Peter Francis Geraci A Bankruptcy Blog - Chapter 7 & 13

Baseball is America’s past time.  Teams like all Americans are struggling during the economic downturn.  Players by contract are making millions, but revenue has dropped and has forced many teams into bankruptcy.

Most recently, the Los Angeles Dodgers filed for bankruptcy protection.  The reason cited is a significant drop in attendance and mismanagement by owner Frank McCourt. Unsecured creditors include players and the Chicago White Sox (both teams share a spring training facility).  The filing comes after attempts at refinancing a loan against the stadium’s parking lot and applications for additional loans.

Ultimately McCourt and the Dodgers were out of options.  McCourt rejected a multi-billion TV deal last week and is hoping a federal judge will approve $150 million in financing for a better media contract. Whether or not a media contract will improve the standings for the Dodgers is hard to predict.  The Dodgers are currently 9 games back and playoff potential looks grim.

Last year, the Texas Rangers filed for Chapter 11 protection.  Hall of Fame pitcher Nolan Ryan purchased the team at auction.  After bankruptcy filing, the Rangers reached the World Series for the first time.  Hockey franchise Pittsburgh Penguins filed for bankruptcy protection twice and have gone on to win 3 Stanley Cups.

Now a bankruptcy filing will not guarantee you a championship. The Chicago Cubs filed for protection in 2009 and the curse was not discharged.  But whether you own a professional sports franchise or if you are a common lay person, post-bankruptcy is about rebuilding. The Texas Rangers created a plan and stuck to it. You cannot expect as an individual to maintain the same lifestyle post-bankruptcy.

You make payments on time; you save money and who knows you could be drinking champagne from the Stanley Cup?

A recent blog entry from Stephen J. Dunn for Forbes entitled, “Consumer Bankruptcies Do More Harm than Good” sparked controversy from bankruptcy attorneys and people in debt. I wanted to address the problems with Mr. Dunn’s narrow-minded entry.

“Most consumer bankruptcies are pointless”

Dunn’s argument is creditors rarely sue or call people who owe.  He cites the Fair Debt Collection Practices Act stating, “[A] creditor must, at the request of a consumer, stop contacting the consumer about a debt.” Clearly Mr. Dunn has never spoken to someone in debt. Creditors frequently contact debtors from dawn until dusk. When the debtor fails to reply, the creditor will sue the person. 

If it was as easy as asking a creditor to stop calling, why would anyone pay bills? If lawsuits happen rarely, then why not charge up debt? It’s shortsighted to believe it is that easy. In this economy, loss of income makes it increasingly difficult to stay current with payments.  Single moms with kids struggle to put food on the table and instead of providing them with debt relief (through bankruptcy), Mr. Dunne would rather these people do what?

There is an entire study dedicated to the stress caused by debt. Dr. Paul Lavrakas of Ohio State University found debt can cause stress leading to severe anxiety, ulcers, digestive tract problems and eventually heard problems.

If creditors “rarely sued” debtors, garnishments would not be an issue. The county circuit courts would be empty of creditors’ attorneys.  Mr. Dunn is so misinformed it’s frightening.

“The debtor is subject to criminal prosecution for willfully false statements made therin”

Yes, Mr. Dunn if someone commits fraud (outside of bankruptcy also) they will be subject to criminal prosecution. 

“A creditor can challenge the dischargeableability of a debt.”

Creditors have rights just like consumers. This shows the importance of hiring a skilled bankruptcy attorney.  Peter Francis Geraci, Geraci Law attorneys are able to win adversary proceedings on behalf of clients. Bankruptcy is not a simple process but neither is ignoring ringing phones and lawsuit summons.

I, like Mr. Dunne, am not an attorney. I cannot provide legal advice. But, I am fortunate enough to understand that millions of Americans with debt have found relief with a bankruptcy discharge.  I also understand not to believe everything you read on Wikipedia – my corrections to the author:

-A chapter 13 plan can go for three – five years, NOT three-four.

-Chapter 7 and Chapter 13 are BOTH consumer bankruptcies.

To read the atrocity, please click here.

After a bankruptcy petition is filed, a person is required to attend a 341 Meeting of Creditors.  The 341 is scheduled a couple of weeks after a case filing and can take up to 3 hours.  Your attorney will be there to help you through the process.

If you are working, scheduling time off of work can be difficult.  A client had taken time off of work to come to the 341 Meeting. However, the client had the date wrong and would have to take additional time off of work.

The client’s Geraci attorney, Jason Shimotake, spoke to the trustee and the client’s case was heard the same day. Instead of a wasted trip and wasted vacation time, attorney Shimotake was able to help the client.

Another client’s 341 Meeting was misdocketed. If the client had missed the 341 Meeting, the case would have been dismissed.  Attorney Sharon Hunt came to the client’s rescue and contacted him to explain the situation. The client was able to come to court and keep his case open. Attorney Hunt represented her client and now he will receive his discharge.

Attorneys Hunt and Shimotake, like all Geraci attorneys, took the extra minute and solved the problem. Small things by Geraci attorneys mean big rewards for Geraci clients. Shimotake’s client was able to save a vacation day and Hunt’s client was able to save his case.

I just finished reading “The Pale King,” David Foster Wallace’s recent novel. It was... good. Not great, merely good. It’s frustrating because the notes and addenda clearly indicate that it could’ve been something really phenomenal if Wallace hadn’t died (the circumstances of which the book avoids mentioning), but instead, it’s really just a hodgepodge of vignettes and set pieces.

“The Pale King” centers on an IRS tax return examination center in Peoria, Illinois. It’s mostly stories about some of the examiners who work there. Some are funny, some are sad, some have little lessons, some look towards kind of a theme, one is memorably creepy, Cronenberg-style. Many are dense with jargon, tax code minutiae, and finance esoterica. And that brings me to my point, which is that, for a novel substantially about government policy and regulation, “The Pale King” totally fumbles on bankruptcy.

It’s a couple (literally, a couple) terribly minor errors. Bankruptcy is referenced only twice. On page 207 of the current edition, one examiner, Chris Fogle, says his mother wound down her feminist bookstore by way of a Chapter 13. Chapter 13 is exclusively for individuals who need the ability to repay their debt at a rate they could afford. Chapter 13 can stop foreclosure and garnishment and is super-great for lots of people – but it can’t wind down a business. As Fogle’s soliloquy isn’t exactly to-the-point – if his mom did her own chapter 13, he would’ve taken half a dozen extra words to say so – I’d chalk it up to a technical error on Wallace’s part. Especially considering:

On 265, David Foster Wallace (there’s a character by that name in the book, who is not the real David Foster Wallace) notes that the IRS is leasing a building from the proprietary trustees of a corporation that “vanished into the protections of UCC Ch. 7 in the mid-1970s.” And, well, no. A corporation can file a chapter 7 bankruptcy (whether they always should is a different matter; an S-corp or an individual’s d/b/a can often just be allowed to fade into the ether) but the UCC isn’t bankruptcy and UCC chapter 7 is actually a set of proposed regulations involving warehouse receipts and bills of lading.

I’m a fan of Wallace’s fiction and in love with his nonfiction - so it sits unwell for me that he botched something I know very well. Some of the book is clearly fiction (the IRS’ Peoria location does not have an edifice designed to look like a giant form 1040) but actual legal errors bring up a whole host of questions about Wallace’s rigor, whether there are other technical errors when he discusses tax law and regulations, his copyeditor’s research, and just how finished the beloved writer’s “final novel” might have been. And maybe his characters are unreliable narrators and everything was just as he intended. And maybe I’m way too concerned over a work of fiction and should just go ahead and relax. But I really want to know.

A recent study down by www.bankrate.com found only 24% of Americans has a six-month emergency savings account and 24% have no savings at all.  With the unemployment rate starting to increase again, saving becomes more and more important.

If you or your significant other were to lose your job, think about how you would stay current with the mortgage payment or rent? How would you put food on the table? If you have other debt like credit cards, are you willing to fall behind on a car payment to stay current with your Visa bill?

These are questions you should ask yourself if you do not have savings.  With over $10,000 in debt, minimum payments are wasted.  Your payment goes primarily to interest and you are paying the creditors to call you if you are late.

Filing a bankruptcy will eliminate your debt so you are able to save.  Instead of wasting good money on minimum payments every month, you can put the money into an interest-bearing savings account.  So, if you were to lose your job, you would have a comfortable savings account to rely on until you found other employment.

In these shaky, economic times saving becomes more and more important.  Look at your own financial situation and see if you are able to survive six months without income.  You never know what is going to happen with your income or health and should be prepared for a financial emergency.  If you are making minimum payments and still have a large debt balance, call Peter Francis Geraci, Geraci Law for your bankruptcy options.

To read the report by www.bankrate.com, please click here.

An Indiana woman came to Castleton office and met with Attorney Lacey Stier. The client wanted to file a Chapter 7 to eliminate debt.  The client had fallen behind on her minimum payments and was beginning to struggle with her mortgage. Before her appointment, the woman believed she was coming into a Geraci office to start a Chapter 7 bankruptcy filing.

After speaking with attorney Stier, the client decided to file a Chapter 13 bankruptcy.  By reviewing her options with a Geraci attorney, the client will be able to keep her home, her vehicle, and pay an affordable monthly payment on other debt.

The client was also advised by Stier - pending an appraisal - will be able to strip her second mortgage and lower the interest on her vehicle by 12 percent! After meeting with a Geraci attorney the client has a better plan for getting out of debt.

Without meeting with an experienced Geraci attorney, she would have never known her options.  If you would like a mini-consultation or to schedule an appointment with an experienced attorney for your options, please give Peter Francis Geraci, Geraci Law a call.

According to a report by www.cardhub.com, consumers are paying less down on credit card debt. The report shows in 2011, consumers paid down $32.4 billion in credit card.  This number is down 26% from last year.

However, the report projects consumers will end the year with $20 billion more in debt. Paying down debt will not provide debt relief if you return to using the credit cards. By not saving the tax refund or work bonus, it is inevitable to return to paying for groceries with credit cards.  Creditors keep you in debt this way – you pay on the debt and as result of the payment, continue to use the credit card.

Your solution is a bankruptcy.  While in a bankruptcy you cannot use your credit cards and will learn how to live within your means.  Discharging debt through bankruptcy is guaranteed relief.  You have no debt and your extra income goes to a savings account.

Creating a budget and saving money is way to prevent taking on more debt.  Relying on the next tax refund or bonus is not a guarantee to get out of debt. Bankruptcy is! Paying down debt every year is fruitless if you end with more then you started with.

This year when you get a bonus, call Geraci Law and inquire about bankruptcy. At your first meeting you can cut up the credit cards and put them in our fishbowl. You eliminate all of the debt and can take advantage of the required credit counseling and debtor education courses.  These courses will teach you the importance of budgeting and how to create a budget. After your bankruptcy is over, do not resort to the credit cards – instead use the opportunity to live debt free!

Geraci Law Peter Francis Geraci files almost a thousand bankruptcy petitions each month in Illinois, Indiana, and Wisconsin.  Unlike lawyers who take an occasional case, we’re almost every bankruptcy court every day. You pay the same approved attorney fee for every Chapter 13 whether it’s Geraci Law or a solo with one case per month.

Our attorneys do not need to ask for continuances because of schedule conflicts nor miss a court date because of distance. If you go to an inexperienced attorney who only has one case a week, it’s a big deal for them to answer a motion on your case.  For Geraci Law, it’s no big deal; we do it every day every week all the time and we’re always in court.  

For instance, this week in Kenosha/Racine Wisconsin 20 of the 54 Chapter 13’s are Geraci Law clients.  Geraci Law attorneys are always in court. You, as a client, are able to go to our local office near you, but still know another Geraci Law attorney is meeting your needs in court. 

Geraci Law Peter Francis Geraci attorneys are experienced and eager to help a client out.  

In Indianapolis, attorney Lacey Stier got a hug!  She writes: “Had some time after client’s 341 meeting so sat with her in hall for a while and let her “vent.”  Elderly woman whose son was in major surgery at that very moment in Florida. He’s her only son out of 7 kids and her “angel” and she was very nervous and worried. Wants to go down to visit him and was so happy when I told her this was all behind her and she was free to go take care of him that she hugged and kissed me.”

In Milwaukee, attorney Kathyrn McKenzie protected a house from creditors while another firm’s client lost his:  she writes “Client was early for 341 and witnessed one hearing where trustee might be taking a pif (paid in full) house because the guy had transferred it to his business less than a year ago with no compensation.  Client was worried that trustee would go after his house as well.  Assured client that his house is safe.  Client was relieved that we were able to protect his house.”

In Waukegan, attorney Jason Shimotake persuaded the UST to hear a case when an elderly Geraci Law client showed up confused on the wrong day, saving her trip to court.

Going above and beyond is our mission. Bankruptcy is a complicated process and knowing your attorney is there to help you through it is why you file with Geraci Law Peter Francis Geraci.

With rising living expenses and decreasing income, more and more students are relying on financial aid to pay for school.  Families in debt and contemplating bankruptcy will always ask, “How will bankruptcy affect my ability to take out student loans?”  The easy answer is it shouldn’t – but like everything involving bankruptcy it’s never that easy. 

Generally speaking, a bankruptcy should have no affect on the eligibility for a federal loan.  Federal loans include Unsubsidized Federal Stafford Loan, Federal Pell Grants, Federal Perkins Loans, Federal Supplement Education Opportunity Grant, Federal PLUS Loans.  These loans cannot be denied to a student based solely on a bankruptcy filing.  Administrators cannot cite bankruptcy as a reason for denial but schools can use past payment history in determining willingness to repay the loan.

If you are a parent and apply for a PLUS loan – a bankruptcy could affect your ability to take out a PLUS loan.  The reason for denial could be an adverse credit history (and the debts you discharged through bankruptcy) within the last five years.  A parent could be eligible with a co-signer and a child could still be eligible for an increased unsubsidized loan.         

Private student loans are different and more costly. Most private student loan programs examine credit history within the last ten years and a bankruptcy discharge can disqualify someone from a private student loan. These loans do not have a fixed interest rate on repayment like federal loans. The interest paid on private student loans is based on credit score and if your score is below 650 you will probably not be approved.

Increasing your credit score 30-50 points can improve your application and subsequent interest rate on private student loans. If someone has unsecured debt and a poor payment history, filing a bankruptcy and then reestablishing credit post-bankruptcy could improve ability to take on student loan debt.

So after bankruptcy, make payments on time to reestablish your credit.  Bankruptcy is not the reason for denial – your payment history is.  This is the same with future purchases like a home loan or a car loan. Loan servicers (including home and car financers) want to see a willingness to pay back debt.  Like any major loan, your creditors want to see you are worth the risk.  This is why payment history is the biggest contributor to your credit score and your student loan eligibility. 

Use your bankruptcy as a reset button.  Budgeting and saving money will help your future financial decisions.  Your bankruptcy filing is not an excuse for poor credit. It is an aid to helping you reestablish and rebuild.

Presidential hopeful, Mitt Romney, said bankruptcy saved Detroit – not the bailouts given by the Bush and Obama administrations. Chrysler and General Motors both filed Chapter 11 protection and now are showing a profit and adding jobs. Both companies took the bailout and ultimately filed bankruptcy.

On the CBS Early Show, Romney said, "[W]e could have saved billions of dollars had we moved to bankruptcy from the very beginning." General Motors received a bailout of $43 billion. Since the loan, GM has paid $6.7 billion back and the balance will be converted to stakes in the company. It will take years for taxpayers to receive the money back. GM was able to pay back the $6.7 billion through the bankruptcy filing.

When the recession started, thousands of autoworkers were offered early retirement or laid off entirely from jobs. Many workers were in the same position as their previous employer – without demand for employment and an overwhelming amount of debt.

Bankruptcy is not usually a debtor’s first choice for getting out of debt. Instead, many debtors will ask family or friends for loans before calling a bankruptcy attorney. These loans often do more harm then good.

Family members or friends will want repayment on the loan and if you are out of work you may not be able to pay it back. Or because of the economy, your peers may have financial troubles and could not loan you the amount to pay back all of your debt. If you are the person lending the money – are you going to be ok with not receiving repayment?

If you receive a loan for $10,000 and you have $30,000 in debt – at best you will have $30,000 in debt because you still have to pay the loan back. If you file for bankruptcy, you eliminate the need for the $10,000 loan and the $30,000 in debt and keep you relationship with the family member or friend you were going to borrow from.

Bankruptcy helped the previous auto giants and helped provided jobs back to the autoworkers of Detroit. If you have debt, do not borrow more money to pay back debt. Take Romney’s advice – look into a bankruptcy and save billions of dollars. You can see the Romney interview here.

The epic Recession of 2009 when joblessness increased and the housing market started to tumble is getting a sister in the follow-up Recession of 2011. Apparently lenders and borrowers have not learned from their first mistake with the new fad for poor credit is car loans.  Lenders like Ally Financial will finance borrowers with a credit score of 660 or less and the number of applicants is increasing significantly causing other lenders to enter the market. According to the Experian’s Auto Count Risk Report, the number of subprime customers increased from 5.6% to 6.96% of loans and deep sub-prime customers increased from 1.44% to 1.74%.

Subprime auto loans – like subprime mortgages – will have an extremely high interest rate.  Interest rates can range anywhere from 10-25%.  The biggest issue with auto loans is depreciation. Before the market crashed, homeowners were able to take on a subprime mortgage payment and since the market was a seller’s market, the property could appreciate in value.  A car will lose value the second you drive the vehicle off the lot. When you have a subprime loan, the payments for the first two years will go directly to interest and you are immediately under water on your car loan.

A common question is what a bankruptcy will do to my auto loan.  In a Chapter 7 bankruptcy, it is possible to negotiate better terms on reaffirmation agreements but there is no guarantee. Lenders also have little incentive to do so since a market exists for repossessed and used vehicles (actually the used car market is booming). In a Chapter 13, you must follow the 910 day rule meaning you can only use the Bankruptcy court to reduce interest on your vehicle loan if you purchased the vehicle over 910 days ago (or 2.5 years ago).  Otherwise, your 10.5% interest on a 1998 Ford Ranger will stay intact.

There is a solution. You file for bankruptcy to eliminate your unsecured debt and surrender your vehicle. I understand the sentimental value but be realistic. If you are paying more on your car note then in rent, you need to either move into your vehicle or let it go. After the bankruptcy is done – save money! Put your previous car payment into a savings account so you can purchase another vehicle with a bigger down payment and better interest.

Instead of a 1990 vehicle, you can purchase a brand new car and if after your bankruptcy you rebuild your credit you could qualify for 0% interest for five years! Read the contracts before you purchase, do your research and be ready to make a big down payment and soon enough you’ll be cruisin’ in a great car.

Even with the alleged job growth and relatively low mortgage interest rates, home values in the Chicagoland area continue a scary downward spiral. Equity many homeowners relied on for retirement is gone and in some cases, homes went from having $100,000 in equity to being underwater.  Read the Chicago Tribune article here.

When homes were selling, many homeowners were able to pay on the first loan to gain equity in their property.  With the job market being an applicant’s market, many people paid more on their mortgage to decrease the interest and pay off the loan much sooner.

To increase the potential value of the home, a homeowner would use the equity and take out a home equity loan or second mortgage for renovations to the property. Often the assumption was if a person redid a kitchen or put on an addition, the home would sell for a lot more money to pay off the first and the second loan and still walk away with a large check for the next property investment.

After the market crashed and home values dropped, a homeowner lost equity and found themselves with a big first mortgage, a now unsecured second mortgage and no potential buyers for the property. When the job market started to crash and many people found themselves with paycuts or reduced hours, trying to remain current with the first and second mortgage became difficult. If you have ever tried to ask for help from your mortgage company, then you understand your financer could care less about your problems.

Thankfully, you have options with a bankruptcy. If your home is underwater meaning you owe much more than the property is worth and have a second mortgage on the property, you can file a Chapter 13 to try and get the value back in your home. For example – if you have a first lien balance of $300,000 and a second lien balance of $75,000 and the value of your home has dropped to $275,000 – your second lien no longer has equity to support the loan.

The second lien becomes unsecured and you are able to “strip” the balance after the completion of a Chapter 13 bankruptcy. A Chapter 13 will allow you to pay back a percentage of your other unsecured debt like credit cards and medical bills and at the end of the repayment plan (and subsequent discharge) the balance of your second loan is eliminated. Think about it – your credit card/medical debt is paid off and the only debt remaining is your first mortgage. If that’s not a modification – I do not know what is!

If you are underwater on your mortgage (and really at this point who isn’t?), call Geraci Law, LLC and we can figure out what your best option is.  As homeowners, we cannot wait around forever for our mortgage companies to answer the phone or for the housing market to improve, it’s time to be proactive and get out of debt!

Earlier this week, Illinois lawmakers sent a bill for Governor Pat Quinn’s approval. The bill would allow new casinos to be built in Chicago and other undetermined Chicago suburbs. If approved, licensing fees could generate millions for a failing Illinois budget.

The most sought argument for the casinos is the additional revenue generated for the city. To generate revenue, a casino must create a foundation of “losers” to pay for upkeep.  So the city would make money from licensing fees, etc. but the money is generated from gamblers losing at the slot machines.  Gambling addicts would be taking on more debt to pay Illinois creditors.

One of the major causes of bankruptcy is gambling.  Gambling addictions can cause someone to take out payday loans, credit card advances, and keep them searching for the next big score. The problem is when the bill comes due and there was no big score for payment.  In a short time, a person could have thousands of dollars in debt with obscenely high interest. For example, a cash advance on a Discover credit could have a fee to take out the loan and a 25% interest on the repayment of the loan. 

Other addicts may try to take out a marker from a casino.  The casino will ask how you intend on paying for the marker and will take the risk to keep you gambling. A marker does not have to be paid by the time of leaving the casino.  Taking on another line of credit if you cannot pay for the debt can possibly make the debt nondischargeable in a bankruptcy.                                                                                                                        

Gambling addiction can cause loss of income. Seems like an obvious statement but when you are missing time from work you are not only losing at the casino but from your paycheck as well.  Missing time at work to go to the casino is common for addicts.  Instead of working to pay back debt, some addicts consider gambling to be their full-time job. Solving financial problems by gambling is one of Gamblers Anonymous 12 step program.

If Governor Quinn allows a casino overhaul, isn’t the state of Illinois using gambling as a way to solve financial problems? Gambling has no guarantee to get out of debt – bankruptcy does. Throw the dice, call a bankruptcy attorney and enjoy the big debt-free win!