U.S. bankruptcy law allows borrowers to cancel their debts. However debts incurred less than 90 days prior to the filing of the bankruptcy that are more than $650 are considered luxury item and subject to adversarial proceedings by the creditor to prevent discharge. The key in making the determination is based on whether the debt is for luxury item. In certain circumstances even though a debt may look like a luxury item if the purchase was for the maintenance and support of the debtor, then the debt may still be discharged in bankruptcy.

With the proliferation of services such as Uber and Lyft many debtors try to be generate additional income by participating in the “gig economy“. These side gigs that debtor’s engage in are primarily for the maintenance and support of debtors. With that said, what happens then if you buy a brand new SUV to operate as an Uber driver only to find out things will not work out?

Such was the case for an Illinois debtor who after working for Uber with his older vehicle, decided to upgrade into a $40,000 SUV with the hope and expectation that this vehicle will generate income to pay of his debts. Mr. Oswaldo Rodriguez, a debtor in Chicago, decided at the suggestion of Uber to purchase a bigger vehicle that would fit luggage in the trunk for traveling passengers. He settled on a black 2015 Chevrolet Equinox for $39,332.16, agreeing to make monthly payments of $546.28 for six years. But things did not turn out the way he had expected and less than 30 days after the purchase, he filed bankruptcy without making any payments to GM, the finance company.

GM soon after repossessed the vehicle and sold it and filed an adversarial complaint against Mr. Rodriguez for the balance under the argument that the vehicle was a luxury item purchased less than 90 days prior to the bankruptcy filing. Judge Jacqueline Cox, in the Chicago bankruptcy court, agreed to erase the $9,786.61 debt that Mr. Rodriguez owed for the balance.

In her six page opinion, the judge wrote “He genuinely thought that he could earn enough money through Uber to finance the debt”, furthermore more, Judge Cox ultimately ruled against the lender pointing out in her opinion that the term “luxury goods” doesn’t include items that a bankrupt person needs for their “support or maintenance.”

Bankruptcy law is complicated and with the right facts, argument, and law, an experienced bankruptcy attorney can get you the fresh start even though at first glance may not look possible. But if you are thinking about going out and buying a Lamborghini to drive as an Uber driver for one month. And yes it has been done before. I would love to hear your story but no promises being made here what-so-ever.

Let me start by saying that I have never ever seen anything like what you are about to read below. In the 19 years I have been practicing as a bankruptcy attorney representing consumer in the central district of California, I can unequivocally say that every trustee I have had on my cases has been very professional and courteous in the treatment of the debtor’s. Sure they may have a bad day or tired at the end of a long day, but nothing like below. So this was shocking even to me.

In the first case, the debtor was a Spanish-speaking US citizen who worked as a cleaning person. The 341 meeting began with the trustee refusing to provide an interpreter and, instead, badgering the debtor about her ability to have passed the English proficiency test for citizenship ten years before. He questioned her ability to fill out tax forms, bankruptcy forms, etc. all with the accusation, implicit or explicit, that she was dishonest. Because the trustee did not provide an interpreter, a friend of the debtor who was present at the meeting helped translate the trustee’s questions for her. In addition to his inappropriate attacks on the debtor’s lack of English skills, the trustee questioned the debtor about a class action lawsuit in which she was a party and which she had included in her bankruptcy petition. He barraged her with questions based on his misunderstanding of the lawsuit, calling the suit a “travesty” and demanding answers but asking further questions before she was able to respond. Much of the interview was conducted with the debtor in tears. The debtor received her discharge.

The next debtors were a letter-carrier for the post office and his wife who worked as a part-time babysitter. The trustee focused on their home which they bought for $300,000 and owed over $500,000 at the time of the bankruptcy. Though the wife had taken care of the financial details, the home was in the husband’s name. When the wife attempted to answer questions, the trustee interrupted saying, “How about I ask the guy whose name is on the deed? Wouldn’t it make more sense?” The trustee continued to ask accusatory questions about the debt on the house and the wife’s chapter 7 bankruptcy from thirteen years before, interrupting the answers with such statements as, “How much did you refinance for? This is your second bankruptcy. You know the system. And now you’re back again for both of you to not pay your creditors.” Reminding them that they were under oath, the trustee demanded to know why they had not listed certain mortgage creditors on their petition. Both creditors were, in fact, listed. When the wife tried to answer the trustee’s questions as to how the debt on the house had risen so much without their having taken out further loans against the property, he instructed her not to “dig herself into a deeper hole,” and told her that what she was saying “can’t be truthful.” He threatened to take the case to the mortgage fraud department. Ultimately, he took none of the threatened actions against the debtors and they received their discharge.

The third debtor was a pro se actress whose income was from social security and food stamps and who had filed a previous bankruptcy that was dismissed. The trustee zeroed in on whether her previous bankruptcy had been dismissed with or without prejudice. The debtor, who explained that she was not feeling well and was on painkillers due to a root canal the day before, first said she did not know then that she believed it had been dismissed without prejudice. The transcript showed the debtor crying and asking the trustee to stop yelling at her. At some point she left the room and the trustee turned to the non-debtor husband, asking if he was a disbarred attorney, to which he said no. When the debtor returned she asked the trustee not to direct questions at her husband. Nonetheless he continued to ask the husband questions about the previous bankruptcy and his knowledge of the law. That case was transferred to a different district.

In reviewing the transcripts from each of these hearings, the Director agreed that the trustee’s conduct was “unprofessional, discourteous, overly aggressive, and inappropriate.” With respect to the Spanish-speaking debtor, the Director found the trustee failed to meet the Language Assistance Plan requirement to promptly provide an interpreter and inappropriately used a family friend to interpret instead. With respect to all the debtors the Director agreed that the trustee’s behavior demonstrated: “[1] Failure to cooperate and to comply with orders, instructions and policies of the court, bankruptcy clerk and the United States Trustee; [2] Failure to display proper temperament in dealing with judges, clerks, attorneys, creditors, debtors, the United States Trustee and the general public; and [3] Failure to attend in person or appropriately conduct the 11 U.S.C. 341(a) meeting of creditors.”

The Director rejected the trustee’s defenses that he was a long-term trustee and had received good reviews from the Office of the US Trustee. The Director found that length of service does not excuse a trustee from rules that less experienced trustees are bound to follow. Moreover, the good reviews were not without some suggestion of problems. The trustee had been subjected to reminders that his conduct must be courteous and professional by the US Trustee and the fact that he was not inappropriate in all his dealings with debtors and their attorneys merely justified the less “sweeping” discipline of suspension rather than termination. Nor was the court persuaded that the trustee’s yelling was due to his wearing hearing aids as he never mentioned the hearing aids when asked by debtors to stop yelling and the content of his words without regard to their volume was “unfair and, at times almost cruel.”

Reported by National Consumer Bankruptcy Rights Center (NCBRC)

2016 Personal Bankruptcy Forecast

Fitch projects 2016 personal bankruptcy filings to contract further by 6-8% from levels observed in 2015. Key elements that drive the level of filings are macroeconomic factors, including unemployment, consumer indebtedness, the interest rate and housing environment, among others. Fitch believes sustained job growth, low jobless claims and stronger consumer sentiment as a result of positive equity and real estate markets will support the overall decline. Annual bankruptcy filings totaled 798,690 in 2015, falling by 10.2%, or 90,745, from 889,435 observed the prior year. Personal filings in 2015 closed below the one million mark for the second consecutive time in eight years. The year marked 12 straight periods of fewer bankruptcies recorded per month versus the prior-year same periods, signaling that the postrecession improvement has not yet slowed. Fitch’s 2016 estimate of a 6%-8% decline from 2015 implies filings will total approximately 735,000-750,000 this year. Although the expected decline is lower compared with the projection in 2015, the forecast remains favorable given continued positive macroeconomic conditions, and Fitch believes 2016 will be on target for a sixth straight year of lower personal bankruptcy filings.

U.S. Employment Strong

Lower personal bankruptcy filings post-recession continues to be largely attributed to gains in U.S. employment over the same period. Following its peak in 2009 when many turned to bankruptcy as a result of inability to service debt, the unemployment rate had since continued to ease from prior-year levels. With a full-year average of 6.2% in 2014, the unemployment rate declined further in 2015, averaging 5.3%. As such, the U.S. unemployment situation improved to levels not seen in more than eight years while remaining approximately 45% lower than the highest level observed during the crisis and still 14% lower YOY. Similarly, initial jobless claims also declined in 2015, as the labor market continued to hold strong with stable opportunities in the marketplace. The number of Americans applying for unemployment benefits tumbled, posting year-long improvements of sub-300,000 filings. Total nonfarm payroll continued to report gains in 2015, albeit not higher than the previous year. In 2015, the U.S. added more than 2.5 million jobs, marking the third straight year with more than two million jobs created, according to data from the Bureau of Labor Statistics. Fitch believes unemployment will remain at or slightly below 5.0% through 2016.

Consumer Credit Expands

Consumer credit continued to expand on a seasonally adjusted basis through 2015, with upward trends YOY following a credit-crisis pullback in 2010. Total consumer credit reached $3.5 trillion in October 2015, marking increases for 52 straight months. 2015 saw a 7.3% increase from the prior year, with a larger percentage of gains attributed to nonrevolving, over revolving, credit. Nonrevolving credit, which generally includes automobile and student loans, has surged rapidly, accounting for approximately 74% of aggregate consumer credit. Nonrevolving credit increased roughly 8% YOY and stood at $2.6 trillion as of December 2015. Revolving credit, which mostly comes from credit card usage, has risen at a quicker pace in the last 1218 months, with banks shifting strategies from a once conservative to now looser approach in underwriting guidelines. Revolving credit rose just above 5% from 2014 and totaled approximately $930 billion as of December 2015. However, Fitch believes recent the loosening in lending requirements and resulting rise in credit lines have not yet translated to a noticeable change in collateral performance. Although still tight by historical standards, Fitch believes the effect of underwriting has positively reinforced the trend of lower filings. However, the pace of improvement will become slower over the long term.

Interest Rate / Gas Price Low

Consumer confidence is an important economic indicator of consumers’ willingness to spend and measures the degree of optimism they have about the overall state of macroeconomic and financial conditions. The Consumer Confidence Index (CCI), produced by The Confidence Board, is developed to assess the relative financial health and spending power of the average consumer in the U.S. Consumer confidence in 2015 increased YOY as improving labor conditions, ongoing strength in housing and equity markets and low fuel prices helped boost prospects for economic growth. The CCI in 2015 started the beginning of the year elevated at 103.8 (versus 100 in 1985) and produced the highest average in more than seven years at approximately 98 points. Amid improved home values, coupled with lower gas prices, throughout most of last year, consumers were left with more discretionary spending. In addition, with interest rates remaining low, consumers’ approach to home, auto and credit card loans also have continued in a positive direction. Consumers took advantage of the lower rates to refinance home mortgages, consolidate debt and reduce interest payments, which have, in turn, contributed to the lower rate of filings.

Consumer ABS Performance

Credit Card ABS

Securitized credit card receivables performance improved again and exceeded expectations in 2015. Rapid improvement in collateral quality and well enhanced trust structures continued to yield low levels of ratings volatility. Delinquencies and chargeoffs, as calculated by Fitch indices, remained at or near historical lows, while monthly payment rates reached new historical highs. Steady yields, coupled with lower chargeoff levels, produced robust excess spread measures.

Chargeoff performance was kept below 3% for all of 2015, with an average of 2.68%. Chargeoffs improved approximately 6% from previous year’s levels, marking an improvement of over 70% from peak levels in 2009. Late-stage delinquencies registered new historical lows during the same period and fell below 1% for the second half of the year. Late payments of 60 days or more dropped further and averaged 1.03%, compared with the 2014 average of 1.12%.

Absent any material external pressures, Fitch expects performance trends to slowly approach normalized levels longer term, albeit at a measured pace but remaining well within historical averages. Fitch anticipates prime chargeoff levels to level off and stay near 3% driven by banks’ further loosening of underwriting standards and ease of credit availability; however, a relapse to long-term average delinquency and chargeoff levels for credit card collateral in the near term is highly unlikely. Given the quality of collateral pools and structural enhancements in place, Fitch expects the credit card sector and ratings to remain stable.

Auto Loan ABS

Fitch’s outlook for prime and subprime auto loan ABS asset performance is stable for 2016, even as loss rates experience pressure and rise this year, particularly subprime transactions (Fitch only rates the subprime Santander Consumer USA’s SDART and General Motors Financial’s AMCAR platforms). The outlook for ratings performance is positive. Losses will come under pressure from rising loss severity resulting from weaker used vehicle values, along with softer credit quality in the 20132015 vintage securitizations. Loss frequency is less of a concern due to the relatively healthy outlook for the U.S. economy despite existing volatility, even if interest rates and/or gas prices were to rise marginally.

Fitch expects recovery rates to decline slowly due to pressure on used vehicle values in 2016, stemming from higher used vehicle supply hitting the market. This will arise from increasing offlease vehicle returns and elevated vehicle trade-ins, along with rising fleet volumes hitting the secondary market, and move loss rates higher in 2016. Performance could suffer if demand for both new and used vehicles slows in 2016 and interest rates rise while incentives increase.

Fitch is focused on underwriting standards in 2016, including weaker credit quality, higher loan to value ratios (LTVs) and longer loan terms. If interest rates rise in each quarter in 2016, auto lenders may decide to further loosen overall credit quality to drive origination volumes, which could contribute to softer asset performance later in the year; however, Fitch believes this scenario unlikely given recent market volatility early this year. Ratings performance should remain strong in 2016 despite negative trends that could dent asset performance this year. Fitch expects the prime sector will experience a similar level of upgrades in 2016 as in 2015, albeit perhaps at a slower pace. There were over 90 upgrades issued by Fitch in 2015, the second highest level going back to 2007. Auto lenders are facing stiff competition, particularly in the subprime sector, where smaller lenders could face heightened pressure and make them ripe for consolidation, particularly if auto sales dip in 2016. This could further pressure these companies’ bottom lines and stress their funding sources, including access to ABS issuance, for which they most heavily rely on for funding. Ultimately, this could also possibly force merger and acquisitions activity to rise and even some to go out of business, particularly the newer two- to three-year old lenders that have just entered the market. Moreover, private equity investors may look to exit their investments as they hit or approach their fund divesting periods and take profits by exiting and selling their stakes

Effective December 1, 2015, new bankruptcy forms will take effect for individual and business debtors. According to the Bankruptcy Rules Advisory Committee and the Standing Rules Committee, the new forms would be easier for debtors to understand and complete and are designed to work with scheduled enhancements to the federal courts’ case opening and electronic case management system.

While the forms themselves, if properly followed, are less pron to errors by pro-se debtors, the number of pages has dramatically increased causing some individuals to dread the prospect of completing these forms themselves.

regardless, overall, I believe the forms will result in more accurate petitions being prepared and thereby reducing trustee and court time trying t fix post filing errors. Then again it would be helpful if the courts had indicated the amount of time an average debtor should take to properly complete the form similar to what the Internal Revenue Service does on it’s forms.

So for all adventurous individuals interested in filing their bankruptcy pro-se, go ahead and download the package and give it a shot. Do remember that the forms do not give instructions on how to protect your assets or how to qualify yourselves for chapter 7 or reduce your payments in chapter 13. for that, we suggest you contact a qualified bankruptcy attorney in your area.

2015-12_bankruptcy_forms_numbered