Payday loans are often very dangerous to consumers because their high interest rates make it easy for debtors to fall behind on their payments. Naturally, New York bankruptcy cases often include payday loans. Consequently, a few years ago the Consumer ...

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CFPB Finishes Payday Lending Rule, Hopes to End ‘Debt Traps’ and more...

CFPB Finishes Payday Lending Rule, Hopes to End ‘Debt Traps’

Payday loans are often very dangerous to consumers because their high interest rates make it easy for debtors to fall behind on their payments. Naturally, New York bankruptcy cases often include payday loans. Consequently, a few years ago the Consumer Financial Protection Bureau (CFPB) began drafting a rule that would regulate payday lenders while not driving them out of business entirely. In early October, the CFPB finalized the rule, hoping it would stop “debt traps” that would force people into bankruptcy. I’ll highlight some of its main points.

In general the rule appears broader than when it was first taking shape last year. It still showcases a “full-payment” test that requires lenders to determine that debtors have the ability to pay the loans they take out. Specifically, debtors must be able to afford their payday loans while still being able to meet their other obligations while maintaining basic living expenses. For a payday loan that’s fully due in one payment, borrowers must be able to pay within two weeks or one month. The rule limits the number of loans borrowers can take out in succession to three.

The rule regulates short-term and lower-risk loans differently if they are under $500 and can be repaid over a longer term, which the CFPB refers to as the “principal-payoff option.” Such loans do not need to meet the full-payment test, and borrowers can either pay their loans off in full or take up to two extensions so long as they pay off one-third of the principal with each payment. These loans are also restricted to borrowers who currently owe no other payday loans to prevent debt traps.

One way the rule appears broader than last year is that it protects smaller financial institutions (community banks and credit unions). Lenders that make fewer than 2,500 short-term loans per year and derive less than 10 percent of their revenue from such loans are exempt from the “full-payment” test and the “principal-payoff option.”

Finally, the rule prevents lenders from debiting a borrower’s account after two successive unauthorized attempts, and it requires them to seek the borrower’s authorization to access his or her account again. The goal is to ensure that debtors can dispute lenders’ attempts to debit their accounts if the lenders did so erroneously.

The CFPB’s press release on its rule can be found here.

Looking at its mechanics, it appears the CFPB’s rule will curb the worst abuses and outcomes from the payday-lending industry. It will also hopefully reduce needless defaults and bankruptcies. In the meantime, if you are struggling with debt, then talking to an experienced New York bankruptcy lawyer can help you assess your options.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

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ProPublica Finds Significant Racial Disparities in Bankruptcy Outcomes

Ideally, debtors’ circumstances and not their ethnicities should influence bankruptcy chapter choices. According to a ProPublica study from September, however, the United States falls far short of that ideal. In a series of articles, the advocacy group’s researchers discuss the significant racial disparities in debtors’ chapter choices and outcomes: Specifically, black debtors tend to file in chapter 13 when chapter 7 would be more appropriate, even when they don’t own their own homes, and their cases end up dismissed more frequently as a result. I will go into some of ProPublica’s findings and discuss their relevance to New York bankruptcy debtors.

Focusing on the Western District of Tennessee (Memphis), the authors explored why residents of Census tracts with large black populations chose chapter 13 over chapter 7. One compelling reason was the types of debts the debtors owed. Chapter 13 works best for debtors who own homes and want to keep them, but it does offer other advantages to debtors. For example, debtors who owe court debts for misdemeanors and have their driver’s licenses suspended can get their licenses back if they file in chapter 13. Sadly, many criminal laws assume people are capable of paying the scheduled fines, but when people can’t then their financial lives go into a tailspin. Thus, these debtors choose chapter 13 even though it wasn’t designed for their circumstances.

The authors also discuss the role that bankruptcy lawyers play in funneling debtors into chapter 13. Because the 2005 bankruptcy reform complicated chapter 7 bankruptcy, it now costs about $1,000 to file on average nationally. By contrast, some lawyers, particularly in Memphis, offer zero-money-down plans to potential chapter 13 debtors with the attorneys’ fees covered in the plan. This is attractive to debtors, and even though many of their cases will be dismissed, the lawyers earn enough on the cases that do make it to dismissal to make it worth their while. This has resulted in substantial market concentration in Memphis’s bankruptcy legal sector.

Poverty haunts these black communities. Debtors who are too poor to afford a chapter 7 bankruptcy choose chapter 13 as the next best alternative even though it isn’t the right fit for them. At the same time, if they had the incomes to pay their court fines, they wouldn’t lose their driver’s licenses in the first place. One area the ProPublica story did not explore is the frequency of debtors choosing insolvency over bankruptcy in these communities, and whether chronic chapter 13 filings are a part of that.

The ProPublica study is here.

When debtors are too poor to file chapter 7, no one wins, even the lawyers who file doomed chapter 13 cases. If you are struggling financially, then talking to an experienced New York bankruptcy lawyer sooner will help you get your situation under control better than waiting until you’re too poor to file.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

The post ProPublica Finds Significant Racial Disparities in Bankruptcy Outcomes appeared first on Rosenberg, Musso & Weiner, LLP.

 

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When Can a Debtor Reopen a New York Bankruptcy Case?

Sometimes after bankruptcy cases are closed or dismissed, debtors will want to reopen them for a variety of reasons depending on the circumstances. Bankruptcy courts have substantial power to grant debtors requests to reopen their cases, so it can be helpful to know when it’s allowed, especially when self-represented debtors’ cases were dismissed due to mistakes that could be fixed with the help of an experienced New York bankruptcy lawyer.

One of the most common reasons debtors seek to reopen their cases is that they neglected to complete the mandatory credit-counseling courses before filing bankruptcy, or they didn’t file the certificate stating they did so on a timely basis. Many self-represented debtors make this mistake, and the consequence is the bankruptcy court will dismiss the case. Debtors who then complete the requirement may be able to convince the bankruptcy court to reopen their cases and proceed from there.

Another frequent reason debtors want to reopen their cases is that they accidentally did not list a creditor in their petitions. Sometimes this can occur soon after a dismissal, but other times it happens after they have received a discharge and their cases are closed. For chapter 7 debtors, creditors will need an opportunity to object to the discharge, and chapter 13 creditors may need to be paid a similar portion to what other creditors received.

Third, some debtors do not inform the bankruptcy court of an asset in their possession. They will need to reopen their cases, claim any applicable exemptions, and then the trustee will dispose of the asset. There can be other reasons to reopen a bankruptcy case, but they’re less common, like filing a motion to avoid a lien, fixing other errors in the paperwork, or dealing with a creditor that is violating the discharge order.

To reopen a case, a debtor will need to file a motion with the bankruptcy court and serve it on all creditors and parties of interest. They will also need to pay a new filing fee. At the hearing, they must then convince the court why reopening the case is proper. Because of the court’s broad latitude for reopening a case, debtors with compelling reasons will be successful, but sometimes they won’t be. If your case was dismissed or a problem with your bankruptcy has arisen, then it’s wise to discuss your situation with an experienced New York bankruptcy lawyer to ensure the situation is resolved properly—and you don’t spend more time in bankruptcy than you should.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

The post When Can a Debtor Reopen a New York Bankruptcy Case? appeared first on Rosenberg, Musso & Weiner, LLP.

 

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Bankruptcy Reform Reduced Filings, Increased Insolvency, Foreclosure

The Wall Street Journal article I referred to in my post on what debtors should do when they’re too poor to afford bankruptcy filing fees cited a pair of articles by the Federal Reserve Bank of New York that I missed. In 2015 the branch explored the effects the 2005 Bankruptcy Abuse Protection and Consumer Protection Act (BAPCPA) had on insolvency and foreclosure. The authors wanted to know whether the BAPCPA made bankruptcy too costly for destitute debtors. The answer, discouragingly, appears to be yes, but the authors go on to explain what the consequences are for debtors who cannot file New York bankruptcy: chronic unpaid debts and profits for banks.

The first article began by tracking the probabilities that debtors’ financial circumstances would transition from delinquent to bankrupt, insolvent, or current. The authors found that the probabilities that debtors in the delinquent category would transition to current (without foreclosure) or bankrupt (without foreclosure) fell significantly after the BAPCPA went into effect. Notably, debtors with credit scores in the lowest 20 percent did not transition to bankruptcy during the Great Recession while most other delinquent debtors did. Meanwhile their foreclosure rates increased just the same, indicating that debtors simply endured insolvency and foreclosure because they were too poor to file bankruptcy. The authors tied these findings to the fact that low-credit-score debtors tend to have low incomes, and the rise in bankruptcy filing costs throughout the United States.

From there the article posed an interesting question: What’s the difference between filing bankruptcy and simply living with insolvency? Quite a bit, apparently. Insolvent debtors saw increases in both their balances in collections and court judgments against them—both of which are easily prevented by bankruptcy’s automatic stay. Debtors who file bankruptcy also are able to access credit-card accounts while insolvent debtors cannot. Finally, debtors exiting bankruptcy have much higher credit scores than insolvent debtors—around 100 points.

In the second, shorter article, the researchers explored whether financially distressed debtors were substituting foreclosure for bankruptcy. They answered in the affirmative, adding that the BAPCPA probably amplified the housing and mortgage crisis.

The NY Fed’s first article is here; the second is here.

It’s one thing if the BAPCPA didn’t achieve its goals, but it’s another thing entirely if it impoverished debtors, promoted foreclosure, and increased banks’ profits. It does, however, show the value of New York bankruptcy. As I wrote in the earlier post: Bankruptcy filing fees can be paid on an installment plan or waived. If you are insolvent or nearing insolvency, then discussing your financial situation with an experienced New York bankruptcy lawyer can help you assess your options.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

The post Bankruptcy Reform Reduced Filings, Increased Insolvency, Foreclosure appeared first on Rosenberg, Musso & Weiner, LLP.

 

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Insurance Proceeds and Bankruptcy

I recently discussed what happens to health-insurance policies in bankruptcy, so debtors might also be curious about what happens to the actual proceeds from insurance claims. With the health-care policy, the issue was the character of the agreement, but with proceeds, the question focuses on the money the insurance company pays to the debtor when a claim is successfully filed. Here, the salient issues are the kind of insurance claim, the timing of the event that triggered the claim, and then what exemptions are available.

Take one of the recognizable examples: insurance proceeds from a car accident. If the car accident occurs after the bankruptcy is filed, then the insurance proceeds will not become part of the bankruptcy estate. However, if the accident occurs before the bankruptcy, then the proceeds may end up in the bankruptcy estate. (Note that the timing of the payment is irrelevant.)

The exemptions available to debtors for insurance proceeds vary quite a bit between New York and the federal government. Debtors can certainly attribute insurance proceeds to wild-card exemptions. The federal exemptions give debtors $1,250 plus up to $11,850 in an unused homestead exemption, and New York gives debtors $1,100 if they do not claim a homestead exemption, plus the lesser of $5,525 or $11,025 minus their personal-property exemptions.

The federal exemptions also protect funds for payments in wrongful death actions, loss of future earnings, and up to $23,675 for personal injury claims. New York shields compensation to debtors who are victims of crimes, and up to $8,275 in personal injury claims to the debtor and people upon whom the debtor is a dependent (not including pain and suffering or pecuniary losses).

Where the type of claim matters is life insurance, which is one of the three post-petition assets that can be roped into the bankruptcy estate. Unlike an accident claim, the timing of the death that triggers a life insurance claim is relevant because the proceeds can become part of the bankruptcy estate if the death occurs within six months of the bankruptcy case’s filing. Debtors can use the federal exemptions to cover up to $12,625 in life insurance benefits and all insurance benefits when the debtor is a dependent of the beneficiary. New York gives debtors control over acceleration rights for life-insurance policies, and where the debtor is the holder of the policy the exemption is unlimited. Debtors are, of course, free to use the above-mentioned cash exemptions to protect life-insurance proceeds to the extent they are available.

It’s pretty clear that the federal exemptions better protect debtors when it comes to personal injury claims, but New York’s unlimited exemption for policyholders better protects debtors. If your financial situation is precarious, but an insurance payment is playing a role, then it’s worthwhile to strategize your case with an experienced New York bankruptcy attorney.

The post Insurance Proceeds and Bankruptcy appeared first on Rosenberg, Musso & Weiner, LLP.

 

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