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Articles Posted in Chp 13 Bankruptcy

In a recent case, a federal appeals court determined that the Bankruptcy Code allows a bankruptcy court to grant a short grace period after the expiration of a Chapter 13 debtor’s payment plan to complete the payment of a debt. In the case, the debtors had filed a Chapter 13 bankruptcy petition, and the court approved their repayment plan. Their plan required payments of $2,485 every month for five years. Later, the monthly payment increased to $3,017 because of an increase in mortgage payments. They made all of the required payments, and at the end of the five-year period, they had paid $174,104, surpassing their original anticipated plan base of $174,059.24.

HourglassDespite this, the trustee alleged that they still owed another $1,123—but the trustee said that she would not object to the debtors paying off the remaining debt. The debtors paid the remaining debt within 16 days. However, after the payment, one creditor argued that the late payment was invalid because the Bankruptcy Code requires all payments to be made within five years.

The court held that bankruptcy courts can grant a reasonable grace period for debtors to cure an arrearage. The court identified a non-exhaustive list of factors to consider in deciding whether to grant a grace period. They were:  1) whether the debtor substantially complied with the payment plan; 2) the debtor’s ability to complete the plan; 3) whether an extension would prejudice any creditors; 4) whether the debtor was to blame; and 5) the availability of other remedies.

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The United States Seventh Circuit Court of Appeals recently published an opinion affirming a district court’s interlocutory ruling on a Chapter 13 bankruptcy debtor’s claim that the defendant violated the co-debtor stay of the bankruptcy code by obtaining a judgment against the debtor’s non-filing husband for credit card debts incurred in his name. The debtor had initially received a favorable judgment on her claim at the bankruptcy court, but the federal district court’s reversal of that decision will become final with this latest opinion, and she will be unable to prevent the defendant from collecting on their judgment against her husband.

Ten Dollar BillsThe debtor in the case of Smith v. Capital One Bank was a married woman who filed for bankruptcy in 2011 without her husband. Her Chapter 13 repayment plan was approved in 2012 and was in repayment through 2014, when the respondent, a credit card company, sought to collect an unpaid debt incurred by the debtor’s husband. The debtor sued the respondent and alleged a violation of the co-debtor stay by the credit card company’s attempt to collect the debt while her bankruptcy was in repayment and the automatic stays were in effect. The bankruptcy court agreed with the debtor, entering judgment in her favor and causing Capital One to appeal the decision to the district court.

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A recent decision by the United States Bankruptcy Appellate Panel of the Eighth Circuit Court of Appeals rejected a creditor’s attempt to dismiss a Chapter 13 bankruptcy that the debtor proposed and that was confirmed by the bankruptcy court. The appeal in the case of Curtis v. Seagraves was based upon the creditor’s claim that the debtor did not properly prove that she had obtained the required credit counseling before having her petition granted.

money-1588323The creditor argued that the debtor needed to sign a statement that she had obtained credit counseling under penalty of perjury. Instead of doing that, the debtor submitted a standard signature along with a certification from the counseling agency. The appellate panel accepted the debtor’s proof as tendered and ruled that the federal law does not require that the debtor sign a statement that they attended credit counseling under penalty of perjury. As a result of this ruling, the creditor will be unable to have the debtor’s bankruptcy case dismissed.

Credit Counseling and Other Requirements Before Filing for Bankruptcy

The United States Bankruptcy Code contains several requirements and procedures that must be followed in order for a debtor to have the greatest chance of having their petition to discharge their debts approved. One of these is the requirement that debtors attend a credit counseling class or program before the bankruptcy plan is confirmed.

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The 11th Circuit Court of Appeals released a ruling last month in the case of Valone v. Waage, reversing a lower bankruptcy court’s order that denied a debtor the use of a personal property exemption (“wildcard exemption”) in his Florida chapter 13 bankruptcy.

playing-cards-4-756323-mIn states that provide for them, wildcard exemptions allow a bankruptcy debtor to keep some nonexempt personal property out of the bankruptcy, up to a value that is established in the statute. Wildcard exemptions enable bankruptcy debtors to keep some important property or family heirlooms out of the reach of the bankruptcy process.

This Request for a Wildcard Exemption was Denied

The debtor in Valone v. Waage was denied the use of the Florida wildcard exemption by the bankruptcy court, which ruled that he had received the benefits of the homestead exemption and was therefore not eligible for the wildcard exemption.

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On April 22, a formerly wealthy South Florida doctor and his wife were each sentenced to over a year in federal prison after pleading guilty to bankruptcy fraud for concealing assets from the trustee in a Chapter 7 bankruptcy they filed back in 2008. According to a local news article, the couple’s 2008 bankruptcy filing was ultimately rejected because the bankruptcy judge found that they were being dishonest when bankruptcy officials paid a surprise home visit and witnessed the doctor’s wife try and hide an expensive Rolex watch. The couple later admitted to concealing assets, and investigators were never able to find about $120,000 in jewelry that went missing during the bankruptcy filing.

behind-bars-76714-mAuthorities Take Bankruptcy Fraud Seriously

Although the couple’s request to discharge their debts was rejected by the bankruptcy court, and their creditors were able to force the sale of nearly all of their assets, federal prosecutors felt they needed to be further punished. The prosecutors and bankruptcy trustee wanted the couple to be criminally punished for their dishonesty, and they were charged with bankruptcy fraud.

Bankruptcy fraud usually takes one of four forms. As in the Florida case, an individual can be convicted of bankruptcy fraud when they knowingly or intentionally hide assets from the trustee or court after filing for bankruptcy in order to avoid forfeiting property. Other types of bankruptcy fraud occur when an individual files false or incomplete forms, files multiple times using false information, or files multiple times in different states. Based on their attempt to conceal assets, the Florida couple pleaded guilty to bankruptcy fraud in December 2014, and they were sentenced this month.

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Bankruptcy law has all kinds of ins and outs that must be mastered by anyone who chooses to practice this complex kind of law. In fact, there are many “traps for the unwary” all throughout the bankruptcy code that, if triggered, can make a filer’s bankruptcy much more complicated and difficult than it needs to be. The key to having a smooth and successful bankruptcy is securing a diligent and experienced bankruptcy law attorney to help you throughout the way.

money-in-hand-1037536-mThis week’s topic is on “preferential transfers.” Before getting into the specific topic of preferential transfers, a little background is necessary to more fully understand the area of law. In Chapter 7 and 13 bankruptcies, the trustee of the bankruptcy proceeding gathers up all the filer’s assets and does their best to pay back the unsecured debt holders. The law grants bankruptcy trustees certain powers to effectuate this goal, one of which is the cancelation of a preferential transfer.

A preferential transfer is a certain kind of payment or transfer made within a certain amount of time before a person files for bankruptcy. The idea is that it is not fair that one creditor gets paid, presumably in full, while the others all need to divide up what is left. Under certain circumstances, therefore, a trustee can reverse a preferential transfer, essentially getting the money back from the transferee.

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Most people, if mulling bankruptcy and given the opportunity, will file for a Chapter 7 bankruptcy. That’s because a Chapter 7 liquidation will allow a debtor to shed almost all unsecured debts (credit cards, medical bills, etc.). While the process can be arduous, debtors ultimately emerge debt-free and ready to step out on fresh financial footing. holdinghands2

However, the problem is that bankruptcy rules significantly tightened in 2005, constricting the standards for who qualified for a Chapter 7 liquidation over a Chapter 13 repayment plan. After the passage of that law, more people were forced to file for a Chapter 13 because they didn’t pass the qualifying test for a Chapter 7.

It is possible, though, to convert from a Chapter 13 to a Chapter 7 proceeding if it turns out at some point during the process you do qualify. In some situations, the decision is voluntary and the courts will force you to do this. In other cases, it is the debtor who initiates the move.

One question often raised by people contemplating a Chapter 13 or a Chapter 7 bankruptcy in Louisville is: How long is it going to take? clock.jpg

Our Chapter 7 bankruptcy lawyers know: It really depends.

Generally, we may be talking a few months, particularly for a Chapter 7. But a Chapter 13 is going to take years to complete, as you will be put on a repayment plan.

The other consideration is that there may be things to sort out to put you in an appropriate position to file for bankruptcy protection in the first place.

Some of the top reasons why there may be a delay in filing would be:

  1. A need to protect your assets;
  2. Income that is too high;
  3. You have an old bankruptcy.

Let’s explore the first: Assets. Your ability to keep your assets, such as your car, your home and other valuables, is going to depend on the type of bankruptcy for which you file and the unique circumstances of your case.

Kentucky Revised Code Chapter 427.170 allows Kentucky residents to request the same exemptions as those provided under federal law, in 11 U.S.C. sec. 522(d). These include things like your retirement, veteran’s benefits, Social Security benefits, all the way down to clothing, furniture and kitchenware.

That being said, bankruptcy law is very specific, and any attempt to conceal or transfer or omit property from the proceedings is going to result in anything from denial of your bankruptcy to criminal prosecution or civil litigation. So your bankruptcy attorney is going to want to do it right. In some cases, that’s going to mean that immediately filing could put certain assets in danger. It’s important to lay out all your cards with your attorney so he or she can help you determine how to protect the assets you want to keep.

The second thing that might cause a delay would be if your income is too high. This is a particular issue for a Chapter 7 bankruptcy. It’s not uncommon for those battling debt to be scrambling for extra income wherever they can. Those extra overtime hours, freelance assignments or temporary odd-jobs can push your income over the limit that would be allowable for a Chapter 7. In these cases, attorneys sometimes have to put the proceedings on pause to be able to prove that the additional income was only temporary.

Thirdly, a previous bankruptcy can cause a slowdown. With Chapter 7 bankruptcy, you can only file once every eight years. Even if it’s clear you are in need again, you will have to wait to that eight-year threshold. However, if this is your situation, you should still consult with a skilled bankruptcy attorney, who can help you further explore all your options.

The good news is that once you actually do file, an automatic stay will buy you time to stay in your home, allow you to at least temporarily keep your possessions and stop those creditors in their incessant harassment.

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The surging cost of medical care has left many people with essentially two options: either forgo treatment (which a growing number or doing) or take on debt. doctor.jpg

Often, the sticker shock of the bill can seem more frightening than the ailment!

A Chapter 7 or Chapter 13 bankruptcy in Louisville can help.

In fact, our experienced Kentucky bankruptcy lawyers know medical bills are the leading cause of bankruptcy filings. A recent report by the American Journal of Medicine indicates that of the roughly 1.5 million Americans who file for bankruptcy, a whopping 60 percent of those were individuals whose financial ship was capsized by medical bills.

It was a trend on the rise even before the recession. In the six years between 2001 and 2007, bankruptcies that were attributable to out-of-control medical bills spiked from 46 percent to 62 percent. That’s huge – almost 50 percent – for such a short time frame.

And Americans as a whole were doing relatively well at that time. That’s changed drastically since 2007, since the housing market crashed, causing a global recession that continues to reverberate.

We’re not talking about people who were reckless with their money or careless about paying their bills. The social scientists who explored this issue discovered that bankruptcies fueled by medical costs were filed by well-educated, middle class folks. The average amount they owed was around $18,000. For those who didn’t have insurance, it was closer to $27,000. Many tried to mortgage their home to pay, but it was tough when they had often lost a great deal of income due to the fact that they were battling illness.

It says something about the overall state of health care when anyone is just one illness away from financial ruin. In fact, nearly 80 percent of those who sought bankruptcy protection did have insurance. The problem was the huge gaps in covered expenses, including things like co-pay, deductibles and services that weren’t covered.

This is especially a big issue for young people. A recent story in CNN Money indicated that more than 40 percent of adults between the ages of 19 and 29 will opt not to receive medical care because of the cost. They won’t get their prescriptions filled, they avoid doctor visits and they won’t get specialist care – even if they really need it.

Of course, the problem with this long-term is that when they avoid valuable screenings or preventative care measures, the cost may end up being much higher later, when issues have exacerbated.

Nearly 40 percent of that age group has said they have trouble making payments on their medical debt, and another 43 percent said they had to deplete their entire savings to do so. More than 30 percent relied on credit card debt and 28 percent said they tried to pay it off – but then weren’t able to afford the basics like rent and food.

There is a better way.

11 U.S.C. 109 (e) of the federal bankruptcy code allows that any individual whose unsecured debts are less than about $360,500 and whose secured debts fall below $1.1 million may qualify for a Chapter 13 bankruptcy. (These amounts are periodically adjusted, but the majority of Americans are going to qualify under Chapter 13; there are other options for individuals whose debt-to-income ratio may be even higher).

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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.

papers.jpgMorris 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.

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