Nobody comes to our office proud to be filing bankruptcy.  Bankruptcy to many people evokes shame, financial flaws, mistakes, and humiliation.  More than anyone, creditors have been driving these feelings to associate with bankruptcy so consumers will try everything possible to avoid it – including liquidating 401Ks, borrowing from friends, family and payday loan stores, and incurring mental anguish if they do choose to file.

How the mighty have fallen.  Today, a company you may never have heard of called Residential Capital, LLC (commonly called “ResCap”) filed for Chapter 11 Bankruptcy relief in New York.  For most people, Chapter 11 business bankruptcies aren’t that interesting.  The first day alone consists of dozens of motions and emergency hearings that would drive the average reader to boredom or worse.  But this might interest people for two reasons.

First, ResCap is a division of Ally Financial (formerly known as GMAC).  Ally is doing well in its banking and its auto loan divisions.  But its mortgage division, ResCap, left a lot to be desired.  Ally was one of the five major mortgage servicers to settle a substantial lawsuit with the state Attorneys General a few months ago.  They were accused of robo-signing and committing other substantial bad acts.

Second, you are a creditor of ResCap.  So am I.  So are all of your friends and family.  The federal government, through the Treasury Department, loaned Ally about $17 billion.  Let’s just say the bank is in no way ready to pay the remaining $12 billion back now.  Nor is the government ready to shed its significant investment in ResCap.  This is the ultimate point of interest:  How much will the government recover from its investment it made to avoid a financial collapse?

Bankruptcy offers companies, as well as individuals, a fresh start and a chance to reorganize.  It’s a little interesting how individuals are treated with contempt when they file, but businesses don’t hold themselves to the same standards when they require the same protection.  That double standard won’t change any time soon.

Something we have seen a lot lately at Lakelaw is a failure of banks and their attorneys to follow the rules during foreclosure lawsuits. A typical purchase of property requires that you sign a Mortgage instrument and Promissory Note with your bank. The Mortgage is a basic security agreement that says if you don’t pay, the bank can come get your house; it uses the home and possibly other property as collateral. The Note is an agreement to pay until the borrowed money is repaid in full. After the Mortgage and Note are signed, most people keep a copy of each in their records but don’t look at them again until they have problems paying.

The mortgage holders must follow some simple rules to properly “negotiate” or transfer a Note.  The first rule says there must be an “endorsement” to a person or company and delivery of the Note, or an endorsement “in blank” so whoever holds the Note can enforce it. The endorsement can either be on the Note itself or on a page “affixed” to the Note called an Allonge. This might sound complicated, but these are similar rules for paying someone by a personal check - if you write a check payable to Lakelaw, Lakelaw can stamp or sign the back of the check and deposit it or it can endorse it to another party by writing “Pay to the order of [Name of Party]“.

While these rules seem simple, we are seeing some major issues in our Foreclosure Defense practice.  One mistake we see is that the company foreclosing on a homeowner does not have a properly endorsed Note, and the bank or servicer is not the original lender. If the Note was not endorsed, how did the foreclosing bank get the Note? Another strange thing we see is when the foreclosing bank starts with a Note that is not endorsed, endorsements appear on the Note or a page with endorsement later appears. How did these endorsements get there?   It seems unlikely the bank has two copies of a Note, one unendorsed and the other endorsed. It’s a question that may prevent a judge from granting a judgment to the plaintiff if it’s addressed properly and in a timely fashion.

The disturbing trend of banks not following proper procedure when trying to take away people’s homes should cause a pause and hopefully bring about reforms that will cause lenders and servicers to reevaluate how they do business.  It also should encourage anyone with questions about their mortgage documents in a foreclosure lawsuit to speak to a lawyer immediately to see what defenses and claims they might have.

This post was co-authored by Lakelaw associate Nicholas D. Strom

Lawyers, especially bankruptcy lawyers, are very aware of what is happening with the economy and how the average joe lives.  We are much more in tune with the middle and lower classes than our wealthier congressmen.  So when we hear questions like “Why are does it cost so much to file a bankruptcy?”, we understand and sympathize.  We even get that some people who would like to file cannot afford to do so.  This affects not only our clients in Wisconsin and Illinois, but consumers all across the country.

The price of filing a bankruptcy is set by Federal law. Right now, to file a Chapter 7 bankruptcy it costs $306, while a Chapter 13 bankruptcy runs $281. These fees go to pay the administrative fees of filing the case (things like the Trustee’s fees and the cost of processing paper work). While it is possible to petition the court to waive your fee for extreme financial difficulties, it is not easy to get a waiver.  It can’t be.  The courts depend on your payments in order to staff the courts, pay the judges, trustees, and other officials involved, and run everything smoothly.  The courts receive woefully little funding and rely on these fees to make the system work well.

The second part of the price to file a bankruptcy comes from attorney’s fees. Your attorney does a lot of work for you when filing your bankruptcy petition. Some of the tasks in a simple bankruptcy include: preparing the petition, contacting creditors that are garnishing or may garnish your wages, attending the 341 meeting, answering questions you have, protecting assets from seizure, and preparing a means test. The means test, which first showed up in 2005, is a big reason why the cost of filing a bankruptcy has shot up in recent years. As you can see in other posts, the means test helps determine whether or not you can file a Chapter 7 bankruptcy. Before the means test requirement, people could file so long as they were not filing in “bad faith.” Now, with the means test requirement, attorneys have to perform a tricky mathematical test which  measures whether or not our clients are deemed worthy of a Chapter 7 bankruptcy, based on income and expenses. What complicates the means test further is that there are now exceptions attorneys have to account for. To put it simply, the amount of work that goes into a bankruptcy is what makes the cost so high.

Even though there are high costs for filing a bankruptcy, we here at Lakelaw try and work with you to make bankruptcy affordable. If you have financial concerns but aren’t sure if bankruptcy is right for you, contact us for a free consultation in order to discuss your financial options. We promise to treat you with Care, Kindness, Courtesy, Respect, Professionalism and Dedication.

This article was co-authored by Lakelaw Senior Associate Ryan Blay and Associate Nicholas D. Strom

Freddie Mac and Fannie Mae back over half of the nation’s mortgage loans.  Because they were exempted from the recent foreclosure settlement the Attorneys General reached with the biggest individual servicers (Chase, Bank of America, Wells Fargo, Citibank, and Ally/GMAC), many loans are still in crisis and these two semi-governmental bodies haven’t really addressed their role in helping our mortgage crisis.

A new loan set to go into effect on June 15th for Freddie or Fannie backed loans will require the giants to respond to short sale requests within 30 days, with weekly updates after.  With some short sales taking over 10 months to complete, this process hasn’t been effective as an alternative to foreclosure.  Impatient buyers will back out, leaving the parties without a way to walk away from the property without completion of the foreclosure process.  During this time, the borrower’s credit will suffer for each month the mortgage isn’t paid on time.

Short sales have their advantages if they are completed quickly.  The servicer can provide cash incentives for the borrowers to leave and they don’t need to wait out the required redemption period.  The borrowers can have the comfort of knowing they’ve done their best to eliminate any damages caused by their lack of payment.  And if this property is the borrower’s home, the forgiven debt won’t have to be taxed (at least until the end of this year).

Of course, any law that is meant to force a response from a slow, bureaucratic body is only as effective as its enforcement.  But given the rude and inefficient way in which many borrowers are treated when they try in good faith to conduct a short sale instead of heading into foreclosure or bankruptcy, it may be a welcome change and hopefully match buyers and sellers properly, and perhaps put a dent into the number of homes – and homeowners – in crisis.

People routinely come into our office concerned about filing a bankruptcy because they have filed for bankruptcy in the past. If the filing was over 8 years ago, it’s not going to impact our options to help.  But  the Bankruptcy Code prevents continuous bankruptcy filings. After filing a Chapter 7 bankruptcy, you must wait 8 years to file another Chapter 7 petition (measured from the date of filing of the original case) or 4 years to receive the full benefits of a Chapter 13 bankruptcy. After filing a Chapter 13 bankruptcy, you must wait 6 years to file a Chapter 7 or 2 years to file another Chapter 13. Even though the full benefits of bankruptcy might not be possible because of a previous filing, there still may be answers for you.

Two of the best ways to receive financial help are filing a “no-discharge” Chapter 13 or filing a Chapter 128 State law remedy. A “no-discharge” Chapter 13 allows you to file for bankruptcy but not receive the full benefits of a discharge (where your debts are forgiven). The “no-discharge” Chapter 13 would be the best option left if you fell behind on a car payment while out of work but recently got re-hired. If the company you’re paying for your car payment tried to repossess your car, you could file a Chapter 13 and prevent the creditor from taking your car – or return it if it’s been repossessed but not sold yet. You would get 3 to 5 years to make up the payments you missed on the car, while also taking care of any debts you’ve received since your last bankruptcy filing. The only catch with the “no-discharge” Chapter 13 is that you have to pay back everything in full.

The Wisconsin residents we serve have another option:  the State law Chapter 128 remedy. You would use a Chapter 128.21 Petition to Amortize Debts if you have fallen behind on bills that were not secured by property.  This means we can’t take care of furniture on credit, car loans/title loans, mortgages, and tax debts.

But most bills, like medical bills, high-interest payday loans and credit card bills can be included. With a Chapter 128 you pay back the bills you choose over three years. Like the “no-discharge” Chapter 13, you also have to pay the bills back in full.  The good news is that interest stops and your wages and bank accounts can’t be touched by the creditors you list.

If you need financial help but are unsure what to do because of a previous bankruptcy filing, give the professionals at Lakelaw a call. We help people in financial difficulty find the right solution for them and do so by using Care, Kindness, Courtesy, Respect, Professionalism and Dedication.

This article was drafted by Lakelaw associate Nicholas D. Strom

You may recall some previous blog entries about the “Means Test”, the math calculation that Congress forced the bankruptcy courts to use to help determine who belongs in Chapter 7 and who belongs in Chapter 13 – and how much should be paid to creditors.

As of yesterday, the Means Test numbers have changed.  You can see the new amounts here.  Every few months, there are adjustments depending on the economy and how much families are making.

Let’s say you come in to our office in Waukegan and tell us that you are a single parent with one child and live in Lake County, Illinois.  We’d look to the state of Illinois, see that the median income level for a household size of 2 is $59,794.  If you then told us that you are salaried, your income is steady and you gross around $45,000 per year, you shouldn’t have any issues with the means test.  We would still look at the facts and your budget (as well as any prior bankruptcies) to see if you should consider filing in Chapter 13, but the Means Test is not going to be a concern in preparing the bankruptcy filing.

Now, perhaps, you are a resident of Racine, Wisconsin.  You and your spouse have two delightful children.  You and your wife together earn roughly $100,000 per year.  Well you make more than the median line and would have to complete part 2 of the means test.  You still might qualify for Chapter 7, but it will be a tougher hurdle to overcome.  We’d have to consider what this means for a Chapter 13 payment as well.

Like many laws, this Means Test is constantly adjusting.  We can tell you what this means for your chances of filing, but we need to know what was earned in the last 6 months, and any changes that might be happening in the near future (loss of overtime, large bonuses).  With this information, we can advise you properly.

While each situation is different, it is possible for you to get back on your feet very quickly after a bankruptcy – maybe even as fast as a few months.  There are certain steps you should take while also being careful not to get yourself right back into financial trouble.

The first way to build your credit back up is by reaffirming debts within the bankruptcy. A reaffirmation is simply an agreement to keep paying a debt even though you declared bankruptcy. You shouldn’t take this idea lightly and should discuss all of the pros and cons with your attorney. But if you do reaffirm a debt, your credit report will reflect the positive payments you make on the debt.  This is why we say it’s possible to file bankruptcy and still keep a car or home.

Another way to improve credit is to take out a credit card and pay off the balance every month. This way you will show potential creditors that you borrow money but are a good risk because you always pay it back. These payments will show up on your credit report and make a positive impression. However, this is something that should be done with caution. You will not be able to declare bankruptcy again for several years so it is important to pay off the balance every month. This is another important discussion to have with your bankruptcy attorney.

Finally, a good way to rebuild your credit is to take out a small secured debt. A secured debt is a debt where you and the creditor agree that if you don’t pay the creditor can have the property back (like a car loan). While it might be hard to take out a large loan for a car you can probably take out a small loan for a television, washer or dryer or have a debt tied to a bank account or credit union account so long as you show the creditor that you have some money in the bank.

Taking on debt after a bankruptcy is a big decision.  Many people are afraid to borrow again because they are afraid they will be back in the bankruptcy court again. Other people need to take on debt or want to take on debt to establish credit and possibly make a big ticket purchase in the future, for instance a home. Any decision to take on debt after bankruptcy should be made after consulting with your bankruptcy attorney.  The only way to earn credit is to borrow and successfully pay off debts, whether the debts are for utilities, gas credit cards, or car loans.

This post was authored by Lakelaw associate Nicholas D. Strom.

When we meet prospective clients for the first time, we try to make them feel welcome as guests of the firm.  After all, a lawyer-client relationship is built on trust and comfort.  The first meeting, which we offer free of charge, is meant to help our clients evaluate us and for us to evaluate the nature of our clients’ cases and what we can do to help.

Like most firms, we usually ask questions at the initial meeting.  Other firms have lengthy questionnaires, whereas we prefer to ask direct questions to find out what we need to know.  Some of these questions probably seem strange, especially since most folks come in with minimal money and assets and hefty debts.  So why do we ask these questions?

Well, first off, bankruptcy is a complicated process.  Try reading the 2005 “reform” of the bankruptcy laws passed by Congress.  If you understood that, you’d be the first to do so.  The point is that the bankruptcy laws don’t always mesh with common sense.  When people do sensible things to avoid bankruptcy like sell off assets, borrow from relatives and pay them back or settle debts, it can cause problems in bankruptcy.  So we need to know this before we prepare paperwork so that we’re not surprised and our clients aren’t either when the courts and trustees ask these questions.

They are routine questions to us, we’ve heard them hundreds of times.  “Has anyone died leaving you money?  Did you pay a relative a large sum of money for a loan or debt in the last year?  Did you sell any big asset like a car or house for less than full value in the last 2 years?   Did you pay any one of your creditors over $1000 in the last 3 months?  Did you use a credit card or take out a loan in the last 90 days?”

As experienced attorneys, we know what the most common questions are going to be as we help people through the bankruptcy process.  We’re not trying to judge or trick you, but trying to identify these issues and explain them.  Sometimes that means waiting for a few weeks or months to file.  Other times it means nothing is wrong and we can move ahead as we planned.  Having experienced attorneys who know what questions to ask mean less “surprises”, and nobody likes those in the courtroom or bankruptcy hearings.

Yes…well, sort of.  But you should never go to jail for a debt.

When you don’t pay a debt for too long, it goes into “default”. In almost all contracts, once a default happens, the creditor has certain rights to collect on the debt. One of these options is going to court and getting a judgment for the amount of the debt plus attorney’s fees and costs.

That part is simple.  You aren’t going to debtor’s prison for failing to pay your credit card bill.  The United States eliminated those a long long time ago.  Unless you intentionally took out a large sum of money and knew you couldn’t pay it, or lied to get it, you aren’t going to be charged with a crime like fraud simply because you tried your best and couldn’t pay.

But after getting a judgment, a creditor has the right to try a wage garnishment or take some unprotected property to pay the judgment down.  Which assets?  How much?  Well, that depends on where you work, where you live, and what you own.  These are questions the creditor has the right to insist you answer in writing.  This form is usually called a Financial Disclosure Form or Citation to Discover Assets.

If you ignore the writing, or if your writing is confusing, or you don’t back it up with paystubs, bank statements, tax documents, and so forth, you might get a letter in the mail informing you of a “supplemental examination” in front of a “court commissioner”.  When the creditor uses the power of the court to insist you appear, you must show up – it’s a big deal.  And if you can’t make it for any reason, call the creditor’s lawyer and the court commissioner.  The court doesn’t care much about the debt but it cares a lot about you not showing up, even if you don’t have money to pay the debt.

This problem is easy to avoid. When you are called to court Just Show Up! You can explain to the creditor why you can’t pay the debt. Maybe you have only social security or unemployment income.  It may seem like a waste of your time to go to a commissioner’s office for 10 to 15 minutes, but it’s not.  By failng to show up, the court can hold you “in contempt” and fine or even jail you for insulting the court and ignoring their rules.

If you have any questions about the possibility of going to jail for a debt, or any other questions related to your financial life give the professionals at Lakelaw a call. We take pride in our work and strive to always treat clients with Care, Kindness, Courtesy, Respect, Professionalism and Dedication.

This post was co-authored by Lakelaw Associate Nicholas D. Strom

Can you imagine having two mortgages, with the same lender, and not being able to get the departments to agree on how to proceed?

Unfortunately, many homeowners across the country face that exact ridiculous situation right now.  And it comes to its absurd conclusion in foreclosure filings.  You see, when a lender forecloses, they need to obtain a clear right to take the property that trumps anybody else imaginable.  So very often you see a case caption that reads:

Huge National Bank v. Joe Homeowner, unknown spouse of Joe Homeowner, a/k/a Jane Homeowner, unknown tenants, XYZ Condo Association, Credit Card Judgment Company, and Huge National Bank

What does that all mean?  Well, Huge National Bank has a first mortgage on this property, let’s say for $200,000.  They have to sue Joe Homeowner, since he’s on title to the property, he’s the owner on the deed recorded with his county.  They may have to sue his wife, if he has one, because some states give spouses a 1/2 interest in their spouse’s property.  They would have to sue a Condo or Homeowner’s Association that has an interest in the property.  They need to notify any creditor that obtained a judgment for a debt (a credit card judgment, a judgment for an unpaid medical bill, a personal injury).  And of course, the holder of any junior mortgage.

So why is Huge National Bank suing itself?  Because it probably has a second mortgage for $50,000 that was either taken out at the same time as the first mortgage (usually referred to as an “80-20 loan” – 80% of the purchase was for the first mortgage, 20% for the second) or it bought the mortgage later from another lender.

The problem is that each department has different interests.  The first lender wants to foreclose if you can’t pay, because that way they can get clear title and move forward with another buyer.  They want to recover as much as possible on the loan.  The second lender wants to do the same thing.  They may have a higher rate of interest on the mortgage since second mortgages bear much more risk.  They might even hire their own law firm to defend themselves against….themselves.

It sounds like a headache and a special case of the law turning common sense into logic games.  You may be correct.  But knowing this can help you determine how you want to proceed with both mortgages.  If you have two mortgages fighting between themselves and refusing to help you, please contact us to discuss your options.