May 24, 2013

Why is my loan modification taking so long?

by Brian D. Flick, Esq.

For many homeowners and their attorneys (including me), we have been playing the loan modification document game with the mortgage company for 9, 12, 18 months without an affirmative approval or denial.

It is very important if you are going to pursue a loan modification that you let your bankruptcy attorney know and keep them involved in the process, especially if you are in a Chapter 13 because this modification will need to be approved by the Court. In addition, please keep copies of all documents you send and followup with your point of contact every seven to ten days.

Posted in Foreclosure | Leave a Comment »

May 24, 2013

Independent Foreclosure Review Payments and my discharged Bankruptcy

by Brian D. Flick, Esq.

For many of our clients, they have now received their checks from the Office of the Comptroller of Currency from the Independent Foreclosure Review but now they are asking, do I need to call my attorney? The general answer is yes because if you received your discharge in the last 18 months, the check is actually an asset from your case HOWEVER the majority of Chapter 7 Trustees and some chapter 13 Trustees have already notified debtor’s attorneys of their intention to administer the asset only if it exceeds a very high dollar amount.

Please call your attorney for more information and for the vast majority of those who received checks, you will get to keep them without any issue or worry.

Posted in Bankruptcy, Bankruptcy Exemptions, Chapter 13, Chapter 7, Discharge | Leave a Comment »

May 21, 2013

Can I Discharge a Personal Injury Judgment in Bankruptcy?

by John Hilla

By John Hilla, Michigan Bankruptcy Attorney

On Purpose or While Intoxicated—Or Neither?

A personal injury judgment is as dischargeable as any other unsecured debt, such as credit card or medical debt, so long as the judgment against you wasn’t for an “intentional tort” or for death or personal injury caused by your intoxication.

That is, if the judgment is based in an allegation of mere negligence, as is commonly the case with automobile, slip-and-fall, dog-bite, and other typical personal injury judgments, the judgment will be able to be fully discharged in either a Chapter 7 or Chapter 13 bankruptcy.

Non-Dischargeability for Intentional Torts

So what is an “intentional tort?” A tort is the name of an action one person may take which may allow another person some level of legal remedy against them under civil law. It is the part of the US legal system from which nearly all legal actions which are not criminal claims or breach of contract claims arise. The commission of a tort by one person against you would be the basis for a lawsuit you might file against them in civil court for which you might claim money or other damages as a remedy.

All personal injury lawsuits are lawsuits based upon the commission of a tort, or tortious act. The first question with regard to dischargeability in bankruptcy of a judgment received after the filing of a personal injury lawsuit is, “Was this an intentional tort?

An intentional tort is an act you committed on purpose, not by accident.

The vast majority of personal injury lawsuits are based on negligence or other non-intentional torts. You didn’t mean to let your dog get out of the yard and bite that guy, but you didn’t adequately lock your gate or post any warning signs. You were negligent in keeping a dog that might be prone to biting somebody … You didn’t mean to drive your car into that lady’s swimming pool, where she just 523to be floating in an inner tube. You were negligent in the operation of your vehicle.

Those sorts of negligent, non-intentional torts are dischargeable in bankruptcy.

An intentional tort is something you intended to do to someone else, actually did, and which caused damage: assault, battery, false imprisonment, and others. If you punch somebody in the face, and they end up with their jaw wired shut for a year, destroying their up-and-coming career as a nose model for sinus medication advertisements, you will be the proud owner of a judgment for an intentional tort if they sue you and win.

That judgment will not be dischargeable in bankruptcy.

Non-Dischargeability for Death or Injury Arising from Intoxication

Additionally, a personal injury judgment for injury or death which occurred because you were intoxicated from the use of alcohol or some other drug will also not be dischargeable in bankruptcy, regardless of whether you intended to be drunk or intended to cause damage while drunk or intoxicated.

This is because Section 523(a)(9) of the US Bankruptcy Code (the Federal statute governing the bankruptcy process in the US) says this is the case. This Section of the Code makes it clear that a debt originating from “death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance” is not dischargeable.

Chapter 13 Bankruptcy Can Help Even if the Debt Is Non-Dischargeable

Even if your personal injury judgment is not dischargeable in bankruptcy, you can still receive assistance from the bankruptcy process in dealing with it. A Chapter 13 “payment plan” or “reorganization” bankruptcy will allow you to repay the debt in full at 0% interest over 3-5 years.

Chapter 13 bankruptcy is, essentially, a payment plan in which you repay to your creditors what you can afford to repay over 36-60 months, after your necessary household expenses are taken into account. Debts that are dischargeable, such as credit card debt, receive whatever you are able to pay into the plan over that time-period, and then the unpaid balance is totally discharged just as it would be in a Chapter 7 bankruptcy.

Non-dischargeable debts must be paid 100% of what the creditors holding those debts are owed, in contrast. Thus, while your credit card creditors may only be paid 0.5% of what you owe them by the end of the plan, a non-dischargeable personal injury creditor will be paid 100% of what you owe—and in priority over the dischargeable creditors.

A Chapter 13 can be of great assistance in forcing even a creditor holding a non-dischargeable claim to accept a reasonable monthly payment that still allows you to keep food on your table.

Can You Discharge a Personal Injury Judgment in Bankruptcy? The Bottom-Line

The bottom-line is that, if you are being sued for a personal injury, particularly if the suit is for an amount of money above your insurance limits or if you had no insurance if there is an auto or homeowners insurance claim involved, you should contact an experienced bankruptcy attorney immediately to explore your options.

Posted in Bankruptcy, Chapter 7, Discharge, Personal Injury and Bankruptcy | 2 Comments »

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May 19, 2013

Means Test: Impact of the 2013 payroll tax increase

by Peter Bricks

Means test: Impact of the 2013 payroll tax increase

By Peter Bricks, an Atlanta bankruptcy attorney

While one could write a novel about all of the various intricacies of the means test in Chapter 7 or Chapter 13 bankruptcy, I’m going to narrowly focus this blog on the increase in the payroll tax, which took effect January 1, 2013.

The means test is used to determine whether someone is presumptively unable to qualify for a Chapter 7 discharge due to having too much disposable household income, as well as to at least partially determine how much disposable income the debtor has to pay unsecured creditors in Chapter 13.

While these figures are subject to potential reconfiguration and challenges due to change in circumstances, the numbers on paper are determined by considering the debtor’s gross income over the previous six months subtracted against various allowable deductions. As expected, one of those deductions is the amount the debtor pays in payroll tax.

When the payroll tax increased by 2% of the debtor’s overall salary on January 1, 2013 (up to a $113,700 cap (up from $110,100 in 2012), the debtor therefore began taking in less income, which in turn left less money for the debtor to repay creditors. A January 2013 means test reflected income from July-December 2012, and therefore did not accurately reflect the debtor’s new situation in regards to an increased payroll tax liability.

As we get further away from January 2013, this increase becomes less relevant in means test calculations, because each new month added to the test includes the new tax and replaces a month that does not. However, it will not be until July 1, 2013 where a test will no longer at least be partially skewed by this tax increase. Furthermore, it’s important to consider that those closest to the cap are impacted more than those making less.

Because a Chapter 7 does not include a repayment and simply comes down to qualification for discharge, this increase is arguably more important to Chapter 13 cases, because many debtors in active Chapter 13 bankruptcies have had their trustee payment based upon a lower tax base. As such, some of those changes in circumstance might even need post-confirmation modifications to address the fact the debtor now has less disposable income and might not be able to make plan payments anymore.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Woodstock, Dunwoody, Cumming and Jonesboro, Georgia.

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May 9, 2013

Independent Foreclosure Review Payments

by Stuart Ing, Esq.

The Independent Foreclosure Review’s individual review of foreclosure cases is over. The settling parties have decided the one by one review process was too cumbersome, so they will just to hand out settlement money directly to those effected by foreclosure.

If you had a mortgage in foreclosure in 2009-2010 with Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, or Wells Fargo, you may have received a notice form Rust Consulting about pending payment as part of the Independent Foreclosure Review. Don’t worry its not a scam, the checks are valid. Amounts vary from $300 into the 5 figure range.

If you are planning on filing a bankruptcy, tell your attorney about any notice you receive regarding the Independent Foreclosure Review payment or Rust Consulting. We can help you with exemption planning to keep the Independent Foreclosure Review payments away from creditors.

If you have already filed bankruptcy and receive a Independent Foreclosure Review payments, it becomes trickier. Simplest thing to do is to talk to your bankruptcy attorney first before cashing the check. Depending on your state, you may have enough exemption to exempt the Independent Foreclosure Review payment. There are some legal arguments to be made that the Independent Foreclosure Review payment is not property of the estate as it arose post-petition. Or the payment might just be too small for your bankruptcy trustee to care. Again, this is where your bankruptcy attorney’s knowledge of local trustees and practice will be invaluable.

Posted in Bankruptcy, Foreclosure | 2 Comments »

April 23, 2013

Student loan arrears can be paid ahead of all other unsecured creditors

by Michael Goldstein

Student loans have become an enormous predicament on not only recent college graduates, but also many American consumers who have fallen on hard times and can not manage to pay back large monthly payments for their degree.  For example, CNN recenlty posted an article demonstrating those with student loans have problems obtaining credit for anything else.   In many situations, Debtors are falling behind on student loans by months if not years, much like a mortgage.   When this happens, law suits are filed and Collection agents and collection attorneys make life just that much more difficult.  However, in Massachusetts and hopefully in other states very soon, the Bankruptcy Court has provided a method to finally resolve this debt.

After a Motion our firm filed a few months ago, Judge Feeney, of the Boston Bankruptcy Court, ruled that pursuant to Section 1322(b)(5) of Title 11,  Debtors can now cure arrears on student loan debt prior to any other unsecured obligation such as credit cards and medical bills.  Under 1322, a Debtor may elect to “provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due.”  11 USC 1322(b)(5).

In the past this part of the code has been thought to apply to late home and automobile loans, but not to student loan debt.  Previously, the Courts have determined that, after concluding that 1322(b)(5) applies, in the case of student loan or other unsecured debt the Debtor must then meet an additional burden to show that the different treatment of the student loan does not unfairly discriminate against the other unsecured creditors.   The Boston Bankruptcy Court Judge took a stand and held that the analysis ends once it has been determined that the Debtor may cure under 1322(b)(5).  As a result, if a Debtor can show that they owed arrears prior to filing for bankruptcy, and that the last payment on the debt is due in more then 60 months, a Debtor may cure their defaulted payments through the plan.  The Judge did clarify, however, that her ruling related to non-dischargeable debt, and indicated that she may rule differently if it was not clear that the unsecured debt being treated differently was non-dischargeable.  What this means is that if your student loan arrears takes up all of your disposable income, then your other creditors get nothing, and the Trustee can not object by claiming the plan is not feasible.  For more information on this ruling, please contact Attorney Goldstein at the Phillips Law Offices

Posted in Bankruptcy, student loans | Leave a Comment »

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December 16, 2012

Venue and Exemptions: Not the same thing in bankruptcy

by Peter Bricks

Venue and Exemptions: Not the same thing in bankruptcy

By Peter Bricks, a Woodstock, Georgia bankruptcy attorney.

Debtors in Chapter 7 get a “fresh start, not a head start,” because they are allowed to “exempt” certain assets from creditors and their trustee. This means that debtors can keep certain assets. In a typical Chapter 7, the debtor keeps all his stuff.

What determines how much property the debtor can exempt? The debtor is allowed to exempt either under his state’s exemption statute or the federal exemption statute. Each state has chosen whether to opt out of the federal exemptions or not.

While the venue (i.e., the bankruptcy court in which the case is filed) usually matches the state exemptions the debtor uses, this is not always true. To establish venue to file a case, the debtor need only be residing in a state for the greater part of the 180 day period prior to filing (i.e., at least 91 days). The debtor can also file somewhere he does not live, provided the majority of his assets are in that state.

So does it really matter if the debtor’s venue does not match the debtor’s exemptions? Possibly not, as the debtor will be entitled to utilize some exemptions one way or the other. However, it’s important to note that some states have more generous exemptions compared to other states, as well compared to the federal exemptions. Although it might not matter in that particular debtor’s case, the debtor would most certainly rather file while using the highest possible exemptions.

A debtor cannot use his new state’s exemptions until he has resided there for at least two years. As such, the debtor who has been in a state for nearly two years and wants to file bankruptcy needs to know that state’s exemptions compared to the federal and/or alternate state’s exemptions. If the debtor has assets that would only be fully exempt in one of those set of exemptions, the debtor will either want to hurry up and file or wait to file, to utilize the larger exemptions.

Please note that some states will not let you use their exemptions if you no longer reside there. There is a good program called exemptionsexpress.com, which will tell you which exemptions you can use depending on which state you moved from and which state you now reside.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys (NACBA), and contributes regularly to Bankruptcyblog.org. He has Georgia offices in Dunwoody, Atlanta, Jonesboro, Cumming and Woodstock.

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November 23, 2012

Do you have to pay condo fees after bankruptcy?

by Michael Goldstein

Many consumers file a Chapter 7 bankruptcy case for the purpose of walking away from their home due to their lack of any equity in the property, or as a result of being so far behind in mortgage payments and home owner association fees that they will never be able to catch up.  In some situations, the home is a condominium or home with community fees also known as condo or HOA fees.  In this case, there are not only fees to pay to the bank for a home, but also shared fees among several owners for common area debts, such as landscaping, snow removal, building maintenance and other similar costs.  So the question is if you discharge your debts in bankruptcy do you still have to pay the condo fee if you are surrendering the property?

Unfortunately, the answer to the above question is yes, you do still need to stay current on your condo fees, even if you don’t live in the home and it is in active foreclosure, but has not yet sold.  This requirement to pay the condo fees comes as a surprise to many Debtors, because many believe that they have surrendered the property back to the bank or the Chapter 7 Trustee.  However, the reality is until the ownership actually changes hands, the Debtor is still on the hook.

Due to the lack of equity and simply the sheer quantity of homes in mortgage default, the lending bank may not set a foreclosure sale date for several months if not years after a Debtor walks away from the property or ceases to make mortgage payments.  The mortgage debt and even prepetition condo fees are discharged.  However, if the lender does not foreclose or the title to the property is not transferred to a new owner, then the Debtor still owns the home, and is responsible for debts that arose after the date the bankruptcy was filed.

Even though the mortgage company can not sue the homeowner after they eventually foreclose on it for any difference in price between what they are owed and what they received from the sale, the condo association under most state laws, including those in Massachusetts, have a right to recover the unpaid post petition HOA fees.  Many consumers will take the approach that they don’t live there so they don’t owe the money.  Unfortunately this ignorance of the law will not go too far.  It is a far better idea to look at the condo fee as a very low rental fee.  Additionally, the home owner association fees are typically much lower then any rental fee a consumer may have to pay for an apartment, and paying this fee can keep you in the home for potentially months if not years at a very low price.  It should be noted though that just as the mortgage company can foreclose for failure to make payments, so can the condo association, and in many cases, the condo association can act quicker then the bank due to their smaller size.

For more information in Massachusetts or Rhode Ilsand, please contact Attorney Michael Goldstein. As with any article or general legal information you read online, you should first consult with a licensed lawyer practicing debt relief law in your state.

Posted in Bankruptcy, Bankruptcy filing, Chapter 7, Homeowners Association Dues | Leave a Comment »

November 1, 2012

Ohio Supreme Court sides with homeowners in the neverending foreclosure mess

by Brian D. Flick, Esq.

Reposted with permission by Marc Dann, Esq.

Yesterday, the Ohio Supreme court issued an important decision affecting Ohio Homeowners who are now or who have recently been in foreclosure. In Federal Home Mortgage Corporation v. Schwartzwald the Court unanimously agreed with the position that our firm has been strongly advocating for the past 4 years that only someone who actually holds a homeowner’s note and mortgage may use the courts of Ohio to foreclose on their homes.

This seems obvious. But apparently not to the loan servicers and their foreclosure mill co-conspirators who gleefully sued thousands of Ohioans on behalf of entities that had no right the use the courts of Ohio.

The Court correctly held that Article IV of the Ohio Constitution limits the use of the Common Pleas Court to parties who actually have a dispute with one and other. One doesn’t need to be a lawyer to understand that A can’t sue B for a debt that B owes to C. Apparently that logic wasn’t so obvious to the lenders and loan servicers who originated millions mortgages (often predatory ones) between 2001 and 2008 and sold and resold them to each other and unsuspecting bond holders on Wall Street. For any one remembers playing musical chairs as a child, think of the notes and mortgages originated last decade as the chairs and the originators, special purpose entities, investment banks and Bond Trusts as the players.When the music stopped in 2008 when the Market for mortgage backed securities crashed, we have learned that it is surprisingly unclear who was holding notes and mortgages of Ohio Homeowners.

That is why all of the major lenders and loan servicers in Ohio simply ignored the legal requirements of owning someone’s note and mortgage and just filed for foreclosure in he name of whatever entity they “thought” was the last to buy the note. Believe it or not, thousands of lawsuits for foreclosure in Ohio were filed by entities that simply don’t have any dispute with the homeowner they were suing. In the Schwartwald Decision, the Ohio Supreme Court has said definitively that courts that granted Judgments in such circumstances were without jurisdiction to do so, and that courts that our currently deciding cases must dismiss those where the lender did not possess the note and mortgage prior to filing their foreclosure complaint.

What does this mean for Ohio Homeowners:
First, it is important to understand that courts do not have an obligation to independently review cases to determine whether or not the party suing has standing to do so. Someone who is sued by a lender or servicer that does not hold the note and mortgage must put the information about the lender’s lack of standing before the court. The Schwartzwald Decision makes it more important than ever that homeowners being sued for foreclosure in Ohio retain a lawyer to represent them. While this can conceivably be done by some one without a lawyer, it is a rather sophisticated and complicated argument and can best be put forward by a lawyer who is experienced in defending foreclosures. Our firm and others offer payment arrangements that make retaining counsel affordable to homeowners who are in foreclosure. For those who qualify, local legal aid offices have some of the best staff and volunteer foreclosure defense lawyers in Ohio.

Second, if you have been sued foreclosure over the past several years, even if the matter has been resolved by way of a loan modification or a cash for keys settlement, you should consult a lawyer about whether or not you have claims against the companies involved in suing you. Under the Federal Fair Debt Collection Practices Act and Ohio’s Consumer Sales Practices Act you may have claims for damages and attorneys fees, but they both have short statutes of limitations, therefore time is of the essence. Our firm and others will bring some of these claims on a contingent fee basis, meaning that you would not owe a fee unless we recover damages on your behalf
Most importantly, it may be possible to seek an order vacating a judgment of foreclosure particularly if the real estate has not yet been sold at Sherriff’s sale.

The critical lesson from this important decision is how important it is for homeowners who are facing foreclosure to fight back by challenging every claim that is made. Believe it our not, in thousands of cases throughout Ohio and the Country the largest banks in America and their foreclosure mill lawyers cheerfully sued thousands of Ohioans for debts that weren’t owed to them. The courage of the Schwartzwalds and the brilliant work of their superb lawyer Andy Engel has cleared the path for thousands of Ohioans to seek justice.

Posted in Asset Protection, Bankruptcy, Foreclosure | Leave a Comment »

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October 12, 2012

Trustee Motion to Dismiss in Chapter 13: How to Handle It

by Peter Bricks

Trustee Motion to Dismiss in Chapter 13: How to Handle It

By Peter Bricks

In a lot of Chapter 13 cases I handle as an Atlanta bankruptcy attorney, my clients get served with a motion to dismiss their case by the trustee. My clients normally panic when they see the motion, but a lot of times the initial stress is unwarranted and the issue resolves itself.

A trustee usually files a motion to dismiss because the debtor is behind on plan payments, or there is something structurally wrong with the case. Although not always the case, dismissal motions related to technical defects will usually come pre-confirmation. That is because these defects are raised by the trustee right after the meeting of creditors and need to be corrected to get the case confirmed.

Therefore, it is less likely that a technical problem would occur post confirmation. That being said, these problems certainly do happen. Examples will vary be district, but can include- the debtor not turning over a post-petition tax refund or inheritance, a late filed creditor claim that alters the amount the debtor must repay in his plan, or undisclosed change in circumstances to the debtor’s income.

Should the debtor not be current in the plan payments, the debtor can expect a motion to dismiss soon thereafter. The timing will vary be district, but a Northern District of Georgia bankruptcy lawyer usually sees these after 2-3 missed trustee payments.

Not surprisingly, delinquent payment problems are solved by making payments. Therefore, if you get a motion to dismiss for lack of funding, immediately get with your attorney to negotiate a resolution with your trustee. A motion to dismiss is usually set for a hearing about 3-4 weeks after it is filed, so the debtor will get an opportunity to object and cure the problem.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Dunwoody, Woodstock, Cumming and Jonesboro, Georgia.

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October 2, 2012

Preparing for a Small Business Bankruptcy – Who can you pay?

by Michael Goldstein

Your small business is not doing so well; in fact you have reached the point where you need to shut the doors and stop all business operations. Presuming that the company has some significant debts, which in all likelihood is one of the reasons you have decided to close shop, you decide that you will file a Chapter 7 bankruptcy to discharge all the obligations. Once you come to this realization, there are many considerations to ensure everything is done properly. I will discuss what I have found as a small businesses bankruptcy attorney to be the two most significant ones. First, you need to decide which of your vendors and suppliers you can pay before you file for bankruptcy. Second, you need to decide what you will do with your business assets, and where they go now that you will not be using them in commerce.

Let’s take a look at the first issue. You still want to make as much money as possible while winding up the business, so you decide certain vendors need to be paid something in order to either keep them off your back to stop a law suit, or because you need them to continue to provide services. The transfer or sale of inventory and paying one creditor over another is a preferential payment and a significant problem. The key to this is that, in the 90 days prior to filing for bankruptcy you can not pay an unsecured creditor for past services. In fact, unless the payments are in the ordinary course of businesses, it must be for services rendered in the 90 day period prior to filing. Essentially, you must be paying only for new bills not old ones. If you do pay them, then the Chapter 7 Trustee may sue your creditors forcing them to turn over the payment. The reason for this is that in the 90 days prior to filing bankruptcy, you can not choose to pay certain creditors in the same class as others who are not receiving funds on their invoices.

The second concern that many Debtors face is what to do with your office equipment, and other business tools. You may want to try to sell off some of these to raise capital to keep the business going for a little while longer, but you need to ensure that if you do sell anything, you get fair market value, in order to protect against a claim down the road for a fraudulent transfer. Additionally, you need to be exceptionally careful about transferring an asset to a family member, owner or even an employee of the business. These types of transfers to insiders will be especially scrutinized by the Trustee.

Many small business owners will say, so what, it’s not my problem, the Trustee is not going after me. While hold on there cowboy, you may be getting out of the business now, but your future is uncertain. What if you decide to step back into the entrepreneurial world again? You may need your old contacts, and if your actions caused someone to get into it with the Trustee or worse yet incur legal bills those vendors may not be too quick to work with you in the future.

Additionally, if you have already made one of these preferred transfers, and are intent on filing the bankruptcy before the period of time expires, then you must be sure to disclose it on your schedules. If you fail to do so, the Trustee could possibly object to your company’s discharge and claim that the filing was not done in good-faith. The bottom line is at this stage, you need to protect yourself by simply being as honest as possible.

This article about prepping your business for Chapter 7 bankruptcy was written by Attorney Michael Goldstein, of the Phillips Law Offices, who practices bankruptcy law in Massachusetts just north of Boston.

Posted in Bankruptcy, Chapter 7, small business bankrutpcy | Leave a Comment »

September 14, 2012

Does the Means Test Still Apply if I Convert a Chapter 13 Bankruptcy to a Chapter 7 Bankruptcy?

by John Hilla

By John Hilla, a Michigan Bankruptcy Attorney

When you file either a Chapter 13 Bankruptcy or a Chapter 7 Bankruptcy, you must file also a “means test,” which is the income-based eligility test which determines, in a Chapter 7, whether you are eligible for the Chapter 7 or, in a Chapter 13, whether you are eligible for a Chapter 13 payment plan that is shorter than 60 months long. The “means test” is actually form which calculates your average household income over the six months prior to the month in which you filed your bankruptcy. The result of that calculation—a high or low result relative to the median income of a household of your size for the state in which you live—makes the above determinations.

When you file a Chapter 13 Bankruptcy, you file a means test based on the six months prior to that filing, and that means test very likely indicates that your household earns too much money for Chapter 7 eligibility, although there are many good reasons to file a Chapter 13 beyond basic Chapter 7 ineligibility. However, what happens if your household loses a source of income, such that remaining in the Chapter 13 payment plan is no longer feasible for you?

It is a simple matter to convert a Chapter 13 to a Chapter 7 under such circumstances. The US Bankrutpcy Code gives consumers a virtually absolute right to convert a Chapter 13 to a Chapter 7 bankruptcy (the opposite is not necessarily true!). But what do you do, then, with a means test dating back to the six months prior to the original filing that says you are not eligbile for a Chapter 7, despite the fact that that means test may have been filed years prior to the event causing the loss of income and the infeasibility of the Chapter 13?

The case-law is somewhat divided on the subject on the various details, but it is fairly well-accepted that the means test look-back income period that applies to the converted Chapter 7 is the six-month period of time prior to the filing of the original Chapter 13. From there, different Federal jurisdictions (bankruptcy is a Federal legal process) have different requirements for handling this and explaining the difference between the income then and the income NOW and the current need for a Chapter 7 bankruptcy where only a Chapter 13 was possible before.

In the Eastern District of Michigan where I practice, for example, we are required to file a new Chapter 7 means test upon conversion, however with the same period of time in the calculation. Along with that Chapter 7 means test (which varies in form, content, and intent a bit from the Chapter 13 version), we file a sworn affidavit from the debtor explaining the loss in income necessitating the conversion—and then email a whole lot of supporting documentation (letter of termination from debtor’s former employer, etc.) to the US Trustee. The court clerk will often file a “Presumption of Abuse” upon the filing of the new Chapter 7 means test (because the little box that says “presumption of abuse” on the actual form will still be checked, given that it is still calculating that old six-month period of income), but it is the job of the US Trustee, which is a division of the US Department of Justice, to decide whether there really is an any abuse. If they think that there is, they will file a motion to dismiss the case—which could, if filed with good reason, result in the case being converted back to a Chapter 13 (or just being dismissed).

However, short of that, the US Trustee and the Chapter 7 bankruptcy Trustee will usually agree, if the conversion is premised on a bona fide change of circumstances, that there is no abuse and allow the case to proceed to discharge.

Again, the variations on this process will be potentially extreme depending upon where you reside and have filed your case.

The take-away from all of this for you, the consumer, is that it is important to keep in mind that a Chapter 13 bankruptcy is not a prison-sentence. If it ceases to function for you on a practical level because you do suffer a change of circumstances, there is a path out to earlier discharge through Chapter 7 conversion. It is important to have, however, an experienced bankruptcy attorney working with you as none of these steps will be apparent to the pro se debtor filing a case on his or her own.

 

Posted in Chapter 13, Chapter 7, Converting to another chapter, Means Test | Leave a Comment »

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August 29, 2012

What is an Adversary Proceeding in Bankruptcy Court?

by Peter Bricks

By Peter Bricks, an Atlanta bankruptcy lawyer

An Adversary Proceeding in bankruptcy court is essentially a separate lawsuit within a bankruptcy court for the purpose of getting a declaratory judgment. It can be brought by a creditor or a debtor, and is not done by motion. Bankruptcy Rule 7001 governs adversary proceedings.

When an adversary proceeding is brought by a creditor, it is most likely going to be to object to an attempted discharge of a debt by the debtor. The creditor can either object to the total discharge of all debts by the debtor (11 USC 727) or just to the discharge of that creditor’s debt (11 USC 523).

An objection under 727 means the creditor is trying to get the debtor’s entire discharge denied. This would be a permanent bar for the debtor as to those debts. The creditor might also file an objection under 523, which means the creditor is trying to get a discharge denied as to its debt only. Credit card companies often bring these adversaries if the debtor rang up significant charges close to the filing date of the case. Additionally, if the debtor incurred a debt through fraud, a creditor might bring an adversary proceeding to determine the dischargeability of its debt.

The primary reason a debtor brings an adversary proceeding is to file a “lien strip” to eliminate an underwater second mortgage. However, this process will vary by district and many districts allow this to be done by motion.

Another reason a debtor might bring an adversary proceeding against a creditor is because the creditor has violated the debtor’s rights under the Automatic Stay of 11 USC 362, or perhaps even after the discharge order. The debtor therefore essentially becomes a Plaintiff against the creditor and seeks damages for the violation. The most typical example of this in my practice is a car lender who is aware the debtor is in bankruptcy and still repossesses the debtor’s vehicle without a bankruptcy court Order.

As an adversary proceeding is a separate lawsuit, it is assigned a separate case number and begins with the filing of a Complaint. The defendant party then has 30 days to respond or else risk a default judgment. In other words, if you are a debtor in bankruptcy, you should never ignore an adversary proceeding Complaint filed against you, even if you think it is frivolous.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Dunwoody, Cumming and Jonesboro, Georgia.

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August 25, 2012

Is surrendering a property the same as letting it foreclose

by Michael Goldstein

So you have decided that you can no longer afford your home mortgage payments; you also realize that in this difficult real estate market, there is no equity and you can not either sell the property, or get the bank to approve a short sale due to the fair market value.  You are now faced with the decision what to do about it.  You have several options at this stage.

First, you could simply do nothing, pay nothing and wait for the bank to foreclose upon your home, and kick you out.  Where I practice in Massachusetts, it would take at least 150 days from the date the bank decided to send you a letter with their intent to foreclose before an auction could occur.  Even after the foreclosure sale, the new owners will need to have you evicted.  The whole time this is happening, you can save money for a down payment on your next place to live.  If this does happen however, and the lender sells your property at a foreclosure sale for less then what is owed to them, they can seek a deficiency judgment and come after you for the remaining balance.  The lender can even seek a judgment in court which will incur interest, for example in Massachusetts, a judgment incurs interest at 12% a year until the debt is paid off, and the judgment is good for 20 years, where the creditor can chase you, garnish your wages, and attach your bank account or tax refunds.  With all of this said, you can see that option one is probably not going to be yours best bet.

Second, you can try to surrender your property.  There are several ways you might go about surrendering your home.  You can try to contact the mortgage company and offer them a deed in lieu of debt.  What this means is that you will agree to leave the house, transfer the title to the mortgage company and in exchange, the lender will agree not to pursue you for any shortage.  This can often be difficult and the bank has absolutely no obligation to accept the deed in lieu.  You can also file a bankruptcy and inform the court and your creditor that you will be walking away form the house.  The benefit of this is that the bank and you may at that point come to terms with a surrender date, or at the worst, once you receive a discharge of debt in your bankruptcy, the lender will not be allowed to chase you for the deficiency.  In addition, once you file your case, the law imposes an automatic stay on the lender doing anything, so you may be able to again stay in the home for several months if not even more time, and save some money where you are not making payments.

Just because you file a bankruptcy and on your petition states you’re surrendering the property, this action in and of itself does not convey title.  The lender has a process they must follow and obtain relief from the automatic stay.  After this happens, they can then choose to either accept your surrender of the property, or move forward and foreclose.  There is no obligation for the lender to actually accept your surrender, just like negotiating a deed in lieu of debt.  However, as stated earlier you are protected against any future law suits on the value of the mortgage in relation to the foreclosure sale price.

Regardless of which avenue you choose to pursue, you owe it to yourself to at least speak to a consumer debt attorney who can advise you on your various legal rights and risks of any decision in your jurisdiction.

Posted in Automatic Stay, Bankruptcy, Foreclosure | Leave a Comment »

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July 25, 2012

Venue and Bankruptcy: Which Court do you file your case?

by Peter Bricks

By Peter Bricks, an Atlanta bankruptcy attorney.

As a primarily Northern District of Georgia bankruptcy attorney, I know based on what county my client resides whether their case will be filed in either the Atlanta, Newnan, Gainesville or Rome courthouse. If the debtor does not reside in any of the counties assigned to the Northern District of Georgia, the case will therefore most likely be filled in either the Middle District of Georgia or the Southern District of Georgia.

This is because venue in a bankruptcy venue in a bankruptcy case is dictated by 11 USC 1408. That code section says “a case under title 11 may be commenced in the district court for the district—(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principle place of business, in the United States, or principal assets in the United States, of such person were located in any other district;

Therefore, while the vast majority of the time venue is based on the debtor’s primary residence, it can also be selected due to the debtor’s assets. If the majority of the debtor’s assets are located elsewhere from where the debtor actually resides, then venue is appropriate in that location as well.

One important point to mention about basing venue on residence is that it applies to where the debtor lived for the greater part of 91 days of the 180 days preceding filing. While that is usually where the debtor currently resides, it is not necessarily so.

A debtor who has recently moved will need to decide whether to wait and file at the new place of residence or file now where venue will be perhaps be even in a different state from the debtor’s new residence. This is importantly, particularly as the debtor must make the meeting of creditors appearance at the court that has venue. And should it be a Chapter 13 case, the debtor is likely to need to appear in court on more than one occasion; therefore, making more problematic the decision to not hold off the filing to establish new venue.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Dunwoody, Cumming and Jonesboro, Georgia.

Posted in Bankruptcy | Leave a Comment »

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