At a hearing on the approval of my attorneys fees in a Chapter 13 case, the judge questioned the fees I attributed to defending a motion for relief from stay which was granted after three hearings.  Wasn’t this a lost cause from the start, she asked?

My reply was that I had raised questions of creditor misconduct as well as the issue about whether the moving party was the correct person to be bringing a motion for relief from stay.  This issue is developing as a serious issue nationwide as it is revealed that the original notes are no where to be found, and whatever transfers of those notes have not been accomplished according to long standing rules of law.

I replied to the judge that the client had directed me to oppose the motion and had not objected to the fees I sought for the effort.  My application was approved.

But the longer I thought about it afterwards, the more troubling I found the judge’s inquiry.

• Suppose I knew objectively that the debtor was in default and had no hope of getting current?  Does that relieve me of my undertaking of loyalty to the interests of the client?   Doesn’t the Rights and Responsibilities statement in the Northern District obligate me to defend motions for relief from stay?
• Does it mean that if I take a position that the judge believes I should have known from the beginning was a loser, I do so without pay?
• Am I obligated to withdraw if my view of the probability of success differs from the actual outcome?

Like so much in bankruptcy these days, I don’t have any answers.  But the fact the question was raised from the bench is disturbing.

The email said: ” We saw you two months ago about bankruptcy.  The foreclosure is Tuesday.  Can you help?”

I wanted to reply:  “Where have you been in the past two months?  What were you thinking to wait til now to start filing bankruptcy?”

Instead I said: “Bring information, money and be here in two hours.”   But what are people thinking to wait til the last minute?

If, as so many clients say, saving the house is the most important thing, why gamble by waiting to within hours of the actual foreclosure sale to move to file bankruptcy?  Why aren’t your actions (to save the house) consistent with your statements (about the importance of the house)?

Bankruptcy lawyers, especially experienced ones, are few in number and generally overwhelmed with work.  Don’t count on finding available legal help at the last minute.

Here endeth the rant.

Every client asks that question.  My friend Susanne Robicsek walked her readers through the timeline of a Chapter 7. But the real gating issue is “how long will it take you to get your attorney all the needed information”.

It is getting the raw information to us that is the real slow down in most cases.  Cases lag when the client fills out as much of our questionnaire as they find convenient;  provides most of the paystubs; promises the tax return; and has to search for information on the insurance policy.  We hustle to get the schedules done, and the client then doesn’t have all the necessary funds to finish paying us.

As Susanne describes, once filed, a Chapter 7 marches fairly predictably to discharge.  The time required for the debtor to empower the attorney with a full deck of cards is unknowable, to the attorney, and  within the control of the client.

My friend Doug Jacobs advises debtors to tell their bankruptcy  attorneys everything, pointing out that intentional omission of assets risks denial of discharge and even jail.

I seldom see the intentional omission:  much more frequent is the debtor who simply can’t be bothered to read the form and consider whether elements in their financial lives fit the question on the form.

So much depends on making full disclosure.  The minute the trustee discovers at the first meeting of creditors that you have an asset that isn’t in the schedules, the trustee begins to wonder:  what else hasn’t been disclosed?  You, and your attorney perhaps, have lost credibility.  Time and money will be required to clean up the mess created by inattention.

I wish long and often that clients could direct some of that nervous energy and anxiety about bankruptcy into doing a better job getting me all the information necessary to fuel a smooth and successful bankruptcy case.

Forbes has compiled a list of cities where credit card spending is highest. My scan of the list suggests that this list is simply another version of the areas of the country where housing is in trouble.  Homeowners with outsized mortgage payments rely on credit cards to make up the difference needed to support the family.

Which leads me to those TV ads for attorneys or other services offering help with mortgage modification.  Assuming the advertiser is successful in negotiating a mortgage modification, the homeowner is still  left with the debt  that piled up while why struggled with the original loan terms.

Even without the ability to modify mortgages on principal residences, Chapter 13 is a superior tool for addressing the homeowner’s entire financial situation. And the fees for the professional involved are subject to court supervision, something missing from those drumming up business on TV.

Even if your creditor gets a judgment against you in California, the debt underlying that judgment remains just as dischargeable as it was before the case was filed.  And apparently differently from New York, a judgment in California does not automatically become a lien on the defendant’s property.

The discharge of a debt in bankruptcy depends on the nature of the debt, not whether a court has ruled on the merits of the claim.  So, child support is non dischargeable, whether or not there is a judgment.  Debts incurred by fraud are non dischargeable in bankruptcy.  Credit card debts honestly incurred are dischargeable, judgment or no.

Contrary to  what some dishonest debt collectors will tell you, judgments are just as dischargeable in bankruptcy as the underlying debt is.

What does change the dynamic is if/when the judgment creditor applies for an abstract of judgment or files a notice of judgment lien.  These documents do create a lien on the judgment debtor’s assets, the former on real property in the county in which it is filed, and the later on personal property located in the state.  If the lien cannot be avoided in bankruptcy, the judgment creditor has obtained an advantage.

What my friend Jay Fleischman’s post on BLN about  civil judgments in New York and their bankruptcy implications points out is the way in which state law impacts the operation of bankruptcy, which is federal law.  The rights that each party in a bankruptcy case brings to the bankruptcy case originate in state law.

It also  demonstrates why lawyers are licensed in each state and why my California law license does not entitle me to practice bankruptcy law in New York.

Logic and reality have been bouncing off my clients’ deflector shields recently on the issue of their houses.  Confronted with the gap between their income and even the payment on a modified loan, I get the refrain, “But keeping the house is the most important thing in my case!”

Yes, and how do you expect to do that?   I get no meaningful answer.

This house business has become so irrational and  embedded that I’m thinking it’s a resistant strain of something. (Is there a strain of “Home Flu”?)   “House” or “home” is like God or motherhood:  a positive one dare not challenge with words about economic reality.

What’s interesting about these reactions is that seldom are we talking about the long standing family home.  We’re talking about houses purchased in the past  five years or so.  Which of course corresponds to the frantic run up in Bay Area home prices.  So these homes were, from the beginning, never likely to be the family seat.

How do I persuade people that a home is simply housing, and what’s really important are the people who live there?

Can I keep a credit card out of my bankruptcy for future emergencies, clients routinely ask.  The short answer is that you can properly omit from your bankruptcy filing any card issuer with whom you don’t have a balance.  Those issuers are not creditors at this point.

The broader question is just how useful is plastic as a safety net?  With the wave of cancelled cards and lowered debt limits, joined with massive interest increases, I have my doubts that you can count on a credit card as the functional equivalent of cash in the bank.

Then there is the question of fraud:  use of a card when you know you may not be able to repay the charge may be fraud under bankruptcy law.  If the card issuer can prove fraud, the challenged charges survive the bankruptcy discharge.

So, my routine advice is not to pay more than a couple hundred dollars to pay off a card so you can exclude it from the bankruptcy filing.  More than that, put the money in  the bank as the start of  your rainy day fund of cash in the event of emergencies.

Should you guarantee a student loan, asks my good friend Doug Jacobs.  His is the cool, reasoned analysis.  I want to jump up and down and say DON”T DO IT.

It pains me to say that.  My undergraduate education was funded in part with modest student loans.  I believe education is the key to much that is personally  positive and societally important. I applaud the public policy that is willing to make college more widely affordable.

Student loans have taken on a malevolent quality over the past years.  Loans are made apparently without any counseling about the consequences of getting a four year degree at an expensive private school in art history.  (That was one of my early cases:  $100,000 in loans for a skill set that allowed my client to earn $21,000 a year).    Since student loans aren’t dischargeable, they have the potential to blight the life of a student who borrows too much, never uses the skills acquired, or who finds the economics of the profession changed between school and career.

The new private student loans bear interest rates akin to credit cards, according to a recent story in the New York Times.  The Times  blog   rounded up more on student loans.

Then there’s the issue of timing:  parents guaranteeing the loans of their children face having student loans hanging over them as they approach retirement.  The student defers payment on the loan, keeping the parents exposed to the debt.  It entwines the two generations financially long after the student is an adult.  Retirement budgets seldom have available dollars to pay off student loans.

My advice is to approach parental guarantees of student loans with the same caution you use when confronted with a coiled rattlesnake.

I’ve continued to think about my response to David Leibowitz’s discussion of getting out of debt without bankruptcy.  My first response focused on the choices inherent in paying off creditors outside of bankruptcy.

I forgot to point out the efficacy issue:  if you try to pay off your debts via settlement, it takes only one or two big creditors who won’t settle on tolerable terms to undermine the entire effort to repay creditors.  If you can’t get a big creditor to join the rest in compromise, you may have wasted everything you’ve paid out to compliant creditors in an effort to avoid filing bankruptcy.

My favorite story explaining why I don’t attempt debt settlements for clients involves a client who had only two creditors.  Her parents were willing to fund a 50 cents on the dollar settlement if I could get both creditors to agree.  It was obvious that the client could count on filing bankruptcy and discharging the debt.

Over a period of months, I was unable to get just two creditors to buy into a solution that got them half of their debt on the spot.  The client ended up filing Chapter 7; the creditors got nothing.

If you want to pay creditors and be assured of a resolution, file a Chapter 13.  Compel the creditor to accept partial payment.

In short, the weakness of an out of court settlement with creditors is that a real, non bankruptcy solution requires 100% participation of creditors and an absolutely assured stream of cash to pay creditors.

Too often, there are too many things that can go awry in such a scheme, and money is spent on some creditors before the approach craters.