Law Offices of David P. Leibowitz LLC
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When Residential Capital LLC (or “ResCap”) filed for Chapter 11 Bankruptcy relief a few months ago, it left a lot of bankruptcy attorneys confused. Because GMAC held many debts, including a substantial number of mortgages, the company was the subject of a large number of bankruptcy lawsuits or “adversaries”. The company would file proofs of claim in Chapter 11, 12 and 13 cases and debtors would try to remove their mortgages through “lien-stripping”. But because of the automatic stay in bankruptcy, lawyers didn’t know how far they could go with these actions.
Fortunately, the National Association of Consumer Bankruptcy Attorneys negotiated with the attorneys for ResCap and the Chapter 11 Bankruptcy Judge in New York signed an order allowing limited relief, including the right to object to a proof of claim or file a lien stripping action or other adversary.
Now this doesn’t mean that we can file actions in the Chapter 11 or get involved in the reorganization process, but it means that our day to day work representing borrowers in bankruptcy has become a little easier, thanks to NACBA’s work.
When a mortgage is given on a property and the lender files the normal paperwork with the county Recorder of Deeds or Register of Deeds, the lender does this to give notice to all parties that they hold an interest in the property. It is a requirement to protect the company from otherwise innocent purchasers who wouldn’t otherwise know how many mortgages are in place.
The lenders occasionally make mistakes. Sometimes the mistakes are considered harmless, especially when a simple search discovers a typo. However, there are times that these mistakes can prove fatal for the holder of a mortgage.
In a recent Chapter 13 Bankruptcy case out of Wisconsin, this scary situation happened to the holder of a mortgage. The lender recorded the mortgage documents, but incorrectly listed the legal description of the property. In bankruptcy law, the trustee can avoid an improperly perfected lien under Section 544. In plain English, the trustee appointed to hold assets for the estate can move to treat that valuable secured mortgage like an unsecured debt and pay it off through the bankruptcy process, leaving the home free and clear.
For these debtors, what it means is that they can file a lawsuit inside their bankruptcy called an adversary, have a judge declare that the lien of the mortgage lender wasn’t perfected and is therefore just an unsecured loan like a credit card or personal loan. The debtors will have to pay much more through their bankruptcy, but they wouldn’t have to make a mortgage payment anymore (not on their second mortgage either, since that too wasn’t properly recorded). By the time they exit bankruptcy, their home would then be free and clear minus yearly property taxes.
Sometimes, mistakes are innocent and can be corrected. Other times, when the facts are right, mistakes are fatal. If you think your mortgage lender made a mistake that can be attacked through bankruptcy, please contact us to discuss. We will review proof of claim documents and other documents to see if these mistakes can be used to your advantage.
Every state has a regulatory body that oversees regulation and registration for lawyers. For Illinois, that body is the Illinois Attorney Registration and Disciplinary Commission, or ARDC. In June, the ARDC filed a complaint against the principal attorneys, Thomas Macey and Jeffrey Aleman. The complaint alleges that the attorneys breached a fiduciary duty, failed to consult with clients, assisted non-lawyers in the practice of law, and commited other acts that breached Illinois professional duties.
At least 36 individuals paid them anywhere from $150 to $2258 to assist with debt resolution. Guess what? They weren’t happy with the results.
There are other solutions out there to resolve debts in an appropriate way, in Illinois and elsewhere. For an ethical consultation with our Illinois attorneys about debts and options in addressing them, please contact Lakelaw at (847) 249-9100.
The decisions that courts make on cases other than our own are still important to read. They are important because they guide our practice and will be useful if we see the same facts. A recent decision by the Eastern District of Wisconsin Bankruptcy Court shows us why.
In the recent decision, in a case called In Re Myers, the court was asked to decide if a creditor had violated the discharge order and had attempted to collect a debt after a husband and wife filed Chapter 7 and received their discharge, or release of debts. In this case, the court ruled that the creditor was safe.
The reason the creditor was ok in its actions was not that it was polite – far from it. The creditor was rude, possibly obscene, and may have even been harassing the debtors. But the debt was a business debt that was not guaranteed by either of the debtors. So the debt was solely that of the debtors’ business. The debt wasn’t listed and the creditor didn’t even have notice of the debt until some time much later than the filing date. It wasn’t listed because the creditor didn’t have a “claim”, or a right to money, from either the husband or the wife. It had a claim against the business, which ultimately filed its own bankruptcy.
Certainly if the creditor intentionally sued the business after knowing that the business filed bankruptcy, it could be in trouble for violating the “automatic stay”, the right of the filer to be protected from lawsuits, garnishments, and other attacks. But that was never an issue here.
The moral of the story: It is very important to separate individual debts (debts a person owes) from business debts (debts the LLC or corporation owes that cannot be traced to the individual person). That will also determine who gets the benefit of the discharge and automatic stay, and when it is inappropriate to fight a creditor for their actions.
As you probably heard, last Thursday the Supreme Court ruled on the Patient Protection and Affordable Care Act, otherwise known as “Obamacare”. The court found the Act to be constitutional. This decision means that should the Act stay in place, over the next few years many new changes will be enacted in an attempt to provide affordable healthcare to every American and to reform the healthcare insurance industry. Politics aside, many questions remain about exactly how this Act will affect the country. Specifically, we at Lakelaw are wondering what the effect of PPACA will be on bankruptcy.
At first glance you might not think that a bill about healthcare would have much to do with bankruptcy, but in the U.S. today a large percentage of bankruptcies filed are “medical bankruptcies.” Medical bankruptcies are bankruptcies which are largely the result of expenses like hospital or doctor’s bills or the cost of prescriptions. Such medical costs can be financially devastating for almost any family.
Enter Obamacare. Supporters argue that PPACA will greatly decrease the number of medical bankruptcy filings because those who previously did not have insurance will now be covered, greatly reducing the amount of out-of-pocket medical expenses for the family should medical problems arise. Additionally, in the long run PPACA should lower the cost of healthcare overall, which would reduce medical costs for everyone. This could help ease the burden that so many families face when they are hit with unexpected medical costs.
On the other hand, critics of the Act point out that the majority of those who file for “medical” bankruptcy” already had health insurance when their medical difficulties began. In addition, PPACA does not eliminate all co-pays or other out-of-pocket medical costs, so some medical expenses would remain. Finally, they argue, Massachusetts’s recently reformed healthcare system, which PPACA was modeled after, has not been shown to have significantly lowered the number of medical bankruptcies in that state.
Both arguments have merit and certainly the results of PPACA remain to be seen. We at Lakelaw simply hope that as many families as possible are able to achieve solid financial footing. If you are considering bankruptcy as a route for moving forward financially, especially to deal with medical debt, please contact us to discuss your options.
This post was authored by Lakelaw summer intern Tatiana Barry