Archive for January, 2012

A few weeks ago, Sean Quinn, once the richest man in Ireland, filed for bankruptcy protection. But according to sources, his bankruptcy filing has not gone the way he imagined it. First, Quinn (who made billions in construction and real estate ventures and lost it through a bad gamble investing in Anglo-Irish Bank), was not permitted to file his bankruptcy petition in Northern Ireland.

Like many other “bankruptcy tourists” in the Republic of Ireland, Quinn apparently wanted to take advantage of the United Kingdom’s more lenient bankruptcy laws to make his case. He was thwarted, though, just recently, when a court ruled that he had misled the Northern Ireland bankruptcy authorities about the hub from which he conducted most of his business.

Now, filing for bankruptcy in the Republic of Ireland (which is independent of the U.K., unlike Northern Ireland, which is under the U.K.’s aegis), Quinn will have to wait about 12 years before the bankruptcy is cleared from his credit record. In the U.S. Chapter 7 bankruptcy remains on a person’s credit report for 10 years, but its impact diminishes with time.

“A Personal Vendetta”

In a move that does nothing to make him seem more sympathetic, Quinn has now reportedly accused Anglo-Irish Bank of holding a “personal vendetta” against him, and for that reason making his bankruptcy filing more troublesome.

Briefly, Quinn’s history with Anglo-Irish Bank (AIB) is this:

  • During the housing bubble, AIB extended itself beyond its means with ill-advised real estate loans.
  • Convinced the bank would rebound from its troubles, Quinn invested in its stock, gaining as much as a 28 percent stake in the company.
  • In addition to investing in the bank, Quinn also borrowed money to reinvest, putting himself largely at the bank’s mercy, should it collapse.
  • In 2008, AIB was forced to nationalize to avoid complete collapse. The process resulted in eliminating investments Quinn had with the bank worth about €2.8 billion.

Now Quinn owes AIB more than €2 billion. The now-nationalized bank has since received an order from a Dublin bankruptcy court to collect that money from Quinn. During the course of his bankruptcy, he will likely have to pay most or all of what he owes, or surrender assets to compensate the bank.

At present, it seems the bank is legally pursuing collection of the loan, though Quinn maintains that its officers pushed him into making unwise investments that led to the debt in the first place.

If there’s any kind of “lesson” we can take away from this tale of wealth and woe, it’s one of relief: it’s always refreshing to realize that our debts are not quite as overwhelming as they might be.

A class action lawsuit being brought against JPMorgan Chase alleges that the bank engaged in fraudulent activity in tens of thousands of bankruptcy cases.

The suit claims that the bank actively deceived many people involved in the bankruptcy process, including Chapter 7, Chapter 13, and Chapter 11 trustees; bankruptcy judges; creditors; creditor attorneys; debtors, debtors in possession, and debtors’ attorneys; and the Office of the United States Trustee.

Among the charges being leveled against Chase are that the bank did the following:

  • Committed fraud, perjury, and intentional misrepresentation in bankruptcy court by producing false title transfer evidence (sources claim that the bank used PhotoShop in some cases) in order to “prove” its stake in thousands of bankruptcy cases.
  • Provided manufactured evidence to willfully deceive those involved in the bankruptcy process about who truly held class members’ non-negotiable promissory notes.

What is Chase Actually Accused Of?

In plain English, Chase is facing charges of providing false evidence regarding home mortgages in bankruptcy cases. Specifically, the lawsuit alleges that:

  • Chase fabricated documents that recorded its chain of ownership of residential mortgage loans. In order to be able to claim ownership of mortgage debt in bankruptcy court (or any court), a person must have a hard copy of the mortgage’s promissory loan (also called a Master Loan Note, or MLN). Because of electronic mortgage registration systems and securitization of mortgages (two factors that greatly contributed to the expansion and burst of the housing bubble), however, most banks no longer hold paper MLNs.
  • Chase presented falsified documents in bankruptcy court. In order to “prove” that it was the lender to whom a bankruptcy filer owed money, Chase allegedly presented these fabricated documents to bankruptcy courts (because it did not have actual documentation).
  • Chase rewarded lawyers for speedy action. During a bankruptcy case, filers are protected from collection actions like foreclosure by the automatic stay. But creditors can petition the court to lift that stay in order to collect on certain debts. In Chase’s case, the charges claim, the bank rewarded attorneys for producing false documents quickly and convincing the court to lift the stay quickly so that Chase could foreclose or collect money on a bankruptcy filer’s home.

Who is Affected By the Class Action Suit?

The class named in the suit (Ernest Michael Bakenie v. JPMorgan Chase Bank, N.A., filed in the Central District of California) includes bankruptcy filers who live in California. To find out whether you are a member of the class, you can consult with a bankruptcy lawyer in your area.

Plaintiffs in the suit are seeking damages, restitution, injunctive relief, and disgorgement of profits.

The bankruptcy judge overseeing the bankruptcy of the Los Angeles Dodgers has approved an agreement reached between the team and Fox News, meaning that a sale of the team can go forward, according to reports from the Associated Press.

The news was met with relief from the team’s creditors, because quick approval will likely translate to the team’s ability to maximize the value of its bankruptcy estate with a timely sale and fewer legal negotiations than might have otherwise been required. Creditors get paid based on the amount of money available in the bankruptcy estate, so the agreement and court approval seem to be good news for everyone.

While the bankruptcy of a professional baseball team may seem as if it’s worlds away from most people’s individual debt struggles, the Dodgers’ bankruptcy drama actually provides a great jumping-off point to clarify some key elements of the process of personal bankruptcy.

What the Dodgers Can Teach You about Personal Bankruptcy

Avoid the mistakes that led this baseball franchise into bankruptcy court, and you’ll improve your own odds at financial success.

  • Don’t live off future earnings. One major reason the Dodgers were pushed into bankruptcy was because the team’s owner, Frank McCourt, was counting on the renewal of a TV deal from Fox Sports to pay salaries in the coming year. When Major League Baseball’s commissioner rejected the contract Fox offered, McCourt was left with few choices other than to file for bankruptcy and lose control of the team—which is what the commissioner wanted in the first place (see the next list item).
  • Dicey accounting won’t hold up in the long term. One reason MLB’s commissioner pushed the Dodgers into bankruptcy was because McCourt was allegedly using team money for non-team (i.e. personal) expenses. It seems McCourt frittered away as much as $180 million that didn’t belong to him, which led higher-ups in the league to target him for removal.
  • Sometimes, you are your own best asset (in a good way!). The Dodgers are working on finding a new TV deal, which will partly finance their team expenses next season. Because enough people want to watch the Dodgers, the team should be able to emerge successfully from bankruptcy protection—and the same is true of most individuals! If you have the drive and determination to eliminate your debt and prove yourself to be a good credit risk, creditors, employers, and others will eventually see that and you’ll be able to recover after bankruptcy. Bids to purchase the Dodgers were due on January 23, and already a number of possible buyers have reportedly expressed interest in the team.

Thursday, January 12th, 2012

NY Mets Taking First Step Toward Bankruptcy?

In a statement released last week, the New York Mets (i.e. the city’s non-Yankees baseball team) announced that it was enlisting the help of a financial firm known as a “turnaround specialist and bankruptcy consultant,” as the New York Times puts it.

In 2010, the company helped oversee the bankruptcy filing of the Texas Rangers. But while the Mets are reportedly facing some pretty serious debt burdens (including $400 million owed to several banks and $25 million owed to Major League Baseball), the team has not given any other public or official indication that it is considering a bankruptcy filing. Still, the consultation with the bankruptcy-focused firm suggests that the team is certainly considering court protection.

So what can individuals learn from the Mets’ maneuvers? Primarily that the bankruptcy process should begin long before an individual actually files his or her bankruptcy petition with the court. For most individuals, the bankruptcy process really begins during the information-gathering period.

Talk with the Right People Before Choosing Bankruptcy

Like the Mets, those considering personal bankruptcy can and should consult with knowledgeable sources before deciding whether or not to file a petition with the bankruptcy court. Individuals have a few choices about whom to speak to:

  • A credit counselor: Many credit counseling organizations provide free or low-cost financial evaluations for consumers in need of guidance about whether or not to file for bankruptcy. Credit counselors run by community groups often charge little or nothing for leading consumers through a non-bankruptcy debt elimination process. And if you do decide to seek bankruptcy protection, the court requires a pre-filing credit counseling session anyway.
  • A bankruptcy lawyer: Most bankruptcy lawyers offer free initial consultations during which they can help clients determine whether filing for bankruptcy makes sense financially. After that consultation, the client can move forward with bankruptcy or a bankruptcy alternative confident that his or her decision will work in his or her own best interest.
  • An accountant: Those who work with an accountant or tax preparer regularly may find consulting with this person useful as part of the bankruptcy-consideration process. Small business owners may be best served by an accountant’s opinion.

The Importance of A Well-Informed Bankruptcy Decision

Filing for bankruptcy is a major financial step in anyone’s life, and should not be undertaken lightly. Further, waiting until the last possible minute to file for bankruptcy can have detrimental effects on an individual’s or family’s finances.

By starting the bankruptcy process well ahead of actually filing a bankruptcy petition, individuals set themselves up for a less stressful (and potentially more successful) bankruptcy process. For many Americans struggling with debt burdens, consulting a financial or bankruptcy professional is the first step in making a decision about bankruptcy.

A recent article on lashes out against the state of student lending and student debt in the United States. The author makes several salient points regarding the problems surrounding student debt, which cripples many graduates largely because it is very difficult to discharge in bankruptcy.

But what makes a loan “predatory?” The nation conspicuously lacks a legal or official definition for “predatory lending,” but the Forbes article cites many attributes of student loans that suggest they might fall into this category. These include:

  • Student loans do not come with “free-market consumer protections.” Student loans cannot easily be discharged in bankruptcy (compared to other unsecured loans); borrowers do not have the option to restructure their student loans; and these loans come with no real statute of limitations in most cases. Lacking these protections, borrowers are more or less bound for life to repay any money they borrow for their education.
  • The organizations that are meant to oversee student lenders (called “guarantors”) make roughly 60 percent of their revenue from fees and penalties associated with loans that have gone into default. In other words, the groups intended to protect borrowers from lender abuse actually have a financial interest in borrowers not being able to repay their loans as outlined in their loan terms.
  • Student lenders have broader debt collection rights than other types of lenders. This means that they have a better chance of collecting some or all of the money owed to them (including money owed as part of penalties and fees).

Comparing Other Types of Predatory Loans to Student Loans

To refresh your memory about problematic predatory lending that has made headlines in recent months and years in the U.S., here’s a quick outline of how two different types of predatory loans were outed and then blasted by pretty much every consumer advocate in the country.

  • Subprime mortgages: These fueled the housing bubble (and bust), and essentially amounted to lending money to people who had no real chance of repaying it. One of the hallmarks of many subprime mortgages issued was that those in the lending, loan servicing, and investment fields had financial incentives for the loans to fail. In other words, these people stood to make money when borrowers defaulted on their loans, because of late fees and other penalties (sound familiar?).
  • Payday loans: The target of several pieces of legislation in recent years, payday loans are profitable to the lenders exactly because borrowers are not expected to be able to repay them as originally agreed. Payday loans become most lucrative when borrowers must pay late fees and penalties—meaning, of course, that they were designed to extend money to those who did not have a good chance of repaying it.

Congress has made some noise about reforming the student loan industry, but as of now, no real, meaningful changes have been implemented.

A new trend in the Southwest suggests that the country’s bankruptcy courts are finally taking advantage of technology that many other industries have already adopted: online chat forums. Sources note that bankruptcy courts in Arizona, New Mexico and Nevada have all started dabbling in online contact for court users.

As many other companies have discovered, offering online chat forums provides consumers with a convenient way to get information about the nuts and bolts of bankruptcy law.

Help for Real Estate and Bankruptcy Lawyers

One interesting element of the new trend, according to sources, is that some of the first to take advantage of the online chat forums have been real estate lawyers who have expanded their practices to represent clients interested in filing for bankruptcy.

Likely a result of the implosion of the housing bubble (which hit especially hard in the Southwest), many real estate lawyers have apparently seen bankruptcy proceedings become a much larger part of their clients’ daily needs. This can be attributed to the fact that Chapter 13 bankruptcy can be used as a means of halting or delaying mortgage foreclosure.

But because most real estate lawyers lack the training and experience in bankruptcy laws and bankruptcy court proceedings, they have more questions about navigating the bankruptcy court system than traditional bankruptcy lawyers do, it seems.

Enter the online chat forums.

Online Forums Available to Bankruptcy Filers, Too

In addition to providing pointers to lawyers representing bankruptcy filers, the bankruptcy courts with online chat forums also offer valuable services to individual bankruptcy filers interested in learning more about the process or nitty-gritty details of filing a bankruptcy case.

Those interested in filing for personal bankruptcy can use the online chat system to:

  • Ask for direction about where to find necessary forms or schedules for filing a bankruptcy case;
  • Clarify parts of the Bankruptcy Code that they cannot decipher for themselves;
  • Learn about deadlines, procedures, and requirements of the bankruptcy court; and
  • Get general information about how bankruptcy works and what they can do to prepare for bankruptcy or recover from a bankruptcy filing.

The Internet as a Bankruptcy Tool

Since the Internet went mainstream, potential bankruptcy filers have used it to research the bankruptcy process and potential effects of filing for bankruptcy on their financial lives. The introduction of a venue where filers can get their questions answered directly marks a natural progression toward more and more consumer-oriented online offerings.

At present, the online chat forums are only available for filers in a few states; however, if their success continues to grow, other areas of the country may introduce similar tools for filers and potential filers.