Archive for the ‘ Rule of Law ’ Category

A Dream Job

A Dream Job

 

I love what I do. Intervening on behalf of my clients in tax audits, or helping people shed crippling debt, allows me to (1) draw on prior professional experience at the IRS and elsewhere, (2) use my detective and people skills in finding and negotiating with the right auditors and revenue officers, and (3) helps me solve people’s problems and move them forward in their lives.  As a small business owner, I also get complete discretion over my time and, of course, full responsibility for all my successes and failures. I’m sure I’ll be doing this for another 20 years, at least.

 

However, every now and then, I daydream about alternative careers. I recently read an article about the razor manufacturer, Gillette, and how it has half a dozen highly-trained men who have a gig testing razors and shaving techniques. http://www.wsj.com/articles/for-cutting-edge-analysis-few-come-closer-than-this-elite-shaving-squad-1460323470  They leave home and stop at Gillette headquarters on their way to work, where they shave. Their daily shave is done according to a strict protocol; they are testing different shaving creams and razors against each other, so every shave has to be done exactly the same way. These guys know about shaving. “Way cool,” I announced to the wife and daughter, both of whom dismissed my excitement with barely-concealed eye-rolling.

 

But I was serious. About a decade ago, I started using shaving soap, rather than canned lather. I like the closer shave, and the soaps generally smell better and feel somehow richer. As I read about the Gillette shavers, I envied that they get to try new soaps and razors on a daily basis. They get to be experts in shaving. Me – I invest in one cake of shaving soap, and it lasts 18 months. Neither my wife nor daughters appreciate how silky smooth I get my face – it’s always too bristly for them, no matter what I do. I suspect at Gillette, the shave scientists get well-deserved praise.

 

Another thing I like about the job is the attention to process. At the IRS, I learned the importance of process: thinking about the steps toward getting a job done. In my law firm, even though each case is different, I always look for the uniform elements so that I can create a check list and get all the steps done.

Why I try not to do loan modifications

http://www.salon.com/2013/06/18/bank_of_america_whistleblowers_bombshell_we_were_told_to_lie/

The following commentary is from Hale Antico, a local bankruptcy attorney colleague:

Bank of America’s mortgage servicing unit systematically lied to homeowners, fraudulently denied loan modifications, and paid their staff bonuses for deliberately pushing people into foreclosure: Yes, these allegations were suspected by any homeowner who ever had to deal with the bank to try to get a loan modification – but now they come from six former employees and one contractor, whose sworn statements were added last week to a civil lawsuit filed in federal court in Massachusetts.

“Bank of America’s practice is to string homeowners along with no apparent intention of providing the permanent loan modifications it promises,” said Erika Brown, one of the former employees. The damning evidence would spur a series of criminal investigations of BofA executives, if we still had a rule of law in this country for Wall Street banks.

The government’s Home Affordable Modification Program (HAMP), which gave banks cash incentives to modify loans under certain standards, was supposed to streamline the process and help up to 4 million struggling homeowners (to date, active permanent modifications number about 870,000). In reality, Bank of America used it as a tool, say these former employees, to squeeze as much money as possible out of struggling borrowers before eventually foreclosing on them. Borrowers were supposed to make three trial payments before the loan modification became permanent; in actuality, many borrowers would make payments for a year or more, only to find themselves rejected for a permanent modification, and then owing the difference between the trial modification and their original payment. Former Treasury Secretary Timothy Geithner famously described HAMP as a means to “foam the runway” for the banks, spreading out foreclosures so banks could more readily absorb them.

“You Had Me at Discharge”

There’s an almost rapturous feeling that my clients feel when they hear “discharged” about their debts in a Chapter 7 bankruptcy case. It’s a feeling like that which Renee Zellweger’s Dorothy Boyd feels in Jerry Maguire when Tom Cruise’s Jerry finally admits he loves her. However, Tom’s character is the ultimate fantasy – a fairy tale – someone who rescues Dorothy from the accumulated problems of her life.

Don’t fall into the same trap of believing that bankruptcy will be a fairy-tale happy ending. There are many reasons to avoid bankruptcy: legal cost, hit to your credit rating and, for many people, a decline in self-esteem. Yet many clients come to me after having avoided debt problems for years – which inevitably makes them worse.

Start by confronting your debts. It’s never a good strategy to avoid or deny problems that will surely catch up with you. At least half of my chapter 7 clients contact me but do nothing (other than trying to avoid debt collection calls) for years, hiring me only after they’re finally sued by a creditor and served with a summons. Many could have avoided bankruptcy by confronting and paying off their debts earlier or, when paying off debts isn’t possible, by getting organized and either seeking debt reductions or filing for bankruptcy sooner rather than later and getting on with their financial lives.

Do us both a favor by taking the following steps: (1) Pay off your debts, if at all possible. (2) Attempt to negotiate a reduction in your debt from your creditors (particularly credit card companies) if you don’t have the means to pay the full amount; there’s usually no reason to hire someone like me or a debt collector to do this for you or, if you’re unsure whether this will work in your particular situation, call me and I can advise you whether it’s feasible to self-negotiated and give you tips on how to do so. (3) Contact me or another bankruptcy attorney when you start to have issues with paying your debts. Most attorneys offer a free half-hour consultation, and if you look for someone in the Central District Consumer Bankruptcy Attorneys Association, you’re reasonably likely to find someone who is both competent and not self-interested – they’ll advise you correctly.

Remember: your best (and cheapest) recourse almost always is to confront your debt issues head-on and quickly, rather than denying their existence.

Disclosing information

Attorneys often try to hide a client’s information, and disclose as little as possible about the client. This strategy sometimes has comical effects, as in this exchange I heard in a deposition:

“Q:       Do you remember where the main office for Gas del Lagarto  was located?

A:         Even though I was the officer and president of Gas del Lagarto at that time, four years ago today, I don’t recall if we had our main offices in El Paso or Ciudad Juarez.

Q:         How is it that you do you not recall whether the offices were in Texas or Mexico?

A:         You have to approach life like a movie: it has a beginning, a middle, and an end.”

 

Here is another highly amusing dramatization of hiding information. 

 

This kind of “hide the ball” mentality is incredibly frustrating for the questioning attorney, and litigants use it mostly to psych out the other side. It doesn’t make the witness look credible at all, and it benefits litigation attorneys handsomely because it drives legal fees up.

There is no place for this in bankruptcy. The debtor comes to the court seeking a release from his debts; in exchange, he needs to provide documentation that he has nothing to pay them with.  If anyone on the “other side” of the debtor, that is, the creditors, the trustee, or the judge, believes that the debtor is playing fast and loose with information, or hiding something, the debtor can only be hurt.  Penalties for failing to divulge required information range from the trivial to the criminal.

As a debtor, you should expect that a good bankruptcy attorney will give you advice on when and how to file bankruptcy. You should not expect that the attorney will dig you out of a hole you made by failing to provide documentation or information when you were asked for it.

We have been able to help debtors who thought it was to their advantage to hide information.  Usually, we counsel them to determine a coherent narrative that explains all the documentary facts, disclose the information, and advance the narrative. It works much better than trying to frustrate the other side.

The Rule of Law

Here is an op-ed article that describes why I like being a lawyer.

I like civilization.  I like having a house, a car, access to food, a circle of friends, and the daily expectation that this unlikely to go away soon.  I like having a profession to work in that is reasonably predictable, so I can know what efforts to put in on any given day.  Sure, I might come down with cancer, or a random psychopath may target my family for some horrific crime.  I don’t have perfect security.  But I do live in a society that recognizes the rule of law, and the rule of law is so critical to the functioning of that society.

Chen Guangcheng illustrates what happens when the rule of law breaks down, or never existed in the first place.  Most Chinese people can figure out the rules that keep the government from cracking down on them, but these rules aren’t written or acknowledged openly.  And they can change without notice.

Laws allow neighbors to resolve conflicts without clubs.  And law allows the individual citizen some control over the government.  Without law, the government becomes focused mob rule.

The story is similar anyplace there is no law.  I recently read The Pillars of the Earth; it is a great description of England in a period when it was struggling to create the rule of law.  The novel describes noblemen trampling peasants’ crops, and it describes the King ordering the death of Thomas a Becket, that “troublesome priest.”  The climactic scene shows the King submitting to a symbolic caning from the brothers of a monastery: the church (and by extension here, the people) exerting power over the crown, calling it to justice in the wake of an unjust murder.

Somalia, Afghanistan, Iran, North Korea, Nigeria, our inner cities: each has differing reasons why law does not exist, but in each case, the lack of law hurts the inhabitants.

I am proud to be part of the process of ruling this country by laws and not men.

Unethical collection actions

In the cat-and-mouse game between debtors and creditors, it’s no surprise that there are dishonest debt-collection groups.  This article mentions Brachfeld Law Group: we interact often with this collector.  I generally find them ethical, although I have seen them go out of the bounds of legal and ethical propriety.  They can get away with a lot of rules-bending because their victims can’t afford to fight them.

The ultimate way to defeat Brachfeld and other groups is to file bankruptcy: so soon as the petition is filed, there is a federal injunction against any creditor from attempting to collect on a debt.  Brachfeld and all other honest debt collection agencies honor this injunction.

Some don’t, and the difference is spectacular.  I had a client with several “payday” loans, high-interest loans taken out against her next paycheck.  The creditors did not give addresses, only phone numbers.  For one client, they continued to call her asking her to pay back the loan even though the client said “I’ve already filed for bankruptcy.”  They said that didn’t matter, that they were pursuing a criminal action against her and pay up or they would send marshals to her workplace to arrest her.  The creditor would not talk to me, saying I did not represent her in the criminal matter.

Panic can set in on a debtor in such a case.  Here’s how I calmed my client down: criminal actions can only be brought by a government agency, and indeed, once the government agency has started criminal charges, the private party has no more say in the matter.  So a private party’s threat to arrest you is an empty threat.

I also sent a letter to the creditor via fax, asking it why I should not file a lawsuit alleging a violation of the automatic stay, and who is your agent for service of process?

The harassing calls stopped after my letter.

Bankruptcy: a moral option

Many clients feel shame about filing for bankruptcy protection. I can tell because they tell me repeatedly that they never thought they would be talking to a lawyer about bankruptcy, or that they fully intended to and still intend to pay their debts. “I’m not really like this,” I will hear, or “I always paid my debts until [I lost my job] [I lost my husband] or [I lost my health].” There is a notion out there that filing for bankruptcy is somehow wrong, a way of getting away with something for nothing.
The truth is that it is easy to get into a situation where your debt crushes you. And there is a long, noble tradition of debt forgiveness. According to the Hebrew scriptures, God counseled Moses to forgive debts every jubilee year. Scholars have found a similarity between the Hebrew debt forgiveness and a practice used by the Hittites.
Every market economy needs some mechanism for returning debt slaves to productive capacity. Without bankruptcy, according to Prof. Jack Ayer, debt collection for insolvent people and businesses will be conducted with the help of thugs wielding large iron pipes. In the United States, we have less of a social safety net than other developed countries; Megan McArdle of The Atlantic says that this explains why we have the most liberal bankruptcy laws of any developed country.
A capitalist, market system is a more moral system than anything else we know. Capitalist, market systems have winners and losers. We all hope to be winners. But we must deal with the losers too, and it is not immoral to recognize loss, face your problems, and find a solution to an otherwise-insoluble problem.

Can I keep my car in bankruptcy?

California and federal law allows a person to bring some assets through bankruptcy, by allowing exemptions. We the people want citizens to be able to make a fresh start without needing to go begging on the streets; but if we are going to stiff creditors, we don’t want the debtors to gorge on expensive assets while shedding debt. You get to keep your 10-year-old beat-up Toyota; you don’t get to keep the brand-new Lexus that your sugar daddy gave you. How do the courts enforce this difference?
California has two exemption schemes. Under Type 1, at California Civil Code Section 704, a debtor may exempt a motor vehicle to the extent of $2,725. This means that, once the debtor files bankruptcy, the trustee may sell the debtor’s car, but only if the trustee will realize some dividend for the creditors after paying the exemption amount of $2,725 to the debtor. If the trustee can’t do this, or convince the judge she can do it, the debtor keeps the car.
If the car is used as a “tool of the trade,” for instance, because it belongs to a realtor who uses it only to ferry clients to house showings, the exemption increases to $4,850. If both spouses have business cars, the exemption is $9,700.
If the debtor chooses this Type 1 exemption scheme, he’s stuck with the entire scheme. The main advantage to Type 1 exemptions is that a married couple may claim a $100,000 exemption in their homestead. The main disadvantage is that there is no “wild card” exemption.
Type 2 exemptions allow a debtor to exempt $3,525 in any single car. In addition, the debtor may exempt up to $2,200 in tools of the trade. So the realtor’s car could conceivably have an exemption of $5,725.
Type 2 exemptions also allow a debtor to exempt up to $24,425 in any kind of property, the “wild card” exemption. Using this exemption, the debtor could protect almost $30,000 of value in a car, if he wanted to keep nothing else.

Bankruptcy and the self-employed worker

Self-employed persons face special challenges in filing bankruptcy. When I hear that a potential debtor has a business, a slew of questions come up: is the business incorporated, a partnership, or a sole proprietorship? Does the debtor want to reorganize and continue, or just let the business fold? Is the business a service business catering to walk-in customers? What kind of insurance does the business have? What kind of debts is the debtor discharging?
One solution – incorporation
One debtor had a computer repair shop that wasn’t doing well, but he wanted to keep it running. He had so little income he could qualify for a chapter 7 bankruptcy; however, a chapter 7 trustee might have required that he shut the business.
In this case, the debtor incorporated the business prior to the bankruptcy, and put all the business assets into the corporation. He then reported this transfer of assets on his bankruptcy schedules, and reported the corporation’s stock (rather than the individual assets, such as motherboard diagnostic stations) as his asset. Here, the trustee was convinced that the business had no value if sold as an ongoing business, and that the business assets and liabilities transferred into the corporation canceled each other out such that there was no value.
Another solution – shutting down
If the business does something dangerous, or caters to walk-in clientele, the trustee will probably shut it. One debtor had a business filling propane tanks for people living in the hills above Santa Barbara and Goleta. After I filed the case, the trustee called me and said: “John, this business scares the s*** out of me.” He was much relieved to hear that the debtor had stopped his activities, and would give him the keys to his warehouse at the creditors’ meeting.
The secret solution – ignoring the trustee
Another client had a consulting firm he ran from an office, advising people how to market their business. He spent most of his time meeting clients at their offices and working on their matters at his own office; no walk-in traffic. The business was a sole proprietorship (no corporation, no partners), and he used a fictitious name (for instance, “Aardvark Advertising”). The trustee told him in public that he needed to shut it down right away. I called the trustee back and asked what that would look like: does he have to stop visiting his office? His home office? May he mail out the billing statements he has ready? Does he have to swear not to turn on his computer, or make a phone call? The trustee replied that, under local guidelines, he has to tell people to shut down their businesses, but no one would be able to enforce this, so he should continue to work. And so I advised the client.
Had any of these clients filed bankruptcy on their own, they might not have been able to reach the discharge they eventually got. Using an attorney for a bankruptcy is just a very wise decision.

Keeping your house in bankruptcy

I mainly practice in bankruptcy law. I hope to start a blog that includes articles about issues in bankruptcy law and cases I’ve had. I start with a simple question that I get a lot from potential clients: Can I keep my house in bankruptcy?

My very-lawyerly answer? “It depends.” Usually the debtor can keep the house, but he or she has to keep paying the mortgage. The mortgage is not wiped out in bankruptcy. However, if you are late in your payments, the house is being foreclosed on, and you believe that you will lose the house anyway, then bankruptcy is a good option. The lender cannot foreclose on a house unless the bankruptcy court gives approval; this takes several months, during which you can stay in the house. And when the house is finally foreclosed on, there is usually a cancelation of debt, which becomes income to the debtor. When the foreclosure occurs after bankruptcy, that income is not taxable. If the house is foreclosed on outside of bankruptcy, that income may be taxed (if it’s your primary residence, it won’t be, but not every house foreclosure is for a primary residence).

But let’s say that you’re late on mortgage and want to keep the house: is bankruptcy a good idea?  Usually, yes. Under a chapter 13 reorganization plan you can take the arrearages (the amount of the mortgage that is past due) and pay these arrearages out over the next 5 years. You still have to make the regular mortgage payments too, so you’re making a larger monthly payment than you normally would, but at the end of the five years you’re up to date on your mortgage and you’re discharged of other debts. So long as the payments are current, the lender cannot foreclose during those five years.

So yes, debtors can keep their homes in bankruptcy, and it is a good option to those who are late on a mortgage.