TV Star Teresa Giudice Sues Bankruptcy Lawyer

“Real Housewives of New Jersey” star Teresa Giudice has sued her former bankruptcy attorney, claiming he botched her family’s bankruptcy filing in 2010. Her high–profile bankruptcy resulted in a 15 month prison sentence for Giudice and a 41 month sentence for her husband, Joe, after the couple was convicted of hiding assets during their bankruptcy proceeding.

In a three count lawsuit filed in Manhattan Supreme Court, Guidice makes claims against attorney James Kridel for Negligence-Legal Malpractice, Breach of Contract, and Breach of Fiduciary Duty. Kridel is alleged to have never met with Teresa Giudice before filing the bankruptcy case, and failed to conduct a reasonable investigation into her financial affairs. She claims that Kridel acted negligently in

“(a) representing the Plaintiff throughout the Bankruptcy Case when it was apparent that he lacked the ability to competently represent the Plaintiff;

(b) negligently preparing materially inaccurate amendments to the schedules and statement of financial affairs;

(c) negligently advising Plaintiff throughout the Bankruptcy Case;

(d) negligent representation in connection with the Section 341 Meeting; and

(e) negligent representation in connection with the 2004 Examination.”

Giudice asks for $5 million dollars in damages.

Whether or not Teresa Giudice has any valid claims against her attorney, her allegations are serious. A personal meeting between the client and the attorney is mandatory. One court stated, “This court concludes and finds that an attorney, as a debt relief agency, must provide face to face legal advice to a client, as an assisted person, prior to the filing of the petition and at every critical stage of the bankruptcy proceedings.” In re Santiago, 2011 WL 4056700 (D.P.R. 2011).

Additionally, Bankruptcy Rule 1008, requires that “[a]ll petitions, lists, schedules, statements, and amendments thereto shall be verified . . . .” This means that debtors must sign the petition, Schedules, SOFA and any amendments to those documents as a means of not only authorizing the filing of those documents, but of verifying, under penalty of perjury, that they have reviewed the information contained therein and that it is true and correct to the best of their knowledge, information and belief. See Briggs v. LaBarge (In re Phillips), 317 B.R. 518 (B.A.P. 8th Cir. 2004). Attorneys, correspondingly, have “an affirmative duty to conduct a reasonable inquiry into the facts set forth in a debtor’s schedules [and] statement of financial affairs . . . before filing them.” See Lafayette v. Collins (In re Winthrow), 405 B.R. 505 (B.A.P. 1st Cir. 2009). As a part of this reasonable inquiry, the attorney should sit down in person with his client and carefully review all Schedules, the SOFA, and any other documents to be filed with the court to ensure that all of the representations set forth therein are true and accurate. See In re Nguyen, 447 B.R. 268 (B.A.P. 9th Cir. 2011).

The best practical advice is to insist that you meet with your bankruptcy attorney in person prior to filing a bankruptcy petition. As in the case of Teresa Giudice, the debtor is ultimately responsible for the contents of the bankruptcy petition and schedules and verifies the accuracy of the information under penalty of perjury. Protect yourself by ensuring that your attorney is also following the law and is fully engaged in protecting your legal interests. 

Supreme Court to Hear Chapter 7 Lien Stripping Case

On November 17, 2014, the U.S. Supreme Court recently agreed to hear two cases that could have a major impact on debtors across the country. The cases are Bank of America v. David B. Caulkett and Bank of America v. Edelmiro Toledo-Cardona, two Chapter 7 cases on appeal from the Eleventh Circuit Court of Appeals (Alabama, Georgia, and Florida). In each case, the appellate court allowed the bankruptcy debtor to strip off an entirely unsecured junior mortgage held by Bank of America. While lien stripping second and third unsecured mortgages is common across the country in Chapter 13 cases, only the Eleventh Circuit has allowed Chapter 7 debtors to rid themselves of junior liens on their underwater homes.

Bank of America argues that the Eleventh Circuit holding is contrary to the Supreme Court case of Dewsnup v. Timm, which found that “liens pass through bankruptcy unaffected.” However, most courts limit the holding of Dewsnup in Chapter 13 cases to liens secured by equity. The question boils down to whether the Bankruptcy Code prevents a Chapter 7 debtor from stripping off a secured lien that is not secured by any equity in the property. Once the mortgage lien is extinguished and the debt is discharged, the lender has no recourse against the debtor or the property.

If the high court agrees with the Eleventh Circuit, that ruling may pave the way for debtors across the country to extinguish junior mortgages in Chapter 7 without payment. Supreme Court decisions are binding on all federal courts. 

Avoid Force-Placed Insurance

Being broke has all kinds of negative consequences.

When your mortgage insurance is cancelled for non-payment, your bank or loan servicer may obtain insurance to protect the property and charge you for it. That right is in your mortgage and deed of trust and is called “force-placed” or “lender-placed” insurance. Let’s explore why it’s no good for you.

First, you will receive a bill. Most lenders increase your monthly payment to pay the negative escrow balance caused by purchasing the insurance policy. Force-placed insurance is usually more expensive than homeowner’s insurance. This can raise your monthly payment several hundred dollars. If you fail to pay the insurance, the lender can foreclose on your property.

Second, force-placed insurance is designed to cover the mortgage company, not the homeowner. For example, should a fire burn down your house, most force-placed insurance policies will cover the lender up to the amount of the loan. It does not pay you for your equity in the home, and it does not cover your personal property, such as clothing or household items. Likewise, force-placed insurance does not provide liability coverage for instances where the homeowner is responsible for damage or injuries to others.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that notice must be given to the homeowner before force-place insurance can be ordered. The notice must provide:

  • there is an obligation to maintain hazard insurance
  • that the servicer does not have proof of insurance coverage
  • the procedures for providing evidence of existing coverage, and
  • if the borrower does not prove coverage, the servicer may force place the insurance.

A second written notice to the homeowner is required 30 days after mailing the first notice. If the homeowner does not provide proof of insurance coverage within 15 days after the second notice, the servicer can force-place the insurance coverage. Force-placed insurance may be cancelled when the homeowner provides evidence of insurance coverage.

The First Step to Credit Recovery after Bankruptcy

Bankruptcy offers debtors a fresh financial start. Unfortunately, many debtors avoid rebuilding their credit profiles after bankruptcy. These debtors believe that credit is dangerous and should be avoided.

Responsible use of credit is an important part of personal finance. A good credit score is necessary to purchase a house or car, or qualify for a bank loan or credit card. Aside from credit applications, credit scores are also used by employers during the hiring process, by car rentals, and by landlords. In other words, your credit score is important.

The first step to rebuilding your credit after bankruptcy is to examine your credit reports for errors. Many debtors believe that the bankruptcy court reports information to the credit bureaus. It does not. It is your responsibility to ensure that the information in your credit report is accurate.

There are three major players in the credit reporting world: Trans Union, Experian, and Equifax. The federal law mandates that each credit reporting agency must issue a free credit report to a person once a year upon request. To facilitate this directive, Trans Union, Experian, and Equifax have created a consumer website: https://www.annualcreditreport.com. At this site you can obtain an entirely free credit report without a credit card or on-going financial obligation. A copy of your credit bureau credit score is also available for a nominal fee.

Discharged debts should be listed on your report as “included in bankruptcy” with a balance of “zero.” There should be no collection activity listed on your credit report after the filing date of your bankruptcy case. For instance, the addition of a third party collector after the date you filed bankruptcy violates the bankruptcy automatic stay injunction and should be removed from your credit report. Likewise, overdue payments after the filing date are considered collection actions and should be removed.

Cleaning up your credit report is the first step to credit recovery after your bankruptcy case. In many cases, you can improve his credit score to an average score within a year or two after bankruptcy. However, any stumble along the way will only magnify the bankruptcy filing and keep your credit score low. For this reason it is important to monitor your credit report for errors or any changes at least twice a year.

"At-Risk" Property during Bankruptcy

Imagine that you sit down with your bankruptcy attorney for an initial consultation. You have worked hard all of your life and have acquired some personal property and real estate. You are scared and have important questions to ask. You start with the most pressing: “What will the trustee take if I file bankruptcy?” 

The lawyer on the other side of the table leans back and smugly relies, “It depends.”

That weasel-answer is, of course, technically correct, but it doesn’t even begin to answer your question. Let’s take a few minutes and begin to actually start answering your question.

Chapter 13 Trustee

A debtor does not generally lose property to a bankruptcy Chapter 13 trustee. A Chapter 13 bankruptcy is a repayment rather than liquidation bankruptcy. Consequently, the trustee may not seize or compel the sale of the debtor’s property, although in some cases a debtor may choose to voluntarily sell or surrender an asset for liquidation.

Chapter 7 Trustee

Unlike a Chapter 13 bankruptcy case, a Chapter 7 is a liquidation proceeding. The bankruptcy trustee is appointed to sell assets and pay unsecured creditors with the debtor’s property. Every debtor is able to protect certain property using legal exemptions – in many cases the debtor loses nothing. Legal exemptions are simply laws that protect a debtor’s equity in property, such as household furniture, clothing, and limited equity in a house.

A Chapter 7 trustee may compel the sale or turnover of property to reach “non-exempt” equity. The determination of non-exempt equity can be complex, but it always starts with a valuation of the property. Next, secured debts are subtracted. Finally, legal exemptions are applied to protect the unsecured equity. Anything remaining is the non-exempt equity that the Chapter 7 trustee can reach.

To illustrate, suppose you have a car worth $10,000, you owe $2,000 to a secured creditor (e.g. Ford Credit), and you have $3,000 in available legal exemptions. The calculation to determine any non-exempt equity is the fair market value of the car minus the amount you owe minus the legal exemption, or

$10,000 - $2,000 - $3,000 = $5,000 in non-exempt equity

The Chapter 7 bankruptcy trustee can demand turn-over of the car or payment of $5,000. The trustee may take and sell the car, pay the lender, pay you the $3,000 exemption amount, and pay the costs of the sale. The trustee keeps a percentage as his fee and divides the remaining amount among your unsecured creditors.

While it is unusual to disagree over the amount of exemptions, the debtor and trustee often have disagreements regarding the fair market value of property. In some cases the bankruptcy judge is asked to decide the value of an asset.

Non-exempt assets can be found in many sources. However, some assets are less attractive to the trustee because of the difficulties of selling the asset (e.g. a horse). Additionally, the non-exempt equity in an asset may be too little to bother. Here are a few of the easiest non-exempt targets for the trustee:

  • Cash money or bank deposit
  • Commissions earned but not paid
  • Lawsuit settlement or judgment
  • Income tax refund
  • Property transferred fraudulently, especially to a family member
  • High dollar unsecured property, like a house or vehicle

It is important to determine an accurate value of all property and to calculate all legal exemptions before filing bankruptcy. Then you and your attorney can discuss strategies for protecting your property.

Bibles are Often Exempt in Bankruptcy

When an individual files for Chapter 7 bankruptcy protection, the federal law requires an accounting of all property and assets. In most Chapter 7 cases, the bankruptcy debtor is allowed to keep all of this property through the application of legal exemptions. Common legal exemptions will protect equity in a car or house; clothing; household items; and some jewelry, including a wedding set.

Another common bankruptcy protection pertains to exempting a family bible from creditor collection. In the recent Illinois bankruptcy case of Robinson v. Hagan, a Chapter 7 bankruptcy trustee sought to take and sell a rare Mormon bible to pay the debtor’s creditors.

The debtor, Anna Robinson, worked at a local library and she saved a rare First Edition Mormon Bible from destruction. Robinson is a member of The Church of Jesus Christ of Latter-Day Saints, so the bible has great significance to her. Ultimately, the library gave her the bible and proof of ownership.

The bible was published in 1830 and is valued at over $10,000. Robinson keeps it sealed in a Ziploc bag due to its fragile condition. While she does not use the bible regularly, she has removed it from the Ziploc bag to show it to her family and fellow church members.

When Robinson filed for bankruptcy protection, her attorney listed the bible as “old Mormon bible,” and stated that “debtor has been told that there is a 100% exemption for bibles but valuable bibles may or may not be covered under such exemption.” The Chapter 7 bankruptcy trustee took this as an invitation to challenge the debtor’s exemption and claimed that Illinois exemption did not apply to a “valuable bible.”

The bankruptcy court agreed with the trustee, but the District Court for the Southern District of Illinois reversed. The District Court noted that the word “necessary” in the statute modified only the first listed item (“wearing apparel”) and not other items claimed exempt (“bible, school books, and family pictures”). Consequently, there was no need to examine whether the bible was “necessary” or to consider its value (although the Court did ask an interesting rhetorical question: What is a necessary bible?). The state legislature intended bibles to be exempt, no matter the monetary value.

There are several lessons to be learned from this case. The most important lesson is to not poke a Chapter 7 trustee with a stick. Another valuable lesson is to discuss the value of your property and the applicable legal exemptions with your attorney prior to filing your case. Your attorney is aware of cases interpreting legal exemptions and can help you identify property that may be at-risk.

Renters Protection Law Set to Expire


During the mortgage crisis, many renters were evicted from their homes when landlords lost property to foreclosure. Often renters were given just a few days to leave, even though all rents were paid current. Renters are generally given little or no warning when landlords are in default on mortgage loans. Under the “first in time, first in right” property rule, a lease signed after a mortgage was obtained is voided once that mortgage is foreclosed.

In 2009, President Obama signed the Protecting Tenants at Foreclosure Act (PTFA) into law that gave tenants the right to stay for the term of the lease if the property was purchased by an investor at a foreclosure sale, or 90 days if the house was purchased by an owner with the intention to occupy it as a residence. This law is set to expire December 31, 2014. If PTFA is allowed to expire, renters will again be subject to state law which leaves tenants in over half the country without protection or recourse during a landlord’s foreclosure.

The National Housing Law Project, a nonprofit national housing and legal advocacy center, reports that “nationwide as many as 40% of the families that face eviction due to foreclosure are renters.” Several bills have been proposed in Congress to extend the PTFA deadline. Recently, Representative Keith Ellison (D-MN) proposed a bill to make PTFA permanent. Representative Ellison has urges other Representatives to join him so that renters are “protected irrespective of where a foreclosure takes place.” Senator Richard Blumenthal (D-CT) also introduced a bill in November 2013 to make the PTFA permanent, S. 1761.

One Time to Always Avoid Filing Bankruptcy

When your finances are ill, bankruptcy is powerful medicine. The federal bankruptcy law discharges many debts and can give you time to pay others. In most cases a bankruptcy debtor will not lose any property; in other cases a debtor may choose to “walk away” from a house or car debt and not owe anything.

Bankruptcy reorganizes both personal and business obligations and provides a fresh financial start. However, there is one situation when a person should avoid bankruptcy:

When you cannot be a completely honest debtor. 

The bankruptcy process relies on the full and honest cooperation from the debtor. More than that, the law requires honesty. Dishonesty during bankruptcy is a federal crime punishable by a fine, or by up to five years in prison, or both.

Section 152 of Title 18 includes nine paragraphs which identify the following activities as criminal:

  • the concealment of property belonging to the estate of a debtor;
  • the making of false oaths or accounts in relation to any bankruptcy case;
  • the making of a false declaration, certificate, verification or statement under penalty of perjury in relation to a bankruptcy case;
  • the making of false claims against the estate of a debtor;
  • the fraudulent receipt of property from a debtor;
  • bribery and extortion in connection with a bankruptcy case;
  • transfer or concealment of property in contemplation of a bankruptcy case;
  • the concealment or destruction of documents relating to the property or affairs of a debtor; or
  • the withholding of documents from the administrators of a bankruptcy case.

Each paragraph in section 152 constitutes a separate criminal act, the violation of which may be indicted and proved separately. All crimes listed in Section 152 require that the act be done “knowingly” and “fraudulently.” Consequently, an inadvertent error is not a crime. “Knowingly” means that the act was voluntary and intentional. The government does not have to show that the defendant knew that he or she was breaking the law. The term “fraudulently” means that the act was done with the intent to deceive, which may be proven by circumstantial evidence.

If you cannot or will not be completely honest during your bankruptcy, you should avoid filing. Dishonesty during bankruptcy will only make matters worse including denial or discharge and criminal charges.

Big Banks Prey on the Poor

 Experience demands that man is the only animal which devours his own kind, for I can apply no milder term to the general prey of the rich on the poor.

                       -Thomas Jefferson

Being broke can cost you big bucks. Not only is it difficult for poor people to afford necessities like food and shelter, but basic services can also cost much more when you are low on funds. Take, for example, bank fees. Many employers require direct deposit for employees. Banks are eager to supply debit cards for “convenience,” but debit cards can carry hidden fees. No bank fee is more dangerous to the poor than the overdraft fee.

Recently, the Ninth Circuit Court of Appeals upheld a California federal court decision ordering Wells Fargo to pay $203 million in restitution for misleading practices in connection with overdraft fees. See Gutierrez v. Wells Fargo, 2014 WL 5462407. At the heart of the matter was how Wells Fargo applied its overdraft fees.

From 2005 to 2007, Wells Fargo made $1.4 billion in overdraft fees. Its practice during that time was to post debits at the end of the day starting with the highest dollar amount and ending with the lowest. This ensured that the funds in an individual’s account were depleted faster, which increased the likelihood of overdraft fees.

For instance, suppose you have $20 in the bank at the start of your day. You use your debit card during the day to get a coffee for $1.00, a cheap lunch at Taco Bell for $5.00, and you put $13.00 worth of gas in your car. You were careful to leave $1.00 in your bank account. Only you forgot that Netflix charges you $7.99, and that’s today!

Under a “chronological” policy, the Netflix debit would cause one overdraft. Under Wells Fargo’s policy, the largest charge is debited first. The ledger sheet for our example looks like this:

            Charge                        Amount           Balance

                                                                        $20.00

            Gas                              $13.00             $7.00

            Netflix                        $7.99               -$.99

            Taco Bell                    $5.00               -$5.99

            Coffee                         $1.00               -$6.99

That’s three overdraft charges which can range from $15-$40, depending on the bank’s policy. The appellate court upheld the trial court’s finding that the “decision to post debit-card transactions in high-to-low order was made for the sole purpose of maximizing the number of overdrafts assessed on its customers,” and that Wells Fargo misrepresented the way debit transactions were posted in consumer disclosures.

What the Bankruptcy Trustee Will Not Tell You

While the bankruptcy process expects a debtor to “spill the beans” about his finances, there is no reciprocal obligation to help a debtor reorganize before, during or after bankruptcy. The bankruptcy trustee is ethically (and legally) forbidden from giving legal advice to a debtor. The trustee effectively acts as an advocate on behalf of creditors during bankruptcy. Let’s look at what the bankruptcy trustee cannot or will not divulge to a debtor:

The debtor can keep assets that are of no value to the bankruptcy estate. The Chapter 7 bankruptcy trustee is charged with finding assets that can be taken and sold to pay creditors. However, certain assets have little or no practical value (called de minimis, Latin for “very little value”). For example, a prized Beanie Baby collection that is worth $500 on eBay is of no interest to the trustee. Even if a buyer was ready and able to pay $500 for the collection, the trustee must make an accounting, open a bankruptcy estate, collect assets, send notices, and finally distribute money to creditors. The trustee expects to be compensated for his time, but with only $500 available, there is a good chance that the trustee will consider working at far below his hourly rate not worth the effort.

Legal advice. While the trustee is (usually) a licensed and experienced bankruptcy attorney (or CPA), the trustee is prohibited from giving the debtor legal advice. That is the case even if the debtor is acting pro se and has made a very serious and obvious mistake, and even if the debtor has hired a putz of an attorney who is inexperienced or incompetent.

The trustee’s office is understaffed and overworked. Whether it is the Chapter 13 standing trustee’s office or a Chapter 7 interim trustee, there is more work than hours in the day. Many bankruptcy errors, lies, and omissions are ignored for the sake of expediency. To illustrate, pretend that the debtor’s mother has loaned the debtor $300. The debtor received a tax refund of $300, paid her back, and then immediately filed bankruptcy. This repaid debt is a fraudulent transfer to an insider creditor. The trustee can avoid the transfer and demand the money from the debtor or his mother, but is that likely? Probably not. The costs involved for the trustee are too great and the benefit to creditors is too small. Suppose the debtor failed to account for this transfer in the Statement of Financial Affairs? Will the trustee seek to deny a bankruptcy discharge because of this perjury? Again, probably not. Now consider how the response might change if the amount at issue was $3,000? Or $30,000? Or $300,000?