Virginia Homestead Exemption too low to protect this Widow.

Posted by Robert Weed / in Virginia Bankruptcy, Weekly Posts /

Told a Widow this Week, She’ll Lose her House because of COVID and Business Debts

I had a heart-breaking call this week with a widow, who lost her small shop in the COVID depression.

She has about $65,000 in business debts and no way to pay them. 

If she tries to file Chapter 7 bankruptcy here in Virginia, the bankruptcy trustee will sell her house to pay those debts. Virginia law protects real estate that belongs to a married couple–but she’s a widow.

Bankruptcy is set up by the Federal Government, but each state sets its own rule on how much real estate equity you can protect. (That’s called your homestead exemption.) Thanks to the new majority in the Virginia General Assembly, you can protect $30,000.00 in equity. (Up from $5,000.00. The Virginia homestead exemption had been the lowest in the country.)

This widow has a little over $100,000.00 in equity, so the Virginia homestead exemption isn’t enough for her. She may need to sell the house to get cash to survive, because she lost her business, and isn’t social security age yet.

I like to say I can help almost everyone who contacts me; but I can’t help her.

PS Virginia Homestead Exemption is still near the bottom

While Virginia increased our homestead exemption from $5,000.00 to $30,000.00, it’s still near the bottom of the fifty states. You can protect 100 acres of Texas, 160 acres of Florida.  You could own the entire District of Columbia. Just this week California increased their homestead exemption from $75,000 to $300,000, in the rural counties. And up to $600,000 in in the urban areas.

Here’s a slightly outdated breakdown of the homestead exemption of all fifty states.

Why You Should (Sometimes) Ask for Arbitration

Posted by Robert Weed / in Before Bankruptcy, Weekly Posts /

Why You Should (Sometimes) Before Bankruptcy Ask for Arbitration

The fine print in your credit card agreement likely gives you–and the credit card company–the right to ask for arbitration.  You can guess that the fine print isn’t in there to help the consumer, but sometimes before bankruptcy you can use arbitration for your benefit.

How Can Arbitration Before Bankruptcy Help You?

Suppose you might need a little more time before you are ready to file bankruptcy. If there’s a warrant-in-debt, and you obviously do NOT want to get garnished. You can ask for a trial and a bill of particulars. Then, for your grounds of defense, you can ask for arbitration. Asking for arbitration can get you another month or more to get ready to file bankruptcy.

Stalling for time is not the idea of arbitration. But since the credit card companies put it in their agreement for their reasons, you have the right to use arbitration before bankruptcy for your reasons.

What should be the Purpose of Arbitration?

The idea of arbitration to to handle things that judges aren’t good at. For example, baseball salaries.

Baseball players, through their union, have salary arbitration.  If there’s a pay dispute between the player and the club, a panel of arbitrators decide what the salary should be. There’s no reason for judges to be involved, that’s now what judges do.

A second advantage to both the club, and the players, is that the process is secret. Suppose a baseball club says, “we don’t want to pay what Joe is asking, because he can’t hit the low fastball.” It’s bad enough that the player hears his club bad-mouthing him. It would be even worse to read it in the sports page.

Is Credit Card Arbitration is Anything Like Baseball Arbitration?

The good reasons why arbitration makes sense for baseball salaries does NOT apply to credit card arbitration. If you get sued on a credit card, that’s the kind of thing judges decide all day long. Do you owe the debt? Who do you owe it to? Have they done something wrong trying to collect it? Deciding these things is what judges do.

So why do the credit card companies put arbitration in their fine print agreements? As long as consumers don’t fight back, the credit card companies like judges.  But suppose there’s a problem. Suppose the credit card company–or debt collector–has done something dirty. Then they want to keep it secret.

They put arbitration in their agreements, so they can take your case to a secret place, if they want to. In arbitration, you lose the right to appeal. You have fewer rights to get evidence. And you can’t join with other consumers who have been done dirty in a class action. That’s why the credit card companies are arbitration in their fine print agreements.

Why is Credit Card Arbitration Allowed?

If you had me on the Supreme Court, I’d allow arbitration for baseball players. Because it’s in the union contract. I wouldn’t allow arbitration on credit cards, because you have a constitutional right to a trial by jury. That’s the Seventh Amendment, which gives American the right to a trial by jury in disputes of over $10.00. The actual Supreme Court has said that doesn’t apply to you. Because when you used the credit card, you agreed to the arbitration.

Government can’t take away your constitutional rights, based on some fine print you never even read. But big companies apparently can.

$45,000 garnishment from a $3,500 29% interest loan

Posted by Robert Weed / in Weekly Posts /

A $3500 loan at 29% interest grows to a $45,000 garnishment.

How fast does at debt at 29% interest add up? For Wilson a $3500 loan grew to a $45,000 garnishment in ten years.

Wilson borrowed $3500 from a Finance Company in 2004.  He took out that loan to pay off some collections and raise his credit score.  The interest rate, which no one should agree to, was 29%.  With four years of interest and late fees, Wilson owed $11,997.17 when the Finance Company got a judgment against him in May 1, 2008.

Prince William court records show Wilson got hit with twelve garnishments between 2008 and 2013. But they only collected $1134.79.  Wilson figured out he couldn’t be garnished working at a restaurant, because he got paid cash tips. So he was safe working for restaurants.

For five years, the Finance Company gave up. But during those five years, the debt kept growing.  It kept growing at 29% interest. Then, in September 2018, when they tried to hit him again, the Finance Company’s garnishment had grown to $45,582.82. Fifteen years after taking out a $3500 loan (five years after getting a judgment for 11,991.17) Wilson owed $45,582.82!

At long last, Wilson decided enough was enough. Wilson came to see me and filed bankruptcy in January 2020.

It’s now, finally, safe for Wilson to take a job with a steady paycheck–instead of working for cash tips–and not have to worry about getting garnished.

After Bankruptcy: Better Credit on His Next Car

As a bonus, in a couple years, Wilson will be able to get a car loan at a decent interest rate. His last car loan, with the judgment showing on his credit, had been at 22.9%. In a couple years, he’ll be able to get a car loan at 4%.  The difference between 22.9% and 4% on a $20,000 car is $185 a month: $13,200 total over a six year car loan.

What the lesson?

Judgments do NOT go away.  If you are getting a judgment against you for a finance company loan or a credit card, the time to file bankruptcy is now.