Dealing with constant calls from credit card companies can be extremely difficult.  They call all hours of the day.  Some even try to call you at work.  To get rid of this stress, many Americans have taken out second mortgages on their homes.

The problem with borrowing against equity on your home pay off credit card debt is that you transform unsecured debt (which can be eliminated in bankruptcy) into secured debt (which cannot be eliminated in bankruptcy unless your surrender the collateral……i.e. your house).

What happens when you fall behind on the equity line payment?  The creditor calls you and threatens to take your house away from unless you pay it immediately.  These guys can be worse than credit card companies.

Don’t ever take out a second mortgage on your house to pay off credit card debt without first meeting with a local bankruptcy attorney.  Your bankruptcy attorney will explore all the options and review your income and monthly budget with you.

If you have already fallen into second mortgage misery, the good news in Northwest Georgia is that you may be able to eliminate the second mortgage in a Chapter 13 bankruptcy.  As long your house is worth less than what you owe on the first mortgage, you can wipe out the second mortgage.  However, you must complete your case.  In other words, if you don’t cross the finish line (your case gets dismissed) your second mortgage ghost can resume haunting you.

For more details on how to eliminate a second mortgage, please click on the link listed below.

Other Posts:

1.  What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4.  How do I stop a garnishment in Georgia?

5. You can eliminate a second mortgage in bankruptcy.

6. Do I have to go to court if I file bankruptcy?

7.  How do I stop a foreclosure in Georgia?

The most common scenario where a creditor will file a complaint to determine whether debts will be discharged in a chapter 7 bankruptcy is credit card debt.  When a person is who filing bankruptcy has made credit card charges on their account within 90 days prior to the filing of the bankruptcy case, it is likely that the credit card company is going to file a complaint to determine the dischargeability of that specific debt.

In the complaint, the credit card company will allege that the debtor knew or reasonably should have known that they would never be in a position to repay the credit card debt at the time the credit card charges were made.  If the creditor wins, the debtor will not be able to eliminate the debt.  In cases where the debtor was employed at the time the charges were made but has since lost their job, the credit card company will most likely lose their lawsuit.  The key is the intent of the debtor when the charges were made on the credit card account.

In contrast to credit card debt, I have never seen a objection to discharge filed on medical debt.  The reason is that no one intentionally runs up their medical bills before filing.  No one can reasonably argue that you chose to have a heart attack, cancer, or broken bone right before filing bankruptcy.

However, credit card companies can make strong arguments that debt was intentionally incurred in some cases.  For example, if the charges were made for a trip to Hawaii, they may have a strong case.  On the other hand, if the trip was for a honeymoon and then you found out that you lost your job when you got back, the case against you would be much weaker.

The facts behind the charges should be discussed with your bankruptcy attorney before you ever file a case.  For this reason, I insist on spending at least two hours with my clients reviewing every single debt in the entire case.  A good bankruptcy attorney will do everything they can to point out any pitfalls of your case before it is ever filed with the bankruptcy court.

Other Posts:

1.  What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4.  How do I stop a garnishment in Georgia?

5.  How do I stop a foreclosure in Georgia?

6. You Can’t Incur Debt With The Intent of Discharging it in Georgia.

I meet with clients all the time from Rome, Dalton, Calhoun, Dallas, Douglasville, Hiram and Cartersville Georgia who got suckered into some timeshare deal.  The scam usually starts with a “free” vacation.  You go stay for a week free in paradise in exchange for listening to a high powered sales pitch from professional sharks.  Many people yield to the pressure.  Some people love their timeshares while other painfully regret the decision to buy.

Here is a example of a nightmare situation that could play out.  Lets say a Georgia married couple owns a timeshare free clear but wants to get away from the future maintenance costs.  As a result, they file a Chapter 7 bankruptcy and attempt to surrender the timeshare to the association that is in charge of collecting the maintenance fees.  A few years years later, the timeshare association files a lawsuit against this Georgia couple to collect post-petition maintenance costs.  In this scenario, I think that the Georgia couple will be stuck owing all of the post-petition maintenance costs.  The title to the timeshare did not transfer just because they listed it as surrender in their bankruptcy petition.  In this particular case, the Georgia couple will be on the hook for timeshare maintenance fees until they can either sell it or talk someone into taking it off their hands in exchange for paying all future timeshare maintenance fees.  Hopefully, their bankruptcy attorney explained this possibility to them before they filed their case.

Lets change the scenario by saying that the Georgia couple owes some finance company for the timeshare.  Again, the Georgia couple surrenders it in the Chapter 7 bankruptcy petition.  Another possible nightmare scenario is that the finance company never forecloses on the timeshare or does anything with respect to the deed.  Again, the Georgia couple could be held liable for all future maintenance fees.

I bases my conclusions on section 523(a)16 of the Bankruptcy Code.  Some bankruptcy attorneys will argue that this section of the Code does not cover timeshares but does cover condominiums.  In my opinion, most timeshares are structured as fractional ownership of condominiums.  It will be interesting to see how these timeshare situations work their way through the courts.  Perhaps we may get clear direction from future court rulings.  In the meantime, I am going to advise my Georgia bankruptcy clients that they should not expect to wipe out future maintenance costs from timeshare interests.

Other Posts:

1. What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4.  Can I Wipe Out HOA fees?

In a Chapter 7 bankruptcy, you cannot incur debt with the intention of discharging it in your case.  Under section 523(a)(2)(A) of the Bankruptcy Code, a discharge under Chapter 7 “does not discharge an individual debtor from any debt for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by…false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.”  11 U.S.C. 523(a)(2)(A).

A great example of a debtor getting nailed by the Bankruptcy Court for going into debt with the intention of wiping it out in a Chapter 7 is the case of Bucciarelli (Bankruptcy Case No. 07-13114).  In this case, the Bankruptcy Court in the Newnan Division of the Northern District of Georgia ruled that the debtor could not wipe out legal fees she incurred from her divorce proceedings because she incurred the debt with the intention of discharging it in her Chapter 7 case.

The facts of the case are summarized as follows:  In Bucciarelli, the Debtor filed her Chapter 7 case in December 2007.  In January 2008, she entered into a contract for legal representation in her divorce proceedings.  In addition, she signed a promissory note agreeing to pay her divorce attorney $25,000 for representing her.  The promissory note granted her divorce attorney a lien on her interest in her ex-husband’s 401k.  Her divorce case never actually went to trial.  Her divorce attorney billed her for $35, 625.  When the debtor did not pay her divorce attorney, she was sued in Georgia state court.  The Georgia state court proceeding was stopped because of her active Chapter 7 case.  In response, her divorce attorney filed an adversary proceeding against her to declare the debt nondischargeable.

In Bucciarelli, the Court noted, “To establish that a debt is excepted from discharge under section 523(a)(2)(A), the creditor must prove by a preponderance of evidence that:

(1)  the debtor made a false representation, other than an oral statement respecting the debtor’s financial condition with intent to deceive the creditor;

(2)  the creditor actually relied on the misrepresentation;

(3)  the creditor’s reliance was justifiable; and

(4) the misrepresentation caused a loss to the creditor.”

What sank the debtor in Bucciarelli was the testimony from her “friend.”  Her friend testified under oath that Bucciarelli told her that she incurred the legal fees from her divorce with no intention of ever paying it back.  The “friend” also testified that Bucciarelli told her that the purpose of her bankruptcy was to discharge all obligations arising from the the attorney fees in her divorce case.  The Bankruptcy Court took note that this same friend testified in the Debtor’s favor during the Debtor’s divorce proceeding.

Judgment was entered by the Bankruptcy Court in favor of the divorce attorneys against the Debtor.  The debt was ruled to be nondischargeable.

Other Posts:

1.  Personal Injury Lawsuits Must be Listed in Your Bankruptcy

2.  Can I have a checking account after I file bankruptcy?

3.  What is a discharge in a Chapter 7?

Using payroll tax money for any purpose other than paying to the IRS is a considered a crime.  There are people who have actually gone to jail for failure to pay payroll taxes to the Internal Revenue Service.    The Internal Revenue Service has published a great article on this subject.  Click here to read it.

I recently met with a client who worked for a small company that owed over 50,000 to the Internal Revenue Service  in payroll taxes.  Since she allowed herself to be listed with the state as an officer of the corporation, she was held liable for the taxes along with the other officers of the corporation.  If she had been a merely an employee of the corporation, she would not have been held liable.  Her mistake was that she allowed to owner to list her as “secretary” of the corporation.  After spending thousands of dollars in attorney fees trying to fight the IRS, the client finally was able to work out a payment schedule with the Internal Revenue.

Whenever a business ever gets to a point where it becomes difficult to pay payroll taxes, it is time to close the business.  Never miss a payroll tax payment.  No business is worth risking jail.

My practice is strictly limited to Chapter 13 and Chapter 7.  I do not specialize in tax law.

Other Posts:

1. What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4. Stop Garnishment

5. Stop Foreclosure

If a large number of foreclosures have occurred recently in your neighborhood, this will bring down the fair market value of your house.  As a consequence, this will make it easier to eliminate the second mortgage in a Chapter 13 bankruptcy case.  Dalton, Cartersville, Calhoun, Rome, Hiram and Dallas, Georgia have suffered a high number of foreclosures during this past year.

When trying to determine the value of your house, a good place to start is your property tax bill from your county.  Somewhere on the bill, you will find a statement that says fair market value.  While this a good place to start, you will need more evidence than your tax bill because most counties tend to understate the fair market value of houses.  In some areas of Northwest Georgia, housing values are so depressed that even the county estimated fair market values are too high.

A much more reliable source of evidence is a written appraisal by a certified expert.  When getting your appraisal, make sure you explain to the expert that you may wish to hire them to testify in court if necessary.  Some appraisers want to stay away from court at all costs.

In Northwest Georgia, I recommend that any client who needs to appraise property call Bob Mines at 77-655-9015.  He is certified and has a significant amount of court experience.

Cost for appraisals can vary based on the size and nature of the real estate.  Another factor to consider when hiring an appraiser is the cost for them testify for you in court if the second mortgage company decides to challenge your appraisal in bankruptcy court with their own appraisal.

If you live in a mobile home and have a second mortgage, the chances of you eliminating the second mortgage are much higher than someone who owns a house because mobile homes depreciate so rapidly.

Nothing in this post should be interpreted as legal advice.  No attorney client relationship exists until we have a written contract.

Other Posts:

1. What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4. Stop Garnishment

Lets say a married couple has a home in Rome, GA worth $100,000.  They owe $70,000.  Their equity in the house is $30,000.  If we subtract the the exemption amount of $21,200, we are left with $8,800.  If this person were filing bankruptcy, I would recommend they file a Chapter 13 to protect their home.  In a Chapter 13, the person will have to pay back $8,800 to the unsecured creditors to protect their home in Rome.  In this situation, if the couple owes $100,000 in credit card debt, they will have to pay back only $8,800 assuming they pass the means test and their income and budget justify a composition chapter 13 plan.

In contrast, if they filed a Chapter 7, the trustee may sell the house and use the proceeds that are not exempt to pay creditors.  Could a person in this type of situation roll the dice and file Chapter 7 ?  Some Georgia bankruptcy lawyers roll the dice…….I don’t.  Some Georgia bankruptcy attorneys will argue that the cost to the Chapter 7 trustee in marketing the property and closing the deal will exceed $8,800 in transaction costs.  It might.  Why take a chance with your house when filing bankruptcy?

A good place to start when determining the value of your home is your tax bill.  Somewhere on your property tax bill, it will state “estimated fair market value.”  You can check your county tax assessment online at www.gaassessors.com.  Another way to determine the value is to call a Georgia realtor and ask them to give you an accurate estimate on how much you should ask for your house if you were going to sell it.  The best way to determine the value is to get a certified professional appraisal.

Remember, there are exceptions to exceptions.  Don’t read this blog as legal advice.  If you want legal advice, you should call me at 770-637-1756for your free consultation so we can see how the law applies to your situation.

Click here for Top Ten Myths About Bankruptcy

Other Posts:

1. What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4.  Stop Garnishment

5.  Stop Foreclosure

In the event you need to file bankruptcy, credit card debt can be wiped out if necessary.  Even in a Chapter 13 plan where you are paying back all of your debt, the interest rate paid on credit card debt is zero.  In contrast, the most common way to get rid of your second mortgage in a Chapter 13 or a Chapter 7 is to surrender the house to your creditor.  To keep the house, all payments must be made on the second mortgage.

Why would you ever want to exchange a type of debt that can be wiped out or paid back at zero percent interest for a new type of debt that must be paid back with interest and could result in the loss of your house if you ever get into a position where you can’t make the payment?