Why should I help my competitors? That was the query of a highly experienced bankruptcy lawyer I met at the Northern California Bankruptcy Forum last week. I heard the same push back on one of Jay Fleischman‘s listserves from a participant who didn’t want to share with others in his professional community an upcoming education opportunity. “I don’t want my competition to improve”. I can think of a number of reasons I want the lawyers around me to raise the standard of bankruptcy practice. Cross fertilization:  my skills are sharpened watching and opposing good lawyers The public is better served by a skillful bar Good lawyers don’t willy nilly make bad law The higher the quality of the practice the less likely we get petty and unnecessary rules, regulations and oversight from outside I’m confident that I can compete with those I’m helping. What do you think? Image courtesy of shaggy359.

During the three to five years that you're making payment on your Chapter 13 bankruptcy, you can incure new debt only with permission from the bankruptcy court. This provision is there to prevent the debtor to jeopardize the success of the chapter 13 plan by incurring new debt which might be to high to repay. Sometimes it is necessary to purchase a new or used car. For example, if your car breaks down and there's no other way to get to work, or you wish to trade in your current car and get a more reliable and better car. There is no requirement that one has to drive an old unreliable vehicle while in bankruptcy. As long as the new vehicle is reasonable and would not be considered a luxury vehicle, like a new Porsche, the motion to incur new debt is normally approved it it is necessary and reasonable. You can purchase a new or used car during your chapter 13 bankruptcy case. There's a process you have to follow. In most cases the car creditor requires an order from the court allowing you to purchase a new car. The process below is for the St. Louis Metro area (Eastern District of Missouri). The process might be different in other districts. The first step is to make sure you can afford the car payment. Schedule I and J, these are the schedules in your petition which list your income and expenses, must show that you can afford the new car payment. You and St. Louis your bankruptcy attorney will need to look at your current income and expenses to make sure that there is sufficient money in the budget to pay the plan payment and the new car payment. You might have to reduce expenses on other items such as clothing or miscellaneous expenses to ensure the budget is balanced. However, you cannot make up numbers, but you can reduce your expenses if it becomes necessary. Your expenses must be reasonable. Food of $30 for one person without any other income such as food stamps or contributions from family members are most likely not reasonable and will draw an objection by the trustee. The next step will be for you to find a car-dealer who will sell you a car with a monthly payment that fits your budget. Our office works with a car-dealer who has a financing partner who is specialized in providing loans to people in bankruptcy. One might think that it is difficult to obtain a loan while in bankruptcy. That is not necessarily true. It depends on your credit. If your credit was low due to delinquent accounts before filing bankruptcy, it might be easier to obtain a car loan after filing because the negative entries on your credit report stop after filing for bankruptcy. The car loan will be paid directly to the car dealer, not to the trustee. The debt is incurred after filing and not part of the bankrutpcy plan. The third step is for your bankruptcy attorney to file a motion to purchase a new or used vehicle with the court. In that motion your attorney will have to state the whole loan amount, the monthly payment and the reason why you need to purchase the new vehicle. The motion should explain why a new or used are is necessary. If you don’t provide valid reason, the trustee will object to your motion. An acceptable reason is for example that your old car broke down, or requires so many repairs that it is not feasible anymore to repair the car and that it makes more economic sense to purchase a newer or even a new vehicle. If the trustee is not objecting and the court grants your motion, your bankruptcy attorney can now submit the order to the court. Within a few days, the court will file the order and you can purchase the car.What happens if the car I wanted to purchase was sold in the meantime?The motion filed by your bankruptcy attorney should describe the terms of loan and the specifc vehicle, it also should request permission to purchase a similar vehilce if the other car is not availabe anymore. Your then, not bound to one specific vehicle and have permission to purchase another vehicle with similar terms. Can I trade in my old car?Yes, you can but it is up to your car creditor to agree to it. Your car creditor has a lien on your vehicle and does not have to agree to the release of his lien.  It will be easier if the new car creditor is the same as your old car creditor because he would have a benefit from the trade in. After trading in your old vehicle, your car creditor will be paid directly by you and will receive the contract interest rate. Before, your car creditor received only a monthly payment by the chapter 13 trustee which stretched out over the length of the plan (usually 5 years) with the courts interest rate, currently 5.04%. Paying the car loan through the bankruptcy is benficial to the debtor because it lowers the monthly car payment and reduces the interest payments. We see sometimes contract interest rates of over 20%. But even if your new car creditor is not the same lender, you might be able to offer your old lender payment terms that are more beneficial to him. Trading in your old car, the old lender would receive a lump sum now, instead of waiting perhaps years for the money to be paid in full. He would be entitled to contract interest rate and full loan balance. The offer could be to pay more to the old lender than he would receive through the bankruptcy plan.When you trade-in, you still would need permission from the court and the old lender would have to agree to release his lien.Can I sell my car that has a loan balance?Yes, but you have the same problem as with trading in your car, the lien holder will need to agree to it. If you receive money after the lien holder is paid, you either will have to turn over the money to the trustee or your attorney need to file a motion to retain the money for necessary and reasonable expenses.After you trade in your car or sell it, your bankruptcy attorney will need to object to the claim filed by your creditor in your bankruptcy case because otherwise your creditor will continue to receive monthly payments from the trustee.Trading in your vehicle before filing for bankruptcy.There is no problem trading in your vehicle before filing of a chapter 13. It can cause a problem if you file a chapter 7 bankruptcy case, when the old vehicle was titled in both of your names and the new vehicle is now titled in the non-filing spouse's name only.  By letting the filing spouse's interest of the old vehicle go into the new vehicle owned by only the non-filing spouse, the filing spouse made a possible preferential or fraudulent (548 U.S.C) transfer the chapter 7 trustee can avoid. The argument that the first vehicle was exempt by the tenancy be entirety exemption, will not matter after the Eights Circuit decided end of 2011 in Re Lubar that the trustee can avoid such a transfer. Before transferring any property, talk to your bankruptcy attorney about it. 

How Is the Non-Filing Ex-Spouse Affected by Bankruptcy?Many individuals inquire whether they will be affected by their ex-spouse's financial issues.  Often, they are not affected, but there are circumstances where the financial issues can negatively impact the non-filing ex-spouse.  For instance, the question of whether a person's ex-spouse's bankruptcy can negatively affect their credit score often arises.  Usually, an ex-spouse's credit score is not affected by bankruptcy.  However, if the debtor and their spouse still have joint accounts, this may not be the case.  The person who files bankruptcy will no longer be liable under the debt, but their ex-spouse will be completely responsible for the debt, and the bankruptcy can show up on the ex-spouse's credit report.  Any debt incurred after the divorce will no longer be the obligation of the ex-spouse.  After divorce, it is very important to separate accounts and debts so the spouses are not responsible for the other's debts. Even if debt was assigned to one of the spouses through a divorce proceeding, the other spouse is still liable for the debt if both parties are listed as debtors.  A misconception many people make in the divorce process is thinking that as long as their ex-spouse is made responsible for the debt through the divorce judgment, they are free and clear of the debt, which is unfortunately not true.  If both parties are on the debt, the creditor can go after both parties.  What that means is that if one party files bankruptcy, they will no longer be responsible for the debt, but their ex-spouse will be.  When the creditor gets notice that one party has filed bankruptcy, they can call the ex-spouse to try to collect the debt.  They can also get civil judgments against the non-filing spouse and potentially garnish their wages and levy their bank accounts to satisfy the judgment.If spouses purchase a house together, both names often are on the house.  If that is the case, an ex-spouse may want to get their name taken off the mortgage and/or deed for the house if the house was granted to the other spouse through the divorce.  If that is not done and the party retaining the house falls behind on payments, the ex-spouse who no longer lives in the house can be responsible for late payments and for the deficiency in the case of foreclosure.If you have any questions regarding this matter, please contact a St. Louis or St. Charles bankruptcy attorney.

Ex-Spouses As CreditorsMany people file bankruptcy as a way to stop a judgment or garnishment from being entered against them or to lift the judgment or garnishment if one is already in place.  Most civil judgments can be included in the bankruptcy, and the creditors can no longer make any attempt to collect on the debt in most circumstances.  Many debtors question whether this same rule applies to judgments their ex-spouses may have against them and whether their ex-spouse can file a judgment against them in the bankruptcy. The protection the automatic stay guarantees through the bankruptcy proceeding would halt any judgment or potential judgment a person's ex-spouse may have against them or may attempt to place on the debtor.  However, there are exceptions to the automatic stay with regard to ex-spouses.  An ex-spouse should be listed in the bankruptcy schedules by the debtor like any other creditor.  Their name, address, amount, and consideration of the debt should be listed.  The ex-spouse would then receive notice from the bankruptcy court like any other creditor.  The ex-spouse would have the ability to file a proof of claim and submit it to the court per the proof of claim deadline listed in the notice.In a no asset Chapter 7 bankruptcy, the ex-spouse's claim will generally be discharged.  However, in a Chapter 13 where the debtor is paying back some of their debts, the ex-spouse may be paid all or a portion of their claim along with other creditors, especially if their debt is classified as priority. Certain debts are not able to be discharged through a bankruptcy and must be paid in full by the debtor, such as child support and maintenance/alimony.  The debtor's past due and current amount for these debts must be paid in full.  In a Chapter 13 bankruptcy, pre-petition back child support and maintenance amounts would be paid through the plan over a period of 36 to 60 months.  The debtor is also expected to maintain the current monthly child support and maintenance as well.  Since child support and maintenance are considered priority debts, they are paid before other unsecured creditors in a Chapter 13.  If the debtor does not believe the ex-spouse's proof of claim to be correct, they can file an objection, and a hearing may be necessary to determine the correct amount owed to the ex-spouse.If you would like more information about this, please contact a St. Louis or St. Charles bankruptcy attorney.

A motion to dismiss can be filed by a number of parties, including the trustee, a creditor, or even a voluntary motion to dismiss filed by the parties.  Here we will focus on motions to dismiss by the trustee.  This motion is basically the trustee asserting that the debtor(s) should not be allowed to continue with the bankruptcy case for some specified reason.  Often times the reason is for failure to make plan payments.  There is no hard and fast rule of how far you can be behind before the trustee will file a motion to dismiss, however, generally, the more you fall behind the more likely a motion to dismiss will be filed. If a motion to dismiss is filed your attorney will get notice of a response date.  If you want to continue in your case your attorney will need to respond by this date.  The response may be a variety of different things, most commonly that the debtor(s) plan to become current.  If this response is filed you will generally have a little bit of time to become current.  Your attorney can advise you on the specifics. If you do not become current by the deadline your case may be dismissed.  If your case is dismissed you have 14 days to become current and reinstate your case.  After this 14 days the order is final and you will not be able to reinstate your case.  It is important to remember that because payments must be made by money order in the mail, if you are sending your payment close to the deadline you may need to appear at a hearing in person to make the payment to the trustee.  It will not be sufficient to say that your payment has been sent, it will actually need to be received and processed by the trustee within 14 days.  You may incur court costs and additional attorney's fees if a motion to reinstate your case is necessary.The best course of action is to avoid a motion to dismiss whenever possible.  You can do this by making timely monthly payments.  You can also enter into a wage order, whereby your employer will send your monthly plan payment to the trustee.  This can be split in equal parts between however many paycheck you receive monthly.If you have further questions, or would like to speak with a St. Louis Bankruptcy Attorney, feel free to contact us today!

On occasion, there are circumstances that prevent a debtor from being able to continue making their chapter 13 payments.  In very limited circumstances, the debtor(s) may qualify for a hardship discharge.  If a debtor does qualify, the chapter 13 would be discharged without making any additional payments as if the plan was completed under the original terms.  Section 11 U.S.C. § 1328(b) provides that a debtor may qualify for a hardship discharge where:1. The debtor's failure, or inability, to complete plan payments is due to circumstances completely beyond the debtors control and through no fault of the debtor.  A common example of this would be an extreme medical condition or illness that affects income or your ability to produce income.2. The creditors have received at least the amount that they would have received in a Chapter 7 Case.  This is something you will want to speak with your attorney about.  The assets you have, types of debt that you have, and what you have already paid into your plan will be the determining factors for this qualification.3. Modification of the plan is not possible.  Again, this is something you will want to speak to your attorney about.  If it is possible for you to modify the plan or covert to a Chapter 7 that may be the more appropriate course of action.It is important to note that qualification for a hardship discharge is very difficult and simple changes in employment, changes in hours, or similar issues will not qualify you for a hardship discharge.  The other important issue to note is that the hardship discharge has a very limited applicability.  The hardship discharge will not discharge any debt that would not be dischargeable by a Chapter 7 Bankruptcy, including, but not limited to, certain debts owed to governments, domestic support obligations, and student loans.If you have any questions, or would like to speak with a St. Louis Bankruptcy Attorney, please feel free to contact us.

Kismet,  def. fate or destiny, seemed to be in play this weekend. Or maybe it’s that I’m like a magpie with a fixation on books rather than shiny objects. But the first thing that caught my eye in the exhibitors hall at the Northern California Bankruptcy Forum this weekend was the NCLC book on evidence.  It wasn’t labeled “evidence for dummies” but it could have been. Actually it was titled Instant Evidence, A quick guide to Federal evidence and objections.  Spiral bound, 20 pages, plasticized for heavy use.  Sold. Evidence, particularly court room evidence, isn’t my strong suit.  I don’t get to evidentiary hearings often enough for this to be second nature.  So a summary, a cheat sheet was really appealing. Is that an echo? But I didn’t realize that evidence was going to be a theme, repeated again.  Judge Ron Sargis, a former organizer of this conference, and new to the bench with the past year or two, talked about his campaign for evidence accompanying motions in his courtroom. Think of it:  the man actually wanted admissible evidence in support of the orders bankruptcy lawyers sought from him. I gathered that it had gone from gentle hints from the bench to, when things didn’t change, to the denial of motions not properly supported by evidence. We are federal practitioners Over my career as a bankruptcy lawyer, the practice of consumer bankruptcy law has gone from being a rather informal practice, often not very well done, to a practice in which the federal rules are actually applied, cases are occasionally appealed, and a real record is necessary. Which brings me to my conversations with Tara Twomey, of counsel to NCLC and head of the amicus project at NACBA.  In discussing several cases pending in the circuit courts, she bemoaned the fact that several of them were appealed without a sufficient record from the bankruptcy court.  And she didn’t mean the tapes of the hearing were lost.  It meant that counsel had not entered into the record admissible evidence to establish the critical facts. All too often, bankruptcy lawyers file motions where the only facts found are in the motion.  And the motion isn’t evidence.  It takes documents, with a foundation, or a declaration under penalty of perjury, to get your “facts” before the court as evidence.  And without evidence,  a scrupulous  court is hard pressed to rule in your favor. Evidence:  it’s fated. Image of the evidence courtesy of redjar.  

By JOSH MITCHELL and MAYA JACKSON-RANDALL The amount Americans owe on student loans is far higher than earlier estimates and could lead some consumers to postpone buying homes, potentially slowing the housing recovery, U.S. officials said Wednesday.Total student debt outstanding appears to have surpassed $1 trillion late last year, said officials at the Consumer Financial Protection Bureau, a federal agency created in the wake of the financial crisis. That would be roughly 16% higher than an estimate earlier this year by the Federal Reserve Bank of New York. The new figure—released Wednesday at a banking conference in Austin, Texas—is a preliminary finding from a study of student debt that the bureau plans to release this summer. Bureau officials said the estimate is based on a survey of private lenders, as opposed to other estimates that rely on a sampling of consumer credit reports.CFPB officials say student debt is rising for several reasons, including a surge in Americans going to college in recent years to escape the weak labor market. Also, tuition increases—which many colleges say are needed to offset big cuts in state funding—have many students taking out bigger loans.In addition, the interest costs on older loans are climbing as borrowers fall behind on payments, reflecting mounting financial strains, bureau officials said. New York Fed data show that as many as one in four student borrowers who have begun repaying their education debts are behind on payments.Economists say college is an increasingly good investment because of the widening pay gap between jobs that require a degree and those that don't. Ultimately, the educational degrees and added skills are meant to help workers earn higher incomes that, in time, will more than offset the student debt.But as more people go to college and assume bigger loans for education, they may take longer than previous generations to hit key milestones such as buying a house or getting married, U.S. officials and economists say. It could take longer for heavily indebted graduates to save money for a down payment on a home, or it could be harder for them to qualify for mortgages.Rohit Chopra, student-loan ombudsman for the Consumer Financial Protection Bureau, said student debt could ultimately slow the recovery of the housing market. "First-time home-buyers are a substantial part of the housing market," Mr. Chopra said in a speech at the banking conference in Austin. "Instead of saving for a down payment, these borrowers are sending big payments every month."Student debt is a burden not just for recent college graduates in their 20s but also parents, who often co-sign their children's student loans, as well as midcareer professionals who opted to go back to school during the sluggish recovery.David Johnson, a 58-year-old groundskeeper from Milton, Wash., decided to leave gardening after more than two decades to become a nurse. Two years ago, he took out about $18,000 in private and federal loans to attend a local community college that had a nursing program. After completing prerequisite classes, he learned that the program had a waiting list. With no guarantee of getting into the nursing program, he is wondering whether to take out more debt to continue in school."It's an awkward place to be. I'm not yet a nurse but I've got all this debt and interest compounding on me," he said. "I don't have a lot of working years left and I'm saddled with this debt." Copyright 2012 Dow Jones & Company, Inc. All Rights Reserved.

How Can a Debtor Strip a Second Mortgage?In today's housing market, many Debtors owe more on their house than the house is actually worth, and many people have second mortgages against their house.  You can determine what a house is worth by getting an appraisal or checking on what houses in the neighborhood have been selling for, etc.  When a person is underwater on a house, often because of a second mortgage on the residence, they can feel like their options are limited.  Many debtors think their only option is to surrender the home through the bankruptcy or pay on both mortgages until the home is paid off.  However, these debtors may have another option.The solution to this problem may be to strip the second mortgage on the real property.  This can be done in a Chapter 13 bankruptcy when the first mortgage on the property meets or exceeds the value of the property, thereby rendering the second mortgage unsecured.  A debt is secured when it is attached to a piece of collateral, such as a house.  A debt is unsecured when it is not attached or secured by a piece of collateral, such as a credit card or medical bill.  When the first mortgage exceeds the value of the real property, the second mortgage becomes unsecured.  According to Section 506 of the United States Bankruptcy Code, a lien can only be secured by collateral if there is enough value in the collateral to cover that lien.  Therefore, the second mortgage becomes unsecured.  For example, if a house is worth $90,000, the first mortgage is $95,000, and the second mortgage against the property is $20,000, the $20,000 mortgage becomes unsecured and can be stripped in a Chapter 13. When the second lien is stripped, the Chapter 13 debtor would pay back the first mortgage but would not be required to pay back the second mortgage and would still be able to keep the real property.  In order to strip a lien, the Chapter 13 Trustee may require a debtor to show proof of the value of the house so they can ensure that the second mortgage is completely unsecured and able to be stripped.  Debtors should understand that there are limitations.  If a debtor has refinanced the property, they will not be eligible for lien stripping.  Additionally, if the second mortgage is not completely unsecured, lien stripping will not be a good option.  If you would like more information about this, please contact a St. Louis or St. Charles bankruptcy attorney.

How are Personal Injury Proceeds Handled in Bankruptcy?When considering whether to file bankruptcy, many debtors question whether they will be required to turn over to the Trustee their personal property.  In most cases, personal property will not be confiscated by the Trustee (the person who oversees the bankruptcy case).  In certain circumstances, the Trustee will require certain property be turned over if there are no available exemptions to cover the personal property.  Some people who consider filing bankruptcy may have personal injury or workman's compensation claims pending.  Personal injury cases can take quite some time to settle or go to trial because of the discovery and negotiation process.  Some debtors may need to file bankruptcy immediately to discharge their debts or save their property from repossession or foreclosure and do not have time to wait for the personal injury or workman's compensation claim to settle or go to trial.  Debtors who have a pending claim may be concerned that they may lose their award through the bankruptcy.When debtors have personal injury or workman's compensation claims pending, it is essential they disclose this information.  If the information is not disclosed at the time of the bankruptcy filing, the Trustee might think the debtor was intentionally trying to hide the claim.  If the Trustee finds out the debtor intentionally hid the claim, the FBI can investigate and prosecute the debtors accordingly.  In some instances, the personal injury claims may never settle or may only settle for enough to pay back medical providers, hospital bills, emergency vehicle bills, etc.  In some cases, a settlement or judgment in favor of the debtor may be awarded. In a bankruptcy, workman's compensation claims are exempt, which means the debtor is entitled to keep any proceeds they receive, and the Trustee will not require the proceeds be turned over.  It is important to still disclose these claims.  If a personal injury case is pending at the time of the bankruptcy filing, it is likely the Trustee will keep the bankruptcy case open until the claim is either dismissed or settles.  If an award is granted, the debtor has an obligation to alert the Trustee or their attorney.  At that time, the Trustee will decide how much they will disperse to the unsecured creditors and how much they will allow the debtor to retain.  This will vary depending on the Trustee assigned to the case.  The debtor often still gets to retain some of the personal injury award, and there are exemptions their attorney can apply for retention of a portion of the award.  For more information, please contact a St. Louis or St. Charles bankruptcy attorney.