I have recently had an upsurge in inquiries from potential clients operating fish farms, tree farms, cattle ranches, and fishing/shrimping operations. These clients are being hit hard by the cost of fuel, weather problems, lack of demand, and tight credit. Fortunately, the Bankruptcy Code provides specific help for those able to be classified as "Family Farmers and Family Fishermen". A little-used section of the Bankruptcy Code is Chapter 12. It is a reorganization that is simpler and less expensive than a Chapter 11, but a bit more complicated than a Chapter 13. The Chapter 12 still contains the "cramdown " provisions that allow secured debt to be paid at the value of the collateral rather than the amount of the debt. I have been able to save clients $millions with this provision. Chapter 12 operates through a Trustee, much as a Chapter 13. Many of the restrictions from the 2005 BAPCPA changes, such as The Means Test do not apply to this reorganization.
If you think you may qualify as a Family Farmer or Family Fisherman seek experienced counsel before allowing foreclosure of your farm or fishing vessels. Too many times when the Banker says "We want you to work with us" it means lay down and let us take you to the poorhouse. The banker works for the Bank; he is not your friend.
Wednesday, March 31, 2010
Tuesday, July 14, 2009
BandAids For the Economy
As the Administration mulls more "help" for distressed homeowners (http://www.reuters.com/article/newsOne/idUSTRE56D04920090714),
the economy gets worse(http://online.wsj.com/article/SB124753066246235811.html). All of this after no effort was made to help pass the law to allow Bankruptcy Judges to modify home mortgages. The best, simplest solution was passed over for, "Yes", a BandAid approach.
the economy gets worse(http://online.wsj.com/article/SB124753066246235811.html). All of this after no effort was made to help pass the law to allow Bankruptcy Judges to modify home mortgages. The best, simplest solution was passed over for, "Yes", a BandAid approach.
Wednesday, May 6, 2009
So, You Failed the Means Test ?
The biggest impediment to relief under the Bankruptcy Code is what is called The Means Test ( see article at http://www.johnesmithlawoffice.com/the_means_test_in_bankruptcy ). If you fail the Means Test you can be required to file a Chapter 13 paying a larger amount to your creditors than you can really afford. Is there anything that can be done? In some cases, "Yes".
First, it needs to be determined whether your case can be classified as a "business" case. If so, the Means Test results do not apply in a Chapter 7. A case with majority of business-related debt can be filed as a Chapter 7 regardless of the Means Test. The business debt must be 50.1% of all debt, including the mortgage. Some cases fail to be classified as business because the mortgage is such a high percentage of the debt, and it is considered "consumer".
Second, if a 13 is necessary because it is not a business case,the Means Test disposable income result can be significantly higher than the client can realistically pay. In those cases, some Courts allow a Motion to Waive the Means Test results due to "special circumstances"- loss of job, reduced hours, or bonus that skewered the Test.
If a waiver is not possible, the best method is to attempt to reduce the debt amounts to equal a 100% payout to all creditors at a rate that is affordable,. Typically this involves reviewing all claims filed by unsecured creditors(usually credit cards) to see if there is a basis to object to the proof of claim filed by the creditor attempting to prove the debt. If the correct documentation proving the debt is not provided, the debt can be disallowed and not included in the distribution under the /chapter 13 Plan. It is effectively discharged without payment. I have been fairly successful in attacking claims in this manner. In several cases, I have reduced the amount to be paid back by over 90%.
Failing the Means Test does not preclude a bankruptcy filing. It simply calls for more creativity and knowledge to work through the application of the Law.
First, it needs to be determined whether your case can be classified as a "business" case. If so, the Means Test results do not apply in a Chapter 7. A case with majority of business-related debt can be filed as a Chapter 7 regardless of the Means Test. The business debt must be 50.1% of all debt, including the mortgage. Some cases fail to be classified as business because the mortgage is such a high percentage of the debt, and it is considered "consumer".
Second, if a 13 is necessary because it is not a business case,the Means Test disposable income result can be significantly higher than the client can realistically pay. In those cases, some Courts allow a Motion to Waive the Means Test results due to "special circumstances"- loss of job, reduced hours, or bonus that skewered the Test.
If a waiver is not possible, the best method is to attempt to reduce the debt amounts to equal a 100% payout to all creditors at a rate that is affordable,. Typically this involves reviewing all claims filed by unsecured creditors(usually credit cards) to see if there is a basis to object to the proof of claim filed by the creditor attempting to prove the debt. If the correct documentation proving the debt is not provided, the debt can be disallowed and not included in the distribution under the /chapter 13 Plan. It is effectively discharged without payment. I have been fairly successful in attacking claims in this manner. In several cases, I have reduced the amount to be paid back by over 90%.
Failing the Means Test does not preclude a bankruptcy filing. It simply calls for more creativity and knowledge to work through the application of the Law.
Friday, May 1, 2009
No Mortgage Relief From Congress
On April 29,2009 the Senate voted down Foreclosure relief that would allow Bankruptcy courts to modify existing home mortgages. This common sense solution to resolve distressed mortgages and help homeowners only received 45 votes. The bill is dead.
So, what can you do if you are behind on your mortgage and facing foreclosure?
First, you can try to work out a forbearance with your mortgage company. This is a voluntary workout that may increase your payment over a short term to cure arrears. The problem is that if you are in trouble with your mortgage, increasing the monthly payment is often the last thing you can afford.
Second, you can attempt a mortgage modification. In this situation, the mortgage company voluntarily agrees to change the terms of your mortgage by possibly dropping the interest rate, putting arrears on the back of the note, or redoing it for 30 years. The problem here is that it is voluntary. No one can force them to offer it.
Third, you can file a Chapter 13 bankruptcy reorganization.(http://www.johnesmithlawoffice.com/types_of_bankruptcies ) The law remains limited in what it can do. The regular monthly mortgage payment remains due each month. No change. The arrears and escrow shortage are spread over a 60 month period. Along with the restructuring of your other debt, this can sometime s afford enough relief to stay in the house.
Fourth, let the house go. The downside to this response is that you will have to move. You will also likely face a deficiency lawsuit to collect the balance of the mortgage not paid by the foreclosure process. Bankruptcy relief for that debt may also be necessary.
The law is currently limited in the relief offered. Unfortunately, unlike all of the fat cats on wall Street, Congress does not feel that individual homeowners are "too big to fail."
So, what can you do if you are behind on your mortgage and facing foreclosure?
First, you can try to work out a forbearance with your mortgage company. This is a voluntary workout that may increase your payment over a short term to cure arrears. The problem is that if you are in trouble with your mortgage, increasing the monthly payment is often the last thing you can afford.
Second, you can attempt a mortgage modification. In this situation, the mortgage company voluntarily agrees to change the terms of your mortgage by possibly dropping the interest rate, putting arrears on the back of the note, or redoing it for 30 years. The problem here is that it is voluntary. No one can force them to offer it.
Third, you can file a Chapter 13 bankruptcy reorganization.(http://www.johnesmithlawoffice.com/types_of_bankruptcies ) The law remains limited in what it can do. The regular monthly mortgage payment remains due each month. No change. The arrears and escrow shortage are spread over a 60 month period. Along with the restructuring of your other debt, this can sometime s afford enough relief to stay in the house.
Fourth, let the house go. The downside to this response is that you will have to move. You will also likely face a deficiency lawsuit to collect the balance of the mortgage not paid by the foreclosure process. Bankruptcy relief for that debt may also be necessary.
The law is currently limited in the relief offered. Unfortunately, unlike all of the fat cats on wall Street, Congress does not feel that individual homeowners are "too big to fail."
Tuesday, April 21, 2009
A Bailout for Everyone...But the Little Guy
$1,000,000,000,000 for the Toxic Asset Recovery Program. $25,000,000,000 for automakers. AIG gets $150,000,000. How much are you getting?...$0. So the bail-outs for the Big Guys go on & on & on. Everybody has their hand out. Big Business and Big Banking is getting money thrown at them at a record pace. All of this while unemployment goes up. Foreclosures are up. House prices fall. For the second consecutive Quarter in Houston, Texas, home sales and prices have fallen. Credit gets tighter. Is there going to be any help for the regular person trying to pay mortgages, school loans, credit card debts, car loans, and high utility bills? I don’t think so.
So, what is a regular person to do?
Hopefully, some help is on the way. Congress has actually attempted to address some of these problems through changes in the Bankruptcy Code. From the beginning of the current law in 1978, residential mortgage debt has retained a special protection that no other creditor was afforded. GMAC, Ford MCC and others were subject to having their debt modified in a bankruptcy proceeding (interest rates adjusted, principal lowered to the actual value of the collateral, terms of loans extended). Residential mortgages were exempt. The House has passed a law to change the Bankruptcy Code to allow these same modifications to mortgages by a Bankruptcy Court. This would be mandatory and allow consumers, not just those meeting restrictive guidelines in the current voluntary plans, to change the terms of their mortgages. Adjustable mortgage rates would be lowered and fixed; “Underwater” mortgages would be reduced to actual house value; terms could be extended when necessary.
This bankruptcy modification bill is moving slowly through the Senate. It is meeting great resistance from mortgage companies, but may be brought to a vote by Memorial Day.[i]
Call your Senator and let them know you support these changes to the Bankruptcy Code. Fairness is all we ask.
[1]See this article in the Washington Post. http://www.washingt%20onpost.com/%20wp-dyn/content/%20article/2009/%2004/20/AR20090420%2003230_pf.%20html
For more information, see my website at http://www.johnesmithlawoffice.com/
So, what is a regular person to do?
Hopefully, some help is on the way. Congress has actually attempted to address some of these problems through changes in the Bankruptcy Code. From the beginning of the current law in 1978, residential mortgage debt has retained a special protection that no other creditor was afforded. GMAC, Ford MCC and others were subject to having their debt modified in a bankruptcy proceeding (interest rates adjusted, principal lowered to the actual value of the collateral, terms of loans extended). Residential mortgages were exempt. The House has passed a law to change the Bankruptcy Code to allow these same modifications to mortgages by a Bankruptcy Court. This would be mandatory and allow consumers, not just those meeting restrictive guidelines in the current voluntary plans, to change the terms of their mortgages. Adjustable mortgage rates would be lowered and fixed; “Underwater” mortgages would be reduced to actual house value; terms could be extended when necessary.
This bankruptcy modification bill is moving slowly through the Senate. It is meeting great resistance from mortgage companies, but may be brought to a vote by Memorial Day.[i]
Call your Senator and let them know you support these changes to the Bankruptcy Code. Fairness is all we ask.
[1]See this article in the Washington Post. http://www.washingt%20onpost.com/%20wp-dyn/content/%20article/2009/%2004/20/AR20090420%2003230_pf.%20html
For more information, see my website at http://www.johnesmithlawoffice.com/
Why Bankruptcy Help?
When I graduated Baylor Law School in 1980, I was intent on being the next great trial attorney. A few years later, my firm sent me to handle a case in Bankruptcy Court. At this point, I had taken no courses in Bankruptcy Law, had not read the Bankruptcy Code, and didn’t even know where the Bankruptcy Court was located in Houston. I soon discovered that I both enjoyed Bankruptcy Law and had a knack for it. More importantly I noticed something that was rare in my personal injury and family law cases- happy clients. It felt good to see the relief on my client’s faces when the case was finished and their debt problems were removed.
I became more involved in bankruptcy work and before long it was all I was doing. I became involved in local bankruptcy Bar Associations (President three terms), many committee assignments appointed by the Judges of the Southern district of Texas-Houston, and frequent speaking engagements on bankruptcy topics. At one time, I had offices in College Station, Waco, Lake Jackson, and Galveston. My current offices are in Houston and Friendswood.
The more I understood Bankruptcy Law, the more I saw how it could help families recover from devastating debt issues. Through Chapter 7 Liquidation and reorganization cases, I was able to help individuals and businesses survive bad situations. Now, after almost 26 years, I still love what I do.
For more information, visit my website at http://www.johnesmithlawoffice.com/
I became more involved in bankruptcy work and before long it was all I was doing. I became involved in local bankruptcy Bar Associations (President three terms), many committee assignments appointed by the Judges of the Southern district of Texas-Houston, and frequent speaking engagements on bankruptcy topics. At one time, I had offices in College Station, Waco, Lake Jackson, and Galveston. My current offices are in Houston and Friendswood.
The more I understood Bankruptcy Law, the more I saw how it could help families recover from devastating debt issues. Through Chapter 7 Liquidation and reorganization cases, I was able to help individuals and businesses survive bad situations. Now, after almost 26 years, I still love what I do.
For more information, visit my website at http://www.johnesmithlawoffice.com/
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