Archive for 2008

2009: Perchance to Dream

New Years is a time when many make resolutions. Some resolve to quit smoking. Some resolve to lose weight. The list of resolutions is endless. Personally, I think many resolutions are pretty useless. I didn’t stop smoking because of a resolution (but I did quit… a few Novembers ago), and I have not exactly kept up with resolution diets. I’ve been racking my brain trying to come up with something appropriate to write about for New Years. The last thing I want to do, especially today, is sound trite. It’s not like you can simply “resolve” to get out of bad mortgage or you can “resolve” to get a better job when companies are laying off. But then yesterday, I had a surprise visit from an old client who helped my thought process move along.

My client went through a long chapter 13. At times, it was not particularly pleasant. But all plan payments were paid and the discharge was received a few years ago. Now, she’s dedicated to her business and determined to keep make it grow in a difficult economy.

During our brief meeting, I noticed something different. Was it the hair color, I thought? No. Did she have her teeth done? No, not that. Then it dawned on me. It was something more.

She was happy. She was smiling. While she was not a particularly unhappy person while the case was open, I think it’s fair to say the chapter 13 was not a particularly happy period in her life. But now, the chapter 13 case is behind her and yesterday she sat before me smiling, happy, and talking about the future.

As an attorney, while I try to get my client’s perspective, I really can only get so much. I can only put myself so far into a client’s shoes. So I asked her, now that her case is behind her, now that she is moving forward with her life in new directions, what were her feelings about the bankruptcy process now that she was “on the other side of it.”

She didn’t hesitate with her response. (I can’t quote, but I did take a few notes.) She told me that going through that difficult process allowed her to dream again. That now she could dream and that making those dreams a reality again seemed possible. Her dreams were no longer mired down in a chaos created by debt that had spiraled out of control. She told me that she felt freer than she had felt in a very long time.

The minute these words flowed, I could feel a smile growing on my face….and a bit of a lump in my throat. And then, it dawned on me: ‘this is what I’ve been itching to write about for the New Year.’

Many are looking at 2009 with a sense of foreboding and trepidation. World events are not exactly fueling optimism about the future. Perhaps 2009 will not be a year when dreams will come true. Perhaps things may get worse.

Or perhaps in spite of that, you can find a way to knuckle down, stand straight, bite your lower lip, bide your time, and get through a journey that brings you to the other side of it: a side where you can dream once again. I know it may all sound silly, but I know this place exists. Yesterday, I was fortunate to be reminded that for my clients in or facing bankruptcy, there can be a life afterwards. And that life can be wonderous. The only assurance I can give you is that the big smile on my client’s face proves that anything is possible.

With that, I wish you all a very Happy New Year.

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Furnishing Tax Returns to Creditors

Among the changes to the Bankruptcy Code was the added requirement that debtors provide a copy of their federal income tax return/transcript to trustees, and if requested, creditors. The code provides that the case shall be dismissed if the returns are not disclosed timely manner. But what if a creditor does not receive the return after? In a recent Massachusetts decision, the Bankruptcy Court was called upon to answer that question.

The debtors filed their case in July 2008. Approximately one month prior to the scheduled Meeting of Creditors, the debtors provided the trustee a copy of their federal tax return. Approximately 10 days prior to the Meeting of Creditors, a creditor sent a letter requesting a copy of the return. Debtors’ counsel brought the copy of the return to the Meeting with the intent to give it to the creditor’s attorney. While the two attorneys spoke, debtors’ counsel did not give a copy of the return.

Creditor then filed a motion to dismiss citing Section 521(e)(2)(c). It argued that the Bankruptcy Code mandated that the case be dismissed and that the Bankruptcy Court had no discretion to allow the case to continue. The Bankruptcy Court however, did not agree.

The court examined the legislative history of this new (post 2005) requirement. Section 521(e)(2) requires a debtor to provide a recent tax return to the trustee at least 7 days prior to the first date set for the Meeting of Creditors. It also provides that a debtor must furnish a copy of the return to a creditor who makes a timely request. However, the section provides that the debtor is obligated to provide the return to the creditor at the same time the debtor provides it to the trustee. Thus, the creditor must request a copy of the tax return/transcript either at or before the time the debtor supplies the return to the trustee. This creditor did not make the request until after the trustee had received the return.

For those reasons, the creditor’s motion was denied to dismiss was denied.

In re Fontaine, US Bankruptcy Court, District of Massachusetts at Worcester, 08-42454

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Christmas 2008

The last time I wrote a Christmas blog was 2006. While trying to gather my thoughts this Christmas, I re-read that blog entry.

After reading it, I decided it was best to simply point to it. The message is the same. The reasons why I wrote it then have not really changed. If anything, those reasons have become more apparent and obvious to more of us. It’s worth repeating. Once you’re read it, please read my update after the jump.

A Christmas Message…

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A Difference We Can Make This Holiday and in the Years Ahead

When I was in my third year of law school, I adopted two female kittens from a local shelter: Annie, a 9 month old yellow short hair, and Cissie, a 6 month old grey and brown tabby. Their impact on my life has been immeasurable.

Annie had these big, brown, doe-like eyes. It was her that I fell for first. She was rubbing against the cage and purring very loudly. I was allowed to open the cage and she jumped into my arms. I recall saying “oh yeah, I’ll take her.” I actually only intended to adopt one – which I think she knew because she then went back into the cage and went to Cissie, who sat towards the back of the cage looking afraid. She somehow made it known to me that they came as a pair. So I adopted them as a pair.

They had this love/hate relationship. When they loved one another, all was well with the world. When they did not….well, let’s just say it got a little crazy. Cissie was fascinated by the house plants, and Annie marveled at the looks and sounds of water going down the drain.

Cissie and Annie would lay close to me when I was studying for exams, including the bar. I did not realize that I would nervously click a pen while concentrating. I really only discovered it when I noticed Cissie looking at me while purring and chirping. She would then approach and then start batting it. She also loved the smell of my highlighters – which she would often pry away from me. And Annie would always let me know when it was time to stop studying: she would simply lay down on my books and give me a look that said “and now, it’s all about me.”

Looking back, I think it took Cissie longer to warm up to me. But eventually, she did. When I moved to Boston, I bought her a harness and would walk her in the Back Bay Fens in between Park Drive and the Fenway. She loved watching the ducks in the Muddy River and loved chattering to leashed dogs as they walked by in amazement. She hated being picked up and carried. She preferred walking by my side…or in many cases, dragging me to what she was interested in.

I had Annie for just over 11 years. Cissie stayed with me for more than 16. And yes, I think about them every day.

Today, I have Kit and Betty. Kit is about 10 – she was a stray. She lived with my mom for a few years until she passed away, and has lived with me ever since. She still has a bit of feral in her…which can sometimes make life surprising…and painful, if Bactine is not around.

With Betty – well – the story with her is this: I went into a pet store to get cat food. Many times, local pet stores will help local rescue agencies and shelters promote adoption awareness and on that day, there I was and there was some rescue group promoting its programs and its kittens. I made eye contact with this little 4 month old kitten (again, the big brown eyes). I asked if I could hold her. She looked into my eyes. And that was it. I said to myself “oh sh*t.” She chose me.

While the first meeting was in a pet store – this was no “impulse purchase” – this was an adoption – and it took some time to adopt her. They checked our references – made sure we could handle the responsibility of adopting a kitten. About two weeks later she arrived. She bonded with Kit immediately. I presume that as I sit here in my office writing this, they are hunched under the Christmas tree wondering when I am going to get home and turn it on (because I believe, much like Annie and Cissie, they understand that it really is all about them).

Now you’re probably asking “where is he going with this”: in today’s Boston Globe, there is this report how the recession/depression is not only forcing people to lose their homes, but it forcing them to surrender or abandon their animals. This is not the first report on this issue, nor is it the first time I have mentioned it here. And as the economy continues its trek into the abyss, I know it will not be the last. Things are tough all around. And it’s tough for the local shelters and rescue programs that come to the help of animals in need.

What can we do?

My animals have taught me many life lessons. And I know that animals, with their ability to give us unconditional love, can be a powerful force to bring reason, order, and a sense of truth and beauty to a complex and sometimes chaotic world. We need them as much as they need us. This is why I support the Animal Rescue League.

Since 1899, the Animal Rescue League of Boston has been dedicated to rescuing domesticated animals and wildlife from suffering, cruelty, abandonment and neglect. With Care and Adoption Centers in Boston, Dedham, and Brewster, the League is a leader in providing rescue and law enforcement services and promoting a compassionate and responsible attitude towards all living beings.

Our friends and neighbors face daunting challenges in this economy. Many are forced to make difficult decisions about their pets. Yet despite these challenges, the Animal Rescue League remains committed to provide shelter and veterinary care. For 109 years, the League has been there – in good times and in bad.

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Please join me and McLeod Law Offices in supporting the League and its important mission. Together, we can help the League end overpopulation, rescue animals whose lives are at risk, and ensure that every adoption is a lasting and loving one.

Remember, it’s not just the animals; it’s the lives they touch.

Click here to donate or call 617.426.9170 x615

To learn more about the other ways you can help, click here.

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Patrick Administration Provides New Resource to Assist Tenants Impacted by Foreclosure

FOR IMMEDIATE RELEASE

BOSTON – December 9, 2008 – As part of the Patrick-Murray Administration’s ongoing response to the foreclosure crisis, the Executive Office of Housing and Economic Development and the Office of Consumer Affairs and Business Regulation, with support from Massachusetts Housing Partnership, released a brochure outlining the rights and responsibilities of tenants living in foreclosed buildings. The guide empowers renters with information to ensure that they understand the foreclosure process and are not unfairly evicted after the building they live in is foreclosed upon.

Like homeowners, renters throughout the state and the nation are being affected by the foreclosure crisis in real and dramatic ways. Although there are no exact figures, statistics compiled by the Division of Banks show that approximately 30% of the 7,653 Massachusetts foreclosure sales in 2007 involved multi-family properties.

“Renters need to know their rights,” said Daniel C. Crane, Undersecretary of Consumer Affairs and Business Regulation. “Tenants shouldn’t be pressured to pack their bags because their apartment is in a building that is foreclosed on. This new resource provides information that will help families and individuals affected by foreclosure through no fault of their own.”

Many lenders or servicers try to evict all tenants from a property immediately after a foreclosure, even if the tenants have paid their rent on time and have not violated any terms of their tenancy. If tenants refuse to leave, they may be offered a small amount of money, commonly known as “cash for keys.” Tenants agree to these pay-outs under the assumption that they have no other option.

To prevent renters from being unfairly displaced and coerced into leaving their homes, Governor Patrick signed into law last November a measure ensuring that a tenancy will not be terminated by a foreclosure sale.

According to state law, a tenant is entitled to at least 30 days written notice if the owner wants them to vacate the property. A tenant is then entitled to a court hearing if they wish to remain in their home after receiving the proper 30 days written notice. A judge will determine how much time the tenant will be allocated to vacate the apartment. Without court approval, owners do not have the right to evict their tenants. If a tenant receives state or federal rental subsidies, the terms of their rental agreement will not be affected by a foreclosure sale and the tenant should contact the agency that provided the subsidy to understand their specific rights with the subsidy.

New owners are also legally responsible for posting their contact information on the property and for properly maintaining the building. Tenants are encouraged to contact the building owner in writing if they encounter maintenance issues, and to contact their city or town’s housing inspector if they believe their building to be in disrepair.

Tenants with questions or concerns should contact one of the legal resources listed in the brochure or the state’s Consumer Hotline at (617)-973-8787 or (888)-283-3757. The brochure, which is available in several languages, can be found online at mass.gov/foreclosure. It is also being distributed statewide to housing agencies and foreclosure prevention organizations.

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A Holiday Shopping Tip (or Warning)

With Black Friday soon upon us, and the holiday shopping season, I want to get a message out to those folks who are struggling. Perhaps there are folks who know they are going to lose their jobs after the New Year. Perhaps there are folks who have been using credit to get by and now see a bankruptcy petition on the horizon. Perhaps these folks are figuring that they will have one last holiday with really great gifts courtesy of their credit card companies. If you’re reading this, and you’re thinking “wow, he’s totally speaking to me (or about my friend or relative)!” please keep reading.

One thing many consumers do not know is that when you buy “large-ticket” item, it may also come with it a security interest. In other words, that purchase may be a gift, but it may also be collateral. The lender (the store, or the bank that finances the store’s credit cards or credit lines) assumes a security interest. This is something to think about as you’re eyeing that appliance or jewelry. Will it prevent you from filing bankruptcy? Probably not. Will it complicate things? It just might. You may have to pay the debt even if you file bankruptcy or you may have to surrender the collateral. Or you might hear from the creditor months or years after the bankruptcy is over.

Last minute purchases can also get you into hot water. Using a credit card when you have no intention of paying the debt back can be considered fraud. Debts incurred through fraud cannot be discharged. In addition, such actions could be considered bad faith, and might lead to a dismissal or a denial of discharge, depending on the circumstances. What does any of this mean? The short answer is more attorney fees, more anxiety and the possibility that the bankruptcy case will not go as smooth as it otherwise could.

If you’re contemplating bankruptcy, don’t use credit cards for holiday shopping. Speak with an attorney. The last thing any debtor needs is to make a tough situation even worse.

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Why Bankruptcy Lawyers Require Fees Before Filing

There really is a good reason. And to help prove my point, I turn to an October 2008 decision out of the US Bankruptcy Court for the Eastern District of Pennsylvania: In re Mansfield. In that case, the court was called upon to ask what it viewed as a “deceptively simple question:” may an attorney who charges a “flat fee” for services pursue the uncollected balance due?

In this case, the attorney charged a flat fee for preparing the necessary documents and schedules, but also for attending the first meeting of creditors (which occurs after the case is filed). The fee was paid in one large installment, with the remaining balance divided into smaller installments which were paid or due after the case was filed.

The US Trustee sought a review of the fee practice as well as disgorgement of the fees collected after the case was collected. The attorney claimed there was no authority supporting the relief sought by the US Trustee, and he was entitled to collect at least the value of the services he rendered.

The court did not agree. Under Section 727(b) of the Bankruptcy Code, a “debtor’s obligation under a fee agreement to pay a fixed or flat fee to his attorney for legal services rendered pre- and postpetition in a Chapter 7 case, regardless of how the fee is scheduled to be paid, is a prepetition debt that is dischargeable. The attorney avoided having to return the fees paid because there is a difference of opinion among Bankruptcy Courts throughout the country as to whether the practice of collecting fees post-petition is permissible….and if permissible, the circumstances they are permissible.

In flat fee cases (and it is fair to say most, if not all consumer Chapter 7 cases are flat fee), the court found that the “division of a flat fee arrangement into prepetition and postpetition parts to be conceptually inconsistent and therefore untenable. The Court therefore joins those other courts which hold what when a flat or fixed prepetition agreement is at issue, the fee must be paid in full prior to the commencement of the debtor’s case or the fee is discharged under Section 727(b).”

So in reality, when an attorney requires fees and costs prior to the filing of the petition, it’s because they need to get paid…unlike creditors in a Chapter 7 who in many cases do not get paid at all. There’s case law all over the country that supports it, and other case law that suggests that it can be done. While the current code and the case law leave room for creative argument, debtor’s attorneys can be expected to be wise and take the path of least resistance: earn the fee and serve the client. Certainly, there are bigger battles for debtor’s attorneys to engage in for their clients other than fighting for a fee for postpetition services.

In re Mansfield, US Bankruptcy Court, Eastern District of Pennsylvania, No. 08-11648 SR (Ocobter 2, 2008)

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When Things Go Very Wrong

Last week I received a phone call from someone who wanted to know about the status of a bankruptcy case. It was not their bankruptcy, rather the case of another person. Apparently, the caller was a creditor of the bankruptcy debtor. The caller had a case pending in state court and wanted to know if the claim was discharged in the bankruptcy. While we were chatting, I pulled up the case on PACER. As I started to get more information and I was reviewing the documents, I came to realize that not only was the claim discharged, but the attorney representing the caller in the state court matter committed malpractice. What happened here is a lesson for anyone finding themselves brought into a bankruptcy case.

In May of 2007, the debtor filed bankruptcy which put the automatic stay into effect. In August, the caller’s attorneys filed a Motion for Relief from Stay. By a look at the document, the attorneys did not have experience in bankruptcy matters: the motion was barely two pages long and presented nothing substantive for the court to consider. Their lack of experience was also evident by the fact that they did not file electronically (Bankruptcy Courts – like all federal courts – use electronic case filing). And finally, they also did not pay the requisite filing fee (a fact which is readily available from a number of sources, including the court’s website).

The Clerk issued a Notice of Filing Fee due, and ordered that the payment be made by 8-27-07. The Certificate of Service from the Clerk stated the Notice was mailed on August 19, 2007 to the local attorney. However, payment was not made until 9-5-07. As a result, the motion was denied.

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Today’s News…

FHFA announces a mortgage modification progam. Details are here. More here. Time will tell if this is just more hoopla.

Citigroup announces a moratorium on foreclosures in certain circumstances:

It said it won’t begin a foreclosure or complete a foreclosure sale on a home on which it owns the mortgage so long as the borrower wants to stay in the home, which is his or her principal residence; “is working in good faith with Citi, and has sufficient income for affordable mortgage payments.”

What does “sufficient income for affordable mortgage payments” mean? If the income is not sufficient, how can the payments be affordable? And if the payments are not afforable, is it really because the income is not sufficient? So…. okay, perhaps I am overthinking it.

In other news, the Filene’s project at Downtown Crossing is not the only local contruction project that is now stalled.

And finally, when discussing the state of the economy, it appears that more and more people are using the “D” word.

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What’s Your House Worth?

When I confer with a client who is facing the prospect of bankruptcy to protect their home, I have many important questions. One of them is “what is the value of your home?” The answers are usually varied, and in most recent situations, clients have only old or not useful information. Regardless of the source however, determining the value of the home is a necessary step in any pre-bankruptcy analysis I need to do. And unfortunately, getting that accurate information is not always easy, and it is not always grounded in reality.

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