I am inching closer to presenting a 2 + hour class for attorneys new to bankruptcy on the bankruptcy means test.

My target date is mid October, mid way between my speaking engagement for the Midwest Bankruptcy Institute in Kansas City first of October, and my two presentations at the NACBA Fall Workshop in November.

You’d think I’d tire of hearing myself talk- or would you<g>.

The news is usually a source of ideas for the Soapbox, second only to clients.  The news this month echos all too familiar themes.

• Notices of foreclosure sales must be single handedly supporting my local newspaper, the Mercury News.
• AP and the NYTimes write with amazement that mortgage loan modifications aren’t happening.
• The Mortgage Bankers write letters to the editors opposing a bankruptcy solution to the housing debacle.

Meanwhile, the average income of people through my door  has to have increased $75K a year in the past four months.  Bankruptcy now looks good to people making well over $200,000 a year.

The formerly well to do are following more and more long established small businesses that have hit a wall.

The news tells us the recession is ending;  if that’s so, the casualties will persist long after  the economy is supposedly recovered.

We were exploring the timing of a bankruptcy case, trying to live free in the house to be foreclosed while avoiding a garnishment on the working spouse’s wages.  I was thinking about comparing the cost of a garnishment to the cost of renting a house:  the client was thinking that a wage garnishment was forever!

Not so.  Bankruptcy eliminates the right of any creditor to continue to collect on its debt.  The prohibition requires that the creditor with a wage garnishment instruct the sheriff to cease withholding money from the debtor’s wages.

Further, the debtor may be able to recover from the creditor funds garnished in the 90 days before the bankruptcy case was filed, as a preference.  (My experience is that preference actions over sums this small are seldom economic, however.)

The client was also worried that multiple judgments could result in multiple garnishments at the same time.  Again, not so.  California law permits only one garnishment in place at a time and caps what the garnishing creditor can take from each paycheck at 25% of after tax wages.

The world was a lot less scary place for the client after we found and destroyed another bankruptcy myth.

I saw another facet of the underwater home mortgage when my client was considering whether to cure the mortgage arrears or walk away.  If he cannot hang on to the property until it regains the $85,000 negative, he will not be able to sell the property in the future without the active cooperation of the lender for a short sale.  After our current experiences with lenders and underwater properties, who wants to bank on that?

The homeowner was a single man and the property was a one bedroom one bath condo.  Life wouldn’t have to change much before a 1 and 1 is too small for a married man.  He’s filing bankruptcy now and will take the credit hit and get on the way to a fresh start.

If he elects to keep the condo and cure the arrears, he sets himself up for another possible credit hit when he needs to sell a property still underwater.

My Bankruptcy Law Network colleague Craig Andresen reported on a decision that found large payments on secured debt, including some for boat and RV, were permissible deductions in the means test.  The UST had argued that the debtors were abusing the system if they didn’t stop paying on the secured debt in order to fund a Chapter 13 plan.

Note that the UST’s argument was that the debtors should stop paying on the secured debt in order to pay other creditors, the unsecureds.  What business does the UST have in trying to further the interests of one set of creditors over another?  What makes the unsecured creditors more deserving than the secured creditors?

You wonder how the UST determines when a house payment is excessive, in its view.  Does the title make one all knowing?

In the crazy world of BAPCPA, hurray for a judge who reads the (idiotic] law and applies it as written.

Senator McCain this morning on Meet the Press reprised the Republican view of the approach to stimulus:  tax cuts for small businesses.  I thought about the small businesses I had seen in the past couple of weeks.  Not one of them was paying income taxes, and their expenditure on payroll taxes was small, because they’d cut back on  employees. For the very small business, I don’t  see taxes as the culprit.

Credit card merchant fees are a much bigger piece of the small business expense picture than are taxes for most of my clients.  Each merchant pays a percentage of each credit transaction to the card issuer.   7-Eleven store owners are petitioning  Congress for regulation of the fees charged merchants  by the card issuers .

Everywhere you look you see the impact of credit cards on the economy.  Often it’s suit by American Express that brings a small business owner to my office.  Or the businessman makes a list of their credit card debt and the interest rates after the recent round of increases and realize that they can never pay off the debt at 28% interest.

I’m certainly not an economist and don’t have a Moran Plan for reinvigorating the economy, but the people I see in trouble aren’t there because of their tax burden.

Mom and pop businesses are beginning to dominate the list of my new clients over the past 30 days.  Retail businesses, construction, internet sales, real estate,  all are reaching the end of their ropes.  Distressingly,  these include a high percentage of long running, well established businesses.

Often, the business has been supported on the credit cards of the business owner, so the solution is a bankruptcy filing for the shareholders, freeing the business of servicing that debt.  I can’t tell if that will be enough, but often a small business can survive when relieved of the debt service from the past.

The trend, though, is ominous when you look at the economic health of the country.

Callers to my office often expect a free consultation.  Somehow, bankruptcy attorneys got in the habit of so undervaluing what they do that they gave it away for nothing. I have always swum up stream on this one: there has always been some sort of charge for my time, usually discounted, but a charge nonetheless.

But maybe I’ve been wrong.  A client came to me recently after a free consultation with another bankruptcy lawyer.  I was interested in what had occurred that the client and attorney didn’t bond.  I probed.  Come to find out, the free “consultation” was 15 minutes long and the client was instructed to bring no documents!

In my book, that’s not a consultation, that’s an introduction to the lawyer and sitting through a sales pitch.  So maybe what others have been giving away isn’t really legal advice but marketing.

Like it or not, bankruptcy involves the sweep of a client’s life, their living situation, financial history, goals, debts, assets, and financial interconnections with others.  I have trouble getting that information, analyzing it, and making recommendations to the client in less than an hour, and often two hours.

The initial consultation is some of the best work I do and the most valuable.  I charge for it because I invest real work in that meeting.  I want the client to leave with real information and an overview of their choices.

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.