It's not often a fast food restaurant closes, much less files for bankruptcy protection. But that's exactly what happened recently when the owner of 70 Jack In the Box fast food restaurants throughout northern and Central California suddenly shut down all his stores.

Abe Alizadeh of Kobra Associates Inc., who owns and operates the restaurants, closed all 70 of his restaurants in mid-September when his negotiations with his debtors broke down and he had to file bankruptcy.

Sadly, this story has been more of a common occurrence during the past year, with numerous businesses and individuals going through bankruptcy. It wasn't so long ago, however, that it seemed Congress had high hopes of dramatically decreasing the number of bankruptcy filings.

When Congress did a major revamp of the bankruptcy law in 2005, the goal was to decrease the number of bankruptcies each year by making it more difficult for people to file bankruptcy. A secondary goal was to force more people to repay their debts over time through a Chapter 13 plan rather than liquidating their debts through Chapter 7.

Four years later, it's clear that the new bankruptcy law has had very little success in achieving its goals. After an initial reduction in the number of filings, the number of people and businesses filing for bankruptcy protection has shot up and continues climbing. In 2008, there were approximately 1.1 million bankruptcy filings and in 2009, the number is likely to end up around 1.4 million bankruptcy filings -- a rate of 5,075 bankruptcy filings per business day.

At the same time, bankruptcy has become more complex and more expensive than it once was. Before the 2005 law, a bankruptcy filing averaged $1,000. Today the cost is twice that. People who are filing bankruptcy for the most part are doing so because they lost a job or suffered a major health problem. They have to file bankruptcy because they have no other option. Now they just have to hire a lawyer and pay a lot more than they did before the 2005 law came into effect.

Bankruptcy is not the only option for people in financial trouble however. There are numerous alternative options.

If you're contemplating bankruptcy, consider these options first:

1. Consider Bankruptcy alternatives. You may be better off with a debt renegotiation. An attorney with experience negotiating with debtors may be able to help you avoid bankruptcy by negotiating with your creditors, especially if you don't have a large number of creditors.

2. Negotiate with your Credit Card companies. Credit Card debt is unsecured debt, meaning credit card companies are last to get repaid if you declare bankruptcy. I have had success in the past with calling credit card companies for clients and settling their credit card debt for far less than is owed.

3. Consider whether you will even qualify for bankruptcy. If you make a decent salary but have high debt, you may only qualify for Chapter 13. However, if your debt is too high (over $336,690 in liquidated unsecured debt and secured debt of less than $1,010,650), you won't qualify for a Chapter 13. Consult an attorney to figure out if you will qualify.

4. Surrender your property. If you have a secured loan, you may try surrendering your property. For example, if you bought a $3,000 TV from Best Buy and financed the purchase, you can try calling Best Buy and seeing if they will take back the TV.

5. Do a short sale. If your house is under water and your mortgage payments are dragging you down, you may want to consider selling your house for less than it's worth. You will ultimately need to get the approval of your lenders before the sale goes through.

Before you embark on any of the above approaches, you should be sure to consult a competent attorney and accountant to make sure there aren’t any legal or tax consequences in your particular situation.

If you have questions about bankruptcy or debt renegotiation, feel free to contact John Corcoran for a free consultation at (415) 472-8100 x211 or jcorcoran@ptlegal.com.

Marin I.J. and Contra Costa Times Mention My New Position

I got a brief but nice mention in the Marin Independent Journal and the Contra Costa Times this week. As the Marin IJ reported in its "Movers & Shakers" column:

Marin attorneys Thane Schultz and John Corcoran have joined the San Rafael law firm of Plastiras & Terrizi.

Schultz, a longtime Marin resident, will focus on family law and general civil litigation. His previous work experience included stints with a civil litigation firm and two years running a family real estate development business in Australia.

Corcoran, a Tiburon planning commissioner, previously worked for a Silicon Valley law firm focusing on estate planning, employment law and small business representation.

I'm not sure whether I'm a "mover" or a "shaker," but if I find out, I'll post it here.

New Bill Prevents Attorneys From Taking Upfront Fees for Loan Modifications

The State Senate recently passed a bill which will significantly crack down on “fly by night” “loan consultant” operations which promise to modify people’s mortgages for a fee, but could also have the unintended consequence of making it harder for legitimate hardship cases to find a lawyer to represent them.

The bill, which Gov. Schwarzenegger is expected to sign, passed with wide margins in the State Senate, benefiting from the political backlash against loan modification outfits. SB 94 forbids anyone, including attorneys, from taking a retainer for the purpose of negotiating or attempting to negotiate residential loan modifications or for “other forms of mortgage loan forbearance” (presumably this language prevents attorneys from helping borrowers obtain a short sale as well). It also bars persons, including attorneys, from obtaining a power of attorney from a borrower for the purpose of negotiating a loan modification, a document which is often crucial in order to get banks to communicate with the attorney about the borrower. It also prevents these service providers from charging for their services until all services are complete and bars them from taking any lien of any type to guarantee payment.

Any person who does provide loan modification services must provide a large statement regarding loan modification fees prior to obtaining a signed fee agreement which warns the consumer that it is “not necessary to pay a third party to arrange for a loan modification or other form of forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms.”

While the Legislature is well intentioned in cracking down on disreputable companies which have taken advantage of homeowners in trouble, the problem with this bill is that it doesn’t recognize legitimate cases of individuals who have lost a job, received a cutback in hours at work, or gotten sick, and who legitimately need help negotiating a workout with their mortgage lenders. Attorneys commonly take a retainer in advance of providing services which must be deposited in the attorney’s client trust account. These retainers ensure the attorney will be paid and, in cases involving debts or a bankruptcy filing, this is often the only way people can obtain legal assistance, as attorneys would otherwise not risk not getting paid for their time and services. Many borrowers don’t have the time or patience to spend months and to follow up dozens of times with banks which have ever-changing requirements for mortgage relief, frequently lose paperwork provided to them, and/or flat-out refuse to help their borrowers out. Nonprofit housing counseling agencies are currently overwhelmed with people who have these kinds of problems and they can’t keep up with the demand. By passing legislation which is over-inclusive, it’s certain that some legitimate cases are going to find it more difficult to get an attorney to represent their interests.

UPDATE 9/19/09: Evidently, federal regulators at the Federal Trade Commission are also considering passing a ban on up-front fees for mortgage modifications. Hopefully the federal action will crack down on fraudulent mortgage modification offers without hurting legitimate situations in which homeowners in trouble desire to hire an attorney to assist them.

Twitter Defamation Lawsuit Highlights Emerging Legal Issues

You could see this coming. A Chicago landlord has sued one of its tenants for defamation for publishing a ‘tweet’ on Twitter which portrays the landlord in a less than flattering light.

Horizon Group Management filed a complaint in the Circuit Court of Cook County, Illinois, on July 20, 2009, against Amanda Bonnen, a tenant of Horizon residing at 4242 N. Sheridan Road, Chicago, Illinois.

The lawsuit, which can be found here, asks for $50,000 in damages for defamation.

Twitter is a micro-blogging site which allows users to communicate with their “followers” with short, 140-character posts. The site has received attention in recent months for its usage by celebrities, political leaders and even protestors and revolutionaries in countries such as Iran and Moldova.

This isn’t the first time a lawsuit involving Twitter has received attention. In July, St. Louis Cardinals Manager Tony La Russa dropped his lawsuit against Twitter, which sought unspecified damages because someone was pretending to be him and using Twitter to post "updates."

In addition, earlier this month Twitter co-founder Biz Stone (@biz) disclosed publicly that the service was considering legal options after a hacker hacked into his personal email account and Techcrunch published documents which had been leaked. (Full disclosure: I attended junior high with Biz Stone, though he was a few years ahead of me.)

We can expect additional novel legal issues to continue to come up as Twitter builds in popularity. For example, defendants in lawsuits who chronicle their day-to-day with dozens of short updates about what they’re doing may find their postings used as evidence against them. As far as I know, we haven’t yet seen a criminal prosecution where Twitter has been used to establish an alibi as of yet, but I’m sure we will soon.

Top 5 Tips for Obtaining a Loan Modification

We get a lot of calls from people who are looking for help with a loan modification. With so many people laid off, downsized, or suffering from the crushing weight of too much debt, there are many homeowners who simply can’t afford their mortgage. Unfortunately, many of our clients come to us because their bank is treating them like an enemy, rather than working with them to forge a creative solution.

Having helped numerous clients to successfully obtain a mortgage modification, I’ve created the following Top 5 tips for obtaining a loan modification:

1. Analyze Your Financial Picture. What is your hardship situation? Have you lost a job or had hours cut back at work, or do you have high hospital bills? If you don’t have a hardship situation, but you just want to get your lender to give you a deal because your property is “under water,” you are unlikely to get a modification.
2. Gather Your Paperwork. It’s best to gather together all the documents you will need. Although every bank has different requirements, you’ll likely need the following: a copy of your most recent mortgage statement, at least three months’ bank statements, at least three months’ paystubs, the last two years’ tax returns, copies of the last two years W-2’s, a list of monthly expenses, and proof of any other income earned.
3. Call Your Bank and ask for their “Loss Mitigation” Department. Ask your bank what documents you specifically need and what information should be included in your “hardship letter” (see #4 below).
4. Draft Your Hardship Letter. Here is where your attorney can help. An experienced attorney can craft a hardship letter which explains succinctly why you deserve a loan modification based upon your personal facts and circumstances.
5. Follow up, Follow up, Follow up. It’s not enough to fax in your documents and wait for your bank to contact you. The banks are overwhelmed with requests for modifications, and it’s taking them months to respond, even to customers who are already behind several months on payments. You need to follow up every couple days to be sure your application is on track.

I would be thrilled if obtaining a modification of your mortgage was always as easy as following these simple steps. Sadly, however, a successful mortgage modification usually takes many months of follow up and persistence. Most people don’t have the time or energy to see an application through to completion. That is why so many of our current clients have started out trying to obtain a modification on their own, only to come to us many months later, frustrated and fed up with their lender.

In spite of this, I encourage you to give it a shot. Even if they don’t seem like it, your lender would rather you work with them to create an amicable solution that allows you to stay in the home, remain current (or become current) on your payments, and saves the bank the money, time and hassle of going through another foreclosure. If you have lost a job, lost hours at work, or suffered some other hardship so that your mortgage payment is weighing you down, then you owe it to yourself and your family to give it a shot.

If you need advice on your particular situation, please feel free to give me a call at (415) 250-8131 or email me at johncorcoran@gmail.com for a free consultation.

Clean Energy Continues to Thrive Despite Downturn

Even in the midst of a severe economic crisis, recent evidence has emerged indicating that clean energy industry jobs remain a bright spot in an otherwise gloomy economy, and will continue to generate job growth in the years ahead.

A report released this week by the Pew Charitable Trusts revealed that between 1998 and 2007, clean tech jobs grew at more than double the rate of all other jobs.

Another report released this week by a UC Berkeley professor found that accelerating deployment of renewable energy resources in California would accelerate job growth in the years ahead, with the possibility of generating over 500,000 new jobs over the next 40 years.

Perhaps most interesting is the fact that the overall number of clean energy jobs was fast gaining on the number of jobs in the fossil fuel industry. The Pew report found that fossil fuel jobs amounted to 1.27 million workers in 2007 while there were approximately 770,000 clean energy jobs the same year.

The reports found that the major beneficiaries of the expanding clean energy industry is local economies. Whereas fossil fuel industry dollars overwhelmingly sends money overseas, clean energy results in more dollars staying local – with more money spent on solar installers, sales people, contractors, and farmers who grow feedstock to produce biofuels. Money spent locally also recycles within the local economy, benefiting numerous businesses, workers, and families.

In addition, according to an analysis of both reports by John Gartner of Matter Network, a clean tech website,

money saved by consumers on energy efficiency is the most potent local economy stimulus. A dollar taken off the energy bill will be spent on other things that will equal from 10 to 100 dollars in wages for new workers.

For millions of Americans who are currently out of work, these reports provide a measure of hope for a brighter future.

You can find a link to the full Pew Charitable Trusts report here.

You can find a link to “Energy Pathways for the California Economy” by UC Berkeley professor David Roland-Holst here.

Here is an analysis of both reports by John Gartner of Matter Network.

Update on State and Federal Mortgage Legislation

Although loan modifications don't traditionally fall within the scope of this blog, due to the many homeowners seeking loan modifications, I wanted to share an article I wrote recently on the many changes in state and federal law as a result of the mortgage crisis.

Over the past few months, there has been great turmoil in the housing and mortgage markets. Because numerous Omni clients have contacted us to ask what programs are available to them to modify their mortgage, we prepared the following summary of recent changes in federal and state law regarding loan modifications for your information.

The “Making Home Affordable Plan”

The federal government’s plan, which went into effect March 4, provides financial incentives from the federal government to lenders to help lenders reduce payments to 31 percent of a borrower's income. Lenders can reduce interest rates and lengthen the term of loans to 40 years, even if a borrower is behind on payments.

The plan also helps borrowers who are current with payments but have seen their home's value drop to refinance into newer, cheaper loans. However, the federal plan is not available to many homeowners whose homes have plummeted in value to such a degree that they are now worth less than their combined debt. Borrowers can only owe 5 percent more than the home is worth, which effectively eliminates many Californian homeowners from qualifying.

90-Day Foreclosure Moratorium in California

Gov. Arnold Schwarzenegger signed AB 7XX and SB 7XX earlier this year to create a new 90-day foreclosure moratorium on certain delinquent home loans in California. The new moratorium temporarily halts foreclosures by lenders that haven't tried hard to work out loan modifications or other alternatives to foreclosure with their customers.

Pending State Legislative Fixes

The State Legislature is considering numerous bills to deal with the mortgage crisis. AB 260 (currently pending in the Assembly) would create a fiduciary duty between mortgage brokers and their clients, meaning possible legal consequences if borrowers are given loans that they can't afford. Another bill, SB 239 (currently pending in the State Senate) would create a new category of mortgage fraud in state law, giving authorities more power to prosecute, including new tools for District Attorneys to obtain evidence during mortgage fraud investigations.

Modifying Your Mortgage

If you are interested in modifying your mortgage, we encourage you to research your various options because state and federal law has been changing rapidly. Any modification will take a good amount of preparation, perseverance, and persistence.

While Omni has successfully obtained loan modifications for Omni clients – including settlement offers as low as 30 cents on the dollar – we are aware that most individual homeowners haven’t been so lucky when trying to negotiate with their lenders on their own. Whether the banks are so overwhelmed by loan modification requests that they can’t meet the needs of all their customers, or the banks simply are unwilling to grant loan modifications without the threat of legal action, it is clear that having legal counsel can mean the difference between success and failure when it comes to the difficult task of modifying your mortgage.

For advice on your particular situation, please feel free to give us a call at (415) 250-8131 or email us at johncorcoran@gmail.com for a free consultation.