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Study Finds 2005 Bankruptcy Reform Act Hasn't Helped

"Creditors have done worse" since the bankruptcy law was amended in 2005 to enhance recoveries, according to a study by University of Maine School of Law Professor Lois R. Lupica. In her study, funded by the American Bankruptcy Institute, Lupica said the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was intended to prevent "the discharge of debt consumers could afford to pay."

"The theory that there are can-pay debtors lurking in the shadows was not confirmed by the data," Lupica said in an interview.


The professor said the 2005 law was designed to compel individual bankrupts to pay more by restricting access to Chapter 7, where creditors typically get nothing. The theory, according to Lupica, was that more consumers would be forced into Chapter 13, where creditors are often paid a portion of their debts through payment programs spread over about five years.


Lupica said she wasn't surprised by the findings.  "The data confirmed my intuition developed from speaking with hundreds of bankruptcy trustees and judges," she said in an interview.  We are not surprised either.  The revisions to the Bankruptcy Code have made it more difficult and expensive to file, but not more fair.  Many who could have filed Chapter 7 before the amendments cannot file Chapter 7 now and cannot afford a Chapter 13. We are hoping future amendments will fix some of these problems.

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Chapter 7 Lien Stripping

For the foreseeable future, second mortgages can now be removed in a Chapter 7 bankruptcy.  Since the 1992  Supreme Court case of Dewsnup v. Timm  it has been possible to remove a second mortgage from real property in a Chapter 13 when the first mortgage exceeds the value of the property.  Last year the Eleventh Circuit Court of Appeal ruled in the unreported case of McNeal that a 'lien strip' of a second mortgage is possible in a Chapter 7.


Beginning in January the bankruptcy judges in the Southern District of Florida began allowing lien stripping in Chapter 7 cases when the lender did not object.  If the lender appeared and objected the decision was put on hold awaiting a further ruling from the Appellate Court, as the Eleventh Circuit Court was reconsidering the McNeal decision.


The rehearing of McNeal was delayed by the fact that the lender in that case, GMAC, was itself involved in a bankruptcy proceeding in New York. The New York Bankruptcy Court recently granted stay relief to the Eleventh Circuit and it has now formally published the McNeal opinion.  It appears the Court intends to stand by that decision and one of our local bankruptcy judges has informed me that the judges in the Southern District are now granting motions to remove second mortgages in Chapter 7.


However, the Seventh Circuit Appellate Court ruled in July that lien stripping in Chapter 7's will not be permitted in the Seventh Circuit.  This means that at some point the issue will go to the U.S. Supreme Court.  Until then we are seeking to remove second and third mortgages in Chapter 7 whenever possible.  Read more at http://www.flalawyer.com/news.htm.  


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Good TV Special on Deficiency Claims

7 News InvestigationsChannel 7's Patrick Fraser aired a good segment on deficiency judgments in which I played a small part.  We expect to see many more deficiency claims in the future, particularly on the many second mortgages out there that are completely underwater.  See the special report at http://www.wsvn.com/features/articles/investigations/MI99178/hitting-home-again/.
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Detroit Files for Bankruptcy Protection

USA Today -

DETROIT -- The city of Detroit filed for Chapter 9 bankruptcy protection in federal court Thursday, laying the groundwork for a historic effort to bail out a city that is sinking under billions of dollars in debt and decades of mismanagement, population flight and loss of tax revenue.

The bankruptcy filing makes Detroit the largest city in U.S. history to do so.

The filing begins a 30- to 90-day period that will determine whether the city is eligible for Chapter 9 protection and define how many claimants might compete for the limited settlement resources that Detroit has to offer. The bankruptcy petition would seek protection from creditors and unions who are renegotiating $18.5 billion in debt and other liabilities.

The filing is particularly troubling as Detroit has long represented the city where a factory worker could enjoy the American dream.  It is not Wall Stree, but Main Street USA.  We will be following this story to see how workers and retirees are treated in this case.

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Supreme Court overturns Defense of Marriage Act

The Supreme Court issued rulings on two highly-anticipated cases on gay marriage June 26th. By 5-4, it ruled the federal Defense of Marriage Act, which defines marriage as a union between one man and one woman, is unconstitutional.

The 1996 Defense of Marriage Act, or DOMA, was signed into law by President Bill Clinton, barring federal recognition of same-sex marriages for purposes such as Social Security survivors' benefits, insurance benefits, immigration and tax filing.In a separate ruling, it declined to take on the broader issue of gay marriage. The court decided that supporters of Proposition 8, a 2008 ballot measure that had outlawed same-sex marriages in the California, did not have standing to bring the case to the court.

This means that same-sex married couples can now file a joint bankruptcy.  Many jurisdictions have ignored the Defense of Marriage Act in recent years and allowed such filings.  The Supreme Court ruling eliminate any question.

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Many Doctors Must Now Seek Bankruptcy Protection

See the informative article on CNN Money on Doctors filing for bankruptcy.  http://money.cnn.com/2013/04/08/smallbusiness/doctors-bankruptcy/index.html.
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Dionne Warwick file for Bankruptcy Protection

Los Angeles (CNN) -- Dionne Warwick, one of the most recognizable pop voices of the 1960s, filed for bankruptcy last week, citing more than $10 million in tax debt dating back to 1991.

"Due to several consecutive years (the late '80s through the mid-'90s) of negligent and gross financial mismanagement, Dionne Warwick has realized the current necessity to file personal bankruptcy," Warwick publicist Kevin Sasaki said in a statement to CNN Tuesday.

Warwick, 72, made hits out of many Burt Bacharach and Hal David songs, and won five Grammys in a 50-year career. The singer is down her last $1,000 in cash and only owns furniture and clothing worth $1,500, according to the Chapter 7 filing in New Jersey.

This just shows that no one is exempt from financial problems in this difficult economy.

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Bankruptcy Filings Drop Dramatically in Broward

Sun Sentinel March 3, 2013. 

Bankruptcy filings plummeted 21 percent in Broward County from a year ago while they only declined 6 percent in Palm Beach County  and basically stayed the same in Miami-Dade, according to U.S. Bankruptcy Court statistics released Friday.

It's another sign that Broward's economy continues to improve while Palm Beach County's moves a bit slower and Miami-Dade's continues to stall, said Jorge Salazar-Carrillo, an economics professor who directs the Center of Economic Research at Florida International University.

"Something is working in Broward in attracting new business," he said. "Job creation has continued in Broward but stopped in Miami-Dade and slowed in Palm Beach County."

That has affected many consumers in Palm Beach and Miami-Dade counties struggling to find work to pay bills, Salazar-Carrillo said.

The unemployment rate for Broward was 6.7 percent in December, almost 2 points better than it was a year ago and one of the better rates in Florida, according to the latest state data available in January. Meanwhile, Palm Beach's was at 8 percent after being at 9.8 percent a year earlier, the Florida's Department of Economic Opportunity reported.

Looking ahead, the number of bankruptcy cases may go up later this spring throughout South Florida because some people are waiting to file until after they get their federal tax refund checks.

See the entire article by Donna Gehrke-White at http://www.sun-sentinel.com/business/fl-bankruptcy-broward-20130301,0,3491962.story.

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Americans see biggest monthly income drop in 20 years

NEW YORK (CNNMoney)  Americans saw their income drop so dramatically in January that it marked the deepest one-month decline in 20 years.

Personal income decreased by $505.5 billion in January, or 3.6%, compared to December (on a seasonally adjusted and annualized basis). That's the most dramatic decline since January 1993, according to the Commerce Department.

It's something of a combination of one-time events, though.

 Monthly income was unusually high in December because companies paid out early dividends to avoid upcoming tax hikes. Companies like Wal-Mart, Oracle and Costco paid special dividends to their shareholders at the end of 2012, instead of waiting until 2013.

The expiration of the payroll tax cuts also played a role in January's drop, because most workers have to pay 2 percentage points more in taxes this year. The Commerce Department's "personal income" calculation subtracts out individuals' contributions to government social insurance programs like Social Security, which are funded by the payroll tax.

Excluding those special factors, the Commerce Department estimates that after-tax income actually increased 0.3% in January.


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Tax Foregiveness Bill About to Expire

If the Mortgage Forgiveness Debt Relief Act of 2007 does not get extended by Congress by the end of the year, homeowners may have to start paying income taxes on the portion of their mortgage that is forgiven in a foreclosure, short sale or principal reduction.

That means if someone owes $150,000 on their home and it sells for $100,000 in a foreclosure auction, they could owe taxes on the remaining $50,000. For someone in the 25% tax bracket, that would mean paying $12,500 in taxes on the foreclosure. Similar taxes would apply for amounts that were forgiven in short sales and principal reductions.

"Allowing the act to expire would harm these families and their communities and it would run counter to current loss mitigation efforts," wrote Tim Pawlenty, president of the Financial Services Roundtable, Mike Calhoun, president of the Center for Responsible Lending, and John Dalton, president of the Housing Policy Counsel in a letter to the Senate Finance Committee.

So far, though, very little has been done to extend the act as Republicans and Democrats continue to butt heads over the fiscal cliff.  Note, however, that other options my still exist to avoid this tax.  A bankruptcy filing discharges the debt, thereby preventing the bank from foregiving the debt.

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