The National Bankruptcy Research Center, a data research company, reports that Tennessee holds the distinction of having the highest per capita number of bankruptcy filings in the country.  According to the NBRC, Tennesseans are filing bankruptcy at a rate that will result in an annual bankruptcy filing rate of one out of every 56 households.

The NBRC did not comment as to why Tennessee has so many bankruptcy filings, but we at Clark and Washington actually see a large number of filers and we tend to see the same situations again and again.

In our practice, we see a large number of filers who are there because of:

• job loss
• out of control credit card debt
• medical issues (resulting in a so called "medical bankruptcy")
• divorce or family issues
• pending foreclosures

We have also been seeing more and more clients who previously held high paying jobs and who were, until recently, financially stable.

Frequently, we meet with potential clients who have significant tax debt in addition to credit card, vehicle loan or mortgage debt.  In some cases, the tax problem is the factor that led a person to call our office.  In those cases where tax problems are the driving force behind the consultation, we have to consider whether the client is better off filing bankruptcy or pursuing a negotiated settlement with the IRS.

The IRS has a number of programs available to indivduals who have incurred significant tax liabilities.  Two of the most common programs are the "installment agreement" program in which the taxpayer pays 100% of his delinquent tax over several years, and the "offer in compromise" program in which the taxpayer settles his account for less than 100 cents on the dollar.

Interestingly, Congress looked to these IRS programs when designing the means test elements of the BAPCPA changes to the bankruptcy laws.  The budget expense categories used in means test calculations are derived in part from the approved expense categories that the IRS uses in both installment agreements and in offers in compromise.

Depsite what you may have heard, tax debt can be dealt with in a bankruptcy.  Chapter 7 can discharge "stale" tax debt and Chapter 13 can be used to pay recent tax debt (called priority debt), secured tax debt (when a tax lien has been filed) and unsecured (stale) tax debt.

Some commentators argue that bankruptcy may be a better tool for dealing with tax debts than installment agreements or offers in compromise.  Certainly the likelihood of obtaining a discharge is better than the odds of getting an offer in compromise accepted.  In addition, bankruptcy allows you to deal with all of your debts - not just tax debts while under the protection of the bankruptcy court.

Clark and Washington can advise you how your tax debt would be treated in either a Chapter 7 or Chapter 13 bankruptcy.  You can then compare the bankruptcy solution to the offer in compromise and/or installment agreement option and choose the remedy that offers the best benefits to you.

One of the most controversial topics arising from the BAPCPA changes ot the bankruptcy law has to do with the so-called "hanging paragraph" of Section 1325(a).  Stated simply, Section 1325(a) does not clearly address what happens in a Chapter 13 if a debtor surrenders a vehicle back to a secured creditor if the vehicle is worth less than the outstanding claim.

Example:  Tom has a 2005 Chevrolet worth $10,000.  GMAC holds a lien against that vehicle totaling $14,000.  Tom files Chapter 13 and provides in his plan that he elects to surrender the Chevrolet back to GMAC.  What happens to the $4,000 "deficiency?"

Some federal circuit courts of appeal have held that the surrender of the vehicle wipes out all liability.  Other appeals courts have ruled that upon surrender, any deficiency balance would become an unsecured claim payable in the Chapter 13.

The 6th Circuit Court of Appeals (its precedent governs cases filed in Tennessee) has issued a ruling on this matter in favor of creditors.  In the case of AmeriCredit Financial Services v. Long, the 6th Circuit Court of Appeals has ruled that deficiency claims arising from a debtor's surrender of a vehcile in a Chapter 13 survives the surrender and must be paid pursuant to the Chapter 13 plan.

You can read a copy of the AmeriCredit v. Long decision by clicking on the link.  The decision is worth reading not only to understand the Court's logic, but also to get a sense of the frustration that the appeals court has for the poorly worded provision of the law.  While the 6th Circuit holding provides that the vehicle surrender does not wipe out the deficiency, the appeals court does not hold back in expressing its displeasure in issuing its decision.

In language highly unusual to circuit court opinions, 6th Circuit Judge Merritt writes "due to a glitch or a gap in a recent revision to the Bankruptcy Code intended to benefit creditors, the law is now  silent on what happens to the remaining indebtedness in the surrender-of-the-car situation.  The bankruptcy court below held that the congressional mistake in drafting the revision means that the remaining indebtedness is completely wiped out.  We believe the gap should be filled and the Congressional mistake corrected. The law previously governing this situation should be restored until Congress can correct its mistake and fill in the gap."

Now, back to our example.  For the time begin at least, if Tom surrenders his car in his Chapter 13, GMAC can file an unsecured claim in Tom's case for $4,000.  If Tom's plan provides for a 100% payout to unsecured creditors, his plan will cost him around $80 more per month.   Let's hope that Congress will see fit to fix this problem and end the situation where a lender gets a vehicle back to resell and hundreds or thousands of dollars in windfall profit earned on the backs of struggling debtors.

Our office recently received the following question from a reader of our blog:

I am now in a full-time Air Force Reserve, with 27 years total military service time.   I will be discharged if the Air Force finds out about my financial problems.  My wife and I are carrying over $200,000 in credit card debt .  Our cash flow is negative $7,000 per month and our only remaining asset is around $60,000 stocks.  What can we do?

Our firm's answer:  First, I think that you need to find an experienced and knowledgeable bankruptcy lawyer.  I recently filed a Chapter 13 case for a military reserve officer who was in a similar mess.  We structured the Chapter 13 as a direct pay, meaning that we did not set up a payroll deduction with the Air Force.  That case is proceeding along nicely and I expect it to be confirmed next month.

While there is no guarantee that your commanding officer will not find out, Chapter 13 trustees do not regulalry contact employers.  In my case, the military  has not been made aware of my client's filing.  An experienced lawyer in the district where you would file can give you more specific advice.

You also need to find out if Chapter 13 is an option at all.  It may not be, but you need to find out for certain to either eliminate the option or keep it available.

You also should ask whether there is any way to protect your stock.  Every state has "exemption laws" that protect certain assets.  You don't say where you live so I can't comment about what you might be able to protect, but it would be a shame to use up an asset that is fully or partially protected prior to filing a bankruptcy.

If you do nothing, at some point you are going to get sued and all bets are off.  While bankruptcy is always a last resort, it can give you the power to eliminate or reduce debts and to cancel contracts.

Make sure to find a lawyer with specific experience in Chapter 13, because I think that is the type of bankruptcy you would most likely want to consider. 

Best of luck to you.

With foreclosure numbers in Tennessee cities on the rise, it should come as no surprise that desperate homeowners are being targeted by scammers.  Usually the scammers pitch promises to stop a pending foreclosure using a "secret provision in the law" or an alleged special relationship with mortgage lenders.

In almost every case, the scammer asks for several hundred or several thousand dollars, then he prepares a two page Chapter 13 "emergency petition" in the homeowner's name and files the petition in the local bankruptcy court.  The scammer does not put his own name on the petition - instead he signs the homeowner's name as if the homeowner filed the case.

Often the emergency filing will stop the foreclosure, although only temporarily.  Under the bankruptcy law, a Chapter 13 plan and schedules must be filed within 15 days of the "emergency" filing.  Since the homeowner did not intend to file bankruptcy in the first place, many of these cases are dismissed by the clerk's office when no plan and schedules are filed.

Further, many of the emergency petitions are filed without proper documentation - no credit counseling certificate and no pay advices.

At best, the bewildered homeowner will realize what is going on and will retain counsel to either proceed with the Chapter 13 or to file a dismissal in court.  More often than not, however, the homeowner will be afraid to take any action out of concern that the homeowner himself did something wrong.   The wrongfully filed case will wind its way through the bankruptcy system until it is eventually dismissed and the homeowner will be left facing foreclosure again, but with less of a bankruptcy option because of the previous filing.

Recently a federal judge in Kansas denied bond to a foreclosure scammer named Issac Yass, who owned a company called Stopco that allegedly perpetrateda slightly different type of bankruptcy fraud in several States, including Tennessee.  Investigators say that Yass operated by filing Chapter 13 petitions on behalf of fictitious persons who claimed to have a fractional interest in the properties in foreclosure.  He then charged homeowners a monthly fee.  Yass' case is unique in that the alleged fraud was perpetrated on a grand scale - investigators contend that since 2006, Yass stopped foreclosures on over $50 million worth of properties.

At Clark and Washington, we have seen many cases of many kinds of foreclosure scams.   Sometimes we can help pick up the pieces, and sometimes there is little or nothing we can do.  If you are facing a foreclosure in Tennessee, we strongly recommend that you seek competant legal advice from a lawyer who is a member of the Tennessee bar.  If a non-attorney foreclosure prevention company solicits your business, run the other way.

At Clark and Washington, we get a lot of questions about the credit counseling and financial management course requirements set out in the bankruptcy laws.  When are these courses required?  How much do they cost?  Why are there two courses?  How long do the courses take?

Here is a brief overview of the credit and financial management courses that you are required to take as part of your bankruptcy filing:

Pre-Bankruptcy Credit Counseling

Before you file, you must complete a "credit counseling" course.  This counseling requirement applies whether you are filing Chapter 7 or Chapter 13.  The certification certificate that you receive upon completion of this course is part of our standard filing paperwork.  Pre-filing credit counselors must be Trustee approved.  Here is what will be covered:

• the counselor will evaluate your financial situation
• the counselor will provide information about consumer debts (i.e., credit cards and consumer loans) and will discuss alternatives to bankruptcy
• the counselor will discuss budgeting and help you evaluate whether you have enough in your budget to pursue a debt workout rather than bankruptcy
• if requested, the counselor will refer you to a debt management agency for the creation of a personal debt management plan
• the counselor will attempt to offer a long term view of your financial activities and habits

Generally the credit counseling courses last anywhere from 60 to 90 minutes and can be done in person, on the web or via telephone.  Most of the credit counseling agencies we have seen offer this counseling for between $35 and $50 per person.  If you cannot afford to pay the counselor's fee, you may request a fee waiver from the counselor's office. All fees and payment should be discussed and agreed to prior to the session.

Pre-Discharge Financial management Course

If you successfully complete your bankruptcy, your judge will issue an official court document called an "order of discharge."  This discharge order formally terminates your obligation to pay the debts that were included in your case.  Before you can get this discharge order, however, you must complete a course called the Financial Management Education course.   As is the case with pre-bankruptcy credit counseling, the financial managment counselor must be approved by the Trustee in your filing jurisdiction.   The purpose of the financial management course is to educate you about:

• developing a budget and living within your means
• developing better spending habits
• learning about money management, including saving, budgeting and checkbook control
• wise use of credit - what to avoid when accessing available credit

Generally financial management courses last about two hours and can be done in person, on the web or via telephone.   As is the case with credit counseling, the fee will be in the $35 to $50 range.

The financial management counseling company will fax or email a certificate to you and/or your lawyer.  This certificate must be filed with the clerk of court.  If you do not file this certificate prior to the time your case is closed, you will not receive a discharge.

Both course completion certifications together prove that the debtor has been educated by professionals to understand proper budgeting, money management and how to use credit without ending up in trouble. Of course these aren't the only bankruptcy filing requirements, but these are two of the mandatory steps.  If you have any specific questions about pre-bankruptcy credit counseling or about pre-discharge financial management education, please call our office in Chattanooga, Nashville or Knoxville.

My ex owes $50,000.00 in back child support. He made a payment of about $260 in august and the child support office recieved info in December that he had filed bankruptcy. I am told that this will make it easier for him to pay his obligations. I guess my question(s) is/are when would i maybe get support from him and what can I do?
–R

Clark and Washington's Answer:  R, thanks for your question.  First, recognize that under current law, bankruptcy does not allow a debtor to eliminate child support obligations.  If your ex filed a Chapter 7, he would presumably have more money to allocate for child support if he was able to get rid of his credit card or other debt.  If he filed a Chapter 13, then his on-going child support would be part of his budget and his Chapter 13 plan should have addressed how he was going to make up any arrearage.

You may want to find out a little more about your ex's bankruptcy.  Bankruptcy paperwork is a matter of public record and you should get a copy of his petition and associated documents.  You don't say where he filed bankruptcy - but bankruptcy paperwork is available through a national database called PACER.

At the end of the day, your ex's obligation to pay you child support will not be eliminated or modified as a result of his bankruptcy filing.

The office of the United States Trustee has released new median income numbers for bankruptcy cases filed in Tennessee as of February 1, 2008 and thereafter.  We expect that these numbers will remain in effect until around October 1, 2008.  Here are the current numbers:

You can review the full median income chart at the U.S. Trustee's web site.

We received this email from Brenda:

i have been harass, threathen, verbally abuse by bill collector, true, i got behind in a bill, and really they refuse to set up any thype of payment plan because i am too far behind, and they want all the money, it has increase due to finance charge they keep adding, i am on ss diability, and they threaten to get by money out of the money what do i do.

Brenda, thank you for your email.  First, the good news here is that bill collectors may not garnish money from your bank account if it came from Social Security.  You do need to make sure that your bank knows that the money in your account came from Social Security and you should no co-mingle your Social Security funds with any other money.

Second, you should write a letter to the collector advising the collection agency that (1) you are judgment proof, and that you have no assets and your only source of income is Social Security; (2) that pursuant to the Fair Debt Collection Practices Act you want them to leave you alone and (3) that you request that this debt be written off as bad debt.

I would not offer these folks any money as they have no leverage against you at all.  If they are verbally abusing and threatening you, they are violating the law and you could sue them for damages.

This might be a situation where you may want to contact a lawyer to write one or more letters on your behalf.

Once you have decided to file for bankruptcy, you will need to gather the following information and bring it to our office:

• copy of your most recently filed federal income tax return - if you have filed for tax year 2007, bring that; otherwise, bring your 2006 returns
   
• copy of pay stubs (also called "pay advices") for this month and the previous six months.  We need these pay advices to analyze your income numbers for the bankruptcy median income and means test.  We will need pay stubs for you and your spouse - whether or not your spouse is filing with you.  The Bankruptcy Court needs information about household income.  If you are self employed or a commissioned sales person, we will need information about your gross income
   
• credit counseling certificate - the law requires that you obtain credit counseling prior to filing and you will need to bring us or fax us a copy of your certificate
   
• completed bankruptcy intake questionnaire that includes a list of all of your creditors
   
• evidence about the valuation of your vehicles and real estate - for cars and trucks, we recommend that you take your vehicle to CarMax, where you can get a written purchase offer at no cost.  For real estate, we recommend that you ask a local real estate agent for a "drive by" appraisal

Our friendly staff is always here to help - please do not hesitate to call us:

Nashville - (615) 254-3633

Knoxville - (865) 689-1777

Chattanooga - (423) 634-1910