It happened recently at the 138th running of the Kentucky Derby in Louisville. I’ll Have Another (left), a strapping 3 year old colt trained in California cam barreling down the stretch to grab the lead and the victory in the $2M dollar race.

He was ridden by a 25 year old Mexican jockey, Mario Gutierrez (right), who was riding in his very first Kentucky Derby, and made the ride a winning one. I’ll have another was trained by Doug O’Neill, who also had never won the Derby before.

There is certainly nothing negative to say about the animal himself, or about jockey Gutierrez, who had been slaving away at a small Canadian racetrack until recently, and whose smile after the race looked like it was powered by the Hoover Dam.

But the owner of I’ll Have Another is a little different story. that would be J. Paul Reddam (below, center), who runs a California payday loan service that goes by the name of CashCall.

As in make a call, and get cash — at an interest rate of 184%!

Here’s a specific “deal” from Reddam’s CashCall operation: take out a $5,000 tomorrow for only a $75 loan fee. All you have to do to pay it off is pay $486.58 every month for the next 7 years!

These sort of operations suck the life out of consumers and turn them into bankruptcy debtors in short order. So I can take a pass on seeing Reddam, (who in a previous career was actually a philosophy professor at the University of Southern California) use these dirty profits to buy himself a Derby-winning racehorse, even if the horse was a comparative steal for $35,000.

The best example is an auto loan: a debtor filing bankruptcy can choose to keep paying the loan and keep the car, or get rid of the loan and turn in the car to the lender.

But what happens if the lender refuses to take the collateral back?

This type of situation rarely ever happened until a few years ago. Up until then, creditors always took their collateral back!

But with the economic crash, things sometimes do fall through the cracks. And with the downturn in the economy, sometimes there is even an incentive for a lender not to take possession of the collateral.

Unfortunately there is a growing problem of lenders that are refusing to take possession of vehicles surrendered in bankruptcy. We see this not only with motor vehicles but we are also seeing this occasionally in housing. Because of low values some lenders are unwilling to to foreclose to the detriment of the neighborhood. The lender simply finds the cost of paying maintenance, insurance, and back taxes exceed the value of the home.

Back in 2006, the First Circuit court of appeals dealt with this situation in a case called In re Pratt. There, the court went so far as to say a debtor who was stuck with a car could go so far as to reopen their case and try to get the lender to be held in contempt of court! The Pratt case is binding precedent in both Massachusetts and New Hampshire.

The problem becomes more acute when houses are involved — especially condominiums. Due to a change in the bankruptcy laws, a debtor can be held on the hook for condo fees due AFTER the bankruptcy is filed if the lender refuses to foreclose– which can make clearing up title and selling a condo a nightmare, even after a bankruptcy case.

People stuck in this situation here in New England may consider hiring a bankruptcy lawyer and giving the Pratt route a try — there may be nothing better than a contempt of court motion needed to wake up a “sleeping” creditor who refuses to take back a home or car after learning of a debtor’s bankruptcy case

According to the Warren Group, which tracks real estate market activity, 850 Massachusetts properties were lost to foreclosure in March, an increase of 36% over the prior year.

There were a whopping 1621 foreclosure petitions filed in March, which was also a big jump of almost 55%. Foreclosure petitions are one of the first steps in the process, typically taken when homeowners fall at least three months behind in payments.

Bankruptcy filings may soon increase as well, because the bankruptcy filing can stop a foreclosure, even if a foreclosure petition has been filed in court.

But what if the homeowner never receives these notices? Can the foreclosure be stopped or reversed on this ground?

No such luck, according to a recent opinion in the bankruptcy court by Judge Boroff. It is the sending of the foreclosure letters that counts, and whether or not they are received (never mind read or understood) is not the issue.

This came up in the case of Bailey v. Wells Fargo, no. 09-44760 in the bankruptcy court in Worcester, Mass. The homeowners wanted to void the foreclosure based in part on the fact that they said their letter carrier left the two notices in a little used front door, where they were not discovered until the loss of the home was a fait accompli.

Judge Boroff ruled, however, that the mailbox rule in Massachusetts is clear: the requirement that the notice be mailed to the owner of the foreclosed property is satisfied by mailing the documents, and the non-receipt of them by the owner is irrelevant.

The bottom line is that if you are behind on the mortgage and you want to try to keep the property, you need to be vigilant in monitoring your “snail mail” so that you are not surprised by an upcoming auction date.

Well, one of the largest meetings of bankruptcy lawyers starts on April 26th in San Antonio, Texas when the National Association of Consumer Bankruptcy Attorneys convenes its annual meeting.

Some of the topics up for discussion are “Understanding Tax Claims in Bankruptcy,” (important, but a snooze-fest, I know), “Moving forward with reverse mortgages,” (addressing the growing number of senior citizens going bankrupt), and “Getting inside your debtor’s mind.” (once inside, is there any way out)?

Not surprisingly, many of the topics to be discussed involve home mortgages in one way or another, including “Objecting to evidence in mortgage cases,” and “Who owns the note, and why does it matter?”

Keeping up the Texas theme, there is even a session on “Lassoing debt buyers,” those pesky collection firms that specialize in trying to beat consumers out of decades-old bills.

On the final day of the conference there is a session called “Get educated on student loans,” (which might be the hot topic in bankruptcy law for the coming year), and even one called “Trustees gone wild.” If that one ever shows up on YouTube, I’ll try to post it here!

There’s a good chance that you have more assets than you realize that aren’t cluttering up the garage, too.

And if you are going to file for bankruptcy, you need to start thinking about them.

How about money in your Paypal and EBay accounts? Assets that need to be declared!

Same thing with book royalties, patents and trade secrets — what lawyers love to call “intellectual property.”

Web sites and domain names could be considered assets in our technologically dominated age.

Season tickets to sporting events and subscriptions to the arts definitely need to be declared — you wouldn’t want to lose them, would you?

Health savings accounts are assets. Run a restaurant? The liquor license might be a big one.

The security deposit for a rental apartment or storage unit is your money, not the landlord’s; and so these too are assets of what lawyers love to call your “bankruptcy estate.”

Vacation clubs and timeshares? Put ‘em on the list too!

And this list is not meant to be all-inclusive (I don’t think any list could be), but it is meant to give you a flavor for some “hidden” assets that many people have, which need to be accounted for when filing a bankruptcy case.

As always, remember the “golden rule” of bankruptcy court: “list it, or lose it!”

Sapp was best known for quarterbacking the Houston Oilers in the days before the franchise moved to Tennessee.

His financial troubles — which consumed the estimated $60M in paychecks he cashed as an elite athlete — appear have a familiar cause: investment in Florida real estate. Sapp was smart though, and still has considerable holdings in his retirement accounts — which (just like yours) can’t be touched by creditors in bankruptcy court proceedings.

Only two years ago I blogged about another NFL QB going through bankruptcy — Mark Brunell of the Jaguars, who also got snagged by real estate losses.

As Singletary points out in her article, footballers hitting rough patches in the business world is nothing new — even one of the all-time greats, Johhny Unitas, filed for bankruptcy after some business deals went sour in the 1980′s.

Singletary also points out that several years ago, Sports Illustrated published a revealing article on how and why a high percentage of pro athletes end up financially ruined. The magazine calculated that by the time they have been retired for two years, 78 percent of former NFL players have gone bankrupt or are dealing with financial issues. Within five years of retirement, an estimated 60 percent of former NBA players are broke.

But bankruptcy isn’t a death sentence, and its not the end of the line for anyone. Certainly not for Sapp, whose filing indicates he has a salary — a monthly salary, no less of $116,000! Sapp is a commentator on the NFL Network premium pay cable station.

In an Associated Press article, William Brewer, president of the National Association of Consumer Bankruptcy Attorneys, “This could very well be the next debt bomb for the U.S. economy.”

“As bankruptcy lawyers, we’re the first to see the cracks in the foundation,” Brewer said. “We were warning of mortgage problems in 2006 and 2007. The industry was saying we’ve got it under control. Nobody had it under control. Now we’re seeing the same signs of distress. We’re seeing huge defaults on student loans and people driven into financial difficulties because of them.”

And if you think it’s just students saddled with these loans, think again. Increasingly, parents and even grandparents have been twisted into co-signing the loans, meaning student loan debt, of all things, is becoming another problem of the elderly!
People over sixty collectively owe over $36 Billion dollars for their offspring’s education.

Currently, student loans are difficult to discharge in bankruptcy court, requiring the debtor to bring (and win) a lawsuit in addition to the regular case.

But if the bubble bursts, that may be changing. Lat year, legislation was introduced in Congress to ease up these requirements. In the current election year dynamic, it probably doesn’t have much chance — unless the problem really does grow as big as the housing crisis.

You have an older car you bought a few years ago at a not-so great dealer (like some of the ones who hang out in Plaistow, right over the Massachusetts line, here the lemon laws are a bit looser), who did get you financed but at a high rate.

The car isn’t great, but you definitely need it to get to your job so you can earn your daily bread. It might be coming up on some pricey repairs that you would rather not think about just now.

If this kind of situation rings true to you, maybe its time to explore the cram-down rules of Chapter 13 bankruptcy, which could offer major relief.

In essence, the bankruptcy code allows you (once you file a case, that is), to re-write the loan down to the current fair market value of the car or truck. You can then pay off this new lower balance over a period of three to five years by making monthly payments to your bankruptcy trustee. You might even be able to get a lower interest rate on these payments while you do this.

But, like any other legal strategy, there are traps and tricks you have to know before you take the plunge.

First, the cramdown rule applies only under Chapter 13 of the bankruptcy code. So this case is not going to be the simplest or quickest one through the system.

Second, the rule only applies to cars that have been purchased by you more than 910 days before you file your case (that’s two and a half years). So if your purchase is more recent than that, you won’t be able to do a cramdown — at least without waiting for the 910 days to pass.

But if you can get by those two obstacles, and have a steady income now, the cramdown strategy can get you out of an obscene car loan agreement — and can help you get rid of other debts, like credit cards or medical bills as well.

And you might even qualify to pay your bankruptcy lawyer’s fees in installments as well.

Again you want to ask yourself three questions before taking this plunge:

(1) Do I have a reasonably steady income?

(2) Did I buy my car more than 2 1/2 years ago?

(3) Is my car worth less than the balance of the loan?

If so, and you have other debt problems as well, the Chapter 13 cram down rules could be a real benefit to you in a tough time.

A long time ago when I was starting as a lawyer, it was unusual to see unemployed folks filing cases. It costs some money to file, of course, and that money is hard to come by without a job. People generally filed for bankruptcy when they got a new job, but realized they could never get out from under the credit card bills that had piled up while jobless.

The situation is quite different now — and he culprit is the bankruptcy reform laws passed in 2005. This law instituted a “means test” for filing Chapter 7 bankruptcy, which had the perverse effect of making the temporary poverty of unemployment an attractive time to “qualify” for bankruptcy relief.

Simply put, if you lost a good paying job, it won’t be long (three months tops) before you qualify for a Chapter 7 bankruptcy. But now, if you wait until you find a good paying job again, the US trustee could object to your discharge on the grounds that your expected future income would allow you to pay creditors a monthly tribute.

So in the current climate, filing for bankruptcy while still unemployed is a very viable strategy. You don’t have to worry about passing the means test, and you don’t (yet) have an expectation of future income that could draw an objection to your case. A topsy-turvy world indeed!

Photo: Breadlines in NYC, 1933. Library of Congress.