This case is truly an extraordinary blend of law and politics:

1. The opinion of the bankruptcy court, In re Balas and Morales, which is virtually always signed by a single bankruptcy judge, was also signed by 19 other bankruptcy judges. This is an almost unheard of emphatic showing of support for a judge’s decision by his colleagues.
2. After the opinion was rendered in mid-June, the United States Trustee filed a notice of appeal of the opinion. The U.S Trustee “is a component of the Department of Justice responsible for overseeing the administration of bankruptcy cases.” It had filed the motion to dismiss the jointly filed bankruptcy case, and then, not surprisingly given the controversial and constitutional nature of the issue, it filed an appeal of the opinion. But then on July 3, barely a week later, it withdrew its appeal. Why would it file an appeal and then dismiss it a short time later?
3. Because the bankruptcy court is merely one battlefield on which the DOMA war is being fought. In a highly controversial move in February, President Obama decided that his Administration would not enforce DOMA. As this article stated:
   

   Only a few times in history has a President decided his Justice Department will not defend an existing federal law. In those rare circumstances, the House of Representatives can step in and have its lawyers defend the law in court.

4. Coincidentally on the day before the Chapter 13 case at issue was filed, the President’s decision was made official with a letter from U. S. Attorney General Eric Holder to the Rep. John Boehner, Speaker of the House of Representative stating:
   

   After careful consideration, including a review of my recommendation, the President has concluded that given a number of factors, including a documented history of discrimination, classifications based on sexual orientation should be subject to a heightened standard of scrutiny. The President has also concluded that Section 3 of DOMA, as applied to legally married same-sex couples, fails to meet that standard and is therefore unconstitutional.

5. But then why would the U.S. Trustee, an arm of the U.S. Department of Justice, move to dismiss the case in defense of DOMA, and particularly go so far as to file an appeal? I don’t know why it filed the motion to dismiss, but the reason it appealed is a bit more clear. Between the time the bankruptcy case was filed in February and the rendering of the Supreme Court opinion in June, Speaker Boehner set up a “House Bipartisan Legal Advisory Group” (BLAG) to defend DOMA by “tak[ing] legal action on behalf of the House of Representatives.” As the bankruptcy court’s opinion states, “at the last minute [BLAG] orally requested a short continuance of the [scheduled] hearing in order to determine whether to intervene in this case to address the issues” Although this continuance was granted, BLAG did not intervene. The U.S. Trustee apparently filed the appeal because of indications that BLAG wanted to defend the constitutionality of DOMA through this case.
6. So why the change of mind just a few days later about the appeal? In its July 6 motion to dismiss the appeal, the U. S. Trustee’s attorney explained:
   

   The [Department of Justice] has advised the [BLAG] of the pendency of this appeal, and the BLAG has responded that it does not intend to appear to present arguments in support of Section 3 of DOMA.

   The BLAG is actively participating in litigation in several other courts in which the constitutionality of Section 3 has been challenged. In light of the decision by the BLAG not to participate in this appeal and the availability of other judicial fora for the resolution of the constitutional question, the United States Trustee has determined that it is not a necessary or appropriate expenditure of the resources of this Court and the parties to continue to litigate this appeal.”

   Within days of this, the U.S. Trustee filed motions to dismiss other similar matters in other parts of the country. So, although usually one bankruptcy judge’s opinion on the unconstitutionality of a federal law would only be legally binding in that federal district, in this extraordinary combination of circumstances it looks like this particular opinion is effectively the law of the entire country. Unless the House Bipartisan Legal Advisory Committee changes its mind. Again.

In this court’s judgment, no legally married couple should be entitled to fewer bankruptcy rights than any other legally married couple.…[T]he court finds that DOMA violates the equal protection rights of the Debtors as recognized under the due process clause of the Fifth Amendment.

The background: Gene Douglas Balas and Carlos A. Morales were married in 2008 during the short window of time when gay marriages were legal in California. The Bankruptcy Code allows a “joint case” to be filed by “an individual . . . and such individual’s spouse.” DOMA defines the term “spouse” for the purpose of applying federal law, as “a person of the opposite sex who is a husband or a wife.” The issue was whether that restriction violated this married couple’s equal protection rights.

To decide this issue, the court asked “whether dismissing the Debtors’ bankruptcy case pursuant to DOMA ‘advances an important governmental interest.’” It listed the following possible governmental interests, along with the reasons it believed that either dismissing the joint filed case or making the debtors file two separate individual ones would not advance any of them:

• Encouraging responsible procreating and child-bearing (the Debtors have no children, and even if they did, there is no basis in the evidence or authorities to conclude that Debtors’ joint bankruptcy filing would affect Debtors’ children (if any, later) differently from children in other “traditional” joint bankruptcy cases);
• Defending or nurturing the institution of traditional heterosexual marriage (the Debtors are already married to each other, and allowing them to proceed jointly in this bankruptcy case cannot have the slightest cognizable effect on anyone else’s marriage);
• Defending traditional notions of morality (the Debtors’ joint bankruptcy filing is in no sense discernible to the court to be a validly challengeable affront to morality, traditional or otherwise, under the Fifth Amendment); or
• Preserving scarce resources (no governmental resources are implicated by the Debtors’ bankruptcy case different from the resources brought to bear routinely in thousands upon thousands of joint bankruptcy cases filed over the years).

It is a question asked repeatedly across America: why, in the aftermath of a financial mess that generated hundreds of billions in losses, have no high-profile participants in the disaster been prosecuted?

The question, from a New York Times article published in April, is not a simple one. Criminal intent can be difficult to prove, especially in a highly complex financial environment, and there may be sensible reasons for the lack of major prosecutions. But as the article states, “[f]ormer prosecutors, lawyers, bankers and mortgage employees say that investigators and regulators ignored past lessons about how to crack financial fraud.”

Some examples:

• “As the crisis was starting to deepen in the spring of 2008, the Federal Bureau of Investigation scaled back a plan to assign more field agents to investigate mortgage fraud.”
• “That summer, the Justice Department also rejected calls to create a task force devoted to mortgage-related investigations, leaving these complex cases understaffed and poorly funded, and only much later established a more general financial crimes task force.”
• “Leading up to the financial crisis,…regulators failed in their crucial duty to compile the information that traditionally has helped build criminal cases. In effect, the same dynamic that helped enable the crisis — weak regulation — also made it harder to pursue fraud in its aftermath.”
• “[E]nforcement agencies traditionally depend heavily on referrals from bank regulators, who are more savvy on complex financial matters.” But “regulators have referred substantially fewer cases to criminal investigators than previously.”

The result has been “fraud with impunity,” according to William K. Black, who was the federal government’s director of litigation during the savings and loan crisis in the 1980s. Now a law professor who has testified many times before Congress, in a recent Bloomberg article he argues:

The defining characteristic of crony capitalism is the ability of favored elites to loot with impunity and the failure of regulators to do their jobs. . . . . The two great lessons to draw from this epidemic of fraud is that if you don’t look for it, you don’t find it and that wherever you do look, you do find fraud. The FBI was concentrating on retail banking, or individual borrowers and smaller lenders. But the big problems were being created in the wholesale end of the business, where loans were pooled, packaged, sold and securitized. Because the FBI only looked at relatively small cases, it found only relatively small frauds.

Under the current system, many homeowners are losing their homes unnecessarily simply because they are unable to navigate the Making Home Affordable Modification Program (aka “HAMP”). Many of these homeowners would be able to stay in their homes with a little help. At Seattle Debt Law, our attorneys have already attended training on the new law and we are prepared to assist clients through the process.

There are numerous reasons why you may need an attorney consultation even if you are following all the guidelines of the state sponsored program. The new law gives important deadlines and notices that you must comply with to take advantage of the mediation, but even if you miss those deadlines, you can still get help all the way up to the day before foreclosure. Don’t let the predatory lenders take your house—fight back and stay informed!

For more information, visit the Foreclosure Mediation Program website or read the Department of Commerce’s handout on the program.

The three major agencies, Equifax, Experian and TransUnion, keep a V.I.P. list of sorts, according to consumer lawyers and legal documents, consisting of celebrities, politicians, judges and other influential people. Those on the list — and they may not even realize they are on it — get special help from workers in the United States in fixing mistakes on their credit reports. Any errors are usually corrected immediately, one lawyer said.

For everyone else, disputes are herded into a largely automated system. Their complaints are often electronically ferried to a subcontractor overseas, where a worker spends, on average, about two minutes figuring out the gist of the matter, boiling it down to a one-to-three-digit computer code that signifies the problem — “account not his/hers,” for example — and sending a dispute form to the creditor to investigate. Many times, consumer advocates say, the investigation translates to a perfunctory check of its records.

We’re old-fashioned enough to believe that anyone who’s been unfairly denied credit or otherwise penalized deserves the VIP treatment from credit reporting agencies.

(Obligatory pitch: Contact us for help straightening out inaccurate or obsolete information on your credit report. We’ve made credit bureaus wish they’d put our clients on the VIP list!)

Singled out for criticism is the Office of Thrift Supervision, which oversaw some of the nation’s most aggressive lenders, including Countrywide Financial, IndyMac and Washington Mutual, whose chief executive was Kerry Killinger. Noting that the agency’s officials viewed the institutions it regulated as “constituents,” the report said that the office relied on bank executives to correct identified problems and was reluctant to interfere with “even unsound lending and securitization practices” at Washington Mutual.

The report describes how two risk managers at the bank were marginalized by its executives. One of them told the committee that executives began providing the regulator with outdated loss estimates as the mortgage crisis widened. After the risk manager told regulators that the estimates it had received were dated, Mr. Killinger fired him.

From 2004 to 2008, for example, the regulatory office identified more than 500 serious deficiencies at Washington Mutual, yet did not force the bank to improve its lending operations, according to the report. And when the Federal Deposit Insurance Corporation, the bank’s backup regulator, moved to downgrade the bank’s safety and soundness rating in September 2008, John M. Reich, the director of the Office of Thrift Supervision, wrote an angry e-mail to a colleague. Referring to Sheila Bair, the F.D.I.C. chairwoman, he wrote: “I cannot believe the continuing audacity of this woman.” Washington Mutual failed two weeks later.

Lobbying expenditures from the payday loan industry more than doubled from $2,045,000 in the 109th Congress to $4,182,550 in the 110th Congress, according to a new report from Citizens for Responsibility and Ethics in Washington (CREW).

The report, released Tuesday, finds that federal campaign donations by the employees and political action committees of 13 industry companies and trade associations “jumped 80% between the 2006 and 2010 midterm election cycles.”

The top three recipients, and five of the top nine, were Democrats–not particularly surprising, perhaps, because the Democrats were in charge during the last Congress, but discouraging for a party that’s supposed to be on the side of consumers. It will be interesting to see how things change this cycle.

The full report is here.