The congregation of Roxbury’s Charles Street African Methodist Episcopal Church has authorized its leaders to file a Chapter 11 bankruptcy petition in order to stop foreclosure proceedings scheduled for later in the week.

One of the leading churches in Boston’s black community, they need to use the bankruptcy law to try to restructure a balloon note mortgage that came due in December 2011.

The 194 year old church has been sparring with its lender OneUnited Bank for several years over the terms of several rebuilding projects. When OneUnited refused to restructure the main loan on the church building, church leaders opted for bankruptcy court.

This story is notable on several fronts: first, it underscores how the recession has hurt religious organizations of all stripes, as contributions and tithes plunged with the economy. Next, it shows how effective bankruptcy can be in stopping an imminent foreclosure. And it also shows how negotiating the terms of a mortgage gone bad can be helped by the bankruptcy process, which gives debtors leverage they don’t usually have outside of bankruptcy court.

Right after writing about the Stallworth case and the dangers of putting houses into trusts before filing a bankruptcy case — and telling the story of a Massachusetts man who lost a lot of home equity in bankruptcy court that way — there comes another Massachusetts bankruptcy case involving, you guessed it, trusts and the homestead exemption.

In the Pierce case, no. 11-15718 the married debtors put their house in a revocable trust for their children in 2004, and selected themselves to be trustees.

They both filed a homestead declaration on the property in April, 2011 (usually only one person signs), then in June they both filed a Chapter 7 bankruptcy case.

The bankruptcy trustee took the position that the home, because it was in a trust, was no longer real estate subject to homestead protection. He also argued that the homestead documents were ineffective because the debtors just signed their names, and did not indicate on the form that they were signing as trustees of a trust.

This case had a happier ending for the debtors, however. The Massachusetts homestead laws were completely overhauled in 2011, and United States Bankruptcy Judge William Hillman decided that he could find no explicit requirement in the new rules that required people to sign homestead declarations as “trustee.”

These debtors lucked out and won their case, and will get to protect their home equity through the bankruptcy case. However, they no doubt suffered several months of worry waiting for the judge’s decision, and spent a lot on litigation expenses.

The moral of both these cases taken together is that you must be very careful if you have placed any property in trust and are thinking of bankruptcy.

The existence of a trust is not a deal-killer in and of itself, but these matters turn on really complex legalities, and you will need to provide your bankruptcy attorney with all the trust documents BEFORE the case is filed; that way, you will sleep well during the case, knowing your home is protected by the law.

A recent dispute between a bankruptcy trustee and Citi Mortgage that went to bankruptcy court in Boston shows just how sloppy the mortgage industry got during the heady days of the real estate boom in the mid-2000s.

Bankruptcy trustee Marc DiGiacomo filed a motion to eliminate a mortgage on a debtor’s home because it wasn’t “acknowledged” properly in the first place.

When you take on a huge debt like a mortgage, not surprisingly, the actual mortgage has to be signed somewhere. In Massachusetts, this is called an “acknowledgement,” and the paper is signed by the new homeowners in front of a notary public, with the paper becoming part of the mortgage itself.

Under Massachusetts law, no mortgage is supposed to be recorded at a registry of deeds unless it has a proper acknowledgement.

However, when a South Shore couple filed for bankruptcy and DiGiacomo was assigned as the trustee, he discovered that the acknowledgement on the mortgage for the debtor’s home appeared to be signed by another couple — completely unrelated to the homeowners at all!

Bye-bye mortgage, said United States Bankruptcy Judge William Hillman, in a case heard in his court. The case is listed as DiGiacomo v. Citi Mortgage, no 11-01179.

As a result, both the debtors and their creditors stand to get more money through the bankruptcy case, although this may require the home to be sold to liquidate the equity. As for Citi Mortgage, they are going to get squat, for the bankruptcy court ruled that with the wrong signatures on the acknowledgement, the mortgage should never have been recorded in the first place.

It is a never ending source of amazement what you will find when you look into the actual state of affairs of debtors with mortgages who are filing bankruptcy cases now that the economy has tanked!

Since 2003, the bankruptcy courts in Massachusetts and New Hampshire have required cases to be filed over the internet using the court’s own “Case Management / Electronic Case Filing” system. CM/ECF, as its known, was adopted a little earlier in some other states, and a bit later in others. Nowadays, it is in use coast-to-coast by all the bankruptcy courts in the country.

Both court staff and bankruptcy attorneys, and the attorney’s staff people are trained in the basics of how to get a case or a motion filed.

Or so everyone hopes. But a recent case from the Boston bankruptcy court casts a little doubt on that. The case is In re Stallworth and you can read it here.

The debtor had filed a Chapter 13 case a few years earlier, but it didn’t work out. Now she wanted to file a Chapter 7 to get rid of most of her debts. She hired an attorney. So far, so good. But then it went bad.

Although, the debtor’s lawyer was schooled in how to operate the electronic filing system, all that book learning apparently didn’t take too well.

Last September 29th, the lawyer attempted to file Ms. Stallworth’s bankruptcy case through the CM/ECF system. Somehow, she failed to upload various important bits of information, such as the debtor’s social security number and her list of creditors.

This case was eventually dismissed from the court for these mistakes, but that didn’t end that cascade of snafus. First the lawyer attempted to “vacate” her own filing by using the court’s regular e-mail address; no-go said the court staff, who told her to use ECF. When she did that, for some reason, she only filed a blank document.

Rather than correct these problems, the lawyer than filed another Chapter 7 case for Ms. Stallworth. This time the debtor’s name was not spelled right, there was no address provided except the county, and the schedules were all blank.

In response to these filings, the US Trustee filed a motion for the lawyer to forfeit all the fees she had “earned” on these cases. The attorney responded that she had not collected any fees — certainly an example, from the debtor’s point of view of “you get what you pay for.”

By now, hearings were scheduled before the bankruptcy judge on the situation, and the debtor’s attorney really compounded her own problems by telling some strategic little white lies to the judge about how all the filings got so bungled.

Needless to say, Judge Hillman was not very happy at this, and the debtor even less so. After all, she was just looking for a bankruptcy discharge on what was probably a pretty simple case. Now she is branded as a multiple-bankruptcy filer (which hurts her ability to get an automatic stay, the order that protects her from creditor harassment during the case).

In the end, the judge referred the bumbling lawyer to the federal district court for sanctions, suspended her CM/ECF account, and ordered her to take ECF training again. Hopefully it will take this time. Meanwhile, Ms. Stallworth, the debtor, still hasn’t gotten a bankruptcy discharge.

The moral of this tale is just a word to the wise: every person with a law degree is not necessarily a bankruptcy lawyer. Choose your advisors carefully, and while you don’t really need a computer jock, at least be sure your lawyer can operate the basic of the ECF system, so he can actually get your case in court.

Photo: operation of the UNIVAC I computer on CBS-TV in 1952.

What happens if you file a bankruptcy case, and then afterwards suddenly find the perfect buyer (i.e. one who can get financing and will actually go through with the purchase) for your home?

A lot will depend on what chapter your case is filed under. If its a Chapter 7, like the majority of cases, the best strategy is just to wait until the case is finished, then go ahead and finalize the deal.

In Massachusetts, most Chapter 7′s last a little more than three months. In New Hampshire, they can go even quicker. If the buyer really wants the property, it probably won’t be a deal breaker to wait a few more weeks to consummate the sale.

Chapter 13 cases are a different story. This is because these cases usually last between three and five years, while the debtors make monthly payments into their Chapter 13 reorganization plan.

In this case, it will be necessary to get the bankruptcy judge’s permission to sell the property. This is not necessarily hard to do (especially if you are doing something like using proceeds from the sale to pay off your plan). But it does take a motion to the judge to do it, and that probably means one drafted by an attorney. Talk to your bankruptcy attorney about what the exact requirements will be.

If the house is going on the market through a real estate agency, it may also be necessary to get court approval to hire the broker in the first place. Again, this is not a matter of extensive litigation (usually), but you do have to have your bankruptcy attorney approach the judge with the right papers before you just go off and hire a real estate agent.

Finally, keep your eye out for one more trap in Chapter 13. Under the Federal rules of Bankruptcy procedure, Rule 6003 prevents a court form issuing approval to sell in a Chapter 13 until 21 days have gone by after the case is filed. If you really need to file the Chapter 13, you may want to advise the potential buyer that there may be an unavoidable three week delay.

This may sound complicated, but an experienced Chapter 13 bankruptcy attorney can get the entire process to run fairly smoothly. With the technical aspects of the motions, though, this is something that you probably don’t want to try on your own.

The advantages of filing for bankruptcy — a clean slate, no more annoying debt collectors or court appearances — would be worthless if bankruptcy meant you ended up sleeping in a gutter. Fortunately, that sort of ending is virtually unheard of. There are so many people filing recently in the Merrimack Valley that any stigma among landlords has been greatly reduced.

But if you want to stack the odds of getting decent new digs in your favor, take heed of a few basic suggestions that should help you accomplish that:

First, think about building a war chest: If you are sitting in a house that is going to go to foreclosure despite the bankruptcy, you could be sitting there a while rent-free while the various legal processes play out. Instead of blowing this opportunity, “pay yourself” a monthly rent, by putting aside in a savings account what you would normally pay for shelter, or as much as you can possibly manage. If you start doing this AFTER you file a Chapter 7 case, you should be all set with moving expenses, security deposits, and the first month’s rent on an apartment before long. If you start this fund BEFORE you file a case, it impacts your exemptions, so you need to talk to a bankruptcy lawyer to get an idea how much you will be allowed to save.

Next, take a look at your post-bankruptcy credit report. Obviously, there’s no getting around the declaration that you have indeed filed for bankruptcy, but you want to make sure that your prior debts are zeroed out. Paradoxically, having no unsecured debt anymore raises your standing in the eyes of savvy landlords. The goal here is to make sure the report doesn’t list both the bankruptcy AND the old debts; if it does, you want to get on that before you go apartment hunting.

Third, have your bankruptcy records handy. Or in other words, when you get your discharge, don’t throw it out or use it for wallpaper! Landlords and other creditors will be anxious to see that your case is finished in the courts — so make it easy on them and have those papers close at hand.

And then, if you are leaving a foreclosure, think about making one more call to the mortgage company. I know, I know, they are insufferable to deal with over the phone. But if you can get through to the someone who counts, they may be receptive to letting you stay and pay rent for a while. For them, its a better deal to have someone in the property, keeping it up at least minimally, than having just more empty space in the phantom housing inventory. If you can’t get any headway over the phone with your old mortgage servicer, try the attorney who is handling the foreclosure.

Doug Beaton is a bankruptcy lawyer in the Merrimack Valley.

Massachusetts has a generous homestead exemption, which comes in handy when a homeowner needs to file a bankruptcy case.

Typically, up to $500,000 can be declared “exempt,” bankruptcy lingo for “untouchable by the bankruptcy court or trustee.”

But there are always exceptions, and one South Shore homeowner who filed bankruptcy in 2009 just found out the hard way that (barring appeals) he will be coughing up almost $200,000 in equity to his creditors, according to a decision issued by U.S. Bankruptcy Judge Joan Feeney. The case is In re Stella, no. 10-11922.

What brought the debtor down such an awful road? Good intentions, of course. He wanted to make sure his house got passed down to his adult sons when he died, so he put it in a trust a decade ago. More recently, he switched it to another trust. When his kitchen remodeling business was headed downhill in the real estate crash, he filed a Chapter 7 bankruptcy case.

The debtor didn’t go it alone; for all these transactions, he used various attorneys who seemed to be casual social friends.

But the main problem that both the debtor and his lawyers missed is the “hidden trap” in bankruptcy code section 522(p). Under this law, if real estate is transferred within 1215 days of a bankruptcy case (a little more than three years), then the homestead exemption is capped, no matter what the Massachusetts homestead law says. At the time Mr. Stella filed his case, the cap was about $137,000. His home equity, however, was about $350,000.

The kicker is that when the debtor switched the home from one trust to another, this counted as a “transfer” which triggered the cap.

Now, with Judge Feeney’s decision, it is quite likely that the trustee will sell the home, pay off the mortgage, cut the debtor a check for $137,000, and use the rest to pay off creditors (and himself).

There are at least a couple of lessons to be learned from this debacle. First, trusts are tricky in bankruptcy. No one reads the fine print in these things — although a bankruptcy trustee certainly will.

Second, bankruptcy trustees will go after non-exempt property ruthlessly, without regard for humanitarian concerns.

Third, a bankruptcy snafu like this can cost a pile of money. This case has been kicking around in the court for three years now, and took a full trial with 27 exhibits to get a decision that says the debtor loses. Ouch — that costs a bundle.

And finally, you really need a bankruptcy specialist when fooling around with this stuff. This debtor may suffer the sale of his home because he relied on a series of general practitioners who weren’t in tune with each other, or with the changes in the bankruptcy laws.

Did you know that in Massachusetts, debt collectors are not allowed to make unlimited phone calls in order to collect on a past due bill?

Under regulations put out by the Massachusetts Division of Banks, third party debt collection firms can only call you two times in a seven day period on your home phone.

And they can only call you two times in a thirty day period on any other line — for example, at your job.

Tell this to anyone who is seriously behind on their bills, though, and they’ll give you a severe quizzical look. Collectors routinely flout this regulation, harassing debtors at all hours, and repeatedly. The Division of Banks is well-meaning, but it’s not a very large state agency, and can’t really enforce its own regulations in a pro-active way.

This is where the bankruptcy process can be a blessing to people who are struggling financially. Filing a bankruptcy case automatically generates an order for debt collectors to stop calling (and writing, and suing, to boot), and the bankruptcy court is a well-funded national organization that has real judges ready to enforce its laws.

If you’re getting too many calls from collection agencies and have been thinking about whether bankruptcy could work for you, you can give me a call at (978) 975 – 2608, and I’ll go through the basics with you, and there is no obligation.

Consumers filing bankruptcy cases need to take two courses before they can get a discharge. Lately the price of these courses, which are given by various “non-profit” firms has been dropping; so long as the quality of customer service stays the same (or at least is tolerable), the consumer debtor benefits.

A little while ago I mentioned a firm that offered the “first course” (which is actually more of a counseling session than a class), for $5.

This session must actually be taken by debtors before they can even file a bankruptcy case. Even though the session is sponsored by a California group, the certificates of completion they issue are recognized by the bankruptcy courts in Massachusetts and New Hampshire.

Here is the second part of the equation — a firm that offers the “second course” for $11.

The second course really is more like a school course (except you can’t really fail). It is variously called “debtor education” or “financial management.” It is for all practical purposes, what high schools used to call “home economics” — how to manage a household budget. Completion is required before you can get a discharge. (You want a discharge, it’s the end goal of bankruptcy, like a touchdown in football).

The ability to complete these courses (required by the punitive 2005 Bankruptcy Code changes) for a modest price can be a godsend to struggling debtors.

Imagine if you have been in financial trouble for a while, and then get in a car accident. Or imagine you’ve been hurt in an accident and its completely drained your finances — now you are swimming in medicals bills.

Is it possible to file both a personal injury lawsuit and a bankruptcy case? If you live in either Massachusetts or New Hampshire, the answer is yes, although the amount you can recover through a lawsuit insurance settlement is not unlimited.

The reason this works is that both Massachusetts and New Hampshire both allow their residents to claim the federal slate of exemptions when they file a bankruptcy case. And the federal exemptions allow you to claim up to $21,625 in money from an injury claim as yours to keep despite the bankruptcy.

Note that the actual amount you can protect might be somewhat larger, because the federal exemptions give you a generous “wild-card” exemption as well, and you may choose to apply some or all of that to the injury case as well. The amounts, however, will differ from case-to-case, so you should contact a bankruptcy attorney to discuss the specifics of your situation.