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.

White House Unveils New Student Loan Initiative

White House Unveils New Student Loan InitiativePresident Barak Obama announced the signing of the “Student Aid Bill of Rights” before an enthusiastic crowd of over 9,000 supporters at Georgia Tech University. In a similar move, President Obama directed the Treasury Department, Education Department and Consumer Financial Protection Bureau to opine whether or not bankruptcy laws should be changed, or at least relaxed, in this area. President Obama gave the agencies an October 1 deadline for their report.

This Bill of Rights is designed to streamline the loan repayment process and keep delinquent borrowers out of default. The new law also requires lenders to provide clear disclosures to borrowers about repayment terms.

In terms of bankruptcy reform, the administration’s review will most likely focus on private student loans which do not have the same obligations and conditions as federally-guaranteed loans. The President promised that “we’re going to take a hard look at whether we need new laws to strengthen protections for all borrowers, wherever you get your loans from.”

According to the White House, about 40 million people owe an average of $28,400 apiece in student loan debt.

Bankruptcy Laws and Student Debt

The President’s initiative comes about six weeks after Maryland Democrat John Delaney introduced House Resolution 449, which would change Section 523 of the Bankruptcy Code to make all student loans dischargeable in bankruptcy.

Democratic lawmakers are not the only people who have recently questioned the Brunner Rule. Both the Eighth Circuit Court of Appeals in Minnesota and the Tenth Circuit Court of Appeals in Colorado expressed some preference for a totality of the circumstances analysis, which basically states that “if the debtor’s reasonable future financial resources will sufficiently cover payment of the student loan debt – while still allowing for a minimal standard of living – then the debt should not be discharged.” The First Circuit in Maine joined this chorus when it described the Brunner rule as “overkill” that was contrary to standard of a fresh start for bankruptcy debtors.

Republicans have yet to speak out on any of these measures, but by and large, this same group of GOP lawmakers pushed the cleverly-titled Bankruptcy Abuse Prevention and Consumer Protection Act through Congress in 2005. Predictably, lenders also oppose any move to make student debt dischargeable.

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.

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.

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.

‘No One Gets A Free House’

No One Gets A Free HouseCourts in New Jersey, Pennsylvania and elsewhere have repeated this phrase quite a bit since the mortgage crisis began in 2009. Distressed homeowners burdened by mortgages that had become unaffordable complained of unfair lending practices, both inside and outside of bankruptcy court. While not unsympathetic to their plight, most judges were very reluctant to grant legal relief, absent extraordinary circumstances. However, all the stars aligned for two Madison homeowners in Washington v. Specialized Loan Services and The Bank of New York – Mellon (In Re Washington). What happened in this case, and what does it mean for your family?

Facts

In 2007, the Washingtons purchased a three-family home on Walnut Street. They failed to make the installment payment due on July 1, 2007, and their 30-year adjustable rate mortgage loan has been in default ever since then. The bank accelerated the note in May and filed a foreclosure complaint in December 2007. These dates become very important later.

Decision

A provision in the Fair Foreclosure Act of 2009 places a six-year statute of limitations on a mortgage foreclosure proceeding. In other words, the bank has six years from the date of filing to either take the property or formally reinstate the loan.

Probably because the case slipped through the cracks, the court dismissed the foreclosure action because the bank did not pursue the action, and its six years expired in December 2013. The bank tried to argue that a thirty year statute of limitations applied, but the court was unconvinced.

After “gargl[ing] to remove the lingering bad taste,” Bankruptcy Judge Michael Kaplan ruled that the statute of limitations had expired and that the mortgage was void. The Washingtons are also immune from a deficiency judgment or any other action on the note. Hello, free house.

Application

The ruling only applies when the statute of limitations has expired prior to the commencement of a foreclosure case. Such instances are quite rare, but not unheard of. The same thing happened in Texas in 2001!

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 Two Most Common Personal Bankruptcy Options

Your Personal Bankruptcy Options

If you are considering filing for personal bankruptcy protection, you can easily be confused about the different options available to you. Here are the basic options for obtaining personal bankruptcy protection.

Chapter 7 Case

In a Chapter 7 bankruptcy proceeding, you are allowed to replace with most debts certain debts in exchange for the sale of some of your assets. There are some limitations on the debts you may discharge. Customarily, you cannot discharge the debt on secured assets—homes or cars—and still keep the property. Additionally, child support and alimony arrearages cannot be wiped out in bankruptcy, and student loan and tax debts are very difficult to discharge.

With respect to things you are financing like your car or home if you want to keep it you have to continue to make the payments. If the thing you are financing is work less than what you owe, you have the option to give it back to the lender and owe them nothing or keep it but continue with the payments.

Under the revisions to the federal bankruptcy laws in 2005, you must now qualify for Chapter 7 by submitting to a means test, where the bankruptcy court determines if you make too much money to be in Chapter 7, in which case your options are to file Chapter 13 or no bankruptcy.

Chapter 13 Reorganization

In a Chapter 13 petition, you work out new payment arrangements with your creditors, agreeing to settle your debts over a three-to-five year period. Often, you will be able to get late fees and penalties waived. As long as you honor your new commitments, your creditors cannot make any additional efforts to collect on a debt.

The Automatic Stay

Whether you file for protection under Chapter 7 or Chapter 13, you are immediately entitled to the protection of the automatic stay, which prevents your creditors from calling, writing or taking any legal action outside of the bankruptcy proceeding to collect a debt from you.

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.