U.S. Supreme Court Rules That Attorneys are “Debt Relief Agencies” Under BAPCPA

Published
by
Scott Fink
on March 9, 2010
in Bankruptcy Filings and Federal Rules of Bankruptcy Procedure
. 0 Comments

In a decision handed down by the United States Supreme Court yesterday in the case of Milavetz and Milavetz v. United States, it has now been held that attorneys who represent debtors and provide bankruptcy assistance are considered “debt relief agencies”, requiring them to include such a disclosure in any advertisements they make.  More importantly, as a “debt relief agency” these attorneys are prohibited from advising a debtor to incur more debt because the debtor will be filing a bankruptcy.  Such actions have, in the past, been termed as “loading up” on debt prior to bankruptcy.

The decision does not, however, preclude such attorneys from advising their clients to incur additional debt “for a valid purpose.”  So long as a valid purpose exists for incurring the additional debt (other than the mere fact that a bankruptcy is to be filed), it would appear that debtor’s counsel would not be held liable for the actions of their clients.  Conversely, an attorney could be held personally liable if he is found to have advised his client to load up on debt solely because a bankruptcy is being considered and no other valid reasoning existed.  

This decision is sure to be studied closely by debtor’s counsel, as they now must consider the consequences of their client consultations and the advice they offer.

If you have any questions, please contact Mr. Scott Fink, Esq. Scott is an Associate in the Bankruptcy department of the Brooklyn Heights office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 216.739.5644 or via e-mail at sfink@weltman.com.

7th Circuit Court of Appeals Decision Finds Indiana Curative Statute is Retroactive

Published
by
Laura Faulkner
on March 8, 2010
in Bankruptcy Filings, Local Procedures & Rules and Real Estate
. 0 Comments

In Indiana, as in most states, a mortgage must be properly acknowledged in order to be valid. This means that the notary present at the mortgage closing must make a written statement confirming that the notary witnessed the mortgagors sign the mortgage documents. If the notary acknowledgement is incomplete or improperly formatted, the mortgage is invalid.

Bankruptcy trustees use their powers under 11 U.S.C. § 544 to avoid mortgages that are defective. In 2007, the Indiana legislature passed an amendment to the recording statute that provided mortgages with certain technical defects would be treated as properly recorded mortgages (a ‘curative’ statute). Despite this amendment, bankruptcy trustees continued to file actions to avoid defective mortgages, arguing that the 2007 Amendment only applied to mortgages executed after July 1, 2007, the date of the amendment.

The 7th Circuit Court of Appeals issued a decision on February 19, 2010 that clarified this issue. The Court held that the 2007 Amendment applied to all mortgages, regardless of when they were executed. This is a positive result for creditors. It means that, in cases filed after July 1, 2007, the bankruptcy trustees are unable to avoid mortgages based on technical defects in the notary acknowledgement. This case applies to mortgages filed in the state of Indiana. 

If you have any questions, please contact Laura Faulkner at lfaulkner@weltman.com.

Debtors May Not Use Bankruptcy To Extend Expired State Court Deadlines

Published
by
Monette Cope
on March 4, 2010
in Bankruptcy Filings and Real Estate
. 0 Comments

Lenders are faced with more and different challenges from debtors in these stressful financial times. One tactic being tried in Illinois is to use bankruptcy to attempt to extend a state court right of redemption on real estate in foreclosure.

Illinois Foreclosure law gives a mortgagor a specified and limited time to redeem a mortgage from foreclosure.  This time may not be extended by the state court judges.  Other states have similar laws.

Debtors are trying to use the bankruptcy courts to extend the time to redeem.  11 U.S.C. § 108 of the Bankruptcy Code is entitled “Extension of Time.”   § 108(b) deals with extensions of time to cure defaults inside a bankruptcy case.  The time to cure is either the state law deadline, or sixty days after the filing of the petition for relief, whichever is later.

If the state law redemption period has not expired when Debtors file bankruptcy, but will expire within 60 days after filing, they can extend the time to redeem to that 60 day date under Section 108. However, Debtors in Illinois are trying to use this section of the Code to extend the time to redeem when it had already expired before the bankruptcy was filed. 

One judge (Judge Schmetterer) in the Northern District of Illinois (Chicago) addressed these attempts in In re Brandi McKenith, in a written opinion that will be published.  While this judge is only one of eleven judges in this District, his is the only opinion on this issue in the District.  He found that an expired state court deadline to the right to redeem real estate from foreclosure could not be resurrected by filing of bankruptcy case.

By analogy, Section 108 could not be used to resurrect other state law deadlines.   For instance, Debtors could not extend an expired deadline to redeem a vehicle before sale at a public auction or extend the time to redeem purchased real estate taxes. 

If you encounter such unwanted improper demands by debtors, contact your bankruptcy attorney immediately to stop the attempt to resurrect expired state court deadlines. If you have any questions, please call Monette Cope at mcope@weltman.com.

New Bankruptcy Relief from Stay Forms to Take Effect in Northern District of Ohio

Published
by
Scott Fink
on February 26, 2010
in Bankruptcy Filings, Chapter 11, Chapter 13 and Chapter 7
. 0 Comments

On February 23, 2010, it was announced that the Bankruptcy Court for the Northern District of Ohio will begin utilizing new forms for the filing of Relief from Stay Motions in Chapter 7, Chapter 13 and Chapter 11.  The forms will need to be used for any motions filed on or after April 1, 2010.

The Bankruptcy Courts affected include:  Cleveland, Toledo, Akron, Canton and Youngstown.  The new forms will require much of the same information as had been provided by creditors previously.  However, the forms will require greater specificity as to the calculation of the total balance and arrears owing on a loan, as well as a more structured and detailed analysis of a creditor’s right to enforce the Note, Mortgage or Security Agreement.

No new forms will be required by creditors filing only for Abandonment.  In addition, no new forms were created for the submission of agreed or stipulated orders.

The Bankruptcy Department at WW&R is reviewing the new forms and will provide a more detailed analysis in the coming weeks. If you have any questions, please contact Mr. Scott Fink, Esq. Scott is an Associate in the Bankruptcy department of the Brooklyn Heights office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 216.739.5644 or via e-mail at sfink@weltman.com.

Northern District of Ohio Bankruptcy Court Announces Budget

Published
by
Scott Fink
on February 25, 2010
in Bankruptcy Court
. 0 Comments

By Scott D. Fink, Esq.

In a recent open meeting between Judges, the Clerk of Courts and practitioners in the Northern District of Ohio Bankruptcy Court (which covers Cleveland, Akron, Canton, Toledo and Youngstown), it was announced that the Court’s budget had been finalized and that the sum of approximately $8 million was being allocated to the Court to cover operating expenses for the current fiscal year.

From these funds, the Court pays all its operating expenses, including salaries and utilities.  It was also announced that, based upon the current year budget, the Court did not foresee the need for any cutbacks or layoffs, but cautioned that forecasts for next year indicate gloomier times ahead, with possible cutbacks on the horizon for fiscal year 2011.

It was also announced that, over the past four years, the Northern District of Ohio Bankruptcy Court had actually returned about $3.2 million in budgeted funds to the Federal government that went unused.  It’s good to see a Federal agency acting as a responsible steward of the taxpayer’s money and the Court should be applauded for such actions.  

If you have any questions, please contact Mr. Scott Fink, Esq. Scott is an Associate in the Bankruptcy department of the Brooklyn Heights office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 216.739.5644 or via e-mail at sfink@weltman.com.