March 2010 – Rochester Bankruptcy and Debt Relief – Rochester, NY Bankruptcy Attorney

Emergency Bankruptcy Filing – It Can Be Done

Late at night, most people are sleeping. However, sometimes circumstances arise when someone needs to file either a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy before the stroke of midnight, in the middle of the night, or early in the morning. Therefore, occasionally I file bankruptcy petitions late at night.

Sometimes, there are clients who come to me at the very last minute, when there may just be hours to spare before a scheduled foreclosure sale. In such cases, the bankruptcy petition needs to be filed as soon as possible because the minute the petition is filed, the “automatic bankruptcy stay” goes into effect, effectively preventing the sale from going forward. Lawyer’s ability to file an emergency bankruptcy cases is an important part of effective bankruptcy representation.

The reason I am able file bankruptcy petitions in the middle of the night is because all of the bankruptcy filings are done by electronic case filing (otherwise known as “E.C.F.”). By using E.C.F., the petitions and other bankruptcy documents are filed over the internet electronically, directly into the bankruptcy court’s computers. As a result, I can file a bankruptcy petition at any time.

The local rules do not require that the debtor file all of the supporting schedules at the time the case is initially filed. The case can be commenced by filing just the two-page bankruptcy petition together with a list of creditors and their addresses either in the form of the matrix or by filing the schedules of creditors. The debtor must also pay the filing fee.

The local rules permit the debtor to file the remaining schedules and forms within the next few days. If the remaining schedules and supporting documents are not filed during the applicable time periods, the Bankruptcy Court has the right to automatically dismiss the case. One requirement of a normal bankruptcy filing that cannot be waived in an emergency filing is the consumer credit counseling course. However, with consumer credit counseling courses available over telephone and internet, an emergency course provider can be found and a course can be completed at almost any time of day and night.

I prefer not to file emergency petitions, but sometimes it is necessary, and it is a part of the service I offer. Sometimes, I receive calls from the debtors who believe their house is about to be sold at a foreclosure sale. However, many of them confuse a motion return date in the foreclosure proceeding with the actual sale date. Before preparing an emergency filing, I always verify that there is a need to file bankruptcy as soon as possible.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Student Loans and Chapter 13 Bankruptcy

On March 23, 2010, the U.S. Supreme Court issued its decision in United Student Aid Funds v. Espinosa, No. 08-1134 (2010), which affirmed the 9th Circuit’s holding that a Chapter 13 Bankruptcy debtor can obtain a discharge of a student loan by including it in a Chapter 13 plan. The loan can be discharged if the creditor fails to object after notice and opportunity to do so, and the bankruptcy court enters an order confirming the Chapter 13 plan.

In a typical bankruptcy, whether Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, a student loan is not discharged unless the bankruptcy court makes a determination that the student loan would be an undue hardship on the debtor. Under Bankruptcy Rules, the court is required to make such a determination in an adversary proceeding, which is a lawsuit within the bankruptcy case. In United Student Aid Funds, the debtor did not bring an adversary proceeding. Rather, the debtor put in his plan that only the principal amount of the student loan would be paid through the plan, but that accrued interest would be discharged. The student loan lender did receive a copy of the plan, and even filed a Proof of Claim. However, the lender did not object to confirmation of the Chapter 13 plan.

Subsequently, the bankruptcy court entered an order confirming the plan as proposed. After confirmation, the Chapter 13 trustee sent a notice to the lender, saying that the Proof of Claim amount differed from the amount stated in the Chapter 13 plan, and that if the lender disputes the amount in the plan, it should notify the trustee within 30 days. After the debtor completed his plan payment, several years later, the student loan lender tried to collect the remaining amount due.

The debtor filed a motion seeking enforcement of his bankruptcy discharge. The lender filed a motion seeking to declare the order confirming the Chapter 13 plan void. Ultimately, this was the issue that the Supreme Court resolved. That is, the student loan lender argued that the bankruptcy court order confirming the Chapter 13 plan void because the lender was denied due process regarding the required statutory finding of undue hardship, which did not happen in this case.

The Supreme Court, in looking only at Bankruptcy Rule 60(b)(4), which permits a court to relieve a party for a final order or judgment, found that the lender was not denied due process, since the lender did receive the plan, filed a claim, and received the notice from the chapter 13 trustee. The Court agreed that the confirmation of the plan without an undue hardship determination was legal error, however, the legal error does not void the order. The Court noted that Rule 60(b)(4) strikes a balance between the need for finality of judgments, and the right of parties to have a full and fair opportunity to raise issues and the lender had ample notice and opportunity to contest the debtor’s actions.

What is to be learned from United Student Aid Funds? Bankruptcy lawyers are well aware of the fact that lenders can make errors in dealing with both Chapter 7 Bankruptcies and Chapter 13 Bankruptcies. However, in most chapter 13 bankruptcies, here in Rochester, New York, and elsewhere, the student loans are paid pro rata through the plan. Thus, the bankruptcy lawyers are unlikely to follow the debtor’s approach to the student loans in United Student Aid Funds, since it is likely to be rejected by the bankruptcy court. It appears that the bankruptcy court in that case ignored its obligation to make sure that the debtor followed the Bankruptcy Code in his Chapter 13 Bankruptcy. At the same time , there is little harm in trying to discharge some or all of the student loan debt, since if the above approach is followed, and the bankruptcy court or the bankruptcy trustee object, the plan can be amended to comply with the law, but if the bankruptcy court rubberstamps the plan and the lender fails to object in a timely manner, the debtor may get a discharge.

Top Ten Bankruptcy Myths

There are lot of myths and misinformation regarding debtors’ rights to file bankruptcy. In my practice, I see a lot of debtors who seek to file Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, who have heard a lot of rumors and incorrect information with respect to their rights and obligations when they file for bankruptcy relief. The following is a compilation of the typical questions, and correct answers to the questions I frequently hear from the debtors.

1. I will not be able to buy a house for ten years since I will not be able to obtain a mortgage.

Although Chapter 7 Bankruptcy will appear on your credit report for a period of ten years, you will be able to buy a house again much sooner than that, because the bankruptcy is likely to improve your credit rating. Chapter 13 Bankruptcy is likely to improve your credit sooner and is likely to disappear from your credit report much sooner as well.

2. I won’t be able to buy a car for ten years since I will not be able to obtain a car loan.

Although Chapter 7 Bankruptcy is likely to be on your credit report for a period of ten years, you will be able to borrow money to purchase a car again because because the bankruptcy is likely to improve your credit rating.

3. I won’t get a credit card or a good credit score for ten years.

Both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy are likely to improve your credit rating. In my experience, although I do not recommend it, the debtors are able to obtain credit cards again within 1 to 2 years.

4. I won’t be able to get a student loan for myself or my children.

Since guaranteed student loans must be repaid, and cannot be discharged in bankruptcy, therefore, there is little concern that student loans will not be paid back. Any private lender may deny a student loan based on the debtor’s credit score, however most student loans are government backed.

5. My employer will fire me because I filed for bankruptcy.

While bankruptcy information is available as a public record, employer, or prospective employer, is not allowed to discriminate against you based on debtor’s decision to file Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. If a prospective employer asks you for a copy of your credit report, questions you about bankruptcy, most employers are prefer to know that the debtor no longer has any financial issues which may affect work performance. Discharging the debt is preferable to an employer as opposed to a situation where the debtor is receiving phone calls at work from collectors or a credit report that shows a pattern of irresponsibility. Further, in Chapter 7 Bankruptcy, employers are not notified of the filing. In Chapter 13 Bankruptcy, the employer is likely to be aware of the filing since here in Rochester, New York, the Bankruptcy Court requires a wage deduction order that is sent to the debtor’s employer and requires a portion of the wages to be remitted directly to the Chapter 13 Trustee.

6. I don’t qualify for chapter 7 bankruptcy because I own a house.

You can file for a Chapter 7 Bankruptcy even if you own a home. Most states, including New York, allow a homeowner a certain amount of equity in their residence. In New York, pursuant to its homestead bankruptcy exemption, a single filer can have $50,000 worth of equity in their residential property, and joint filers (husband and wife) can have $100,000 worth of equity in their property.

7. I will lose my car if I file for bankruptcy.

If the debtor has a financed car, and can afford the payments, the bankruptcy court will not take away the car, unless the amount of equity in the vehicle is considerably greater than New York’s vehicle exemption. Further, the lender is likely to ask the debtor to reaffirm the car loan. Most Chapter 7 Bankruptcy filers who have car loans, tend to reaffirm them.

8. I am not a citizen, and therefore I can’t file for bankruptcy protection.

You can qualify to file bankruptcy even if you are not a United States citizen. If you have the right to reside in the United States, have a social security number, and have filed income tax returns, you can file for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy protection.

9. Bankruptcy can’t help because I have unpaid federal and state taxes.

Under appropriate circumstances, even taxes can be discharged in Chapter 7 Bankruptcy. Chapter 13 Bankruptcy can reduce debtor’s monthly payment to the IRS or New York Department of Taxation and Finance and allow for payments over the life of the plan, as long as five years, without interest.

10. My creditors tell me they will still sue to recover the money owed to them.

Once the bankruptcy is filed, the automatic stay, imposed by the bankruptcy law, protects you from any further attempts to collect a debt or any pending or future lawsuits. While secured creditors may ask for their property back if you do not continue to make payments, they must seek consent of the bankruptcy court before attempting to recover the property.

Chapter 7 and Chapter 13 Bankruptcy, Giving Advice to Clients and Restrictions Under BAPCPA

The U.S. Supreme Court has resolved an issue earlier this week that was of great concern to the bankruptcy lawyers ever since enactment of BAPCPA in 2005. This issue had to do with a provision of BAPCPA, which barred attorneys from advising their clients to take on more debt before filing for bankruptcy protection. The Supreme Court held in Milavetz, Gallop & Milavetz v. United States, 559 U.S. ___ (2010), that giving such advice is permissible in appropriate situations.

The high court, in an opinion written by Justice Sonia Sotomayor, said the provision prohibiting such advice was valid, but should be read narrowly. This provision should be read to prohibit bankruptcy lawyers from advising clients to abuse the bankruptcy system. Justice Sotomayer indicated that it would be permissible for lawyers to advise clients contemplating bankruptcy to take on additional debt in certain situations. She wrote that bankruptcy lawyers could advise clients to refinance a mortgage or purchase a reliable car prior to bankruptcy on the grounds that doing so would reduce the debtor’s interest rates or improve the debtor’s ability to repay. According to the opinion, “[i]t would make scant sense to prevent attorneys and other debt relief agencies form advising individuals thinking of filing for bankruptcy about options that would be beneficial to both those individuals and their creditors.” Professionals specializing in bankruptcy “remain free to talk fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case,” Sotomayor wrote.

This provision has been problematic in the past in situations where my client would have a vehicle that was likely to need repairs in the near future due to its age or mileage. Under BAPCPA, I could not advise the debtor in Chapter 7 Bankruptcy or Chapter 13 Bankruptcy to obtain a new car lease or car loan, as getting a new car is easier to do before filing for bankruptcy than after. Since BAPCPA contained a provision which prevented attorneys from advising clients to incur debt in contemplation of bankruptcy, I was unable to give debtors such advise since BAPCPA’s enactment. Similarly, this provision prohibited me from advising a debtor to refinance his mortgage immediately prior to filing for bankruptcy in order to benefit from a lower interest rate in the future.

The Supreme Court decision now clarifies the scope of BAPCPA provisions and holds that as long as bankruptcy lawyer’s advice is not meant to abuse the system, it is considered appropriate. Of course, a bankruptcy attorney cannot advise a client to go out and run up debt when the client has no reasonable expectation to repay it. The decision also upheld the BAPCPA’s requirement that attorneys make certain disclosures in their advertisements and ruled that attorneys who provide bankruptcy assistance are debt relief agencies within the meaning of the law. This requirement is the reason that whenever bankruptcy attorneys advertise their service, that sentence is included in the advertisement.

Overall, Milavetz was a positive result for bankruptcy lawyers here in Rochester, New York, and elsewhere across the country. The Congress should not have limited bankruptcy attorneys’ ability to engage in frank and open communications with their clients and give debtors the best possible advice.

Past Judgments, Real Estate and New York’s Exemptions

Whenever there are judgments against real property, owned by the debtor who files Chapter 7 Bankruptcy, those judgments, under appropriate circumstances, can be removed by filing 522(f) motion. The judgment can be removed provided that the debtor’s equity in the property does not exceed $50,000.00 per single filer, or $100,000 per married couple. The $50,000.00, otherwise known as a homestead exemption, comes from the present version of New York’s Debtor and Creditor Law. Prior to August 30, 2005, New York’s homestead exemption was $10,000.00 per single filer, or $20,000.00 per married couple.

One issue that was not conclusively resolved in Western New York bankruptcy court was what happened in a situation where the creditor’s judgment was perfected prior to August 30, 2005. If the judgment was perfected prior to the effective date of the increase in the homestead exemption, would the new homestead exemption or old homestead exemption would apply if the debtor filed Chapter 7 Bankruptcy?

According to the United States Bankruptcy Court Judge Bucki in Buffalo, the applicable homestead exemption amount is the new $50,000.00. In Re Calloway, Judge Bucki held that once the New York statute was amended, the homestead exemption amount became $50,000.00, and it would apply regardless of the date it was perfected. Judge Bucki wrote that to hold otherwise, would disregard the meaning of the statute and its interpretation under New York law. Specifically, he wrote that “C.P.L.R. § 5206 was immediately changed to provide that a homestead “not exceeding fifty thousand dollars in value above liens and encumbrances, owned and occupied as a principal residence, is exempt from application to the satisfaction of a money judgment, unless the judgment was recovered wholly for the purchase price thereof.””

Pursuant to the Debtor and Creditor Law § 282, the debtor has exercised her right to exempt her property from the bankruptcy estate. Therefore, pursuant to 11 U.S.C. §522(f), the debtor may now avoid judgment liens that impair a homestead not exceeding $50,000 in value.

Therefore, debtor’s bankruptcy attorney does not need to be concerned with the date when the judgment was perfected. As with most §522(f) motions, the biggest concern that a lawyer would have is the value of the property and whether debtor’s equity in it does not exceed the homestead exemption.