Author: DaveKelly

I've been practicing law in the western suburbs of Minneapolis for over 37 years. Sometimes that seems like a long time, and other days I feel as if I just started. These days my practice is devoted entirely to counseling folks concerning their financial problems and representing them in Chapter 7 and Chapter 13 bankruptcy. One thing I don't do is credit repair. When asked about matters concerning credit scores, I like to say "I'm a very good source of unreliable information about that." What I mean is that I hear a lot about it from my clients who often report back to me how they are doing after their bankruptcy is completed, sometimes even years later; but having heard some stories from a few people doesn't qualify me to give any advice. I spend a lot of time with my clients. I want to be sure we get it right. There are civil and criminal penalties for concealing or providing incorrect information in a bankruptcy care, and my goal is to keep myself and my clients as far away from problems like that as possible. You can find me in MInnetonka near I-394 and Hopkins crossroad. It's ten or fifteen minutes from downtown Minneapolis. You can see parts of Plymouth, Minnesota, Golden Valley, Minnesota and St. Louis Park, Minnesota from the high ground in front of my building. If you take a look at the map, you can see that most of St. Louis Park is closer to my office than many parts of Minnetonka.
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Senate to Vote Next Week on New Mortgage Relief Bill

I’m sitting here looking at an email I have received from the National Association of Consumer Bankruptcy Lawyers, of which I am a member. The Association has been pushing for legislation which would allow a bankruptcy court to order modifications in mortgage loans, something which would currently be entirely off limits. The bill is S. 2636, and the section of the bill with the mortgage modification provisions is Title IV. There is fear that before the bill is passed that this section will be removed. Now would be a good time to call or write your US Senator if you would like to see them do something about the current mortgage foreclosure crisis.

You can find the text of the bill here. I’m not sure I fully understand all the language, but it looks as if it would give the bankruptcy court authority to lower interest rates and extend the term of the loan to 30 years. I just met today with a gentleman whose mortgage balloons in less than two years. At that time he may have to just walk away from the house. If the term could be extended under the terms of this bill, the effect would be to save this guy’s house. Links to both of Minnesota’s senators can be found here, including info on how to contact them.

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Executive Office of U.S. Trustee Suspends Debtor Audits

About a week ago BankruptcyLawNetwork.com reported that the Executive Office of the U.S. Trustee has suspended auditing of debtors filing for bankruptcy because Congress did not fund the audits in the 2008 appropiration. This is good news. Under the 2005 changes to the bankruptcy law, the U.S. Trustee could engage the services of outside accounting firms to audit the records of bankrupt debtors. At least until they find some funding somewhere, and they are looking for alternative sources, this auditing activity will come to a stop.

This does not mean that the Trustees themselves cannot continue requesting detailed information, documents and records from bankrupt debtors; and going over it with a fine tooth comb. It just means that they can’t hire outside accounting help to do it. When these audits were in progress, they only involved a very small percentage of the bankruptcy cases being filed. A much higher percentage of cases were investigated directly by U. S. Trustee personnel without outside help.

It is my hope that the failure to appropriate funds represents the beginning of a backlash against the so-called Bankruptcy Reform Act.

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Don’t Sell Yourself Short

I am now receiving calls from people who have done what is called a “short sale” of their home to avoid a foreclosure. The typical situation is one where the value of the house has fallen below what is owed on the mortgage or mortgages, since often there is more than one. Meanwhile, the homeowners are falling behind in their payments. There are many possible reasons why they are behind in paying, but the most common is that one or more of the mortgages is an ARM, and the payments have jumped sky high The assumption may have been at the time of taking out the ARM that by the time the payments went up, they would be able to refinance again with a new and more reasonable mortgage. Now in this market that plan is pretty much out the window.

All the homeowners can think of it that they must avoid foreclosure. So they list the home for sale with a realtor. By and by the realtor finds a buyer, but it’s for a price that’s below the balance owing on the mortgages. This of course is no big surprise and is exactly what the homeowners figured was their best hope. The realtor contacts the mortgage lender or lenders, and the lenders agree to the sale. Specifically they will release their mortgage on the property in exchange for less than full payment. This can be a wise move from the point of view of the lender, because they were going to lose time and money in the event of a foreclosure anyway. The homeowners are relieved, go through with the sale, and move into a rented apartment.

The story does not have a happy ending. They do not live happily ever after. They neglected one thing. That release from the mortgage company just released the property, not them. There is an unpaid balance on the mortgage or mortgages, and the bill collectors start calling and threatening.

The amount they owe is way beyond any ability to pay they might have had; and so they call me about a bankruptcy. In my opinion, they would have been WAY better off to have just let the lenders foreclose. Ordinarily, foreclosure is done in such a way that the mortgage holder only gets the house and doesn’t get a right to go after the former homeowner personally. There may very well have been a possibility of living in the house rent free for a year or so and then walking away with no further debt.

Another possibility may have been that the first mortgage would foreclose and take the house. the second mortgage holder would not foreclose, let the house go, and then go after the former homeowners personally. That’s not such a good result, but it still includes the rent-free year or so.

Yet another possibility is that the release from the lender in the short sale DOES include a personal release. The former homeowners think all is well as they enjoy their new apartment. Then a 1099 arrives from the lender. The debt that was forgiven is reported as income to the IRS, and they may owe a tax on it.

My suggestion is that it is almost always best in the foregoing circumstances to just stay in the house and ride out the foreclosure. Don’t move out until the foreclosure is done, the redemption period has run out, and the lender starts an eviction action. If there is only one mortgage, you may come out of the process rather debt free and not need me. If there is more than one mortgage, you may have debt but at least no 1099. There may be circumstances where a short sale could be a good idea, but it is hard for me to think of one.

The idea that a short sale is the best thing for one’s credit seems to me to be an illusion. By the time the whole scenario is run, the credit report won’t look so good no matter what you do.

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The Wisdom of Staying Home during a Blizzard

Well, I’m kind of a “damn the torpedoes, full speed ahead” kind of guy. It’s hard for me to admit limitations. But I just finished a round of phone calls to my children and my Mother-in-Law (age 87, but acts like 57) cancelling tonight’s planned holiday family event.

We’ve had a tradition that some time during the holidays we all get together and head to downtown Minneapolis to go through the display formerly known as the Dayton’s display, now the Macy’s display. Upstairs in the old Dayton’s department store building, since time immemorial going back to at least the 1960s, there has been a wonderful, entertaining and sometimes inspiring display. This year the theme apparently is the Nutcracker.

Earlier in the day during the first round of phone conversations the consensus seemed to be: screw the weather, let’s go anyway. Since then the snow has gotten worse. Then my son reported that his car was covered with snow with ice underneath the snow. When he tried to clear it, he broke off a windshield wiper. After that I found out that one of my daughters is at her boyfriend’s place – which is in Eagan, further away from my place here in Minnetonka than I had figured.

So on with public TV’s version of the weather channel – which at my place is Channel 13. Quite a graphic depiction of the weather radar showed the weather pattern doing a circular thing where there was no sign of it passing by. Looks more like it intends to stick around quite a while.

The storm should be over by Christmas Day. At that time we’ll discuss maybe trying to go to Macy’s another day before the display ends; apparently it runs until New years‘ Eve. I’m disappointed, however, over not being the conquering hero who figured out how to do the event in the face of the nasty adverse conditions. In my business life I have often been that hero, pulling miracle rabbits out of my hat or out of various other places. But upon having given up on the idea of going out in this storm, I am feeling relief.

There’s a whole body of literature on the subject of how if one feels relief after making a decision, that’s a good sign that it was the right decision.

Merry Christmas and Happy Holidays to you all. If you have taken the time to read all this, let me suggest that you turn off the computer now and get face to face with either a family member or a friend. If you can’t get face to face, at least try making use of that quaint and ancient device – the telephone.

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Bankruptcy "Abuse" Wasn’t There; Today’s Falling Stock Market

I am looking this afternoon at an October 15th article in the Duluth News Tribune. A bankruptcy lawyer I know has posted it on a local bankruptcy list serve to which I subscribe. The headline, “Bankruptcy filings are on the rise” is not really news to me. But one of the sub-headings in the article really caught my eye: “ABUSE WASN’T THERE”

The article rehashes how the credit and banking industry had lobbied for passage of the 2005 new legislation on the theory that a large number of people had been “abusing” the bankruptcy system. But then it takes a closer look at the filings under the new law, especially the ratio between Chapter 7s – which is where most of the abuse was supposed to have been happening – and Chapter 13s – which are preferred by the banking industry. They note that the ratio between 7s and 13s is the same now as it was in 1999. That ratio together with quotes from a credit counselor at Lutheran Social Services seems to support the proposition that the perceived “abuse” never actually existed.

In fact, judging by the whipping that some of the banks and credit card companies seem to be taking in the stock market today, it seems clear to me that a great deal of irresponsible behavior – abuse if you want to call it that – was engaged in by the bankers and lenders themselves. At the time of this writing, the Dow is down 192 points; and it’s been dropping for several days in a row. It is my hope that our economy can absorb the shock that is being expressed in today’s market, but I’m not at all sure that we won’t wind up in a recession. If it happens, I don’t think it will be the consumers who will be to blame.

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Lawyer buddies and what’s “Of Counsel”?

There are three or four other lawyers with whom I consult more or less constantly. Actually maybe it’s five other lawyers. Two are guys I office with, and the others are people I speak with a lot, usually by phone. I’m reluctant to name them because I don’t want them held responsible in any way for anything that I’ve done; but there are days when I have been temped to ask one or two of them if they would mind if I listed them as “of counsel” on my letterhead and web site.

That “of counsel” designation is something you will run into now and then as you are reading about or looking up lawyers. The meaning as I understand it is a bit vague, but it usually refers to a lawyer who is not an associate or partner, but who is in the same building or general vicinity, and with whom one consults a lot.

My Black’s Law Dictionary defines the term as a lawyer “employed to assist in the preparation or management of a cause, or its presentation on appeal, but who is not the principal attorney of record …” The usage of the term in my experience is much broader and would include lawyers who are around – that is physically present or close by – and with whom one consults; but I wouldn’t expect them to be actually “employed,” since generally there is no money changing hands. Today I ask one of them a question about something, tomorrow one of them may ask me. It’s a fair exchange usually, but not a monetary one.

OK. I’ll admit it. Sometimes it’s not exactly a fair exchange. Sometimes I monopolize the time of my friends to the point that it’s unfair to them and an embarrassment to me. On the other hand, I have done a few things for some of them that could be considered beyond the call of duty; so I think or like to think that in the end it does balance out.

I don’t think I could ever practice law and operate out of an office entirely by myself. It would never work for me. I need other lawyers around; people with whom I can chew over, mull around, run up flagpoles, dispute and otherwise try out ideas.

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Boo!

It’s a quiet day at my office. Lots of people are calling with questions, but nobody wants to actually come see me. Every other day this week, I have lots of appointments. There must be something about Halloween where people think it’s a bad day to see a lawyer.

I certainly know a few lawyers who I felt may have been vampires, and others who seemed at least borderline demonic. It might be also that lawyers as a profession are more nocturnal than those engaged in many lines of work. A few years ago the wags on KS95 were making a point of telling lawyer jokes around 6 am on the theory that the lawyers would not be up yet at that time, which for the most part I believe was true.

I just received a call from a gentleman in the State of Tennessee. He had a bankruptcy question, but I recommended that he find a lawyer from his own state to ask. Bankruptcy law is federal, but the application of it still varies widely from state to state. There are many questions of interpretation of the new law where the individual courts disagree widely. Asset exemptions are set by state law, and that can make a dramatic difference in the outcome concerning what a debtor may be allowed to keep.

Yesterday a gentleman called who had moved within the past two years from Texas to Wisconsin to Minnesota. He wants to file a bankruptcy here. There are provisions of the new law which are intended to discourage shopping for favorable exemptions by moving from state to state. Under those provisions, if this gentleman wanted to file here right now he would probably have to claim the exemptions provided for under Texas law. What a mess! I have never practiced law in Texas, but all of a sudden I may need to know something about their exemption laws. The last time that happened I made a point of consulting with a lawyer from the state in question. Every now and then I get a call from a lawyer in some other state with a similar question about Minnesota exemption laws.

This has been quite a ramble, if you have managed to keep reading to this point. All I meant to say was HAPPY HALLOWEEN.!

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Change of Internet Servers in Progress Now

I hope nobody is having trouble getting email through to me today, or having trouble finding my web sites. For the next 24 hours or so there will be new settings propagating across the Internet which will be redirecting traffic for all my stuff to a new server. While this goes on, I might be missing some of your email; and it might appear that one of my sites, or some part of my sites, are down or among the missing.

Having this goes on drives me nuts, and I hope the transfer is completed soon and smoothly. Meanwhile, all I can say is that I apologize for any inconvenience.

While the transition is taking place, please use the following alternative email address to reach me: kellylawoffice@mail.popp.net.

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Full Moon Tonight – Likely time to Get in Trouble

If you take a close look around my office, you will see an atomic clock on the wall that not only indicates time, but also shows the phases of the moon. I have that clock for a reason. For years I have been noticing that the phases of the moon seem to influence my business and the behavior of my clients. For example, last night at about 7 pm, just as the full moon was rising (I checked the Naval Observatory and the time was almost exact), one of my bankruptcy clients sent me an email on the subject of how he needs to go further into debt for something. I will be going over the situation with him, but I expect my advice will be that it’s a really bad idea.

I have never read this anywhere. This is strictly my own observation. BUT here’s how it seems to me the moon phases seem to work: people get in various kinds of trouble during the full moon, and then call me asking to get the problem fixed during the new moon. So today I expect my phone to be fairly quiet. If you want to have a long talk with me, today is a good day to call. As October 11th the day of the new moon approaches, I know that my phone will get very busy – email too – and a lot of the communications will be rather breathless. It happens every time.

At the hospital where my wife works as a nurse, the busy time – especially in the emergency room – is the full moon. That’s when they get the most body part donors – lots of people out on their motorcycles without helmets after having a few too many. At my office it’s pretty much the opposite, with the busy time being the time of the new moon. There’s got to be some science behind this. If anyone who happens to read this knows what that is, I would appreciate some feedback on that subject.

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Free Popcorn at the Courthouse – Constitution Day Honored in Shakopee

I had court in Scott County – that’s Shakopee, MN – on Monday September 17th. I headed straight for my courtroom, thinking it strange that someone had set up a theater-size popcorn machine by the entrance to the building and was obviously dishing out free popcorn. I was concentrating on how to get my client’s charge reduced. What was up with that would have to wait.

Later in the morning, after I was finished in the courtroom, I took a look at the table near the popcorn machine, and saw that it was covered with material about the Constitution and Constitution Day. I found out that the woman in charge of the table and the popcorn was one of the librarians from the Scott County Law Library. First she asked me if I wanted some popcorn. I declined. Next she asked if I wanted a free, pocket-sized copy of the U.S. Constitution. I said yes, and could I have two extra for the other two lawyers I office with.

Before I left I had received not only three free pocket-sized Constitutions, but also a tour of the Scott County Law Library. They have two computers set up where the public can access Westlaw, Lexis and Fastcase – three of the leading law research services. They also subscribed to some of the lesser research services as well. I made a mental note: If I can’t find what need the law elsewhere, maybe I should drive down there and try their resources. Before I left I also got one of the librarians to agree to perhaps checking something for me if I asked by phone, provided I was polite and respectful when I called.

I still have not seen or heard of any mention of Constitution Day except that article in the Duluth paper that I mention in my previous posting. I checked Monday’s Star Tribune – there was no mention of it. I want to commend those librarians for their efforts, and suggest that Constitution Day would be something to which we should all give more attention

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