Los Angeles Bankruptcy Law Monitor : Los Angeles Bankruptcy Lawyer & Attorney : Christine Wilton Law Firm : Southern California Chapter 13 & Chapter 7 Bankruptcy, Foreclosure

Last year I successfully discharged more than $57,000.00 in student loan debt for my clients through a bankruptcy lawsuit against their student loan lender. Since then, I have spoken with consumers all over the country suffering from student loan debts they cannot afford.  This month, I'll be presenting a seminar on effectively dealing with the Undue Hardship faced by many and why bankruptcy might still be the best option for student loan debtors.

Even the Get Out of Debt Guy supports the notion that bankruptcy may be a better option to the forebearance and deferment programs that may allow you to stop payments temporarily, but likely interest will continue to accrue and make the debt grow.  If there are other consumer debts, like medical bills and credit card debt, then eliminating other debts in bankruptcy can clear the way to free up some money to pay those student loans. 

Many programs available to student loan borrowers with federal student loans require the loans be in good standing, which means payments are current, or in an active forebearance or deferment program. For those that are already in default, a Chapter 13 repayment bankruptcy may be just the way to bring those loans back into good standing. 

There are serious consequences to avoiding repayment of student loan debt.  Also, beware of SCAMS that are popping up in light of the mounting student loan debts that Americans are facing.  Working with a reputable Student Loan Lawyer who understands bankruptcy laws, in most cases, will provide some form of debt relief that will make this enormous debt problem somewhat tolerable.

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This article was written by Jeffrey Jackson, Esq. (Licensed in Indiana) and posted here as a guest blogger post.

This week, the 7th Circuit Court of Appeals in Chicago found that there can be a discharge in a student loan case if the right desultory circumstances present themselves. The ruling in Krieger v. ECMC focuses not on the traditional Brunner three-part test but a seemingly more current-times realization that sometimes the repayment of student loans puts the borrower in a “hopeless” situation.

The debtor, Susan Krieger, was destitute and her right to a discharge in bankruptcy unquestioned. But her largest creditor, Educational Credit Management Corporation (ECMC), asked the bankruptcy court to exempt her student loans from the discharge, relying on 11 U.S.C. §523(a)(8). This subsection excludes educational loans “unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor”. ECMC raised the holding in Brunner, which traditionally has gone to buttress a creditor’s desire to prove that a debtor’s ability to repay a formidable student loan debt “could” always occur at some point in the future.

The bankruptcy trial court found that this standard has been met; Krieger cannot pay the debt now or in the foreseeable future. She was living with her elderly mother in a rural community in downstate Illinois where few jobs are available, and mother and daughter between them made only a few hundred dollars (from governmental programs) every month. To add to the reemployment problems, Kreiger was viewed by the Court as poor to move in search of better employment prospects elsewhere, her 10+ year-old car needed substantial repair and she lacked Internet access, which coupled with the lack of transportation made fruitless a search for work.

Contrary to the findings of the bankruptcy court, a district judge reversed and held that the educational debt cannot be discharged because Krieger showed “commitment’ and good faith in repaying as much as she could during the 11 years since she received the student loans. In essence, the decision meant no student loan could ever be discharged because somehow, someday, money may appear on the Debtor’s doorstep and the student loan may be repaid (hence the reliance in the title on the generic lottery to bail out the Debtor).

The 7th Circuit, in a decision by Chief Judge Easterbrook, found that Krieger’s situation was hopeless. The court noted “that may be unduly pessimistic, but a judge asked to apply a multi-factor standard interpreting an open-ended statute necessarily has latitude; the more vague the standard, the harder it is to find error in its application.” Krieger’s student loan debt was necessarily discharged.  What became more interesting is the concurring opinion by Judge Manion, which served almost as an advertisement for the federal government’s Ford program. As noted:

While college tuition continues to rise, job opportunities appear to be contracting. Hope remains that an eventually improving economy will generate more job opportunities. But for those who perceive that their employment-seeking efforts are at a dead end, bankruptcy should not be the answer. Rather than challenging the (non-dischargeability) barrier in bankruptcy, those who have concluded that there is no way they can pay off the debt should be required to enroll in the William D. Ford Income-Based Repayment Plan. Under that plan, a borrower's monthly payment is limited to 15% of discretionary income (defined as any income above 150% of the poverty line). In Ms. Krieger's case, she would have owed zero dollars unless she received an annual income of something approaching $17,000. And after twenty-five years under the IBR program, any remaining debt is forgiven.

Krieger v. ECMC, No. 12-3592 (7th Cir. decided April 10, 2013).

While the Ford program is a solid alternative for those whose job prospects simply have dried up or are lagging their education, it is not a panacea; it only applies to federally-subsidized loans (for example, all Sallie Mae loans are private loans and exempt from the program’s reach). Therefore it is more than necessary that the Courts see the likely hopelessness of a debtor’s condition and future possibilities of continued unemployment as benchmarks on which to base the decision on whether to permit a student loan to be dischargeable and not rely blindly on Brunner and its progeny.

What does this mean for Californians facing the same types of student loan choices with regard to bankruptcy? As precedent, it chips away at the often iron-clad reasoning courts use to make student loans as hard to discharge as possible, concurrent with the language of 11 USC 523 (a)(8). Nevertheless, Brunner is still the standard in the 9th Circuit, upheld by In re Pena with its three-part test which Courts have so often used to deny student loan discharges to those who truly could use the “fresh start” which the Bankruptcy Code is designed to provide. Let’s hope that the 9th pays some attention to their colleagues in the conservative Midwest to soften the blow for debtors whose situations are truly “hopeless."

 About Jeffrey B. Jackson, Esq. of JBJ CONSULTING, located at 393 Sunrise Circle, Costa Mesa, CA 92627; Tel. (949) 466-1580, fax (949) 309-2525 is available to Consumer Bankruptcy Attorneys nationwide and here in the Central District of California to provide casework and litigation support, research and document preparation services.  Mr. Jackson is Admitted in Indiana, Northern District of Indiana, Southern District of Indiana,the United States Court of Appeals for the Seventh Circuit, the United States Court of Appeals for the Ninth Circuit and the Ninth Circuit Bankruptcy Appellate Panel only.

Photo Credit:  Waad Alsulaim

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Consolidate your debts into one easy payment and pay ZERO interest (to unsecured creditors) for 5 years.  100% repayment of all your debts without paying interest sounds too good to be true?  It is true.  However, there is a catch. You can accomplish this through a Chapter 13 bankruptcy repayment plan.

If you're struggling to keep up with credit card debt payments and the interest grows faster than the weeds in your garden, it's time to consider how much you can save in money, stress and time by calling a reputable bankruptcy attorney in your area. 

Here's an actual case scenario:  Potential client has been paying $1,200.00 a month toward credit card debt and has a current balance due on all unsecured debt of $41,000.00.  The interest on the credit card debt ranges from 0% to 26% on the higher balances.  Over 5 years, she will have paid $72,000.00 and will pay off her debt.

In a Chapter 13 repayment bankruptcy plan we take the total amount she currently owes, $41,000.00 and divide it over 60 monthly payments (a 5 year plan) and her payment becomes $683.33 per month! She repays her debt obligations in full without any additional interest. *Trustee fee and attorney fees not included.

TOTAL SAVINGS OF APPROXIMATELY $31,000.00

Many consumers in a Chapter 13 repayment plan begin to see their credit improve after their first year of payments, according to Manny Moumdjian of EZ Choice Financial.  Since you're repaying all or part of your debts, a Chapter 13 bankruptcy case has a lower impact on your overall credit score than a liquidation Chapter 7 bankruptcy case does. It's time for some 'Plastic Surgery!"

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In case you didn't already know this, there is no magic eraser that wipes out all your debt from your credit report after bankruptcy. In fact, more often than not, the credit bureaus get it WRONG!  I know you're not shocked by this, but wondering how to fix it.  Bankruptcy alone does not fix your credit.  There is actually more work to do.

Putting the pieces together after bankruptcy does not have to be difficult.  You can get credit after bankruptcy and you can improve your credit score by properly updating your credit reports.  keeping an eye on your credit by pulling your own credit report every year is another important step in rebuilding your credit. Recently, 60 Minutes Overtime showed us what's it like to try to fix errors in credit reports. So how do you properly update your credit report after bankruptcy?

It begins by working with a lawyer that provides this service.  Be sure to ask your lawyer if they will provide you with credit report update letters after you receive your discharge.  If they do not, you may have to call several attorneys until your find one that will.  It's that simple.

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Life happens during every Chapter 13 Bankruptcy case. These cases remain open for three to five years requiring that counsel to perform ongoing work in their cases. There are so many financial landmines that Consumer must navigate and their counsel must continue to advocate on their client’s behalf during their bankruptcy case.  One powerful tool available to your attorney is the ability to Modify or Suspend your plan Payments.

If you fall behind on your trustee payments, eventually the trustee will file a motion with the court to dismiss your case.  However, your attorney can ask the court to modify your Plan by suspending the payments that were missed.  However, remember that the Motion to Modify or Suspend Plan payments must be brought in Good Faith, which means you may have to give a little to get a little.  So, you may have to extend the payments terms; i.e., you’re in a 36 month plan, miss a couple payments, then when you motion to modify, you may be able to suspend for the missing payments, but might have to extend the repayment period out to 60 months.  Evidence in support of a motion to modify a plan must include Declarations of Debtor, which must be credible and your expenses reasonable.

Here is the distinction between a good lawyer and a great lawyer in bankruptcy; creative Solutions! There are many different ways Chapter 13 Bankruptcy attorneys can help clients complete their cases and hiring the right lawyer can make all the difference in your case.  Looking for an attorney?  A great resource in our district is the Central District Consumer Bankruptcy Attorneys Association.

11 U.S.C. Section 1329(a) - provides 4 reasons to bring "Motion to Modify a Plan; Section 1329(b) incorporates other provisions, but not the applicable commitment period, which means you can reduce a plan to 36 months!  In re Mattson Case provides factors to look for in modifying plans:
i.e., a change in circumstances do not have to be substantial, but requires Good Faith, totality of circumstances, and cannot modify “willy nilly.”

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Here is a great article from the California Lawyer entitled, "In MERS We Trust."  Christopher Peterson, University of Utah College of Law is quoted as saying,

"For the first time in the nation's history there is no authoritative, public record of who owns land in each county." 

A history of our land transactions is steeped in history from the passing of the dirt clod to present day land recording statutes of each state.  Mortgage Electronic Registration Systems, Inc., aka MERS has essentially stripped us all of protection against competing interests in our real property.

Much litigation has ensued nationwide over this company's actions and lack of transparency. MERS's officers have been deposed. Hultman's deposition can be found here. MERS's CEO R. K. Arnold deposition can be found here.  Unfortunately, here in California, we can foresee forever on a clear day and allow MERS to foreclose on our properties because they are named as both nominee and beneficiary in our deeds of trust, aka the mortgage.

Worse yet is what is happening on our bankruptcy courts.  Judges are insisting that the debtors owe someone because they took out a loan.  Even though the loan was transferred more times that a street show artist moves the ball in a shell game, judges argue that whomever happens to show up in court to defend the debt is the real party whether they have sufficient proof or not. This is creating an entirely new future for property ownership.  Are we ready to buy property with title problems? Did I mention that MERS was created by Fannie Mae and Freddi Mac?  How did we not see this coming?  Anyone?

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Something interesting is happening in my office as of late.  I am beginning to see clients that want to repay their debts and actually have the means to do so.  This means they earn a good living and have money to pay their bills.

What's happening is that they have missed a payment or two on their credit cards and when that happens, the credit card companies hike up their interest rate to nearly 30%!  When the interest rate goes up, so does the minimum payment amount.  Compound that with several credit cards and it's a disaster waiting to happen.  When this becomes unbearable, many seek the protection of the bankruptcy court under Chapter 13 of the Bankruptcy Code.

In Chapter 13, clients propose a repayment plan that can pay up to 100% of their debts, depending upon how much money they have left over each month.  The reason to consider bankruptcy as a means to control the repayment of debts over time is that it stops the interest from accruing and sets a flat amount to be repaid for five years. 

Consumers have a lot of control over their case in Chapter 13, which includes forcing a repayment plan on their creditors that they can afford.  Don't let creditors tell you what to do.  Consider a repayment plan through Bankruptcy and still get out of debt in five years.  Take control.

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Bankruptcy law is federal law and thus, the Federal Rules of Evidence apply in bankruptcy proceedings. When parties want evidence to be admitted in a bankruptcy case the court requires it to be relevant and authenticated.  However, most practitioners may not have paid much attention in evidence class to effectively lay a proper foundation for admitting their evidence.

I recommend, Evidentiary Foundations by Edward J. Imwinkleried as a valuable tool for every bankruptcy attorney. Before evidence will be admitted in a matter before a federal court, a proper foundation must be laid.  This means that the evidence must be authenticated and shown to be the 'real deal.' Authentication is governed primarily by Fed. R. Evid. 901 and 902.  When a proper foundation for an exhibit has been laid, the party has essentially established that piece of evidence is both relevant to the proceeding before the court and is reliable.

So, the next time you're looking to determine whether or not a creditor has filed a proper claim, look to the rules of evidence to determine whether their claim is the real deal.

Photo Credit  Daemonsquire

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There's been such a heated debate about mortgage litigation and the UCC that I thought I would weigh in with my opinion and some insights. The Uniform Commercial Code ("UCC") are rules designed to govern commercial contracts and land sale agreements such as an individual's primary residence.  There are two main articles under the UCC that governs those loan documents we all sign when we buy a home, article 3 and article 9.  Unfortunately, much of the case law we have here in California argues that article 3, which discusses negotiable instruments, controls when it may not be legally correct.  Of course the lenders would prefer to simplify the transfer of your mortgage Note and Deed of Trust so they can claim to be a creditor and receive payment from you.

ARTICLE 3 PROVIDES:

§3-104 Negotiable Instrument
(a)    Except as provided in subsections (c) and (d), “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:
(1)    is payable to bearer or to order at the time it is issued or first comes into possession of a holder;
(2)    is payable on demand or at a definite time; and
(3)    does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.
(b)    “Instrument” means a negotiable instrument.
(c)    An order that meets all of the requirements of subsection (a), except paragraph (1), and otherwise falls within the definition of “check” in subsection (f) is a negotiable instrument and a check.
(d)    A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this Article.
(e)    An instrument is a “note” if it is a promise and is a “draft” if it is an order. If an instrument falls within the definition of both “note” and “draft,” a person entitled to enforce the instrument may treat it as either.
(f)    “Check” means (i) a draft, other than a documentary draft, payable on demand and drawn on a bank or (ii) a cashier's check or teller's check. An instrument may be a check even though it is described on its face by another term, such as “money order.”
(g)    “Cashier's check” means a draft with respect to which the drawer and drawee are the same bank or branches of the same bank.
(h)    “Teller's check” means a draft drawn by a bank (i) on another bank, or (ii) payable at or through a bank.
(i)    “Traveler's check” means an instrument that (i) is payable on demand, (ii) is drawn on or payable at or through a bank, (iii) is designated by the term “traveler's check” or by a substantially similar term, and (iv) requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument.
(j)    “Certificate of deposit” means an instrument containing an acknowledgment by a bank that a sum of money has been received by the bank and a promise by the bank to repay the sum of money. A certificate of deposit is a note of the bank.

§3-203 Transfer of Instrument; Rights Acquired by Transfer
(a)    An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.
(b)    Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course, but the transferee cannot acquire rights of a holder in due course by a transfer, directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument.
(c)    Unless otherwise agreed, if an instrument is transferred for value and the transferee does not become a holder because of lack of indorsement by the transferor, the transferee has a specifically enforceable right to the unqualified indorsement of the transferor, but negotiation of the instrument does not occur until the indorsement is made.
(d)    If a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur. The transferee obtains no rights under this Article and has only the rights of a partial assignee.

§3-205 Special Indorsement; Blank Indorsement; Anomalous Indorsement
(a)    If an indorsement is made by the holder of an instrument, whether payable to an identified person or payable to bearer, and the indorsement identifies a person to whom it makes the instrument payable, it is a “special indorsement.” When specially indorsed, an instrument becomes payable to the identified person and may be negotiated only by the indorsement of that person. The principles stated in Section 3-110 apply to special indorsements.
(b)    If an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a “blank indorsement.” When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed.
(c)    The holder may convert a blank indorsement that consists only of a signature into a special indorsement by writing, above the signature of the indorser, words identifying the person to whom the instrument is made payable.
(d)    “Anomalous indorsement” means an indorsement made by a person who is not the holder of the instrument. An anomalous indorsement does not affect the manner in which the instrument may be negotiated.

§3-301 Person Entitled to Enforce Instrument
“Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

§3-302 Holder in Due Course
(a)    Subject to subsection (c) and Section 3-106(d), “holder in due course” means the holder of an instrument if:
(1)    the instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and
(2)    the holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in Section 3-306, and (vi) without notice that any party has a defense or claim in recoupment described in Section 3-305(a).
(b)    Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under subsection (a), but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of a document does not of itself constitute notice of a defense, claim in recoupment, or claim to the instrument.
(c)    Except to the extent a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a holder in due course of an instrument taken (i) by legal process or by purchase in an execution, bankruptcy, or creditor's sale or similar proceeding, (ii) by purchase as part of a bulk transaction not in ordinary course of business of the transferor, or (iii) as the successor in interest to an estate or other organization.
(d)    If, under Section 3-303(a)(1), the promise of performance that is the consideration for an instrument has been partially performed, the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance.
(e)    If (i) the person entitled to enforce an instrument has only a security interest in the instrument and (ii) the person obliged to pay the instrument has a defense, claim in recoupment, or claim to the instrument that may be asserted against the person who granted the security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.
(f)    To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.
(g)    This section is subject to any law limiting status as a holder in due course in particular classes of transactions.

ON THE OTHER HAND, ARTICLE 9 PROVIDES:

§ 9-102. Definitions and Index of Definitions.

9-102(a)(12)
“Collateral” means the property subject to a security interest or agricultural lien. The term includes:
(A)    proceeds to which a security interest attaches;
(B)    accounts, chattel paper, payment intangibles, and promissory notes that have been sold; and
(C)    goods that are the subject of a consignment.

9-102(28)
“Debtor” means:
(A)    a person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor;
(B)    a seller of accounts, chattel paper, payment intangibles, or promissory notes; or
(C)    a consignee.

9-102(47)
“Instrument” means a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary indorsement or assignment. The term does not include (i) investment property, (ii) letters of credit, or (iii) writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card.

9-102(55)
“Mortgage” means a consensual interest in real property, including fixtures, which secures payment or performance of an obligation.

9-102(65)
“Promissory note” means an instrument that evidences a promise to pay a monetary obligation, does not evidence an order to pay, and does not contain an acknowledgment by a bank that the bank has received for deposit a sum of money or funds.

9-102(72)
“Secured party” means:
(A)    a person in whose favor a security interest is created or provided for under a security agreement, whether or not any obligation to be secured is outstanding;
(B)    a person that holds an agricultural lien;
(C)    a consignor;
(D)    a person to which accounts, chattel paper, payment intangibles, or promissory notes have been sold;
(E)    a trustee, indenture trustee, agent, collateral agent, or other representative in whose favor a security interest or agricultural lien is created or provided for; or
(F)    a person that holds a security interest arising under Section 2-401, 2-505, 2-711(3), 2A-508(5), 4-210, or 5-118.

9-102(73)
“Security agreement” means an agreement that creates or provides for a security interest.

§ 9-203 Attachment and Enforceability of Security Interest; Proceeds; Supporting Obligations; Formal Requisites.

9-203(a)
[Attachment.] A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.

9-203(b)
[Enforceability.] Except as otherwise provided in subsections (c) through (i), a security interest is enforceable against the debtor and third parties with respect to the collateral only if :
(1)    value has been given;
(2)    the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and
(3)    one of the following conditions is met:
(A)    the debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned;
(B)    the collateral is not a certificated security and is in the possession of the secured party under Section 9-313 pursuant to the debtor's security agreement;
(C)    the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under Section 8-301 pursuant to the debtor's security agreement; or
(D)    the collateral is deposit accounts, electronic chattel paper, investment property, or letter-of-credit rights, and the secured party has control under Section 9-104, 9-105, 9-106, or 9-107 pursuant to the debtor's security agreement.

9-203(g)
[Lien securing right to payment.] The attachment of a security interest in a right to payment or performance secured by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage, or other lien.

Official Comment
1. Source. Former sections 9-115(2), (6) and 9-203.
2. Creation, Attachment, and Enforceability. Subsection (a) states the general rule that a security interest attaches to collateral only when it becomes enforceable against the debtor. Subsection (b) specifies the circumstances under which a security interest becomes enforceable. Subsection (b) states three basic prerequisites to the existence of a security interest: Value (paragraph (1)), rights or power to transfer rights in collateral (paragraph (2)), and agreement plus satisfaction of an evidentiary requirement (paragraph (3)). When all of these elements exist, a security interest becomes enforceable between the parties and attaches under subsection (a). Subsection (c) identifies certain exceptions to the general rule of subsection (b).
3. Security Agreement; Authentication. Under subsection (b)(3), enforceability requires the debtor's security agreement and compliance with an evidentiary requirement in the nature of a statute of frauds. Paragraph (3)(A) represents the most basic of the evidentiary alternatives, under which the debtor must authenticate a security agreement that provides a description of the collateral. Under section 9-102, a "security agreement" is "an agreement that creates or provides for a security interest." Neither that definition nor the requirement of paragraph (3)(A) rejects the deeply rooted doctrine that a bill of sale, although absolute in form, may be shown in fact to have been given as security. Under this article, as under prior law, a debtor may show by parol evidence that a transfer purporting to be absolute was in fact for security. Similarly, a self-styled "lease" may serve as a security agreement if the agreement creates a security interest. See section 1-201(37) (distinguishing security interest from lease).
4. Possession, Delivery, or Control Pursuant to Security Agreement. The other alternatives in subsection (b)(3) dispense with the requirement of an authenticated security agreement and provide alternative evidentiary tests. Under paragraph (3)(B), the secured party's possession substitutes for the debtor's authentication under paragraph (3)(A) if the secured party's possession is "pursuant to the debtor's security agreement." That phrase refers to the debtor's agreement to the secured party's possession for the purpose of creating a security interest. The phrase should not be confused with the phrase "debtor has authenticated a security agreement," used in paragraph (3)(A), which contemplates the debtor's authentication of a record. In the unlikely event that possession is obtained without the debtor's agreement, possession would not suffice as a substitute for an authenticated security agreement. However, once the security interest has become enforceable and has attached, it is not impaired by the fact that the secured party's possession is maintained without the agreement of a subsequent debtor (e.g., a transferee). Possession as contemplated by section 9-313 is possession for purposes of subsection (b)(3)(B), even though it may not constitute possession "pursuant to the debtor's agreement" and consequently might not serve as a substitute for an authenticated security agreement under subsection (b)(3)(A). Subsection (b)(3)(C) provides that delivery of a certificated security to the secured party under section 8-301 pursuant to the debtor's security agreement is sufficient as a substitute for an authenticated security agreement. Similarly, under subsection (b)(3)(D), control of investment property, a deposit account, electronic chattel paper, or a letter-of-credit right satisfies the evidentiary test if control is pursuant to the debtor's security agreement.
5. Collateral Covered by Other Statute or Treaty. One evidentiary purpose of the formal requisites stated in subsection (b) is to minimize the possibility of future disputes as to the terms of a security agreement (e.g., as to the property that stands as collateral for the obligation secured). One should distinguish the evidentiary functions of the formal requisites of attachment and enforceability (such as the requirement that a security agreement contain a description of the collateral) from the more limited goals of "notice filing" for financing statements under part 5, explained in section 9-502, comment 2. When perfection is achieved by compliance with the requirements of a statute or treaty described in section 9-311(a), such as a federal recording act or a certificate-of-title statute, the manner of describing the collateral in a registry imposed by the statute or treaty may or may not be adequate for purposes of this section and section 9-108. However, the description contained in the security agreement, not the description in a public registry or on a certificate of title, controls for purposes of this section.
6. Debtor's Rights; Debtor's Power to Transfer Rights. Subsection (b)(2) conditions attachment on the debtor's having "rights in the collateral or the power to transfer rights in the collateral to a secured party." A debtor's limited rights in collateral, short of full ownership, are sufficient for a security interest to attach. However, in accordance with basic personal property conveyancing principles, the baseline rule is that a security interest attaches only to whatever rights a debtor may have, broad or limited as those rights may be.
Certain exceptions to the baseline rule enable a debtor to transfer, and a security interest to attach to, greater rights than the debtor has. See part 3, subpart 3 (priority rules). The phrase, "or the power to transfer rights in the collateral to a secured party," accommodates those exceptions. In some cases, a debtor may have power to transfer another person's rights only to a class of transferees that excludes secured parties. See, e.g., section 2-403(2) (giving certain merchants power to transfer an entruster's rights to a buyer in ordinary course of business). Under those circumstances, the debtor would not have the power to create a security interest in the other person's rights, and the condition in subsection (b)(2) would not be satisfied.
7. New Debtors. Subsection (e) makes clear that the enforceability requirements of subsection (b)(3) are met when a new debtor becomes bound under an original debtor's security agreement. If a new debtor becomes bound as debtor by a security agreement entered into by another person, the security agreement satisfies the requirement of subsection (b)(3) as to the existing and after-acquired property of the new debtor to the extent the property is described in the agreement.
Subsection (d) explains when a new debtor becomes bound. Persons who become bound under paragraph (2) are limited to those who both become primarily liable for the original debtor's obligations and succeed to (or acquire) its assets. Thus, the paragraph excludes sureties and other secondary obligors as well as persons who become obligated through veil piercing and other nonsuccessorship doctrines. In many cases, paragraph (2) will exclude successors to the assets and liabilities of a division of a debtor. See also section 9-508, comment 3.
8. Supporting Obligations. Under subsection (f), a security interest in a "supporting obligation" (defined in section 9-102) automatically follows from a security interest in the underlying, supported collateral. This result was implicit under former article 9. Implicit in subsection (f) is the principle that the secured party's interest in a supporting obligation extends to the supporting obligation only to the extent that it supports the collateral in which the secured party has a security interest. Complex issues may arise, however, if a supporting obligation supports many separate obligations of a particular account debtor and if the supported obligations are separately assigned as security to several secured parties. The problems may be exacerbated if a supporting obligation is limited to an aggregate amount that is less than the aggregate amount of the obligations it supports. This article does not contain provisions dealing with competing claims to a limited supporting obligation. As under former article 9, the law of suretyship and the agreements of the parties will control.
9. Collateral Follows Right to Payment or Performance. Subsection (g) codifies the common law rule that a transfer of an obligation secured by a security interest or other lien on personal or real property also transfers the security interest or lien. See Restatement (3d), Property (Mortgages) section 5.4(a) (1997). See also section 9-308(e) (analogous rule for perfection).
10. Investment Property. Subsections (h) and (i) make clear that attachment of a security interest in a securities account or commodity account is also attachment in security entitlements or commodity contracts carried in the accounts.

§9-312(a) and (b)
(a) Perfection by filing permitted. A security interest in chattel paper, negotiable documents, instruments, or investment property may be perfected by filing.

(b) Control  or  possession of certain collateral. Except as otherwise
  provided in Section 9--315(c) and (d) for proceeds:
         (1) a security interest in a deposit  account  may  be  perfected
             only by control under Section 9-314;
         (2) and  except  as  otherwise  provided  in Section 9-308(d), a
             security  interest  in  a  letter-of-credit  right   may   be
             perfected only by control under Section 9-314; and
         (3) a  security  interest  in  money may be perfected only by the
             secured party's taking possession under Section 9-313.

§ 9-313. When Possession by or Delivery to Secured Party Perfects Security Interest Without Filing.

9-313(a)
[Perfection by possession or delivery.] Except as otherwise provided in subsection (b), a secured party may perfect a security interest in negotiable documents, goods, instruments, money, or tangible chattel paper by taking possession of the collateral. A secured party may perfect a security interest in certificated securities by taking delivery of the certificated securities under Section 8-301.

9-313(h)
[Secured party's delivery to person other than debtor.] A secured party having possession of collateral does not relinquish possession by delivering the collateral to a person other than the debtor or a lessee of the collateral from the debtor in the ordinary course of the debtor's business if the person was instructed before the delivery or is instructed contemporaneously with the delivery:
(1) to hold possession of the collateral for the secured party's benefit; or
(2) to redeliver the collateral to the secured party.

§ 9-318(a)
[Seller retains no interest.] A debtor that has sold an account, chattel paper, payment intangible, or promissory note does not retain a legal or equitable interest in the collateral sold.

§ 9-331. Priority of Rights of Purchasers of Instruments, Documents, and Securities Under Other Articles; Priority of Interests in Financial Assets and Security Entitlements Under Article 8.

9-331(a)
[Rights under Articles 3, 7, and 8 not limited.] This article does not limit the rights of a holder in due course of a negotiable instrument, a holder to which a negotiable document of title has been duly negotiated, or a protected purchaser of a security. These holders or purchasers take priority over an earlier security interest, even if perfected, to the extent provided in Articles 3, 7, and 8.

9-331(c)
[Filing not notice.] Filing under this article does not constitute notice of a claim or defense to the holders, or purchasers, or persons described in subsections (a) and (b).

§ 9-322. Priorities Among Conflicting Security Interests in and Agricultural Liens on Same Collateral.

9-322(a)
[General priority rules.] Except as otherwise provided in this section, priority among conflicting security interests and agricultural liens in the same collateral is determined according to the following rules:
(1)    Conflicting perfected security interests and agricultural liens rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest or agricultural lien is first perfected, if there is no period thereafter when there is neither filing nor perfection.
(2)    A perfected security interest or agricultural lien has priority over a conflicting unperfected security interest or agricultural lien.
(3)    The first security interest or agricultural lien to attach or become effective has priority if conflicting security interests and agricultural liens are unperfected.

9-322(c)
[Special priority rules: proceeds and supporting obligations.] Except as otherwise provided in subsection (f), a security interest in collateral which qualifies for priority over a conflicting security interest under Section 9-327, 9-328, 9-329, 9-330, or 9-331 also has priority over a conflicting security interest in:
(1)    any supporting obligation for the collateral; and
(2)    proceeds of the collateral if:
(A)    the security interest in proceeds is perfected;
(B)    the proceeds are cash proceeds or of the same type as the collateral; and
(C)    in the case of proceeds that are proceeds of proceeds, all intervening proceeds are cash proceeds, proceeds of the same type as the collateral, or an account relating to the collateral.
9-322(d)
[First-to-file priority rule for certain collateral.] Subject to subsection (e) and except as otherwise provided in subsection (f), if a security interest in chattel paper, deposit accounts, negotiable documents, instruments, investment property, or letter-of-credit rights is perfected by a method other than filing, conflicting perfected security interests in proceeds of the collateral rank according to priority in time of filing.

§ 9-330(d)
[Instrument purchaser's priority.] Except as otherwise provided in Section 9-331(a), a purchaser of an instrument has priority over a security interest in the instrument perfected by a method other than possession if the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party.

§ 9-338(2)
If a security interest or agricultural lien is perfected by a filed financing statement providing information described in Section 9-516(b)(5) which is incorrect at the time the financing statement is filed:
(2) a purchaser, other than a secured party, of the collateral takes free of the security interest or agricultural lien to the extent that, in reasonable reliance upon the incorrect information, the purchaser gives value and, in the case of chattel paper, documents, goods, instruments, or a security certificate, receives delivery of the collateral.

§ 9-604
(a)    [Enforcement: personal and real property.] If a security agreement covers both personal and real property, a secured party may proceed:
(1)    under this part as to the personal property without prejudicing any rights with respect to the real property; or
(2)    as to both the personal property and the real property in accordance with the rights with respect to the real property, in which case the other provisions of this part do not apply.
(b)    [Enforcement: fixtures.] Subject to subsection (c), if a security agreement covers goods that are or become fixtures, a secured party may proceed:
(1)    under this part; or
(2)    in accordance with the rights with respect to real property, in which case the other provisions of this part do not apply.
(c)    [Removal of fixtures.] Subject to the other provisions of this part, if a secured party holding a security interest in fixtures has priority over all owners and encumbrancers of the real property, the secured party, after default, may remove the collateral from the real property.
(d)    [Injury caused by removal.] A secured party that removes collateral shall promptly reimburse any encumbrancer or owner of the real property, other than the debtor, for the cost of repair of any physical injury caused by the removal. The secured party need not reimburse the encumbrancer or owner for any diminution in value of the real property caused by the absence of the goods removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate assurance for the performance of the obligation to reimburse.

§ 9-607
(a)    [Collection and enforcement generally.] If so agreed, and in any event after default, a secured party:
(1)    may notify an account debtor or other person obligated on collateral to make payment or otherwise render performance to or for the benefit of the secured party;
(2)    may take any proceeds to which the secured party is entitled under Section 9-315;
(3)    may enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the debtor with respect to the obligation of the account debtor or other person obligated on collateral to make payment or otherwise render performance to the debtor, and with respect to any property that secures the obligations of the account debtor or other person obligated on the collateral;
(4)    if it holds a security interest in a deposit account perfected by control under Section 9-104(a)(1), may apply the balance of the deposit account to the obligation secured by the deposit account; and
(5)    if it holds a security interest in a deposit account perfected by control under Section 9-104(a)(2) or (3), may instruct the bank to pay the balance of the deposit account to or for the benefit of the secured party.
(b)    [Nonjudicial enforcement of mortgage.] If necessary to enable a secured party to exercise under subsection (a)(3) the right of a debtor to enforce a mortgage nonjudicially, the secured party may record in the office in which a record of the mortgage is recorded:
(1)    a copy of the security agreement that creates or provides for a security interest in the obligation secured by the mortgage; and
(2)    the secured party's sworn affidavit in recordable form stating that:
(A)    a default has occurred; and
(B)    the secured party is entitled to enforce the mortgage nonjudicially.
(c)    [Commercially reasonable collection and enforcement.] A secured party shall proceed in a commercially reasonable manner if the secured party:
(1)    undertakes to collect from or enforce an obligation of an account debtor or other person obligated on collateral; and
(2)    is entitled to charge back uncollected collateral or otherwise to full or limited recourse against the debtor or a secondary obligor.
(d)    [Expenses of collection and enforcement.] A secured party may deduct from the collections made pursuant to subsection (c) reasonable expenses of collection and enforcement, including reasonable attorney's fees and legal expenses incurred by the secured party.
(e)    [Duties to secured party not affected.] This section does not determine whether an account debtor, bank, or other person obligated on collateral owes a duty to a secured party.

Article 9 of the UCC provides requirements to enforce "secured" transactions, which includes real property.  Thus, article 9 should control transfers of real property. Our real property laws are steeped in tradition in our legal system. The mortgage crisis and mortgage securitization problems created by greedy creditors wanting to bypass legal formalities to save a buck pose significant problems for consumer protection attorneys litigating these very complex issues.  However, we continue to make waves in our courts by proving up the lack of evidence these supposed lenders think they have to prove their point.  Hang on to your hats as we continue to unravel these issues before our courts.

Photo Credit:  Leo Reynolds

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It's the Season for Love and every year I endeavor to write about Love and Money.  Both seem to make me smile. Remember that white paper I wrote a couple years ago, Money is a Matter of the Heart.  Since then, that concept has taken hold of me and I'm working it into a book.  I've been busy reading about the psychology of money and why people tend to either make money or lose money and it all comes back to emotions.

Love and Appreciation are what we all need and crave. We need other people in our lives to witness our journey, support our triumphs and sit with us when we need to lick our wounds and love us for richer or for poorer. Isn’t that the stuff marriage vows are made of? Maybe I’m on to something here with the statistics that 50% of all marriages end in divorce and the biggest reason is MONEY. It all comes down to love.

Let’s focus on that powerful emotion; Love. I’m not talking the marriage kind or the kind that comes from another person all together. I want to laser my focus on Self Love. The value you give to your Self is reflected in how you manage your finances. Your financial decision making ability is directly proportionate to your Self Worth. Notice I’m using money terms like value and worth here. We use these same terms when talking about money and people.

I know that when my head and my heart are aligned, I have peace of mind. I know that my financial decisions are going to be emotionally empowering to me and sound. I care for myself as if I am handling someone's money other than my own and that person is VERY important. If you would handle another's money differently than you handle your own, then you’re off track and may need to focus on building your Self Worth.

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Back in 2011 I wrote, Steps To Home Ownership After Bankruptcy.  This question continues to grab the attention of the media and just yesterday, I read this article, which supports my assertions that you can buy a home within two (2) years after your bankruptcy discharge.  My mortgage brokers over at CLS Financial advise the same is true.

I think this article supports the American Dream of home ownership and provides hope to those who might otherwise become discouraged because of foreclosure, bankruptcy or a short sale.  All is not lost in this current economy.  In fact, much of my advice to my clients is that we're still in a down economic cycle until at least 2016.  This means that if you let your current underwater home go to short sale, foreclosure, or even surrender it in bankruptcy, then you still have at least three more years to prepare financially to buy a home again before the market turns around and values move to a climbing track.

There are distinctions to be made between Chapter 7 and Chapter 13 bankruptcies in terms of credit worthiness and market timing.  What I suggest is that you consult with a reputable mortgage broker in your area and stay in touch with them so that you're prepared to buy again when you have a down payment and can qualify.  Now is a good time to buy for those that have previously obtained a bankruptcy discharge back on 2010 and housing prices are still low.  The only problem now is that it's hard to find a house due to inventory limitations.

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When something has an emotional toll, it means that it has a negative emotional effect.  Just last week I read this Article that discussed "surviving" bankruptcy's emotional toll.  This is a great article that seeks to shift perceptions about bankruptcy that are generally false. I agree that by the time many of my clients seek my advice, they've already been struggling for too long trying to handle their finances on their own and are emotionally fatigued bordering a sense of hopelessness. However, I believe that, and many of my clients report, the bankruptcy process lightens their burdens and brings hope where hopelessness had taken up residency.

Each step my clients take toward their goal of financial freedom helps lift their hearts.  There are several reasons why this happens.  First, I immediately stop the harassing phone calls. Once my client advises the creditor they have retained an attorney, that creditor MUST stop calling them.  This takes an enormous amount of pressure off my clients and provides them the breathing room they need to gather the important papers so that I can prepare their bankruptcy papers.  Second, almost every client feels a sense of relief immediately after their 341(a) hearing, called the Meeting of Creditors.  This hearing is their final obligation besides their Debtor Education Course.  Oh, and I send every client through Dave Ramsey's Debtor Education Course where he plants the seeds of hope for them to thrive again.

Surviving the emotional toll of bankruptcy requires a compassionate lawyer and great clients.  They take responsibility for their part; they understand there are other factors in play with the economy and set their sights in living within their current means with financial goals for the future.  I help them understand they're not alone and this is not all their fault.  I show them the way through the bankruptcy process and provide money saving tools they can take with them long after my services are complete.

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When it comes to bankruptcy, the rules are found in the Bankruptcy Code.  The moment a debtor becomes bankruptcy by filing their case, an impartial person must be appointed by the court to represent the collective interests of creditors and to control and administer the bankruptcy estate. That person is called a TRUSTEE. Thus, in my bankruptcy alphabet, T is for Trustee.

The duties of a trustee in a Chapter 7 bankruptcy case are set forth in 11 U.S.C. §704. Every person that files bankruptcy under Chapter 7 will meet their assigned trustee.  Their principle function is to liquidate and distribute the estate; otherwise known as "take your stuff; turn it into cash; and distribute the money to your creditors." If there are no assets to take, the trustee still has other work to perform.

Generally, before your §341(a) Meeting of Creditors, the trustee has investigated your financial affairs, reviewed your petition, schedules and statement of financial affairs.  At the hearing, the trustee will examine each debtor under oath and verify their identity, along with the information they provided with their petition.

Other Bankruptcy Attorneys articles on the Letter “T” 

• Tax Refund – Bill Balena  
• Taxes – Stuart T. Ing         
• Tension –  Cathy Moran  
• Thirteen – Mitchell Goldstein     
• Tools of the Trade – Bob Doig    
• Transfers – Ryan D. Caldwell     
• Trustee - Jay S. Fleischman
• Tax Refunds – Chris Carr 
• Tax Discharge – Christopher McAvoy 
• Timeshares –  Bret Nason
• Trustee - Peter Behrmann
• Trustee - Jeff Curl

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You're car just got repossessed by your credit union under what they say is a "cross-collateralization" clause in your credit card agreement.  At first, you panic.  Then, you remember that article I wrote last year about credit unions and their silly little clauses.  Well, we also have the bankruptcy code to support your getting your car back, 11 U.S.C. 542(a) and United States v. Whiting Pools, Inc., 462 U.S. 198 (1983). The Supreme Court in Whiting held, "We conclude that the reorganization estate includes property of the debtor that has been seized by a creditor prior to the filing of a petition for reorganization."

Here's the catch, the property seized, must still be in the possession of the creditor.  If it's already been sold at auction to a bona fide purchaser (one who had no idea about the property's history), then you won't be able to get your car back.  It's important to act fast and work with a knowledgeable attorney because these are more complicated transactions. 

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