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.

‘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.

Stopping a Home Foreclosure with Bankruptcy

Bankruptcy and Foreclosure Proceedings

Stopping a Home Foreclosure with BankruptcyIf you are struggling to meet your financial obligations, and have fallen behind on your mortgage payments, you may be worried about a foreclosure proceeding and the loss of your home. You may be considering filing for bankruptcy to prevent or stop foreclosure proceedings. Here’s what you need to know.

The most important thing to understand is that bankruptcy won’t terminate a foreclosure proceeding—it will only suspend a foreclosure action. Once your bankruptcy is complete, your lender can move the process forward again.

That doesn’t mean, however, that a bankruptcy filing won’t help you keep your home. Upon the filing of a bankruptcy petition, an automatic stay will go into effect, preventing your creditors from calling, writing or taking any other legal action to collect debts from you. The automatic stay can get you some relief from the constant outflow of cash. In addition, by discharging other debts, you may be able to free up the funds to make your monthly mortgage payment affordable.

It is also important to understand that you cannot seek to discharge the debt on your home in a Chapter 7 proceeding and still keep the house. Both state and federal bankruptcy laws grant you a certain dollar amount exemption in your home in a Chapter 7 filing, but it’s an exemption in the equity in your home. Unfortunately, you can only recognize the equity in your home when you sell it.

The best way to save your house through bankruptcy is to file Chapter 13 reorganization and work out a new payment plan with your mortgage lender. You will still get the benefit of the automatic stay, and will have that benefit for a three-to-five-year period. In many instances, when you reorganize, you can get your lender to waive late fees and penalties, and fold any arrearages into the principal balance of your note.

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 Means Test

The Means Test in Bankruptcy

The Means Test in BankruptcyBefore 2005, persons seeking to file bankruptcy could generally choose between a Chapter 7 liquidation proceeding and a Chapter 13 reorganization. However, as a part of the revisions to the federal Bankruptcy Code in 2005, Congress set limits on who may qualify to discharge debts under Chapter 7. To be eligible, you must now submit to what is known as the “means test.”

The purpose of the means test is to determine whether you reasonably have the capability to repay your creditors rather than having your debts discharged. The means test is designed to keep persons with high incomes from discharging debt and immediately having substantial discretionary income that could have gone to creditors. Under the means test, however, you don’t have to be without income to qualify for Chapter 7. Here’s an overview of the how the means test works.

Determining Your Eligibility for Chapter 7

The first question the bankruptcy court will ask: Is your income less than the median income in your state for a household of your size? If so, you don’t have to go any further—you qualify.

If, however, your income exceeds the median income, you must document your expenses to determine whether you have enough income left after paying “allowed expenses” to pay some portion to your creditors. If your income exceeds your total expenses by a specified amount (which varies from state to state), you fail the means test and must file a Chapter 13 petition if you choose to use bankruptcy to get a fresh financial start.

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.

Special Asset Issues

Bankruptcy and Special Assets

Bankruptcy and Special AssetsIf you have decided to file for bankruptcy as a way to get a fresh financial start, you may have concerns about how the bankruptcy filing will affect certain articles of property. What about any money you have received or are eligible for through an inheritance? What about your retirement plan assets? Will you have to reclaim property given to friends or family, or that you’ve recently sold or given away?

Inheritance and Bankruptcy

Whether or not the proceeds of an inheritance will be accessible to the bankruptcy trustee in a Chapter 7 proceeding depend on two issues:

  • Whether your state allows you to claim an exemption on an inheritance—the law varies from state to state
  • When you received the inheritance—if you have already received the inheritance when you file, or if you receive the inheritance within 180 days of filing, it must be included in a Chapter 7 proceeding

Retirement Plan Assets and Bankruptcy

As a general rule, money put into a retirement plan is exempt from access to pay creditors in a bankruptcy proceeding. This includes profit-sharing plans, defined benefit plans, 401(k)s, IRAs and money purchase plans. The only retirement assets that may be taken by the bankruptcy court are Roth and traditional IRA plan assets in excess of $1,245,475.

Gifts to Friends or Family or Items Recently Sold

A significant gift to a friend or family member within two years (under federal rules) of a bankruptcy filing can qualify as a fraudulent transfer. Some states will look back as far as seven years. As a general rule, if the bankruptcy court finds a transfer to be fraudulent, it will require that the property or its value be returned to the bankruptcy estate. It may also prohibit you from completing the bankruptcy.

Items sold at fair market value typically don’t qualify as a fraudulent transfer, but a sale for less than market value may have the same consequences as a gift.

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.

Life After Bankruptcy

An attorney can help you do so much more than just file paperwork. One of the many advantages of partnering with an experienced bankruptcy attorney is that a lawyer can help you develop an exit strategy and goals for your financial future. A successful bankruptcy puts you back on the starting line, and a good attorney can give you a gentle shove in the right direction.

Rebuilding Credit

The most common fear people report is that they will “never be able to get credit again”. This simply doesn’t happen! Once you have filed for bankruptcy you no longer owe pre-bankruptcy debts, and you cannot file for bankruptcy again for at least a few years. As a result, you are actually more creditworthy than when you filed!

One easy way to rebuild credit is to pay your bills on time, especially for secured debts like your house and car. Consider using an automatic bank draft every month to avoid late payments. Many creditors may even allow you to break up a monthly installment payment into biweekly amounts. If you prefer writing a manual check, make sure it’s in the mail at least five business days prior to the due date.

Many clients report receiving credit card solicitations within 6 months of when their bankruptcy cases are over. Find one with a low limit, definitely under $1,000 and maybe even below $500. Use it responsibly and pay it off every month!

If you are looking to purchase a home, government sponsored FHA and Fannie Mae programs allow a mortgage a mere two (2) years after a Chapter 7 bankruptcy filing.

A surprising number of lenders are willing to work with people who have poor credit scores. In any case, when you go to the furniture store or car dealership, be upfront about your credit problems and do not sugarcoat your financial past. If one business isn’t willing to lend you money, don’t take it personally, just move on down the street.

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 Automatic Stay in Bankruptcy

The Benefit of the Automatic Stay in Bankruptcy

The federal bankruptcy laws were enacted to give individuals and business owners a way to get a fresh financial start. But Congress also recognized the need to provide relief from aggressive collection efforts. That relief comes in the form of the automatic stay.

When you file a bankruptcy petition, whether in Chapter 7 or Chapter 13, the automatic stay automatically goes into effect. The automatic stay prohibits your creditors or their representatives from calling, writing or taking any action outside of the bankruptcy proceeding to try to collect a debt from you. The automatic stay applies to creditors and their legal counsel, collections agencies, and most governmental entities. Some specific provisions of the automatic stay include:

  • Foreclosure proceedings—An automatic stay will suspend (but not terminate) foreclosure proceedings
  • Evictions—The automatic stay can stall the eviction process for a few days, unless your landlord has already obtained a judgment of possession or can show that you are endangering the property
  • Utilities—Typically, an automatic stay will suspend the disconnection of services for up to 20 days
  • Wage garnishments—The automatic stay stops any garnishment proceeding

Exceptions to the Automatic Stay

You cannot use the automatic stay to stop or suspend:

  • Criminal proceedings
  • Child or spousal support actions
  • Some tax actions
  • The withdrawal of funds from your paycheck to repay a pension or retirement plan loan

The bankruptcy court has the authority to lift or remove the automatic stay, if a creditor can show that the stay serves no purpose. If you have real property with no equity, and have no way to make payments on the property, the bankruptcy court may lift the stay so that your lender can foreclose and protect its interests.

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 Your Past Haunting You?

The Zombie Apocalypse probably won’t occur, but these creatures can still haunt your credit report, even if you filed bankruptcy.

Also known as debt scavengers, zombie debt-buyers purchase delinquent credit card accounts, overdue payday loans and other unsecured debt that the original lender wrote off as uncollectible. Since the debt may be eight or nine years old, or even older, the purchaser only pays a few cents on the dollar for the right to collect the account. Typically, after running a skip trace to find the debtor’s current contact information, the letters and phone calls begin.

Legally, a debt-buyer is supposed to provide written verification of the debt upon request. Since these accounts are so old, the original records may have been lost or destroyed. Many time, a zombie debt-buyer may only have a name, account number and outstanding balance.

Dealing with Zombie Debt During a Chapter 7

If you get a call from a debt collector before your bankruptcy is discharged, tell the caller that you have hired a bankruptcy lawyer and provide them with your attorney’s name and phone number. That’s all you need to do. Do not volunteer any other information and politely refuse to answer any questions. If you receive a letter, give it to your attorney.

If you get another call or letter, repeat the same process. Do not argue with the person about the debt. Let your lawyer handle that for you.

Dealing with Zombie Debt After a Chapter 7

Once you receive your discharge order, keep a copy of both the petition and order close at hand, because you’ll probably need them again.

Monitor your credit report closely. If another debt-buyer appears, be proactive and send them a copy of the discharge order. If they call, politely give them the case number and discharge date and then hang up. If they keep calling, you may need to speak to an attorney to get the harassment to stop.

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 Floating Check Controversy

At the moment you file a Chapter 7 Bankruptcy, all your nonexempt cash and non-cash property technically becomes part of the bankruptcy estate. An interesting question arises concerning the funds in checking and other Demand Deposit Accounts (DDAs).

Assume that you paid your $2,000 monthly mortgage payment on Monday with a check and filed bankruptcy the next day. The money would probably still be in your account, because your check hasn’t cleared yet. Or assume that the mortgage company automatically drafts your installment payment on the 5th, and you filed your petition on the 4th. Once again, the $2,000 is in your account but is not “your money” in any practical sense.

If the trustee files a motion for turnover demanding that you reimburse the estate $2,000, what happens then? This is known in some circles as the “floating check” controversy. With proper bankruptcy counsel and guidance, you can avoid being stuck in this unfortunate situation. If not, you can find yourself facing a motion for turnover from a bankruptcy trustee.

Response to a Motion for Turnover

The wording of Section 542(a) of the Bankruptcy Code is quite clear: any entity with possession of property belonging to the bankruptcy estate “shall deliver to the trustee, and account for, such property or the value of such property.” Yet the purpose of bankruptcy, according to Supreme Court Justice John Paul Stevens, is to give the “honest but unfortunate debtor” a fresh start in life. Debtors cannot get a fresh start if they are delinquent on their financial obligations.

Some bankruptcy attorneys argue mootness in these situations. Simply put, there must be a live controversy for the courts to decide. For the most part, judges do not issue advisory opinions or make decisions about hypothetical matters. There may have been $2,000 in the account that may have belonged to the bankruptcy estate, but the money is gone now so there is no basis for a motion for turnover. A finding for the debtor does not necessarily prevent the trustees from collecting. They may be able to file avoidance actions against the payees to recover the funds.

At the very least, these arguments give you leverage when negotiating with the trustee, who may be willing to accept a lesser amount, let you pay the money in installments, or both.

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.

Recovering From Chapter 7

In most cases, a Chapter 7 Bankruptcy is discharged only a few months after the filing debt. So, an experienced bankruptcy attorney in Camden can get your family a fresh financial start almost immediately. Once you’re free of the obligation to repay many outstanding debts, what should happen then?

Why People File, and How Bankruptcy Helps

Some people file Chapter 7 in the wake of a short-term financial crisis, such as a job loss, a divorce or a serious illness. 76 percent of American families live from paycheck to paycheck, so most lack savings to weather these rough fiscal storms. Once you’re back at the starting line, you’re in a position to resume the spending and money management patterns that you exercised before.

Other people file bankruptcy because of a financial reverse. Perhaps income from a stock portfolio dried up due to the economic downturn, a home mortgage became unaffordable or a small startup business never really got started. Bankruptcy eliminates the debts that you cannot pay, which generally solves these problems.

Still others have made poor financial decisions. They’ve overspent on luxury items or amassed gambling debts. Bankruptcy, and especially the debtor education class, is a good way to reassess spending habits and get on the right track.

The truth is that most people file bankruptcy due to some combination of all these issues; for example, a family might have been barely able to service its credit card debt, and then a few days in the hospital put them permanently in the red.

Moving Forward

It’s very important to stay current on secured debts, like your car note and home mortgage. Paying your bills on time is the best way to build your credit score.

Once you receive a Chapter 7 discharge you may be inundated with credit card offers. That’s because the lenders know that you cannot file another Chapter 7 for another eight years. While there’s no need to go overboard, talk to your attorney about the best card for you. Charge something every month and pay off the balance every month, and your FICO score will go up even further.

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.