Thursday, December 5, 2013

Detroit Bankruptcy – Pensions Aren’t Protected From Cuts

Retirees like Gwendolyn Beasley, 67 years old, who worked 34 years for Detroit as a library clerk has an annual pension of $13,085. Ms. Beasley’s pension could be decimated in the very near future.

A judge declared Detroit eligible for bankruptcy and ruled that pensions aren’t protected from potential cuts. Five months after the city filed for Chapter 9 protection, U.S. Bankruptcy Judge Steven Rhodes said Detroit was entitled to reorganize under bankruptcy law, describing his ruling as a “fresh start” for the city.

Judge Rhodes said Detroit’s public pension holders aren’t entitled to special protection from potential cuts – despite a Michigan state constitutional provision aimed at shielding pensions. “Pension rights are contract rights under the Michigan constitution” and contracts are at risk for cuts under federal bankruptcy law.

Detroit plans on unveiling a proposal in January 2014 to restructure its estimated $18 billion in long-term debt, which makes it the largest-ever municipal bankruptcy in U.S. History.

The city’s unfunded pension liability has been estimated at between $3.5 billion and $8 billion.  The pension funds would undoubtedly receive only a fraction of what they are owed. The pension cuts will have a devastating on city employees and retirees who hoped state law would protect their pensions.

Monday, December 2, 2013

Discharging Cyber Monday Purchases in Bankruptcy

Thanksgiving and Black Friday shopping brought in an estimated $12.3 billion in sales, according to shopping analytics firm ShopperTrak. Overall spending was expected to reach $57.4 billion for the weekend, according to the National Retail Federation.

Can You Discharge Recent Shopping Purchases in Bankruptcy?

The best advice is to consider limiting your shopping to a minimum to avoid any problems with your upcoming chapter 7 bankruptcy case.

There are also a few guideposts to consider contained within the bankruptcy code itself:

1. Cash advances in excess of $875.00 within seventy (70) days of the bankruptcy filing, are nondischargeable.

2. Purchases from a single retailer or service provider exceeding $600.00 for “luxury goods or services” within ninety (90) days of the bankruptcy filing, are nondischargeable.”

What Happens if the Retailer files an Objection to my Case?

Purchases within the above time periods often end up motivating the retailers to file an adversary proceeding in bankruptcy court.

An adversary proceeding contesting dischargeability is essentially a federal lawsuit brought within a bankruptcy. A retailer argues that the debts purchased are non-dischargeable because the bankruptcy code contains a statutory presumption that cash advances are nondischargeable within 70 days and consumer luxury goods are nondischargeable within 90 days.

It is important to note that the statutory presumption simply shifts the the burden from the retailer to the debtor. The debtor is free to rebut the presumption and argue that they DID NOT incur the debt in contemplation of bankruptcy. Generally, evidence establishing that the debtor did not incur the debt in contemplation of bankruptcy will suffice to rebut the presumption.

For instance, a sudden shift in the debtor’s financial circumstances may be sufficient to rebut the retailers contention that the debtor never intended to pay the debt back in the first place.

The Debtor’s Subjective State of Mind

The key issue in a dischargeability hearing rests upon the debtor’s subjective state of mind. For instance, rebuttal evidence illustrating that the debtor had a sudden change in circumstances, or that the debtor did not contemplate filing for bankruptcy until after the debtor took the cash advances, or that the debtor had the subjective intent of repaying the debt at the time the cash advances were obtained.

Thursday, October 10, 2013

Rapper DMX files Bankruptcy

DMX (Born Earl Simmons) filed for Chapter 11 bankruptcy due to poor financial management. The Chapter 11 petition lists less than $50,000 in assets and $1 million to $10 million in debt. The New York native owes $1.24 million in child support and more than $21,000 on an auto lease.

Can Child Support be Erased?
No. Child support cannot be erased or legally discharged in a bankruptcy case but Chapter 11 bankruptcy does allow debtors to propose a reasonable repayment plan to cure the child support arrearage.

Why did DMX file Bankruptcy?
The State Department will not issue a passport to anyone that has more than $2,500.00 in child support arrearage. DMX has an upcoming international concert tour and the filing of the bankruptcy case allows him to get his passport back and travel abroad.

Thursday, October 3, 2013

The Genesis of Bankruptcy Law

Consumers file bankruptcy cases in order to obtain a bankruptcy discharge.  A bankruptcy discharge releases the consumer from personal liability for certain specified types of debts. In other words, the consumer is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the consumer from taking any form of collection action on discharged debts, including legal action and communications with the consumer, such as telephone calls, letters, and personal contacts.

Bankruptcy and the Bible - Is Bankruptcy Moral?

Many people think of bankruptcy as an “immoral” act, and that erasing their debts somehow turns them into a “bad” person. The truth is that bankruptcy is deeply rooted in the Bible and that Biblical doctrine actually inspired Congress to pass the first bankruptcy laws in the United States on April 4, 1800.

The “bankruptcy discharge” actually originated from the book of Deuteronomy, which ordered lenders to release borrowers from their debts every seven years.  The book of Deuteronomy states:

“At the end of every seven years thou shalt make a release. And this is the manner of the release; every creditor shall release that which he has lent unto his neighbor and his brother; because the Lord’s release hath been proclaimed.”  (Deut. 15:1-2)

Forgiveness of Debts - Old Testament

The Old Testament is full of examples of the compassionate treatment of the poor.   For instance, Deuteronomy 15:7-10 is particularly forceful.  It reads:

“If there is a poor man among your not be hardhearted or tightfisted toward your poor brother.  Rather be open-handed and freely lend him whatever he needs.  Be careful not to harbor this wicked thought: "The seventh year, the year for canceling debts, is near," so that you show ill toward your needy brother and give him nothing.  He may then appeal to the LORD against you, and you will be found guilty of sin.  Give generously to him and do so without a grudging heart; then because of this the LORD your God will bless you in all your work and in everything you put your hands to."

Tuesday, October 1, 2013

What happens in a Chapter 7 bankruptcy case?

Chapter 7 bankruptcy cases are usually straightforward.  On rare occasions, complications arise if creditors take aggressive action, if the trustee thinks you are hiding assets, or if you want to challenge creditors’ claims.

Who can file?
Any individual who lives in the United States or has property or a business in the United States can file a chapter 7 bankruptcy. If you received a chapter 7 bankruptcy discharge within the past eight years, you are disqualified from receiving a discharge in chapter 7. A similar disqualification may also apply if you received a discharge within the past six years in a chapter 13 case in which your unsecured creditors were paid less than 70% of what they were owed.

What is the means test?
In 2005, Congress added the “means test” to the bankruptcy law to make it more difficult for wealthy consumers to file chapter 7 bankruptcy. Most consumers who file for bankruptcy are not affected by this change. If your income is below the median in Pennsylvania, you are protected by a “safe harbor” and not subject to the means test. The current median family income figures for Pennsylvania are available on the website for the Untied States Trustee Program at: 

What are the first steps?
The first step in a chapter 7 bankruptcy is completion of certain basic forms. These include a three-page initial “petition.” You will also need to file a certificate from an approved credit counseling agency.  A number of other forms must also be filed either at the same time of the petition or shortly afterwards. These include your statement of financial affairs, statement of intentions with respect to certain secured debts, statement of monthly income and means test calculations, copies of any pay stubs you received from an employer during the sixty days before filing your bankruptcy case; and a set of schedules listing all your debts, assets, income, and expenses. It is important that all of these forms be filled out completely and accurately.

What are common mistakes?

A chapter 7 bankruptcy is often called a “liquidation” bankruptcy because the debtors assets are examined by the court appointed  trustee and any “unexempt” assets are typically sold for the benefit of creditors.  Frequently overlooked assets include tax refunds, child support arrearages, security deposits, pledged goods at pawnbrokers, personal injury claims, other legal claims, and the cash value of life insurance policies.

Monday, September 30, 2013

Is Bankruptcy the Right Choice for You?

1. Bankruptcy may be the easiest and fastest way to deal with all types of debt problems.Bankruptcy is a process under federal law designed to help people and businesses get protection from their creditors.
2. Most bankruptcy cases are complicated. You should consider getting professional help.Bankruptcy is a legal proceeding with complicated rules and paperwork. You may want to get professional legal help, especially if you hope to use bankruptcy to prevent foreclosure or repossession. Dunne Law Offices, P.C. provides a free consultation to help you decide whether bankruptcy is the right choice.
3. Bankruptcy temporarily stops almost all creditors from taking any steps against you. This assistance is provided by the “automatic stay” that arises as soon as you file the necessary paperwork at the beginning of a bankruptcy case. Foreclosures, repossessions, utility shut-offs, lawsuits, and other creditor actions will be immediately stopped.
4. Bankruptcy can permanently wipe out your legal obligation to pay back many of your debts. This benefit arises because of the bankruptcy “discharge” that you get for successfully completing a bankruptcy case.
5. When a bankruptcy does not wipe out a debt, a chapter 13 bankruptcy (a “reorganization”) gives you the opportunity to catch up on that debt. For example, if you are behind on a home mortgage or car loan, bankruptcy will not usually allow you to cancel the mortgage or lien and still keep the property without repayment. If you want to deal with debts of that type in the bankruptcy process, you will need to propose a chapter 13 repayment plan. That requires affordable payments from your income over a period of three to five years.
6. The initial fee for bankruptcy is presently $306 under chapter 7 and $281 under chapter 13. The fee can be paid in installments over a period of 120 days.
7. If you file bankruptcy in Philadelphia, you usually do not need to go to court.You will have to attend one meeting with the bankruptcy trustee (not with a judge). Creditors are invited but rarely attend. You will not usually have to go to court for your bankruptcy case unless something out of the ordinary occurs.

Wednesday, May 29, 2013

Bank Deposits Guaranteed Up to $250,000 – Maybe

Money!Congress created the Federal Deposit Insurance Corporation (FDIC) in 1933 to ensure taxpayers were not on the hook for losses to depositors. Today, FDIC stickers in every bank in America proclaim “Each depositor is insured to at least $250,000.”  

Is it possible for bank depositors to take losses on their deposits? Yes.  

Banks insure their own deposits through contributions to an insurance fund. Banks and the general public both falsely believe that the government will “pony-up” the cash if the insurance fund is depleted and protect taxpayers from a loss on their deposits.

However, Congress has never enacted a provision in law stating that insured deposits are guaranteed by the full faith and credit of the United States.

 Congress has never legally guaranteed deposits.

 Congress wants people to have “confidence” in the banking system and adopted a joint resolution in 1982 stating that it was the “sense of Congress” that insured deposits were backed by the credit of the United States. However, this resolution never became legal binding. Henry Steagall, chairman of the House Banking Committee described the situation succinctly “I do not mean to be understood as favoring a government guaranty of bank deposits,” he said. “I do not. I have never favored such a plan.”

Let’s hope the banking and government-debt crisis in Cyrus doesn’t happen in the United States.