Choosing the right lawyer can make a big difference

Karen Mayo says her bankruptcy attorney saved her life. Phil Flom says his bankruptcy lawyers ruined his.

It’s been about 10 years since Mayo and Flom went through what sometimes is called “straight bankruptcy” – freeing themselves of debt under Chapter 7, or liquidation, of federal bankruptcy laws. Both had been fairly comfortable financially before being forced into bankruptcy by unforeseen circumstances. Both say they have managed to rebuild their finances somewhat since then, although each says it’s been a painstakingly slow process.

And both say their relationships with their attorneys – Mayo’s good, Flom’s bad – set the tone for how their bankruptcy cases unfolded.

phoenix bankruptcy lawyers and trustees say the biggest mistake people make in hiring a lawyer is failing to clearly understand what they’re getting for their money. Most people wouldn’t dream of buying a house without knowing whether the price includes the washer, dryer, range and refrigerator. They wouldn’t rent an apartment without asking who picks up the tab for the heating bill.

Yet it’s not uncommon for people to assume that the fees they pay to a bankruptcy attorney cover not only the basics of filing petitions, completing schedules and appearing at creditors’ meetings and in court, but also other services such as financial counseling and fighting mortgage foreclosures.

Ian Ball, a Twin Cities bankruptcy attorney, says that in his line of work he has “clients for life” because of problems that can arise even after an individual’s bankruptcy plan is confirmed in court. He says he explains to potential clients that they can be billed for things that come up after their bankruptcy plans are confirmed, although that is negotiable because he understands they may be financially strapped.

That’s particularly true for Chapter 13 of federal bankruptcy laws, under which individuals can work out a plan to repay their creditors over an extended period of time.

Stephen Creasey, an attorney who works with the state’s Chapter 13 trustee office, offers this example of how people can be hurt if they don’t clearly understand what services they’re buying from their attorneys: Assume a debtor files and gets court approval for a repayment plan, then falls behind on mortgage payments a couple of years later. The mortgage company tells him it’s going to foreclose, and in a panic, the debtor calls up his bankruptcy attorney assuming that the attorney can iron out the problems.

The attorney may be able to straighten things out, Creasey explains, but it’s going to cost the client extra. The client is furious, figuring the original fee covered any problem that would ever surface connected with repayment of debts.

“It’s very important that an attorney and client have a very clear understanding of what’s covered by the fees, and how accessible that attorney will be to handle things that may come up over time,” Creasey said.

Bad advice

Flom says one of the biggest problems with the first attorney he hired (he later fired him and hired someone else) was getting advice on how best to protect assets he had accumulated, especially a Red River Valley farm that had been in his family for more than 100 years.

Flom, who has always been self-employed, had found himself in financial trouble because he was behind on mortgage payments on his home in the Twin Cities. Those problems were a result of tax liens related to a dispute Flom had with the Internal Revenue Service. An acquaintance referred him to a tax attorney, who suggested that Flom file bankruptcy.

Because Flom owned a small business, the attorney advised him to file for bankruptcy under Chapter 11 of the bankruptcy code. The attorney, who didn’t specialize in bankruptcy law, may not have known that because Flom was self- employed, he could have filed for Chapter 13. Flom said he later was told that if he’d filed for Chapter 13, he might have had a better chance of keeping his farm. As it was, his case dragged on for four years and eventually was converted by the second attorney, who also didn’t specialize in bankruptcy, to a Chapter 7 liquidation. The farm was sold for $75,000, far less than its $200,000 market value.

Flom acknowledges that he probably was somewhat naive in choosing his attorneys. He says he assumed that if they were lawyers “they knew the law.” He advises anyone facing bankruptcy to hire an attorney with a proven track record in bankruptcy practice, someone who regularly works with the intricacies of the bankruptcy code.

“There’s nothing wrong with coming right out and asking an attorney how many {bankruptcy} cases he has done, if he does them occasionally or if he specializes,” Creasey says. In addition, Creasey says, people should ask how much experience an attorney has with particular types of debt problems, be they tax arrears, mortgages or credit card debt.

Shopping for a lawyer

Molly Shields, a Twin Cities attorney who also is a Chapter 7 trustee, says competition among lawyers for clients currently means that some people can “shop for price.” But she cautioned that it’s better to do that if you have an uncomplicated case. It may be worth it to pay more in fees to get the right lawyer to handle a complicated case.

Karen Mayo’s Chapter 7 filing was a reasonably straightforward case, but she credits her attorney for making it much easier for her. Mayo, who now works as a residential services coordinator at a senior citizens’ development, had just earned a teaching degree but didn’t have a steady job when her husband left her about 10 years ago. She was left with thousands of dollars in medical bills he had accumulated, plus the expenses of raising four children.

“I paid the people who screamed the loudest” – the health care providers, Mayo said. That left her with little money for other things, such as clothes for her kids, and as a result her credit card debt began to climb. In addition, she was still responsible for paying a student loan.

An acquaintance referred her to a family practice attorney who advised her to file for Chapter 7. It cost her $600, but it wiped the financial slate clean of everything but her student loan.

“What I remember the most is how much time he spent explaining the theory behind bankruptcy, how it was designed to give people a fresh start. He was extremely patient and kind, advising me on the importance of moving toward establishing a good credit rating once the bankruptcy was over,” she said.

Mayo said she’d advise people looking for a bankruptcy attorney to get a word-of-mouth referral. “I’d put more stock in that than any advertising,” she said.

Mayo’s good experience also shows how important it is to feel comfortable with your attorney. Ball says the right chemistry between clients and attorneys is essential to a good working relationship.

Flom can testify to that, too. Looking back, he says he should have known that things weren’t going well with the attorney he eventually fired.

“If the guy had been a doctor, you would say he had the bedside manner of a mortician,” Flom said. “There just was no relationship.”

Optical Data Archiving at the United Nations

You have come into possession of some of the world’s most important documents – 43,000 of them to be exact. Each one of them must be fully protected, their integrity guaranteed, and they must be 100 percent reliable against loss or destruction. Failure to shield even a single crucial document could cause worldwide havoc – even war. Your mission, should you choose to accept it, is to find a way to safeguard these documents, shield them from unauthorized alterations, yet make each one easily available to anyone requesting them.

Sound like a fantastic movie plot? Or perhaps the making of a great mystery novel? Well, it’s a real-world dilemma faced by the United Nations – custodian of all the world’s treaties. Dating back to 1947 when the organization was known as the League of Nations, the UN has stored more than a half-million pages of agreements between countries, divided into 1,600 volumes. These original papers are stored in its New York City headquarters. The paper documents, with the signing parties signatures affixed, each written in a number of languages, form the framework of accords among nations.

The UN embarked on an ambitious project to convert each page of every document into electronic media – making them available outside of the UN’s walls to Internet users and others who’d like to see them, without posing a risk to the documents.

Ron Van Note, an information systems consultant known for his work in the re-engineering workflow arena, oversees this undertaking at the UN. “After much reflection and many discussions, we decided to go with imaging and optical storage as the best alternatives for this enormous conversion task,” recalls Van Note. “With this combination of technology we can ensure the integrity of each document both during the electronic input process and afterward during the storage stage.”

Imaging vs. OCR

Van Note’s rational for selecting the imaging format over digital Optical Character Recognition was based on both cost and legal ramifications. Van Note explains that OCR, at best, is considered to be only 90- to 95-percent accurate. Because of the multiple languages used throughout the treaties, it would cost the world body millions to ensure the necessary 100-percent accuracy. During the conversion from paper to electronic media, the UN has to protect against adding something that is not there, or leaving anything out during translation.

Optical storage was chosen because of its immense capacities, permanency, and near-online storage capability. “A treaty is not a document that ever changes,” explains Van Note. “It will be stored forever. It can be modified by adding on to it, but the original is never touched. Optical’s permanency and large capacities are ideal for this type of data archiving. In the future, the UN will be putting the documents out over the Internet. It is essential to get the treaties into a form that can’t be damaged. Again, optical’s write-once feature meets our needs.

“The first phase of the UN’s conversion project has already been completed,” says Van Note. “It involved scanning all 1,600 existing volumes of treaties (about 600,000 pages) and storing them on the optical media. A Hewlett-Packard SureStore Optical 20XT jukebox with 16 five-and-a-quarter-inch disk platters were initially used. The jukebox is an magneto-optical device and WORM media was used to protect the documents against erasure or alteration.

Gramm’s Flowers Trampled

The Senate version of financial modernization legislation is likely to be delayed by congressional debate and action on the Kosovo crisis, according to sources, further lessening what momentum remains for passage this year.

Sen. Phil Gramm, R-Texas, made such a comment to industry officials during a fund-raiser last week in Washington. A meeting with Gramm and Sen. Trent Lott, R-Miss., the Senate majority leader, as well as Sens. Tom Daschle, S.D., minority leader, and Paul Sarbanes, Md., ranking member of the Senate Banking Committee, was postponed because of the issue, according to congressional staffers. The meeting was scheduled to take place April 13.

And, in a meeting with financial services industry lobbyists April 15, Gramm was noncommittal about when the Senate would consider the bill. Gramm’s other comments dealt primarily with the reported visit of 13 busloads of community activists to his home April 11. “They knocked on my windows and trampled my little flowers,” Gramm related to the assembled lobbyists. He also said they shouted through the windows, “Wendy, we know now where you live!” Wendy is Gramm’s wife; she is a former chairman of the Commodity Futures Trading Commission.

The only deadline for action on the bill is the need for the House Commerce Committee to report it out on a sequential referral by May 14. It is unclear what changes the panel will make to the bill. But Rep. John D. Dingell, D-Mich., ranking minority member of the panel, said he would likely propose an amendment to the bill during the panel’s consideration of it that would subject those barred from the banking, securities or the insurance businesses to “statutory disqualification” if they have been found by a state securities or insurance commission, or state or federal banking agency to have committed fraudulent acts or violated statutes enforced by these agencies.

“The (Clinton) Administration has admonished us against sending a bill with ‘inadequate consumer protections’ to the president,” Dingell said in a letter to the Comptroller General April 13

Big Banks Trounce Financial Modernization’s CRA Provisions

First Union has joined several of the nation’s large banks in opposing a rollback of Community Reinvestment Act mandates contained in a version of financial modernization legislation passed by the Senate Banking Committee last month.

The bank’s letter, sent to all members of the Senate Banking Committee (and different from the one mentioned in the previous story), undermines the position of Sen. Phil Gramm, R-Texas, chairman of the committee. Gramm included several CRA rollback provisions in financial modernization legislation reported out of his committee March 11. These provisions include a one-year safe harbor from additional scrutiny of a bank’s CRA compliance record when applying for approval of a merger or acquisition if the institution has a satisfactory or outstanding CRA rating. The bill also exempts institutions with assets of less than $100 million from CRA compliance.

“It is the position of First Union National Bank that a strong bank cannot exist in a weak community,” said Jane N. Henderson, a First Union corporate official based in Charlotte, in a letter to all members of the Senate Banking Committee. A similar letter was written several weeks ago by officials of Bank of America. “Moreover, the bank realizes that lending to low and moderate-income customers can be profitable.”

It adds that, “First Union also has a core corporate principle that it must be a leader in the communities in which it serves. Such leadership is manifest through creative and innovative lending, investing, services, contributions and volunteerism.”

CRA Still Tripping Up H.R. 10

Against the background of an important meeting Tuesday on the fate of financial modernization legislation in the Senate, a newly-released Federal Reserve Board memo seems to confirm that CRA issues will continue to hamstring efforts to pass legislation this year.

In an analysis requested by Sen. Phil Gramm, R-Texas, the Fed said that the version of the legislation passed by the House Banking Committee last month "significantly expands" CRA mandates beyond current law. The analysis, disclosed in a letter to Gramm signed by Fed chairman Alan Greenspan, said CRA mandates are expanded in "three principal ways." For example, the analysis showed, banks seeking to engage in the securities or insurance businesses would have to satisfy CRA mandates as a "pre-condition" for entering the new business. Second, banks that don’t satisfy the CRA mandates would face enforcement action in the form of penalties or divestiture of the new business. A third expansion would subject uninsured wholesale financial institutions, the so-called "woofies" so prized by securities and insurance firms, to CRA mandates, even though "they don’t enjoy the benefit of federal deposit insurance," the analysis said.

The Fed analysis was released as Gramm prepares to meet with Sens. Trent Lott, R-Miss., the Senate majority leader, Thomas Daschle, D-S.D., Senate minority leader, and Paul Sarbanes, D-Md., ranking minority member of the Senate Banking Committee, on how the Senate should proceed in dealing with financial modernization legislation. Gramm’s bill does not impose the additional CRA requirements mandated in the House bill, but it was passed by a partisan, 11-9 vote in the Senate Banking Committee last month. The Clinton Administration has already sent out a letter threatening to veto the Gramm bill, and Daschle recently re-introduced a version of financial modernization legislation like the one passed by the Senate Banking Committee last year.

While the Senate leaders meet, signs are emerging that House Speaker Dennis Hastert, R-Ill., has asked the Commerce Committee Republican leadership to endorse in principle the House Banking Committee version of the legislation and seek amendments on the House floor on issues likely to generate controversy. The issues Hastert is concerned about are greater SEC scrutiny of bank securities activities; elimination of language currently in the bill restricting the unitary thrift holding company; and stronger privacy language than that is contained in the current House version of the bill.

Industry lobbyists said Hastert’s objective is to get the bill through the House by Memorial Day. Otherwise, Hastert has said, floor action could be delayed into July because June has been set aside to deal with appropriations bills. While Reps. Tom Bliley, R-Va., chairman of the Commerce panel, and Mike Oxley, R-Ohio, chairman of the finance and hazardous materials subcommittee, have apparently nodded assent, it is unclear what Rep. John Dingell, D-Mich., ranking minority member, will decide. Dingell, a former chairman of the full committee, has broad support on the committee, industry lobbyists said.

OTS Overrules California Loan Rules In Favor Of Thrifts

The Office of Thrift Supervision made clear recently that it retains the primary role in regulating the lending activities of federal thrifts by pre-empting a restrictive California consumer protection statute which affects advertising, the forced placement of hazard insurance, and charging of certain loan-related fees.

At the same time, four other recent OTS letters dealing with preemption of state law issues have surfaced. One deals with electronic banking in Massachusetts, a second deals with payment of finders fees in Illinois, and a third with paying interest on escrow accounts in New York. A fourth deals with mortgage reinsurance. The Office of the Comptroller of the Currency has dealt with a similar issue by allowing banks to reinsure through an operating subsidiary a portion of the risk on mortgages they originate.

While the most recent decision is important for all types of thrift lending, it is especially important to thrifts serving as mortgage lenders because California is the nation’s largest consumer mortgage market.

The agency’s letter was dated March 10 but only came to light last week. The name of the institution which requested the interpretation was redacted.

The OTS ruling dealt with the California Unfair Business Practices Statute and the California Deceptive, False, and Misleading Advertising Statute. In its request to the OTS, the thrift highlighted several examples of how the consumer protection laws were being used to impose substantive limitations on its lending activities. In its pre-emption letter, the OTS said that the Home Owners Loan Act provides the OTS broad authority to regulate all aspects of the operations of thrifts.

Of greater concern is that, according to the letter, California courts interpreting the laws have found that a cause of action under the law can be sustained on a finding of "unfairness," not by a breach of contract, or a violation of real property, commercial or tort law.

The OTS said in its letter that it has the authority to pre-empt certain laws affecting thrift lending if the law has more than an "incidental impact" on lending. Applying these provisions, the OTS determined that the practical application of the state laws as a basis for alleging "unfair competition" creates more than an incidental impact on the thrift’s lending operations, and thus that application of those laws is preempted.

According to a Washington lawyer, the OTS emphasized the extremely limited nature of its preemptive determination, referencing a 1996 determination with respect to an Indiana law not deemed to be preempted by federal law. That law principally required that advertisements be accurate.

Banks Have Privacy Answer Themselves, OCC Says

Internal credit reporting procedures used by some banks could be the first step in new initiatives aimed at protecting consumer financial privacy, according to an advisory released to institutions by the Office of the Comptroller of the Currency last week.

The advisory is notable because rather than providing clear, enforceable rules, the "guidelines" are meant only as a general map for how banks should proceed in providing financial information to affiliates to use in cross-marketing of products, according to several industry lawyers. The issue is white-hot, with Democrats in both the House and Senate introducing legislation to deal with it.

And, last October, three Republican members of the House Banking Committee, Reps. Doug Bereuter, Neb., Bill McCollum, Fla., and Richard Baker, La., wrote a letter to acting Comptroller of the Currency Julie Williams asking the agency to "go slowly" before amending its rules. The three had proposed legislation several years ago that would limit the ability of the government to restrict use of financial data.

One industry lawyer said the industry is "particularly pleased" that the new advisory doesn’t take the form of any mandatory directive, nor does it impose any new credit reporting burdens on banks. "There is no question that this issue will be tacked on to financial modernization legislation this year. It lends itself to being a political football."

The advisory interprets the 1996 amendments to the Fair Credit Reporting Act (FCRA), which made it easier for banks to exchange customer data with affiliates, including payment history and length of time the customers have held the credit cards. The only restrictions imposed under the 1996 law are that companies clearly and conspicuously disclose to customers that such information may be shared among affiliates, and customers are given the opportunity to "opt out" of the information sharing.

The OCC’s advisory letter is intended to help national banks develop privacy programs by providing specific examples of how other banks are effectively implementing an opt-out program. The advisory letter emphasizes that the examples provided are not examination standards, nor are they the only examples of how a bank can comply with FCRA

H.R. 10 Facing More Stumbling Blocks

While action on financial modernization legislation is underway in both the House and Senate, the likelihood that such legislation will quickly pass the Congress is fading as more and more roadblocks pop up.

For example, Democrats in both the House and Senate are increasingly demanding that limits be placed on banks’ access to the financial information they have on their customers. Large institutions want to use such information to cross-sell non-banking products based on the income and assets of their banking customers. If major hurdles are placed on access to that information, large bank support for the bill will cease, and it is the large institutions that are primarily supporting the current versions of financial modernization legislation.

At the same time, small commercial banks are demanding that the unitary thrift loophole be closed as the primary price for their support of legislation that mainly benefits large institutions.

Currently, commercial banks can conduct financial businesses through unitary thrifts, but small banks find this unfair competition. Current bills would close this loophole. However, there is broad support in the Congress for the loophole because owners of these institutions are deep-pocketed campaign contributors. And, as the industry has consolidated, many large states, such as Texas, New York and California, see commercial institutions as the only source of capital for new banks in their states. Representatives of these states fear even greater losses of financial institutions if the loophole is closed.

Against that background, there is a belief that provisions in all current versions of the bill outlawing new unitary thrifts will somehow be deleted as the bill moves through the Congress. That would have the effect of having banking trade groups, such as the American Bankers Association and the Independent Community Bankers of America, withdraw support.

In a financial services bulletin last week, analysts at Schwab Capital Markets & Trading Group, based in Washington, warned clients that "congressional limits on thrifts are not certain."

Action will resume on the bill when Congress returns to work from the Easter recess. The Senate leadership has scheduled meetings for next week on how to break the logjam holding up the legislation in that body, and Senate Democrats have reintroduced last year’s bill as their alternative to the current version, which recently passed the Senate Banking Committee on a partisan vote.

Bankruptcy Reform Headed Nowhere

A House subcommittee passed a bankruptcy reform measure favorable to lenders last week that appears to be more of a vehicle for partisanship than a viable piece of legislation.

The House judiciary subcommittee headed by Rep. George Gekas, R-Pa., approved a measure March 25 after two days of work that has most of the provisions contained in a similar bill which went into conference late last year, but then failed to pass after getting caught up in partisan bickering and the threat of a presidential veto.

And, given the 5-3 partisan vote by which the legislation passed the subcommittee, more of the same lies ahead. A vote on a bipartisan measure scheduled for a Senate Judiciary Committee markup last week was postponed until after Congress returns April 13.

The Gekas bill contains a means test opposed by liberal Democrats and the Clinton administration and none of the consumer protection provisions sought by the administration and Democrats. It would require debtors who make more than $51,000–the national median income for a family of four–to enter into a prepayment plan. It also contains language intended to close a loophole that allows debtors in states with so-called homestead laws to shield cash invested in expensive homes.

However, Gekas did add an amendment that increased the homestead allowance to $250,000 from $100,000.

In the House, Democrats, prodded by the Clinton administration, are demanding strong disclosures and other protections for consumers taking on consumer debt. Sen. Charles Schumer, D-N.Y., a member of both the Banking and Judiciary committees, is leading the charge on the issue in the Senate.

Among the problems facing the bill are that Sen. Phil Gramm, D-Texas, who heads the banking committee, has voiced opposition to the consumer protection provisions.

Equally important, lobbyists said they have learned that the administration plans to embrace the credit card consumer protections as well as financial privacy protection provisions as their own. That would appear to doom both the bankruptcy bill and financial modernization legislation now being considered by both houses. These were scheduled to be announced March 25, but the press conference was postponed due to the bombing of Kosovo.

Momentum Slowing On H.R. 10

The House Banking Committee reported out its version of financial modernization legislation late March 23, and the House Parliamentarian apparently granted the House committee a 45-day sequential referral to May 14, obviously slowing the momentum for the bill its supporters are trying to create.

That would doom efforts to deal with the bill in May on the House floor, as optimists had sought. And, in the Senate, Sen. Phil Gramm, R-Texas, chairman of the Senate Banking Committee, told lobbyists at the second meeting in a week that Sen. Trent Lott, R-Miss., majority leader, had asked to meet with him, and Sens. Tom Daschle, D-S.D., minority leader, and Paul Sarbanes, D-Md., ranking minority member of the Senate banking panel, when Congress returns in April.

The purpose of the meeting, Gramm said, is to see what could be done to resuscitate Gramm’s version of the bill. His bill was passed 9-7 on a partisan vote in the Senate Banking Committee, and, as a result, had not been reported out of the committee as of March 25.

The ostensible objection of Democrats is Gramm’s efforts to water down the Community Reinvestment Act mandates imposed on banks. President Clinton wrote a letter promising a veto of the bill based on the CRA provisions in Gramm’s bill even before the panel voted on it.

But that is just the beginning of the bill’s problems. While not directly linked, signals from the Clinton administration are that it will demand that Congress improve financial privacy protections as part of a package of consumer protection provisions it supports. That would virtually end banking industry support for the bill, because ability to use its customer base to market non-banking products is one of the key reasons money center banks are still supporting the bill. In fact, at a meeting of bank lobbyists earlier this month, the Washington lobbyist for Chase Manhattan Bank specifically linked his institution’s support for financial modernization legislation to Congress’s ability to maintain current provisions on financial privacy.