HOW TO ESTIMATE YOUR CHAPTER 13 PLAN PAYMENT:

By Christopher C. Carr, Esquire, Chester County Bankruptcy Attorney:  Call (610)380-7969 or write him at cccarresq@aol.com today!  

Introduction. What does this matter?

 This exercise can be crucial to complete if you are a self filer (not recommended especially for a Chapter 13) but it is a very good idea to complete this exercise even if you have hired or plan to hire a bankruptcy attorney, because in this way you will be able to understand the general Chapter 13 process and strategy; double check his or her work-in a general sense at least – and also because it will make you aware of expenses and other offsets you might not otherwise focus upon, which could end up saving you money in the long run.  This can also be useful to help you determine whether a Chapter 13 will be advantageous for you given your particular circumstances BEFORE you retain an attorney and then file, only to find out for example that you cannot afford the monthly payment and the arrears amortization!  Bankruptcy will affect your credit and ability to borrow for at least 2 years, even if it is dismissed. Knowledge is power.

In general, it will help to remember that Part 1 of the analysis deals with repayment of secured debt (like car and home loans), whereas Parts 2 and 3 deal with unsecured debt (like credit cards, medical bills, etc) and to remember the “liquidation test” which says that the unsecured creditors cannot receive less in a Chapter 13 bankruptcy than they would have received in a Chapter 7 liquidation.

Part 1: Figuring Your Minimum Monthly Payment

Certain debts must be paid back in full through your repayment plan. This means that that the Debtor must propose a plan that pays off all of these debts within 36 months (if below the median income) or 60 months (if above the median income) regardless of income and expenses. These debts include:

  1. Priority Debts

Congress has decided that certain obligations, called priority debts, cannot be discharged in bankruptcy. Some examples of priority debts include back child support, alimony, and certain taxes. If you file for Chapter 13 bankruptcy, you must pay off these debts in full through your repayment plan. Enter the amount of all your priority debts in the Model[1]  where indicated.

 

  1. Mortgage Arrears

If you are behind on your mortgage and want to keep your house, you must pay off all your arrears (existing at the time of your filing) through your repayment plan within the applicable plan period (see above) . Enter all applicable mortgage arrears in the Model where indicated.

If you plan to surrender your house, you don’t have to pay back the arrears in your bankruptcy. In addition, if you are only behind on your second mortgage (or other junior lien) and you intend to eliminate that lien in your Chapter 13 through lien stripping, don’t include those arrears in your payment calculation.

 

Be aware that certain jurisdictions require you to make your regular mortgage payment through your Chapter 13 bankruptcy. In these jurisdictions, your plan payment may be very large but you would not have to make a separate mortgage payment directly to the lender.

 

  1. Car Loans or Other Secured Debts You Want to Pay Off Through Your Plan

In most jurisdictions, if you are behind on your car loan (or another secured debt other than your mortgage) and want to catch up on your missed payments, you typically have to pay off the entire loan (not just the arrears) through your plan. Keep in mind that in certain jurisdictions, you may be required to pay off your car loans through your Chapter 13 plan regardless of whether you are behind on your payments or not.  This is not the case in the EDPA where I practice.

Unless you intend to surrender the property or pay off these secured debts outside of bankruptcy (and your jurisdiction allows you to do so), enter the amount of your car loans and other secured debts in the calculator where indicated.

If you qualify to “cram down: your car loan or other secured debt, you only need to pay the lender the replacement value of the property through your repayment plan (not the entire loan balance). So include only the value of the vehicle (or other property) in the Model for all secured debts you intend to cram down.

 

  1. Administrative Fees and Interest Charges

Fees: Chapter 13 trustees get paid by taking a percentage of all amounts they distribute to creditors through your repayment plan. This percentage varies depending on where you live but can be up to 10% as it is in the Eastern District of Pennsylvania where I practice.

 

Interest: In addition, you typically have to pay interest on secured claims you are paying off through your plan. The required interest rate can vary depending on the type of claim and the rules in your jurisdiction. But in general, you can expect to pay the national prime rate plus 1% to 3%.

 

  1. Making Regular Monthly Payments on Loans. Keep in mind that if you want to keep your home, car, or other items securing  debts, you’ll have to keep making your regular monthly payments during your plan period, unless the court requires you to pay off the entire balance through your plan. As mentioned above, some courts might require you to make these monthly payments through your plan.  However, this is NOT the case in the EDPA, where generally speaking, the debtor pays arrears through the plan but is allowed to pay the monthly mortgage “outside” the bankruptcy,  g. directly to the lender/servicer.

 

THE ABOVE COMPUTATION YIELDS JUST THE MINIMUM PLAN PAYMENT: “EXCESS” DISPOSABLE INCOME (PART 2): AND NONEXEMPT PROPERTY VALUE (PART 3)  MUST BE ADDED:

So far we have only considered debts you are required to pay off in your repayment plan regardless of your income, expenses, and nonexempt property. The debts discussed above are used in calculating your minimum Chapter 13 plan payment. However, if you have disposable income or nonexempt assets, you will also have to pay back some or all of your nonpriority unsecured debts such as credit cards and medical bills. Depending on how much you have to pay your nonpriority unsecured creditors, your monthly plan payment can be much  higher than the minimum payment calculated above.  In fact many high income or equity rich debtors will end up with 100% plans…why would anyone file bankruptcy then you may ask well and  there are several reasons:

  1. To take advantage of the automatic stay in bankruptcy and thus save the family home and/or other valuable assets from the auctioneers gavel.
  2. to avoid garnishments (which can be very embarrassing and even cause job loss) or repossession of autos, boats, RV’s, etc.
  3. To avoid liens arising in their property because of lawsuits, tax liens and the like.
  4. To force mediation and a mortgage modification (in some jurisdictions)
  5. To avoid creditor dunning
  6. Because instead of having to pay back all the debt at once, they can schedule it, and,
  7. to avoid losing a drivers license, professional privileges (e.g. inability to practice medicine, law, dentistry, etc.) or even going to jail for nonpayment of alimony, support , etc.

Part 2:  Calculate Your Disposable Income and enter the excess:

 

As part of your Chapter 13 computations, you must complete Form 22C — Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income. This form is also referred to as the Chapter 13 means test and is used to determine how long your plan will last and how much you must pay nonpriority unsecured creditors in your bankruptcy. Visit the U.S. Court’s website at www.uscourts.gov to find the most recent version of Form 22C.

If your average income for the six months preceding your bankruptcy is less than the median income for a similar household in your state, you are not required to fill out the entire form and will typically pay little or nothing to nonpriority unsecured creditors in your plan. However, if your income is above median, you must follow the instructions on the form to determine whether you have enough disposable income to pay back some of your nonpriority unsecured debts.

After completing the Chapter 13 means test, if you end up with a positive monthly disposable income figure, add that to your minimum plan payment calculated above because you must pay this amount towards your nonpriority unsecured debts each month.

Note: Why the means test result can vary significantly from  the Petition, Schedule J. The concepts of income and expenses for the Means Test differ from the income and expenses reported on Schedules I and J. Schedule I lists the debtor’s current income, while the Means Test requires an average from the last six months with Social Security Benefits excluded. Likewise, on the expense side, expense categories are different on the Means Test and Schedule J. Schedule J lists the debtor’s actual current expenses while the Means Test uses IRS standards (which are often much lower than the actual expenditures) for some expenses, and actual for others. Moreover, Schedule J allows the attorney more discretion in listing other types of expenses, whereas the Means Test doesn’t allow you to fill in unlimited “other” expenses.

 

Part 3:   Finally, Add the Value of your Nonexempt Property

Chapter 13 bankruptcy requires you to pay your nonpriority unsecured creditors at least as much as they would have received if you had filed a Chapter 7 bankruptcy. This is known as the “liquidation test” but essentially means that you must pay an amount equal to the value of your nonexempt property. If you can’t exempt all of your property, divide the value of the nonexempt portion by the number of months in your repayment plan and add it to the minimum monthly payment calculated above.

Nonexempt Property Example: Say for example that you have equity in your home of $100,000 (a rarity in this day and age but quite common  few years ago).  Your state allows you to take the federal homestead exemption and it is higher than the state version, if a choice is allowed in your state. you can currently exempt $22,975 (or $45,950 if you are married and jointly filing bankruptcy) under the federal homestead exemption.  Husband and wife, using the federal exemption,  are then left with $54,050 in nonexempt debt and have a 60 month plan.  They then must add  $900.83 to the plan payment computed above.

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

 

 

 

 

[1] This article assumes that you are using a Bankruptcy Plan Model (Model) that calculates the minimum plan payment for you. Some Models will also compute the Means Test for you.  For an easy to use estimator go to http://www.alllaw.com/articles/nolo/bankruptcy/chapter-13-plan-payment-calculator.html.  However, remember that this will just yield the Minimum payment.  To this you must add Your Excess Disposable Income and Nonexempt Property Value Parts 2 and 3 below, if applicable.

 

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Student Loan Dischargability in Bankruptcy

 

Clients frequently inquire as to whether their private and government backed student loans can be discharged in bankruptcy. Sadly for them, it is almost impossible to discharge federal student loans in bankruptcy given certain changes in the way they are structured today.  

The so called Brunner Test (named after the seminal case on the topic), which contains the standards used in bankruptcy courts to determine whether a student loan can be discharged, specifies that in order for discharge to occur, all of the following must be true:

  1. based on current income and expenses, the debtor cannot maintain a “minimal” standard of living for herself or her dependents if forced to repay the loans;
  2. additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period for the student loans; and,
  3. the debtor has heretofore made a good faith effort to repay the loans.

Yes, you can try to prove undue hardship, under these tests, but it is now, for all practical purposes, almost impossible to do and this is why. First, under the various special repayment schemes: income based repayment, pay as you go, income sensitive repayment; you can have a zero dollar ($0) monthly payment assuming your income is low enough.  At the end of the term of these programs (20 to 25 years), any remaining student loan balance will be forgiven. So how can anyone successfully argue that a zero (or very low) monthly payment with the prospect of loan forgiveness creates an undue hardship? Secondly, now that the Dept. of Education has a workable administrative process for a disability discharge, if you are declared 100% disabled by the social security admin, you can discharge your federal student loan.  Thus, people who once would have been able to show Brunner hardships because of disability no longer need to do so.  those people don’t need bankruptcy for their student loans.

So, if you have both significant private student loans and federal loans and are a good candidate for a bankruptcy hardship discharge, you include both classes of debts in the case.   (Note:  The bankruptcy must be filed (either a 7 or 13) then an adversary proceeding (2nd lawsuit) against the student loan lenders must be filed.) Assuming you can win on undue hardship, the court is likely to only discharge the private student loans because these do not have the programs discussed above attached to them.

If you are not already on one, you need to get on a specialized repayment program.  I suggest that you visit the following site to find out more information.

            https://studentaid.ed.gov/repay-loans/understand/plans/income-driven

Also, it is recommended that you discuss this issue with a seasoned bankruptcy lawyer.  I am Christopher C. Carr, Esq., a Chester County Bankruptcy Lawyer who can assist you with these and all other matters relating to bankruptcy and debt relief.. Call me at 610-380-7969 today!

341 Meeting Readiness

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By Attorney Christopher Carr, a Chester County bankruptcy attorney.

Tel: 610-380-7969 Email: cccarresq@aol.com WHAT IS THE 341 MEETING OF CREDITORS? Regardless of whether you file a Chapter 7 bankruptcy or Chapter 13 bankruptcy, you will be required to attend a “Meeting of Creditors” or a 341 hearing as attorneys call it. THIS IS A MISNOMER….IT IS NOT REALLY A HEARING! It has that name because it is held under oath (see below.) It is scheduled about 30‐45 days after your case is filed. Though it is called a “Meeting of Creditors,” creditors rarely attend. But the Trustee is there and HE represents the creditors! You, your attorney, and the trustee attend this meeting. It can seem quite intimidating if you do not know what to expect, but the 341 hearing is actually a fairly informal meeting designed to help the Trustee better understand what’s happening in your bankruptcy. A NOTE ON TIMING OF TRUSTEE PAYMENTS FOR CHAPTER 13 CLIENTS: Remember that your first payment to the Trustee is due THIRTY (30) DAYS AFTER YOUR PETITION IS FILED, irrespective of when the 341 is held.  WHAT TO EXPECT:  There will be a pile of Bankruptcy Information Sheets at the front of the room. Take one and read it.  You will be asked if you did (see below.) You will sit at a desk or table with your bankruptcy lawyer and the Trustee. Other people will be in the room with you, generally other bankruptcy filers and their lawyers. You will be asked first off to state your name and address and verify your identity by providing your social security card and drivers license. IF YOU DO NOT HAVE YOUR ORIGINAL SOCIAL SECURITY CARD AND SECOND FORM OF ID, THE MEETING WILL NOT BE HELD AND EVERYONE’S TIME WILL HAVE BEEN WASTED SO DON”T LEAVE IT AT HOME OR EXPECT A COPY TO DO. BRING THAT TATTERED ORIGINAL AND IF YOU DON”T HAVE ONE ORDER IT FROM THE SS OFFICE. The meeting will be recorded. The Trustee will start a tape recorder going. You will be sworn in; i.e. raise right hand solemnly swear and affirm to tell the truth. Dress is business casual for you. Be well groomed. I will be in my “lawyer suit” as will the Trustee, but you are not expected to wear one.  Be on time.  It may appear that I am running late but that is because I have a better idea of when the 341 will start than you do! Try to relax! WHAT CAN THE TRUSTEE ASK AT THE 341 MEETING? The trustee will ask you some basic questions about your bankruptcy.  Here are some of the common questions that trustees ask during the meeting. They are in no particular order. These are not all of the questions that the Trustee could ask, and he/she will not ask every question on this list. In other words, this is a very generic list. The items that are almost always asked are highlighted.

  • Did you sign the petition and the schedules your attorney is showing you?
  • Have you read the bankruptcy information sheet?
  • Did you review the bankruptcy petition and each of the schedules and the statement of financial affairs (SOFA). Is the information correct? The answer is always an assured “YES” because you will have typically signed the documents in my office and we will have gone over all of them in detail at that time.
  • Are there any corrections that need to be made to the Schedules?  There should be none.  See my piece on the importance of full disclosure within the Bankruptcy  Petition.
  • Did you list all income, assets, and debts on the Schedules? The answer is always an assured “YES” because you will have typically signed the documents in my office and we will have gone over all of them in detail at that time.
  • Have you filed all your taxes? Are the tax returns you supplied to the trustee true, correct and complete, including all schedules and W2s? (Typically we will have filed these beforehand.)
  • Are you entitled to any tax refunds?  This one is VERY popular around tax time. You and your Attorney should have discussed this one and its ramifications before the 341.
  • Have you previously filed bankruptcy? If so when?
  • Why are you filing bankruptcy?  You can be a bit creative here but see below.
  • Do you expect to receive an inheritance or property?
  • Are you a party to any law suits?
  • Do you have any domestic support obligations?
  • Have you have sold, transferred, or given away any property in the prior four years?
  • How long have you lived in Pennsylvania?
  • What do you plan to do with your house, cars, or other personal property?
  • Are you employed? What do you do?
  • How much do you earn?
  • Is your employment the same as when you filed?
  • Do you own your own home?
  • Do you own any motor vehicles? What are these?
  • Please provide appraisals for your cars and home. (Typically we will have filed these beforehand.)
  • Please provide insurance declaration pages for your home if owned and cars. (Typically we will have filed these beforehand.)
  • Do you have any retirement funds (IRA, Roth IRA, 401K etc.)?
  • Does anyone owe you money?
  • Is anyone holding money for you?

GENERAL TIPS AND CAVEATS: It is normal to be a bit nervous going into the 341 but just answer the questions put to you fully and honestly and be courteous to one and all! Do not over answer, the Trustee does not need to hear your life story. All of you financial information should be properly presented in the bankruptcy petition and there is no sense in trying to hide something from the Trustee. If you are uncooperative it may motivate the Trustee to investigate or scrutinize your petition further which will only mean more time and effort for you and your attorney. Always remember that the Trustee may act friendly but he is NOT your friend.  He represents the unsecured creditors and his job is to maximize their return from the bankruptcy (not your own). He gets paid a commission on assets he recovers from Debtors for them. I am on a first name basis with the Trustee but that does not mean we are friends! The time to report undisclosed assets, that big tax refund, debts to family or friends, that new job or the 1000 shares of Google.com or that partnership you forgot about is NOT at the 341. If you wear a big diamond ring to the 341 and didn’t disclose it, expect trouble! Other than that type of thing you have nothing to worry about! Should you have concerns about such matters you should be asking me about them NOW! See my piece on the importance of full disclosure within the Bankruptcy Petition.

 

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

Not Legal Advice. Copyright © 2010, 2014 by Christopher C. Carr, Esq., All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.

Web:westchesterbankruptcyattorney.orgBlog: christophercarrlaw.wordpress.com Member: National Association of Consumer Bankruptcy Attorneys, Phi Beta Kappa & Beta Gamma Sigma.*************************************** “WE SAVE HOMES”

This is a Federally Designated Debt Relief Agency which is proud to assist individuals in need in filing for bankruptcy protection.


[1] Up to ½ hour.

Prepared 2‐25‐2014.

When Should You Talk To A Bankruptcy Lawyer?

Attorney Christopher Carr, a Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com

In Chancery

In Chancery

Maybe the best approach to the question is to talk about when is not the best time to talk to a bankruptcy lawyer.  You were served with the foreclosure notice 6 months ago and the mortgage company has been refusing your payments and now your home is to be sold at a sheriff’s sale tomorrow.  Your car has just been repossessed and your job is now in jeopardy since you do not have transportation to work. These are bad times to be talking with a bankruptcy attorney.  Not because a bankruptcy attorney can’t still help you.  An “emergency” bankruptcy filing can still possibly help you save your home or maybe your car can be returned to you.  It is a bad time because had you consulted with a bankruptcy attorney sooner, a different plan to help you deal with your debt issues may have been available.  That is, while we may still be able to save your home in the short term, your bankruptcy may fail over the longer term whereas had you taken action earlier, a plan could have been devised to save it long term. So when should you talk to a bankruptcy lawyer?  HERE ARE SOME bASIC GUIDES: You know your finances are not what they should be.  You know that you are falling behind on your bills or are struggling to make ends meet each month.  You are juggling, you often have to choose between putting food on the table and paying your credit cards in full. You pay one card one month but not the next so you can pay another.   Or maybe you know that, even though you are current on your bills, there will be a  disruption in your income coming:  Maybe an operation that will require you or your spouse to be out of work for a time or a coming labor union strike. These are better times to be exploring options. Talk to an a compassionate, experienced, knowledgeable attorney who can look at your particular situation before absolute disaster strikes, before you are about to lose your home, car or possessions on the morrow! And it is important to recognize that ironically you must have money to file bankruptcy. If you wait till the axe has fallen, you likely will not have the funds to file:  As Max Gardner, Esq., a keen observer of trends in bankruptcy recently noted regarding the recent fall off in bankruptcy filings: A substantial number of consumers who need to file are simply too broke to file. And, those consumers who have lost homes to foreclosure during the Great Recession simply no longer care.  Simply stated, as many consumers who have lost hope for finding new employment have also lost the need for bankruptcy relief. A skilled bankruptcy lawyer can help you plan for a future filing before you reach this point of despair.  He or she can help you prioritize to help you keep things that are important to you. If the house is most important, then in order to afford the house, perhaps a vehicle can be surrendered and a less expensive vehicle obtained.  Or, the bankruptcy lawyer may tell you to stop paying your credit card or pre-Obamacare medical bills and use the money to make sure that your house payment is made.  This can ensure that you are current on your house for a bankruptcy filing so that you do not have to pay more money for mortgage arrears or that you can file a chapter 7 with a “walk through”. Forewarned is forearmed, as they say!  Merely talking to a bankruptcy lawyer does not commit you to a bankruptcy filing and many will talk to you initially for free or at a reduced charge What do you have to lose other than your current lack of knowledge?  It is not infrequently the case that we will either decide the timing is not yet ripe for a bankruptcy or that some other tool at our disposal is a better option for your particular situation.  While every case is unique, the bankruptcy lawyer will have had experience with cases like yours in the past that will have shown him or her pitfalls of various approaches both within and outside bankruptcy. For example, certain types of debt and liens which cannot be wiped out in a Chapter 7 can be discharged or removed as the case may be in a Chapter 13. Or perhaps he will guide you in the direction of combining bankruptcy with a mortgage modification to drive down your monthly payment to the mortgage company outside the bankruptcy perhaps even to the point where you ultimately can leave bankruptcy early. The alternatives to bankruptcy could include debt settlement; debt consolidation or even debt litigation. The debt settlement company (DSC) may promise over the radio that they can knock 50% off your debt but they cannot litigate or file a bankruptcy case for you. And they will not defend you if one or more of your creditors brings suit while you are in the settlement process.  A debt consolidation company may say that their solution is the most efficient  but they cannot litigate or file a bankruptcy case for you nor generally speaking can they even reduce your debt as can the DSC.  An attorney who litigates but does not file bankruptcy cases and does not have a financial background as do I may be extraordinarily skilled in the courtroom but is ill equipped to see your bigger debt picture and likely will say litigating a single debt (a costly alternative) is best when the debt could have been wiped out with a lot of other debt in bankruptcy.  An unbiased bankruptcy attorney will be part financial analyst and advisor and can lay out all avenues and recommend a path according to your needs. So, when should you talk to a bankruptcy attorney?  Many will hide their head in the sand but the early bird gets the worm…The clear answer is sooner as opposed to later.  Bankruptcy is not for everyone nor is it intended to be.  But if you have debts, and they seem out of hand, a thorough analysis of your finances should include a visit with an experienced bankruptcy attorney.

Law Offices of Christopher C. Carr, MBA,  P.C., owned and managed by Attorney Carr since 1997, a quality Chester County Bankruptcy Atttorney, with his practice located in  Valley Township, west of Coatesville, Pennsylvania, where Carr, who has over 30 years of diversified legal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!
Not Legal Advice.

©Christopher C. Carr, Attorney at Law 2013, All Rights Reserved.

 

More On Yo Yo Auto Sales (Auto Fraud)

Silver

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Tel: 610-380-7969 Email: cccarresq@aol.com

Website: westchesterbankruptcyattorney.org

I  work in autofraud relief for consumers and have posted previously here on YoYo’s.  Recently I answered the following question for AVVO:

Q: I bought a new car and 3 days later they said they made a mistake on the contract and need me to come back.

3 days after the contract has been signed with me giving them $10,500 as down payment with a 780 credit score. They said they made a mistake by stating the price of $31,129.00 . They said that was supposed to have been including $2,000.00 in rebates. On the contract is states $31,129.00 and then subtracting my down payment plus $2,000.00 in rebates. Do I have to give them more money and resign a new contract. It states on the contract that once both parties have signed it is binding. Hayden, Idaho

A: It sounds like you are facing a variant of what is called a yo yo sale, also called a “Spot Delivery”, which simply refers to the dealer putting a consumer into a car “on the spot”, to get the sale and take the buyer off the market, only to “yo-yo” them back at a later date to extract additional funds. This then is a variety of the old bait and switch. Played to perfection, a dealer can pocket thousands of extra dollars in unearned fraudulent gain out of a single unsuspecting buyer.

However, because your credit is virtually spotless the dealer cannot employ the usual tactic of stating that your credit was not approved to lure you back in to sign new papers.  (Your credit was good or the dealer would not have delivered the car to you at the price you agreed to pay.) That is, I believe that the dealer is doing more than simply trying to cheat you out of a rebate that was extended under a legally binding non conditional contract of sale, he is “yo yoing” you back to the dealership to pressure you to rescind the contract and adopt a new one undoubtedly with a much higher rate of interest. The “basis” would be that the contract has to be revised anyway to remove the supposedly erroneous rebate calculation.  This is of course illegal since you already have a binding contract but most buyers don’t know it, assume the dealer is right and go along with everything.

You do not need to stand for any of this because you already have you have signed papers and own the car, subject to making payments only, regardless of whether the vehicle has been financed or the dealer misstated the purchase price.  A finance document showing payments, rebates, deposit, interest rate and other financial items is a binding contract, giving you specific legal rights under the laws of your state. The dealer cannot change any of this legally once you have taken possession.

Yoyo sales are a national problem, involving dealer fraud. The usual fraud is making the consumer think the sale was complete, while at the same time the dealer sets it up so that the dealer can call it off, seize the car, and sell it to another purchaser or insist on dealer enhanced terms in a revised contract. A few states already prohibit conditional auto transactions outright, Idaho not being one of them as far as I can see, but even in the ones that have not taken that step, state contract law still protects the vigilant buyer.  In your case you were never told that the rebate was conditional, subject to being rescinded or the contract rewritten to change the price.  That is, you signed purchase documents and, I assume a registration application; obtained insurance; had a new license plate put on the car and/or had your old plate transferred, so the car belongs to you and the dealer is stuck with the deal they initially made. (The dealer may try the legal argument that the contract was formed based on a mutual mistake but I do not think that will work for reasons that are beyond the scope of this answer.)

Now you state that you have been called back to the dealership to sign certain papers; best not to go at all or if you do, do so in a car other than the one you bought, bring a friend with you if possible and be prepared to resist a browbeating. If the finance manager asks for your papers at any time for any reason, refuse! Keep these documents in a safe place, not in the car.  If you leave the papers they will also get them if they get the car. That leads me to my final point. You likely will need to retain a local lawyer with a good understanding of the laws of Idaho pertaining to auto sales to assist you.  I say this because your best strategy is to have counsel at the ready to take steps to enforce your legal rights against threats of repossession of the automobile or other dubious tactics to try and get the car back if you do not appear.  Best of luck to you and enjoy your new car.

 

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

 

HOME SURRENDER: CAN THE MORTGAGE COMPANY BE FORCED TO TAKE BACK MY HOME IN A BANKRUPTCY (or why dispossession is not nine tenths of the law)

 

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Using bankruptcy to rid oneself of a home that has become unaffordable and/or is now worth far less than it once was is called “surrender” in bankruptcy parlance and is governed by the US Bankruptcy Code.  This procedure is nearly as commonly used as is bankruptcy to stop a foreclosure so that a home can be retained.  We practitioners are using it much more frequently since the housing market is in decline.  Why is that?

Well, the question whether to keep a home when filing bankruptcy is usually answered by comparing the amount of the home’s monthly mortgage payments with the income the debtor is able to devote to housing payments.  Also key in today’s real estate market place is a comparison of the home’s appraised value[1] as compared with the amount still owed by the home owner. Where the home is worth significantly less than the amount owed, the home is said to be “under water”.  If the payments are no longer affordable and/or the property is under water, the debtor will likely choose to surrender the home as part of either a Chapter 7 or Chapter 13 bankruptcy filing.

However, in practice property “surrender” is often more problematic for the homeowner[2] than it would at first blush seem.  Foreclosure means the involuntary transfer of a property in a public sale or what is commonly called in Pennsylvania and many other states a “Sheriff’s Sale” because the County Sherriff will typically sell properties by the hundreds at public auctions held in the Pennsylvania counties following advance notice of the sales published by these officials. The requirements for these notices are very precisely defined in the relevant state statutes. These sales are usually conducted monthly and the sale ENDS the legal ownership and responsibility of the debtor.  Sounds pretty straightforward does is not?  However, in reality, mortgage companies are often slow to foreclose on homes that are surrendered to the lender in bankruptcy, leaving the home vacant, and yet still technically under the ownership of the bankruptcy debtor, for months or even years after the bankruptcy was filed.  It is often said that “Banks are not in the business of owning homes” but like most generalizations this statement is not always true.  The mortgage company may prefer to retain the home in its “inventory” rather than to sell it and take a huge loss that it must report to its shareholders in its public filings, perhaps hoping for a “better day” when the housing market starts to show improvement and it can then sell at at least a breakeven. Not only that but during the hiatus it does not need to legally bear these costs and liabilities.  Rather the mortgage company or its serviather the mortgage company or its servicer can keep the unsuspecting homeowner paying long after he/she has moved on simply by “sitting on” the property virtually indefinitely.

Many homeowners (and even some bankruptcy lawyers, unfortunately) will intuitively believe that their real estate is now legally the property of the bank because it has been “repossessed” (and they have been disposed) even though no actual sale has yet occurred. They may drop or reduce important coverage’s or fail to insure the property at all and find themselves liable in a slip and fall case for example for the full amount of the damages with no insurance coverage at all.

The purpose of any bankruptcy is to provide to the debtor a fresh start but the slow-to-foreclose mortgage company will routinely create fresh liability for the homeowner/ debtor, who will be held liable for post-bankruptcy homeowners association fees, property assessments, other ownership related financial obligations (but not the monthly mortgage payments, the personal obligation for which the debtor was discharged in the bankruptcy), if and as applicable.  The debtor may even be cited and fined repeatedly by the municipality and/or other governmental agencies if the grass is not cut, there becomes an accumulation of junk or hazardous materials on the property (albeit without any participation by the debor), and so forth.

However, a ruling handed down by a Hawaii bankruptcy court this month approved one strikingly clever resolution to the problem.  This Chapter 13 decision, In re Rosa, No. 13-00630 (Bky. Hawaii July 8, 2013), approved over the objections of the trustee a Chapter 13 plan which contained a provision designed to force play the situation by in effect arranging to convey the home back to the first mortgage holder. That is, In the Rosa case, the debtor’s Chapter 13 plan ingeniously stated that title to the real estate “shall vest in City National Bank/OCWEN Loan Service upon confirmation, and the Confirmation Order shall constitute a deed of conveyance of the property when recorded at the Bureau of Conveyances.”    The Chapter 13 trustee objected, arguing that“surrender” under the bankruptcy law did not transfer ownership of the surrendered property until the lender actually foreclosed.

The court disagreed with the trustee and pointed out that here, the debtor had gone beyond merely “surrendering” the property in the Chapter 13 plan.  Rather, the Plan unequivocally stated that confirmation of the Plan by the court would automatically transfer ownership to the lender, and that the order confirming the plan could be recorded like any other deed or conveyance.  While the Plan was drafted by the debtor (or more likely his/her attorney), the lender had been properly served with this plan and it had the opportunity to and had not objected to the Plan in court.  The Plan was therefore confirmed giving effect to this provision.

The result of this strategy for this particular debtor was the complete avoidance of the ills caused by the foot dragging Mortgage Company and its servicer, noted above.  One would think that a majority of the bankruptcy courts and jurisdictions, when presented with this issue, will adopt the new Hawaii precedent as it tends to remedy such evils without placing any undue burden upon or depriving the lender of any of its due process rights, in the eyes of this commenter at least. Perhaps we will even see the Eastern District of Pennsylvania or one of its 3 subdivisions adopting the new rule.

©Christopher C. Carr, Attorney at Law 2012, All Rights ReservedLaw Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Modification Services.


[1] There are several on line services such as Zillow.com for example that purport to provide property values.

[2] Note that this term used in this context is not inaccurate or imprecise…these persons are still in the eyes of the law owners of the properties they once occupied.

Gamblers & Bankruptcy

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By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Why do some people already in dire economic shape gamble?  Prudence suggests that they should not do so but gamblers are notoriously imprudent. Well ironically they often do so because they foolishly believe that they can gamble their way out of debt.  Other gamblers think they can win enough money to pay back their gambling debts– debts they may have rung up on their credit cards, money owed to casinos or riverboats, loan debt, and even home equity debt all associated with gambling problems–but quite the opposite happens. You only end up creating more gambling debt to repay. And even if you actually did win enough money to pay off your debt, you would most likely gamble that money away too, thinking if you won once you could win again. GA and other organizations can help to cure the addiction but the debt that persists is a slippery slope tempting the gambler to return to the game of choice and chance.  So oftentimes it is necessary to cure the debt problem to alleviate the addiction. And there is only one way to effectively do so, a Chapter 7 (or 13) bankruptcy, which if successful can wipe the slate clean in one fell swoop.  Thus, Bankruptcy may be the only option for dealing with gambling debt.

If you owe bookies or loan sharks, you may be forced to borrow money from a friend or family member to pay the gambling debt, especially if you’re being threatened with reprisals if you do not pay up . But borrowing money from a loved one, while perhaps better than having your legs broken, may not be such a good idea because all such debts will be discharged in a Chapter 7 bankruptcy leaving them high and dry.

I tell such clients that they should pay some of the money they are gambling away to me instead.  Gambling is risky and the “odds are stacked in favor of the house” but I am a sure thing, or nearly so.  What stands in the way of a fresh start in Bankruptcy for the gambler?

  1. Fraud: Gambling debt, including debt incurred from casinos or charged on credit cards and loans, can be discharged in bankruptcy. It’s important to know that any creditor can object to the bankruptcy filing by claiming you incurred the debt under false pretenses or through fraud. For example, if you took out a credit card cash advance knowing you didn’t have the money to repay the advance when you borrowed it, the creditor can ask the court not to discharge the debt. Creditors owed gambling debts may file “adversary proceedings” to challenge the dischargeability of their debts under Bankruptcy Code section 523(a)(2)(A) provides an exception to discharge for debts obtained by “false pretenses, a false representation, or actual fraud.”  These suits, historically filed by casinos, are rare today. They are expensive, cast the casino and its entire industry in a bad light and with the rise of legalized gambling, are no longer favored by the courts.  The gambler’s creditor has the burden to prove that the gambler actually committed fraud, in other words that you had the intent not to repay the debt when incurred and that is barring some lucky (or more likely stupid) admission, very difficult to do.
  2. Reporting Requirement: All gambling losses within the previous year must be reported on the Statement of Financial Affairs which is part of every bankruptcy filing.  This is required so the bankruptcy trustee and court can determine whether any fraud was involved in the bankruptcy filing.  Bankruptcy trustees have broad powers to avoid transfers which appear fraudulent because they are transfers for which the debtor received “less than reasonably equivalent value,” which is the basic benchmark for determining fraud under the Bankruptcy Code. This requirement may pose obvious difficulty for the gambler who has been dealing with loan sharks who may act aggressively to keep from having their names become a matter of public record.
  3. Luxury Debts: However unlikely it is that the casino will win an adversary action, there is another bar standing in the way of clearing very recent gambling debt. Bankruptcy Code section 523(a)(2)(C) makes a debt non-dischargeable if the debts was for a “luxury good or service” over $1,225 and purchased within 60 days of the filing of the bankruptcy.  That section also precludes discharge of cash advances over $1,225 obtained within 60 days of the filing of the bankruptcy.  In most cases, the exception can be avoided by simply waiting the requisite 60 day period of time
    to file the bankruptcy.  However, this may not be as easy as it sounds for the compulsive gambler. Often the lawyer must demand a turnover of all credit cards, etc. so that the problem is cut off at the source.
  4. Chapter 13: Impossibility of fulfilling the plan because of compulsive gambling:  oftentimes a gambler who is behind in house or car payments because of money diverted to gambling will have no choice but to file a Chapter 13.  This requires a 3-5 year plan wherein the gambler promises to repay some of his debts.  But the plan must be funded by the gambler’s income and little threatens income as effectively as compulsive gambling.  Thus, may trustees and courts (tipped off by the required gambling disclosures…see above) will closely scrutinize such a plan and may demand that the gambler be under the treatment of a psychiatrist and/or regularly attending GA meetings before they will give it the go ahead. A clean recent bank and/or credit card statement(s), not showing large withdrawals, can also be very helpful in showing that the gambler has the self control needed to suceed with a plan in a Chapter 13.

It is clear that the cure of the gambling addiction and its economic fallout go hand in hand.  One cannot easily be repaired without the other. We are experienced in dealing with the problems of and in counseling gamblers and would be happy to discuss the issues facing you or a loved one challenged by this affliction.

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified legal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!