Bill McLeod's Law Blog

Late Filing of Documents = Dismissal

Thu, 07 Aug 2008 08:24:31 -0500

One of the goals of BAPCPA (the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) was to prevent abuse by debtors. One of those abuses targeted were “repeat filers” and another was the failure to file documents. If schedules and other documents are not timely filed, the court is obligated to dismiss the bankruptcy case. A debtor out of the Northern District of Alabama recently learned what happens when you do not adhere to the requirements of the code.

Free Foreclosure Prevention Workshop

Wed, 06 Aug 2008 13:20:15 -0500

We are passing this information along. People who attend are encouraged to let us know how or if they found the help they need.

HOPE NOW Alliance in partnership with NeighborWorks® America, The New England Patriots Charitable Foundation and the Federal Reserve Bank of Boston will host a foreclosure prevention workshop at Gillette Stadium on Tuesday, August 12, from 1:00 PM – 8:00 PM. This event is an opportunity for homeowners who are in financial distress, or concerned about foreclosure, to sit down with their lender face-to-face, and avoid foreclosure if possible.

Borrowers can talk face-to-face with their lender and housing counselors to work out a plan for their mortgage.

Tuesday, August 12, 2008
Gillette Stadium
Fidelity Investments Clubhouse, East
One Patriot Place
Foxboro, MA

Free Parking and Public Transportation: Free transportation is available on the Commuter Rail from both South Station and Providence for borrowers attending the event. Borrowers must show the flyer to qualify for free transportation.

Click here for the flyer

Storm Preparation: Over Withholding

Wed, 06 Aug 2008 11:51:17 -0500

Many people over withhold taxes on their paychecks. In other words, they have more taken out so that come April 15, they will expect a nice refund rather than having to pay more to Uncle Sam. But over withholding can make preparing for a bankruptcy filing a little difficult. First, over withholding is not a good idea to begin with. And secondly, the money you’re withholding (and will ultimately get back) must be considered as part of your monthly income.

"Stated Income" Loan Discharged Despite False Representations on Application

Fri, 01 Aug 2008 08:01:59 -0500

One of the focuses of my bankruptcy practice is litigating Adversary Proceedings. I came across a case out of the Northern District of California. The first sentence under the heading of “Summary of Facts” read: “[t]his adversary proceeding is a poster child for some of the practices that have left to the current crisis in our housing market.” Clearly, this was something I had to read – and share with you.

Thursdays news...

Thu, 31 Jul 2008 14:19:06 -0500

The look on his face says it all: the story behind that stray 44-pound cat from New Jersey is actually not so funny any more.

Next stop, Wonderland: who will think about the dogs?

Are we in a recession? Yes, we are. No, we’re not! Yes, we are!

Storm Preparation: Chapter 13 and DSOs

Wed, 30 Jul 2008 07:43:23 -0500

When BAPCPA was enacted, a new concept in bankruptcy law emerged: “domestic support obligations” or "DSOs". Child support, alimony and other support obligations received specific consideration in bankruptcy, and in particular, chapter 13. If you are looking at the potential of a bankruptcy filing, there’s something you need to know about how domestic support obligations and chapter 13 work together.

When I meet people who are considering chapter 13, it’s not surprising that they have a lot of debt. And at times, that debt might also include child support or other spousal support payments that have not been made or are delinquent. There are many reasons why: income changed, expenses changed and those obligations fell behind. But without a court order, none of these circumstances relieve a debtor’s liability.

Storm Preparation: Some Thoughts on What We Can Do

Wed, 23 Jul 2008 17:06:03 -0500

I didn’t sleep well last night. I tuned into the 11 o’clock news and learned about a Taunton homeowner in foreclosure who committed suicide on the day her home was scheduled to be auctioned. Since Wednesday is Storm Preparation day, the news story prompted me to get down to the nitty-gritty of things: reaching out.

I believe that one of the reasons why this situation with the Taunton homeowner strikes me so hard is because in the last several months, I have met several people who have waited a long time to reach out for help. For some, they waited too long and I have been able to help them. For others, I have been able to point them in what I hope was the right direction. And for a few, I have learned that there is nothing I can possibly do.

Tuesday's News...

Tue, 22 Jul 2008 16:58:22 -0500

Shocker: BAPCPA put more profits into the pockets of credit card companies says Harvard Law Professor Elizabeth Warren.

Yesterday I blogged about honesty in the bankruptcy. Today, there’s a report out of Wichita of a former debtor who was not so honest. He’ll be taking an involuntary vacation for 33 months for bankruptcy fraud.

Living on the edge: rising gas and food prices may push struggling families into foreclosure.

MSNBC explores the high price of commuting.

Does anyone have a spare $25 billion that they aren’t using?

Despite a new Massachusetts regulation forcing lenders to wait 90 days to foreclosure on homes (it went into effect on May 1), the Boston Business Journal reports that foreclosures continue to climb.

Sign of the times: Commercial bankruptcy filing rates are going up.

Sign of the apocalypse: Batman was arrested. No joke.

A Shakedown Backfires

Mon, 21 Jul 2008 18:19:24 -0500

This week’s Newsweek has a great article on the abusive tactics debt collectors are increasingly using. The article is called "A New Shakedown” and it’s worth the read – especially in light of the shakedown a creditor recently pulled in a Nebraska bankruptcy case. The collector ended up violating the stay.

The debtors’ chapter 13 bankruptcy case was filed on February 13, 2008 and listed Geneva Roth Companies as a claim in the amount of $170. On May 21, a collector working on behalf of the creditor GRC (Sherman and Roman) called one of the debtors and started “to verbally abuse the debtor and coerced a payment from the debtor threatening criminal sanctions.”

According to a signed statement, despite being informed of the bankruptcy filing and the pending bankruptcy case the collector told the debtor that she “was a key element in an investigation of fraud and bank theft….that they will be forced to have me identified as a felon. [The debtor went on to tell her that [she] was not going to talk to her about this at work and that I would call her back. [It] was then I had to call her back within minutes or my husband and I would be identified at our work by cops if I didn’t and it would be embarrassing.” The debtor was ultimately compelled to use a debit card to pay $300. She was left shaken.

Honesty Goes A Long Way

Mon, 21 Jul 2008 16:01:49 -0500

Today I received a call from a prospective client who was upset with their current bankruptcy attorney. They claimed that their current attorney was not giving them accurate advice, specifically, that the attorney had informed them that information pertaining to a non-filing spouse’s income and expenses was not needed to prepare a bankruptcy filing. That’s generally not the case, but in this instance, the parties had only been married for a short period. But when I started asking some other basic questions, what I got in return was whole a lot of bull.

The caller told me that the husband and wife resided together for about a year prior to the wedding. I told the caller that based on that, I would be required to consider the non-filing spouse’s income not only for the schedules (income and expenses), but also for the means test (actually, it's the Bankruptcy Code that requires it). But as soon as the information was disclosed, the caller started back-peddling.

Lessons in Loan Modifications

Thu, 17 Jul 2008 17:56:54 -0500

Suze Orman is growing on me. Sort of. She often has sage advice for consumers, and lately she has been making regular appearances on CNN’s Larry King Live. I cannot say I completely agree with everything she says, but lately, she has been telling it like it is and when it comes to financial news and advice, it's refreshing to see some honestly on TV. I have her suggest to consumers that if they are having problems with their mortgage, they should contact their lender (i.e., the workout or the loss mitigation department). A client recently told me he did just that, after hearing Orman suggest it sometime last year. He was falling behind on his mortgage, and decided to walk into his local bank to talk to them. It did not go quite the way he planned.

At the time, the client was not residing in Massachusetts, and his lender was a local bank. He sat down with the manager and explained his situation. Instead of extending an accommodation, or working with the client to help him keep his home, the manager basically said this: “sorry, but we have a lot of loans going delinquent and we need to cut our losses, so we’re going to start the foreclosure process now.” And so they did. The bank pretty much put the house into an accelerated foreclosure process.

Yikes.

That’s lesson number one: don’t go telling your lender that you’re having problems paying your mortgage unless you have some reasonable expectation as to what the response will be.

Who's Happy about this Economy?

Wed, 16 Jul 2008 15:37:14 -0500

Yesterday, I met with a couple where we discussed their need to file bankruptcy. The husband expressed embarrassment at their decision to file and (like many of my clients) expressed concern that their employer or coworkers could learn about it. I did not think it was a possibility, and I told them so. But they told me something I felt the need to share with you.

Apparently, at his place of employment everyone is just happy and feeling fine (according to the client). Everyone has nice cars, nice houses and dresses well. No one there could possibly be considering bankruptcy. When my client looked at me and said “no one at my company is going through this”, I felt I had no choice but to ask him “how the $%@# do you know that?”

IndyMac Update: Foreclosures are halted

Mon, 14 Jul 2008 20:31:43 -0500

From Reuters:

The Federal Deposit Insurance Corp has temporarily halted any foreclosures on the $15 billion of bank-owned mortgage loans found in IndyMac's portfolio, FDIC Chairman Sheila Bair said on Monday.

Hat tip: Calculated Risk.

Hope Floats (or Sinks)

Mon, 14 Jul 2008 15:32:16 -0500

We’re hearing a lot about “hope” lately. Recently, I met two people in seemingly hopeless financial situations who are relying on hope to get them through. There is hope. Then there is denial. And sometimes, it can be difficult to see the difference between the two.

These folks had marginal income, high mortgage payments, and both are facing foreclosure. One hoped they could find a job (even though they had been unemployed for almost a year). The other, whose income was not nearly enough, hoped business would pick up and their income would change (they are in real estate). Both clients hoped things will change and they can keep their homes. While I also hope things will change for them, unless they do it simply will not happen. And this is what I told them.

A friend of mine once suggested that I write more about “hope”, and even went further to suggest that I “sell hope.” I will continue to leave the selling of “hope” to politicians like Barak Obama whose campaign website is apparently “Powered by Hope.” The purpose of this website is not to sell “hope.” The people who visit this site tend to be (as they often tell me) looking for honest information. If readers find “hope” on this site, it’s because they found it. They do not need me to sell it to them.

Don’t get me wrong, I think everyone needs hope. Without hope, there is little reason to get out of bed in the morning. Without hope, there is little reason for a sick person to get well. While preparing this blog, I thought of two metaphors: hope is like a good wine: a few glasses is fine. It actually can be quite nice. But a bottle (or two) will get you drunk, and perhaps very sick. Maybe for a day or two. Or we can look at hope like coffee: a little will keep you awake and alert. Too much, and you’re jittery, sweaty, gasping for air, struggling with heart palpitations and otherwise bouncing off the walls.

If you’re facing some financial difficulty, ask yourself, how much of your game plan is based on “hope” and how much of that hope is really based on reality? Will your income improve? Will you be able to pull it together in time to avoid a foreclosure? If your answer to these questions is “I hope so”, then you need to thing about how much of your hope is your not wanting to see what might really be there. Like the real possibility that you will lose your home.

For the two clients I mention above, they both know what they have to do to get where they want to be. Both also know what if they cannot pull it together, they will need to start the process of moving into the next phase of their life, which will not be in the home they currently reside in. Both clients face very difficult realities. They may succeed and they may not. These clients came to me presenting difficult situations and wanting honest answers to their questions. I could have chosen to provide hope. But I believe that they deserved honesty first. I am fairly certain that both are grateful that that is what they got. One even gave me a big hug afterwards and said “thank you.”

Rumor Control: TheStreet.com gets it wrong.

Thu, 10 Jul 2008 08:43:52 -0500

With the limited exception of realizing while in court that I have worn two different colored socks and I am convinced that everyone can tell, there’s nothing that drives me more nuts than exaggerated and half-baked claims about bankruptcy. A recent article on TheStreet.com proves my point. Lauren Tara LaCapra writes in "Bankruptcy Can Hurt For Decades":

Rules enacted in 2005 made it harder and more costly for Americans to file for Chapter 7, in which assets are liquidated and given to creditors, or Chapter 13, which structures a repayment plan for certain debts over a term up to five years. (Debts outside of the plan would not have to be repaid.)

Harder, no. Costlier, yes. It's hard to really chide the writer for this lack of understanding because I know many people have it. But, there is also this: “Debtors outside of the plan would not have to be repaid.”

Um....No. If debts are not in the plan, they need to be paid. A best example I can give is with a car loan. If the debtor wants to keep the car, the loan needs to be paid. That loan is paid outside the plan. If it doesn’t get paid, the car gets repossessed. I could (and perhaps will at some point) get into some long analysis as to whether a deficiency must be paid through the plan and why. I could (and perhaps will at some point) blog about what happens when debtors attempt to pay only certain creditors through a plan, while paying others on the side. Suffice it to say, the claim that debts not included in the plan need not be repaid is flat out wrong. (I could reasonably infer that the term “Debts” might really mean “Regular monthly expenses” such as the electric bill and the phone bill. Those do get paid outside the plan…but they are not debts. They are expenses.)

Then, the article refers to an Ohio State University study:

…it can take over 20 years for bankruptcy filers to reach the same financial status as those with similar social and economic backgrounds who did not file for bankruptcy. It took more than a decade for a bankruptcy filer to catch up to peers in terms of savings, income and home ownership, according to the study. It took more than a quarter of a century to reach the same level of net worth.

Translated: people who file bankruptcy will not be in the same financial station in life as their peers who do not file bankruptcy. I imagine that most people facing bankruptcy know this...I also imagine that if they are in so much debt that they probably already know this. I also imagine that some of "their peers" are also quietly suffering with a boat-load of debt while all the while trying to put a good face forward to as not to lead anyone to suspect otherwise.

Jay Zagorsky, co-author of the study and a research scientist at Ohio State, notes that high prices for gas, food and housing, combined with crushing debt, can make bankruptcy seem like an easy way out with a clean slate.
"But," he adds, "to experience what people may heard of as a 'fresh start,' that may take longer than they expect or would like."

True. But it's going to be easier to pay the higher costs for food, gas and home heating oil if the other debt is dealt with in bankruptcy. As far as getting credit again, it can happen. I have had clients who have been in bankruptcy (chapter 13) and gotten credit cards (without my knowledge and without court permission…which is actually not a smart thing to do at all). I have had clients who have received their chapter 7 discharge and within weeks were receiving credit card offers (and in some cases, receiving cards). Of course, in those days, if you had a pulse, an address you could get a credit card.

Today, it’s not so easy. We are in a credit crunch. Underwriting standards are changing, and some merchants are rethinking whether they will accept credit cards. Just this week, I received a letter from Filene’s Basement telling me that they were discontinuing their credit card after September 1. They were also kind enough to send me a coupon for 15% off of one-item. But I digress…

Gas and food costs are going to make it difficult for people. Actually, it is making things difficult for people…which includes people like me. Then, the article offers this not-particularly-sage advice:

Those grappling with high costs and excessive debt should seek out other options first -- whether restructuring or consolidating debt, negotiating a payment plan or lower interest rates with creditors, selling off assets or simply cutting back on costs -- before putting a 20-year "scarlet letter" on their credit scores.

You cannot restructure your mortgage if your lender will not return your calls. You cannot consolidate your debt if you cannot qualify for a consolidation loan. You shouldn’t consider repaying debt with credit counseling without exploring whether chapter 13 is actually a better and more cost effective route. Selling assets: sure. So long as it’s not a house you need to sell anytime soon, and so long as you're not selling something to a buddy because you're concerned about losing it in a later bankruptcy filing. And as for cutting back on costs, some cannot cut back anymore.

Finally, the bankruptcy filing does not stay on the credit report for 20 years. It’s on the credit report for 10. It’s also not a Scarlett Letter...harkening back to that Nathaniel Hawthorne novel about an adulterous Demi Moore who is forced to wear an "A" so as to let the world know how sinful she is.

For the overwhelming number of people who walk through my office door, that bankruptcy filing is exactly what they need to move on. The bankruptcy is exactly what it will take to get things back on track and to help them face the new economic challenges that face us all. While I encourage debate with others with different points of view, I urge anyone who is “knee-deep in debt” to get the facts. It's a shame that this article is short on them.