Massachusetts Bankruptcy and Consumer Law Blog

Do I Still Have to Pay Debts that are Charged Off?

2012-01-09T20:57:00.000-05:00

Someone recently wrote me and asked if he had to pay an old debt that was charged off and sold to a debt collector. This is what that depends on. The key points:

1. The tough news is that after a debt is charged off, you still owe it. Charging off a debt is an accounting practice meant to give a fair picture of the value of a business (by taking bad debt off the books). Charging off an account does not affect the legal obligation to pay it, and the business must account for any money obtained once they sell the debt to a debt buyer. Often there will be a gap between when the debt is charged off and when a debt buyer emerges to contact you for payment. This is where the "zombie debt" term comes in, i.e. you think the debt is dead, but then it resurrects and attacks you.

2. The (possible) good news is that gap is sometimes too long, and the debt too old, to make it collectible in a court of law. Just because a debt is sold to a zombie debt buyer, it doesn't mean that the statute of limitations revives if it has already lapsed. Generally, the statute if limitations in Massachusetts for debt collection is six years from the date of the original default. If you make any partial payments later, this will usually re-start the clock, but if you don't the six-year rule usually will apply.

3. If the debt is still good once it's in the hands of a debt buyer, you must pay it, settle it, or file bankruptcy. We specialize in affordably accomplishing the last two options for Massachusetts consumers and small to medium-sized businesses. Give us a call, send us an email, or visit our web site if you would like our help with a debt law issue.

Unfair and Deceptive Mortgage Practices in Massachusetts

2011-12-24T12:39:00.001-05:00

Chapter 93A of the Massachusetts General Laws prohibits the use of unfair or deceptive practices in trade or commerce. I am going to highlight one way this comes up in the context of foreclosure. Mortgage foreclosure is a two-track system. The first track is managed by the loss mitigation department at the mortgage servicer, and the other is managed by an outside law firm that is hired to handle the nuts and bolts of the foreclosure. The same law firms usually handle all the foreclosures in Massachusetts, like Harmon Law Offices, Korde and Associates, and a few others. As I'll explain, the two different groups, i.e. the loss mitigation people and the lawyers, can give very different messages to the consumer.

The loss mitigation people are employees of the servicer and are charged with communicating with often-frantic consumers about loan modifications, work outs, and forbearances. These individuals have a tough job, and some do it well and some do it poorly. However, the bottom line is that you will often hear from these folks that "everything will be fine," "we have your application and are processing it, everything looks good," "we aren't really going to foreclose," or "you have plenty of time to work through this with us." But all at the same time, another group of people at the mortgage company has hired a law firm to foreclose on your home. The law firm has no idea what you've been discussing with the mortgage company and has no reason to care: They were hired to do a job and until they are called off, they'll do it.

So what's the problem here? It's mixed messages. They are deceptive and can cause harm to a consumer if the loan modification or forbearance doesn't go through and the homeowner has been told not to worry and sits on their hands. Often a consumer will figure this all out in time, however. When you get an official court notice that a foreclosure is happening (under the Servicemembers Relief Act) and/or see an ad in the paper advertising your home for sale, it usually starts to seem unreasonable to rely on the phone statements of a mortgage employee. Often this is when people investigate their bankruptcy options in earnest, but sometimes (but not often) due to the need to come up with money to file, it too late.

Who's to blame? The mortgage servicer mainly is. It is the entity that employs the loss mitigation people and establishes the policies they work under. The mortgage servicer also hires and sets the parameters of the job for the law firm to carry out. If the misrepresentations are bad enough, that is why the mortgage servicer is the most natural party to be sued under 93A if the consumer suffers significant financial damage as a result of the violations.

Liquidating in Chapter 11 versus Chapter 7

2011-12-21T22:58:00.001-05:00

So you have a business that needs liquidating? What's the best way to do it? There is the classic Chapter 7 route, which after all is the liquidating chapter of bankruptcy, but there is also something known as a "liquidating Chapter 11" bankruptcy. Why would anyone choose to use the reorganization chapter of bankruptcy to wind down a business? The answer is that sometimes there is more value for everyone when business assets are sold off as part of a going concern rather than at a bankruptcy garage sale by an trustee in Chapter 7.

First the basics: if you do it correctly, Chapter 11 allows the existing business owners to stay in control while the business is marketed for sale. Business owners often like this because they can remain in control and keep existing employees on staff (including themselves). The advantage to creditors is that the business owners are often the only ones who can really run the business as a going concern. Chapter 11 is premised on the concept that there is sometimes more value in an operating business than in a sale of its parts. That's why reorganization exists in the first place. If this is true in a particular case, that's why selling all the assets of business in a Chapter 11 is permitted: the net proceeds, even after factoring the increased costs of case administration, are greater than a straight liquidation.

The process of selling the assets of a business in Chapter 11 includes many challenges. Here are some:

Any blanket lien holder, like a bank with an interest in cash collateral, must be dealt with. Usually it's necessary to convince such a lender that Chapter 11 route will result in full payment of their claim.
The business may need cash to operate after filing bankruptcy. In which case, debtor-in-possession financing must be obtained. This is sometimes comes from the proposed buyer of the business assets. However, there obviously timing issues at play when a business is running so low on cash that basic operations are imperiled.
A buyer must be found and the procedures for counter-bids must be fair.
The price for the assets must in most cases must pay off all secured debt. That is because of, among other things, credit bidding, but there is a possible exception for sales via a confirmed Chapter 11 plan.
The debtor may have to negotiate a deal with the committee of unsecured creditors to pay them a partial dividend from the sale or the sale may be tied up in litigation in the bankruptcy court.
The estate must be administratively solvent.

This is just a quick treatment of some of the issues involved in selling a business through a Chapter 11 plan. If a business has real value it makes sense to consider this option. In the right case, everyone can benefit.

Fraudulent Transfers and Closing a Business

2011-12-02T12:15:00.002-05:00

I previously wrote about closing down a small business in Massachusetts. One of the point I alluded to, I am going to expand on a bit here. What happens to the assets of the business when the small business folds? There is a temptation for the business owners to just keep the assets for their personal benefit after closing the doors and leaving business debts unpaid. This is what is called a fraudulent transfer, and a business creditor can make you personally pay the value of these assets over to them if you just keep them in this manner. The reason for this is the Massachusetts Fraudulent Transfer Act. The big picture is that the law does not permit giving away the assets of a business that can't pay its debts: the business creditors are entitled to get the value of those assets before anyone else does. It usually makes sense to administer and distribute assets to creditors in a fair and transparent manner, such as via a business bankruptcy. However, not all transfers of assets to business owners are problematic.

In Massachusetts, generally, an insolvent business can transfer assets to a business owner if the owner pays a fair price in cash to the business. Any such transfer and accompanying valuation must be well documented and supported, and the "payment" to the business must not simply be debt forgiveness by the business owner. It is also important to document transactions of this type because if the insolvent company ends up in bankruptcy, the trustee can sue the owner to recover the value of the assets if they are sold for less than reasonably equivalent value.

Winding Down a Business in Massachusetts

2011-12-01T23:01:00.004-05:00

There are many reasons why you might want to close a business. It may just be the time in your life to move on. However, if there's no way to sell your business and there's not enough money to pay the debts off, what do you do? This "insolvency" can create challenges in winding down a business in a way that allows you to move on.

Here are a few key questions to consider:

1. Have you personally guaranteed business debts?

This is a key consideration. Any debts you, your spouse, or partners guaranteed will have to paid by the guarantor(s) should the business close without satisfying these debts. Business credit cards are typically personally guaranteed by the owners. The same with most bank debt. Trade credit (vendor debt) usually is not personally guaranteed, but sometimes it is. Personal guarantees are common and can end in the bankruptcies of individual business owners if these debts cannot be paid. I call these business-personal bankruptcies and have written a bit more about them here.

2. If there are no personal guarantees or the personally guaranteed debts have or will be paid, does the business have valuable assets?

Some examples of assets include inventories, equipment, cash, and accounts receivable. If the business has assets, it can't just close its doors and leave debts unpaid. Where would the assets go? The business owner can't just keep them. In theory at least, these assets must be distributed equitably to creditors before the business owner can just take a dividend. So, if the business is operating in the red and there is not enough money to pay all the debts, who should get what? Lien holders should receive their collateral or its value. Taxes and employees should be paid in full. (It is important not to leave employee wages unpaid in Massachusetts). But after the secured and priority creditors receive their share, who should be paid what if there is money or assets left over? The answer to this depends on the goals of the business owner and the extent of the assets, but it may at this point make sense to file bankruptcy for the business so that the assets can be distributed fairly to creditors by a trustee. Whether to do this or not depends on a few factors, like the exposure of the business owners to suit by the trustee (like if they have unpaid debts to the business), but it sometimes is the best way to clear the assets in a transparent fashion so that creditors get their satisfaction and stop pursuing the business and its owners for the unpaid debts. Once this bankruptcy process is finished, the business can be formally dissolved with the Secretary of the Commonwealth and the matter can be put to bed. The cost of bankruptcy usually comes from the business assets.

3. What if there are no business assets?

If the business has not assets, you still need to make sure you deal with personally-guaranteed debt and any priority debts, like taxes and wages. Once you do this, an old legal maxim comes into play: you can't get blood from a stone. Creditors will try, however, and many an asset-less business winds up in bankruptcy just to satisfy the creditors that there are indeed no assets to be found. However, this is not always necessary. Blood can truly not come from stones and so, although annoying and time-consuming, dunning efforts by angry business creditors will come to naught if the business has nothing. In this case, letting the business die a natural death (non-payment of debts and administrative dissolution by the Secretary of the Commonwealth) should be considered.

It's probably obvious, but it makes a lot of sense to retain an attorney to guide you through the process of winding down a business in Massachusetts. There are several strategic options to consider that will affect the speed of the process and the overall cost to the business owners.

Massachusetts Personal Injury Bankruptcy Exemption

2011-11-04T11:23:00.002-05:00

Here in Massachusetts, we can choose between the federal and state bankruptcy exemptions. Exemptions are laws that allow you to keep property you have when you file bankruptcy. A personal injury lawsuit is "property" that you will lose to a Chapter 7 bankruptcy trustee if it is not exempt. So, when are personal injury suits--for car accidents, slip and falls, etc.--exempt?

It's fairly simple: There is no Massachusetts exemption for injury awards in bankruptcy, but since we have the right to choose exemptions under federal law, we have the following:

Effective April, 2010, the federal personal injury bankruptcy exemption is $21,625 for "personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent."

There are various complications when it comes to exempting personal property awards in bankruptcy, mainly involving liens. Seek out experienced bankruptcy counsel if you wish to attempt to exempt an injury suit.

Payment Plans in Chapter 13 Bankruptcy

2011-08-13T21:12:00.004-05:00

I previously wrote about payment plans in Chapter 7 Bankruptcy, and now I'm going to explain a bit about Chapter 13 payment plans. Chapter 13 payment plans are the same as Chapter 7 payment plans with one important difference. A bankruptcy attorney can accept payment from you after a Chapter 13 case is filed if the money comes from your Court-ordered Chapter 13 payment.

Here's a key point: Total Chapter 13 bankruptcy fees are generally $4,000 ($3,500 plus $500) here in Massachusetts because of a Court rule (you can read the Court rule here--this link will open a large PDF document on the Court website and the rule is on pages 83 and 84). Virtually all bankruptcy lawyers in Massachusetts charge this amount for a standard Chapter 13 case because of the rule. However, the key is this: the amount you pay out of your pocket varies. Lawyers who do a lot of Chapter 13 will sometimes only take part of the $4,000 upfront and let the rest be paid via your plan. This is good for you because the remainder that your lawyer collects normally just reduces the money that your creditors get without requiring that you pay more. We will sometimes charge people as little as $1,750 before a case is filed (which itself can be paid via a payment plan in the Chapter 7 style) and take the rest via their Court payment.

Another question you might have: How is my Chapter 13 payment determined?

Payment Plans in Chapter 7 Bankruptcy

2011-08-13T19:22:00.003-05:00

Some bankruptcy attorneys hide the ball when it comes to the true cost of bankruptcy. We do not and you can get some real numbers about bankruptcy fees in Massachusetts on our website. However, I wanted to write here about payment plans. My experience is that more than half of consumers these days do not have sufficient funds to pay for bankruptcy upfront and need a payment plan. We work with people in this situation every day and offer payment plans that are clear and honest manner--but they work differently in the different chapters of bankruptcy.

Chapter 7 Bankruptcy Payment Plans
The key with payment plans for Chapter 7 cases are that all fees and costs must be paid before the case is filed. At first glance, this may disappoint you, but for 99-plus percent of people it's not a problem. There are a couple of factors to keep in mind.

First, this is the only legal way to offer a Chapter 7 payment plan. If an attorney extends a payment plan into the period after a Chapter 7 is filed, he or she is breaking the law. This is because unpaid, pre-filing fees cannot be collected after a Chapter 7 case is filed due to the automatic stay. Any bankruptcy lawyer who would consider offering an illegal payment plan is either ignorant about basic bankruptcy law or is playing fast and loose with the rules. You do not want this. In general, the Court will not excuse you from the law just because you were following the advice of an unethical lawyer.
Second--and this is key--the payment plan period usually overlaps with the pre-filing process. In other words, you and your lawyer need time to prepare your case for a successful filing. This work is done along side the payment plan. Once the payments are made and the work is completed, the case is filed. One extra thing we provide is a service to handle creditor phone calls while you are in the pre-filing process. This makes the payment plan process comfortable by giving you some breathing room. Ask about this if you decide to call us.

For my next installment in this two-part series, I will explain how payment plan work in Chapter 13 bankruptcy. You can read more about us and Massachusetts bankruptcy in general here.

Charged Off, Zombie Debts and Bankruptcy

2011-07-31T15:32:00.004-05:00

Someone recently wrote me and asked whether he had to pay a debt that was charged off years ago and sold to a debt collector. Of course, the answer is it depends, but this is what it depends on. The key points:

1. The tough news is that after a debt is charged off, you still owe it. Charging off a debt is an accounting practice meant to give a fair picture of the value of a business (by taking bad debt off its books). Charging off an account does not affect the legal obligation to pay it, and the business must account for money they earn once they sell the debt to a debt buyer to collect the defaulted debt. Often there will be a gap between when the debt is charged off and when a debt buyer emerges to contact you for payment. This is where the "zombie debt" term comes in, i.e. you think the debt is dead, but then it resurrects and attacks you.

2. The (possible) good news is that the gap is sometimes too long, and the debt too old, to make it collectible in court. Just because a debt is sold to a zombie debt buyer, it doesn't mean that the statute of limitations is revived if it already has lapsed. Generally, the statute if limitations in Massachusetts for debt collection is six years from the date of the original default. If you make any partial payments later, this will usually re-start the clock, but if you don't the six-year rule usually applies.

3. If the debt is still good once it's in the hands of a debt buyer, you must pay it, settle it, or file bankruptcy. We specialize in affordably accomplishing the last two options for Massachusetts consumers and small to medium-sized businesses. Give us a call or send us an email if you would like our help with your debt problem.

Threats During Car Repossession

2011-07-18T23:01:00.002-05:00

I have written about the special Massachusetts rule against trespass during vehicle repossession, but I wanted to say something about threats. When there is a confrontation during a repossession attempt two things are almost always true: (1) there's a trespass and (2) the repo agent makes threats. I see the threats as fitting in two categories: (1) threats against financial interests and (2) threats of violence against persons or property. Although the first type of threat can sometimes be actionable in a court of law, it is the second type of threat that almost always constitutes a breach of peace and creates the entitlement to the sometimes-sizable breach of peace damages.

*Note: If your car has been repossessed in Massachusetts, we might be able to help. However, due to high call volume after I posted information here about Massachusetts car repossession, we must first receive the completed form found here. We will review your matter confidentially and free of charge.

Massachusetts Repossession and High Interest Car Loans

2011-07-12T15:25:00.003-05:00

As I have written elsewhere on this blog, the minimum damages under the Massachusetts Commercial Code for a breach of peace during a car repossession are the finance charge for the loan plus 10 percent of the amount of the total loan. When repo agent comes onto your property without your permission and demands and takes your car over your strong objections, you likely have a breach of peace. We get emails all of the time from people with this situation. Often these people are just looking for information and some assurance that the law has been broken. I really do not know why. This knowledge means nothing by itself. Laws do not enforce themselves.

If you've been subject to a car repossession involving a breach of peace, here's the smart thing to do: submit this form to tell us your story. However, the point of the form is to see if you have a good case, and if you do, to bring a lawsuit for wrongful repossession. There are two key points to keep in mind about this:

1. If you do not sue, you will likely be pursued for a car repossession deficiency debt. If the balance of your loan is more than $2,000 when the repossession occurs, you are liable for any deficiency debt.

2. If you do sue, you can likely wipe out the deficiency debt. Moreover, if there is a breach of peace you can recover the minimum damages (noted above). For a high interest car loan, this sum can be substantial. For example, we now have a case involving a $30,000 car loan at a 14 percent interest rate. The car was repossessed. If we are able to show that a breach of peace occurred, the consumer will be entitled to almost $18,000. There are most likely thousands of consumers who unwittingly are entitled to substantial damages based on a wrongful car repossession in Massachusetts.

Bottom line: If you have a case, pursue it diligently. It can mean the difference between you paying money and getting paid money.

Notes:

* We do not charge you fees. If we agree to take your case, we get paid from the proceeds of settlement or judgment.

* Just coming onto your property without your permission to take the car when you are behind on the loan is usually not enough. To be a good case, normally there must be a confrontation of some sort on your property.

The Dave Ramsey Mistake

2011-03-13T17:47:00.007-05:00

Recently I received a call from a woman in her 70s seeking information about bankruptcy. This woman, a widow, had tried just about everything to deal with her debts: credit counselors, direct negotiations with creditors, and drawing down her savings to keep up with payments. With that savings quickly approaching zero, she finally reached out to a attorney to explore bankruptcy.

I've always had a soft spot for older people with debt problems. They often take it very hard, perhaps because they come from a generation where debt problems and bankruptcy were more stigmatized. So, we spoke about her options. Given her low income and meager assets, she qualified easily for Chapter 7, which would result in a discharge of about $40,000 in consumer and medical debt. However, our conversation wasn't just about money. She told of me of her great emotional reluctance to file bankruptcy. Only one inescapable fact made her consider it at all, that she would soon have nothing left and be unable to even eat without some serious debt relief. Then she mentioned that she listened to the Dave Ramsey radio show.

I don't really listen to Dave Ramsey, but I've seen him on TV a few of times, and I am familiar with his message. Mr. Ramsey is well known as a fierce anti-bankruptcy crusader despite famously filing bankruptcy himself several years ago and discharging about $4,000,000 in debt. Despite this small mercy that allowed him to move on with his life, he now counsels people to avoid bankruptcy at all costs and does everything he can to re-stigmatize the process.

Behind the scaremongering, Mr. Ramsey's makes two basic wrong points. His first avenue of attack is that bankruptcy damages credit. Bankruptcy does damage credit for several years. However, the simply truth is that people considering bankruptcy already have or shortly will have severely damaged credit. Not paying debts on time severely damaged credit. When this is inevitable, very little additional damage is done by filing bankruptcy. In fact, bankruptcy can even clean up the cluster bomb of multiple debt defaults by replacing the credit balances on a report with zeros. In any event, a Google search of "credit after bankruptcy" will quickly illuminate the well-trod path to rebuilding credit after bankruptcy--something that is not an option while you're still mired in debt.

The second avenue of attack is more insidious. Mr. Ramsey lays it on thick about the psychological cost of bankruptcy, comparing it to the death of a loved one and having the nerve to suggest that it might be one of the worst experiences of your life. This is just insane. I've been practicing bankruptcy law since 2002 and I can say without any reservation that the reverse is true. People are so relieved after getting a debt discharge after struggling with it for so long. Permission to move on with your life is freeing and cathartic. By way of an example, check out this message board I found tonight discussing Dave Ramsey and people's real experiences with bankruptcy. You can also read my site to read about people's experiences with us and the bankruptcy process.

The truth is that Mr. Ramsey did what many rational and intelligent people do when faced with an insurmountable debt problem: He sought refuge in the legal system created to help him. Counseling people to do otherwise is irresponsible. I usually don't mind anti-bankruptcy posturing, but when it affects someone in their 70s, it does bother me. I say live what life you have left for yourself and your family, and not for the credit card companies. The credit card companies--the beneficiaries of Mr. Ramsey's rhetoric--can take care of themselves and have had plenty of influence on the bankruptcy laws on the books today. One should pay their debts if they can, but if someone simply cannot pay and qualifies for bankruptcy, they are doing themselves and their family a great disservice by not taking the help that the law provides.

U.S. Supreme Court Decides Ransom

2011-01-12T21:43:00.002-05:00

The U.S. Supreme Court just decided an important bankruptcy controversy. The question was whether you could take an "ownership" deduction for a paid-off car on the bankruptcy means test. The answer is now, no.

The case is Ransom v. MBNA et al (link opens .pdf version of opinion).

This decision means a slightly higher Chapter 13 payment for some consumers and more consumers having to file Chapter 13 instead of Chapter 7. However, like most things, it will not affect the bottom line for the overwhelming majority of people who need bankruptcy relief. That bottom line is this: If you cannot afford to pay dischargeable debts (like credit cards), you will not have to if you file bankruptcy. If you can afford to pay some, you will have to in an orderly Chapter 13 partial repayment plan.

Massachusetts Governor Signs Exemption Bill

2011-01-10T11:41:00.003-05:00

Days ago, Massachusetts Governor Deval Patrick signed the personal property exemption modernization bill into law. I previously wrote about the bill here and provided a list of the updated exemptions that will apply outside of bankruptcy and within many bankruptcy cases.

The Globe's coverage of the signing can be viewed here.

This is a solid victory for consumer advocates and Massachusetts consumers.

Massachusetts on Verge of Modernizing Exemptions

2011-01-04T15:13:00.004-05:00

Massachusetts has some antiquated exemptions ($700 for a car!). These exemptions allow people to keep certain property when they are in debt. The Massachusetts legislature this week passed a long-awaited update. The bill now awaits the governor's signature. These changes will affect many people but, off the top of my head, two groups will most immediately benefit:

(1) People who have home equity and other property (such as paid-off cars) who need to file for bankruptcy.

(2) And people who own a car, are subject to debt judgments, and do not want their car to be seized by creditors.

Congrats to NACA and NCLC! They worked hard to lobby for these changes.

The full list of the new Massachusetts exemptions in the bill are here:

Property	Current	New
Money for utilities	$75	$500
Furniture	$3000	$15,000
Books	$200	$500
Tools	$500	$5000
Stock in trade	$500	$5000
Provisions for family	$300	$600
Fishing equipment	$500	$1500
Sewing machine	$200	$300
One computer & one TV	none	no stated dollar limit
Rent money	$200	$2500
Cash or savings (execution)	$125	$2500 on any day
Wages (execution)	$125	greater of 85% of gross wages or 50 times min. wage per week
Automobile	$700	$7500 wholesale, $15000 for disabled or elderly
Personal property	none	$1000 to $6000
Jewelry	none	$ 2500
Wages (trustee process)	$125	greater of 85% of gross wages or 50 times min. wage per week
Bank account (trustee process)	$125	$2500

Repossession and Trespass

2010-12-04T20:14:00.004-05:00

I've written about this before. What I'm going to comment on here is one of the most commonly violated laws on the books. It just applies here in Massachusetts. It's this: A car repossession agent cannot come onto property you own or rent without your permission. It almost every state they can, but they cannot here in Massachusetts. The law can be read right here: G.L. 255B, s. 20B.

This matters in two main ways.

1. If a repossession agent violates Section 20B, the car lender cannot collect a deficiency from you. Car repossession deficiencies can be large and can sometimes drive people into bankruptcy. Say you owe $10,000 on your car loan, and after repossession and sale are credited with the car's value of $5,000: You would owe a deficiency of $5,000 plus repossession and storage fees. However, if the repossession agent came onto your driveway without your permission, the law states that they cannot collect this amount from you. This can be a powerful weapon to combat a deficiency lawsuit.

2. If you confronted the repossession agent on your property and objected to the repossession, there may have been a "breach of peace." This is a specialized term in the repossession world and can entitle you to statutory damages. These damages are usually 10 percent of the amount of the car loan plus the interest charged for the loan. For an average car loan, this amount can be sizable.

*Note: If your car has been repossessed in Massachusetts, we might be able to help. However, due to high call volume after I posted information here about Massachusetts car repossession, we must first receive the completed form found here: http://www.mass-legal.com/repo_quest.asp. We will review your matter confidentially and free of charge.

Car Repos in Massachusetts: Police Involvement

2010-11-29T13:03:00.004-05:00

Car repossession is a private act and cannot be aided by the police. You have the right to demand that a repossession agent leave your property and not take your car. In turn, they have the right to go to court and get a judge's order compelling you to turnover the car if you are behind in payments. If they have such an order (which is very, very rare), a sheriff or constable, and not the police, will come to your residence to take your car. At this point, because of the judge's order, you do not have the right to object. However, it is very rare that a car lender will have one of these so-called "replevin" orders.

If you decide to order a repossession agent off your property and they refuse to go, you should call the police. But be ready for trouble. Often the police are inadequately trained to deal with repossessions. They will sometimes try to judge the dispute and may even order you to hand over your car keys. This is illegal. Contact us if this happens to you. The job of the police if they come to your residence is to remove the trespasser from your property, not act as a judge in a driveway court.

*Note: If your car has been repossessed in Massachusetts, we might be able to help. However, due to high call volume after I posted information here about Massachusetts car repossession, we must first receive the completed form found here: http://www.mass-legal.com/repo_quest.asp. We will review your matter confidentially and free of charge.

Top Complaints from Massachusetts Consumers

2010-09-27T12:53:00.002-05:00

Boston.com recently compiled this list of the top consumer complaints in Massachusetts. It's an interesting list because in addition to the perennial favorites--car dealers, home improvement contractors, debt collectors, etc.--two list items relate to foreclosure and loan modification services. It's the wild, wild west right now for those services, with shady operators opening businesses preying consumers needing legitimate relief from burdensome mortgages. Whenever there is a boom in demand for something, scam artists emerge with big promises and flashy ads to trick the credulous public. Be very careful if you are considering answering a TV or radio ad for mortgage-related services. Instead, consider contacting a trusted referral source for a recommendation, or contacting a licensed and insured Massachusetts attorney.

Fraud or Trickery in Massachusetts Car Repossession

2010-09-13T13:47:00.004-05:00

As I previously wrote, in the course of a Massachusetts car repossession, it routine (and illegal) for repossession agents to come onto your property late at night, wake you up, and demand your car keys. This is illegal because repo men cannot come onto your property at all or at any time to repossess your vehicle without getting your permission ahead of time.
However, another common illegal practice is that repo agents, when bargaining for your keys, will cross the line and lie to you about what will happen if you don't comply. The ones I have heard most frequently are:
1. We'll damage your car if we have to tow it. First, they cannot tow a car out of your driveway without your permission. Second, they are not allowed to damage your car even if they do. This statement, in itself, subjects a repossession company to liability under the Massachusetts Division of Banks regulations.
2. The creditor will charge you more money if we have to tow the car. Well, taking the car over your objection is illegal in the first place--both as a statutory trespass and a breach of the peace--so as creditor should not be able to impose a charge on your for an illegal act.
3. If you don't give us the keys, we'll just take the car anyway (or call the police). That's a similar threat to those above, but its simplicity and frequency draws attention to a basic fact. A repo agent has no right to do that and due to the the Massachusetts Division of Banks regulations has no right to even make a false threat. If they actually do call the police, this is illegal as a breach of the peace.
False threats, lies, and trickery are not always enough on which to base a case. However, such unlawful act are almost accompanied by others.

*Note: If your car has been repossessed in Massachusetts, we might be able to help. However, due to high call volume after I posted information here about Massachusetts car repossession, we must first receive the completed form found here: http://www.mass-legal.com/repo_quest.asp. We will review your matter confidentially and free of charge.

Late Night Car Repossession

2010-09-12T20:46:00.006-05:00

Car repossessions in Massachusetts are often done at odd times. Just this past week, we received one call about a repossession at 1:00 a.m. and another at 3:00 a.m. Why do repossessions happen so late? Is this legal? I'll try to answer both of those questions here.
Why are repossessions done late at night or early in the morning when people are sleeping? The industry would likely say that it's because more cars are at people's homes when people are sleeping. This makes some sense. They would also likely say that it is easier to avoid confrontation when people are sleeping. While it is true that cars are most often at home during the night, they are also often home in the early to later evening when people awake but home for the night. Moreover, the notion about it being easier to avoid conflict while someone is sleeping is turned on its head in Massachusetts. Here's why. In Massachusetts, we have a law that says that the repo man cannot come onto property you own or rent to take your vehicle without your permission. Consequently, a repo man will usually wake you up and attempt to get the keys from you rather than simply tow the car from your driveway. That means getting you up out of bed in your pajamas for a late-night confrontation: Hardly a scenario designed to avoid trouble. Even putting aside the issue regarding the time of a repossession: this practice is generally illegal because a repo man needs your permission before he steps onto your property, not after.
So the bottom line is that a repo man cannot come onto your property late at night--or at any other time--to take your car without your permission. However, if your car is parked on the street, there is likely no issue regarding what time of day or night your car is towed away.

You can find more about car repossession law in Massachusetts here.

*Note: If your car has been repossessed in Massachusetts, we might be able to help. However, due to high call volume after I posted information here about Massachusetts car repossession, we must first receive the completed form found here: http://www.mass-legal.com/repo_quest.asp. We will review your matter confidentially and free of charge.

Bankruptcy Filings Up 25 Percent in Mass.

2010-07-22T09:28:00.002-05:00

Here's the article link.
Bankruptcy filings up 25 percent, year-over-year. "Massachusetts bankruptcy filings spiked 25 percent in the first half of the year when compared to the same period in 2009."

Defense of Marriage Act Declared Unconstitutional

2010-07-08T18:47:00.004-05:00

The big legal news of the day is that Judge Tauro of the United States District Court for the District of Massachusetts (Boston) declared the federal Defense of Marriage Act ("DOMA"), 1 USC sec. 7, unconstitutional. The case is styled Gill v. Office of Personnel Management, et al. (link opens .pdf opinion). The case was brought by same-sex spouses married under Massachusetts law. The Court held that "DOMA as applied to Plaintiffs violates the equal protection principles embodied in the Fifth Amendment to the United States Constitution."

On the federal level, DOMA limits the recognition of marital rights to heterosexual spouses. The Court held that Congress' reasons for enacting the law bore no rational relationship to the goals it set. The Court also expressed a strong sentiment that the federal government should stay out of the business of defining marriage because that is the traditional and exclusive purview of the States.

I recently wrote about same-sex spouses and some of the special issues they face in bankruptcy, such as that DOMA has been interpreted to bar such spouses from filing joint bankruptcy petitions which, among other things, increases the overall cost of bankruptcy. That may change now, and I would like to bring a test case if presented with the right clients. Judge Tauro's opinion is not binding on the bankruptcy court and it may yet be appealed. However, it broke new ground and will carry considerable weight when used to support a challenge to a joint bankruptcy petition on behalf of same-sex spouses.

Bankruptcy Meeting Locations in Massachusetts

2010-07-02T22:21:00.009-05:00

All bankruptcies involve a court meeting. Where that meeting takes place depends on the place you live at the time your bankruptcy case is filed. It's sadly a little confusing, and people ask about it all the time, so I'll set it all out here as clearly as possible.

Chapter 7 cases, Boston:
If you live in Suffolk or Norfolk County, you will have your court meeting in Boston.
If you live in Essex County, but not in Andover, Boxboro, Bradford, Haverhill, Lawrence, Methuen, or North Andover, then you will also have your meeting in Boston.
If you live in any of the following towns in Middlesex County you will also have your meeting in Boston: Arlington, Ashland, Belmont, Burlington, Cambridge, Everett, Framingham, Holliston, Lexington, Lincoln, Malden, Medford, Melrose, Natick, Newton, North Reading, Reading, Sherborn, Somerville, Stoneham, Wakefield, Waltham, Watertown, Wayland, Weston, Wilmington, Winchester and Woburn.
Chapter 7 cases, Brockton:
If you live in Plymouth, Bristol, Barnstable, Dukes, or Nantucket county, you will have your court meeting in Brockton.
Chapter 7 cases, Worcester:
If you live in Worcester county, you will have your court meeting in Worcester.
If you live in Andover, Boxboro, Bradford, Haverhill, Lawrence, Methuen, or North Andover (in Essex county), you will have your court meeting in Worcester.
If you live in any town in Middlesex county except for those listed above, you also will have your court meeting in Worcester. This is the one that gets people because quite a few towns relatively close to Boston end up getting assigned to Worcester (Concord, just for example).
Chapter 13 cases:
Chapter 13 cases are just the same as Chapter 7 cases except that no one goes to Brockton. If you would be assigned to Brockton, you are just assigned to Boston.

That's all. There are other rules involving Springfield, Pittsfield, etc., but I have not idea what these are we do not practice in Western Mass.
The specific meeting locations in Boston, Brockton, and Worcester change from time to time. Current information about the bankruptcy court locations in Massachusetts can be found via a google search or by clicking on the link in this sentence (which goes to our main bankruptcy web site).

Bankruptcy Issues for Same-Sex Spouses

2010-06-29T12:27:00.014-05:00

We have represented many same-sex couples in bankruptcy throughout the years, before and after the landmark decision in Goodridge v. Department of Public Health which provided legal recognition to same-sex marriage in Massachusetts. Despite this decision, there continues to be several special issues in same-sex bankruptcy cases.

Bankruptcy is a federal proceeding and same-sex marriage is not recognized on a federal level. See Defense of Marriage Act. This means that same-sex spouses cannot file joint bankruptcy petitions. The impact of this is primarily technical: One can get the same relief with two petitions as with one. Also, here in Massachusetts, if two bankruptcy cases are filed simultaneously, the creditor meeting for each will be assigned the same date, time and trustee. This allows same-sex spouses to experience the creditor meeting together, though--unlike in the case of heterosexual couples--they will still be examined under oath individually.

One significant drawback to the treatment of same-sex spouses in bankruptcy is that the cost of two bankruptcy cases is always higher than for one case. However, it has been my experience that same-sex spouses tend to have less joint debt than heterosexual couples (although this may change with time). Consequently, if only one spouse has debt problems, it may be advisable for just that spouse to file bankruptcy. This is a right that all married people have, which may be more often advantageous for same-sex spouses.

Means testing for same-sex couples:
There isn't any real difference in how a means test is formulated for roommates, same-sex couples, straight couples, or anyone else. There are differences with how the forms are filled out, but those are just details. The crux of it is that both spouses are counted in household size for the means test and then any contribution to the debtor's household expenses from the other spouse is also included. This is essentially what happens in a traditional joint case. The mechanics are different, but in a way that benefits gay spouses: the non-filing spouse's total income does not need to be included and then diminished by the so-called "marital adjustment." For a same-sex spouse the non-filing spouse's actual net household contribution need only be listed on the means test.

P.S. I wrote a post a few days after this one reporting on how one Massachusetts (federal) judge declared the Defense of Marriage Act unconstitutional. It can be viewed here.

Options After Your Car is Repossessed in Massachusetts

2010-06-10T22:02:00.009-05:00

Here are a few practical tips for what to do after your car is repossessed. What I write here only pertains to Massachusetts because car repossession law is a state-specific matter in almost all respects.
First of all, you're probably distressed if your car was repossessed. That's understandable. You might need your car to get to work, or you might have thought you had more time, your car might have been taken during the dim hours of the night or early in the morning and involved some sort of drama. However, what to do next? Here are some thoughts in question and answer format.

1. Have my rights been violated? Maybe. There are two main ways we see in which rights are violated during repossession. First, you may have not received the required 21-day written notice called "Rights of Defaulting Buyer under the Massachusetts Motor Vehicle Installment Sales Act" before your car was seized. Second, the repossession company may have breached the peace in the course of the repossession. Breaching the peace can mean threats, coercion, and other oppressive acts committed during a repossession. I wrote a bit more about that here.

2. So what if my rights were violated? This is a really good question. Laws only have meaning when people can actually enforce them. The criminal laws are enforced by the police, but individuals have to enforce their own rights under civil law. The repossession laws I am writing about are civil laws.

3. So are these rights enforceable? The really good news is that they often are because other laws exist (such as the Massachusetts Consumer Protection Act) that help people who can't even make their car payments afford expensive attorneys. These laws require the wrongdoers to pay your attorney's fees if you are successful in pressing your rights.

4. But what about the car? Can I get my car? This is not the easy part because the laws I mention above primarily function to get you money damages for wrongful repossession. So, the most common approach if you want your car is to call the car lender ASAP after repossession and agree to pay whatever they want. After doing that you can still sue the car lender for money damages. There is, in general, a 20-day period that you have to "redeem" a repossessed car. Sadly, this is one of oft-ignored laws in the repossession field. So, if you want your car, act as quickly as possible.

5. What can they make me pay to get the car back? The answer is the whole amount of the loan. That's right. However, that is only if the repossession wasn't wrongful--they sent you the 21-day notice, peaceable repossessed the car, etc. The bad news is that, whether or not the repossession was actually wrongful or not, the car lender will always think they've done everything perfectly and that their company is absolutely infallible. So, be nice--even though they do not think they have to, they will often let you have the car back for just the back payments and repossession/storage fees. As I said, you can still sure them for damages afterwards if the repossession was wrongful.

6. What if I can't afford to pay what they are asking? This is pretty common. The options are not too good here, at least for getting the car back. One option: you can file for bankruptcy within the 20-day redemption period and get the car back. Another option: you can quickly file a lawsuit in state court for what is called replevin (and money damages). The state court replevin option is not very common.

*Note: If your car has been repossessed in Massachusetts, we might be able to help. However, due to high call volume after I posted information here about Massachusetts car repossession, we must first receive the completed form found here: http://www.mass-legal.com/repo_quest.asp. We will review your matter confidentially and free of charge.

Massachusetts Car Repossession--Consent

2010-04-09T12:07:00.006-05:00

I posted previously on car repossession procedures here in Massachusetts. I wanted to address something of a murky and misunderstood area. Massachusetts law provides that a lender can only repossess a vehicle after giving certain notices (i.e., the "Rights of Defaulting Buyer under the Massachusetts Motor Vehicle Installment Sales Act") after default. Moreover, the lender must not use force or breach the peace in taking the vehicle. The lender is also prohibited from entering onto property owned or leased to the debtor and taking the vehicle without the debtor's consent.

Cars are often parked in driveways and these driveways are, obviously, part of the debtor's owned or leased property. However, repossession companies routinely take cars from driveways. They often attempt to obtain and usually succeed in obtaining a sort of coerced consent from the debtor in this way: the repo guy will often say that if you don't give him the keys, your car will be damaged, or lie and say that you have to give him the keys. He might also start a disturbance to embarrass the debtor into complying. Since repossessions often happen late at night or the in the early morning, and the people doing the repossessing are often experienced in the subtle and arts of intimidation, this is often effective. The bottom line is that a lender can't take a car from a driveway if the debtor does not allow it. If they don't get consent, they must take the car from public property or get a court order allowing them to take it from the driveway.

Now, there's no point in unnecessarily delaying the inevitable: if you can't pay your car loan, the lender has a right to the car. However, there are rules for a reason--to maintain peace and good order--and if these rules are broken there are consequences, including at times significant statutory damages for the debtor. So, you might want to consider keeping the keys if a repo man visits your driveway in the middle of the night.

*Note: If your car has been repossessed in Massachusetts, we might be able to help. However, due to high call volume after I posted information here about Massachusetts car repossession, we must first receive the completed form found here: http://www.mass-legal.com/repo_quest.asp. We will review your matter confidentially and free of charge.

New Means Test and Median Income Numbers

2010-03-04T23:50:00.001-05:00

For bankruptcy cases filed after March 15, 2010, new means test and median income figures apply. The details are available here: http://www.justice.gov/ust/eo/bapcpa/20100315/meanstesting.htm

New Dollar Amounts in Bankruptcy

2010-03-03T10:49:00.002-05:00

For bankruptcy cases filed after April 1, 2010, new dollar amounts will apply. The list of changes can be viewed here: http://www.bkmass.com/misc/output.pdf. The most notable increases are the Chapter 13 debt limits, the dollar amounts of the federal exemptions, and the homestead cap (increased to $146,450).

New Rules for Mortgage Modifications in Massachusetts Bankruptcy

2010-03-02T18:17:00.002-05:00

Today, the Massachusetts Bankruptcy Court issued an emergency standing order rendering void provisions in proposed loan modifications that state that the automatic stay will be lifted or waived upon default of the debtor. The order can be viewed here: http://www.mab.uscourts.gov/pdfdocuments/so10_02.pdf. This is a good rule. Debtors are often desperate for loan modifications in bankruptcy and will agree to anything that lowers their loan payment. The new rule prevents them from bargaining away the automatic stay if they default on their loan modification payments.

List of HAMP Mortgage Servicers

2010-01-31T17:46:00.000-05:00

Wondering if your mortgage loan servicer is participating in the HAMP program? A list can be found here:
http://www.financialstability.gov/impact/contracts_list.htm

Home Affordable Modification Program: Introduction

2010-01-28T14:42:00.002-05:00

The Home Affordable Modification Program ("HAMP") is a 2009 creation of the Obama Administration. The program provides for government payments to participating mortgage loan servicers in exchange for reductions in mortgage payments for eligible borrowers. The point is to reduce mortgage payments to a 31 percent debt-to-income ratio. Participating servicers are required check all mortgages that are more than 60 past due and loans for borrowers who ask for a modification and can represent that they face an imminent risk of default. Once a borrower is introduced into the program, any pending foreclosure must stop. A three-month trial period with a new, lower loan payment begins, often based on only a verbal commitment (although this will require more formal documentation starting in mid 2010). During the trial period, income and other documentation are verified. After the borrower makes three monthly payments, the trial loan is moved to permanent status.
A fact page can be found here:
https://www.hmpadmin.com/portal/programs/hamp.html

How Can I Afford Bankruptcy if I'm Broke?

2009-12-27T23:05:00.004-05:00

Good question, one posed by many in rough financial straights. The quick answer is, you can't, that is if you're truly broke. Bankruptcy is for people seeking to bring some sanity and solvency to their financial affairs, not for those just struggling to survive. So, food, shelter, that sort of thing, must always come first. As the saying goes, bankruptcy is not for paupers. However, if things are tough, but not truly dire (which is usually the case), and would seem to improve without the weight of debt, phone calls, lawsuits, etc., then this is how people tend to pay the couple thousand dollars a typical bankruptcy case costs (sometimes more, sometimes less). People arrange payment plans to get a case filed. They often stop making certain debt payments (like credit cards) in the interim to help raise the money. This is quite a popular strategy and works just fine in most circumstances. However, there are times when a wage garnishment order is about to enter or some other shoe is about to drop, and this just won't work. Those circumstances are difficult, but even in those cases solutions can sometimes be found if the money is not available from a family member, friend, or retirement fund. Moreover, it tends to be quite rare that people wait until the last minute like that to explore their options. So, in the normal case, being on a payment plan for two to three months before filing works quite well. You are able to have a lawyer to go to with questions and help with the pre-filing heat (usually phone calls from debt collectors) and have the guidance to set up a case correctly.
This is just a common way that people scrape together the money to file. There are other ways, like having some savings or a family member to help. I find that this is a popular question and this quick blog post reveals the usual answer.

Massachusetts Mortgage Foreclosure Backlog

2009-11-30T15:33:00.003-05:00

To foreclose on a mortgage in Massachusetts it is standard practice for the foreclosing mortgagee to file an action in the Land Court for a declaration that the homeowner isn't in the active duty military. This is done in order for a mortgagee to comply with its duty to get a fair sale price at the foreclosure auction. Due to certain protections under the Servicemembers Civil Relief Act (SCRA), a buyer can't be sure that the sale won't be invalidated due to the military service status of the defaulting homeowner, and therefore might pay less for the house, that is unless there is an order of a court or some other conclusive proof that the homeowner isn't under the protection of the SCRA. The bottom line: in Massachusetts, these Land Court SCRA lawsuits are standard before any foreclosure takes place.
Today I spoke with a contact at the Massachusetts Land Court and was informed that so-called "return dates" were about four and a half months out in cases filed now. What that means is that once a homeowner is served with a SCRA lawsuit, they will now still usually have four to five months before a foreclosure auction. That's a significant backlog when contrasted against the six weeks turn around time from filing to return date that used to be the norm in SCRA actions.

Massachusetts Land Court Foreclosure Case Affirmed

2009-10-18T15:34:00.002-05:00

Judge Long of the Massachusetts Land Court recently reaffirmed his groundbreaking May decision invalidating a foreclosure sale due to a lack of properly-recorded assignment. The assignment issue came down to this. Due to the bundling of mortgages for sale and trading on Wall Street, mortgages have been transfered more and more frequently over the past few years. Under Massachusetts mortgage law, these transfers have to be documented at the registry of deeds, and only the record owner of the mortgage has the right to foreclose. Before Judge Long's ruling the practice had been to backdate the various mortgage assignments after a foreclosure sale to clean up the chain of title. Judge Long held that this was impermissible and that the assignments had be recorded on the date of the foreclosure.
What does all this mean for consumers here in Massachusetts? First, the validity of many mortgage foreclosures over the past few years have been put into doubt. This has the potential to create serious problems for many parties, including the people who purchased the foreclosed properties. For example, it might be possible to challenge the validity of a foreclosure sale with a backdated assignment and seek to cure the mortgage arrears in a Chapter 13 bankruptcy. However, this would be a very challenging case.
This decision will affect consumers who have defaulted on their mortgages in another way. It will create delay. Mortgage lenders will have to obtain and record the evidence of the assignments leading up to the foreclosing lender. This will take time and effort and will inevitably create more delay in the already bogged-down foreclosure process here in Massachusetts.

Car Repossession in Massachusetts

2009-09-17T19:21:00.001-05:00

In the wake of the credit crunch, the highest rate of unemployment in years, and a worst recession since the Great Depression, it is unsurprising that car repossessions have been on the rise in Massachusetts. Any lawyer specializing in debt law will tell you about the increasing calls and complaints related to car repossession.

For those who fall behind on vehicle loans, repossession can be a jarring and embarrassing experience. It's almost always unanticipated when it actually happens and throws plans--involving kids, work, or medical care--dramatically into the lurch. To make matters worse, the laws associated with car repossession are relatively unknown. They are some of the most difficult consumer protection laws to understand and are commonly violated. However, there are powerful but little-known remedies for consumers when car repossession procedures are not followed. When an experienced lawyer gets hold of a wrongful repossession case, they can often obtain some of the most dramatic relief available under the consumer laws. These cases are a sub-specialty of ours, and I'll say a few words about them here.

First of all, keep all your paperwork. One of the problems--and in many ways the main problem--is that consumers usually throw away paperwork. If a car lender seizes a car without the right form of notice or auctions a car without crediting the consumer's account the proper amount, the evidence is often right on the face of the papers that the consumer received. So with that being said, here is a brief primer on the key points of car repossession law in Massachusetts after a vehicle loan default:

1. A car lender must give notice and a right to cure a loan default, and must inform the consumer about the plan to seize the car, at least 21 days before the seizure. This notice should, among other things, include the words "Rights of Defaulting Buyers under the Massachusetts Motor Vehicle Installment Act." This gives you the right to pay just the amount you're behind on the loan to stop the car from being taken. This notice does not have to be sent certified mail or in any other special way: it just has to be sent by mail and it can be included with a bill. Very importantly, you only have the right to three notices during the life of a car loan. This means that if you are always late on the loan, you may have received the notices already in prior bills. Once three notices are sent and a further default happens, a vehicle can be taken with no notice.

2. If the loan default isn't cured and the creditor seizes the vehicle, the creditor must still provide a second notice allowing the consumer 20 days to pay the loan in full before auctioning the vehicle. Assuming you can't pay the loan in full and still want the car, you have two options: call the car lender to negotiate--they will often let you have the car back if you pay the repossession fees and bring the car loan up-to-date--or file Chapter 13 bankruptcy to get the car back without paying and pay the value of the car over three to five years. Chapter 13 is really the ace in the hole in these situations, but there are timing issues: the case must be filed within the 20-day redemption period, and filing a case takes time, so there is no time to delay. If the car is worth less than you owe on it, Chapter 13 can provide drastic relief. You can read more about Chapter 13 bankruptcy here.

3. If the vehicle is repossessed, and the 20 days pass without action, the creditor may sell the car. However, the consumer's account must be credited for the full amount of the vehicle's fair market value, not the lower amount that the car lender may have obtained at auction. This is a very commonly-violated law that can result in significant money awards for consumers.

4. If there is a breach of peace in the course of the repossession, you can sue your car lender and the repossession company and receive significant money damages. What's that you say? Yes, this is very little-known, but if your car lender violated the car repossession laws, often you will be able to obtain statutory damages in the amount of finance charge plus 10% of the principal plus your attorneys' fees and costs. This amount can be significant. Let's take an example, say that over the course of a $15,000 car loan you pay $6,000 in interest and other finance charges. If your lender broke the repossession laws, you would be able to make a claim for $7,500 and receive all or some of this money. If you have had a vehicle repossessed, you should see an attorney who specializes in this area of law. Many such attorneys--like me--will not charge you to evaluate your case and can at least recommend some helpful options.

What is a breach of peace? This is really complicated and depends on the specific facts. If you had any negative interaction with the repossession agent when your car was seized, you should submit a repo review form. You might just have a case.

*Note: If your car has been repossessed in Massachusetts, we might be able to help. However, due to high call volume after I posted information here about Massachusetts car repossession, we must first receive the completed form found here: http://www.mass-legal.com/repo_quest.asp. We will review your matter confidentially and free of charge.

New Massachusetts Medium Income Figures for 2009

2009-04-12T12:32:00.002-05:00

The new Massachusetts medium income figures for 2009 are posted on my web site here.

New Homestead Decision

2008-07-29T11:28:00.002-05:00

Judge Rosenthal in the recent case in re Zmijewski, 2008 WL 2705508 (Bankr.D.Mass.2008), added a decision to the many dealing with trusts and homesteads in Massachusetts. The Chapter 7 debtors, before their case was filed, conveyed real estate to a self-settled trust. The debtors were sole trustees and beneficiaries. However, they only conveyed a remainder interest to the trust and retained life estates in their own names. They then sought to exempt all equity in the real estate with a homestead. The trustee objected and judge sustained with the objection.

The judge held that even if there were no trust involved, the debtors could not exempt two estates (the life estate being one and the remainder interest being the other) with a homestead. No individual can claim more than one homestead. Moreover, since the remainder interest was in trust, the debtors did not own real estate with respect to the remainder interest--they owned personal property. The debtors relied on the recent cases allowing debtors to exempt real estate held in trust. However, these cases relied on the doctrine of merger--an equitable doctrine that can impute ownership of trust property to a sole trustee and beneficiary. The judge stated that this was not argued by the parties. The debtors now may try to raise the issue on a motion for reconsideration. Whether the judge will consider this argument waived or will entertain it is an interesting practice question for those of us in the trenches.

Housing "Rescue" Bill to Pass Soon

2008-07-23T11:07:00.002-05:00

President Bush today withdrew his threat to veto the pending housing bill. This makes it likely that it will pass soon. The bill includes provisions to buttress Fannie Mae and Freddie Mac and a controversial measure giving money to blighted communities to buy and rehabilitate abandoned homes. So taxpayers will be spending money which will largely accrue to the benefit of banks and other lenders. This may help improve the health of the overall financial system, which benefits us all. However, some taxpayers may receive some direct benefit via the "foreclosure rescue" portion of the bill. It is difficult to get specifics on these provisions, but here is the best article that I have found explaining them.

There are a couple of points that threaten to make these provisions of the bill difficult for consumers. First, lenders must agree to refinance on a case-by-case basis. One can expect that there will be at least some inclination on their part to do so. However, standards that they set may make a refinancing available to only a very few. Ironically, it may be homeowners who are the most likely to default and who can take advantage of the refinancing. That's because the FHA is guaranteeing the new loans made under the new program. So lenders could theoretically pass the risk of lost causes to the government. I wonder how many lenders are going to agree to forgive loan balances and re-write guaranteed loans for 90 percent of the current appraised value.

The other problem is that many people have second and third mortgages (HELOCs for example). It is very unlikely that these lenders will agree to cooperate in a deal between the homeowner and first mortgage lender. Unless the first mortgage lender agrees to cut them in out of their own pocket, they would end up with nothing at all under a new FHA loan. One is unlikely to get voluntary compliance by offering nothing. If the value of a home has fallen significantly and junior mortgages are wholly unsecured, a Chapter 13 case to strip the junior mortgages followed by a negotiated FHA-backed refinancing with the first mortgage lender might be worth a look under these circumstances.

We'll have to wait to see what real impact this housing bill has on our foreclosure problem.

New SJC Case on 93A Injury Requirement

2008-07-01T13:36:00.001-05:00

The Massachusetts Supreme Judicial Court again took on a case addressing the injury requirement under the Massachusetts Consumer Protection Act ("93A"). In Iannacchino v. Ford Motor Co., 451 Mass. 623 (2008) the Court found against the plaintiff on narrow, pleading-based grounds and in the course of doing so addressed the vexing issue of the harm required to state a claim under 93A. In Iannacchino , the putative class had purchased Ford vehicles with door latches that allegedly failed to meet federal safety standards. The defendants argued that even if the door latches were faulty, there could be no legally cognizable injury under 93A because the plaintiffs did not allege that any of the latches had actually malfunctioned--only that they had a higher propensity to do so. The plaintiff's argued that the vehicles were inherently less valuable than ones with compliant door latches. This is an argument with which the SJC agreed, stating: "If Ford knowingly sold noncompliant (and therefore potentially unsafe) vehicles or if Ford, after learning of noncompliance, failed to initiate a recall and to pay for the condition to be remedied, the plaintiffs would have paid for more (viz., safety regulation-compliant vehicles) than they received. Such an overpayment would represent an economic loss-measurable by the cost to bring the vehicles into compliance-for which the plaintiffs could seek redress under G.L. c. 93A, § 9." The SJC went on the impose a pleading requirement that plaintiffs allege noncomplicance with government standards to state a claim for diminution-of-value injury--at least in the vehicle context.

I do not see this holding providing much clarity for the muddled 93A injury jurisprudence outside of the context of products and warranties. I participated in the amicus brief committee supporting the plaintiffs in this case. It was interesting to see how many fact scenarios could be affected by the injury concept. Some plaintiffs--such as those with lead paint cases--are likely vindicated by the Iannacchino holding because it recognizes a diminution of value injury. However, in the debt collection context the situation is far more murky. For example, Massachusetts regulations prohibit creditors from calling consumers at home to collect a debt more often than twice in a seven day period. This requirement is routinely violated. However, if a plaintiff can not prove emotional distress or other damages with sufficient evidence, can a plaintiff or class of plaintiffs state a claim under 93A? If not, unlawful business practices are left undisturbed. If they can, the notion of injury must accommodate something along the lines of the "invasion of a right as injury". This is where many thought the law was under old case law (Leardi). However, it is hard to reconcile this idea with the SJC's Hershenow decision.

I believe that a debt collection case like the one above needs to be brought to better define the injury standard under 93A.

Decision Addressing Two Controversial Means Testing Issues

2008-06-16T23:03:00.001-05:00

Massachusetts Bankruptcy Judge Feeney recently decided in re Mati, 2008 WL 2389234 (Bkrtcy.D.Mass.2008) in which she addressed two important means testing/disposable income issues for above-median-income Chapter 13 debtors. This case is one of many now revealing how substantial the changes are to Chapter 13 practice after BAPCPA, many of which are only now emerging after almost three years since the 2005 amendments.

First, the Court examined whether the debtor could exclude his 401(k) contributions from his disposable income and consequently exclude this income from his Chapter 13 plan payment. The Court put it this way: “The Court finds that the Debtor’s 401(k) contributions do not evidence bad faith under the totality of the circumstances in this case. The Debtor is merely taking advantage of what the law allows. Indeed, by excluding 401(k) contributions from property of the estate and expressly removing them from the definition of disposable income under section 1325(b), see 11 U.S.C. § 541(b)(7), Congress has implemented a policy of protecting and encouraging retirement savings.” Mati at 5.

The trustee had argued that doing what the statute allowed exhibited the debtor's bad faith. The Court recognized that doing what the law allows cannot be the sole basis for a bad faith finding, even if it yields what it deems as an inequitable result. Some courts have stated or implied that they would use “bad faith” to achieve a result consistent with pre-amendment practice. Mati lends important support to the contention that one is not acting in bad faith if they are doing no more or less than the law allows.

Next, the Court addressed the dispute over whether the debtor was entitled to the car “ownership” deduction on his B22C “mean test” form despite owning his car outright. The trustee argued that the allowance should only available to debtors who have a car loan or lease payment. The Court disagreed noting that the car ownership allowance appears in “applicable” and not the “actual” expense part of Section 707. The Court stated (quoting another court) that: “The use of fixed expense allowances levels the playing field for debtors. It is far less defensible from a policy perspective for a debtor with one car payment remaining at the time of filing to get the full standard deduction for the 60-month term of the Chapter 13 plan, while a debtor who paid off the secured debt before filing gets no deduction whatsoever.”

There is a split of authority throughout the nation on this BAPCPA provision. I believe the Court applied the law according to its terms. Some other courts appear to have strained to reach a desired result. Courts when faced with a statutory mandate to equalize certain expenses for consumer debtors should apply the law -–even when these provisions actually benefit debtors.

The bottom line is that going forward debtors in Judge Feeney’s session will be permitted to take the car ownership allowance even if they own their car outright.

New First Circuit Case on Claiming Exemptions

2008-05-09T22:31:00.001-05:00

The U.S. Court of Appeals for the First Circuit recently issued an important opinion concerning the claiming of exemptions in bankruptcy cases. In re Barroso-Herrans, 2008 WL 1960365 (1st. Cir 2008) the Court heard the appeal of a Chapter 7 debtor who had attempted to exempt proceeds from two collection lawsuits by listing their value as $4,000 and claiming an exemption for this same $4,000. The trustee did not object to the exemption. The trustee subsequently reached a settlement with the third-party for $100,000 and sought the bankruptcy court's approval. The debtor claimed that he had effectively exempted the entire suits and their proceeds, and was re-vested with the lawsuit assets upon expiration of the period for objections to exemptions. The First Circuit disagreed an provided useful guidance for a debtor wishing to exempt an entire asset, regardless of its ultimate value, from his bankruptcy estate. The Court endorsed the use of terms such as "100% [of the property's value]," "unknown," "to be determined," "tba" and "$1.00" when expressing an asset's value to achieve this end. The Court stated that these terms are "red flags" to trustees and creditors that "put them on notice that if they do not object, the whole value of the asset-whatever it might later turn out to be-will be exempt."

The Court cited but disagreed with the view that simply listing the value of an asset in the same amount as its exemption is enough to bring the asset itself outside of the bankruptcy estate after expiration of the objection period.

NCLC Student Loan Resource Page

2007-12-06T10:43:00.001-05:00

The National Consumer Law Center recently launched a new web site designed to help people facing student loan problems. Both student loan collection law (such as the availability of non-judicial garnishment) and the general non-dischargeability of student loans in bankruptcy make these loans some of the most difficult to deal with. The NCLC site is a good resource for people looking recover from student loan default.

Unemployment Income and the Means Test

2007-07-24T21:14:00.001-05:00

Judge Rosenthal recently held In re Munger, --- B.R. ----, 2007 WL 1810701 (Bkrtcy.D.Mass. 2007) that unemployment income is not included in the "current monthly income" for purposes of the means test.  The Court stated that the "way in which Congress chose to phrase the references in the sections supports the view that 'a benefit received under the Social Security Act' in § 101(10A)(B) was purposefully intended to be broader than 'a social security benefit.' 'Unemployment compensation' is included in this broader definition."

Bankruptcy and Trusts Decision

2007-03-21T17:34:00.001-05:00

In the recent Massachusetts case of In re Grassa,--- B.R. ----, 2007 WL 756321 (Bkrtcy.D.Mass. 2007) Judge Somma held that the true owner of a house held in trust (and then transfered) was the bankruptcy debtor and trustee of the trust. The result of this will be that the house (which was transfered to the debtor's husband) will be recovered and sold by the trustee. This type of result can be avoided with the aid of legal counsel and careful planning. Real estate trusts and bankruptcy are often a toxic mix. The key in this case was that the debtor as trustee held the right to terminate the trust and transfer the trust asset (the house) to anyone she wanted -- including herself. This is what is known as a general power of appointment. Such a power makes the trust property subject to claims of the trustee's creditors because the trustee is considered the true owner under Massachusetts law.

Cadle Company Denied Debt Collection License in Massachusetts

2007-03-16T08:01:00.001-05:00

The Cadle Company, a debt collection company well-known for hardball tactics, was recently denied a license to operate as a debt collection agency in Massachusetts. Cadle sued the Massachusetts Division of Banks in state superior court seeking to overturn the decision to deny it a license, but the superior court took the Division's side citing, among other things, the substantial evidence of complaints and outstanding litigation against Cadle.

First Circuit B.A.P. Issues Disposable Income Decision

2007-02-25T21:26:00.001-05:00

The First Circuit Bankruptcy Appellate Panel has issued its decision in re Kibbe affirming the bankruptcy court's determination that actual anticipated income instead of the historically income found on the B22C form shall be used to determine disposable income in Chapter 13 cases.

Judge Hillman Rules No Fraudulent Conveyance in Divorce Transfer

2007-02-15T19:00:00.001-05:00

In the recent case of In re Prichard, 2007 WL 458021 (Bankr.D.Mass., Feb 12, 2007) Massachusetts bankruptcy judge William C Hillman found in favor of the debtor in a fraudulent conveyance action brought by the trustee. Mr. Prichard had owned a house with his ex-wife which he transfered to her alone pursuant to a separation agreement incorporated into a judgment of divorce. The case was brought under the old Massachusetts version of the Uniform Fraudulent Conveyance Act which was repealed in favor of the Uniform Fraudulent Transfer Act in 1996. However, much of the reasoning in the case applies under both laws. In the actual-fraud prong of the trustee's case, he alleged that the debtor had an actual intent to hinder, delay or defraud creditors when he made the transfer. This sort of allegation requires an examination of the indicia or so-called "badges" of fraud. My guess is that the trustee brought this case because after the divorce the debtor moved back in with his ex-wife. His wife testified that this was not a "normal situation" but it also appears from the testimony that the couple did not resume a married lifestyle but merely carried on a civil co-existence. The judge stated: "I could conclude that the Trustee met his initial burden of demonstrating actual fraud under § 7 of the UFCA simply because Thomas conveyed his property in favor of a family member over his creditors." The court then went on to find additional badges of fraud that solidified its conclusion that the trustee had met his initial burden. The issue then became whether there was "sufficient evidence of a legitimate supervening purpose for the transfer of the Property, such as to rebut the indication that [the debtor] effected the transfer of the Property with fraudulent intent." The judge declined to find that the marital difficulties leading to the transfer were a sham, stating that at "at the time of the transfer, Thomas did not retain any interest in the Property, but transferred his interest in it to [his ex-wife] who assumed complete responsibility for the Property and household's upkeep. To conclude now that this transaction was some sort of sham would require that I find that [the debtor and his ex-wife] staged their marital difficulties, while Thomas set up separate residences in 1989 and for the five years following, with the full intention of eventually returning to live in the Property in 1994. The evidence does not so prove and I do not so conclude."

The New Two Year Exemption Rule

2007-02-13T20:16:00.001-05:00

I recently posted something about the new two-year bankruptcy exemption rule on the Bankruptcy Law Network site. The provision is found at 11 U.S.C. 522(b)(3)(A). Here's an example of how that rule works as applied to a hypothetical Massachusetts bankruptcy debtor. Let's say the hypothetical debtor has lived in Massachusetts for the past year, lived in Vermont for the year before that, and before that lived in Florida for five years. The Massachusetts resident files bankruptcy. Because the debtor did not live in the same state for the entire two-year period before the filing it is necessary to go back and look at the 180 day period before the two-year look-back period. During that time the debtor lived in Florida. So Florida's state exemption law applies. This means that the debtor has Florida state law exemptions to utilize; but it also means that Florida's opt out provision applies, rendering the federal exemptions unavailable. These federal exemptions would normally be available in Massachusetts, but here the only exemption law available would be what exists under the state law of Florida and under federal nonbankruptcy law.

New Bankruptcy IRA Exemption

2007-02-08T14:31:00.001-05:00

I have written a brief description of the new bankruptcy IRA exemption on the Bankruptcy Law Network site. The entry pertains to the one million dollar IRA exemption under the federal bankruptcy exemptions. Here in Massachusetts we are fortunate enough to be able to choose between the Massachusetts and federal exemption scheme in bankruptcy. The new bankruptcy IRA exemption will impact those choosing the federal exemptions, but those who must chose our state exemptions (because of a valuable homestead, for example) the state law IRA exemption is still available. Mass.Gen.L. ch. 235, § 34A exempts IRA account to the extent that the balance of the account does not exceed seven percent of the individual's total income within the five years preceding bankruptcy.

Communicating with Debt Collectors -- Cease and Desist Letters

2007-02-07T15:14:00.001-05:00

You do not have to talk to debt collectors. Unfortunately, this is something of a secret. Many consumers, when contacted by pushy, aggressive debt collectors, believe that they have no choice but to talk to them. This is at least partly because communicating with a debt collectors often involves a barrage of threats -- of arrest, wage garnishment, property seizure, lawsuits, etc. Many of these threats are false and unlawful (you can read more about false threats here). However, regardless of the tenor of the conversation, you have the ability to end it and block further ones. The Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq., ("FDCPA") contains the following provision:

If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt....

15 U.S.C. 1692c(c).

There are three exceptions. After receipt of a cease and desist letter, a debt collector can advise you that further collection efforts are being terminated, notify you that it will invoke specified remedies which it ordinarily invokes, or notify you that it intends to invoke a specified remedy.

Those legalistic exceptions aside, cease and desist letters can be quite useful. However, you must send the letter directly to the debt collector certified mail return receipt requested. Cease and desist letters are only effective upon receipt and the only practical way to prove receipt is with that U.S. Postal Service green return receipt card. If you are contacted again by a debt collector who has received your cease and desist letter, you have the right to sue under the FDCPA and recover statutory damages, actual damages, reasonable attorney's fees, and the costs of suit.

Judge Hillman Declines to Approve Settlement of Objection to Discharge Case

2007-02-03T11:54:00.001-05:00

In the case of In re Streck, In re Streck, Slip Copy, 2007 WL 268552 (Bankr.D.Mass., Jan 25, 2007)(NO. 03-11241-WCH, 03-1103), a creditor objected to the discharge of the debtor under Section 727 of the Bankruptcy Code. The court does not specify which subsections of Section 727 were invoked by the creditor but stated that the case had been "extremely contentious and more than slightly uncivil." An objection under Section 727 aims at the denial of a debtor's entire discharge whereas an objection under Section 523 seeks the more limited remedy of an order declaring a certain debt nondischargeable. The parties had proposed that the 727 action be dismissed in exchange for the debtor paying money to the objecting creditor. The issue in this case is whether the Court would approve the settlement where the whole benefit would go to the objecting creditor instead of the bankruptcy estate. The Court stated: "I will adopt the standards set out in Judge Brown's decision, Wolinsky v. Maynard (In re Maynard ), 273 B.R. 369 (Bankr D. Vt. 20002). In applying those factors, I conclude that the proposed settlement does not satisfy the last factor, 'that principles of equity and fairness would be furthered by approval of the proposed settlement,' Id. at 372. I so hold because all of the consideration being paid by Debtor (and his spouse) goes directly to Plaintiff and not to the estate." One lesson here is that a creditor should think twice before pleading a Section 727 count when their real goal (which is almost always the case) is to obtain a settlement only to their own benefit. Creditors like to plead under both Sections 523 and 727 when filing objections to discharge and dischargeability because they believe it gives them leverage (they can bargain away the 727 count in exchange for a favorable settlement on the 523 count). This decision should give them pause.

No Rescission Class Cases in The First Circuit

2007-01-29T18:53:00.001-05:00

The First Circuit Court of Appeals in McKENNA, v. FIRST HORIZON HOME LOAN CORP., 2007 WL 210850 (1st Cir. January 29, 2007) recently held that there is no right for a class of consumers to sue for rescission under the Truth in Lending Act ("TILA") and Massachusetts Consumer Credit Cost Disclosure Act ("MCCCDA"). Consumers may, of course, still bring individual cases for rescission and both individual and class cases for damages. However, class cases for rescission and corresponding declaratory relief is off-the-table in the First Circuit.

Judge Somma Holds that Claim by Mortgage Lender for Post-Petition Legal Fees Barred by Laches

2007-01-29T13:12:00.001-05:00

In a significant local opinion, Judge Somma held in the case of In re Sanders, 2007 WL 188676 (Bankr.D.Mass., Jan 23, 2007)(NO. 00-11842-RS) that a mortgage lender's claim for post-petition fees was barred by laches. Laches is an equitable doctrine that bars a party from asserting a right when he has delayed too long and this delay hurts others. In the Sanders case, the bankruptcy debtor fully satisfied the obligations under her confirmed Chapter 13 plan, including curing her pre-petition mortgage arrears. Ms. Sanders' attorney brought a motion to declare the mortgage current and the mortgage lender objected based on fees it claimed had accrued during the case. However, the mortgage lender was not able to consistently state the amount of its purported claim (which the Judge called "ever-morphing"). More significantly, however, for future cases, the Judge held that the mortgage lender's failure to raise its claim for almost four years was unreasonable. The reasoning of this case offers a remedy to the common problem of a debtor emerging from a Chapter 13 plan with burdensome, new mortgage arrears (based on post-petition charges) despite having satisfied all the requirements of their Chapter 13 plan.

Judge Somma Orders Continuation of Preliminary Injunction of Mortgage Foreclosure

2007-01-26T21:22:00.001-05:00

Massachusetts Bankruptcy Judge Robert Somma in the case of In re Strayton, --- B.R. ----, 2007 WL 150192 (Bankr.D.Mass., Jan 17, 2007)(NO. 06-13703-RS, 06-1394) enjoined Champion mortgage from completing a mortgage foreclosure sale that had occurred prior to the filing of the homeowners’ Chapter 13 bankruptcy case. After commencing the case, counsel for the debtor filed an adversary proceeding seeking to invalidate the foreclosure sale and to prevent the completion of the acts necessary to finalize it. The memorandum of sale had been signed but an actual closing had not yet occurred. It is highly unusual for foreclosure sale to be reversed in these circumstances and I think that this case is significant because it draws our attention to some basic principles of mortgage foreclosures. According to the opinion, the house had a fair market value of $325,000 but had been sold at the foreclosure sale for only $130,000. Judge Somma, citing cases, stated that a "foreclosing mortgagee must also act in good faith and use reasonable diligence in conducting the foreclosure sale" and not merely "comply with the procedure prescribed by statute." The judge found fault with the procedures leading up to the foreclosure sale. "[T]he diligence not done is persuasive on the question of success on the merits: no marketing, no appraisal, no real estate broker contact, no inquiry into the market regarding either value or prospective buyers; no inspection effort. Moreover, if the foreclosure sale is completed, significant value will be lost to the estate."

Judge Votolato Holds that Means Test form must be filed in cases converted to Chapter 7

2007-01-26T20:57:00.003-05:00

Long-time Rhode Island Bankruptcy Judge Arthur N. Votolato held recently in the case of In re Perfetto, --- B.R. ----, 2007 WL 172190 (Bankr.D.R.I., Jan 19, 2007)(NO. 06-10509) that upon conversion from Chapter 13 to Chapter 7 a debtor must file the B22A (means test) form. The import of this is that above median-income debtors in converted cases will have to run the means test gauntlet just like those who start out in Chapter 7. The judge called the issue one that raised "an issue of first impression in the Nation."

Welcome

2007-01-26T20:57:00.001-05:00

Welcome to my new blog!

I am going to post information about new cases and trends in bankruptcy, consumer, and class action law periodically. Thanks for visiting.