Are casino liens really hardball?

By doug | Published: February 11, 2014

casino floorTwo front page articles in the Boston Globe in three days has put in the news this fact: Foxwoods and Mohegan Sun, the two massive Connecticut casinos which are now seeking the first gaming licenses ever issued in Massachusetts, have sometimes gotten liens on gambler’s Massachusetts homes for unpaid advances.

First, the Sunday Globe “exposed” the practice with a front page story outlining how the casinos extended credit to there customers, and when it was not repaid, sought and obtained liens on the gamblers’ homes in Massachusetts.

In particular, the article follows a man from Revere who got in deep at both casinos, and ended up with over $80K of liens on his house. Revere just happens to be the proposed site for a new Mohegan Sun casino at the Suffolk Downs race track.

The article also outlines what happened to this debtor: he filed for bankruptcy in 2007, stripped off the liens with a motion, and died three years later. The property therefore passed to his heirs, and the casinos for once didn’t collect.

Two days after the first article comes the news that Massachusetts Attorney General Martha Coakley (also at this writing a candidate for governor) has “urged Massachusetts regulators on Monday to prohibit casinos from placing liens on the homes of patrons with unpaid gambling debts, calling the practice “deeply concerning” in a letter to the state gambling commission.”

Although the Globe claims, citing gaming experts, that it is unusual nationwide for casinos to place liens on their customer’s homes, in general this tactic is quite common through all of Massachusetts collection law.

Liens on homes by private organizations like casinos are never issued without court approval after a lawsuit. Although wage garnishment is possible in Massachusetts, until very recently it not been a favored collection tactic, and the casino’s customers are often retired persons anyways.

So in some way it makes sense that casinos as creditors would use the standard local collection tactic to collect debts.

What is important to realize is:

first, that the liens can often be removed in a bankruptcy case, so debtors need not suffer the loss of home equity, and

second, rather than sensationalize the casinos tactics, the real question to be asked is why are people of modest means being extended dangerous credit like high rollers in the first place?

by Doug Beaton

Posted in Bankruptcy News, Secured loans | Comments closed

Massachusetts debtor discharges law school lawns in bankruptcy case

By doug | Published: February 7, 2014

ivy leagueStudent loans are impossible to discharge in bankruptcy, right?

So goes a lot of street wisdom, but take a look at what actually happened in court in Massachusetts in January, 2014.

A disbarred lawyer with criminal convictions stemming from some wild incidents in his law practice (he was tossed from the bar after a mere five months) was able to secure a determination of undue hardship from bankruptcy judge Joan Feeney, and get all his law school student loans wiped out.

You may or may not want to trade places with this particular debtor, whose tale is told in the Ablavsky case, who put himself through college and law school, but who struggled all his life with crippling mental health problems, and had criminal convictions from some escapades when he was in manic states.

Although all those bad facts were thrown back at him at his trial, this debtor was able to persevere and all of his school loans were erased in bankruptcy on the grounds of undue hardship.

One of the more interesting facts hidden in this opinion is that four lenders named as defendants didn’t even answer the charge, and so were defaulted by the judge. That wiped out over $109,000 in supposedly non-dischargable student debt automatically, without a fight.

Sometimes, when crushing student loan debt is involved, it’s worth the gamble of going to bankruptcy court.

by Doug Beaton

Posted in Student loans | Comments closed

Three bankruptcy cases in a year does not bode well for debtors

By doug | Published: February 4, 2014

three strikesIn the world of bankruptcy, filing three Chapter 13 cases in a single year is not a sign things are going to turn out well for the debtor.

And in the James case in the district of New Hampshire, it indeed did not go well.

The basic problem is that by the time a debtor gets to three filings in a year, he no longer gets ANY automatic stay upon filing, so that collection activity may proceed apace despite the filing.

A secondary problem is that the debtor’s good will with the bankruptcy system is shot. In fact, a three time filer has to face a presumption that his case is an abuse of the system that is better broomed away quickly. It is up to the debtor to show how his situation has changed so that the new plan is feasible and likely to be completed.

In the James case (released January 17, 2014), bankruptcy judge J. Michael Deasy shot down a debtor’s attempt to do this. The debtor, an attorney who was married to another attorney and both operating their own law offices, tried to show his wife’s practice was sufficient to fund a Chapter 13 plan, but the judge found the wife’s own financial statements belied any real change in circumstances since the first two cases.

The motivation for the multiple filings here appears to be an attempt to avoid a large out-of-state child support order that was due in a lump sum payment; but with the debtor’s good-will shot, it appears to be a case of three strikes and you’re out.

by Doug Beaton

Posted in Chapter 13 | Comments closed

Using Zillow in bankruptcy court still a standoff

By doug | Published: January 29, 2014

Zillow-LogoSince writing in the spring of 2013 that use of the Zillow.com real estate information service was starting to gain some traction in the nation’s bankruptcy courts, only three new opinions mentioning the term “Zillow” have been issued, all in August of 2013.

First, some background: back in 2010, Melvin Hoffman, the bankruptcy judge for Worcester, Massachusetts, went public in the Darosa case with his view that Zillow printouts were worthless evidence in bankruptcy cases — the first published opinion in the country that even addressed the idea of dot com valuation sites.

Since then, there have been a bunch of judge’s who have essentially followed Judge Hoffman’s view and backed him up, and a few (especially in Illinois for some reason) who have bucked the trend and appeared to accept Zillow values, at least in individual cases.

The courtroom action from last summer perpetuated the split in opinion: out in Sacramento, California, in the Cocreham case, bankruptcy judge bankruptcy judge Michael McManus basically went along with Darosa, and shot down the effort of two parties to use values provided by Zillow as violation of the hearsay rules.

Zillow fared better down the road in San Francisco, however, where bankruptcy judge Dennis Montali emphasized the use of a Zillow printout’s “Rent Zestimate” for determining the rental value of an apartment in the Walker case. Go figure.

And back closer to home, in the Harris case, Joan Feeney, the most prolific writer of the Massachusetts bankruptcy judges, mentioned a Zillow value without negative comment, although that value wasn’t critical to determining the motion in her case. But at least she didn’t blast the party who mentioned it (a bank in a foreclosure).

Where does all this leave those who would like to use Zillow and its imitators to establish real estate values in a bankruptcy case. Still up in the air for now would probably be the best way to put it!

by Doug Beaton

Posted in Real estate | Comments closed

More options for debtors buried in private student loans?

By doug | Published: January 22, 2014

wingsGetting out from under a load of privately held student loans is no easy trick, even in bankruptcy court.

Debtors may have a new weapon soon, however, as the idea of re-financing these loans at lower rates is just getting started.

According to Sheryl Harris in the Cleveland Plain Dealer, Charter One Bank in Ohio ha joined a small group of lenders willing to take a chance on these kinds of loans. Ms. Harris reports Charter One is offering graduate debtors either a 5.24% fixed rate or a variable rate that is currently about 3% to refinance.

No word on whether anything like this will be available in Massachusetts, but according to Harris, “as a result of steady pressure from the Consumer Financial Protection Board, college graduates can expect to see other banks and credit unions roll these products out.”

By Doug Beaton

(Artwork by Cleveland Plain Dealer)

Posted in Student loans | Comments closed

Chemical spills, student loans, and bankruptcy

By doug | Published: January 21, 2014

There has been a wave of ill feeling spreading across social media in the wake of Freedom Industries’ chemical contamination of much of the drinking water in West Virginia recently, and there has been criticism of the firm’s recent Chapter 11 bankruptcy filing too, with the general idea that it is some obscure legal ploy to avoid responsibility.

Here’s a post shared on Google by stand-up comedy artist Wendy M. Lewis that pretty much captures the feeling:

wvaspill

But, whoa, not so fast! Outrage over environmental disasters is somewhat understandable, but there are a couple of things that need to be addressed here.

First, that “fun fact.” Companies can indeed file for bankruptcy if they have problems like Freedom Industries, and being barraged by lawsuits is as good a reason for a firm as it is for Joe Six Pack who hasn’t paid his credit cards lately.

But environmental problems do not get completely ignored in the bankruptcy process. Did you know that every bankruptcy filing, corporate and individual, has to declare upfront whether the debtor “owns or has possession of any property that poses or is alleged to pose a threat of imminent and identifiable harm to public health
or safety”?

More serious here is the idea that “students overburdened by college debt can’t file for bankruptcy”. That’s just not true. It is true that students loans are difficult to get discharged, but students and former students are not excluded en mass from bankruptcy court.

If you see these claims floating around on social media platforms, don’t be afraid to question their accuracy, even if you basically share the underlying sentiment.

By Doug Beaton

Posted in Bankruptcy News, Student loans | Leave a comment

Big tax bills for short sellers? Bankruptcy could come to the rescue

By doug | Published: January 16, 2014

michelle-singletary_114x80It’s the middle of January 2014, and there still has been no movement by Congress in Washington to re-enact the Mortgage Forgiveness Debt Act, which expired at the end of 2013.

That’s bad news for people looking to get out of real estate by a short sale (and for people being forced out of it through a foreclosure) because un-recouped money in these sales will now trigger phantom tax income on next year’s tax returns. If $100,000 of debt is “forgiven” for example, and it throws the debtor into the 28% tax bracket, he’ll be asked by the IRS to pony up $28,000 in cash to pay tax — nothing like kicking someone who is down!

National columnist Michele Singletary (top left), always a smart writer on finance matters, thinks this tax break needs to be restored immediately — or else the fragile housing recovery stands a chance of cratering again.

But closer to home, Maryann Little, a broker who handles many short sales transactions, see the outlook for re-enacting the law any time soon as “bleak.”

The short term solution may be for more short sellers and foreclosure victims to take a trip to bankruptcy court. Although a painful step for many, a bankruptcy offers an ironclad solution to the phantom debt problem — individuals who can show they have filed for bankruptcy never need pay the extra tax on cancellation of debt income.

by Doug Beaton

Posted in Bankruptcy News, Real estate, Secured loans, Taxes | Comments closed

Hardship discharge requires plan confirmation first

By doug | Published: December 20, 2013

hardshipBankruptcy debtors with an active Chapter 13 case often hit a bump in the road and find themselves unable to make their plan payments.

This does not absolutely mean their case was a waste of time. It is possible under the Bankruptcy Code to petition to the court for a hardship discharge, essentially gaining the advantage of the Chapter 13 discharge early without having to complete the full plan.

Hardship discharges are given by the discretion of the judge, so it’s helpful to have a story that will be sympathetic to both a judge and a bankruptcy trustee.

However, here’s a potential bump in the road: According to section 1328 (b) of the bankruptcy code, hardship discharges are only available “at any time after the confirmation of the plan and after notice and a hearing…..” So the plan must be confirmed in order to get a hardship discharge.

That’s typically no problem in New Hampshire, where plans get confirmed or bounced early on, but in Massachusetts confirmation often proceeds at a snail’s pace.

That gives the debtor a tough choice, because plan payments are returned to the debtor (minus the trustee’s commission) if a Chapter 13 case is converted. Those accumulated payments can amount to a considerable chunk of change to a strapped debtor.

So the choice in Mass. may well be between getting a Chapter 13 discharge on a hardship basis, and getting a somewhat lesser discharge in Chapter 7, plus a pile of cash, while foregoing the particular advantage of Chapter 13 in that particular case.

 

By Doug Beaton

Posted in Chapter 13, The Bankruptcy Code | Comments closed

Whither short sales in 2014?

By doug | Published: December 16, 2013

shortgreenWhat’s going to happen with short sales in Massachusetts and New Hampshire come 2014?

It’s more than just another end-of-the-year speculation article: there seems to be some genuine disagreement as to whether the short sale will be a viable bail-out option for underwater real estate owners in the near future.

Maryann Little, who offers a short sale negotiation and brokerage service, thinks short sales will be around for a long ways in to the foreseeable future. Her argument in a nutshell: Fannie Mae is currently making outrageous counter-offers in every short sale situation.

Fannie Mae’s strategy: make the short sale fail, so that it won’t sell or go to auction, then re-list it later at a super high price. Potential buyers won’t be able to purchase, because they won’t get financing when the house doesn’t appraise anywhere near the asking price. EXCEPT is they choose to finance through Fannie’s in house preferred “HOMEPATH” financing. Then like magic, the deal goes through. Except if buyers are routinely overpaying under this scenario, setting up a future of short sales from here to eternity.

The other side of the argument — that short sales are about to plummet drastically — is taken up by Robert Weed, a bankruptcy lawyer in Virginia. Attorney Weed points out that the special tax break on short sales is set to expire on December 31, 2013. It doesn’t look like there is going to be an extension forthcoming from the current do-nothing gridlocked Congress. Therefore, the short sellers of 2104 will be flirting with whopper tax bills.

How come? The culprit is the tax laws on cancellation of debt, which essentially treat loan forgiveness as income, dollar for dollar. Get $100K whacked off your mortgage through a short sale? That’s $100K added to next years income, which could mean a push in to the 28% tax bracket, and presto — a $28,000 tax bill coming soon. More if you’re in a state with an income tax.

So what’s it gonna be — booming short sales or the extinction of the short sale species? Stay tuned in 2014 to find out.

By Doug Beaton

Posted in Real estate | Leave a comment

Where’s the line for tobacco on the new schedule J?

By doug | Published: December 10, 2013

John Wayne SmokingNews flash: the new schedule J bankruptcy form doesn’t have any place for debtors to declare how much they spend on tobacco products per month.

Full disclosure: the old Schedule J didn’t either.

So smokers (and chewers, I suppose), where do you account for the financial damage for this habit?

Under “Food and housekeeping supplies?” Even the dedicated chewers generally don’t eat the stuff.

Under “Personal care products and services?” Doesn’t sound right either.

And definitely not under “medical care,” I would bet.

There’s always “Other: specify:” on line 21, and I that’s where I usually put significant tobacco expenses.

So why does it matter? In a chapter 7 case, debtors want to make sure they spend all their income, so the trustee doesn’t force them into a chapter 13 payment plan.

Left open is the question of whether a trustee would consider it an abuse if a debtor would have positive income of say $500 per month if it wasn’t for their $600 smoking habit. I haven’t seen a case like that, but its within the realm of possibility.

Even though one of my best friends in law school is a anti-tobacco crusader nowadays instead of a practicing lawyer, and we all know that the evil weed did in John Wayne and countless others, tobacco still is a legal product for adults to consume, and shouldn’t preclude Chapter 7 bankruptcy.

As for those folks who are purposefully in Chapter 13 and needing to make monthly trustee payments, an accurate assessment of actual monthly expenses is critical, as they don’t want to be left short at the each of each month due to habits that are stealthily consuming income.

I guess the take-away is “don’t let your bankruptcy case go up in smoke!”

By Doug Beaton

Posted in Practical tips | Leave a comment
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