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Bankruptcy and the Zealots Who Oppose It

04 Jun, 2013

I came across an article in Forbes a while back by Stephen J. Dunn, an anti-bankruptcy zealot  who is primarily a tax attorney.  Mr. Dunn is convinced that no one should file bankruptcy because he believes it is simple to negotiate a settlement with creditors.  I suppose it is simple if you have the money to pay.  But if you don’t, what happens then?  Well, I assume they don’t go to Mr. Dunn because they can’t afford his hourly rate.

While he points out what can go wrong if the petition is improperly prepared, the same could be said for a tax return filing.  If a professional does a professional job, however, there is no reason for anything to go wrong.   Also, it is a lot easier to deal with a bankruptcy trustee than it is to deal with the IRS bureaucracy.

I do take offense at his main contention that the only person benefiting from a consumer bankruptcy is the debtor’s attorney.  Debtor attorneys make much, much less money than creditor attorneys.  If we were greedy, we’d represent creditors instead of debtors.  That’s where the real money is to be made.   The bankruptcy court limits debtor attorney fees far more than it limits creditor attorney fees.  He claims that “It is a fact that consumer bankruptcies have a high rate of legal malpractice. ” This is an overgeneralization because my malpractice insurance isn’t very high compared to really risky specialties like personal injury, securities law, banking, and real estate.   Would Mr. Dunn claim that you shouldn’t go to a real estate attorney or securities law attorney and just do it yourself?  Of course, those professions aren’t his competition.

The bottom line is that Mr.  Dunn strongly implies that all bankruptcy attorneys are scoundrels and crooks, painting us all, good or bad, with the same tar brush.   Besides being an overgeneralization, I wonder if it might also be a violation of the ethics rules on advertising, which don’t allow an attorney to advertise he can produce a better result than another attorney unless he can factually substantiate it?  While there can be a gray area and question as to whether a news article may actually be an advertisement in disguise (being a columnist in some circumstances could be conceived as marketing), his vehemence and tone may also  cross the line of journalistic integrity.  His glibness and overgeneralization about my profession, however, just ticks me off, as it was intended to do.   But do we really want attorneys to imitate Rush Limbaugh?  I don’t think it helps our profession.

Even Dave Ramsey, who used to hate bankruptcy, has moderated his opinion about bankruptcy over time, and usually sponsors a booth at one of our conventions.   He tries to find ways to help his clients avoid bankruptcy (which I agree with – so do we), but he understands that sometimes it is necessary  – and that is the key.  People don’t file because they want to file, or they’ve been conned into filing – they file because it’s the only choice left that works.   Bankruptcy works.

For my part, I am reasonably certain that Mr. Dunn is a fine tax and trust and estates lawyer.  I might even use him, if I could afford him – but being a consumer bankruptcy attorney, I probably can’t.  Neither could most of my clients, which I suspect is why they come to me and not to him.  They too have learned from experience – now they know that the myth of friendly creditors ready to work out and compromise debts in a reasonable fashion usually does not stand up to cold, hard reality.


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The British Are Leaving, The British Are Leaving

19 Mar, 2013

If you recently have been the subject of collection efforts by Springleaf Financial, it’s because they, along with Newcastle Investment, recently purchased the United States loan portfolio of British lender HSBC.  When you buy something for $3.2 billion, you would like to make a profit on the deal.  There are some signs that Springleaf is being more aggressive than HSBC.   About 400,000 consumer and homeowner loans are affected.  Springleaf didn’t just buy the loans, they also bought the loan servicing facility formerly run by HSBC.   Last year, HSBC sold its credit card operations to Capital One, another aggressive and litigious debt collection operation.

HSBC has recently been fined $1.2 billion for admitting to laundering $881 million belonging to Mexican and Columbian drug cartels, and now the government of Argentina has filed criminal money laundering charges against a local unit of HSBC.  The Senate Banking Committee has questioned Administration officials as to why large banks are considered “Too Big to Jail.”

The rumor is that HSBC will likely lay off at least 5,000 employees to make up for the losses from paying the fines.  That should help the firm, but not the economy.  Of course, it still paid out bonuses to top executives last year.

Bankruptcy attorneys should remember to keep track of the changes in ownership and note the history of sloppy recordkeeping.










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Three Tips or Three Myths?

01 Mar, 2013

My colleagues and I are often shocked by the misinformation that passes for financial advice these days.

The latest comes from – in its personal finance section – entitled “Three Tips to Preventing Personal Bankruptcy. ” Surprise, surprise – Fox is against it, even if you have “crippling debt.”

They recommend (1) calling creditors, (2) boosting cash flow by selling things, and (3) asking help from a debt counselor.

This approach has three false assumptions. It assumes (1) you haven’t already called creditors and found they refuse to work with you (or sold your debt for pennies to a law firm which is now suing you), (2) you already sold things and have nothing left to sell (except maybe your children and your blood), and (3) the non-profit debt counselor doesn’t create an unreasonable payment plan that pays him first while giving you no protection from lawsuits while you are trying to pay.

One of the highest paid executives in the U.S. runs a non-profit. There is a lot of profit in non-profits. Also, I remember the debt counselor that set up a budget for a client including nothing for rent and $39 a month for gas. Since my client didn’t own a car, I suppose he thought she would drink the gasoline.

Yes, bankruptcy can screw with your credit rating, but so can not paying your bills, and getting judgments against you. Judgments stay on a credit report twice as long as bankruptcy does.

It’s remarkably facile for them to suggest a debtor should get a second job (after they have been laid off from their first job and haven’t been able to find work in 2 years).

When the banks went broke, they didn’t sell things or take on an extra job – they got the government to bail them out, while the economy crashed around consumers.

I believe their tips are a bum steer. And you know what comes out of the back end of a bum steer.

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Why Do People File Bankruptcy Without a Lawyer?

22 Feb, 2013

I receive questions all the time from people who already filed for bankruptcy on their own. They managed to get the petition filed but then realized there were issues they could not answer, or they received a discharge and an issue came after the case was closed that they did not handle during the bankruptcy. Sometimes I can help, but often it is too late, and a simple issue has now become a real disaster.

I get questions like “Can someone come after me for an auto lawsuit if I’m in a Chapter 13 bankruptcy?” or “What is the remedy for someone who has filed Chapter 13, and the case has been dismissed due to non-payment? Can they file Chapter 7?” or “If I filed bankruptcy a few years back, why would my name still be on the title of a home?” or even “I filled for bankruptcy in 2009, I then was given a promissory note in 2010 to short sale my house. Do I have to pay the promissory note even though I filled no on property, chapter 7?”

Penny wise, pound foolish. I wonder – would these people do their own brain surgery? People may think filling out a petition is not rocket science, but it’s actually harder. Rocket science follows consistent rules, bankruptcy often does not. There is one valid comparison to rocket science, however. If you do something wrong, it can blow up on you.


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Update on school loan relief legislation

13 Feb, 2013

In his State of the Union Address, President Obama spoke about the need for education to get the high tech jobs of the future – but he didn’t speak about what happens if the job is not there when you graduate with heavy student loan debt.

Fortunately, there is some movement on providing student loan relief, at least with respect to private student loans. These private loans used to be dischargeable in bankruptcy until the revisions of the 2005 Act (BAPCPA). In the Senate, S. 114 will be going to the Judiciary Committee, and in the House HR 532 is also winding its way through the committee review process. If passed and signed, private student loans will once again be dischargeable in bankruptcy (although there will still be several hoops to jump through to get there).

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10 Feb, 2013

Most people think Federal law is treated the same in every state. Nothing could be further from the truth. Sometimes the way the law is applied not only varies from state to state, but from district to district in the same state.

The reason this happens is twofold. First, Federal bankruptcy law decisions often intersect with and even depend on state law standards, which can vary depending on what state you are in. Second, every court has its own local rules, which strongly affect how things are done. Judges are given a lot of leeway in how they run their courts, so what works in one court may not work in another.

As a result, even experienced bankruptcy attorneys can have a problem if they are in an unfamiliar court. So, remember – in bankruptcy, because debtors don’t usually have the money to appeal decisions, often the law is not what the statute says, but what the judge says.

For FAQ on bankruptcy, go to

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Scary News – Don’t Trust Those IRS 1099 Debt Cancellation Forms

04 Feb, 2013

BIG NEWS: Just because your debt is marked “cancelled” does not mean they can’t try to collect it.  Despite the filing of a 1099 with the IRS, a creditor can still try to collect on a debt.

Athough it seems counterintuitive to cancel a debt and collect, some bankruptcy caselaw, such as In re Zilka,  says it can be done.

Basically, all a 1099 does is tell the government about the accounting treatment on the books of the creditor.  According to some cases, the creditors can still change their mind and file an amended 1099.

Therefore, unless the creditor also affirmatively writes you that they have waived any collection of the deficiency, and that the entire debt is now discharged, they can still try to come after you, even in bankruptcy.

So, be careful out there if you are trying to settle your debts.

And have a serious talk with your tax advisor about the tax effects of a 1099.





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Bankruptcy Help and Loan Modification

17 Oct, 2011

My Rochelle Park office is close to Paterson, Hackensack, Teaneck, Clifton, Bergenfield, Englewood, and other parts of Bergen County.

I also provide bankruptcy help in My Newark office (zip code 07102) is close to Irvington, East Orange, Belleville, Kearny, Elizabeth and adjoining areas of Essex County or Union County.

I provide bankruptcy help in New Jersey, including but not limited to, Bergen, Essex, Passaic, Middlesex and Hudson County, and New York.

My other website for bankruptcy is


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