About Me
“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Written by Craig D. Robins, Esq.
This is a continuation of my previous article: Bankruptcy Issues Involving HAMP (Home Affordable Modification Program) — Part One , that I wrote after attending a seminar of the National Association of Chapter 13 Trustees.
WARNING: HAMP (Home Affordable Modification Program) Can Actually Drive Homeowners Into Bankruptcy
Here are two types of horror stories I’ve been hearing from some recent clients about their HAMP experiences.
First, the homeowner applies for HAMP relief but does not receive a timely response from their mortgage servicer. In the meantime, their debt situation becomes worse and worse as they struggle to remain current on their obligations. This then puts them into an untenable financial situation that they cannot get out of.
Second, some other homeowners have reported to me that they applied for HAMP relief and were granted a temporary modification. However, several months later, after the trial period ended, they were turned down for permanent relief, leaving them immediately on the hook for catching up with thousands and thousands of dollars in payments that they didn’t make (and now cannot afford to make).
Can I Seek HAMP If I am Defending a Mortgage Foreclosure Proceeding?
You cannot be turned down just because you are actively involved in foreclosure litigation.
What Happens to the Money Saved With Reduced HAMP Mortgage Payments?
There is no “cram-down” on the unpaid principal balance. In other words, the savings do not disappear.
Even though the homeowner will be saving money by having a reduced monthly mortgage payment, these savings are not forgiven. The amount of savings is actually set aside as a non-interest-bearing balloon that the homeowner must pay upon sale, refinance or the maturity of the loan.
Apparently, many homeowners are unaware of this aspect.
What Happens to Mortgage Arrears at the Time of a HAMP Modification?
All arrears up to the time the HAMP offer is made, are capitalized into the balance of the modified loan. They, too, are not eliminated.
How Long do HAMP Reduced Mortgage Payments Last?
The reduced monthly payments are only good for five years. For each year after that, the interest rate increases by one percent each year until it reaches a certain Freddie Mac cap rate.
New Documentation Program Starts June 1, 2010
One of the existing problems was that a homeowner would apply for a HAMP modification and quickly enter into a trial period of reduced monthly mortgage payments — before complying with all of the document requirements.
Many homeowners would then fail to fulfill the document requirements and, for that reason alone, be turned down for a permanent HAMP modification.
Accordingly, effective June 1, 2010, a HAMP trial modification cannot start until the document requirements have been totally satisfied.
What Are Some HAMP Alternatives?
I wrote about this recently. See my post: One-Fourth of All U.S. Homeowners Are Underwater. What Should These Homeowners Do?, for a discussion of alternatives.
Seeking Hamp Relief While In Bankruptcy — What Are the Issues?
This topic will be the final part of this series. I will post it later this week.
Written by Craig D. Robins, Esq.High Court Issues Decision on Attorneys’ Ability to Give Legal Advice to Bankruptcy Clients
The U.S. Supreme Court ruled today that a provision of the 2005 Bankruptcy Act, which bars attorneys from advising clients to take on more debt before filing for bankruptcy protection, is permissible in certain situations.
I first wrote about this case, Milavetz, Gallop & Milavetz v. United States, a year and a half ago when the Eighth Circuit Court of Appeals ruled that the provision was unconstitutional: Portion of New Bankruptcy Laws Declared Unconstitutional. Court of Appeals Strikes Down Provision which Prevented Attorneys from Advising Clients .
The Court of Appeals had ruled that the provision barring such advice was unconstitutionally broad and violated free-speech rights
Now, the Supreme Court unanimously reversed that ruling, but with a caveat.
Today’s decision, which was written by Justice Sonia Sotomayor, said the provision prohibiting such advice was valid, but should be read narrowly. She said that the law only prohibits attorneys from advising clients to abuse the bankruptcy system.
However, Justice Sotomayer indicated that it would be permissible for lawyers to advise clients contemplating bankruptcy to take on additional debt in certain situations. She wrote that bankruptcy lawyers could advise clients to refinance a mortgage or purchase a reliable car prior to bankruptcy on the grounds that doing so would reduce the debtor’s interest rates or improve the debtor’s ability to repay.
“It would make scant sense to prevent attorneys and other debt relief agencies form advising individuals thinking of filing for bankruptcy about options that would be beneficial to both those individuals and their creditors,” Sotomayor wrote.
Professionals specializing in bankruptcy “remain free to talk fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case,” Sotomayor wrote.
How This Decision Affects Bankruptcy Attorneys and their Clients
I often encounter a situation where my client’s car lease is about to end. Before the 2005 Bankruptcy Amendment Act (BAPCPA), I would have simply advised the client to immediately surrender the existing car and obtain a new car lease or car loan, as getting a new car is easier to do before filing for bankruptcy than after.
However, BAPCPA contained a provision which prevents attorneys from advising clients to incur debt in contemplation of bankruptcy. So, for the last five years, I’ve been technically unable to give clients such advice.
Today’s Supreme Court decision now clarifies that as long as my advice is not meant to abuse the system, it is considered appropriate. Of course, a bankruptcy attorney cannot advise a client to go out and charge up debt when the client has no reasonable expectation to repay it — providing such advice would be considered abuse, and therefore a violation of the statute.
I view the decision as a victory of sorts because it enables us bankruptcy practitioners to do what we’ve wanted to do all along: give honest and appropriate advice to clients in order to reach a beneficial result, as opposed to taking advantage of the system and defrauding creditors.
Bankruptcy Attorneys Are Debt Relief Agencies
Justice Sotomayer also upheld the BAPCPA’s requirement that attorneys make certain disclosures in their advertisements and ruled that attorneys who provide bankruptcy assistance are debt relief agencies within the meaning of the law.
Having to label bankruptcy attorneys as “debt relief agencies” seems silly, and serves no useful purpose. However, the requirement is rather benign, and more of a nuisance than anything else.
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About the Photo: That’s my son, Max. To see more Max, click: Super Ninja Bankruptcy Attorneys
Written by Craig D. Robins, Esq.I just attended a seminar last week offered through the National Association of Chapter 13 Trustees about HAMP. Here’s some useful information.
Today’s post is Part One. I will continue tomorrow with a detailed discussion of bankrutpcy issues.
What Is HAMP?
HAMP (Home Affordable Modification Program) is one of President Obama’s initiatives to make a dent in home affordability by using the economic bailout program.
It’s a quasi-voluntary program to modify home mortgages with the goal of getting the monthly payment to 31% of gross (pre-tax) income.
The program seeks to provide taxpayer-funded incentives to mortgage servicers and lenders to voluntarily modify mortgages. The program was created in March 2009. This government program earmarked $75 billion for this purpose.
HAMP will reduce a homeowner’s monthly mortgage payment on a TEMPORARY basis. However, the adjustment becomes permanent after the homeowner makes three on-time payments.
The incentive for mortgage lenders in doing this is that the Obama administration is offering big bucks in incentive payments to lenders.
Here is the official link to Home Affordable Modification Program.
Home Affordable Modification Program Has Not Worked Well So Far
To date, results for HAMP have been very disappointing. I wrote about this at length two months ago: Obama’s “Making Homes Affordable” Mortgage Modification Program Failing.
The program has only resulted in 116,000 permanent modifications in the entire country, in which each borrower is saving about $500 per month.
Incidentally, these homeowners typically went from paying 45% of their gross income towards their mortgage, down to 31%, which is the goal of the program.
To date, only 110 mortgage servicers have signed participation agreements. All Fannie Mae and Freddie Mac loans are automatically eligible.
Who Is Eligible for HAMP?
Here are the requirements:
1. You must be the owner and occupant of the home and utilize it as your primary residence
2. You must have a maximum principal balance of $729,750
3. You must have a monthly mortgage payment that is greater than 31% of pre-tax monthly income
4. You must be unable to afford your current payment
5. You must not have applied for HAMP before
Why Have Many Considered HAMP to be a Failure So Far?
Many homeowners applied for HAMP assistance because they thought it would help them avoid bankruptcy. However, a great many mortgage servicers were unprepared to handle HAMP applications and were not able to process the mortgage modification requests quickly enough to offer any real relief.
Some problems were highly publicized. For example, there have been lenders who refused to even acknowledge receipt of mortgage modification documents, and other lenders who lost these documents numerous times for the same homeowner.
To Be Continued This Week
Written by Craig D. Robins, Esq.There is a new record number of mortgage delinquencies according to data just released by TransUnion.
Homeowners at least 60 days past due on their mortgage payments rose to a new record high in the fourth quarter of last year. Almost seven percent of all mortgage borrowers were at least two months behind during this period, which was the 12th straight quarter the delinquency rate rose.
More Delinquencies Mean More Foreclosures
The more homeowners who have fallen behind, the greater the number of eventual foreclosures.
Homeowners on Long Island who find themselves in this predicament have choices, such as curing mortgage arrears through Chapter 13 bankruptcy and walking away from the mortgage obligation by filing Chapter 7 bankruptcy. Some homeowners can also defend the foreclosure proceeding.
In addition, there are several governmental programs designed to assist homeowners; however, there have been numerous problems attributed to the programs and very disappointing rates of success.
Written by Craig D. Robins, Esq.I just saw the figures that confirmed what we all knew. There was a tremendous increase in bankruptcy filings in 2009 over 2008 according to figures just released today from the Administrative Office of the U.S. Courts.
Thus, there has been nothing to stop the flood of consumers seeking bankruptcy relief. That certainly applies to consumers on Long Island.
In calendar year 2009 there were a total of 1,473,675 bankruptcy filings in this country. This represents an increase of 32% over 2008, during which time there were 1,447,641 filings.
Of the 1.4 million bankruptcy cases filed last year, 96% of them were filed by consumers.
Chapter 7 Bankruptcy is Up and Chapter 13 Bankruptcy is Down
The filing statistics reveal an interesting trend. More and more consumers are filing Chapter 7 bankruptcy as opposed to Chapter 13. In 2008, Chapter 7 cases represented 67% of all consumer filings. However, last year, the percentage grew to 71%.
The percentage of consumers filing under chapter 7 has increased each year since the bankruptcy laws were overhauled by BAPCPA in October 2005.
The effects of the recession and the high rate of unemployment continue to fuel the great numbers of consumers seeking bankruptcy protection. We are now seeing the highest number of bankruptcy filings since the bankruptcy laws were changed in 2005
Figures for Eastern District of New York
In our district, for the period ending Septermber 2008, there were a total of 20,508 filings. This broke down as follows: 16,790 Chapter 7 cases, 247 Chapter 11 cases, and 3,469 Chapter 13 cases.
Written by Craig D. Robins, Esq.In every consumer bankruptcy case, whether it is a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, there will be an initial hearing at the bankruptcy court about one month after the case is filed. If you filed for bankruptcy, you are required to attend.
What’s Happens at the Meeting of Creditors in Bankruptcy Court?
The purpose of the hearing is for the court-appointed trustee to ask you questions about your financial situation, the reason why you have debt problems, and whether you have any non-exempt assets.
This meeting is rather informal, as it is not in a courtroom, and it is not before a bankruptcy judge. Instead, it is in a hearing room, and it is before a trustee, who is a bankruptcy attorney, and not a judicial officer. See my post: Don’t Call the Bankruptcy Trustee, “Your Honor”.
As a matter of fact, the bankruptcy law even bars bankruptcy judges from attending the Meeting of Creditors. See: Bankruptcy Judges Are Barred by Law From Attending the Meeting of Creditors .
A bankruptcy trustee presides over the meeting by calling cases, one at a time. When your case is called, you sit at a table in the front of the room with your bankruptcy lawyer, and the trustee asks questions after you’ve been sworn in. To learn more about trustees, see What Is a Bankruptcy Trustee?
Most meetings are relatively short and uneventful. Although they will typically last just a matter of a few minutes, you may wait as much as 60 to 90 minutes for your hearing. The meetings are recorded by an electronic device, and there is a microphone on the table.
Since the meetings are somewhat informal, you do not have to get dressed up or wear a suit.
The Meeting of Creditors is also commonly referred to as the “341 Hearing” or “341 Meeting” because it is Bankruptcy Code section 341 that contains the law regarding such meetings.
Role of the Bankruptcy Trustee
The trustee is charged with several obligations which include making sure the bankruptcy petition is properly prepared, making sure any assets you intend to keep are protected by exemption statutes, ensuring that you properly completed the Means Test, and ascertaining whether you have any non-exempt assets that can be sold for the benefit of creditors.
It is usually rare, but not uncommon, that a trustee determines that there are non-exempt assets. The most common types of non-exempt assets include cars, tax refunds and personal injury law suits. In each case, if the asset is worth more than the exemption amount, the trustee can administer the asset. For more information about whether a trustee will pursue an asset, see: The Back-Door Politics Behind Trustees Pursuing Non-Exempt Assets.
If you live in New York, you can check some of the most common bankruptcy exemptions here: Bankruptcy Exemptions in New York.
If the trustee does try to sell an asset, he is entitled to be compensated for doing so. Information about this is in this post: How Does a Chapter 7 Bankruptcy Trustee Sell Assets .
Some clients primarily speak a second language like Spanish, and need the assistance of an interpreter. In the Central Islip Bankruptcy Court, the court now provides interpretation services at the Meeting of Creditors. See: Interpreters in Bankruptcy Court .
It is relatively rare that a creditor will show up. Generally speaking, credit card companies, which constitute the most common type of creditor, will never show up. I discussed this in my post: Will Creditors Show Up For My Hearing In Bankruptcy Court? However, If a Creditor Shows Up at the Meeting of Creditors in Bankruptcy Court, What Questions Can They Ask?
As far as questions at the Meeting of Creditors that the trustee asks you, it is very important to answer each question accurately and honestly, but you should not provide any additional information, other than simply answering the question. For more about how you should answer questions, see this post: How Much Should You Say at the Meeting of Creditors in Bankruptcy Court?
When Is the Meeting of Creditors?
This is the topic of an article I recently wrote: When Is My Meeting of Creditors in Bankruptcy Court?. Generally, the meeting is about one month after the date of filing. There is a lot of information on this post.
What Can Go Wrong at the Meeting of Creditors?
The vast majority of hearings at the Meeting of Creditors go very smoothly and last just a few minutes. If your bankruptcy attorney did a good job in drafting the bankruptcy petition and preparing you for the meeting, everything should go find.
Nevertheless, lots of things can happen at the Meeting of Creditors to complicate things. Several years go I wrote a lengthy series of articles for the Suffolk Lawyer about how to address unusual issues that may arise at the Meeting of Creditors in bankruptcy court.
If you have a Meeting of Creditors coming up, this series of articles should be extremely useful:
Preparation for the Meeting of Creditors is Key
I cannot stress how important it is to have your bankruptcy attorney prepare you for the meeting of creditors.
In my Long Island bankruptcy practice, we review with each client the various questions the trustee will most likely ask, as well as our client’s responses, to ensure that the meeting will go smoothly. We usually do this a few days prior to the meeting.
Are You Curious About Your Bankruptcy Trustee?
If your hearing is in the Central Islip Bankruptcy Court, which is in the Eastern District of New York, you can read profiles about each trustee and see their picture, most of which I took. Here is the link: Bankruptcy Trustee Profiles .
Can the Trustee Decline to Grant You Bankruptcy Relief at the Meeting of Creditors?
The answer is “absolutely not.” The purpose of the meeting is for the trustee to obtain information about your case. The trustee does not have the ability to take any action against you or decide whether or not you are entitled to a discharge.
Only a bankruptcy court judge can do such things. Also, every debtor is entitled to a discharge unless a proceeding is brought challenging discharge — and these are very rare.
Directions to the Central Islip Bankruptcy Court on Long Island
If your meeting of creditors is in Central Islip, here’s how to get to the court: Directions to Central Islip Bankruptcy Court - Long Island .
Written by Craig D. Robins, Esq.When I sat down to write this month’s column for the Suffolk Lawyer, I was prepared to discuss several recent cases interpreting the means test. However, I could not get over the great number of splits of authority over almost every single issue.
The Means Test is the focal point of the drastic revisions that Congress made to the Bankruptcy Code in 2005. That was when the legislature thought it was necessary to tighten the existing bankruptcy law and make it more difficult for consumers to eliminate debt, especially for those who Congress thought could afford to pay something to their creditors.
Unfortunately for bench and bar, the statutory wording of the Code provisions underlying the means test is anything but clear and unambiguous.
Congress Failed in Drafting a Clear-Cut Means Test Statute
Ironically, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) was intended “to improve bankruptcy law and practice by restoring personal responsibility and integrity in the bankruptcy system and ensure that the system is fair for both debtors and creditors.”
Yet, when the new law was enacted in 2005, Bankruptcy scholars across the land declared that so many of the provisions of BAPCPA were so poorly worded that bankruptcy court judges would be perpetually perplexed as they tried to interpret them. They were right. The relatively new statute contains typos, sloppy choices of words, hanging paragraphs, and inconsistencies.
We now have bankruptcy courts, U.S. District Courts, and U.S. Courts of Appeal issuing decisions almost daily in an effort to make heads and tails over what Congress intended. The worst part? There are minority and majority views to almost every possible issue, and even a few hybrid views to boot.
Here’s more irony: BAPCPA was supposed to limit judicial discretion. Instead, the legislation, which leaves a great deal to be desired, actually requires significant judicial discretion simply to interpret the statute. Congress failed to create the “bright line” which it intended, a concept Long Island Bankruptcy Court Judge Robert E. Grossman cited in one of his recent opinions.
This confusion has led to a spate of law review articles with deriding, mocking and skewering titles such as “BAPCPA: Trying to Make Sense Out of Nonsense.” I can come up with some of my own: “BAPCPA is Bupkis” and “Mean Streets to the Means Test – An Ugly Road to Bankruptcy Court.”
The Ambiguity of the New Laws Makes Bankruptcy Challenging
The Ambiguity of the New Laws Makes Bankruptcy Challenging
What all this means is that if an issue has not yet been decided in your jurisdiction, counsel has little guidance as to how the local bankruptcy court will rule. So imagine the challenge of trying to advise clients when a judge in Connecticut has held one way, a judge in New Jersey has reached a decision that is totally opposite, and our jurisdiction has not even addressed the issue yet. And then, most issues are also finding their way up to the appellate courts.
BAPCPA has created a wide split among courts, not only upon the interpretation of whether a consumer has too much income to qualify for Chapter 7 relief, but upon the methodology used to calculate what income really is.
Courts seem to be debating endlessly concepts such as whether projected disposable income requires either an “anticipated” or “historical” calculation of income. In other words, do you use a backwards-looking approach or a forwards-looking approach? Judge Grossman has already written a number of decisions seeking to make this distinction. (FYI, he’s a forward-looker.)
The Strict Constructionist Verses the Logical Originalist in Bankruptcy Court
Inconsistencies in BAPCPA language have created two approaches to addressing conflicting interpretations. You have the strict constructionists who believe a statute should be interpreted on its face, regardless of the result, and those who believe that maintaining a logical outcome based on the legislature’s original intent is paramount.
We’ve come to learn that Judge Grossman is of the school of thought “supported by reason.” He recently wrote in one of his decisions interpreting the means test: “Absent clear binding authority in this Circuit, this Court will not adopt a reading of the statute which does not make any sense.”
As Judge Grossman wrote just last week in In re: Rabener, “this Court does not share the view that a rigid application. . . is required because the 2005 BAPCPA amendments were intended to blindly reduce judicial discretion. This Court does not believe that it is required to reach a decision that is absurd on its face merely to satisfy an unsupported argument that eliminating or reducing judicial discretion is more important than reaching a sound conclusion consistent with reason.” In re Rabener, No. 809-75719, slip op. (E.D.N.Y. January 21, 2010).
Do you look at the “plain meaning of the statute” or do you try to ascertain “what Congress originally intended?” Perhaps that depends on which side you’re on.
So what can the bankruptcy practitioner do when courts across the country are divided on issues? Hope for the best. Such uncertainty makes practicing bankruptcy law post-2005 daunting to say the least. But all those divergent decisions sure make for good reading.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the February 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
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