Surviving the Downturn

The Debtors
The small cafeteria at the Valley Storefront in North Hollywood is jammed with more than 50 people who have signed up for José (Joey) Alarcon’s clinic on the basics of bankruptcy law.

A sprinkling of Latinos, African and Asian Americans have come, including a fair number of young people, but the majority is white and middle-aged or elderly.

“I used to meet with people one-on-one, but now there are so many of them, I had to start these clinics to give them at least a beginning idea of what they can do,” said Alarcon, a 38-year-old attorney with Bet Tzedek (House of Justice), a free legal-aid service.

“In the past, I dealt mainly with the elderly, many with disabilities, but now I get pretty much a cross-section of the population,” he added.

In an even smaller room, which, judging by the weights and barbells, doubles as a workout facility, paralegal Nora Ghamari is meeting with seven families, all facing possible home foreclosures.

No one at Bet Tzedek or any other legal-aid group will give out clients’ names, for privacy reasons, but Ghamari agreed to outline one fairly typical case of a Jewish family, drawn as a composite of cases she’s seen recently.

The family, let’s call them the Goldbergs, consists of a retired small businessman and his wife, who own an $800,000 duplex in the Fairfax area and live there with their daughter and her husband.

Since the market downturn, the value of the house has dropped nearly 50 percent, but the Goldbergs still have to make a $3,000 monthly payment on the outstanding mortgage loan, with the interest rate likely to go up.

The daughter and son-in-law have been helping out financially, but she has contracted a chronic illness, and he had his working hours cut.

Unable to meet their monthly mortgage payments, the Goldbergs were desperate when they met a man who said he would stop any foreclosure for a $1,500 fee, which they paid, and urged the family to file for bankruptcy. Not surprisingly, the man turned out to be a scammer.

Then a friend of a friend recommended another “expert” to help the Goldbergs, who asked for a smaller upfront fee, brought in lots of papers to sign, but left the family in the same hole as before.

At this late point, the Goldbergs turned for advice to Bet Tzedek, which, like all other agencies receiving government funding, accepts all comers, regardless of ethnic or religious affiliation.

Ghamari estimates that 30 to 40 percent of her clients at the North Hollywood office are Jewish, and the proportion is probably higher at Bet Tzedek’s main office on Fairfax Avenue. She said that families like the Goldbergs would be far better off if they had sought reliable legal advice earlier, when serious financial problems first loomed — either through a paid attorney or by seeking help from a pro-bono agency like Bet Tzedek — instead of shelling out money to people who offer help for a fee and who may be scammers (see sidebar).

Alarcon said since no two cases are the same he adjusts his advice to each person’s circumstances and financial profile. For younger people, he projects that their financial fortunes may well improve in the future. For the elderly, the main concern is their peace of mind.

Over the last eight months, Alarcon’s clientele has roughly doubled. “I used to limit my clinics to 20 people, but now I take 40 or more,” he said, “and the people who come to me are more desperate than they used to be.”

Hard Numbers
In 2008, there were 1,117,771 filings in all U.S. bankruptcy courts, an increase of 31.4 percent over the previous year. For 2009, the American Bankruptcy Institute predicts 1.4 million filings.

By far the largest percentage jump from 2007 to 2008 in any geographical region, 93.5 percent, came in the Central District of California, which encompasses Los Angeles, Ventura, Orange, Riverside, San Bernardino, Santa Barbara and San Luis Obispo counties.

The most recent figures for the district show that between January and May 2009, more than three-quarters of all the filings were under Chapter 7 of the U.S. Bankruptcy Code. In very broad terms, Chapter 7 enables a petitioner to wipe out most of his debts by surrendering most of his assets.

During the first five months of 2009, filings under these provisions increased almost 80 percent over the same period in 2008.

Most of the remaining filings were under Chapter 13, which reduces some debts and extends the debtor’s time to pay off others. The procedure is under the supervision of court-appointed trustees and generally protects a personal home from foreclosure.

The Court
Bankruptcy Judge Richard M. Neiter has 68 cases on his docket this morning, but there are no petitioners or lawyers in Courtroom 1645 of the downtown Roybal Federal Building and Courthouse.

They are all in Riverside, linked to the judge, court recorder, bailiff and a visiting reporter in the Los Angeles courtroom via two large TV sets.

Neiter moves briskly from one case to another in the litany of misery, but he is unfailingly courteous and listens patiently to the occasionally convoluted stories.

This morning, most of the disputes are between banks and loan recipients, a relationship frequently plagued by miscommunications.

In one instance, the long distance repartee went roughly along these lines:

Blue-collar worker: The bank won’t return my calls.
Judge: I understand your frustrations.
Worker’s lawyer: We want a reduction in the loan principal.
Bank’s lawyer: He has rejected a loan modification. We are willing to stretch out the payment, but we won’t reduce the principal.
Judge: The court cannot reduce the principal.
Worker: All right, I won’t hold out for a reduction.

Neiter quickly enters the resolution of the case in his computer and moves on to the next item on the docket.

When the court recesses, Neiter takes a journalist for a quick snack at the cafeteria to talk a bit about his background.

He was born in 1937 in Boyle Heights, moved to the Pico-Fairfax area and has been on the bench for three years, following a successful private career in bankruptcy law.

“Since the economy went down, consumer and business bankruptcy filings have essentially doubled over the last year, and we have more cases here than in any other district in the country,” he said.

As for his courtroom style, “I like to solve problems,” he said. “Within the confines of the facts and the law, a judge has many opportunities to help opposing parties in settling their disputes.”

Outside his chambers, Neiter is deeply involved in Jewish community life, and his official resume includes: Former president of Temple Judea in Tarzana, chair of The Jewish Federation’s Valley Community Relations Committee and board member of the National Conference on Soviet Jewry.

There might be an as-yet unexplored link between serving as both bankruptcy judge and synagogue president, for out in Woodland Hills sits Judge Geraldine Mund, a former president of Temple Israel of Hollywood.

Of the 19 U.S. bankruptcy judges in California’s central district, five are Jewish and eight are women. Some of the judges are hardnosed and some, like Mund, are considered “nice,” but religion doesn’t enter into it.

“I’d be nice even if I weren’t Jewish,” Mund said.

All local bankruptcy judges are appointed by the 9th Circuit Court of Appeals, and on the basis of merit, rather than politics, Mund said.

She draws a salary of about $145,000 a year, while a state Superior Court judge earns somewhere between $160,00 to $170,000. The money sounds pretty good, but Mund said that she took a hefty cut when she went from her private law practice to the bench.

Women lawyers are particularly attracted to the position for its regular hours and job security.

For those in financial difficulties, filing for bankruptcy is a tool that “is not necessarily to be avoided,” Mund said, but the right professional guidance is key.

She also warns that if you find yourself sinking deeper into debt, “Time is not on your side. The worst thing you can do is to not react at all and ignore warnings from your bank.”

The Lawyers
Up until the 1970s, bankruptcy law was as Jewish a profession as kosher butchering, mainly because elitist white-shoe law firms, which hired only WASPs, considered bankruptcy cases beneath their dignity, leaving the field to the Jews.

“Bankruptcy was the leper colony of the legal profession, alongside personal injury and divorce law,” recalled Herman Glatt of the Stutman, Treister & Glatt law firm.

Glatt, 79, speaks from personal experience. In 1955, with a freshly minted Harvard law degree in hand, the only starting job he could find was with a small Los Angeles bankruptcy firm.

By the late 1970s and early ’80s, the de facto exclusion of Jews at prestigious law firms dissipated, partly due to the erosion of blatant anti-Semitism in the United States, and partly because white-shoe law firms discovered that bankruptcy cases could be very lucrative.

“Now I can’t think of any law firm that would reject a qualified applicant purely because he was Jewish,” Glatt said.

Ironically, in today’s economy, while attorneys at mega law firms are getting pink slips en masse, bankruptcy lawyers are thriving.

David A. Gill of Danning, Gill, Diamond & Kollitz in Century City, recalled an experience similar to Glatt’s when he looked for his first job in 1963.

“The only decent job offer I could get was from a bankruptcy firm,” Gill said. “I knew nothing about that field, but I had a wife, a baby and no money, so I took the job.”

Like Glatt, Gill deals with corporate bankruptcies and reorganizations, and he figures on having plenty of work in the years ahead. The corporate business sector is now facing something close to the real estate debacle, he said, and its problems will become worse before they get better.

Kenneth N. Klee spends four days a week as a law professor at UCLA and one day at the law firm of Klee, Tuchin, Bogdanoff & Stern, which specializes in corporate reorganization, insolvency and bankruptcy law.

He has literally written the book on bankruptcy law and played a key role in rewriting the U.S. Bankruptcy Code in 1978.

“There is still some anti-Semitism at a few law firms, but in any case, I wouldn’t want to be at any firm that discriminates,” he observed.

Klee’s avocation is the study of Jewish mysticism and he is enrolled in a rabbinical program at the Academy for Jewish Religion, California. “I haven’t given up on the idea of becoming a rabbi,” he confessed, “not as a pulpit rabbi but as a spiritual counselor.”

Drawing on his present, and possibly future, professions, Klee illustrates one difference between Jewish and secular law.

“Let’s say a person has borrowed $100, $200 and $300 from three different friends, for a total of $600. It’s time to pay back but he has assets of only $300,” Klee said.

“Under our civil law, each creditor would get 50 cents on the dollar, thus $50 for the first friend, $100 to the second and $150 to the third. But under Jewish law, each man would get $100, because, in effect, you deal from the bottom up,” he said.

But in practice, the primary rule is that a Jew has to obey the law of the land in which he resides.

Halachah (Jewish Law)
The Torah has some very precise rules on the relationship between creditor and debtor, as summarized in the Oxford Dictionary of the Jewish Religion.

“The Bible insists that a creditor refrain from embarrassing his debtor or acting in an exacting manner toward him. Debts were dissolved every seventh year. All Israelites who had been sold into slavery to pay off debts were released or redeemed in the jubilee (50th) year.”

Following the destruction of the Second Temple in 70 C.E. and the dispersion of Jews to other countries, sages of the Rabbinical Period, from the second to the 10th centuries C.E., creatively adapted and softened some of the biblical strictures.

Since Diaspora communities took it upon themselves to care for the poor in their midst, talmudic laws, morality and economic self-interest all dictated that all members of the community work and that as few as possible fall into poverty or debt.

It is not merely a semantic difference that the word “charity” comes from the Latin word for “love,” while the Hebrew term “tzedakah” denotes the more compelling concept of “justice,” said Rabbi Elliot Dorff, rector and Distinguished Professor of Philosophy at American Jewish University, who also serves as co-chair of the Jewish Family Service’s Task Force on the Vulnerable.

Unlike Calvinists and others, who considered debtors as sinners and clapped them into prison, Jews are commanded to help their brethren who have fallen on hard times, Dorff said.

Today, Los Angeles Jews who wish to resolve a dispute according to halachah, or Jewish law, can plead their cases before a beit din (house of judgment), whose decisions are enforceable in secular civil courts.

The beit din of the Rabbinical Assembly (Conservative) is headed by Rabbi Ben Z. Bergman and the beit din of the Rabbinical Council of California (Orthodox) by Rabbi Avrohom Union.

The Union of Reform Judaism does not have a similar formal structure, but leaves it up to the individual rabbi to resolve conflicts.

Each beit din consists of three rabbis who convene once a week. They deal primarily with family and personal relationships, particularly, said Bergman, in granting a get (bill of divorce) to couples who have already obtained a civil divorce, but in which one or both partners require a get in order to remarry Jewishly.

Those appearing can bring lawyers, or a to’en, a pleader familiar with Jewish law.

In one case dealing with a business partnership dispute, Bergman recalled, one lawyer was Armenian and the other a Lebanese Christian, who kept addressing the rabbi as “Father.”

Actually, the lawyer was not that far off base, since the presiding rabbi of the beit din carries the title of av, or father.

In such instances, Bergman, who also has a law degree, gives the lawyers an instant course in Jewish law.

Bergman has been a member of the local beit din since its founding in the early 1950s, and the Grand Forks, N.D., native has been continuously on the job for nearly 59 years.

Sometimes, a beit din must interpret halachah creatively, to fit changed realities. For instance, biblical law forbids a Jew to charge interest on a loan to another Jew, but this has been circumvented by the legal fiction of heter iska, literally a permission of business, in which the creditor-debtor relationship is transformed into a business partnership.

Bergman himself has added to the body of law by writing a legal responsum that permits a synagogue to issue interest-bearing bonds for the welfare of the congregation.

His beit din holds “a couple of hundred” hearings a year, predominantly divorce cases, from all parts of the West Coast. The fee is $1,000 per day ($400 per hour at the Orthodox beit din), with the costs evenly split between the opposing parties.

Rabbi Union, the rabbinical administrator of the Orthodox beit din, cited another example of applying old halachic strictures to modern circumstances.

“The Torah commands that a creditor cannot take from the debtor the tools needed for his livelihood,” he said. “In today’s Los Angeles, this rule can be extended to prevent the creditor from taking away the debtor’s car, which he needs to drive to work.”

In this instance as in many others, Jewish tradition responds not just to the legal technicalities of losing one’s livelihood or home, but the human and ethical ripples. Immediate and extended family, social service networks and community structures all are affected by and must respond to the financial, emotional and social strain of economic meltdown.

The organized Jewish community, mainly through The Jewish Federation and its affiliated agencies, as well as synagogue communities, has developed a number of services and programs to help address these problems. In a subsequent installment next week, The Journal will examine the human toll of the economic crisis and the safety net the Jewish community is striving to maintain.

Debt Mounting? Don’t Panic —Take These Steps First

Although each case of bankruptcy, foreclosure or debt differs in details, Bet Tzedek experts agree on a few basic rules and precautions:

• Read the fine print on any loan or contract before signing anything.Most people do so only after they start getting into trouble.
• Do not pay anyone who promises to fix your problems for an upfront fee. Instead, consult a free agency, such as the L.A. County Department of Consumer Affairs, Los Angeles Neighborhood Housing Services, Bet Tzedek or Jewish Family Service.
• Don’t let debt collection agencies harass you. If you send the collector a letter telling him to stop contacting you by mail or phone, he must do so under the law.
• Contact the lender to see if the terms of the loan or contract can be modified.
• You cannot go to jail for bad debts, even if someone files a lawsuit against you.
• Before committing yourself to a repayment schedule, be sure you can meet the terms in the future.
• Contact a free legal-aid agency at the beginning of a financial crisis. Most people, especially older ones, wait too long, held back by shame, fear or the hope that somehow things will work themselves out.
• Be realistic about weighing your options and understand the long-term effects of your actions.