2011 ASU Sports & Entertainment Law Conference
Yours truly will be a panelist at the upcoming ASU Sports & Entertainment Law Conference to be held November 5, 2011, in Tempe. I will be on a panel of several other attorneys discussing the ever-changing topic of protecting intellectual property rights online. Lawyers may earn CLE credit and others may just find the topics interesting.
Complete conference information is available online here: http://www.sportsandentertainmentlawblog.com/2011-fall-conference/.
Filing Bankruptcy When You Work for a Bank
What do you do if you need to file bankruptcy but you work for Bank of America or Chase, Wells Fargo, or any bank for that matter? Even worse, what if you owe your employer money? This question comes up rather often. I have represented a number of bank employees, everyone from tellers to loan officers. These employees are worried about adverse employment actions being taken against them based on filing a bankruptcy. It is also not so uncommon for me to represent employees of the major credit card companies–e.g. American Express, VISA, MasterCard, MBNA, etc.
So if you work for a bank or a credit card company, can you file bankruptcy?
The answer is “yes.”
The Bankruptcy Code provides protection for employees from discrimination based on them filing a bankruptcy. Section 11 U.S.C. 525(a) of the Bankruptcy Code defines how government employers may act. That section states, in relevant part, that a “governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title….” 11 U.S.C. § 525(a). Section 525(a) prohibits both discrimination in hiring and discrimination with respect to existing employment. Thus, not only would it be unlawful for a government employer not to hire someone based on a bankruptcy filing, it would be unlawful for a government employer to fire or take any adverse employment action based on an employee’s bankruptcy filing.
That brings us to the banks and credit card companies who are private employers. Section 525(b) is a little weaker in its protections, providing only that private employers cannot discriminate with respect to existing employees. There is no prohibition on discrimination during hiring. That means a bankruptcy filing may prevent you from being hired at Bank of America, Chase, Wells Fargo, or any other bank or credit card company. That same bankruptcy filing, however, cannot be grounds for any adverse employment action if you are already working for one of these private employers. Section 525(b) provides that ”[n]o private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title…solely because such debtor or bankrupt…” filed for bankruptcy protection. See 11 U.S.C. § 525(b). In a recent 3rd Circuit opinion, Rea v. Federated Investors, a Circuit Court held that Congress made its intent clear by the plain language of the statute. Government employers cannot discriminate in hiring but private employers may choose not to hire someone because they have filed for bankruptcy protection. In Rea, the appellant Dean Rea brought suit against Federated Investors after he had interview for a job through a placement agency. He was later informed that he was not hired because of a prior bankruptcy filing. Rea sued under Section 525(b) claiming that the statute should be read broadly to prohibit private employers from discriminating in hiring. Both the District Court and Appellate Court disagreed, holding that only government employers were prohibited by Section 525(a) from discriminating in hiring.
Thus, while neither the government nor any bank or credit card company could lawfully discriminate with respect to employment because an employee has filed bankruptcy, a private employer may refuse to hire someone based on a prior bankruptcy filing. Based on my experience, banks and credit card companies respect the law and do not take adverse employment actions based on an employee’s bankruptcy filing–even when the employee owes a debt to the employer. There is never any guarantee that an employer will not act irrationally. The Bankruptcy Code, however, provides a remedy in the form of a cause of action for wrongful termination in the event a private or public employer does not respect the law.
Arizona Advance Directives Registry
So you have listened to my advice and created your Living Wills and Healthcare Powers of Attorney. Wonderful! The question I always get next is:
“But what do I do with the documents?”
First, you should keep the originals in a safe place (or better yet have your lawyer keep them in a fireproof safety deposit box for you). Second, and most importantly, you should have them registered with the Arizona Secretary of State so that any medical provider can verify your wishes by consulting the registry. As you might imagine, if you are rushed to the emergency room you are unlikely to have all of these documents in your possession. The Secretary of State has a registry that hospitals routinely consult to determine your wishes. The Secretary of State will also issue you a card that you can carry in your wallet to alert emergency personnel that you are registered. The best part about this service is that it is absolutely 100% free! Everyone should take advantage of this free service, which is paid for by your tax dollars. Here is the website where you can read about how to get registered.
Most lawyers charge for registering their clients for this service but you can absolutely do it yourself for free. I also offer this service for free to all of my estate planning clients.
Living Wills, Durable Powers of Attorney, & Advanced Healthcare Directives
If the above legal terms do not sound familiar to you, it probably means that you don’t have these documents. Here is what they are and why you need them.
Living Will
A Living Will is a document intended to instruct future healthcare providers and your family about how you want to be cared for in the event you are ever incapacitated or in a persistent vegetative state. No one wants to think about this possibility, but we should all have one of these documents filled out. If you are ever in a car accident or suffer a debilitating stroke, it is important that your loved ones know your wishes in advance. Living wills eliminate doubt as to your wishes.
Durable Power of Attorney
A Durable Healthcare Power of Attorney is used to appoint someone as your decision maker in the event you are unable to make your own medical decisions. In some ways, this can substitute for a Living Will but I suggest you have both just in case the person you appoint pre-deceases you or is otherwise unable to serve as your attorney-in-fact. Every married person, at the very least, should appoint his or her spouse–that is assuming you are on good terms with your spouse and trust his/her decisions. You could also appoint a son or daughter or even friend. The important thing is that you pick someone you trust and who knows you well enough to make the right decisions for you.
Advanced Medical/Healthcare Directive
An Advanced Healthcare Directive (also called a Pre-Hospital Medical Directive) is essentially a “do not resuscitate” document used to inform hospital staff that you do not wish to have your heart or lungs restarted in the event they fail. The Arizona Attorney General provides a sample. You must print this document on orange paper and attached a recent photograph. You must also carry it with you at all times.
Free Forms Available Online!
The good news is that in Arizona, you do not even need a lawyer to draft these documents. The Arizona Attorney General provides free forms for all Arizona residents to use, and they are very simple. Here is the link. Most lawyers charge to prepare these documents but you can absolutely do them yourself now that I am spilling the beans on the free website.
Please take some time and think about putting together one or more of these documents for you and your loved ones. If you prefer to have a lawyer do them for you, I can certainly be of assistance.
How can I pay for a bankruptcy when I am broke?
This is quite possibly the most frequently asked questions I hear. After all, if you cannot pay your debts and need to file a bankruptcy, where are you supposed to find the $1k-$2k it will cost to pay your bankruptcy attorney?
Here are some things to consider with regard to paying for bankruptcy.
If you have no money at all, no job, and no property that you could sell to pay your attorney’s fees, you may not need a bankruptcy.
A bankruptcy eliminates debts and protects you from creditors. In some situations people literally have nothing to their name and no income. We call these people “judgment proof” because even if they end up getting sued by a creditor, the creditor will simply be pounding sand with their paper judgment unable to collect. Thus, if you don’t have any money or property, then you really do not need a bankruptcy. After all, having judgments against you only starts to impact your life when you do have money or property you want to protect. Truly judgment proof people are rare, however. Most people have a job with wages to garnish, some money in their bank accounts at one point during the month (before their bills are paid), or they have the prospects of future income down the road. These people likely can afford a bankruptcy and I have provided some tips below on where to find the money.
Stop paying your debts and start paying your attorney.
One thing you will learn after meeting with a bankruptcy attorney is that we tell you strange things. For one, we usually will tell you not to pay your credit card bills. If you are going to file a bankruptcy anyway and discharge these debts, there is really no reason to pay them. Some people find that they have some money available after they stop paying their debts. This money can be put towards a future bankruptcy.
Get on a payment plan to get your case started.
I cannot speak for all bankruptcy lawyers, but I offer payment plans for clients without sufficient liquid assets. Generally, payment plans are treated sort of like “lay away” used to be treated at department stores. You pay a little each month towards your case and when your case is fully paid, you will be able to have it filed with the court. Bankruptcy attorneys are considered “Debt Relief Agencies” under the Bankruptcy Code and, therefore, are prohibited from extending credit to you. A “lay away” type payment plan is, however, usually allowed.
Depending on what state you live in you may have to spend down your bank account prior to filing or you will end up losing some of that money in the bankruptcy. Don’t wait until you have $0 in your account. Plan ahead.
For example, in Arizona individuals are only allowed $150 in one bank account on the day they file (married couples get $300). If you have a couple thousand dollars saved as your “last resort” lifeline money, this is the time to use it. In fact, when a married couple in Arizona files a bankruptcy with even $1500 in the bank, the Trustee will take $1200 to pay their creditors. It is much better to use that money to pay your attorney.
Ask for help from relatives and social groups.
Filing a bankruptcy is not very expensive if you think about it. For a very modest fee you will be relieving yourself of thousands and sometimes millions of dollars in debt. Family and friends can often help pay the legal fees to get you back on your feet. In some instances I have even seen churches gather donations to help one of their members. One thing to remember is that filing a bankruptcy is perfectly ethical and legal. It is provided for in the United States Constitution. Do not be ashamed to ask family for friends for help. You might be surprised that mom and dad actually get behind your decision to file and may find out that people you know have also filed bankruptcies
Loan Modification & Bankruptcy
Homeowners seeking to modify their loans under the HAMP program may encounter issues with the loan modification when they file for Bankruptcy under Chapter 7 or Chapter 13. In the early days of the HAMP program I used to caution people who were still in their trial modification term to wait until it was over before filing a Chapter 7. The reason was that lenders would routinely cancel the trial modifications due to bankruptcy filings.
Over the past two years as the HAMP program has evolved such actions have become more rare. Although I still have clients who run into difficulty processing their modification applications when we file Chapter 7, it is becoming increasingly common for modifications to take place during and after bankruptcy filings. Naturally this makes sense. Under the HAMP guidelines, servicers are actually required to consider homeowners for the HAMP program even if they have filed for bankruptcy under Chapter 7 or Chapter 13. Therefore, filing bankruptcy (in theory) should not affect the loan modification process.
Section 1.2 of the MHA Guidelines, states:
Borrowers in active Chapter 7 or Chapter 13 bankruptcy cases are eligible for HAMP at the servicer’s discretion in accordance with investor guidelines, but servicers are not required to solicit these borrowers proactively for HAMP. Notwithstanding the foregoing, such borrowers must be considered for HAMP if the borrower, borrower’s counsel or bankruptcy trustee submits a request to the servicer.
See MHA Handbook, v. 3.0, Section 1.2 Additional Factors Impacting HAMP Eligibility.
Anyone in the process of applying for a modification or desiring to apply for a modification after or during a bankruptcy, should inform their bankruptcy attorney. Their attorney should then notify the loan servicer in writing as provided in the HAMP guidelines.
Some Bankruptcy Courts have also adopted special procedures for the Court to approve the terms of any loan modification. Servicers will usually require compliance with any such procedures and reaffirmation of the debt. Nevertheless, some Court without specific procedures can still approve the terms of a modification in a standard reaffirmation agreement. Reaffirmation agreements will usually be provided by the lender and must be filed no later than 60 days following the date set for the 341 Meeting of Creditors.
Also, a word of caution to borrowers: there are numerous websites out there that look like and purport to be official HAMP providers. Most of these sites are for-profit businesses looking for desperate homeowners. Be very careful about where you obtain your information. The official HAMP website is located at www.makinghomeaffordable.gov. Also, you should never pay anyone a fee to modify your mortgage–not even a law firm. Free help is available through HUD-approved counseling agencies. Simply search the HUD website to find one in your area: http://www.hud.gov/offices/hsg/sfh/hcc/fc/.
Private Mortgage Insurance Paying Underwater Borrowers
PMI Group, a private mortgage insurer, has announced that it will be paying some borrowers cash to stay in their homes. The goal of the program is to prevent mortgage defaults, which naturally cost the insurer.
Through its subsidiary, Homeowner Reward, borrowers who are underwater on their homes and choose to participate in the program will receive cash incentives of between 10% and 30% of their outstanding principal balances. The catch? Borrowers must remain current on their mortgages from between 36 and 60 months.
Homeowners interested in the program may visit the Responsible Homeowner Reward page at www.rhreward.com.
What is private mortgage insurance and do you have it? Private mortgage insurance offsets the losses to mortgage companies when a borrower defaults. Often when homeowners purchase a home with less than 20% down the primary mortgage company will require that the borrower obtain private mortgage insurance. Some buyers have avoided private mortgage insurance by taking out multiple loans–the most common of which is an 80/20 loan. If you are unsure about whether you have private mortgage insurance and/or would qualify for this program, contact your lender.
Bank of America May Not Have Standing to Conduct Arizona Foreclosure
In early June, the Ninth Circuit Court of Appeals Bankruptcy Appellate Panel issued several decisions in similar cases dealing with the issue of whether lender has standing to prosecute a motion to lift the automatic bankruptcy stay. One of these cases, Sardana v. Bank of America, N.A., contains some interesting insights into the way Bank of America assigned notes and retained servicing rights.
Sardana involved a Chapter 13 debtor who fell behind on her mortgage payments during the course of her Chapter 13. Bank of America (BAC) moved to lift the automatic stay pursuant to 11 U.S.C. 362(d) so that it could proceed with a trustee sale of the property. In support of its motion, Bank of America produced a deed of trust and promissory note that identified Bank of America as the lender. Sardana opposed the lift stay motion on the grounds that the note had been assigned to Fannie Mae and that Bank of America only retained servicing rights. Therefore, Sardana argued that Bank of America was not a “real party in interest” pursuant to 11 U.S.C. 362(d) and did not have standing to lift the stay. The Bankruptcy court disagreed and granted Bank of America’s motion. Sardana appealed.
On appeal, the Ninth Circuit analyzed the note and deed of trust, pointing out that Bank of America was identified as the beneficiary under the deed of trust. As the Bankruptcy court judge had held, Arizona law provides that a beneficiary of a deed of trust is entitled to proceed with foreclosure pursuant to A.R.S. 33-807. The Ninth Circuit, however, went beyond the Bankruptcy court to point out a separate requirement of Arizona law that provides that “[t]he transfer of any contract or contracts secured by a deed of trust shall operate as a transfer of the security for such contract or contracts.” A.R.S. 33-817. According to the Ninth Circuit, if the holder of the beneficial interest of the note changes, even if the named beneficiary under the trust deed remains the same, the beneficiary’s right to enforce the note obligation and foreclose on the deed of trust must be based on some further agreement with the new owner or holder of the note. The Ninth Circuit vacated the Bankruptcy court’s order lifting the stay and remanded for an evidentiary hearing at which Bank of America could prove that it retained the beneficiary’s right to enforce the note obligation following its assignment to Fannie Mae.
In another case, Matson v. Citibank, N.A., the Chapter 13 debtors also fell behind on their post-petition mortgage payments.. Barclay’s Capital Real Estate, Inc. d/b/a HomEq filed a motion for relief from the automatic stay. The debtors argued, among other things, that HomEq lacked standing to bring the motion because it was not the real party in interest but was merely a servicer of the note, which had been pooled and sold to investors in an mortgage-backed securitized trust. Citibank then filed an amended motion for relief from the stay claiming that it was the successor trustee for the holders of MASTR Adjustable Mortgage Trust 2007-HF2 arising from a securitization transaction. From there the facts get very complicated. The Bankruptcy court granted Citibank relief from the stay and the Matsons appealed arguing essentially that Citibank was not the real party in interest because there was a violation of New York law at the time the note had been transferred to the MASTR Adjustable Mortgage Trust 2007-HF2. According to the debtors, MASTR never effectively acquired the promissory note because the assignment violated the pooling and servicing agreement. The Ninth Circuit noted that there appeared to be a gap in the assignment at some point but it nonetheless held that Citibank had met its burden of presenting a “colorable showing of the transfers.” The Ninth Circuit also pointed out that the issue of whether an assignment is valid would go beyond the intended limited scope of a hearing on a motion to stay. Thus, Citibank prevailed.
Fighting Fraud in Bankruptcy Act of 2011
On May 25, 2011, Senator Patrick Leahy (D-VT) introduced a bill (S.1054, full text available here) titled the “Fighting Fraud in Bankruptcy Act of 2011″ (hereinafter “FFBA”). The FFBA is aimed at providing additional tools to the U.S. Trustees to protect homeowners from lenders who file fraudulent claims. These additional tools consist primarily of remedies against those who assert or assist in the assertion of fraudulent claims in the bankruptcy court. The available remedies are broad and left to the Judge’s discretion but can include civil penalties (i.e. money damages).
The also FFBA makes it clear that the U.S. Trustees have a duty to take action to remedy any abuses by creditors. The FFBA attempts to provide Trustees with the tools needed to take legal action–specifically, the power to bring motions to remedy fraudulent claims. The U.S. Trustee is also directed to establish claims auditing procedures to ensure creditors are complying with the law.
Whether the FFBA will be effective is still in debate. Over the last several years, many of us in the Bankruptcy world have encountered abuses by creditors. Often times the abuses do not rise to the level of fraud but are simply the result of poor record keeping and sloppy handling of client files. The FFBA is aimed at ensuring those people who file bankruptcy do not end up worse off than when they went into the case because of bad faith filings by creditors that are seldom policed.
The FFBA is a good start but more needs to be done. In my practice I sometimes encounter creditors who file improper proofs of claim, which can disrupt confirmation of Chapter 13 plans. Many large lenders also lodge objections in the bankruptcy court as a matter of course without even reviewing the Chapter 13 plans. These types of actions can derail an otherwise straightforward case and create a lot of work for the debtors’ attorney and/or the trustee. Hopefully, the threat of civil penalties will prompt lenders to conduct more due diligence before entering the bankruptcy court.
The full text of the Bill is available for download here.
Help for Artists
KarmaCounsel.org, the first donation only legal services website in the U.S., is now accepting inquiries from artists and other creative individuals in need of legal counsel on a donation only basis. This service is only available to individuals residing or working in California or Arizona.
If you are an artist, writer, musician, or other creative individual in need of legal counsel, KarmaCounsel.org provides an alternative to the for-profit law firm world. Artists may submit their issue online and an attorney will contact them to discuss their particular issue, usually within one business day.
Donation only legal services employ the principles of giving. A suggested donation amount is provided to the client and the client decides how much they are able to pay. If an attorney takes the clients case, he or she will do so without regard to the donation amount and the client will always receive the best available level of services. Please visit the Artist Help page at KarmaCounsel.org to learn more.
