Saturday, November 29, 2008
A Good Start
Notwithstanding the obligatory disclaimers, Wikipedia's article at http://en.wikipedia.org/wiki/Bankruptcy_Abuse_Prevention_and_Consumer_Protection_Act has provided a good overview of the controversial bankruptcy reforms passed by Congress three years ago.
Saturday, July 26, 2008
Self-help Bankruptcy: Still an Option
The bankruptcy "reforms" of recent years have placed new ethical burdens on lawyers that may make them less interested in representing you. This increases the financial threshold at which an attorney is getting involved.
If you feel that attorneys are making excuses not to accept your business, or if you just don't feel you can afford their services, this is one area of the law in which a reasonably intelligent, reasonably well organized layman can do his or her own legal work, if it's a simple consumer bankruptcy.
The law changed dramatically in October 2005. You should not rely on books or web pages published before that date, as they will be inaccurate and misleading. Check that products or resources you rely on were published after April 2005, when the new law was enacted. Older editions are still for sale on Amazon and eBay, but they should not be used. They are based on old law and will lead you astray.
The gold standard for legal self-help is probably Nolo Press, which publishes Chapter 7 and Chapter 13 bankruptcy guides in print and .pdf formats. Paste one of these URLs in for the Nolo bankruptcy pages.
http://www.nolo.com/article.cfm/catId/462A9501-9B21-4E09-A08C5A7B8AF51A79/objectId/B0B66870-4C52-4303-919B10B9611D3EF9/213/161/ART/
http://www.nolo.com/article.cfm/pg/2/objectId/B0B66870-4C52-4303-919B10B9611D3EF9/catId/462A9501-9B21-4E09-A08C5A7B8AF51A79/213/161/ART/
If you feel that attorneys are making excuses not to accept your business, or if you just don't feel you can afford their services, this is one area of the law in which a reasonably intelligent, reasonably well organized layman can do his or her own legal work, if it's a simple consumer bankruptcy.
The law changed dramatically in October 2005. You should not rely on books or web pages published before that date, as they will be inaccurate and misleading. Check that products or resources you rely on were published after April 2005, when the new law was enacted. Older editions are still for sale on Amazon and eBay, but they should not be used. They are based on old law and will lead you astray.
The gold standard for legal self-help is probably Nolo Press, which publishes Chapter 7 and Chapter 13 bankruptcy guides in print and .pdf formats. Paste one of these URLs in for the Nolo bankruptcy pages.
http://www.nolo.com/article.cfm/catId/462A9501-9B21-4E09-A08C5A7B8AF51A79/objectId/B0B66870-4C52-4303-919B10B9611D3EF9/213/161/ART/
http://www.nolo.com/article.cfm/pg/2/objectId/B0B66870-4C52-4303-919B10B9611D3EF9/catId/462A9501-9B21-4E09-A08C5A7B8AF51A79/213/161/ART/
Saturday, July 12, 2008
Business Columnist Denounces Bankruptcy Reform
Houston Chronicle business columnist Loren Steffy wrote this unsympathetic account in August 2006, a year after Congress re-wrote American bankruptcy law.
Aug. 19, 2006
Bankruptcy reform a joke, but nobody is laughing
By LOREN STEFFY
Copyright 2006 Houston Chronicle
I hope the credit card companies are happy.
After almost a year under the so-called bankruptcy reform that Congress enacted at their behest, the law has proved to be what it appeared: a love letter to lenders.
Pitched as consumer protection, it was passed after eight years of political arm-twisting by credit card issuers who didn't want to lose fees from indebted customers when they filed for bankruptcy. You may have noticed that their concern about lending to people who can't pay hasn't stopped them from stuffing your mailbox with 25 offers a week for easy credit.
"All it's done is make it more time-consuming and more complicated and, for debtors, more expensive," says Randy Williams, a bankruptcy lawyer with Thompson & Knight in Houston. "Most people don't believe that this accomplished anything that it set out to do."
It hasn't lived up to the claims of Edward Yingling, president of the American Bankers Association, who said after it was enacted that it "strikes just the right balance" and would ensure the bankruptcy system remains "sympathetic and fair."
The law passed after a lot of gas-bagging from Sen. Orrin Hatch, R-Utah, about rampant abuse the likes of which he'd never seen, yet few others could see at all.
"A lot of people in the bankruptcy system never thought that the abuses that the credit card companies said were there were there," Williams says.
Since the law took effect in October, I've talked to attorneys who handle both corporate and consumer bankruptcies, to judges and to trustees, to people who live and work in the system every day, and I haven't found one who thinks this "reform" was a good idea.
The law has accomplished one thing, though. Fewer people are filing bankruptcy. In Houston, Chapter 7 filings, the kind most used by consumers, fell to 930 during the first six months of this year, compared with more than 5,500 during the same period last year.
Chapter 13 filings, under which consumers reorganize and repay some of their debts, fell by more than half, to about 1,300 from 2,900.
The trend is reflected in other bankruptcy courts around the country.
The 'means test'
Under the new law, consumers must pass a "means test" showing that they are unable to repay. The test was designed to decrease Chapter 7 filings, in which consumers liquidate and erase their debts, and force more consumers into Chapter 13.
Instead, it has simply scared people away. Williams likens the test to a tax return, and he says he's been in court sessions in which lawyers debated how the forms should be filled out.
The law also requires people to attend credit counseling sessions before they file, a provision Williams calls "a joke." It's created a cottage industry of credit counseling, but it doesn't differentiate among income levels. People who are living in poverty and unemployed, for example, need a different kind of counseling than those who have an income.
"It's more onerous on the people that the law ought to be there to help: the poorest people, the least-educated people," says Thomas Black, a local attorney and state chairman for the National Association of Consumer Bankruptcy Attorneys.
Going broke costs more
The additional bureaucracy has made it more expensive to go broke. Many local attorneys charged less than $1,500 for a routine filing. Now, that's more likely to be the bottom price because of the extra paperwork and time that the new law requires, Williams says.
"It's the people who don't have money for an attorney who suffer," Black says.
In an opinion that has gained national attention because it voices the frustration many feel with the law, Judge Frank Monroe of Austin gave a blistering rebuke in December.
Monroe had to reject a routine filing by a house painter who made about $20,000 a year and faced foreclosure on his mobile home.
The painter hadn't sought credit counseling before he filed, although he went after the filing. Still, Monroe said, the law gave him little choice because it requires counseling be completed before filing.
"Can any rational human being make a cogent argument that this makes any sense
at all?" he wrote in his ruling.
'Grossest of misnomers'
Monroe described the law as "absurd" and "inane" and said calling it consumer protection "is the grossest of misnomers."
He stopped just short of calling members of Congress toadies for the credit lobby.
"It was apparently an agenda to make more money off the backs of consumers in this country," he wrote.
And it succeeded.
To paraphrase Monroe's concluding sentence, Congress — and the credit pushers — must be pleased.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com. His blog is at http://blogs.chron.com/lorensteffy/.
Aug. 19, 2006
Bankruptcy reform a joke, but nobody is laughing
By LOREN STEFFY
Copyright 2006 Houston Chronicle
I hope the credit card companies are happy.
After almost a year under the so-called bankruptcy reform that Congress enacted at their behest, the law has proved to be what it appeared: a love letter to lenders.
Pitched as consumer protection, it was passed after eight years of political arm-twisting by credit card issuers who didn't want to lose fees from indebted customers when they filed for bankruptcy. You may have noticed that their concern about lending to people who can't pay hasn't stopped them from stuffing your mailbox with 25 offers a week for easy credit.
"All it's done is make it more time-consuming and more complicated and, for debtors, more expensive," says Randy Williams, a bankruptcy lawyer with Thompson & Knight in Houston. "Most people don't believe that this accomplished anything that it set out to do."
It hasn't lived up to the claims of Edward Yingling, president of the American Bankers Association, who said after it was enacted that it "strikes just the right balance" and would ensure the bankruptcy system remains "sympathetic and fair."
The law passed after a lot of gas-bagging from Sen. Orrin Hatch, R-Utah, about rampant abuse the likes of which he'd never seen, yet few others could see at all.
"A lot of people in the bankruptcy system never thought that the abuses that the credit card companies said were there were there," Williams says.
Since the law took effect in October, I've talked to attorneys who handle both corporate and consumer bankruptcies, to judges and to trustees, to people who live and work in the system every day, and I haven't found one who thinks this "reform" was a good idea.
The law has accomplished one thing, though. Fewer people are filing bankruptcy. In Houston, Chapter 7 filings, the kind most used by consumers, fell to 930 during the first six months of this year, compared with more than 5,500 during the same period last year.
Chapter 13 filings, under which consumers reorganize and repay some of their debts, fell by more than half, to about 1,300 from 2,900.
The trend is reflected in other bankruptcy courts around the country.
The 'means test'
Under the new law, consumers must pass a "means test" showing that they are unable to repay. The test was designed to decrease Chapter 7 filings, in which consumers liquidate and erase their debts, and force more consumers into Chapter 13.
Instead, it has simply scared people away. Williams likens the test to a tax return, and he says he's been in court sessions in which lawyers debated how the forms should be filled out.
The law also requires people to attend credit counseling sessions before they file, a provision Williams calls "a joke." It's created a cottage industry of credit counseling, but it doesn't differentiate among income levels. People who are living in poverty and unemployed, for example, need a different kind of counseling than those who have an income.
"It's more onerous on the people that the law ought to be there to help: the poorest people, the least-educated people," says Thomas Black, a local attorney and state chairman for the National Association of Consumer Bankruptcy Attorneys.
Going broke costs more
The additional bureaucracy has made it more expensive to go broke. Many local attorneys charged less than $1,500 for a routine filing. Now, that's more likely to be the bottom price because of the extra paperwork and time that the new law requires, Williams says.
"It's the people who don't have money for an attorney who suffer," Black says.
In an opinion that has gained national attention because it voices the frustration many feel with the law, Judge Frank Monroe of Austin gave a blistering rebuke in December.
Monroe had to reject a routine filing by a house painter who made about $20,000 a year and faced foreclosure on his mobile home.
The painter hadn't sought credit counseling before he filed, although he went after the filing. Still, Monroe said, the law gave him little choice because it requires counseling be completed before filing.
"Can any rational human being make a cogent argument that this makes any sense
at all?" he wrote in his ruling.
'Grossest of misnomers'
Monroe described the law as "absurd" and "inane" and said calling it consumer protection "is the grossest of misnomers."
He stopped just short of calling members of Congress toadies for the credit lobby.
"It was apparently an agenda to make more money off the backs of consumers in this country," he wrote.
And it succeeded.
To paraphrase Monroe's concluding sentence, Congress — and the credit pushers — must be pleased.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com. His blog is at http://blogs.chron.com/lorensteffy/.
Thursday, July 10, 2008
Bankruptcy is mighty, but it's not a cure-all. Federal student loans, for example, are generally not discharged in bankruptcy. Neither are most payroll taxes and employee withholdings, under Chapter 8. Here, Jeff Schnepper writes on MSN.com's Money Central website about the intricacies of discharging tax liability in bankruptcy.
Beware the tax man, even after bankruptcy
By Jeff Schnepper
Bankruptcy originally meant "broken bench." In common-law England, when a merchant or craftsman couldn't pay his debts, the custom in the community was to break his workbench. This publicly established that the craftsman was "no longer in business." Quite often, the creditors at that time would seek to perform the ceremony across the head of the debtor.
Now, bankruptcy laws are used as proactive shields not only to deflect creditors, but also to eliminate them in some cases.
Of course, you also have a very nasty black mark against your credit history. Most bankruptcy filings remain on your credit reports for seven to 10 years. For the first several years, you can forget about credit cards (unless they're secured credit cards, in which the credit limit is backed by cash in an account with the lender), car loans and mortgages.
And then there's the Internal Revenue Service. You wiped out all of your other creditors (while in most cases getting to keep your home, which typically is exempt from bankruptcy proceedings), but you still have a huge tax bill hanging over you. Under what circumstances will the government let you off the hook?
The rules are complex and sometimes courts in different jurisdictions interpret them differently. Let's see if I can simplify them.
All debts are divided into two categories -- dischargeable and non-dischargeable. If the debt is dischargeable, you no longer are liable for it. Non-dischargeable debts can't be canceled in a bankruptcy.
How the rules are applied depends on the kind of bankruptcy you elect -- either Chapter 7 or Chapter 13. These are the two most-common types of bankruptcy filings available to individuals.
Chapter 7
This is a liquidation bankruptcy where you give up all your non-exempt assets in exchange for a discharge of all your debts.
Under a Chapter 7 bankruptcy, income taxes for years ending on or before the date of filing the bankruptcy petition (including extensions) and within three years of the filing date can't be discharged. But income taxes owed for periods longer than three years can be eliminated. And therein is where many people use the nation's tax laws to their advantage.
Meanwhile, payroll taxes -- Social Security and FICA -- or employee withholdings that you owed cannot be discharged, even after three years.
So if you work for a company in any capacity where you can be found to be a "responsible person," make sure that payroll taxes and withholdings are sent to the IRS. These are dollars that have been withheld from your employees and, if you are a "responsible person," the IRS can hold you personally liable for these business taxes.
If you're ever in a cash-flow position where you don't have the dollars to send what's due to the IRS, mark your check "trust fund portion only." The IRS can't hold you personally liable for the matching part of the Social Security and Medicare payments not sent in.
Chapter 13
Under this form of bankruptcy, designed for wage earners "with regular income," you agree to a plan to pay off your debts over a period of time, usually for pennies on the dollar.
Under this kind of bankruptcy, the court has the discretion to discharge taxes owed to the IRS without regard to the three-year rule, so long as you complete the payments under your Chapter 13 plan.
Even the IRS doesn't mess with the bankruptcy courts. When the courts say the tax is discharged or impose an automatic stay against collection, that's it. It's over. When the IRS didn't follow the rules, the United States Bankruptcy Court for the Southern District of Florida in a decision rendered in December 1999 found the agency to be in contempt of court and fined it $10 million.
Beware the tax man, even after bankruptcy
By Jeff Schnepper
Bankruptcy may shield you from creditors, but the IRS still can go after you for some unpaid taxes. Here's a guide to your tax liability after you file for bankruptcy.
Bankruptcy originally meant "broken bench." In common-law England, when a merchant or craftsman couldn't pay his debts, the custom in the community was to break his workbench. This publicly established that the craftsman was "no longer in business." Quite often, the creditors at that time would seek to perform the ceremony across the head of the debtor.
Now, bankruptcy laws are used as proactive shields not only to deflect creditors, but also to eliminate them in some cases.
Of course, you also have a very nasty black mark against your credit history. Most bankruptcy filings remain on your credit reports for seven to 10 years. For the first several years, you can forget about credit cards (unless they're secured credit cards, in which the credit limit is backed by cash in an account with the lender), car loans and mortgages.
And then there's the Internal Revenue Service. You wiped out all of your other creditors (while in most cases getting to keep your home, which typically is exempt from bankruptcy proceedings), but you still have a huge tax bill hanging over you. Under what circumstances will the government let you off the hook?
The rules are complex and sometimes courts in different jurisdictions interpret them differently. Let's see if I can simplify them.
All debts are divided into two categories -- dischargeable and non-dischargeable. If the debt is dischargeable, you no longer are liable for it. Non-dischargeable debts can't be canceled in a bankruptcy.
How the rules are applied depends on the kind of bankruptcy you elect -- either Chapter 7 or Chapter 13. These are the two most-common types of bankruptcy filings available to individuals.
Chapter 7
This is a liquidation bankruptcy where you give up all your non-exempt assets in exchange for a discharge of all your debts.
Under a Chapter 7 bankruptcy, income taxes for years ending on or before the date of filing the bankruptcy petition (including extensions) and within three years of the filing date can't be discharged. But income taxes owed for periods longer than three years can be eliminated. And therein is where many people use the nation's tax laws to their advantage.
Meanwhile, payroll taxes -- Social Security and FICA -- or employee withholdings that you owed cannot be discharged, even after three years.
So if you work for a company in any capacity where you can be found to be a "responsible person," make sure that payroll taxes and withholdings are sent to the IRS. These are dollars that have been withheld from your employees and, if you are a "responsible person," the IRS can hold you personally liable for these business taxes.
If you're ever in a cash-flow position where you don't have the dollars to send what's due to the IRS, mark your check "trust fund portion only." The IRS can't hold you personally liable for the matching part of the Social Security and Medicare payments not sent in.
Chapter 13
Under this form of bankruptcy, designed for wage earners "with regular income," you agree to a plan to pay off your debts over a period of time, usually for pennies on the dollar.
Under this kind of bankruptcy, the court has the discretion to discharge taxes owed to the IRS without regard to the three-year rule, so long as you complete the payments under your Chapter 13 plan.
Even the IRS doesn't mess with the bankruptcy courts. When the courts say the tax is discharged or impose an automatic stay against collection, that's it. It's over. When the IRS didn't follow the rules, the United States Bankruptcy Court for the Southern District of Florida in a decision rendered in December 1999 found the agency to be in contempt of court and fined it $10 million.
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