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30

Apr 2022

Penalties for Bankruptcy Fraud

Posted by / in General Information About Bankruptcy Law, Weekly Posts /

April 2022 saw courts dish out two big penalties for Bankruptcy Fraud.

In April 2022, over in the UK, former tennis great Boris Becker was sentenced to two-and-a-half years in prison for bankruptcy fraud: hiding $3 million in assets during his case. Becker had landed bankruptcy in the UK back in 2017, because of a $5 million bank loan he couldn’t pay. It came to light later that he hid assets from the bankruptcy court.

Prison sentence of bankruptcy fraud

Boris Becker , former tennis great, gets over two years in prison for bankruptcy fraud

Also in April, closer to home, William Henry Romm, III, of Glen Allen Virginia, pled guilty to concealing $400,000 from the bankruptcy court in his Chapter 13 bankruptcy case.  He faces a possible 20 years in prison when he’s sentenced in August.  (Usually people who plead guilty don’t get the max.)

They Look for This Bankruptcy Fraud Stuff

There’s a government agency–the Office of the United States Trustee–that’s in charge of looking for this stuff.  (Sometimes it seems like they are just “neat paperwork” police, but their job is to catch bankruptcy fraud.)  In 2020, they recommended 2489 people for criminal law prosecution.                      

Tell the Truth to Your Bankruptcy Lawyer

For most people–usually–there are both legal and illegal ways to protect yourself and your property in bankruptcy.  Your lawyer can point you to the legal ways: as long as you tell your lawyer the truth. Also, now and then I have to warn some people they should never set foot in the bankruptcy court.

 

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30

Jan 2022

After Paying for Ten Years, Nina Got Public Service Student Loan Debt Forgiveness

Posted by / in Weekly Posts /

After Paying for Ten Years, Nina Got Public Service Student Loan Debt Forgiveness

There’s very little bankruptcy law can do to help people with student loans. But as a bankruptcy lawyer, I can at least give people good advice.
 
Since 2017, I started steering people who seemed eligible to Public Service Student Loan Debt Forgiveness. Back then, hardly anyone I talked to had heard of it. The last year or so, most people I mentioned it to knew about it and were in.
 
Just Wednesday, Nina told me, her student loans had been forgiven. For me, that’s a first.
 
To get approved, you first have to be in public service. (That’s mainly government or a hospital, but it’s estimated that 25% of jobs in the US can count as public services jobs.) Next you have to make your payments for ten years. (Doesn’t have to be ten years in a row. Just a total of 120 payments.) The program was signed into law by President George Bush in 2007. So in theory, eligible people who signed up right away could have been approved starting in 2017–four years ago.
 
In that first year, 28,000 people applied for forgiveness, thinking they had completed the program Exactly 96 out of the 28,000 got approved.
 
For the first four years, more than 98% of the people who applied got rejected. (This is 98% rejection of the people who knew about the program and thought they had completed it!).
 

Joe Biden to the Rescue

Last October, the Department of Education changed the regulations on public service student loan debt forgiveness. They said that 550,000 people who had been turned down would now be eligible. I’m guessing Nina is one of these.
 

Student Loan Bankruptcy Reform Is Still Needed

It’s nice to have this program that targets people who work in government, or hospitals or other public service. We want good people to take those jobs.
Electrician is not eligible for public service student loan debt forgiveness

Running telephone wires is an important job. But people who run telephone wires, stock grocery shelves, or care for the elderly in nursing homes aren’t eligible for the public service student loan debt forgiveness that people working for government can get.

Still there are lots of jobs that are important to the country that don’t count as public service for that program. Running telephone wires. Repairing cars. Caring for the elderly in nursing homes. Stocking grocery shelves. Face it, many people who completed college and held a government job for at least ten years are pretty well off. (Even with her student loans cancelled, Nina is still in a tough sport. Mainly because her husband disappeared, leaving her with two kids.)

 
Every week I talk to people who will die in debt to their student loans. No way to pay; and no way to clear them. The 2020 Democratic Party Platform proposed to treat student loans like any other debt. Eligible for bankruptcy if you can’t pay. In this closely divided Congress, any reform needs Republican support. Very few Republicans are willing to get on board. The most visible Republican supporter of student loan bankruptcy reform, Rep John Katko, (R-NY), has announced he’s leaving Congress as the end of the year.
 
I’m excited for Nina. And for the half million people President Biden has helped be eligible for student loan forgiveness. But there are millions of Americans far worse off than Nina, whose financial lives are crippled–for a lifetime–because they cannot use bankruptcy, or something, to get out from under their student loans.
 
 

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10

Jan 2022

Alternatives to Bankruptcy: Credit Counselling Debt Management

Posted by / in Weekly Posts /

Alternatives to Bankruptcy: Money Management Credit Counselling

For high income people who can’t quite handle their debt, “credit counselling” can be an alternative to bankruptcy. Credit counselling services–the kind I’m talking about anyway–have agreements with the major credit cards on what payments they will accept through their program. 

Professional and ethical standards for credit counselling non-profit companies are set by the National Foundation for Credit Counselling. The financial industry set up National Foundation for Credit Counselling in 1951. They wanted to give people an alternative to talking to bankruptcy lawyers like me.

Credit Counseling is an alternative to bankruptcy

National Foundation for Credit Counseling was set up by the financial industry to keep you from talking to me.

Outfits affiliated with the NFCC will recommend a “debt management plan” that they expect the credit card companies will accept according to their pre-arrangements. They can usually get each payment down a little off the regular minimum monthly in a plan that still pays everybody off in five years.  Debt management plans have to be licensed in most states, including Virginia.

One of the biggest credit counselling companies is Money Management International. I started sending people to them when they had an actual office with a live counselor in Manassas.  That’s been gone since about 2006. (Actually that was a local outfit that was swallowed up by MMI.)

Martha Likes Her Debt Management Plan

I sent Martha to MMI last month.  Here’s what she told me.  “I took your advice and called the Money Management group and loved their program.  I start with them on the 18th with the first payment and then they will contact my creditors and we have a 5 year plan to get everything paid off with minimal damage to my credit score.”

Based on what people have told me, these legit credit counselors work with you on your budget. If you really can’t afford their debt management plan, they tell you. That’s a big reason I can recommend them.

(Do NOT confuse these credit counsellors with debt settlement companies.  I have comments about them, here. I do NOT recommend them.)

If credit counselling gives you all the help you need, it’s a good solution.

 

 

 

 

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09

Jan 2022

Stress and Your Heart

Posted by / in Weekly Posts /

Stress May Be Your Heart’s Worst Enemy

That’s a headline in today’s New York Times.  

I pass that on because as a bankruptcy lawyer I see people defeated by the stress of debt’s they can’t pay.  Good people go for years dragging around bad debts they can’t pay, before they finally take advantage of the fresh start the law offers.  

“According to the American Psychological Association (APA), money is the top cause of stress in the United States.” verywellmind.com   If your money stress is debt stress, that’s one of life’s problems that’s easiest to fix.  Don’t let the stress of impossible debt destroy your heart health.

Here’s the link to the New York Times article.

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13

Dec 2021

Debt Settlement or Chapter 13 Bankruptcy Which is Better?

Posted by / in Chapter 13, Weekly Posts /

Debt Settlement or Chapter 13 Bankruptcy: Which is Better?

My friend Roberta knew she was in financial trouble, but she wanted to try pay her debts. Rather than file Chapter 13 bankruptcy, she signed up for a debt settlement company, who promised her a “customized reduction plan.”  Over 18 months she paid $23,673.00.  And the debt settlement company settled two of her credit cards:  A Chase card for $10,496; and another Chase card for $9719.  With their fees and overhead, Roberta’s payments to debt settlement totaled $3458 more than the total of the debts they settled.

It cost Roberta $23,673 to settle two credit cards totaling $20,215. Her “savings” was negative $3438.

That debt settlement company promises “you will settle your debts for less than you owe.” Settling for less than you owe doesn’t necessarily save you money.  It depends on how much less they settle for.  That’s because most debt settlement companies charge you a 25% fee.  (Plus a monthly account fee, usually $10.00) That fee isn’t 25% of what they save you–it’s 25% of the whole debt.  So if the creditor is only willing to settle for 75% of what’s due, you have no savings at all.  

Spending that extra $3458 wasn’t the worst of it.  

While she was settling the two Chase cards, her other creditors weren’t getting paid. Two Bank of America cards, two Citibank cards, and a Target card were all reporting her to the credit bureaus every month as late.  She had nineteen months of being reported as late–and of those 13 months were reported as “charged off.”  

Finally, after being ignored for 19 months, Bank of America sued.  (I say finally because Roberta was lucky–or unlucky–that she didn’t have Discover or Capital One. Both of those companies are much quicker to sue than Bank of America.)  That’s when she realized debt settlement was not working for her.

I See Debt Settlement a Lot

Since I’m a bankruptcy lawyer, I see a lot of people who get sued while they are paying their debts through debt settlement. The two debt settlement outfits I see most often are the biggest, Freedom Debt Relief and National Debt Relief.   (Freedom Debt Relief calls what they do “debt resolution.” National Debt Relief says they do “debt relief.”) 

Roberta’s experience is typical of what I see.  She kept really good records, so I could understand exactly how it worked out for her.

The big debt settlement companies have thousands of happy customers. Maybe you’ll be one of them.  To help you decide, I put the advantages of debt settlement compared to Chapter 13 for you to read and think about.  (I’ve written on this twice before, but not in much detail.) 

Debt Settlement vs Chapter 13: What are the Advantages?

Settlement Fees

Debt Settlement: 25% of the total debt (NOT just 25% of what you save.) On $45,000 in credit cards, that’s $11,250. Plus $9.95 a month, another $597.00.  That comes to $11,847.

Chapter 13: 10% of each payment, plus $5485 in legal fees.  Total $9,985. 

Advantage Chapter 13.

 

Tax Consequences

Debt Settlement:  You get a debt forgiveness 1099 when the credit card company settles for less than the entire amount.  If the Debt Settlement Company reduces your debt by $22,500, you get a 1099-C for that and you likely owe $6,243.60 in federal and Virginia income taxes.

Chapter 13.  There are no taxes on debt discharged in Chapter 13 or Chapter 7 bankruptcy.

Advantage Chapter 13.

 

Total You Have to Pay

Debt Settlement companies try to get creditors to settle for 50 cents on the dollar.  But while you are paying off your first few settlements, the other creditors continue to add interest (often at 29%) and late fees.  (Usually, after six months, the credit card companies stop adding interest.)  

Chapter 13 freezes the balances on your credit cards and unsecured loans.  In Chapter 13 you have to pay “all you can afford” according to a formula written in the law and applied by the bankruptcy court, but never more than the total of the debt, sometimes far less.

Advantage: It depends. Debt Settlement is definitely better if the creditors all settle quickly and if the bankruptcy court would decide you can “afford” to pay your debts in full.  Otherwise Chapter 13 can be better.

 

Do All Credit Card Companies Participate?

Debt Settlement:  Some major credit cards refuse to participate in debt settlement programs.  Participation is voluntary.

Chapter 13:  Chapter 13 is a federal law. Creditors can apply to the bankruptcy court to get paid. Or if they don’t apply, the debt is discharged (cleared) even though they get nothing.

Advantage:  Chapter 13

 

Court Cases

Debt Settlement: National Debt Relief posts this warning in bold.  “If you don’t repay or settle the debt, the debt collector can sue you.” Unless you have enough money to settle with all your debts quickly (and pay the settlement fees) the creditors NOT getting paid are likely to sue.

Chapter 13: Chapter 13 is a court order for the creditors to leave you alone. They can’t garnish, they can’t sue, and all pending court cases are stopped.

Advantage:  Chapter 13

 

Is Debt Settlement Legal?

Debt Settlement: While still operating legally in Virginia, Freedom Debt Relief has been shut down in Connecticut, Georgia, Hawaii, Illinois, Kansas, Maine, Mississippi, New Hampshire, New Jersey, North Dakota, Oregon, Rhode Island, South Carolina, Vermont, Washington, West Virginia and Wyoming.  The Consumer Finance Protection Bureau sued them in 2017 and in 2019 Freedom Debt Relief agreed to pay a fine of $25 million.

Chapter 13 is established by law. When you file Chapter 13 you have a law on your side.

Advantage: Chapter 13

 

Credit Reporting

Debt Settlement:  When you stop paying your credit card in a debt settlement program, the credit cards show on your credit report as late. When they are 180 days late, they show on your credit report as “charged off.”  As you settle some accounts, those are updated to show “Paid in settlement” (Code AU). Meanwhile, the accounts not settled keep reporting 180 days past due and “charged off” every month.

Chapter 13: In Chapter 13, your accounts are noted as Chapter 13. (Code D). When the Chapter 13 is completed, they are notes as Discharged through Chapter 13. (Code H)

Advantage: Chapter 13.

 

Security Clearance

Debt Settlement tells you to stop paying all your bills–and some admit they do NOT start to negotiate until you’ve been making monthly payments to them for six to twelve months.  That’s six months or more when none of your creditors are getting paid anything. And after that, the debts are settled usually one at a time, while other continue to go later. Just not paying your debts looks irresponsible.  

Chapter 13 proposes a payment plan to a judge. That shows your security clearance officer that you have taken responsibility for your problem and are working out a solution.

Advantage: Chapter 13.  

 

Conclusion Debt Settlement or Chapter 13

When they work, Debt Settlement programs can save you about 25%–which after taxes would be more like 15%–of the total you owe and they spread your payments out over three years or so. That savings can be substantial.  But, if some of the credit cards get tired of waiting while you settle with others, then you have a year or two of terrible damage to your credit, followed by the sheriff bringing court papers to your door. You end up where you didn’t want to be, talking to a bankruptcy lawyer about Chapter 13. Or maybe Chapter 7.

PS On Roberta.

I told you at the top that Roberta paid $23,673.00 on her debt settlement plan. Where did she get that money?

Through most of the last 19 months, Roberta was able to get a COVID forbearance on her mortgage payment.  She was able to pay the debt settlement company by NOT paying her mortgage, and putting the missed payment on the end.  Of course that means she really could NOT afford debt settlement at all. It also means that she would have been able to propose a very low payment in Chapter 13, because in Chapter 13 the court allows you to budget the money you need to pay your mortgage.  That $23,673.00 was money down the drain.

 

 

 

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11

Nov 2021

Sports Gambling Comes to Virginia

Posted by / in Weekly Posts /

Sports Gambling Comes to Virginia

Like most people, I’ve noticed that ads for sports gambling have taken over the TV (at least on basketball and college football, which is about all the TV I watch.) Sports gambling was legalized in Virginia April last year and began in January 2021.

sports gambling

Legalized sports gambling is good for bankruptcy lawyers. But bad for American families.

Now in October and November, I’ve met two people who each lost more than $40,000 betting on sports in the last six months.  (Neither had a gambling problem before.)

Maybe a couple times a year I talk with people who are considering bankruptcy because of casino gambling at National Harbor.  From where I set, sports gambling is fast becoming a far bigger problem.  

I’m wondering if it takes about a year for sports gambling to suck people in.  A few bets here and there, a little more, and suddenly it’s a destructive, life-wrecking addiction.

That’s good news for bankruptcy lawyers.  But very bad for American families.

 

 

 

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18

Aug 2021

Getting Your Mortgage Statements After Bankruptcy

Posted by / in Weekly Posts /

Are you getting your mortgage statements after filing bankruptcy?

Some mortgage companies use bankruptcy as an excuse to stop sending mortgage statements. (Or they send them to your lawyer, not to you.) The law is completely clear. The law says to keep sending them to you. 

That law is Regulation Z. The Consumer Finance Protection Bureau issues and enforces regulations under the Truth In Lending Act. Here’s what that regulation says.

First, the mortgage servicer has to send you a monthly statement.  That’s 12 CFR 1026.41(a)(2).  (Sometimes consumers accidentally give up a right in small print without knowing it. So the official interpretation says the consumer can’t do that. You cannot give up your right to receive monthly statements.)

Man reading mortgage statement after bankruptcy

Even after bankruptcy, your mortgage company should send you a monthly statement

Second, bankruptcy does not change that. That’s in 12 CFR 1026.41(f). While they need to keep sending the monthly statement, they also need to say that they know about the bankruptcy and that the statement is for information purposes.  §1026.41(f)(2)

Third, you or I can tell them to stop.  We can tell them directly, or through papers we file with the bankruptcy court. If you are not planning to pay and keep  the house, we can tell them to stop sending those bills.  §1026.41(a)(2)(B).  (Some mortgage companies want your lawyer to request that you KEEP getting your statements.  That stands the law on its head.  The Official Interpretation says your lawyer has the authority to tell them to STOP sending payments.  Your lawyer does NOT have the authority to tell them to keep sending payments. Why? Because Regulation Z says to send the statements without being asked.)

What If You Don’t Get Your Mortgage Statements After Bankruptcy

OK.  They are supposed to keep sending your mortgage statements. What if they just don’t?

Send them an email and link this page. (Copy me on the email.) We’ll see how that works.  

The Consumer Finance Protection Bureau has enforcement authority.  Complain to the CFPB here.  Especially since the 2020 election, the CFPB is good about following up. Hope that works.

But if that fails, can you and I to to court to make them follow Regulation Z? That’s at best a gray area. It looks like we don’t have your own private right to go to court if this right is violated.  

Can the bankruptcy court help?

The bankruptcy court has general power to carry out the provisions of the bankruptcy law.  11 USC 105.  So, can the bankruptcy court require the mortgage company to do what they are supposed to do, so that you can do what you are supposed to do?

Maybe. Several of us talked about this problem at the 2021 annual meeting of the National Association of Consumer Bankruptcy Attorneys.  I’m hoping they do a class on it next year.

 

PS Here’s the notice:

Here’s the notice to send to the mortgage servicer, if they are NOT sending you the monthly statement.

************************************************************************************************************

NOTICE TO MORTGAGE SERVICER

Mortgage servicer!  We are sending this reminder of the law to you.

Regulation Z orders you to send monthly statements to your customers, including the ones that have filed bankruptcy.  But you are NOT doing that. That’s why I’m sending you this this notice.

Please do what you are required to do. Send your customer the mortgage statements every month, like you are required to do.  You do NOT need my permission as your customer’s lawyer to send them.

You can take this as permission if you insist. But you do NOT need my permission to follow the law.  Just do it! — Robert Weed, Lawyer.

 

 

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15

Aug 2021

After Bankruptcy: Please Don’t Go Out and Co-Sign for a Car

Posted by / in After Bankruptcy, Weekly Posts /

After Bankruptcy: Please Don’t Go Right Out and Don’t Co-Sign for a Car

Got an email last week that made me sad.  Cherry filed Chapter 7 bankruptcy back in 2017.  She recently went to buy a car and ended up getting financed by Santander at 21%. After she did that, she asked why is her credit score so low, four years after bankruptcy?

When I looked at her credit report, here’s what I saw. Two months after her bankruptcy was discharged, she got a car loan with Regional Acceptance.  Regional Acceptance finances cars at terrible rates for people with terrible credit.  

Co-sign for car loan

After bankruptcy, don’t co-sign for a car.

I asked her, didn’t I warn you not to try to finance a car until at least two years–three is better–after the bankruptcy?  She said she didn’t “finance” a car: she just “co-signed for a friend.”

(The friend, of course, only paid for a year; and then the car got repossessed. Obviously the friend had really bad credit; so bad that Cherry right out of bankruptcy was needed as a co-signer.)

Instead of having the best credit of her life, four years after bankruptcy, Cherry’s score is stuck in the mid 500’s.  And Regional, if they bother, has two more years where they can sue and garnish her.

Two lessons.  First, if you have any way at all to get to work, do not finance a car until two years after your bankruptcy is discharged. Second, don’t co-sign for anybody whose credit is worse than yours. Ever.   

Please Don’t Co-Sign for a Car and Mess Up Your New Start in Life

Improving your credit score is one of five ways that bankruptcy gives you a fresh start.  Three years after bankruptcy you can have as good a credit score as anyone you know.  Don’t mess that up.  Don’t co-sign for a car for a friend.

 

 

 

 

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08

Aug 2021

A Million Dollar Mistake: Personal Injury and Bankruptcy

Posted by / in Virginia Bankruptcy, Weekly Posts /

A Million Dollar Mistake: Personal Injury and Bankruptcy

Under Virginia law, the bankruptcy court cannot take away a personal injury claim.  Injured in a car accident? Hurt in the hospital? Anyone in Virginia can file bankruptcy and still keep those claims.

Steven Ramsdell, one of the top bankruptcy lawyers here, is desperately trying to save a possible million dollar injury claim involving a Mr. Barnes, who “forgot” to tell the bankruptcy court about his personal injury.

Barnes filed bankruptcy in June 2020 and it was discharged in October 2020.  Two months later, Barnes sued a Loudoun County doctor for a million dollars, claiming a wrong prescription caused permanent damage to his liver.  In May 2021, the Loudoun County Circuit Court court threw Barnes put of court.

That’s How To Lose Your Personal Injury Claims In Bankruptcy

Here’s what happens when someone forgets to tell the bankruptcy court about your car accident or any other personal injury.

Injured in a car accident? Hurt in the hospital? You can file bankruptcy and still keep your rights. As long as you remember to tell the bankruptcy court.

Those rights are forfeit. Two ways.

First, because forgetting to tell the bankruptcy court about the claim means forgetting to protect that claim. So the injury claim now belongs to the bankruptcy trustee. Sometimes in law, “you snooze, you lose.”

Now, Barnes will ask the bankruptcy court to cut him some slack.  If the bankruptcy judge finds Barnes “forgot” because of “excusable neglect,” he may get a second chance to claim and protect his rights. 

Supposed a mortgage company overcharged someone and they didn’t know they were owed a refund. Forgetting to tell the bankruptcy court about that would easily be excusable neglect.

Barnes, on the other hand, sued his doctor less than three months after his bankruptcy was over.  Does that look like “excusable neglect.”  Or does it look like lying? 

Second, even if the bankruptcy judge helps him out, the state court judge can still toss out the suit for judicial estopple.  If Banes told the bankruptcy court that nobody owed him any money, how can he come into the state court and claim the doctor’s insurance owes him a million dollars?

Imagine this in the state court.  “You are telling this court, Mr. Barnes, that you are in constant pain? But you didn’t mention that pain when you met with your bankruptcy lawyer? Why should any jury believe you?”

Today, we don’t know how the Barnes case will turn out. Last week, the bankruptcy judge agreed he’d at least give Barnes a chance to explain his side.

PS  I should add that Steven Ramsdell was NOT the lawyer who first handled Barnes bankruptcy case. Barnes, of course, may be tempted to blame the problem on the first lawyer who handled his bankruptcy.  That first lawyer knew Barnes hadn’t worked for five months. Was that because of this injury? Should the bankruptcy lawyer have asked?

A lot of people will be sweating when the bankruptcy judge decides on “excusable neglect.”

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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES