I’m am on my way to Hollywood. That’s where the National Association of Consumer Bankruptcy Attorneys is having a big three day seminar. I’ll be gone between May 15th and May 20th. I’ll be back in the office on the morning of Wednesday May 21st.
I wish I could say I was going to be on American Idol, but that’s not it. There are things I can learn at this seminar that would be hard to find anywhere else. What it comes down to is that I can’t afford to not go. The law of bankruptcy has been in a hard to track state of flux since the new legislation became effective in late 2005. It seems that every few days a judicial decision turns up that changes the landscape. I need all the help I can get in keeping up with this stuff.
Of course, I am planning on seeing a few sights as well. I’m allowing one day in the trip just for that. Right now I would say that the beach could be a priority.
So email me or leave me a message. I will probably be checking my email. I no longer travel without my laptop. The wireless Internet for the hotel where I’ll be did get a poor review, but I expect I’ll figure it out. I’ll be returning my calls on Wednesday, May 21st.
My email today brought me a notice that the U.S. Trustee’s office is resuming debtor audits as of today. They stopped in January because Congress didn’t fund it.
An audit in this context involves the U.S. Trustee’s office hiring an outside accounting firm to go over the debtor’s records. Previously the policy was that one in 250 cases would randomly be audited. Now the policy is one in a thousand will be audited. That’s a 400% improvement, but I’m still sad to see this stuff starting again.
Since the passage of the “new law” in October of 2005, there have been rules based on level of income about who can file a Chapter 7 Bankruptcy. Unless you are at or below the median income for the State of Minnesota based upon your family size, you can only file a Chapter 7 if you pass the so-called means test. The means test is a whole other topic, which I will have to deal with some other time. For now, however, here’s a video I posted recently on Youtube where I discuss the median income levels for Minnesota by household size.
The numbers are subject to change every few months, but I have them posted on my site on my Chapter 7 page under the subheading of “Qualifying for Chapter 7 in Minnesota.”
The topic of short sales is hard to understand, and also hard to explain. In this video I spoke without a script, which I think was a mistake. I was trying to be clear, but I don’t think I got close to that goal. If I would have written a script first, it would have read about like what follows.
The term “short sale” can mean that:
1) The mortgage company will accept less than full payment and will release both the property and the debtors from the remaining balance of the debt; or
2)The mortgage company will accept less than full payment of the debt, will release the property from the mortgage, but will NOT release the individual debtors from the remaining unpaid balance of the debt.
I hear from lots of people who are trying to do a short sale, but don’t know which one they are trying to do or which one they want to do. The first kind leaves you in the clear, but the second variety brings you into my office in need of a bankruptcy.Most short sales are of the second variety, and they are worse than just doing nothing and letting the bank foreclose. Worse yet, often the realtors and mortgage companies involved in these transactions seem to purposely keep the sellers/debtors in the dark as to exactly what kind of deal it is.
If you are doing a short sale, you better consult an accountant about the tax consequences. Under certain circumstances, the amount of the debt forgiveness can be taxable income.This video and these comments are for general information purposes only and are not intended to be legal advice. Viewing these materials does not create an attorney-client relationship. I recommend that you consult the attorney of your choice concerning the details of your case.
Rambling in front of the video camera the other day, it was not long before I got on the subject of how unethical, illegal, fraudulent and criminal it is to attempt charging attorney fees for a bankruptcy on a credit card – with the intent of getting rid of the credit card debt in that bankruptcy. If you run up a debt intending to list it in a bankruptcy, that is fraud. It can be grounds to have a particular debt not discharged in your case; or it could be grounds to have the entire bankruptcy thrown out. Worse yet, it’s fraud and could be prosecuted as a felony. Here’s what I said about it on Youtube:
Here’s another clip in the series that I have been working on. In this one I talk about how the Senate has eliminated a section of the pending mortgage relief legislation which would have allowed a bankruptcy judge to reduce the balance owing on a mortgage. The idea was that in those situations where the mortgage is more than the value of the property, the bankruptcy judge could reduce the balance of the mortgage to be equal to the value of the house. The rest of the balance of the mortgage would be discharged in the bankruptcy. Sounds like a wonderful idea to me. But the Senate committee didn’t think so. Too much lobbying by the banking industry.
So for the time being there is no provision in the bankruptcy law for an option to discharge the part of the mortgage that exceeds the value of the house, while allowing the balance of the mortgage to be a lien on the house. I feel as if I may be doing a bad job at explaining this. It’s the kind of thing that many non-lawyers might not understand. As a result, the Senate gets away with not passing a really beneficial piece of legislation, because nobody quite understands what it is they didn’t pass.
Here’s the second in the series of videos where I update my earlier comments about the current state of bankruptcy law and practice. In this video I talk about how Congress has withdrawn funding from the U. S Trustee’s office for the hiring of outside accounting firms to conduct audits of debtor’s records.
Update December 4, 2014: I’ve removed the video referred to here from my Youtube channel because the info is so outdated. The sad fact is that those audits of Chapter 7 cases are in full swing again, and any body who files a Chapter 7 bankruptcy has to think in terms of being ready to respond to an audit. These audits are conducted by a New York accounting firm – you’d think they were tallying the votes for American Idol. They’re very picky.
Yesterday, before that walk at the nature center, I spent a few hours in the office. I had brought a shirt, tie and jacket, as well as my Flip Video camera. I have been posting to a Youtube channel for almost a year, and I felt yesterday that I might be motivated to record a few new comments on video. Once I got started, I surprised myself about how much I had to say. I grabbed a few I items that were loose on my desk, and found that these made a more than full agenda of things to talk about.
I set up the Flip Video, punched record and walked around to sit in front of it. When I reviewed what I had when I was done, it was almost half an hour of stuff. This time it was all on the subject of bankruptcy. My idea was to supplement and update what I’ve already said on earlier videos. Now what I recorded is so long that I will have to edit it down into manageable pieces. By the time I’m done editing it will be a whole series of clips. The first of them is embedded here:
I just got off the phone with a gentleman who is in extreme debt, lives with his parents, and is essentially unemployed. He works part time odd jobs from time to time. His credit is apparently still good, since he is borrowing from one card to pay for another, even though his debt exceeds $50,000. I told him that he certainly qualifies for a Chapter 7 Bankruptcy, and probably needs one; but with no income and no assets, what was his plan to pay for the bankruptcy?
“I have been told that I can do that with cash advances,” said he without hesitation. I questioned him more trying to determine exactly who had said that or where he got that idea. He side-stepped and never really answered my questions. I explained that if a lawyer had told him that, it was a violation of every code of ethics I ever heard of. It would also be fraud if not theft, and if it preceded the actual filing of a bankruptcy, it would also be bankruptcy fraud. Bankruptcy fraud, I explained, is a federal felony. It is investigated by the FBI. I would like to stay as far away from that sort of thing as possible.
I would not have thought much of this call, and would not find it worthy of mentioning, except that this was the second such discussion I have had in the last ten days or so. Since it has now come up twice, I am wondering if someone on a web site, blog or other media source has been either promoting or at least discussing the idea.
Let me see if I can spell something out. If a creditor can show that a debt was incurred at a time that the debtor intends to not pay it, but intends instead to run it through a bankruptcy, that is bankruptcy fraud. The person who does that will at least be subject to an objection to the discharge brought by the creditor, and at worst possibly be subject to criminal charges. If the debt is more than $600 or so, and it is incurred within 90 days before filing, it will be presumed to be for luxury goods – which also makes the debt nondischargeable if the creditor objects. Even if all the specific rules for the bankruptcy filing are satisfied, there is still a possibility that the case won’t pass the “totality of the circumstances” test. Essentially it’s a smell test. If it doesn’t smell right, the court can dismiss it.
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.