Electronic filing and the bankruptcy courts: you better know what you’re doing!

By doug | Published: March 14, 2012

Since 2003, the bankruptcy courts in Massachusetts and New Hampshire have required cases to be filed over the internet using the court’s own “Case Management / Electronic Case Filing” system. CM/ECF, as its known, was adopted a little earlier in some other states, and a bit later in others. Nowadays, it is in use coast-to-coast by all the bankruptcy courts in the country.

Both court staff and bankruptcy attorneys, and the attorney’s staff people are trained in the basics of how to get a case or a motion filed.

Or so everyone hopes. But a recent case from the Boston bankruptcy court casts a little doubt on that. The case is In re Stallworth and you can read it here.

The debtor had filed a Chapter 13 case a few years earlier, but it didn’t work out. Now she wanted to file a Chapter 7 to get rid of most of her debts. She hired an attorney. So far, so good. But then it went bad.

Although, the debtor’s lawyer was schooled in how to operate the electronic filing system, all that book learning apparently didn’t take too well.

Last September 29th, the lawyer attempted to file Ms. Stallworth’s bankruptcy case through the CM/ECF system. Somehow, she failed to upload various important bits of information, such as the debtor’s social security number and her list of creditors.

This case was eventually dismissed from the court for these mistakes, but that didn’t end that cascade of snafus. First the lawyer attempted to “vacate” her own filing by using the court’s regular e-mail address; no-go said the court staff, who told her to use ECF. When she did that, for some reason, she only filed a blank document.

Rather than correct these problems, the lawyer than filed another Chapter 7 case for Ms. Stallworth. This time the debtor’s name was not spelled right, there was no address provided except the county, and the schedules were all blank.

In response to these filings, the US Trustee filed a motion for the lawyer to forfeit all the fees she had “earned” on these cases. The attorney responded that she had not collected any fees — certainly an example, from the debtor’s point of view of “you get what you pay for.”

By now, hearings were scheduled before the bankruptcy judge on the situation, and the debtor’s attorney really compounded her own problems by telling some strategic little white lies to the judge about how all the filings got so bungled.

Needless to say, Judge Hillman was not very happy at this, and the debtor even less so. After all, she was just looking for a bankruptcy discharge on what was probably a pretty simple case. Now she is branded as a multiple-bankruptcy filer (which hurts her ability to get an automatic stay, the order that protects her from creditor harassment during the case).

In the end, the judge referred the bumbling lawyer to the federal district court for sanctions, suspended her CM/ECF account, and ordered her to take ECF training again. Hopefully it will take this time. Meanwhile, Ms. Stallworth, the debtor, still hasn’t gotten a bankruptcy discharge.

The moral of this tale is just a word to the wise: every person with a law degree is not necessarily a bankruptcy lawyer. Choose your advisors carefully, and while you don’t really need a computer jock, at least be sure your lawyer can operate the basic of the ECF system, so he can actually get your case in court.

Photo: operation of the UNIVAC I computer on CBS-TV in 1952.

 

By Doug Beaton

Posted in Practical tips | Comments closed

Selling a house while you are in bankruptcy

By doug | Published: March 13, 2012

What happens if you file a bankruptcy case, and then afterwards suddenly find the perfect buyer (i.e. one who can get financing and will actually go through with the purchase) for your home?

A lot will depend on what chapter your case is filed under. If its a Chapter 7, like the majority of cases, the best strategy is just to wait until the case is finished, then go ahead and finalize the deal.

In Massachusetts, most Chapter 7’s last a little more than three months. In New Hampshire, they can go even quicker. If the buyer really wants the property, it probably won’t be a deal breaker to wait a few more weeks to consummate the sale.

Chapter 13 cases are a different story. This is because these cases usually last between three and five years, while the debtors make monthly payments into their Chapter 13 reorganization plan.

In this case, it will be necessary to get the bankruptcy judge’s permission to sell the property. This is not necessarily hard to do (especially if you are doing something like using proceeds from the sale to pay off your plan). But it does take a motion to the judge to do it, and that probably means one drafted by an attorney. Talk to your bankruptcy attorney about what the exact requirements will be.

If the house is going on the market through a real estate agency, it may also be necessary to get court approval to hire the broker in the first place. Again, this is not a matter of extensive litigation (usually), but you do have to have your bankruptcy attorney approach the judge with the right papers before you just go off and hire a real estate agent.

Finally, keep your eye out for one more trap in Chapter 13. Under the Federal rules of Bankruptcy procedure, Rule 6003 prevents a court form issuing approval to sell in a Chapter 13 until 21 days have gone by after the case is filed. If you really need to file the Chapter 13, you may want to advise the potential buyer that there may be an unavoidable three week delay.

This may sound complicated, but an experienced Chapter 13 bankruptcy attorney can get the entire process to run fairly smoothly. With the technical aspects of the motions, though, this is something that you probably don’t want to try on your own.

 

By Doug Beaton

Posted in Practical tips, Real estate, The Bankruptcy Code | Comments closed

Gimme shelter: finding a place to live after filing a bankruptcy case

By doug | Published: March 12, 2012

The advantages of filing for bankruptcy — a clean slate, no more annoying debt collectors or court appearances — would be worthless if bankruptcy meant you ended up sleeping in a gutter. Fortunately, that sort of ending is virtually unheard of. There are so many people filing recently in the Merrimack Valley that any stigma among landlords has been greatly reduced.

But if you want to stack the odds of getting decent new digs in your favor, take heed of a few basic suggestions that should help you accomplish that:

First, think about building a war chest: If you are sitting in a house that is going to go to foreclosure despite the bankruptcy, you could be sitting there a while rent-free while the various legal processes play out. Instead of blowing this opportunity, “pay yourself” a monthly rent, by putting aside in a savings account what you would normally pay for shelter, or as much as you can possibly manage. If you start doing this AFTER you file a Chapter 7 case, you should be all set with moving expenses, security deposits, and the first month’s rent on an apartment before long. If you start this fund BEFORE you file a case, it impacts your exemptions, so you need to talk to a bankruptcy lawyer to get an idea how much you will be allowed to save.

Next, take a look at your post-bankruptcy credit report. Obviously, there’s no getting around the declaration that you have indeed filed for bankruptcy, but you want to make sure that your prior debts are zeroed out. Paradoxically, having no unsecured debt anymore raises your standing in the eyes of savvy landlords. The goal here is to make sure the report doesn’t list both the bankruptcy AND the old debts; if it does, you want to get on that before you go apartment hunting.

Third, have your bankruptcy records handy. Or in other words, when you get your discharge, don’t throw it out or use it for wallpaper! Landlords and other creditors will be anxious to see that your case is finished in the courts — so make it easy on them and have those papers close at hand.

And then, if you are leaving a foreclosure, think about making one more call to the mortgage company. I know, I know, they are insufferable to deal with over the phone. But if you can get through to the someone who counts, they may be receptive to letting you stay and pay rent for a while. For them, its a better deal to have someone in the property, keeping it up at least minimally, than having just more empty space in the phantom housing inventory. If you can’t get any headway over the phone with your old mortgage servicer, try the attorney who is handling the foreclosure.

Doug Beaton is a bankruptcy lawyer in the Merrimack Valley.

 

By Doug Beaton

Posted in Practical tips, Real estate | Comments closed

Snafu with bankruptcy costs Massachusetts debtor his home equity

By doug | Published: March 9, 2012

Massachusetts has a generous homestead exemption, which comes in handy when a homeowner needs to file a bankruptcy case.

Typically, up to $500,000 can be declared “exempt,” bankruptcy lingo for “untouchable by the bankruptcy court or trustee.”

But there are always exceptions, and one South Shore homeowner who filed bankruptcy in 2009 just found out the hard way that (barring appeals) he will be coughing up almost $200,000 in equity to his creditors, according to a decision issued by U.S. Bankruptcy Judge Joan Feeney. The case is In re Stella, no. 10-11922.

What brought the debtor down such an awful road? Good intentions, of course. He wanted to make sure his house got passed down to his adult sons when he died, so he put it in a trust a decade ago. More recently, he switched it to another trust. When his kitchen remodeling business was headed downhill in the real estate crash, he filed a Chapter 7 bankruptcy case.

The debtor didn’t go it alone; for all these transactions, he used various attorneys who seemed to be casual social friends.

But the main problem that both the debtor and his lawyers missed is the “hidden trap” in bankruptcy code section 522(p). Under this law, if real estate is transferred within 1215 days of a bankruptcy case (a little more than three years), then the homestead exemption is capped, no matter what the Massachusetts homestead law says. At the time Mr. Stella filed his case, the cap was about $137,000. His home equity, however, was about $350,000.

The kicker is that when the debtor switched the home from one trust to another, this counted as a “transfer” which triggered the cap.

Now, with Judge Feeney’s decision, it is quite likely that the trustee will sell the home, pay off the mortgage, cut the debtor a check for $137,000, and use the rest to pay off creditors (and himself).

There are at least a couple of lessons to be learned from this debacle. First, trusts are tricky in bankruptcy. No one reads the fine print in these things — although a bankruptcy trustee certainly will.

Second, bankruptcy trustees will go after non-exempt property ruthlessly, without regard for humanitarian concerns.

Third, a bankruptcy snafu like this can cost a pile of money. This case has been kicking around in the court for three years now, and took a full trial with 27 exhibits to get a decision that says the debtor loses. Ouch — that costs a bundle.

And finally, you really need a bankruptcy specialist when fooling around with this stuff. This debtor may suffer the sale of his home because he relied on a series of general practitioners who weren’t in tune with each other, or with the changes in the bankruptcy laws.

 

By Doug Beaton

Posted in Bankruptcy News, Exemptions, Real estate | Comments closed

Massachusetts debt collection has its limits

By doug | Published: March 8, 2012

Did you know that in Massachusetts, debt collectors are not allowed to make unlimited phone calls in order to collect on a past due bill?

Under regulations put out by the Massachusetts Division of Banks, third party debt collection firms can only call you two times in a seven day period on your home phone.

And they can only call you two times in a thirty day period on any other line — for example, at your job.

Tell this to anyone who is seriously behind on their bills, though, and they’ll give you a severe quizzical look. Collectors routinely flout this regulation, harassing debtors at all hours, and repeatedly. The Division of Banks is well-meaning, but it’s not a very large state agency, and can’t really enforce its own regulations in a pro-active way.

This is where the bankruptcy process can be a blessing to people who are struggling financially. Filing a bankruptcy case automatically generates an order for debt collectors to stop calling (and writing, and suing, to boot), and the bankruptcy court is a well-funded national organization that has real judges ready to enforce its laws.

If you’re getting too many calls from collection agencies and have been thinking about whether bankruptcy could work for you, you can give me a call at (978) 975 – 2608, and I’ll go through the basics with you, and there is no obligation.

 

By Doug Beaton

Posted in Credit cards, Practical tips | Comments closed

More cheap bankruptcy courses — take the “second course” for $11

By doug | Published: March 2, 2012

Consumers filing bankruptcy cases need to take two courses before they can get a discharge. Lately the price of these courses, which are given by various “non-profit” firms has been dropping; so long as the quality of customer service stays the same (or at least is tolerable), the consumer debtor benefits.

A little while ago I mentioned a firm that offered the “first course” (which is actually more of a counseling session than a class), for $5.

This session must actually be taken by debtors before they can even file a bankruptcy case. Even though the session is sponsored by a California group, the certificates of completion they issue are recognized by the bankruptcy courts in Massachusetts and New Hampshire.

Here is the second part of the equation — a firm that offers the “second course” for $11.

The second course really is more like a school course (except you can’t really fail). It is variously called “debtor education” or “financial management.” It is for all practical purposes, what high schools used to call “home economics” — how to manage a household budget. Completion is required before you can get a discharge. (You want a discharge, it’s the end goal of bankruptcy, like a touchdown in football).

The ability to complete these courses (required by the punitive 2005 Bankruptcy Code changes) for a modest price can be a godsend to struggling debtors.

 

By Doug Beaton

Posted in Practical tips | Comments closed

Bankrupt and Injured? Don’t despair!

By doug | Published: February 28, 2012

Imagine if you have been in financial trouble for a while, and then get in a car accident. Or imagine you’ve been hurt in an accident and its completely drained your finances — now you are swimming in medicals bills.

Is it possible to file both a personal injury lawsuit and a bankruptcy case? If you live in either Massachusetts or New Hampshire, the answer is yes, although the amount you can recover through a lawsuit insurance settlement is not unlimited.

The reason this works is that both Massachusetts and New Hampshire both allow their residents to claim the federal slate of exemptions when they file a bankruptcy case. And the federal exemptions allow you to claim up to $21,625 in money from an injury claim as yours to keep despite the bankruptcy.

Note that the actual amount you can protect might be somewhat larger, because the federal exemptions give you a generous “wild-card” exemption as well, and you may choose to apply some or all of that to the injury case as well. The amounts, however, will differ from case-to-case, so you should contact a bankruptcy attorney to discuss the specifics of your situation.

 

By Doug Beaton

Posted in Exemptions | Comments closed

The age of the $5 bankruptcy credit counseling course is here

By doug | Published: February 27, 2012

If you are looking to file a bankruptcy case, it won’t be long before you find out that you must complete an approved credit counseling session before you file. Completing the session will result in a certificate being issued that must be attached to your bankruptcy filing. Married couples can attend a single session and get two certificates.

For the most part, these sessions have been “given” over the internet by groups that charge between $30-$50 for the “service.” The age of the five dollar course has succumbed bit to inflation, but I am aware of a group that promises internet counseling for $7.

The group is called at Bothcourses.com, and can be found on the web here. As of yet, I haven’t had any direct experience with this group because it is fairly new, so I can’t tell you if they are reliable or fast. For seven bucks, they can’t offer same day service, and there aren’t banks of operators standing by to fix every problem. It makes sense not to expect too much in the way of hand-holding or super-duper customer service, but if all you need is the certificate, have a bit of patience, don’t need to file for bankruptcy like, today, and money is an issue, you may want to give them a try!

 

By Doug Beaton

Posted in Practical tips | Comments closed

Old debts might still result in bankruptcy court claims

By doug | Published: February 21, 2012

Just because a debt is as old as the hills doesn’t mean that a creditor can’t file a claim for it in bankruptcy court.

How about a debt that everyone agrees is way past the statute of limitations? If the debtor is sued in a Massachusetts state court, she can use the statute of limitations as a defense, and will probably win the case.

On the other hand, if the debtor files for bankruptcy, the creditor can file a claim for the debt, and possibly get paid a portion of it, despite the fact that the limitations period is up, according to a recent ruling by US bankruptcy judge Henry Boroff in Worcester.

The debtor had been sued in his local court by debt buyer LVNV Funding on a debt that was past the six-year statute of limitations. But when the debtor filed a Chapter 13 bankruptcy case, LVNV filed a proof of claim on the old debt anyway. The debtor responded by suing his creditor for violating the Fair Debt Collection Practices Act.

But Judge Boroff said this wasn’t a FDCPA violation, even though the debt was old. THs statute of limitations is concerned with the enforcement of a debt, not the existence of one; while the debt might not be enforceable in state court (and hence, uncollectable), it still is in existence, and its legal for them to file a proof of claim form with the bankruptcy court and see if they can get something out of the case.

So the debt buyer might get lucky this time, and recoup a stream of small payments if this debtor is able to complete his Chapter 13 plan.

The case is Claudio v. LVNV Funding, 11-03022.

 

By Doug Beaton

Posted in Bankruptcy News, Credit cards | Comments closed

If you owe back taxes, today could be the worst day to file a bankruptcy case

By doug | Published: February 20, 2012

Lets say you owe back income taxes for a number of years, and are interested in whether filing for bankruptcy will cure (or at least alleviate) the problem.

Fair enough, but before you rush off to bankruptcy court, or even to a bankruptcy lawyer, slow down a minute!

Income taxes are dischargeable only if a bankruptcy case is filed more than three years after the tax return was due. So if you owe taxes to the IRS or Mass. DOR for tax year 2008, today could be one of the worst times to file a bankruptcy case — you would be making sure that your 2008 tax bill was NOT discharged by the court.

Do the math: 2008 taxes were due on April 15, 2009. Add three years to that, and April 15, 2012 becomes the magic date after which you can wipe out that year’s tax bill. Filing your case in February, March, or early April could be a big mistake — and an expensive one.

And don’t forget one tricky “catch” to the rules: the three year period is calculated from either the due date of the return OR the date you actually filed the return. So if you got an extension back in 2009, and filed sometime in September or October, lets say, you have to wait until the fall of this year to discharge 2008 taxes. It is usually a good idea to buy a transcript of your tax from the IRS, to see what they have to say about when the forms were really filed. A hazy memory could hurt you here!

Of course, if you owe income taxes from 2007 and before, the three year waiting period has already gone by, and there is no penalty to filing your case right now — as Ernie Boch used to say, just “come on down!”

If you have any questions about whether a particular tax is dischargeable in bankruptcy, just give me a call.

 

By Doug Beaton

Posted in Taxes | Comments closed
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