willing to consider refund anticipation loans because, in our bad economy, everyone has bills that need to be paid now. Fortunately, the federal government has introduced a new program aimed at offering an alternative to refund anticipation loans for individuals without access to bank accounts. The United States Treasury will be sending information to 600,000 low income individuals as a means to test out the program. The card features include free point-of-sale transactions, free online bill pay, free ATM cash withdrawals at thousands of ATMs nationwide.

Since this is a pilot program, the Treasury will be randomly offering different variations of the card in order to evaluate product features. The results of the pilot will help the Treasure determine the benefits and feasibility of this program for tax refund distribution. This concept is not new. Several government programs have already implemented a debit card program, such as the Social Security Administration. In addition, many employers are offering debit cards as a payroll option or those who are not able to do direct deposit. Ultimately, the goal of this program is to offer a lower cost alternative to individuals who might be interested in refund anticipation loans.

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Most individuals who file for bankruptcy do it with one main goal in mind, and that is to obtain a discharge of their debts. Bankruptcy is a powerful too and can be the key to a fresh financial future. Sometimes, however, a debtor is denied the discharge they so desperately seek, leaving the debtor confused and asking, “Why me?”

There are a few reasons why a judge would deny a discharge of your bankruptcy case. One such reason is that you are not actually eligible to receive a discharge in your current case. The bankruptcy laws have restrictions on how often a debtor can receive a discharge. For example, a debtor can only receive a Chapter 7 discharge every eight years. This means that if you file another Chapter 7 bankruptcy case prior to the eight year waiting period your current case will not be eligible for a discharge. The judge has absolutely no discretion in this situation and your case will be dismissed without your debts being wiped out.

Another reason the court might deny a discharge of your bankruptcy case is for abuse. The Office of the United States Trustee (UST) is appointed to review every Chapter 7 bankruptcy case to determine whether the debtor can actually afford to be in a Chapter 13 bankruptcy. If the UST determines that a debtor has enough disposable income to fund a Chapter 13 bankruptcy, the office will file a motion under section 727 of the bankruptcy code alleging that the Chapter 7 filing is abusive. This motion will ask the court to dismiss the Chapter 7 case without discharge, or in the alternative, convert the case to one under Chapter 13. If the Court finds in the UST’s favor, there will be no Chapter 7 discharge.

Your case could also be dismissed without discharge because you failed to file the proper bankruptcy paperwork, because you failed to disclose assets to the Trustee, or because you failed to attend the Meeting of Creditors. These dismissals can come with restrictions on when you can file another bankruptcy case, and are very serious.

The thought of filing for bankruptcy and then losing your discharge is very scary, and it should be, because it is a very serious matter with devastating consequences.
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Whether you can keep your vehicle after filing for Chapter 7 bankruptcy is dependent upon your unique situation. As a St. Louis bankruptcy attorney, I often counsel clients on whether or not they can retain their car after filing for Chapter 7 bankruptcy. The answer to that question depends on the debtor’s answer to three questions.

The first question: Is the vehicle worth more than you owe on it?

If you have equity in your vehicle it may be at risk for liquidation by the Trustee. In a Chapter 7 bankruptcy, you may lose items that have equity that is not protected by exemptions in exchange for a discharge of your debts. Bankruptcy law allows debtors to keep a certain amount of property away from creditors. These laws are known as exemptions. In the state of Missouri, debtors are allowed to have up to $3000.00 of equity in a vehicle without losing it. If the vehicle has unprotected equity, the Trustee will typically allow you to buy out the equity, and if that is not possible, the vehicle will be sold to pay creditors.

The second question: Is the vehicle worth less than you owe on it?

Many debtors are “upside down” on their car notes, meaning that the fair market value of the vehicle is far less than the balance of the loan. In situations like these, bankruptcy law allows the debtor to pay the fair market value of the vehicle and discharge the difference. This process is known as redemption. When choosing redemption, the debtor must be prepared to pay the value of the vehicle to the creditor in a lump sum. Obviously, most individuals filing for bankruptcy do not have a large sum of money available to pay off a creditor. The good news is that there are companies, such as 722 Redemption, that specialize in redemption loans. These loans often come with high interest rates, but can still save you money in the end.

The third question: Can you afford to continue making your car payments?

If you are unable to afford your monthly payment or if you just do not want the vehicle anymore, it can be surrendered. Surrendering a vehicle means you give it back to the creditor and the remaining debt is discharged. You can simply walk away from the vehicle owing nothing. If you can afford to make the payment and want to keep the vehicle, then you can reaffirm the debt. If you sign a reaffirmation agreement, you are agreeing to still be responsible for the debt after the Chapter 7 bankruptcy is discharged. This means that if you default on payments after the case is discharged, the creditor can repossess the car and you will be held responsible for the remaining balance.

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According to newspaper reports, Borders Group, Inc. has hired bankruptcy attorneys and may well be filing for Chapter 11 bankruptcy relief in the near future. In this bleak economy, the retailer is facing declining sales while competing with internet retailers, such as Amazon.com, with lower overhead and lower prices. Borders recorded a $74 million dollar loss in its latest quarterly report and is currently negotiating deals with creditors whom they do not have the ability to pay according to the original terms of their agreements.

A bankruptcy filing does not necessarily mean the end of Borders, however. Filing Chapter 11 will give Borders an opportunity to reorganize. It is, however, almost inevitable that there will be store closings and employee lay-offs in the near future.

So what does this mean for you as a Borders customer? Not much really. A location near you may end up being shut down, but ultimately your gift cards and Borders bucks should be safe, unless they decide to file Chapter 7 to liquidate all their assets and dissolve the business altogether.

In some instances, a debtor may be what is commonly referred to as judgment proof. This means that the debtor has no assets that a creditor can collect. This typically occurs when an individual is collecting Social Security benefits, which are exempt from garnishment in most cases, and does not own a home or other asset upon which a lien could be placed to secure payment. In these situations, individuals will often stop making payments to creditors rather than file for bankruptcy, thinking that there is nothing their creditors can do to get to them, which is often far from the case.

The phrase judgment proof can be quite misleading. While it is true that creditors typically cannot garnish Social Security benefits that does not mean that they won’t try to get at your money regardless. Once you stop paying your bills, creditors will eventually charge off your account and sell it to a collection agency. This agency will start calling you several times a day badgering you to pay your debt. You may very well explain to the collector that you do not have the money to pay, but that doesn’t mean the calls will cease.

At some point, it is very possible that the creditor will sue you and obtain a judgment against you to collect the debt. You would need to appear at court to provide testimony and supporting documentation to prove to the court that you only receive Social Security and that you have no ability to pay. If you do not show up, a default judgment will be rendered against you. Once a judgment is received, the creditor can serve a levy against your bank account. Since your bank does not necessarily know that all funds in the account are Social Security benefits and are exempt, the bank may very well take the funds from the account. If this happens, you will have to take the necessary steps to prove that the funds were, in fact, exempt, and then wait for the money to be returned to you. While you wait for the money to be returned, you may be unable to pay your bills and other essential living expenses.

Rather than deal with this uncertainty, it might be better to go ahead and seek bankruptcy protection. Bankruptcy stops all collection activity, stops garnishments, stops levies, and stops harassing collection calls. Most bankruptcy lawyers offer free consultations. Once a bankruptcy case has been filed, creditors must cease all collection activity, and chances are most of your debt will be wiped out in a matter of a few months.
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Just to put an end to all the speculation out there about this question, let me eliminate the suspense up front: there are no requirements that you make a certain amount before you qualify for bankruptcy. Now that I’ve ended the suspense, let me delve a little further.

I think what most people have heard is that if you earn over a certain dollar amount, then you cannot qualify for a Chapter 7. And generally speaking, this is true. BUT, there are a great number of factors that go into determining whether or not you actually do earn above that certain dollar amount.

I know that last sentence sounds a bit silly. When someone asks you how much you make, you tell them whatever it is that you earn per year. Sounds pretty straightforward, right? So why are there ‘factors’ that go into whether or not you actually make this amount or not?

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According to bankruptcy statistics collected by various organizations, consumer bankruptcy filing rates in 2010 were the highest they have been in the last five years. There were a total of 1,530,078 personal bankruptcy cases filed in 2010, which is a 9% increase from 2009. In fact, annual consumer bankruptcy filings have increased every year since 2005, when Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act.

In the United States, 1 out of 150 people filed for bankruptcy relief in 2010. Nevada, with its high unemployment rate, has the highest per capita filing rate with 1 out of every 67 residents filing for bankruptcy. Alaska is the state whose residents are least likely to file, with a rate of 1.6 filings per 1000 people. To put this into perspective, that means that someone who lives in Nevada is about seven times more likely to file for bankruptcy than someone from Alaska.

Missouri is number 16 on the list, with approximately 32,471 filings for bankruptcy relief in 2010. Experts agree that signs are pointing towards bankruptcy filings increasing in 2011. “The steady climb of consumer filings notwithstanding the 2005 bankruptcy law restrictions demonstrate that families continue to turn to bankruptcy as a result of high debt burdens and stagnant income growth,” said ABI Executive Director Samuel J. Gerdano. “We expect that consumer filings will continue to rise in 2011.”

The raw data shows a strong preference for Chapter 7 bankruptcy, with consumers filing Chapter 13 bankruptcies only 28% of the time in 2010. Overall, however, both Chapter 7 and Chapter 13 bankruptcy filings increased in 2010, while Chapter 11 filings actually decreased by 4%.

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I hear this a lot from people (even other lawyers). There is a perception out there that anyone who files for bankruptcy must be someone who doesn’t care about the debt that they have, that they are looking for an easy way out, or that they are trying to defraud the system.

Well, I’ve been practicing bankruptcy law for awhile now, and I’ve got to be honest: I have not yet met this person that everyone is talking about. I have yet to be introduced to all the people who are apparently out there trying to pull a fast one on all their creditors. And I’ve been doing this for awhile.

I’ve met with a lot of people over the years, and have filed many bankruptcies to help get them back on their feet (either Chapter 7 or Chapter 13). Most of these people have tried everything in their power to pay back their debts before they come to see me. Some have spent years doing everything they can to stay on top of things. They sell their possessions, cut back on expenses, eliminate non-essentials (like say cable tv), and even go without a meal here and there. By the time they come into see me, they are frequently at the end of their rope.

Now keep in mind, these are people that have done everything within their power to stay afloat. The last thing they want to do is meet with a bankruptcy attorney. And very often, I am the first attorney that they have ever met with in their lives.

There is nothing wrong with these individuals. These are good people. They are working as hard as they can to make ends meet, love their families, help their friends when they can, and DO NOT want to be in a position where they have to file for bankruptcy.

But unfortunately, there are certain circumstances that come up in life. The loss of a job and a severe medical condition are frequent occurances. But there are any number of things that lead people towards bankruptcy.

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There are fewer things that can send your stress levels through the roof than the endless calls you receive from your creditors. They are relentless, aren’t they? Day and night, night and day. From the moment you wake up (or sometimes, they serve as your wake-up alarm clock), to the time you go to sleep (unless you go to sleep before 10pm, in which case their calls will wake you back up again), they call and call.

And no matter what you tell the creditors and collections agencies, they keep coming. You can tell them that you have been out of work for a year, and your unemployment benefits have run out, and you have a physical disability; they keep calling. You can tell them that you have four days to live, the planet is going to be hit be a meteor in a week, and the government has made credit cards illegal; they will keep calling (at least for the next four days).

I don’t mean to make light of the situation, but it would be an understatement to say that the lengths to which the creditors and collection agencies will go is amazing. One of the things that they will do (assuming they have access to the phone numbers) is call your place of work, friends and family members.

How they get the phone numbers of your work, friends and family is anybody’s guess. It could be that you gave them those numbers (and just forgot about it), or they found the numbers on-line, or any other thousand wily tricks they have up their sleeves. But the main reason the creditors call these people is simple: they are trying to humiliate you. And if you think about it, it makes sense. The collection agencies don’t actually believe that they can get any money out of your friends and/or family. But what they are counting on is that after they call your mother and tell her how much money you, that you haven’t paid anything in months, and that the creditor is going to sue, your mother is going to freak out and call you. And getting a phone call from your mother where she scolds you for not taking care of your bills is not fun.

Same thing with the phone calls made to your place of work. If a creditor calls your job and proceeds to tell your manager that you have unpaid debt that is months overdue, and that they are going to garnish your wages as a result, its embarrassing.

But that’s the whole point. The point is to make you feel embarrassed and humiliated, in the hopes that you will cough up some money. Any money at all, even if you have to go and borrow from your mother or co-workers.

However, such tactics are generally unlawful. The Fair Debt Collection Practices Act (FDCPA) is a federal law that prohibits certain ways that the collection agencies collect money from you. Like calling your job, harrassing your friends, and getting your relatives on the phone. The usual fine that carries with each infraction is about $1,000.00. And if there are several such violations, then the associated fines can become quite high.

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