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Many people don’t learn that a judgment has been entered against them until a bank account gets frozen or their wages get garnished. This is typically because they ignored legal papers they received (such as a summons and complaint), or they were never actually served.

If a debtor owes money for a consumer debt (i.e., debt for personal, family or household purposes) he or she is supposed to be sued in the county where the contract was signed, or in the county where he or she lives. In Continue reading

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The recent bankruptcy filing by Lehman Brothers Holdings, Inc. in the U.S. Bankruptcy Court for the Southern District of New York caught many people by surprise. It is the largest corporate bankruptcy to date in terms of assets and liabilities.

Holders of bonds, notes and other obligations issued or guaranteed by Lehman Brothers Holdings, Inc. wonder what their options are and whether they need to hire a New York bankruptcy lawyer to protect their rights. People doing business with non-debtor subsidiaries of Lehman Bros. wonder what steps they should take to protect their rights going forward.

There are certain steps that it is advisable for creditors in a bankruptcy case to take:

1. Obtain Legal Advice re Effect of Bankruptcy Filing on Your Rights.

Different creditors have different rights and remedies depending on the nature of their legal and contractual relationship with a debtor in bankruptcy. Provisions of the Bankruptcy Code give particular rights to certain parties (such as financial institutions, forward contract merchants, etc.) for certain type of financial contracts (such as forward contracts, securities contracts, etc.). Whether or not a creditor is subject to the benefit of particular rights specified in the Bankruptcy Code requires review of the legal obligation in question. In addition, the Bankruptcy Code provides for different rights for different categories of creditors, depending upon whether their claims are administrative claims arising after the filing of the bankruptcy, secured claims, etc. As the Lehman Bros. banruptcy case is pending in Manhattan it may be useful to hire a Manhattan based bankruptcy lawyer who is familiar with the Southern District of New York Bankruptcy Court to provide this advice.

2. File a Proof of Claim.

A creditor will often want to file a proof of claim in a bankruptcy case to ensure that it is eligible to participate in distributions to creditors, unless it has been scheduled in the debt schedules filed by the debtor and is satisfied as to how it has been scheduled. While a creditor is not required to hire a bankruptcy lawyer to prepare and file a proof of claim, it is often advisable to do so (particularly if the amount of money at stake is large). A Manhattan bankruptcy lawyer who is familiar with litigating claims objections in the U.S. Bankruptcy Court for the Southern District of New York can provide valuable assistance to a creditor in preparing a proof of claim for filing in that court.
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In response to questions we received from clients and prospective clients in New York City, Bronx, Queens, Manhattan and Westchester, in a series of 4 posts we are exploring the most common alternatives to personal bankruptcy for New Yorkers faced with money problems.

A prior post on our blog I Live in New York and Am Considering Bankruptcy — Should I Try Negotiating with My Creditors First? covered negotiating directly with creditors and/or collectors.

A second post I Live in New York and Am Considering Bankruptcy — Should I Try Debt Settlement First? addressed so called debt settlement or debt negotiation.

A third post I Live in New York and Am Considering Bankruptcy — Should I Try Credit Counseling First?
 addressed credit counseling as an option.

In today’s post we will explore whether doing nothing is a viable option and what it means to be judgment proof.

Instead of Bankruptcy Should I Do Nothing — Am I Judgment Proof?

Unfortunately many people with financial problems by default seem to select the “Do Nothing” approach. This is the “ostrich approach” (the large bird that can’t fly that sticks its head in the sand when there is trouble). Unlike fine wine, personal financial problems don’t age well (they age more like fish left out in the hot sun).

If you have financial problems and ignore them they are likely to follow a very predictable path – COLLECTIONS followed by COLLECTIONS LAWSUIT followed by JUDGMENT followed by JUDGMENT ENFORCEMENT including wage garnishment and bank account seizures. If you deal with the problem at any early stage you may be able to nip it in the bud before it becomes a collections lawsuit or a judgment. By the time you are faced with collections lawsuits and judgments, doing nothing will usually not help you. Your creditors will not sit back and do nothing – they will most likely move forward in the collections process to try to get judgments against you and to enforce those judgments.
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In response to questions we received from clients and prospective clients in Manhattan, Bronx, Brooklyn, Queens and Westchester, in a series of 4 posts we are exploring the most common alternatives to personal bankruptcy for New Yorkers faced with money problems.

A prior post on our blog I Live in New York and Am Considering Bankruptcy — Should I Try Negotiating with My Creditors First? covered negotiating directly with creditors and/or collectors.

Another prior post on our blog I Live in New York and Am Considering Bankruptcy — Should I Try Debt Settlement First? addressed so called debt settlement or debt negotiation.

In today’s post we will explore credit counseling. Future posts will explore other alternative to bankruptcy.

Credit Counseling

The Credit Counseling industry is more reputable than the so called Debt Settlement – Debt Consolidation – Debt Negotiation industry, in part because as a result of the amendments to the Bankruptcy Code in 2005 every individual debtor who wants to file for personal bankruptcy has to complete a credit counseling course from a credit counseling agency approved by the Office of the United States Trustee – which is part of the U.S. Department of Justice. Each federal judicial district has a list of authorized credit counseling agencies (you can find this list through the Bankruptcy Court’s website in your district).
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New York is expensive place to live. We have higher rent, higher taxes, and higher utility bills than many other parts of the country. Many people in Queens, Brooklyn, Manhattan, Long Island and Westchester are feeling the pressure of higher gas prices, higher food prices and stagnant wages. Faced with mounting credit card debt and other bills filing a personal bankruptcy case, whether chapter 7 or chapter 13, may or may not be the right solution depending on the circumstances. In a series of posts we are exploring alternatives to bankruptcy.

A prior post on our blog I Live in New York and Am Considering Bankruptcy — Should I Try Negotiating with My Creditors First? addressed negotiating directly with creditors and/or collectors.

In today’s post we will explore so called debt settlement or debt negotiation programs. Future posts will address additional alternatives.

Debt Settlement – Debt Consolidation – Debt Negotiation

The so called Debt Settlement – Debt Consolidation – Debt Negotiation industry is driven by advertising and high pressure sales tactics. It is not regulated in many states and is generally not licensed. Many of our bankruptcy clients have had disastrous results with debt settlement companies. The problem is that they advise you to stop paying ALL of your creditors and make payments to them (the debt settlement company). They send out a proposal to all of your creditors. In the meantime there is absolutely nothing whatsoever from stopping your creditors from suing you.
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Many New Yorkers are feeling the pressure of the high cost of living in Manhattan, Bronx, Brooklyn, Queens, Westchester and Staten Island and a painful combination of some or all of the following: high mortgage debt, high credit card debt, high gas prices, high medical bills, student loans and other debts are exploring their options. Filing a personal bankruptcy case, whether chapter 7 or chapter 13, may or may not be the right solution depending on the circumstances. Bankruptcy is not a panacea (cure all) and should not be viewed as the solution to every personal or business debt problem.

In a series of 4 posts we will explore the most common alternatives to personal bankruptcy, which are (1) negotiating directly with creditors and/or collectors, (2) so called “debt settlement” or “debt consolidation”, (3) credit counseling, and (4) doing nothing (ignore problems and hope they will go away).

In today’s post we will explore negotiating directly with creditors and/or collectors.

Negotiating Directly with Creditors and/or Collectors

This is certainly an option that should be explored. One problem for many debtors is that they often have too much overall debt to work out a payment plan with each creditor individually. If a debtor has a compelling hardship (such as major injury, illness and/or death in family affecting income, natural disaster, etc.) creditors may be willing to work with a debtor in reducing debt or permitting payment over time. Even without a major hardship some creditors may be willing to grant concessions.
If the debt has been turned over to a collection agency you should be aware that collectors are very aggressive in seeking payment (that is basically the essence of their job). Debt collectors typically will not agree to much in the way of discount or to stretch out payments by very much. Bankruptcy clients of ours often say they tried to work out a deal involving small payments over a long time (such as $50 a month for 3 years) and the collectors they dealt with simply were not interested. However, each collection agency and collector varies.
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As a result of the changes to the Bankruptcy Code in 2005 many people are confused about whether they are eligible to file personal bankruptcy.

As a result of credit card and bank lobbying, in 2005 Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA). While BAPCA changed the eligibility requirement for personal bankruptcy, the changes for the most part only affect a small minority of people.

Don’t Believe the Hype in the Debt Settlement/Debt Consolidation Ads

The debt settlement/debt consolidation industry, which is based on extensive advertising and high pressure sales tactics, would have you believe that you are no longer eligible to file personal bankruptcy in NY as a result of the 2005 changes in the bankruptcy law.
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As we see increasing amounts of foreclosure throughout the New York metropolitan area, in Brooklyn, Queens, the Bronx, Staten Island, Westchester County, Nassau County and Suffolk County, our office (Starr & Starr, PLLC in Manhattan) get many inquiries about whether bankruptcy can be used to save a home facing foreclosure or deal with an adjustable rate mortgage that has reset to monthly payments that the homeowner can no longer afford.

A recent post on our blog New York Chapter 13 Bankruptcy Eligibility Requirements and Issues addressed the limitations that Chapter 13 bankruptcy has. One very significant limitation is that secured debt can’t exceed $1,010,650. Many condo and co-op apartments and houses in New York (particularly Manhattan, Nassau County, Suffolk County and Westchester County) have debt in excess of this amount based on multiple secured loans and liens, such as first mortgage, second mortgage, and home equity loan (and sometimes also tax liens).

As we also detailed in our prior blog posting, Commonly Encountered Problems in NY Chapter 13 Chapter 13 can’t be used to modified the rights of a lender secured by the debtor’s principal residence. However, Chapter 11 bankruptcy can
Eligibility Requirements for Chapter 11 Bankruptcy:

Unlike Chapter 7 and Chapter 13 there is no eligibility requirement for Chapter 11.

How Chapter 11 Works

The goal of a Chapter 11 case is to confirm a plan of reorganization. That plan, which creditors get to vote on and is subject to Bankruptcy Court approval, details the debtor’s proposed treatment of creditors.

Modification of Loans. In Chapter 11 a debtor can seek to modify loans secured by his/her home (or other property). If the value of the debtor’s home has fallen significantly, the debtor may be able to split a mortgage creditor’s claim into two parts: one that is secured and one that is unsecured.
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As a result of the current state of the real estate market in New York and elsewhere, we receive many inquiries regarding Chapter 13 bankruptcy from people wondering if they can use Chapter 13 to save a home or investment property. The answer is that Chapter 13 can be used to save a home or investment property, but has its limitations.

Eligibility Requirements for Chapter 13 Bankruptcy:

Secured Debt Limits. A debt is secured if the debt is collateralized by a lien or mortgage. As of the date of this posting, to be eligible for Chapter 13 a debtor can’t have more than $1,010,650 in total secured debt. This means that if a debtor either has a home or apartment with greater than $1,010,650 in mortgages on it, or has more than one property – such as a primary home subject to a mortgage and 2nd investment property subject to a mortgage – with total debt on all properties greater than $1,010,650, then Chapter 13 is not an option. Car loans (but not car leases) also get added in to the total when calculating the secured debt limit.

Unsecured Debt Limits. To be eligible for Chapter 13, as of the date of this posting a debtor cannot have unsecured debt greater than $336,900. A debt is unsecured when it is not secured by a mortgage or lien on property. Typically credit card debt and student loans are unsecured. Tax debt is unsecured unless the taxing authority has filed a tax lien or warrant.
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Commonly Encountered Problems in Chapter 13

Need to Make Current Mortgage Payments. A debtor filing Chapter 13 to deal with real estate problems, such as a pending foreclosure, needs to be able to make current mortgage payments as they become due and can seek to cure the arrears (i.e., past due part of the mortgage) over time through the Chapter 13 plan. If a debtor is unable to make current mortgage payments as they become due Chapter 13 bankruptcy may still be used as a means to try to prevent a foreclosure and obtain a sale of the debtor’s property (subject to Bankruptcy Court approval). This may be desirable when a debtor has equity in the property that would get wiped out in Chapter 7 bankruptcy and wants to maintain control of the sale process.

Inability to Restructure Home Loan through Bankruptcy. The Bankruptcy Code provides that the rights of a mortgage lender secured by real estate that is the debtor’s principal residence can’t be modified in Chapter 13. This means that we can’t use Chapter 13 to try to modify the loan and, for example, split it into two separate secured and unsecured loans that receive separate treatment. We can do this for investment properties or other properties owned by the debtor that are not the debtor’s principal residence. We can also use Chapter 11 to do this for the debtor’s principal residence. However, unfortunately, the expense and complexity of Chapter 11 puts it beyond the reach of most consumer debtors.

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The American Board of Certification is not affiliated with any government authority. Certification is not a requirement for the practice of law in the State of New York and does not necessarily indicate greater competence than other attorneys experienced in this field of law. We are a law firm that, among other things, assists individuals with filing for bankruptcy relief under the Bankruptcy Code and may be considered a Debt Relief Agency in connection with such practice.

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