Boston Bankruptcy Lawyer Blog

Mortgage News for Massachusetts Consumers

Wed, 16 May 2012 09:36:56 -0500

As a Massachusetts bankruptcy attorney, we get calls from clients and potential clients with mortgage questions all the time. Calls from folks who are refinancing in Massachusetts are perhaps the most common these days, but so are calls from folks who are buying their first house, including rental properties. Thus, we try to keep Massachusetts consumers apprised of new developments coming out of Washington or the Massachusetts State House. Fortunately, there is some good news in the name of public disclosures for consumer protection.

The federal Consumer Financial Protection Bureau announced that it would consider new regulations for the simplification of mortgage information on all new mortgages. This applies to mortgages throughout the United States, including here in Massachusetts. Akin to the "nutritional information" required on food packaging, the CFPB is attempting to standardize the information provided.

The proposals are derived from the federal Dodd Frank Act which requires that regulations be implemented on or before next January, 2013.

Among the proposals are regulations to reduce the interest rate on mortgages when consumers prepay points. Points, or a "point" of interest, are monies paid upfront to the lender. For example, if you are taking out a $200,000 loan, and you prepay two "points" you are paying $4,000 to the lender. This proposal would require the lender to reduce the interest rate in exchange for this $4,000 prepayment. The reason for this proposal is because often "points" are simply fees, which is unfair.

Another proposal is to require each lender to offer every consumer a "no discount point option" so that consumers can compare apples to apples. The reasoning behind this is because lenders seem to have so many menu items: no points, but fees; discounts but points; etc. Thus, every loan proposal would also include this option, so consumers could compare exactly the same conditions from each lender he or she applied to.

The CFPB also has a proposal that would ban loan origination fees that are derived from the amount of the loan. Consumers often misunderstand these origination fees because they are often called "origination points" so consumers think they are reducing the cost of their mortgage by prepaying the point.

Qualifying all mortgage loan originators is another regulation that the CFPB is considering. This is aimed at the shady loan brokers. The rule would apply, of course, to all loan originators, such as banks, credit unions, mortgage brokerage firms, and non-profit mortgage originators. The fraud and deceptive practices of the 2000s, including the "no paper" mortgages, would be reduced under this type of ruling.

In addition, the proposal would require "character and fitness" tests, criminal background tests and minimal training for all loan originators.

The Dodd-Frank law, which created the CFPB and was drafted partially in response to the mortgage crisis of 2008, and operates through the Federal Reserve Board. The agency was the brainchild of Massachusetts Senate Candidate Elizabeth Warren, who has a Small Business Review Panel process allowing Massachusetts businesses, including the vital loan originators, to provide input for this process.

Massachusetts Bankruptcy Statement of Intentions

Wed, 02 May 2012 12:13:39 -0500

On the Massachusetts bankruptcy form there is a whole section regarding the Statement of Intention with respect to secured debts. Secured debts are debts that are secured by the "thing" they financed. This typically includes homes and cars.

The bankruptcy petition gives you four choices. The first is surrender. If you declare that you intend to surrender the secured property, you have sworn that that is your intention at the time you signed the Petition. Things change. So, if you were denied in a refinance application by your mortgage lender, filed the Petition, and then another lender offered you a mortgage that works, you can refinance with that new lender without any significant consequence to your bankruptcy. If you intend to surrender your motor vehicle, you may stop making loan payments but you must continue to insure the vehicle until the lender physically takes it back.

The second option is redeem. To redeem is to pay off a loan for the market value of the property. However, this does not work with a home or any other real estate interest. Nor does it work in a typical Chapter 7 personal bankruptcy.

The third option is to reaffirm. This option allows you to reaffirm that you will pay the debt, that you have the ability to pay the debt, and that you wish to keep the secured item such as the motor vehicle or home. This requires you to sign a document called a reaffirmation agreement in which you agree to repay the debt that would otherwise be discharged in the personal bankruptcy. Do you have to reaffirm if you want to keep the home or car. No, our legal analysis for most clients is to simply keep paying the loan, however, if the lender demands a reaffirmation agreement or they will repossess, you may have no choice. But in most cases we do recommend that you contact your lender to see how they will react to the bankruptcy when you want to reaffirm the loan.

The fourth option is entitled "other" which could mean many things. For example, you could state that you are attempting a loan modification. However, be careful, in a chapter 7 personal bankruptcy, the bankruptcy court is not going to force, or even encourage, the lender to restructure a loan. However, to your credit, if you make the payments and the loan is not successfully restructured, you can walk away and discharge the debt if you act under this section following a Massachusetts bankruptcy. The negative here is that if you have not reaffirmed, and you do pay, your "new" payment history is not reported on the credit report - because you are not really committed to it from their perspective.

This is usually a straightforward part of the Petition. However, it is important for Massachusetts bankruptcy attorneys to prepare it accurately for you because you do not want to mislead the Bankruptcy Trustee or the Court. While working on the refinance of a home can take time, and frequently takes more time (these days) than the bankruptcy process, the decision with respect to a motor vehicle usually comes down to a very practical decision: is it worth keeping the vehicle factoring in the amount owed, the monthly payment and the cost of securing a different vehicle.

Massachusetts Bankruptcy and Student Loans

Wed, 25 Apr 2012 09:53:02 -0500

As a Massachusetts bankruptcy attorney, I have reported on student loans on numerous occasions in our bostonbankruptcylawyerblog.com. Mostly, we have reported that student loans, because they are subsidized by the federal government, have been carved out of the almost unlimited list of debts that can be discharged. The law requires "undue hardship" before a student loan can be discharged which essentially means that you must be permanently disabled. Our May 2, 2011 Massachusetts bankruptcy blog gives more information on how to work within the system when you have student loan debt that is not dischargable.

But today we are writing about the broader problem of student loan debt. Elizabeth Warren, candidate for US Senate in Massachusetts and former Special Advisor to the President for the Consumer Financial Protection Bureau, said recently that student debt is the biggest consumer issue facing Massachusetts, and in fact, in all states. Her immediate point is that we need to urge Congress to update the College Cost Reduction Act, which expires in July, to keep Stafford Loan interest rates at 3.4%. If the law does not get updated, the rate will double, to 6.8%. She pointed out that the amount of outstanding student loan debt is significant. We crossed the $100 billion threshold in 2010.

This is not a political blog. The National Association of Consumer Bankruptcy Attorneys a nonprofit organization comprised of bankruptcy attorneys like myself, undertook a study recently and found that 80% of bankruptcy attorneys reported a "major jump in student loan debtors seeking help" and expressed fear that the next crisis that will affect the US is not a mortgage bubble, but a student loan bubble. The problem is vast. It involves prospective students, who may make educational decisions based on loans; students, who may make decisions based on mounting loans; job choices for graduates; and, significantly, now, more and more, is involving parents of students who are assisting students because of high tuition rates.

The NACB study noted that $25,250 was the average student loan debt for college students who graduated in 2010. This was up 5% from 2009. Perhaps that's not alarming. How about this: in the 35-49 year old age bracket, student loan debt is up 47%! And parents' of students, who we mentioned above, have increased borrowing for student loans by 75% since 2005, with an average debt of $34,000 to help their kids achieve the American dream. That would be about $50,000 in overall payments over 10 years. Furthermore, the percentage of parents taking out loans increased from 5.6% in 1992 to 16% in 2010.

Student loan debt is now greater than credit card debt. The survey of bankruptcy attorneys found that there were "significant" increases in clients with student loan debts. Because of the way the law is written 95% of the surveyed attorneys said that only a few cases had "any chance" of getting an undue hardship finding.

Perhaps the most important statistic is: can they repay the student loans? Well, according to the study, from the Class of 2005, 25% are delinquent and 15% have defaulted altogether. Another source, the Chronicle of Education, estimates the default rate at 20%. The debt affects young folks' ability to take the jobs they want, consume expensive items such as cars (which keep the economy running), buy a house, plan a family. Of course, it affects middle aged parents' ability to plan for retirement and make home payments.

Call us for a free consultation regarding Massachusetts bankruptcy at 617-227-7423.

Bankruptcy Planning - Last Chance To Put Away Retirement Monies for 2011

Mon, 09 Apr 2012 09:45:05 -0500

One option for folks filing a Massachusetts bankruptcy who have slightly too much cash is to consider putting money into a retirement account. This is a legitimate way to protect your assets, as the bankruptcy laws allow you to have significant assets in such things as a home, under the Massachusetts Homestead Act, and ERISA protected retirement accounts.

Those retirement accounts include Individual Retirement Accounts (IRAs), Roth IRAs, 401ks and 403bs. IRAs allow you to protect up to $5,000 per year, or $6,000 if you are over 50 years old. You have until April 17, 2012 to make a 2011 contribution. If you have a work retirement plan, such as a 401k, there is an income phase out. If you are sheltering money from a personal bankruptcy in Massachusetts, you can also contribute for 2012 up until April 2013. The limits for Roth IRA's are the same, however, the work retirement plan phase out income levels are different. There is also the SIMPLE IRA, which allows contributions up to $11,500, or $14,000 if you are over 50. However, SIMPLE IRA plans must have been established by October 1. 401k contribution plans, established before December 31, have limits of $16,500 or 22,000 if you are over 50. The number goes up by $500.

Retirement accounts allow you to invest for the long term using various methodologies. Mainly, dollar cost averaging. This method means putting away a fixed amount of "dollars" on a regular basis. This investing technique will protect you from trying to outsmart the Wall Street geniuses by timing the market. When the stock market goes up, your equity investments go up; conversely, when the market goes down, you continue to invest and you are "buying low." This is considered an excellent strategy for decreasing your average share price. Work based 401k plans make this type of systemic investing easier; the employer takes out a small percentage of your salary, and put it into a tax deferred 401k account. Invested periodically in a retirement account by your employer, or on your own in an IRA before the tax deadline, you have systematically invested in American capitalism. And it's tax deferred, meaning you do not pay taxes on that income now, but you will pay income tax on it when you withdraw it.

The exception to the above tax rule is the Roth IRA. In a Roth, you pay the tax now, invest the monies in the Roth, and withdrawals are tax-free. The advantage, of course, is that if the monies are invested wisely, and they go up, you have a significant taxable advantage. We encourage bankruptcy and trust account clients to utilize the Roth IRA whenever they can. Using the technique of dollar cost averaging combined with compound interest, the "most powerful force in the universe" according to Albert Einstein, you are guaranteed riches. Well, not guaranteed. However, over time, hard evidence proves Einstein's declaration over and over.

If you have questions on whether you can file bankruptcy, call an experienced Massachusetts bankrtupcty attorney: Attorney Neil Burns, at 617-227-7423.

Improving Your Credit Score in Massachusetts

Mon, 02 Apr 2012 10:51:03 -0500

As a Massachusetts bankruptcy lawyer, one of the most frequent questions we get is: how can I improve my credit following a personal bankruptcy in Massachusetts? Check out the Life After Massachusetts Bankruptcy section of our website. The following is news from the feds.

The Consumer Financial Protection Bureau has provided information to consumers nationwide on how to improve your credit score. Recall that the CFPB is the brainchild of United States Senate candidate Elizabeth Warren, who assisted Congress in drafting the law and was the organizer of the federal agency.

Credit scores are undertaken by several agencies, however they use various ranges between 300 and 990. The higher the score, the more credit-worthy lenders tend to find you. The score is intended to reflect the likelihood that you will repay a loan. Mortgage lenders, credit card issuers and auto loan lenders, look at credit scores to determine, first, if they will extend credit and second, at what rate to extend the credit.

Credit scores are based on a mathematical prediction as applied to your credit history. Thus, your credit history is the key to improving your credit score. The CFPB has indicated the following regarding credit history:

First, pay your bills on time. Late payments count against you. The CFPB offers the following tips as helpful in this category: set up automatic payment plans from your bank to your creditors; don't simply pay the minimum payment; and, evidence shows that the folks that pay off their credit cards in full each month are the folks with the best credit scores.

Second, don't get maxed out on credit. Apparently, the credit scoring models look at how close you are to you are to your credit limit. The logic is that if you are too close too often, you are in danger of not being able to repay at some point. According to the CFPB experts, you should not use more than 30% of your total credit limit. Their tip in this category is that you should be careful when you close out some accounts and put your balances all on one card because you may be getting to a much higher percentage of your credit limit.

Third, if you are about to apply for a mortgage or vehicle loan, don't apply for other credit at the same time, or within a short period prior to the loan application. The same goes for having too many open credit accounts; this can count against you when you apply for a specific loan. Thus, when you apply for a credit card to get a promotional interest rate, or for a free box of bonbons, be careful because this may have an adverse impact on your next, perhaps more serious, credit application.

Fourth, establish a credit history early so you can have a long record of getting credit and paying off your credit.

Fifth, credit reports are free; at least, each credit agency is required to issue a free report to anyone who asks at least once per year. Request one, the CFPB says. Online, go to www.annualcreditreport.com. By phone, call 877-322-8228. Be careful, however, these credit reports are not credit scores. You can pay for your score, however, the CFPB says it is not worth is because lenders may be looking at different scores anyway. Read the report, and report errors using supporting documentation whenever you can. If you experience problems in resolving any such dispute, you can go to the Federal Trade Commission where they have information on correcting errors on your credit report.

Sixth, don't pay fees to get your score "fixed" as these fees will not change negative reporting that was accurate. Furthermore, there are many scam artists in this particular field.

Finally, the CFPB suggests that you act proactively in working with creditors. If you can't make a payment for some reason, don't be passive. Call them up. Work with them. If you need credit counseling, check the agency out very carefully, as there are many of the same scam artists here.

False Statements in Massachusetts Bankruptcy Court Results in Attorney Discipline A simple Massachusetts Chapter 7 bankruptcy http://www.neilburnslaw.com/lawyer-attorney-1397148.html went amuck recently when an attorney failed to follow the proper proced

Wed, 28 Mar 2012 09:41:48 -0500

A simple Massachusetts Chapter 7 bankruptcy went amuck recently when an attorney failed to follow the proper procedures in electronic filing.

According to a decision handed down by Judge Hillman last month, In Re: Stallworth (Chapter 7 Case No. 04-017-12) and published recently, Attorney Curtis was a "registered user" of the federal comprehensive electronic case management system (CM/ECF). She was, unfortunately, not too familiar, as she had only filed three total cases, two for Stallworth, and one other.

Apparently Attorney Curtis filed a bankruptcy petition on behalf of Stallworth in September. Often, attorneys file a petition without schedules and other documents: filing an incomplete petition is usually to stop a court action in another court, a foreclosure, for example. And the attorney follows up with the rest of the documents. In fact, in this case, the Court (automatically) responded requesting the missing documents, including the social security number page, the statistical matrix, and the Credit Counseling Certificate. The attorney did not comply and the bankruptcy was dismissed by the Court. Unfortunately, the attorney then tried to file a motion to vacate the dismissal via email, rather than by filing on the CM/ECF system. Notwithstanding the fact that she was instructed to file via the CM/ECF system, she simply refilled the Chapter 7 Petition...but she misspelled the client's name and filed it with woefully insufficient information; essentially she filed a blank petition.

Because of the inadequate and duplicative filings, the United States Trustee filed a motion to disgorge (return) attorney fees. That motion included a reference to another case in which Attorney Curtis had neglected to file properly with the Bankruptcy Court, under similar circumstances. Wherefore, the Court issued a Massachusetts Order to Show Cause why her electronic filing privileges should not be suspended. At the time of that hearing, Attorney Curtis made "three conflicting accounts" to the Court regarding the filing of the bankruptcy documents. After several hearings, and misrepresentations, the Court suspended the attorney's CM/ECF provledges because she "repeated and/or egregiously failed to comply" with Court procedures. The Court also reported a memorandum regarding the matter to the United States District for disciplinary proceedings.

Further, the Court noted that the Massachusetts Rules of Professional Conduct, Rule 3.3 requires that a lawyer may not "make a false statement of material fact" to a Court. The Court here found that Attorney Curtis "repeatedly made false statements of material fact" with regard to the filing of the debtor's Chapter 7 schedules. The Court also found that the misrepresentations regarding informing the client of the second bankruptcy filing were in violation of Massachusetts Rules of Professional Conduct, Rule 1.4(a) http://www.mass.gov/obcbbo/rpc1.htm in that she failed to keep her client "reasonably informed" of the status of the case. Is this a case of Massachusetts legal malpractice? Perhaps, but are there damages to the client? We cannot tell from the Court's written decision.

The lesson to attorneys here may be foreshadowed in the Court's description of the "background" of the case: "The following is a cautionary tale of what occurs when the uninitiated attempt to practice [law] before the bankruptcy court without a firm grasp" of the rules of court and Massachusetts bankruptcy law.

The lesson to Massachusetts bankruptcy clients is that hiring an experienced bankruptcy attorney is critical.

Massachusetts Bankruptcy and Medical Bills

Mon, 12 Mar 2012 10:31:52 -0500

The main plaintiff in the lawsuit against the Department of Health and Human Services regarding the new health care act has filed for bankruptcy protection in Florida.... because she can't pay her medical bills!

Mary Brown and her husband own an auto repair business that allegedly failed. Thus, they are filing for bankruptcy protection to discharge $60,000 in consumer debts. This is what many of our clients are forced to do in Massachusetts bankruptcies. Ms. Brown's debts include about $4,485 hospital and doctor bills, which is not uncommon in personal bankruptcy. While the bankruptcy law will help the Brown family discharge their debts, they allege that the ACA law hurts them. Of course they are right; the ACA would require them to buy medical insurance. On the other hand, folks that can't afford their medical bills, including the Browns, put $60 billion worth of medical expenses on the rest of us.

The Patent Protection and Affordable Care Act, reincarnated as "Obamacare" in the current political campaign, requires that everyone purchase health insurance. Actually, like the Massachusetts health care law, it doesn't really require anything; it simply penalizes folks who won't buy medical insurance. Politics aside, the economics of that part of the law are simple: the folks that don't buy health insurance externalize their health care costs, the $60 billion, onto the rest of us. Or, to put it differently, if you don't buy insurance, you put the costs of your health care on me, and the "government" ends up paying the bill. So it's the government requiring you to do something, which seems unfair, but it is in order to pay your eventual bill, which seems fair to the rest of us. According to the brief filed by the respondents, absent the ACA insurance requirement, Congress found that people would simply wait until they had a medical condition before they started paying for insurance.

Ms. Brown and many others don't like the law and want the federal government out of their business. In the New York Times this morning, Court of Appeals Judge J. Harvie Wilkinson, III, put it this way: "It is tempting to shout states' rights when deeply flawed federal legislation is enacted, but the momentary satisfactions of that exercise carry long-term constitutional costs." Judge Wilkinson points out that we need the federal government to regulate commerce and national economic policy.

In any event, various people like Ms. Brown have sued the government, claiming that this part of the Affordable Care Act (ACA) is unconstitutional, and that it can't be separated from the rest of the law. The various Appeals Courts are split on whether the insurance requirement can be separated from the other parts of the law. Thus, the US Supreme Court has agreed to hear the cases to determine if the whole law has to be changed, if the requirement to purchase insurance is constitutional, or if the law is sufficient.

The ACA has many other facets, including removing the preexisting condition exclusions, making medical insurance tax deductions fairer, and incentives to reduce medical costs, with changes to Medicare. Wherefore, the Department of Health and Human Services calls the petitioners' demand that the whole ACA be declared unconditional "extraordinary" because it attempts to invalidate an entire, complex, law, based on one small part of it.

A significant point in the case against Ms. Brown is that, as one of the Appeals Courts pointed out "the lion's share of the Act has nothing to do with private insurance, much less the mandate that individuals buy insurance." However, the media is picking up the politically sensitive part of the ACA, which simply penalizes folks who don't buy insurance.

In a Massachusetts bankruptcy, you can discharge any medical or hospital bills. Contact our office for a free consultation.

Credit Cards, Bankruptcy and Happiness; an Academic Study

Mon, 05 Mar 2012 10:31:15 -0500

People are wired differently. That is, the human brain's "wires" are activated, or stimulated differently. In a study regarding credit cards and debt management undertaken by University of Michigan Ross School of Business Professor Scott Rick and others, the "insula" part of the brain had vastly different reactions to the same consumer stimuli. In controlled testing, about 30% experienced a "fired up" stimulation to the presentation of consumer products, while 50% had a "measured response" and 20% had a pleasure response. The "fired up insula" is analogous to a negative reaction to a smell, or injustice.

The study, entitled Winning the Battle but Losing the War: The Psychology of Debt Management, is expected to be published in the Journal of Marketing Research. Dr. Rick used the study to determine if someone was more likely to be a spendthrift or a tightwad. The spendthrifts overspend because they don't feel enough pain for their own good. The tightwads experience a vast amount of pain when spending or refraining from spending. Either extreme is, well, extreme and needs to be in better control. The goal, he says, is to be in the middle, or "unconflicted." Using credit cards eases the tightwads somewhat, however, the same use of credit cards has no different effect from cash for spendthrifts.

The professor points out the differences between someone who is a tightwad and someone who is frugal. A tightwad finds it difficult to spend, while a frugal person enjoys saving!

Dr. Scott Rick's paper regarding Debt Management explains the manifistations when it comes to credit cards. The professors' research concludes that notwithstanding the clear benefit of paying off the highest interest credit card first, consumers will regularly pay off the credit card with the lowest balance first. This is because consumers "break complicated tasks into more manageable parts, and because losses are most distressing when segregated" resulting in a failure to reduce total debt as efficiently or as effectively if their actions were more rational from a purely economic perspective.

The report points out that the average credit card user has $1,000 on each of five credit cards. Many have car loans, home loans, and school loans as well. The myriad types of debt can be confusing for consumers. There is some debt, such as mortgages, wherein the payoff generally results in significant equity.

Their advice? Tightwads should set up multiple bank accounts dedicated to various activities: the holiday account, once built up, can be fully spent on holiday gifts, for example. Mortgage debt, regardless of interest rate, as mentioned above, should be treated somewhat differently. Spendthrifts need to avoid credit cards, which they see as cash in their hands. They need to set short term budgets. Our Massachusetts bankruptcy clients take two required classes, entitled Credit Counseling and Debtor Education, which help "teach" that credit can be expensive because of the interest rates. Most folks know this, but some have no idea.

Further, the professors advised that financial institutions should display the "total amount of interest accumulated" which would "focus consumers on repaying high-interest debts." While the study does not mention the new Consumer Financial Protection Bureau that we have highlighted in our Massachusetts bankruptcy blog articles.

Filing Joint Bankruptcies in Massachusetts

Mon, 27 Feb 2012 13:38:51 -0500

When filing for bankruptcy protection in Massachusetts, is it necessary to file jointly if you are married? The simple answer is no.

There is no Massachusetts law or federal bankruptcy rule requiring spouses to file jointly. Often one partner has significant debt and the other doesn't. If John has sizable credit card debt and Suzie has no debt, and John qualifies, there may be no need to file a joint bankruptcy. This would have an unnecessarily bad result on Suzie's credit, for no reason. But any credit cards that Suzie did have a legal responsibility for, she would continue to be responsible for, notwithstanding John's bankruptcy and notwithstanding the fact that John may have been the one charging up the card.

However, it is important to meet with an experienced Massachusetts bankruptcy attorney to determine if you can actually save money, and get more protection, by filing jointly.

It is critical to examine the debts carefully. Often we undertake a bankruptcy for a client and then, sometime later, they reveal that some of the debts were joint and now they cant pay those either. We then have to do a second bankruptcy for the family, resulting in unnecessary time, legal fees and perhaps aggravation. For example, the new filing fee of $306 would only have to be paid one time if the couple filed together. Furthermore, a joint petition rarely costs significantly more than a single petition.

A reason to avoid a joint filing is when one spouse has already filed for bankruptcy protections within the last eight years. Then s/he can't file so we can help only the party that has not filed within that time period.

Another reason to avoid filing a joint petition is when one spouse has assets that they do not want the Court to get a hold of. However, be careful, as many assets are protected, or can be protected with Massachusetts bankruptcy planning. These include personal homes, up to $500,000 and most retirement accounts.

One question we often get concerns the Means Test in Massachusetts. This is irrelevant as to a joint filing because we need to put in the family income on the bankruptcy petition. You can't simply "file under my income" and avoid mentioning your spouses income. On the other hand, your attorney can work with you on the Means Test to your best advantage.

But what if the spouses have a joint mortgage? John can discharge his obligation and walk away from it if he files for bankruptcy protection, and he can hold off a foreclosure if he files. But Suzie can still be liable on the debt, and the foreclosure may still be able to proceed against her.

What about divorce? All too often we represent a Boston bankruptcy client who has just been through a divorce. The good news is that filing for personal bankruptcy in Massachusetts is usually less painful than filing for a divorce. The bad news is that notwithstanding a full discharge from the bankruptcy court of all debts, the court cannot discharge you from any of the obligations in the divorce agreement. Those include alimony and child support, of course. But it also includes any agreement to hold your former spouse harmless from certain debts. Thus, while you may no longer owe Bank of America on the credit card, you may be obligated to compensate your former spouse if BOA comes after him or her.

Famous Bankruptcies: It's an "Honor"

Wed, 22 Feb 2012 10:50:39 -0500

As a Boston bankruptcy attorney, I represent folks throughout Massachusetts in Chapter 7 bankruptcy. We don't have many clients who are famous, although all of our clients are important to us. Today's blog is an outline of a few famous people who have filed for bankruptcy protection. Our point is that if they could do it when the time was necessary, then so can you. Some of these folks squandered their wealth, but I would note that many of these celebrities later became famous after getting a fresh start.

Oldies But Goodies

The Dutch painter Rembrandt lived beyond his means and filed for bankruptcy in 1656. His paintings (and house) were sold at auction and have become some of the most treasured art works in the world.

In 1833, Abraham Lincoln filed for bankruptcy when his small business failed in Illinois. Of course, he later became the US president at the most critical time in our history.

Mark Twain, widely considered to be the quintessential American novelist, filed for bankruptcy protection in 1984. Nevertheless, he toured Europe with remunerative speaking engagements and endeavored to pay back his creditors even after the debts were discharged!

John James Audubon filed for bankruptcy when he was 34 before he completed "The Birds of America" which is considered a classic by birders ever since. It was his daughter, Lucy, who founded the Audubon Society, in 1886.

In 1895, Oscar Wilde filed for bankruptcy, owing 3,581 pounds. His friends helped pay 20% of the debt and he was forced to give up first editions of his books, including his only novel, The Picture of Dorian Grey, where he wrote "Many people become bankrupt through having invested too heavily in the prose of life. To have ruined one's self over poetry is an honor."

Walt Disney, believe it or not, filed for bankruptcy at age 21 when his Laugh O Gram Company failed.

Sports Stars

We reported on Eagles quarterback Michael Vick's bankruptcy back in August 2011.

An even bigger sports star, Mike Tyson, who had earned over $300 million filed for Chapter 11 bankruptcy in 2003, owing $27 million. He spent all of his money "extravagantly" which cost approximately $400,000 PER MONTH including buying pet Bengal tigers and funding a large entourage. He had been a world champion at the age of 20!

Baseball power hitter and American League MVP in 1988, Jose Canseco, lost his $2.5 million home (7,300 square foot California mansion) in a foreclosure in 2008. No bankruptcy was reported. His books reported on his steroid use and named names, including Mark McGwire, another home run record holder.

Leon Spinks, Lawrence Taylor Jonny Unitus and Bjorn Borg all filed for bankruptcy.

TV and Movie Stars

In 1971 and 1978, Larry King filed for bankruptcy. The CNN talk show host who interviewed more than 30,000 guests, was once $352,000 in debt and insolvent.

Kim Basinger filed for bankruptcy in 1993, apparently after investing $20 million in Braselton, a small town in Georgia. The venture was in partnership with the Ameritech Pension Fund. However, when she withdrew from the film, Boxing Helena, she was sued and lost $8.1 million. The bankruptcy clearly gave her a fresh start; in 1997 she won the Academy Award for L.A. Confidential.

Sherman Hemsley, also known as George Jefferson on "All in the Family" and "The Jeffersons," filed for Chapter 13 in 1999. Apparently he owed $1,000,000 to a Los Vegas company and taxes to the IRS.

Steven Baldwin, who stared in movies such as The Usual Suspects and The Flintstones, filed for Chapter 11 bankruptcy in 2009. His debts were listed at over $2.3 million, including two mortgages and unpaid taxes.

Artists

Wayne Newton, who got his start in Miami Beach working for the Jackie Gleason Show, filed for Chapter 11 bankruptcy in 1992 when he owed $20 million for his liable lawsuit against NBC. He was sued in 2005 by the IRS for back taxes, and by Michigan officials for abandoning a plane and neglecting to pay $60,000 in storage fees.

Vince Neil, of the Motley Crue, was sued for $16,000 by his own lawyer, and filed bankruptcy in 2010.

M.C. Hammer, the rapper, filed for Chapter 11 bankruptcy in 1996, with $13.7 million in debt. One debt was for$110,000 to his interior decorator. He did list assets of $9.6 million.

A personal favorite of mine, Meatloaf, filed for bankruptcy in 1983.

Business Tycoons and other Favorites

Donald Trump's hotels filed for a business Chapter 11 bankruptcy in 2004. And 2009!

Milton S. Hershey, who founded the Hershey Chocolate Company and Hershey, Pennsylvania, filed bankruptcy before he became famous.

P.T. Barnum, also before he became famous for founding The Greatest Show on Earth, filed for personal bankruptcy.

In 1988 Bud Post won $16.2 million in the lottery, overspent, and filed bankruptcy in 1996. He had purchased anything and everything the preverbal lottery winner would: tv's bigger than himself, homes, cars, trucks, motorcycles and a boat.

Anna Nicole Smith, former stripper and clothing model, filed for bankruptcy in 1996, just three years after being named Playmate of the Year by Playboy. She had lost a sexual harassment suit to her former nanny, resulting in an $830,000 judgment. She was perhaps more famous for her marriage to J. Howard Marshall and for the lawsuit following her death involving her daughter's inheritance.

John Wayne Bobbitt, who survived mutilation by his wife in 1993, subsequently filed personal bankruptcy.

Can A Trust Beneficiary File For Homestead In Massachusetts?

Tue, 21 Feb 2012 09:46:17 -0500

In a case decided by the Massachusetts Supreme Judicial Court on February 16, 2012, it was held that a beneficiary of a trust cannot acquire a homestead under the 2004 Massachusetts Homestead Law; you need to be the trustee. We wrote about the new Massachusetts Homestead Law in our March 14 2011 blog. The SJC, in response to a certified question by the US Bankruptcy Court, decided the case.

This was a case in which a debtor, Ms. Boyle, filed for bankruptcy protection in the Massachusetts bankruptcy court after having filed a Declaration of Homestead. Under the new Homestead law, the Declaration of Homestead protects home equity up to $500,000. In fact, under a new law in Massachusetts, the Homestead even protects homes held in trust. However, this case was decided under the prior law.

In this case, Boyle v. Weiss, Boyle and his wife conveyed their home to real estate trust in 1990. The trustee was their daughter, Maria. The beneficiaries of the trust were Boyle and another daughter, Roberta. They were each 50% beneficiaries. The trust had no "spendthrift" provision, protecting the beneficiaries from creditors in bankruptcy. The trust gave the trustee the power to manage, buy and deal with real estate. In 2010, Roberta Boyle filed a Homestead with the Registry of Deeds and then, four days later, filed for bankruptcy. The sequence of events is, generally, entirely proper.

Unfortunately, because she was neither a direct owner of the land, nor a trustee, the Court found that she was not an "owner" under a strict reading of the 2004 Homestead statute. Although she lived on the property, and it was her home, she was, technically, a tenant at will, subject to the trustee giving her a 30-day notice to quit. Ms. Boyle argued that the language of the 2004 law said "by lease or otherwise" and the Court, even stating in a footnote, that the Homestead law should be construed liberally, could not stretch it to include someone who, although she held a beneficial interest in the home, was not under any life estate or lease. Wherefore, she was not protected by the 2004 Homestead law.

On March 16, 2011, a change to the Homestead Act went into effect in which two new classes of people can file for Homestead protection: owners of a life estate and a "holder of a beneficial interest in a trust." Ms. Boyle was clearly in the later class. The Court stated that when the "legal and equitable interests in a trust merge in one person" such as when someone is both trustee and beneficiary, "that person especially may be eligible to file a declaration of homestead" when they live in the home. Unfortunately, Ms. Boyle filed for bankruptcy protection prior to the new Homestead law going into effect and the law did not contain a looking back provision.

It seems that Ms. Boyle was caught in a difficult trap. Could proper bankruptcy planning have prevented this? Perhaps. We don't know the facts without looking at her Massachusetts Bankruptcy Petition and the situation regarding the trust, the trustee and the beneficiaries. There was likely no other way to protect Ms. Boyle back in 2010. This case demonstrates, however, the reason for using an experienced Massachusetts bankruptcy attorney before filing for bankruptcy protection in Massachusetts.

Attorney's Misrepresentation is not Dischargeable in Massachusetts Bankruptcy

Mon, 13 Feb 2012 13:15:37 -0500

What are dischargeable debts in Massachusetts bankruptcy? In a case recently decided by Federal Bankruptcy Court of Massachusetts, the issue of an attorney's deliberate misrepresentation was considered non-dischargeable. What happened?

In the case entitled In Re: Lambert, Patricia A. (Hoffman, J.) (USBC) (Chapter 7 Case No. 09-45047-MSH; Adversary Proceeding No. 10-04030) (Oct. 27, 2011), a client, Unger, filed suit against his former attorney, Patricia Lambert. The lawsuit was filed in Massachusetts Superior Court by Unger, alleging that his lawyer, Lambert, had induced him into an investment and made false promises, misrepresentations and breached her fiduciary duty to him.

The first step in a Massachusetts legal malpractice case is to determine if there was, indeed, any attorney client relationship. This is crystal clear sometimes. Other times it can be murky. If you make an investment with your attorney, in what capacity was the attorney acting in encouraging or inducing you to make the investment. Unger sought counsel in Lambert after inheriting money and needing investment and legal advice. Unger's Massachusetts legal expert testified that Lambert, as an attorney, "violated her fiduciary obligations" to Unger. Lambert asserted that they were investors, and no attorney client relationship was established. Based on the testimony, the jury determined that there was an attorney client relationship.

The trial took seven days. The jury found that Lambert did misrepresent herself and reached a verdict that said that of the $230,000 that Mr. Unger lent to Attorney Lambert, $55,000 was an investment and the rest was a loan. There was a verdict of $170,488.
Following the jury verdict, the judge held a hearing on Unger's Massachusetts Chapter 93A count and found that the jury verdict of false promises, misrepresentations, and breaching her fiduciary duty constituted "willful and knowing violations of General Laws Chapter 93A." The Court determined that the Unger's attorney fees were $120,000 and doubled that under 93A, added $130,409 in interest, and $25,000 in costs, entering a judgment in the amount of $566, 615. The Massachusetts Appeals Court affirmed the judgment and 93A finding, but changed the way it was calculated.

Wherefore, Lambert filed for bankruptcy protection. In bankruptcy court, creditors, such as Unger, can initiate an "adversary proceeding" seeking a determination that his debt is nondischargable. Federal Bankruptcy Law, Section 523(a)(2)(A) says a debt is not dischargable to the extent obtained by . . . false pretenses, a false representation, or actual fraud" and Section 523(a)(6) says that a debt is not dischargable if obtained by "willful and malicious injury by the debtor to another entity." It was now the Bankruptcy judge's decision to determine if the state court findings fit the federal court description of not dischargable.

The bankruptcy court used a six-prong test to determine if the debt to Unger was non-dischargeable: 1. did the debtor make knowing false representations, or one made in reckless disregard of the truth; 2. Did the debtor intended to deceive the creditor, Unger; 3. Did Lambert intend to induce Unger to rely upon false statements; 4. Did Unger actually rely on the false statements; 5. Lambert's reliance was justifiable; and, 6. Unger's reliance caused financial damage. The bankruptcy judge looked carefully at the lower court findings of intentional misrepresentations and determined that Unger was entitled to a judgment in his favor in the bankruptcy court. Wherefore, Lambert cannot discharge her debt, the state court judgment, and Unger may attempt to collect it notwithstanding the bankruptcy.

Causes of Bankruptcy In Massachusetts

Wed, 08 Feb 2012 13:00:17 -0500

No, this blog article is not going to employ any scientific study of how folks end up in Massachusetts bankruptcy , but perhaps this is a somewhat empirical study of what a Massachusetts bankruptcy lawyer sees, after years of filing personal bankruptcy petitions on behalf of clients in Massachusetts. There are no conclusions, only thoughts.

First, let's look at Jerry Maguire, played by Tom Cruise in the movie of that name. The movie, apparently, was loosely based on real world sports agent Leigh Steinberg. After years of alcoholism, Mr. Steinberg has filed for bankruptcy protection in California. Mr. Steinberg bears little resemblance to our Massachusetts bankruptcy clients - he owes $1.4 million in back rent for a Newport Beach office, and $450,000 to a former NFL player. On the other hand, his income is $3,583 per month, or $43,000 per year, he drives a 2001 Ford SUV and he has $50,000 in credit card debt. Many of our clients have some of these characteristics, including an illness that sent them into an economic downward spiral.

While US statistics show that over 40% of bankruptcies are as a result of medical bills, we don't see that in Massachusetts. Indeed, in a 2003 study by UC David professor Ning Zhu showed that personal bankruptcy was directly correlated with oversized mortgages, car loans and credit card balances. On the other hand, illness related, beyond addictions such as alcoholism, clearly results in many folks loosing jobs, or being unable to work and care for family.

The media, and especially some of the vicious politicians and talk show hosts, point to uncontrolled spending. Indeed statistics show that about 15% of bankruptcies are as a result of this. We don't see it that clearly. Very few folks come in needing bankruptcy protection after world wide cruises and gala parties. Sometimes we see folks who have mismanaged their financial affairs: buying a car that required too big of a payment; buying a house that is underwater financially and in need of repair; or, simply letting small credit card bills with high interest get out of control.

Divorce is supposedly the cause for 8% of personal bankruptcies. We see a lot of this. For example, often the parties cant divide the debt because neither one can get new financing on their own; then one spouse remains in the house and defaults, but has no income. Of course the bank comes after the other spouse. It happens with credit cards too. These bankruptcies are sometimes not avoidable, but sometimes, with different advice at the time of the divorce, the may be avoidable.

The biggest cause Massachusetts personal bankruptcy that we see is as a result of job loss. Nationally, the number is 22% of bankruptcies are as a result of job loss. This comes in many forms in Massachusetts. We see the folks who just can't hold on to their homes with unemployment insurance. We see many folks who, following a job loss, go through their entire retirement savings (401ks and IRAs). Other folks borrow from family and friends for a period of time. This often takes a while, and then, when the job search fails to yield any significant result, they come in for a bankruptcy consultation.
Fortunately, Massachusetts bankruptcy gives you a "fresh start." In most instances, if your home is paid up, you can keep it, thanks to the Massachusetts Homestead Law. You can discharge credit card debt, medical debt, personal loans, and even some taxes. Regardless of the cause for our clients' bankruptcy, or for "Jerry Maguire's," the law can give incredible relief. Read our blog http://www.bostonbankruptcylawyerblog.com/ or call us for a free consultation at 617-227-7423.

Massachusetts Payday Loans and Bankruptcy

Fri, 27 Jan 2012 09:40:49 -0500

Many folks come to us to discharge their debts in Massachusetts bankruptcy and get a fresh start. Often we see payday loans on their credit report. Massachusetts has very strict laws regarding payday loans. There are no actual payday lenders in Massachusetts, so folks often use the internet. However, in Massachusetts, payday loans require full documentation, the due date of the loan must be in writing, there cannot be any pre-payment penalties, the whole transaction must be complete within 14 days, and there are strict rules on how unpaid loans can be collected against. Of significance, interest rates cannot exceed 23%. These consumer protections are why we don't see as many payday loans: they just are hard to get in Massachusetts. On the other hand, many of our clients have worked in other states, where the loans have become onerous.

In any event, payday loans are loans pledged against a worker's next paycheck. Seventeen states allow payday loans, which have, to date, been so under regulated that some interest rates exceed 400%. One report we read said interest rates were as high as 521%

We have written about consumer advocate and Harvard Law Professor Elizabeth Warren in the context of bankruptcy news and as the founder and initial leader of the Consumer Financial Protection Bureau, however, now that she has become a candidate for the United States Senate for Massachusetts, we will refocus our energies on the CFPB and it's new Chief, Richard Cordray. Cordray's first order of business after being an interim appointment (Senate confirmation was not an option) is conducting hearings on Payday loans. (Ironically, the Dodd-Frank Act of 2010 expressly forbids the CFPB from regulating non-banks until a director was appointed, and then the Senate refused to allow an appointment, adversely affecting consumers.)

Payday loan makers may provide a valuable service. If someone needs money immediately, is working, and will be able to secure that money by the end of the week or pay period, it would be invaluable to have access to a loan for that money instantly. However, folks that fit into this category are often taken advantage of. It is the protection of those workers that the CFPB is addressing in their public hearings and investigation.

The Consumer Federation of America undertook a study of payday loan providers and published their findings in August 2011. They claim that interest rates for a $500 loan was 652%, and in Kanas the range was from 378% to 780%. They found that some lenders circumvented state laws by using international forums to lend the money; some used Native American tribal bases for their lending. Among their many conclusions was that "payday loans are a debt trap."

If you search payday loans on the internet, you will find a lot of advertisements. The first one I found said I could get cash in one hour! All over the internet, of course. However, if you read the fine print, it indicated it was not available in Massachusetts. Another provider of payday loans used such cryptic language, even a Boston bankruptcy lawyer could not determine if they would provide a Massachusetts payday loan!

We applaud the efforts of the new CFPB to investigate these practices; we urge our clients to double check where they are getting loans from, what the interest rates really are, and what laws they are subjecting themselves to by taking out any loans.

Massachusetts Bankruptcy Cases Down in 2011

Thu, 26 Jan 2012 09:38:49 -0500

Personal bankruptcies were down in 2011, for the first time in several years, according to preliminary reports. The estimate is that 1.35 million personal bankruptcies were filed in the United States, which was down approximately 12.5% from 2010. As the Boston bankruptcy lawyer reported on January 5, 2011 in our bostonbankrutpcylawyerblog.com bankruptcies were up in 2010 by 9%, with over 1.55 million being filed in 2010. In 2005, the year the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 went into effect, there were over 2 million personal bankruptcies filed.

In Massachusetts, the specifics look like this: 19,777 total bankruptcies were filed in 2011. Of those, 75% were Massachusetts Chapter 7 personal bankruptcies and 25% were Chapter 13 bankruptcies. With a population of over 6.5 million, that is a rate of 300 bankruptcies per capita. We ranked 33rd of the 50 states and District of Columbia in rate per capita. The Massachusetts rate decrease in bankruptcy filings was 0.52%, significantly lower than the rate of decrease in the rest of the country.

The only state with an increase in bankruptcies in 2011 was Utah, where the rate was up a nominal 1%. The states with the largest decreases in bankruptcy rates were Nevada, where the decrease was 19% and Florida, where the decrease was 16%. Still, there are a lot of states with high bankruptcy rates, including California, Colorado, Tennessee, Alabama and Georgia.

In an interesting article published by Boy Lawless in Credit Slips in December 2010, it was predicted that there would be 1.457 million bankruptcy filings, based on a statistical analysis. We're not going to give a scholarly review of Mr. Lawless' analysis, but it seems to be fairly accurate, and, more significantly, Mr. Lawless says that the trend is what we should watch. His notion of the trend in bankruptcies decreasing was spot on. Lawless, a professor at the University of Illinois College of Law, has said that "consumer credit" is the "most significant indicator" of what drives bankruptcy rates.

Thus, we looked at consumer debt in the US. Credit card debt, which decreased between 2008 an 2010, increased in 2011. According to the Federal Reserve report on consumer debt, credit card debt increased 9% in 2011. Another measure of consumer debt, student loan debt, was up in 2011, with the total being $845 billion when measured in the middle of last year. This should be watched carefully because, unlike credit card debt, student loans are very difficult to discharge in bankruptcy.

Professor Lawless is proposing that federal bankruptcy petitions include a question about the race of the filer. This is because of recent evidence that black bankruptcy petitioners have been found to file Chapter 13 bankruptcies disproportionate to white filers.

In our sister country to the north, Canada, bankruptcy statistics can be instructive. Their swings tend to be less dramatic than ours. According to the Office of the Superintendent of Bankruptcy in Canada, the rate of bankruptcy in Canada fell by approximately 8.1% last year. Further, in Canada, there more folks filing "consumer proposals," a Chapter 13 style bankruptcy, in which a percentage of the debt is paid back.