Watch out for fraudulent transfers in bankruptcy

A fraudulent transfer is a transfer of property before filing bankruptcy that may get you in trouble. If you’ve given away or sold any property in the six years before filing a bankruptcy case. you might be on the hook after your bankruptcy.

1. When you’re actively trying to screw your creditors. An actual fraudulent transfer is where the bankruptcy debtor transfers property actually intending to evade his creditors. So for example, a bankruptcy filer gives away a car to her nephew three months before filing bankruptcy because she doesn’t want her creditors to be able to seize it. That may be a fraudulent transfer. And the bankruptcy trustee can go after the bankruptcy filer and her nephew to get back the car (or the cash value of it.) An actual fraudulent transfer can also result in the bankruptcy discharge being taken away.

2. When you’re not trying to screw your creditors, but do it anyway. A constructive fraudulent transfer is where the bankruptcy debtor gives away property and doesn’t get fair value for it. So the bankruptcy filer isn’t trying to evade creditors, but sells her car to her nephew for $1,000 when it’s really worth $10,000. The bankruptcy trustee may have a claim against the filer and her nephew for the remaining $9,000 value of the car. Because this kind of transfer isn’t made with bad intent, it won’t be a basis for taking away the bankruptcy discharge. The trustee must show that the bankruptcy filer (1) was insolvent; and (2) didn’t get fair value back for the transfer.

3. The person who received the transfer may also be on the hook. The bankruptcy debtor isn’t the only one who can be chased by the trustee for a fraudulent transfer. The person who received the goods can also be sued. The best defenses the recipient may have are (1) that the property wasn’t actually worth anything in the first place; and (2) the transferee accepted the property in good faith and gave back fair value for the property.

4. The trustee can look back six years to find fraudulent transfers. The bankruptcy forms require a filer to disclose any transfer made within the two years before filing. However, the trustee can go after any fraudulent transfer made up to six years back. So people who have a fraudulent transfer in their past often wait until the time limit is passed before filing a bankruptcy.

We deal with fraudulent transfer issues all the time. If you have questions about a fraudulent transfer you made before your bankruptcy, or if you’re being sued by a trustee, get in touch.

bankruptcy-footer

The bankruptcy process in Minnesota

In this post we describe the bankruptcy process in Chapter 7 and Chapter 13 so you know what to expect when you come see us.

1. You get in touch. Give us a call at 612-564-4025. We can often get you in the same or next day. Your first meeting will be about an hour long. As soon as you decide to hire us, we spring into action, organizing your paperwork and preparing your case. At this point, you can send your debt collectors directly to us—no more endless phone calls.

2. We prepare your case. It generally takes us three weeks to file your bankruptcy petition—a collection of relevant documents and an asset inventory. Once we file your case, collection activity—such as letters, calls, lawsuits and foreclosures—stops immediately. As we prepare your case, we help you choose the best type of bankruptcy for your unique situation—Chapter 7 or Chapter 13.

3. We help you choose what type of bankruptcy is best for you. 

  • You might choose Chapter 7 if: 1) Your expenses are way higher than your income, leaving nothing extra to pay your debt; 2) You don’t own a home, or if you do, you’re up to date on your mortgage payments; 3) You don’t own many valuables.
  • You might choose Chapter 13 if: 1) You can afford to repay some of your debt, but not all of it; 2) You’re behind on your mortgage or you’re underwater with a second mortgage; 3) You have valuable assets, such as home equity, that you want to hold onto.

4. Will I have to go to court? In bankruptcy, you generally don’t have to go to court. Instead, you meet with a bankruptcy trustee a month after your filing date. The trustee evaluates your financial situation. We make sure you’re well prepared, and we’ll be by your side to make sure it all goes smoothly.

5. Finishing your case in Chapter 7. Chapter 7 usually lasts three to four months. Your bankruptcy is typically completed 60 days after meeting with the bankruptcy trustee. Once your case is finalized, your debts are wiped out forever.

6. Your Chapter 13 payment plan.  In Chapter 13, you’ll make monthly payments for three to five years to pay off your debt. We’ll be your lawyers the whole time, in case you need help or your financial situation changes. Once you make your last Chapter 13 payment, your remaining debts are wiped out.

7. Rebuild credit. People who put in some effort to rebuild their credit after bankruptcy can usually make their score rise a lot faster than people who just wait for their credit to fix itself. We meet with all our clients free of charge after the bankruptcy is over to see how we can help clean up your credit report and give you tips for building new credit.

bankruptcy-footer

What does Chapter 13 bankruptcy cost?

Chapter 13

Photo by Daniel Moyle

In an earlier post, we wrote about how we price our Chapter 7 cases. One of the first things a potential client wants to know during a consultation is how much bankruptcy costs. Obviously, every case is different, but here’s a rough version of how we price cases in Chapter 13.

1. You pay a flat fee out-of-pocket. When you’re in financial trouble, you want predictability. You don’t want your lawyer to run up the bill on you. That’ why we quote you a flat fee at the beginning of the process, and that’s what you pay. No fine print, no hidden fees. We agree on it at the start so you can plan for the expense.

2. You don’t need to pay your whole fee upfront in Chapter 13. Unlike Chapter 7, in a Chapter 13 case we don’t need the whole bankruptcy fee up front. In fact, in many cases Chapter 13 costs less upfront than Chapter 7–some people even opt for Chapter 13 because of our flexible pricing. We generally require a minimum of $1,000 before filing in a Chapter 13, but this  can depend on your case.

3. We can get the rest of our fee out of your creditors’ pockets. In Chapter 13, we can apply to the court for our remaining fee. Because this comes out of the Chapter 13 payments you’re already paying, in most cases it doesn’t cost you an extra dime. In fact, if you’re looking for an extra way to stick it to your creditors, here it is. The money we receive from the Chapter 13 payments would have lined their pockets if we hadn’t applied for it. Our total fee comes out to $2,500 for below-median income cases, $3,000 in above-median cases, or greater if we can prove to the court that it was necessary to charge more.

4. The filing fee. In a Chapter 13 case, there is a court filing fee of $281 and mandatory credit counseling fees (for our clients, credit counseling runs around $68 for a single filer or $87 for joint filers). You pay those fees to us and we forward them as needed.

And remember–you may not want to bargain-hunt on bankruptcy. The best lawyers will quote you a fair price, but the worst ones will probably discount their fees to try to take business from the good ones. You want a lawyer who’s experienced enough to understand a lot of the tricks and traps of bankruptcy. You also want someone who’ll be available to answer your questions, and won’t blow you off because they’re too busy with all their other cases. And you want someone who’s willing to use the bankruptcy law creatively to help you improve your situation. As it happens, we know a couple of guys who fit the bill pretty well.

bankruptcy-footer

Foreclosure tax relief extended through 2013

We’ve written before about the tax consequences of foreclosure. In some cases, foreclosure can result in the homeowner being charged with tax liability for the amount of debt forgiven by the mortgage company. If the debt is $275,000, and the house sells at a sheriff sale for $250,000, the remaining $25,000 forgiven may be charged as income to the homeowner. The Mortgage Forgiveness Debt Relief Act allows taxpayers to exclude this tax liability if it’s for a mortgage on their principal residence.

The original law was scheduled to expire at the end of 2012, making it much harder for homeowners facing foreclosure. If the foreclosure happened in 2013, the homeowner could get slammed with tax liability for the foreclosure, adding insult to injury.

As part of last week’s fiscal cliff deal, the Act was extended through 2013. So this time you can credit Congress for doing something right, and the extension was even passed (almost) on time.

So if you’re going to get foreclosed on, it might be smart to do this before the end of 2013.

foreclosure-footer

What to expect at the bankruptcy meeting of creditors

This post describes what you can expect at your bankruptcy meeting of creditors in Minnesota.

1. What’s a bankruptcy meeting of creditors? A meeting of creditors, sometimes called the “341 meeting,” is a requirement of bankruptcy. In most bankruptcy cases, you do not have to appear in court. You go to a meeting of creditors instead. In most cases, the meeting is just a formality, but it’s important to prepare either way.

2. When is the meeting? Usually three to five weeks after you file your bankruptcy case.

3. Who shows up at the meeting? The bankruptcy meeting of creditors happens in public, so other bankruptcy filers and attorneys will be there. There is also the bankruptcy trustee, who conducts the meeting. The judge is never at the meeting of creditors.

4. But it’s called the meeting of creditors. Won’t my creditors be there? Creditors show up VERY rarely to these meetings. In the last 100 cases we’ve been involved in, a creditor has shown up only once, and we totally expected it and prepared for it. Credit card companies, car lenders and mortgage companies almost never show up.

5. What do I need to bring? This is important. The meeting will be canceled and rescheduled if you don’t bring proof of ID and social security number. You’ll also need your most recent paystub and all bank statements covering the date of filing. We’ll ask you for all this stuff way before your meeting so we have backup copies in case you forget.

6. How long does the meeting take? The trustee usually schedules five cases every half hour. So your meeting should take more than a few minutes, unless we’ve told you that your case is complicated. But if that’s the case we’ll make sure you’re well prepared.

7. What should I wear? Just dress like you would to a meeting at our office. There’s no need to dress up, just dress neat (and don’t overdo it on the bling–if you come in looking like a zillionaire, people will wonder why you’re filing bankruptcy.)

8. What will the trustee ask me? Here are a few questions the trustee is likely to ask:

  • Is this your signature on the petition and schedules? Did you read the petition and schedules before you signed them? Is the information true and complete?
  • Have you listed all of your assets on the schedules? Are you a co-owner of any property with anyone else? (e.g. family cabins)
  • Do you expect to come into any money, such as an inheritance?
  • Does anyone owe you money?
  • Have you paid any creditors in the last 90 days, other than minimum payments?
  • Are you a party to any lawsuits you haven’t identified in your schedules?
  • Are you owed any domestic support? Do you owe domestic support?
  • Have you transferred any property to anyone in the last year? Is anyone holding property for you?
  • Have you previously filed bankruptcy?

9. How should I answer? Just tell the truth. Don’t feel like you need to tell a whole story–keep your answers short and sweet–but answer truthfully and completely. If you don’t know the answer to a question, ask for clarification–it’s better not to answer right away than to answer incorrectly.

10. Where is the meeting? 

bankruptcy-footer

Do I need to file business bankruptcy?

business bankruptcy

Photo by Ed Yourdon

This post explains business bankruptcy and helps you figure out if it’s a good idea for your business.

1. I have business debt. Do I need to file bankruptcy?

I am a sole-proprietorship. If you are a sole proprietor, you are the business. This means that the business assets are your assets, and the business debts are your debts. If you file personal bankruptcy (under Chapters 7, 13 or an individual Chapter 11 case) your business debt will be wiped out and your business creditors can’t collect from you.

I am an LLC or corporation. If you own a separate legal entity, then filing personal bankruptcy won’t wipe out your business debts. To take care of business debts, you can do a few things:

  • – Negotiate with the lender to settle the debt;
  • – Close your business and turn over any leftover assets to your creditors; or
  • – File a business bankruptcy to reorganize your debt.

2. How do I close my business without filing a business bankruptcy?

You can close a business by filing a “dissolution” with the Minnesota Secretary of State’s office. Dissolution gives notice to your creditors that you are closing up shop, and gives creditors a chance to try to collect assets before the business is wrapped up. You may be able to dissolve a business on your own, but you’ll probably want to consult an attorney first, to see if there will be any issues to watch out for.

3.   Do I need to file business bankruptcy?

Generally not. If your business has lots of real estate, secured debts, or large assets, you may want to look into business bankruptcy to reorganize your debt. But most people don’t need business bankruptcy. If you have a business that’s insolvent, the dissolution process described above should be enough.

4.   Are my business debts wiped out in my personal bankruptcy?

If you close a business and you have personally guaranteed the debts, the business creditors may try to collect from you after the business is closed.

Your personal liability on your business debts is erased. This means that if you default on your business debt, your creditor cannot come after you personally for that debt. On the other hand, this doesn’t prevent the creditor from collecting the business’s assets.

One other important point—if you have business debts, and a business bank account with the same creditor, your creditor probably has the right to take money directly out of your business account if you don’t pay the business debt, even after a personal bankruptcy. If you are keeping your money with a bank that is a creditor, the smart play is to move it as soon as you can.

bankruptcy-footer

Federal lawsuit alleges that collection law firm Gurstel Chargo told disabled veteran that he “should have died.” (Updated)

A Minnesota-based collection law firm, Gurstel Chargo, is in the news after allegedly making some incredibly insensitive and offensive remarks to Michael Collier, a disabled military veteran. According to a lawsuit filed in U.S. District Court in Arizona, Gurstel Chargo garnished the bank account of Collier’s wife. The lawsuit alleges that the garnishment froze the veterans benefits that Collier’s wife received as a result of Collier’s disability, which a judge later ruled were exempt from Gurstel’s garnishment. But according to the lawsuit, when Collier called Gurstel to get the money back, an unidentified legal assistant allegedly told him that “he would have to sue in order to get the funds back.” When Collier tried to explain that the funds were exempt veteran disability payments, the lawsuit alleges that the legal assistant told him

F— you! Pay us your money! You can’t afford an attorney. You owe us. I hope your wife divorces you’re a–. If you would have served our country better you would not be a disabled veteran living off social security while the rest of us honest Americans work our a- – off. Too bad; you should have died.

The lawsuit further states that after hanging up the phone, Collier–who suffered head and spine injuries while serving in the U.S. Army–became very distraught and upset. Collier hired attorney Floyd W. Bybee and sued Gurstel for violating the Fair Debt Collection Practices Act and other related laws.

As you can imagine, allegations of a debt collector telling a disabled veteran that he “should have died” has created a backlash. The story has been picked up by a number of news outlets and bloggers, including prominent legal bloggers Mark Bennett and Sam Glover. And it’s 2012, so no controversy would be complete without people taking to Twitter to denounce Gurstel Chargo. The uproar was significant enough to prompt Gurstel to issue the following statement on its website

We learned late last week of the lawsuit filed by Michael Andrew Collier and Kim Collier-Dingman.  Gurstel Chargo takes the allegations made in the lawsuit very seriously and we have immediately launched an internal investigation to determine the facts.  We are extremely disturbed by the allegations stated in the Complaint, as they are contrary to the policies, practices and values of our firm.   We expect that all Gurstel Chargo employees fully comply with all state and federal laws, and we thoroughly train our employees to perform their job in a lawful and respectful manner.  Under no circumstances does our firm tolerate the type of conduct alleged in the Complaint.

The Complaint states that the wrongful remarks were made during a telephone call.  We have requested from the attorney that filed the Complaint the phone number of the phone that Mr. Collier was allegedly on, an approximate date on which the call occurred, whether the person who made the alleged wrongful comments was male or female, all in order to help us to get to the truth about what occurred.  We have been informed by Mr. Collier’s attorney that he is unaware of any of this information.  To date, we have discovered no information to substantiate the allegations, but our investigation continues. Should these allegations prove to be true, we will take immediate corrective and disciplinary action.

Before I weigh in with my thoughts on the situation, I should offer a little background. I worked for Gurstel Chargo as a collection attorney for about three years. I found that I didn’t have the stomach for collections, so in February of 2009 I resigned and started my own law firm dedicated to helping consumers dealing with debt collectors. In my consumer rights practice, I have represented dozens of consumers in collection cases brought by Gurstel and have sued Gurstel twice under the FDCPA. I don’t have any particular axe to grind against them and am on good terms with a number of their attorneys and employees. I haven’t worked there in well over three years so I don’t have any inside information about Collier’s allegations or any actual knowledge of the firm’s current culture or atmosphere. My comments, therefore, are based on my observations about the collection industry in general, rather than about Gurstel specifically.

I should start by noting that the allegations in Collier’s lawsuit are just that–allegations–and Collier has the burden of proving that Gurstel actually made those inflammatory comments. Given my experience suing collectors under the FDCPA and working with consumers nearly every day,  I’m inclined to believe Collier’s story, but as an outsider to the situation I obviously don’t know what really happened.

Much of the commentary on this situation has focused on the irony of Gurstel’s silly “Accountability Matters” marketing campaign. Bennett, Greenfield, and Glover all justifiably picked up on this theme. But I want to focus on what motivates a collector to say such horrible things to another human being. I think it’s overly simplistic to demonize all collectors as heartless or sadistic. I personally know a number of collectors who are caring and who follow the letter and spirit of the FDCPA at all times.

Instead, I believe that the root of the problem lies in the way a modern collection outfit is structured. Individual collectors are paid on a commission-type arrangement. Their livelihood depends upon how much money they collect. Collection law firms set monthly collection goals for each of their collectors and are ruthless in holding their collectors to those goals. A collector’s paycheck and continued employment are directly related to how much money he collects. Collectors are fired every day for not meeting their goals and it must be demoralizing to be part of this revolving door of employees. Given this cut-throat environment, it’s not surprising that some collectors would resort to the type of inhumane tactics that Collier alleges Gurstel used. When you put tremendous pressure on someone to produce or be fired, it’s only a matter of time before some people respond by breaking the rules. We’ve seen this dynamic play out countless times in professional sports with the various steroid and PED scandals. As one of my consumer rights colleagues has said, compensation drives conduct.

So while I don’t condone an individual collector’s harassment or abuse, I believe that the majority of the blame needs to go to the collection owners who set up the dog-eat-dog system in the first place and then insulate themselves from the day-to-day collection operations. This structure creates plausible deniability and allows them to expres shock and disbelief when one of their collectors is accused of doing something illegal. And as long as the money continues to roll in, there is no incentive for agency owners to change their collector compensation model. But any collection agency owner that truly wants to clean up his organization would be wise to take an honest and thorough look at how he’s treating and paying his collectors.

Update (10/23/12):

On October 19, 2012, Gurstel issued the following statement on its website:

This is an update to Gurstel Chargo’s previous statement dated Oct. 15, 2012, regarding the Michael Collier case.  According to plaintiffs’ attorney, a Gurstel Chargo employee made the telephone call referred to in the Complaint to a cell phone owned by Mr.Collier. Yesterday, plaintiffs’ attorney provided the cell phone number on which Mr. Collier claims to have received the call and indicated that the call was made after the May 24, 2012 hearing referred to in the Complaint.  As a matter of standard procedure, Gurstel Chargo records and retains record of all phone calls placed from the firm to consumers. A thorough review of the Gurstel Chargo phone database reveals that no call from Gurstel Chargo to the number provided by plaintiffs’ attorney was made at any time from the hearing date through the filing of this lawsuit.

In addition, the persistent reporting by the media that the Collier’s funds were illegally garnished is not accurate. The funds were properly and legally garnished.  Only upon documentation being provided by the consumer, Mr. Collier, indicating the funds in his account were exempt, did it become proper to extinguish the garnishment.  Gurstel Chargo did not and could not have known the funds were exempt in the absence of this documentation.

Gurstel Chargo has filed its Answer to the Collier federal court case denying the allegations of wrongdoing. In particular, Gurstel Chargo’s Answer states that the despicable phone call allegedly made to Mr. Collier by a Gurstel Chargo employee did not occur.   Since Gurstel Chargo filed its Answer, the plaintiffs’ attorney has walked back plaintiffs’ allegations by filing an Amended Complaint correcting errors made in the initial set of allegations.

Now that the truth is beginning to emerge, Gurstel Chargo is concerned that false claims and statements about the firm and its employees are being wrongly perpetuated. The allegations in the Complaint are simply not true.  Gurstel Chargo consistently and continuously trains its employees, and stresses its expectation that all of its team members conduct the firm’s business in a respectful and professional manner at all times. Nothing to the contrary occurred in this case.

Gurstel’s statement is correct, Collier’s lawsuit has been amended. The amended complaint removes a description of a conversation that Collier allegedly had with a Gurstel attorney following a court hearing, as well as an allegation about how Collier’s wife reacted to the situation. The most serious allegation in the original complaint, the alleged remarks quoted above, remain in the amended complaint. Based on Gurstel’s October 19, 2012 statement, it’s clear that they deny Collier’s allegations and intend to contest his lawsuit vigorously. We’ll just have to wait for the litigation to play out to see what really happened.

Friedman Iverson gallery opening “Someplace Else” October 19

EVENT DETAILS:
Friday, Oct. 19th, 2012: Opening reception featuring artists Jonathan Hamilton and Steven Lang

Location: 2609 Aldrich Ave. S. Suite 102, Minneapolis, MN 55408 (We’re pretty much in the CC Club’s backyard)
Time: 6 pm -10 pm

Featuring: complimentary food + booze, music from DJ Jake Luck (Yeti Records), and Instagram Photo Contest!

JONATHAN HAMILTON: Jonathan is is an artist who has lived in Northeast’s Audubon and Windom Park neighborhoods for the last 6 years. He has been designing and leading creative workshops in schools, Park and Rec. programs, and community organizations such as the Walker Art Center, VSA, and Opportunity Resources over the course of his career. After earning his BFA and K-12 Art Education Certification from the University of Montana, Jonathan came to Minneapolis to work as the Director of Visual Arts at Interact Center for the Visual and Performing Arts from 2001-2006. He is now an Exhibition Technician for the Minneapolis Institute of Arts.

STEVEN LANG: Artist and writer Steven Lang received his B.F.A. from the University of Minnesota, Twin Cities.  In 2012, he was a resident artist at Elsewhere, a living museum set in a former thrift store in downtown Greensboro, NC, and was a participant in the 4th season of CSA — Community Supported Art, sponsored by mnartists.org and springboardforthearts.org. He has recently exhibited at Rosalux Gallery, Soo Visual Arts Center, and the Walker Art Center’s Walker Shop. His short story, “Tandem,” was included in the recent Milkweed Editions anthology Fiction on a Stick. His short-short story, “The Scarecrow,” was published in 2011 as finalist in the mnLIT series on mnartists.org.

INSTAGRAM PHOTO CONTEST!
Parties with a purpose are always more fun. Winning a fabulous prize is a great purpose.  With that, we’re excited to announce our first Instagram Photo Contest.  During Friday night’s party, we’ll challenge you to take pictures in and around our office with your smart phone and submit them via Instagram with the tag #hipsterlawfirm.  The photos will be displayed on a screen in the office.  At the end of the night we will pick a winner and award a prize.  The theme will be: “Things You Wouldn’t Expect to See at a Law Office”.  Let your imagination run wild!

New web site explains student loan default options

student loan

http://www.consumerfinance.gov/students/repay/

It’s only once in a while that the federal government finds a way to actually help consumers (Zing!). With so many student loan borrowers struggling with debt, it’s about time there was some effective help out there. The Department of Education and the Consumer Financial Protection Bureau have teamed up to publish the (poorly-named) Student Loan Debt Collection Assistant.

The Q-&-A-style assistant takes you through all the different possibilities of being behind on student loans, for public and  private loans, loans deep in default, and loans where you’ve just missed a payment or two. It provides tips on dealing with collectors, eligibility charts for helpful programs such as Income-Based Repayment for federal loans, and provides links to more help. This information is provided in an easy-to-use, Choose Your Own Adventure-style format. The Assistant is a great starting point for figuring out your options when you’re in trouble with student loan collectors.