Written by Craig D. Robins, medicine Esq.
“Universal Default” is when you are late with one credit card and because of this, another credit card that you are current with considers you to be in default on their card, and then doubles your interest rate.
The dreaded universal default language is buried deep in the complicated and small-print boiler-plate language in your credit card agreement. Very few consumers know that their card may have this provision affecting them – that is, until it is too late.
Thus, even if you are current on thousands of dollars owed on many cards, if you are late with just one – for just a few dollars – your interest rates can double on all of your cards, to as high as 30%.
Credit card companies have been doing this for several years because of greed and because they have been able to get away with it. Many analysts believe that universal default has been one of the biggest profit centers for most credit card companies during recent years.
The great increase in interest rates triggered by a universal default has resulted in many Long Island consumers seeking bankruptcy protection to eliminate their debts as the only possible debt solution.
Fortunately, sweeping new legislation was adopted in December 2008 to prohibit this unfair and deceptive practice. However, the new laws do not become effective until July 2010. They will prevent credit card companies from raising interest rates on existing balances.
The excessive charges caused by universal default leads effects many consumers on Long Island. However, consumers can often eliminate their credit cards debts by filing for bankruptcy relief.
Written by Craig D. Robins, hospital Esq.
Partner-level attorneys representing Tribune Co. with their recent Chapter 11 bankruptcy filing are charging as much as $1, decease 100 per hour. Tribune Co., a Chicago-based newspaper publisher, is the former owner of Newsday.
Lawyers at Sidley Austin, one of the nation’s largest and most prominent law firms with 1,800 lawyers, are asking as much as $1,100 an hour for bankruptcy work on Tribune Co., surpassing the rates previously charged by another national law firm heavyweight, Weil, Gotshal & Manges, in the Lehman Brothers Holdings Inc. Bankruptcy case, one of the largest in history.
Sidley Austin is the law firm where President-elect Barack Obama once worked and met his wife-to-be Michelle. Senior partners in the firm are charging hourly rates between $575 to $1,100 an hour, according to a recent bankruptcy court filing seeking approval of the rates. Other lawyers in the firm are seeking hourly rates of $400 to $875.
Some commentators have stated that this appears to be the highest hourly rate ever heard of for a bankruptcy lawyer.
Sidley is even seeking to have its associates working on the case paid $240 to $650 an hour, and its paralegals $95 to $385 an hour.
As far as the pre-petition retainer, Tribune paid Sidley $4.5 million about two weeks before the filing.
The hourly rates far surpass the rates charged by Long Island bankruptcy lawyers where most attorneys charge hourly fees that are less than the highest hourly fee charged by a Sidley paralegal.
Recent Case Further Defines Means Test Criteria
by Craig D. Robins, Esq.
Judicial interpretation of the means test, which is the controversial centerpiece of the 2005 Bankruptcy Amendment Act, has resulted in hundreds of decisions around the country during the past three years. A recent decision from Judge Robert E. Grossman, sitting in our own Central Islip bankruptcy Court, has further defined the parameters for how the means test should be prepared and utilized.
Basic Purpose of the Means Test. For the uninitiated, the basic purpose of the means test is to determine whether a debtor is eligible to file a Chapter 7 petition based on a rather comprehensive calculation of the debtor’s income and expenses during the preceding six-month period. If the means test indicates that the debtor should be in Chapter 13, the test also provides the minimum amount that the debtor should pay on a monthly basis in a Chapter 13 plan.
In a nutshell, the means test determines the debtor’s current monthly income by taking the debtor’s household’s gross income and subtracting certain specified exclusions and deductions. Generally speaking, no matter what chapter the debtor files, the lower the final figure on the means test, the better.
Income to be Included in the Means Test. Technically, almost all income that the debtor receives in the six-month window before filing must be included in the means test. Social Security income is the general exception. However, strictly complying with the statute in some instances can produce a skewed means test result. In a recent case, the issue was whether the debtor is required to treat cash advances as income for the purposes of calculating the means test.
Chapter 13 Trustee Claims Cash Advances Are Income. In July 2008, Melville bankruptcy attorney Richard Kantor filed a routine Chapter 13 case for Rafael Almonte (Bankr.E.D.N.Y. 808-74084). During the six-month means test period, the debtor had taken $24,000 in cash advances from his credit cards. Believing these cash advances would not have any relevance to how much income the debtor would have in the future, Mr. Kantor did not include the cash advances as income in the means test.
Chapter 13 trustee Michael J. Macco objected to confirmation of the debtor’s plan, arguing that the debtor’s “current monthly income” used in the means test for purposes of determining the Debtor’s “projected disposable income” under Section 1325(b)(1)(B), must include, as income, the amount of the cash advances that the debtor took within the six months prior to filing.
Judge Rules that Cash Advances Are Income and Not Income. Judge Grossman, in a well-worded, 16-page decision, analyzed the concept of “current monthly income” and determined that cash advances do constitute “current monthly income,” under the forward-looking approach to the calculation of a Chapter 13 debtor’s projected disposable income. However, he also held that the cash advances did not constitute part of the debtor’s “projected disposable income,” as they would not be repeated in the future.
In going through an elaborate analysis that highlighted the ambiguous and poorly-worded statute, Judge Grossman commented that “this Court is not the first to recognize the discrete differences among “current monthly income,” “disposable income,” and “projected disposable income,” and grapple with the imprecise language of this statute. He then concluded that the line of cases adopting the forward-looking, or “crystal ball,” approach to calculating a Chapter 13 debtor’s “projected disposable income” is the correct interpretation of the statute.
However, the court said that if the Chapter 13 trustee or an unsecured creditor objects to confirmation, the calculation of “disposable income” under Code § 1325(b) and the means test (Form B22C) is but a starting point in reaching the debtor’s “projected disposable income.” If a debtor’s “disposable income” on Form B22C differs from the debtor’s actual monthly disposable income reported on Schedules I and J, the court may analyze the debtor’s actual projected income over the life of the plan.
The Trustee May Not Use a Strictly Mechanical Approach. In choosing the approach to take, the judge adopted the line of cases that holds that the Chapter 13 trustee may not use a strictly mechanical approach to evaluating the debtor’s projected disposable income. The Judge further implied that the trustee’s position would lead to the “absurd result” that a debtor would be required to repay more than the debtor can afford.
The court commented that the debtor could not possibly include the cash advances in “projected disposable income” because the debtor would not reasonably be expected to take additional cash advances during the life of the plan. “It would be absurd to assume that the debtor would continue to take cash advances in order to fund his chapter 13 plan, and the Court is not prepared to require that result.”
The Court Takes the Logical Position. In reaching the determination that calculating the debtor’s ability to fund a plan should not take into consideration income that simply will not be available in the future, Judge Grossman also pointed out that this approach could also work against the debtor, if the debtor were to have additional income in the future which is not reflected in the means test.
“Absent binding authority in this Circuit, this Court is not prepared to adopt an application of the statute which would result in a debtor either: (a) being precluded from Chapter 13 relief because a mechanical application of Form B22C would create fictional monthly disposable income that the debtor does not have, or (b) allow the debtor to withhold actual monthly disposable income from repayment to unsecured creditors because his or her historic income figures are lower than actual projected figures.”
Practical Tips. The first point is that Mr. Kantor, in representing the debtor, did not give in to the trustee’s unsound position, and in doing so, obtained a victory for his client. Secondly, it appears that the judges in our jurisdiction are adopting a logical and reasonable approach towards how much income a debtor can devote towards his creditors. Thus, a debtor’s actual ability to pay appears to be the overriding criteria in determining how much the debtor will actually be required to pay.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the January 2009 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Medford, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Written by Craig D. Robins, Esq.
New York was a difficult year for Long Island retailers and there have been some casualties. Some of the more notable retailers who have filed for bankruptcy protection during the past year include:
The national consumer electronics chain with many stores on Long island couldn’t even last until Christmas and filed for Chapter 11 reorganization in November 2008. It is liquidating several of its Long Island stores.
National Wholesale Liquidators
Based in West Hempstead, Nassau County, they filed for bankruptcy protection in November 2008. They have a number of stores in Nassau and Suffolk County.
They filed for bankruptcy protection just two weeks before Christmas and they are currently liquidating their Long Island stores.
Linens ‘n Things
They filed for bankruptcy protection in May 2008. They began liquidation sales in October after failing to find a buyer.
Steve & Barry’s
The discount apparel merchant filed for Chapter 11 bankruptcy protection in July 2008, then later determined that it would liquidate.
The publishing company that sold Newsday to the Dolan family in the early part of 2008 filed for Chapter 11 bankruptcy protection in December 2008. Declining ad sales from retail merchants was a major factor leading to their financial difficulties.
General Motors, Chrysler and Ford
The big three automakers did not file bankruptcy but came pretty close to it towards the end of 2008.
What’s Ahead for 2009?
Bankruptcy attorneys predict that there will be a rash of additional retail bankruptcies in 2009. Unfortunately for individuals, when a store closes, employees are laid off, and suppliers are also hurt, leading to a ripple effect that will certainly trigger more personal bankruptcies as well.