Credit card delinquencies have dropped slightly while foreclosures continue to rise; but one of the reasons cited for this shift is debtors’ neglect of mortgage payments in favor of keeping their credit cards current. Current high levels of unemployment and financial uncertainty have conspired to create an incentive for debtors to neglect their mortgages while making payments on their credit cards.  Many debtors are afraid that they may lose their job soon and they want to have a source of easy to get to cash so they keep their credit cards in the black.  Other debtors are already falling behind on mortgage payments, are unemployed or soon to be unemployed and figure that they will lose their home to foreclosure anyway so why bother trying to make payments.  Many are betting on the fact that foreclosures in this country are so numerous that mortgage companies are backlogged for as much as a year which will give more homeowners time to live “rent free.”  But there is a catch, even if mortgage companies don’t crack down on delinquent homeowners as fast as their credit card counterparts, they will eventually come after delinquent borrowers even after foreclosure.  Because of the rapid loss of value in the housing market, many homes sold at foreclosure are sold for significantly less than the mortgage that the original homeowner owes.  This means that the mortgage company will come after the debtor for the balance of that loan and will have the legal right to file lawsuits and use judgments to seize assets and garnish wages.  Even if a debtor is without assets and jobless, the mortgage servicers are betting that eventually the debtor’s finances will improve and that they will be able to get repaid.  Many debtors find that without the help of a bankruptcy discharge, once they regain employment and assets, old debts such as unpaid mortgages come back to haunt them.  This is why debtors who find themselves neglecting their mortgage payments in order to pay credit cards, should really consider how bankruptcy can help them.  Remember, bankruptcy will discharge unsecured debt and make it impossible for creditors to come after you once you’re financially on your feet again.

The foreclosure crisis has special significance for homeowners with properties governed by homeowner associations which often charge large monthly fees for the general maintenance of the common areas.  Many homeowners who have lost their condos and planned community homes to foreclosure are finding that they are indebted to homeowner associations for thousands of dollars long after they have lost their home to foreclosure. 

Homeowner associations are clamping down hard on delinquent residents and former residents who owe past-due HOA fees.  Many of these homeowner associations are hiring debt collection companies, filing lawsuits and garnishing the wages and assets of homeowners’ who have lost their properties to foreclosure and have failed to pay HOA fees.   It’s a double whammy for homeowners’ who have succumb to foreclosure because oftentimes they are on the hook for 12 months or more of HOA fees even if they weren’t living in the property at the time.  Because homeowners remain liable for HOA fees until their home is sold or seized via foreclosure by the bank, many homeowners are being relentlessly pursued by homeowner associations.  And even if they were only behind a month or two at the time they moved out of the property, they could end up paying much more because the bank delayed their foreclosure.  Some even suspect that mortgage companies are hesitant to foreclose on condos/townhomes with HOA fees because they know it may take a long time to sell these property and they don’t want to spend out thousands in fees on a property that isn’t profitable.  Fortunately for those debtors who file bankruptcy, HOA fees can be discharged in bankruptcy. 

As the recession continues to sweep through the entertainment industry, another on-demand music company files bankruptcy.  Playlist, a site which hosts on-demand music filed Chapter 11 bankruptcy with $24 million in debt from unpaid royalty payments to major record labels.

Playlist, a site which hosts on-demand music for users to share and generate playlists, is mired in debt. The company owes more than $24 million to major labels and $1.68 million to indies in royalty costs. Additionally, its bandwidth bill alone for providing free online streaming comes to $803,470–not exactly a sustainable financial picture.

After settling royalty lawsuits with Universal, WMG, RIAA and nine other labels throughout the year, Playlist was not able to pull itself out of its financial rut and hopes to restructure its debts in Chapter 11 bankruptcy.  But it may have some trouble finding bankruptcy financing because the music industry has been unable to turn on-demand music streaming into a profitable business model.  Investors specializing in bankruptcy exit financing may be hesitant to sink their money into any company using a business model that even the largest players such as iTunes are shying away from. One of the requirements of having a successful Chapter 11 bankruptcy is that the business must convince current creditors and investors as well as possible bankruptcy exit investors that their business is in fact viable.  But if the business model a Chapter 11 bankruptcy company is using is considered flawed or not viable, it could be nearly impossible to convince creditors and investors to stick with them over the long haul. This is one of the challenges that Blockbuster is facing if in fact they choose to file bankruptcy and it will probably be a challenge for Playlist as they work through the bankruptcy process.

Legendary marathon runner Dick Beardsley and his wife Jill have filed for Chapter 13 bankruptcy, listing assets of $72,509 and liabilities of $176,734. 

Beardsley and his wife, Jill, filed a petition for Chapter 13 bankruptcy petition on July 20, listing assets of $72,509 and liabilities of $176,734.

They owe the Internal Revenue Service $87,616 in taxes from 2006 to 2009, making the IRS the largest of the more than 50 creditors on their list filed with the U.S. Bankruptcy Court in Austin, where they live.

“We did it to consolidate some IRS debt, and that’s it. That’s the end of the story,” Jill Beardsley said by phone this week.

The IRS seized cash from the couple five days before they filed for bankruptcy, according to their statement of financial affairs filed with the court.

Beardsley is best known for finishing the 1982 Boston Marathon in 2:08:54, just two seconds behind winner Alberto Salazar in a famous race dubbed “The Duel in the Sun.” But his bankruptcy filing is another example of what can happen when debtors refuses to move quickly to protect their finance and delay a necessary bankruptcy filing.  The IRS seized cash from this star athlete’s home only five days before he filed bankruptcy.  It is almost certain beyond a reasonable doubt that Beardsley knew he had tax debts before his cash was seized.   So why is it that he delayed filing bankruptcy?  Beardsley like many other debtors probably believed that somehow his debt troubles would work themselves out or that maybe he would eventually catch up; but the truth is that it rarely happens that way.  What does happen is that creditors, especially the IRS, become aggressive and seize assets that could have been protected if bankruptcy had been filed in a timely manner. Remember, bankruptcy can even stop the most powerful creditors such as the IRS from seizing your assets and give you a chance to put your financial house in order.

After settling a dispute with its retirees, Visteon Corp. won support for its reorganization plan from its major shareholders, lenders and the bankruptcy court, and raised more than $1.3 billion by selling stock to bondholders.   Visteon retirees had been the one major challenge preventing Visteon from moving forward with its plan to cut $2 billion in debt and exit bankruptcy under the control of its bondholders.  Under the new deal with retirees, Visteon will pay $12 million to unions representing more than 6,000 former Visteon employees.  But the Visteon bankruptcy plan has not avoided controversy, a handful of shareholders oppose the bankruptcy plan saying that they should have been given a chance to participate in the stock sale.  But with about 76 percent of Visteon’s shareholders voting to support the plan, the company has successfully won the court’s approval of the bankruptcy reorganization plan and should be exiting bankruptcy soon.

In most Chapter 11 bankruptcy plans, unsecured shareholders are left with either nothing or very little compensation after secured creditors are repaid.  This is one of the pitfalls of Chapter 11 bankruptcy for unsecured creditors.  Also, employees are often faced with drastic losses in benefits and salaries, especially retirees who are considered a huge financial liability for the company in Chapter 11 bankruptcy.  On the upside, a company that enters Chapter 11 bankruptcy with an effective strategy can unload large amounts of debt while giving their company a fighting chance of survival even in the most hostile economic conditions experienced since the Great Depression.

Film producer Warren Zide best known for his hit movie “American Pie” has filed for Chapter 7 bankruptcy.  Zide’s Chapter 7 bankruptcy petition did not list all of his specific debts; but it did list that he had $1 million to $10 million in liabilities and $518,630 in back taxes owed to the state of California. The fact that Zide filed Chapter 7 bankruptcy means that he does not make more than the median income in his state and that his debt and assets do not exceed the thresholds imposed by the bankruptcy code.  The Zide bankruptcy is interesting in that while in many ways he is similar to other wage earners filing for Chapter 7 bankruptcy, he also owns assets such as copyrights, merchandise licensing deals and other intellectual property assets related to the movies he has produced that may be liquidated to pay creditors. However, Zide may still avail himself of the bankruptcy exemptions and may also have the opportunity to “buy back” some of his most valuable assets during bankruptcy with the help of an experienced bankruptcy attorney.

And while the details of Zide’s bankruptcy filing have not been disclosed yet, it is likely that this successful filmmaker overspent after his smash 1999 hit “American Pie” made millions and then found that his income had shrunk over the past 10 years.  Unfortunately for celebrities such as Zide and even individuals who are not so famous, the unwillingness to make financial adjustments once income drops can lead them down the road of financial troubles. But with Chapter 7 bankruptcy, Zide will be able to discharge many of his debts, protect his most valuable assets and emerge from bankruptcy better positioned financially.

The American Bankruptcy Institute’s ABI Journal recently released a study that says that 42 percent of all debtors filing for bankruptcy were between the ages of 45 and 64 in 2007 and that older Americans file for bankruptcy at a faster rate than young adults.  The increased rate of bankruptcy filings among older Americans is due to a combination of unemployment, medical debt, high credit card debt, devalued homes and the decimation of retirement funds. Not to mention the amount of discrimination many older Americans face in the employment market making it difficult for them to reenter the workforce after suffering devastating financial blows. Many older Americans are losing their jobs and losing their health insurance which can make them vulnerable to the financial fallout of medical emergencies.  Medical debts pile up and they file bankruptcy.  But before an older debtor files bankruptcy because of unemployment or medical debt, they often drain their home of equity or raid their retirement account in an attempt to repay debtors and avoid bankruptcy.  What they don’t’ understand is that by doing this they are often digging themselves deeper into a debt hole that only bankruptcy can dig them out of.  And like a line of tipped over dominos older debtors with equity lines of credit struggle to repay their debts and succumb to foreclosure, rely on credit cards and eventually face creditor lawsuits after months of avoidance and using one source of debt to pay another.  It is at this point that older debtors finally file for bankruptcy.  And it is at this point in their financial crisis that bankruptcy is the save haven they so badly need.

The truth is out, the housing industry is not recovering and the economy may be facing a double dip recession.  Sales of previously occupied homes plunged to their lowest level in 15 years and that’s despite the presence of some of the lowest mortgage rates we’ve seen in decades.  But what is driving this perfect storm of economic malaise?  And why are the current conditions driving even more people into bankruptcy?  Fear, unemployment and the mortgage industry’s resistance to change are three major factors driving the foreclosure crisis and the tsunami of bankruptcies hitting cities around the nation.

People are afraid, afraid of losing their jobs, losing their homes to foreclosure and not being able to sustain the payments on a new mortgage.  This is why they aren’t buying the glut of houses on the market; but this is also why the mortgage industry has severely tightened their lending standards.  The mortgage industry knows that unemployment, right now the leading cause of foreclosure and bankruptcy, is rampant and they are afraid of lending to the “wrong” people.  But the irony of the mortgage industry’s stance during this foreclosure crisis is that they are primarily responsible for creating the quagmire that is currently crippling this economy. It is the mortgage industry that refuses to change, to modify toxic mortgages or to even untie the hands of the bankruptcy system so that bankruptcy judges can modify residential mortgages and save homeowners from foreclosure. But the other irony is that because the mortgage industry’s fear and resistance to change, even more homeowners are seeking the protection of bankruptcy.  So many homes have lost significant value that many 2^nd and 3^rd mortgages are becoming unsecured debt and dischargeable in bankruptcy. In a twist of fate, this devaluation of personal real estate gives many homeowners the opportunity to save their home from foreclosure by using bankruptcy after all and many of them are jumping at the opportunity.

Many unemployed debtors are filing bankruptcy because they simply can’t pay their bills, are facing lawsuits and asset seizures.  Generally speaking these unemployed debtors have had decent credit and paid their debts faithfully and on-time while employed; but because of unemployment or persistent underemployed they have become delinquent and need to file bankruptcy.  Unfortunately, some uninformed or misinformed employers may misunderstand a job candidate’s bankruptcy filing and misinterpret their bankruptcy filing as a moral and character failing.  This type of thinking, especially during this economy is a sign that many employers need a dose of reeducation regarding personal bankruptcy. But until we can reeducate these businesses on a mass scale, post-bankruptcy debtors need to be careful to present their bankruptcy in the proper light. Below are two important things every post-bankruptcy debtor must do if they are looking for employment:

1. Don’t hide your bankruptcy.  If an employer says that he/she is going to run a credit check then you need to make them aware of your bankruptcy filing.
2. Understand that those employers who misjudge bankruptcy filers are not necessarily against bankruptcy; but they are usually against many of the misconceptions about why people file bankruptcy.  For example, some misinformed employers believe that bankruptcy filers are irresponsible, have poor impulse control or refuse to take responsibility for their actions.  While there are certainly bankruptcy debtors who fall into those categories, most bankruptcy debtors are individuals who have fallen upon hard times and need a helping hand.  It is the post-bankruptcy debtor’s job to assure the employer that they belong to the category of responsible debtors who have fallen upon hard times and used bankruptcy to get a second chance.

If you’ve been watching the news and following the celebrity blogs then you’ve probably heard that Teresa Giudice is taking a lot of heat for spending $60,000 on home furnishings after filing bankruptcy.  Her bankruptcy attorney is supposedly defending the purchases saying that the money spent was from income earned after the bankruptcy fling and therefore could be legitimately spent for necessities such as furnishing her home.

“That was the money she earned as an advance for her book Skinny Italian,” her attorney Jim Kridel tells PEOPLE. “Since she earned it after the filing, she was absolutely free to spend it.”

But many people were shocked and upset about Giudice’s splurge not so much because she may have broken bankruptcy laws, but because they felt that she was spending lavishly while in bankruptcy.  This is the deal, Giudice lives a lifestyle that requires lavish spending and that lifestyle is probably one of the things that drove her into bankruptcy.  How many of us live a lifestyle where we live beyond our means, drive up debts we can’t pay and eventually need to file bankruptcy?  Bankruptcy is offering Teresa Giudice and her husband an opportunity to get a fresh financial start; but she cannot successfully take advantage of that opportunity if she is not willing to change her spending habits after bankruptcy. The Giudice family must make the effort to drastically pull back on their spending and abandon the idea of living a luxurious lifestyle if they cannot afford it. Giudice and many other less wealthy individuals are seduced by the idea of appearing to live in the lap of luxury even if it means they will squander the second chance that bankruptcy affords them. Don’t allow the ego boost that a faux luxurious lifestyle provides to ruin you second chance after bankruptcy.

When a debtor files bankruptcy, they must fill out what is called the Statement of Financial Affairs.  On the Statement of Financial Affairs the debtor must disclose all the income they have earned from employment or the operation of a business.  They must also disclose to the bankruptcy court all income received from any other sources.  Here a few things you need to know about properly disclosing income on your bankruptcy’s Statement of Financial Affairs:

1. The bankruptcy debtor must disclose all income received for the year that they are filing bankruptcy and the previous two years.  For example, if a debtor filed bankruptcy in October 2010, they would need to disclose all income for the years 2008 and 2009.  This can usually be accomplished by providing tax returns, W-2s, paystubs or a profit and loss statement if the debtor is self-employed or owns a business.
2. If a debtor is filing Chapter 13 bankruptcy or Chapter 11 bankruptcy they need to also disclose their spouse’s income.  The disclosure of a spouse’s income when filing Chapter 7 bankruptcy is not required on the Statement of Financial Affairs unless the spouse is also filing bankruptcy. However, since the spouse’s income is already listed on the Means Test, many bankruptcy attorneys also list it on the Statement of Financial Affairs when filing Chapter 7 bankruptcy despite the fact that it is not required.
3. When disclosing income on the Statement of Financial Affairs the debtor must include all income even income that is exempt in bankruptcy such as Social Security and child support payments.  Also, if the debtor is being paid in cash or “under the table” this income should also be included in the bankruptcy filing’s Statement of Financial Affairs.

If a debtor has become delinquent on their debt payments for long enough, creditors will eventually file a lawsuit against them and may win a judgment.  With a judgment in place the creditor can garnish wages and get the right to use non-wage garnishments which typically means they will seize bank accounts. If a creditor serves the debtor’s bank a non-wage garnishment affidavit, the bank is required by law to hand over the debtor’s money on deposit up to the amount owed to the creditor, even if that puts the debtor’s bank account at a zero balance.  For example if a debtor owed $3,000 and had $1,500 in their bank account, the non-wage garnishment could wipe out the account handing over the $1500 to creditors. But there are things a debtor can do to protect their bank accounts from non-wage garnishments:

1. Be aware of any lawsuits filed against you by creditors. If you are significantly delinquent on any debt payments, there will be a lawsuit, it is just a matter of time.  If you are facing a lawsuit, don’t ignore it.  Show up to court and consider filing bankruptcy to stop the lawsuit.  Bankruptcy will stop the lawsuit and prevent a non-wage garnishment before it happens.
2. Don’t deposit all of your money into your bank account.  Yes, we know that is inconvenient; but depositing money into your bank account gives the creditor access to your funds.  Consider paying your bills using money orders until you can sort out your financial affairs.  Also, consider filing bankruptcy if you have large amounts of debt that you simply cannot pay. 
3. If a creditor has already won a judgment against you, consider challenging the validity of that judgment.  Were you served properly?  Many creditors fail to properly serve debtors when they file a lawsuit leaving the debtor unaware of litigation.  If a creditor failed to serve you, you may be able to have the judgment thrown out.  Has the statute of limitations passed?  In Texas, credit card companies have only four years to sue a debtor for non-payment.  If the creditor files a lawsuit after the statute of limitations has expired, the debtor can have that judgment thrown out.