July 12, 2020

Tennessee Chapter 13 Debtors Lead Nation in Repayments to Creditors

Debt burdenThe Chattanooga Free Press reports that Chapter 13 debtors in Tennessee pay more back to creditors than much larger states like Texas, California or New York.   As of September 30, 2008, Tennesseans had paid back over $558 million in active Chapter 13 cases.  Texas Chapter 13 filers were second on the list, paying back $528 million, with Georgia third at $412 million.

Unlike most states, Tennessee debtors file a higher percentage of Chapter 13 cases.  Here, 56% of debtors in 2008 filed Chapter 13, whereas in other states the percentage is much lower.  In California, for example, Chapter 13 amounted to only 19% of cases filed – with 81% of California debtors filing Chapter 7.

Chapter 13, of course, is the repayment plan type of bankruptcy, whereas Chapter 7 permits debtors to wipe out debt.

What does this mean to you?  The trustees and judges in Tennessee bankruptcy courts prefer repayment plans as opposed to debt elimination.  These bankruptcy officials also will try to push you to pay back as much as they can get you to pay.

An experienced consumer bankruptcy lawyer working on your behalf will identify and pursue a form of debt relief that is most advantageous to you.   A good bankruptcy lawyer will serve as your advocate and fight for Chapter 7 relief where appropriate, or create a payment plan that is liveable for you.

Effect of President Obama’s New Mortgage Program on the Housing Market and Mortgage Market

foreclosureThe U.S Federal Reserve anticipates that in FY2009, the economy may shrink by a figure anywhere between 0.5% and 1.3%. It may be attributed to increase in unemployment, crisis in the housing market and credit crunch. Owing to the subprime mortgage crisis, incidence of foreclosure and bankruptcy have increased manifold. In fact, one of the reputed subprime lenders BNC Mortgage LLC, a subprime lending unit of Lehman Brothers had to close down.

The economic slowdown in United States and in the housing market specially has threatened many homeowners and many people have lost their homes already. To bring in some repose among the homeowners, President Barack Obama has unveiled his Mortgage foreclosure plan recently. [Read more…]

Your Co-debtors Get Protection from Chapter 13

One of the more interesting features of Chapter 13 law is something called the “co-debtor stay.”  Set out at Section 1301(a) of the Bankruptcy Code, the co-debtor stay disallows collection action on consumer debt against co-debtors of the person filing for bankruptcy.  A typical scenario – you file Chapter 13 and include a debt to Best Buy for a new television.  Your mother co-signed the loan with you.  Your Chapter 13 protects your mother from collection efforts for as long as you remain in Chapter 13.

Now the obligation of the co-debtor does not disappear.  If you repay a consumer debt at 30 cents on the dollar in your Chapter 13, your co-signer will be liable for the remaining 70% after your case is over.   However, during the time you are in Chapter 13, your mother is protected.   Often in these cases debtors will set up special payment classses in their chapter 13 plans to pay co-signed debts in full to protect the co-debtor.   In other situations – such as when the co-signer is an ex-spouse, the co-debtor is left exposed.

The co-debtor stay only applies to consumer debt and it only applies in Chapter 13.  If you have co-signed debts, make sure to tell your lawyer so that appropriate decisions can be made.

Cleveland, Tennessee Epicenter of National Payday Loan Businesses

The Los Angles Times recently ran a feature story about payday loans – those short term, high interest loans that service customers who need a cash advance in advance of their regular paychecks to cover emergency expenses.   According to the story, Cleveland is where W. Allan Jones founded Check Into Cash, the granddaddy of modern payday lenders, which cater to millions of financially strapped working people with short-term loans — at annualized interest rates of 459%.

As attorneys and financial counselors, we at Clark and Washington encourage our clients to avoid payday loans.  If you find yourself turning to this lender of last resort, it should serve as a signal that you need to consider significant changes to how you handle your finances.

A Chapter 7 or Chapter 13 bankruptcy may be one of those changes that you should consider.  While bankruptcy is a last resort, it can eliminate credit card debt, allow you to walk away from a house or a car with no penalty and it can provide a structure to pay back “permanent” debts like taxes and student loans.

If you find yourself turning to payday loan lenders, we encourage you to stop, step back and considr calling our office for a free debt evaluation.  Bankruptcy may not be the right answer for you, but there is simply no reason not to learn if the bankruptcy option can improve your quality of life.

Divorce and Bankruptcy – Your Divorce Lawyer’s Fees May be at Risk

Not surprisingly, the financial strains that drive clients to our office also create problems in marriages.   Clark and Washington regularly meets with clients who are separated from their spouses or who are actually going through a divorce.

Recently we met with a client who wanted and needed to file for bankruptcy, but who had just paid his divorce lawyer a $7,500 retainer.   Despite the pressing need to file bankruptcy, we advised our client to wait until 90 days had passed from the date the check to his divorce lawyer cleared.

The basis for our advice arises from an area of bankruptcy law known as “preferences.”  Simply stated, Section 547 of the Bankruptcy Code provides that the trustee may recover payments to non-insider creditors paid within 90 days prior to the date of filing when such payments are not in the “ordinary course of business”  (for insiders – relatives, business relations, etc. the lookback period is 1 year).  Section 541 of the Code provides that the unused retainer, sitting in the divorce lawyer’s trust account constitutes property of the bankruptcy estate.

In the case of our client, the $7,500 transfer would not be “ordinary course of business”  unless there was a series of $7,500 payments.  Our concern was that if we had filed a Chapter 7 on behalf of this client, the trustee would demand the $7,500 from the divorce lawyer.  As you might imagine, this would make for a very unhappy divorce lawyer.

Preference issues arise in other situations, of course, meaning that you need to reveal to your lawyer any “out of the ordinary” payments to anyone made within the year prior to your projected filing date.

Bankruptcy Paperwork Requirements Can be Unforgiving

Much has been written about the 2005 changes to the United States bankruptcy laws, very little of it being positive – at least from the perspective of the struggling families who find themselves seeking counsel with a Clark and Washington attorney discussing bankruptcy options.

One trend we have noted has to do with the unforgiving nature of many of the requirements now set forth in the law.  For example, the credit counseling and financial management education requirements of the law are generally seen as a waste of time, but bankruptcy judges from around the country have dismissed cases when debtors do not follow the law’s requirements exactly.

For example one of our Tennessee bankruptcy judges dismissed a Chapter 13 case because the debtor obtained credit counseling the same day as he filed his bankruptcy case.  According to the judge, the law requires that you obtain credit counseling at least one day prior to actually filing so a same day counseling and filing does not meet the requirement.

Imagine the heartbreak of a debtor who was not aware of this interpreatation of the law and loses a house or a car because his bankruptcy filing was deemed invalid.

We recently came across another example of a very harsh interpretation of the rules contained in the bankruptcy law.  The law requires that debtor file with the court copies of pay advices for the 60 days prior to the date of filing.  A New York judge recently dismissed a case where a debtor filed all but one of his pay stubs.  The debtor’s pay was exactly the same for each pay period but he was not able to find one of his pay stubs.  The judge wrote that he had no discretion under the law to accept anything less than complete compliance.  “While dismissal of this case may seem to be a harsh result, it is one that is mandated by the statute”.

If you get the sense that filing bankruptcy without experienced counsel can be difficult, you are correct.

Tennessee Bankruptcy Court Web Sites are Sources of Useful Information

Clark and Washington encourages our clients to make use of accurate and free information about bankruptcy that is readily available on the Internet.  Not everything published on the Internet is accurate, of course, but there are a number of web sites that can you trust.

An excellent resource for bankruptcy debtors who file in Chattanooga or Knoxville is the official website for the United States Bankruptcy Court for the Eastern District of Tennessee.  This site contains links to bankruptcy forms, local court rules, written opinions of the judges and general information about the bankruptcy process.   For filers in Nashville, the website for the United States Bankruptcy Court for the Middle District of Tennessee will be an online destination that you should visit.   For individuals filing in Memphis or Jackson, you can check out the web presence of the United States Bankruptcy Court for the Western District of Tennessee.

You should also be aware that federal courts in Tennessee are part of the 6th Federal Judicial Circuit.  This means that other that Supreme Court decisions, rulings by 6th Circuit appellate judges will control how Tennessee bankruptcy judges interpret the law.  Circuit Court or Supreme Court bankruptcy opinions are usually not something that a typical bankruptcy debtor needs to worry about but you should be aware of this hierarchy within the federal bankruptcy courts if you are researching bankruptcy and you run across an opinion from a California bankruptcy judge or an appeallate ruling from the 2nd Circuit.

Clark and Washington lawyers spend time each week studying changes in applicable bankruptcy law and observing trends in the 6th Circuit and in other circuits.  Our firm makes internal continuing legal education a part of our practice and you can depend on Clark and Washington to be both knowledgeable and prepared to represent you when you call.

Digital Power Meters Mean Faster Utility Cut-Offs

Has your local power company installed a digital meter at your house?  Information sheets in your bills will suggest that this new digital meter will improve the accuracy of power measurement but this is only part of the story.

Digital meters allow power and gas companies to turn off your services from the central office.  Rather than sending out a technician to lock the meter, a central office cut-off can be performed with the flip of a switch in the office.  Digital meters also allow power companies to reduce the flow of power to delinquent customers – perhaps to provide enough power to keep a refrigerator on, but not enough for television or an air conditioner.

Today’s Wall Street Journal reports that utility companies are becoming much more aggressive in fighting delinquencies.  Even public corporations like the Tennessee Valley Authority have to report to bondholders and delinquencies can negatively impact both profitability and a bond’s rating with Moody’s or Standards and Poors.

The Bankruptcy Code does allow utilities to demand some form of “adequate protection”  in the form of security deposits if a customer files bankruptcy and includes a delinquent utility bill.   To date, we have not seen utilities take an aggressive stance with this, but the TVA and its distributors may be changing their policies.  For now, we are advising our clients in Knoxville, Nashville and Chattanooga to make every effort to bring their utility bills current prior to filing, thereby avoiding a potential issue getting utility service going forward.

All Creditors Must be Listed in Your Bankruptcy – Even Mom

Over the past few months, our office has seen a number of bankruptcy clients who have had personal loans from family and friends in addition to more common types of debts like credit card bills, medical debt and bank loans.  In a few cases, our office did not find out about the debt owed to mom, dad or a sibling until long after the case was filed.

The bankruptcy law is extremely clear that all debts must be included when you file for bankruptcy.  This includes loans from mom or your brother.

Failure to list debts owed to friends or family can result in your case being dismissed.   Fellow blogger Reed Almand of Dallas speaks about this issue in his Dallas bankruptcy law blog post about the requirement to include debts to family in your Chapter 13.  Reed specifically discusses Chapter 13, which is a payment plan.   When your attorney calculates your Chapter 13 plan, he has to account for all of your creditors.  If $5,000 or $10,000 has to be added 30 or 40 days after your case is filed, your entire plan will need to be recaluculated, meaning that your attorney as well as the trustee will have to start all over and perform a lot more work.  As Reed notes, some trustees will even argue “bad faith” and try to get your case dismissed.

The bottom line – debts to mom, friends or other family are debts that need to be included in bankruptcy.

Should I be Concerned if I Receive an “Objection to Confirmation?”

What is an “objection to confirmation” in a Chapter 13 case and should you be concerned about it?  As you know, a Chapter 13 bankruptcy functions as a court sanctioned repayment plan.  Under the law, you – the debtor – must propose this repayment plan to the court.

Clark and Washington’s job is to evaluate your financial circumstances and to prepare this repayment plan.  As your attorneys, we have both a desire and an obligation to represent you zealously.  We know that five years (the typical term of a Chapter 13 plan) is a very long time and we also know that you will face unexpected emergencies and cash crises during your plan.

Your creditors and Chapter 13 trustee are not particularly concerned about what might happen over the next five years.  They want every dime of “disposable” income and will push for the highest possible Chapter 13 plan payment.

The Chapter 13 plan we prepare in your case, therefore, will satisfy the requirements of the Bankruptcy Code, but it will also reflect what we consider a realistic approach to the next five years.  Not surprisingly, your Chapter 13 trustee may not agree with our assessment of what constitutes your “best efforts” and the trustee or creditors may file a document called an “objection to confirmation.”

By law, you must be served by mail with this objection to confirmation.   Objections to confirmation are filed in 98% of the Chapter 13 cases filed in Tennessee bankruptcy courts.  Every week we get frantic calls from clients who have received an objection and are certain that their case has been dismissed.  This is NOT the case.

An objection to confirmation does not mean that your case has been dismissed.

Instead, an objection to confirmation means that the trustee or creditor wants a change in your plan.  Most likely they will want more money from you each month.  Usually, we can negotiate a compromise to satisfy the objection and get your case approved or “confirmed” by the judge.  Sometimes we have to argue the objections – click to read a recent blog post about one of Clark and Washington’s successes in defeating an objection to confirmation.

Look at objections to confirmation as a normal part of the Chapter 13 process.  As your attorneys, we will be with you every step of the way and we will advise you regarding the best way to deal with objections to confirmation.