In another unanimous decision relating to an important bankruptcy issue, the US Supreme Court today ruled that a student loan creditor’s failure to object to confirmation to a chapter 13 plan was fatal to the creditor’s post-discharge attempts to collect the debt.
Archive for the ‘Bankruptcy Litigation’ Category
Honesty and Bankruptcy, Part III: The Reality Check and the Boy Scout
Monday, November 2nd, 2009
In the last two entries, I shared my observations of honesty and dishonesty in the bankruptcy process. It has been an issue that has been crawling under my skin for many months now. And in this last installment of Honesty and Bankruptcy, I explain why that is.
Honesty and Bankruptcy, Part II: Feeling Dishonest
Sunday, November 1st, 2009
It seems that many people are hypersensitive over H1N1. I was at the market yesterday and an older man sneezed, and by the looks on the faces of those standing around him, you’d have thought someone nearby was pointing and shrieking that he was a leper. Just because someone is sneezing or coughing doesn’t mean they have the swine flu. Just because someone is in bankruptcy or needs bankruptcy protection doesn’t mean they are dishonest. And just because someone feels like they did something dishonest does not mean that they don’t deserve bankruptcy protection. In other words, feeling dishonest is not the same as being dishonest.
Honesty and Bankruptcy, Part I: Day of the Living Dishonest
Saturday, October 31st, 2009
When rapper Chris Brown beat up his then girlfriend Rhianna, there was an odd reaction from much of Hollywood. As Adam Carolla and Dr. Drew were recently discussing on Carolla’s podcast, Hollywood’s reaction – especially at red carpet events – seemed less than honest and at times downright pathetic. Some were praising Brown for being a “good person” who was going through a difficult time. But only a few stood forward and publicly denounced Chris Brown as a pathetic loser who viciously assaulted his girlfriend… something no one can legitimately justify. The podcast echoed in my mind this week when I was faced with a debtor who was – to put it mildly – outrageously dishonest. So much so that I was forced to look this person in the eye and say “you know, you’re not coming across as an honest but unfortunate person entitled to bankruptcy protection.” I thought I was being polite. Their response left me thinking even more.
I cannot share the details. Instead, let me share this clever allegory that I believe aptly illustrates exactly how things went in my meeting with this debtor.
Another Reason Why Going Pro Se is a Bad Idea
Wednesday, October 21st, 2009
There are many reasons that people choose to represent themselves (what is referred to as pro se) rather than hire an attorney. Rarely are any of them good reasons. To a lay person, I realize that this sounds almost disingenuous coming from someone who is an attorney – but the law is serious business. A recent decision from the US Bankruptcy Court in Massachusetts should serve as a reminder to anyone considering the pro se option that do so may invite undesirable consequences. (more…)
When You Discover that You Are a Creditor in a Bankruptcy Case…
Monday, October 12th, 2009
Last week, I was in the clerk’s office and overheard two people ask the clerk which forms needed to be filed in a bankruptcy case. But this person was not a debtor – they were a creditor. Their landlord had filed bankruptcy. The former tenant was looking for their security deposit back, and was going to sue the debtor in small claims. I couldn’t help myself – and I butted in.
“You need relief from the automatic stay.”
“The stay applies even to me?” one asked.
“It applies to everyone.”
After that short exchange, I thought I would put together a short checklist of things to do when your landlord – or someone else you know who also happens to owe you money – files a petition seeking bankruptcy protection.
If Only You Knew…
Wednesday, August 12th, 2009
Let’s assume that you work for a company and things are not going well. You start negotiating a severance. Does the employer have an obligation to share with you its intention to seek bankruptcy protection? Maybe. If you ask. But what if you don’t ask? What if they don’t tell? What if perhaps, you really should have assumed that bankruptcy was an option that might be considered even though it’s not mentioned at all during the negotiations? These issues were faced by the 7th Circuit in the case of Smith v. Duffy, decided on August 3. They answered the questions but rather than discuss them, I’ve posted the Court’s decision here.
I will share one thought. The case discusses, among other things, the duty of candor that parties owe each other – and uses the attorney-client relationship as an illustration of when that duty of candor not only arises, but is expected. But it also does so by reminding us when that duty of candor simply doesn’t exist.
The case of a special relationship, such as the lawyer’s fiduciary obligation to his client, is really just a special case of the general proposition that context can create a duty of candor. The lawyer’s specialized knowledge invites the client to repose trust in what the lawyer tells him, and the client’s expectation would be shattered if the lawyer could be uncandid with impunity, as is normal in arm’s length dealings between buyers and sellers.
I encourage you to read this case, and put yourself in the shoes of the now very disgruntled employee. Ask yourself – when entering into an arm’s length negotiation, are you equipped to handle the negotiations yourself? Or might you find a benefit by having someone by your side who has a legal duty to be candid with you. Perhaps better said – are you better off being told what you want to hear? Or are you better off hearing what you need to know?
Read the case and think about that the next time you think about buying a home, or refinancing or modifying your real estate mortgage. And most definitely think about it if your boss calls you into your office and wants to discuss your departure from the company.
Thinking About a Consult?
Tuesday, July 21st, 2009
Today, as I found myself on the phone repeating myself – a lot. It then occurred to me that I could probably explain how our consult process works here on the website. In other words, how do you get from reading this website and digesting the information to getting some face-time with a lawyer (i.e., me).
Here’s how.
Student Loans: The Financial Shackles of Higher Education
Tuesday, January 20th, 2009
Debtors with student loans have an often insurmountable burden in proving their loans are dischargeable in bankruptcy. Section 523(a)(8) requires them to show that the loans are an undue hardship and an example of how the definition of “undue hardship” lacks any common sense can be found here. Lately, many bankruptcy attorneys I have spoken to have admitted that they question the disparity in the treatment that debtors with high mortgage debt receive versus those with high student loan debt.
In its February 2, 2009 issue, Forbes looks at the issue of what it calls “The Great College Loan Hoax.”
Census figures show that college grads earn an average of $57,500 a year, which is 82% more than the $31,600 high school alumni make. Multiply the $25,900 difference by the 40 years the average person works and, sure enough, it comes to a tad over $1 million.
But anybody who has gotten a passing grade in statistics knows what’s wrong with this line of argument. A correlation between B.A.s and incomes is not proof of cause and effect. It may reflect nothing more than the fact that the economy rewards smart people and smart people are likely to go to college. To cite the extreme and obvious example: Bill Gates is rich because he knows how to run a business, not because he matriculated at Harvard. Finishing his degree wouldn’t have increased his income.
This (along with the rest of the article) is a refreshing read. I expect in the months and years to come, there will be more discussions over the trend of forcing students into a debt that is nearly impossible to shed (or for that matter, pay) while dangling the carrot of an education and with that, the promise of a better life.
According to the article, the average law school graduate will emerge with over $100,000 in student loan debt. Based on discussions with law students I have met, I do not believe that it is an inaccurate assessment. Law firms are laying off. The economy continues to sour. Jobs will be scarce – and I am meeting more and more recent graduates who find themselves forced (much like I did almost 18 years ago) to hang up a shingle and establish a practice. However, those realities will not be considered an undue hardship.
I’ll put it this way: it’s far easier to walk away (in any chapter of bankruptcy) from a few properties, a few mortgages, and hundreds of thousands of dollars or more in obligations, than it is to walk away from student loan debt. Yet the unlucky, unwise or unfortunate real estate investor likely has the benefit of the societal safety net that bankruptcy offers. It seems that there is less risk to entering into an “exotic mortgage” than to get a degree in a subject area that might – or might not – have a job waiting for me after graduation. Something doesn’t seem right about that.
A Holiday Shopping Tip (or Warning)
Wednesday, November 26th, 2008
With Black Friday soon upon us, and the holiday shopping season, I want to get a message out to those folks who are struggling. Perhaps there are folks who know they are going to lose their jobs after the New Year. Perhaps there are folks who have been using credit to get by and now see a bankruptcy petition on the horizon. Perhaps these folks are figuring that they will have one last holiday with really great gifts courtesy of their credit card companies. If you’re reading this, and you’re thinking “wow, he’s totally speaking to me (or about my friend or relative)!” please keep reading.
One thing many consumers do not know is that when you buy “large-ticket” item, it may also come with it a security interest. In other words, that purchase may be a gift, but it may also be collateral. The lender (the store, or the bank that finances the store’s credit cards or credit lines) assumes a security interest. This is something to think about as you’re eyeing that appliance or jewelry. Will it prevent you from filing bankruptcy? Probably not. Will it complicate things? It just might. You may have to pay the debt even if you file bankruptcy or you may have to surrender the collateral. Or you might hear from the creditor months or years after the bankruptcy is over.
Last minute purchases can also get you into hot water. Using a credit card when you have no intention of paying the debt back can be considered fraud. Debts incurred through fraud cannot be discharged. In addition, such actions could be considered bad faith, and might lead to a dismissal or a denial of discharge, depending on the circumstances. What does any of this mean? The short answer is more attorney fees, more anxiety and the possibility that the bankruptcy case will not go as smooth as it otherwise could.
If you’re contemplating bankruptcy, don’t use credit cards for holiday shopping. Speak with an attorney. The last thing any debtor needs is to make a tough situation even worse.
