I sat this afternoon in a 341 meeting for Chapter 13 in which another debtor testified that he had converted his Chapter 7 case to one under Chapter 13 because the UST objected to the support he provided to his 70 year old mother. The UST proposed to take the mother’s deposition in a city 200 miles away. To save his mother from this inquiry, he converted his case to a Chapter 13.

What kind of public policy is it that tells an adult son he can’t support his aged mother because MBNA or Citibank has a prior claim on his earnings? Where is this compassionate conservatism?

Remember, the policy makers at the UST’s office are political appointees of our President. All hat and no cattle? All talk and no substance?

Cathy Moran
Bankruptcy in Brief

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To a distressing extent, people in dire financial straits still worry that escaping overwhelming debt via bankruptcy will destroy their credit score. This article in Smart Money shows why filing bankruptcy can improve the debtor’s credit score and offers tips to get the most improvement following bankruptcy.

While I resist the growing importance of credit scores in non financial parts of our lives and the obsession among consumers with credit scores rather than “assets and liabilities”, it’s nice to have confirmed my contention that a discharged debtor is objectively a better credit risk after bankruptcy than he was before.

Cathy Moran
Bankruptcy in Brief

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Over on the bankruptcy board at Lawyers.com, where I contribute, an Idaho consumer posted a poignant story of engaging a debt settlement company to “get them out of debt”. Using the “services” of this company, the poster now has six judgments of record and two garnishments in process. The debt settlement company, however, has its full fee.

Such stories, and there are lots of them, are emblematic of the profit that debt settlement firms and credit management outfits make on the consumer’s fear of bankruptcy. Most folks will do anything to avoid bankruptcy, either out of ignorance of how bankruptcy works or a moral preference for paying their debts.

Bankruptcy isn’t for everyone, but it would improve the lives of a great many more working families than now avail themselves of a fresh start. Everyone considering paying money to an organization promising to get them out of debt ought to see a bankruptcy lawyer before parting with a dime. Chapter 13 as a debt management alternative. With a handle on the alternatives, there would be fewer of these sad stories.

Cathy Moran
Bankruptcy in Brief

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For the past couple of years in Northern California, there has been a flurry of refinancing fueled by low interest rates, substantial property appreciation, and financial needs of homeowners. While before, it seemed that every unemployed high tech worker here got a real estate license, it seems like half of them now became loan agents. The terms of the loans they peddled got more and more complex at the same time the experience and quality of the persons pushing the loans declined, in my view.

I’ve wondered whether all of these non standard loans might present Truth in Lending violations. Truth in Lending is federal law designed to see that borrowers get clear and meaningful information about the cost of a proposed loan before they commit. A federal judge in the Eastern District of Wisconsin just found disclosures by Chevy Chase Bank in connection with an adjustable rate mortgage to violate Truth in Lending, and certified the case as a class action. Andrews v. Chevy Chase Bank, Case No. 05C0454, 1/16/07.

One of the remedies for violation of Truth in Lending is the rescission of the loan and the crediting of all payments on the loan to principle. The statute of limitations is generally three years from the transaction.

I suspect that this case, against this lender, is just the beginning.

Cathy Moran

There is a widely held belief that if an asset isn’t titled to you that it does not have to be disclosed in a bankruptcy filing and the asset will be “safe” from the bankruptcy trustee and from creditors. Wrong, wrong, wrong.

Not only does putting your assets in the names of friends and family expose them to a lawsuit to recover the property, in extreme situations it puts the debtor’s discharge at risk. Actions taken to “hinder, delay or defraud” creditors are grounds for denial of discharge under 11 U.S.C. 727.

For well more than three hundred years, the law has contained prohibitions on fraudulent transfers. A transfer of an asset by one who has debts constitutes a fraud on creditors if 1) the transfer is for less that fair consideration; or 2) was made for the purpose of putting the asset beyond the reach of creditors; or 3) leaves the person transferring the asset with less capital than reasonably necessary to conduct their business.

The usual remedy against the person who gets the asset is generally an order requiring the return of the asset or a money judgment in the amount of its value.

In bankruptcy proceedings, the trustee has the rights of the debtor’s creditors to recovery any property that the debtor wrongfully transferred. The bankruptcy code has a statute empowering the recapture of transfers made within a year of filing and the trustee can use the state law fraudulent conveyance law which may have a longer statute of limitations. In California, that statute of limitations is four years.

So a really quick and effective way to screw up your bankruptcy is to put your assets in the name of your mother, your kids, or your buddy, and conceal the fact from your attorney. Sign the statement of affairs under penalty of perjury, hiding the transfer, and you are a long way toward making a real muck of things. Yet people again and again ask “what if I put it in someone else’s name?”.

As long as they ask me, they have a chance to get a discharge.

Cathy Moran