Waiting for the Flood

    I keep hearing that Bankruptcy cases are about to soar.  I heard it when the government stopped stimulus checks. Nothing happened.  I heard it when the mortgage foreclosure moratorium and eviction moratoriums expired. Crickets.  So what’s up?

    I think two factors are at play.  First, there is natural denial and procrastination.  People get frozen into inertia.  That’s fairly normal in our field. Once the cow patties actually hit the fan, they panic and manage to get to our offices as an emergency case.  The second factor, however, is somewhat newer - i.e., severe entitlement syndrome. There is a delusional expectation that the government will bail them out again. This is combined with a political belief that the government is bad, yet owes them something merely because they exist. For example, pay without work. Such a concept would seem laughable, except some political candidates are promising exactly such a scheme, called "basic income."

    Everywhere you go, you see the “Help Wanted” signs. Month after month, the signs remain posted. Even with bonuses offered, and with $15 minimum wage, people are not returning to work. It’s not the COVID-19 virus - it’s the “I’m too good for this” virus. 

    I try to understand the logic of those who think I must help them for free simply because they have no money.  After all, I’m a lawyer, so I must be rich and can afford to subsidize their bankruptcy out of my own pocket. Oh, and how dare I suggest they sell or give back their blinged-out Hummers on which they still owe 80 payments? They need it for work at their non-existent or "off the books" jobs (which they insist I must not report). They get angry at me when I wake them up to to the reality that the bankruptcy judge doesn’t like it when you drive a better car than he does.  I don’t know how these people survive when the credit cards are finally all maxed out, but they do.  

    In any event, the trickle of new cases is likely to remain so for some time.  A lot of homeowners are going to lose their homes because the arrears has finally gotten too high to cure or interest rates will rise to a point where no credit agency will approve their loan, not even to steal their equity. 

    In other words, COVID-19 was only the tip of the iceberg. The worst may be yet to come.  

    I may be in the right field, but, unfortunately, I’m in the wrong time. 

BANKRUPTCY COURTS AND COVID 

GOOD NEWS - The pandemic slowed down but did not stop the bankruptcy courts. The courts adapted to this latest crisis much as they have adapted to all past crisis situations. In person court hearings were replaced by telephonic court hearings, most case and motion filing swere not affected because the court already used electronic filing systems. Trustee meetings were adjusted so that all, instead of some, were to be held telephonically. Documents were transmitted over secured lines to secure websites, as was previously the case. Except for the lack of personal ocntact, most things remained the same, except everything took longer - mostly because court staff were not working in the courts, but rather from home, with remote access. 

At some point, someone needs to stamp something ro sign something, or needs information regarding a situation, and this is where things slowed down. One of my clients discharges was delayed a few months due to the bankrutpcy clerks' filing backlog, although clients were still protected by the automatic stay during this time. 

Slowly the courts are opening again to physical visits, assuming you are not sick. Before you know it, things will generally get back to almost normal. There will probably be a surge in filings once mortgage foreclosure moratoriums expire. 

Also, some new issues will likely arise in bankruptcy filings, such as possible misuse of paycheck protection loans, treatment of IRA and 401(k) loans and unemployment supplements, preferential paybacks of family loans, ability to pay Chapter 13's due to lost employment, etc. For example, if inflation hits us suddenly and hard, then standard allowance tables and ceilings may not realistically apply to adequately protect debtors. It will be once again an interesting and challenging time for attorneys and their clients. 

Still, we will all adapt. We always have in the past. This time will not be different. 

So, hang in there. 

Marvin Wolf, Esq.

THE MONTH BEFORE CHRISTMAS By Marvin Wolf ‘Twas the month before Christmas and all through the city decorations were up but the sight wasn’t pretty for although Thanksgiving was still barely here all the stores were dressed up for the end of the year. Sleighbells here, reindeers there, holly boughs all around but nary a Tom Turkey feather is found. ‘twas as though Saint Nick put the bird in a hearse and decreed to Thanksgiving, henceforth, Christmas comes first. That ancient old Elf must have screamed with a wail, “That turkey interferes with our holiday sales”; so we’re left with no choice but to conquer the bird, and sing Christmas carols till no gobble is heard. A Thanksgiving sale is but a single buy day; so lets perk it up with a heavy Black Friday, so out with old feathers, pilgrim hats won’t be seen; we’ll pretend those props came from last Halloween. We need to make sales and to keep our costs down so you’ll see Christmas windows all over the town. decorating windows twice; why that’s nothing but trouble And we prefer Ho Ho Ho to Gobble Gobble Gobble. Stores open late, tinsel sparkling with glee. MasterCard, Visa – final spending spree. but this holiday season’s no season for thanks, while the Federal Reserve elves print money for banks. Our economy needs consumers so let’s spend for Santa Never mind when the bills come we will all need Mylanta; But resistance is futile; we must accept our fate. so Merry Christmas to all on this November 28.

Recent Bankruptcy News - July 2015

Recent Bankruptcy News: Rapper 50 Cent (nee Curtis Jackson) files Chapter 11 after a $5 million dollar judgment for posting a rival's girlfriend's sex tape online in 2009 and making derogatory comments about it in a voice-over. However, the bankruptcy judge ordered that the punitive damages portion of the trial is going to continue. This could be a problem for 50 Cent because malicious and willful injuries might not be dischargeable in bankruptcy. Mr. Cent claims he owes $28 million in debts. He may have to change his motto from "Get Rich or Die Trying" to "Get Rich or File Chapter 11." Chase Bank was sanctioned in the credit card robo-signing scandal for questionable and invalid debt data sold to third party collectors. Among other punishments, Chase must pay $50 million in refunds and stop selling some debts. U.S. Supreme Court releases its decision in Bank of America v. Caulkett. You still can strip unsecured second liens, but must use Chapter 13 - not Chapter 7. Some lawyers and a few judges believed that strip-off could be done in Chapter 7, but the statutes seemed pretty clear. The real issue is whether creditors will start challenging strip-offs in Chapter 13. Senators are advocating for a bill to allow Puerto Rico to file for bankruptcy to reorganize its debts.

Surveys and Other Lies

The economy is improving, except it's getting worse, depending on who you talk to. Statistics lie as do many government reports and surveys. As an example, I was just contacted by phone by some organization doing a survey. "Just four questions," they said, and then proceeded to ask four heavily slanted questions about mandatory ratings for childrens games designed to elicit the answer they really wanted from me. Being a lawyer, I am a professional pain in the butt, so I didn't give them the answers they wanted. They stated that kids spend 10 hours a day on TV and video games, so would I support a rating system like in the movies. Of course, I said no. I added that if a child spends 10 hours a day on these things, the parents were at fault. They didn't like that answer, so at the end, they said, "Well, since you don't have children or grandchildren under 15 we won't be using you in the survey." The problem is - they never asked if I had kids or grandkids that age. I said wait, I never said I didn't..." The phone hung up. So if they simply eliminate any calls that don't match what their pitch is, they can claim that their survey showed a large margin in favor of their proposals. Many surveys and polls do the same thing. The result is that they are all unreliable. If I pitch it right, I can probably prove in a survey that Adolf Hitler would be a better president than Barack Obama. "I'm not saying he was a good guy, but just judging on leadership skills, who would you say would make a better President?" "Ignoring for a second all the Jews he killed, who would you say was a bigger patriot to his country?" If you avoid calling Democrats and northern states, and throw out the answers you don't like, you can probably claim a majority in favor of Hitler over Obama. Except it's all a lie. It is difficult to say exactly where our economy is going, but I suggest ignoring the "experts." The one figure I look at is not unemployment (which everyone knows is skewed) but rather I look at exchange rates. If Europe and the Euro are in such trouble compared to us, why is it $1.33 American to buy one Euro? If the cost of living is stable, why does everything cost more? My advice is "Don't trust the surveys, trust your wallet." Besides, according to my own personal survey, 10 out of 9 bankruptcy lawyers agree with me. Who can argue with those numbers?

What If They WON'T Take The House?

One of the harder issues in bankruptcy is surrender of assets. With a regular asset like a car, most of the time the creditor wants the asset returned quickly so they can sell it and cut their losses. However, with real estate, we live in a Bizarro world. Sometimes, the mortgage creditor wants to sell the house, but not quite yet. The problem is that as long as the title to the property is in the debtor's name, the debtor is responsible for taxes, insurance and any fines issued against the property. The bank may not want to take on those legal and financial responsibilities until they have a buyer, or they want to wait for the market to improve, interest rates to rise, or just control the rate at which defaulted properties go for sale to control real estate prices. Great for them, not so great for a debtor. Are they allowed to wait in order to maximize their eventual recovery forever? Even if it harms the debtor? Is there any way to force the creditor bank to take the house? This is an open issue in bankruptcy. Recently, in one case, the First Circuit has said generally "no" - but possibly "maybe" if the facts were a little different (citation omitted so laymen can follow the reasoning). There is also the issue of more limited Federal jurisdiction of the Bankruptcy Courts in general due to recent U.S. Supreme Court decisions. I think that until the courts work out the law, a wiser decision may be to post a document on the court docket showing that you offered the house to them and they refused. This perhaps may open up an argument regarding the deficiency on the house based on a "failure to mitigate damages" argument. Maybe this could help when the bank inevitably issues a Form 1099 as to the amount of the loss. I don't give tax advice here but it is something to consider discussing with your tax lawyer or accountant. To sum up in layman's terms, I think you can't force them to accept the deed, but you might be able to use their refusal to accept it to some legal effect in some circumstances. It's just a thought, for now. But it wouldn't be the first time a bank's gaming the system eventually came back to bite them in some other way.

I haven't been on here in a while. I added a new blog with WordPress so didn't pay much attention to this one. So what is new? For one thing, the number of debtors filing their own bankruptcies has skyrocketed. I don't know if it's that people can't afford lawyers or are just getting cheap and think they can handle it on their own, but the number of "pro se" non-lawyer assisted filers is as large as the number of pro se filers that get into trouble with some of the finer points of bankruptcy after they file. Whether it involves exemptions, tax refunds, inheritances, car creditors or omitted creditors, I get calls post-filing asking for advice to fix a screwed up case. By then, it is often too late to fix anything because once the trustee get a smell of an asset, it's like blood in the water to a shark. Hiring me up front is often cheaper than doing it on your own and then getting into expensive trouble, but try to tell that to a debtor. They will be changing the forms again to try to make it easier for pro se debtors to file without an attorney. That's like giving out free guns and bullets and saying just follow the instruction manual. Bankruptcy is not just filling out a form - it's knowing the statutes, the local decisions in interpreting the statutes, knowing the local rules and practices and knowing each judge and trustee and their particular idiosyncrasies. Can I fix a broken case? Sometimes, but it usually ends up costing twice as much as doing it right the first time. Penny wise, pound foolish, they say. But human nature does not change.