July 15, 2020

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.

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.

Military Officer Could Lose Career if Financial Troubles are Revealed – What are his Options?

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.