Boston Bankruptcy Lawyer Blog

The Federal Reserve Board released recently released requirements that should help businesspersons, even following personal bankruptcy in Massachusetts. In essence, the "Interagency Statement" requires banks to "understand the long-term viability of the borrower's business, and focus on the strength of a borrower's business plan, including its plan for the use and repayment of borrowed funds." The regulations require that the lenders focus on local, not national, trends. Massachusetts debtors who have received a credit history and financial strength, including credit score, are components of assessing willingness and ability to repay, and should be considered in conjunction with other judgmental factors, such as the strength of management. The loan structure should be appropriate for meeting the funding needs of the borrower given the type of credit and expected timing of the business' cash flow. Further, an institution should analyze the secondary sources of repayment, such as the strength of any guarantor or collateral support, and the ability of the borrower to provide additional capital. Institutions should not place excessive reliance on cyclical factors, such as appreciating or depreciating collateral values.

While we can assist our personal bankruptcy clients in discharging much of their consumer debt, there are some debts that are not dischargeable. Among those are student loans guaranteed by the federal government. There are numerous programs that can help.

Graduating students should be aware of the following: first, graduate school results in a deferral and usually qualifies you for a more selective job. Second, work in a public service qualifies for deferral. Ten years of public service results in full loan forgiveness, with certain restrictions. Third, working in an underserved area can qualify you for forgiveness. Fourth, working in a national service organization such as AmeriCorp and Vista qualifies you for up to $5,350 in "awards." The Peace Corps also allows for a 70% cancellation of the federal Perkins loans.

Finally, graduating students with a high debt to income ratio can ask to have their debt payments reduced. Payments under this program will cease after 25 years; there is a proposal by the current Administration to reduce this to 20 years!

We warn our Chapter 7 no asset personal bankruptcy clients in Boston that the free credit reports advertised are in fact, not free. Experian paid over one million dollars in fines for their misleading advertising and now charges $1. More importantly, if you sign up and fail to disengage your membership during the "trial" period, you can be charged up to $14.95 per month!

On April 2, 2010, new rules went into effect require credit agencies to state on their websites that the only "free" credit report is from Annualcreditreport.com. Experian, in protest, now charges $1 and does not have to place the required information on their website.

We advise folks to call Annualcreditreport.com to request 1-888-322-8228 a free mailed version of their Experian credit report. The U.S. Trustees Office in Boston tends to request that particular report when questions arise about credit reports.

The number of homeowners defaulting on new federally subsidized mortgages is up at an alarming rate. This is according to the US Department of Treasury and the Housing and Urban Development Department. For home loans in Massachusetts there were 5,635 "permanent modifications" with lower payments guaranteed for five years; those lower payments average $500 per month. 4024 of these reduced mortgages were in the Boston Metropolitan area. What was significant is the number of defaults, or "cancellations" as the Feds call them. Those numbers are up, unfortunately.

Notwithstanding all of the federal assistance, there are seven million homeowners behind on their mortgage payments. Boston homeowners should know that this relief will not prevent them from filing personal bankruptcy.

None of our clients enjoy paying taxes. Our personal injury clients do not pay taxes on their net recoveries, but they pay taxes! Our bankruptcy clients can discharge some older tax bills, but no recent taxes, and they know they will be paying their taxes in the future. However, like death, taxes come for us eventually. That said, there seems to be a lot of misconception out there about why pay and who pays what. Thus, we have checked with numbers from the non partisan Congressional Budget Office.

Families who earn between $35,400 and $52,000 (in 2006), the "middle fifth" income bracket, paid on average 3% of their income in taxes, but, they paid 9.5% in payroll taxes and 14.2% overall in federal taxes, according to the Congressional Budget Office. The CBO estimates that only about 10% of all households pay no federal taxes.

Continue reading "Taxes, Lies and Videotape... Ramblings of a Boston Personal Bankruptcy Lawyer " »

Severance pay verses unemployment compensation was the subject of a recent Chapter 7 decision in United Stated Bankruptcy Court by Judge Feeney.

In this case, the Chapter 7 debtor claimed that his weekly severance checks were exempt under the "fresh start" law. The Court considered the "present unemployment in the Commonwealth of Massachusetts" as a significant factor.

In the old days, severance pay was not usually exempt. However, the Court's view of the current unemployment rate played into this decision. There are two different exemptions that the Court considered: the severance pay as an "unemployment benefit" under one potential exemption and the pay as "contract on account of...length of service...for support of the debtor" under another exemption. In this case, the Court decided an evidentiary hearing was necessary to determine if the severance pay is indeed exempt, stating that the issue must be resolved on a "case by case basis."

The Federal Housing Administration announced a new series of steps aimed to assist troubled homeowners. Our bankruptcy clients are likely to ask how qualifying for this program will affect their potential personal bankruptcy cases. The short answer is, for most people, this should not have any adverse impact. This is because the bankruptcy code allows consumers to "exempt" over $9,000 of equity in a home, and the new program deals with homeowners who are underwater in equity; they owe more than the house is valued in today's real estate market. Thus, now may be an excellent time to take advantage of this new federal program, regardless of filing for bankruptcy protection for your other consumer debts.

If you owe more than 115% of the value of your first mortgage, and your current mortgage payment is more than 31% of your family gross income, you may qualify. The program also deals with second mortgages, people who are unemployed and houses with negative equity. There are approximately 7,000,000 households that are behind on their mortgages. There are an additional 11,000,000 households where the mortgage owed is higher than the value of the house. The focus of the program is to help homeowners rewrite their mortgages with their lenders. The program also assists folks who are foreclosed upon to move, providing $3,000 in "relocation assistance."

Continue reading "New Federal Mortgage Relief Program for Massachusetts Consumers: Impacts on Bankruptcy" »

We are seeing more and more personal bankruptcy clients in Boston who have withdrawn monies from their 401k and IRA accounts prematurely and have paid the taxes and penalties. Unfortunately, many have used the monies to pay creditors and they still did not get a fresh start. Either the amount was insufficient or the creditors jacked up the interest rates anyways. They learn too late that the Bankruptcy code protects these retirement accounts. Yes, United States Code, Title 11, Chapter 5, Section 522(d) (10) (E) is a wonderful aid for those filing personal bankruptcy because it allows you to "exempt" all of those hard earned retirement savings.

What Massachusetts consumers also need to know is that even if they have a home they want to protect in bankruptcy, we can still use the Massachusetts bankruptcy exemptions and protect 401(k) and IRA accounts. Yes again, Massachusetts General Laws, Chapter 235, Section 34A and Chapter 246, Section 28 also exempts annuities, pensions and retirement plans.

Continue reading "Protecting 401(k) and IRA Monies from Creditors in Massachusetts " »

In a recent decision by the Bankruptcy Court in Boston, Massachusetts, the court discussed the definition of "willful and malicious" conduct. The decision, In re: Abramowitz, Chapter 7 Case No. 08-42847, held that a debtor could discharge damages he owed to another party for property damage to that party's trees. Bankruptcy law allows debtors to discharge most consumer debt and to keep specifically identified assets. However, the law does not allow any discharge of debt for "for willful and malicious injury by the debtor to another entity or to the property of another entity." This law typically covers such events as damages caused by criminal activity.

April Fools Day brought in more than pranks and notions of springtime: the number of official federal bankruptcies was reported to have increased. There were over 158,000 bankruptcy filings in March, a rise of 35% over February, 2010. Chapter 7 personal bankruptcy numbers in Boston are not available as of this posting, but antidotal evidence is that the national numbers are consistent with local numbers. The numbers for March are considered to be the highest monthly filings since Congress overhauled the Federal Bankruptcy laws, effective October,2005.