Bankruptcy 2011 Statistics

       A statistical breakdown of the Country's Bankruptcy filings were recently released by the National Bankruptcy Research Center (NBKRC), and Tennessee unfortunately did not fare well. The county with the highest bankruptcy filings per capita was Shelby County, Tennessee with 18,764 per million inhabitants (12,814 filings total filings). And Tennessee, overall, ranked the 4^th highest of bankruptcies filed per capita. Aside from Tennessee's clear struggle in this recession, overall the country's filings dropped 12%, the first drop in bankruptcy filings since 2006 (the year after the Bankruptcy Code was amended to make it harder for people to qualify for bankruptcy).

       However, according to the NBKRC, “bankruptcy filings in December were almost exactly the same as November (101,000), but December filings are typically quite low. So, on a seasonally adjusted basis filings were actually up 7% from November.”  Accordingly, it is predicted that 2012 filings will increase.  Another interesting note, putting aside from Shelby county's #1 ranking, the counties ranking 2-10 are all rural. This is likely due to the fact that (1) rural counties generally have lower incomes, and (2) more people per capita own their homes in rural counties while, per capita, more people rent in urban counties, making rural citizens more susceptible to debt and foreclosure, a strong catalyst forcing one into bankruptcy. 

       By looking at these results, it seems that Tennessee is in for another rough year of Bankruptcy filings as well as the rest of the country.   Though the economy is muddling through a recovery, the slow growth is insufficient to allow those indebted with credit cards, mortgages, medical bills, and car loans to cure those defaults. 

      For more information on the NBKRC and the research provided by Professor Ronald Mann of the Columbia Law School, please visit https://www.nbkrc.com. 

Cars in Bankruptcy: The Cram Down “910 Car Claim”

       One of the luxuries of the Bankruptcy Code is the ability to Cram Down the amount you pay on your vehicle. The Bankruptcy Code allows you to (1) lower your interest rate to as low as 3.25% instead of keeping it at that 18% interest rate at which you bought your car; and (2) lower the overall payment of your car to its value instead of the balance on the loan. (This also includes Title Loans on your car) There is only 1 caveat. The loan on the car must have been acquired more than 910 days before the filing of the Bankruptcy case. If the loan on your car is less than 910 days, then you will have to pay the full balance on the loan but not the contractual interest rate. Here is an example to illustrate.

       Assume you bought your car 2 and a half years ago for $25,000 at an interest rate of 15%. Your remaining balance on the loan is $12,500, but the value of your car is now $6,000. Well, in the bankruptcy, you are allowed to “Cram Down” the loan to the value of the car and reduce the interest rate to as low as 3.25%. Therefore, you are now paying only $6,000 at 3.25%. Moreover, we can assume that you only had 2 years left to pay on balance of the loan according to its terms, but through bankruptcy you also get to extend the loan to another 3 or 5 years which would make your payments considerably lower. Under the original terms, the monthly payments would be $695.77. But under the Cram Down, the payments would be $108.48 if extended out by 5 years.

       It must also be noted that the 3.25% is a general rate that has been established for the Middle District of Tennessee, other districts and circuits may have different standards.

Tennessee Legal Resources

       For those Tennesseans who are representing themselves in court the following site is a great legal resource: http://www.lexisnexis.com/hottopics/tncode/.  This is a free site by Lexis Nexis that has up-to-date Tennessee Codes.  You can search the code by Table of Contents or by the actual language of the statute. 

       Another great site for you to use if you find yourself in court is http://www.tncourts.gov/courts/supreme-court/rules/rules-civil-procedure.   This site has all the current Tennessee rules of civil procedure.  Many times, Pro Se litigants (a person representing him/herself in court) lose on technicalities by not abiding by the rules of civil procedure, such as not filing a response by the deadline, or not answering requests for admissions.  When you receive a document from oppsosing party, it will say which rule its motion or discovery request is based on.  Use this website to read the rule so you can determine what you need to do to respond properly.  This website also contains rules of appellate procedure, criminal procedure, and the rules of evidence.  

       Please also notice the link on the left which says "Local Rules of Practice."  The previously mentioned rules apply state wide, however, local rules are just that: local.  Each court has their own rules that you need to know and that can vary from county to county and even judge to judge. 

       Whenever you find yourself in court, I highly recommend hiring an attorney since we are well versed in these rules, but if you are a DIY person or cannot afford an attorney these sites are wonderful resources.

Waiver of Bankruptcy Discharge is Unenforceable

       Recently I was talking to one of our client's creditors on the phone about our client's case. Our client had filed bankruptcy in Nashville. The creditor was trying to explain to me that their debt was not to be included in the bankruptcy because they have their borrower's check a box on the loan application that states that the borrower waives their right to include the debt in bankruptcy and that the debt would be non-dischargeable. I quickly reassured this creditor that such contract provisions are prohibited by the Bankruptcy Code and 6^th Circuit case law.

       There are only two avenues which allow a debtor to waive a debt's discharge in bankruptcy. The first is through a reaffirmation agreement through §524. A reaffirmation agreement is a post-petition contract entered into by the debtor and creditor wherein a debtor will reaffirm the debt and waives its discharge in the bankruptcy. The reaffirmation agreement, however, is only valid after being approved by the bankruptcy court judge and meeting other strict conditions.

       The second way a debt passes through discharge is through §727(a)(10), which states that the court shall grant a discharge of the debtor's debts unless “the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter.” This waiver of discharge is unilateral and does not need to be agreed upon by the creditor, however, it still requires court approval.

        These two methods of waiving discharge have two things in common: (1) both require court approval and, (2) both must be entered into post-petition.

        The 6^th Circuit Court of Appeals in 2005 interpreted these two provisions to conclude that any prepetition agreements which waive the discharge of a debt contradict the Bankruptcy code and are void because they offend the public policy of promoting a fresh start for individual debtors. Lichtenstein v. Barbanel, 161 Fed. Appx. 461 (6th Cir. 2005). Therefore, in order for any waiver of discharge to be valid it must be through either §524 or §727 and cannot be merely waived by the checking of a box on a loan agreement.  

       Please remember that a debtor who enters into a loan agreement with no intention of paying the money back, but to file bankruptcy instead, can be prosecuted for fraud.

       It must also be noted that a prepetition stipulation can waive the discharge of certain debts, but that is a totally different animal than contractual waiver agreements. For an in depth discussion of this topic please see Line Drawing and the Bankruptcy Discharge: Why Prepetition Stipulations Are Enforceable but Prepetition Waivers Are Not by Kristin Ballobin.

Bankruptcy Procedure: Conversion v. Dismissal

       A debtor in a Chapter 13 plan is allowed to dismiss her case at any time (Code §1307(b)) and allowed to convert her case to a Chapter 7 Bankruptcy at any time (Code §1307(a).  However, even though the Code states that one cannot be forced to remain in a Chapter 13 Bankruptcy and can either dismiss or convert the Chapter 13 Case, the procedure for each is quite different. 
      
      Rule 1017(f)(2) states that if a Debtor wishes to convert or dismiss her case under 1307(b) then it shall be by a motion governed by Rule 9013, which requires Notice, Motion, and a Hearing.  However, Rule 1017(f)(3) states that if a Debtor wishes to convert or dismiss her case under 1307(a), then all the Debtor has to do is file a notice of conversion; No motion, no hearing.  

       A closer look at this procedural process reveals an oddity in the requirements. The Bankruptcy Code specifically allows a debtor to voluntarily dismiss her case whenever she wants, and this right to dismiss is quite strong because the Code precludes any attempt to waive the right, yet the debtor must file a motion and have a hearing asking the Bankruptcy Court to dismiss the case; however, to convert the Chapter 13 case, the only requirement is Notice to the Court and parties, even though the right to convert is watered down.  For example, to convert a case to Chapter 7 from Chapter 13, the debtor must qualify to file Bankruptcy, must qualify for Chapter 7 under the Means Test, and must be in good faith (The Bankruptcy Code does not ask for good faith; this qualification was read into law by the Supreme Court 5-4 in Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007)).   Therefore it seems backwards that the unconditional right (dismissal) of the debtor requires more procedural process than the watered-down right (conversion) of the debtor.