Illinois Bankruptcy Lawyer Blog

Credit Report Information Graphic

In U.S. v. Robertson the 7th Circuit weighed in on the factors that should be taken into account when sentencing the perpetrators of non-criminal fraud - in this case, bankruptcy and mortgage fraud. Here the Defendants, a husband and wife, appeared to have reformed themselves and were contributing to their community when the matter came to a head.

Facts: The defendants bought up residential properties then sold them to straw men at inflated prices. The inflated bank loans were justified using false information about the buyers' finances, down payment resources, and intentions about remaining in the properties. Before it collapsed, the scheme had resulted in 37 transactions that cost the lenders involved more than $700,000.

Once their scheme collapsed the Defendants declared bankruptcy. They were questioned in the process about their business, but not immediately prosecuted by the U.S. Attorney. Once they received their discharge, the Debtors settled down, got regular jobs, and raised 3 children. The Court even determined that they had become, essentially, upstanding citizens "fully engaged" in their community.

Legal Theory: One day before the statute of limitations would have expired, the U.S. Attorney charged the couple with a single count of wire fraud under 18 U.S.C. 1343 and 2 counts of bank fraud under 18 U.S.C. 1344. The Defendants quickly plead guilty. Using prevailing sentencing guidelines the wife was sentences to 41 and the husband to 63 months in prison; and both were ordered to pay more than $700,000 in restitution.

Opinion: On appeal, the Seventh Circuit vacated the sentences handed out by the District Court and remanded the case with the admonition that the sentencing Judge take the unusually strong evidence of the couple's self-motivated rehabilitation into account.

The Upshot: Hard not to read too much into this case. At first blush it looks like the 7th Circuit was trying to balance the unilateral and inflexible nature of the Sentencing Guidelines imposed on the courts by Congress in response to the mortgage debacle. Read more narrowly however, the truly self-motivated rehabilitation of the Defendant/Debtors seemed to be the key. In other words, this was an exception, not a crack in the rules.

Recent changes made to the Home Affordable Refinancing Program (HARP) by the O'Bama Administration will allow some, but by no means all, homeowners to refinance to a lower interest rate and save on their monthly payments - even if they would not ordinarily qualify for refinancing from their lender.

Those changes to HARP cut fees for borrowers who want to refinance into short-term loans and pay off their loans faster. The changes also permit borrowers who owe more than 125% of their home's value - i.e. that are underwater - from accessing the program.

To qualify borrowers must have a mortgage that

1. Is now owned or guaranteed by Fannie Mae or Freddie Mac
2. Was sold to one of the agencies on or before May 31, 2009
3. Is now worth between 80% and 125% of your home's value
4. Has never been refinanced under the HAR program before
   

Step #1: Find out if your mortgage is owned by Fannie Mae or Freddie Mac

Step #2: Contact a HARP-approved lender to discuss your refinance options

Have any feedback? E-mail me to share your thoughts or leave a reply to this post.

The old saying is that you can't escape death and taxes. This is especially true in terms of bankruptcy. In this case the Debtor's mother passed away and the Debtor failed to disclose his inheritance to the Trustee. During the Debtor's 341 meeting, the typical question of whether or not the Debtor expected any inheritances came up. The Debtor told the Trustee that his mother was very ill. The Trustee told him that he was under an obligation to report any inheritance within the next 6 months. The mother dies 2 days after the 341 meeting. The Debtor disclaimed some of the inheritance, took some of it, and received 'gifts' from his brother. During the subsequent investigation, it was found that the Debtor also failed to list a few bank accounts in addition to failing to notify the Trustee of the inheritance. Not surprisingly, the Debtor and his brother were charged with and found guilty of bankruptcy fraud.

According to this press release from the American Bankruptcy Institute, total consumer bankruptcy filings in the first 9 months of 2011 totaled 1,044,722: a 10% decrease from the 1,165,172 filings recorded during the same period a year ago. The statistic is based on data from the National Bankruptcy Research Center (NBKRC).

September consumer bankruptcies decreased 17% from September 2010. Data showed that consumer filings in September reached 108,517 - down from the 130,329 recorded in September 2010.

"The trend of declining filings has been consistent with consumers continuing to reign in their spending, household debt, and an overall pull back in consumer credit," said ABI Executive Director Samuel J. Gerdano. "Total consumer filings for 2011 will be less than 2010."

The September 2011 filings also represented a 4 percent decrease from the August 2011 consumer bankruptcy total of 113,432 filings, a slight change that could be the result of one less day in the month. The percentage of chapter 13 filings for September was 30 percent, a one percent increase from August.

I harbor no love for The New York Times, which I consider to be arrogant, liberal, and self-satisfied. But I have to give credit where credit is due. The Old Grey lady has managed to capture the dramatic story of America's post-war economic rise and fall in these chilling graphics.

 I would have thought the Wall Street Journal or The Economist might have done it instead, but there you go. 

And the numbers tell us we've gotten ourselves into a real mess. Although naturally the Baby Boomers - America's spoiled children - rode the fat part of the curve in the 50's and 60's,  leaving ensuing generations to foot the bill. How typical.

Welcome to the 21st century's Lost Generation.

Follow this link to see the interactive Job Loss Heat Map pictured below that chronicles the state of U.S. employment from 2004 to the Present. Prepare to be disappointed and maybe a bit shocked. I know I was.

Listen. Pause. Think. Weep for our nation. I did.

http://www.youtube.com/embed/zVQ4O026rZ0?rel=0

According to the American Bankruptcy Institute, interpreting the data supplied by the National Bankruptcy Research Center, the number of consumer bankruptcies filed last month was 11% lower than it was last year. That fact is also consistent with the 2011 trend of fewer new filings each month than in the same month of 2010.

All of which sounds promising until we remember that last month 113,432 Americans still had to file bankruptcy to ward off severe financial turmoil, much of it due to their upside down mortgages and ever-sinking home values: trends that have not changed in 2011.

According to ABI Executive Director Sam Gerdano, consumer bankruptcies are declining due to the deleveraging of credit card accounts by consumers and the fact that new credit is so hard to get. 

Again I ask: how is that good news? No new credit? What if you need new appliances? A new vehicle? What if you are in a once-in-a-lifetime cash crunch? I guess it's alright as long as it's some else's pain. 

But hey, at least the August filings represented a 1% decrease from July. I know, I'm not that impressed either. Hey O'Bama, where's your messiah now? But seriously... the President had better do something or he'll end up as a one-term-wonder.

Recently the 7th Circuit Court of Appeals heard a case arising from the Chapter 11 reorganization of a golf course; although their actual decision is about the application of a seldom-used cause of action known as fraud on the court

The Facts:

Principals of a golf course tried to reorganize but ran into trouble when disgruntled creditors presented evidence of their  managerial incompetence and convinced the Bankruptcy Court in the Southern District of Illinois to put a Trustee in place to operate the business.

The principals of the course decided not to cooperate and started a new entity with the intention of transferring the course into it. Of course an Automatic Stay was in effect. Not only that, but their antics amounted to a series of transfers that were both fraudulent and preferential. So when the Court found out what had happened, it enjoined the principals from taking further action of any kind.

By then the Trustee had sold the golf course for a profit. But the principals did not want the sale confirmed and objected on 2 bases: fraud (ironically), and fraud on the court. The Bankruptcy Court shot down both arguments, and the principals appealed to the District Court, and eventually the Appellate Court.

The Opinion:

The 7th Circuit spends several pages defining fraud on the court and points out that there is no statute of limitations on the action (like murder). But fraud on the court is not formally defined in the Bankruptcy Code, the Rules, or the Rules of Civil Procedure. Instead it's loosely defined as fraud that defiles the court or is committed by an officer of the court and would not be discovered even after diligent inquiry. Examples include Attorneys committing perjury or forgery, falsifying documents, tampering with a jury, or bribing a judge.

Following their analysis however, the 7th Circuit concluded that even if there had been perjury by a shareholder that was also a lawyer, it did not rise to the level of fraud on the court because the alleged wrongdoer was not acting in his capacity as an officer of the court when he lied.

The Decision:

Since the principals of the course had not alleged that the attorney-shareholder in question lied in his official capacity but rather had conspired with the Trustee to inflate the price of the course the Court of Appeals, like the District Court, that no fraud on the court had taken place.

Hole in one.

We help Debtors keep their homes in a Chapter 13 reorganization by making the mortgage company accept past due payments over time. But even that won't reduce future payments. That calls for mortgage modification or a lien strip. What's a Chapter 13 lien strip? Allow me to explain.

The lien strip technique permits Chapter 13 debtors to remove wholly unsecured mortgages from their primary residences. See In re McDonald, 205 F.3d 606 (3 Cir. 2000), which explains a lien strip may only be used by one in Chapter 13; Dewsnup v. Timm, 502 U.S. 410 (1987) explains why Chapter 7 debtors may not take advantage of the lien strip. Not that if joint debtors own their primary residence jointly or in tenancy by the entirety, they must both be in bankruptcy to affect a lien strip.

Example:  Debbie and Danny Debtor bought a house in 2002 for $150,000 and put down $0; so the first mortgage is $150,000. Over the next few years the house appreciated in value on paper (ahhh, the good old days ...) so they naturally took out a pair of $25,000 lines of credit. In 2011 however, their house is worth a mere $100,000 but they still owe $140,000 with respect to their 1st mortgage and $25K a piece on the two HELOCs. Hence the two junior mortgages are wholly unsecured and can be dealt with via lien strip.

http://www.newser.com/story/125587/law-school-duped-us-about-job-prospects-al...

Mazyar M. Hedayat, Esq.
Sent from my iPhone