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Recovering from bankruptcy

By Jonathan on June 22, 2005

One of the most frequent questions I am asked has to do with recovering from bankruptcy. There is no hard and fast answer to this problem, but here are my observations:

Recovering from bankruptcy has become much easier in recent years than it was fifteen years ago.

Many lenders look to a potential borrower’s credit score, as opposed to looking at credit reports for specific red flags. Years ago, lenders had their own “scoring system” – the mere existence of a bankruptcy could result in turn down. Now, many lenders rely on the credit bureaus score which does not specifically identify whether someone has a bankruptcy. Thus, if you can get your credit score up, your bankruptcy will have no effect whatsoever for those lenders.
Many lenders realize that you are actually a far better credit risk after filing bankruptcy than before. After all, who would you rather loan money – someone who has $80,000 in credit card debt who might file bankruptcy tomororw, or someone who just filed, has no debt and legally cannot file for 6 years?
If you work at restoring your credit after bankruptcy, you can get your credit score up within 6 months to a year.
Although the exact algorithms used by the credit bureaus are secret, it does appear that the weight (importance) assigned to a bankruptcy filing decreases as time goes by from your date of discharge.
A good first step to restoring credit is to get copies of your credit reports and challenge any entries which still show debt owing. Remember, credit reports are basically a history of your credit life. A bankruptcy can discharge your legal obligation to pay but it cannot change history. A credit history showing a zero balance and a bankruptcy discharge is better than a credit history showing (incorrectly) thousands of dollars of outstanding debt and a bankruptcy. Remember, creditors who have been discharged in bankruptcy are not going to make correcting your credit report a priority – you need to take an active role in this process.
Another helpful step is to find a secured credit card that becomes unsecured after four or five months of steady and timely payment. You can find secured credit card information on the Internet.

“Fraudulent” Transfer of Assets in Georgia

By Jonathan on June 9, 2005

A fraudulent transfer of assets prior to bankruptcy may result in a denial of your Chapter 7 bankruptcy relief. Section 727 of the Bankruptcy Code says that your transfer of assets within the year prior to your filing for bankruptcy, with the intent to defraud, hinder or delay creditors, can be grounds to deny your Chapter 7 discharge.

Fraudulent transfer issues usually arise when an individual transfers title in real or personal property to a spouse or other relative to protect that property from the reach of a pursuing creditor.

In the following real life cases, the fraudulent transfer rules that apply in Georgia bankruptcy cases yield very harsh results:

In the Davis case¹., the debtor transferred a house to his wife, then, after meeting with a lawyer, had his wife transfer it back to him. He then filed Chapter 7 within a year of getting the title back in his name. The 11th Circuit Court of Appeals said “no” and denied his discharge. Even though he had tried to fix the problem, he still acted with wrongful intent within a year of filing.

In the Future Time case ², a debtor quit claimed his interest in a house to his wife. The house was fully mortgaged and no equity was transferred. The Bankruptcy Court said “no” – it does not matter that no value was transferred; the wrongful intent was there.

In Georgia, any transfer of property in the year prior to filing – especially that of a house or a car – is likely to create problems. Even transfers to strangers for full value can be a problem.

What can you learn from this?

if someone has a claim for money damages against you, do not try to protect your assets by giving them away or selling them for pennies on the dollar – this will not work to protect those assets
before trying to dispose of any property when facing a claim for money damages, talk to a lawyer first
if you have already transferred property come totally clean with your bankruptcy lawyer – not telling him will only make matters worse

Ironically, Georgia bankruptcy courts are more forgiving and willing to give a debtor the benefit of the doubt when it comes to a debtor’s failure to disclose assets, which can also be a basis for the denial of discharge under Section 727. In transfer cases, just about any transfer for any reason will likely be deemed “fraudulent” and will prohibit you from getting bankruptcy relief.

In re Davis, 911 F. 2d 560 (11th Circuit 1990) ↩
Future Time, Inc. v. Yates, 26 BR 1006 (M.D. Ga. 1983). ↩

Protecting Your Property When Filing for Bankruptcy in Georgia

By Jonathan on June 8, 2005

In this post, I will discuss how to value your real estate when preparing to file bankruptcy.

The Bankruptcy Code and Georgia law provide that a certain amount of your ownership interest (equity) in real estate is exempt when you file bankruptcy. You can exempt (shelter) the first $21,500 of equity in real estate when you file bankruptcy. If you file jointly with your spouse, you can shelter $43,000 of equity.

This means, for example that if you own a house worth $200,000, and you owe $180,000, no one can lay claim to your $20,000 worth of equity. Your ability to exempt property makes bankruptcy filing a lot more palatable and doable.

Interestingly, while bankruptcy law is federal in nature, Georgia law controls which and how much property you can exempt. The Georgia exemption rules are set out at the Official Code of Georgia, Section 44-13-100.

How to Value Real Estate for Bankruptcy Purposes

An issue that often arises in Georgia bankruptcy court – how does a bankruptcy debtor accurately calculate the value of his or her house. If you own real estate, you will be asked by your lawyer to estimate a value – and you need to be as accurate as possible.

At Ginsberg Law Offices, we encourage our clients to determine their home valuation based on a “quick sale” valuation – in other words, how much would you net (after commissions and closing costs and needed repairs) if you needed to sell your house in two weeks.

Written Evidence of Real Estate Values a Plus

Whenever possible, we recommend to our clients that they contact a local real estate brokerage company to request a “drive by” appraisal – it is always helpful to have a written “walk away” number if your estimate is ever questioned.

There are also several on-line tools you can use to get a valuation range, including:

Bank of America Tool

Homegain

Domainia

Our experience has been that bankruptcy trustees – either in Chapter 7 or Chapter 13 – will usually accept your valuation estimate if there is some written backup.

Formal Appraisals Sometimes Needed

In rare cases, we might recommend that you obtain a formal appraisal of your property. For example, if you recently refinanced, and the appraisal purchased by the refinance lender shows a valuation higher that what your house would actually produce, you may need to get a “real world” appraisal for evidence.

Problems Arising from Inaccurate Valuation

Significant errors in real estate valuation can create problems in your bankruptcy.

If you list a valuation that is too low, you run the risk of a trustee objecting to your scheduled valuation and asking the Court for permission to seize your home.

In addition an obvious under-valuation will call your honesty, truthfulness and credibility into question in future dealings with your Bankruptcy Judge, your trustee and opposing counsel.

If you list a valuation that is too high, you may miss out on the availability of Chapter 7 or you may pay back more than is necessary in a Chapter 13. If you own real estate and you are considering bankruptcy, take the time to research the value of your home or any other real estate you may own. Whenever possible, obtain written documentation from a reliable source to support your estimate of valuation.