There was the dot com bubble, the housing bubble, now the student loan bubble. Student loan debt has grown dramatically in the recent past. In 2010 student loan debt exceeded credit card debt. In 2011 it surpassed auto loans. There is now more than one trillion dollars in student debt according to the Consumer Financial [...]

If you are not current on your car payments, your options will depend greatly on the type of bankruptcy you choose. If Chapter 7 bankruptcy is right for you, because you have mostly unsecured debt or would like to complete the process quickly, you may be wondering whether you have to surrender your car in [...]

Filing for bankruptcy is a huge decision, that will have an impact on your life for years to come. This impact can be good, and it can also be bad. For most people, it is a huge relief with some negative side effects. But no matter what your situation, below are a list of things [...]

Continuing our series of e-mails on real estate workouts, many clients are concerned about potential exposure to deficiency judgments resulting from real estate foreclosures. The New York law that deals with deficiency judgments is § 1371 of the Real Property Actions & Proceedings Law. The law provides that: 1. A plaintiff in a mortgage foreclosure action may bring an action for a deficiency judgment if the defendant has been personally served in the action. 2. The action for the deficiency judgment must be made within 90 days after the foreclosure sale. 3. The law provides that the deficiency judgment shall be equal to the amount the defendant is liable to the plaintiff (as determined by the judgment), plus interest, plus the amount owing on any subordinate liens and encumbrances, including interest, costs and disbursements, including referee's fees, less the market value of the property as determined by the court at the time of the foreclosure sale. Accordingly, if the value of the property is greater than the deficiency owed, the plaintiff will not be able to obtain a deficiency judgment. Notwithstanding the language in RPAPL § 1371, before commencing deficiency judgment actions, secured creditors (such as banks) go through a calculation. They ask themselves the following questions: 1. If we bring a deficiency action, does the defendant have assets or earnings to satisfy the judgment? For example, if the bank believes that the defendant will file Chapter 7 personal bankruptcy to protect his or her assets, or if the defendant is "judgment proof," then they will not commence the action. Some borrowers who do have the ability to pay some or all of the judgment will come forward and offer to settle before an action for deficiency is commenced. 2. Does the defendant have the potential for good future earnings (such as a medical doctor), such that if the creditor obtains the judgment (which is good for 20 years under New York State law), they will be able to collect the judgment from future earnings? 3. What is the fair market value of the property? As mentioned above, the court will determine the fair market value at the time of the foreclosure sale, which can become a battle of appraisals, so creditors must prepare to bring in expert witnesses to testify on this issue. 4. How long will it take and how much will it cost to obtain and collect the judgment? 5. Is the deficiency a result of a "strategic default"? A "strategic default" involves a borrower who has the ability to pay his or her mortgage but chooses not to. Often that decision is tied directly to the property being "underwater" (the fair market value of the property is less than the outstanding liens encumbering the property (mortgages, home equity lines of credit, etc.)). Loan originators rely heavily on their servicers (the entities that are responsible for day–to–day management of mortgage accounts) to determine if a borrower is a strategic defaulter and then makes a determination whether to seek a deficiency judgment. Clients or colleagues having questions about deficiency judgments should not hesitate to contact Jim Shenwick.

The Fifth Circuit has affirmed a $1 million fee enhancement to a chief restructuring officer who achieved results described as “rare and exceptional.”  Matter of Pilgrim’s Pride Corp., No. 11-10774 (5th Cir. 8/10/12).   The opinion can be found here.   The Court rejected the argument that a recent Supreme Court opinion on fee shifting precluded enhancements and, in the process, set forth a comprehensive framework for allowance of professional fees in bankruptcy.   Curiously, the opinion did not mention the Court’s opinion in Matter of Pro-Snax Distributors, Inc., 157 F.3d 414 (5th Cir. 1998).What HappenedWhen Pilgrim’s Pride Company filed for chapter 11 relief in December 2008, its prospects did not look good.   It had lost about $1 billion the previous fiscal year and was incurring negative cash flow of $300 million a year.   The Debtors anticipated that unsecured creditors would receive, at best, a debt for equity swap, and that equity would be cancelled.    CRG Partners, LLC was engaged as chief restructuring officer.    Just over a year later, the company confirmed a plan which paid all secured and unsecured creditors in full and distributed equity interests valued at $450 million to the pre-petition shareholders.   After the plan was confirmed, CRG requested that it be allowed compensation of $5.98 million plus an enhancement of $1 million.    The Debtor’s Board of Directors supported the enhancement.   The U.S. Trustee objected to the enhancement on the basis that CRG had already been adequately compensated through its lodestar-calculated fee.   The Bankruptcy Court denied the request for enhancement based on Perdue v. Kenny A. ex rel. Winn, 130 S.Ct. 1662 (2010).   The District Court reversed, finding that Perdue was not binding in the bankruptcy context.On remand, the Bankruptcy Court approved the enhancement and the U.S. Trustee appealed.    The UST argued that Perdue precluded the enhancement.   The Fifth Circuit rejected the Trustee’s position and affirmed the Bankruptcy Court order approving the additional award.An Overview of Professional FeesIn reaching its conclusion that enhancements remained viable, the Court of Appeals provided an extensive discussion of the history of awards of professional fees in the Fifth Circuit.   Under the Bankruptcy Act, courts in the Fifth Circuit applied the twelve Johnson factors, which included such requirements as the time and labor required, the novelty and difficulty of the questions, skill required, undesirability of the case and reputation of the attorneys.    In re First Colonial Corp. of America, 544 F.2d 1291, 1298-99 (5th Cir. 1977), quoting Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974).   (Attorneys of a certain level of experience will remember preparing fee applications reciting the twelve Johnson/First Colonial factors even though many of them were usually irrelevant to the specific case).   While Johnson was a civil rights case, the First Colonial court found the factors to be “equally useful whenever the award of reasonable attorneys’ fees is authorized by statute.”     Id. at 1299.   While the same factors might be applicable, bankruptcy courts were advised to make awards at the lower end of the spectrum in light of the “strong policy of the Bankruptcy Act that estates be administered as efficiently as possible.”    Id.The lodestar method was recommended by another Act case, In re Lawler, 807 F.2d 1207 (5th Cir. 1987).    Under the lodestar method, the Court determines a reasonable number of hours multiplied by a reasonable rate and then adjusts the resulting fee up or down based upon the other Johnsonfactors.When section 330(a) was adopted as part of the Bankruptcy Code, it retained the overall framework of compensation under the Act, but rejected the “economy of the estate” limitation.   This meant that bankruptcy lawyers could be compensated at the same rate as other skilled professionals.   Section 330(a) was amended in 1994 to include a list of six non-exclusive factors to be considered in awarding compensation and two instances in which the court should deny compensation.    Notwithstanding the statutory definition, the Fifth Circuit found that the prior case law and the statutory provisions provided a complimentary framework.Following the Bankruptcy Code’s enactment, we made clear that the lodestar, Johnson factors, and §330 coalesced to form the framework that regulates the compensation of professionals employed by the bankruptcy estate.   (citation omitted).   Under this framework, bankruptcy courts must first calculate the amount of the lodestar.   (citation omitted).    After doing so, the courts “then may adjust the lodestar up or down based on the factors contained in §330 and [their] consideration of the factors listed in Johnson.”   (citation omitted).    We have also emphasized that bankruptcy courts have “considerable discretion” when determining whether an upward or downward adjustment of the lodestar is warranted.Opinion, at p. 8.   The Court also conducted an historical analysis of fee enhancements in bankruptcy, finding that, although they were extraordinary, they had been allowed under both the Bankruptcy Act and the Code.    The Court noted that (I)f enhancements were possible when fees were awarded “at the lower end of the spectrum of reasonableness,” then they surely remained possible after that ceiling was removed and the statutory text was otherwise unchanged.Opinion, at p. 13.    The Court’s point is that because the Bankruptcy Act allowed enhancements despite the focus on economy of administration that it would be reasonable for enhancements to be allowed under the more liberal provisions of the Bankruptcy Code.In conclusion, the Court ruled that enhancements were a part of the process of upward or downward adjustment of the lodestar and remained available in extraordinary situations.In sum, we have consistently held that bankruptcy courts have broad discretion to adjust the lodestar upwards or downwards when awarding reasonable compensation to professionals employed by the estate pursuant to § 330(a). However, this discretion is far from limitless. Upward adjustments, for instance, are still only permissible in rare and exceptional circumstances--such as in Rose Pass Mines and Lawler, where the applicants had provided superior services that produced outstanding results--that are supported by detailed findings from the bankruptcy court and specific evidence in the record.Opinion, at 15.Sub Silentio and the Rule of Orderliness Having concluded that enhancements remained viable, the Court turned its attention to whether the Supreme Court had “unequivocally, sub silentio overruled our circuit’s bankruptcy precedent.”   Opinion, p. 15.    In Perdue, the Supreme Court rejected a request for an enhancement in a civil rights case.   In interpreting the term “reasonable fees” under 42 U.S.C. §1988, the Supreme Court noted that the courts had initially applied the twelve Johnsonfactors, but had transitioned to a lodestar approach in order to “cabin() the discretion of trial judges.”    The Supreme Court concluded that enhancements could be allowed under section 1988, but only where the hourly rate used in the lodestar calculation did not adequately measure the attorney’s true market value, where the litigation involved an “extraordinary” outlay of expenses and where there was an “exceptional delay” in payment, especially where that delay was due to the defense.    The Court also noted that in civil rights cases, the presumption should be against an enhancement because defendants would be less likely to settle if faced with an open-ended fee request and because civil rights judgments were often paid by the public rather than the defendant.    The Fifth Circuit found that Perdue did not apply in the bankruptcy context.   Relying on the rule of orderliness, as recently articulated in Technical Automation Services Corp. v. Liberty Surplus Insurance Corp., 673 F.3d 399 (5th Cir. 2012)(which held that Stern v. Marshall did not implicate the authority of Magistrate Judges), the Fifth Circuit found that Perdue was not directly on point and therefore did not compel the Court to abandon its prior precedent.   Among other things, the Court found that bankruptcy fee requests did not entail the same settlement considerations as civil rights cases and that the bankruptcy estate rather than the taxpayer would be paying the fees.   The Court also noted that while the term “reasonable fees” in section 1988 offered little guidance to courts, that section 330(a) of the Bankruptcy Code contained detailed criteria for awarding fees.   As a result, the Court concluded that until rescinded by a higher authority, fee enhancements were still possible in bankruptcy.   As a result, the Court affirmed the bankruptcy court’s enhanced fee award to CRG Partners.What It MeansIn the particular case, Pilgrim’s Pride means that a particular professional was recognized for doing an extraordinary job.    In the larger context, Pilgrim’s Pride is significant for what its historical analysis said for what it left unsaid.    From an historical perspective, Pilgrim’s Prideevidences the development of bankruptcy law as its own discipline.    As of 1977, both bankruptcy law and civil rights law followed the twelve Johnsonfactors.   In the intervening 35 years, bankruptcy has developed its own body of fee jurisprudence.    While both bankruptcy law and civil rights law moved from the Johnson factors to a primarily lodestar based approach, Congress saw fit to define bankruptcy standards in more detail.     The Pilgrim’s Pride decision recognizes that bankruptcy fees fulfill a different role than fees in civil rights cases.    While the Court did not fully articulate it, I believe the difference is this.   Bankruptcy is inherently a collective process in which scarce resources are marshaled for the benefit of the creditor body and (in some cases) equity.    Allowing enhanced fees in rare cases provides incentives for professionals to take on difficult cases and be recognized when they deliver superior results.   Civil rights cases, on the other hand, are focused on compensating a harm and are a zero sum proposition.   Every dollar paid to the plaintiffs and their attorneys is a dollar taken away from the defendants and, by extension, the taxpayers.    While civil rights actions should incentivize government actors to obey the law in future cases, this function is secondary to compensating the wronged individual.    In a bankruptcy case, the professional may not only allocate scarce resources according to an ordered scheme of priorities, but may actually increase the pool of resources.   In a civil rights case, it seems that counsel is focused on obtaining an equitable transfer of resources from one party to another.    Pilgrim’s Pride also curious because it does not mention the requirement that a professional demonstrate an “identifiable, tangible and material benefit to the bankruptcy estate” as required by In re Pro-Snax Distributors, Inc. in order to be compensated.   There is a tension between Pro-Snax and section 330(a)(4)(A)(i)(I) which mandates denial of fees for services not “reasonably likely to benefit the debtor’s estate.”   There is a significant difference in requiring that services be “reasonably likely” to benefit the estate as opposed to actually yielding an “identifiable, tangible and material benefit.”    In the one instance, compensation is based on whether the services appeared to be reasonable at the time, while the other makes compensation contingent on results.    Pilgrim’s Pride discusses the Johnson factors, the lodestar test and the statutory provisions of section 330(a), but does not discuss Pro-Snax.  Judge Carl Stewart, who authored Pro-Snax, was on the panel that decided Pilgrim’s Pride.It is certainly possible that the panel did not see the need to discuss Pro-Snax for the reason that Pilgrim’s Pride was a case involving not just an “identifiable, tangible and material benefit,” but an extraordinary one at that.    However, given the Court’s comprehensive discussion of the framework for fees in bankruptcy and its contrast with fees in civil rights cases, the actual results requirement would seem to be a reasonable thing to mention.   My personal opinion (which is partially motivated by self-interest) is that the Pro-Snax panel never intended to impose an actual results requirement.    The Pilgrim’s Pride opinion discusses how “the lodestar, Johnson factors, and §330 coalesced to form the framework that regulates the compensation of professionals employed by the bankruptcy estate.”    Under Johnson, results were one of twelve factors to be considered.   Under section 330(a), the court is instructed to examine whether the services were “beneficial at the time” and whether they were “reasonably likely to benefit the debtor’s estate.”   The lodestar may be adjusted upwards or downwards based upon the results.    Given that results are a factor to be considered under each of these approaches, it is much more reasonable to conclude that the Pro-Snax panel meant to emphasize the importance of results but not to make them an absolute requirement.   At the very least, it will make for an interesting argument when the Court is asked directly to reconcile Pilgrim’s Pride, Pro-Snax and the language of section 330(a).Disclosure:   I have a case pending on appeal that raises the application of Pro-Snax.

Is Chapter 13 the step-child of bankruptcy choices in your district? Then you’ll be interested in  NACTT’s webinar on Wednesday September 26  addressing developing a Chapter 13 friendly environment. It’s free, it’s this week, and it’s needed.  You can sign up here. I think Chapter 13 is the finest thing since sliced bread.  It’s flexible, powerful, and avoids the problem of longer intervals between cases that came with BAPCPA. I will be interested in seeing how NACTT addresses the issue that trustee and judicial attitudes are often what makes Chapter 13 unpopular in a district. Cultivating 13 I’m convinced that more bankruptcy lawyers should become facile in 13. If you need a grounding in 13 practice, join us at Amelia Island for NACBA’s Fall Workshop.  As part of the Fundamentals track,  Jill Michaux and I are presenting a program on Crafting Chapter 13 plans.  We’ll walk you through how to figure out what the plan has to pay, and to test whether it’s paying the things you want to pay. The early-bird registration discount ends on Friday. If you can’t wait for Amelia Island, or can’t come, Mastery offers a video program on how to draft a Chapter 13 plan for download now.   Like This Article? You'll Love These! The Chapter 13 Plan Light Bulb Moment What Goes In The Chapter 13 Pot The Chapter 13 Arsenal Is Incomplete Without This Unsung Hero

You have been served with a complaint. Whether that lawsuit stems from a car accident or contractual breach, you may automatically wonder what the result may be. Could you lose everything you own? It is good to know that bankruptcy can be a solution in some cases. When can bankruptcy help, and at what point [...]

By JESSICA SILVER-GREENBERG The letters are sent by the thousands to people across the country who have written bad checks, threatening them with jail if they do not pay up. They bear the seal and signature of the local district attorney’s office. But there is a catch: the letters are from debt-collection companies, which the prosecutors allow to use their letterhead. In return, the companies try to collect not only the unpaid check, but also high fees from debtors for a class on budgeting and financial responsibility, some of which goes back to the district attorneys’ offices. The practice, which has spread to more than 300 district attorneys’ offices in recent years, shocked Angela Yartz when she was threatened with conviction over a $47.95 check to Walmart. A single mother in San Mateo, Calif., Ms. Yartz said she learned the check had bounced only when she opened a letter in February, signed by the Alameda County district attorney, informing her that unless she paid $280.05 — including $180 for a “financial accountability” class — she could be jailed for up to one year. “I was so worried driving my kid to and from school that if I failed to signal, they would cart me off to jail,” Ms. Yartz said. Debt collectors have come under fire for illegally menacing people behind on their bills with threats of jail. What makes this approach unusual is that the ultimatum comes with the imprimatur of law enforcement itself — though it is made before any prosecutor has determined a crime has been committed. Prosecutors say that the partnerships allow them to focus on more serious crimes, and that the letters are sent only to check writers who ignore merchants’ demands for payment. The district attorneys receive a payment from the firms or a small part of the fees collected. “The companies are returning thousands of dollars to merchants that is not coming at taxpayer expense,” said Ken Ryken, deputy district attorney with Alameda County. Consumer lawyers have challenged the debt collectors in courts across the United States, claiming that they lack the authority to threaten prosecution or to ask for fees for classes when no district attorney has reviewed the facts of the cases. The district attorneys are essentially renting out their stationery, the lawyers say, allowing the companies to give the impression that failure to respond could lead to charges, when it rarely does. “This is guilty until proven innocent,” said Paul Arons, a consumer lawyer in Friday Harbor, Wash., about two hours north of Seattle. The partnerships have proliferated from Los Angeles to Baltimore to Detroit, according to the National District Attorneys Association, as the stagnant economy leaves city and state officials grappling with budget shortfalls. Lawyers for the check writers estimate that more than 1 million of them are targeted a year. The two main debt collectors — California-based CorrectiveSolutions and BounceBack of Missouri — return millions of dollars each year to retailers including Safeway, Target and Walmart. While the number of bounced checks has fallen as more shoppers pay with credit or debit cards, Americans still write billions of dollars worth of bad checks each year. In 2009, $127 billion worth of checks were returned, according to the most recent data from the Federal Reserve. That’s down from $182 billion in 2006. Because the cases are not fully investigated, there is no way of knowing whether the bad checks were the result of innocent mistakes or intentional fraud. The so-called bad check diversion programs start from the position that a crime has been committed. Before the first partnerships were rolled out in the late 1980s, merchants who received a bad check typically tried to retrieve the money themselves or through a private collection company, with abysmal results. Those merchants who suspected fraud could send along the checks to their local district attorneys. The influx of bad-check reports overwhelmed district attorneys’ offices, according to Grover C. Trask, a former district attorney in Riverside, Calif., considered the father of such programs. “It was a way to deal with a fairly serious nonviolent crime going on in the business community, but not overburden the court system or the resources of the district attorneys,” Mr. Trask said. The programs were quickly challenged by consumer lawyers, who took aim primarily at California-based American Corrective Counseling Services. Facing a barrage of class-action lawsuits, the company reorganized through a Chapter 11 bankruptcy in 2009. Still, its successor, CorrectiveSolutions, which says it has contracts with more than 140 prosecutors, has been dogged by similar legal challenges, including a class-action lawsuit pending in federal court in San Francisco that claims the company “has constructed an elaborate artifice” to terrify borrowers into paying. CorrectiveSolutions, which did not respond to requests for comment, has contested the claims, court filings show. For the collection companies, the partnerships offer a distinct financial benefit: the “financial accountability” classes. Typically, a small portion of the class fees, which can exceed $150, are passed on to the district attorneys’ offices. Check writers are led to believe that unless they take the courses, they could end up in jail. A letter signed by the Santa Clara County district attorney, for example, informed Kathy Pepper that the “bad check restitution program” would allow her to avoid “the possibility of further action against the accused by the District Attorney’s Office.” Petrified, Ms. Pepper agreed to pay $170 for a class and another $25 to reschedule the class last year after accidentally writing a $68 check in the midst of a divorce last year that upended her finances. What Ms. Pepper did not know was that her bad check was sent directly from the merchant to the debt-collection company, without any prosecutor determining whether she had actually committed a crime. Under the terms of five contracts between CorrectiveSolutions and district attorneys reviewed by The New York Times, merchants refer checks directly to the company, circumventing the prosecutors’ offices. While the merchants are required, for example, to attempt to contact the check writer, they can send any bad checks to the collection companies if the shopper hasn’t responded, typically within 10 days. “No one at the district attorney’s office reviews the cases” before the collection company sends out letters, said Priscilla Cruz, an assistant director in the Los Angeles district attorney’s office. As of July, CorrectiveSolutions had sent out 16,955 letters on behalf of the Los Angeles district attorney, and during that time 635 people attended the program’s classes, county data show. While few people will be prosecuted for not attending the class, there is a possibility of charges, Ms. Cruz said. While the percentage of targeted check writers taking the classes is low — 4 percent to 7 percent in recent years — the percentage of cases referred for potential prosecution is much lower, about 0.10 percent. Few bad-check writers are prosecuted, especially for relatively small sums, lawyers say, because it is hard to prove the person meant to defraud the merchant. Gale Krieg, a vice president at BounceBack, said he has turned down business from prosecutors who won’t agree to at least have all copies of the checks sent to their offices, where prosecutors can determine if a crime has been committed. Mr. Krieg, who said the company has contracts in 38 states, acknowledges the limitations: “Whether they exert oversight isn’t something that we can control.” Prosecutors point out that people who write bad checks should be held accountable for paying back what they owe. “I view it as quite a win-win,” said Baltimore County State’s Attorney Scott D. Shellenberger. “You aren’t criminalizing someone who shouldn’t have a criminal record, and you are getting the merchant his money back.” On its Web site, CorrectiveSolutions says that its classes result in low rates of recidivism. Some officials in district attorneys’ offices have quietly raised concerns that the programs are misleading. A November 2009 county audit of Deschutes County, Ore., titled “District Attorney’s Office-Cash handling over revenues,” wondered whether elements of the program could be “disingenuous.” The prosecutor’s office, which did not return requests for comment, contracts with CorrectiveSolutions to handle its bad checks. Ms. Yartz said she accidentally wrote a check for groceries on her credit union account, rather than her bank checkbook. She had recently moved and was in the process of closing that account. Even after Ms. Yartz paid $100.05 in February to cover the bounced check, the returned item fee and an administration fee, she got a letter signed by the Alameda district attorney informing her that her remaining balance was $180 for the class. After consulting with a lawyer, she decided to take her chances rather than pay for a class she could not afford, to avoid being punished for a crime she said she did not commit. Ms. Yartz also questioned the need for a class on budgeting and financial accountability: “If I meant to bounce this check like a criminal, why do I need a class on budgeting?” Copyright 2012 The New York Times Company.  All rights reserved.

By VICKIE ELMER EVERY month tens of thousands of people file for federal bankruptcy protection, mostly to wipe out debts and start anew. Many of these filers mistakenly think that it will be many years before they can obtain a mortgage or refinance an existing home loan, if they ever can — perhaps because notice of a bankruptcy filing typically stays on a credit report for 7 to 10 years. In reality, they could become eligible in as little as one year, as long as they work diligently to improve their financial picture. Mortgages guaranteed by the Federal Housing Administration are permitted one year after a consumer exits a Chapter 13 bankruptcy reorganization, which requires a repayment plan that is often a fraction of what is owed, and two years after the more common Chapter 7 liquidation, which discharges most or all debts. Conventional mortgage guidelines from Fannie Mae and Freddie Mac, meanwhile, call for a wait of two to four years. “There’s a lot of other things that go into your ability to get approved” for a mortgage after a bankruptcy, said John Walsh, the president of Total Mortgage, a direct lender based in Milford, Conn. The most important point, he and other industry experts say, is that consumers re-establish their credit and show that they can manage it responsibly. They can do this by paying rent and utility bills on time, or perhaps by obtaining a secured credit card, according to Mr. Walsh. If a bankruptcy filing was the result of a one-time occurrence, like the death of a spouse, divorce or illness, the waiting period to apply for a mortgage may be reduced. Lenders will often want borrowers to write a hardship letter explaining their situation, backed by documentation like hospital bills or a court-approved divorce settlement.  If the person has paid back 85 to 95 percent of his debts during the bankruptcy process, he will need to mention that in the letter as well, said Bruce Feinstein, a bankruptcy lawyer in Richmond Hill, Queens. But examples of shortening the waiting period through hardship letters are “few and far between, and tough to get,” Mr. Walsh said. Mr. Feinstein says he has seen a few clients qualify for a mortgage only two years after filing for Chapter 7, though generally borrowers can obtain a loan quicker after a Chapter 13 reorganization, because of the partial repayment of debts, he said.  As Mr. Walsh noted, “Chapter 13 is a little more responsible” way to go from the lenders’ perspective, so lender guidelines are a bit more lenient. Almost 70 percent of personal bankruptcies are filed under Chapter 7, according to the American Bankruptcy Institute, a research organization. The institute data noted that last year there were 1.362 million personal bankruptcy filings nationwide, down from 1.53 million in 2010, and closer to the norm over the last 15 years. At the end of the first quarter of this year there were 311,975 filings, which is 5 percent less than the first quarter of 2011. Rebuilding credit after a personal bankruptcy will take some work. Mr. Feinstein suggests that individuals maintain or take out one or two credit cards and routinely use them. “If the payment’s due on the first, make sure it’s paid by the 25th” of the previous month, he said. A personal bankruptcy filing will have a larger impact on a credit score than any other credit issue, according to a July report by VantageScore, which provides credit scores to lenders. Filing for bankruptcy protection will reduce a credit score by 200 to 350 or more points, it said, compared with a decline of 80 to 170 points for a foreclosure. VantageScore’s scores range from 501 to 990. For the larger rival FICO, bankruptcy could cut a credit score by 130 to 240 points. Copyright 2012 The New York Times Company.  All rights reserved.

Be an advocate-your client has enough opponents. It’s no accident that the word for lawyer in Scotland, Belgium and India is advocate. If we do our jobs for bankruptcy clients well, we are advocates for their interests at every stage of the game. Yet I hear lawyers assuming that there is a known and pat answer to every question under BAPCPA  and that the answer is the one the trustee proffers. If I had a nickel for every time I’ve heard, “my trustee won’t allow it”, I could buy a very nice dinner out. Maybe your trustee “won’t allow it” because you’ve got it wrong. But I’ll bet there’s an equal chance that either you haven’t laid out the entire issue, or the trustee has a point of view expressed in that position, that may or may not be shared by the judge.  And you are too timid to find out which it is. Who’s on first Remember, the trustee is just  a party in interest, not a decision maker. If  I, as debtor’s counsel, have a dispute with the trustee that we can’t resolve, the trustee doesn’t automatically win.  The judge earns her salary by deciding disputes. Client as captain of the ship At the end of the day, the client is the captain of the ship.  The client establishes the goals, or the destination.  As lawyers, we’re the navigators.  It’s our job to figure out how to get the client from here to there. If there are rocks or shallows in the path of our “ship”, it’s the captain’s job to decide whether we sail through them, or skirt them. The client needs to hear what the risks are and the options if our position is rejected by the court.  The decision about how to proceed is, in the end, that of the client. When the client has made a choice, then we navigate our way down that path. Chart your course When you have an issue that can go either way,  prepare your argument for the judge.  You hope to persuade the trustee before you get there, but you have to start with a case that will play in court. Read the statute and the cases in your circuit on the issue.  Understand the facts.  Find the logic and sound policy in the result you advocate.  Be prepared to say why this is the better solution to an unresolved issue. We owe  our client a vigorous and statute-based evaluation of the issues and a willingness to argue for a well grounded position. Image courtesy of johnny_automatic. Can you join us for two days of skill building on the business side of bankruptcy practice in Dallas? Jay Fleischman  and I have put together a passel of topics on using smarts and elbow grease instead of cash to market a bankruptcy practice.  Can you afford to stay home? No related posts.