True Story From My Best Birthday Ever

Years ago, my wife gave me a very special birthday present. She arranged for us to have a weekend at Pebble Beach and have me play a round of golf there.

This was a special present not just because I got to play Pebble Beach. The year prior I had spent my birthday doing my second of six rounds of chemotherapy. So suffice it to say that this was a vastly better birthday than the year before. I still have the picture in my office of playing golf there.

I wanted to walk rather than take a cart so I hired a caddy. I'm going to change his name here to protect his privacy. We'll just call him Dave.

For all sorts of reasons, I really enjoyed my round that day. The weather was nice. The views were beautiful. The course was in good shape.

Most of all, though, I really enjoyed the company of my caddy.

Dave and his wife had moved to the area a few years earlier because they wanted to enjoy a more relaxed lifestyle than they had before. Dave was working as a caddy and not making great money by any stretch. But his job involved walking Pebble Beach every day and meeting people. He clearly enjoyed his job.

We were a few holes into the round when Dave asked me, "So, Andy, what do you for a living?" After I told him, he got very excited: "We filed bankruptcy two years ago. Best thing we ever did." I explained that most people who file a bankruptcy are much better off for it. He couldn't have agreed more.

There were a couple things going on in Dave's life that precipitated the filing. First, his wife liked to shop and got them a little stretched with credit cards. Second, his wife was diagnosed with multiple sclerosis and that affected her ability to work.

Dave told me the story about how his wife initially was reluctant to file bankruptcy: "It'll be the end of us," she said. He joked that the shopping was going to take them down long before the bankruptcy would.

I asked how she came around. Dave explained that, once they met with their attorney and she laid out how bankruptcy worked, his wife got comfortable with what was involved. Obviously, the process of filing personal bankruptcy isn't all that pleasant. But the pain of filing a bankruptcy is usually less than the pain of trying to get out of debt that is beyond one's means.

Why am I telling this story?

It's not because I want you to call me to file your case. Obviously I am happy to help if you or someone you know can use my services. But there will be about 1.5 million personal bankruptcy cases this year. That will be more than enough to keep people like me busy.

I am telling this story because it is typical of what people in financial distress go through. At first, they have this terrible mix of emotions arising from debts they can't manage. Many eventually decide that they need to call someone like me. A lot of them dread that call like nothing else. Once they understand the process and come to accept it, the prospect of bankruptcy isn't so bad. After their case is done, they are relieved.

When people I meet learn what I do, lots of them start talking to me about their personal bankruptcy cases from years past. It's not necessarily something they're proud of. But they want to share their experiences and don't mind talking about it.

Some people think that they are immune from the financial pressures that afflict millions of other people in the United States. Some people think that only bad/dishonest/irresponsible people file bankruptcy. They think, "It can't happen to me." Unfortunately, it can happen to anyone.

Everybody goes through hard times. Sometimes it's illness. Sometimes it's family troubles. Sometimes it's financial troubles. Unfortunately some of those overlap quite often. We all try to avoid the hard times. But ultimately some bad things happen even to the best of people.

I talk on a daily basis with people from all walks of life. They are of all ages, income classes, education levels, and ethnic backgrounds. The reasons for their problems are similarly diverse. Bad things often happen to good people.

Financial restructuring is a lot like chemotherapy or any other treatment for a dangerous disease. It's not terribly pleasant. But it usually leaves you better off than you were before.

Fortunately, most folks are good, honest people. They will get through the process largely unscathed and be able to talk openly about it later. Dave certainly didn't mind talking about it. Ultimately it was just one of the things that happened to him in life and that he got through.

And he gave me a really good story. So small surprise that a few years later when I had the chance to play Pebble Beach again, I specifically requested him. He only vaguely remembered me then. But he asked again what I did.

Then he remembered all about me.

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The Most Common Mistake People In Financial Distress Make

What's the most common mistake that people in financial distress make?

They too long before calling someone like me

Or at least they probably wait longer than they should.

People get into financial distress for all sorts of reasons. They have a health issue, sudden loss of income, poor financial planning, divorce, or any combination of those or other reasons. Some of these we can control to some degree and some we can't.

But turning to a restructuring professional anyone can do at any time. Most of us will chat for a bit over the phone to discuss the situation at no charge. Maybe you can restructure your debts, maybe you need to file a bankruptcy case, maybe there is some other approach.

And it's probably best that people do so earlier rather than later. Why? Because as time passes your options decrease. If things are not too far gone, maybe there is a chance at debt settlement and avoiding bankruptcy. Even if you are in the position where you must file a bankruptcy, it is possible to time the filing in a way that might be advantageous to you.

It is fairly common that someone contacts me a few months after the point at which I could have saved them some money or presented them with better options. Perhaps they just spent a ridiculous amount of money on a debt settlement program that had no chance of succeeding. Perhaps they just finalized terms of their divorce in a way that compromises their financial situation. Perhaps they got so far behind on their house that they have to file a chapter 13 instead of a chapter 7. Perhaps there is a judgment about to be entered or wages being garnished. There are a lot of different variations on that theme.

The luxury of time goes a long way. If we can plan a little bit ahead, more options are likely to be available.

Call sooner rather than later.

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A Good Read At Bankruptcy Prof Blog: Top Ten Parts of BAPCPA Congress Needs to Fix

I want to point readers' attention to a very good post from Professor Jonathan Hayes. Professor Hayes makes a quick list of the biggest mistakes in the 2005 Bankruptcy Code amendments that Congress should fix.

For those unfamiliar, in 2005 Congress made a bunch of amendments to the Bankruptcy Code. In theory some of the amendments might have been a good idea. In practice just about no bankruptcy practitioner has anything good to say about any of them. Among other things, the 2005 amendments made filing personal bankruptcy more difficult, more expensive, more time-consuming, less efficient, and more arbitrary.

So now we have spent a few years with the amendments and can see their effects. Professor Hayes picked out the top few changes from 2005 that Congress should abandon. I largely agree with his evaluation.

I would have at least one revision to the discussion of the means test. Professor Hayes says that we should scrap the means test mostly because it's too easy to evade by timing the bankruptcy correctly. That is correct for people who fall fairly close to the median income for their state.

For debtors whose income is sufficiently high that even clever timing and accounting won't make them eligible for chapter 7, they are in the unfortunate position of facing a chapter 13 filing that might tie their financial hands for five years. And there is no guarantee that even a five-year plan will produce a really meaningful return to creditors.

So there are two reasons to scrap the means test: first, it's easy for most to get past; second, it's a silly trap that can put some debtors in chapter 13 cases that will not necessarily produce much return to creditors.

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How I Know Mortgage Modification Programs Aren't Working

The home mortgage modification programs aren't working.

How do I know? My clients are telling me.

I have been spending a decent amount of time recently speaking to clients, potential clients, and other lawyers who have clients who might need my services. Complaints about mortgage lenders and mortgage modification programs are a regular feature of these discussions.

Just about no one has anything good to say about mortgage modification efforts. Even the people who have been successful in having their mortgages modified complain that the modification is too small to make a difference.

Given my line of work, I was curious whether this was just a matter of a self-selecting sample. After all, instances of great financial health rarely find their way to my desk. If someone wants my professional advice, there is almost always pretty serious financial struggle involved. The people who modified their mortgage successfully and are satisfied with it are pretty unlikely to call me.

Being the geeky information hound that I am, I decided to see what I could find on the subject. And I found this. It's an article from the Wall Street Journal last week indicating some of the reasons for the problems and -- here is the kicker -- noting that only 1% of the homeowners in the HAMP program have had their mortgages modified.

Well no wonder everyone is complaining.

So homeowners have a 1% chance of having their mortgage modified? Yikes. Why even bother trying? If you can't afford your mortgage as written, why not just call someone like me immediately? I can lay out your options and tell you whether it makes sense to try to keep your house. And I'm certainly not the only person qualified to do so.

Unfortunately, participation in the program sometimes gives homeowners false hope. They expect that because they sign up for modification that they will get some relief. And sometimes they even get signals from their lender that they will have their monthly payment reduced. So they don't plan ahead, or they pay the reduced amount before the modification is finalized, or they delay calling a restructuring professional.

None of this is good or bodes well for the future frankly. If the mortgage modification programs are going to be an illusion, we might as well not bother. Perhaps it will be better just to let foreclosures proceed and let people who want to stay in their homes get professionals involved right away.

At least then we wouldn't be kidding ourselves.

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Story On Increased Bankruptcy Filings On National Public Radio

Morning Edition had a story yesterday on the increase in personal bankruptcy filings. 1.4 million in 2009. Read the script or listen here.

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Rule 2019 Claims Trading Disclosure Issue Not Going Away

Regular readers might recall last month when we discussed a claims trading issue and a post from In The Red. Since then, I helped write a client alert for my old firm about a decision from the Southern District New York on the issue. And now there is yet another case percolating, this time from Delaware.

To recap, the basic issue is whether to impose the disclosure requirements contained in Bankruptcy Rule 2019 on various ad hoc committees that might appear in a bankruptcy case. Judge Walrath in Delaware and Judge Gropper in New York had applied Rule 2019 to informal committees. Judge Schmidt from the Southern District of Texas had declined to do so. The issue is important because parties who trade in bankruptcy claims often end up on these committees and would prefer to disclose as little as possible about the process of obtaining the claims.

The latest decision comes from Judge Sontchi in the Six Flags bankruptcy case, In re Premier International Holdings Inc., Case No 09-12019 from the U.S. Bankruptcy Court for the District of Delaware. The Creditors Committee had moved the bankruptcy court to require that the plan proponent, an ad hoc noteholder committee, comply with Rule 2019. Judge Sontchi denied the motion. According to Reuters, Judge Sontchi said that "The law contemplates a subset of a larger group authorized by the larger group to act on its behalf. That is not the case here...I read 2019 narrowly. I don't think ad hoc committees are subject to rule 2019."

I am relying upon Reuters here because there was no written opinion and the transcript of the hearing currently is restricted. It appears from the docket that there is some issue of redacting the transcript.

Meanwhile, the Creditors Committee has appealed the denial of the motion. So we might get a district-level, or perhaps even a circuit-level, opinion on the motion.

For those keeping score at home, this means that Judge Walrath from Delaware and Judge Gropper from New York have applied 2019 to ad hoc committees; Judge Schmidt from Texas and Judge Sontchi from Delaware have declined to do so.

Stay tuned for further developments.

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The Trouble With Blogging In A Law Firm

I touched on this a bit a couple weeks ago when discussing starting my own firm. I also noticed there was a lot of discussion on the Twitter feeds today about lawyers' blogging because a lot of tweeters were at a Marketing Partners Panel on social media. In the tweets I saw a lot of discussion about the upside of lawyers blogging but didn't notice much about the potential pitfalls.

To be clear, I don't want to discourage any lawyers from blogging. To the contrary, I have really enjoyed blogging, have found it to be a good use of my creative side, and have made some good professional connections as a result. Lawyers' blogging is by and large a good idea.

Most lawyers who blog do so from within a firm, have the firm's blessing, and use the firm's resources. This can be a two-edged sword. Although it's nice to the institutional support for the blog, that support comes with a price. The blog and the firm's interests have to be aligned. When the interests diverge, there is the potential for conflict.

I have not heard how the firms control the editorial content of blog posts. I know from writing other material for firms that editorial control can be an issue that can harm the product. One of the benefits of blogging as a medium is the immediacy. I can come up with an idea, pound out a blog post, and it often will be available to readers within an hour or two. My experience in firms is that there are layers of control and review that will slow down the process of delivering content.

Consider as well the possibility that a blog post affects the interests of a firm client. This is less a concern at smaller firms. But at a larger firm, there is always the possibility that an opinion expressed in a blog post runs contrary to what a client believes its attorneys should be saying.

A variation on that theme happened multiple times to me while I was with a firm. I thought of a good subject for a blog post but had to skip it because there was the possibility of expressing an opinion that would undermine my ability to advocate a client's position on the issue. I also wondered how readers might respond if I advocated a position in blog post that was consistent with the client's interests. Wouldn't I risk losing credibility as a writer by having the blog look like a mouthpiece for a particular client?

And what of the ownership of the content of the posts? If I spent X amount of hours working on blog posts, I want to retain the rights to the content. If I left the firm, the firm might prefer to remove my name from the posts, keep the blog, and appoint someone else to fill my role.

A Clean Slate has always benefited from being unaffiliated with a law firm. (OK, it is affiliated with a firm now but I run both the firm and the blog; I'm unlikely to have the kind of conflict with myself that I am describing.) Even when I was employed by a law firm, I didn't link the blog to the firm's website or have my bio at the firm link to A Clean Slate. My firm didn't exercise any control over the content of A Clean Slate and I didn't seek any recognition for the time I spent blogging. That for me was the ideal situation for blogging when part of firm, but it does not appear to be typical based on the blogs by practitioners that I come across.

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How You Can Help Those Affected By The Earthquake In Haiti

We normally stick to bankruptcy and law practice here at A Clean Slate, but the news from Haiti today is too compelling to ignore. In particular, as a Francophone living in an area with so many Haitians, this one hits a little close to home.

So here are some ways you can help:

The Red Cross has a news page with updates. One option is to text “HAITI” to 90999 to donate $10 to American Red Cross relief for Haiti.

CBS News has a list of charities as well.

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The Best Part About Going Solo Thus Far

So anyone who has been following along knows that I opened my own office last week. On Friday, I got around to sending out some announcements to people. Lots of folks knew about my shop either from hearing it directly from me, picking it up on Linkedin or Facebook, or reading it here. But still there were lots of people I hadn't reached yet. And of course the success of this enterprise largely depends upon my ability to reach people and let them know where to find me.

I figured I would use email since it's fast and cheap and easier to get people's attention than with regular mail. I found a service that can handle bulk email lists and set up a basic little announcement. The tricky part was creating a mailing list. I have been using Hotmail and Gmail accounts the last few years so I had to do a bit of a data dump to pull addresses from friends and colleagues. And some addresses I had to pull from the Internet. It took the better part of a day to get everything ready. But by Friday, I was good to go.

(As an aside, I will note that just about everything about setting up a law firm has required more time than I expected. Anyone contemplating opening their own firm should keep that in mind.)

So I sent out an email blast to neighbors, friends, family, former bosses, former colleagues, and various random acquaintances. And then I figured I would get some writing done.

Or not.

I didn't have time.

I spent most of the rest of Friday answering emails from folks congratulating me, wishing me well, thinking about referrals, etc. Some folks I had not connected with in weeks, months, or years.

It was a lot of fun.

Most readers don't know this, but in 1997 I had a bout with non-Hodgkins Lymphoma. It was, to say the least, a serious disease that threatened my life. I was pretty sick for a period of time. But obviously I pulled through fine, thanks to some good work by some good people in our medical community.

As scary as it was, one of the nice parts about having a really crappy thing happen to you is that people do nice things for you. They send you cards. They send you gifts. They pray for you. They worry about you. They say kind things. It's all quite touching.

Unfortunately, back in 1997, I didn't have the time or energy to thank everyone. There were too many people and too many nice gestures for a guy dealing with chemo and radiation to respond to.

This time, though, I could answer the emails.

And it felt great.

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WhyYou Should Register For The ABI Annual Spring Meeting In May

Because I am going to be speaking on one of the panels!

I am going to be on a social media panel for the law school section of the American Bankruptcy Institute's Spring Meeting, May 1 at 4:00. It's in National Harbor, Maryland, near D.C. I'm on a panel with Professor Nancy Rapoport of UNLV, Karim Guirguis of the ABI, and Texas bankruptcy attorney Steve Sather. Steve has a great blog, by the way. It's definitely worth checking out.

I am going to be speaking about Twitter. So this is a good time to remind everyone that they can follow me on Twitter.

The ABI conference rates are cheaper if you sign up before January 29. So register and mark your calendars. And remember to sign up for the law school section on Saturday at 4:00.

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Going Solo: My New Practice

It took a bit of pushing, but I finally gave birth to my own practice. I guess if I smoked I would be handing out cigars or something at this point.

The Law Offices of Andy Winchell opened for business this week. As you might expect, I will focus on a bankruptcy practice. I can help in either commercial or personal cases. I probably can help in other areas as well but with the economy as it is and given my background, I imagine I will be doing a lot of bankruptcy woerk.

People have asked me my reasons for deciding to go solo. I don't have a simple answer other than to say it was a combination of a lot of factors. Most importantly for readers of A Clean Slate, not being affiliated with a firm means that I have a lot more freedom to write on certain topics without worrying about the ramifications to clients or potential clients. When you're involved in a case or you have a client with particular interests, it can be hard to write on matters that might affect the client or its interests. The writer risks losing credibility if there is the possibility that the views being expressed are not completely objective. By the same token, no client wants its lawyer opining publicly on matters that might be contrary to its interests. So by going solo, I give myself more freedom to write without compromising the interests of my clients.

I also hope to get a little better perspective on the consumer side of bankruptcy. A good chunk of the blog thus far has been about big chapter 11 cases since I had been spending much of my practice in those cases. Those posts are interesting to some but probably represent a smaller slice of the bankruptcy spectrum than many would like. So perhaps as I do more consumer work, A Clean Slate will become a little broader as well.

As always, thanks to my readers for coming and reading. With luck, the 2010 chapter will be at least as interesting as 2009 was. In the meantime, feel free to visit the website of my new office, click the links, and let me know if you or anyone else could use my services.

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Happy Holidays from A Clean Slate

When I started A Clean Slate back in April, it was mostly because I was noticing topics which interested me but for whatever reason wouldn't make good articles. I didn't know who was going to read the blog and didn't really care. Whether I had a handful of readers or hundreds or thousands wasn't too terribly important. I didn't know what would come from it and still don't.

One of the very pleasant benefits of writing here though is the little bits of positive feedback from old friends, colleagues, or just random folks who post a comment. I'll get an email, a Linkedin message, or even a Christmas card with a little note from someone who has been reading the blog. It's a great feeling. I feel immensely honored that people take a few minutes to reads the posts here and grateful that anyone besides me finds them interesting.

So today I just want to thank all of you for coming to the site and wish everyone the best this holiday season. I will be celebrating the usually wonderful Christmas with my family and gearing up for 2010. We will have some changes here in January so stay tuned.

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An Excellent Read on Claims Trading Disclosures at In The Red

Claims trading is a relatively obscure issue but one that practitioners in larger chapter 11 cases encounter routinely. For those who are unfamiliar, there is a sophisticated market for trading in bankruptcy claims. Hedge funds and other similar investors speculate about the return to creditors and then purchase claims from the creditors based upon such speculation. So, for example, if during a case the market believes that unsecured creditors might receive 50 cents on the dollar for their claims, claims traders might offer creditors 35 cents on dollar and hope to make a profit on the difference. The selling creditor gets the benefit of cash up front and the trader assumes the risk that the unsecured creditors ultimately get a lower dividend.

For various reasons, claims purchasers prefer to disclose as little as possible about their transactions. And, generally speaking, relatively little disclosure is required. Rule 3001(e) of the Federal Rules of Bankruptcy Procedure provides for the filing of evidence that the claim has been transferred. But Rule 3001(e) is designed largely to prevent claims from being transferred fraudulently rather than to force disclosure of the parties purchasing their claims and/or their motivations for doing so.

What happens, though, when claims purchasers decide to work together to try to influence the outcome of a case? Rule 2019 of the Federal Rules of Bankruptcy Procedure requires fairly detailed disclosures about "every entity or committee representing more than one creditor or equity security holder." So, for example, when a group of creditors forms an informal committee to represent their interests collectively, does Rule 2019 apply?

Yes, according to Judge Walrath in a decision last week. Bob Eisenbach at In The Red has a nice post today about it. Judge Walrath joins with the Judge Gropper of the Southern District of New York in holding that Rule 2109 applies in such situations.

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Transcripts From The Supreme Court Arguments In Bankruptcy Cases

As discussed here, the Supreme Court held arguments on two bankruptcy cases yesterday. Transcripts are available.

Here is the transcript for the Milavetz case, the First Amendment challenge to portions of the 2005 amendments to the Bankruptcy Code.

And here is the transcript to the Espinosa case, the student loan case

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Another Summary of the Milavetz Case

Not sure how I missed this a couple months ago but here is a good discussion of the Milavetz case from Law.com.

I worked some with Eric Brunstad on the Anna Nicole Smith case years ago. He is, of course, a very bright guy. I'm sure the petitioners handled the case well.

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