Category: Bankruptcy Planning

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.

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 attorney.

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.

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 attorney.