Chapter 7 Bankruptcy Guide: Understanding Discharges and How they Can Help You can refinance your debt to get it under control or even get on a more affordable payment plan, but most people will agree that all they really want to do is get rid of the debt forever. They wish they could just wave a magic wand and make it go away. In some ways, filing for Chapter 7 bankruptcy is like waving a magic wand since it can make debt go away in the right circumstances. You’ll need to talk with a Mesa Chapter 7 bankruptcy attorney to find out if you qualify and to learn the ins and outs. Here’s a little bit more information to give you an overview: What Debts are Discharged? Most people who are looking into Chapter 7 bankruptcy are most interested in finding out what kinds of debts they can discharge and how much. The short answer – and the goods news – is: A lot. Chapter 7 bankruptcy discharges unsecured debts once your assets are liquidated to pay what you can. Unsecured debts include things like credit cards, medical debt, and personal loans. The bankruptcy will typically discharge whatever is owed. So if you owe your credit cards $50,000, the bankruptcy will discharge all $50,000 in debt. Of course, as with anything in life, there are caveats. You must meet the income guidelines to qualify to file for Chapter 7 bankruptcy, and your assets will be analyzed to see what you can pay toward your debt first. Debts that are Not Discharged You can’t discharge everything you owe in a Chapter 7 bankruptcy. Some debts are excluded. Examples include child support and alimony, either your ongoing payment or any amount that you have not paid over time. If you want to get out of paying those, you’ll need to talk to a family law lawyer about modifying your agreement. You also won’t be able to discharge tax debt or anything you owe to the government, such as for criminal penalties or restitution. You also can’t discharge student loan debt. Well, technically you can discharge student loan debt, but it is so hard to do and the chances of your request being approved are so slim that you might as well accept that it can’t be discharged. Even though you can’t discharge these debts in a Chapter 7 bankruptcy, you can free up a lot of money by discharging your other debts. You can then use that money to get current on the debts that cannot be discharged. You’ll have greater control of your finances and less debt overall. Liquidating Assets You can’t just proclaim that you aren’t able to pay and then have all your unsecure debt discharged under a Chapter 7 bankruptcy. In addition to passing the “means test” to qualify to file for Chapter 7, you also have to submit your assets for review. A certain amount of your assets will be exempt, such as personal belongings, equity in your home, and equity in your car. Your bankruptcy attorney will go over the specific exemption limits and help you understand which of your assets may be subject to liquidation, if any. Filing for Chapter 7 bankruptcy can help you get rid of quite a bit of debt and start taking control of your finances again. You will need to meet with a Mesa Chapter 7 bankruptcy lawyer to review your finances and to learn how bankruptcy can help you, specifically. If you can’t qualify for Chapter 7, you can file for Chapter 13 bankruptcy and get a more manageable debt-repayment plan that will be done in just three to five years. Call My AZ Lawyers today to talk with a bankruptcy attorney about your options. We’ll help you understand how bankruptcy can benefit you personally and what strategy will give you the greatest debt relief. Our attorneys will perform a thorough review of your finances and then help you file for bankruptcy. You could be on your way to a fresh financial start fast. We serve clients in the Mesa, Glendale, Tucson, and Phoenix areas. Call us today to schedule an appointment with a Chapter 7 bankruptcy attorney and to start learning about your options for debt relief. My AZ Lawyers Mesa Location: 1731 West Baseline Rd., Suite #100 Mesa, AZ 85202 Office: (480) 448-9800 Glendale Location: 20325 N 51st Avenue Suite #134, Building 5 Glendale, AZ 85308 Office: (602) 509-0955 Tucson Location: 2 East Congress St., Suite #900-6A Tucson, AZ 85701 Office: (520) 441-1450 Avondale Location: 12725 W. Indian School Rd., Ste E, #101 Avondale, AZ 85392 The post Chapter 7 Bankruptcy Guide: Understanding Discharges and How they Can Help appeared first on My AZ Lawyers.

Restaurant Closings in New York City and BankruptcyAs reported by many newspapers and websites, a significant number of restaurants are closing in New York City. These closings are due to the high cost of rent, insurance,  overhead and the increase in the minimum wage to $15 per hour for the restaurant staff. A restaurant consultant who meet with me stated that a Ray Kroc associate told an individual not to open a restaurant unless they were prepared to clean the bathroom and wipe the floor themselves due to the thin margins in many restaurants. At Shenwick & Associates,  we have seen a significant uptick in bankruptcy filings by restaurant and restaurant owners and we have developed a legal strategy to deal with these situations.We focus on the financial issues related to the restaurant first and then to the owner of the restaurant second. Most restaurants are owned by LLC or Subchapter S corporations. We first  review the assets and liabilities for the restaurant and a recent budget showing revenue and expenses for the year to date. We review that information with  the owner and determining whether the restaurant should  close or file for bankruptcy and we then focus on issues related to the owner of the restaurant.Restaurants are eligible to file for chapter 7 or chapter 11 bankruptcy. Chapter 7 is a liquidation where the restaurant is closed or chapter 11 is a reorganization where the business can attempt to reorganize its debts. In the Southern and Eastern District of New York (Manhattan, Brooklyn, Queens and Nassau county)  historically on average only one out of 10 businesses are able to successfully reorganize (file and confirm a chapter 11 plan of reorganization). There are many reasons for the low percentage of success, but many of those factors related to the cost and expense of filing chapter 11 bankruptcy and the inability to obtain financing and capital from third parties or banks.The option that most restaurant owners face is  either to close the restaurant or file Chapter 7 bankruptcy for the LLC or S Corporation that owns the  restaurant. In Chapter 7 bankruptcy a bankruptcy trustee closes the restaurant and liquidates any inventory, furniture fixture or equipment and attempts to collect accounts receivable. The chapter 7 trustee then takes those monies, if any  and distributes them to creditors after paying legal fees and court costs.It's the restaurant does not have significant amounts of furniture fixture or equipment or accounts receivable, the owner may be better off closing the restaurant itself and selling or auctioning off any furniture fixture and equipment and attempting to collect its own accounts receivable. Additionally, if the restaurant lease has a term of 3 years or more and is below market the restaurant owner may be able to assign (sell) the lease to a 3rd party. A Chapter 7 bankruptcy trustee is permitted to bring lawsuits to  recover monies that may have been paid to third parties ( preference actions)  or recover money or property paid to a third party ( fraudulent conveyance actions)  and the bankruptcy trustee will want to review the books and records for the restaurant, its checking account  and tax returns. The owner of the restaurant will have to go to one meeting at the courthouse (called the 341 hearing) and cooperate with the bankruptcy trustee. These factors often affect whether a restaurant will file for chapter 7 bankruptcy or just close.Notwithstanding the fact that the restaurant is owned by an LLC or Subchapter S corporation, members of the LLC, including the officers, directors,  shareholders or the individuals that signed the checks may be liable for certain debts of the restaurant after it closes (discussed below). Some of those debts may be “responsible person taxes” which are trust fund taxes such as sales tax or  FICA/FUTA taxes withheld from an employee's wages or the FICA/FUTA tax penalties. Sales tax and FICA/FUTA  taxes are not dischargeable in personal bankruptcy, so those debts should be paid prior to the restaurant closing or paid from the sale of furniture, fixtures and equipment, collection of accounts receivable or from the sale of the lease. Next, if a member of the LLC or a shareholder guaranteed a lease obligation, or guaranteed debts  to a supplier, they be personally liable ( discussed below). There are 2 types of lease guaranties, good guy guaranties and lease guarantees and the type of guaranty can affect the amount owed by the restaurant owner. If a supplier to the restaurant is not paid, the restaurant is generally liable, however in certain instances, the supplier will look for a “deeper pocket” and sue the individual arguing “alter ego” or “piercing the corporate veil” and attempt to sue not only the restaurant but the owner of the restaurant as well.The owner of the restaurant, may also be liable personally for wages not paid to the restaurant staff under the New York State Business Corporation law.A restaurant owner with significant business debts may need to file a Chapter 7 bankruptcy or attempt an out-of-court workout with respect to the monies that it  owes. To determine whether a restaurant owner should file bankruptcy or attempt to do an out-of-court workout with its creditors, we need to see a list of assets or property that the restaurant owner owns, a list of  liabilities or money or property owed to third parties and an after-tax monthly budget, showing what the restaurant owner earns what it pays in personal and business expenses.Unfortunately, in many instances after the restaurant is closed, the restaurant owner needs to file a Chapter 7 or Chapter 13 personal bankruptcy and James Shenwick is available  to help address these issues. Jim Shenwick 212 541 6224, [email protected] 

With the increase in bankruptcy filings, many clients have contacted us regardingthe treatment of their pensions in a chapter 7 bankruptcy filing and whether they should borrow from their pension prior to filing for bankruptcy, if necessary.Under the law, both Roth and traditional IRA’s are exempt  up to $1,283,025 in a chapter 7 bankruptcy filing.401(k)s, 403(b)s, profit sharing plans, SEP & Defined Benefit Plans are completely exempt in a chapter 7 bankruptcy.Pension monies are also exempt from the reach of creditors (“spendthrift trust”) so they cannot be liened or levied by creditors. If those monies are withdrawn from a pension plan they are subject to the reach of creditors and therefore if possible a debtor should not borrow from their pension prior to filing for bankruptcy.Additionally, if a person borrows money from a pension (prior to the age requiring a mandatory withdrawal from the pension plan) they will have to report that money as additional income and pay a 10% excise tax on those monies.Anyone with questions regarding personal bankruptcy should contact Jim Shenwick at [email protected]

Divorce can be both expensive and traumatic for the parties going through it but in a few states, it can be expensive for the outside party causing the divorce. As one Texas debtor recently found out, causing a marriage to crumble in North Carolina can result in a non-dischargeable debt.   King v. Huizar (In re King), No. 19-5007 (Bankr. W.D. Tex. 10/2/19).   The case, which can be found here, serves as a reminder that an obscure tort can fit within the broad confines of willful and malicious injury.Some Background on Alienation of AffectionsKing v. Huizar involved a North Carolina judgment for alienation of affections.   The Debtor in the case made an unfortunate choice of a married woman to pursue because North Carolina is one of just six states which still recognizes the tort of alienation of affections. (The others are Hawaii, Mississippi, New Mexico, South Carolina and Utah).  Under North Carolina law, the elements of alienation of affections are: (1) That he and his wife were happily married, and that a genuine love and affection existed between them; (2) that the love and affection so existing was alienated and destroyed; (3) that the wrongful and malicious acts of the defendant produced and brought about the loss and alienation of such love and affection.  Litchfield v. Cox, 146 S.E.2d 641 (N.C. 1966).    Alienation of affections is one of several torts regarding the marital relationship which seem outdated today.   In Tinker v. Colwell, 193 U.S. 473 (1904), the Supreme Court had this to say about the tort of criminal conversation (i.e., adultery):We think the authorities show the husband has certain personal and exclusive rights with regard to the person of his wife which are interfered with and invaded by criminal conversation with her; that such an act on the part of another man constitutes an assault even when, as is almost universally the case as proved, the wife in fact consents to the act, because the wife is in law incapable of giving any consent to affect the husband's rights as against the wrongdoer, and that an assault of this nature may properly be described as an injury to the personal rights and property of the husband, which is both malicious and willful. 193 U.S. at 481.In today's modern, secular society, the idea that one party to a marriage may have property rights in his/her relationship with the other spouse seems quaint and frankly Victorian.  One law review article has suggested that the same principles which prevented states from outlawing same-sex marriage could lead to a similar result with adultery-related torts.Justice Kennedy’s discombobulating blend of equal protection and substantive due process in Obergefell may signal another evolution in constitutional law by indicating that state action which infringes on these fundamental rights of personal dignity, intimacy, and marital choice should not be left to the political process when the state’s justifications hinge on essentially moral objections. The arguments against adultery and same-sex marriage are strikingly similar. Many Americans believe adultery and same-sex marriage harm the institution of marriage and the traditional idea of family. Many Americans find both practices morally repugnant. Those beliefs are not the problem, but they become a problem “when that sincere, personal opposition becomes enacted law and public policy . . . [and] put[s] the imprimatur of the State itself on an exclusion that soon demeans or stigmatizes those whose own liberty is then denied.”Bruton, The Questionable Constitutionality of Curtailing Cuckolding:  Alienation-of-Affection and Criminal-Conversation Torts, 65 Duke Law J. 755, 799 (2016).  Unfortunately for Mr. Huizar, North Carolina still recognizes the tort of alienation of affections and the extensive fact finding by the state court judge brought the judgment squarely within 11 U.S.C. Sec. 523(a)(6).   An Affair That Ultimately Outlasted a Marriage Keith King and Danielle King were married on April 3, 2010.   Mrs. King frequently posted on Facebook about how much she loved her husband and started a "Good Wives Club" to help friends in their marriages.   Keith King had a business called King BMX Promotions.   Mrs. King worked in the business.   In August 2015, the Kings put on a show at the Erie County Fair in New York.   After Mr. King left to go to a show in Colorado, Mrs. King met Francisco Huizar, who was working as a marketing agent at a Geico Insurance booth.  Mrs. King and Mr. Huizar apparently spent an evening together as Mrs. King left her child with the nanny.On August 28, 2015, Mr. King discovered flirtatious text messages with Mr. Huizar on his wife's phone and Mr. King called up Mr. Huizar and told him to leave his wife alone.  It does not appear in the opinion, but according to a newspaper article about the trial, Mr. King was controlling and insisted on inspecting his wife's phone on a regular basis.   Mrs. King told Mr. King that she was through with Huizar and he believed her.  However, that was not true.   Instead, Mr. Huizar traveled to Durham, North Carolina and stayed at a Candlewood Suites hotel located one mile from the King residence on at least seven occasions from August to November 2015.In November 2015, Mr. Huizar's girlfriend contacted Mr. King and let him know that Mr. Huizar and Mrs. King were talking on the phone a lot, 6,000 minutes of conversations over the course of four months.   Mr. King called Mr. Huizar again and told him to leave his wife alone.   During the period from August to November 2015, when Mr. Huizar and Mrs. King were talking and having hotel visits, Mr. and Mrs. King were engaging in marriage counseling.   In late November 2015, Mrs. King once again stated that she would have no further contact with Mr. Huizar.   From August 2015 through March 2016, Mrs. King made Facebook posts about how much she loved her husband.   (While the court apparently took these Facebook posts at face value, they could just as easily have been an attempt to cover up the affair).The affair continued.  Mr. King bought his wife a  beach spa weekend as a birthday present and Mr. Huizar was there.   Mr. and Mrs. King went to the beach for a vacation and Mr. Huizar was there.  Throughout 2016, Mrs. King vacillated between continuing the affair and reconciling with her husband.   Things escalated in June 2016, when Mr. Huizar took Mrs. King as his date to a wedding in Ohio and then helped her "in running away" from Mr. King across state lines.   Matters came to a head on January 20, 2017.  Mrs. King had moved into an apartment with Mr. Huizar.   She called Mr. King to come over and help her with a broken breaker.  When Mr. King arrived, he was greeted by Mr. Huizar who put him in a headlock while Mrs. King filmed the encounter.   This did not help the marriage.The Jilted Husband Strikes Back Mr. King filed suit on April 6, 2017.  He was not able to serve Mr. Huizar personally so he was served by publication with the foreseeable result that he did not answer.   An entry of default was made on January 3, 2018.   The Court refused to set aside the default but allowed Mr. Huizar to present whatever evidence he wanted to at trial.   Following five days of trial, the Court entered judgment against Mr. Huizar for $8.8 million.The damages awarded reflected a curious outlook on the husband's property rights in the wife.    The largest amounts of damages were for the cost of having to hire a replacement to work in the business and for the household services that Mrs. King would not be performing as a result of the divorce.  Damages also included counseling, attorneys' fees and medications.   The total amount of economic damages awarded was $1,215,312.00.   The Court then awarded an additional $1,000,000 in non-economic damages "to include loss of love, affection, and consortium, loss of sexual relationship, loss of society, companionship and comfort, loss of favorable mental attitude, mental anguish and decline in health and shame and humiliation.    The Court then awarded punitive damages of $6,645,936.00 based on three times the amount of actual damages.In awarding punitive damages, the court made some findings which would be troublesome in the subsequent adversary proceeding.   The Court found that  Mr. Huizar "conducted malicious, wanton, and willful behavior in interfering with Plaintiff's marriage," that he acted with "malice and willful and wanton conduct," that he acted with "conscious and intentional disregard of and indifference to the rights and safety of others" and that his conduct was "reprehensible and malicious."The Court showed curious disregard for Mrs. King's agency and free-will.   When Mrs. King posted Facebook messages about her wonderful marriage and how they were trying to work things out, the Court accepted that as fact.  When Mrs. King testified at trial, the Court found that she "was not a credible person and that she contradicted herself."   While it is not present in the court's opinion, a newspaper account of the trial quoted Mr. Huizar's attorney as saying:Keith King, who is 15 years older than his wife, controlled her access to money, manipulated her low self-esteem, brought porn into the relationship, looked through her phone every other week, put her to work without pay, and continued to schedule shows after she said it was too much work and she needed help with her daughter, (Huizar's attorney) said. He tracked her movements and insisted she keep her hair blond, and wear bikinis and high heels,...Virginia Bridges, "He slept with a married woman. Now a judge says, pay the jilted husband $8.8 million," Kansas City Star (July 26, 2018), https://www.kansascity.com/news/nation-world/article215577310.html. Mr. King also testified that he marriage was unhappy from the beginning and that she had pursued Mr. Huizar. This was apparently the testimony that the Judge did not find credible. The Debtor Does Not Escape Judgment in Bankruptcy Court The same article same that Mr. Huizar would appeal. He did not. Instead, he filed bankruptcy in San Antonio. Mr. King filed an adversary proceeding under 11 U.S.C. Sec. 523(a)(6) and moved for summary judgment based on collateral estoppel and res judicata. As indicated by the state court findings mentioned above, Judge Gargotta found ample grounds for excepting the debt from discharge as one for willful and malicious injury. He wrote:The third element of alienation of affection includes the Fifth Circuit’s definitions of “malicious” and “willful” by requiring evidence that harm was caused because of the intentionally wrongful and malicious acts of the defendant. In addition to determining that Huizar’s actions met the element of “malicious activity” in ruling in favor of Plaintiff on the alienation of affection claim, the North Carolina Court specifically determined that Huizar’s actions were willful and malicious:a. “Defendant’s behavior was reckless, wanton and malicious.” (Complaint Ex. A, ECF No. 1-1, ¶ 36);b. the “conduct of [Huizar] in this matter has been malicious, reckless, wanton, aggravated, and willful” (Id. at ¶ 86);c. Huizar’s behavior was “willful, wanton, reckless, brazen and malicious.” (Id. at ¶ 88); d. “[Huizar] conducted malicious, wanton and willful behavior in interfering with Plaintiff’s marriage from August 2015 through the King’s marital separation and…he continued the behavior until the parties were divorced in December 2017.” (Id. at ¶ 95);e. “[Huizar’s] conduct during the King’s marriage was reprehensible and malicious.” (Id. at ¶ 101);f. “This Court finds as a fact by clear and convincing evidence that aggravating factors are present in this matter, including but not limited to malice and willful and wanton conduct on the part of the Defendant, with the conscious and intentional disregard of and indifference to the rights and safety of others, which Defendant knew or should have known was reasonably likely to result in damage, injury or other harm.” (Id. at ¶ 99).Opinion, pp. 14-15.The Court also found that several clever defenses were unavailing. First, he argued that when Congress omitted criminal conversation and alienation of affections from the list of non-dischargeable debts, it intended to render those debts dischargeable. He also relied on legislative history indicating that prior case law under the antecedent to section 523(a)(6) which applied a "reckless disregard" standard was overruled. Noting that this was an issue of first impression in the Fifth Circuit, Judge Gargotta relied on cases from other circuits finding that these torts were still nondischargeable.The Court also found that:Huizar’s arguments that claims for relief involving alienation of affection and criminal conversion are arcane and without merit is not for this Court to decide. This Court must give comity to the North Carolina state court judgment. Huizar’s argument that these claims for relief are contrary to law ignores the fact the neither the North Carolina Legislature or State Supreme Court have overturned these causes of action. Opinion, p. 18.Finally, the Court rejected the argument that the state court judgment was "void as unconstitutional restraint on Defendant's guaranteed free speech rights and under the First and Fourteenth Amendments of the U.S. Constitution. The Court found that the Debtor received adequate due process notwithstanding the citation by publication and rejected the free speech argument.Even assuming messages of affection or intimacy conveyed during extramarital affairs are forms of expression protected by the First Amendment—and this Court makes no finding that they are—Defendant fails to mount an appropriate facial or as-applied challenge to the law. Moreover, the underlying facts seem to suggest the Defendant and Danielle Swords King had no intention of ever convey their “message” to the public where it could be observed. Opinion, p. 19. Final ThoughtsI agree with the Debtor that North Carolina's laws on alienation of affection are arcane because they rely on, at least in this case, the paternalistic assumption that a husband has a property interest in his wife. Moreover, as the Duke Law Review article mentioned above argues, there may be a valid ground to challenge the state's effort to regulate private conduct on morality grounds. However, as Judge Gargotta correctly found, the place to challenge the constitutionality of the law was in the North Carolina courts and not in the Bankruptcy Court. I have two take-aways from this opinion. The first is that Section 523(a)(6) can cover a broad array of conduct. It can apply to conduct ranging from hitting someone with a baseball bat to conversion to defamation. As long as there is a state law cause of action which requires proof that an injury was willful and malicious it can be brought within the subsection. The second is that it is often too late to discharge an adverse state court judgment once the factual findings have been made. A party in this situation should either file bankruptcy prior to trial and avoid findings from an unsympathetic court or challenge the judgment on appeal in the state court.

How New York’s Taxi Titans Roiled Cities Hundreds of Miles AwayIn the early 2000s, a group of New Yorkers did something unexpected.They bought a bunch of taxi medallions that allowed them to own and operate vehicles hundreds of miles away, in Chicago. Medallions in that city were considered such an inexpensive commodity that Chicago had, at times, given them away free.This turned out to be an early sign of a takeover of taxi markets across the country by some New Yorkers who were about to teach drivers in other cities a painful lesson.The real taxi money wasn’t made by charging passengers; it was made by raising the price of medallions and financing loans to drivers who wanted to buy them.The scheme started in New York.In May, The Times’s Brian M. Rosenthal exposed the financial maneuvers that helped lead to the collapse of the taxi industry in New York City.His series detailed potential market manipulation of taxi medallion prices and showed how some of the people who manipulated those prices also made money by providing drivers with high loan amounts, long loan lengths, steep fees and interest-only terms.The Department of Justice and the New York attorney general soon opened investigations into the industry. The city arrested a debt collector, waived $10 million in fees owed by medallion owners and strengthened regulations.The taxi titans expanded their operations to Chicago …Symon Garber, a New York fleet owner, along with a group of partners, began buying medallions in Chicago and lending to other buyers. They eventually bought 800 of the city’s 7,000 medallions.Michael Levine, a legend in New York’s taxi industry, bought more than 500 medallions in Chicago. Mr. Levine also was involved in a company that provided at least 750 loans to medallion owners.At least 40 other New Yorkers bought Chicago medallions, including Michael Cohen, President Trump’s former lawyer, records show.… and to Boston, Philadelphia and elsewhere.Then some of the same people who roiled New York’s industry expanded their operations. Medallion prices soared to $700,000 in Boston, $550,000 in Philadelphia, $400,000 in Miami and $250,000 in San Francisco.But in Chicago, New Yorkers eventually bought almost half of that city’s medallions, records showed. The average cost of a medallion there — less than $50,000 in 2006 — rose to nearly $400,000 before prices began plummeting in 2013.Today, a Chicago taxi medallion is worth $30,000 or less.“In retrospect, it should’ve set off alarm bells” that New Yorkers were entering Chicago’s market,” said Michael Negron, who was a policy adviser to Rahm Emanuel, a former Chicago mayor. “Outside investors were coming in to upend the industry, and everybody kind of missed it.”The New Yorkers who bought medallions in Chicago and elsewhere said in interviews with Mr. Rosenthal that they were never accused of breaking any laws. They said that as New York medallion prices rose, it made sense to pursue new opportunities.

Pensions and Chapter 7 Bankruptcy filingsWith the increase in bankruptcy filings, many clients have contacted us regarding the treatment of their pensions in a chapter 7 bankruptcy filing and whether they should borrow money from their pension prior to filing for bankruptcy.Under the law in New York both Roth and traditional IRA’s are exempt  up to $1,283,025 in a chapter 7 bankruptcy filing.401(k)s, 403(b)s, profit sharing plans, SEP & Defined Benefit Plans are completely exempt in a chapter 7 bankruptcy.Pension monies are also exempt from the reach of creditors (“spendthrift trust”) so they cannot be liened or levied by creditors. If those monies are withdrawn from a pension plan they are subject to the reach of creditors and therefore if possible a debtor should not borrow from their pension prior to filing for bankruptcy.Additionally, if a person borrows money from a pension (prior to the age requiring a mandatory withdrawal from the pension plan) they will have to report that money as additional income and pay a 10% excise tax on those monies.Anyone with questions regarding personal bankruptcy should contact Jim Shenwick at [email protected]@gmail.com • Shenwick & Associates

   As all debtor attorneys know, it is critical to schedule all creditors when a case is filed.  The consequences of an error, omitting such a creditor is illustrated in Brenner's Restoration, Inc. v. Somerville, 2019 Bankr. LEXIS 3172, case #18-20807-MMH (Bankr. D. Md. 4 October 2019).  Here Somerville filed for relief under chapter 13 on 14 August 2018.  Somerville filed a timely list of creditors and matrix, but had omitted Brenner's Restoration from that list.  Brenner's had performed work on a house owned by the Debtor and a non-debtor prepetition, and served process on the Somerville 18 October 2019.  Despite receipt of service of process, Sommerville failed to amend the schedules (or, apparently file a suggestion of bankruptcy in the state court litigation) until after the 23 October 2018 claims bar date.  No notice of the bankruptcy was provided until garnishment of Debtor's paycheck.  Upon receipt of notice of the bankruptcy, Brenner filed requesting authority to file a late proof of claim, or alternatively sought relief from the stay to pursue the debtor and non-debtor co-owner of the property in state court.  Somerville's counsel objected solely to lifting the stay, but the court set both matters for hearing, and ultimately denied both requests, but also ruling that the debt was nondischargeable.  The court noted that while §502(a) permits an untimely proof of claim to be allowed, such untimeliness is an express ground for objection under §502(b)(9).  Should the court disallow the late claim under §502(b)(9), the claim may be discharged given §1328's provision providing that the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under §502.  That harsh result is tempered by §1328's reference to §523(a)(3), which generally provides for nondischargeability of claims not noticed in time to file a claim.  Next the court looked to the Bankruptcy Rules regarding extensions of time to file pleadings.  Rule 9006(b)(3) permits extensions to file claims only in accordance with the requirements of §3002(c).  This rule was amended in 2017 to allow a creditor to file a late claim if the notice given the creditor was insufficient to give the creditor a reasonable time to file a claim because the Rule 1007(a) schedule of creditors was not timely filed, or if the notice was mailed to the creditor at a foreign address.   Since Somerville did timely file the schedule of creditors and matrix, this section does not permit an extension of time to file the claim.  It is irrelevant to this provision that such matrix omitted this particular creditor.  This leaves the creditor with the remedy of §523(a)(3) as incorporated in §1328: a creditor with inadequate notice of the claims bar date who is not permitted to file a late claim is not subject to the chapter 13 discharge.  The creditor remains subject to the automatic stay of §362 and §1301 until such stay is terminated by court order or the operation of law.  Practice pointer: for debtors: it is generally worth pulling credit reports prior to filing, as well as requesting a complete list of creditors from the client prior to filing.  for creditors: be aware of the consequences of seeking allowance of a late claim.Michael BarnettMichael Barnett, PA506 N Armenia Ave.Tampa, FL 33609-1703813 870-3100https://hillsboroughbankruptcy.com    

In the Fifth Circuit's opinion in French v. Linn Energy, LLC (In re Linn Energy, LLC), 2019 U.S. App. Bankr. LEXIS 26595 (5th Cir. 9/3/19), which can be found here, Judge Edith Brown Clement deftly sums up the case in her first sentence:In this case we decide that payments owed to a shareholder by a bankrupt debtor, which are not quite dividends but which certainly look a lot like dividends, should be treated like the equity interests of a shareholder and subordinated to claims by creditors of the debtor.If that's all you wanted to know you can stop reading, but this opinion has a good explanation of how subordination of claims related to securities works.   You  may remember the children's game of chutes and ladders where a party landing on a ladder gets sent to the bottom.  That is an approximation of how subordination works.   Introduction to Subordination Under the Code There are three types of subordination recognized by 11 U.S.C. Sec. 510.   Section 510(a) gives force to contractual subordination provisions.   Section 510(c) allows for equitable subordination.   Finally, Sec. 510(b) allows subordination of claims related to securities.   Thus, subsections (a) and (b) provide for automatic subordination while subsection (c) depends on the specific facts and the court retains some discretion in applying it.  The actual text of Sec. 510(b) is somewhat dense.For the purpose of distribution under this title, a claim arising from rescission of a purchase or sale of a security of the debtor or of an affiliate of the debtor, for damages arising from the purchase or sale of such a security, or for reimbursement or contribution allowed under section 502 on account of such a claim, shall be subordinated to all claims or interests that are senior to or equal the claim or interest represented by such security, except that if such security is common stock, such claim has the same priority as common stock. There are three types of claims which get subordinated under this provision:a claim arising from rescission of a purchase or sale of a security of the debtor;a claim for damages arising from the purchase or sale of such a security; or a claim for reimbursement or contribution allowed under section 502 on account of such a claim.According to Judge Brown, "Section 510(b) serves to effectuate one of the general principles of corporate and bankruptcy law: that creditors are entitled to be paid ahead of shareholders in the distribution of corporate assets."   So far it seems simple.  There are three types of securities-related claims which get subordinated.  Subordination is mandatory.   However, what about a claim that doesn't fit neatly into one of those categories?   According to Judge Brown's opinion, the reach of Section 510(b), as defined by its purpose, is greater than its text.Usually by now, I would have discussed the facts of the case.  In a typical case, the facts tend to lay out the issue.  However, in this case, you cannot make sense of the facts until you have the statutory background I have set forth above.A Muddled Factual Mess Requiring Great Simplification and a Recap  A wealthy man owned a company.  Upon his death in 1930, he placed 250 shares of stock in a company called BPC into a trust for his relatives.  The relatives would receive a percentage of the dividends issued on the stock.   When the junior group of beneficiaries came of age, they had their stock shares issued to them.  However, their elders still had a right to receive a percentage of the income from the stock.   An equitable charge was issued against the stock to ensure that the senior trust beneficiaries received their share of the income.  This meant that although the junior beneficiaries owned the stock, their elders had the right to receive a percentage of the dividends.   In 1986, BPC went public and had a dispute with one of its shareholders.   The company agreed to buy out the shareholder.  However, the shares to be bought out were subject to the equitable charge.   As a result, retiring the shares would reduce the amount of income paid to the senior beneficiaries from the stock that was placed into trust in 1930.In 2013,  BPC agreed to a share for share exchange with Linn Energy, LLC.   Linn agreed to honor the deal to pay deemed dividends to the surviving senior beneficiaries of the trust, only one of whom was still alive.  Alas, upon the merger, the payments stopped.Linn filed a declaratory judgment action asserting that it did not owe anything to Bennett, who was the surviving senior beneficiary.  Bennett counterclaimed.  Then Bennett died and his estate filed an amended counterclaim.    In May 2016, Linn filed bankruptcy.  Bennett's estate filed a claim of $10 million of deemed dividends.   The Debtor objected to the claim and also sought equitable subordination.  The Bankruptcy Court granted equitable subordination.   To recap, Bennett, as a senior beneficiary of the trust, was entitled to receive a percentage of the dividends issued by BPC on certain stock.  BPC redeemed some of that stock but agreed to continue to pay the senior beneficiaries as though the stock had not been redeemed.  Linn did a stock exchange with BPC and agreed to honor the deemed dividends but didn't do it.Equitable Subordination  The Court described the test as follows but cautioned that a "formulaic check the box approach to subordination under the statute is impossible:"(1) a claim is for "damages," (2) the claim involves "securities," and (3) the claim "arise[s] from" a "purchase or sale" having a nexus with those securities.The Court then stated that:The most important question is this: Does the nature of the Estate's interest make the Estate more like an investor or a creditor? Because we conclude the deemed dividends gave the Estate benefits normally reserved for equity investors, we conclude subordination of all of the Estate's claims was appropriate.  The opinion goes on for several more pages but that is the gist.  If a claim involves a benefit normally reserved for equity investors, it is subject to being subordinated below the level of unsecured claims.   (Note:  Estate refers to the Bennett Estate, the claimant, and not to the bankruptcy estate).   While this approach does not seem to track with the text of Section 510(b), it does accurately reflect its purpose. Hat-Tip:  Thank you to my panel of advisors who helped me decide what to write about this week.  Don't worry.  I will get to alienation of affections next week.

How to file Bankruptcy in Philadelphia by a Top Rated Philadelphia Bankruptcy Lawyer Individuals and couples come to our office to file for Bankruptcy. Based on their situation, we advise them on whether Chapter 7 Bankruptcy, Chapter 13 Bankruptcy or no Bankruptcy is in their best interest. When filing for Bankruptcy protection, we can also advise which day of the month is the best day to file for Bankruptcy and bring the Automatic Bankruptcy Stay into effect. The following is the typical process of filing for Bankruptcy: 1. Gather Information of Creditors and Your Assets Get the information of the creditors to whom you owe money and your income information, as well as a list of any assets that you have and the appropriate information on them. We always get a copy of the Credit report showing who your creditors are. We also put together a list of all your assets as well as any liabilities (debts) that you have outstanding. 2. Complete Credit Counseling Before you file for Bankruptcy, you are required under the U.S. Bankruptcy Code to complete credit counseling with only very limited exceptions to the Credit Counseling requirements. This type of counseling is usually less than an hour long and can be done on the phone or the computer. The brief session reviews your financial situation and discusses options for dealing with your debt that usually confirms that Bankruptcy is your best option. 3. Complete the Bankruptcy Petition Complete the Bankruptcy Petition whether you are filing for protection under Chapter 7 Bankruptcy or under Chapter 13 Bankruptcy. There are over 20 different forms which total over 60 pages which need to be properly completed. There is a Voluntary Petition asking the Court to give you Bankruptcy protection where you must state if you are a renter and if you have filed for Bankruptcy within the last 8 years. The Schedules are as follows: Schedule A and B – a list of your real estate and personal assets, Schedule C – a list of your exemptions, Schedule D – a list of your secured debt, Schedule E – a list of your priority debt such as taxes, Schedule F – a list of your general unsecured debts, Schedule G – covers pending contracts and unexpired leases, Schedule H is a list of Co-Debtors or any Co-Signers that you have also signed for a debt, Schedule I – a list of your monthly Income and Schedule J is a list of your monthly expenses. You need to sign a form that the Schedules are true to the best of your knowledge. There is the Statement of Financial Affairs where you answer questions about finances, assets and any business you have. Next is the Summary of your assets and liabilities showing the total of your assets and debts. When filing a Chapter 7 you fill in a Statement of Intention regarding what you intend to do with your mortgage, car or other secured debt. When filing a Chapter 13 Bankruptcy you file a Repayment Plan instead. In addition, when filing Chapter 7 you must file a Current monthly income and Chapter 7 means test. This shows if you if your income and expenses justify you getting relief under Chapter 7. If you file for Chapter 13 you must file the Statement of Current Monthly Income and Expenses which shows if you are able to afford to pay back your creditors, Lastly, there are forms where you fill in your social security number and another form called a matrix that the Court uses to mail notices of your Bankruptcy filing to all of your creditors. 4. Go to U.S. Bankrupcty Court The U.S. Bankruptcy Court in Philadelphia is located at 900 Market Street. This is the physical location where any type of Bankruptcy case is filed whenever Chapter 7 Bankruptcy, Chapter 11 Bankruptcy or Chapter 13 Bankruptcy is filed in Philadelphia. When an attorney files the bankruptcy, it is filed online. A case number is given immediately upon the filing of the case and that is the case number you give to creditors who are now prohibited from contacting you. The Automatic Stay from the Bankruptcy filing now protects you. 5. A Trustee Reviews Your Case After filing, a trustee is appointed to review your case. The trustee is appointed whether you file for Bankruptcy relief under Chapter 7 or Chapter 13. Your Bankruptcy Lawyer supplies the Trustee copies of documents such as proof of your income, your bank balance statements, your last filed tax return (if you file taxes) and other documents regarding your assets and debts. 6. The Meeting of Creditors In Philadelphia, when you file for Bankruptcy protection, the meeting of creditors, also known as The Section 341(a) meeting required under Title 11 of the United States Bankruptcy Code is usually scheduled within 30-40 days. 7. Take Debtor Education Classes Take the second Bankruptcy course, also known as a debtor education or financial management class. This course is taken on the phone or online. You will be issued a Certificate showing you have completed the session. Try to take this class prior to the meeting of creditors. 8. Section 341(a) Meeting of Creditors This is where your attorney goes with you to meet your trustee. The trustee will ask questions to confirm that the Bankruptcy Petition is accurate. The trustee is looking to confirm that the information about your income, expenses, assets and liabilities is correct. He or she also looks to ensure that you have no valuable assets that you are trying to hide and that you have not transferred your property to friends or relatives. The meeting of creditors usually takes about 10-15 minutes. You must have a Government issued photo ID and proof of your social security number in order for the meeting to be held. a) At the conclusion of a Chapter 7 Meeting of creditors, the trustee will usually recommend a discharge if there are no issues. If the trustee has a question, he may ask for more documentation or in some cases continue the hearing. If the trustee finds no assets, he will file a report indicating no assets and issue a recommendation for a discharge. If there are no objections filed, the Bankruptcy Judge will usually enter a discharge approximately 60-75 days after the meeting of creditors. b) In a Chapter 13 case, the trustee will indicate anything else your lawyer should do with your case or if there is any need to change your repayment plan. Your Bankruptcy Lawyer will update the repayment plan to cover the allowable claims which are owed. If creditors object to your plan, it usually relates to a mortgage or car loan you want to keep that is not being correctly paid. Your Bankruptcy Attorney will then file an Amended Plan so that your plan matches what you owe. Once the Trustee is satisfied with your plan, the Trustee issues a recommendation to approve the plan, which the Court typically accepts. The Bankruptcy Judge then issues an Order confirming which means the Court is approving the plan. The post What Are the Steps for Filing Bankruptcy in Pennsylvania? appeared first on David M. Offen, Attorney at Law.

Franchise Services of North America v. United States Trustee (In re Franchise Services of North America), 891 F.3d 198 (5th Cir. 5/22/18)This is easily the most important case of the quarter.   It involves whether a debtor may circumvent normal corporate governance provisions to file a voluntary petition.   In this case, the answer was no.The Debtor purchased Advantage Rent-A-Car from Hertz.   The Debtor engaged an investment bank to help with the transaction.   The investment bank invested $15 million in the Debtor and received preferred stock.  The Debtor re-incorporated in Delaware and included a provision in its charter that it could not engage in a "liquidation event" without the consent of the preferred shares.  The Debtor also agreed to pay the investment bank $3 million.The Debtor filed Chapter 11 without seeking the approval of the preferred shareholder.   The Debtor's theory was that this arrangement was similar to a "golden share" provision whereby a creditor would receive a blocking position as part of its loan transaction.   The preferred shareholder moved to dismiss.    The Bankruptcy Court granted the Motion to Dismiss but authorized a direct appeal to the Fifth Circuit.The Fifth Circuit declined to answer the question as to whether "golden share" provisions were against public policy because the arrangement in this case was not a "golden share" transaction.  Instead, the investment bank invested $15 million into the Debtor and received preferred shares.   While there were fees outstanding which made it a creditor, those fees were separate and apart from the preferred share transaction.  As a result, the Fifth Circuit held that the Debtor could not circumvent its corporate documents and file a voluntary bankruptcy petition without the approval of the preferred shareholder.Century Surety Company v. Seidel, Trustee, 2018 U.S. App. LEXIS 17252  (5th Cir. 6/25/18)This was an insurance coverage dispute which arose in the context of a bankruptcy.   The owner of a restaurant gave alcohol and a date rape drug to an 18 year old girl.  He subsequently sexually assaulted her off-premises.    She sued the restaurant, among others, for providing her with alcohol.   The restaurant filed for chapter 11 and confirmed a plan creating a creditors' trust.   After a verdict against the restaurant, the plaintiff intervened in an insurance coverage declaratory judgment action.  The District Court granted summary judgment because the policy had a criminal acts exclusion.  Providing alcohol to a minor was a criminal act and therefore not covered.Deeprock Venture Partners, LP v. Beach (Matter of Beach), 2018 U.S. App. LEXIS 13029 (5th Cir. 5/16/18)(unpublished)A bankruptcy trustee and the largest unsecured creditor in the estate sued the debtor and his son for fraudulent transfers.  Following mediation, the trustee settled with the defendants.  Under the settlement, the estate would receive $1,015,000 and the debtor would waive his discharge.  The unsecured creditor objected but the bankruptcy court approved the settlement.    The Fifth Circuit, after considering the probability of success in litigating the claims, the complexity and expense of litigation and  other factors bearing on the wisdom of the settlement, found that the Bankruptcy Court did not abuse its discretion in approving the settlement.Fallon Family, LP v. Goodrich Petroleum Corporation (Matter of Goodrich Petroleum Corporation), 2018 US. App. LEXIS 17661 (5th Cir. 6/27/18)The Fallon Family and Goodrich Petroleum had a dispute over the validity of a mineral lease.  The parties settled and recorded a ratification of lease.   The ratification recited that good and sufficient consideration had been paid for the settlement.   Goodrich filed bankruptcy and the Fallon Family attempted to dissolve the settlement based on non-payment.   The Debtor successfully invoked its right to be considered as a good faith purchaser under 11 U.S.C. Sec. 544.   Because the recorded ratification stated that good and sufficient consideration had been paid, the ratification could not be undone based on non-payment.Furlough v. Cage (Matter of Technicool Systems Incorporated), 2018 U.S. App. LEXIS 16852 (5th Cir. 6/20/18)The first two paragraphs of this opinion written by newly-minted Fifth Circuit Judge Don Willett say all that needs to be said about this case:In bankruptcy litigation, the mishmash of multiple parties and multiple claims can render things labyrinthine, to say the least. To dissuade umpteen appeals raising umpteen issues, courts impose a stringent-yet-prudent standing requirement: Only those directly, adversely, and financially impacted by a bankruptcy order may appeal it.This appeal is from a bankruptcy court order approving a trustee's application to employ special counsel. Appellant Robert Furlough, owner of the Debtor, Technicool Systems, objects to Trustee Lowell Cage's application to employ Stacy & Baker, P.C. (SBPC), alleging that SBPC holds an interest "adverse to the estate" under 11 U.S.C. § 327(a). Both the bankruptcy court and the district court held that Furlough lacked standing to object. We agree. Furlough's indirect interest in the order fails to meet the strict requirements for bankruptcy standing. Because the order does not reach his wallet, he cannot reach this court.Judge Willett's statement that "Because the order does not reach his wallet, he cannot reach this court" is one of the most concise definitions of standing that I have seen.Valentine v. JP Morgan Chase Bank (Mater of Valentine), 2018 U.S. App. LEXIS 15957 (5th Cir. 6/14/18)(unpublished)The Bankruptcy Court entered an order lifting the automatic stay.  The debtor filed a notice of appeal and an amended notice of appeal.   The debtor did not pay the filing fee or order the transcript.  The district court gave the debtor a notice of delinquency.   The debtor filed a motion to proceed in forma pauperis with a notarized affidavit.   The district court informed the debtor that she would need to use the prescribed form for an IFP motion or her appeal could be dismissed.   The debtor did not do so.  The case was dismissed.   The Fifth Circuit affirmed the dismissal.OHA Invs. Corp. v. Schlumberger Tech. Corp. (In re ATP Oil & Gas Corp.), 888 F.3d 122 (5th Cir. 4/17/18)This case dealt with liens under the Louisiana Oil Well Lien Act.    The Court found that a safe harbor provision in the Act extinguished the liens.   Specifically, the Court found that the Louisiana statute provided that the liens did not apply to a party that purchased an overriding royalty interest.   While the court took fifteen pages to resolve the statutory question, it ultimately relied on the principle that  "If the statutory text is unambiguous, our inquiry begins and ends with the text."