In desperate moments, if you have considered bankruptcy as a way to sweep away your financial woes, forget it. In 2007, 834 businesses and 18,887 consumers in New Jersey filed for bankruptcy. Prior to any relief, what most of them experienced was a circling of sharks who smelled the blood of a major financial transaction.
Despite recent legal restraints, such as mandatory debt counseling, bankruptcy is very much on the rise. To help consumers and their several agents realize the steps and pitfalls of the process, the New Jersey Institute for Continuing Legal Education is presenting “Consumer Bankruptcy — Beyond the Basics,” on Saturday, June 7, at 9 a.m. at the New Jersey Law Center, New Brunswick. The seminar will also be repeated on Saturday, June 14 at 9 a.m. at the Saddlebrook Conference Center, Wyndam Hotel in Saddlebrook. Cost: $169. Visit www.njicle.com.
Bruce Levitt, partner in South Orange-based Levitt & Slafkes, will be the moderator; Lee Martin Perlman, an attorney in Cherry Hill, discusses the caveats of dealing with mortgages and mortgage companies. Other speakers include Scot Rever of Wasserman Jurista & Sholt; Howard Schmidt, Chapter 13 trustee; Adre Kydala, an attorney in Warren; Stuart Gavzy, an attorney in Little Falls; and Joseph Petrolino Jr., Chapter 13 standing trustee.
A native of Philadelphia, Perlman graduated from the American University with a bachelor’s in government in 1990. He earned his law degree from the Thomas M. Cooley Law school in Lansing, Michigan, then took a specialty degree in bankruptcy at Seton Hall University. He has lectured frequently on bankruptcy, mortgage fraud, and identity theft statewide.
“A surprising number of mortgage holders have set up bankruptcy repayment to fail, through a never-ending series of additional fees and impossible schedules,” says Perlman. But he insists that individuals are not at a bank or mortgage holder’s mercy. With proper guidance and planning, bankruptcy petitioners can get the relief they need to start over again.
Finding your chapter. A host of myths surround bankruptcy. Two in particular Perlman labors to dismiss. First, those who say that bankruptcy means loss of all assets and the permanent shattering of all credit, are dead wrong. In most cases, filers lose no property, and often the credit industry is sending new offers to these individuals before their claim has even gone through. Secondly, do not worry that the credit card companies are staggering under the weight of thousands of bankruptcy claims. “In fact, bank profits from credit cards are at an all time high of over $30 billion a year,” says Perlman. “If banks were truly suffering from bankruptcy losses, they would start exercising prudence in lending instead of giving out credit cards like candy.”
Of the four options, most consumers file for bankruptcy under Chapters 7 or 13. It is not always the individual’s choice. Chapter 7 has been popular because it allows the debtor to eliminate credit card bills, medical bills, and most personal loans. There is no relief from tax debt, however. Misleadingly called the liquidation bankruptcy, assets may be liquidated and used to pay creditors, yet in most cases the debtor has no appreciable assets. In New Jersey, the petitioner’s home, clothes, and often the auto are protected.
To qualify for Chapter 7, the debtor must meet or be below the New Jersey median income ($54,596 for one earner.) If the debtor’s income is above the median, he still can qualify using a complex formula determining his “disposable income.”
Conversely, Chapter 13 assumes that debts will be paid at least partially over time. A court appointed trustee puts the debtor on a budget, assesses property and disposable cash, then puts the creditors in line and establishes percentages and payment schedules.
Debtor ammunition. “Before anyone considering bankruptcy comes to my office, I ask him to first do his homework,” says Perlman. He has potential clients write down a current of budget to see how much is coming in, and what ongoing bills are the necessary operating expenses. Also he asks for a total listing of debts.
In the case of the home mortgage, he has clients dig out the contract. Each one has slightly different foreclosure and repayment penalty terms. Also, a listing of the petitioner’s payments over the loan’s history can go a long way towards working out a beneficial post-bankruptcy schedule.
Fighting the fees. “I want to be very specific here. It is not that mortgage holders are continuously breaking current statutes by tacking on extra mortgage fees during bankruptcy,” says Perlman. “Rather, these fees are coming into an area in which the law is markedly unclear.” This actually provides a real benefit for the astute petitioner and his lawyer. If the mortgage holder adds on an extra fee during the bankruptcy repayment process, they can literally take it to the judge and frequently get the fee ruled as not valid.
Some of the typical mortgage holder fees include foreclosure fees, proof of claim filing fees, and property checking fees. Chapter 13 will stop a mortgage foreclosure dead in its tracks, providing the debtor files before the mortgage company sells his home. Even if the home is not sold, mortgage companies may slip in a foreclosure fee, saying that they had the foreclosure process already under way, and, “well, gee, all that paperwork is terribly expensive, and it seems only fair that the debtor should bear the burden,” Perlman says. If challenged, however, the judge may not show the same sympathy for the mortgagee holder’s paperwork expenses.
Upon receiving notice of the debtor’s filing for bankruptcy, the mortgage company typically files a proof of claim document. This formally shows the company’s rights to collect payments from the debtor’s estate. Some proof of claim filing fees are small. Others are so excessive that few judges will allow them. The same is true with property maintenance and survey fees. Some mortgage holders send a person to examine the property weekly during bankruptcy or foreclosure.
Some even demand new surveys. Such “services” may be listed in the original loan contract. Either way, they can be litigated.
The Bankruptcy Abuse and Consumer Protection Act of 2005 made all bankruptcy qualifications more stringent. But it scarcely caused a blip in the numbers of debtors petitioning for some type of bankruptcy. The spirit of the original bankruptcy law felt that crushing individuals under debt loads impossible to repay did little for society. Rather than a punishing, debtors-prison approach, everyone would best be served by reestablishing these people as contributors and earning consumers.