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.
Over the New Year weekend I saw a Wall Street Journal article. It was about certain banks and credit card companies trying to trick people into paying expired debts. Those would be debts so old that they are now barred by the statute of limitations.
In Minnesota the statute of limitations on most obligations is six years. That means anything you haven’t paid on for six years is probably not a debt that can be legally collected. The Wall Street Jounal article describes a plan where people with such expired debt are offered new credit cards, but in exchange for getting the card they are required to pay off some of their old expired debt. The marketing for these new credit cards can be very misleading. A lot of people are signing up for these deals without understanding that the debt they are being asked to pay as a condition of getting the new card is rally old and now bogus.
I see that Yahoo Finance has republished the article or part of it, which you can find here.
Tip if you are sued for expired debt: Last time I checked, in Minnesota a bill collector can still sue you and still get a default judgment for debt which is past the statute of limitations. That’s because the statute of limitations is an affirmative defense that must be raised in a response to the lawsuit. So if you are sued for debt that you think is probably expired, you need a lawyer to help you raise that defense. Properly raised, the statute of limitations is a defense that makes the debt go away – but ONLY if it is properly raised as a defense. I would discourage you from trying to raise the defense yourself. You can try, but it’s complicated and would be easy to mess up.
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 took a look this morning at a news digest from the Minnesota State Bar Association. A story that caught my eye was full of charts and graphs comparing the number of lawyers admitted to the bar to practice law compared with the number of job openings. You can see the full story at economicmodeling.com
For the year 2010 Minnesota had a lawyer surplus of 510, according to the article. Only New York, California, New Jersey, Illinois, Massachusetts, Pennsylvania, Texas, Florida, Maryland Connecticut, and North Carolina had bigger surpluses. The nation as a whole had a lawyer surplus of $27,269.
Interesting enough, our neighbor Wisconsin actually had a lawyer deficit of 14. In other words, Wisconsin had 14 more job openings than there were new lawyers to fill them. The only other state with a deficit was Nebraska. Nebraska’s deficit was only three, however; pretty close to break even.
Whenever I get a call from my Alma mater, the University of Minnesota Law School, asking for a financial donation, I have had to ask myself whether I feel that Minnesota really needs more lawyers. The answer to that question for me has always been in the negative. This article seems to confirm that.
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.
My wife Karen, our two dogs Ben and Jerry and I went camping this past weekend at Jay Cooke State Park just south of Duluth. We were minding our own business Saturday morning. I was drinking coffee and having some Cheerios. Ben and Jerry had taken up residence on Karen’s lap. Then along came a crew from WDIO TV Channel 10 in Duluth.
They were interviewing folks on the subject of the impending state park shutdown – a side effect of the impending state government shutdown. The story was their lead story on the 10 pm news that night. The video is posted at the WDIO web site. The TV guys spent several hours at the park that day, but the story is edited down to two minutes.
Here’s a link to the video if you would like to watch