The Frightful Sound of Liquidation

By doug | Published: February 10, 2010

Debtors comtemplating a Chapter 7 bankruptcy filing are sometimes put off by the idea that the case involves a “liquidation” of their assets. Sometimes this occurs when they are given government required warnings by their attorneys, or by the trustee’s office at the meeting of creditors. Worried as they are by debt, they may conjure up images of a bankruptcy court waterboarding, or perhaps of their belongings being carted off to a Building 19 fire sale.

For most people, though, there should be no worries about liquidation, for the flip side of the coin are the exemptions which allow consumers to keep a specified amount of property after filing the case. In an ideal case (from the point of view of the debtor, anyway), all of the debtor’s property can be declared exempt, and nothing will be taken away.

If you hire a bankruptcy attorney to draft the Chapter 7 filing for you, the attorney should go through the exemption laws with an eye toward legally protecting as much of your property as possible under the Bankruptcy Code. Then you can rest assurred that you won’t be losing any of your stuff, or in the rare instance where you might, come up with an alternative plan.

If you live in Massachusetts or New Hampshire, you can call me at my office and I can help you figure out if the bankruptcy exemptions can prevent you from being “liquified.”

 

By Doug Beaton

Posted in Chapter 7 | Comments closed

Tax refunds in New Hampshire, redux

By doug | Published: February 9, 2010

The United States Bankruptcy Court for the District of New Hampshire has reinforced its viewpoint that in Chapter 13 cases, income tax refunds belong to the trustee, and not the debtors.

The latest twist involves low income debtors who file Chapter 13 cases. Typically, they will file a plan to pay down their debts over a three year period; however, in hardship cases, they can stretch those paynments out over five years.

Since the typical length of a below median income Chapter 13 case is three years, the debtors in In re Rodger argued that tax refunds in years four and five of their plan should not have to be turned over to the trustee and then to creditors.

No dice, said the court: unless the debtors can come up with a plan that pays creditors 100% of what is owed, in New Hampshire all the refunds for any year during the course of the plan can be claimed by a Chapter 13 trustee.

 

By Doug Beaton

Posted in Chapter 13, Taxes | Comments closed

A Super Bowl Indicator for Bankruptcy Filings?

By doug | Published: February 8, 2010

Stock market pundits annually get a lot of fun out of the so-called Super Bowl indicator, which purports to forecast the direction of the markets by checking out the identity of the pigskin titleholder. Under a commonly used version of the indicator, whenever a team which was with the National Football League prior to its 1970 merger with the upstart American Football League wins the Super Bowl, the stock markets will rise for the year; if a team with AFL or AFC roots wins, look out below.

Although this is obviously a silly, spurious, and superstitious exercise, those who follow such things claim a 79% accuracy rate, or in other words, 34 correct calls from the 43 prior Super Bowls.

This years game automatically forecasts mad money for market participants, as both the Saints and the Colts have NFL roots. This is despite the Dow Jones, Nasdaq, etc., being seriously down for the month of January. In the 1970’s the indicator was hitting at a red-hot 90% rate, but since then interest in it has cooled off a bit, as the results inevitably regress toward the mean, franchise shifts make tracking who’s who more difficult, and as the game itself has been pushed back from mid-January to February, well after most interest in New Years prognostications has faded.

Still, it got me to thinking — could I devise a Super Bowl indicator that would predict the ebb and flow of bankruptcy filings in the greater Lawrence area instead of the market? Looking at 2004, one of the all-time peaks for bankruptcy, as consumers raced to file their cases before new laws took effect, finds that the New England Patriots (charter members of the American Football League) lifted the Vince Lombardi trophy that winter.

So does an AFL/AFC triumph mean bankruptcies will be on the rise in the Merrimack Valley? Probably not — 2005 had unusually low filing rates, because most interested people had already filed the year before. And the football champion that year? Well, the Patriots again, who downed the NFC based Philadelphia Eagles in Jacksonville.

I guess it only works for the stock market after all.

 

By Doug Beaton

Posted in Just for fun | Comments closed

Home price insurance program

By doug | Published: February 3, 2010

Would you be intersted in an insurance plan that would cover you if the price of your house went down?

Northeastern University dean Barry Bluestone has come out in favor of an interesting type of proposed stimulus program to jumpstart the real estate market: he wants the federal government to sell insurance to home buyers that would protect them from any further drops in the market. The result, he hopes, would be renewed confidence in real estate, helping to stableize prices as we wait for a recovery.

Bluestone’s idea is that home buyers would pay a $500 premium to the U.S. Treasury at the time of purchase. The Treasury would then guarantee that the buyers would get back at least their purchase price when they sell. If the market recovers over the next three years or so, as many expect, there would be little risk to the federal budget. On the other hand if the home market completely tanks again — say it drops another 22% from today’s low levels, he estimates the government’s exposure to be no more than $10 billion, worst case scenario.

Dean Bluestone deserves credit for backing an interesting and forthright proposal devoid of the usual gobbledygook emamating from academic and government haunts. But, as with anything, there could be drawbacks.

First, one of the few benefits to the real estate crash is that it creates a rare opportunity for first-time buyers. But how many of these newbies are going to be excited about forking over yet another $500 fee at the closing, where they are already being socked with a dizzying amount of spurious charges?

Another problem is the Black Swan syndrome — people, including the supposed experts, are notorious for underestimating just how bad a worst case scenario can be. Which is how we got in this mess in the first place.

The proposal also has various provisions that try to keep it from benefitting real estate speculators. However, bankruptcy and foreclosure-ridden towns like Lawrence, Haverhill and Methuen have a large stock of multi family residences, and most every potential buyer of one is a speculator — err, investor, on some level. Rental housing is important too, and like it or not, “investors” provide the bulk of it.

You can’t sign up for this program now, it’s just an idea in the planning stages, but you can read about it here.

 

By Doug Beaton

Posted in Bankruptcy News, Real estate | Comments closed

Liens and the Massachusetts homestead exemption

By doug | Published: February 2, 2010

Massachsetts homeowners are lucky enough to be protected by the Commonwealth’s generous homestead law, which typically will allow them to retain up to $500,000 in home equity even if their finances deteriorate to the point they have to file a Chapter 7 or Chapter 13 bankruptcy case.

A question that frequently comes up in the bankruptcy context, however, is what happens if creditors have already gone to court and obtained a lien on the home thorugh court-ordered judgments, attachments, or “executions.”

These cases may be a little more complicated than the typical Massachusetts bankruptcy case, but in general, the homeowner’s attorney can apply to the bankruptcy court for an order “avoiding” (that is, stripping) the lien, and the home will emerge from the case unencumbered.

In one recent Massachusetts case, however, the creditor fought back — and ultimately lost anyway. That creditor, Premier Capital Corp., tried to argue that a five year old deed in which homeowner Theresa Pagnini added her daughter’s name as a part owner her house was a fraudulent transfer which voided Pagnini’s homestead rights.

The bankruptcy court disagreed, however, ruling that the Chapter 7 trustee had the exclusive right to bring fraudulent conyeyance complaints once the bankruptcy had been filed. The particular trustee in this case never did so, nor would he have any practical reason to, since the total of the mortgages oustanding exceeded the value of the property.

 

By Doug Beaton

As a result the homeowner will be allowed to keep her home as well as her homestead rights in the event that real estate prices recover in the future. The case is In re Pagnini, and the opinion was written by bankruptcy judge William C. Hillman.

Posted in Chapter 7, Real estate, Secured loans | Comments closed

Credit card firm’s suit bounced from New Hampshire bankruptcy court

By doug | Published: February 1, 2010

When a consumer gets sued by a credit card company, the result is a forgone conclusion, right?

Not so fast. The pleadings filed by big finance companies may fall short of what is required to bring a successful suit. The pleadings are often concocted by low level functionary’s in far flung locations, and may actually be so deficient that the bank or card company cannot prevail in court.

That is exactly what happened in a recent New Hampshire bankruptcy court case. FIA Card Services sued the debtors, who had filed a Chapter 7 bankruptcy case in New Hampshire; they alleged that the debtors incurred approximately $12,000 in charges and balance transfers on their card without any intention to pay, and sought to prevent the debtors form getting a bankruptcy discharge on that card.

But an examination of FIA’s pleadings did not reveal any indication of how they were going to prove that the debtors never intended to pay the debt at all. Sure, the charges were there, and the debtor’s schedules listed almost no current income. But under new pleading standards announced last year in a United States Supreme Court case, FIA’s complaint was insufficient to prove every element of their case, which includes proof that the debtors never intended to pay this particular debt at all. FIA’s lawsuit was dismissed by the bankruptcy judge.

For anyone tangling with a credit card company in court, or contemplating bankruptcy to eliminate credit card debts, should take this decision to heart. The message from this case is that documents and pleadings served on you by even the biggest credit organizations should be scrutinized carefully and not neccessarily taken at face value. Debtors willing to question authority may be pleasantly surprised at the results.

The New Hampshire case is In re Karagianis, and you can read it here.

 

By Doug Beaton

Posted in Credit cards | Comments closed

Government mortgage relief program to finally get some traction?

By doug | Published: January 28, 2010

The Obama administration’s beleaguered mortgage relief program may finally be getting to the point where it may be of use to the typical homeowner.

The program was launched in the spring of 2009, but has attracted less than 70,000 homeowners who have been able to complete the program so far.

Part of the problem lies with restrictive rules that give holders of second mortgages and equity lines veto power over loan modification efforts. But those rules are now changing, resulting in at least the possibility that the program may at last help a significant number of people whose houses are worth less than what they owe in mortgage debt.

This is potentially good news for hard hit areas such as Lawrence, where bankruptcies and foreclosures are common, but stay tuned; it may be a while before we know whether the red tape can really be cut by an typical homeowner.

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed

New Bankruptcy Court website for New Hampshire

By doug | Published: January 27, 2010

The Bankruptcy Court in Manchester, N.H. has just rolled out a new look for its main website. A quick glance shows a sleek design that is easy to navigate.

Court websites have to serve a diverse audience that includes debtors, potential pro se filers, attorneys who want to file a case right now (even if “right now” is 3 AM), creditors who want to set up hearings, and reporters looking for details on cases. The new New Hampshire set up looks like it will provide most users what they need.

You can check out the new site here.

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed

Will Scott Brown help you get a loan modification on your mortgage?

By doug | Published: January 26, 2010

The surprise election of Scott Brown to the open Senate seat in Massachusetts certainly has set the political commentators abuzz. Most debate and analysis has focused on what Brown’s election may mean for the administration’s hopes for health care legislation.

What has received no attention at all — at least that I’m aware of — is whether the election could have any inpact on loan modification programs or changes to the bankruptcy laws.

Congressional proposals have been on the back burner for several years now to allow Chapter 13 filers to “cram down” their first mortgages on their principal home. This would allow homeowners who are “under water” on their home to re-write the terms of the mortgage so that the balance due is reduced the current value of the property.

If this idea gains any traction in 2010, it will more likely come from another Massachusetts legislator — Representative Barney Frank, who has been frustrated by the lack of success with the Obama administration’s “Making Homes Affordable” loan modification program.

Congressman Frank has said, “The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a good job of modifying mortgages. And if they do not improve their performance, they improve the chances of that legislation.” Frank estimates that only a third of homeowners are even eligible for the current administration modification program.

Stay tuned to see what, if anything, happens to Chapter 13 reform in the election year of 2010.

In the meantime, remember that second mortgages (a.k.a. equity lines) can often be “crammed down” or even eliminated entirely under the present Chapter 13 laws.

 

By Doug Beaton

Posted in Chapter 13, The Bankruptcy Code | Comments closed

Credit card holders: some good news on the horizon

By doug | Published: January 25, 2010

With February just around the corner, credit card users can finally look forward to the benefits of the new federal credit rules passed last summer.

The changes include prohibitions or limits on a number of card issuer billing practices that are unfair or that difficult to understand even if disclosed: (1) universal cross-default; (2) any-time, any-reason rate changes; (3) retroactive application of interest rates; (4) two-cycle billing; (5) unlimited applications of overlimit fees in a single billing cycle; (6) opt-out of overlimit transactions; and (7) require pro rata application of payments to balances accruing at different interest rates. In addition, it requires issuers to define the due date, requires payments received by 5pm EST on the due date be treated as timely, and creates a presumption of timely payment for payments sent by mail at least 7 days before due.

Finally, it eliminates the use of “fee harvester” cards where the initial fees approach the credit limit of the card, resulting a credit line that is nearly useless and impossible to pay.

The legislation takes effect February 10, 2010.

 

By Doug Beaton

Posted in Credit cards | Comments closed
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