Just noticed that Minnesota Lawyer has a good recent article on the subject of lien stripping and the status of the availability of this process for Minnesota residents. This is a process in Chapter 13 bankruptcies involving people who have second mortgages. It has to be a situation where the value of the house is less than the balance on the first mortgage. The theory is that in cases where the homestead is worth less than the balance on the first mortgage, then the second mortgage is not really a secured debt.
One prepares and files a Chapter 13 bankruptcy in which the second mortgage is put in with the unsecured debts. If it succeeds, the debtors should be able to come out the other end – usually after paying in on a Chapter 13 plan for five years – with only one mortgage on their house instead of two. This could really help a lot of people. The trouble right now is that the availability of the process is still under appeal. Besides that, the exact procedure for clearing the lien of the second mortgage from the title as a matter of real estate law is still under discussion.
Once the appeals are over and both the bankruptcy laws and the real estate laws have been fully nailed down, this could be really something. For now I have not found myself willing to subject a client of mine to all the risks involved in this procedure. To me it just doesn’t seem quite ready for prime time. I know lawyers who are going full steam ahead with this, however, and I could refer you to one it you’d like to at least look into it.
Seems I was quoted in an article in yesterday’s Sunday Pioneer Press. The topic was a process called lien stripping. It involves taking a second mortgage in a Chapter 13 case and throwing it in with the unsecured debts. The second mortgage gets treated as if it were a big credit card instead of a mortgage. At least in theory, at the end of the Chapter 13 payment plan, the mortgage is then just gone. This can only be done in a case where the value of the homestead is less than the balance owing on the first mortgage. The bankruptcy court is asked to treat that second mortgage as if it was unsecured, because as a practical matter there is no security.
I say “in theory” in the above paragraph because the situation is that this process is so new – at least here in Minnesota – that nobody knows quite for sure exactly how it should be done. That is still being worked out. For one thing, the case (Fisette) which says we can do it is being appealed. I don’t expect it to be overturned, but that could happen. For another thing, nobody knows for sure how to clear the title of the second mortgage. The mortgage can be gone as a matter of bankruptcy law, but still be a problem as a matter of real estate law. Real estate law is as if it’s on a different planet than bankruptcy law – maybe in a different solar system. There’s a need for adjustments between the two legal systems before lien stripping can be expected to go smoothly. While those adjustments might be in process, they are certainly not completed at this time.
The whole thing is a bit too up in the air for me, and so far I have been reluctant to try doing any of this. I have been explaining it as a possible option, and I have been referring people who are interested to some of the lawyers who have been doing them – such as Mr. Theisen and Mr. Andresen. People like them should be given credit for having the gumption to push for this, particularly Craig Andresen who is the one who has the case on appeal.
This is a developing area and I’m sure to have more to say about it later.
You might find it hard to get a hold of me today. I’ll be in classes all day at the Bankruptcy Institute. This is an annual event sponsored by the Minnesota State Bar Association’s Minnesota Continuing Legal Education. I was here all day yesterday too.
The highlights yesterday for me were the case law update and the session on “Advanced Chapter 13 Plan Drafting.” Another good session was the one on business owner bankruptcies. Today so far the best thing has been a joke one of the presenting judges just told: something about how what a judge needs is grey hair so he looks serious and hemorrhoids so he looks concerned.
At least that would be the general rule. All rules of course have exceptions.
I just spoke by phone with a person who needs a bankruptcy. The trouble is that he or she is the owner of a Harley-Davidson motorcycle. It’s not paid for. There’s still a loan on the bike with a monthly payment. The usual story in that situation is that if you want to file a bankruptcy – any kind of bankruptcy – the bike has to go. Sell it or surrender it, but it has to go before we can file.
Most of the time when I explain this to the owner of a Harley, it’s the last I hear from that person.
I just spent a very quiet and peaceful weekend at a campground in southern Minnesota. I found that there happened to be a group of over 100 bikers there, mostly if not all riding Harley-Davidsons. I barely noticed them. They partied and carried on, but in a quiet and respectful way. In fact they were some of the most well behaved people I’ve ever seen. I learned later that they were a group of retired police officers, some from Minnesota and some from Chicago. Most of them were dressed in typical biker attire, including jackets and hats bearing one or more variation of the Harley-Davidson logo. Those bikes were obviously an important part of their social life.
Powerful attachment to a Harley-Davidson motorcycle is a phenomenon I’ve seen repeatedly. Often as with the retired cops it can be a really good thing. But I can’t change the way the bankruptcy trustees view these things. In a bankruptcy case, unless it’s paid for and so old that it’s not worth much, a Harley tends to be an asset that they want to seize or a frivolous expense that they won’t allow or both. It’s just not a good thing for anybody contemplating bankruptcy.
I was at the Federal Courthouse in Minneapolis last Thursday for a meeting of creditors. The room was full and I was planning for a long wait with my client.
To my surprise the trustee – who is the person who runs such proceedings – stood up and asked two apparently married couples to leave. These individuals were there without a lawyer and were obviously pro se – or in other words representing themselves. From the words that were exchanged it sounded as if they had gone to some sort of a non-lawyer document preparation service.
Apparently whoever they had gone to had neglected to tell them that they were supposed to provide a copy of their most recent tax return to the trustee well in advance of the date of the meeting of creditors.
I expect that those parties will be allowed to provide their tax returns to the trustee and reschedule their meeting of creditors – which those who know me know I often call the “hearing,” because that word is a good one to describe what happens. I can’t help but wonder what else might be wrong with those bankruptcy filings.
I’ve been concerned for some time that some of these document preparation outfits are dangerous. If you search this blog I believe you’ll find something from a while back where I was carrying on about such a service located in India which had contacted me and wanted to essentially use my name.
I have been reading a discussion this morning on a bankruptcy lawyer listserve. The topic which has captured my attention is how badly some of the document preparation services can fowl up a bankruptcy case. It is not unusual to be told his or her fee is too high; and then a few months later that same person, who filed using a document preparation service, is back asking to have something fixed.
My policy has been that I don’t like to jump in and try to fix something that someone else has screwed up. I fear the risk of malpractice for one thing. Although someone else broke it, once I start trying to fix it the responsibility could rub off on me. I did recently, however, give in to a plea to help with the amendment of some documents. I’m soft hearted, it looked like a simple problem to fix, but I probably still should not have. The case could have had other problems besides the one I was asked to help with. Then what?
Beware of anyone who tells you: There’s nothing involved but filling out a bunch of forms, only takes a few minutes, no need to waste valuable money and time.
During my first meeting with a new potential client, it’s not unusual for that person’s cell phone to be ringing repeatedly. Usually it’s call after call from bill collectors or collection agencies. Once we get a bankruptcy case filed, most such calls will slow down and then finally stop within a few days. This is because of what is technically called the “automatic stay” – a court order issued as soon as a bankruptcy case is filed which tells all the creditors to leave the debtor alone and to stop all collection efforts. I tell my clients to let me know if a creditor doesn’t seem to have gotten the word about the bankruptcy. It might be that there’s a creditor that wasn’t listed and that needs to be added to the creditor list.
Lately, however, I’ve been hearing from my clients about harassment which they are receiving from sources other than bill collectors. For one thing, there are disreputable credit counseling services which are sending out advertising disguised to look like letters from a bill collector. A client faxed me one not long ago, and it had me fooled. It certainly looked like something from a creditor to me. In fact it looked like a notice that the creditor had scheduled an arbitration hearing. I thought it needed immediate attention, so I called the number on the “Debt Mediation Notice.” I told them about the bankruptcy and asked them which creditor they represented. To my surprise they told me that they were a debt settlement service and they didn’t represent anybody. They weren’t trying to collect a debt. They wanted to help my client settle his debts, which obviously was not possible since a bankruptcy had already been filed.
So now when you go in debt apparently one can expect to be harassed not only by creditors, but by businesses that market their services to those who are in financial distress. I find such marketing to be a despicable practice, particularly when it is misleading. Since I saw that “Debt Mediation Notice,” I have been wondering how such organizations would get information on who is in financial trouble. I believe that this afternoon I may have received some insight on that.
I have just received two emails from an outfit that is offering to send out junk mail on my behalf which would be addressed to “homeowners in your area that are 60 or 90 days late on their mortgage payment and/or with late credit card debt balances of $20,000 or more.” They don’t say where they are getting the mailing list for that, but my best guess would be that there must be a credit reporting agency which is selling that information. If that’s legal, somebody ought to pass a law making it illegal.
Filing a bankruptcy only stops the stuff coming in from creditors and bill collectors. Other materials intended for the financially distressed are not affected. Another thing that’s not affected is junk mail from agencies that do the post-bankruptcy-filing counseling. Before filing a case I usually have my client signed up for the required counseling program, but this doesn’t stop aggressive and misleading mail advertising those counseling agencies. Some of the materials contain statements to the effect that the bankruptcy will be dismissed if the counseling is not completed. There may be some truth in that, but the counseling doesn’t have to be done with the outfits that are mailing out that sort of thing. I’ve had some clients get pretty upset upon receiving some of these materials, particularly elderly clients who aren’t used to how misleading some things can be.
So I have deleted those emails which offered to do a mass mailing for me to people who are in financial trouble. I would suggest that if you receive anything like that from one of my fellow lawyers, definitely don’t call that person. Run the other way.
I’ve been concerned all week over what to expect with the anticipated federal government shut down. The bankruptcy court is federal, so this shut down could affect me and my clients in a very direct way.
I went on line and tried to research it a bit around noon today. I found announcements that the Nevada bankruptcy courts were going to stay open, along with a statement from one of the bankruptcy judges in another state – Colorado if I recall correctly – stating that they would not be closing. In an interview a lawyer from New York said that they were going to try to keep essential services concerning life and property going, and the bankruptcy court would be in that category.
Then a few minutes ago the Minnesota bankruptcy court sent out the following email:
“In the event that a lapse in appropriations – sometimes referred to as a “government shutdown” – occurs on April 9, 2011, the United States Bankruptcy Court, District of Minnesota will remain open for business as usual, and hearings, trials and 341 meetings will be held without interruption. Applications, hearings and other matters may be scheduled with the Court as usual. Public access to the Court, in person and through the Court’s electronic filing system, CM/ECF, will not be affected.
If a lapse in appropriations continues after April 22, 2011, the Court will continue to conduct hearings and trial. As to continuation of services in the Clerk’s office, notice will be posted on the Court’s website at www.mnb.uscourts.gov.”
At least now I can tell my clients who are scheduled for hearing next week that we are still on and nothing has changed. I’m still a bit anxious about a few cases I was planning on filing toward the end of the month, however, for obvious reasons.
I always keep an eye on the traffic to my web site. As the holidays approached last month, I could see that the traffic was dropping off significantly. On the Monday after Christmas, however, there was a sharp spike upward. Traffic stayed high all that week and then jumped even higher following the New Years weekend. The Tuesday after New Years Day was the highest traffic day I have had for months.
These traffic statistics plus the incoming phone calls and emails confirm that a lot of people are considering using the bankruptcy process to make a new start for the new year. That’s exactly what the bankruptcy laws were originally designed to do. Instead of putting you in debtor prison or turning you into a completely homeless person, you get to clear the slate of the old debts and start fresh – if you qualify.
The original version of the United States Constitution, the one they read this week on the floor of the House of Representatives, included the power to create a nationwide bankruptcy system. This is not a new idea. The founding fathers recognized bankruptcy as a thing of value, and wanted it to uniform for the whole country instead of being different in each state. When I was first out of law school back in the 1970s the process was extremely simple. A bankruptcy petition was less than 15 pages of material. There were few restrictions on who could file. The primary concern was whether there would be a lot of assets that could not be claimed as exempt. Since then every few years additional red tape and limitations have been added. Finally in 2005 there was a massive rewrite of the law which was so severe that we were wondering if the whole process may finally have been killed.
Well, if the intent was to completely remove bankruptcy as an option, it didn’t work. The American Bankruptcy Institute reports that bankruptcy filings jumped by 9% in 2010. Last week the Wall Street Journal carried a detailed article about the increase in filings. The article includes a graph showing bankruptcy filings between 2000 and 2010. On the graph one can see the spike in 2005 right before the effective date of the 2005 law, followed by a dramatic drop in filings, followed by a steady increase. When I saw news releases last summer stating that the first half of 2010 had broken some sort of a record for bankruptcy fillings, I commented that I didn’t think it could possibly have exceeded 2005. This graph shows I was right. Nevertheless, it is quite clear that filings are back up to pre-2005 levels.
So if you are considering such a fresh start, you certainly are not alone. I’d sure be glad to talk it over with you. I can do a screening over the phone which you give you a pretty good idea of what you qualify for. I don’t charge for those phone calls. If you just can’t seem to get ahead, you might want to look into it.
While checking how my website was being ranked on Google, I noticed an ad for an outfit that said it would prepare and file your bankruptcy for $187. Well, that would be a heck of a deal. It certainly piqued my curiosity.
So I went and took a look at their site. For one thing, I was wondering who the lawyer was who was doing this. I quickly found that the site provides no way of figuring out who is running the company or whether there is a lawyer involved at all. There is no address and no phone number provided. No names of any real person.
So I tired a Google search. I typed in who is and the name of the web site at Google. The first item on the list was the web site itself. The second item listed was a page at ripoffreport.com about these guys.
You can see for yourself what they have to say. You do yourself a disservice if you use price as your only criteria.