trustee – Page 2 – Rochester Bankruptcy and Debt Relief

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.

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.

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.

Failure to Disclose Assets in Bankruptcy, Confirmation of Chapter 13 Plan and Revocation of Confirmation Order

What happens if the debtors fail to disclose certain assets in their Chapter 13 bankruptcy and those assets come to light after the confirmation of their Chapter 13 plan? This situation was recently addressed by Judge Ninfo of the United States Bankruptcy Court for the Western District of New York in In re Cram.

On March 24, 2004, Richard and Pamela S. Cram filed a petition in Rochester, in the United States Bankruptcy Court for the Western District of New York, initiating a Chapter 13 case. A Chapter 13 trustee was appointed. On their Schedule B of Personal Property, the debtors stated that they had no “[o]ther contingent and unliquidated claims of [any] nature….”. On April 30, 2004, the court orally confirmed their Chapter 13 Plan, and on October 5, 2004 an order confirming the plan was entered.

At the time the bankruptcy was filed, the debtors had a pending medical malpractice claim which resulted a subsequent lawsuit. On June 14, 2005, the debtors’ lawyer filed an amendment to their Schedule B of Personal Property, which amended the answer to question No. 20 regarding contingent and unliquidated claims, but did not amend their Schedule C to claim any proceeds that might be received from the malpractice claim as exempt.

Between June 14, 2005 and April 7, 2008 the debtors or their attorneys did not notify the court of the existence of the pre-petition medical malpractice claim set forth in the amendment, which was a Section 541 asset of the estate at the time the court confirmed their plan, even though in confirming their plan pursuant to Section 1325(a), the court believed that the requirement of Section 1325(a)(4), that the creditors would receive at least as much under the plan that they would in a Chapter 7 liquidation.

Section 1325(a)(4) provides that:

(a) Except as provided in subsection (b), the court shall confirm a plan if—
(4) the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date[.] 11 U.S.C. § 1325 (2009).

This section is known as “the best interests test”.

Once the trustee learned of the settlement, he moved to revoke the discharge, as well as for other relief. He asserted that on April 28, 2008, after the discharge order had been entered on April 7, 2008, the trustee learned that the claim had been settled on or about February 20, 2008 for $125,000 and that neither the debtors, their bankruptcy attorneys nor their personal injury attorney ever notified the trustee of the settlement or any prior settlement offers. The trustee argued, inter alia, that in view of the settlement, the debtors’ confirmed plan did not meet the best interests test.

Unlike in Chapter 7 cases, the court, in confirming a plan in a Chapter 13 case, makes an affirmative determination, as required by Section 1325(a), that, among other things, the plan meets the best interests test. Judge Ninfo held that because of the debtors’ failure to disclose the malpractice claim, which was a Section 541 pre-petition asset of the estate, either at the time of the oral confirmation of their plan or when the confirmation order was entered, the plan did not meet the best interests test, and neither the debtors, nor the trustee, ever corrected that failure by taking the necessary steps to insure that the plan was amended to include the proceeds of any recovery on the malpractice claim, either before or after the settlement. Thus, the confirmation order had to be vacated, and with no confirmed plan completed, the debtors would not be entitled to a Section 1328 discharge and the court vacated the confirmation order pursuant to Section 105(a).

Judge Ninfo further held that when the debtors filed the amendment to include the malpractice claim, they, as debtors, and their bankruptcy attorneys, as officers of the court, had an affirmative obligation to advise the court, not simply the trustee or their creditors, of the undisclosed asset, so that the court would be aware that its confirmation of the plan was improper and its confirmation order incorrectly entered, and could insure that the confirmation order was vacated or a proper modification to the plan filed to include any recovery.

The court further granted trustee’s motion to dismiss the bankruptcy, unless prior to July 6, 2009, the debtors: (a) pay to the trustee the amount necessary for the trustee to make a distribution to their unsecured creditors of 100% plus 9%; or (b) otherwise make arrangements with the trustee for the payment of the necessary amount within a reasonable period of time that is acceptable to the trustee and the trustee files with the court the details of such an acceptable arrangement.

The lesson of this case is that the debtors and their bankruptcy lawyers have an affirmative obligation to disclose any and all assets of the debtors, including any contingent or unliquidated claims. In this case, the consequences to the debtors could have been much more severe.

Workers Compensation and Chapter 7 Bankruptcy

If you file a Chapter 7 bankruptcy, what happens if you have a pending workers’ compensation claim? Generally, if you file for bankruptcy in New York, any money received as certain public benefits is usually exempt. However, workers’ compensation claims can result in significant lump-sum awards and a bankruptcy trustee may file an objection to the debtor claiming such award as exempt.

Here in Rochester, Judge Ninfo dealt with a similar situation in In re Herald, and his decision resolved these issues in Western New York. In order to resolve this issue in favor of the debtor, Judge Ninfo had to find that worker’s compensation award fell within the scope of §282.2(c) of New York’s Debtor Creditor Law, which exempts benefits received as a result of “disability, illness or unemployment benefit.”

After analyzing the legislative history of §282 of New York’s Debtor Creditor Law, Judge Ninfo concluded that the legislative intent was to exempt workers’ compensation proceeds. He further noted that in some situations this may give a debtor a head start, as opposed to a fresh start, where the debtor will receive a significant award after the bankruptcy filing, but found that any such award to be exempt nonetheless.

Thus, if you have a workers’ compensation case pending or your are receiving worker’s compensation payments, you can file a Chapter 7 bankruptcy and keep the award when you receive it. It is important to tell your bankruptcy lawyer about it in advance, so that the workers’ compensation claim is listed as exempt on your bankruptcy petition.

Chapter 13 and Payment of Student Loans Under the Plan

Unless the bankruptcy debtor can satisfy the daunting legal standard of “undue hardship,” student loans are not dischargeable in a bankruptcy case. However, the mere fact that student loans will not be discharged does not mean you should give up on the bankruptcy process. For a chapter 13 debtor, the question might be, how should the chapter 13 payment plan propose to treat the student loan debt?

Some attorneys try to distribute more of the debtor’s income to student loan debts than to other debts by simply inserting a provision into the chapter 13 plan which says that the debtor will continue to pay the student loan out of his or her own pocket, rather than have the chapter 13 trustee pay toward the student loan. This would have the important advantage of paying more (usually) toward the student loan than would be paid if the trustee made the payments from the plan.

The presumptive authority for paying a student loan “outside the plan” is contained in the bankruptcy law’s section 1322(b)(5). This section permits the maintaining of payments on any debt where the last regularly scheduled payment is due after the final chapter 13 plan payment is due. Section 1322(b) reads as follows:

(b) Subject to subsections (a) and (c) of this section, the plan may–

designate a class or classes of unsecured claims, as provided in section 1121 of this title, but may not discriminate unfairly against any class so designated; however, such plan may treat claims for a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims;
modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims;
provide for the curing or waiving of any default;
provide for payments on any unsecured claim to be made concurrently with payments on any secured claim or any other unsecured claim;
notwithstanding paragraph (2) of this subsection, provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due;

Section 1322(b) allows the chapter 13 debtor to continue making student loan payments directly to the creditor, much the same as the debtor would continue paying his mortgage payments, assuming that the bankruptcy trustee agrees with this interpretation and the bankruptcy court confirms it. However, here in Rochester, the Chapter 13 trustee disagrees with this interpretation of the statute and, instead, takes a position that the student loans should be paid pro-rata as other unsecured creditors. The trustee’s position is based on the argument that making full student loan payments, while in Chapter 13, treats student loan lenders better than other unsecured creditors and, in fact, does so at their expense. While Judge Ninfo has not written on this issue, I think that he would agree with the trustee’s position. Thus, it is critical to discuss these issues with a bankruptcy lawyer prior to the filing.

If you are dealing with debt problems in 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 bankruptcy attorney.

Bankruptcy Basics – Preferences

The Bankruptcy Code permits a trustee to recover from creditors payments made shortly before the bankruptcy filing, where the payment gave the creditor more than other creditors in a similar position would get through the bankruptcy process.

The policy behind the statute is to reduce the advantages that a creditor might get by suing or by collection activities that force the debtor into bankruptcy. That is accomplished by making payments received in the 90 days before the filing recoverable in bankruptcy by the trustee.

It is neither wrong for the debtor to make a preferential payment, nor is it wrong for a creditor to accept such payment. The preference statutes are simply an attempt to achieve equity between creditors.

Bankruptcy Code §547 defines a preference as:

Payment on an antecedent (as opposed to current) debt;
Made while the debtor was insolvent;
To a non-insider creditor, within 90 days of the filing of the bankruptcy;
That allows the creditor to receive more on its claim than it would have, had the payment not been made and the claim paid through the bankruptcy proceeding.

Any payments to a fully secured creditor are not usually preferences, because the creditor would not get more than he would have in bankruptcy, where the creditor would get the value of the collateral.

While the look back period for preferences is usually 90 days, the bankruptcy code also permits the recovery of payments on claims owed to insiders, such as relatives, friends, corporate officers or directors, or related entities, made within 1 year of the bankruptcy filing. This provision attempts to prevent the debtor from paying relatives, friends and business decision makers at the expense of other creditors.

Preference recovery is generally a matter between the trustee and a creditor. When the creditor is a third party, the debtor may not care very much. When the creditor in question is a relative or a friend, however, most debtors are very concerned. If a bankruptcy case is filed within a year of these payments to relatives and friends, the trustee may take the money from the friend or relative the debtor paid, and redistribute it to creditors in accordance with the bankruptcy laws.

There are some procedural issues that apply to preferences. For example, a payment made by check is effective as of the date the check cleared, not the date on the check or the date it was mailed. There are also some defenses to preferences, usually available in a business rather than a consumer setting. Preferences can be voluntary payments, like a check sent in payment of an invoice, or involuntary, like attaching a bank account.

A debtor needs someone with knowledge and experience in these issue on his side. One of the most valuable things an experienced bankruptcy attorney can do is prevent problems for you, and unintended consequences for your family members or business partners. It is also best to seek such advice before you make that payment, or transfer that asset. Lawyers can control damage in most situations, but we prefer to prevent a problem arising in the first place and this can be accomplished in most situation with pre-bankruptcy planning.

Bankruptcy Basics – Meeting of the Creditors

The creditors’ meeting, otherwise known as 341 meeting, is a procedural step in every Chapter 7 and Chapter 13 bankruptcy. In a typical 341 meeting, the debtor will be asked questions under oath by the bankruptcy trustee with respect to his or her financial affairs. Most debtors are apprehensive of the 341 meeting. While 341 meeting is also designated as the first meeting of the creditors, creditors seldom come to the first meeting, and there isn’t usually a second meeting. Most of the time, it is a meeting of the debtor and the trustee appointed in the case.

There are two items that the debtor must have at the 341 creditor’s meeting. The first one is a state issued photo identification card. For most people, this is going to be their driver’s license. The second item is the social security card. If the debtor does not have these documents at the meeting, the trustee cannot go forward with the creditors’ meeting since the trustee must confirm the debtor’s identity. Occasionally, trustee may permit the use of a W2 forms, annual social security statements, or a payroll check stub that contains debtor’s social security number.

Take the time to locate these documents before you arrive at the location for your creditor’s meeting. Here in Rochester, bankruptcy trustees usually tell the debtors to have their identification and proof of social security number ready at the beginning of the meeting. Most bankruptcy attorneys will ask the clients for those documents so they can be handed t the trustee. I often have seen people anxiously looking through a purse or wallet for a social security card that they just know they have, only to find out that they don’t have it, or that they are too nervous to find.

The 341 meeting is not a test or a trial. The trustee won’t be asking any trick questions. Your lawyer is there for support and to make sure that the record created is truthful and accurate. In order to have a successful 341 meeting all the debtor has to do is to follow these four steps: (1) tell the truth; (2) listen to the question; (3) let the trustee finish before you start speaking; and (4) answer in as few words as possible.

It is critical for someone who filed bankruptcy to be honest during 341 hearing. It is just as critical for the debtor to be honest with his/her attorney prior to the hearing, before the petition is prepared out and filed. If the debtor’s statements during the 341 hearing contradict the petition, and those contradictions were deliberate on the part of the debtor, that means the debtor may have already committed perjury, which is a federal offense. When the petition is filed, the debtor, by signing his or her petition, swore that the petition was truthful.

There are a number of questions that a trustee is required to ask the debtor at the meeting of creditors. They are as follows:

1. State your name and current address for the record.

2. Please provide your picture ID and Social Security number card for review.

3. Did you sign the petition, schedules, statements, and related documents and is the signature your own? Did you read the petition, schedules, statements, and related documents before you signed them?

4. Are you personally familiar with the information contained in the petition, schedules, statements and related documents? To the best of your knowledge, is the information contained in the petition, schedules, statements, and related documents true and correct? Are there any errors or omissions to bring to my attention at this time?

5. Are all of your assets identified on the schedules? Have you listed all of your creditors on the schedules?

6. Have you previously filed bankruptcy? (provide trustee with case number and the discharge information to determine discharge eligibility in this case)

7. What is the address of your current employer?

8. Is the copy of the tax return you provided a true copy of the most recent tax return you filed?

9. Do you have a domestic support obligation? To whom? Please provide the claimant’s address and telephone number, but do not state it on the record. Are you current on your post-petition domestic support obligations?

10. Have you filed all required tax returns for the past four years?

There are also other questions that a trustee may ask you:

1. Do you own or have any interest whatsoever in any real estate? If owned: When did you purchase the property? How much did the property cost? What are the mortgages encumbering it? How did you arrive at the value of the property?

2. Have you made any transfers of any property or given any property away within the last one year period?

3. Does anyone hold property belonging to you? If yes: Who holds the property and what is it? What is its value?

4. Do you have a claim against anyone or any business? If there are large medical debts, are the medical bills from injury? Are you the plaintiff in any lawsuit? What is the status of each case and who is representing you?

5. Are you entitled to life insurance proceeds or an inheritance as a result of someone’s death? If you become a beneficiary of any one’s estate within six months of the date your bankruptcy petition was filed, the trustee must be advised within ten days through your counsel of the nature and extent of the property you will receive.

6. Does anyone owe you money? Who owes the money and where are they?

7. Have you made any large payments, over $600, to anyone in the past year?

8. Were federal income tax returns filed on a timely basis? When was the last return filed? Do you have copies of the federal income tax returns? At the time of the filing of your petition, were you entitled to a tax refund from the federal or state government ?

9. Do you have a bank account, either checking or savings? If yes: In what banks and what were the balances as of the date you filed your petition?

10. When you filed your petition, did you have:

a. any cash on hand?
b. any U.S. savings bonds?
c. any other stocks or bonds?
d. any certificates of deposit?
e. a safe deposit box in your name or in anyone else’s name?

11. Do you own an automobile? If yes: What is the year, make, and value? Do you owe any money on it? Is it insured?

12. Are you the owner of any cash value life insurance policies? If yes: State the name of the company, face amount of the policy, cash surrender value, if any, and the beneficiaries.

13. Do you anticipate that you might realize any property, cash or otherwise, as a result of a divorce or separation proceeding?

14. Have you been engaged in any business during the last six years? If yes: Where and when? What happened to the assets of the business?

As log as you and your bankruptcy lawyer are prepared, your 341 hearing is likely to be completed quickly. If you are missing documents or if trustee requires additional information, your hearing may be rescheduled to a later date.

If you are dealing with debt problems in 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.