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Wayne County Bankruptcy Law Blog

Mixed findings in recent report on credit card debt

With the holidays fast approaching, many Wayne County residents will be faced with a difficult choice. Facing financial challenges, how does one handle the shopping season -- cut back on spending, perhaps forgoing special gifts? Or add it on to the growing credit card debt and try to pay it off in 2015 and beyond?

A recent report looked at Americans' credit card habits and found some interesting statistics. One the one hand, the rate of credit card charge-offs has not been this low in almost three decades. That rate, just under 2.9 percent, represents credit card accounts that lenders declared as a loss due to cardholders' nonpayment. Taken in isolation, that statistic would generally be good news, indicating that consumers by and large are able to make their credit card payments and not fall into default.

The role of the Chapter 11 debtor in possession

In our last Wayne County bankruptcy law blog post, we made a reference to the term "debtor in possession." Let's take a little closer look at the meaning of debtor in possession according to the U.S. Courts website. The following is intended not as specific legal advice, but simply as general information.

Once a business has filed for Chapter 11, the debtor named in the filing takes on an additional role, almost like a separate identity. That is the role of the debtor in possession. The term simply means that the debtor keeps its own assets (in this case, the business) while undergoing reorganization. A liquidation bankruptcy, in contrast, would call for the appointment of a trustee to take possession of the debtor's assets. It's possible for a Chapter 11 trustee to be appointed in some situations, but rare.

Will Supreme Court Provide Wayne County Homeowners Mortgage Relief?

The U.S. Supreme Court has recently agreed to hear two Florida chapter 7 bankruptcy cases where the 11th U.S. Circuit Court of Appeals has ruled that a bankrupt homeowner with two mortgages on their home may "strip off" or "strip away" the second mortgage. The "strip off", according to the 11th Circuit, can occur where the first mortgage balance on the home exceeds the value of the home. There would be no remaining value left in the home to support the lien of the second mortgage. A "strip off' of a mortgage should be distinguished from a "strip down" or "cram down" of a mortgage. What the latter two words mean is that the mortgage's principal balance is reduced to the current market value of the property which only partially supports the second mortgage. The Supreme Court has ruled in the past that a "strip down" or "cram down" cannot occur in a chapter 7 bankruptcy. It has not yet ruled in a chapter 7 bankruptcy that a second mortgage can be "stripped off" where it is wholly unsecured.


Northern Michigan resort pursues reorganization in Chapter 11

Last week our Wayne County bankruptcy law blog looked at a major filing by Trump Entertainment Resorts. The company sought Chapter 11 protection, although there was some concern over whether the judge might convert the filing to Chapter 7 given challenges involving the repayment plan. If this seemed somewhat far removed from Michigan, let's look this week at a commercial bankruptcy case closer to home.

Back in 2002, a number of high-profile investors including former CEOs of Ford and Daimler Chrysler paid over $25 million to purchase the Treetops Resort and Spa in northern Michigan. The renowned golf and ski destination also includes a hotel, restaurants and other facilities. It's won an award from Golf Magazine and placed on Golf Digest's list of top resorts in the country. And as of late November, its' parent company is attempting a business reorganization under Chapter 11.

Judge may convert Trump hotels' Chapter 11 into liquidation

Sometimes a bankruptcy case involves a small business struggling to keep the lights on. Other cases involve a major business bankruptcy with much more complex business bankruptcy issues to address. In either case, however, there are some underlying fundamental issues that Wayne County residents should understand, no matter what point they are at in their businesses.

Take a look, for example, at the situation of Trump Entertainment Resorts, Inc., the company that owns a few high-profile resorts on the East Coast. The company has been attempting to pursue business reorganization under Chapter 11. As we've discussed previously, that would give the company some flexibility to proceed with a repayment plan and continue to operate. It would, however, likely mean some changes -- a company needs to present a sound argument under Chapter 11 as to how it would return to profitability.

Feds investigate banks over bankruptcy, credit reporting issues

A major national newspaper recently ran a story about consumer bankruptcy filings. The twist was that individuals didn't end up getting the debt relief they expected after filing for bankruptcy. We want to take a closer look at this story so that our Wayne County readers understand the details and why this has happened to some people.

The story cites a number of examples where people found that, even after completing the bankruptcy process, some debts still lingered on their credit reports. The only way to clear them up, individuals have been told at that point, is to pay them -- or risk tarnishing their credit reports. As our readers likely know, building up good credit scores after obtaining a fresh start through bankruptcy is a top priority.

Personal bankruptcy can turn the tables on creditors (part 2)

As we discussed last week, Wayne County residents working in close cooperation with bankruptcy law professionals often find that they are able to take advantage of some unique options in dealing with their creditors. Lien stripping was one such tactic that can turn the tables in your favor.

This week we're going to look at what we call loan cram downs. In some ways, a loan cram down is simpler than lien stripping. It also can potentially apply in just about any case where a debt is secured by property -- a mortgage, of course, but also a car loan or similar debt.

Personal bankruptcy can turn the tables on creditors (part 1)

Wayne County residents all too often feel as if they are completely alone as they struggle with financial challenges. The bank is likely not really on your side; neither are the credit card companies or debt collection agencies. They are all looking to get as much as they can out of you, heedless of what the consequences could be for you and your family. Fortunately, a bankruptcy law professional is not only willing to stand up for your legal rights, but can even turn the tables in some ways.

For example, lien stripping is one tactic that can benefit individuals with second mortgages on their property. We've reviewed before on our blog how in a Chapter 13 bankruptcy filing, secured debt must be paid off in full while unsecured debt only gets paid in partial over course of the repayment period (up to five years) and the remainder discharged. Because a mortgage is debt secured by property, it cannot be discharged in bankruptcy.

Many pro and former pro athletes facing financial challenges

Wayne County residents dealing with financial challenges in our struggling economy could perhaps be forgiven for the occasional daydreams of fame and fortune. If only one had the six, seven or eight-figure salary of a professional athlete, it would seem, bankruptcy would simply never be in the picture.

As it turns out, however, many of these athletes -- even promising young stars with the world seemingly at their fingertips -- are finding themselves filing for bankruptcy. The recent case of a former NBA star is illustrative. Just a teenager at the time, he signed a deal in the late nineties for just over $70 million, and was told by the coach that never again in his life would money be a worry for him.

Number one reason for bankruptcy: medical debt

There is all too often a stigma associated with financial challenges. Wayne County residents are likely familiar with the social pressure to keep up appearances, to hide their struggles away from friends, family and coworkers. But study after study show that more Americans are in need of a fresh start today, and maybe not for the reason people typically think.

The main factor underlying bankruptcy claims in this country is, in fact, the cost of health care. More people (approximately four in 10) are fighting off debt collectors today over medical debt than they are over credit card debt. You could combine what Americans pay for credit card debt and bank loans and it would still only be a third of what we pay for debt related to health care.

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