Big changes are ahead for New Hampshire bankruptcy court with judge and clerk slated to retire

By doug | Published: June 18, 2012

The New Hampshire Bar News is reporting that the state’s only bankruptcy judge is planning to retire in March, 2013.

Moreover, the clerk of court has announced that he too, will retire in November, 2012.

The court will probably not be rudderless, however, as the First Circuit court in Boston, charged with hiring New England’s bankruptcy judges, is already looking for applications for the judgeship being vacated by Hon. J. Michael Deasy.

The job pays $160,080, but unlike most federal judgeships, it is not a lifetime appointment but a fourteen year assignment.

The judge’s retirement has repercussions going well beyond his enjoyment of golf of fishing or what-not. Because bankruptcy court opinions are not binding on other judges, whoever the successor is may be able to re-write how bankruptcy law is interpreted in New Hampshire with something close to a blank slate.

This means uncertain times lie ahead for both debtors and creditors, and interesting times indeed for the bankruptcy lawyers of New Hampshire!

Photo: New Hampshire Bar News

 

By Doug Beaton

Posted in Bankruptcy News | Comments closed

Octomom files for bankruptcy — and her case is quickly dismissed

By doug | Published: June 15, 2012

A couple of years ago, I wrote a tongue in cheek post here indicating that the “Octomom” — Nadya Suleman, a California mother of fourteen, including octuplets from fertility treatments, might soon be in bankruptcy court, as she was having trouble staying current on her mortgage.

The prophecy came true in April 2012, when, faced with another foreclosure notice, the Octomom did indeed file a bankruptcy case — only to have it promptly dismissed.

What Suleman did was to file a “skeleton” case, with just the minimum documents, but without the full schedules that provide detailed financial information.

Nothing wrong with doing that — the court will typically grant a grace period to supply the rest of the documents. In Massachusetts and New Hampshire, the grace periods are typically two weeks in duration.

But since Suleman missed her deadline, her case was thrown out. At best, her bankruptcy bought her a mere two week delay in the foreclosure, which can now be restarted by the lender.

Worse, if Octomom files again, she will not only have to pay another filing fee, but will also receive only a limited 30-day reprieve against her creditors, and may have to explain to the judge why she is a multiple bankruptcy filer. She could also face creditor objections.

If there is any moral to the Octomom’s story, it is this: once you head to bankruptcy court, be prepared to pony up the necessary data so you get the benefits of bankruptcy, and not a bunch of undesired consequences. Your bankruptcy attorney should handle this for you and ensure it goes smoothly!

 

By Doug Beaton

Posted in Bankruptcy News, Foreclosure | Comments closed

Court rules that debtors can strip off liens with a Chapter 7 bankruptcy case

By doug | Published: June 14, 2012

Consumers in Georgia and Florida got a big boost from the Eleventh Circuit Court of Appeals in Atlanta (left) recently, when that court became the first appellate level body to approve — and the first to even discuss — lien-stripping in Chapter 7 bankruptcy.

The topic has caused controversy among bankruptcy judges for decades. The recurring question is whether a secured loan, for example a second mortgage, that is completely underwater can be eliminated when filing a Chapter 7 case, or whether debtors with this as a goal have to resort to the more costly and time consuming Chapter 13 or Chapter 11 proceedings.

The text of Chapter 7 doesn’t say one way or another, hence the controversy. At issue is the wording of bankruptcy code section 506 (d), which appears to allow liens to be stripped, but doesn’t specify if an individual debtor has a personal right to do it.

In the case of McNeal v. GMAC, the Atlanta judges said the debtors do have such a right. In the process, they sidestepped the most frequent obstacle, the Supreme Court’s 1992 ruling in a case called Dewsnup, which said there can’t be any Chapter 7 lien-stripping for loans that are partially secured.

Because the Atlanta judges consider the Dewsnup case limited to partially-secured loans, they said it didn’t apply to completely unsecured loans, and followed the 1989 Eleventh Circuit In re Folendore case to allow the debtors to strip off their second mortgage.

Nationally, this argument has a checkered history. Most notably, two judges on Long Island supported Chapter 7 strip-offs in 2009 and 2010, but another judge there did not.

The $64,000 question for New Englanders may be whether any judge in this area will adopt the Eleventh Circuit’s reasoning, which is only binding law in Florida and Georgia. No sitting bankruptcy judge in Massachusetts or New Hampshire has ever commented in print on the Folendore case, so at this point their opinions and attitudes on the topic are unknown.

Another possibility, though less likely, is that the US Supreme Court could hear GMAC’s appeal in the McNeal case. Stay tuned for an update on that!

 

By Doug Beaton

Posted in Bankruptcy News, Chapter 7, Secured loans | Comments closed

The Massachusetts bankruptcy court has been aggressively dismissing cases

By doug | Published: June 13, 2012

Here’s a heads-up call for Massachusetts debtors who have filed a bankruptcy case recently, are thinking about filing pro se, and for other Massachusetts bankruptcy lawyers:

The bankruptcy court has been very vigilant recently in dismissing cases the very first chance they get — especially when all the paperwork has not been filed on time. The situation is most noticeable in the Worcester branch, but probably applies statewide.

When you file a bankruptcy case, not all of the paperwork is due immediately. If there are missing documents, the court will give you a grace period of fourteen days to come up with the missing stuff. Debtor’s who don’t are subject to having their cases unceremoniously thrown out.

In this Internet age, the bankruptcy court is “open” twenty-four hours a day for accepting filed documents. However, for the purpose of enforcing deadlines, each “day” officially ends at 4:30 PM.

Lately it has been common to see the clerks in Worcester dismissing cases as early as 10:00 the next morning when debtors use up the entire grace period.

Why the crackdown? Who knows — filings overall are dropping, so it’s not due to a raw overload of work. But the court is surely entitled to follow its own rules, so debtors beware — and be ready with the information necessary to file each bankruptcy form at its proper time.

 

By Doug Beaton

Posted in Practical tips | Comments closed

When consumer bankruptcy laws let you lower your car payments — and when they don’t

By doug | Published: June 11, 2012

Is it really possible that filing a bankruptcy case could reduce your car or truck loan, in addition to any other benefits?

The short answer is “yes, but.” Yes, but there are many restrictions that stand in the way of a debtor that wants to try this.

First off, filing a Chapter 7 case won’t do it. In Chapter 7, your only options are to keep making your payments on time (and keep driving the vehicle), or to turn in the vehicle and get rid of the payments.

It is Chapter 13 of the bankruptcy code that offers consumers the best chance to adjust their car payments downwards. In general, Chapter includes provisions that allow debtors to alter or “modify” secured loans.

But a major wrench was thrown to the works when bankruptcy code section 1325 was overhauled in 2005. The new law prohibits any modification for most car loans if the vehicle was acquired within 910 days before the bankruptcy case was filed (that’s two and one-half years).

But wait! A close reading of the section reveals some loopholes:

Most important, the 910-day rule does NOT apply if the vehicle is used primarily for business purposes.

Second, the rule also does not apply to loans that are not “purchase money” loans. In other words if you got a title loan on the vehicle, that CAN be modified, even if the money was lent within two and a half years before filing the case.

Finally, since the law speaks of a vehicle acquired “for the personal use of the debtor,” cars that are not so intended may be ripe for a modification. Depending on the facts of the case, you may be able to argue that a car used by someone else — your employee or family member, for example — should be subject to modification.

And what happens when an auto loan is “modified?” Typically, the balance of the loan will be reduced to the value of the vehicle on the date you filed the case, and the interest rate will be lowered to the vicinity of 5%.

Some debtors may be able to stretch out their payments as well. Then again, given the perishable nature of cars and trucks, many may elect not to.

These are good benefits indeed, for those who are willing to take a closer look at the consumer bankruptcy laws!

Posted in Chapter 13, Secured loans | Comments closed

Massachusetts bankruptcy court slices claim based on usury laws

By doug | Published: June 4, 2012

Since bankruptcy lawyers work all day in the world of debt and shady loans, you would think they would come across violations of the usury laws, concerning illegally high interest rates, all the time.

You would be wrong.

For some reason, although millions of people file bankruptcy every year, invocations of state usury law is comparatively rare.

So it’s a bit noteworthy that bankruptcy judge Melvin Hoffman invoked the Massachusetts criminal usury statute recently in an opinion concerning the bankruptcy of the Shifting Sands motel and condo in Dennisport on Cape Cod.

The law in question, Massachusetts General Laws chapter 271, section 49, makes it a crime to charge more than 20% annual interest on a loan, with only a few specified exceptions.

Judge Hoffman looked at the claim submitted in the bankruptcy case by the lenders who financed Shifting Sands and concluded that between all the different fees they were charging, the effective interest rate was at least 32 percent. He then denied the interest portion of the claim outright. The case is In re Loucheschi, LLC.

Although In re Loucheschi is a Chapter 11 business case, it should raise a couple of questions in the minds of inquisitive consumers thinking about bankruptcy.

First, what happens when a company violates a criminal usury statute? The answer, according to the Masachusetts Supreme Judicial Court in their 1980 opinion in the Begelfer v. Najarian case, is that just about anything could happen: the SJC gave lower courts a virtual carte blanche to fashion remedies that they consider fair under the circumstances.

Second, debtors may ask why aren’t all my 30% interest rate credit cards running afoul of this usury law? The answer is one of the reasons that you mail you payments to far flung places like Wilmington, Delaware or South Dakota. By claiming that your credit card contract is governed by the laws of those bank friendly states, the card companies think they have exempted themselves from the local usury laws.

Whether or not that remains the case in the future depends in part on whether some bold debtors are able to hook up with bold attorneys and make the challenge . . .

 

By Doug Beaton

Posted in Real estate, Secured loans | Comments closed

Massachusetts bankruptcy court says vacation condo in Maine qualifies for homestead exemption

By doug | Published: May 24, 2012

Here’s a twist that you don’t see everyday in the bankruptcy courts: a Massachusetts couple who filed a bankruptcy case were allowed claim a homestead exemption to protect their vacation condo in York Beach, Maine.

Massachusetts bankruptcy judge Melvin Hoffman ruled that the federal homestead exemption — found at 11 USC section 522 (d) (1) — could be used to protect any residence, and not just a “principal residence.” The case is called In re Lawrence.

Since there was little question that the condo was in fact used a residence — at least part-time, the federal homestead exemption did apply, since there is nothing in that section of the bankruptcy code that talks about a “principal” residence, just a residence.

Of course, this being the world of law — and life — there is a catch. And the catch is that you can only exempt one property using the federal homestead exemption. Although it is not explicitly addressed in the In re Lawrence opinion, the underlying assumption is that the debtor’s main home in Massachusetts was underwater on a mortgage or two, and therefore would be lost to foreclosure despite the bankruptcy.

The debtors therefore were in the process of packing up and shipping their belongings to Maine, where they will try to regroup while living in the condo.

And thanks to a generous reading of the bankruptcy code, that plan looks like it is going to work out.

 

By Doug Beaton

Posted in Exemptions, Real estate | Comments closed

Kentucky Derby winner purchased by payday loan king

By doug | Published: May 11, 2012

Sometimes the bad guys win one.

It happened recently at the 138th running of the Kentucky Derby in Louisville. I’ll Have Another (left), a strapping 3 year old colt trained in California cam barreling down the stretch to grab the lead and the victory in the $2M dollar race.

He was ridden by a 25 year old Mexican jockey, Mario Gutierrez (right), who was riding in his very first Kentucky Derby, and made the ride a winning one. I’ll have another was trained by Doug O’Neill, who also had never won the Derby before.

There is certainly nothing negative to say about the animal himself, or about jockey Gutierrez, who had been slaving away at a small Canadian racetrack until recently, and whose smile after the race looked like it was powered by the Hoover Dam.

But the owner of I’ll Have Another is a little different story. that would be J. Paul Reddam (below, center), who runs a California payday loan service that goes by the name of CashCall.

As in make a call, and get cash — at an interest rate of 184%!

Here’s a specific “deal” from Reddam’s CashCall operation: take out a $5,000 tomorrow for only a $75 loan fee. All you have to do to pay it off is pay $486.58 every month for the next 7 years!

These sort of operations suck the life out of consumers and turn them into bankruptcy debtors in short order. So I can take a pass on seeing Reddam, (who in a previous career was actually a philosophy professor at the University of Southern California) use these dirty profits to buy himself a Derby-winning racehorse, even if the horse was a comparative steal for $35,000.

 

By Doug Beaton

Posted in Bankruptcy News, Just for fun | Comments closed

What happens if you file for bankruptcy and no one wants their collateral back?

By doug | Published: May 4, 2012

When an individual files a Chapter 7 bankruptcy case, one of the decisions they have to make is whether they want to keep property that is collateral for a loan, or to give it back to the lender.

The best example is an auto loan: a debtor filing bankruptcy can choose to keep paying the loan and keep the car, or get rid of the loan and turn in the car to the lender.

But what happens if the lender refuses to take the collateral back?

This type of situation rarely ever happened until a few years ago. Up until then, creditors always took their collateral back!

But with the economic crash, things sometimes do fall through the cracks. And with the downturn in the economy, sometimes there is even an incentive for a lender not to take possession of the collateral.

Unfortunately there is a growing problem of lenders that are refusing to take possession of vehicles surrendered in bankruptcy. We see this not only with motor vehicles but we are also seeing this occasionally in housing. Because of low values some lenders are unwilling to to foreclose to the detriment of the neighborhood. The lender simply finds the cost of paying maintenance, insurance, and back taxes exceed the value of the home.

Back in 2006, the First Circuit court of appeals dealt with this situation in a case called In re Pratt. There, the court went so far as to say a debtor who was stuck with a car could go so far as to reopen their case and try to get the lender to be held in contempt of court! The Pratt case is binding precedent in both Massachusetts and New Hampshire.

The problem becomes more acute when houses are involved — especially condominiums. Due to a change in the bankruptcy laws, a debtor can be held on the hook for condo fees due AFTER the bankruptcy is filed if the lender refuses to foreclose– which can make clearing up title and selling a condo a nightmare, even after a bankruptcy case.

People stuck in this situation here in New England may consider hiring a bankruptcy lawyer and giving the Pratt route a try — there may be nothing better than a contempt of court motion needed to wake up a “sleeping” creditor who refuses to take back a home or car after learning of a debtor’s bankruptcy case

 

By Doug Beaton

Posted in Secured loans | Comments closed

Massachusetts foreclosures tick up, bankruptcies to follow?

By doug | Published: April 27, 2012

There was a big increase in both new and completed foreclosures in March 2012, perhaps portending a coming increase in bankruptcy filings.

According to the Warren Group, which tracks real estate market activity, 850 Massachusetts properties were lost to foreclosure in March, an increase of 36% over the prior year.

There were a whopping 1621 foreclosure petitions filed in March, which was also a big jump of almost 55%. Foreclosure petitions are one of the first steps in the process, typically taken when homeowners fall at least three months behind in payments.

Bankruptcy filings may soon increase as well, because the bankruptcy filing can stop a foreclosure, even if a foreclosure petition has been filed in court.

 

By Doug Beaton

Posted in Bankruptcy News, Foreclosure | Comments closed
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