Boston Bankruptcy Lawyer Blog

Many folks come to us to discharge their debts in Massachusetts bankruptcy and get a fresh start. Often we see payday loans on their credit report. Massachusetts has very strict laws regarding payday loans. There are no actual payday lenders in Massachusetts, so folks often use the internet. However, in Massachusetts, payday loans require full documentation, the due date of the loan must be in writing, there cannot be any pre-payment penalties, the whole transaction must be complete within 14 days, and there are strict rules on how unpaid loans can be collected against. Of significance, interest rates cannot exceed 23%. These consumer protections are why we don't see as many payday loans: they just are hard to get in Massachusetts. On the other hand, many of our clients have worked in other states, where the loans have become onerous.

In any event, payday loans are loans pledged against a worker's next paycheck. Seventeen states allow payday loans, which have, to date, been so under regulated that some interest rates exceed 400%. One report we read said interest rates were as high as 521%

We have written about consumer advocate and Harvard Law Professor Elizabeth Warren in the context of bankruptcy news and as the founder and initial leader of the Consumer Financial Protection Bureau, however, now that she has become a candidate for the United States Senate for Massachusetts, we will refocus our energies on the CFPB and it's new Chief, Richard Cordray. Cordray's first order of business after being an interim appointment (Senate confirmation was not an option) is conducting hearings on Payday loans. (Ironically, the Dodd-Frank Act of 2010 expressly forbids the CFPB from regulating non-banks until a director was appointed, and then the Senate refused to allow an appointment, adversely affecting consumers.)

Payday loan makers may provide a valuable service. If someone needs money immediately, is working, and will be able to secure that money by the end of the week or pay period, it would be invaluable to have access to a loan for that money instantly. However, folks that fit into this category are often taken advantage of. It is the protection of those workers that the CFPB is addressing in their public hearings and investigation.

The Consumer Federation of America undertook a study of payday loan providers and published their findings in August 2011. They claim that interest rates for a $500 loan was 652%, and in Kanas the range was from 378% to 780%. They found that some lenders circumvented state laws by using international forums to lend the money; some used Native American tribal bases for their lending. Among their many conclusions was that "payday loans are a debt trap."

If you search payday loans on the internet, you will find a lot of advertisements. The first one I found said I could get cash in one hour! All over the internet, of course. However, if you read the fine print, it indicated it was not available in Massachusetts. Another provider of payday loans used such cryptic language, even a Boston bankruptcy lawyer could not determine if they would provide a Massachusetts payday loan!

We applaud the efforts of the new CFPB to investigate these practices; we urge our clients to double check where they are getting loans from, what the interest rates really are, and what laws they are subjecting themselves to by taking out any loans.

Personal bankruptcies were down in 2011, for the first time in several years, according to preliminary reports. The estimate is that 1.35 million personal bankruptcies were filed in the United States, which was down approximately 12.5% from 2010. As the Boston bankruptcy lawyer reported on January 5, 2011 in our bostonbankrutpcylawyerblog.com bankruptcies were up in 2010 by 9%, with over 1.55 million being filed in 2010. In 2005, the year the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 went into effect, there were over 2 million personal bankruptcies filed.

In Massachusetts, the specifics look like this: 19,777 total bankruptcies were filed in 2011. Of those, 75% were Massachusetts Chapter 7 personal bankruptcies and 25% were Chapter 13 bankruptcies. With a population of over 6.5 million, that is a rate of 300 bankruptcies per capita. We ranked 33rd of the 50 states and District of Columbia in rate per capita. The Massachusetts rate decrease in bankruptcy filings was 0.52%, significantly lower than the rate of decrease in the rest of the country.

The only state with an increase in bankruptcies in 2011 was Utah, where the rate was up a nominal 1%. The states with the largest decreases in bankruptcy rates were Nevada, where the decrease was 19% and Florida, where the decrease was 16%. Still, there are a lot of states with high bankruptcy rates, including California, Colorado, Tennessee, Alabama and Georgia.

In an interesting article published by Boy Lawless in Credit Slips in December 2010, it was predicted that there would be 1.457 million bankruptcy filings, based on a statistical analysis. We're not going to give a scholarly review of Mr. Lawless' analysis, but it seems to be fairly accurate, and, more significantly, Mr. Lawless says that the trend is what we should watch. His notion of the trend in bankruptcies decreasing was spot on. Lawless, a professor at the University of Illinois College of Law, has said that "consumer credit" is the "most significant indicator" of what drives bankruptcy rates.

Thus, we looked at consumer debt in the US. Credit card debt, which decreased between 2008 an 2010, increased in 2011. According to the Federal Reserve report on consumer debt, credit card debt increased 9% in 2011. Another measure of consumer debt, student loan debt, was up in 2011, with the total being $845 billion when measured in the middle of last year. This should be watched carefully because, unlike credit card debt, student loans are very difficult to discharge in bankruptcy.

Professor Lawless is proposing that federal bankruptcy petitions include a question about the race of the filer. This is because of recent evidence that black bankruptcy petitioners have been found to file Chapter 13 bankruptcies disproportionate to white filers.

In our sister country to the north, Canada, bankruptcy statistics can be instructive. Their swings tend to be less dramatic than ours. According to the Office of the Superintendent of Bankruptcy in Canada, the rate of bankruptcy in Canada fell by approximately 8.1% last year. Further, in Canada, there more folks filing "consumer proposals," a Chapter 13 style bankruptcy, in which a percentage of the debt is paid back.

An important new study, entitled "Race, Attorney Influence, and Bankruptcy Chapter Choice," undertaken by University of Illinois Law Profession Bob Lawless, along with colleagues Jean Braucher, of University of Arizona and Dov Cohen, also a professor at Illinois (in psychology and law), outlines some serious potential problems in the bankruptcy process, in the United States.

The study, by the Consumer Bankruptcy Project, indicates that black bankruptcy petition filers use chapter 13 at a higher rate than chapter 7. In fact, blacks are about two times a likely as whites to file Chapter 13, with the black Chapter 13 rate at 54.7% and the white rate at 28.6%. Asians were found to file Chapter 13 at 24.4%, and Hispanics at 21.7%. Our bostonbankruptcylawyerblog.com has a mission of keeping clients informed of news such as this study.

Let's review the difference between the two types of bankruptcy. Chapter 7 bankruptcies are generally cheaper to file, allow folks to kept most of their assets and discharge most of their debt. Homes are protected under the Massachusetts Homestead exemption, pensions are protected, but other assets are limited. In fact, under Chapter 7, most debts are discharged within 90 days, and petitioners get a "fresh start." Chapter 13 bankruptcies, however, require that petitioners repay their debts, based on income, over a period of time up to 5 years. Thus, Chapter 13 offers less relief and costs more. Further, Chapter 13 cases fail at a significantly higher rate: the plans are difficult to comply with month after month, year after year. Circumstances change. If so, why are a disproportionate number of black filers using Chapter 13?

The professors undertook two studies. They first looked at actual statistics from the federal bankruptcy filings each year. After considerable analysis, they determined that "African Americans are much more likely to file chapter 13, as compared to debtors of other races," according to their abstract.

Second, and quite troubling, the professors sent out surveys to bankruptcy attorneys, similar to, but not including, this Boston bankruptcy lawyer. The survey included questions about a hypothetical African American couple, Reggie and Latisha, of the African Methodist Church and a white couple Todd and Allison, of the United Methodist Church. Unfortunately, the surveyed attorneys recommended the "fresh start" Chapter 7 bankruptcy disproportionally to the apparent white couple, and the more financially burdensome and more expensive Chapter 13 bankruptcy to the apparent black couple. The professors make a significant point. Are lawyers, judges, trustees, indeed the whole system, biased? If so, how do we fix it? It's a complex system, often tossed about by politicians, including the ones who were sucked into passing the Bankruptcy Act of 2005.

The study will be published in the Journal of Empirical Legal Studies sometime in 2012, so we don't have all of their statistics yet. But they inform that the statistics are the same across the country, and includes the south, where Chapter 13 rates are higher in general.

Now, there are going to be academics, politicians and community leaders who object to many aspects of the study. Hopefully, they will prove these distinguished academics wrong. But, in the mean time, it may be instructive to look at some of the facts after we get the full paper. Some details we do have, however: blacks file Chapter 13 at a higher rate than homeowners (54.6% verses 47.1%). Given that most folks have all of their wealth in a home, and homes are protected by homesteads, this is a troubling statistic they have uncovered.

We are often asked how to file bankruptcy in Massachusetts when our clients do not have a social security number. This question comes at the intersection of bankruptcy and immigration law. All bankruptcy petitions have a page in which you are expected to report your social security number. However, the bankruptcy code does not require that page of the standard petition to be completed. Nevertheless, many folks who do not have a social security number are concerned about filing for Massachusetts bankruptcy.

Thus, for those folks who have a social security number, of course, a Boston bankruptcy lawyer would put that on the social security number reporting page. That page of the Petition and Schedules undergoes protections by the Bankruptcy Court. However, it is generally used by the Trustee at the 341 Meeting of Creditors to compare with the petitioner's social security card. We always instruct our clients to bring their license, or state identification, along with their social security card, for identification at the hearings.

For folks who do not have a social security number but who have a United States Individual Tax Identification Number ITIN, we advise that they use this number. If you don't have at ITIN, you can secure one by going to the IRS website. Many of our clients work in the United States, pay taxes using their tax identification number, but do not have a social security number. This is how they can file for bankruptcy in Massachusetts.

As indicated above, we check all state identifications and social security cards or tax identification cards before we complete the Petition and Schedules. You can never ever use someone else's social security number or tax identification number. This will result as a fraud on the Court, which is, of course, a federal crime. This would affect your status if you did not have legal status in the US.

For immigration advice, we refer to Massachusetts immigration lawyer Joshua Goldstein. According to Attorney Goldstein, there is no known reporting from the United States Bankruptcy Court to the Immigration Court. Nor has he seen any correlation between bankruptcies and reporting to immigration.

Just for your information, social security numbers are not random! There is a method to the assigning of numbers. Since 1936, the Social Security Administration has been issuing social security numbers. It has become a requirement to have one. However, it is difficult to figure out the formula. For example, if you were born in Massachusetts, the first three numbers should be between 010 and 034. Of course, there are some changes - before 1973 the numbers were based on where the applicant applied, since then, the central office issues the number by zip code. The second set of numbers is relative to time of application chronologically. Thus, someone with 01 in that second series applied for their social security number before someone with 99 in that series. The third set of numbers is merely the sequential number within each group. There are no 0000s and no 666s, however!

After practicing bankruptcy in Boston for over 25 years, we often get asked questions about Chapter 13 bankruptcy. We focus mostly on Boston Chapter 7 bankruptcy cases. One important advantage of the Massachusetts Chapter 13 bankruptcy is that it offers you the chance to bring down the amount that you owe to your creditors. When you lower the secured debts that you owe it is called a cram down. The typical feature of a secured debt is that if you are not able to repay the debts, you have to return that item to the person or entity that holds the security interest. For instance, if you are not able to repay the mortgage loans that you have taken to purchase a house, furniture or a car, you have to return that asset to your lender. It is to be noted that cram down option is not applicable to a house. When you take out loans to purchase a car or furniture, you are required to make a number of monthly payments in order to pay the principal and interest. Sometimes, it may take years to repay the loans. However, the value of the asset which you are financing continues to depreciate. In fact, the value of the underlying asset often depreciates faster than the loan is being repaid.

Suppose you purchased a car two years ago. The current price of that car may be around $10,000, but the amount that you still owe on the loan may be around $12,000. This phenomenon is known as "upside down." Withina few years after you make a real purchase, the value of that item depreciates to such a level that its current value falls short of the remaining balance that you owe on the loan that took to purchase that item. Chapter 13 bankruptcy has the provision to cram down these types of debts. Under the provision of Chapter 13 bankruptcy, you will be required to pay the amount which is equal to the value of the property and the interest on the remaining balance.

Cram down in bankruptcy is a court mandated way to lower down a part of your original contractual debt obligations. Here the court replaces the original contractual value of the property with its current market value. A cram down is an excellent financial tool which is used to curb your secured debts, especially with respect to Chapter 13 bankruptcy plan.

In order to get the benefits of a cram down, some time must have elapsed since the filing of the bankruptcy. This time period is not fixed for all asset classes, but varies with the nature of the asset class. In order to cram down a car, you must own the car for a minimum of 910 days since you filed for bankruptcy. All Chapter 13 cases go through the Massachusetts bankruptcy court, where the US Trustee appoints an interim trustee to supervise the case during this time. After 910 days, you can replace the original outstanding balance of the car loan with the currently value of the car. Various items that can be crammed down include jewelry, furniture and appliances. In order to get the benefit of cram down, you must own these items for a minimum of 1 year after filing for bankruptcy.

Blog guest author Sam is a Community Member of Oak View Law Group Community and has made contributions through various articles written on subjects related to bankruptcy and consumer law.

As a Massachusetts bankruptcy attorney, I regularly tell clients that a Chapter 7 bankruptcy discharge gives you a "fresh start" and that all dischargeable debts are discharged by federal law. Those debts include, but are not limited to, credit card bills, personal unsecured loans, and remaining balances on motor vehicles and home mortgages that have been returned to the lender. They don't include student loans, some taxes, and numerous other protected debtors.

Recently, however, Capital One Financial Corp, tried to see if they could squeeze a few dollars out of folks who had legitimately filed for Chapter 7 bankruptcy and had their debts discharged. Capital One is the tenth largest bank in the US. For example, a woman from Hawthorne, New Jersey, filed for bankruptcy protection and secured a discharge. Nevertheless, Capital One filed a lawsuit against her for $4,266. Capital One dropped the state lawsuit once exposed, however, in a separate case filed in federal bankruptcy court by the debtor, resulted in litigation.

In the 2008 Massachusetts Capital One case, the US Trustee found 5,600 cases in which Capital One attempted to collect on discharged debts! The investigation began when Massachusetts couple filed bankruptcy, discharged a debt from Capital One, and fourteen (14) years later, Capital One tried to collect on $5,542.50 debt! The company entered into an agreement to turn over 2.2 million bankruptcy claims from 2005 to 2010 for an independent audit. The claim above, while not in Massachusetts, seems to have originated just after that period of time.

In the bankruptcy court audit, it was determined that Capital One had made that "mistake" 15,500 times! Capital One disputes the number but has not provided their own number of mistaken lawsuits notwithstanding the recent settlement in Massachusetts. The total amount of monies in those claims was $24.7 million.

In Mississippi, a bankruptcy judge is demanding discovery from Capital One on the issue of suing people who have already discharged their Capital One debt. The judge is demanding "some proof" that the lawsuits are not a "malevolent effort to go out and collect a debt that's been discharged."

There is a huge market in buying distressed debt. Capital One has their own employees do their collection work, thus not giving up on the fees associated with farming out debt collection. However, the aggressiveness of the debt collectors is often illegal.
When a creditor files a "proof of claim" form that debtors file there is a rule that false filings can result in a fine of up to $500,000 and five years imprisonment. It doesn't seem to be that Capital One has had many fines notwithstanding their behavior. It seems ironic that when individual debtors make a "false statement" the trustees are all over them, often threatening criminal action where the statement was merely a mistake and often of no consequence. Of even less consequence, but of some irony, is that the founder and chief executive officer of Capital One bank https://www.capitalone.com/ is named Richard Fairbank.

How does this affect Massachusetts bankruptcy debtors? If you have Capital One as a creditor, be extra careful of their filings. However, be sure to work with your Massachusetts bankruptcy lawyer to carefully list all debts. Following your Massachusetts bankruptcy, keep your attorney up to date on any and all letters and of course lawsuits by former creditors.