Hello world! Please change me in Site Preferences -> This Category/Section -> Lower Description Bar

30

Jan 2020

Right After Bankruptcy, Carla Signed on a Car Loan

Posted by / in After Bankruptcy, Weekly Posts /

Right After Bankruptcy, Carla Signed on a Car Loan and She’s Probably Gonna Lose Her House

I tell people please please please, do not get a car loan until at least two years after your Chapter 7 bankruptcy.

 

Two years after bankruptcy, I’m seeing people get car loans in the 6%-8% range. Three years in the 2%-4% range.

 

So please please please do NOT tie yourself to a 24% car loan right after filing bankruptcy. Here’s a true story that tell you why not.

 

after bankruptcy car loan

Please please please do not tie yourself to a 24% car loan right after bankruptcy.

Carla filed bankruptcy with me in 2014. Six months later, she co-signed on a car loan for her sister. The loan was financed by Credit Acceptance, at 24% interest. 

 

After a year, the sister stopped paying. Carla paid for a while, but when she stopped, or course that car got repossessed January 2017.

 

Fast forward to 2019. Credit Acceptance gets a judgment for $8600, attaches that Judgment to Carla’s house, and puts a garnishment on her pay check.

 

Carla is stuck. She can’t afford the house payment while being garnished. It’s too soon to file Chapter 7 bankruptcy, again. And if she could, the equity she’s built up since 2014 means the bankruptcy court would take and sell her house. And while she’s eligible for a Chapter 13 bankruptcy payment plan, she can’t afford that payment, either. (Under Virginia law, with terrible equity protection for single people, her Chapter 13 would have to pay all her debts in full.)

 

Two mistakes. First co-signing for someone whose credit was worse that hers!! Second, letting the dealer arrange financing at a terrible rate.

 

If you have to finance a car shortly after bankruptcy, shop for the car loan, before you shop for the car.

While it’s especially important right after bankruptcy, that’s always good advice. Shop for the car loan, before you shop for the car. (Unless the factory is having trouble selling their cars, dealer financing will always be more expensive than the best loan you can get for yourself.)

 

Sometimes, some people have no choice. They have to finance a car just a few months after bankruptcy. If you really have to, here are some of the places you can look.

 

722 Redemption Funding. These people are in the business of car loans immediately after bankruptcy is filed. they will put you in a bad loan; but probably a much better loan than the horrible loan a car dealer would recommend.

Bankruptcydrive.com is a new company that contacted me recently. I don’t know much about them.

Tower Federal Credit Union. Tower is the largest credit union in Maryland, and they make car loans to people in Virginia. I’ve seen them make loans to people right after bankruptcy that were better than I expected.

 

I’m not recommending any of these three. What I recommend is getting at least two years after your bankruptcy discharge before you finance a car. But if for some reason you can’t wait, shop for the loan before you shop for the car. And shop at least three places: try to get the best bad deal you can get.  

 

 

 

 

 

 

 

Please select the social network you want to share this page with:

19

Jan 2020

How Chapter 7 Real Estate Sales Benefit Insiders

Posted by / in Virginia Chapter 7 Bankruptcy, Weekly Posts /

How Chapter 7 Real Estate Sales Benefit Insiders

Randa filed Chapter 13 bankruptcy in March 2019. She was hoping to be able to save the family home, by catching up the mortgage over five years. Her husband was recovering from a long illness and was able to work full time again, making the catch up payment possible.

As it turned out, the husband did not recover from his illness; he died. So, Randa moved out, to live with her adult son. And the bankruptcy  case was converted to Chapter 7.

The Chapter 7 trustee told creditors and the court that this would be an “asset case.” He hoped to be able to sell the property and use the equity to at least pay off part of the tax debt of Randa and her husband.

In this case, there will be no money to pay anyone—except the “professionals.”

In March 2019, when the bankruptcy was started, Randa valued the house at $476,000. That was what the house next door had sold for. The Chapter 7 trustee listed it for sale at $484,900. But the best offer was $450,000.

(Real estate in bankruptcy will often sell for less than the going market. The family has NOT fixed it up for sale, and likely has put off maintenance during the financial, or medical, distress.)

Chapter 7 real estate sales

The trustee’s real estate agent received a $13,500 commission.

The mortgage on the house was $403,500. (Randa has estimated $400,000; not far off.) At the real estate closing, each real estate agent, for buyer and seller, collected 3% commissions: $13,500 each. There were miscellaneous costs of around $1000.

That left $18,000 for the bankruptcy trustee. Does that money go to pay the IRS taxes? Well, no.

Why No Money goes to pay the taxes

The Chapter 7 Trustee is entitled to commissions totaling $24,750. (The trustee fee is $5750 on the first $50,000 of the sale and 5% after that. For cases where there are no assets sold, the trustee gets $60.00. So it’s easy to see why trustees want and need these real estate sale cases.)

In addition, the trustee hired himself (actually his own law firm) to handle legal matters—at $580.00 an hour. That bill will be about $5800.00.

No money is left for anyone else.

The trustee’s real estate agent, who originally listed the property at $484,900, makes $13,500. The trustee and his law firm will take a “haircut.” They will get only get $18,000 out of their $30,550 bills.

There’s no money to pay the taxes, or anybody else.

In this case, insiders are winners, but there are no losers. Randa had moved out and didn’t care about the house. The IRS got nothing, but lost nothing.

Does the Chapter 7 trustee sell the house that people want to keep?

Here’s what sometimes happens instead.

The trustee’s agent projects a high listing price: high enough that the creditors would get paid a little something. (If this house had sold for the original listing price, there would have been around $20,000 to pay the taxes.)

The Chapter 7 trustee uses that high estimate to invite the bankruptcy debtors to “buy back” the equity in the house, by making a cash payment to the trustee of say $10,000.00. (This assumes the debtor is able to round up $10,000.)

Chapter 7 real estate sales

One of the Chapter 7 trustees in Alexandria can be very aggressive in demanding cash buy-backs from debtors. Even in cases where the creditors would actually get nothing in a sale.

One of the Chapter 7 trustees in Alexandria can be very aggressive in demanding buy-backs from debtors. Even in cases where the creditors would get nothing in a sale. And the Chapter 13 trustee can use high estimates of real estate values, to demand higher payments into Chapter 13 plans. That gets debtors into Chapter 13 payments they can’t afford, and they end up losing their homes in Chapter 13.

The trustee who sold Randa’s house, almost never sells property where there’s no actual equity. (I’m confident he genuinely believed there would be money to pay the taxes. But there wasn’t.)

It is tough for a Chapter 7 debtor to resist a trustee demand for a buy-back. They can ask the judge to compel an abandonment of the property. But it’s easy for the judge to just say, “let’s see what it sells for.” Once the house is listed for sale, it’s hard to stop. So, the pressure to agree to a buy-back can be unbearable.

Where there’s a buy-back demanded and paid, the Judge signs off on the compromise, without having to consider whether the agreement is extortionate, rather than voluntary.

There were 4,453 bankruptcies filed in the Alexandria division in 2019. That’s down from a high of 10,953 in 2010. On that reduced volume, Chapter 7 trustees can’t survive on the $60.00 fees they get for each case. So each year the pressure on the trustees to generate big fees from real estate cases gets higher and higher.

Can anything be done?

Debtors in Chapter 7 bankruptcy cases in Virginia are able to protect up to $5,000 in real estate equity. That’s the lowest of the 50 states and the District of Columbia. The Virginia General Assembly is considering legislation to raise that $25,000—which would still be among the lowest in the nation. That would help in many cases prevent transactions where the creditors get little or nothing, while debtor families either pay the buy-back or lose their homes.

The bankruptcy case number is 19-10800-KHK.

       

Please select the social network you want to share this page with:

14

Dec 2019

Credit Card Offers Come Faster Than You Expect

Posted by / in Weekly Posts /

After bankruptcy credit card offers come faster than you think

Have you heard the lie? The lie that filing filing bankruptcy means seven years with bad credit. You after bankruptcy credit will be better than most people expect.

After bankruptcy credit card

                                                 Here’s the after bankruptcy credit card offer “Eddie” got two months after his bankruptcy was approved.

 

The truth about after bankruptcy credit

The truth is the opposite of that bad credit lie.  Two months after bankruptcy, you start getting pre-approved credit card offers. (I know that’s true,because a lot of the offers, by mistake, come to my address.)  After thee years, most people have the best credit of their lives.

Are you putting off filing bankruptcy in order to “protect your credit?”  Then we need to talk.

Eddie, not his real name, got his pre-approved $700 credit card offer, ten weeks after his bankruptcy was over.  I tell people, the best way to rebuild is to have three or four credit cards, use and pay them, stay way below your credit limits.

Better Credit is one of the 5 Ways Bankruptcy gives you a fresh start.

A study by the New York Federal Reserve Bank show that people enjoy a sharp boost in their credit score after bankruptcy. The Philadelphia Federal Reserve found that people with a 540 credit score before bankruptcy usually were are 620 right after. For most people, bankruptcy works.

 

 

Please select the social network you want to share this page with:

02

Sep 2019

Bankruptcy Towing and Storage Scam

Posted by / in Blog, Weekly Posts /

New Bankruptcy Towing and Storage Scam

Don sent me today a letter offering him a $1000 for the car he’s giving up as part of his bankruptcy. (He owes way more than the car is worth.)

An outfit calling itself Towing and Storage offers to give him $1000 to avoid “the hassle” of dealing with his car after he filed bankruptcy. Wow!  What a deal!

Don thinks this might be too good to be true.  (Here’s a copy of that letter.)

I don’t know about the specific company that contacted Don. But I do know how a towing and storage scam could, legally, “steal” the car.  Saying yes to a scam offer, could get Don’s entire bankruptcy disapproved. If what Towing and Store is suggesting is legal for them, it may not be NOT legal for Don, or for you.

A towing and storage scam might use what’s called a garageman’s lien.  Any company that works on a car, or just tows and stores it, has the right to be paid.  And if they are not paid on time, they can sell the car.  Sell the car WITHOUT having to pay off the debt to the car finance people.  Using the garageman’s lien, a towing and storage scam can transform your upside down financed car into a valuable paid for car! And keep all the money for themselves.

Towing company offers bankruptcy scam

Don got a letter offering to avoid  “the hassle” of after bankruptcy car repossession. Saying yes, could get his bankruptcy disapproved.

Meanwhile, the car finance people are waiting to get permission from the bankruptcy court to pick up your car–and of course they expect to pick it up from you. By the time everyone has figured out what’s going on, the towing and storage scam has legally sold the car. That would be one way a towing and storage scam can afford to give Don the $1000.

Do you care? 

The bankruptcy code requires you “surrender” property to the bankruptcy trustee. That does NOT mean you want to ship your furniture to the bankruptcy court, or drop off the car in the courthouse parking lot. If there’s still a payment on the car, the bankruptcy trustee does not want it. But you are required to keep the property safe until told otherwise. (Usually, at your hearing, your meeting of creditors, the bankruptcy trustee “abandons” your car, meaning gives it back to you.)

But your discharge can still be denied, meaning you still have to pay everybody, if you “transferred, removed, destroyed…” property you are supposed to keep safe. In other words, letting a towing and storage scam pick up your car could make your whole bankruptcy pointless.  That might not come up at your bankruptcy meeting of creditors hearing. But when the car finance people look for the car, and don’t find it, they can raise a stink. 

Maybe it’s not a scam

Let’s look again at the letter Don got. It says “We will contact your lien holder immediately and arrange for the return of your vehicle.” Maybe they do arrange for the return of the vehicle. Then Don’s ahead by $1000.  And I guess everybody is happy. But if it’s a towing and storage scam, the car finance people have been cheated out of their rights to the car. And they could make Don’s bankruptcy end badly.

 

Please select the social network you want to share this page with:

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.

Please select the social network you want to share this page with:

03

Aug 2019

“Just Don’t Pay” as an Alternative to Bankruptcy

Posted by / in Weekly Posts /

Bankruptcy Alternative: Just Don’t Pay

Some people want or need an alternative to Chapter 7 bankruptcy. 

Meet Henry Hudson and his wife Beth. They came to see me several years ago. Their alternative to bankruptcy was a two part plan: just don’t pay, and “call my lawyer.” Here’s why.

Henry and Beth were elderly, he was retired, she was working a little. They had credit cards they couldn’t pay, about $40,000.

They could file Chapter 7 bankruptcy and clear those debts. But they didn’t want to. They owned an investment that had lots of sentimental value, and if they filed Chapter 7 bankruptcy, the court would sell it. The creditors would only get 10 cents on the dollar or less, if it was sold, but the emotional loss to the Hudsons was more than they were willing.

“Call my lawyer!”

Consumer tells debt collectors to call my lawyer.

When the bill collectors call, tell them to “call my lawyer.”

So I told them, just don’t pay. (They were already about five months behind when they came to see me.)  And start taking the calls!  When they call, tell them “call my lawyer!” We’ll see if that get’s them to leave you alone.

Henry and Beth paid me $700 to rent my fierce reputation, plus $100 a month. We met in person every three or four months. Years went by. I told them, if the bill collectors leave you alone too long, they are too late.  That’s called the statute of limitations.

How Long is the Statute of Limitations?

Original creditors, like the credit card companies, have five years to take you to court. If they wait longer than that, they are too late. (That’s in Virginia; other states can be more or less.) For debt buyers, people like LVNV, Midland, Portfolio, it’s probably only three years, arguably two.  (The three years was based on Opinion of the Attorney General 10-028.  The current Virginia Attorney General appears to have deleted it.)

Finally, years later…

Finally, years later, Henry got court papers from one the biggest credit cards, around $8,000.  We had met just two months before and I told them I thought time had run out and everybody was SOL (Statute of Limitations.) Now there’s court papers.

We File Chapter 13

Chapter 13 is a payment plan through the bankruptcy court.  In Chapter 13, you don’t put your property at risk (unless you want to sell it) because you are paying your debts. Henry and Beth file a plan to pay their debts in full.

Pay in full? Yes, but not $40,000 that would have been payment in full when we first talked. Pay in full all the debts that were not SOL.  Turned out only one $700 recent credit card was not too old under the Statute of Limitations.  Including the one that had filed the warrant in debt. 

So that $700 card got paid in full; and the other debts were just gone.

This Doesn’t Always Work

We were helped that Henry and Beth did NOT owe money to Discover. Discover is very quick to sue. Their cars were paid for. And they were renters, not home owners. That means their credit report did NOT show any debts actually getting paid.

It’s My Job to Suggest the Best Plan for You

As a lawyer, I’m a fiduciary. I’m required by law and legal ethics to give you the best advice I have. Even though I’m a bankruptcy lawyer, sometimes a non-bankruptcy solution works best. And when it does, I tell you.

For most people, bankruptcy works.

But when “just don’t pay” will work better, I’ll tell you so.

PS  More on the statute of limitations

The Washington Post just had this interesting article, about how debt collectors can try to get around the statute of limitaitons.

Please select the social network you want to share this page with:

NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES