What is a “debt relief agency”?

If you’ve ever hired a bankruptcy attorney or seen an advertisement for one (or if you are reading this blog!), you’ve no doubt seen the disclaimer “We are a debt relief agency.  We help people file for relief under the bankruptcy code.” or something substantially similar to this.  A lot of people read this disclaimer and think that it means that the person it applies to is not an actual bankruptcy attorney.
In fact, all bankruptcy attorneys are required to identify themselves as debt relief agencies under the bankruptcy code (upheld in In re Milavetz, Gallop & Milavetz, P.A., v. U.S., No. 08-1119 (March 8, 2010)).  That doesn’t mean your attorney isn’t an attorney.  This is just the label that Congress felt bankruptcy attorneys needed to have applied to them.

How to calculate a life estate.

This probably won’t be of much interest to debtors, but I am posting this information so that if I, or any other attorney needs this information, I never have to do this research again, because it is complicated.
For those of you who might be wondering, a life estate basically means that the owner of the life estate becomes a tenant of their own property.  Over time, ownership of the property transfers incrementally to the beneficiaries of the life estate in the form of percentage future interest, culminating with full transfer of the property to the beneficiaries upon the owner’s death.
How to calculate a beneficiary’s future interest in a life estate:

  1. Determine the current age of the life estate owner.
  2. Determine when the life estate was created (look to the date the deed which creates the life estate was first recorded).
  3. Using the date (month/year) determined in Step 2, determine the applicable interest at the time the life estate was created under 26 U.S.C. § 7520.  The table of interest rates can be found at http://www.irs.gov/businesses/small/article/0,,id=112482,00.html if the interest was created this year.  Presently, the IRS has these tables going back to 1997 – to access previous years’ interest rates, go to http://www.irs.gov/businesses/small/article/0,,id=204934,00.html.
  4. Access IRS Publication 1457 and open up Table S, which you can get at http://www.irs.gov/pub/irs-tege/sec_1_table_s_2009.xls.  Scroll down until you find the interest rate you determined in Step 3.  Then locate the age you determined in Step 1.  Slide over to the column for Life Estate, and find your percentage.
  5. Multiply the fair market value of the property by the percentage determined in Step 4.  Then, account for any partial interests or any other encumbrances (such as mortgages, judgment liens, or tax liens) to determine the value of the beneficiary’s future interest.

Notice Requirements & Addressing the Correct Creditor

Attorney Greg Holbus will be a guest lecturer at the November 9, 2010 Lou Jones Breakfast Club, which is a monthly meeting of the Wisconsin State Bar’s BICR (Bankruptcy, Insolvency, and Creditors’ Rights) Section to discuss current events and developments in the area of bankruptcy law and other related practices – usually for one free CLE credit.
This month’s topic provides a road map for debtors’ counsel on how to properly serve or notice creditors of bankruptcy filings, motions, and adversary proceedings. Although this lecture is geared toward other attorneys, we hope to illuminate the variety of horror stories that debtors’ counsel often faces when attempting to find the proper creditor and address in a world of massive and complex corporate structures (which creditors seem to like to hide themselves in).
Below are some excerpts from the presentation.

When trying to provide notice or service of process to creditors, debtors’ ability to do so properly becomes difficult in a world where creditors have a couple dozen similarly-named subsidiaries or shell companies in existence, and they have hundreds (if not thousands) of offices scattered throughout the country. Debtors’ counsel find themselves trapped in an absurdly comical game of hide-and-seek, trying to pin down elusive creditors that seem to deliberately hide behind complex and opaque corporate structures. The point of this presentation is to TRY to un-muddy the waters somewhat.

Debtor shall use the address appearing on any two or more communications (e.g. billing statement, collection letters, etc.) received in the 90 days prior to filing the bankruptcy case. 90 day period does not apply to creditors who would be in violation of non-bankruptcy law by sending communications, in which case, the address appearing on the two most recent communications shall be used. 11 U.S.C. § 342(c)(2).

Although the creditor has a duty to terminate and reverse damages resulting from a stay violation, it could not be sanctioned for willful violation since it was not noticed pursuant to § 342 (appears that notice was sent to addresses appearing on a credit report). In re Tillett, 2010 Bankr. LEXIS 1342 (Bankr. E.D. Va. Apr. 23, 2010).

[…] a filed proof of claim shall stand as a notice of preferred address from the creditor. Fed. R. Bankr. P. 2002(g)(1).

“While no summons is issued and served upon the “defendant” in a contested matter, service of a pleading initiating a contested matter is made in the same manner as service of a summons and complaint in an adversary proceeding.” Dean v. Global Fin. Credit, LLC (In re Dean), 359 B.R. 218, 221 (Bankr. C.D. Ill. 2006).

Summons and Complaint shall be served in a manner authorized by FRCP 4, all subsequent documents and pleadings shall be served in a manner authorized by FRCP 5. In addition to FRCP 4, summons and complaint may be served by first class prepaid postage in the following manner:

Domestic or Foreign Corporation, Partnership, or Unincorporated Association: address to an officer, managing agent, general agent, authorized agent by law, or authorized agent by appointment. If agent is authorized by statute and the statute requires, also address to the defendant. Fed. R. Bankr. P. 7004(b)(3).

Insured Depository Institution (any FDIC-insured bank or savings association): address to an officer of the institution by certified mail, or first class mail to its attorney if the attorney has made an appearance. Confirm FDIC-insured status at http://www3.fdic.gov/idasp/. This requirement can be waived by court order in response to an application, or by the creditor’s voluntary waiver. Fed. R. Bankr. P. 7004(h).

Complex corporate structures – different entities with similar names. The following is a basic corporate structure glossary. There are many names given to different organizational structures, depending on ownership, holdings and purpose. It is important to keep in mind that an organization is either a formally organized entity, or it is not. If it is formally organized, there will be a designated agent for service.  Parent. A formally organized entity that holds an ownership interest in another entity (subsidiary). The Parent company may have its own line of business, which may or may not be related to the business of the subsidiary.  Subsidiary. A formally organized entity that is owned, at least in part, by another company (parent). In large corporate structures, a subsidiary might also be a parent company for another company down the line.  Holding Company. A formally organized entity that exists primarily to own other companies. Similar to a parent company, but usually without its own line of business.  Division. Usually (but not always) an informally organized part of another company. The division may have its own books and records, but is usually not formally organized (no filing with the State. If you are dealing with a company that is called a division, there is usually another company name that you will need to find. For example, “ABC, a division of XYZ Corp.”Shell or Dummy Company. A formally organized entity that will usually not have any assets of business of its own. These sorts of companies are used to shield information regarding ownership, holdings, etc. It is important to realize that these entities are actual companies, at least on paper. Corporate existence can be challenged based on inadequate capitalization and other grounds, but that is an expensive fight, and may not be relevant from a debtor’s standpoint.

When serving a mortgage company on a contested matter or adversary proceeding, it’s helpful to know who’s who in the industry to know whose conduct is at question or whose rights are sought to be modified.Mortgage Originator – the lender whose name appears on the mortgage and note (remember, the mortgage establishes the real estate as security for the loan; the note is a promissory note outlining the terms of loan repayment).Mortgage Holder – present owner of the mortgage; has the right to foreclose.Note Holder – present owner of the note; usu. (but not always) the same as the mortgage holder.Mortgage Servicer – party that accepts payment on behalf of the note holder, also responsible for holding / distributing escrow funds.

Not sure who’s who in your particular mortgage? Send a Qualified Written Request under RESPA to the mortgage servicer. 12 U.S.C. § 2605(e).