Lusky Rants (and Blogs)

THE CHAPTER 7 - 341 MEETING

2012-05-14T01:34:00Z

If you case runs smoothly, you may never have to go to court. You will, however, have to attend a meeting with the trustee and creditors. This is often called the "341 Meeting" since it is required under section 341 of the Bankruptcy Code.

The 341 Meeting is presided over by a trustee or the trustee's representative. This is not as formal proceeding as a court hearing and the trustee is not a judge. He has no judicial powers although he does have collection powers granted him under the Bankruptcy Code. The trustee is generally not your enemy but he or she is also not your friend. The trustee's duty is to locate assets to liquidate and distribute to your creditors. The trustee may seize non exempt property. What property may be seized by the trustee is a topic for another discussion.

Generally, the chapter 7 341 Meeting lasts only a few minutes. You will be "under oath" meaning that you can be prosecuted for perjury if you willingly lie. You will be asked if the documents that you filed with the court are true and correct and if there are any changes that need to be made. You will be asked what caused your financial condition or why you filed bankruptcy. Give the "short" version. Don't answer a question that hasn't been asked -- ask your attorney if you should elaborate before doing so.

The dress code for the 341 Meeting is usually "business casual" whereas a court hearing is more formal. Your attorney may not even wear a coat and tie. In court, your attorney will always wear a coat and tie.

If you have any other questions about your 341 Meeting, ask your attorney before you attend.

401K PLANS CANNOT BE TOUCHED BY CREDITORS

2012-03-24T15:36:14Z

I am amazed at the number of clients who come to me owing thousands of dollars in income taxes because they drew down on their 401k to pay credit cards. Before you draw down on your 401k, consider the following:

If you draw down the 401k early, you will owe penalty and taxes. Under most circumstances, these taxes will not be discharged if you file a bankruptcy. That means that even if you file bankruptcy, you will still owe the taxes;
As a general rule creditors can not attack your 401k plan;
As a general rule, if you file bankruptcy, you will not lose your 401k plan.

Therefore, it seems rather silly to use your 401k plan to pay your creditors unless you are absolutely positive that doing so will solve all of your financial problems.

Before drawing on your 401k please consult with a knowledgeable attorney.

YOU DO NOT HAVE TO PAY EVERYONE IN CHAPTER 13

2012-02-25T17:30:07Z

Surprise! You do not have to pay everyone in a chapter 13. What do you have to pay? Well, it depends on several things.

1. If you are in a chapter 13 to catch up on your mortgage, car or other secured debts, you must pay the amount sufficient to do that. Likewise, if you are in a chapter 13 to pay off delinquent taxes, you must pay the amount sufficient to do that.

2. In a chapter 13, you pay at least an amount determined by a formula similar to the "Means Test" in a chapter 7. The formula is calculated by determining your gross monthly income (no deductions for taxes, insurance or anything else) less certain allowable deductions. You must make payments for 60 months unless your gross income is less than the state median income for a family of your size. If you are below the median income, they you are only required to make payments for 36 months.

3. When all of the payments required above are made, you receive a discharge. This releases you from most remaining unpaid obligations.

NOTE: There is no requirement that any credit cards or other unsecured creditors be paid anything as long is the above formula is met and paid. They are still discharged on completion of the plan.

TEN IMPORTANT THINGS ABOUT YOUR CASE

2011-06-09T13:15:00Z

Some questions come up more often than others. After much thought and consideration, I decided to make a list of the what I thought may be the ten most important things my clients should know about their bankruptcy. This list may change from time to time but here they are.

TEN IMPORTANT THINGS ABOUT YOUR CASE

1. You have to be honest. Schedules are filed under oath. The penalty for lying can be up to 5 years in the pen. We will not visit you.

2. You must cooperate with us and timely provide all requested information and attend all scheduled meetings. If you are too busy to assist us, we will not be able to help you.

3. The petition starts the case. It and other documents require your signature. These are formal documents and not the worksheets that we have you fill out. Without your original signature on the formal documents, we cannot file them. Therefore, if you have not signed the formal documents, your case has not been filed even if you have deposited a payment with us.

4. Things can happen fast in bankruptcy cases. Make sure that we know how to reach you at all times and return calls as soon as possible.

5. You must take a credit counseling course both BEFORE and AFTER your case is filed. That’s right, there are two of them. You cannot file without the first and you do not get your discharge without the second.

6. Some transactions can be undone in bankruptcy.

a. If you transfer something to someone else and get little or nothing in return, a bankruptcy trustee can sue the person you transferred it to. Also you may not be able to get a discharge if the Court thinks you tried to hide the asset from creditors. Worse, you can go to jail if the Court thinks you tried to hide assets from the trustee.

b. If you repay a loan from a relative within one year of bankruptcy, that relative may be sued by the bankruptcy trustee. If you repay any other creditor within 90 days of filing bankruptcy, that creditor may be sued by the bankruptcy trustee. Although the creditor may have to give the funds back to the trustee, you do not get in trouble for paying your legitimate debts.

7. Your bankruptcy discharge only discharges you. It does not apply to any debt that your spouse may have signed for. However, Texas is a “community property” state; not a “community debt” state. If your wife did not sign, she is generally not liable for your debts. On the other hand, we generally charge no more handle a husband and wife case than just one spouse if they are filed as a joint case.

8. Some debts are not dischargeable. The most notable ones are:

        a. Child support and alimony;

        b. Student loans;

        c. Most (but not all) taxes;

        d. Debts incurred through fraud. A common example is a “run up” of a credit card in the months prior to filing bankruptcy.

9. Please feel free to call if you have any questions about your case. If we cannot take the call immediately, your call will be returned. However, generally multiple calls a day are not acceptable. Please try to accumulate your questions so that we can answer them all at once. That way, we will have time to answer our other clients’ questions as well. Email is also good. Email to mail@lusky.com comes to the entire staff.

10. You can follow your case and get copies of all filed documents on PACER. You must register at http://www.pacer.gov/reg_pacer.html. The cost is currently $0.08 per page (up to a maximum of $3.20 per document) but if you spend less than $10.00 per quarter, it is usually free.

Debtors Need Not Apply (at least in Texas)

2011-05-29T15:19:33Z

On March 4, 2011, the Fifth Circuit Court of Appeals (covering Texas) decided the case of In the Matter of Burnett v. Stewart Title, Inc.

Although Section 525 of the Bankruptcy Code provides that employers may not discriminate against debtors because they filed bankruptcy, the Court held that this does not apply to a private employer who is considering hiring a new employee. Apparently, however, it still means that a private employer can not fire or otherwise discriminate against an existing employee solely because he or she filed bankruptcy.

Further the language is still clear that a governmental employer may not discriminate against an existing or contemplated employee solely because he or she filed bankruptcy.

CONFIDENTIALITY AND THE “THIRD PARTY RULE”

2011-05-26T14:26:59Z

Most clients expect that their conversations with their lawyer are confidential and cannot be compelled to be disclosed. This is known as the “attorney-client privilege.” While the privilege generally applies to conversations between the attorney and client, there are exceptions.

One of the most common exceptions is the “Third Party Rule.” Many clients will want to meet with their attorney with their best friend or family member present. Unless that third party is a husband or wife, the presence of the third party may destroy the privilege. That means that both the attorney and the client could be required to disclose the content of the conversation. Therefore, if you are going to discuss matters of a sensitive nature, you should ask your friend to wait outside.

While this exception exists, it may not be that important in a bankruptcy context. Most of what you will discuss will be in preparation of the documents that will be filed in the bankruptcy court. These documents are filed under oath and are a public record. Your attorney will advise you to tell the complete truth in these documents and should not assist you in falsifying them. To do so would subject both you and your attorney to criminal penalties of up to five years in prison. It would also trigger another exception to the attorney-client privilege known as the “Crime-Fraud Exception.” Conversations with your attorney to commit or plan a crime or fraud are not protected.

With all of the above in mind, I usually tell my clients that unless they are going to confess to being an ax-murderer, it will probably be ok for their friend to attend. However, they must understand that while I will not willfully volunteer any information about the conversation, I can be compelled to do so.

If you have any questions about the confidentially of your meetings with your attorney, please discuss it in private.

Credit Card Numbers Decoded

2011-03-13T22:30:00Z

Ever wonder what the numbers on a credit card mean? Well, here it is --

Credit cards usually consist of 16 digits. xxxx xxxx xxxx xxxx.

The first digit is the Major Industry Identifier.

1 and 2 are airlines
3 is travel and entertainment
4 and 5 are banking and financial
6 is merchandising and banking
7 is petroleum
8 is telecommunications, and
9 is National Assignment

The first 6 digits are the issuer identification number. Cards can be looked up by this number. For example --

4xxxxx is Visa
51xxxx through 55xxxx is Mastercard

The 7th and following digits except the last digit are the person's account number.

The final digit is a checksum. It is used to validate the card number using an algorithm

Discharge Taxes in Bankruptcy?

2011-03-12T04:24:00Z

Often, my clients are surprised to find out that some taxes are dischargeable in bankruptcy. Generally income taxes are dischargeable if they meet certain time or age limits.

They must be for a tax year for which the return was due more than 3 years prior to filing bankruptcy. Example: Today is March 11, 2011. Taxes for the year 2007 were last due on April 15 or October 15 (extension date), 2008. Therefore they meet this timeline.
The tax return must have been actually filed by the debtor and have been on file with the IRS for at least 2 years.
Any assessment the IRS makes must be at least 240 days old plus any time an offer in compromise was outstanding.
These times may be extended for any period in which the debtor was previously in bankruptcy.

Some taxes are simply not dischargeable -- for example, taxes assessed against you for taxes you withheld from your employees.

A NOTE ABOUT LIENS. If the IRS or other taxing authority has filed a lien, the property to which the lien attached (e.g. your homestead) may not be discharged even if you are. That means that the IRS or other taxing authority may take the collateral even if they could not take anything else from you.

Be sure to talk to your lawyer about taxes.

Can Collective Union Action Force Mortgage Modifications?

2011-02-21T13:59:00Z

Below is an interesting article written by Peter Orville, Attorney at Law · Posted in *Bankruptcy Basics,*Chapter 13 Bankruptcy,Foreclosure News

Congress has been unable to pass any legislation that would allow for effective modification of mortgages. And the HAMP program is failing miserably. Two New York unions, however, have come up with the idea that collective action through the market may get the needed results. The heads of the Transport Union Workers and the United Federation of Teachers in New York are urging their pension fund trustees to sell stocks and bonds invested in JPMorgan Chase (“Chase”) if the company does not do more to modify the mortgages of struggling homeowners.

The two unions combined have approximately $311 million invested in Chase, so the threat to pull the money out is not a hollow one. Legislation has been proposed in the recent past that would have allowed for modification of home mortgages in a Chapter 13 bankruptcy, but those bills were killed before their passage largely due to intense lobbying on the part of the mega-banks. Struggling homeowners do comprise a collective group, though they lack the necessary organization to promote their interests, especially when matched against the large and well funded lobbying groups for mortgage holders and realtors. The rather novel notion of the unions here is that the needed organization is already present and when that organization is combined with sincere market pressure, it may prove enough to get the necessary results.

Individual homeowners simply do not have the requisite power to force these mortgage holding behemoths to modify their mortgages. However, when individual homeowners are aligned in a collective group coupled with a market incentive for the mortgage holders to act, modification seems a much more attainable goal. Perhaps other unions with such pension investments will get on board for collective action. The “union collectives” may have the necessary size to make an impact through the market that government has proved unwilling or unable to achieve.

Growing Number of Public Officials to Slow Down Process

2010-11-12T15:21:00Z

The Washington Post has reported that frustrated by the banks' response to the foreclosure mess, a growing number of public officials - including chief judges, attorneys general and sheriffs from jurisdictions big and small - are pushing the boundaries of their powers to slow down foreclosures in their areas, the Washington Post reported today. The new challenges are throwing a wrench into the plans of mortgage companies, which in recent weeks have tried to put the robo-signing mess behind them by rapidly reviewing or fixing their paperwork and resuming foreclosures. Such challenges, experts say, are likely to further prolong a foreclosure process that already takes an average of 16 months to complete - helping homeowners facing eviction but hurting the still-fragile housing market. Link to Washington Post Article .

Good News For A Change

2010-08-27T20:07:00Z

Yesterday, August 26, 2010, the NY Times reported that American taxpayers could reap a sizable profit from the Obama administration's so called Public-Private Investment Program. This is part of the administration's plan to unlock frozen credit markets made in the spring of 2009. Now nine months into the program, there has been generated an estimated return of about 15.5% for the taxpayers. Not too shabby for a program that critics called another giveaway to big business.

NEW RESTRICTIONS ON DEBT SETTLEMENT COMPANIES -- BUT THERE ARE LOOPHOLES

2010-07-30T14:51:00Z

On July 29, 2010, the Federal Trade Commission (FTC) announced new regulations on debt settlement companies. The rules will not take affect until the fall. They will prohibit companies from charging a fee before the settle or reduce the customer's debt. They also require that the companies set up dedicated or trust accounts for debt relief payments and disclose to their customers how long the debt-reduction efforts will take, what they will cost, and the potentially negative consequences that could occur.

There may be some loopholes. For instance, the rules may only apply to telephone solicitation and not to internet solicitation or face-to-face meetings.

It was reported that over 20 states have sought legal action against debt-relief companies. Some states, such as Texas, have no official regulation although the Texas Attorney General has pursued some companies. THE SCAMS ARE STILL THERE. Before using a debt-relief company, you should do your homework. In addition to internet searches, you may be able to check with your attorney general's consumer protection office, the FTC, or your local United States Trustee's Office.

Contact an attorney if you have any doubts. Many attorneys will offer a free initial consultation. If in the Dallas, Texas area, please feel to contact us at 972-386-3900 for a free initial consultation to review your financial situation and review several options for relief.

The Best Congress Money Can Buy

2010-06-04T13:34:00Z

Yep. We have the best congress that money can buy. The following is from the American Bankruptcy Institute.

Report: More Than 1,400 Former Lawmakers, Hill Staffers are Financial Lobbyists

A study released yesterday by Public Citizen and the Center for Responsive Politics found that more than 1,400 former members of Congress, Capitol Hill staffers or federal employees registered as lobbyists on behalf of the financial services sector since the start of 2009, the Washington Post reported yesterday. The analysis by two nonpartisan groups found that the "small army" of financial lobbyists included at least 73 former lawmakers and 148 ex-staffers connected to the House or Senate banking committees. More than 40 former Treasury Department employees also ply their trade as lobbyists for Wall Street firms, the study found. Some of the biggest names highlighted in the study include former Senate majority leaders Robert J. Dole (R-Kan.) and Trent Lott (R-Miss.); former House majority leaders Richard K. Armey (R-Texas) and Richard A. Gephardt (D-Mo.); and former House speaker J. Dennis Hastert (R-Ill.). Ex-Rep. Vin Weber (R-Minn.) has the largest number of financial-services clients of any former lawmaker, representing 13 companies and groups, including Deloitte, Ernst & Young and the Real Estate Roundtable, the report shows.

Did the 2005 Bankruptcy Amendments Cause More Home Foreclosures?

2010-05-16T02:04:04Z

I found the following article from Drew Broaddus interesting.

Did Bankruptcy Reform Trigger the Housing Crisis?

Posted by Drew Broaddus on 4/16/10 • Categorized as Bankruptcy News, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, History of Bankruptcy

As discussed in John Colwell’s recent contribution here, housing – which seems to be at the center of the current economic downturn – is a long way from a rebound, and foreclosures may actually increase in the coming months. After reading Mr. Colwell’s article, I decided to learn a little more about the subject and came across this articlewhich was published in BusinessWeek on October 29, 2007, near the beginning of the housing crisis. In this article, the author contends that the 2005 amendments to the Bankruptcy Code (also known as the Bankruptcy Abuse Prevention and Consumer Protection Act or BAPCPA) caused more people to walk away from their mortgages. The author explained: “foreclosures are soaring, while bankruptcies, though clearly on the upswing, are running roughly at half the 2001-2003 pace. The reason: [the BAPCPA] … makes it much harder for households to get out from under their consumer debt … [m]ore people [are] being forced to walk away from their homes, leaving lenders holding the bag.”

According to the 2007 Businessweek article, the old bankruptcy law was considered extremely housing-friendly. In practice, most Chapter 7 filers got to keep their homes, while the rest of their property and assets were sold off to pay a portion of unsecured debts such as credit-card and medical bills. When the assets ran out, the remaining loans were cancelled (with the exception of non-dischargeable debts like student loans, alimony and child support) and future paychecks could go to mortgage payments. Under the BAPCPA, however, more debtors are forced into Chapter 13 due to the means test, so they are still trying to make payments on car, credit card, medical, and other bills (which used to be discharged in Chapter 7) pursuant to their Chapter 13 plan. That makes meeting the mortgage more onerous.

I am surprised by how little attention this idea has received in the last few years. However, I did find this more recent working paper which tackled the issue and concluded that “personal bankruptcy law … played an important role” in the financial crisis of 2008. More specifically, these authors “estimate that the reform caused about 800,000 additional mortgage defaults and 250,000 additional foreclosures to occur in each of the past several years.” These authors suggest that “the 2005 bankruptcy reform should be at least partially reversed” because “lowering the cost of filing for bankruptcy will encourage more homeowners to file and therefore reduce foreclosures.”

-Drew Broaddus

Help for Homeowners? Maybe

2010-03-29T00:38:00Z

Home Affordable Modification Program ("HAMP") just may provide some relief for struggling homeowners. The following information is taken from the Making Home Affordable website - www.hampadmin.com:

The Home Affordable Modification Program is designed to help as many as 3 to 4 million financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term. The program provides clear and consistent loan modification guidelines that the entire mortgage industry can use.

Borrower eligibility is based on meeting specific criteria including:

1) borrower is delinquent on their mortgage or faces imminent risk of default

2) property is occupied as borrower's primary residence

3) mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.

After determining a borrower's eligibility, a servicer will take a series of steps to adjust the monthly mortgage payment to 31% of a borrower's total pretax monthly income:

First, reduce the interest rate to as low as 2%,
Next, if necessary, extend the loan term to 40 years,
Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount.

While not all servicers have signed up to participate in HAMP, those whose loans are backed by FannieMae and FreddieMac generally have. These alone, generally are over 1/2 of all U.S. home mortgages.

Also, while you can go it alone (the HAMP website is shown above), the process is complicated any you may want assistance. We are in the process of exploring how we can be of service to those wishing to participate in the HAMP program.

If you want to discuss HAMP, please give me a call. As I said, however, we are exploring this program. Calling us does not mean that we will be able to assist you at this time and does not make you a client. For free, we will be glad to give you our thoughts so long as you understand that those thoughts are worth what you just paid for them.

Allowing Bankruptcy Judges to Rewrite Mortgages

2008-09-29T01:20:00Z

Well, it looks as if we're going to bail out Wall Street -- again. And, again it will be at the expense of the every day working stiffs. Also, Congress is treating the symptoms, not the problems. The problem is (we have been told) that there are alot of bad mortgages out there. That's probably true, I represent some of them. The Banks want to get the loans off their books and on the government's books. Essentially that means on your books. However, if the loans are bad, they are still bad. It seems that a better way would be to be able to rework the loans so that they are performing loans that can and probably will be paid.

There had been a provision in the bill that would allow Bankruptcy Judges to adjust the mortgages on the debtor's principal residence. Currently that is prohibited although almost all other debts can be readjusted. The argument from the banking industry (the folks that got us to this problem) is that such a "drastic" change would decrease the availability of mortgages and drive up interest rates on them. Hmmmmm. Remember Economics 101? Price is a function of Supply and Demand. When money is pleantiful, interest rates are down. That's been the problem. Maybe fewer "goofy" mortgages would not be such a bad thing.

As I understand it, the current proposed bill "encourages" the lenders to renegotiate the debts of the "troubled" loans. It ain't gonna happen folks. Under the current structure, the mortgage servicer does not own the mortgage. The mortgage is owned by something else or a group of "something elses." The mortgage servicer is under a duty to collect the debt. It risks being sued by the "something else" if it is wrong in readjusting the mortgage.

That's why it is in everybody's interest to permit the Bankruptcy Judges to readjust mortgages. Then everyone can blame the Bankruptcy Judge. In the time honored tradition of passing the buck, everyone can say, it's not my fault -- "The Judge made me do it."

Thanks for reading. I'm through ranting for now.

Bankruptcy Reform for Homeowners Down

2008-04-05T02:05:00Z

The Senate killed for now, a proposal to allow Bankruptcy Judges to refine unjust mortgages. I've heard that it's not dead but could be brought up later. Problem is that it has been "bought" up. Remember, we have the best government that money can buy.