We received a tremendous response to our Cooler e-mail "Covet Thy Neighbor's Apartment," which discussed the attempts of Chapter 7 Bankruptcy Trustees to assume and assign rent-stabilized and rent-controlled leases for the benefit of creditors. We believe that the following factors are important in determining whether a Chapter 7 Bankruptcy Trustee will attempt to assume and assign the lease to a rent-stabilized or rent-controlled apartment: 1. How many years has the Debtor lived in the apartment? 2. How much rent is the Debtor paying under the rent-stabilized or rent-controlled lease, and what would be the market value rent if the apartment was vacant and not rent-stabilized or controlled? 3. Is the apartment in a gentrifying area or an upscale neighborhood? 4. Has the apartment building recently undergone a condo or co-op conversion? 5. If yes, did the Debtor decline to buy the unit, and therefore become a non-purchasing tenant?; and 6. If the Debtor is married, did the Debtor's spouse also file for Chapter 7 bankruptcy protection? If you're considering bankruptcy and have a rent-stabilized or rent-controlled apartment, you should contact Jim Shenwick.

Business bankruptcy cases can lull you into inattention when no payroll tax issues are apparent on the face of the situation. Even the client who  doesn’t owe the IRS now can get bitten. [You didn't think this was simple, did you?] W-2′s Corporate officers are personally liable for monetary penalties if they fail to give employees their w-2 forms on time. It’s easy to miss making provision for w-2′s if a business shuts down mid year.  Yet the corporate officers don’t get a bye from this responsibility. So, on my checklist of things to do in a business shutdown is make provision for issuing w-2′s. Final tax return If the business has once filed an employment tax return, then stops, the IRS doesn’t assume that the business has shut down and there is not payroll.  No sir. It assumes that things have continued just as they were and you’ve simply neglected to file the return.  And neglected to pay over the trust fund withholding from employee salaries. That assumption often leads to the assessment of the civil penalty against the individual officers for the payroll that never was. Morale of this story:  file an employment tax return that checks the box at the top of the form:  final return. The officer loan For every business person who issues net checks to employees and shorts the IRS on payroll taxes, there’s the “savvy” sort who stays out of that trouble. Rather than cutting himself a payroll check, he makes himself a “loan” from the business.  There’s no withholding triggered by a loan, after all, so there’s no tax to the business.  A loan isn’t income to the borrower, so there’s no tax on the individual. Smart? Well, perhaps not so smart.  If the business ends up in bankruptcy, voluntary or involuntary, the bankruptcy trustee sees a plump asset in that money owed to the business by its shareholder! It’s not a comfortable position to be in, representing the shareholder, if you have to argue “that wasn’t really a loan, he was just evading taxes”.  Yuk! (that’s a legal term, isn’t it?). If the business forgives the loan, there’s the issue of forgiveness of debt income. Add to your client interview a question about loans in lieu of payroll.  Whether the debtor is the business or the shareholder, you need to know. Three more tax issues to add to your quiver. Image courtesy of U.S.Marine Corp and Wikimedia. 

Differences Between Bankruptcy And Debt Consolidation There are huge differences between bankruptcy and debt consolidation services.  If you’re filing a chapter 7, you are going to get a fresh start.  If you are using a debt consolidation service, you are going to wind up paying back to creditors.  It’s quite possible that you really don’t+ Read MoreThe post Why should I file for bankruptcy if I’m using a debt consolidation service right now? appeared first on David M. Siegel.

How Soon Can I Buy? You can typically buy a house two years after the filing of a Chapter 7 bankruptcy.  Lenders want to see that you have rehabilitated yourself after a bankruptcy filing.  They want to see that you have not incurred any negative credit since the time of filing.  They want to see+ Read MoreThe post When can I buy a house after filing for bankruptcy? appeared first on David M. Siegel.

What is a “Bankruptcy Trustee”?   It is common for clients considering bankruptcy or who have already filed, to ask what a “bankruptcy trustee” is. This question is usually followed quickly by, “What does the bankruptcy trustee do?” The trustee is a person assigned to your bankruptcy case to represent the interests of the people [...]

Payment Plans Are Available You most certainly can get on a payment plan to file a bankruptcy.  In fact, most people do not have the ability to pay the lump sum which is the court costs and the attorneys’ fees, all at one sitting.  What I like to do is offer a client a reasonable+ Read MoreThe post Can I make payments to file a bankruptcy? appeared first on David M. Siegel.

All Creditors Must Be Listed If you are filing bankruptcy, then all of your creditors must be listed.  This includes credit cards, personal loans, auto payments, mortgage payments and any other debt, including debts owed to family members.  I understand that many people have lived off credit cards, they love the convenience of credit cards+ Read MoreThe post Can I keep one of my credit cards and not put it on my bankruptcy? appeared first on David M. Siegel.

   The Court in In re Kelly, 2013 WL 603138 (Bankr. E.D. Mich. 2013) denied the Debtors' motion to value property they had been renting out, determining that under the hybrid approach for determination of whether a property is the debtor's principal residence so as to prevent valuation under §1322(b)(2), since the debtor's plan indicating they were planning to surrender their current home and move into this rental property, it was ineligible for valuation.     The Court recognized three lines of cases on the issue.  The first line simply holds that the property where the debtor resides on the date of the filing of the bankruptcy constitutes the debtor's homestead.  In re Howard, 220 B.R. 716, 718 (Bankr.S.D.Ga.1998); In re Lebrun, 185 B.R. 665, 666 (Bankr.D.Mass.1995); In re Wetherbee, 164 B.R. 212, 215 (Bankr.D.N.H.1994); In re Churchill, 150 B.R. 288, 289 (Bankr.D.Me.1993). See also 2 K. Lundin, Chapter 13 Bankruptcy § 121.2 at 121–3–121–9 (3d Ed.2000).   The second line of cases looks rather to the date the debtor obtained financing on the property, and whether the property was the homestead on this date.  In re Williamson, 387 B.R. 914, 920 (Bankr.M.D.Ga.2008); In re Smart, 214 B.R. 63, 67 (Bankr.D.Conn.1997).  The theory is that the debtor's should not be able to manipulate the application of the anti-modification clause through the timing of the bankruptcy.  The third of cases is the hybrid approach, looking to both the date the loan was incurred, and where the debtor resided when the bankruptcy was filed; but also examining other factors.  Thus, modification was permitted where the court determined that the parties intended the mortgage not to be secured by the principal residence.  In re Baker, 398 B.R. 198 (Bankr.N.D.Ohio 2008).  Modification was denied based on state domicile law where the debtor moved out of the property just prior to filing in In re Salmeron, 2010 WL 1780119 (Bankr.D.Md.2010).    The test in determining principal residence are as follows: (1) where did the debtor reside on the date of filing of bankruptcy? (2) did the debtor move out of their principal residence either shortly before or after the filing of the bankruptcy? (3) did the debtor move into a property debtor had previously used as a rental property? (4) where does the debtor intend to reside for the duration of the bankruptcy? and (5) does the debtor retain title to the property even though debtor is not residing in the property at the time of filing for bankruptcy? (6) did the debtor start renting his/her principle residence to tenants around the time debtor filed for bankruptcy? Applying these factors the Court determined that the property to which the debtors intended to move subsequent to the filing of the case constituted the homestead, despite the fact that the debtors had actually resided on another property for nearly twenty years prior to the bankruptcy, and resided on the other property when the case was filed.  The debtors actually moved from the property two months after the case was filed.    The case raises a number of questions.  Query if the plan had provided for renting out that property, and they changed their mind after the order valuing was entered, perhaps when they had trouble renting the property?  Would that justify vacating a modification order?  How do debtor's prove that they do not intend to move into a rental property?  Also, one of the stated rationale's for §1322(b)(2) is to encourage lenders to finance the purchase of homesteads by insuring that the the loans would not subsequently be modified in bankruptcy.  "[T]he legislative history indicating that favorable treatment of residential mortgagees was intended to encourage the flow of capital into the home lending market. See Grubbs v. Houston First American Savings Assn., 730 F.2d 236, 245–246 (CA5 1984) (canvassing legislative history of Chapter 13 home mortgage provisions)."  Nobelman v. Am. Sav. Bank, 508 U.S. 324, 332, 113 S. Ct. 2106, 2112, 124 L. Ed. 2d 228 (1993).  However, in the case the lender knew the property was a rental property at the time the mortgage loan was initiated.  

Case Overview This is the case of Gary Kaplan from St. Charles, Illinois.  Mr. Kaplan filed a Chapter 7 bankruptcy back in 2001 so he is eligible to file another Chapter 7 should the facts dictate that he file.  He has a townhouse that has a market value of $188,000 and he owes approximately $46,000+ Read MoreThe post Bankruptcy Can Eliminate IRS Debt In Certain Cases appeared first on David M. Siegel.

I have previously written about Crystal Cox, a self-styled investigative blogger, who found herself on the receiving end of a judgment for $2.5 million after she posted caustic comments about a bankruptcy trustee.  You can find the prior post here.   One aspect of the District Court's opinion which raised my eyebrows was the court's stingy application of the media privilege.    Under the District Court's view, most bloggers would not be entitled to some of the protections available to the professional media.   Apparently I was not the only one who thought this to be a strange result.   UCLA Professor Eugene Volokh, who blogs at the Volokh Conspiracy is representing Ms. Cox on a pro bono basis in her appeal to the Ninth Circuit.   Scotusblog.com, the leading Supreme Court blog, and the Reporters Committee for Freedom of the Press have weighed in with amicus briefs.     In an unusual twist, the Plaintiff sought to have the Sheriff levy upon and sell the Defendant's right to appeal.   By auctioning off the right to appeal, the Plaintiff could effectively insulate its judgment from judicial review.   Prof. Volokh successfully obtained an order from the District Court blocking this relief.   You can read about it in his own words here.  I am pleased that the Plaintiff's nefarious tactic was rebuffed and that there are some serious amici weighing in.   This case raises important issues about the First Amendment protections applicable to the citizen media.