Thursday, January 17, 2019

Why are Consumer Bankruptcy Filings on the Decline?

For many Oak Park residents, learning that a friend or family member has made the decision to file for consumer bankruptcy is interpreted as a sign of economic struggle. When debt becomes overwhelming, consumers may file for Chapter 7 bankruptcy if they can pass the “means test,” or for Chapter 13 bankruptcy if they are able to stick to a repayment plan that still permits a discharge of debts once the multi-year repayment plan period ends. In other words, hearing that people are filing for bankruptcy typically is construed as a signal that the bankruptcy filer is having financial difficulties. Accordingly, learning that fewer Americans are filing for Chapter 7 or Chapter 13 bankruptcy often is construed as a sign of financial improvement.
However, according to a recent article in MarketWatch, a decline in bankruptcy filings might not always be a good thing.
Lowest Bankruptcy Filing Rates in a Decade
According to the article, U.S. Supreme Court Chief Justice John Roberts recently issued a report that indicates “corporate and consumer bankruptcy filing rates are at their lowest point in about a decade.” Approximately 10 years ago, at the recent height of consumer bankruptcy filings in the Great Recession, there were 1.6 million bankruptcy petitions. Most of those filings were personal bankruptcy cases, accounting for 1.53 million or nearly 96% of the filings.
Currently, consumer bankruptcy filings are down significantly. While consumer bankruptcy cases still accounted for approximately 97% of the filings, there were only about 770,000 bankruptcy petitions filed. According to Chief Justice Roberts, “bankruptcy petitions haven’t been so low since 2007.” However, the decline in personal bankruptcy filings might not necessarily be a sign of improved financial health. The article intimates that a lack of consumer bankruptcy filings actually could signal bigger financial problems in individual households.
Bankruptcy Costs and Lack of Assets Could be Reasons for Fewer Filings
Why would fewer bankruptcy filings signal financial distress among consumers? While the premise might seem odd, the article explains that “people may not be filing for bankruptcy because it’s too expensive to do so, and they might have too few assets to protect.” In other words, it is possible that more people are avoiding filing for bankruptcy because they can not afford the filing fees, and for others, they may have few to no assets, making bankruptcy protection seem moot.
As the article explains, people tend to file for bankruptcy when they do have assets to protect, and when they see a financial future for themselves.
At the same time, other consumer protection advocates offer alternative explanations that do in fact signal stronger financial health among consumers. For example, increased healthcare coverage could mean that fewer people have extensive medical bills necessitating bankruptcy, and more mortgage servicers are working out alternatives for homeowners who are behind on their home loans.
Contact an Oak Park Bankruptcy Lawyer
Do you have questions about filing for bankruptcy or inquiries about how bankruptcy could benefit you? An experienced Oak Park bankruptcy attorney can assist you. Contact the Emerson Law Firm for more information.
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Friday, January 11, 2019

Recent Bankruptcy Case Questions Constructive Fraudulent Transfers

A recent consumer bankruptcy case questions whether constructive fraudulent transfers can include payments made for college tuition and other related expenses. In other words, the bankruptcy trustee sought to expand the definition of a constructive fraudulent transfer in a Chapter 7 bankruptcy case involving a husband and wife. While the case occurred outside Illinois, it could be persuasive for Illinois bankruptcy courts, and it could end up resulting in a broader assessment of what constitutes a constructive fraudulent transfer in consumer bankruptcy cases more generally.
We will say more about constructive fraudulent transfers, the facts of the case, and the implications of the bankruptcy court’s decision.
What is a Constructive Fraudulent Transfer?
Under the U.S. Bankruptcy Code, a fraudulent transfer of property refers to the gift or sale of property within two years prior to a bankruptcy either intentionally to avoid paying creditors or having the asset liquidated, or unintentionally with the same result. The latter is known as a constructive fraudulent transfer or conveyance, and it is defined as a transfer for which
  • Debtor “received less than a reasonably equivalent value in exchange”; and
  • Debtor made the transfer at a time when she or he already was insolvent.
What does it mean when a debtor receives less than a reasonably equivalent value in exchange for the transfer of the property? In some cases, this might be obvious. For example, a debtor might own an expensive artwork that she or he knows is valued at approximately $10,000 and “sells” it to a close friend for $100. This kind of scenario might arguably be in which the debtor objectively “received less than a reasonably equivalent value in exchange.” But what happens when the property or asset at issue, and what the debtor gets in exchange, is more subjective? That is largely the question at issue in Geltzer v. Oberlin College.
Getting the Facts About Geltzer v. Oberlin College
In Geltzer, two married debtors filed for Chapter 7 bankruptcy. One of the transfers of property that the debtors made in the two years prior to filing for bankruptcy was the transfer of money to pay for their daughters’ college tuition, books and supplies, and room and board fees at Oberlin College. The bankruptcy trustee argued that the debtors did not receive anything of a reasonably equivalent value for the money they paid, and as such argued that these payments to Oberlin College constituted constructive fraudulent transfers.
The key question at issue for the bankruptcy court was whether the debtors “received reasonably equivalent value” in the form of their daughters’ college education for the transfers they made for college tuition and the other related expenses listed above. The court also had to determine whether it made a difference if the transfers were made before or after the daughters reached the age of majority. In the case of the debtors, some of the transfers were made before the daughters turned 21 and some were made afterward.
The court discussed a “developing body of law regarding whether college tuition payments made by parents for the education of their children after they reach the age of majority are constructively fraudulent.” The court also emphasized that “whether insolvent parents receive reasonably equivalent value for college tuition payments made for the benefit of their adult children is a culturally and social charged issue.” The court ultimately reasoned that the benefits received by the debtors did not “constitute value” under the Bankruptcy Code, and as such, any payments made after the daughters reached the age of majority constituted constructive fraudulent transfers.
Learn More from an Oak Park Bankruptcy Lawyer
Courts tend to be split on this issue, and it is possible that the U.S. Supreme Court could end up reviewing the definition of “value” under the Bankruptcy Code with regard to constructive fraudulent transfers. In the meantime, if you have questions about bankruptcy, an experienced Oak Park consumer bankruptcy attorney can help. Contact the Emerson Law Firm today.
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Wednesday, January 9, 2019

Learning About Fraudulent Conveyances in Personal Bankruptcy

When a debtor in Oak Park files for personal bankruptcy, she or he will need to provide clear documentation of financials, including assets, income, and other information. In addition, the debtor will be required to provide information about any recent property transfers made, including gifts and sales of property. The debtor must disclose any transfers that have been made in the last two years prior to filing for bankruptcy. All of this information is contained in a specific bankruptcy form known as Your Statement of Financial Affairs for Individuals Filing for Bankruptcy.
If a bankruptcy trustee suspects that a fraudulent transfer has been made, the trustee can attempt to recover that fraudulent transfer. The topic of fraudulent transfers—also known as fraudulent conveyances—can be confusing. We want to provide you with more information about the types of fraudulent transfers and the ways in which they can occur.
Two Different Types of Fraudulent Transfers
Under the U.S. Bankruptcy Code, a trustee may “avoid” a transfer made by either:
  • Actual fraud; or
  • Constructive fraud.
What is the difference between actual fraud and constructive fraud?
Actual Fraud Versus Constructive Fraud Under the U.S. Bankruptcy Code
The U.S. Bankruptcy Code defines actual fraud as a transfer made “with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted.” In other words, actual fraud occurs when a debtor transfers property with the intent to defraud or to prevent a creditor from obtaining the money that is owed. For example, actual fraud might involve a debtor owning a boat worth $20,000 and giving the boat as a gift to a sibling or friend in order to avoid having the boat sold in the Chapter 7 bankruptcy proceeding. In that situation, the debtor would be gifting the boat with the understanding and intent that the boat not become part of the liquidation of the estate.
Constructive fraud is a little bit different and can be more complex. In general, there is no need for the debtor to have any intent to defraud. Instead, for constructive fraud to exist, the debtor must have made a transfer of property for which she or he “received less than a reasonably equivalent value in exchange,” and the debtor must have been financially unable to pay his or her debts when she or he made the transfer or because of the transfer.
Given the language of “reasonably equivalent value,” determining whether there is constructive fraud can be more subjective than determining actual fraud. To be sure, something that is of “reasonably equivalent value” to one person might not be of “reasonably equivalent value” to another, especially when the transfer is made for services. Typically, cases in which a bankruptcy trustee suspects constructive fraud are those in which the debtor is insolvent but makes a transfer of property.
Learn More from an Oak Park Bankruptcy Lawyer
Do you have questions about fraudulent transfers under the U.S. Bankruptcy Code, or more general questions about properly disclosing financial information? An experienced consumer bankruptcy lawyer in Oak Park can help. Contact the Emerson Law Firm for more information.
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Friday, December 28, 2018

Advocates Seek Consumer Protection from Abusive Debt Collection Tactics

The Consumer Financial Protection Bureau (CFPB) was designed to protect consumers against unscrupulous financial tactics. According to the CFPB’s website, it came into existence through the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB in 2010. Since its inception, the CFPB has aimed to prevent many of the harms that resulted in the financial crisis of the earlier 2000s, including the use of unfair loan agreements from banks and deceptive or fraudulent debt collection practices that target consumers.
In the last couple of years, however, consumer safety advocates have been worried about the limitations being placed on the CFPB. According to a recent article in Value Walk, consumer safety advocates from across the country are urging the new CFPB director, Kathy Kraninger, to ensure that the CFPB does its job to protect consumers in the new year.
Consumer Safety Advocates Urge Kraninger to Protect Consumers
Last week, consumer safety advocates who hail from 74 different advocacy groups at both the national and state levels sent a letter to Kraninger, urging her and the CFPB “to focus on protecting consumers from abusive debt collection practices in anticipation of a proposed debt collection rule expected in March 2019.” Specifically, the letter made clear that, even though the Fair Debt Collection Practices Act (FDCPA) has been in effect for more than 40 years, consumers continue to face harassment and other FDCPA violations at record levels.
The letter emphasized that debt collection problems are the leading cause of consumer complaints to the CFPB. Last year, the CFPB received about 84,500 consumer complaints in total. The CFPB also determined that approximately 25% of consumers who were contacted by debt collectors indicated that they “felt threatened.” In response to the continuing issue of consumer complaints about debt collection practices, the letter asks Kraninger to take steps to do the following in order to protect consumers:
  • Prevent harassment, including preventing debt collectors from making more than one live call each week and limiting text and e-mail communication to situations only in which consumers give consent;
  • Protect consumers’ rights to privacy;
  • Limit debt collectors from actions regarding time-barred debt, whether collection attempts are made inside or outside the court system, given that any attempt to collect on time-barred debt is deceptive;
  • Improve clarity of debt collection notices; and
  • Improve accuracy of debt collection notices.
Levels of Consumer Harassment Remain High
According to the letter, approximately 20% of consumers who complained about harassment from debt collectors reported that they were “contacted eight or more times a week.” Further, 75% of those consumers reported that requests to debt collectors to cease contact simply did not stop the debt collectors, and they continued to receive calls.
In addition to the requests listed above, the letter also argued that the CFPB “should create a model validation notice and statement of rights that provides comprehensive, clear, and accurate information about the alleged debt and the consumer’s debt collection rights.” Then, debt collectors should be required to provide this validation notice to any consumer contacted, regardless of whether the consumer has received the notice from other debt collectors.
Contact an Oak Park Consumer Protection Lawyer
If you are being harassed by debt collectors, you should know that you have rights. An Oak Park consumer protection attorney can discuss your rights and your options with you. Contact the Emerson Law Firm for more information.
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Wednesday, December 26, 2018

New Study Addresses Credit Card Debt and Rising Interest Rates

If you are carrying a significant balance on your credit cards, you may not be alone with your debt struggles. But just because more Americans are carrying more credit card debt does not mean that living with revolving balances is a long-term solution to your financial problems. According to a recent article in Nerd Wallet, with rising interest rates, more people who carry substantial revolving balances may find their credit card bills even more difficult to manage. Since last year, revolving credit card balances across the country have risen by about 5% to $420.22 billion.
For some of those debtors, filing for personal bankruptcy may be the best solution if paying off the credit card debt does not seem feasible.
Average Credit Card Debt and Difficulty with Repayment
According to the article, the average household in the U.S. carries a revolving credit balance of almost $7,000. Revolving balances refer to those balances that you do not pay off, but that you carry from one month to the next (and that are accruing interest). The article refers to revolving balances as a “pernicious type of debt” given that it “often comes with high interest rates that make it a challenge to pay off.” Indeed, this debt feels unmanageable for many Americans, and nearly 10% of Americans with revolving credit card balances “say they don’t think they will ever be completely free of credit card debt.”
Why do so many Americans struggle with credit card debt? There are a few reasons. First, many Americans with revolving balances have credit cards with high interest rates. As such, making the minimum monthly payment on credit cards often does not make any kind of a dent in the principal owed. Further, there are more people than you might think who live beyond their means with credit cards, making it impossible to avoid charging more each month while attempting to make minimum monthly payments to remain in good standing with the credit card company.
More Than Credit Card Debt Plagues American Households
In addition to the reasons that many American households take on—and can not pay off—credit card debt, it is important to recognize that credit card debt is only a portion of the debt that most Americans owe. The article reports that, in households with any revolving credit card balances, the average total debt is almost $136,000. That debt comes largely from mortgages, student loan balances, and medical debt. At the same time, the cost of living continues to rise, and many people do not see related increases in salary to keep up. The total debt currently owed in the U.S. is at more than $13.5 trillion.
Nearly 50% of Americans have some credit card debt. Currently, 42 million Americans also have student loan debt, and for those whose loans are in forbearance, the average balance is nearly $44,000. There may be ways for consumers with a reasonable income to pay off credit card debt, such as with a balance transfer that has a 0% APR period. However, bankruptcy also may be an option to help lessen the stress of substantial debt.
Contact an Oak Park Bankruptcy Lawyer
If you have questions about managing debt or filing for consumer bankruptcy, you should speak with an Oak Park bankruptcy lawyer about your situation. Contact the Emerson Law Firm to learn more.
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