Wall Street Journal says “Beware of ‘Debt-Relief’ offers”

I always try to warn people to avoid the empty promises of debt relief and debt settlement companies that require up-front fees and imply that you’ll only need to pay pennies on the dollar.

Now, the Wall Street Journal is warning people as well in a recent article (“Beware of ‘Debt-Relief’ Offers“).  The article notes that consumer are more vulnerable than ever to the tempting sales pitches of debt relief and debt settlement companies.  However, the article also notes that complaints against these companies are on the rise and that lawsuits against debt relief companies by state attorney generals have been increasing as well.

The problem with debt relief agencies is that the solution they offer is really only appropriate for a very small percentage of consumers.  However, they’re just interested in taking your money (which they require you to give them up front).  They’re not interested in telling you if you do fit in that very tiny percentage.  In other words, the debt relief business is an attractive vehicle for unethical and unscrupulous business people for essentially stealing money from consumers in dire straits.

Other disadvantages of using a debt relief agency are that you can be sued by your creditors, and also that many loans that are forgiven in the process are viewed by the IRS as income, which means you’ll incur tax liabilities.  (By contrast, if you file for bankruptcy, you cannot be sued by creditors and you do not incur any tax liability for reduction in the amount you ultimately end up repaying.)

If you’re facing financial troubles in New York, a good first step is to have a free initial consultation with an experienced and trusted New York bankruptcy lawyer.  A good lawyer will inform you of all of your options–bankruptcy and alternatives to bankruptcy.

Please contact me to set up a free initial consultation to discuss your situation and get answers to your questions.

For additional reading on the topic of debt relief agencies, see the following:

• Don’t believe the hype: Credit counseling services and debt settlement companies
• Debt management and debt settlement companies invade Twitter-sphere!
• Debt settlement company exposed by ABC News
• Debt settlement company files for bankruptcy!?

Debit cards, overdraft fees and involuntary loans

The Center For Responsible Lending, a nonprofit and non-partisan research and policy organization focused on fighting abusive lending practices, is warning people to beware of recent changes banks have made to their debit card policies.

Previously, if you attempted a transaction with your debit card and you did not have enough money in your account to cover the transaction, then the transaction would be denied.

Recently, however, banks have changed the default option to “overdraft protection.”  That means that if you don’t have enough money in your checking or savings account to cover the transaction, they will allow the transaction to go through and you will be charged an overdraft fee.  Sometimes multiple fees.

According to the CRL, these fees average around $34, while the average shortfall that triggers the overdraft protection is $17.  Not a great lending rate.  Especially given that most people replenish their accounts right away after realizing their mistake.

Banks claim that they implemented the policy change for customer convenience.  However, given the recent trend by banks to come up with new and creative ways to charge fees, this “overdraft protection” policy change smacks of a cynical effort to increase their profit margin on their customers.  And this is the last thing most people need during tough economic times.

If you’re a New York resident or business facing financial troubles and you need help working out your loan situation or are considering filing for bankruptcy in New York, please feel free to contact me for a free initial consultation.  I’ll answer all of your questions and help figure out the best options and strategy for you to move forward with your financial life.

 

Preference Actions: What is the “New Value” defense?

"New Value" Defense. Not "True Value."

In a previous post (“Defenses to Preference Actions – Part I“), I explained that there are three common defenses to preference actions (also often called “preference lawsuits”) that you can use if you’ve received a demand letter from a bankruptcy trustee, from counsel to a Debtor-In-Possession or counsel to a creditors committee.

In subsequent posts I explained the “Ordinary Course of Business” Defense and the “Contemporaneous Exchange” Defense.  Next I’ll explain the…

“NEW VALUE” DEFENSE

The “New Value” Defense (also known as the “Subsequent Extension of New Value” Defense) is used in situations where a trade creditor was providing goods to a debtor (well, before the debtor was a debtor) on credit on a periodic basis and the debtor made a series of payments to the creditor during the preference period (i.e., the period of 90 days prior to the debtor’s bankruptcy filing).

In other words, you deliver goods to your customer on several different days over the course of a month, and your customer gradually makes several different payments to you over the same period.  And each delivery doesn’t necessarily match neatly up with each payment.  Then the debtor files for bankruptcy, and a year later you get a letter from the trustee who is suspiciously eying those payments you received 90 days prior to your customer’s bankruptcy filing.

The “New Value” Defense simply helps you make the argument that if you received a payment of $10,000 on November 1, and you had subsequently delivered $4,000 worth of goods on November 5, and your customer filed for bankruptcy on November 6, then the “preference payment” in dispute would be reduced to $6,000 rather than $10,000.

Notably, in this situation you could still apply the “Ordinary Course of Business” Defense and dispute the $6,000 “preference payment” claim on that basis.

Most trade relationships, of course, are not as simple as the one described above.  There may be multiple transactions and deliveries of goods.  And calculating the amount of the “new value” can be complicated, both mathematically and legally, as courts have differed in their interpretations.  More on that in a future post.

The key to defending yourself is to have an experienced bankruptcy lawyer, particularly one who knows the ins and outs of preference actions.  Rosenberg Musso & Weiner’s experience both representing trustees and representing creditors against trustees gives us unique perspective on how to help our clients deal with preference actions.

If you’re facing a preference action in New York and need a skilled and experienced New York lawyer to help you navigate and figure out the best and most practical strategy, please feel free to contact me for a free initial consultation.

Preference Actions: What is the “contemporaneous exchange” defense?

In a previous post (“Defenses to Preference Actions – Part I“), I explained that there are three common defenses to preference actions (also often called “preference lawsuits”) that you can use if you’ve received a demand letter from a bankruptcy trustee, from counsel to a Debtor-In-Possession or counsel to a creditors committee.

In a subsequent post I explained the “Ordinary Course of Business” Defense.  Next I’ll explain the…

“Contemporaneous Exchange” Defense

The “Contemporaneous Exchange” Defense (also sometimes referred as the “Contemporaneous Exchange for New Value” Defense, but not to be confused with the “New Value” Defense), simply means that in the debtor paid money to you in exchange for something of value.

For example, if you delivered goods to the debtor, and right then and there the debtor paid you for those goods, then that would be a contemporaneous exchange for new value.  If a trustee pursued a preference action against you for that transaction, then you would likely be successful employing the “Contemporaneous Exchange Defense.”

Of course, the devil is in the details and the facts of a particular situation are the key to a successful or unsuccessful defense.

Timing, for example, is an important element.  If you deliver goods or perform a service for the debtor without receiving payment.  Then a month later you get the debtor to pay what they owe you, you have a much weaker “contemporaneous exchange” defense.  Why?  Because the exchange was not contemporaneous.

Getting into the nitty gritty a bit, there was a big court decision in 2007 that revolved around the issue of credit transactions.  (Hechinger Investment Company of Delaware, Inc. v. Universal Forest Products, Inc., Nos. 06-2166, 06-2229, 2007 U.S. App. LEXIS 13155 (3rd Cir. June 7, 2007))  And the court decided that even in the instance of a credit transaction–in other words, where there’s a delay between the transaction for goods and the actual payment for those goods–it can still be valid to invoke the “contemporaneous exchange” defense.

The main takeaway for any creditor involved in transactions such as these is to be aware that trustees can pursue preference actions against you, even for seemingly valid and legitimate transactions.  However, you also have some good defenses at your disposal.

The key to defending yourself is to have an experienced bankruptcy lawyer, particularly one who knows the ins and outs of preference actions.

Our experience both representing trustees and representing creditors against trustees gives us unique perspective on how to help our clients deal with preference actions.

If you’re facing a preference action in New York and need a skilled and experienced lawyer to help you navigate, please contact me for a free initial consultation.

BAPCPA Man #13: Halloween and Bankruptcy

What does BAPCPA Man dress up for on Halloween?  Read below and find out.

Note: This cartoon is posted on the NYBankruptcyNet site with the express permission of the creators of BAPCPA Man.

Click here to see a larger version of BAPCPA Man #13:  Halloween & Bankruptcy.

If the prospect of filing for bankruptcy in New York is scaring you and you’re looking for an escape from the nightmares, please feel free to contact me for a free initial consultation.  I’ll answer your questions and help you deal with all of your creditor demons.

Preference Actions: What is the “Ordinary Course of Business” Defense?

In a previous post (“Defenses to Preference Actions – Part I“), I explained that there are three common defenses to preference actions (also often called “preference lawsuits”) that you can use if you’ve received a demand letter from a bankruptcy trustee, from counsel to a Debtor-In-Possession or counsel to a creditors committee.

The first one I’ll explain is called the “Ordinary Course of Business” Defense.

Simply put, under the “Ordinary Course of Business” Defense a creditor makes the case that the payment they received from the debtor was not a payment for an outstanding debt, but rather a payment made in the “ordinary course of business.”

Example:

You’ve been providing materials, goods or services to the debtor for several years (i.e., before it became known as “the debtor”).  Every month you sent an invoice to the debtor.  Every month the debtor paid it.  Then one day the debtor filed for bankruptcy.  So you ended your relationship with the debtor and that was that.

Or so you thought.

Now it’s a year later (a trustee has 2 years from the date of a bankruptcy filing to initiate a preference action against a creditor), and you get a demand letter in the mail saying you owe money to the debtor’s estate.  The amount is the same as the last transaction you did with the debtor, right before they filed for bankruptcy.

“This is crazy,” you think.  “As an avid reader of the NYBankruptcyNet blog, I know full well what a preference is.  And I don’t think my transaction constitutes a preference.”

And you’re right.  A payment made in the ordinary course of business by the debtor to  the vendor, or a payment made to the vendor under “ordinary business terms,” is a valid defense against a preference action.*

You know that.  I know that.  And if the trustee is up on her bankruptcy law, then she knows that as well.  Great, so everyone can just forget this ever happened and go home, right?

Wrong.  Because the trustee’s duty is to recover as much as possible for the debtor’s estate.  So if you want to keep your money, you’re going to either have to prove your case in the bankruptcy court or negotiate a settlement with the trustee.

Still, it’s better than having no defense.  And it means that with the help of an experienced bankruptcy lawyer, you can sidestep the preference action.  Or at least negotiate a better result than you would without the “Ordinary Course of Business” Defense.

If you’re the subject of a preference action in New York, please contact me for a free consultation.

As a New York bankruptcy lawyer who has experience on both sides of New York preference lawsuits-–the trustee side as well as the creditor site–-I know the lay of the land, and I’ll help you figure out the best strategy for your situation.

*Note:  Before the 2005 bankruptcy law went into effect, the Ordinary Course of Business Defense required you to prove that the transaction was (1) in the ordinary course of business and (2) that the payment was made under “ordinary business terms.”  Under the new law, it’s “or” instead of “and,” which means you only have to prove one or the other.

The “Art” of Bankruptcy

"Sorry about the financial problems, Annie, but we can't pay you for this."

In the wake of Annie Leibovitz’s recent near-bankruptcy, I thought it might be worth taking a look at the current intersection of bankruptcy and the art world.

1.  Starting with Annie Leibovitz, the media has been reporting that a recent Obama family photo portrait was done by Leibovitz right before she worked out a deal to stave off bankruptcy.  It’s not clear there’s a connection, however, as White House officials stated that Leibovitz was not paid for the portraits.  Read this article on the L.A. Times Blog for more details.

2.  Next we go to the auction of Lehman Brothers art.  On November 1 in Philadelphia, Freeman’s will be auctioning off 700 pieces of art from Lehman’s collection.  Go here for the article from Business Insider.  And go here to see the actual pieces of art that are up for sale.

3.  The Deal has an interesting article on all the art now on the market as a result of various bankruptcies.  The article leads with, “Art collectors have bankruptcy to thank for three upcoming auctions,” and proceeds to give the juicy details and highlights for each of the auctions.

Clearly art has its role in the world of bankruptcy.  And not just because of all of the starving artists out there (most of whom are likely judgment proof).

If you’re contemplating bankruptcy in New york or facing financial struggles, and you’re looking for an experienced bankruptcy artist to guide you through the process, please feel free to contact me for a free initial consultation.

Bankruptcy Bill takes on Fantasy Bankruptcy again

Bankruptcy Bill and his pal Struck Finn continue their fantasy-football-applied-to-bankruptcy conversation.

Note: This cartoon is posted on the NYBankruptcyNet site with the express permission of the creators of BAPCPA Man.

Click here to see a larger version of the image.

If you’re facing bankruptcy issues, have questions about bankruptcy or are considering filing for bankruptcy in New York, please contact me for a free initial consultation.

Defenses to Preference Actions – Part 1

In previous posts on this site (What is a Preference?  And why should you care? and Preference Actions:  How to Defend Against Them), I’ve addressed the topic of preference actions (also commonly referred to as preference lawsuits).

If you read those two posts, then you know that, from a creditor’s perspective:

1. Preference actions seem unfair at first, but they’re fully legitimate under the bankruptcy laws and they’re a reality that you have to deal with; and
2. There are things you can do in preparation for defending yourself, and they require a fair amount of effort and thought.

However, you can take some comfort in knowing that there are some very legitimate defenses to preference actions against you.  The three most common defenses are:

1. “Ordinary Course of Business” Defense
2. Contemporaneous Exchange Exception
3. New Value Defense
   

If you’re faced with a preference action, you don’t have to know all the legal nitty gritty or all the case law.  (That’s my job.)  But you may find it helpful to be aware that these defenses exist and also be familiar with the basic concept of each defense so you can gauge whether you think you have a case worth fighting.

We’ll cover each of these defenses in ensuing posts on this blog.

In the meantime, if you’re facing a preference action or preference lawsuit by a trustee in New York, please feel free to contact me for a free initial consultation.  I’ll be happy to answer all of your questions about bankruptcy, trustees and of course preference actions and help you figure out the best strategy for protecting your assets.

Foreclosure increase + jobless recovery = Trouble

You may have noticed a couple pieces of bad news circulating in the media the last few days.

One is that foreclosures have continued to climb, according to the quarterly statistics put out by RealityTrac.  Why the increase?  Apparently banks have been delaying a lot of foreclosures as they’ve tried to implement the federal foreclosure program.  Another likely reason is that a growing number of adjustable rate mortgages (ARMs) are starting to kick in and make it impossible for those homeowners to keep up with mortgage payments.

And yet another reason is the increasing rate of unemployment.  Not only are people losing their jobs, but the alleged economic “recovery” is not doing a great job of creating new jobs.

The co-existence of these two trends is, of course, very troubling.  The greater the rate of foreclosures, the bigger a toll it will take on the economy.  And that of course likely means more bad news on the employment front in the near future.

What’s the solution?  A moratorium on foreclosures for those who have lost their jobs has been suggested by James H. Carr, the Chief Operation Officer for the National Community Reinvestment Coalition.  “We do need to think more carefully about a bridge so people aren’t being kicked out of their homes as they are looking for employment,” Carr said in a recent Washington Post article.

Whether this is likely to happen is another matter.  According to the same article, the Mortgage Bankers Association says the mortgage industry is meeting over the next month to discuss solutions.  Though of course the mortgage industry at this point has a much better reputation for creating problems than solving them.

In the meantime, if you’re a New Yorker facing bankruptcy, foreclosure or other financial struggle due to job loss, or you’re worried about losing your job and want to understand your bankruptcy and non-bankruptcy options, please feel free to contact me for a free initial consultation where you can get all of your questions answered.