Wednesday, December 1, 2010

Meet Bankruptcy Attorney from Home

Technology is a wonderful thing! Consider Skype, a free, web-based videoteleconferencing service which allows two people to communicate face-to-face, even though they are sitting at different locations around the world. All you need to use the service is a computer with high-speed internet access, a web-cam, speakers, and a free Skype account.

I was recently introduced to Skype by my older brother, who is serving in the military and stationed overseas. The ease of use and clarity of image are quite remarkable.

I am so impressed with Skype, I have decided to incorporate it into my law practice. Starting today, I am offering clients the option of meeting with me via Skype when they call my office to set up an appointment. It will be very useful for the initial client meeting in chapter 7 and chapter 13 bankruptcy cases.

It will be interesting to see how many clients take advantage of the opportunity to save the time of driving to my Massachusetts and Connecticut offices.

I welcome any thoughts you might have on using Skype in this manner.

Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP

Saturday, August 28, 2010

Tips for a Smooth 341 Meeting of Creditors

A great source of anxiety for many Chapter 7 and Chapter 13 bankruptcy filers is the 341 meeting of creditors. It is named after the section in the U.S. Bankruptcy Code which requires that such a meeting be held. The meeting is an opportunity for the bankruptcy trustee administering the case, and any creditors who care to attend, to question the debtor. The debtor is sworn-in by the trustee at the beginning of the meeting and must answer the questions posed under the pains and penalties of perjury.

For debtors in Worcester County, Massachusetts, the 341 meeting of creditors takes place at the U.S. Trustees Meeting Room located on the 1st floor of the Sovereign Bank Tower (the blue-glass high-rise), 446 Main Street (the corner of Main Street and Pleasant Street) in Worcester, Massachusetts.

For debtors in Hampden County, Massachusetts, the 341 meeting of creditors takes place at the U.S. Trustee Meeting Room located in Suite 1112 at One Financial Plaza, 1350 Main Street in Springfield, Massachusetts.

For debtors in Hartford County, Tolland County, and Windham County, Connecticut, the 341 meeting of creditors takes place in Room 742 of the Federal Courthouse located at 450 Main Street in Hartford, Connecticut. Allow extra time to get through security.

This sounds very official and intimidating, doesn't it? Although the meeting is a necessary part of the bankruptcy process, most debtors are presently pleasantly surprised by the speed and somewhat informal nature of the event.

Notice that I said "most debtors" and not "all debtors". For the meeting to run smoothly, the following must be observed:

1. The bankruptcy petition and all schedules and forms must be prepared completely, accurately, and with internal consistency. This is the most important part of a successful bankruptcy case, and should not be entrusted to anyone other than an experienced, local bankruptcy attorney, who will be attending the 341 meeting with the debtor.
2. The trustee must receive, no later than seven days in advance of the meeting, certain supporting documentation required by the U.S. Bankruptcy Code. The trustee may request other documentation in addition to the Code mandates. The meeting will generally not be held unless all documents are received by the trustee in advance of the meeting. For this reason, it is crucial that a debtor respond quickly to any requests from their bankruptcy attorney for additional information.
3. The debtor must provide to the trustee a photo ID (usually a driver's license) and proof of social security number (usually a social security card, but can be a W-2). The debtor will need these documents to prove their identity and social security number to the trustee at the beginning of the 341 meeting.
4. The debtor should arrive 15 to 20 minutes early, sit in the meeting room, and listen to other debtors' examinations. This will give the debtor time to get familiar with the meeting room and the type of questions being asked by the trustee. This, more than anything else, will help alleviate some of the anxiety most debtors experience on 341 meeting day. If I have a debtor who is very stressed out about the meeting, I suggest they visit the meeting room a day or two ahead of time (during normal business hours) to get familiar with the driving route, parking, and meeting room itself.
5. The debtor should listen to the question being asked, and answer only the question being asked, in as few words as possible. If a "yes" or "no" will do, that is all that should be said. Nervous chatter, defensive statements, and other superfluous gabbing can open the door to additional questions and extend the meeting. Let the trustee or creditor work to elicit the desired responses.
6. Above all else, the debtor should tell the truth. An intentionally false or misleading statement under oath can result in fines and/or imprisonment, as well as the dismissal of the bankruptcy case. A debtor should not turn a bad financial situation into a prison sentence because he or she failed to tell the truth. If some of the information on the petition and schedules turns out to be wrong, that is o.k. The petition and schedules can be amended after the meeting.

I hope this post helps many debtors feel more prepared and comfortable at their 341 meeting of creditors. By observing the above tips, a smooth and uneventful 341 meeting is virtually guaranteed.

Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP

Saturday, August 21, 2010

Will You Lose Your House If You File For Bankruptcy?

One of the most frequent questions asked of me by those contemplating a bankruptcy filing is, "Will I lose my house if I file for bankruptcy?" Although the answer is generally "No", the question cannot be answered properly until the potential client provides some details about their financial situation. The two biggest considerations are whether the debtor is current with their mortgage payments and how much equity they have built up in their home.

Not surprisingly, a debtor can lose a home if they fail to make regular mortgage payments. In a Chapter 7 proceeding, a debtor who falls behind in mortgage payments before or after the bankruptcy case is filed is at risk of losing the home. For this reason, I will not file a Chapter 7 bankruptcy petition on behalf of any client who has expressed a desire to keep their house if they are not current with their mortgage payments. The client must become current with their mortgage (or have entered into an enforceable loan modification agreement with their lender that addresses the missed payments) before filing, or if that is not possible, the client must file for debt relief under Chapter 13.

In a Chapter 13 proceeding, a debtor who misses mortgage payments before the case is filed can avoid losing the home if they pay back the arrearage through the Chapter 13 plan, but the debtor will risk losing the home if any regular mortgage payment or Chapter 13 plan payment that comes due after the case is filed is not paid. For this reason, it is very important for a debtor to make all regular mortgage payments and plan payments after a Chapter 13 bankruptcy proceeding is commenced.

In a Chapter 7 proceeding, there is the additional consideration of the amount of equity a debtor has built up in their house in determining whether or not the debtor will keep their house. Equity is the difference between the value of the house and the amount of debt secured by the house (usually in the form of a mortgage). If the debtor has too much equity built up in their house, they are at risk of losing their home. A Chapter 7 trustee will sell, or liquidate, all property having value over and above the total amount of all secured creditors' liens and valid exemptions, and distribute to unsecured creditors the net proceeds of the sale remaining after payment of the secured creditor liens, exemptions and transactional expenses. Fortunately, in Massachusetts the exemption available for a primary residence is significant, up to $500,000.00 per household. In Connecticut, the exemption is more modest at $75,000.00 per individual, or $150,000.00 per couple. Exemption analysis can be complicated and you should not proceed with a bankruptcy proceeding unless your bankruptcy attorney can confidently demonstrate to you that your home equity will be protected by a valid exemption.

In conclusion, most people will not lose their house if they file for bankruptcy, provided they are current with their mortgage payments, and remain so after filing, and have not accumulated too much home equity.

Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP

Friday, July 9, 2010

Bankruptcy Laws Change for Same-Sex Married Couples In Massachusetts

This past Thursday (7/8/10), a Massachusetts federal judge decided that a law barring the federal government from recognizing same-sex marriage is unconstitutional. Follow this link to read more about the decision. The decision will make obtaining bankruptcy relief easier and less expensive for same-sex married couples in Massachusetts.

Prior to the decision, same-sex married couples in need of a Chapter 7 or Chapter 13 bankruptcy filing could not file a joint bankruptcy petition. This was because bankruptcy is a federal legal proceeding, and under the federal Defense of Marriage Act, or DOMA, same-sex marriage was not recognized. As a result, a same sex married couple could not take advantage of the higher median income limit extended to 2-person households. This meant fewer gay and lesbian debtors could avoid the means test than their heterosexual counterparts. Another problem was that a same-sex married couple had to file two individual bankruptcy petitions, pay two filing fees, and typically incur higher legal fees than a heterosexual married couple.

It is not clear whether or not the U.S. Department of Justice is going to appeal the decision. If the decision is upheld on appeal, or not challenged at all, all married couples in Massachusetts will be treated equally throughout the bankruptcy process. The different treatment described above will be no more. The federal bankruptcy court will need to respond to the decision by updating its petition, forms and schedules to accommodate same-sex marriage terms, as many documents use the traditional labels of "husband" and "wife." Perhaps they will use the generic terms "debtor" and "co-debtor."

Frequently we are reminded that the only constant is change. This recent decision changes bankruptcy law in Massachusetts, and sets the stage for change in other jurisdictions. The decision may be upheld or overturned. Whatever the outcome, should financial distress take hold of you or someone you care about, make sure you/they seek counsel from an experienced bankruptcy attorney who remains current in this dynamic and important area of the law.

Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP

Monday, June 14, 2010

When a Chapter 13 Bankruptcy Filing is Appropriate

In general, a chapter 7 bankruptcy is preferable to a chapter 13. This is because a chapter 7 bankruptcy proceeding will produce a discharge of debt sooner than a chapter 13, and it will usually be less expensive. There are several situations, however, when a chapter 13 is the best option.

First, a debtor may simply be ineligible to file a chapter 7 bankruptcy because he or she has too much monthly income remaining after monthly expenses are paid.

Second, a debtor may be ineligible to file a chapter 7 bankruptcy because fewer than eight years have elapsed since the debtor filed a prior chapter 7 case that resulted in a discharge of debt.

Third, a debtor may have fallen behind in house or vehicle payments and cannot pay the arrearage, but now has the ability to resume making regular payments and wants to retain the house or vehicle. The chapter 13 plan will allow the debtor to pay the arrearage over time.

Fourth, a debtor may own too much "non-exempt" property, and wants to retain such property.

Finally, the debtor may want to take advantage of the lien-avoiding rules only available in chapter 13 proceedings, such as "lien stripping" and "cram downs." "Lien stripping" is when a secured debt is converted into an unsecured debt, and gets treated the same as all of the debtor's other unsecured debt. The most common example of this is a wholly-unsecured junior mortgage. Such a mortgage will get paid partially through a chapter 13 plan, and the unpaid balance will be eliminated along with the unpaid balance of the debtor's other unsecured debt, such as credit cards and medical bills. A "cram down" occurs when a secured loan, having a balance in excess of the value of the collateral securing such loan, is reduced to the value of the collateral. Although the secured portion of the loan will get paid in full, the unsecured portion of the loan (the portion of the loan in excess of the value of the collateral) will be treated the same under the chapter 13 plan as the debtor's other unsecured debt, and will be paid back partially. The most frequent "cram down" target is a car loan.

I like to think of a chapter 7 proceeding as "Plan A", and a chapter 13 proceeding as "Plan B". I will only recommend "Plan B" to a client if one of the above situations is present.

Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP

Monday, June 7, 2010

Playing Favorites Among Creditors

Most people with several creditors, feel more loyalty to one or two of them than the others. These preferred creditors are often a favorite store, but are more frequently a friend or relative who lent them money. Let's face it,...favorite creditors are more likely to get paid when money is tight.

A problem can arise, however, when such a payment is made on the eve of filing for bankruptcy. Under the U.S. Bankruptcy Code, such a payment may be deemed a "preferential payment" by the bankruptcy trustee if it is made within 90 days prior to the filing of the bankruptcy petition. The trustee, exercising its "avoiding powers", can force the creditor to surrender the payment to the trustee. If the creditor happens to be an individual related to the debtor, or an entity owned or controlled by the debtor, the trustee can go back up to one year prior to the filing of the bankruptcy petition to recover such payments.

The trustee's power to avoid preferential payments prevents a creditor from receiving more of the debtor's property than that creditor would receive in a Chapter 7 bankruptcy proceeding. As a result, such power promotes equality among creditors, and deters creditors from racing to get at the debtor's property before the debtor files for bankruptcy.

Playing favorites among creditors in the days leading up to a bankruptcy filing is a horrible idea. There's no other way to say it. Imagine having to go to your friend or family member, who helped you in your time of need, to ask them to return all of the payments you made in the past year, because if they don't, a bankruptcy trustee will take them to court to recover the payments. This can put a damper on your relationship.

The rules in this area are detailed, and their application can be complicated. Anyone contemplating bankruptcy who wants to pay certain creditors over others should discuss it with their bankruptcy attorney prior to making any such payments.

To coin a phrase, ounce of prevention can avoid a pound of avoidance.

Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP

Monday, May 31, 2010

The Parent Trap

No, I'm not talking about the Disney movie starring the young, innocent actress Hayley Mills,...later remade with the young innocent actress, Lindsay Lohan. I am talking about the problems your parents can create for you when they transfer assets to you (completely or partially) for their own estate planning purposes.

Parents often transfer assets (usually a home) to their children so the parents' estates may avoid paying back the value of Medicaid benefits (e.g., a nursing home stay) to the State after the parents pass away. This may sound good to some, but serious problems can arise if a child receiving assets becomes insolvent while the parents are still alive, and needs to file for bankruptcy relief.

The transfer increases the child's assets, which can compromise the child's bankruptcy case,...and the parents' estates. This is due to there being only a limited amount of exemptions available to shield assets in bankruptcy.

In a Chapter 7 bankruptcy case, too many assets can result in the sale of the non-exempt assets by the trustee assigned to the case. The fact that the child is only helping their parents will not matter to the United States Trustee's Office. What a tragedy it would be for Mom and Dad to lose their house (which they likely own debt-free) because of their child's bankruptcy, and subsequent inability to protect the house from trustee liquidation.

All too often, a child who is holding assets for a parent is forced into filing a Chapter 13 bankruptcy in order to protect the assets. As a result, the child must endure the more expensive and longer duration bankruptcy proceeding. In a Chapter 13 case, too many assets can result in higher Chapter 13 plan payments. Sometimes, the child cannot afford the higher Chapter 13 plan payment, and is prevented from filing altogether.

Parents who are contemplating a transfer of assets to their children would be wise to make sure their children are not highly leveraged or otherwise in financial distress. Children who are highly leveraged, in difficult relationships, uncertain about job security, etc. would be equally wise not to accept a transfer of assets from their parents.

An open and frank discussion of a child's financial situation with a qualified attorney prior to a transfer of assets from parent to child can avoid substantial harm to the parent's estate, and the child's chance for meaningful debt relief through bankruptcy.

Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP