Lots of court time this week – sorry if I missed your call

I had some unexpected court time this week, especially yesterday. When that happens, my usual discipline of keeping up with returning calls and responding to emails goes to heck. I’ve made an effort to get back to everybody before saying I’m done for the week – which I am – but if I did not get back to you, please call me or email me again.

I usually am pretty good about actually looking at what my spam filter catches before I delete that mailbox, but on a week like this one I may have been more likely to miss a real message that got caught there. If I did not respond to your email, please send me another one.

Youtube video Bankruptcy Update Part II

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 In this video I talk about how Congress has withdrawn funding from the U. S Trustee’s office for the hiring of outside accounting firms to conduct audits of debtor’s records.

Update December 4, 2014:  I’ve removed the video referred to here from my Youtube channel because the info is so outdated.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.

Youtube video Bankruptcy Update Part I

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:

Goose Poop on the Trail at Westwood Hills

I’m inspired. I just finished my first walk of the year around the Westwood Hills Nature Center. It has been a gorgeously beautiful day. This nature center is maybe a half mile east of my office; at least that’s how far it is if I go to a back door I’ve found. It might be more like a mile and a half if I drive all the way to the main gate. Weather and time permitting, I try to make a point of walking there every day. Obviously, weather and time don’t always permit – such as during the unusually long winter we just finished. I suppose I could have gone in there during the past winter with my cross country skis, but I never did.

A couple of eagles were circling over the lake this afternoon. At first I thought maybe they were hawks; but then I saw some hawks – they were there too – and concluded that the eagles were really eagles. Hawks look quite a bit different. The ice is still on the lake, except for a little bit of open water around the edges. I watched a poor mallard try to come in for a landing on a small patch of open water, only to find that it was only about two inches deep. He made a bit of a splash, and then seemed surprised to be standing on his feet after coming to an to an abrupt stop. I could swear that he looked at me with an embarrassed expression, but that had to be my imagination.

The City of St. Louis Park does an excellent job of maintaining the hiking trails. Today there were some patches of snow and some muddy spots. There were spots where streams of water from the melting snow were flowing across the trail. And yes even this early in the year, there were parts of the trail where one had to be very careful to not step in what the geese had left behind.

CREDIT CARD CASH ADVANCES TO PAY FOR BANKRUPTCY

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.

Happy St. Patrick’s Day

I’ve been asked if my office would be open today. The answer to that is yes. I’ve been invited to a corn beef and cabbage lunch, but I have not been able to make it. My office phone, which I had forwarded to my cell phone, started ringing at about 7 am this morning. One caller after another described various scenarios involving being arrested for DWI over this past weekend. I wrote earlier about how a reporter from New Brighton had tipped me off that the police would be out in force this past weekend and today. I guess she got that right. This morning I had so much trouble getting off the phone that I almost missed my first appointment at the office.

So I’m wearing a bright green tie today, but that might be about as far as I take the St. Patrick’s Day thing; except to warn you all that tonight is not the time to take any chances with drinking and driving. No night is, but lots of extra officers will be on duty this evening. What I believe I have learned over the years about nights like this is that some of those officers would rather be partying themselves, or they may be missing an event that they were invited to. A bit of resentment about that can lead them to want to be harsher than they might ordinarily be on an ordinary night. Definitely think in terms of a cab or designated driver.

Based upon how my own phone calls seem to indicate that the party has already started, and considering the snowy weather forecast for the Twin Cities, I fear that by tomorrow morning I will be looking at a local news report of at least one fatal, alcohol-related accident. Let’s pray that no such event takes place.

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.

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.

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.

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.