Since the housing bubble that is deflating or exploding (depending on your perspective), it is becoming more and more common for debtors seeking to reorganize to be seeking bankruptcy protection. To be a chapter 13 debtor your debt cannot exceed a certain amount. As of this posting, a chapter 13 debtor cannot have more than $366,900 in unsecured debt, or have more than $1,010,650 in unsecured debt. If a debtor wants to reorganize and has higher debt, chapter 13 is not an option. With that said there are some facts you need to know about chapter 11.

It’s more expensive: the filing fee for a chapter 11 petition is (as of this writing) $1,079. Legal fees and expenses should be expected to be higher (if not significantly so) and most experienced bankruptcy attorneys will quote you a retainer based on the level of skill required, and the level of complexity anticipated in the case. In addition to those expenses, there are quarterly fees payable to the US Trustee.

In addition to the legal fees and costs, there are the tasks associated with being a chapter 11 debtor. Debtors need to prepare and file monthly operating reports with the US Trustee. If debtors are not already doing so, this means getting into the habit of keeping track of every penny of income, and every penny of expenditures.

It is an urban myth (or depending on where you are, suburban myth) that you can file under chapter 13 if you are over the debt limits. You either have to face chapter 11 with a brave face and a good attorney, or you have to accept the fact that you may not be able to afford the property you are trying to keep.

If you think you might be “in the ball park” of the debt limits, you need to get all of your documents in order. This includes bills, statements, as well as other potential claims, such as pending lawsuits. Let bankruptcy counsel review it and determine whether you can get into a chapter 13, versus a chapter 11. The sooner you can know which chapter or chapters you can proceed under, the sooner you can prepare. The time to do that is now, not on the eve of a foreclosure auction.

Storm Preparation is a weekly series appearing on Wednesdays and offers tips and information to people who think they may need bankruptcy protection in the future. Questions, comments or suggestions can be addressed to info@mcleodlawoffices.com.

Posted by Bill McLeod at 6:19 AM | Permalink | Comments (0) | TrackBacks (0)

I have been asked by clients if they can avoid having to list all of their credit cards on their bankruptcy schedules. The answer is simple: “no.” However, they must list all of their debts. And if you owe the credit card company money, you must list it on your bankruptcy schedules (open lines of credit are not debts, although no debtor should expect that an inactive line of credit will survive a bankruptcy filing). Not doing so is – legally speaking – stupid. And recently, a debtor in Massachusetts learned just how stupid it really was.

The debtor filed a chapter 7 case. In an Adversary Proceeding, a creditor alleged that the debtor made a false oath when she failed to list five separate credit card debtors on her petition. She also did not bother to amend her schedules at any time…even after the Adversary Proceeding was filed. When asked about it, the debtor replied:

I didn’t list [the credit cards] because I didn’t want to totally destroy my credit. That’s basically – I didn’t think I had to, you know, divulge these small little credit cards that didn’t mean anything. They weren’t huge.

Not “huge”
The creditor filed the Adversary Proceeding objecting to the discharge based on the debtor’s making a false oath. For it to justify denial of the discharge the representation must be related to a material fact in the bankruptcy case and the debtor had to have had a fraudulent intent. Here, the court focused on the debtor’s “reckless indifference to the truth”, which was fueled by her statements that she did not want to “destroy” her credit, and had not amended her schedules at any time.

At oral argument before the Bankruptcy Appellate Panel, she attempt to argue “no harm, no foul”: since she did not intend to harm anyone, and since no one was really harmed, she should still get her discharge. Not a big deal. Not “huge.” The Court didn’t buy it:

At a minimum, the omission most certainly did harm the credit card companies, as the debts would have been discharged without their having had an opportunity to assert any objections they may have had. Further, while sworn statements are to be treated with seriousness in any court proceeding, this is especially so in bankruptcy where the successful functioning of the bankruptcy system hinges on both the debtor's truthfulness and her willingness to make a full disclosure. ……

“Neither the trustee nor the creditors should be required to engage in a laborious tug-of-war to drag the simple truth into the glare of daylight.” ... Indeed, the very purpose of [Bankruptcy Code provision providing for a denial of discharge for making a false oath] is to protect the integrity of the bankruptcy process by ensuring that those who seek its protection “do not play fast and loose with their assets or with the reality of their affairs.” .. The bottom line is that this Debtor sought to use the bankruptcy system to her advantage while avoiding its consequences. The system simply does not abide such dishonesty, no matter how minor the Debtor would have us believe the omission was.

Chase v. Harris (In re Harris), Bankruptcy Appellate Panel, First Circuit (April 15, 2008)

Posted by Bill McLeod at 6:29 PM | Permalink | Comments (2) | TrackBacks (0)

I believe there are folks who believe that I am a huge Negative Nancy when it comes to talking about the economy. So much so, that they do not even want to bring up the subject around me. As I have mentioned: I am not an economist. I did not do well in economics while in college. I found it…quite honestly…a tad dry. It was also at 8:00 am. None of that means that I do not have the wherewithal to see that things all around us are not well.

I judge how well the economy is doing by how much it costs to fill my tank or buy groceries. I judge how well the economy is by how many vacant store fronts I see in downtown Boston, or how many I walk by on the way home. And I judge how well the economy is doing by how there is more and more positive spin (or what some people might call propaganda) on how things really are not as bad as they seem. And there are clients (and if you’re reading this, you know who you are) that are banking that “things will pick up later this year” or “I think we’ve hit bottom.”

At the risk of sounding like a Negative Nancy: Things ain’t looking so hot.

A post yesterday at Calculated Risk highlighted certain remarks made in a UPS Conference Call. Among them: “At this point, we see no immediate signs of economic improvement.” The tone of that remark seems a bit negative.

There were other tidbits in the news. There are stories about Americans hoarding food, and some retailers limiting the quantities that customers may purchase. Foreclosures continue to rise. It's all so very negative. And some people say we’re in a recession while our President assures us that we’re not.

And me? Yesterday, I had to fill my tank. I am thankful I live in town and do not need to fill it as often as I did when I was commuting. But I think I may be in a bit of a shock. No. Actually, I am pretty sure I am in a bit of shock. Though I bet others might argue that I’m just being negative.

Posted by Bill McLeod at 8:35 AM | Permalink | Comments (0) | TrackBacks (0)

I cannot tell you the number of times I have heard prospective clients tell me something like this:

“I have been wanting to file bankruptcy for several months, but I wanted to put my house into my relative’s name first.”

Under Section 544, a trustee can avoid a transfer of property by the debtor. In other words, and using the above example, the trustee could get the house back from the relative.

Perhaps even more problematic for a debtor: tThe discharge can be denied. Section 727 provides for a denial of discharge if “the debtor, with intent to hinder, delay or defraud a creditor or an officer of the estate (such as the trustee) has transferred, removed, destroyed, mutilated, or concealed …property of the debtor, within one year before the date of the filing of the petition; or…after the date of the filing of the petition.”

It’s been my experience that debtors transfer property without first speaking to an attorney. While the motives for transferring propety may be questionable, the decision to transfer is usually fueled by a fear of losing the property in a bankruptcy proceeding. However, no one can really determine whether an asset would not be exempt from the bankruptcy estate unless all of the facts are analyzed by an attorney. Without an opinion from an attorney, it is impossible to determine whether the fear is actually legitimate.

Yet even if the fear is legitimate, the biggest reason – if not the only reason – why consumer debtors seek bankruptcy protection is the discharge. Going into the process, losing property and losing the discharge makes no sense. Also, a debtor who transfers property is likely going to find themselves pulled into an Adversary Proceeding, which only increases the costs and fees associated with filing bankruptcy. If you’re thinking of transferring property: speak to a bankruptcy lawyer first.

You might also want to read:
Unauthorized Post Petition Transfer Leads to Denial of Discharge

Storm Preparation is a weekly series appearing on Wednesdays and offers tips and information to people who think they may need bankruptcy protection in the future. Questions, comments or suggestions can be addressed to info@mcleodlawoffices.com.

Posted by Bill McLeod at 7:48 AM | Permalink | Comments (0) | TrackBacks (0)

If you're trying to get a loan modification, you might be interested in this from the LA Times.

Condo owners take note: your neighbor's financial woes might become your own. See the Miami Herald for more. Which reminds me, if you own a condo and are hoping to refinance, you might be interested in this Boston Herald article.

Ever wonder how you get targeted for all those pre-approved offers, or multiple other offers and solicitations you get? See what Credit Learning Center has to say.

The price of oil is up over $119 this morning. Yesterday I met with a client who told me that their oil company was not offering contracts that would allow them to lock in their price for next winter.

Democrats in Washington have proposed a new government backed loan to help homeowners whoa re facing foreclosure. There's a catch.

...lenders would have to agree to wipe out part of their debt. And the borrowers would have to show they could afford the new mortgage. They also would have to agree to share any future profits on the home with the government.

Read more here.

Posted by Bill McLeod at 12:03 PM | Permalink | Comments (0) | TrackBacks (0)

Very often, I find myself speaking to debtors and wondering what I would do if I were in their shoes. This week, I spoke with a debtor who has had a chapter 13 case pending for about a year and was representing himself. The debtor was facing a Motion for Relief from Stay for failing to make post-petition mortgage payments, although the plan payments were current. I asked the debtor why he was representing himself in his case and he told me that all the lawyers he spoke to had told him he should just “walk away” from his house and file a chapter 7. After our conversation, I understood why.

I asked the debtor why he had made no mortgage payments – and was told that the mortgage company had refused to accept them. The mortgage had not been paid for almost 10 months and the post petition debt totaled more than $18,000. Knowing that mortgage companies do tend to mess up after filings and not accept payments, I asked another question: do you still have the funds on hand to pay the mortgage company? The response was “no.”

Arguably, at least a healthy fraction of those funds should have been on hand but were not. Not a penny. When I asked the reasons why the funds were not on hand, the response was “I had bills to pay.” The debtor also told me there was no equity in the property and it was 100% financed.

I thought to myself: ‘what the heck are we doing in a chapter 13?’ There’s no house to “save” – the value is probably less than it was at the closing, so there’s no equity building up. In fact, it’s probably getting more underwater as the months go by. The mortgage payments are $3000 per month and they are not being made, nor is the monthly house payment being set aside. Other choices are being made.

It was then that I asked why the debtor did not have an attorney and was told that all of the attorneys he spoke to told him he could not afford his house and he should just “walk away.” This pretty much what I ended up telling him.

My point is this: debtors who meet with competent attorneys should expect to hear the truth about real life issues they are facing. Competent consumer bankruptcy attorneys are not there to sell a home theatre system and tell you what you want to hear. At times, you’re going to hear what you do not want to hear. Think of this way, you do not go to the dentist with a toothache only just he can tell you everything is hunky-dory (and if you’re lucky, get a lollipop).

Or we could think of it another way: years ago I had abdominal surgery. I recovered fairly quickly, but one stupid stitch ended up getting infected. It hurt like a s.o.b. (since this is a professsional website, my use of the term s.o.b. is designed to illustrate the level of pain that I was experiencing). When I realized that my efforts at treating the infection were not working, I opted to head over to the emergency room. When I met with the doctor, he looked me square in the eye and said “I’m going to pull it out. And I’m not going to pull any punches with you: This is going to hurt like hell, but the pain will pass quickly.” I appreciated his honesty.

And do you what? He was right. I felt better almost immediately and it was sort of cool walking out to waiting room and asking my friend if he could hear me scream all the way out there. Today, the scar is barely noticeable.

I know that we often do not like to hear (and feel) what is painful or difficult but there was nothing I could do for this debtor. He did not want to hear that he should walk away from his house. He did not want to hear that he could not afford his house. And he did not want to hear that there was nothing that he or I could do about it.

If it were you in this debtor's shoes, what would you do? What would you do if more than one bankruptcy lawyer told you that there was no way you can save your home? Would you going to keep looking for a lawyer who would tell you want you wanted to hear? Or would you just sit back, bear down and hope that the pain passes quickly?

Posted by Bill McLeod at 4:44 PM | Permalink | Comments (0) | TrackBacks (0)

Parents – like all of us – get older. Parents – like all of us – are human. And parents – at times – find themselves in a financial mess. Over the years, I have had a chance to represent older debtors, and in many cases, that representation resulted from the urging of their children. If you think your parent or parents might need to file bankruptcy, you might want to think of a few things.

Chances are, your parents feel profound shame.
Older folks come a generation that grew up with parents who lived through the depression and World War II. More simply stated, I believe it is safe to say that most older folks have a much different relationship with money and debt than younger ones do. The thought of having to file bankruptcy will probably touch upon emotions and feelings that one might not necessarily experience if they were a younger debtor. Also, one’s debt is not something that is typically shared with the kids.

But older folks get into financial troubles: credit is used for medication, food, and other necessities. Bills get behind. The pension (if they are lucky to have one) and the social security check are not enough to cover expenses. The debt continues to grow. Not paying it back is a more difficult thing to grasp. This is not a judgment call – this is just how it is. And it is with that understanding that kids need to understand why their parents may have kept it a secret, and understand and appreciate the level of shame may not be the same as if you were the one in debt.

Chances are, your parents feel like they are losing control.
Most parents will admit that they do not want to be a burden on their children. They want to maintain their independence. That feeling of independence can stem from keeping one’s driver’s license, to being able to enjoy the activities that they are used to. It can also mean the independence to have control over their own finances – even if those finances are now out of control.

There’s no easy to involve oneself into a parent’s finances. But if you think you need to immerse yourself into their financial problems in order to help them get out of those financial problems, talk about the feared loss of control. Your parents probably do not want to admit it, and at the risk of sounding a tad offensive, your parents might feel some assurance knowing that this is not a situtation where today you're getting involved in their finances, and tomorrow, it's off to the nursing home. If you broach the subject first, it might make a difficult situation easier to work with.

Chances are, there are things they do not want you to know about.
Parents may feel apprehensive about disclosing how they have spent money or used credit. This is where it may start to get tricky for you. You are probably the first, and the best person to help them address and get through their financial problems. But even though you’re an adult, you’re also their kid.

Think about this: how might you react if your parent told you that they used their credit card for cash advances at BINGO, shopping or to keep the house stocked with wine? Might your reaction be different if they admitted that they told you that the only reason why they gamble at BINGO, drink wine or shop is because you never visit? Would your reaction be different if they told you that they used their credit cards for clothes, food and medicine and have been struggling for years but did not want to tell you? And might the reaction be different because they did not want to tell you because they did not think you would help them, they could rely on you, or that you could help? Might your response be different if they just admit they are not good with money, have not been good with money, and tried to be good with money but failed? These are things I urge you to think about. This brings me to a final point to consider:

Chances are, there are things you will wish you did not learn about.
This probably falls into the “shame” factor, but I’m not talking about things that your parents might be feeling about their finances. Rather, I am talking about things you wish you did not know about your parents.

For this, there is little I can offer in terms of “here are my tips for handling this delicate issue.” I got none. Perhaps the only thing I can do is put it out there: know, that if you’re going to be helping your folks who are overwhelmed with debt, you likely are going to learn things about them that you would have liked to have not known. And also know that more than likely, they know it, and they are not happy about it either.

I wrote this article after I received a phone call yesterday from someone looking for help for their folks. After the call, I started to recall the number of older folks who were brought to me by their children, or came to me at the behest of their children.

There was a debtor who filed bankruptcy knowing she was terminally ill and did not want to leave her children and grandchildren piles of debt. There were the debtors who filed bankruptcy only after realizing that the reality of growing older and the illnesses that followed, had forced them into financial ruin. There was a debtor who filed bankruptcy after more than 10 years of paying credit card bills for debts that arose from the death and the funeral of the spouse. There were other older debtors, each with different issues and reasons for filing bankruptcy. Yet each had the same four issues pop up in their lives and with their kids. And each debtor (and hopefully their kids), on one level or another, was able to move on.

Your parents will to. I typically tell people that years from now, their bankruptcy will be but a “blip” on the radar. Or sometimes it's just a small "bump" in the road. I imagine that folks in their 30s might not hear it the same way as folks in their 60s. While I in no way intend to declare that putting your parents into bankruptcy is going to be easy, I hope that the points I raise will help the parents and their children get through what will be a difficult – but likely manageable – process.

And perhaps, years later, the things you have learned about your parents won't seem so bad after all.

Posted by Bill McLeod at 7:39 AM | Permalink | Comments (0) | TrackBacks (0)

When I was growing up, I was never made privy to my parents’ financial affairs. I never knew if things were “bad” (primarily because we were lead to believe they always were “bad”) and we never really knew if they were “good” (if for no other reason, because we assumed it was bad). We still had a black and white Zenith TV with no remote (unless you considered me being the remote). We were a one car family. We did not have cable TV. And we also did not face foreclosure.

If we had, I imagine there would have been some sort of a ‘family meeting.’ After all, if my parents were going to lose the family home, I would want to know why. I would want to know why I would have had to move into a new house – why I might have to change schools – and would want to talk about what I might have had to tell my friends. Of course, that was then; the black and white TV is long gone.

I have had clients who have had to face the reality of losing their home. Why? There are no easy and clear cut reasons as to what lead to it. The only common answer is that at the end of the month, there is not enough money to pay the mortgage. Contrary to what you believe in the media, it’s not just the subprime meltdown that is causing people to go into bankruptcy and lose their home. People are still finding themselves in debt because of the high price of food, fuel – and just about everything else. People with health crisis and unemployment still have face a tough time. And if the economy continues its decline, we can expect job losses, salary stagnation, and other problems to affect the household’s bottom line.

Parents have told me that they do not want to talk about financial issues with the kids – because they are young and innocent. I often hear that “they wouldn’t understand.” If you ask me, this is exactly the time to discuss it, especially if there is a possibility that the family home cannot be saved. If there has not been a family discussion about the value of a dollar, there should be one very soon. If the cell phones need to be shut off, discuss it. If the phone is ringing off the hook because bill collectors are calling, tell them. If the cable needs to be downgraded or eliminated, talk about it. But perhaps most importantly, be prepared to discuss the reasons why.

That last part might be a little tricky. Parents may have had things happen beyond their control: a lost job or a health care crisis. The kids are likely to understand those things.

There are some things that kids may have a tough time understanding: parents may have also made some decisions that seemed like a good idea at the time, but now…not so much.

If parents are feeling as if they have failed, discussing that with the kids can be a tough and heartbreaking experience. My clients have told me so. But I have learned that this can be a time where kids can learn a valuable lesson from their parents. And perhaps, if you’re lucky, you parents may learn something from your kids.

Storm Preparation is a weekly series appearing on Wednesdays and offers tips and information to people who think they may need bankruptcy protection in the future. Please do not take these recommendations as a substitute for legal advice, and please be sure you read the Terms and Conditions of the Site. Questions & comments about or topic suggestions for Storm Preparation can be addressed to info@mcleodlawoffices.com.