Madison did research on the bankruptcy means test.  Then she emails me for help. Hello. I have been doing some research and I believe my husband and I should file for Chapter 7 Bankruptcy but I’ve taken the means test and our income is well over what I’ve seen the limit for a three household […]The post Madison emails about the Bankruptcy Means Test appeared first on Robert Weed.

A Mortgage Company Rep Buys Me Lunch Every week I assure five or six nervous couples that, yes, it is possible to buy a house and get a mortgage after filing bankruptcy. Current government regs say you can qualify for a mortgage and buy a house two years after a chapter 7 discharge.  (It’s three […]The post Can I get a mortgage after filing bankruptcy? appeared first on Robert Weed.

Expanding upon its decision in Matter of Zibman, 268 F.3d 298 (5th Cir. 2001), the Fifth Circuit has ruled that the proceeds from sale of a Texas homestead lose their exempt character if they are not reinvested within six months--even when the sale takes place post-petition.   Viegelahn v. Frost (In re Frost), No. 12-50811 (5th Cir. 3/5/14).    The opinion can be found here.   The opinion creates a malpractice trap and arguably conflicts with this week's Supreme Court decision in Law v. Siegel.   The ProblemThe Bankruptcy Code states that "property exempted under this section is not liable during or after the case for any debt of the debtor that arose . . . before the commencement of the case" except for debts for taxes and domestic support obligations, unavoided liens, debts owed by an institution-affiliated party and debts for fraud incurred in obtaining a student loan.   11 U.S.C. Sec. 523(c).   Further, exempt property is not liable for administrative expenses except for the cost of recovering that property.   11 U.S.C. Sec. 522(k).    These provisions should make it pretty clear that once property is allowed as exempt, it is not liable for pre-petition debts or administrative claims with very limited exemptions.   However, Texas has a vanishing exemption.    While Texas has one of the most generous homestead exemptions in the country, proceeds from sale of a homestead only remain exempt so long as they are reinvested within six months.   Texas Property Code Sec. 41.001(c). In Matter of Zibman, the Fifth Circuit held that the Texas Property Code grants only a provisional exemption to homestead proceeds.   Where the homestead was sold prior to bankruptcy and the debtor held proceeds on the petition date, the exemption would be allowed subject to the reinvestment provision.  Zibman can be reconciled with section 522(c) and (k) for the reason that the limitation on the exemption existed on the petition date.   In other words, the debtor had an exemption in a fund of money so long as he used that money to purchase a new homestead within six months.   This is contrasted with the exemption in the homestead itself which was not subject to defeasance.   The Frost FactsMark Frost filed a chapter 13 petition on November 30, 2009.   At that time, he owned a home in Cibolo, Texas.    On March 26, 2010, the Bankruptcy Court entered an order allowing him to sell his home.  The Trustee objected to the sale on the basis that the Debtor should be required to re-invest the proceeds within six months.    The Court allowed the sale but provided that any liens or interests not specifically provided for in the Order would attach to the proceeds and that the proceeds would be deposited with the Chapter 13 Trustee "pending further orders of this Court as to the validity, priority and extent of such liens and interests."    The sale closed on July 1, 2010 and resulted in net proceeds of $81,108.67.    The Debtor subsequently proposed a plan that would pay creditors 1% on their claims.   On December 5, 2010, which was about seven months after the sale, the Trustee objected to the plan. The Trustee argued that the proceeds from sale of the homestead should be paid to creditors because they had not been reinvested within six months.   Of course, the proceeds could NOT have been reinvested within six months because the Trustee had been holding them.    The Bankruptcy Court entered an interim order allowing the Trustee to retain sufficient funds to ensure a 100% distribution to creditors and returning $40,000 to the Debtor.     On January 27, 2011, the Court conducted a hearing on the Trustee's Objection to the Motion to Sell Property Free and Clear of Liens.    This was odd because the prior order entered on March 26, 2010 did not indicate that the Court was reserving a ruling upon the Trustee's objection.   At this hearing, the Court ruled that the Debtor would be given six months in which to reinvest the proceeds.   Because the Trustee had been in possession of the proceeds, the Court held that the six month period would be tolled until January 27, 2011.    However, the Court also ruled that because the Debtor had spent $23,000.00 of the funds previously distributed to him for purposes other than buying a new homestead, that these funds had lost their exempt character and would have to be paid to creditors under the plan.   Thus, the Court gave and the Court gave away.   While the Court authorized payment of $40,000.00 to the Debtor, it took back $23,000. The Debtor appealed to the District Court which affirmed.    The Court's ruling was limited to the $23,000 which was not reinvested.   While the record is not clear, apparently the other funds released to the Debtor were reinvested in a homestead since they were not mentioned again.Note:   According to the Fifth Circuit, $18,000 was held in trust for the Debtor to purchase a new homestead and the remaining funds were paid to creditors.   This does not appear to accurately describe what transpired below.   The facts listed above are taken from my review of the Bankruptcy Court docket and orders rather than the Fifth Circuit's opinion.     The Fifth Circuit's RulingThe Fifth Circuit affirmed.   It held that Zibman applied to the post-petition sale of the homestead.   The Court found that while the Debtor's exemption was fixed on the petition date under the "snapshot" rule that "it is the entire state law applicable on the filing date that is determinative."   The Fifth Circuit rejected the argument that section 522(c) rendered the homestead and its subsequent proceeds permanently exempt.    The Court stated:Frost’s homestead was exempted from the estate—when the rest of his assets were not—by virtue of its character as a homestead. As in Zibman, this “essential element of the exemption must continue in effect even during the pendency of the bankruptcy.” Id. Once Frost sold his homestead, the essential character of the homestead changed from “homestead” to “proceeds,” placing it under section 41.001(c)’s six month exemption. Because he did not reinvest those proceeds within that time period, they are removed from the protection of Texas bankruptcy law and no longer exempt from the estate.Opinion, pp. 5-6.The Fifth Circuit also ruled that the timing of the sale, whether pre or post-petition did not affect the analysis.  This temporal distinction is insufficient to escape the holding of Zibman. The court’s insistence that an “essential element of the exemption must continue in effect even during the pendency of the bankruptcy case” indicates that a change in the character of the property that eliminates an element required for the exemption voids the exemption, even if the bankruptcy proceedings have already begun. Under this court’s precedent, (i) the sale of the homestead voided the homestead exemption and (ii) the failure to reinvest the proceeds within six months voided the proceeds exemption, regardless of whether the sale occurred pre- or post-petition.Opinion, p. 6.    The Court also rejected the argument that Schwab v. Reilly, 560 U.S. 770 (2010) preempted the Texas law.  Schwab v. Reilly divided exemptions into those which consist of a dollar amount versus those which attach to the thing itself. The Debtor argued that because the thing was exempt that it remained exempt.   As stated by the Debtor, Schwab held that "exempt is exempt."   The Fifth Circuit stated that "The rationale of Schwab simply does not apply to this case."    However, its stated rationale suggests that the Court did not understand the Debtor's argument.   The Court said that Schwab did not apply because Schwab involved an exemption limited by dollar amount and the Texas exemption was unlimited.   However, that really misses the Debtor's point that under Schwab, the thing itself was exempt and therefore could not return to the estate.The Need for ReconsiderationThe Fifth Circuit might want to take another look at this one.   For one thing, the opinion completely fails to appreciate the case's unique procedural posture which could have provided a more coherent basis for the Court's ruling.  It also seems to fumble the intersection between the Bankruptcy Code and Texas exemption law.   This could result in major mayhem in future cases.  This was a chapter 13 case.   As a result, property acquired post-petition is included in the estate.   11 U.S.C. Sec. 1306.   The proceeds from sale of the homestead could have been analogized to property acquired post-petition which would only be exempt if re-invested in a new homestead within six months.    As a result, the timing that would matter is whether the homestead was sold during the case or subsequently.    However, under the Court's ruling, if a debtor files chapter 7 bankruptcy and sells his homestead many years later, the Trustee could reopen the case and seek to administer the proceeds if they were not reinvested.    Judge Tony Davis rejected the application of Zibman to a post-petition sale of a homestead in a chapter 7 case in a well-reasoned opinion in In re D'Avila, No. 13-11173 (Bankr. W. D. Tex. 8/21/13), which can be found here.    The Frost opinion suggests that it would be equally applicable in a chapter 7 or a chapter 13 case.   That would be bad.    I also think the Court was incorrect on the temporal issue.  When the Debtor filed bankruptcy on November 30, 2009, he owned a homestead.   By the time that he filed the Motion to Sell Property Free and Clear of Liens, the exemption on that property was final.   As a result, the property left the estate.   In the words of Neil Young, "once you're gone, you can't come back."   That applies to property of the estate as well.    Would the court hold that property sold free and clear of liens or abandoned could revert back to the estate after the debtor and third parties had acted in reliance?  I don't think so.  Additionally, the factual application of the case is contrary to Texas law.   Under Texas law, proceeds from a homestead remain exempt for six months.  The Debtor can do whatever he wants with the money during those six months.   If the Debtor spends the proceeds of the homestead on fine dining and poor investments, creditors can't get the money back.   However, the Bankruptcy Court held (and the reviewing courts agreed) that spending part of the homestead proceeds during the six month exemption period meant that a similar portion of the unexpended homestead proceeds lost their exempt character.   Huh?  That does not seem to make sense.   I think that the Debtor was on the right track.   Exempt is exempt with one caveat.   I would agree that if a debtor sells a homestead during a chapter 13 and has proceeds left over six months later, that the unexpended money would constitute property of the estate.   However, if the Debtor uses the money to buy a new home or spends it on wild living, it is simply not there to become property of the estate.  The Court might also want to think about how Law v. Siegel affects this case.    In Law, the Ninth Circuit held that a Bankruptcy Court could surcharge a debtor's exempt property based on bad behavior.    The Supreme Court reversed, holding that the clear language of section 522(k) prevented the Court from using exempt property to pay administrative expenses regardless of the reason.   Section 522(c) says the same thing with regard to pre-petition claims.    Granted, Law v. Siegel was about the abuse of section 105 to override a clear statutory provision while the Court did not rely on section 105 in this case.   However, the result of undermining the statutory protection is the same and should make a difference.   Proceed With Caution If This Opinion Remains the LawIf the Frost case remains good law, the only good advice to a debtor with a Texas homestead is plan to hold on to it indefinitely or be ready to buy a new homestead within six months.   Any other advice will place your client and your malpractice insurance at risk.   The other take away is never let the trustee hold the money from sale of your homestead.   Here, the trustee held on to the funds for six months and then tried to claim that the debtor had forfeited his exemption altogether.   Then when the Bankruptcy Court allowed some of the funds to be released to the Debtor without stating any conditions, the Court clawed that money back when it wasn't used for purchase of a homestead.   What the Debtor should have done in this case was to file his bankruptcy to get the benefit of the automatic stay and then dismissed or converted the case once the sale went through.   While this may seem like an abuse of chapter 13, it is a rational response to an irrational result.

Should I Declare Bankruptcy? wants to file for bankruptcy.  I guarantee that no one wished upon a star as a young person and thought to themselves “I want to be a real estate mogul and a famous singer and…bankrupt!”  That has NEVER happened.  However, even real estate moguls and famous singers have ended up bankrupt.  […]The post How Do I Know If I Should File Bankruptcy? appeared first on Tucson Bankruptcy Attorney.

In a unanimous decision, the Supreme Court struck down the Ninth Circuit’s imposition of an equitable surcharge against a debtor’s exempt property in Law v. Siegel, No. 12-5196 (3/4/14).  The opinion can be found here.    The opinion by Justice Scalia represents a limitation on the equitable powers of bankruptcy courts to override statutory protections, even when a debtor has behaved badly.   The case is a counterpoint to Marrama v. Citizen’s Bank, 127 S.Ct. 1105 (2007) which had read an equitable good faith requirement into the absolute right to convert a case.What HappenedDebtor Law filed for chapter 7 protection in California which has a limited homestead exemption.   He claimed a $75,000 homestead exemption and also claimed that the property was encumbered by a first lien to Washington Mutual and a second lien in favor of “Lin’s Mortgage & Associates.” Had the liens been valid, there would have been no equity for the estate.   It turned out that the Lin lien was made up.   However, it took the trustee a lot of litigation to reach that result.    The Trustee spent over $500,000 trying to get to the bottom of the dispute, which involved a Lili Lin of Artesia, California who denied loaning the Debtor any money and a Lili Lin of China who most likely did not exist. When the Trustee ultimately sold the home, he sought to surcharge the Debtor’s $75,000 exemption with the costs of avoiding the fraudulent lien.    The Bankruptcy Court allowed the surcharge and was affirmed by the BAP and the Ninth Circuit.    Mr. Law submitted a pro se petition to the Supreme Court which granted cert.  I have previously written about the improbable grant of cert here.The RulingJustice Scalia’s ruling is encapsulated in the first paragraphs of his analysis: A bankruptcy court has statutory authority to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of” the Bankruptcy Code. 11 U. S. C. §105(a). And it may also possess “inherent power . . . to sanction ‘abusive litigation practices.’ ” (citation omitted).   But in exercising those statutory and inherent powers, a bankruptcy court may not contravene specific statutory provisions.It is hornbook law that §105(a) “does not allow the bankruptcy court to override explicit mandates of other sections of the Bankruptcy Code.”  (citation omitted).   Section 105(a) confers authority to “carry out” the provisions of the Code, but it is quite impossible to do that by taking action that the Code prohibits. That is simply an application of the axiom that a statute’s general permission to take actions of a certain type must yield to a specific prohibition found elsewhere.  (citations omitted).   Courts’ inherent sanctioning powers are likewise subordinate to valid statutory directives and prohibitions.  (citation omitted).We have long held that “whatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of” the Bankruptcy Code.  (citations omitted).    Opinion, pp. 5-6.11 U.S.C. §522(k) expressly states that exempt property is not liable for any administrative expense except for costs incurred in allowing the debtor to avoid a transfer of exempt property.    Thus, the case posed a clear conflict between the statutory language of the Code and the Bankruptcy Court’s desire to punish a wrongdoer.Justice Scalia easily brushed off the arguments made by the Trustee and the United States (appearing as amicus curiae).The Trustee contended that his fees were not really administrative expenses, a contention that Justice Scalia promptly rejected.    The Trustee and the United States argued that section 522 does not expressly prohibit denying an exemption based on bad conduct.   The U.S. argued that section 522 “neither gives debtors an absolute right to retain exempt property nor limits a court’s authority to impose an equitable surcharge on such property.”Justice Scalia made the easy conclusion that the Trustee had waived his right to challenge the exemption by failing to object.    He went on to state that:(E)ven assuming the Bankruptcy Court could have revisited Law’s entitlement to the exemption, §522 does not give courts discretion to grant or withhold exemptions based on whatever considerations they deem appropriate. Rather, the statute exhaustively specifies the criteria that will render property exempt. See §522(b), (d). Siegel insists that because §522(b) says that the debtor “may exempt” certain property, rather than that he “shall be entitled” to do so, the court retains discretion to grant or deny exemptions even when the statutory criteria are met.  But the subject of “may exempt” in §522(b) is the debtor, not the court, so it is the debtor in whom the statute vests discretion. A debtor need not invoke an exemption to which the statute entitles him; but if he does, the court may not refuse to honor the exemption absent a valid statutory basis for doing so. Moreover, §522 sets forth a number of carefully calibrated exceptions and limitations, some of which relate to the debtor’s misconduct. For example, §522(c) makes exempt property liable for certain kinds of prepetition debts, including debts arising from tax fraud, fraud in connection with student loans, and other specified types of wrongdoing. Section 522(o) prevents a debtor from claiming a homestead exemption to the extent he acquired the homestead with nonexempt property in the previous 10 years “with the intent to hinder, delay, or defraud a creditor.”  And §522(q) caps a debtor’s homestead exemption at approximately $150,000 (but does not eliminate it entirely) where the debtor has been convicted of a felony that shows “that the filing of the case was an abuse of the provisions of ” the Code, or where the debtor owes a debt arising from specified wrongful acts—such as securities fraud, civil violations of the Racketeer Influenced and Corrupt Organizations Act, or “any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the preceding 5 years.” §522(q) and note following §522. The Code’s meticulous—not to say mind-numbingly detailed—enumeration of exemptions and exceptions to those exemptions confirms that courts are not authorized to create additional exceptions.   (citation omitted)(emphasis added). Opinion, pp. 8-9.  Justice Scalia also distinguished Marrama on the basis that it invoked a specific statutory condition (namely that the debtor could only convert if he was eligible to be a debtor under chapter 13) and that the Court was not so much overriding the statute as compressing multiple hearings into one.   He wrote:True, the Court in Marrama also opined that the Bankruptcy Court’s refusal to convert the case was authorized under §105(a) and might have been authorized under the court’s inherent powers. Id., at 375–376. But even that dictum does not support Siegel’s position. In Marrama, the Court reasoned that if the case had been converted to Chapter 13, §1307(c) would have required it to be either dismissed or reconverted to Chapter 7 in light of the debtor’s bad faith. Therefore, the Court suggested, even if the Bankruptcy Court’s refusal to convert the case had not been expressly authorized by §706(d), that action could have been justified as a way of providing a “prompt, rather than a delayed, ruling on [the debtor’s] unmeritorious attempt to qualify” under §1307(c). Id., at 376. At most, Marrama’s dictum suggests that in some circumstances a bankruptcy court may be authorized to dispense with futile procedural niceties in order to reach more expeditiously an end result required by the Code. Marrama most certainly did not endorse, even in dictum, the view that equitable considerations permit a bankruptcy court to contravene express provisions of the Code.Opinion, pp. 10-11.Finally, Justice Scalia wrote that notwithstanding the burden to the Trustee, there were other avenues available to him under the Code and the Rules.We acknowledge that our ruling forces Siegel to shoulder a heavy financial burden resulting from Law’s egregious misconduct, and that it may produce inequitable results for trustees and creditors in other cases. We have recognized, however, that in crafting the provisions of §522, “Congress balanced the difficult choices that exemption limits impose on debtors with the economic harm that exemptions visit on creditors.” (citation omitted). The same can be said of the limits imposed on recovery of administrative expenses by trustees. For the reasons we have explained, it is not for courts to alter the balance struck by the statute. (citation omitted).* * *Our decision today does not denude bankruptcy courts of the essential “authority to respond to debtor misconduct with meaningful sanctions.” Brief for United States as Amicus Curiae 17. There is ample authority to deny the dishonest debtor a discharge. See §727(a)(2)–(6). (That sanction lacks bite here, since by reason of a postpetition settlement between Siegel and Law’s major creditor, Law has no debts left to discharge; but that will not often be the case.) In addition, Federal Rule of Bankruptcy Procedure 9011—bankruptcy’s analogue to Civil Rule 11—authorizes the court to impose sanctions for bad-faith litigation conduct, which may include “an order directing payment. . . of some or all of the reasonable attorneys’ fees and other expenses incurred as a direct result of the violation.”  Fed. Rule Bkrtcy. Proc. 9011(c)(2). The court may also possess further sanctioning authority under either §105(a) or its inherent powers. (citation omitted). And because it arises postpetition, a bankruptcy court’s monetary sanction survives the bankruptcy case and is thereafter enforceable through the normal procedures for collecting money judgments. See §727(b). Fraudulent conduct in a bankruptcy case may also subject a debtor to criminal prosecution under 18 U. S. C. §152, which carries a maximum penalty of five years’ imprisonment. But whatever other sanctions a bankruptcy court may impose on a dishonest debtor, it may not contravene express provisions of the Bankruptcy Code by ordering that the debtor’s exempt property be used to pay debts and expenses for which that property is not liable under the Code.Opinion, pp. 11-12.What It MeansThe way I read the opinion, Mr. Law gets to keep his $75,000 in exempt property, but is subject to sanctions under Rule 9011 and criminal prosecution under 18 U. S. C. §152.   The Trustee and the U.S. Attorney will no doubt figure this out so that Mr. Law’s victory may ultimately be hollow.   Law v. Siegel reflects the tension between the fact that Bankruptcy Courts are nominally courts of equity but that they are subject to an often “mind-numbingly detailed” statutory scheme.   Any time there is a conflict between section 105 and another section, section 105 should lose out (especially if Justice Scalia is writing the opinion).   On the other hand, the statutory scheme and rules often creates alternative pathways to the desired result.  Here, the appropriate pathway was to allow the Debtor to keep his $75,000 in exempt property while imposing $500,000 in sanctions against him.    Mr. Law’s reward for having brought this abuse of equitable powers to the Supreme Court’s attention is that he may ultimately face a much more severe penalty.   The Supreme Court’s decision in Law v. Siegel restores order to the bankruptcy universe.   Bankruptcy judges remain empowered to address misconduct in their courts.   However, they must do it using the tools granted by Congress in the Code and by the Supreme Court in the Bankruptcy Rules.   Justice Scalia has given the lower courts a reasonably low-key scolding that while the ends do not justify the means, if you look hard enough there is a legitimate means for every legitimate end.On a more mundane note, the opinion contains a lot of good language about exemptions and equity which can be profitably quoted in a number of contexts. Fifth Circuit practitioners may recognize that this case is reminiscent of In re Niland, 825 F.2d 801 (5thCir. 1987).   In that case, Mr. Niland (who was a former Dallas Cowboy), obtained a loan on a condominium by claiming that it wasn’t his homestead.   The Bankruptcy Court granted a constructive trust against the property after voiding the invalid lien.   The Fifth Circuit reversed, finding that the Debtor could not be estopped from claiming his valid homestead rights.   However, he went to jail for two years for fraud.   

  The Supreme Court denied a request by a chapter 7 trustee to surcharge a debtor's exemption for avoiding a fraudulent transfer in Law v. Seigel, 2014 WL 813702 (March 4, 2014).  The  Debtor had valued his California home at $363,000, claiming the $75,000 California homestead exemption and asserting that two voluntary liens exceeded the non-exempt value of the home.  The chapter 7 trustee challenged the lien, and the Bankruptcy Court ultimately ruled that the lien was a fiction created to preserve the Debtor's equity in the house.  (The lien was created in favor of one Lili Lin, one who was a former acquaintance of the Debtor in California denied any knowledge of the lien and testified as to the Debtor's attempts to involve her in various sham transactions; another in China who spoke no english claimed to be the beneficiary of the lien, resulting if five years of litigation over the lien and $500,000 in attorneys fees). The Bankruptcy Court granted the trustee's request to surcharge the $75,000 exemption for the attorney's fees incurred in the protracted litigation over the exemption.  The 9th Cir. BAP and the 9th Cir. affirmed.    The Supreme Court ruled that the Bankruptcy Court exceeded its authority under §105 in surcharging the debtor's exemption.  A court's use of §105 cannot override explicit mandates of other sections of the Bankruptcy Code, rather it can only be used to carry out the provision of the Code.  The Supreme Court found that such surcharge contravened §522(b)(3)(A) which entitled the Debtor to exempt property from the estate, and §522(k) which made the exempt property 'not liable for administrative expenses.'   The Court concluded that neither of the exceptions in §522(k) applied to the case at bar.  The Court rejected the trustee's argument that the power to surcharge an exemption can co-exist with §522, but since there was no timely objection to the exemption in the homestead, it became final before the surcharge was imposed. Taylor v. Freeland & Kronz, 503 U.S. 638, 643–644, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992).  The Trustee pointed out a number of cases denying exemptions in the case of fraud by the Debtor.  The Supreme Court seemed to indicate that these cases were wrongly decided where there is no federal law granting authority to deny the exemption.Even if the exemption had not been final, the court can only refuse to honor an exemption upon a valid statutory basis in the Bankruptcy Code itself.  §522 provides a number of exceptions and limitations, which were carefully crafted by Congress.    The Court found that there are other alternatives to deal with debtor misconduct, such as denial of the discharge.  It noted that was inapplicable due to a post-petition settlement with the major creditor, that the Debtor no longer has any debts.    The Court also noted the authority to impose costs and fees under Rule 11, which sanctions, since they arise postpetition, would survive the discharge.   Fraudulent conduct could also lead to criminal prosecution under 18 U.S.C. §152.  However any sanctions imposed must not contravene express provisions of the Bankruptcy Code.

So many of our bankruptcy clients fear losing their house to mortgage foreclosure.  We have done a good job of teaching our clients that chapter 13 bankruptcy can save your home from mortgage foreclosure. You can catch up with payments you haven’t made to your mortgage company. In Illinois, you can lose your house even if you’ve made every one of your mortgage payments? How can this be? If you don’t pay every cent of the taxes you are obligated to pay on your house, a tax purchaser can literally pay those taxes for you. Then you must pay back the tax purchaser through the county clerk with very hefty interest charges. If you don’t do this, the tax purchase may pay taxes on your house for you for several years after that. You may not even know that this is happening. At the end, the tax purchaser has the right to be paid in full with very high interest for the taxes paid on your behalf for all those years. You might not have enough money to pay these taxes back all at once. So the tax buyer then has the right to get a deed to your house – literally stealing it from you even if you have a great deal of equity. This frequently happens to older people or people not fully conversant in English. They simply don’t understand the complicated legal papers they receive about tax sales. This is where Lakelaw comes to your rescue. You can file chapter 13 bankruptcy to save your house. You can pay back all those taxes, maybe with substantially reduced interest, over a period of up to five years. All you have to do is to file the chapter 13 case before the property “goes to deed.” Bankruptcy Judge Janet Baer wrote a very important decision about this issue in the United States Bankruptcy Court for the Northern District of Illinois here in Chicago. These cases called Romious and Watts established the very important principal that a tax sale was more like a lien until the actual deed in favor of the tax purchaser was recorded. Because the tax sale position is so secure, the tax buyer has nothing to lose as long as the owner is making payments under the chapter 13 plan. You can find the Romius-Watts decision here: So if you are facing a tax deed, don’t despair.  Call David Leibowitz at Lakelaw, 847 249 9100 and get the help you need immediately.

    A Texas bankruptcy court has held that a student loan obtained to get a doctorate degree in dentistry is not considered a consumer debt for purposes of 707(b), and therefore denied the US Trustee's motion to dismiss the case.  In re De Cunae, 2013 WL 6389205 (Bankr. S.D. Tex., Dec 6, 2013).     The loan for the debtor's doctorate from NY University School of Dentistry was obtained in 1997.  The debtor's practice eventually developed financial problems resulting in the filing of a chapter 7 case.  The loan totaled $251,048, of which $30,126 was used for living expenses.  The parties agreed that the $30,126 was a consumer debt.  The remainder was used to pay for tuition, fees, books, and other school materials.  The US Trustee filed a motion to dismiss under §707(b)(2) or (b)(3) asserting that the debts were primarily consumer debts.   §707(b) permits dismissal of a case filed by a debtor whose debts are primarily consumer debts, if the granting of the bankruptcy relief would be an abuse.  Therefore, a threshold question is whether the debtor's debts are primarily consumer debts.  Judge Jones initially concluded that primarily consumer debts means that the ratio of consumer debts to all debts is over 50%.  A “consumer debt” is a “debt incurred by an individual for a personal, family, or household purpose.” 11 U.S.C. § 101(8).  The Fifth Circuit Court of Appeals has adopted the “profit motive” test for determining whether a debt should be classified as a consumer debt. In re Booth, 858 F.2d 1051, 1055 (5th Cir.1988). The profit motive test excludes a debt from being a consumer debt if it “was incurred with an eye toward profit.”Id. In evaluating whether a profit motive exists, a court should examine the entirety of the transaction to determine the true purpose for the extension of the credit. Riviere v. Banner Chevrolet, Inc., 184 F.3d 457, 462 (5th Cir.1999).   The Debtor testified that he went to dental school with the intent of becoming a business owner. The Debtor further testified that he hoped to earn a high income to support his family. During his examination, the Debtor acknowledged the personal enhancement provided by his education. The Debtor testified, however, that neither the need to impress others nor personal self-satisfaction were the motivations for his pursuit of his degree.     Judge Jones determined that the evidence showed that the Debtor set out on a course of action to obtain a skill that would improve his ability to earn future income. The Court indicated that it could think of no better example of incurring a debt with an eye toward profit. With respect to the UST's argument that the Debtor's personal benefit creates a consumer debt, the Court found that the collateral self-enrichment is not the type of “consumption” that is the trademark of a consumer debt.    The determined  that student loan proceeds that are used for direct educational expenses with the intent that the education received will enhance the borrower's ability to earn a future living are not consumer debts. With the student loan determined to be a non-consumer debt, the Debtor's obligations are 42.37% consumer debts. Since the Debtor's obligations are not primarily consumer debts, section § 707(b) is not applicable to the Debtor and the Court denied the UST's motion to dismiss. See more analysis of means test at http://www.hillsboroughbankruptcy.com/1017checklist.htm

You Can Protect Most Property You can file bankruptcy and protect a certain amount of personal property. If you are filing a chapter 7 bankruptcy, then you have certain exemption amounts under Illinois law that allows you to protect a certain amount of property. For example, you can protect up to $15,000 worth of equity+ Read MoreThe post Can I protect My Property And Still File Bankruptcy? appeared first on David M. Siegel.

Recently, the Fifth Circuit has authored two opinions in which it opined that parties could not consent to entry of a final order in a case governed by Stern v. Marshall.   In one of these cases, BP RE, LP v. RML Waxahachise Dodge, LLC, 735 F.3d 279 (5th Cir. 2013), the plaintiff, having filed suit in bankruptcy court, invoked Stern v. Marshall after losing on the merits.    The previously prevailing defendants sought rehearing en banc in light of the conflict between the Fifth Circuit decision allowing consent to trial by a Magistrate Judge and BP RE.   Today the Fifth Circuit voted by the narrowest of margins to decline rehearing.    Six judges, including Chief Judge Stewart, would have granted rehearing en banc, while eight judges voted no.   You can find the opinion here.The opinion will soon become a historical curiosity once the Supreme Court renders its own consent decision in Executive Benefits Insurance Agency v. Arkison, 702 F.3d 553 (9th Cir. 2012), cert. granted, 133 S.Ct. 2880 (2013).   Nevertheless, I thought that Judge Higginson wrote a very well reasoned dissent which I will quote in its entirety.    I write in dissent of denial of full court rehearing to note that this case presents an enbancworthy issue—whether a bankruptcy court, consistent with its statutory authority under 28 U.S.C. § 157(c)(2), may enter final judgment in a non-core proceeding with the parties’ consent. The panel opinion holds that it cannot do so consistent with Article III of the United States Constitution.  The Supreme Court has granted certiorari and heard argument in Executive Benefits Insurance Agency v. Arkison (In re Bellingham Ins. Agency, Inc.), 702 F.3d 553 (9th Cir. 2012), cert. granted, 133 S. Ct. 2880 (2013), a case that presents the question of whether a bankruptcy court can enter judgment in a core proceeding with the parties’ consent. Hence, and speaking to the issue’s significance, the role of consent in delineating the scope of Article III is before the Supreme Court and I would be loath to anticipate its answer. I will not belabor the importance of a case that, in effect, strikes down a federal statute and whose result may disrupt the way our district and bankruptcy courts handle a large volume of routine bankruptcy business. Instead, I especially see significance to examining any rationale that might logically extend to precluding magistrate judges from entering judgment with parties’ consent.In Technical Automation Services Corporation v. Liberty Surplus Insurance Corp., 673 F.3d 399, 407 (5th Cir. 2012), this court upheld a magistrate judge’s capacity to enter final judgment in civil cases with the parties’ consent. In the instant matter, the panel opinion asserts no conflict with Technical Automation, but it is hard to see how there is not tension between this case and Technical Automation. Both cases recognize the similarities between magistrate and bankruptcy judges. Further, the respective statutes providing a basis for entering judgment with parties’ consent are similar. Then, and even assuming BP RE’s correctness, our law after BP RE is that a magistrate  judge’s judgment is proper under 28 U.S.C. § 636(c)(1), but a bankruptcy judge’s judgment under 28 U.S.C. § 157(c)(2) is improper. Maybe there are good reasons for incongruity, but they are ones I perceive that our full court should explore.As to BP RE’s merits, the panel opinion acknowledges that Stern announced a limited holding: “We conclude today that Congress, in one isolated respect, exceeded that limitation in the Bankruptcy Act of 1984.” Stern v. Marshall, 131 S. Ct. 2594, 2620 (2011). BP RE concludes that Stern’s reasoning requires the conclusion that Congress exceeded Article III in another respect, even though Stern did not address parties’ consent. Instead, Stern may be less decisive than CFTC v. Schor, 478 U.S. 833, 851 (1986), which noted that when “Article III limitations are at issue, notions of consent and waiver cannot be dispositive because the limitations serve institutional interests that the parties cannot be expected to protect.” But Schor has language supporting both sides of this controversy. Schor proclaims: “the parties cannot by consent cure the constitutional difficulty for the same reason that the parties by consent cannot confer on federal courts subject-matter jurisdiction beyond the limitations imposed by Article III, § 2,” id. at 851, but also that:the decision to invoke this forum is left entirely to the parties and the power of the federal judiciary to take jurisdiction of these matters is unaffected. In such circumstances, separation of powers concerns are diminished, for it seems self-evident that just as Congress may encourage parties to settle a dispute out of court or resort to arbitration without impermissible incursions on the separation of powers, Congress may make available a quasi-judicial mechanism through which willing parties may, at their option, elect to resolve their differences.Id. at 855. There is no determinative guidance as to the role consent plays in the Article III analysis of § 157(c)(2). It may be, as BP RE suggests, irrelevant as an impermissible cure attempt, or  alterna- tively, consent may be part of the multifactor balancing test to determine whether there is an Article III problem in the first instance. Fortunately, Executive Benefits likely will shed light on this issue. Our court will benefit from that guidance, and I write separately to note that I would usefully have incorporated such guidance into our own full court assessment of these weighty constitutional boundaries. (emphasis added)I give Judge Higginson (and the rest of the dissenters) kudos for understanding the importance of the issue and the contradictory reached by the Fifth Circuit with regard to  Magistrate Judges and Bankruptcy Judges.  Now we will have to wait to hear what the Supremes have to say.   Disclosure:  I submitted an amicus brief in favor of rehearing en banc on behalf of the Commercial Law League of America.