Capone & Keefe


What Happens at the First Meeting of Creditors/341a Bankruptcy Trustee Hearing?

Once we file a bankruptcy for a client, inevitably the biggest source of stress for our clients is the 341a/Trustee meeting.  They receive the notice from the Court and the notice is entitled “First Meeting of Creditors.”  For obvious reasons, the client becomes filled with anxiety thinking that all of their creditors will be at this meeting to ask questions or worse yet, to yell at them for not paying their debts.  They stress over the questions the Trustee is going to ask them, whether the Trustee is going to judge them or be angry at them for not being able to pay their debts.  Let me stop you right there, these fears are totally unfounded; understandable but unfounded!


The short answer is NO, they will not.  A creditor has the right to appear and question you about your financial condition and the debt that you owe to them, but it is extremely rare for a creditor to appear.  The bottom line is that most people’s creditors are large banks, credit card companies, utility companies or medical doctors/hospitals.  These creditors have been served with bankruptcy notices thousands of times.  They understand that it is basically pointless for them to appear at a Trustee hearing and that it makes no financial or business sense for them to pay an attorney to appear on their behalf as there is virtually no point in doing so.  The Trustee’s role is to administer each bankruptcy case, to make sure the debtor has properly filed his schedules, has filed the appropriate chapter under the bankruptcy code and will make sure the Debtor is paying back what is required under the Code (chapter 13) or whether the Debtor has any assets that may be liquidated and used to pay a dividend to creditors (chapter 7).  Thus, there is virtually no reason for a creditor to appear.

Besides these creditors are normally enormous multi-million or billion dollar corporations or banks, the few thousand dollars you may owe them is peanuts and hardly worth a second look on their part.  The debt may seem like a lot of money to you and me, but trust me, it is nothing to them.  So don’t waste another second stressing over having to face your creditors at your Trustee hearing, it is NOT going to happen.


Since I practice in the District of New Jersey, I can only speak with personal knowledge of the Trustee’s in New Jersey, but I would assume that on a general level most of these questions would be the same no matter what State you are filing your case in.  The questions differ slightly depending on what chapter you are filing, for the obvious reason that the Trustee’s role is different depending on the Chapter you are filing, with a Chapter 13 being a Reorganization and a Chapter 7 being a Liquidation, so I will first go over the basic questions that are similar in both chapters and then explain the differences between the questioning.

Initially in either a chapter 7 or 13, the Trustee will request proof of your identity.  Crazy as it seems that someone would want to impersonate someone else to file a bankruptcy, apparently, this happened once, so now it is a requirement that you provide the Trustee a picture ID, valid drivers license or passport will suffice and proof of your Social Security number, your social security card, a W-2 or 1099 form, or any official document that was not prepared by you and that contains your full Social Security number.

Once, the Trustee is satisfied that you are who you say you are, he will swear you in and then have you identify your signature on the petition.  He will then ask if you reviewed the petition with your attorney before you signed it and if the petition contains are accurate account of your financial condition, does it contain all of your assets, all of your liabilities and do you have any changes or amendments that need to be made at this time.  They will ask you if you have ever filed bankruptcy before and if so, when.

After that, the questions become slightly different depending on whether you have filed a chapter 7 or a chapter 13.


The Chapter 7 Trustee’s focus is mainly on your assets, since a Chapter 7 is a liquidation, he is focused on what you own and how much it may be worth.  They will start with asking about your major assets.  They will ask if you own any real estate.  If so, when did you purchase it and how much did you pay for it (we generally have our client’s provide us with a copy of their Deed so that we can provide it to the Trustee prior to the hearing).  Generally, if you own real estate, the Trustee will have required that proof of its value be submitted prior to the hearing, usually in the form of a Comparative Market Analysis prepared by a Realtor.  The Trustee will then ask you f you agree with the value provided and if what you believe similar homes are selling for in your area. He will ask if you own any other real estate and if you have owned any other real estate in the last 4 years.  If you have, he will ask what happened to the property.  If it was sold, he will want to know if there were any net proceeds and if so, how much and what did you do with the proceeds.

After going through questions about your real property, the chapter 7 trustee will ask questions regarding your personal property.  The questions will be very similar to the questions that you had to answer for your bankruptcy attorney prior to filing your petition.  In general, the Trustee is mostly interested in assets that may have significant cash value, above what can be exempted.  Thus, the questions will center around vehicles that may not have a lien encumbering it, a life insurance policy that has a large cash surrender value(meaning how much the policy is worth right now, not how much it is worth to a beneficiary upon your passing); a personal injury suit that you may have pending; an inheritance that you may be receiving, etc.

Next, a chapter 7 trustee will question you regarding any transfers of assets or payments of creditors of closings of accounts that have taken place in the last year or two.  The purpose of this line of questioning is to determine if there are any transfers that he may reverse, to  pull those funds back into your bankruptcy estate.  For example. if you have paid any of your creditors a large sum of money just prior to filing your bankruptcy petition, this may be what’s called a preferential transfer.  The Trustee could use the “strong arm” powers that he has under the Bankruptcy Code to make that creditor return those monies so that the Trustee can split the funds up evenly among all of your creditors.  If you have a good bankruptcy attorney, the ramifications of any transfers you have made would be explained to you before filing your petition.

Finally, the Trustee will ask you what caused your financial difficulty.  A short answer is all that is needed.  It could be a divorce, a loss of a job or income, an illness or disability, some unforeseen large expense that occurred or simply that you overextended yourself with credit and couldn’t meet the monthly payments any longer.


The Chapter 13 Trustee’s focus is different than a Chapter 7 Trustee.  A Chapter 13 is a Reorganization, thus the Trustee cannot sell any of your assets, instead he is focused on your plan of reorganization and insuring that your plan complies with the applicable Chapter 13 statutes and is a plan that can be confirmed by the Court.  Thus, the chapter 13 Trustee will still be interested in the value of your assets and will ask similar questions regarding your real estate and other potential large value assets as we set forth above.  However, the chapter 13 Trustee’s purpose for these questions is to determine if you have any non-exempt equity in any of your assets.  His purpose, unlike a chapter 7 Trustee, is not to liquidate these assets but to determine how much must be paid to your unsecured creditors through your chapter 13 plan. The Bankruptcy Code provides that you cannot confirm a plan unless, you provide to pay your unsecured creditors what they would have received in a chapter 7 liquidation.  This discussion is involved and I can address it more intricately at another time, but suffice it to say, if you have hired a competent, experienced  bankruptcy attorney, your attorney would have already calculated all of this and it is incorporated into your plan.  Thus, the Trustee’s questions are just to verify the numbers contained in your petition and plan.

After the chapter 13 Trustee asks about your assets, they will have questions about your income and expenses.  The Trustee will inquire about what sources of income you have, if you work, then how often you get paid; does anyone else contribute to the household income, etc.  The Trustee’s staff would have reviewed your file prior to the hearing, so they may have flagged some of your expenses that they think may be above the normal standards that the Trustee will question you about.  It is OK for some of your expenses to be slightly higher than the norm as long as you can verify the expense with documentation and explain the need for it or the reason behind it.

The Chapter 13 Trustee will ask you if you have filed all of your tax returns that are required to have been filed.  He will ask if your insurance is in place on your home and your vehicles; and whether you are required to pay alimony or child support. He will then go through your plan with you and ask if you have started to make your monthly plan payment to him.

Those are the basic questions that you are going to be asked at the 341a meeting.  The hearing itself should last 5 to 10 minutes tops.  The longest part will probably be sitting around in the hearing room waiting to be called by the Trustee.  My best advice is to answer the questions honestly and succinctly.  If you don’t know an answer to a question, it is OK to say I don’t know, he information can always be provided after the fact.  If you don’t understand a question don’t answer it, the Trustee will repeat it or your attorney can help you out with it.  Overall, just stay relaxed, it’s not so bad, especially if you have an experienced attorney there with you at the hearing.

Good Luck!


What Are the Costs of Filing A Bankruptcy?

Obviously, one of the first and for many potential clients, one of the most important questions that a client has is: how much is filing a bankruptcy going to cost me? I would start by telling anyone looking into filing a bankruptcy that the fee an attorney is going to charge you, while an important consideration, should not be your only consideration.  I have seen many people get themselves in even more trouble by hiring the cheapest attorney they could find to file a bankruptcy for them.  In fact, I have substituted into many of these cases to try to resurrect a case, after another attorney has botched it.  In these situations, it costs the client much much more in fees than they would have otherwise paid, if they actually hired a competent experienced bankruptcy attorney to handle their case, that may have been a bit more expensive, rather than the cheapest attorney they could find.


There is a reason that an experienced bankruptcy attorney may charge a little more to handle your bankruptcy case, and that is because their experience adds value.  They know what questions to ask you up front, so that they first of all advise you correctly regarding what chapter to file, and secondly, so that they can advise you of any potential problems or issues they see with your case, and how you can avoid these potential pitfalls.  I have seen it too many times before, where an inexperienced bankruptcy attorney has given incorrect advice or has been negligent in their representation, and their client has had assets sold by a chapter 7 trustee or their chapter 13 plan payment significantly increased.  These situations could have been avoided with the proper representation.  Those are the hidden costs of hiring an attorney that lacks experience and knowledge.


There are some attorneys who hide their fees.  They advertise $500 for a bankruptcy and then hit you with additional costs and fees once you retain them. It’s the old bait and switch. This is especially prevalent with Chapter 13 cases.  In a chapter 13, the attorney can have his fees paid over time as part of your plan of reorganization.  the standard fee in New Jersey for a Chapter 13 case is $3,500.00.  Most attorneys will take some of that fee up front and put the balance into your plan.  However, there are attorneys that will tell you they are only charging you $500 for the case and then they put $3,000 of their fee into the plan and never tell you they did this.  It does not indicate this arrangement in the fee agreement that you have signed, chances are you will never even realize you paid them another $3,000 unless you actually review the annual report that you will receive from the Trustee.

You will also need to beware of attorneys that will tell you that you have to be a chapter 13, even though you qualify for a chapter 7 case.  This is because they can charge you a higher fee for a chapter 13 than for a chapter 7 and then can spread that fee out over time in your plan, as I explained above.

Do you want to hire an attorney like this, that is not being forthcoming with you, and in fact, is not looking out for your best interest?  I doubt it, but many potential bankruptcy clients are so stressed out, for obvious reasons, that they are not looking at the big picture.  They are many times, looking for the fastest and cheapest way to get out of their situation.  This is where that old adage, if it seems too good to be true, it probably is, comes into play.  This is a very important decision you are about to make. You are making a decision that will impact your financial future.  You are deciding whether or not to file for bankruptcy.  You owe it to yourself and your family to be diligent with your decision.  You owe it to yourself to find an attorney that knows the bankruptcy laws and can advise you properly, even if that costs you a few dollars more up front, chances are it will save you a lot of money and anguish in the long run.


An average fee for a Chapter 7 is about $2,000.00 for the attorney fee and the Court filing fee is $335.00.  At Capone & Keefe, our average fee is $1,750.00, however, depending on the particular facts of each case, that fee could be adjusted up or down.

As previously stated, the standard fee for a chapter 13 is $3,500.00 and the Court filing fee is $310.00.  At Capone & Keefe, we charge $3,500.00, we ask for a retainer of $1,750.00 and then agree to roll the balance of $1,750.00 into the Chapter 13 plan, so that our client pays that over time.

Believe me when I tell you there is not an attorney in New Jersey who is charging less than $3,500.00 for a chapter 13 case, if they tell you they are, they are not being forthcoming and you should be very careful about retaining them.


Yes there could be, but more likely in a Chapter 13 case.  Because a chapter 13 plan lasts for anywhere from 36 to 60 months, obviously things can change.  A client may lose a job, or fall behind on their Trustee or mortgage payment, because of some unforeseen expenses, etc.  When a client falls behind on post-petition payments, inevitably a motion will be filed by the Trustee or the Mortgage company.  These motions will have to be opposed and additional Court appearances will have to be made.  Additional fees will be charged by your attorney for this work, as it is not contemplated or covered by the initial flat fee.

Again, be wary of any attorney that tells you there will be no additional fees, if motions or modifications have to be filed, again its just not true. The good news is that all additional fees have to be applied for by the attorney and approved by the Bankruptcy Court.  You, as the client,  must be given notice of the Fee Application and have the opportunity to object if you feel the fee being requested is excessive.

At Capone & Keefe, our fee agreement explicitly details what is included in the initial fee and what would be considered additional work and billed separately.  We feel that the client should be fully informed and aware of how they will be charged and when they may be responsible for additional fees.  We believe an open and honest relationship with our clients is the only way to practice and you should want and expect that from your attorney.

Should I File a Chapter 13 Bankruptcy?

This is not an easy question to answer, as it depends on many factors.  So my first bit of advice would be to set up a consultation with an experienced bankruptcy attorney, like Capone & Keefe, so that we can go through the analysis for you.  However, to oversimplify it, the main reasons to consider and file a Chapter 13 bankruptcy would be:

1) To Save your Home: if you have arrears on your home and are facing foreclosure, then a Chapter 13 is a good option for you.  A chapter 13 will stay the foreclosure and give you the opportunity to save your home through your plan of reorganization.  You can propose a cure and maintain plan.  This means that you can resume your regular monthly payments directly to your mortgage company and they would be required by law to accept them, and then you would have a separate payment to the Chapter 13 Trustee, which would be used to cure your mortgage arrears.  You would have 5 years to complete that plan, but at the end you would again be current with your mortgage.  This plan is ideal for someone that had a temporary set back with their income or expenses that caused them to fall behind on their mortgage, but is now back on their feet and able to resume mortgage payments.

There are other ways to save your home and the plans can be very creative.  For example, the plan can propose to obtain a loan modification from the mortgage company.  The Bankruptcy Courts in New Jersey, have a loss mitigation program, which can be applied to after your petition is filed.  Once, the Court enters the Order Approving Entry into the Loss Mitigation Program, the Order would allow you to make an adequate protection to the mortgage company, while you are negotiating the Loan Modification.  The adequate protection payment would allow you to pay only 60% of your normal principal and interest payment to the mortgage company, plus the monthly escrows, pending the resolution of the Loan Modification negotiation.

This is beneficial for a couple of reasons, one it allows the Debtor to resume making a mortgage payment, which shows the mortgage company one, good faith, and two, an ability to make a mortgage payment.  Second, the filing of the chapter 13, and thus the resumption of the mortgage payments,  stops the mortgage arrears from continuing to grow.  All of these factors weigh in your favor when the mortgage company is deciding whether or not to modify your mortgage.

2) To Save or Cramdown your Vehicle: A chapter 13 also allow you the opportunity to catch up on delinquent car payments.  You can even get the vehicle back if it has been repossessed by the lien holder, as long as it hasn’t been sold at auction prior to your filing for bankruptcy relief.

Additionally, if you have been in the financing contract with your lender for over 910 days (2 and a half years) you can cram the vehicle down to its present value. For example, if you owed $15,000.00 on the vehicle, but it was only worth $10,000.00 based on NADA or Kelly’s Blue Book, then you can propose to pay the lien holder the $10,000.00 value plus interest over the life of your chapter 13 plan.  What makes this even a better deal is that if you have a high interest rate, the United States Supreme Court, in In Re Till, held that you can cram the interest rate down to whatever the prime interest rate is at the time of filing, plus a factor of one.  Presently, prime is 3.25%, thus you could propose to pay the lender the $10,000 at 4.25% interest and then lender would have to accept that treatment.

Even if you have not been in your financing contract for more than 910 days, you can still propose to pay your vehicle through your chapter 13 plan, and cram the interest rate down to the prime plus one rate.  Thus, if you are presently in a high interest rate loan, as many of our clients are, a chapter 13 can substantially lower your monthly payment for that vehicle.

3)To Strip off a Secondary Mortgage Lien: Chapter 13 allows you to strip off a secondary mortgage and treat it as an unsecured debt, if there is no equity for the secondary mortgage to attach.  For example, your home is worth $200,000.00, but your first mortgage payoff is $210,000.00 and you have a second mortgage of $50,000.00.  There is no equity after taking into account the amount owed to the first mortgage, thus there is no equity for that $50,000 second mortgage to attach.  Accordingly, the Bankruptcy Code, allows you to treat that second mortgage as an unsecured debt.  Thus, you would not have to make payments on that second mortgage while you were in your chapter 13, and as long as you complete your plan and receive your discharge from the Bankruptcy Court, your a discharged from owing the second mortgage and the second mortgagee would have to discharge the mortgage lien of record.  Meaning that second mortgage would no longer appear on Title  and would never have to be paid, even if you eventually sold your home.

4)You Don’t Qualify for a Chapter 7 under the Means Test: The means test is meant to determine if your household is above or below  the median income in your State.  To determine this, we would take the last 6 months of your household income, divide it to get a monthly average and then multiply it by 12 to get a yearly figure.  If that figure, is below the median income, then you would qualify for a Chapter 7.

However, if you are above the median income, then we would have to perform further calculations to determine if you have any monthly disposable income.  Basically, we take your average monthly household income and deduct all of the allowable monthly expenses as permitted by the Bankruptcy Code.  If this calculation indicates that for example, after paying all your monthly expenses that you have $300.00 of disposable income, you would have to file a chapter 13 and propose a plan that would pay your unsecured creditors at least $300.00 per month for 60 months.

5)You Possess Assets with Non-Exempt Value: A chapter 7 is a liquidation, ,which means that the Chapter 7 Trustee can sell your assets to the extent that those assets have equity/value that cannot be exempted.  In New Jersey, we use the federal exemptions, as the New Jersey state exemptions are minimal.  Thus, before we can determine if you can file a chapter 7, my office would first conduct a liquidation analysis.  If that liquidation analysis revealed that you owned assets that could not be fully exempt and thus, would be in danger of being sold by a chapter 7 trustee, we would not file a chapter 7 on your behalf.  Instead, you could file a chapter 13 and make payments based on that non-exempt equity over time.

For example, if the liquidation analysis indicated that you had $10,000.00 of non-exempt equity in your assets, then your chapter 13 plan would have to provide for payment of at least $10,000.00 over the life of your plan to your unsecured creditors.  This allows you to keep all of your assets, as the trustee cannot force you to sell anything in a chapter 13,  and still discharge the bulk of your debt.

6) Discharge Condo/Homeowner’s Association Fees: If you own a condominium and wish to surrender the property or maybe are already out of the home but the mortgage company has not foreclosed yet, you could file a chapter 7 , but that will only discharge you of the pre-petition condo association fees.  You would still be responsible for paying the post-petition association fees, up until the property is finally sold at a Sheriff’s Sale.  That could be a very long time, as our experience is that condominiums and townhouses are the last properties that mortgage companies foreclose on.  They do not want to take these properties back, because as soon as they do, the mortgage company becomes responsible for paying the association fees.

However, if you file a chapter 13 and complete your plan, a chapter 13 discharge also discharges you of all post-petition condo association fees.  Thus, even if your mortgage company decides that it is going to sit on the foreclosure for 5 years (which we have seen happen many times) the association cannot come after you for the ongoing fees that are accruing.  This is a huge benefit in achieving a fresh start.

These are some of the main reasons to consider filing a chapter 13 petition, however there are many more and your best bet is to not listen to friends or family or even worse, creditors when trying to decide how to deal with your financial burden.  You owe it to yourself and your family to consult with an experienced bankruptcy lawyer and find out what your options are and how a bankruptcy can help you.

Good Luck.

Can Creditors Still Report Negatively on Your Credit After You File for Bankruptcy?

One of the things we advise all of our clients once their bankruptcy is over and they have received their discharge, is to pull a credit report and make sure that everything is properly reported and there are no creditors that have continued to report negatively on their report.  All debts that were included in your bankruptcy should be reporting with a ZERO balance, show ZERO due, show nothing past due after the date of your bankruptcy filing, and should be noted as “included in bankruptcy’ or similar verbiage. If the tradeline does not report this way, you should dispute anything and everything that is wrong.

A discharged debt can NOT be late – ever. So if a creditor reports a late for a date AFTER your bankruptcy FILING date, and certainly post-discharge, dispute it.  A Discharge in a bankruptcy acts as permanent injunction against the attempts by those creditors listed on your petition from ever attempting to collect on those debts.  This means that those discharged creditors cannot call you, send you a statement, institute a lawsuit against you or continue a lawsuit that they had started prior to filing of your bankruptcy, can’t try to collect on a pre-petition judgment they may have received by garnishing wages or levying bank accounts, and they also CANNOT report negatively on your credit report.


What about my Mortgage Company-Can they continue to report?

This includes a mortgage company.  Even though the mortgage company still retains its lien on your property, your personal obligation on the Note has been discharged by your bankruptcy.  This means that if  were delinquent before you filed for bankruptcy and did not intend to keep your home or if you ever became delinquent after your bankruptcy filing, all the mortgage company would be able to do is to foreclose on your home; they could not come after your personally for the debt.  This is important to understand, especially in a down real estate market as we are presently in, because what this means, is that if the mortgage company forecloses and the total amount that you owe to them is not satisfied by the sale of the property, the mortgage company may not seek to collect that deficiency from you.

As I stated, he Discharge also means that your mortgage company cannot report any longer on your credit report.  In fact, there should be no reporting, other than as outlined above, from any of your creditors from the date you filed your bankruptcy petition forward.  Thus, even if you are current with your mortgage payments your mortgage company cannot legally report on your credit report, even if it is to report that you are current.

This can be a problem for some people.  I have had clients who have called their mortgage companies and were told (correctly) that the mortgage company can only continue to report if the Debtor Reaffirms the mortgage Note.  I have had clients call my office and insist that they want to reaffirm their mortgage note.  If they do so, it is against my advice, as once you reaffirm that debt, what you have done is taken that debt outside of the bankruptcy, which means that if you ever defaulted on your mortgage after discharge, you mortgage company can now hold you responsible for any deficiency.

I understand that if someone is looking to refinance their mortgage, it may make it more difficult, as your credit report will not reflect anything with regard to your mortgage payments post-bankruptcy filing.  However, your mortgage company will provide you with a payment history upon request, which is easily provided to the refinance company to prove that your account has been in good standing at all times since the bankruptcy filing.  I would rather my clients not reaffirm any debt that they don’t have to, they went through the bankruptcy, they should get as much of a benefit as they can.


What is your Recourse if a Creditor Does Report Negatively Post-Discharge

The first thing you need to do is to alert your Bankruptcy Attorney that a creditor has continued to report to the credit bureaus that your account is delinquent.  Once my client contacts me with this issue, the first thing I do is send a letter to that creditor advising them that they have violated the Bankruptcy Code and the permanent injunction provisions, basically a cease and desist letter is sent.

If the creditor does not correct the reporting within the time frame I have requested, the next step is to file a Motion to Reopen the Bankruptcy, To Hold the Creditor in Contempt and for Sanctions.  The case law is pretty clear that a violation of the discharge Injunction is punishable with sanctions for the damages incurred by the Debtor, which would include reasonable attorneys fees. Thus, the end result will be that the violating creditor will have to fix the negative reporting and have to reimburse you for any attorney’s fees and expenses you incurred to force them to do so.

The Rewards of the Practice of Bankruptcy Law

People ask me all the time, how did you pick Bankruptcy Law as the basis of your law practice.  It seems like it would be depressing they go on to say.  I don’t see it that way. I see the practice of Bankruptcy Law as uplifting.  We are helping people that have had a financial set back, usually due to some major life event,  to get back on their feet and get a fresh start.

It’s kind of funny, but most of my client’s initially come in kicking and screaming, because of all the negative (and mostly false) things they have heard about bankruptcy.  They look at a meeting with me, as a sort of meeting with the financial grim reaper.  That all changes once the client realizes all of the stress and anguish the filing of a bankruptcy will save them.  Once they realize that the filing of a bankruptcy is the fastest way back to financial viability and is most often the best solution for their family and their future, their whole demeanor changes.  I can actually see the stress and anguish leaving their faces.  You can read some of our clients testimonials here, or here, to get an idea about the positive effect the bankruptcy filing had for these clients.

It is a shame that most people have no idea what bankruptcy is all about how it can help them.  That is because most of the information that is available to them is generated by creditors and collection companies that have a vested interest in making sure that their customers do not file a bankruptcy.  Many phone calls or email that I get from potential clients start off by telling me what they have been told by collection companies.  Things like, “we are going to have you arrested if you don’t send in a payment”, “we are going to notify your boss if you don’t make a payment”, “the trustee will sell  all of your property if you file a bankruptcy”, and the list goes on.  The fact that no of these statements are true and in fact it is illegal for these collection companies to make such claims, doesn’t prevent these companies from making these claims and in doing so, scaring and stressing out the people they are attempting to collect from.

It is satisfying to help my clients take charge of their financial lives again.  Most of the clients that have come in to see me have been through the ringer financially, they have lost a job, had a major illness, been injured in an accident, had a traumatic family event occur, gone through a divorce or just flat out overextended themselves in anticipation of things getting better.  Most have been beaten down by the constant collection calls, the constant barrage of collection letters or solicitations from consolidation companies, the lawsuits that have been served upon them.  So to be able to impart information to my clients  about how they do have options and that the things they have heard are not true,  and to see the hope return to their faces is extremely rewarding.

To see so many clients come out of bankruptcy so much stronger financially then they were before they filed tells me that we are truly helping people.  I don’t want anyone to think that bankruptcy is like some kind of magic elixir that can cure all ills, however it is an extremely effective tool for helping people reclaim some financial freedom and getting that fresh start that many of them so sorely need and deserve.  So if you are reading this and are going through the situation that I have described you owe it to yourself and your family to at least seek out advice from an experienced New Jersey Bankruptcy Attorney and find out how a bankruptcy can help you and if it can’t, then to find out what your options are.  Good luck!


Bankruptcy Myths Debunked, Part 3

6.) I can only file for Bankruptcy with my Spouse.   Again not true!  Over the years, we have had more than a few situations where one spouse or the other just refused to file. There are also situations where one spouse does not need to file, because all of the debt is in the name of the other spouse.  No need to worry, you don’t have to file a joint case, just because you are married.  The bankruptcy code allows you to file without your spouse.  We will still need to include the non-filing spouses income and expenses on the budget and the means test, as your are part of the same household, but the filing of one spouse will have no impact on the other spouses credit.

Even if you think it is beneficial for only one spouse to file, you are best served with consulting an experienced bankruptcy attorney as there may be beneficial reasons for you to file a joint case or there may be beneficial reasons to file separate cases.

7.) I don’t owe enough to file a Bankruptcy: How much you owe to your creditors has nothing to do with your ability to file a bankruptcy.  There is no minimum level of debt required to file a petition.  The truth is everyone’s situation is different.  The deciding factor is can you handle the debt that you have, can you make your monthly payments to your creditors, are you delinquent with your debt that you do have, are you being sued, are your wages being garnished; basically do you need the protection of a bankruptcy filing.  Do you need a fresh start to be able to achieve financial freedom again.  These are the questions that you need to ask yourself when deciding whether you need to file. What you don’t need to worry about is having enough debt to file, there is no such requirement.

8) If I file Bankruptcy I will lose my security clearance:   Here is what the Air Force has to say about this topic:   “The status of your security clearance can be affected, but it is not automatic. The outcome depends on the circumstances that led up to the bankruptcy and a number of other factors, such as your job performance and relationship with your chain of command. The security section will weigh whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility. The security section may also consider the recommendations and comments of your chain of command and co-workers. This is an issue that can be argued both ways, so as a practical matter your security clearance probably should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your clearance, even if you don’t file bankruptcy. In that sense, not filing for bankruptcy may make you more of a security risk due to the size of your outstanding debts. By the same token, using a government-approved means of dealing with your debts may actually be viewed as an indication of financial responsibility. Eliminating your debts through bankruptcy may make you less of a security risk.” – Source

The army has also provided some guidance on the topic:

“With the nation in the throes of an economic downturn and entering the seventh year of overseas combat, some Soldiers and civilians are worried about their security clearance.

The stress of combat and the rise in foreclosures have some Soldiers wondering if their security clearance will be impacted.

“All Army personnel should understand that they can obtain counseling services for financial and mental health issues without undue concern of placing their security clearance status in jeopardy,” said Col. Edward Fish, commander, U.S. Army Central Personnel Security Clearance Facility, known as the CCF.

Army leaders want to ensure Soldiers that the security clearance process is fair, equitable and comprehensive and the Army is taking steps to ensure it remains that way. Leading this effort is the deputy chief of staff, G-2, who is responsible for policy formulation, evaluation, and oversight of intelligence activities for the Department of the Army. This includes policy development and oversight of the security clearance process, to include oversight of the CCF.

The CCF reviews personnel security investigations to grant security clearances for Soldiers, civilian employees and contractor personnel. The CCF uses the national adjudicative guidelines to process security clearance requests. These guidelines outline the standard application of the process, which includes consideration of both favorable and unfavorable information, identify specific concerns, and highlight associated mitigating factors.

A bankruptcy or foreclosure will not automatically prevent one from obtaining or maintaining a security clearance, according to G-2 officials. They explain there are many conditions surrounding financial hardships that often mitigate security concerns.

The guideline for financial considerations focuses primarily on individuals who are financially overextended because they may be at risk of engaging in illegal acts to generate funds. For instance, financial guidelines consider “the conditions that resulted in the financial problem were largely beyond the person’s control…and the individual acted responsibly under the circumstances.” Adjudicators identify such conditions as mitigating circumstances.

For example, if an individual did not have financial problems in the past, yet was forced into foreclosure because of a permanent change of station, or PCS move, adjudicators would consider this a mitigating circumstance. However, if the individual has a history of not meeting financial obligations and now forecloses on a home, this would display a pattern of financial irresponsibility that cannot be easily mitigated, officials said.

Likewise, a bankruptcy will not automatically prevent obtaining a security clearance.

There are many other conditions surrounding financial hardships that often mitigate security concerns, officials said. About 98 percent of cases received by the CCF which involve financial issues were granted a security clearance. This trend has been consistent since 2005″. – Source

Thus, as you can see, bankruptcy is not a bar to receiving security clearance as in actuality, the military views individuals that are overextended as more of a security risk and that someone who has filed bankruptcy is looked at as someone who has dealt with their financial issues responsibly.

Bankruptcy Myths Debunked, Part 2

In continuation of my last post, here are additional statements that I hear clients say all the time, that are just not true:

3) I can’t file a Bankruptcy, I feel obligated to pay my creditors back:  That’s great that you feel the need to pay your creditors back, and guess what the filing of a bankruptcy does not prevent you from doing so.  A Bankruptcy Discharge means that you have no legal obligation to pay your discharged debts back. It means that a discharged creditor is not able to ever seek repayment of the debt owed from you.  A Discharge does not mean that you cannot voluntarily pay any creditor back if you were so inclined.  Effectively, the discharge takes the pressure off of you.  You will never have to field a collection call again or receive a statement or a threatening letter from any of those discharged creditors, but if your financial situation turns around and you decide to payoff all of those debts you had previously discharged there is nothing preventing you from doing so.

Now having said that, I would suggest that you first ask yourself, did any of these creditors try to help you out when you inevitably,  made those calls to them to explain the situation that caused your financial distress?  Did any of those creditors offer to lower your interest rate or put your delinquent payments on the back end of the loan or how about lowering your monthly payment for a period of time?  I didn’t think so! I would also suggest that you think about how long you have been paying on your credit cards and how much interest you have paid to those creditors over that time, and I would suggest that you have probably paid each of those creditors back much more than you ever borrowed.  And now I would suggest, if you still feel inclined to pay back that discharged debt, by all means go ahead, there is nothing preventing you from doing so.

4) Bankruptcy should be a last resort:  That is absurd, Bankruptcy is not a last resort, it is an option period!  The biggest mistake I see people make is waiting too long to file a bankruptcy.  Due to the fact, that so many people think that bankruptcy is a last resort or is taboo, they don’t explore the option of filing for bankruptcy.  Instead they sell all their assets, liquidate retirement accounts, borrow money from family and friends; do anything they can to prevent them from filing for bankruptcy. And after all of that, nine times out of ten, those people still end up sitting in an attorney’s office discussing bankruptcy.  But instead of working on a strategy to save all of those assets, they are kicking themselves for not having sought the advice of a bankruptcy attorney sooner.

Seeking advice of a Bankruptcy Attorney is the course of action taken by a responsible person that is taking charge of their life.  The best results that are achieved in Bankruptcy are by clients that come in at the beginning of their financial crisis, when the first lose a job, or first incur the tremendous medical bills, or first fall behind on their mortgage.  All of these things can be dealt with and it is easier to do before you have creditors suing you, garnishing wages, foreclosing on your home or levying your bank accounts.  Coming in early on allows a bankruptcy attorney like myself, to plan when is the best time to file your case rather than having to file an emergent petition to stop a garnishment or get a repossessed vehicle back, etc.  This allows you to obtain the best result possible in your case.

Even if you don’t end up filing for bankruptcy right away or at all, you owe it to yourself and your family to seek a consultation with an experienced bankruptcy attorney so that you understand what a bankruptcy can do for you.  This is your life, you need to take charge and seek the information that you need to make the best decision for your financial future.  i have seen way too many people lose everything because they thought bankruptcy was a last resort, don’t be one of those people.

5) I’ll lose my house or my car if i file for Bankruptcy:  In 23 years, I have never had a client lose a house or vehicle in a Bankruptcy, unless they wanted to.  Yes, a Chapter 7 trustee can force the sale of your home, if you have more equity in your home then you are able to exempt.  However, if that were the case, an experienced Bankruptcy attorney would never file a chapter 7 for you.  You can instead file a Chapter 13, in which a Trustee cannot force the sale of your home.  In a Chapter 13 you are what’s called a Debtor in Possession, which means that you keep possession of all of your assets.  In return, you file a plan of reorganization to repay some of your debt over a period of time.

As for your vehicles, if you have a lien on it, it would be highly unlikely that a Chapter 7 Trustee would have any interest in trying to sell it.  In order to keep the vehicle in a chapter 7, you would just have to sign an agreement with the lien holder, which reaffirms the debt.  This just means that you are going to continue to pay that creditor even though you filed for bankruptcy. This agreement effectively takes the creditor out of the bankruptcy and allows you to keep the vehicle as long as you continue to make the monthly payment.

Of course, if you do not want to keep either your home or your car, you can simply indicate that in your bankruptcy  petition and the creditor will ultimately foreclose on the home and/or repossess the vehicle.  You will be discharged of any personal obligation on those Notes.


Common Bankruptcy Myths Debunked

I have been a consumer bankruptcy attorney for over 23 years and during that time I have heard all kinds of unfounded fears that my clients had about Bankruptcy.  Most of these fears or concerns came from misinformation that my clients received from friends, family or business associates. But there is also a lot of misinformation on the internet, and believe it or not, many people actually listen to what bill collectors tell them about the evils of bankruptcy.  Talk about a segment of people that are notorious for providing misinformation or for that matter, out and out lying, that is collection companies and bill collectors.  If there is one thing, I can’t stress enough to you, it’s please do not listen to anything a debt collector says to you, there one and only goal is to get you to make a payment to them, so they can make a commission. Next to nothing that comes out of there mouths is accurate or true, especially when it comes to Bankruptcy.  Almost to a person, when I finish a consultation with a client, they leave my office saying, if I had only known the truth about Bankruptcy before this meeting, I would have filed for Bankruptcy a long time ago and saved myself a lot of stress and many sleepless nights.  So here are some of the popular myths about bankruptcy that I often hear:

1) Bankruptcy will ruin my credit forever:   FALSE! While it is true that a bankruptcy filing can stay as part of your credit history for up to 10 years (Chapter 7; a chapter 13 stays on for 7 years), that does not mean that you will have bad credit for 7 to 10 years.  Anything that gets reported stays on your credit for 7 years.  So a late payment on a credit card, a missed mortgage payment, etc. stay on your credit report for 7 years.  The truth is that once you file bankruptcy and receive your discharge, YOU are in control of your credit. The bankruptcy has given you a fresh start.  You scores will initially increase post discharge, because all of your debt has been wiped out, so your won’t have anyone reporting negatively anymore and you won’t have the sheer amount of debt weighing your credit score down.

You will also need to be pro-active after your bankruptcy discharge. You should take out a couple of secured credit cards or credit cards with low balance limits and then make your payments on time, every month, you scores will start to go up.  You will not want to keep a balance on those cards of more than 35% of the credit limit, as if you do that can be a drag on your credit score.  If you continue to make those monthly credit card payments on time, your scores will continue to go up.  In most cases, my client’s scores increase by 150 to 200 points within the first 18 months after filing of their bankruptcy.  I have handled many closings for client’s that have bought homes after filing for bankruptcy so don’t believe anyone that tells you that your credit will be ruined forever!

2) I will be unable to get a job after filing for bankruptcy: FALSE!  in 23 years I have NEVER had a client tell me they could not get a job because they filed a bankruptcy.  In fact, I have actually had clients tell me that they were advised by prospective employers to file bankruptcy to clean up their credit, because they would be a much better candidate at that point.  There have been studies done and those studies revealed that only 9% of employers even look at a credit report when determining a candidates qualifications for a job.  When something did appear on the credit report, 87% of employers surveyed indicated that it would either not be a factor or that they would ask the prospective employee about the circumstances that led to the bankruptcy filing so that they could understand.  Thus, a bankruptcy filing is virtually a non-factor in determining your ability to get a job in the future.

I would even argue that filing a bankruptcy would be a positive in finding future employment for the simple reason that you will be in a better mental state.  Most clients that come in for the initial consultation are unbelievably stressed, haven’t been sleeping and in some cases are even angry or depressed.  I don’t think that you can argue that none of these traits would be traits that would translate well during an interview with a prospective employer, nor would they be traits that an employer would be looking for in a new employee.  Conversely, once my clients have filed for bankruptcy, their whole demeanor changes.  The stress is released, they are no longer worried about how they are going to meet their monthly bills, they no longer have the stress of the constant phone calls, they are able to sleep at night because they are dealing with their financial issues, they have taken control of their lives back.  Many clients tell me they are more productive at work and are happier, as they are able to live life again.  This is the type of person that will appeal to a prospective employer!

I will continue this article with more myths to be debunked tomorrow!  To be continued…

Bankruptcy Fears and Famous People that Have Filed Bankruptcy

Here is a partial list of some famous people that have filed bankruptcy. I wanted to add this list here to hopefully alleviate some of the fear, shame or embarrassment issues that you may have when you are considering filing for bankruptcy. I have been practicing Bankruptcy law for over 23 years and in that time I have filed thousands of bankruptcy petitions for clients. I can count on one hand how many times I felt that a client was trying to game the system.

As the list below illustrates that financial hardship befalls all type of people including those that we would consider the rich and famous. The need to file bankruptcy arises because something in your life has caused a financial hardship. A job loss, cut in income, medical condition or emergency, a sudden increase in expenses, divorce or separation; these are the reasons that force people to file bankruptcy. It’s not because you don’t want to pay your bills, it’s that something has happened that has made paying your bills next to impossible.
So stop struggling with trying to pay these bills, have the incessant collection calls stop, put an end to lawsuits and garnishments. Make the decision to get a fresh start and put this financial misery behind you. Call Capone & Keefe (732-528-1166) and let us help you get some peace of mind.


Mick Fleetwood
Cindy Lauper
Wayne Newtown
Randy Quaid
Lynn Redgrave
Ted Nugent
Tom Petty
Meat Loaf
Dorothy Hamill
Toni Braxton
Dionne Warwick
Jerry Lee Lewis
Mike Tyson
MC Hammer
Gary Coleman
Lawrence Taylor
Surge Knight
Marvin Gaye
La Toya Jackson
Tia Carrere
David Crosby
Jerry Lewis
Fifty Cent

Business Moguls and Famous People

Walt Disney
Henry Ford
Milton Hershey
Donald Trump
H.J. Heinz
P.T. Barnum
Charles Goodyear
John Audubon
Frank Baum (Wizard of Oz author)
Samuel Clemens (“Mark Twain”)

Radio, Television & Movie Stars

Dave Ramsey
Larry King
Burt Reynolds,
Kim Basinger
Don Johnson
Rush Limbaugh
Debbie Reynolds (Twice)
Teresa Giudice (Real Housewives of NJ)


Thomas Jefferson
Abraham Lincoln (essentially)
President William McKinley
John Connally
Ulysses S. Grant
George McGovern

Should Student Loans Be Dischargeable in Bankruptcy

The Below article appeared recently in the Wall Street Journal. When I first became a lawyer, my first job was as the Staff Attorney for the Standing Chapter 13 Trustee in the Trenton and Camden vicinages. At that time student loan debt was dischargeable provided that you had made seven years worth of payments on the student loan you were attempting to discharge. That changed in 1998, when Congress made student loans non-dischareable. I think it has come time for Congress to consider bringing back some ability for debtors to discharge student loans again, as it has increasingly become a major problem for both young adults that are graduating college with crushing amounts of student loan debt and also these students parents that are co-obligors on that debt. This article makes some of these same points:

Should the bankruptcy code be amended to make it easier for borrowers to seek forgiveness of student loan debt through a bankruptcy filing?

The explosive growth of student debt has become not only a mounting political issue, but its near-suffocating effect on millions of Americans also is causing considerable macroeconomic impacts.

The statistics are daunting: Total student debt now exceeds $1.2 trillion, up from only $240 billion just 12 years ago. During this period, the number of borrowers has increased more than 65% to nearly 40 million, with average student loans increasing nearly 50%. And as graduate school ranks increased during the most recent financial downturn, average student debt for these former students is now approaching $100,000.

There are many causes for these dramatic increases. Tuition is increasing at far greater than the rate of inflation, and enrollment at “for-profit” colleges, which are highly dependent on “risky” student loans, is exploding. It’s no wonder that the default rate on student loans is the highest of any debt category, approaching close to 20%.

While a college education unquestionably enhances future earning power, the price of this economic mobility is dramatically affecting ultimate financial independence. Savings rates are at all-time lows, job choices are increasingly based on debt service and 75% of student borrowers have the deferred home purchases due to their debt load.

Although a number of discussions are occurring in Washington and elsewhere to help alleviate the burden of student debt, one option that remains off the table for these millions of borrowers is access to the bankruptcy courts. Of course, prior to 1976, student debt was fully dischargeable in bankruptcy. Relying on ill-founded concerns that a floodgate of bankruptcy filings would deplete federal lending, by 2005, student loans were for all intents and purposes not dischargeable in bankruptcy.

There are a number of reasons why the bankruptcy code should be changed to permit student loans to be discharged. First, the legislative rationale underlying the elimination of dischargeability is no longer persuasive. Second, permitting student-loan borrowers, like borrowers under any other loan, to have access to the bankruptcy courts can serve the long-standing federal policy of allowing debtors the breathing room necessary to restructure their affairs. The policy is no less persuasive with student debt, which has a much more devastating impact on less economically advantaged households—60% of the student debt is held by households with less than $8,500 in net worth. It’s inexcusable to deprive these consumers with the same access to the bankruptcy courts as other consumers.

Adding a minimum repayment period before eligibility for bankruptcy, which existed in previous iterations of the bankruptcy code, would help to prevent acts of fraud. More critically, as with any bankruptcy debtor, those whose collateral (the value of their education) exceeds the amount of their debt will not require wholesale access to the bankruptcy courts. Thus, bankruptcy should only be necessary for those who desperately need it to obtain relief from the unyielding cycle of student debt. This is precisely what the bankruptcy court was crafted to accomplish.

Rick Chesley is the co-chair of DLA Piper’s restructuring practice, focusing on bankruptcy transactions both in the United States and internationally. He is based in Chicago.

Beware of Tax Implications from a Short Sale or Loan Modification

This Article recently appeared in the New York Times. 

Come tax time, JPMorgan Chase will be able to write off the $1.5 billion in debt relief it must give homeowners to satisfy the terms of a recent settlement.

But the homeowners who receive the help will have to treat it as taxable income, resulting in whopping tax bills for many families who have just lost their homes or only narrowly managed to keep them.

They are not alone. A tax exemption for mortgage debt forgiveness, put in place when the economy began to falter in 2007, was allowed to expire on Dec. 31, leaving hundreds of thousands of struggling homeowners in financial limbo even as the Obama administration has tried to encourage such debt write-downs.

Congress routinely allows tax breaks to expire and then reinstates them, usually retroactively, as it did last year. But the stakes are high for families dealing with large declines in their home values, and reinstatement of the tax breaks is more uncertain because of a movement in Congress to broadly overhaul the tax code, which, despite its long-shot prospects in an election year, could end up eclipsing smaller tax issues.

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Mr. Heil owes $250,000 on his mortgage, and has found a buyer willing to take the house for $150,000, but his tax bill would be $28,000. David Maxwell for The New York Times

“Frankly, I’m worried because this should have gotten done before the end of the year and we’ve got families that have to make decisions now,” said Senator Debbie Stabenow, Democrat of Michigan, who is the sponsor of a bill that would extend the mortgage tax break.

The tax exemption was intended to help homeowners who are underwater — that is, who owe more on their mortgages than their homes are worth. According to the real estate data service CoreLogic, there are still more than 6.4 million households underwater.

Typically, if someone lends you money and later says you do not have to pay it back, the I.R.S. counts the amount forgiven as income, except in cases of bankruptcy or insolvency.

Short sales, in which a bank agrees to let homeowners sell their homes for less than they owe (a common way of avoiding outright foreclosure), are a form of canceled debt, as are loan modifications that reduce the amount owed.


Loss of the exemption is a financial body blow to homeowners already struggling to make ends meet. “I’m in a hole here — I’m trying to work my way out,’” said Eric Heil, 50, a hospital imaging technician who said a divorce and reduced income were forcing him to sell the house he has owned for 18 years in Parma, Ohio. “And the government’s going to say you have to pay taxes on it?”

Mr. Heil owes $250,000 on his mortgage, and has found a buyer willing to take the house for $150,000. The bank has agreed. But if Congress does not extend the exemption, he will be forced to count the $100,000 difference as income. That would mean a $28,000 tax bill, and Mr. Heil has no idea how he would afford it.

The number of people using the mortgage debt relief exemption has increased every year, reaching almost 100,000 in 2011, the most recent year for which the I.R.S. has figures. That number could be far greater in 2013, when there were more than a quarter-million short sales, according to Daren Blomquist of RealtyTrac, who estimates that those families received an average debt reduction of roughly $37,000. If the exemption had not been in place, that would have translated to an extra $9,250 tax bill for those in the 25 percent bracket.

Many homeowners are so deeply underwater that they require much more help. Under a separate mortgage settlement involving the five largest lenders, more than 90,000 homeowners received debt relief averaging $109,000 each.

Please Don’t Cash in Your Retirement Accounts to Pay Credit Card Bills

A huge mistake that many of my clients make is that the cash in their 401k plans or IRA accounts in order to pay off debt. Most of these clients have already made this mistake prior to meeting with me.  Their intentions are good, trying to pay down their debt, but they are usually motivated by panic and the fear put in them by ruthless debt collectors and they make the decision without knowing all of their options.  Therefore, they usually make the wrong decision to liquidate retirement accounts and they end up regretting it later.

The truth is that retirement accounts that are ERISA qualified, which bascially means that you will incur a tax penalty if you liquidate the account prior to retirement age, are not reachable by creditors.  The prevailing public policy is that people need these retirment funds available to them for living expneses once they retire, thus creditors are not legally permitted to levy and liquidate these accounts.  These accounts are fully exempt from the reach of creditors whether you are in a bankruptcy or not.

If you are experiencing financial difficulties and are struggling to pay your bills, it is important that you consult with an experienced bankruptcy attorney, who can help you navigate these difficult financial issues and advise you as to the ramifications of such decisions.  Normally, my advise would be to never liquidate your retirement accounts, what you are basically doing if you do liquidate these accounts is taking a fully exempt asset and converting them to a non-exempt asset.  These means the funds are now reachable by creditors.

So please, before you take the drastic step of liquidating your retirement account, contact Capone & Keefe (888-540-4795) and let our professionals help you make the best decsions for yours and your family’s financial future.

The Pitfalls of Balance Transfers

I’m sure many of you are receiving all kinds of offers from credit card companies offering low interest rates, 0% to 2.99% on balance transfers or new purchases.  These seem the perfect opportunity to pay off those higher interest rate cards that you presently have. However, these seductive rates do come at a cost if you don’t know what to look out for.

So have at look at these five tips to avoid getting taken advantage of, when taking advantage of balance transfer offers:

#1 Inspect the Interest Rates
When playing the balance game, the best bets are obviously the lowest interest rates available.  These days if you have a pretty good credit score, you can normally find a 0% interest teaser rate that can greatly reduce the amount of interest you’re currently paying. But be wary: these offers eventually expire, and, if they’re not paid off, can often default to a higher rate than you’re currently paying. So, the rule of thumb is, if you can pay off the balance before the end of the promotional period, it’s a good time to transfer.

#2 About That Promotional Period.
In the end, the longer the promotional period, the better. Choose a year or more to pay off your promotional rate and leave those 6 month cards to the more gullible guys.

#3 Find Out About Those Fees
Some credit card companies make their money on 0% balance transfer offers by charging a certain percentage of the transfer amount to front the exchange. Keep in mind that transferring a $10,000 balance transfer with a 5% transfer fee mean you lose $500 in the process. It’s important to also factor in an annual fees, which can make the balance add up in the end

#4 Get Used to Reading the Fine Print
The easiest way for credit card companies to slam you with extra fees following your balance transfer is if you miss a single payment—a fact often hidden in the card offer’s very fine print. Make sure you know what to expect by taking a little time to inspect the tiny type on your latest offer.

#5 Take Heart With a Good Transfer
Imagine a world with no balance transfer fees, ones that would increase your current credit line along with the transfer, or were 0% for the entire life of the transfer balance. It may seem very 2001 the very notion of these types of offers, but if you find these types of pre-recession rates, snatch them up and pay down those costly credit cards while you still can.

Keep in mind, the balance transfer “game” is only easy for those who are good at juggling their accounts and paying off debt quickly with cash they already have. For example, you can pay off one credit card loan by borrowing from another card that carries a low, introductory rate and save some money, if, (and that’s a big “if” in this economy), you can pay off the transfer before the interest rate jumps back up to where it will inevitably jump after the promotion ends. If you’re considering bankruptcy, you’re not likely in the position to play this game, plain and simple.

And, if you are bankruptcy bound and have transferred balances, address this fact with an attorney. Because balance transfers are essentially a loan that you’ve borrowed to address another loan, if you file for bankruptcy within 90 days of the balance transfer, the transferred debt could be presumed to be fraudulent and therefore exempt from being wiped away in bankruptcy. These transfers are also payments on existing debts, and as such, the trustee could also attempt to recover that amount for creditors, making your case more complicated.

So, if you have been effected by the economy, are facing insurmountable credit card debt and are wondering how to get back on track, knowing a qualified bankruptcy attorney can also help you to conquer your creditors and face your financial fears, yielding the right kinds of support, information and insights—at a low cost. The bankruptcy attorneys at Capone & Keefe offer free consultations to discuss these and any other bankruptcy issues you may have, just call toll free 1-888-540-4795 to set up you consultation today.

Do I Qualify For Bankruptcy?

Many clients have delayed coming in for a consultation because they fear they won’t qualify for a bankruptcy.  Most of the time, they have this fear because of misinformation they have received from friends or family or even from creditors.  The bottom line is that everyone qualifies for some type of  bankruptcy protection. 

Since the bankruptcy laws changed in October 2005, something called the means test has been instituted.  Many people incorrectly think that this test was instituted to prevent people from being able to file a bankruptcy.  That is not the case.

The means test is used primarily to determine if a prospective debtor is eligible for a Chapter 7 or if they would have to file a Chapter 13.  Basically, the means test takes a historic look at your income based on the preceding 6 months to determine  a monthly average, which monthly average is then multiplied by 12 to get what the Bankruptcy Code terms your “current income”.  This figure is then used to determine if you are above or below the median income in your State for a household of your size.  If you are below the State median income, then you would qualify for a Chapter 7 bankruptcy. 

 If the means test reveals that you are above the State median income, then we have to proceed with the second prong of the test, which is to take the monthly income average and then deduct from that average the allowable expenses, as set forth in the Bankruptcy Code.  At the end of the calculation, if there is a postive number, indicating disposable income, then chances are you would have to file a Chapter 13 case and make a monthly payment to the Trustee in an amount approximately equal to  the disposable income indicated by the means test.  This does not mean that you have to pay back all of your debt!  It means that you have to pay back what you can afford, based on the means test, on a monthly basis for 60 months.  You would then receive a discharge from any unpaid balances owed on your dischargeable debts upon completion of your chapter 13 plan.

Another common misconception that many people have is that if you own a home you don’t qualify for bankruptcy, which is of course not true .  Or they fear that if they do file a bankruptcy they will automatically have to give up or sell their homes.  Also, not even close to the truth.

The fact of the matter is that a majority of people that file for bankruptcy protection are homeowners.  In fact, many of those people are filing a bankruptcy specifically to save their homes.  An experienced bankruptcy attorney would never put their client in a position to lose your home, if it was the client’s intention to keep their home. A chapter 13 bankruptcy is what’s called a reorganization.  A chapter 13 debtor is what’s termed in the Bankruptcy Code as a Debtor in Possession.  These means that as a chapter 13 debtor you retain possession of all of your assets.  You don’t have to sell anything nor can anyone  force you to sell anything. 

The attorneys at Capone & Keefe can help you by explaining all of your options, so call us at 1-888-540-4795 and start to put your mind at ease and your finances back on the right path.

Negative Impact of the Bankruptcy Reform Act-Congress Needs to Fix It’s Mistake

 The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA ) became operative on October 17, 2005. A little more than six months later, the Case-Shiller index of real estate values reached their peak and began a free-fall that hasn’t stopped yet. ( ) Shortly, real estate will be worth what it was in 1998 and the U.S. will have lost a decade of growth. Many have filed for bankruptcy to get out from under depressed values.

Although neither the media or our government wants to use the word “depression” publicly when referring to the economy, consider the following:

*Foreclosures have increased 14% during the last quarter and the number of pending foreclosures and mortgages in default is staggering.
*Home ownership is falling and is reaching historic lows among segments of the population. Parts of Florida are reaching 20% vacancy and other states are not far behind.

*Last month, the Census reported that the rate of home ownership fell in the past decade by the largest amount since the Great Depression. Meanwhile, millions of Americans have turned to the rental market at a time when little new product is being built, allowing landlords to raise rents. The national rate came in at $1,004 in the third quarter, up from $981 a year earlier, according to Reis Inc.

* It’s estimated that it will take more than 15 years for Freddie Mac to unload it’s REO (Real Estate Owned)  inventory.  These are the properties that Freddie Mac has taken back through foreclosure.
*Unemployment is pegged at a stubborn 9%, but that number doesn’t include those who no longer qualify for benefits or college or high school grads who have never been able to find a job. More than 400,000 people lose their job every week. Nor does it account for those that are underemployed, meaning that they are making significantly less at their current job than they were at previous jobs, but took the job nonetheless to have some type of income coming in.

*Municpalities and state governments are running huge deficits as they struggle to maintain social services in the face of declining tax collections. Look at Harrisburg, PA or Jefferson County, Alabama that have filed for bankruptcy.
*Tent cities of the displaced are showing up everywhere. Check the desert outside San Diego, CA or any of the “Occupy Wall Street” or its progeny around the country.
*Meanwhile, the number of people around the country filing for bankruptcy have declined some 15 to 20 percent since the beginning of the year. Why? Because bankruptcy is designed as a safety net to catch you before you hit the ground. You file for bankruptcy to save assets and future income. But when you have neither, why bother to file bankruptcy?

You can almost point to the reforms in bankruptcy that started this ball rolling. It removed the safety valve for overburdened consumers and any incentives for starting a small business that might grow into the next Apple computer.  Instead of Congress focusing their efforts on making changes that may in fact, help their constituents, like rolling back some of the changes enacted to the Bankruptcy Code by BAPCPA or by amending the current Code and allowing Bankruptcy Courts to modify mortgages, they provide us with ineffectual loan modification programs like HAMP and HARP.

Many pundits are now predicting that these protests that are popping up around the country will soon turn violent.  People are frustrated and hopeless, which is not a good combination.  Perhaps some real changes to the Bankruptcy Code that favor the consumer and not the banks would be a start to relieving some of the pressure that many American citizens find themselves under. Let’s hope that Congress wakes up and starts putting more effort into providing the help that the American people need and less effort into their re-election campaigns, otherwise, I’m afraid it’s just going to get uglier.


Apathy the Prime Reason People Are Not Dealing With Their Financial Problems

Even though more Americans are piling on debt, fewer are seeking help in trying to get their finances back on track. Poverty in this country has increased, unemployment rates continue to hover around 9% according to the U.S Department of Labor, but when you add in the underemployed and the discouraged the figure is closer to 17%. Meanwhile according to a new study by consumers have accumulated $18.4 billion more in credit card debt in the second quarter of 2011 than they did in the first quarter. That is up 66% from the same quarter in 2010.

Yet, despite the increased spending and the decrease in income or for that matter employment, fewer people are seeking bankruptcy relief. Bankruptcy filings are down 15% nationally in 2011 from the same time period in 2010. clearly, people need financial help more than ever but aren’t seeking it, so what gives?

My feeling and the feeling of many other bankruptcy attorneys that I have spoken with is that many people just don’t care anymore. That they have surrendered to their situation. That things have gotten so bleak many people don’t even want to deal with the issue or acknowledge the problem. Many are just concerned with putting food on the table and keeping the lights and heat on, not with dealing with putting a stop to creditor harassment and collection activity.

The government has also contributed to the general apathy. For starters, the HAMP and HARP loan modification programs have in general been major failures with far fewer loans actually being modified by mortgage companies than was expected. However, one unintended consequence of the program is that it has been successful in  extending the time it takes mortgage companies to complete a foreclosure. Mortgage companies are required to put foreclosures on hold once a customer has been accepted into one of the modification programs. Thus, due to the general run around that mortgage servicers put customers through when trying to modify a loan, many people are in the HAMP process for 6 months or even a year before a determination is made. This means that the foreclosure is delayed for that period of time, which lets these homeowners stay in the homes that much longer without making a monthly payment.

This coupled with the moratorium placed on foreclosure proceedings in many states due to the bad record keeping of many mortgage companies has provided a situation where many homeowners have not made a mortgage payment in more than a year or two without a foreclosure complaint being filed.  This has created a situation where homeowners have become apathetic with regard to an impending foreclosure because frankly they haven’t been served with a complaint.  Thus, many homeowners, who otherwise would have acted to try to save their home are not doing anything for the simple reason that they haven’t had the pressure of a pending foreclosure to force them into action.

Also, many people have a “bailout mentality”, in the sense that they have lost their jobs and are counting on their unemployment benefits to continue to be extended so as to keep paying their bills.  Again once those benefits end, if suitable employment hasn’t been found, the bills will remain with no means to pay them.

So what to do?  The answer is to not wait for something really bad to happen, like a foreclosure complaint being filed or a bank account being levied.  Be proactive and take action now, consult a bankruptcy attorney,  get the creditors off your back now and start working towards the discharge of your debt.  This way, when things do turn around for you, you are in a position to move forward in a positive manner, rather then being dragged down by the overwhelming debt and the stress that debt brings with it.  A bankruptcy discharge will give you that fresh start that you need.  It will allow you to sleep at night and to move forward by making decisions that benefit your financial future.

Factors Considered by Mortgage Companies When Deciding Whether to Modify Your Mortgage Under HAMP

I have discussed in a previous post the eligibility requirements for a loan modification under the HAMP program, now I would like to give you some idea how the mortgage company will determine if you will be offered a modification.  We will use the same example that we used in the previous post, you have monthly gross income of $10,000.00 and your mortgage payment is $3,500 per month.  Let’s assume that your current interest rate is 5.5% and you have 27 years left on your present mortgage, which has a balance of $400,000.  The stated goal of HAMP is to modify your mortgage payment down to 31% of your monthly gross income, which would be $3,100 per month.

The mortgage company will begin its analysis by lower your interest rate incrementally to as low as 2.5% and then re-amortize your mortgage balance over the 27 years left on your mortgage to try to get the payment down to the $3,100 per month figure.  If the mortgage company gets down to the 2.5% rate at 27 years and that doesn’t equate to a $3,100 per month payment, the next step would be to extend the term of your present mortgage.  So they will take the mortgage balance at 2.5% interest and re-amortize it over a 30 year term and then a 35 year term and then finally a 40 year term to try to get your payment down to $3,100 per month.

If the mortgage company gets to a 40 year term at the 2.5% interest and that still doesn’t get your payment down the $3,100 figure, then only at that point will they consider deferring principal on the mortgage.  For example if your mortgage balance is $400,000,they may defer $25,000 of principal and then apply the amortization to $375,000 of principal at the 2.5% for a 40 year term to try to get you to the $3,100 per month payment.  The $25,000 deferred principal will remain a lien on the property, however no interest will accrue on it.  The monies would only be payable upon your sale or refinance of the property down the road.

Let’s now assume that the mortgage company analysis results in them being able to get your mortgage payment down to $3,100 by amortizing the $400,000 mortgage balance over 30 years at 2.5% interest.  The last step in the mortgage companies analysis now becomes the Net Present Value test. This means that the mortgage company will determine if it is better for them to re-amortize your mortgage as stated above and receive their money at 2.5% interest over the next 30 years or is it better for them to continue its foreclosure, incur all the costs and expenses associated with that, and receive the funds from the sale of your residence within the next 2 years or so (or however long they estimate the sale process will take). 

The value of your home will have a lot to do with how the Net Present Value test comes out. If you have a lot of equity in your home or even a little equity so that a mortgage company will be made whole through a Sheriff’s Sale, then chances are the Net Present Value test will not work out in your favor and your modification will probably be denied.  However, if you have no equity and your house is under water, there is a good chance the Net Present Value test will work out in your favor.

I have obviously over simplified the analysis, however my intent was to give you an idea what the mortgage companies are thinking about when analyzing whether or not to modify your loan.

The Foreclosure Moratorium in New Jersey Has Given Homeowners a False Sense of Security

Late in 2010, the New Jersey Supreme Court had issued a moratorium on foreclosure filings in New Jersey by six of the largest banks, including GMAC, Bank of America, JP Morgan Chase, Wells Fargo, City Bank and West One. The ban on filings was due to these banks using robo-signing of documents causing illegal foreclosure filings as the filings violated the Fair Foreclosure Act. Thus, the number of foreclosures filed in New Jersey fell from 58,000 in 2010 to just 6,000 through July of 2011.

In September of 2011, the New Jersey Superior Court had lifted the last of the six injunctions on foreclosure filings when it gave the go ahead to Ally financial and its GMAC Mortgage unit to resume foreclosure actions in New Jersey. Accordingly, homeowners in New Jersey should now prepared for a flood of foreclsoures to be filed starting at the end of this year and continuing through next year.  One prominent foreclosure firm has told me that they have 30,000 foreclosures ready to be filed now that the moratorium has been lifted.

Unfortunately, this moratorium has given many New Jersey homeowners the false sense that they will be able to remain in their homes indefinitely without paying their mortgage or otherwise making arrangements to cure their mortgage arrears.  For those that really have no intention of trying to save their home the moratorium has been a blessing in that it has in fact bought them more time to stay in the home and hopefully save the money they would otherwise be paying to the mortgage company. 

However, for those homeowners that truly wish to save their home the moratorium has perhaps made it more difficult.  Due to the fact that homeowners have not been under the pressure of a foreclosure proceeding, many have put off  the filing of a Chapter 13 petition to save their home.  The downside of putting off the filing of a Chapter 13 is that the longer you wait to file the greater the mortgage arrears become.  A chapter 13 allows you 60 months to complete your plan, thus, 60 months to pay back your arrears.  So obviously the longer you wait to file and the larger your arrears become the larger the monthly Trustee payment that will be required to cure those arrears.  Accordingly, the issue of feasibility comes into play.  Meaning can your budget sustain the additional payment necessary to cure your mortgage arrears.

The fact is that it is much easier to fix your issues and complete a chapter 13 plan and thus, save your home if you tackle your problems sooner rather than later.  So contact your bankruptcy attorney now, don’t wait until you receive the foreclosure complaint or worse the foreclosure judgment.  It will put your mind at ease knowing that you are addressing your financial issues.  Rest assured the foreclosure complaint is coming now that the moratorium has been lifted, so be proactive and address the issue don’t be reactive and sit and wait for something really bad to happen.


Bankruptcy May Be Your Smartest Investment and Quickest Way Back to Financial Health

Fear of the unknown, pride, uncertainty, misinformation, stubbornness, distraction, and cash flow are just some of the reasons that keep people from getting their financial life  in order with a bankruptcy filing.  The problem is that without it you may never be able to gain control of your pocketbook.

Making the choice to do nothing is the easy choice.  Your current situation is at least familiar, you’ve learned how to ignore your problems.  It’s harder to deal with your issues head on.

 But what if by meeting your financial issues head on means getting out from under your bill problems and jump starting your financial life?  Clearly, in that case it becomes far more attractive to leap than to stand still.

So if you’re having difficualty paying your monthly bills and are on the fence about what to do, here are  ten reasons for filing bankruptcy now that may help you make your decision.

  1. The stress you feel over being unable to pay your bills, having to constantly field collection calls and letters and the worry you feel about possible wage garnishment or bank account levies can destroy your health.
  2. The fact that the value of your real estate has decreased so substantially over the past few years may allow you strip off secondary liens, like equity lines, second mortgages and judgments.  If the value of your home increases in the future as the real estate market rebounds this option may not be available to you, thus filing a bankruptcy now rather than later could be much more beneficial to your long term financial health.
  3. You cannot be taxed on debt that is discharged in a bankruptcy, which is not the case with debts that you settle outside of a bankruptcy directly with your creditors. 
  4. You will be able to keep more of your assets when your federal exemptions are applied to investments you may have with depressed values. 
  5. The Federal tax exclusion for cancellation of debt on foreclosures of your principal residence expires in 2012, is limited in scope, and doesn’t deal with state taxes incurred for the debt cancellation.
  6. You cannot start to re-establish credit until you either pay off all of your debts, bring them all current and keep them current or discharge your debts in a bankruptcy.
  7. Relationships suffer in times of financial distress, the stress caused by unpaid bills, collection calls, law suits, wage garnishments, etc. takes its toll on a marriage.  So save your marriage by discharging your debts.
  8. If you wait to file until your income improves, you run the risk that the means test may require you to file a chapter 13 plan of reorganization , which requires a repayment of some of your debt; rather than being able to discharge all of your debt in a Chapter 7 now.
  9. You are not getting any younger.  Many clients are ill prepared for retirement.  Every dollar you are currently spending on making minimum payments to credit card companies is another dollar you could be saving for retirement.  Worse many clients raid their 401k or IRA accounts to pay debts with.  That is the worst thing you could do, even if a creditor receives a judgment against you they cannot attempt to collect from an ERISA qualified retirement account, which is fully exempt from creditor execution.
  10. Filing of a bankruptcy is not the black mark that most creditors want you to believe.  Bankruptcy filings have been up over the last number of years.  Chances are you know more than a few people that have filed a bankruptcy, even though it hasn’t been brought up in conversation.  Donald Trump and many other big businessmen file bankruptcies as a business tool so they can reorganize their business finances, why shouldn’t you use the same techniques to reorganize your personal finances.

For most people that are having financial problems these problems are brought on by an unexpected loss of income, which has caused them not to be able to pay their bills as they come due. Chances are that once you regain employment that alone is not going to solve your issues, as the debt has now become insurmountable since your creditors have now increased your interest rates and added late fees and overlimit charges making it impossible to catch up. 

For the reasons stated above the time to act is now.   By doing so, you put yourself in a position to move forward financially in a positive way by being debt free.  You can now use your money for things you want to and need to, like retirement and savings rather then living pay check to pay check.

The reasons most people don’t file bankruptcy is due to myth and misunderstanding.  Don’t be one of those people.  Consult a reputable bankruptcy attorney and find out how it can help you.

Do You qualify for a Loan Modification Under HAMP

Everyone it seems is attempting to get a loan modification these days. Anyone that has attempted to modify their mortgage knows that the process can be extremely frustrating. One way to make it somewhat less frustrating is to make sure that you qualify under the HAMP guidelines before you bother applying or retaining an attorney to apply for you.
First of all, you need to be delinquent on your mortgage payments in order to even be considered, the standard is 90 days delinquent. Second, you must live in the premises that you are attempting to modify the mortgage on.  Third, the mortgage you have on a single family residence cannot be in excess of $729,750.00.
If you qualify under those guidelines, you can now move to the next step. Your first mortgage payment, plus your property taxes, homeowners insurance and homeowners association fees must be more than 31% of your monthly gross household income. For example if your gross monthly household income is $10,000.00 and your mortgage payment, inclusive of taxes and insurance, is $3,500.00, you would qualify for consideration of a loan modification under the HAMP program, because you are paying 35% of your gross income towards your housing payment.

With all of those factors being present, you are now a candidate for a HAMP loan modification.  The next key step would be for you to make sure that your mortgage Servicer particiaptes in the HAMP program.  You can check at to see if your Servicer participates.  If your Servicer is a participant then your next step would be to put the HAMP package together and submit it to your Servicer’s Loss Mitigation Department.  I will be posting a later blog about the factors the mortgage servicers consider in determining if they will offer you a loan modification.  For now, good luck.

What is the First Meeting of Creditors?

Another frequent question I get from clients is–if I file a bankruptcy do I have to appear in Court?  Well the answer is sort of.  You may have to go to the Courthouse, but you will not be appearing in front of a Judge in a court room.  You will have to appear at what is called your 341a Hearing, which is conducted by your Trustee.  The hearing, at least here in New Jersey where I practice,  is conducted in a hearing room or at the Trustee’s office.  So that is about as close as you will come to having to appear in Court.

Nevertheless, even the mention of that hearing sends many of my clients into a panic.  The truth is there is no need to panic, the hearing is actually quite painless.  The key is to have a competent, experienced bankruptcy attorney handling your case.  If you have such an attorney, the hearing will be very painless indeed.  In fact, most of my client’s leave these hearings and say, “that was it, that’s what I was worried about.”

An experienced bankruptcy practitioner will send the Trustee all of the paperwork that is routinely requested by the Trustee weeks prior to your hearing and will follow up with the Trustee’s office as to whether there is anything else needed or any other questions that need to be addressed.  As long as the Trustee has the documents that he needs prior to your hearing and has had time to review them, it will make the hearing go much more smoothly.  The fact is the Trustee’s role is to administer your case and his primary purpose at the 341a hearing is to verify the truthfulness of your petition.  If the necessary documentation is provided to allow him to do that prior to the hearing it saves a lot of time at the hearing.  It also makes the Trustee’s job easier, which is always a good idea and helps the hearing go smoothly.

Prior to the hearing, an experienced attorney will go over every question that a Trustee will ask you so that you are prepared.  These questions will mostly revolve around your assets, liabilities, income and expenses.  An experienced attorney will also be able to point out anything in your petition that may perk the interest of a Trustee and prepare you for those potential questions.  Being prepared obviously makes the hearing go smoothly.

Clients also ask if any creditors are going to show up at their hearing.  The answer is most likely no one will appear.  My experience is maybe in 1 out of 500 cases does a creditor appear to ask questions.  Even if they do, the creditor is only permitted to ask general questions about your assets, liabilities, income and expenses.  If the creditor wishes to get more specific and detailed they would have to take a Rule 2004 examination, which is a deposition, which they will not do as it is time consuming and costly for the creditor.  So only in extreme cases where a creditor is claiming that you defrauded them in some way and there is a large amount of money owed to that creditor would they even consider taking your deposition. It is a very rare occurrence in a personal bankruptcy case.

What Kind of Paperwork Your Bankrutpcy Attorney Needs to Start the Process

One of the biggest hurdles we have in getting our clients cases filed is that our clients take a long time to gather their paperwork needed to complete their bankruptcy petition. Since the  Reform Act of 2005 was enacted a bankruptcy practitioner’s need to gather and keep in his file a large amount of paperwork has increased. Part of the reason is the potential of a random audit on your case by the United States Trustee’s Office. If your file is chosen for an audit, all of the paperwork used to complete the petition will have to be provided to the Trustee’s office to verify the accuracy and truthfulness of the petition. Thus, it is vitally important for the information be received by your attorney prior to the preparation and filing of your petition as this paperwork will need to be kept in the file.t

So what is the required paperwork? For starters, we now need to collect 6 months worth of pay information from our clients so that we can complete the Means Test. The six months needed is always the 6 months prior to filing. So for example, if your petition is to be filed in July, you would need to supply pay stubs for the months of January through June. You would also need to supply documentation for any other income you may have had during that period. This would include profit and loss statements if you are self employed, Social Security income, pensions, rent, part-time jobs, contributions from family members, unemployment or worker’s compensation, etc.

You will also need to supply your last four years of tax returns, as your attorney is required to keep those in his file. You will need to supply statements for all of your creditors, which include addresses and account numbers for these creditors, as these must be listed on your petition so that proper notice may be sent to these creditors. This includes statements for mortgage companies, car loan statements, credit card statements, personal loans, medical bills, etc. You must list all of your creditors on your petition. You cannot pick and choose who you would like to list and who you would like to leave off. You must provide a complete picture of your assets and your debts.

Speaking of assets you will need to provide copies of all Deeds, car titles, bank account statements, retirement account statements, investment account statements, etc.

In order to help prepare your budget, you will need to provide copies of your utility bills, water and sewer bills, insurance bills (life, car, etc), condo association bills, basically copies of bills for anything that you will continue to pay after the filing of your bankruptcy case.

Finally, if you own real estate, you will most likely have to have a Comparative Market Analysis(CMA) prepared by a realtor so as to value your home or real estate investments.  At least in my office, if you can provide all of that information to us, we can have your petition completed in a day if necessary.  The delays happen when clients drag their feet on getting everything together.  This only creates a problem when there is an emergent basis that the petition needs to be filed.  Like to stop a Sheriff’s Sale , wage garnishment or bank levy.

So if you really want the process to go smoothly, put all of that paperwork together prior to meeting with your bankruptcy attorney.

Short Sales, Possible Tax Consequences and Bankruptcy

Given the state of the real estate market and the large mortgage debt that many people find themselves in, many of my clients find themselves upside down on their residences.  One of the questions I get asked most often by my clients is whether or not they should move forward with a short sale on their homes.  While a short sale is one way to get out from under the large mortgage debt you are facing there are some factors to consider before moving forward, the biggest of which being possible tax consequences.

When there is a short sale, you are selling your home for less than the amount that you owe on your mortgage or mortgages.  If your mortgage company agrees to release its mortgage lien on your residence for less then they are owed, the difference in the amount that is owed to the mortgage company and the amount the mortgage company nets from the sale is generally forgiven by the mortgage company, meaning that you don’t have to pay it.  The problem is that this forgiven debt is regarded as income to you, it is referred to as debt discharge income (DDI).  The mortgage company will send you a Form 1099-C (Cancellation of Debt) and will report the income to the IRS.

Happily enough, there are some taxpayer-friendly exceptions to the general rule that DDI is taxable, and they can save your bacon. Here they are in a nutshell:

* Up to $2 million of DDI from mortgage debt that was originally taken out to acquire, build, or improve the borrower’s principal residence is tax-free (you must reduce the basis of the residence by the tax-free amount). This super-favorable rule is not available for DDI from debt that was not used to acquire, build, or improve the principal residence such as DDI from a home equity loan used for other purposes. Rats! But don t give up hope. One of the other exceptions summarized below may work for you.

* If the borrower is in bankruptcy proceedings when the DDI occurs, the DDI is tax-free.

* If the borrower is insolvent (debts in excess of assets), the DDI is tax-free as long as the borrower is still insolvent after the DDI occurs. If the DDI causes the borrower to become solvent, part of the DDI will be taxable (to the extent it causes solvency). The rest will be tax-free.

* To the extent DDI consists of unpaid mortgage interest that was added to the loan principal and then forgiven, the forgiven interest that could have been deducted (had it been paid) is tax-free.

* If the DDI is from seller-financed mortgage debt owed to the previous owner of the property, it s tax-free. However, the basis of the property must be reduced by the tax-free DDI amount.

That is obviously a lot to digest and you should consult an accountant when trying to determine if you will in fact incur tax consequences from your short sale.  However, the key for most of my clients is if the mortgage on your residence is the original mortgage used to purchase the home, then there is probably no tax consequences. If you refinanced your mortgage only for a lower interest rate and did not take any money out when you refinanced, then there are probably no tax s.  If you refinanced and used any money that you took out for the improvement of your residence, then there is probably no tax consequence, but be prepared to prove what the money was used for.

Thus, it is very important that you consult with an attorney that is well versed in bankruptcy law before deciding if a short sale is the right option for you.  You should also note as I have previously discussed in a prior post, that a short sale is no better on your credit than is a foreclosure or a bankruptcy filing. Hence, if you are in the position to be considering a short sale, you should consider all of your options before proceeding.

Bankruptcy Filing and The Automatic Stay

One of the most stressful situations that my client’s are facing or have faced prior to the filing of their bankruptcy case, is the constant harrassing phone calls and correspondence that they are receiving from their creditors. Many of my clients have ceased answering their phones or have turned them off altogether. Other clients tell me that they can’t bear to open their mail and either just throw out their mail as it comes or keep it unopened in boxes or bags.

Most people put up with this constant harassment for months, let their stress levels reach huge levels and have months of sleepless nights before they consider filing a bankruptcy. Most people let these creditors intimidate them into thinking they have no options and no hope.

However, the truth is that you don’t have to live like this and you do have options. Bankruptcy is a way to put a stop to the harassment. When you file your bankruptcy petition, you receive the instant benefit of the Automatic Stay. Upon filing, notice is sent to all of your creditors, upon receipt of this notice your creditors are no longer permitted to contact you in any manner. This means that your creditors cannot call you, they cannot send you letters or statments, they cannot file a law suit against you or continue with a law suit that is already in place, nor can they continue to attempt to collect on a judgment they may have received against you and they can no longer report negatively on your credit. If any of your creditors do continue to attempt to collect money from you outside of the bankruptcy, in violation of the automatic stay, they would be subject to sanctions imposed by the Bankruptcy Court.

In essence, all of the madness stops the minute you file your bankruptcy petition. The silence will be deafening. The number one comment I hear from clients after our initial meeting is that they will finally be able to sleep again. The reason being is that a large part of their stress will be relieved. The stress which is related to the constant harrassment they have been receiving from creditors. Once that stress has been relieved and the quiet has been restored it allows my clients to focus on getting back on track financially.

Choose Your Bankruptcy Attorney Wisely

If you are contemplating the filing of a bankruptcy, then your have obviously experienced some trying financial times. The overwhelming percentage of people that file bankruptcy file because they have experienced some type of event that has tipped that delicate scale between your income and your expenses. There has usually been a loss of income from a lost job, decrease in salary or hours, an injury that is keeping you out of work or a divorce or separation; or there has been a large increase in your expenses from a medical condition or some type of catastrophic event. Whatever the reason may be, it is enough to cause you to not be able to meet your monthly bills on time.

Most people and most of my clients have struggled to try to keep up by borrowing money from retirement accounts or from relatives before even considering the filing of a bankruptcy.  However, you are now tired of the constant phone calls, the sleepless nights, the fact that your creditors won’t do anything to try to help you, and really just the constant battle to try to keep up. In other words, you have tired everything and you have certainly not come to the decision to file a bankruptcy easily. So WHY would you just choose the cheapest or first bankruptcy attorney you come across!

The decision you make is going to help shape your financial future. It could be the difference between fixing your finances and truly achieving your fresh start and your financial problems continuing. You need to choose your attorney wisely, this is one of the most important decisions that you will make for you and your family!

It is clear that the economy in this country has been in decline for the past few years. The bad economy has not spared any industry, including the legal profession.  Thus, what has happened is that many attorneys whose normal practice consisted of real estate or land use law, having seen their businesses decline, have now turned to bankruptcy law.  These attorneys are advertising bankruptcy’s for extremely low fees.  This may seem great that you can save several hundred dollars by hiring one of these novice bankruptcy attorneys, however be careful becasue with the low fee also comes a complete lack of experience and knowledge.  I can’t tell you how many phone calls myself and my similarly experienced colleagues take from people, that have hired one of these attorneys, asking us to take over their cases because they are not happy with their attorney or he has screwed up their case. In many cases, the case can’t be salvaged, the damage has been done and all this person is left with is a potential malpractice claim against that attorney. This is your financial future we are talking about, you are looking to ease your stress not add to it, so why would you entrust your future to someone whose only dabbling in bankruptcy law to try to make a few bucks until the real estate market turns back around?

Similarly, I’ve had people call me and ask me questions about their ongoing case becasue their attorney won’t return their calls.  Unfortunatley, I have to decline to answer their questions because they are represented by counsel, but again why would you want to entrust your future on an attorney who wont’ talk to you once your case is filed and he is paid.  You need to seek out an attorney that you are comfortable with, that you know will work on your case and that will provide you the guidance and expertise you need to get the most out of your bankruptcy filing, so that you are in a better place after you file your case then you were in before.  You need to have someone on your side  that can answer you questions and that doesn’t mind answering your questions. 

 So before you go to your consult, do some research, write down your questions and ask those questions to the attorney at the meeting.  Then ask yourself after the meeting, was this attorney able to answer my questions satisfactorilly, did he have a good grasp of the information, did he explain the process to me in terms that I could understand, did he give me information about bankruptcy that I was unaware of, do I feel confident that this person can do the job for me, do I feel comfortable with him, is he able to explain my options clearly with regard to a Chapter 7 and a Chapter 13, can he explain my non-bankruptcy options? If your answer is no to any of these questions, you may want to look elsewhere for an attorney.

As for the retainer, realize that the lowest priced attorney is likely not your best option. Most likely the lowest priced attorney has little or no experience in the bankruptcy law area and you are getting a break on fees becasue you are one of his guinea pigs.  Is that what you want to be when you financial future rests on this decision?  As an analogy, would you let a brand new doctor just out of school  perform surgery on you just because he is significantly cheaper than the experienced surgeon.  Of course you wouldn’t, you would make the decsion that is best for your short term and long term health.  You need to consider the same factors when choosing your bankruptcy attorney as that decision will shape your future financial health.

How a Chapter 13 Can Help You Reduce Your Burdensome Car Payment

Are you currently paying a burdensome car payment; a payment that is much too high for the vehicle that you are driving. Is the high monthly payment effecting your ability to pay other bills and to properly budget your income.  If the payoff on your vehicle is higher than the value of the vehicle, and you have been paying on the car loan for at least 910 days (2 1/2 years),  a Chapter 13 bankruptcy can provide a solution for you.

If those factors are present, you can file a Chapter 13 and provide in your Chapter 13 plan to cramdown the vehicle.  For example, if your car is worth $5,000, but you owe $10,000, and you are paying $400 per month and interest of 10% on the note, and you have been paying on the loan for 30 months; we can propose in your chapter 13 plan to only pay the creditor the value of the car, $5,000.00 over the life of your Chapter 13 plan at a reduced interest rate.  Based on the Supreme Court Decision in In re Till we can lower the interest rate to whatever the prime interest rate is, plus one percentage point.  So presently that would be 4.25%, which is clearly much lower than the 10% being paid currently under this example.

Thus, the result is that you get to retain the vehicle and only pay what it is worth versus what you actually owe on the vehcle.  The difference that is not being paid would be treated as an unsecured debt and ultimately discharged once your Chapter 13 plan is completed. You have effectively lowered your montly payment on the vehicle by a minimum of $250 per month and now created some more disposable income each month for yourself.

The Truth About Debt Consolidation

We’ve all heard those radio or television advertisements that claim that they can consolidate your credit card debt and settle it so that you only have to pay as little as 5% of what you actually owe. Sounds great doesn’t it.  If I’ve learned anything over the years it’s that if anything sounds too good to be true, it usually is.  That old adage certainly applies here.

For starters, there are numerous details these debt consolidation companies neglect to inform their prospective clients about prior to having them sign their contract. I have hundreds of clients that have come to us after trying the debt consolidation route and to a person they tell me that the details of the consolidation program were never completely explained to them.  My clients also indicate that if they had known the details prior to signing the contract they never would have moved forward.

 Generally, when you start the process with a debt consolidation company, they will take a look at your total credit card debt and then will give you a monthly payment plan, which is a fraction of what you are now paying and they claim will be sufficient to settle all of your debt.  Let’s for example say the consolidation company gives you a plan that calls for $1000 per month, which you will pay to them and they will settle your $70,000 of credit card debt. You sign your contract and start diligently sending your payments in every month to the consolidation company instead of sending your payments to the various credit card companies.  You’re relieved that this company is now dealing with all of your creditors so you can relax, right…wrong!

What’s included in the consolidation company’s contract language that normally isn’t explained to you, is that the first 6 payments that you make them all go to pay the consolidation company’s fee.  Then, normally from the subsequent 6 payments, half of what you pay goes to the consolidation company’s fee.  Thus, under the example, if you paid your $1,000 every month for a year, $9,000 of that money would be going to pay the consolidation company’s fee.  The balance of the money that you have paid in goes into a trust account.  The contract you signed further indicates that the consolidation company will not begin negotiating with your creditors until a certain sum is contained in your trust account.

However, long before you even get to a years worth of payments to the consolidation company, your creditors are harassing you, putting you into collections, filing lawsuits and perhaps ultimately acquiring judgments against you.  Additionally, all of your creditors have begun reporting negatively on your credit once you stop making regular monthly payments to them, thus your credit is now destroyed. Yet none of these ramifications of a debt consolidation program have ever been explained to you.

The likely end result is that you have now paid thousands of dollars to a consolidation company and received virtually no benefit.  Most of my clients that have come to us after having tried the consolidation route, finally come in after their creditors have received judgments against them and the clients are now having their wages garnished or bank accounts levied. These clients indicate that the consolidation company initially tell them  to direct all creditor calls to them and they will take care of the creditors.  Not long after you start the consolidation process and begin paying the consolidation company, you realize there is really nothing the consolidation company will do about the creditor calls, nor is there anything they can do.

The reality of the situation is that your creditors have no obligation to deal with your consolidation company nor does the consolidation company have any type legal hammer to use against your creditors.  In other words, they can’t make your creditors deal with them, they can only hope they do.

It’s also probably likely that the debt consolidation company has advised you early on that you should go the consolidation route because a bankruptcy will ruin your credit.  Well, I’ve already illustrated how that worked out for you.  So what should you do when you can’t pay your bills any longer?  In almost every case, the filing of a bankruptcy is a better choice.

The United States Bankruptcy Code gives you the legal hammer that you need to deal with your creditors-on your terms.  If you consult with a knowledgeable baknruptcy attorney (make sure it’s someone that specializes in bankruptcy not someone dabbling in it), that person can lay out your options.  These options could be that you are able to discharge all of that unsecured debt in a Chapter 7 case or that you can re-pay what you can afford monthly in a Chapter 13 case over a 3 or 5 year period.  You would then be discharged of any reamining balances owed your unsecured creditors once you have completed your chapter 13 plan.  As long as you are complying with the guidelines set forth in the Bankruptcy Code when proposing your chapter 13 plan, your creditors have no choice but to accept the plan.

Don’t let your creditors or a debt consolidation company scare you away from exploring the bankruptcy option.  It is only for self-serving reasons that they are trying to do so; they certainly don’t have your best interests at heart. Don’t you owe it to yourself and your family to explore all of your options?

The Real Estate Market and How a Chapter 13 May Help

Five or six years ago the real estate market was booming. It seemed that values would just continue to escalate as there was no end in sight to the real estate boom. Many people refinanced during this period or took out second mortgages on their residences, as mortgage companies had many programs that made such financing readily available to most people. Many people were put into mortgages, like adjustable rate mortgages, no interest mortgages or negative amortization mortgages that they never should have been in, but for the fact that the mortgage broker told them it was a way to keep their mortgage payment down in the short term and that they would be able to refinance again, down the road, before the interest rate adjusted and the payment became unmanageable.
That all sounded great, but we now know how that all turned out. The real estate market crashed, thus there was no longer any equity in most people’s homes. This led to the mortgage industry crisis (which is a story for another day) and ultimately to the situation many people find themselves in today. That is that you are sitting in your residence that is now worth much less than what you owe on it, your mortgage payment is now much higher than you can afford and there is no chance to refinance. What options do you have?
Well if part of your problem is that you have both a first and second mortgage a possible solution could be to file a Chapter 13 bankruptcy case. In a Chapter 13, the Bankruptcy Code allows us to “Strip off” secondary liens on real estate. This is permitted when there is no equity for the secondary lien to attach. For example, if your property is worth $200,000.00 and you have a first mortgage with a payoff balance in the amount of $250,000.00, then any secondary liens that you may have on that property can be stripped off in a Chapter 13 case. This means that you will not have to make that second mortgage payment while you are in the Chapter 13 case. Then once you have completed your case the second mortgage company will be required to discharge the mortgage lien of record. You will also be discharged from any personal obligation on the mortgage debt. Thus, at the end of your Chapter 13 case, you will be left with only the first mortgage on your home.
In a time where most people are looking at the equity postion in their homes and wondering when if ever they will have equity again, getting rid of a second mortgage in a Chapter 13 case is one way to speed up that process. Let’s face it, for most people their home is more than just an asset, it is a place where memories have been made, where families have grown up. Most people are looking for ways to save their homes not walk away from them, stripping off a second mortgage in a Chapter 13 is one way to help you do just that.

Bankruptcy and Your Credit

As a bankrutpcy attorney, one of the most frequently asked questions that I receive is how will the bankrutpcy filing effect my credit. Most people come in with the pre-conceived (and incorrect) notion that they will have terrible credit for 7 years after the filing of a bankruptcy.
That is not correct. The 7 year term is the time period that a chapter 13 bankruptcy will appear on your credit report, which is also the amount of time that anything that is reported stays on your credit report. A chapter 7 bankruptcy can show up on your credit report for 10 years. This does not mean that you will have bad credit for 7 or 10 years, it just means that the bankruptcy filing will show up on your credit report for that length of time. The farther away you get from the bankruptcy filing, the less impact it will have on your scores.
What has to be realized is that in most cases if you are presently contemplating the filing of a bankruptcy then you credit scores are probably not looking that good. You are probably delinquent on some of your debts, like credit card payments, car loans or mortgage payments. As long as you remain delinquent on these accounts, the creditor will be reporting that delinquency monthly to the credit agencies. Your credit scores will not be able to recover unless you take action to stop the negative reporting.
If you have the ability to catch up on these delinquencies that would be one way to stop the negative reporting and rebuild your credit. However, that scenario is not likely for most people. As stange as it may seem, the filing of a bankruptcy is another way to stop the negative reporting. While a bankruptcy is obviously a negative item on your credit report, if your scores are already low the actual effect will be minimal. However, upon the filing of a bankruptcy you get the benefit of the automatic stay.
The automatic stay goes into effect upon filing and notice to your creditors of the filing. The automatic stay prevents your creditors from pursuing any further collection activity against you. This means the creditor can no longer send you statements, can no longer call and harass you, cannot institute or continue any legal action against you and also can no longer report negatively on your credit.
Thus, what happens post filing of a bankruptcy is that your credit has a chance to improve as there will be no further negative reporting from the creditors. The rest is up to you. If you maintain your post-petition mortgage payments or car payments with regular on-time payments, your credit scores will rise as the only items that will be reported are positive. You will also have the opportunity to obtain new credit cards within a few months after the filing of your bankruptcy petition. If you were to take out one credit card and charge on it and then make those payments every month on a timely basis that will also help you re-establish your credit scores.
While I am not an expert on credit, I can tell you through my experience with clients that if you continue to pay your remaining monthly bills in a timely manner post-filing, you could easily have scores back over 700 within 2 years of filing.
You are also eligible for an FHA mortgage once two years has passed since the filing of your bankruptcy. If you have maintained perfect credit since the filing of your case you will be looked at under the same criteria as anyone else that is applying for an FHA mortgage.
So in essence, despite what your creditors want you to believe a bankruptcy is not the end of your credit life, but it is sometimes the fastest way back to good credit scores.