Thursday, December 30, 2010

Should I Reaffirm my Mortgage Debt? What about a Second Mortgage?

Addressing mortgage debt is often a primary concern in many consumer bankruptcies. Debtors that decide to continue to pay the mortgage on their current house may be setting themselves up for future financial problems if they have difficulty paying the mortgage, post-bankruptcy. Alternatively, a debtor may be able to discharge the underlying mortgage and surrender the house back to the bank if the payments are not affordable, but is then faced with finding a new place to live. The decision of whether or not to re-affirm comes down to the specific facts of your case and what is a realistic future budget for your household.

Popular mortgage packages offered in the past ten years often featured “jumbo” financing: that is, financing of nearly one-hundred percent of the purchase price of the home. In many cases, this was done with a primary traditional mortgage, which financed approximately 80% of the purchase price, then a second mortgage or home equity line of credit that financed the balance.

Today, with the decline in home prices, many borrowers find themselves owing more on their homes than they are worth; in extreme cases, the second mortgage may be completely unsecured because the home is worth less than the balance of the first mortgage, without even adding in the balance of the second. In some cases, it is possible to “strip off” an unsecured second mortgage in bankruptcy, leaving the borrower with only one mortgage to pay. It is generally accepted that in Chapter 13 bankruptcy, a second mortgage can be avoided, and treated as unsecured debt.

Although, most attorneys believed that this could be done in a Chapter 7 case, an Eastern District of New York bankruptcy case may suggest otherwise. Here, the Debtors owned a house, where the fair market value was less than the balance of the first mortgage, leaving the second mortgage unsecured. After filing bankruptcy, the bank requested for permission to foreclose on the second mortgage the debtors opposed; arguing that the bank could not foreclose because the second mortgage should be avoided as wholly unsecured and not treated as secured debt.
The Court agreed.

The bank was not permitted to foreclose, and the lien was permanently voided. Judge Eisenberg explained that the well-recognized holdings in Chapter 13 clearly demonstrate that under the Bankruptcy Code it is appropriate to distinguish partially secured liens from wholly unsecured liens, and that there is no reason why in a Chapter 7 context the same language in the Bankruptcy Code should not void the lien of a wholly unsecured claim.

Of course, this is the outcome of a single New York case, and the bankruptcy Judges in Massachusetts are not obligated to follow this outcome. However, given the proper circumstances, it may be an option to consider. If you would like

Kelsey & Trask, P.C. would like to thank Dan Press, Esq., a Maryland Bankruptcy Attorney, for inspiring this article.

Will I Lose my Professional License if I file for Bankruptcy?

Pursuant to section 525(a) of the bankruptcy code a government agency cannot deny, revoke, suspend or refuse to renew a license to a person who has filed for bankruptcy, solely due to their filing for bankruptcy. This means that you will not lose your license to practice your profession due to filing, but it does not mean that you won't lose your license for related reasons if you have violated the standards of your profession.

For example, an attorney in Texas lost his license to practice law based on his failure to comply with a debt management plan and eventual bankruptcy. The Court relied on the questions his poor debt management raised about whether he could demonstrate that "he was a person of good moral character." The decision was not solely due to his bankruptcy, but the "good moral character" standard used by the Court was so vague as to give the bar great leeway in denying a license.

Regardless of whether you are forced to file bankruptcy, you should refer to the specific standards and requirements of your profession and ensure that you comply with those standards and requirements to avoid a similar fate.

Wednesday, December 29, 2010

Can I Lose my Job for Filing Bankruptcy?

It is prohibited by the Bankruptcy Code for an employer to fire you solely because you filed for bankruptcy.

Section 525(a) of the bankruptcy code states that a governmental unit may not

"deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act."

Similarly, Section 525(b) prohibits private employers from terminating the employment or discriminating with respect to employment of a person who is or has been a debtor under all the same circumstances quoted above.

It is important to note, though, that the same standards may not apply to hiring discrimination. Recently, the Third Circuit Court of Appeals held in Rea v. Federated Investors that the omission of the words "deny employment to" in subsection (b) meant that private employers could discriminate against a potential employee because that person had filed for bankruptcy. The Court decided that the inclusion of the words "deny employment to" in subsection (a) was a significant difference in the obligations of governmental employers and private employers.

Special thanks to the Lawffice Space Blog for bringing this recent case to our attention.

Wednesday, December 22, 2010

Don't Go Alone Word Cloud

Wondering what we've been writing about. Below is a word cloud generated by Wordle displaying our most written about subjects:

Wordle Image

Tuesday, December 14, 2010

What will happen at your Section 341 Creditor's Meeting?

After a bankruptcy petition is filed under Chapter 7 or 13, each "petitioner" must sit through their section 341 meeting of creditors, usually scheduled approximately 30 days after the filing date. Many of our bankruptcy clients feel anxious leading up to their 341 meeting as they are unsure as to what to expect, but if you are prepared there is nothing to worry about.

The majority of 341 meetings only last five to ten minutes. You are required to bring your social security card and driver's license for identification. The trustee will review your identification, swear you in and ask you a few basic questions after reviewing your petition, for example your current living arrangements, whether you own any businesses, and whether you are the beneficiary of any trusts. If anything on your petition sticks out to the trustee, he or she might ask a few follow-up questions. Usually, if there is something that will stick out to the trustee, your attorney will have already asked you the same questions that the trustee will ask.

Generally, creditors do not attend the 341 meeting, although they have the right to be there and may be given the opportunity to ask you some basic questions. If you owe the IRS taxes, they will often attend the creditors meeting and ask questions relating to the petition. Again, your attorney should prepare you for the potential questions that might be asked if a creditor does decide to attend the meeting.

If you would like more information about how to prepare for your creditor's meeting, contact Attorney Matthew Trask or call 508.655.5980 to schedule a one-hour consultation.

Tuesday, December 7, 2010

How do I decide when to file for Bankruptcy?

There are numerous factors that dictate the best time to file your bankruptcy. Sometimes these are in your control, such as having your taxes filed, and sometime they are not, such as needing the automatic stay to delay a foreclosure proceeding.

Factors regarding the need to obtain an automatic stay will likely be dictated by your creditors, not you. The automatic stay is a useful tool in temporarily stopping foreclosure proceedings brought by your mortgage holder(s), as well as collection efforts, collection calls and lawsuits filed by your creditors, if any. This foreclosure and debt collection process generally takes a few months, not a few days, and the benefit of the automatic stay can create some additional time for the debtor to deal with logistical issues associated with preparing the bankruptcy petition, appraising assets, selling real property or finding new housing, if necessary.

In order to file for bankruptcy under any section of the Bankruptcy code (Chapter 7, 11, or 13), your federal income taxes must be filed up to the current year (2008). Other documents are necessary for preparing the bankruptcy petition and schedules, such as a credit report, current credit card statements, bank statements, and income information. If this information is not immediately available, it will take some time to collect and review. If you believe a bankruptcy filing is on the horizon, your best bet is to contact an attorney for a bankruptcy planning consultation, then begin preparing the information needed to file.

Equally important in deciding when to file is a debtor's own ability to handle the current situation, balanced against their need to make immediate changes. Some debtors will need time to prepare for relocation to an apartment or smaller home, whereas others will be anxious to take action to save their house or get a fresh start. These factors are unique to each case, and should be discussed with an attorney before filing your bankruptcy petition.

Friday, December 3, 2010

2 cows, 12 sheep, 2 swine and 4 tons of hay.

Are you overwhelmed with debt, but worried about your sheep? Bankruptcy might be the answer to your problems.

When filing a Bankruptcy as a resident of Massachusetts a debtor can choose to use the exemptions allowed under either State or Federal law, but you must choose one or the other. There are many exemptions that are similar under both schemes, such as the exemption of most qualified retirement plans.

There is one significant difference between the Massachusetts and Federal exemptions, though: under the Massachusetts' exemptions you can exclude from the bankruptcy 2 cows, 12 sheep, 2 swine and 4 tons of hay (M.G.L. c. 235 s. 34)

There is also one other significant difference worth mentioning between the Federal and Massachusetts exemptions: the equity in a residence is exempt under the Massachusetts exemptions up to $500,000 but only $20,200 in the Federal exemptions. Of course, who needs a home so long as you have your flock.

UPDATE: The Massachusetts Exemptions have recently changed. For more information read our post on the changes: New Massachusetts Property Exemptions: The Return of 2 Cows, 12 Sheep and 2 Swine.

Friday, November 5, 2010

I am the Trustee of a Trust. Can the Bankruptcy Trustee Take the Trust Assets?

If a debtor is a trustee of a trust, 11 U.S.C. § 541(a) provides that the bankruptcy estate includes the trustee’s powers granted under the trust instrument. The bankruptcy trustee has the power to step into the trustee’s shoes and exercise the trustee’s powers with respect to the trust, but this does not mean that the assets of the trust automatically become assets of the bankruptcy estate; rather, the assets in the trust remain separate from the bankruptcy estate.

However, depending on the terms of the trust, the trustee may have the power to revoke or terminate a trust, the power to amend the trust, or the power to direct distributions of funds of the trust. Therefore, these powers could allow the bankruptcy trustee (acting in place of the original trustee) to obtain access to the trust assets, particularly if the trust assets could be made available to the debtor. Additionally, when the trustee and beneficiary are the same person (and are the debtor in a bankruptcy case), the legal protections of the trust are “merged” into the sole trustee and beneficiary, making the debtor the sole beneficial "owner" for purposes of the bankruptcy code.

Thursday, November 4, 2010

I am the Beneficiary of a Trust. Can the Bankruptcy Trustee Take the Trust Assets?

A beneficiary’s interest in a trust may be property of the bankruptcy estate. However, any trust containing spendthrift provisions that make the beneficiary’s interest in the trust non-transferable are protected from the beneficiary’s creditors. 11 U.S.C. 541(c) honors state spendthrift clauses. Therefore, if the trust is properly created under Massachusetts law pertaining to trusts, the bankruptcy code will honor the settelor’s intentions and keep the debtor-beneficiary’s interest in the trust from becoming property of the bankruptcy estate.

Trust beneficiaries should be careful, however. If the settler and beneficiaries are the same, the trust is self-settled, rendering spendthrift provisions unenforceable. Further, if the doctrine of merger applies (described above), the trust will cease to exist and negates the spendthrift protection.

Monday, November 1, 2010

Can I Use My Credit Cards Before Filing for Bankruptcy?

The U.S. Bankruptcy Code at 11 U.S.C. § 523(C) sets forth evidentiary presumptions allowing the bankruptcy trustee or an individual creditor to automatically presume a particular credit card purchase or cash advance is non-dischargeable. If the presumption applies and is not rebutted with evidence introduced by the debtor, the debtor [you] will continue to owe that particular debt.

Specifically, the code states that a debtor’s discharge will specifically exempt from the discharge:

(I) consumer debts owed to a single creditor and aggregating more than $600 (as of April 1, 2010) for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and

(II) cash advances aggregating more than $875 (as of April 1, 2010) that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable.

As a result of 11 U.S.C. § 523(C), debtors are advised to make no purchases on credit cards in the three months (90 days) prior to their bankruptcy filing in order to ensure that the above presumption does not attach, and significantly reduces the likelihood that the trustee or a creditor will object to the discharge of a particular debt.

Unfortunately, sometimes it is not possible to wait the full 90 days. Some debtors need to seek the protection of the Bankruptcy Court to prevent foreclosure, to stop a pending lawsuit, or prevent repossession of a particular secured asset. In these cases, many debtors will have made recent purchases within the 90-Day period. It is important to discuss these purchases with your bankruptcy attorney, as things like travel, vacations, electronics or computer purchases may all be deemed “luxury” under the statute.

At the §341(a) meeting, nearly all Chapter 7 Trustees in Massachusetts will ask whether a creditor has “used any credit card in the past 30 days prior to filing bankruptcy”. The trustee is attempting to evaluate the likelihood that an 11 U.S.C. § 523(C) Complaint to Object to Discharge will be filed. While use of credit cards in the 30 days prior to filing is not proof of abuse (and grounds for nondischargability), it would raise the trustees suspicions that further investigation is warranted. As such, at Kelsey & Trask, P.C., we recommend that all creditors do not use any credit card or create any new debt in the 30 days prior to filing a Chapter 7 Bankruptcy case.

Thursday, October 14, 2010

New Median Income Figures Released for all Bankruptcy Cases Filed after November 1, 2010

The United States Trustee Program has released new Census Bureau data which is used for means testing calculations regarding Chapter 7 and Chapter 13 bankruptcy petitions. Due to the updated figures, the various standards for the expenses in the "means test" form will change for all bankruptcy cases filed on or after November 1, 2010.

In Massachusetts, the new Median Family Income figures are as follows:

Family Size of 1: $54,161
Family Size of 2: $67,142
Family Size of 3: $82,385
Family Size of 4: $100,462

In addition, add $7,500 for each individual in excess of 4.

For a list of the updated median family income figures for other states, a complete list is provided here.

In addition, the Kelsey & Trask, P.C. bankruptcy website has been updated to reflect the new figures, including updates to the Kelsey & Trask P.C. Means Test Calculator, and also our Mobile Means Test Calculator, optimized for use on smartphones. We will also be making the same updates to our Means Test Calculator iPhone App in the near future, so be sure to update your App.

Tuesday, October 12, 2010

Small Claims Redefined - Up to $7,000

As part of AN ACT RELATIVE TO ECONOMIC DEVELOPMENT REORGANIZATION on August 5, 2010, the Massachusetts legislature raised the amount in dispute that may be heard in small claims court from $2,000 to $7,000. SECTION 156 of said Act states:
Section 21 of chapter 218 of the General Laws, as so appearing, is hereby amended by striking out, lines 6 and 35, the following words, "two thousand dollars" and inserting in place thereof, in each instance, the following figure:- $7,000.

There is no doubt that this will increase the number of small claims cases, with the hope that it will also decrease the caseload on the district court process. This change may also increase the overall number of claims, however, by making it easier for potential creditors to seek judicial relief from debtors.

Small claims court is operated slightly differently from ordinary district court. The process is streamlined so that disputes are heard quicker than in the district courts. Instead of a judge and jury hearing the case, a court magistrate will preside and make a judgment.

Small claims court was designed to create a user-friendly environment for resolving disputes over an amount of money that was too small to justify hiring an attorney or having lengthy discovery and trials. Because of the expanded jurisdiction of small claims court to hear controversies over larger sums of money, there is more an incentive to hire representation since there is more at stake. The process can still be cheaper than district court, though, because of the simpler and quicker procedure.

For more information and frequently asked questions regarding small claims court procedure in Massachusetts, visit the Massachusetts Small Claims website or our new Small Claims page.

If you are owed money that you have not been successful in collecting on your own, or if you have had a small claims suit filed against you (called a "Statement of Claim and Notice of Trial") and wish to speak with an attorney regarding representation, contact Attorney Matthew Trask or call 508.655.5980 to schedule a One-Hour Initial Consultation.

Thursday, September 30, 2010

New Ban on Texting While Driving Goes Into Effect in Massachusetts Today

We don't typically handle many moving violations at Kelsey & Trask, but a new law in Massachusetts goes into effect today, banning text messaging while driving. As a public service announcement to our readers, the text of the statute that applies to drivers over the age of 18 (M.G.L. 90 § c. 12A) is reproduced below:

Section 12A. (a) No operator of a vehicle or vessel used in public transportation, including a train, passenger bus, school bus or other vehicle used to transport pupils, passenger ferry boat, water shuttle or other equipment used in public transportation owned by, or operated under the authority of the Massachusetts Bay Transportation Authority, the Woods Hole, Martha's Vineyard and Nantucket Steamship Authority, Massachusetts Port Authority, or the Massachusetts Department of Transportation, shall use a mobile telephone, hands-free mobile telephone or other mobile electronic device while operating such vehicle or vessel; provided, however that this section shall not apply to the operator of a vehicle or vessel used in public transportation using a mobile telephone, hands-free mobile telephone or mobile electronic device in the performance of the operator's official duties; provided, however, that in order for the use of any such device to be made "in the performance of the operator's official duties,'' such use must have been made in conformance with applicable written guidelines issued by a public entity listed in this paragraph relative to circumstances when operators are permitted to use said devices in the performance of their official duties or pursuant to directives from federal authorities having regulatory jurisdiction over such public entity's operations.

Whoever violates this section shall be punished by a fine of $500. A violation of this section shall not be a moving violation for purposes of the safe driver insurance plan under section 113B of chapter 175.

(b) It shall be an affirmative defense for an operator under this section to produce evidence that the use of a mobile telephone that is the basis of the alleged violation was in the case of an emergency. For the purpose of this paragraph, an emergency shall mean that the operator needed to communicate with another to report any of the following: (1) that the vehicle or vessel was disabled; (2) that medical attention or assistance was required on the vehicle or vessel; (3) that police intervention, fire department or other emergency services was necessary for the personal safety of a passenger or to otherwise ensure the safety of the passengers; or (4) that a disabled vehicle or an accident was present on a roadway.

The statute that applies specifically to drivers under the age of 18 (M.G.L. c. 90 § 8M) is as follows:

Section 8M. No person under 18 years of age shall use a mobile telephone, hands-free mobile telephone or mobile electronic device while operating a motor vehicle on any public way. For the purposes of this section, a junior operator shall not be considered to be operating a motor vehicle if the vehicle is stationary and not located in a part of the public way intended for travel.

A junior operator who violates the preceding paragraph shall be punished by a fine of $100 and shall have his license or permit suspended for 60 days for a first offense and shall not be eligible for license reinstatement until he also completes a program selected by the registrar that encourages attitudinal changes in young drivers; for a second offense by a fine of $250 and shall have his license or permit suspended for 180 days; and for a third or subsequent offense by a fine of $500 and shall have his license or permit suspended for 1 year.

It shall be an affirmative defense for a junior operator to produce evidence that the use of a mobile telephone, hands-free mobile telephone or mobile electronic device that is the basis of the alleged violation was for emergency purposes. For the purpose of this section, an emergency shall mean that the junior operator used the hands-free mobile telephone or mobile electronic device to communicate with another to report any of the following: (i) that the motor vehicle was disabled; (ii) that medical attention or assistance was required; (iii) that police intervention, fire department or other emergency service was necessary for the personal safety of the operator or a passenger; or (iv) that a disabled vehicle or an accident was present in the public way.

A penalty under this subsection shall not be a surchargeable offense under section 113B of chapter 175.

Monday, September 27, 2010

Inconvenient Convenience Accounts: What happens to a Joint Bank Account in Bankruptcy?

What is the effect of having your name on a joint bank account if you later file for bankruptcy?

Sometimes it just makes sense to give a trusted friend or family member access to our bank accounts. Commonly referred to as "convenience accounts," this often happens when parents wish to give their adult children the authority to take care of their affairs as they age by putting their child's name on their bank accounts. If that child later files for bankruptcy, a bankruptcy trustee might view the account as being the child's property, meaning that all or a portion of it may be at risk of being seized in bankruptcy proceedings.

In determining whether a convenience account is an asset which may be seized in a bankruptcy proceeding, courts will look at whether the original account holder intended to make a gift of access to the account or rather for their own convenience (so that an additional person could merely write checks to pay for the original account holder's bills), and the extent to which the additional person exercised ownership of the account (in other words, did he or she use the funds from the account for personal expenses, or was his or her use consistent with the original account holder's intent?). The law presumes that adding another person onto a bank account is a gift, which means that it can be difficult to convince a court that the additional person was added to the account for convenience, and the account should not be considered an asset to be seized in a bankruptcy proceeding.

The easiest way to avoid this risk is to execute a Durable Power of Attorney. This still allows for another person to write checks from your bank account should the need arise, and doesn't risk a bankruptcy trustee seizing your personal savings if your child files for bankruptcy.

If you need help weighing your options, contact Attorney Matthew Trask or call 508.655.5980 to schedule a one-hour consultation.

UPDATE! Reaffirmation of Mortgage Debt

Last week, we addressed whether or not a debtor should consider reaffirming mortgage debt to ensure that their right to remain in their home, in the event the debtor does not reaffirm debt secured by real property. One open question is whether a the failure to reaffirm a debt creates a risk that the lender may foreclose on an otherwise current mortgage gives the lender the right to immediately foreclose on the mortgage. Many mortgages contain a term whereby the act of filing bankruptcy constitutes a default, even if payments are current, and the bank can recover its security interest securing the loan.

Prior to the 2005 Bankruptcy Abuse Protection Act (“BAPCPA”) reforms, debtors could retain personal property (mortgages, car loans, etc.), provided they remained current on the monthly payments, called "ride through". However, BAPCPA largely eliminated the so-called “ride through” option for security interests in personal property; the result of which is that now, in order to keep personal property securing a loan, the debtor and creditor would have to execute a reaffirmation agreement. In a reaffirmation agreement, the creditor would contractually exclude the debt from discharge in bankruptcy.

While the law was clear that BAPCPA imposed a reaffirmation requirement on personal property transactions, the law made no clear indication as to whether a debtor could retain a security interest in real property, absent a reaffirmation agreement. Recently, in In re Caraballo, the Connecticut Bankruptcy Court addressed this issue, and determined that debtor’s ongoing retention of real property does not require the execution of a reaffirmation agreement. 386 B.R. 398, 400 (Bankr. D. Conn. 2008). As such, bankruptcy petitions may keep their property during and after bankruptcy, as long as they remain current on their payments. Additionally, the “ride through” option preserves the previous terms of the loan or finance agreement, thereby preventing creditors from imposing harsher terms on debtors during the bankruptcy process.”

The Caraballo court, in reaching its conclusion, held that the mortgage holder could not foreclose on the debtor who did not reaffirm as long as payments continued on the mortgage, thereby providing an additional layer of protection to a debtor who has not reaffirmed his mortgage debt (either intentionally or at the lender’s refusal), and adds an additional layer of complexity when determining whether or not to reaffirm mortgage debt.

Tuesday, September 21, 2010

Protecting your Home: Reaffirmation of Mortgage Debt

Upon filing for bankruptcy, the assisted debtor has the option of discharging mortgage debt, meaning that they are not obligated to continue to make a monthly mortgage payment. Of course, it is a near certainty that the secured creditor will foreclose on the mortgage and take the debtor’s house. Occasionally, during the course of a bankruptcy proceeding, a debtor will determine that it is in his or her best interest to keep their primary residence, and continue to pay the mortgage.

Reaffirmation is an undertaking not to be considered lightly. Once you receive a discharge under Chapter 7, you may not file bankruptcy again for 8 years. So, if you experience economic hardship after you have received your discharge and re-obligated yourself to pay the mortgage, you may be held personally liable for any deficiency in the event of a foreclosure. This could mean liens, wage garnishments and personal property attachments.

If you and your attorney believe it is in your best interest to reaffirm mortgage debt, you must execute a reaffirmation agreement: a contract between you and your creditor indicating that you wish to remain liable on a debt. The reaffirmation is complete when the creditor prepares the formal reaffirmation agreement, which the debtor reviews and signs, and is then filed with the bankruptcy court by the creditor.

Unfortunately, you cannot force a creditor to reaffirm a debt – you can only indicate your willingness to do so. A creditor’s refusal to reaffirm happens more often than you may think. Unlike personal property, the bankruptcy law does not require an executed reaffirmation agreement for a debtor to retain real property securing a debt. (Put another way, if your lender is unwilling to reaffirm your car loan, you can either pay off the loan in full or allow the lender to repossess the car. If your mortgage company refuses to reaffirm, there is no requirement that you must turn the house over to the bank unless the bank initiates a foreclosure). In the current market, lenders will rarely, if ever, attempt to foreclose on a loan if the creditor is current with the payments and remains current on the mortgage. Practically speaking, the lender wants to continue to earn interest on the loan and not inherit the burden and expense of foreclosing the mortgage and auctioning your property.

So, even if your lender refuses to reaffirm despite your intention to do so, if you stay current, you can keep the home. If the lender attempted to foreclose at a later date (say, when you had significant equity accumulated after paying down the principal), certain equitable remedies (e.g., latches) would provide you with a defense to a foreclosure action.

Often, the greatest impact of a bank’s refusal to reaffirm mortgage debt is that after discharge, subsequent “on time” payments will not be reflected on your credit report, thus hampering your ability to repair your credit post-discharge. To get 'credit' again, you may want to refinance, and you would start fresh with a new loan.

Tuesday, September 7, 2010

Can a Same-Sex Married Couple File for a Joint Bankruptcy?

UPDATE: On June 26, 2013, the Supreme Court of the United States declared in United States v. Wilson, that section 3 of DOMA (the "defense of marriage act") is unconstitutional.  Read our analysis of what this changes: SCOTUS decision on DOMA affects Joint Bankruptcies

ORIGINAL POST:

A recent article in The Boston Globe indicated that bankruptcy filings are at an all-time high in Massachusetts (since the 2005 changes to the bankruptcy law went into effect). The reasons are varied: overwhelming debt, bad mortgages, a loss of income, or an effort to avoid foreclosure. These economic realities are blind to the sexual orientation or familial relationships of debtors. A down economy affects us all, whether we are gay or straight.

The U.S. Bankruptcy laws are some of the oldest in our country, predating even the Bill of Rights and, are intended to protect honest people who have experienced difficult financial hardships. Your sexual orientation should not affect how this law protects you, but it does.

Why is the law different for same-sex married couples?

The U.S. Bankruptcy Code is a federal program and is overseen by the U.S. Department of Justice. Although it is administered at a state level and each state has the ability to specify its own procedural rules and an alternate exemption scheme, the Bankruptcy Court applies federal law. Since the Bankruptcy Code applies federal, not state, law, bankruptcy courts are required to follow the requirements of DOMA and refuse to recognize joint bankruptcy filings by same-sex married couples. DOMA, short for the Defense of Marriage Act, is a federal law passed in 1996 that bars federal recognition of same-sex marriage in federal programs.

How is the law different for same-sex married couples?

Under the bankruptcy code, a heterosexual married couple can petition for relief jointly. Debts that are owned by either spouse individually, and/or by both spouses jointly can be discharged under one proceeding. Both debtor-spouses proceed through the bankruptcy process together under the same case, meaning that all conferences and appearances are jointly held with both debtors, and both spouses can count on consistent relief from one bankruptcy court judge and one bankruptcy trustee.

There is also a financial savings to filing jointly. Joint debtors pay only one filing fee for the petition (ranging from $274 to $1,049, depending on the chapter) and usually attorney’s charge less fees for one joint filing then they would for two separate individual filings.

Finally, there is a significant benefit to filing jointly because of how exemptions are calculated. Exemptions, i.e. the amount of property that cannot be taken to pay your debts, doubles for a joint filing, making it possible to protect more assets, regardless of which spouse owns the property.

What is the current law in effect?

Over the years, the bankruptcy court has refused to extend the benefits of a joint filing to same-sex couples. Decisions such as In re Allen, 186 B.R. 769, 773 (Bankr. N.D. Ga. 1995) held that two debtors were ineligible to file a joint bankruptcy petition because they were not legally married. A different court reached a similar result in 2004 with In re Kandu, 315 B.R. 123, 148 (Bankr. W.D. Wash. 2004), where the bankruptcy court, citing DOMA, dismissed a joint chapter 7 petition filed by a lesbian couple validly married in Canada. Despite the fact that they were validly married under Canadian law, the court cited that DOMA restricted marriage to heterosexual couples in the eyes of federal law, including the bankruptcy code, and refused to extend the federal benefits of a joint filing for bankruptcy to the debtors.

What has changed?

In Commonwealth of Massachusetts v. Health and Human Services and Gill v. Office of Personnel Management, the Massachusetts Attorney General and same-sex spouses, respectively, sought relief from the U.S. Court for the District of Massachusetts, requesting that the Court find DOMA unconstitutional for prohibiting the extension of federal benefits to same-sex spouses. The Court concluded that DOMA’s definition of marriage, and its attempts to limit the benefits thereof to heterosexual couples did not constitute a legitimate government interest, and was therefore, unconstitutional. U.S. District Judge for the District of Massachusetts, Joseph Tauro, wrote in the Gill decision: “As irrational prejudice plainly never constitutes a legitimate government interest, this court must hold that Section 3 of DOMA as applied to Plaintiffs violates the equal protection principles embodied in the Fifth Amendment to the United States Constitution.”

Although neither of these cases dealt directly with the federal benefit of joint bankruptcy filing, the door is now open to argue that married same-sex joint debtors may rely on the Court’s decision in Gill, and obtain the same legal and practical benefits of a joint bankruptcy filing.

Despite the court’s recent decision, DOMA is still the law, and we would anticipate that a bankruptcy Trustee would likely move to dismiss any joint filing by a same-sex marriage until there is a case which deals specifically with this issue (or DOMA is repealed). However, given the rationale provided in Gill, we believe a debtor stands a reasonable chance of succeeding before the bankruptcy appellate panel or the U.S. District Court if that specific issue were presented on appeal.

How can we help?

Kelsey & Trask, P.C. understands that not everyone wants to be a constitutional test case, and for some, operating within the restraints of the law, no matter how unfair, is better in the short term than changing the legal thinking of an entire system. We recognize the limitations and restrictions presented by DOMA. While we cannot extend all benefits of a joint filing, we do recognize and support the same-sex community.

If you need assistance in the bankruptcy court, we will not charge you as separate clients; rather, we will charge the same fee as we would any married couple. We will also do our best to ensure your cases are presented to the same trustee, and remain in front of the same Judge, by filing them simultaneously (giving them the best chance to be in front of the same trustee and Judge).

Joint filings were created in order to protect the family unit and allow for collective financial planning. While federal law currently chooses to deny same-sex married couples from such federal benefits, we have chosen to treat same-sex married couples with the same dignity and treatment as their heterosexual counterparts. It is not a perfect solution, but if it helps your family to get a fresh start, we don’t want you to go alone.

Tuesday, July 20, 2010

What are the Costs of Bankruptcy?

Bankruptcy in the United States is permitted by the United States Constitution (Article 1, Section 8, Clause 4) which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." As such, Constitutional recognition of bankruptcy law is amongst the oldest in the United States, predating even the bill of rights. Even 223 years ago, the Founding Fathers and the draftsmen of this Country’s earliest laws recognized that sometimes people got in over their heads as a result of insufficient planning or factors beyond their control. They understood that it was in the best interests of both debtors and the economy as a whole to provide people with a fresh start in the event someone found themselves with debts they were unable to pay.

Despite the fact that the Constitution specifically permits Congress to enact bankruptcy legislation, there is still a significant cost, both economic and emotional, to seeking the protection of the Bankruptcy Court. So, if you or someone you know is considering bankruptcy, let’s take a look at the undocumented costs of bankruptcy.

First, the most obvious: Court Fees.

Court filing fees (the fee for filing your petition) for bankruptcy vary depending on the chapter you are filing under, but initially plan on $274.00 for Chapter 13 and $299.00 for Chapter 7. If you need to change your petition after it is a filed, there is an additional $26.00 filing fee.

In addition to court fees, there will be Legal Fees, i.e. what you pay to your Bankruptcy Attorney to analyze your case, review your purchase history to avoid nondischargability issues (meaning you still owe money to a creditor after bankruptcy), make recommendations regarding when you should file and under which chapter, preparing your petition, schedules and disclosures, and representing you at the §341(a) Creditor’s Meeting. Each attorney offers slightly different services, and charges different amounts. You should speak with your attorney to understand his or her fee structure, and always get the fee agreement in writing.

Rebuilding Credit: Assuming your bankruptcy goes to discharge without objection and you receive your Order Discharging Debtor, debtors now finds themselves with the daunting task of rebuilding their credit, post-bankruptcy. The costs here are more difficult to identify specifically. Because bankruptcy negatively impacts your credit, borrowing money may be more difficult, and when possible, may be more expensive.

For example, assume that the debtor has an old car and would like to trade it in for a new car, post-bankruptcy. The debtor may find themselves unable to qualify for a car loan for some time after discharge, thereby incurring the increased maintenance costs and fuel costs of an old, inefficient vehicle for longer than originally anticipated. When the debtor does qualify for a new car loan, the increased interest rate assessed to borrowers with negative marks on their credit score will cost the borrower more in interest over the term of the loan. Similarly, a borrower seeking to obtain a home loan may be required to pay “points” in addition to a higher interest rate, adding thousands of dollars in closing costs.

However, there are potential savings and benefits to a bankruptcy filing. The costs of bankruptcy should be weighed against the benefits. First, bankruptcy offers a debtor a fresh start, and a responsible debtor can begin repairing their credit immediately after discharge, and may qualify for a prime rate mortgage in as little as 3 years after filing. Since the debtor’s previous debts were discharged, the debtor no longer has the burden of making monthly installment payments on consumer credit cards or other non-retained property.

Finally, potential bankruptcy petitioners should be aware of the noneconomic costs of bankruptcy: A bankruptcy filing remains on your credit report for 10 years, and individual debts discharged in bankruptcy for 7 years following your discharge. Therefore, whenever you apply for credit, a new loan, and more frequently, a job or undergo a background check, a previous bankruptcy will be visible to the loan officer, hiring manager or credit card company. While many debtors are encouraged by a “light at the end of the tunnel” or feel as though a weight has been lifted from their shoulders upon discharge in bankruptcy, there may be the lingering feeling of personal failure or shame in filing for bankruptcy. To that, I recommend the debtor consider my opening remarks in this post, and make a decision about what is best for them and their family in the long term.

If you need help weighing your options and if bankruptcy can help you if you are in over your head, contact Attorney Matthew Trask at 508.655.5980 to schedule a one-hour consultation.

Monday, July 19, 2010

I Just Filed My Chapter 13 Case - Now What?

As you may have read in our similarly entitled post "I Just Filed My Chapter 7 Case - Now What?", our clients often ask us after the filing of a bankruptcy petition:

"So what happens next?"

Just like in a Chapter 7, what happens next is a flurry of deadlines and court control dates, some of which require the client's participation (such as responding to the Trustee's requests for additional information), some do not require the client's participation, and others may require the attorney's participation, depending on how the case progresses.

Often, the client is overwhelmed with the detail and the numerous dates, and simply wants to know where to send the plan payments. However, some clients with more complex cases appreciate the added detail, which is why we have added a convenient Chapter 13 Timeline to our website.

The new addition allows a client or prospective client to input their Chapter 13 Filing Date and Section 341(a) hearing date (if known), and will output a scaled timeline with the important dates. Links to the relevant portions of the U.S. Bankruptcy Code and the Federal Rules of Bankruptcy Procedure are also included for cross reference at the bottom of the timeline page.

For those of you reading this post on your smartphone, you can also check out our mobile version of the calculator.

We hope this tool will help clients, prospective clients and attorneys alike better understand and navigate the meticulous and often trap-ridden world of bankruptcy law.

If you have any questions regarding Kelsey & Trask, P.C.'s Chapter 13 Timeline, please contact Attorney Matthew Trask at 508.655.5980.

Thursday, July 1, 2010

My house is in a trust. Is it protected in a Bankruptcy?

Question of the week: My house is held in a nominee trust, primarily for estate planning purposes. If I were to file for bankruptcy, would my house be protected if I filed a Chapter 7 Bankruptcy?

Answer: There are a number of factors that all address whether or not a debtor's house is exempt from the bankruptcy estate, or whether the bankruptcy court could require the debtor to sell his property to pay some (or all) of his debts. For example, whether or not the debtor actually resides in the subject property or if it is held as an investment property; the total net equity in the property, including mortgages or other liens; and the debtor's exemption elections could all affect how a debtor can protect (or, conversely, risk) a house and your other various assets upon filing a Chapter 7 petition.

First, in Massachusetts, recall that there are two separate exemptions schemes which define what types of property you are allowed to retain, and cannot be sold by the Chapter 7 Trustee to be distributed to your creditors: Federal Exemptions and Massachusetts Exemptions. Generally speaking, the federal exemptions are better suited to protecting your tangible personal property, such as automobiles, bank accounts, etc., but cannot protect more than approximately $21,625.00 worth of equity in a homestead. In situations where you are seeking to protect more than $21,625 in home equity, the Massachusetts Exemptions can protect up to $500,000.00 in home equity, at the cost of significantly reduced exemptions for personal property (i.e., $700.00 equity in an automobile, for example). The caveat is that in order to benefit from the Massachusetts Exemptions, you must file and record a Massachusetts Declaration of Homestead.

Ownership of real property through a nominee trust creates a legal impediment to protecting your equity in your home, however, in certain circumstances, the court has essentially ignored this impediment.

In situations where a trust is the legal titleholder of the debtor's residence, and not the debtor, there is a legal question of whether the debtor is still permitted, by law, to file a Massachusetts Declaration of Homestead. A 2007 Massachusetts Bankruptcy Court case titled “In re: Edward R. Szwyd” decided that “property held in trust is not eligible for Homestead protection. Only individuals may claim a Homestead.” However, in Szwyd, the debtors nevertheless filed a homestead declaration and the Court allowed the Homestead to stand. In this case, the debtor was the sole trustee and beneficiary and no trust existed under Massachusetts law, because the legal protections of the trust merged into the sole trustee and beneficiary, making the debtor the sole beneficial “owner” for purposes of the bankruptcy code.

UPDATE: The law in this area has developed rapidly and swung widely on the issue since 1995. The most recent decision, and currently viewed to be the controlling law with respect to Massachusetts bankruptcy case, is In re Olga M. Rodrigues, 2010 WL 716192 (Bankr. D. Mass., 2010). The Rodriguez decision looked to the statutory language of the Massachusets Homestead Act, which permits a person who “rightfully possess[es] the premises and occup[ies] said home as a principal residence” to file a Declaration of Homestead on the property.

As long as the debtor resides in the house, the debtor may file a Declaration of Homestead to protect the debtor’s interest in the home, even if that interest is little more than a right to ownership upon revocation of the trust. Debtors should take the Rodriguez decision to mean that even in the case of a self-settled trust, nominee trust or merged trust (or any trust where the trustee has significant discretion regarding the trust assets) that trust may be breached by the trustee, and the assets included in the bankruptcy estate. However, the legal form of ownership of the debtor’s residence (including whether the property is held in trust) will no longer serve as a bar to the election of Homestead Act protection, and provides a means of exemption under the Massachusetts bankruptcy exemptions.


If you own property that is held in a trust, and are considering bankruptcy, it is important that you understand the trust which is the legal titleholder to your property as well as the nuances of the United States Bankruptcy Code. If you have questions regarding how to protect your assets through a Chapter 7 Bankruptcy, contact Kelsey & Trask, P.C. for a one-hour consultation at 508-655-5980.

Thursday, June 24, 2010

Waiting in line for the new iPhone? There's no wait (and no cost) to download our Apps!

Today, June 24, 2010, the day of the iPhone 4.0 release, many, many Apple devotees are waiting in line, no doubt playing games, checking e-mail and surfing the web on their 3GS until they get their hands on the newest iPhone. Well, whether or not you've braved the lines to be the first to have the new device, you can still download the Kelsey & Trask, P.C. Web-Apps and iPhone Apps. (see the end of this post for instructions on how to access these apps on other smartphones as well)

iPhone Apps:

The Chapter 7 Means Test Calculator App

The means test is a test required under the new bankruptcy law to determine a debtor's eligibility to file for bankruptcy under Chapter 7 of the Bankruptcy Code. If your income is greater than the median income for your state of residence and family size, in some cases, creditors have the right to file a motion requesting that the Court dismiss your cases under Section 707(b) of the Bankruptcy Code.

Use this App to determine whether you qualify for Chapter 7 bankruptcy under part a of the Chapter 7 Means Test. You can even save or e-mail your calculation to access it later. If your income is greater than the median income for your state of residence and family size, you still might meet part b of the means test after taking into consideration certain expenses and deductions as defined by the Bankruptcy Code. You should consult with an attorney to determine your eligibility.

The Child Support Calculator App

Use this worksheet to calculate the presumptive amount of child support to be ordered by the Probate & Family Courts in Massachusetts based on the Massachusetts Child Support Guidelines (including all of the calculations required for filling out the court form). You can then save your calculations, and even e-mail them.





Must have app for Family Law Attys - ★★★★★
Review by Mass Attorney

Must have app. Quickly calculate child support according to the guidelines and try different income scenerios.


The Divorce Spousal Support Calculator App

Some states use formulas to calculate presumptive alimony. And notwithstanding the lack of legislative support, some Judges in Massachusetts have suggested doing the same. A Joint Task Force of the Massachusetts Bar Association and the Boston Bar Association has prepared a draft report which also suggests a formula to calculate the maximum alimony award possible.



All of these formulas are included in this calculator, which we believe can be a valuable resource in helping parties understand a reasonable potential range of spousal support orders.


In addition, you can access the full Article (The Divorce Spousal Support Calculator: An Alimony Formula Resource and Tool for Computing Suggested Alimony Payments in Divorce Cases) directly from the App by clicking on the Settings button in the lower left-hand corner of the App.

Similar to the Child Support Calculator App, you can also save and e-mail your calculations.







Web Apps:

These three Apps are also available as Web-Apps and can be accessed directly on our mobile site or through the Apple Web-App Store.

The Chapter 7 Means Test Calculator Web-App
   - Direct Link: mobile.kelseytrask.com/meanstest.htm

The Child Support Calculator Web-App
   - Direct Link: http://mobile.kelseytrask.com/childsupport.htm

The Divorce Spousal Support Calculator Web-App
   - Direct Link: http://mobile.kelseytrask.com/spousalsupport.htm

In addition we have a recently created fourth web-app:

The Chapter 7 Timeline Calculator Web-App
   - Direct Link: mobile.kelseytrask.com/7timeline.htm

The bankruptcy court is very strict regarding deadlines. Often, missing a deadline will result in the dismissal of your Bankruptcy Case. Therefore, it is very important that all documents are filed accurately and on time with the Bankruptcy Court.

This App displays approximate dates for deadlines and events in a Chapter 7 Bankruptcy case when you enter a filing date. These dates are subject to change by amendments to the U.S. Code, or may vary due to local rules or practices or even due to the specific facts of your case. If you have any questions you should consult with an attorney when reviewing this timeline.


Don't have an iPhone, that's okay too. Whether you are an Android, Blackberry or other smartphone user, you can still use all of our great calculators in your web-browser on our mobile pages designed just for smartphones. Just visit m.kelseytrask.com or mobile.kelseytrask.com on your mobile phone and you should see a page that looks something like this:



Wednesday, June 16, 2010

I Just Filed My Chapter 7 Case - Now What?

With many clients, once the attorney and client have reviewed the bankruptcy petition, schedules, statements, worksheets and calculations, and their case is ready to file, I am often met with a perplexed look and a question:

"So what happens next?"

What happens next is a flurry of deadlines and court control dates, some of which require the client's participation (such as responding to the Trustee's requests for additional information), some do not require the client's participation, and others may require the attorney's participation, depending on how the case progresses.

Often, the client is overwhelmed with the detail and the numerous dates, and simply wants to know that they will get their discharge in "about four months". However, some clients with more complex cases appreciate the added detail, which is why we have added a convenient Chapter 7 Timeline to our website.

The new addition allows a client or prospective client to input their Chapter 7 Filing Date and Section 341(a) hearing date (if known), and will output a scaled timeline with the important dates. Links to the relevant portions of the U.S. Bankruptcy Code and the Federal Rules of Bankruptcy Procedure are also included for cross reference at the bottom of the timeline page.

We hope this tool will help clients, prospective clients and attorneys alike better understand and navigate the meticulous and often trap-ridden world of bankruptcy law.

If you have any questions regarding Kelsey & Trask, P.C.'s Chapter 7 Timeline, please contact Attorney Matthew Trask at 508.655.5980.

Friday, June 11, 2010

What is the Median Family Income for Massachusetts?

The Median Family Income for Massachusetts as of March 15, 2010 is as follows:

Family size 1: $53,315 per year
Family size 2: $69,204 per year
Family size 3: $82,297 per year
Family size 4: $99,293 per year

add an additional $6,900 per year for each additional household member, up until April 1, 2009. For cases filed after April 1, 2009 add an additional $7,500 for each additional household member.

Under Part (a) of the Chapter 7 means test, if your income is greater than the median income for your state of residence and family size, then there is a presumption that you qualify for bankruptcy relief under chapter 7.

For more information on other states and a Median income Calculator visit our webpage, our mobile webpage designed for smart phones, or download our iPhone App.

Please note that these figures are subject to change and you should consult with an attorney for the current figures.

Tuesday, May 25, 2010

Dealing with House Debt: Short Sales, Foreclosures & Bankruptcy - Part III

In this Three-Part Post, we will evaluate some of the different methods of dealing with real estate debt when a mortgage modification or forbearance agreement is not an option.
  • Part I addressed the most common scenario which forces a homeowner/borrower to consider how to deal with property he or she can no longer afford.

  • Part II will address short sales and their interactions with Bankruptcy.

  • Part III will address "walking away" from a property through bankruptcy, and the resulting foreclosure by the lender.

Part III: Bankruptcy & Foreclosure

A final option is to simply file for bankruptcy, and indicate that the debtor's intention is to surrender the property to the bank. (For purposes of this post, I will not address how a Chapter 13 Bankruptcy can save a house from foreclosure). Procedurally, the Bankruptcy case will progress through the Bankruptcy Court, and eventually the secured lender will seek permission from the Bankruptcy Court to be relieved of the automatic stay protections, and begin foreclosure proceedings. Regardless of whether the foreclosure auction is completed by the bank before or after the debtor's discharge (meaning they no longer owe certain debts, including the mortgage debt), any deficiency from the foreclosure auction is discharged by the bankruptcy court. From the debtor's perspective, the whole process is completed through the bankruptcy, and does not require any specific participation directly with the lender.

This option provides a swift resolution to the issue of past-due mortgage debt, the pending foreclosure on the property, and any mortgage deficiency all in one process that, in the case of a Chapter 7 Bankruptcy, can be completed from filing to discharge in under six months. It is best utilized when the lender will not agree to a short sale, when there is insufficient time to arrange a short sale, or when the debtor's other financial concerns (such as collection actions on other debt) require immediate action. It also does not require the lender's permission or cooperation - provided you qualify for bankruptcy, the Bankruptcy Laws dictate the result, not the lender's business decision.

The credit implications of a foreclosure and bankruptcy (or in the context of bankruptcy) are more detrimental than a short sale followed by bankruptcy, if the debtor wants to obtain a mortgage again in the future. Following a foreclosure, the debtor will have great difficulty in obtaining a future mortgage for the 10-year period that the foreclosure will remain on the debtor's credit report for mortgage and employment purposes. The foreclosure will not appear on the debtor's consumer credit report for 7 years following the foreclosure, meaning credit cards and car loans will be more easily attainable at that point.

Dealing with debt can be a daunting challenge for many individuals. Don't go alone. An attorney with Kelsey & Trask, P.C. can help you make these difficult decisions, and help you with the process. For an initial consultation, click here, or call 508-655-5980.

Dealing with House Debt: Short Sales, Foreclosures & Bankruptcy - Part II

In this Three-Part Post, we will evaluate some of the different methods of dealing with real estate debt when a mortgage modification or forbearance agreement is not an option.
  • Part I addressed the most common scenario which forces a homeowner/borrower to consider how to deal with property he or she can no longer afford.

  • Part II will address short sales and their interactions with Bankruptcy.

  • Part III will address "walking away" from a property through bankruptcy, and the resulting foreclosure by the lender.

Part II: Short Sale (and maybe Bankruptcy)

In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the borrower. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. Borrowers are able to mitigate damage to their credit history, and partially control the debt. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer. The borrower must work directly with the lender to seek approval of the short sale by the bank, obtain a purchaser, and complete the transaction before any foreclosure proceedings are completed. (In some cases, the bank may have initiated foreclosure proceedings, in addition to contemplating consent for the short sale.) Timing is critically important, and the debtor is an important part of the short sale process.

Short sales are a type of settlement, and they adversely affect a person's credit report, though the negative impact may be less than a foreclosure. Depending upon other credit information, it may possible to obtain another mortgage 1-3 years after a short sale, or even sooner if the borrower is current at the time of the sale.

However, if the individual does not then pay off the deficient portion of the mortgage (the unpaid portion of the mortgage after the short sale proceeds were applied to the balance), the lender can take further legal action against the debtor to collect the unpaid portion of the mortgage, which may include trustee process attachments, garnishments, or seizure of other assets, depending on the debtor's other property. The debtor may, after the short sale is complete, file for Bankruptcy upon completion of the short sale to discharge any deficiency and extinguish any further liability to the lender.

In this scenario, a foreclosure will never appear on the debtor's credit report. Although the Bankruptcy and Short Sale will appear on the debtor's credit report, some members of the mortgage lending agency will extend first mortgage financing, and even sub-prime mortgage financing, to prospective borrower with a bankruptcy that did not involve mortgage debt in as little as 3-4 years after the bankruptcy, provided the debtor has reestablished credit and used it responsibly during that time. Even if the bankruptcy included a small portion of mortgage deficiency debt, the fact that it did not include a foreclosure action will result in the debtor's credit healing much more quickly than if the debtor also went through a foreclosure during or before bankruptcy.

Deciding which option to pursue can be a daunting challenge for many individuals. Don't go alone. An attorney with Kelsey & Trask, P.C. can help you make these difficult decisions, and help you with the process. For an initial consultation, click here, or call 508-655-5980.

Dealing with House Debt: Short Sales, Foreclosures and Bankruptcy - Part I

In this Three-Part Post, we will evaluate some of the different methods of dealing with real estate debt when a mortgage modification or forbearance agreement is not an option.
  • Part I addressed the most common scenario which forces a homeowner/borrower to consider how to deal with property he or she can no longer afford.

  • Part II will address short sales and their interactions with Bankruptcy.

  • Part III will address "walking away" from a property through bankruptcy, and the resulting foreclosure by the lender.

Part I: How did we get here? Where exactly is "here"?

Many homeowners today have negative equity in their homes, that is, they owe more on the mortgage than their homes is worth. This may be due to any number of factors, most commonly resulting from a combination of purchasing the property during the "housing bubble" of the early to mid 2000's, jumbo mortgages which finance 90% or more of the purchase price, and the use of "home equity loans" to fund consumer expenses. If you are current with your mortgage payments and plan to stay in your home, the "solution" to this problem is to basically wait out the market until home prices rise again or you have paid off enough principal of the mortgage to create positive equity in the property.

Homeowners encounter serious problems when they cannot pay (and have not paid) the mortgage and they have negative equity in the property. Perhaps the homeowner took on a mortgage payment that they could not afford - i.e., purchased "too much house" - or some other temporary situation has impacted the homeowner's finances such as an unexpected medical expense, loss of a job or other significant interruption in income. In any case, the bank may be threatening foreclosure, the homeowner is in jeopardy of loosing their home, and the value of the property at foreclosure auction is not enough to pay off the balance of the mortgage, resulting in an individual liability by the former homeowner to the bank for tens, if not hundreds, of thousands of dollars.

At this point, homeowners weigh their options and understand that they can no longer afford to keep the house. They can't afford the payments, and realize it is a loosing proposition to struggle to pay into a property that has negative net value. Assume for this scenario that the debtor's financial situation does not permit a mortgage modification. Perhaps the mortgage has already been modified; the borrower does not qualify for a modification; a modification has been denied; or the borrower's income is insufficient to to continue to make any payments, due to job loss or medical illness. After conducting some research, the homeowner is now weighting two options: A Short Sale of the property and/or Bankruptcy.

... to be continued...

Dealing with debt can be a daunting challenge for many individuals. Don't go alone. An attorney with Kelsey & Trask, P.C. can help you make these difficult decisions, and help you with the process. For a free initial consultation, click here, or call 508-655-5980.

Monday, May 17, 2010

Where's MY Bailout?!

With the economic turmoil that has well entrenched itself in the United States now starting to develop in Europe, and economic experts on both sides of the Atlantic saying something ranging from "we're not out of the woods yet" to "the worst is yet to come", it seems that we all have continued interest (and perhaps suspicion) regarding the concept of the "government bailout".

We all learned that the U.S. Government would be spending billions of dollars bailing out General Motors, Citigroup, Bear Stearns, Bank of America and AIG, and now, there are discussions of the European Union bailing out the entire government of Greece. With the billions (trillions?) of dollars at stake in these government sponsored bailouts, many people have asked, often rhetorically:

"I am overwhelmed with credit card debt; I've been out of work for months; these unexpected medical bills are piling up - I don't know what do do. Now, I'm so far behind, I can't even afford the minimum payments, and I fell behind on my mortgage - I might loose my house. Where's MY bailout?"

Surprisingly, there is a program that, if you qualify, will permit an individual, a business, or a family to seek relief of certain debts, such as credit cards, medical bills, even certain types of civil judgments so that they may be paid off for pennies on the dollar, or, often, discharged entirely. Even more surprisingly, this is not a new program: it is the Bankruptcy laws of the United States.

But wait...BANKRUPTCY? That's not a bailout. It hurts my credit!

That is true. All actions have consequences, and the government bailouts we see in corporations have their own consequences. The public trust in these businesses may be shaken, profits may be hurt, and their corporate credit will suffer. I will not attempt to equate personal bankruptcy with the Emergency Economic Stabilization Act of 2008; my comparison is only an analogy, but I will maintain that if you are in a untenable financial situation, you do have options to protect your self, your assets, and your family. For more information regarding your own personal "bailout", contact Kelsey & Trask, P.C. for an initial bankruptcy consultation. We would be happy to meet with you to discuss your situation and address the benefits and risks of bankruptcy, as well as alternatives to bankruptcy, such as debt settlement.

Tuesday, May 11, 2010

Radio Appearance on Money Matters Radio - UPDATED

Attorney Trask will be appearing on Money Matters with Chris Findlen on Tuesday, May 11, 2010 at 1:00 P.M.

Attorney Trask will discuss financial issues in bankruptcy. You can watch the interview live on the Money Matters website on Tuesday, May 11, 2010. Or listen at 1120 WBNW.

UPDATE: Attorney Trask's interview is now available here:

video



Monday, May 3, 2010

Avoid These 3 Traps Before Filing Bankruptcy

A significant majority of Chapter 7 Bankruptcy filings are completed without any significant problems to the Debtor or objection by Creditors, provided the Debtor (and their Counsel) properly and accurately discloses all necessary information required by the bankruptcy laws. However, the bankruptcy laws provide the grounds for creditors to object to the discharge of debts (meaning you will still owe the debt, even after filing bankruptcy)under certain circumstances.

A creditor may object to the discharge of amounts owed to them by the debtor under certain circumstances. If a creditor objects to the discharge of any of the debts listed in your petition or schedules, such objection must be raised within 60 days after the first scheduled §341(a) Meeting of Creditors. Alternatively, the trustee must move to dismiss your case within the 60-day period following the §341(a) Meeting of Creditors if he or she finds that the granting of relief would be an abuse of the provisions of Chapter 7.

So, what are traps to avoid objections to my petition?

Trap 1: New Debts Immediately Prior to Filing
If you incurred new debt of $500.00 or more for "luxury goods or services" within the 90-day period before your bankruptcy, or if you obtained a cash advance from a credit card or other loan in the amount of $750.00 or more within the 70-day period before your bankruptcy filing, that debt is presumed to be non-dischargeable, absent the debtor's showing to the contrary.

Trap 2: Debtor Dishonesty in Obtaining Debt
A creditor may object to your request to discharge a debt if the debt was obtained or incurred as a result of fraud, embezzlement or larceny, or any willful or malicious injuries you have caused others. If the Creditor establishes by a preponderance of the evidence that the debt was obtained by any of the above means, the debt will be deemed non-dischargeable.

Trap 3: Debtor Dishonesty in Filing for Bankruptcy
Creditors may object to the discharge of certain debts if you have concealed or destroyed any property or financial records; made any false statements in connection with incurring a debt or other financial obligation; withheld financial or other material information; failed to explain losses; failed to respond to material questions permitted under the Federal Rules of Bankruptcy Procedure; or if you were granted a discharge with respect to that debtor in a prior bankruptcy case filed within the last 6 years.

So, in conclusion, the best advice to consider if you are considering bankruptcy is to stop spending, or at least stop incurring new debt, and ensure you understand and completely disclose your financial history. As in the rest of life, honesty is the the best policy.

Wednesday, April 21, 2010

Should I Pay My Student Loan with a Credit Card?

Under Section 523(8) of the Bankruptcy Code student loans are excluded from discharge in bankruptcy. This means that in most cases after you go bankrupt (Chapter 7 or Chapter 13) you will still owe your student loans.

So you have a great idea, right? Why not pay your student loans with a credit card, which you could then discharge? WRONG!

Credit card debts can be discharged except for a few exceptions. For example, credit card debt is non-dischargeable when the funds were obtained with the intention of filing bankruptcy, or otherwise fraudulently (like filing a false application).

Furthermore, if a credit card is used to pay a non-dischargeable debt like a student loan or taxes, that portion of the debt will be treated the same as the original debt.

This means that even if the credit card company doesn't object to the discharge, they still might be able to pursue you after the discharge, just like a student loan company could (although best practice for the credit card company would be to object prior to the discharge).

Even worse, if the bankruptcy court found that you were attempting to commit a fraud upon the Court by moving this debt, the Court could deny your discharge altogether.

If you are looking for creative ways to pay down your student loans you should consult with an attorney regarding your options.

Thursday, April 8, 2010

When filing for Bankruptcy, what financial information do I need to disclose?

Everything you own and every debt you owe must be completely and accurately disclosed in the documents filed to commence this case. Bankruptcy is not a "pick and choose" proceeding. You should not leave some debts in and leave some debts out. Everything should be included. You must value each item you own at the rate it would cost you to replace the item with one of the same condition, age, and usefulness. The information you give to an attorney, a staff member of the law firm, the Bankruptcy Trustee, or the Bankruptcy Court that is provided with your petition and during the case must be complete, accurate, and truthful.

Wednesday, March 17, 2010

Is my mortgage secured or unsecured debt? How does this effect Chapter 13 debt limits?

A mortgage is a legal instrument typically securing a debt against real property, such as your residence. It would seem obvious, therefore, that a mortgage is a secured debt. But this is not always true.

In our current real estate market, many homes are underwater. Not in the literal sense (although this is also true for many homeowners in Massachusetts after the storm this past week). Figuratively, when a home is described as "underwater" it refers to the mortgages on said home having a value greater than the current fair market value of the home.

When filing a Chapter 13 bankruptcy, a wholly unsecured second mortgage or even the unsecured portion of an undersecured first mortgage should be listed as unsecured debt. Depending on other circumstances you may or not be able to to discharge this "unsecured" debt, however that doesn't change the fact that the Court will consider it unsecured.

Why does this matter?

When filing a Chapter 13 bankruptcy, there are debt limits defined by 11 U.S.C. §§ 109(e). Said debt limits were recently raised, effective April 1, 2010. Under the current limits, a Chapter 13 bankruptcy will be dismissed if the debtor has unsecured debt greater than $336,900 and/or secured debt greater than $1,010,650. As of April 1, 2010, those figures rise to $360,475 and $1,081,400 respectively.

Consider the following scenario:
A debtor owns a $600,000 home but has $900,000 in mortgages. The debtor has a car with a lien of $20,000 (secured debt) and credit card (unsecured debt) of $100,000.

If the entire mortgage debt was considered secured then the debtor would be under the debt limits with a total secured debt of $920,000 and a total unsecured debt of $100,000. Unfortunately, because the Court considers the $300,000 of "underwater" mortgages unsecured, the debtor has a total unsecured debt of $400,000, which is above the debt limits. This debtor would, therefore, be ineligible to file for relief under Chapter 13 and be forced to seek other relief (possibly filing for bankruptcy under Chapter 11).

This is the exact scenario articulated by a California Court in an unpublished decision: In re Estrada.

Estrada refers to a Ninth Circuit decision: In re Scovis, 249 F.3d 975, 982 (9 th Cir. 2001). In Scovis, the Court stated that a "vast majority of courts, and all circuit courts that have considered the issue, have held that the unsecured portion of undersecured debt is counted as unsecured for 13 § 109(e) eligibility purposes."

It appears that this is also the law in Massachusetts. In re Marrama, 345 B.R. 458, 472 n.23 (Bkrtcy.D.Mass. 2006) In Marrama the court referenced Scovis and noted that the debtors failed to list the unseured portion of an undersecured mortgage as unsecured debt, which would have resulted in a greater unsecured debt.

This also indicates the importance of completing your bankruptcy schedules correctly. To consult with an attorney regarding filing for bankruptcy, click here.

Your Bankruptcy Could Complicate Your Personal Injury Settlement

Filing for bankruptcy as a California personal injury victim can greatly complicate your situation. Even worse, a number of injury victims neglect to tell their personal injury attorney that they are filing for bankruptcy. When going through the bankruptcy process it is important to make sure your bankruptcy attorney and personal injury lawyer are in good communication with one another. This can help to avoid any confusion later.

Your personal injury settlement is viewed as an asset. Payment you receive from your settlement could be distributed to your creditors. To receive an optimal recovery you need to strategically put yourself in the best position. Working with your attorneys can help to protect your assets and receive a maximum settlement for your injuries.

No matter what your situation, it is important to be ethical when making your decisions. Do not make any harsh decisions which you will regret later. If you have any questions or concerns it is advised to consult with your attorney.

Finding A Skilled Personal Injury Lawyer

If you or a loved one has suffered from a personal injury accident please contact an experienced lawyer. The best personal injury lawyers will offer free consultations to all injured accident victims. Some personal injury attorneys work as no win no fee lawyers. This means that if they don't win your case you don't pay.

- Guest Blog - posted by Bisnar Chase, Los Angeles personal injury lawyers.

Friday, March 5, 2010

New Median Income Figures Released for all Bankruptcy Cases Filed after March 15, 2010

The United States Trustee Program has released new Census Bureau, IRS Data and Administrative Expenses Multipliers which are used for means testing calculations regarding Chapter 7 and Chapter 13 bankruptcy petitions. Due to the updated IRS Data, the various standards for the expenses in the "means test" form will change for all bankruptcy cases filed on or after March 15, 2010.

In Massachusetts, the new Median Family Income figures are as follows:

Family Size of 1: $53,315
Family Size of 2: $69,204
Family Size of 3: $82,297
Family Size of 4: $99,239

For cases filed on or before March 31, 2010, add $6,900 for each individual in excess of 4. For cases filed on or after April 1, 2010, add $7,500 for each individual in excess of 4.

For a list of the updated median family income figures for other states, a complete list is provided here.

In addition, the Kelsey & Trask, P.C. bankruptcy website has been updated to reflect the new figures, including updates to theKelsey & Trask P.C. Means Test Calculator, and also our Mobile Means Test Calculator, optimized for use on smartphones. We will also be making the same updates to our Means Test Calculator iPhone App in the near future, so be sure to update your App.


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