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Your Decision to File Bankruptcy Should Reflect Business Considerations Only

By Jonathan on November 15, 2013

Just over three years ago, I received a phone call from an old acquaintance who seemed extremely stressed out. This gentleman had previously been in sales and I had done business with him over 20 years ago. During our dealings we had discovered that we shared several mutual friends and over the years I had run into him several times on social occasions.

Now, he needed advice about some significant debt problems. His small business was failing and he owed tens of thousands of dollars to multiple creditors. After reviewing his paperwork I suggested that Chapter 7 would work and should be considered. My friend agreed but did not want to file because he felt very guilty about not paying back his debts.

For the next two and a half years, I would talk to my old friend on the phone about his debt problems. He was sued by several creditors but because he was unemployed there were no wages to garnish. He had no bank account so the judgments just sat there waiting for his financial situation to improve.

Finally, about two months ago, my friend called to say that he was ready to file. It turned out that he had a new job and his prospects were improving. I ran the means test numbers and….determined that he no longer qualified for Chapter 7 because he had too much disposable income.

My friend’s situation is, unfortunately, all too common. He did not want to file bankruptcy and avoided it successfully for over two years. His concerns were somewhat vaguely stated misgivings as opposed to a firm moral conviction. When his financial situation changed for the better, it was too late. Now, he is faced with the prospect of losing 25% of his take home pay to a wage garnishment and, given that he owes well over $200,000, he’ll be paying for a long time.

I would submit to you that my friend made a poor financial decision. I also do not think that he made a particularly good moral decision as he never articulated a thought out moral objection to filing bankruptcy (a fact he has acknowledged to me). From a purely business standpoint, my friend has subjected himself and his family to a great deal of hardship.

Everyone has heard of Donald Trump. A business tycoon, reality TV star and sometimes politician, the Donald has filed bankruptcy on corporate debt dozens of times over the past few years. Mr. Trump structured his business deals to avoid personal liability and I’m sure that the interest rates he paid on borrowed funds reflected that. I am equally certain that for every bad deal, Trump was successful on ten others and paid back his loans in full.

Trump recognizes that bankruptcy functions as a financial tool. The banks that loaned his corporations money also understood that not every deal works and that there is a risk of default. Banks are in the business of evaluating risk and charging fees and interest to reflect that risk.

When you are in financial distress you should make your decision about whether or not to file bankruptcy in the context of a business decision. When your creditor made the decision to loan you money that decision was based on business calculations and you should keep the transaction in this same arena. If you allow personal feelings of guilt to creep into your decision making you will almost certainly not make the best business decision for yourself.

As a bankruptcy attorney I help my clients evaluate their bankruptcy options as a good or not so good business choice. My friend allowed non-business considerations to influence his decision making and he will pay the consequences. Don’t you make the same mistake.

Middle Class Debtors Often Victims of Falsehoods and Misrepresentations

By Jonathan on November 12, 2013

Last week, a former client called and tried to refer me a new Chapter 13 client who was facing foreclosure. While I appreciated the referral, I could not take the case because the potential client was calling from out of town at 5pm on the Monday before his house was schedule to be sold at a foreclosure sale on the courthouse steps. The potential client did not have a credit counseling certificate and because he had filed before twice, the automatic stay would not go into effect even if he did file.

During our conversation, the potential client told me that he had been negotiating with his mortgage company and that until that Friday, he was led to believe that a modification and restructuring of his loan was likely.

I hear the same story from vehicle owners who have fallen behind by two or more payments but who are talking to the customer service reps at their lenders. I remember one case involving a woman who had never had any credit problems before but was struggling to pay her car note because of a job layoff. [Read more…] about Middle Class Debtors Often Victims of Falsehoods and Misrepresentations

How do I Know if Filing Bankruptcy is the Right Decision for Me?

By Jonathan on October 16, 2013

If you are facing a looming debt crisis, the idea of filing for bankruptcy may have crossed your mind. For many of our clients, it can be very difficult to take that first step of calling or emailing a bankruptcy lawyer.

In this Google “Hangout” video, Atlanta bankruptcy attorneys Jonathan Ginsberg and Susan Blum discuss a threshold question of their bankruptcy practice – how does an honest, hardworking family know that it is time to call a bankruptcy lawyer.

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You can read more about filing bankruptcy in the Atlanta area, please visit our web site.

Why Some People Face More Bill Collection Harassment than Others

By Jonathan on October 8, 2013

Were you aware that credit reporting agencies (Equifax, Experian and Trans Union) have assigned you a score which reflects the likelihood that you will pay a delinquent bill? This collection score ¹ helps bill collectors decide where to focus their collection efforts.

Credit reporting agencies also offer “bankruptcy risk scores” which offer credit grantors a numerical rating score to determine whether a customer or potential customer is more or less likely to file bankruptcy.

Financial data that may be buried in credit applications or public records can now be analyzed instantly by computer and reduced to a simple score ² [Read more…] about Why Some People Face More Bill Collection Harassment than Others

The collection score product is described in more detail here, in a brochure published by the Fair Isaac Company, the organization that also provides credit scoring algorithms for the credit reporting agencies. ↩
My professional colleague, Long Island, New York bankruptcy lawyer Craig Robins writes more about bill collection and bankruptcy in his excellent Long Island Bankruptcyblog. Thanks to Craig for his excellent post about automated bill collection systems, which you can read here. ↩

Are Amendments to Bankruptcy Schedules Proof of Perjury?

By Jonathan on September 11, 2013

My Bankruptcy Law Network colleague Andy Miofsky, who practices in southern Illinois, referenced a very cogent “open letter to debtors and their counsel” that was issued in 1997 by a Bankruptcy Judge who sits in a California bankruptcy court.

Judge Jaroslovsky’s open letter points out that every schedule you file is issued under penalty of perjury. Amending schedules to update information does not change the fact that the original filings were somehow false. “I have no idea where anyone got the idea that amendments can cure false schedules,” writes the judge. The debtor has an obligation to correct schedules he or she knows are false, but amendment in no way cures a false filing. Any court may properly disregard subsequent sworn statement at odds with previous sworn statements.

Specifically the judge references emergency, “two page” filings where the debtor lists one or two creditors (such as a mortgage or a vehicle lender) and swears under penalty of perjury that his schedules are accurate. In truth, the debtor (and his counsel) know that other creditors exist. The emergency filing, therefore constitutes perjury.

I think that Judge Jaroslovsky makes a valid point that most debtors and their attorneys readily use the amendment process to “fix” schedules that were knowingly inaccurate when filed. I think it is incumbent upon debtors and their counsel to work with updated and accurate information. Perhaps it would be wise for debtors to indicate “more to come” on their emergency or initial filings. However, I respectfully disagree with the judge that these amendments ought to be disallowed. [Read more…] about Are Amendments to Bankruptcy Schedules Proof of Perjury?

Another Lottery Story with a Bankruptcy Angle

By Jonathan on September 2, 2013

I ran across an interesting lottery story with an interesting bankruptcy twist. This story took place in Syracuse, New York where a down and out maintenance worker named Robert Miles bought a scratch off lottery ticket in a quick mart in 2006.

Addicted to drugs at the time, Mr. Miles took his ticket to the proprietors of the Green Ale Market to find out if he had won. The owners of the Market responded that yes, he had won $5,000. In reality, the winning ticket was worth $5 million. The store owners gave him $4,000, keeping $1,000 of the “winnings” for themselves as a fee(!). The store owners then waited six years to submit the winning $5 million ticket.

Officials at the state lottery office launched an investigation because they were suspicious that the purported winner had waited six years to come forward and that the winner owned the store where the ticket was sold.

When he read about the store owners’ stroke of luck, Mr. Miles – now sober – came forward to say he had been ripped off. The store owners ended up in jail and Mr. Miles was awarded his deserved $5 million.

The news story also reports that in 2008, Mr. Miles filed bankruptcy, “knowing that he should have been a millionaire five times over.” [Read more…] about Another Lottery Story with a Bankruptcy Angle