How does it all just go away?

A client asked me this the other day. It didn't occur to me until the client kept repeating the question that bankruptcy is something both scary and almost unbelieavable. Why would anyone EVER let someone borrow money if there is a possibility that the debt may NEVER be paid back under the law? The answer is simple--Capitalism is all about risk. The government encourages banks to lend money and allow them to make a profit by betting on their customer's future. It also encourages people to take risk, big risks, to better our society. And when one fails, the government provides a mean to hit the 'reset' button and start over. Indeed, we almost lost GM if it wasn't for this policy.

When it seems like life is impossible to go on and debt is keeping life from progressing, bankruptcy may be the relief valve that one needs. Bankruptcy law allows a judge to order a discharge of any debt. A discharge is an injunction, or restraining order, against creditors. It is an order to cease ALL collection action against the debtor and it last forever. Some debts are not dischargeable, such as child support, certain tax debt, and government fines, but a majority of all debts are indeed dischargeable. And just like that, debts simply just go away.

Merry Christmas!

Reasons why people get into debt

With the holiday coming around, we all have a lot to be thankful for. It's a season where shopping, eating, and family are celebrated among love ones. Not surprisingly, my office usually slows down around this time of year because people are trying to stay positive and cheerful.

Reading some of the comments from my previous posts, there might have been some misunderstanding because I feel like I might have inadvertently misled some readers into thinking that debt issues/problems only occur to people who are irresponsible with their money or overspend. While there is some truth to that belief, the number one reason why people file bankruptcy in the United States is for medical reasons. This shouldn't come as a surprise since the U.S. still has a long way to go on health care policies.

Unless employed with a financially-sound company that subsidizes health insurance, health insurance is prohibitively expensive to many people who have to buy their own. Those with health insurance through their employer typically pay $40 per pay check toward health insurance; the employer pays the other $300-400. This causes a problem to those who are either unemployed or work for a company that can't afford health insurance for its employees. These folks can't afford to pay for health insurance. One bad health incident can lead to a life-time worth of debt.

The number two cause of debt issues is change in circumstances. Divorce, unemployment, market changes, etc. can transform someone who was making six-figure income into someone who depends on public assistance to pay rent in a matter of months. It is natural for humans to be financially optimistic about ones future. People borrow money to survive until the worse is over... unfortunately, creditors can't wait.

As you can see, the top two reasons that people go into debt have nothing to do with being irresponsible with money or living beyond one's means. Life is full of surprises, some will leave you debt!

Happy holiday everyone!

What happens when you don't pay your bills...

Every day in the office, I get calls from frantic people who wonder why their pay checks are being garnished. A wage garnishment is an order from the court (called a 'writ') that orders the employer to withhold a portion of the employee's paycheck. The employer is then ordered to send that withholding to the creditor. In Washington state and many other states, creditors are allowed to garnish up to 25% of the debtor's net pay (after taxes). To someone who makes $45,000/year (gross pay), it could mean $800/month is garnished.

How does this happen?

The collection process is pretty standard. When you stop making payments toward your debt:

1. You'll get calls and letters from the bank telling you that you're delinquent.
2. After 2-3 months without success, the debt is sold to a collection agency (aka "third-party creditor").
3. Depending on how aggressive the collection agency is, the debt can either be sold to another collection agency or simply assigned to a local attorney to enforce the contract.
4. If the attorney takes the case, he/she will file a lawsuit against the debtor.
5. In most cases, the debtor has no legal grounds to fight the lawsuit. If so, the court will grant a judgment against the debtor.
6. The creditor then takes the judgment and ask the court for a 'writ of garnishment'. The writ is served to the employer and garnishment begins.
7. The creditor may also ask the court for a 'writ to levy' (or 'writ of attachment'), these terms varies depending on the state. This writ essentially allows the creditor to seize assets to satisfy the debt. To a certain extent, creditors can levy automobiles, jewelry, cash, gold, etc. In Washington, creditors can clean out a debtor's bank account, as long as the creditor leaves the debtor with at least $200.
• One law firm  in Bellevue, WA experienced a backlash from a debtor it had to garnish: http://www.q13fox.com/news/kcpq-061510-axevandal,0,4567701.story

How do you stop a garnishment?

This is a tough question to answer. A writ of garnishment/levy/attachment are all considered valid court orders. They are issued by a state court, and therefore, can only be defeated by a federal court order. A Bankruptcy filing automatically triggers a federal court order to stop collecting debt. 11 USC § 362(a). People cringe when I tell them that their only option is a bankruptcy, but this is the only means to force a stop to garnishment (without fighting the creditor). I do understand that it has to do with self-pride and despair. Because of that, I approach each case with delicately and with compassion. I do understand that nobody wants to file bankruptcy, even if it means a brighter future. I'm not excited when I tell people that bankruptcy is their only option. But I do remind them that I understand their situation and that it's a personal choice; I'm there to help.

Arrow Law Group, PLLC | 1904 3rd Ave, Suite 930, Seattle, WA 98101 | www.ArrowLawGroup.com

Your right to walk way...

*edit*

Something that isn't taught in American schools, surprisingly, is your American right to exercise fundamental rights without government interference. My favorite is the 4th Amendment right against unreasonable search and seizure without a warrant and probable cause. This is a right that puts citizens on equal playing field with the government. As such, the government rarely institute the teaching of this right, no matter how fundamental it is.

I spent 3 weeks in law school and one summer internship to master the 4th Amendment. I'll do my best to briefly summarize it in this post.

The 4th Amendment states in part that, "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause..." This Amendment says that the government cannot unreasonably seize or search a person, their home, papers, and effects (which means communication including mail and telephone) without a warrant and probable cause.

When and what is a seizure?

Even though many of you might not know it, you have probably been seized before. A person is seized when he/she does not feel free to walk away. The police can seized someone either by a show of force or physical restraint. By this definition, every traffic stop is a seizure! Certainly nobody feels free to walk away (or leave) when lights and sirens are coming from behind.

What is required for a seizure?

The Constitution says that no unreasonable search without a warrant and probable cause. This has been interpreted by the Supreme Court to mean that reasonable searches are okay. So what is a reasonable search?

In the famous case of Terry v. Ohio, the Supreme Court ruled that if the police has a reasonable suspicion that a crime is afoot or a reasonable suspicion that the suspect is armed and dangerous, the police can conduct a reasonable search. In that case, a police officer spotted some guys walking around and looking into store windows. The officer approached the suspects, flipped them around, and frisked them for weapons. When he discovered a gun, he arrested them. When it came time for trial, the defendants questioned whether the cop had a right to stop and search them without a warrant or probable cause. The Supreme Court ultimately allowed this search, deciding that the government's interest outweighed the defendant's individual privacy interest.

The Court was careful in applying this search. This search is limited to the pat down of the suspects outer clothing and can only last so long. This has been known as the Terry Search or the "Pat Down." This is the only known search allowed where the police does not have probable cause that a crime has been committed and no warrant is present.

Later, the Court applied the Terry Search to cars in Michigan v. Long and to homes in Maryland v. Buie.  Over the years, the Supreme Court has expanded its interpretation of the 4th Amendment to say that an unreasonable search without a warrant can be allowed in limited circumstances. I won't elaborate on every exception (such as exigent circumstances, to preserve evidence, incident to an arrest, etc.), but I will talk about one exception called "consent."

Consent

The police can always search a person upon consent. Consent must be knowing, intelligent, and voluntary ("KIV"). Even though refusing consent cannot give rise to any probable cause, this is the number one reason why people consent to searches. For example, a police officer pulls you over for speeding, and you have a kilo of cocaine in the trunk (that you took from your drug-addict brother in an intervention). The officer says, "do you mind if I look in your trunk?" What do you say?


Most people feel that if you say no to the popo (pissed off police officer) that he'll think that you're hiding something, so they voluntarily give the police permission to search the trunk! Next time you watch COPS, pay attention to the people who voluntarily give consent to a search. The Court is clear that refusing to give consent, alone, is not enough for the police to get a warrant to search. So next time you have cocaine in your trunk, don't let the popo search it!

There are other exceptions such as the "plain-view" doctrine which says that if the police can see something in plain view (like through your car window), that it is okay for the police to use it as evidence.

What happens if the search is improper?

If the police violates your 4th Amendment right to obtain evidence, then that evidence cannot be used against you in the court of law. Criminal defense attorneys heavily rely on this defense to exclude harmful evidence. When I was in Michigan, East Lansing Police used to walk up and down sidewalks and ask people to take breathalyzers. Based on the results, people could get charged with a "Minor in Possession" of alcohol. Anyone who refuses to take the breathalyzer was charged a $100 fine. The Court eventually held that it was an unconstitutional search because (1) simply walking on a sidewalk cannot be enough reason to seize someone and (2) consent was not voluntary. As a result, the breathalyzer results couldn't be used to charge anyone with an MIP. No evidence, no crime.

*Please remember that refusing a breathalyzer if you are driving a car could result in your license being suspended. This is because you consented to this search when you got your license.*

I'm not sure what the lesson here is, except that you should never consent to a search of your trunk if you are hiding cocaine in there.

www.ArrowLawGroup.com | Attorneys at Law | Seattle, WA

How Bankruptcy Can Stop Foreclosure

Bill and Jill are happily married. They both work, make decent money, and pay their bills on time. They own a home together and have never been late on a payment. Financially, it appears that Bill and Jill are going to do quite well. Unfortunately, neither Bill nor Jill was immune the economic storm that swept the globe.

Bill received a letter from his boss that his job position might be eliminated and Jill's hours are being reduced because budget cuts. Like many Americans, Bill and Jill have financially planned by saving up money. Months go by, and Bill is worried that their planning didn't cover this long of a "recovery". Bill's job is becoming less secured and Jill's hours are now reduced to half of what it used to be. They've exhausted a majority of their savings, 401k, and IRA to keep up with monthly bills, including their mortgage. Inevitably, B & J run out of cash and start to fall behind on their mortgage. Several months go by, and B & J now have a foreclosure notice.

Later on, B was offered a new job with a different company. This one pays only a little more money, but it was enough that B & J can make their monthly mortgage payments. However, the bank won't stop the foreclosure process unless B & J catch up on all of their late payments. There was simply no way that Bill can pay several month of late mortgage payments to cancel the foreclosure. The bank refuses to work with Bill and told him that it will auction the house off in 90 days. What can Bill do to save his home?

Sadly, it's not a very well known fact that a Chapter 13 Bankruptcy can stop a foreclosure. A Chapter 13 Bankruptcy is the type of bankruptcy where the debtor sets up a plan to repay a portion of his/her debts. If the Plan meets all the requirements for court approval, a bankruptcy judge signs the plan into an order. The order prevents the bank from foreclosing on the debtor's property while he/she is making payments.

In a home-saving situation, the Chapter 13 plan will include a provision that requires total payments of all late mortgage payments. The debtor has up to 5 years to pay up the late mortgages. While he/she is making the payments, the bank is not allowed to foreclose on the property based on these late payments alone.

For example, if Bill's monthly mortgage payment is $1,000 and Bill is 5 months behind, his mortgage arrears is $5,000 ($1,000 x 5 months). In order to prevent the bank from foreclosing, Bill can either (1) pay the bank $5,000 to get caught up or (2) file a Chapter 13 and pay off the $5,000 over 5 years ($83.33/month). As long as Bill is paying his ongoing monthly mortgage payment on time plus the extra $83.33 (paid through Court), the bank can't foreclose. This is likely how Bill will save his home.

All of this can be confusing because a Chapter 13 Plan requires a great deal of legal engineering before the Court will approve it. If you know anyone who is losing their home and they want to save it, you should point them to a bankruptcy attorney before it's too late.

Arrow Law Group, PLLC | Bankruptcy Attorneys

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