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A Call To Action: Help Increase Virginia’s Bankruptcy Exemptions
August 18th, 2010 by Robert Brandt | View Comments | Filed under Things That Make You Go Hmm...Fact: In a given year, more people will file for bankruptcy than will file for divorce. Think about that for a moment. Everyone seems to know at least one person who has gone through a divorce or is in the midst of a divorce. My point? Your family members, friends, neighbors, and friends of friends have or may need to file for bankruptcy at some point. The grim statistics that you hear these days regarding people filing for bankruptcy are not mere numbers or invisible figures. And these folks filing for bankruptcy come from all walks of life. They are teachers, federal employees, lawyers (that's right, not all lawyers are wealthy and some lawyers even have to file for bankruptcy), folks who have recently divorced, retirees, etc. You would be surprised to learn just how many faces you recognize! In fact, it is very likely that you know someone who did or will be filing for bankruptcy at some point in their lifetime-they may have simply omitted to tell you about it.
Faced with these facts, some of the bankruptcy lawyers in the Northern Virginia area and other part of Virginia as well as myself, with attorney Bob Barlow leading the way, are lobbying Virginia’s General Assembly to amend and enhance the bankruptcy exemptions. Now we need your help! These laws affect you, the consumer. Given the economic times that we are facing, let’s make sure there are adequate measures in place to help folks get a fresh start when filing for bankruptcy in Virginia. We believe that if Virginia’s legislatures begin to hear from the public at large, changes in the law will occur.
As my previous blog explains Why Virginia's Bankruptcy Exemption Laws Must Be Amended, Virginia’s current bankruptcy laws due an inadequate job of exempting people’s assets which sometimes prevents people from filing for bankruptcy protection. See also, Bankruptcy and The Disadvantage of Having Equity in Virginia, if you like. As a result, some of the leading Virginia bankruptcy lawyers are proposing some changes. Take a look at the bottom of this article to read the exact proposal. In short, we are asking Virginia’s legislatures for the following:
- Allow individuals to adequately protect the equity in their home by creating a homestead deed exemption with a limit of $40,000 instead of the current $5,000.
- Give the residents of Virginia a choice between using Virginia or Federal bankruptcy exemptions when filing. The Federal bankruptcy exemption scheme is currently far more generous.
- Protect an individual’s bank accounts through a wildcard exemption.
To help fight for fair laws that adequately meet the needs of the consumers, please fill out a short form online by visiting the Virginia Consumer Bankruptcy Association website located at http://www.vacba.org/. By signing this form, we are asking that you commit to signing a petition, a previously prepared letter, or making a few phone calls to your elected officials. For individuals who are facing bankruptcy, the stakes are high. Let’s tell the Virginia General Assembly they need to help their residents by securing just bankruptcy exemption laws.
General consensus reached as to the following.
Re: 34-26 and 34-4: Increase values. Not changed since 1977.
34-26 Add a firearm exemption to entice the National Rifle Association to support this bill.
34-26 Auto exemption: increase to $5,000.00 (2k is a dangerous vehicle)
34-26 Add specific exemptions for books and jewelry (not wedding) approx $500-1000.
34-4.1 Change to classic wildcard of $10,000. Including Real Property that is not principle residence.
34.4.3 Add true homestead. 20% of median home price offered. Would be approximately $40,000 today and would rise as prices rise.
34-29 Add EIC exemption for tax refunds.
34-4 Allow choice of Federal or State exemptions in bankruptcy (current scheme penalizes permanent Virginia citizens in that short timers and folks who previously filed in other states get to utilize federal exemptions or avoid lifetime limitation).
34-4 End lifetime limitation. Allow wildcard and homestead every 7 years.
Why Virginia’s Bankruptcy Exemption Laws Must Be Amended.
August 9th, 2010 by Robert Brandt | View Comments | Filed under Things That Make You Go Hmm...I am fond of saying that Virginia is not really for lovers, but rather for creditors. It is no secret that Virginia tends to have a creditor bend to it. Case in point, Virginia’s bankruptcy exemptions which can only be described as meager. In fact, the bankruptcy exemption laws in
Why am I being so hard on
But for others considering filing for bankruptcy, the situation is much worse. Being forced into a chapter 13 bankruptcy may mean not being able to file for bankruptcy at all. Why? Because the amount of money that the individual would be expected to pay in a chapter 13 plan may simply be cost prohibitive; they would have to pay far more than they can afford.
So what does this all mean? Who is really affected by
Grandma Rose: Working hard for the last 30 years, Grandma Rose was forced into an early retirement due to poor health. Her only source of income since retirement has been her monthly $2,200 pension. She continues to live in the house she raised her family in and over the years has built up $70,000 in equity. After depleting her retirement savings to keep up with the mortgage and her other expenses, Grandma Rose has to turn to credit cards in order to meet her monthly expenses, and life’s other emergencies that have come up along the way. She manages to live this way for many years, but finally, she reaches her breaking point. She now owes $60,000 to the credit card companies and cannot even keep up with the monthly minimum monthly payments owed to the credit card companies any more. She hopes that bankruptcy can offer her some relief.
Divorcee Janet: After 15 years of marriage, Janet and her husband filed for divorce. Because it was agreed that she would have sole physical custody of the two boys, the divorce settlement stated that Janet would keep the marital home. The home has about $50,000 in equity. Having been a stay-at-home mother for the last 12 years, Divorcee Janet had recently re-entered the workforce and began working as an office manager. Living under one income, Janet manages for several years and is beginning to feel secure in her new life. But then the economy takes a turn for the worse and Janet loses her job. After 2 years of menial part-time work with no health insurance, Janet finally lands a full time job, one that barely keeps her afloat in her expenses. Meanwhile, her credit card debt has spiraled out of control, reaching $30,000 in debt. Janet wants to file for bankruptcy.
So can Grandma Rose and Divorcee Janet find some relief by filing for bankruptcy? In at least 40 states in the country, these ladies could file a chapter 7 bankruptcy, wipe out their credit card debt, and move on with their lives. But not in Virginia. As a result of their sizable equity in their respective homes, their only option is a chapter 13 bankruptcy filing. In this scheme, Rose would be expected to pay something along the lines of $50,000 over the course of 5 years, and Janet would be expected to pay the full amount of $30,000 over the next 5 years. That’s payments of over $800 per month for Grandma Rose and $500 per month for Divorcee Janet! After paying their mortgage and utilities, these women can barely put food on the table let alone pay an additional $800/$500 to the credit card companies. Bankruptcy is essentially not an option for them. These women cannot get any financial relief. These women will likely have to deal with creditors hounding them, phone calls at all hours of the day, lawsuits, and garnishment for the rest of their lives.
And if you think the foregoing illustrations are unique situations, you are mistaken. Unfortunately, Grandma Rose and Divorcee Janet are not the exceptions to the rule, they are the norm. Virginia’s bankruptcy exemptions should not bar such individuals from obtaining relief and getting a fresh start in life. Virginia’s bankruptcy exemptions should not punish its citizens for having equity in their principal residence. If 40 other states have deemed it fair and practical to allow its citizens to get a fresh start in life despite the fact that they have equity in their home, Virginia should get on board and help its citizens in the same fashion. In my next blog article, I will tell you exactly how to help individuals like Grandma Rose and Divorcee Janet. Don’t worry, I won’t be asking you for money nor will I be taking up a lot of your time. J
Chapter 7 Bankruptcy & The Creditors Hearing: Everything You Ever Wanted to Know and Then Some
July 29th, 2010 by Robert Brandt | View Comments | Filed under Creditor's Hearing1. What is the Creditors Hearing?
The Creditors Hearing, commonly referred to as “the 341”, is a required hearing that takes place after your bankruptcy case is filed with the court. At this hearing, a bankruptcy trustee will be asking you a series of questions that relate to your case.
2. Who is the bankruptcy trustee and what's with all the questions?
The bankruptcy trustee is a lawyer who represents the interest of your unsecured creditors. The trustee’s job is to ensure that you have truthfully disclosed all information on your bankruptcy petition and that you do not have any non-exempt assets that can be seized and liquidated on behalf of your unsecured creditors. The trustee is looking to see if there is any property/equity that you have inadvertently “forgotten about.”
3. What kind of questions will the bankruptcy trustee ask me? Will I have to prepare?
Each trustee asks virtually the same kinds of questions during each hearing. For example, have you listed all your assets? Have you listed all your creditors? etc. NOTE: A good bankruptcy attorney will always ensure that you know in advance what questions you will be asked. Prior to my clients’ hearing, I send them a document that lists all of the questions the bankruptcy trustee will ask. In addition, my client and I go over the questions so that there are no surprises.
4. When does the Creditors Hearing occur?
The hearing takes place about 4 to 5 weeks after your case gets filed with the court. After your case has been filed, the computer determines the date and time of the hearing. For the Alexandria Bankruptcy Court, hearings generally occur in the mornings.
5. Will I be going to court that day?
No, you will not. Please do not make the mistake of visiting the bankruptcy court in Alexandria. The hearing is not a formal court proceeding and will not be taking place at the bankruptcy courthouse.
6. Where does the hearing take place?
For Northern Virginian residents who file their chapter 7 case with the Alexandria Bankruptcy Court, the creditor’s hearing takes place at
7. Where will I park?
While there are several parking garages in the area, as well as metered parking on King Street, I recommend that you take advantage of the free 2 hour parking on Prince Street and Cameron Street, located just a couple of blocks to the left and right of the building. See map above. Oh, and by the way, I have very few talents, but one of them is an uncanny ability to parallel park a car into the tightest of spots, so let me know if you need some help parking.
8. I just realized that the building is located about 15 blocks from your office. Would you like ride to the hearing Mr. Brandt?
That’s very nice of your to ask, but on nice days, meaning under 90 degrees and above 30, I like to walk there and get some air.
9. How long is the Crediotrs Hearing?
The waiting time can be anywhere from 5 minutes to 1 hour. The hearing itself however, typically last no more than 1 minute.
10. In what order will my case be called?
The higher caliber your attorney is, the quicker your case will be heard. Kidding! The order is determined by the computer system. It is just a matter of luck. Your case could be the first one on the docket or you could be the very last. For
11. How should I dress for the Creditors Hearing?
Like I said, the Creditor’s hearing does not occur at court so there is no need for a suit. I would recommend business casual.
12. Will my creditors be at the hearing?
Highly unlikely. Despite the name, creditors rarely appear at hearings. Barring a particular thorny issue in your case, only the trustee will be there to ask you some questions.
13. What documents do I need to bring to the hearing with me on that day?
DRIVER LICENSE AND SOCIAL SECURITY CARD. Please do not forget these items as that can cause your case to be reconvened to a later time. Do you really want to come back for this thing again?!
14. Should I be worried about the Creditors Hearing?
No. I know you may be thinking, “That’s easy for you to say,” but upon exiting the hearing, most of my clients say to me, “Is that it?” Do you know how sometimes in life you can make something in your head a bigger deal than it actually is? Well, this is one of those times.
15. What if I forget to show up at the hearing?
Failure to show can result in your case being dismissed! Please, if you are going to be late (which you should not be) call.
16. The hearing ended. Now what happens?
Now, we go next door to grab a cup of coffee and a croissant to celebrate. Although your case is still pending, the hardest part is behind you. Barring something unusual like an objection from a creditor, within 60 to 80 days you will receive your letter of discharge. This is an order from the bankruptcy court that states that your debts have been forgiven. Now, you can really celebrate! J
Bankruptcy and the Disadvantage of Having Equity in Virginia
July 21st, 2010 by Robert Brandt | View Comments | Filed under Chapter 13Do you live in Virginia and have significant equity in your home? Is the amount of equity in your home considerably more than Virginia’s meager $5,000 homestead exemption? Are you current on your mortgage(s), but are overwhelmed by unsecured debt (i.e. credit cards, medical bills, and personal loans)?
If you are considering filing for bankruptcy, then it sounds like your only option will be a chapter 13 bankruptcy filing. And if that is the case, you need to be aware of something called the liquidation test.
But first, what is a chapter 13 bankruptcy? It is an arrangement whereby you make monthly payments to your unsecured creditors for a period of 3 or 5 years. This arrangement is referred to as a chapter 13 plan. Payments are typically a small fraction of your unsecured debt. In return for making these partial payments, any balance that exists at the end of a 3 or 5 year period is forgiven by the court. The amount of monthly payment is usually determined by the means test.
However, the determination of how much your monthly payments will be in a chapter 13 payment plan does not end there. Unfortunately, the liquidation test must be taken into consideration as well. And what is the liquidation test? It is a mathematical formula used by the bankruptcy courts whereby the more equity you have in your home, the more you will be expected to pay into the chapter 13 plan. The principle behind the liquidation test is that the total amount you pay in a Chapter 13 bankruptcy plan needs to be at least as much as you would have paid had you filed for chapter 7 bankruptcy. As a reminder, in a chapter 7, you must surrender all of your non-exempt assets. Your equity is your primary asset.
So to use sophisticated legal jargon here, what the bankruptcy law is saying in this situation is: Hey buddy, if you have been paying your mortgage for a number of years and are sitting on $100,000 in equity don’t go thinking that you can purposefully file for chapter 13 and pay only say, $10,000 during the next 5 years. Had you filed for a chapter 7 bankruptcy your unsecured creditors would have gotten most, but not all, of your $100,000 in equity so that is what the court will expect from you to contribute into the chapter 13 plan. So what is the lesson here? Well, for those seeking to file bankruptcy, having equity in your Virginia home is a disadvantage, to put it mildly.
And as far as how can you avoid dealing with the dreaded liquidation test which will expose all of your equity?
• Don’t live in Virginia. I understand that this tip might come to you a little late, but I thought I would still throw it out there for people considering buying a home in the tri-state area. Buy your home and live in Washington, DC. The district is a lot more bankruptcy friendly then their neighbor, Virginia. Please see my previous blog titled Washington, DC vs. Virginia Bankruptcy Consideration.
• Enough with being single – go get married. See my previous blog Bankruptcy: Protecting Your Marital Home.
• Or perhaps the most reasonable and responsible course of action you can take is to file for bankruptcy now, rather than later. The current value of your property probably took a nose dive with the economy. If filing for bankruptcy is inevitable, seize the moment now while you do not have as much equity in your home.
Washington, DC vs. Virginia: Bankruptcy Exemption Considerations
July 14th, 2010 by Robert Brandt | View Comments | Filed under Key Bankruptcy QuestionsWhen comparing bankruptcy exemptions in Virginia and Washington, DC, I cannot help but think of Charles Dickens’ opening line in his novel, A Tale of Two of Two Cities, “It was the best of times, it was the worst of times…,” as in, the best of times for Washington, DC and the worst of times for the Commonwealth.
In this tri-state area, one of the first questions a bankruptcy attorney will ask you is what state do you reside in. Why? Because it is always about location, location, location or more to the point, what state you live in. When filing for a chapter 7 bankruptcy, the difference between residing in Northern Virginia or just across the Potomac in Washington, DC can have a huge impact.
If you qualify for a chapter 7 bankruptcy based on your income, then the next immediate consideration is whether you have any assets. If you do, and you cannot exempt a particular asset, then the bankruptcy trustee has the right to seize and liquidate that asset. For virtually all bankruptcy filers, their home (as in the equity in their home) is their biggest asset. If you have equity in your home, then allow me to demonstrate the differences between filing in Washington DC versus filing in Virginia.
The legislatures in the Nation’s Capital decided that if an individual has resided in their primary home in Washington, DC for more than 1,212 days (3.3 years), then the individual is allowed to exempt the entire equity in their home. For example, if you have $200,000 in equity in your home, then you may exempt the entire $200,000 in equity. Meaning, the bankruptcy trustee my not force the sale of your home and will not walk away with the proceeds as a result of you filing for chapter 7 bankruptcy. You get to wipe out all of your unsecured debt while fully protecting your home. If however, you have resided in your home in Washington, DC for more than 2 years but less than 3.3 years, then you are limited to approximately $140,000 in the amount of equity that you may exempt. Finally, if you have lived in your home in Washington, DC for less than 2 years, then unfortunately you will not be able to utilize the Washington, DC exemption laws; federal bankruptcy law requires that you reside in a state for at least 2 years before you can take advantage of the state’s exemption scheme.
Now, in case you are thinking that Washington, DC’s bankruptcy exemptions are the norm, I assure you, this is not the case. Washington, DC is among a handful of states that is extremely generous when it comes to home exemptions.
Unfortunately for Virginians, the state for lovers, the state’s bankruptcy exemption laws do not show a whole lot of love. In fact, you could say that Virginia’s bankruptcy exemption laws are darn right unfriendly to its residents. The stark difference between Virginia and Washington, DC is that Virginia does not have a primary residence exemption. All that Virginia has to offer individuals who reside in Virginia and who are filing for chapter 7 bankruptcy is the homestead exemption. Virginia’s homestead exemption allows you to exempt a whopping $5,000 in your home. If you are over the age of 65 or are disabled, Virginia generously increases that amount to $10,000. So, what happens if you have $200,000 in equity in your home in Virginia? You will have to file for a chapter 13 bankruptcy. Meaning, you will have to pay a large portion of your unsecured debt. There is one exception that could apply to married couples.
So there it is – when it comes to filing for bankruptcy in Washington, DC versus Virginia, it is most certainly a tale of 2 very different cities!
Bankruptcy: Protecting Your Marital Home
July 5th, 2010 by Robert Brandt | View Comments | Filed under Marriage, Divorce and BankruptcyWedding vows need to be changed or at least modified slightly to include, “And do you John Doe promise to ensure that the marital home that you and your wife will buy in the ensuing years will be titled as Tenants by the Entirety?”—I do. “And that you will ensure that all future debts incurred during the course of the marriage will be held in your individual name only, separate and apart from your wife?”—I do.
Pretty romantic stuff, huh? Talk about a tear jerker. Ok, now allow me explain why Tenants by the Entireties and individual debt is crucial for married couples.
Your home is typically your most important asset. And it is because of this, that married couples should do everything in their power to protect their home in case of future financial troubles. In Virginia, when a husband and wife buy a home together, they can title the property in one of three ways: Joint Tenants with rights of survivorship, Tenants in Common, or Tenants by the Entirety with rights of survivorship. I won’t bother putting you to sleep with the legal distinctions between each title, but I do recommend that Tenants by the Entirety be the chosen title. Ensuring that the deed to your home is titled in this fashion is one of the two steps that you must take to ensure that a lien cannot be placed on your marital home.
The second crucial step is to ensure that the couple never open a joint credit card account or take out a loan together. All loans and credit cards should be held in individual name only. By following these two steps, the couple can ensure that if one of the spouses were to ever default on a loan, their home remains protected. A creditor will not be able to put a lien on the home. The one exception to this protection is the Internal Revenue Service (IRS). The IRS, as usual, possesses super human legal strength. If one of the spouses owed back taxes to the IRS, then a tax lien could be placed on your home. Tenancy by the Entireties will not save you from the IRS.
Now let’s see how this plays out in bankruptcy. For instance, say a husband and wife each have $30,000 in debt and are seeking to file for bankruptcy. They have no major assets except for their home which has $100,000 in equity. Because of their income, they qualify for a chapter 7 bankruptcy. That is great news, except for the fact that they have a pile of equity in their home which will be seized as an asset by the bankruptcy trustee if they file for chapter 7 bankruptcy. But guess what, their home and equity are now safely out of the bankruptcy trustee’s reach because they titled their deed Tenants by the Entireties and because all of their debts are in their individual names. The couple can now wipe out $60,000 in combined debt and turn nothing over to the trustee. If however, the couple’s title to the home was not titled as Tenants by the Entireties and all of their debt was jointly owed, they would then have to file for a chapter 13. And though the filing of a chapter 13 is not the worst thing that can happen, in this particular instance, the couple would be fully responsible for the $60,000 in debt.
So what is the lesson here? Yes, I am going to repeat myself since it is worth repeating. If a married couple is going to purchase a home in Virginia, be absolutely certain that the deed to the home is titled as Tenants by the Entireties and during the course of the marriage be absolutely sure to never, ever take out any joint loans or credit cards. After all, as they say, you hope for the best, but want to be prepared for the worst!
Bankruptcy’s Means Test: Is it Really That Mean?
June 28th, 2010 by Robert Brandt | View Comments | Filed under Bankruptcy's Means TestLet me start with the short answer – No. Despite the criticism it receives, the Means Test is really not that bad. Here is how it works. If your gross income is greater than your state’s median income when taking into consideration your household size then you must apply bankruptcy’s Means Test. Basically, the court is saying, hmm…it does not look like you automatically qualify for a chapter 7 bankruptcy, and it appears that you are making a fair amount of money. Therefore, let me scrutinize your finances a bit more before I grant you the right to qualify for a chapter 7 bankruptcy. I know, at this point, the Means Test still sounds a bit unnerving, but allow me to explain.
Let’s say you are a single individual who lives in Virginia and is grossing $70,000 per year. Because Virginia’s median income for a household of one is only $48,190, you will have to take the Means Test. At this point it is simply a matter of determining what your disposable income is. That is, the Means Test allows you to get “credit” for most of your monthly expenses. The court wants to know, after your monthly expenses are deducted, do you still have money left over that could be paid to creditors? If the answer is no, then you have passed the Means Test and you may be granted a chapter 7 discharge. If the answer is yes, then your option will probably be a chapter 13.
Think of Bankruptcy’s Means Test kind of like doing your taxes. You have to account for your deductions. Certain deductions are automatically given to you and those figures are pre-determined, regardless of what your actual expenses for those items are. For instance, food, clothing, household supplies, personal care, and other miscellaneous expenses are calculated based on your household size. For those who are renting, housing expenses are already pre-determined and rather generous.
Other categories of expenses are based on your actual monthly expenses. The following are some key monthly expenses that you should consider if the Means Test applies to you:
• Federal taxes, state taxes, Medicare, and Social Security taken out of your paycheck
• Car payments
• Mortgage payments
• Child support and/or alimony
• Mandatory union dues
• Health insurance premiums
• Disability insurance
• Health Savings Account contributions
• Financial support to an elderly or disabled family member
If some of these deductions apply to you, then you may be able to pass the Means Test.
Back to my single individual making $70,000 per year who let’s just say rents a home, and owns one car that he is no longer making payments on. Let’s assume that this person has the following monthly expenses:
• $1500 per month in payroll deductions;
• Mandatory union dues of $200 per month;
• Paying $500 per month in alimony to his ex-wife; and finally
• $200 per month comes out of his paycheck as contributions towards his health insurance plan.
Based on these figures, this individual passes the Means Test and qualifies for a chapter 7 bankruptcy.
Like a good CPA who finds legally permissible tax deductions, aka “loopholes,” to reduce your taxes, the Means Test is a way to reduce your gross income to show your real financial situation. So before you throw in the towel and assume that you do not qualify for a chapter 7 because of your relatively high income, speak with a bankruptcy attorney – you may be surprised at what you discover.
Wachovia/Wells Fargo: Bankruptcy Filers Be Warned
June 14th, 2010 by Robert Brandt | View Comments | Filed under Things That Make You Go Hmm...The group of blog articles that you will find in this section called, “Things That Make You Go Hmm…” are devoted to the folks, entities, and practices that get under my skin, and cause me to say, “Are you kidding me?!”
So, without further ado, I give you my first article on the subject.
In Romania, the country where my ancestors are from, there is an expression, “Don’t go trying to be more Catholic than the Pope.” And when it comes to Wells Fargo and Wachovia, as you will see below, that is exactly what they are doing. They are acting more like bankruptcy officials than what they are, a bank.
If you read my last blog article titled, Bankruptcy And Your Bank’s Right to Rob You then you know that a bank has the right, in certain instances, to a setoff. As explained in my previous blog article, a setoff is a legal right afforded to your bank whereby it is permitted to seize the money out of your bank account the moment that you have defaulted on a loan with your particular bank. In the bankruptcy context the bank’s right to a setoff will occur as follows: You have a checking account and a car loan with Big Bank. You are current on your car loan with Big Bank. Say you file for bankruptcy. The moment that you file for bankruptcy you are deemed to have defaulted on your car loan with Big Bank. As a result, Big Bank can now freeze your bank account and eventually can take your money that was in your account.
What Wachovia and Wells Fargo now do is take the concept of a setoff to a whole new level. According to Wachovia and Wells Fargo, if you file for chapter 7 bankruptcy, they will freeze your bank accounts that you have with them, regardless of whether or not you have any loans with them. I repeat, you do not need to have a credit card, car loan, mortgage or any other type of loan with Wachovia and Wells Fargo for them to freeze your account. The moment that Wachovia/Wells Fargo discover that you have filed for chapter 7 bankruptcy they claim to have the right to “freeze” your bank accounts and await the guidance of the chapter 7 bankruptcy trustee to see if and when they should release those funds back to you. Meanwhile, weeks go by during which you cannot access your money, your outstanding checks have bounced, and your automatic monthly payments are no longer being honored by Wachovia/Wells Fargo.
Wells Fargo and Wachovia take the position that its policy is a sound one that benefits the bankruptcy system because they believe that your money in your bank account is property of estate. Meaning when you file for chapter 7 bankruptcy everything that you own, theoretically, now belongs to the trustee, whose job is to administer all of your assets on behalf of your creditors, subject to certain exemptions, allowing you to keep certain property. Their misguided notion is that the money in your bank account is property of the estate and that they have a duty to preserve it for the bankruptcy trustee.
Hey, Wells Fargo/Wachovia, what gives you the right to play both judge and jury?! Why are you taking on the role of a bankruptcy trustee? When someone files for chapter 7 bankruptcy and exempts the funds that they have in your bank, it is up to the trustee to decide if those exemptions were properly taken. And if the trustee happens to decide –in those rarest of cases- that the exemption taken by the filer was improper weeks after the bankruptcy case was filed, then believe me, the trustee will not be shy about making that objection and coming after the individual who filed for bankruptcy. And what of the fact that no other bank in the United States has such a policy at this time? You think that might be an indicator that you might be acting a bit too overzealously?! What’s next, freezing my bank accounts because your computer system just found out that I have some outstanding parking tickets? After all, there is a chance that when the law finally catches up to me, I may not have the funds to pay for those tickets.
Now, in Wells Fargo/Wachovia’s “defense”, their policy also states that they will not employ this draconian measure unless the individual has at least $5,000.00 in their bank account(s). However, out of an abundance of caution, if you are contemplating filing for bankruptcy, take your money out of your Wells Fargo/Wachovia accounts and place it elsewhere. After all, as much as it might be interesting for you to take your case all the way up to the Supreme Court, you probably would rather avoid that fight.
Bankruptcy And Your Bank’s Right To Rob You!
June 9th, 2010 by Robert Brandt | View Comments | Filed under Unintended ConsequencesWhat the heck just happened?! Why did the bank just remove all the money that I had in my bank account and clean me out? Why did the bank just rob me is what you might be thinking? Well, the likely answer is because you probably owe the bank some money. The bank was probably exercising its right to a setoff, a right recognized in virtually all states in the United States.
This is what probably happened. You opened up a bank account at your local friendly credit union. Then, at some point, you took out a credit card with that same credit union that offered that unbelievable low rate. Finally, when it was time to finance a car, you once again turned to your credit union. Thereafter, at some point, you fell behind on your car or credit card payments, and so the nice credit union helped itself to the money that you had in your account.
Once you have defaulted on any of your loans the credit union does not need to sue you, they do not have to get court permission, and they certainly do not have to give you advance notice that they are about to help themselves to the money sitting in your account. And to add insult to injury, those outstanding checks that you wrote a few days prior to the bank robbing you (the bank exercising its right to a setoff if you want to get technical), those checks will undoubtedly bounce!
What can you do to prevent this from happening to you? It’s simple. The moment that you realize that you will be unable to make payments on a credit card, personal loan, mortgage payment, car loan, whatever, with the bank/credit union where you also have your checking and savings account, remove all money from those accounts and place them with a bank to whom you owe nothing to.
And what if you did not read this blog article and failed to heed my advice? Well, your one saving grace -if by coincidence you were contemplating filing for bankruptcy- is that if the bank exercised its right to a setoff within 90 days prior to your filing for bankruptcy, and you have exemptions available at your disposal, then you may be able to recover the money that the bank took from you.
How about if you have not defaulted on any of your accounts with the bank? Well, in this case you have nothing to worry about, unless that is, you are about to file for bankruptcy. For instance, you want to file for bankruptcy because you have $20,000 in credit card debt with 5 different banks and none of those credit cards is owned by the credit union where you bank. The only ties that you have to your credit union is your bank account and a car loan for instance, which you have never missed a payment on and are current on the day you decide to file for bankruptcy. It does not matter. The moment that you filed bankruptcy you are deemed to have defaulted on your car loan and the bank has a right to “freeze your account.”
And if you thinking –as I am sure you are- what about the automatic stay? You know that powerful invisible shield that automatically activates the moment that you file a bankruptcy case and brings all attempts to collect money from the debtor to a grinding halt?! Well, in this case, not even that will save you. Don’t believe me, then check out the seminal Supreme Court Case of Citizens Bank of Marlyand v. Strumpf, decided in 1995 and see what happened to poor Mr. Strumpf. In that case, the Court made it clear, that the bank/credit union right to a setoff was more powerful than the usually invincible automatic stay. Granted, the bank initially could only “freeze the account” and then have to seek the court’s permission to actually remove that money from the account, but the end result will be one and the same…they get your money!
So once again, the easy solution, if you are contemplating bankruptcy, is to simply remove your money from the bank/credit union where you also have your mortgage, car loan, etc. and deposit that money elsewhere.
Oh, and finally, if you are wondering, what if my direct deposit check from my employer accidentally lands in the same bank account where I just cleared my money out of prior to filing for bankruptcy? The answer is post petition assets cannot be setoff. That would be an automatic stay violation. The bank cannot just take you post-petition money to satisfy a pre-petition debt. But, just because it can’t happen does not mean that it won’t happen. Heir on the side of caution and be sure that your pay checks are landing in the new bank account prior to filing for bankruptcy.
Do I Get To Keep My Car If I File For Bankruptcy (Part II)?
May 31st, 2010 by Robert Brandt | View Comments | Filed under Your CarIn my previous post I discussed the issue of being able to keep your car that you own outright in the event that you file for bankruptcy. In this article I will discuss what happens if you are still making payments on your car and are considering filing for bankruptcy.
The main question is: Can you keep your car that you are making payments on if you file for bankruptcy? The short answer is yes. As long as you make your monthly payments on time, 99% of the time you will be able to keep your car. If you are a strong believer in probabilities you can pretty much stop reading now.
But, if you would like to know what I mean by 99% of the time, keep reading. When you file for chapter 7 bankruptcy, you basically have two options when it comes to a car that you are still making payments on; you can surrender the car or reaffirm the debt. Option one, surrendering the car, pretty much speaks for itself. You can just turn in your car, cease making payments, and go on about your business like nothing happened. Option two, reaffirming the debt, is a little trickier. There is a third option, redeeming the debt, but that is rarely utilized.
When you file for chapter 7, most of your debts are dischargeable. Dischargeable is a fancy word that basically means “wiped out” or to put it a more accurately, you are relieved of your personal obligation on the loan. Following that line of thought, the car loan that you took out before filing for chapter 7 bankruptcy becomes a dischargeable debt. But the question still remains, what about the car? Does the fact that you filed for bankruptcy automatically give the car lender the right to repossess your car? According to most car lenders, the answer is yes. Even if you filed for bankruptcy and are making payments on time following your bankruptcy case, the mere fact that you filed for bankruptcy, according to the car lenders, gives them the right to repossess the car. I will spare you the legal mambo jumbo for how the car lenders came to this conclusion, but in a nutshell, they claim that filing for bankruptcy relieves you of the loan on your car, but the car itself, their collateral, is a whole different story. As a result, many car lenders will send you a reaffirmation agreement and assert that if you fail to sign this agreement, they have the right to repossess your car after your bankruptcy case concludes.
And what is a reaffirmation agreement? It is a document that basically asks you to once again become personally liable for the loan. As a reward for signing the reaffirmation agreement, the law states that the car lenders are precluded from repossessing your car after your bankruptcy case concludes as long as you are making payments on time. The signed reaffirmation agreement provides you with 100% assurance that the bank will not repossess your car as a result of you filing for chapter 7 bankruptcy. Sounds like a sweetheart deal, right? Wrong!
If for some unimaginable reason you fall on hard times one year after your bankruptcy case concludes and you can no longer afford to make your car payments, the car lender now not only has the right to repossess your car, but can also sue you on the balance still owed on the car loan. And that is the huge drawback. Conversely, if you do not sign the reaffirmation agreement, and at some point after you bankruptcy case concludes you are no longer able to make the monthly payments, the bank can repossess your car, but (strong emphasis on the “but”) they will not be able to sue you on the balance of the loan. They will not be able to bring a deficiency lawsuit against you. The signing of the reaffirmation agreement robs you of this critical piece of “insurance.”
And what do most bankruptcy attorneys tell their clients to do with the reaffirmation agreement? Don’t sign the agreement! If you continue making payments on time, you have nothing to worry about. The bank does not want their car back. They want you to continue making every one of your car payments on time so they can get their hands on thousands of dollars of free money (more commonly referred to as interest). According to most bankruptcy attorneys, the reaffirmation agreement is a bluff. So long as you continue making your car payments on time, the lenders will not repossess your car.
Well, that is all fine and dandy, and 99% of the time that will turn out to be absolutely true. As long as you continue making your payments they will not repossess your car. But how do you avoid becoming that 1% statistic? Read my next article to find out how.
The Law Firm of
Robert S. Brandt
1513 King Street
Alexandria, Virginia 22314
Phone: 703-342-7330
Fax: 703-229-4132
Email: brandt@brandtlawfirm.com
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- A Call To Action: Help Increase Virginia’s Bankruptcy Exemptions
- Why Virginia’s Bankruptcy Exemption Laws Must Be Amended.
- Chapter 7 Bankruptcy & The Creditors Hearing: Everything You Ever Wanted to Know and Then Some
- Bankruptcy and the Disadvantage of Having Equity in Virginia
- Washington, DC vs. Virginia: Bankruptcy Exemption Considerations