Tag: non-dischargeable

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.

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.

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.

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.

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.

Chapter 7 Bankruptcy and Stripping of Unsecured Second Mortgage

One question that I am often asked is whether the unsecured second or third mortgage on the property owned by the debtor can be stripped in Chapter 7 Bankruptcy.  In Chapter 13 Bankruptcy, the unsecured second mortgage can be stripped by bringing a Ponds motion.

Unfortunately, in Chapter 7 Bankruptcy, the unsecured second or third mortgage cannot be stripped.  In a recent decision which also applies to the bankruptcy cases in Rochester, New York,  In re Grano, the Buffalo Bankruptcy Judge Bucki held that in Chapter 7 Bankruptcy cases, the debtors cannot avoid wholly unsecured second or third mortgages.

Joseph and Ann Grano owned a residence in the Town of Amherst, New York.  After filing a Chapter 7 Bankruptcy petition, they commenced the adversary proceeding against Wells Fargo Bank, N.A., to avoid a second mortgage.  In their complaint, they alleged that their real estate has a current fair market value of $445,000 and that it is encumbered by two mortgages: a first lien with an outstanding principal balance of $511,000, and the second mortgage of Wells Fargo with a balance of $95,837.60.

Granos asserted that they can avoid the second mortgage pursuant to the authority of 11 U.S.C. § 506(a) and (d).  In lieu of an answer, Wells Fargo moved to dismiss the complaint for failure to state a cause of action.  In relevant part, section 506(a)(1) of the Bankruptcy Code states that “[a]n allowed claim of a creditor secured by a lien on property in which the estate has an interest . . . is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property . . . and is an unsecured claim to the extent that the value of such creditor’s interest . . . is less than the amount of such allowed claim.” Asserting that the first mortgage secures a debt greater than the value of the property, the debtors argue that in its status as a second mortgagee, Wells Fargo retains only an unsecured claim.  Subject to exceptions not here present, 11 U.S.C. § 506(d) states that “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.” In reliance upon this later subdivision, the debtors commenced their  adversary proceeding to avoid the second mortgage of Wells Fargo.

In Dewsnup, the Supreme Court accepted the position of the secured creditor, that “the words ‘allowed secured claim’ in §506(d) need not be read as an indivisible term of art defined by reference to § 506(a).”  Instead, the language of section 506(d) “should be read term-by-term to refer to any claim that is, first, allowed, and, second, secured.  Because there is no question that the claim at issue here has been ‘allowed’ pursuant to §502 of the Code and is secured by a lien with recourse to the underlying collateral, it does not come within the scope of §506(d), which voids only liens  corresponding to claims that have not been allowed and secured.” 502 U.S.at 415.  Effectively, therefore, the Supreme Court refused to recognize section 506(d) as a grant of authority to a debtor in Chapter 7 to “strip-down” or cancel the lien of an undersecured mortgage.

In contrast to Chapter 7, debtors in Chapter 13 may assert rights under special statutory provisions for the treatment of secured claims.  Specifically, 11 U.S.C. § 1322(b)(2) provides that a Chapter 13 plan may “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims.” InNobelman v. American Savings Bank, 508 U.S. 324 (1993), the Supreme Court held that the language of section 1322(b)(2) precluded the bifurcation of an undersecured homestead mortgage into secured and unsecured claims. Consequently, to the extent that a homestead has value to collateralize any portion of a mortgage, a chapter 13 plan must treat that lien as fully secured.  However, in In re Pond, 252 F.3d 122 (2001), the Second Circuit distinguished those circumstances where the homestead lacks equity to collateralize any portion of an inferior lien. In this special circumstance, because the lien is wholly unsecured, the debtors “are not ‘holders of . . . a claim secured only by a security interest in . . . the debtor’s principal residence,’ 11 U.S.C. § 1322(b)(2), and their rights in the lien are not protected under the antimodification exception of Section 1322(b)(2).” 252 F.3d at 127.

In the present instance, Mr. and Mrs. Grano contended that this court should adopt for Chapter 7 the same exception that the Second Circuit has recognized for cases in Chapter 13, to the effect of permitting the avoidance of secondary liens that are totally undercollateralized. Unfortunately, this argument overlooks the unique statutory predicate of Chapter 13.  In allowing a debtor in Chapter 13 to avoid a fully unsecured homestead mortgage, the decision in In re Pond utilized the authority of 11 U.S.C. § 1322(b)(2). No parallel provision applies in Chapter 7.  The court concluded that notwithstanding the absence of equity beyond superior liens, the debtors may not avoid the second mortgage of Wells Fargo Bank, N.A.

This decision forces the debtors and their bankruptcy lawyer to engage in a cost benefit analysis in a situation where there is a wholly unsecured second or mortgage.  Assuming the debtors can file either Chapter 7 or Chapter 13 Bankruptcy, the benefit of filing Chapter 7 Bankruptcy and discharging all unsecured debt, should be compared to the benefit of a Chapter 13 Bankruptcy plan payments over 5 years, and a likely discharge of the unsecured second or third mortgage.  Assuming the debtors wish to retain their residence, the comparison of two figures should point them in the right direction.

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, Bad Checks, Discharge and Criminal Liability

A bad check, hot check, NSF check, returned check, rubber check, worthless check, or whatever you want to call it, is a check which the bank will not pay because there is either no such checking account or insufficient funds in the account to pay the check. In Texas, writing a bad check is a misdemeanor or can be a felony depending on the amount of the bad check and the circumstances of the issuance of the check. No matter how nominal you think the check is, you can still get you charged with a crime. If you file for bankruptcy and have hot checks outstanding it might make your bankruptcy case a bit more complicated. For the most part, bad check debt is dischargeable in bankruptcy, but since each case is unique, you should obtain legal advice on your bad checks before filing bankruptcy.
If you live in Houston, Austin, San Antonio, Dallas, or anywhere in the State of Texas and need to file for bankruptcy & have bad checks, contact the Texas Bankruptcy Attorneys at The Law Offices Of R.J.Atkinson for a free initial consultation to determine the best option to deal with your bad checks in bankruptcy.
Keep in mind that every bad check and bankruptcy situation is different, so it is important to obtain legal advice for your particular case. The following are some frequently asked questions about bankruptcy and bad checks.
1. If I file for Bankruptcy, will it stop “Prosecution for my Bad Check?”
No. If the prosecution is by a District Attorney, Attorney General, or any law enforcement authority of the State for a criminal action, then it will not stop prosecution for a bad check. When you file a bankruptcy case, there is a stay against any attempts to collect a debt from you which extends to creditors holding or collecting on Bad Checks, Hot Checks, Dishonored Checks, NSF Checks, Bounced Checks, Worthless Checks, Rubber Checks, or whatever you choose to call them.
When a bankruptcy petition is filed, Bankruptcy Law imposes “the automatic stay” which is an injunction on all collection actions and which prohibit further collection efforts on debts that came about prior to the bankruptcy filing. This “automatic stay” is one of the primary reasons many people file for bankruptcy. Although the “automatic stay” is a very powerful part of Federal Bankruptcy Law, the “automatic stay” does not extend to proceedings by the State or any Federal governmental agency pursuant to its police powers. More specifically, any criminal prosecutions which enforce criminal laws are not subject to the automatic stay of bankruptcy. The Bankruptcy Court treats prosecutions of bad checks as criminal proceedings and not attempts to collect debt as long as the actual purpose of a bad check prosecution is to enforce criminal bad check laws. Since a bad check prosecution isn’t meant to pressure the debtor into paying a debt that could otherwise be discharged in a bankruptcy the automatic stay of bankruptcy will have no effect on bad check prosecutions which enforce criminal law.
2. I have written postdated checks to several payday loan companies over the last year. I have to file for Bankruptcy; can they come after me criminally for the “Bad Checks” or sue me?
No. The payday loan company doesn’t have the authority to charge you with a crime. Only the District attorney, Attorney General, or the State or any Federal governmental agency with police powers can charge you criminally. They can however, make a recommendation to the District attorney, Attorney General, or governmental agency with police powers that criminal charges should be brought against you. Whether or not that happens depends on the particular facts of your case. As for filing suit, they could file a lawsuit against you in the Bankruptcy Court as an “adversary proceeding” if the want to attempt to lift the stay. They would have to file a special motion in the bankruptcy Court to lift the “automatic stay”. In thousands of cases, this law firm has never seen this happen. Whether they file suit this way will depend on the facts of the case, I.E. how much is owed, how they are treated in your bankruptcy, when you wrote the checks, etc…
3. I wrote a postdated check to a payday loan company, if I file bankruptcy can they still deposit the check after I file?
Yes, but if they deposit the check after they receive notice of the bankruptcy filing, it could be construed as a violation of the automatic stay. It’s not uncommon for checks to be processed after a bankruptcy filing. Many auto drafts and other similar ACH debits can still go through if the money is there. You should address your bank accounts accordingly, and if you do file for bankruptcy, it’s important that all of your creditors receive proper notice of the filing. Despite the fact that the automatic stay stops collection actions, your bank account can still be debited and outstanding checks can still go through if creditors aren’t properly noticed. Although you may get the money back at some point if the creditor wrongfully takes the money from you, it will still take some time. Whenever you post date a check you are in essence representing that the check will be good on that date. If you write a post dated check to a payday loan company or anyone for that matter, and then later file for bankruptcy, it will ultimately end up in the bankruptcy court if that debt is included in the bankruptcy.
The bankruptcy court will have to sort through the facts and then consider whether there was an agreement between you and the payday loan company or other party to hold the postdated check. The bankruptcy court will also consider other factors, but primarily, whether or not you ever intended to pay on the postdated check. Obviously if the day or weeks before filing bankruptcy you went on a check writing spree to payday loan companies, knowing that there were no funds in your account and that you would be filing for bankruptcy, then the bankruptcy court could get the impression that you never “intended” to make good on the checks. Generally, it all comes down to intent and representation. If your intent was to make good on a postdated check when you issued it, then it may be difficult for a payday loan company to prove you never intended to pay. This is especially true if you previously had an ongoing relationship, or have gotten caught up in the payday loan cycle for the months or years preceding a bankruptcy filing. The whole payday loan business is predicated on postdated checks, so they have the burden as potential creditors in your bankruptcy case to prove your intent. As for representation, if you misrepresent or fraudulently make statements to induce a party to accept your postdated check, then you could have problems discharging the debt in bankruptcy. Everyone’s situation is unique so it is always good advice to seek competent legal counsel.
4. If I file for Bankruptcy, can I discharge the debts owed for bad checks?
It depends. Every case is different, so the facts of each case will dictate if a bad check will be treated as dischargeable or nondischargeable. Generally, so long as there wasn’t any fraud, false pretenses, or material misrepresentations made or conveyed in the actual writing of the check or checks, then the “debt” component from the bad check(s) is quite often dischargeable. That being stated, going on a bad check writing spree days or weeks before filing for bankruptcy filing could make it difficult to discharge such debt.
The Bankruptcy Code doesn’t allow you discharge and debts incurred or obtained by fraud, misrepresentation, or false pretenses. Where Bad Checks, Hot Checks, Dishonored Checks, NSF Checks, or Bounced Checks are concerned, it depends on the circumstances. Obviously if, for example, you had been doing business with a payday loan company for the 6 months prior to bankruptcy and you didn’t have money in your account for 3 months, then wrote a check for $1000.00, and filed bankruptcy the next week, it would be tough to prove that your actions weren’t fraudulent. Therefore, when an irate creditor comes to bankruptcy court in a chapter 7, 13 or 11 case where the creditor is holding the check issued by the debtor that was dishonored, the expectation may be that the debt is not dischargeable. Unfortunately, debt based on a bad check is not automatically and not even usually held to be non-dischargeable.
To succeed in getting a bankruptcy court to find a bad check debt is non-dischargeable, the creditor has the burden of proof to show fraud or false representation by the debtor.
5. How will the Bankruptcy Court decide if the Bad Checks I include in a Bankruptcy will be discharged?
Since every situation is different, there is no way to determine what the Bankruptcy Court will do to interpret the facts of any issue. However, Bankruptcy Courts have examined various things in prior cases to determine whether a bad check is dischargeable or not. Some of the things the Bankruptcy Courts have examined to determine bad check dischargeability are as follows:
Whether there was an agreement to hold a post-dated check.
The time between delivery of the check and the bankruptcy filing.
Did the person issuing the check obtain legal advice from an attorney about bankruptcy before writing the check.
How many bad checks were written and included in the bankruptcy.
The amount or amounts of the bad checks.
The debtor’s financial condition at delivery of the check.
Whether multiple checks were delivered the same day
Whether the person filing was employed when the bad check was written.
Whether the check was written on a closed account.
The financial sophistication of the debtor.
Whether life necessities or luxury items were purchased.
6. I wrote a hot check for $35.00 to the convenience store. Can they do anything if I file bankruptcy?
Sure they can. They can contact the district attorney and file a criminal complaint against you. However, having handled almost two thousand cases, my clients have rarely had problems with bad checks less than $300. That’s probably due to the length of time and hassle involved with pursuing criminal charges, especially when the person who wrote the bad check just filed bankruptcy. I have seen very angry holders of bad checks occasionally show up at creditors meetings and have received calls from a few district attorneys in other states wanting to work out a payment plans, but not for nominal amounts. Since writing a bad check in any amount is a crime, I advise all on my bankruptcy clients to pay anyone who may be holding a bad check.
7. I have to file Chapter 13 Bankruptcy to stop foreclosure, but I have about $1000.00 in hot checks out. Can I repay the checks in my bankruptcy and avoid criminal charges?
There is no way to know for sure. It may be possible to include repayment for the hot checks in your Chapter 13 Bankruptcy but its up to the district attorney as to whether you will be charged with a crime whether you include it in a Chapter 13 plan or not.
When you file bankruptcy, your creditors, which include any parties holding a bad check, are prevented from taking any attempts to collect from you. The Automatic Stay of bankruptcy automatically stops most legal actions against you, but filing bankruptcy will not stop criminal prosecutions against you. So, if you have written bad checks, the party to whom you wrote a bad check to could request to have you arrested and criminally prosecuted for a bad check. When a person who has written a Bad Check files for bankruptcy under any chapter under the Bankruptcy Code, it will not protect them from criminal prosecution and will not discharge their criminal liability for any restitution, costs and fines associated with the criminal prosecution & restitution.
At The Law Offices Of R.J.Atkinson we generally recommend that if at all possible you should attempt make bad checks good prior to your filing for Bankruptcy in order to avoid criminal prosecution on the checks. It isn’t always possible to take care of a Bad Check prior to filing for Bankruptcy since you may be facing a foreclosure, repossession, or other urgent motivating factor, but when the only option is to file Bankruptcy before taking care of a Bad Check, you should be aware that filing for bankruptcy will not stop criminal prosecution for a Bad Check.
If you have bad checks, hot checks, rubber checks, NSF checks, bounced checks, dishonored checks, or worthless checks and live in Houston, Austin, San Antonio, Dallas, or anywhere in the State of Texas and need to file for bankruptcy, contact the Texas Bankruptcy Attorneys at The Law Offices Of R.J.Atkinson for a free initial consultation. We may be able to help you with the bad checks before you file for bankruptcy and can help you determine how to deal with your bad checks in bankruptcy if the Texas Bankruptcy Means Test provides you are eligible to file.

What happens if prior to filing for bankruptcy, the debtor gives a bad check to someone?  A bad check, Not Sufficient Funds check, or a bounced check, is usually a check which the bank will not pay because there is either no such checking account or there are insufficient funds in the account to pay the check.  In New York, writing a bad check is a misdemeanor, punishable up to 90 days in jail for the first offense.  To be charged criminally for issuing a bad check usually means that the check was issued with knowledge that it would not be paid by the bank.  If you file for bankruptcy and have bad checks outstanding it might make your bankruptcy case more complicated.  For the most part, bad check debts are dischargeable in bankruptcy, but each case is unique.

Sometimes, while the debt may be listed in the bankruptcy petition, the debtor may be charged criminally.  The bankruptcy filing, and the automatic stay associated with it, will not stop a criminal prosecution.  The automatic stay prevents any attempts to collect a debt from you which extends to creditors holding or collecting on that check. Although the automatic stay blocks all collection actions by the creditors, it  does not extend to proceedings by the State or any Federal governmental agency pursuant to its police powers.  More specifically, any criminal prosecutions which enforce criminal laws are not subject to the automatic stay of bankruptcy.  The Bankruptcy Court treats prosecutions of bad checks as criminal proceedings and not attempts to collect debt as long as the actual purpose of a bad check prosecution is to enforce criminal bad check laws.  Since a bad check prosecution isn’t meant to pressure the debtor into paying a debt that could otherwise be discharged in a bankruptcy the automatic stay of bankruptcy will have no effect on bad check prosecutions which enforce criminal law.  If the debtor is found guilty of a crime of passing a bad check, the debtor may be liable for civil restitution, which is not likely to be found dischargeable by the bankruptcy court.

If no criminal charges are filed, the situation becomes clearer.  The debt associated with a bad check is likely to be dischargeable, but its dischargeability will depend on whether there was any fraud, false pretenses, or material misrepresentations made in the actual writing of the check.  If there was no fraud or misrepresentations involved, then the debt from the bad check is usually dischargeable.

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.

Chapter 7 Bankruptcy and Objections to Discharge

You have filed a Chapter 7 bankruptcy.  You and your lawyer went to the meeting of the creditors.  Everything seemed to be in order.  Then your lawyer calls you, and tells you that one of your creditors has filed an adversary proceeding in your Chapter 7 case, objecting to discharge of its debt.  So what exactly is taking place?

If a creditor determines that an objection with respect to discharge of its debt is warranted, the creditor will file an Objection to Discharge of its particular debt.  This filing begins what is known as an adversarial proceeding in the bankruptcy court.  An adversarial proceeding is simply a law suit within the bankruptcy, seeking to declare a particular debt as non-dischargeable.  The debtor responds to the complaint, evidence is gathered and supplied to both sides, and a hearing is held in front of the bankruptcy judge who decides the case.  Here in Rochester, Hon. John C. Ninfo, II, would hear the case.  Typically, neither the bankruptcy trustee nor the U.S. Trustee are involved in the adversarial proceeding.

A creditor may object to the discharge of its debt in a number of different situations.  An unsecured creditor may object using Section 523(a)(2) of the Bankruptcy Code, which contains several different types of non-dischargeable debt.  The debt under that section may not be dischargeable because it is: (1) $500 owing to a single creditor for the purchase of “luxury” goods within 90 days prior to filing of the bankruptcy; (2) $750 owing to a single creditor for a cash advance (i.e. balance transfers are cash advances) obtained within 70 days prior to filing of the bankruptcy; or (3) for money obtained under false pretenses, false representation, or actual fraud.  There are also additional reasons to declare a debt non-dischargeable.

With respect to situations (1) and (2), the applicable rules are known as  as the per-se rules.  That means that the creditor need not prove debtor’s intent (i.e. fraud), and needs to show only that the transactions meet the criteria stated.  Situation (3) means that the debtor made the charges/cash advances knowing that he/she was going to file bankruptcy, or made the charges/cash advances while insolvent and/or could not have had a reasonable expectation to pay back the debt, or made false representations in obtaining credit resulting in the debt he/she is trying to discharge at this time.

If the creditor is successful in having a debt declared non-dischargeable, the debtor will owe that debt until it is paid, with all accumulating interest,  and the debtor can never discharge that debt.

The following is a brief description of procedural issues applicable to the objections.  The complaint must be filed on or before 60 days from the first date set for the creditors meeting (also know as 341 meeting).  Typically, a creditor has less than 90 days after receiving notice of the bankruptcy case to file a complaint.  A creditor must act promptly to determine there are grounds to object to discharge.

Even if a creditor files an objection to discharge of its debt, the rest of the bankruptcy will proceed normally.  The debtor will recieve the discharge on time, and most of the time, the discharge will be received before the hearing in the adversarial proceeding.

Once the adversarial proceeding is filed, the debtor has a number of options with respect to the creditor’s claim.  The debtor can agree to repay all or a portion of the debt by signing a reaffirmation agreement.  A typical reaffirmation agreement results in the debtor paying 50% of the debt over 12-18 months.  The next option is fighting the objection.  The debtor will have to be able to either fight the objection on his/her own or pay an additional retainer to the attorney to fight the claim.

The way that a creditor proves its case, is by showing to the court that the debtor was in financial distress at the time the objectionable transactions were made.  Therefore, the debtor’s financial history will be disclosed through the discovery process, usually for a period of 12 months prior to the challenged transaction, and from the date of the transaction to the date of filing.  Since an adversarial proceeding is a civil matter, both parties may call witnesses, and the debtor may be called to testify by either side.  A creditor’s theory of the case in an adversarial proceeding is usually that no reasonable person could have expected to be able to pay off the debt, at the time that debt was taken out.

If the creditor wins, a judgment is entered, declaring the debt non-dischargable.  This judgment can ultimately be used in New York State court, or elsewhere, to obtain a  money judgment that can then be used to garnish wages, restrain bank accounts or conduct other collection activities.  That judgment will not be dischargeable in any subsequent bankrupcies and can only be extinguished by payment or by New York’s statute of limitations, presently 20 years.  Even if the creditor prevails, the debtor is not responsible for the creditor’s attorney’s fees and costs.

If the debtor wins, the debt is discharged, and, under appropriate circumstances, the creditor will have to pay debtor’s attorney’s fees and costs.

Thus, if an adversarial proceeding is brought, the debtor must choose between either settling or fighting.  The cost to defend an adversarial proceding is usually substantial.  Therefore, it should be compared to the cost of settling the case.  If the proposed settlement reduces the debt and the payments are affordable, especially if the settlement amount is less than the cost to defend, the debtor should consider settlement.

If you are dealing with debt problems in 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.