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Craig D. Robins, Esq. New York Bankruptcy Attorney, Longisland bankruptcy attorney

“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”

Craig D. Robins, Esq.

Issues Involving New Bankruptcy Laws

How Far Can a Bankruptcy Judge Go To Assist Inept Counsel?

Posted on Wednesday (May 16, 2012) at 10:00 pm to Bankruptcy Exemptions
Bankruptcy Practice
Bankruptcy Procedure
Chapter 7 Bankruptcy
Issues Involving New Bankruptcy Laws
Suffolk Lawyer

How far can a bankruptcy judge go to assist inept or inexperienced counsel?Written by Craig D. Robins, Esq.

  

After I wrote about some bankruptcy court decisions last month which involved some quirky and unusual facts (Two bankruptcy attorneys got into trouble over E.C.F. filings), some of my colleagues requested that I continue to discuss similarly odd and interesting cases.  Fortunately, we have one that is fresh off the docket.

 

On April 24, 2012, Judge Alan S. Trust, sitting in the Central Islip Bankruptcy Court, here in the Eastern District of New York, happened to issue a decision in just such a case, so we now have appropriate fodder for this month’s column. 

 

The decision, which is just as interesting for what is says, as for what it does not, involves protecting a debtor’s entitlement to receive funds, trying to be creative with exemptions, and seeing how a client might suffer from attorney ineptitude for being unfamiliar with bankruptcy practice and procedure.

 

Perhaps most importantly, it also leaves one thinking about how far a judge can or should go to assist counsel who is clueless.  In re Cho, no. 11-75595-ast, (Bankr. E.D. New York 2012).

 

In August 2011, Mr. and Mrs. Cho filed a typical Chapter 7 consumer bankruptcy petition here on Long Island.  About a month before filing, the debtors’ car lender repossessed their Honda.  Unbeknownst to the debtors at the time, a week before the filing date, the lender sold the vehicle at auction, and the sale resulted in a surplus of $5,000.

 

The debtor’s bankruptcy attorney, a lawyer from Queens who shall remain nameless, advised Chapter 7 Trustee Robert Pryor at the meeting of creditors, that the debtors’ vehicle had been repossessed pre-petition, resulting in a surplus, and that the debtors had received and deposited a check for the surplus post-petition.

 

Debtor’s Attorney Tries to Be Creative – Unsuccessfully

 

The trustee soon demanded that the debtors turn over the entire surplus amount.  Instead of doing that, the debtors amended their Schedule of Assets to include an ownership interest in the vehicle (which they no longer owned).

 

They also amended their Schedule of Exemptions (which opted for New York State exemptions as opposed to the more liberal federal exemptions) to exempt the vehicle in the sum of $4,000 pursuant to C.P.L.R. § 5205(a)(8), and to also increase their cash exemption by $1,000 to cover the additional value of the surplus pursuant to C.P.L.R. § 5205(a)(9).

 

The trustee believed that he was nevertheless entitled to the full surplus amount, so, with the help of his able associate, Michael Farina, he brought a motion to compel the debtors to turn it over.  The debtors responded, acknowledging that they no longer owned the vehicle, but argued that they were entitled to exempt the surplus as cash.   The trustee responded and pointed out that the amended schedules were improperly done and therefore fatally defective.

 

The trustee’s observation was correct.  Eastern District of New York Local Bankruptcy Rule 1009-1(iv) provides that in order for an amendment of exemptions to become effective, the debtor must first file and serve the amended exemptions on the U.S. Trustee, all creditors, and all other parties in interest, and then file proof of service with the court.  Here, the debtors’ attorney both neglected to file, and neglected to serve.

 

One would think that the debtors’ attorney, after reading the trustee’s papers alleging this neglect, would take immediate corrective action.  However, he did not.  At the hearing, which was held in December 2011, Judge Trust generously gave debtors’ counsel a week to comply with the local rule requirement.

 

However, inexplicably, counsel then filed the amendments but neglected to serve them.  This led the trustee to file supplemental objections.  At a subsequent hearing, Judge Trust gave the debtors’ counsel one last opportunity to meet the procedural requirements, which he finally did.  The matter was now marked for submission.

 

The issue before the court was whether the debtors could exempt the surplus cash under New York law, and whether the debtors could exempt the vehicle.

 

In his decision, the judge first pointed out that New York residents who file bankruptcy after June 21, 2011 have an option of selecting either the New York State or federal exemptions, and that the debtors here chose to claim the New York State exemptions.

 

Bankruptcy attorneys know that a debtor can exempt up to $5,000 of cash pursuant to the New York State cash exemption set forth in Debtor and Creditor Law sec. 283(2), provided that the debtor does not utilize the homestead exemption.

 

Judge Trust determined that, at the time of filing, the debtors did not own cash.  Under DCL § 283(2), “cash means currency of the United States at face value, savings bonds of the United States at face value, the right to receive a refund of federal, state and local income taxes, and deposit accounts in any state or federally chartered depository institution.”

 

The judge, following the overwhelming majority of courts, determined that the debtors had a “pre-petition vested right to receive payment” of the surplus which did not constitute “cash.”  A right to receive payment as evidenced by a check in transit is not “cash.”

 

In addition, since the debtors did not have an ownership interest in the vehicle on the date of filing, nor did they have a right of redemption, they could not exempt the vehicle.

 

However, Judge Trust indicated that the debtors could exempt $1,000 of the right to receive payment.  This is because of the relatively new exemption under C.P.L.R. § 5205(a)(9) which permits debtors filing after January 21, 2011, to utilize a $1,000 wildcard exemption for any personal property, provided that the debtor does not claim a homestead exemption.

 

Since the car was only in one spouse’s name, and the debtors did not claim a homestead exemption, they were entitled to one, $1,000 wildcard exemption which could be applied to the surplus.  The judge ordered them to turn over the balance of the surplus to the trustee.

 

Debtors’ Counsel Neglected to Use the Best Exemption to Protect His Clients — a Fact the Judge Did Not Point Out

 

Here’s why I found the decision especially interesting.  First, the debtors’ counsel initially botched up amending the exemptions – not once – but twice.  Judge Trust gave counsel two opportunities to correct the mistake.  Counsel finally figured out what to do on the third try.

 

Of course, we will never know what Judge Trust was thinking, but one can’t help but wonder if his granting counsel an opportunity to remedy the defective filings was also an opportunity for counsel to reconsider the exemption scheme counsel had elected. 

 

Had counsel opted for the much more generous $10,825 federal wildcard exemption provided in the federal exemptions by Bankruptcy Code § 522(5), he would have been able to protect 100% of the surplus.  In essence, it appears that counsel chose the wrong exemption scheme to the detriment of his clients.

 

An Interesting Issue:  How Far Can or Should a Judge Go to Educate Inept or Inexperienced Counsel?

 

However, a judge can and will only go so far in telling inept or inexperienced counsel what to do.  Would it have been out of line for the judge to tell debtor’s counsel that counsel didn’t have a sufficient understanding of law and procedure, and was not following the best legal strategy?  This is not a role that judges have.  They cannot advocate for one party.

 

Just to be clear, we will never know if Judge Trust was aware that debtor’s counsel botched up the exemptions, but if Judge Trust was aware of this issue I would assume that he would take the position that it is not his place to point out that counsel could have protected the entire surplus if the federal exemptions were used.

 

Based on my experience watching cases in court over the past three decades, this seems to be the way almost all judges handle such issues – they will not tell counsel how to practice law, even if that ultimately hurts an innocent client.

 

Accordingly, the debtor-clients here suffered and will have to turn over many thousands of dollars that they could have kept had their attorney had a better understanding of bankruptcy law and selected the better exemption scheme.  And that point is not in the decision.

 

Click this link to see a copy of the Cho decision in Case No. 11-75594-ast. 

 

 

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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 June  2012 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 Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream.        (516) 496-0800  (516) 496-0800   (516) 496-0800   (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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Update on Bankruptcy Attorney Sanctioned for Cheating on Credit Counseling Requirement

Posted on Saturday (March 5, 2011) at 7:00 am to Bankruptcy Crime
Issues Involving New Bankruptcy Laws
Lawyer to Lawyer

attorney misconduct in bankruptcy court caseWritten by Craig D. Robins, Esq.
 
Two years ago I wrote about a scandalous situation in which a consumer bankruptcy attorney in New York thought he had found a way to by-pass the requirement of having his clients go through mandatory credit counseling.  He had his secretary do it for them!
 
I wrote a detailed post about that attorney:  Attorney Caught Cheating on Credit Counseling Requirement .
 
This attorney didn’t even bother telling his clients about their obligation to do credit counseling.  He just had his secretary do it for them, in their names.  When the Chapter 7 trustee discovered this “irregularity” he told the debtor that there were serious problems with the case.
 
That debtor wound up coming to me for advice since he no longer trusted his attorney (and for good reason).  I took the case over and was successful in getting the former attorney to refund the debtor’s legal fees and pay my fees as well.
 
The U.S. Trustee then went on to investigate the attorney and sanctioned him $40,000.  In addition, the bankruptcy court suspended the attorney from practicing bankruptcy before the court for a year.  He was also required to take 16 hours of continuing legal education covering bankruptcy law, four hours of which had to be for ethics.
 
Here’s the update:  The New York Appellate Division for the Second Judicial District learned of the suspension and misconduct.  It disciplined the attorney by giving him a public censure.  This is the highest form of discipline short of suspension.
 
The attorney paid the full $40,000 sanction, took the required continuing legal education courses, and has since been reinstated to practice before the bankruptcy court.
 
In short, a very expensive price to pay for taking a foolhardy and highly improper shortcut around a bankruptcy law requirement.
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Are Bankruptcy Petitions Accurate? A Federal Report Answers the Question

Posted on Thursday (February 17, 2011) at 11:00 pm to Bankruptcy Statistics
Issues Involving New Bankruptcy Laws

Honesty and Accuracy in United States Trustee Bankruptcy AuditsWritten by Craig D. Robins, Esq.
 
Are Debtors Honest In Their Bankruptcy Petitions?  The UST Wants to Know
 
The United States Trustee Program began auditing consumer bankruptcy cases in October 2006 to further ensure that debtors were properly disclosing accurate information in their bankruptcy petitions pursuant to BAPCPA — supposedly to promote the integrity and efficiency of the bankruptcy system.
 
I discussed the auditing concept in great detail in my post Random Audits of Consumer Debtors to Begin in October .
 
The statute that calls for audits provides for the establishment of procedures “to determine the accuracy, veracity, and completeness of petitions, schedules, and other information that the debtor is required to provide in individual bankruptcy cases.”
 
The same statute also requires the Attorney General to issue a yearly report of the audit results.
 
2010 U.S. Trustee Bankruptcy Audit Results
 
There were 2,675 audits in 2010.  Out of these, there were 1,395 random audits and 1,280 targeted audits.  I discussed the different types of audits in my prior post:   Random Audits of Consumer Debtors to Begin in October .
 
The law provides for conducting one random audit per 1,000 filed bankruptcy cases.  However, the U.S. Trustee program ran out of funding.  Since 2008 and continuing through 2010, there was only enough money to conduct one random audit per 250 filed cases.
 
Of all of the 2,675 audits, there were 584 cases in which there was a material misstatement, representing 23% of the cases. 
 
Targeted audits had a higher percentage of misstatements — 29%, compared to random audits — 17%
 
These figures have remained consistent for the past three years.
 
The overall average for the Eastern District of New York was 21%, meaning that Long Islanders are slightly more honest or accurate than the rest of the country, or that Long Island bankruptcy attorneys do a better job in preparing their petitions.  I’d like to think that it’s the latter.
 
Our Experience with One of the Random Audits
 
Of the 1,395 random audits conducted last year, one of them was performed on one of my clients. 
 
We cooperated with the auditors (an accounting firm) by providing a number of documents from a rather lengthy list.
 
Several weeks later we received a copy of a letter that they sent to the U.S. Trustee indicating that there were no material misstatements in that case.  Nevertheless, one of the trial attorneys in the local U.S.T. office requested an explanation of something, which we quickly provided, and the case was then closed.
 
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Complying With the Payment Advice Rule in Consumer Bankruptcy Cases

Posted on Thursday (September 30, 2010) at 8:00 pm to Bankruptcy Practice
Issues Involving New Bankruptcy Laws
Recent Bankruptcy Court Decisions
Suffolk Lawyer

Pay Stubs in Bankruptcy CasesBy Craig D. Robins, stuff Esq.
   
Recent Appellate Decision Says Filing All Pay Stubs May Not Be Necessary

 
We all know that under the new bankruptcy laws, debtors are required to file copies of all pay stubs for income received during the 60-day period prior to filing.
 
To put teeth into this requirement, the law further provides that failure to do so will result in the automatic dismissal of the bankruptcy case – a scary thought.  What happens if a debtor files just one pay stub, but otherwise documents the payments they received?
 
The Second Circuit Court of Appeals just decided a case last month, on August 9, 2010.  It held that debtors do not need to file all of their pre-petition payment advices if they otherwise document all payment received from employers during the 60-day pre-petition period. 
 
This case addressed for the first time in our circuit what obligations the Bankruptcy Code imposes upon a debtor with respect to the filing of payments advices. The bottom line is that debtors merely need to provide the necessary information on payments as opposed to the actual pay stubs themselves.
 
The Pay Stub Requirement in Chapter 7 and Chapter 13 Bankruptcy Filings
 
When Congress revised the bankruptcy laws in 2005, it imposed a new requirement under Bankruptcy Code section 521(a)(1)(B)(iv) that debtors provide written verification of their current income by filing “copies of all payment advices or other evidence of payment received within 60 days before the date of the filing of the petition, by the debtor from any employer of the debtor.”  Payment advices are typically pay stubs.
 
Bankruptcy Rule 1007(c) requires debtors to fulfill this requirement within 14 days after filing the petition.   However, if the debtor fails to file the payment advices within 45 days of the filing date, then Code section 521(i)(1) provides for automatic dismissal. 
 
Bankruptcy counsel typically file pay stubs with the bankruptcy court by ECF, and send copies to the trustee, at the same time the petition is filed or shortly thereafter.
 
The Recent Riffle Case
 
Stephen Riffle and his wife filed a routine Chapter 13 case in the Western District of New York in 2008.  His attorney only filed the debtor’s last pay stub during the 60-day pre-petition period because that was the only pay stub that the debtor retained.
 
The pay stub contained the debtor’s earnings and deductions for the pay period and also stated the debtor’s year-to-date earning and payroll deductions in various categories.
In addition to filing this one pay-stub, the debtor also filed a chart entitled “Sales Earnings Report,” which had been issued by the debtor’s employer and showed the debtor’s gross earnings for each pay period from the beginning of the year.  Debtor’s counsel believed that these two documents satisfactorily disposed of the payment advice requirement.
 
However, an aggressive creditor, Community Bank, disagreed, and after 45 days filed a motion asking the bankruptcy court to confirm that the case was dismissed for non-compliance with the statute.  The Chapter 13 trustee opposed the dismissal, arguing that the two documents that the debtor filed represented full compliance with the statutory requirement.
 
The bankruptcy court agreed with the debtor and trustee; the District Court affirmed, and so did the Second Circuit.  Community Bank v. Riffle (In re Riffle), no. 08-4440-bk (2d Cir. 08/09/10).
 
 
The Relatively-New BAPCPA Statute that Provides for Filing Payment Advices Is Very Poorly Worded
 
The Court of Appeals noted that it had not previously decided what obligations 521(a)(1)(B)(iv) imposes upon a debtor and further stated that “the statute, to put it mildly, is not a model of syntactical clarity. At least two grammatically valid readings of the statute are possible, each of which would place a different requirement on the debtor.”
 
The Court determined that the statute was ambiguous and provided an analysis in which it dissected clauses and words, explored different grammatical meanings, discussed how certain words modified other words, and focused on how interpreting one participle could lead to two different grammatical conclusions – both of which would be technically correct.
 
“Other Evidence” of Payment is Acceptable 
 
In the end, the Court chose “the payment-focused interpretation” over a “document-focused interpretation” and held that the statute requires a debtor to file either all payment advices received within 60 days pre-petition – or –  other evidence of payment received during this period.
 
“Although neither reading is perfectly satisfying, we conclude that the payment-focused interpretation is superior,” the Court said.
 
The Court commented that the documents that the debtor filed “created a very clear picture as to the amount of income the debtor received in the 60 days pre-petition” and thus met his obligation under the statute.
 
What this Case Means to Long Island Bankruptcy Practitioners
 
The Second Circuit clearly indicated its desire to follow a more liberal, practical-sense approach in its interpretation of the statute.  Basically, as long as a debtor provides all of the relevant information regarding payment received during the relevant period, as opposed to the actual “pieces of paper” the debtor received (pay stubs), then the debtor has complied with his statutory requirements.
 
Income Breakdown Not Required
 
The Court also commented that the Bankruptcy Code does not require a breakdown of gross and net income on a per-pay period basis.  However, a debtor must identify monthly net income.
 
Practical Tip:  What Do You Do If the Debtor Has Not Received Any Payment Advices During the 60-day Period?
 
When there are no payment advices, then there is nothing to file.  However, the bankruptcy court clerk’s office does not know that there is no documentation, so it is prudent to prepare an affidavit for the debtor to sign indicating this fact, and file this “Affidavit in Lieu of Payment Advices” the same way you would ordinarily file the pay stubs.
 
Practical Tip: Have Debtor Request Info from Employer
 
Debtors often do a poor job of retaining papers, and frequently discard or misplace pay stubs.  If a debtor has discarded or misplaced his pay stubs, then most employers will be able to print a report containing the same information, that should provide all of the necessary details to comply with the statute.
  
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 SEPTEMBER 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 Mastic, Patchogue, Commack, West Babylon, Coram, 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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Report from NACBA 2010 Annual Bankruptcy Convention

Posted on Wednesday (May 26, 2010) at 11:45 pm to Bankruptcy Means Test
Bankruptcy Practice
Chapter 13 Bankruptcy
Chapter 7 Bankruptcy
Current Events
Foreclosure Defense
Issues Involving New Bankruptcy Laws
Lawyer to Lawyer
Suffolk Lawyer

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Written by Craig D. Robins, link Esq.

  

I am currently in San Francisco where I just attended the annual convention of the National Association of Consumer Bankruptcy Attorneys (NACBA).  I write this report from there on May 1, viagra 40mg 2010.
 
[Note:  this article was previously published in the May 2010 edition of the Suffolk Lawyer].
 
[I will soon post a number of photos that I took at the NACBA convention}
  
Many years ago I discovered how exciting it is to travel across the country to interact with fellow bankruptcy practitioners and learn the latest about strategies for protecting consumer bankruptcy debtors, and tips for running a bankruptcy law office.
 
Over the course of three days, some of the country’s leading bankruptcy attorneys as well as a number of bankruptcy judges, provide valuable insight at daily programs and seminars.
 
What I find just as important is trading notes and war stories with other bankruptcy attorneys from across the country and learning about new products and services at the accompanying trade show.
  
  
Here Are Some Highlights of the Bankruptcy Convention
 
 
New Trend in Interpreting the Means Test
 
In a half-day program which addressed the means test, the speakers concluded that both the United States Trustee and our country’s bankruptcy judges have become more lenient in interpreting the means test in Chapter 7 cases.  There are three reasons for this trend.
 
Apparently, the current recessionary climate and sentiment against large banking institutions is resulting in the U.S. Trustee bringing fewer Section 707 motions alleging that the debtor filed an abusive case. 
 
In addition, more and more debtors are providing information to the U.S. Trustee’s office in cases where there are means test issues.  This enables the U.S. Trustee to evaluate the issue of abuse and reach a conclusion that the U.S. Trustee should not object.
  
Finally, there seems to be a greater number of experienced bankruptcy attorneys who know what red flags to look out for and consequently these experienced attorneys refrain from filing abusive cases.
 
Wide-Spread Concern Over Bankruptcy Judge Salaries
 
Judicial salaries are relatively low.  It appears that we are losing a large number of bankruptcy judges because the level of judicial pay is so low.  When there is a vacancy on the bench, this causes the bankruptcy court’s entire case load to slow down, which means unhappiness and dissatisfaction to litigants and all others involved.
 
This was indeed the case just two three years ago here, in the Eastern District of New York.  Our Chief Bankruptcy Judge for the district, Hon. Melanie L. Cyganowski, left the bench to pursue a much more profitable position as a partner in a leading bankruptcy firm. 
 
I interviewed Judge Cyganowski at that time and she clearly indicated that her reason for leaving the bench was because of her unreasonably low judicial salary.  See:  Chief Bankruptcy Judge Melanie Cyganowski Stepping Down.
 
HAMP Bankruptcy Update
 
There was ample discussion about President Obama’s Home Affordable Modification Program (HAMP) which seems to be rife with problems as an unusually small percentage of homeowners actually get permanent relief.
Here’s why: 
 
a) there is a major lack of communication on the part of the lender;
 
b) lenders are continuing to threaten homeowners with foreclosure even as the lender is evaluating the homeowner for a modification, and even if the homeowner has been approved for a trial term; and
 
c) lenders are arbitrary in granting relief.
 
On a positive note, however, a new law is going into effect on June 1, 2010 that, among other things, makes it illegal for a lender to discriminate against a bankruptcy debtor because he or she is in the HAMP program. 
 
The new law will also provide certain protections to Chapter 13 debtors as mortgagees will be precluded from objecting to discharge.
 
Lower Prices for Credit Counseling
 
When the 2005 Bankruptcy Amendment Act first went into effect in 2005, there were only four approved credit counseling agencies in our jurisdiction (E.D.N.Y.), and they all charged the same rate – $50 per credit counseling session.
  
There must have been about 20 credit counseling companies exhibiting at the trade show and many now charge fees as low as $15 per session. 
 
In addition, they gave out so much shwag that my ten-year-old son, Max, will be delighted to receive from me upon my return a large number of squeeze toys, flashlights, keychains, fancy chocolates, playing cards, puzzles, T-shirts and what-not that I picked up from these exhibitors.
              
My hard-working office staff will also be the recipient of a good deal of this booty.
 
Emerging Technologies for Consumer Bankruptcy Practices
 
One of the most crowded exhibitor booths belonged to a OTB, an company that created BK Express, a comprehensive practice management system which is designed for consumer bankruptcy attorneys.
 
I actually just set up my office to use this software which is basically a special shell designed to work on top of LexisNexis’s Time Matters system. 
 
Problems with MERS Mortgages and Foreclosure Defenses
 
In a very dynamic session, we were told that 50% of all residential mortgages in this country are nominally owned by MERS, which is Mortgage Electronic Registration Systems, a privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States.
  
The problem with MERS-recorded mortgages is that MERS really does not own the mortgage, thereby creating an interesting argument that MERS does not have any standing in bankruptcy court. 
 
I previously wrote about special defenses that a homeowner can assert to defend a foreclosure action involving a MERS mortgage.  See:  A New Powerful Mortgage Foreclosure Defense — Compliments of MERS.
  
If your client has a MERS mortgage, consider looking at the pooling and service agreement to make sure that there was a true and valid assignment at every link of the chain, including delivery and acceptance of assignment documents.  If there was not, you may have a good objection to a MERS proof of claim or motion to lift the stay.
 
Few Bankruptcy Attorneys From New York
 
I was rather surprised the very small turn-out from our state.  Out of about 1,600 bankruptcy attorneys who attended the convention, there must have been fewer than 20 from New York, and only one other member, I believe, from the Suffolk County Bar Association.  That was Allison Shields, who was actually one of the speakers – she spoke on managing a successful bankruptcy practice.
 
 
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New Bankruptcy Laws May Have Caused Mortgage Meltdown

Posted on Wednesday (May 12, 2010) at 8:00 pm to Bankruptcy and Society
Issues Involving New Bankruptcy Laws
Mortgages & Sub-Prime Mortgage Meltdown

Bankruptcy Amendment Act may have contributed to mortgage meltdown and housing crisisWritten by Craig D. Robins, treatment Esq.
 
Three economists recently concluded that the Bankruptcy Reform Act of 2005 was a significant cause of the mortgage crisis and current recession because it had the effect of greatly increasing mortgage delinquencies.
 
The economists suggested that the new bankruptcy laws, frequently referred to as BAPCPA, “squeezed homeowners’ budgets by raising the cost of filing for bankruptcy and reducing the amount of debt discharged in bankruptcy.  It therefore increaased mortgage default by closing off a popular procedure that previously helped financially distressed homeowners save their homes.”
 
The increase in mortgage default rates were certainly an unintended consequence of bankruptcy reform.  However, this smacks of a situation of be-careful-what-you-wish-for, as lobbying efforts by the banking industry were the main reason why Congress agreed to change the laws.
 
The report by the economists was published by the National Bureau of Economic Research.  The three respected economists consisted of Wenli Li of the Federal Reserve Bank of Philadelphia, Michelle J. White of the University of California at San Diego and Ning Zhu of the Graduate School of Management at the University of California, Davis.
 
How Did Bankruptcy Reform Lead to the Mortgage Crisis?
 
The economists theorized that the new bankruptcy laws made it more difficult for homeowners to avail themselves of bankruptcy to save their homes.
 
They concluded that BAPCPA was a factor in an additional 159,000 mortgage defaults a year.
 
In addition, they concluded that the bankruptcy means test created difficulty for some homeowners, making them unable to file for Chapter 13 relief.  They believed that this  contributed to an additional 36,000 defaults per year.
 
Bankruptcy Relief Is Still Available for Most Long Islanders
 
Despite these conclusions, the great majority of clients that we meet with in our Long Island bankruptcy law offices are able to utilize bankruptcy to get relief from their debts and address foreclosure issues.
 
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I Can Now Legally Advise My Long Island Bankruptcy Clients to Incur Debt in Contemplation of Bankruptcy

Posted on Monday (March 8, 2010) at 8:45 pm to Bankruptcy and Society
Bankruptcy Practice
Issues Involving New Bankruptcy Laws
Photographs of Max
Recent Bankruptcy Court Decisions

Long Island Bankruptcy Attorneys can now advise clients to incur debt in contemplation of bankruptcyWritten 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
 
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Serial Bankruptcy Filers Eventually Get the Ax

Posted on Monday (February 1, 2010) at 1:00 am to Bankruptcy Procedure
Chapter 13 Bankruptcy
Foreclosure Defense
Issues Involving New Bankruptcy Laws
Recent Bankruptcy Court Decisions
Suffolk Lawyer

 Filing multiple Chapter 13 bankruptcy cases to stop foreclosureWritten by Craig D. Robins, search Esq.
 
 
Some debtors like bankruptcy so much, they come back for more, and more, and even more. . .  sometimes using multiple bankruptcy filings to delay foreclosure proceedings for years.  But when is enough, enough?
  

What Can Mortgagees and the Bankruptcy Court Do in Situations Involving Extreme Serial Filings?

In the past three months, Judge Alan S. Trust, sitting in the Central Islip Bankruptcy Court on Long Island, addressed this issue in several cases.  The most recent one caught my eye based on the incredible number of related bankruptcy filings, as well as the unbelievable amount of time the debtors were able to thwart the system and delay foreclosure.

Serial Filings in Bankruptcy Cases

Some debtors file successive Chapter 13 petitions because each time they file, they get the benefit of the stay, which stops a foreclosure proceeding dead in its tracks.
 
Technically, Bankruptcy Code section 109(e) prohibits a debtor from refiling another case for 180 days, if the prior case was dismissed because the debtor neglected to make necessary payments or maintain other debtor responsibilities.

However the bankruptcy court has become rather liberal in permitting debtors to engage in repeated filings and will typically give the debtor the benefit of the doubt as long as the debtor can demonstrate a change of circumstances.

Nevertheless, some debtors clearly take advantage of the system, and by their sheer audacity (and desperation), give bankruptcy a bad name for those who file in good faith.  The vast majority of bad faith serial filings are done by pro se debtors.

Any experienced bankruptcy attorney knows that judges will not hesitate to sanction counsel for filing a case in bad faith.  The law is very clear that a case cannot be filed for the sole purpose of delay, without any good faith intent to follow through with a Chapter 13 plan.
 

Bankruptcy Amendment Act Made Serial Filings More Difficult

 
When Congress overhauled the bankruptcy laws in 2005 (BAPCPA), it imposed several new provisions designed to stop the problem of bad faith serial filers.  I wrote about some of these changes in my Suffolk Lawyer column in November 2005:  Consumer Bankruptcy Debtors Face New Limitations for Repeat Filings .
 
In particular, there are new exceptions to the automatic stay.  For example, if a debtor had one pending bankruptcy case in the preceding year, then the automatic stay only lasts 30 days, effectively shifting the burden to the debtor to make an application to extend the stay.  If there was more than one filing in the prior year, then the debtor is not entitled to any automatic stay at the time of filing.
 
Even with these provisions, debtors soon learned to game the system.  After one spouse’s bankruptcy was dismissed, the other spouse would then file, and then this “tag team” filing approach would go on for years.  Although this conduct was nothing new, Congress addressed this problem too, with an “in rem” provision in BAPCPA.
         
Debtors Filed 10 Cases to Delay Foreclosure
 
On December 21, 2009, Judge Trust issued companion decisions in two separate, but related cases, outlining the excessive measures taken by two Long Island debtors who filed a total of ten bankruptcy petitions over a 12-year period to stop foreclosure on their jointly-owned home.  In re Janet Blair (Case No. 09-76150-ast) and In re Allen Gary Smith (Case No. 09-77562-ast).
 
The decision was precipitated by a motion brought by the mortgagee, seeking “in rem” relief against the premises.  Most of these filings were Chapter 13 cases filed over a four-year period between 2005 and 2009.  Almost all of them were filed on the eve of a scheduled foreclosure sale.
 
In Rem” Relief in Bankruptcy Proceedings Stops Foreclosure Delaying Tactics
 
In rem” relief is when the bankruptcy court grants an order indicating that a particular piece of property will not be affected by any future bankruptcy stays, effectively eliminating any benefit of the “tag-team” filing approach.  “In rem” originates from the Latin phrase for a lawsuit directed against property, rather than a person.
 
In the Blair / Smith cases, the judge immediately lifted the stay and subsequently granted in rem relief, stating that the serial filings were evidence of the debtors’ bad faith, and also evidence of the fact that the debtors were abusing the bankruptcy process for several years.
 
Statutory Authority for In Rem Relief.  In his decision, Judge Trust, delivered a well-written and detailed analysis behind the statutory authority providing for in rem relief.  In doing so, the judge essentially reiterated his holding in a two-month-old similar decision, which has since been published.  In re Montalvo (416 B.R. 381).
 
One of BAPCPA’s amendments was the addition of Section 362(d)(4) which provides the statutory authority to grant in rem relief.  Pursuant to Section 362(d)(4), the Court can grant in rem relief from the stay as to a mortagee’s interest in the property, such that any and all future filings by any person or entity with an interest in the property will not operate as an automatic stay against the owner and its successors and/or assigns for a period of two years after the date of the entry of such an order.
 
To obtain this relief, the mortgagee bears the burden of showing that the various petitions filed by debtors are part of a scheme to hinder, delay and defraud the mortgagee.
 
A key issue in such cases is whether the court can infer an intent to hinder, delay and defraud creditors when it appears that there have been multiple, strategically timed bankruptcy filings.  Judge Trust took the established view that holds that the mere timing and filing of several bankruptcy cases is an adequate basis from which a court can draw a permissible inference.
  
However, Judge Trust also observed that the debtors demonstrated no intent to make the bankruptcy work.  They did not make plan payments, show up in court, or provide the trustee with required documents.
 

Standard of Proof in In Rem Litigation

 
Judge Robert E. Grossman also addressed this issue just over a year ago, and wrote about the standard of proof necessary to obtain in rem relief.  In re Lemma (394 B.B. 315 (Bank.E.D.N.Y. 2008).
 
In that case, which involved a third Chapter 13 filing (with debtor representation by my friend, Babylon bankruptcy attorney Michael A. Kinzer), the judge concluded that the mortgagee was not entitled to in rem relief (and not even entitled to dismiss the case).
  
The reason why Judge Grossman denied the mortgagee’s application was because the mortgagee, as the party seeking in rem relief, had the burden of proving that the current filing was part of a scheme; that the scheme involved the transfer of real property, or multiple bankruptcy filings; and that the object of the scheme was to hinder, delay and defraud the mortgagee.
 
The mortgagee in that case was unable to provide the court with any evidence  other than the fact that the debtors filed three petitions.
 
Thus, multiple filings, alone, are not adequate to find intent to hinder, delay and defraud.
 
 
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 January 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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Options If You Fail the Bankruptcy Means Test

Posted on Monday (December 21, 2009) at 1:30 am to Bankruptcy Means Test
Bankruptcy Tips Consumers Should Know
Chapter 13 Bankruptcy
Chapter 7 Bankruptcy
Issues Involving New Bankruptcy Laws

If you don't pass the bankruptcy means test, there are still options available to youWritten by Craig D. Robins, Esq.
 
Most clients who we represent do indeed pass the means test in Chapter 7 bankruptcy cases.  I would say that at least seven out of eight people who desire to file for Chapter 7 bankruptcy on Long Island are eligible to do so because they pass the means test.
 
The means test is a formula and bunch of calculations designed to ascertain whether someone has too much income to be eligible to file for Chapter 7 bankruptcy.  The Means Test is Often the Key to a Successful Chapter 7 Bankruptcy Case.
 
So What Are Your Options If You Do Not Pass the Means Test, and You Hope to File for Chapter 7 Bankruptcy? 
 
Fortunately, there are several possibilities, and disposing of debt through a bankruptcy proceeding usually remains an option in one form or another.
 
Waiting to Become Eligible for the Bankruptcy Means Test Later
 
Sometimes, someone does not pass the means test because they received a large amount of money in the prior six-month means test period.  The means test requires that you include all income that you received in the six full-calendar month period prior to filing.  (You don’t include income that you received in the month that you file).
 
The most common example of a large amount of non-recurring income is a tax refund.  Suppose you received the tax refund in May.  Then you must count the tax refund in the means test calculation as long if you file your petition between June and November of that year.  If you have to include the tax refund, it will have the effect of artificially boosting your income for that period.
 
However, if you just wait until December or later, then you will not have to include the tax refund as part of the six-month income for the means test calculation.
 
There are other reasons why waiting to file bankruptcy can help.  Some people previously earned a larger amount of income several months ago, but no longer have the ability to earn at the same level for various reasons.  
 
It might be that they were laid off (or their spouse was laid off); or they can no longer earn overtime; or their income will be reduced for other reasons like a new job that doesn’t pay as much.
 
In such instances, waiting a few months can mean the difference between passing the bankruptcy means test or not.
 
Engaging in Financial Transactions That May Make You Eligible Under the Bankruptcy Means Test
 
An experienced bankruptcy attorney is also familiar with all of the intricacies of the means test, and can often recommend other possible ways that may enable a consumer to become eligible. 
 
For example, there is currently an issue as to whether an attorney can recommend to a client that he or she incur debt in contemplation of filing for bankruptcy (This issue is actually before the United States Supreme Court right now). 
 
In any event, if a debtor obtains a new car loan or lease just before filing, the amount of the new monthly car payment can be included as a means test deduction, and this can possibly make the difference between passing the means test or not.
 
This is just one of several financial transactions that one can do that may make have the effect of qualifying you for Chapter 7 bankruptcy filing under the means test.  A good bankruptcy attorney may also suggest other possibilities.
 
Filing Chapter 13 Bankruptcy Instead of Chapter 7 Bankruptcy
 
Most people who do not qualify for a Chapter 7 bankruptcy filing because they did not pass the means test can still file for Chapter 13.
 
If they do, they still get immediate debt relief through the same automatic bankruptcy stay that stops all creditor action in Chapter 7 cases.  However, they will have to pay something to their creditors, usually over a five-year period of time.  This is done by making monthly payments to a Chapter 13 trustee.
 
The good news, though, is that frequently, the amount paid back is a small fraction of the amount owed — sometimes as little as ten percent.
 
When No Bankruptcy Offers a Feasible Solution, Debt Settlement Can Be the Answer
 
Very few of our clients who desire to file bankruptcy do not qualify for one chapter or another.  However, there is always an option for those who can’t file bankruptcy or do not want to file.  That is debt settlement.
 
Debt settlement, which is not to be confused with debt consolidation, is when we negotiate settlements with the credit card companies (or their collection attorneys), often for less than 50%, and frequently for as little as 25%.
 
Doing so, however, requires the ability to fund lump-sum settlements, as the best credit card settlements are only available when the settlement amount is paid in full.
 
No One Ever Said that the Means Test in Bankruptcy Was Fair
 
To the contrary, the means test was the most controversial aspect of bankruptcy reform when the laws were changed about four years ago. 
 
The means test tends to actually reward those with significant secured debt by making it easier to qualify for Chapter 7 filing.  Thus, if you have a high mortgage and several car loans or car leases, it is easier to pass the means test and be eligible to file for Chapter 7 bankruptcy.
 
An Experienced Long Island Bankruptcy Attorney Can Evaluate Your Means Test Eligibility
 
The means test is rather complex and complicated.  Retaining an experience bankruptcy attorney is your best way to ascertain whether you qualify for Chapter 7 bankruptcy filing, and if not, to learn what your other options are.
  
 
To see a bunch of other posts that I’ve written about the means test, please click :  Information about the bankruptcy means test.
 
 
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Bankruptcy Attorney Representation — How Important Is It?

Posted on Tuesday (November 17, 2009) at 1:30 am to Chapter 7 Bankruptcy
Consumer Advice
Issues Involving New Bankruptcy Laws

When it comes to filing bankruptcy in New York, using an experienced bankruptcy attorney is quite importantWritten by Craig D. Robins, Esq.
 
The two major reasons why people who know they need to file for bankruptcy, but put off doing so, is anxiety about filing, and concern about paying the legal fees.
 
Some consumers consider filing themselves.  However, this can be a major mistake and create additional problems.  Here’s why:
 
In every bankruptcy case, the debtor must appear before a court-appointed trustee.  The trustee is not your friend.  To the contrary, the essential purpose of the trustee is to investigate the debtor and determine if there are any assets that can be taken for the benefit of creditors.  Meeting with an experienced bankruptcy attorney will enable the debtor to have his or her assets reviewed.
 
What many debtors do not realize is that certain conduct that may have occurred years before filing can have a major impact.  For example, giving away assets or transferring an interest in real estate can result in significant litigation in the bankruptcy case.  Such matters are regularly reviewed by bankruptcy counsel before a bankruptcy petition is filed.  There are many reasons Why Consumer Debtors Can’t Transfer Assets Like a House or Car Before Filing Bankruptcy on Long Island .
 
The bankruptcy petition is written in plain English, so one would think that it is quite readable.  However, a fully-completed petition in a Chapter 7 bankruptcy in New York, when including all of the various forms and schedules, can easily exceed 40 pages.  The petition requires preparing numerous schedules and budgets.  Proper information about debts and assets must be listed.  Not necessarily an easy task. 
 
Then, there are several dozen questions in a Statement of Financial Affairs that must also be answered.  The creditors and their addresses must be listed not only ih a schedule of debts (that is broken into three separate categories) but also in a special format called a Matrix.
 
When Congress drastically overhauled the Bankruptcy Code in 2005, many new requirements were imposed.  Now there is a complex and complicated means test, as well as the requirement for mandatory credit counseling.  The Chapter 7 trustee as well as the Office of the U.S. Trustee reviews each and every petition to make sure all of the requirements under the new law are properly met.   I reviewed issues under the new bankruptcy laws in several posts.  Here’s one:  Bankruptcy Judges Convene to Discuss New Bankruptcy Laws on their One Year Anniversary .
 
In addition, the means test is very tricky.  Failure to properly prepare the bankruptcy means test can spell disaster as the United States Trustee can seek to have the bankruptcy case dismissed.  The Means Test is Often the Key to a Successful Chapter 7 Bankruptcy Case .
 
Another important aspect is Determining Household Size for the Means Test .  If the bankruptcy court determines that the debtor did not include the proper number of family or household members for the means test calculation, the means test eligibility can change, resulting in an abusive filing situation.
  
Consumers must also choose which Chapter 0f bankruptcy to file.  If a consumer is seeking to stop foreclosure and cure mortgage arrears, A Chapter 7 filing won’t do the trick. 
 
Of course, there are many books that explain how to do the process.  They are all several hundred pages long.  Yes, any American consumer can file their own bankruptcy petition.  However, there are so many traps for the unwary that even attorneys who do not regularly practice bankruptcy often get their clients into hot water.
 
A good bankruptcy attorney will also prepare the client for the meeting of creditors.  For example, How Much Should You Say at the Meeting of Creditors in Bankruptcy Court?
  
Every trustee I know on Long Island has expressed concern about those consumers who file bankruptcy without an attorney because these consumers often make serious mistakes with the procedure.   Many consumers who file on their own get bad advice from a friend or relative.  When it Comes to Bankruptcy, Don’t Listen to Uncle Joey .
 
Self-representation by pro-se debtors in bankruptcy matters can end up being penny-wise, but pound-foolish.  This is one of Three Reasons Why a Chapter 7 Bankruptcy Case Can Go Bad .
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Craig D. Robins, Esq. is a Long Island bankruptcy lawyer, who is focused primarily on helping individuals and families, find solutions to their debt problems. Read more »

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Craig D. Robins, Esq.
35 Pinelawn Road, Suite 218E, Melville, NY 11747.

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