county – Page 10 – Rochester Bankruptcy and Debt Relief

Social Security Retirement, Social Security Disability and Chapter 7 and Chapter 13 Bankruptcy

If you are in debt, does it always make sense to file either Chapter 7 or Chapter 13 bankruptcy? If your only source of income is Social Security or Social Security Disability, you can file for bankruptcy, but it may not be necessary. Because of the exemptions under both federal and New York State law, if your sole source of income is either Social Security Retirement or Social Security Disability, you are generally considered to be judgment proof and your income is exempt from garnishment or other collections actions by the creditors. While your creditors still have the right to sue you and obtain judgments, they are not likely to be able to enforce them against your income or any bank accounts that contain solely the money from either Social Security Disability or Social Security Retirement. At the same time, the debtor may still have other assets, either personal or real property, that a creditor may reach once it obtains a judgment.

Even if you are judgment proof, you may still need to file a Chapter 7 or Chapter 13 bankruptcy. If you have secured debt, such as a mortgage or car payment, and you are behind on your payments, Chapter 13 may give you the ability to bring these secured debts current, while still discharging most or all of your revolving credit debt, personal loans or medical debt. Another benefit of filing for bankruptcy is that either Chapter 7 or Chapter 13 bankruptcy will stop harassment by the creditors.

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 bankruptcy lawyer.

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.

Refiling Chapter 13 Bankruptcy After Dismissal

As I have previously written, Chapter 13 bankruptcies involve many different issues. Once thing that bankruptcy lawyers point out to all debtors entering Chapter 13 bankruptcy is that the debtor has to make payments to the trustee, prior to the confirmation of the plan, and, of course, after the plan is confirmed. Sometimes, the debtor is unable to make payments, and, rather than asking his/her bankruptcy attorney to seek modification of the plan, does nothing. Under those circumstances, the Chapter 13 bankruptcy trustee will move to have the bankruptcy dismissed. Once the motion to dismiss is granted, and creditors resume collections activities, such as foreclosure, can the debtor refile?

The debtor can refile Chapter 13 bankruptcy, if it has been dismissed, at any time. However, changes to the Bankruptcy Code that were in Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) can limit the relief that the debtor receives when he/she refiles. If the Chapter 13 bankruptcy is refiled within one year of the dismissal, the automatic stay is in effect only for 30 days. This is a critical difference between a refiled Chapter 13 bankruptcy and the original filing. It means that within 30 days of the filing, the debtor’s attorney must file a motion in bankruptcy court seeking to extend the automatic stay. If the motion is not made, or granted by the bankruptcy court, creditors can resume collection activity.

In general, before a motion to dismiss is filed, or granted, the debtor should contact his/her bankruptcy lawyer to discuss all available options, including converting Chapter 13 to Chapter 7 bankruptcy, or amending the plan.

Confirmation Hearing in Chapter 13 Bankruptcy

As I have previously written about the procedural steps involved in a Chapter 13 bankruptcy, once the debtor attends 341 hearing, and the bankruptcy plan is filed, the next important event is the confirmation hearing.

The date set for the confirmation of Chapter 13 plans varies depending on where the case is filed. Here in Rochester, the date for the confirmation hearing is typically set between 30 and 60 days after the 341 hearing. The debtor(s) is required to attend it as the proposed plan is reviewied by the court and Chapter 13 Trustee. If the debtor fails to appear for the hearing, the judge can prevent or delay the confirmation. In other Courts, such as those in the Northern District of New York, confirmation hearings are usually scheduled approximately 60 days after the proposed Chapter 13 plan is filed with the Court.

Unlike other jurisdictions, here in Rochester, Judge Ninfo reviews each Chapter 13 bankruptcy case and the circumstances that led the debtor to file for bankruptcy. In addition, Judge Ninfo requires that a debtor file a checklist specifying the reasons that led to the filing. In addition, if the amount of unsecured debt exceeds $75,000, the debtor will be also required to file with the court a detailed letter of explanation, describing how the debt was accumulated. Also, approximately one week before the hearing, the Chapter 13 Trustee will file his report analyzing the case and either recommending confirmation of the plan or giving reasons why confirmation should be denied.

In cases where an objection to confirmation is filed, a confirmation hearing is held on the scheduled date and the objecting party, or its attorney, typically attends. The views of the debtor’s attorney, the objecting parties’ attorney and the Trustee are heard by the judge, who either confirms the plan, denies confirmation, or sets an evidentiary hearing on the disputed matter (which could be a valuation issue, a bad faith objection, a disposable income objection, etc.). Often the confirmation hearing is simply adjourned to allow the parties some time to try to resolve their differences.

The confirmation hearing is the critical step in any Chapter 13 bankruptcy. It is the responsibility of the bankruptcy lawyer to present a plan that not only protects his/her client(s) interests by making the payments manageable, but also to make sure that the plan will be confirmed by the court. That usually involves analyzing the parties’ income and expenses, and make certain that the budget is not excessive or has any frivolous expenses.

Converting From Chapter 7 to Chapter 13 Bankruptcy

What happens if you’re in a Chapter 7 bankruptcy, and fall behind in your payments on secured loan, such as your home mortgage or car loan? Under those circumstances, it is possible to covert to Chapter 13 bankruptcy where you can make payments though the plan and to stop a foreclosure or car repossession. While it is not as simple as it is to convert from a Chapter 13 bankruptcy to a Chapter 7 bankruptcy, it can be done by filing a motion with the court and placing your creditors on notice.

The bankruptcy court will require a good reason for granting your motion, and if one is provided, the court will convert the case. There are rules about converting for “bad faith” or if you have already converted the case before, but generally, requests for conversions are granted. Once the motion is granted, your bankruptcy lawyer can file a Chapter 13 plan which will allow you to cure any arrears and to give you time to repay house or car payments, and stop the foreclosure or repossession.

Similarly to converting from Chapter 13 to Chapter 7 bankruptcy, your petition will need to be updated. Also, some of the debts might be treated differently in Chapter 13. You will need to prepare a plan, and there will be a new trustee appointed and a new 341 hearing held. Eventually, your plan will need to be confirmed by the court. Overall, the process isn’t too difficult and you are likely to be able to save your home or car. For many debtors, the benefits of converting their case are worth it. A bankruptcy attorney will be able to guide you through the process.

Converting From Chapter 13 to Chapter 7 Bankruptcy

While debtors who file Chapter 13 to protect certain assets are usually diligent in making their payments, sometimes the circumstances have a way of interfering with their ability to meet the plan’s requirements. It is possible that the debtor loses his/her job, missed a few payments, and creditors lifted stay, or the debtor decided that the assets were not worth preserving. One option that is always available in Chapter 13 is to dismiss the case, which the debtor has a right to do at any time in a Chapter 13. But this may leave you with credit card or other debt, or you may be worried that the house or car will be sold at foreclosure or repossession, or that the lender will go after you for a deficiency. In these cases, the best option is to covert your case to a Chapter 7.

In those situations, the debtor may still seek relief from the bankruptcy court, and convert the case from Chapter 13 to Chapter 7 bankruptcy, provided that the means test can be met. When converting the case from a Chapter 13 to a Chapter 7, there is still some paperwork that needs to be taken care of. The petition and schedules need to be updated with respect to the property, whether or not it is kept by the debtor. With respect to any property securing the debt, arrangements must be made with the creditor in order to keep it.

Schedules I and J for your income and budget along with the Means Test have to be updated to reflect that you no longer have the money to make payments in a Chapter 13 case . Once all of the paperwork has been revised, then the debtor must sign the amended schedules, so that they can be filed with the court.

Once the attorney files a Notice of Conversion with the Court and pays the $25 conversion fee, the Court will convert your case to a Chapter 7. There are also other consequences associated with the conversion. Initially, any money that the Chapter 13 Trustee is holding, less any administrative fees that the Trustee is due, will be returned to to the debtor. Any plan payments that are withheld from the debtor’s paycheck will be returned as well. A new Chapter 7 Trustee will be appointed and a new 341 hearing (meeting of the creditors) will be held. The debtor will also have to file a Statement of Intention with respect to any assets subject to creditors’ claims, and also file amended schedules listing any additional debt incurred between the filing of the Chapter 13 and the date of conversion.

Chapter 7 Bankruptcy and Denial of Discharge for Willful or Malicious Injury

One of the limitations on receiving a discharge in a Chapter 7 bankruptcy is that the debtor cannot discharge any debt for willful or malicious injury.

Section 523(a)(6) of the Bankruptcy Code precludes the discharge of a debt “for willful and malicious injury.” As noted by the United States Supreme Court in Kawaahua v. Geiger, 523 U.S. 57, 61 (1998), the “word ‘willful’ in (a)(6) modifies the word ‘injury,’ indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.” For the same reason, nondischargeability under this section will attach only to injuries that are malicious. In the Second Circuit, the Court of Appeals set the standard for “willful and malicious injury” in its decision in Navistar Financial Corp. v. Stelluti (In re Stelluti), 94 F.3d 84 (1996). The Court concluded that “[t]he term ‘willful’ in this context means ‘deliberate or intentional,’” and that “[t]he term ‘malicious’ means wrongful and without just cause or excuse, even in the absence of personal hatred, spite, or ill-will.” Id. at 87 (citations omitted).

In a recent case, In re Alessi, Judge Bucki held that the deliberate failure to abide by the terms of the contract, amounted to willful and malicious injury. In Alessi, the debtor, Mrs. Alessi, not only failed to pay a debt, but a failure to pay from funds that the debtor had agreed specifically to earmark for that purpose. The uncontroverted facts showed that the funds resulting from a real estate transaction were accessible and not otherwise encumbered, that the debtor knew of her obligation to turnover the funds, and that through his counsel, Mr. Alessi made timely demand for payment, even though not obligated to do so. The resulting injury was willful, in that Ms. Alessi deliberately and intentionally refused to turn over the sale proceeds. By violating a contractual provision for use of committed funds, Amy Alessi inflicted a wrongful financial loss without just cause or excuse. Hence, she caused an injury that was malicious within the meaning of section 523(a)(6).

Thus, if you are a debtor, you may have an obligation to follow through on the contracts where the funds are specifically designated for a given purpose. If you fail to do so, you may be denied a discharge.

Debtor and Bank’s Right of Setoff

One of the common issues that may arise in a bankruptcy, is that the debtor may have one or more accounts at a bank to which the debtor owes money. In those situations, the bank may assert its right of setoff.

The right of setoff in New York is available to a lending institution pursuant to Section 9-g of the Banking Law. Under that section, banking institutions have a long established right of setoff where a borrower is indebted to the institution and also has money on deposit with the institution. This right of setoff is preserved in bankruptcy by Section 553(a), which provides that,

“Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case[.]”

At a first glance, the setoff appears to require a motion to lift the automatic stay since Section 362(a)(7) specifically covers “the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor[.]”. Thus, under the statute, in order to exercise that right, the bank must make a motion to lift automatic stay. However, here in Rochester, in In re Catalano, Judge Ninfo has ruled that under some circumstances, the bankruptcy court will not require the motion to lift stay and set the following policy.

If a banking institution has a clear right of setoff under New York law and the debtor has funds on deposit with it in the amount of $750.00 or less, and also owes the institution a debt in excess of the funds on deposit, the institution may setoff the amount on deposit without obtaining formal relief from the automatic stay, provided that it gives the written notice described herein, and the trustee or debtor does not demand a hearing because there is a genuine dispute as to the asserted right of setoff.

As stated in the decision, the banking institution shall give written notice to the trustee, debtor and debtor’s attorney, if there is one, that: (1) asserts its right of setoff; (2) is accompanied by copies of the debtor’s schedules or other documentation that demonstrates the right of setoff; (3) sets forth a “contact person” at the institution, along with that individual’s address, direct telephone number and a fax number; and (4) advises that unless the trustee or debtor has a genuine dispute as to the validity of the asserted right of setoff, it will be effected ten (10) days after the date of the mailing of the notice. In the event that the trustee or debtor notifies the contact person of a genuine dispute as to the asserted right of setoff, the banking institution shall be required to bring a formal motion to terminate the automatic stay under Section 362(d).

This policy makes it extremely important that the debtor fully discloses his/her financial situation to the bankruptcy lawyer and also allow the bankruptcy attorney to engage in prefiling planning to protect the debtor’s assets from the potential right of setoff.

Your Homestead Exemption in Chapter 7 Bankruptcy

In New York, the debtors can protect the equity in their residences by utilizing their homestead exemption. Equity is typically defined as the difference between the market value of the property and the debt owed on it. The homestead exemption is one of the most ways to protect your biggest asset, your home, from the claims of your creditors. In New York, an individual debtor can protect up to $50,000 of equity in home by filing Chapter 7 bankruptcy, $100,000 if the debtor spouses are filing jointly. In order to take the benefit of the homestead exemption, the property has to be your residence when you file the bankruptcy.

I am often asked if the debtor can lose the benefit of the homestead exemption. My usual response is that the debtor could lose the benefit of the homestead exemption only in extreme circumstances. Typically, in order to lose the benefit of the exemption, the debtors must engage in fraudulent conduct or a clear showing of bad faith. Further, the wrongful conduct must be related to the homestead exemption.

If, for example, you own a $300,000 investment property in addition to your $100,000 residence, but you wrongfully claim in your bankruptcy petition that you live in the $300,000 property, you may lose the right to claim the exemption. As long as the debtor does not lie or attempt to hide the property from the bankruptcy court, the debtor will not lose the homestead exemption.