Should I File for Bankruptcy?

So you are sitting there in front of your computer and doing a search online as you contemplate hiring a bankruptcy attorney. You have decided it is finally time for you to file for bankruptcy. Now it is just a matter of deciding which bankruptcy route to take and which lawyer to hire. You stumble onto my web site. You call and make an appointment and then walk into my Alexandria, VA office, present your financial situation, and then ask me, “Do I qualify for bankruptcy relief? Which bankruptcy option is best for me?” At that point, you may very hear me say, “Hey, slow down there cowboy (Well, I won’t actually say that out loud). Who says it is in your best interest to file for bankruptcy in the first place?”  The fact of the matter is that just because you have some debt that is troubling you and have the ability to file for bankruptcy does not mean you should.

A few months ago, a young doctor met with me for a bankruptcy consultation (yes, even doctors have to rely on bankruptcy sometimes, as do lawyers for that matter).  She had seen two other bankruptcy attorneys in the Alexandria, VA area and wanted to know if she could indeed qualify for a chapter 7 bankruptcy.  One attorney had said yes and the other had said no.  I was the deciding vote. The doctor went on to inform me that she had one primary large business debt that she could no longer afford and was now being threatened by a lawsuit. Other than this one business debt, she was current with all of her other creditors. What was my diagnosis? Well, the doctor could indeed file for a chapter 7 bankruptcy. But what did I tell her? I said, “Doctor, while I would love to take your money, the fact of the matter is you may not need to utilize bankruptcy at this point.”

Filing for bankruptcy is something that you do as a means of last resort.  Filing for bankruptcy is like using the nuclear option; when you use it, you want to be darn sure that this is the only and best option at your disposal.  I went on to explain to the doctor that she may be better off hiring an attorney that does primarily civil litigation and who might be able to negotiate a reasonable deal with her creditor if a lawsuit was indeed filed. I went on to state that in my professional opinion, if she could reach a reasonable deal with her creditor, using the threat of filing for bankruptcy as leverage in her negotiations, then it would be in her best interest to take the deal rather than file for bankruptcy. If, and only if, the creditor was not willing to work with her, then she could come back and hire me as her bankruptcy lawyer.

I told the doctor that coming to a bankruptcy attorney is like going to a surgeon and asking him/her to perform open heart surgery without even considering other forms of treatment such as medication, exercise, and diet. Sometimes open heart surgery is absolutely necessary and vital, but not always.  Just because you are over your head with financial troubles does not always mean that bankruptcy is your best option.  Sometimes there are other options that will better serve you. Sometimes, you need to stop and ask yourself, “Do I even need to file for bankruptcy in the first place?”  And if the answer to this question is an indeed and emphatic, “Yes!” then by all means, do schedule an appointment to come and see me for a free consultation. 🙂

When Should I See a Bankruptcy Lawyer?

Remember that old Master Card commercial? You know the one that went something like this: Your daughter’s dream wedding dress $3,000, securing the perfect venue for the wedding $5,000, feeding over 100 guests $10,000. Seeing your little baby girl walking down the aisle for the first time…priceless. Some things in life money just can’t buy, for everything else, there’s Master Card.

And how in the world does this relate to bankruptcy?

Well, here is my version of this commercial with a twist:

Being forced into filing a chapter 13 instead of a chapter 7 bankruptcy because Susan’s salary has increased from $60,000 to $70,000 after putting off filing for several years=$10,000 in unnecessary payments.

John’s decision to file for bankruptcy AFTER the foreclosure sale has occurred instead of before and depriving himself of this expense on the means test = an additional $15,000 in payments.

Joe’s decision to move out of the marital home after he and his wife have decided to file for divorce and thereafter deciding to file for bankruptcy necessitating a  chapter 13 bankruptcy filing due to his high earnings =$20,000 in wasted payments.

Seeing a bankruptcy lawyer well in advance, when you first detect trouble, so that you can formulate a plan and know your options, priceless!

We hear it all the time, life is all about timing, and when it comes to bankruptcy law, that is especially true. The timing of the bankruptcy filing can make a huge difference. In other words, procrastination, as usual, can lead to problems. So, whether you live in Alexandria, Virginia or some other part of the Commonwealth, go and see a bankruptcy attorney and get his/her advice.  Notice that I said go and see a bankruptcy attorney; you don’t necessarily have to hire them, just get yourself informed.

And in case you are wondering, the names I have used in this article are indeed fictitious, but the factual scenarios regrettably are not. Most bankruptcy lawyers offer a free initial consultation. Take advantage of that now, instead of later. At the very least arm yourself with information.

Can Wells Fargo freeze bank accounts because of Bankruptcy

In Romania, the country where my ancestors are from there is an expression, “Don’t go trying to be more Catholic than the Pope.” And when it comes to Wells Fargo and Wachovia, as you will see below, that is exactly what they are doing. They are acting more like bankruptcy officials than what they are, a bank.

If you read my last blog article titled Is Your Bank Account Safe if You File For Bankruptcy then you know that a bank has the right, in certain instances, to a setoff. As explained in my previous blog article, a setoff is a legal right afforded to your bank whereby it is permitted to seize the money out of your bank account the moment that you have defaulted on a loan with your particular bank. In the bankruptcy context the bank’s right to a setoff will occur as follows: You have a checking account and a car loan with Big Bank. You are current on your car loan with Big Bank. Say you file for bankruptcy. The moment that you file for bankruptcy you are deemed to have defaulted on your car loan with Big Bank. As a result, Big Bank can now freeze your bank account and eventually can take your money that was in your account.

What Wachovia and Wells Fargo now do is take the concept of a setoff to a whole new level. According to Wachovia and Wells Fargo, if you file for chapter 7 bankruptcy, they will freeze your bank accounts that you have with them, regardless of whether or not you have any loans with them. I repeat, you do not need to have a credit card, car loan, mortgage or any other type of loan with Wachovia and Wells Fargo for them to freeze your account. The moment that Wachovia/Wells Fargo discover that you have filed for chapter 7 bankruptcy they claim to have the right to “freeze” your bank accounts and await the guidance of the chapter 7 bankruptcy trustee to see if and when they should release those funds back to you. Meanwhile, weeks go by during which you cannot access your money, your outstanding checks have bounced, and your automatic monthly payments are no longer being honored by Wachovia/Wells Fargo.

Wells Fargo and Wachovia take the position that its policy is a sound one that benefits the bankruptcy system because they believe that your money in your bank account is property of estate. Meaning when you file for chapter 7 bankruptcy everything that you own, theoretically, now belongs to the trustee, whose job is to administer all of your assets on behalf of your creditors, subject to certain exemptions, allowing you to keep certain property. Their misguided notion is that the money in your bank account is property of the estate and that they have a duty to preserve it for the bankruptcy trustee.

Hey, Wells Fargo/Wachovia, what gives you the right to play both judge and jury?! Why are you taking on the role of a bankruptcy trustee? When someone files for chapter 7 bankruptcy and exempts the funds that they have in your bank, it is up to the trustee to decide if those exemptions were properly taken. And if the trustee happens to decide –in those rarest of cases- that the exemption taken by the filer was improper weeks after the bankruptcy case was filed, then believe me, the trustee will not be shy about making that objection and coming after the individual who filed for bankruptcy. And what of the fact that no other bank in the United States has such a policy at this time? You think that might be an indicator that you might be acting a bit too overzealously?! What’s next, freezing my bank accounts because your computer system just found out that I have some outstanding parking tickets? After all, there is a chance that when the law finally catches up to me, I may not have the funds to pay for those tickets.

Now, in Wells Fargo/Wachovia’s “defense”, their policy also states that they will not employ this draconian measure unless the individual has at least $5,000.00 in their bank account(s). However, out of an abundance of caution, if you are contemplating filing for bankruptcy, take your money out of your Wells Fargo/Wachovia accounts and place it elsewhere. After all, as much as it might be interesting for you to take your case all the way up to the Supreme Court, you probably would rather avoid that fight.

What is a Preference in Bankruptcy?

Wondering how to get your mom to hate you? That’s right, I said hate you. As in, you are never invited to Thanksgiving dinner kind of hate you. And by the way, you can substitute “mom” for any other family member of your choosing. Here is how.

First, borrow a substantial amount of money from a family member and promise to pay them back. Then, when you are financially able, begin to pay back that loan to your family member. Next, declare chapter 7 bankruptcy. Finally, when we meet in my office for your initial bankruptcy consultation and I ask you a series of questions, tell me, well yes, as a matter of fact, I did pay a family member of mine a sum of say $10,000 in the past 12 months. Then, sit back and watch your mom/brother/uncle Joe get sued by the bankruptcy trustee who will demand that the money you paid your family member be turned over in order to be distributed amongst your unsecured creditors. Now at this point, you may be wondering, does the bankruptcy trustee have that much power? Can he really file a lawsuit against dear old mom? Well, in this kind of scenario, the answer is a definitive yes.

So how did it go so wrong? How did you become persona non grata (that’s just me showing off my Latin here)? Well, though it certainly was not your fault, you became a victim to a very counter-intuitive bankruptcy rule. The bankruptcy laws seek to be fair to all creditors. In that vein, the law states that the bankruptcy trustee has the power to undo “preferential payments.” One such preference that can be undone by the trustee is a payment to an “insider.” What is considered a payment to an insider? That would be any payment on a debt to a family member made within the 12months preceding the filing of your bankruptcy case.

So, if you owe 25K to five different credit card companies, and you owe your mom 10K, it is considered unjust for you to prefer your mom and pay her back in the 12 months leading up to your bankruptcy filing. The bankruptcy court’s logic is why should mom be entitled to get her money back while the credit card companies don’t get a penny? That is a preferential payment. You are favoring one creditor over another.

So, how can you avoid this unintended consequence? How do you avoid your mom disowning you? Well, the easiest way to deal with this issue is to simply know this rule in advance. Immediately stop paying any more money to your family member and wait 12 months before filing your bankruptcy case. The other thing to keep in mind is the amount of money that you have paid back to your family member in the months leading to your bankruptcy filing. If the sum is only a few thousand dollars, the bankruptcy trustee is not very likely to go after your family member for this fairly insignificant amount of money.

And what if he does? Well, mom can attempt to settle out of court and offer the bankruptcy trustee an amount that is smaller than the one that she received from you. And in order to get back in to your mom’s good graces, you can still pay her back after your bankruptcy case concludes. You have the right to pay back any of your creditors AFTER your bankruptcy case concludes.

One thing you should absolutely positively not do is inadvertently not mention or “forget” to inform your bankruptcy attorney of these payments to your family members. Why? Because your case can be dismissed by the court, leaving you with a filing of a bankruptcy on your credit report without the benefits of wiping out your debts. Plus, you may be brought up on criminal charges of perjury which may lead to possible jail time. And then, mom would really be upset with you.


Can the bank sue your after a foreclosure?

Well, if there was ever a time when the expression “it’s not over until the fat lady sings” comes to mind, it would be in situations where a foreclosure has occurred.

Your life has been turned upside down. You get that dreaded notice of foreclosure and sometime thereafter the foreclosure sale takes place. Part of you breathes a sigh of relief, believing that it is at least over. You move on with your life, relocate you family, and start over. And then, seemingly out of nowhere, a couple of years later, you arrive home to find a lawsuit taped to your front door. You are being sued for $80,000 by your former lender. They are coming after you for a deficiency judgment.

How did that happen? Well, the fact that you live in Virginia does not help. The Commonwealth is among the 30 states in the US that allows lenders to pursue borrowers for what are known as deficiency judgments. In fact, often times it is not even your former bank that is coming after you, but rather a third party collection agency. Banks sell many of these accounts to collection agencies and other third parties at a discount. And the entities who purchase these notes from the bank are not buying them unless they have the intentions of acting.

Let’s say the balance of the mortgage at the time the bank foreclosed was $300,000 and at the foreclosure sale the bank sells the house for $240,000, and the fees to the real estate agent and lawyer who handled the foreclosure for the bank was $20,000, leaving the bank with $220,000. Under this scenario the bank is $80,000 short and is going to look to you to make them whole. When you signed that Note and Deed of Trust at closing upon purchasing you house, you did two things: you agreed to put up your house as collateral in the event that you defaulted on your mortgage payments and you assumed personal liability for the loan the bank was giving you. So, unless you were able to negotiate for a release of personal liability from your bank you remain personally liable for the balance of the loan despite the fact that your home was foreclosed.

What makes the situation especially sad is that some folks who face foreclosure are able to get through the process without having to file for bankruptcy. In other words, while many people facing foreclosure have also accumulated a great deal of other debt along the way, others have managed to avoid doing so. And though the foreclosure sale is a huge blemish on your credit report, your credit score is still looking pretty decent since it has now been 2 years since the foreclosure sale and you have been paying all other bills on time. But now you are faced with this $80,000deficiency lawsuit, and regrettably, for most people, this will mean that now you will have to file for bankruptcy.

The moral of the story: I know you hate going to your dentist for that yearly check up, but you probably hate going to your dentist even more when it is a root canal that is needed. And I know that you hate going to your mechanic for that yearly maintenance work, but you probably hate going even more when a new radiator is needed. And I definitely know that you hate going to see an attorney…I think you know where I am going with this. An ounce of prevention is better than a pound of cure!

Having an attorney or a HUD certified counseling agency at your side may help. You might be able to negotiate for a release of your personal obligation on the mortgage, or in the alternative, file for bankruptcy at the time the foreclosure is happening. The bankruptcy filing will discharge/wipe out your personal obligation on the mortgage (and other unsecured debt) and negate the possibility of a deficiency judgment from occurring in the future. Better now than later!