Crisis Deepens In Atlantic City

Crisis Deepens In Atlantic CityA source close to the financial imbroglio in America’s Favorite Playground says that a Chapter 9 bankruptcy is “inevitable,” adding that the city “should have filed bankruptcy a year and a half ago.”

The official report from the state-appointed emergency management committee stopped short of this declaration, instead calling for a layoff of up to 30 percent of the city’s workers, pension cuts and debt deferrals that would save the beleaguered city an estimated $10 million this year. But with Atlantic City facing a projected $101 million budget shortfall in the upcoming fiscal year, it seems unlikely that even drastic budget cuts could turn around the city’s financial outlook. Emergency Manager Kevin Lavin admitted that the situation was much worse than the team originally anticipated. In addition to the anticipated shortfall, Atlantic City is already $397 million in debt.

Four of the largest casinos in the city have closed in the last year; as a result, the city’s tax base is about half of its 2010 level.

When Is Bankruptcy Inevitable?

If you are having money problems, consider speaking with a bankruptcy attorney. By holding out hope that nickel-and-dime budget cuts and extra few dollars will somehow turn things around, you are making the situation worse and putting yourself, and your family, through needless stress.

Specifically, look for the following warning signs as you contemplate filing a voluntary petition:

  • $10,000: Every family is different, but as a rule of thumb, if you owe more than $10,000 in credit cards, medical bills and delinquent payments, it will be very difficult to negotiate with creditors and repay that amount.
  • 90 Days: If you are more than two or three months behind on your house payments or car note, the lenders will attempt to repossess the collateral, despite any verbal assurances they make.

Chapter 7 can eliminate most unsecured debts in as little as a few months, while Chapter 13 debtors can repay debts over time under the protection of the federal government.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Should I File Chapter 7 Or Chapter 13 Bankruptcy?

Should I File Chapter 7 Or Chapter 13 Bankruptcy?In a way, both these programs are very much the same. They use the same basic forms and the same judge may hear both types of cases. Most importantly, they both share the same goal. Once the judge issues a discharge order, the debtors and their families have a fresh financial start.

There are at least two major differences, especially since Congress changed the laws in 2005. Chapter 7 and Chapter 13 always catered to different types of debtors with different needs, and now those differences are even more pronounced.

Type of Debt

Broadly speaking, people with credit cards, medical bills, payday loans and other unsecured debt should consider Chapter 7. Chapter 13 may be a better choice for those who are behind on car loans, home mortgages and other secured debts.

However, many people fall behind on their secured debt payments, for many reasons, and they do not wish to retain the property. For example, a debtor may be $20,000 behind on a home mortgage. Even with a five-year repayment period, many families would be hard-pressed to make a monthly catch-up payment, especially after factoring in trustee fees and other debt retirement.

So, Chapter 7 may be an option for people who are behind on secured debts and plan to surrender the collateral.

Amount of Time

Some people want to quickly emerge from bankruptcy so they may begin rebuilding their credit scores. In many cases, a Chapter 7 may be discharged in as little as four to six months. This consideration may be very important if you plan on buying something large, such as a car or house, within the next five years. But since every situation is different, make sure you discuss your goals with your attorney.

On the other hand, some people need additional protection from the Bankruptcy Court. A creditor may be garnishing wages for a non-dischargeable debt, such as student loans, certain income taxes or delinquent domestic support obligations. Both chapters stop wage garnishment until the court issues a discharge order or unless the creditor obtains special permission from the judge. In a Chapter 7, the order typically comes within a few months. However, a Chapter 13 will not be discharged for at least three years, and quite possibly longer than that.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Lessons From The Bench

Lessons From The BenchA recent opinion from Judge Michael Kaplan offers valuable insight into a pair of issues that haunt many Chapter 13 debtors.

Funding a Chapter 13 Plan

In Re Andolino began when Christopher Andolino filed Chapter 7 Bankruptcy in April 2013. About a month later, he converted to a Chapter 13. Although the record makes no mention of the reason for this switch, it is fair to speculate that Mr. Andolino had some property he wanted to keep – perhaps a house – and he and his attorney though they saw a way for him to keep it.

Mr. Andolino was unemployed, and according to the Bankruptcy Code, the debtor must have “regular income” to fund the repayment plan. Regular income is almost always defined as either employment income or well-established self-employment income. But, at some point, Mr. Andolino’s girlfriend stepped forward and agreed to assume responsibility for the plan payments.

The Trustee objected to this arrangement, and indeed, many courts are skeptical when anyone other than a non-filing spouse agrees to shoulder the plan payment burden. But the Court ruled that the debtor only needed to prove that the contributions would be “stable and regular.” In this case, Mr. Andolino’s girlfriend made a formal, written promise to pay and there was evidence that she had the means to make good on her promise.

Sometimes, the numbers on a Chapter 13 repayment plan initially do not work, but your attorney can look for creative solutions to fill in the gap.

Inherited IRA

In his original petition, Mr. Andolino declared an IRA. He later amended his schedules to state that he had an inherited IRA, which was still exempt. The Trustee objected in light of Clark v. Rameker, the 2014 Supreme Court decision which held that an inherited IRA was not exempt under the Bankruptcy Code.

Judge Kaplan correctly reasoned that the Supreme Court decided Clark based on state law, and the New Jersey statute essentially defers to IRS guidelines on this matter. So, under New Jersey law, an inherited IRA is still exempt property. Mr. Andolino got to keep every dime of his deceased mother’s $120,000 IRA, and the same ruling may very well apply in your case.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

The Check Is In The Mail

The Check Is In The MailAs of February 20, the IRS says it processed about 50 billion 2014 income tax returns. 83 percent of these filers received an average refund of $3,120.

The number may be somewhat skewed, since taxpayers who anticipate large refunds tend to file earlier in the season. Over the past several years, about eight in 10 taxpayers qualified for an average refund of $2,800. The news was not all good, as Service officials acknowledged that budget cuts had triggered extremely long wait times on the IRS telephone hotline.

To help guard against hackers, the IRS suggested that online taxpayers sign up for an additional PIN.

Bankruptcy and Tax Refunds

Many people look forward to a large tax refund every spring, and they may even over-withhold a few dollars a month to put more change in the piggy bank. Other people question the wisdom of this approach, as they view an income tax refund as an interest-free loan to the government.

Financial windfalls like a tax refund, lottery prize, escrow refund and inheritance are all part of the bankruptcy estate, and all assets in the estate are subject to distribution among the creditors, unless the asset is exempt. When you file bankruptcy, all anticipated windfalls, and their expected value, should be listed on Schedule B. If you file Chapter 7, the additional money should not affect the means test. If you receive an unexpected windfall, you can generally amend Schedule B without affecting the discharge date.

Most filers in New Jersey use federal exemptions, so the cash windfall can be exempted under the federal wildcard, in many cases. In most courts, a Chapter 13 trustee does not ask a filer to turn over a tax refund, so the issue may not even come up.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Is Atlantic City The Next Big Municipal Bankruptcy?

Is Atlantic City The Next Big Municipal Bankruptcy?Two prominent Wall Street rating firms recently downgraded Atlantic City to near-junk status, after Gov. Chris Christie appointed an emergency management team to handle the finances of America’s Favorite Playground.

Last month, both Moody’s and Standard & Poor’s rating services dropped Atlantic City’s credit rating several notches, from BB to BBB+. The downgrade makes it more difficult for Atlantic City to borrow money, as it tries to stave off bankruptcy. An S&P analyst called the management team a “draconian” action that “has a greater likelihood of being detrimental to bondholders.” Moody’s said that Gov. Christie’s action may have ramifications for other financially-challenged New Jersey cities, including Newark and Patterson.

Four of Atlantic City’s 12 major casinos have closed in the last year, leaving the city with a greatly reduced tax base and nearly $400 million of debt.

Handling Bankruptcy

Atlantic City may hold a common misconception about bankruptcy, which goes back to the days of seemingly endless “Monopoly” games played out on the kitchen table, the living room floor, or a folding card table in the den. As you moved your racecar, iron, thimble, or battleship around the board, the worst thing you could do was file bankruptcy. That was the end of the game, and there was no hope of recovery.

Fortunately, the real thing works a bit differently. For one thing, a house on James Place may cost a little more than $50. More to the point, Chapter 7 Bankruptcy gives you a fresh start. Imagine that you have to take the red plastic hotel off of Pacific Avenue, but you keep the card face up and are soon able to start building it back up again. That, in a nutshell, is bankruptcy.

If you have more debt than you can pay, you can take the Atlantic City approach, and try to keep your head above water for a few more months and hope that things get better somehow. Or, you can take control of the situation and reach out to a Chapter 7 Bankruptcy attorney in Barrington. The experience may be somewhat uncomfortable in the short term, but you’ll be back at the financial starting line is as little as a few months, with little or no unsecured debt, more manageable secured debts, and a much brighter financial outlook.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Congress To Reconsider Student Loan Dischargeability

A Maryland Democrat wants to turn back the clock to the disco days of the mid-1970s, at least as far as student loans are concerned.

Last month, Maryland Democrat John Delaney introduced House Resolution 449, which would remove paragraph 8 from Section 523 of the Bankruptcy Code, making school debt dischargeable in bankruptcy just like any other unsecured loan. Most likely, an institution could still withhold transcripts and take other punitive action against delinquent borrowers.

Congress To Reconsider Student Loan Dischargeability

In a press release, Rep. Delaney maintained that “there is effectively a huge student loan loophole in bankruptcy law that’s hurting real people.” The second-term lawmaker supported similar legislation in the previous Congress, including expansions to the Pell Grant program and caps on student loan interest rates.

The Discharge Student Loans in Bankruptcy Act is currently pending before the House Judiciary Committee.

How We Got Here

Prior to 1976, student loans were on par with credit cards, medical bills, signature loans and all other forms of unsecured debt. Then, for some reason, Congress began to change the rules. Some Nixonians may have suspected that 1960s student radicals attended school on the government’s nickel and then refused to pay. Indeed, many people viewed Chapter 7 debtors as individuals who had recklessly piled up debts they knew they could not pay, and were undeserving of a fresh start.

Whatever the motivation, the rule changes continued. Later, in 1987, the Second Circuit Court of Appeals decided Brunner v. New York State Higher Education Corporation. Most other jurisdictions quickly adopted the so-called Brunner Rule, which made student loans dischargeable only in limited circumstances. Specifically, in order for the debt to be eliminated:

  • The debtor must have made a good faith effort to repay the loans,
  • Continued repayment would be a hardship on the debtor or the debtor’s family, and
  • The hardship was expected to last for the entire period of repayment.

The much-criticized Brunner Rule eventually found its way into Section 523(a)(8), which currently stipulates that any educational loan is nondischargeable “unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents.”

Outlook

That was then, and this is now. The average borrower from the Class of 2014 owes about $33,000, or nearly three times as much as the average Brunner-era debtor. The number of borrowers has almost tripled as well.

Interest rate caps and other stopgap measures are a much-needed source of relief, but they may not effectively address the crisis. Congress should seriously consider passing H.R. 449, because far too many individuals begin their working life already playing catch-up.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Of Chapter 7 And Security Clearances

Of Chapter 7 And Security ClearancesWorkers at Fort Dix, Fort Monmouth, the FBI in Newark, and other employers in The Garden State sometimes hesitate to file Chapter 7 Bankruptcy because they’re afraid of losing their security clearances. While bankruptcy debtors may face some increased scrutiny, there are some very important legal protections in place.

Federal Law

11 U.S.C. 525 prohibits discrimination against those who file a voluntary petition. Subsection (a) states that “a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant. . . solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act.”

The key phrase is “solely because.” A bankruptcy filing does create some very serious questions about a person’s fitness to hold a security clearance, and if you were on the other side of the desk, you would probably ask the same questions about one of your employees. Fortunately, there are also some very good answers to these questions.

As a brief aside, subsection (b) applies the same prohibition to private employers and subsection (c) forbids bankruptcy discrimination in student loan matters.

Department of Defense Guidelines

Financial responsibility is one of several considerations, along with foreign preference, alcohol consumption, sexual behavior and a few others, in a security clearance. There is no automatic disqualification in any of these areas. Plenty of people have friends or relatives overseas, drink beer on the weekends or are unfaithful to their partners, but these individuals retain their status.

DoD Directive 5220.6, Guideline F, works the same way. The concern, at least where bankruptcy is concerned, is that a person with money problems may turn to illegal acts as a way to generate funds. Some additional considerations include:

  • History of Unmet Financial Obligations: If this matter is your first filing and it can be traced to divorce, illness or a sudden financial trauma, as is generally the case, this question is arguably inapplicable.
  • Deceptive Financial Practices: Very few consumer bankruptcies involve embezzlement, fraud, income tax evasion and other financial crimes.
  • “Issues of Security Concern”: Similarly, very few filings are directly attributable to gambling, alcoholism and drug abuse.

There is more good news. Directive F goes on to list several “mitigating factors” which usually can be found in a Chapter 7:

  • Isolated Incident: Most bankruptcies do not involve a pattern of reckless spending or prolonged financial irresponsibility.
  • Lack of Control: On the contrary, most bankruptcy filings do involve divorce, business downturn, illness, job loss and other similar incidents.
  • Debt Counselling: All debtors receive debt counselling and debtor education, and most seek financial advice from other sources as well.
  • Good Faith Effort to Resolve Debt: If you lack the funds to pay your debts, bankruptcy is the best way to legally resolve them.

People file bankruptcy to get a fresh start, and it is impossible to get that fresh start if you lose your job. That may be the main reason that most debtors get to keep their security clearance.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Exceptions to the Automatic Stay

Exceptions to the Automatic Stay under the Bankruptcy Laws

When you file for protection under Chapter 7 or Chapter 13, the automatic stay under the Bankruptcy Code immediately goes into effect, prohibiting your creditors from calling, writing or taking other legal action to collect a debt from you. There are, however, specific types of legal actions that will not be affected by the stay.

Exceptions to the Automatic Stay under the Bankruptcy LawsTax Actions

The Internal Revenue Service, as well as state tax authorities, can still take certain actions, such as demanding payment of an assessment, requiring a tax return, conducting a tax audit or issuing a deficiency notice.

Family Law Obligations

Generally, child support and spousal support/alimony arrearages are not affected by a bankruptcy filing, and state enforcement agencies are not prohibited from collection efforts. Accordingly, if you have a child support or spousal maintenance deficiency, the collecting agency may engage in a wide range of actions in an effort to collect the amount past due, including:

  • Withhold money through your employer to pay current and past due child support
  • Attach any refunds from state or federal revenue agencies
  • Report your overdue support obligations to a credit reporting agency

The filing of a bankruptcy petition will have no impact on your obligation to pay ongoing support, or on custody or visitation determinations. The court may also modify your support order.

Pension Loans

If you borrowed money from a 401(k) or other company retirement plan, the imposition of the automatic stay won’t prohibit your employer from deducting an amount from your paycheck to repay the loan.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

‘Real Housewife’ Changes Addresses

Erstwhile reality TV star Teresa Giudice surrendered to federal authorities in Connecticut to begin her 15-month prison sentence for bankruptcy fraud. After she completes her term, her husband, Giuseppe Giudice, will begin serving a 41-month sentence.

Last year, the couple pleaded guilty to charges that they concealed assets in their Chapter 7 Bankruptcy. Mr. Giudice also pleaded guilty to tax evasion, loan fraud and mortgage fraud. He will serve an 18-month sentence for presenting a false identification concurrently with the federal prison term. Mr. Giudice, who is not an American citizen, also faced possible deportation proceedings.

Under federal sentencing guidelines, Ms. Giudice is not eligible for release until December 2015.

Bankruptcy Fraud

‘Real Housewife’ Changes AddressesWhen filing your voluntary petition, it is important that you be completely upfront with your attorney about all your assets. Most of them are exempt, and the trustee normally only seizes nonexempt assets if there is a benefit to the creditors or the bankruptcy estate. So, there is a good chance that you may be able to keep your used fishing boat, because by the time the trustee pays off the loan balance, prepares the boat for sale, and stores it until a buyer is found, the creditors may see very little money, if any.

Bankruptcy fraud is a very serious charge that carries a penalty of up to five years in prison and/or a $250,000 fine. In addition, the court will normally order that your debts will not be discharged. A prosecutor must prove that:

  • A bankruptcy case was pending: It may be a defense if amended schedules were filed prior to the date of the indictment.
  • The property was part of the bankruptcy estate: All nonexempt property is part of the bankruptcy estate.
  • The debtor concealed property: This can mean hiding assets, preventing discovery, withholding information or transferring property. The concealment does not have to be successful.
  • With intent to defraud: A jury will normally infer intent if the prior three elements are clearly established, unless the debtor has a really convincing explanation.

The government normally adds mail fraud and/or wire fraud charges, as well as other allegations, which significantly increases the potential penalties.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

When Do I Start Receiving Bankruptcy Benefits?

When Do I Start Receiving Bankruptcy Benefits?In some ways, your financial fresh start occurs the moment you file for bankruptcy, as your creditors are immediately prevented from taking actions against you or your property to collect their debts. The debts are then officially wiped out when you receive a discharge order in a Chapter 7 or Chapter 13 Bankruptcy.

When Can I Get A Home Loan?

Many of our clients ask how long they must wait before they can apply for a residential mortgage after filing for bankruptcy. Specific requirements may vary between lenders, so it is best to shop around. But, there are some general industry standards:

  • Fannie Mae: Lenders are eligible for a loan as little as two years after a Chapter 7 or Chapter 13 discharge, although some borrowers may have to wait four years after a Chapter 7. Either way, that is considerably less time than the seven year wait after a foreclosure.
  • Freddie Mac: The same general waiting periods apply, but Freddie may be a bit more rigid.
  • FHA: These loans are generally the most forgiving when it comes to past credit problems. Borrowers with a Chapter 7 must wait a maximum of two years, while Chapter 13 debtors can be eligible in only one year.
  • VA: Borrowers are eligible for a loan under $417,000 within two years after a Chapter 7 or Chapter 13 Bankruptcy.
  • USDA: The waiting period after a Chapter 7 is three years, and a borrower who is still in Chapter 13 can qualify after a year of on-time trustee payments.

These values may be changing, as Congress and the White House may consider unwinding the government’s control of Fannie Mae and Freddie Mac in the coming year.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.