sacramentobankruptcyblog.com

On March 23, 2010, the Supreme Court resolved a question that had divided the Courts of Appeal. The issue was whether
Attorneys are apropriately classified as debt relief agencies under BAPCRA of 2005. Milavetz v. United States, –US–2010. Justice Sotomayor, writing for the majority, held that the plain language of the Statute made attorneys subject to the statute.Attorneys must disclose that the are a “debt relief agency” in their advertising. This resolved a question which had created a split of authority in the Courts of Appeal across the Country. Milavetz had filed a declaratory relief action and argued, among other things, that the 1st Amendment

The significant part of the ruling was that an attorney cannot advise a client to incur further debt solely for the purposes of taking advantage of the Bankruptcy sec. 524 (a) (4) prohibits professionals from advising debtors to incur more debt in contemplation of filing. The Bankruptcy Code generally prohibits an abusive filing, and debtors cannot simply incur debt for the purpose of satisfying the means test requirements of the Bankruptcy Code. However, this does not necessarily limit giving advice or talking about incurring debt for legitimate purposes, for example, obtaining a new car loan for purpose of securing reliable transportation. In Footnote 6, the opinion states:

Thus, advice to refinance a mortgage or purchase a reliable car prior to filing because doing so will reduce the debtor’s interest rates or improve his ability to repay is not prohibited, as the promise of enhanced financial prospects, rather than the anticipated filing, is the impelling cause. Advice to incur additional debt to buy groceries, pay medical bills, or make other purchases “reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor,” §523(a)(2)(C)(ii)(II), is similarly permissible.

So the upshot of the opinion is that attorney’s still may engage in “robust discussion” with their clients if their advice is designed to achieve enhanced financial prospects, not just for qualfying for bankruptcy.

paulbar Uncategorized Attorneys, Bankruptcy, Bankruptcy Code, Classified, Contemplation, Courts Of Appeal, Debt Relief Agencies, Debtors, Declaratory Relief, Dis, Financial Prospects, Footnote, Groceries, Interest Rates, Legitimate Purposes, Means Test, Medical Bills, New Car Loan, Plain Language, Sotomayor, Supreme Court Rules, Test Requirements, Upshot

CNN — The total number of bankruptcies filed in the third quarter surged 33% in 2009 and is at the highest level since 2005, according to data released Wednesday.

The American Bankruptcy Institute, an industry research firm, said 388,485 bankruptcies were filed during the last quarter, compared to 292,291 filed during the same period in 2008, according to data released by the Administrative Office of the U.S. Courts.

Filings for the first nine months of the year climbed 35% to 1,100,035, compared to 841,496 filings during the same period in 2008. A total of 1,117,771 bankruptcies were filed last year.

“The spike in bankruptcy filings for both consumers and businesses reflect the continuing effects of today’s weak economy,” said ABI executive director Samuel Gerdano in a statement. “With unemployment surpassing 10% and credit to businesses remaining tight, consumers and businesses are increasingly turning to the financial relief of bankruptcy.”

Bankruptcies are at the highest level since 2005, when 2,078,415 were filed before Congress passed amendments to the Bankruptcy Code, said ABI.

In October 2005, Congress implemented legislation making it more difficult for filers to prove they should be allowed to clear their debts in a Chapter 7 bankruptcy, forcing more to file under Chapter 13. The law triggered more Americans to rush to file for bankruptcy in the months before the law went into affect.

The ABI report said business bankruptcy filings rose 32% in the third quarter of 2009 to 15,177, and filings for the first nine months of the year totaled 45,510, topping the total 43,546 business bankruptcies filed in 2008.

Personal bankruptcies increased 33% to 373,308 during the last quarter, led by a 42% hike in Chapter 7 filings, which totaled 265,721. The number of consumers filing Chapter 13 bankruptcies rose 15% to 107,142 filings in the third quarter, according to ABI.

During a twelve-month period ending Sept. 30 2009, the report said total filings increased more than 34% to 1,402,816, compared to 1,042,993 in the same period of 2008.

Nevada had the highest rate per capita filings in the country, with 10.49 residents per thousand filing for bankruptcy in the year ended Sept. 30. The state also had the highest rate of filings for chapter 7 bankruptcies at 7.53.

Tennessee had the highest rate of filings for Chapter 13 bankruptcies in the 12-month period with 4.36 people per thousand.

In the Eastern District of California, filings were up 51.% over the same period from the year before:  According to the clerk’s office, here are the statistics

UNITED STATES BANKRUPTCY COURT
Eastern District of California

STATISTICAL REPORT
YEAR TO DATE COMPARISON

Total filings were up 49.3%, as indicated.  Significantly, Chapter 11 filings were up 78.9%, and total filings were 23,853.  These statistics of course do not reflect those ineligible for Chapter 7 because of the means test, or those who were bankruptcy candidates but unable to confirm a plan because of the means test and therefore did not file.

I also got an interesting email from Mike Dillard with a Technicolor view of the recession by county

The Decline: The Geography of a Recession

Things don’t look too much better, either statistically or in color.

paulbar Uncategorized Administrative Office, Amendments, American Bankruptcy Institute, Bankruptcy Code, Business Bankruptcies, Business Bankruptcy Filings, Chapter 13, Chapter 7 Bankruptcy, Cnn, Debts, Executive Director, Filers, First Nine Months, Gloom, Last Quarter, Months Of The Year, Personal Bankruptcies, Recession, Spike, Unemployment

One of the frequently asked questions is that if you file bankruptcy, can you do a loan modification while awaiting  discharge?  The answer  is yes.  How you go about it may depend on whether you file a Chapter 7 or Chapter 13.

In a Chapter 7, the debtor may not be able to keep the property and make  the payments unless the lender consents to a modification, because the lien survives the discharge.  In a Chapter 7 case, there is no provision in the Bankruptcy Code for modifying a mortgage loan.  Your case lasts about 3-1/2 to four months and so you need to reinstate the loan before the discharge is entered and the cases close.  You either need to bring the loan current or work something out with the lender in between.   There is no provision or program to cure the default over time, and once the discharge is entered, the automatic stay is lifted.  That means that if any arrearages on the loan have not been cured by that time, the lender can proceed to foreclose on the property.  The lien is not discharged in the bankruptcy, even thought the personal debt or obligation is wiped out.  If you can’t bring the payments up or make arrangements with the lender during the bankruptcy, the the debtor should seek a loan modification outside bankruptcy in order stay in the house.

If you filed Chapter 13, you cannot modify a mortgage loan secured on a debtor’s primary residence under provisions of the Bankruptcy Code.  However, if the lien on the house is totally unsecured, no equity protecting the lien and house is totally underwater) you can strip it off in a “cram down.”  Obama said that he would sign such a bill if presented to him, but legislation that would have allowed that died in Congress earlier this year, after much outcry from people complaining that the law should not help people when most people were making their payments, and strong opposition from the Banking Industry.

In a Chapter 13, the debtor needs to get approval for any kind of modification, refinancing or sale of the property, from both the Chapter 13 Trustee and the Court.  The debtor may not be able to confirm a Chapter 13 plan unless a 1st deed of trust consents to a loan modification.  The question is feasibility.  If the debtor’s plan does not propose to cure the default in the Chapter 13, the plan cannot be confirmed.  In this case, the debtor may not be able to confirm a plan and will as a result end up losing the house.  Another question is whether the loan modification would alter the debtor’s disposable income and increase the amount available to unsecured creditors.  If the debtor is able to cure default, the language of Chapter 13 provides that all disposable income must be pledged into the plan.  That might mean that if the debtor obtains a loan modification during the pendency of the Chapter 13 plan, both the plan payments and the plan need to be modified to reflect the change in disposable income reflecting decrease in mortgage payments.

The bottom line is that if you can’t afford the payments, contact your lender.  The sooner you get started on a loan modification, the better.   There have been numerous articles about the effectiveness of loan mod programs.  Anyone working in the industry will tell you that it is not easy to make contact with the lenders who have been besieged with loan mod requests.  At the same time, while the banks are attempting to ramp up their loan mod programs and have been adding staff, the number of loans in default is expected to increase over the next two years.  Like anything, it takes persistence and consistency.

paulbar Uncategorized Arrearages, Banking Industry, Bankruptcy, Bankruptcy Code, Chapter 13, Chapter 7, Congress, Consents, Cram Down, Debtor, File Bankruptcy, Four Months, Iff, Legislation, Loan Modification, Mods, Mortgage Loan, Obligation, Opposition, Outcry, Personal Debt, Provision, Provisions

Eighty more restaurants fell victim to the weak economy including 10 TGI Fridays in Sacramento and the Pacific Northwest.

In a related series of closures, 70 Jack in the Box restaurants from Fresno to Redding shut their doors in midweek, only to open days later after four controlling entities sought bankruptcy protection from creditors.

The closures followed as the financial woes of troubled Roseville real estate developer Abe Alizadeh continued.  He is listed as president of each of those companies and has controlling interest in half of the newly closed T.G.I. Friday’s restaurants.  The closures temporarily affected about 2,100 employees, not including people thrown out of work at the T.G.I. Friday’s restaurants.in the recording.  According to a representative for Alizadeh and the company, Alizadeh controls two corporations that own and operate five T.G.I.Friday’s restaurants: two in Sacramento two in Roseville and one in Elk Grove.

The corporations, Ten Forward Dining Inc. and TGIA Restaurants, Inc., are headquartered in the same Lava Ridge Court address in Roseville, according to records on file with the California Secretary of State’s Office.

Five other T.G.I. Friday’s in Oregon and are controlled by Alizadeh’s brother, Mike Alizadeh through a company, Great Northwest Restaurants Inc., of Roseville.

The four entities that own and operate the Jack in the Box franchises in the Central Valley, Sierra Valley Restaurants, Inc., Food Service Management, Inc., Central Valley Food Services, Inc., and Kobra Associates, Inc., which filed separate Bankruptcy Petitions under Chapter 11 of the Bankruptcy Code on Friday. Kobra Properties, Inc., another of Alizadeh’s companies, the real estate development corporation, has been in Chapter 11 since November, seeking to restructure approximately $277 million debt.

These Bankruptcy filings suggest the fallout of not only the decline of commercial and retail properties, but also reflect the downturn in consumer spending available to support such restaurant establishments.  These filings likely demonstrate a correlation between falloff in consumer spending, the residential retail market, and the health of retail and commercial properties.

paulbar Uncategorized Abe Alizadeh, Bankruptcy Code, Bankruptcy Filings, Bankruptcy Petitions, Bankruptcy Protection, Brother Mike, California Secretary Of State, Court Address, Elk Grove, Financial Woes, Food Service Management, Food Services Inc, Kobra Properties, Lava Ridge, Northwest Restaurants, Protectin, Real Estate Developer, Retail Properties, Roseville Real Estate, Sierra Valley, Tgi Fridays, Tgia, Valley Restaurants

If you file bankruptcy, can you do a loan modification while awaiting  discharge?  The answer depends on whether you file a Chapter 7 or Chapter 13.

In a Chapter 7, the debtor may not be able to keep the property and make  the payments unless the lender consents to a modifcation.  In a Chapter 7, there is no provision in the Bankruptcy Code for modifying a mortgage loan.  In Chapter 13, you cannot modify a mortgage loan secured on a debtor’s primary residence.  However if the lien on the house is totally unsecured, you can strip it off in a cram down.  Legislation that would have allowed that died in Congress earlier this year after opposition from the Banking Industry prevailed.  In Chapter 7 cases the case only lasts about 3 1/2-4 months.  There is no provision or program to cure the default over time, and once the discharge is entered, the automatic stay is lifted.  That means that if any arrearage or default has not been cured by that time, the lender can proceed to foreclose on the property.  The lien is not discharged in the bankruptcy, the the debtor should seek a loan modification outside bankruptcy in order stay in the house.

In a Chapter 13, the debtor needs to get approval for any kind of modification, refinancing or sale of the property, from both the Chapter 13 Trustee and the Court.  The debtor may not be able to confirm a Chapter 13 plan unless a 1st deed of trust consents to a loan modification.  The question is feasibility.  If the debtor’s plan does not propose to cure the default in the Chapter 13, the plan cannot be confirmed.  In this case, the debtor may not be able to confirm a plan and will as a result end up losing the house.  Another question is whether the loan modification would alter the debtor’s disposable income and increase the amount available to unsecured creditors.  If the debtor is able to cure default, the language of Chapter 13 provides that all disposable income must be pledged into the plan.  That might mean that if the debtor obtains a loan modification during the pendency of the Chapter 13 plan, both the plan payments and the plan need to be modified to reflect the change in disposable income reflecting decrease in mortgage payments.

The sooner you get started on a loan modification, the better.   Recent articles and anyone working the industry will tell you that it is not easy to make contact with the lenders who have been besieged with loan mod requests.  While the banks are attempting to ramp up their loan mod program staffs, the number of loans in default is expected to increase over the next two years.  As a practical matter, doing anything and everything to reduce your expenses is a good idea.

paulbar Uncategorized 4 Months, Arrearage, Banking Industry, Bankruptcy Code, Chapter 13 Trustee, Chapter 7, Congress, Consents, Cram Down, Debtor, Deed Of Trust, Disposable Income, Feasibility, Legislation, Loan Modification, Mortgage Loan, Opposition, Provision, Refinancing, Unsecured Creditors