BANKRUPTCY AND CREDIT UNIONS

            Over the many years of filing every Chapter of bankruptcy for people, one thing has remained constant – people really like their credit union accounts. I have clients come in who have been with Vystar or Navy Federal for years and don’t want to include such debts in any bankruptcy filing. We always end up talking about the same thing in every meeting: “Will I lose my credit union account?”.

            The short answer is “Yes, if the credit union will lose money when you file.” Typically, a person will come in with a credit card, a car loan and maybe a signature loan through a credit union. They would like to keep the car, but discharge the credit card and signature loan. That is easily accomplished through a Chapter 7 or Chapter 13 filing, but the credit union will close any checking or savings accounts held by the individual. Why does this happen? Credit unions are member owned, as you often hear in advertisements. That means if the credit union takes a loss on a member, that member hurts all other members. Until the loss is cured or made up by the member, the credit union will normally deny membership privileges.

            What can be done to make things a little easier for the client looking to file a bankruptcy and discharge credit union debt? First, consult with experienced bankruptcy counsel to make sure that you receive appropriate advice regarding the problems with a credit union account after bankruptcy. There is nothing worse than having no access to a direct deposited paycheck and trying to pay bills. Not to mention trying to open a bank account with an open bankruptcy filing. Second, make sure that you open any new bank or credit union accounts prior to filing a bankruptcy and move any direct deposits or debits to the new account. A lot of frustration and aggravation can be avoided with just a little planning. Contact our office if you have other questions regarding a credit union account during a bankruptcy filing.

          At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 or bkmickler@planlaw.com.

Bryan K. Mickler

BANKRUPTCY SAVING LIVES!!

A new study finds that bankruptcy filers make more money and live longer than those who were denied such protection, Fortune Magazine reported today. In a working paper released Monday by the National Bureau of Economic Research, economists Will Dobbie and Jae Song examine 500,000 bankruptcy filings in the U.S. to measure the effect of bankruptcy laws on consumers. They found that the Bankruptcy Code is an effective social insurance policy. According to their findings, getting approved for chapter 13 bankruptcy protection “increases annual earnings by $5,562, decreases five-year mortality by 1.2 percentage points, and decreases five-year foreclosure rates by 19.1 percentage points.”

 See the entire article here: http://fortune.com/2014/09/30/bankruptcy-law-inequality-income/

At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 orbkmickler@planlaw.com.

Bryan K. Mickler

FDCPA Claims in Chapter 13 for Stale Proof of Claims

I have previously written about the potential for FDCPA claims after filing for bankruptcy and having a debt collector contact you regarding a debt that was discharged in the bankruptcy filing.

https://www.planlaw.com/bankruptcy-and-the-fair-debt-collection-practices-act-understanding-your-consumer-rights/

Essentially, the attempt to collect a debt that had been discharged in a previous filing was generally a violation of the FDCPA since the FDCPA prevents the collection of debts not owed by a consumer. Our office has vigorously defended the attempts to collect discharged debt for the past several years from collectors looking to pay pennies on the dollar for old debt in hopes that it could be collected. Most collectors never bother to check the status of the debt, previous settlements, bankruptcy or any other factor which may make a debt uncollectible. Instead, the collector just purchases a set of accounts and begins collection activity immediately. For a shocking look at the business of selling collection accounts check out this story: http://www.nytimes.com/interactive/2014/08/15/magazine/bad-paper-debt-collector.html

Another method of attempting to collect debts which are not collectible by collectors is to actually chase people after they have filed for Chapter 13. There is a huge business of selling debt to collectors by the original creditor after a person has filed for Chapter 13 relief. The collectors buy the debt for pennies on the dollar, file a claim for the full amount and hope to make more from the Chapter 13 payoff than they paid for the account. If they weren’t making money this way, the collectors would not continue to buy the accounts and file claims.

 One reason the bankruptcy accounts can be so cheap is that they can be very old. Recently, I have seen claims from the 1990s filed in Chapter 13 cases. Claims continue to be filed by collectors long past the date that the law allows them to be collected. In Florida, the statute of limitations for claims is five (5) years from the date of the default.

 Recently, the 11^th Circuit Court of Appeals in Atlanta issued an opinion which may finally put an end to the practice of filing stale claims in Chapter 13 cases. Crawford v. LVNV Funding, http://law.justia.com/cases/federal/appellate-courts/ca11/13-12389/13-12389-2014-07-10.html

 Crawford found that filing a Proof of Claim in a Chapter 13 case for a debt which is uncollectible under a State statute of limitations was a violation of the FDCPA. When a debt collector violates the FDCPA, they are responsible for the up to $1,000.00 in damages and attorney’s fees and costs. Damages may be doubled if the State Statute regulating collection has also been violated. Our office has been actively checking all proofs of claims in every Chapter 13 case that we have filed in the past two years to determine if there have been claim violations. This effort will, hopefully, result in recoveries for our Chapter 13 clients, increased distributions to legitimate creditors and possibly shorter plan periods for some clients.

 If you feel that you may benefit from a Chapter 13 filing or a review of claims in your case, contact our office at 904.725.0822 for a free consultation.

Bryan Mickler

bkmickler@planlaw.com

Modification of Mortgages through Chapter 7 in Jacksonville, FL – What’s Not to like?

I have previously written about the mortgage modification program in Chapter 13 that was been available in the Jacksonville Division of the Bankruptcy Court for the past two years. https://www.planlaw.com/modification-of-mortgages-in-chapter-13-in-jacksonville-fl/

The program has been a great success for many homeowners who have come to our office to save their homes. Instead of having to cure many months or years of arrearages over the life of the Chapter 13 Plan, the homeowners have been able to modify the mortgages and cure the arrears over the life of the mortgage loans. The program has also lowered interest rates and allowed longer terms for mortgages in order to make payments more affordable and save homes.

 Recently, the Court expanded the program to include Chapter 7 filings to be eligible for mortgage modification relief. The announcement can be found here:

https://ecf.flmb.uscourts.gov/announcements/MemorandumforExternalWebsitereDistrictMMMprocedureswithsampleorderforemailblast.pdf

To be eligible for HAMP modification in a Chapter 7 or Chapter 13 (or even a Chapter 11 case), a homeowner must owe less than $729,750 on a one-unit property, have established the mortgage prior to January 1, 2009, and have monthly mortgage payment greater than 31 percent of his monthly gross income. Also, a homeowner must be able to provide documentation indicating that he is facing a serious financial hardship as a result of his mortgage. In house modifications have significantly broader eligibility criteria limited only by the investor for the loan.

So what is not to like about the prospect of a mortgage modification through Chapter 7? To understand the potential traps in a Chapter 7 modification program, it is necessary to understand how Chapter 7 and Chapter 13 differ.

Initially, the Chapter 7 has no Plan or payment to the mortgage company. This means that the mortgage company is receiving no potential trial payments and has no real understanding of what a homeowner considers 31% of their income – the normal trial period payment. Secondly, the Chapter 7 process is over in approximately 90 days. This means that a homeowner will lose all protection from foreclosure after 90 days when a discharge has been entered. In a Chapter 13, the stay is in effect for several months while estimated trial payments are being made to a Chapter 13 Trustee and a modification is being reviewed by the mortgage servicer. No foreclosure can commence or resume as long as the Chapter 13 payments are being made to the Trustee.

Finally, remember that modifications are voluntary. There is no forced modification under Chapters 7, 11 or 13 of the Bankruptcy Code for homestead property. If the normal modification process takes 6-9 months – what protection does a homeowner have once a Chapter 7 discharge has been entered? Mortgage companies routinely foreclose on homeowners who have modification applications pending. Just do an internet search for the horror stories related to modifications outside of bankruptcy and lost houses.

It will be interesting to see how the Chapter 7 modification process will work out over the next few months or years. My fear is that many homeowners will see Chapter 7 as an easy way to modify the mortgage on their home. This will lead to significantly lower Chapter 13 filing rates in the next few months, as home modifications are the main reason to file Chapter 13. However, will we see a great loss of homes as a result of this shift in filings? Based on past experience, I fear that will be the result.

If you are seeking to modify your home mortgage through a Chapter 7 or Chapter 13, make sure that the attorney who you are dealing with can answer the above questions regarding protection after the discharge, foreclosure during a modification and ability to save a home in default after discharge when the mortgage company refuses payments. All of these are critical to deciding if a Chapter 13 or Chapter 7 is the appropriate Chapter to file in your situation.

 If you feel that you may benefit from a loan modification or any type of mortgage relief, contact our office at 904.725.0822 for a free consultation.

Bryan Mickler

bkmickler@planlaw.com

SUBPRIME AUTO LOAN BUBBLE AND BANKRUPTCY?

            Recent articles have focused attention on the sub-prime auto loan industry and its negative effects on consumers and potentially investors. From sub-prime loans being bad investment vehicles due to fraudulent applications which contain misstated income and employment (http://dealbook.nytimes.com/2014/08/04/focusing-on-g-m-unit-u-s-starts-civil-inquiry-of-subprime-car-lending/?_php=true&_type=blogs&_r=0), to articles about the effect of repossessions of such predatory loans on consumers (http://dealbook.nytimes.com/2014/07/19/in-a-subprime-bubble-for-used-cars-unfit-borrowers-pay-sky-high-rates/), the consequences of such loans are beginning to look similar to the sub-prime mortgage crisis.

            While auto loans will never have the financial impact of mortgage loans on the overall economy, it is interesting to look at the explosion of sub-prime auto loans after Bankruptcy Code changes. The first article above noted that sub-prime auto loans had increased 150% since 2009 and the financial crisis. This increase may have been fueled in part by the increased number of sub-prime consumers (credit score below 640) who were created by the financial crisis. However, there may be another factor fueling this explosion of sub-prime lending. Just like sub-prime mortgages being marketed to people prior to the financial crisis, the number of people who end up with a sub-prime auto loan is greater than the number of actual sub-prime consumers. Instead, like with sub-prime mortgages, unscrupulous creditors are being rewarded for securitizing high-yield auto loans to investors. With treasury bills and other safe investments producing historically low yields, high yield investments are being sought out by hedge funds and other big money investors.

            So what does this have to do with the Bankruptcy Code? Interestingly, the increase in sub-prime auto loans also coincides with greater protection for auto lenders in Chapter 13. In 2005, Congress and the auto lenders crafted a provision in the Bankruptcy Code amendments of that year to, essentially, guarantee that almost every car loan balance would be fully protected if the consumer filed for Chapter 13. Prior to that change, the consumer had the ability to value a vehicle within a short period of time after purchase in a Chapter 13 to reflect the true market value of the vehicle. This meant that negative equity, insurance products and other inflated costs associated with sub-prime auto loans could be stripped off of a vehicle after a Chapter 13 filing. A family could then afford the car that was the primary transportation for jobs, medical visits, children’s activities, etc.

            After the 2005 amendments, the valuation period for a purchase money vehicle was increased to 910 days. This time period was not random. That period is the average time that a consumer keeps a car prior to trade in on a newer, more reliable, vehicle. Essentially, after the change the average consumer would no longer be able to value a vehicle in Chapter 13 due to filing with a vehicle less than 910 days old. With that change, the sub-prime lenders and investors were protected from losing any principal on the vast majority of auto loan investments in a Chapter 13 filing. Not coincidentally, a dramatic increase in sub-prime auto lending has come after the 2005 amendments.

            There is on silver lining in the above. Interest rates (which average 13% from the largest sub-prime lenders!!!) on sub-prime auto loans can still be adjusted in Chapter 13, even if the vehicle is within the 910 day window. This change to the interest could still allow for significant savings for a family trying to save their means of getting back and forth from work.

At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 orbkmickler@planlaw.com.

Bryan K. Mickler

UPDATE ON INHERITED IRA’S TARGETED BY CHAPTER 7 TRUSTEES AND THE FLORIDA EXEMPTION FOR INHERITED IRA’S

The Supreme Court issued its opinion today in the Clark et ux. V. Rameker et al., inherited IRA case. While it may be bad news for some potential bankruptcy filers in other States, Florida filers with the ability to use Florida exemptions should continue to enjoy the protection of a 100% exemption for inherited retirement accounts.

As discussed in my previous writing on this subject, the coming wave of Baby Boomer inheritance IRAs and 401(k) funds will offer heirs a tremendous financial windfall. Debtor earned/owned accounts are two of the most common exemptions that are claimed in Chapter 7 or Chapter 13 cases. This means that the IRAs and 401(k) plans cannot be liquidated in a Chapter 7 filing or counted as liquidation in a Chapter 13 case. The accounts simply pass through the filing of a bankruptcy and will remain available for later income upon retirement.

However, in the Clark case, the Wife inherited a $300,000.00 IRA from her late mother. She immediatly rolled that amount into an exempt IRA in her own name. When their pizza business failed, the Clarks filed for Chapter 7 to discharge approximately $700,000.00 in business guarantee and personal debts. They claimed the IRA as exempt in the Chapter 7 filing.

Prior to that date, the 5th and 8th Circuits had ruled such inherited funds to be exempt. Undeterred, the Chapter 7 Trustee filed an exemption to the IRA in the Clark’s Chapter 7 case. Eventually, the 7th Circuit ended up with the case and ruled that the IRA was not exempt since the funds were inherited and not for the savings or retirement of the Clarks. The Supreme Court ruled on June 12, 2014 that the inherited IRA was not exempt from the claims of the Chapter 7 Trustee since such an IRA was not necessary for the basic support of the Debtor as is normally the case with a traditional retirement account.

While this may seem like it will mean that all inherited IRA accounts are subject to the liquidation of a Chapter 7 Trustee, the ruling of the Supreme Court was based upon the Federal Exemptions contained in 11 U.S.C. sec. 522. Florida is an “opt out” State, which means that all Florida filers of Chapter 7 who meet the requirements for claiming Florida exemptions will not use the Federal exemptions.

So what does Florida exemption law say about the exempt status of inherited IRA’s? On May 31, 2011, Florida Governor Scott signed into law House Bill 469. Now, section 222.21(2)(c) of the Florida Statutes serves to exempt from creditor claims the owner, beneficiary, or participant of a regular and inherited individual retirement account. The law also was written to apply retroactively to all inherited individual retirement accounts without regard to the date the account was created.

At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 or bkmickler@planlaw.com.

Bryan K. Mickler

THE RUSH TO CLAIM A MORTGAGE DEFICIENCY IN FLORIDA BEFORE JULY 1, 2014

A recent new client to our office highlighted a potential wave of new mortgage deficiencies that may be filed over the next few weeks.

This potential client had had a home foreclosed in September of 2009. No action had been taken by the mortgage company in the foreclosure case for nearly five (5) years since the foreclosure sale. Instead, what she brought in was a new suit by a debt buyer which was attempting to obtain a deficiency against her.

A quick research of the Florida Statutes found the reason for the action. When the Florida Legislature changed the mortgage deficiency statute of limitations in 2013, it gave old foreclosure cases up to 5 years from the date of the sale or until July 1, 2014, whichever came first, to collect deficiency judgments. See Florida Statutes, § 95.11 (2013).

If you are being sued by a debt collector for a deficiency related to a long foreclosed home, contact our office for advice on how to handle this situation. You may have valid legal defenses and/or claims related to the collection of such claims.

At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 orbkmickler@planlaw.com.

Bryan K. Mickler

CAN I LOSE MY EXEMPTIONS FOR ALLEGED BAD CONDUCT IN BANKRUPTCY?

            When you make the difficult decision to file for a Chapter 7 or Chapter 13 Bankruptcy, there are certain assets that are declared exempt in your case. Typically, the biggest exemption is a person’s home equity. If you own a home that is worth $150,000.00 and you owe $125,000.00 on the home, the $25,000.00 of equity is exempt in Florida due to the unlimited homestead exemption in this State.

            With the recent decline in Chapter 7 filings, it is becoming very evident that Chapter 7 Trustees are seeking to make more from any possible asset in any case, whether it is exempt or not. Normally, a Chapter 7 Trustee will make $60.00 as an administrative fee from a “no asset” Chapter 7 case. The possibility of tapping into exempt equity is very appealing to the Chapter 7 Trustees in rough economic times (fewer assets in each case) combined with lower numbers of filings. Thankfully, such a possibility seems to have been recently ruled out by the Supreme Court.

            In Law v. Siegel, (http://bankruptcy.cooley.com/wp-content/uploads/sites/245/2014/03/Law-v-Siegel-SCOTUS-Opinion.pdf) issued on March 14, 2014, the Supreme Court held that a bankruptcy court cannot surcharge a debtor’s homestead exemption to pay for the Chapter 7 trustee’s administrative expenses, even if those expenses were incurred as a result of the debtor’s fraudulent misrepresentations.

            Why should anyone care about a claim of fraudulent conduct by a Chapter 7 Debtor? While the vast majority of Chapter 7 cases are relatively routine, there are some cases that have considerable litigation involved where a Debtor may fight to maintain assets which a Debtor legitimately feels are not property of the Chapter 7 Trustee. In such a case, the threat of a Chapter 7 Trustee claiming fraudulent conduct and attempting to reach exempt property is a possibility. This type of conduct by a Trustee could have a chilling effect on a legitimate rights of Chapter 7 Debtors to dispute claims by Chapter 7 Trustees. Forced settlements and other bad results would certainly follow.

At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 orbkmickler@planlaw.com.

Bryan K. Mickler

REPLACEMENT VALUE FOR SURRENDERING A VEHICLE IN CHAPTER 13?

           A recent case from the 11^th Circuit Court of Appeals in Atlanta may have a major impact on Chapter 13 vehicle surrender cases going forward. On March 27, 2014, the Eleventh Circuit issued a ruling, in In re Brown, 13-13013, 2014 WL 1245266 (11th Cir. 2014) regarding the treatment of any alleged deficiency related to a surrendered vehicle in a Chapter 13 case.

            By way of background, the normal procedure in Chapter 13 has been to surrender a vehicle in a Chapter 13 Plan and then wait for the creditor to liquidate the collateral pursuant to its State law rights. This typically has involved taking the car to an auction, selling the car for well below wholesale value and then a creditor would file a large deficiency claim for the difference between the amount owed on the date of the surrender and the sale amount.

            The Brown case has put an end to the above practice. Based on the language in 11 U.S.C. §506(a)(2), the 11^th Circuit ruled that “replacement value” is to be used for surrendered vehicles, as well as vehicles being retained in the Chapter 13 case. Replacement value has been defined by the Bankruptcy Code to “mean the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined.” 11 U.S.C. § 506(a)(2).

            This holding may effectively end the deficiency for any vehicle surrendered in Chapter 13, as the replacement value of vehicles is generally equal to the outstanding loan amount on vehicles which do not contain “roll over” negative equity financing. It will be interesting to see if the ruling can be pushed to include deficiencies incurred prior to the filing of the Chapter 13 for which no judgment has been entered. Our office intends to object to any pre-petition deficiency which used foreclosure value as a basis for determining the amount of the deficiency based upon the Brown ruling.

            So what does this mean for a Chapter 13 Plan to the average person? If you file 13 and surrender your vehicle, then the chance of the creditor being allowed an unsecured claim has been greatly reduced. This may mean a quicker payoff of the 13 if other unsecured debts are low, it may mean that the monthly payment would be lower or that the term of the plan could be shorter. Those are all good things from a filing perspective.

            At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 orbkmickler@planlaw.com.

Bryan K. Mickler