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

I'm losing my voice over year, screaming from the mountain top.  I've been calling 'Bull' on the toxic securitized mortgages and explaining to my fellow Californians that we have all been blindsided into thinking that this ocean front real estate of ours will always increase; or bounce back sooner rather than later.  I don't know about you, but I'm sitting on at least $200,000 in negative equity. 

As you all probably know, I read a lot.  I also share with you here, my musings and information.  Here are some more tidbits for you homeowners to chew on.  First, remember when I posted, When Should You Walk Away From Your Mortgage, about the psychology of why people don't/won't strategically default?  It's time to get ruthless with our own personal finances; like the wealthy do.  If it's toxic, it's time to dump it, and deal with it legally.

In this morning's readings, I found Strategic Default's website where homeowners post their own stories.  I found Brad's story from there.  Brad happens to have his own website called You Walk Away and he provides a calculator that is intended to tell you how much savings you'll have by walking away from your underwater mortgage.  It's liberating to say the least.  Now, these sites talk about short sales and loan modifications, but as I've been screaming; if MERS is involved and named on your promissory note, then you're not getting a modification absent litigation.

When will you get off your high moral horse and get real?  I'm clueless on this one.  If your home mortgage is your only financial concern, then you may look to foreclosure or short sale as a solution; even bankruptcy can be a home saving device.  However, if you are dealing with more than just your home mortgage, it's high time you dealt with your debts as legally effective as Chrysler, GM, and AIG.  No, you can't get a bailout; but you can file Bankruptcy.  As my favorite bankruptcy guru, Max Gardner said in his recent post by Mandelman Matters, The Great Unwind and Final Redemption, "Praise the Lord and pass around those bankruptcy petitions.  Like now. Like yesterday."

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Last week, Yves Smith caused a stir with this post, "Fannie and Freddie Continue to Rely on Foreclosure Mills Despite Evidence of Fraud."  The 64 comments are worth a read, if anything to ferret out the boys from the men in terms of skill level in dealing with the legal issues.  Smith gives acknowledgment to O. Max Gardner, who is the nation's go-to bankruptcy litigation attorney and, I am proud to say that, I am a Lieutenant in his army.  So, what's all the scuttle butt about? 

Smith's post referred to another piece published by Mother Jones, "Fannie and Freddie's Foreclosure Barons," which provides a peek inside the shady document fabrication operations to cover up past mistakes in the mortgage industry and post foreclosure clean-up.  What a mess.

Looking at the securitization issues from a California standpoint, we have both federal and state law to contend with.  From a bankruptcy position, here in the Central District we have the In re Foreclosure cases , In re Hwang, In re Walker, and In re Vargas.  Since the mortgage follows the note, we need a complete, and unbroken chain of custody of the note and adherence to the California Commercial Code.  We are arguing the Creditor has no standing and even if they did, there are major computation errors in their claims. The fight goes on for now.  Results may vary in California.  Side effects include general frustration; nausea; possible foreclosure; and guilt for not paying your mortgage. 

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Let's face it, we are in tough financial times throughout our country.  There are many options to dealing with money issues.  Along with tough financial times comes stress, even depression, anxiety and fear.  Our emotions are tied very closely to our relationship with money.  Here are a few tools that just might help you gain some perspective.

Take a look at this WebMD article, The Debt-Stress Connection and notice where you might be in terms of your stress level about your current financial situation.  Your life is much too precious to lose over your debts.  It's important to start right where you are and decide to take action; whatever action is necessary to change the outcome. What is the worst that could happen to you financially?  Most people don't answer the question with any health issues, but that's what you're facing if you remain paralyzed about the situation.

Take action and get help.  I'm a big fan of the Dave Ramsey program for those of you that have the ability to climb out of debt without bankruptcy.  Learn about financial planning and get yourself on a budget today.  Have a reality check with your doctor, your tax professional, financial planner and your bankruptcy lawyer.

Vision your life in five years.  What does your life in the future look like?  Where will you live?  How will you provide for your self?  Your family?  Imagine what that looks like and then decide the path that is right for you to get there.  For some, it's creating a budget and sticking to it.  For others, it means filing for bankruptcy. The sooner you commit to your future, the sooner you'll feel better.

Remember that financial responsibility requires that we make some tough choices in our lives.  Filing bankruptcy is not the end, but a process toward a new beginning.

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Homeowners in California have been fighting an uphill battle to unwind wrongful foreclosures and have been getting mixed results in state courts all over California.  I have always said that it's easier to stop a foreclosure by filing bankruptcy than  it is to try to reverse a wrongful foreclosure in state court once it's been sold or reverts back to the bank. 

Mortgage Electronic Registration Systems, Inc., fondly known as 'MERS,' has been named on more than 80% of all California mortgages, but who are they?  MERS came onto the scene back in the 90's, created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper.  What they really did was cheat many local governments out of recordation fees and failed to properly document the assignments and transfers of the sub-prime mortgages as they were allegedly turned into securitized investments.

Mandelman, over at Mandelman Matters, recently posted this article entitled, California Court Rules:  MERS Cant' Foreclose, Citibank Can't Collect.  The court case he cited, In re Walker, 2:10-21656-E-11 is a Chapter 11 case where MERS, acting solely as 'Nominee' assigned a Deed of Trust to the Creditor.  The Court was not swayed by the assignment and held that the Creditor had not demonstrated any document to support its claim that it has standing to enforce the promissory note and deed of trust.

MERS is not a real party in interest and has no right to enforce, assign, or foreclose on any mortgage note, even though their named on the note as a 'nominee' and 'beneficiary.'  So, if you look at your mortgage note and see MERS listed as a nominee and beneficiary, chances are pretty good that your mortgage has been securitized and any attempt to foreclose by the loan servicer, or any entity for that matter is probably unlawful.  Call your lawyer and take action to stop the foreclosure and save your home.

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I know what you've been told because I have heard it all too.  The government wants you to do your very best to avoid bankruptcy at all cost.  Bankruptcy is bad; or at least, a harsh remedy to dealing with debt, and should be your last resort.  We have all bought into this 'agreement reality' and it couldn't be further from the truth.

I assert, bankruptcy is a powerful tool that should be considered in your overall financial plan that includes eliminating debts.  Adrian Lapas, over at Bankruptcy Law Network explained the pitfalls of debt settlement by warning of 1099 tax bills for canceled debts; and even creditor's unwillingness to negotiate a settlement at all.  Oh, and I'm really tired of discussing your credit  score because it's already been adversely affected by your not making your payments on time. In fact, filing bankruptcy might actually improve your credit score once all that bad debt is cleared from your credit report. 

I've had clients come to me after signing up with these debt settlement companies and spending nearly $10,000 on fees, only to find themselves in lawsuits with their creditors that these companies warned them about and would not help them with.  Remember that if you negotiate your settled debts, you're still paying money toward them and you'd better have some cash saved up to pay it in full if they accept your offer.  Also, you must be prepared for that 1099 tax bill at the end of the year because you'll wind up paying taxes on that can celled debt.

Bankruptcy not only eliminates the debt without any payments from you, it will eliminate your liability entirely and you won't owe taxes on the debts that were discharged in the bankruptcy.  That's where bankruptcy as a tool, is more efficient and not only a powerful tool, but a cost saving device for you as well.

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Recently, Katie Porter, over at Credit Slips, reported that Bank of America (BOA) reached a settlement with the Federal Trade Commission regarding certain mortgage overcharges, including overcharges in bankruptcy once serviced by Countrywide. Henry Sommer joined the conversation, asking if the Bank of America Settlement is a sign of true progress.

After reading the consent judgment and order provided by Katie, followed with Henry's entertaining summary of the requirements set forth in that order that include BOA's agreeing to not lie, cheat, or steal from consumers, I am not getting that warm feeling like we've accomplished much.  Did I miss anything?

Those homeowners that can afford to make a mortgage payment seek Chapter 13 where they are given time to make up the arrears on their mortgage and get their finances back on track.  What has been happening though is that many receive their discharge only to be served a Notice of Foreclosure soon after for charges on their mortgage. I'm even seeing this when the servicer files their proof of claim, declaring that "hey, we're going to do this up front and charge attorneys fees and costs to even file this proof of claim."  They'll also usually include inflated arrears, inspection fees they did not conduct, and other fees and costs that are superfluous to your mortgage. 

It is imperative that debtor's counsel in chapter 13 practice, scrutinize every proof of claim in every case and hold these Creditors to account for their willful failure to follow the law.  If you're a homeowner seeking to stop a foreclosure and you know that you've been overcharged and your loan servicer adding charges incorrectly, don't file under Chapter 13 without a competent attorney that not only practices Chapter 13, but really understands this mortgage mess we're in. 

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California’s mortgage crisis is out of control. The sub-prime lending didn’t end until late 2007 and into early 2008 when the economy collapsed. What further frustrates our sunshine state’s mortgage problems is that we were sold Jumbo loans due to our high property values. A Jumbo loan is a mortgage loan in an amount above conventional conforming loan limits and as of 2010, the limit is $417,000 according to Wikipedia.org. So, many California homeowners are in default on their primary mortgage because their “teaser” rate has ended and they’re now faced with increased interest rates and forced to pay principal and interest on a mortgage that they could not afford, with a jumbo loan that the lender is unwilling to modify.

Homeowners are being led down the primrose path of a modification offer by the lender only as a courtesy due to the HAMP program’s rules and California Law that requires the lender to contact the borrower and attempt a workout. The law, however, does not require a mandatory workout and the sub-prime lender, loan servicers, and asset-backed securitized mortgages will always be refused a modification of their mortgage because the investors don’t want it.

It may seem like we’re in a desperate situation here in California, and that’s why so many scams are cropping up. Recently, I’ve even been marketed to by these forensic mortgage loan audit scammers. They’re a new twist on foreclosure rescue fraud, so be alert to these offers. The envelope looks legitimate, but it’s nothing more than a cleverly disguised marketing piece. They generally target those homeowners in foreclosure, but they’re now starting to target the potential predatory loans too.

If you’re looking for help, avoid:

1. anyone offering guarantees;
2. instructs you not to contact your lender, lawyer, or housing counselor;
3. collects a fee up front; encourages you to lease your home so you can buy it back over time;
4. recommends that you make your mortgage payments to someone other than directly to the lender or loan servicer;
5. offers to buy your home for cash at an amount less than market value; or
6. pressures you to sign papers you haven’t had a chance to read thoroughly or don’t understand. Get Help.

You can always check out the Federal Trade Commission [FTC], the nation’s consumer protection agency for current information and scams to avoid. Contact your lender or loan servicer immediately when you fall behind on your payments. You can also get FREE advice from housing counseling agencies certified by HUD by calling 1-888-995-HOPE. Remember that filing bankruptcy will LEGALLY STOP A FORECLOSURE through the Automatic Stay, 11 U.S.C. §362.

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American homeowners are still in trouble with mounting mortgage defaults and depressed property values. The lenders and loan servicing companies are non-responsive to their customers and HAMP has had an embarrassing 20% success rate, which leaves homeowners high and dry when it comes to help with their mortgages and distressed properties. Getting out from under your upside down property through a short sale starts to look pretty good in comparison to either a foreclosure or bankruptcy on your credit report; right?

Back on April, Carry Bay highlighted the dark side of short sales in her article, Short Sales…A Breeding Ground for Fraud? Since short sales are gaining in popularity and I continue to respond to questions from my clients about their options; it’s important to be on the lookout for fraud. 

Speaking of fraud, the next time you’re approached with an offer to short sell your property consider this: The only people that are benefiting from the short sale of your home are the mortgage companies and the real estate broker who gets a commission from the sale. In addition, you would be left holding the bag, long after the deal is done, if the transaction is not conducted properly. 

This article, A Short Sale May Not Mean You’re Home Free, warns of the problems that crop up long after you move out. Not only could you be liable for deficiencies, especially if you held a second mortgage or home equity line of credit on the house, but your credit score may be in worse shape, if the information is reported incorrectly.  Don’t just let your Dream of homeownership slip away without knowing your options and your rights.

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On May 16, 2010 Max Gardner published a blog article entitled, Fake Documents and Fraud on the Court.  We are in the midst of a national foreclosure crisis and debtor's counsel throughout the nation are finding themselves defending their clients, not just against losing their home, but losing their home because their lender manufactured fake documents.  We should all be outraged.

Apparently Florida is leading the nation in getting the word out about these fake documents being submitted in our Courts.   So, what can you do?  Don't just stand by and lose your home because you've been served a piece of paper that looks legitimate.  Have your local bankruptcy lawyer review these documents and your loan documents with you. 

Your first step in defending your American Dream of homeownership should be to send a Qualified Written Request to the lender to determine who owns your note.  However, this letter alone will not stop any foreclosure proceeding.  Filing a Chapter 13 bankruptcy will legally stop your foreclosure and give you breathing room to make up for any payment arrears, while your attorney goes after your lender on your behalf.

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I always tell my clients that your credit score only tells you one thing; how well you manage DEBT.  So, why would you want to go back into debt again after bankruptcy?  After all, don't you just want to enjoy the feeling of financial freedom from debt for as long as possible?  My first inclination would be  to strongly discourage you from ever getting into debt again, but I know you're an adult and you can do with your life and money as you please.  So, here are some suggestions I found from the folks over at the National Consumer Law Center on Using Credit Wisely After Bankruptcy. 

Lower interest rates. Just because you've filed bankruptcy; it doesn't mean that you will forever be stuck with high interest rate offers on credit.  In fact, I strongly encourage you to avoid those high cost, high interest rate predatory type lenders.  Run, don't walk away from anyone advertising, "Bad Credit?; No Credit? Bankruptcy? No Problem!"  You're guaranteed to get a loan from these lenders, but it will cost you more than it did to file bankruptcy in the first place.  Don't get pressured into signing any contract that you don't understand, or that cost too much just for the credit. 

Here's the deal.  You've worked hard to take responsibility for your financial well-being and now have your bankruptcy discharge.  You'll be able to get credit again and on good terms too, but don't you want better than that for yourself and your family?

Savings accounts.  Instead of debt and credit, consider setting money aside every month in a savings account to save for big ticket items.  Remember layaway?  Be your own lender and save money to buy what you want.  Chances are, if you have the cash in your account and actually have the money to buy that flat screen TV, it will be much harder to part with that cash than it would be to put it on a credit card and pay 29% interest.  There is a dysfunctional psychology to that.  So, if you can't afford it, save your money and pay cash instead.

Shop around.  Rich people do this all the time.  Shop around for services you need and use all the time, like groceries, phone service, insurance, etc. 

Ask for discounts.  I have found that negotiating and asking for discounts on things really makes a difference.  Here's a story:  I was at a do-it-yourself-store a few weeks back.  My boyfriend and I were shopping for area rugs for our living room.  We found one we could both agree on, but the only one left was the hanging sample.  It was in otherwise perfect condition hanging on the display clamps.  So, I told the representative that I would like for him to roll it up, give me a discount and send me on my way with the rug.  Now, mind you, they were already on sale and I was asking for an even greater marked down price.  He went to talk to his manager and brought back a hand written ticket and had taken another $50.00 off the price!  I am telling you that asking for a discount works. 

Read before you sign.  Don't be embarrassed because you don't understand a complex financial document.  You're not a lawyer.  Hey, I know some lawyers that don't understand complex financial products.  Remember that when you sign a legal document and enter into a contract, you're agreeing to what is in that document whether you read it, or understood it.  Be a well informed consumer.  If you don't understand the contract; don't sign it.  Just because something is being sold in the marketplace does not make it a good idea. 

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Your federal government tried to help save your home by creating the Home Affordable Modification Program, or HAMP as we have come to know it.  Too bad it's not working because this program only has a 20% success rate.  Many homeowners who were stuck in the log jam of the HAMP program were forced into bankruptcy, only to find the lenders reject their modification after their case was filed. 

The HAMP administration has created supplemental directives that briefly support modifications for those either in bankruptcy or contemplating filing bankruptcy. These changes become effective June 1, 2010.  Under these new guidelines, servicers must consider borrowers in active bankruptcy for HAMP if a request for modification is received from the borrower, borrower’s counsel or bankruptcy trustee.  Borrowers who are in a trial period plan and subsequently file for bankruptcy may not be denied a HAMP modification on the basis of the bankruptcy filing.  Even if you've received a discharge in your bankruptcy case, you should still be eligible for a HAMP modification. 

Here is some great news for those in a chapter 13 bankruptcy.  As taken directly from the Supplemental Directive 10-02, "When a borrower in an active Chapter 13 bankruptcy is in a trial period plan and the borrower has made post-petition payments on the first lien mortgage in the amount required by the trial period plan, a servicer must not object to confirmation of a borrower’s Chapter 13 plan, move for relief from the automatic bankruptcy stay, or move for dismissal of the Chapter 13 case on the basis that the borrower paid only the amounts due under the trial period plan, as opposed to the non-modified mortgage payments."  This means that if you're in a trial modification and you subsequently file for bankruptcy under Chapter 13, you will continue to pay the modified mortgage payment. 

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In this economy, all cross-sections of our community have been impacted.  Money matters to all of us.  Your local bankruptcy attorneys are working hard to dispel the lies and myths about filing bankruptcy.  It is imperative that the truth be told; bankruptcy is an important tool that will facilitate Economic Recovery for America.  That's why we're coming to the Long Beach Lesbian and Gay Pride Festival, May 15-16, 2010.

Attorney R. Grace Rodriguez is the sponsor of the Financial Wellness Clinic booth inside the festival.  Local Bankruptcy Attorneys will be on hand to answer your questions about debt relief options; fiancial wellness; tips to avoid bankruptcy; the bankruptcy process and life after bankruptcy.  A special note to homeowners:  Filing Bankruptcy Will Stop Foreclosure! 

The lesbian and Gay community has special legal needs when it comes to bankruptcy and financial wellness.  It is more important than ever to know your legal rights.  The attorneys will be dispensing valuable information and providing pricelss resources to the booth's viistors.  Be sure to look for the Financial Wellness Clinic Booth at this year's festival, held in Long Beach on May 15-16, 2010.  Be proud.  Be debt FREE.

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California homeowners don't stand a chance to save their homes outside of bankruptcy because we are in a non-judicial foreclosure state.  This means that lenders can foreclose on a home without going to court.  Filing a civil action in state or federal court is quite costly and, it seems, that many attorneys simply do not recognize a fraudulent claim by a mortgagee when they see it.  So what's a homeowner to do?  File a chapter 13 bankruptcy.

A chapter 13 bankruptcy is a very cost effective device to saving a debtor's home because it immediately brings the mortgage current, and allows the arrears to be paid over time through the plan.  Chapter 13 bankruptcy puts the debtor in control of their case from the very start.

After the case is filed, the mortgagee must file a proof of claim in order to receive any payments under your plan.  The problem starts here.  Professor Katherine Porter, of University of Iowa College of Law wrote and abstract, Misbehavior and mistakes in bankruptcy mortgage claims and says that this misbehavior has largely gone unchecked on a national level.  Scrutinizing the lender's proof of claim is a crucial step to saving your client's home.  Many times there are violations of Federal Rule of Bankruptcy Procedure ("F.R.B.P.") 3001, which requires the use of official court forms and evidentiary requirements. 

We have seen a vast majority of errors in proofs of claims where they fail to properly itemize their fees; or perfect their security interest; or they do not attach any documents at all.  These are just a few reasons counsel should rigorously enforce Rule 3001 and object to any proof of claim that has even the slightest of errors.  As debtor's counsel, it is our duty to preserve the fairness and accuracy of the bankruptcy system because neither  the creditors, nor their counsel seem to be voluntarily complying with all procedures and laws.  Isn't that how we got into this current financial mess in the first place?

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As a consumer debtor, you will usually have two options when deciding to file bankruptcy; Chapter 13 or 7 under the Bankruptcy Code.  The question is which is better?; and which one should you file?  The answers to these questions are as unique as your individual circumstances.

Under Chapter 7 of the Bankruptcy Code, you are declaring that you have no ability to pay your debts at all.  You are, in a sense, liquidating your estate.  From the moment you file your case under chapter 7, the trustee takes control and has the right to take any assets available to pay your debts.  However, you have certain rights to retain assets under California Code of Civil Procedure Sections 703 or 704.  This means, that you will be able to keep your home, cars, retirement accounts, personal belongings, up to the limits pursuant to the law. These cases usually conclude within about six (6) months.

Under Chapter 13, you are declaring that you have some disposable monthly income to apply toward your debts and you are asking the Court to allow you to restructure that debt over time and allow you to pay only what you can afford. 

Chapter 13 is, in my opinion, the best choice to save your home, dispute debts owed, and otherwise hold your creditors accountable for any mistakes in your debt obligations, accounting, collection activity, fraud or abuse.  These cases require a longer period of time, usually up to five (5) years, and there are additional reporting duties involved.  You are strongly discouraged from filing a chapter 13 bankruptcy without an attorney because of the additional local rules, accounting and reporting requirements. 

Most everyone has thought of filing bankruptcy as simply filling out a bunch of forms.  I would have said that before the BAPCPA in 2005.  Now, with the sub-prime mortgage meltdown and their complex financial contracts; scams, despair and desperation of the banking industry; and the complexities of the Bankruptcy Laws, you need to consult with your personal bankruptcy lawyer before your case is filed.  Your bankruptcy lawyer will save you time and money by reviewing your current financial situation and create strategic plan to eliminate your debt with the least amount of money out of your pocket.

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Let's talk about your retirement accounts as they relate to your decision to file for bankruptcy.  There are many varieties and vehicles for retirements savings that include pensions, 401k, 403b, IRA and Roth IRA accounts.  Perhaps there are others that I am not aware of.  As I have said before, DO NOT CASH OUT YOUR RETIREMENT TO PAY YOUR DEBTS.  Your retirement accounts are ONLY for retirement and should NEVER be accessed for any other reason. 

When you file bankruptcy, all of your assets become a part of your estate.  The trustee will have temporary control over that estate and can administer certain assets to pay debts.  However, some assets in your estate, including retirement accounts are exempt from being taken by the trustee. 

One great reason to hire an attorney to assist you in filing bankruptcy is pre-bankruptcy planning.  Your attorney will give you valuable advice before filing your bankruptcy case.  Converting non-exempt assets to exempt assets before filing a bankruptcy is not only non-fraudulent, your attorney has a duty to maximize this type of pre-bankruptcy planning.  Keep in mind the CA IRA has a "reasonably necessary" for retirement limit, in addition to limitations of contributions to only the tax deductible amount for each tax year.

The good news is yes, you can fund that IRA before filing bankruptcy.  Be sure to consult with your personal bankruptcy lawyer to ensure you're taking full advantage of your exemption rights.

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Back in November, I explained to you the complexities involved in discharging student loans in bankruptcy.  These rules have not changed with the latest U.S. Supreme Court ruling in the case of United Student Aid Funds v. Espinoza.  The New York Times article, Bankruptcy Ruling in Student Loan Case points to the brief submitted by United that warned of "open flood gates" if the court were to rule in favor of the debtor in this case.  All this crying on the creditor side reminds me of the story of  the boy who cried wolf.  Unfortunately, this win for the debtors will not likely amount to a broad brush approach or change the dischargeability of student loans in bankruptcy; here's why.

First, we're dealing with the underlying chapter 13 bankruptcy case where neither the Debtor, nor the judge  followed the the "undue hardship" test.  Again, remember the hurdles that I laid out in my last article on this subject, Discharging Student Loans In Bankruptcy, and you will see that the Debtor, Espinoza, did not file or serve an adversary proceeding complaint on United. 

Second, the reason the Supreme Court ruled in favor of the Debtor in this case was simply because the Creditor, United, failed to timely object or appeal the Court's confirmation of the Debtor's plan.  United received notices from the Court regarding the chapter 13 plan and the Court's approval of it, which named the only debt in the plan as the student loan and United neither objected or appealed the Court's ruling.  So, United had notice of the Court's error and took no action.  Years later, when they tried to re-open the case, it was too late.

This decision is not about student loans as much as it is about bankruptcy procedure and that two wrongs don't make a right.  This is just another tool to use to protect consumer's rights where the lenders sit on their thumbs and fail to file timely objections.  As an aside, I must note that this was a unanimous decision by the Supreme Court, which is a very rare occurrence.

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Adversary Proceedings: what are they?  The simple answer to this question is that an adversary proceeding is a civil action in the Federal Bankruptcy Court; it's a lawsuit.  All adversary proceedings are governed by the Federal Rules of Bankruptcy Procedure "F.R.B.P." Part VII.  F.R.B.P. Rule 7001 provides that a party can file an adversary proceeding to recover money or property; to determine the validity, priority, or extent of a lien or other interest in property; to obtain the court's approval to sell property; to object to or revoke a discharge; to object to the an order of confirmation of a chapter 11, chapter 12, or chapter 13 plan; to determine the dischargeability of a debt; to obtain an injunction or other equitable relief; to subordinate any allowed claim or interest; or to obtain a declaratory judgment to any of the foregoing.  There are some exceptions stated in the Rule, but you get the idea.

From the moment you file for bankruptcy, your entire estate comes under the scrutiny of the trustee and the court.  Your bankruptcy lawyer's job is to protect your interests in your estate.  Sometimes this requires the additional work of filing an adversary proceeding.

Why are they used? Adversary proceedings are used to protect your estate.  As an example, I have a client whose home was in foreclosure at the time I filed a chapter 13 case on her behalf.  Upon reviewing her mortgage documents, I determined that I could possibly cramdown her mortgage because some persuasive case law supported this in her situation.  In order to gain the court's approval to cramdown her mortgage, I needed to file an adversary proceeding against the lender.  This is just one example of why we use adversary proceedings in bankruptcy cases.

Who can initiate them? Any party can file an adversary proceeding, but remember that an adversary proceeding has limited scope as discussed above.  Generally, the debtor will initiate an adversary proceeding to protect her estate from creditors who have not followed the law.

How do they affect bankruptcy proceedings?  Generally, an adversary proceeding will cause your bankruptcy discharge to be suspended, or put on hold, until your adversary case has been decided.  This is especially true if the subject of the adversary is to dispute your discharge. 

A knowledgeable bankruptcy attorney will first listen to your unique concerns and create a strategy that will help you to achieve your financial objectives with the least amount of liability.  One of the best reasons to file an adversary case is to protect your home from the predatory lenders who may have lost your note.  Talk to your bankruptcy lawyer today. 

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Let's face it; the economic recession is dragging on and there are no signs of improvement.  The government spending is the only spending that is propping up our economy.  So, when you hear in the news that spending is up, it's your federal government doing the spending with bailout money, and building projects for green technology; that's it.  We consumers are not so fortunate and I'm am proud to be counted with the majority who are paying down our debts, but why?  Why do we continue to be the slaves to our creditors who are increasing interest rates and charging extortion penalties when we're a day late?

Jay Jump, a Washington based consumer bankruptcy attorney addressed this very question in his recent blog post where he discusses, to a group of Realtors, that filing bankruptcy is personal financial responsibility.  His article is pretty lengthy and he admits that at the outset, but he's right on point.  We need to set our emotional high morality aside and look at our own households as small corporations and our families as our shareholders.  When you look at your financial affairs from the perspective of a business owner and who you owe a duty to; your family becomes the priority and your creditors take a back seat.  When you put your priorities in order, filing for bankruptcy makes sense in many cases.

Being financially responsible means cutting your losses before you lose everything.  It means leaving your retirement money where it belongs; for retirement.  When you are financially responsible and know that the numbers don't add up where you can feed your family and pay your debts, then the debts must be discharged in bankruptcy. 

You can transform your financial distress into financial freedom from the moment you sit down with your bankruptcy lawyer.  The stress is further reduced the moment the bankruptcy case is filed on your behalf.  Then, when your discharge notice arrives from the Court, you have done the very best you can and protected your small corporation, Your Family, from financial disaster and made a difference.  Read what Mr. Jump has to say and decide for yourself if filing for bankruptcy is responsible financial behavior because I'm in complete agreement with him.

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The only reason you should negotiate directly with your creditors, is to avoid bankruptcy.  Remember that working with debt settlement companies is both costly and detrimental to your finances and will likely land you in my office filing for bankruptcy.  If you want to avoid bankruptcy, work directly with your creditors for an agreement on what your debt is worth.  If they even think you're about to file for bankruptcy, they will most likely make some kind of offer.  However, settling debts to avoid bankruptcy comes with a price;  Income Taxes!

Beware that if you settle, or negotiate a debt to avoid bankruptcy, you could end up getting a tax bill.  while the IRS is forgiving settled debt where mortgages are concerned; the California Franchise Tax Board is not because their program has expired.  So, in California, you'll wind up owing state income taxes, if the debt you settled relates to a secured mortgage in a short sale.

But what about your credit cards?  Unsecured debt negotiations and settlements will be taxed by both the state and federal agencies.  So, unless you're prepared to pay taxes on the amount that will be written off by your creditor, then, like Cathy Moran said in her blog, Should I Settle Some Debts Before Bankruptcy, your money could be put to better use, like saving for retirement.

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In determining "projected disposable income" for the purposes of creating a chapter 13 bankruptcy plan, how do we deal with debtors whose incomes have changed?  Can we just disregard that huge bonus you received; or what happens when your income goes up, or down during your bankruptcy?  How should we deal with that car you own outright?  For answers to these questions we turn to recent case law.

The court in Ransom v. MBNA (In re Ransom), 577 F.3d 1026 (9th Cir. Aug., 2009) held that an above-median income debtor seeking bankruptcy relief under chapter 13 cannot deduct from his disposable income, a vehicle 'ownership cost' for a vehicle he owns free and clear, that would otherwise be income available to unsecured creditors.  The Ransom case is one example of the court's plain reading of the statute in 11 U.S.C. Section 707(b)(2) that an ownership cost is not an 'expense.' 

The 10th Circuit court reviewed the issue of whether 'projected disposable income' for purposes of chapter 13 plan confirmation should be obtained using the "mechanical test" set forth in the Code, or a "forward looking approach."  The holding from In re Lanning, 545 B.R. 1269 (10th Cir. November, 2008) says, "The mechanical approach 'subject to a showing of substantial change in circumstances,' in other words the forward looking approach."  The Solicitor General has filed an invitation brief with the Supreme Court in the In re Lanning case. This case is currently pending before the Supreme Court.  We are forward-looking to the outcome after the Supreme Court's review.

This issue is of national concern as Craig Anderson points out in his blog article, '“Projected Disposable Income” in Chapter 13 Cases: Rearview Mirror, or Crystal Ball?'   posted at the Bankruptcy Law Network.  What these cases mean to our bankruptcy practice of chapter 13 cases is to really look at the individual circumstances of our clients.  Every case is unique.  The good news is that we have more control in chapter 13 and more options; such as timing the filing of the case; or request to modify the chapter 13 plan.  As debtor's counsel, we must have a complete understanding of our client's goals and their particular circumstances so that we may present the best argument on their  behalf.

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Over on MSN Money, Liz Pulliam Weston wrote an article entitled, "Are You Foolish to Pay Your Mortgage?"  I get asked this question all the time, is it worth it to keep my home?  I'm passionate about this subject on behalf of my clients, whom I advise whether filing bankruptcy is in their best interests financially.  What really caught my eye about this article was Law Professor Brent White's paper, "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."  I agree with Liz that this is a must read for the finer points and Liz certainly summarizes his points from her perspective that we all need to do our best to save our homes and we all must make the best of a bad situation and know when it's time to walk away from our mortgages.

The good news is that California is a 'non-recourse' state.  This means that lender cannot pursue defaulting homeowners for deficiency judgments where they owe more than what the house is worth or what the lender might receive in a short sale or foreclosure sale.  For Californian's this is good news too because their will be no income tax on the cancelled debt or capital gains taxes to be paid on the deficiency. 

Knowing that we won't get taxed or sued after we walk away from our mortgages here in California should bring a sigh of relief, but when is it a good financial decision to walk away?  Professor White says that when the net cost of homeownership becomes more expensive than the net cost of renting is when you should walk away.  His article provides in-depth details and citations and even a hypothetical example of a couple who bought their home in 2006, at the height of the real estate boom. To make it easy, I've found a housing cost calculator on the internet that might help, but I wouldn't base any decision solely on this information.

I think the biggest challenge is to walk the imaginary road into the future and ask yourself whether you'll be better off in the long run.  I suggest that if you can afford your mortgage payment now, even though you're home's value is less than what you owe, you may be better off in 20 years than if you had rented.  Why?  In 20 years you will likely have paid down your principal, or even paid off your mortgage and if you've been maintaining your home, you're maintenance costs will likely have dropped.  If you rented for 20 years, you're still a renter and we all know the cost to rent will invariably rise over that time too.

I agree with Liz when she says to "Get Help."  Talk to your HUD Counselor, your tax professional and your local bankruptcy lawyer.  The sooner, the better.  Don't spend down any savings trying to save a sinking ship because you may end up in a worse financial situation. 

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The following information has been provided by the  Insolvency Law Committee - Business Law Section of the State Bar of California.  The bulletin was prepared by Gary Kaplan, Special Counsel at the law firm of Farella Braun + Martel LLP in San Francisco. 

In the bulletin, Gary Kaplan writes, "On November 30, 2009, the Departments of Corporations weighed in with its regulations in support of Assembly Bill 7, referred to as the California Foreclosure Prevention Act, which was enacted on February 20, 2009 and became effective upon the issuance of the first set of regulations in support of it.  This marks the third regulatory agency to do so, following the Departments of Financial Institutions and Real Estate.  The new regulations can be found at http://www.corp.ca.gov/OLP/pdf/rm/0509-2B.pdf.  The Act provides a 90-day foreclosure delay for residential mortgage loans on owner-occupied homes where the first loan was recorded between January 1, 2003 and January 1, 2008, unless the loan is serviced by a financial institution that has a comprehensive loan modification program, as specified.  The provisions of this legislation “sunset” on January 1, 2011."

What this means to you, the homeowner, is that generally, you will notice that after you receive a notice of default on your mortgage, your lender will begin sending you loan workout packages and gather information from you to determine whether you qualify for a loan modification.  This seems to be what the lenders are doing during their 90-day moratorium.  We have already seen that these trial loan modifications are not working to modify the majority of home in distress.  This is either because the loan has been sold as an asset-backed security to investors, or the owner simply cannot afford the mortgage.

As I have said before, in the  5 ways to stop foreclosure, only a bankruptcy and a court ordered injunction will legally stop a foreclosure.  The sooner you talk to a bankruptcy lawyer to discuss your options, the more options you will have in creating the best course of action for your particular circumstances.  Every case is unique.  

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We are all on the edge of our seats, watching the news about the Obama Home Affordable program and how so many trial loan modifications are failing in comparison to the number of applications for mortgage modifications.  We have also stood by and watched Congress shoot down the Mortgage Cramdown Legislation under SB61 that would have given bankruptcy judges the authority to modify mortgages in chapter 13 bankruptcy cases.  While all of this continues to take center stage in the news, there is a quiet storm brewing in the practice of chapter 13 bankruptcy that may modify some residential mortgages.

11 U.S.C. § 1322 (b) (2) is referred to as the 'anti-modification' statute and allows modification of secured loans; however, a bankruptcy court's power to modify loans does not extend to loans secured "only by a security interest in real property that is the debtor's personal residence."  What this means is that most homeowners are precluded from filing a chapter 13 case for the purpose of modifying their mortgages.  However, and here is where it gets flavorful because bankruptcy courts have distinguished some residential loans as not being protected under § 1322 (b) (2).

In re Scarborough, 461 F.3d 406 (3rd Cir. 2006) held that, "based on the plain language of 1322 (b), a creditor does not receive anti-modification protection for a claim secured by real property that includes both the debtor's principal residence and other rental property that is not the debtor's principal residence.  In re Bulson, 327 B.R. 830 (Bankr. W.D. Mich. 2005) allowed modification of a loan secured by an interest in property in which the debtor resided when the property involves multi-unit dwellings.  These two cases point to situations where the residential homeowners both lived in their homes and rented out a portion thereof, or otherwise lived in duplexes or other multi-unit properties.  This may be good news for some residential mortgage holders.

But here is the twist.  The lender must know, or have reason to know that the property was being used as both the principal residence and providing rental income at the time of the loan.  So, if you had a tenant on your property when you took out your loan and used that rental income in part, to qualify for that loan, then you may be able to modify your residential mortgage in a chapter 13 bankruptcy. 

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Nowadays it seems everyone from big business to celebrities is filing for bankruptcy.  While major corporations are getting government bailouts with our tax dollars, wouldn't it seem fair if we could get a bailout too? 

Sure, you can file for bankruptcy and have many of your debts cleared off your books through a bankruptcy discharge.  But, how do you know if you need to file for bankruptcy?  At what point do you throw up the white flag to your creditors and declare bankruptcy?  Here are 10 signs that are strong indicators that you may need to file for bankruptcy:

1.  You've depleted your savings and are considering cashing out your retirement savings to pay your bills;

2.  You're living on credit cards and your debt increases rather than decreases each month;

3.  Your family has given you loans or bought you food;

4.  You're behind on your rent or mortgage, or are in foreclosure;

5.  You're anxious when the phone rings because the only calls you get are from debt collectors;

6.  You can only afford to pay the minimum payments on your debts and have high interest rates;

7.  You're using the legal loan sharks at those payday advance shops to get cash;

8. You know you have a lot of debt, but don't exactly know how much and you're afraid to look;

9.  Your car is about to be repossessed;

10.  You're being sued and you know you cannot afford to pay for any judgment.

If you, or someone you know is experiencing extreme financial hardship during these challenging economic times, it's important to take action sooner rather than later.  The sooner you discuss your situation with a trusted authority, like your local bankruptcy lawyer, the more likely you will be able to have your debts discharged without having to go broke doing it.  This means that you can save your retirement for retirement and still get out of debt.

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The mortgage meltdown and ensuing global financial crisis, in the fall of 2008, still reverberates today.  The New York Times reported on the essentials of the credit crisis and pointed out the breadth and depth origins of this crisis and likened these times to the Great Depression. 

I have previously reported on the financial crisis in The Economy of Bankruptcy ; while The National Association of Consumer Bankruptcy Attorneys [NACBA] has been following SB61 since its inception.  SB61 essentially will allow bankruptcy judges to modify the terms of a mortgage.  Recently, NACBA Director, John Rao testified on the matter in October, before the Senate Judiciary Committee’s Subcommittee on Administrative Oversight and the Courts.

As posted in the New York Times, House Passes Far Reaching Bill Tightening Financial Rules.  Unfortunately, the banking industry struck a win when the House voted to reject the proposed amendment, known as "mortgage cramdown," which is the measure that would allow bankruptcy judges to change the terms of mortgages for distressed homeowners.  This vote reversed the House's passage in March of a cramdown measure that subsequently died in the Senate.

American homeowners need a real solution and based on what I read over at The National Bankruptcy forum, our Bankruptcy Courts may not be equipped to handle the tsunami of bankruptcy cases that would result in the passage of such legislation.  To date, few mortgages are being permanently modified, as reported by the LA Times.  

My solution is for every American to obtain independent financial freedom by paying off their debts outside of bankruptcy, if possible. For those Americans struggling to pay their bills, consider either a chapter 7 or 13 bankruptcy and never look back.  The rules of bankruptcy do not require that you spend down all of your savings and lose your assets in order to file for bankruptcy protection.  The goal here is financial freedom and independence from the banking industry FOREVER.  The new paradigm as Dave Ramsey so eloquently puts it, DEBT IS DUMB AND CASH IS KING!

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When closing a small business, there are advantages to using Bankruptcy as a means to winding up your small business.  If you're Going Out of Business and are looking for alternatives to Bankruptcy, or a more detailed discussion on bankruptcy advantages, then you must read Gordon Eng's recent article in the Los Angeles Lawyer magazine of the Los Angeles County Bar Association entitled, Going Out of Business. 

The advantages of using Bankruptcy as a means of closing your small business include having the Court judicially assist in winding up the financial affairs of the business by providing a single forum for contesting the validity of creditor's claims.  The Court also provides a valuable mechanism for the liquidation of the debtor's assets and determining the allocation among the creditors based upon their priority in a chapter 7 bankruptcy.  After the business has been liquidated and distributed among the creditors, any remaining debt is usually discharged.

Debts that cannot be discharged in a bankruptcy are

• Federal, state and local taxes
• Family support; i.e., spousal and/or child support
• Student Loans, absent undue hardship
• Secured debts
• Government imposed fines or penalties
• Fraud and punitive damage claims

A small business may file a chapter 7 bankruptcy as a corporation or LLC., otherwise the business owner must file a personal bankruptcy.  If the business is not incorporated and the owner files a personal bankruptcy, they are subject to the means test in determining whether they qualify for a chapter 7, or if they must file under chapter 13. 

Business owners who are shutting their doors would be wise to consult with an attorney who can help them work through the issues of closing a business in the most efficient manner that limits or eliminates their financial and legal exposure. 

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I am excited to share with you, a new resource for information regarding student loans, as published by the National Consumer Law Center.  The Student Loan Borrower Assistance portal offers answers and and solutions to student loan borrowers, however, they do not provide legal advice. This issue has also attracted the attention of Congress, who recently held an oversight hearing on the matter.

Student Loans, in general, are not dischargeable in bankruptcy, absent undue hardship.  11 U.S.C. Section 523 (a)(8) provides that the debtor must show that the payment of the student loan debt will "impose an undue hardship on the debtor and the debtor's dependents."  Courts have interpreted this standard very restrictively, which makes it very difficult for even the most vulnerable to receive a discharge. A recent case, Booth v. U.S. Department of Education, et al., 10 CBN 1093 (Bankr. E.D. Wash. 2009) held that debtors can prove undue hardship even if their Income Contingent Repayment Loan Program (ICRP) payments are zero.  The Ninth Circuit Court asked, in Craig v. Educational Credit Management Corp., 19 CBN 1039 (9th Cir. 2009), how the bankruptcy court thought the debtor could pay their student loan. 

The Court will apply a three-part test, known as the Brunner test, to determine whether excepting all or part of a student loan debt from discharge will impose an "undue hardship" under § 523(a)(8); Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987). Under the Brunner test, a debtor must demonstrate:

(1) that she cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans;

(2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

(3) that the debtor has made good faith efforts to repay the loans.

Further, the procedural difficulty level is a general deterrent for most attorneys since the debtor must affirmatively seek this determination in bankruptcy and prove her case.  For more information on this subject, check out Student Loans In Bankruptcy.  Bankruptcy practitioners can purchase Discharging Student Loans in Bankruptcy as a resource.

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The gulf states must contend with hurricanes.  The northeast has their bitter cold.  Here in California, we must always be prepared for "The Big One," earthquakes that is.  As our economy limps along, virtually lifeless, and looking more like a depression rather than the politically correct "recession," we must be prepared for the onslaught of more potential foreclosures.

If you, or someone you know is facing or potentially facing a foreclosure, an attorney who is familiar with this area of law can explain your options so you can choose the course of action that is best for your individual needs, goals and desired outcome.

The five (5) ways to stop a foreclosure are:

1. Modification
2. Short Sale
3. Deed in Lieu
4. Bankruptcy
5. Injunction

Of the methods listed above, only a bankruptcy and a court ordered injunction will legally stop a foreclosure and even those methods may be temporary.  Most of the time, the lender may suspend their foreclosure proceedings in order to entertain the workout options of a modification, short sale or deed in lieu of foreclosure, but they are not legally required to do so. 

Recent court rulings in Massachusetts to invalidate thousands of foreclosure proceedings because the chain of title had not included all of the assignments that had taken place prior to foreclosure.  Unfortunately, a homeowner is not likely to invalidate a foreclosure in California after the sale date, especially where a bonified purchaser is involved and the property has been transferred.

A Chapter 13 bankruptcy is still the most economical and effective way to temporarily stop a foreclosure because of the automatic stay.  This allows the homeowner time to make up all past due payments.  This also allows the attorney to file any adversary proceedings necessary to invalidate the foreclosure proceedings and possibly sue the lender under TILA and RESPA violations; potentially recouping damages on behalf of their clients.

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Would you advise your client to file a Strategic Bankruptcy?  I read Michael Doan's recent blog article about the subject and would like to add there are tax advantages to home ownership that were not considered in the equation.  A homeowner receives the tax advantage of writing off the mortgage interest paid on their loans and property tax payments, while renters receive no such tax advantage.  When a homeowner stops paying on their mortgage, they no longer receive these tax advantages. The tax advantage would serve to reduce the overall savings by the amount in reduction of income tax, even if nominal, it still must be a consideration.

Further, the insurance requirements of home ownership can be expensive, depending upon the home.  However, the usual homeowner policy also covers the owners personal property both on premises and off, and personal liability.  A renters policy serves a similar puprose and will cost sometimes less or about the same as a homeowners policy.  I would never suggest that an owner stop paying on the insurance policy while they are still legally on title and responsible for the property, especially in our fire ridden state of California.  If there is a loss on the property, while the owner is still on title, and no insurance in force, then the owner would be  personally liable. 

Here's an idea:  A Shortsale with a lease back option is something I've personally considered for my own home.  As an example, my home is currently upside down by approximately $209,000.  I could eliminate that debt by having a family member buy my home for fair market value in a short sale and then I could rent it from them.  That way, I eliminate the debt and later, I buy back the house from them without the additional burden.

In conclusion, make sure you get all the facts and numbers on the table.  Each situation is more unique and we cannot possibly say that anyone with negative equity should strategically foreclose or file bankruptcy.  An attorney will discuss all your options and then you decide your best course of action. 

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I have been reading everything bankruptcy related lately.  A few weeks ago, M. Jonathon Hayes sent us an email on our listserv for the Central District Consumber Bankrutpcy Attorneys Association, CDCBAA for short, that he had just published a new book entitled, A Summary of Bankruptcy Law.  I am one of those folks who likes summaries or digest versions of anything that cuts to the point and gives me just the meat, hold the potatoes and vegetables. 

The section on chapter 7 bankruptcies takes up a major portion of the summary material.  I would have liked more information regarding chapter 13 processes, but it is a summary, so I let that go.  The material is concise and to the point.  It's an easy read and looks similar to a top tier law student's outline of a subject.  Not that I was a top tier law student, but I've obtained outlines from a few.  Overall, the book holds up to its title as a summary and I would add, a thorough summary at that.

Like kicking the tires on a car you're thinking about buying, I took the book's website citations and case citations for a spin.  The book provides valuable tools, advice on practice materials and case citations that I am still looking up.  I reccommend this book to the new practioner and law student.  Since the book was written by a California attorney,  it is well suited for the California practitioner and more specifically, those of us practicing in the Central District.  I even printed a copy of Judge randall Newsome's Research Notebook and if I ever get a chance to meet the man, I promise to buy him a beer Jonathon.  Thank you for your good work. 

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RESPA, Real Estate Settlement Procedures Act, has specific provisions which deal with mortgage servicing and generally found in either 12 U.S.C. § 2605 or § 2609. O. Max Gardner III explains in his article, What Does RESPA Have to do with Consumer Bankruptcy Cases?, that the use of RESPA in a chapter 13 bankruptcy case, “can provide the attorney for the Chapter 13 debtor with some of the very best discovery outside of a contested case or Adversary Proceeding.”

If you don’t know who O. Max Gardner III is, then you’ve been living under a rock. Without bragging too much about the man I have yet to meet and learn from, he goes on to explain the QWR, or Qualified Written Request for information from your loan servicer. Section 2605 is known as the “Servicer Act,” according to Gardner’s article, and is where the authority for the QWR arises. It’s interesting to note that I recently received a response to a QWR from a law firm, representing Aurora Loan Services LLC (“Aurora”). I don’t believe my questions were unreasonable and I certainly did not ask for the “kitchen sink.” However, I was on a fishing expedition and did not make note of any servicing problems because quite frankly I had no idea what I would find.  So, apparently the loan servicers now have a need for counsel to respond to our inquiries.

I do like Max’s questions and I think attorneys who represent consumers in chapter 13 bankruptcy cases should take full advantage of the information he provides so generously. Thanks Max!  I’ll see you soon in Boot Camp!

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