Hamid Jabbar is dedicated to representing hardworking individuals obtain fresh starts through the bankruptcy process. Hamid began his bankruptcy practice in the corporate world litigating complex adversary proceedings in conjunction with corporate Chapter 11 and Chapter 7 filings. Beginning in 2009, recognizing the need for quality bankruptcy representation in the consumer arena, Hamid began representing individuals in consumer Chapter 7 and Chapter 13 proceedings.
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.
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/.
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.
Donate to a Good Cause
The world is becoming an increasingly stratified place. Many people have prospered through the recent recession and many people have struggled. We are all, however, in this world together.
One irony of financial downturns is that those people who may need legal help the most are the least likely to be able to afford it. While there are numerous public interest organizations our there that provide free legal services to the extremely poor, many people are turned away from these organizations because they are employed.
A new organization is, however, trying to fill the gap between those who qualify for free legal aid and those who can afford a for-profit law firm. KarmaCounsel.org is now providing a donation only alternative for those filing bankruptcy in Phoenix and Los Angeles. Based on the idea that positive action breeds positive results, KarmaCounsel.org places people in touch with attorneys who have agreed to take cases regardless of the client’s ability to pay. Client’s pay by donation with suggested donation amounts provided. The services obtained are equivalent–and in many cases–exceed the level of service offered by for-profit law firms. The difference is that no client is turned away because he/she cannot pay.
If you or someone you know is considering a bankruptcy, please consider KarmaCounsel.org as an alternative. You may also donate to their current fundraising efforts here.
Donation Only Bankruptcy Help
KarmaCounsel.org is now providing an alternative method for Arizona and California individuals to obtain help with a bankruptcy. Based on the principle that helping others sows positive seeds for the future, KarmaCounsel.org connects people with attorneys willing to work on a donation only basis. The website fills the gap between those public interest organizations who only help the indigent and the for-profit law firms who serve only themselves.
The concept is simple. Clients needing help submit their information online and receive a call or email back from an attorney in their area to discuss their case. Clients have several options, including simply having an attorney draft the forms for them or obtaining complete legal representation. Suggested donation amounts are provided and clients who can afford to pay the donation amount are encouraged to do so. Clients who cannot pay the full donation amount, pay only what they can afford. Regardless of how much they donate, each client receives the same level of conscientious service.
KarmaCounsel.org is currently only providing services in Los Angeles and Arizona, but will be expanding its network of attorneys.
To find out more, visit KarmaCounsel.org.
Consumer Borrowing On the Rise
A recent report from the New York Federal Reserve indicates that consumer borrowing is on the rise. This apparent “healing of the credit markets” is widely seen as a good sign for the economy.
It often feels, however, that what is good for the economy is bad for consumers. When was the last time you thought about how great it would be to incur more debt? These types of bizarre economic realities also come up in my everyday practice. When counseling clients about potential bankruptcy cases I have to tell them similarly strange things. When I hear that their vehicles are underwater (i.e. they owe more than the vehicles are worth), I say “that’s great!” When they tell me that their house has plummeted in value due to foreclosures in the neighborhood, I start to smile. You see, being totally in debt is not only great for the economy, it is great if you want to file bankruptcy. Having an underwater car loan, strangely, will likely mean you can keep your car after the bankruptcy whereas having no loan on your car might render you without transportation post-bankruptcy.
We live in a world based on debt and that is why so much of this seems upside down. The fractional reserve banking system we have allows banks to create money out of thin air by lending out more money than they have on deposit. Banks literally turn $1 into $8. Magic! Hence, when banks start to lend, the economy starts to grow. As we have seen in the past, eventually consumers get so weighed down with debt that the whole thing bursts, banks cut back on lending, consumers either stop spending or file bankruptcy, and then we all wait patiently for the whole cycle to begin again.
As a bankruptcy attorney I have to wonder whether we are seeing these signs because so many people have rid themselves of debt over the last several years by filing bankruptcy. Elizabeth Warren once pointed out that the best people to lend to are those who have just filed bankruptcy. The reason is a creditor knows two things about them: (1) they have an appetite for debt having been in debt once before; and (2) they cannot file another bankruptcy for quite some time. From where I sit, that may just be what is happening.
Bankruptcy and Employment Discrimination
Often I have people come to me contemplating a bankruptcy who are worried that their employers will terminate them if they file. This is especially common for people who work for banks and credit card companies. After all, if you work for Bank of America as a loan officer and file Bankruptcy to discharge debts owed to Bank of America on credit cards or home loans, it would only be fair for Bank of America to terminate your employment, right? Wrong. The Bankruptcy Code contemplates this predicament and, as a result, includes provisions specifically prohibiting discrimination in employment based on an employee’s filing a bankruptcy.
The scope of protection varies depending on whether the employer is a government unit or a private employer. Section 525(a) applies to government employers and 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). Notably, this section prohibits both discrimination in hiring and discrimination with respect to existing employment.
Private employers, however, are not prohibited from discriminating in hiring. 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.
Therefore, while neither the government nor a private employer may 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. This is a valid concern for anyone contemplating a bankruptcy. That being said, employers also routinely discriminate based on poor credit scores and foreclosures, both of which are indicators common to many individuals contemplating bankruptcy. Moreover, there is little protection from such discrimination based on credit information and foreclosures in the law. Thinking of it another way, if you are in debt or facing foreclosure and do not file Bankruptcy, you are leaving the door open for discriminatory action by your employer based on these factors. If, rather, you file for Bankruptcy protection when faced with defaulting debt and possible foreclosure, the Bankruptcy Code provides some measure of protection from employment discrimination thereafter. In other words, even if the employer’s sole reason for terminating employment post-Bankruptcy is a credit check, you have an argument that their action was based on the Bankruptcy and might obtain some relief (or more likely prevent your employer from taking an adverse action in the first place).
Lawsuits and Default
One of the most common triggering events that leads people to call me is when the received service of a Summons regarding a lawsuit. In Arizona if you are sued in state court, you will likely be served in person by a process server who will deliver at least two documents, sometimes three. If you are sued for an amount less of $10,000, or less, the case will be in one of the Justice Courts. You will receive both a Summons and a Complaint from the process server. If you are sued for an amount over $10,000, your case will be in Superior Court and in addition to the Summons and Complaint, you will receive a third document entitled “Certificate Regarding Compulsory Arbitration.”
The Summons will instruct you that you have 20 days to appear and defend the lawsuit. The important date is the date you were served, not the date the case was filed. If you do not file either an Answer or a Motion to Dismiss within 20 days, the plaintiff in the case will have the right to ask the Court to enter default against you. Default is a two step process. First, the plaintiff files an Application for Entry of Default. If no Answer is filed within 10 days after the plaintiff files the Application for Entry of Default, the Clerk of the Court will enter default. There is rarely an external signal that default has been entered so it is important to pay attention to the timing of the Application for Entry of Default. After default has been entered, the plaintiff may then request a Default Judgment.
It is possible to set aside both the Entry of Default and a Default Judgment upon a showing of excusable neglect pursuant to Rule 55(c) of the Arizona Rules of Civil Procedure. A Motion to Set Aside Default or to Set Aside a Default Judgment should discuss the law and show some facts demonstrating excusable neglect.
The legal arguments will have to cite the correct law. Here are some cases that may be of use:
The law favors resolution disputes on the merits of the case. See U-Totem Store v. Walker, 142 Ariz. 549, 553, 691 P.2d 319 (App. 1984). For this reason, the Court has wide discretion to set aside default judgment. See Daou v. Harris, 139 Ariz. 353, 359, 678 P.2d 934, 940 (1984). In order for a default to be set aside, the Defendant need only show excusable neglect for failing to timely answer the lawsuit, a meritorious defense to the lawsuit, and that the Defendant has promptly requested relief from the default judgment. If the Court has any doubt whether to vacate a default judgment, it should rule in the favor of the party requesting that the default be vacated. The law favors resolution of a case on its merits rather than mere technicalities and all doubts which shall be resolved in favor of the moving party. Hirsch v. National Van Lines, Inc., 136 Ariz. 304, 308, 666, P.2d 49, 53 (1983).
It is important not ignore a Summons or Complaint because, as noted above, excusable neglect requires a very specific showing. Simply ignoring a lawsuit is not excusable neglect. Filing a Bankruptcy petition under either Chapter 7 or Chapter 13 before the time to Answer has expired will prevent the default from being entered.
