Federal law protects Social Security benefits from claims of creditors.  That’s why I often tell those who live on Social Security and/or pension income that they don’t need a bankruptcy discharge, since their income sources are protected by federal law (Social Security) and California law (pensions).

So I was surprised by a recent bankruptcy court decision out of Minnesota ( In re Todd Carpenter:  2008 WL 4567128 (Bankr.D.Minn.)) that held that a debtor who elected to use the exemptions in the Bankruptcy Code forfeited the protection of Social Security law for a substantial back benefits check.

The decision acknowledged that other courts had held differently.  And in California, since the state has “opted out” of the exemption system found in the Bankruptcy Code, this decision should have no effect in my cases.

Yet it is a heads up to lawyers to keep thinking about these issues, since things you take for granted as fixed may not be a certain as you thought.

The flat prohibition on attorneys advising clients to incur new debt in contemplation of bankruptcy is unconstitutional, says the 8th Circuit Court of Appeals.  Thank you.

Hostility to bankruptcy lawyers (and debtors) permeates the “new” bankruptcy law.  This particular provision required lawyers to identify themselves as “debt relief agents” in advertising and tried to prevent lawyers from pointing out ways in which a new loan or resort to credit might benefit the client in legitimate ways.

I’m now free to tell the client openly that if you have no loan on your car, under the present BAP decision on the application of the means test, you lose the “ownership allowance” expense.  That allowance in California is $489 a month.  If you have a loan secured by the car, you get the allowance, regardless of the balance owed on the car.

I have long wanted to tell my clients that it makes sense to borrow against your car for any purpose in order to get the benefit of the ownership allowance.  Borrow to pay for your bankruptcy, borrow to put money in an IRA, or to get health insurance, or your car tuned up.  Whether the loan originated in the purchase of the vehicle or for some other purpose, the existence of the lien entitles one to the allowance according to the 9th Circuit BAP.

Often, my clients are driving junker cars. Some have respectable credit scores, although their balance sheets are a mess.  A replacement vehicle  will give them reliable transportation going forward.  Yet Congress wanted to limit my ability to discuss the range of options with my client.  Somehow, Congress seems to have a slippery hold on the truths found in the First Amendment.

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

The enormous devastation wrought by Katrina has prompted a push to delay implementation of the harsh new bankruptcy provisions or to exempt victims of disasters from its more burdensome provisions.

What Congress missed, or didn’t care to consider, when it enacted the 2005 bankruptcy bill, is that the lives of most bankruptcy debtors are just paler relicas of the hurricane victims. Outside the hurricane’s wake, these flattened financial lives are found one a block, rather than for blocks on end. But the sense of fear and dispair about their finances is not dissimilar.

When we remember that nine out of ten bankruptcy debtors have experienced job loss, divorce or significant illness, we’re left with the sense that these folks are also victims of things largely out of their control. Yet the “leadership” in Congress waves the banner of “personal responsibility” while marching to the tune of the credit industry.