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Friday, March 12th, 2010

Supreme Court: Bankruptcy Law Doesn’t Violate Lawyers’ Rights

A case decided by the Supreme Court this week settles a question of attorneys' free speech rights raised by a Minnesota law firm concerned about restriction in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), according to the Washington Post.

Here are the pertinent details:

  • The law states that bankruptcy lawyers are prohibited from advising clients to take on more debt before filing for bankruptcy. In theory, the restriction is meant to prevent advice that would lead to actions that might constitute fraud under U.S. bankruptcy laws.
  • The question raised by the Minnesota law firm was one of free speech for lawyers. Apparently, the firm suggested that the aforementioned restriction amounted to an unconstitutional violation of the free speech rights of bankruptcy lawyers.
  • The court decided that the law was not, in fact, unconstitutional, and that lawyers can give their clients any advice that does not promote defrauding the bankruptcy court.
    • Filing incomplete or inaccurate information
    • Attempting to pay a "favorite" creditor in full before filing for bankruptcy
    • Failing to disclose assets or expected income
    • Attempting to “give away” assets before filing

    • The Broader Issue

    While the law firm’s concern with free speech may seem piddling here, in the context of bankruptcy cases, it has merit. In some cases, as the WSJ article points out, taking on certain kinds of debt immediately before a bankruptcy filing could benefit both the filer and his or her creditors.

    For example, refinancing a troublesome mortgage to better allow a debtor to make payments could benefit all parties. The Supreme Court Justices reportedly acknowledged the truth of this and agreed that taking on more debt can, at times, be the wisest decision for a potential bankruptcy filer.

    But, the court noted, the law can be read to mean that bankruptcy lawyers are restricted only from giving their clients advice that would lead to bankruptcy fraud.

    What Constitutes Bankruptcy Fraud?

    Bankruptcy fraud is a serious matter – in fact, it can lead a court to throw out your case (and thus eliminate your chances at receiving a debt discharge) and earn you fines and jail time. This is one reason why working with a bankruptcy lawyer can be helpful.

    Bankruptcy fraud includes:

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Posted in Setting the Record Straight about Bankruptcy | 5 Comments »

Thursday, February 25th, 2010

More Mortgage Relief in Proposed Changes to Obama Plan

FOX Business recently reported that it obtained a document leaked from the federal Treasury Department that outlines proposed changes to the Making Home Affordable program - also known as the Home Affordable Modification Program, or HAMP. The plan is part of the Obama Administration’s attempt to provide some home foreclosure help.

Some experts suggest the rules are unlikely to pass because they would mean more work, and potentially less income, for many mortgage lenders and loan servicers. This issue, according to some, highlights the core problems with that industry.

The Proposed Mortgage Rule Changes

Here’s a look at what alterations have allegedly been suggested and what they reveal about the way HAMP and the mortgage lending system in general is currently working, and how it could better work to help people avoid bankruptcy and stay in their homes:

1. Introduction of a 30-day “borrower response period.” This period would begin after a borrower was denied a mortgage modification; during the 30 days, mortgage lenders would be prohibited from foreclosing on properties. The aim is to provide a window in which borrowers can determine whether their denial resulted from mistakes in their application.

Those in the know suggest that this proposed change is necessary because a number of borrowers are being denied modifications because of mistakes in their application – not because they don’t actually qualify.

2. Prohibition of foreclosures for borrowers who have not been proven ineligible for modifications. In other words, banks would be required to offer borrowers an alternative to foreclosure (namely, modification) and would not be permitted to foreclose on a home if a borrower proved eligible for that modification.

According to sources, this type of language already exists in some form in HAMP – in fact, that’s part of the whole purpose of the program. The inclusion of this as a proposed modification suggests that mortgage lenders are not taking adequate steps to avoid foreclosing on properties.

3. Suspension of all foreclosure action once a borrower has been approved for a 90-day trial modification. HAMP requires a trial period. In this 90-day window, approved borrowers make payments under a modified mortgage plan. If they adhere to the terms, they should qualify for a permanent modification.

The fact that a new rule expressly prohibiting foreclosure action during the trial period has been proposed suggests that lenders are disregarding modification agreements and proceeding to foreclose regardless of a borrower’s status.

4. Written verification (from a trustee or lawyer) that a borrower does not qualify for HAMP before foreclosure can proceed. In other words, this rule would require banks to have proof that they can go ahead and foreclose.

This suggests that mortgage lenders have not been following this rule on their own, and have perhaps been foreclosing on properties even when a borrower qualified for a modification.

Bottom Line For Anyone Needing Mortgage Relief

If you are at risk of losing your home to foreclosure, you may want to contact a bankruptcy attorney. These proposed rules suggest the cards may be stacked against you.

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Posted in Mortgage Foreclosure | 4 Comments »

Monday, July 6th, 2009

Foreclosures Spreading to Prime Mortgages ~ When Will It End?

In what many consider an inevitable shift in the foreclosure crisis, prime, fixed-rate mortgages made up the largest portion of new foreclosures, according to a report issued by the Mortgage Bankers Association.

This was the first time for such numbers since the subprime lending boom began.

The Best-Laid Plans

Sources suggest that two major factors are contributing to the upswing in prime foreclosures:

  • Rising Unemployment: Though the unemployment rate for those with some type of college degree is 4.4 percent (compared with an 8.9 percent rate overall), this number represents a significant jump from a year ago, when unemployment among the college-educated was just 2 percent. This means that some families who counted on sustained income to keep their houses are now struggling to make payments – or finding they cannot.
  • A Glut of Unsold Homes: Because so many houses are currently on the market, selling a house has become a serious challenge, especially for those with bigger mortgages. This means that many of those struggling to pay off debts because of job loss cannot even raise money by selling their houses – the demand for real estate is currently very low.

Time to Buy, Not Sell

As you may already know, it’s a great time to buy a first home.

The sheer quantity of homes on the market means you’ll have a lot to choose from, and the current interest rates favor the purchasers rather than the vendors.

But if you’re looking to sell a larger (rather than a “starter”) home, you may not be so lucky.

Those who may be pushed by tantalizing interest rates to buy a home sooner than they would have otherwise likely won’t be interested in large, elaborate homes – especially in light of the cautionary tales told over and over by those suffering from the current foreclosure crisis.

When Will It All End?

Experts have predicted a variety of timetables for the prime foreclosure crisis.

The least optimistic among these put the crest two years for now, with steady foreclosure action well into 2012.

And Making Home Affordable, the foreclosure-prevention plan introduced by the Obama administration has reportedly only helped about 17,000 homeowners to date – far fewer than the seven to nine million who could benefit from the program, according to its Web site.

If you’re concerned about losing your home to foreclosure, it may be time to speak with one of our sponsoring bankruptcy lawyers about filing bankruptcy.

Chapter 13 bankruptcy designed to stop foreclosure. Talk to a bankruptcy attorney about filing bankruptcy.

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Posted in Mortgage Foreclosure | No Comments »