The recent testimony heard by the Senate’s Banking, Housing, and Urban Affairs Committee regarding possible increased regulation of the credit card industry brings back to the forefront the realization that credit cards as never good for you. In spite of what some say, there is no such thing as good debt.

A good credit score means nothing more than you are reliable when you pay back your debts. Therefore, it means that you have debts to pay back. It doesn’t mean you have a lot of money; in fact, it means you have very little money because you’re always paying it back.

A recent Marketplace report discusses the temptation of credit cards and how consumer advocates such as Harvard professor Elizabeth Warren are trying to open the eyes of the powerful in Washington DC to the reality of the credit cards and how they prey on the American consumer’s wallet.

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Fill out some forms, sign them and send them to court.  Why the heck do you need a lawyer for your bankruptcy case?

In other words - “How do I file for bankruptcy without a lawyer?”

That’s the attitude that a lot of people have.  I know because I see these people in bankruptcy court all the time, sweating as the trustee asks them questions that they don’t understand.  They’re usually honest people who have an honest problem and are looking for a proper solution.  But they’ve bought into the notion that bankruptcy is nothing more than a few basic forms.

Huge mistake.  Bankruptcy isn’t about forms, it’s about protection.  Protection from your creditors, protection for your belongings, and protection from blunders that could cause headaches.

For example, let’s say your brother bought a house a few years ago but his credit was terrible.  He asked you to put the house in your name because your credit was pretty good at the time, and you agreed.  You never put any money into the house, never lived there, and had nothing to do with it.  Last year your brother told you he could qualify for a mortgage, so you turned the house back over to him.

You run into some financial troubles, file for bankruptcy on your own.  The house was never yours so you don’t put it down on the schedules or the Statement of Financial Affairs.

Huge mistake.  Next thing you know, your brother’s getting sued by the bankruptcy trustee and you’re looking at a possible criminal action for failing to disclose your financial transactions properly.

Sure, this may be one of those situations that you’d know better than to handle without a lawyer.  But what about an inheritance from three months ago?  Is it income that needs to be used in calculating your “current monthly income”?  If you have a car that’s ten years old what sort of deductions can you take from your “current monthly income”?

What about a bank account that you have for your elderly parent?  It has your name on it, but it isn’t your money - do you list it?  And if so, where do you list it?

Above all, which type of bankruptcy is right for you?  Chapter 7?  Chapter 13?  Chapter 11?

These situations serve to underscore only some of the many reasons for hiring a lawyer when you file for bankruptcy.  Remember, the cost of a lawyer is undoubtedly far less than the amount of debt at stake.

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When you file for bankruptcy you are required to provide the trustee with a copy of the tax return you filed for the most recent year in which a tax return was due.   If you file for Chapter 13 you are required to have filed your last four tax returns.

So the question becomes one of whether you need to file a return at all.  In this post from Gina’s Tax Articles, a CPA gives your the lowdown on the 20 questions that must be answered in order to determine whether you are required to file a tax return.

Technorati Tags: bankruptcy, chapter 7, chapter 12, taxes

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I typically put a clause in my Chapter 13 plans that specifically rejects the arbitration provisions contained in any consumer credit agreements.  Today during a hearing on confirmation in the Eastern District of New York I was questioned on the subject; the case trustee didn’t care for the provision, and the judge was curious about it.

My reasoning comes from the U.S. Court of Appeals for the 2nd Circuit opinion in MBNA America Bank v. Hill, 436 F.3d 104, Bankr. L. Rep.P 80,445 (2nd Cir. 2006) holding that a bankruptcy court did not have the authority to deny arbitration of charges of a bankruptcy stay violation.

In the case, Kathleen Hill was one of a class of individuals that filed suit against MBNA America Bank for allegedly violating a stay that the bankruptcy court had granted her when she filed for Chapter 7 bankruptcy. MBNA appealed to the bankruptcy court to dismiss the case in favor of arbitration, since Hill’s credit agreement contained a clause that compelled arbitration to settle any claim or dispute related to the account. The Court of Appeals ruled that the bankruptcy court did not have the authority to deny arbitration in this case. While the court acknowledged that bankruptcy courts generally have discretion to refuse to compel arbitration of core bankruptcy matters (those directly related to the bankruptcy case), they do not have the discretion to override an arbitration agreement unless it finds that the proceedings are based on provisions of the Bankruptcy Code that inherently conflict with federal arbitration laws or if they necessarily jeopardize the objectives of the Bankruptcy Code. In this case, the court found that arbitration would not seriously jeopardize the Bankruptcy Code objectives because: (1) Hill’s estate had been fully administered and her debts had been discharged, meaning she no longer required protection from her creditors; (2) as a class-action case, her claims weren’t directly connected to her bankruptcy case; and (3) the bankruptcy court is not uniquely able to interpret and enforce provisions of an automatic stay, and therefore the matter can be decided by someone other than the bankruptcy court.

So what does my Chapter 13 Plan clause accomplish? It rejects the arbitration clauses, thereby rendering the decision in Hill moot. In the event that a claim accrues against a creditor for a stay or discharge violation, I believe that the creditor will no longer have the ability to enforce the arbitration clause because it will no longer exist.

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A question continually comes up as to whether a debtor is forced to turn to the bankruptcy courts when a creditor violates the Fair Credit Reporting Act with respect to a discharged debt or whether the doors of the District Court remain open.
The leading case, cited by virtually every creditor when faced by this question, is Walls v. Wells Fargo, N.A., 276 F.3d 502 (9th Cir. 2002).
Walls held that a debtor could not make a claim for a violation of the Fair Debt Collection Practices Act as well as for a violation of the bankruptcy discharge.  The court determined that the FDCPA and the Bankruptcy Code do not co-exist but rather that the Bankruptcy Code pre-empted the FDCPA.
Over time, Walls has been distinguished and chipped away by many courts, including those in the 9th Circuit.  The recent case of Wakefield v. Cavalry Portfolio Services, LLC., Case No. 06-CV-1066-BR (USDC Oregon 2006) continues that trend by holding that the Fair Credit Reporting Act and the US Bankruptcy Code co-exist.
In Wakefield, the debtor sued a creditor that had repeatedly obtained copies of her credit report after her bankruptcy discharge.  The basis of the lawsuit was 15 U.S.C. § 1681q, which provides that “Any person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses shall be fined under Title 18, imprisoned for not more than 2 years, or both.”
The court, relying on In re Miller, No. 01-02004, 2003 WL 25273851, at *2 (D. Idaho Aug. 15, 2003) as well as the holding of the U.S. Bankruptcy Court for the Eastern District of Virginia in In re Potes, 336 B.R. 731, 733 (E.D. Va. 2005), held that the FCRA and the Bankruptcy Code co-exist, and that the same act could give
rise to remedies under both FCRA and the Bankruptcy Code.
You can read the entire decision in Wakefield v. Cavalry Portfolio Services, LLC., Case No. 06-CV-1066-BR (USDC Oregon 2006) by clicking here.

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