One of the many changes to the Bankruptcy Code in 2005 was the implementation of two mandatory financial education courses that Chapter 7 bankruptcy and Chapter 13 bankruptcy filers are required to take.

The first course, often referred to as the "Credit Counseling" requirement, must be completed within 180 days before the filing of a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. The second course, called the "Debtor Education" or "Financial Management" requirement, must be completed depending on your jurisdiction within 28 days to 60 days after one's 341 Meeting of the Creditors. Recently, there has been a national trend of rulings amongst bankruptcy judges regarding the former Credit Counseling course and effectively preventing "same-day filings".

"Same day filings" occur when a with a client hires a bankruptcy attorney the same day that attorney files their Chapter 7 or Chapter 13 bankruptcy case for them. This situation occurs often when a client has an urgent financial matter. Such urgencies typically include pending real-estate foreclosure sales, vehicle repossessions, body attachments, judgments and garnishments. The bankruptcy judges' ruling that is becoming all-the-more common is the interpretation of the time-frame of when a filer's Credit Counseling course must be completed.

The Bankruptcy Code states that a filer's Credit Counseling course must be completed within "180 days before" the filing of their bankruptcy case. More and more bankruptcy judges are now interpreting this language to mean that a filer's Credit Counseling course must be completed within 180 days literally before the filing of their Chapter 7 or Chapter 13 bankruptcy, and not including the actual day of the bankruptcy filing.

The consequences of filing a case where a Credit Counseling course has been completed on the same day of a bankruptcy filing is in most cases complete dismissal of the filer's Chapter 7 or Chapter 13 bankruptcy. The bankruptcy filing is void as a matter of law, as if it was never filed. Unfortunately, the only practical course of action for the victims of this situation is the refiling of their bankruptcy and the repaying of the requisite filing fee.

In most situations when a client with an urgent financial matter seeking a same day filing walks into a bankruptcy attorney 's office, they have not yet completed their pre-filing Credit Counseling Course because they were unaware they needed to do so. Even with their bankruptcy attorneys' direction to complete their Credit Counseling Course immediately, the fastest a client in this situation could get their bankruptcy filed would be the next calendar day. Often times this can be one day too late.

Andrew Partridge, Esq.



Chapter 7 Trustee Buyouts

May 6, 2007 - 18:10 by apartridge

Last week I had a discussion with one of my Chapter 7 clients about a potential wrinkle to her upcoming bankruptcy filing, commonly referred to in bankruptcy practice as a "trustee buyout".

When this client had retained our firm back in September, 2006, she had indicated to me that her home was worth $240,000 and that she owed $209,000 on a single mortgage. She had based this $240k valuation from a refinance appraisal she'd received in March, 2006. She was current on her monthly mortgage payments and wished to keep her house through the Chapter 7 bankruptcy via reaffirmation. Unfortunately, due to an illness from which she suffers, things went delayed and we are just now getting to the point where we're ready to file her Chapter 7 bankruptcy for her.

Last week's new issue came to light when my client told me that a condo identical to hers in her building had sold in the last month for $250k. Concerned about the possible change in circumstances and how it may affect her future Chapter 7 filing, I did some due diligence on her behalf and checked several websites that produce "CMA's" (comparative market analysis). The property indeed was being valued on these websites at closer to $250k than the $240k valuation she had initially told me.

When filing a Chapter 7 or Chapter 13 bankruptcy, a filer is entitled to protect a certain amount of equity in their homestead property. The homestead exemption only protects equity in a property that someone lives in. Equity is the difference between what the property is worth after cost of sale and what is owed in total on the property. While it varies from state-to-state, the homestead exemption in Illinois where I practice is $15,000 per person. (Note: The exemption doubles to $30,000 in Illinois for a married couple's joint filing.)

My client owns her property in fee simple, which means no one else is on the deed to her house. As a general rule, a trustee will typically allow a 7-9% cost of sale deduction off of a house's valuation to account for broker fees, taxes due at sale, etc. So in this case, with my client property being worth $250k, deducting an 8% cost of sale would leave the value at an even $230k. Remembering that my client owes roughly $209k on her condo, the equity difference between $230k and the $209k owed would be $21k. Because we can only protect $15k of equity at filing in Illinois, this means that the equity in her house is $6k above the exemption amount and could thus be perceived as an asset for liquidation by a bankruptcy trustee.

At this point, I suggested to my client that we needed to get a current appraisal on her property to determine the actual value. She did this immediately and the condo's value was indeed appraised at $250k. I then gave my client several options on how we could proceed from here:

  1. We could file a Chapter 13 for her instead of a Chapter 7 to protect the exposed equity in her condo. She would be required to pay back at least $6k of the $50k in credit card debt she owed to match the amount that could be liquidated in a Chapter 7.
  2. She could sell her house prior to filing the bankruptcy, protect up to $15k of the equity, and spend down the remaining $6k or so on necessities, like rent, food clothing, etc.
  3. We could file a Chapter 7 for her and if necessary negotiate a "trustee buyout".

My client had no interest in selling her house and much preferred filing a Chapter 7 bankruptcy to a Chapter 13 bankruptcy, so we decided together that a "trustee buyout" was her best course of action.

In a Chapter 7 where a filer has an asset worth above the allowable exemption, it is usually possible to negotiate an arrangement with the Chapter 7 trustee to pay him the cash amount equivalent to the valuation of the exposed asset and protect the asset itself. In my experience, the payment arrangement can vary in time from 3 months to a year, or even possibly a one-time lump sum payment. It is also often the case that a trustee in a Chapter 7 proceeding will choose to ignore an asset that he could potentially liquidate. If a trustee believes that he could not make a meaningful distribution to the creditors listed in the Chapter 7 proceeding, he can choose to acknowledge the asset but pass on liquidation or further action because the value of the asset is too small to make any kind of repayment dent to the creditors as a whole. Hopefully in my client's situation above, this will be the case.

--Attorney Andrew Partridge


Top 10 Bankruptcy Mistakes

May 1, 2007 - 22:51 by rwaple

Bankruptcy mistakes can be very costly and all too often an individual filing bankruptcy will make inadvertent mistakes that jeopardize their chance of discharging their debts and retaining exempted property. Avoid these Top 10 mistakes and you will be well on your way to a successful bankruptcy filing.

  1. Transferring Real Estate or Other Assets:

Some people try and protect their assets by transferring them out of their name, but this strategy will not work in a bankruptcy proceeding. Recent property transfers must be disclosed to the bankruptcy trustee and the bankruptcy court may “avoid the transfer” and put the parties in the same position they were in before the transfer. Even if you don’t feel that the property or asset that your name is rightfully yours, the bankruptcy court may still “avoid the transfer”. It is often unnecessary to transfer any property or assets before filing bankruptcy as each state has bankruptcy exemptions designed to protect all or a portion of your assets.

Bankruptcy Exemptions by State

  1. Transferring Credit Card Balances:

Transferring a large amount of debt to one credit card can result in debt on the new credit card not being eliminated due to the large amount of debt incurred to one creditor right before filing bankruptcy. The new creditor may have a strong argument that the balance transfer should be presumed fraudulent, especially if the transfer was within 60 days prior to filing and over $1500.

  1. Repaying Loans to Family Members:

The bankruptcy code requires that you treat all of your creditors equally and does not want you choosing which creditors to repay right before filing bankruptcy. The bankruptcy code does not allow you to repay Uncle Bob the $2000 from when the furnace went at the expense of your other creditors. The bankruptcy trustee may pursue the relative for a portion of the funds recently transferred to them. You are required to list debts that are owed to family members, but assuming there is no discharge objection brought, the debt will be legally eliminated and you can repay the loan if you choose to.

  1. Not Including All Your Debts on your Bankruptcy Petition:

You are required by law to include all of your debts on your bankruptcy petition, even if you want to keep the debt. If you want to keep your house and automobile when you file a Chapter 7 bankruptcy , you usually will sign a reaffirmation agreement with the bankruptcy court excluding the discharge of those specific debts.

  1. Ignoring Lawsuits:

Many people fear lawsuits and don’t know what to do when they get a summons in the mail. In most cases, if you have already filed bankruptcy and receive a summons from a debt listed on your bankruptcy petition, your bankruptcy attorney should be able to fax your case information to the creditor’s attorney and get the case dismissed. However, if you are in the process of filing bankruptcy, but the case is not officially filed yet, it can be helpful to attend the designated court hearing and request a continuance to give you an opportunity to file for bankruptcy relief.

  1. Withholding Information from Your Bankruptcy Lawyer:

Bankruptcy Lawyers are often frustrated at 341 hearings when their clients are placed under oath and disclose new information that was previously withheld from their attorney. Bankruptcy lawyers need all the requested information to properly advise you and protect your income and assets. The horror stories about bankruptcy that we’ve all heard are frequently due to an individual failing to disclose vital information to a qualified bankruptcy attorney for proper advice and planning.

  1. Cashing in 401(k)’s, IRA’s, and other Retirement Funds:

Generally, 401(k)’s, IRA’s, and other retirement funds are protected from the reach of your creditors and are allowed to be kept during and after a bankruptcy. However, a common mistake is people cashing in their retirement accounts or obtaining a loan. The money that is taken out of your retirement account is no longer protected from your creditors, and you’ll likely owe penalties and taxes on any accounts that were cashed in.

  1. Filing Bankruptcy when you are expecting a Large Tax Return:

In many states, a tax refund is considered to be an asset that can be liquidated if the bankruptcy exemptions aren’t enough to protect it. Depending on the amount of the refund and the relevant state laws, it is often advisable for you to receive your tax refund and spend the proceeds on living necessities before the bankruptcy is filed. Many states offer a “wildcard” exemption that can be used to protect tax refunds among other things.

  1. Waiting Until the Last Minute Before Filing Bankruptcy:

The moment you file a bankruptcy an “automatic stay” goes into place which prohibits your creditors from any further collection activity against you, but it is unlikely that you will be able to recover any wages garnished or property taken before the filing of the case. Too many people wait until their creditors have already taken action against them before consulting with a bankruptcy attorney. It can take considerable time to prepare the bankruptcy petition, review the relevant documentation, and be certified by a trustee approved credit counseling agency. Once you have made the decision that bankruptcy is your best alternative, you should file as soon as possible to avoid anymore creditor harassment and allow yourself to put future earnings towards long-term goals and savings instead of chipping away at an insurmountable amount of debt.

  1. Not Hiring a Bankruptcy Attorney:

Fortunately, experienced bankruptcy attorneys are aware of all of these common mistakes and many more. Bankruptcy is a complex area of the law and the process has being further complicated with the new bankruptcy laws. Mistakes can be costly and a thorough case evaluation from a local bankruptcy attorney is the best way to identify any possible issues and develop a strategy to relieve your debt problems. Receive a Free Legal Evaluation with a local bankruptcy attorney.

by Richard J. Waple, Attorney at Law


Comparing Garnishments and Voluntary Wage Assignments

April 25, 2007 - 18:47 by apartridge

For as long as I've practiced consumer bankruptcy law, a common issue that has confused my clients is the difference between court-ordered garnishments and voluntary wage assignments. Garnishments and wage assignments are both methods of creditor collection where monies owed are taken directly out of a person's paycheck. The pivotal difference between the two is that one is mandatory while the other is voluntary.

Garnishments: If your employer, payroll department, or human resources department receives a court-ordered (and usually court-stamped) notice of wage deduction, this means that a collection judgment has been entered against you and the creditor who sued you is exercising their legal right to collect the money owed to them via your paycheck. Your employer must comply with this court-order, or they themselves can be held in contempt of court and subject to fines, etc. Depending on the jurisdiction on which you live and pursuant to any instructions on the order, your employer much start the garnishment coming out of your check typically within two to four weeks after receiving the order. Being mandatory, the only way to stop a pending garnishment in most cases is either by filing Chapter 7 or Chapter 13 bankruptcy, or by paying the creditor off in full via a lump sum payment.

Voluntary Wage Assignments: A voluntary wage assignment is a contract that a person signs at the time they apply for a loan or credit. These are typically used by creditors to assure that they have a way to collect on a borrower (often with less-than-perfect credit) should that person default on the loan or credit they've extended to them. The contract states that if the borrower should not make their payments to the creditor timely, the borrower gives the creditor the right to submit the voluntary wage assignment to their payroll for collection. (Payday Loan places, jewelery and furniture stores that extend people credit directly are the creditors that use wage assignments the most often from my experience.) While filing a bankruptcy is the only way to stop a court-ordered garnishment, a written revocation is all that's necessary to stop a voluntary wage assignment. A simple letter from you or your bankruptcy attorney notifying your employer and the creditor who issued the wage assignment is all that's needed to prevent or stop any further funds from coming out of your paycheck.

--Attorney Andrew Partridge
--Bankrutpcy HQ



Transfers of Real Estate and Bankruptcy

April 20, 2007 - 19:12 by apartridge

Last night I had a consultation with a prospective client who in the previous year had lost his good-paying job and had been forced to take part-time work at much lesser pay to make ends meet. Because of his decrease in income, he'd resorted to overspending on his credit cards and now has $60k of unsecured debt that he can not repay.

Unfortunately, I wasn't able to help this individual because of actions he had recently taken before coming into my office.

In January, 2007, my prospective client quitclaimed the fee simple interest he possessed in his homestead to his longtime live-in girlfriend via a quitclaim deed. At the time of the transfer, the house was worth $300k and the balance on the only mortgage was $140k. He was quite frank with me that the reason he transferred the property out of his name was because he was planning on filing a Chapter 7 bankruptcy in the near future, and did not want to lose his house to the bankruptcy court and his creditors.

It then became my unenviable job of telling him that what he'd done would not prevent the court from seizing the house as an asset in a Chapter 7 liquidation bankruptcy. The issues here are one of equity and one of transfer. In Illinois where I practice, an individual can protect up to $15k of equity in their homestead. (PLEASE NOTE: The homestead exemption varies state-to-state .) Even after a cost of sale analysis to account for broker fees, etc., my prospective client had over $130k of equity in his house. After deducting the $15k homestead exemption, this would leave roughly $115k of exposed equity in the house were he to file a Chapter 7 bankruptcy. In this case, a bankruptcy trustee would seize and liquidate the house and use the monies to repay this person's creditors. Any surplus of sale would be returned to the client after all qualifying debts had been paid.

The fact that he'd transferred the house before the filing of bankruptcy will not stop the court from pursuing the equity in this situation. All transfers of assets within a two-year window prior to filing must be disclosed on a Chapter 7 or Chapter 13 bankruptcy petition in the Statement of Financial Affairs. A bankruptcy trustee by statute possesses the power to offset any transfers within a four-year window prior to filing if he deems the transfer to be fraudulent and if there's a sufficient asset to make a meaningful distribution to the filer's creditor's.

In this case, had I filed a Chapter 7 Bankruptcy for this person, his assigned bankruptcy trustee would have "set aside" the fraudulent transfer and sold the property out from under the client so he could repay the $60k of credit card debt the client had incurred with the proceeds of sale from the house.

To make matters worse for this person, I also unfortunately could not put him into a Chapter 13 repayment plan because he no longer possessed the requisite household income to repay his debts and maintain his necessities, i.e. mortgage payment, food, clothing, transportation, utilities, etc.

Thus, I had to break the bad news that the only options he has now are either to sell his house and use the money he receives from the sale to repay his debt; somehow legitimately increase his income so he can support a Chapter 13 repayment plan; or wait the four year period until February, 2011 to file a Chapter 7 Bankruptcy so a trustee can not set aside the transfer at issue.

The lesson to be learned here is simple. If you are contemplating materially changing any aspect of your financial situation before filing bankruptcy, make sure to consult with an experienced attorney who can advise you if your intended actions would be potentially damaging to your future case.


--Attorney Andrew Partridge


Less Individuals File Bankruptcy in 2006

April 19, 2007 - 19:52 by rwaple

On Tuesday, The American Bankruptcy Institute released filing statistics for the 2006 calendar year. The total number of bankruptcy filings in 2006 was down 71 percent, to 618,000 bankruptcy filings, from a record high in of 2.1 million filings in 2005. Bankruptcy filings were the lowest since 1980. States showing significant declines in bankruptcy filings include Louisiana , West Virginia , and Oklahoma .

This dramatic decrease comes as no surprise and is largely due to the sudden surge in filings seen leading up to the enactment of the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” (BACPA) and the rush to file before BACPA was enacted.

There is always a percentage of the population that needs a bankruptcy and are effectively insolvent, but don’t actually file for bankruptcy protection until a triggering even leaves them with no other viable options. Typically, filing bankruptcy is triggered by some form of collection activity, such as harassing phone calls, foreclosure, repossession, garnishment, or law suits. However, the bankruptcy law change in 2005 acted as a trigger for the thousands of people who were on-the-fence and were motivated to file bankruptcy before the uncertainty of the new bankruptcy laws. This explains a large part of why 2006 filings were down so dramatically, and I’d expect them to gradually rise as the amount of people who need a bankruptcy increases. The recent increase in foreclosures and the rising use of consumer credit are expected to further contribute to an increase in bankruptcy filings for 2007.

Bankruptcy Filings for 2006 were at their highest in the fourth quarter and are increased each quarter, with a further increase expected for first quarter 2007.


New Century Financial Files Bankruptcy

April 3, 2007 - 19:03 by rwaple

On Monday, New Century Financial filed for Chapter 11 bankruptcy protection in Delaware. New Century, once the nation’s second largest subprime mortgage lender, also announced plans to fire 3,200 employees, about 54 percent of its work force. As part of the restructuring plan, New Century will sell its loan servicing business to Carrington Capital Management for $139 million.

New Century is the latest subprime lender to fall casualty to the dramatic increase in defaults and foreclosures nationwide. Many homeowners have seen their monthly mortgage payments increase as interest rates have risen. Due to the recent popularity of Adjustable Rate Mortgages and interest only loans, many homeowners are facing steep increases in mortgage payments as interest rates rise and fixed introductory payment periods end. Chapter 13 bankruptcy can stop a foreclosure, but you must have sufficient income to continue with the regular mortgage payments in addition to a court ordered payment to catch up on the mortgage arrears and pay off a percentage of any other debts.

The credit industry is responding to the recent collapse of the subprime market with a tightening of qualifications and some have stopped subprime loans altogether. Although it is still relatively easy to obtain a mortgage after a bankruptcy, consumers should expect to find fewer loans available immediately following a bankruptcy discharge.

Risky, or irresponsible, lending extends too many other areas of the credit industry, including pay-day loans, financing offers, credit cards, and auto loans. These industries have not received as much attention as the subprime mortgage industry, but there is clearly an over-extension of credit to consumers that simply cannot afford to carry the amount of credit given to them. These debts typically have high interest rates and unreasonable payment terms that often lead to default. The lender is harmed by the high amount of defaults, and the consumer is often forced to consider bankruptcy or other debt relief options.


Cleveland has officially joined the growing list of Midwestern cities that have seen a severe increase in foreclosure filings over the last year, and there’s no sign of this dubious trend stopping anytime soon. While subprime mortgage defaults have recently rocked Wall Street and damaged our national economy, the effects of these shady lending practices are being felt by families nationwide, especially so in the Midwest. Michigan and Ohio alone accounted for a combined 15% of the nation’s foreclosures in January, 2007.

Cleveland is in a similar situation to Detroit and other blue-collar working towns in the Midwest experiencing this unfortunate foreclosures spike. Many factors are deemed responsible for the problem - a poor economy, predatory lending tactics, weak consumer protection laws, shady lenders trying to exploit the loosely regulated subprime market for their personal gain, and financially unqualified people obtaining home loans.

The problem however isn’t confined to just the metropolitan areas either, it’s a true statewide problem for Ohio, Michigan and other Midwestern states.

While the SEC (Securities and Exchange Commission) has recently publicly announced that it is investigating a number of companies that operate in the troubled market for subprime mortgage loans, this won’t unfortunately assist or help the families who have fallen or hard times are facing losing their homes in the near future.

Based on household income and an ability to repay, Chapter 13 Bankruptcy is the most effective way to stop foreclosure proceedings. Chapter 13 forces your mortgage company to accept repayment of mortgage arrears over a three to five year period and allows people to stay in their homes. If you or someone you know is involved or will soon be involved in a foreclosure lawsuit, an experienced bankruptcy attorney may be able to help.


--Attorney Andrew Partridge


2006 Fiscal Year Bankruptcy Statistics Released

March 15, 2007 - 18:49 by rwaple recently released bankruptcy filing statistics for the 2006 fiscal year. (October 1, 2005 – September 30, 2006) The total number of bankruptcy filings for the 2006 fiscal year (1,112,542) was the lowest amount since 1996. Chapter 7 bankruptcies accounted for 75 percent of all petitions filed in the 2006 fiscal year.

The numbers for this time period are deceptive, because over 50% of all bankruptcies filed during this period were filed in the first 16 days of the fiscal period. This is a result of a rush to file cases before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BACPA) that went into effect October 17th, 2005.

The drop-off in filings after the law change was largely expected by the bankruptcy legal community, but many bankruptcy attorneys did not expect the decrease in filings to last for so long. As the public becomes more educated about the new bankruptcy laws, I expect bankruptcy filings to gradually increase, especially with the large amount of homes currently in foreclosure nationwide. Chapter 13 bankruptcies will become increasingly popular as more homeowners need to seek bankruptcy protection to stop a foreclosure on their home.

Attorney Richard Waple


Chase Forgives Credit Card Debt

March 12, 2007 - 16:48 by rwaple

Last week, a Senate committee summoned top executives from Bank of America, Chase, and Citigroup to review unfair credit practices that can punish people who need the most help.

Wesley Wannemacher of Lima, OH, testified on how his $3,200 of credit card debt grew to $10,700, due to late fees and a 30% interest rate. Wannemacher incurred the original credit card debt in 2001, mostly to pay for his wedding. After making $6,300 in payments since 2001, he still had a remaining balance of $4,400, thanks to $4,900 in interest, $1,100 in late fees, and $1,500 in over-limit fees.

Chase decided to forgive the remaining $4,400 of Wannemacher’s debt, and even offered him an apology. “We simply blew it”, testified Richard J. Strednicki, Chief Executive of Chase’s card services division. Chase also agreed to stop charging over-limit fees at 90 days.

This is great news for Mr. Wannemacher, but what about the rest of Chase’s customers who have also been subject to similar interest rates and fees? Now Chase has admitted that it “blew it” and waived the remaining debt, I would hope that Chase would be willing to waive the debts of the thousands of their customers with similar stories, especially those with excessive over-limit fees.

Chase opened the door for others to contact them to discuss debts incurred through unfair practices, “We look at any situation in which we have made a mistake,” said Paul Hartwick, a spokesman for Chase. “We think that we are pretty fair and responsible in the way we deal with our customers.” If you have a debt with Chase, I encourage you to call them and request for any excessive fees to be waived. Unfortunately, without the high profile of Mr. Wannemacher’s case, I fear that your results might not be as good.

Mr. Wannemacher’s story is very similar to many bankruptcy clients that I have consulted. It seems like the credit card companies money making strategy revolves around pushing consumers into more debt than they can handle, then hitting them with every sort of late and penalty fee they can imagine. Finding the disposable income to climb out of debt can be very difficult, but is often impossible when the interest and fees are so high. At some point, consumers are left with few choices, and filing bankruptcy can be the best alternative.

It’s time for the Government to step in and take some responsibility for stopping the unscrupulous tactics of the credit industry. Relying on the credit card executives to change their own policies will result in nothing more than superficial changes, and a token forgiveness of $4,400 is just a drop in the ocean that isn’t going to help the rest of Chase’s customers who are also victims of unfair credit practices.

Attorney Richard J. Waple


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