Archive for May, 2008

Storm Preparation: Stage Two, Anger

This week the focus is on anger, the second of the five stages of grief. People in a debt crisis might be angry at themselves, their family members, their political leaders or the local mortgage broker. There might also be a whole host of regrets that come to the surface as well: they might regret buying the house, the car or taking that new job they just got laid off from. Whatever the focus, and whatever the reason, anger is an important and essential step in this process. With that said, let me stress that while anger might be an appropriate response when faced with a financial crisis, one must be mindful of how it manifests.

Everyone deals with anger in their own way. Some might keep it bottled in, and not express it at all. Others might talk about their anger. In a worse case scenario, it could manifest negatively (i.e., verbal and/or physical abusive). Others may resort to alcohol or drugs to deal with their anger. All of these can happen and it’s important to be mindful of what a productive expression of anger is, and what is unhealthy and perhaps even dangerous. A productive expression of anger is likely to be a temporary event. The effects of a negative manifestation of anger, like substance abuse or violence, can linger.

Don’t get me wrong, for homeowners facing a financial crisis or foreclosure, there is a hell-of-a-lot to be angry about. There are those banks that wrote ridiculous loans. There are those appraisers who inflated numbers to get the biggest loans. There are those mortgage brokers who are paid more if you borrowed more, and may have even fibbed on applications. There are political leaders who touted homeownership as a means for financial stability, all while home prices reach unrealistic levels.

There are those nasty retail clerks that had no problem giving a 10% discount if a charge account is opened. There were the commercials that touted Countrywide as always saying “yes” and MBTA Stations decorated with nothing but WaMu ads. There are the loan servicers who will not offer to help you until you’re late with payments, or until the house is headed to foreclosure. And there are the politicians you voted for who talk-the-talk, and talk and do nothing more.

Then there are the would-a, should-a, could-a things to be angry about. Those are too numerous to list. They are also too personal. Everyone – at some point – has had regrets and everyone, at some point, has been angry about regret. ( If anyone reading this denies this, then I can only assume that they never went out on a date with someone who turned out to be a toad, they never ended a relationship of any kind, or they never wore an outfit to a public function, only discovering later that it was ill-fitting, out of style, or had a peculiar and quite visible stain on it.) If you think real hard, you’ll find something to be angry about. But remember that it is what we do with that anger that will be measured years from now.

It’s important for people in financial difficulty to know that it is really ok to be angry about being in financial difficulty. It is really ok to be angry about decisions that once seemed like a great idea, but now are very regrettable. It is really ok to be angry because you feel vulnerable and uncertain about the future. But know that the anger, very much like the financial difficulty, will be temporary. And it will all pass.

And there may be days when it will not seem that way. All I can say is this: I’ve been there and it will.

Read more about Anger and The Kubler-Ross Model.

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.

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Predators in our Midst: A Warning for Homeowners Facing Foreclosure

I know that attorneys and other professionals may send written solicitations to homeowners who are facing the possibility of foreclosure. However, I have heard that there are unscrupulous individuals who may be posing as attorneys or are providing bankruptcy “assistance” when in fact, they are not qualified to do so.

If you are facing foreclosure and are contacted by ANYONE who claims to be an attorney, point your browser over the Board of Bar Overseers and look up that person up. There, you will find out whether they are licensed to practice law in Massachusetts, whether they are insured, and whether there is any history of discipline against them. If the person claims to be an attorney and they are not listed there, stay away from them.

These predators obtain a homeowner’s name and address by scouring the Land Court records and the auction notices in local papers. This information is available to anyone who goes to the court, or who perhaps subscribes to this information through a vendor (such as Banker & Tradesman). Through clients, I have learned that homeowners can be contacted by attorneys, real estate brokers and salespersons, mortgage brokers, as well as “investors” or others who may not have their best interests in mind.

Clients have been known to bring in bundles of mailings they have received. But the unscrupulous ones may not send out mailings. They may call, or show up at the door. They may claim that they go to same church, or once lived in the same neighborhood. They will appear to be friendly and helpful. They are anything but.

The bankruptcy cases that are getting filed are sloppily prepared. In many cases, those filings are without a credit counseling certificate, which means the case will end up being dismissed. In many cases, the scoundrel has taken the last chunk of money these folks have all under the guise of “helping them.”

If you’re facing foreclosure, or know someone that is, be smart and be safe. Deal only with a licensed professional.

To look up a real estate professional’s license, click here.
To look up a mortgage broker’s license, click here.

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Hoping to Modify a Loan with Countrywide?

You might be interested in this from Housing Wire:

Countrywide['s] CEO mistakenly replied directly to a troubled homeowner’s form hardship letter, characterizing it as “disgusting.” Specifically, in response to a form hardship letter from one Daniel Bailey, Mozilo wrote:

This is unbelievable. Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the internet. Disgusting.

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Storm Preparation: Stage One, Denial

As I mentioned last week, Storm Preparation is covering the five stages of grief as it applies to bankruptcy. Denial is the first of the five and is the first stage we’ll cover in this series.

Denial has been interpreted as “a conscious or unconscious refusal to accept facts, information, reality, etc., relating to the situation concerned. It’s a [defense] mechanism and perfectly natural.” How can this manifest in the context of a bankruptcy debtor – or a future bankruptcy debtor? Here is what came to my mind:

In this real estate market where values continue to deflate, denial can manifest in a homeowner that believes that property will sell for a profit. They believe this even though there is no equity, even though it is increasingly difficult for people to obtaining financing, and even though the property has been on the market for months and shown only a few times.

It can manifest when month after month, and year after year, income has decreased and credit is used for basic personal items: food, gas, utilities. I can also manifest when month after month, and year after year, payments on debt are barely enough to cover interest.

It can manifest after two parents who worked very hard to get their family into their own home, suddenly experiences a job loss with one parent, and then a health crisis with another. Even though these two events would trigger a shift in personal expenditures, including the monthly housing payment, denial (and repeated refinancings) can help the family coast along.

Of course, it doesn’t help when voices from Washington announce that the economy is just swell, and that things are getting better (even though oil is $130 a barrel). It does not help when there are commercials where real estate pros are announcing that “it’s a great time to buy.” It does not help when local leaders claim they are working towards a solution to the foreclosure crisis, when in reality nothing is really changing out there. All of this stuff just feeds into the denial. But, loan modifications are not occurring at any exponential rate, and the price of basic goods is going up. Forget what the talking heads in Washington say, head down to the supermarket and see if I am wrong. Be sure to stop for gas along the way.

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Section 523(a)(8): Reality v. Student Loans

It is exceptionally difficult – and for many, impossible – to discharge student loans in bankruptcy. Section 523(a)(8) exempts such loans from discharge unless the debtor can show that exempting the debt from discharge will “impose an undue hardship on the debtor and the debtor’s dependants.” This is a high burden. A May 12, 208 decision out of the Bankruptcy Court for the District of New Jersey demonstrates how high that burden is. And the facts of this case call into question the soundness of the underlying policy behind 523(a)(8).

At the time she filed her case, the debtor was collecting $951 per month in unemployment benefits along with $200 in general assistance ($124 of that is paid directly for rent in her subsidized housing). She collected $120 per monthin food stamps, and her other expenses were minimal. The debtor incurred about $6,900 student loans in furtherance of a degree as a medical lab technician. After taken a number of courses, she determined that the field was not for her and while the opinion doesn’t mention it, she presumably stopped her education.

Shortly thereafter, she was involved in a car accident. As a result of the accident, she suffered from Spinal Cervical Stenosis and received cortosteroids. Her only other treatment available is surgery, but she testified that her doctors are reluctant to operate because she’s 38 years old.

After that, she worked at a variety of low-paying jobs, making a total of just over $1,500 in payments toward the loans. She was able to make the payments because she lived with her folks at a minimal expense. She eventually obtained more gainful employment as a truck dispatcher, which enabled her to move out of her parents’ house, but that only resulted in an increased strain on her finances. During this time, she sought and was granted forbearances.

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I Have a Bone to Pick with a Credit Union

I also have a bone to pick with the firm they have retained for collections. I’m not going to name them – for now. But I am compelled to share what happened to a former client.

This client filed chapter 13 in 2000. The credit union didn’t file a proof of claim on time. Instead, it filed a proof of claim along with a motion asking the court’s permission to file the proof of claim late. The credit union claimed it did not get notice, even though the creditor matrix (the list of creditors that get notice in a bankruptcy matter) had both its local address along with an address in Florida (which was the address also appearing on the billing statement). The court set the matter for a hearing for December 5, 2000.

Credit union’s attorney appeared along with me on that date over 7 years ago. After the hearing, the court denied the motion to file the proof of claim late. Thus, it did not get paid in the chapter 13. In 2003, the client successfully completed the chapter 13 plan and received a discharge.

Today I received a call from the client who tells me that a letter was received from an attorney on behalf of the credit union seeking payment of the debt.

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A Lesson in Exemptions

In May 7 decision the First Circuit Court of Appeals ruled that a debtor was limited to the amount of his stated objections. For those thinking of preparing cases on their own, or for others with perhaps different motives, the case teaches a good lesson: you reap what you sow.

In a chapter 7, all of the debtor’s property becomes property of the estate, and is sold. The proceeds of the sale are used to pay creditors and other administrative expenses. The debtor is permitted to keep property – what are referred to as exemptions. In addition to other documents, debtors are required to file schedule B, which identifies personal property, and schedule C, which sets forth the debtor’s claimed exemptions. The code requires that if any party wants to object to any claimed exemption of the debtor, the party must file an objection within 30 days following the conclusion of the creditors meeting, or Section 341 meeting. If that is not done, the property slips “beyond the estate’s grasp.”

In this case, the debtor listed on Schedule B a total of about $170,000 in money that was owed to him. On Schedule C, he claimed that the claims were only worth $8,000 and were otherwise exempt from the estate. No objection was filed. About a year later, the trustee asked the bankruptcy court to approve a settlement in the amount of $100,000.

The debtor argued that the estate had no interest in the lawsuits at all. But the Bankruptcy Court in Puerto Rico ruled that the debtor had not exempted the lawsuits, but only $4,000 partial interest in each suit. It approved a settlement where the proceeds could be paid to the trustee, with $8,000 paid to the debtor reflecting the amount of their exemption. The US District Court for the District of Puerto Rico affirmed and the debtor appealed.

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Did Congress Pop the Balloon?

A chapter 13 debtor proposes a plan to pay creditors over a period of time. Their creditors may include credit cards and utilities, and as in most cases I deal with, prepetition mortgage arrears. In some cases, debtors simply make a monthly payment to the chapter 13 trustee over the life of the plan. In others, debtors propose plans that provide for gradual increases in monthly payments (what might be referred to as a “step plan”). Other proposals might include monthly payments, with the last payment being a large balloon. That final balloon payment might be paid by the sale of an asset or a refinancing of property. However, a recent Massachusetts Bankruptcy Court decision says that this practice is no longer permissible since BAPCPA. The decision is on its way to the Bankruptcy Appellate Panel and debtors and practitioners should follow it closely.

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Storm Preparation: The Stages

I’ve of written about the emotions that one goes through when contemplating bankruptcy. In one of my older blog postings, I harkened back to a cold February day where I had to put my 16 year old cat to sleep. There were a plethora of emotions that filled that experience, and some of which were the same that I see in my clients who are facing debt problems. It was with this in mind when I recently read articles (which lead me to read others around the net) that discussed the 5 stages of dying, and how they are transferable to other life changing events, including filing bankruptcy.

Elizabeth Kubler-Ross was the author of On Death and Dying. First published in 1969, the book is a study of the five stages an individual experiences when facing their own death: denial, anger, bargaining, depression and ultimately, acceptance. Those stages are not just for those facing their own death; the family of a dying loved one also goes through the same stages, although not necessarily at the same time.

Perhaps some will think me weird, but I first read the book in high school as a part of an English book report project. It was a book that stayed with me because if for no other reason, it was just as much a study of living as it was a dissertation about the process of dying. And bankruptcy is in many ways like death.

Since I wrote that article in January 2007 (the link is below), I’ve lost another cat. Bridget was just over 6 years old. For reasons I will never be able to fully understand, she died very unexpectedly. She was not hit by a car, or attacked by another animal. She just got very sick, very quickly, and in very short order, she was gone. I had no say in the matter. She very likely had a genetic heart defect that is difficult to detect, and even more difficult to treat even if detected in time. Facing that, there was denial, and anger (and boy, was there anger), and bargaining, followed by depression and ultimately acceptance. We all go through these stages when we face something that is difficult and painful. Facing the prospect of filing a bankruptcy petition is no different.

While I endured those emotional stages with my cats, I also went through them with my friends and family members who have passed away: my grandparents, my mom and many friends. There’s no way I can explain (or for that matter anyone can) what “denial” is, or what “acceptance” looks like. But I can share my own personal and professional observations and experiences. If you’re reading Storm Preparation because you see that bankruptcy coming, be sure to come back over the next five weeks. I’m taking this series into a new (albeit temporary) direction. And next week, I’ll tackle stage one: denial.

You might also be interested:
When Enough is Enough

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.

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Audits Have Returned

In January, the Executive Office of the US Trustee announced that audits of consumer debtor cases were suspended due to budgetary constraints. On May 9, the US Trustee program announced that it was resuming random audits. Originally, 1 out of every 250 cases filed in a judicial district could expect to be selected. Apparently, the budgetary issues have not been completely resolved because now, it is 1 out of every 1,000.

Read more here

Previous posts:
Audits of Bankruptcy Petitions

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