Back in the 1970’s there was a margarine sold under the brand name Chiffon.  (Or so I’ve been told.  The ’70’s were a little before my time).

According to the commercials, the margarine tasted so much like butter that it fooled Mother Nature.  (Ok, I was around for the ’70’s, but I just don’t remember that much about them!  Let’s just leave it at that!)

Anyway, the tag line of the commercial was:  “It’s Not Nice To Fool Mother Nature”, and to prove this point, mother nature would raise her arms toward the sky, the sky darkened and it became windy, and you knew bad things were to come.

So what does this have with you and your bankruptcy attorney?

Everything!

It is also not nice to fool your bankruptcy attorney!

If you fail to tell your bankruptcy attorney about all of your assets and debts, you expose yourself to all sorts of bad things happening.

As an example, I recently had a client that came to see me about filing a Chapter 7 bankruptcy.

During the interview process the client was asked about all assets that the client had.  In any bankruptcy you must list all of your assets whether they are exempt from seizure or not.

One of the assets that cannot be exempted in Louisiana, where I practice, are lawsuits.   If you have a lawsuit in Louisiana and if you recover money,  under most circumstances that money must be handed over to the trustee to pay the debtor’s unsecured creditors.

In this case, the client denied having any lawsuits, however, after filing the bankruptcy, the client came to my office and brought me a copy of a lawsuit that had been filed on the client’s behalf and also advised me that there was a claim for an automobile accident and that an attorney was close to settling that case as well.

The client’s schedule’s had to be amended to list these two previously undisclosed lawsuits.

So how was this a bad thing for the client/debtor?

First, the following things did happen:

1. The debtor’s Bankruptcy Schedules had to be amended;
2. The debtor’s Statment of Financial Affairs had to be amended; and,
3. The debtor incurred additional legal fees and costs to make the necessary amendments.

What other bad things could have , but didn’t happen:

1. At a minimum, the bankruptcy discharge could have been delayed;
2. The Trustee in the bankruptcy or the U.S. Trustee’s Office could have considered the failure to list the lawsuits as an attempt to fraudulently fail to disclose assets that were available to pay the debtor’s unsecured creditors;
3. The bankruptcy could have been dismissed;
4. The debtor could have been fined; and,
5. The debtor could have gone to jail.

So that is the asset side of the problem.

But why is it a bad thing to not list a creditor?

Well, frankly, in most cases, it probably will not matter.   Generally speaking, in most Chapter 7 bankruptcy cases there are no assets for the unsecured creditors, so the failure to list an unsecured creditor will not change the fact that the unlisted debt is still discharged.

But what about in a case like this one, where there were two lawsuits that had potential assets?

The answer is that in a Chapter 7 bankruptcy where assets are available, the failure to list a creditor means that the creditor has had his rights to file a claim and share in the assets prejudiced.   Since the crediter was not able to file its claim, its rights as a creditor to collect from the debtor were not discharged.

That is a bad thing.  The debtor remains on the hook for the undisclosed debt simply because the debtor did not bother to list the debt.

In the same case, the client/debtor recently returned to my office with letters from attorneys for two of the debtor’s creditors.   These were creditors that were not listed in debtor’s original filing. 

Fortunately, in this particular case, the case had not yet been closed, and while settlement funds were expected, they had not been received or disbursed.

As a result we were still able to go back and amend the debtor’s schedules to include the two additional creditors in time  to give those creditors notice and the opportunity to file their claims.

But, once again, this affected the client since there were additional costs and fees to amend the schedules.

Take the time to answer completely and honestly the questions asked by you attorney.  It saves you time and money, and reduces that chance that bad things will happen to your discharge in bankruptcy.

Every individual who files a bankruptcy case must file a means test form.  It doesn’t even matter if you are exempt from the means test, you still have to fill out the form.  It’s complicated.  (I thought that was only for relationships on Facebook – maybe not). 

Why?  You have to prove to the satisfaction of the wise people who wrote the Bankruptcy Code that your chapter 7 case is not presumed to be an abuse.  By the way, even if you do pass the means test, your bankruptcy case could still be dismissed if the wise people at the United States Trustee’s office decide that your case is an abuse under the “totality of circumstances” rule.

See how simple bankruptcy is?

Anyway, the first thing you’ll need to complete the means test is to collect your pay stubs for the past 6 months. And if you received any other income during that time, you’ll have to show some proof of that too. If you run your own business, you’ll need to show your gross income and figure out all your business expenses so that you can figure out your net income for each of the past 6 months.

Why is this important – well you need to establish your “current monthly income” which is neither current nor monthly.  Huh?  Actually, it’s the average of your income for the past 6 months.  This is then multiplied by 12 and compared to the median income for families your size in our state.  What’s median? That’s the income which level at which 1/2 of the people are above and 1/2 of the people are below.

It’s so simple, you can almost do it yourself. But you probably will want a lawyer to help you.  I mean, I generally like the idea of a mechanic fixing my brakes – maybe I can do it myself, but I really want my car to stop perfectly every time.

Anyway, that gets us to just the beginning of the Means Test form B22A.  It’s going to take us quite a few more days to tell you all about the rest of the form.  Stay tuned!

Dear readers, we’ve gotten through the bankruptcy petition.  It took us four separate blog-entries just go get through the bankruptcy petition.  Of course, before you can even file a bankruptcy petition, you’ll need to take credit counseling first.

And not just any credit counseling will do. You have to take credit counseling from a credit counseling agency approved for your district by the United States Trustee.  You remember the United States Trustee, don’t you? They are the nice people who are a division of the Department of Justice. They oversee all bankruptcy cases in the United States – well maybe the courts do that. Still the United States Trustee has the right to show up in Court and express their views on any issue in any case.

The credit counseling course has to be taken before you file your bankruptcy case. But not too far before – no more than 180 days before. Don’t wait till the last second.  Credit counseling the day of your filing is not accepted in most courts. And credit counseling after your filing isn’t accepted anywhere.

Once you take your credit counseling, make sure you file your credit counseling certificate with the court. And make sure that you say that you took credit counseling on Exhibit D to your petition too.

Gee, we’re still dealing with your petition.  See how easy it is to file a bankruptcy petition.  Maybe you want help from an attorney after all.

We know that Congress squelched the proposal that mortgages on your home could be modified in chapter 13. Too bad. Mortgage foreclosures went ahead at the highest pace in recent history as a result. Mortgage modifications are as rare as hen’s teeth.

Some mortgages, however, can be modified.

The key is that mortgages on your home can be modified when the mortgage is not the only security given for the loan.

For example, a client gave the bank a mortgage on their home to further secure a loan on their business, a liquor store. The liquor store failed.

Normally, you can’t eliminate a mortgage on your home except in chapter 13 and then only if the lien is totally unsecured – meaning your house is worth less than the mortgages which come ahead of the lien you want to eliminate.

However, in the case of the bank’s lien which was also given to secure the debt on the liquor store and its assets, it doesn’t matter if the mortgage is fully secured, partially secured or undersecured.  The mortgage can be modified. It can be broken into two parts. The secured part can be paid over a period of 5 years at a reduced interest rate.  The unsecured part can be lumped in with all other unsecured debts and is paid to the extent that it can be from the debtor’s projected disposable income over 5 years under a chapter 13 plan – with no interest.

Some creative lawyers are now arguing that residential mortgage loans further secured by a tax escrow can be modified in chapter 13 just like the mortgage further securing the liquor store loan. Whether that will be allowed remains to be seen.

Rely on creative attorneys on the Bankruptcy Law Network to help you solve your financial problems.

As a Consumer Bankruptcy Attorney, I get to see the amazing financial deals that my clients get themselves into.  Some of my bankruptcy clients must have been amazing salesmen to get family members and others to co-sign their debts.  I don’t know what a person would have to say to get me to put my signature on a piece of paper for them.  Unless, it’s a scene from The Godfather. ” My father put a gun to his head and said either his signature or his brains were going on that contract.”  (Michael)  Then I would have to consider the idea.  But, in the back of my mind I would be thinking about whether or not I could pay for this if the other party defaults.

Usually I am always upbeat and positive, and I like to make my clients feel like there is hope and a light at the end of the tunnel.  Sometimes the tunnel is long and dark in the beginning, but, the light eventually comes.

As you can tell, I really dislike co-signed agreements.  Most of the time, they were unnecessary to start with.  If a bank tells you that you cannot have a loan without a co-signer, walk away from the deal.  I have explained this too many times in my life, and it never gets easy.  I’ve told bankers no, I will not ask anyone to co-sign a loan for me.  If I won’t do it myself, think of how I feel when I see others fall for the lenders scam.  Yes, I said scam.

I don’t like explaining to people that their relatives and friends will be on the hook if they discharge their obligations.  I can see the utter disgust in their eyes and expressions on their faces.

This issue arose the other day when a Chapter 13 client asked me a question.  He said:  I want to short sale my house since the bank won’t work with me.  Can I do that?  My answer was simple:  Sure, you can. We can file a motion with the Court, and bada bing, it’s a done deal.

Then he asked the real question:  How will this effect my grandfather, the co-signer?  Ouch.

Well, this little turn of events creates a whole new set of issues.  First, in Florida the lender will have two options:  They can pursue the Grandfather for the deficiency or they can issue the Grandfather a 1099C debt cancellation notice.  Neither is a real good option, and both will have consequences for the Grandfather.

So, I guess my message is:  Buyer Beware.  If you are going to co-sign, pray that you will never be asked to repay the debt, but at the same time, be ready for the phone call to come that starts with, “  I’m really sorry, but…”

A non-attorney “bankruptcy petition preparer” (BPP) was recently permantly enjoined by a New Mexico bankruptcy court from assisting any more debtors in preparing bankruptcy petitions.  This case, U.S. Trustee v. Brown, 2010 WL 519849 (Bky.D.N.M. Feb. 8, 2010), held that Pamela Brown, in the person of Southwest Bankruptcy Services, had violated section 110 of the bankruptcy code in nine separate cases.

The court noted that Brown was “no stranger to the United States Bankruptcy Court for the District of  New Mexico,” having been fined by the court in 2009 for giving legal advice in connection with preparing bankruptcy papers, which BPP’s are prohibited by section 110 from doing.

After the 2009 case, Brown continued acting as a BPP, but she concealed her involvement in the cases at hand by failing to include her name, address and social security number, as required by section 110, on the cases she prepared.  The fees Brown charged for preparing chapter 7 bankruptcy petitions ranged from $295 to $400.

The court also found that Brown had given legal advice in selecting the exemptions to be used in the petitions, selecting the forms on which certain creditors were to appear, and indicating on Form B22 whether the “presumption of abuse” arose in particular cases.  The court also noted that it was likely impossible for a BPP to prepare bankruptcy papers in a manner that conformed to the requirements of section 110.  It ordered Brown to refund all fees paid, to pay a fine of $400 for each violation of section 110, to be tripled because Brown had failed to disclose her identity, and to pay a fine of $2,000 for each case in which a violation of section 110 occurred.

Own a Toyota?  Are you filing bankruptcy or in a bankruptcy case already?  You should talk to your lawyer about the Toyota recalls.

You may have a claim against Toyota for defects in your product (or, worse, some physical injury you suffered).    There are already class action lawsuits on file related to these issues that you may be involved in, even if you don’t know it.

When you file bankruptcy, you have to disclose all the assets you own.  Your right to sue (or be part of a lawsuit, like a class action) Toyota or the parts makers would be an asset you own and ought to list in your paperwork in your case.

Even if you didn’t know that you had this claim at the time you filed your case, you may be under an obligation to go back and update your paperwork with the court when you do find out.

Who gets a share of any of the money you might someday recover on account of such a claim is a far more complicated question that very much depends on the circumstances of your specific case — so talk to your lawyer about it!  But keep in mind your chances of keeping part or all of it are improved if you are the one telling the court about it rather than the court finding out while you kept it quiet.

A number of clients facing foreclosure have asked me whether I could use the “lost note defense” to help them save their homes. They’d read about how successful it had been in states like Ohio and Florida, and wondered about whether it could help them here in Maryland. Sadly, the answer is that normally it can’t. Why not? The answer lies in Maryland’s somewhat unusual method of conducting foreclosures, and the explanation is a bit technical.

Unlike Ohio and Florida, Maryland is a “non-judicial foreclosure” state. In “judicial foreclosure” states, a foreclosure is conducted like a typical lawsuit: the lender sues you in state court, serves the suit papers, and must prove to the Court its entitlement to foreclose on the property. In Maryland, however, foreclosures are started by “docketing” a foreclosure action in Court. It does not have to be served on you (although certain notices must be provided), and no hearing, trial or Court approval is required before the foreclosure occurs. It also means that the lender does not have to prove to you or to the Court that it is the owner of the note before the foreclosure. If you want to stop the foreclosure, the only way (other than a bankruptcy filing) is for you to file a separate declaratory judgment or injunction action in state court and get the court to rule in your favor.

Maryland is also a “Deed of Trust” state, rather than a “mortgage” state. For both a Deed of Trust and a mortgage, you sign a note agreeing to repay the money loaned. But the way the lien is placed on the house differs. A mortgage involves two parties, the borrower (you) and the lender (the bank). A Deed of Trust requires three parties: the borrower, the lender, and a trustee. The trustee, usually a lawyer at the title company or a law firm, actually holds legal title to the property for the benefit of the lender. Until the loan is paid, the title is not released to you.

What does this mean in terms of the foreclosure? The Trustee is the party bringing the foreclosure action, not the lender. The Trustee can even appoint a “Successor Trustee,” who will conduct the sale. The presence or absence of the Note is irrelevant in these situations, since the lender isn’t directly involved and the Trustee’s authority to conduct the foreclosure is in the Deed of Trust itself.

So I usually tell my clients that the Lost Note Defense doesn’t work as well in Maryland because of the way our state handles foreclosures.

A Texas bankruptcy court ruled on December 30, 2009, that an employee who was fired after filing bankruptcy was not protected the bankruptcy code’s non-discrimination provision, 11 U.S.C. section 525(b).  This section states as follows:

No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title … solely because such debtor … is or has been a debtor under this title….  11 U.S.C. sec. 525(b).

In Banner v.  ABF Freight System, Inc., 2009 WL 5216883 (Bky.N.D.Tex. Dec. 30, 2009), the debtor was hired as a sales representative for ABF in October 2006.  All ABF employees were required to qualify for and maintain an American Express corporate card, to pay for customer entertainment and travel.  In December 2007, the debtor filed bankruptcy and her American Express card was cancelled.  One month later, a charge on the debtor’s American Express card was declined after lunch with a client.  Her employer then fired her, and she sued, claiming that section 525(b) prevented this firing.

The employer responded by pointing out that after it discovered that the debtor’s American Express card had been cancelled, it held a management meeting to determine whether an exception to its American Express card policy should be made in the debtor’s situation, or whether ABF should guarantee the card itself, as it sometimes had in the past for employees who had filed for bankruptcy.  The debtor was informed at the meeting that she was being fired due to the bankruptcy having resulted in her American Express card being suspended.

ABF also claimed that the debtor’s job performance was poor, and that formed an alternate basis for firing her.  It introduced into evidence several monthly sales audit reports which it claimed showed problems with the debtor’s sales achievements.  The debtor countered by claiming that she had nevertheless been fired as a direct result of her bankruptcy filing.

The bankruptcy court disagreed that the debtor had been fired solely because of her bankruptcy filing, as section 525(b) prohibits.  It was significant that ABF had considered making an exception to its American Express card policy, but that it had declined to do so in light of the debtor’s poor job performance.  The court held that the debtor had failed to meet her burden of proving that she had been fired solely because of her bankruptcy filing, and accordingly her claims were dismissed.