Archive for the ‘The Law and Your Money’ Category

Wednesday, February 1st, 2012

Bankruptcy Class Action Settlement Update

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In 2009, a class action lawsuit brought in California challenged credit-reporting bureaus TransUnion, Equifax, and Experian with improperly reporting debts discharged in bankruptcy. The defendants (that is, the credit-reporting bureaus) eventually came to a settlement with the plaintiffs (the people responsible for bringing the suit), to the tune of $45 million.

The court approved the settlement by issuing an Order Granting Final Approval, but on August 12, 2011, the defendants filed a brief challenging that order, in regards to attorney fees and costs of the case. The result of this appeal won’t be known until at least later this year: the deadline for Appellants to file relevant briefs with the court is January 23, 2012, and Appellees have until February 24, 2012.

Will You Get Settlement Money?

The lawsuit was brought because Equifax, Experian, and TransUnion improperly reported debts that had been discharged in bankruptcy on consumers’ credit reports. Rather than noting that these debts were “discharged through bankruptcy,” the credit bureaus noted that they were “120 days late” or that they had been charged off by the credit issuer.

Incorrectly reporting the status of a debt is illegal (which is why the lawsuit was filed), but it also caused a lot of grief for the people affected. When a debt is still reported as active, debt collectors may try to collect on that debt.

The result was that people who had filed for bankruptcy and gone through the entire bankruptcy process precisely to eliminate their debts and stop getting hassled by debt collectors were having to deal with debt collectors anyway (along with the stress of trying to sort out why their credit reports were incorrect).

You are eligible to collect some of the settlement if…

  • You are a member of the “class” represented by this class action case. To be a part of the class, you must have received a debt discharge under Chapter 7 AND had a credit report issued by one of the defendants (i.e. the three credit reporting bureaus) between March 15, 2002 and May 11, 2009 with incorrectly reported discharged debts.
  • You must have submitted a claim form with relevant information no later than November 30, 2009.

If you missed the deadline, however, don’t worry too much. Even though the settlement amount seems large, it will be spread out over so many individuals that it likely won’t result to more than a few dollars per person.

If, however, you’re interested in exploring other legal options regarding errors on your credit report, you may want to consult with a lawyer about the recourse available to you.

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.

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.

Thursday, December 15th, 2011

Future Income and Bankruptcy Fraud

Every so often, there’s a local news story about someone who has been convicted of bankruptcy fraud. This week, the case belongs to one George Raynor, of Baileyville, Maine. While the case itself isn’t exceptional in any way, it highlights an important precaution for potential bankruptcy filers to note in order to avoid a fraud conviction.

What Is Bankruptcy Fraud?

Bankruptcy fraud is exactly what it sounds like: a bankruptcy filer’s provision of false information to the court that alters the outcome of his or her bankruptcy case. In some cases, bankruptcy fraud can be unintentional, but its penalties are steep: those convicted of bankruptcy fraud might face up to five years in jail and up to $250,000 in fines.

Common examples of bankruptcy fraud include an attempt to shield property from the court; a filer might attempt to transfer property from his or her name to the name of a friend or family member or might simply fail to report ownership of a piece of property or sum of money.

But bankruptcy fraud can also occur when a filer fails to mention income he or she is expected to receive in the future. Raynor’s case falls into this category.

Reporting Future Income in Bankruptcy

According to the Bangor Daily News, Raynor and his wife filed a bankruptcy petition in 2006 but, in their list of assets, did not mention:

  • A savings account in a bank;
  • A deferred compensation retirement account valued at roughly $150,000;
  • A lump sum payment from his retirement account in the amount of $97,000; and
  • A payment from his former employer of $12,000 as compensation for unused sick and vacation days.

Now convicted of the charges, Raynor could see as much as five years behind bars and fines of up to a quarter of a million dollars. To date, Raynor’s sentencing has apparently not been scheduled. Often, the amount of the fine assessed on a bankruptcy fraud conviction roughly equals the amount of money or value of property that the filer attempted to withhold from the court.

Avoiding Bankruptcy Fraud in Your Filing

One of the easiest ways to avoid bankruptcy fraud is to work with a bankruptcy lawyer. Working with someone who is familiar with state bankruptcy laws and the procedures of the bankruptcy court can go a long way toward avoiding mishaps that could delay or derail a case.

Lawyers can also advise filers about which of their assets they must list, whether gifts or property transfers will be considered legal by the court, and what outcomes they can expect from their bankruptcy case.

In cases where a filer may have future income due to him or her, a lawyer can help determine how to calculate the value of that income and how to report it on bankruptcy filing paperwork.

A report in the New York Daily Record notes that lawyers in large numbers are reporting using—and loving—their iPads. This report suggests that bankruptcy lawyers and others are embracing new technology to interact with clients in new and exciting ways.

Since the gadget’s introduction in the spring of 2010, iPads have sold more than 40 million units, outpacing many estimates and suggesting a sea change in the way people interact with digital media. In particular, though, iPads have proven popular among attorneys. Here’s a look at the numbers for law firms with 50 or more attorneys:

  • 25 percent noted that the iPad would be their next major technological purchase.
  • 11 percent reported already having bought iPads for their lawyers.
  • 55 percent indicated that their IT teams are employed at least in part to help with issues involving lawyers’ personal tablet devices.
  • Of lawyers who use a tablet device for work, 89 percent prefer the iPad.
  • Fully 15 percent of lawyers utilize their tablets to do work when they’re not in the office.

At firms with over 500 attorneys, those numbers are even higher.

How You Benefit from Lawyers with iPads

More so than other technological innovations of recent years, the iPad promotes connectivity from anywhere. Attorneys who have and use iPads (at work and on the go) may be, according to the numbers, more able to stay in touch with clients.

That could translate, for example, to not missing a bankruptcy court deadline when a client remembers something at the last minute. It could also mean that lawyers are more accessible to answer questions clients have about their cases.

In various contexts, access to a tablet computer like the iPad means that a lawyer can connect to vast databases of legal publications within seconds, thus potentially streamlining the processing of much client information and of tracking down legal precedents for various courtroom maneuvers.

Highly connected lawyers have a greater likelihood of staying current with the latest legal trends reported in the mainstream media as well as traditional legal publications.

A Permanent Change in Communication?

Analysts of the impact the iPad has had (and is expected to have) on our communication and culture as a whole are not yet sure how great an impact the tablet’s introduction will have on the way we do business and conduct our personal affairs.

Some insiders suggest that, viewed through a historical lens, 2010 will mark a turning point in how we conduct business, read, interact with digital media, and go about our personal lives. Want to find out whether the iPad craze has swept your lawyer’s office? Ask him or her about technology use during your next visit. You may learn something useful!

Recent court rulings may have significant impact on how bankruptcy courts handle escrow debts in some Chapter 13 bankruptcy cases. Here’s an overview of the issue and how escrow debts are likely to be handled in future bankruptcy cases.

What Are Escrow Accounts?

Escrow accounts are accounts set aside as part of a mortgage deal to hold money for expenses like property taxes and homeowner’s insurance. In many cases, the mortgage lender or servicer collects escrow money as part of monthly mortgage payments.

How Do Escrow Accounts Affect Chapter 13 Bankruptcy?

When a homeowner falls behind on mortgage payments, she likely also falls behind on escrow payments. This can lead to difficulties paying property taxes and other non-mortgage fees associated with homeownership.

This may become problematic if a person files for Chapter 13 bankruptcy to avert foreclosure, which is fairly common because of the foreclosure-halting powers of the automatic stay. In Chapter 13 bankruptcy cases, the following might happen to escrow accounts:

  • Mortgage debts can’t be modified in bankruptcy court. This provision was established decades ago as part of efforts to encourage homeownership among Americans. But for underwater homeowners today, it can mean bankruptcy filers have great difficulty keeping their homes, because it means that homeowners must continue making payments as they agreed in their loans.
  • Escrow arrearages are listed in the petition. Overdue escrow payments must be included on bankruptcy paperwork. The good news is that a recent court ruling (in the case In Re Beaudet) asserted that overdue escrow payments accrued before a bankruptcy filing can be considered non-mortgage debts. That means they can be included as part of the bankruptcy repayment plan and repaid over a three- to five-year period, possibly at a lowered interest rate.
  • Future escrow debts are undefined. The bankruptcy case did not establish, though, whether missed escrow payments in the period after a bankruptcy case is filed would be considered part of mortgage debts. In other words, those who continue to have difficulty making their mortgage payments after filing for Chapter 13 may or may not be required to make escrow payments in addition to regular loan payments.

For now, Chapter 13 filers may have to rely on case-by-case judge discretion when missed escrow payments are part of a bankruptcy estate. Considering the high number of struggling homeowners, though, it’s possible that bankruptcy court rulings will decide the issue definitively in the near future.

The housing crisis has led to plenty of attention for homeowners who are underwater on their mortgages – that is, who owe more on their homes than the properties’ current value. Less press time has been devoted to other types of underwater loans, particularly those for cars.

The good news? Filing for bankruptcy may help you out of an underwater car loan (also sometimes called an “upside down” loan). Here’s a look at how things might work.

Underwater Car Loans in Chapter 7 Bankruptcy

Those who file Chapter 7 bankruptcy may handle an underwater car loan in one of three ways:

  • Surrender the car. This option means giving up the vehicle and eliminating the debt connected to it. While this isn’t a practical option for those who need a vehicle, it may be useful for folks who have other transportation options.
  • Redeem the car. This option lets filers repay creditors the remainder of the car’s fair market value in a lump sum. In other words, you pay your lender the car’s current value minus whatever amount you’ve already paid. This tends to benefit those with underwater loans and enough cash on hand.
  • Renew the loan. This choice may work for those who do not have the cash to redeem their cars and who need them for transportation. Loan renewal equals an agreement to continue making payments as outlined in the original loan papers. Chapter 7 bankruptcy may make these more manageable by discharging other debts and thus freeing up enough money to allow for car payments.

Underwater Car Loans in Chapter 13 Bankruptcy

The other common form of personal bankruptcy, Chapter 13 requires filers to make monthly payments to their creditors over a three- to five-year period. In Chapter 13, car loans:

  • Older than 910 days may be eligible for “cramming down.” This requires filers to continue making car payments, but only for the vehicle’s fair market value (not for the entire loan amount).
  • Less than 910 days old generally require full repayment. However, some Chapter 13 filers are able to repay their car loans at lower interest rates than those outlined in their original loan agreements.

Determining a Car’s Real Value

If you plan on including an underwater car loan in your bankruptcy filing, it’s important to make sure you understand how car values are assessed for the court’s purposes. You have to provide a value for your car as part of your bankruptcy petition and you must swear to the accuracy of that value as part of your case.

Misleading or blatantly false information could lead to charges of bankruptcy fraud, so you may want to do some research and/or consult with a bankruptcy attorney before settling on a value.

Bankruptcy fraud is a serious crime, as the story of Brent Farris illustrates.  According to the Kansas City Star, St. Louis resident Farris pleaded guilty to bankruptcy fraud in 2004 but fled the country and avoided getting caught until earlier this year.

Here’s a look at his somewhat sensational case.

  • In 2002, Farris, who at the time owned an art gallery in St. Louis, reportedly filed for bankruptcy.
  • During the case, he concealed from his bankruptcy trustee a painting worth about $300,000 with the intention of selling it later and keeping the profits.
  • The trustee suspected fraud and when Farris faced charges in 2004, he pleaded guilty and was sentenced to 20 months in prison and a fine of $300,000.
  • Farris reportedly fled the country before his sentence began and spent the next five years (from 2004 to 2009) on the lam, hopping between 14 countries.
  • In 2009, sources note that Italian authorities apprehended Farris, but he managed to break his house arrest and flee again.
  • Last year, Farris was discovered in Mexico. In March, he apparently pleaded guilty to the charges of failing to appear in court and was sentenced to 14 months in prison.

Who Does Bankruptcy Fraud Hurt?

In order to understand why the penalties for bankruptcy fraud are so severe (the maximum sentence is a five-year prison sentence and damages or fines up to $500,000), it helps to understand who’s hurt by bankruptcy fraud.

Consider this:

  • Bankruptcy protection is designed to help consumers. By giving consumers an alternative to repaying their financial obligations as originally agreed, bankruptcy provides a sort of emergency exit for those who get in over their heads financially.
  • Bankruptcy can hurt creditors. Of course, when a person does not repay a debt, someone loses out. Both Chapter 7 and Chapter 13 bankruptcy are designed so that creditors are often able to recover some of the money they lent to filers, though usually not the full amount the filer owes.
  • Bankruptcy fraud cuts into the creditors’ repayment. Concealing or transferring property before bankruptcy (or otherwise engaging in fraudulent behavior) reduces the amount of money creditors get from a bankruptcy case. And while it’s easy to paint the creditors as the bad guys, it’s important to remember that they’re often powerful organizations. Translation: if too many big companies are unhappy with the way bankruptcy laws work, they’ll likely lobby Congress until those laws are changed. After all, such changes were already introduced in the form of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

If you’re considering a bankruptcy filing, it’s important to make sure you avoid committing fraud, either intentionally or accidentally. A bankruptcy lawyer in your state can explain the laws more explicitly and help you keep your paperwork aboveboard.

Tuesday, July 5th, 2011

Joint Bank Accounts in Bankruptcy

In a world where a person’s credit score is one of the most important numbers in her life, it’s no wonder that some parents are eager to help children by naming them joint bank account holders.

This used to be common practice with credit cards: parents would make children “authorized users” to help them improve their credit rating. But the credit bureaus caught on and no longer consider “authorized user” status a boost to a credit score.

Having a child listed on a bank account certainly might still benefit him, but it could hurt you financially if he decides to file for bankruptcy.

Your Cash in Bankruptcy

So what happens to joint accounts when one person files for bankruptcy? It varies depending on state law, but here are some possibilities.

  • Presumption of joint ownership: Some states have laws that indicate that any jointly owned accounts are considered to belong to both people listed on the account. In these states, half of the money in a joint account would be considered the property of the filer and could be used to repay creditors.
  • Rebuttal of presumption: The good news, however, is that filers usually have a chance to rebut (that is, disprove) their actual ownership of the money. A filer might do this by demonstrating that the other joint account owner (who is not filing for bankruptcy) deposited most or all of the funds into that account. This requires some careful legal action, so a lawyer’s help is valuable.
  • Repayment plan: If the bankruptcy filer chooses Chapter 13, the value of the money in the joint account might be taken into consideration. That is, the filer might be expected to pay more than he can really afford to creditors because the court views half of the joint account money as his. (A lawyer can clarify whether rebuttal would be possible in your state.)

Avoiding Bankruptcy Fraud with Joint Accounts

One other consideration for joint account holders considering bankruptcy is bankruptcy fraud. This is a crime that can ruin a filer’s chances at a bankruptcy discharge, lead to a steep fine (up to $500,000) and even cause jail time.

One action that might be considered fraudulent in court is the improper transfer of property or assets before filing for bankruptcy. In other words, if a joint account holder takes himself off the account just before filing for bankruptcy, the court might be suspicious of the action and still consider the funds fair game for the bankruptcy case.

Waiting periods for transferring assets before bankruptcy vary by state. Asking a lawyer about what’s legal where you live is likely your best bet.

Wednesday, June 22nd, 2011

Bankruptcy Court Challenges DOMA

The Defense of Marriage Act, which bars federally recognized same-sex marriage, got a surprise challenge from a California bankruptcy court last week. Here’s a look at what happened and what it might mean in the future.

  • A gay couple married in California. In 2008, when gay marriage was briefly legalized in the Golden State, Gene Balas and Carlos Morales wed.
  • Later that year, Proposition 8 was passed. This law amended California’s constitution to exclude the right for gay couples to marry, though the state acknowledged the legitimacy of marriages that had already occurred.
  • The couple filed jointly for Chapter 13 bankruptcy protection. In February 2011, the couple was pushed by illness and unemployment to seek bankruptcy protection. They filed under Chapter 13, which allows filers to catch up on past debts with the help of a three- to five-year repayment plan.
  • The U.S. Trustee’s office requested dismissal of the case. Because bankruptcy is governed by federal laws and the federal government does not recognize same-sex marriages, the U.S. Trustee wanted the California court to deny the joint bankruptcy protection. If this request had been granted, the two men would have had to file for bankruptcy individually. This could have been more expensive, both in initial filing fees and long-term debt repayment.
  • The California judges refused dismissal. Instead of tossing the case out, twenty judges signed a ruling asserting that DOMA is unconstitutional and infringed the rights of the two men seeking bankruptcy protection.

Joint Bankruptcy, DOMA & Civil Rights

Right now, married couples seeking bankruptcy protection can choose between filing individually or jointly. The decision usually depends on state laws, the types of debts a couple has, a couple’s income and a number of other factors.

But because DOMA only permits marriage to a certain group of citizens, it automatically excludes others from joint bankruptcy protection. This exclusion, say California bankruptcy judges, is not in line with the rights guaranteed by the Constitution.

The judges used the language of the DOMA law to dispute its validity:

  • The joint Chapter 13 bankruptcy, noted the judges, would have “no effect on procreation.” One of DOMA’s professed goals is to promote childbearing.
  • The bankruptcy case, too, would be in no danger of “harm[ing] any marriage of heterosexual persons,” according to the California ruling. Another of DOMA’s stated goals was to defend and nurture the tradition of heterosexual marriage.

The case is getting a lot of attention because it attacks the controversial anti-gay marriage law from an unexpected angle. It also comes only months after the Obama administration announced that it would no longer defend DOMA in court, as it deemed the law unconstitutional.