Thought for the Day Archive – 2019:
Bankruptcy related insights and information
If you’ve been behind on debt for quite some time, you may already be used to having your phone ring off the hook to the tune of debt collectors coming after their money. But at what point do those incessant phone calls cross the line from irritating to downright illegal? Here’s what you need to know about debt collectors, and the limitations they must adhere to.
Most debtors file bankruptcy because they’re overextended on credit, they’ve suffered a reduction of income, and/or they’ve incurred unexpected expenses. According to one report, illness and injury accounted for almost a third of all bankruptcy filings.
Ocwen’s refusal to correct their records following a cured and reinstated mortgage in chapter 13 resulted in a $3,582,000 judgment against them, subsequently reduced to $1,164,000 by the 7th Circuit in a decision from 27 November 2019.
Filing for bankruptcy can be very difficult and confusing. There are a number of complicated legal concepts and terms, as well as regular court requirements that you need to keep up with. A bankruptcy attorney can help you get through the process in far less time and stress.
In most bankruptcy cases, an injunction called an automatic stay goes into effect when a bankruptcy is filed. This injunction stops most collection activity including calls and letters. It also stops most lawsuits and garnishments.
Bankruptcy will stay on your record for up to seven years to 10 years, depending on what chapter you file. The good news, however, is that you can establish good credit even with a bankruptcy filing on your record.
Thank you to all veterans for their service.
5th Circuit gives hope to debtors with private student loans. Appellate court rules that if the private loan does not qualify as being funded in part by the government or nonprofit organization, and is not for a school qualified to participate under Title IV of the Higher Education Act, then the debt can be discharged in bankruptcy. Essentially decision limited the provision that these creditor often used: §523(a)(8)(A)(ii) to funds received that only have to be repaid if some condition is met, like scholarships or stipends that only have to be repaid if the student drops out or fails to meet certain grade requirements. In re Crocker, 2019 U.S. App. LEXIS 31300, Case #18-20254 (5th Cir., 21 October 2019).
To successfully have your student loans discharged in bankruptcy, you will need to prove that repaying them would cause an undue hardship. Unfortunately, “undue hardship” is not defined in the bankruptcy code, so courts have different interpretations of its meaning.
Bankruptcy is a difficult process that has long-term implications on your financial situation, so it’s not something to jump into blindly. But if you’ve evaluated all your options and determined that bankruptcy is your best chance for a fresh start, then you should pick the smartest time to file and go through the entire process correctly.
It is essential when preparing a bankruptcy to insure that all creditors are listed when the case is filed. If this is not done in time to allow a creditor to participate in any payments in the bankruptcy, the debt will likely not be eliminated by the bankruptcy. A recent decision from Maryland followed this rule, even denying a creditor’s request to file their claim late, finding that it could not extend the time for the creditor to file a claim.
Competent counsel will rely not only on the client’s memory for creditors, but will review credit reports and court records to attempt to insure all creditors are timely scheduled on the bankruptcy papers.
A bankruptcy can remain on your credit report for 7-10 years, depending on the chapter filed. The good news is your credit score can rebound soon after the bankruptcy hits your report, assuming no new negative information arises.
One of the most complicated forms to complete in consumer bankruptcy cases is the expense portion of the means test, form 122C-2. This is the form where you list not necessarily your actual expenses, but the allowed expenses under the Bankruptcy Code, which in turn, is loosely based on allowed expenses when an offer of compromise is made with the IRS. The complicated nature of which and how much to list is exasperated by disagreement among the courts as to which expenses are allowed. An experienced attorney specializing in consumer bankruptcy law should not only be aware of local practice, but also be aware of trends and decisions in the rest of the country that might be used to argue to change local practice to the benefit of the client. One such decision from Texas, allows more expenses in housing and vehicle expenses that the standard allowances if supported by evidence and if reasonable.
Once you’ve made the difficult decision to file for bankruptcy, the next step is figuring out which type most suits you—Chapter 7 or Chapter 13. In many cases, factors such as your income, assets and debts will determine which filing you can pursue. But in other instances, your financial goals—like wanting to remain in your family home—will ultimately decide your bankruptcy path.
One of the intricacies of bankruptcy is the power to undo transactions that occurred prior to the filing of the case. While this often is done by the bankruptcy trustee to get back payments or transfers made by the debtor, often to relatives; it also can be used by the debtor to undo certain sales or liens by creditors. The 3rd Circuit recently approved use of the preference avoidance section of the bankruptcy code to undo a sale of real estate debtor had owned through a property tax certificate foreclosure sale. A good bankruptcy attorney can not only warn of risks caused by your conduct before filing, but can also look for opportunities to use the laws for your benefit.
Secured debts are linked to an asset, like a home or a car. Chapter 7 bankruptcy can discharge most types of unsecured debt. If most of your debt is secured or nondischargeable, Chapter 13 may be a better option. A bankruptcy attorney can help you determine which chapter is right for your situation.
Filing for bankruptcy may help when you have more debt than you can handle. Chapter 7 wipes out many kinds of debts, while chapter 13 allows you to make lower payments as part of a repayment plan. A bankruptcy attorney can help you determine which option is right for you.
Judge Jennemann rules in favor of debtor on student loan case, finding that debt to aviation vocational school was not an educational loan subject to §523(a)(8) as it was not made, insured, or guaranteed by the government, and not used for an accredited school. In re Weissmuller, 2019 Bankr. LEXIS 2721, Case #06:08-bk-02958-KSJ; Adv No 6:18-bk-00128-KSJ, Bankr. MD Fla. 27 August 2019)
Attorney competence is not a given. Too often I meet with clients that have seen other attorneys, and who have given bad advice. Most recently an attorney had told a client to stop paying on all credit cards, but did not tell them to close their bank account at the bank where a credit card was owed, resulting in the bank taking all the money from that account. A very predictable outcome. Counsel are also required to give disclosures within 5 days of the initial meeting. These disclosures are on my website under the selected forms tabs, and I have all clients sign them at the initial meeting. Yet most clients who see me after meeting other counsel have never seen these.
Louisiana court reject’s chapter 13 trustee’s object to plan for retention of polaris ‘luxury’ item securing loan given other factors suggestion good faith, including surrender of other collateral and replacement of expensive vehicles with less expensive ones.
Going into foreclosure is undoubtedly scary. However, receiving a Notice of Delinquency in the mail doesn’t automatically mean that you’re going to lose your home. There are things that you can do to slow down the process and get back on track or, at the very least, to leave your financial record in the best shape possible.
Court rules against mortgage in case where debtor changed plan for mortgage mediation to cure and reinstate, and provided for increased mortgage payments post-petition to cure delinquency caused by below-contract pre-confirmation adequate protection payments to mortgage; despite subsequent errors causing such payments to be inadequate that were not objected to by mortgage.
Florida has a generous exemption for homesteads, meaning if you are current on the home, you can almost always keep it in bankruptcy. Even if you are not current, bankruptcy can provide options to still keep it, including catching up the missed payments over as much as 5 years, and possible modification of the mortgage. Less often (though much more often for farmers or fisherman) people filing bankruptcy can rewrite the terms of the mortgage, or even make monthly payments over time then provide for refinancing of the property before a plan is over.
One of these unusual cases in chapter 13 allowed this when the court found that the mortgage failed to inform the debtor that the renewal of the debt required payment in full in only 3 months, rather than being a 4 year renewal as was the case on the prior loan.
The hallmark of Chapter 13 bankruptcy is the repayment plan. In this case, rather than liquidating your assets, the court allows you the opportunity to repay some of your debts through a repayment plan.
11th Circuit rules on Florida IRA exemption statute: while not necessarily have to maintain in accordance with tax code, do have to maintain in accordance with documents creating the IRA. Using funds to buy Puerto Rico condo for personal use is a no no.
One should always be aware of scams out there, but this one was just too funny to ignore.
Oregon district judge affirms emotional distress award against IRS. Gotta wonder how much fees were awarded for $4,000 award (prior 9th Circuit decision in same case finding sovereign immunity waived).
Bankruptcy will affect your credit for different lengths of time depending on which chapter you file. Chapter 7 bankruptcy, or liquidation bankruptcy, stays on your credit reports for 10 years. Chapter 13 bankruptcy stays on your credit report for seven years. The good news is that credit-scoring models focus more on recent history than years-old credit information.
In honor and respect of those that died for our freedom.
4th Circuit overrules prior decision to join other circuits in finding that §1322(c)(2) is an exception to the anti-modification provision of §1322(b)(2), permitting cramdown of mortgages where the final payment on the mortgage is due prior to the final payment of the chapter 13 plan.
One of the most important aspects of finding a great attorney is the communication by the attorney with the clients, not just responding to the client but proactively reaching out for issues. This is why I am sending out followup letters to all my pending chapter 13 clients that have not yet sent me their 2018 tax returns reminding them of the need for these returns in bankruptcy, and will be sending another followup in 60 days if I still haven’t gotten them. This should avoid requests by the trustee to dismiss the cases.
Communications with clients is one of the subjects that has concerned me for some time, seeing issues both from clients who had other attorneys before me and at the pro bono clinic. This is why I suggest the subject and was a panelist at a local bar seminar on the issue.
Judge Williamson rules on what happens to insurance check for damages to home in chapter 13. State court counsel suing insurer was unaware of bankruptcy, therefore not employed by the court, and did not get court approval of settlement against insurer. Insurance sent separate checks to counsel for fees and damages, then put a Stop payment put on damages $25,429 check when insurance company realized debtor was in bankruptcy. Unfortunately stop payment was made after attorney sent his trust check to debtor and debtor cashed the check. (Moral: Never issue checks from trust before funds clear!). State court counsel request that the court hold both debtor and debtor’s counsel in contempt – debtor for not turning over $20,000 they initially claimed they still held (changing their story later) and mortgage requested that funds be turned over to them.
Court ruled that Debtor had right to use to repair home, but as there was no proof it was used for that purpose, lawyer must deposit replacement check in his trust account and process set up for debtor to show the proceeds were used for required repairs, if not stay lifted for mortgage. State court counsel in suit against insurer never employed by bankruptcy court; no approval of compromise by court.
In re Pereira, 2019 Bankr.LEXIS 1057, 2019 WL 1552555, case #8:14-bk-01703-MGW (Bankr. M.D. Fla. 5 April 2019).
Judge Jackson in Orlando rules that debtor with 2.95 acre homestead inside city limits must allow sale of property, with proceeds allocated based on percentage of exempt acreage to total acreage. only 0.765 acres above ordinary high water mark including debtor’s 10,000 square foot home, and 2.185 acres below ordinary high water mark. City had previously disallowed division of submerged land from deed to home property, and court ruled that the submerged portion could not be legally divided. However debtor created separate parcels just prior to bankruptcy listed separately on schedule A and exempted only homestead land. Court found this attempt to gerrymander exemption was improper, but declined creditors request to disallow exemption on that basis. In re Cole,2019 Bankr.LEXIS 1059, case #6:15-bk-06458-CCJ (Bankr. M.D. Fla. 3 April 2019).
Judge calls debtor’s attorney to testify when debtor’s schedules are inaccurate and debtor indicated that she repeatedly gave information to counsel. In re Spearman, 2019 Bankr.LEXIS 901 (Bankr. D.Md. 22 March 2019).
It is critical to hire an attorney who can take the time to review your situation, and timely respond to your issues. High volume bankruptcy mills may have difficulty with this.
Local Rule in NC required Rule 3002.1 motions to state the principal balance due. When creditor failed to timely respond, court refused to reconsider, sustained on appeal, saving debtors $50,000 on mortgage.
Avoid problems by hiring board certified counsel. Another case was reported where a debtor nearly had his case dismissed due to a mistake by counsel. In this case, just because his attorney did not file an amendment to disclose a lawsuit settlement as required. This, even though the settlement was disclosed to the chapter 13 trustee and used to complete payments in the plan. In re Maxwell, 2019 Bankr. LEXIS 719 (Bankr. N.D. Ill. March 6 2019).
Hiring experienced board certified counsel can avoid many such pitfalls.
3rd Circuit cases determines that transfer of wages into a tenancy by entireties account could support fraudulent transfer action based on Pennsylvania law. Same standard may not apply in Florida based on exemption of wages.
Clients sometimes get a 1099c form asserting forgiveness of debt income for debts that were discharged in bankruptcy. Use form 982 from the IRS to show that this is not taxable income.
Many government workers and contractors are being financially stressed by the government shutdown. I am committed to working with anyone having to deal with this problem to insure their ability to obtain relief through the bankruptcy system.