About Me
“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Archive for May, 2010
Written by Craig D. Robins, 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.
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.
Strategic Mortgage Defaults Increasing
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Written by Craig D. Robins, Esq.Many homeowners who have lost all of the equity in their homes are making the decision to simply walk away from their home on a voluntary basis, even though they can afford to remain.
Why would they do that? Because it is no longer economically feasible to keep the home when they can rent a similar home for much less.
Strategic Defaults Triple in the Past Two Years
A recent Morgan Stanley report reveals that about 12 percent of all mortgage defaults are now “strategic” which is a great increase from mid-2007, when the level was only 4 percent.
The report also stated that strategic defaults tend to increase based on how much more the borrowers owe in house debt over and above what their homes are worth. In other words, the worse the investment, the greater the chance the homeowner will walk away.
What is the Technical Definition of a “Strategic Default”?
According the Morgan Stanley analysts, a default is “strategic” only when the homeowners who hadn’t been previously delinquent were making on-time payments one month, then skipped them for the next three, even while staying current on other consumer debt of at least $10,000.
Strategic Default is Best Approached in Conjunction with a Chapter 7 Bankruptcy Filing
If a homeowner stops paying the mortgage, he or she will often be able to stay in the home with their family for an extended period of time — all without having to make any further payments. In New York, which is a judicial foreclosure state, the foreclosure process now rarely takes less than a year.
A good foreclosure defense attorney can often come up with genuine defenses, which, if asserted, can extend the time that the homeowner has in the house even more.
However, at some point, there will inevitably be a foreclosure sale at which time the lender can obtain a deficiency judgment against the homeowner in certain states such as New York, Florida and New Jersey.
However, if the homeowner’s strategy is to file a Chapter 7 bankruptcy in conjunction with the strategic default, the homeowner can also discharge the deficiency debt.
So if home ownership becomes more of a nightmare than a dream, remember that there are options out there.
Written by Craig D. Robins, Esq.Dan’s Papers, a venerable newspaper institution in the Hamptons for decades, filed for Chapter 11 protection last week on Long Island.
Often referred to as the “biggest paper in the Hamptons,” Dan’s Papers has graced the entryway of hundreds of East End establishments.
I’ve read Dan’s Papers as long as long as I can remember, every time I ventured to the Hamptons or Montauk. The paper always had a unique quirky feel and I often read it on the sand at the beach. It seemed to set the tone for the Hampton’s community.
Bankruptcy Filing Information for Dan’s Papers / Brown Publishing Co.
On April 30, 2010, Brown Publishing Co., the publisher of Dan’s Papers, filed a Chapter 11 case in the Central Islip Bankruptcy Court which is in the Eastern District of New York. The case number is 10-73295. There are 14 other affiliated bankruptcy filings.
The debtor is being represented by Edward M. Fox, Esq. of the New York City office of K&L Gates LLP, an international law firm with 1,900 attorneys.
The case is assigned to Central Islip Bankruptcy Court Judge Dorothy T. Eisenberg.
According to details reported in the bankruptcy filing, Brown Publishing is a closely-held Cincinnatii-based company. The debtor and its 14 affiliates had assets of $94.1 million and debts of $104.6 million in the period just before filing.
The debtor’s attorneys filed a flurry of first-day orders. Judge Eisenberg presided over hearings on these motions last week. Some of them were adjourned to June 1, 2010.
How Much of a Retainer Did the Debtor’s Attorney Receive?
The debtor paid K&L Gates a pre-petition retainer of $350,000.
They also disclosed their billing rates which are $675 to $935 for partner-level attorneys, $290 to $550 for associates, and $260 to $270 for para-legals.
In the one-year pre-petition period, K&L Gates billed the debtor $620,919 for fees and disbursements.
Many, Many Possible Conflicts of Interest for Debtor’s Attorney
One aspect of the attorney’s application for retention that I found fascinating was that K&L Gates did a conflicts search prior to filing. They disclosed that of the debtor’s 1,250 creditors, the law firm identified 483 persons or entities which are creditors or parties in interest that they represent in unrelated matters or may have represented in the past.
K&L Gates agreed not to represent any of these parties in any matter adverse to the debtor or the bankruptcy estate.
It will be interesting to see what the position of the U.S. Trustee is regarding these conflicts.
Loss of Advertising Revenue Is the Cause of Dan’s Papers Debt Problems
The debtor stated that the paper lost a significant amount of advertising revenue. This was due in large part because a large part of Dan’s advertising is for real estate, and the East End real estate market has suffered markedly.
Dan Rattiner is the Founder of Dan’s Papers
Dan Rattiner, who is now in his seventies, began publishing East End papers 50 years ago. He started while he was still in college, just before his senior year. His first paper, the Montauk Pioneer, rolled off the press in 1960.
Until the he recently sold the Dan’s Papers, Mr. Rattiner controlled almost every aspect of its publication.
In a recent Dan’s Papers blog post, Mr. Rattiner proclaimed that the paper isn’t going anywhere. “Brown’s bankruptcy is not about shutting down and selling off the pieces. In fact, everything will be proceeding as normal.
Dan’s Papers’ Current Owner Recently Purchased the Paper
At the height of the real estate boom, which was 2007 to 2008, Brown Publishing embarked on a debt-financed expansion strategy and bought the paper from Mr. Rattiner. They also bought up dozens of other papers across the country.
Brown Publishing is one of the largest newspaper publishers in Ohio.
What makes Dan’s Papers very appealing is that the household income of its readers averages a whopping $381,000 per year.
Unfortunately, this newspaper bankruptcy filing is just one of many that we’ve seen in this country over the past two years — victims of the recession as well as a trend against advertising in print media. The Los Angeles Times and Chicago Tribune (former owner of Newsday) — two behemoths of newspaper publshing — have both sought Chapter 11 bankruptcy protection.
Information about the Creditors
In the bankruptcy filing, the petition indicates that the debtor owes its five largest secured creditors $70.5 million, and that there is collateral with a book value of $94.9 million covering this debt.
The largest unsecured creditors appear to be providers of newsprint. These include Abitibi Consolidated Sales, a unit of AbitibiBowater Inc, who is owed $296,256; White Birch Paper Co, who is owed $219,150; and Page Cooperative, who is owed $195,680.
Who Are the Affiliates of Brown Publishing?
Brown has a number of affiliates including Delaware Gazette Co., Texas Business News LLC and Utah Business Publishers. Brown publishes 15 paid daily papers, 32 paid weekly papers, 41 free publications, 11 paid business publications, and 51 newspapers.
Written by Craig D. Robins, Esq.It’s hard to believe the number of radio ads and TV commercials hawking debt settlement services. Many of them falsely create the impression that the debt settlement services are part of a federal program.
Now the Government Accountability Office and the Federal Trade Commission have concluded that the great majority of debt settlement firms have misled consumers. The report was issued last week and it was extremely critical of the debt settlement trade.
The government reports indicated that many of these firms made false and misleading claims that they were affiliated with federal stimulus programs. They also exaggerated their ability to obtain settlements.
Debt Settlement Companies Are Becoming a National Problem
In the past five years, the number of debt settlement companies across the country has ballooned to over a thousand. I’ve written extensively about the problems with debt settlement companies during the past year.
See: Debt Settlement Industry Criticized by New York Times , in which the New York Times stated, The common complaint is that debt settlement companies are more interested in helping themselves earn fees than aiding their beleaguered clients.”
The GAO study also concluded that debt settlement companies lied about their success rates. Apparently, many companies falsely represented that their success rates were 85 to 100 percent. However, the FTC concluded that the rate is less than 10 percent.
The report also pointed out how debt relief companies rip off consumers by charging hefty up-front fees before they perform any services.
Consumers Who Hire Debt Settlement Companies Often End Up Filing for Bankruptcy
As a Long Island bankruptcy attorney, I regularly see the fall-out when consumers are taken advantage of by debt settlement companies. They come to me when their debt settlement plan fails, which is inevitably after they’ve paid significant funds to the debt settlement company without accomplishing any results.
However, they could have saved a great deal of money had they considered bankruptcy in the first place.
There is a Major Distinction Between Debt Negotiation and Debt Settlement
The services offered by debt settlement companies are very different from debt negotiation services offered by certain law firm such as my own. With debt settlement companies, the consumer makes monthly payments to the company, and the company first applies these payments to their own fees before any settlement is actually made.
Debt settlement companies will often sign up consumers who they know, or should have known, would not be able to complete the program. What’s more, the companies keep the fees even when services are not provided!
Debt negotiation offered by attorneys, however, is much different and involves negotiating settlements with the creditors. The client typically does not pay any advance fees, other than an initial retainer.