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

Another Update on Discharge of Student Loans – The Challenge of Obtaining a Discharge

I wrote in 2020 about a bankruptcy case, In Re Rosenberg, where the court discharged $221,000 in student loans that were accumulated by a law school graduate. At the time, I had substantial doubts that the decision would be upheld on the inevitable appeal.

As I anticipated, the bankruptcy court’s decision was reversed by the district court.

U.S. District Judge Philip M. Halpern of the Southern District of New York said that the bankruptcy court should not have granted summary judgment to the debtor because he has not yet submitted sufficient evidence that repaying the loan would constitute an undue hardship.

Halpern said in his decision that he was expressing no opinion on whether the student loan at issue, totaling approximately $221,000, is dischargeable in bankruptcy. Halpern said that during the prior proceedings Rosenberg had not submitted enough evidence to satisfy the three-part test, known as the Brunner test.

The Brunner test goes through a three step analysis: (1) whether the debtor can maintain a minimal standard of living if forced to repay the loans; (2) whether an inability to maintain the minimal standard is likely to persist for a significant portion of the repayment period; and (3)whether the debtor had made a good faith effort to repay the loans.

Judge Halpern considered creditor’s allegations that Rosenberg’s inability to repay his student loan was “a monster of his own making,” as alleged by the Educational Credit Management Corp., which holds the debtor’s student loans.

While Rosenberg had obtained a law degree, he worked as an attorney only minimally, getting fired after a few months. He did some contract legal work on a sporadic basis, subsequently placing his law license in “retired status.”

When contract legal work ended in 2008, Rosenberg started an outdoor recreation company, sold it and then started a similar company. The new company offers outdoor guided tours.

Before starting the new company, Rosenberg moved out of his Brooklyn, New York, studio apartment and leased a house in Beacon, New York. The Beacon lease was $2,150 per month, a $700 increase from his rent in Brooklyn.

Rosenberg defaulted on the student debt after periods of deferment and forbearance. He had repaid less than $3,000 of the debt.

In support of his motion for summary judgment, Rosenberg submitted a vocational evaluation report that said he could work as a legal assistant or a paralegal, at an annual salary of $42,000 to $120,000; as a retail store manager, at an annual salary of $45,000 to $100,000; and in other customer service or sales roles at an annual salary of $36,000 to $50,000. He has also claimed that he had physical limitations as a result of prior injuries.

Judge Halpern said Rosenberg had not presented any admissible evidence establishing the severity of his injuries and the impact on his ability to work. He also noted that Rosenberg was earning about $1,500 less than needed to meet his current expenses of about $4,000 per month, which include rent of $2,150 per month.

Rosenberg “offers no substantive explanation as to why his expenses are necessary to maintain a minimal standard of living and points to no admissible evidence supporting his conclusory argument that they are, indeed, necessary,” Halpern said.

Nor was it clear whether Rosenberg made a good faith effort to repay the loan. According to the court, the debtor “presumably made enough money to move out of New York City and rent a two-bedroom house—and ultimately made less than $3,000 in payments on a debt that ballooned from an initial balance of $116,465 to over $220,000.”

According to the decision, “[t]hese considerations are compounded by plaintiff’s apparent decision to abandon his career in law (i.e., he field for which he assumed the debt in the first place), his admission that he filed the Chapter 7 proceeding with the purpose of discharging the presumptively nondischargable student loan, and his representation that he has no interest in rehabilitating the debt through a repayment program. … This constellation of evidence certainly suggests a lack of good faith and that plaintiff has, indeed, placed himself in this predicament”.

Given that the district court remanded the case back to the bankruptcy court, it is likely that it will be tried at some point in the future.

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, Henrietta, 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.

What Happens to My Bankruptcy Case During the Coronavirus Pandemic?

As a result of the COVID-19 (“Coronavirus”) pandemic, bankruptcy court implemented significant changes to its procedures in order to protect the health and safety of individuals.

Federal courts, including bankruptcy courts, have continued to operate subject to significant limitations. Here in Western New York, most of the proceedings, primarily motions and conferences, are being handled via telephone and/or video conferencing. Since bankruptcy relies on electronic filing, new Chapter 7 and Chapter 13 bankruptcy cases can still be filed.

All in-person Chapter 7, 12, and 13 section 341 meetings (meetings of the creditors) scheduled through October 31, 2020, have been continued until a later date to be determined. Section 341 meetings may not proceed during this period except through telephonic or other alternative means not requiring personal appearance by debtors. Appropriate notice will be provided to attorneys and parties in accordance with bankruptcy law and rules for any telephonic meetings scheduled during this period. Confirmation hearings for Chapter 13 cases are also being held telephonically.

I will continue to update this post with new information as it becomes available.

Are Pension or 401k Loans Dischargeable?

A significant percentage of retirement plans, like pensions or 401k plans, allow you to borrow money from individual accounts in case of need. One of the most common situations is debtors borrowing money from their retirement accounts to try to pay back their debts. Unfortunately, if these debtors decide to file bankruptcy, the pension or 401K loans they took out will not be dischargeable in Chapter 7. Further, if a bankruptcy was filed, these retirement accounts could have been protected in their entirety since retirement accounts are fully exempt under either federal or New York exemptions in either Chapter 7 or Chapter 13 bankruptcy.

Bankruptcy court views loans from retirement accounts differently than a credit card, a car loan or a mortgage. When you borrow from your retirement account, you are essentially borrowing from yourself, and as result, the loan is not considered dischargeable in Chapter 7 bankruptcy. However, these loans can possibly be included in a Chapter 13 bankruptcy repayment plan, and any amount not repaid at the completion of the 3-5 year plan will typically be discharged. If you have already taken a loan against a pension or 401k account, then Chapter 13 might be the best option, depending on other factors. For many debtors, a pension or 401k account are their biggest assets that should be protected and a bankruptcy filing prior to borrowing money from those accounts would do that.

While borrowing from retirement funds is often seen as a last resort, it should not be. There could be a good reason to borrow against a retirement account in a healthy financial situation, but as a desperate effort to pay bills, borrowing from a pension or 401K will do more harm than good. Realize that if you are considering taking a loan against a retirement account that you have already reached the last straw. Discussing your bankruptcy options should really be the next step.

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.

Update on Discharge of Student Loans – $221,000 in Student Loans Discharged

One of the more difficult problems associated with bankruptcy has been discharge of student loans. A recent decision by Chief Judge Cecelia Morris of U.S. Bankruptcy Court for the Southern District of New York, In re: Kevin Jared Rosenberg, enabled law grad Kevin Jared Rosenberg to discharge the $221,000 loan debt he acquired as an undergraduate at the University of Arizona and later at the Cardozo School of Law. The win by Rosenberg, who represented himself in the matter, is surprising in view of the common belief that student loan debt is all but impossible to discharge in bankruptcy.

What made this case different is how the bankruptcy judge applied “Brunner test”—which lays out the three criteria student loan borrowers must meet to demonstrate that repaying their loans poses an undue hardship—that has caught the attention of the bankruptcy law world. Morris’ opinion includes a strongly worded rebuke of how judges have traditionally applied the Brunner test, saying they have made it more onerous on borrowers than it was intended to be. “Over the past 32 years, many cases have pinned on Brunner punitive standards that are not contained therein,” Morris wrote. “Those retributive dicta were then applied and reapplied so frequently in the context of Brunner that they have subsumed the actual language of the Brunner test. They have become a quasi-standard of mythic proportions so much so that most people (bankruptcy professionals as well as lay individuals) believe it impossible to discharge student loans.”

Judge Morris’ application of the second two prongs of the test in the Rosenberg case are surprising. Rosenberg claimed in his bankruptcy petition that his annual income as an outdoor guide is $37,000 and that he has a negative monthly outlay of $1,500. But the court did not consider any potential increase in his earnings on the grounds that the entirety of his $221,000 loan balance is due because he went into default. Judges usually take a 10 or 25-year view of earnings based on the length of the repayment plan. What makes this decision particularly interesting is that Judge Morris declined to use Rosenberg’s decision not to pursue a legal career, as evidence that he has not made a good faith effort to repay his loans. In finding that Rosenberg made a good faith effort to repay his loans, Judge Morris credits him with making about 40% of his required loan payments, even though he was only required to make 26 payments over the course of 13 years due to securing multiple loan deferrals.

But whether Rosenberg’s case will be followed by other bankruptcy courts, including here in Western New York, is uncertain and will largely depend on whether Judge Morris’ decision is upheld on appeal. If the district court for the Southern District of New York, and subsequently U.S. Court of Appeals for the Second Circuit, uphold it, that would make it more likely that more borrowers will see their loans discharged.

Health Savings Accounts, Flexible Spending Accounts and Bankruptcy

In the last few years, especially since Affordable Care Act became law, Health Savings Account (“HSA”) or Flexible Spending Account (“FSA”) became a lot more popular as consumers are dealing with ever rising costs of health care. However, a debtor’s funds held in an HSA or FSA do not appear to be exempt under either New York state exemption law or Section 522 of the Bankruptcy Code. This means that a bankruptcy trustee may pursue debtor’s Health Savings Account or Flexible Spending Account, unless those funds are otherwise exempt.

A Health Savings Account is a tax-exempt account funded by a debtor, his employer or both, to be used to pay the debtor’s medical expenses that are not covered by health insurance such as co-pays or deductibles. The debtor owns the account, and, if debtor changes jobs, can be moved elsewhere. In addition, the funds can accumulate over time and do not have to be used at any particular time. When funds from a Health Savings Account are used to pay medical expenses, it is not treated as income to the debtor.

New York does not provide a specific exemption statute for a Health Savings Account. The most common argument for exemption is that a Health Savings Account is similar to a retirement fund and therefore is exempt for the same reasons that retirement funds are. However, in New York a “retirement fund” is exempt only if “qualified” for tax-exempt status under Internal Revenue Code (“IRC”) sections 401, 402, 403, 408, 408A, 414, 457 or 501(a). Since the tax status of a Health Savings Account is governed by IRC § 223(d), this argument fails. Another argument is that a Health Savings Account is similar to a health aid, and should be exempt for that reason. However, the list of health aids exempt in New York is a very narrow one covering essentially prosthetics and guide dogs, and HSA’s do not appear on the statutory list. If a New York debtor does not claim a homestead exemption, the state “wild card” exemption of $1,000.00 can be applied to protect an HSA, but any funds above that $1,000.00 figure would be available for the Chapter 7 Trustee.

Similarly, there is no specific exemption to claim Health Savings Accounts under federal bankruptcy law. Since a Health Savings Account is not created “on account of illness, disability, death, age or length of service”, and its tax-exempt status is not derived from IRC sections 401, 402, 403, 408, 408A, 414, 457 or 501(a), it is not exempt as a retirement fund. Further, only “professionally prescribed health aids” are exempt under the federal scheme. A fund established by the debtor to pay non-insured medical expenses would not be deemed “prescribed” by a medical professional, so an HSA is not exempt under this section either. If the debtor has it available, federal “wild card” exemption can be used to exempt up $12,725.00 in any asset, including an HSA. Any funds above the “wild card” exemption figure would also be available for the Chapter 7 Trustee.

A Flexible Spending Account (“FSA”) is a tax-deferred savings account established by an employer to pay a debtor’s medical expenses not paid by insurance. Money withdrawn from an FSA to pay for a debtor’s qualified medical-related expenses is also tax-free. Unlike an HSA, funds in an FSA are forfeited to the employer if not used in the benefit year. It appears that a Flexible Spending Account would be treated in bankruptcy court similarly to Flexible Spending Accounts.

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.

Making a Choice Between Bankruptcy and Short Sale

Homeowners who are underwater on their home mortgages (underwater mortgage means that the homeowner owes more than his/her house is worth) often attempt to do a short sale. A short sale occurs when the homeowner sells the home to a third party for less than what is owed on the note, and the mortgage lender accepts the proceeds of the sale in full satisfaction of the note. The mortgage lender must approve the short sale before it can go through. A short sale can be a good option for homeowners who do not want to keep their homes, and are willing to move out almost right away.

However, before going through with a short sale, a homeowner should see if Chapter 7 Bankruptcy would be a better option. In a Chapter 7 Bankruptcy, the homeowner’s liability on the note is discharged and the home does not have to be surrendered right away and the homeowner does not have to immediately move out of the house. The homeowner can continue to live in the house without making any payments while the lender goes through the lengthy process of foreclosure. In New York, foreclosures can take years before the mortgage lender can hold a foreclosure sale. Even after the house is sold at foreclosure sale, the new buyer (which is often the mortgage lender itself) has to start eviction proceedings to evict the homeowner from the home. This may give the homeowner time to save up money for a move or a new home. Any shortfall that may result from the sale of the house is eliminated in the bankruptcy, meaning the homeowner owes the mortgage lender nothing when they move.

A final, and highly significant, difference between Chapter 7 Bankruptcy and short sale is tax advantages of a bankruptcy filing. When a mortgage lender accepts a short sale, the homeowner will have to pay taxes on the amount forgiven by the lender. Under the tax code, debt forgiveness is considered income and the mortgage lender will generally send the homeowner IRS Form 1009-C form for it. The homeowner will have to report it as income on his/her tax return. As a result, the amount of forgiven debt will be added to the homeowner’s income as miscellaneous income, and while not subject to self-employment or social security tax, it will be subject to income taxes. If the amount of the forgiven debt is significant, the debtor may face an unexpected tax liability amounting to thousands of dollars. In a Chapter 7 Bankruptcy, there is no tax liability for the debt that is eliminated as a result of the filing.

Deed in lieu of foreclosure is similar to a short sale. The main difference is that unlike short sale where the property is transferred to a third party, in deed in lieu of foreclosure, the property is transferred directly to the lender. It has tax consequences identical to those of a short sale.

Short sales and Chapter 7 Bankruptcies are both good options for homeowners who want to walk away for their homes and their mortgages. When your home is underwater and you are considering a short sale, it is important to talk to an experienced bankruptcy lawyer first. That way you can review your options and make an informed decision.

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.

Can Debtor Keep a Credit Card After Filing Bankruptcy

I am often asked if debtor can keep a credit card after the bankruptcy is filed, especially if the credit card does not have a balance. Generally, debtors are always interested in trying to keep a credit card after the bankruptcy is filed whether as a means of having credit for emergencies or renting a car or hotel room.

My answer to these questions as follows. Initially, the debtor is required to disclose to the bankruptcy court everyone the debtor owes money to. So, if there is money owed to a credit card issuer, this debt would have to be disclosed and listed in the petition, and, ultimately, discharged.

If the card does not have a balance, it does not need to be listed. However, that card is still going to be closed by the issuer after the bankruptcy is filed, both for Chapter 7 and Chapter 13 bankruptcy cases. Essentially all credit card issuers subscribe to an automatic monitoring service such as AACER or one of AACER’s competitor. Those services will notify the bank even if a particular credit card is not listed in the petition.

In my experience, in nearly every case, all credit cards will be cancelled within days of the bankruptcy filing. Thus, it makes no difference if the card with zero balance is listed, but I usually list it anyway.

Once the debtor completes his or her Chapter 7 bankruptcy, the debtor is likely to be able to obtain new credit cards within 1 to 2 years after receiving the discharge. At the same time, my advice to the debtors is not to open new credit cards or if a credit card is necessary, to open one with a low credit limit or a secured credit card. There is always a risk that debtor will become overextended once again, and it is prudent to avoid it.

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.

Timeline of Chapter 7 Bankruptcy Case

Typical debtor(s)’s Chapter 7 bankruptcy case begins once a Petition is filed with the Bankruptcy Court. If the debtors are married, they may file a joint Petition. Debtor’s petition includes schedules listing assets, creditors, income, expenses, executory contracts, leases, and co-debtors. The Schedules are customarily filed along with the Petition. The Declaration Regarding Payment Advices and Credit Counseling Certificate are also usually filed along with the Petition. The filing fee is paid at the time of filing.

After filing Chapter 7 Bankruptcy, the following events take place.

Immediately:

Automatic Stay Order will be issued which prohibits creditors from sending you letters, calling you, or taking any additional collection and/or legal action against debtor(s). Garnishments on bank accounts and paychecks must stop.

Bankruptcy Trustee will be assigned to your bankruptcy case and Meeting of Creditors will be scheduled.

The date to complete Financial Management Course is scheduled.

Approximately 15 days after bankruptcy case filing:

The Bankruptcy Clerk will mail debtor(s) and creditors the Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadlines, which provides the date set for your meeting of creditors and other important deadlines.

Within 30 days of bankruptcy case filing:

Statement of Intention must be filed, informing the court if debtor(s) plan to keep any collateral property or if you intend to submit it to your creditors. The Statement of Intention is usually filed along with the Petition, but debtor(s) can change his/her position on these issues.

14 days before 341 Meeting:

Debtor(s) most recent tax returns, paystubs, real estate documents, vehicle related documents, and other financial information are due to the Trustee 14 days before the date first set for the 341 meeting.

Approximately 4 weeks after bankruptcy case filing:

Meeting of Creditors, often referred to at a 341 meeting, will be held.

30 days after your 341 Meeting:

Deadline for the Bankruptcy Trustee or your creditors to object to your exemption claims.

Debtor(s) must perform his/her intentions as stated in the Statement of Intentions. Debtor(s) will need to surrender the property, reaffirm the debt, or redeem property for the allowed secured claim.

45 days after 341 Meeting:

Debtor(s) must have completed his/her Financial Management Education Course and filed a certificate of completion within 45 days of the first date set for the 341 meeting.

60 days after 341 Meeting:

Creditors must object to discharge of debts that were obtained by false pretenses, a false representation, or actual fraud; debt from fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny; and debt for willful and malicious injury. This deadline applies to objections to discharge of: consumer debts owed to a single creditor of more than $500 for luxury goods or services obtained within 90 days before a Chapter 7 bankruptcy. Creditors must also object within 60 days of the original 341 date for debts involving misconduct including transfer, destruction or concealment of property; concealment, destruction, falsification or failure to keep financial records; making false statements; withholding information; failing to explain losses; failure to respond to material questions; having received a discharge in a prior bankruptcy case filed within the last 6 years.

Trustee must determine if debtor(s) bankruptcy case should be dismissed due to abuse or debts discharged.

Reaffirmation agreements, if relevant, must be filed with the court.

More than 60 days after 341 Meeting:

Debtor(s)’s discharge will be filed by the Bankruptcy Clerk. However, at this point in time, the discharge is not absolute or final. The trustee can ask that the discharge be set aside if the debtor does not turn over non-exempt property, if the debtor fails to perform other duties, or if there were other matters pending which would result in the denial of the discharge.

90 days after 341 meeting:

All creditors (except for government entities) must file their proofs of claim if they wish to share in the payments from debtor(s)’s bankruptcy case if any assets are available for liquidation.

180 days after bankruptcy case was filed:

Government agencies or units must file a proof of claim within 180 days of the bankruptcy case filing.

Debtor(s) no longer risk losing property acquired or become entitled to after the bankruptcy case is filed as a result of inheritance, bequest, devise, property settlements involving divorce, or beneficiary on life insurance. Any inheritance that debtor(s) become entitled to after the bankruptcy case is filed is at risk of being liquidated by the Trustee if debtor(s) become entitled to it within 180 days of filing.

Final Decree will be entered by the Court officially closing the bankruptcy case. The Final Decree is often received near the time of the Discharge if your bankruptcy case is a no-asset bankruptcy case. If the Trustee is liquidating non-exempt assets, the bankruptcy case will remain open to allow the Trustee to distribute the funds to creditors and file a final report.

The above represents a typical timeline for a Chapter 7 Bankruptcy case.

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.

Changes to the Bankruptcy Means Test as of May 15, 2015

Once again, the means test figures for median income are being changed as of May 15, 2015. 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 May 14, 2015, a single debtor in New York could have $48,840 in income in income and still be able to file Chapter 7 Bankruptcy. Starting May 15, 2015, that figure has been increased to $49,632. 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 *

$48,840 $60,743 $71,706 $88,156

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$49,632 $61,728 $72,869 $89,586

* Add $8,100 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 slight growth in the earnings of an average American family. Since the economy is struggling to recover,employees wages having been increasing slowly. As a result, the American median family income has grown only slightly, and means test figures increased only moderately.

It should be noted that even if the debtor’s income exceeds the means test figures, debtor may still qualify for Chapter 7 bankruptcy after all allowable expenses are taken into account.

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.

Reinstatement of Dismissed Chapter 13 Bankruptcy

In a recent decision, In re Trine, Bk. 13-21520 (W.D.N.Y. 2015), the Bankruptcy Court for the Western District of New York held that once dismissed, a Chapter 13 Bankruptcy case cannot be reopened absent “extraordinary circumstances”. The failure of the debtor and her attorney to respond to the letters from the court and motions does not meet “extraordinary circumstances” standard.

In Trine, the debtor made a motion to reopen a Chapter 13 Bankruptcy Case that had been dismissed two months earlier. The reason for the motion was debtor’s failure to make payments pursuant to the terms of the plan.

In most Rochester Chapter 13 Bankruptcy cases, plan payments are deducted from the debtor’s wages pursuant to the order of the bankruptcy court. A Chapter 13 Bankruptcy debtor is obligated to start plan payments within 30 days of filing the plan whether or not the employer has started to deduct payments from wages. In Rochester, the debtors are typically informed by their attorneys as well as Chapter 13 Bankruptcy Trustee when plan payments must start, and are given specific instructions as to how to make these payment, in what amounts, and where to send them.

For reasons that are unclear, the debtor in Trine did not make any plan payments during the first three months of the case. Subsequently, the Chapter 13 Trustee sent the debtor and her attorney a letter stating that the plan payments were in default, and requesting that the debtor or attorney respond withing 10 days, that if they failed to respond a motion to dismiss the case would follow, and that if the case was dismissed the creditors would be immediately notified of the dismissal. The trustee stated he would be willing to accept an arrangement where the default could be cured over a period of time.

Neither debtor nor her attorney responded to the letter. Subsequently, the Chapter 13 Bankruptcy Trustee brought a motion to dismiss. After several court appearances, the court gave to the debtor an additional three months to bring the plan current. When that time expired and the plan was still in arrears, the Chapter 13 Bankruptcy Trustee filed a report that the payments had not been brought current and the court entered an order dismissing the case.

Once the case was dismissed, one of the creditor’s repossessed the debtor’s car. Only after the car was repossessed, the debtor’s attorney made a motion, asking for the dismissal to be vacated and the case reinstated so that the car could be returned to the debtor. The Chapter 13 Bankruptcy Trustee opposed the motion, and the court denied it.

The debtor in this case relied on the ‘catch-all’ grounds of Rule 60(b)(6) of the Federal Rules of Civil Procedure, which allows relief from a judgment or order for “any other reason that justifies relief.” Case law interpreting Rule 60(b) states that relief will only be granted by the existence of “extraordinary circumstances”. Judge Warren stated in his decision that this provision “does not provide the easy procedural do-over frequently envisioned by litigants appearing before this court”. The court found that since neither the debtor nor the attorney responded to the default letter or the motion to dismiss, and did not appear at the hearings, the debtor did not present any extraordinary circumstances that would justify the reopening of the case.

Once the debtor received the first letter from the Chapter 13 Bankruptcy Trustee, she should have immediately contacted her attorney as well as Trustee to find out why the payments were not being made. Further, if the debtor receives a notice of hearing from the Bankruptcy Court, that notice should not be ignored.

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.