Did you put off filing bankruptcy until after somebody got a judgment against you? Pre-bankruptcy judgments are liens on property you own before the bankruptcy.  (Sometimes they can be removed;  sometimes they can’t.)   But they cannot put a lien on a house you buy after the bankruptcy. At least, not legally. The purpose of bankruptcy is a new start in [...]The post Can they put a lien on a house I bought after the bankruptcy? appeared first on Robert Weed.

A debtor avoided losing her home in a recent case illustrating the perils of do it yourself legal forms.    Lowe v. Vazquez, No. SA-12-CV-00399-DAE (W.D. Tex. 3/28/13).    The Debtor paid $10 to download a living trust form while she was living in Nevada.   When she moved to Texas, she conveyed her homestead to the trust.   Her stated reason for setting up the trust was: The one and only reason I created the Living Trust after my divorce was to be sure my son could have access to any assets I owned at the time I die and to avoid probate, so I named my son as Successor Trustee. Probate proceedings in Nevada are lengthy and costly and I only wanted to make things easier for him when I die. When she filed bankruptcy in Texas, the trustee objected to her exemption on the basis that title to the home was vested in the trust.   The Bankruptcy Court denied the objection.    In re Vazquez, 2012 Bankr. LEXIS 642 (Bankr. W.D. Tex. 2012).    On appeal, the Court found that notwithstanding some confusing language in the pre-printed form, that the Debtor was the sole beneficiary of the trust.   As the sole trustee and sole beneficiary, a valid trust had not formed as of the petition date and the property remained vested in the Debtor.U.S. District Judge David Ezra had some insightful words for individuals who might want to save money by creating their own legal documents. This case is a poster child for the proposition that one should not rely on prepaid legal forms with boilerplate language for important legal matters. Had Debtor passed away, it is clear to the Court that the document would not have accomplished what she hoped; indeed, all of the tax consequences she hoped to avoid would have been visited upon her son. It is also clear that a properly drafted trust prepared by a competent lawyer would have accomplished the goal she sought in the first instance. Opinion, p. 8, n. 2.I cannot say it any better than Judge Ezra.    If you own a Texas homestead, do not EVER convey it to a trust.   You may place your homestead exemption at risk for no good reason.    The Debtor in this case did not lose her homestead.   However, she had to defend an objection to exemption and an appeal at her own expense.  Disclosure:   My firm represented Karen Vazquez in the appeal.    

While many people are busy preparing their tax returns, in this post we will focus on the treatment of tax refunds in bankruptcy. In a Chapter 7 personal bankruptcy, a debtor filing in New York State may exempt up to $5,000 of cash or cash equivalents ($10,000, if the debtor is a married couple filing jointly), if the homestead exemption isn't taken. Accordingly, for a single debtor, if his or her New York State or federal tax refund exceeds $5,000, then the bankruptcy trustee can require the debtor to turnover to the bankruptcy trustee the difference between the tax refund(s) and $5,000. However, if a debtor files for bankruptcy in June of a given tax year, then the amount of the tax refund would be prorated between the pre–bankruptcy period (the beginning of the tax year through the day before the filing date, which monies would be paid to the bankruptcy trustee for distribution to creditors) and the post–bankruptcy period (the filing date through the end of the tax year, which monies would be retained by the debtor). If a debtor expects a large tax refund post–bankruptcy filing, he or she could lower the number of withholding allowances or amount withheld to reduce his or her tax refund, or delay the bankruptcy filing until after receipt of the tax refund. For questions about the complex interplay between taxes and bankruptcy, please contact Jim Shenwick.

At the time of this writing, the filing fees for Chapter 7 bankruptcy are $306.  The filing fees for Chapter 13 bankruptcy are $281.  Each law firm differs on how much they require down as well as how much they require in terms of a total fee to file a type of bankruptcy.  In my+ Read MoreThe post How much is it to file a Chapter 7 or a Chapter 13 bankruptcy? appeared first on David M. Siegel.

Once a Chapter 13 bankruptcy case is filed and a plan is proposed, it’s going to run for a certain number of months, typically between 36 and 60 month.  Now, there are some cases that end much earlier than 36 months and there are no cases that can exceed the 60 months.  So somewhere between+ Read MoreThe post How many payments do I have left in my Chapter 13 bankruptcy case? appeared first on David M. Siegel.

Many people filing Chapter 7 bankruptcy wonder what happens after they have completed the meeting of creditors. What are the timelines for wrapping up the bankruptcy process and what else do you have to do?   What happens to my property after the meeting of creditors? As part of your filing, you were required to [...]

  The Court allowed modification of a reverse mortgage in the chapter 13 bankruptcy of the heir of the person who executed the mortgage.  In re Griffin, 2013 WL 1123826 (Bankr. D.Md. 2013).  The debtor's mother executed the reverse mortgage in 2007, which provided for interest payments and acceleration of the balance upon death of the borrower.  The mother passed away in 2011, and her son the Debtor was personal representative of her estate and 50% co-heir of the property, where he resides.  FNMA commenced foreclosure in March 2012, and a chapter 13 bankruptcy filed by the son in May 2012.  In the chapter 13, the Debtor proposes to pay the mortgage entire debt through the plan over 47 months at 5%, seeking modification of the obligation under §1322(c)(2) and §1325(a)(5).  The mortgage company objects on the basis that the debt has been accelerated, and §1322(b)(2) prevents modification of a mortgage secured only by the debtor's homestead.  Second, the mortgage claims the debt cannot be modified because the co-heir, the debtor's sister, is not a party to the bankruptcy.       The Court rejected the initial argument, finding that §1322(c)(2) provides an exception to the anti-modification language of §1322(b)(2) when the final payment on the original payment terms on the mortgage is due prior to the final plan payment.  It is precisely because the final payment on the mortgage was moved upon the death of the obligor to a date prior to the final plan payment that the mortgage can be modified under §1322(c)(2).    The mortgage relied on  In re Gottron, No. 11–bk–20773, 2012 WL 907489, slip op. (Bankr.D.Md. Mar. 16, 2012) and Alvarez v. HSBC Bank USA, N.A., No. 8:11–cv–02886, 2011 WL 6941670, slip op., (D.Md. Dec. 28, 2011) to allege that the mortgage could not be modified without the necessary party of the co-owner.  However, both of these cases dealt with the right of one spouse to avoid liens on tenancy by the entireties property when the other spouse was not in bankruptcy.  Tenancy by the entireties property is created upon the marriage and is not the property of either spouse individually.  Since the debtor's interest in the property is not held in tenancy by the entireties, these cases are inapplicable.  The fact that a bankruptcy outcome will affect the ownership interests of non-debtors does not prevent a strategy in bankruptcy. 

    In In re Reichartz, 2013 WL 1143755 (Bankr. E.D. Wis. 2013) the Debtor had put a provision in the chapter 13 plan that "Debtor shall pay the American Family Insurance claim in full through the Chapter 13 plan. Interest, penalties, and garnishment shall cease" regarding an insurance claim related to a judgment for damages related to the intoxicated operation of a motor vehicle.  The unsecured claim was filed in the amount of $22,612.50, and no objection was filed to confirmation.  The order confirming the plan also included this provision.      After discharge, the creditor re-instituted garnishment proceedings after the bankruptcy, and caused Debtor's driver's license to be suspended.  The creditor acknowledged applying payments in the bankruptcy to interest, costs and other charges, and alleged a $12,000 balance due after payment in the chapter 13 plan.  Both parties sought to reopen the case and filed adversary proceedings.  The creditor alleged that under Ridder v. Great Lakes Higher Educ. Corp., (In re Ridder),171 B.R. 345 (Bankr.W.D.Wis.1994) the interest was not discharged.  The plan in that case provided for pro-rata distribution to unsecured creditors without interest, and the ruled that since post-petition interest was not an allowed claim, the obligation for its payment could not be discharged through the chapter 13.    The Reichartz Court found that United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010) was more on point.  As the plan unambiguously provided for discharge of the post-petition interest, the creditor is bound by such provision, even if the provision would likely have been disallowed if an objection had been filed.    Note that §523(a)(9) only makes nondischargeable debts for death or personal injury caused by unlawful operation of a vehicle.  The case does not specify that the judgment was solely related to personal injuries.  Would it be an unreasonable argument that in exchange for payment of the debt in full of a debt that may or may not fall entirely under §523(a)(9) that the plan eliminates any further right to payment thereby avoiding substantial cost of litigation over the portion of the judgment that is actually nondischargeable?  

If you file bankruptcy, you need to send in proof of your income.  For most people, that means your pay stubs.   Section 521 of the Bankruptcy Code requires people to send in at least two month of their “payment advices“–meaning pay stubs–received from your “employer.” What if you are self employed?   You don’t [...]The post Filing Bankruptcy and self employed? You need a “Profit and Loss” appeared first on Robert Weed.

If all the children in Lake Woebegon are above average, all the small businesses our clients run are quite valuable. If the Chapter 13 trustee is asking the question, anyway. I rail when the Chapter 13 trustee’s business questionnaire asks “how much would you sell your business for.” Phrased that way, the question implicates all kinds of facts that aren’t in play in Chapter 13. First, what would the debtor have to get to part with the business that supports his family? Second, it assumes that the debtor is a party to the sale, and can deliver a non compete agreement and even some training for a business buyer. Third, the question touches the entrepreneur’s self worth. Who among us wants to admit that the enterprise you’ve devoted heart and soul to has no objective value to anyone else? Recalibrate So, let’s go back.  You represent a sole proprietor in a Chapter 13 case.  The best interests of creditors test for confirmation requires that the plan provide creditors at least what the creditors would receive if the case had been a Chapter 7. We’re not talking, then, about what the debtor could sell the business for if he were to sell out.  We’re looking for what could a Chapter 7 trustee get for the business. Let’s imagine a sale of a small business by a Chapter 7 trustee.  What happens? Trustee shuts the business down, because he doesn’t want responsibility for operating it post petition.  Going concern value is gutted. Trustee seeks buyer.  Only trustee doesn’t know anything more about the customer base and the business operation than the debtor tells him at the 341 meeting. Any buyer of the business has no assurances that the debtor will not open up the self same business next door to his old shop and compete with the buyer. Buyer gets no transitional training from the man who ran the business before him. So, what is this business worth? In a Chapter 7 context, it’s probably little more than the value of the lease;  the equipment;  the inventory at liquidation prices; and the accounts receivable, suitably discounted. Vigilance Putting a value on the business in writing usually comes up in two places:  on Schedule B and on the trustee’s business questionnaire. The question for counsel is whether there is any saleable goodwill in the business:  value over and above the value of the assets,  profits over and above what a passive business owner would have to pay someone to do your client’s job in the business? Value may well be a question at the 341 meeting. Prep your client to think about the question beforehand. I prompt that consideration by asking my client what would his estate get if he were run over by a truck and the survivors had to sell the business.  And that scenario probably overstates the value, since a buyer wouldn’t have to worry about competition from the deceased client. If the debtor understands that he may have to live with the number he utters at the 341 meeting, and pay it dollar for dollar into the plan, he may approach the valuation question with appropriate caution. Your mission, as counsel, is to foresee the issue and prepare papers and client to deal realistically with value. That’s the value that you, as debtor’s counsel, bring to the table. Image courtesy of Flickr and bsabarnowl.