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John McCain: The Fundamental Deregulator

Oh, Burn!!

Burn is an exclamatory response, generally by a third party, after someone has just received an insult.  It is slang for disrespecting someone or to make fun of someone.  It is so humiliating or insulting to the point where you cannot return with a comeback.

I have thought, "Oh, BURN!", or its equivalent, a couple of times over the last decade.

The first was during bankruptcy deform, in which these large financial institutions pushed through Congress and the White House reforms that were not needed, and for which there was no motivation for no better reason than to make bankruptcy harder for consumers to file.  Phil Gramm, who is now John McCain's economic adviser, was a United States Senator during part of the debate over bankruptcy reform, and I recall him getting on national TV, and sending out mailers, referring to those who file bankruptcy as "deadbeats".  This practice was repeated by his successor, John Cornyn, who liked to refer to those who file bankruptcy as "deadbeats".  I always thought, no matter what the arguments or what the position taken, that these two otherwise disrespectful men went out of their way to not only advance their contributor's goal, but to intentionally disparage, belittle, dishonor, derogate, defame and slur those who felt they needed this protection.

Certainly the Republicans were not the only ones to blame for this fiasco.  Many Democrats were complicit.  And, were John Cornyn could almost be forgiven because, I doubt from his demeanor in office, that he is very bright.  However, is not Phil Gramm's excuse.

The second "Oh, Burn" moment came when I read about the $700 Billion bailout of the large financial institutions so as to prevent them from filing bankruptcy.  None, or little, of that money is going to help ordinary folks that might have been affected by the conduct of these banks.

You can say what you want about the pros and cons of the bailout, but the philosophy of it show an hypocrisy that is huge and shows a blatant type of contempt for common people.

What this monetary philosophy entails is the privatization of profits, but the socialization of risk or losses.  When there is money to be made or bilked, the government should get out of the way and never interfere, but the government should be made solely responsible for the risks and losses associated with the escapades of the financial institutions.

This was the same argument people like Gramm, Cornyn, Bush, McCain and many on both sides of the divide in Congress argued in regard to the so-called bankruptcy reform measures in Congress.  They argued that in essence that by allowing middle class people to just file bankruptcy when times got tough for them, without regard for the better times they might have had in the past, that the government was allowing these people to privatize profits and to socialize their loses, and that was wrong in their minds at the time.

Now, after middle class people are forced into 5 year repayment schedules not based on their actual budgets or earnings, we are creating what is now a trillion dollars of relief for Wall Street, while ignoring Main Street, and while denying ordinary people the right to achieve the same result when they find a financial meltdown unavoidable.

The 10 Largest Bankruptcies In History

With Lehman Brothers filing the largest bankruptcy in history, there are a couple interesting points to make.

First, in a democracy, what is a right for the biggest and most powerful corporations among us, should be a right extended to the least consumer among us.  After all, this is also Biblical, is it not?  "Whatever you do for the least of these my brothers, you do it to me".  Matthew 25:40.

Second, it is interesting to view the top 10 biggest brothers (bankruptcies) of all time to give you the size and enormity of that right.  These are:

1.    Lehman Brothers - $639 billion in assets.
2.    Worldcom - 103.4 billion in assets.
3.    Enron - $63.4 billion in assets.
4.    Conseco - $61.4 billion in assets.
5.    Texaco - $35.9 billion in assets.
6.    Financial Corp. of America - $33.9 billion in assets.
7.    Refco - $33 billion in assets.
8.    Global Crossing - $30.2 billion in assets.
9.    Pacific Gas and Electric - $29.8 billion in assets.
10.  United Airlines - $25.2 billion in assets.

Lead Them Not Into Temptation

The problem for many big corporations, insurance companies, financial institutions and even consumers to a lesser degree is that it is easy for a lawyer to lead them into temptation.  To the lawyer it is the means of getting paid more per case.  To the entity it is the feeling of feeling vindicated, even if the final result does not necessarily turn out that way (kind of like the last act of defiance).

We all know lawyers that do this.  Not only do we know who they are, they know who they are.  They probably live a little better than the rest of us, they are never in their offices because they are always in depositions somewhere, and they probably have the best hourly and collection rates around.  In East Texas we say that they are "Board Certified in Billing".

From my perspective typically representing the Plaintiffs, it comes at me this way.  "My client does not think it did anything wrong".  Or, their client wants to argue that a 1949 decision out of Puerto Rico represents a line of cases that represents good law, even if it goes against every decision in the circuit in which the suit resides.  Or, the one I love the best, is that the attorney is concerned not for his client, but what message this sends if he allows his client to settle this claim.  There is of course the so-called "Wal-Mart Defense" in which not only will there be no settlement, they will try to bury you regardless of the costs, for the principal of the thing.  It has to be the delight of those attorneys who think to highly of themselves to convince their clients that this is a viable option.

The problem for many big corporations, insurance companies, financial institutions and even consumers to a lesser degree is that it is easy for a lawyer to lead them into temptation.  To the lawyer it is the means of getting paid more per case.  To the entity it is the feeling of feeling vindicated, even if the final result does not necessarily turn out that way (kind of like the last act of defiance).

We all know lawyers that do this.  Not only do we know who they are, they know who they are.  They probably live a little better than the rest of us, they are never in their offices because they are always in depositions somewhere, and they probably have the best hourly and collection rates around.  In East Texas we say that they are "Board Certified in Billing".

From my perspective typically representing the Plaintiffs, it comes at me this way.  "My client does not think it did anything wrong".  Or, their client wants to argue that a 1949 decision out of Puerto Rico represents a line of cases that represents good law, even if it goes against every decision in the circuit in which the suit resides.  Or, the one I love the best, is that the attorney is concerned not for his client, but what message this sends if he allows his client to settle this claim.  There is of course the so-called "Wal-Mart Defense" in which not only will there be no settlement, they will try to bury you regardless of the costs, for the principal of the thing.  It has to be the delight of those attorneys who think to highly of themselves to convince their clients that this is a viable option.

I Guess Bankrutpcy Attorneys Are Debt Relief Agencies Again -- But How Much Does It Matter?

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 started requiring certain people and entities to disclose to consumers in looking to file bankruptcy that they are a "Debt Relief Agency", and to instruct potential bankruptcy filers not do to do things such as not to incur more debt before filing.  See, 11 U.S.C. §§ 526(a)(4) and 528(a)(4) and (b)(2).  Since this time bankruptcy attorneys across the nation have been contesting the fact that they classified as a "debt relief agency" under the these code provisions, because these provisions do not necessarily include the direct application of "lawyer" or "attorney".  They have also, been disputing that the law can constitutionally restrict them from advising their clients to incure new debt, because in some situaitons involving the mortgage crises, this might be benefical.

The matter is important to consumer bankruptcy attorneys on an emotional, practical, and legal level.  On an emotional level, most attorneys do not believe they competed to get into law school, lived through that grind, and pass an impossible bar exam just to have bare the mark that compares it to other fly by night organizations.

On a practical matter, debt relief agencies have a duty to provide certain disclosures to debtors within a short period after meeting with them.  This does not sound onerous on its face, but most consumer bankruptcy attorneys are kind enough to offer most people free evaluations when the new law places terrible restrictions on them already concerning these services.  It literally takes hours of their time, already discouraging attorneys to practice in the area.  Also, many attorneys are nice enough to talk to consumers over the telephone.  This puts the attorney at risk of not being able to provide these disclosures.

On a legal level, bankruptcy attorneys do not believe that Congress should be allowed to prohibit them from advising their clients in ways that might be financially beneficial to the client, as the new Code provisions do.

Then, of course, there is the whole issue of the question itself.  If an attorney does not know if the provision applies to him or her, how does he or she know to try and comply with it.  So, attorneys have been racing around the country trying to get this issue before bankruptcy courts and district courts to get some degree of clarification.  Needless, to say these decisions have been mixed, at best, leaving some attorneys practicing in a particular court, not having to comply, and those in another court having to comply.

This whole discussion is predicate to a decision of first impression being handed down by one of the United States Courts of Appeal, which states that attorneys are debt relief agencies and must comply with those disclosure provisions, but striking down that part of the law as unconstitutional to prohibits attorneys from advising their client as to incurring debt.  In effect, the 8th Circuit splits the baby.

In Milavetz v. United States of America, the 8th Circuit Court of Appeals found that the new term, "debt relief agency" as defined in 11 U.S.C. § 101(12A), is not ambiguous.  Holding with a majority of the courts that have ruled on this matter, including the Texas case, Hersh v. United States, 347 B.R. 19 (N.D. Tex. 2006), "constitutional avoidance" does not apply in this as to the "debt relief agency".  The Court of Appeals defined constitutional avoidance as "where an otherwise acceptable construction of a statute would raises serious constitutional problems, the Cour will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress".  Thus, if interpreting "debt relief agency" to include attorneys would raise constitutional problems, the Court would look for another interpretation.

Ultimately, the Court found that "debt relief agency" includes attorneys because they were not expressly excluded from this group under 11 U.S.C. § 526(d)(2), and because the limited congressional history specifically discussed this provision in terms of "professional standards for attorneys".  The Court also found that providing this disclaimer is does not violate the constitution guarnatees of free speech.

This being the case, the 8th Circuit had to determine if the prohibition restricting attorneys from discussing with clients the possibility of incurring new debt was overly broad and thus unconstitutional.  The 8th Circuit found it was.

The Court ruled that § 526(a)(4)'s plain language an attorney is prohibited from providing this beneficial advice—even if the advice could help the assisted person avoid filing for bankruptcy altogether. For instance, it may be in the assisted person's best interest to refinance a home mortgage in contemplation of bankruptcy to lower the mortgage payments. This could free up additional funds to pay off other debts and avoid the need for filing bankruptcy all together.  The Court found that Incurring these types of additional secured debt, which would often survive or could be reaffirmed by the debtor, may be in the debtor's best interest without harming the creditors.

The end result is that, at least in the 8th Circuit, and probably around the country, bankruptcy attorneys are going to have to use the "debt relief agency" moniker and provide certain minimal disclosures, but § 526(a)(4) is no more, and the government cannot tell you not to provide beneficial information to your clients.

(Pictured is the Hon. Lavenski R. Smith who wrote the opinion).

OBiden -- How Both Oboma, Biden, and McCain For That Matter, Handed Bankruptcy Reform

Barack Obama voted against BAPCPA, but also voted against capping interest rates on credit cards, so that is a mixed bag.

McCain and Joe Biden, Obama's VP nominee, both voted for BAPCPA.

Joe Biden, however, was one of the leaders pushing BAPCPA and fending off almost all attempts to amend it.  This is certainly different from his image as an average Joe, who comes from and is always concerned for the working and middle class.

Biden even went as far as attempting to remove the language from BAPCPA that would have precluded a bankruptcy discharge for debts arising from portests at abortion clinics.

All of this prompted many to refer to Biden as "Senator MBNA", refering to his close relationship with the company, from his home state, and the large donations he received from and as a result of the company.

IndyMac Files For Bankruptcy Protection

According to The New York Times and others,IndyMac Bancorp, the third-largest banking failure in United States history, said that it had filed for bankruptcy protection, less than three weeks after being seized by federal regulators following a bank run by depositors.

Based in Pasadena, Calif., the holding company for IndyMac Bank filed for Chapter 7 protection on Thursday with the federal bankruptcy court in Los Angeles, indicating it plans to liquidate. IndyMac said it expected the court will appoint a bankruptcy trustee promptly.

IndyMac Bancorp has $50 million to $100 million of assets, $100 million to $500 million of liabilities, and fewer than 50 creditors, according to the bankruptcy filing.

The collapse of IndyMac was the largest U.S. banking failure in two decades. Regulators at the time said IndyMac ended March with about $32 billion of assets, and about $19 billion of deposits, most of which were insured.

IndyMac was the fifth of seven bank failures this year, the F.D.I.C. said.

IndyMac once specialized in "Alt-A" and other below-prime home loans, which often did not require borrowers to fully document income or assets.

It collapsed as borrower defaults began to mount, while tight capital markets forced it to take losses on mortgages it sold and kept on its books.

10th Circuits Adopts Objective-Coercion Principle In Discharge Injunction Violations

The United States Court of Appeals, Tenth Circuit opened the door to the Objective-Coercion Principle in discharge injunction violations.  In doing so, however, it distinguished the facts of the case at hand and ruled against the debtors because neither the Bankruptcy Court findings, nor the Debtor's testimony met the guidelines set out by the 10th Circuit.

In the case In re Paul, Circuit Judge Stephen H. Anderson issued the opinion that states that the Objective-Coercion Principle "operates as an overarching exception" to the rule that actions that do not directly violate the 11 U.S.C. §524 discharge injunction may still be a violation of §524(a)(2) if it can be shown that a "creditor acted in such a way as to 'coerce' or "harass' the debtor improperly so as to theoretically force them to pay a discharged debt.

The 10th Circuit, therefore, adopts the theory first established by the 1st Circuit Court of Appeals in its decision In re Pratt in 2006, except that the 10th Circuit did not find that the facts before it in In re Paul met the standard set.

Federal Regulators Seize IndyMac Bank

The real estate market is obviously not going to wait for Congress to act.  It is making decisions on its own as to what banks and companies will survive the real estate meltdown.

According to CNNMoney, in what in what is likely to be the most expensive bank failure ever, troubled mortgage lender IndyMac Bank was taken over by federal regulators.  The operations of the Pasadena, Calif.-based bank were shut down by the Office of Thrift Supervision and transferred to the Federal Deposit Insurance Corp.

The clean up of this bank is expected to costs the Deposit Insurance Fund between $4 billion and $8 billion, and worse still it is expected that 10,000 IndyMac customers could lose as much as $500 million in uninsured deposits.

IndyMac, with assets of $32.01 billion and deposits of $19.06 billion, is the fifth bank to fail this year. Between 2005 and 2007, only three banks failed.  IndyMac marks the largest bank collapse since 1984, when Continental Illinois.

Most media is reporting extensively on what will happen to depositors in the bank.  The bigger question it seems is what does this do to already pressed mortgage borrowers (debtors).  As these troubled mortgage loans are sold off the collections activities against the borrowers are likely to become more aggressive.  This will undoubtedly have a big impact on bankruptcy filings and bankruptcy based litigation.

J. Brian Allen - Northeast Texas Bankruptcy Lawyer

There is a new blog on the block concerning consumer bankruptcy issues in Northeast Texas.

Many of you already know him, but if not welcome J. Brian Allen and his new blog Northeast Texas Bankruptcy Lawyer.  You can view it by CLICKING HERE.

Brian has a good deal of experience in both this legal and geographic area.  And, his blog already has a good deal of vital and interesting content.

One interesting thing, Brian Allen has included a page that lists politicians, famous people and celebrities that have filed bankruptcy. This is vitally important for those in need of bankruptcy protection to know that they are not alone.

In this day and age of bankruptcy marketing if you do ignore the Internet you do it at your own peril.  A blog not only offers you an opportunity to reach people directly, but it can be the hub of all of your network and relationship marketing activities.

Brian sought the help of Grant and Clay Griffiths over at G2WebMedia to set up his bankruptcy blog. Grant Griffiths is one of the pioneers of blog based marketing.  His Kansas Family Law Blog drew 100,000 plus views it first year out of the gate.  He understands what it takes to make a practice blog an effective marketing tool.

(Brian Allen pictured at his new blog going live)