Archive for March, 2010

In my regular monthly column in the Suffolk Lawyer last month I discussed the difficulties that Congress created by enacting a means test statute that is poorly worded and confusing.  (Deciphering the Plethora of Means Test Cases Across Many Bankruptcy Courts).

  

In this month’s column I will highlight some recent bankruptcy court decisions that shed light on interpreting what is “income” for means test purposes when a debtor receives bonuses, teachers’ salaries or unemployment insurance benefits.

  
Countering the Lopsided Results of the Means Test

 

The purpose of the means test is to create a projection of the debtor’s net income and expenses for a period of three to five years after the filing date to see if the debtor would have sufficient surplus funds to make some kind of payment to creditors.  In doing so, the starting point is to ascertain what the debtor’s income was during the six-full-month pre-petition calendar period.

  

 When you only look at a six-month period to project the next three to five years of income, you often get a lopsided result.  For example, if the debtor received a bonus in the prior half-year, his means test would effectively double this income because the means test would assume that the bonus would be paid every six months. 

  

Conversely, if the debtor waited more than six months after receiving the bonus, the debtor would not even have to count the bonus as income.

 

Because of this uneven result, bankruptcy attorneys would often have to engage in a strategy of timing the filing.  However, it seems that some bankruptcy courts are becoming more logical in their approach to analyzing the statute to provide a more balanced result for all parties.

   

 

A recent case from Virginia looked at a debtor who received an annual bonus in the six-month pre-petition means test period.  The court held that the bonus should be pro-rated over a 12-month period to determine the amount necessary to calculate the debtor’s “current monthly income.”  In re Meade, —— B.R. ——, 2009 WL 4456211 (Bankr. W.D. Va., Nov. 13, 2009).

 

The court concluded that the language “average monthly income,” which is found in Bankruptcy Code section 101(10A)(A) is susceptible to two interpretations.  One of them is the mechanical example I gave above, which can result in either a harsh result to the debtor or a windfall. 

   
However, the court adopted a different, more realistic “common sense” interpretation, which the court said was more in keeping with what appeared to be the overarching purpose of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, namely, to require debtors to make meaningful payments to their creditors if they have the funds to do so.

   

The court felt that Congress intended for there to be some connection between the compensation received and the period of time in which the applicable services for such compensation were rendered.

   

   

The Meade case also addressed the wife’s income, who, as a public school teacher, received her annual salary over a ten-month period.

   

Here the court took a totally different approach by refusing to pro-rate the wife’s  income.  The court said that this situation was well within the framework provided by Congress of looking to the income actually received during the six month period prior to bankruptcy as the best measure of a debtor’s ability to pay creditors.

   

   

The means test enables a debtor to exclude from income unemployment benefits that are received under the Social Security Act.  A recent Illinois case held that unemployment benefits should not be included in this exception to income, and should thus be treated as income for the means test.  In re Kucharz, 418 B.R. 635 (Bankr. C.D. Ill., Oct. 28, 2009).

   

To complicate matters, the court, after provided a highly detailed history of unemployment benefits in this country, cited two cases from 2007 that held to the contrary. 

   

However, the court concluded that unemployment benefits are designed to replace wages, and since wages must be reported on the means test, then so to must unemployment benefits be reported.  The court also highlighted the aim of the means test, which is to include income from all possible sources.

   

 

Written by Craig D. Robins, Esq.
 
Steven J. Baum, P.C. is a foreclosure Factory.  It is Long Island’s largest foreclosing law firm.

 

If you live in New York, and you are in foreclosure, then there is a very high chance that the foreclosure law firm suing you is Steven J. Baum, P.C., located in Buffalo, New York.
 
Over the past several years, the Baum law firm has become one of the largest foreclosure factories in the country, representing dozens of banks in foreclosure cases.
 
Last year they filed a staggering 12,551 foreclosure lawsuits, which comes out to about 50 a day.  Many of the foreclosure cases we defend for our Long Island clients were brought by Steven J. Baum, P.C.
 
More Foreclosure Cases Mean More Complaints
 
It seems that as foreclosure firms expand and become literal foreclosure factories, they tend to do sloppy work and make frequent mistakes.
 
There have been a multitude of complaints against the Baum law firm.  Here are some complaints as revealed in a recent New York Post article:
 
Failing to Divulge Mortgage Payments
 
Blanca Garcia filed for bankruptcy In the White Plains Bankruptcy Court.  Baum’s firm filed papers claiming Garcia was in arrears.  However, Garcia demonstrated that she actually made payments and showed the court her receipts which had not been credited to her account.  Even though Garcia’s bankruptcy attorney provided this proof of payment, Baum’s firm still ignored the receipts and sent an attorney to bankruptcy court to argue that the mortgage was in arrears.
 
Creating Questionable Assignments

 

I’ve written extensively about mortgage companies that bring foreclosure proceedings when then they do not have proper legal standing to do so.  See Many New York Foreclosure Suits Are Dismissed Because They Are Defective.  Here, the Baum firm has brought numerous actions when their mortgage clients failed to have proper legal standing.    See also:  Mortgage Companies Entitlement to Bring Foreclosure Proceedings: Prove It or Lose It .
 
Judge Jeffrey Arlen Spinner, sitting in Suffolk County judge took it upon himself to investigate a filing by Baum’s firm when it attempted to foreclose on the home of Gloria E. Marsh. “A careful review,” the judge wrote in a four-page order, “reveals a number of glaring discrepancies and unexplained issues of substance.”
 
Judge Spinner determined that the Baum law firm filed the action before the date it claimed its client took ownership of the mortgage  To see a copy of the decision, click:  GMAC Mortgage v. Marsh — Decision of Judge Spinner Denying Order of Reference.

 

For another highly publicized decision written by Judge Spinner, see:   Judge Cancels Mortgage Due to Mortgagee’s Shocking Behavior in Long Island Foreclosure Action.

 

 

In the bankruptcy of Matthew Austin, Baum’s firm tried to prove that its client owned the mortgage to Austin’s house by filing an assignment of that mortgage from a Florida company signed by an executive of that company — but it was notarized in Buffalo, NY.

 

“To the extent assignor flew to upstate New York to appear before a notary in the law offices of Steven J. Baum, PC, defies all logic,” the lawyer said in court papers. “Clearly this is a manufactured document intended to defraud the Court.”

 

 

Earlier this year, a New York Bankruptcy Court judge said he has “probably cause” to believe that lawyers for the Baum law firm acted inappropriately.

 

 

In assisting clients with Long Island mortgage foreclosure defense, we routinely come across situations where the paperwork submitted by the foreclosing bank is not in order.

 

However homeowners have rights afforded by the law.  A bank cannot foreclose unless they do it the right way and all of their papers were prepared properly.  If they are not, then the homeowner has a meritorious defense to the foreclosure action.

 

Even if the bank eventually corrects the problems, a homeowner can usually add many additional months or years to the time that they can stay in their home.  It therefore pays to meet with an experienced Long Island foreclosure defense attorney.

 

 

Mr. Baum, only 41 years old, took over his father’s sleepy Buffalo law practice several years ago, moved it to Amherst, New York, and then super-sized it with a 500 employees — truly making it into a factory.

 

He also started his own legal document processing company — Pillar Processing.

 

 

The list goes on and on.  Bank of America, Chase, Wells Fargo, HSBC, US Bank, GMAC Mortgage, Deutsche Bank, Sovereign Bank, Citibank, OneWest, M&T Bank, Bank of New York Mellon, to name just a dozen, according to court records.

 

 

Steven J. Baum’s law firm filed 12,551 foreclosure actions in the New York area last year.

 

Long Island
Nassau 2,210
Suffolk 3,083

 

New York City Boroughs
Queens 2,231
Brooklyn 1,592
Staten Island 692
Bronx 678
Manhattan 119

 

Upstate Suburbs
Westchester 796
Rockland 444
Orange 706
  

Totals: 12,551 or 241/week or 48/day

 

That’s a lot of foreclosures!

 

 

At midnight, most people are getting ready for bed and watching Letterman.  But sometimes not me.  You see, it’s not all too uncommon for some of my staff and me to be at my Long Island bankruptcy office filing a client’s bankruptcy petition at the witching hour.

 

 

Sometimes when we have a bankruptcy case to file for urgent reasons, we simply can’t go home until it’s a done deal.  

 

There are clients who come to us at the very last minute when there may just be hours to spare before a foreclosure sale is scheduled for the next morning.  In such cases, we rush to file a petition because the minute we file the petition, the “automatic bankruptcy stay” goes into effect, effectively preventing the sale from going forward.   

 

Filing emergency bankruptcy cases is an important part of effective bankruptcy representation.  Clients come to us with emergency filing needs for various reasons.  Sometimes they are just too anxious to seek bankruptcy help until last minute. 

 

Sometimes clients put too much faith in others believing that a mortgage broker will come through with financing at the last minute.  Lately, I’ve seen clients who hoped that they would be able to get their mortgage company to modify the mortgage, only to find that the mortgage company was unwilling to cooperate, and instead pushed forward with the foreclosure sale.

 

 

We file all of our petitions by E.C.F. — which stands for Electronic Case Filing.  This is the process whereby we file bankruptcy documents by computer over the internet, directly into the bankruptcy court’s computer.

 

Thus, we can file petitions from our office 24 hours a day — not that we would ordinarily want to do so.  The exception was in October of 2005.  Two days before the 2005 Bankruptcy Amendment Act was to take effect, I enlisted the services of my wife and together we filed about 75 petitions between midnight and four in the morning.

 

 

There are many aspects to filing a petition at the last minute.  I  dedicated an entire article that was published in the Suffolk Lawyer to this issue:  Handling the Emergency Filing.

 

Ideally, filing bankruptcy should not be left to the last minute.  After all, there is a Difference Between an Emergency Bankruptcy Filing and a Rush Bankruptcy Filing .  However, when the situation arises, a midnight filing is just as good as any other time.

 

This is the final part of a three-part series of articles about HAMP and bankruptcy that I wrote after attending a seminar of the National Association of Chapter 13 Trustees .  Part One was:  Bankruptcy Issues Involving HAMP (Home Affordable Modification Program) — Part One .  The second part was:  WARNING: HAMP Can Drive Homeowners Into Bankruptcy.

  

 

Debtors in active bankruptcies are eligible for HAMP but it is up to the discretion of the servicer.  This is a significant concern because Chapter 13 debtors have no guarantee of getting their mortgage company to cooperate.

 

Some attorneys have reported instances in which the lender refused to cooperate with the debtor after the debtor filed for bankruptcy relief.

 

What can the homeowner do in such instances?  Ask the servicer what their policy is.  However, absent them putting it in writing (which is unlikely), the homeowner probably has little leverage against a lender that changes its mind or fails to follow through.

 

 

The Bankruptcy Bill Song Contest has announced its winner.  First place goes to our very own Long Island Bankruptcy Court Judge Alan S. Trust.

 

  

The Judge’s entry, “Debts in Wrong Places,” is a humorous take-off of Garth Brooks’ country music hit song, “Friends in Low Places” — certainly a popular song in Texas, where Judge Trust practiced before ascending to the bench here in the Eastern District of New York.

 

Steven Horowitz and Gideon Kendall, creators of the Bankruptcy Bill cartoon strip, sponsored the contest and came up with a great new cartoon featuring the comic likeness of Judge Trust that you absolutely must see!!!  Click this link to see this new comic strip:  Bankruptcy Bill Song Contest Cartoon.

 

When I had told my wife, Arlene, of the contest last fall, she said she had to enter — just to poke fun at me.  Her song, “A Bankruptcy Wife’s Lament,” is about a bankruptcy attorney who is so busy that he ignores his wife and family (me???).

 

Her song won second place!  It is a hilarious take-off on “Sunrise Sunset” from Fiddler on the Roof.

 

My song, “Debt Free Girl,” a take-off on Billy Joel’s hit, “Uptown Girl,”didn’t win a prize, but I still think it’s great fun in any event.

 

I created the photo illustration from a photo I took of Judge Trust several weeks ago at a bankruptcy seminar.

 

This is a continuation of my previous article:  Bankruptcy Issues Involving HAMP (Home Affordable Modification Program) — Part One , that I wrote after attending a seminar of the National Association of Chapter 13 Trustees. 

  

 

 

You cannot be turned down just because you are actively involved in foreclosure litigation.

 

 

 

 

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.

 

 

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.

 

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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I just attended a seminar last week offered through the National Association of Chapter 13 Trustees about HAMP.  Here’s some useful information.
 

Today’s post is Part One.   I will continue tomorrow with a detailed discussion of bankrutpcy issues.

 

 

HAMP (Home Affordable Modification Program) is one of President Obama’s initiatives to make a dent in home affordability by using the economic bailout program.

 

It’s a quasi-voluntary program to modify home mortgages with the goal of getting the monthly payment to 31% of gross (pre-tax) income. 

 

The program seeks to provide taxpayer-funded incentives to mortgage servicers and lenders to voluntarily modify mortgages.  The program was created in March 2009.  This government program earmarked $75 billion for this purpose.

 

 

 

To date, results for HAMP have been very disappointing.  I wrote about this at length two months ago:  Obama’s “Making Homes Affordable” Mortgage Modification Program Failing. 

 

The program has only resulted in 116,000 permanent modifications in the entire country, in which each borrower is saving about $500 per month. 

 

Incidentally, these homeowners typically went from paying 45% of their gross income towards their mortgage, down to 31%, which is the goal of the program.

 

To date, only 110 mortgage servicers have signed participation agreements.  All Fannie Mae and Freddie Mac loans are automatically eligible.

 

 

Here are the requirements:

 

1.    You must be the owner and occupant of the home and utilize it as your primary residence

2.    You must have a maximum principal balance of $729,750

3.    You must have a monthly mortgage payment that is greater than 31% of pre-tax monthly income

4.    You must be unable to afford your current payment

5.    You must not have applied for HAMP before

 

 

Many homeowners applied for HAMP assistance because they thought it would help them avoid bankruptcy. However, a great many mortgage servicers were unprepared to handle HAMP applications and were not able to process the mortgage modification requests quickly enough to offer any real relief.

 

Some problems were highly publicized.  For example, there have been lenders who refused to even acknowledge receipt of mortgage modification documents, and other lenders who lost these documents numerous times for the same homeowner.

 

 

 

There is a new record number of mortgage delinquencies according to data just released by TransUnion.

 

Homeowners at least 60 days past due on their mortgage payments rose to a new record high in the fourth quarter of last year.  Almost seven percent of all mortgage borrowers were at least two months behind during this period, which was the 12th straight quarter the delinquency rate rose.

 

 

The more homeowners who have fallen behind, the greater the number of eventual foreclosures.

 

Homeowners on Long Island who find themselves in this predicament have choices, such as curing mortgage arrears through Chapter 13 bankruptcy and walking away from the mortgage obligation by filing Chapter 7 bankruptcy.  Some homeowners can also defend the foreclosure proceeding.

 

In addition, there are several governmental programs designed to assist homeowners; however, there have been numerous problems attributed to the programs and very disappointing rates of success.

 

I just saw the figures that confirmed what we all knew.  There was a tremendous increase in bankruptcy filings in 2009 over 2008 according to figures just released today from the Administrative Office of the U.S. Courts.

 

Thus, there has been nothing to stop the flood of consumers seeking bankruptcy relief.  That certainly applies to consumers on Long Island.

 

In calendar year 2009 there were a total of 1,473,675 bankruptcy filings in this country.  This represents an increase of 32% over 2008, during which time there were 1,447,641 filings.

 

Of the 1.4 million bankruptcy cases filed last year, 96% of them were filed by consumers.

 

 

The filing statistics reveal an interesting trend.   More and more consumers are filing Chapter 7 bankruptcy as opposed to Chapter 13.  In 2008, Chapter 7 cases represented 67% of all consumer filings.  However, last year, the percentage grew to 71%. 

 

The percentage of consumers filing under chapter 7 has increased each year since the bankruptcy laws were overhauled by BAPCPA in October 2005.

 

The effects of the recession and the high rate of unemployment continue to fuel the great numbers of consumers seeking bankruptcy protection.  We are now seeing the highest number of bankruptcy filings since the bankruptcy laws were changed in 2005

 

 

In our district, for the period ending Septermber 2008, there were a total of 20,508 filings.  This broke down as follows:  16,790 Chapter 7 cases, 247 Chapter 11 cases, and 3,469 Chapter 13 cases.