Wednesday, November 30, 2011

Bankruptcy Mortgage Project Launches, Treasure Trove for Practitioners

By ill Michaux

Bankruptcy Mortgage Project Launches,Treasure Trove for Practitioners

The National Consumer Law Center has launched theBankruptcy Mortgage Project, a treasure trove of legal resources about home mortgage issues in consumer bankruptcy cases.

The NCLC website collects local rules, forms, general orders and opinions about consumer mortgage issues from the 352 bankruptcy judges in 89 judicial districts in the United States. It serves as a one-stop source of information for courts, consumers, trustees, mortgage servicers, attorneys, academics, and others in the bankruptcy community.

There are a myriad of issues and controversies about home mortgages that occur in consumer bankruptcy cases. Hundreds of court rulings have been issued since the current bankruptcy code was adopted in 1978. Procedures and law differ from bankruptcy judge to judge and district to district.

Chapter 13 is a form of bankruptcy often used by consumers to save their homesfrom mortgage foreclosure.

Consumers in a Chapter 13 cases generally are not permitted to modify home mortgages, but they may submit a plan to the bankruptcy court in which they propose to cure a mortgage default. The typical "cure plan" provides that consumers will make payments to the mortgage creditor on both the amount they are behind before filing (the "arrearage" payments) and the regular, ongoing payments that come due after filing (the "maintenance" payments). If the plan is approved by the bankruptcy court and the consumer completes the plan, generally in a three to five year period, the consumer should emerge from bankruptcy with a fully current mortgage and the foreclosure will be avoided. Source: Bankruptcy Mortgage Project.

Many bankruptcy courts have responded to the increasing volume created by the current mortgage foreclosure crisis by facilitating voluntary loan modifications. The courts also have adopted local rules and procedures to balance the interests of debtors, creditors and trustees, to address perceived mortgage servicing abuses, and to specify treatment of junior mortgages. The Bankruptcy Mortgage Project website collects these local rules, general orders, and rulings to aid the consumer bankruptcy community.

There are a number of reasons, however, why consumers may have difficulty keeping up with their plan payments. There may be some life-changing event during the plan, such as job loss or major sickness, or the consumer's mortgage payments may simply not be affordable. Another problem which has been well documented over the years is that mortgage servicers may file inaccurate claims listing amounts owed, may not properly credit cure plan payments as they are made, and may not disclose to consumers payment changes and fees assessed during the plan. It is not uncommon for debtors who successfully complete their Chapter 13 plans to receive a bill for thousands of dollars of previously undisclosed fees once they come out of bankruptcy. Source: Bankruptcy Mortgage Project.

Here are the categories of documents available for download on the Bankruptcy Mortgage Project site:

Loss Mitigation and Mediation

Chapter 13 Plan Mortgage Cure Requirements

Stay Relief Requirements

Lien Stripping

Chapter 13 Plans

for more information on bankruptcy matters please call our office for an appointment at 305-548-5020

Tuesday, November 29, 2011

Consumer Wins Big FDCPA Verdict!

By Karen Oakes

Consumer Wins Big FDCPA Verdict!

InsideARM, a accounts receivable management blog reported today that during the past week, a consumer was awardeda $1.26 Million verdict in a Fair Debt Collection Practices Act (FDCPA) lawsuit in New Mexico. The consumer, a "Lucinda Yazzie", had brought the lawsuit after the debt collector had attempted twice to garnish wages for a debt that the consumer had disputed with the debt collector.

Lucinda Yazzie told the debt collector, Farnell & Sandlin, a law firm, that she had never had a Target credit card for which they were collecting. Instead of stopping collection, the debt collector obtained a judgment, then attempted to garnish Yazzie's wages. The wage garnishment was stopped the first time, but then two years later, a second garnishment was served on Yazzie's employer. That order stayed in effect and a hearing on the order was pending when Yazzie filed the FDCPA case against the debt collector and against Target as well with Robert Treinen, of Albuquerque, New Mexico as her attorney.

During the litigation, it was discovered that Target had supplied the correct account information, social security number and identifying information on a different Lucinda Yazzie to Farnell & Sandlin. However, later in the process, an employee had changed the social security number to that of the Lucinda Yazzie who was eventually garnished.

The jury found that $161,000 in actual damages was appropriate and then awarded $1.1 million in punitive damages.

The Fair Debt Collection Practices Act was implemented to protect consumers from unfair, deceptive and illegal acts of debt collectors and damages may be awarded in those cases. Consumers have recently received $311,00o from a Montana jury, according to my colleague Carmen Dellutri of Florida's blog article. A debt collector is anyone who collects the debts for another, even a law firm can be a debt collector. If your rights have been violated, see an experienced consumer attorney for guidance about whether the FDCPA can be of assistance to you.

for more information on bankruptcy matters please call our office for an appointment at 305-548-5020

Monday, November 28, 2011

Elderly Parents, Life Estates, Remainder Interests, and Bankruptcy

By L. Jed Berliner

Elderly Parents, Life Estates, Remainder Interests, and Bankruptcy

Bankruptcy trustees in California and elsewhere were notorious for holding a Chapter 7 case open while real estate prices rose (hah! remember those days?) above the protected values. The trustee would then sell the home, forcing a debtor to move – and spend the protected part of the sale proceeds to do so - while recovering money for the creditors.

In other situations, a debtor might own a "remainder" interest in an elderly parent's home. The elderly parent had deeded the home to the debtor but reserved a "life estate", the right to possess while the parent lived. The trustee would hold the case open until the parent died. The value of the remainder interest would increase above the protected value, and the trustee would then sell the home.

The vast majority of cases ruled that the increase in value of a Chapter 7 asset belonged to the trustee, while the debtor was stuck with the fixed exemption amount. Those courts have ruled that a frustrated debtor's remedy was to move to compel the trustee to abandon the asset. A trustee cannot keep a case open indefinitely. The trustee must close the case expeditiously, after due consideration of the possibility of recovering money for the creditors. How long is "expeditiously" in these circumstances is up to a judge's discretion. Unfortunately, that motion to compel has a $176.00 filing fee.

An analysis of compelling the abandonment will include the anticipated delay before the trustee sells the property. In the life estate context, the life expectancy of the elderly parent is important. It will also include a calculation of the anticipated dividend to the creditors after the parent dies. Finally, the court will balance the competing policies of repayment to creditors against the need for an expeditious,just, speedy, and inexpensive determination and closing of the case and the violence done to the debtor's fresh start and claims of exemptions. See In re Saunders, 2011 Bankr. LEXIS 520 (Bankr. M.D. GA Feb. 17, 2011).

Oddly, in Massachusetts and elsewhere an increase in value of a Chapter 13 asset does not belong to the estate if it is not realized through a sale or refinance. This appears to contradict the Chapter 7 rulings that postpetition appreciation belongs to the estate.

There is also a developing split of cases about whether a debtor can protect post-filing appreciation by having claimed "100% of fair market value" when the case was first filed. This can be another helpful argument, if the appropriate exemption was claimed.

for more information on bankruptcy matters please call our office for an appointment at 305-548-5020

Friday, November 25, 2011

Bankruptcy Exemptions: The Injuries of Benn (Part IV)

By Wendell Sherk

Bankruptcy Exemptions: The Injuries of Benn (Part IV)

Getting compensated for injuries is personal. It's meant to replace a loss to you as a person. Missouri exemption law recognizes that. Yet the recent evolution of those exemptions in bankruptcy (here, here, and here) has set up an unusual conflict between state and federal law.

Until the Benn decision discussed previously, Missouri cases were uniform in saying that Missouri law protected an unliquidated personal injury claim from creditors — and from bankruptcy trustees.

In the modern era, the cases trace back to Judge Barry Schermer's In re Mitchelldecision in 1987. Mitchell reasoned that the state never allowed trafficking in the injury claims of individuals under its common law. And by implication, the "opt out" law (noted in part I of this series) incorporated the common law of Missouri into the arsenal of bankruptcy exemptions.

But in the Mahony case, Judge Arthur Federman found this long history was not sufficient to withstand the implications of the 8th Circuit's Benn. He reasoned thatBenn commanded that a separate legislative act — a statute — was required for the state to provide a protection of any asset in bankruptcy. So the common law — being created by the decision of a judge — was not enough to qualify.

Mahony is remarkable since most personal injury claims are common law (e.g. auto accidents are based on negligence) "created" by judges. So while Missouri judges can create a cause of action, under Mahony the protection of that personal compensation from creditors afforded by those judges throughout our history turns out to be irrelevant, if you file bankruptcy.

Ironically of course Western legal tradition holds that decisions of judges carry the force of law — unless the legislature itself acts to abrogate or reverse the decisions of the judges. And this is true for Missouri as well.

One can search in vain through the Bankruptcy Code to find the authority for federal courts to dictate to state lawmakers what is a "law." Section 522 allows states to "opt out" of federal exemptions and enact their own but it does not tell the states how to do so. Such requirements appear to be grafted into the Code. Not by Congress but by federal… common law.

Despite all the fallout, common law exemptions or "magic words" of enactment were not at the heart of the Benn decision. These elements appear more speculative than decisive — as witnessed by Benn's dictum apparently striking down of the state wildcard exemptions — including the idea that the legislature "might" have intended to create two different exemption schemes for debtors in or outside bankruptcy proceedings. As lawyers say, it's more dicta than holding.

Recently the Missouri state court of appeals was given the opportunity to express its opinion on the subject. In Russell v. Healthmont of Missouri, a debtor asked the state court to declare his right to exempt a PI claim when he filed bankruptcy. The court reiterated some of the cases finding we have always protected such claims and then confronted the Benn and Mahony decisions. It pointed out, "Of course, federal cases interpreting Missouri law are not binding on this court interpreting our own statute." (internal quotes omitted) The Russell panel went on to hold:

Under Missouri law, an unliquidated, personal injury claim can, if the proper procedures are followed and conditions satisfied, be exempted from his bankruptcy estate pursuant to Sec. 513.427 [the opt out law]. the trial court erred in relying upon federal cases interpreting a Missouri statute in a manner contrary to that of established Missouri case law…(slip opinion p. 6)

So eventually it will have to come to this. It seems clear that state courts, interpreting their own law, do not believe a specific legislative act, much less any "magic words," are needed to create an exemption for Missourians in bankruptcy. And they seem to believe that "common law" is still "the law of the state of Missouri" and can qualify as an exemption.

But state judges do not rule in federal court buildings. So will federal courts graft onto Sec. 522 a narrow linguistic and enactment standard that has not heretofore been found in it, particularly when it restricts the ability of states to craft their own exemption rules for their bankruptcy debtors? Or will they find a more balanced approach that sustains the core (reasonable) holding of Benn while restoring the authority of Missouri courts to define what Missouri law is? Time will tell.

for more information on bankruptcy matters please call our office for an appointment at 305-548-5020

Thursday, November 24, 2011

Wells Fargo Bank Charging Monthly Debit Card Use Fees

By Gini Nelson

Wells Fargo Bank Charging Monthly Debit Card Use Fees

New Mexico had its largest wildfire in its history this summer — the Las Conchas fire burned 156,593 acres (244.6 square miles) not far from where I live.

To me, the continuing harsh economic times also continue to consume ground people once took for granted. In my state, New Mexico, starting on October 14, 2011, Wells Fargo bank will charge a $3.00 Debit Card Activity Fee each month a checking account holder makes purchases or payments using any card linked to that account. The notice letter I got from Wells Fargo noted that retailers may also charge a fee for purchases. The bank is testing the new program (of fees) in Washington, Oregon, Nevada, and Georgia, too, and is expected to eventually expand to all states.

It doesn't affect me personally as I simply do not use debit cards (or ATM machines). I'm in the process of moving my bank accounts away from Wells Fargo any way, though, because they also started a new program, effective about 2 weeks ago, of monthly checking account fees for accounts that never required them before. It doesn't seem right to me, so I found another bank, even closer and more convenient to me, which both charges me no checking account fees and pays interest (admittedly, a very small amount, but Wells Fargo paid no interest).

But many people do use debit cards, and they may not have opened that letter from Wells Fargo (I admit I sometimes do not open the "important bank [or credit card] information within" letters which seem to tell me some new term I have no power over). They may find the new debit card use fee on their checking account statement — I wonder if some will be so close to their balance that it causes a check to bounce? And then an additional fee will be accessed without immediate notice and some of their own checks may bounce. (I know this because a client's payment check bounced recently. I happen to check my account balances online relatively frequently so I saw what had happened before the letter came in the mail informing me of the check that did not deposit and the charge to me for the check that did not deposit. Good thing — the client's payment check was large enough that it did bring my working account balance down at that point. But I did catch it in time.) And then more fees for their own bounced checks.

I wonder if more people will return to using cash?

for more information on bankruptcy matters please call our office for an appointment at 305-548-5020

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Wednesday, November 23, 2011

What is Credit Bidding in Bankruptcy?

By Nicholas Ortiz

What is Credit Bidding in Bankruptcy?

Credit bidding is a right that secured creditors have in bankruptcy sales allowing them to control the sale of their collateral. When collateral that secures a lien is proposed to be sold at a bankruptcy auction, a secured creditor is allowed to bid the amount of its debt as a credit bid, i.e. not a cash bid. This means that the secured creditor can compete with cash bidders with just a pen stroke. The right to credit bid, which is found principally in Section 363 of the Bankruptcy Code, gives undersecured creditors the ability to control their collateral when it it worth less than the face amount of their claims. For example, if some real estate worth $500,000 and collateral for a bank loan of $750,000 was proposed to be sold, a debtor would find it difficult to sell the property over the objection of its mortgagee in a bankruptcy sale for its value. This is because the secured lender would have the ability to bid the full amount of its claim of $750,000 without offering any cash. Credit bidding is seen as one of the chief rights of secured creditors in bankruptcy.

Although credit bidding has traditionally been seen as available in all bankruptcy sales, this notion has been partially eroded. In the seminal case of In re Philadelphia Newspapers, LLC, 599 F. 3d 298 (3rd Cir. 2010) the influential Third Circuit Court of Appeals upheld bid procedures that barred a secured lender from credit bidding at a bankruptcy sale. The key point of this case was that the sale was a plan sale and not a Section 363 sale. Consequently, the panel held that the debtor had the right to give the lender what is known as the "indubitable equivalent" of its claim, and that there was no statutory right to credit bid under the circumstances. The panel left open the option of the lender to contest whether it had really received indubitable equivalent value at the plan confirmation stage. Philadelphia Newspapers offers an intriguing alternative to attempt a cramdown of a secured claim through a bankruptcy sale.

for more information on bankruptcy matters please call our office for an appointment at 305-548-5020

Tuesday, November 22, 2011

Retain Complete Bankruptcy Originals, Not Just Signature Pages, When Going Paperless

By L. Jed Berliner

Retain Complete Bankruptcy Originals, Not Just Signature Pages, When Going Paperless

It seemed like a dream to paper-burdened bankruptcy lawyers, this electronic filingstuff for bankruptcy courts. Go paperless! Save only signature pages. Prepare your schedules, have the client make the necessary changes and sign where needed, then prepare the PDF documents, use the /s/ digital signature, and file away. Sure, you keep the original "wet" signature pages. Sure, you scan the images of the package returned by the client containing the handwritten revisions. You end up with a very skinny file of about a dozen wet signature pages. Your computer has scanned images of the package returned by the client along with all those supporting documents. Yes !!! Good-bye, File Storage Costs.

Um, not so fast. That electronic filing was your certification that you had clean documents, with the original signatures, of what you just filed. You certified that you had more than the wet signature pages and the revision-marked versions; you reprinted the revised sections so the client AGAIN reviewed and signed the documents after being updated to incorporate the previous changes. And you're exposed to sanctions if you do not have clean printouts of the documents in your office identical to the filed PDFs, printouts which were signed after all the changes were made no matter now minor the changes – even simple typographic errors. In re Daw, 2011 Bankr. LEXIS 279 (Bankr. D. Idaho 2011), In re Tran, 427 B.R. 805 (Bankr. N.D. CA 2010), aff'd sub nom. In re Nguyen, 447 B.R. 268 (9th Cir. BAP 2011), In re Harmon, 435 B.R. 758 (Bankr. N.D. GA 2010). In re Brown, 328 B.R. 556 (Bankr. D. N.D. CA 2005).

Many attorneys have signing conferences where this gets done. Many attorneys have signing conferences but do not take this extra step of a reprint after revisions for another set of signatures. Some don't like signing conferences, instead mailing the documents – prepared after exhaustive preparation with the client – for a careful final review in the comfort of their own home, perhaps over a cup of coffee or tea, believing that it's easier to concentrate anywhere than in an attorney's office.

The rule remains the same in all circumstances. We must keep in our paperless office a complete printout, after all changes are made, of what we file.

for more information on bankruptcy matters please call our office for an appointment at 305-548-5020

Friday, November 18, 2011

Can I Pay Tax By Credit Card Then File Bankruptcy?

By Kent Anderson, Oregon Bankruptcy Attorney

Can I Pay Tax By Credit Card Then File Bankruptcy?

Credit card debt is frequently discharged in bankruptcy. Taxes can be paid with a credit card. State and Federal governments accept and even encourage such payment. However, a credit card debt incurred to pay tax is probably not dischargeable. There are at least two important reasons why credit card convenience may result in non-dischargeable debt.

In the first place, it could be and often is considered fraud to incur a credit card debt with the intent to bankrupt the debt. Many courts have ruled that 11 USC §523(a)(2), an exception to thedischarge for money obtained by false pretenses or fraud, applies to credit card purchases made without the intent to repay them. Important information can be found in an article by my colleague, Atlanta Bankruptcy Attorney Jonathan Ginsberg, called Recent Credit Card Use and Filing for Bankruptcy – What are some Guidelines?

Even with the intent to repay a credit card debt when the charge was made, the debt may beexempt from discharge when it was incurred to pay a tax. Two new laws were added by Congress in 2005 to protect credit card companies in just this situation. When used to pay a tax that is otherwise non-dischargeable, 11 USC §523(a)(14) and 11 USC 523(a)(14A) protect the creditor from discharge of the debt in bankruptcy.

Under the new laws, use of a credit card to pay tax may make a tax that is dischargeable with the passage of time, into a debt that never becomes dischargeable. While the bankruptcy code allows discharge of personal income tax after a waiting period, there is no such provision in the new law. This is yet another reason that payment of tax with a credit card may be a bad idea. Personal income tax that is due for recent years is considered a priority and is not dischargeable under the bankruptcy code. While the tax would become dischargeable in two or three years if not paid, the credit card debt used to pay it would not.

for more information on bankruptcy matters please call our office for an appointment at 305-548-5020

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Thursday, November 17, 2011

Bankruptcy Exemptions: The Wages of Benn (Part III)

By Wendell Sherk, Missouri Bankruptcy Attorney

Bankruptcy Exemptions: The Wages of Benn (Part III)

In the on-going saga of Missouri bankruptcy exemptions, some apparently-settled debtor protections have recently been destabilized. And this caused an apparent split among bankruptcy judges on at least some of these protections.

Recently, this on-going evolution visited the daily wages of consumers. Missouri has a law which protects a large portion of an individual's income from her own services from collection by creditors, often calledthe "wage" exemption. It is similar to a federal law which sets the outside maximum a creditor can garnish from personal income.

In years past, the U.S. Supreme Court has held that the federal law is not intended as an exemption in a bankruptcy case. And some states have followed this as to their own "wage" protection laws.

But as we know, states can make their own laws about exemptions to be used in bankruptcy. And Missouri has opted to go the other way.

Beginning 22 years ago in bankruptcy court with In re Sanders, 69 B.R. 569 (Bankr.E.D.Mo. 1989), Missouri courts began recognizing this statute as a protection for earnings still owed to a debtor. The Court of Appeals accepted this principle in In re Wallerstedt, 930 F.2d 630 (8th Cir. 1991) and In re Parsons, 280 F.3d 1185 (8th Cir 2002) — while rejecting it in application in those cases. These courts consistently held or applied it as a bankruptcy exemption. There does not appear to have ever been a contrary state court decision.

The rule itself provides that an amount owed to a person as compensation for her own labor or "personal services" are protected up to 75% or up to 90% if the person is the financial head of a family.

In 2009, in In re Garst, Judge Venters in Kansas City examined the statute and concluded that the wage exemption would apply to funds on deposit in a bank account, if they could be traced to personal earnings. This was because the statute used the term "paid or payable" which is identical to Social Security protections – and generally interpreted to mean that the protection follows the money.

But in 2010, Judge Surratt-States in Eastern Missouri declined to follow the Garstlogic, she concluded that the wage protection statute was not an exemption at all, in light of Benn. In Parsons (unrelated to the prior circuit case) the court disregarded the pre-Benn decisions applying the wage statute as an exemption in bankruptcy because Benn entitles the individual to only those statutory enactments which explicitly state they are intended as exemptions.

In effect, Parsons puts every Missouri exemption — even if applied as an exemption for many years and supported by prior case law — to a challenge now. It concludes there is a federally-mandated definition of "exemption" for bankruptcy purposes. The origin of this federal mandate appears to be federal common law, not the Bankruptcy Code itself.

The potential here is that many long-accepted Missouri exemptions would seem to be "in play" in light of the Nathan Smith and Parsons application of Benn.

One other common exemption has also been stuck down by some judges under the same theories described in this series — but this has also provoked the beginnings of a re-examination as well, as we shall see in the next installment.

for more information on bankruptcy matters please call our office for an appointment at 305-548-5020

Wednesday, November 16, 2011

Bankruptcy Court Costs Increase

by Jill Michaux, Kansas Bankruptcy Attorney

Bankruptcy Court Costs Increase

Miscellaneous fees in the U.S. Bankruptcy Courts increase again on November 1, 2011. The filing fee to initiate a bankruptcy case is not technically changing, but the "administrative" fee is going up $7 so the total fees that must be paid to file a new bankruptcy case go up by $7.

The new total fees to start a new bankruptcy case starting November 1, 2011, are

chapter 7 $306
chapter 13 $281
chapter 11 $1046

Debtors will have to pay $30 to amend schedule d, e, f, g, or h, up from $26. Creditors will have to pay $176 to file a motion to lift the automatic stay, up from $150.

Other fee increases: