My newest colleague at Bankruptcy Law Network, David Leibowitz, summarized my view of bankruptcy law in the new year :

• Project calm
• Work hard to hone my skills
• Share what I learn
• Stay healthy since it will be a long haul

My hopes are that hard times will reset our personal and societal values, so that “things” and personal consumption will recede in importance in favor of family, friends, and community.

Perhaps we come to understand that the things that taxes buy us are, by and large, positives:  better schools, roads without potholes, bridges that don’t collapse, decent care for the unfortunate.

Maybe even we come to value living below our means and taking responsibility for retirement.

Since my magic wand is out for servicing this  week, maybe it’s enough to hope for clients who will come organized and prepared to help me help them.

I’ve spent the last three days at the annual meeting of the National Association of Chapter 13 Trustees in San Francisco. Strewn through the convention site are banners thanking those who have contributed money to put on the gathering of Chapter 13 trustees. Those three sponsors at this event are exclusively big creditors and lawfirms who represent them.

The parties in interest in a Chapter 13 form a triangle: trustee, debtor, creditors. The trustee has obligations to both of the other parties. Debtors come in onesies and twosies. Creditors tend to be national and big money players. There is no organization of bankruptcy debtors; there is an organization of debtor’s attorneys, the National Association of Consumer Bankruptcy Attorneys. By the nature of the practices of its members, NACBA is not a big money player.
At the gatherings of debtor’s lawyers, the usual sponsors are those who want to sell something to the attendees. It’s not the opposing parties.

I don’t think that Chapter 13 trustees can be “bought” by free breakfast and afternoon snacks. But just like influence of lobbyist money on politicians, this feels uncomfortable to me as a debtor’s lawyer.

More on education efforts by the Chapter 13 Trustees.

It was a good day at my desk, if one has to work on Saturdays.

• I gave notice that one client was rescinding a $180,000 mortgage for Truth in Lending violations.
• I found three clients whose second deeds of trust can be eliminated as liens on homes because they are completely underwater.
• I sent out three Qualified Written Requests under RESPA to lenders whom I suspect have played games with the servicing on my client’s mortgages.

My conclusion about the mortgage meltdown is that there is not one universal approach to getting clients some breathing room on their mortgage debt, but there are a number of approaches that can lessen the pain borrowers are feeling, and raise the odds these people can keep their homes.

A bankruptcy court in Oakland recently rebuffed a mortgage lender who claimed it had been defrauded by borrowers who lied on the loan application. The judge agreed the debtors falsely inflated their income, but found that the lender had not reasonably relied on the false representations. The lies were not enough to make the debt non dischargeable when the lender was asleep at the switch.

The broader question in the mortgage meltdown is whether the Wall Street firms that bought these liar loans from the sleeping lenders have any recourse against the lender. Can the seller of the loan escape responsibility for selling a financial instrument of questionable value? Did the Wall Street buyer have to investigate the actual bona fides of the loans or is it entitled to rely on the lender’s representation that the loan was sound?

Street smarts suggest that Wall Street was content not to look too closely at these loans so it could pretend that all of this profitable paper was what it was puffed up to be. Under the theory of the Hill case, they, too, may be found not to have been reasonable in their reliance.

My friend Kurt O’Keefe writes about the 6 trillion dollars in home equity than has evaporated in the mortgage meltdown. When I look around me in the Silicon Valley and environs, I question just how real that equity really was. Reckless lending practices made a vast pool of people potential buyers for a limited quantity of homes in a desirable part of the world. More buyers chasing fewer homes lead to huge increases in home prices.

This “equity”, the increased value in the surrounding homes, never would have existed had it not been for mortgage lenders passing out money like flyers at a rally. It was artificial from the beginning.

The correction is painful to those who bought or borrowed at the top, but the top was a man- made illusion.

I know that those in financial difficulty are frequently not operating at their peak. But for the life of me, I can’t understand how the recipient of a summons and complaint from a California court can take from the papers only that they have a “court date”. Arghhh!

The basic outline of a collection suit is that the creditor files a complaint with the court. The court issues its summons, which validates the complaint and puts the defendant on notice that there is a legal suit pending.

The summons tells debtors plainly that they must file a typewritten answer to the complaint within 30 days of service, or the defendant may get a judgment for the relief prayed for, which is usually money.

Served with the complaint is a notice of case management conference on a given date, well after the date on which the answer is due. At the case management conference, assuming that an answer has been filed, the court will set deadlines, trial dates, etc. But none of this scheduling is necessary if the defendant has not contested the complaint by filing an answer.

Why is it that a consumer debtor grasps only the date of the case management conference, and absorbs none of the rest of the message that says clearly, in two syllable words, that one must file an answer for there to be anything for a court to decide?

I should have a cassette tape to play to tell clients that the case management conference date is meaningless if you didn’t file an answer. If you don’t have a defense to the action, that’s fine. Just don’t obsess about a date that means nothing if you didn’t take the time to read the summons and understand that filing an answer is the price of admission.

There’s more on the subject of collection suits at Bankruptcy in Brief.

I’ve often commented on the pressures in our society to spend. The US economy is fueled by consumer spending. The whole economic stimulus package is predicated on the recipients immediately spending the governmental windfall rather than saving it.

Marshall Loeb was spot-on with his Six Lies We Tell Ourselves About Our Spending. The excuse that I find most pernicious is ‘I work hard, I deserve it”. Ads fan the flames of a sense of entitlement to fine things and instant gratification. Few voices are heard suggesting that fine living comes after setting aside money for emergencies and retirement.

I see all too many clients at retirement age with absolutely nothing to live on but Social Security. The lucky ones have family that is financially stable. The unlucky are alone and living on the edge.

Read Loeb’s article, banish those excuses from your thinking, and start saving something today.

Sort of unwittingly, I got involved in one of the bigger issues plaguing bankruptcy courts recently: the claim filed in the bankruptcy by the debt buyer without supporting documentation. I objected to a claim filed a client’s case by Roundup Funding, who had never had any contact with my client prior to filing. There were no documents attached showing that Roundup was really the owner of the claim.

Roundup’s response to the objection proffered every argument suggesting it really owned the claim, except an assignment proving that it was the owner of the particular debt in question. This, it turns out, is their M.O., and as I looked, I found $400,000 in claims it had filed in other cases in just this bankruptcy division in the last calendar year.

The Chapter 13 trustee saw immediately what the issue was and supported my objection to the claim, even though the amount of money involved in this particular case was small. Small claims multiplied by enough cases, and there is real money at issue.

The United States Trustee has trumpeted lately that it is interested, not only in debtor misconduct, but in abuse by creditors. The UST responded to my letter on this issue, and professed interest. They then announced their interest in the issue at a gathering of bankruptcy lawyers, as apparent evidence that they didn’t just pick on debtors.

Come the hearing on my objection, the Chapter 13 trustee appeared and advised the judge how this seemingly small potatoes claim hearing had much larger implications. No sign, however, of the UST, who has a governmental mission, supposedly, to police the bankruptcy courts for abuse and attorneys on staff to do the work.

Roundup made a deliberate decision to withdraw its claim rather than appear in court to prove that it was entitled to file the claim. The judge and trustee discussed setting up an omnibus hearing to look at a range of Roundup claims.

Where was the UST? As I walked out of the courtroom, I saw the Assistant US Trustee sitting quietly in the back of the courtroom. Perhaps I imagined her finger in the wind, taking the measure of the situation, before doing anything.

Too often, practicing bankruptcy law feels pretty unrewarding. The money is poor, the clients often uncooperative, and the idiocy of the 2005 bankruptcy amendments overwhelming. Then there are lawyers on the other side who are mean spirited, less than honest, and indifferent about the ideals of the profession.

But I just returned from the Sacramento Valley Bankruptcy Forum imbued with a positive feeling about both my specialty and my colleagues. For two days, a number of judges and nationally known bankruptcy lawyers joined members of the local bar in sharing what they knew about the law and pushing all in the audience to a higher level of competence.
I know what it took each of the presenters to put together their 1.5 hour in the spotlight: I was one of the presenters, along with my always inspiring friends Doug Jacobs and Fredrick Clement. We worked over a period of months to think through what we could contribute on the subject of means testing to other bankruptcy lawyers.

Multiply our efforts by the 6 other panels, and you seen an enormous contribution of volunteer time by colleagues to make their competitors better lawyers. Pretty impressive.

Sometimes, it’s not so bad to be a lawyer.

I find a real irony in discussion of the economic stimulus package under consideration to give out money to consumers in the expectation that they will immediately spend it, to our general benefit. Prof. Elizabeth Warren started a discussion of the economy’s reliance on consumer spending.

Commentators and economists consider a stimulus dollar that is saved to be wasted in the equation of avoiding recession. Yet the people I see daily need some savings more than any material thing you can name. They live from paycheck to paycheck, they have nothing for emergencies much less retirement.

While I don’t buy the canard that most people in bankruptcy recklessly overspent, there is something wrong with an approach to the economy that is dependent on continuous consumer spending.

Savings needs a better publicity agent.