Bankruptcy: Dischargeability - Money Judgment

     In the case of In Re: James H. Harris the United States Bankruptcy Court for the Eastern District of Virginia showed a willingness to assist creditors in clear abuse cases. In Harris Judge Tice determined that a debt which resulted from the debtor's conversion of a stolen Mack Truck was exempt from discharge pursuant to the Bankruptcy Code, and determined that the amount of damages excepted from discharge was $11,620.47. The Bankruptcy Court also entered a money judgment for the creditor in that excepted amount, even though at least one Federal District Court has held that a Bankruptcy Court does not have jurisdiction to enter a money judgment in a Bankruptcy Code §523 proceeding.
     Judge Tice stated that every determination by a Bankruptcy Court of the validity of a claim is a determination of whether a creditor is entitled to monetary damages from the debtor. The issues raised regarding the validity or existence or amount of a debt are inextricably interwoven with the determination of dischargeability, and are therefore within the equitable jurisdiction of the Bankruptcy Court.

Collection: Debt Collections: You Need a Plan, From the Beginning

     Any business or lending institution that extends credit to its customers or members will inevitably be faced with bad debts. To insure maximum collection results, creditors should establish credit and collection policies before a problem occurs.
     Before you extend credit, there are several things that you can do to reduce your risk.
     1. Obtain full names, addresses, telephone numbers, places of work, social security numbers and dates of birth.
     2. Obtain the name of the customer's bank, branch, and account number.
     3. Review a credit report.
     4. Ensure that all credit terms are clear.
     5. Have personal guarantees for small businesses.
     6. Perfect security interest in events of large credit.
     When accepting personal checks, take the following precautions:
     1. Insist on two pieces of identification, at least one of which has the customer's photo. A driver's license and a credit card are ideal.
     2. Require checks to be made out in your presence.
     3. Compare the signature on the check with that on the ID.
     4. Limit checks to the exact amount of the sale.
     5. Accept only checks drawn on local banks.
     6. Verify the customer's address and phone number on the check. Also note the customer's social security number and/or driver's license number.
     7. Be cautious when accepting checks with low numbers (indicating that the account was recently opened).
     8. Consider subscribing to a check verifying service. For a modest fee, such a service allows you to call a toll-free number and learn immediately if you can safely accept the check. If a check bounces after being verified using this procedure, the service will cover your loss.
     When the debt is in default, act promptly! The longer you wait, the harder collection will probably be. The firm of Lafayette, Ayers & Whitlock, PLC usually recommends immediate telephone calls, followed by a series of two or three letters. In the final letter, give a definite and short deadline with the promise of attorney action.
     The decision as to when a creditor should deliver its accounts to counsel for collection is not always an easy one. Some creditors deliver collections accounts to counsel after the initial demand has failed to produce results. Some creditors desire to have their credit/collection manager take their judgment and attempt collection by payment plan, garnishment, or even sometimes, sheriff's levy.
     The problem frequently encountered by creditors who pursue their own judgments, however, is that in most cases the ability to collect without the assistance of counsel ends prior to the receipt of payment in full. When this occurs, counsel must normally assume collection activities after the trail is cold. Further, since the creditor was not represented by counsel at the time of judgment, the judgment order does not include attorney's fees; nevertheless, attorney fees will now be charged to the creditor. In addition, if the creditor's credit/collection manager failed to properly docket the judgment, collection could be forever impaired.
     The firm recommends that creditors immediately deliver accounts to counsel upon the failure of the demand for payment. Creditors should ensure that provisions for attorney fees and interest are included in all loan, contract and/or account documents so that counsel can assess these costs upon delivery. The firm further recommends that all accounts be delivered while the "trail" is still warm--no more then sixty days from default.
     The firm has aggressive collection counsel and staff who represent numerous Credit Unions, Homeowner Associations, property management companies, loan companies, businesses, doctor's offices, and private citizens. The firm is willing to pursue accounts from start to finish, or even finish accounts already in progress. Please call me at 545-6251 for more information. Eddie.

Foreclosure: Foreclosure Sale Accounting

     The Code of Virginia requires that the trustee’s accounting be filed with the appropriate commissioner of accounts “within six months after the date of a sale.” The Manual for Commissioners of Accounts states that “although the Commissioner does not have specific statutory authority to extend the six month filing date, some courts allow the Commissioner to extend the deadline for good cause shown in advance of the filing date.”

Real Estate: Perfecting Mechanic's Liens

     In recent blogs we have been discussing the benefits of using real estate to improve creditors’ positions. On a previous blog we began a discussion of the benefits of using mechanic’s liens to aid in the collection of your debt.
     Virginia Code §§43-4, 43-7 and 43-9 provide for the perfection of the lien by general contractors, subcontractors, and laborers and suppliers. In each section the creditor must file a memorandum of lien at any time after the work is commenced or material furnished, but not later than 90 days from the last day of the month in which he last performs labor or furnishes material, and in no event later than 90 days from the time such building, structure, etc., is completed, or the work thereon otherwise terminated. The memorandum must contain specific information as set forth in the code (and there are forms in the code), and must be filed in the clerk's office in the county or city in which the building, structure etc., or any part thereof is located. The memorandum shall show the names of the owner of the property sought to be charged, and of the claimant of the lien, the amount and consideration of his claim, and the time or times when the same is or will be due and payable, verified by the oath of the claimant, or his agent, including a statement declaring his intention to claim the benefit of the lien, and giving a brief description of the property on which he claims a lien.
     We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.

Bankruptcy: Chapter 7 Case Dismissed Due to Substantial Abuse

     In the case of In Re Norris, Judge Tice of the United States Bankruptcy Court, Eastern District of Virginia, Richmond Division, ruled that although the debtors, a married couple, did not lead a lavish lifestyle and saw their financial woes mount over a ten year period before they filed their Chapter 7 petition, which was filed in good faith, their petition was nevertheless dismissed for "substantial abuse" under Bankruptcy Code §707(b).
     Judge Tice found as fact that the debtors did not lead an extravagant or excessive lifestyle, at least not in the terms of acquiring large amounts of personal property. The debtors did, however, remain in a large and expensive home which they have managed to retain, rejecting the prospect of moving to a smaller abode that would have been less costly to keep. Also, the debtors testified that some credit card debt resulted from dining out. Significantly, Judge Tice found that the debtors used their 401(k) plans to create a reserve for future expenses, thus diverting funds that could have otherwise been used to pay to creditors.
     In evaluating all the factors for determining substantial abuse pursuant to the 4th Circuit Court of Appeals case Green v. Staples, Judge Tice stated that the Court must consider more than just the debtor's ability to fund a Chapter 13 plan. In evaluating all of the Green factors together, Judge Tice stated that he was left with a rather close decision. The debtors certainly had the ability to repay a substantial portion of their debts, and this is the primary factor to be considered. Their ability to repay, however, was mitigated in part by the debtors' good faith and forthrightness, the relative accuracy of their bankruptcy schedules, and their lack of intent to deceive the Court. Judge Tice stated, on the other hand, that the debtors clearly took on debts while being unable to repay them, were not forced into bankruptcy due to a sudden, unexpected turn of events, and have included unreasonable expenses in their budget (including the deduction for income for deposit in their respective 401(k) plans, totaling nearly $500 per month) in order to make funds unavailable to their creditors. Judge Tice found that the debtors lived far beyond their means and could easily fund a significant Chapter 13 plan to discharge their debts and provide their creditors with some payout. Instead, the debtors propose by filing Chapter 7 to maintain their more-than-adequate lifestyle at the expense of their creditors. In addition, the debtors continue to try to retain money for future expenses to their creditors' detriment. The debtors' actions smack of the "unfair advantage" over creditors sought to be proscribed by Bankruptcy Code §707(b). Judge Tice stated that while the Court was sympathetic to the debtors' plight, and even taking into account the prescription of granting the debtors the relief they seek, the Court found that the debtors' Chapter 7 case should be dismissed for substantial abuse.
     The lesson in Green - look closely at a debtor’s available assets in a Chapter 7 case, especially retirement benefits.