McLeod Law Offices

Of the five stages of the Kubler-Ross Model that people facing bankruptcy go through, the most potentially problematic is the third stage: bargaining. I suggest that this stage might invite the most problems because it is here that debtors do anything and everything to avoid bankruptcy. In doing so, they sometimes end up in an even worse position.

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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.

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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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.

By the time many people contact a bankruptcy attorney, their credit card balances are already high – if not at their limit. Sometimes, when there is room to spare on the balance, it can be tempting to use credit if a bankruptcy filing is down the road. Here’s a bit of advice: don’t.

Let’s start with the practical view: if you know you will be filing bankruptcy in the future, then you know you will not pay back what you borrowed (or perhaps not all of it at the terms you agreed to). While understandably, you might think that the big bad bankers have it coming to them, it still does not change the fact that it is wrong to take money under the pretense of borrowing, when you know you have no intention of paying it back. And there are legal consequences as well.

Section 523 (a)(2) of the Bankruptcy Code precludes discharge of debts that were incurred by fraud. If the charge was incurred during a certain period of time prior to the bankruptcy filing, the debt may be presumed fraudulent. In other words, it’s up to the debtor to prove that it’s dischargeable. If a debt is incurred outside that presumptive period, a creditor may still challenge dischargeability if the facts warrant it. They will have the burden of proof, but the debtor will still need to defend his or her decisions. This is all done through an Adversary Proceeding. And there are consequences with that as well.

Adversary Proceedings are civil lawsuits within the bankruptcy case itself, and it is the procedural mechanism that creditors use to litigate dischargeability issues. They can be complex, long and in some cases, the end result is not all together predictable. It can delay the closure of the bankruptcy. I have seen it cause great consternation and anxiety with debtors. One debtor recently told me that she has not slept well since her Adversary Proceeding started. In addition to all that, the Adversary Proceeding adds to the costs of the case – sometimes substantially. All around, it’s not a good time.

If you see bankruptcy in the future, think twice before using that credit card. Think twice before asking for that personal loan. Think twice before accepting that preapproved offer of credit. Yes, the extra money might bring a temporary fix. However, if you find yourself in bankruptcy court, that decision could be costly. If you find yourself itching to use that credit card, and knowing you cannot pay it back, it’s time to talk to a bankruptcy attorney.

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.

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.

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.”

When I hear that, I usually cringe. Transferring property in contemplation of bankruptcy is a big no-no for two reasons: (1) the transfer and can be undone; and (2) the discharge can be denied.

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.

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.

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There are many important aspects of filing bankruptcy and getting the relief that the bankruptcy code offers. In setting the stage for filing bankruptcy and getting the relief you need, debtors need to be aware of some important obligations: the need to file tax returns.

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