Florida Bankruptcy Law Blog

Availability of Credit Cards After Bankruptcy

A common concern of people considering Chapter 7 bankruptcy is whether they should keep and reaffirm one or more credit cards during bankruptcy. Many Chapter 7 bankruptcy clients believe they need at least one credit card after filing bankruptcy to pay normal  daily expenses, and in some cases, business and travel expenses. I tell most of my clients that they will be able to get  new credit cards immediately after bankruptcy so that they should not reaffirm existing debt just to preserve credit cards for their convenience. Today's New York Times published an article about an individual bankruptcy debtor which confirms credit card availability to bankruptcy debtors. Link: The Debt Trap - Banks Mine Data and Pitch to Troubled Borrowers - NYTimes.com.

The New York Times article states that Chapter 7 debtors receive each week  several unsolicited credit card offers after they file bankruptcy. The article criticizes the credit card industry for making credit too easily available to people who have demonstrated financial difficulty by their bankruptcy filing. It suggest that bankruptcy debtors are targeted by credit card companies. Anyone who files bankruptcy must be conservative in their use of credit after bankruptcy because they are unable to repeat bankruptcy for eight years. However, those bankruptcy debtors who feel they can borrow responsibly and conservatively the credit card industry quickly will make available to you new credit cards which you can use for convenience of payment. If you must file bankruptcy you should be very careful about reaffirming existing credit card debt because you believe you cannot live without a credit card. You will, as the Times report, have numerous offers of new credit cards with zero balances after you file bankruptcy.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Attorney Helps Re-establish Credit After Bankruptcy

An Orlando attorney contacted me recently to discuss his law practice that focuses on resolving credit report issues and debt collection matters. I was happy to receive his call because many of my bankruptcy clients ask me for assistance dealing with collection agencies and repairing their credit score after they file bankruptcy. The attorney’s name is Walter Benenati, and he deals primarily in Fair Credit Reporting Act (FCRA) and Fair Debt Collection Practices Act (FDCPA) litigation.

Mr. Beneati said the number of post bankruptcy discharge violations by credit reporting agencies are on the rise. He told me that debt collectors have become more brazen with their overzealous collection tactics as the economy deteriorates. He frequently hears from clients stories of debt collectors threatening consumers-calling them twenty times a day, etc. Mr. Benenati told me that even though the sheer number of debt collection lawsuits have obviously increased in light of the poor economy, debt collection lawyers have informed him it doesn’t mean they are collecting any more money. He says that the news of the recent bailout of Congress has empowered consumers to not be concerned with paying their credit cards on time anymore, if at all.

If you are having difficulty repairing credit after bankruptcy I suggest you try contacting Mr. Walter Benenati. www.orlandocreditlawyer.com

Are Investments Financed With Consumer Credit Cards Non-Consumer Debt For Means Test Qualification?

We are preparing a bankruptcy for a client whose household income is over $100,000 per year. He does not even come close to passing the means test. The client states that most of credit card debt is for cash advances which were invested in the stock market. He also took a second mortgage on the house and invested most of the money in the stock market. The recent stock market crash is causing him to default on the credit cards. The client insists that his credit card advances invested in the market constitutes "non consumer debt" and because most of his overall debt is "non-consumer" debt he is exempt from the means test.

The client is correct that people whose debts are primarily not consumer debt do not have to pass the means test and all other things being equal can file Chapter 7 bankruptcy regardless of whether they otherwise pass the means test analysis. The issue is whether a cash advance by a consumer on a personal credit card is "non-consumer debt" because the consumer invests the money in the stock market or another type of businss venture for profit.

I am not aware of any cases on this issue; nor, have I ever researched the issue. I did have the chance to speak with an attorney for the U.S. Trustee about another bankruptcy case,  and in the course of the conversation I raised the stock market/credit card issue. The attorney stated that the U.S. Trustee will treat stock market investments financed on credit cards as non-consumer debt for means test purposes if the debtor can clearly trace credit card advances to investments in the market or another business venture.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Hiring Debt-Relief Company To Negotiate With Credit Cards

Many prospective bankruptcy clients ask me during their initial consultation whether they should use a company to help them negotiate settlements with credit card companies prior to pursuing Chapter 7 bankruptcy. My experience is that credit negotiation companies can help people with a small number of credit cards, but they usually are unable to successfully settle with several different creditors. The bigger problem is that a significant percentage of credit negotiation companies are scams; they charge already overwhelmed consumers up-front fees and then do very little to solve the consumers debt problems. The Wall Street Journal on October 14 had an article on "debt relief firms. " The article conveys the story of a Florida consumer who hired a debt-relief company which never settled any of his debts. The consumer eventually had to file bankruptcy and says that "I wish I had done that to begin with." If you are considering hiring a company to settle your credit card debts, you should first read the Wall Street Journal Article.

The web address of the Article is : http://sec.online.wsj.com/article/SB122394458494631223.html

Debtor's Decision To Surrender Car Was A $1,000 Mistake

A bankruptcy client owned a car with a small car loan. The client had thousands of dollars of equity in a car and stated on his bankruptcy petition that he wanted to reaffirm the loan and keep the car. I explained to the client that he would have to pay the bankruptcy trustee the amount of non-exempt car equity. This client's car exemption was $1,000 and the car equity was at least $5,000. After filing bankruptcy the client decided that he could not afford to both pay the trustee and pay future car payments because his salary had been decreased after filing. So, he called the car lender and surrendered the vehicle. The lender sold the car at auction for the loan value.

The client explained the car history to the Chapter 7 Trustee at the meeting of creditors. The Trustee told the client that he was not supposed to transfer or surrender an asset with equity. If the client had kept the car until the Trustee meeting (even if the client missed a payment) the Trustee would have sold the car and given the client $1,000 of exempt car equity from the sale proceeds. The client’s impulsive decision to turnover the car to the lender cost himself $1,000 and was technically a violation of the bankruptcy stay. The Trustee indicated he would take no action against the client who appeared to have acted without bad intent.

I understand, and I believe the Trustee agreed, that this bankruptcy debtor made a hasty decision because he was under financial stress. Still, if you change your mind about keeping or surrender assets with equity you should first consult with your bankruptcy attorney before implementing your decision.

Watch What You Say When You Meet The Bankruptcy Trustee

I tell my bankruptcy clients that when they meet the Chapter 7 Trustee they should answer his questions truthfully and simply, but that they should not volunteer information which is not responsive to questions. Last week, one of my clients was progressing through an uneventful meeting with her Chapter 7 Trustee. The Trustee asked whether the client expected an income tax refund for 2008, and the client said she did not. The Trustee was then about to close the meeting when the client blurted out a question, "What do you want me to do with my IRS stimulus check?" The Trustee then explained that the client would have to turnover the $1,600 check to the bankruptcy estate.

After the meeting concluded and the client walked out the Chapter 7 Trustee explained to me that although stimulus checks issued pursuant to the governments economic stimulus program passed and implemented earlier this year are non-exempt assets and part of the estate, most bankruptcy Trustees in our area do not pursue this money as an unofficial concession to bankruptcy debtors in the midst of terrible economic times. However, if a debtor or his attorney raises the issue during a meeting being recorded the Trustee is obligated to demand the money.

This innocent and well-intentioned question by this client cost the client $1,600. The lesson for bankruptcy debtors is that they should always provide complete and honest answers to questions either on the bankruptcy petition or to a bankruptcy trustee; otherwise, do not speak unless spoken to. You do not have to assist the bankruptcy trustee who, if he wants information, he will ask for it.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Company Recommended To Help With Mortgage Workouts

People facing foreclosure occasionally asks me whether they should hire an attorney or a nonlegal company to help them negotiate mortgage modification. I explain that most attorneys, including myself, do not do that type of work and that negotiating a mortgage settlement is primarily not a legal matter. I also tell them that most clients report that hiring a private company to assist with mortgage workouts is not worth the money charged; most firms charge a significant fee up front. For the first time last week I spoke with bankruptcy clients who have a very favorable experience working with a company that assisted them with a mortgage workout.

These clients had hired a company based in California called Access Loss Mitigation Company. They said the company successfully renegotiated a short sale of a property for which they were delinquent in mortgage payments. Access Loss Mitigation does not charge any up-front fees. They are, according to my clients, charges part of the real estate commission paid in the short sale. The clients said the company was responsive and actively involved in trying to solve their mortgage  problem through either a short sale or a renegotiation of payment terms.

I have no personal experience with Access Loss Mitigation. I am not personally recommending this company . I am passing on other peoples’ experience with the hope that other people have a similarly positive experience and are able to get  get professional help solving mortgage problems without having to seek legal help.

Mortgage Foreclosure Mitigation in Final Rescue Bill

I have previously posted on this Blog information about  homeowner mortgage benefits in the initial bailout bill that was rejected by the House on September 29, 2008. I have reviewed the final, revised bill signed into law on October 3, 2008. The final bill contains essentially the same mortgage modification provisions. The bill directs the Treasury to encourage mortgage service companies to mitigate foreclosure by adjusting the interest rate, payment terms, as well as the mortgage balance of certain home mortgages. The law is written generally and without details. The Treasury Department likely will issue federal regulations which state whom is entitled to benefits and the procedures to request mortgage modification.