Moving?

While your bankruptcy case is pending, it is important to keep your attorney apprised of any changes of your contact information.  Not only is it important so that we can keep in touch with you, but so we can also inform the bankruptcy court of any change of address.  This way, you won’t miss out on any official notices filed with the court.
But hey – your attorney probably isn’t the only important person in your life who you need to make sure has your new address.  And as someone who has moved many times in his life – I know that it’s daunting trying to think of a list of everyone you need to send a notice to.  And invariably – some folks get missed.
That’s why filing a change of address with the USPS is so critically important.  It’s fast, easy, and free (if you go to the post office and do it in person).  If you do it online, it costs a whopping one dollar.
Not only will the post office forward any mail addressed to your old address to your new address, but those envelopes will be specially marked so that you can see who is still sending mail to your old address.  Then you can notify those people as you remember / become aware of them.
In short – there is NO EXCUSE for not receiving important communication from either the bankruptcy court or your attorney just because you moved.  Mail forwarding is easy, and if you want to register for it online, you can do it right here:

Three Announcements

Beth Ermatinger Hanan has recently been appointed to serve as judge for the U.S. Bankruptcy Court for the Eastern District of Wisconsin.  She joins our existing panel of judges of Susan V. Kelley (who was promoted to chief judge when former chief judge Pamela Pepper was appointed to the district court last fall), Margaret D. McGarity, and G. Michael Halfenger.
Bankruptcy debtors may now choose to receive certain notices from the bankruptcy court by e-mail instead of postal mail.  This service will not include all notices, as anything filed by trustees or creditors will still have to be sent via conventional methods.  But it can prove to be a time-saver for some who would prefer electronic messaging.  The system is called DEBN (Debtor Electronic Bankruptcy Noticing).  You can get additional information and register for the service by visiting http://www.wieb.uscourts.gov/index.php/component/content/article/41-for-debtors/163-debtor-electronic-bankruptcy-noticing-debn.  If you have further questions, contact the Clerk’s office at (414) 297-3291.
Finally, some changes to the Mortgage Modification Mediation Program.  This from Judge Kelley:

Effective July 1, 2015, we are making changes to the Court’s Mortgage Modification Mediation (MMM) Program.  The new program will require debtors to use the “documods” program ($40) to prepare the required loan modification package PRIOR to filing the Motion to participate in the program.  After preparing the documods documents, the debtor will file the Motion to participate, and the lender will have 14 days to object.  If no objection is filed, the MMM Order will be entered, the mediator will be appointed, and the process will continue as under the existing program.
If a lender timely objects to the Motion, the Court will hold a hearing, at which the lender can explain why it does not wish to participate in the program.  The Judges have agreed to urge lenders to try the program, rather than object because they prefer to use their own loss mitigation programs.
The new form of Motion and Order is on our website:  www.wieb.uscourts.gov, and I urge you to review the new documents and contact Sean McDermott with any questions or comments you may have.  These documents have been reviewed and revised by our “MMM Committee” but we are certainly open to suggestions and comments from the bankruptcy bar.

Susan Kelley
USBJ

What is this thing I got in the mail?

If you get something in the mail and you’re not sure what to make of it, either bring it to me or scan and e-mail a copy to me.  Generally, I don’t like to comment on letters or documents if I can’t see them.  And no, I don’t have magical powers that allow me to see what you’re holding in your hand at home.
That said, let’s talk about some of the documents you might see once you file for bankruptcy.
“Notice of Appearance”
  • If a creditor files a notice of appearance, it means that they intend to have a more active role in your bankruptcy case than normal.  More, of course, is a relative term.  In basic, no-asset Chapter 7 cases, most creditors assume no role whatsoever in your bankruptcy proceedings.
  • A notice of appearance is often just a way for a creditor to receive electronic notices instead of conventional notices by mail.  It also usually means that an attorney for the creditor is keeping an eye on the case.
  • Sometimes, a notice of appearance is an indication that a creditor has hired an attorney (who needs to get himself or herself added to the list of people who receives notices in your bankruptcy case) so that they can file motions or objections.
  • Less often, a notice of appearance is filed when a creditor actually intends to make an appearance at your meeting of creditors or some other judicial hearing.

“Motion for Relief from Stay” (or “Motion to Lift Stay”)
  • When your bankruptcy case is filed, an automatic stay goes into effect that stops most collection actions, including wage garnishments, repossessions, and foreclosures.  If someone is filing a motion for relief from the stay, they are asking the court for permission to be exempt from the stay so they can proceed with certain actions.
  • 99% of the time, these motions are filed by secured creditors who are seeking to foreclose your home or repossess your car.
  • If your intention was to surrender the collateral, then there is nothing that you need to do.  The motion for relief is a mere formality so the creditor can proceed to exercise its security rights.
  • If your intention was to retain the collateral, talk to your attorney immediately!  You only have 14 days to object and figure out how to save the collateral.

“Notice of Intent to Pay Claims”
  • In Chapter 13 cases (and in Chapter 7 cases where a trustee is distributing assets), the trustee is required to file this notice to formally announce his intent to pay or not pay certain claims that creditors have filed.
  • Generally speaking, the trustee will pay all claims filed unless the claim was filed after the deadline to file claims or if a judge rules that a claim is disallowed.
  • The trustee may file a notice like this several times throughout your bankruptcy case if claims are amended, withdrawn, or supplemented.

“Notice of Mortgage Payment Change” & “Notice of Additional Mortgage Fees”
  • Throughout the life of a Chapter 13 Bankruptcy case, it is common for your mortgage payment to adjust due to variable interest rates or changes in your escrow payments.
  • Sometimes, your mortgage lender will charge additional fees – which they are allowed to do pursuant to the terms of the mortgage – for certain activities such as appraisals, property inspections, or legal fees.
  • Although they have always had these abilities, a relatively new procedural rule now requires the mortgage companies to file a notice with the bankruptcy court and serve a notice on you.  This helps your attorney and the trustee stay updated about changes in your mortgage that has the potential to have an impact on your bankruptcy case.

Read what you sign (and the words on documents actually have meaning).

There’s a popular maxim in law: “ignorance of the law is no excuse”.  What does it mean?  Put simply, you can’t kill a man, then walk into court and claim you didn’t know that homicide was illegal.  But this legal doctrine extends to all laws, not just homicides.
I’ve often joked that if this statement is true, why do people need lawyers?  If everyone is expected to know and understand the laws, why do lawyers need to exist to interpret laws and give counsel to our clients?
Nevertheless, ignorance of the law is no excuse.  And so today, I wanted to address some common misconceptions in bankruptcy law.  By no means do I expect that someone without training in law to know and understand bankruptcy law as well as I do.  This is why I try to educate my clients on how to conform their behavior before filing for bankruptcy – so they don’t make any bad decisions.  Sure, some of my clients ignore my advice and end up screwing themselves over in the process.  But what about the clients who make a mistake before they even meet with an attorney?
So with that in mind, here are some things for you to keep in mind…
Rule #1.  Read the stuff you sign.
I know very few people actually stop and take the time to read a lengthy contract, mortgage, or service agreement.  But if the other party to the agreement does something that you don’t like, but it is permitted in the contract, you’re not going to gain the sympathy of a judge when you say “I didn’t know my mortgage had a variable rate, even though it says so in the paperwork I didn’t read.”
Rule #2.  The words on documents have meaning!
“That’s not my car – that’s my daughter’s car.”
The title to your daughter’s car is in your name because your 17 year old daughter isn’t old enough to own property.  It doesn’t matter if the car is used by her exclusively.  Your name is on the title.  It’s YOUR car.
“The credit card is not in my name, it is in my dad’s name.  I use the card, so it’s my debt, and I pay it.”
No, it’s your dad’s debt.  That your dad was willing to let you rack up charges on the card doesn’t make it any less his responsibility.  Your discharge won’t wipe out his debt, even if you were the sole user of the credit card.  Now, if you cosigned on it, the discharge will eliminate your liability.  But dad is still on the hook for the card.  Oh, and any payments that you make on the card are for his benefit, and constitute a preference.
“This credit card is a business debt because I use the card exclusively for business purposes.”
LLC’s and corporations are separate legal entities that can owe separate debts that the owner of the LLC or corporation is not individually liable for (notwithstanding any personal guarantees, which are essentially cosigned debts between the business and the business’ owner).  However, having a business does not automatically convert certain debts into business debts, just because you use a credit card for business purposes.  Did the LLC or corporation sign the credit agreement?  Or did you sign it?
The first two examples demonstrate that there are a lot of informal agreements that exist between families and friends that have little or no legal bearing.  Let’s do the opposite.  What about a credit card that is only in your name?  Is your spouse liable?
Rule #3.  Sometimes, the words on documents have no meaning!
Just because I want to confuse you…  If you live in a community property state (like Wisconsin), are married, and rack up debt after you are married, then your spouse is most likely liable for those debts.  There are exceptions to the rule, of course.  But generally, it doesn’t matter that the credit card is only in your name.  If it is a post-marital debt, both you and your spouse bear liability on the debt.
Rule #4.  Unless you’re renting or living with mom and dad, you own the real estate.
“I don’t own my home.  The bank does.”
Okay, you own your home.  The bank has a lien against your home – known as a mortgage.  This is not the same as ownership.  Check the deed.  It’s your name on the deed, not the mortgage company’s.  You own it.  The mortgage company can seize the property if you don’t pay the mortgage.  But until that happens, you own it.
Rule #5.  Bankruptcy is good against the world.
“I’m not filing bankruptcy on that.”
Yeah, that’s not how this works.  Except in asset cases, debts are not dischargeable or non-dischargeable because you did or didn’t list them on your schedules.  You can choose to reaffirm a mortgage or car loan.  But you still have to list those debts as a matter of due process.  Same is true of non-dischargeable student loans, child support, and taxes.  The laws and what you do after a bankruptcy case is filed will determine what goes away and what doesn’t.  Don’t get cute with your lawyer and conceal debts that you “don’t want to include.”  That’s now how this works, and you’ll end up screwing yourself over when you do this.
I could go into a lot more detail about this rule, but suffice to say, I’ve written about it extensively in the past.
Rule #6.  Just because you hide your assets from your family or the IRS doesn’t mean you should hide them from your lawyer.
“Do you own any firearms or jewelry?”
“Not that anybody knows about.”
“Well, now I do.  What do you have?”
“Let’s pretend that I didn’t tell you.”
“Let’s pretend you did.”
“These are well hidden.  Nobody would ever find out!”
“Care to test that theory under the penalty of perjury?”
Don’t get cute with your lawyer.  Especially when it is unlikely that such disclosures would even have a negative impact on your case.  Do you really want to get sentenced to federal prison for committing perjury over something that wasn’t going to get you in trouble in the first place?
Rule #7.  A good lawyer will grill you and make you uncomfortable.  It’s better that your advocate do it, rather than the trustee or a judge.
“I haven’t had any income in the past six months.”
“Really?  Well, you indicated that you are current on your mortgage payment.  You have kids that you’re feeding.  How are you paying all of these bills without any income?”
Sound insulting?  Maybe.  But it’s better that I know [about the $50,000 you have squirreled away under your mattress, or the under-the-table cash job you have been working and concealing from the IRS, or that you’re charging $5k a month to your credit cards] now, rather than waiting for the judge to ask you this question in court, when it’s too late for me to do anything to help you.  Attorneys don’t catch every inconsistency, but a good lawyer will catch most of them.  Rather than be insulted that your attorney is grilling you, be grateful that he uncovered the issue before someone else did.
Rule #8.  Your emotions are seldom relevant.
Sure, there is a fair share of unfair and unjust laws on the books.  Bankruptcy laws are no different.  For as much as I can bash legislators for being corrupt and stupid, the fact of the matter is that they strive to write laws that are fair and balanced, and laws that take into consideration the interests of all parties, laws that protect the rights of all parties, and laws that produce just results.
Accordingly, many laws (particularly bankruptcy) is written in very sterile and formulaic terms.  A lot of the emotional appeals people make – about how they tried really hard to pay their bills, or that the debt isn’t their fault, or that an acquaintance duped them into losing all sorts of money.  Most of that won’t matter.
Which is not to say I discourage my clients from telling me these stories.  But you need to understand that the bankruptcy laws are written in a very formulaic and sterile manner.  In exchange for a discharge, the court demands information about the money you earn, the money you spend, the stuff you own, the debt you owe, and information on recent transactions.  It’s a very bureaucratic process.

The importance of disclosing all debts.

Recently, I experienced a string of Chapter 13 cases that were in danger of failing within just the first few months.  It turned out that the reason in each case was the same: the debtors were paying and trying to play catch-up with their utility services (Wisconsin Public Service) and couldn’t afford to make their plan payments.
The thing is, WPS should have been included in their bankruptcy case and not paid separately from the Chapter 13 Plan.  In each case, the debtor never informed me that they were delinquent on their utility bills.  Why WPS didn’t show up on their credit reports is a different mystery, but the point remains that a debtor needs to tell their attorney about any debts they may not have shown up on a routine credit check.
I could get into a detailed discussion about WPS and when and why their debts need to be included in bankruptcy.  But I think this story illustrates a much broader issue that I find myself repeatedly having to hash out with clients.  And that’s the “I don’t want to file against so-and-so” problem.
Here’s the thing, and I can’t stress this point nearly enough.  Listing a debt on your bankruptcy schedules is NOT synonymous with having the debt discharged.  Whether a debt is discharged depends on the nature of the debt, not whether it was disclosed.
A non-dischargeable debt is what it is.  You could file bankruptcy 20 times and list your student loans on your schedules each time, and without a demonstration of hardship, those loans aren’t going away.
Similarly, someone who wishes to keep a store credit card open for future purchases does themselves no favors by omitting the creditor from their schedules.  The bankruptcy discharge is good against the world.  And the credit card debt is discharged, whether they were listed on schedules or not.

Stated another way, the Chapter 7 discharge is “good against the world,” including unscheduled creditors.  The discharge is said to be good against the world in the sense that it applies to all unscheduled debts except those that are expressly made nondischargeable by § 523.

And listing your home mortgage or car loan does not mean you’re going to lose your house or your car.  Most people get to pick and choose what secured debts they will reaffirm or surrender.  Listing these creditors on schedules is not an affirmation of intent.
So if a debt will be discharged whether or not it is listed on schedules, or if a debt is non-dischargeable whether or not it is listed on schedules, then why is it is so important to list creditors on schedules?
Because no matter who the creditor is – a non-dischargeable student loan, your dischargeable credit card, or your home mortgage that you intend to reaffirm – they are all legally affected by your bankruptcy case.  Your bankruptcy case automatically endows you and all of your creditors with certain rights and responsibilities.
So disclosing all debts becomes a matter of proper notice and of due process rights.  Each of your creditors is entitled to be made aware of your bankruptcy so that they can act accordingly.  If their debt is dischargeable, they may be entitled to object to your discharge for allegations of fraud.  Although your student loans may not be discharged, your lender is still required to not make collection attempts while the bankruptcy is pending.  And although you intend to reaffirm your home mortgage, the debt is technically dischargeable, so your lender needs to know to execute a reaffirmation agreement.
If your case is an “Asset Chapter 7” (non-exempt property available to the trustee to be sold for the benefit of unsecured creditors) or a Chapter 13 (which includes monthly plan payments to be redistributed among creditors), then all of your creditors have a right to know about the bankruptcy so they can file claims.
Sure, there are other reasons to list all creditors.  (1)  So you get the full force and benefit of your automatic stay and discharge injunction protections.  (2)  Because your debt to income ratio, who your creditors are, and how much your creditors are owed (regardless of class) may very well have a material impact on your case and how it is administered.  (3)  Because keeping unsecured debts “out of bankruptcy” usually means you’re still making payments to them, which would constitute all sorts of preference payment issues.
But mostly, it’s a due process issue.  Each and every one of your creditors, regardless of your intent to pay and regardless of dischargeability, will be affected by your bankruptcy case and have a right to know that you filed for bankruptcy.

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).