Chapter 13 – Page 6 – Rochester Bankruptcy and Debt Relief

Can You Be Fired For Filing Bankruptcy?

Many people who file for bankruptcy in New York have fears about their relatives, friends, neighbors and employers discovering that they have filed for bankruptcy. They try to hide this fact from everyone. Many people who would greatly benefit from filing for bankruptcy under either Chapter 7 or Chapter 13 are reluctant to do so is because the perception among some people is that it is shameful to file for bankruptcy. I spend a considerable amount of time explaining to my clients that there is nothing shameful about filing for bankruptcy.

A lot of people are scared that their employers would find out that they filed for bankruptcy. They are afraid that their employers might fire them from their jobs if employers find out about their bankruptcy filing. They try as much as possible to hide their filing for bankruptcy because of this sense of insecurity.

The debtors should not be concerned since federal law prohibits employers from discriminating against them or from terminating their employment solely because of the debtor’s bankruptcy filing. Specifically, the bankruptcy code’s non-discrimination provision, 11 U.S.C. section 525(b), states as follows:

No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title … solely because such debtor … is or has been a debtor under this title…. 11 U.S.C. sec. 525(b).

One caveat to the above provision is that the Bankruptcy Code prohibits discrimination solely on the basis of the bankruptcy filing. It will not protect an employee who is having other employment-related problems.

The reality now is that a great number of people in Rochester, New York, or elsewhere in Western New York, have filed or are filing for bankruptcy. For a business having employees who file for bankruptcy is simply a fact of life. In many respects, it is better for the employer to have an employee file for bankruptcy, so that the employee is not spending time answering phone calls from the debt collectors, or that employer does not have to waste time garnishing employer’s wages. In today’s economy, bankruptcy is a reality that everyone is facing, and so companies would rather not do anything that would appear to be a form of discrimination against their employees.

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.

Should You Hire a Bankruptcy Lawyer?

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.

Chapter 13 Bankruptcy and Projected Disposable Income

In order to confirm a plan in a Chapter 13 bankruptcy, unless creditors are paid in full, the debtor must pay to unsecured creditors his or her “projected disposable income” expected to be received in an “applicable commitment period”, either 36 or 60 months depending on the Chapter 13 plan. Since the enactment of 2005 BAPCPA, there has been a dispute over what “projected disposable income” meant. A recent decision of the United States Supreme Court has resolved that issue, at least partially.

In Hamilton v. Lanning, decided on June 7, 2010, the Supreme Court held that “when a bankruptcy court calculates a debtor’s projected disposable income, the court may account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.” In other words, rather than simply applying the calculation of “current monthly income,” which looks at the debtor’s income for the 6 calendar months before the filing of the petition, the court may consider changes in income that have occurred, or are expected to occur, or virtually certain to occur at the time of confirmation.

In Lanning, the debtor had received a termination buyout from her former employer which, when included in “current monthly income,” dramatically increased her income over what she was really making, and the mechanical application of current monthly income approach would have resulted in her having to pay more into the plan than she possibly could afford. Because after the buyout she was making wages well below the state median income, the Supreme Court held that this change in income could be considered in calculating her “projected disposable income.”

While being practical and understandable, this “forward looking” approach should not give the bankruptcy court or the bankruptcy trustee, or the debtor, an opportunity to make unsubstantiated claims. The Supreme Court stated that “a court taking the forward-looking approach should begin by calculating disposable income, and in most cases, nothing more is required. It is only in unusual cases that a court may go further and take into account other known or virtually certain information about the debtor’s future income or expenses.”

While the debtor’s expenses as included in the “projected disposable income” were not specifically before the Court, the opinion stated that the court may consider changes in income or expenses when calculating projected disposable income. In Lanning, the Supreme Court stated that what is required is a “change” in income or expenses, not a discrepancy between the expenses allowed on the “means test” and the debtor’s actual expenses. As I previously discussed, debtors whose “current monthly income” is above the state median, many expenses are determined based on fixed allowances, not on what the debtor’s actual expenses are. For example, the food and related items allowance (set by the IRS) is $1,000 for the debtor’s household size, but the debtor only spends $500 on these items, he or she can claim the full allowance in calculating “projected disposable income.” Under the statute, the bankruptcy trustee is not be allowed to recapture that difference, and require that it be paid to creditors. Conversely, if the debtor spends $2,000, he can still only claim the allowance. As a result, for many debtors, the fixed “means test” numbers result in a more favorable result than their real expenses as stated on Schedules I and J. Because the difference between the means test expenses and expenses reported on Schedule J, Lanning does not change the existing differences between them.

At the same time, under Lanning, the debtor may be disadvantages if the debtor is disallowed a deduction for secured debt payments where property is being surrendered or perhaps where liens are being stripped down or off. Under Lanning, such change in the debt payments may be seen as “change” in expenses. However, unless there is a “change” in those secured debt expenses that are allowed as real figures on the means test, the means test expenses will remain the same.

Means Test – Inclusions and Exclusions

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.

Bankruptcy and Repayment of Debts Owed to Relatives

Occasionally there is a need to borrow money from relatives. Regardless of the size of the loan, the obligation to repay the debt to a family member is usually pretty powerful. Most people try to repay those debts first, before paying their other creditors. However, if you are experiencing financial problems, repaying your relatives prior to filing bankruptcy is not a good idea. As discussed below, any such loans can be repaid, but they should be repaid after the bankruptcy is filed.

The reason that the debtor should not repay debts owed to relatives prior to the filing is because of the “insider” problem. Your relatives, especially close ones, are considered to be “insiders” under the Bankruptcy Code’s definition of an insider, which includes a “relative of the debtor.” 11 U.S.C. § 101(31).

Because they are related to you, any payments to insiders within the applicable period are treated as preferences. The Bankruptcy Code states that a “preference” occurs when:

the debtor transfers something “to or for the benefit of a creditor;”
for a debt “owed by the debtor before [the] transfer was made;”
“made while the debtor was insolvent” (that is, the debtor’s debts were greater than his assets);
made within 90 days of bankruptcy, or, if an insider receives the transfer, within one year of bankruptcy; and
and the transfer “enables [the] creditor to receive more than [the] creditor would have received” (1) in a Chapter 7 case, (2) than “if the transfer had not been made,” and (3) “the creditor received payment of such debt to the extent provided in the [Bankruptcy Code].”

Generally, according to the Bankruptcy Code, creditors of the same type, called “class” should be treated the same. Because of this, the Bankruptcy Code looks back anywhere from 90 days to one year for preferential transfers or “preferences.” The Code presumes, not incorrectly, that a debtor would rather pay a relative rather than other creditors like credit card issuers.

As a result, the bankruptcy trustee will examine any debts repaid during the preference period. If the trustee believes a preference occurred and there are no defenses, the trustee can sue the person or entity who received the payments.

Because of these rules, you should hold making payments to the relatives prior to the filing. You can always pay back those debts after your bankruptcy case is over.

If you’ve already paid your relatives back during the one-year preference period, there are some solutions. First, if the payments are under $600, the trustee can’t sue your relative for the payments, since the preference falls within the “small preference” exception. Also, if the payments are $600 or more, but not that much–say not more than $1,000, the trustee still might decide not to bother with the transfer since the cost of recovery and administrative costs would reduce the benefit to the bankruptcy estate. Trustees don’t like administering bankruptcy estates where the asset values don’t justify the cost and effort of administration.

Another defense is that those payments may be “ordinary course” payments. In other words, it may be normal in both the relative’s financial affairs and the debtor’s for borrow and repay money, and the money was paid back in accordance with agreed upon terms. This is called the “ordinary course of business” defense.

The third available defense is that the relative gave “new value” in exchange for the payment. For example, the relative made another loan or gave you something else of value in return.

Fourth approach to addressing this problem, if the preference occurred close to a year prior to the time in which you plan on filing your bankruptcy, you can simply wait out the year.

Finally, the transfer can be undone by having the relative refund the money. Unfortunately, this may create another problem which relates to the availability of cash exemption in the bankruptcy filing. If you can exempt the refunded money, you may repay the debt after your case is over.

Adversary Proceedings In Bankruptcy

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.

Another Remedy For A Failing Chapter 13 Bankruptcy- Amending Bankruptcy Plan

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.

Debtor Who Can’t Make His Chapter 13 Bankruptcy Payments and Hardship Discharge

Once debtor’s Chapter 13 Bankruptcy plan is confirmed, the debtor has an obligation to make monthly payments. Unfortunately, sometimes circumstances change and the debtor cannot continue to make payments. When the debtor can’t make the payments on a confirmed Chapter 13 plan, the choices available to the debtor are limited. While there are a number of options, the best option for the debtor is usually a hardship discharge under §1328(b).

A bankruptcy discharge under §1328(b) eliminates all the debt that would have been dischargeable had the case been filed initially as a Chapter 7 Bankruptcy. While certain types of claims would still survive a hardship discharge, but the remainder of the debt is discharged, as if the plan has been completed over its term.

In order to obtain a hardship discharge, the debtor has to satisfy the best interests of creditors test, i.e., creditors must have received at least as much as they would have received had the case been filed as a Chapter 7 Bankruptcy. Additionally, the debtor’s reasons for his inability to complete the plan must be events outside of the debtor’s control. Usual events include death, illness, job loss, and, occasionally, divorce.

I prefer hardship discharge for my clients, as opposed to converting a Chapter 13 Bankruptcy to Chapter 7 Bankruptcy? When the discharge is entered under Chapter 13, the debtor is eligible to file another Chapter 13 immediately. If the case is converted to a Chapter 7 Bankruptcy, the debtor cannot file under either chapter of the Bankruptcy code for a period of time. An additional advantage of a hardshipt discharge is that there is no need for a new 341 meeting or amended schedules, as there would be if the case were converted to Chapter 7.

Since Chapter 13 Bankruptcy often includes debt that is not dischargeable in Chapter 7 Bankruptcy, while the hardship discharge won’t discharge priority taxes, by obtaining a hardship discharge, the debtor is eligible to file another Chapter 13 when he is again healthy or employed. Further, the debtor can receive the automatic stay in a subsequent case to finish paying the debts that often caused the Chapter 13 Bankruptcy.

In subsequent posts, I intend to discuss additional options available to the debtor.

Bankruptcy Basics – All About Automatic Stay

Often, it is not the debt itself that drives someone to file for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, but it is the actions of the creditors. Creditors have many different ways to try to collect a debt, such as repeated telephone calls to debtor’s house or work, letters from collection agencies and attorneys, lawsuits, wage garnishment, and other collection activities.

The debtor has only one tool available to stop the creditors. That tool arises as a result of filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. It is called “automatic stay” and arises under 11 U.S.C. §362. The automatic stay will stop all collection activities by a creditor to recover a debt. The creditor will not be able to call debtor’s home or place of work, send letters, commence or continue a law suit, or enforce a judgment. It will prevent any garnishment and will stop any garnishment already in place. It will also stop any pending foreclosure. It will stop all collection activities and will require all creditors to resolve their claims in the bankruptcy court. If you file Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, the automatic stay will prevent the utility company from shutting off your service. The automatic stay will even stop contempt proceedings in the divorce case that relate to nonpayment of financial obligations.

Once the automatic stay is in place, in order to take any further action, the creditor will have to file a motion in the bankruptcy court seeking to lift stay. Most of the motions to lift the automatic stay involve cars and houses. Typical creditor in a Chapter 7 may just be seeking to enforce it state court rights against the assets, especially if the debtor is surrendering the asset.

In Chapter 13 Bankruptcy, motions to lift automatic stay are usually filed by secured creditors when they believe that they aren’t getting paid sufficient money before the plan is confirmed. The most common motions to lift stay in a Chapter13 are filed after confirmation of the plan, usually, when the debtor fails to make the required payments.

Once imposed, automatic stay requiring a stop to almost all debt collection activity against the debtor and his property remains in effect until the earliest of the following events:

1. The case is closed;
2. The case is dismissed;
3. Or the debtor is granted or denied a discharge.

After the automatic stay is terminated, either by operation of law or special order, it is important to remember that property exempted in a bankruptcy generally remains protected from pre-petition debts, even if these debts were held to nondischargeable in the case.

The Bankruptcy Abuse Prevention Consumer Protection Act (BAPCPA) which went into effect on October 17, 2005, included provisions that made it more dangerous for the creditors to violate automatic stay. Previous to BAPCPA, there appeared to be an exception for creditors who violated the automatic stay if the acts were done in good faith due to a bona fide question of law regarding the applicability of the automatic stay. In other words, if a creditor technically violated the automatic stay but believed it was not violating the stay due to the facts or its interpretation of the law, such an act would not have been considered “willful” so as to allow damages, attorney fees, and costs. Pretty much any act by a creditor in technical violation of the automatic stay is now actionable, despite the fact that the creditor truly believes its actions are completly justified. Even if the debtor may not sustain any actual damages, the creditor will be liable for statutory damages.

There are some exceptions to the automatic stay. However, one of the exceptions included in §362(b) allows for actions in Family Court matters and also in Supreme Court involving domestic support obligations.

In short, the automatic stay is the most powerful tool in the bankruptcy lawyer’s arsenal. It will provide the debtor with an opportunity to resolve all claims in a single proceeding before the bankruptcy court. Without automatic stay, it would be very difficult for a bankruptcy attorney, if not impossible, to guide the debtor toward the fresh start contemplated by the bankruptcy law.

Bankruptcy and Cash in Excess of New York’s Exemption

Sometimes clients come to me with while having cash or liquid bank accounts in excess of New York’s $2,500 cash exemption. As a bankruptcy lawyer, it is my job to help the client retain as much value as possible for the fresh start after the bankruptcy. So what can be done without running afoul of the Bankruptcy Code?

Initially, there is a difference between the way this situation is treated in Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. In Chapter 7 Bankruptcy, any cash in excess of the New York’s $2,500 cash exemption is the property of the bankruptcy estate and is no longer the debtor’s property to use. In Chapter 13 bankruptcy, any such funds are still property of the debtor, provided that the debtor’s Chapter 13 plan pays to the creditors a sum equal to the unexempt portion of the cash or other unexempt assets over the plan’s duration. This is also known as the good faith test.

If the debtor will be filing Chapter 7 Bankruptcy, the debtor can spend the money prior to the filing in such way that it would be accepted by the bankruptcy trustee. Some of the things that can be done include the following:

Stock up on groceries
Fix the car
Make a mortgage payment ahead of time
Pay car or homeowner’s insurance
Repay retirement loans
Pay for medical or dental care
Pay delinquent child support or spousal support
Pay for child care
Pay overdue taxes

Having too much cash in a bank account can be a problem for a debtor. Discussing these issues in advance with a bankruptcy lawyer and engaging in bankruptcy planning can preserve the debtor’s cash and help with the future after the bankruptcy. Avoiding problems is the joint responsibility of the debtor and the debtor’s bankruptcy attorney. Timing is critical to minimizing your financial exposure. An experienced bankruptcy attorney can help you maximize the benefits of the bankruptcy laws and navigate around any problem areas.