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

New data from the Central District of California was posted on Prof. Jonathon Hayes, Bankruptcy Prof. Blog:

• Pro per filings for the Jan through Sept, 2011 period were 28.3% of the total.  The national average is 7.9%. 
• The central district clerk's office processes one bankruptcy petition every 3 minutes, 44 seconds. 
• The next highest number of filings after the central district is the middle district of Florida.  The C.D. Cal has 146% more filing than M.D. Fl. 
• The central district expects 141,000 filings this year, up from 109,000 in 2009, and 66,000 in 2008.  

From the looks of those numbers above, we have a large population of debtors filing bankruptcy without an attorney.  I wonder if people are just trying to save what little money they have left, or do they just think filing bankruptcy is little more than filling out forms anyway, so you don't need a lawyer?  I know it's hard to pass that freeway billboard that says, "Bankruptcy $799."  However, if you read the fine print, even though it shows a man's picture and has the name of a law firm, it says that hiring the attorney will cost more.  I find advertising like that to be misleading the public.

The Office of the United States Trustee for the Central District of California has placed informational fliers inside the courtrooms in Los Angeles, warning debtors without attorneys that some debtors have been victimized by unscrupulous practices on the part of those who assisted them in preparing their bankruptcy petitions.

FEDERAL LAW REQUIRES: all non-lawyers who assist debtors in the preparations of bankruptcy petitions to: (1) sign the bankruptcy documents; (2) provide their names, addresses and social security numbers; (3) have debtors review all documents before they are signed; and (4) disclose any fees they have paid or are still owed.  Remember that only a licensed attorney can answer your legal questions that includes help with properly completing the petition, schedules and bankruptcy papers, which set of exemptions to use, etc.

There is a Bankruptcy Self-Help Desk located at the Federal Building, 300 N. Los Angeles Street, 1st Floor, Los Angeles, CA 90012 on Mondays and Wednesdays from 10:00 a.m. to Noon and from 2:00 p.m. to 4:00 p.m., except for court holidays.  The Self-Help desk can provide information about Chapter 7, Chapter 13, bankruptcy forms and access to reference material and more importantly, referrals for additional legal assistance.  Income eligible individuals can apply to attend the Chapter 7 Bankruptcy Self-Help Clinic. This project is sponsored by Public Counsel, Central District Consumer Bankruptcy Attorneys Association ("CDCBAA"), and the Los Angeles County Bar Association Commercial Law & Bankruptcy Debtor Assistance Project Subcommittee.

If you simply cannot afford an attorney, FREE legal help may be available to you.  For more information, contact Public Counsel's Debtor Assistance Project Hotline: 213-385-2977, ext. 704.  Some of our local bankruptcy practitioners will also offer their services on a low or pro bono basis. Hiring a competent lawyer is worth their price so your case moves smoothly through the bankruptcy process and you're not faced with losing your discharge, an inquiry from the U.S. Department of Justice, or countless hours in trying to correct errors in your bankruptcy papers.

Photo Credit: Eversheds, LLP.

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Many Consumer Debtors have a difficult time understanding how their attorney gets paid in a Chapter 13 case. So, today I want to discuss what is called an Application for Compensation. When you first meet with your attorney to retain them to represent you in your Chapter 13 Bankruptcy case, you are retaining that lawyer for a period of three to five years depending upon the length of your case.  You are also retaining them to not only manage the underlying case, but to provide ongoing counsel to you, and provide additional services that may give rise to their filing an application for compensation with the court in your case.

Here in the Central District of California, attorneys will enter into a fee agreement with their clients and most will also enter into a Rights and Responsibilities Agreement or "RARA." However, the RARA is optional and some attorneys choose to charge only an hourly rate and will file an application for compensation with the court for managing the case from the start. The RARA will provide a flat fee arrangement with our clients for the work in preparing your case, filing with the court, representing you at your meeting of creditors, and your confirmation hearing.  There is a lot of work involved in managing a Chapter 13 case, which is why additional fees can be incurred for managing the case and filing required motions, etc.

The fee agreement and the RARA will outline how your attorney gets paid in your bankruptcy case.  Once your case is filed with the court, your counsel cannot collect their fees directly from you and must file an Application for Compensation with the court, which is a motion. If you receive a letter and invoice from your attorney, it should state that it was submitted in conjunction with a Supplemental Fee Application and filed with the court.  You MUST read and review the information because you have only 20 days to OBJECT to the fees your attorney is asking for.  If you object, you must notify your assigned Chapter 13 Trustee.  If you do not object, the trustee still may object.  The judge assigned to your case will always get the final say in whether your attorney is entitled to the amount they seek. It's important to understand how your attorney is compensated for all the hard work they put in on your behalf so that you're not caught off guard when you see their application for compensation.

Once approved, the Chapter 13 Trustee will pay your attorney from the money you pay into your Chapter 13 Plan.  Your Plan payment will not be impacted by additional fees being sought by your attorney, if you are paying some money to your unsecured creditors.  Remember to call your attorney with questions or concerns you may have about your case.

Photo by:  Leo Reynolds

Learn more about the Bankruptcy Alphabet with Consumer Bankruptcy attorneys throughout the country.  Other Lawyers Playing the Alphabet Game with the Letter A:

Abandonment, Abuse, Adversary Proceeding, Asset, Alimony, Arrest, Ask, Assumption, Attorney, Automatic Stay, and Avoidance.

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On September 20, 2011 I was a speaker for Law Review CLE on the topic of Foreclosure Defense in Orange, California and again on November 10, 2011 in Riverside. My perspective is always from the bankruptcy side where we will file under Chapter 13 of the Bankruptcy Code to initially stop the foreclosure sale. The benefit to this strategy is, the moment the bankruptcy case is filed, the Debtor's mortgage becomes current and the Debtor will make up the mortgage arrears through trustee payments in their Chapter 13 Plan.

Many practitioners in attendance practice in state court's, and it was depressing to hear their state court hurdles of having to file bonds with the court that are prohibitive to the homeowners and the level of difficulty in moving their cases to the discovery phase. Ironically, our bankruptcy judges continue to tell bankruptcy counsel that the foreclosure defense issues like, "who owns the note" argument needs to be addressed in state court.  It's as if the two benches are pointing fingers and neither wants to take the time to learn about the mortgage securitization issues because their calendars are packed.

Never fear that I shared my Max Gardner Bootcamp wisdom, some of my most recent moving papers, and cutting edge legal arguments we are making that we hope will persuade the bench that mortgage creditors are committing fraud upon our courts, every time. There is hope through the bankruptcy process and it's important to hire competent counsel to assist you when facing these complex issues.

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     Chances are the answer is going to be a YES. The relationship between married persons and creditors is separated by individual or joint debt. Individuals are personally liable for their debts and may be jointly liable with others for their debts. See Division 9 of the Code of Civil Procedure; CCP Section 680.010 et seq. An obligation may belong to an individual or to two or more individuals per CC Section 1429.

     Personal liability for the debt of your spouse is found in Part 3 of Division 4 of the Family Code Sections 900-1000. For spousal liability purposes, "debt" is defined as an obligation incurred by a married person before or during marriage, whether based on contract, tort or otherwise (Fam. Code Section 900). A spouse is personally liable for the debts of the spouse in only three circumstances: (1) the debt of one spouse is assigned to the other spouse in the context of divorce proceedings, (2) the spouse becomes personally liable under the necessaries doctrine, and (3) a surviving spouse has liability for the debts of their deceased spouse up to certain limits.

     In bankruptcy we view these debts in terms of individual and community debts and have some flexibility in whether we advise our clients to file an individual or joint bankruptcy when working with married couples. Remember that we cannot represent married couples when a conflict arises, so it's important to cooperate with your bankruptcy counsel and disclose everything to them, including whether or not you're contemplating divorce so that they can properly represent you in obtaining the fresh start that you deserve.

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     A literal reading of 11 U.S.C. Section §362(c)(3) terminates the stay 30 days after the filing of the petition only with respect to the debtor, not property of the estate. However, coming into bankruptcy court in the Central District, recent rulings have discussed whether the Stay terminates entirely or only with respect to the Debtor in subsequent bankruptcy case filings.

      In re Reswick Jr., 2011 Bankr. LEXIS 873, (B.A.P. 9th Cir. February 4, 2011) held that the Automatic Stay terminated as to the debtor and property of the debtor’s bankruptcy estate 30 days after the debtor’s second bankruptcy filing. The court agreed with the persuasive reasoning set forth in In re Daniel, 404 B.R. 318 (Bankr. N.D. Ill. 2009), and held that the automatic stay terminated in its entirety on the 30th day after the petition date." (Emphasis added.) This is a minority decision.

The Reswick court analyzed the majority viewpoint [*364],

“The majority interpretation finds the phrase "with respect to the debtor" to be both critical and unambi-guous, and concludes that on the 30th day after the peti-tion date, the automatic stay terminates only with respect to the debtor and the debtor's property, but not as to property of the estate. See, e.g., Holcomb v. Hardeman (In re Holcomb), 380 B.R. 813 (10th Cir. BAP 2008); [**7] Jumpp v. Chase Home Finance, LLC (In re Jumpp), 356 B.R. 789 (1st Cir. BAP 2006); In re Pope, 351 B.R. 14 (Bankr. D.R.I. 2006); In re Murray, 350 B.R. 408 (Bankr. S.D. Ohio 2006); In re Brandon, 349 B.R. 130 (Bankr. M.D.N.C. 2006); Bankers Trust Co. of Cal. v. Gillcrese (In re Gillcrese), 346 B.R. 373 (Bankr. W.D. Pa. 2006); In re Williams, 346 B.R. 361 (Bankr. E.D. Pa. 2006); In re Harris, 342 B.R. 274 (Bankr. N.D. Ohio 2006); In re Jones, 339 B.R. 360 (Bankr. E.D.N.C. 2006); In re Moon, 339 B.R. 668 (Bankr. N.D. Ohio 2006); In re Johnson, 335 B.R. 805 (Bankr. W.D. Tenn. 2006). Although these decisions state that the court need not read beyond the phrase "with respect to the debtor" to discern its meaning, see, e.g., Jones, 399 B.R. at 363 ("Section 362(c)(3)(A) provides that the stay terminates 'with respect to the debtor.' How could that be any clear-er?"), these decisions arguably do read beyond the phrase because they find that the stay terminates with respect to the debtor and to any property of the debtor that is not property of the estate. Id. at 362; see also Holcomb, 380 B.R. at 816 ("[W]e conclude that the language of § 362(c)(3)(A) terminates the stay only as to the debtor [**8] and the debtor's property."); Jumpp, 356 B.R. at 797 ("Section 362(c)(3)(A) provides for a partial termination of the stay.").”

On May 9, 2011, the Central District Riverside Division Court in In re Rinard, 2011 Bankr. LEXIS 1731, Judge Clarkson held,

“Under 11 U.S.C. § 105(a), a bankruptcy court "may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." Section 105(a) gives the bankruptcy courts the power to stay actions that are not subject to the 11 U.S.C. § 362(a) automatic stay (footnote omitted) but "threaten the integrity of a bankrupt's estate." Canter v. Canter (In re Canter), 299 F.3d 1150, 1155 (9th Cir. 2002) (citation and quotation marks omitted); Ingersoll-Rand Fin. Corp. v. Miller Mining Co., 817 F.2d 1424, 1427 (9th Cir. 1987)." Solidus Networks, Inc. v. Excel Innovations, Inc. (In re Excel Innovations, Inc.), 502 F.3d 1086, 1093 (9th Cir. 2007). The Ninth Circuit, in Solidus Network further found that the usual preliminary injunction standard applies to stays of proceedings against non-debtors under § 105(a). Solidus at 1094.”

One of our judges recently overruled a motion for turnover of property that was foreclosed upon after the Stay expired.  What this means is that you MUST file a Motion to Continue the Automatic Stay beyond the 30 days when your client has filed a subsequent filing within 12-months preceding the filing of their current case.  In our Central District these are fairly simple form motions that are routinely granted. These motions MUST be filed and heard within the first 30 days of the case. Don't risk losing your client's assets.

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The growing shadow inventory of homes held by lenders for various reasons, including the fact that they can't find the paperwork to clear titles is causing the depressing market values these days and continues to stifle the economic recovery according to DSNews. Craig Crabtree, senior vice president and general manager, Equifax Mortgage Services says,

"Shadow inventory and real estate owned properties are still playing a dominant role in today's mortgage market and slowing the pace of economic recovery. While we are seeing stabilization across multiple sectors of lending, there remains a significant volume of delinquent first mortgage loans, which has slowed the foreclosure process. Until these foreclosures are processed, the mortgage market will continue to impact economic growth."

The problem I'm seeing is that we might not have buyers for all these properties and when our ADD sets in and we forget how bad securitized mortgages really are, they'll crop back up like weeds in your garden and we'll all be back in our homes again soon with mortgages we can't afford and this vicious cycle will come full circle.

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On July 15, 2011 Governor Jerry Brown signed SB 458 into law with an urgency declaration making it effective immediately.  This new law prevents deficiency judgments after a short sale and means those naughty lenders cannot come after you once your short sale is complete.

A recent Short Sale blog article on this subject explains the deficiency problems with short sales. The comments are asking if this is retroactive and the answer is NO.  Those who have already gone through short sales are not protected by this new law and should seek bankruptcy protection and discharge for those deficiency judgments. Remember that all debts discharged through bankruptcy have no income tax liability. 

Local Realtors are excited about this new law and the California Association of Realtors posted a news release on the recent passing of this bill here. What this bill means is that the mortgage holders can no longer come after the seller for any deficiencies after the close of the short sale.  However, Seller beware of the Tax Man!

The IRS and Franchise Tax Board are currently waiving income taxes on canceled debts where a mortgage is involved.  I understand that this ends in 2012 and we have no information on whether this will continue.  You can read more about The Mortgage Forgiveness Debt Relief Act and Debt Cancellation from the IRS directly. You MUST consult with your tax professional before you decide to short sell your home as the laws are constantly changing.

If you're facing a deficiency judgment from a previous short sale, or if you're concerned about income tax consequences potentially looming from a short sale, then I suggest you talk to your professionals.  Call your tax professional and consult with a bankruptcy lawyer to be sure you're liability obligation to pay on that debt is eliminated.  You may not need to file bankruptcy if you hire a tax professional who has knowledge of this area of the tax laws.  Don't delay or you may be on the hook for this debt after your short sale.

Photo from Rich Vintage Photography

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Loan modifications. Everyone wants one and no one really knows the secret to getting one, until now. We’ve seen many trial modifications that are rejected before the trial period ends and sometimes consumers are left on that trial mod program indefinitely without reason. The reason really lies in all the fees the servicer continues to rack up and charge you while your account remains in limbo under this program. It’s complicated how the loan servicers actually get paid and they don’t want you to know that they’ll try their hardest to get all they can from you while they seek reimbursement from the investors that actually own your loan. We call that "Double Dipping."

A great way to force the loan servicer to provide you with a permanent loan modification is to call your bankruptcy attorney the moment you’re approved for a trial modification with a payment you can sustain. What happens is that your bankruptcy case provides protections to you that prevent the lender from later denying that trial modification because you first get the automatic stay injunction that prevents any foreclosure attempt on your property. Next, once your Chapter 13 Plan is confirmed, it’s binding on all parties. This boxes the lender into making your loan modification permanent. I give Max Gardner the credit for coming up with the strategy and the name for this program I learned at his Bankruptcy Litigation Bootcamp.

A modification is a great way to start your road to reorganization of your debts under Chapter 13 of the Bankruptcy Code. If you work with a bankruptcy attorney that focuses their practice on mortgage issues, you can be certain that they’ll attack the loan servicer, lender on every front from whether they have the right to enforce your Note, and scrutinize their accounting methods.
 

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Congratulations! Your Chapter 13 Plan has been confirmed and the Order of Confirmation sets forth the terms of your trustee plan payments.  What happens next? Well, a lot can happen over the 3 or 5 years you'll remain in bankruptcy and making those trustee payments.

You now have the option of setting up electronic payments to the trustee, instead of certified funds. Every year, you will need to provide your attorney with a copy of your filed tax returns. You'll also want to stay in communication with your attorney should your financial situation change to where you can no longer afford your plan payments.

Every year, the trustee will review and analyze your tax returns in comparison to your income and expenses you reported in your bankruptcy papers to determine whether they will ask the court to increase your plan payments. So, I understand that generally, they will ask for increased payments when your income has increased to the point where your disposable income increases by 10% as their margin. Don't quote me on this, I have only heard this from one trustee here in the Central District; it's not a hard and fast rule.

With a 60% success rate of getting to your discharge, you need to be ever mindful of your budget and expenses. It takes approximately 18 months of living within the fairly strict budgeting of a chapter 13 case to really gain solid financial ground. Watch your expenses and you'll make it to the end.

Getting a discharge is especially important in Chapter 13 cases where you're seeking to avoid a junior mortgage lien on your home. That's because the lien will not be removed from your property until your case is discharged. This is the dangling carrot that propels many a debtor to complete their Chapter 13 plans. While there is some case law to support lien avoidance if you convert your case to Chapter 7, the courts are split on this issue.

Lastly, you MUST complete a post-filing financial management course. There are many court approved courses that you can take and some attorneys will even pay for this course for their clients. My favorite is Dave Ramsey, but there are other, less expensive courses you could take. If you have followed your attorney's advice and made all of your plan payments, your Chapter 13 Discharge and financial fresh start is well deserved.

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An above median debtor who has no disposable income only need propose a 36 month plan according to Henderson, David W. and Candice Y.; In re, 21 CBN 754 (Bankr. D. Idaho 2011), which means that the Kagenveama case is still good law.  The court overruled the trustee's objection to confirmation of the debtor's plan in Henderson. The debtor proposed a 36 month plan because they had negative disposable income according to their Form 22C.

In re Kagenveama, 541 F.3d 868 (9th Cr. 2008) the court said, "if a trustee or unsecured creditor objects to plan confirmation for an above median income debtor with positive projected disposable income to unsecured creditors for a period of no less than five years, i.e., the applicable commitment period. ...If, however, that same above median income debtor has no projected disposable income, the Ninth Circuit holds that 'applicable commitment period' does not apply."

The trustee argued that Kagenveama was overruled by the Supreme Court case of Hamilton v. Lanning, 130 S.Ct. 2464 (2010), but the Henderson court rejected that argument citing that the Supreme Court adopted the forward looking approach. However, the Lanning decision did not directly address the issue here of whether Section 1325(b)(1)(B) requires an above-median income debtor with no disposable income to make payments to creditors over the applicable commitment period."

What this all means is that if you're an above-median debtor with no projected disposable income, your proposed plan payments do not need to continue for any set period of time, and certainly not for five years as suggested by the trustee in the Kagenveama case. Just remember to review this prior warning about that projected disposable income.

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Like millions of Americans who take their old car to the dealership and trade it in for a new one when they still owe money on that old car, they wind up financing both the amount owed on the trade-in along with the new car loan.  This transaction leaves the consumer with negative equity in their new car and the dealership is risking that negative equity if the consumer later files for bankruptcy.  Recent case law supports the consumers filing bankruptcy and means bad news for dealerships who have made these negative loans.

The 9th Circuit appellate panel in In re Penrod, showed that Penrod owed more on the Explorer than its agreed trade-in value, and this difference is known in the auto trade as “negative equity.” The bankruptcy court ruled that the negative equity portion of the loan could be treated as unsecured debt. The Bankruptcy Appellate Panel ["BAP"] affirmed this ruling, and the three-judge panel affirmed the BAP.  The Court denied a rehearing on an earlier ruling, allowing the Debtor's negative equity in their automobile to be treated as unsecured debt in their Chapter 13 Plan. 

This is good news for consumers who owe more money than their car is worth. What this means is that the principal owed on the car loan will be reduced to the present market value, and the remaining balance owed will then be treated as unsecured debt. When the debtor receives their discharge, their legal liability to pay on their car loan will be that reduced amount. It is important to remember that liens will survive bankruptcy under most circumstances. So, in order to keep the car and receive the title to it, the debtor must pay off the loan. When considering bankruptcy to eliminate debts under Chapter 7, or restructure debts under Chapter 13, your bankruptcy lawyer will examine your financial situation to advise you which option is right for you. By the way, need I mention that borrowing more than a car is worth is a very poor financial decision you should avoid? 

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Whenever a consumer debtor files bankruptcy under Chapter 13 of the Bankruptcy Code, they may need to provide a Plan payment of all of their projected disposable income pursuant to 11 U.S.C. § 1325(b)(1).  That may sound easy to provide your projected disposable income, but the interpretation of the term is one of the most controversial issues arising in consumer cases according to Professor Ned W. Waxman who wrote an excellent article entitled, "Projected Disposable Income: Legislative Lunacy and Judicial Gyrations," 46 Houston Law Review 867 (2009).

Professor Waxman laid out the then existing judicial approaches being utilized in courts throughout the country. They are the Starting Point approach, the Mechanical/Multiplier approach, The I and J approach, and the Excusal from filing I and J, and Resetting the 6-Month period to Determine Current Monthly Income approach.  His journal article is a must read for consumer bankruptcy practitioners and provides an overview of the cases leading up to the Lanning case.

Last year, I briefly discussed the topic of projected disposable income in Chapter 13 bankruptcy cases while the Hamilton v. Lanning, 130 S. Ct. 2464 case was still pending before the U.S. Supreme Court. Lanning was decided on June 7, 2010 and the Supreme Court settled on the Forward Looking approach on the issue.  Since then, the case has been cited/distinguished in more than 72 cases throughout the country.  So, where are we now?  I'll give you the Lanning decision update from a California perspective, which is the 9th Circuit approach.

In re Smith, 418 B.R. 359 (2009) held that Debtors may not deduct payments not being made because they intend to surrender the property, "Ironic it would be indeed to diminish payments to unsecured creditors in this context on [**3] the basis of a fictitious expense not incurred by a debtor." Ransom v. MBNA Am. Bank (In re Ransom), 577 F.3d 1026, 1030 (9th Cir. 2009).

In re Thiel, 2011 Bankr. LEXIS 757, explained tha Lanning effectively overruled, in part, Maney v. Kagenveama (In re Kagenveama), 541 F.3d. 868 (9th Cir. 2008). A fair reading of Lanning indicates that the Supreme Court did not there discard the BAPCPA amendments to § 1325, nor jettison the calculation of current monthly income or disposable income under the Code that finds expression in each chapter 13 case through Form 22C. To the contrary, it was clear that Form 22C is to be followed, except in those exceptional cases where a forward-looking approach is required to take into account "known [*13] or virtually certain" information impacting the debtor's income or expenses. Id. at 2475.

In re Gladwin, 2011 Bankr. LEXIS 489, At issue is whether the disposable income require-ment of § 1325(b), after enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), allows a below median income debtor to continue making monthly payments for a debt secured by a boat used solely [*2] for recreational purposes. For the reasons set forth below, this Court concludes that the Debtor failed to satisfy § 1325(b)(1)(B), and that the Debtor's monthly boat/trailer payments are not reasona-bly necessary to be expended for the maintenance and support of the Debtor or a dependent of the Debtor.

In re Warren, 2010 Bankr. LEXIS 4644 denied the confirmation of the Debtor's Plan and the Trustee's request for dismissal as the Debtor's did not propose their plan in bad faith, but failed to provide all of their projected disposable income to the Plan.  These Debtors had two cars and two motorcycles and their expenses were above the standards provide in the Code without explanation to justify the increased expenses.

The bottom line with these cases is this:  Be sure your expenses are necessary for the maintenance and support of your household; and your Chapter 13 Plan provides for all of your projected disposable income. 

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Yep. You read that right. Filing for bankruptcy will improve your sex life. No blue pills; no magic bullet; and no better way to improve your sex life than to powerfully deal with DEBT by filing for bankruptcy.  The reasoning is simple:

The same reason that got you into DEBT is the same reason it's crippling you now, emotionally, and making your sex life miserable or even non-existent; it's your personal identity or EGO!

You got into DEBT to buy things you didn't need with money you did not have in order to look good and be attractive to the opposite sex. You did this in order to get sex.  Unfortunately, you failed to plan for a way out of debt and now find yourself stuck in a hole too deep to dig yourself out of. [No pun intended]

This financial burden weighs heavily on your personal identity ("EGO") and your self worth is tied up in your wallet, so much so that you are emotionally drained according to psychotherapist Phil Tyson, Ph.D. who wrote, Do You Understand the Psychology of Debt?  I've even written about your emotional ties to money in my white paper entitled, Money is a Matter of the Heart.  So, how do I suggest you improve your sex life?  Deal powerfully with your DEBT by filing bankruptcy.

Bankruptcy is a powerful tool that will eliminate the stress in your life that will allow you to get that much needed sleep.  Getting enough sleep actually helps reduce stress. Less stress means your self esteem goes up. When stress goes down and self esteem rises, you will feel better about yourself.  When you feel better about yourself, you're happier and want to have sex. Oh, and you're much more attractive to the opposite sex when you're happy. Therefore, filing bankruptcy will improve your SEX LIFE!

Contrary to popular belief, filing bankruptcy will actually improve your credit score too, and it eliminates your legal obligation to pay your debts permanently.  It's better than debt settlement because you won't owe any money to the IRS on debts discharged in bankruptcy, like you would if you negotiated a settlement of your debts.  In bankruptcy, you can use Exemptions to protect your property from being taken by the trustee and still eliminate your debts.  Most bankruptcy lawyers offer FREE consultations.  You're worth it to eliminate your debts and your sex life will improve.  Now that's just plain sexy.

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If you're a California homeowner considering filing bankruptcy to save your home and potentially litigate against your alleged mortgage creditor, there are some steps you can take now to help your bankruptcy litigation attorney later.

First, gather up all your original mortgage loan documents and have them available for your attorney. Keep these loan documents safe and save every notice, account statement,etc. as this information may become important pieces of evidence later on.

Next, you will want to contact your current loan servicer and obtain some very important information about your loan. You'll do this by making what is called a Qualified Written Request ("QWR") under the Real Estate Settlement Procedures Act ("RESPA").

The QWR must be sent to a special address for the loan servicer and that address is usually the "correspondence" address found on the back side of your monthly mortgage statement.  It's best to send this request via certified mail so you can record and prove they actually received your request.

Below is a sample of the letter you could write under RESPA:

Dear Sir or Madam:

 

Please treat this letter as a “qualified written request” under the Federal Servicer Act, which is a part of the Real Estate Settlement Procedures Act, 12 U.S.C. 2605(e).  This request is made on behalf of my Clients about the proper application of payments from the debtors to interest, principal, escrow advances and expenses (in that order of priority as provided for in the loan instruments); about your use of suspense accounts in connection with your receipt of the debtors’ payments; about your use of legacy late charges; about your use of automatically triggered property inspections and broker price opinion charges and fees based on pre-petition legacy accounting for pre-petition arrears; and about legal fees and expenses that have been attached to this account in the form of corporate advances.  Specifically, I am requesting the following information:

1.       A complete and original life of loan transaction history prepared by the Servicer from it's own records using it's own system and default servicing personnel.

 

2.       A copy of your Key Loan Transaction history, bankruptcy work form, or XLS spreadsheet of all accounts associated with this mortgage loan.

 

3.       The Transaction Codes.

 

4.       The Code definitions in plain English.

 

5.       Please attach a copy of the MERS Milestone Reports.

 

6.       Please identify the full name, address and telephone number of the current holder of the original mortgage note including the name, address and phone number of any Trustee under the Trust or other fiduciary.  This request is being made pursuant to Section 1641(f)(2) of the Truth In Lending Act, which requires the servicer to identify the holder of the debt.

 

7.       Copies of all collection notes, collection records, communication files or any other form of recorded data with respect to any communications between you and the debtor.

 

8.       An itemized statement of the full amount needed to reinstate the mortgage as of the date of your response.

 

9.       Copies of all written or recorded communications between you and any non-lawyer third parties regarding this mortgage.

 

10.     All P-309 screen shots of the history all of the accounts (principal, interest, escrow, late charges, legal fees, property inspection fees, broker price opinion fees, statutory expense fees, miscellaneous fees, corporate advance fees, etc.) associated with this loan.

 

To the extent that the servicer of this mortgage loan has charged the debtor’s mortgage loan account any appraisal fees, broker price opinion fees, property inspection/preservation fees, legal fees, recoverable corporate advances and other fees or costs that were not disclosed to the debtors, the debtors dispute any such fees and costs and specifically request that the account be corrected.

Once you have the response from the loan servicer, make an appointment to meet with your Chapter 13 Bankruptcy Litigation Attorney to review the documents and start your bankruptcy case. Remember that most consumer bankruptcy attorneys will offer a FREE initial consultation to help you decide if filing bankruptcy is right for you.  Even if you don't intend to file bankruptcy, a qualified written request will provide you with important information about your mortgage and the creditor.

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U.S. Bank misled the Debtor into abandoning bankruptcy by promising to work with the Debtor on a mortgage reinstatement and loan modification. The case, Aceves v. U.S. Bank, N.A., No. B220922 (Cal.App. Dist.2 01/27/11) the California Court of Appeal for the 2d Appellate Division found that the Debtor could have reasonably relied on the bank's promises, the promises were sufficiently concrete to be enforceable, and the Debtor's decision to forgo Chapter 13 relief was detrimental because it allowed the bank to foreclose on the property. Here's my favorite part:

"Contrary to the bank's contention that Plaintiff's use of the Bankruptcy Code was ipso facto bad faith, Chapter 13 is uniquely tailored to protect homeowners' primary residences from foreclosure," the appellate court said.

After the debtor abandoned her case, the lender foreclosed.  The trial court entered a judgment in favor of U.S. Bank and the appellate court reversed on the issues of promissory estoppel and fraud. This means that if the lender promises to work with you and then they later foreclose after you have taken action in reliance on their promise, the lender could be liable for their actions.  Unfortunately, this story does not have the happiest of endings because the court found no basis for voiding the deed of sale or otherwise invalidating the foreclosure.

The moral of this story is that you receive valuable rights under Chapter 13 Bankruptcy that will stop the foreclosure sale through the injunction provision of 11 U.S.C. §362 (Automatic Stay). The bankruptcy court can reinstate your loan and will permit you to cure your default through Chapter 13 Plan payments over 3 or 5 years. Since Congress refuses to allow bankruptcy judges to modify the terms of the loan, you'll have hire an attorney who focuses their practice on predatory lending, mortgage fraud and the securitized mortgage pools to determine whether you have legal claims that could potentially be litigated during the pendency of your bankruptcy case.

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Every time I sit in court on confirmation hearings there are at least a few cases that get dismissed because the debtor's did not complete their court required pre-filing credit counseling course before they filed their bankruptcy case. The Bankruptcy Code is very clear on this and

Your case will get dismissed if you fail to complete the course prior to filing your bankruptcy case.

There are plenty of courses to choose from and a few will provide you with a completion certificate on an emergency basis.  You can file your bankruptcy case, the moment your course is complete and can file the certificate at a later time.  Since the course certificate is date and time stamped, the court will be able to confirm that you've completed the course before your bankruptcy case was commenced.

Here's a list of approved credit counseling agencies.  Just click on your state from the drop down menu and you can choose from any company on the list.  Here in California, we have the best deal in the market for pre-filing credit counseling courses.  This course was once offered for free, but now the certificate costs $5.00.  For this low cost course, go to Consumer Bankruptcy Counseling. Save yourself the hassle of filing twice and comply with the rules.  Call your local bankruptcy attorney for a free consultation if you're not sure what course of action is right for you.

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 Back in July, 2010 I reported on the 9th circuit case of Mwangi v. Wells Fargo Bank, N.A., "Wells Fargo Won't Stop Freezing Bank Accounts." Our local group of attorneys here in the Central District of California have it on good word from sources inside Wells Fargo's bankruptcy department that the bank continues to freeze accounts while the litigation case is reviewed by the bankruptcy court in Nevada.  The Mwangi case has been remanded back to the bankruptcy court to determine whether Wells Fargo's continuation of the administrative freeze and retention of the account funds claimed exempt, in the absence of instructions from the trustee, was reasonable in light of the debtor's demand that the subject account funds be released for their use.

This is a case to watch as it affects all debtors filing bankruptcy, clients of Wells Fargo Bank, N.A. and the Automatic Stay under 11 U.S.C. § 362(a).  On January 21, 2011 Christopher P. Burke, Esq. and Scott C. Borison, Esq. attorneys for Eric Mwangi and Pauline Mwicharo [Plaintiffs] filed case no. 11-01022-bam in U.S. Bankruptcy Court for the District Court of Nevada this Adversary Class Action Proceeding.  

The allegation from the complaint alleges that Wells Fargo Bank acted in Willful Violation of 11 U.S.C. §362(a)(3).  If the court determines Wells Fargo's conduct was a willful violation of the stay under §362(a), then the bankruptcy court will need to determine what, if any, damages the debtors are entitled to under §362(k)(1).  We will keep you posted on the progress of this pending case and the outcome.  In the meantime, don't bank where you owe money.

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 Have you heard of Judicial Estoppel?  Well, you need to if someone owes you money and you're thinking of suing while contemplating bankruptcy. The doctrine of Judicial Estoppel generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase. What this means is that what you disclose on your bankruptcy papers become public record in a legal proceeding; a judicial record.  So, if you're owed money or have a potential creditor harassment suit and you fail to list these potential claims on your bankruptcy papers and later file suit, that subsequent lawsuit can be dismissed on a judicial estoppel theory.

A recent 6th Circuit case, White v. Wyndham Vacation Ownership, 617 F.3d 72 (6th Cir. August, 2010) illustrates this point.  The question presented before the court was whether the failure of the debtor to disclose in her schedules, a sexual harassment claim she had was grounds to dismiss the harassment case on the basis of judicial estoppel.  The court held yes. In this case, the Debtor filed bankruptcy under Chapter 13 but did not list a sexual harassment claim she had against the defendants in this district court action. About a week after the plan confirmation hearing, she file a lawsuit in district court seeking more than $1 million in damages. A month later, the defendants filed a motion to dismiss the harassment case on the basis of judicial estoppel. The Debtor later filed an amendment to her schedules disclosing the case, but not the amount. 

The court cited two  circumstances in which a debtor's failure to disclose might be deemed inadvertent or mistake as:

1.  Where Debtor lacks knowledge of the factual basis of the undisclosed claims; and

2.  Where the debtor has no motive for concealment and an absence of 'bad faith.'

The reasoning behind this important decision is that your creditors should be entitled to any proceeds or the value thereof in your bankruptcy case.  So, while you will likely be able to keep your stuff and claims too, it's wise to disclose potential claims to preserve your right to sue later. Remeber that you sign your bankruptcy papers under penalty of perjury that you have fully disclosed all assets, claims, debts and liabilities, so there's no having it both ways in bankruptcy.

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 We're still uncovering the fraud perpetrated by the mortgage meltdown and have yet to deal with the more than 95 million securitized mortgages that have yet to adjust.  We have seen tremendouse changes in the industry as new laws and regulations are changing the way the industry does business. In the January issue of Los Angeles Lawyer, Beth S. DeSimone, James D. Richman and Tengfei (Harry) Wu of the firm Arnold & Porter, LLP wrote an in-depth article entitled, "Down Payment: The Dodd-Frank Act takes aim at the primary abuses uncovered during the mortgage meltdown." I think the changes in the law are nothing more than a little bit of "CYA" by our government's "turn the other cheek" approach to regulating industry. I mean really, it's only the largest single debt you'll ever enter into in your life, why shouldn't the industry make a little money?  

So, from the mortgage meltdown, we have a new government agency called the Bureau of Consumer Financial Protection (CFBP); don't you feel better now?; and perhaps the most important change is the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by Obama on July 21, 2010. The Dodd-Frank Act changes the way mortgage lenders, brokers, appraisers, settlement service providers and other industry participants will conduct business.  It doesn't change the past and may not do enough in protecting consumers, but it sure does make our absent minded government seem interested in the issues. What I really like about these new rules is that a violation is an assertable defense for a borrower in a foreclosure action, without regard to the statute of limitations under Section 1413.

Another important point is that there is a safe harbor for lenders making a qualified mortgage loan that provides seven characteristics under Section 1412.

1. The loan must no permit negative amortization, or subject to certain exceptions, deferred principal;

2. Subject to certain exeptions, it must not require any balloon payment;

3. The income and assets relied on to qualify the borrower must be verified and documented;

4. Underwriting must be based on the full amortization over the loan term;

5. The debt-to-income ratio must not exceed certain guidelines to be set by regulation;

6. Total points and fees must not exceed 3 percent of the total loan amount; and

7. The loan term must not exceed 30 years, subject to certain exceptions.

"Down Payment" provides more detail into the new regulations and features of the Dodd-Frank Act and is a must read for those practitioners helping consumers with their mortgages and real property. Consumers reading this article should take note of the safe-harbour characteristics outlined above because I believe that these should be consumer guidelines when shopping for a mortgage loan.  

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The folks over at Public Counsel Law Center are always providing valuable information to consumers.  Public Counsel Law Center is the nation's leading Pro Bono Law Firm and they do a great job in bankruptcy practice with their reaffirmation clinics and the new help desks at the clerk intake counter. Here are their

5 tips to avoid loan modification scams:

1.  Don't Pay Up Front Fees;

2. Don't Transfer Title or Sell Your House to a "foreclosure rescuer;"

3. Don't Pay your Mortgage Payments to Anyone Other Than Your Lender or Loan Servicer;"

4. Never Sign Any Documents Under Pressure or Without an Opportunity to Review Them.

5. Don't Ignore Letters From Your Lender or Loan Servicer.  Responding is the Best Bet For Saving Your House.

If someone demands an up-front fee, Public Counsel adivses that you can report them to the Attorney General's Office at 1-800-952-5225; or file a complaint online. Remember that the best way to get a workout is to work directly with your lender. 

Remember that the foreclosure process will continue on your home during your attempts to workout a modification agreement with your lender.  You may also want to consult with a bankruptcy lawyer to create an exit strategy if your modification offer falls through and you still want to keep your home. The filing of a bankruptcy case will legally stop the foreclosure process and will give you the breathing room you need to continue to work with your lender and have an advocate on your side.

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 The Court in In re Kemp 2010 WL 4777625 (Bankr. D. N.J. November 10, 2010) held that a claim filed by a mortgage servicer would be disallowed when that creditor did not have possession of the note and the note was not endorsed to the creditor at the time the claim was filed. The bankruptcy court cited New Jersey's Uniform Commercial Code in disallowing the creditor's claim because Countrywide Home Loans, Inc. d/b/a America's Wholesale Lender could not prove that it was the holder in possession of the note; Non-holder in possession; nor Non-holder not in possession of the note. Here in California we have similar codes under the California Commercial Code ("CCC"). 

What this case means for debtors is that debtors must be clearly prepared to challenge claims asserted by their mortgage lenders and/or servicers. When debtor's counsel produce clear records of creditor's failures to document the chain of custody and assignments of promissory notes debtors will successfully knock out these claims.  Debtors counsel must cross-examine witnesses; propound opposing parties for admissible evidence and demonstrate the creditor's failure to follow the CCC.

Once successful in opposing the Proof of Claim filed by the Creditor, the Debtor can then file an Adversary Proceeding (lawsuit) against the creditor to determine the extent, priority and/or validity of the lien as the motion to disallow the claim does not address this issue.

Attorneys representing debtors must be prepared to demand proof of authority and ownership of the note and challenge the effectiveness of any attempt to assign or transfer the note or deed of trust after the bankruptcy case was filed or on the eve of trial because these action not only violate the automatic stay in some cases; they may also violate the securitized trust pooling and servicing agreement. 

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A fundamental part of deciding to file bankruptcy is helping our clients achieve their financial goals.  One of the toughest decisions clients struggle with is deciding whether to keep their homes.  Many Californians are faced with underwater property values; denied loan modifications; falling behind on mortgage payments when their teaser rate terms end; and the fact that we live in a non-judicial foreclosure state where a home can be foreclosed without notice to the courts.

The short answer to this daunting question is Yes you can keep your home and file for bankruptcy. Under Chapter 7 liquidation bankruptcy, it is always recommended that you be current on your mortgage payments and have equity within the California Exemption limits.  If you're behind on your mortgage payments, the most effective way to deal with the "mortgage arrears", as they are called, is to file bankruptcy under Chapter 13 where you get to make up those past due payments over a period of 3-5 years.

The deeper question is whether you're trying to save the impossible American Dream of owning a home and at what price are you willing to pay to have it?  Unless you're stripping off a second mortgage and willing tolitigate against your loan servicer or lender on the securitized mortgage issues, then you may be better off walking away from your home completely because the values will increase over time, but this recovery will take a very long time; 10 years or more.

The numbers are staggering when you look at what you currently owe against a continuing decline in property values and what your home may be worth by the time you're finished paying on that outrageous mortgage.  If you're determined, committed and willing to go the distance and keep your home, the most economical method of saving your home is by filing bankruptcy under Chapter 13 if you're behind on your payments. 

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My partner, John Greifendorff and I appeared yesterday on Real Estate Radio with Ron Siegel again and briefly discussed the issue of lien stripping. The legal term used is 'lien avoidance,' and your lawyer's work is completed through either a motion or adversary complaint filed with the court in your bankruptcy case.  Effectively upon order of the court, the lien of your second mortgage, or junior lien, is removed from your property, thus making it an unsecured debt to you.  That debt is then placed in your Chapter 13 Plan.  At the end of your bankruptcy case, what ever balance remains is discharged and you are no longer legally obligated to pay on that debt.

Many courts hold that the debtor must complete their bankruptcy plan for the lien avoidance to be effective.  The bloggers over at The Bankruptcy Law Network recently posted that such liens, at least in the Southern District of California may become effective prior to the discharge of debts in the bankruptcy case; article. In either case, you could potentially avoid a significant amount of debt with this valuable bankruptcy tool.

Here's how you know if this tool is right for you.  If you owe more on your first mortgage than the fair market value of your home, you can avoid any junior or second mortgage. You will be required to have an appraisal of your home in support of your motion. Consult with your local bankruptcy lawyer to create your personal path to financial freedom from debt.

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 In Chapter 7 Basics, I wrote briefly about the means test that was created in 2005 under BAPCPA where MBNA Bank, N.A. worked hard to make it more difficult for consumer debtors to qualify to file bankruptcy under Chapter 7 and created more disposable income to pay creditors under Chapter 13. It's interesting to note that this same bank who help draft the bankruptcy rule changes is now the subject bank in the Ransom case, which is to be decided by the Supreme Court early next year.

The lower 9th Circuit Court ruled in Ransom v. MBNA Am. Bank, N.A. (In re Ransom), 577 F.3d 1026 (9th Cir., Aug. 14, 2009) that an above-median debtor could not claim the ownership deduction of a vehicle in a means test calculation even if that debtor owned his vehicles free and clear and was not making payments on a vehicle. Other lower courts, including the 8th Circuit ruled the exact opposite.  It is this split of the lower courts that prompted the Supreme Court to hear the case.

The question presented before the Supreme Court is Whether, in calculating the debtor's "projected disposable income" during the Plan period, the bankruptcy court may allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles. There are several compelling arguments to be presented as both common sense and following the letter of the law.  A Note to Big Banks:  The law is both a shield and a sword.  Even though you did your best to make these changes to the law bend at your whim, we Consumer attorneys will continue to point out the error of your ways!

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Tune in to AM830 this Sunday morning from 10 a.m. to 11 a.m. when my partner John Greifendorff and myself, Christine Wilton guest on Real Estate Radio-Southern California with our host, Ron Siegel!

Ron Siegel is host of "Real Estate Radio - Southern California" on ESPN Radio AM 830 KLAA Sunday's from 10-11AM. Every Sunday, Ron discusses current events, real estate, and various other financial topics.  Mr. Siegel runs the Real Estate and Mortgage Resource Center at Stearns Lending and his radio show explores this topic from every angle.

The Real Estate Radio Network, hosted by Ron Siegel, is designed to help Consumers in Southern California understand the HOW and the WHY in our incredible Real Estate Market. Southern California is a unique place to live and an incredible place to invest. If you don’t own a piece of Southern California yet, make sure you tune in and gain all the knowledge you need to make an educated decision about when to enter the market. If you already own a home, listening to the Show will help you understand when it’s a good time to sell or refinance. Either way, the show is for you and we hope you’ll join us this Sunday at 10am on ESPN Radio AM 830 KLAA!

This Sunday morning from 10 a.m. to 11 a.m. we will answer questions that will effectively assist southern California homeowners deal powerfully and effectively with their lenders through bankruptcy.  Bankruptcy is a powerful tool for homeowners and is often overlooked and considered a last resort, yet the injunction that is the automatic stay is enforceable from the moment a bankruptcy case is filed, and Stops foreclosure dead in its tracks.  No other remedy is as effective or as economical to the homeowner.  Send us your questions and we'll do our best to get them all answered.  Thanks for listening!

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The foreclosure crisis is heating up in the media.  Last Friday, Attorney General Jerry Brown issued this Press Release saying,

"All lenders should halt foreclosures until they clear up this mess and ensure that the process is fair and complies with California law,"  Brown said. "Bank of America has taken an important step, and the other major lenders should follow its lead."

Brown called on all banks to halt foreclosures here in California, after the GMAC Mortgage deposition of a robo-signer from Florida was exposed. 

Consumer attorneys nationwide have been attacking this problem since the economic crisis began and we're not about to give up.  When it comes to fighting this fraud in bankruptcy, our fearless leader, O. Max Gardner is leading an army of more than 200 attorneys nationwide through his Bankruptcy Litigation Model Bootcamps.  The news has even reached Edmonton where one graduate's case was recently highlighted,  "'Robo signer' ruling gives owners loophole in foreclosure cases."

Other news releases show that, like dominos, other banks are falling in line and halting their foreclosures under the pressure of the media attention being spotlighted on the industry's careless practices.  The  trust of the American people has eroded as the American dream of homeownership turns into our nation's nightmare because of corporate greed.  The question of whether the foreclosure crisis is slowing the economic recovery is addressed at Daily Finance.

The foreclosure crisis has not slowed recovery, it's the denial of the federal government that this is a problem at all that's causing us to sink deeper into economic uncertainty.  Here's another great article that exposes the Rot from Within the Foreclosure Mess.

It's time for the American people to take back our country.  Make your Vote count!  If you suspect fraud, report it!  Call your local bankruptcy attorney and take a stand to stop your dream from being stolen from you.

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The sub-servicers of the mortgage industry are in the business of foreclosure, not loan workouts; in case you were wondering. GMAC has dressed up in sheep's clothing by changing its name to Ally Bank; owned by GMAC, LLC.  Now, GMAC has even California Attorney General Jerry Brown halting their foreclosures after a deposition of one of GMAC's employees was leaked to the press.  So what's all the fuss about? 

GMAC Mortgage is only one of the many loan servicers nationwide, including J.P. Chase, and Bank of America among others to have banks of employees with alleged limited signing authority as Vice Presidents, Assistant Secretaries of Mortgage Electronic Registration Systems, Inc. that assigned your deed of trust in order to correct the record after your home has been foreclosed.  We call them "Robo-Signers" because that's all they do all day long is sign documents they have no idea as to what the documents are or the consequences of their actions.

How does knowing all this help the homeowner who hasn't yet lost their American Dream?  Have your loan documents reviewed by an attorney who understands the securitization process and whether your home is worth fighting for and whether you can afford to keep it.  You need to do this before the home is foreclosed; before any sale date is set. Consider filing under Chapter 13 and dispute the ownership of the Note and the accounting, if your mortgage has been securitized.

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Here's a tip; if you're going to live extravagantly, don't make that lifestyle the focus of a reality show. Teresa Guidice starred in the reality show, Real Housewives of New Jersey, with her husband Giuseppe.  Mrs. Guidice was often featured on the Bravo show going on outlandish spending sprees to furnish their newly constructed and underwater, $1.7 million dollar home. Now, the Chapter 7 bankruptcy trustee is alleging the debtors hid more than $250,000 in assets in their bankruptcy petition filed in November, 2009. 

You don't have to look very far to see the cash fly.  Teresa Guidice has a book, Skinny Italian; an online clothing boutique, T.G. Fabulicious LLC.; and the couple is also accused by the trustee of having an interest in a pizza parlor and laundromat.  They also mysteriously made more luxurious purchases after their bankruptcy filing.  Apparently, the online company made these purchases for their household goods totaling more than $60,000.  The trustee is seeking a preclusion of discharge and/or a dismissal of the bankruptcy case that would deny the debtors the benefits of bankruptcy.  The drama unfolding in federal Bankruptcy Court is worthy of a reality show all its own. 

There is a lesson in here somewhere I just know it.  I suspect that hiding assets from the bankruptcy trustee is never a wise idea.  Remember that you are signing your bankruptcy petition and schedules under penalty of perjury that you have disclosed all of your assets and all of your debts.  Bankruptcy Fraud is Prosecuted and is a Crime. 

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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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