Chapter 7 – Page 4 – Rochester Bankruptcy and Debt Relief

Bankruptcy and Cash Advances

Most of my Chapter 7 bankruptcy clients have a lot of credit card debt that was accumulated over time. That debt may have come from making purchases, incurring services charges and interest, as well as taking cash advances on credit card. While most of credit card debts are dischargeable in bankruptcy, credit card cash advances may represent a significant problem for potential bankruptcy filer.

According to the Bankruptcy Code, any cash advance, or combination of cash advances from one lender, totaling more than $875, obtained within 70 days of the bankruptcy filing date is presumed to be non-dischargeable. This particular provision is included in Section 523(a)(2)(C)(i)(II). The dollar amount of the cash advance, changes every three years.

This provision was included in the Bankruptcy Code because the Congress was concerned that consumers, who obtained significant cash advances relatively close to time they filed for bankruptcy, knew or should have known that they would be seeking bankruptcy relief, and should not be able to eliminate such debts. Another reason for that provision was to prevent consumers from taking cash advances immediately prior to a bankruptcy filing.

However, in terms of procedural issues associated with cash advances taken out with 70 days prior to the filing, in order to have the court declare that the debt is non-dischargeable, the creditor must file objections in the bankruptcy court. Specifically, the creditor must file an adversary proceeding. Since there are filing fees and other expenses associated with such filings, if the amount of the cash advance is not particularly large, most creditors will not bother filing an adversarial proceeding.

However, since a cash advance may result in an adversary proceeding, I always ask my clients about them and, in appropriate situation, may ask the client to postpone the bankruptcy filing until after the expiration of the 70 day period.

If you are 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.

Upcoming Changes in Bankruptcy Filing Fees

I have previously discussed fees associated with both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. As of November 1, 2011, those fees are going to increase for the first time in several years.

The filing fee for filing a Chapter 7 Bankruptcy or Chapter 13 Bankruptcy will increase by $7. For Chapter 7, the filing fee will increase from $299 to $306. The Chapter 13 filing fee will rise from $274 to $281. The Court Clerk for the Western District of New York announced changes in the filing fees on the bankruptcy court’s website on October 17, 2011. The cost of filing an adversary proceeding and various motions is rising as well.

Upcoming Changes to the Means Test Figures

Once again, the means test figures for median income are changing as of November 1, 2011. In New York, it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to decrease.

Through October 31, 2011, a single debtor in New York could have $46,295 in income in income and still be able to file Chapter 7 Bankruptcy. Starting November 1, 2011, that figure is decreasing to $45,931. Similar decreases will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$46,295 $57,777 $68,396 $83,942

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$45,931 $56,113 $66,953 $81,212

* Add $7,500 for each individual in excess of 4.

While the decreases are not large, they are going to make it more difficult for some individuals and families to qualify for Chapter 7 bankruptcy.

The figures used for the each state’s median income are based on United States Census data, and adopted by the Office of the United States Trustee. Usually, these figures are adjusted based upon the Consumer Price Index (CPI) for All Urban Consumers once or twice per year.

When the economy is growing, typically income rises because of the cost of living increases, inflation and other reasons. When the economy is not growing, income actually decreased from the prior year. As a result, the means test is adjusted and lower median income figures are used which make it more difficult for debtors to qualify for Chapter 7 Bankruptcy.

If you are 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.

Failure to Compete Financial Management Course and Denial of Discharge

Sometimes debtor’s bankruptcy case ban be closed without a discharge. The most likely reason for this the debtor’s failure to complete the financial management course. As a part of BAPCPA, the Congress required that every debtor to complete a financial management course before receiving a discharge in bankruptcy. This requirement applies to both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy cases. The class completion certificate must be filed with the court no later than 60 days following debtor’s meeting of creditors (otherwise known as 341 meeting). The certificate is usually filed with Form 23 which provides additional information to the court regarding completion of the course. If the debtor does not complete the course on time, and the bankruptcy attorney could not file the certificate, the bankruptcy court will close the case without discharge.

This is really the worst outcome possible in a bankruptcy case since the petition and all of the work done on the case was done for nothing. When the court closes the case without discharge, the automatic stay ends, and there is no discharge protecting debtor and his income and assets from his creditors. If the case is closed without discharge, creditors can begin calling and sending letters once again.

However, if the court closes the case without discharge, this problem can be solved. The debtor need to immediately do the following: complete the financial management course and then have his attorney prepare Form 23, and file it with the court. Additionally, debtor’s bankruptcy attorney will need to prepare and file a motion to reopen the bankruptcy case. The debtor and his attorney will need to appear at the motion. Once the motion is granted by the judge, bankruptcy attorney will have to submit an order for the judge to sign granting reopening of the case.

If the error in not filing the certificate of debtor education is on the part of the bankruptcy attorney, then the attorney should pay the filing fee and assume the fees for the motion and the hearing. If the mistake was on the part of the debtor, the debtor should be prepared to pay the filing fee, fees to the attorney for drafting and filing the motion to reopen the case, and for his time to attend the motion.

In my experience, this is one problem that is extremely easy to avoid. In my practice, I calendar the 60 day deadline and start calling my clients who have not provided me with a certificate within 45 days after the meeting of the creditors. Debtors should not wait until the last minute to complete the financial management course since they can do it anytime after the case is filed. That way you avoid the notice that you had your bankruptcy case closed without discharge.

Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and Creditors’ Chain of Title

It is fairly common for Chapter 7 and Chapter 13 debtors to have credit cards that went into default some time ago. It is also common for credit card issuers to sell of delinquent credit card accounts.

In Chapter 7 and Chapter 13 Bankruptcy, all creditors are notified of the bankruptcy filing and can file claims. It is common for a new entity to file a proof of claim as successor or assignee of the original credit card issuer, but often such proof of claim does not include any evidence that the claim was, in fact, assigned. This situation is commonly referred to as a missing chain of title, missing proof that the claim has been legally transferred or assigned to the new owner.

Here in Rochester, United States Bankruptcy Court Judge John C. Ninfo II has issued several decisions addressing this issue. In one of them, In re Doherty and In re Benedetti, he held that in Chapter 7 Bankruptcy, the successor creditor was obligated to prove it was the legal holder of the claim.

In Doherty, Chapter 7 Bankruptcy Trustee filed his objection to the successor creditor’s claim arguing that (1) successor creditor was not scheduled as a creditor in the petition; (2) although the debtors had scheduled the creditors that the successor creditor alleged originally held the claims, there was no breakdown in the proofs of claim to support the amounts alleged to be due,which differed from the amounts the debtors had scheduled; and (3) there was no assignment or bill of sale produced to demonstrate that the successor creditor was the current holder of any of the claims that were alleged to have been sold and assigned to it.

Judge Ninfo held that the successor has failed to produce a chain of title from the alleged original holders of the claims to it by either a series of assignments or bills of sale, or by any other acceptable proof of ownership. As a result, he disallowed successor creditor’s claims, since there was no proof that it was a proper creditor entitled to file a proof of claim under Section 501 of the Bankruptcy Code.

This issue can be extremely important in Chapter 13 Bankruptcy cases where it may impact duration of the plan as well as the amount of money paid by debtors under the plan. In Chapter 7 Bankruptcy, this issue becomes particularly significant in asset cases, i.e., situations where debtors have nonexempt assets that the bankruptcy trustee may sell to pay the creditors.

Adversary Proceedings – What Are They?

Even in most common Chapter 7 Bankruptcy cases, creditors may file an adversary proceeding. An adversary proceeding is basically a federal lawsuit brought within a pending bankruptcy case. The Bankruptcy Rules require that certain contested matters in bankruptcy, usually claims related to outstanding debts or transactions, must be litigated in adversary proceedings. Bankruptcy Rule 7001 lists such matters which include: objections to discharge; determination of the validity, priority, or extent of a lien or interest in property of the estate; actions to recover property of the estate; and proceedings to sell property in which the debtor is only a part owner. Bankruptcy Rule 7001 et. seq., lists all of the rules applicable to adversary proceedings.

The most common adversary proceedings in bankruptcy cases are proceedings to determine the dischargeability of a debt. Since the credit card debt is one of the primary reasons for consumer bankruptcy filings, many credit card lenders are actively reviewing petitions and credit usage histories to determine if the debtor obtained the debt through either fraudulent or improper means. In accordance with Bankruptcy Code §523, a creditor can contest the dischargeability of a particular debt that was incurred through false pretenses, fraud, use of false financial statements, embezzlement, or larceny.

Bankruptcy Code §727 allows an interested party, such as a creditor, to contest the entire discharge for intentional concealment, transfer or destruction of property; unjustified failure to keep books and records; dishonesty in connection with the bankruptcy code; or failure to explain loss of assets. If a trustee requests a debtor to provide documents at the meeting of creditors and the debtor is uncooperative, the trustee may bring an adversary proceeding under this section.

In adversary proceedings, the Federal Rules of Civil Procedure apply. These rules are adapted to bankruptcy proceedings by Bankruptcy Rules 9001 et. seq. In order to commence an adversary proceeding, the creditor or trustee will draft a complaint, setting forth the facts and allegations which the plaintiff believes justify the granting of relief against the debtor, and stating the relief requested.

Just like bankruptcy filings, all adversary proceedings must be filed electronically through the court’s E.C.F. system. Each adversary proceeding will be assigned a case number, which will be different from the original bankruptcy case number. All adversary proceeding documents filed with the court must contain the full adversary proceeding caption, both case number and adversary proceeding case number, the type of chapter, and the name of the judge. In adversary proceedings, each debtor is referred to as either “debtor” or “defendant.”

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.

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.

While most documents in adversary proceedings are served pursuant to Bankruptcy Rule 7004(b) by first class mail upon both the debtor and his or her attorney, service can be completed by other means as well. Service upon the debtor must be made within 10 days of the summons date pursuant to Bankruptcy Rule 7004(f).

In Chapter 7 Bankruptcy, the court sets a statute of limitations for creditors to file objections to discharge. The bar date is 60 days from the date set for the first scheduled meeting of creditors pursuant to Bankruptcy Rules 4004 and 4007. If the meeting of creditors is adjourned, it does not affect the bar date. If a creditor fails to file an adversary proceeding by the bar date, that creditor will be forever barred from objecting to discharge.

Cell Phones and Bankruptcy

Filing bankruptcy can release a debtor from an expensive cell phone contract and let debtor discharge the early termination penalty. While now almost everyone has a cell phone, the contracts are typically long term and it is easy for a debtor to run up a substantial bill. Should a typical consumer debtor filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy list their cell phone provider as a creditor for bankruptcy purposes?

If debtor has an outstanding bill on a closed account, then such bill must be included with the rest of the outstanding debts. Any such bill will be eliminated by the Chapter 7 Bankruptcy filing, or paid in Chapter 13 Bankruptcy.

In addition, the bankruptcy filing would enable the debtor to not only eliminate their balance but remove their obligation to pay any early cancellation penalty. Filing a Chapter 7 Bankruptcy has the effect of terminating any “executory contract” which is one in which the parties are still performing it. Cell phone contracts are executory contracts during the contract period. By including the cell phone provider as a creditor in the bankruptcy petition, the contract is automatically terminated, and any early cancellation penalty becomes a dischargeable debt just like the credit card debts. Some cell phone companies may request a security deposit after the bankruptcy filing, but, in my experience, most providers will not ask for a security deposit.

If debtor plans to keep the account, the account must be listed in the bankruptcy petition. Debtors should list the cell phone provider as a potential creditor in the bankruptcy petition, even if no balance is owed. Although the bankruptcy law has the effect of automatically terminating the cell phone contract, virtually all cell phone companies will continue service if the account is current, and will not pay any attention to the bankruptcy filing. The advantage to the debtor is that by including the cell phone company in the petition, even if it is current, is that the contract can later be terminated before the end of the typical two-year period, and the debtor will not be responsible for the early termination penalty.

In addition to the above, debtors should always include their cell phones in Schedule B which lists all of their personal property. Here in Rochester, Chapter 7 trustees have been raising this issue during 341 meetings and asking debtors about the cell phones they owns. Since some of the phones, such as an iPhone, are valuable, trustees can look at them as one more potential asset in the bankruptcy estate.

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.

Meeting of Creditors and Debtors’ Duty to Provide Bank Statements

Debtors who filed Chapter 7 and Chapter 13 Bankruptcy cases are required to provide certain documents to the trustee prior to the Meeting of Creditors. It is responsibility of bankruptcy attorneys to make sure that all of the required documents are collected in advance and provided to the trustee ahead of the meeting.

According to Bankruptcy Rule 4002, the trustee must be provided sixty days of pay stubs and the most recent tax return. In addition, debtors who own real estate that they intend on keeping must provide the trustee with some kind of valuation or appraisal. Here in Rochester, bankruptcy trustees also require copies of deed, mortgage, if any, as well as the most recent mortgage statement.

In addition, Bankruptcy Rule 4002 requires the debtor to bring to the Meeting of Creditors all bank and other financial account statements showing the balances in the accounts on the date the bankruptcy petition was filed. All bankruptcy trustees here in Rochester adhere to this rule. Turning the statements over at the meeting of creditors will save debtors time and will allow the trustee to resolve any issues related to exempt funds.

If debtors do not have such statements and are unable to obtain them from their bank, Bankruptcy Rule 4002 provides a solution by allowing debtors to submit a verified statement to that effect.

Bankruptcy, Credit Unions and Cross-Collateralization of Loans

One issue that periodically comes up in bankruptcy cases is cross-collateralization of assets by credit unions. What does that mean? Cross-collateralization is basically the use of collateral from one loan to secure other loans.

Most credit unions, including local credit unions here in Rochester, New York, use “Loanliner” documents. These form agreements are used by financial institutions for their lending transactions. Included in standard Loanliner lending agreements is a provision in which the borrower agrees that all other loans with the lender are cross-collateralized. The cross-collateralization clause from a recent Loanliner agreement reads: “the security interest also secures any other loans, including any credit card loan, you have now or receive in the future from us and any other amounts you owe us for any reason now or in the future.”

Credit unions often use this clause in vehicle loan agreements to secure all other credit union debts with the vehicle. This may surprise someone when they discover that the debt on the car may include a personal loan, a line of credit, and credit card balances.

There are a few options in bankruptcy if the debtor has a cross-collateralized auto loan. If a Chapter 7 Bankruptcy case is filed, the debtor can request that the credit union prepare a reaffirmation agreement for the vehicle without regard to other debts. In this situation, the debtor is asking the credit union to voluntarily strip off the cross-collateralized loans. If the credit union rejects such request, the debtor has two options: (1) surrender the vehicle and discharge all debts to the credit union; or (2) redeem the vehicle.

If the debtor surrenders the car, the credit union takes the car back and sells it, usually at auction. Any deficiency left on the car loan and all additional cross-collateralized debts owed to the credit union are discharged in the Chapter 7 Bankruptcy. If the debtor in Chapter 7 Bankruptcy chooses to redeem the car, the debtor gets to keep a vehicle by paying the value of the vehicle, not the total debt that is owed. While somewhat similar to a Chapter 13 Bankruptcy cram-down, redemption requires that the payment to the secured creditor must be made in a lump sum and does not allow for payments over time.

If the debtor is filing a Chapter 13 Bankruptcy, the loan can be crammed-down to match the vehicle’s value provided that the loan is over 910 days old. Any remaining debt is treated as unsecured debt and is discharged at the end of the Chapter 13 case. Another option is to surrender the vehicle just as in Chapter 7 Bankruptcy.

Importance of Providing Accurate Information in Your Bankruptcy Petition and Schedules

I have previously written how important it is for debtors to provide their bankruptcy attorney with accurate and complete information. Debtors have an absolute obligation under the Bankruptcy Code to disclose their assets, liabilities and income to the bankruptcy court. Once in a while, a debtor may forget a creditor or overlook an old debt. Not every debt appears on the credit report either. When a debt is omitted from the bankruptcy petition, under the Bankruptcy Code, there are several possible solutions.

Initially, if the debtor realizes that a debt was overlooked during the bankruptcy, the debtor is required to file amended schedules and identify the creditor. If this happens, the bankruptcy attorney should be notified and he will amend the schedules.

If a pre-bankruptcy debt is discovered after the bankruptcy case has been closed and discharge granted, there are a couple of possible options. In some situations, it will be necessary to request that the bankruptcy court reopens the bankruptcy case and discharge the debt. In other situations, especially in no asset Chapter 7 Bankruptcy cases, the debt is considered discharged as a matter of law, even though it wasn’t listed in the schedules. Finally, some types of debt, such as student loans, cannot be discharged under most circumstances, and will survive the bankruptcy.

The bankruptcy courts expect the debtor to provide a full and complete disclosure of both assets and liabilities. In Chapter 7 Bankruptcy asset cases and Chapter 13 Bankruptcy cases, an omission matters a great deal since listed creditors receive payments through the bankruptcy court. If a debtor deliberately fails to list a creditor, that debt is likely be declared non-dischargeable and will survived the bankruptcy. Under appropriate circumstances, courts have denied debtor a bankruptcy discharge because of the debtor’s intentional failure to list all debts or revoked already issued discharge.