Boston Bankruptcy Lawyer Blog

When personal bankruptcy attorneys are retained, their responsibility includes informing the client of the law, drafting the Petition and Schedules, filing the documents with the Court, and attending the Creditor's Meeting, or §341 Meeting. In a recent case handed down by the United States Bankruptcy Court, a Boston attorney failed to appear at the Creditor's Meeting for five different clients.

In fact, he sent his legal assistant, who was not an attorney. "The debtors [clients] were right to be indignant," the Court stated. "The 341 Meeting is most often a debtor's first exposure to the public face of the bankruptcy process and to the adversarial forces potentially arrayed against her...[the attorney] abandoned his clients at the moment they needed him most." In addition, this attorney was aiding his assistant in what is called "unauthorized practice of the law" which is against both federal and state rules.

The case, In Re: Otero, Heather M. et al, was decided by Judge Hoffman on June 18, 2010.

The numbers for the first half of the year are in and our Massachusetts personal bankruptcy clients will understand: chapter 7 personal bankruptcies are up 17.6% over that period. Chapter 13 reorganizations are up 62%! While these numbers are grim, the good news is that bankruptcies tend to be a lagging economic indicator; they rise after a great fall in income and following the worst part of recessions.

"A total of 11,847 filers statewide sought protection under Chapter 7, Chapter 13, and Chapter 11 of the U.S. bankruptcy code in the first two quarters, up from 9,461 a year earlier," according to the Warren Group. "The number of filings was also 13.7 percent higher than the previous two quarters, when there were 10,419 filings."

A client called us the other day and reported that now that he was 18 months post bankruptcy, his FICO credit score was 640, he was getting better and better rates on his credit cards, and that he was "overjoyed" at how "easy this was" once he was given the relief that the "fresh start" the law promises. Apparently he has been following the simple rules that improve credit scores.

We have written about this on prior occasions and we are pleased that the information is helping clients. The following is adapted from our website about reestablishing credit after bankruptcy.

1. Live within your means. Your payments on consumer debt should equal no more than 20% of your expendable income after costs for housing and a vehicle. 2. Pay your reaffirmed, pre-bankruptcy debts on time; 35% of your score is based on payment history. 3. Pay your utility bills and rent on time; these folks report to credit agencies. 30% of your score is based on amount and type of outstanding debt. 4. Open a checking or savings account. Lenders may look at this to determine if you can responsibly handle money. Use a debit card and then apply for a credit card from that bank. 15% of your credit score is based on length of credit history. 5. Apply for store and gas credit cards where you would normally pay cash. Use but pay timely. Don't do this too many times as 10% of your credit score is based on the numer of new accounts. 6. Apply for a secured card where you deposit cash and charge against it. Pay advances back over two months so that they will be reflected as positive marks on your credit report. 7. Find a friend or relative to cosign for you on a loan and pay it on time. 8. Look for car dealers and mortgage brokers that attest to be "bankruptcy friendly." 9. Stay away from payday loans that are at high interest rates and are a "bad credit" trap. 10% of your credit score is based on the mix of types of credit. 10. Write a letter to each credit reporting agency explaining any unusual circumstances that lead to you filing.

With the end of the second quarter imminent, Massachusetts consumers continue to file personal bankruptcy at a rate higher than the national average. The rate for this quarter will not be known for a while, but the numbers for the first quarter, 272,048 Chapter Seven filings, and 373,551 total filings. Those numbers indicate that over 72% of the filings are Chapter Seven. In Massachusetts, the percentage is higher: 22,249 total filings with 17,714 Chapter 7 personal bankruptcies: almost 80% Chapter Seven personal bankruptcies.

Nationally, the rate of personal bankruptcies has reached close to 7,000 per day. The federal court statistics analyzed by AACER, noted that the numbers were higher than before the October 2005 bankruptcy law change, and that bankruptcies typically peak between 6 and 18 and months after the bust in an economic cycle.

Our personal bankruptcy clients in Boston seem more confident of their ability to get a "fresh start." However,

In New England the housing construction boom was less extreme than some parts of the country. Further, with a Massachusetts economy more reliant on less cyclical industries, such as education, health care and defense, the optimism levels are even higher.

In a case where the bankruptcy debtor omitted assets and income on her federal bankruptcy petition, the United Bankruptcy Court revoked the discharge. We advise our clients that dishonesty is one of the biggest reasons for failures to secure discharge, problems and additional costs and attorney fees in Chapter 7 personal bankruptcy.

In the case that came down from the Court recently, the debtor significantly misstated the value of her checking account (over $8,000), omitted her monthly alimony ($13,000), gave false testimony about her income, misstated her annual income for 2004 by over $48,000, and misstated her income for a period of 2005 by over $40,000. The Petition, Schedules, and testimony under oath seems fraught with misstatements, misrepresentations and with income grossly undervalued. The Court found that the False Statements were "relating to a material fact."

Continue reading "Massachusetts Personal Bankruptcy Discharge Revoked After Motor Vehicle Homicide " »

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.

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.

Severance pay verses unemployment compensation was the subject of a recent Chapter 7 decision in United Stated Bankruptcy Court by Judge Feeney.

In this case, the Chapter 7 debtor claimed that his weekly severance checks were exempt under the "fresh start" law. The Court considered the "present unemployment in the Commonwealth of Massachusetts" as a significant factor.

In the old days, severance pay was not usually exempt. However, the Court's view of the current unemployment rate played into this decision. There are two different exemptions that the Court considered: the severance pay as an "unemployment benefit" under one potential exemption and the pay as "contract on account of...length of service...for support of the debtor" under another exemption. In this case, the Court decided an evidentiary hearing was necessary to determine if the severance pay is indeed exempt, stating that the issue must be resolved on a "case by case basis."

The Federal Housing Administration announced a new series of steps aimed to assist troubled homeowners. Our bankruptcy clients are likely to ask how qualifying for this program will affect their potential personal bankruptcy cases. The short answer is, for most people, this should not have any adverse impact. This is because the bankruptcy code allows consumers to "exempt" over $9,000 of equity in a home, and the new program deals with homeowners who are underwater in equity; they owe more than the house is valued in today's real estate market. Thus, now may be an excellent time to take advantage of this new federal program, regardless of filing for bankruptcy protection for your other consumer debts.

If you owe more than 115% of the value of your first mortgage, and your current mortgage payment is more than 31% of your family gross income, you may qualify. The program also deals with second mortgages, people who are unemployed and houses with negative equity. There are approximately 7,000,000 households that are behind on their mortgages. There are an additional 11,000,000 households where the mortgage owed is higher than the value of the house. The focus of the program is to help homeowners rewrite their mortgages with their lenders. The program also assists folks who are foreclosed upon to move, providing $3,000 in "relocation assistance."

Continue reading "New Federal Mortgage Relief Program for Massachusetts Consumers: Impacts on Bankruptcy" »

We are seeing more and more personal bankruptcy clients in Boston who have withdrawn monies from their 401k and IRA accounts prematurely and have paid the taxes and penalties. Unfortunately, many have used the monies to pay creditors and they still did not get a fresh start. Either the amount was insufficient or the creditors jacked up the interest rates anyways. They learn too late that the Bankruptcy code protects these retirement accounts. Yes, United States Code, Title 11, Chapter 5, Section 522(d) (10) (E) is a wonderful aid for those filing personal bankruptcy because it allows you to "exempt" all of those hard earned retirement savings.

What Massachusetts consumers also need to know is that even if they have a home they want to protect in bankruptcy, we can still use the Massachusetts bankruptcy exemptions and protect 401(k) and IRA accounts. Yes again, Massachusetts General Laws, Chapter 235, Section 34A and Chapter 246, Section 28 also exempts annuities, pensions and retirement plans.

Continue reading "Protecting 401(k) and IRA Monies from Creditors in Massachusetts " »