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.
Thursday, June 2, 2011
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.
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