When you file for bankruptcy, who receives your home depends on a lot of factors.  You may get your home if it falls under certain laws, called exemptions.  Your creditors may receive it if they have a mortgage on it with what is called priority, meaning that they stand first in line. In this case, [...]

Wherever you decide to file for bankruptcy, that location is presumed to be the right one until it is successfully challenged by a creditor or the trustee in your case, whose job it is to administer your estate.   However, once challenged, there is a rule for where to file.  You can file where you were [...]

What is a Cram down? Cram down is only available in chapter 13 bankruptcy and is a way to reduce the total amount you will pay to obtain a free and clear title to your vehicle. If you purchased your vehicle more than 90 days prior to filing for bankruptcy protection and the fair market [...]

Like waltz tempo, there’s an appeal in threes: Larry, Moe, and Curly Faith, hope, and charity Tinkers, Evers, and Chance In bankruptcy, the trio is unliquidated, contingent, and disputed. They’re the prescribed adjectives for describing claims on the schedules.   We all love adjectives, don’t we? Contingent The definition of contingent,  in our context,  focuses  a right dependent on the occurence of some future event.  A creditor holding a contingent claim is entitled to have it estimated for purposes of allowance in a bankruptcy case. c) There shall be estimated for purpose of allowance under this section— (1) any contingent or unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the administration of the case; §502(c) In 32 years of practice, including 10+ representing trustees, I don’t think I’ve ever seen a proceeding to estimate a contingent claim.  But there it is. Disputed Labeling a claim as disputed gives the trustee a heads up as to the appropriate treatment of the claim should there be a distribution to creditors in that class.  But more important, it raises the question of whether scheduling the claim, without noting it as disputed, constitutes an admission of the validity of the claim in the amount scheduled. This seems to be a Procrustean dilemma, depending on your judge’s inclinations.  Dispute all claims, as to the calculation of the amount, and you risk a challenge to your good faith.  Fail to challenge the amount set out on the creditor’s bill and you may have admitted liability in that amount. Here, it pays to know local inclinations and to anticipate, at the schedule preparation stage, what litigation looms. Unliquidated Unliquidated is the power lifter in this trio, in the Chapter 13 context.  Claims that are unliquidated are excluded from the debt calculation for Chapter 13 eligibility.   Only an individual with regular income that owes… noncontingent, liquidated, unsecured debts of less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000, or an individual with regular income… may be a debtor under chapter 13  [debt limits outdated] The implications here are powerful:  your client could have been the undisputed cause of a horrific negligent tort and still qualify for Chapter 13 relief if the amount of damages remains to be determined.   (note that contingent debts are excluded from the calculation as well, but in my experience, that is a far less common fact pattern). Choose your words carefully.  You may have to live with them. Image courtesy of mape_s Like This Article? You'll Love These! Did You Forget Bankruptcy’s Magic Words? Notice Key to Bankruptcy Success But She’s Not a Creditor!

If you own a car and make monthly payments on it, that expense can become burdensome down the road.  Sometimes people take on loans that are higher than they should, and that loan contributes to a financial sinkhole.  If you decide your car payments are just too expensive, and want to surrender it, what are [...]

When I trip over the same issue three times in a week, it’s time to discuss it here. In my office, it came up when I spotted a creditor on Schedule D with a lien on a pleasure boat.  Only problem was that no boat was listed on Schedule B; it belonged to the debtor’s corporation. It surfaced on a list serve when the question turned on tax liens on 401(k) accounts. Then, we saw it when our client remained liable for the mortgage on the home that went to his ex wife in the divorce. Can you see what each of these fact patterns has in common?  (Come on, pretend this is Sesame Street!) Answer:  each lien doesn’t attach to property of the bankruptcy estate. It comes down to this truism:  liens are not the same as secured claims. You can’t have a secured claim without a lien of some sort but the fact that there is a lien does not necessarily mean you are looking at a secured claim in a bankruptcy case. Let’s go back to the statute, §506: An allowed claim of a creditor secured by a lien on property in which the estate has an interest… is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property… In the case of the boat, the debtor didn’t own it, thus it didn’t come in to the estate. In the case of the 401(k), it belongs to the debtor but is excluded from the bankruptcy estate by §541 and the holding of Patterson v. Shumate.  The Ninth Circuit held in Snyder that a Chapter 13 plan can’t pay off a lien on the ERISA qualified retirement plan that wasn’t property of the estate. In the case of the divorced man, he no longer owned the property by reason of the division of property with his ex. This precept is also useful in thinking about lien stripping:  you can only value a lien in a bankruptcy case to the extent it attaches to the debtor’s interest in property.  Thus, I believe, you can’t strip a lien on a co owner’s interest in property where the co owner isn’t a debtor in bankruptcy.  The co owner’s interest isn’t property of the estate and whatever interest the lienholder has on the co owner’s interest, it isn’t a secured claim in the debtor’s case. Image courtesy of topsy@waygood         Like This Article? You'll Love These! Stop Wrestling With Lien Stripping Lien on Phantom Property Upsets Debt Totals How Lien Stripping Differs From Lien Avoidance

Here at Shenwick & Associates, one of the most common things we do for clients is the filing of proofs of claim in bankruptcy cases. We have written extensively before about proofs of claim hereand here, but essentially a proof of claim is a written statement setting forth the creditor's claim against the debtor and filed with the Bankruptcy Court (or, in certain "megacases" with many creditors, the Debtor's claims agent). Recently, a question arose about who could sign a proof of claim. A client wanted to file a proof of claim on his mother's behalf, and had a durable power of attorney for his mother. Was that sufficient? Could we sign it on her behalf, since we had been retained, but did not hold a power of attorney on her behalf? Rule 9010(c) of the Federal Rules of Bankruptcy Procedure provides: "Power of Attorney. The authority of any agent, attorney in fact, or proxy to represent a creditor for any purpose other than the execution and filing of a proof of claim or the acceptance or rejection of a plan shall be evidenced by a power of attorney conforming substantially to the appropriate Official Form. The execution of any such power of attorney shall be acknowledged before one of the officers enumerated in 28 U.S.C. §459, §953, Rule 9012, or a person authorized to administer oaths under the laws of the state where the oath is administered." So it is clear that attorneys may sign proofs of claim without the need for a power of attorney. In re Roberts, 20 B.R. 914, 917, n. 2 (Bankr. E.D.N.Y. 1982) also supports the proposition that an attorney may sign a proof of claim, citing to Collier on Bankruptcy (one of the leading treatises on bankruptcy law), which says that a "separate power [of attorney] is not necessary for the filing of a proof of claim." However, although attorneys may sign proofs of claim, that doesn't mean that they should. In In re Duke Investments, No. 10-36556, 2011 WL 2462681 (S.D. Tex. June 17, 2011), the Court almost disqualified an attorney who had signed his client's proof of claim. The Court refused to disqualify the attorney from representing his creditor-client in the chapter 11 case because the attorney was not a "necessary witness" to the merits of the claim, but the Court admonished attorneys against signing clients' proofs of claim in the future because of the risk that the attorney may become a necessary fact witness at his client's trial. The Court instead recommended attorneys have their clients sign the proof of claim. Following the Court's advice will allow attorneys to completely protect themselves from being disqualified as a necessary fact witness under similar facts. Attorneys should take notice of the holding in Duke when considering the obligations and duties owed to clients and avoid the potentially harmful but common practice of signing their clients' proofs of claim. For more information about proofs of claim and preserving your rights to payment in bankruptcy, please contact Jim Shenwick.

In another twist on the evolving interpretation of BAPCPA, a court in Texas has ruled that failure to extend the automatic stay in a subsequent filing does not affect property of the estate that is not claimed by the debtor as exempt.   In re Scott-Hood, No. 11-53580 (Bankr. W.D. Tex. 6/15/12), which can be found here.In the Scott-Hood case, the Debtor had one prior chapter 13 case dismissed and then filed a new chapter 13 proceeding.   However, the Debtor did not request an extension of the automatic stay pursuant to section 362(c)(3).     JP Morgan Chase Bank filed a Motion for Order Confirming Termination of Automatic Stay which was granted.   The Debtor then filed a motion for reconsideration arguing that section 362(c)(3) was limited to property of the Debtor, not property of the estate.    The Court ultimately agreed.According to section 362(c)(3)(A), failure to request extension of the stay in a subsequent case means that:(T)he stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case.Because the Debtor did not file a motion to extend the automatic stay, it was necessary for the court to determine what the consequence under section 362(c)(3)(A) was.    The Court noted that there was a split in the cases as to whether the stay terminated as to all property or just the debtor’s property.    The Court noted that this was important in the San Antonio Division of the Western District of Texas because the Standing Order for Chapter 13 cases provides that upon confirmation, property does not revest in the Debtor.   The Court noted:Thus, in the San Antonio Division of the Western District of Texas, where property of the bankruptcy estate encompasses all property of the debtor as of filing, plus all property acquired post-petition and earnings from services performed post-petition, (citation omitted), an early termination of the stay under section 362(c)(3)(A) could be meaningless.    Opinion, p. 3.After an analysis of the statutory text and legislative history, the Court concluded that the statute meant exactly what it said:  “with respect to the debtor” was limited to the debtor’s property, not the estate’s property.The result reached by the foregoing textual analysis may be less than optimal.   The fact that the scope of relief is less robust than creditors who lobbied for this legislation might have hoped for, however, is not reason to conclude that the statute is “truly absurd.”    It has meaning.   It just doesn’t have the meaning that the creditor wants it to have.   So it often is with statutes.  They fail to deliver on the expectations of those who zealously worked for their passage.    By the same token, however, the statute does deliver more relief, in this court’s view, than the majority view says it delivers.   That too is but another consequence of the way the statute is written and how it intersects with the rest of the Bankruptcy Code.   The court’s job is not to select the optimal policy outcome but to discover the intent of the drafters of the legislation to the extent that can be done with the interpretive tools available. . . . After reviewing both the plain language of the statute itself, as well as its narrow context within section 362 and its broader context within the Bankruptcy Code, the court concludes that section 362(c)(3)(A) terminates the stay only with respect to the debtor individually, with respect to the debtor’s exempt property that stands as collateral for a debt of the debtor, and with respect to certain leases.   It does not terminate with respect to property of the estate.Opinion, pp. 7-8. This result will provide a lot of relief to chapter 7 trustees and some relief to less than diligent debtor’s attorneys.   For chapter 7 trustees, who may not see a case until 30 days after it is filed, it means that they do not lose control over non-exempt assets that are subject to a lien but may have equity.   For debtor’s lawyers who may not be aware of this new provision (it is not even seven years old so far) or who fail to catch a prior case, the benefit may be less dramatic.   Debtors typically file chapter 13 to protect their exempt property, such as homes and cars.     Under Judge Clark’s ruling, exempt property of the debtor is still subject to early termination of the stay.   However, there is an interesting quirk here.   All property of the debtor, including exempt property, initially enters the estate.   It is only when an exemption becomes final that the property leaves the estate.   Consider this scenario:   a debtor files a subsequent case and claims his truck as exempt.   However, he does not file a motion to extent the stay.   At the conclusion of 30 days, the stay terminates.   However, the truck is still property of the estate.    The property will not leave the estate until 30 days after the first meeting of creditors at the earliest.    If the debtor’s attorney realizes his mistake during the period between 30 days after the petition date and the date that exemptions become final, he can simply amend his exemptions to delete the exemption.   In that instance, the property remains property of the estate and the early termination clause never takes effect.

It was community property that garnered me my first hug from Doug Jacobs. Or rather, it was the absence of community property that did it. You see, Doug had described his dilemma with his case involving an elderly couple who had a home with lots of equity (that’s what tips you off to the age of this story) on a list serve I followed. The clients had credit card and medical debt that their income wouldn’t cover, but a bankruptcy case would leave substantial equity in their home exposed to sale by the trustee. California is one of the nine US states where spouses hold their acquisitions during marriage as community property. Bankruptcy Code section 541 says that all of the community property comes into the bankruptcy estate even if only one spouse files. So how to get this couple relief from their debts without losing the house? My question to Doug was whether he’d looked at the deed by which they held the house.  Because, I reminded him, the presumption that property acquired during marriage is rebutted when title is held in joint tenancy. Bingo!  They held as joint tenants, which meant that each spouse held their half of the house as their separate property.  One spouse could file bankruptcy and bring only that spouse’s half of the property into the bankruptcy estate. Better yet, the BAP ruling in my McFall case (112 B.R. 336 (9th Cir. B.A.P. 1990)) established that one spouse was entitled to use the entire homestead exemption against his half of the house. Doug’s clients filed serial bankruptcies, each using the homestead exemption to protect their half of the house’s equity from the trustee and the creditors. And this fine result was made possible by a careful look at the way spouses hold title and how the result of state law characterization of marital property played in bankruptcy. When Doug and I finally met face to face at a NACBA event, I stuck out my hand in greeting. He refused to shake hands.  I got a hug instead, celebrating what community property concepts can do in bankruptcy. I’ll be talking more about how marital property and community property law interact with the Bankruptcy Code on Thursday, July 12 in Mt. View.  Check out the program. Image courtesy of wikimedia. Like This Article? You'll Love These! Bankruptcy as Means to Keep the House Five Reasons To Break Up Couples Writer’s Block And The Bankruptcy Schedules

When faced with a disputed lien strip, don’t discount the possibility of compromise. I wrote last time about the seeming impossibility of compromising a §707(b)(3) action.  Next to that, lien strips are easy. Yet I see attorneys all around me folding the moment a secured creditor contests a motion to value.  What opportunities squandered. Having just come off a day long trial where good faith, property value, feasibility, and profitability were all in play, a lien strip looks like child’s play.  There is only one issue:  property value. A contested lien strip is, in fact, a trial subject to most of the Part VII rules for adversaries.  Take a look at Rule 9014.  It imports most of the discovery rules that apply to adversaries. Here’s a chance to build your litigation skills in a setting that is about as straightforward as you can imagine. Consider compromise Having, I hope, pumped you up about acquiring some courtroom polish, let me argue the other approach to this dispute:  consider compromise. A contested lien strip on a client’s home is, on it’s face, as black and white a contest as my 707(b)(3) matter:  one dollar of equity for the challenged lien and your client is stuck with the junior mortgage. But the stakes are just as stark on the creditor’s side:  one dollar short, and their lien is worthless. Presumably, you have two opinions of value, which suggests splitting the difference. Early on in the Great Recession, I saw little interest on the part of supposedly secured creditors in settlements.  But just like loan modifications, I’m seeing more willingness to consider settlement. Neither side should lose sight of the cost of trying the matter, as well as the risk to both sides. Work out the terms If you can compromise on the face amount of the modified note, you need to agree on the terms.  Best case for your client, the term of the note is unchanged.  But that doesn’t need to be.  Perhaps you agree to shortening the term as a sweetener to reach a deal. Just as in loan modifications,be concerned as to how you document the modification and make sure it becomes part of the public record, either in the bankruptcy court or the land records of your county.  I quake at the thought of the trainwreck ahead with all the modified loans with little or no supporting paper.  Don’t leave your fingerprints on an inadequately memorialized deal. Image courtesy of castle79. Like This Article? You'll Love These! But She’s Not a Creditor! How Long Can Underwater Lien Hold Its Breath? Business Partners: Another Phantom Creditor