28 January 2010
Probably not. Most unsecured garden variety loans can be wiped out, or “discharged” in a bankruptcy. This means that the bankruptcy court enters an injunction on the collection of the debt from your person. In other words, your personal responsibility for the loan is eliminated. (Creditors still may have their rights to any collateral that secures the loan.) However, despite not all unsecured debts are dischargeable. Student loans are one of the types of obligations that are (almost) non-dischargeable. The student loan exception appears in Section 523(a) (8) of the bankruptcy code. The exception applies to:
• an educational benefit, overpayment or loan, made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or a nonprofit institution; or
• for an obligation to repay funds received as an educational benefit, scholarship or stipend; or
• any other education loan that is a qualified education loan, as defined in section 221(d)(1) of the federal tax code.
Without traversing the different laws that define the scope of the definition of a student loan in the bankruptcy code, suffice it to say, it is really almost any loan related to education. Including even books, supplies, transportation expenses, etc. as long as they are incurred by eligible students to attend eligible education institution, which is almost any education program.
It is possible to discharge student loans if they represent an “undue hardship.” However, this is been construed by the courts to be a very, very high hurdle. It must be compelling. The burden is on the debtor, the person seeking discharge. In re Kopf, 245 B.R. 731(Bankr. D. Me. 2000). It has been said that some courts are so strict that the debtor must be severely disabled to even be considered. However, there are different competing tests the courts can apply. One of the most popular is the “totality of the circumstances.” Some of the factors are: “the debtor’s past, present, and reasonably reliable future financial resources; 2) calculation of the debtor’s and his dependents’ reasonable necessary living expenses; and 3) any other relevant facts and circumstances surrounding that particular bankruptcy case.” In re Andresen, 232 B.R. 127, 139 (B.A.P. 8th Cir. 1999).
A practical consideration is how to afford to present the argument in the first place. First, one must file the bankruptcy, which theoretically can be done pro se in payments or possibly even waived. However, most people file using the services of an attorney, which is wise, but comes with a cost. Then after the bankruptcy is filed, an adversary proceeding must be filed. This is essentially a separate law suit in the bankruptcy case. Also, presentation of an undue hardship argument is not a simple endeavor. Facts must be gathered and analyzed. An argument must be developed, research must be done, and it must be thought though. Not to mention the creditor may pose a worthy opponent. So, if you are wondering if you can discharge your student loans, know that you face a high hurdle and significant practical considerations.
Thursday, January 28, 2010
My car was repossessed? Can I get it back if I file for bankruptcy?
Saturday 19 December 2009
It depends on whether the repossession company or creditor still has the car and hasn’t sold it. If the creditor still has the auto, it will most likely be deemed that it is still property of the bankruptcy estate (that means it is property subject to the bankruptcy court’s jurisdiction) and the bank simply holds it as a custodian. See In re Pluta, 200 B.R. 740 (Bankr. Mass. 1996). Your lawyer can then possibly demand the auto be returned to you after you file bankruptcy.
However, this begs the question whether you want it back. It is quite common for people to have the desire to retain their automobile, but an objective outlook is necessary. Is your car a benefit to your financial balance sheet or not? Does the car have equity? In other words, is the auto worth more than the amount owed to the lender? If it was repossessed than there was a loan that was probably in the arrears, and it is unlikely there is equity. And if not, it is a negative on your balance sheet, and probably not worth keeping. But, there may be a way a bankruptcy lawyer can eliminate the excess debt through a chapter 13 plan. Also, there may be a way to keep the car through alternative financing. Lastly, there is a possibility that you could obtain financing for a different car through one of the lenders that specialize in post-bankruptcy financing. In any event, it behooves you to consult an experienced bankruptcy attorney to learn the options available to you under bankruptcy or a different alternative.
It depends on whether the repossession company or creditor still has the car and hasn’t sold it. If the creditor still has the auto, it will most likely be deemed that it is still property of the bankruptcy estate (that means it is property subject to the bankruptcy court’s jurisdiction) and the bank simply holds it as a custodian. See In re Pluta, 200 B.R. 740 (Bankr. Mass. 1996). Your lawyer can then possibly demand the auto be returned to you after you file bankruptcy.
However, this begs the question whether you want it back. It is quite common for people to have the desire to retain their automobile, but an objective outlook is necessary. Is your car a benefit to your financial balance sheet or not? Does the car have equity? In other words, is the auto worth more than the amount owed to the lender? If it was repossessed than there was a loan that was probably in the arrears, and it is unlikely there is equity. And if not, it is a negative on your balance sheet, and probably not worth keeping. But, there may be a way a bankruptcy lawyer can eliminate the excess debt through a chapter 13 plan. Also, there may be a way to keep the car through alternative financing. Lastly, there is a possibility that you could obtain financing for a different car through one of the lenders that specialize in post-bankruptcy financing. In any event, it behooves you to consult an experienced bankruptcy attorney to learn the options available to you under bankruptcy or a different alternative.
What is so good about an LLC?
Wednesday 16 December 2009
Typically one thinks of being able to shield personal assets from creditors that arise from their business activity (“inside liability”) as the main reason to create a business entity. Once the decision to create a business entity is made, the type of entity, corporation (Inc.), professional corporation (P.C.), limited partnership (L.P.), or limited liability company (“LLC”) is based on the corporate structure desired or other considerations. But there is one feature of the LLC that should be considered when making this decision; the shielding of the corporation from liability arising from personal acts (“outside liability”). Yes, it is important to consider outside liability in addition to inside liability when deciding the right business entity form to choose.
Understand, that no corporate entity can shield the corporation in all aspects, but the LLC has an advantage over other business entities in these situations. When a personal creditor seeks to take corporate assets from a (non LLC) corporate owner, he can take ownership of the stock. If it is a majority of the stock, generally, then this creditor will be able to run the company. Now, corporate agreements can be made to create the opportunity to prevent the creditor from taking control, like allowing the minority shareholder the option of buying the creditor out before exerting control. However, one may forget to import these clauses, or other shareholders may not be able to exercise them when it happens.
With the LLC, the creditor does not obtain the voting or management rights of the entity, but only a “charging order” that allows the creditor’s judgment to be satisfied by the LLC member’s interest. The major benefit is that the creditor never gets to run the company, and you maintain control. The creditor will be able to take corporate distributions, and although distributions should not be withheld in bad faith, it is still a decision the company (that includes you) makes. The reason behind this difference is that other members of the LLC should be protected from the other member’s creditors.
A few caveats though; one is that although Massachusetts recognizes single member LLC’s , there is an argument that single member LLC’s should not receive its special protection. At least one out-of-state court has ruled that way. In re Albright, 291 B.R. 538 (Bankr. D. Colo. 2003). Another caveat is that when bankruptcy is involved, new considerations may alter these basic rules. Finally, when seeking to protect anything from a creditor in the corporate setting, you must follow the proper corporate rules and structure to ensure the creditor does not successfully “pierce the corporate veil.” In closing, we urge you to consider the benefits of an LLC when making the decision what business form to start.
Typically one thinks of being able to shield personal assets from creditors that arise from their business activity (“inside liability”) as the main reason to create a business entity. Once the decision to create a business entity is made, the type of entity, corporation (Inc.), professional corporation (P.C.), limited partnership (L.P.), or limited liability company (“LLC”) is based on the corporate structure desired or other considerations. But there is one feature of the LLC that should be considered when making this decision; the shielding of the corporation from liability arising from personal acts (“outside liability”). Yes, it is important to consider outside liability in addition to inside liability when deciding the right business entity form to choose.
Understand, that no corporate entity can shield the corporation in all aspects, but the LLC has an advantage over other business entities in these situations. When a personal creditor seeks to take corporate assets from a (non LLC) corporate owner, he can take ownership of the stock. If it is a majority of the stock, generally, then this creditor will be able to run the company. Now, corporate agreements can be made to create the opportunity to prevent the creditor from taking control, like allowing the minority shareholder the option of buying the creditor out before exerting control. However, one may forget to import these clauses, or other shareholders may not be able to exercise them when it happens.
With the LLC, the creditor does not obtain the voting or management rights of the entity, but only a “charging order” that allows the creditor’s judgment to be satisfied by the LLC member’s interest. The major benefit is that the creditor never gets to run the company, and you maintain control. The creditor will be able to take corporate distributions, and although distributions should not be withheld in bad faith, it is still a decision the company (that includes you) makes. The reason behind this difference is that other members of the LLC should be protected from the other member’s creditors.
A few caveats though; one is that although Massachusetts recognizes single member LLC’s , there is an argument that single member LLC’s should not receive its special protection. At least one out-of-state court has ruled that way. In re Albright, 291 B.R. 538 (Bankr. D. Colo. 2003). Another caveat is that when bankruptcy is involved, new considerations may alter these basic rules. Finally, when seeking to protect anything from a creditor in the corporate setting, you must follow the proper corporate rules and structure to ensure the creditor does not successfully “pierce the corporate veil.” In closing, we urge you to consider the benefits of an LLC when making the decision what business form to start.
What are the requirements to obtain a reverse mortgage, and should I get one?
Saturday, 12 December 2009
The most prevalent and only recommended type of reverse mortgage is the Home Equity Conversion Mortgage (“HECM”) (the acronym is pronounced heck um). HECM’s are insured by the United States Department of Housing and Urban Development (HUD). Some of the basic requirements for a reverse mortgage in Massachusetts are:
1) the mortgage must be granted in your primary residence(annual certifications of this fact will be conducted);
2) you must complete a counseling program that is approved by the Executive Office of Elder Affairs (associated with the Massachusetts Division of Banks);
3) the loan you apply for must be approved by the Massachusetts Division of Banks
4) the dwelling type must meet eligibility requirements, generally single family homes, owner-occupied (2-4) family homes, condos (additional details apply), manufactured homes (additional details apply), and Planned Unit Development(s) are acceptable;
5) the dwelling itself must be approved on the basis of safety and structural integrity, and the repairs deemed necessary may not exceed 15% of the value of the property;
6) the borrower(s) must be 62 years or older; and
7) (other more detailed requirements apply).
If a dwelling is found to need repairs, one can still obtain the loan before the repairs are made. A repair estimate must be provided. The lender then can set aside 150% of the repair estimate, and the loan can close. The borrower will have 6 months to make the necessary repairs, and upon successful inspection of the repairs, the remaining funds can be disbursed.
Some myths that do not matter are, the borrowers’: 1) income; 2) generally, their credit (with some exceptions); 3) liquid assets; and 4) physical health.
How much can I borrow? The maximum loan amount (known as “maximum claim amount” by insiders) is determined by a formula that considers the borrowers’ age, the maximum claim amount, and the expected applicable interest rate. However, it will not be more than the lesser of: 1) the fair market value of the dwelling; or $625,500.
The most basic, attractive feature of the reverse mortgage is that no payments are required during the life of the borrowers. This allows a person to use the equity usually built up over many years, without the requirement of periodic payments that a senior person may not be able to make. (However, property taxes or insurance will likely need to be made.) Further, they are non-recourse, which means that the lender can only seek repayment from the collateral, the dwelling itself.
Disbursements can be made in the following ways: 1) lump sum; 2) fixed monthly payments (for a time or as long as the borrower lives in the dwelling); 3) open access to a credit line; and 4) some mix of a credit line and monthly payments.
Can I use a reverse mortgage to purchase a new home? Yes, the mortgage is granted in the dwelling the borrower is purchasing. The funds are used to purchase the home, and the borrower must move in within 60 days and maintain residency. The property must be inspected, and any required repairs must be completed prior to closing. There is no other financing allowed in the transaction. So, any funds needed in addition to the reverse mortgage must come from the borrower. Other conditions apply.
When is the loan required to be paid back? When one of the following occurs:
1) All of the borrowers have died;
2) all of the borrowers have transferred their interest in the dwelling;
3) the borrowers move;
4) the property is deemed in need of repairs that the borrow refuses to make; or 5) a condition/covenant of the mortgage is violated.
Some major considerations are the cost and estate planning ramifications. Bottom line, reverse mortgages are expensive. You will give a significant amount of the equity in the home in upfront costs/fees, insurance fees/costs, monthly service fees, and continuing interest. Also, consider that the expected beneficiaries of the dwelling will have a significant loss of the value to be received. Further, the heirs of the borrowers’ will need to ensure the re-payment of the loan after the borrowers’ pass away. This is usually done by the sale of the residence, but must be completed in a timely manner.
If you are considering a reverse mortgage, we suggest obtaining counsel from an attorney with experience in financial and/or elder law matters.
The most prevalent and only recommended type of reverse mortgage is the Home Equity Conversion Mortgage (“HECM”) (the acronym is pronounced heck um). HECM’s are insured by the United States Department of Housing and Urban Development (HUD). Some of the basic requirements for a reverse mortgage in Massachusetts are:
1) the mortgage must be granted in your primary residence(annual certifications of this fact will be conducted);
2) you must complete a counseling program that is approved by the Executive Office of Elder Affairs (associated with the Massachusetts Division of Banks);
3) the loan you apply for must be approved by the Massachusetts Division of Banks
4) the dwelling type must meet eligibility requirements, generally single family homes, owner-occupied (2-4) family homes, condos (additional details apply), manufactured homes (additional details apply), and Planned Unit Development(s) are acceptable;
5) the dwelling itself must be approved on the basis of safety and structural integrity, and the repairs deemed necessary may not exceed 15% of the value of the property;
6) the borrower(s) must be 62 years or older; and
7) (other more detailed requirements apply).
If a dwelling is found to need repairs, one can still obtain the loan before the repairs are made. A repair estimate must be provided. The lender then can set aside 150% of the repair estimate, and the loan can close. The borrower will have 6 months to make the necessary repairs, and upon successful inspection of the repairs, the remaining funds can be disbursed.
Some myths that do not matter are, the borrowers’: 1) income; 2) generally, their credit (with some exceptions); 3) liquid assets; and 4) physical health.
How much can I borrow? The maximum loan amount (known as “maximum claim amount” by insiders) is determined by a formula that considers the borrowers’ age, the maximum claim amount, and the expected applicable interest rate. However, it will not be more than the lesser of: 1) the fair market value of the dwelling; or $625,500.
The most basic, attractive feature of the reverse mortgage is that no payments are required during the life of the borrowers. This allows a person to use the equity usually built up over many years, without the requirement of periodic payments that a senior person may not be able to make. (However, property taxes or insurance will likely need to be made.) Further, they are non-recourse, which means that the lender can only seek repayment from the collateral, the dwelling itself.
Disbursements can be made in the following ways: 1) lump sum; 2) fixed monthly payments (for a time or as long as the borrower lives in the dwelling); 3) open access to a credit line; and 4) some mix of a credit line and monthly payments.
Can I use a reverse mortgage to purchase a new home? Yes, the mortgage is granted in the dwelling the borrower is purchasing. The funds are used to purchase the home, and the borrower must move in within 60 days and maintain residency. The property must be inspected, and any required repairs must be completed prior to closing. There is no other financing allowed in the transaction. So, any funds needed in addition to the reverse mortgage must come from the borrower. Other conditions apply.
When is the loan required to be paid back? When one of the following occurs:
1) All of the borrowers have died;
2) all of the borrowers have transferred their interest in the dwelling;
3) the borrowers move;
4) the property is deemed in need of repairs that the borrow refuses to make; or 5) a condition/covenant of the mortgage is violated.
Some major considerations are the cost and estate planning ramifications. Bottom line, reverse mortgages are expensive. You will give a significant amount of the equity in the home in upfront costs/fees, insurance fees/costs, monthly service fees, and continuing interest. Also, consider that the expected beneficiaries of the dwelling will have a significant loss of the value to be received. Further, the heirs of the borrowers’ will need to ensure the re-payment of the loan after the borrowers’ pass away. This is usually done by the sale of the residence, but must be completed in a timely manner.
If you are considering a reverse mortgage, we suggest obtaining counsel from an attorney with experience in financial and/or elder law matters.
Can my (private) employer fire me for filing for bankruptcy?
Friday, 11 December 2009
The answer is No. It is plainly stated in the bankruptcy code that:
11 U.S.C. 525 . . .
(b)No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt— (1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act; (2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.
This may beg the question what a prospective employer can do when confronted with an applicant who has filed bankruptcy. Some commentators take the position that the answer whether discrimination on this basis is allowed is no. However, almost all of the cases that have interpreted this provision have ruled that it only applies to the debtor's current employer. In re Hardy, 209 B.R. 371, 374-376 (Bankr. E.D. Va. 1997); In re Merriweather, 185 B.R. 235 (Bankr.S.D.TX 1995); In re Briggs, 143 B.R. 438 (Bankr.E.D.MI 1992). But see In re McNeely, 82 B.R. 628 (Bankr. S.D. Ga. 1987)(applying Section 525(b) to service purchaser/independent contractor relationship). None of these cases are binding though, so the question is an open one.
There are some other considerations if you are applying for a new job and concerned over this particular potential ramification of filing for bankruptcy. First, the ambiguity noted above may be enough to stop any employer from taking the chance of violating the law. Typically employers, and especially their counsel, like to take the safe road. Second, the percentage of employers that truly take action based on a credit report, even if they do check it, might be less than you think (I personally have never heard of someone not getting a job due to a prior bankruptcy). Third, an employer may prefer that a person had filed for bankruptcy and eliminated their debt, as opposed to continuing on with a significant debt load. They could be concerned about those with a greater incentive to steal. Who do you think is more of a risk to employ, a person who is probably debt free or someone struggling to carry a significant debt load? Finally, the pros and cons of a decision to file bankruptcy should be carefully weighed with competent counsel. There is wisdom in a multitude of counselors.
The answer is No. It is plainly stated in the bankruptcy code that:
11 U.S.C. 525 . . .
(b)No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt— (1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act; (2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.
This may beg the question what a prospective employer can do when confronted with an applicant who has filed bankruptcy. Some commentators take the position that the answer whether discrimination on this basis is allowed is no. However, almost all of the cases that have interpreted this provision have ruled that it only applies to the debtor's current employer. In re Hardy, 209 B.R. 371, 374-376 (Bankr. E.D. Va. 1997); In re Merriweather, 185 B.R. 235 (Bankr.S.D.TX 1995); In re Briggs, 143 B.R. 438 (Bankr.E.D.MI 1992). But see In re McNeely, 82 B.R. 628 (Bankr. S.D. Ga. 1987)(applying Section 525(b) to service purchaser/independent contractor relationship). None of these cases are binding though, so the question is an open one.
There are some other considerations if you are applying for a new job and concerned over this particular potential ramification of filing for bankruptcy. First, the ambiguity noted above may be enough to stop any employer from taking the chance of violating the law. Typically employers, and especially their counsel, like to take the safe road. Second, the percentage of employers that truly take action based on a credit report, even if they do check it, might be less than you think (I personally have never heard of someone not getting a job due to a prior bankruptcy). Third, an employer may prefer that a person had filed for bankruptcy and eliminated their debt, as opposed to continuing on with a significant debt load. They could be concerned about those with a greater incentive to steal. Who do you think is more of a risk to employ, a person who is probably debt free or someone struggling to carry a significant debt load? Finally, the pros and cons of a decision to file bankruptcy should be carefully weighed with competent counsel. There is wisdom in a multitude of counselors.
Attorney-Client privilege and emails sent from work.
Wednesday, 9 December 2009
In today’s electronic age you may be using email for very confidential communications regularly. But if you want to rely on the attorney-client privilege to ensure your opponent or others can not compel the disclosure of the communications between you and your lawyer, you better not use your companies’ email system. The attorney-client privilege generally applies to all confidential communications between a client and his attorney undertaken for the purpose of obtaining legal advice. The privilege can be waived. It will be considered waived if the communications occur with others present. This generally means that a message through your employer’s email system, because the employer has access to the messages, is not subject to the privilege. This can also be the case when simply using an employer's computer to send emails from a private account (e.g. msn or yahoo). The email communication is typically considered made with a third party present. So, before firing off an email to your lawyer from work, think twice about whether you want the message to remain confidential. I bet the lawyer will!
In today’s electronic age you may be using email for very confidential communications regularly. But if you want to rely on the attorney-client privilege to ensure your opponent or others can not compel the disclosure of the communications between you and your lawyer, you better not use your companies’ email system. The attorney-client privilege generally applies to all confidential communications between a client and his attorney undertaken for the purpose of obtaining legal advice. The privilege can be waived. It will be considered waived if the communications occur with others present. This generally means that a message through your employer’s email system, because the employer has access to the messages, is not subject to the privilege. This can also be the case when simply using an employer's computer to send emails from a private account (e.g. msn or yahoo). The email communication is typically considered made with a third party present. So, before firing off an email to your lawyer from work, think twice about whether you want the message to remain confidential. I bet the lawyer will!
Thursday, January 21, 2010
I was sued for negligence and my homeowners insurance company has denied my claim saying the damage was caused by an intentional act, what can I do?
Friday, 1 January 2010
It is common for homeowners insurance policies to have exclusions for damage caused by an act “which is expected or intended by one or more ‘insureds’” (intentional act). Insurance companies may say this exclusion applies to all people covered under the policy, even when more than one person covered under the policy is being sued, and even when some of them are being sued solely for negligence. A claim denial may lead to dismay, especially after you have been sued and you need to present a defense, rather quickly.
However, there may be hope. It may be found in the Severability of Insurance clause (hopefully) contained in your policy. This clause usually reads something like “[t]his insurance applies separately to each ‘insured.’” What this has been interpreted to mean in Massachusetts is that each person covered under the policy must be considered separately. Worcester Mut. Ins. Co. v. Marnell, 398 Mass. 240 (1986); see also Lumberman’s Mut. Cas. Co. v. Hanover Ins. Co., 38 Mass. App. Ct. 53 (1995). In other words, the policy must be construed as if each person insured under the policy had their own independent policy. So, if one person is being sued for negligence, then the damages claimed in the underlying suit must be considered to be allegedly caused by that person’s negligence for insurance coverage purposes. That usually means there really is coverage under the policy for those accused of negligence in the underlying suit.
However, it is not advisable to take on an insurance company alone and interpretation of insurance policies can be tricky business. So, give a lawyer a call to see if there indeed may be coverage when your homeowners insurance company denies your claim.
Contact: George E. Bourguignon, Jr.
(413) 746-8008
gbourguignon@bourguignonlaw.com
www.bourguignonlaw.com
It is common for homeowners insurance policies to have exclusions for damage caused by an act “which is expected or intended by one or more ‘insureds’” (intentional act). Insurance companies may say this exclusion applies to all people covered under the policy, even when more than one person covered under the policy is being sued, and even when some of them are being sued solely for negligence. A claim denial may lead to dismay, especially after you have been sued and you need to present a defense, rather quickly.
However, there may be hope. It may be found in the Severability of Insurance clause (hopefully) contained in your policy. This clause usually reads something like “[t]his insurance applies separately to each ‘insured.’” What this has been interpreted to mean in Massachusetts is that each person covered under the policy must be considered separately. Worcester Mut. Ins. Co. v. Marnell, 398 Mass. 240 (1986); see also Lumberman’s Mut. Cas. Co. v. Hanover Ins. Co., 38 Mass. App. Ct. 53 (1995). In other words, the policy must be construed as if each person insured under the policy had their own independent policy. So, if one person is being sued for negligence, then the damages claimed in the underlying suit must be considered to be allegedly caused by that person’s negligence for insurance coverage purposes. That usually means there really is coverage under the policy for those accused of negligence in the underlying suit.
However, it is not advisable to take on an insurance company alone and interpretation of insurance policies can be tricky business. So, give a lawyer a call to see if there indeed may be coverage when your homeowners insurance company denies your claim.
Contact: George E. Bourguignon, Jr.
(413) 746-8008
gbourguignon@bourguignonlaw.com
www.bourguignonlaw.com
Subscribe to:
Posts (Atom)
