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31

Jul 2021

The Wells Fargo Home Projects Card and Chapter 13

Posted by / in Chapter 13, Weekly Posts /

The Wells Fargo Home Projects Card and Chapter 13 Bankruptcy

The Wells Fargo Home Projects Card is issued differently than most credit cards. As far as I can tell, they don’t market it directly to consumers. Instead, they get home improvement businesses to sign people up. That way Wells Fargo finances the home improvement and the business gets paid.  Makes sense to me.

What doesn’t make sense to me is this:  Wells Fargo uses that card to butt in line ahead of other credit card creditors in Chapter 13 bankruptcy.  That’s because Wells Fargo claims to be a secured creditor.  Secured creditors have to be paid ahead of regular credit cards in a Chapter 13 bankruptcy payment plan. 

What’s a Secured Creditor?

What’s a secured creditor?  A secured creditor is a creditor with a “security interest.” UCC § 9-102(a)(73).  The Wells Fargo Home Projects card agreement claims they have a security interest:  “You grant us a purchase-money security interest under the Uniform Commercial Code in the goods purchased on your Account.”

What’s a security interest?  Your car finance company has a security interest in your car.  The car finance company has a lien attached to the title of your car.  If you don’t pay; they can come get it.  (Bankruptcy clears your personal liability–you don’t have to pay. But the car still has to pay.)

Consumer goods–something like a washing machine–don’t have a title.  But the people who finance them are still have a security interest.  They are secured automatically.  UCC § 9-309(1). Automatically, as long as you sign a paper with a description of the washing machine, so it can be reasonably identified.

Years ago Sears was very aggressive asserting their right to payment after bankruptcy on things like washing machines.  So aggressive that they ended up getting hit with multi-million dollar sanctions, by the bankruptcy court in Massachusetts.  Conley v Sears 222 BR 181. D Mass 1998.  A few years later. Sears got out of the business of issuing their own credit cards.

Wells Fargo though isn’t claiming a security interest in a car, or in a washing machine.  In the cases I’ve seen, they claim a security interest in “trim,” in “replacement,” in “remodeling,” and most often in “items purchased.”

I call BS on the Wells Fargo Home Projects Card

I call BS on Wells Fargo.  These come nowhere near the legal requirement that the consumer sign an agreement that provides a description of the collateral. UCC § 9-203(b)(3)(A).  “Items purchased” could be anything. That’s not a description. By law, it’s not a description unless it “reasonably identifies what is described.” UCC § 9-108(a).

Second, a security interest does not exist in “ordinary building materials” once they become part of the building.  Trim is obviously becomes part of the building. UCC § 9-334(a).

On their website, Wells Fargo tells home improvement businesses what kinds of things they finance. Here’s the list.

Flooring       Siding     Windows/Doors   

Remodeling   Roofing    HVAC

Doors and HVAC are a gray area.  Are they part of the building, or not?  Could go either way.  But Wells Fargo can never be secured in flooring (once it’s installed, of course.) Or siding. Or windows, or remodeling, or roofing.   

Most people would agree that flooring is part of the building.

It looked to me like Wells Fargo always claims a legal right that they hardly ever actually have.

Wells Fargo Caved In

In the case of Merida Mejicanos, 21-10600-KHK, Wells Fargo Home Projects claimed a security interest in “trim” and “door replacement.”  I objected, and privately dared them to come in and fight.  They caved.  Without admitting they were wrong, they dropped their claim. They said they wanted to avoid “the risk of further litigation.”

The big risk of course is that the judge would write that they were wrong–and other layers and judges would read it.

 

 

 

 

 

 

 

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24

Aug 2019

New Law Helps Disabled Veterans in Chapter 13 Plans

Posted by / in Chapter 13, Weekly Posts /

New Law Helps Disabled Veterans in Chapter 13 Plans

Disabled veterans facing bankruptcy, got a big boost yesterday when the HAVEN Act became law.

Disabled veterans get a break under Chapter 13 of the bankruptcy law

Disabled veterans get a break under Chapter 13 of the bankruptcy law

From now on, disabled veterans can’t be forced to use their veterans disability payment to fund debt repayment plans.  Here in Northern Virginia, there are many disabled veterans, who are also working. Those veteran families had been considered high income and forced into very high payment plans under bankruptcy Chapter 13. 

Now the bankruptcy court is not allowed to consider the disability pay, in calculating what these veterans can “afford” to pay their creditors.

Senator Tammy Baldwin was the chief sponsor of this bill in the US Senate.   

(I was one of the members of NACBA who lobbied for this bill on Capitol Hill earlier this year.)

I participated in a class on this new law, September 5, 2019, and kept some notes.

Here’s some detail that shows exactly what benefits are covered. 5 HAVEN Act TPM Addendum 6 Haven_Act_Faqs From USTP   And where to go to find out what benefits exactly are being HAVEN Ebenefits Mypay.

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05

Aug 2018

How a cheap car payment can help you on the bankruptcy means test.

Posted by / in Before Bankruptcy, Chapter 13 /

How a cheap car payment can help you on the bankruptcy means test.

The 2005 Bankruptcy law, known BAPCPA or sometimes BARF, was designed to make bankruptcy much more painful for families making over the average income in each state.  For Virginia, in the summer of 2018, that’s $103,549 for a family of 4. Or $111,949 for a family of five. 

Bankruptcy means test applies to families of 5 over $111,949

Bankruptcy means test applies to families of 5 over $111,949

The bankruptcy means test determines whether families making over that average income can be approved for Chapter 7 anyway.  And if not eligible, how much they have to pay for five years in Chapter 13.

The bankruptcy means test formula is arbitrary.  It was designed to be arbitrary. Congress, and the credit card companies, thought that bankruptcy judges were too easy.

Most families around here, making too much to get approved for Chapter 7, end up failing at Chapter 13. Without careful Chapter 13 planning, the bankruptcy means test will put you into a Chapter 13 plan that you are not able to afford for five years.

Here’s one example where careful Chapter 13 planning can make all the difference. 

John and Tanya is live Woodbridge in a house they own with two children.  John is stationed at Joint Base Andrews; Tanya is home with the kids, one child needing special attention.

Trying to handle the debts, they have gotten by as a one car family, and John’s car now has 110,000 file on it.  

If John and Tanya go into Chapter 13 now, they get a budget allowance of $497 for the car payment (regardless of what the payment really is) and $221 for gasoline, car repair and car insurance.  It will be impossible for John to hold his car operating expenses, gas, repairs, insurance, below $221 for five years on a car that already has 110,000 miles.

John and Tonya  talk to me before their credit is totally shot. So I can point out to them that they are much more likley to survive Chapter 13 for five years, if they go out and get a low payment second car now.

Tanya buys a brand new Nissan Versa, sale price $13,500, at 4.5% for five years. Her payment is $227.00 monthly.  That $227 payment counts as $497 on the means test.  That frees up for the family budget $270 a month. (That’s $497 means test ownership allowance, minus the $227 actual payment.) That $270.00 can go to pay things like sports for the kids, which the bankruptcy means test budget does not allow.

And they get a second $221 monthly for operating expenses.  John drives the new Nissan Versa to work, and Tanya takes the older car for errands around town. They can hold their gasoline, repair and insurance below the new total operating allowance of $442.

(I should note here that it would be illegal for me to tell John and Tonya to go out and finance a car.  But it was legal for me to tell them that it’s legal for them to do it.)

People say that bankruptcy should be a last resort. But you don’t want it to be a last minute, last resort.  Careful Chapter 13 planning is very important for getting the best result.

 

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