Should you be able to make monthly payments to your bankruptcy lawyer?

By doug | Published: September 16, 2010

Let’s say you have decided to file a bankruptcy case. And you have also decided to hire a bankruptcy lawyer to put together the paperwork and to represent you. Smart move. But how exactly are you going to pay attorney’s fees to hire this lawyer?

Most bankruptcy clients are inherently in a catch-22 situation: they need to pay for legal services, but by definition, their finances are in a shambles.

Wouldn’t it be nice if you could pay the bankruptcy lawyer over time, or as the used car dealers like to put it, in “easy monthly installments.”

Enter the “attorney-fee only” Chapter 13 case. The what? Well, chapter 13 calls for debtors to make monthly payments to a bankruptcy trustee who distributes the payments to creditors — which can include attorneys. It wasn’t long before some enterprising members of the bar thought up a system in which debtors filed Chapter 13 plans that calls for payments only to one single creditor — the attorney himself. Presto, you have a method for the lawyer charging and collecting the fee over 36 months, while the debtor gets to file his bankruptcy case right now.

But not so fast, says United States Bankruptcy Judge Henry J. Boroff, one of the judges who hears bankruptcy cases in western Massachusetts, and also some bankruptcy cases that originate in Lawrence, Methuen and Haverhill.

To Judge Boroff, the attorney-fee only Chapter 13 is merely a disguised liquidation (Chapter 7 case), where government employees (court clerks, bankruptcy trustees) are put to work collecting fees for lawyers in private practice.

In the Groccia case, Judge Boroff came down hard on a lawyer in western Massachusetts who was charging $4000 (over 36 or more months) for a chapter 13 for clients who couldn’t afford to pay anything upfront for a chapter 7 fee.

In Judge Boroff’s view, this practice increased the debtor’s legal costs, and delayed their discharges, since Chapter 13 debtors don’t get a discharge until their plan is finished.

On the other hand, these debtors had access to a leading bankruptcy attorney, and they themselves filed letters with the court saying they were happy with the agreement. And they got a lawyer who would take payments over time.

Whether the attorney-fee-only Chapter 13 case is allowed is one of those things in bankruptcy that depends on local practice, with different rules and attitudes depending on where you live. In New Hampshire, Chapter 13 trustee Larry Sumski has spoken to lawyers groups and said he sees nothing inherently wrong with the idea, although the New Hampshire bankruptcy judges have in the past written opinions disparaging the practice as well.

 

By Doug Beaton

Posted in Chapter 13 | Comments closed

Bankrupt candidate wins election, nominated for Congress

By doug | Published: September 15, 2010

A candidate who filed a personal bankruptcy case just a few years ago emerged victorious in his Massachusetts primary election battle.

Hopedale businessman Thomas Wesley secured the Republican nomination for the second district U.S. Congress seat by outpolling Dr. Jay Fleitman by a 60%-40% margin.

The 2nd Congressional District encompasses 41 cities and towns in south central Massachusetts, from Bellingham to Chicopee.

Wesley will now face Democratic incumbent Congressman Richard Neal in the November general election.

Leaving the politics aside, Wesley’s victory should be a tremendous inspiration to anyone who has had to face up to their financial difficulties, and wondered if bankruptcy could hurt their reputation. While every case is different, voters in the Second District obviously didn’t hold the bankruptcy against him in sufficient numbers to deny him his party’s nomination.

Wesley’s prior bankruptcy case emerged as an issue in the primary with press reports claiming he was avoiding mention of the filing. Wesley denied this, and specifically claimed that he addressed his bankruptcy at some early campaign meetings.

Wesley said the bankruptcy case was due to a downturn in his aerospace company’s revenues early in the last decade.

Photo: Milford Daily News

 

By Doug Beaton

Posted in Bankruptcy News | Leave a comment

Is there ever a good reason for reaffirming a debt?

By doug | Published: September 14, 2010

After filing a bankruptcy petition, debtors should not be surprised if they are approached (through their attorney) about signing a reaffirmation agreement with one or more creditors.

Simply put, a reaffirmation agreement is an agreement to pay an existing debt despite the bankruptcy. Most attorneys and quite a few bankruptcy judges are leery of encouraging debtors to do this; why put your self on the hook for a debt right after you filed a case to get rid of it? The general standing advice to bankrupt debtors is typically to avoid entering into a reaffirmation if it is possible to do so.

But in the current economic climate, with many people attempting to modify (i.e. re-negotiate) their mortgages, there may occasionally be a reason for debtors to consider singing a “re-aff.”

Assume you have just spent months trying to get a modification done on your mortgage — and finally you have succeeded! But now you still need to file a bankruptcy case to eliminate other debts so you can start paying the mortgage again. Once you file a bankruptcy case, however, it is possible that a lender would take the position that the bankruptcy cancels the modification agreement — leaving you basically right back where you started.

In this situation, a formal reaffirmation agreement, hopefully incorporating the terms of the loan modification, could prove useful; the bankruptcy will eliminate the other debts, and the terms of the mortgage are formalized for the future.

 

By Doug Beaton

Posted in Foreclosure, Practical tips, Secured loans | Comments closed

Lawrence and Methuen’s biggest bankruptcy case ever

By doug | Published: September 13, 2010

One of the biggest bankruptcy cases ever in Lawrence and Methuen was the second filing involving Malden Mills, the Polartec manufacturer hard by the Spickett River that employed so many residents in the Merrimack Valley, and which fell on hard times after a devastating 1995 fire.

The last time Malden Mills filed for bankruptcy was in January 2007; at that time the plan was to sell the company for $44 million to the Gordon Brothers group in Boston, who said at the time they intended to keep the Lawrence and New Hampshire operations going, despite the bankruptcy.

An interesting case study has been done on this bankruptcy by Al Gini and Alexei Marcoux two business students at Loyola University in Chicago. Gini and Marcoux examine the case from the perspective of corporate social responsibility (CSR), and Catholic social thought (CST), doctrines that emphasize the need to humanize business operations. The paper emphasizes how difficult it can be to “do the right thing” and still succeed in the cut-throat business marketplace.
Those who are interested in an eleven page exposition along these lines can read Gini and Marcoux’s work here.

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed

How to fill out Schedule C of a bankruptcy petition

By doug | Published: September 13, 2010

In many ways, Schedule C is the heart and soul of an individual or couple’s bankruptcy petition. That is because it is here that a debtor declares the exemptions that apply to their property, and it is the exemptions that determine what property a debtor will keep after the filing, which in turn determines the debtor’s quality of life after their “fresh start.”

The form is simplicity itself. The property listed on schedules A (real estate) and B (personal property) is repeated here on the left hand column. In the right hand column the value of the property is listed, and next to it the value of the claimed exemption.

The middle column, though is the key part to Schedule C: where you “specify the law providing each exemption.” This is where a bankruptcy lawyer earns his keep, by knowing which of the exemptions apply to each type of property.

At the top of schedule C, you will notice there are two check boxes for electing exemptions. The box for 11 USC 522(b)(2) is for debtors using the federal exemption scheme; the box marked 11 USC 522(b)(3) is for debtors who are choosing to use their state exemption laws instead. Some states don’t allow debtors to use the federal exemptions, and force their residents to only use the local list; here in both Massachusetts and New Hampshire we are lucky as both states allow individuals freedom of choice when filing a bankruptcy case.

There is one more check box at the top of Schedule C, with the cryptic invitation to check it if the debtor is claiming a homestead exemption greater than $146,450. That figure comes into play in cases where homeowners have moved across state lines in the past two years; if so, they must use the homestead exemption of their previous residence, and it can’t exceed the stated amount.

 

By Doug Beaton

Posted in Practical tips | Comments closed

Bankruptcy and politics collide in Massachusetts

By doug | Published: September 11, 2010

The Associated Press reported that one of the candidates for Congress in Massachusetts filed for bankruptcy in 2002. According to an article by Lyle Moran, Hopedale businessman Thomas Wesley, a Republican candidate for the 2nd District seat in the western part of the state, discharged $140,000 through his bankruptcy filing. This included $8,000 of unpaid income taxes.

This old case could become political fodder because Wesley “has been stressing the importance of fiscal responsibility and limited government.” The candidate denies hiding the bankruptcy filing however, and said “he mentioned it last November during an appearance before a conservative-leaning group, sparking an outpouring of sympathy for him.”

Wesley and his wife, Rebecca, had been unable to pay back a $100,000 business loan made by Fleet National Bank to Great Circle Trading Co., a Connecticut aerospace firm founded and operated by Wesley in the early 1990s. It was dissolved in 1999. Wesley also owed Wells Fargo $42,846 for a business loan.

His aerospace business had trouble selling imported items, Wesley said, and was unable to collect payments from companies abroad that purchased Great Circle’s products.

Wesley’s own take on the case is that “the American Dream has risk and reward, and it also has consequences,” Wesley said. “I took the risk and suffered the consequences.”

A debate is sure to start over whether Wesley is financially irresponsible for declaring bankruptcy, given his conservative political views on fiscal spending. While his opponents might try to make this case, it is only fair to point out that Wesley might be seen to be fiscally sound by getting the bankruptcy behind him and moving on to rebuild his business. There are indeed two sides to each coin, and Wesley might rightly be praised for rebounding as much as he might be castigated for the initial business failure. Wesley said there was no hypocrisy in juxtaposing his campaign mantra with his personal history, adding, “This is why I am fiscally responsible person. … I learned a lot about carrying debt and inventory.”

The Republican primary that Wesley is running in is next Tuesday. He is running against Jay Fleitman, a Northampton doctor.

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed

Piling interest upon interest?

By doug | Published: September 10, 2010

Here is a vexing question that stumped many bankruptcy practitioners (including law professors and judges) for a long time:

In a Chapter 13 case, where the debtor is trying to catch up on a mortgage arrearage by making monthly payments to the bankruptcy trustee, must the debtor add interest to those payments? Just think, in many cases, the arrearage itself probably consists of mostly interest and penalty fees.

The answer is no, but this is a question that once went all the way to the Supreme Court, and the Supremes actually were in favor of piling interest upon interest! Luckily for the debtors’ side, Congress amended Chapter 13 quickly after the court’s decision, a move which helps keep payments lower for those trying to save their homes with a Chapter 13 case.

 

By Doug Beaton

Posted in Chapter 13 | Comments closed

A new government foreclosure plan

By doug | Published: September 9, 2010

President Obama announced earlier this week yet another federal plan for dealing with the national surplus of foreclosures. This one could take effect as early as next week, and would allow the Federal Housing Administration to give refinanced loans backed by the government to strapped homeowners.

For the lenders, the kicker is that they would have to reduce the balance of each loan by at least 10 percent.

For homeowners, the kicker is that you don’t apply for this program — they’ll call you. In actuality, the plan requires the owners of the loans (banks and other investors) to select which ones they want to modify.

So far federal efforts to fix the foreclosure mess have fallen short of their goals. The government has only nibbled around the edges of the crisis, as its programs have run into numerous problems.

The lending industry was ill-prepared for a crush of distressed homeowners, the economy worsened, and millions of homeowners had taken on so much debt that their financial woes have been nearly impossible to resolve.

Nearly half of the 1.3 million homeowners who have enrolled in the Obama administration’s main mortgage-relief program — overseen by the Treasury Department — have fallen out over the past year.

In my opinion, an alternate idea that has been floating around for several years is more promising. Why not let homeowners use Chapter 13 bankruptcy to modify their underwater mortgages? This solution would put the home owner in charge of the timing, not the banks, and would restrict abuse by the debtors, as there are several checks and balances already built-in to the Chapter 13 system.

Change one sentence of federal law, and we could go a long way toward fixing the problem. And it would probably help turn the economy around a lot faster than the administration’s latest proposal.

 

By Doug Beaton

Posted in Chapter 13, Foreclosure | Comments closed

How to fill out schedule A of a bankruptcy petition

By doug | Published: September 8, 2010

The heart of any voluntary bankruptcy petition are the schedules attached to the petition itself — they are lettered from A to H, and each require a debtor to provide crucial information about himself and the case.

The starting point, of course, is Schedule A, which contains a large blank space for listing “real” property. Unless you are an attorney, this is what you probably are use to calling real estate. Any interest in real estate that a debtor has needs to be listed here.

Many debtors have no real estate. They can check the box at the top of the form marked “none,” turn the page, and move on.

Many other debtors own a single piece of real estate — the home that they live in. Whether its a farm or a condo or something in-between, this is the place that it gets listed.

After the description of the property come the kicker — the box where the “current value of the property without deducting any secured claim or exemption” is declared. This should be the full current value of the property. You should be able to support the value declared here with some form of estimate or appraisal when asked by the trustee at your creditor’s meeting.

The final column requires you to list the “amount of secured claim.” This should be the payoff balances of any outstanding mortgages, added together. If you own the property free and clear, this can be left blank.

Notice that there is no space on schedule A for declaring real estate exempt from attachment. This is important, because individuals filing for bankruptcy get generous exemptions if they have equity in their primary home — up to $500,000 per person in Massachusetts, and up to $100,000 per person in New Hampshire.

But exemptions aren’t listed on schedule A — they will come a little later on schedule C!

 

By Doug Beaton

Posted in Practical tips | Comments closed

Bankruptcy and positive thinking?

By doug | Published: September 6, 2010

How could a downbeat topic like filing for bankruptcy ever jive with the upbeat world of positive thinking and self-motivation?

Maybe it’s not a natural fit, but just consider that each bankruptcy case is for someone a chance to start over, with the result of the re-start as uncertain as any other. Or to put it a bit differently, while a bankruptcy case will wipe out a slate full of debts, it will not by itself put any money in a debtor’s pocket, or ensure future success.

So, with that in mind, it might be helpful to check out a new book by satellite radio host Willey Jolley. Called “Turn Setbacks into Greenbacks: 7 Secrets for going up in down times,” the $21.95 hardcover is not a bad read for those in need of a financial turnaround.

Now, admittedly, some people have more tolerance than others for the aphorisms of the positive thinking crowd. I’ll admit I really get a lot out of this philosophy, but not everyone does.

Mr. Jolley, however, spins some words of wisdom that those battered by the economic woes of the past two years can appreciate:

■ “Pressure makes diamonds, but panic makes disasters.’’

■ “Economic storms, like thunderstorms, come into our lives at various times, but you need to stay mindful of the fact that they come to pass, they do not come to stay.’’

■ “When you start focusing on your possibilities instead of your problems, you will find that life becomes much more manageable.’’

Mr. Jolly doesn’t get into investment tips or the like, but does encourage his readers to stay active in improving their lot. Jolley tells his readers to be proactive in changing their financial situation reminding them that in this job market, you’ll need to stay positive but you also need to stay aggressive in looking for employment. “In changing and challenging times, I believe it is necessary to think differently,’’ Jolley writes. “If you are willing to do different things and do some of the old things differently, you will be able to go beyond surviving and get to a place of thriving.’’

 

By Doug Beaton

Posted in Just for fun | Comments closed
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