The Federal Government Worries About Your Mortgage

Isn’t it common sense to read an important document before you sign it?

Apparently the Consumer Finance Protection Bureau’s (CFPB) believes that millions of Americans are not reading (or understanding) important lender-required disclosures before they sign mortgage papers. To combat this, the CFPB is implementing new rules intended to eliminate redundancy and overlapping information, and help consumers better understand the loan closing process.
The new rules are collectively called “Know Before You Owe,” will merge four documents will be merged into two: the Truth in Lending Disclosure and HUD-1 Settlement Statement are combined into the Closing Disclosure; and the Good Faith Estimate and Truth in Lending disclosures are replaced by a new single Loan Estimate form. The most relevant details of the mortgage loan including the interest rate, the amount of the monthly payments, and a list of all closing costs are clearly spelled out all on one page.
The Know Before You Owe rules also require that the Loan Estimate must be delivered to the buyer no later than three business days after receiving the application. If there are changes during that 72-hour period, the closing could be delayed. That is a big change from the current rules that allow presentment of and changes to the HUD-1 Settlement Statement on the same day as the execution of the mortgage loan. Opponents of this rule cite that many closings may be delayed. Proponents say that the rule allows borrowers an opportunity to review and digest loan terms – and to avoid a bad deal.
The CFPB’s new rules are scheduled to take effect October 3, 2015. Will Know Before You Owe have a positive effect on the lending process? Will borrowers become more informed and make better choices because of these rules? Or will this cause costly delays, broken deals, and added consumer expense? Only time will tell.
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Things a Creditor Needs to Know About Bankruptcy

When an individual bankruptcy case is filed, the bankruptcy court sends notice to all creditors listed in the debtor’s petition. Receiving one of these notices generally prompts many questions. Below are a few of the most common questions and answers:

Q.Will I get paid?
A.This is the most common and the most important question to a creditor. Unfortunately, it is also the most complex. In very general terms, if the debt is secured by property (such as a house, a car, etc.), the debtor must either pay the debt or return the property. If the debt is unsecured (like a personal loan), disposition of the debt will largely depend on the debtor’s ability to repay the debt.
Q.What if I don’t get notified of the bankruptcy case?
A.The Bankruptcy Code excludes an unlisted debt from discharge if the failure to list the debt prevented an opportunity to file a claim or object to the discharge of the debt. However, many courts cite the “no harm, no foul” rule. If the unlisted debt was an honest mistake, there was no reason to exclude the debt on other grounds, and the creditor would not have received any relief from the court (money or other), these courts find that the unlisted debt is included in the discharge.
Q.Should I attend the 341 meeting?
A.The 341 meeting of creditors is an opportunity for the bankruptcy trustee and creditors to ask the debtor questions regarding income, expenses, assets, debts, and financial transactions. Most creditors do not attend the 341 meeting. That said, the 341 meeting is a good time to learn more about the case and whether there are available assets or excess income to pay debts.
Q.  Do I need a lawyer to represent me?
A.  Obviously, an attorney is always recommended whenever you face an important legal matter. A legal consultation can aid you in determining whether it is a good idea to incur the expense of hiring an attorney. How you proceed as a creditor in the case can vary widely: from doing nothing to actively opposing the debtor’s discharge.
Q.  Can I continue my lawsuit for eviction, child support, or personal injury?
A.The general answer is “no.” Actions to collect a debt from the bankrupt individual are immediately prohibited once the bankruptcy case is filed. This prohibition continues until the case is discharged or dismissed, or the bankruptcy court grants permission to continue the suit.
Q.  I know the debtor is lying or concealing assets. What should I do?
A. The bankruptcy process relies on the honesty of the participants to function properly. Fraud should be reported to the local U.S. Trustee. You can also send information of fraud via email to: or by mail to:
Executive Office for U.S. Trustees
Office of Criminal Enforcement
441 G Street, NW
Suite 6150
Washington, DC 20530
If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

When Your School is Under Federal Scrutiny

The U.S. Department of Education is closely monitoring 483 colleges over concerns of financial or federal compliance issues. The Department’s report, released June 1, 2015, includes three public institutions: Northern New Mexico College, Mesalands Community College in Tucumcari, N.M., and Copiah-Lincoln Community College in Mississippi. A complete list of these colleges is here.
Colleges on the Department of Education’s list are subject to “Heightened Cash Monitoring” which provides additional oversight over financial or federal compliance issues. Some schools subject to this oversight are restricted from immediate federal financial aid payouts, which always creates cash flow problems for the institution. This situation is often cited as the reason Corinthian Colleges, a for-profit institution with 72,000 students spread over 100 campuses, closed its doors.
So what happens if your college shuts down?
A current student at a college that closes has choices under the federal law. A School Closure Loan Discharge is available to a student who meets the following criteria:
  • The school closed while you were enrolled and you could not complete the program of study for which the loan was intended; OR
  • You were attending school within 120 days of the closure date or on an approved leave of absence when the school closed.
The Department also clarifies exceptions to the closed school discharge:
  • Students who withdraw more than 120 days before the closure are ineligible.
  • Students who have completed all the school’s required coursework, even if they haven’t received a diploma or certificate, cannot receive a discharge. They may transfer their credits to another institution and graduate from there.
  • Finally, the discharge isn’t unconditional. Students who complete their coursework at a different institution will be required to repay any amount that was discharged.
In the case of Corinthian and its on-going bankruptcy case, the Department of Education recently agreed to temporarily stop legal action against as many as 40,000 Corinthian borrowers who defaulted on their loans after the school closed. Attorneys for a student committee have complained that Corinthian lured students by exaggerating graduation rates. The Department reports that nearly 7,000 borrowers have applied for some form of relief, however hundreds of thousands of students took out loans to attend a Corinthian school since 2010.
If your school is in trouble with the Department of Education, it may be prudent to investigate your rights. The federal law offers protections for borrowers, but these protections are often difficult to navigate. The best advice is to seek the counsel of an experienced bankruptcy attorney.
If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to


Bankruptcy is Only for Low Wage Earners? Think Again!

According to, approximately 60 percent of bankruptcy filers have incomes of less than $30,000. For many of these filers, even a small economic hiccup can cause financial ruin, such as reduced hours at work, a lawsuit, or medical expenses.
But if you think that personal bankruptcy happens only to lower-income people, consider that many upper-income professionals are seeking bankruptcy protection. This is largely believed to be the continuing fall-out that resulted from the 2008 financial crisis. Among the professions that seem to be overly susceptible to bankruptcy include professional athletes, physicians, and investment professionals.
Professional Athletes
A recent study published in the National Bureau of Economic Research reports that nearly one in six NFL players files for bankruptcy protection within a dozen years after leaving the sport. While many professional athletes see spikes in their yearly incomes, these spikes are generally short-lived. An athlete cut from a team is likely to find himself without any income source. Even long-time professional athletes who have made many millions through their sports are not immune to personal bankruptcy filing, like boxing’s Mike Tyson, baseball’s Tony Gwynn, and football’s Warren Sapp.
Medical doctors were once considered the top of the professional food chain. However, many physicians are filing for Chapter 11 bankruptcy according to CNN Money. According to CNN, “Doctors blame shrinking insurance reimbursements, changing regulations, and the rising costs of malpractice insurance, drugs and other business necessities for making it harder to keep their practices afloat.”
Investment Professionals
During the past recession, many individuals watched a falling stock market drain their investment portfolios and retirement incomes. Others cashed out of the stock market and put their money into safer investments. One of the biggest losers during this period were small firm personal investment advisors who lost clients and transactions when investors pulled their money.

If you are experiencing financial difficulty, speak with an experienced bankruptcy attorney and discover how the federal law can help you. A high income does not exclude you from bankruptcy protection, and may be the answer to your financial woes. 

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

Will ObamaCare Reduce the Number of Personal Bankruptcy Filings?

The Wall Street Journal recently published a very thought-provoking piece in the wake of the U.S. Supreme Court decision over ObamaCare. The article entitled The Future of Personal Bankruptcy in a Post-Obamacare World hypothesizes that a mandatory health care system designed to give people access to affordable health insurance will reduce the number of personal bankruptcy cases.

The article focuses on the research of Northeastern University law professor Daniel Austin, who studied the effects of mandatory health insurance in Massachusetts on personal bankruptcy filings within that state. Professor Austin found that Massachusetts residents who filed bankruptcy in 2013 had $3,041 in medical debt, well below the national average of $8,594 in medical debt.

The conclusion of the article is that mandatory nationwide health insurance will make families more financially stable and keep them out of bankruptcy. President Obama himself has pointed out that 62.1% of consumer bankruptcies are medical bankruptcies, citing a study Sen. Elizabeth Warren (D., Mass.) co-wrote as a Harvard law professor. However, Professor Austin’s study found that only 18% to 25% of personal bankruptcies filed in the U.S. were instigated by medical debt; except in Massachusetts where 3% to 9% of bankruptcy cases were filed because of medical debt.

While this article and the related research are hopeful, there is no magic bullet to avoid bankruptcy. A 2013 study analyzing data from the U.S. Census, Centers for Disease Control, the federal court system, and other health-care system information found that 56 million Americans struggle to pay medical bills – 20% of the population between the ages of 19 and 64. This study concluded that medical insurance is not an answer. The study estimates that nearly 10 million adults with medical coverage will incur medical bills this year that they cannot pay.

Mandatory health insurance has not saved Massachusetts residents from bankruptcy filings. Massachusetts ranked 10th best bankruptcy filing rate in the United States, 11th if the District of Columbia is counted. During 2014, Massachusetts residents filed at a rate of 154 bankruptcy cases per 100,000 people. That is slightly better than New York at 162 cases and well ahead of the national average of 292.

The real conclusion here is that a personal bankruptcy is generally caused by a multitude of factors. It is rare that medical bills alone will cause a bankruptcy filing; just as the absence of medical debt will guard against financial ruin. ObamaCare may save a few individuals from bankruptcy, or prolong filing, or may have no effect at all. 

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

When a House is Not a Home

Recently, a New Jersey bankruptcy court reminded us that home is where you hang your hat. But what makes a house a home will vary between bankruptcy courts. The case was In re Abraham, 2014 WL 3377370 (Bankr. D.N.J. July 10, 2014), a Chapter 7 case involving a claim under the federal homestead exemption.

The facts in this case are a little unusual, but not all that uncommon. The married debtors moved to Tehran, Iran from New Jersey in 2011, after the husband’s business income started to decline. The couple’s adult children continued to occupy the debtor’s New Jersey home, making payments for the mortgage, utilities, and the general maintenance of the property. In 2012, the debtors filed for Chapter 7 bankruptcy protection in New Jersey, and claimed a federal homestead exemption of $43,250. The Chapter 7 bankruptcy trustee objected and argued that the property did not qualify as the debtor’s “residence” under Section 522(d)(1) of the Bankruptcy Code. The debtors maintained that the New Jersey property was their residence. They claimed their intent to return to New Jersey in the future. The husband offered his New Jersey driver’s license as proof of residency during a section 341 meeting of creditors.
Section 522(d)(1) specifically provides that under the federal exemption scheme, equity in a residence may be exempted up to $22,975 for a single debtor or $45,950 for joint debtors. However, the Bankruptcy Code does not define the term “residence.” Consequently, courts have determined the meaning of “residence” by applying either a “plain meaning approach” or a “‘residence’ as ‘homestead’ approach.” 
A minority of courts us the plain meaning approach. Under this approach, “residence” is applied expansively as a “place where one actually lives.” The plain meaning approach allows for multiple residences, or a place the debtor occupies for a period of time. 
The majority of bankruptcy courts use the “’residence’ as homestead’ approach,” which defines “residence” the same way the debtor’s state law defines the term. The bankruptcy court in Abraham chose to apply the majority view, and concluded that the New Jersey property did not functionally serve as the debtors’ residence. The debtors did not occupy the property and the court found that the debtors did not intend to return to the property. Therefore, the debtors could not apply a homestead exemption to their New Jersey property. 
If you own property in several states and intend to file bankruptcy, speak with an experienced bankruptcy attorney. How the court in your jurisdiction defines “residence” may mean the difference between keeping and losing property.
If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to

Supreme Court Denies Lien Stripping Case, For Now

One of the main benefits of bankruptcy is the ability of the debtor to restructure his finances, and, in some cases, modify debts by reducing principle or changing terms, like the interest rate or length of the contract. The opportunity to modify an underwater home mortgage is obviously an enormous benefit for someone struggling to pay bills and keep his family home. Unfortunately, Congress made it clear that Chapter 13 debtors may not modify a primary home mortgage (see 11 U.S.C. § 1322(b)(2)), and the U.S. Supreme Court decided that modifying an upside-down home mortgage is not available for Chapter 7 debtors in the case of Dewsnup v. Timm, 502 U.S. 410 (1992). 
The Supreme Court of the United States recently reversed two Eleventh Circuit decisions that allowed lien stripping entirely unsecured junior liens in Chapter 7 cases. The Court relied on Dewsnup v. Timm, but several of the justices did not seem especially keen on the outcome.
The two Eleventh Circuit cases both concerned Chapter 7 debtors who attempted to “strip off” and discharge unsecured second mortgages using Section 502(d) of the Bankruptcy Code. In each case, the Bankruptcy Court, the District Court and the Eleventh Circuit allowed the debtor to “strip off” the junior mortgage and void the lien.
In a unanimous decision by the Supreme Court, Justice Thomas reversed the Eleventh Circuit. First, the Court agreed with the debtors. Thomas examined the plain language of the Bankruptcy Code and found that under Section 506(d), a lien that secures a claim against the debtor that is not an "allowed secured claim" is void:
The Code suggests that the Bank’s claims are not secured.  Section 506(a)(1) provides that “[a]n allowed claim of a creditor secured by a lien on property . . . is a secured claim to the extent of the value of such creditor’s interest in . . . such property,” and “an unsecured claim to the extent that the value of such creditor’s interest . . . is less than the amount of such allowed claim.” In other words, if the value of a creditor’s interest in the property is zero—as is the case here—his claim cannot be a “secured claim” within the meaning of §506(a). And given that these identical words are later used in the same section of the same Act—§506(d)—one would think this “presents a classic case for application of the normal rule of statutory construction that identical words used indifferent parts of the same act are intended to have the same meaning.” (citation omitted). Under that straightforward reading of the statute, the debtors would be able to void the Bank’s claims.
Bank of America v. Caulkett, No. 13-1421, p. 3 (6/1/15).   It seemed like the debtors would have a clear victory, however the Court quickly stomped on the debtors’ throats with a big black boot:
Unfortunately for the debtors, this Court has already adopted a construction of the term “secured claim” in §506(d) that forecloses this textual analysis.
Id. The Court explained that its prior holding in Dewsnup dictated a different result:
Rather than apply the statutory definition of “secured claim” in §506(a), the Court reasoned that the term “secured” in §506(d) contained an ambiguity because the self-interested parties before it disagreed over the term’s meaning. (citation omitted). Relying on policy considerations and its understanding of pre-Code practice, the Court concluded that if a claim “has been ‘allowed’ pursuant to §502 of the Code and is secured by a lien with recourse to the underlying collateral, it does not come within the scope of §506(d).” (citation omitted). It therefore held that the debtor could not strip down the creditors’ lien to the value of the property under §506(d) “because [the creditors’] claim [wa]s secured by a lien and ha[d] been fully allowed pursuant to §502.” (citation omitted).   In other words, Dewsnup defined the term “secured claim” in §506(d) to mean a claim supported by a security interest in property, regardless of whether the value of that property would be sufficient to cover the claim. Under this definition, §506(d)’s function is reduced to “voiding a lien whenever a claim secured by the lien itself has not been allowed.”
Opinion, p. 4. Consequently, relying on Dewsnup the Court found that the unsecured second mortgages could not be avoided because the debts are “allowed secured claims” under Section 502. 
However, Justice Thomas included the following interesting footnote to the case:
From its inception, Dewsnup v. Timm, 502 U. S. 410 (1992), has been the target of criticism. (citations omitted). Despite this criticism, the debtors have repeatedly insisted that they are not asking us to overrule Dewsnup.
Justices Kennedy, Breyer and Sotomayor expressly joined in all of the opinion except for the footnote. This may be an open invitation by the Supreme Court to re-examine Dewsnup and have the case overturned.
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Fears Nachawati Sponsors Feed My Starving Children Volunteering Event

Fears | Nachawati Law Firm proudly sponsored Feed My Starving Children’s volunteering event this past weekend at the Parish Episcopal School in Dallas. Feed My Starving Children is a Christian non-profit organization committed to eliminating poverty and starvation around the world by providing food for malnourished children. Employees and their families had the opportunity to help pack meals for starvi


8th Circuit Forces Married Debtors to Consolidate Bankruptcy Cases

During bankruptcy a debtor must apply legal exemptions to protect property from creditors. The Bankruptcy Code allows the debtor to choose between state and federal exemptions, but also permits states to “opt-out” and force their residents to apply state law exemptions.

A married couple filing bankruptcy faces these same exemption law decisions. However, there is nothing in the Bankruptcy Code that forces a married couple to file bankruptcy jointly. In some cases, separate filing is sound strategy. In other cases, filing separately simply invites further litigation.
The Eighth Circuit Court of Appeals recently decided an interesting case where a married couple filed separate Chapter 7 bankruptcy cases. The husband claimed protection under the federal law exemptions, and the wife claimed Arkansas exemptions to protect her property. In this case the husband was able to take advantage of greater protections under Section 522(d) to exempt his annuities, while his wife applied an Arkansas homestead exemption to protect her debt-free home.
The bankruptcy trustee objected and sought consolidation of the two cases. The trustee argued that the debtors were “stacking” exemptions and should be forced to select one exemption scheme. The debtors responded that they were separated and maintained different households.
The Eighth Circuit was asked whether two lower courts had abused discretion by forcing the consolidation of the cases. It turned to the case of In re Reider, 31 F.3d 1102 (11th Cir. 1994), for guidance and asked two questions: “(1) whether there is a substantial identity between the assets, liabilities, and handling of financial affairs between the debtor spouses; and (2) whether harm will result from permitting or denying consolidation.” 
For the first prong, the Circuit Court examined the facts of the case: the two debtors lived separately; wife had no mortgage on her home while husband was surrendering his; they owned separate insurance policies, separate interests in businesses, separate annuities, separate IRAs, and individual credit card debt. On the other hand, the couple shared a checking account, several credit cards, and a leased car. They had jointly withdrawn funds from IRAs on two occasions, they had joint state and federal tax obligations, and were jointly liable on a civil judgment. The Circuit Court found no abuse in the decision that there was substantial identity between the debtors.
For the second prong, the Court found that the lower courts did not abuse discretion by holding that the benefit to creditors outweighed any prejudice the debtors would suffer by consolidating the cases. The Court said, “Stated differently, the bankruptcy court found that if Marilyn were permitted to exempt her home under Arkansas law and Samuel were permitted to exempt his IRAs and annuities under federal law, their separate estates would have significantly less value than if their cases were substantively consolidated and the Boellners were forced to choose either federal or state exemptions.” For more information on this case, see Boellner v. Dowden, No. 14-2816 (8th Cir. May 12, 2015). 
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Valuing Collectibles in Bankruptcy

During an individual bankruptcy, all personal property must be identified and valued. Schedule B of the official bankruptcy forms specifically requires information for all “collections or collectibles.” Valuing collectibles during bankruptcy can get tricky, and properly valuing collectibles can mean the difference between keeping and losing the property. Some collections, like Beanie Babies or Precious Moments Figurines, have poor resale value. On the other hand, gun collections have good resale value. 
In many cases, the bankruptcy trustee knows little or nothing about the collection or its condition, and will initially rely on the debtor to give a good faith estimate of its worth. The value of the collection should be a “quick sale value,” which is akin to what other similar items in the same condition are selling for in a “quick sale” marketplace like an auction or eBay.
In most cases, offering the trustee some evidence of how the collectibles are valued will end the inquiry. For instance, if prices are documented from recent transactions on eBay, or an “expert” provides a statement of fair market value, the investigation into the value of the collection may end. On the other hand, stating that a collection has an “unknown” value only leads to more questions and closer scrutiny.
Take, for example, the recent corporate bankruptcy filing by Frederick’s of Hollywood. Included in the assets of this case is a large collection of celebrity under garments worn by stars such as Marilyn Monroe, Robert Redford, and Madonna. The five page list of this collection included in the bankruptcy schedules describes each item, but states that its value is “unknown.”

The Frederick’s case is a Chapter 11 bankruptcy, which is a corporate restructuring, and many of these items may be sold at auction to the highest bidder. In contrast, most personal collections included in a Chapter 7 or Chapter 13 bankruptcy case may be protected from sale at auction due to federal or state legal exemptions. By properly valuing collectibles, an individual debtor may apply these legal exemptions and, in many cases, keep the entire collection. 

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to