Boston Bankruptcy Lawyer Blog

When filing for bankruptcy protection in Massachusetts, is it necessary to file jointly if you are married? The simple answer is no.

There is no Massachusetts law or federal bankruptcy rule requiring spouses to file jointly. Often one partner has significant debt and the other doesn't. If John has sizable credit card debt and Suzie has no debt, and John qualifies, there may be no need to file a joint bankruptcy. This would have an unnecessarily bad result on Suzie's credit, for no reason. But any credit cards that Suzie did have a legal responsibility for, she would continue to be responsible for, notwithstanding John's bankruptcy and notwithstanding the fact that John may have been the one charging up the card.

However, it is important to meet with an experienced Massachusetts bankruptcy attorney to determine if you can actually save money, and get more protection, by filing jointly.

It is critical to examine the debts carefully. Often we undertake a bankruptcy for a client and then, sometime later, they reveal that some of the debts were joint and now they cant pay those either. We then have to do a second bankruptcy for the family, resulting in unnecessary time, legal fees and perhaps aggravation. For example, the new filing fee of $306 would only have to be paid one time if the couple filed together. Furthermore, a joint petition rarely costs significantly more than a single petition.

A reason to avoid a joint filing is when one spouse has already filed for bankruptcy protections within the last eight years. Then s/he can't file so we can help only the party that has not filed within that time period.

Another reason to avoid filing a joint petition is when one spouse has assets that they do not want the Court to get a hold of. However, be careful, as many assets are protected, or can be protected with Massachusetts bankruptcy planning. These include personal homes, up to $500,000 and most retirement accounts.

One question we often get concerns the Means Test in Massachusetts. This is irrelevant as to a joint filing because we need to put in the family income on the bankruptcy petition. You can't simply "file under my income" and avoid mentioning your spouses income. On the other hand, your attorney can work with you on the Means Test to your best advantage.

But what if the spouses have a joint mortgage? John can discharge his obligation and walk away from it if he files for bankruptcy protection, and he can hold off a foreclosure if he files. But Suzie can still be liable on the debt, and the foreclosure may still be able to proceed against her.

What about divorce? All too often we represent a Boston bankruptcy client who has just been through a divorce. The good news is that filing for personal bankruptcy in Massachusetts is usually less painful than filing for a divorce. The bad news is that notwithstanding a full discharge from the bankruptcy court of all debts, the court cannot discharge you from any of the obligations in the divorce agreement. Those include alimony and child support, of course. But it also includes any agreement to hold your former spouse harmless from certain debts. Thus, while you may no longer owe Bank of America on the credit card, you may be obligated to compensate your former spouse if BOA comes after him or her.

As a Boston bankruptcy attorney, I represent folks throughout Massachusetts in Chapter 7 bankruptcy. We don't have many clients who are famous, although all of our clients are important to us. Today's blog is an outline of a few famous people who have filed for bankruptcy protection. Our point is that if they could do it when the time was necessary, then so can you. Some of these folks squandered their wealth, but I would note that many of these celebrities later became famous after getting a fresh start.

Oldies But Goodies

The Dutch painter Rembrandt lived beyond his means and filed for bankruptcy in 1656. His paintings (and house) were sold at auction and have become some of the most treasured art works in the world.

In 1833, Abraham Lincoln filed for bankruptcy when his small business failed in Illinois. Of course, he later became the US president at the most critical time in our history.

Mark Twain, widely considered to be the quintessential American novelist, filed for bankruptcy protection in 1984. Nevertheless, he toured Europe with remunerative speaking engagements and endeavored to pay back his creditors even after the debts were discharged!

John James Audubon filed for bankruptcy when he was 34 before he completed "The Birds of America" which is considered a classic by birders ever since. It was his daughter, Lucy, who founded the Audubon Society, in 1886.

In 1895, Oscar Wilde filed for bankruptcy, owing 3,581 pounds. His friends helped pay 20% of the debt and he was forced to give up first editions of his books, including his only novel, The Picture of Dorian Grey, where he wrote "Many people become bankrupt through having invested too heavily in the prose of life. To have ruined one's self over poetry is an honor."

Walt Disney, believe it or not, filed for bankruptcy at age 21 when his Laugh O Gram Company failed.

Sports Stars

We reported on Eagles quarterback Michael Vick's bankruptcy back in August 2011.

An even bigger sports star, Mike Tyson, who had earned over $300 million filed for Chapter 11 bankruptcy in 2003, owing $27 million. He spent all of his money "extravagantly" which cost approximately $400,000 PER MONTH including buying pet Bengal tigers and funding a large entourage. He had been a world champion at the age of 20!

Baseball power hitter and American League MVP in 1988, Jose Canseco, lost his $2.5 million home (7,300 square foot California mansion) in a foreclosure in 2008. No bankruptcy was reported. His books reported on his steroid use and named names, including Mark McGwire, another home run record holder.

Leon Spinks, Lawrence Taylor Jonny Unitus and Bjorn Borg all filed for bankruptcy.

TV and Movie Stars

In 1971 and 1978, Larry King filed for bankruptcy. The CNN talk show host who interviewed more than 30,000 guests, was once $352,000 in debt and insolvent.

Kim Basinger filed for bankruptcy in 1993, apparently after investing $20 million in Braselton, a small town in Georgia. The venture was in partnership with the Ameritech Pension Fund. However, when she withdrew from the film, Boxing Helena, she was sued and lost $8.1 million. The bankruptcy clearly gave her a fresh start; in 1997 she won the Academy Award for L.A. Confidential.

Sherman Hemsley, also known as George Jefferson on "All in the Family" and "The Jeffersons," filed for Chapter 13 in 1999. Apparently he owed $1,000,000 to a Los Vegas company and taxes to the IRS.

Steven Baldwin, who stared in movies such as The Usual Suspects and The Flintstones, filed for Chapter 11 bankruptcy in 2009. His debts were listed at over $2.3 million, including two mortgages and unpaid taxes.

Artists

Wayne Newton, who got his start in Miami Beach working for the Jackie Gleason Show, filed for Chapter 11 bankruptcy in 1992 when he owed $20 million for his liable lawsuit against NBC. He was sued in 2005 by the IRS for back taxes, and by Michigan officials for abandoning a plane and neglecting to pay $60,000 in storage fees.

Vince Neil, of the Motley Crue, was sued for $16,000 by his own lawyer, and filed bankruptcy in 2010.

M.C. Hammer, the rapper, filed for Chapter 11 bankruptcy in 1996, with $13.7 million in debt. One debt was for$110,000 to his interior decorator. He did list assets of $9.6 million.

A personal favorite of mine, Meatloaf, filed for bankruptcy in 1983.

Business Tycoons and other Favorites

Donald Trump's hotels filed for a business Chapter 11 bankruptcy in 2004. And 2009!

Milton S. Hershey, who founded the Hershey Chocolate Company and Hershey, Pennsylvania, filed bankruptcy before he became famous.

P.T. Barnum, also before he became famous for founding The Greatest Show on Earth, filed for personal bankruptcy.

In 1988 Bud Post won $16.2 million in the lottery, overspent, and filed bankruptcy in 1996. He had purchased anything and everything the preverbal lottery winner would: tv's bigger than himself, homes, cars, trucks, motorcycles and a boat.

Anna Nicole Smith, former stripper and clothing model, filed for bankruptcy in 1996, just three years after being named Playmate of the Year by Playboy. She had lost a sexual harassment suit to her former nanny, resulting in an $830,000 judgment. She was perhaps more famous for her marriage to J. Howard Marshall and for the lawsuit following her death involving her daughter's inheritance.

John Wayne Bobbitt, who survived mutilation by his wife in 1993, subsequently filed personal bankruptcy.

In a case decided by the Massachusetts Supreme Judicial Court on February 16, 2012, it was held that a beneficiary of a trust cannot acquire a homestead under the 2004 Massachusetts Homestead Law; you need to be the trustee. We wrote about the new Massachusetts Homestead Law in our March 14 2011 blog. The SJC, in response to a certified question by the US Bankruptcy Court, decided the case.

This was a case in which a debtor, Ms. Boyle, filed for bankruptcy protection in the Massachusetts bankruptcy court after having filed a Declaration of Homestead. Under the new Homestead law, the Declaration of Homestead protects home equity up to $500,000. In fact, under a new law in Massachusetts, the Homestead even protects homes held in trust. However, this case was decided under the prior law.

In this case, Boyle v. Weiss, Boyle and his wife conveyed their home to real estate trust in 1990. The trustee was their daughter, Maria. The beneficiaries of the trust were Boyle and another daughter, Roberta. They were each 50% beneficiaries. The trust had no "spendthrift" provision, protecting the beneficiaries from creditors in bankruptcy. The trust gave the trustee the power to manage, buy and deal with real estate. In 2010, Roberta Boyle filed a Homestead with the Registry of Deeds and then, four days later, filed for bankruptcy. The sequence of events is, generally, entirely proper.

Unfortunately, because she was neither a direct owner of the land, nor a trustee, the Court found that she was not an "owner" under a strict reading of the 2004 Homestead statute. Although she lived on the property, and it was her home, she was, technically, a tenant at will, subject to the trustee giving her a 30-day notice to quit. Ms. Boyle argued that the language of the 2004 law said "by lease or otherwise" and the Court, even stating in a footnote, that the Homestead law should be construed liberally, could not stretch it to include someone who, although she held a beneficial interest in the home, was not under any life estate or lease. Wherefore, she was not protected by the 2004 Homestead law.

On March 16, 2011, a change to the Homestead Act went into effect in which two new classes of people can file for Homestead protection: owners of a life estate and a "holder of a beneficial interest in a trust." Ms. Boyle was clearly in the later class. The Court stated that when the "legal and equitable interests in a trust merge in one person" such as when someone is both trustee and beneficiary, "that person especially may be eligible to file a declaration of homestead" when they live in the home. Unfortunately, Ms. Boyle filed for bankruptcy protection prior to the new Homestead law going into effect and the law did not contain a looking back provision.

It seems that Ms. Boyle was caught in a difficult trap. Could proper bankruptcy planning have prevented this? Perhaps. We don't know the facts without looking at her Massachusetts Bankruptcy Petition and the situation regarding the trust, the trustee and the beneficiaries. There was likely no other way to protect Ms. Boyle back in 2010. This case demonstrates, however, the reason for using an experienced Massachusetts bankruptcy attorney before filing for bankruptcy protection in Massachusetts.

What are dischargeable debts in Massachusetts bankruptcy? In a case recently decided by Federal Bankruptcy Court of Massachusetts, the issue of an attorney's deliberate misrepresentation was considered non-dischargeable. What happened?

In the case entitled In Re: Lambert, Patricia A. (Hoffman, J.) (USBC) (Chapter 7 Case No. 09-45047-MSH; Adversary Proceeding No. 10-04030) (Oct. 27, 2011), a client, Unger, filed suit against his former attorney, Patricia Lambert. The lawsuit was filed in Massachusetts Superior Court by Unger, alleging that his lawyer, Lambert, had induced him into an investment and made false promises, misrepresentations and breached her fiduciary duty to him.

The first step in a Massachusetts legal malpractice case is to determine if there was, indeed, any attorney client relationship. This is crystal clear sometimes. Other times it can be murky. If you make an investment with your attorney, in what capacity was the attorney acting in encouraging or inducing you to make the investment. Unger sought counsel in Lambert after inheriting money and needing investment and legal advice. Unger's Massachusetts legal expert testified that Lambert, as an attorney, "violated her fiduciary obligations" to Unger. Lambert asserted that they were investors, and no attorney client relationship was established. Based on the testimony, the jury determined that there was an attorney client relationship.

The trial took seven days. The jury found that Lambert did misrepresent herself and reached a verdict that said that of the $230,000 that Mr. Unger lent to Attorney Lambert, $55,000 was an investment and the rest was a loan. There was a verdict of $170,488.
Following the jury verdict, the judge held a hearing on Unger's Massachusetts Chapter 93A count and found that the jury verdict of false promises, misrepresentations, and breaching her fiduciary duty constituted "willful and knowing violations of General Laws Chapter 93A." The Court determined that the Unger's attorney fees were $120,000 and doubled that under 93A, added $130,409 in interest, and $25,000 in costs, entering a judgment in the amount of $566, 615. The Massachusetts Appeals Court affirmed the judgment and 93A finding, but changed the way it was calculated.

Wherefore, Lambert filed for bankruptcy protection. In bankruptcy court, creditors, such as Unger, can initiate an "adversary proceeding" seeking a determination that his debt is nondischargable. Federal Bankruptcy Law, Section 523(a)(2)(A) says a debt is not dischargable to the extent obtained by . . . false pretenses, a false representation, or actual fraud" and Section 523(a)(6) says that a debt is not dischargable if obtained by "willful and malicious injury by the debtor to another entity." It was now the Bankruptcy judge's decision to determine if the state court findings fit the federal court description of not dischargable.

The bankruptcy court used a six-prong test to determine if the debt to Unger was non-dischargeable: 1. did the debtor make knowing false representations, or one made in reckless disregard of the truth; 2. Did the debtor intended to deceive the creditor, Unger; 3. Did Lambert intend to induce Unger to rely upon false statements; 4. Did Unger actually rely on the false statements; 5. Lambert's reliance was justifiable; and, 6. Unger's reliance caused financial damage. The bankruptcy judge looked carefully at the lower court findings of intentional misrepresentations and determined that Unger was entitled to a judgment in his favor in the bankruptcy court. Wherefore, Lambert cannot discharge her debt, the state court judgment, and Unger may attempt to collect it notwithstanding the bankruptcy.

No, this blog article is not going to employ any scientific study of how folks end up in Massachusetts bankruptcy , but perhaps this is a somewhat empirical study of what a Massachusetts bankruptcy lawyer sees, after years of filing personal bankruptcy petitions on behalf of clients in Massachusetts. There are no conclusions, only thoughts.

First, let's look at Jerry Maguire, played by Tom Cruise in the movie of that name. The movie, apparently, was loosely based on real world sports agent Leigh Steinberg. After years of alcoholism, Mr. Steinberg has filed for bankruptcy protection in California. Mr. Steinberg bears little resemblance to our Massachusetts bankruptcy clients - he owes $1.4 million in back rent for a Newport Beach office, and $450,000 to a former NFL player. On the other hand, his income is $3,583 per month, or $43,000 per year, he drives a 2001 Ford SUV and he has $50,000 in credit card debt. Many of our clients have some of these characteristics, including an illness that sent them into an economic downward spiral.

While US statistics show that over 40% of bankruptcies are as a result of medical bills, we don't see that in Massachusetts. Indeed, in a 2003 study by UC David professor Ning Zhu showed that personal bankruptcy was directly correlated with oversized mortgages, car loans and credit card balances. On the other hand, illness related, beyond addictions such as alcoholism, clearly results in many folks loosing jobs, or being unable to work and care for family.

The media, and especially some of the vicious politicians and talk show hosts, point to uncontrolled spending. Indeed statistics show that about 15% of bankruptcies are as a result of this. We don't see it that clearly. Very few folks come in needing bankruptcy protection after world wide cruises and gala parties. Sometimes we see folks who have mismanaged their financial affairs: buying a car that required too big of a payment; buying a house that is underwater financially and in need of repair; or, simply letting small credit card bills with high interest get out of control.

Divorce is supposedly the cause for 8% of personal bankruptcies. We see a lot of this. For example, often the parties cant divide the debt because neither one can get new financing on their own; then one spouse remains in the house and defaults, but has no income. Of course the bank comes after the other spouse. It happens with credit cards too. These bankruptcies are sometimes not avoidable, but sometimes, with different advice at the time of the divorce, the may be avoidable.

The biggest cause Massachusetts personal bankruptcy that we see is as a result of job loss. Nationally, the number is 22% of bankruptcies are as a result of job loss. This comes in many forms in Massachusetts. We see the folks who just can't hold on to their homes with unemployment insurance. We see many folks who, following a job loss, go through their entire retirement savings (401ks and IRAs). Other folks borrow from family and friends for a period of time. This often takes a while, and then, when the job search fails to yield any significant result, they come in for a bankruptcy consultation.
Fortunately, Massachusetts bankruptcy gives you a "fresh start." In most instances, if your home is paid up, you can keep it, thanks to the Massachusetts Homestead Law. You can discharge credit card debt, medical debt, personal loans, and even some taxes. Regardless of the cause for our clients' bankruptcy, or for "Jerry Maguire's," the law can give incredible relief. Read our blog http://www.bostonbankruptcylawyerblog.com/ or call us for a free consultation at 617-227-7423.