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Payday Loans Banned in Georgia? Not So Fast….

By Jonathan on March 21, 2012

In 2004 the Georgia legislature passed legislation that was designed to outlaw “payday lending” – the practice of finance companies making high interest short term loans of a few hundred or a few thousand dollars. According to the Georgia Department of Banking and Finance, a payday loan involves the practice of using a post-dated check or electronic checking account access to repay the loan.

Payday loans can have an effective interest rate of 300% and bad check and delinquency charges can quickly turn a $300 loan into a $1000 debt.

When payday loans were legal, most of the loan transactions were made by small, storefront lenders usually located in run down areas of town.

Lenders caught making payday loans (as defined by the statute) face possible felony racketeering charges and large fines. Thus, if you search for “payday loans” in the Internet, most of the sites that come up will note that Georgia does not allow these types of loans anymore.

Interestingly, most states still do allow payday loans and I even found a report issued by the Federal Reserve Branch of New York which concludes that payday loans, while expensive, serve a need and should not be characterized as “predatory.” [Read more…] about Payday Loans Banned in Georgia? Not So Fast….

Chapter 13 Trustees Looking to Squeeze Every Last Dime from Debtors

By Jonathan on March 15, 2012

Over the past couple of years I have noted an unsettling trend in my Chapter 13 cases. Trustees in the Northern District of Georgia are scrutinizing budgets line by line and are objecting to budget items in an attempt to force debtors to increase their trustee payments.

I am even receiving objections to the total amount of expenses claimed. In a recent case, for example, the trustee filed a supplemental objection a week before confirmation which asserted that the debtor’s total claimed monthly expenses were too high. When I called, he pointed out four or five specific line items and I obtained and presented supporting documentation from my client.

My client advises me that he is literally having difficulty buying food and the trustee acknowledged that our claimed expenses were legitimate but he would not back off his objection because the total payout to unsecured creditors was less than 50 cents on the dollar. There is no resolution yet, but we agreed to reset the confirmation until after the date that all claims are due – presumably some of the unsecured creditors will not file claims, meaning that the ones who do will receive a higher payout. [Read more…] about Chapter 13 Trustees Looking to Squeeze Every Last Dime from Debtors

Will Recent Use of Credit Cards for Necessities Like Food and Clothing Prevent me from Filing Bankruptcy?

By Jonathan on January 16, 2012

There is no perfect time to file for bankruptcy. Ideally, you should wait to file at a point when you have not touched your credit cards for several months and your credit card charges over the past year have not taken a big jump. Further there is less chance that you will face any objection if you have made at least the minimum payment over the past 6 months or longer.

Section 523 of the Bankruptcy Code sets out a number of situations in which credit card debt will not be discharged. Section 523(a)(2)( c) makes non-dischargeable consumer debt totaling more than $500 for luxury goods and services owed to any one creditor that are incurred within 90 days of filing, or cash advances totaling $750 or more owed to any one creditor made within 70 days of filing.

Section 523(a)(2) makes non-dischargeable debt owed to a creditor that was incurred by false pretenses or by fraud.

Basically, then, Section 523 gives credit card lenders at least two arguments to challenge a debtor:

recent credit card use (within 3 months) for anything but necessities like food, clothing and shelter
any credit card use in the recent past (in my experience this can be up to a year prior to filing) if a debtor makes charges where there is no reasonable expectation of repayment. [Read more…] about Will Recent Use of Credit Cards for Necessities Like Food and Clothing Prevent me from Filing Bankruptcy?

Should I move in with my parents?

By Jonathan on November 1, 2011

It’s a tough market for recent college grads and other young adults. Many are having difficulty finding work or are underemployed and are faced with a mountain of debts. It’s tempting to move back home, but there are some drawbacks.

If your parents are willing to support you (temporarily, one hopes), and you can pay off your debts in a few months, go for it. Just don’t overstay your welcome. Now that you’re an adult, you’re a guest.

If you are thinking about filing bankruptcy, there are some things to keep in mind.

First, student loans are not dischargeable in bankruptcy (although if you have some income, you can work out a payment plan that’s not too burdensome.)

Second, if you want to file in Chapter 7 and discharge all of your (dischargeable) debts, you will have to pass the infamous “Means Test.” Two important factors in this test are household income and your ability to pay your debts. What is considered a “household” for these purposes depends on how the court views your situation. If you are paying rent and other necessities, you may be considered a renter and be treated as a separate household. On the other hand, if you are completely dependent on your parents, it would probably appear to the court as a single household. This would require inclusion of your parents’ income in applying the Means Test. The bankruptcy case would not otherwise involve them, but they would have to disclose information about their income. The second concern is that if you have some income but are not incurring living expenses, your budget will look like you have enough money to pay at least some of your debts.

If you are in an apartment and over your head in (dischargeable) debt, and you are considering bankruptcy, you probably should stay put if you can. Chapter 7 is especially attractive for people with a lot of debt and a low income who expect (or hope!) to land a good-paying job in the near future. If you wait until after you get that job, if your income is high enough, you may be forced to file a Chapter 13 and make at least partial payment of debts that would otherwise have been completely discharged in a Chapter 7.

Help for homeowners who are managing to stay current?

By Jonathan on October 31, 2011

A common criticism of programs such as HAMP is that they do nothing to help homeowners have made sacrifices to stay current on their home mortgage but who are unable to refinance to take advantage of lower interest rates because their home has decreased in value and is now worth less than they owe.

Suppose you have a mortgage at 6 or 7% interest and are fortunate enough to be employed, but your spouse has lost his or her job, or your hours have been cut back. If you could refinance at current rates (say, 4%), the reduction in monthly payments might might make the difference between keeping and losing your home. Also, if you have been paying on the loan for several years and could spread repayment of the current balance over the next 30 years, that would give you even more breathing room. The problem is that you owe more than the house is now worth.

The policy change recently proposed by President Obama hold some promise of providing relief for folks in such a situation. The details have not yet been released, but thePresident’s proposal is to remove caps that had allowed homeowners to refinance 100% of the outstanding balance on loans owned or guaranteed by Fannie Mae and Freddie Mac, where the balance owed is up to 25% more than the house is worth.

The proposal might enable some homeowners to avoid bankruptcy altogether. For others, it might make a Chapter 13 plan more feasible.

Grandma, what nice teeth you have!

By Jonathan on October 28, 2011

Sen. Johnny Isakson (R-GA) and Rep. Tom Graves (R-GA) have introduced a bill enticingly called “The HOME Act” (Hardship Outlays to protect Mortgagee Equity). The bill, which sounds reasonable enough on its surface, would allow homeowners under 59 1/2 withdraw up to the lesser of $50,000 or 50% of their IRA and 401(k) funds to pay principal or interest on their mortgages.

If enacted, the bill would indeed protect “Mortgagee Equity.” Unfortunately, if people understood proper legal terminology, they would know that the Borrower is the Mortgagor. It is the Lender who is the Mortgagee, and it is the Lender’s equity in the mortgage that is being protected!

The primary effect of this bill would be to increase the lenders’ return on investment by giving them an additional tool to pressure harried debtors into raiding their retirement funds, funds that lenders are otherwise unable to reach.

One of the most common mistakes made by people desperately trying to hold onto their homes is to withdraw money from their retirement funds. Your retirement funds cannot be attached by creditors, whether or not you declare bankruptcy. As traumatic as it may be to lose a house to foreclosure, it would be even worse to catch up momentarily, only have the house go into foreclosure down the road after you have blown your retirement nest egg.

There are other ways you may be hurt by applying retirement funds to your mortgage debt. Should you end up declaring bankruptcy, you are allowed to keep (ie., exempt) a portion of the equity in your home. If you pay down your mortgage debt, you may have more equity than the allowed exemption. If that happens, the trustee can force the sale of your home and turn over excess proceeds to your unsecured creditors.

Also, if the amount you owe on your house is greater than its value and you are in a Chapter 13, you may be able to “strip” a second mortgage. If you have a second mortgage and you pay down the first mortgage to the point where the balance you owe is less than the value of the house, you will have destroyed your ability to strip the second mortgage.

Finally, if all this isn’t enough to deter you from raiding your 401(k), think about the fact that even though you may not have to pay the 10% penalty for early withdrawal, whatever you withdraw is still subject to income tax, and income tax obligations are not dischargeable in bankruptcy.