About Me
“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Bankruptcy and Society
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.
Written by Craig D. Robins, Esq.
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.
WARNING: HAMP (Home Affordable Modification Program) Can Actually Drive Homeowners Into Bankruptcy
Here are two types of horror stories I’ve been hearing from some recent clients about their HAMP experiences.
First, the homeowner applies for HAMP relief but does not receive a timely response from their mortgage servicer. In the meantime, their debt situation becomes worse and worse as they struggle to remain current on their obligations. This then puts them into an untenable financial situation that they cannot get out of.
Second, some other homeowners have reported to me that they applied for HAMP relief and were granted a temporary modification. However, several months later, after the trial period ended, they were turned down for permanent relief, leaving them immediately on the hook for catching up with thousands and thousands of dollars in payments that they didn’t make (and now cannot afford to make).
Can I Seek HAMP If I am Defending a Mortgage Foreclosure Proceeding?
You cannot be turned down just because you are actively involved in foreclosure litigation.
What Happens to the Money Saved With Reduced HAMP Mortgage Payments?
There is no “cram-down” on the unpaid principal balance. In other words, the savings do not disappear.
Even though the homeowner will be saving money by having a reduced monthly mortgage payment, these savings are not forgiven. The amount of savings is actually set aside as a non-interest-bearing balloon that the homeowner must pay upon sale, refinance or the maturity of the loan.
Apparently, many homeowners are unaware of this aspect.
What Happens to Mortgage Arrears at the Time of a HAMP Modification?
All arrears up to the time the HAMP offer is made, are capitalized into the balance of the modified loan. They, too, are not eliminated.
How Long do HAMP Reduced Mortgage Payments Last?
The reduced monthly payments are only good for five years. For each year after that, the interest rate increases by one percent each year until it reaches a certain Freddie Mac cap rate.
New Documentation Program Starts June 1, 2010
One of the existing problems was that a homeowner would apply for a HAMP modification and quickly enter into a trial period of reduced monthly mortgage payments — before complying with all of the document requirements.
Many homeowners would then fail to fulfill the document requirements and, for that reason alone, be turned down for a permanent HAMP modification.
Accordingly, effective June 1, 2010, a HAMP trial modification cannot start until the document requirements have been totally satisfied.
What Are Some HAMP Alternatives?
I wrote about this recently. See my post: One-Fourth of All U.S. Homeowners Are Underwater. What Should These Homeowners Do?, for a discussion of alternatives.
Seeking Hamp Relief While In Bankruptcy — What Are the Issues?
This topic will be the final part of this series. I will post it later this week.
Written 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
Written by Craig D. Robins, Esq.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.
What Is HAMP?
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.
HAMP will reduce a homeowner’s monthly mortgage payment on a TEMPORARY basis. However, the adjustment becomes permanent after the homeowner makes three on-time payments.
The incentive for mortgage lenders in doing this is that the Obama administration is offering big bucks in incentive payments to lenders.
Here is the official link to Home Affordable Modification Program.
Home Affordable Modification Program Has Not Worked Well So Far
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.
Who Is Eligible for HAMP?
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
Why Have Many Considered HAMP to be a Failure So Far?
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.
To Be Continued This Week
Written by Craig D. Robins, Esq.
Bankruptcy filings are up across the country and Long Island is no exception. Newsday ran a story about this on Thursday, January 21, 2010 and quoted me. The article was written by Newsday reporter Emi Endo.
Here’s the article:
Bankruptcy Filings on the Rise
Amid continuing job losses and a housing market slump, more Long Islanders have been heading into bankruptcy proceedings, according to court data.
In November, 806 residents filed for bankruptcy protection, an 11.9 percent increase over November 2008. In all of 2008 more than 7,500 cases were filed in Central Islip. From January through November of last year, there were 9,200.
Woodbury bankruptcy attorney Craig Robins said his firm has seen an increase in the number of formerly well-paid professionals who were either laid off or took major pay cuts. “What we’re seeing now is many executives and individuals who were earning well into the six figures needing bankruptcy relief,” he said.
Also growing, Robins said, was the number of “homeowners whose homes are underwater” and who owe more on their mortgages than the properties are worth, a difference sometimes as much as $100,000.
Newsday periodically tracks economic indicators in this Long Island Economic Snapshot.
Among other economic indicators, home sales did go up in November – but so, too, did initial foreclosure filings. The number of homes sold in November was up 49.3 percent over the same month a year ago, as reported by the Multiple Listing Service of Long Island.
Written by Craig D. Robins, Esq.Last month I wondered: Is the Stock Market a Barometer for Consumer Bankruptcy Filings?
In exploring this concept further, I came across “the Misery Index” which is an economic indicator created by economist Arthur Oken in the 1960s. It is the sum of the unemployment rate and inflation at any given time.
Since it is assumed that both a higher rate of unemployment and a worsening of inflation create economic and social costs for a country, the higher the index, the greater the misery the country is facing.
A recent New York Times Economix Blog post discussed the Misery Index and commented that pairing these two indicators made sense not only because both are economic phenomena that hurt regular people, but also because efforts to reduce unemployment can elevate inflation, and vice versa.
Today there are large numbers of bankruptcy filings; however, the inflation rate is rather low. Thus, this Misery Index does not predict bankruptcy, nor does it necessarily predict the misery of the average middle-class American. What we need is a different Misery Index.
New Economic Misery Index Contains Bankruptcy as an Indicator
It appears that some economists have come up with a “New Economic Misery Index which includes five sectors that show financial pain for Americans: Bankruptcy, Credit Access, Employment, Housing and Food Stamps.
Today, we have a more insidious version of economic crisis than what the old Misery Test measured. This is not necessarily what is good for the average American. In other words, the stock market may be going up, but Americans are still losing jobs and suffering. We therefore need to add a few more indicators to a new misery index.
The new five indicators are probably the best way to gauge the state of our economy. Economists looking at these figures see that despite the activity on Wall Street, there is really very little recovery. And that is what the typical middle-class American who comes to my office for a bankruptcy consultation can attest to.
Bankruptcy and the Elderly
Posted on
Written by Craig D. Robins, Esq.The economic times are tough for people of all ages, but senior citizens and the elderly are perhaps impacted the most. The weak economy is preventing many seniors from earning the income that they need to make ends meet.
I previously wrote that according to a report by AARP, the rate of personal bankruptcy filings for those ages 65 and older grew by 125 percent, while the bankruptcy rate of senior citizens ages 75 to 84 grew by an incredible jump of 433 percent.
I regularly see many senior citizens in my Long Island bankruptcy practice who are barely able to pay their bills. These seniors are often living on just pensions and Social Security, yet juggle soaring medical bills, credit card payments and rising food and gas costs. Some must deal with mortgage payments as well. See Many Long Island Seniors Suffering From Debt .
Many Seniors Are Not Financially Equipped to Handle Retirement
Several months ago I had the opportunity to talk with nationally-known author and economist Thomas J. Mackell, Jr., an expert on the economics of living in retirement. See my post: Former Federal Reserve Bank Chairman Points Out Disturbing News About Americans and their Pensions.
According to Mr. Mackell, our country’s retirement systems are insufficient to cover retirees’ financial responsibilities, and as a result, seniors load up on credit card debt and incur medical bills that they cannot afford to pay for.
The stock market, which fell during the past decade, also had the effect of eroding the value of pension plans and retirement accounts, making the situation for many seniors even bleaker.
Senior Citizens Should be Debt Free in Retirement
It’s very hard to retire on a fixed income when you owe a substantial amount of money. I’ve counseled many clients who are well past retirement age, and who are working just to pay their credit card bills.
Many seniors on Long Island are also coping with the high cost of living here. Fortunately, for many of them, I have been able to elinate all of their credit card debts, medical bills and other financial obligations.
Some Seniors Have Gambling Debt Which Can be Eliminated with Bankruptcy
Seniors, with lots of time on their hands, are often lured by free bus rides to the Casinos, where some have gambled away their hard-earned savings. It’s sad, but there are a lot of seniors who have incurred significant debt from gambling.
What seniors should know is that gambling debt is generally dischargeable in a Chapter 7 bankruptcy fling.
For Senior Citizens, Bankruptcy Is Often the Solution to Overwhelming Debt
A great number of seniors have been able to get a fresh new financial start by filing for Chapter 7 bankruptcy relief. This past August, I wrote about how Senior Citizens Are Filing Bankruptcy In Record Numbers .
My office regularly counsels and advises Long Island seniors about debt relief options including bankruptcy.
One particular aspect that we help senior overcome is that they are ashamed of their debts and financial situation — much more so than our younger bankruptcy clients.
However, when you file for bankruptcy, your debts disappear, the creditors stop calling, and your life returns to normal. Seniors need this relief more than most other segments of the population.
If you know of a senior with debt problems, consider recommending that they discuss their situation with an experienced bankruptcy lawyer.
Written by Craig D. Robins, Esq.Although debt collection law firms are the fierce and hated adversaries of my Long Island bankruptcy clients, I have gotten to know several collection attorneys fairly well over the years.
Some of them are the same age as I am, and we started practicing at the same time, and were members of the same young attorney groups 25 years ago. My practice happened to take me in the direction of helping consumers, whereas some of my colleagues ended up representing credit card companies.
Although my practice only helps consumers and business owners who have financial problems, I like to hear what it’s like on the other side — from those attorneys who actually pursue my clients before they have the opportunity to file for bankruptcy relief or achieve a negotiated settlement.
A Collection Attorney Colleague Recenty Confided In Me
My clients are always complaining about the unabated and aggressive pressure that bill collectors put on them, so it was interesting to have an informal chat with a collection attorney colleague who I’ve known for years and years. He complained that those law firms who specialize in debt collection in New York are not exactly doing so well these days.
He commented that his firm is facing the horrifying prospect of taking in millions of dollars in collection proceeds, but not making any profit whatsoever.
Here’s Why Bill Collectors and Collection Law Firms Will Have a Tough Time in 2010:
1. Debt Collectors and Collections are Under Greater Scrutiny. It’s no secret that the entire debt collection business has come under great scrutiny during the past year as the result of some unscrupulous debt collection practices. I’ve written extensively about this previously. See:
2. It’s Harder to Collect. My colleague complained that he and his firm were working incredibly hard, yet not making much money. Apparently, the economic pressures that are pushing more and more Long Island families to seek bankruptcy relief also mean that collection firms are having a much more difficult time collecting the amounts that they’ve collected in the past.
3. Lenders and Their Collectors Are Paying the Price for Easy Credit. One of the key reasons for the relatively low rate of collectability is that several years ago, banks and lenders were so loose with their credit policies and underwriting standards that they extended credit to too many consumers who weren’t credit-worthy. That translates into greater difficulty collecting on delinquent accounts.
4. Unemployed Debtors Mean No Funds for Creditors. Many consumers do not have the funds to make any payment simply because they are unemployed. Projections for continued unemployment mean continued difficulty into the new year with trying to collect.
5. Changing Sentiment Against Banks, Bill Collectors and Collection Law Firms. We now have a more consumer-friendly atmosphere in which courts tend to side with the consumer as opposed to the creditor. In addition, there are always new debt collection laws and regulations, and the trend is to make it harder for the debt collector and easier for the consumer.
6. BANKRUPTCY. I saved the best for last. Over a million and a half American consumers will probably file for bankruptcy in 2010, and most of them will be able to totally eliminate all credit card debts. This is how my Long Island bankruptcy law firm and I will be helping many consumers in 2010.
Yesterday I wrote Bankruptcy Season Is Approaching – Part One and discussed bankruptcy season for consumers. Today, I address the effect of the new year on businesses.
Bankruptcy Season for Businesses
Retailers also keep bankruptcy attorneys busy after the holidays. The holiday season should be a joyous time for retailers. However, when the economy is suffering, which is certainly the case now, some of those retailers who held out for the Christmas rush unfortunately will not make it without bankruptcy assistance.
Sometimes the wait-till-January tactic works if a spike in holiday sales provides sufficient cash to tend the coffers.
Harvard bankruptcy professor Lynn LoPucki studied the January bankruptcy phenomenon. From 1980 to 2008, 105 large public retailers that filed for bankruptcy with assets of more then $100 million, only seven did so in December, giving up the full benefit of a holiday cash infusion.
That was less than half the 18 that did so in January – the most popular filing month for large retailers — and slightly less than the 10 that filed in February after January clearance sales.
It’s a fact that 70 to 80 percent of retail sector bankruptcy filings traditionally take place at the end of the high selling season.
Accountants have tax season. Bankruptcy attorneys have bankruptcy season. With Christmas behind us, it is just a question of a few more weeks before bankruptcy season begins.
Bankruptcy attorneys typically see a seasonal trend of creditors seeking redress, pushing individuals and companies over the edge, keeping bankruptcy professionals busy.
Bankruptcy Season for Consumers
After being a Long Island bankruptcy lawyer for 25 years, I’ve observed that the December holidays lead most people who are troubled with serious debt problems to put off getting help. However, the advent of a new year, combined with the added pressure of bills from holiday purchases, causes many consumers with overwhelming debt to make that appointment to see a bankruptcy lawyer.
From a psychological perspective, there are even those in debt who realize that bankruptcy is inevitable, but take a last fling around the holidays, trying to go out in style and deal with the consequences later. Doing so is not consistent with the good faith that is necessary to go into a bankruptcy filing, but, to the dismay of creditors, the small minority of consumers who engage in such frivolity usually get away with it.
Perhaps another reason for bankruptcy season is the concept of getting a new start for the new year, or making resolutions to find out how bankruptcy can eliminate bills and debts. But whatever the reason, my Long Island bankruptcy law practice always starts picking up in mid-January.