Manage and Reduce Debt

Many people view bankruptcy as a quick and simple way to get out of overwhelming debt. While bankruptcy is, in fact, a solution for many, it should be viewed as a last case alternative. If there is a way to reduce your debt to a manageable level, or eliminate it altogether (yep, debt free), this is almost always favorable to filing bankruptcy.

Toward this end, how can one get a handle on reducing debt. First, one should be aware of scam artist. There are many organizations that will be happy to take your money with the promise of paying off your credit cards. It usually involves a company paying your credit cards, as they can work something out with the credit card company, as they collect your money. Of course, they collect their fees from your money before paying anything. The question I always have is, does the organization you are sending your money to, do something you can not do yourself?

Recently, I received a link to a CNN Money article about the reduction in the average credit card debt, and included a link to CNN Money. The article list 6 online solutions to debt relief. While they do have some drawbacks, they should be looked at. Best of all, they are free. You don't send them any money. They simply try to give you a game plan. Their web sites are as follows:

ReadyForZero

LearnVest

PayOff

CreditSesame

Bills.com

Mint.com

I DO NOT endorse any of these sites! They are simply here to show you some of the sites referenced by CNN Money.  Please beware the internet can be full of scams, viruses, malware, etc.

Traffic Crash, Bankruptcy, and Who Pays

So, you are in a traffic crash. Of course, as soon as you see one of those 800-ASK-???? adds, everyone that thinks the other person is at fault becomes injured. They call their local attorney, instead of an 800 number, and get signed up.

Well, how about the person that is at fault. It could very easily be someone that is having financial difficulties anyway. In fact, it could be you. So, if you file bankruptcy, will you still have to pay the other driver you injured? This questions should more appropriately be rephrased to ask if you file bankruptcy, will the injured party still be able to collect? While these questions look very similar, there actually is an important distinction I will hopefully make clear by the time you finish reading this blog.

First, we should look at the cause of the wreck. If you were impaired at the time of the crash, you may not be able to discharge this debt. According to the bankruptcy code, you will not discharge a debt “for willful and malicious injury by the debtor to another entity or to the property of another entity” (11 USC 523(a)(6)). So, if you were partaking in some recreational activities causing you to become impaired at the time of the crash, you could very well fall under this exception to the dischargeability of the debt.

Now, lets look at what happens if the debt is actually discharged. After you file the bankruptcy, you can expect the Plaintiff, or injured party, to hire an attorney and file a motion for relief from automatic stay. What the heck does this mean? It, for the most part, is the injured party, through their attorney, asking the bankruptcy court to allow him or her to proceed in state court outside of bankruptcy. If the relief is granted by the court, the order will generally limit the injured party to being able to proceed, but not collect directly from you, the debtor. They are limited to collecting from third parties, such as insurance companies.

So, if you file bankruptcy, an injured party may still be able to collect, but if you receive a discharge, the injured party may be limited to being able to collect from your insurance company.

Y is for Yacht

The letter “Y” is for Yacht. That's right! Can I keep it? Am I off my rocker? After all, we are talking about bankruptcy right? Well, some people, though admittedly not many, have boats, or a yacht, that end up filing a personal bankruptcy.

One of the questions I ask at every consultation is whether or not he or she has any cars, boats, planes, or recreational vehicles. Most, including me at times, think this question is overkill. However, being in Florida, it is not uncommon for debtors to have boats.

The Blog article in the Wall Street Journal reported onSeptember 16, 2010, the following:

A bankruptcy trustee recently won court permission to hire real-estate and yacht brokers to sell the assets of Frederick Darren Berg. Berg’s mansion in Mercer Island, Wash., is listed at $8.2 million, according to the Seattle Business Journal. Located on Lake Washington, the 5,400-square-foot house has four bedrooms, six baths, six fireplaces, a hot tub, wine cellar, wet bar and two kitchens. That’s not to mention its city and mountain views, boat dock and covered parking for four vehicles.

Also up for grabs is Berg’s 70-foot Holland yacht, the Screaming Cora, which Berg says is worth $800,000. Sale proceeds will pay off Berg’s creditors, including Sun Trust Bank (owed $797,450 on a boat loan secured by the yacht) and Commerce Bank of Washington (which holds the $4.38 million home mortgage). [emphasis added]

So, yes, there is at least this bankruptcy proceeding that included a yacht. Normally, boats and planes in the name of the debtor are not exempt from the bankruptcy process. The trustee would take the asset and sell it (assuming there is equity in the asset) in order to distribute the proceeds to creditors.  Of course, in that case, the Trustee is thinking of Y as meaning "yield".

In Florida, however, if someone was living on there boat, or in there RV, they might be able to claim the asset as their homestead property. You see, the Florida Constitution provides for unlimited homestead protection, and though there are not many cases involving yachts being claimed as homestead property, there are a few cases involving boats. Unfortunately, there is not a bright line as to what can be claimed as homestead property, and what can not be claimed as homestead, though the cases provide some very useful insight into how the courts will rule.


So, if you have a yacht, or RV, that you live in, and are curious about whether you will be able to keep the asset after filing bankruptcy, you should consult with a bankruptcy attorney in your area.


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Other articles involving the letter Y are:

Y is for Young vs. the United States (2002)

"Z" is for Zero

Zero.  When you think of zero, what do you think of?  Is zero a verb, noun, or adjective?

Obviously, the word zero can mean many different things.  However, when one is contemplating bankruptcy, the field of meanings may be narrowed a bit.  It could refer to a zero balance in the bank, or perhaps the amount you are eligible to barrow, or the number of creditors continuing to extend credit.

What one may not think of is zero-rate, referring to a value added tax, or zero-sum whereby gains equal losses. If you were to ask a bankruptcy attorney what zero means, you might find he or she refers to a zero percent plan.

So, what is a zero percent plan? The filing of a Chapter 13 bankruptcy includes something called a Plan.  The Plan, once confirmed, or approved by the Bankruptcy Court, controls many aspects of the case as an agreement between creditors, debtors, and the Trustee assigned to your case.  It will include how much money is to be paid to the bankruptcy estate, how often, and for how long; it also includes how those funds are to be distributed.

So, how does zero apply to the Plan?  No, it does not mean No Plan.  It refers to the amount, or percentage of the payments in the plan paid to unsecured creditors, such as credit cards and medical bills.  So, for instance, in the typical Chapter 13 bankruptcy, priority creditors, like the IRS, the Trustee, your attorney, and support payments, would be paid first; then secured creditors, like mortgagees, would be paid.  After they are paid, any additional disposable income is paid to unsecured creditors.  When there is nothing left to pay unsecured creditors (or less than 1%), then you have what is sometimes referred to as a zero percent plan to unsecured creditors.

While some courts allow such treatment of unsecured creditors, others do not.  If you are contemplating filing such a plan, you should check with a bankruptcy attorney in your area to see if this is permitted within the division you are filing in.

Other attorneys speaking about the Letter Z include:
Caldwell Law, LLC

Video For Attorneys - Must See

Most bankruptcy continuing education classes list recent cases, including those in which parties to the case may have done something wrong. Of course, some of the information we are inundated with sticks, while other information needs to be reviewed later. I recently ran across an email with a link to a video. It's only about 7 minutes long, and believe its entertainment value exceeds its educational value. The link to the video is http://www.dailymotion.com/video/xmq5n7_vts-01-1_music

Hope you enjoy it. If you run across other bankruptcy, or trustee, videos you consider a “must see”, please mention them in the comment section below.

New Forms Effective December 1, 2011

New Forms.  That's right; as of December 1, 2011, Rule 3001(c) requires additional information be included in the filing of a proof of claim. More specifically, if the secured property is the debtor's principal residence, an Official Form must be attached to the Proof Of Claim. Additionally, if the claim includes an escrow account, then an escrow account statement, as of the date of the filing of the petition, must be attached.

A failure to include the information has remedies under 3001(D), which states:

If the holder of a claim fails to provide any information required by this subdivision (c), the court may, after notice and hearing, take either or both of the following actions:
     (i) preclude the holder from presenting the omitted information, in any form, as evidence in any contested matter or adversary proceeding in the case, unless the court determines that the failure was substantially justified or is harmless; or
     (ii) award other appropriate relief, including reasonable expenses and attorney's fees caused by the failure. [emphasis added]

So, according to the rule, the remedies are at the Court's discretion.

New Rule 3002.1(b) (effective as of December 1, 2011), deals with payment changes on claims that have the debtor's principal residence as a security interest in Chapter 13 cases. The change must be served no later than 21 days before the new payment is due. However, Rule 3002.1(c) requires an itemized notice to be given, within 180 days of incurrence of any postpetition fees, expenses, or charges that the holder of the claim asserts are recoverable from the debtor or against the debtor's principal residence. This might include, for example, inspection fees, late charges, or attorney's fees.

The new official forms for Proof of Claim (B10), Attachment A (B10A), Notice of Mortgage Payment Change (B10S1), and Notice of Post Petition Mortgage Fees, Expenses, and Charges (B10S2), should be used starting today, December 1, 2011.

Implementation of Rule 3001 and 3002.1

In a previous post, I mentioned there are changes being made to Rule 3001 and 3002.1, among other changes to the Rules. As with many changes, for the changes to become effective, it is necessary to structure an implementation period.

The National Academy For Consumer Bankruptcy Education is holding a webinar regarding the implementation of these rules on November 30 at 2:00 PM EST. Their invitation to their webinar states as follows:

Join our panel of experts in this joint production of the NACTT and the NACTT Academy to gain common sense, practical answers to questions about implementation of the new rules.  Trustees and practitioners need to prepare for the new rules which take effect on December 1st. This webinar will focus not only on the rules but on the best ways for creditors, trustees and debtors to respond to the requirements imposed.

Title:  Implementation of Changes to Bankruptcy Rules 3001(c) and 3002.1 

Date: Wednesday, November 30, 2011  

Time: 2:00 p.m. EST
 

Sorry about the format, but remember this is blog, and as such, has limited formatting capabilities.

If interested, you can register by CLICKING HERE.

I hope to follow up this blog post after the webinar as to some of the details regarding the implementation of these rules.