3 December 2011
As stated in the prior blog posted on 2 November 2011, we are addressing a debtor’s ability to keep his assets upon the filing of a chapter 7 bankruptcy. We stated that once the case is filed, generally your assets become part of the bankruptcy estate and are subject to liquidation. We also stated that once the case is over, whatever asset declared that was not liquidated now is the debtor’s again. So we know the date when uncertainly begins, and we know the date that certainty arrives. But how can a debtor have more assurance while the case is still open? This is the question we address now.
There are only a few options to take. Initially, one must understand that there are exemption statutes that exempt an asset in its entirety, and other exemption statutes that only provide a (maximum) dollar amount. So, one way to increase the certainly you may retain an asset is to claim an exemption in the asset under an exemption statute that exempts the asset in its entirety. There is no magic here because there has to be such a statute that applies to the particular asset.
Another way is to declare an exemption of “100% of FMV” under a statute, even if that statute has a maximum dollar amount. This way, the theory goes, if the trustee or someone else does not object, you are ensured 100% of the value of the asset even if there is a sale of the asset. Some people argue that if these is no objection that the asset itself is fully exempt and it cannot be sold. Either way, you are much more likely to keep the asset. The use of “100% of FMV” gained much attention when it was described, or some would say created, by the United States Supreme Court in its Schwab v. Reilly decision in 2010. 130 S. Ct. 2652, 2668 (2010).
However, the pro se debtor, or even experienced counsel, must beware. There are (presently) great dangers in claiming “100% of FMV.” Some trustees recently seem to be taking the position that it is improper and objecting to it as a matter of course, despite its apparent endorsement by the United States Supreme Court. And the first group of cases that have been decided indicate that the trustees are winning that battle. (That means the debtor is losing.) The war is far from over though, and it is expected by this author and others that this legal conflict will be decided on the circuit level throughout the country within the next few years.
One may think that there may not be much down side to giving it a try and seeing if the trustee objects. Keep in mind that one significant detriment to drawing an objection is that the case remains open longer. This means the closing of the case and the time (of certainty) that a debtor is guaranteed to keep his assets is delayed, which is contrary to the debtor’s initial goal.
In addition to the chance of drawing an objection from the trustee or someone else just on the basis of claiming “100% of FMV,” the propriety of the exemption statute used, its maximum amount in relation to the value of the asset, and the case as a whole, are all given more attention. Although a debtor in bankruptcy pays the price of giving up his privacy and should have nothing to hide, it is still generally not a good move to cause more scrutiny of your exemptions, and your case overall, when in bankruptcy.
So, this raises the question of whether it is worth it to claim “100% of FMV.” The answer to that question can really only be provided by a competent bankruptcy attorney who fully understands the benefits, and if those benefits outweigh the risks, after having had the chance to assess the debtor’s entire financial picture and his goals and desires.
One other option used in this overall topic of keeping assets in bankruptcy will be addressed in yet another post.
If you are contemplating bankruptcy and have an asset that is near and dear to you, or just want to know more about how to keep assets in bankruptcy, feel free to give us a call.
Saturday, December 3, 2011
Monday, November 21, 2011
How should I prepare before filing a lawsuit?
21 November 2011
Most people that become plaintiffs in a civil suit do so for the first time in their lives. They are unsure what to expect and may underestimate the costs, risks, and time involved. They may think, “I was wronged, therefore I will eventually get the justice I deserve.”
A recent publicized case in United States District Court in Boston is an example of what could happen in a civil case that may help a prospective plaintiff have a better idea of what can happen. Diaz v. Jiten Hotel Mgmt., Inc., No. 2008 cv 10143 (D. Mass. May 5, 2011). The plaintiff pursued a discrimination claim against a former employer for wrongful firing. Along the way, three of the claims were dropped. The defendant filed a motion for summary judgment, and persuaded the court to dismiss another claim. This left an age discrimination claim under both federal and state law. Diaz v. Jiten Hotel Mgmt., Inc., 762 F. Supp. 2d. 319 (D. Mass. 2011).
Before trial, the defendant made a settlement offer of $75K, the plaintiff countered with $100K. Then it appears the negotiations stopped and the defendant walked away from the bargaining table. The parties went to trial and the plaintiff won, but it was approximately an award of less than $8K. The defendant appealed the verdict on various grounds, which is still pending. After the ruling, in a separate motion after the trial, the plaintiff’s attorney who took the case on a contingency basis, asked the court to also award the plaintiff her attorney’s fees. In doing so, she found an unsympathetic judge.
The law generally is that regardless of the amount of the award, when a statute provides the prevailing party to be awarded attorney’s fees, the attorney is entitled to reasonable fees. See Farrier v. Hobby, 506 U.S. 103, 113 (1992). (Please understand that attorney fees are not normally awarded, but only when a statute that provides the same is involved.) To illustrate, if the plaintiff was awarded $10,000 for basic damages, the attorney fees awarded could be $100,000 provided they were reasonable.
In this case, the judge initially reduced the fees sought by 1/3 due to the claims that were dropped or dismissed. Then the judge did something unusual: he considered the facts pertaining to the settlement negotiations. Specifically, the judge (apparently by being informed by the defendant) found that the $75K settlement offer made by the defendant was reasonable. He further decided that the attorney should not get more than what he would have if the settlement went through. The important part of the decision is that the judge considered the facts pertaining to the settlement and the amounts that would have been realized. In doing so, the judge lowered the amount of attorney’s fees even more to the amount that would have been obtained in the settlement amount. Diaz v. Jiten Hotel Mgmt., Inc., No. 2008 cv 10143 (D. Mass. Nov. 8, 2011).
Some observations from this case that likely did not meet the plaintiff’s expectations are in order. First, the plaintiff brought three claims and then dropped them, possibly because they were not as strong when subjected to adversarial scrutiny and/or upon further investigation and discovery. Second, one claim was dismissed by the court. Third, the defendant left the bargaining table after offering $75K and getting a (seemingly reasonable considering the amount of the original offer) counteroffer of $100K. (One would think the parties could have reached settlement based on their level of interest in doing so that was evidenced by the amount of their respective offers .) Fourth, the jury awarded an amount much less than the plaintiff expected (I imagine). Fifth, attorney fees awarded were much less than what was expected, due in large part to the judge taking an unusual position by considering the facts pertaining to the settlement negotiations. Sixth, the failure of the plaintiff to accept the settlement offer, although possibly a bit lower than the plaintiff may have thought she could negotiate for, made a significant difference in the amount both the plaintiff and the plaintiff’s lawyer may receive. Lastly, after a number of years of litigation and a jury trial, the case is still not over, but is on appeal.
One saving grace for the plaintiff is that if the decision is upheld, she has won. She will have a formal decision that states she was wronged. This may mean a great deal to her, but likely the case did not reap the rewards and was significantly more costly in many ways than was expected.
From the defendant’s perspective it may not feel like a big victory. We do not know what the defendant has spent and expects to continue to pay in attorney’s fees. The defendant corporation may feel like it has endured a significant financial penalty of its own in the form of its attorney’s fees already. Also, it has a decision, although on appeal, finding that it broke the law that is public and will affect their reputation, especially concerning its employees. The executives that are responsible for the matter may feel like they have a mark on their professional resume, so to speak.
The lessons to be learned are many. Since this is written for prospective plaintiffs, we will mention a few take-aways from that perspective. First is to be emotionally, mentally, and financially prepared for the ups and downs and duration of litigation, and second, take reasonable offers very seriously. Overall, this is just one story that shows from whatever perspective one may have had in the case that man’s justice is imperfect.
Most people that become plaintiffs in a civil suit do so for the first time in their lives. They are unsure what to expect and may underestimate the costs, risks, and time involved. They may think, “I was wronged, therefore I will eventually get the justice I deserve.”
A recent publicized case in United States District Court in Boston is an example of what could happen in a civil case that may help a prospective plaintiff have a better idea of what can happen. Diaz v. Jiten Hotel Mgmt., Inc., No. 2008 cv 10143 (D. Mass. May 5, 2011). The plaintiff pursued a discrimination claim against a former employer for wrongful firing. Along the way, three of the claims were dropped. The defendant filed a motion for summary judgment, and persuaded the court to dismiss another claim. This left an age discrimination claim under both federal and state law. Diaz v. Jiten Hotel Mgmt., Inc., 762 F. Supp. 2d. 319 (D. Mass. 2011).
Before trial, the defendant made a settlement offer of $75K, the plaintiff countered with $100K. Then it appears the negotiations stopped and the defendant walked away from the bargaining table. The parties went to trial and the plaintiff won, but it was approximately an award of less than $8K. The defendant appealed the verdict on various grounds, which is still pending. After the ruling, in a separate motion after the trial, the plaintiff’s attorney who took the case on a contingency basis, asked the court to also award the plaintiff her attorney’s fees. In doing so, she found an unsympathetic judge.
The law generally is that regardless of the amount of the award, when a statute provides the prevailing party to be awarded attorney’s fees, the attorney is entitled to reasonable fees. See Farrier v. Hobby, 506 U.S. 103, 113 (1992). (Please understand that attorney fees are not normally awarded, but only when a statute that provides the same is involved.) To illustrate, if the plaintiff was awarded $10,000 for basic damages, the attorney fees awarded could be $100,000 provided they were reasonable.
In this case, the judge initially reduced the fees sought by 1/3 due to the claims that were dropped or dismissed. Then the judge did something unusual: he considered the facts pertaining to the settlement negotiations. Specifically, the judge (apparently by being informed by the defendant) found that the $75K settlement offer made by the defendant was reasonable. He further decided that the attorney should not get more than what he would have if the settlement went through. The important part of the decision is that the judge considered the facts pertaining to the settlement and the amounts that would have been realized. In doing so, the judge lowered the amount of attorney’s fees even more to the amount that would have been obtained in the settlement amount. Diaz v. Jiten Hotel Mgmt., Inc., No. 2008 cv 10143 (D. Mass. Nov. 8, 2011).
Some observations from this case that likely did not meet the plaintiff’s expectations are in order. First, the plaintiff brought three claims and then dropped them, possibly because they were not as strong when subjected to adversarial scrutiny and/or upon further investigation and discovery. Second, one claim was dismissed by the court. Third, the defendant left the bargaining table after offering $75K and getting a (seemingly reasonable considering the amount of the original offer) counteroffer of $100K. (One would think the parties could have reached settlement based on their level of interest in doing so that was evidenced by the amount of their respective offers .) Fourth, the jury awarded an amount much less than the plaintiff expected (I imagine). Fifth, attorney fees awarded were much less than what was expected, due in large part to the judge taking an unusual position by considering the facts pertaining to the settlement negotiations. Sixth, the failure of the plaintiff to accept the settlement offer, although possibly a bit lower than the plaintiff may have thought she could negotiate for, made a significant difference in the amount both the plaintiff and the plaintiff’s lawyer may receive. Lastly, after a number of years of litigation and a jury trial, the case is still not over, but is on appeal.
One saving grace for the plaintiff is that if the decision is upheld, she has won. She will have a formal decision that states she was wronged. This may mean a great deal to her, but likely the case did not reap the rewards and was significantly more costly in many ways than was expected.
From the defendant’s perspective it may not feel like a big victory. We do not know what the defendant has spent and expects to continue to pay in attorney’s fees. The defendant corporation may feel like it has endured a significant financial penalty of its own in the form of its attorney’s fees already. Also, it has a decision, although on appeal, finding that it broke the law that is public and will affect their reputation, especially concerning its employees. The executives that are responsible for the matter may feel like they have a mark on their professional resume, so to speak.
The lessons to be learned are many. Since this is written for prospective plaintiffs, we will mention a few take-aways from that perspective. First is to be emotionally, mentally, and financially prepared for the ups and downs and duration of litigation, and second, take reasonable offers very seriously. Overall, this is just one story that shows from whatever perspective one may have had in the case that man’s justice is imperfect.
Tuesday, November 1, 2011
Will I be able to keep all of my assets if I file for chapter 7 bankruptcy?
2 November 2011
The answer is maybe. But in most cases you will not know for sure that you will keep your assets until the case is closed. For a better understanding, please read on.
This question is common for people to have and for bankruptcy blogs to address. Usually the truth is told that it is impossible to give an informed opinion until a thorough financial analysis by a competent bankruptcy attorney is completed. But overall there is an overwhelming tone of confidence in these blogs that convey the message in all likelihood you will be like most debtors and keep everything. “Don’t worry, you’re all set” these blogs seem to say. It is most likely true that in the end you will keep everything, but what will technically/legally occur during the bankruptcy with regard to the debtor’s assets usually escapes most potential debtors. What will really happen sounds scary to the typical person, which is the following.
When you file, everything you have becomes part of the bankruptcy estate, with very few exceptions that may not apply to you. In other words, generally you legally give up your right to the assets when you file for bankruptcy and (almost always) will not retain your full rights until the case is closed. This also means you cannot do what you want with your assets during the bankruptcy. This concept is typically hard for a debtor to digest and understand. The usual way to try and keep your assets is to claim that they are exempt. If they aren’t, the trustee can take them and sell them to pay your creditors (and himself) and give you the amount of your exemption, if you claimed one and it was not disallowed.
Even if you do claim that the entire amount of value of an asset is exempt, the trustee may disagree with your valuation and could get the right to try and sell it. If the trustee is successful in attaining more than what you said was exempt upon sale, again, you will get the amount of any valid exemption you claimed. This is the new law as of March 2010. Schwab v. Reilly, 130 S. Ct. 2652 (2010). There are cases that illustrate this. If you would like to read about a case involving few different debtors where the trustee obtained the right to sell their houses despite the fact the debtors each claimed a valid exemption in the amount of the equity of their homes, you can read Gebhart v. Gaughan. 621 F.3d 1206 (9th Cir. 2010).
There is a way that might ensure that you could keep one hundred percent of the fair market value of your asset ("100% of FMV") while your case is still pending that will be addressed in a future blog. And there is a way one can try and make sure an asset is retained without having to wait until the case is closed. However, as stated, there are no guarantees. The bottom line is, with rare exception, you will not be absolutely sure you will keep your assets until the case is closed.
These facts would tend to scare the typical person contemplating filing for bankruptcy. Should you be scared? No. But you should understand that very little is guaranteed in life, and if you hear an attorney guarantee that you will keep all your assets in a future bankruptcy under chapter 7, find another attorney.
The answer is maybe. But in most cases you will not know for sure that you will keep your assets until the case is closed. For a better understanding, please read on.
This question is common for people to have and for bankruptcy blogs to address. Usually the truth is told that it is impossible to give an informed opinion until a thorough financial analysis by a competent bankruptcy attorney is completed. But overall there is an overwhelming tone of confidence in these blogs that convey the message in all likelihood you will be like most debtors and keep everything. “Don’t worry, you’re all set” these blogs seem to say. It is most likely true that in the end you will keep everything, but what will technically/legally occur during the bankruptcy with regard to the debtor’s assets usually escapes most potential debtors. What will really happen sounds scary to the typical person, which is the following.
When you file, everything you have becomes part of the bankruptcy estate, with very few exceptions that may not apply to you. In other words, generally you legally give up your right to the assets when you file for bankruptcy and (almost always) will not retain your full rights until the case is closed. This also means you cannot do what you want with your assets during the bankruptcy. This concept is typically hard for a debtor to digest and understand. The usual way to try and keep your assets is to claim that they are exempt. If they aren’t, the trustee can take them and sell them to pay your creditors (and himself) and give you the amount of your exemption, if you claimed one and it was not disallowed.
Even if you do claim that the entire amount of value of an asset is exempt, the trustee may disagree with your valuation and could get the right to try and sell it. If the trustee is successful in attaining more than what you said was exempt upon sale, again, you will get the amount of any valid exemption you claimed. This is the new law as of March 2010. Schwab v. Reilly, 130 S. Ct. 2652 (2010). There are cases that illustrate this. If you would like to read about a case involving few different debtors where the trustee obtained the right to sell their houses despite the fact the debtors each claimed a valid exemption in the amount of the equity of their homes, you can read Gebhart v. Gaughan. 621 F.3d 1206 (9th Cir. 2010).
There is a way that might ensure that you could keep one hundred percent of the fair market value of your asset ("100% of FMV") while your case is still pending that will be addressed in a future blog. And there is a way one can try and make sure an asset is retained without having to wait until the case is closed. However, as stated, there are no guarantees. The bottom line is, with rare exception, you will not be absolutely sure you will keep your assets until the case is closed.
These facts would tend to scare the typical person contemplating filing for bankruptcy. Should you be scared? No. But you should understand that very little is guaranteed in life, and if you hear an attorney guarantee that you will keep all your assets in a future bankruptcy under chapter 7, find another attorney.
Wednesday, October 5, 2011
What can I do if a debt collector is reporting a debt to credit bureaus that I dispute?
5 October 2011
Especially in cases involving incorrect names, identity theft, and prior settled accounts, debt collectors unfortunately collect debts that are not valid or owed. If it happens to you, you should dispute it. A dispute can be made orally to invoke the law. Brady v. Credit Recovery Co., 160 F.3d 64 (1st Cir. 1998); Palmer v. I.C. Sys., Inc., 2005 WL 30001877 (N.D. Cal. Nov. 8, 2005). However, it would be best to communicate the dispute in writing and be able to establish when the debt collector learned of the dispute. Initially, understand that despite disputing the debt, it most likely will not stop debt collectors from continuing to attempt to collect the debt from you. At this stage, you may want to contact a lawyer to discuss the nature of your dispute to see if you have grounds to take legal action.
If you are concerned about your credit score, the fact that the item is disputed should help. When a consumer disputes a debt in some fashion, the debt collector is required by law to communicate the fact it is disputed, if they are reporting the item to credit bureaus. The Fair Debt Collection Practices Act (“FDCPA”) prohibits:
Communicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.15 U.S.C. § 1692e(8).
It is also not uncommon for the debt collector to fail to follow this law. This is why after you dispute a debt you may want to check your credit report to see if indeed the debt is being reported correctly. If not, you again may want to consider contacting an attorney to pursue legal action under the FDCPA and maybe the Fair Credit Reporting Act (“FCRA’). The FCRA is another federal law designed to help consumers.
If you feel you have good grounds for your dispute and are not making progress with the debt collector or original creditor, you may also want to dispute the item with the credit bureaus. In that case, there are a number of possibilities that can happen. For one, if the wrongful reporting continues after a certain length of time, you could have a claim under the FCRA.
This post just skims the surface of the FDCPA and FCRA. These are federal statutes that are lengthy, have been in place for many years, and have hundreds of reported cases speaking to their interpretation. So, it is best to proceed with the advice of a lawyer familiar with these laws, even before taking any action with respect to a debt you dispute. In the event that you believe that a debt collector or creditor is collecting or reporting a debt wrongfully, or would like to discuss how to proceed after learning about an invalid debt, feel free to give us a call.
Especially in cases involving incorrect names, identity theft, and prior settled accounts, debt collectors unfortunately collect debts that are not valid or owed. If it happens to you, you should dispute it. A dispute can be made orally to invoke the law. Brady v. Credit Recovery Co., 160 F.3d 64 (1st Cir. 1998); Palmer v. I.C. Sys., Inc., 2005 WL 30001877 (N.D. Cal. Nov. 8, 2005). However, it would be best to communicate the dispute in writing and be able to establish when the debt collector learned of the dispute. Initially, understand that despite disputing the debt, it most likely will not stop debt collectors from continuing to attempt to collect the debt from you. At this stage, you may want to contact a lawyer to discuss the nature of your dispute to see if you have grounds to take legal action.
If you are concerned about your credit score, the fact that the item is disputed should help. When a consumer disputes a debt in some fashion, the debt collector is required by law to communicate the fact it is disputed, if they are reporting the item to credit bureaus. The Fair Debt Collection Practices Act (“FDCPA”) prohibits:
Communicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.15 U.S.C. § 1692e(8).
It is also not uncommon for the debt collector to fail to follow this law. This is why after you dispute a debt you may want to check your credit report to see if indeed the debt is being reported correctly. If not, you again may want to consider contacting an attorney to pursue legal action under the FDCPA and maybe the Fair Credit Reporting Act (“FCRA’). The FCRA is another federal law designed to help consumers.
If you feel you have good grounds for your dispute and are not making progress with the debt collector or original creditor, you may also want to dispute the item with the credit bureaus. In that case, there are a number of possibilities that can happen. For one, if the wrongful reporting continues after a certain length of time, you could have a claim under the FCRA.
This post just skims the surface of the FDCPA and FCRA. These are federal statutes that are lengthy, have been in place for many years, and have hundreds of reported cases speaking to their interpretation. So, it is best to proceed with the advice of a lawyer familiar with these laws, even before taking any action with respect to a debt you dispute. In the event that you believe that a debt collector or creditor is collecting or reporting a debt wrongfully, or would like to discuss how to proceed after learning about an invalid debt, feel free to give us a call.
Monday, September 12, 2011
What happens to my 529 education account if I file for bankruptcy?
What happens to my 529 education account if I file for bankruptcy?
12 September 2011
It depends on a number of factors. But relatively recent changes in bankruptcy law by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) made it more likely you will be able to keep all or at least some of the funds.
BAPCPA was a sweeping change to the bankruptcy code. At the risk of oversimplifying the changes, as the name of the Act may imply, most amendments were debtor unfriendly, but some were debtor friendly. Initially, some background is necessary to understand these changes.
When someone files for bankruptcy, a bankruptcy estate is created that includes, with a few exceptions, all of the debtor’s property in whatever form in whatever place. If property is part of the bankruptcy estate, it is subject to the jurisdiction of the bankruptcy court and could be liquidated which depends on other subjects not discussed in this post. But if property is not part of the bankruptcy estate to begin with, then it cannot be liquidated.
Some of the debtor friendly amendments in BAPCPA were a few additions to the short list of items excluded from the bankruptcy estate under §541 of the bankruptcy code. One amendment covered so-called 529 education accounts. It is not as simple as thinking the entire balance in the account is excluded from the bankruptcy estate. First, the timing of when the funds were contributed to the account is crucial. Second, the designated beneficiary must be a child, stepchild, grandchild, or step-grandchild of the debtor for the tax year when the funds were put into the account. Third, is that funds contributed within 365 days of the petition date remain property of the estate. Up to $5,000.00 of the amount contributed to the account made between 365 and 720 days before the petition date are excluded from the bankruptcy estate. And all amounts contributed to an account more than 720 days before filing the bankruptcy petition are completely excluded. (There are some more qualifications in the code that are not discussed here that should be reviewed prior to settling this question.)
Just because some or all of what is in your 529 education account may be property of the estate means that it must be forfeited. Your bankruptcy lawyer can help you try and retain the funds even if they will be part of your future bankruptcy estate.
I hope that this post shows that bankruptcy may not be simple enough to be able to navigate alone. One may say they do not have a 529 education account so it does not affect them. But if it is this complicated on this somewhat obscure subject of 529 education accounts, it could be this complicated in other subjects that do affect them. I also hope that this post shows why a review of so many documents and an answer to so many of the right questions are needed prior to a bankruptcy filing. Of course, this is if one wants to know whether some of their assets will be liquidated.
If you have questions about how your 529 education account will be treated in bankruptcy or others about insolvency matters, we suggest you engage a competent Massachusetts bankruptcy attorney.
12 September 2011
It depends on a number of factors. But relatively recent changes in bankruptcy law by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) made it more likely you will be able to keep all or at least some of the funds.
BAPCPA was a sweeping change to the bankruptcy code. At the risk of oversimplifying the changes, as the name of the Act may imply, most amendments were debtor unfriendly, but some were debtor friendly. Initially, some background is necessary to understand these changes.
When someone files for bankruptcy, a bankruptcy estate is created that includes, with a few exceptions, all of the debtor’s property in whatever form in whatever place. If property is part of the bankruptcy estate, it is subject to the jurisdiction of the bankruptcy court and could be liquidated which depends on other subjects not discussed in this post. But if property is not part of the bankruptcy estate to begin with, then it cannot be liquidated.
Some of the debtor friendly amendments in BAPCPA were a few additions to the short list of items excluded from the bankruptcy estate under §541 of the bankruptcy code. One amendment covered so-called 529 education accounts. It is not as simple as thinking the entire balance in the account is excluded from the bankruptcy estate. First, the timing of when the funds were contributed to the account is crucial. Second, the designated beneficiary must be a child, stepchild, grandchild, or step-grandchild of the debtor for the tax year when the funds were put into the account. Third, is that funds contributed within 365 days of the petition date remain property of the estate. Up to $5,000.00 of the amount contributed to the account made between 365 and 720 days before the petition date are excluded from the bankruptcy estate. And all amounts contributed to an account more than 720 days before filing the bankruptcy petition are completely excluded. (There are some more qualifications in the code that are not discussed here that should be reviewed prior to settling this question.)
Just because some or all of what is in your 529 education account may be property of the estate means that it must be forfeited. Your bankruptcy lawyer can help you try and retain the funds even if they will be part of your future bankruptcy estate.
I hope that this post shows that bankruptcy may not be simple enough to be able to navigate alone. One may say they do not have a 529 education account so it does not affect them. But if it is this complicated on this somewhat obscure subject of 529 education accounts, it could be this complicated in other subjects that do affect them. I also hope that this post shows why a review of so many documents and an answer to so many of the right questions are needed prior to a bankruptcy filing. Of course, this is if one wants to know whether some of their assets will be liquidated.
If you have questions about how your 529 education account will be treated in bankruptcy or others about insolvency matters, we suggest you engage a competent Massachusetts bankruptcy attorney.
Tuesday, September 6, 2011
The new bankruptcy rules are coming!
6 September 2011
The United States Supreme Court has approved significant changes to the Rules of Bankruptcy Procedure that will take effect 1 December 2011. The most notable changes are to Bankruptcy Rule 3001 regarding requirements for creditors in the claims they make in bankruptcy cases in general; and the addition of Bankruptcy Rule 3002.1 regarding how parties are to handle claims by secured creditors against the debtor’s principal residence in chapter 13 cases. These rules are aimed to curb ongoing, recurring problems in claims in general, and claims in chapter 13 bankruptcy cases in particular, that have caused much consternation to debtors and their attorneys. Overall, these soon-to-come changes appear to be welcomed by the debtor’s bar and judges.
Rule 3001 will require all parties making claims to itemize any interest, fees, expenses, or other charges associated with their claims. It will require claims involving a security interest to state the amount necessary to “cure” any default. It will require claims involving a security interest in the debtor’s primary residence to attach an Official Form and if an escrow account is involved, a further escrow account statement must also be attached. If the Court finds that the creditor failed to provide this information, it may preclude the creditor from raising the omitted information in a further proceeding and/or award reasonable attorney fees “caused by the failure [to provide the information].”
Rule 3002.1 only applies to claims made in chapter 13 cases involving the debtor’s primary residence. However, in those types of cases the changes are significant and new steps applicable to every such case will be added. It requires a secured creditor to notify the debtor of any changes in mortgage payments no later than 21 days prior to when the new amount goes into effect while the chapter 13 case is open. It also requires a secured creditor to file an itemized statement of any fees, expenses, or charges incurred in connection with its claim after the bankruptcy case was filed, again using an Official Form. It allows a trustee or debtor to challenge this itemized statement and obtain a determination from the bankruptcy court on whether the fees, etc. are required to cure a default of the mortgage on the debtor’s primary residence. (Curing this default is arguably the most important relief available in chapter 13 and the most sought after relief from chapter 13 debtors.) George E. Bourguignon, Statutory Interpretation of Bankruptcy Code § 1322(C)(1): Arguing for a Bright-Line Approach to the Debtor’s Statutory Right to Cure a Residential Mortgage Default, Article, 7 U.C. Davis Bus. L. J. 461 (2007).
The last portion of Bankruptcy Rule 3002.1 will arguably make the most change in chapter 13 bankruptcy practice. After the debtor completes the payments required under his plan, the trustee (or debtor if the trustee fails to) must send a notice of final cure. The secured creditor must respond or consequences may flow. Without providing every detail, basically the rule is attempting to flush out and decide for good whether the debtor has cured the default, and decide this before the case closes. (In other words, there is no more arrearage due and he is back on track with the mortgage and only need to pay the usual monthly payment going forward.) It will be quite interesting if in practical reality the rule achieves its goal on this score.
These changes will make the claims process more complicated and add to the administrative and legal burden on all parties, especially in chapter 13 cases and on secured creditors of mortgages on the debtor’s primary residence. The changes will give the debtor more tools to combat unsubstantiated claims. But indirectly they may cause higher attorney’s fees by increasing the attorney’s obligations to object to claims that do not meet the new requirements that would not have been objected to previously. Exactly how much these amendments will change bankruptcy practice will remain to be seen, but we can confidently say they will change the practice to some degree. We can also say that indirectly these new rules will make it even more important for a chapter 13 debtor to obtain competent counsel to get the most from using the new rules that less competent counsel may not.
The United States Supreme Court has approved significant changes to the Rules of Bankruptcy Procedure that will take effect 1 December 2011. The most notable changes are to Bankruptcy Rule 3001 regarding requirements for creditors in the claims they make in bankruptcy cases in general; and the addition of Bankruptcy Rule 3002.1 regarding how parties are to handle claims by secured creditors against the debtor’s principal residence in chapter 13 cases. These rules are aimed to curb ongoing, recurring problems in claims in general, and claims in chapter 13 bankruptcy cases in particular, that have caused much consternation to debtors and their attorneys. Overall, these soon-to-come changes appear to be welcomed by the debtor’s bar and judges.
Rule 3001 will require all parties making claims to itemize any interest, fees, expenses, or other charges associated with their claims. It will require claims involving a security interest to state the amount necessary to “cure” any default. It will require claims involving a security interest in the debtor’s primary residence to attach an Official Form and if an escrow account is involved, a further escrow account statement must also be attached. If the Court finds that the creditor failed to provide this information, it may preclude the creditor from raising the omitted information in a further proceeding and/or award reasonable attorney fees “caused by the failure [to provide the information].”
Rule 3002.1 only applies to claims made in chapter 13 cases involving the debtor’s primary residence. However, in those types of cases the changes are significant and new steps applicable to every such case will be added. It requires a secured creditor to notify the debtor of any changes in mortgage payments no later than 21 days prior to when the new amount goes into effect while the chapter 13 case is open. It also requires a secured creditor to file an itemized statement of any fees, expenses, or charges incurred in connection with its claim after the bankruptcy case was filed, again using an Official Form. It allows a trustee or debtor to challenge this itemized statement and obtain a determination from the bankruptcy court on whether the fees, etc. are required to cure a default of the mortgage on the debtor’s primary residence. (Curing this default is arguably the most important relief available in chapter 13 and the most sought after relief from chapter 13 debtors.) George E. Bourguignon, Statutory Interpretation of Bankruptcy Code § 1322(C)(1): Arguing for a Bright-Line Approach to the Debtor’s Statutory Right to Cure a Residential Mortgage Default, Article, 7 U.C. Davis Bus. L. J. 461 (2007).
The last portion of Bankruptcy Rule 3002.1 will arguably make the most change in chapter 13 bankruptcy practice. After the debtor completes the payments required under his plan, the trustee (or debtor if the trustee fails to) must send a notice of final cure. The secured creditor must respond or consequences may flow. Without providing every detail, basically the rule is attempting to flush out and decide for good whether the debtor has cured the default, and decide this before the case closes. (In other words, there is no more arrearage due and he is back on track with the mortgage and only need to pay the usual monthly payment going forward.) It will be quite interesting if in practical reality the rule achieves its goal on this score.
These changes will make the claims process more complicated and add to the administrative and legal burden on all parties, especially in chapter 13 cases and on secured creditors of mortgages on the debtor’s primary residence. The changes will give the debtor more tools to combat unsubstantiated claims. But indirectly they may cause higher attorney’s fees by increasing the attorney’s obligations to object to claims that do not meet the new requirements that would not have been objected to previously. Exactly how much these amendments will change bankruptcy practice will remain to be seen, but we can confidently say they will change the practice to some degree. We can also say that indirectly these new rules will make it even more important for a chapter 13 debtor to obtain competent counsel to get the most from using the new rules that less competent counsel may not.
Wednesday, August 31, 2011
What happens if my first bankruptcy filing was dismissed and I file for bankruptcy again?
1 September 2011
The answer is that there are ramifications if the first case was dismissed within a year of the second filing.
Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) and most of its provisions became effective in October 2005. This law was a sweeping change to the bankruptcy code. Section 362(c)(3)(A) was one of the provisions of BAPCPA which was meant to curb a perceived abuse from repeat filings. It limited the automatic stay, the benefit of bankruptcy to the debtor that prohibits most collection activity once a case is filed, to only 30 days when a person files a second case within one year of the dismissal of the first case.
There has been some disagreement over the extent of the effect of section 362(c)(3)(A). The majority has concluded that the stay ends with respect to the debtor and property of the debtor, but continues with respect to property of the estate. In re Jump, 356 B.R. 789, 791 (1st Cir. B.A.P. 2006). The minority of courts have concluded the automatic stay ends completely (that means with respect to the debtor, the debtor’s property, and property of the estate) 30 days after the case is filed.
If you find yourself asking what all of this means and continue to wonder what the protection you will obtain from filing your second case (which would be most people) we suggest that you engage an experienced bankruptcy practitioner who may be able to provide more guidance. This could include explaining the three portions of the automatic stay’s protection and how it applies to your concerns and assets. It could also include having a better idea on how the judge assigned to your future case may rule on the issue. It could also include discussing what could be done to try to extend the automatic stay despite the repeat filing.
If you are contemplating bankruptcy and have filed a case that was dismissed within the past year, you may want to know more about the actual extent of the benefit of the automatic stay, if any, when you file. Please give us a call if you would like to learn more about this issue and how it may apply to your particular situation.
The answer is that there are ramifications if the first case was dismissed within a year of the second filing.
Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) and most of its provisions became effective in October 2005. This law was a sweeping change to the bankruptcy code. Section 362(c)(3)(A) was one of the provisions of BAPCPA which was meant to curb a perceived abuse from repeat filings. It limited the automatic stay, the benefit of bankruptcy to the debtor that prohibits most collection activity once a case is filed, to only 30 days when a person files a second case within one year of the dismissal of the first case.
There has been some disagreement over the extent of the effect of section 362(c)(3)(A). The majority has concluded that the stay ends with respect to the debtor and property of the debtor, but continues with respect to property of the estate. In re Jump, 356 B.R. 789, 791 (1st Cir. B.A.P. 2006). The minority of courts have concluded the automatic stay ends completely (that means with respect to the debtor, the debtor’s property, and property of the estate) 30 days after the case is filed.
If you find yourself asking what all of this means and continue to wonder what the protection you will obtain from filing your second case (which would be most people) we suggest that you engage an experienced bankruptcy practitioner who may be able to provide more guidance. This could include explaining the three portions of the automatic stay’s protection and how it applies to your concerns and assets. It could also include having a better idea on how the judge assigned to your future case may rule on the issue. It could also include discussing what could be done to try to extend the automatic stay despite the repeat filing.
If you are contemplating bankruptcy and have filed a case that was dismissed within the past year, you may want to know more about the actual extent of the benefit of the automatic stay, if any, when you file. Please give us a call if you would like to learn more about this issue and how it may apply to your particular situation.
Monday, August 1, 2011
Can I get a loan modification while in chapter 7 bankruptcy?
1 August 2011
The answer is yes. However, chapter 7 may not be the way to go if a loan modification is your goal. Many considerations are in order.
People desirous of a loan modification want to keep their residential home, but at the same time they may not be able to afford the current monthly payments required. It could also be that they are in default because they are late on their payments and have an arrearage that they cannot pay in one lump sum that the mortgage servicer requires. It could be both, cannot afford the on-going monthly required payments and they are in default and have an arrearage that they cannot pay in one lump sum. Whatever the reason, the people want the original terms of their mortgage contract(s) changed to allow them to avoid foreclosure and afford their residential home.
They have also usually had a difficult time communicating and dealing with their mortgage loan servicer(s). This makes people want to somehow force the mortgage servicer’s hand or somehow get its attention. And this goal, getting the mortgage servicer’s attention, is sometimes the reason people state they want to file a chapter 7 bankruptcy. However, there are very serious ramifications to filing chapter 7 and some of them could affect your ability to obtain a loan modification, forever. Initially, one point concerning chapter 7 bankruptcy is in order.
Chapter 7 bankruptcy for the individual should be viewed as a personal liquidation. Although individuals filing chapter 7 bankruptcies should use it and think of it as an important step in their financial turnaround, it is not a financial tool designed for a personal reorganization per se. Because chapter 7 bankruptcy is a liquidation, it is not designed to cure a residential mortgage default, which is what most people seeking a loan modification need, as a chapter 13 bankruptcy is. The point to understand is that chapter 7 bankruptcy is not designed or usually the best tool to save your home. So, you will need someone legally savvy enough to use this tool (chapter 7 bankruptcy) to perform a task it was not originally designed for. (For you car buffs out there, think of using a screw driver to remove an oil filter. It can be done, but the screw driver was certainly not designed for it.)
A loan modification must be achieved during the chapter 7 bankruptcy, and before a certain deadline in the case, or one’s ability to modify the loan ends permanently. Achieving a loan modification during bankruptcy also triggers a number of considerations that requires an adept bankruptcy professional to assess and handle. Not to mention the fact you are still dealing with the same mortgage servicer that has probably shown itself to be quite difficult to deal with in the first place. Essentially, you should consider filing a chapter 7 bankruptcy as the firing off a starting pistol in a race to make an agreement with the mortgage servicer before a particular deadline occurs and as the only and last shot to attaining the loan modification.
All this to say, if you seek to attain a loan modification and are considering chapter 7 as a part of the plan to achieve this, we suggest that you team up with a qualified bankruptcy professional before taking the plunge, if you still wish to do it after attaining counsel at all.
The answer is yes. However, chapter 7 may not be the way to go if a loan modification is your goal. Many considerations are in order.
People desirous of a loan modification want to keep their residential home, but at the same time they may not be able to afford the current monthly payments required. It could also be that they are in default because they are late on their payments and have an arrearage that they cannot pay in one lump sum that the mortgage servicer requires. It could be both, cannot afford the on-going monthly required payments and they are in default and have an arrearage that they cannot pay in one lump sum. Whatever the reason, the people want the original terms of their mortgage contract(s) changed to allow them to avoid foreclosure and afford their residential home.
They have also usually had a difficult time communicating and dealing with their mortgage loan servicer(s). This makes people want to somehow force the mortgage servicer’s hand or somehow get its attention. And this goal, getting the mortgage servicer’s attention, is sometimes the reason people state they want to file a chapter 7 bankruptcy. However, there are very serious ramifications to filing chapter 7 and some of them could affect your ability to obtain a loan modification, forever. Initially, one point concerning chapter 7 bankruptcy is in order.
Chapter 7 bankruptcy for the individual should be viewed as a personal liquidation. Although individuals filing chapter 7 bankruptcies should use it and think of it as an important step in their financial turnaround, it is not a financial tool designed for a personal reorganization per se. Because chapter 7 bankruptcy is a liquidation, it is not designed to cure a residential mortgage default, which is what most people seeking a loan modification need, as a chapter 13 bankruptcy is. The point to understand is that chapter 7 bankruptcy is not designed or usually the best tool to save your home. So, you will need someone legally savvy enough to use this tool (chapter 7 bankruptcy) to perform a task it was not originally designed for. (For you car buffs out there, think of using a screw driver to remove an oil filter. It can be done, but the screw driver was certainly not designed for it.)
A loan modification must be achieved during the chapter 7 bankruptcy, and before a certain deadline in the case, or one’s ability to modify the loan ends permanently. Achieving a loan modification during bankruptcy also triggers a number of considerations that requires an adept bankruptcy professional to assess and handle. Not to mention the fact you are still dealing with the same mortgage servicer that has probably shown itself to be quite difficult to deal with in the first place. Essentially, you should consider filing a chapter 7 bankruptcy as the firing off a starting pistol in a race to make an agreement with the mortgage servicer before a particular deadline occurs and as the only and last shot to attaining the loan modification.
All this to say, if you seek to attain a loan modification and are considering chapter 7 as a part of the plan to achieve this, we suggest that you team up with a qualified bankruptcy professional before taking the plunge, if you still wish to do it after attaining counsel at all.
Wednesday, July 6, 2011
Can bankruptcy eliminate(discharge) a social security overpayment?
6 July 2011
If this question caught your eye, you may have recently received a written demand from the social security administration to repay an overpayment and possibly a notice stating that future benefits will stop as well. This is a double whammy. It can be a mental shock, and no doubt will be a major change to the budget. But there may be help available to address this.
The quick answer to whether a social security overpayment can be eliminated in bankruptcy is generally yes; the social security administration is a creditor like anyone else and if afforded no special protection under the bankruptcy code. But there could be special facts in each case that could affect the outcome.
One concern would be whether fraud or false pretenses were involved in obtaining the funds. In this case, the social security administration could contest the elimination/discharge of the debt owed to it. It would have to take affirmative steps while the bankruptcy case is open to prove its case. If it was successful in this endeavor, the overpayment would not be eliminated. However, even if the social security administration could make a case for fraud, etc. it rarely takes that step.
With this issue, there may be wrinkle to the bankruptcy avenue. People want black and white; certainty in simple terms. But life, and especially the law, is usually more complicated than people want. The wrinkle is that even if you do get the overpayment eliminated in bankruptcy, it may not mean that you would start with a clean slate with the social security administration in the future. This potential wrinkle and any ramifications of a bankruptcy filing should be discussed with your future bankruptcy counsel.
There also may be an alternative to bankruptcy to address this. Sometimes bankruptcy is the only viable, reasonable option for someone facing financial issues. But if your only problem is a social security overpayment, there may be steps you could take within the social security administration’s rules to address the overpayment. Although such efforts are usually unsuccessful, you may want to explore any alternative to bankruptcy you may have with counsel.
If you are facing a social security overpayment we encourage you to seek counsel to assist you in taking the best course of action. We would be happy to talk to you.
If this question caught your eye, you may have recently received a written demand from the social security administration to repay an overpayment and possibly a notice stating that future benefits will stop as well. This is a double whammy. It can be a mental shock, and no doubt will be a major change to the budget. But there may be help available to address this.
The quick answer to whether a social security overpayment can be eliminated in bankruptcy is generally yes; the social security administration is a creditor like anyone else and if afforded no special protection under the bankruptcy code. But there could be special facts in each case that could affect the outcome.
One concern would be whether fraud or false pretenses were involved in obtaining the funds. In this case, the social security administration could contest the elimination/discharge of the debt owed to it. It would have to take affirmative steps while the bankruptcy case is open to prove its case. If it was successful in this endeavor, the overpayment would not be eliminated. However, even if the social security administration could make a case for fraud, etc. it rarely takes that step.
With this issue, there may be wrinkle to the bankruptcy avenue. People want black and white; certainty in simple terms. But life, and especially the law, is usually more complicated than people want. The wrinkle is that even if you do get the overpayment eliminated in bankruptcy, it may not mean that you would start with a clean slate with the social security administration in the future. This potential wrinkle and any ramifications of a bankruptcy filing should be discussed with your future bankruptcy counsel.
There also may be an alternative to bankruptcy to address this. Sometimes bankruptcy is the only viable, reasonable option for someone facing financial issues. But if your only problem is a social security overpayment, there may be steps you could take within the social security administration’s rules to address the overpayment. Although such efforts are usually unsuccessful, you may want to explore any alternative to bankruptcy you may have with counsel.
If you are facing a social security overpayment we encourage you to seek counsel to assist you in taking the best course of action. We would be happy to talk to you.
Thursday, June 2, 2011
Will filing bankruptcy stop a criminal charge that is based on the allegation of non-payment of a debt?
2 June 2011
In a prior post, the subject of what the automatic stay was and how it generally worked was addressed. Here we go into some detail about the automatic stay’s effect on criminal charges.
To clarify, the types of criminal charges we are discussing is typically named or described as: larceny (by trick), something involving fraud, “hot check” charges, and the like. These types of charges sometimes have a prerequisite of a failure of the accused to pay the amount at issue after the initial event, or generally can be solved by payment of the debt. E.g. Mass. Gen. Laws. ch. 266 § 37. Some times after the charge is issued the prosecution offers to dismiss the case or a concession for payment of the alleged debt to the victim. These types of charges/prosecutions are sometimes criticized for turning the criminal justice system into a debt collection scheme.
The answer to the question is: probably not, but under limited circumstances, possibly. Assuming you have read the prior post for some background on the automatic stay, we will address the exception for criminal charges found in 11 U.S.C. § 362(b)(1). Is states the stay does not apply to “the commencement or continuation of a criminal action or proceeding against the debtor.” This is pretty straight forward language.
Nonetheless, some courts have found some exceptions to this exception, like when the criminal prosecution is made in bad faith or its primary purpose is the collection of a pre-petition debt. In re Byrd, 256 B.R. 246, 251-52 (Bankr. E.D.N.C. 2000)(discussing cases). But the majority approach is that even if the motive is bad or to collect a debt, the stay does not apply. In re Bartel, 404 B.R. 584, 590 (B.A.P. 1st Cir. 2009)(collecting cases).
There is another potential and significant hurdle to applying the automatic stay to state criminal proceedings that has become known as the Younger doctrine. It stems from a United States Supreme Court case stating that federal courts should abstain from enjoining state court criminal proceedings absent very compelling and narrow circumstances. Younger v. Harris, 401 U.S. 37, 46 (1971). It has been followed and adhered to since it was issued.
In analyzing this subject, there is also a distinction between State acts, and the acts of private persons (creditors). It appears it is one could make a stronger argument that the automatic stay might apply in some circumstances to the latter. In re Byrd, 256 B.R. at 252; In re Bartel, 404 B.R. at 590 (noting distinction). This should be of interest to the creditor seeking to pursue criminal charges against a debtor or soon-to-be-debtor in bankruptcy.
If a debtor seeks to establish the position that the automatic stay does apply to a criminal process, they have a difficult road to hoe and an analysis is necessary. If a creditor is concerned whether its participation in the criminal process may run afoul of the automatic stay, a similar analysis is also necessary. For either of these parties, much is at stake. If you have either of these questions, or have a different but related concern, feel free to give us a call.
In a prior post, the subject of what the automatic stay was and how it generally worked was addressed. Here we go into some detail about the automatic stay’s effect on criminal charges.
To clarify, the types of criminal charges we are discussing is typically named or described as: larceny (by trick), something involving fraud, “hot check” charges, and the like. These types of charges sometimes have a prerequisite of a failure of the accused to pay the amount at issue after the initial event, or generally can be solved by payment of the debt. E.g. Mass. Gen. Laws. ch. 266 § 37. Some times after the charge is issued the prosecution offers to dismiss the case or a concession for payment of the alleged debt to the victim. These types of charges/prosecutions are sometimes criticized for turning the criminal justice system into a debt collection scheme.
The answer to the question is: probably not, but under limited circumstances, possibly. Assuming you have read the prior post for some background on the automatic stay, we will address the exception for criminal charges found in 11 U.S.C. § 362(b)(1). Is states the stay does not apply to “the commencement or continuation of a criminal action or proceeding against the debtor.” This is pretty straight forward language.
Nonetheless, some courts have found some exceptions to this exception, like when the criminal prosecution is made in bad faith or its primary purpose is the collection of a pre-petition debt. In re Byrd, 256 B.R. 246, 251-52 (Bankr. E.D.N.C. 2000)(discussing cases). But the majority approach is that even if the motive is bad or to collect a debt, the stay does not apply. In re Bartel, 404 B.R. 584, 590 (B.A.P. 1st Cir. 2009)(collecting cases).
There is another potential and significant hurdle to applying the automatic stay to state criminal proceedings that has become known as the Younger doctrine. It stems from a United States Supreme Court case stating that federal courts should abstain from enjoining state court criminal proceedings absent very compelling and narrow circumstances. Younger v. Harris, 401 U.S. 37, 46 (1971). It has been followed and adhered to since it was issued.
In analyzing this subject, there is also a distinction between State acts, and the acts of private persons (creditors). It appears it is one could make a stronger argument that the automatic stay might apply in some circumstances to the latter. In re Byrd, 256 B.R. at 252; In re Bartel, 404 B.R. at 590 (noting distinction). This should be of interest to the creditor seeking to pursue criminal charges against a debtor or soon-to-be-debtor in bankruptcy.
If a debtor seeks to establish the position that the automatic stay does apply to a criminal process, they have a difficult road to hoe and an analysis is necessary. If a creditor is concerned whether its participation in the criminal process may run afoul of the automatic stay, a similar analysis is also necessary. For either of these parties, much is at stake. If you have either of these questions, or have a different but related concern, feel free to give us a call.
What is the automatic stay in bankruptcy?
2 June 2011
When someone files for bankruptcy the automatic stay arises. 11 U.S.C. § 362(a). It is just what the name says. It is automatic, which means no further acts are needed for its arising. Sunshine Dev., Inc. v. FDIC, 33 F.3d 106, 113 (1st Cir. 1994). And it is a stay, which means a temporary stop, (but not a permanent stop, that may come from another code section), to various acts to collect from the debtor or the debtor’s property. Actions taken in violation of the automatic stay are void. In re Soares, 107 F.3d 969, 976 (1st Cir. 1997); In re Best Payphones, Inc., 279 B.R. 92 (Bankr. S.D.N.Y. 2002). The automatic stay is powerful. Violation of it after notice of the bankruptcy filing can result in actual damages being awarded against the bad actor, including attorney’s fees and costs. 11 U.S.C. §362(k). If the acts are “willful” the court is empowered to award punitive damages. Id. The automatic stay also gives the debtor some breathing room. Most importantly, it allows the bankruptcy process to work and properly administer any distribution, if any. Without it, the bankruptcy process simply would not work.
However there are exceptions to the automatic stay. 11 U.S.C. §362(b). A study of the exceptions to the automatic stay could merit a college course in and of itself and exceeds the scope of this post. But, a non-exhaustive list of the exclusions, and generally, are: criminal charges, most domestic support issues, paternity claims, tax intercepts, tax determinations and audits, and many official State actions. Id.
Because the stakes are high, for both debtors who could be mistaken that the automatic stay applies when it does not, and for creditors that may think that it does not apply when in fact it does, it pays to obtain a professional opinion, especially for particular situations. If you have any questions on the scope or particular applicability of the automatic stay in bankruptcy, please feel free to give this office a call.
When someone files for bankruptcy the automatic stay arises. 11 U.S.C. § 362(a). It is just what the name says. It is automatic, which means no further acts are needed for its arising. Sunshine Dev., Inc. v. FDIC, 33 F.3d 106, 113 (1st Cir. 1994). And it is a stay, which means a temporary stop, (but not a permanent stop, that may come from another code section), to various acts to collect from the debtor or the debtor’s property. Actions taken in violation of the automatic stay are void. In re Soares, 107 F.3d 969, 976 (1st Cir. 1997); In re Best Payphones, Inc., 279 B.R. 92 (Bankr. S.D.N.Y. 2002). The automatic stay is powerful. Violation of it after notice of the bankruptcy filing can result in actual damages being awarded against the bad actor, including attorney’s fees and costs. 11 U.S.C. §362(k). If the acts are “willful” the court is empowered to award punitive damages. Id. The automatic stay also gives the debtor some breathing room. Most importantly, it allows the bankruptcy process to work and properly administer any distribution, if any. Without it, the bankruptcy process simply would not work.
However there are exceptions to the automatic stay. 11 U.S.C. §362(b). A study of the exceptions to the automatic stay could merit a college course in and of itself and exceeds the scope of this post. But, a non-exhaustive list of the exclusions, and generally, are: criminal charges, most domestic support issues, paternity claims, tax intercepts, tax determinations and audits, and many official State actions. Id.
Because the stakes are high, for both debtors who could be mistaken that the automatic stay applies when it does not, and for creditors that may think that it does not apply when in fact it does, it pays to obtain a professional opinion, especially for particular situations. If you have any questions on the scope or particular applicability of the automatic stay in bankruptcy, please feel free to give this office a call.
Saturday, May 21, 2011
Can I keep an inherited IRA when I file for bankruptcy?
21 May 2011
There is no definite answer to this question, as the law is in a state of flux. So the answer is, maybe, maybe not. An initial suggestion for one who will file for bankruptcy and has an inherited IRA is to make sure that your lawyer (and you should have a lawyer) has an articulated approach to the issue in mind. If not, you may not want to file, or you may want to get another lawyer. Typically, an inherited IRA is a significant asset to the holder’s balance sheet and thus is a major consideration prior to filing bankruptcy. Here are some particulars.
Legally, an inherited IRA is one that has been received from an individual who was not a former spouse. 26 U.S.C. § 408(d)(3)(C)(ii). The tax code treats an inherited IRA differently, and arguably it may be a different legal creature for bankruptcy purposes than when the IRA was held by the original holder. It is this type of “inherited IRA” that is in controversy. The legal question is whether the inherited IRA is exempt when the beneficiary (now the person contemplating bankruptcy) owns the account due to the original owner’s demise. Specifically, the dispute usually involves the correct interpretation of 11 U.S. C. § 522(d)(12) which allows a debtor to exempt “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section . . . 408 . . . of the Internal Revenue Code.” The question raises many issues, but the main controversy is whether the inherited IRA should be considered “retirement funds” per § 522(d)(12). Compare In re Nessa, 426 B.R. 312 (B.A.P. 8th Cir 2010) (inherited IRA exempt) with In re Ard, 435 B.R. 719 (M.D. Fla. 2010) (inherited IRA not exempt) and In re Chilton, 426 B.R. 612 (Bankr. E.D. Tex. 2010) (same).
In closing, many people think that the law is black and white. But when two arguably reasonably supported judge’s interpretations differ then some gray is added to the mix. If you want to file for bankruptcy and have an inherited IRA, you should really trust your lawyer and be comfortable with accepting the range of possible outcomes. If you think that this office can be of help to you, feel free to give us a call.
There is no definite answer to this question, as the law is in a state of flux. So the answer is, maybe, maybe not. An initial suggestion for one who will file for bankruptcy and has an inherited IRA is to make sure that your lawyer (and you should have a lawyer) has an articulated approach to the issue in mind. If not, you may not want to file, or you may want to get another lawyer. Typically, an inherited IRA is a significant asset to the holder’s balance sheet and thus is a major consideration prior to filing bankruptcy. Here are some particulars.
Legally, an inherited IRA is one that has been received from an individual who was not a former spouse. 26 U.S.C. § 408(d)(3)(C)(ii). The tax code treats an inherited IRA differently, and arguably it may be a different legal creature for bankruptcy purposes than when the IRA was held by the original holder. It is this type of “inherited IRA” that is in controversy. The legal question is whether the inherited IRA is exempt when the beneficiary (now the person contemplating bankruptcy) owns the account due to the original owner’s demise. Specifically, the dispute usually involves the correct interpretation of 11 U.S. C. § 522(d)(12) which allows a debtor to exempt “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section . . . 408 . . . of the Internal Revenue Code.” The question raises many issues, but the main controversy is whether the inherited IRA should be considered “retirement funds” per § 522(d)(12). Compare In re Nessa, 426 B.R. 312 (B.A.P. 8th Cir 2010) (inherited IRA exempt) with In re Ard, 435 B.R. 719 (M.D. Fla. 2010) (inherited IRA not exempt) and In re Chilton, 426 B.R. 612 (Bankr. E.D. Tex. 2010) (same).
In closing, many people think that the law is black and white. But when two arguably reasonably supported judge’s interpretations differ then some gray is added to the mix. If you want to file for bankruptcy and have an inherited IRA, you should really trust your lawyer and be comfortable with accepting the range of possible outcomes. If you think that this office can be of help to you, feel free to give us a call.
Thursday, April 21, 2011
Can I keep my IRA if I file for bankruptcy?
21 April 2011
The answer is: most likely. The exemption scheme you choose is important. To understand the basics of what is happening with respect to assets when someone files for bankruptcy, please read the blog posted on 15 April 2011. Now that you have the introduction, we can take it to another level.
Protecting an IRA is important, as your future retirement may be at stake. Careful thought is needed. As stated in the other posting, both Massachusetts and Connecticut allow their residents to choose between: 1) bankruptcy exemptions; and 2) state exemptions and federal non-bankruptcy exemptions. In Massachusetts, state exemptions only protect IRA’s to the extent the funds are reasonably necessary for the support of the debtor or his dependents. One might be inclined to think that a substantial IRA fund would be in jeopardy under a chapter 7 filing; However, the code needs to be read carefully. In In re Euse, a recent case in Nebraska, a bankruptcy court noted that the law allowed debtors choosing the state exemption scheme to also enjoy protection of their IRA in full. No. BK10-43179-TLS, 2011 WL 294143 (Bkrtcy. D. Neb. Mar. 2, 2011). The In re Euse court observed that the bankruptcy code permitted a debtor to choose state exemptions, and had an additional provision allowing the exemption of “retirement funds to the extent those funds are exempt from taxation under specified provisions of the Internal Revenue Code.” It based this decision on an addition to the bankruptcy code made under Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 codified at 11 U.S.C. § 522(b)(3). It found this provision encompassed IRAs. In that case, the debtor was entitled to keep his entire $163K IRA.
Before you decide to make your own decision on how to apply exemptions in bankruptcy, take heed of some points. Understand that many bankruptcy decisions, including In re Euse, is not binding upon any other court. And although the court based its decision on a part of the bankruptcy code that applies whenever state exemptions are chosen, each person has a unique set of assets, financial situation, and considerations when filing bankruptcy. (The snake you are watching might not bite you, but the one you do not see might.) One should seek qualified counsel before making the decision to file for bankruptcy.
The answer is: most likely. The exemption scheme you choose is important. To understand the basics of what is happening with respect to assets when someone files for bankruptcy, please read the blog posted on 15 April 2011. Now that you have the introduction, we can take it to another level.
Protecting an IRA is important, as your future retirement may be at stake. Careful thought is needed. As stated in the other posting, both Massachusetts and Connecticut allow their residents to choose between: 1) bankruptcy exemptions; and 2) state exemptions and federal non-bankruptcy exemptions. In Massachusetts, state exemptions only protect IRA’s to the extent the funds are reasonably necessary for the support of the debtor or his dependents. One might be inclined to think that a substantial IRA fund would be in jeopardy under a chapter 7 filing; However, the code needs to be read carefully. In In re Euse, a recent case in Nebraska, a bankruptcy court noted that the law allowed debtors choosing the state exemption scheme to also enjoy protection of their IRA in full. No. BK10-43179-TLS, 2011 WL 294143 (Bkrtcy. D. Neb. Mar. 2, 2011). The In re Euse court observed that the bankruptcy code permitted a debtor to choose state exemptions, and had an additional provision allowing the exemption of “retirement funds to the extent those funds are exempt from taxation under specified provisions of the Internal Revenue Code.” It based this decision on an addition to the bankruptcy code made under Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 codified at 11 U.S.C. § 522(b)(3). It found this provision encompassed IRAs. In that case, the debtor was entitled to keep his entire $163K IRA.
Before you decide to make your own decision on how to apply exemptions in bankruptcy, take heed of some points. Understand that many bankruptcy decisions, including In re Euse, is not binding upon any other court. And although the court based its decision on a part of the bankruptcy code that applies whenever state exemptions are chosen, each person has a unique set of assets, financial situation, and considerations when filing bankruptcy. (The snake you are watching might not bite you, but the one you do not see might.) One should seek qualified counsel before making the decision to file for bankruptcy.
Friday, April 15, 2011
Can I keep my assets if I file for bankruptcy?
15 April 2011
The answer is: most likely, but it depends.
This, and other questions a person that is contemplating bankruptcy may have, are very important because of what is at stake -- your assets (at a minimum). To understand the answer to this question, one must understand what is in (legal) operation during a (chapter 7) bankruptcy.
When someone files for (chapter 7) bankruptcy, what is known as a “bankruptcy estate” is created. 11 U.S.C. § 541(a)(1). Basically, it includes everything a debtor has, with some rare exceptions: Best to think of it as including everything. Since (chapter 7) bankruptcy is a liquidation, assets are subject to forfeiture. The reason that most debtors are able to keep their assets is because of exemptions. Rousey v. Jacoway, 544 U.S. 320 (2005).
Exemptions are laws that protect certain assets, or a certain value of some assets, from collection by creditors. In bankruptcy, exemptions protect these assets (or a certain value of an asset) from liquidation by the chapter 7 trustee. States are allowed to choose to allow a debtor living in their state to have the choice of what set of exemptions, known as an “exemption scheme” in the profession. They can allow a debtor to choose between: 1) bankruptcy exemptions; or 2) state and federal non-bankruptcy exemptions. States may also limit their residents to only #2. Massachusetts and Connecticut are states that allow their residents to choose between #1 and #2.
Having the choice of exemption scheme is a great benefit, but making the choice is one of the most significant decisions one must make when filing. It is a decision an experienced bankruptcy lawyer should make. It can be very tricky (as the other blog posted today illustrates), and when the debtor cares a great deal about their assets, it should be done carefully. Sometimes the titles of the exemptions can be misleading because there is a legal definition associated with it that a person who does research more than simply looking at the title of the exemption will not be aware of. Applying exemptions using common everyday interpretations can be mistaken. Use great care when exempting an asset of significant value or one that has sentimental value. If you want professional help with this choice, and other choices one must make before filing a bankruptcy, feel free to give us a call.
The answer is: most likely, but it depends.
This, and other questions a person that is contemplating bankruptcy may have, are very important because of what is at stake -- your assets (at a minimum). To understand the answer to this question, one must understand what is in (legal) operation during a (chapter 7) bankruptcy.
When someone files for (chapter 7) bankruptcy, what is known as a “bankruptcy estate” is created. 11 U.S.C. § 541(a)(1). Basically, it includes everything a debtor has, with some rare exceptions: Best to think of it as including everything. Since (chapter 7) bankruptcy is a liquidation, assets are subject to forfeiture. The reason that most debtors are able to keep their assets is because of exemptions. Rousey v. Jacoway, 544 U.S. 320 (2005).
Exemptions are laws that protect certain assets, or a certain value of some assets, from collection by creditors. In bankruptcy, exemptions protect these assets (or a certain value of an asset) from liquidation by the chapter 7 trustee. States are allowed to choose to allow a debtor living in their state to have the choice of what set of exemptions, known as an “exemption scheme” in the profession. They can allow a debtor to choose between: 1) bankruptcy exemptions; or 2) state and federal non-bankruptcy exemptions. States may also limit their residents to only #2. Massachusetts and Connecticut are states that allow their residents to choose between #1 and #2.
Having the choice of exemption scheme is a great benefit, but making the choice is one of the most significant decisions one must make when filing. It is a decision an experienced bankruptcy lawyer should make. It can be very tricky (as the other blog posted today illustrates), and when the debtor cares a great deal about their assets, it should be done carefully. Sometimes the titles of the exemptions can be misleading because there is a legal definition associated with it that a person who does research more than simply looking at the title of the exemption will not be aware of. Applying exemptions using common everyday interpretations can be mistaken. Use great care when exempting an asset of significant value or one that has sentimental value. If you want professional help with this choice, and other choices one must make before filing a bankruptcy, feel free to give us a call.
Saturday, March 26, 2011
Thursday, March 17, 2011
Debt collectors and payment allocation
17 March 2011
If you are a debtor with multiple debts, chances are you may have one debt collector collecting on a number of them simultaneously. If this is the case, there are some additional considerations that you should bear in mind. There are numerous stories out there where a debtor has negotiated a payment arrangement with respect to debt. The debtor thought (or assumed) that the payments were being applied in a manner that favored them, like paying one debt, maybe with the highest interest rate, first. They later learn the payments are being applied in a manner that is not in their favor.
As the debt collector is collecting on other debts of the debtor as well, the collector will most likely apply an equal portion of the payments received across the board. However, you can avoid this scenario. If you would prefer that one specific debt is paid first, indicate so on your payments. If the debtor designates that the payment is intended for a particular debt, the debt collector must pay that debt with the funds received. See 15 U.S.C 1692h. Keep in mind, getting the agreement in writing is best to avoid any future disagreement.
But, this is only one problem that can arise in this context—there could be more. If you are facing this issue, you should probably seek legal counsel to help guide you through the process. Feel free to give this office a call.
If you are a debtor with multiple debts, chances are you may have one debt collector collecting on a number of them simultaneously. If this is the case, there are some additional considerations that you should bear in mind. There are numerous stories out there where a debtor has negotiated a payment arrangement with respect to debt. The debtor thought (or assumed) that the payments were being applied in a manner that favored them, like paying one debt, maybe with the highest interest rate, first. They later learn the payments are being applied in a manner that is not in their favor.
As the debt collector is collecting on other debts of the debtor as well, the collector will most likely apply an equal portion of the payments received across the board. However, you can avoid this scenario. If you would prefer that one specific debt is paid first, indicate so on your payments. If the debtor designates that the payment is intended for a particular debt, the debt collector must pay that debt with the funds received. See 15 U.S.C 1692h. Keep in mind, getting the agreement in writing is best to avoid any future disagreement.
But, this is only one problem that can arise in this context—there could be more. If you are facing this issue, you should probably seek legal counsel to help guide you through the process. Feel free to give this office a call.
Wednesday, March 2, 2011
Payroll Taxes and the Internal Revenue Service (IRS)
2 March 2010
Business owners who are behind on paying their payroll taxes may find themselves in a big mess. The IRS requires employers to withhold money from their employees’ paychecks that those employees owe or will owe the government in the future. Federal law requires employers to hold these funds in “trust for the United States.” 26 U.S.C. § 7501(a) (West 2011). Should employers fail to pay these trust fund taxes, the government is able to collect the amount due from the officers of the company who are responsible for their collection and payment. In other words, these officers may become personally liable for the unpaid trust fund taxes of the corporation.
An employer may also fall behind on its ordinary corporate income tax or other “non-trust fund” taxes. These taxes are not collectable from individuals, but only from the corporation.
Often when a business owner owes trust fund taxes, their business likely owes ordinary corporate taxes as well. In this case, there may be something the business owner can do to limit his personal liability. IRS policy has long permitted a taxpayer that “voluntarily” submits payment to the IRS to allocate where they would like the payment to go—i.e. to the ordinary corporate income tax debts or to the “trust fund” debt. In re Energy Resources Co., Inc., 871 F.2d 223 (1st Cir. 1989). So an easy way to limit personal liability is to designate any future payment to the IRS specifically for the trust fund taxes. If you don’t, the IRS will choose how it wants to apply the payment.
In closing, it is always best to make your tax payments on time, however, if you do get behind, consider writing directions on your checks to allocate payment to the trust fund portion of your tax debt. However, if a company is facing this issue, it probably needs legal counsel. Feel free to give this office a call.
Business owners who are behind on paying their payroll taxes may find themselves in a big mess. The IRS requires employers to withhold money from their employees’ paychecks that those employees owe or will owe the government in the future. Federal law requires employers to hold these funds in “trust for the United States.” 26 U.S.C. § 7501(a) (West 2011). Should employers fail to pay these trust fund taxes, the government is able to collect the amount due from the officers of the company who are responsible for their collection and payment. In other words, these officers may become personally liable for the unpaid trust fund taxes of the corporation.
An employer may also fall behind on its ordinary corporate income tax or other “non-trust fund” taxes. These taxes are not collectable from individuals, but only from the corporation.
Often when a business owner owes trust fund taxes, their business likely owes ordinary corporate taxes as well. In this case, there may be something the business owner can do to limit his personal liability. IRS policy has long permitted a taxpayer that “voluntarily” submits payment to the IRS to allocate where they would like the payment to go—i.e. to the ordinary corporate income tax debts or to the “trust fund” debt. In re Energy Resources Co., Inc., 871 F.2d 223 (1st Cir. 1989). So an easy way to limit personal liability is to designate any future payment to the IRS specifically for the trust fund taxes. If you don’t, the IRS will choose how it wants to apply the payment.
In closing, it is always best to make your tax payments on time, however, if you do get behind, consider writing directions on your checks to allocate payment to the trust fund portion of your tax debt. However, if a company is facing this issue, it probably needs legal counsel. Feel free to give this office a call.
Thursday, January 27, 2011
Massachusetts foreclosure defense; what has Massachusetts done to help homeowners avoid foreclosure?
3 January 2011
States across the country have passed various laws to aid their residential homeowners to face the foreclosure crisis that has been sweeping the country. Massachusetts has passes two different Acts, the second largely building on the provisions of the first, directly aimed at helping Massachusetts homeowners keep their homes and avoid foreclosure. The first was “An Act to Preserve and Protect Home Ownership”, which applied to foreclosures initiated on or after May 1, 2008. It was designed to help financially distressed homeowners with foreclosure relief. Its most important component was a “right to cure,” which provided homeowners a period of time to pay a mortgage arrearage/delinquency and avoid entering the usual foreclosure process in Massachusetts. Massachusetts then went further to protect homeowners. Massachusetts enacted "An Act to Stabilize Neighborhoods Through the Protection of Tenants of Foreclosed Properties" which in pertinent part became effective August 7, 2010. It extended the right to cure established by the prior law to 150 days, unless the foreclosing entity took certain steps, including “engag[ing] in a good faith effort to negotiate a commercially reasonable alternative to foreclosure.” If the lender complies and the negotiations do not work, it can start the usual foreclosure process earlier than the 150 days, but no less than the 90 days established by the first Act.
The aim of these Massachusetts laws is clear; get the lenders to the bargaining table. This is necessary because sources report that the federal programs, such as the (Obama’s) Home Affordable Modification Program (HAMP), have not worked as expected and widespread foreclosures are expected to continue for many months to come.
Keep in mind, this posting only briefly discusses one part, albeit an important part, of these Massachusetts foreclosure laws, so there may be other parts that could help you. With so much as stake, it is advisable to consult with an attorney to learn how these laws, and other foreclosure defense related laws, could help you.
States across the country have passed various laws to aid their residential homeowners to face the foreclosure crisis that has been sweeping the country. Massachusetts has passes two different Acts, the second largely building on the provisions of the first, directly aimed at helping Massachusetts homeowners keep their homes and avoid foreclosure. The first was “An Act to Preserve and Protect Home Ownership”, which applied to foreclosures initiated on or after May 1, 2008. It was designed to help financially distressed homeowners with foreclosure relief. Its most important component was a “right to cure,” which provided homeowners a period of time to pay a mortgage arrearage/delinquency and avoid entering the usual foreclosure process in Massachusetts. Massachusetts then went further to protect homeowners. Massachusetts enacted "An Act to Stabilize Neighborhoods Through the Protection of Tenants of Foreclosed Properties" which in pertinent part became effective August 7, 2010. It extended the right to cure established by the prior law to 150 days, unless the foreclosing entity took certain steps, including “engag[ing] in a good faith effort to negotiate a commercially reasonable alternative to foreclosure.” If the lender complies and the negotiations do not work, it can start the usual foreclosure process earlier than the 150 days, but no less than the 90 days established by the first Act.
The aim of these Massachusetts laws is clear; get the lenders to the bargaining table. This is necessary because sources report that the federal programs, such as the (Obama’s) Home Affordable Modification Program (HAMP), have not worked as expected and widespread foreclosures are expected to continue for many months to come.
Keep in mind, this posting only briefly discusses one part, albeit an important part, of these Massachusetts foreclosure laws, so there may be other parts that could help you. With so much as stake, it is advisable to consult with an attorney to learn how these laws, and other foreclosure defense related laws, could help you.
Cash advances and bankruptcy, do they mix?
1 January 2011
Cash advances prior to bankruptcy are common, but do raise some concerns that should be addressed by a professional to assess the risk of bad results in a potential bankruptcy prior to filing. If the cash advances were recently taken, or as bankruptcy practitioners may describe as “on the eve of bankruptcy,” there are a number of sections of the bankruptcy code that may apply to the circumstances.
At least one section that may apply and to watch out for is 523(a)(2)(C)(i)(II). It states “cash advances aggregating more than $875.00 . . . on or within 70 days of the [the bankruptcy filing date] are presumed to be nondischargeable . . . .” “What does this mean,” one might ask. Well, as I also state in my last posting, it doesn’t automatically mean the cash advances are not eliminated (nondischargeable). The creditor (or the bankruptcy trustee assigned to your case) needs to take affirmative action. If the creditor (or trustee) does not take appropriate action to begin with, as long as your listed the debt on your petition properly, the debt should be discharged. But a creditor (or trustee) can file an adversary proceeding, which is essentially a law suit related to a bankruptcy case, to determine if the cash advances can be eliminated (discharged) or not.
An adversary proceeding is separate from the bankruptcy case itself. Normally, you will need to secure legal representation to defend an adversary proceeding separately. This is because even if you have a lawyer representing you in the bankruptcy, the agreement with that bankruptcy lawyer typically does not include representation in an adversary proceeding.
The tough part with section 523(a)(2)(C)(i)(II) is that it provides a presumption that the debt cannot be eliminated, which gives your opponent an advantage. There is a dispute in the law as to the extent of the presumption, but nonetheless, it is an uphill battle for the debtor. In re Ritter, 404 B.R. 811, 822 (Bankr. E.D. Penn. 2009).
“But I didn’t take cash advances, I just used convenience checks provided by my credit card company to draw cash” you might say. “Convenience checks” to draw cash from a credit card account is likely to be considered a cash advance per the bankruptcy code. In re Ritter, 404 B.R. at 827 fn.17.
As stated, this is just one of the many sections of the bankruptcy code (and concerns) that arise when cash advances have occurred prior to contemplating bankruptcy. It pays to consult with an experienced bankruptcy practitioner to review the issues and assess the risk prior to filing.
Cash advances prior to bankruptcy are common, but do raise some concerns that should be addressed by a professional to assess the risk of bad results in a potential bankruptcy prior to filing. If the cash advances were recently taken, or as bankruptcy practitioners may describe as “on the eve of bankruptcy,” there are a number of sections of the bankruptcy code that may apply to the circumstances.
At least one section that may apply and to watch out for is 523(a)(2)(C)(i)(II). It states “cash advances aggregating more than $875.00 . . . on or within 70 days of the [the bankruptcy filing date] are presumed to be nondischargeable . . . .” “What does this mean,” one might ask. Well, as I also state in my last posting, it doesn’t automatically mean the cash advances are not eliminated (nondischargeable). The creditor (or the bankruptcy trustee assigned to your case) needs to take affirmative action. If the creditor (or trustee) does not take appropriate action to begin with, as long as your listed the debt on your petition properly, the debt should be discharged. But a creditor (or trustee) can file an adversary proceeding, which is essentially a law suit related to a bankruptcy case, to determine if the cash advances can be eliminated (discharged) or not.
An adversary proceeding is separate from the bankruptcy case itself. Normally, you will need to secure legal representation to defend an adversary proceeding separately. This is because even if you have a lawyer representing you in the bankruptcy, the agreement with that bankruptcy lawyer typically does not include representation in an adversary proceeding.
The tough part with section 523(a)(2)(C)(i)(II) is that it provides a presumption that the debt cannot be eliminated, which gives your opponent an advantage. There is a dispute in the law as to the extent of the presumption, but nonetheless, it is an uphill battle for the debtor. In re Ritter, 404 B.R. 811, 822 (Bankr. E.D. Penn. 2009).
“But I didn’t take cash advances, I just used convenience checks provided by my credit card company to draw cash” you might say. “Convenience checks” to draw cash from a credit card account is likely to be considered a cash advance per the bankruptcy code. In re Ritter, 404 B.R. at 827 fn.17.
As stated, this is just one of the many sections of the bankruptcy code (and concerns) that arise when cash advances have occurred prior to contemplating bankruptcy. It pays to consult with an experienced bankruptcy practitioner to review the issues and assess the risk prior to filing.
Can I eliminate debt recently incurred from gambling by filing chapter 7 bankruptcy?
29 December 2010
Generally, debt that arises from gambling is not per se treated any differently under the bankruptcy code than any other unsecured debt. But if you have recently incurred gambling debt, it depends. Some initial questions: How recent was the debt incurred? How much is the debt? What were the circumstances? How long had any credit account at issue been open? These questions are likely to be raised, if not by your attorney during your pre-filing consultation(s), then at the meeting of creditors by the trustee that will be assigned to your case. This is in part because there is a question on what is called the “Statement of Financial Affairs,” which is a required part of the bankruptcy paperwork, that specifically probes losses from gambling.
There are a number of sections under the bankruptcy code that may apply to gambling debt and are important to consider. One such section is §523(a)(2)(C)(i)(I) which states in pertinent part “consumer debts owed to a single creditor and aggregating more than $600 for ‘luxury goods or services’ incurred . . . 90 days before [the bankruptcy filing date] are presumed to be nondischargeable . . . .” Debts, such as cash advances, for the purpose of gambling can be found to be “luxury goods or services” because they arguably are not “goods and services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.” If the creditor does not take appropriate action to begin with, as long as your listed the debt on your petition properly, it should be discharged. But a creditor can file an adversary proceeding, which is essentially a law suit related to a bankruptcy case, to determine if the debt at issue (as defined generally above) can be discharged (eliminated) or not. Although related, an adversary proceeding is separate from the bankruptcy case itself. Normally, you will need to secure legal representation to defend an adversary proceeding separately. This is because even if you have a lawyer representing you in the bankruptcy, the agreement with that bankruptcy lawyer typically does not include representation in an adversary proceeding.
If an adversary proceeding is filed, there is still hope. Although you face the presumption the debt cannot be discharged (eliminated) the presumption is rebuttable. There are a number of unresolved legal questions on this subject regarding the extent of the presumption and how it applies. In re Ritter, 404 B.R. 811, 822 (Bankr. E.D. Penn. 2009). Thus, an experienced bankruptcy attorney is needed for this type of litigation. The determination is fact intensive and made case-by-case, so a trial in the bankruptcy court is typically necessary to resolve unless the matter is settled. The trial is likely to focus mainly on what your intent was at the time you obtained the ‘luxury goods or services’ at issue. You can count on a thorough examination of your financial affairs.
As stated, this is just one of the many sections of the bankruptcy code (and concerns) that arise when gambling has occurred prior to contemplating bankruptcy. Don’t go it alone, get counsel on your side.
If you are considering filing bankruptcy and are concerned about recent gambling debt, feel free to give us a call.
Generally, debt that arises from gambling is not per se treated any differently under the bankruptcy code than any other unsecured debt. But if you have recently incurred gambling debt, it depends. Some initial questions: How recent was the debt incurred? How much is the debt? What were the circumstances? How long had any credit account at issue been open? These questions are likely to be raised, if not by your attorney during your pre-filing consultation(s), then at the meeting of creditors by the trustee that will be assigned to your case. This is in part because there is a question on what is called the “Statement of Financial Affairs,” which is a required part of the bankruptcy paperwork, that specifically probes losses from gambling.
There are a number of sections under the bankruptcy code that may apply to gambling debt and are important to consider. One such section is §523(a)(2)(C)(i)(I) which states in pertinent part “consumer debts owed to a single creditor and aggregating more than $600 for ‘luxury goods or services’ incurred . . . 90 days before [the bankruptcy filing date] are presumed to be nondischargeable . . . .” Debts, such as cash advances, for the purpose of gambling can be found to be “luxury goods or services” because they arguably are not “goods and services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.” If the creditor does not take appropriate action to begin with, as long as your listed the debt on your petition properly, it should be discharged. But a creditor can file an adversary proceeding, which is essentially a law suit related to a bankruptcy case, to determine if the debt at issue (as defined generally above) can be discharged (eliminated) or not. Although related, an adversary proceeding is separate from the bankruptcy case itself. Normally, you will need to secure legal representation to defend an adversary proceeding separately. This is because even if you have a lawyer representing you in the bankruptcy, the agreement with that bankruptcy lawyer typically does not include representation in an adversary proceeding.
If an adversary proceeding is filed, there is still hope. Although you face the presumption the debt cannot be discharged (eliminated) the presumption is rebuttable. There are a number of unresolved legal questions on this subject regarding the extent of the presumption and how it applies. In re Ritter, 404 B.R. 811, 822 (Bankr. E.D. Penn. 2009). Thus, an experienced bankruptcy attorney is needed for this type of litigation. The determination is fact intensive and made case-by-case, so a trial in the bankruptcy court is typically necessary to resolve unless the matter is settled. The trial is likely to focus mainly on what your intent was at the time you obtained the ‘luxury goods or services’ at issue. You can count on a thorough examination of your financial affairs.
As stated, this is just one of the many sections of the bankruptcy code (and concerns) that arise when gambling has occurred prior to contemplating bankruptcy. Don’t go it alone, get counsel on your side.
If you are considering filing bankruptcy and are concerned about recent gambling debt, feel free to give us a call.
Criminal trespass in Massachusetts exists under more than one Massachusetts statute.
20 December 2010
We have blogged about what would be referred to as the “general” criminal trespass statute, but there is one specifically addressing those “willfully and maliciously” entering a garden or the like, and destroying or stealing. It can be found in section 115 of chapter 266 of the Massachusetts General Laws; the general criminal trespass statute in Massachusetts can be found at section 120 of chapter 266.
The law found in section 115 has distinct differences to the general criminal trespass statute. It has an enhanced penalty compared to the general criminal trespass statute. Instead of a maximum fine of $100 and/or 30 days in jail found in the general criminal trespass statute, this section allows a judge to sentence a convicted defendant up to $500 or six months in jail. Another key difference is that it does not require a notice element like the general statute, which many times takes the form of a letter that can be referred to by police as a “No trespass notice (or letter)” or sometimes by lawyers as a “Letter of Disinvite.” Next are the elements of “willful and malicious.” “Willful and malicious” are terms used in other Massachusetts statutes and have long-established legal definitions that to explain properly would exceed the scope of this blog, but suffice to say, use your common sense. Don’t assume because you think that it is clear that you were acting with a pure heart because you were simply picking some roses for your friend; someone else may not see it that way. The last difference is obvious and is the subject matter. Instead of the (arguably) simple and broad definition for the physical land or space contained in the general criminal trespass statute in Massachusetts, with this statute you must enter an “orchard, nursery, garden, or cranberry meadow.” And mutilate or destroy a “tree, shrub, or vine,” or steal or take and carry away “any fruit or flower.” These terms may not enjoy long-established legal definitions in Massachusetts law, but just the same, it is best not to test their definition in court. But if this blog has not found you before an incident has occurred, you may have to.
If you want to know more about the criminal trespass statutes in Massachusetts or just received a No trespass notice/letter (of Letter of disinvite) or are thinking about sending one, feel free to contact us.
We have blogged about what would be referred to as the “general” criminal trespass statute, but there is one specifically addressing those “willfully and maliciously” entering a garden or the like, and destroying or stealing. It can be found in section 115 of chapter 266 of the Massachusetts General Laws; the general criminal trespass statute in Massachusetts can be found at section 120 of chapter 266.
The law found in section 115 has distinct differences to the general criminal trespass statute. It has an enhanced penalty compared to the general criminal trespass statute. Instead of a maximum fine of $100 and/or 30 days in jail found in the general criminal trespass statute, this section allows a judge to sentence a convicted defendant up to $500 or six months in jail. Another key difference is that it does not require a notice element like the general statute, which many times takes the form of a letter that can be referred to by police as a “No trespass notice (or letter)” or sometimes by lawyers as a “Letter of Disinvite.” Next are the elements of “willful and malicious.” “Willful and malicious” are terms used in other Massachusetts statutes and have long-established legal definitions that to explain properly would exceed the scope of this blog, but suffice to say, use your common sense. Don’t assume because you think that it is clear that you were acting with a pure heart because you were simply picking some roses for your friend; someone else may not see it that way. The last difference is obvious and is the subject matter. Instead of the (arguably) simple and broad definition for the physical land or space contained in the general criminal trespass statute in Massachusetts, with this statute you must enter an “orchard, nursery, garden, or cranberry meadow.” And mutilate or destroy a “tree, shrub, or vine,” or steal or take and carry away “any fruit or flower.” These terms may not enjoy long-established legal definitions in Massachusetts law, but just the same, it is best not to test their definition in court. But if this blog has not found you before an incident has occurred, you may have to.
If you want to know more about the criminal trespass statutes in Massachusetts or just received a No trespass notice/letter (of Letter of disinvite) or are thinking about sending one, feel free to contact us.
I was sued by a bankruptcy trustee for a preference, what is a preference and what should I do?
14 December 2010
It can be quite confusing when receiving a letter from a bankruptcy trustee demanding money from you. This is especially true when you simply received payment for a debt that was owed to you. You may wonder, is something wrong with getting paid for a legitimate debt? Understand that, although usually when someone is demanding you pay them money under the threat of legal action there is some allegation of wrongdoing, in this case there is none. But, you may still have to pay the money back — read on.
A preference under bankruptcy law is a power given to a bankruptcy trustee to “avoid” a transfer of an interest of a debtor that has filed bankruptcy that the debtor has recently given to a creditor. 11 U.S.C. § 547(b). Yes, even regular people and small businesses are creditors if they are owed a debt. A creditor does not need to be a big company.
The general rule is that if a debtor that was insolvent pays a creditor over $600.00 (total of all payments) during the 90 days prior to the bankruptcy filing date for a prior debt that enables the creditor to make more than they would in the bankruptcy (through distributions of the debtor’s property in bankruptcy) then the amount paid by the debtor must be theoretically returned. In this case, returned to the trustee administering the debtor’s bankruptcy case. The bankruptcy trustee then distributes the funds according to a hierarchy of claims. The “look-back” period if you will, is longer (one year) for people who could be deemed an “insider.” Generally, these are people that are close to the debtor.
The idea is that debtors should not be able to “prefer” certain creditors over others by choosing to pay a creditor they prefer on the eve of bankruptcy and enter bankruptcy without those funds that would have been distributed to all the debtor’s creditors. This supports the idea of fair distribution of assets among creditors of the same class and is one of the two main policy goals of the bankruptcy system; the other more well known policy goal being the debtor’s “fresh start.”
What to do? Hire bankruptcy counsel to evaluate the allegation and to inform you how the law applies to your specific facts. (This is not a do-it-yourself task.) Do not bother with your family attorney, this is specialized subject matter and only an attorney well-versed and competent in bankruptcy matters is appropriate. Bankruptcy counsel can evaluate the strength of the allegation and also determine if you have any pertinent defenses. Unfortunately, you are the victim of your good fortune of getting paid; however, even if the payment fits the elements of the allegation, there still may be hope. There are defenses to the allegations that are listed in the code that may apply. In addition, bankruptcy counsel can negotiate with the bankruptcy trustee with more credibility.
If you have received a demand from a trustee or are considering bankruptcy and are concerned your filing may stimulate such demands from others, feel free to contact us.
It can be quite confusing when receiving a letter from a bankruptcy trustee demanding money from you. This is especially true when you simply received payment for a debt that was owed to you. You may wonder, is something wrong with getting paid for a legitimate debt? Understand that, although usually when someone is demanding you pay them money under the threat of legal action there is some allegation of wrongdoing, in this case there is none. But, you may still have to pay the money back — read on.
A preference under bankruptcy law is a power given to a bankruptcy trustee to “avoid” a transfer of an interest of a debtor that has filed bankruptcy that the debtor has recently given to a creditor. 11 U.S.C. § 547(b). Yes, even regular people and small businesses are creditors if they are owed a debt. A creditor does not need to be a big company.
The general rule is that if a debtor that was insolvent pays a creditor over $600.00 (total of all payments) during the 90 days prior to the bankruptcy filing date for a prior debt that enables the creditor to make more than they would in the bankruptcy (through distributions of the debtor’s property in bankruptcy) then the amount paid by the debtor must be theoretically returned. In this case, returned to the trustee administering the debtor’s bankruptcy case. The bankruptcy trustee then distributes the funds according to a hierarchy of claims. The “look-back” period if you will, is longer (one year) for people who could be deemed an “insider.” Generally, these are people that are close to the debtor.
The idea is that debtors should not be able to “prefer” certain creditors over others by choosing to pay a creditor they prefer on the eve of bankruptcy and enter bankruptcy without those funds that would have been distributed to all the debtor’s creditors. This supports the idea of fair distribution of assets among creditors of the same class and is one of the two main policy goals of the bankruptcy system; the other more well known policy goal being the debtor’s “fresh start.”
What to do? Hire bankruptcy counsel to evaluate the allegation and to inform you how the law applies to your specific facts. (This is not a do-it-yourself task.) Do not bother with your family attorney, this is specialized subject matter and only an attorney well-versed and competent in bankruptcy matters is appropriate. Bankruptcy counsel can evaluate the strength of the allegation and also determine if you have any pertinent defenses. Unfortunately, you are the victim of your good fortune of getting paid; however, even if the payment fits the elements of the allegation, there still may be hope. There are defenses to the allegations that are listed in the code that may apply. In addition, bankruptcy counsel can negotiate with the bankruptcy trustee with more credibility.
If you have received a demand from a trustee or are considering bankruptcy and are concerned your filing may stimulate such demands from others, feel free to contact us.
Chapter 7 Bankruptcy & Utility Bills—What Happens?
13 October 2010
Utility bills, in one way, are just like any other unsecured debt—they are discharged in a successful chapter 7 bankruptcy. So, relief from the outstanding amount at the time of filing for bankruptcy can occur. But that is where the similarity to other unsecured debts ends. 11 U.S.C. § 366. Usually, a creditor has the right to stop extending credit to someone who has filed bankruptcy. One significant difference in how utilities are treated is that they have to continue to provide service after the bankruptcy is filed. However there is a catch. Utility companies have the right to demand “adequate protection” within 20 days of the date of the bankruptcy filing. This can take many forms, including: a cash deposit, letter of credit, certificate of deposit, surety bond, prepayment, or what is agreed upon between the parties. The bankruptcy code does not limit the amount the utility can ask for. If a utility does ask for what a debtor believes is too high a deposit, he can request that the court modify the amount required. The bankruptcy court will determine what is reasonable under the circumstances, and ultimately has the final say. In determining “a reasonable modification” to the utilities’ demand, Bankruptcy courts have typically followed what state regulations allow.
The other major difference is that the utility does not need “relief from the automatic stay” (permission from the bankruptcy court) before terminating service after the petition is filed for failure to pay what is due after the bankruptcy. The utility would still have to satisfy state law however, and state law typically provides significant regulation on the subject.
If you are a potential debtor, before becoming concerned that after bankruptcy you will be required to provide a significant deposit to your utilities, the practical world needs to be considered. It is quite rare in this area for a utility to request a deposit. It is quite unlikely to occur in Massachusetts. We surmise that this is because Massachusetts law does not allow a utility company to require a deposit before providing service, or require an advanced deposit to restore service after it was terminated. 220 CMR 25.00 et seq. (Commercial owners and commercial tenants are a different story. 220 CMR 26.00 et seq.) So, in all likelihood, the amount owed prior to filing will be discharged, the utility company will reset the account as if a new account started the day of the bankruptcy filing, and you will simply have to pay for service going forward. Bankruptcy will most likely have little to no effect on how a utility will operate after the bankruptcy is filed. However, if you have any questions on how the law applies to a particular situation, as there can be facts that could complicate the matter, it is wise to seek competent legal advice. Please feel free to give this office a call.
Utility bills, in one way, are just like any other unsecured debt—they are discharged in a successful chapter 7 bankruptcy. So, relief from the outstanding amount at the time of filing for bankruptcy can occur. But that is where the similarity to other unsecured debts ends. 11 U.S.C. § 366. Usually, a creditor has the right to stop extending credit to someone who has filed bankruptcy. One significant difference in how utilities are treated is that they have to continue to provide service after the bankruptcy is filed. However there is a catch. Utility companies have the right to demand “adequate protection” within 20 days of the date of the bankruptcy filing. This can take many forms, including: a cash deposit, letter of credit, certificate of deposit, surety bond, prepayment, or what is agreed upon between the parties. The bankruptcy code does not limit the amount the utility can ask for. If a utility does ask for what a debtor believes is too high a deposit, he can request that the court modify the amount required. The bankruptcy court will determine what is reasonable under the circumstances, and ultimately has the final say. In determining “a reasonable modification” to the utilities’ demand, Bankruptcy courts have typically followed what state regulations allow.
The other major difference is that the utility does not need “relief from the automatic stay” (permission from the bankruptcy court) before terminating service after the petition is filed for failure to pay what is due after the bankruptcy. The utility would still have to satisfy state law however, and state law typically provides significant regulation on the subject.
If you are a potential debtor, before becoming concerned that after bankruptcy you will be required to provide a significant deposit to your utilities, the practical world needs to be considered. It is quite rare in this area for a utility to request a deposit. It is quite unlikely to occur in Massachusetts. We surmise that this is because Massachusetts law does not allow a utility company to require a deposit before providing service, or require an advanced deposit to restore service after it was terminated. 220 CMR 25.00 et seq. (Commercial owners and commercial tenants are a different story. 220 CMR 26.00 et seq.) So, in all likelihood, the amount owed prior to filing will be discharged, the utility company will reset the account as if a new account started the day of the bankruptcy filing, and you will simply have to pay for service going forward. Bankruptcy will most likely have little to no effect on how a utility will operate after the bankruptcy is filed. However, if you have any questions on how the law applies to a particular situation, as there can be facts that could complicate the matter, it is wise to seek competent legal advice. Please feel free to give this office a call.
Someone stole my identity . . . what do I do?
30 August 2010
There are many different types of identity theft. Identity theft can be an unauthorized use of an existing account, or alternatively it can be the creation and subsequent use of a new account or accounts. The first step in most circumstances remains the same—it is best to place a temporary fraud alert on your credit reports. But there is an important pause to take next.
Sometimes, the nature of the theft could indicate that it is someone you know who has stolen your identity. If this may be the case, you need to think real hard about whether this is true before doing anything else. Many times it is not just someone you know, but a family member or friend. These are the people that are close to you and usually have easy access to your personal information; even more helpful to the thief, they are close enough to “watch” you, in a sense, and are able to keep you in the dark while the damage is being done. These people can feel comfortable impersonating you, because they are able to provide extra information about you if questioned. It could almost feel to them like they are telling the truth.
So, the second step is to think of the people who had access to your personal information, and take steps to learn whether any of them are the thief. If you are resourceful, you may be able to find out without them knowing that you suspect them. You may have to tip them off and tell them your identity has been stolen and ask them if they know anything about it, or more boldly ask them if they did it. You are in the best position to know how to approach this.
If you discover it is a family member or friend, we suggest that you next get counsel from an attorney with experience in remedying identity theft. Learning the law and how society treats the issue will help you understand the ramifications of the decision of whether to turn them in. In our experience, victims are so mad they would turn their own mother in (and sometimes do). But, there are others who are reluctant to take such action. Some so much so that they pay substantial debt that is not even theirs just to make it all go away. But by obtaining counsel you will be in the best position to learn the way the law and our society treats identity theft before taking either of these actions.
Most people want the false information removed from their credit report. Most also do not want to pay the debt that arose from the theft. As the law is a bit tricky in this area, we suggest that you talk to one of the very, very few attorneys that actually know something about how to remedy identity theft before taking action, and quickly. Our office may be able to help, give us a call.
If you believe that the thief is not someone you know, then you will need to decide whether the problem is minor enough that you can remedy it in a few hours by simply using your common sense, or a serious enough problem that may merit some professional help. If you believe it is the later, give us a call.
There are many different types of identity theft. Identity theft can be an unauthorized use of an existing account, or alternatively it can be the creation and subsequent use of a new account or accounts. The first step in most circumstances remains the same—it is best to place a temporary fraud alert on your credit reports. But there is an important pause to take next.
Sometimes, the nature of the theft could indicate that it is someone you know who has stolen your identity. If this may be the case, you need to think real hard about whether this is true before doing anything else. Many times it is not just someone you know, but a family member or friend. These are the people that are close to you and usually have easy access to your personal information; even more helpful to the thief, they are close enough to “watch” you, in a sense, and are able to keep you in the dark while the damage is being done. These people can feel comfortable impersonating you, because they are able to provide extra information about you if questioned. It could almost feel to them like they are telling the truth.
So, the second step is to think of the people who had access to your personal information, and take steps to learn whether any of them are the thief. If you are resourceful, you may be able to find out without them knowing that you suspect them. You may have to tip them off and tell them your identity has been stolen and ask them if they know anything about it, or more boldly ask them if they did it. You are in the best position to know how to approach this.
If you discover it is a family member or friend, we suggest that you next get counsel from an attorney with experience in remedying identity theft. Learning the law and how society treats the issue will help you understand the ramifications of the decision of whether to turn them in. In our experience, victims are so mad they would turn their own mother in (and sometimes do). But, there are others who are reluctant to take such action. Some so much so that they pay substantial debt that is not even theirs just to make it all go away. But by obtaining counsel you will be in the best position to learn the way the law and our society treats identity theft before taking either of these actions.
Most people want the false information removed from their credit report. Most also do not want to pay the debt that arose from the theft. As the law is a bit tricky in this area, we suggest that you talk to one of the very, very few attorneys that actually know something about how to remedy identity theft before taking action, and quickly. Our office may be able to help, give us a call.
If you believe that the thief is not someone you know, then you will need to decide whether the problem is minor enough that you can remedy it in a few hours by simply using your common sense, or a serious enough problem that may merit some professional help. If you believe it is the later, give us a call.
Tuesday, January 25, 2011
Reaffirming debts in bankruptcy.
23 August 2010
Bankruptcy (generally) allows a debtor to eliminate his personal responsibility for a debt. This is why most people file for bankruptcy. Reaffirming a debt is making a new agreement to pay the debt in spite of the bankruptcy. It is giving up the right a debtor has to eliminate the personal liability with respect to the debt.
Why would someone reaffirm a debt?
Good question. Well, it is usually done, sometimes mistakenly, in order to retain the property that the debt is secured by. (I say mistakenly because usually, or almost always, the debtor would be able to keep the property anyway—more on that in future posts.) Contrary to what you may think, typically a debtor is the one who wants to reaffirm, and their lawyer is advising them not to. The debtor is usually not as objective, and has some personal or emotional desire to retain the property (house, car, etc.) that is not held by the lawyer.
Why not just let the debtor do what they want?
The societal benefit to bankruptcy is to allow a debtor a “fresh start” by freeing them of their debts to become a more profitable, more beneficial economic unit. It also relieves much of the debtor’s stress that comes from a heavy debt load. Reaffirmation cuts against the purpose or benefit to society, and is why the decision to reaffirm is, in a sense, regulated, if you will. 11 U.S.C. § 524(c).
If a party is without counsel, they must attend a hearing and have the court approve the proposed agreement. If a party is with counsel, the attorney is asked to declare that the agreement:
1) Represents a fully informed and voluntary agreement by the debtor;
2) Does not impose an undue hardship . . .
3) He fully advised the debtor of the legal effect and consequences of –
A) [the agreement]
B) Any default under [the] agreement.
Sometimes an attorney refuses to make the certification. Sometimes a presumption arises that the debtor cannot afford to pay the debt when he completes the forms. In these cases, then there will likely be a court hearing, even if a party is represented by counsel. And the court could have a hearing on the matter even without these circumstances.
With or without counsel, there are certain forms that must be used and there are disclosures the debtor must have received. In Massachusetts, there are local procedural rules that apply too. MLBR 4008-1.
Bankruptcy (generally) allows a debtor to eliminate his personal responsibility for a debt. This is why most people file for bankruptcy. Reaffirming a debt is making a new agreement to pay the debt in spite of the bankruptcy. It is giving up the right a debtor has to eliminate the personal liability with respect to the debt.
Why would someone reaffirm a debt?
Good question. Well, it is usually done, sometimes mistakenly, in order to retain the property that the debt is secured by. (I say mistakenly because usually, or almost always, the debtor would be able to keep the property anyway—more on that in future posts.) Contrary to what you may think, typically a debtor is the one who wants to reaffirm, and their lawyer is advising them not to. The debtor is usually not as objective, and has some personal or emotional desire to retain the property (house, car, etc.) that is not held by the lawyer.
Why not just let the debtor do what they want?
The societal benefit to bankruptcy is to allow a debtor a “fresh start” by freeing them of their debts to become a more profitable, more beneficial economic unit. It also relieves much of the debtor’s stress that comes from a heavy debt load. Reaffirmation cuts against the purpose or benefit to society, and is why the decision to reaffirm is, in a sense, regulated, if you will. 11 U.S.C. § 524(c).
If a party is without counsel, they must attend a hearing and have the court approve the proposed agreement. If a party is with counsel, the attorney is asked to declare that the agreement:
1) Represents a fully informed and voluntary agreement by the debtor;
2) Does not impose an undue hardship . . .
3) He fully advised the debtor of the legal effect and consequences of –
A) [the agreement]
B) Any default under [the] agreement.
Sometimes an attorney refuses to make the certification. Sometimes a presumption arises that the debtor cannot afford to pay the debt when he completes the forms. In these cases, then there will likely be a court hearing, even if a party is represented by counsel. And the court could have a hearing on the matter even without these circumstances.
With or without counsel, there are certain forms that must be used and there are disclosures the debtor must have received. In Massachusetts, there are local procedural rules that apply too. MLBR 4008-1.
Want to hire a cheap lawyer, watch out!
23 August 2010
Frequently my office receives calls from people saying they are contacting all the bankruptcy lawyers listed in the phone book and inquiring:
“How much do you charge for a bankruptcy?”
The caller fails to realize that there are different chapters to file under, which are very different, including different amounts of time and cost involved. In my opinion, advising what chapter to chose is very important. See e.g. In re Buck, 2010 WL 274621(Bankr. D. Mass. July 9, 2010) (Bankruptcy judge discusses chapter selection and related issues). What the caller also fails to realize is that bankruptcies are all different, and can be quite complicated. A caller may think their case is “simple” and providing a quote should be easy. But a proper analysis for possible bankruptcy issues needs to be done before one could say that with confidence.
So, I cannot provide a quote until an initial analysis is invoked. What I fear is that these people who are shopping for an attorney, apparently based on price, end up hiring the lawyer that quotes the cheapest price. (My office prices cases on the low side when comparing apples to apples, but we are unlikely to be the cheapest among many quotes.) What they don’t know is that it is likely the cheapest lawyer will in all likelihood not include certain services that the client may need to maximize the benefit of their potential bankruptcy. For example, in a chapter 13 plan, or if there are assets to distribute in a chapter 7, there can be a real benefit for the debtor to file a claim in his own case on behalf of a creditor when the creditor fails to do so itself. Why would a debtor want to do this?
Some debts remain after bankruptcy, either because they are not dischargeable, or for other reasons. Making sure these debts are paid, in any amount, even a small amount, will benefit the debtor going forward. It would surprise you just how often creditors don’t make claims, and this added service is necessary to ensure the debtor gets the most from his bankruptcy. Some creditors simply don’t pay enough attention. See e.g. United Student Aid Funds, Inc. v. Espinosa, 130 S. Ct. 1367, 1374 (2010) (creditor failing to object in timely manner to chapter 13 plan results in discharge of interest on the debt). So, it pays to ensure that claims are filed for certain debts in these situations.
The bargain priced lawyer is unlikely to catch this issue, let alone even be thinking about it; (it will not make the checklist). It is a service that is not required. It is just one of the many issues that are likely to not be addressed in a bankruptcy if a potential debtor chooses a lawyer based primarily on price. The sad truth is, in all likelihood, the debtor who chooses the cheapest priced lawyer, will never know they did not maximize the benefit of their bankruptcy when certain tasks are not performed.
Frequently my office receives calls from people saying they are contacting all the bankruptcy lawyers listed in the phone book and inquiring:
“How much do you charge for a bankruptcy?”
The caller fails to realize that there are different chapters to file under, which are very different, including different amounts of time and cost involved. In my opinion, advising what chapter to chose is very important. See e.g. In re Buck, 2010 WL 274621(Bankr. D. Mass. July 9, 2010) (Bankruptcy judge discusses chapter selection and related issues). What the caller also fails to realize is that bankruptcies are all different, and can be quite complicated. A caller may think their case is “simple” and providing a quote should be easy. But a proper analysis for possible bankruptcy issues needs to be done before one could say that with confidence.
So, I cannot provide a quote until an initial analysis is invoked. What I fear is that these people who are shopping for an attorney, apparently based on price, end up hiring the lawyer that quotes the cheapest price. (My office prices cases on the low side when comparing apples to apples, but we are unlikely to be the cheapest among many quotes.) What they don’t know is that it is likely the cheapest lawyer will in all likelihood not include certain services that the client may need to maximize the benefit of their potential bankruptcy. For example, in a chapter 13 plan, or if there are assets to distribute in a chapter 7, there can be a real benefit for the debtor to file a claim in his own case on behalf of a creditor when the creditor fails to do so itself. Why would a debtor want to do this?
Some debts remain after bankruptcy, either because they are not dischargeable, or for other reasons. Making sure these debts are paid, in any amount, even a small amount, will benefit the debtor going forward. It would surprise you just how often creditors don’t make claims, and this added service is necessary to ensure the debtor gets the most from his bankruptcy. Some creditors simply don’t pay enough attention. See e.g. United Student Aid Funds, Inc. v. Espinosa, 130 S. Ct. 1367, 1374 (2010) (creditor failing to object in timely manner to chapter 13 plan results in discharge of interest on the debt). So, it pays to ensure that claims are filed for certain debts in these situations.
The bargain priced lawyer is unlikely to catch this issue, let alone even be thinking about it; (it will not make the checklist). It is a service that is not required. It is just one of the many issues that are likely to not be addressed in a bankruptcy if a potential debtor chooses a lawyer based primarily on price. The sad truth is, in all likelihood, the debtor who chooses the cheapest priced lawyer, will never know they did not maximize the benefit of their bankruptcy when certain tasks are not performed.
What happens if I don’t pay my condo fees in Massachusetts?
30 June 2010
There is a reason why condo associations are aggressive in the collection of condo fees. Let me introduce you to the Massachusetts condominium “super-lien” provided by Massachusetts General Law chapter 183A. The super-lien allows condo associations priority over your lender in the distribution hierarchy in the event of foreclosure. This means that if the unit is eventually foreclosed on, the condo association would get paid before your mortgage. However, there is a limitation on what can acquire super-lien status, and there are also some important requirements.
A super-lien is limited to common expense assessments based on the condo association budget during the six months immediately preceding institution of an action to enforce the lien (including collection costs). What this means is that the amount that enjoys super-lien status is limited to what is due in the for condo fees in the six months prior to the date the suit is filed. This implicitly means the association must file suit to attain super-lien status. (Yes, the state is encouraging litigation here isn’t it.) One practical fact that enters into play here is that it takes about four months or so for the condo association to fulfill all the state and federal collection laws required before suit can properly be commenced (notices, dispute period, etc.) before. So, it behooves the condo association to start collection efforts early for these reasons.
What if the condominium association doesn’t sue? Assuming one stops paying condo fees on a certain date, if the condo association does not bring suit until, for example, nine months have passed, it would lose out on having past due months seven through nine attain super-lien status. What does it matter? If there is a foreclosure sale, the condo fees that do not enjoy super-lien status would get paid after the first mortgage was paid; as opposed to the fees that enjoy super-lien status that would be paid before the first mortgage was paid. For the condo association, this can mean the difference between getting paid what’s due or not getting paid at all.
What about the time period after the suit is filed? This time period is not included and does not attain super-lien status by the original suit. But before you celebrate, know this— there is nothing stopping the condo association from suing you again in a separate suit for the past due condo association fees that were due after the first suit was commenced. So, if you have heard of stories about condo associations repeatedly suing condo owners for fees, now you may know the reason why.
Some other questions and answers are: Can they sue me in my personal capacity? Yes. Can they attach the rental payments from a tenant? Yes. How do they apply late payments? They apply to the amount most past due, unless you specify differently on the check. Can I withhold payment based on an unrelated dispute or get a set off for what is owed by a successful countersuit? Generally, no.
As you can see, the condominium association has an incentive to collect early and often. If you are having difficulty making your condo association dues or are in a conflict with your condo association, please feel free to give this office a call.
There is a reason why condo associations are aggressive in the collection of condo fees. Let me introduce you to the Massachusetts condominium “super-lien” provided by Massachusetts General Law chapter 183A. The super-lien allows condo associations priority over your lender in the distribution hierarchy in the event of foreclosure. This means that if the unit is eventually foreclosed on, the condo association would get paid before your mortgage. However, there is a limitation on what can acquire super-lien status, and there are also some important requirements.
A super-lien is limited to common expense assessments based on the condo association budget during the six months immediately preceding institution of an action to enforce the lien (including collection costs). What this means is that the amount that enjoys super-lien status is limited to what is due in the for condo fees in the six months prior to the date the suit is filed. This implicitly means the association must file suit to attain super-lien status. (Yes, the state is encouraging litigation here isn’t it.) One practical fact that enters into play here is that it takes about four months or so for the condo association to fulfill all the state and federal collection laws required before suit can properly be commenced (notices, dispute period, etc.) before. So, it behooves the condo association to start collection efforts early for these reasons.
What if the condominium association doesn’t sue? Assuming one stops paying condo fees on a certain date, if the condo association does not bring suit until, for example, nine months have passed, it would lose out on having past due months seven through nine attain super-lien status. What does it matter? If there is a foreclosure sale, the condo fees that do not enjoy super-lien status would get paid after the first mortgage was paid; as opposed to the fees that enjoy super-lien status that would be paid before the first mortgage was paid. For the condo association, this can mean the difference between getting paid what’s due or not getting paid at all.
What about the time period after the suit is filed? This time period is not included and does not attain super-lien status by the original suit. But before you celebrate, know this— there is nothing stopping the condo association from suing you again in a separate suit for the past due condo association fees that were due after the first suit was commenced. So, if you have heard of stories about condo associations repeatedly suing condo owners for fees, now you may know the reason why.
Some other questions and answers are: Can they sue me in my personal capacity? Yes. Can they attach the rental payments from a tenant? Yes. How do they apply late payments? They apply to the amount most past due, unless you specify differently on the check. Can I withhold payment based on an unrelated dispute or get a set off for what is owed by a successful countersuit? Generally, no.
As you can see, the condominium association has an incentive to collect early and often. If you are having difficulty making your condo association dues or are in a conflict with your condo association, please feel free to give this office a call.
Can I eliminate my tax debt in bankruptcy?
30 June 2010
Maybe. First, the good news; although difficult, eliminating tax debt in bankruptcy is possible and very beneficial. Tax debt grows quickly and can hang over you for what seems like an eternity. The government also enjoys collection powers that other creditors do not. So, obtaining a discharge from tax debt can give you a whole new financial life and is worth investigating. How can it be done?
Initially, there are a few requirements that should not cause surprise; you must file your tax return and you must not have illegally or fraudulently attempted to evade or defeat paying the taxes stemming from that tax year. Given those basic requirements, there are three main tests that apply: the 3 year rule, the 2 year rule, and the 240 day rule. First, a minimum of three years must have passed from the date a return is due before the taxes due according to that return could be dischargeable. Second, if the return is filed late, a minimum of two years must have passed from the time the return was filed to when the bankruptcy petition was filed. Lastly, at least 240 days must have passed from the date the tax was “assessed” before you file your petition.
It sounds easy, but determining these basic dates is not as simple as it may seem. Also, there are facts that may exist that could “toll” the time periods associated with these rules, such as a prior pending bankruptcy, or possibly a pending offer-to- compromise. Amended returns will also affect the analysis.
Taking a chance and filing bankruptcy in order to discharge taxes when you are unsure if you will be successful is unwise. Moreover, in order to be successful, it takes an affirmative act on your part after you file (not discussed in this blog) to make sure the taxes are deemed discharged. So, you can’t just file the petition and sit back and watch your taxes get eliminated, even if they otherwise could be. So, if you’re contemplating filing bankruptcy to eliminate your tax debt, it pays to have an expert analyze if your taxes could be eliminated in the first place, and then make it happen. (As stated, there are more issues than appear in this blog with respect to this issue.)
If you have tax debt that is hampering your financial life and have an interest in addressing the situation, feel free to give us a call.
Maybe. First, the good news; although difficult, eliminating tax debt in bankruptcy is possible and very beneficial. Tax debt grows quickly and can hang over you for what seems like an eternity. The government also enjoys collection powers that other creditors do not. So, obtaining a discharge from tax debt can give you a whole new financial life and is worth investigating. How can it be done?
Initially, there are a few requirements that should not cause surprise; you must file your tax return and you must not have illegally or fraudulently attempted to evade or defeat paying the taxes stemming from that tax year. Given those basic requirements, there are three main tests that apply: the 3 year rule, the 2 year rule, and the 240 day rule. First, a minimum of three years must have passed from the date a return is due before the taxes due according to that return could be dischargeable. Second, if the return is filed late, a minimum of two years must have passed from the time the return was filed to when the bankruptcy petition was filed. Lastly, at least 240 days must have passed from the date the tax was “assessed” before you file your petition.
It sounds easy, but determining these basic dates is not as simple as it may seem. Also, there are facts that may exist that could “toll” the time periods associated with these rules, such as a prior pending bankruptcy, or possibly a pending offer-to- compromise. Amended returns will also affect the analysis.
Taking a chance and filing bankruptcy in order to discharge taxes when you are unsure if you will be successful is unwise. Moreover, in order to be successful, it takes an affirmative act on your part after you file (not discussed in this blog) to make sure the taxes are deemed discharged. So, you can’t just file the petition and sit back and watch your taxes get eliminated, even if they otherwise could be. So, if you’re contemplating filing bankruptcy to eliminate your tax debt, it pays to have an expert analyze if your taxes could be eliminated in the first place, and then make it happen. (As stated, there are more issues than appear in this blog with respect to this issue.)
If you have tax debt that is hampering your financial life and have an interest in addressing the situation, feel free to give us a call.
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