As a bankruptcy lawyer, I have an extremely intimate relationship with the monthly budgets of my clients.

That sounds kind of silly, but it is absolutely true.  I can spot red flags a mile away and give you average household expenses for various monthly items right off the top of my head.

So, after years of completing income/expense sheets for bankruptcy petitions, I have a solid grip on what things cost.  Sometimes, my grip gets shaky and weak.

I am constantly shocked by the cost of living here in New York.  In response to this, and thanks to my existence as a bankruptcy lawyer, I have tried to make adjustments to become more frugal in my personal life.

Cell phones, a high cost luxury only 15 years ago, have become a daily part of our existence and for better or worse, an extension of ourselves.

In 2013, cell phones and the contracts that come with them are unfortunately still a high cost luxury in my opinion.

Alternatives to the Big Four

I think of the big four cell providers as Sprint, Verizon, AT&T and T-Mobile.  According to a report published by Gartner in 2008, the big four providers have almost 85% of the market locked down.

This number may be even higher now as the report stated that smaller cell providers were losing market share at the time of the study.

On the other hand, there are alternatives and good ones at that.

Many smaller cell phone companies offer month-to-month plans with no draconian contracts.  These smaller providers offer quality service as they usually operate on one of the big four networks.

Customer service is typically more accessible and personal.

While the choice of phones may be limited (no iphones), quality, current android smart phones are available to be purchased or ported over.

Making the Switch

This past month, I switched my family plan from Sprint to Ting.

Ting operates on the Sprint network and there are no long term contracts to sign with them.

According to my previous usage, my wife and I stand to save approximately $100.00 per month moving forward with Ting.  Additionally, Ting offers a unique billing method where if you don’t reach your plan quota for voice, text or data, you get a credit towards next month’s bill.

Pretty cool!

$100.00 per month is a lot of money.  That is $1,200.00 over the course of a year that could be invested for retirement, education, travel, property tax, home repairs, etc.

I like to practice bankruptcy law holistically.  While I never make judgments, I often make suggestions on how people can improve their financial future post-bankruptcy.

I think reevaluating the high cost and burden of cell phone contracts is necessary for all of us.

Shed the ball & chain and break free from that costly, burdensome contract and you can start realizing substantial, actual savings.

The Cell Phone Ball & Chain was originally published by: Pipitone Law

As the calendar months tick off, we are approaching the eight year anniversary of the passage and implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).

For those that don’t know, this “new bankruptcy law” increased the burdens and costs of filing bankruptcy.  It also created numerous obstacles and barriers for both debtors and attorneys.

Just prior to the law change, the bankruptcy world was in a complete frenzy.

Many debtors rushed to file before the law changed knowing that things would get harder in the post-BAPCPA world.

Over the last 33 years, 2005 saw the highest number of bankruptcy filings.  Over 2,000,000 bankruptcy cases were filed that year.  2005 also saw the highest percentage of consumer filings in relation to total filings.

Over the previous two years, bankruptcy filings have been steadily declining.  2012 saw the lowest number of filings in 15 years, and it appears that trend will continue this year.

According to Credit Slips, bankruptcy filings in 2013 are estimated to decline 14% for the second straight year.

While the numbers seem to support that prediction, the article proposes an interesting theory about a “surge” in filings towards the end of this year.

8 Year Rule

Prior to BAPCPA, debtors could receive a discharge in chapter 7 bankruptcy every 6 years.  BAPCPA extended this to 8 years.

Essentially, you can only file chapter 7 bankruptcy once every eight years now.

BAPCPA went into law October, 2005 so we are quickly approaching the 8 year anniversary.  Many people that rushed to file bankruptcy prior to the passage of BAPCPA will be eligible to file again this year.

Possibility of a Surge

Will we see a surge in bankruptcy filings simply due to the passage of time?  It is an interesting question.

Normally I would say no.  Most people who file bankruptcy are not even aware of the 8 year requirement and despite misconceptions of abuse, repeat filings are actually pretty rare.

On the other hand, I think the times have changed and a surge is possible.

2005 was pre-recession so while most people are able to improve their financial situation post-bankruptcy, the 2005 filing group faced a different environment.

Rising unemployment, inflation and a crashing housing market probably impacted these people in a different way.  It is highly likely that 2005 filers were simply not able to recover post-discharge and fell back into financial hardship.

I guess only time will tell and it will be very interesting to look at the statistics at the end of the year to see if there were a higher percentage of repeat filers.

I only hope that people who need financial help do seek it.  Bankruptcy is a rehabilitative process so whether you filed previously or not, it can improve your current financial situation and mark a path to a brighter future.

Image courtesy of Photosteve101 (Flickr).

2005 – 2013: Will There be an 8 Year Bankruptcy Surge was originally published by: Pipitone Law

While stressful, most people have a great time preparing and planning surprise parties.  People take great joy in “fooling” and “shocking” friends and loved ones.

I have participated in a few surprise parties, but have never been the subject of one.  Honestly, I hope it stays that way.

I never want to be the butt of a surprise party joke!

It is the same with the bankruptcy process.

As an attorney, I want to make sure that there are no surprises and the same goes for you, the debtor.

In bankruptcy, when surprises pop up, there is usually a problem.

Attorney Surprises

I have talked often about client responsibilities when filing bankruptcy.  One of the most important things you can do is maintain open lines of communication with your bankruptcy attorney.

Share everything and share often.  Every piece of information you can provide about yourself and your finances is significant and helps to avoid unwanted surprises.

Do not blow something off as being unimportant and do not make any financial decisions without first running it by your attorney.

Take, for example, a client I worked with a few years back.

Without consulting his attorney, he unilaterally made the (ridiculous) decision to “cash out” his 401(k) and purchase a vehicle.  He withdrew over $50,000.00 in retirement funds and purchased a car of equal value.

Surprise!

Debtor Surprises

This is inexcusable.  As a debtor, you should never be hit with any surprises throughout your bankruptcy case.

Bankruptcy attorneys are not petition preparers.  You hire an attorney to give you legal advice and ensure that your case has a successful outcome.

The bankruptcy process should include a detailed consultation as well as ongoing communication and fact finding by your attorney.

By the time your case is filed with the court, you should have a pretty clear picture of what is going to happen and the likelihood of case success.

A few weeks back, while in court, I witnessed a debtor shocked to find out she would have to turn over her income tax refund to the trustee.  Her attorney apparently did not inform her that she was not entitled to a “cash exemption” and apparently did not plan her filing correctly.

This was quite an unwanted surprise and an unnecessary one that could have been avoided or at least anticipated.

Unlike the parties, surprises in bankruptcy are not usually fun.  Make sure you find a qualified attorney, share everything and keep lines of communication open and flowing freely.

With this formula, your bankruptcy case should be pretty boring, but successful.

Image courtesy of Gemsling (Flickr).

Bankruptcy…Surprise! was originally published by: Pipitone Law

As time goes by, I am seeing more and more individuals struggling with student loan debt.  It seems that my observation jives with the overall statistics.

In addition, from the conversations I am having with clients, it seems that student loan collectors are being more aggressive in their tactics.  These collectors know that the borrower has no way out.

Now, with Federal loans, there may be relief available to you in the way of forbearance, deferment and/or income based repayment plans.

With private student loans, not so much.

Most borrowers end up with private loans as there are lending limits on Federal loans.  It seems that these private loans are the most financially damaging.

While not always feasible, settlement is sometimes a viable option for private student loans.  I was recently able to settle two private loans for two satisfied clients and cut their student loan debt in half.

Gaining Leverage

As I have discussed previously, chapter 13 bankruptcy can be used to essentially “defer” student loan payments for the length of the bankruptcy plan.

The banks don’t like this.

Filing chapter 13 bankruptcy takes the ball out of the lender’s hands and puts it into yours.  They must accept the payment terms of the chapter 13 plan.

While interest does still accrue on student loans in chapter 13 bankruptcy, no lender wants to wait 5 years for what they are entitled to today.

My clients had initially retained me to file chapter 13 bankruptcy.  Using this as leverage, I contacted the banks and entered into negotiations.

On the two loans I settled, I was able to work out a 35% settlement on one and a 40% settlement on the other.

For debts that are not dischargeable in bankruptcy, these deals were almost too good to pass up, and my clients did not.

Mission accomplished!

Considerations

With any debt settlement, including student loan settlement, there are some important considerations to keep in mind.

The most important thing to understand is the tax implication of debt settlement.  Forgiveness of debt is taxed as income.

If you settle a $50,000 debt for $20,000, that $30,000 savings is considered income and taxed as such.  You now have a tax obligation to the Government.

With student loan settlement, this is not a terrible thing.  I have found that the Government, unlike private student loan lenders,  will be more willing to work out a payment arrangement with you.

Another consideration is cash.

Most student loan lenders will want a “lump sum” payment to settle an account.  This is especially true if you are looking to settle your accounts for 50% or less.

Many people do not have that kind of money lying around and have to borrow from a family member, friend or even a co-signer.

The student loan dilemma is starting to spiral.  If you are struggling with private student loans, consider debt settlement and consider using a bankruptcy attorney to add some muscle.

Image courtesty of Images_of_Money (Flickr).

Cutting Student Loan Debt in Half was originally published by: Pipitone Law

There are so many misconceptions about bankruptcy.  One misconception is that bankruptcy is a “quick fix” for people struggling with debt.

Many people feel that bankruptcy is “taking the easy way out.”

In certain instances, chapter 7 bankruptcy can be relatively quick, easy and essentially painless.

On the other hand, chapter 13 bankruptcy can be long, burdensome and places a heavy financial strain on the debtors.

Whether you earn too much money to qualify for chapter 7 bankruptcy, need to pay back mortgage debt to stop foreclosure or want to defer student loans using the bankruptcy process, chapter 13 bankruptcy is sometimes the only available option.

The chapter 13 process requires the debtor(s) to make a monthly payment to the bankruptcy trustee over the course of 36 to 60 months.  This road can be long and financially burdensome.

There is, however, a benefit to that burden.

Understanding the Burden

My chapter 13 clients always express shock when I tell them that the bankruptcy laws require all disposable income to be paid to the trustee over the life of the plan.  Again, all disposable income.

With limited exceptions and certain strategic planning aside, the chapter 13 process, by law, leaves you on a budget with no surplus cash at the end of each month.

For the most part, medical emergencies, home and car repairs, family vacations and other reasonable expenses are not accounted for in the chapter 13 monthly budget.

Additionally, you are at the mercy of the Bankruptcy Court throughout the chapter 13 process and your financial flexibility is limited.

This is the ultimate burden of chapter 13 bankruptcy and my colleague from Arizona, John Skiba does an excellent job expounding on this point and explaining why almost 70% of chapter 13 cases fail.

Realizing the Benefit

On the other hand, chapter 13 bankruptcy is a powerful legal tool and there is a bright light at the beginning and end of that burdensome tunnel.

The initial benefit of chapter 13 bankruptcy is that you maintain control of all of your assets throughout the process.  Contrast this with chapter 7 where by law, all of your assets become part of the bankruptcy estate.

For those behind on mortgage payments, vehicle payments or government tax obligations, the chapter 13 payment plan allows repayment of these debts over a 3 to 5 year period.  In most situations, you will not get these “repayment terms” negotiating outside of bankruptcy.

Finally, you are not always required to pay back 100% of your unsecured debt in chapter 13 bankruptcy.  Essentially, you will pay back what you can afford and as a result, you can discharge a substantial portion of unsecured debt in chapter 13.

Even if you are required to pay back “100%” of your unsecured debt, it is still a boon.  Unsecured debt paid back through the chapter 13 plan is interest free.

So the chapter 13 bankruptcy road is not always lined with flowers.  There will be obstacles and difficulties along the path.

It should be remembered that some things are worth fighting for.  Your financial future is one of those things.

Image courtesy of LuckyTom (Flickr).

Chapter 13: Benefit Through Burden was originally published by: Pipitone Law

This past Sunday marked the official start of the 2013 baseball season.  “Opening day” is a day I look forward to each and every year with eager anticipation.

It is my favorite holiday and the sights and sounds of fresh baseball make me happy.

For me, opening day symbolizes so much more than just the start of a new baseball season.  It is the day that transitions Winter into Spring.

It is a day that signifies hope, optimism and camaraderie.  There is a playful, positive uncertainty that fans and players display.

Even if you root for the Kansas City Royals, Pittsburgh Pirates or my team, the New York Mets, opening day is a “fresh start” for everyone.  Each team controls its own destiny.

Who knew baseball and bankruptcy had so much in common?

The Day After Discharge

So you had a bad “season.”  Like a baseball team that suffers unforeseen injuries, most likely situations out of your control led to your bankruptcy filing.

Your bankruptcy case went through without a hitch and you received your discharge.  The day after discharge is your “opening day.”

You are debt free, the sky is blue, the grass is green and the weather is warming.  Like your favorite team, you now control your financial destiny.

In baseball, championships aren’t won on the first day of the season.  It is a grinding process and requires dedication and hard work.

Your fresh start in bankruptcy is a two way street.  You are not guaranteed anything and it is your responsibility to make the most of the opportunity.

The Supreme Court of the United States defines the bankruptcy fresh start:

This purpose of the act has been again and again emphasized by the courts as being of public, as well as private, interest, in that it gives to the honest but unfortunate debtor who surrenders for distribution the property which he owns at the time of bankruptcy a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt. Local Loan Co. v. Hunt – 292 U.S. 234.

The bankruptcy has paved the way for your fresh start and now it is time for you to step up to the plate and make the most of it.

It is important that you take positive steps to rebuild your credit post-bankruptcy.  Also, like a team with a “deep bench,” it is important for you to have a contingency plan in place should you run into financial trouble again.

Proper planning and strategy are essential to avoid future financial hardship.

So, after discharge, step up to the plate and make the absolute most of the unique opportunity you have been given.  You’re an underdog, but the game must be played on the field.

…and as always, lets go Mets!

Image courtesy of mistycabal (Flickr).

Opening Day and Your Fresh Start was originally published by: Pipitone Law

I think bankruptcy cases can be quite exciting.  I find this fascinating because my early 20’s self would be laughing at me now.

What I love about bankruptcy is that each individual case presents unique challenges and the opportunity to learn new things as an attorney.  .

A few years ago I helped a client file a chapter 7 bankruptcy.  During this case, I was introduced to the phantom mortgage payment.

This phantom still haunts me to this day and I plan to never encounter it again.

The Facts

Let’s call this particular debtor “Mrs. A.”  Mrs. A was proceeding with a chapter 7 bankruptcy.

She didn’t have much, but she did have a significant amount of equity in her home.  Fortunately, this equity fell within the “homestead exemption” and her home was not in jeopardy.

Unfortunately, when you use the homestead exemption here in New York, you are not entitled to exempt any cash.  Doing what any qualified bankruptcy lawyer would have done, I engaged in some pre-filing asset/exemption planning.

I advised Mrs. A to pay her mortgage payment with the money she had in her bank account and we would file once the payment cleared.

Approximately one week later, Mrs. A gave me the go ahead and the case was filed with the court.

The Phantom Payment

Mrs. A assumed that since the check was written more than one week prior, that her mortgage lender had credited it.  In fact, the payment was not credited for almost 14 days.

Meanwhile, her chapter 7 bankruptcy case was filed and as of the date of filing, the funds were still in her bank account.  This cash immediately became property of the bankruptcy estate.

Following the filing, but subsequent to the 341 Meeting of Creditors, the check was credited.  The trustee now demanded turnover of funds that Mrs. A no longer had.

She had to borrow money to pay the trustee.  This was unfortunate as this situation could have been avoided.

Mrs. A could have taken a look at her account to verify that the payment cleared.  I could have requested a copy of Mrs. A’s account statement to verify that my client was giving me accurate information.

Lesson learned.  Never assume anything because you know what happens when you assume.

Ultimately, Mrs. A got her discharge from the court, was satisfied with the results and was happy to be debt free with a fresh financial start.  .

I have since handled many similar situations and the good news is, I have banished these phantom mortgage payments from my cases.

Image courtesy of Doom64 (Flickr).

Beware the Phantom Mortgage Payment was originally published by: Pipitone Law

When you open your refrigerator, how many perishable items do you see.  The milk, cheese and meats are all stamped with expiration dates or “best before” warnings.

In order to stay healthy and avoid getting sick from what you eat, it is probably best to heed these warnings.  The expiration dates are there for a reason.

When I open up my file cabinet, I see the same expiration dates on my client files.  Files going stale as the days, weeks and months pass by.

I try to prevent this from happening in two ways..

Open Communication

I believe in full, open communication between myself and my clients.  By keeping the lines of communication open and promoting active dialogue, information is constantly being passed.

A case won’t get stale if the information is constantly updated.

This is extremely important as I believe clients have responsibilities when they file bankruptcy and open communication is one of them.  Share everything with your attorney, even if you do not think it is relevant.

Potential purchases, transfers or debt payments should all be discussed with your attorney before you go through with them, no matter how harmless they seem.  These types of pre-filing transactions could have serious consequences when it comes to your bankruptcy case.

Not disclosing relevant information to your attorney could cause your case filing to suddenly expire.

Expiration Dates

It’s no secret.  If you are filing for bankruptcy, you are having financial trouble.  Paying your lawyer becomes an additional financial burden.

Surprisingly, most people who file bankruptcy are not broke and attorney fees can be quite affordable.

Most bankruptcy attorneys are more than willing to work out payment plans with their clients.  I know I am.  These payment plans should be finite, fast and have a defined expiration date.

Case filing becomes difficult and dangerous as the information goes stale.  Besides strategic delays, the process should be quick and efficient.

When the decision is made to file bankruptcy, I feel that almost all other financial obligations should be pushed to the side.

Bankruptcy has the power to transform your financial future so do not let that opportunity expire.

Image courtesy of CarbonNYC (Flickr).

Your Bankruptcy Expiration Date was originally published by: Pipitone Law

None of us live in a bubble.  In our day to day existence, we interact with friends, coworkers and family members who influence our decisions and our actions.

When we are unsure, we look for advice and not surprisingly, people are more than willing to give it.

Usually this is a good thing.  I know in my life, if it were not for my wife, I would be making terrible decisions on a daily basis.

Occasionally, self-proclaimed experts will give advice or offer assistance that will be detrimental.  I see this all the time in my practice with my clients.

The decision to (or not to) file bankruptcy, which could be a life changing one, should not be made based on the advice of an ill informed family member, friend or coworker.

Speak to a Professional

The decision to file bankruptcy is not an easy one.  I always say that the individuals I meet with have a lot of courage to even make it into my office.  I give them a ton of credit.

Through the eyes of my clients, I am able to see the misinformation that is perpetrated about the bankruptcy process.  This misinformation spreads like wildfire from the mainstream media to financial advisors to acquaintances and finally trickles down to you, the struggling debtor.

I speak to people everyday who have heard “this” or “that” about bankruptcy and make a decision based on “this” or “that.”  Don’t do this!

The dangers of filing bankruptcy without an attorney are well documented.  The dangers of not filing bankruptcy without first speaking to an attorney are stories that go untold.

Before you make a decision to file or not to file bankruptcy, speak to an experienced bankruptcy attorney.

The consultation is free, but the information gleaned from that meeting is priceless.

Image courtesy of _sarchi (Flickr).

Filtering the Noise was originally published by: Pipitone Law

The student loan debt crisis continues to loom large.  In fact, many are predicting that student loan debt is the next financial bubble that is about to burst.

Student loan debt is still on the rise and has increased exponentially over the previous 10 years.

Many individuals are stuck with the ball and chain of excessive student loan debt and unwieldy monthly payments.  With the economy still struggling to recover, many are underemployed and simply unable to cope with the financial burden of their student loan obligation.

While there are certain programs available to help Federal student loan borrowers (Forbearance, Deferment, Income Based Repayment, Etc.), there are few options when dealing with private lenders.

What’s worse, student loan collectors tend to be quite aggressive using bank levies, wage garnishments and other intrusive remedies to collect.

Unfortunately, student loans are not dischargeable in bankruptcy unless you can prove “undue hardship” which is ridiculously difficult.

However, the bankruptcy process can offer some temporary relief for a struggling student loan debtor and his/her co-signer.

Chapter 13 Deferment

For someone struggling with student loan debt and aggressive collection tactics, chapter 13 bankruptcy can be an effective tool to “defer” repayment.

Chapter 13 bankruptcy allows you to repay your debt using a 3 to 5 year repayment plan.  In most cases, your monthly payment is based on your disposable monthly income.

If you are struggling to stay afloat financially, chances are your disposable monthly income is pretty low and therefore, your monthly chapter 13 payment will be pretty low.

In addition, filing any bankruptcy case invokes the automatic stay, stopping all collection activity.

So, if you are the victim of aggressive collection tactics or are in danger of defaulting on your student loans, chapter 13 essentially pushes off your obligation for 5 years.  Your required monthly student loan payments get put on hold in place of your monthly chapter 13 plan payment.

Your student loan debts are now getting paid through the bankruptcy plan at a reduced rate.

It is important to understand that while in bankruptcy, interest is still accruing on your student loans, so depending on the plan payment, the overall amount owed on these loans could increase during the bankruptcy process.

While the Federal Government drags its feet and the banks drag you through the mud, all possible relief options should be considered.  If you are at the end of the rope and can no longer carry your monthly student loan payments, consider chapter 13 bankruptcy.

You could buy yourself a substantial amount of time and possibly prevent financial disaster.

Image courtesy of VinothChandar (Flickr).

Student Loan Relief Through Chapter 13 Bankruptcy was originally published by: Pipitone Law