Bankruptcy Bits

Understanding why more people don’t walk away from their underwater mortgages

A recent report from the University of Arizona Law School’s Professor, Brent T. White addressed how homeowners are dealing with foreclosures. It was reported that although the public media reports that homeowners are increasingly abandoning their homes due to their inability to afford their mortgage payments, in fact the majority of homeowners are somehow able to keep making their payments, even if their properties are worth significantly less than the amount of their secured debts.

While logic might suggest that these borrowers would be defaulting on their loan obligations, the reality is that two strong emotional forces come into play. First, most people desire to avoid the shame and guilt of losing their home to a foreclosure sale, and secondly, they fear the unknown consequences of an involuntary sale, which may be over-exaggerated by both the lenders and the government.

This is opined to be the result of the lenders wanting to reap maximum profits and suffer minimum financial loss, even if the market conditions and legal remedies indicate that the borrowers might be much better off financially to walk away from these obligations.

This is another example of why people facing financial problems should consult with a lawyer or financial advisor who is able to independently advise them of all of their legal options.


by: Michael B. Katz, Esq.

Consumer bankruptcy filings continue at a record pace

Data released by the National Bankruptcy Research Center and the American Bankruptcy Institute conclude that consumers in the U.S. continue to face hard economic times, resulting in 126,434 new consumer bankruptcy cases having been filed in July 2009, which is over a 34% increase from the same period of time in 2008. Even comparing July’s numbers to June shows almost a 9% jump in the number of filings. The number of cases filed in July 2009 represents the largest number of cases filed in a single month since the new bankruptcy amendments became effective in October 2005.

While some “experts” say that the our country’s financial crisis has bottomed out and is now improving, the numbers disprove that for conclusion most consumers, who continue to battle the effects of high unemployment or underemployment, while trying to maintain servicing of their existing debts. It appears that the tidal wave of consumer bankruptcy filings will continue for longer than many people expected.


by: Michael B. Katz, Esq.

NYC restaurants filing bankruptcy include Tavern on the Green

In another sign of times, even the wealthy and famous are feeling the effects of the declining economy. In New York City, the owners of a well-known eating institution have sought the protection of the US Bankruptcy Court in the Southern District of New York. The 75 year old Tavern on the Green filed Chapter 11 after its lease was terminated by its present landlord, the City of New York, who has granted a new 20 year at that location to another restaurant, the owners of Central Park Boathouse, commencing January 1, 2010.

Tavern on the Green continues to operate while in Chapter 11, but has said that it may auction off the restaurant’s name, which it claims has a value of $19,000,000. Even with an auction sale, it may not realize enough to pay its creditors in full.

In the misery-loves-company category, another well-known eatery has also filed bankruptcy in NYC. Opened in 1917, the Cage de Artistes closed its doors and filed Chapter 7, not even attempting to reorganize. It was reported by NDP Group, a market research company, that over 500 restaurants had closed this year in NYC.

By: Michael B. Katz, Esq.

Consumer bankruptcy filings continue at a record pace

Data released by the National Bankruptcy Research Center and the American Bankruptcy Institute concludes that consumers in the U.S. continue to face hard economic times, resulting in 126,434 new consumer bankruptcy cases having been filed in July 2009, which is over a 34% increase from the same period of time in 2008.

Even comparing July’s numbers to June, shows almost a 9% jump in the number of filings. The number of cases filed in July 2009 represents the largest number of cases filed in a single month since the new bankruptcy amendments became effective in October 2005.

While some “experts” say that the our country’s financial crisis has bottomed out and is now improving, the numbers disprove that conclusion for most consumers, who continue to battle the effects of high unemployment or underemployment, while trying to maintain servicing of their existing debts. It appears that the tidal wave of consumer bankruptcy filings will continue for longer than many people expected.


by: Michael B. Katz, Esq.

If I file bankruptcy, do I need to go to court?

It is understandable that most people filing bankruptcy are nervous about the bankruptcy process, including the need to appear in Court before a Judge. Luckily, a vast majority of consumer bankruptcy filers never step foot in a Courtroom.

Procedurally, after filing a bankruptcy, debtors are required to attend a short administrative meeting with their lawyer and a trustee (who usually is also a lawyer, hired to make sure there are no excess assets that would be available to pay creditors.)  This meeting, (called a 341 Meeting of Creditors,) held about 30-days after filing bankruptcy, is not presided over by a judge, and is usually only a few minuets long.

Filing bankruptcy can be a stressful event for debtors, however appearing in Court is not something most need to be worried about.

by: Justin H. Dion, Esq

The Berman Hook Theory – planning the timing of filing bankruptcy

 There are statistics that evidence that a substantial number of Chapter 11 plans fail, and that even in cases in which a plan is confirmed, the reorganized debtor fails shortly after confirmation.

An explanation for the phenomenon is contained in a theory that has become known as "The Berman Hook." Envision a hook: a line straight down, a perpendicular line at the bottom with another line headed up. Think of a fishhook.

The Berman Hook Theory incorporates the previously expressed viewpoint that timing can be everything. Like "location, location, location," the manta is, "timing, timing, timing" for debtors.

The theory is simple: during the period of declining business, the entity survives by using its capital (cash, inventory, accounts receivable) and available credit to survive. Debt is incurred and continues to be incurred during the downturn and at the leveling off phase. The cash flow and capital crisis really occurs when the business turns around and new capital and credit are required for new inventory, (or to finance the production of new product,) and to finance the accounts receivable created by new sales. The real crisis occurs when capital is depleted, debt is the highest and demands for capital, cash and credit are newly needed. A classic scenario.

The theory suggests that the filing of a petition in bankruptcy provides little long term relief when filed in the downward spiral but is best exercised when there is a realty of a fresh start, i.e. when relief from existing debts can be most beneficial. A successfully reorganized debtor is relieved of the burden of incurring additional debt and has the opportunity to engage in business when there is an opportunity to succeed. A simple, pragmatic theory.

And the concept is equally applicable to individuals. Timing is everything. You should not seek recourse in Bankruptcy Court until you have bottomed out. By means of example, you’re best advised not to file before you have the operation and will be out of work for a prolonged time or are unemployed with no early prospect of employment. Timing can be everything.

While the theory is valid, there are, of course, unusual circumstances under which you don’t have the luxury of choosing the time.

by: Eugene B. Berman, Esq.

Timing is everything when filing bankruptcy.

We are all aware that the timing of the filing of a petition - voluntary or involuntary - determines the time frame within which preference, fraudulent conveyance, and other claims can be asserted. A debtor may well delay a filing to protect a purported preference to a "friend" or to avoid claims ascertain insider preferences. Or visa versa: a petition may be filed to preserve the 90-day preference period so that an action can be undertaken. The consequences of when to file is one of the major considerations to be addressed by any entity contemplating the filing of bankruptcy.

One of the considerations frequently overlooked by debtors and their counsel is consideration of the most auspicious time to file for them. It is suggested that all too often a debtor files prematurely...at a time that things are bad but will probably get worse. An individual should not file when he loses his job...he should wait until he gets a new job. A business should not file at the first signs of trouble, it should wait until there is the beginning of a turn around.

The lesson is to bottom out before seeking relief in bankruptcy.

By: Eugene B. Berman, Esq.

New trustee regulations regarding 341 non-English translation

When attending a 341 Meeting of Creditors with non-English speaking clients, the local practice dictated that the client bring their own translator (typically a friend or family member) to translate at the meeting. Under the U.S. Trustee’s recently implemented translator service program, this practice is no longer permissible.

Specifically, the protocol is to advise the Chapter 7 trustee that translation services will be needed prior to the 341 meeting. The trustee will then arrange to call a translation service phone number(in which 171 languages are available)at the 341 meeting so that an official translator will facilitate communication between the debtor and trustee.

This service provides accuracy and integrity to ensure that the bankruptcy debtor’s testimony is accurate and honest. In addition, it alleviates the need for debtors to involve a friend or family member in their personal financial affairs.

By: Justin H. Dion, Esq.

Does it matter if a creditor gets a lien before I file bankruptcy?

If a debtor does not pay an unsecured debt, the creditor has several options. Specifically, after calling and generally harassing the debtor, the creditor may then pursue the debtor in court. If the creditor obtains a judgment against the debtor, the creditor may then look to put a lien on the debtor’s (i) bank account; (ii) car; (iii) real estate; and/or (iv) attach the debtor’s pay stub. Although a subsequent Chapter 7 bankruptcy filing will discharge the underlying debt, the debtor may wonder if the involuntary lien can subsequently be removed. Debtors will be happy to know that that the bankruptcy code provides them relief. Specifically, the code allows the debtor to file a Motion to Strip an Involuntary Lien in order to allow the debtor to get rid of the debts, keep their assets free of liens, and get a fresh financial start.

by: Justin H. Dion, Esq.

Medical bills - one of the key reasons people file personal bankruptcy

Harvard University has reported a study finding that medical bills and related health care expenses and problems, (such as loss of employment for the ill and their family caretakers,) were a major cause of personal bankruptcy in 62% of all consumer cases filed in the calendar year 2007.

Many of these people did have health insurance, but it was not enough of a safety net to keep people from falling into a financial hole. A combination of co-pays, non-covered services and high deductibles all combined to add to these people’s problems.

While often not the sole cause of people’s financial woes, the medical situations were often the burden that pushed people over the edge. These studies are adding support to the momentum for Congress to pass some form of heath care reform package, which would hopefully address the issues of co-payments, deductibles, out-of-network charges and caps on maximum annual benefits, thereby easing the burdens on the average working family.

by: Michael B. Katz, Esq.