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Can I Lose My Job if I File For Bankruptcy and My Boss Finds Out?

By Jonathan on March 20, 2008

Recently I received an email from a prospective client who works for a banking institution. His income is partially commissioned based and with the downturn in the real estate market, he has seen a significant decrease in take home pay. With the pay reduction he is not able to pay his bills and wants to file a bankruptcy.

My prospective client told a friend about his plans and the friend told her boss who is a senior executive for another financial institution. According to the "friend," her boss says that if my prospective client files a bankruptcy, he (the boss) will personally call my client’s boss to tell him about the filing.

My prospective client fears that he could lose his job or that his future prospects with his company could be in jeopardy. He also wants to know if he has any recourse against his friend’s boss, or perhaps against his own company if he does file bankruptcy and ends up losing his job.

Here are my thoughts: first, I think that the overriding lesson here is to be very careful about discussing your finances with anyone unless you are certain that the other person can be trusted. I can’t imagine why the friend felt it necessary or appropriate to discuss my client’s very personal financial matter with her boss, or why she felt compelled to identify my client in that discussion. This friend doesn’t sound like much of a friend to me.

With regard to the friend’s boss, I don’t think that my prospective client would have much recourse. Bankruptcy is a public record so I don’t think that there is any privacy problem here. There is a cause of action for "tortious interference with a business relationship" but I think this would be a long, and possibly expensive roard to pursue.

With regard to her own employment, the Bankruptcy Code addresses employment security at Section 525 of the Bankruptcy Code provides that "no private employer may terminate the employment of, or discriminate with respect to employment" against a debtor. The issue, of course, is that most employers are not going to say that a bankruptcy is the reason why an employee was terminated or not given a promotion. This is especially true for debtors employed in a financial industry job.

I suppose that in my prospective client’s situation she could wait several weeks or months prior to filing with the hope that her friend’s boss might forget his threat, she could go to her boss to bring up the subject proactively to guage his reaction, or she could contact a lawyer and have the lawyer draft a threatening letter to be sent to the friend’s boss advising him that if he opens his mouth, she will sue him for tortious interference with a business relationship.

It is unfortunate that my prospective client has put himself in this situation – and it is really too bad that his big mouthed friend opened her big mouth to her nosy-body boss. My prospective client has some difficult decisions to make.

Georgia Legislature Considers Home Foreclosure Relief Bills

By Jonathan on March 13, 2008

Today’s Atlanta Journal-Constitution reports that the Georgia state Senate has approved two bills designed to help stuggling homeowners avoid foreclosure. Senate Bill 519 would increase the pre-foreclosure notice to homeowners from the current 15 days to as much as 60 days.

Senate Bill 531 would require the current holder of a mortgage to register its name on the public record. Supporters of S.B. 531 note that with mortgages being sold from lender to lender, it is often difficult to know where to send a check and with whom to discuss loan forebearance agreements. Loan servicing companies, who manage loans for mortgage companies often do not have the authority to negotiate or enter into forebearance agreements.

The Atlanta paper quotes a mortgage industry spokesman as supporting S.B. 519, and supporting S.B. 531 with some reservations.

These two mortgage bills now head to the House of Representatives where they will be debated and possiby modified. There is no word yet from Governor Perdue as to whether he is prepared to sign either or both bills into law.

While I applaud the state Senate for taking action that could possibly help homeowners, I want to make sure that you understand several things:

First, these two bills are a long way from becoming law. The state House of Representatives may vote either or both bills down, or the bills could be significantly weakened in the House or in conference committee.
We don’t know if the Governor will sign these bills into law.
The mortgage industry spends a lot of money lobbying legislators – while an industry rep claims to be in favor of these bills, only time will tell if the mortgage industry will really go along with a law that makes foreclosure more difficult.

Still, I encourage all homeowners to contact their legislators to ask them to support these two bills. Skyrocketing foreclosure numbers do not help mortgage companies who get stuck with unwanted property, nor do they help frantic homeowners.

Should I File for Bankruptcy – Widow on Social Security with $7,500 in Credit Card Debt to Same Bank Where She has a Checking Account

By Jonathan on March 12, 2008

I am 65 years, a widow of 5 years, totally disabled, & my SS check is $1342.00 every 4 to 5 weeks. My SS check is auto deposited in my same bank that I have a $7,500.00 credit card debt owed.

If I were to file for bankruptcy, could my bank garnish my SS check?

Also, my rent is $800.00 per month, & utilities use up the rest of my check without paying my credit card or buying food. I have been living on the sale money of my house which is almost depleted. Will that too enter into a bankruptcy?

I could use the $150.00 that I pay each month to my bank in credit card bills to buy food. Right now I have excellent credit but have to eat come next fall or sooner. I would appreciate your advice. Thank you.
–E.

Jonathan Ginsberg responds: E, thank you for your question. I don’t know that you need to file a bankruptcy. Under federal law, Social Security money is totally exempt from garnishment or seizure by a credit card lender. In other words, if you stopped paying the credit card, the bank (which I understand is the same bank that issues the credit card) would not be allowed to set off the money in your account to satisfy the credit card debt. They also cannot garnish your Social Security check directly.

It is possible that the bank would close your checking account, so I would suggest that you go ahead and open a checking account with another bank.

Your bank account would be protected as to any money that is traceable to Social Security. If you still have money in that account from the sale of your house, that money is not sheltered. As you might imagine, it can be difficult to identify which money comes from the house sale and which comes from Social Security. For this reason, I would do the following:

go to another bank and open a checking account and designate that account for the direct deposit of your Social Security check
go to another bank and open a savings account where you would place whatever remains from your home sale

You want to clearly separate your Social Security money/account from any other money.

Next, I would write the credit card lender and advise them that you cannot afford to make the payments anymore, that you are judgment proof and that your only source of income is Social Security money. I would further advise the credit card lender that if they attempt to garnish your Social Security account you will sue them for actual and punitive damages.

Bankruptcy also does not make sense to me because the cost of filing even a simple case will cost you $1,000 or more. It doesn’t make sense to spend $1,000+ to get rid of $7,500, especially when you are judgment proof.

Now, if you don’t pay the credit card debt, you will have to deal with collection phone calls and some nasty letters. But, at the end of the day, there is not much they can do other than to call you and you can avoid the calls with Caller ID. Once they realize that there will be no recovery the calls will stop.

Chapter 13 Dismissed – Will I Lose My Car?

By Jonathan on March 5, 2008

I received an order saying my chapter 13 Bankruptcy case was being dismissed because it has been over 5 years plus no payments have been made in 6 mos. I lost my job of 7 years around may, 2007. About 1 year prior I had surgery on my knees and couldnt work for about 5 weeks per knee surgery. I did get behind in my payments during this period, but i did not realize that they would dismiss my case because it was over 5 years.

I paid faithfully until these events happenend in my life. I’M a single mother of 2 children and barely make end meat……My question is, now that my bankruptcy has been dismissed I want to know can they come take my car(which i still owe, not sure how much)or will theycontact me and give me the oppurtunity to make arrangements to pay it off? That was the only secured debtor I had on my bankruptcy. Please give me your advise, I cant afford another attorney.

–Melanie

Jonathan Ginsberg responds: Melanie, you may have yourself a big problem. When a Chapter 13 case is dismissed prior to discharge, the protection of the automatic stay disappears and your creditors can pursue all available state remedies available to them. In a Chapter 13, the plan often changes the monthly payment to secured creditors like a car lender. So, for example, if your car payment was $450 per month pre-bankruptcy, and your Chapter 13 trustee paid the lender $300 per month, there is a $150 per month delinquency that is building. If your case goes through to discharge, no problem. But when your case is dismissed the lender will recalculate what you owe based on the contract rate. This may put you hundreds or thousands of dollars behind.

I would suggest that you get on the phone and try to negotiate a payment plan with the lender. If they won’t cooperate you may need to seek Chapter 13 protection again. There are many capable bankruptcy lawyers in the Atlanta area who will file your case for the filing fee only – with no up front payment. Another option – file a Chapter 7 and redeem the property using financing offered by a lender who provides Section 522 funding.

What Happens to Your Car Accident Claim Rights if the Defendant Files Bankruptcy?

By Jonathan on March 4, 2008

Imagine that you are involved in a car accident that was not your fault. You hire a lawyer who files suit against the negligent driver asking for damages. Thankfully the other driver has insurance, so if you win your case, there will be a source of recovery. Now imagine that right in the middle of this process, the negligent driver files a Chapter 13 bankruptcy. What are your rights? Can you still pursue insurance proceeds. Does the negligent driver’s insurance company get leverage over you because of the bankruptcy filing?

This is exactly the situation that a colleague of mine found himself in. He asked me to help and this is how we decided to handle this situation. First, we prepared and filed a Motion for Relief From Stay. Our motion set out the facts and asked the judge to lift the debtor/defendant’s bankruptcy protection so that we could go after insurance proceeds. We noted that the Georgia legislature made a public policy decision to require all drivers in Georgia to have minimum insurance coverage. If the bankruptcy judge allowed a bankruptcy filing to completely shield the debtor and his insurer from all liability, the bankruptcy court would be either (1) protecting debtors who broke Georgia law by not having insurance, or (2) harming innocent plaintiffs and providing a windfall to insurance carriers who were otherwise contractually obligated to pay damages on behalf of negligent drivers.

It is fairly well settled in the 11th Circuit that a plaintiff can obtain relief from the stay to pursue insurance proceeds. I think that the Bankruptcy Judge will accept our argument on this issue.

This case involves another, slightly less obvious issue as well. This issue has to do with bad faith claims by a defendant against his own insurance company. Georgia law contains an interesting provision designed to protect defendants from insurance companies that act in bad faith. Realize that if you are the negligent party in an accident, your insurance company will provide legal counsel to you at no charge – that is part of the insurer’s contractual obligations to you. However, the insurance company’s interest and your personal interest are not exactly the same. You buy insurance to protect you from personal liability and you expect that any lawyer retained by the insurance company to protect you to have this same goal. The insurance company, however, only has a financial interest in resolving your case for some figure less than the policy limits. If your policy has a limit of $50,000, then the insurance company is only obligated to pay $50,000, whether the verdict is $51,000 or $251,000.

The Georgia legislature recognizes that insurance companies may be inclined to “roll the dice” with a jury if their financial exposure is capped. After all, as a defendant, you do not have the authority to demand that the insurance company tender full policy limits as an inducement to settlement.

In order to protect defendants, the legislature included a code section which provides that if the plaintiff demands policy limits and the defendant’s insurer refuses, the defendant’s insurer can be held liable for the plaintiff’s full recovery is the plaintiff goes to trial and wins a verdict larger than the policy limits. The right to sue the insurer for failure to tender policy limits, however, rests in the defendant only.

This was the situation in our case. The plaintiff had serious injuries that could reasonably be expected to result in a jury verdict of more than the $50,000 policy limit. Our problem – how do we, as the plaintiff, preserve the bad faith claim, which could serve as a valuable source of recovery for our client?

We came up with the idea of asking the bankruptcy judge to assign to us (the plaintiff) the debtor’s rights to pursue a bad faith claim against the debtor’s insurance company. Our argument was that the bad faith rights were added by the legislature to dissuade insurance carriers from acting in a manner that was not in the best interest of its policyholders. The debtor/policyholder paid his premium and purchased this full protection. The debtor’s bankruptcy filing ought not relieve the insurer from fulfilling its contractual obligations to the debtor.

Further we put forth the argument that the plaintiff is a third party beneficiary of the insurance contract that exists between the defendant/debtor and the vehicle liability insurer. As a matter of public policy, the insurer ought not be freed from its obligation to act in a socially responsible manner just because the policyholder filed for bankruptcy.

The debtor/policyholder would have no personal liability in any case. The insurer is not filing for bankruptcy and should not be the beneficiary of bankruptcy protection, especially since the loser in this scenario would be the injured plaintiff. To put this another way, if the insurer is freed from the risk of a statutory bad faith claim, it truly has no incentive to make a fair offer to the injured plaintiff. If the debtor/policyholder’s bad faith claim risk is wiped out by the debtor’s bankruptcy, the injured plaintiff would suffer far more than the insurer would benefit. The plaintiff would lose settlement leverage and potentially a source of recovery. The insurance carrier would benefit from a windfall since it already included in its premium cost the bad faith risk factor.

In our view, the only way to preserve the bad faith claim would be for the court to award this policy benefit – the right to sue the insurer for bad faith damages – to the plaintiffs. If the insurer tenders policy limits, the bad faith claim issue is moot. If the insurer tenders less than policy limits, it does so at the risk of the bad faith liability.

My colleague is presenting this very argument in a few days to one of the bankruptcy judges in the Northern District of Georgia. We’ll see what happens.

Retiree With $25,000 of Credit Card Debt Contemplates Bankruptcy

By Jonathan on March 3, 2008

Thank you for your informative web site. I have 2 questions I am filing for SS as I am 63 my bill are current however I was laid off last year and my health is failing. If I file would I be able to keep my car? I owe 16K on it as low milage (17K) my son will be giving me the payments. Also I have been renting this small house for the past 5 years I have never been late with the rent do I have to notify the landlord if I plan to stay here? I own nothing but have 25K credit card debt all these bill are current but I have run out of savings
Christina

Jonathan Ginsberg responds: Christina, thanks for your questions and the kind words about my Atlanta bankruptcy web site. With regard to your car, in a Chapter 7, you can reaffirm your car note if (1) you are current on the note and the lender agrees to a reaffirmation and (2) you have less than $3,500 of equity in the vehicle.

Reaffirmation is a voluntary process most frequently used in the case of secured debt in which you keep your property and reassume full legal responsibility for the note. If you are current and you have a source of funding for the payment, you should have no trouble reaffirming.

The $3,500 figure comes from Georgia’s exemption statute. Under Georgia law (which applies to your bankruptcy case), you can shelter or "exempt" up to $3,500 of equity in your vehicle. If you have more than $3,500 of equity, you would need to settle up with your Chapter 7 trustee and pay him the non-exempt portion of your equity – which he would use to pay creditors of your bankruptcy estate.

WIth regard to the lease, technically a rental contract is known as an "executory contract." This means that its terms have not yet been fulfilled (the terms being your monthly lease obligations). Until the October, 2005 changes to the law, most lawyers did not include current lease contracts in bankruptcy petitions. Under the new law, however, an executory contract that is not "assumed" is deemed rejected. So, it probably makes sense to include the lease contract on Schedule G of your petition and to assume the contract. The potential problem with including the lease contract in your petition is the notice that will be given to the landlord. Some large apartment complexes may be reluctant to give you a new lease if you have filed bankruptcy – this is rarely a problem with smaller ownership groups.

I would also note that if your only source of income is Social Security, and you have no assets, then you are basically judgment proof. If you own only $25,000 and you are judgment proof, I wonder if filing Chapter 7 is really a good idea.