Sunday, February 05, 2006

Judge takes Congress to task in bankruptcy case 


Legal world abuzz about tirade calling act inane, confusing.

By Robert Elder
Sunday, February 05, 2006

FREDERICKSBURG — Alfonso Sosa, a house painter here who made about $20,000 last year, filed for bankruptcy the morning of Dec. 6, hoping to avoid the foreclosure on his family's mobile home scheduled for later that day. Judge Frank Monroe of Austin rejected the case 16 days later — with a bang.

In his ruling, Monroe said the new federal bankruptcy law is full of traps for consumers, calling some of its provisions "inane," "absurd" and incomprehensible to "any rational human being."

He stopped just short of accusing Congress of being bought and paid for, dryly noting, "Apparently, it is not the individual consumers of this country that make the donations to the members of Congress that allow them to be elected and re-elected and re-elected and re-elected."

Ordinarily, a case such as the Sosas', which primarily concerns a mobile home and land valued at $32,840, would quietly disappear into court archives.

But Monroe's order has caught fire in the world of bankruptcy and consumer law. It's being debated on law blogs and circulated across the country.

Steve Jukabowski, a bankruptcy specialist in Chicago and creator of the Bankruptcy Litigation Blog, said Monroe's unusually strong language represents "the pot boiling over" in frustration at the Bankruptcy Abuse Prevention and Consumer Protection Act, which took effect Oct. 17. "It's the kind of thing people know but that you don't write down."

The law makes it harder for individuals to qualify for Chapter 7 bankruptcy, which lets them erase much of their debt, and forces them to file for Chapter 13, which means they face longer court-ordered repayment plans. It also requires debtors to seek credit counseling before they file.

Alfonso Sosa said he didn't know about the requirement, so he and his wife, Melba, didn't seek counseling. He said he was just trying to keep his house.

Monroe's order said the law left him no choice but to disallow the Sosas' petition. He called the counseling requirement "one of the more absurd provisions of the new (bankruptcy) act."

In an interview last week, Monroe said that if Congress really wanted to help debtors, it would have required rigorous credit counseling before they can emerge from bankruptcy.

Instead, the act requires a few hours of counseling before filing. "That serves no purpose," he said.

"The people who need this type of relief aren't the type of people who have been counseling with lawyers, planning, making sure everything is right," Monroe said. "They've come to the end of their rope, and this is the only thing left to save their house, car, whatever."

The Sosas, who have three children, ages 13, 12 and 1, haven't lost their home.

Their lawyer, James Chapman of Fredericksburg, filed another petition Jan. 27. The Sosas completed credit counseling Dec. 16, and Chapman hopes to convince the court that they filed the second case "in good faith," as required by law, and should be allowed to pay off their debt through Chapter 13 of the U.S. Bankruptcy Code.

The new filing should delay the foreclosure auction of their home, which is scheduled for Tuesday on the Gillespie County Courthouse steps.

Monroe isn't the first judge to tee off on the new bankruptcy law, which was a priority of President Bush and backed heavily by the credit industry. The industry argued that the old law made it too easy for borrowers to avoid paying debts and allowed frivolous filings.

Congress passed the new law in April on largely partisan lines.

Credit card and other financial services companies had complained for years that their costs were increased by people who ran up debts knowing that they could file for bankruptcy and avoid repayment.

Supporters argued that Americans would save money on interest rates because credit card companies would no longer have to increase their fees to recoup losses from people who abuse the process.

Many bankruptcy lawyers, scholars and judges remain sore that Congress didn't listen to their warnings about the hardships the law would unfairly impose on people.

Judge Robert Mark, the chief bankruptcy judge for the Southern District of Florida, said in an October opinion that reading "several hundred pages" of the new act brought him to one "inescapable" conclusion: "The new law is not a model of clarity."

Houston-based Judge Marvin Isgur last fall called the act "particularly difficult to parse and, at worst, virtually incoherent."

Monroe's order, though, is in a rebellious class all its own.

Monroe, 61, has worked in bankruptcy his entire professional life, first at a prominent Houston bankruptcy firm and then on the bench since 1989.

"I am an under-the-radar guy," said Monroe, exhibiting some discomfort with the attention his opinion has attracted.

"If I was going to write it over with a less angry frame of mind, I'm sure I would tone down the rhetoric," he said. But, he added, "I just couldn't contain myself."

The Sosas' financial situation is hardly remarkable.

Alfonso Sosa says he had trouble making his $700-a-month mortgage payments because his painting business had slowed down. Last summer, he missed four payments in a row, prompting his lien holder, a Fredericksburg woman who sold him the trailer, to move for foreclosure.

Sosa and his wife had other debts. Their new bankruptcy filing lists $8,935 that he owes a paint supply store and three recent county court-at-law judgments against him. One is for writing a bad check.

By November, with debt piling up, Sosa says, he considered bankruptcy and thought he could roll his other major debt — the approximately $6,000 he owes on his 2000 Ford F-250 truck — into a court-approved payment plan. "So I missed a few payments on the truck," he said.

The dealership in San Antonio repossessed the truck last month after the third missed payment.

Sosa says he didn't under- stand the foreclosure warnings sent to him by the lawyer for Reyna Garcia, who sold and financed the home. "I didn't know what the word meant," he said. "I thought it was another letter complaining (about missed payments) like the other ones they had sent me."

Finally, Sosa says he didn't know that he and his wife needed to undergo credit counseling before filing for bankruptcy protection. He learned that as he filed Dec. 6.

By Dec. 20, when they appeared before Monroe, the Sosas had completed their counseling. But only Alfonso Sosa's certificate had arrived.

It hardly mattered. Because they did not request counseling before filing, Monroe wrote in his order, "Congress says they are ineligible for relief under the act."

"Can any rational human being make a cogent argument that this makes any sense at all?" he wrote.

Monroe's opinion inspired Austin lawyer Randy Howry, president of the Austin Bar Association, to send it to all 3,700 members. He praised Monroe's order as "a reminder to us all that as lawyers and judges, we are the protectors of our democracy. . . . We must not sit idly by as our constitutional rights are being shredded."

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