Procedure – Page 10 – Rochester Bankruptcy and Debt Relief

Should You Use Credit Cards Once You Decided to File Chapter 7 or Chapter 13 Bankruptcy

If you are contemplating filing Chapter 7 or Chapter 13 bankruptcy, you should stop using your credit cards. Once you’ve decided to file for bankruptcy, any credit card use after that point will be highly scrutinized by both the credit card issuer and the bankruptcy trustee, and is likely to be viewed with a great deal of suspicion. The reasons for this are obvious. If the debtor decides that he is seeking to eliminate his credit card debt through Chapter 7 bankruptcy, or pay a lesser amount though a Chapter 13 filing, then incurring additional credit card debt can be considered fraudulent. Specifically, the credit card issuer will make an argument that the additional debt was incurred without intention to repay, then the discharge can be objected to. Also, the issuer will also look at all of the transactions to verify that the money was not spent on such things as vacation trips, or that other unnecessary spending didn’t take place. If a credit card issuer learns that a debtor used a card without any intention of making full payment, then the credit card company has the right to object to the debtor’s discharge of that particular debt.

Also, if the bankruptcy trustee, or United States Trustee, learn that the debtor intentionally ran up his credit cards before filing, then either trustee can seek to have the debtor’s discharge denied or move to have the case dismissed. There is also the possibility that the debtor can be found to have engaged in bankruptcy fraud, which is a criminal offense.

While consumer Chapter 7 bankruptcy allows the debtor to eliminate all credit card debts and get a fresh new financial start, the debtor should not jeopardize his ability to seek bankruptcy protection by engaging in self-serving or foolish behavior. There is simply no reason to create problems for the upcoming bankruptcy filing. Therefore, don’t use your credit cards once you’ve decided to file bankruptcy.

If you 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 New York bankruptcy lawyer.

Reviewing Your Chapter 7 and Chapter 13 Bankruptcy Petition – A Critical Part of Your Bankruptcy Process

I spend a fair amount of time in 341 hearings. While waiting for my bankruptcy cases to be called, I listen to the trustee asking debtors and their lawyers questions about bankruptcy petitions. In my experience, one thing that always that gets bankruptcy trustee worked up, are incomplete or inaccurate bankruptcy petitions. Because the bankruptcy petition is signed by the debtors who, by signing it, certify its accuracy, debtors’ failure to read their bankruptcy petitions and lack of awareness of factual errors or omissions that they contain may cause significant problems.

While a completed bankruptcy petition usually runs between 30 and 40 pages, it is not an exciting read, and contains plenty of legalese, as well as recitals of the debtors’ financial assets, income, expenses,a a list of all the creditors. However, by signing it, the debtor certifies that he/she not only read it, but that all information contained in the petition is true and correct, just as if the debtor testified to that information under oath. At the beginning of every 341 hearing, the trustee asking the debtor if he/she read the bankruptcy petition before having signed it, reviewed it with his/her bankruptcy attorney, and if everything in the petition is true and correct.

Trustees get very upset at debtors because their petitions weren’t accurate or complete. A typical debtor would tell the trustee, “I didn’t notice a mistake or omission and it needs to be corrected,” but later admit they did not read the petition carefully. When the bankruptcy petition is missing important information and that information could have been easily corrected by the debtor, the debtor’s credibility is greatly reduced. If the petition is completely inaccurate, the trustee can allege that the debtor was engaging in fraudulent and deceptive conduct.

In my practice, I insist that my clients read every page of their petition and review it with me before they sign it. Even if the client want to rely on my work, the petition has to be read by every client who must understand its contents.

Small Business and Chapter 7 Bankruptcy

In the last few months, I have received a number of calls from owners of small businesses who want to file Chapter 7 bankruptcy, primarily due to credit card debt, but want to continue to operate their businesses. In most of these cases, the business owner have used personal credit cards to fund business operations. Since the time the credit cards were used, the business improved, and is now profitable or would be profitable where it not for the payments on credit card debt.

Unfortunately, in this type of situation, filing bankruptcy comes with a price. If you own a small business and are incorporated, the shares of that business are assets of the bankruptcy estate. Further, any accounts receivable of the business are an asset of the business that belong to the shareholder. Thus, if the shareholder files Chapter 7 bankruptcy, the bankruptcy trustee will treat the shares in the business, value them, and will try to sell them

Except in the case of a personal service business that has no significant inventory, receivables or any valuable assets, other than the experience and labor of its owner, the bankruptcy trustee will demand that the owner cease operating the business, and produce its records, value its assets and disclose other information related to the business to the trustee. As a result, a Chapter 7 bankruptcy filing is likely to result in the business being shut down, and its owner being forced to start over. Once the bankruptcy is completed, a new corporate entity can be formed and, assuming that the owner is able to resume operations and the business can be profitable, operations can be restarted.

Besides Chapter 7 bankruptcy, there are other options. Under appropriate circumstances, an owner of a small business can file a Chapter 13 bankruptcy assuming that the business is being operated as a sole proprietorship, and, if the business is large enough, Chapter 11 bankruptcy may be an option. In a Chapter 13 filing, it is usually difficult to predict what the cash flow of the business will be like and, therefore, it is difficult to come up with a bankruptcy payment plan.

Why a Free Consultation Is Important in Chapter 7 or Chapter 13 Bankruptcy

When a potential client calls my office to ask bankruptcy-related questions, I usually suggest that he or she come in for a free initial consultation. I also ask that when we meet, you bring your bills, tax returns, pay stubs and any other documents that may be related to your situation. The reason I ask for such documents is to assess your overall financial picture and to come up with possible solutions to existing problems.

At the consultation, I ask questions to find out what assets are owned by the potential client and also what their debts are. Depending on the responses I receive, I ask follow-up questions about the issues that may determine the course of action:

1. Recent significant use of credit cards/balance transfers/cash advances;
2. Transfers of property to third parties without payment or adequate consideration;
3. Values of assets which may exceed applicable New York exemptions in a Chapter 7 bankruptcy and may force a Chapter 13 bankruptcy filing instead;
4. The level of household income to make sure that the client can meet the means test and file a Chapter 7 bankruptcy;
5. Whether the debtor recently repaid a debt to a relative or friend which may be a preference;
6. Whether the debtor has a personal injury lawsuit pending, or the right to bring such lawsuit;
7. Whether the debtor had any prior bankruptcy filings;
8. Whether the debtor owes any non-dischargeable debts, such as student loans, maintenance and child support, and some income taxes;
9. Debts incurred as a result of fraudulent conduct or drunk-driving.

After I ask all of these questions, I am able to recommend the course of conduct for the debtor. I typically will explain if the bankruptcy a good option; what are its costs; and how a typical bankruptcy gets prepared, filed and proceeds in bankruptcy court. If a bankruptcy is likely to solve debtor’s problems, I will discuss which type of bankruptcy is available and what are the advantages and disadvantages of Chapter 7 and Chapter 13 bankruptcy?

In the event you decide to proceed with a bankruptcy filing, I will ask you to sign a retainer agreement. You will leave my office with a bankruptcy questionnaire which will ask you to provide information on your income, expenses, assets and liabilities. I will also provide you with a checklist of the documents I am going to need to prepare your petition and file your bankruptcy, including paystubs and tax returns. In addition, I will provide you with a list of organizations providing consumer credit counseling course, so you can meet pre-filing requirements.

I will also tell you how to deal with continuing phone calls from your creditors. There are times when I am not able to answer every questions, and may ask for additional documents to figure out the debtor’s circumstances. I believe that the free consultation benefits both me and the potential client.

Can You File Chapter 7 Bankruptcy If Your Income Exceeds Median Family Income?

In these uncertain economic times, I am getting this question more and more from people considering filing for bankruptcy all over Western New York. So can someone in Rochester making more than $75,000 file for Chapter 7 bankruptcy? The answer to that question is likely to be yes.

I have previously written about the means test component of the Chapter 7 bankruptcy. Under BAPCPA, the means test and its income standards were designed to be a bright line dividing those that were able to file Chapter 7 bankruptcy from those who were forced to file Chapter 13 bankruptcy. But the means test is more complicated than that, and the sheer median family income numbers alone are not alone dispositive, as discussed below.

The first Chapter 7 bankruptcy test the debtor has to pass in New York in order to qualify, is the Median Family Income test. It is the test that most debtors have heard about. Most debtors have heard about it from friends or relatives who filed for bankruptcy, usually along the lines “If you make over a certain amount, you can’t file.” Like most things you hear, these statements are only partially correct. The current Median Income limit in New York for a family size of one is $46,485. For a family size of two, the amount is about $58,109.

So how can someone filing for bankruptcy in Rochester who earns over $75,000 possibly file for bankruptcy in New York? The short answer is that BAPCPA, the bankruptcy law that was passed in 2005, allows you to take certain deductions when determining if you are qualified to file Chapter 7 bankruptcy. You can take standard IRS deductions that your bankruptcy lawyer knows about. You can deduct certain childcare expenses. You can deduct taxes that are being garnished from your wages. You can deduct your actual mortgage payments. You can deduct vehicle ownership expenses. You can deduct health care expenses. You can deduct food expenses. In other words, if you’re earning more than that median income test, you still absolutely have a possibility for filing for Chapter 7 Bankruptcy in Western New York.

While most of the deductions are technical in nature and require analysis of the debtor’s expenses and needs, I would recommend you speak with a Rochester bankruptcy lawyer and that lawyer will sit down with you and explain how the bankruptcy law requirements apply to you. This is what makes a difference to the debtors since a bankruptcy attorney can help someone in difficult financially situations. When meeting with the bankruptcy attorney, the debtor should discuss the full extent of his/her financial situation and when finished, should understand what course to take.

Chapter 7 Bankruptcy and Unpaid Tax Liabilities

One issue that periodically comes up in Chapter 7 bankruptcy cases is unsatisfied tax liability. As of late, the IRS and New York State Department of Taxation and Finance, have been aggressive in enforcing their claims with respect to unsatisfied tax liabilities.

One common problem associated with back taxes is that the amount owed by the debtor tends to grow rapidly because of the interest and penalties that are imposed by the taxing authority. In their collection efforts, the government agencies can engage in a variety of collection activities, including garnishment, levies, tax liens, seizure of physical assets, intercept of tax refunds, and other collection activities.

For many people with unpaid taxes, bankruptcy may be a way to improve their situation by either improving their financial state and having funds available to pay the taxes owed, or by discharging certain tax liabilities.

In Chapter 7 bankruptcy, certain past due taxes can be eliminated depending on how old the unpaid taxes are and whether the debtor filed an income tax return for the year the taxes came due. For some people filing a Chapter 7 bankruptcy will be a way to permanently eliminate their past-due taxes without having to pay them. To figure our whether or not your taxes can be discharged in bankruptcy you will need to know exactly what taxes you owe and for what years.

There are four general requirements for discharging an income tax in bankruptcy. In this post, I will discuss the first: The tax must be one for which the return was not last due within three years of the filing of the bankruptcy. Therefore, if a 2005 income tax return was last due on April 15, 2006, the three-year requirement would be met after April 15, 2009.

A complication concerns the “last due” requirement. What happens when the debtor requests and receives an extension? The answer is that the three-year clock starts after the last extension. See In re Wood, 866 F.2d 1367 (11th Cir. 1989).

The three-year period is also tolled during the time when the taxing authority is barred from collecting the debt because of a prior bankruptcy.

There are four general requirements for discharging an income tax in bankruptcy. Initially, the tax must be one for which the return was not last due within three years of the filing of the bankruptcy. Therefore, if a 2006 income tax return was last due on April 15, 2007, the three-year requirement would be met after April 15, 2010.

Second, for an income tax to be dischargeable, it must not have been assessed with 240 days of the filing of the bankruptcy. When a return is timely filed, the assessment date is usually around the time a return is filed.

Third, if a return is filed late, it must not be filed within two years of a bankruptcy for the tax to be discharged. This requirement is subject to the following limitations: (1) amended returns count as returns for purposes of this rule; (2) if in the course of correspondence with the IRS, the debtor gives financial statements with all the information needed to complete a return, this can also be deemed to be a return.; and (3) the two-year period begins once the taxing authority actually receives the return, not when the return is mailed, as is the case with timely-filed returns.

The fourth requirement is that the income tax return must be filed by the tax payer, it must not be fraudulent, and the debtor must not have attempted to evade the tax.

If the above requirements are satisfied, a bankruptcy lawyer can help you by obtaining a discharge of unpaid taxes.

Can Trustee Search Your Residence in Chapter 7 or Chapter 13 Bankruptcy?

A question that I commonly hear from debtors in Chapter 7 and Chapter 13 bankruptcies in Rochester or surrounding counties, is whether when they file for bankruptcy, someone will come to their house or apartment, and search or remove their assets. My typical response is to reassure them by telling them that in my experience, any such visits are extremely rare, and would only serve to verify the accuracy of their bankruptcy petition and other disclosure provided during their bankruptcy case. At the same time, as a bankruptcy lawyer, any such statements makes me concerned, since whether or not someone will actually come to search your house or apartment if you file for Chapter 7 or Chapter 13 bankruptcy, the petition, schedules and statement of financial affairs must to be completed truthfully and accurately. Any attempt by the debtor to conceal assets, or any dishonest statements in the bankruptcy petition or other information provided during the bankruptcy, if caught, are likely to result in a referral to the U.S. Attorney Office for criminal prosecution. There are currently individuals serving time in federal penitentiary who have been convicted of bankruptcy crimes, including those whose bankruptcy crimes cases were prosecuted in Rochester. In addition, the financial consequences of the dismissal of the bankruptcy case, and denial of discharge, can be significant, even if there is no criminal prosecution.

With respect to obtaining access to the debtor’s house or apartment, the bankruptcy trustee has the ability to obtain an order authorizing him or her to search the debtor’s house or apartment, with the assistance of the United States Marshall, and to break doors, locks and safes during the course of an investigation. Usually such order will be obtained on an ex parte basis — meaning without prior notice to the debtor to prevent him or her from hiding the assets.

As I have written before, when you file Chapter 7 bankruptcy, you receive the benefit of bankruptcy exemptions. For most debtors, the exemptions allow them to keep most, if not all, of the property they own. While each case is fact specific, and depends of the property owned and its value, a bankruptcy lawyer will be able to engage in pre-bankruptcy exemption planning to maximize available exemptions, and to minimize the assets that would have to be turned over to the trustee if their value exceeds permissible exemptions.

Therefore, the bankruptcy petition, and all of the schedules and other documents provided to the bankruptcy court, should be prepared truthfully and completely, while understanding that the trustee in your bankruptcy case has the ability to get a court order authorizing him to verify the accuracy of your petition. If the debtor provided truthful and accurate disclosure, he or she has nothing to fear. As a bankruptcy attorney, I work closely with all of my clients to make sure that they understand their obligations as debtors, but also to make sure they get to keep as much property as they are legally allowed.

“Pond” Motion and Avoiding Second Mortgage Lien in Chapter 13 Bankruptcy

In Chapter 13 bankruptcies, it is not uncommon to see situations where the debtor, who owns a home, has both a first and a second mortgage, or even a third mortgage on that home. In today’s real estate market, it is not uncommon for those mortgages to exceed the value of the home by a significant amount. Since the secured debt must be paid in full in Chapter 13 bankruptcy, does it make sense for the debtor to greatly overpay the value of that home? The bankruptcy law offers us a solution for those situations. Debtor’s bankrutcy lawyer can bring a “Pond” motion. The motion is named after a decision, In re Pond, 252 F.3d 122 (2nd Cir. 2001).

A Pond motion is a motion made in a chapter 13 Bankruptcy case where the debtor owns and lives (as his or her primary residence) in a residence which has a second mortgage and the value of the house is less than the amount owed on the first mortgage, as of the date the debtor files his or her Chapter 13 bankruptcy petition. If the motion is successful, the second mortgage will be treated as unsecured debt, removing its secured status. As a result, the amount owed to the second mortgage company gets treated like any other unsecured debt, and paid, in most Chapter 13 bankruptcies, pro rata. If the debtor is paying 50% of his unsecured debt through the Chapter 13 plan, it means that the amount paid on the second mortgage will be 50% of the amount owed. Once the debtor obtains his or her discharge the remainder of the second mortgage debt is no longer owed.

Here in Rochester, Judge Ninfo has written a number of decisions addressing Pond motions. One critical issue associated with Pond motions is valuation of the real estate. In In re Dzenziel, the central issue presented to the court was whether the valuation of the property would make the second mortgage unsecured.

The debtors brought their Pond motion, alleging that their residence had a value of $99,047, and the balance due on the first mortgage was $99,813.97 as of their most recent mortgage statement. Since the balance due on the first mortgage exceeded the value of the residence, the debtors asserted that the second mortgage was totally unsecured on the date they filed their Chapter 13 petition. Because the second mortgagor disputed the debtor’s valuation of the property, the court conducted a trial on the Pond motion.

Testimony at trial indicated that the debtors originally purchased the property for $101,000 when the property had been appraised at $111,000. The debtors reported that when they obtained the second mortgage in 1999, the property had been appraised at $180,000. The competing real estate appraisers testified respectively that the value of the property was either between $97,808 and $100,285 (adjusted to $99,047), or $120,000.

Analyzing the Pond decision, Judge Ninfo wrote, “If there is no equity in a debtor’s residence after accounting for other encumbrances that have priority over a mortgage lien, so that the mortgage lien is not even partially secured, the lien can be avoided and the mortgage debt treated as unsecured.” The court further stated that the burden falls upon the debtor to demonstrate that there is not even $1 of value over prior valid liens to support the mortgage lien that is to be avoided. The court also held that the debtor’s burden of proof is higher when “it appears that there was equity available for the mortgage … at the time it was executed; the alleged value deficiency may have been created in part because of a debtor’s failure to make payments on superior mortgages… and [if] the alleged value deficiency is not substantial….”
Reviewing the evidence presented, the court determined that the property has a value of at least $100,000, which does exceed the balance due on the first mortgage, and based upon relevant testimony, the property probably has a value between $120,000 to $145,000. Judge Ninfo concluded that the debtors have not met their burden to demonstrate that there is no value over prior liens that would enable the court to avoid the second mortgage and denied the motion.

The above demonstrates that valuation of property is critical in those situations where the debtor has an opportunity to convert second mortgage to unsecured debt. The bankruptcy lawyer would do well to use a reputable real estate appraiser and be prepared to conduct a hearing to substantiate the property’s value.

Chapter 7 and 13 Bankruptcy and Inheritances

When a debtor files for bankruptcy under Chapter 7 or Chapter 13, all of the debtor’s assets pass under control of the bankruptcy trustee. The reason for this transfer of control is so the debtor will be able to discharge their debts and receive the benefit of automatic stay. As I discussed previously, once a bankruptcy is filed, a bankruptcy estate is created by operation of the Bankruptcy Code which states that the bankruptcy estate is “comprised of all the following property, wherever located and by whomever held: (1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1) (2008). Under the definition of the property of the estate, it also includes any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date. This particular provision dealing with assets acquired within 180 days addresses inheritances and bequests. Therefore, if the debtor receives an inheritance, or a bequest, within 180 days of the filing for bankruptcy, that inheritance or bequest, become property of the bankruptcy estate.

Since a typical Chapter 7 or Chapter 13 bankruptcy runs its course within less than 180 days, a bequest or an inheritance may come within 180 days of the filing, but after the debtor receives his or her discharge or a confirmed plan. Under those circumstances, the debtor has an absolute obligation to notify the bankruptcy trustee of the bequest or inheritance. Once the money is actually received, the debtor must turn over the funds to the trustee. Here in Rochester, Chapter 7 and 13 trustee specifically tell debtors during 341 meetings that any inheritance or bequest received within 180 days of the filing must be disclosed to the bankruptcy trustee. While most of the time, debtors can protect their personal or real property through the use of exemptions and pre-filing planning, inheritances or bequests do not provide this opportunity.

Bankruptcy and Utility Bills

In many bankruptcy cases, the debtors are not just behind on their mortgages, credit cards and other debt, but also behind on their utilities, including gas and electric, cable and telephone bills. If the debtor is filing a Chapter 13 bankruptcy, the remedy is simple – any outstanding bills incurred prior to the filing, will be paid over the term of the plan. Things are less simple in Chapter 7 bankruptcy.

The utility company cannot shut off bankruptcy debtors’ utilities services if there are outstanding debts owed prior to the bankruptcy filing since that would violate automatic stay. In most circumstances, the services will continue, but the utility may request a security deposit. If the utility company turned off service prior to the bankruptcy filing, the debtor should provide proof of filing to the utility and request that the services be turned back on. The utility company must turn the debtor’s utilities back on since it is obligated to do so under the state law. Here is Rochester, before doing so, companies may require bankruptcy debtors to submit an initial deposit.

If the debtor fails to pay utility bills that come due after the filing, the utility provider generally can terminate service for nonpayment of post-petition utility bills. This applies to both Chapter 7 and Chapter 13 bankruptcies.