How can a person get away without paying me when they file for bankruptcy? The Bankruptcy Code and Rules written by the United States Congress are designed to give a fresh start to the honest debtors who have become unable to timely pay their debts in hopes that they once again become productive members of society and not dependent upon public assistance to live. Unfortunately, this means that creditors sometimes lose their money. This is a policy decision by Congress that the court cannot change. However, there are guidelines as to who may be a debtor and laws relating to possible abuse with strict consequences if any laws are broken. The court functions as a neutral impartial body to rule on disputes that arise in these cases.

A big welcome to the Southern District of Texas Bankruptcy Court’s newest Judge, David R. Jones!  David will take the bench officially October 1, 2011.  David is a partner in the creditors’ rights, bankruptcy and restructuring group of Porter Hedges, and has been practicing law since 1992.  He has been recognized as a “Leader in the Field” of Bankruptcy/Restructuring the State of Texas by Chambers USA in 2009, and has been listed in The Best Lawyers in America in Bankruptcy and Creditor-Debtor Rights Law since 2007.  David has also been named as one of the top 100 lawyers in the Houston Region by Texas Monthly.  Prior to becoming a lawyer, David was an engineer and an accountant.  While practicing, he has represented a number of our Chapter 7 Trustees.  Prior to joining Porter Hedges, David was a partner with Floyd, Jones, Rios & Wahrlich, PC. 

For practitioners in his court, David has advised he is very techy and loves litigation!  He also said he wants all attorneys that come before him to be well-prepared and, if you don’t know something, don’t be afraid to tell him so.

David, and soon to be, Judge Jones, WELCOME!

The Kansas Supreme Court recently ruled in Hall v. Ford Motor Credit Co. LLC, that a debtor’s failure to reaffirm a debt secured by his pick-up truck during his Chapter 7 bankruptcy constituted a default of his loan with Ford Motor Credit.  The court found that the debtor’s Chapter 7 discharge significantly impaired the secured creditor’s propsect of payment, performance, or realization of its collateral so that it was allowed to repossess the collateral despite the fact that the debtor was current on his payments to Ford.  The court applied Section 5-109(2) of the Uniform Consumer Credit Code in making its decision.

The Kansas Supreme Court found that the bankruptcy filing was not an enforceable default, but ruled that the entry of a Chapter 7 discharge without the reaffirmation of a debt when the collateral was worth less than the debt is an enforceable default. 

The debtor argued that Ford’s fears of significant impairment were only anticipatory in nature – especially since he was current in his payments.  He also told the court he intended to stay current.  The court, however, disagreed.  It stated that the Bankruptcy Code had established procedures for debtors who wanted to keep collateral such as vehicles, furniture, etc. and faithfully make payments.  The court went on to say “under Hall’s ‘trust-what-I-say-today’ method of reaffirmation that Ford must accept additional risk that Hall would change his mind at any time and unilaterally decide to terminate any part or all of his contract performance.  Meanwhile, Hall has been relieved of all personal liability and is subject to no additional sanction for failing to fulfill his precatory assurance of performance.  “If Hall chooses to terminate performance, Ford Credit will be left to salvage whatever it can from the truck in whatever condition it might be at the time.  In that vein, the truck’s value in relation to the remaining balance on the contract is an important factor.  A creditor would be justified in believing that a debtor would ordinarily not gratuitously pay more for a vehicle than it is worth.  Accordingly, the prospect of debtor’s continued performance would be significantly impaired as a matter of economic reality whre the note is substantially undercollateralized.”  In this case, the Debtor owed Ford Credit approximately $7,500.00 more than the truck was worth.

North Carolina attorney extraordinaire O. Max Gardner is teaching a two day intensive in Chicago on June 18 & 19th.  The two day intensive will be invaluable toorforeclosure defense attorneys.  Max and others will be teaching how to attack the secured status of the Trustee of residential mortgage backed securitized trusts and what servicers have done with the homeowner’s payments.  The mortgage servicer’s standing to foreclose must be challenged!

The intensive will give one a thorough understanding of how securitization is supposed to work and then determine whether the proper procedures were followed for your client’s mortgage.   You will learn how to identify false documents; deconstruct an MSP life of loan transactional history and create a comprehensible worksheet so that the Judge can understand; learn how to prove servicers wrong when they are sticking to their story; everything you want to know about MERS; and much more.

If you are interested in attending the event or one of Max Gardner’s bootcamps, check out www.maxbankruptcybootcamp.com

I realize potential clients are scared when they come to see me and are unsure of their circumstances and their future.  But this does not excuse a client from fully disclosing their financial situation to me or to any bankruptcy attorney.  I can’t help you – if you don’t help me.  So, what are the dangers of not telling me everything?

Property and/or property rights may be lost to the bankruptcy trustee or to a secured creditor if not properly disclosed.  Clients often forget they have dormant savings accounts or accounts with credit unions – but this property that needs to be disclosed.  The same is true with tax refunds, bank accounts that you are on but don’t use (such as a parent’s bank account), accrued vacation pay, salary or pension rights, insurance interests – especially if there is cash value.

Another often overlooked item is debt that where the client has co-signed for someone else.  Even if you don’t have the item (such as a car), you are still liable for the debt and how that debt is treated in your bankruptcy could afffect the other co-debtor.

Clients often have the misconception that he or she can pick and choose which creditors will be included in the bankruptcy.  WRONG!!!  Failure to list a creditor could mean that debt is not discharged and cannot be discharged in a future bankruptcy.

Another common issue is when a client fails to disclose all of their property to the attorney and it turns out the property is not exempt.  Had the potential client disclosed all the property interest upfront, the attorney may have advised the person not to file for bankruptcy or to delay the filing of the bankruptcy in order to keep the property.

Or, if you fail to tell me about a security interest in property such as where you have put up household goods for security for a personal loan, I am unable to utilize the statute to avoid the lien so that you can keep your household goods.

The biggest danger, though, is not disclosing all of your assets and having your discharge denied.  Recently, one of our judges denied an a husband and wife their bankruptcy discharge due to their failure to disclose a number of assets.  Not only did their bankruptcy discharge get denied, they still owed several million dollars in debt that can never be discharged, their non-exempt property was taken by the bankruptcy trustee and sold for the benefit of their creditors, and he will probably lose his law license.  (The debtor was an attorney.)

As a bankruptcy attorney, I want you to get the maximum benefit of a bankruptcy filing and to help you keep as much property as you can.    But in order to do so, it it critical that you disclose all of your assets and liabilities to me – no matter how insignificant you may think it is.

My dear Houston friend and colleague, Jeff Norman, has been appointed as the new Chapter 13 Trustee for Columbus, Ohio.  Jeff begins his new job on June 1, 2011.  Jeff is an experienced board certified bankruptcy attorney and litigator with over 23 years experience.  He is Board Certified in Consumer Bankruptcy Law by the Texas Board of Legal Specialization as well as Board Certified in Consumer Bankruptcy Law by the American Board of Certification.  Jeff was also named a 2008 Texas Super Lawyer by Texas Monthly Magazine in the are of Bankruptcy and Creditor/Debtor Rights.

He has always represented his clients with the utmost regard.  Jeff is a man of integrity and is compassionate, loving man who truly loves what he does.  

Jeff graduated from Houston Baptist University in 1982 with a Bachelor of Science in Accounting and Finance.  He earned his Juris Doctorate from South Texas College of Law in 1985. 

He has handled thousands of Chapter 7 and 13 cases, as well as Chapter 11 and Chapter 12 cases.

We are very sad to lose Jeff as a colleague in Houston, but I will always consider him a true friend.  Jeff, good luck to you and your family in Columbus.  We will miss  you.

Bankruptcy Judge Wesley Steen retired, effective January 17, 2011, from his position as Bankruptcy Judge for the Southern District of Texas.  He was my judge in Victoria, Texas and one of my judges in Houston.  Judge Steen was also the bankruptcy judge in Laredo, Texas.  He came aboard in 1997 and served our district for fourteen years.  During his tenure, he was also elected the first sitting judge to also serve as President of the American Bankruptcy Institute (ABI).  Judge Steen was also the former Chief Judge for Bankruptcy Court for both the Southern Disrict of Texas and Middle District of Louisiana.  He will be  sorely missed by our bankruptcy bar  Happy Retirement Judge Steen!

On a sad note, the consumer bankruptcy bar lost a long-time friend and champion for bankruptcy debtors – Charlie Fielder, President of LegalPro on February 4, 2011.  Charlie was a leader in his field – leading the way in bankruptcy software for the debtor’s bar.  He made our life as bankruptcy attorneys much easier by always being on top of the changes in law and forms.  Charlie was one of the kindest, gentlest men I ever know.  Charlie,  we will miss you – but know that you are safe in God’s loving hands.  Rest in peace, my dear friend.

Lately, a number of clients coming to see me have just transferred real property (or their interest in real property) to a family member or friend, or they are inquiring about transferring their property to a family member or friend – and, of course, for no money in return.  AND, they want to file bankruptcy ASAP.  Bad decisions and bad ideas! Bankruptcy law has several provisions that penalize a transfer made with the intent to hinder, delay, or defraud creditors.   Any transfers made within two years of filing bankruptcy (and in some instances – further back than that) the bankruptcy trustee can undo those tranfers pursuant to his avoidance powers under Section 548 of the Bankruptcy Code. 

I recently turned down filing a case for a potential client who, after several months of being laid off from work and no foreseeable job offer coming, decided to transfer a second parcel of land (approximately 20 acres) – not his homestead to his son.  He wanted to protect his land from his creditors.  Unfortunately, this is considered a fraudulent transfer and the trustee could undo the transfer.  He, of course, was sick to learn that his actions had only made matters worse for him since he is unable to file a Chapter 7 bankruptcy now and keep his land.   

If you are thinking about filing for bankruptcy and are thinking about transferring or giving property of any value to someone else, PLEASE talk to a bankruptcy attorney before you take that action.

On December 16th the House of Representatives voted to give final congressional approval to the Bankruptcy Technical Corrections Act (H.R. 6198).  The Act primarily makes technical changes, such as correcting cross-references in the statute where the numbering of an existing provision was changed (e.g. to section 521 or 704).

 It also clarifies that pre-petition credit counseling can occur on the same day as the petition is filed.  Currently, case law is split on whether credit counseling has to be completed no later than the day before filing or if it is okay to complete the counseling on the day of filing.

Another change is in Section 362(d)(4).  “Delay, hinder, and defraud” is being changed to “delay, hinder, or defraud” conforming the phrase to other parts of the Code. 

The text of the legislation may be found at http://thomas.loc.gov

An Oklahoma based payday lending firm operating under the names CASHMAX, Fed Cash, TOPCASH and Cash Service Center and owned by Patrick D. “Dylan” White found itself subject to a temporary restraining order issued by a Texas court earlier this month.    Apparently, the lending firm was illegally misrepresenting itself as an official Dallas County government agency.

According to Texas State investigatiors, the defendant sent deceptive collection letters to Texans with outstanding debts.  The letters were delivered in envelopes that contained the Dallas County Clerk’s forged signature and improperly bore the official seals of both the State of Texas and Dallas County.  Inside the envelopes, the defendant inserted notices of debt collection that instructed the recipients to call a telephone number, which belonged to Federal Cash Advance’s CASHMAX offices.

The notice letters illegally threatened criminal prosecution, referenced a phony “case number” and cited fictitious criminal penalties of up to five years in State prison and a fine upt to $10,000.

The Texas Finance Code prohibits debt collectors from threatening debtors with prison sentences.  It also bans deceptive collection notices that improperly pressure debtors to pay their debts.

If you have received a debt collection letter threatening criminal prosecution, please contact an attorney to review the letter for violations of state and federal law.   Or, if you are drowning in debt, you may want to consult a bankruptcy attorney to end the abusive debt collection tactics and get peace of mind.