Bankruptcy and Society

Written by Craig D. Robins, Esq.

A few weeks ago I wrote that bankruptcy filings across the country rose 31 percent in 2008.  (Bankruptcy Filings Surged in 2008).

The number of bankruptcies filed in the twelve-month period ending December 31, 2008, totaled 1,117,771, up from 850,912 bankruptcies filed in 2007.

Filings are now averaging well over one million per year.  Here we have a chart that shows how the numbers are steadily increasing.

Website that prepared bankruptcy petitions engaged in unauthorized practice of law

 by Craig D. Robins, Esq.

Many consumer debtors learn the hard way that they get what they pay for when hiring someone to prepare their bankruptcy petition.

The law is very clear that only an attorney can give legal advice, and this is to protect the public. Yet there are many non-attorneys who offer to prepare bankruptcy petitions for a fee, and many horror stories that go along with this.

There are strict rules about offering bankruptcy legal advice

When Congress gave the Bankruptcy Code a minor overhaul in 1994, it added several consumer protection requirements aimed at non-attorneys who prepare bankruptcy petitions.

The code labels a non-attorney who receives compensation to prepare a bankruptcy petition as “bankruptcy petition preparer” (BPP) and forbids BPPs from offering legal advice, defined as advising the debtor:

     •  Whether to file bankruptcy

     •  Which chapter to file

     •  Whether the debtor will able to keep his or her home

     •  How to characterize the debtor’s assets or debts

     •  About bankruptcy procedures and rights

My first experience with a non-attorney bankruptcy petition preparer

In the early 1990’s, a Long Island bankruptcy debtor came to me, literally crying, that he had filed a bankruptcy petition on his own, and the Chapter 7 trustee was about to take his house.

The client had used a “bankruptcy paralegal” to prepare his bankruptcy petition after seeing an ad in a local PennySaver. The paralegal incorrectly advised the debtor about New York bankruptcy law, and as a result, the debtor did not realize that his home was not totally protected by the New York homestead exemption.

As a result of that situation, I brought a class action proceeding against this paralegal who had prepared several hundred bankruptcy petitions on Long Island. When I filed the class action suit in bankruptcy court, the clerk’s office at first did not know what to do with it as they had never encountered a class action suit in bankruptcy court before.

As a result of that litigation, the paralegal was assessed fines exceeding $100,000 and was permanently enjoined from ever preparing petitions again.

Web-based Bankruptcy Petition Preparer Punished

St. John’s law student Thomas Szaniawski, in an American Bankruptcy Institute Case Blog article that was just published last week, discussed a case of first impression that addressed the intersection of cyberspace and bankruptcy.

The United States Court of Appeals for Ninth Circuit, in Reynoso v. United (Frankfort Digital Services v. Kistler) held that a provider of web-based bankruptcy software was a BPP under the Bankruptcy Code and that, under state law, the features of the petition preparation software constituted the unauthorized practice of law.

The defendant had a website that offered to prepare bankruptcy petitions for consumers. A consumer could use the browser-based software to prepare a bankruptcy petition based on information the consumer provided. The product’s website explained that the software would choose which bankruptcy exemptions to apply for and remove any need for the petitioner to individually select which schedule to use for the various pieces of information involved.

The court reasoned that providing personalized guidance in selecting specific exemptions or schedules constituted the unauthorized practice of law. Thus, the owner of the website, by providing software that held itself out as offering legal advice, projected an aura of expertise, and provided specific advice tailored to each customer’s situation. This led the court to conclude that the defendant had, in fact, engaged in the unauthorized practice of law.

This case is significant because it established that the mere act of providing software may qualify an individual as a BPP. This means that such software providers are subject to the strictures of the Bankruptcy Code and must obey the strict limitations on permissible BPP conduct. Thus, any conduct beyond mere typesetting can result in liability for the unauthorized practice of law. The fact that such conduct occurs by way of a software application, instead of traditional interpersonal interaction, is not a defense.

One jurisdiction is warning the public about BPP’s

 The problem with bankruptcy paralegals rendering bad and incompetent legal advice became especially acute in the Southern District of California, one of the busiest in the nation. There, the U.S. Trustee, who has since become a judge, took the extraordinary step of warning consumers about the perils of discount advice by issuing a report about the dangers of using bankruptcy petition preparers.

Bankruptcy practice is involved and should not be done by non-attorneys

Although courts have expressed sympathy with indigent debtors who may have difficulty paying legal fees, numerous judicial opinions clearly state that this is no justification to turn a blind eye to the unauthorized practice of law by bankruptcy petition preparers, especially as they often tend to cause far more harm than good.

An experienced bankruptcy attorney has years of legal training; is bound by professional ethics requirements; is licensed by the state; and is familiar with local rules and procedure. That is no comparison to a street-corner paralegal who thinks that whatever a lawyer can do, he can do. When that happens, there will ultimately be unfortunate consequences and their clients will pay the price.

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 March 2009 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 Medford, 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.

Bankruptcies Are on the Rise Again

U.S. bankruptcy filings surged 31 percent in 2008 as both businesses and consumers struggled to make ends meet in a worsening economy, according to court data released earlier this week.

It probably isn’t a shocker that the number of bankruptcy filings shot up in 2008 as the economy slipped into recession.

Total bankruptcy filings across the country rose to 1,117,771 last year, according to data from the Administrative Office of U.S. Courts, up from 850,912 in 2007.

The total is nearly twice the 617,660 filings recorded in 2006, when an overhaul in bankruptcy laws led to a drop in filings.

Businesses accounted for 43,546 filings last year, a small percentage of the total, but up 54 percent from 2007.

The number of filings rose steadily throughout 2008 as the economy worsened.

Bankruptcies have increased on Long Island and across the country because of escalating job losses, weakening consumer confidence and declining home values. The total is likely to continue to rise this year. I will provide data on Long Island bankruptcy filings shortly.

Written by Craig D. Robins, Esq.

I was hoping, planning and expecting to write this month’s column as a profile on our newest Bankruptcy Court judge, Alan S. Trust, who was sworn in on April 2, 2008. I met Judge Trust two weeks ago while he was becoming acquainted with our local court practices and procedures. At the time he was sitting in on one of Chief Judge Craig’s calendars. However, he subsequently declined to be interviewed for this article. Chambers advised me that he may hold a “meet and greet” event in the future.

Some Info on Judge Trust. Here’s what little information we know about Judge Trust. He was born in 1960 in Monticello, New York and graduated Monticello High School in 1978. Thereafter he graduated summa cum laude from Syracuse University in 1981 with a B.A. in Political Philosophy. He attended New York University School of Law in 1984, graduating cum laude. He was a member of the Law Review.

In 1984 he became a member of the State Bar of Texas, where it appears he remained in private practice until taking the bench here. My understanding is that his practice primarily consisted of commercial Chapter 11 matters. His swearing-in actually occurred in Dallas by Fifth Circuit Court of Appeals Judge Patrick Higgenbotham.

I write this column (past deadline, mind you) at 30,000 feet on my way to a brief vacation in Tokyo, Japan, so I had no time to seek any additional information about the judge from any other sources.

Before leaving, in my quest to learn about more about Judge Trust, I inadvertently came across a highly intriguing, well-written and informative blog, entitled “A Texas Bankruptcy Lawyer’s Blog, prepared by Austin attorney, Stephen Sather. One of his entries contained a summary of a fascinating Texas case which almost comically illustrates how an attorney-debtor should not act.

Accordingly, this month’s column is about that case, which is be somewhat timely as my recent column in the March issue of the Suffolk Lawyer was about attorneys who, themselves, seek bankruptcy relief. In that article I discussed attorneys who have debt problems and then file for bankruptcy in good faith to discharge their debts.

The Start of a Bad-Faith Filing. In January 2005, Texan attorney, David Ortiz, filed a consumer Chapter 7 petition to avoid being evicted from his law office. Based on the story to follow, this filing was not in good faith.

The stay didn’t last long as the landlord quickly lifted it. Then, once the eviction began to move forward again, the debtor lost interest in his case and he failed to appear for his 341 meeting. Soon thereafter the judge dismissed his case, with prejudice, for having failed to appear for the meeting. As is usual practice in such situations, the order precluded the debtor from refiling another petition for 180 days.

Nevertheless, the debtor filed another petition just one month later, apparently to stop another eviction. The U.S. Trustee promptly moved for sanctions. The debtor appeared and pleaded ignorance, claiming that he never received a copy of the prior order as it was sent to his old address, despite his obligation to update his address with the Court clerk.

The First Sanctions Order. The judge was somewhat patient and agreed to abate the U.S. Trustee’s motion long enough to allow the debtor to make an application to modify the prior order. When the parties returned to Court, the judge found that the debtor had neglected to do so. The judge also determined that the debtor had failed to file accurate schedules and did not have a good reason for failing to appear at the 341 hearing in the first case. The Judge then sanctioned the debtor by ordering him to pay attorney’s fees of $1,875 to each of two landlords, and continued the matter to determine whether additional sanctions might be appropriate.

The debtor, realizing that the matter was turning serious, finally retained an attorney. At the continued hearing, the judge ordered the debtor to pay $1,000 in additional sanctions to the Court within 60 days and barred him from filing again for a year without prior permission.

Things Get Worse – the Bench Warrant(s). By the time of the first sanctions order, the debtor had angered the judge; however, his problems could have been solved by paying the $4,750 in sanctions. Unfortunately, the debtor didn’t get the message.

Four months later, the U.S. Trustee filed a Certificate of Non-Compliance indicating that the Clerk had not been paid. The judge then scheduled another hearing. However, neither the debtor nor his new attorney showed up. The debtor also failed to accept service from the U.S. Trustee’s process server, despite having previously agreed to do so. The judge, now quite angry, issued a bench warrant that day.

The debtor then had an attorney friend contact the U.S. Marshal who said that she was acting as an intermediary, and promised to inform the debtor about the bench warrant. Incredibly, she gave the Marshal a non-working phone number for the debtor.

When the Judge learned this, he grew even angrier, and after being unable to locate the debtor at his home or office, issued a bench warrant for the intermediary attorney.

This provided a degree of success as the “intermediary” appeared and testified that the debtor was aware that there was a bench warrant out for him, but wanted to meet with his attorney first. The judge then ordered the intermediary to check in with the U.S. Marshal twice a day until the debtor was apprehended.

The Judge Tries to Get the Debtor’s Attention with a Second Sanctions Order. The judge, who no doubt progressed from furious to livid, issued a second sanctions order which required the debtor to pay $500 per day for each day that he failed to surrender, and to pay $250 per day for each day that he failed to pay the previous $1,000 sanction to the Clerk. The Judge also ordered the debtor’s attorney to appear two days later to report whether he had informed the debtor of the second sanctions order.

Critical Mass – The Third Sanctions Order. Two days later the debtor appeared with a new attorney, apparently well-respected in the bar, and paid the $1,000 owing to the Clerk. The debtor claimed that while he was aware of the prior hearing, his attorney was scheduled to be out of the country and assured him that he would get the hearing re-scheduled, which was not done. The debtor also testified that when he learned of the bench warrant, he checked into a hotel to avoid being found.

The judge, who was not amused, nevertheless showed considerable restraint by ordering the debtor to: a) write a letter of apology to the U.S. Marshal; b) contact the bar association assistance program to see if he would benefit from counseling; c) take 10 hours of continuing legal education; d) find other counsel for a client he was currently representing in a Chapter 7 case; and e) and either pay an additional sanction of $750 or write “I will respect the judicial system, and such respect includes obeying all court orders” 750 times. The judge gave the debtor five days to comply.

How Stupid Can You Get? The debtor did return five days later; however, he only tendered 700 sentences instead of 750, he had failed to pay the prior sanctions of $3,750 to his landlords, and he failed to find alternate counsel for his client. He did complete his C.L.E.

The judge, again showing extreme patience, gave the debtor one last chance. The debtor, finally learning his lesson, tendered the remaining 50 sentences and paid the sanctions to his landlords. As a final sanction, the Court wrote a lengthy opinion chronicling the debtor’s pattern of abuse.

Lessons to be Learned – Damage Control. Stephen Sather, in his blog about the case, suggested that attorneys make mistakes, but that the difference between a good attorney and a disgraced attorney is the ability to engage in damage control. The debtor in the above case certainly did not learn that lesson. Mr. Sather also suggested that this case be required reading in legal ethics courses.

Mr. Ortiz’s motivations in filing bankruptcy to avoid eviction were not pure. The debtor, in filing a second bankruptcy in violation of a court order that he arguably did not know about, was bad but not fatal.

At this stage, the debtor had a problem, but the court offered a way out. Failing to take advantage of this offer was a major mistake.

When the debtor missed the first opportunity to extricate himself, he could have begged or borrowed the money to pay the initial sanctions and limped away, humbled but not crushed. However, when he failed to appear in court, and then evaded the U.S. Marshall, he risked serious jail time. Perhaps the ultimate consequences were so light because the debtor retained a respected and competent bankruptcy attorney, again illustrating the advantages of retaining counsel. One thing is clear, though – things could have gotten much, much worse.

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 May 2008 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 Medford, 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.

Written by Craig D. Robins, Esq.

The New Laws are Now in Effect. The new laws that all consumer bankruptcy attorneys have dreaded for quite some time are now upon us. On October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, this country’s most sweeping bankruptcy legislation in decades, became effective. During the last month there was a flood of bankruptcy filings as cash-strapped consumers tried to get a jump on the new laws that will make filing much tougher for people to erase their debts.

Learning About the New Laws. The new laws are rather complex. Our Bar Association recently presented a three-hour C.L.E. seminar which seemed merely to provide an overview on just some of the new provisions. After attending a two day symposium and workshop in Florida sponsored by the National Association of Consumer Bankruptcy Attorneys last month, I believe that it would be difficult for a bankruptcy practitioner to effectively represent clients without such a thorough review. The National Association of Consumer Bankruptcy Attorneys announced that it will be offering some additional symposiums in the near future. Over 1,500 attorneys attended the one in Orlando. If you have the opportunity to attend any full-day seminars, I would urge you to do so. Just learning the intricacies of the means test can take an entire day.

Many, Many New Laws to Learn. Discussing the provisions of the new law could easily fill a thousand of these columns. The means test is a major component. Its ostensible purpose is to determine, after a series of calculations, whether a debtor who seeks to file for Chapter 7, would be abusing the bankruptcy laws because the debtor could afford to pay something back to their creditors. In addition to this totally new procedure, there are new provisions for determining property of the estate and calculating exemptions. There are new procedures for valuing assets. There are new laws concerning the automatic stay, which will not be so automatic in some instances. Treatment of secured claims has changed and debtors will likely have to reaffirm secured debts, a procedure that had been mostly done away with in this jurisdiction during the past decade. Matrimonial obligations are now treated totally differently in a way to designed to protect the innocent spouse. There are new exceptions to discharge. There are also greater limitations upon re-filing after a previous petition has been filed. And don’t forget, debtors must receive credit counseling as a condition to filing for bankruptcy relief, and budget counseling as a condition to receiving a discharge, and you will certainly need to assist them with this.

The Means Test: A New Horror. The essence of the new law is the means test, a six-page, fifty-five-line item, computational form that makes the most complicated tax return form look like a walk in the park. This form alone will intimidate the most seasoned practitioner and will likely have the effect, intended or not, of preventing many people from filing for bankruptcy for various reasons.

Be Prepared to Do Due Diligence With Each Case or Be Sanctioned. The number one concern that most consumer bankruptcy attorneys probably have about the new law is that it imposes a tremendous responsibility and potential liability on the attorney. The attorney must now conduct a reasonable investigation to verify the accuracy of the information provided by the client. In addition, the attorney must determine that the petition and all other information provided to the court and the trustee is well-grounded in fact. Finally, the attorney must certify that a Chapter 7 petition is not an abusive filing. The penalties for violating any of the new liability provisions can be strict and can include fee disgorgement plus actual damages including attorney’s fees and costs and possible civil penalties. These new responsibilities, combined with attorney liability, will likely cause many lawyers to leave the consumer bankruptcy practice, and will result in an increase in fees charged by those who stay.

New Mandatory Disclosures. Debtor’s attorneys are now required to make certain disclosures about the nature of legal services offered and the consequences of filing for bankruptcy. In addition, you are required to warn your clients of the penalties for failing to make less than a full and honest disclosure to the bankruptcy court. The consumer bankruptcy attorney must make these disclosures, notices and warnings no later than three days after you first offer legal services to the client. Failure to do so can mean additional sanctions.

Revising Your Advertising. If you advertise bankruptcy legal services, even by merely mentioning that you or your firm does bankruptcy, then be advised that the new law will restrict the way that you may advertise in the future. You must now identify yourself as a “Debt Relief Agency” in any advertisement and contain a disclosure essentially stating that you help people file for bankruptcy.

Revising Your Legal Fees. As a result of the additional amount of time that you will need to spend with each bankruptcy matter, combined with the added potential attorney liability, many attorneys are anticipating that they will end up doubling their existing fees. Legal fees of $2,000 to $3,000 for Chapter 7 cases and $3,500 to $5,000 for Chapter 13 cases may become the norm, although it is too early to determine. In addition, many bankruptcy attorneys will probably charge two separate fees: one to cover the several hours worth of work that will be involved with the means test, and another to cover the remainder of the bankruptcy filing including preparation of the petition and representation in court. After all, it will often be difficult to recommend filing Chapter 7 until the attorney devotes a substantial amount of time to reviewing all aspects of the case and then performing the means test.

Manuals and Books on the New Law are Imperative. Getting a new copy of the Bankruptcy Code is mandatory. In addition, the leading legal publishers such as Thomson-West and LexisNexis have published versions that contain an analysis. LRP Publications has an excellent manual about understanding the new laws. LRP also publishes a regular newsletter, Consumer Bankruptcy News, which often contains practice oriented articles. Additionally, National Consumer Law Center will be soon coming out with a new edition of my favorite handbook, which I refer to as the bible, entitled Consumer Bankruptcy Law and Practice.

Obtaining or Updating Your Software. With the advent of the new laws, combined with the local court requirement that attorneys file petitions electronically, it is inconceivable that a practitioner can prepare a bankruptcy petition without using a computer together with specialized and current software. If you plan to practice consumer bankruptcy, then you must make this investment. All of the leading petition preparation software publishers have rushed to prepare updated versions of their software. The software will be especially important in assisting you with the numerous calculations required by the means test. The software will also include all necessary databases regarding the IRS standardized expense tables and the state median income.

Are You Ready for All of This? If all of the above does not sound intimidating enough, one of the judges at the recent Bar Association seminar commented that he could not imagine how the court system and United States Trustee’s Office would be able to function after October 17, considering all of the major changes and obligations that they will have to address as well. To make matters more tenuous, many commentators have suggested that Congress should delay the effective date of the new law as it would be unfairly harsh to those who have been adversely affected by the recent hurricanes in the Gulf states. Finally, if you decide to continue your bankruptcy practice, be prepared to spend a substantial amount of time reviewing the new laws, attending seminars and workshops, and re-adjusting your perspective as to how bankruptcy works. It will be an evolutionary process.

About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a frequent columnist for the Nassau Lawyer, the official publication of the Nassau County Bar Association in New York. This article appeared in the November 2005 issue of the Nassau 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 Medford, 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.

Written by Craig D. Robins, Esq.

Gambling has long been a culprit that drives people into bankruptcy. With Atlantic City and Indian casinos a mere bus ride away, Long Islanders are finding it ever so easy to gamble away their hard-earned incomes and get into a bad debt situation. Combine that with horse racing and OTB, lotteries, bookies and now, internet gambling, and we have plenty of opportunities for individuals to lose their shirts. Day trading with stocks is also considered by many to be an addictive form of gambling. It is no secret that compulsive gamblers incur devastating debts on their credit cards to fuel their obsessions.

Gamblers often get trapped in a vicious cycle of taking cash advances for gambling in the hope that future winnings will then satisfy ever-increasing debt. Left unchecked, this cycle will usually drive the gambler into a downward vortex, destroying the gambler and his family financially.

Gamblers may actually have some luck on their side if they can take advantage of the current bankruptcy laws, as the filing of a Chapter 7 bankruptcy will enable the gambler to discharge most gambling debts. It appears that with the surge in legalized gambling across the country, bankruptcy courts have become more liberal in permitting gamblers to discharge their gambling debts.

However, proposed legislation, if enacted, will certainly make it increasingly more difficult for gamblers to discharge their debts. Such legislation is currently pending and would adversely affect all consumer filings, not just those of gamblers. One commentator suggested that the legislature is suffering from apparent schizophrenia—they are constantly legalizing more gambling, yet condemning the ever-increasing amount of consumer debt and the “ease” of its discharge.

The following are points that the consumer bankruptcy practitioner should be aware of with regard to discharging gambling debts of their clients.

1. Gambling debts are generally dischargeable. There is no statutory authority that expressly states that gambling debts are non-dischargeable. Therefore, gambling debts are not per se non-dischargeable.

2. A creditor must prevail in an adversary proceeding for a gambling debt to be non-dischargeable. All gambling debts are dischargeable unless a creditor objects to them in an adversary proceeding. Adversary proceedings are federal law suits brought within a bankruptcy. They are involved and costly for all parties. Going back several years, casinos and credit card companies often sought to object to discharging extensions of credit given to debtors at the casino. However, such suits are much less common today.

3. Creditors rely on certain statutory provisions when they allege that gambling debts are non-dischargeable. There is one major Bankruptcy Code provision that creditors generally use in adversary proceedings to challenge dischargeability of gambling debts. This is Code section 523(a)(2)(A) which provides an exception to discharge for debts obtained by “false pretenses, a false representation, or actual fraud.”

4. Creditors have the burden of proof. Although there appear to be fewer creditors today bringing adversary proceedings objecting to gambling debts, some creditors continue to bring such suits. A creditor seeking to object to a debt bears the burden of proof by a preponderance of the evidence as stated by the U.S. Supreme Court in the 1991 Grogan case.

5. Creditors must establish four elements. In order for a creditor to prove false pretenses, false representations or fraud, the creditor must generally establish each of four separate elements: a) false representation (the creditor must prove that the gambler made a false representation through which the gambler obtained money, such as by lying on a credit application); b) knowledge (the creditor must prove that the gambler either knew the representation was false or made with such reckless disregard for the truth as to constitute willful misrepresentations — this is often the major element that is litigated); c) scienter (the creditor must prove that the debtor intended to deceive); and d) justifiable reliance (the creditor must show that it actually relied on the gambler’s false representation and that creditor’s reliance was justifiable).

6. The reasonableness standard: subjective ability to pay has become the general rule. Earlier cases concerning whether debtors believed that they would be able to repay gambling debts focused on whether the debtor’s belief was reasonable from an objective viewpoint. The creditor would argue that the debtor “knew or should have known” that the debtor could not possibly pay back his debt. A debtor will often assert that his only hope of repaying a gambling debt is to win it big in the future. Prior cases held that gambling debts in such situations should be non-dischargeable because the debtor’s belief was not reasonable.

However, the current trend has shifted to a more subjective determination. One case held that the debtor’s “honest but somewhat questionable belief that he would soon get lucky at gambling and pay off his debts” demonstrated intent to repay. Thus, a debtor may be able to defeat the creditor’s position if the debtor can persuade the court that based on his history, the debtor genuinely believed that he would be able to pay his debts and that he had the intent to pay his credit card debts at the time he incurred them.

7. The courts are mindful of public policy arguments. In recent years, this country’s policies toward gambling have also shifted for social policy reasons. One Court’s position is this: At one point in time, not so far in the past, gambling was against public policy and gambling debts were not enforceable in a court of law. But public policy changed. Certain forms of gambling are now legal … . They are hyped as a source of jobs (i.e., casinos), as a source of revenue for government (i.e. Lottery proceeds used for education), and as a form of entertainment (i.e., casinos and off-track betting).

8. The luxury goods and cash advance exceptions can make the debt non-dischargeable. Code section 523(a)(2)(C) makes a debt non-dischargeable if it is for a “luxury good or service” over $1,225 that is purchased within 60 days pre-petition, or if it is a cash advance over $1,225 obtained within 60 days pre-petition. Problems with these exceptions can be easily avoided by properly questioning your client about their pre-petition credit use and then waiting the requisite period of time.

9. Beware of pending bankruptcy reform legislation. In some versions of the pending legislation bill, there is language that provides that a debt incurred when the debtor had no reasonable expectation or ability to repay it is non-dischargeable. This would adversely slam the liberal trend in the case law mentioned above. If the bankruptcy laws change, it may become much harder to discharge gambling debts.

10. Gamblers need non-legal help also. Compulsive gamblers suffer from an addiction disorder and need professional help. Although the bankruptcy practitioner can certainly help by providing the opportunity for a fresh new financial start, you should urge the client to seek professional help. In addition to counseling, there are support groups such as Gamblers Anonymous.

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 March 2005 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 Medford, 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.

Written by Craig D. Robins, Esq.

For the last six years, there have been vigorous efforts to drastically alter the Bankruptcy Code to make it more difficult for consumers to discharge their debts. Up until now, these efforts have not succeeded. There wasn’t even much legislative activity regarding bankruptcy last year. That is, until November 2, 2004. Election Day. On that day, this Country re-elected George W. Bush.

During President Bush’s first four years of office, he made it abundantly clear that he would sign any bankruptcy overhaul legislation that was placed on his desk. One can assume that he wouldn’t even bother to read a bankruptcy reform bill before signing it into law.

However, Mr. Bush did not make any mention during his numerous campaign speeches of his proclivity to sign a new, much tougher bankruptcy statute. Why? The notion of bankruptcy reform would not sit well with many of his supporting constituents. The hard-working, middle-class, middle-aged, middle-Americans who are struggling from lay-offs or exorbitant health care costs would not find Mr. Bush’s position on bankruptcy reform too appealing. Ironically, large numbers of Americans who will eventually need bankruptcy protection actually voted for Mr. Bush, unaware that in his next four years of office he will likely sign into law a much stricter Bankruptcy Code that may prevent them from being able to discharge their debts and easily get a fresh new financial start.

To make matters worse, the Senate Democrats lost five seats including that of Senate party leader Tom Daschle. One of the reasons that bankruptcy legislation was not previously enacted was because of the relative balance of Republicans and Democrats in the Senate. Although bankruptcy reform does share some bipartisan support, it is overwhelmingly supported by Republicans, big business, and the banking and credit card industries. It will now be easier for the Republican-majority of legislators to pass a bankruptcy reform bill.

For years, the banking industry has pumped tens of millions of dollars into lobbying and election efforts, seeking to persuade legislators to enact new bankruptcy reform. Lobbyists for these groups have been toasting the success of Mr. Bush’s re-election and the election of Republican congressional candidates. Now they plan to collect on that investment.

According to recent news reports, the consensus in Washington is that the bankruptcy reform legislation will be re-introduced in Congress soon where the bill is expected to move quickly through the House, barring other legislative issues taking priority, most likely before April. Then the fight will shift to the Senate. However, according to Senate rules, the majority cannot force issues as easily or as quickly, as 50 votes are needed to break a filibuster. Sources suggest that there is a 60/40 chance that bankruptcy reform will be eventually signed by the President and become law this session.

Therefore, expect to see a new round of proposed bankruptcy reform legislation in the very near future. Expect a high possibility that this legislation may be quickly signed into law by our President. And then expect to see a number of down-and-out financially-troubled middle-Americans wondering why they can’t get a fresh new financial start.

About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a frequent columnist for the Attorney of Nassau, published in Nassau County New York for members of the bar. This article appeared in the January 2005 issue of the Attorney of Nassau. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Medford, 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.

Written by Craig D. Robins, Esq.

We are all aware of people who cheat on their taxes, and crooked accountants who sometimes assist them. Unfortunately there are a few bad apples in the bankruptcy arena as well: debtors who lie in their bankruptcy proceedings and attorneys who may help them. Authorities estimate that ten percent of all bankruptcy cases contain some element of fraud.

The Bankruptcy Code imposes an affirmative duty on a debtor to truthfully list all assets and other information required in the petition. This must be done under the federal penalty of perjury. Not only can dishonesty in connection with a bankruptcy case result in the denial of a discharge pursuant to Bankruptcy Code section 727, but it can also land the guilty party in the jail.

Increased Investigations of Bankruptcy Crimes. Now that the U.S. Trustee’s office has embarked upon a quest to sniff out bankruptcy abuse and bankruptcy fraud through its Civil Enforcement Initiative, it appears that an increasing number of those individuals who commit bankruptcy crime are being caught. The U.S. Trustee, which is a division of the Department of Justice (DOJ) also now has a Criminal Enforcement Unit.

Criminal procedure aspects of bankruptcy fraud are set out in Title 18 of the United States Code. Section 152 of that title states that whoever knowingly and fraudulently conceals assets, makes false oaths, presents false claims, receives property with the intent of defeating the provisions of the Bankruptcy Code, destroys records of the debtor, or withholds documents from a trustee, shall be imprisoned for up to five years or fined up to $5,000. The same statute also imposes liability upon any agent or officer of any person or corporation involved in such fraud.

Section 155 of that title states that a debtor’s attorney who knowingly and fraudulently enters into an agreement with another attorney for the purpose of fixing the fees to be paid to any attorney for services rendered, with such fees to be paid from the bankruptcy estate, shall be imprisoned for up to a year or fined up to $5,000.

Another part of that title, section 3057, imposes a congressional directive to the district offices of the U.S. Attorney to become more active in the prosecution of bankruptcy fraud cases. Bankruptcy fraud can involve other federal statutes as well.

Although bankruptcy fraud is committed by a very limited few, it nevertheless has at times cast a negative reflection upon everyone who files for bankruptcy relief.

Some lawyers might not recognize criminal activity that the DOJ now targets for investigation. Examples include filing for bankruptcy using an incorrect Social Security number, and receiving payments from a bankruptcy debtor that were not approved by the bankruptcy court. In both of these examples, DOJ investigations led to convictions and jail time. The decision to prosecute is based on the level of loss or injury, the existence of sufficient evidence, and the clarity of the law. In some cases, civil penalties for fraud are deemed sufficient to punish and deter.

The DOJ often issues press releases about recent indictments and convictions for bankruptcy fraud. Consumer Bankruptcy News, an excellent periodical for practitioners, now regularly reports news of bankruptcy crime. The following cases, which were gleaned from recent issues and press releases, highlight some interesting bankruptcy crimes involving not only debtors, but their attorneys as well.

Colorado attorney suspended because he secured his legal fees by taking liens against client’s homes. Conrad Kindsfather not only secured his unpaid legal fees by having his bankruptcy clients give him a mortgage on their property, he then failed to disclose his interest in the property in the bankruptcy proceeding. Practical Tip: If you become a secured creditor of the debtor, you have a conflict of interest in a bankruptcy proceeding and may not represent the debtor. Also, and this probably goes without saying, do not prepare a petition and intentionally conceal material information, as this is a deceptive practice.

Identification Theft in Bankruptcy Proceeding Lands Defendant in Prison. Rodney Jones obtained a fraudulent identification card and used it to impersonate someone by filing a bankruptcy petition in that person’s name in order to stop a foreclosure proceeding. Practical Tip: Always ask for and check your client’s driver’s license and social security card at the time they retain you, and make sure your client is who he or she appears to be.

Debtor lied about assets owned by his corporation and was convicted for bankruptcy fraud. Duncan Edwards filed a Chapter 13 petition and listed his corporation as an asset, but indicated that it had only nominal value. It turned out that the corporation owned stock options in another corporation. Edwards later converted his case to Chapter 7 and did disclose the stock options, but testified that they were worthless. A few days later the trustee learned that the debtor had sold the options two weeks prior to the hearing for $445,000. Needless to say, Edwards will be serving time. Practical Tip: Try to make sure your client is realistic about the value of scheduled assets. Remind your client that pulling a fast one and trying to cheat in the bankruptcy system can result in a felony conviction.

Attorney and client are both indicted for scheme to defraud creditors. Arnold Stuart retained Gregory Lyons, Esq. The U.S. Attorney alleged that they schemed to prevent certain creditors from obtaining and recording a judgment lien on Stewart’s property. While Stewart was in bankruptcy, the men allegedly entered into a coal-mining investment encumbering the debtor’s property, but never disclosed that fact to the creditors, the bankruptcy court or the trustee. Instead, they led creditors to believe they were following the order of the bankruptcy court to sell the land and to pay proceeds to the creditors, according to the investigators. When it appeared that some creditors had learned of the scheme, the defendants attempted to conceal the fraud by dismissing the bankruptcy case; however, they were caught. Practical Tip: Practitioners should be aware that there may be criminal law consequences based on advice given and actions taken in the planning and conduct of a bankruptcy case.

Bankruptcy crime seminar in November. Stephanie Wickouski is one of the country’s leading experts on bankruptcy crime. She is the author of the leading treatise on that subject. On November 17, 2004, she will be joined by Southern District Bankruptcy Judge Cornelius Blackshear and Deidre Martini, U.S. Trustee for Region 2, for a roundtable discussion of bankruptcy crimes, their genus and aftermath. The panel will explore the effects that these crimes have on the economy and on confidence in the economic system. The seminar, which will be at the Milleridge Cottage in Jericho, is being sponsored by the Long Island Chapter of the Turnaround Management Association. For information, contact Chapter President Jeff Wurst at (516) 663-6535.

 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 October 2004 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 Medford, 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.

Written by Craig D. Robins, Esq.

Nowadays, those who are most likely to file for bankruptcy are middle-class families of the baby-boomer generation. In other words, the typical Long Island family. We previously considered middle-class families as a stereotypical group noted for their financial stability and for the vitality they provide to the American economic system. It is the middle-class family, however, that now has become the stereotypical bankruptcy filer.

I have observed this phenomenon in my consumer bankruptcy practice. Aside from some truly destitute clients that I represent on a pro-bono basis as part of the Nassau-Suffolk Legal Services Project, most of my clients are somewhat educated and hold, or have held, typical jobs, often “white collar,” that fuel the Long Island economy. Most of them are not young.

Yet, bankruptcies were once the primary domain of the young and struggling, or the lesser-educated who would spend their money recklessly, or those with young families who did not have savings cushions to carry them through lean times. However, it appears that we must now discard these stereotypes of bankruptcy debtors. More and more, even families with many years of positive financial experience, retirement nest eggs, home ownership, and perfect credit are finding themselves in financial holes that they cannot dig themselves out of.

Last month, the Wall Street Journal featured a front-page article: “New Group Swells Bankruptcy Court: The Middle-Aged.” The Journal story focused on “an emerging class of middle-age, white-collar Americans who make the grim odyssey from comfortable circumstances to going broke.”

It now appears that the demographic group with the highest rate of personal bankruptcies in the U.S. is no longer people with little education in the youngest employment bracket (age 25-34), but rather middle class, educated, white-collar workers in the 35-44 and 45-54 age brackets, representing an important shift from a decade ago.

The increase in middle-aged, middle-class people filing for bankruptcy is largely attributable to soaring medical costs, an unstable job market and years of easy money from aggressive credit-card marketing. Also, today’s baby boomers are not as frugal as their Depression-era parents, perhaps largely the result of being driven by societal pressure and temptation to finance the American dream by purchasing and spending beyond their means. This has all led to staggering amounts of personal debt which many middle-class families are becoming increasingly unable to handle, especially when the household becomes overextended. Many middle-aged individuals who have borrowed heavily have brushed off concerns, saying they expect to live longer and work longer.