Articles Posted in Bankruptcy News

A popular online meme that came out earlier this year pointed out that over 500,000 Americans declare bankruptcy because of medical bills each year, and it was often used to criticize the medical and financial institutions of the United States. According to a recent fact check performed on the claims behind the meme, the numbers may not be exact but appear reasonably accurate. The larger issue surrounding the viral spread of the meme online is the misguided criticism of the United States bankruptcy code. In reality, many Americans are able to use U.S. bankruptcy protections to regain control of their finances after incurring excessive medical debt that was necessary to save their own life or the life of a loved one.

StethoscopeMore Personal Bankruptcies Are Filed Over Medical Debts Than Any Other Type of Debt

Putting the relatively insignificant dispute over the exact numbers aside, both the source of the popular meme and the fact checkers who wrote the article agree that more personal bankruptcies are filed to address medical debt in the U.S. each year than over any other source of debt. The reasons for this vary, but medical debts may result in so many bankruptcy filings because they are rarely secured by collateral, can increase very quickly to reach levels that are impossible for many debtors to pay off, and are often incurred while patients are suffering from medical problems that prevent them from working. According to a 2013 congressional report cited in the article, over 640,000 medical bankruptcies were filed in American courts in 2013. Many of these cases resulted in large amounts of medical debt being discharged.

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Across the United States, varying factors result in statewide and regional differences in the number of bankruptcies filed. A recently discussed statistical analysis of per capita personal bankruptcy filings has revealed that most of the states with the highest rates of personal filings are located in the South, the Midwest, and the Great Lakes regions. Although many factors contribute to each state’s per capita rate of personal bankruptcy filings, the existence of beneficial state debt protection laws appears from the data to correlate negatively with the per capita filing rate.

Which States Have the Highest Personal Bankruptcy Rates?Money

A recent report on the per capita filing rate for personal bankruptcies between April 2015 and March 2016 demonstrates that the states with the very highest personal bankruptcy rates are clustered in the South, with key Great Lakes states close behind. According to the report, Tennessee is the state with the highest rate of personal bankruptcies, with 553 filings for every 100,000 residents. Indiana and Kentucky are both in the top 10, with 387 and 345 filings for every 100,000 residents, respectively. The national median over that time period was 224 filings per 100,000 people.

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Musician and rapper Curtis James Jackson III, who goes by the stage name 50 Cent, has submitted a proposal to the bankruptcy court to repay over $23 million in debts that he is attempting to restructure as part of the bankruptcy that he filed last July. The proposed repayment would have Mr. Jackson paying $23 million to his creditors over the course of the next five years. If the plan is approved by the federal bankruptcy judge and confirmed, any remaining debt against the artist could not be pursued if he completes the payments as agreed.

dollar-bill-1088855_960_720Bankruptcy Judge Suspicious of Mr. Jackson’s Honesty in the Proceedings

According to a news report discussing the recent developments in the case, Mr. Jackson is facing criticism from the public as well as the court after he has repeatedly posted pictures on his social media accounts of himself posing with large piles of money, while at the same time telling the court that he has very little in cash assets. According to the article, the rapper submitted a declaration to the court in response to the judge’s questions and claimed the currency in the pictures was only prop money that is used for videos and photoshoots, and it has no actual value. It isn’t known if the court believed Mr. Jackson’s claim, but concerns about his concealment of funds in the bankruptcy case may prevent his repayment plan and discharge from being approved.

Debtors Can Be Seriously Punished for Concealing Assets in a Bankruptcy Case

Federal bankruptcy laws are designed to allow people with insurmountable debts to restructure or eliminate some of their debt in order to allow them to develop credit going forward. An important part of the bankruptcy system requires the bankruptcy court to have an accurate accounting of the debtor’s assets and obligations in order to reach a fair resolution for both the debtor and creditors. When debtors attempt to hide assets that they have from the courts, it can result in a plan being approved that unjustly deprived creditors of assets that should have been made a part of the bankruptcy. This can come back to haunt the debtor down the road.

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Whenever someone decides that it is best for them to file for bankruptcy, they must submit financial statements to the bankruptcy court. The purpose of these statements is to determine the assets and liabilities of the filer, in hopes of coming to an acceptable conclusion for all parties involved. When a person filing for bankruptcy decides to intentionally withhold assets, or over-report liabilities, a court may not only deny a debtor’s bankruptcy request but may also recommend that criminal charges be filed against the filer.

barbed-wire-960247_960_720Most often, criminal charges are brought because a filer is not aware of the strict reporting requirements in a bankruptcy proceeding. While not all of these charges are likely to result in a conviction for fraud, the trouble of dealing with the case alone is punishment enough. It is very important to consult with a dedicated bankruptcy attorney prior to filing for bankruptcy to ensure that you are in compliance with all laws and regulations.

Man Charged with Fraud after Hiding Rental Income from Bankruptcy Court

Earlier this month, one man was arrested and charged with tax fraud and bankruptcy fraud after the U.S. Department of Justice looked into his financials during the pendency of his bankruptcy proceeding. At the time of his bankruptcy, he had accrued over $300,000 in back taxes and over $1 million in other outstanding debt.

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A United States Bankruptcy Court in San Francisco has recently released a ruling that demonstrates the differences between how bankruptcy courts handle currency versus other property or commodities such as stocks and bonds, specifically when a bankruptcy trustee alleges that a debtor fraudulently transferred the holdings in anticipation of or during a bankruptcy.


How Bankruptcy Courts Treat Fraudulently Transferred Property Versus How They Treat Currency

Section 11 USC 550(a) of the U.S. Bankruptcy Code allows a bankruptcy trustee to avoid­­­—or cancel­­­—­a fraudulent transfer made by a bankruptcy debtor in anticipation of or during a bankruptcy. Under the accepted U.S. bankruptcy law, the avoidance of a fraudulent or otherwise avoidable transfer of cash assets will result in the bankruptcy petitioner being required to reimburse the bankruptcy estate for the amount of the transfer, in addition to any applicable interest. If a bankruptcy debtor makes a transfer of a commodity (such as stocks) or other property that is then avoided, the result is different.

After a fraudulent transfer of commodities or property is avoided, the debtor is required to reimburse the bankruptcy estate with the property itself, or the value of that property at the time of the avoidance. In some cases, this distinction is meaningless because the property is worth close to the same as it was when the transfer occurred, but in cases when the value of the property has dramatically increased (as can happen with real estate or speculative commodities), the difference can be substantial.

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A recent study released by an academic medical journal explains the effect that a cancer diagnosis can have on a patient’s financial situation, and how bankruptcies that are filed immediately after a diagnosis can result in the patient receiving poorer treatment and possibly having an increased risk of mortality from the illness. The results of the study demonstrate that it is essential for our aging population to get their credit under control before they get sick, although it is also important to realize that any matter of medical bills and debts incurred can be discharged with a bankruptcy.

one-dollar-bill-1487099The Results of the Study

The study, released in early 2016 in The Journal of Clinical Oncology, was commissioned as a follow-up to a previous study that showed that a cancer diagnosis increased the risk of a patient filing for bankruptcy by 250%, and it sought to determine if a patient’s filing for bankruptcy increased or decreased their risk of cancer survival. After analyzing data from approximately 230,000 individuals diagnosed with cancer, the study found that those who filed for bankruptcy after their cancer diagnosis were more likely to die from the cancer than those who did not file for bankruptcy.

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The New York Post is reporting that Curtis James Jackson III, the rapper and entrepreneur better known by his stage name 50 Cent, filed for Chapter 11 bankruptcy in federal court in Connecticut earlier this month. According to the article, Mr. Jackson filed his bankruptcy petition shortly before he had been ordered to appear before a New York judge to testify about his income and net worth in a civil case proceeding against him.

money-123837550 Cent says that he is broke, claiming he owns approximately $50 million in assets and owes the same amount or more in debts. The article speculates that the bankruptcy filing may not reflect on Mr. Jackson’s financial troubles accurately and may have been filed to delay the civil case for punitive damages from going forward against the rapper. A federal judge will decide if the bankruptcy will postpone the civil case.

How Can a Bankruptcy Prevent Other Actions from Moving Forward?

Filing a bankruptcy triggers an automatic stay on the collection of debts, and in some circumstances it can prevent actions that seek the debtor’s property from being initiated or continued. The temporary stay goes in effect partially to give the bankruptcy court and creditors involved in the proceeding a clear view of what the debtor’s estate contains, without the uncertainty of a pending case against the debtor for damages that could upset the bankruptcy estate and possibly impede creditors from recovering the debt. In the case of Curtis Jackson, who is also being sued for punitive damages, his net worth and ability to pay the damages may be an important deciding factor in calculating any damages award. If 50 Cent is going through a bankruptcy, it may be more difficult for the plaintiff to be awarded all of the damages sought.

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The President has been considering ways to allow certain student debts to be expunged through the bankruptcy process. A prominent news source has reported that the White House is evaluating the steps to discharge student loan debt. They are hoping that there can be a shift in bankruptcy laws concerning student loan debt so that it follows the same rules and regulations as mortgage and credit-card debt.

cap-and-diploma-533027-mNinety percent of student loans are created by the federal government, whereas the remaining loans are held by private lenders. Unfortunately, student debt has doubled in just the past five years, and a majority of borrowers are behind on making payments. Some amount of the borrowers are graduate students who make a livable income; however, many are students and parents who survive on a very limited amount of income.

President Obama has advised his administration to begin considering how to allow all student loan borrowers to be able to use bankruptcy proceedings to discharge their student debt. Currently, federal law does not generally allow either U.S. government student loans or private loans to be discharged in bankruptcy proceedings. However, auto loans, credit-card debts, and home mortgages are allowed to be wiped out in bankruptcy proceedings. This disparity has resulted in many individuals facing serious financial troubles that can affect them for the rest of their lives, all because of their decision to better themselves by going back to school.

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Television actor Gary Dourdan, best known for his role as Warrick Brown on the hit drama CSI: Crime Scene Investigation, filed bankruptcy recently and is facing claims by his ex-girlfriend that he owes her money from a 2012 settlement between the two of them that cannot be cleared in the bankruptcy proceeding. According to an article posted on, the actor is filing for bankruptcy for the second time, and his ex-girlfriend has requested that the Bankruptcy Court refuse to clear a nearly $100,000 debt he owes her from a settlement after allegedly breaking her nose.

grungy-money-1-1361617-mThe Automatic Stay Caused By a Bankruptcy Filing

When a debtor files for bankruptcy in federal bankruptcy court, 11 USC § 362(a) of the United States Code has created an automatic stay preventing the filing of civil actions, collection of debts or enforcement of judgments against the debtor once the bankruptcy is filed. This law includes punishments against creditors who continue collection efforts after a debtor files for bankruptcy. The automatic stay helps bankruptcy debtors obtain immediate relief from the overwhelming harassment that collection agencies and creditors so often use to go after debts. The creditors will still have an opportunity to be heard in the bankruptcy proceeding and make their case for monthly payments or a share of the debtor’s estate, but they must wait and address their claims through the bankruptcy with all of the other creditors.

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The Federal Reserve Bank of New York Research and Statistics Group recently released a report on the effects of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), a 2005 law that significantly restricted the ability for debtors to file for bankruptcy and has resulted in a decrease in total bankruptcy filings since its passage. According to the Huffington Post’s analysis of the Federal Reserve report, the decrease in bankruptcy filings since 2005 offers an effective means to compare the effects on future creditworthiness of a debtor who files filing for bankruptcy versus a debtor in a similar position who elects to remain insolvent and try and fix their credit without the help of bankruptcy.

indian-money-4-1400712-mBankruptcy Does Not Reduce Credit Offers

The Huffington Post article first focused on the ability of a debtor to obtain new lines of credit four quarters after going insolvent. The debtors who filed for bankruptcy had actually received more credit offers and extended more lines of credit than the debtors who remained insolvent. This fact appears to disprove the commonly held notion that personal bankruptcy filing is a death sentence for a consumer’s credit, and that bankruptcy should be avoided at all costs. Instead of restricting access to credit, as many people argue, a bankruptcy can actually give a consumer access to more credit and enable them to reclaim their financial stability sooner.

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