Some homeowners are giving up on the thought of keeping their home. There are a number of reasons for this. And if you are among the many homeowners contemplating walking away from their home, and the mortgage debt, you should consider a few things.
Archive for June, 2008
Game Over: Chapter 13 Debtor Sent Packing to State Court
Thursday, June 26th, 2008
A chapter 13 can be dismissed for lots of reasons: there is no money to fund a plan, the plan cannot be confirmed, or (as I discussed yesterday) tax returns have not been filed. A chapter 13 may also be dismissed for another important reason: the case was not filed in good faith. A North Carolina debtor learned just that.
Debtor filed a chapter 13 after she was sued in state court for race, religious and sex discrimination by a former employee. She listed the employee’s claim for $1.00. She also listed no other creditors. The employee sought dismissal for a variety of reasons, all grounded in what she argued was the debtor’s bad faith.
Underestimating the employee’s claim was not the only problem with the debtor’s schedules. The debtor also neglected to include the thousands of dollars she later admitted to owing the attorney who represented her in state court. So her schedules were not accurate and complete. Strike one.
The debtor filed the case two weeks before the state court case was to go to trial. While that fact alone is not determinative, it is an appropriate consideration in determining good faith. Foul ball/Ball one.
It appeared from the facts that the debtor’s only purpose in filing the case was to frustrate the state court action. The debtor and her husband owned real estate (that had no mortgages or liens) worth close to $500,000 and further, they had no debt. Since she only listed one creditor, it appeared that the only reason why she filed was to defeat the state court discrimination case. Strike two.
Perhaps the most glaring fact working against the debtor was the fact that she had no income. She was not employed and didn’t yet qualify for Social Security benefits. The only household income is that from her non-debtor husband’s Social Security. There was also a savings account solely in his name. She never bothered to submit evidence demonstrating that there would be a stream of payments from the husband to her to fund a chapter 13 plan. Strike three.
Chapter 13 is for honest debtors, and this debtor is far from honest. The court agreed, and dismissed the chapter 13. Now the debtor will be left to fight her one creditor claim in state court. Her bankruptcy game is over.
In re Tippett, Bankr.E.D.N.C. 08-00542-8 JRL, May 8, 2008.
Storm Preparation: Bankruptcy & Tax Returns II
Wednesday, June 25th, 2008
When I was in college, Hurricane Gloria was bearing down on Southern New England. I went to stay with my grandparent at their house in Tiverton. As the winds were blowing (and at the insistence of my grandmother), we nailed plywood to the windows that faced the water. All that preparation eventually paid off. Back in April, I blogged about the importance of having tax returns filed. I came across a case decided on May 15 out of the US Bankruptcy Court for the Northern District of Ohio that amplifies the requirement that taxed be filed in chapter 13 cases before the first meeting of creditors has concluded. It is an important reminder of how the Bankruptcy Code is now working since BAPCPA.
The debtor filed a chapter 13 petition in October 2007 and the creditors meeting (or § 341 meeting) was scheduled for December 12, 2007. At that meeting, the IRS appeared and reported that there was no record that the Debtor having filed a 2000 or 2004 tax return. There was a separate confirmation hearing, and the Chapter 13 trustee recommended that the plan be confirmed. No one objected and the plan was confirmed. After that, the IRS moved to dismiss the case pursuant to § 1308 based on the debtors failure to file tax returns for the 4-year period preceding the petition date.
Debtor objected and claimed, among other things, that he did file the return. He argued that he paid a service to file the returns and was unaware they were not filed until he appeared at the § 341 meeting. Even though he learned of it, neither he, nor his attorney asked that the meeting be held open.
The case was dismissed. In re Perry, Bankr.N.D.Ohio, 07-18293
So how could this have been avoided? The first and most simple answer is that the debtors attorney should have required the debtor to produce 4 years of tax returns before the case was even filed. I require it of my clients. Why? To ensure that they have complied with § 1308 of the Bankruptcy Code and to make sure that their cases do not get dismissed for failing to comply with it. The second, and perhaps not so simple but nevertheless important way the dismissal could have been avoided (or at least delayed) is by either the debtor or debtor’s counsel requesting that the § 341 meeting be held open. Under § 1308, the Chapter 13 Trustee may hold a § 341 meeting open for “120 days after the date of that meeting” “for any return that is past due as of the date of the filing of the petition.” In other words, debtor’s counsel should have asked to have the meeting held open.
If you’re thinking about chapter 13, get those tax returns filed. And that means all of them. If you fail to do so, or if your attorney fails to ensure that the § 341 meeting is helped open, speak up and ask that it be held open. Failing that, your chapter 13 case will be dismissed.
During that hurricane, I stood with my grandfather on his lawn and watched debris fly hundreds of feet above us. As a retired merchant marine, he had a fearless view of ocean weather that many found disconcerting. Nothing ever hit the plywood, but my grandmother was happy the windows were protected. It was better to prepare before the storm, and than to pay later.
Where Did It All Go?
Thursday, June 19th, 2008
Keeping good financial records is always a good idea and if you’re filing bankruptcy, having good records on hand will help your case go smoothly. As married debtors in the Western District of Pennsylvania recently learned, not having them can lead to a denial of the Chapter 7 discharge.
The debtor, who was described as a “vintage automobile enthusiast who restored such vehicles and sold them to third parties,” was also the sole shareholder and president of a start-up company. The company borrowed (and he and his wife personally guaranteed) about $1.4 million. To obtain the loans, the debtor and his wife prepared financial statements.
According to the financial statements prepared in 2003 (which were signed with the acknowledgment that false statements could lead to criminal prosecution), the debtors stated that they had personal assets that totaled $2,185,000 and that their liabilities totaled only $328,000. The assets include a homestead worth $550,000, household goods and furnishings that were worth $75,000 and automobiles and automobile parts that totaled $750,000. The business failed and closed its doors before it ever started operating.
By the time the debtors filed bankruptcy, they had already lost their home in foreclosure. But according to their schedules, their assets had diminished to about $32,000 while their liabilities totaled about $1.5 million. Their household goods, which were worth $75,000 were now worth only $3,026. The automobiles, which were declared on the financial statements as being worth $300,000, were now worth only $3,140. The auto parts, which were previously disclosed as being worth $450,000 were now worth only $3,200. The schedules and statements also showed other discrepancies and raised other questions, but they are too numerous to list here. Needless to say, the US Trustee and some creditors had one very important question they wanted answered.
Storm Preparation: Acceptance
Wednesday, June 18th, 2008
The fifth – and last stage of the Kubler-Ross grief process is acceptance. In researching and preparing for this blog, I had one nagging question in my head: how the heck do we get there? How does someone get to a point where they accept that they must seek the protection of a US Bankruptcy Court from their creditors? The answer is simply not easy and the only way I think I could describe it to you is to share my own journey through grief…and how I got to acceptance.
The “event” in my life will be undefined. There are those who may know me – or know of me – and will know or assume they know what I am discussing. What my “event” was is not important for the purposes of discussing acceptance as the last stage in the grief process. Besides, there are so many events in our lives – and certainly in mine – that have lead me through the five stages that have been the topic of Storm Preparation over the last few weeks. With that said, think what you will about how and why I found myself in a difficult period in my life.
When I was going through a particularly difficult time in my life, I was talking to a (very former) friend about my difficulties. He simply told me “it is what it is.” At the time I heard those words, it was so very unhelpful. I may have even told him that.
In retrospect, now that that period in my life is far in the past, I can examine it and say “it was what it was.” It wasn’t fun. It wasn’t easy. But had I not experienced it, along with all of the blessings, the pains and the costs that went with it, I am not so sure you’d be reading this very blog because I’m not so sure I’d be writing it today. It was not a life-ending event, but it was life altering. The event, or the “happening” did not define me, but it sure did put me on the path I find myself on today. And for me, it’s not a path I have any regrets of being on.
I wish I could say with any real clarity that I knew how I got to this place. I went from “what the hell was I thinking?” to “I wish I had been thinking at the time.” I went from “why didn’t I know better?” to “wow, I was blind.” I went from “how did I let things get so out of control and ridiculous?” to “I will never let something like this happen again.” Time has marched on. It was what it was.
That’s really all I can say about acceptance as it relates to facing bankruptcy. I almost feel like I did not say anything. But then again (after proofing it for the upteenth time), perhaps I did. I am not sure any of my clients actually reach acceptance while I am still actively involved in their bankruptcy case. But I think they do. I hope they do.
Perhaps a way of looking at acceptance – or perhaps even getting there – is to look towards the future. It’s possible, if not very probable, that you will move well beyond the financial problems that have led you to this blog. No, it might not be on the same road you first contemplated or perhaps hoped for. You never know: you might find yourself on a better road, with friendlier neighbors and a brighter future. I know I did, and it’s because of that that now I can share my “acceptance” with you.
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.
Sunday news…
Sunday, June 15th, 2008
MSNBC presents the Housing Bubble in Four Chapters.
Over at Calculated Risk, there’s some news about Sunday board meetings, which “are never good news.” And over at the Washington Post: Anatomy of a Meltdown: The Credit Crisis (hat tip, Calculated Risk).
In Pennsylvania, a mortgage rescue scammer is looking at jail time after pleading guilty to theft by deception.
In court, [65 year-old Peter] Rogers said he founded his own company, Express Consolidation Refinance & Mortgage Consultation Inc. of Cinnaminson and Moorestown, in 1998. He reached out to homeowners he found in through foreclosure notices in the newspaper and “created the impression that he would save their home.”
Needless to say, he didn’t save homes, and instead stole over $100,000 from folks who could least afford to lose it. Some of the victims ended up in bankruptcy. The prosecutor has asked the judge for an 8-year sentence.
News for a Friday the 13th…
Friday, June 13th, 2008
From CNBC: Those $600 “economic stimulus”/”loan on next year’s tax refund” checks: they are going to keep us out of a recession. For now (but what do you do if your bills are more than $600?).
From Bloomberg: Foreclosures up 48% in may and repossessions have doubled. Those $600 checks are arriving just in time!
I recently wrote about some predators in our midst: people who prey on others facing foreclosure, but are only ultimately out for their own benefit. From the Baltimore Sun: a 47-page indictment charges 8 people with a scheme to rip people off. I have yet to read about any indictments in Massachusetts (am I not paying attention?).
And I know this really doesn’t have anything to do with bankruptcy, but I have to change my shower liner this weekend, and I happened upon this article from the LA Times: apparently that smell of the new liner is toxic.
But I guess I am not the only one with some concerns this weekend. Reuters reports that an Ex-Capital One employee has filed a whistleblower suit, claiming she was fired for refusing to approve bad loans. What’s in your wallet?
Fake Accident Claim Leads to Nondischargeable Debt
Thursday, June 12th, 2008
Bankruptcy is available for honest debtors who have found themselves in unfortunate circumstances. Not every debtor is honest, nor is every debtor in unfortunate circumstances is entitled to bankruptcy. Take the case of William Berrien: I presume he was in unfortunate circumstances because he found himself in need of money. I presume that is why he decided he needed bankruptcy…but that decision came only after the scheme to stage and collect from a bogus car accident claim did not go as he had originally hoped and planned. In a case with twists and turns, this debtor learned that dishonest debtors really do get that they deserve.
Storm Preparation: Depression
Wednesday, June 11th, 2008
Our journey through the Kubler-Ross model takes us to stage four: depression. If I wrote that people who are overwhelmed by debt may be depressed, and implied that this might be some new-found discovery, some might congratulate me on my mastery of the obvious. Unfortunately, depression and debt is not something that I think can be easily explained. I think the only thing I can do is point it out.
Let me start by stating that I believe that it’s a tad too arrogant for anyone to suggest that people who are prone to depression are also prone to debt problems. It’s a broad sweeping generalization that ignores the specific issues of every day life that everyone faces. And it’s even more arrogant to suggest that people overwhelmed with debt are getting what they deserve. By seeking a discharge of their debts, honest debtors who have fallen into unfortunate circumstances are not among them.
The fact is, people get into debt problems because of things they should have controlled better. Perhaps it was a refinance that seemed like a good idea at the time. Perhaps they did everything conceivable to avoid financial collapse, yet by doing so, only made it inevitable.
Folks also get into financial trouble because of things they could not control at all. Perhaps it is a tenant on the second floor who is not longer paying rent – or condo fees. Perhaps a spouse has left the home, or has died. Perhaps they went to the doctor to get a mole on their back removed, only to discover that it metastasized to the spine. At the risk of sounding indelicate, crude and unprofessional sometimes (and this is something I remind my clients of often), shit happens.
Massachusetts Debt Collector Gets Sanctioned by Florida Bankruptcy Court
Tuesday, June 10th, 2008
A Massachusetts debt collector along with the creditor has been sanctioned by the bankruptcy court in Florida for violating the discharge injunction. On April 4, 2007 Olson filed a Chapter 7 petition in the US Bankruptcy Court for the Southern District of Florida. On his schedules, he listed a debt owed to Wells Fargo Financial in the amount of $976. Two separate addresses for Wells Fargo appeared on the creditor matrix. His creditor’s meeting was held on May 3 and on July 3 he received his discharge.
In a letter dated March 10, 2008, Nelson, Watson & Associates, LLC in Haverill sent a letter to the debtor demanding payment in the principal amount of $976.71 and with interest, a total balance of $1,353.65. The debt was now purportedly held by North Star Capital Acquisitions. Payment was demanding by the close of business on March 31, 2008. On March 18, 2008, the Debtor moved to report his bankruptcy case, and that motion was allowed on March 31.
On that same date, the Bankruptcy Court issued an Order to Show Cause. The order directed Nelson, Watson & Associates, LLC and North Star Capital Acquisition LLC to appear before the court through counsel on April 21, 2008 to show cause why they should not be held in contempt for making a demand for payment on the debtor. The order was mailed to the CEO of North Star at its New York address and at its agent’s address in St. Paul, Minnesota. It was mailed to Nelson, Watson & Associates LLC at its Merrimack Street address in Haverhill (the order reflects the same address that appears on Nelson’s website).
April 21, 2008 came, and no one appeared. This is a problem for two reasons: (1) it’s a court order and when the court orders you to appear before it, you do so and (2) no one got to hear their side of the story. No even a written statement was field. It was as if they played possum.
You can imagine that this displeased the court. On April 28, the court held Nelson, Watson & Associates, LLC along with North Stat in contempt of court because they failed to attend the hearing and they violated the discharge injunction. Both were ordered to pay fines in the amount of $2,500. If they did not pay their fines by May 30, the court stated that it would issue a separate order directing the US Marshal to APPREHEND David Paris, CEO of North Star and George Nelson, III, Manager of Nelson, Watson & Associates,LLC for the purpose of “bringing [them] before the Court to explain [their] contemptuous conduct and why further sanctions should not imposed.” They were also ordered to obey the discharge injunction.
On May 6 Nelson paid its find and North Star paid on May 13. The case remains open.
As an aside, it takes less than 30 seconds to determine if someone has filed bankruptcy. Debtor’s attorneys routinely do it as part of their due diligence in preparing bankruptcy petitions. Since there is no response from Nelson, we’re all left wondering: did you check and send the letter anyway? or were you just negligent? Without an explanation, we’ll never really know the truth (but I encourage them to chime in and comment if they get wind of this blog post).
In re Olson, US Bankruptcy Court, Southern District of Florida at Fort Lauderdale, 07-12387.