Want To Know What It’s Like To Be Harassed By A Creditor? Real Phone Call

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Many of those who are facing financially tough times right now are stressed out even more by creditors who call non-stop. Creditors push the boundaries on what they may and may not do to collect a debt.

For example, here is a voicemail a client of ours emailed us the other day. Our client allowed us to post this voicemail so others could see they are not alone with the constant and harassing phone calls.

After receiving the voicemail we called the number back and spoke with someone with the company. They explained they didn’t know our client had filed bankruptcy. However, we confirmed their mailing address was accurate and explained we had previously sent proper notice of the bankruptcy. We then let them know they were violating the Fair Debt Collection Practices Act and any further attempt to collect on this debt would be met with a motion for sanctions.

They told me they didn’t do anything illegal and, after explaining I had a recording of the voicemail, they hung up on us. Before doing so, they explained they would notate in their system that our client had filed bankruptcy and she would not be contacted again. To date, she hasn’t received another call.

Regardless, this phone call shows some creditors will do whatever it takes to collect on debts. If you believe a debt collector is overstepping the boundaries let them know that they are violating the Fair Debt Collection Practices Act. It is important to keep detailed notes about who you spoke with (including their identification information), what time they called and what they said. Without this information it is difficult to be successful in a motion for sanctions against the creditor.

Do My Taxes Have To Be Filed Before Filing for Bankruptcy?

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Filing Taxes Before BankruptcyYou will notice when you are filling out your paperwork that the court asks you for what seems to be a billion pieces of documentation ranging from copies of bills, papers from purchases, income advices and federal and state taxes.  These documents are asked for to verify information you are providing is true and accurate.

However, what happens if you haven’t filed your taxes?  Can you still go through the bankruptcy process or must your taxes be done beforehand?  The answer is you must have all prior tax years filed and received by the IRS and state in order to file the bankruptcy. There are several reasons why taxes are required to be filed and received before filing your bankruptcy.

The Bankruptcy Trustee, Bankruptcy Court and Bankruptcy Administrator Require It

As your attorney, are required to send a copy of your most recent tax year to the bankruptcy Trustee.  If they do not get the taxes before the 341 creditor’s meeting then they technically has the right to dismiss your case.  When April 15th (or the appropriate deadline depending on the year) hits, the bankruptcy Trustee will expect taxes to be filed as completed. What if you’ve received an extension?  Even if you have received an extension, if you are filing bankruptcy you need to file the taxes before filing for bankruptcy. This does not mean you have to pay on taxes owed but they at least need to be filed.

The Bankruptcy Administrator’s office randomly elects cases to audit. They do this to ensure bankruptcy lawyers are performing their duties but also to ensure clients are providing accurate information. It is similar to being audited by a taxing agency. If your case is randomly selected to be audited then we are required to provide those documents.

Taxing Agencies Want to Ensure Taxes Are Completed

In addition to the bankruptcy Trustee and bankruptcy court needing to see evidence of your tax filings – the taxing agencies, the Internal Revenue Service and the North Carolina Department of Revenue, also will receive notice of your bankruptcy filing and want to make sure information you are reporting is accurate.  Once they have word that you have filed a bankruptcy they will reassess your prior year’s taxes to make sure they are completed.  If they are not, they can object to your discharge until they have been completed.  If a creditor, such as a taxing agency, objects to your discharge it means your case will be held open longer.  The longer your case is open, the longer it takes to get your financial freedom.

Filing Taxes Allows You to Accurately Budget Repayments

Just like any other debt you have in your bankruptcy – the amount owed for taxes has an impact on your bankruptcy filing.  If you have not filed your taxes, and you are filing a Chapter 7 bankruptcy, then you have no way of knowing what you owe, and cannot go ahead and budget a repayment plan going forward.  If you file a Chapter 13 bankruptcy, and you have not filed taxes yet, then the IRS or NCDOR is going to estimate what you will owe them and file a Proof of Claim for un-assessed returns.  Oftentimes, the taxing agencies file the proof of claim as a worst-case scenario on your taxes, which typically, means the amount is overstated which can cause an increase in your Chapter 13 plan payment. If you file your taxes then the IRS can use the amount of taxes owed to file a more accurate proof of claim, which may increase your chances of success in a Chapter 13 bankruptcy.

The bottom line is, yes you have to file your taxes before filing your bankruptcy. We understand that it’s a pain to have to dig through your paperwork, retrieve the documents, make copies and bring them to us, but the government requires it as part of your bankruptcy documentation.

What Is Abandonment In Bankruptcy?

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Foreclosure Sign in Front of HouseProperty that is surrendered or was not protected under the bankruptcy code exemptions is fair game for the bankruptcy Trustee.  Once a debtor has filed bankruptcy, his estate becomes that of the bankruptcy court and the bankruptcy Trustee.

At that time, the Trustee determines if there is any value or potential value in any of the assets of a bankruptcy case.  If the property proves to be worthless, with no beneficial value, or the value is not worth the hassle of selling the property, the Trustee will submit a motion to abandon the property.  Once an asset is abandoned in bankruptcy, it is released from the protection of the bankruptcy automatic stay.  At this point, the property may be sold, transferred, or used by the debtor or other parties of interest, such as the mortgage company.  Abandonment can be automatic if a Final Decree is issued on a case which officially closes a bankruptcy (this is after the discharge is issued.)  A final decree labels the property for abandonment because the case has been closed and the Trustee has issued a non-distribution of assets.

To better illustrate, lets take a look at a common example. A debtor surrenders a home in bankruptcy and must forfeit a piece of land that he was not able to protect with his exemptions.  The Trustee reviews the estate and decides to hire a real estate agent.  The real estate agent explains that due to the market’s condition, the land would take over a year to sell, but the house may sell in 6 months.  The Trustee decides to put both on the market for 6 months.  Debtor receives a discharge but not a Final Decree.  The time passes and the Trustee has not even received an offer on the land or house.  To cut his losses, he decides to file a Motion to Abandon on the land and notifies the creditors there are no assets to be disbursed.  The debtor receives a Final Decree a month later.  The house is considered abandoned by the receipt of the Final Decree and the land becomes the debtor’s once again.  The mortgage company sets up foreclosing proceedings on the home and months later, the home forecloses and the debtor’s name is removed from the deed.

The bottom line is, when a Trustee abandons property they are notifying the bankruptcy court, creditors and the bankruptcy debtors that they no longer have an interest in the property.

What Does “Bad Faith” Mean in Bankruptcy?

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Bankruptcy QuestionsAs it sounds, this is not a term you care to associate yourself with if you can help it.  Bad faith refers to certain actions and circumstances that cover fraudulent bankruptcy filings.  In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was legislated to define and outline situations associated with bad faith bankruptcy filing.

One of the roles of the bankruptcy court and bankruptcy Trustee is to protect creditors from debtors who are maliciously trying to defraud the system.  Most debtors are really struggling under the weight of their debt without much hope of ever breaking even, but unfortunately, there are people who are just trying to stall or manipulate creditors.  There are 5 situations in which a debtor is considered to act in bad faith.

First, if there is evidence that a debtor is trying to unfairly thwart a creditor’s efforts to collect on a debt, this is considered a bad faith filing.  For example, a client files bankruptcy in order to stall a foreclosure with no intention of ever completing the bankruptcy.  Bad faith is relevant when a client files bankruptcy to save a home, then does not make any of the required plan payments and is dismissed.  This of course can be a very fine line and cannot always be proved; especially if a client has a very tight budget and unforeseen circumstances arise.  Most Chapter 13 bankruptcy clients are in this position and have every intention of completing their bankruptcy.  This is why bankruptcy is a very involved process and should be taken seriously by all potential debtors.

Another bad faith filing revolves around a debtor filing a bankruptcy while already in an active one.  How does this happen?  Most commonly, a debtor is dismissed from a bankruptcy and files before they have received a Final Decree that officially releases them from the first bankruptcy.  Or, a Chapter 13 client cares to convert to a Chapter 7 bankruptcy and files a Chapter 7 while still in the Chapter 13 without permission from the court.  Or a debtor tries to file bankruptcy within the time limitations, such as with 8 years of previously filing a Chapter 7 bankruptcy or 4 years for a Chapter 13 bankruptcy.

The third example would be prevalent among the debtors who care to file pro se or without an attorney.  There are certain documents and motions that must be filed with the court.  Two very important documents are the financial management certification and the motion for discharge.  Don’t know what these are?  That is why an attorney comes in handy!  A bankruptcy case may be dismissed under bad faith if required documents are not filed or presented to the bankruptcy court or bankruptcy Trustee.

Fourth, if a debtor is continually filing and being dismissed from a Chapter 13 due to non-payment, the bankruptcy Trustee may reject the case due to bad faith.  If you are dismissed from a Chapter 13 you may turn around after the final decree and file again as long as the court has not placed some limitation on your ability to file again like dismissing your case with prejudice. The big question to determine bad faith is “why do you keep being dismissed?  And what is different about your situation from your previous filings?”  Usually, this is just a due diligence question, but it is very important.

Lastly, if you fail to make adequate protection payments, your bankruptcy is automatically noted as being filed in bad faith.  Adequate protection is rather loosely defined as the initial payments in a Chapter 13 bankruptcy.  On the other hand, in a Chapter 7 bankruptcy, unprotected equity must be compensated to the Trustee in order for the debtor to keep the non-exempted asset.  If this adequate protection payment is not made to the Trustee in the mandated time frame, your case can be dismissed.

Be sure to avoid a situation in which your case may be dismissed for “bad faith.” Contact an experienced bankruptcy lawyer who can help you navigate the, often times, tricky path through bankruptcy.

What Is A Security Interest? A Debt Secured by Collateral

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Family on bicycle rideWhen you obtain a loan, in most cases the lender does not want to just give you the money, they want to make sure that you have some sort of incentive to make sure you make your payments.  What better incentive is there than taking away your property if you do not pay?  Therefore, creditors normally want something as collateral to ensure you repay the money they lent you; they are taking a secured interest in your property and the debt you owe them is a secured debt.

There are many different cases of secured interest.  You can go to a dealership and purchase a vehicle, the lender then has a secured interest, the car that you just purchased.  If you decide to no longer keep making your car payment the lender can simply come and pick up or repossess the vehicle.  Put it up for auction and recoup their money.  You buy a home, for whatever reasons, you no longer make the payments, then the mortgage company is going to come and foreclose (take your home back) on your property.  If you go to Best Buy and get a new TV, even though you don’t sit in their office and sign a promissory note like you do on your vehicle; that credit card you used to make the purchase acts the same.  Best Buy still has a secured interest on their goods (the TV that you purchased). This is what’s called a purchase money security interest.

Most debts are unsecured debts. Meaning they do not have a security interest. Most credit cards, medical bills and personal loans are without you putting collateral up for the debt. However, you know a debt is secured if you have property the creditor can come and get if you do not pay the debt.

Companies have rights just as consumers do in order to protect themselves, when you purchase something whether it be a car, a home, jewelry or furniture, companies need to know they will recover the money due to them and, therefore, use collateral as a secured interest. If you cannot make the payments, they can recover the collateral and try to sell it to recover the amount they loaned you.

Are My Tools Protected in A Bankruptcy?

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Due to the recession our economy has faced, many small business owners find themselves sitting in our office discussing the possibility of filing for bankruptcy.  Legitimately, one of their main questions is how to protect their assets. One of the major assets of most small business owners is their “tools”. Tools can range from hand tools of a construction worker to the painting supplies of a painter. So, can they take your tools?

Construction Worker Carrying Lumber With Tools

The answer is not simple; this is where an attorney can be helpful.  If you are a sole proprietor then the tools are seen as your personal property and protected as any other property you have.  By default, an business is a sole proprietorship if it is owned by one person and has not been incorporated in one way or another. An example of a sole proprietor is Joe Blow’s Lawn Care; one person owns the company, owns the tools, works for himself, and files a self employment tax (Schedule C) on his taxes.  The lawn mower, rakes, blower, hedgers, etc. all belong to Joe.  If he decided to no longer run the company next week, the only difference would be that the tools would move from his truck to the garage.  If Joe were to be sued, he would need to protect those tools as he would any other asset he has from seizure.

Now, if Joe had gone to the Secretary of State and registered his company, it’s a bit of a different story.  If that were the case, Joe Blow’s Lawn Care, LLC owns the tools.  They would be included in the balance sheet (what tells other people what your company is worth) as a business asset.  The lawn mower, rakes, blower, hedgers, etc all belong to Joe Blow’s Lawn Care, LLC. If he decided to no longer run the company next week, the company still holds the assets until it is closed down with the Secretary of State (then in most cases ownership reverts back to the owner of the company).  If Joe was to be sued and he was protecting his property, until he closed the company down, those tools belong to the company in which he owns, not him personally.

The bottom line is, you can protect your tools using the “tools of the trade” exemption in North Carolina. An experienced attorney would need to look at your unique situation to determine if using that exemption is proper or not. If you own a business, whether it is large or small, we strongly suggest that you discuss all of your assets and liabilities with your attorney.  Businesses can be a tricky subject, whether owned directly by you or an entity you own, and protecting your assets are important to your success in a bankruptcy.

Can the Homeowners’ Association (HOA) Foreclose If I Don’t Pay My Dues?

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Many people have been led to believe that a homeowners’ association cannot foreclose on their home.  That is not true!  Homeowners’ associations foreclose on property everyday across America and very likely everyday in North Carolina.

Happy Family Standing Together

If your neighborhood has a homeowners’ association, you received and signed documents acknowledging the association’s rights when you purchased your lot or home.  As a matter of fact, participation in the homeowners’ association was not an option for you, it was a requirement if you wanted to purchase your lot or home!   Many people do not read the documents and realize the requirements and powers of the homeowners’ association when they purchase their property, since it was just one of the many documents signed the day of closing.

Your neighborhood will have bylaws and covenants that are specific to your homeowners’ association, but it is under North Carolina General Statutes Chapter 47F that all homeowners’ associations obtain their power.    Under Chapter 47F-3-116 Lien for assessments, the homeowners’ association can place a lien on your home or lot if you do not pay your assessment.  If the amount owed is “…unpaid for a period of 30 days or longer…” the homeowners’ association may file a lien on your property with the Clerk of Superior Court.  The statute provides the timelines, procedures and notice requirements for filing the lien.  If the homeowners association files a lien on our property and the assessment remains unpaid for 90 days or more, the homeowners’ association may foreclose on the property just like your mortgage companies.

Unfortunately, many homeowners ignore the letters they receive from their homeowners’ association.  Most often the letters are ignored because the homeowner does not realize the power provided to the homeowners’ association.  In other cases, the amount owed to the homeowners’ association seems immaterial compared with the monthly mortgage payment(s), so the homeowner does not expect the association to proceed with foreclosure.  Regardless, the homeowners’ association has the right to, and often will, foreclose for what might seem like small dollar amounts.  There have been many cases when the attorney’s fee associated with the foreclosure is more than the homeowners’ assessment amount.  The key is to never ignore the letters from the homeowners’ association; otherwise, you may discover you no longer own your home or lot.  Filing Chapter 13 bankruptcy can stop foreclosure proceedings, so you may want to see if this is an option if you find the homeowners’ association foreclosing on your property.

Can a Second Mortgage Company Foreclose on My Home?

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Have you ever had those times when you were running short of cash?  There was that unexpected car repair or the kids’ summer camp deposit you didn’t have in the budget.  You knew something had to give that month but you weren’t sure what!  When you considered the options of what you could do without or simply not pay – food, gas, car payment, mortgage – you decided you would not pay your second mortgage.  You have missed a couple of payments on the second mortgage in the past and they have never said anything, so you should be fine.  What can they do anyway?

Foreclosure Sign in Front of House

You might be surprised to hear that your second mortgage, Home Equity Line of Credit (HELOC) or third mortgage, if you have one, can foreclose on your property.  Unfortunately, many people have been led to believe that is not possible or that it is not legal.  Do not be fooled.  No different than your first mortgage, your second/third mortgage or HELOC has a lien on your home.  When you obtained the second/third mortgage loan or HELOC you singed a deed of trust.  That deed of trust provides them a lien on your home and gives them the option of foreclosing on your home if you fall behind on the payments.

In most cases, the second/third mortgage company or HELOC will allow you to get further behind on your mortgage payments before starting the foreclosure process.  They will also work with you for a longer period of time before foreclosing, since they know they will be required to pay the balance of the first mortgage loan before they receive any money from the foreclosure.  Sometimes the delay in the foreclosure process by the second/third mortgage company or HELOC can lull you into a false sense of security.  Unfortunately, when they start the foreclosure process you may be so far behind on the mortgage payments with them that you have no way of catching up.  At that point, you may want to consider filing a Chapter 13 bankruptcy to save your home.