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“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Bankruptcy Tips Consumers Should Know
Written by Craig D. Robins, Esq.A decision from the 7th Circuit Court of Appeals last week illustrates the importance of providing accurate information in the bankruptcy petition. In that case, debtors from Michigan failed to do so and were denied a discharge. (Stamat v. Neary, 7th Cir. Mar. 24, 2011).
This Bankruptcy Filing Was Far From Ordinary
Dr. and Mrs. Stamat of Illinois filed a high-debt Chapter 7 bankruptcy case in July 2007. Dr. Stamat is a medical doctor who operates a pediatric clinic. The wife owns a medical billing company. They sought to discharge over $1.5 million in debt.
After being examined, the trustee alleged that the debtors failed to list numerous assets and transactions including past business interests, two limited partnerships, a $10,000 law suit settlement payment, and $90,000 obtained from a refinance. The trustee also alleged that they misreported their 2006 income.
Accordingly, the trustee sought to deny their discharge by bringing an adversary proceeding under Bankruptcy Code section 727, arguing that the debtors concealed estate assets with intent to defraud their creditors, fraudulently made false statements under oath, and failed to satisfactorily explain the loss of assets — some pretty serious charges.
The bankruptcy court agreed with the trustee, denying the debtors a discharge. The debtors unsuccessfully appealed to both the District Court and the Court of Appeals, who held that the debtors made numerous material omissions which displayed a reckless disregard for the truth.
Debtors Were Far From Candid and Honest
The debtors indicated in their petition that their 2006 gross income was $53.000. However, their 2006 tax return indicated that Dr. Stamat grossed $265,000 from his medical practice and his wife grossed $22,000 from her billing business. That’s quite a disparity.
In addition, the debtors failed to disclose past investment and business interests, as well as ownership interests in various limited partnerships, which information they were required to list in the Statement of Financial Affairs, which is one of the schedules of the bankruptcy petition.
The debtors also refinanced their home twice in the two years before filing the bankruptcy petition, receiving over $90,000 in cash, and they failed to report that as well.
Bankruptcy Relief is for Honest Debtors
The decision underscores a basic tenet of consumer bankruptcy – that an honest debtor is entitled to a fresh new financial start. Honesty and candidness are paramount.
The Court stated that the debtors knew or should have known that the information they provided was inaccurate and that the cumulative effect of their false statements was material. This established a pattern of reckless indifference to the truth.
What Can We Learn From This Case?
First, the debtors in this case are both intelligent and educated. They ran a medical practice. So they were smart enough to know what they were doing. When it came to their bankruptcy petition, they made not one omission, but many. It appears that they did so to deceive the court.
If the debtors had merely neglected to schedule one particular asset, or if they merely provided inaccurate information about their income, they likely would have been able to coast, assuming that they were immediately forthright about amending their schedules to provide accurate information.
However, in this case, the debtors’ failure to provide accurate information was so wide-spread, that it was impossible for the court to overlook, as the only reasonable conclusion was that the debtors intentionally acted to withhold important information.
The bottom line is that it is important to be as accurate as possible when disclosing information about your financial situation. Failure to do so can result in having the court deny your dischage.
Written by Craig D. Robins, Esq.This morning I reviewed a proof of claim filed in one of our Chapter 13 bankruptcy cases. It was filed by American General Financial Services, LLC for a $7,000 debt that was incurred two years ago for an in-ground swimming pool. The local merchant was Island Recreational. They filed the claim as “secured.”
Here’s the problem: The proof of claim contained an attachment that consisted of the one-page quicky credit application my clients filled out at the time they purchased the pool and applied for financing.
Attaching this document was not the problem; the creditor’s failure to remove or redact my clients’ Social Security numbers was.
Social Security Numbers Are Sacred and Confidential in Bankruptcy Proceedings
With identify theft becoming a significant concern this past decade, the bankruptcy courts adopted a new privacy rule that was made part of the official Bankruptcy Rules.
Bankruptcy Rule 9037 requires any party filing a document to ensure that any references to Social Security numbers and other sensitive data are deleted or redacted.
I previously wrote about this: Maintaining Privacy in Bankruptcy Court Filings .
Getting the Creditor to Immediately Rectify the Situation
I immediately e-mailed the creditor’s “Bankruptcy Specialist” who had prepared the proof of claim and advised her that not only did she violate the law, but she was exposing my client to the possibility of identity theft.
Technically the creditor was in contempt of court for violating Rule 9037.
I also considered bringing a motion seeking sanctions against the creditor. However, doing some quick research, I learned that some courts have refused to award sanctions in such instances, stating that Rule 9037 does not provide a private cause of action to do so.
Rebecca Rose, a law student on the St. John’s Law Review, recently wrote a summary of of the Matthys case which held that Disclosure of Social Security Number Does Not Give Debtors a Private Right of Action.
Meanwhile, other courts have stated that sanctions are necessary to deter this type of conduct and have indeed awarded them. I found a great article in the ABI Journal about this — Rule 9037: Consequences of Failure to Redact “Personal Data Identifiers” However, the link is only available to ABI members.
However, since the Second Circuit did not have any case law on the subject, I decided it would probably not be worthwhile to test the waters on this.
In any event, I tend to be a pragmatist, and I was mostly concerned about achieving a quick resolution and an appropriate disposition of the problem for my clients.
The Offensive Proof of Claim was Removed and Amended
The creditor’s Bankruptcy Specialist, within minutes of receiving my e-mail, contacted me and agreed to resolve the problem — and she did so in a very pleasant and apologetic manner.
Within an hour, she had gotten the Bankruptcy Court Clerk to permanently remove the offensive document from the court’s records.
This was fortunate because some bankruptcy courts in other jurisdictions handle such matters differently — they will only block the offensive material temporarily while requiring counsel to bring a motion for a protective order, a significant amount of work.
She then filed an amended proof of claim, now treating the debt as unsecured, rather than secured. This will save us a little time later when we need to reconcile the filed claims in preparation for proceeding towards confirmation of the Chapter 13 plan.
Sure, I could have been meaner and more aggressive. I could have fought for some sanctions or attorney’s fees. However, I resolved the problem rather quickly, and the creditor made my life a little easier by amending the proof of claim. I think I did OK for my client.
Had the creditor’s Bankruptcy Specialist been nasty or unresponsive or not conciliatory, I would have handled the matter most differently.
Of course there was a possibility that someone paid the government an ECF fee to view the proof of claim, but I think the possibility that a person with illicit intent did so within a relatively-short period is exceptionally unlikely.
New York Bankruptcy Exemptions Suddenly Increased – This Is the Biggest Bankruptcy News in Years!
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Written by Craig D. Robins, Esq.For New Yorkers considering bankruptcy, the biggest bankruptcy news in five years dropped like a bombshell this afternoon when Governor Patterson unexpectedly signed legislation greatly increasing exemptions for consumers.
Exemptions are those statutes that permit consumer debtors in bankruptcy to keep and protect assets.
New York Residents Seeking Bankruptcy Relief in 2011 Will Be Able to Protect More Assets than Ever Before
This will certainly cause an explosion in the number of consumer bankruptcy cases we will see next year as more financially burdened consumers will be able to eliminate their debts while keeping and protecting all of their assets.
Homestead Exemption Increasing to $150,000 per Person for those on Long Island
Right now each homeowner can protect only $50,000 worth of equity in a house. However, for those on Long Island who live in Nassau and Suffolk Counties, that amount will triple to $150,000.
Since a husband and wife can pool their exemption, that means that a couple will be able to protect a whopping $300,000 worth of equity in their home.
This will enable almost any typical Long Island middle class family to file bankruptcy to eliminate their credit card debts while protecting their home.
In my Long Island bankruptcy practice, I am regularly meeting with homeowners who are forced to file for Chapter 13 bankruptcy instead of Chapter 7 because they have too much equity in their homes. Now, almost everyone will be able to seek Chapter 7 bankruptcy relief and keep and protect their homes.
Incidentally, the amount of the new homestead exemption will be based on what county the debtor’s home is in. For most upstate counties, the homestead exemption will only be $75,000 per person.
More than half of the states previously had more generous homestead exemptions than New York; now it will have one of the best.
Amounts for Almost All Other Exemptions Categories Are Being Increased and New Categories Are Being Added
The new bill also increases the exemptions for a great deal of other assets like cars, and adds some new categories like home computers and vehicles for the handicapped.
Many of the exemption amounts that are being increased had not changed in decades.
I am in the process of reviewing each of the various changes to the exemption laws, and I will discuss and outline them in a post tomorrow.
Proposed Legislation to Expand New York’s Exemptions Has Been Periodically Submitted in Albany for Years
For years, legislation was proposed each and every year in Albany that sought to increase exemption amounts. This legislation never received any publicity because it was periodically struck down and nobody ever expected it to pass.
In years past, when I would discuss this with some of my colleagues, they were surprised to hear that there was pending legislation considering that it wasn’t publicized at all.
Despite reaching various stages in Albany each year for the past decade, such legislation has never found its way into law except once, when the homestead exemption was increased in September 2005. That year it was increased five-fold from $10,000 per person to $50,000 per person. Here’s the article that I wrote about that: Surprise Law Enactment – Homestead Exemption Increased .
The Governor’s Signing of the Bankruptcy Legislation Today Was Totally Unexpected
In July of this year we seemed to get closer than ever before to seeing a change in New York’s woefully inadequate exemption laws.
At that time, both houses of the New York State Legislature passed legislation to increase bankruptcy exemptions in New York State. However, the banking industry, which has an extremely large presence in New York, vigorously lobbied Governor Patterson to veto the bill.
Very few people thought there was any chance that Governor Patterson would sign the legislation into law. For that reason, no one was holding their breath about its passage because nobody expected it to happen.
The Bankers carry a lot of power, even with Democrats. They argued that many consumers owe taxes to New York State, and with the bill’s added protections for debtors, both in and outside of bankruptcy, New York State’s tax collections would suffer.
New York City officials also opposed the legislation, arguing that it would impair the City’s ability to tow and auction cars for outstanding parking violations.
For months, the bankruptcy legislation, which was signed by both houses, just sat on the Governor’s desk, and we all assumed it would die there.
Yet, Gov. Patterson, who is leaving office in just one week, signed the bill today – his very last — with no advance notice and no fanfare of any kind, catching me, as well as all other bankruptcy practitioners, by surprise. And a very nice surprise at that!
Perhaps the Governor, who apparently does not see public service in his future, was upset at the damage wrought by the financial sector which drove the economy into a recession, and used this opportunity to give something back to his constituents.
Governor Patterson Issues Press Release Discussing Why He Signed New Exemption Law
Along with the new law came a press release. In it the Governor said:
“During this time of economic crisis, it is our responsibility as public servants to protect those who are struggling the most.
“A reconsideration of the current exemptions, which in some cases have not been changed in decades, is particularly warranted when an increasing number of individuals find themselves in dire financial condition. Though this is not a perfect bill, the benefits far outweigh its concerns.”
The press release also stated: This bill would provide a much-needed update to the exemptions law in New York as many provisions of State’s exemptions law are antiquated or have not been amended since the 1980’s. The purpose of such exemptions is to permit debtors in bankruptcy to retain a modest amount of personal property and equity in their homes so that they can continue to maintain their lives, and to protect them from becoming homeless, unemployed, or otherwise dependent on the State.
The New and Increased Exemptions Will Help Future Bankruptcy Debtors in Many Ways
Not only will more consumers be able to file for Chapter 7 bankruptcy, but many of those who seek Chapter 13 protection instead will end up paying substantially less through their monthly Chapter 13 plan.
Also, many existing Chapter 13 debtors may be able to convert there cases to one under Chapter 7 and eliminate all further monthly payments.
The bankruptcy attorneys in my office and I will be quite busy reviewing all of our cases over the next few weeks to ascertain how to best take advantage of the new exemptions amounts.
To see a number of post that I’ve written about bankruptcy exemptions, see the articles under this category: Bankruptcy Exemptions.
Written by Craig D. Robins, Esq.
The Bankruptcy Court Now Maintains a Privacy Rule
Over the past several years, the Bankruptcy Court began addressing concerns over privacy and identity theft. As such, we have Bankruptcy Rule 9037 to protect the rights of debtors and other parties.
This statute requires anyone filing documents with the Court to remove or redact certain personal data that can be considered sensitive.
Generally, the following sensitive identity and account information should be modified as indicated:
- only the last four digits of an individual’s Social Security number or taxpayer identification number
- only the last four digits of a financial account number, and not the entire account number
- only the year of an individual’s birthdate, and not the month or exact date of birth
- only the initials of a minor should be stated when referring to children
The Bankruptcy Attorney Is Responsible for Redacting Sensitive Information
Bankruptcy attorneys have the obligation to carefully review all documents prior to filing to ensure that any sensitive information is redacted.
The Court has become so concerned with ensuring compliance that attorneys must now click a box when entering the Court’s ECF (electronic case filing) website, to indicate that they are aware of this requirement.
In those instances when my office has to file pay stubs or other documents that may contain sensitive data, we always review them prior to scanning them. For example, should there be a Social Security number, we redact it with a heavy black marker prior to scanning. In the actual bankruptcy petition, we only include the last four digits of account numbers and the last four digits of the Social Security number.
Special Provision to Restrict Viewing
Although used very rarely, an attorney can bring a special Motion to Restrict Viewing of a particular document to court staff only.
Are Tax Returns Actually Filed with the Bankruptcy Court?
In all consumer bankruptcy cases, the debtor must provide the most recent tax return to the Chapter 7 trustee. In Chapter 13 cases, the last two tax returns are provided.
These returns are not actually filed with the court, but rather delivered to the trustee.
Written by Craig D. RobinsDebtors in Chapter 7 and Chapter 13 Bankruptcy cases are required to provide certain documents to the trustee prior to the Meeting of Creditors.
Bankruptcy attorneys generally make sure that all of the required documents are collected in advance and furnished to the trustee in a timely fashion.
These items include, as specified in Bankruptcy Rule 4002, sixty days of pay stubs and the most recent tax return. In addition, debtors who own real estate that they intend on keeping must provide the trustee with some kind of valuation or appraisal.
Do Trustees Require Bank Statements?
Bankruptcy Rule 4002 requires the debtor to bring to the Meeting of Creditors all bank and other financial account statements showing the balances in the accounts on the date the bankruptcy petition was filed.
However, not every trustee requires debtors to strictly adhere to this rule. For those cases in the Central Islip Bankruptcy Court, which is in the Eastern District of New York, there is only one Chapter 7 trustee who requires debtors to bring this information to the Meeting of Creditors — Kenneth I. Kirschenbaum.
Mr. Kirschenbaum is actually one of only two Chapter 7 trustees in our district who requires debtors to provide a laundry list of documents prior to going to court. He is the only one who requires debtors to bring bank statements and he sometimes threatens to refuse to examine those debtors who do not.
Even if your trustee is someone else, it is nevertheless a wise idea to bring copies of these statements, especially if there are large amounts in the account, or if you are claiming your homestead exemption, or if you are entitled to a tax refund. In many cases involving these situations, the trustee will ask you to provide the account statements. Turning them over at the meeting of creditors will save you some time and bother.
Incidentally, in many Chapter 13 cases, the trustee will require the debtor to provide copies of the past 12 months of bank account statements.
What Happens If You Don’t Have the Account Statements?
Bankruptcy Rule 4002 provides a solution for those debtors who do not have these documents in their possession. Simply providing a verified statement to that effect will suffice.
So as long as you do not have the documents in your possession, and you state so in writing, you do not have to provide them at the Meeting of Creditors. Be mindful that the trustee may likely require you to obtain and provide copies later on.
For More Information About the Meeting of Creditors
I wrote a very comprehensive post about almost everything you should know about the Meeting of Creditors. Click here to see Going to Your Bankruptcy Court Hearing — The Meeting of Creditors.
Written by Craig D. Robins, Esq.
Businessman debtor denied bankruptcy discharge for failing to keep business records
As a consumer bankruptcy practitioner, I am often concerned with clients who fail to have sufficient paperwork to document their past finances. This often leads to the question: At what point can a consumer debtor be in jeopardy because he or she failed to keep financial documents?
I discussed this issue exactly four years ago in my monthly column in the Suffolk Lawyer when I reviewed an opinion by Judge Stong (sitting in the Brooklyn Bankruptcy Court in the Eastern District of New York), who held in that particular case that the debtor was entitled to a discharge even though she failed to keep a number of important financial documents. See: Recent Decision Summarizes Consumer Debtor’s Obligation to Retain Documents and Explain Pre-Petition Loss of Assets .
In that case the debtor had a good excuse for not being able to produce copies of bank and credit card statements.
However, a judge from the Bankruptcy Court for the Northern District of Ohio just addressed the same issue, although this time for a consumer with business debts, and determined that the debtor in that case was not entitled to a discharge.
In this month’s column I’ll discuss the recent Ohio decision and provide some insight as to when a consumer debtor can face difficulty for not having financial documents.
Businessman Fails to Keep Documents
In the Ohio case, In Re: Kim Wesley Michael, no. 09-3258, (Bankr. N.D.Ohio 2010), the debtor, a businessman, had been involved in at least a dozen different business enterprises over a thirty-year period, six of which he operated in the five-year pre-petition period.
Two of the businesses enabled the debtor to draw compensation in excess of $100,000 per year. The debtor had various roles in these business ventures including sales manager, freelance graphic designer, insurance salesman and concert promoter.
When the debtor ultimately defaulted on some business obligations, he sought Chapter 7 relief.
At the time the debtor filed for bankruptcy relief, he was not employed, no longer involved in any part of his business venture, and had no income.
One particular creditor, who the debtor borrowed $60,000 from for the purpose of financing his most recent business venture, filed an adversary proceeding objecting to discharge pursuant to Bankruptcy Code section 727(a)(3) for failure to keep adequate records.
As it turned out, the debtor failed to maintain any kind of records regarding his most recent business ventures, including the one for which the objecting creditor lent money. As such, the debtor had no check registers, accounting ledgers of any kind, or any other kind of financial records. In addition, the debtor hadn’t filed tax returns for several years.
The bankruptcy court held the debtor to a much higher standard than the average consumer debtor because of his business experience. Thus, the judge determined that the debtor’s inability to explain his financial affairs because he had not kept sufficient records warranted a denial of discharge.
In his decision, the judge explained some basic, but important principles. A bankruptcy discharge is an extraordinary remedy, and carries with it certain duties and obligations.
Only those debtors who are fully cooperative and honest are entitled to a discharge. In that way, a debtor who receives benefits under the Bankruptcy Code must also accept its burdens, and one of them is to be fully transparent with all matters regarding financial affairs.
The Bankruptcy Code Requires Debtors to Maintain Financial Documents
Bankruptcy Code Section 727(a)(3) provides that the court can deny a debtor his discharge if the debtor failed to keep or preserve any recorded information, including books, documents, records and papers. If a party objecting to discharge under this provision can establish that the debtor failed to keep or preserve the necessary information, and can also demonstrate that the lack of financial records makes it impossible to ascertain the debtor’s financial condition, then the objecting party has met its evidentiary burden.
The burden then shifts to the debtor who can still prevail and get a discharge if he can demonstrate that his failure to keep documents was justified under all circumstances of the case.
Some Debtors Are Held to Higher Standards than Others
The court pointed out that a debtor with primarily consumer debts should not generally be held to the same standard as a debtor with mostly business debts. As such, issues of this sort must be reviewed on a case-by-case basis
In this case, the court determined that it should examine the size, complexity and volume of a debtor’s business to ascertain the sufficiency of the debtor’s records. In addition, the court can consider the debtor’s expertise, experience, sophistication and any other circumstances.
Here, the court observed that the debtor had considerable business experience and earned substantial sums of money from the business. Thus, the court inferred that the debtor’s failure to produce any financial documents was because he was attempting to obfuscate his financial dealings.
The court also pointed out that the debtor’s intent to hide or conceal information was irrelevant, nor was it necessary to show that the debtor intended to defraud a particular creditor or the trustee. Instead, the test for determining whether a debtor has adequately justified the lack of financial records is an objective one, focusing on whether others in like circumstances would ordinarily keep financial records.
Practical Tips for Bankruptcy Attorneys When Their Clients Don’t Have Prior Financial Documents
If a client comes to you and presents a problematic scenario because of a lack of prior financial documents, does that mean you should turn down the case or advise against filing? Not necessarily.
As long as you have sufficient documents to enable you to do your BAPCPA due diligence, then no one can fault you for filing the case. However, if the debtor does not even have sufficient written information to enable you to answer the mandatory questions in the petition, then perhaps you should turn down the case.
If a debtor with deficient past financial documents does file, then he can only get into trouble if the trustee or a creditor makes an issue of it. Then, even in a worse-case scenario, if the debtor’s discharge is denied, he would likely be in the same position he was in prior to filing.
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 OCTOBER 2010 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 Mastic, Patchogue, Commack, West Babylon, Coram, 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.
Filing bankruptcy without an attorney can be extremely difficult
Written by Craig D. Robins, Esq.
When Congress changed the bankruptcy laws in 2005, they made filing for bankruptcy extremely complex and complicated.
The fact is that is it is extremely difficult to file for bankruptcy without an attorney.
Recent figures indicate that about nine out of ten self-prepared bankruptcy petitions are dismissed because the “pro-se” debtors did not properly fulfill their obligations under the new bankruptcy laws. “Pro-se” is the Latin legal term for someone who is representing himself or herself without a lawyer.
Filing Bankruptcy on Long Island without an attorney is further complicated because in addition to attending to obligations under the federal bankruptcy laws, you must also adhere to the Local Bankruptcy Rules for the Eastern District of New York.
Representing Yourself in Bankruptcy is Often A Mistake
Filing for bankruptcy is much more involved than reading a “How to File Bankruptcy” book. It takes a keen understanding of federal and state law.
Many debtors who represent themselves are not aware of what assets they can protect, and what assets they cannot protect. I have seen many a case where the trustee has taken assets from a pro-se debtor because they were not exempt and protected.
The Means Test Can Be Very Complicated
Every person filing bankruptcy must complete the means test and must do so properly. If the means test is not prepared the right way, it can constitute grounds for the Bankruptcy Court to dismiss your case.
The means test is one of the most involved and controversial aspects of filing bankruptcy today. See: Deciphering the Plethora of Means Test Cases Across Many Bankruptcy Courts.
Click here to see a variety of articles about the bankruptcy means test.
Documents Must Be Filed with the Court and Provided to the Trustee
The new laws also require that a debtor provide a number of documents to the trustee in a timely fashion. I have observed that with a great number of pro-se Chapter 7 filings, the trustees have refused to examine the debtor because the debtor failed to provide the proper documents.
In addition, I have never, ever seen a Chapter 13 pro-se debtor who provided all of the necessary documents to the Chapter 13 trustee when they were required to do so.
Finally, if you do not file other mandatory documents with the court on a timely basis, the court will dismiss your case.
You Must Know What Information Must be Provided in the Bankruptcy Petition
The petition, itself, is rather complicated. With most of the cases we file, the petition is close to 50 pages long.
You must also understand what particulars about your financial situation to include. For example, What Income Has to be Disclosed in a Bankruptcy Petition?
Retaining an Experienced Bankruptcy Attorney is a Wise Investment
An experienced bankruptcy attorney will know how to quickly and efficiently put together your petition, file your case in the proper way, and then represent you in Court.
When it comes to seeking to eliminate a substantial amount of debt, it makes sense to do it the right way. Many experienced bankruptcy attorneys, such as my Long Island Bankruptcy Law Office, offer free consultations.
Please see the much more detailed article I wrote last year: Bankruptcy Attorney Representation — How Important Is It?
Getting Credit After Bankruptcy
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Written by Craig D. Robins, Esq.How easy is it to get credit after filing for bankruptcy? This is a question that clients ask me every day. It’s on almost every client’s mind who is considering filing for bankruptcy.
About three years ago I wrote an article that was published in the Suffolk Lawyer entitled, Life After Bankruptcy: Getting Credit Has Become Too Easy . At the time I discussed how my bankruptcy clients were inundated with credit card offers and solicitations to open new credit card accounts, and that they received a flood of these offers immediately after emerging from bankruptcy.
I haven’t addressed this topic in a while. Over the past few years, as a result of an economic change to recessionary times, such offers have not flowed as much — but times may be changing.
The Tightening of the Credit Market Has Affected Everyone’s Ability to Get Credit
Just over two years ago when the we saw a mortgage meltdown, and banking institutions started to run into trouble, the credit market tightened. This had an impact on almost everyone. Banks became very reluctant to extend credit except to those in the highest echelons of good credit.
As a result, many individuals were no longer able to obtain credit and actually had to file for Chapte 7 bankruptcy as a result.
Up until this tumultuous economic time, credit card companies and banks extended credit cards to everyone like they were going out of style (and in fact, they were, for a period of time). Lenders flooded the mailboxes of consumers who had filed for Chapter 7 bankruptcy and Chapter 13 bankruptcy, almost immediately after they received their bankruptcy discharges.
I used to regularly hear from my clients that they were amazed to receive offers for new credit cards just weeks after their bankruptcy cases were finished. However, the tighter credit market changed that for everyone — at least until recently.
Banks Increasing Credit Card Offers Again
According to a recent report by Synovate Inc., a company that provides market data research and monitors credit card solicitations, there was a 29% increase in credit card solicitations over last year’s levels.
Last year apparently produced a recession that was the worst we’ve seen in years, and as a result, credit card issuers pulled back dramatically on offers. As a result, annual mail volume of credit card offers dropped to its lowest levels since 1993.
Now, however, banking institutions believe the economy is strengthening, and they are renewing their efforts to again flood the mail boxes of consumers with offers of new credit card accounts.
One major bank, HSBC, actually considered leaving the credit card industry entirely last year. However, just tripled the number of credit card offers that they mail consumers.
Another bank, Capital One, had pulled out of the sub-prime market last year. However, they recently announced their intention to re-enter it. They, too, have started flooding mail boxes again.
Reasons Why Banks Are Upping Credit Card Solicitations
– Legislation which placed stricter rules on interest rates and fees took effect in February. Initially, banks were reluctant to extend additional credit after these new laws went effect. However, the banks have worked out the kinks. (You will note that as a result of the credit CARD Act, all Credit card statements now have additional disclosures).
– Banks lost a great deal of money last year. Now that they have written off substantial losses, their account balances have stabilized, and they are in a better position to extend new credit.
– It appears that the economy is rebounding and consumer spending is increasing again. With such signs of economic recovery, banks can look forward to better times again and go back to soliciting new customers.
What Else Should Debtors Know About Reestablishing Credit After Bankruptcy?
Most of the matters that I discussed in my older article still apply. Please see: Life After Bankruptcy: Getting Credit Has Become Too Easy .
Remember: Nothing is Forever
Although a bankruptcy filing is certainly a negative factor that creditors will consider in deciding whether to extend credit, this fact becomes less and less important over time.
Even though a bankruptcy can remain on one’s credit report for up to 10 years, its effect diminishes on a regular basis each month that goes by after the bankruptcy cases is closed.
Get a Secured Credit Card
It’s a generally accepted fact that a consumer needs two types of credit to quickly rebuild a credit score. One is installment credit, which includes auto loans or leases, student loans, and mortgages.
The other is revolving credit, which includes credit cards and home equity lines of credit.
Since someone emerging from a recent bankruptcy may have a tougher time qualifying for a regular credit card, the best solution may be to obtain a “secured” credit card, which is one in which you place a deposit with the bank, and then get a line of credit for that amount, typically about $500.
Get a Book on Rebuilding Credit
Any big box book store like Borders or Barnes and Noble will have a whole shelf of books on how to rebuild credit. Go there, take your time looking at the books, and then buy the one that looks best.
For about ten to fifteen bucks, it will be a great investment. You can also look at Amazon.com. In a future blog post, I will review some of the credit repair books.
Written by Craig D. Robins, Esq.In every consumer bankruptcy case, whether it is a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, there will be an initial hearing at the bankruptcy court about one month after the case is filed. If you filed for bankruptcy, you are required to attend.
What’s Happens at the Meeting of Creditors in Bankruptcy Court?
The purpose of the hearing is for the court-appointed trustee to ask you questions about your financial situation, the reason why you have debt problems, and whether you have any non-exempt assets.
This meeting is rather informal, as it is not in a courtroom, and it is not before a bankruptcy judge. Instead, it is in a hearing room, and it is before a trustee, who is a bankruptcy attorney, and not a judicial officer. See my post: Don’t Call the Bankruptcy Trustee, “Your Honor”.
As a matter of fact, the bankruptcy law even bars bankruptcy judges from attending the Meeting of Creditors. See: Bankruptcy Judges Are Barred by Law From Attending the Meeting of Creditors .
A bankruptcy trustee presides over the meeting by calling cases, one at a time. When your case is called, you sit at a table in the front of the room with your bankruptcy lawyer, and the trustee asks questions after you’ve been sworn in. To learn more about trustees, see What Is a Bankruptcy Trustee?
Most meetings are relatively short and uneventful. Although they will typically last just a matter of a few minutes, you may wait as much as 60 to 90 minutes for your hearing. The meetings are recorded by an electronic device, and there is a microphone on the table.
Since the meetings are somewhat informal, you do not have to get dressed up or wear a suit.
The Meeting of Creditors is also commonly referred to as the “341 Hearing” or “341 Meeting” because it is Bankruptcy Code section 341 that contains the law regarding such meetings.
Role of the Bankruptcy Trustee
The trustee is charged with several obligations which include making sure the bankruptcy petition is properly prepared, making sure any assets you intend to keep are protected by exemption statutes, ensuring that you properly completed the Means Test, and ascertaining whether you have any non-exempt assets that can be sold for the benefit of creditors.
It is usually rare, but not uncommon, that a trustee determines that there are non-exempt assets. The most common types of non-exempt assets include cars, tax refunds and personal injury law suits. In each case, if the asset is worth more than the exemption amount, the trustee can administer the asset. For more information about whether a trustee will pursue an asset, see: The Back-Door Politics Behind Trustees Pursuing Non-Exempt Assets.
If you live in New York, you can check some of the most common bankruptcy exemptions here: Bankruptcy Exemptions in New York.
If the trustee does try to sell an asset, he is entitled to be compensated for doing so. Information about this is in this post: How Does a Chapter 7 Bankruptcy Trustee Sell Assets .
Some clients primarily speak a second language like Spanish, and need the assistance of an interpreter. In the Central Islip Bankruptcy Court, the court now provides interpretation services at the Meeting of Creditors. See: Interpreters in Bankruptcy Court .
It is relatively rare that a creditor will show up. Generally speaking, credit card companies, which constitute the most common type of creditor, will never show up. I discussed this in my post: Will Creditors Show Up For My Hearing In Bankruptcy Court? However, If a Creditor Shows Up at the Meeting of Creditors in Bankruptcy Court, What Questions Can They Ask?
As far as questions at the Meeting of Creditors that the trustee asks you, it is very important to answer each question accurately and honestly, but you should not provide any additional information, other than simply answering the question. For more about how you should answer questions, see this post: How Much Should You Say at the Meeting of Creditors in Bankruptcy Court?
When Is the Meeting of Creditors?
This is the topic of an article I recently wrote: When Is My Meeting of Creditors in Bankruptcy Court?. Generally, the meeting is about one month after the date of filing. There is a lot of information on this post.
What Can Go Wrong at the Meeting of Creditors?
The vast majority of hearings at the Meeting of Creditors go very smoothly and last just a few minutes. If your bankruptcy attorney did a good job in drafting the bankruptcy petition and preparing you for the meeting, everything should go find.
Nevertheless, lots of things can happen at the Meeting of Creditors to complicate things. Several years go I wrote a lengthy series of articles for the Suffolk Lawyer about how to address unusual issues that may arise at the Meeting of Creditors in bankruptcy court.
If you have a Meeting of Creditors coming up, this series of articles should be extremely useful:
Preparation for the Meeting of Creditors is Key
I cannot stress how important it is to have your bankruptcy attorney prepare you for the meeting of creditors.
In my Long Island bankruptcy practice, we review with each client the various questions the trustee will most likely ask, as well as our client’s responses, to ensure that the meeting will go smoothly. We usually do this a few days prior to the meeting.
Are You Curious About Your Bankruptcy Trustee?
If your hearing is in the Central Islip Bankruptcy Court, which is in the Eastern District of New York, you can read profiles about each trustee and see their picture, most of which I took. Here is the link: Bankruptcy Trustee Profiles .
Can the Trustee Decline to Grant You Bankruptcy Relief at the Meeting of Creditors?
The answer is “absolutely not.” The purpose of the meeting is for the trustee to obtain information about your case. The trustee does not have the ability to take any action against you or decide whether or not you are entitled to a discharge.
Only a bankruptcy court judge can do such things. Also, every debtor is entitled to a discharge unless a proceeding is brought challenging discharge — and these are very rare.
Directions to the Central Islip Bankruptcy Court on Long Island
If your meeting of creditors is in Central Islip, here’s how to get to the court: Directions to Central Islip Bankruptcy Court - Long Island .
Written by Craig D. Robins, Esq.Many of our clients are justifiably anxious about meeting with a bankruptcy for the first time.
However, a good, experienced bankruptcy attorney should be able to put the client at ease, review their financial situation, explain whether bankruptcy is a good option, and if so, discuss how a bankruptcy filling will work.
What Documents Should You Bring to the Bankruptcy Attorney?
Getting the most from your first bankruptcy consultation requires that you bring certain financial papers. I’ve learned that in order to best advise clients about bankruptcy and consider all of the various options, I need to know all of the details of their finances.
Here is a list of documents that I typically ask my Long Island bankruptcy clients to bring to their first meeting with me:
• One recent bill from each creditor
• Collection letters and any law suit papers
• As many pay stubs as you can locate for the past six or seven months
• Tax returns for the past two years
• Drivers license and Social Security card
• Collection letters and any law suit papers
• As many pay stubs as you can locate for the past six or seven months
• Tax returns for the past two years
• Drivers license and Social Security card
There are other papers we will need if we go forward with a bankruptcy filing, but the above items usually enables us to meet with the client and review their situation.