Eranthe Law Firm, A San Rafael Bankruptcy Firm

Be Cautious of Debt Settlement Industry

12/14/2010

The New York Times published an article titled The New Poor - Peddling Relief, Firms Put Debtors in Deeper Hole by Peter S. Goodman. Please click on the title to read this article if you are considering calling a debt settlement agency or credit services company. You must do research.

We have had a number of responsible clients use these services to make payment arrangements thinking they were being honorable and would eliminate their debts through a repayment plan. One couple spent $5,000 only to have the company go out of business without paying the creditors a dime. Others made payments and even had some interest charges reduced but ended up filing for bankruptcy relief when an unhappy credit card company sued them.

Many hard working families have hoped to pay their debts through debt settlement agencies but it just didn’t work for them. Often there is too much debt and it is simply overwhelming - they seek bankruptcy relief after spending money that could have been used for food or medicine. Be very wary of any agency that tells you to cut your food budget or seek cheaper or less medical care.

California has only one approved and registered credit services organization that we know of. It is called the Consumer Credit Counseling Service of San Francisco. Be sure the name matches exactly as there are many close variations out there with no affliation. Explore all your options carefully and be realistic about your ability to pay. Even if a credit card or other company is willing to settle your debt at a reduced amount will you be able to pay it?

Credit services and debt consolidation is a growth industry with rising allegations of unfair practices. According to the National Association of Attorneys General, since 2004 at least 21 states have brought a minimum of 128 enforcement actions against debt relief companies. According to the Federal Trade Commission, between 2007 and 2009, states’ consumer complaints more than doubled. “Consumers rarely emerge from debt settlement programs with their credit card balances eliminated, these critics say, and many wind up worse off, with severely damaged credit, ceaseless threats from collection agents and lawsuits from creditors.” (Goodman, The New Poor - Peddling Relief, Firms Put Debtors in Deeper Hole, N.Y. Times (Jun. 19, 2010) p. A1).

Chapter 7 - 341 Hearing aka First Meeting of Creditors

11/17/2010

www.youtube.com/watch?v=qLUNckN7SsQ&index=6&t=0s&list=PL57A4168A81D34179 What can I expect at the First Meeting of Creditors?

Since I often hear this question, here is some general information on a Chapter 7 hearing in the United States Bankruptcy Court for the Northern District of California.

Plan to arrive 20 to 30 minutes early and do not bring children with you. To enter the building you’ll have to pass through a security screening. If you’re in the habit of carrying a penknife or similar tool leave it at home or in your car.
You MUST have your driver’s license or other picture ID and your social security card with you. If the trustee wants to see other documentation you will have received this request on your Notice of Hearing. Several different cases are set for the same time so take a seat and wait for your case number and name to be called.
After being sworn in under oath and a few general instructions you’ll be asked to show your identification documents to the Bankruptcy Trustee. The trustee will look to see that the information on your documents matches that on your bankruptcy petition.
You, your attorney and any co-debtor will be sitting in the front of a room with other people in it. Most of these people are debtors like you with their attorneys. Sometimes there are debtors alone without attorneys. Occasionally there are creditors attending to examine debtors under oath.
The proceedings are generally recorded so you must speak clearly and with enough volume to be heard well if the recording needs to be played back some day.
You’ll be asked questions about the forms that you filled out -- are they complete and accurate? Are there any changes or errors you now know of? Do you expect to get an inheritance in the next 180 days? Along with these sorts of general questions, you may also be asked about your specific circumstances such as: How you valued an asset, or how your business assets are being used?
Creditors rarely show up and usually in a Chapter 7 bankruptcy this will be the only hearing you’ll have. If there is a fraud issue, or other motions you’ll have additional hearings.
www.youtube.com/watch?v=qLUNckN7SsQ&list=PL57A4168A81D34179&index=5 Watch the videos at this link for more information on what to expect during your bankruptcy.

Chapter 7

8/26/2010

Chapter 7 is a complete liquidation of your debt. If you cannot afford to meet your monthly living expenses and pay your debts, you may be able to liquidate your debt. Non-exempt assets, if any, are sold by the Chapter 7 trustee and the proceeds are distributed to creditors according to the priorities established in the Code.

In most consumer cases all the assets are exempt and therefore no assets are available for liquidation. Thus there is no dividend to the creditors. Chapter 7 is generally the simplest and quickest form of bankruptcy and is available to individuals, married couples, corporations and partnerships.

Not everyone will qualify to file Chapter 7 under the Bankruptcy Code’s "means test" and certain types of debt cannot be discharged or wiped out (such as most federally guaranteed student loans and any outstanding family support obligations).

Before filing the debtor must take a certified credit course and obtain a certificate of completion. There are a number of online and telephonic options.

Filing Chapter 7

Filing the official petition, schedule and statement of financial affairs begins the case. These forms prompt you to list all of your assets and debts, along with some recent financial history. This is the most important and time consuming part of a bankruptcy filing.

It is important to list every creditor in the schedules with an accurate mailing address. You must list all of your debts, even if the debt is not dischargeable or if you intend to reaffirm the debt.

The schedules also list your property, any debts secured by that property, and the sale value of the property. “Property” here means assets or possessions, not just real estate. Your choice of exemptions is made on one of the schedules. The schedules are signed by the debtor under penalty of perjury.

The schedules are filed with the bankruptcy clerk in the district where you live, or have lived for the greater part of the last 180 days. The automatic stay goes into effect on filing the petition and creates a legal barrier to collection actions by creditors.

For most purposes the rights of the debtor and the creditors are those that exist on the day the case is filed. All the proceedings in bankruptcy after the filing relate to the situation as it was on the day the case was filed.

The court appoints a trustee and gives notice to all creditors listed in your schedules that you have filed bankruptcy. You will get a copy of that notice at the same time it is sent to creditors.

First Meeting of Creditors

The debtor must appear at the first meeting of creditors, also called a 341 meeting from the code section that describes the meeting. The trustee can ask the debtor questions under oath about assets and liabilities. Creditors can also question the debtor but they seldom do.

After the First Meeting of Creditors

If there are assets that are not exempt, the trustee takes control of them. From the sale of those assets, or the recovery of avoidable transfers, the trustee pays the expenses of the case administration then distributes the remaining funds to creditors with allowed claims according to the claim priority.

The trustee may review your income and expense schedule to see if you have enough money left after your current living expenses to pay something to creditors. The United States Trustee or the Chapter 7 trustee can seek to have a debtor's case dismissed for "abuse" if the debtor's income, including that of a non-filing spouse, is sufficient to repay a significant portion of the scheduled debts. 11 U.S.C. 707(b). The real expectation is that debtors who are challenged in this way will convert their case to Chapter 13.

Any wages the debtor earns after the case is begun are the debtors and beyond the reach of creditors who had dischargeable claims on the filing date.

Generally, the only responsibilities the debtor has with respect to the bankruptcy after the 341 meeting is to cooperate with the trustee in providing any information requested by the trustee.

Reaffirmation

Debtors are expected to perform on their expressed intentions to return, redeem or reaffirm debts secured by personal property.

The debtor can chose to waive the discharge as to a debt that is reaffirmed. Generally, the parties to the reaffirmed debt have the same rights and liabilities that each had prior to the bankruptcy filing: the debtor is obligated to pay and the creditor can sue or repossess if the debtor doesn't pay.

Getting to Discharge

Creditors and the trustee have a 60-day periods from after the 341 meeting in which they may challenge the debtor’s right to a discharge (11 U.S.C. 727) or the dischargeability of a particular debt (11 U.S.C. 523) by filing an adversary proceeding.

Unless an action to deny the debtor a discharge is filed, the court issues the order providing for the discharge of debts shortly after the 60-day period expires. The filing of a contest to the discharge of one debt does not prevent or delay the entry of a discharge to the balance of the debts.

In cases filed after October 17, 2005, debtors must complete a course of financial education from an approved provider in order to get their discharge. The class is generally several hours and is available online from a number of providers. Failure to take the class and file the certificate of completion can result in the case being closed without entry of a discharge. The court may charge a new filing fee to reopen the case, file the certificate and enter the discharge.

Discharge

Individual debtors get their discharge within 4-6 months of filing the case. The discharge affects dischargeable debts that existed at the commencement of the case. Corporations and partnerships don’t get a bankruptcy discharge.

After the Discharge

Certain debts survive a Chapter 7 bankruptcy because they are exempted from discharge by law: priority taxes, support, student loans and liens are among the debts not discharged in Chapter 7. Any debts that were reaffirmed also survive the bankruptcy.

How You May Avoid Foreclosure

7/17/2010

Call Your Lender

If you can’t make your mortgage payment, talk to your lender. If possible call before the payment is due and you’ve missed it. Always call as soon as possible when you’re in trouble.

Lenders would rather be paid than take your home. A lenders’ preference is to be paid the full amount but you may be able to work out other arrangements. Try some or all of the following:

Ask for a reduction in the monthly payment amount,
Ask for a month or two break from making payments (a time off, the loan can be extended),
Ask to split the monthly payment into two bi-monthly payments,
Ask for an extension of time to pay,
Ask the lender to accept less than a full payment.

Your lender may be overwhelmed by requests for assistance in this down economy so you may have to make a few calls and be persistent. Remember, if you've fallen behind on mortgage payments, or have reason to believe you're going to, you're not alone, which means your lender may have solutions ready to propose when you call.

If you can't resolve your issues with your lender’s assistance it's time to try something else.

Call a Housing Counseling Agency (Free Assistance)

The federal government's HUD-sponsored housing counseling agencies in your area are available online at www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm or by calling 1 (800) 569-4287 or TTY 1 (800) 877-8339.

These nonprofit agencies offer free services to help homeowners avoid foreclosure. They’ll help you determine if you qualify for the new Making Home Affordable Programs that include loan modifications and refinancing to reduce monthly payments and help you keep your home. You may also check online at www.makinghomeaffordable.gov or call 1 (888) 995 – HOPE (4673) or TTY 1 (877) 304-9709.

If you are eligible for any programs, the HUD-sponsored agency will assist you with the process.

Watch Out For Scams

When a foreclosure complaint is filed it becomes public information. Some private companies use this information to contact the homeowners in foreclosure. You do not need to pay a private company for help. Use the free help. There is nothing these private companies can do that the free government sponsored programs can’t.

Some of the private companies propose programs that are scams. Scam warning signs:

A company charges a high fee,
A company asks you for up front money,
Promises a particular outcome,
Tells you not to contact your lender or lawyer,
Tells you to make your mortgage payment to someone different than your lender, or
Proposes any kind of rental or sale plan.

Do talk to a HUD-approved counselor before you agree to make any payments or sign anything. Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt. You can’t afford to lose your house to a scam.

This Will Take Time and Energy

No one can promise to keep you in your home but the sooner you talk to an agency or your lender, the sooner you’ll get some help. It’s also likely that the sooner you get help, the more options will be available to you.

You know that if you do nothing, you’ll likely lose your house. So don’t procrastinate – do get help. Many people are having difficulty in this down economy and government has offered free assistance to help. It’s your tax dollars that paid for the resources and programs that are available so take advantage of them.

You’re not alone which also means that you need to be persistent and follow through with your lender and the government-sponsored counselor. There will be many others competing for time and resources but saving your house is worth it. And if you’re not able to save your house, you’ll know you did all you could.

Conclusion
Take steps early. Don’t wait until you’re so far behind that it can’t be fixed. Be prepared to fight.

It’s also possible that you can’t afford your house anymore. If that’s the case know you’re not alone. Many others are in the same boat you are – job loss, illness and resulting medical bills, or being a little under water each month can ultimately result in losing your house.

Don’t hesitate to ask for help. You may be able to save your credit by a short sale of the house. In some cases a reverse mortgage may work. Or you may be so overwhelmed with debt that you need the fresh start available through bankruptcy. Ask for a referral. Many attorneys offer a confidential consultation at no charge.

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Foreclosure Checklist

Before calling your lender or a credit counselor, use this checklist from the Making Home Affordable Program so you have all the information on your loan and finances ready for review.

Information about your first mortgage, such as your monthly mortgage statement.
Information about any second mortgage or home equity lines of credit on the house.
Account balances and minimum monthly payments due on all of your credit cards.
Account balances and monthly payments on all your other debts, such as student loans and car loans.
Your most recent income tax return.
Information about your savings and other assets.
Information about the monthly gross (before tax) income of your household (everyone who lives under the same roof), including recent pay stubs, if you receive them, or documentation of income from other sources.

It may be useful to have a letter describing any circumstances that caused your income to be reduced or expenses to be increased (job loss, pay cuts, divorce, illness, etc) if applicable.

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Be Cautious of Debt Settlement Industry

Chapter 7 - 341 Hearing aka First Meeting of Creditors

Chapter 7

How You May Avoid Foreclosure

Cate Eranthe, Esq.

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