Source: http://holbuslaw.com/blog/2012/03/
Timestamp: 2017-05-22 17:29:30
Document Index: 20932649

Matched Legal Cases: ['§ 157', '§ 815', '§ 1322', '§ 1322', '§ 1322', '§ 846', '§ 1322']

March 2012 – Atty. Gregory A. Holbus
Month: March 2012	Important Changes to the Mortgage Modification Mediation Program	The MMMP – a mediation program sponsored by the U.S. Bankruptcy Court for the Eastern District of Wisconsin – is nearly one year old now. Between a year’s worth of experiences plus some unfortunate recent developments, the MMMP committee has announced some important changes to the program…
The availability of sanctions against parties negotiating in bad faith has been removed.
Mortgage lenders now have 30 days (up from 21) to respond to the debtor’s request to mediate. This is to allow more time for proper identification of the mortgage servicer.
Both doomsday provisions have been eliminated. No more sudden death for the debtor if they fail to make a mortgage payment. Now, a default in mortgage payments triggers a standard motion for relief from stay AND good faith participation in mediation is a valid defense for the debtor.
The lender is no longer required to send someone to mediation with full authority to settle. They must merely have knowledge of all available loss mitigation programs and direct access to an underwriter or anyone else with authority to settle.
The court acknowledges that permanent modifications will not necessarily be the outcome at mediation – debtors should expect a trial modification first.
I’d like to take a moment to talk about the first change I noted – the unavailability of sanctions.
First of all, sanctions are not ENTIRELY off the table. However, mere failure to follow the court order to negotiate in bad faith is insufficient. There must be a showing of “manifest injustice”, and the judge must do an in camera review (private, off the record) of the complaint before allowing anything stated in mediation to be admitted as evidence in an action for sanctions. As of yet, I am not familiar with the legal criteria for showing manifest injustice, but I’m given to understand that it is a very high standard.
Bear in mind, the bankruptcy code does not authorize bankruptcy court judges to modify the terms of a residential mortgage. Therefore, the MMMP must be voluntary and non-compulsory. Making mediation compulsory and giving the bankruptcy court judges the authority to create a program with some teeth in it would require an act of Congress. Short of that, the bankruptcy court’s authority to issue sanctions in a non-core bankruptcy proceeding would have been questionable under Stern v. Marshall.
Notwithstanding any arguments on lack of authority – what prompted the removal of sanctions?
Long before the MMMP was established, I had a long list of clients who complained that they attempted mortgage modification on their own, and were never successful. Essentially, it appeared that homeowners were being “strung along” by the lender with never ending requests for documents and forms – most of which would be lost or never reach the correct department on-time, forcing the homeowner to start the process over.
Apart from the availability of sanctions – what appeared to be positive about the MMMP was the introduction of attorneys and written records (esp. of transmission) into the process.
Turned out I was wrong. Creditors were still “losing” papers and finding every excuse in the book to drag the process out – to ridiculous proportions by any normal human being’s standards.
In my opinion and experience, Bank of America is the worst offender. And in one of my cases, mediation has been strung out since July 2011. I had intended to file a motion for sanctions just a week and a half ago. However, one of my colleagues in Oshkosh beat me to the punch – the story of her case was almost identical to my case. Her client was awarded sanctions. Bank of America didn’t like that too much, and they announced that they refused to participate in any new mediation proceedings going forward.
Unfortunately, Bank of America is one of the biggest mortgage servicers. Their lack of participation severely undermines the efficacy of the MMMP. Though I opposed it, the committee overwhelmingly agreed that – in an effort to bring Bank of America back to the negotiating table – the availability of sanctions ought to be removed.However, I would like to share this note from a colleague of mine from Madison, quoting a recent article:
Homeowners who have trial mortgage loan modification agreements with servicers under the federal Home Affordable Modification Program can sue for breach of contract and other state law claims, the Seventh Circuit said Wednesday, reviving a putative class action claiming Wells Fargo & Co. improperly refused to modify loans.In a published opinion, a three-judge panel said that while the government program doesn’t confer a private federal right of action on borrowers to enforce its requirements, that doesn’t bar them from bringing state law claims such as breach of contract and fraud against servicers for allegedly violating loan modification agreements forged under HAMP.The panel rejected Wells Fargo’s argument that named plaintiff Lori Wigod’s claims that the bank violated the terms of her trial loan modification agreement by refusing to permanently modify her loan despite her HAMP eligibility were preempted by the Home Owners Loan Act.
Author Greg HolbusPosted on March 12, 2012Tags Bank of America, Mortgage Modification Mediation Program, Stern v Marshall, Uncategorized, Uncategorized	Cases of Note: Stern v. Marshall	Stern v. Marshall, 131 S. Ct. 2594 (U.S. 2011)
The Supreme Court held that Congress could not extend the jurisdictional province of bankruptcy courts to resolve non-core bankruptcy proceedings that fell within the scope of state laws (i.e. that § 157(b)(2)(C) was unconstitutional) because only Article III judges – who had guaranteed salaries and life tenure – could be granted this authority. In contrast to Article III judges, bankruptcy judges serve 14 year terms and their salaries can be reduced. As such, they lack judicial independence and “purity” such that they are limited to the subject matter that they were expressly created to deal with: core bankruptcy proceedings Why is this important?
Author Greg HolbusPosted on March 10, 2012Tags Appellate Jurisdiction, Case Law, District Courts, Judges, Jurisdiction, Original Jurisdiction, Procedures, Stern v Marshall, Uncategorized, Uncategorized, US Supreme Court	Divorce and Bankruptcy	Divorce and bankruptcy tend to go hand in hand. Either the financial stresses that led to bankruptcy also break down the marriage, or ex-spouses use bankruptcy as a way to clean-up and get a fresh start after divorce.
Author Greg HolbusPosted on March 9, 2012Tags Community Property, Divorce, Domestic Support, Exemptions, Fraudulent Transfers, Non-Exempt Assets, Non-Filing Spouse, Phantom Discharge, Pro Se, Uncategorized, Uncategorized	Cases of Note: Seafort	Seafort v. Burden (In re Seafort), 2012 U.S. App. LEXIS 2927 (6th Cir. 2012)
Here is a case from a foreign circuit – not necessarily applicable to the Eastern District of Wisconsin. But as with all opinions, we keep an eye on these because courts locally can adopt the policies of foreign courts.
When one files a Chapter 13 case, the debtor is required to submit all projected disposable income to the plan. Many debtors have obligations to repay 401(k) loans which are treated outside of the bankruptcy. When the 401(k) loan matures (often in the middle of the bankruptcy), the payment terminates and the debtor is left with additional disposable income. Trustees want the additional disposable income to come into the plan. In this case, the debtor wanted to use the money that had been going to pay the 401(k) loan to resume previously suspended 401(k) contributions.
The bankruptcy code itself excludes disposable income from the bankruptcy estate that is used for 401(k) contributions and 401(k) loans.
The essence of the analysis in Seafort is one of statutory interpretation – in how one code provision relates to another – and deciphering Congress’ intent based on the presence and absence of certain language in certain locations. I am not going to get into that discussion, because nobody wants to see how the sausage gets made. And it’s no secret that Congress made one really bad sausage when it passed BAPCPA in 2005.
Instead, I’ll skip to the court’s conclusion. The exclusion of 401(k) contributions from the bankruptcy estate is limited to the contributions made at the time the case was filed. The debtor cannot increase 401(k) contributions in the middle of the Chapter 13 Plan to the detriment of his or her unsecured creditors. And if a 401(k) loan is paid off in the course of a Chapter 13, the new-found disposable income becomes part of the bankruptcy estate and cannot be redirected to new 401(k) contributions.
Author Greg HolbusPosted on March 8, 2012Tags Case Law, Disposable Income, Uncategorized, Uncategorized	Cases of Note: Fair v. GMAC Mortgage	In re Fair, 450 B.R. 853 (E.D. Wis. 2011)
Author Greg HolbusPosted on March 7, 2012Tags Case Law, Chapter 13 Bankruptcy, Chapter 20, Chapter 7 Bankruptcy, Discharge Injunction, Lien Stripping, Prior Bankruptcy, Uncategorized, Uncategorized	Cases of Note: Halling and Bronk	Two recent cases out of the Western District of Wisconsin (by Judge Utschig, who is retiring at the end of the year) I’d like to share with you. Neither of these creates mandatory precedent in the Eastern District. However, it’s good to be aware that these cases are out there, because both decisions end with terrible results.
The first case is Osberg v. Halling (In re Halling), 449 B.R. 911, 913 (Bankr. W.D. Wis. 2011).
In this case, the debtor attempted to obtain a $45k loan from a bank, but was denied. In order to secure the loan, the debtor’s son agreed to guarantee the loan and put his real estate up as collateral. The debtor made payments to the bank – and in the 12 months prior to filing the bankruptcy case – paid in a total amount of $4,100.
Ordinarily, a trustee can recover “preferential payments” to a creditor if the amount exceeds $600 in the 90 days prior to filing the bankruptcy case. The public policy rationale is as follows:
A preferential transfer occurs when a debtor favors one creditor over another by paying that creditor to the detriment of other creditors. Preferences are treated with disfavor in bankruptcy because they contradict the fundamental bankruptcy policy of ensuring the equitable distribution of a debtor’s nonexempt assets among similarly situated creditors. In re Eckman, 447 B.R. 546, (Bankr. N.D. Ohio 2010)
However, when the beneficiary of payments is an insider (someone close to the debtor, such as corporate partners or relatives), the trustee can recover preferential payments going back 12 months prior to filing bankruptcy.
The reason that Congress created an extended period for insider transactions is simple. In a corporate setting, insiders are typically the first to recognize that a company is failing, and they may have an incentive to pay themselves, or to pay obligations which might otherwise result in their personal liability. The longer preference period was established to address the concern that a corporate insider (such as an officer or director who is a creditor of his or her own corporation) has an unfair advantage over outside creditors. […] Likewise, in a personal bankruptcy a debtor is likely to want to avoid harming family members and will pay (or “prefer”) debts which would impact them. The bankruptcy code strives to eliminate the incentive for doing so by providing that these payments (or transfers) can be brought back into the bankruptcy estate for the benefit of all unsecured creditors, not simply those closest to the debtor.
In this case, the court rules that because the debtor was making payments to the bank, that it caused a decrease in liability from the debtor’s son to the bank. That benefit created a preference to an insider, which was recoverable against the insider. Since the look-back period was longer for insiders than it was for ordinary creditors, the trustee could recover more by voiding the benefit bestowed upon the debtor’s son, rather than voiding the benefit bestowed upon the bank.
Payments to the “lender” in such a scenario are “for the benefit of” the guarantor because every reduction of the debt reduces the guarantor’s potential liability to the lender. Osberg v. Halling (In re Halling), 449 B.R. 911, 915 (Bankr. W.D. Wis. 2011)
The result: the debtor’s son was a creditor of the bankruptcy estate, received a benefit of decreased liability to the bank in the amount of $4,100 which was recoverable from the son as an insider preference.
The lesson: If you have a loan cosigned by a relative, consider having the relative make payments on the loan in the 12 months prior to filing bankruptcy, or consider filing Chapter 13.
Again, this is a Western District of Wisconsin case with no mandatory authority over any other federal district. To date, it has not been appealed, nor has it been cited as authority in any other case. But that could change, which is why I share the story.
The second case is Cirilli v. Bronk (In re Bronk), 444 B.R. 902 (Bankr. W.D. Wis. 2011).
In this case, the debtor had a considerable amount of non-exempt assets, owing partly to his residence which was owned free and clear of any mortgages. Prior to filing his case, he took a mortgage out on the home to reduce equity, and converted the cash he received from the mortgage into college savings plans (EdVest accounts) for his grandchildren, which he could exempt.
What is described above is one of the more extreme examples I’ve read of “exemption planning” which converts non-exempt assets into exempt assets. Does that seem wrong to you? It is. You can be denied discharge for these transfers if it can be shown that you intended to hinder, delay, or defraud creditors. Curiously enough, the court held in this particular case that there was insufficient evidence to prove fraud – presumably because either not all elements were proven or the trustee did not meet his burden of proof.
Nevertheless, this is a practice I hear about repeatedly from my clients who have non-exempt assets, and this is why I discourage the practice of intentionally converting non-exempt assets into exempt assets.
Though the debtor in this case retained his discharge, he wasn’t completely off the hook, and in that sense, there is some justice in this case. (Although the way in which the debtor was nailed doesn’t seem to make much sense, either.)
The court held that the debtor could not exempt the EdVest accounts because the exemption statute Wis. Stat. § 815.18 only covers the beneficiary’s interest in the account. In other words, if the grandchildren had filed for bankruptcy, they would be able to exempt the EdVest accounts, but the creator of the account (the debtor in this case) could not.
The reason this is odd is because the money in an EdVest account is completely in the control of the creator. The beneficiaries cannot touch the funds.
Lesson: Don’t convert assets from one form to another – you could be denied discharge for fraud. And if you are the creator of an EdVest account, you may encounter exemption issues.
This case has been followed by the Northern District of Illinois.
Author Greg HolbusPosted on March 6, 2012Tags Case Law, Codebtor Liability, Conversion of Assets, Exemptions, Preferences, Uncategorized, Uncategorized, Wisconsin	Another reason to disclose your assets…	Something I try to impart on all of my clients over and over and over again. Disclose all of your income. Disclose all of your assets. It probably won’t affect your case. And even if it does, it will be less painful to disclose everything than to deal with the consequences if you get busted concealing assets.
Author Greg HolbusPosted on March 5, 2012Tags Assets, Disclosure Requirements, Trustee, Uncategorized, Uncategorized	Open Letter to Congress	Copy of a letter that was sent to each Wisconsin Representative and Senator…
I am a consumer bankruptcy attorney based out of Green Bay. Although the majority of my clients come from northeast Wisconsin, I have – at one time or another – represented constituents in each and every one of your districts.
I am writing today to implore you to pass a simple piece of legislation: to amend 11 U.S.C. § 1322(b)(2) to remove the words “other than a claim secured only by a security interest in real property that is the debtor’s principal residence”.
Mortgage cram-down bills have – for reasons beyond comprehension – been defeated each and every time they have been introduced. Yet the removal of this language represents considerable hope for homeowners now struggling to make mortgage payments, and who are at the mercy of the lenders whose predatory lending practices put them in this situation.
Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), a debtor in Chapter 13 can potentially “cram-down” any loan secured by collateral to its replacement value. In other words, a debtor who owns $10,000 on a car loan secured by a vehicle that is worth $6,000 – only has to treat the $6,000 as a secured debt, and the remaining $4,000 is treated as unsecured debt. Apart from certain restrictions on time, a cram-down can be performed on any secured loan, whether the collateral is a car, a couch, a wedding ring, or even recreational land.
The only type of secured loan that cannot be treated this way is a mortgage secured by the debtor’s primary residence, thanks to the current wording of § 1322(b)(2). This is ironic, because it is these residential mortgages which represent a staggering proportion of the cause of our nation’s current economic crisis.
Amending § 1322(b)(2) would have the following benefits:
More debtors would opt to file bankruptcy under Chapter 13 if this benefit were afforded them, even if they otherwise qualify for Chapter 7. (Increased filings under Chapter 13 were clearly the intent of BAPCPA.)
All creditors – particularly unsecured creditors – would benefit from a decrease in Chapter 7 bankruptcy cases in favor of an increase in Chapter 13 cases.
Fewer homes would go through foreclosure, which would decrease workloads on state circuit court judges.
Fewer homeowners would surrender their homes to foreclosure. Most homeowners can walk away from their house free-and-clear under Wis. Stat. § 846.101. Those that cannot can have the deficiency discharged in bankruptcy. The ability to cram-down a mortgage means that the mortgage lender can be paid more money than they could ever hope to receive at auction, particularly given the current housing market.
You may be asking yourself why it is necessary to allow mortgage cram-downs in bankruptcy when a homeowner can conceivably get a loan modification on their own. It has been my experience that most loan modification programs are scams. Many of us are already aware of the third-party companies who, for a substantial fee, promise to broker a deal between the homeowner and lender – but never do. However, very few people are aware of the pedantic stalling tactics employed by the mortgage servicers themselves (which I could speak at great length about).
In an effort to reduce the amount of foreclosures, a committee here in the Eastern District of Wisconsin established a Mortgage Modification Mediation Program (MMMP) in May 2011, modeled off of the Marquette University Law School’s program. However, because the bankruptcy code does not grant authority to judges to modify these home loans, our program is necessarily voluntary. What we have found is that the mortgage servicers treat the MMMP with the same amount of ambivalence as they do when a homeowner tries to negotiate with the servicer directly. The participation of attorneys in the process and the existence of detailed records have proven to be ineffective at stopping the servicers from continuing the aforementioned stalling tactics.
The court’s authority to sanction the servicers for negotiating in bad faith is limited (at best) because this is necessarily a voluntary program, and questionable in light of the recent U.S. Supreme Court decision in Stern v. Marshall.
Giving bankruptcy judges authority to do to residential mortgages what can already been done to every single other type of secured loan is a major step in bringing some semblance of justice and order to the chaotic world of home mortgages.
In the interest of brevity, I have omitted a great amount of detail about nuances of bankruptcy, mortgage servicer stalling tactics, and the MMMP. I would be more than happy to field any additional questions you may have, and invite you to contact me directly to do so.
I beseech you to do that which is necessary – amend 11 U.S.C. § 1322(b)(2). I appreciate your time and consideration.
Author Greg HolbusPosted on March 5, 2012Tags Congress, Cram-Down, Legislation, Mortgage Modification, Mortgage Modification Mediation Program, Uncategorized, Uncategorized	Bankruptcy Petition Preparers	The bankruptcy judges continue to ask us to help them and help you with the problem of bankruptcy petition preparers. BPP’s are more prolific in the Milwaukee area, but there are BPP’s all over the state, the country, and online.
Bankruptcy Petition Preparers are not attorneys. To be law-abiding, a BPP can be nothing more than a transcriptionist with a mildly-fancy job title. In other words, they can type into the bankruptcy forms what you tell them to type, and nothing more. The court has fillable PDF forms on their website, so really, there is no need for a BPP.
BPP’s can’t do more than transcribe for you without giving legal advice, and since they are not attorneys, they are engaged in the unlawful practice of law. This is problematic, because these individuals do not have legal training. They cannot help you with exemption planning, they cannot help you with means testing, or anything else of a legal nature.
If you don’t want to file with an attorney, then file pro se. If you can’t file with an attorney because you genuinely cannot afford to hire an attorney, then please take advantage of the free resources available through the bankruptcy court, including the Pro Se Help Desks located in Milwaukee and Green Bay, which are staffed by volunteer bankruptcy attorneys, including yours truly.
Author Greg HolbusPosted on March 4, 2012Tags Attorney, Bankruptcy Petition Preparers, Fraud, Pro Se, Unauthorized Practice of Law, Uncategorized, Uncategorized	The Junked Vehicle Conundrum	All too often, I am encountering debtors who have – in one way or another – disposed of an asset which was collateral on a secured loan. And that casts doubt as to dischargeability of that debt.
Author Greg HolbusPosted on March 3, 2012Tags Collateral, Criminal Prosecution, Fraudulent Transfers, Secured Debts, Uncategorized, Uncategorized	Posts navigation