Susanne Robicsek and I must be lawyer twins, separated at birth. She suggests that those with financial troubles consult a bankruptcy lawyer sooner rather than later. Amen.

Countless times a caller has asked me, should I wait until all of my savings are gone to file bankruptcy? And these folks didn’t mean, until my net worth is greatly reduced; they meant, until my bank balance is zero.

One has to admire the resolve of those who propose to pay on debts that they can never repay up to the point when they literally have nothing left. My advice of course is “no”.

Bankruptcy allows you to keep a collection of assets necessary for a fresh start. There is no bankruptcy entrance requirement that you be destitute or even insolvent to file bankruptcy.

So often I wish clients had come to me earlier: before they borrowed against their retirement to pay credit cards; before they took bad home loans that imperil their home; before they borrowed from one credit card to pay on another.

Susanne is right: it can never hurt, and often help, to get sound advice as soon as you realize you have a problem.

Every bankruptcy debtor must attend the first meeting of creditors in their case; this meeting is nicknamed the “341 meeting” from the section of the Bankruptcy Code that requires it.

Susanne Robicsek wrote about what to expect at the first meeting. Here are my rules for how to behave:

Rules for Testifying Under Oath.

1. Tell the truth
2. Listen to the question, all the way to the end.
3. Answer in as few words as possible
4. Don’t explain, expand, justify, or speculate unless asked
5. If your attorney starts talking, you stop talking

The first meeting of creditors has two basic purposes: to have the debtor validate the information in the bankruptcy papers under oath, and to provide the trustee any information needed to determine exemptions or administer any non exempt assets.

It is not a test or an inquisition. Usually, each debtor’s testimony is concluded in a few minutes.

While I have seldom had clients blow a case at the 341 meeting, they can certainly either prolong the meeting or confuse the trustee or the issues by babbling on, or by not listening to the trustee all the way to the question mark at the end of the question.

Bring your identification; be familiar with the information in the schedules; and answer questions in short sentences and all will be well at your first (and probably last) meeting of creditors.

More on the 341 meeting.

Tax lawyer Mark Muntean sent around the following thought on lowering the appraised value of a home in a world of declining real estate values.

I think it was Bruce Springsteen who said “Every cloud has its silver lining.”1 One such possible silver lining is emerging from the sub-prime meltdown. My wife was bemusing our property tax bill the other day, and it was my chance to prove that I am not totally worthless around the house.

Similar to many California counties, Alameda County, allows for an Informal Request for the Decline in Market Value Reassessment (Prop. Eight) to be filed, reducing a property owner’s annual property tax bill. This is not a formal property tax appeal. Instead, this is a one page form that any property owner can fill out.

The real beauty of this form is that it does not require a formal appraisal. The property owner merely gives their opinion of value based on recent market information, which most likely found on the Internet.

Nearly every California county has a similar process. However, a word of caution is that this informal process has a deadline for this year. While Alameda County’s deadline is April 10, 2008, according to Los Angeles County’s Decline-In-Value Reassessment Application (Prop.Eight) form, the form must be filed by December 31, 2007. Interestingly, San Mateo County’s form does not list a deadline. However, additional information can be found on the county assessor’s website.

It is possible that a taxpayer may benefit from filing a form this year, reflecting a decrease in value to date, and a second form next year, if there is an additional fall in value. Commercial net leases frequently require the lessee to pay property tax. Thus, the lessee may explore possible property tax savings as well.

Formal property tax appeals can be pursued in 2008. To timely file a property appeal for the 2008/2009 tax roll year, a completed Application for Changed Assessment form must be submitted to the county Assessment Appeals Board where the property is located no later than September 15, 2008. September 15, 2007 was the deadline for the 2007/2008 tax roll.

At least three homeowners called my office this week with a foreclosure sale set in less than 5 days and wanted to file bankruptcy to stop the sale. What is with people who wait until the last minute to look for a solution to losing their home? When I’m tired and cynical, I think they must believe in the genie in a bottle, willing to give them three wishes.

But the stories got stranger still, as we talked to these callers: two of the three wanted to stall the foreclosure so that they could complete a short sale. The sale was going to result in no money to the homeowner and they would lose the home, yet they thought they were ready to spend money to file bankruptcy for the privilege of selling rather than being foreclosed.

Historically, we have found that people who wait til the last minute make difficult clients. They put off unpleasant tasks and fail to appreciate deadlines, or even that their lawyer is bugging them in order to make things better.

I decided that I am not willing to take on emergency bankruptcy filings for procrastinators unless there is something to save by the exercise. Enabling a short sale doesn’t measure up.

The adjustable rate mortgage mess is with us: no amount of pussyfooting about whether a legislative change is necessary will make the problem vanish. The choice we have is whether we sit back and let hundreds of thousands of homes be foreclosed or whether we give bankruptcy courts the tools to soften the impact of the crisis.

Currently, the only mortgage that a bankruptcy judge cannot alter is a home mortgage; mortgages on vacation homes, apartment buildings, and commercial property can all be modified in bankruptcy. The ability to modify these mortgages in bankruptcy does not seem to have ruined the credit markets to date.

A provision of the bankruptcy code, inserted to encourage the home lending industry years ago, now ties the hands of a bankruptcy alternative to massive foreclosures.

If bankruptcy judges were empowered to write mortgages down to the value of the property when the case was filed, and alter the terms, within a Congressionally mandated standard, both homeowner and lender would benefit. The homeowner gets a shot at keeping his home and paying for it, based on today’s values; the lender gets just what he would get if he foreclosed: a house now worth less than the value at the inception of the loan. Plus the administrative costs of restructuring the mortgage have got to be less than either staffing an n house mortgage modification operation or foreclosing, maintaining and trying to sell the foreclosed house.

The only cost here to the taxpayers is perhaps some more court clerks for the bankruptcy system. We don’t bail out the lenders who made foolish (or deceptive) loans; we don’t provide amnesty to the borrowers who at best were overly optimistic, and at worst were sold snake oil that puts their homes at risk.

Surely, permitting the modification of home mortgages has to be a better solution than neighborhoods of empty, bank owned houses, and displaced families. Because that certainly seems to me to be the alternative.

The high cost of higher education and the non dischargeable nature of student loans have the capacity to ruin lives just as much as to improve them. We encourage kids to go to college and we make loans freely available to pay for it. We don’t tell them that this choice, made before they get educated, will be with them for the rest of their lives as the Supreme Court recently decided that Social Security can be garnished to repay student loans.

There are few other choices we allow 18 - 21 year olds to make with such inescapable consequences. Tuition alone at the University of California is $9,000 a year. Add books, health care, room and board and the figure is probably close to $20,000. Private schools are double or triple that number. Student loan balances of $60,000 to $100,000 are not uncommon.

In 1998, Congress decided that there would be no statute of limitations on government guaranteed student loans and no discharge of these loans in bankruptcy except under the direst of circumstances.

In 2005, Congress added privately funded student loans to the list of debts that could not be discharged in bankruptcy.

As the commercial says, “diamonds are forever”. So are student loans.

I understand the policy arguments: student loans can be made without regard to present ability to repay if there is no option but to repay them. Education becomes more widely available to all.

I don’t believe we are adequately advising our children before they take on huge debt. Payments on student loans can equal or exceed a typical mortgage payment. Defer payment on the debt and the interest is added to the principle of the loan, on which more interest is charged. Employment choices and family choices are dictated by the need to repay the loan.

Our current legal standard for discharge of student loan debt, the Brunner factors, permits only the most minimal standard of living if the borrower wants to discharge the debt. There is something perverse about encouraging graduate education, then telling the borrower that if he and his family live at anything much above the poverty level, they can afford to repay the student loan.

One of my clients was a recent graduate of a very expensive private university; her degree was in art history and her debt in today’s dollars was $150,000. She was finding it difficult to get a job that would pay her $30,000. She probably hadn’t made a very good economic choice when she chose either the school or the major. Yet she was stuck with that loan for the rest of her life.

Another client was a psychologist, with a doctorate, working in his field at 52. His student loans were approximately $250,000. When he chose his field, psychologists were typically self employed, fee based professionals with earning capacity akin to MD’s When he got out of school, the field had dramatically changed; managed care had replaced private practice and annual incomes cut by 75%. Yet he was obligated to pay for an education in a field that for all economic intents and purposes was not the one he selected as a freshman.

We owe our kids more flexibility in their lives. Whether it is the kid whose interest changes over a lifetime or the economy that changes, student loans should not shackle them for the rest of their lives.

Springfield MA bankruptcy lawyer Jed Berliner discussed the criteria by which a bankruptcy judge may order a debtor’s home sold, when a non debtor has an interest in the home. The balancing of the hardships test under the bankruptcy code is unlikely, however, to protect investment or vacation property owned by the debtor and others.

Joint ownership of anything has its challenges. I have always urged clients about to pool their money to figure out, at the beginning, how they are going to effect a “divorce” of the joint ownership arrangement, when circumstances change.

One of the possible scenarios is the bankruptcy of one owner. The bankruptcy trustee wants to turn the debtor’s assets into cash for the benefit of creditors. The non debtor property owner finds himself faced with either buying the trustee out, on the trustee’s timeline, or suffering his share of the property to be liquidated as well, with whatever tax consequences or loss of future appreciation that entails.

Investors should build this risk of forced sale of property into their financial planning, rather than looking at only the best-case scenario in a business deal.

Bankruptcy lawyer Kevin Gipson’s piece entitled Your Lawyer is Your Friend only scratched the surface of the relationship between a client and a bankruptcy lawyer. His point was that the client has to share the struggle to get a bankruptcy case on file and obtain a fresh start. The first job of the client is to show up. The lawyer can’t do it without an involved client.

Filing bankruptcy under the BAPCPA amendments to the bankruptcy code requires a substantial amount of information. None of it is esoteric; all of it was at one time in the debtor’s possession.

Calling for gobs of only marginally relevant information was one strategy that creditors included in the bankruptcy “reform” legislation to deter people who needed bankruptcy relief from getting it. They claimed it was to deter fraud; in reality, they counted on the debt ridden to be disorganized, stressed, and discouraged.
My office has encountered a rash of clients lately who can’t seem to get the last little bit of information to us, or who neglected to tell us about the second job or the rent paying roommate. As Charlie Brown in Peanuts said, Arghhhhhhh!

To file a successful bankruptcy, the client has to tell the bankruptcy attorney everything about their income, their household, and all of their financial doings. The reason you hire a lawyer is to guide you through the bankruptcy maze. Even the most experienced lawyer can’t do that without the complete picture.

I tell clients that the only fact that can hurt them in bankruptcy is the one they kept from me.

If a client discloses something that puts the success of the case at risk, I will stop and discuss the issue with the client. Perhaps we wait to file, file a different chapter, or only one spouse files. Only rarely does some single fact make filing bankruptcy unwise. But if I file a case without all the facts, it’s like playing cards with only a portion of the deck.

Treat your bankruptcy lawyer like your confessor: put it all out there and let a professional find the way to bankruptcy relief.