Massachusetts Bankruptcy Lawyer

A bankruptcy case would be filed in the appropriate District where debtor has their “domicile” or “residence” for 180 days before filing or for a longer part of this 180 day period than another District. “Domicile” or “residence” would be where the debtor lives for most of the time – so a debtor whose family has relocated elsewhere or whose work requires frequent travel out of state would still file in the District of their legal residence. If a person contemplating bankruptcy is moving, they would be well-advised to file their case while they are still in their former address before relocating.

Many homeowners considering bankruptcy for unsecured debts have questions about concurrently modifying their home mortgages using federal relief available through the Home Affordable Modification Program (HAMP). This relief is available for homeowners whose monthly mortgage payment exceeds 31 percent of their verified gross (pre-tax) income. These homeowners must own a one- to four-unit home that is their principal residence; have received their mortgage on or before January 1, 2009; have a mortgage payment (including taxes, insurance, and homeowners’ association dues) that is more than 31 percent of their gross (pre-tax) monthly income; owe an amount that is less than or equal to $729,750 on their first mortgage for a one-unit property (with higher limits for two- to four-unit properties); and have a documented financial hardship. The Making Home Affordable Program which administers this relief uses applicants’ financial information to determine whether the applicants suffer hardship.

If you are in an active (open) Chapter 7 or Chapter 13 bankruptcy case, you must be considered for a HAMP modification if you, your attorney, or the bankruptcy trustee submits a request to the loan servicer. If you are in a HAMP trial period plan and subsequently file bankruptcy, you may not be denied a HAMP modification on the basis of the bankruptcy filing. Loan servicers can extend the trial period, but only for an additional two months, resulting in a maximum five-month trial period. Even if you have received a Chapter 7 bankruptcy discharge, you are eligible for HAMP. If you did not reaffirm your mortgage debt, the following language must be inserted in the Home Affordable Modification Agreement: “I was discharged in a Chapter 7 bankruptcy proceeding subsequent to the execution of the Loan Documents. Based on this representation, Lender agrees that I will not have personal liability on the debt pursuant to this Agreement.”

New median household income figures based on U.S. Census information will take effect and apply to cases filed after November 1, 2010. Depending on household size, this could make qualifying for Chapter 7 relief easier for some while forcing certain households into means testing. A single-person household in Massachusetts will see their income limit increase slightly, potentially allowing more people in this situation to qualify for bankruptcy. However, two-person households will see their income limit drop, meaning certain households, especially with two working adults, may be forced into means testing. Household income levels have increased slightly for households of more than two people.

A recent court decision emphasizes the need for consistent reporting of financial information on bankruptcy schedules. The case, In Re: Riley, Christina C. (Lawyers Weekly No. 04-083-10) (15 pages) (Feeney, J.) (USBC) (Chapter 7 case No. 09-10096-JNF) (Sept. 14, 2010), was a Chapter 7 bankruptcy in which a creditor had filed a motion to dismiss for abuse. The creditor claimed that debtor’s salary on the Burlington Public Schools’ schedule gave debtor $4,133 more income for the year 2010-2011 than she had reported. However, debtor’s actual income appeared to be less than this potential amount, and was in fact inconsistent and reduced by absences from work. The court did question debtor’s expenses as listed on Schedule J. A $1,700 monthly amount for child care expenses could not be documented by canceled checks. However, debtor had completed a family court financial statement reporting child care expenses of $466 per week or $1,864 per month. The court found that “although her income is stable and she is eligible to be a debtor in a Chapter 13 case, this Court cannot find that she has the ability to repay creditors out of future earnings, unless her expenses on Schedule J are overstated or are likely to be reduced, particularly due to the pre-school ages of her children.” Although bankruptcy debtors are not required to file supporting documentation for the expenses they report, they should take care to ensure that the amounts listed are as accurate as possible in order to avoid complaints for abuse.

In Massachusetts, there were 12,430 foreclosures in 2008. Foreclosures this year could reach 15,000. In order to deal with the inadequacies of our state’s non-judicial foreclosure procedure and the low acceptance rates of the federal Home Affordable Modification Program, HAMP, the legislature and governor signed into law “An Act Relative to Mortgage Foreclosures,” Chapter 258 of the Acts of 2010. Under the new law, before banks can foreclose, they must demonstrate an attempted good-faith effort to negotiate a “commercially reasonable alternative to foreclosure,” which can be done by an in-person or telephone conference. The 90-day right to cure period by delinquent borrowers has been extended to 150 days, with exceptions for creditors who can show they made attempts at the above-described alternatives. But borrowers can waive their right to this meeting and give themselves an extra 60 days. Borrowers still have to communicate with their bank within 60 days and the extended right to cure period can only be granted once every three years. A “creditor’s representative,” someone who has authority to negotiate the terms of and modify a mortgage loan, must be present at the meeting to discuss alternatives. According to the new law, the good faith standard includes an assessment of the borrower’s income and debts, a net present value test weighing the investor’s advantages of modification versus foreclosure, and consideration of the taxpayer’s interest if there are government funds involved. The bank sends a notice documenting these attempts to the borrower ten days before any meeting. Borrowers must respond within 30 days to any offer of loan modification. Tenants are also protected under the new law and cannot automatically be evicted from foreclosed properties except for “just cause” or if the property is sold to a non-bank third party. Foreclosing owners must provide their tenants with a 30 day notice of new ownership, payment and court eviction hearing rights.

Most retirement accounts, including pensions and 401 (k) plans, are exempt property in a Chapter 7 bankruptcy case. However, a recent decision confirms that debtors should avoid excessive contributions to such plans that may be viewed as preferential transfers in avoidance of payments to creditors. In the case In Re: Corridori, Matthew A., et al. (Lawyers Weekly No. 04-081-10) (5 pages) (Hoffman, J.) (USBC) (Chapter 7 Case No. 10-41645-MSH) (Sept. 1, 2010), debtor husband was contributing $1,373 a month to his 401 (k) retirement plan and debtor wife was contributing $67 to her retirement plan. While retirement contributions are ‘untouchable’ in Chapter 13 under 11 U.S.C. s.541(b)(7), “just because the Debtors may not be able too confirm a hypothetical Chapter 13 plan does not mean that they are entitled to relief under Chapter 7.” Such contributions would actually give debtors an excessive difference between income and expenses that would disqualify them from Chapter 7 and convert their case into a repayment of creditors under Chapter 13.

Usually, debtors filing a Chapter 7 bankruptcy petition are allowed to keep the house where they live. However, mobile homes present an interesting twist on the definition of a house. Traditionally, the homestead exemption applied only to land that could be recorded at the local registry of deeds. If a mobile home is more or less permanently situated, it would still probably qualify as a homestead as long as the local registry of deeds could file a declaration for the property. However, mobile homes would otherwise be considered as non-homestead property, equivalent to a motor vehicle. Debtors over the age of 62 in Massachusetts can seek protection for their mobile home residence under M.G.L. c. 188, s. 1A, which applies the homestead exemption to “manufactured homes,” which would include all mobile homes. Debtors younger than 62 would have to make sure their mobile home is covered by the federal real estate and wildcard exemptions as their non-homestead property.

A recent federal appeals court decision, U.S. Court of Appeals, 8th Circuit. Carpenter v. Ries, No. 09-2897. July 30, 2010. Lawyers USA No. 993-2148., reinforces a bankruptcy debtor’s right to retain an award of Social Security benefits. Section 522(d) of the Bankruptcy Code allows a debtor to claim as exempt “the debtor’s right to receive . . . a Social Security benefit.” However, the lower court had disallowed this exemption as the debtor received a $17,000 payment for retroactive Social Security disability benefits six months before his filing. These funds were segregated from other assets in a separate bank account. The 8th Circuit found that the exemption did not apply because this case did not involve a “right to receive” benefits, rather the benefits were already paid. On appeal, the court allowed the exemption as Section 407(a) of the Social Security Act “automatically and completely excludes social security proceeds from the bankruptcy estate, and not as an exemption provision which must be claimed by the debtor.”

Preferential payments are basically payments made by a bankruptcy debtor to a creditor not listed on the bankruptcy petition. In order to determine whether debtors filing bankruptcy have given “preference” to certain accounts over the others, the Statement of Financial Affairs requires debtors to list total payments of more than $600.00 made to a single creditor within the ninety days prior to filing bankruptcy. Debtors are also required to disclose any payments made to “insiders,” who would be close family members or friends, within the past year. Any of these payments given preference over other bankruptcy debts are subject to being reversed by the bankruptcy trustee in order to pay creditors listed on the petition. Any recovery that is obtained can be shared by creditors filing a proof of claim with the bankruptcy court.

Filing bankruptcy should not be taken lightly. It is a last resort during financially difficult times that will allow you to not have to pay most of your debts if you qualify for a Chapter 7 discharge. This includes credit card debts, car loans, mortgage or other types of personal loans. If you are able to afford payments then you may be able to discharge credit card bills but keep your home and car.

The main exceptions to discharge, which means that the debts that have to paid regardless of whether you file bankruptcy are student loans, taxes and other government debts and payments arising by court order, such as family court support and criminal restitution.

Filing bankruptcy might also be the safer alternative to having bad credit and negatively affecting your employment and financial qualifications. This might damage your credit at first but is the first step toward restoring and repairing your credit.