From making calls day and night to elderly people hard of hearing to faxing a person's workplace about the money they owed, we had to do whatever it took. 

I had a client just today complain about a creditor faxing their workplace.  This type of conduct is not uncommon.  Each collector has a quota, and if they don't meet it they're let go.  Many debtor get frustrated and angry with the collector, which only pushes the collector to get more aggressive with his next call.  The whole process is a vicious cycle in which neither side wins.

If you're getting calls or faxes at work, or experiencing other abusive or harassing behavior by your creditors, you should do two things: First, start noting the date, time, number, and content of the messages.  This can later be used as evidence.  

Next, contact a consumer law attorney.  These debt collectors are violating either the Fair Debt Collection Practices Act, or the lesser known Michigan Collection Practices Act.  The reason these people get away with this conduct is because no one calls them out on it.

The post is about the lies often told by so-called "bankruptcy petition preparers" and tells a sad (but true) tale about a lady who fell into their "too good to be true" trap.  You can read more on Russ's excellent blog, here and learn how to avoid stepping into the same trap yourself.

But that changes once they get an effective judgment.  At that point, the creditor has the power of the court to enforce its right to payment.  This takes two general forms:  garnishment and execution. Garnishment is taking property of yours in the hands of a third party (like an employer or bank).  Execution is taking property directly from you.  We'll discuss those in more detail in a future post.

Before a creditor can get your property, however, it must learn where your property is at.  Creditors do this by conducting a creditor's examination.  This is subpoena, signed by a judge, ordering you to appear in court and produce documentation regarding your finances.

Upon arriving at the court, you are put under oath.  The creditor's attorney usually is allowed to take you into a private room.  The attorney will often batter you with questions for as long as he or she feels its necessary.  If you refuse to answer, you will be subject to civil or criminal contempt.  If you give false answers, you expose yourself to criminal charge of perjury.  

The attorney will ask a barrage of questions to make the trip worthwhile: "What is your social security number?  Do you own any automobiles?  Any land?  Anyone put your name on land?  What are all of your checking and savings account numbers?  Where do you work and what is your employer's contact information?  Have you given any property to friends or family in the past year?  Who and how do I contact them?  Insurance policies?  Pensions?  Antiques?  Collections?"

And the list will go on.  If (or when) you reveal something of value, the attorney will make meticulous notes and follow-up with more questions, so he or she knows exactly how to get it.  If you try to move property or hide it, you'll like be brought back into the court, this time so the judge can enter an order that the property not be moved.

Once the creditor's attorney knows where the property is at, the collection process can begin with garnishments and executions.  I'll go into detail about garnishments in Part III.

What's been keeping me busy?  A year ago I was appointed to a criminal public defense case, which went to trial in March.  Although I normally focus only a consumer cases and bankruptcy, this case was an exception.  It was a two week ordeal, ending in a mistrial which you can read about here.

Additionally, I've been busy helping my friend Ken Borton defend charges from the Michigan DNR(E) that his bird feeders violate Michigan's deer and elk feeding ban.  Ken runs the popular website www.snowmancam.com.  I've been working with Ken for over a year to deal with this issue and, although it's another criminal case I wouldn't normally take, I felt this issue was important enough to justify the exception.  Yesterday we received a favorable ruling dismissing the charges, which you can read about at the following links: here, and video here.

In addition to all that, March was a busy month getting bankruptcies filed and assisting clients with consumer issues.  April will be just as busy, doling out advice, filing bankruptcies, and attending ICLE's bankruptcy conference in Plymouth.  I'm also looking forward to the ABI Central States Workshop in Traverse City in June.  

Fortunately, I like being busy.  Technology allows me to continue servicing clients even when I'm travelling or otherwise outside my office.  I don't divert calls to a secretary, so people can reach me directly and I can access voice messages promptly (being in court is the rare exception).  I offer consultations after-hours and by phone to facilitate work and family schedules.  I make extensive use of email and the Internet to prepare cases.  And I offer flat fees, so all of this comes as part of the package.

If you're facing a consumer issue or mounting debt,  I'm never too busy to do my best for you: send me an email or pick up the phone.

So what to do with that "underwater" auto?  The simple solution in a chapter 7 is to surrender the vehicle and discharge the debt.  Problem solved.

Well... sort of.  Except that you live in Northern Michigan where there is little or no public transportation. And everything is too far to walk, and bikes don't work real well in the snow! You need a vehicle to get to work and haul the kids around.  Maybe you can borrow one from family, or buy a clunker before you file, just to get by for a few months.  If you can make it through the gap between your old car getting repossessed and your discharge, you can probably finance a reasonably priced used car.

Too bad you can't just "retain and pay" - that is, keep the car and make the payments while still discharging your personal liability.  Unfortunately, the 6th Circuit has ruled you can't under the 2005 changes to the bankruptcy code.  So you have to do something if you want to keep the vehicle.

You might reaffirm the debt, assuming you can still afford the payments and are not behind (in which case, you might consider a chapter 13).  But then you're stuck paying significantly more for this vehicle than it's worth.  If something goes wrong down the road (literally) you'll be stuck with a big deficiency and will really be in a pickle!  Between surrender and reaffirm on a significantly underwater vehicle, I always strongly recommend surrender.

But there's another option, which many people overlook: redemption.  Redemption is found under 11 USC 722 of the bankruptcy code.  It applies only to chapter 7 bankruptcies.  In short, you get your vehicle free and clear in exchange for paying the creditor the value of the vehicle on the date of filing.

For example: your truck is worth $1500.00 on the day you file a chapter 7 bankruptcy.  You owe $10,000 to ABC Financial.  We file a motion to redeem, and the court agrees the vehicle is worth $1500.  You pay ABC Financial $1500, and you keep the truck.  The remaining $8500 is discharged.

OK, so that's great!  Right?  Oh yeah, except your automobile is worth $5000+ and you don't have that much cash just sitting around (hence the problem).  Unfortunately, this is why redemption is not always possible.

There is one more trick, however: obtaining financing for the payoff.  Friends or family are probably ideal, since they could be secured in the automobile and usually offer reasonable repayment terms.  There are also banks which do "722" financing, such as www.722redemption.com.  I had a client recently obtain 722 financing and lower their monthly car payments by over $100 per month!

A couple things to watch out for though - the new creditor will charge you interest through the nose, so be sure it'll actually save you money.  Also, a cosigner can be a big problem.  If mom or non-filing spouse co-signed for the auto, they will probably still be personally liable on the debt.  So even if you can make the lien go away through redemption, the creditor will be hot on the heels of your friendly co-signor (making him or her not-so-friendly!)

The bottom line: if you're in or considering a chapter 7 and are underwater on your auto, surrender and reaffirmation are not your only option - take a look at redemption!

But don't panic if a creditor sues you.  The creditor cannot use these tools until a judgment is obtained. To get a judgment, the creditor must file and serve you with the complaint.  If you're served by mailed, you then have 28 days to answer. After that, the creditor must apply for a default judgment, and then wait another 21 days for it to become effective. If you answer the complaint, you can buy more time as the court will set the matter for a pretrial.  

First, the existence of the business will complicate things.  Most attorneys will charge more for your bankruptcy because it will take more time to prepare the filing and administer the case.

Second, your interest in the business is an asset.  Even if the business is a separate entity, like a S-corp or C-corp, and owns all the equipment and debt, you still own the stock.  And the stock has a value, directly tied to those assets and debt.  The trustee will want to know what that interest is worth.  To establish that, you'll have to provide tax returns for the business (if it's separate from your personal returns), a profit and loss statement, and a list of assets and recent transfers for the business.  If you don't already have a good accountant, get one.

Also, keep in mind that a personal bankruptcy filing will discharge your personal liability the business debts, but it won't discharge a corporation or limited liability company unless it too files a chapter 7.  The corporation does, however, have the ability to fold up or take other state law action to liquidate its assets.

Finally, be aware that certain personal business debts, like "trust fund taxes" incurred by failing to pay employee withholding tax or sales tax, will not be discharged.

A bankruptcy will not change the monthly payment on your primary residence.  I've consulted many clients who initially wanted to save their homes more than anything, but after considering how much they owed, how much the home was worth, and what the actual costs of home ownership compared to renting were, they decided that walking away was a better decision.  I haven't heard anyone who has regretted walking away from a $100,000.00 home to discharge $175,000.00 of debt and $1000+ per month payments.

Second, it's important to understand the limitations of bankruptcy.  A chapter 13 bankruptcy allows you to repay the amount you're past due on your home, in addition to making the regular monthly payments, over a 3 to 5 year repayment plan.  Other unsecured creditors are kept at bay and eventually discharged in whole or in part. 

Thus, you have to be able to afford your monthly mortgage payments.  If you cannot currently afford your payments, or if you'll be "house poor" making the payment each month, you need to consider surrendering the home.  There are some exceptions, like "stripping off" a wholly unsecured junior mortgage, which can make the home affordable.  It is important to talk to a bankruptcy attorney to make sure you know all of your options.

Finally, timing is important.  After the foreclosure sale, a chapter 13 bankruptcy cannot force the lender to accept payments in Michigan.  A chapter 13 must be filed before the sale, which means you need to speak with an attorney sooner, not later.  

The bottom line is that deciding what to do with your home is not an easy decision.  A free consultation can help you understand your options, and make the right choice.

When discussing bankruptcy you'll hear the terms "secured" and "unsecured," often in reference to a creditor or debt.  Like most fancy terms, these have simple meanings.

A secured debt is a promise to pay where the creditor holds a lien on some property to ensure payment.  It's usually a home or car, but could be other personal property like a motorcycle or TV.  That creditor is called a secured creditor, and if the creditor is not repaid as promised, the creditor can undertake certain state remedies to take the property and credit the property's value towards the outstanding balance.

An unsecured debt is the opposite of a secured debt.  That is, it's a promise to pay without any liens on property.  This includes things like credit card debt, medical bills, or simple promissory notes.

The reason this is important is because bankruptcy discharges your personal obligation to repay a debt. With only a few exceptions, it does not discharge a lien on property.  This means you have to deal with a secured creditor in one of five different ways, which I'll cover in a later post.

It's important to note that some creditors can become secured.  Creditors like the IRS or State of Michigan often place "tax liens" on personal property or land, which makes their unsecured tax debt a secured debt.   Other creditors can do this as well once they obtain a judgment.