Member of the National Association
of Consumer Bankruptcy Attorneys
Member of Legal Services
of Hudson Valley
of Hudson Valley
Member of the Hudson Valley Bankruptcy Bar Association
Member of the Rockland
County Bar Association
County Bar Association
ARTICLES
YOU BETTER PRACTICE WHAT YOU PREACH
The past two years have seen a dramatic increase in the number of consumers filing bankruptcy cases. There has also been a dramatic rise in the number of attorneys who have never practiced bankruptcy law in the past, but are now advertising themselves as "bankruptcy attorneys". However, bankruptcy law is a specialty similar to estate planning, criminal law, and tax law. In fact, bankruptcy law is one of the few practice areas that centers on a Code (the Bankruptcy Code) rather than common law. I know these statements may sound self-serving since I am a bankruptcy attorney. However, we would all agree that a general practitioner would not practice trusts and estates law, and a trusts and estates attorney would not practice criminal law, unless they have familiarized themselves with both the statutes and common law of each practice area.
In the past year, I have seen many general practitioners filing Bankruptcy Petitions that actually end up devastating the debtor's financial life.
Examples of the long term impact of poorly conceived bankruptcy strategies abound:
Bankruptcy Law is a complex specialty with many nuances. And experienced attorney, who has filed numerous cases and understands the nuances of the law and the role of the Trustee can ensure that the Debtor ends up losing only his credit card debt - and nothing more.
In the past year, I have seen many general practitioners filing Bankruptcy Petitions that actually end up devastating the debtor's financial life.
Examples of the long term impact of poorly conceived bankruptcy strategies abound:
- A Chapter 7 bankruptcy case basically turns over the estate of the debtor to a Bankruptcy Trustee as of the date of filing. Chapter 7 bankruptcy cases can not be voluntarily withdrawn without a Motion for good cause before the Court.
- Although pensions and IRA's are generally exempt from the creditor's actions, inappropriate transfers in and out of the pension plans may expose a debtor's life savings to his creditors.
- Inappropriate deed transfers may cause a forced sale of a home.
- Tax refunds may be jeopardized.
- A debtor's business assets may be forfeited to creditors, thereby depriving the debtor of his very source of income.
Bankruptcy Law is a complex specialty with many nuances. And experienced attorney, who has filed numerous cases and understands the nuances of the law and the role of the Trustee can ensure that the Debtor ends up losing only his credit card debt - and nothing more.
BANKRUPTCY AS A STEP TO SOLVENCY
Article published in the NY Times about using Bankruptcy to emerge from financial crisis into a strong financial footing.
Filing a Bankruptcy case allows a client to erase most if not all of his credit card debt, unload an unwanted car lease, and preserve his pension and retirement accounts in full. All consumers are allowed $50,000 equity in their home (for each spouse), and/or $5,000 in the bank. Emerging from Bankruptcy with your retirement intact, your home equity intact, and $5,000 in the bank allows most clients to move forward in life.
The most common frustration experienced by Bankruptcy attorneys is why clients wait so long to file Bankruptcy. Many times a client only comes to me after years of financial struggle, having emptied his retirement accounts or losing his home or car to repossession.
Thousands of people are currently "unofficially bankrupt" and are reluctant to file Bankruptcy because in the past personal Bankruptcy carried such a stigma (unlike corporate Bankruptcy which has become the most common business tool in America today).
Emerging from Bankruptcy without credit card debt, but with your retirement assured, your home secured and $5,000 in the bank allows most clients to move forward in life on a stronger financial footing.
Filing a Bankruptcy case allows a client to erase most if not all of his credit card debt, unload an unwanted car lease, and preserve his pension and retirement accounts in full. All consumers are allowed $50,000 equity in their home (for each spouse), and/or $5,000 in the bank. Emerging from Bankruptcy with your retirement intact, your home equity intact, and $5,000 in the bank allows most clients to move forward in life.
The most common frustration experienced by Bankruptcy attorneys is why clients wait so long to file Bankruptcy. Many times a client only comes to me after years of financial struggle, having emptied his retirement accounts or losing his home or car to repossession.
Thousands of people are currently "unofficially bankrupt" and are reluctant to file Bankruptcy because in the past personal Bankruptcy carried such a stigma (unlike corporate Bankruptcy which has become the most common business tool in America today).
Emerging from Bankruptcy without credit card debt, but with your retirement assured, your home secured and $5,000 in the bank allows most clients to move forward in life on a stronger financial footing.
WHEN DO YOU REFER YOUR CLIENT TO A BANKRUPTCY ATTORNEY?
Your typical client in financial distress will come to you with a wide array of financial challenges. They may have credit card debt, they may be in foreclosure, they may have high checking account overdrafts, or they may be personal guarantors on a business line of credit or commercial lease.
Although a client's first inclination would be to "work out" each financial problem separately, how do you know when to advise a client that he may be able to sweep all of his financial debt into one bankruptcy case?
A Chapter 7 bankruptcy case is designed to discharge most consumer and individual debt.
A Chapter 13 bankruptcy case is designed to protect your assets (your home and business) while paying only a portion of your debt and discharging the remaining debt.
In the past two years, the most common consumer and individual debts that have been discharged by my clients include:
Although a client's first inclination would be to "work out" each financial problem separately, how do you know when to advise a client that he may be able to sweep all of his financial debt into one bankruptcy case?
A Chapter 7 bankruptcy case is designed to discharge most consumer and individual debt.
A Chapter 13 bankruptcy case is designed to protect your assets (your home and business) while paying only a portion of your debt and discharging the remaining debt.
In the past two years, the most common consumer and individual debts that have been discharged by my clients include:
- Credit card debt
- Foreclosure deficiencies
- Medical bills
- Personal lines of credit
- Personal guaranties on business lines of credit and commercial leases
The following debts are usually not dischargeable in bankruptcy:
- Recent tax debt
- Student loans
- Alimony or Child Support
- Criminal penalties and restitution
- Fraudulent transfers of assets
The following assets may be wholly or partially protected in either a Chapter 7 or a Chapter 13 bankruptcy case:
- Pensions and IRA's
- $50,000 worth of home equity per spouse
- Certain automobiles
- Bank accounts
- Personal injury settlements
Protecting a client's assets while discharging his debts can be a complex balancing act. Although it may make sense to deposit $100,000 into an IRA or Trust to escape a client's creditors, such an act could jeopardize a Bankruptcy case and even lead a Trustee to recapture the assets and deliver them straight to creditors.
Many times, a global solution to a client's financial situation is preferable to a piece-meal solution. Often, filing a Bankruptcy case provides that global solution. Therefore, whether you are an accountant or an attorney, you will be able to counsel your clients more effectively regarding their financial crises.
Many times, a global solution to a client's financial situation is preferable to a piece-meal solution. Often, filing a Bankruptcy case provides that global solution. Therefore, whether you are an accountant or an attorney, you will be able to counsel your clients more effectively regarding their financial crises.
DO SMALL BUSINESSES NEED BANKRUPTCY?
Despite the White House’s claim that the recession is now officially over, thousands of small businesses closed their doors in 2009 and thousands of employees lost their jobs.
Many clients contact me to discuss their failing businesses, wondering if they should file a “Chapter 11”.
What most small business owners do not understand is that a Chapter 11 Bankruptcy is not a dissolution of their business.
A Chapter 11 Bankruptcy is only effective for those businesses that are continuing to generate revenue, but are being hobbled by creditors taking judgments against them, restraining bank accounts, merchant credit card accounts or proceeding with evictions. In that case, a Chapter 11 Bankruptcy will restrain the creditors long enough so that your client can use his revenue to reorganize his business and stay afloat.
But what happens when a small business owner is not generating enough revenue to continue his business?
If a small business is being shut down by its creditors, and is not generating between $200,000 and $1,000,000 in revenue (depending on the business), then it may be time to walk away from the business, and not try to reorganize through a Chapter 11 Bankruptcy.
Is it necessary to file a Bankruptcy case when dissolving a business?
No. In most cases a corporation can simply close its doors and walk away from its debt. If the corporation has no assets or inventory, then it is effectively “judgment-proof”, which means that creditors who hold judgments will not be able to collect anything, since no bank accounts or inventory exist.
The corporation merely winds up its business according to the Business Corporation Law, files a final tax return, files a certificate of dissolution with the Secretary of State, and stops operating. A corporate bankruptcy is not necessary.
Corporate liability vs. personal liability.
However, if your client is a sole proprietorship, then he is personally liable on all the business debt.
Also, even though a small business owner has formed a corporation, he must still examine his debts to determine whether personal liability may remain on the business debt.
Many clients contact me to discuss their failing businesses, wondering if they should file a “Chapter 11”.
What most small business owners do not understand is that a Chapter 11 Bankruptcy is not a dissolution of their business.
A Chapter 11 Bankruptcy is only effective for those businesses that are continuing to generate revenue, but are being hobbled by creditors taking judgments against them, restraining bank accounts, merchant credit card accounts or proceeding with evictions. In that case, a Chapter 11 Bankruptcy will restrain the creditors long enough so that your client can use his revenue to reorganize his business and stay afloat.
But what happens when a small business owner is not generating enough revenue to continue his business?
If a small business is being shut down by its creditors, and is not generating between $200,000 and $1,000,000 in revenue (depending on the business), then it may be time to walk away from the business, and not try to reorganize through a Chapter 11 Bankruptcy.
Is it necessary to file a Bankruptcy case when dissolving a business?
No. In most cases a corporation can simply close its doors and walk away from its debt. If the corporation has no assets or inventory, then it is effectively “judgment-proof”, which means that creditors who hold judgments will not be able to collect anything, since no bank accounts or inventory exist.
The corporation merely winds up its business according to the Business Corporation Law, files a final tax return, files a certificate of dissolution with the Secretary of State, and stops operating. A corporate bankruptcy is not necessary.
Corporate liability vs. personal liability.
However, if your client is a sole proprietorship, then he is personally liable on all the business debt.
Also, even though a small business owner has formed a corporation, he must still examine his debts to determine whether personal liability may remain on the business debt.
LOAN MODIFICATIONS THROUGH THE BANKRUPTCY COURT YOUR BEST CHANCE
Two weeks ago Neil Borofsky, the Special Inspector General for the government’s bank bailouts, called the government’s HAMP Mortgage Modification Program an abysmal failure. A Bill has been introduced in Congress to scrap the entire program and redirect the HAMP funds to building jobs.
A typical HAMP Loan Modification usually takes 6 months to 2 years (yes, 2 years) to complete, and only 7% of all loan modifications are ultimately successful.
In contrast, a Loan Modification conducted within a Chapter 13 Bankruptcy case can take approximately 2-3 months, and the success rate is closer to 50%.
Additionally, a Chapter 13 Bankruptcy case settles all other debt as well: credit card debt, business debt and medical bills. If a second mortgage is completely underwater, that mortgage may be “stripped down” to an unsecured debt and paid off for as low as two cents on the dollar.
Every Bankruptcy Judge from Brooklyn to Poughkeepsie has now adopted the “Loss Mitigation Procedures” to facilitate mortgage modifications within a bankruptcy case. The Loan Modification is tightly supervised by the Bankruptcy Court Judge. The Court first issues a tight and short time frame to complete the process. Each attorney is provided with the name, address and e-mail address of an assigned bank negotiator. The Court will hold regularly scheduled hearings, and require the parties to submit affidavits of progress with the Court.
Most importantly, the Bankruptcy Court prohibits a bank from proceeding with foreclosure while the Bankruptcy case proceeds.
A well planned Chapter 13 bankruptcy case can allow a family to enter into a comprehensive financial plan that will lower its mortgage payments, erase most, if not all, credit card debt and medical bills, and pay off a second unsecured mortgage, while preserving a family’s pension and retirement accounts in full. Most importantly, it can save your home.
Homeowners Are Found To Be In A Worse Position After A Loan Modification Fails
Than When They First Started Defaulting On Their Mortgages.
A recent article in The New York Times reports that the Obama administration’s mortgage relief program, originally intended to protect 3,000,000 households from foreclosure, now looks as if it will help as little as 1/6th of that number.
Another recent article reveals that only 7% percent of all Loan Modifications are ultimately successful.
The dropout rate from the Making Home Affordable Program (“HAMP”) now stands at 616,000 Loan Modifications cancelled by the banks. Thus far, only 422,000 Loan Modifications were approved in 2010, and that number is now drying up. Only 17,000 trial Modifications were started throughout the United States in July of 2010.
The tragedy of the failure of the Loan Modification programs is that homeowners are actually in a worse position after a failed Loan Modification than they were when they first started defaulting on their loans.
In most cases a Loan Modification takes approximately 6-9 months to complete. During that time, the homeowner is paying 50%-75% less than the regular mortgage payments. Once a Loan Modification fails, the banks demand the back mortgage payments or they proceed with the foreclosure sale. On an average, a nine month failed Loan Modification program could easily equal $18,000 - $36,000 of back mortgage payments for an average family. That family is now faced with the option of making an $18,000 payment to the bank to reinstate their loan, or to face an immediate foreclosure sale.
Another tragedy is that the legal foreclosure process does not stop during the application period for the Loan Modification. As a result, I see many clients who come to me days before a foreclosure sale is scheduled, having been notified by the bank that their Loan Modification is denied and that the foreclosure sale is going to proceed as scheduled.
The final tragedy in this drama is that during the Loan Modification trial period, families are continuing to juggle and pay debts, and may be withdrawing IRA and Pension funds to make their monthly mortgage payments or credit card payments.
As we all know by now, a well-planned bankruptcy case will allow a client to erase most if not all of his credit card debt, unload an unwanted car lease or second mortgage, and preserve his pension and retirement accounts in full. In a Chapter 13 Bankruptcy case the mortgage arrears can be paid out over a five year period, and most unsecured credit card debt can be paid off as low as 2 cents on the dollar.
A typical HAMP Loan Modification usually takes 6 months to 2 years (yes, 2 years) to complete, and only 7% of all loan modifications are ultimately successful.
In contrast, a Loan Modification conducted within a Chapter 13 Bankruptcy case can take approximately 2-3 months, and the success rate is closer to 50%.
Additionally, a Chapter 13 Bankruptcy case settles all other debt as well: credit card debt, business debt and medical bills. If a second mortgage is completely underwater, that mortgage may be “stripped down” to an unsecured debt and paid off for as low as two cents on the dollar.
Every Bankruptcy Judge from Brooklyn to Poughkeepsie has now adopted the “Loss Mitigation Procedures” to facilitate mortgage modifications within a bankruptcy case. The Loan Modification is tightly supervised by the Bankruptcy Court Judge. The Court first issues a tight and short time frame to complete the process. Each attorney is provided with the name, address and e-mail address of an assigned bank negotiator. The Court will hold regularly scheduled hearings, and require the parties to submit affidavits of progress with the Court.
Most importantly, the Bankruptcy Court prohibits a bank from proceeding with foreclosure while the Bankruptcy case proceeds.
A well planned Chapter 13 bankruptcy case can allow a family to enter into a comprehensive financial plan that will lower its mortgage payments, erase most, if not all, credit card debt and medical bills, and pay off a second unsecured mortgage, while preserving a family’s pension and retirement accounts in full. Most importantly, it can save your home.
Homeowners Are Found To Be In A Worse Position After A Loan Modification Fails
Than When They First Started Defaulting On Their Mortgages.
A recent article in The New York Times reports that the Obama administration’s mortgage relief program, originally intended to protect 3,000,000 households from foreclosure, now looks as if it will help as little as 1/6th of that number.
Another recent article reveals that only 7% percent of all Loan Modifications are ultimately successful.
The dropout rate from the Making Home Affordable Program (“HAMP”) now stands at 616,000 Loan Modifications cancelled by the banks. Thus far, only 422,000 Loan Modifications were approved in 2010, and that number is now drying up. Only 17,000 trial Modifications were started throughout the United States in July of 2010.
The tragedy of the failure of the Loan Modification programs is that homeowners are actually in a worse position after a failed Loan Modification than they were when they first started defaulting on their loans.
In most cases a Loan Modification takes approximately 6-9 months to complete. During that time, the homeowner is paying 50%-75% less than the regular mortgage payments. Once a Loan Modification fails, the banks demand the back mortgage payments or they proceed with the foreclosure sale. On an average, a nine month failed Loan Modification program could easily equal $18,000 - $36,000 of back mortgage payments for an average family. That family is now faced with the option of making an $18,000 payment to the bank to reinstate their loan, or to face an immediate foreclosure sale.
Another tragedy is that the legal foreclosure process does not stop during the application period for the Loan Modification. As a result, I see many clients who come to me days before a foreclosure sale is scheduled, having been notified by the bank that their Loan Modification is denied and that the foreclosure sale is going to proceed as scheduled.
The final tragedy in this drama is that during the Loan Modification trial period, families are continuing to juggle and pay debts, and may be withdrawing IRA and Pension funds to make their monthly mortgage payments or credit card payments.
As we all know by now, a well-planned bankruptcy case will allow a client to erase most if not all of his credit card debt, unload an unwanted car lease or second mortgage, and preserve his pension and retirement accounts in full. In a Chapter 13 Bankruptcy case the mortgage arrears can be paid out over a five year period, and most unsecured credit card debt can be paid off as low as 2 cents on the dollar.
COORDINATING YOUR FORECLOSURE DEFENSE WITH BANKRUPTCY STRATEGIES
Two years ago most of my clients would have done anything to remain in their homes and survive a foreclosure action.
Now, since the drastic decline in home values and the increase of unemployment, many families are more than happy to walk away from their home and mortgages. A typical homeowner in Rockland County may have a first mortgage and a Home Equity Line of Credit (“HELOC”) that exceeds the value of the home. If they are not already in foreclosure, then they are struggling to make the monthly mortgage payments and still keep up with their monthly living expenses.
Once a foreclosure action is commenced, a homeowner’s first reaction may be to “save the house” at any cost. They may borrow money to pay the arrears, or attempt to modify the loan and continue paying lower, yet still unaffordable, mortgage payments. It takes a while for a homeowner to psychologically admit that they may be financially better off surrendering the home to the bank.
A client that decides to surrender his home must first calculate the consequences of a surrender, especially in light of a potential bankruptcy filing.
A recent Morgan Stanley report reveals that many homeowners have been intentionally defaulting on their home mortgages, or letting the foreclosure action take its course through the court system (typically 9-12 months in Rockland County). In the interim, these homeowners have saved months of mortgage and real estate tax payments, as well as the everyday expenses of home maintenance (new boiler, new roof, etc.) These homeowners have been able to save a nest egg in order to move and secure a rental apartment.
However, having your home reach a foreclosure sale entails certain dangers. Once the house is sold to a third party or the deed is transferred to the bank, the bank is entitled to sue the homeowner for the “deficiency” (the mortgage amounts less the actual sale price of the home). In today’s economy, the first mortgage lender may not recover its full mortgage, and the HELOC lender may recover nothing. The average deficiency judgment in Rockland County may range from $50,000 to $200,000.
This “Deficiency Judgment” is an unsecured debt, which may or may not be discharged in a bankruptcy case, depending on the client’s financial situation (see my website for the different requirements of a Chapter 7 and 13 Bankruptcy filing).
Obviously, a homeowner should discuss his foreclosure defense strategy with a bankruptcy attorney before proceeding in the State Court. It may be beneficial to file a bankruptcy case during the foreclosure action, which would delay the foreclosure and ensure that the mortgage(s) are truly discharged when the house is sold. Alternatively, it may be beneficial to delay a bankruptcy filing until after a foreclosure sale is completed, when all real estate taxes are satisfied and you can best judge the amount of the deficiency a client is facing.
It is always best to seek the advice of a competent bankruptcy attorney before defending a foreclosure action. Anticipating the bankruptcy consequences will enable your client to decide how best to defend, or not to defend, the foreclosure action.
Now, since the drastic decline in home values and the increase of unemployment, many families are more than happy to walk away from their home and mortgages. A typical homeowner in Rockland County may have a first mortgage and a Home Equity Line of Credit (“HELOC”) that exceeds the value of the home. If they are not already in foreclosure, then they are struggling to make the monthly mortgage payments and still keep up with their monthly living expenses.
Once a foreclosure action is commenced, a homeowner’s first reaction may be to “save the house” at any cost. They may borrow money to pay the arrears, or attempt to modify the loan and continue paying lower, yet still unaffordable, mortgage payments. It takes a while for a homeowner to psychologically admit that they may be financially better off surrendering the home to the bank.
A client that decides to surrender his home must first calculate the consequences of a surrender, especially in light of a potential bankruptcy filing.
A recent Morgan Stanley report reveals that many homeowners have been intentionally defaulting on their home mortgages, or letting the foreclosure action take its course through the court system (typically 9-12 months in Rockland County). In the interim, these homeowners have saved months of mortgage and real estate tax payments, as well as the everyday expenses of home maintenance (new boiler, new roof, etc.) These homeowners have been able to save a nest egg in order to move and secure a rental apartment.
However, having your home reach a foreclosure sale entails certain dangers. Once the house is sold to a third party or the deed is transferred to the bank, the bank is entitled to sue the homeowner for the “deficiency” (the mortgage amounts less the actual sale price of the home). In today’s economy, the first mortgage lender may not recover its full mortgage, and the HELOC lender may recover nothing. The average deficiency judgment in Rockland County may range from $50,000 to $200,000.
This “Deficiency Judgment” is an unsecured debt, which may or may not be discharged in a bankruptcy case, depending on the client’s financial situation (see my website for the different requirements of a Chapter 7 and 13 Bankruptcy filing).
Obviously, a homeowner should discuss his foreclosure defense strategy with a bankruptcy attorney before proceeding in the State Court. It may be beneficial to file a bankruptcy case during the foreclosure action, which would delay the foreclosure and ensure that the mortgage(s) are truly discharged when the house is sold. Alternatively, it may be beneficial to delay a bankruptcy filing until after a foreclosure sale is completed, when all real estate taxes are satisfied and you can best judge the amount of the deficiency a client is facing.
It is always best to seek the advice of a competent bankruptcy attorney before defending a foreclosure action. Anticipating the bankruptcy consequences will enable your client to decide how best to defend, or not to defend, the foreclosure action.
PERSONAL INJURY ACTIONS AND BANKRUPTCY
The Federal Bankruptcy Code, deferring to the New York Debtor & Creditor Law Section 282, allows an individual a "personal injury exemption" of $7,500 of a personal injury settlement recovered by debtors in New York State ("not including pain and suffering or compensation for actual pecuniary loss...or a payment in compensation of loss of future earning.")
Many times a client will come in for a bankruptcy consultation and advise me that she is a plaintiff in a personal injury lawsuit, or that she is still within the Statute of Limitations (3 years) to commence a personal injury action.
The personal injury action, or the right to sue for a personal injury, is deemed an asset of the debtor under the Bankruptcy Code.
If the debtor files a bankruptcy while the personal injury lawsuit is pending, or during the Statute of Limitations period, then the Bankruptcy Trustee assigned to the bankruptcy case receives an automatic lien on any potential proceeds, and has the right to either take over the personal injury litigation, or retain the personal injury attorney as the Trustee’s attorney, thereby ensuring that the Trustee will recover any personal injury recovery in excess of $7,500. The remainder of the personal injury settlement in excess of the first $7,500 will be used to pay the Trustee, the Trustee’s attorney or personal injury attorney, and the remaining creditors.
Some complications may arise when a personal injury attorney has already received the proceeds of a settlement, or has promised medical creditors or medical experts a lien on the settlement proceeds.
There are options available to the debtor, and strategic bankruptcy planning between the bankruptcy attorney and the personal injury attorney is essential. Some debtors may need to file a bankruptcy case while the personal injury case is still pending (to stop a foreclosure sale or creditor bank restraint or garnishment). A Chapter 13 bankruptcy filing can usually be commenced and then voluntarily withdrawn, but a Chapter 7 case can not be withdrawn, especially with a personal injury action that counts as a potential asset of the debtor.
Therefore, if a client is contemplating a bankruptcy while the personal injury lawsuit is pending or during the Statute of Limitations period, it is best to consult a competent bankruptcy attorney before commencing suit or settling the personal injury action.
MORE PEOPLE ARE WITHDRAWING FUNDS FROM THEIR 401K'S TO SUPPLEMENT THEIR INCOME...THAT'S A REAL SHAME
A recent article by Reuters reported on the growing number of people who are withdrawing funds from their retirement accounts in order to make it through the economic downturn.
It seems that 22% of all participants in Fidelity Investments have loans or withdrawals against their 401(k) accounts. Loans and withdrawals against 401(k) Plans are highest amongst workers between 35 and 55 years of age, which should be an individual’s peak earnings and savings years.
This means that U.S. citizens are tapping into their 401(k) Plans to meet their daily living expenses as well as to prevent foreclosures or creditors’ actions.
Additionally, unemployment benefits have been running out and unemployed workers are seeking income from their 401(k) Plans.
As I have repeated on numerous occasions, under the Bankruptcy Code, 401(k) Plans, IRA’s, and pension or profit sharing plans are exempt from a bankruptcy case. Therefore, a debtor can keep unlimited funds in these protected accounts even though they are filing for a Chapter 7 or Chapter 13 bankruptcy.
The bottom line is that many of my clients come to me after years of trying to settle their debt, or cover their basic living expenses by withdrawing tens of thousands of dollars from their 401(k) and IRA’s. This is a real shame.
Emptying your 401(k) account is a step toward insolvency. Filing a bankruptcy case is a step toward financial solvency. A well-planned bankruptcy case will allow a client to erase most if not all of his credit card debt, unload an unwanted car lease or second mortgage, and preserve his pension and retirement accounts in full. All bankruptcy debtors are also allowed $50,000 equity in their home (for each spouse), and/or $5,000 in the bank. (Legislation is currently pending in Albany to increase these allowances to $150,000 of equity for each spouse and $10,000 in the bank.)
Emerging from a bankruptcy case with all retirement funds intact, up to $100,000 - $300,000 home equity intact, and $5,000 - $10,000 in the bank allows most clients to move forward with a strong financial foundation.
Many times a client will come in for a bankruptcy consultation and advise me that she is a plaintiff in a personal injury lawsuit, or that she is still within the Statute of Limitations (3 years) to commence a personal injury action.
The personal injury action, or the right to sue for a personal injury, is deemed an asset of the debtor under the Bankruptcy Code.
If the debtor files a bankruptcy while the personal injury lawsuit is pending, or during the Statute of Limitations period, then the Bankruptcy Trustee assigned to the bankruptcy case receives an automatic lien on any potential proceeds, and has the right to either take over the personal injury litigation, or retain the personal injury attorney as the Trustee’s attorney, thereby ensuring that the Trustee will recover any personal injury recovery in excess of $7,500. The remainder of the personal injury settlement in excess of the first $7,500 will be used to pay the Trustee, the Trustee’s attorney or personal injury attorney, and the remaining creditors.
Some complications may arise when a personal injury attorney has already received the proceeds of a settlement, or has promised medical creditors or medical experts a lien on the settlement proceeds.
There are options available to the debtor, and strategic bankruptcy planning between the bankruptcy attorney and the personal injury attorney is essential. Some debtors may need to file a bankruptcy case while the personal injury case is still pending (to stop a foreclosure sale or creditor bank restraint or garnishment). A Chapter 13 bankruptcy filing can usually be commenced and then voluntarily withdrawn, but a Chapter 7 case can not be withdrawn, especially with a personal injury action that counts as a potential asset of the debtor.
Therefore, if a client is contemplating a bankruptcy while the personal injury lawsuit is pending or during the Statute of Limitations period, it is best to consult a competent bankruptcy attorney before commencing suit or settling the personal injury action.
MORE PEOPLE ARE WITHDRAWING FUNDS FROM THEIR 401K'S TO SUPPLEMENT THEIR INCOME...THAT'S A REAL SHAME
A recent article by Reuters reported on the growing number of people who are withdrawing funds from their retirement accounts in order to make it through the economic downturn.
It seems that 22% of all participants in Fidelity Investments have loans or withdrawals against their 401(k) accounts. Loans and withdrawals against 401(k) Plans are highest amongst workers between 35 and 55 years of age, which should be an individual’s peak earnings and savings years.
This means that U.S. citizens are tapping into their 401(k) Plans to meet their daily living expenses as well as to prevent foreclosures or creditors’ actions.
Additionally, unemployment benefits have been running out and unemployed workers are seeking income from their 401(k) Plans.
As I have repeated on numerous occasions, under the Bankruptcy Code, 401(k) Plans, IRA’s, and pension or profit sharing plans are exempt from a bankruptcy case. Therefore, a debtor can keep unlimited funds in these protected accounts even though they are filing for a Chapter 7 or Chapter 13 bankruptcy.
The bottom line is that many of my clients come to me after years of trying to settle their debt, or cover their basic living expenses by withdrawing tens of thousands of dollars from their 401(k) and IRA’s. This is a real shame.
Emptying your 401(k) account is a step toward insolvency. Filing a bankruptcy case is a step toward financial solvency. A well-planned bankruptcy case will allow a client to erase most if not all of his credit card debt, unload an unwanted car lease or second mortgage, and preserve his pension and retirement accounts in full. All bankruptcy debtors are also allowed $50,000 equity in their home (for each spouse), and/or $5,000 in the bank. (Legislation is currently pending in Albany to increase these allowances to $150,000 of equity for each spouse and $10,000 in the bank.)
Emerging from a bankruptcy case with all retirement funds intact, up to $100,000 - $300,000 home equity intact, and $5,000 - $10,000 in the bank allows most clients to move forward with a strong financial foundation.
HOMEOWNERS ARE FOUND TO BE IN A WORSE POSITION AFTER A LOAN MODIFICATION FAILS THAN WHEN THEY FIRST DEFAULTED ON THEIR MORTGAGES
A recent article in The New York Times reports that the Obama administration’s mortgage relief program, originally intended to protect 3,000,000 households from foreclosure, now looks as if it will help as little as 1/6th of that number.
Another recent article reveals that only 7% percent of all Loan Modifications are ultimately successful.
The dropout rate from the Making Home Affordable Program (“HAMP”) now stands at 616,000 Loan Modifications cancelled by the banks. Thus far, only 422,000 Loan Modifications were approved in 2010, and that number is now drying up. Only 17,000 trial Modifications were started throughout the United States in July of 2010.
The tragedy of the failure of the Loan Modification programs is that homeowners are actually in a worse position after a failed Loan Modification than they were when they first started defaulting on their loans.
In most cases a Loan Modification takes approximately 6-9 months to complete. During that time, the homeowner is paying 50%-75% less than the regular mortgage payments. Once a Loan Modification fails, the banks demand the back mortgage payments or they proceed with the foreclosure sale. On an average, a nine month failed Loan Modification program could easily equal $18,000 - $36,000 of back mortgage payments for an average family. That family is now faced with the option of making an $18,000 payment to the bank to reinstate their loan, or to face an immediate foreclosure sale.
Another tragedy is that the legal foreclosure process does not stop during the application period for the Loan Modification. As a result, I see many clients who come to me days before a foreclosure sale is scheduled, having been notified by the bank that their Loan Modification is denied and that the foreclosure sale is going to proceed as scheduled.
The final tragedy in this drama is that during the Loan Modification trial period, families are continuing to juggle and pay debts, and may be withdrawing IRA and Pension funds to make their monthly mortgage payments or credit card payments.
As we all know by now, a well-planned bankruptcy case will allow a client to erase most if not all of his credit card debt, unload an unwanted car lease or second mortgage, and preserve his pension and retirement accounts in full. In a Chapter 13 Bankruptcy case the mortgage arrears can be paid out over a five year period, and most unsecured credit card debt can be paid off as low as 2 cents on the dollar.
Another recent article reveals that only 7% percent of all Loan Modifications are ultimately successful.
The dropout rate from the Making Home Affordable Program (“HAMP”) now stands at 616,000 Loan Modifications cancelled by the banks. Thus far, only 422,000 Loan Modifications were approved in 2010, and that number is now drying up. Only 17,000 trial Modifications were started throughout the United States in July of 2010.
The tragedy of the failure of the Loan Modification programs is that homeowners are actually in a worse position after a failed Loan Modification than they were when they first started defaulting on their loans.
In most cases a Loan Modification takes approximately 6-9 months to complete. During that time, the homeowner is paying 50%-75% less than the regular mortgage payments. Once a Loan Modification fails, the banks demand the back mortgage payments or they proceed with the foreclosure sale. On an average, a nine month failed Loan Modification program could easily equal $18,000 - $36,000 of back mortgage payments for an average family. That family is now faced with the option of making an $18,000 payment to the bank to reinstate their loan, or to face an immediate foreclosure sale.
Another tragedy is that the legal foreclosure process does not stop during the application period for the Loan Modification. As a result, I see many clients who come to me days before a foreclosure sale is scheduled, having been notified by the bank that their Loan Modification is denied and that the foreclosure sale is going to proceed as scheduled.
The final tragedy in this drama is that during the Loan Modification trial period, families are continuing to juggle and pay debts, and may be withdrawing IRA and Pension funds to make their monthly mortgage payments or credit card payments.
As we all know by now, a well-planned bankruptcy case will allow a client to erase most if not all of his credit card debt, unload an unwanted car lease or second mortgage, and preserve his pension and retirement accounts in full. In a Chapter 13 Bankruptcy case the mortgage arrears can be paid out over a five year period, and most unsecured credit card debt can be paid off as low as 2 cents on the dollar.
NEW HOPE FOR SMALL BUSINESSES
U.S. Treasury provides an additional $608 million to
Small Business Lending Fund
The U.S. Treasury recently announced that an additional 61 community banks would receive $608 million to lend to small businesses through the Small Business Lending Fund (SBLF).
The SBLF was enacted into law by President Obama as part of the Small Business Job Acts of 2010. It is a dedicated fund that encourages lending to small businesses through small community banks.
Thus far, the SBLF has provided approximately $2.4 billion in funding to 191 community banks across the country.
The interest rate paid by the community banks to the SBLF is dramatically reduced, providing a strong incentive for those banks to provide lending to small businesses at lower interest rates.
Small businesses employ roughly 1/2 of all Americans and currently account for approximately 60% of current job creation. Nonetheless, small business owners were the hardest hit during the recent recession, and most banks cut the lines of credit available to small businesses.
The Small Business Jobs Act has also initiated 17 direct tax breaks to small businesses to support job creation, investment and growth.
To find a participating community bank near you, go to the U.S. Treasury website at www.treasury.gov.
The Law Offices of Allen A. Kolber, Esq., offers full service support for businesses and individuals throughout the five boroughs of NYC and the Hudson Valley. Our clients are entrepreneurs, investors, partnerships, and small to midsize companies and corporations.
Our firm has particular expertise in starting a new business or purchasing an existing business, including:
The SBLF was enacted into law by President Obama as part of the Small Business Job Acts of 2010. It is a dedicated fund that encourages lending to small businesses through small community banks.
Thus far, the SBLF has provided approximately $2.4 billion in funding to 191 community banks across the country.
The interest rate paid by the community banks to the SBLF is dramatically reduced, providing a strong incentive for those banks to provide lending to small businesses at lower interest rates.
Small businesses employ roughly 1/2 of all Americans and currently account for approximately 60% of current job creation. Nonetheless, small business owners were the hardest hit during the recent recession, and most banks cut the lines of credit available to small businesses.
The Small Business Jobs Act has also initiated 17 direct tax breaks to small businesses to support job creation, investment and growth.
To find a participating community bank near you, go to the U.S. Treasury website at www.treasury.gov.
The Law Offices of Allen A. Kolber, Esq., offers full service support for businesses and individuals throughout the five boroughs of NYC and the Hudson Valley. Our clients are entrepreneurs, investors, partnerships, and small to midsize companies and corporations.
Our firm has particular expertise in starting a new business or purchasing an existing business, including:
- Sale or purchase of stock or assets
- Employment and Consulting Agreements
- Franchise agreements
- Partnership or Shareholder Agreements
- Financing or leasing
- Banking and loan transactions including loan workouts
AMERICA'S MIDDLE CLASS DISCOVERS BANKRUPTCY PROTECTION
In 2010, nearly 1.5 million families filed for bankruptcy protection. That is nearly 80 times greater than the number of individuals who filed for bankruptcy during the Great Depression. In the past 25 years, personal bankruptcy filings have climbed nearly 350%.
…if GM and Trump can do it, why can’t I?
Finally, the stigma of personal bankruptcy is gone. Finally, the American middle class is waking up to the fact that they, too, are entitled to government protection, just as General Motors, Ford and Chrysler (Congress injected $25 billion to restructure their debt) and Donald Trump (corporations bearing his name have filed for bankruptcy protection 4 times and Trump is still valued at approximately $2.7 billion). Forbes Magazine quoted Trump as saying that “great entrepreneurs” have used bankruptcy to restructure debt, free up capital, and improve their businesses. “Basically I have used the laws of the country to my advantage . . . just as many, many others on top of the business world have.”
Other millionaires who have filed for Bankruptcy protection? Henry Heinz (ketchup magnate), Milton Hershey (chocolate magnate), Henry Ford, Charles Goodyear (rubber magnate), PT Barnum, Michael Jackson, Elton John, Mike Tyson….and Walt Disney.
…our clients are middle class
Most of my bankruptcy clients are middle class families with both spouses working, they own a home or condo, one or both spouses has a college or Masters Degree, they have paid for their children’s college educations, or are currently paying their children’s student loans due to the fact that their children cannot find jobs after graduating college.
A recent poll describes the typical bankruptcy filer in America as follows:
Housing and mortgage debt (first and second mortgages) is at an all time high. Rising health care costs, heating fuel and gasoline costs further eat into the middle class budget. A college education now costs in excess of $80,000. Most of my middle class clients are already living on the edge and are barely making ends meet, or are supplementing their income with credit cards or loans against their 401(k)’s.
A recent poll found that America is now saving at a negative rate (individuals living off of their savings or, worse, borrowing against their 401(k) or pension plan).
A middle class family that is hit by loss of a job, divorce or illness tips straight into the abyss of debt.
…but isn’t it immoral to file Bankruptcy?
Homeowners and individuals in debt often feel that it is “wrong” or “immoral” to file a Bankruptcy and “cheat” their creditors. They think filing for Bankruptcy protection will make them morally bankrupt as well.
There are no moral or ethical issues in filing a Bankruptcy case, just as there were no moral or ethical issues contained in the contract you entered into with your credit card company or mortgage lender.
Both Federal & State laws allow credit card companies and mortgage lenders to adjust their interest rates, charge you late fees, over the limit fees and other penalties. If you are late in making a payment, US law allows your creditor to use a collection agency to harass you, or sue you in court. If the creditor obtains a judgment against you, the law allows the creditor to freeze your bank account, garnish your wages, repossess your car or sell your home in foreclosure.
The same United States law also enacted the U.S. Bankruptcy Code, which allows all eligible debtors (GM, Trump or you) to eliminate or restructure their debt, stop lawsuits, wage garnishments, bank restraints, foreclosures or repossessions.
The same U.S. Bankruptcy Code will protect up to $1 million of your retirement funds, $300,000 equity in your home, 2-3 cars and $10,000 in the bank. The Bankruptcy Code is called “The Fresh Start”.
Why should the American middle class family take a stand and declare that it will ride out the financial crisis by itself while the largest corporations and wealthiest individuals in America utilize the government laws to their advantage?
Even the European Union and Japan are enacting broad bankruptcy laws in order to generate more business and entrepreneurship. The new bankruptcy laws allow businesses to take more risks, and receive government protection if those risks fail.
Don’t just take it from me; take it from the wealthiest individuals and corporations in America. Filing a bankruptcy case is not dishonorable. It is the smartest economic path toward financial stability.
…if GM and Trump can do it, why can’t I?
Finally, the stigma of personal bankruptcy is gone. Finally, the American middle class is waking up to the fact that they, too, are entitled to government protection, just as General Motors, Ford and Chrysler (Congress injected $25 billion to restructure their debt) and Donald Trump (corporations bearing his name have filed for bankruptcy protection 4 times and Trump is still valued at approximately $2.7 billion). Forbes Magazine quoted Trump as saying that “great entrepreneurs” have used bankruptcy to restructure debt, free up capital, and improve their businesses. “Basically I have used the laws of the country to my advantage . . . just as many, many others on top of the business world have.”
Other millionaires who have filed for Bankruptcy protection? Henry Heinz (ketchup magnate), Milton Hershey (chocolate magnate), Henry Ford, Charles Goodyear (rubber magnate), PT Barnum, Michael Jackson, Elton John, Mike Tyson….and Walt Disney.
…our clients are middle class
Most of my bankruptcy clients are middle class families with both spouses working, they own a home or condo, one or both spouses has a college or Masters Degree, they have paid for their children’s college educations, or are currently paying their children’s student loans due to the fact that their children cannot find jobs after graduating college.
A recent poll describes the typical bankruptcy filer in America as follows:
- a middle class head of household with children and a full-time job.
- better educated than the general population.
- almost all bankruptcy filers suffered a catastrophic personal event such as loss of employment, divorce or serious medical issues.
- homeowners who were defrauded into obtaining first and second subprime mortgages.
- seniors on a limited income with extraordinary medical expenses.
- unemployed or underemployed college graduates with student debt reaching $100,000.
Housing and mortgage debt (first and second mortgages) is at an all time high. Rising health care costs, heating fuel and gasoline costs further eat into the middle class budget. A college education now costs in excess of $80,000. Most of my middle class clients are already living on the edge and are barely making ends meet, or are supplementing their income with credit cards or loans against their 401(k)’s.
A recent poll found that America is now saving at a negative rate (individuals living off of their savings or, worse, borrowing against their 401(k) or pension plan).
A middle class family that is hit by loss of a job, divorce or illness tips straight into the abyss of debt.
…but isn’t it immoral to file Bankruptcy?
Homeowners and individuals in debt often feel that it is “wrong” or “immoral” to file a Bankruptcy and “cheat” their creditors. They think filing for Bankruptcy protection will make them morally bankrupt as well.
There are no moral or ethical issues in filing a Bankruptcy case, just as there were no moral or ethical issues contained in the contract you entered into with your credit card company or mortgage lender.
Both Federal & State laws allow credit card companies and mortgage lenders to adjust their interest rates, charge you late fees, over the limit fees and other penalties. If you are late in making a payment, US law allows your creditor to use a collection agency to harass you, or sue you in court. If the creditor obtains a judgment against you, the law allows the creditor to freeze your bank account, garnish your wages, repossess your car or sell your home in foreclosure.
The same United States law also enacted the U.S. Bankruptcy Code, which allows all eligible debtors (GM, Trump or you) to eliminate or restructure their debt, stop lawsuits, wage garnishments, bank restraints, foreclosures or repossessions.
The same U.S. Bankruptcy Code will protect up to $1 million of your retirement funds, $300,000 equity in your home, 2-3 cars and $10,000 in the bank. The Bankruptcy Code is called “The Fresh Start”.
Why should the American middle class family take a stand and declare that it will ride out the financial crisis by itself while the largest corporations and wealthiest individuals in America utilize the government laws to their advantage?
Even the European Union and Japan are enacting broad bankruptcy laws in order to generate more business and entrepreneurship. The new bankruptcy laws allow businesses to take more risks, and receive government protection if those risks fail.
Don’t just take it from me; take it from the wealthiest individuals and corporations in America. Filing a bankruptcy case is not dishonorable. It is the smartest economic path toward financial stability.
FEDERAL REGULATORS REDUCE BARRIERS TO MORTGAGE REFINANCING…………BUT NOT ENOUGH
On Monday, October 24, 2011, the government announced several changes to the Home Affordable Refinance Program (HARP) to allow more homeowners to refinance their mortgages and take advantage of the current historically low interest rates.
Most importantly, the revised HARP Program will allow homeowners whose homes are more than 25% “under water” to become eligible to refinance at lower interest rates. Homes are defined as “under water” when the value of the mortgage exceeds the current value of the home.
However, as with many government programs, the new HARP Program will not benefit homeowners who are delinquent in their mortgage payments or are in active foreclosure.
Eligibility criteria for this program is strict, and includes the following:
For those of you or your clients who are weathering the current recession, the revised HARP Program may allow you to benefit from the current economic crisis.
For those one million Americans who are facing foreclosure this year, the HARP Program will not bring the relief so sorely needed.
Most importantly, the revised HARP Program will allow homeowners whose homes are more than 25% “under water” to become eligible to refinance at lower interest rates. Homes are defined as “under water” when the value of the mortgage exceeds the current value of the home.
However, as with many government programs, the new HARP Program will not benefit homeowners who are delinquent in their mortgage payments or are in active foreclosure.
Eligibility criteria for this program is strict, and includes the following:
- The existing mortgage must be owned by Fanny Mae or Freddy Mac.
- The homeowner must be current on his/her loan. Only one late payment during the past twelve months will be acceptable.
- The homeowner may not be in foreclosure.
- The original loan may not be a sub-prime loan.
- The home can be a primary residence, condominium, co-op or investment property.
For those of you or your clients who are weathering the current recession, the revised HARP Program may allow you to benefit from the current economic crisis.
For those one million Americans who are facing foreclosure this year, the HARP Program will not bring the relief so sorely needed.
