Among the delightful changes BAPCPA (the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005)made to the Bankruptcy Code was the “cap” on homestead exemptions. In Massachusetts, a homeowner can keep up to $500,000 in equity in their primary residence from the reach of creditors. BAPCPA capped homesteads to $125,000 if the “interest” in the residence was acquired within 1215 days of the filing of the bankruptcy petition. In two recent cases, Massachusetts homeowners found their homestead exemptions capped. Massachusetts homeowners thinking of filing bankruptcy need to keep reading.

The Case of the LLP
The first case involved a Chapter 13 debtor who had a habit of transferring his property into an LLP (limited liability partnership), and then back himself, and then back and forth. The Debtor explained that there were no other partners, and that he was the sole owner of the property for many years. He claimed he did this in an effort to obtain financing.

The Bankruptcy Court found that an LLP is a distinct legal entity, and because it was a distinct legal entity (created by completing a form and paying a filing fee) it was the LLP that had the ownership interest in the property, not the Debtor. The Debtor had an interest only in the LLP, not the home. Since the LLP conveyed the residence to the Debtor within the 1215 day period, the homestead was capped at $125,000. The home was claimed to be worth $1.25 million, with liens of only $760,000, leaving well over $300,000 in equity for creditors.

Yours for a Buck
In the second case, a husband and wife bought their home together in 1988, but in 2001 the husband conveyed his interest in the property to his wife (for $1.00), and the wife granted a mortgage on the property. The wife was the only responsible party on the promissory note. In 2005, the wife conveyed the home to her husband and her as “tenants by the entirety” for $1.00. At that time, the Debtor filed a Declaration of Homestead. About 6 months later, the husband filed bankruptcy under Chapter 7.

Even though the Debtor remained on the property since he originally purchased it with his wife in 1988, and even though they remained married that entire time, the Court found that the Debtor had acquired his interest in the property within 1215 days of the filing and therefore, his homestead exemption was capped at $125,000. There is no mention in the decision how this impacts the non-debtor wife’s interest in the property. In this case, the home is claimed to be worth $500,000 with a mortgage of $85,000, but only she is the obligor on that mortgage.

Both cases presented facts of what might otherwise be viewed as innocuous property transfers. However, in both cases, these seemingly innocent transfers ended up costing these Debtors a lot of money, particularly in the second case. The wife did not seek bankruptcy protection, and the mortgage was solely in her name. Based on the facts, I cannot think of any good reason to transfer the home back to the husband.

I raise this because many times I have been asked by prospective clients a question similar to this one: “should I transfer my home to my father/brother/mother/ friend/cousin….” These cases serve as a reminder as to just of few reasons why my answer is almost always “no.”

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Many of my clients have told me that they cannot afford Christmas this year. They have either shunned credit cards, or been shunned by the credit card companies. Others have lost their jobs, or are facing a lay-off. Some are living pay check to pay check and do not know how they can pay the mortgage or the rent. For those clients, and for others so similarly situated, I have this Christmas message for you.

Christmas Eve
Christmas Eve was the one time of the year I could count on seeing most – if not all – of my family at the same time, and in the same place. As a kid, my mom had an open house: inviting friends, neighbors, co-workers, and of course family. She was renowned for her eggnog, which she would make batches of in anticipation of company, only to find herself in the kitchen during the evening having to whip up more.

As the years went on, the tradition moved to my grandparents’ home in Tiverton, Rhode Island. They usually had a small tree, decorated only with lights and photographs of family members who were there, and other family members who had passed on. My grandfather would make mince meat pie. The pie actually had meat in it. One year he told us it had venison; which given the whole Santa/Reindeer thing, I thought was just sick. It also had booze in it. Sometimes too much.

My nana would make a ham and baked beans from scratch. The ham was always tasty, and very salty and it made us want to drink lots of water. That, coupled with the beans, often made the ride home interesting primarily because it was usually quite cold and it was necessary to have the car windows rolled down. But damn, we sure did laugh on the way home.

Of course, Christmas always involved presents. I remember when I was in law school, and I had no money. I managed to find some old slides of my grandparents and I got them converted into photos. I got a cheap frame at a discount store and wrapped it. The photo I gave my grandfather was of my nana and me when I was a young lad and she, a much younger grandmother. When he opened the gift, he sat and slowly moved his thumb over the image of my nana. He said not a word. My aunt would later tell me it was one of the best presents he had ever received, and he was too overcome with emotion to tell me. Amazingly, the whole thing cost less than 5 bucks.

But most of those years, gift giving involved tons of wrapping paper, bows and if we were lucky, only 5 months of bills. My mom had a tendency to go over board, which was an unfortunate trait she passed on to her children. Yet as with all things, a change in the air would come.

When the Winds of Change Blow…
In 1995, one of my cousins died unexpectedly. His death, for reasons that need not be explained had cut the family at its core. The following Christmas Eve was in a word, empty. That Christmas, only a few of us came to Tiverton. For some in the family, the emptiness was too unbearable to even attempt.

Less than 7 weeks after that Christmas, my grandfather passed away. The following Christmas Eve, I did not give my nana a present – she herself was quite ill. We merely sat on her enclosed porch which looked out onto a large salt pond. We sat in the dark, with the only light being from a candle flickering next to an old nativity scene and moonlight dancing on the icy water outside. We held hands and for the most part, sat in silence. We cherished each and every second of that evening.

A few months later, my nana joined my grandfather. From that point on, Christmas Eve was a special time but it was a time when we as a family knew that we had to be together on that one day of the year. Going overboard was something that we felt had to do. Maybe we thought it was a way to reinforce how special the day was. Maybe it was our way of dealing with the loss of not only those family members. In retrospect, we covered up the pain we felt with material things.

The last Christmas Eve with my mom was in 2001. It was in a nursing home, and she was recovering from what would be one of her last hospitalizations. At that point, there was really nothing to buy. There was nothing I could buy her that she needed or could want. Any gift she could have given me would either be profoundly trivial, or even more profoundly heartbreaking. The only thing that was important that Christmas Eve was that we were together.

We laughed, remembered Christmas Eves of the past, gossiped, and eventually sent out for some Chinese food. As we munched on greasy ribs and even greasier egg rolls we innately knew that that December 24 would be the last for us.

Looking back, we played the night well. My mom had ordered an enormous poinsettia (which was ironic, because I always thought she hated them). It had a large, ugly fake bird stuck in the middle of it. There were no tears (certainly, none that she saw). There was no maudlin sentimentality spewed forth like some dollar store gift with a slapped-on-bow. It was just us together on Christmas Eve. And that was all that truly mattered. To this day, I know in my heart that it was all that really mattered.

So to my clients and readers on this Christmas Eve, I want to tell you all that none of the Christmas gifts I ever received or ever gave – even those I have given and received this year have really mattered. At the end of the day, there were just bags of discarded wrapping paper; toys that would be played with and ultimately thrown away; clothes that would be worn and then worn out; and food that would be eaten, or admittedly, re-gifted. The only constant was and is to this day those we cherish. The only gifts that really matter are those that remind us of that fact day after day, year after year.

My Christmas message to you is this: know that if I could, I would give back every Christmas present I ever received, and vow never to accept one again if I could spend just one more Christmas Eve in Tiverton with my mom, my cousin, my nana and my grandfather and everyone else in my family. The salty ham. The boozy pie. The tree, the dysfunction and the laughter. All of it.

This Christmas Eve, cherish the time you spend with your family and your loved ones, remember above all what truly is important; and keep it close to your heart as you enter every day of the New Year. It will give you strength to overcome any obstacle. Trust me, what’s really “priceless” are those important things in our lives that cannot be bought. Contrary to whatever the good folks at Citibank think, there’s really nothing that money can buy to make what’s “priceless” any better.

With that said, I wish you all a very Merry Christmas.

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Today I received a phone call from a client who received their Chapter 7 bankruptcy discharge earlier this year. They are applying for a job and as a part of the screening process, the employer is requiring a credit report.

The prospective employer does not have a problem with the bankruptcy, but does have a problem with a $34,000 debt appearing as still being old and delinquent. However, the debt was discharged in the bankruptcy. They do not owe it.

While the prospective employer might be satisfied with documents I provide them, it should not be assumed that other prospective employers will be as accommodating. The reporting of the debt as still being owed is an error. It is either the fault of the credit bureau or the fault of the creditor who is reporting inaccurate information. Certainly, I can point that out, but if a prospective employer wishes to rely on the information in the credit report, they are free to do so - even if it is wrong.

While the client may have remedies to address this incorrect entry on the credit report, as I write this and post it to this blog, the incorrect item is still there. Banks as well as prospective employers and landlords may rely on incorrect information, and may make adverse decisions based on it.

With all of that said, please make it a habit of checking your credit report at least two times per year. If you have filed bankruptcy and a debt you know was discharged is still appearing as being owed, contact an attorney (start with the attorney who handled your bankruptcy). Do not wait until you receive a call that you might not get that credit line, or that job, or that apartment because of an incorrect item on your credit report.

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According to a report in the Cape Cod Times, a record number of homeowners on Cape Cod are facing foreclosure. While there are a number of reasons why this is happening, it is also reported that folks facing foreclosure are waiting far too late to take appropriate remedial action. Nancy Davison, vice president of the Housing Assistance Corporation says:

They stay in denial until it reaches a point where it is difficult, if not next to impossible, to come up with a solution to the delinquency.

In addition to the report from the Cape Cod Times, there is word that foreclosure rates statewide increased nearly 300 percent in November, and the rate could even surpass the 1991 record.

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Lately, I’ve been meeting with clients who are facing an imminent collection action (or two). For example, I might get a call on a Tuesday, and a foreclosure auction is on Wednesday, or a client calls to cancel their appointment because they cannot get to the office because their car was repossessed. In others, there is a court date, or an ordered garnishment. In virtually every instance, folks have been trying to deal with the debt issues themselves.

Sometimes, they are dealing directly with the creditor, trying to work out a deal only to have it fall through at the last minute. Others, they are heading from bank to bank, or calling credit card company after credit card company looking for an extra extension of credit to get them through. And still others are hoping that an uncle/brother/parent/grandparent can lend them money. Regardless of what they tried to do, their efforts did not pay off.

Then, they are sitting across from me. While I admit I am not the first person people call when they are struggling with debt (notwithstanding my abilities and off-beat sense of humor), being the last person is not necessarily a good thing especially when if I am forced to say is “you’ve waited far too long and there is nothing I can do.”

Let’s not forget that the Bankruptcy Code now requires credit counseling: the ticket in. And let’s not also forget that while bankruptcy protection is still available, the code now requires that we attorneys get a lot more information and documents than we once had to. If your foreclosure auction is tomorrow, the last thing you want to hear from me is “I can help you – but I need at least six months of pay stubs.” Perhaps the second to the last thing you want to hear is: “I also need your tax returns.” Of course, that might really be a problem…unless you have not filed your tax returns yet….or, have not filed them for quite some time.

Here’s my point: the majority of us do not go to bed at night only to wake up and be more broke than we were the day before. It’s something that grows for a period of time. Sometimes weeks. Sometimes months. Sometimes years. While folks might try borrowing from relatives, getting loans, credit counseling or negotiating directly with creditors, folks need to have a back up plan just in case one – or all of those of those attempts are unsuccessful. Plan accordingly.

Please, plan accordingly.

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When you’re deep in debt, going to the mailbox can feel pretty overwhelming. In fact, I’ve had clients tell me that it’s something that have dreaded on a daily basis. Of course, this time of year, in addition to bills and junk mail, there are also greeting cards from friends and family.

I still get holiday greeting cards from people I have not spoken to in almost 20 years (let’s not let Roy, my associate know that as he’ll only remind me how old I am). Of course, I do not get cards like the one that fellow NACBA member and Hawaii Attorney Stuart Ing recently shared.

I am not sure if it’s funny, or just plain wrong. The artwork is pretty. It is apparently designed by Hallmark artist Johne Richardson (I did not misspell the first name).

The greeting card is fairly inoffensive to the eye. Soothing. A means of conveying peaceful wishes to someone struggling...almost like a sympathy card. And then... I get to the requisite FDCPA language on the inside left. You’ll need Adobe, – but you can check it out here.

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As it mourns its final days of Republican control, the Senate Judiciary Subcommittee on Administrative Oversight and the Courts is holding hearings today. According to a statement released by the National Association of Consumer Bankruptcy Attorneys, the hearings are intended “to create a phony record of the ‘success’ of what, in fact, are widely viewed as decidedly ineffective and counterproductive bankruptcy law changes” implemented by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

NACBA President Henry Sommer stated:

No credible person in the field seriously disputes the fact that the bankruptcy law changes have been a spectacular flop. The law is not squeezing out the supposed legions of abusive filers because they were never there in the first place. All these ill-considered law changes are doing is erecting pointless additional hurdles and costs in the way of desperate families who legitimately need the fresh start of bankruptcy.

NACBA believes that these hearings are an attempt to put “Lipstick on a Pig.” Read the release here.

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