Boston Bankruptcy Lawyer Blog

All of us in Massachusetts know that the Celtics will win tonight, capturing the Eastern Conference finals. However, on another basketball front, reports indicate that former basketball star Antoine Walker filed for personal bankruptcy protection in Florida. Walker's debt, listed at over $12 million, seems extensive, and there seems to be a paucity of income.

As advisors to clients who file for bankruptcy protection, seeking a fresh start, and those who plan to avoid the same, we have some words of wisdom for the Celtics, and, more seriously, our clients: don't overextend. To paraphrase Charles Dickens, "if you spend more than you earn, you will be miserable; if you spend less then you earn, you will be happy."

Go Celtics!

In seeking bankruptcy protection for Massachusetts clients, personal bankruptcy lawyers often use the local Massachusetts bankruptcy exemptions to enable clients to keep their homes. That exemption is $500,000 of equity. However, many folks put their homes in trusts. We have cases in which homes are put in and out of trusts in order to satisfy requirements of mortgage lenders. How does this impact those filing personal bankruptcy in Massachusetts? In a recent Federal Bankruptcy Court decision by Judge Joan Feeney, the Court held that notwithstanding the client's holding her home in a trust, the intent of the law was to provide homestead protection to someone with "rightful possession" under the trust document, rather than title.

When we file personal bankruptcies for clients, we advise that they hold property they wish to claim as exempt under the homestead law in their own name. However, Judge Feeney has made it easier for some to claim the exemption when a trust is involved.

Presently, it costs Massachusetts consumers about $15 to secure their credit score; credit reports, on the other hand, are free. However, yesterday the United States Senate passed an amendment to the big financial regulatory bill that would give consumers a free copy of their score whenever they were denied credit, denied the best interest rate or denied employment because of their credit score. Experience from our own experience in bankruptcy is that those folks that pay attention to their credit score are more likely to work towards bettering their credit. The amendment was sponsored by Colorado Senator Mark Udall.

The amendment, which is part of the large and complex financial regulatory reform bill that is sweeping through Congress, is a step in the right direction for openness for consumers. Since auto and home loans, as well as credit card interest rates, rely so heavily on credit scores, the more information consumers have the better. In enables them to learn how the system works and to make educated decisions about their financial well being.

In a well written decision by former Supreme Court Justice, David Souter, sitting by designation on the First Circuit Court of Appeals in Boston, Massachusetts, the Court held that Alexander Sherman, who filed bankruptcy after bilking investors out of $983,000, met the test for embezzlement and that therefore the debt to the victims could not be discharged.

The Court used common law for the definition of embezzlement: "the fraudulent conversion of the property of another by one who is already in lawful possession of it." The decision helps us explain to Boston bankruptcy clients how the courts will interpret the meaning of Section 523, which lists all personal bankruptcy exceptions.

The decision is interesting reading as it discusses the common law notion of using entrusted property for unauthorized purposes making the Robin Hood analogy: " not even Robin Hood could have found [Sherman's company] Whitehorne, Sherman and the three luckless investors more deserving than the victims whom chance, or their own prudence, had spared from Whitehorne's bad bet." The Court found that Sherman "knowingly" violated the "terms of his authorization to use the property of another."

In a national study by economists the conclusion was reached that the recent mortgage crisis was partially a result of the changes in the federal bankruptcy laws, made effective in October 2005. To those of us practicing personal bankruptcy law in Massachusetts, this seems like a simplified conclusion based on assumptions. The economists, Wenli Li of the Federal Reserve Bank of Philadelphia, Michelle J. White of the University of California at San Diego and Ning Zhu of the Graduate School of Management at the University of California, Davis, use statistics to conclude that because the cost of filing bankruptcy went up "more than 50 %", that is from $200 to $300, fewer consumers could file for bankruptcy protection resulting in more folks being unable to discharge credit card debt - therefore being unable to pay their mortgages. In antidotal evidence obtained by practicing bankruptcy there is in fact no evidence that consumer could not pay the additional $100 to file personal bankruptcy.

The economists, suggest that "the reform increased the severity of the crisis when it came" however, their evidence is merely based on the rise in prime and subprime mortgage default rates rising in the years following the Bankruptcy Reform Act of 2005.

In fact, most of our clients that defaulted on their homes seemed to be hit with huge jumps in mortgage interest rates. In addition, folks that lost jobs and had high mortgage rates were adversely affected. Finally, many of our clients with two and three family houses lost tenants or rental income due to the downturn in the economy. These days, many of our clients are hit with jacked up credit card interest rates that push them over the fence into needing bankruptcy protection.

We have seen a rise in the number of prospective Boston consumer bankruptcy clients that have been misled, misinformed and misguided by the debt settlement industry. Clients have a variety of horror stories that generally range from the "agency" taking their money and not paying any of their credit card bills, to the "agency" taking their money and paying only some of the bills. Either way, the client becomes further in debt and less in control of their situation. In any event, a new non-profit organization, called the Bankruptcy Avoidance Program is attempting to help consumers with avoid the unscrupulous "agencies." We have no knowledge whatsoever about the company and simply provide this information to clients to be concerned about debt relief companies and to consider the new one. We would love feedback.

While Massachusetts bankruptcy filings were up in March, 15% higher than the same month last year, they are slightly lower than the prior month. The number of personal bankruptcy filings in March was 144,490, according to the American Bankruptcy Institute. January through April filings were up 17%. Western states were disproportionally hit with hither personal bankruptcies this year; Arizona's consumer bankruptcy filings were up 46% in April, from a year earlier. California consumer bankruptcy numbers were up 40% in that same time period.