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Monthly Archives: February 2009
Posted by David Leibowitz on February 27th, 2009 in Uncategorized
Yale Professor Alan Schwartz doesn’t like the idea of mortgage modifications in bankruptcy. It doesn’t sound to me as though he knows much about mortgages or bankruptcy.
Here’s my rebuttal. I hope that the Times publishes it. If they don’t you can see it here.
Professor Schwartz’ view from Yale in opposition to allowing bankruptcy judges to modify residential mortgages in chapter 13 reflects a severe disconnect with conditions on the ground.
Bankruptcy judges enthusiastically support this proposal. They have no fear of their courts being swamped. The judges have considerable experience in consumer cases. Bankruptcy judges encourage streamlined and efficient hearings. Moreover, in bankruptcy, most business and negotiations occur outside of court. When stakeholders know the rules of the road, they come to resolution promptly, whether on the negotiation of a big chapter 11 plan or the modification of car loans in chapter 13 cases – something bankruptcy judges have been doing for years.
The professor’s hyperbolic fear of millions of new mortgage cases in bankruptcy fails to recognize that mortgage modifications in bankruptcy court would only be available to homeowners. They would have to be able to afford a chapter 13 plan for five years. Lenders would share in any appreciation for five years.
People who could not afford a sustainable mortgage will continue to lose their homes to foreclosure. But people who can sustain their mortgages in chapter 13 will set a floor from which the residential market will build. Who is more motivated to “buy” a home in foreclosure than the person already living in it? Foreclosure sales lead to further depression of the real estate market not to mention further depression of the values of the homes in the surrounding neighborhood.
Most disturbing is Professor Schwartz’ rather arrogant thought that business cases are entitled to greater priority in the bankruptcy court than those of consumers. Well over 90% of all bankruptcy cases are filed by consumers. Business bankruptcy may get a lot of news but consumer bankruptcy is what bankruptcy judges and most bankruptcy lawyers deal with day in and day out, especially in places other than New York and Wilmington.
The professor’s suggestion that debtors’ attorneys would be outmatched at a valuation hearing by creditors’ attorneys is insulting to the thousands of competent and capable attorneys who represent debtors day in and day out. Under the Bankruptcy Abuse Prevention Consumer Protection Act, these attorneys literally must vouch for the accuracy of data in their clients’ papers. They become quite familiar with property values in the areas they serve. A residential appraisal costs about $300. Dueling appraisals will be introduced and the judge will decide. It’s not hard.
And the professor doesn’t stop at belittling debtors’ attorneys. He also goes on to insult bankruptcy judges – saying that they are not experts in valuation. Dear professor, that’s their job. They’ve been doing it for years. The Bankruptcy Code requires valuation of property to determine the amount of a secured claim and has for a very long time.
What the professor fears and what the banks and other lenders fear is that they might actually have to deal with borrowers in foreclosure rather than putting them in limbo in voice mail hell while their foreclosure team inexorably moves forward to put them in the street.
Posted by David Leibowitz on February 23rd, 2009 in Foreclosure - Saving Your Home
The Chicago Tribune reported on February 22, 2009 that people are fighting back against their mortgage companies in foreclosure court. It’s hard to win. But it is possible to gain valuable time.
Lakelaw has been at the forefront in fighting mortgage foreclosure. And we have now joined forces with experienced Chicago attorney, Arnold Kaplan to aid us and you in this fight. Arnie is a veteran in the area of mortgage foreclosures. He used to represent lenders and knows all their strategies. As a result, he’s developed, with us, very effective counterstategies to help homeowners fight back.
We can’t promise you that you will win. But we will promise that you’ll get a fair shake in court and informed and aggressive representation with the lender.
Watch our website for more and new information about Arnie and his group as it becomes integrated with our Lakelaw team.
Posted by David Leibowitz on February 22nd, 2009 in Uncategorized
Most people struggle to pay their mortgages. They do so even if their homes have lost value — even if they are “upside-down” on their mortgage. Why? They can afford it. They like their home. If they abandoned their home, they would owe big money to the lender. They stand to lose a lot in bankruptcy. We at Lakelaw sympathize with people who can pay and do against all odds. We understand. We’ve lost money on our home as well and keep paying anyway to protect what equity remains.
Here’s the point. We all suffer because of the collapse of the housing market. My neighbors problems cause my home goes down in value. So I want, and we should all want, a normal market in residential real estate.
In the meantime, we are on top of the rapidly changing mortgage modification scene. We know how to help you and we will.
President Obama’s plan doesn’t save every homeowner. It will only save some. Check out the Treasury Fact Sheet. And others will only get help for a period of five years. The point of the plan is to put some brakes in the free-fall of the housing market. The mortgage modification amendments to the bankruptcy code won’t be a permanent thing either. It will apply only to current mortgages, and according to President Obama, only those made in the “past few years.” It won’t apply to mortgages obtained by fraud. It won’t “wipe out” the mortgage either. It will convert some of the mortgage to unsecured debt which must be paid in a chapter 13 plan over a period of up to 5 years. And as it presently stands, the mortgage modification bill would allow a lender to share in any appreciation that the homeowner might be fortunate enough to enjoy over the next five years.
We hear lots of complaints about “moral hazard” and “unfair to those who pay.” But what we don’t hear is any constructive solution. Doing nothing and “letting the market work” will result in staggering deflation, paralysis of the real estate market, and millions of homeowners with little or no incentive to pay a staggering debt on a house which no longer has significant value.
In the meantime, we are on top of the mortgage modification scene. We know how to help you and we will.
Posted by David Leibowitz on February 22nd, 2009 in Foreclosure - Saving Your Home
John Leland, in the New York Times, wrote and interesting article entitled “Swindlers Find Growing Market in Foreclosures.” Every day, I meet people in Illinois and Wisconsin just like you, so fearful that you will soon lose your home to foreclosure. You bring me the piles of letters you receive from all kinds of people who say they will “help” you.
In most cases, they only want to take money from you. They won’t help you at all.
Here are some facts.
If you get a summons or complaint from the court – it’s not a “letter.” It is a legal demand in court. You can’t ignore this. You have to do something in court. You need a laywer to do this who specializes in mortgage foreclosure defense.
You can try to make a modification agreement with a lender. You don’t need a consultant to do this. There are Not-For-Profit agencies in your community who can help you.\
The US Department of Housing and Urban Development has made a list of approved agencies to call:
Here’s a link to the Illinois list .
In Illinois, all homeowners have a “Bill of Rights.” Check them out.
Lakelaw represents people defending their homes against mortgage rescue fraud in Illinois and Wisconsin
Posted by David Leibowitz on February 22nd, 2009 in Uncategorized
Lakeblawg doesn’t usually re-post from other places. However, this video is extremely well done, if at times over-simplified. Lakelaw does not agree with the 9/11 connection that the video makes.
However, we agree that sustained low interest rates set by the Federal Reserve post-9/11 encouraged bankers and investors to take inordinate risks. Further, fraud, greed and indifference of mortgage lenders in mortgage loan underwriting has to be noted. Finally, for the life of us, we will never understand how bond rating agencies decided that subprime mortgages could metamorphose into AAA securities.
With that in mind, check out this video:
Posted by David Leibowitz on February 19th, 2009 in Bankruptcy
How do I know I need to file bankruptcy?
Here are some of the warning signs:
- You can’t pay your debts as they come due – credit cards, medical bills, personal injury claims or other big debts
- Your wages are being garnished
- Your bank accounts have been frozen by creditors
- You have suffered a judgment which you can’t pay
- Liens have been filed against your home or other property
- You have been called into court after a judgment for a citation to discover assets by a creditor with a judgment against you.
- You have been notified that you are in default of your mortgage and facing foreclosure
- You have been having difficulty with the Internal Revenue Service or state tax authorities
- Creditors or debt collectors are calling you at home or work.
- Your car has been repossessed and you can’t afford to pay the balance
- Your house has been foreclosed and you are facing a large deficiency judgment
- You can no longer make minimum monthly installments on your credit cards
- Your credit card companies have raised the interest rate on your cards to an unaffordable level.
- You are being sued and can’t afford to defend yourself in court.
- Your drivers’ license has been revoked because you did not have insurance
- You are unable to sleep because you are worrying about your debt
- You are seeing and hearing advertisements for bankruptcy lawyers at odd hours of the day or night
Get help. We can help. We’ve helped thousands. We can help you. Lakelaw represents people in bankruptcy cases.
Posted by David Leibowitz on February 16th, 2009 in Bankruptcy
Bankruptcy is a hard word to spell. It’s hard word to type. Some of the forms we have seen include:
Not only that, it’s a hard word to spell in Spanish too. The correct spelling is bancarrota. And in some parts of the Spanish speaking world, it’s quiebra or quiebras. Of course, in Italian, it’s bancarotta. Some of the common misspellings in Spanish are:
No matter how you spell it, Lakelaw helps people and business file bankrutcpy — oops bankruptcy — cases to help them solve their financial problems.
Chapter 11 bankruptcy is for people and not just businesses. If you have more than about $1.3 million in secured debt or more than about $380,000 in unsecured debt, you cannot file a chapter 13 case. You may not be able to file a chapter 7 case if you make a good income and if the means test applies to you. Personal Chapter 11 reorganization can help you.
Lakelaw’s managing member, David P. Leibowitz, is an authority on chapter 11 for individuals. He is co-chair of the American Bankruptcy Institute Task Force studying individual chapter 11 bankruptcy cases. He has made presentations on this topic to the American Bankruptcy Institute’s Chicago Consumer Bankruptcy Conference and the Milwaukee Bar Association Bankruptcy Committee.
Frequently Asked Questions about Individual Chapter 11 Bankruptcy
Why would people decide to file a chapter 11 bankruptcy case?
Consider filing a chapter 11 case if you have debts beyond the limits allowed for chapter 13 and you are not eligible for chapter 7. Consider filing your personal chapter 11 case if you have substantial judgments outstanding that are accruing interest. In chapter 11, there is no post-petition interest on unsecured claims. Consider filing chapter 11 if you have a group of creditors who are interested and willing to help you. For example, you may have loans outstanding at several banks. Maybe one of the banks is very hostile but the others are more friendly and willing to make some accommodations for you. Chapter 11 can help you.
How long will I be in chapter 11?
It can take months if not more than a year from the time that a chapter 11 case is filed until your plan is confirmed.
Why does chapter 11 take so long?
In chapter 11, you have to file a plan and disclosure statement with the court. The bankruptcy court must approve the form of the disclosure statement. The court can confirm your plan only if at least one “class” of creditors that is affected or “impaired” by the plan votes for the plan. The court must find that the plan is “fair and equitable” for any class that does not accept the plan. It is much better to negotiate a plan that is agreeable to all classes of creditors. This takes time and is expensive.
What is a chapter 11 plan?
A chapter 11 plan is a legal document that divides your creditors into classes. Each class of creditors must have more or less the same type of claim. Each secured creditor is placed into a separate class. Unsecured creditors are a separate class. Priority creditors include tax claims, claims for alimony or child support (domestic support obligations) and administrative expenses (like attorneys’ fees). The plan sets out how you as the Debtor propose to treat each class of creditors. Your plan can change the amount due, the payment terms and the interest rate payable for each class of creditors.
What is a disclosure statement?
The disclosure statement is a legal document you file with your plan and provide to all your creditors. It explains your financial history, why you filed a chapter 11 case, how you plan to resolve your financial problems and lays out financial and other information necessary for a creditor to make an informed decision as to whether the creditor should accept, or vote for, your plan.
What does it mean to accept a chapter 11 plan?
Creditors in chapter 11 have the right to vote on a plan. If the form of the plan is approved by the Court, we will send each creditor a ballot. The creditors can accept or reject your chapter 11 plan. A class of creditors who vote in favor of the plan by 2/3 in amount and a majority in number who vote is deemed to have accepted a chapter 11 plan. Acceptance of the plan is binding on the creditors in the class who vote against the plan.
Who can propose a Plan in Chapter 11?
You as the Debtor have the right to propose the plan before anyone else does. This is called the exclusivity right. The period within which you have the sole or exclusive right to file a plan can be extended by the Court. After that time, a creditor or any other party in interest could propose a plan.
What is the role of the United States Trustee?
The United States Trustee oversees all bankruptcy cases including chapter 11 cases. The United States Trustee can advise the bankruptcy judge whether you as a chapter 11 debtor are doing what you are required to do under the chapter 11. You will have to make monthly reports to the United States Trustee showing all your income and expense while you are in Chapter 11. You will have to make quarterly payments to the United States Trustee as long as you are a debtor in Chapter 11.
What happens if a creditor moves to appoint a Trustee for me?
If you engaged in dishonesty or misconduct, a creditor, the United States Trustee, or any party in interest could move for the appointment of a Trustee to take over your Chapter 11 case. It is very important for you to disclose all of your activities before and during your bankruptcy case so that we can properly advise you, particularly if you are at risk for appointment of a trustee.
What are my chances of success?
Chapter 11 cases for individuals are difficult. Your chances of success are greatly increased if you are working with experienced counsel and if you can develop a plan that can gain the support of most of your creditors. Your chances of success are also greatly increased by working with counsel who is familiar with the bankruptcy judges, the United States Trustee, the creditors’ bar and their tendencies and expectations.
What will my plan involve?
Like chapter 13, your plan probably will require to pay all of your disposable income during a five year period. Unlike chapter 13, you will probably apply to the court for authority to spend money from your post-petition earnings according to an agreed upon budget. You’ll also have to take into account income tax considerations. Your chapter 11 bankruptcy estate is a separate taxable entity. So please be sure to discuss this with us and your income tax advisor or accountant.
What will chapter 11 cost?
Individual chapter 11 cases require a great deal of time and attention. The bankruptcy court regulates fees in individual chapter 11 cases. The United States Trustee might also have comments about fees. We will work out a suitable retainer for your case and apply to the court from time to time as needed for additional fees. Any attorney you retain will want adequate assurances that you will pay necessary fees or that you will make suitable arrangements to do so.
Must I file with my spouse?
Not necessarily. It depends on his or her financial situation. Effectively, a joint chapter 11 case you’re your spouse constitutes two separate chapter 11 cases. These can be handled together, at least for procedural purposes.
Can I file a chapter 11 case at the same time as my business partner?
You might want to do this. However, you and your business partner will need separate representation as your interests are different than those of your business partner even if you have a lot of common creditors.
Can I file a chapter 11 case at the same time as my corporation?
You can do this. You may want to address the corporation’s needs first. You might be able to get a stay of actions against you in your corporation’s bankruptcy. If you do need to file a personal chapter 11 case while your corporation is in chapter 11, you and the corporation will probably need separate counsel because you and the corporation have separate and conflicting legal interests.
What are some practical considerations for individual chapter 11 cases?
You will have to get the court’s permission to use rental income or other proceeds or accounts (“cash collateral”) which have been pledged to one of your creditors. You’ll have to file monthly operating reports with the United States Trustee. You will have to establish new bank accounts called “debtor – in – possession” accounts since you’re financial life will be under court supervision. You’ll need to budget carefully as you will certainly have additional cash needs in chapter 11. You may need to raise some money from outside sources to make payments required to fund your plan of reorganization since some creditors may want a down payment on their claims. So you may have to line up post-petition financing or financing for your exit strategy. It’s best to do this even before you file your case. You’ll have to shore up your relationships with your creditors as you are going to need some of them, if not all of them, to have an interest in your financial survival.
What are my chances of success?
Chapter 11 for individuals is difficult. Your best chance of success is to have a plan before you file your case. Work with experienced attorneys who know chapter 11. Many judges won’t even allow an attorney to represent a client in an individual chapter 11 case unless that attorney has experience in the field. Attorneys like David Leibowitz and Jonathan Brand at Lakelaw have successfully represented people in chapter 11. Be sure that you insist on a track record of success when selecting an attorney to represent you in your personal chapter 11 bankruptcy case.
Clients ask “can I keep my house if I file for bankruptcy” more frequently than any other question. The answer depends on many factors.
- If we reduce your debt, can you continue to make your mortgage payments?
- Are you presently current with your mortgage? Otherwise, we must file a chapter 13 case to allow you to catch up.
- Does it make sense to keep your house if the amount of debt against the house greatly exceeds the value of the house.
So the answer is, “Yes, you can often keep your house – but not always. And it doesn’t always make sense for you to do so.”
Things could change under a bill now being considered in Congress. Under the “Helping Families Save their Home” Act, HR 200, people with mortgages greater than the value of their home, facing foreclosure, will be able to modify their loans in chapter 13 cases. There are more than a few conditions. So called “cram-downs” of mortgages in chapter 13 might face resistance from lenders and might turn out to be pretty expensive. But it might be a lot better than the alternative of losing your home altogether.
When thinking about bankruptcy, particularly in these changing times, look for legal counsel from people at the front-lines of the bankruptcy practice. Like the people from Lakelaw.
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If you own a condo and it’s in foreclosure, you may be facing bankruptcy. This is particularly true if your mortgage balance is now much greater than the value of your condo. You may find that it is cheaper to rent somewhere else than to keep paying on the mortgage after bankruptcy.
If your condo is in foreclosure, however, you have to be very careful about the timing of your bankruptcy. This is because your bankruptcy will result in a discharge only of debts which existed at the time you filed your bankruptcy case. Condo associations are strapped for cash. You remain the owner of your condo until the mortgage lender finishes the foreclosure and actually gets a deed to your property. So you could remain liable for condo assessments, fees and even special assessments after the filing date of your bankruptcy.
So, it’s in your interest to live in the condo until the foreclosure is complete. This way you get the benefit of your condominium assessments. You prevent damage to the unit. You limit your potential liability to the condominium association when you can least afford it.
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