Archive for May, 2009

by Dean Webber, Esq.

 

According to recent data, more homeowners than ever before are falling behind on their mortgage payments and more are falling into foreclosure than ever.

 

Of the approximately 45 million mortgages in the U.S., about 5.4 million are delinquent or in some stage of foreclosure – that is a staggering 12.07 percent, which is up from an 11.93 percent at the end of 2008.

 

What is even more troubling is that lenders are foreclosing more quickly than they had been recently, as special programs aimed at helping borrowers seem to be ending.

 

 

Further, there is information that shows that the number of defaults on prime, fixed-rate loans are starting to mount significantly, and that formerly good credit borrowers are the driving force behind this new, bigger wave of foreclosures.  This new wave seems to be caused by the very large number of unemployed people.  Job loss affects all levels of borrower – all the way up to excellent credit borrowers.

 

With all of this as a backdrop, it is more important than ever to learn your options by consulting with an experienced Long Island bankruptcy attorney, if you are a Long Island homeowner and you are falling behind on your mortgage.

 

Written by Craig D. Robins, Esq. and Ian Ribald
 
California’s Supreme Court decision this past week, upholding the ban against same-sex marriage in that state, has been very controversial.

 

Now that same-sex marriage is again headlining the news, some are questioning whether a same-sex married couple may file a joint personal bankruptcy petition.  Bankruptcy law provides that only a married couple may file a joint bankruptcy petition.

 

Currently, only Massachusetts, Connecticut, Iowa, Vermont (as of September 1, 2009) and Maine (as of September 14, 2009) have recognized same-sex marriage. This acknowledgment should allow a same-sex couple to file a joint bankruptcy petition with their spouse in these states only.

 

Can Gay Married Couples, Who Were Married in Another State, File Joint Bankruptcy Petitions in New York Bankruptcy Courts?
 
A major concern for many same-sex married couples is whether their marriage would be recognized by states that do not allow same sex marriage.  Can a same-sex married couple that was married in another state, and then moves to New York, file for joint bankruptcy relief in New York, or would the couple have to file individual bankruptcy petitions?

 

Pursuant to the Defense against Marriage Act, a state is not required to recognize a same-sex marriage in their state even though they were legitimately married in another state.   However, on May 29, 2008, New York Governor David Paterson issued a directive requiring that all state agencies recognize same-sex marriages performed in other jurisdictions.

 

As a result of Governor Paterson’s directive, New York became the first state that does not allow same-sex marriages, but whose state agencies recognize same-sex marriages performed elsewhere. 

 

Does that change things as far as a bankruptcy filing is concerned?

 

The fact that New York state agencies will recognize the marriage does not necessarily mean that a  federal bankruptcy court in New York will. 

 

Accordingly, there is currently an issue as to whether gay couples, who are New York residents, and who were married in other states, can file a joint personal bankruptcy in this state.  I would argue that they can because the federal law must defer to particular state law as far as recognizing the validity of a marriage.  However, this has not been tested here in New York as far as I know.

 

 

If you are New York same-sex couple, properly married in another state, that needs to file for Chapter 7  bankruptcy relief, I would consider representing you free, on a pro-bono basis, to test the waters and set a precedent. 

 

 

Yesterday, New York Attorney General Andrew Cuomo obtained a court order closing two bill collecting companies.  In addition, he subpoenaed 20 others as part of the New York state’s investigation of the debt-collection business.

 

Last month I wrote about Cuomo’s investigation into egregious activities perpetrated by the process service industry, which is integrally related to the collection industry.  See Attorney General Investigating Process Servers for Taking Illegal Shortcuts  and Long Island Process Serving Company Owner Arrested Today for “Sewer Service” .

The two debt collection companies that the attorney general shut down are Emanee Development Inc. and Dial Tech LLC, both from Buffalo.  In addition, he is seeking to have their principal, Lamont Cooper, make restitution.   These two debt collection agencies are now permanently barred from engaging in debt collection.

It was alleged that bill collectors at these companies lied to consumers, threatened them with arrest and sometimes scared them into paying debts they didn’t owe.  In addition, the debt collectors wrongly accused debtors of criminal activity, falsely threatened to file lawsuits, sought collections beyond New York’s six-year statute of limitations, and illegally discussed debts with consumers’ neighbors and relatives.

Consequently, some people who felt threatened or intimidated by these techniques sent payments.

Unfortunately, I frequently hear tales of similar conduct from my Long Island bankruptcy clients, even though such conduct is highly illegal and in violation of the federal Fair Debt Collection Practices Act, as well as other consumer protection laws.

In a press release, Cuomo stated “this judgment is the first step in this office’s expanding investigation into debt collectors that violate the rights of consumers and operate outside of the law.”

Last month, Cuomo also began pursuing fraudulent debt settlement companies that were also taking advantage of consumers.  See New York Commences Nationwide Investigation Into Debt Settlement Industry — Many Offers to Eliminate Credit Card Debt are False and Misleading and New York Attorney General Andrew Cuomo out to do justice against debt settlement companies who are ripping off the American public.

 From time to time I review the bankruptcy filings of other attorneys to get an idea of what kinds of cases are being filed and to also see what other attorneys are up to.

 

One case that was filed today really stood out because the means test indicated an annualized family income of $197,377 per year. 

 

Now I’ve filed a number of cases where the family income was between $100,00 per year and $150,000 per year.  However, I have never came across a Chapter 7 Long Island bankruptcy case where the family income was touching $200,000.

 

Many Long Island consumers have rather high incomes and still qualify for Chapter 7 under the new bankruptcy laws which impose a strict means test requirement.  See my previous post: If I Make Over $100,000 a Year, Can I Eliminate Credit Cards Debts in Bankruptcy?

 

 

Other interesting facts about this case are that the family size is relatively small – only three people, and the monthly mortgage payment is only $3,599.  What enabled this debtor to pass the means test is that only the wife filed for bankruptcy (her husband did not), and she claimed a “marital adjustment” for her non-filing spouse of $5,517.

 

It was also interesting that the debtor did not explain how the marital adjustment was being used.

 

Generally, a debtor’s non-filing spouse’s income must be included in the means test.  However, the Bankruptcy Code says that the debtor need only include this income to the extent to which it is contributed “on a regular basis for the household expenses of the debtor or the debtor’s dependents.”

 

Accordingly, for means test purposes, a debtor can deduct from the non-filing spouse’s income that sum which the non-filing spouse uses for herself or himself, and does not contribute to the family’s expenses.  This is called the “marital adjustment.”

 

 

However, one of the unsettled areas of law concerns what deductions are reasonable.  In this case that was filed today, the Office of the United States Trustee will certainly review the means test and the relatively-large marital adjustment with a fine-tooth comb and possibly raise objections.

 

My colleague, Long Island bankruptcy lawyer Joseph S. Maniscalco, Esq., of Wantagh, is representing the debtor, and my colleague, Richard L. Stern, Esq., is the Chapter 7 trustee.  Dorothy T. Eisenberg is the bankruptcy judge assigned to the case.

 

I will follow up on this case and keep you posted in a future blog post.

 

Anyone filing bankruptcy will wonder, “how does a bankruptcy trustee get compensated for the work that he does,” and “who pays the trustee.”

 

Chapter 7 bankruptcy trustees are compensated in several ways.

 

First, they receive a portion of the Chapter 7 filing fee that is paid to the court.  The filing fee is $299.  The trustee receives $60 of that.  Most cases are “no-asset” cases, meaning that the trustee will not seek to liquidate any assets.  In those cases, the only compensation the trustee will receive will be the $60.

 

In addition, if the bankruptcy trustee does liquidate an asset in the bankruptcy proceeding, the trustee will receive a “trustee commission” based on a sliding scale statutory formula which is set forth in Bankruptcy Code section 326.  The commission compensation is based on how much income the trustee brings into the bankruptcy estate.

 

According to the statutory bankruptcy commission formula, the Chapter 7 trustee will receive:

 

25% of the first $5,000;
10% of the next $45,000;
5% of the next $950,000; and
3% of the balance.

 

Finally, the trustee is entitled to be paid for any legal services that he performs in order to collect and liquidate assets.  Some trustees will hire other law firms to do this work, whereas other trustees will basically hire themselves.

 

A trustee cannot be paid a commission or legal fees unless he makes an application to the court and receives approval from the bankruptcy judge. Commissions and trustee legal fees are paid out of the funds raised by the trustee for the bankruptcy estate.

 

If a debtor in a Chapter 7 bankruptcy proceeding dies during the bankruptcy case, a number of questions are triggered.   Is the debtor’s estate now relieved from the debts listed in the bankruptcy petition? Does the debtor’s Chapter 7 bankruptcy case continue or merely die with him?  Lastly, what are the appropriate procedures that must be taken?
        
The death of a Chapter 7 debtor does not render the bankruptcy case moot; in fact, the case will continue as if the debtor had not died at all. The trustee of the debtor’s bankruptcy estate must continue to administer the case so that it can conclude  in the same or similar manner. 

 

Although the appropriate steps are neither explicitly provided by the Federal Rules of Bankruptcy Procedure or even set out in the Bankruptcy Code, a proper procedure is suggested.

 

The Bankruptcy Court may need to take remedial steps to administer the debtor’s estate or even appoint a guardian for the estate. A deceased debtor may have a personal representative from his probate estate continue the case. That personal representative may appear at the meeting of creditors.  A deceased debtor may also still be entitled to exemptions or even a discharge.

 

Yesterday I reported that the Senate overwhelming supported a new bill to overhaul anti-consumer credit card billing practices. (Credit Card Reform Is Around the Corner ). 

 

This afternoon, the House gave final approval to its bill which provides a new set of rules for credit card companies as Congress is racing to send President Obama the new legislation before the Memorial Day recess.

 

The support in the House (361-to-64) was almost as overwhelming as the Senate (90-to-5) which reflected the public anger over the abusive practices of credit card companies and banks which include sudden and unexplained interest rate increases and indecipherable terms.

Some House Republicans threw in a totally extraneous provision that would allow visitors to national parks and wildlife refuges to have loaded guns in those facilities if they were otherwise allowed to have the weapons.

Throwing in this measure, which has absolutely nothing to do with credit cards or consumer protection, is nothing less than a dirty trick to take advantage of popular legislation that the President is likely to sign.

“This is a dumb amendment, and Congress should be embarrassed that we have to vote on it,” said Representative Sam Farr, Democrat of California, about the gun provision.

In any event, it is likely the president will sign the credit reform law within the next few days.

 

If someone does not pay his or her debts, then it is usually just a question of time before the creditor brings a collection law suit.  If the law suit is successful, then the court will grant the creditor a “judgment”. 

 

This is simply the official court decision indicating that the issues in the lawsuit were resolved.  Judgments typically state a specific dollar amount that the person being sued must pay to the party who filed the suit.

 

As Long Island bankruptcy attorneys, we often see clients who have judgments from credit card companies.  If someone does not pay their credit card bill, then they will usually be sued.

 

 

Judgments can usually be eliminated in bankruptcy proceedings.   Judgments on credit card accounts are dischargeable.  Judgments for medical debt, utility service and back rent can also be eliminated with bankruptcy.  However, judgments for the payment of child support or delinquent income taxes cannot be eliminated by bankruptcy.

 

 

Since judgments are public records, they can be reported on a credit report by each of the three main credit bureaus.  If you eliminate a judgment in bankruptcy, the judgment can still be reported since it is still a public record, although the credit reporting agency must indicate that the judgment was resolved through bankruptcy.  This is one reason why it is advantageous to file for bankruptcy before a creditor can obtain a judgment.

 

 

A creditor can use a judgment to enforce the debt.  The creditor can garnish wages, freeze a bank account, and place a judgment lien on real estate.  Any bankruptcy filing will automatically stop the enforcement of a judgment.