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I is for Insurance

08.10.2015

Homeowner’s Insurance, vehicle insurance, renter’s insurance, life insurance, medical insurance, and even pet insurance are subjects of questions often posed by people considering bankruptcy. What happens to the policies you have?  Why do you need to know about the insurance?  If you no longer want to keep the property, do you have to maintain insurance?  Why?  It is often difficult for attorneys to impress the importance of disclosing ALL financial matters to the Court and to the attorney, but attorneys try.  One of those financial disclosures is insurance policies.  Insurance is not only a monthly expense, but it is also a source of protection of your estate.  So, let’s address the specifics:

Q. What does the attorney need?

A.  Every attorney is going to provide different instructions, but Collum & Perry requests a statement showing your payment and a copy of the insurance policy Declarations Page.

Q. Will the insurance company cancel my policy?

A. There is no law requiring that to happen and our office has never seen it happen.  That does not mean, however, than an insurance company can decide that it no longer wants to issue a policy.

Q. Does filing bankruptcy impact my price?

A. That depends on the comapny.  Most vehicle insurance policies base your cost for insurance on a separate, but related, credit score from FICO.  More information about that credit score is available here, at LexisNexis.  We suggest that all people, regardless of bankruptcy, call around once a year to price policies.

Q. If I no longer want to keep the property, do I have to maintain the insurance?  Why?

A. Yes!  Insuring property has nothing to do with desire to own property, but with ownership itself.  As long as you own property that is either required by law to be insured (vehicles) or that could be the source of injury to someone else (real estate), you should maintain a policy.  While many people file bankruptcy to dispose of houses they cannot afford and/or no longer want, it may take the bank years to go through the procedures to take possession of the property.  While it can be frustrating, Collum & Perry always recommends that clients maintain insurance coverage UNTIL the property changes ownership.

Q. I stopped paying insurance and the bank is now saying I owe five times as much for their policy?

A. The bank has placed forced-placed a policy on you.  Get your own policy ASAP!  The forced-placed policy does NOT protect you from personal liability, it does not protect your possessions, and it is not for your benefit.  It is solely to protect the bank’s interest.  The bank will bill you for this WAY overpriced insurance and if you need the insurance, you’ll likely come up empty handed.

H is for Harassment

17.07.2015

Reports from clients that some creditor has called them with threats, repeated communications, or called a job are commonplace.  Many times, it’s this creditor harassment that eventually breaks people, driving them into our office in the hope of some respite.  With wage garnishment not a real option for creditors in North Carolina, many creditors resort to ridiculous threats to convince you to pay.  Some of the scariest threats are:

Fake letter threatening arrest

It may seem really obvious, but when people are stressed, harassment letters like these can be quite scary!

1. Someone is on the way to arrest you right now; the police will take away your children. (This is NEVER true.  The police do not arrest people for failure to pay their Discover Card bill!  These threats are typically made by untraceable scammers.

2. You are going to be sued for fraud.  (This is very likely a scam — failure to pay a debt alone does not amount to fraud.)

3. We are going to sue you. (This may be the truth — you can be sued for failure to pay a debt, and a judgment can result in your receiving a Notice of Rights to Claim Exemption and a Judgment Lien on your real property.)

4. We will not stop calling, and do not have to stop calling.  (This is NOT true!  You have numerous protections under the law. Tell the creditor that you revoke ALL permission for them to call you and keep notes of all calls.)

With that having been said, it’s important to realize that this harassment is usually a symptom of a bigger problem: your expenses are too high and your income too low.  That’s the real problem, regardless of the reason (job loss, wage reduction, medical expenses, overspending, etc.).  There are only two ways to stop the collections.  Filing bankruptcy or successfully paying off the debt through an alternative method.

Scheduling a free consultation with a qualified bankruptcy attorney will allow you to gather information to determine if bankruptcy is the right approach to stopping the harassment.

 

IF you believe that you DO NOT owe the debt, you may have claims against the debt collectors harassing you.  Contact Collum & Perry, whose aggressive attorneys will fight to defend your rights.

 

G is for Garnishment

17.07.2015
The bankruptcy hand is all-powerful in the face of garnishment.

Wage Garnishment can feel like a losing battle, but with Bankruptcy, you can get the extra help you need.

Currently, North Carolina makes it impossible for most creditors to touch the last two months of wages a person has earned. This is a small, but crucial buffer from the blow of almost complete insolvency and gives them a little money to start over. Recent North Carolina legislation has been proposed to change that, but so far, there is, generally, no wage garnishment in North Carolina. Despite its rarity, there are still a number of people in the Western District, and all over North Carolina, who have their wages garnished for the following reasons:

  1. Unpaid tax debt or other debt to the state of federal government.  The IRS can garnish wages without first obtaining a judgment, as can the North Carolina Department of Revenue (NCDOR). Typically, garnishment happens after a number of communications in attempt to make payment arrangements, but sometimes, people just cannot afford to repay the taxes by the available options.  In these instances, filing a Chapter 7 bankruptcy may permit discharge of some taxes (or other debts, freeing up income to repay the taxes) or filing a Chapter 13 bankruptcy may create a viable repayment plan.
  2. Court Ordered Child Support.  Since 1988, all court orders for child support include an automatic income withholding order.  The other parent can get a wage garnishment order from the court, as well (if you are behind on payments).  Federal law limits what can be taken, but the limits are high (up to 50% of disposable earnings if you currently have a spouse or child you are supporting who is not the subject of the order, 60% if you aren’t supporting a spouse or child).  An additional 5% may be garnished for support payments over 12 weeks in arrears.  North Carolina G.S. §110-136 limits the garnishment to 40% of disposable income. While child support is never dischargeable in bankruptcy, a Chapter 13 bankruptcy may permit more affordable repayments of past due child support payments.
  3. Federal student loan debt.  If student loans are in default, your wages may be garnished.  Generally, student loans are not dischargeable in a bankruptcy, with few exceptions. However, a Chapter 13 will stop a garnishment for up to five years and help rearrange debt to make student loans easier to repay.  Additionally, the attorneys at Collum & Perry, PLLC, are uniquely interested in Student Loan law and have a practice established to help people get out of default and into affordable repayment plans.
  4. Garnishment orders from other states.  Virginia creditors often sue in Virginia Courts, get garnishment orders, and begin garnishing before anyone knows that there was an issue.  Filing a Chapter 7 or Chapter 13 Bankruptcy is the easiest way to shut these down, but you may also want to speak to one of our attorneys about counter measures you can take in this type of action.

F is for First Meeting (aka 341 Meeting)

15.07.2015

If the hardest part about filing bankruptcy is deciding to file, the second most difficult part, for most people, is attending the 341 Meeting of Creditors, or First Meeting.  Anxiety and nervousness is often misplaced, as the 341 Meeting is serious, but should not be frightening.  The purpose of this post is to dispel some of the mystery surrounding the 341 Meeting.  To get it out of the way, the name, “First Meeting” is a misnomer —  there are no additional meetings.  For this reason, we often just call it the 341 Meeting, as it is set pursuant to §341 of the Bankruptcy Code.

The 341 Meeting typically takes place about 30 days after the case has been filed.

The 341 Meeting is NOT court.  You are not in trouble, there is no judge, and there is no judgement being made regarding whether filing bankruptcy was the right thing for you (i.e., whether you

Once inside, you can go to the second floor in the gold elevator.

The 341 Meeting Room is ACROSS the street from the US Bankruptcy Court & Post Office (pictured bottom right). Parking can be difficult, so arrive early. Enter in the green building (upper right) through at 402 Trade Street (left).

“qualify”).  However, it is as close as most clients get to “going to court.”  This is because it can happen in a Courthouse (Statesville Chapter 7 341 meetings happen at the U.S. Courthouse, at 200 West Broad Street, Room 301, Statesville, NC 28677) although, they do not have to (All Chapter 13 341 Meetings take place in our office and for Charlotte Chapter 7s, in the U.S. Bankruptcy Administrator’s Office, 402 West Trade Street, Suite 205, Charlotte, NC 28202, across from the Federal Courthouse).  Judges are not present.  However, your Trustee will be present and your attorney will be with you.

Creditors may, but very rarely do, attend the 341 Meeting.  It would be extraordinarily rare (but not necessarily bad) to see a representative of Bank of America or Chase at the 341.  The most common time when creditors appear is when a person has a small business and they owe another small business money.  Even if they do appear, the 341 Meeting is for clarifying facts, not challenges.

Most 341 Meetings are solely between the person who filed (the debtor) and the Trustee.  The Trustee calls the debtor’s name, the debtor comes to the table where he is sworn in.  The meeting is recorded.  The Trustee asks questions about the contents of the bankruptcy petition, and has pretty broad discretion regarding what may be requested (a copy or the 341 Meeting Trustee guidelines are here).  In most instances, the questions are typically the following:

  • Did you read the petition before filing?
  • Did you sign the petition before filing?
  • Did you list all of your assets?
  • Did you list all of your debts?
  • Are the schedules and statements true and accurate?
  • Do you have any amendments?
  • Do you have any domestic support obligations?
  • Have you read the Bankruptcy Information Sheet provided by the Trustee (Charlotte only)?
Statesville 341 Meeting Location

Rather stately and recently refurbished, the Chapter 7 341 Meetings for Statesville North Carolina are held in the old U.S. Post Office Building. You will have to go through security, so remember to leave all phones and pocket knives in your car.

Sometimes, if there are exposed assets because the exemptions did not protect all of a debtor’s things, the Trustee will discuss the amount of exposed equity and how to repay the creditors, although that is typically discussed between the attorney and the Trustee at a later date.

Although it may be intimidating, keeping the following rules in mind will help ensure that the meeting is as painless as possible:

1. Tell the truth

2. Listen carefully to the FULL question before answering.

3. Answer in as few words as possible.

4. Don’t explain, expand, justify or speculate unless your attorney encourages you to do so.

5. If your attorney starts talking, you stop talking.

This is NOT a test or an interrogation — the purpose is to validate the information in the bankruptcy papers under oath (which should not be a problem, as the petition has been reviewed a number of times before it was filed) and to provide the Trustee with information needed to determine if the exemptions are sufficient to protect assets (which your attorney should already know before filing).  Clients do not “mess everything up” at a 341 Meeting, but they do sometimes work themselves into a ball of anxiety ahead of time, and that is not necessary.  In the Western District of North Carolina, 341 Meetings are typically quite short and the Trustee and your attorney exchange much of the documentation before or after the 341 Meeting.  Therefore, you do not need to bring anything other than identification unless your attorney has instructed you otherwise.

Finally, remember to bring identification (Drivers License is fine), leave your phone in your car (it is not allowed in Court Rooms), dress like you’re going to church, and trust that your attorney is there to help you.

E is for Exemptions

14.07.2015

If I file, am I going to lose my house? My car? Everything?

Every client who contacts us is worried that she will lose EVERYTHING by filing bankruptcy.  This misconception is the biggest reason that people wait too long to contact a bankruptcy attorney, instead trying all sorts of alternatives that never work as well as planned.  One reason to schedule a free consultation with a bankruptcy attorney is to get advice and information regarding what, if any, property might be at risk in a bankruptcy filing.  At the consultation, an attorney will ask some questions about what you own (your assets) and offer you advice regarding what Chapter of Bankruptcy you should file based partially on what items can be protected and what cannot be protected.  “Protections” in bankruptcy are called “exemptions,” in reference to them covering certain assets that are exempted from creditors.  Most of North Carolina’s exemptions are listed in the North Carolina General Statutes, §1c-1601.  The chart below provides some of the most commonly used exemptions in North Carolina:

Exemptions are best analyzed by an attorney.

Exemptions used in bankruptcy cases to protect property from creditors. This is not comprehensive and there are additional exemptions available.

Whether or not you can use North Carolina exemptions depends on where you live now and where you have lived for the past 1,215 days. Different states allow different exemptions and there are also federal exemptions.

In most cases, all property can be protected.  However, there are times when there is not enough exemption to protect the full asset from creditors.  If that is the case, a bankruptcy attorney may suggest a Chapter 13 Bankruptcy, in which unsecured creditors are paid  the same amount as what cannot be protected.  For example, if someone has a vehicle worth $15,000.00 and they owe $8,000.00 on the vehicle, they have $7,000.00 of equity.  Using North Carolina exemptions, $3,500.00 of equity can be protected, leaving $3,500.00 of “exposed equity.”  In that case, an attorney may advise a client to file a Chapter 13, in which the creditors would be paid a total of $3,500.00 over up to five years (approximately $60.00/month).  While it’s not the same as discharging all debt, it is often a much better alternative than trying to pay off all of the creditors in full.

D is for Discharge in the ABCs of Bankruptcy

14.07.2015

The entire purpose of most chapters of bankruptcy is to obtain a discharge of debt.   However, what, exactly, does that mean?  In short, it means that the debtor (the person who owes money) is

Although sometimes, a discharge it is not quite enough.

A bankruptcy discharge may be all that is needed to enter!

released from all personal liability (responsibility) for certain types of debt.  Basically, the person who files bankruptcy no longer has to pay discharged debts.

At the end of a bankruptcy, the court will issue an Order discharging the debtor’s debts.  This is a permanent order prohibiting creditors from taking any form of collection action on discharged debts, including filing lawsuits, sending bills, or calling the debtor.  This also means that your credit report has to be updated an creditors must properly report the status of the debt.

What debts are discharged?

A common question is, “What debts are discharged?” The answer is that it depends.

11 U.S.C. §523 lists a number of “exceptions” to discharge, and include recent income taxes, domestic support obligations and drunk driving judgments.  Some debts are dischargeable unless a creditor files a lawsuit within the bankruptcy (called an Adversary Proceeding) and proves that the debtor owes money because of his bad behavior, such as debts incurred by fraud, misrepresentation, breach of fiduciary duty, theft or willful and malicious injury.

Student Loans are a special case and are only dischargeable only if the debtor files an Adversary Proceeding proving that repaying the debt imposes an undue hardship on the debtor.

It is also possible that discharge can be denied completely if the person filing does something wrong, including lying on the petition, destroying records or hindering the Trustee.

Remember, a discharge releases a person’s personal liability — that means that that person (as a person) is not responsible for paying the debt.  However, to the extent that a debt is secured, the lien on the property securing the debt may survive a bankruptcy, depending on the type of bankruptcy filed.  Certain types of debt (primarily car loans) may necessitate that you sign a reaffirmation agreement for you to retain possession of the underlying property. If you have questions about what debts are discharged, your bankruptcy attorney should be able to provide you with clear answers.

 

C is for Chapter in the ABCs of Bankruptcy

14.07.2015

Most people do not have a thorough understanding of bankruptcy, primarily because most people want to avoid bankruptcy at all costs.  However, sometimes bankruptcy can be a necessity, a strategic move, or a fact of life.  For this reason, it is a good idea to have a basic understanding of the different types of consumer bankruptcy, who can file them, when they should be filed, and what the impact of filing is.  Every client who meets with any sort of debt counselor, especially a bankruptcy attorney, is required to receive certain notices under §362(b) of the bankruptcy code.  Part of these notices is an explanation of Chapter 7, Chapter 11, Chapter 12 and Chapter 13.

The very basic overview is that a Chapter 7 is “liquidation,” Chapter 11 is for “Reorganization” for businesses, individuals and railroads, Chapter 12 is for family farmers and fisherman, and Chapter 13 is for a person to pay back some of their debts.  If you find yourself in need of filing a bankruptcy, the basic overview may not be enough. This post is for you.

First, the very basic differences between the 4 Chapters available to Consumers:

Bankruptcy Chapters Statutory Differences

The differences between who is eligible for what chapter and the cost of filing.

As you can see, most people would probably want to avoid a Chapter 11 based on costs alone.  However, each Chapter of Bankruptcy provides a certain set of benefits:

An attorney can best advise you on the benefits of different bankruptcy Chapters.

Each Chapter of Bankruptcy offers different benefits, but the biggest difference is with the Chapter 7 benefits — often, the benefits offered by other Chapters are not needed in a Chapter 7.

 

So, with all these benefits, what is an attorney analyzing when considering which type of bankruptcy is best?  The answer is: everything about your financial situation, including your income, expenses, goals, and wants.  While this is NOT a substitute for legal advice (because a good attorney also considers the nuances of Bankruptcy law and factors not listed below), some considerations are as follows:

 

An attorney needs to know you and your needs to advise you on what Chapter to file.

Different Chapters of Bankruptcy are for people in varying situations.

Finally, each type of bankruptcy has its downsides.  A bankruptcy attorney will discuss these with you, but some of the basic drawbacks are below:

A good bankruptcy attorney will advise you of these drawbacks.

Each bankruptcy Chapter has its disadvantages.

No amount of charts and blog posts can compensate for the quality advice of a good bankruptcy attorney.  However, even the best attorneys have clients who cannot keep everything in mind.  The purpose of this post is to supplement advice from a qualified bankruptcy attorney, not supplant it.

50 Cent Files Chapter 11 — Why?

14.07.2015

Whenever a celebrity files bankruptcy, it’s news!  The latest such news is 50 Cent’s bankruptcy.  A question asked by many is, “Why?”

The reasoning has a lot to do with the idea that filing a bankruptcy is not a moral failing — it’s a legal strategy.  In 50 Cent’s case, he has filed a Chapter 11 Bankruptcy.  A Chapter 11 is notable in that it’s a “reorganization,” meaning that 50 Cent is NOT liquidating all of his assets and he’s not (necessarily) declaring that he has more assets than liabilities.  Instead, Rapper 50 Cent is requesting the court’s intervention and assistance in restructuring his debt to provide him with more time to pay back his creditors.

In fact, in his Chapter 11 filing, 50 Cent, whose legal name is Curtis James Jackson III, reported assets and debts between $10 million and $50 million.  He filed a “skeletal petition,” meaning that it is the core of the filing, without any of the details.  However, 50 Cent’s attorney, James Berman, has stated that

“The filing allows [50 Cent] to reorganize his financial affairs as he addresses various professional liabilities and takes steps to position the future of his various business interests.  [50 Cent]’s business interests will continue unaffected in the ordinary course during the pendency of the Chapter 11 case.  This filing for personal bankruptcy protection permits [50 Cent] to continue his involvement with various business interests and continue his work as an entertainer, while he pursues an orderly reorganization of his financial affairs.”

A quick review of the US Bankruptcy Court for the District of Connecticut’s docket for Curtis James Jackson, IIII’s bankruptcy petition shows that it was filed yesterday at 9:39 A.M. and has been assigned Case #15-21233. At this point, not much has happened, except that Lastonia Leviston filed a Motion for Relief from the Stay at 5:01 P.M. In this 8 page motion, Elizabeth J. Austin, Ms. Leviston’s attorney, requested that the Court permit a state case between Ms. Leviston and 50 Cent continue, asserting that the Chapter 11 was a “delay tactic.”  According to the Motion, 50 Cent was scheduled to appear in court during the punitive damages phase of a trial in which a jury has already determined that 50 Cent intentionally caused Ms. Leviston severe emotional distress (and already been ordered to pay her $5 million in legal fees).  Instead, he filed a Chapter 11 bankruptcy to “evade showing up at trial.”  The hearing on the Motion is likely to be heard on July 16, 2015.

This is the type of asset clients should disclose to their attorney!

50 Cent DEFINITELY should disclose a trunk full of cash!

From far away, it appears that the bankruptcy may have been filed as a way to manage a separate, unrelated lawsuit.  What can the rest of us learn from Mr. Get Rich or Die Trying?

1) Bankruptcy can be a sound legal strategy.

2) Bankruptcy does not mean that all business stops.

3) Bankruptcy can buy time to continue moving forward.

4) Bankruptcy is not something to cause shame.

5) Bankruptcy can be a very smart move.

 

 

 

 

B is for Business in the ABCs of Bankruptcy

08.07.2015

It is not uncommon that potential clients call to request a free consultation for a “Business Bankruptcy.”  Our response is always to try to bring someone in so they can sit down with an attorney and discuss how businesses and bankruptcies intercept.  This is because “business bankruptcy” does not exist — there is no separate bankruptcy just for businesses!  Different types of bankruptcies are available and the best type to choose is determined by the structure of the entity and the goal of filing.  So, let’s break it down:

Is your business registered with the state?

A person can run a business without there being a corporation.   For example, someone who sells MaryKay, someone who mows lawns and someone who consults are all types of businesses that might not be a corporation.  In these cases, there is no separation between the person and the business, so the business’s assets, liabilities, income and expenses are inseparable from the person’s.  This sort of business can file any type of bankruptcy that a person can file, so a Chapter 7, Chapter 11 or Chapter 13.

Depending on the type of business, and whether the person wants to continue the business, a Chapter 7 may be the best answer.  For example, if the business is personal services (teaching piano, for example), then it likely has no real assets and is easy to close and reopen.  In this case, filing a Chapter 7 would allow all of the debt to be discharged and once the bankruptcy is complete, the business can start anew.  However, if the business were something like a landscaping company and there was substantial equipment and assets involved, along with some sort of reputation, a Chapter 13 or Chapter 11 may be preferred as a way to continue operating without concerns of the assets (or business itself) being sold by a Chapter 7 Trustee.

When your business exists in this manner, when you file the bankruptcy, it will not just be your business filing — you will file as well because you and the business are the same thing.

Is the business a Corporation or Partnership?

Businesses of all sorts find themselves needing bankruptcy

One notable business bankruptcy was filed by Chapter 11 Books, which filed a Chapter 11 bankruptcy to reorganize.

A Chapter 13 CANNOT be filed by a corporation or partnership, but Chapter 7 and Chapter 11 can.  Chapter 7 is for a business that is no longer going to operate. A Chapter 11 is for businesses that are going to reorganize and continue operating.

If the business is going to close, it may not even be necessary to file a Chapter 7, except in a few circumstances:  1) if there are assets to liquidate so creditors can receive some payments without the corporation’s officers having to worry about liabilities; 2) It tells the creditors, quite clearly, that the corporation is ceasing its operations and exactly what assets are available to be used to repay; and 3) It may shield owners of the corporation from future liability to shareholders and other creditors if the Trustee does not find any malfeasance.  Although unpaid corporate debts are not discharged at the close of a Chapter 7, the corporation must stop operating after the Chapter 7 and eliminates any reason for creditors to sue a corporation after the business files.

If you own a business and are thinking about bankruptcy, consider whether your business would have value if it were sold, if the business has assets that could be sold, if the business could operate without you and whether your debts are primarily related to your business.  Bankruptcy is overwhelming and can be even more so if a business is involved — talking to an attorney can help relieve pressure and provide clarity on how best to proceed.

Duty to Negotiate Created by NC Business Court

07.07.2015

On June 9, 2015, the NC Business Court created a new cause of action (basis for a lawsuit).  Judge Gregory McGuire determined that there can exist a Duty to Negotiate. In RREF BB Acquisitions, LLC v. MAS Properties L.L.C.,  Mark Saunders, a real estate developer, (and his company) sued BB&T Bank and RREF BB Acquisitions (which had purchased the loan for BB&T) for a number of reasons, most relevantly, breach of duty to negotiate in good faith.  Mark Saunders had a number of loans with BB&T over a number of years.  Each year, BB&T modified, extended or renewed those loans.  However, when Mr. Saunders got involved in some litigation against Bank of America, BB&T decided not to renew the loans as it always had done.  Mr. Saunders and BB&T brought together their lawyers in attempt to negotiate terms of a new loan and appeared to be getting close.  However, when Mr. Saunders attempted to revise a deal after having received a “term sheet,” BB&T backed out, claiming that the term sheet represented the “last, best and final terms that BB&T would accept.”

Judge McGuire stated that “…North Carolina already implies in every contract a duty of faith and fair dealing.  The Court sees no reason that an agreement to continue negotiating in good faith would not be enforceable, provided that it met all of the requirements for contract formation in North Carolina Law.”  Mr. Saunders’ attorneys, Graebe, Hanna & Sullivan, believe that this “new” cause of action is the natural extension of N.C.G.S. Chapter 75, which forbids unfair business practices.

This post is based, in part, on the July 6, 2015, article in Lawyers Weekly entitled, “Business Court recognizes duty to negotiate in good faith.”