When I File Bankruptcy, Can the Trustee Search My Home?
August 21st, 2009
In my bankruptcy practice in Tucson, Arizona, few questions are as common as this one. Once many clients learn that their assets must be disclosed, that a value must be placed on them, and that only certain assets are protected, they often ask "can a bankruptcy trustee search my home?"
In a well known case (at least well known to bankruptcy attorneys), Youngman v Bursztyn (In re Bursztyn), 366 BR 353 (Bankr DNJ 2007), the court determined that a trustee is allowed to obtain a court order for the seizure of unprotected property. Thus, the short answer to the question is "yes."
Potential bankruptcy filers who have just read the above paragraph might be taken aback by a facet of bankruptcy law that few would imagine existed. However, it is important to scrutinize what we have just read. First, only unprotected assets can be seized. Part of the bankruptcy process requires that a debtor disclose all of his assets. A bankruptcy attorney will be able to tell the debtor which assets are unprotected and therefore, subject to seizure. A debtor is allowed to perform careful pre-bankruptcy planning before filing his bankruptcy. A competent bankruptcy attorney will create a strategy for a debtor before filing his case. He may recommend that the debtor sell any unprotected assets before filing. This will help eliminate any possible seizure of assets by the trustee when the case is filed.
The other half of the famous Youngman ruling is the requirement for a court order. A trustee has to go through the time and expense of not only obtaining the court order, but also arranging the assistance of the U.S Marshals or other law enforcement in order to implement a search and seizure of unprotected assets. As a consequence of this trouble and expense, a trustee will not bother to attempt to search a home for unprotected assets unless he suspects that the debtor has unprotected assets of a significant value. Almost all bankruptcy filers have at least some unprotected assets disclosed in their bankruptcy. However, in my own experience filing bankruptcies in Tucson, Arizona, I have never had a trustee search a client's home. This is because it will not be worth a trustee's time, effort, and cost, to look for undisclosed assets that are unprotected such as microwaves, DVD players etc., because they have little value. It is also not worth his time to jump through the hoops required to search your home on the off chance that you might have a valuable, unprotected asset that you did not disclose. As a result, the search of a bankruptcy filer's home is an extremely unusual event.
competent bankruptcy attorney will always address this issue as part of the bankruptcy filing process. When you engage in careful pre-filing planning with your attorney, it should lead to the protection of all your assets. A competent attorney will also present a client's case to the trustee in a thorough and accurate way, which will greatly reduce the already minimal chance that the trustee will search a client's home.
The Home Affordable Modification Plan
June 9th, 2009
A new government plan might give you the opportunity to reduce your monthly mortgage payments through a loan modification. The Home Affordable Modification Plan provides incentives to lenders that should make it easier for you to qualify for a mortgage modification if you are (or soon will be) having trouble making your mortgage payments. The program has many restrictions, but it is worth investigating because it can be very beneficial if you do qualify for the program.
Do I qualify?
The program only applies to the first mortgage on your home. The program has a simple five question test at http://makinghomeaffordable.gov/modification_eligibility.html which will let you know if you may qualify under the program. Qualifying involves many other complex parameters, some of which are specific to individual mortgage companies. The only way to know for sure that you qualify under the program is to contact your current mortgage servicer directly. They are not required to implement the program, but it is likely most companies will participate now, or at least in the near future, because of the incentives for them to participate. If you are interested, don't wait too long to act. The program is set to end on December 31, 2012.
Most Members of Credit Unions and Banks Are Unaware of Cross Collateralization Clauses
June 9th, 2009
A cross collateralization clause is a contract provision that treats an asset as collateral for more than one loan. As a Tucson bankruptcy attorney, I have seen the effects of such a provision time and again. Here is an example. An individual decides to file for bankruptcy. He has a checking account with a credit union, and a credit card with the same credit union. His credit card has a significant balance which will be eliminated when he files bankruptcy. However, he is unaware of a cross collateralization clause in his banking contract. A few weeks after his bankruptcy is filed, he goes to withdraw money from his account shortly after his direct deposit paycheck has been placed in his account. But the money is gone. Under the cross collateralization clause, the credit union is allowed to withdraw money from his account to satisfy the credit card debt. The credit union does not need the permission of the account holder to withdraw money for this purpose. Unfortunately, this is a common scenario that a bankruptcy filer can prevent if he consults with a Tucson bankruptcy attorney before filing his case.
Here is another example. An individual obtains a loan from a credit union to purchase a car. The car, of course, is collateral to secure repayment of the auto loan. If he does not make the payments on his car, the credit union can repossess the car. However, this individual is unaware that his banking contract contains a cross collateralization provision. Let's say that he also has a credit card with the same credit union. If the credit card is cross collateralized with the auto loan, the credit union is allowed under the contract to repossess his car if he does not make his credit card payments even though he is current on his auto payments.
As a Tucson bankruptcy attorney, I have never seen this second scenario occur. Typically a bank would rather have someone continue to pay on a vehicle than to have to repossess it. The act of repossessing a vehicle costs money, and typically the bank must turn around and auction the vehicle for only a portion of its retail value. Thus a bank is financially better off if it does not repossess the vehicle. It is important to note, however, that this scenario is at least a possibility. There is no guarantee that it will not happen.
Cross collateralization is a common contract provision when dealing with credit unions. Banks typically do not have such provisions. However, it is never safe to assume that such a contract does not exist simply because you manage your finances with a bank and not a credit union. Tucsonans who are contemplating a bankruptcy should contact an experienced Tucson bankruptcy attorney to discuss this issue and strategies for dealing with it.
Don't Be Mislead by the Bankruptcy Experiences of Other Filers
May 4th, 2009
Bankruptcy, especially in this economy, is a topic for discussion virtually everywhere, from the TV to the water cooler. Potential bankruptcy filers are bombarded with information. Because of the frequency of bankruptcy filings, it is likely that one will be acquainted with others who have filed in the past. If you are contemplating bankruptcy, approach others' advice and experiences with caution.
Different states have different rules. Even though bankruptcy is under the jurisdiction of federal law, individual states are allowed to create their own rules in certain aspects of bankruptcy. For example, the rules regarding what assets are protected in a bankruptcy vary widely from one state to another. A debtor in one state might have too much equity in his home to protect it in bankruptcy. If that same debtor resided in another state, he might be able to protect that home and still file. This is true for a whole array of assets. Do not assume that just because a friend in another state was able to file and keep certain assets that you will be able to necessarily keep the same assets.
The different chapters of bankruptcy create a very different experience for bankruptcy filers. Under a Chapter 7 bankruptcy, most of a bankruptcy filer's unsecured debts are simply eliminated. If that same debtor was required to file a Chapter 13 instead, he would have a three to five year payment plan through the court before the close of his bankruptcy case and ultimately, he would pay back at least a portion of his unsecured debt. Assets, income, arrearages, and other issues are all treated differently depending on the bankruptcy chapter. And if you happen across somebody who has filed a Chapter 11 or Chapter 12 bankruptcy, you will hear even more details that are likely irrelevant to a typical bankruptcy case.
Even if you discuss bankruptcy with a filer who resides in your state and who filed the same chapter bankruptcy you are considering, it is important to remember that every bankruptcy case is different. Even small differences in a bankruptcy case can have great consequences in how a case is handled, in what assets a filer is allowed to keep, and in what the ultimate outcome of the debtor's case might be. Only a consultation with an experienced bankruptcy attorney can answer all of the questions that are specific to your own situation. Anecdotes from other bankruptcy filers should never be treated as legal advice and should not be used to determine what one's own bankruptcy experience will be like.
The Pitfalls of Repaying a Loan to a Friend or Family Member Prior to Filing Bankruptcy
May 4th, 2009
Often, debtors will repay a friend or family member in order to protect them when the debtor files bankruptcy. In other cases, the debtor chooses to pay off the debt so the friend or family member does not need to be listed as a creditor and therefore, will not be notified of the bankruptcy. Unfortunately, in the case where a preference payment is made specifically to a friend or family member within a certain time period before filing for bankruptcy, the bankruptcy trustee can sue that creditor to recover the payment. As an alternative, the trustee may require the debtor to pay that amount to him as part of the bankruptcy. He will then redistribute that money to the debtor's non-preference creditors.
In some cases, a potential bankruptcy client has made preference payments to friends or family members before considering bankruptcy. Often, there are opportunities to remedy the situation prior to filing bankruptcy. Sometimes, circumstances allow for the money to be returned to the debtor by the creditor prior to filing bankruptcy. This essentially "undoes" the preference payment to the creditor. This is a viable option as long as the friend or family member agrees to the arrangement and has the money to return to the debtor. An attorney well versed in the federal and state bankruptcy laws of your area will likely be aware of other strategies available in such circumstances. If you are considering bankruptcy and find yourself in a similar situation, you should consult an experienced bankruptcy attorney for advice on how to proceed prior to repaying a friend or relative.
Not All Bankruptcy Firms Are Created Equal
April 11th, 2009
So called "Bankruptcy Mills" rely on a high volume of clients to increase their profitability. In order to process so many bankruptcies, these firms offer limited client service. What little client contact they do provide is usually offered by secretaries and paralegals rather than by attorneys. When a client does end up finally meeting with an attorney, it is usually in a cursory way simply to satisfy court requirements that an attorney meet with a client at some point in the bankruptcy process. Often these firms use an attorney at the trustee meeting who has little familiarity with the case at hand and who has never met with the client who now sits with him in front of the trustee. This can leave clients feeling helpless when they attend the trustee meeting. Though one might assume Bankruptcy Mills would at least charge lower fees due to the high volume of clients and limited service, this is often not the case. These firms tend to have a very high advertising budget in order to attract a large number of clients. This high cost of advertising is passed on to their clients.
Potential bankruptcy clients should be weary of a firm who uses scare tactics to convince a client that bankruptcy is his only option. Many firms use an individual trained in the practice of the "hard sell" who acts not unlike a car salesman when a potential client first visits their office. This individual will often mischaracterize bankruptcy law to scare someone into retaining their services. Often, firms that use this approach are also inflexible when it comes to allowing a client to choose how he wants to file bankruptcy. In some cases, a client might be able to file either a Chapter 7 bankruptcy or a Chapter 13. Rather than explaining the pros and cons of each, some firms make Chapter 13 seem as though it is the client's only option. Attorney fees are higher for a Chapter 13 bankruptcy, so a firm interested only in profit would rather have clients file the more costly version instead of giving their clients a choice.
When shopping for a bankruptcy attorney, potential clients should keep these important details in mind. Most bankruptcy attorneys earn a good reputation from their peers and clients by being personally involved in each and every case. A quality bankruptcy firm will offer a client the opportunity for much direct interaction with the attorney who is filing his case, and usually the same attorney who files the case will also attend the trustee meeting with his client. Also, a reputable bankruptcy attorney will not use the "hard sell" when explaining bankruptcy to a potential client. Rather, the ethical approach is to explain the law and how it applies to a client's specific financial situation. The client should then be given the opportunity to decide for himself if bankruptcy is his best option, free from any threats or scare tactics. If you are considering bankruptcy and do not feel comfortable with a particular firm you visit, it is a good idea to shop around until you find the right fit, keeping the above details in mind before you choose.
Bankruptcy Can Have Positive Consequences for Children
April 11th, 2009
Families with children can benefit from filing a bankruptcy. The discharge of credit card debt via bankruptcy can allow parents to start using the money that would have been paid toward high-interest credit cards for college planning. The elimination of debt can increase a family's disposable income. With extra income available, a family can afford to take vacations together and engage in other family activities that their pre-bankruptcy budget would not allow for. A bankruptcy may also reduce the familial stress of struggling to pay bills, and it can be an opportunity to teach children about the dynamics of budgeting and finance.
Bankruptcy Filings in Tucson
December 9th, 2008
If you are looking to get a fresh start and file a Chapter 7 bankruptcy, you are not alone.
Statistics for Tucson Chapter 7 Bankruptcy filings:
In September of 2007, there were 155 Chapter 7 bankruptcy filings. In September of 2008, that number increased by 121 percent to 329 filings.
October saw similar numbers. In October 2007, 221 filed for Chapter 7, while in 2008 that number increased 105 percent with 359 filings. The largest number of Chapter 7 filings in the past two years for a single month.
Statewide, Chapter 7 filings have increased nearly 90 percent from the previous year.
There were 106,266 consumer bankruptcy filings nationwide in October, according to the American Bankruptcy Institute and National Bankruptcy Research Center.
"October's sharp spike in new consumer bankruptcies confirms the severe financial stress on household budgets caused by high debts, flat incomes, and declining home values," said ABI Executive Director Samuel J. Gerdano. "We expect the 2008 numbers to be the highest since the new bankruptcy law went into effect in 2005."
For more information about filing for bankruptcy, check out our Frequently Asked Questions or call us toll free at (888) 292-5593.
