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.
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.
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.
With the commercial real estate market in a continued pattern of free fall, coupled with the still-lagging economy overall, creditors are likely to see a continued increase in overall bankruptcy filings for the foreseeable future. For every strip mall or office park that watches as long-time, valued tenants vacate their spaces, there are landlords who cannot service the debt on their property due to an overall decrease in rental income, and there are small business owners now joining the ranks of the newly-unemployed, along with their employees.
The unfortunate trickle down sees both employees and small business owners seeking bankruptcy protection, along with a growing number of commercial property owners who are unable to find replacement tenants to make up the shortfall in rental income.
Additionally, those tenants remaining behind may see a lag in business as a result of the loss of “anchor stores” which attracted casual shoppers to the area. This point was driven home by the recent Chapter 11 filing by Movie Gallery, Inc., the operator of the Hollywood Video chain. Preliminary indications are that a “significant number” of Hollywood Video stores will be shuttered in the coming months, leaving hundreds of strip malls across the country without a valued tenant.
The Bankruptcy Department at Weltman, Weinberg & Reis will continue to monitor trends in bankruptcy filings and will update you as data becomes available.
With the proposed amendments to the Bankruptcy Code placed on temporary hold by Congress until at least late April, it seems appropriate to take a step back and examine the possible unintended consequences of the passage of such a law.
While providing troubled borrowers with an effective tool to rework their mortgage terms under the protection of the Bankruptcy Code, is it possible that the mere threat of such a modification by a borrower could lead an increasing number of lenders to agree to rework the loan terms outside of the bankruptcy process?
Debtor’s counsel have always operated with the knowledge that, while they have the ability to tie up a pending foreclosure for months or even years by aggressively opposing the case, the reality has always been that mortgage lenders held the upper hand once a Chapter 13 bankruptcy was filed. A borrower could not alter the terms of the loan, but could only seek breathing room to bring delinquent payments current.
If the proposed amendments become a reality, the leverage will clearly shift into the borrower’s favor, which may lead more and more lenders to seek a negotiated modification prior to bankruptcy, saving both sides from litigating over valuation of the home and risking assessment prior to plan confirmation. The end result could be a decrease in Chapter 13 filings within the pool of borrowers who, but for their mortgage delinquency, might not be in financial difficulty.
Of course, the flip side to this argument would be that with all the economic indicators clearly showing a downturn, the actual number of borrowers whose only financial difficulty consists of their mortgage, is likely becoming smaller and smaller each month. Therefore, it is likely that even with the offer of a voluntary loan modification by the lender, the vast majority of borrowers will still seek bankruptcy relief.
