After 25+ years representing hardworking but financially struggling men and women in the Atlanta area, I can report to you that the #1 secret to surviving Chapter 13 is living below your means. This can mean you have to make some difficult choices.
Chapter 13 Trustees are Increasingly Demanding
When you enter Chapter 13, you need to eliminate the “wants” in your life in exchange for the “needs.” I advise my clients that if you find yourself meeting with a bankruptcy lawyer, everything needs to be on the table. And this includes your cars, home, furniture, jewelry and just about any other type of property you are financing. You will also find that your Chapter 13 trustee likely has a much more restrictive view of what constitutes a true “need:”
- if you find yourself paying more than $300 per month for a car or truck, you need to consider giving that vehicle back to the creditor and buying a car for cash or financing a vehicle and keeping the payment below $300 per month
- if you are financing vehicles, furniture or jewelry for your children or other relatives, you should be prepared to surrender that property and let your relative work out a deal on his/her own
- if your budget includes out of pocket payments for your children’s college expenses, expect push back from the trustee. The trustee’s position will generally be that your child needs to use loans and grants to finance his/her own higher education and that your child may need to seek a less expensive education. Trustees generally do not agree with including someone else’s education costs in your budget
- if your budget includes private elementary or high school for a child, you will need to produce evidence that your child has special educational needs that make public school insufficient
- do not plan on keeping time shares or other non-essentials when you file Chapter 13
Currently, my experience has been that Chapter 13 trustees in the Atlanta area are more demanding than ever when it comes to squeezing your budget to extract every penny. Personally, I think that some of these budget demands do not account for the strong likelihood that you will have an emergency or unexpected expense during the course of your Chapter 13. The response I get: file a motion to ask the judge for special consideration if and when that happens.
Your Chapter 13 Budget Must Work on Paper and in Real Life
Even if your budget works on paper, I always remind my clients that Chapter 13 cases last 5 years and 5 years can be a very long time. The means test budget figures that we use when preparing your case represent very modest monthly expenditures. If we find ourselves allocating less money than the means test numbers for food, clothing, medical costs, etc, that is a red flag.
If you bite off more than you can chew by trying to keep secured property that you really can’t afford, you will eventually find yourself facing the judge in a motion for relief from stay or a motion to dismiss. Judges hate to see bankruptcy debtors lose their homes or cars but if the numbers don’t work and your plan is not feasible, the judge will rule against you.
Chapter 13 can be a powerful tool that enables you to “reboot” your financial life and restructure payments on essentials like your house or car. But you can’t expect the judge to do all the heavy lifting – you, and you alone, have to prove that the repayment plan you file in Chapter 13 is feasible.
The post What is the Secret to Making Your Chapter 13 Plan Work? appeared first on theBKBlog.
Late night comedian John Oliver recently offered his unique and humorous take on the debt buying industry, noting that collection agencies are responsible for more lawsuits than any other type of plaintiff, and that many of these lawsuits claim money damages for zombie debt. Zombie debt is debt that is not legally collectible because the statute of limitations has run.
Debt buyers rely on intimidation and ignorance, and obtain legally legitimate judgments when consumer defendants fail to answer a lawsuit.
Here’s how it works: let’s assume that you visited a hospital or otherwise incurred a debt back in 1995 that you never paid. Under Georgia law generally the statute of limitations on an unsecured debt like a medical bill or a credit card debt would be no longer than 6 years. So, by the end of 2001, your 1995 debt would no longer be legally collectible. This means that if someone sued you in 2010 for the 1995 debt, you could answer the lawsuit by stating “this statute of limitations for collection of this debt ran in 2001 and plaintiff’s claim should be dismissed.”
If you answered a lawsuit using language like this, any Georgia state or magistrate court judge would dismiss the debt buyer’s claim and you would be done. You could also counterclaim the plaintiff for frivolous litigation, but that is a story for a different day.
However, if you fail to answer the 2010 lawsuit, the attorney for the debt buyer would go to court and say, “your Honor, the defendant has failed to answer our complaint and we are requesting a default judgment.” The judge would have no choice but to grant this request.
Incredibly, a debt buyer can get a default judgment even if you were wrongfully identified as the debtor. In other words, you can be sued for a medical or other debt that you never actually incurred, but if you don’t file an answer to the collection lawsuit, an enforceable judgment will be issued against you.
By obtaining a default judgment against you, therefore, a legally non-collectible debt will become a legally enforceable judgment. And the debt buyer can use that judgment to garnish you wages, put a lien against your house and car, clean out your bank account and take any other legal action to collect the debt. Further, if you don’t file a written appeal within 30 days, you cannot later come back and say “I want to challenge this claim on the grounds that the statute of limitations has run.” You now have an enforceable judgment to deal with and with limited exception, your only recourse is to settle the debt with the debt buyer, or file bankruptcy.
Debt buying is big business in the United States. As he discusses in this video, Mr. Oliver set up a debt buying service and bought over $15 million in out of statute medical debt for $60,000 (this works out to buying debt at half a penny on the dollar). Mr. Oliver “forgave” this debt but, obviously, most debt buyers pursue collection aggressively.
If a debt buyer purchases debt at less than 1 penny on the dollar, but ends up collecting only 5% of what it bought, the return on investment is huge. This is why the debt buying business is so big and so profitable.
Currently, there is very little regulation of the debt buying industry although the CFPB (Consumer Financial Protection Agency), a federal government agency has sued a number of high profile collection agencies and collection lawyers for deceptive and misleading practices. However, debt buying companies use their profits to lobby state legislators to pass industry friendly laws.
How to Protect Yourself
The most important thing to remember is that you have to take action if you receive a collection letter or a lawsuit about any debt, but especially about an old debt. Never make any payments or enter into a payment agreement on a debt without first talking to a lawyer (a bankruptcy lawyer or a consumer rights lawyer – Ginsberg Law can be reached at 770-393-4985).
- If you make a payment on an old debt, you risk “reviving” that debt and extending the statute of limitations.
- Never, ever ignore a collection lawsuit. Nothing good comes from a default judgment.
- Finally, do not take advice from a bill collector or creditor representative. They will intentionally (or non-intentionally) mislead you and you can be sure that the information they provide you is not designed to help you in any way.
If you have any questions about debts or debt collection, please call our office – Susan Blum and Jonathan Ginsberg are here to answer your questions.
The post Comedian John Oliver Explains the Debt Buying “Industry” and Zombie Debt appeared first on theBKBlog.
Financial experts bemoan the “crisis” in student loan debt (over $1.2 trillion as of 2015) and the rising rates of credit card debt ($733 billion as of 2015) but no one seems to be talking about yet another debt bubble – the huge rise of auto loan debt.
In 2012, total auto loan debt in the United States passed $1 trillion. Currently, the average household owes over $27,000 to vehicle lenders. More problematic, many of these loans extend well beyond 3 or 4 years. According to Edmunds.com, as of 2014, over 60% of auto loans were for terms over 60 months, with nearly 20% of these loans using 72 to 84 month terms.
60 months, of course, equals 5 years. 72 months equals 6 years, and 84 months equals 7 years.
Why a Long Term Vehicle Loan Means Trouble
You may ask “why should I be concerned about signing a 60 or 72 month car loan if I can afford the payment?” The answer, in a word, is “depreciation.”
Cars and trucks are depreciating assets. This means that they go down in value with each day and each mile of wear and tear. When you sign off on a 5 year or longer loan, you won’t be break even on your loan for at least 3 years. All your payments through at least year 3 (and most likely longer) will be applied to interest only. And my experience has been that folks who pursue long term vehicle loans often have less than perfect credit such that their interest rates are 7%, 8% or even higher.
This means that if your vehicle breaks down, or if you want to replace your car or truck 3 or 4 years into the loan, you will have to come out of pocket to satisfy the loan. If your vehicle is totaled in a wreck before the break even point, you will have to come out of pocket to pay off the loan because insurance companies pay property damage settlement based on “low retail” value.
If the dealership offers to “roll your existing payment” into a new loan, you’ll end up paying even more, because the new loan will include the leftover finance costs from the original loan plus the unfavorable terms from the new loan.
In essence, a 5 year or longer car loan equals a long term rental, except that you bear all the risk of loss. In case I am not being clear, a 5 year or longer loan is a toxic loan, and almost never a good idea. Even 4 year loans are less than ideal.
How Can You Escape from Long Term Vehicle Loans
So, what can you do if you are stuck in a long term vehicle loan? Some credit unions will consider a refinance that would allow you to reduce the term down to 3 years but that assumes (a) you can handle a higher payment and (b) that your credit score has improved to allow for a lower interest rate.
Another option to consider is Chapter 13 bankruptcy. Chapter 13 includes an interesting concept called a “cram down” that applies to car and truck loans. If you took your loan out more than 2 ½ years ago (910 day), we can reduce your loan balance to the value of your vehicle. We may also be able to reduce that high interest rate to a rate closer to the prime rate (which is currently around 3.5%).
- Here’s an example: Tom owns a car worth $15,000, that he bought 3 years ago with a 72 month loan at 8% interest. His current balance is $21,093 and his monthly payment is $440. In Chapter 13, we can cram down the $21,093 balance to $15,000 and reduce the interest rate to 4.5%. Tom will end up paying around $235 per month to the lender within his Chapter 13.
Obviously every case will be different, but if you have a long term vehicle loan at a high interest rate that you signed more than 2 ½ years ago, Chapter 13 can most likely save you thousands of dollars.
All Debts Must be Included in Chapter 13
Like any other financial tool, Chapter 13 is not a “free lunch.” You should not enter into any form of bankruptcy before educating yourself about both the positives and negatives. You will have to pay a lawyer to analyze your income and expenses, debts and assets and to prepare a Chapter 13 filing.
Understand as well that when you file bankruptcy, you have to include (and modify) all of your debts. In many cases Chapter 13 can reduce your monthly expenses and reduce your total debt but Chapter 13 is not the right remedy for every person.
If you are stuck in a long term vehicle loan, however, it does make sense to find out whether a Chapter 13 cram down can help you. Susan Blum and I have been representing Atlanta area residents understand how personal bankruptcy works for over 25 years. We are happy to answer your questions – call us at 770-393-4985 or use the form on this page to reach us by email.
The post Relief From Your 72 Month Car Loan appeared first on theBKBlog.
Georgia may soon have a new law governing wage garnishments and bank account levies. But the news is not all good.
You may recall that back in September, 2015, I reported that federal judge Marvin Shoob had issued a ruling that invalidated on Constitutional grounds bank account levies in Gwinnett County, Georgia. A man named Tony Strickland sued the Gwinnett County clerk of court after his bank account containing workers compensation and Social Security funds was seized by a credit card company that had sued him. Mr. Strickland argued, and Judge Shoob agreed, that the credit card company had an affirmative obligation to notify debtors like Mr. Strickland that certain funds (like workers’ compensation benefits, Social Security benefits, welfare payment and similar benefits) were exempt from garnishment.
Although the federal judge’s ruling was limited to bank account levies in Gwinnett County, most legal experts concluded that the principle set out in the judge’s order was applicable generally to all bank account levies and wage garnishments within the state of Georgia.
Following this ruling, most judgment creditors stopped or carefully audited all post-judgment collection activities.
New Georgia Notice Requirements
In response to the federal judge’s ruling, several Georgia state legislators have introduced bills to modify Georgia’s post-judgment collection laws to meet the standards set out by Judge Shoob.
Senate Bill 255, passed on Tuesday, February 2, 2016 requires creditors to notify debtors that money originating from Social Security, workers’ compensation and welfare is protected from seizure. The bill now moves to the state House, where it is expected to pass, and then to Governor Deal, who is expected to sign the bill into law.
What does this mean to you?
First, you need to understand that the proposed legislation doesn’t change the protected status of benefits received from workers comp., welfare or Social Security. Those benefits have long been protected whether in check form or after they have been deposited into your bank account. The new law is mostly about providing notice.
What this new law may do is reduce the pressure on struggling debtors who are trying to survive on benefits. If your only source of income is workers’ comp or Social Security, for example, and a debt collector calls to demand payment, that bill collector will also have to notify you that your benefit payments are protected from seizure. We may see fewer instances of bill collectors intimidating confused and frightened debtors into issuing post dated checks, or worse, allowing electronic access to bank accounts.
Presumably judgment creditors would have some burden to investigate whether the accounts of judgment debtors contains protected money and they would be liable for damages if they fail to honor the protected status of seized funds.
It’s Still “Buyer Beware” for Georgia Consumers
If you are on the receiving end of a judgment, I think that you still need to take steps to protect yourself. First, you need to be careful about co-mingling your benefit funds with other monies. Only funds directly attributable to Social Security, workers comp., and welfare are protected (and these funds remain protected even after deposit). A problem arises, however, when these protected funds are co-mingled with unprotected funds such as income from part time work, rental property income, or wages earned by a spouse if that spouse is also a judgment defendant.
You don’t want to be in a situation where your possibly protected funds are seized and you have to hire a lawyer to go to court to argue that some or all of the funds seized are exempt from garnishment or levy.
You would be wise to segregate your funds by asking your bank to create a sub-account of your main checking or savings account that contains only protected funds. And if you have any cash in unprotected accounts, use those funds first to pay necessities.
I would also continue to advise my Social Security disability and workers’ compensation clients to protect themselves by notifying their banks and the suing creditors that they have a protected subaccount and to stay away from this account. If the creditor ignores your written notice, you would have an even stronger claim for damages against that creditor or collection agency.
Don’t Ignore Lawsuits
Finally, I want to again remind you about the importance of taking action if you are sued. Back in September, 2015 I wrote a post entitled Don’t Fall Prey to Illegal and Immoral Behavior by Debt Buyers. The gist of that post was to warn you that there are companies – debt buyers – that purchase stale debt for pennies on the dollar and attempt to collect on it. Stale debt refers to accounts for which the statute of limitations for collection has expired. In other words, you have no obligation to pay a statute of limitations barred debt.
However, if you don’t know that the statute of limitations has run and an aggressive bill collector calls you, you might agree to pay the debt and even reboot the statute of limitations. In more egregious cases, debt buyers actually sue unsophisticated debtors to collect stale debt and if the debtor does not respond and deny the claim, the debt buyer may obtain a judgment that can be turned into a wage garnishment or bank account levy.
The big picture here is that consumers still have relatively little protection against well funded credit card companies, collection agencies and debt buyers. My colleague John Skiba, a nationally known bankruptcy and debt defense lawyer in Arizona, notes that in his jurisdiction over 95% of “junk debt buyer collection lawsuits” end up in a default judgment. In other words, 95% of collection defendants ignore lawsuits. I suspect default rates in Georgia are similar.
While a bankruptcy lawyer can sometimes undo the damage, you may find yourself paying a lawyer to deal with a problem that could have been easily dealt with early on.
This is why it is so important to always take action if you receive a lawsuit or even if you hear a rumor that you are being sued. Most of the metro Atlanta courts offer electronic access and I can usually find out in a few minutes if there is a pending or defaulted lawsuit.
Again, despite the efforts of the Consumer Financial Collection Bureau, and despite the new notice requirement that will likely become part of Georgia law, you have to be diligent and advocate for yourself. If you are facing collection it truly is a jungle out there.
I’ll leave you with a quote from Georgia State Senator Jesse Stone, who filed Senate Bill 255: “the sooner we get it in the law, the sooner everybody will be back in the business of collections.” If you are struggling with overdue consumer debt, that certainly does not sound like good news.
The post Georgia’s Likely New Pre-Garnishment Notice Not All Good News appeared first on theBKBlog.
Does Chapter 13 law allow a debtor to purchase a new vehicle while in Chapter 13 and to finance this car or truck purchase?
This was the issue I faced recently while representing a client whose car was totaled in an accident. My client was in the middle of his Chapter 13 case, having paid into his plan for three years, with two years left to go.
Now, with no car to drive to work, my client was spending $20 per day on a rental car and needed to purchase a replacement. Here’s how we dealt with this problem.
First, my client had to find a replacement vehicle and a lender who would agree to finance a loan despite my client’s status as debtor in an active Chapter 13. Believe it or not, this task was not a problem – my client found a two year old vehicle in the $25,000 range and his dealership was able to arrange financing.
My client did have funds for a down payment – insurance had issued a property damage payment of around $7,000 which he wanted to use as a down payment.
Not surprising the terms of the finance contract were not great – it provided for a 72 month payoff and a monthly payment of $325 per month.
Motion to Incur New Debt
Before my client could sign anything, however, we needed to get permission from the judge since the bankruptcy law requires Chapter 13 debtors to file a Motion to Incur Debt prior to entering any loan contract. The finance company also required a signed order from the judge authorizing the deal.
I prepared and filed this Motion to Incur Debt, setting out all the details of the proposed deal. Motions like this in Bankruptcy Court need to be served (mailed to) all creditors and the trustee. In this case, the hearing on our motion was scheduled for almost a month later.
This month delay in gaining approval for the “outside loan” was a problem because used car dealers are not going to remove a vehicle from inventory on the hope and expectation that a judge will bless the deal and that the buyer will remain interested.
Motion for Expedited Hearing
So, my next step was to file a Motion for Expedited hearing. This would allow us to get before the judge in less than a week. I spoke with the judge’s calendar clerk and she advised me to “serve” all parties using email and/or fax, which I did.
Three days later my client and I appeared before the judge to present our motion. The trustee had no objections to the deal but the judge had questions about the type of car my client wanted to purchase. My client had negotiated a deal for a used Mercedes SUV in the $25,000 range. The judge noted that she considered vehicles made by Mercedes or BMW to be “luxury” vehicle and thus not appropriate for a Chapter 13 debtor. The judge agreed to authorize a finance deal but only for a non-luxury vehicle.
The judge’s order, which I drafted, provided that the debtor is “directed to enter into a purchase contract for a non-luxury vehicle.” The signed order appeared on the clerk of court’s website a day later and my client had what he needed to shop for a vehicle.
So, what are the take-aways from this case?
First, there are car finance deals out there for debtors currently in bankruptcy or newly discharged. You will pay a higher interest rate but lenders will loan the money.
Second, if you are in the middle of a Chapter 13 case, you need to arrange a deal before filing anything with the court. Bankruptcy judges do not like to deal in hypothetical situations – you need to have a proposed deal on the table for the judge to analyze.
Third, you and your lawyer cannot control what the judge will do. In my experience, judges are not going to leave you high and dry when it comes to something as essential as daily transportation, but you should not expect the judge to rubber stamp your motion to incur new debt. The judge’s concern about the type of vehicle is not surprising. Bankruptcy judges expect Chapter 13 (and Chapter 7) debtors to reduce their standard of living and eliminate all non-essentials.
Finally, our experience in this case show that we can get creative when we need to make things happen quickly in a bankruptcy case. Until now, I have never served anyone by email or fax but given the low likelihood that anyone would object to this motion, we were able to use these non-traditional means of service. I doubt that I would be able to use fax or email service if I was modifying the debtor’s plan to reduce payments to all creditors.
I hope this case study of the “new loan while in Chapter 13 bankruptcy” was helpful to you. If you have any questions about Chapter 13 or Chapter 7 or about any debt issues, please contact my office.
The post How to Qualify for a Car Loan While in Chapter 13 appeared first on theBKBlog.
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