In a rebuke to the bankruptcy judges in the 7th Circuit, the circuit court rejected the general conclusion by such judges that vehicles remained property of the estate post-confirmation, and therefore were not subject to booting or towing for post-petition fines.  In re Steenes, 2019 U.S.App.LEXIS 7543 (7th Cir. 14 March 2019).  The City of Chicago asked the court to vacate orders keeping vehicles in the estate in pending cases in bankruptcy court.  The bankruptcy court denied them, stating solely that the court as an institution routinely keeps all assets in all chapter 13 cases.  The bankruptcy court also denied the request to treat the fines as administrative expenses, necessary for the preservation of each estate's property.   On appeal the 7th Circuit expressed concern that chapter 13 bankruptcy would create immunity from traffic laws.  Under 11 U.S.C. §1327(b) unless the plan or order confirming provides otherwise, all property of the estate vests in the debtor upon confirmation of the chapter 13 plan, thereby making the debtor personally responsible for the expenses of maintaining such property.   While §1327(b) gives bankruptcy judges discretion to include in the confirmation order a provision holding assets in the estate in particular cases, good cause must be shown for such an exception.  It is error to simply flip the statutory presumption as a norm.  The reasons cited by counsel for debtors, that debtor's need cars to earn a living and make the plan payments, is insufficient.  The owner of a vehicle must pay for gasoline, insurance, repairs, maintenance, parking, and all operating costs.  There is no basis to distinguish public providers of parking from the other involuntary creditors for such costs.   In order to overturn the presumption of property vesting in the debtor upon confirmation, courts are required to carry out a case specific analysis supported by good reasons.  As this was not done, the bankruptcy order was reversed, and an order should be entered restoring the estate assets to the debtors' personal ownership.  Note that the result could easily be modified by debtor's attorneys by simply including a provision in the plan itself to vest property in the debtor upon discharge, rather than upon confirmation.  Any parking fines would remain non-dischargeable post-petition debts collectible after discharge; and the court could consider such expenses an administrative expense.  The case also calls into question many bankruptcy court's conclusions that post-petition causes of action are property of the estate when plans provide for vesting upon confirmation.Michael BarnettMichael Barnett, PA506 N Armenia Ave.Tampa, FL 33609-1703www.hillsboroughbankruptcy.com

  In a case that raises both the issue of what should be included in the notice of final cure, as well as the effect of an order on such notice, the debtors prevailed in W. Dmsion Specialized Loan Servicing v. Devita, 2019 U.S. Dist. LEXIS 41652, Case No 5:18-cv-283-D (E.D. N.C. 14 March 2019).  While it is common for debtor's to request a ruling under Fed. R. Bankr. P. 3002.1 that the mortgage is current upon completion of payments in a chapter 13 plan, the chapter 13 trustee's notice of final cure payment under this rule went a step further, and stated the total amount due on the mortgage as of completion of the plan.   This amount was computed by deducting the amount paid by the trustee (apparently including interest and escrow) from the total indebtedness as of when the case was filed.  The trustee sent this notice to the mortgage company, SLS, which filed a response agreeing that the prepetition mortgage arrearage had been paid in full, and that all post-petition payments had been made, but did not respond to the allegation as to the balance due on the mortgage.  In the motion to the court to declare the mortgage current, the trustee stated that he requested a detailed mortgage history from the mortgage but that the mortgage did not respond.   The motion stated that the notice had stated the proposed unpaid principal balance of $104,547.51 and that SLS had filed a response 'agreeing with the trustee's notice.'  The motion sought a declaration that the unpaid principal balance on the mortgage was $104,547.51.  SLS did not respond to the motion,  and on 23 August 2017 the bankruptcy court entered an order determining that the principal balance on the mortgage as of 25 April 2017 was $104,547.51.    The dispute arose when SLS issued a notice of default to the debtors on 24 October 2017 asserting that the debtors had missed their November 2017 payment.  Debtors then moved for sanctions asserting SLS failed to comply with the court's order determining the mortgage was current.  SLS then realized that the court's order included a finding as to the principal balance, and on 21 February 2018 it sought reconsideration of that finding; arguing that it was unaware that it needed to respond to the trustee's proposed balance in its notice.  SLS also argued that the trustee had intentionally applied interest and escrow payments to reduce the principal.  At a hearing on the motion to reconsider, SLS's witness testified it was not aware a payment history was requested, and it had confused the trustee's notice with the motion.  It also produced evidence showing the principal balance as of 25 April 2017 should have been $151,547.21.  The bankruptcy court denied the motion to reconsider finding that SLS failed to timely object to the motion despite proper service.  SLS timely appealed this decision.  The district court first looked to Rule 60 of the Fed. R. of Civ. Procedure.  This rule requires the moving party to demonstrate that its motion is timely, it has a meritorious claim or defense, that the nonmoving party will not suffer unfair prejudice from setting aside the judgment, and that exceptional circumstances justify relief.1  If the moving party satisfies these requirements, it must also satisfy one of the six enumerated grounds for relief under Rule 60b.    The appellate arguments focused on whether the debtors would suffer unfair prejudice, and whether extraordinary circumstances exist.  The appellate court found that the vacating of the court order after the debtors had relied on the court's decision can cause unfair prejudice, and that SLS presented no evidence at the bankruptcy hearing as to whether the debtors would suffer unfair prejudice.  The district court found it was not required to make a finding as to this issue.   The district court found that the extraordinary circumstances argument weighed in favor of the debtors.  In making an extraordinary circumstance determination courts must engage in the delicate balancing of the sanctity of final judgments, expressed in the doctrine of res judicata, and the incessant command of the court's conscience that justice be done in light of all the facts.2  Any loss to SLS arose because it failed to respond to the trustee's notice and motion.  Further, even if it had met the threshold requirements above, SLS is not entitled to relief under Rule 60(b). The bankruptcy court rejected it's arguments under Rule 60(b)(1) and 60(b)(6).  SLS now also seeks relief under Rule 60(b)(4).   Rule 60(b)(1) permits a court to relief a party from a judgment for mistake, inadvertence, surprise, or excusable neglect.  As SLS has not explained why it failed to object to the trustee's motion beyond its failure to know local bankruptcy procedure.  It is an experienced litigant in the court and actively engaged in litigation with the trustee, yet ignored the trustee's notice and motion.   This does not support a showing that SLS was not at fault justifying relief under Rule 60(b)(1).  The Fourth Circuit construes Rule 60(b)(4) narrowly, requiring a showing that the court lacked personal or subject matter jurisdiction or acted contrary to the process of law in order to void a judgment.3   The court rejected SLS's argument that the extent of a lien should be determined in an adversary proceeding, thereby divesting the court of subject matter jurisdiction.  However, as this was not raised in the bankruptcy court, the argument was not preserved for appeal.  Alternatively the trustee provided SLS with notice in bolded font that he calculated the principal balance to be $104,547.51, and served a copy of the motion on SLS before filing with the court.  Accordingly SLS was provided sufficient notice to satisfy due process.  As to the requirement of an adversary proceeding, such requirements are procedural and not jurisdictional.  The court also rejected the Rule 60(b)(6) argument that it would be unfair to deny relief to SLS in that the local rule authorizing the trustee to determine the principal balance is substantive, and conflicts with the Federal Rules of Bankruptcy Procedure if it lacks a good-faith element.  Again, the specific argument was not raised on appeal; but the court indicated it would still reject the argument.  The trustee computed the unpaid principal using available documents, contacted SLS twice for more documentation, and provided notice of the unpaid principal balance three times.  SLS acknowledges it failed to correct the principal balance or alert the court to the issue because its counsel lacked familiarity with local procedures and it did not know it needed to respond to that aspect of the trustee's notice.  This does not present circumstances of extreme and undue hardship in an unusual situation where principles of equity mandate relief.  The court found that the local rule requiring the setting forth of the amount due on the mortgage as of a specific date in Rule 3002.1(h) motions was proper.    The district court found that the local rule comports with the purpose and text of Rule 3002.1(h) because it sets for a procedure directed toward determining the amount necessary to cure the mortgage debt, ie the unpaid principal balance on the mortgage.  A rule is procedural when it governs the judicial process for enforcing rights and duties recognized by substantive law and for justly administering remedy and redress for disregard or infraction of them.4   The fact that some applications of the rule affect substantive rights in some circumstances does not make a rule substantive.1 Robinson v. Wix Filtrate Con,., 599 F .3d 403, 412 n.12 (4th Cir. 2010).↩2 United States v. Welsh, No. 5: 11-HC-2209-D, 2017 WL 7805581, at *10 (E.D.N.C. Mar. 16, 2017) (unpublished), aff'd, 879 F.3d 530 (4th Cir. 2018)↩3 Wells Fargo Bank, N.A. v AMH Roman Two NC, LLC. 859 F.3d 295, 299 (4th Cir. 2017).↩4  Hanna v. Plumer, 380 U.S. 460, 464 (1965)↩Michael BarnettMichael Barnett, PA506 N Armenia Ave.Tampa, FL 33609www.hillsboroughbankruptcy.com

Are you struggling to pay business debts? Are you feeling the weight and stress of what feels like an endless amount of debt crushing you? Is your business failing to produce enough income to cover expenses? Could your business really benefit from being reorganized? If you are a business owner, filing bankruptcy probably is one of the last things you want to consider. Yet, according to the Small Business Administration (SBA) more than 50% of businesses fail within the first ten years. Unfortunately, filing business bankruptcy is something many business owners need to consider. Filing bankruptcy does not mean the death of your business. Actually, filing either Chapter 11 or Chapter 13 bankruptcy allows you to save your business by reorganizing your debt. Filing bankruptcy can bring much needed relief from financial stress and provide a way for you to give your business a fresh, financial start. The post How Filing Bankruptcy Affects Your Business appeared first on Tucson Bankruptcy Attorney.

Shenwick & Associates is happy to announce that we have just settled another taxi medallion debt with a favorable result for the client. In resolving this case, IRC (Internal Revenue Code) § 108was raised in the settlement negotiations, and the purpose of this blog post is to discuss IRC § 108, the structure of the settlement agreement and the impact of IRC § 108 on the settlement.IRC § 108 provides that if an individual or an entity is relieved of indebtedness, then that indebtedness is deemed to be ordinary income to the debtor or taxpayer, and they must report that income on their tax return. There are two exceptions to this rule; first, if the taxpayer/debtor files for bankruptcy protection, then the relief of indebtedness income is not picked up; and second, on a balance sheet basis, if the individual’s liabilities exceed their assets and they are insolvent, then they do not have to pick up the income.In many of our taxi medallion workouts, we engage in the workout to avoid a personal bankruptcy filing by the taxi medallion owner, so the bankruptcy filing exception to IRC § 108 does not apply.An example of the application of IRC § 108 will help to explain the above. Let’s assume that an individual owes a financial institution $1,000,000.  The individual is unable to pay the $1,000,000, so the parties enter into a workout (an out of court settlement) in which the individual repays the financial institution $500,000. According to IRC § 108, the taxpayer must pick up the $500,000 differential between what he or she owed and paid as ordinary income. Many clients assume that the $500,000 of differential would be deemed to be capital gains, but it is ordinary income.The second question raised by clients is how does the IRS find out about this relief of indebtedness income? The answer is that the institution is required to file a Form 1099-C with the IRS reporting the relief of indebtedness income for more than $600 of forgiven debt.So now let’s look at our recent taxi medallion settlement and how IRC § 108 impacted the settlement. The facts of the case were as follows: a bank was owed $650,000 for a taxi medallion owned by a mini fleet and the loan was guaranteed by an individual. The owner of the mini fleet and guarantor of the taxi medallion loan was not earning enough money from driving or leasing out the medallion to repay the $650,000 and she didn’t want to file for personal bankruptcy. We negotiated with the bank, and the settlement that was ultimately reached was as follows: (1). the mini fleet would surrender the medallion to the bank; (2) the guarantor would pay the bank $150,000 as part of the settlement; and (3) the parties would enter into a settlement agreement with mutual releases to document the settlement.The bank drafted the settlement agreement, which provided that the bank would file a 1099-C in an amount to be determined for relief of indebtedness income to the guarantor. We raised this issue with the guarantor, who sought advice from her CPA.  Her CPA indicated that they could not give her clear guidance and that this area of the tax law was murky, but that if the 1099-C was issued to the guarantor, she would pick up a significant amount of taxable ordinary income.We indicated that the settlement agreement should be revised to indicate the amount of the release of indebtedness income. The formula is the amount of the medallion loan, less the amount of money paid by the guarantor, less the value of the taxi medallion; in this case, $650,000-$150,000-$200,000=$300,000.The wild card issue here was what was the value of the medallion when it was surrendered? We track the TLC’s monthly medallion transfer reports, and we advised the guarantor as to what we believed the value of the medallion was. We've also noted that many clients have imputed value for medallions for their internal books and records of $200,000 to $225,000.We also advised the client that it would be better to have the relief of indebtedness income reported the corporation instead of the individual guarantor, and that if the corporation elected to convert from a S corporation to a C corporation, the income would be reported as payable by the corporation instead of the individual guarantor.We’re not tax lawyers, but we are familiar with the IRC and James Shenwick has an LLM in Taxation from the NYU School of Law. We will raise potential tax issues in these workouts for clients, which need to be addressed by their tax advisers or CP As.The client acknowledged the tax risk and moved ahead with the settlement agreement, but she indicated that she had losses from other assets which she could offset against the taxi medallion relief of indebtedness income and was thrilled to surrender the taxi medallion and compromise the related loan. We were thrilled to be part of another successful taxi medallion workout!  Clients who own “under water” taxi medallions are encouraged to consult with James Shenwick to discuss their optimal strategy with respect to their taxi medallion loans. Jim

MIDTOWN, Manhattan -- It's a proposal that would affect almost every driver in New York City starting in 2021, if it passes the state legislature this year. However, congestion pricing -- the plan that would charge drivers for driving in the southern third of Manhattan's streets -- has already been in effect for yellow and green cab drivers since February 2. Many of the drivers say that the added cost is ruining their business. On Wednesday, dozens of cab drivers held a mobile, and very loud, protest against the surcharge outside of Gov. Andrew Cuomo's office. A few dozen cabs taped protest signs to their vehicles, and drove around city blocks near the governor's office on Third Avenue and 41st Street on Thursday afternoon. As they passed, they honked their horns incessantly, and chanted anti-surcharge slogans along with other protesters, who were on the sidewalk. They all said that the $2.50 surcharge, which is charged to passengers in addition to other base charges at the beginning of each ride, is killing business, and killing them, literally. "One of my brothers, he bought a medallion [for] $700,000, [that] he couldn't pay to the bank," said cab driver Richard Chow, about his deceased brother, Yu Mein "Kenny" Chow. "He committed suicide in May." A medallion is a metal plate displayed on the hood of a cab to show that it has city approval to operate. Each medallion costs six figures, but as recently as 10 years ago, they sold for $1 million a piece. There are now so many for-hire cars, such as Uber and Lyft, on New York City streets that medallions have significantly lost their value. Some drivers are able to get one for as low as $175,000. Drivers also said that the congestion surcharge, which is designed to raise money for public transit improvements, is reducing the number of customers the taxis can attract. "In rush hour, I pick up only one fare, two fares, that's it," said one driver who only gave his last name, Tong. "I lose a lot of business." He was among the dozens honking their horns and yelling slogans outside of the governor's office.They said that they want their voices heard in Albany by the legislature, as well as by Gov. Cuomo. "We wanted to remind our governor," said Bharavi Desai, president of the Taxi Drivers' Alliance, an advocacy group, "that behind each wheel is a person that is struggling, and we need an exemption" to the surcharge. Her organization is endorsing a hike in taxes on higher income sources that it says are untaxed or under taxed. Desai said that taxes on hedge fund managers' incomes could raise $3 billion yearly for public transport, for example. Wednesday's protest is the first of a series. Two more are planned for later this month.Copyright 2019 WPIX.  All rights reserved.

Did you know that you don’t necessarily need to be “driving” in order to be charged with a DUI? That’s right. Under Pennsylvania law, police can charge you with driving under the influence if you are in what’s known as “actual physical control” of a vehicle. Actual physical control can mean that you are simply […] The post Can I Be Charged with DUI in Pennsylvania If I Wasn’t Driving the Car? appeared first on .

If you are contemplating filing for bankruptcy in Pennsylvania, you don’t have to worry that going to court will consume much of your time. Laws of civil procedure govern bankruptcy filings in different ways than traditional civil cases. The U.S. Bankruptcy Code provides a structure where court appearances are situation-specific. Hearings requiring a client’s presence […] The post Do I Need to Go to Court If I File for Bankruptcy in Pennsylvania? appeared first on .

  In a fight which was likely more a matter of principle than finances in the given case, a Puerto Rico bankruptcy court disallowed $150 in fees requested by Banco Popular de Puerto Rico for filing a notice of mortgage payment change in In re Marzan, 2019 Bankr. LEXIS 499 Case #17-06250 (ESL) (Bankr. D.Puerto Rico, Feb 20, 2019).   The mortgage payment change was based on an escrow account payment adjustment of $208.94.  The debtors initially objected to the Notice of Postpetition Mortgage Fees, Expenses, and Charges on the basis that it was devoid of itemized information as mandated by Rule 3002.1(c).  The bank filed an amended notice noting that $50 corresponded to attorneys fees and expenses regarding the notice of postpetition mortgage payment change,m and $100 corresponded to attorney fees and expenses regarding the Notice of Postpetition Mortgage Fees, Expenses, and Charges.  Debtor's also alleged that the escrow change resulted from interest rate and escrow adjustments, which notices are subject to a disclosure requirement pursuant to the Truth in Lending Act and Real Estate Procedures Act; and that federal law forbids the bank from assessing charges for the preparation of escrow analysis and reports.1   Rule 3002.1 was intended to provide a procedural device for bankruptcy courts to resolve how much a chapter 13 debtor owes on a residential mortgage and prevent 'unexpected deficiencies' prior to the closing of these cases.  Rule 3002.1(b) requires a secured creditor holding a lien over the residence of a chapter 13 debtor to give notice to the debtor, debtor's counsel, and the chapter 13 trustee of any post-petition change to the mortgage payment at least 21 days before the new payment is due.  Rule 3002.1(c) requires that any recoverable fees, charge, or expense must be notified within 180 days from the date it was incurred and must be detailed and itemized.  Rule 3002.1(d) requires use of an official form, and provides that there is no presumption of validity of such charges.  Rule 3002.1(e) allows 1 year for the debtor to challenge any itemized fee, charge or expense.    The court concluded that a notice of postpetition mortgage fees, expenses, and charges is a business function that does not require the assistance of counsel.  If there are specific reasons why the assistance of counsel is needed, the need must be included in the notice for there to be an entitlement to a fee. 1 Debtors supported their arguments in In Re Carr, 468 B.R. 806 (Bankr. E.D.Va. 2012) (Denying fees charged by creditor for its response pursuant to Rule 3002.1(g)) and In Re Adams, 2012 Bankr. LEXIS 1943, 2012 WL 1570054, (Bank. E.D. NC 2012) (Determining that mortgage companies have routinely serve notices of mortgage payment change and that the creditor had failed to show that the services provided required the assistance of an attorney)↩Michael Barnett506 N Armenia Ave.Tampa, FL 33609www.hillsboroughbankruptcy.com

   In Shearer v Titus (In re Titus), 2019 U.S. App. LEXIS 4938 (3rd Cir. 20 February 2019) the Court found that when an insolvent attorney, Titus, facing wage garnishment bypassed the garnished bank account, and had his wages transferred directly to a tenancy by the entireties account with his wife, both the attorney and his spouse were liable for fraudulent transfer of such funds.  The debt arose from the dissolution of the attorney's prior law firm, resulting in a multi-million dollar judgment for unpaid rent against the attorney and other partners of the dissolved law firm.  In an apparent attempt to avoid garnishment of such funds, Titus deposited the funds in the joint account with his spouse.  The landlord then brought a fraudulent transfer action against Titus and his spouse, resulting in an involuntary bankruptcy against Mr. Titus; whereupon the bankruptcy trustee took over the fraudulent transfer claim.  The bankruptcy court concluded that direct deposit of the wages into the joint account was a fraudulent transfer subject to recovery against either spouse.  As to the amount recoverable, the issue became what portion of the transfers were spent on necessary expenses (ie lawnmower and batteries) and non-necessary expenses (ie their grandson's application fee to Notre Dame).  To the extent the funds were used for necessary expenses, they were not recoverable.  The court used the Pennsylvania Uniform Transfer Act (PUFTA), 12 PA. Cons. Stat. §5107(a)(1) to support the claim.  The statute allows a trustee to avoid any fraudulent transfer to the extent necessary to satisfy the creditor's claim.  §544(b)(1) in turn allows the bankruptcy trustee to avoid any transfer that is voidable under applicable law by a creditor.  Finding first that the payment of wages into the joint account was a transfer, the 3rd Circuit found that the wages began as an asset of Mr. Titus, but ceased to be his asset once deposited into the entireties account, since under PUFTA the definition of asset excludes property held in by tenancy by the entireties.  A number of cases have held that the spouse of an insolvent debtor is also personally liable for such transfer.1  Mr. Titus is liable both as transferor and transferee of the funds.  The method of computing the liability was subject of substantial discussion in he decisions.  The starting point of the discussion is that under PUFTA a transfer is not fraudulent if the wages deposited into the entireties account is used to pay for reasonable and necessary household expenses.   The Third Circuit proposed a general rule that it would presume that wages were not spent on necessities, requiring the debtor to rebut the presumption by producing some evidence as to uses of the funds in the entireties account.  This serves an information-forcing purpose to require the defendants to come forward with information about how they used the funds transferred into the account.  Once the defendants have met this burden, the trustee bears the burden of persuasion as to all elements of a constructive fraudulent-transfer claim under PUFTA, including showing by a preponderance of the evidence that the wages were not spent on necessities.  When fraudulent transfer funds and other funds are commingled in an account courts have created a presumption that all nonwage (non-fraudulent) deposits were spent on non-necessities before any wage (fraudulent transfer) deposits were spent on non-necessities.2    As the trustee did not raise this issue on appeal, any challenge to the method used at the lower court was waived.  In future cases the 3rd Circuit posited that a better approach would be to presume that the amount of wage and nonwage income spent on necessities should be in proportion to the total amount of wage and nonwage deposits in the account.  Finally, the court found that the Titus would have to produce evidence as to the source of all non-wage deposits  in order to obtain the reduction of liability from such deposits.   1 Garden State Standardbred Sales Co. v. Seese, 417 Pa. Super. 15, 611 A.2d 1243, 1243 (Pa. Super. Ct. 1992)↩2 Titus v. Shearer (Titus IV), No. AP 10-2338, 2017 U.S. Dist. LEXIS 193547, 2017 WL 5467712, at *5 (W.D. Pa. Nov. 14, 2017)↩Michael Barnett506 N Armenia Ave.Tampa, FL 33609-1703www.hillsboroughbankruptcy.com

The January 2019 New York City Taxi & Limousine Commission (TLC) sales results have been released to the public. And as is our practice, provided below are Jim Shenwick’s comments about those sales results.1. The volume of transfers fell from December. In January, there were 94 unrestricted taxi medallion sales.2. 79 of the 94 sales were foreclosure sales (84%), which means that the medallion owner defaulted on the bank loan and the banks were foreclosing to obtain possession of the medallion. One sale was an estate sale. We disregard these transfers in our analysis of the data, because we believe that they are outliers and not indicative of the true value of the medallion, which is a sale between a buyer and a seller under no pressure to sell (fair market value). 3. The large volume of foreclosure sales (approximately 84%) is in our opinion evidence of the continued weakness in the taxi medallion market. 4. The 14 regular sales for consideration ranged from a low of $135,000 (one medallion) to $175,000 (one medallion), $210,000 (one medallion), $228,000 (one medallion), $340,000 (two medallions), $350,000 (six medallions) and a high of $373,337.02 (two medallions) for a median value of $350,000, a 106% increase from December’s median value of $170,000.  5.  The fact that 84% of all transfers in January 2019 were foreclosure sales shows continued weakness in the taxi medallion market and no sign of a correction. 6. At Shenwick & Associates we believe that the value of a medallion is approximately $162,000+ and dropping. Please continue to read our blog to see what happens to medallion pricing in the future. Any individuals or businesses with questions about taxi medallion valuations or workouts should contact Jim Shenwick at (212) 541-6224 or via email at [email protected].