I imagine that any homeowner facing foreclosure would find these words quite comforting. Unfortunately, we’re hearing that this claim might be reflective of a scam. And even more troubling, it could lawyers who perpetuating it.

How it Works
The lawyer tells the distressed homeowner that for $ X, they can file bankruptcy and stop the foreclosure. The petition is filed, and the order for relief (the automatic stay) enters and the foreclosure proceeding is stopped in its tracks. However, the attorney files only a skeletal – or emergency petition. No other supporting schedules and documents are filed and ultimately, the case gets dismissed. The problem is that when the case gets dismissed, the foreclosure process can proceed.

While a homeowner may then decide that they should seek other counsel, the homeowner is now faced with a new problem: they have already filed bankruptcy and can be considered a “repeat filer.” Among the numerous changes to the bankruptcy laws in 2005 was the limitation on the automatic stay for debtors who have had a case pending in the 12 month period prior to filing.

If there was a case pending in the 12 month period prior to filing, the stay is effective for only 30 days. If there were two cases pending in the 12 month period prior to filing, there is no stay at all. The stay can be extended only if the debtor files a timely motion, and the court hears it in a timely manner, and the court finds that the later case is filed in good faith. If there were two cases pending, that motion might need an emergency determination and perhaps an evidentiary hearing.

While there might be good reasons for seeking bankruptcy protection more than once in a 12 month period, it should be avoided at all costs. Attorneys - and even pro se debtors who seek bankruptcy protection thinking it will buy them time to refinance their property or to negotiate with their mortgage company may find themselves only complicating their situation even more.

Why is it a Scam?
Bankruptcy does not stop foreclosure: it delays it. When the case is filed, the automatic stay will delay the bankruptcy proceeding. If a Chapter 7 is filed (which is assumes a debtor is going to surrender the home), a mortgage company will be able to seek relief from the stay in order to proceed with the foreclosure. If a Chapter 13 is filed, the stay will remain in effect however, the mortgage company will get relief from the stay if post-petition payments are not timely made. In addition, if all necessary documents, schedules and the Chapter 13 plan are not filed, the case may be dismissed, and in that case the foreclosure can proceed. Any good bankruptcy attorney knows this. An attorney who files a case knowing the debtor will not or cannot file the schedules and Chapter 13 plan is scamming the client, and filing the case in bad faith. Any suggestion that the mere filing of a bankruptcy petition (without full compliance with all filing requirements) will make everything better is simply false.

Why I am Warning Debtors
Today the Globe is reporting that the Massachusetts foreclosure crisis is apparently far from over. There were more than 2,200 foreclosures in January alone. Yesterday, I received a call from someone who needed to file a bankruptcy petition by this morning because the auction on their home was scheduled for this afternoon. A look at the docket in the case revealed that the person paid an attorney to file a petition a few months ago, but no schedules or Chapter 13 plan was ever filed. The person told me that the mortgage company was “refusing to work with them” and they needed to file bankruptcy again. Interestingly, their prior attorney was not returning their calls. This is no way to approach a debt crisis or the bankruptcy system. Any good bankruptcy attorney knows this, and should have advised the debtor accordingly.

So here are my recommendations: avoid being a repeat filer. If you are a homeowner that either is in foreclosure, or “sees the handwriting on the wall,” keep all of your options open – and this includes filing bankruptcy. No one wants to file bankruptcy; sometimes it is the only option available.

You can try and refinance, you can try and sell your home, or you can try and work with your mortgage company. But proceed with the assumption that those options may all fail. You might not have enough equity to refinance, or your credit score is law. There might not be any buyers interested in your property. Your mortgage company might not be interested in working with you. So, have a back-up plan, and let that back-up plan be a properly prepared and filed bankruptcy petition.

Or perhaps more simply stated: plan now or you may regret it later.

Posted by Bill McLeod at 10:57 AM | Permalink | Comments (0) | TrackBacks (0)

The news on the housing market is not cheery.

The FDIC reports that residential mortgage loan charge offs climbed to almost 200% during the 4th quarter of last year. The FDIC also reports that the number of deliquent loans at banking institutions is also on the rise.

The Japanese are getting concerned over increasing defaults in sub-prime mortgage loans here in the US. They are not the only ones. Freddie Mac today announced "today announced that it will cease buying subprime mortgages that have a high likelihood of excessive payment shock and possible foreclosure."

So there's all that news, and then we have today. Apparently tired of the cold winter weather, the stock market headed south. Marketwatch reports that todays drop (which included a 200 point drop in one minute) is the worst one-day drop since 2001. From Breitbart.com:

The housing market, which the Street had been hoping had bottomed out, also looked far from recovery after a Standard & Poor's index indicated that single-family home prices across the nation were flat in December. A later report from the National Association of Realtors said existing home sales climbed in January by the largest amount in two years, but the data didn't erase housing-related concerns, as median home prices fell for a sixth straight month.

Some argue that the drop is simply a long overdue correction. Others blame the Drudge Report.

All I can say is that these sure are interesting times.

Posted by Bill McLeod at 5:31 PM | Permalink | Comments (0) | TrackBacks (0)

When someone asks you where you reside, the answer is usually easy. But when someone asks you where you are domiciled, the answer might not be the same. A recent Massachusetts bankruptcy court decision determined that a debtor who claimed Massachusetts was only a temporary home could not use the Massachusetts homestead statute to protect property in Michigan where he was domiciled.

The debtor sought to shield from creditors approximately $30,000 in equity in the Michigan property. The Massachusetts homestead statute (subject to certain limitations) protects up to $500,000 in equity in a debtor’s residence. The Chapter 7 Trustee objected to the claimed exemption. He argued that at the creditor’s meeting, the debtor admitted that he had not occupied the Michigan property and had lived in Massachusetts for several years. Because he did not reside in the property, the Chapter 7 Trustee argued that the debtor could not use the exemption.

Debtor claimed that the property had been in the family for generations and is acquired it in 1988. He lived in the property for approximately 10 years until he moved to Massachusetts to take care of his ailing grandmother. He viewed the move to Massachusetts as temporary. While here, he continued to maintain the property and visited it once per year. He did not rent it out. In December, debtor’s grandmother died and he argued that he intended to return to the property.

Debtor argued that he could only use the Massachusetts homestead exemption because he resided in Massachusetts prior to filing. He argued that while the homestead statute does not expressly state whether a home must be located in Massachusetts in order for the statute to apply, he is entitled to use that exemption. He resided in Massachusetts when he recorded his homestead declaration. The Trustee then claimed that based on the debtor’s responses to his objections, the debtor resided in Michigan at the time of the filing, and therefore, the Debtor must choose between the federal or Michigan exemptions, not Massachusetts.

Residence v. Domicile: A Distinction with a Difference
Under the Bankruptcy Code, a debtor is allowed to keep certain assets away from creditors by invoking exemptions. The exemptions that a debtor is able to use is determined by Section 522(b)(3)(A) of the case which provides that the debtor may used exemptions under federal law or “State or local law that is applicable on the date of the filing of the petition at the place in which the debtor’s domicile has been locate3d for the 730 days immediately preceding the date of the filing of the petition.”

The Bankruptcy Court found that “domicile” and “residence” are not the same. Citing case law from the 9th Circuit, the Court noted that “A domicile is a residence coupled with an intent to remain….That a debtor may move to another jurisdiction does not change the debtor’s domicile unless the debtor intends to remain in the new jurisdiction.”

The Court found that the debtor never intended to acquire a new domicile in Massachusetts, and therefore he was required to either elect the federal exemptions (which provide for a homestead exemption of only $18,450) and to the extent allowed, the Michigan exemption statutes (which is between $30,000 and $45,000).

Posted by Bill McLeod at 5:16 PM | Permalink | Comments (0) | TrackBacks (0)

Many people get tax refunds, and today Reuters reports that a National Retail Federation survey reveals what some will be doing with their refunds:

...According to the survey, which polled 9,027 consumers between February 1 and February 8, only about 10 percent will dedicate a portion of their return to major purchases or a vacation. About 43 percent plan to use it to reduce debt, while about 38 percent see saving it, and more than 25 percent will put the money toward everyday expenses.

Posted by Bill McLeod at 6:47 PM | Permalink | Comments (0) | TrackBacks (0)

The Chief Economist for the Real Estate Center at Texas A&M University is warning struggling homeowners about foreclosure 'rescue' scams:

Here is how the scam works. The homebuyer gets behind on mortgage payments. The predatory lender offers a “loan to get caught up” on the delinquent mortgage payments. In exchange for the rescue, the homeowner signs over the title to the predator, who promises that the homebuyer may remain in the home while paying rent. The predator then sells the house to someone else, and the original homeowner gets an eviction notice.

Posted by Bill McLeod at 4:07 PM | Permalink | Comments (1) | TrackBacks (0)

Atlanta bankruptcy attorney and fellow NACBA member Jonathan Ginsburg has a great post today and recommends two websites that I will also pass along:

The first is a blog called Debt Free and more notably, a recent entry called "How the Red Flags of Debt Can Save You."

The second, and definitely more entertaining is StopBuyingCrap.com.

Posted by Bill McLeod at 6:09 PM | Permalink | Comments (0) | TrackBacks (0)

KCEN-TV out of Texas reports that aggressive debt collectors are bullying our troops overseas. An attorney tells them:

I hate to say it, but they're easy targets. They’re in Iraq. They’re in Afghanistan. They’re at bases across the world and the collectors realize that. They start going after spouses, they start calling commanding officers..

The report suggests that debt collectors "hope military members will quickly fold and hand over money, before they know their rights and realize they're being violated."

Posted by Bill McLeod at 1:51 PM | Permalink | Comments (1) | TrackBacks (0)