Dealing With This Economy
December 28, 2012
We have been busy at the firm helping our clients deal with this difficult economy. We have had some success recently filing Chapter 11's for a few individuals with multiple properties. We have filed several Chapter 11's for condominium associations and many for small businesses. We have seen a drop in the number of Chapter 7 cases due largely to the drop in foreclosure filings. However, the foreclosure attorneys we know predict that the next waive of foreclosures is coming soon. We expect to see a corresponding increase in Chapter 7 filings. Read more on our Blog. Let us know if we can help you with your financial issues.
How will our Drop off of the Fiscal Cliff Affect you?
December 29, 2012
Bankruptcy filings were down locally for November and December 2012 - see the Sun-Sentinel article on this. We expect the fall off the cliff to prompt another increase in filings. This sluggish economy cannot rebound until Washington gets it act together. Until then many South Floridians will continue to suffer and many will seek bankruptcy protection.
Congresses' inaction includes its failure to extend the Mortgage Forgiveness Debt Relief Act which eliminates the tax on the portion of your home mortgage that is forgiven or written off in a short sale or foreclosure sale. See our Blog. A bankruptcy discharge eliminates this tax.
Almost all of us will see our tax bill increase. There is a good article on this on CNN Money. A slowing of the economy will hinder job growth and the real estate recovery, something that has hit us particularly hard in South Florida. Many will also lose unemployment benefits. We suggest you hope for the best but plan for the worst. Let us know if we can help.
The Local Bankruptcy Scene
January 2, 2013
In the Southern District of Florida, our firm has seen an increase in the efforts of the local Trustees to recover money from Chapter 7 debtors. An individual is entitled to certain exemptions of personal and real property in a bankruptcy action. Property that is not exempt can be taken by the Trustee. Historically, if an individual was over their exemption limit by a small amount the Trustee would take no action. However, our firm has observed an uptick in the willingness of the trustees to pursue non-exempt assets. We have seen greater scrutiny of values placed on furniture. Most trustees now use NADA retail value for an automobile and will no longer accept a trade-in value. If you are considering filing for bankruptcy protection, it is imperative to consult with a bankruptcy attorney who can explain your options and offer pre-bankruptcy planning to avoid these common pitfalls.
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.
Good TV Special on Deficiency ClaimsChannel 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/.
Detroit Files for Bankruptcy ProtectionUSA 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.
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.
Many Doctors Must Now Seek Bankruptcy ProtectionSee the informative article on CNN Money on Doctors filing for bankruptcy. http://money.cnn.com/2013/04/08/smallbusiness/doctors-bankruptcy/index.html.
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.
Bankruptcy Filings Drop Dramatically in BrowardSun 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.
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.
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.
U.S. sues Wells Fargo for Mortgage Fraud
WASHINGTON (CNNMoney) -- The U.S. government sued Wells Fargo over claims that the bank made reckless home mortgage loans for a decade. In a lawsuit filed Tuesday in Manhattan's Southern District of New York, the government accused Wells Fargo of "reckless underwriting" and fraudulently approving thousands of home loans that caused large-scale losses for the government. The Federal Housing Administration paid out millions of dollars in insurance claims on defaulted loans that were falsely certified by Wells Fargo, according to the complaint.
The complaint said the "extremely poor quality of Wells Fargo's loans was a function of management's nearly singular focus on increasing the volume of FHA originations -- and the bank's profits -- rather than on the quality of the loans." The bank made the violations worse by "hiring temporary staff to churn out" those loans.
We see this development as increibly ironic as we have been complaining about Wells Fargo's actions in the bankrutpcy arena where it claims to be policing accounts for the court. Just today I received one of Wells Fargo's now infamouns letters advising that they had frozen a customers bank account withour first reviewing the bankruptcy file. The letter states, "Wells Fargo Bank, N.A. ("Wells Fargo") has received notification of your client's bankruptcy filing. Wells Fargo is required by operation of Section 542 of the Bankruptcy Code to act in good faith to prevent the payment of pre-petition debts from a non Debtor in Possession account." Section 542 does not require a bank to unilaterally freeze an account and no other bank takes this kind of action or thinks that it is the 'Bankruptcy Police'. In the past we have had cases where Wells Fargo froze an account of a completely different entity other than the debtor by mistake, another where it bounced the check the Debtor had written to the Chapter 7 Trustee, and another where it bounced the check written to a Debtor in Possession account. Maybe this new development will cause Wells Fargo to focus on more relevant issues such as addressing the damage it has caused to so many families.