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.

Debt Settlement: Lowdown on Debt Settlement in New Jersey

Is debt settlement a good idea, possibly too good to be true?

Let’s take a look at what happened to divorced fulltime working New York mother of four Judy Orlando when she signed on for debt settlement to help her get $30,000 in credit card debt under control.

Offers to Resolve Debt Problems

Judy had received a notice from Nationwide Asset Services, a Phoenix-based company. Nationwide said it would be able to get Judy out of debt in 18 to 24 months. They also promised that her credit would actually be better than it was before she got into debt.

Judy paid the debt settlement company’s $1,300 initial fee and then began paying $350 a month, as Nationwide requested per the agreement. She followed all other instructions, too: change her phone number, stop paying creditors, and cut off all contact with creditors.

Pays out $10,000 But Credited for Only $3000!

After paying Nationwide more than $10,000, Judy reduced her credit card balances by less than $3,000 and paid Nationwide nearly $7,000 in fees. Nationwide never told herher that her interest rates and penalties would continue to rise.

A Bad Situation Made Worse

In the end, Judy’s creditors sued her and then they placed liens on her home.. Ultimately Judy filed for bankruptcy protection and only then was able to resolve her debt problems.

Nationwide Debt Company Sued

Meantime, the state’s attorney general sued Nationwide for false advertising and fraudulent business practices. According to the lawsuit filed by Attorney General Andrew Cuomo, just one third of one percent of those who signed on and paid Nationwide actually got the agreed-upon 25 to 40 percent debt reduction.

Debt Settlement a Bad Idea?

Stories like these are commonplace. The debt settlement company asks you to withhold payment to creditors. You do this, because you do not know any better and you trust that they will do what they say they are going to do.

You go ahead and pay the settlement company a large sum. Meantime, interest rates and penalties are skyrocketing on your credit card bills. And creditors are now beginning to call you and harass you. Their job is to collect money from you, and they are not very nice about it.

Debt settlement companies cannot legally guarantee that they will be able to negotiate a reduced debt for you. Even if they do negotiate a reduced debt, your credit still takes a significant hit, because you did not pay on your bills for all that time and also because your report will say that your debt was charged off, rather than paid in full.

You Can Negotiate Reduced Debt With Creditors on Your Own

Not all debt settlement companies are rip-offs, but why pay someone something that you can potentially do for yourself? Many creditors are increasingly willing to negotiate with individual debtors.

Bankruptcy Provides Protection and Fresh Start

You may want to consider is filing for bankruptcy protection if you cannot seem to get out from under your debt burden. By law, bankruptcy puts an immediate stop to creditor harassment, efforts to collect and debts you owe, repossession, and foreclosure actions.

If you qualify for a Chapter 7 bankruptcy, you may be able to eliminate all of your unsecured debt. Alternatively, Chapter 13 will allow you to reorganize your debt into a reasonable, affordable repayment plan paid over the course of three to five years’ time. In a Chapter 13 you do not need to pay 100% of your debts.

Contact an Experienced Debt-Relief Attorney in New Jersey

The law firm of John Hargrave and Associates, in Barrington, New Jersey, can help you make an informed decision about debt consolidation, bankruptcy, or another bankruptcy alternative. To schedule a free initial consultation with an experienced debt-relief attorney, please call (856)-759-6022 or (866)-662-3191. You may also contact us online to schedule your appointment.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

Located in Barrington, New Jersey John Hargrave & Associates have helped people towards a fresh financial future through bankruptcy for over thirty years. We serve South Jersey, Burlington County, Camden County, and Gloucester County along with Camden, Cherry Hill, Pennsauken, Maple Shade, Lindenwold, Cinnaminson, Collingswood, Haddonfield, Bellmawr, Gloucester City, Marlton, Pine Hill, Audubon, NJ and also Philadelphia, PA. Contact us today to learn more about your options under the current bankruptcy laws. We’re here to help.