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National Consumer Bankruptcy Law Firm Sanctioned for Harming Financially Distressed Consumers and Auto Lenders

After a four-day trial, a national consumer bankruptcy law firm and its local partner attorneys were sanctioned and enjoined by the U.S. Bankruptcy Court for the Western District of Virginia for causing “unconscionable” harm to their clients. The court found that the law firm and its attorneys, among other things, systematically engaged in the unauthorized practice of law, provided inadequate representation to consumer debtor clients, and promoted and participated in a scheme to convert auto lenders’ collateral and then misrepresented the nature of that scheme, Director Cliff White of the Executive Office for U.S. Trustees announced today.

On Feb. 12, the U.S. Bankruptcy Court for the Western District of Virginia entered orders in two actions brought by the U.S. Trustee. The court sanctioned Law Solutions Chicago, doing business as “UpRight Law” (UpRight), and its principals $250,000; imposed additional sanctions of $50,000 against UpRight’s managing partner Kevin Chern, and $5,000 each against UpRight’s affiliated partner attorneys Darren Delafield and John C. Morgan Jr.; and ordered UpRight to disgorge all fees collected from the consumer debtors in both bankruptcy cases. The court also revoked UpRight’s bankruptcy filing privileges in the Western District of Virginia for not less than five years, and those of its local partners for 12 and 18 months, respectively. The bankruptcy court also sanctioned Sperro LLC (Sperro), an Indiana towing company that did not respond to the U.S. Trustee Program’s complaints, and ordered the turnover of all funds it received in connection with bankruptcy cases in the district.

“Lawyers who inadequately represent consumer debtors harm not only their clients, but also creditors and the integrity of the bankruptcy system,” said Director White. “The damage caused increases exponentially when they operate nationally, like UpRight. This case is demonstrative of the vigorous enforcement actions that the U.S. Trustee Program can and will take to protect all stakeholders in the bankruptcy process.”

According to trial testimony and evidence presented in court, UpRight operates a website offering legal services to consumers in financial distress. Prospective clients contact UpRight via the Internet and are routed to UpRight’s sales agents. These non-attorney “client consultants” were trained to “close” prospective clients by using high-pressure sales tactics and improperly provided legal advice to encourage them to file for bankruptcy relief. In many instances, UpRight arranged payment plans for its prospective clients to pay bankruptcy-related attorney’s fees and costs over time, and refused to refund fees it collected from its clients for whom UpRight did not file a bankruptcy case. The bankruptcy court found that UpRight had “serious oversight issues” in failing to adequately supervise its salespeople to prevent their unauthorized practice of law, and that UpRight demonstrated a “focus on cash flow over professional responsibility.”

Additionally, UpRight worked in concert with Sperro to implement a program through which UpRight’s clients could have their bankruptcy legal fees paid through a “New Car Custody Program.” The bankruptcy court described the New Car Custody Program as “a scam from the start.” UpRight’s salespeople and attorneys counseled bankruptcy clients to “surrender” vehicles fully encumbered by auto lenders’ liens to Sperro without the lienholders’ consent, and enter into an agreement obligating the clients to pay Sperro the costs of towing the vehicle, transporting it across state lines – often over a long distance – and storing it. UpRight assured its debtor clients that they would not have to pay any fees to Sperro, and in some instances advised its clients to hide their vehicles from lenders looking to repossess them until Sperro could pick up the vehicles.

After Sperro took a vehicle, it asserted a statutory “warehouseman’s lien,” claiming the right to keep the vehicle until the sham towing, transportation, and storage fees were paid. Then it offered the vehicle for sale at auction, despite the auto lender’s continuing security interest. Out of the sale proceeds, Sperro paid the debtor client’s bankruptcy fees directly to UpRight. Sperro kept the rest of the sale proceeds. In some cases, UpRight prepared bankruptcy court filings omitting the debtor clients’ transactions with Sperro.

The “New Car Custody Program” harmed auto lenders by converting collateral in which they had valid security interests. And the bankruptcy court found that UpRight “preyed upon some of the most vulnerable in our society” – its debtor clients – “while they were under great stress” by providing “unconscionable” advice to participate in the Sperro scheme, exposing them to undue risk by causing them to possibly violate the terms of their contracts with their auto lenders as well as state laws.

The cases discussed above are captioned Robbins v. Delafield et al., Adv. No. 16-07024 (Bankr. W.D. Va. Feb. 12, 2018), and Robbins v. Morgan et al., Adv. No. 16-05014 (Bankr. W.D. Va. Feb. 12, 2018).

Director White commended the trial team of Assistant U.S. Trustee Margaret Garber and Trial Attorneys Joel Charboneau, Nick Foster and Joan Swyers for their handling of these matters.

The U.S. Trustee Program is the component of the Justice Department that protects the integrity of the bankruptcy system by overseeing case administration and litigating to enforce the bankruptcy laws. The Program has 21 regions and 92 field office locations. Learn more information on the Program at: https://www.justice.gov/ust.

 

[SOURCE]

Bankruptcy Filings Continue to Decline

Bankruptcy filings fell by 1.8 percent for the 12-month period ending March 31, 2018, compared with the year ending March 31, 2017. The data continues a national trend of declining bankruptcy filings since 2011.

The March 2018 annual bankruptcy filings totaled 779,828, compared with 794,492 cases in the previous year, according to statistics released by the Administrative Office of the U.S. Courts.

A national wave of bankruptcies that began in 2008 reached a peak in the year ending September 2010, when nearly 1.6 million bankruptcies were filed.

Additional statistics released today include:

  • Business and non-business bankruptcy filings for the 12-month period ending March 31, 2018 (Table F-2, 12-month);
  • A comparison of 12-month data from March 2017 and March 2018 (Table F);
  • First quarter filings, (Table F-2, 3-month); and filings by month (Table F-2, January, February, March)
  • Bankruptcy filings by county (Report F-5A).
Business and Non-Business Filings,
Years Ending
March 31, 2014-2018
Year Business Non-Business Total
2018 23,106 756,722 779,828
2017 23,591 770,901 794,492
2016 24,797 808,718 833,515
2015 26,130 884,956 911,086
2014 31,671 1,006,609 1,038,280
TOTAL BANKRUPTCY FILINGS BY CHAPTER,
YEARS ENDING
MARCH 31, 2014-2018
Year Chapter
7 11 12 13
2018 480,933 7,735 499 290,566
2017 488,417 7,105 457 298,348
2016 523,394 7,380 440 302,193
2015 596,867 7,053 354 306,729
2014 699,982 8,564 388 329,256

For more on bankruptcy and bankruptcy court rules, or search historical data on bankruptcy filings.

Related Topics: Bankruptcy Filings

 

[SOURCE]

Just the Facts: Consumer Bankruptcy Filings, 2006-2017

Just the Facts is a feature that highlights issues and trends in the Judiciary based on data collected by the Judiciary Data and Analysis Office (JDAO) of the Administrative Office of the U.S. Courts.

Bankruptcy can provide a fresh financial start for consumers who cannot pay their debts, either because of insolvency or insufficient income to meet creditor demands. Bankruptcy generally works in one of two ways: liquidating assets to pay one’s debts under Chapter 7 of the U.S. Bankruptcy Code, or establishing a repayment plan under Chapter 13 of the code.

Under a Chapter 7 liquidation, a debtor generally can achieve a fresh financial start more quickly than under a Chapter 13 repayment plan, which can last up to five years. However, under Chapter 13, a debtor may be able to save a home from foreclosure, reschedule secured debts and extend them over the life of a Chapter 13 plan (possibly lowering the payments), or consolidate debt payments to a trustee who then handles distribution to creditors.

  • In the 12-year span from October 1, 2005 to September 30, 2017, about 12.8 million consumer bankruptcy petitions were filed in the federal courts. Of those, 8.7 million–68 percent–were filed under Chapter 7, and 4.1 million– 32 percent–were filed under Chapter 13 (see Table 1). Nonbusiness filings (i.e., filings involving mainly consumer debt) constituted 97 percent of all Chapter 7 bankruptcies and 99 percent of all Chapter 13 bankruptcies.
  • In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which among other things, instituted a means test for filers to move some away from filing for bankruptcy under Chapter 7 and towards filing under Chapter 13. The goal of the BAPCPA is to have petitioners in Chapter 13 devote disposable income over three to five years to pay unsecured creditors. A person may file for bankruptcy under Chapter 7 only if her or his monthly income over six months prior to filing for bankruptcy is below the state median for a similar household, or if the debtor’s monthly disposable income falls below a threshold established by a statutory means test.
  • Following the last recession (December 2007 to June 2009), overall bankruptcy filings peaked in 2010. Chapter 7 consumer bankruptcy filings have declined since 2010, (see Chart 1) and Chapter 13 filings have leveled off in the last few years (see Chart 2).
  • The percentage of total filings that Chapter 7 filings accounted for has declined since 2010, whereas the percentage of total filings under Chapter 13 filings has increased (see Chart 3). We cannot say with certainty, however, that BAPCPA caused this phenomenon.
  • Table 2 shows the 25 federal judicial districts in which Chapter 13 consumer bankruptcy filings constituted the highest percentage of total consumer bankruptcy filings from 2006 to 2017. Of these districts, 23 (92%) are in southern states. Map 1 also shows that the districts with the highest numbers of Chapter 13 consumer bankruptcies per 1,000 inhabitants were concentrated in the South.
  • In 2016, the five states with the highest rates of Chapter 13 bankruptcy were Alabama (1 in 112 households), Tennessee (1 in 119), Georgia (1 in 135), Louisiana (1 in 179), and Mississippi (1 in 190). The state with the lowest rate was Alaska (1 in 4,359 households). Nationally, there was one Chapter 13 filing for every 405 households in 2016.  (see Table 3).
Table 1
Nonbusiness Bankruptcy Filings by Year
Fiscal Year Total  Nonbusiness Bankruptcies Chapter 7 Nonbusiness Bankruptcies Nonbusiness Chapter 7 Filings as a Percentage of Total Nonbusiness Filings Chapter 13 Nonbusiness Bankruptcies Chapter 13 Nonbusiness Filings as a Percentage of Total Nonbusiness Filings
2006 1,085,209 814,850 75.09% 269,699 24.85%
2007 775,344 467,248 60.26% 307,521 39.66%
2008 1,004,171 653,319 65.06% 350,015 34.86%
2009 1,344,095 949,002 70.61% 393,786 29.30%
2010 1,538,033 1,105,534 71.88% 430,583 28.00%
2011 1,417,326 1,001,813 70.68% 413,699 29.19%
2012 1,219,132 845,470 69.35% 372,132 30.52%
2013 1,072,807 730,592 68.10% 340,807 31.77%
2014 935,420 623,349 66.64% 310,914 33.24%
2015 835,197 533,572 63.89% 300,528 35.98%
2016 781,123 483,176 61.86% 296,824 38.00%
2017 767,721 472,135 61.50% 294,500 38.36%
TOTAL 12,775,578 8,680,060 67.94% 4,081,008 31.94%
Source: Table F-2 for the 12-month periods ending September 30, 2006 Through 2017.
Table 2. Nonbusiness Bankruptcy  Filings in 25 Federal Judicial Districts Where Chapter 13 Filings Constituted the Highest Percentage of Total Nonbusiness Filings, FY 2006-2017
District Total Nonbusiness
Filings
Total Nonbusiness Chapter 13 Filings Percentage
1 Georgia, Southern 104,160 81,285 78.0%
2 Alabama, Middle 88,951 66,417 74.7%
3 Louisiana, Western 121,720 89,541 73.6%
4 Tennessee, Western 207,042 151,992 73.4%
5 Alabama, Southern 57,701 39,659 68.7%
6 Puerto Rico 117,500 76,763 65.3%
7 Georgia, Middle 120,307 77,022 64.0%
8 North Carolina, Eastern 101,163 64,543 63.8%
9 South Carolina 91,931 53,863 58.6%
10 Texas, Southern 142,263 81,862 57.5%
11 Texas, Northern 182,979 101,877 55.7%
12 North Carolina, Middle 65,532 34,846 53.2%
13 Mississippi, Northern 64,654 34,052 52.7%
14 Alabama, Northern 187,511 98,408 52.5%
15 Arkansas, Eastern 95,974 50,163 52.3%
16 Texas, Eastern 69,983 34,389 49.1%
17 Texas, Western 119,132 57,107 47.9%
18 Louisiana, Eastern 43,624 20,161 46.2%
19 Mississippi, Southern 81,680 37,550 46.0%
20 Tennessee, Middle 132,518 59,440 44.9%
21 Georgia, Northern 467,406 208,131 44.5%
22 Louisiana, Middle 21,701 9,633 44.4%
23 Tennessee, Eastern 164,994 69,596 42.2%
24 Arkansas, Western 56,817 23,378 41.1%
25 Illinois, Southern 60,165 23,404 38.9%
Source: Table F-2 for the 12-month periods ending September 30, 2006 Through 2017.

Source:

http://www.uscourts.gov/news/2018/03/07/just-facts-consumer-bankruptcy-filings-2006-2017

 

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