Bankruptcy cases are known for the amount of paperwork involved. And it is essential that this paperwork be completed accurately in order for you to be able to declare bankruptcy. At Schwartz Bankruptcy Law Center we have the experienced Kentucky bankruptcy attorneys and staff to help you in your Kentucky bankruptcy.
Morris v. Quigley is a Fourth Circuit court case that arose out of a bankruptcy filing in West Virginia. Although Kentucky is in the Sixth Circuit, bankruptcy law is based on the federal bankruptcy laws and is somewhat uniform across the country.
The main issue addressed in this case is whether in filing for bankruptcy a debtor can declare future monthly payments in calculating their disposable income, where they will not in fact be held responsible for those payments in the future. The amount of income available for spending or saving after taxes is considered disposable income.
Morris (“Debtor”) was preparing for her Chapter 13 bankruptcy. This Chapter 13 bankruptcy is only available to individuals who have regular income and have a certain fixed amount of unsecured and secured debts. As the court explains, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) requires debtors who are filing for bankruptcy with above-median income to file under Chapter 13 rather than Chapter 7. The difference between these two types of bankruptcy is that Chapter 13 is a provision that provides for re-organization where Chapter 7 is for liquidation.
However, it is only after a thorough investigation of your financial records by a practicing bankruptcy attorney, that you can decipher which form of relief is more appropriate for you.
While completing the requisite documents, Morris listed all of her personal property on her Schedule B form. Included in her personal property were two all terrain vehicles (“ATV’s”) as well as another vehicle co-owned with her ex-boyfriend. On her Schedule D form, Morris listed all three vehicles as collateral for secured debts for which she was responsible for making payments on monthly.
Additionally, Debtor created a plan that indicated the future payments Debtor would make to the trustee in order to pay back her creditors. These payments are calculated by a formula that takes into account future earnings and future liabilities.
In Chapter 13 bankruptcy, the court appoints a representative called a trustee to administer to the estate during and after the bankruptcy proceedings. This trustee must distribute the future earnings received from the debtor proportionally to the debtor’s creditors. Also, this trustee is responsible for ensuring that the Debtor accurately represents the financial figures involved and is in compliance with the law.
Through a thorough investigation, the Trustee in this case found that there were misrepresentations as to the three vehicles involved. First, the two ATV’s Debtor owned were being surrendered because they were the collateral for the liability. In surrendering these two vehicles, debtor was released from the liability of future payments.
Additionally, the vehicle Debtor owner with her ex-boyfriend was actually in the possession of the ex-boyfriend, and he was making monthly payments on it. Therefore, Debtor would not actually be making future payments on this vehicle although she declared this as one of her liabilities.
Because Debtor listed these three vehicles in her Schedule D and deducted monthly payments for these vehicles from her projected future earnings, there was substantially less money available to pay the creditors back with.
The trustee in this case found that the Debtor was misrepresenting her projected disposable income, which led her to file this case. Debtor argued that this was simply a minor mistake in her reporting that would not lead to a “senseless result.”
This Fourth Circuit court disagreed with the Debtor, and held that the phrase “projected disposable income” takes into account the past events but allows for future adjustments in Debtor’s income or expenses that will affect to the final determination of this future income.
Debtor is required to accurately report all payments declared on the schedule B form. The court in Morris instructs that in the Fourth Circuit a debtor cannot deduct monthly payments from projected disposable income when, regardless how minor the payments may seem, Debtor will not be held responsible for these future payments.
This misrepresentation could very easily have been a mistake; however, the risks are too high in a bankruptcy proceeding to make mistakes on your paperwork.