Rochester Bankruptcy and Debt Relief

Some of the major reasons why people who know they need to file for bankruptcy, but postpone doing so, is fears about filing either Chapter 7 or Chapter 13 Bankruptcy, and concern about paying the legal fees.

Some debtors consider filing bankruptcy on their own.  However, this can be a major mistake and can create additional problems.  As I have written about previously, bankruptcy involves a number of procedural and substantive steps and tests that have to be satisfied before the bankruptcy court can grant a discharge.

In both Chapter 7 and Chapter 13 bankruptcy cases, the debtor must appear before a court-appointed trustee for a 341 hearing.  The bankruptcy trustee who conducts the hearing is not someone who is there to help the debtor.  His role is just the opposite. The trustee is charged with investigating the debtor and his financial circumstances to determine if there are any assets available for thee benefit of creditors.  Meeting with an experienced bankruptcy attorney will enable the debtor to have his or her financial situation reviewed and assets protected in advance to the extent possible.

What debtors may not realize is that certain types of financial transactions that may have taken place years before filing can have a major impact on the debtor’s bankruptcy.  For example, if any significant assets were given away or if real estate was transferred, this may amount to what is known as a fraudulent conveyance or a preference, and may result in significant litigation in the bankruptcy case.  Usually, a bankruptcy lawyer will review these issues before a bankruptcy petition is filed in order to mitigate the risk.

While the bankruptcy petition is written in plain English, it is a difficult document to prepare for someone who is not familiar with the Bankruptcy Code. A complete petition in a Chapter 7 Bankruptcy in New York, including all of the various forms and schedules runs in excess of 40 pages.  The petition requires preparing numerous schedules and budgets.  The debtor must list appropriate information about his debts, assets, income and expenses.

The Statement of Financial Affairs includes numerous questions that must be answered. All of the debtor’s creditors must be listed not only in a schedule of debts (segregated in three separate categories) but also in a special format called a Matrix. Such listing must include creditors’ names, addresses, account numbers, dates when any debts were incurred and their purpose.

When Congress passed BAPCPA in 2005, it imposed many new requirements.  The most significant of those requirements is a complex and complicated means test, as well as the requirement for mandatory credit counseling.  The Chapter 7 trustee as well as the Office of the U.S. Trustee reviews each and every petition to make sure all of the requirements under the new law are properly met. The means test is complicated, and the debtor’s failure to properly prepare the bankruptcy means test can create significant problems as the United States Trustee can seek to have the bankruptcy case dismissed.

The debtor must also choose which Chapter of bankruptcy to file.  If a debtor is seeking to stop foreclosure and cure mortgage arrears, a Chapter 7 Bankruptcy filing won’t be helpful. At the same time, a Chapter 13 Bankruptcy filing is likely to result in a 3-5 years payment plan.

There are self-help books that explain how a debtor can prepare and file his petition and complete the process.  However, there are many traps for the unwary that even attorneys who do not regularly practice bankruptcy often create problems for their clients.

Every bankruptcy trustee I know in Rochester, New York, has expressed concern about those debtors who file bankruptcy without an attorney because these debtors often make serious procedural and substantive mistakes. Self-representation by pro-se debtors in bankruptcy matters can end up being a mistake, and result in further financial problems for the debtor.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, New York, 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.

In a typical Chapter 7 Bankruptcy, the most significant hurdle that the debtor has to overcome is the means test.

The 2005 amendments to the bankruptcy code created a new Means Test. The main purpose of this test is to a) determine if an individual is eligible to file a Chapter 7 Bankruptcy and b) to determine the disposable income of a Chapter 13 debtor who is above the median income.

In order to determine eligibility to file Chapter 7 Bankruptcy, the means test is calculated by entering the debtor’s income figures for the prior six months into form B22 of the bankruptcy petition. If the debtor is below median income, no further steps need be taken and the debtor is presumed to be able to file Chapter 7.

If the debtor is above median income, further sections of form B22 must be filled out. The debtor’s estimated monthly income (based on the prior 6 months) is calculated and deductions are made using both IRS standards (for most living expenses) and some of the debtor’s actual expenses (including secured debt payments and health expenses).

If, after these deductions, it is determined that the debtor has minimal or no monthly disposable income, the means test is satisfied and the debtor is presumed eligible to file Chapter 7 Bankruptcy. If the debtor fails the means test, he or she is presumed ineligible to file Chapter 7, and absent special circumstances warranting an exception, must seek relief under another chapter of the code, typically, Chapter 13 Bankruptcy.

In order to determine disposable income in a Chapter 13 case, the Means Test is conducted much the same way as in a Chapter 7 case. If the debtor is below median income, the remaining sections if form B22 need not be filled out and the debtor’s disposable income will be based on his or her actual income and expenses at the time the petition is filed. If the debtor is above-median income, the remaining steps of the means test are performed and disposable income is the figure reached through the above-described means test calculation. In many instances the figure yielded by the means test will be close to what the debtor pays every month over the life of the Chapter 13 plan.

What is also critical is what income is included within the definition of income.  Initially, the spouse’s income may be included, even if the spouse is not filing bankruptcy.  If you are receiving support in your household from your spouse, then you’re supposed to have that income available for your creditors even if you don’t earn actually that income.

Another issue which comes up fairly often is income received from sources other than work.  Some sources of “other income” could include: interest, dividends, pension income, bonus payments, child support, alimony or maintenance payments, disability payments under workers compensation or private insurance. Some other sources of income to the family which may or may not be income include: withdrawals from IRA and 401k plan, income tax refunds.

Some sources of revenue are not income for purposes of the means test: social security payments received by the filer or his/her spouse, unemployment benefits, certain types of income received by the members of the National Guard or Armed Forces Reserve.

Social Security income: Means testing does not consider social security as income. Accordingly, someone with $2,000.00 per month social security income will pass the means test even if expenses are only $1,000 and $1,000 is left over to pay creditors on the means test. Social Security Income includes both Social Security Disability (“SSD”) as well as Supplemental Security Income (“SSI”) payments. Social Security income may be received by children in the household as survivor benefits in a situation where one of the parents has died. Despite the fact that those benefits can be substantial, U.S. Trustee’s Office advises that that survivor benefits income is not to be included in the means test, despite the fact that, in most situations, such income is used to pay household expenses.

The National Guard and Reservists Relief Debt Act of 2008 applies to certain members of the National Guard and reserve components of the Armed Forces. If you are a  member of the  National Guard Member or Armed Forces Reserve, then you will be temporarily excluded from the means test for entire time you are on active duty and 540 days thereafter, provided you serve at least 90 days. If your duty is less than 90 days, you do not qualify. If you are active member of the active duty military, you do not qualify.

Another important exception applies to the situations where the debtor has primarily non-consumer debt.  If the debtor’s debt is primarily non-consumer debt, then means test does not apply. Accordingly, someone making $10,000 per month with primarily business debts, still qualifies for Chapter 7 relief and discharge.

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.

For most part, filing either Chapter 7 Bankruptcy or Chapter 13 bankruptcy is an administrative process. The bankruptcy lawyer gathers information, prepares and files the petition. In Chapter 7 bankruptcy, the debtor attends a brief hearing conducted by a trustee.   In Chapter 13 Bankruptcy, the debtor also has to attend a confirmation hearing. However, in some cases an “adversary proceeding” is filed.

An adversary proceeding is essentially a case within a case. It is a lawsuit within either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy case about an issue related to the bankruptcy case. There are many other situations in which adversary proceedings arise. In other instances, the debtor brings the adversary proceeding to bring a claim or to obtain a determination from the court. The Bankruptcy Rules of Procedure specify the situations in which parties must file adversary proceedings.

There are three parties in the bankruptcy court case who can file an adversary proceeding. Those parties are the creditor, the trustee (either the Chapter 7 Bankruptcy trustee, Chapter 13 bankruptcy Trustee, or the United States Trustee), and the debtor. Each adversarial proceeding is heard by the United States Bankruptcy Judge for the district where the bankruptcy is filed. For the cases filed here in Rochester, the adversary proceeding cases are heard by Hon. John C. Ninfo, II.

When a creditor files an adversary proceeding, it is usually because the creditor is claiming that the debt owed to the creditor should not be discharged in the bankruptcy. Usually the creditor will argues that it is only that particular creditor’s claim that should not be discharged since it falls within one of the exceptions to discharge, such as a debt created through fraud, willful or malicious injury, or a personal injury caused by drunk driving.  Alternatively, the creditor may argue that the filing of the bankruptcy case was done in bad faith and the debtor is not entitled to the discharge altogether.  These kinds of adversary proceedings are not common.

Another kind of adversary proceeding is filed by the Chapter 7 Trustee, Chapter 13 Trustee, or the United States Trustee. A trustee may argue that the schedules were not filled out accurately and were intentionally fraudulent. A trustee may file a motion to dismiss the bankruptcy case if paperwork is not filed timely, improperly, or if the debtor misses a court date without a good reason. A trustee may file an adversary proceeding seeking to collect money back from a creditor who received funds or property from a debtor. A trustee may also file an adversary proceeding to reverse a transfer of real property. The United States Trustee may file an adversarial proceeding to force the debtor to move from Chapter 7 Bankruptcy to Chapter 13 bankruptcy, if the U.S. Trustee believes that the filing of the bankruptcy petition was done in bad faith. The U.S. Trustee may also file an adversary proceeding to dismiss the case, if the U.S. Trustee believes the filing of any bankruptcy petition was done to abuse the bankruptcy system.

Finally, a debtor may file an adversary proceeding against a creditor. The debtor may recover damages for a creditor’s actions taken in violation of the U.S. Bankruptcy Code, or violated the automatic stay, or the discharge (such as contacting the debtor after the bankruptcy is completed).

Mere fact that an adversary proceeding is filed does not mean that the party filing it will prevail. The bankruptcy judge will hear the case and will determine each party’s rights. It is the job of the bankruptcy attorney to advise the party as to the likelihood of success in an adversary proceeding, but the case will be decided by the bankruptcy judge .

The following is an example of a situation where an adversary proceeding is filed. The debtor obtained a large cash advance prior to filing.  That cash advance was used to prevent a foreclosure or recover a vehicle after a repossession. However, the credit card issuer is likely to object claiming that the cash advance taken out only a few months prior to filing bankruptcy and argue that the debt is nondischargeable since it was either fraudulent or the money was borrowed in anticipation of the bankruptcy filing.

The litigation would commence with a filing or a complaint. An answer would serve, and the parties would engage in discovery. If the parties were unable to resolve their dispute during pretrial proceedings, there would be a trial.

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.

I have recently written about a situation where the debtor’s Chapter 13 Bankruptcy plan is failing for the reasons beyond the debtor’s control.  One potential way to resolve this problem was to seek a hardship discharge.  Today, I will describe another way of addressing this problem.

In a typical Chapter 13 Bankruptcy case, the debtor has to propose a monthly payment to repay his/her creditors over either 36 or 60 months.  The length of the plan in either situation is substantial and carries with it some risks for the debtor.  The primary risk is a substantial change in the debtor’s income, leaving him/her unable to make monthly payments approved by the bankruptcy court.

When a confirmed Chapter 13 bankruptcy plan is failing, the debtor should start thinking about having the plan modified in order to remain in Chapter 13 Bankruptcy.  Under the applicable provisions of the Bankruptcy Code,  the plan can be modified and the debtor can seek a change in the amount of the monthly payment or the length of the plan to fit the current circumstances.

Section 1329 of the Bankruptcy Code provides that the plan can be modified to:

(1) increase or reduce the amount of payments on claims of a particular class provided for by the plan;

(2) extend or reduce the time for such payments;

(3) alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan; or

(4) reduce amounts to be paid under the plan by the actual amount expended by the debtor to purchase health insurance for the debtor.

If you are unable to make a payment on the plan on time, you should immediately contact your bankruptcy lawyer to determine if the plan can be modified.  In order to modify the plan, the debtor must make a motion for modification. Such motion must show to the bankruptcy court new payments using documentation of the new income figures.

The advantages in keeping your Chapter 13 Bankruptcy include keeping the automatic stay in place;  getting a discharge, and not incurring additional attorneys fees for converting to a Chapter 7 Bankruptcy.  If the bankruptcy remains in place, your creditors will not be able to sue you or begin collections activities.

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.

I am often asked if the debt discharged in bankruptcy is treated as debtor’s income and is subject to taxes.  The answer to that question under the Bankruptcy Code, for both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy is unequivocally no.  Debt discharged in bankruptcy does not result in taxable income to the debtor.

While I have written previously about the problems with debt settlement, this is one more advantage that bankruptcy has over various debt settlement arrangements.  If the debtor has his debt reduced or cancelled, the creditor may issue an IRS Form 1009-C form and the debtor would have to report it on his taxes.  As a result, the amount of cancelled debt will be added to the debtor’s income as miscellaneous income, and while not subject to self-employment or social security tax, it will be subject to income taxes.  If the amount of the cancelled debt is significant, the debtor may face an unexpected tax liability amounting to thousands of dollars.

One exception to the above is cancellation of mortgage debt. The Mortgage Debt Relief Act of 2007 generally allows debtors to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief as well.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.  For a detailed discussion of IRS’ position on these issue, please follow this link.

Occasionally, even the debtor who filed fro bankruptcy may receive 1099-C from one of his creditors. Nonetheless, if the debtor received a discharge as a result of either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, the debtor is able to file IRS Form 982, which will inform the IRS that the debtor went through the bankruptcy and any discharged debt should not be included in his gross income.  If you are considering your options between a bankruptcy or debt settlement, one of the issues that you should discuss during a consultation with a bankruptcy lawyer is what impact either approach would have on your tax liability.

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.

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.

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.

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.

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.

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.

I have previously written about the requirements that a debtor must meet in order to file for Chapter 7 Bankruptcy.  As long as the debtor is able to meet the means test and disposable income test, the debtor can file for Chapter 7 Bankruptcy. However, there are a number of conditions that would disqualify a debtor from filing Chapter 7 Bankruptcy. The following post will address those conditions.

Generally, any debtor who is qualified to file and complete a Chapter 7 Bankruptcy case is eligible for a Chapter 7 Bankruptcy Discharge, unless the debtor falls into one or more of the following categories:

A person who has been granted a discharge in a Chapter 7 Bankruptcy case that was filed within the last 8 years.  This limitation prevents debtor from filing another Chapter 7 Bankruptcy case despite meeting all other qualifications.  The bankruptcy petition specifically asks debtors regarding any prior bankruptcy filings.

A person who has been granted a discharge in a Chapter 13 Bankruptcy case that was filed within the last 6 years, unless 70% or more of the debtor’s unsecured claims were paid off in the Chapter 13 Bankruptcy case. Therefore, if the debtor’s Chapter 13 Bankruptcy case paid less than 70% of the unsecured claims, the debtor is limited to filing Chapter 13 Bankruptcy within the 6 year period.

A person who files and obtains court approval of a written waiver of discharge in the Chapter 7 Bankruptcy case.

A person who conceals, transfers, or destroys his or her property with the intent to defraud his or her creditors or the trustee in the Chapter 7 Bankruptcy case. This relates to the provisions denying discharge to the debtor who committed that type of conduct.

A person who conceals, destroys, or falsifies records of his or her financial condition or business transactions.

A person who makes false statements or claims in the Chapter 7 case, or who withholds recorded information from the trustee.

A person who files to satisfactorily explain any loss or deficiency of his or her assets.

A person who refuses to answer questions or obey orders of the bankruptcy court, either in his or her bankruptcy case or in the bankruptcy case of a relative, business associate, or corporation with which he or she is associated.

A person who, after filing the case, fails to complete an instructional course on personal financial management. This is the reason that it is critical for the debtor to complete the course within 45 days of the meeting of the creditors.

A person who has been convicted of bankruptcy fraud or who owes a debt arising from a securities law violation.

If the debtor meets on or more of the above conditions, he is not eligible for a Chapter 7 Bankruptcy discharge and should not file a Chapter 7 Bankruptcy.

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.

One of the most common questions I hear from clients is whether they are able to keep their bank accounts while they are in bankruptcy, or to open new accounts after bankruptcy.   My usual answer to that question is that there is nothing under bankruptcy code that would prevent a debtor from having or keeping bank accounts.  While there is nothing under the bankruptcy law that prohibits it, there are may be some practical complications.

As I have discussed previously, a typical bankruptcy requires planning and preparation.  One of the possible situations I prepare my clients for is a possibility that their bank may close their bank accounts or withdraw money from their accounts.  If the debtor has a bank account with a bank or credit union that has also loaned him or her money, that bank has the right of set-off.  That is the bank has the right to set-off the money in the debtor’s account against any debt owed to the bank.  This is true even if the debt was not delinquent and the funds would be protected by the debtor’s cash exemption. Under a typical lending agreement, a bank or a credit union is usually cross-collateralized.  That means that any assets you have securing the loan, including any accounts you may have at that institution, secure all of debtor’s debts with that bank or credit union.  If the debtor files for bankruptcy, the bank may take any funds and apply them to any outstanding loan.  Even if the debtor is planning to continue to pay on the loan, and sign a reaffirmation agreement, the funds may be frozen or suddenly become unavailable.  It is usually my advice to open a back-up account elsewhere, at an institution where the debtor didn’t borrow any money.

If the debtor has accounts which might be subject to set off, there is no need to close such accounts.  If there is a small amount of money left in the account, those issue can be resolved after the bankruptcy filing.  With respect to opening bank accounts after bankruptcy, the debtor may run into some problems with the Chex Systems which is utilized by most banks.  Chex Systems operates similarly to credit bureaus and receives reports from its member institutions.

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.