Zero Down Chapter 7 Bankruptcy Scheme. Watch Out!!

The U.S. Trustee Program has filed a complaint against a California lawyer and her firm for its so-called “no money down” billing practices in Chapter 7 cases. Peter C. Anderson, the U.S. trustee for the Central District of California, sued Patricia Ashcraft and the Law Offices of Gregory Ashcraft, APC, related to attorney fees collected for a Chapter 7 bankruptcy the firm filed for Mary Anne Gilmore on May 2.

The Dec. 12 complaint from the Justice Department’s trustee unit overseeing bankruptcies seeks disgorgement, or repayment, of attorneys’ fees, sanctions, and an order preventing such billing in future cases. According to the complaint, the firm bifurcates its representation into two components—representation pre-petition and representation post-petition. It has separate retainer agreements for the services, the complaint stated. It provides its pre-petition services for free, and bills for its work for post-petition services on a monthly basis.

According to the firm’s website, Ashcraft partners with a company called BK Billing, LLC, the complaint said. BK Billing funds the firm by a payment, in this case $2,100, and bills the client the entire fee, $3,000, at a rate of $250 per month for 12 months, according to the complaint.

Ashcraft doesn’t disclose that the client is paying financing fees or interest amounting to more than 40 percent, the complaint said. Additionally the cost of filing the bankruptcy is almost doubled compared to her prior fees prior to the zero down program.

The facts of the case can be read below.

zero-down-bk-complaint

No Bankruptcy Aid For Marijuana Businesses

In an article published by the American Bankruptcy Institute last Friday, director of the Justice Department’s Executive Office for U.S. Trustees, Clifford J. White III, and the trial attorney for the agency, John Sheahan, explained that cannabis businesses cannot claim bankruptcy because of their lingering Schedule I status.

“Marijuana continues to be regulated by Congress as a dangerous drug, and as the Supreme Court has recognized, the federal prohibition of marijuana takes precedence over state laws to the contrary,” the article stated.

The Justice Department noted that the United States Trustee Program’s stance remains firm and that no assets associated with the cannabis industry can be liquidated or restructured following bankruptcy.

“The USTP’s response to marijuana-related bankruptcy filings is guided by two straightforward and uncontroversial principles,” the two Justice Department officials pointed out. “First, the bankruptcy system may not be used as an instrument in the ongoing commission of a crime and reorganization plans that permit or require continued illegal activity may not be confirmed. Second, bankruptcy trustees and other estate fiduciaries should not be required to administer assets if doing so would cause them to violate federal criminal law.”

“Not only would a trustee who offers marijuana for sale violate the law but so, too, would a trustee who liquidated the fertilizer or equipment used to grow marijuana, who collected rent from a marijuana business tenant, or who sought to collect the profits of a marijuana investment,” White and Sheahan said.

With the DOJ cracking down, the lines are blurred on whether these businesses are considered legal, or illegal.

Bankruptcy impact on 2017 Holiday Shopping

There will be trouble in the upcoming 2017 holiday season for consumers wanting to walk in their favorite toy store and fill up the stockings for the little ones. No its not just what you could afford, but also where you can go to get the toys for the little ones.

Mattel, the maker of Barbie dolls and Hot Wheels cars, reported disappointing third-quarter results late Thursday and said it was hurt by Toys R Us’ Chapter 11 bankruptcy filing last month. Earlier this week, Hasbro, the maker of My Little Pony and Monopoly, also blamed weak results on the Toys R Us bankruptcy filing.

Both companies said they temporarily slowed shipments to Toys R Us ahead of its bankruptcy, and both said they are working with the retailer to get their toys on its shelves during the holiday season. While Toys R Us had said when it filed for bankruptcy protection that it planned to work with suppliers and would keep its 1,600 Toys R Us and Babies R Us stores open. A resolution is if far from certain.

We only hope you plan ahead in getting the gifts for the little ones.

Who is the King of Bankruptcy?

Before being appointed as Commerce Secretary by President-elect Donald Trump, investor Wilbur Ross Jr. was a banker well known for restructuring failed companies through leveraged buyouts. He earned himself the name “King of Bankruptcy” for his experience buying bankrupt companies in the manufacturing and steel industries and selling them for a large profit.

His portfolio included $1.3 billion in municipal bonds, $1.3 billion of interests, $550 million in equities, $225 million in art, $180 million cash, and $120 million real estates for a total of $3.7 billion.

Who knew there was so much to me made using bankruptcy law?

History of Bankruptcy Law.

The U.S. Constitution had in 1787 explicitly called on Congress to establish “uniform Laws on the subject of Bankruptcies throughout the United States.” This would be good for the “regulation of commerce,” James Madison explained in Federalist Paper No. 42, “and will prevent so many frauds where the parties or their property may lie or be removed into different States.”

In April 1800, President John Adams signed the Bankruptcy Act into law. the 1800 law was nonetheless more forgiving than standard English practice. U.S. courts and creditors did not necessarily view insolvency as a moral failure. Sometimes businesspeople took risks that didn’t work out, and it was helpful to have a process to manage the unfortunate results, share the responsibility among creditors and debtors, and allow for fresh starts. But in 1803 Congress repealed the law.

Congress once again enacted bankruptcy laws in times of financial distress in 1841 and 1867, only to repeal them soon afterward. Bankruptcy remained an often-confused matter of state law and judicial interpretation until the passage of the Bankruptcy Act of 1898.

That’s not to say there haven’t been some big changes to U.S. bankruptcy law since 1898. During the financially distressed 1930s, Congress first added a provision allowing municipalities to declare bankruptcy, then rewrote the entire bankruptcy code. The latter reform made corporate bankruptcies less attractive by, among other things, requiring that an outside trustee be appointed to run the bankrupt company. Another major rewrite in 1978 took away that requirement, allowing the pre-bankruptcy management team to stay in charge.

Personal bankruptcy filings also rose after the 1978 reforms, and kept rising for decades. In response, Congress passed a law in 2005 that made it harder for individuals to get their consumer debts discharged. The result was a sharp decline in nonbusiness bankruptcy filings.

There’s always going to be a tension in bankruptcy between discouraging profligacy and enabling the insolvent to make a new start. It is a process of navigating deeply felt competing obligations. What is definitely a problem is the absence of any bankruptcy process at all.

In the U.S., one of the most controversial holes in the bankruptcy net is student debt, which, thanks to a series of ever-tighter restrictions adopted by Congress starting in 1976, is now so hard to get discharged that few try. The next change in bankruptcy law should deal with student debt obligations.

Bankruptcy Fraud Charges Against San Fernando Man for $7 Million

A San Fernando Valley man from Van Nuys was ordered detained pending trial on federal charges alleging he ran a foreclosure-avoidance scheme that raked in $7 million from distressed homeowners.

Michael “Mickey” Henschel, 68, was arrested Wednesday by federal agents pursuant to an 11-count indictment returned by a Los Angeles federal grand jury on June 8, according to the U.S. Attorney’s Office.

According to the indictment unsealed after his arrest, Henschel owned a Van Nuys-based company he operated under several names, including Valueline.

Prosecutors allege that Henschel and several co-conspirators marketed illegal foreclosure- and eviction-delay services to homeowners who had defaulted on their mortgages and renters who were facing eviction.

As part of the scheme, Henschel and the others allegedly persuaded homeowners to sign fake grant deeds that purported to show the homeowners had conveyed an interest in their properties to fictional third parties.

Henschel and his co-conspirators allegedly filed bankruptcies in the names of fictional persons and entities to trigger the automatic stay provision of the Bankruptcy Code, which meant that foreclosure sales were stalled.

Henschel allegedly delayed evictions in a similar way, filing fraudulent documents in state eviction actions and sending similar documents to sheriff’s offices.

In addition to monthly fees paid for the illegal services, Henschel allegedly charged some homeowners large fees before agreeing to clear title to their properties.

During the course of the scheme, from October 2010 through July 2013, Henschel and his co-conspirators collected more than $7 million, according to the indictment.

The indictment charges Henschel with one count of conspiracy, eight counts of bankruptcy fraud and two counts of wire fraud. Trial was scheduled for Aug. 8.

Supreme Courts Rules Debt Collectors Do Not Violate Bankruptcy Proceedings.

Justices say companies can’t be sued for trying to recover old credit card debt from people in bankruptcy protection.

A divided Supreme Court ruled Monday that debt collection companies can’t be sued for trying to recover years-old credit card debt from people who seek bankruptcy protection.

The 5-3 ruling is a blow to consumer groups that complain debt collectors are unfairly misleading people into repaying old debts even when they are not required to under the law.

The court sided with Midland Funding, which was trying to collect $1,879 in debt an Alabama woman had incurred more than 10 years earlier. Aleida Johnson argued that Midland was wrong to go after the debt because Alabama law has a six-year statute of limitations for a creditor to collect overdue payments.

While Johnson ultimately avoided paying the debt, a federal appeals court said she could sue Midland for trying to collect it as a violation the Fair Debt Collection Practices Act. That law prohibits collection companies from making a “false, deceptive, or misleading representation” or trying to recover debt through “unfair or unconscionable means.”

Writing for the majority, Justice Stephen Breyer broke with his liberal colleagues to say efforts to recoup old debt during the bankruptcy process do not violate the law. He said it wasn’t false or misleading because bankruptcy law technically allows such claims.

And Breyer said it wasn’t unfair or unconscionable since a bankruptcy trustee can object to any claims that are so old they don’t have to be repaid. That’s what happened in Johnson’s case, and Breyer said that reduces any concern that consumers might unwittingly pay a debt that is too old.

Breyer’s opinion was joined by Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas and Samuel Alito.

In dissent, Justice Sonia Sotomayor said the practice “is both unfair and unconscionable.”

“Professional debt collectors have built a business out of buying stale debt, filing claims in bankruptcy proceedings to collect it, and hoping that no one notices that the debt is too old to be enforced by the courts,” Sotomayor said.

Her dissent was joined by Justices Ruth Bader Ginsburg and Elena Kagan.

Justice Neil Gorsuch did not participate in the case.

Giving the Metaphorical Middle Finger to The Bankruptcy Court Lands Attorney in Jail.

U.S. Bankruptcy Judge Charles Rendlen III  issued a bench warrant for the owner of a bankruptcy firm and a suspended lawyer, saying it was the only way to force them to repay clients whom they had bilked.

At the end of the blistering nine-page bench warrent, U.S. Bankruptcy Judge Charles Rendlen III stayed the warrant’s effect for a week to give one last chance to Critique Services LLC owner Beverly Holmes Diltz and lawyer James C. Robinson.

Rendlen wrote that Diltz and Robinson had ignored an April 21 order to return a $635 fee to former clients.

Given their “long history of refusing to obey Court orders and employing contempt as a litigation strategy … “a politely insistent request or a ‘strongly worded’ directive” was unlikely to work, he wrote.

He continued: “Monetary sanctions mean nothing to persons who have no intent to ever pay them. Therefore, the Court must find some other mechanism for obtaining obedience.”

“The Court recognizes a metaphorical middle finger when it is given one, and it is not obligated to feign hope that a lesser form of coercion will garner obedience from Robinson and Critique Services LLC,” the order says.
Rendlen ordered the pair held for 30 days or until the money is paid. But he also said that the U.S. Marshals “have better things to be doing with their valuable time,” and wrote that the warrant would become effective on Friday and be delivered to the marshals for “execution” if Diltz and Robinson didn’t heed his warning.

Rendlen has repeatedly blasted the St. Louis company and lawyers who work for it, saying they have targeted “primarily working poor, minority citizens of St. Louis for almost two decades.”

Last year, the Missouri Attorney General’s office sued Critique Services to shut it down.

In a consent judgment filed in March and amended earlier this month, Diltz admitted that the company did not perform as advertised for some clients, and he agreed to close and agreed to repay $90,504 to 167 people, as well as $25,000 in civil penalties to Missouri and $10,000 to the bankruptcy court.

One Year and One Day Prison Term for Bankruptcy Fraud.

Dance Moms reality TV celebrity Abby Lee Miller has been sentenced to one year plus one day in prison, fined $40,000, and ordered to forfeit $120,000 as punishment for her admitted federal bankruptcy fraud. A federal judge in Pittsburgh also ordered Miller to pay a $40,000 fine and spend two years on probation following her release.

Prosecutors said Miller had attempted to conceal nearly $750,000 in revenue from bankruptcy creditors and sneak the $120,000 in Australian revenue into the country in the luggage of adult and child travel companions.

Assistant U.S. Attorney Gregory Melucci told the judge that Miller was getting bankruptcy court help “with one hand and stealing with the other,” to satisfy, “enormous greed and extreme arrogance.” He said she had gone from “Dance Mom” to “Dance Con.” Miller told Judge Joy Flowers Conti that she’s ashamed, sorry, and accepts responsibility for her actions.

Miller must report to federal authorities to begin serving her sentence in 45 days. The judge said she’d recommend to the federal prison system that Miller be allowed to serve her time at a federal facility near Los Angles, where Miller currently has her business. Her dance studio in Penn Hills, which is now closed, was started by her parents. The judge said that with 10 months of good behavior, Miller may be eligible to enter a halfway house to serve the balance of her federal sentence.