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Jan 2020

How Chapter 7 Real Estate Sales Benefit Insiders

Posted by / in Virginia Chapter 7 Bankruptcy, Weekly Posts /

How Chapter 7 Real Estate Sales Benefit Insiders

Randa filed Chapter 13 bankruptcy in March 2019. She was hoping to be able to save the family home, by catching up the mortgage over five years. Her husband was recovering from a long illness and was able to work full time again, making the catch up payment possible.

As it turned out, the husband did not recover from his illness; he died. So, Randa moved out, to live with her adult son. And the bankruptcy  case was converted to Chapter 7.

The Chapter 7 trustee told creditors and the court that this would be an “asset case.” He hoped to be able to sell the property and use the equity to at least pay off part of the tax debt of Randa and her husband.

In this case, there will be no money to pay anyone—except the “professionals.”

In March 2019, when the bankruptcy was started, Randa valued the house at $476,000. That was what the house next door had sold for. The Chapter 7 trustee listed it for sale at $484,900. But the best offer was $450,000.

(Real estate in bankruptcy will often sell for less than the going market. The family has NOT fixed it up for sale, and likely has put off maintenance during the financial, or medical, distress.)

Chapter 7 real estate sales

The trustee’s real estate agent received a $13,500 commission.

The mortgage on the house was $403,500. (Randa has estimated $400,000; not far off.) At the real estate closing, each real estate agent, for buyer and seller, collected 3% commissions: $13,500 each. There were miscellaneous costs of around $1000.

That left $18,000 for the bankruptcy trustee. Does that money go to pay the IRS taxes? Well, no.

Why No Money goes to pay the taxes

The Chapter 7 Trustee is entitled to commissions totaling $24,750. (The trustee fee is $5750 on the first $50,000 of the sale and 5% after that. For cases where there are no assets sold, the trustee gets $60.00. So it’s easy to see why trustees want and need these real estate sale cases.)

In addition, the trustee hired himself (actually his own law firm) to handle legal matters—at $580.00 an hour. That bill will be about $5800.00.

No money is left for anyone else.

The trustee’s real estate agent, who originally listed the property at $484,900, makes $13,500. The trustee and his law firm will take a “haircut.” They will get only get $18,000 out of their $30,550 bills.

There’s no money to pay the taxes, or anybody else.

In this case, insiders are winners, but there are no losers. Randa had moved out and didn’t care about the house. The IRS got nothing, but lost nothing.

Does the Chapter 7 trustee sell the house that people want to keep?

Here’s what sometimes happens instead.

The trustee’s agent projects a high listing price: high enough that the creditors would get paid a little something. (If this house had sold for the original listing price, there would have been around $20,000 to pay the taxes.)

The Chapter 7 trustee uses that high estimate to invite the bankruptcy debtors to “buy back” the equity in the house, by making a cash payment to the trustee of say $10,000.00. (This assumes the debtor is able to round up $10,000.)

Chapter 7 real estate sales

One of the Chapter 7 trustees in Alexandria can be very aggressive in demanding cash buy-backs from debtors. Even in cases where the creditors would actually get nothing in a sale.

One of the Chapter 7 trustees in Alexandria can be very aggressive in demanding buy-backs from debtors. Even in cases where the creditors would get nothing in a sale. And the Chapter 13 trustee can use high estimates of real estate values, to demand higher payments into Chapter 13 plans. That gets debtors into Chapter 13 payments they can’t afford, and they end up losing their homes in Chapter 13.

The trustee who sold Randa’s house, almost never sells property where there’s no actual equity. (I’m confident he genuinely believed there would be money to pay the taxes. But there wasn’t.)

It is tough for a Chapter 7 debtor to resist a trustee demand for a buy-back. They can ask the judge to compel an abandonment of the property. But it’s easy for the judge to just say, “let’s see what it sells for.” Once the house is listed for sale, it’s hard to stop. So, the pressure to agree to a buy-back can be unbearable.

Where there’s a buy-back demanded and paid, the Judge signs off on the compromise, without having to consider whether the agreement is extortionate, rather than voluntary.

There were 4,453 bankruptcies filed in the Alexandria division in 2019. That’s down from a high of 10,953 in 2010. On that reduced volume, Chapter 7 trustees can’t survive on the $60.00 fees they get for each case. So each year the pressure on the trustees to generate big fees from real estate cases gets higher and higher.

Can anything be done?

Debtors in Chapter 7 bankruptcy cases in Virginia are able to protect up to $5,000 in real estate equity. That’s the lowest of the 50 states and the District of Columbia. The Virginia General Assembly is considering legislation to raise that $25,000—which would still be among the lowest in the nation. That would help in many cases prevent transactions where the creditors get little or nothing, while debtor families either pay the buy-back or lose their homes.

The bankruptcy case number is 19-10800-KHK.


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Jan 2015

Three years after bankruptcy, Ron buys his retirement home.

Posted by / in Virginia Chapter 7 Bankruptcy /

Three years after bankruptcy, Ron buys his retirement home.

Ron filed chapter 7 bankruptcy with me in August 2011.  He emailed to let me know he's pre-approved for a mortgage at his retirement destination, near the Virginia mountains.

Ron filed chapter 7 bankruptcy with me in August 2011. He emailed to let me know he’s pre-approved for a mortgage at his retirement destination, near the Virginia mountains.

Here’s a heart-warming email this week from “Ron.”  He filed bankruptcy with me in August 2011 and let me know he is pre-approved to buy a house in his retirement destination. His message line was “Thank you for getting us back on track….” Here are his exact words. Dear Bob,

I hope this finds you well…and Happy New Year.

You represented me in 2011 during a Chapter 7 bankruptcy filing. That bankruptcy was discharged in November of 2011 thanks to the hard work you, your staff and associates dedicated to my case.

Subsequently we were able to negotiate a loan modification with our mortgage company in 2013 and (17) months after the loan mod was approved we sold our house in Ashburn, VA at a nice profit. Having moved to  Central VA we are now pre-approved for a mortgage for a home that meets our downsizing requirements.
Thank you again, Bob. You gave us a new start, saved our home, allowed us to maintain equity in the property and move back to our roots in the Blue Ridge Mountains of Central Virginia. None of this could have, would have happened without your professional advice and services. All the best to you and your firm,


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Nov 2014

VA Bankruptcy Trustee Tries to Grab Support Payments

Posted by / in Virginia Bankruptcy, Virginia Chapter 7 Bankruptcy / 1 comment

Chapter 7 Bankruptcy Trustee Grabbing Alimony Payments

Esther is divorced, mother of two grade school children.  She and the kids are living on child support, alimony, and pulling money out of her retirement.  She has $10,000 left in her retirement.   Her most valuable possession is her paid for 2007 Honda Odyssey.  It has 148,000 miles.

Esther hasn’t worked in several years.  She had been a stay-at-home mom for most of the marriage. (Her retirement is from Sentara, so I’m guessing at one point she worked as a nurse.)

Esther filed Chapter 7 bankruptcy this spring in Norfolk, VA.  Her papers showed she had several unpaid medical bills.  Her largest credit card, less than $4000, was with Capital One.

The Chapter 7 trustee told the bankruptcy judge that he wanted her alimony.  Without the alimony, it’s hard to know how this family will make it.  The child support, without the alimony, is less than the rent.  The children will suffer.

The bankruptcy lawyers in Virginia, led by Darden Hutson and Daniel Press, are looking for members of the Virginia General Assembly to help moms like Esther.   We need a sponsor for a bill to clarify that spousal support cannot be taken away by the bankruptcy court.

Once we get a sponsor, the key man is Del. David Ablo (R-Springfield).

Dave Albo

Delegate Dave Albo, with his wife, Rita, and adopted son, Ben.   Del Albo is Chairman of the Courts of Justice Committee in the Virginia House of Delegates.   He will have more say than any other one person, on whether  the legislature will help women and children, by telling the bankruptcy court to keep their hands off alimony and spousal support.

Del. Albo is Chairman of the Courts of Justice Committee, in the Virginia House of Delegates.

His committee controls whether bills on bankruptcy exemptions go to a vote in the full House of Delegates.

Early in his career, Del. Ablo demonstrated his heart for children.  He served as a court-appointed guardian for neglected and abused children.

We hope that Dave Albo will show his heart for children this year by supporting our bill.


Update:  thank you Del Dave Albo!

Under Del Albo’s leadership, his committee approved this important law in an unanimous vote, January 28, 2015!



Update 2:  Passed and signed into law March 2015.

Gov. Terry McAuliffe signed into law this morning HB 2015, that fixed this problem, and protected single moms and their families.

Only one member of the 140 member Virginia General Assembly voted no.  Still, it could have gotten hung up at any point.  Three legislators deserve special thanks for their work.

Thanks go to Del Scott Surovell, who was our sponsor.

Del Dave Ablo, Chairman of the House Courts of Justice Committee.  He was the key guy.  He puts people above politics.

Sen. Mark Obenshain, Chairman of the Senate Courts of Justice Committee.

Thank you all.


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May 2014

Freedom Debt Relief: Claims on the Radio–Are They True?

Posted by / in Blog, Virginia Chapter 7 Bankruptcy, Weekly Posts / No comments yet

Heard a commercial last week for Freedom Debt Relief on WTOP.


Freedom Debt Relief is very careful in their contracts. But I think they make claims on the radio that aren’t so careful.

They said that Freedom Debt Relief offers a “proven” alternative that will save “the most money” and get people out of debt in the “shortest amount of time.”  (I have a copy of the script, here.  FDR radio 0000031)

I’ve sued a couple debt relief operations, most notably Legal Helpers Debt Resolution.  I’ve shied away from going after Freedom Debt Relief.

I’ve left Freedom Debt Relief alone because their contracts are very careful.  They don’t promise anything much at all.  And while they charge a lot, it’s all right there.

They also are very careful to avoid being covered under Code of Virginia 6.2-2000,  which sets the fees that can be charged for operating a debt management plan.  (Freedom Debt Relief charges way more than they could if they were covered by that law.)  Freedom Debt Relief avoids–or carefully tries to avoid–the Virginia law, because they don’t hold the money used to settle the debts.

But the wording on radio ad doesn’t seem to be that careful.  I think their radio ad misrepresents the benefits of their service.  And a company that misrepresents the benefits of their service violate the Virginia Consumer Protection Act.  That’s Code of Virginia 59.1-200.  

Why does the radio misrepresent the benefits of their service?  Because for most people in financial difficulty, Chapter 7 bankruptcy saves them the most money and gets them out of debt in the shortest time.  I’m a bankruptcy lawyer, of course, and I really believe in how well bankruptcy works.  (You can read what some of my clients say, here.)

So, I’m gunning for them.  Next time one of my bankruptcy clients comes to me, after paying out a lot of money to Freedom Debt Relief, I’m going after them.

You can read what other people have to say–good and bad– about Freedom Debt Relief, here.  And what Consumer Reports said, here.  

 PS  We’re suing Freedom Debt Relief in 2015

I’m now suing Freedom Debt Relief on behalf of one of my bankruptcy clients.

It’s set for Fairfax General District Court in July, 2015.

We have two theories.  First, that the estimate they gave my client on what it would take to settle his debts was totally impossible.  And second, that the radio ad was a lie.  They have until the end of June to tell us their side of the story.  We’ll see what they say.

PPS  Freedom Debt Relief is trying to weasel out of the July trial by asking for arbitration

The Freedom Debt Relief contract specifies that you don’t have a right to trial by jury in your hometown.  You have to agree to arbitration by the American Arbitration Association.  But the American Arbitration Association told us they don’t handle Freedom Debt Relief anymore.  They didn’t say why.

Now Freedom’s lawyer, facing a July 9 trial date, is asking us to agree to arbitrate somewhere else.  And they are using that as an excuse to ignore our subpoena.  Here’s what they said

Is your client not interested in McCammon Group or arbitration in general? My client will file a motion to dismiss based on the arbitration clause if necessary but it seems like something we can work out. Let me know.

Based on the request for arbitration, I don’t think discovery is still in play but we will serve objections and responses directly to your office if you prefer. I do think the requests are overly broad for this dispute but am happy to work with you to narrow them.



All this shows that this arbitration business is a way for these big outfits to delay justice for the consumer.


PS  May 2016

I’m looking a a website I got to after seeing Freedom Debt Relief ad in Twitter.  Besides talking about their “proven experience”–their key claim is that how many debts they have “resolved.”  You might think that for a debt settlement  company, “resolved” would mean something like, well, settled.  Or completely taken care of. What it means to them, as far as I can tell, is they made a new payment agreement.  It does NOT mean that the consumer was able to make the payments.  Suppose Jane has $35,000 in credit cards.  She has a monthly payment of $750.  Freedom Debt Relief works out a payment agreement to pay it off at $600, instead of $750.   FDR says they have “resolved” $35,000.  Even if Jane can’t make the $600 payments either.  The way Freedom looks it it, they have “resolved” $35,000 in credit cards; if Jane can’t make the payment, that’s on Jane, not on them.

(In case that website comes down at some point, I printed it out.  It took three pages. 5-8-2016 11-48-07 AM Freedom Debt Relief 1 5-8-2016 11-49-51 AM Freedom Debt Relief 25-8-2016 11-50-25 AM Freedom Debt Relief 3)

I invite Freedom Debt relief to tell the world how many people have signed up for their program; and of those how many have actually gotten out of debt.









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