attorney – Rochester Bankruptcy and Debt Relief – Rochester, NY Bankruptcy Attorney

Debtors and Failure to Turnover Nonexempt Assets

In Chapter 7 bankruptcy cases where debtors have nonexempt assets, debtors have an obligation to transfer those assets to the bankruptcy trustee. It is very common for such assets to be debtors’ tax refunds. In this situation, at the meeting of the creditors, debtors are asked to sign a stipulation which is usually incorporated into a subsequent court order, agreeing to turn nonexempt tax refunds, or a part of them, to the bankruptcy trustee. If debtors do not do so, they are subject to serious consequences which may include loss of their discharge, contempt of court or monetary penalties. The loss of discharge is the most serious penalty from the debtor’s point of view, since it will leave the debts nondischargeable in this or any subsequent bankruptcy that the debtor may file.

But what if the debtors are unable to turn over such assets due to financial reasons? What if the tax refunds were used for living expenses since debtors simply had no other choice?

This issue was recently addressed in In Re Swan, Case No. 08-11210 (W.D.N.Y. 2014), where Judge Michael J. Kaplan had to decide what the consequences should be for the debtors who had failed to turn over nonexempt portion of their tax refunds to the bankruptcy trustee. The Chapter 7 trustee sought denial of discharge, as well as a finding of contempt of court and monetary penalties. Judge Kaplan held that in the absence of dishonesty on the part of the debtors, loss of discharge would be too harsh of a remedy and the court should not automatically deny or vacate discharge. Judge Kaplan held that if failure to turn over the assets is not as a result of dishonest conduct on the part of the debtors, the appropriate remedy is a monetary judgment that the trustee would be free to collect. Further, Judge Kaplan also held that if the debtors are unable to turn over such assets to the trustee, they have an obligation to seek immediate relief from the Court.

This case further confirms that debtors always have to try to follow the court’s orders and, if they are unable to comply with them, they have to seek relief from the court. While the debtors in Swan did not lose their discharge, they were held in contempt of court and were subject to monetary penalties. All of this could have been avoided if they kept their bankruptcy attorney involved in the case and notified him of their financial difficulties.

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.

Upcoming Changes to the Means Test

Once again, the means test figures for median income are changing as of March 15, 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 increase.

Through March14, 2011, a single debtor in New York could have $45,548 in income in income and still be able to file Chapter 7 Bankruptcy. Starting March 15, 2011, that figure is increasing to $46,295. Similar increases 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 *

$45,548 $56,845 $67,292 $82,587

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

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

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

While the increases are not large, they are an improvement on the last set of income limits. The reason for a slight growth in the median income is the decline in the American economy. Since the economy is down, employers do not give employees significant wages increases. As a result, the American median family income has grown only slightly, and means test figures increased only moderately.

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.

Under the New Law, Federal Bankruptcy Exemptions Are Available In New York

As I have written previously, the new exemption law permits New York residents to choose between the New York exemption statutes and the Federal Exemption that are set forth in Section 522(d) of the Bankruptcy Code.

The federal exemptions have never been available to debtors filing Chapter 7 and Chapter 13 Bankruptcy in New York before because New York chose to opt out of the federal exemptions statute in the past.

The federal exemptions have different provisions that may be more favorable for individual debtors than New York’s statutory exemptions. They may allow debtors and their bankruptcy attorneys to protect certain assets that may not be available under New York’s statutory exemptions, provided that debtors do not need to take advantage of their homestead exemption.

The federal exemptions contain a “wild card” exemption that enables consumers to protect a substantial amount of cash, well in excess of New York’s statutory limit.

Specifically, the federal exemptions are as follows:

(1) The debtor’s aggregate interest, not to exceed $21,625 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.

(2) The debtor’s interest, not to exceed $3,450 in value, in one motor vehicle.

(3) The debtor’s interest, not to exceed $550 in value in any particular item or $11,525 in aggregate value, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

(4) The debtor’s aggregate interest, not to exceed $1,450 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

(5) The debtor’s aggregate interest in any property, not to exceed in value $1,150 plus up to $10,825 of any unused amount of the exemption provided under paragraph (1) of this subsection.

(6) The debtor’s aggregate interest, not to exceed $2,175 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor.

(7) Any unmatured life insurance contract owned by the debtor, other than a credit life insurance contract.

(8) The debtor’s aggregate interest, not to exceed in value $11,525 less any amount of property of the estate transferred in the manner specified in section 542(d) of this title, in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent.

(9) Professionally prescribed health aids for the debtor or a dependent of the debtor.

(10) The debtor’s right to receive–

(A) a social security benefit, unemployment compensation, or a local public assistance benefit;

(B) a veterans’ benefit;

(D) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;

(E) a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless–

(i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor’s rights under such plan or contract arose;

(ii) such payment is on account of age or length of service; and

(iii) such plan or contract does not qualify under section 401(a), 403(a), 403(b), or 408 of the Internal Revenue Code of 1986.

(11) The debtor’s right to receive, or property that is traceable to–

(A) an award under a crime victim’s reparation law;

(B) a payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;

(C) a payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual’s death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;

(D) a payment, not to exceed $21,625, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or

(E) a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.

(12) Retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.

Here is an example of how a typical debtor may benefit from using Federal exemptions. If debtor owns a motor vehicle that has $6,000.00 in equity, under the New York exemptions, debtor can only protect $4,000.00 of that equity (plus the New York wildcard exemption, if available). However, if debtor uses the Federal Exemptions, debtor can COMBINE the wildcard exemption with the standard Federal auto exemption of $3,450.00, and use an additional $2,550.00 of the wildcard exemption to protect the remaining equity in that vehicle. As long as debtors do not need to use homestead exemption in excess of the Federal Homestead Exemption of $21,625.00, debtors are likely to benefit from the Federal Exemptions.

What Does Debtor Need to Bring to the Meeting of the Creditors?

I have previously written about the meeting of the creditors otherwise known as the 341 meeting. Among things that the debtors must have a the meeting are their identification and proof of social security number, as well as their original signed bankruptcy petition.

In addition, debtors in Chapter 7 and Chapter 13 Bankruptcy cases are required to provide to the bankruptcy trustee certain documents prior to the meeting. They usually include the following documents: copy of the petition, copies of counseling certificates, copies of paystubs, copies of deed, mortgage and appraisal if the debtors own a home, a copy of the title and appraisal for any vehicle owned by the debtors, and a copy of last year’s tax return.

In addition, Bankruptcy Rule 4002 requires debtors to bring to the meeting of creditors their bank and other financial account statements showing the balances in the accounts on the date the bankruptcy petition was filed. If the debtors have not brought their statements to the meeting, their attorney will be required to send them to the bankruptcy trustee.

Here in Rochester, and elsewhere, bankruptcy attorneys must bring the original bankruptcy petition to the meeting so that the trustee can compare the signatures on the petition and debtors’s identification documents.

One final procedural item that will take place at the meeting of the creditors is that the debtors will have to sign declaration of electronic filing which certifies that the bankruptcy case was filed electronically. In vast majority of all consumer bankruptcy cases, petitions are filed electronically.

Does the Debtor Need to Be Employed to File Chapter 7 Bankruptcy?

It is not necessary to have a job to file for Chapter 7 Bankruptcy. In fact, the filing of Chapter 7 Bankruptcy is probably one of the few instances in the debtor’s life where it helps the debtor not to be working.

One of the basic requirements of the Chapter 7 Bankruptcy is that the debtor must show that he or she does not sufficient income available to pay their creditors any money under Chapter 13. Whether the debtor has sufficient income that would require him to be in a Chapter 13 Bankruptcy or in a Chapter 7 Bankruptcy is determined though by the “Means Test.”

A simple explanation of the Means Test is as follows. The Means Test takes the debtor’s income for the six month before the filing of a bankruptcy and compares that income to the average income for a person in the debtor’s state with the same family size. As an example, in New York, where I practice, if a single debtor makes $46,320.00 per year or less, he qualifies to be in a Chapter 7 Bakruptcy. So someone who is not working can file under Chapter 7.

The above is only a part of the Means Tests requirements since the amount of income is only a beginning when the means test calculations are done. Other factors and calculations also have to be considered when making a decision under which Chapter of the Bankruptcy Code the debtor should file .

Sometimes, the debtor can benefit from a loss of a job, usually in a situation where he earns more than the median income for his State, after the loss of the job, once a sufficient period of time passes, the debtor’s average monthly income will be reduced and the debtor will qualify for Chapter 7 Bankruptcy.

The only time the debtor needs a job to file for bankruptcy is when he is filing for a Chapter 13 Bankruptcy.

Second Mortgage In Chapter 7 and Chapter 13 Bankruptcy

It is common for someone who is about to file Chapter 7 Bankruptcy to have a pending or upcoming foreclosure action. It is also common for the debtors to have a house that is “under water”, i.e., to owe more on their first mortgage than their house is worth. It is also common for the debtors to have a second mortgage such as a standard mortgage, line of credit or a home equity line of credit. If the first mortgage exceeds the value of the home, it is clear that the second mortgage has no equity in the house to support it, and is fully unsecured.

Once the debtors or their bankruptcy attorney realize the above, the debtors have a choice to make. They can file a Chapter 7 Bankruptcy, assuming that they can pass the means test. If the debtors are eligible for Chapter 7 Bankruptcy, their personal liability under both mortgages can be eliminated. Then, the debtors can decide to pay the first mortgage only. They may also decide to take a calculated risk that the second mortgage holder would try to foreclose on its mortgage. But would the lender actually commence a foreclosure? Initially, unless the second mortgage holder acquires the first mortgage, it would end up with a house subject to a first mortgage that exceeds what the house is worth. That would likely make any such attempted foreclosure a money losing proposition. Also, if the first mortgage holder forecloses, that foreclosure would eliminate the second mortgage.

Another option that the debtors have is to file Chapter 13 Bankruptcy. While Chapter 13 will carry with it a repayment plan that may last as long as 5 years, it also allows for “lien stripping”, otherwise known as “Pond” motion. In Chapter 13 Bankruptcy, the totally unsecured mortgage is wiped away and no longer a lien on the debtors’ home. Then, the second mortgage is treated as unsecured debt that gets repaid in the bankruptcy in accordance with the terms of their repayment plan. According to bankruptcy courts’ decisions, the debtors have to receive a Chapter 13 discharge before the lien is stripped.

Most of the decisions addressing Chapter 7 Bankruptcies hold that the debtors cannot “strip” their fully second unsecured mortgage in a Chapter 7 Bankruptcy case.

One important reason for many debtors to stay in their house after Chapter 7 is that it may cost them less to pay the mortgage than to rent another place to live. The second mortgage becomes a lot less important since the debtors may be able to strip it right away in Chapter 13, and, if economic conditions don’t improve, the debtors might be able to strip it 4 years from the date they filed their chapter 7 case – when they are eligible for a discharge under Chapter 13.

Another option that may be available to some debtors is to have their mortgage recast under the new Home Mortgage Modification Program. In my experience, here in Rochester, lenders are willing to work with debtors to recast their mortgages. Assuming that the debtors have ability to pay their mortgage, and meet other financial requirements, their mortgage may be modified by their lender.

Who Qualifies For Bankruptcy?

Do I qualify to file a bankruptcy? This is one of the most common questions I am asked as a bankruptcy lawyer when I meet with debtors who are hoping to obtain relief from their debts in bankruptcy court. My answer is usually yes, since almost everyone qualifies for bankruptcy under either Chapter 7 or Chapter 13 of the Bankruptcy Code.

I think that this question is often asked because of common myths and misinformation that people hear with regard to what bankruptcy is and what it does for the debtor. Unfortunately, there is much misinformation being passed around. It is rare that someone would not qualify for a filing under either chapter of the Bankruptcy Code. If there are horror stories, they typically arise out of situations where someone did not disclose accurate information to the bankruptcy court.

In order to qualify for a bankruptcy relief, the debtor needs to have a reason to file. The primary reason for most debtors is their inability to pay their debts. Whether or not the debtor owns assets is not a a consideration in qualifying to file for bankruptcy. Under New York’s bankruptcy exemptions, a single filer can protect $50,000 in home equity, $2,400 of equity in the vehicle, and there are other exemptions available for other classes of assets.

There are no minimal requirement as to how much debt a debtor must have before filing, nor does this debt has to be reduced to a specific figure. Also, if you are filing Chapter 13 Bankruptcy, you are not limited with respect to the property that you can own, but the amount of property may be a factor in the amount of payments under the plan. While there are maximum limits of the amount of debt that can be discharged under either Chapter 7 or Chapter 13, the vast majority of debtors will not even approach them. In Chapter 7, there are no maximum debt limits. As a result, that Chapter 7 Bankruptcy is available to the debtors regardless of how much debt they owe, and its availability is only limited by the means test. In Chapter 13, you may not have more than $1,010,650 in secured debt and $336,900 in unsecured debt.

Repaying Debts After the Bankruptcy

Sometimes I am asked by debtors if they can pay their creditors after they received a bankruptcy discharge. My answer to them is that there is nothing in the bankruptcy law that prohibits debtors from voluntarily paying their creditors, either those creditors that are important to you, or all of them. However, for me as a bankruptcy lawyer, it can be a bit difficult to understand since debtors typically file for bankruptcy protection because they cannot afford to pay their creditors. At the same time, I understand that under some circumstances debtors make a deliberate decision to repay someone.

In many different situations, debtors have creditors that are important to them. Those creditors may be family member who have loaned debtors money. Typically, debtors do not want to discharge the debt owed to close relatives. In those situations, my advice is to list the debt but, once the case is over, repay it voluntarily.

Another usual situation is where the debtor may have credit at a small, local store. Since it may be important for the debtor to have that access to such credit, the debtor may choose to pay that debt even after the bankruptcy case is over and the debt is discharged.

From the creditor’s side, once the bankruptcy is filed, the creditor may not contact the debtor to attempt to “persuade” him to “voluntarily” pay the debt. TIf any creditors does this, it would be viewed by the bankruptcy court as an attempt to collect a discharged debt in violation of the discharge injunction.

If the debtor decides to repay a debt after filing for either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, he should be very careful about making payments on a discharged debt. If a creditor were to sue the debtor on a discharged debt in state court, the debtor could raise the fact that the debt was discharged in bankruptcy by raising it as an affirmative defense in state court litigation or he could remove the action to bankruptcy court and allow the bankruptcy court to enforce its discharge injunction. By making payments on a discharged debt, the debtor could create a “waiver” of the bankruptcy discharge on that particular debt.

Upcoming Changes to New York’s Bankruptcy Exemptions

As readers of this blog know, if a debtor is filing for either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy in New York, New York’s bankruptcy exemptions will apply. Unfortunately, those exemptions have not been updated in quite some time and are very limited as far as the values of protected assets is concerned.

There is a bill pending in New York State’s legislature that would substantially change the value of assets that could be protected in bankruptcy by changing the figures included in the Debtor and Creditor Law and CPLR which are the basis of those exemptions.

Specifically, this bill would increase the level of certain exemptions from the satisfaction of a money judgment. In addition to the increases, it would add one computer, one cell phone and one motor vehicle worth up to $4,000 to the list. If such vehicle was equipped for use by a disabled person, the limit would be $10,000. The money judgment exemption for the motor vehicle would not apply if the debt enforced is for child support, spousal support, maintenance or alimony.

It would increase the homestead exemption value of a home under Section 5206 of the CPLR from $50,000 to: $150,000 for the counties of Kings, New York, Queens, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester, and Putnam; $125,000 for the counties of Dutchess, Albany, Columbia, Orange, Saratoga, and Ulster; $75,000 for the remaining counties in the state.

It would also amend Subdivision I of Section 282 of the Debtor and Creditor Law to increase from $2,400 to $4,000 the exemption for one motor vehicle in bankruptcy. If such vehicle was equipped for use by a disabled person, the limit would be $10,000 in bankruptcy. The bill would amend section 283 of the debtor and creditor law to increase the amount of the aggregate individual bankruptcy exemption from $5,000 to $10,000.

The bill would add a new section 285 to the Debtor and Creditor Law to permit debtors to choose either the current federal exemptions or the exemptions in New York Law. The New York State exemptions are listed in Debtor Creditor Law Art 10-A, Sections 282 and 283. Federal exemptions are enumerated in 11 U.S.C. 522(d). It will apply a Cost of Living Adjustment to be published by the New York Banking Department for the applicable exemptions in sections 5205 and 5206 of the CPLR and Section 282 and 283 of the Debtor and Creditor Law.

If those proposed amendments pass into law, the debtors living in Rochester, and Western New York, would be able to protect an additional $25,000 in home equity per filer and also benefit from an increase in the value of vehicle exemption.

More significantly, the debtors will be able to chose between the New York exemptions or the Federal exemption limits. At this time, New York does not allow debtors to make this choice. The ability to utilize federal exemptions will help those debtors who do not own a home more than anything else, because there is a wildcard exemption under Federal Rules. The wildcard exemption, 11 U.S.C. 522(d)(5), typically allows the debtor to exempt a substantial amount of cash, which is presently limited under New York’s exemptions to $2,500.

Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and Immigration Status

Can my bankruptcy filing affect my immigration status? This is a question periodically asked by my clients. The answer to that question is actually depends on the particular circumstances of each case, but here are some of the issues that may be relevant.

There is no immigration law, statute, or regulation that specifically forbids individuals who have filed for bankruptcy from applying for naturalization. Additionally, there is no specific question on Form N-400, Application for Naturalization, related to bankruptcy. However, the debtor’s immigration status can be affected if he has not filed required tax returns or if he owes money to the IRS.

While reviewing immigration-related applications, the INS is usually checking to see if an individual seeking naturalization has evidence of “poor moral character” which could be grounds to deny an application. The filing of a bankruptcy petition as a consequence of financial hardship clearly does not rise to the level of “poor moral character.”

However, if you are facing any type of immigration issue and are about to file for either Chapter 7 or Chapter 13 Bankruptcy, you should disclose that fact to your bankruptcy lawyer at your initial consultation as well as discuss your potential bankruptcy filing with your immigration attorney.

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.