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Why Tax Refunds Payable to the Chapter 13 Trustee Will Do Little to Decrease Your Plan Balance

By Jonathan on June 24, 2009

At least two of the three Chapter 13 trustees in the Northern District of Georgia require a Chapter 13 plan provision which provides that any tax refund payable to the debtor during the term of the debtor’s plan shall be paid to the Chapter 13 trustee. These trustees will object to any plan that does not include a tax refund provision.

Although I explain the implications this provision, many of my clients express shock and outrage when their expected refund of $3,000, $4,000 or more does not show up in their mailboxes, but instead ends up in the hands of the Chapter 13 trustee. These clients, quite naturally, expect that the tax refund payment will reduce their Chapter 13 obligation and either reduce the term of their plans or possibly allow for a reduction in the regular monthly payment.

More recently one of my clients fell behind on his Chapter 13 plan and had to enter into a consent order with the Chapter 13 trustee to pay extra each month to cure the delinquency. Shortly after the consent order was filed, this client saw a $2,200 tax refund to to the trustee and he wanted to see that money applied to his delinquency and thus reduce the burden of his delinquency cure.

Unfortunately in both of these situations, my clients will not get the desired benefit from the “seizure” of their tax refunds. The funds will go into the plan, but instead of reducing the balance or the term of the plan, they will increase the dividend payable to unsecured creditors [Read more…] about Why Tax Refunds Payable to the Chapter 13 Trustee Will Do Little to Decrease Your Plan Balance

“Debt Settlement” vs. Bankruptcy

By Jonathan on June 21, 2009

Although I am a bankruptcy lawyer, I tell everyone who visits my office for a consultation the same thing: “bankruptcy is a last resort – do not file for bankruptcy unless you have no other choice. It will damage your credit and negatively affect your financial future for months or years to come.”

What, then, are the alternatives to bankruptcy if you are struggling with out-of-control debt?

One of the best known but least understood solutions to debt is known as “debt settlement.” In general terms, debt settlement refers to a process by which you or a representative negotiates with a creditor for:

a lower balance/forgiveness of debt
a reduced interest rate
a reduced monthly payment
some or all of the above

Unfortunately it is easy to speak of debt settlement in the abstract – as always “the devil is in the details.” Here are my observations: [Read more…] about “Debt Settlement” vs. Bankruptcy

Have You Had Any Success in Recovering from Bankruptcy?

By Jonathan on June 2, 2009

I was recently interviewed by a national magazine about how my clients recover from Chapter 7 bankruptcy. Some of the tips I discussed during the interview included:

asking a friend or relative to add you as an authorized user on a MasterCard or Visa
opening a savings and/or checking account at a credit union and establishing a pattern of regular deposits
requesting a small loan from that credit union and paying back each installment on time
opening a credit account with a gasoline retailer
finding a co-signer to open an unsecured credit card account

I explained to the reporter that I am hearing from my clients that large credit card companies are soliciting them for cards as quickly as 6 months post discharge – no surprise in that successfully discharged debtor are a great credit risk, having no debt and no option to file bankruptcy

The reporter, who is a very nice and informed gentleman, would like to speak to anyone who has had success in re-establishing credit after Chapter 7. If you would be interested in talking to this reporter, please email me using the form on this blog and I’ll put you in touch with him.

If I Do Not Reaffirm My Mortgage in Chapter 7, Do I Automatically Lose Title to my House?

By Jonathan on May 28, 2009

I have been getting a lot of questions recently about reaffirmation and about the consequences of not reaffirming a mortgage loan. I have previously written about the consequences of not reaffirming a mortgage debt. The 2005 BAPCPA changes to the Bankruptcy Code attempts to force debtors to choose between reaffirmation or surrender of their collateral. The trend I am sensing both here in the Northern District of Georgia and elsewhere around the country suggests that bankruptcy judges are not particularly inclined to force this issue. In cases where the debtor cannot or will not sign a reaffirmation there seems to be a judicial acceptance of the old “stay and pay” process.

In those cases where a debtor does not reaffirm, there seems to be some confusion as to how this decision affects the debtor’s rights. I received the following question from Heather, who asks the following:

Jonathan,
I claimed Chapter 7 bankruptcy back in 2004. Sadly enough I just now looked closely at a credit report. My mortgage wich I had maintained through the bankruptcy and have done so for the past 5.5 years said it was discharged on the bankruptcy. Which rose many questions! I called the mortgage holder and they said I never reaffirmed my mortgage. I don’t know if I did or didn’t my original mortgage was with one company who sold it to another in 2006. I no longer live in this house, it is an income property, which I also have on the market. Am I going to run into trouble selling this? And my mortgage is directly withdrawn out of my account each month if “technically” it was discharged are they able to continue to take that money every month? I have sunk a lot of time and money into this property if it “technically” isn’t mine. What would I lose by stopping payment on it. I’ve already suffered the credit report deduction for 5.5 years and have managed to get my score to fair standard even with that on there. what more can it do to me and where should I go from here. Thanks

Here is my response: Not reaffirming a mortgage obligation means that you are not personally liable on the promissory note associated with the security agreement. The property remains encumbered by the mortgage obligation and you continue to maintain and grow your equity interest in the property. Your title interest does not change. [Read more…] about If I Do Not Reaffirm My Mortgage in Chapter 7, Do I Automatically Lose Title to my House?

Pay Attention to Your Chapter 13 Payroll Deduction

By Jonathan on May 26, 2009

In the Northern District of Georgia, every Chapter 13 case must be filed as a “payroll deduction order” case. In other words, you must fund your Chapter 13 with a payroll deduction. In my experience the trustees will allow direct payment of Chapter 13 plan payments only when a debtor is self employed or if the debtor can convince the trustee that the debtor’s job would be in jeopardy if the employer received a payroll deduction order.

Not surprisingly payroll deduction cases work better – if the funds to pay your Chapter 13 come directly out of your paycheck, then there is one less variable to go wrong in your Chapter 13.

However….I have seen far too many cases in which a debtor got behind on his obligation to the trustee even when there was a payroll deduction. Why? Because the employer was withholding the wrong amount.

Payroll deduction orders are filed electronically. When I file a case, there is a data entry screen for payroll deduction orders. I fill in the appropriate data and the clerk of court sends out the deduction order.

In many Chapter 13 cases, however, the Chapter 13 plan I originally file on behalf of my client will need to be amended. Many times, this amendment involves increasing the plan payment. When that happens, I will file a second, or a third payroll deduction order through the electronic court filing system. Each time the clerk of court mails out the new order.

Sometimes, the employer gets a second or third order from the clerk and does not recognize that the amount has changed. Some employers ignore the second or third order altogether. I have also seen situations in which an employer withholds money and sends it in for months at a time, then arbitrarily stops honoring the order, or arbitrarily starts withholding and sending in a random amount. [Read more…] about Pay Attention to Your Chapter 13 Payroll Deduction

Debt Negotiation vs. Filing for Bankruptcy

By Jonathan on May 14, 2009

Over the past few months, my of counsel officemate Susan Blum and I have met with dozens of potential bankruptcy clients for whom bankruptcy may not be the best solution. While it may seem strange that a bankruptcy lawyer would tell you not to file bankruptcy, I advise everyone with whom I meet that bankruptcy is and should always be considered a last resort and that non-bankruptcy alternatives should be part of the discussion.

A negotiated debt settlement constitutes one viable alternative to bankruptcy. In a debt settlement negotiation, you or an agent working on your behalf contacts your creditors to work out a payment plan for your debts. A true debt settlement involves a reduction of both your total debt as well as the interest payments.

I occasionally get involved in a debt settlement although you really do not need an attorney. I do recommend that you engage the services of a third party to negotiate your debt – given the antagonistic and personal nature of this type of negotiation it is very difficult to speak to a risk manager at a credit card company about your own debt. [Read more…] about Debt Negotiation vs. Filing for Bankruptcy