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Posted On: September 28, 2010

Home Underwater? Ethical Considerations

The University of Arizona's Eller College of Management sponsored an ethics symposium on August 20 for about 75 executives and others. The main point of the symposium was to discuss whether it is moral/ethical for a consumer living in an upside down home to simply walk away from it or "strategically default". Then, after walking away to take advantage of the various laws protecting the consumer from deficiency balances and taxes.

See the Inside Tucson Business article here.

As stated in the article, most consumers do not walk away from upside down homes, even when it is makes financial sense to do so. I get the sense from the article (I didn't attend, don't like the UoA...go devils!) that the experts are a bit surprised by this.

The surprise is I believe, based on the following line of thought:

1. The consumer has limited options because he is fenced in by his own ethical sense of obligation to pay his debt

2. The banks are only fenced in by their drive for profits and fear of losses.

3. The burdens of this whole thing fall unfairly on the consumer as a result...something about the loss of bargaining power.

4. For this reason, and because the lender knew the buyer would or could default, it can't be unethical for the consumer to simply walk.

Got it? Ethics don't or shouldn't exist in this scenario. The bank doesn't use it, neither should the consumer.

The fact that most consumers do not always adopt this line of reasoning and simply walk away doesn't surprise me though.


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Posted In: Assets and Bankruptcy , Bankruptcy Basic Questions

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Posted On: September 25, 2010

Chapter 7 Bankruptcy - Who can file?

Any human, who resides, is domiciled, has property or a place of business in the United States, may file a Chapter 7 bankruptcy in the U.S. Bankruptcy Court as long as:

1. he or she was not a debtor in a bankruptcy case that was dismissed within 180 days prior to the filing date for "willful failure" to abide by orders of the court or to appear before the court in proper prosecution of the case. (didn't cooperate)

2. he or she did not request and obtain a voluntary dismissal of a bankruptcy case following the filing of a request for relief from the automatic stay.

The bankruptcy filer does not have to be:

1. Insolvent - This means that they can have more assets then debts

2. A U.S. legal citizen

3. Physically residing in the U.S.

4. The actual person needing the benefit of bankruptcy

An attorney or a relative may be able to file a petition as a "next friend" to the debtor. A legally appointed guardian can file the petition for someone else as well. A bankruptcy may also be filed for an incompetent person pursuant to a very broad and valid power of attorney. A conservator may be able to file under certain circumstances.

5. Alive - (well sort of)

If a debtor files the case and then passes away, the case can typically continue. Federal rule of Bankruptcy procedure 1016 provides that the death of the debtor shall not abate a chapter 7 case.

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Posted In: Bankruptcy Basic Questions , Chapter 7 Bankruptcy

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Posted On: September 22, 2010

Bankruptcy "Estate" - short definition

If you are considering bankruptcy and have been reading about your options, you may have come across the term, "bankruptcy estate".

What is this... "bankruptcy estate" you asked yourself. A vineyard in Italy?

More likely...you knew that a bankruptcy estate is really just a collection of all the property and rights to property that belonged to the bankruptcy filer that can be legally administered during a bankruptcy case by the bankruptcy Court.

It is created the moment that filer actually...."files" the bankruptcy case. It is simply all of the stuff he or she owns or has the right to own or control.

Some examples:

car, home, stock, cash, community property, personal injury claim, property acquired by inheritance within 180 days of filing the bankruptcy, bare legal title to property etc.

If you can imagine it, then it probably would be part of the "bankruptcy estate". It is very important in a bankruptcy case to disclose every item that could be considered part of the estate, as a failure to properly do so could result in a denial or revocation of the overall goal of the bankruptcy filing...the discharge of debt.

A few issues arise after the estate is determined.

1. Does the Bankruptcy Trustee have a greater interest in the property then the debtor had in it on the date of filing.

2. What assets are protected from being taken by the bankruptcy trustee for distribution to creditors in a chapter 7 bankruptcy.

The second question is dealt with routinely by bankruptcy judges. Most consumers have few assets that are not protected from creditors both inside and outside of bankruptcy and those that are not protected or "exempt" are often not worth the bankruptcy estate's time to collect and distribute to creditors.


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Posted In: Bankruptcy Basic Questions , Bankruptcy Practice and Procedure

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