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

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.

Banking After Bankruptcy

Most debtors are concerned about being able to open bank accounts after completing their bankruptcy and receiving their discharge. While most debtors will not have any difficulty opening new bank accounts, some debtors are unable to open a checking account after receiving their bankruptcy discharge. Typically, this is true for the debtors who have had a problematic history with their bank, involving bounced checks or excessive overdraft activity. As a result this negative information was reported to a check reporting company known as Chex Systems. Such negative information remains in this database service for five (5) years and is readily accessed and utilized by its members (usually financial institutions) in making decisions about who will be allowed to open new checking account.

While the debtors will not be removed from Chex Systems just because their debt to the bank was discharged in bankruptcy, as it is not required to remove a previously submitted, accurate report. However, Chex Systems is credit reporting agencies just like Equifax, Experian and Trans Union, and as such are required to follow the Fair Credit Reporting Act (“FCRA”) and other laws. The banks reporting to Chex Systems are required to regularly update their consumer reports with accurate information. Accordingly, when the debt that formed the basis of their negative report is discharged in bankruptcy, the member bank must report the account as “$0.00 balance due, discharged in bankruptcy”, or something similar. If this is not done, there is a dispute procedure that is very similar to the procedure employed to fix a credit report that is includes inaccurate, post-bankruptcy entries:

Step 1: Order a copy of your consumer report from Chex Systems, whose mailing address for disputes is: 7805 Hudson Road, Suite 100, Woodbury, MN 55125.

Step 2: Review the Chex Systems consumer report for accuracy, making sure that each discharged debt is reported as “$0.00 balance due, discharged in bankruptcy”.

Step 3: If an inaccurate entry is noted, you should send to Chex Systems, preferably by certified mail:

A copy of the Chex Systems report, with the inaccurate information highlighted or flagged in some fashion;

A copy of your bankruptcy discharge;

A copy of Schedules “D”, “E” and “F” from your bankruptcy petition;

A letter explaining that the disputed item is no longer accurate, and that it should be reported as “$0.00 balance due, discharged in bankruptcy”.

Step 4: Chex Systems will have 30 days to investigate the dispute. During this time the FCRA requires it to contact the member bank to verify that the account now has a $0.00 balance due because of the bankruptcy Discharge.

Assuming that Chex Systems and the member bank follow the law, the above steps should result in the previously reported negative information either being deleted or corrected so that it no longer acts as an impediment to the debtor opening a checking account.

In order to prevent this type of a problem, prior to an actual bankruptcy filing I advise my clients to open a checking account in a bank where they do not owe any money. Debtors will be able to use this new account after their bankruptcy filing without any difficulty.

Executory Contracts and Leases in Bankruptcy

In Chapter 7 and Chapter 13 Bankruptcy cases, debtors have an opportunity to either continue or terminate any executory contracts or leases. That typically means that debtors will list their executory contracts and unexpired leases on the bankruptcy petition and declare their intention to either to accept or to reject those contracts. If such contracts are not timely assumed, they are deemed rejected, and debtors are released from further performance under those contracts.

An executory contract is an agreement that has not been completed. A contract is an agreement between two or more parties to perform certain specified actions. Once the parties complete all contractual obligations the contract becomes fully executed and the parties to that contract have no further obligation to act under that contract. An example of an executory contract is an agreement to sell property in which the buyer and seller agree to perform certain actions including inspecting the property, making certain repairs, obtaining financing, transferring title, delivering possession and making payment. Until all contractual requirements are met, the contract remains open to be executed. One example of an executory contract that is very common is cell phone contracts. Cell phone contracts are executory contracts during the typical two-year contract period. By including the cell phone provider as a creditor in the bankruptcy petition, the contract is automatically terminated, and any early cancellation penalty becomes a dischargeable debt just like any other unsecured debt.

An unexpired lease is a form of contract for the use of certain specified real or personal property that has a specified length of time remaining on the length of the contract. An example of an unexpired lease is a rental agreement for the use of a car or a house where the owner agrees to provide the property to the lessee for a set number of months or years and the lessee agrees to make payments for using that property. For bankruptcy purposes, a timeshare falls into this category.

When a debtor files for bankruptcy, debtor required to list those executory contracts on the bankruptcy schedules because under Section 365 of the U.S. Bankruptcy Code, the trustee is given the power to assume or reject any executory contract or unexpired lease. In other words, bankruptcy trustee can, if he or she chooses, take over the obligation or let it lapse. If the debtor is in Chapter 7 bankruptcy, the trustee gets 60 days to accept or reject an executory contract. A failure to do so leads to an automatic rejection. In Chapter 13 bankruptcy, the trustee may usually assume or reject an executory contract or unexpired lease of residential real property or of personal property at any time before the confirmation of the Chapter 13 Plan.

Bankruptcy code section 11 U.S.C. 365 requires that the debtor assume an executory contract or unexpired lease in a Chapter 7 Bankruptcy within 60 days of filing the case; and in all other chapters of bankruptcy before confirmation of a plan. The court may extend the time to assume such agreements for cause. In the case of non-residential real estate agreements, the time to act is extended to 120 days or longer by court order.

Depending on the situation, the debtor may either assume to reject any executory contract. This decision generally depends on the existing financial circumstances.

Chapter 13 Bankruptcy, Co-Debtors and Automatic Stay

I am often asked if automatic stay in bankruptcy will protect debtor’s cosigner, otherwise known as co-debtors, from creditors. The answer to that question depends on a number of factors and the type of bankruptcy filed.

Typically, cosigner liability comes into being after debtor’s friend or relative was asked to cosign a loan, so that debtor could obtain credit. If the debtor is forced to file a bankruptcy sometime thereafter, the following is likely to occur.

In order for the automatic stay provided by 11 U.S.C. §1301 to protect the co-debtor, the debtor must file a Chapter 13 Bankruptcy. Further, the debt filed on must be a “consumer” debt. To be a consumer debt, the debt must have been for the personal, household or family use of the person you cosigned for. If the loan cosigned for was to obtain money for a business, there is no protection for the cosigner. Further, even if the debtor is paying this bill in their Chapter 13 bankruptcy plan, the creditor can still collect from the cosigner.

Further, the law specifically refers to co-debtors who are “individuals,” meaning people. So, if the co-debtor is a business entity, such as a corporation or LLC, the automatic stay does not protect the co-debtor. This can be important where an individual business owner is filing Chapter 13 Bankruptcy, but their business is not filing for bankruptcy protection.

Even if the debtor files a Chapter 13 Bankruptcy, the plan must adequately protect the creditor. “Adequate protection” in most cases means that, in most cases, that particluar creditor must be paid in full. If the plan does not pay the debt in full, then the creditor can ask the court to lift the automatic stay. Once the stay is lifted, the creditor can pursue the cosigner for the unpaid amount. The co-debtor is protected during the life of the bankruptcy, but once the bankruptcy is over, the co-debtor remains liable for the unpaid debt. For example, if the bankruptcy payment plan pays 25% of the debt, the co-debtor remains liable for the other 75% of the debt. For this reason, some bankruptcy payment plans provide for payment of joint debts in full in order to protect the co-debtor after the bankruptcy case is over.

A co-debtor stay is only available in a Chapter 13 Bankruptcy case. If the debtor files a Chapter 7 Bankruptcy, the automatic stay will not apply and once the debtor receives a discharge, the cosigner will be liable for the entire unpaid balance. Further, because of the discharge, cosigner will not be able to receive any money from the debtor. The co-debtor stay lifts at the end of the bankruptcy case, or when the case is dismissed, or when the case is converted to Chapter 7 bankruptcy or Chapter 11 Bankruptcy. After the stay is lifted, the creditor may pursue the co-debtor for payment of any unpaid portion of the debt.

If a creditor knowingly violates the automatic stay protecting the co-debtor, the Bankruptcy Court may hold the creditor in contempt of court, just as if the creditor had violated the automatic stay protecting the debtor. The Court may fine against the creditor and may award money damages to the injured party. Furthermore, any collections actions taken by a creditor in violation of the co-debtor stay are void and unenforceable.

Thus, it is usually a bad idea to cosign any debts. While the debtor may have every intention to pay the debt at the time it is incurred, this may not be true in the future. Co-signer has no control over repayment and oftern enough does not not know when the debtor defaults. Further, any late payments or missed payments will be reported on cosigner’s credit.

Fraudulent Conveyances and Bankruptcy

One of the issues that represents a significant problems for bankruptcy attorneys is that of fraudulent conveyances. Generally, a fraudulent conveyance is a transfer of money or property from a debtor to someone or something else when either (1) the debtor intends to defraud creditors, or (2) the debtor received less than a reasonably equivalent value in exchange for the transfer, and made it while insolvent. For example, if a husband transfers his house out of his name to the wife so his creditors wouldn’t get it, the transfer is a fraudulent conveyance. Such transfers can create quite a few problems in bankruptcy.

The limitations period for avoidance of fraudulent conveyances has changed over the years, but currently it is two years under the Bankruptcy Code (Section 548) and whatever longer period is available under state law (Section 544). Since I practice in New York, I will use its laws as an example. New York has a six-year statute of limitations for avoidance of fraudulent conveyances.

Earlier this year, in In re Panepinto, Case No. 12-11230 (W.D.N.Y. 2013), Judge Kaplan of the Bankruptcy Court, Western District of New York, found that a transfer of a house to the debtor’s spouse 4 years prior to the bankruptcy filing was a fraudulent conveyance. In 2008, a judgment creditor was seeking to collect on a debt owed by Mrs. Panepinto, who owned a house with no mortgages or other liens encumbering the property. So, to thwart her judgment creditor, she transferred the house to her husband with no consideration for the transfer.

Last year, Mrs. Panepinto filed for Chapter 13 bankruptcy, and her judgment creditor sought to set aside the transfer as a fraudulent conveyance under New York Debtor and Creditor Law §273. The Bankruptcy Court sustained the judgment creditor’s challenge to the transfer. The reason the timing of the transfer is significant is because at the time of the transfer New York’s homestead exemption was lower than today, $50,000.00 rather than $75,000.00. Depending on what the value of the property was at the time the bankruptcy was filed, a portion of the value of the house may not be exempt. Since the court did not have this information presented, the court reserved its decision on the amount of the exemption pending proof of its value.

The lesson is that before transferring ownership in property, a debtor should seek advice of an attorney since any improper transfers may change status of assets from exempt to non-exempt or created other problems if subsequent bankruptcy is filed.

Homestead Exemption and Multi-Family Residences in New York

Once in a while, I represent debtors who own a multi-family properties. In the past, the local Rochester rule has been to allocate the homestead exemption solely to the portion of the property that is used as the debtor’s residence.

However, in In re McCarthy; W.D.N.Y. Bk #11-31499, Syracuse Bankruptcy Court Judge Margaret Cangilos-Ruiz has ruled that a bankruptcy debtor can claim a homestead exemption in Chapter 7 bankruptcy on an entire parcel or residential property, even if the debtor only resides in part of the property. In McCarthy, the debtor owned property containing a two family house, both units of which were rented out, and a smaller building in the back where the debtor both worked and lived. The creditor argued that the homestead exemption should only be allocated to that portion of the lot that is used as the debtor’s residence. The court ruled that the debtor could exempt the entire parcel.

McCarthy in part relied upon an earlier decision of Judge Cangilos-Ruiz, In re Ford, 415 B.R. 51 (Bankr. W.D.N.Y. 2009), aff’d. on appeal, Cmty. Bank, N.A., v. Ford, Civil Case No. 5:09-cv-633 (GLS) (N.D.N.Y Dec. 4, 2009). In Ford, the debtor lived on one parcel, an the septic and well water for the homestead parcel came from an adjoining vacant parcel. The parcel with the residence also included two sheds used by the debtor for both personal and commercial purposes. The court allowed the debtor to apply the homestead exemption to the vacant land parcel as well as the property with the residence.

The McCarthy decision also relied on a decision of Western District of New York Bankruptcy Judge Michael J. Kaplan, In re Rupp, 415 Br.R. 72 (Bankr. W.D.N.Y. 2008). In Rupp, Judge Kaplan allowed the owner of a two family residence to exempt the entire parcel as a homestead.

McCarthy decision did not address an unpublished 1992 decision of the Hon. Michael A. Telesca, District Court Judge for the Western District of New York in Randall v. Mastowski, CIV-92-6049T. Mastowski was an appeal of a decision by former Rochester Bankruptcy Judge, Hon. Edward D. Hayes, In re Mastowski, 135 B.R. 1 (Bankr. W.D.N.Y. 1992). The debtor in that case owned two double houses, and only lived in one of the four units. Judge Telesca held that the debtor could only claim a homestead exemption “on that part of the property . . . that she occupies as her primary residence.”

In Rupp, Judge Kaplan acknowledged the Mastowski district court decision, but held that “the binding effect of the decision of a district judge of this district upon all bankruptcy judges of this district depends on whether the district judge published the decision.”

Whether the McCarthy decision will be followed in Rochester by Judge Paul R. Warren is not quite clear at this time. This issue has not been extensively litigated in the recent years perhaps because New York’s homestead exemption was so limited. Since the homestead exemption has been increased to $75,000 in Western New York, and up to $150,000 elsewhere in the state, I anticipate more litigation involving homestead exemption claims for multi-family properties in the foreseeable future.

Bankruptcy Planning, Debt and 401(k)

Once in a while, I hear from debtors who tells me that they expended all or nearly all of their retirement savings trying to avoid bankruptcy. Unfortunately, if you spend your retirement funds trying to avoid bankruptcy, you cannot get it back. If, ultimately, the use of those retirement funds was insufficient to avoid bankruptcy, that money was simply wasted if the debtor still needs to file either Chapter 7 or Chapter 13 bankruptcy.

As I have written previously, 401(k) and most other retirement plans are exempt in bankruptcy. What that means is that if the debtor engaged in some bankruptcy planning and filed bankruptcy before withdrawing retirement funds, the debtor would be able to keep those retirement funds and discharge his or her debts.

I understand why debtors spend their retirement money on debts that would otherwise be dischargeable in bankruptcy. Usually, they want to repay their debts and they will employ any available means to do so. While most debtors are aware of bankruptcy as an option, most debtors try to avoid it.

Since bankruptcy gives you a chance to discharge your debt and protect the assets such as retirement funds, it may be foolish to spend all of your retirement money, and I advise debtors to explore their options before making these decisions. The most important question that the debtors should ask and answer is whether their necessary and reasonable living expenses and debt payments exceed their take home income on a regular basis. If so, is this going to change because of increased income or decreased expenses in the foreseeable future?

If the debtor is left with a permanent deficit and does not expect it to change, then it does not make sense to withdraw retirement funds to continue to pay down that deficit until there is no retirement money left. The bankruptcy system, both New York and federal exemptions, protects your retirement funds.

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.

Bankruptcy and Cash Advances

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

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

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

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

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

If you are contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

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

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

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

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

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

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

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

Paying For a Bankruptcy

If you are thinking about filing bankruptcy, you are likely having serious financial problems. Eventually, you decide that you decide to have a consultation with a consumer bankruptcy attorney. During your consultation, you and the bankruptcy lawyer discuss the positives and negatives of filing bankruptcy and decide that you will be filing either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. Then you ask the final question, how much will it cost me to file my bankruptcy case?

The attorney will tell you about his attorney’s fee and disbursements for filing fee, credit counselling and debtor education. Then you are likely to ask the following question: where can I get the money and when do I have to pay it?

Initially, lets talk about where that money can come from.

If you are filing a bankruptcy under either Chapter of the Bankruptcy Code, you are generally advised to stop making any payments on unsecured debt, such as credit cards, bank loans, past due medical bills, etc. Debtors are often advised to continue making payments for any asset that they are keeping, such as a car, house, pension loans, rent, etc. As a result, this is likely to improve their cash flow by freeing up the money that was being paid to the unsecured creditors.

If you are not working, or already stopped all payments to creditors, you may need to ask relatives or friends for partial or full payment of the fees and disbursements required in a bankruptcy. While those loans would generally be dischargeable, they can be repaid after the bankruptcy.

Most bankruptcy lawyers offer payment plans. On average, a bankruptcy takes several weeks to prepare and the payments can be spread over that period. Alternatively, you can request additional time prior to the filing while the bankruptcy petition is being prepared.

Paying for bankruptcy is also different depending on whether you are filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy.

In Chapter 7 Bankruptcy, I cannot collect any money from the client against fees or disbursements after the filing of the bankruptcy. It is prohibited by the Bankruptcy Code. Therefore, all fees and disbursments must be paid prior to the filing of the petition.

In a Chapter 13 Bankruptcy, which results in a repayment plan, with payments of part or all of the debts paid through the bankruptcy court, a portion of the fee can be put into the Chapter 13 plan payment, making it easier on the client and expediting the filing of the bankruptcy petition.