All items from Bankruptcy Mastery

kitchen sinkNot every expenditure that benefits the debtor’s household or his family is a household expense.
And, if it’s not a household expense, it doesn’t get added to CMI in a single spouse bankruptcy filing.
That’s how the marital adjustment should work.
But it’s not so simple.
Household expense is not an expansive definition
After last week’s NACBA presentation on challenges where only one spouse files, I wondered why I hadn’t seen what my co panelist Billy Brewer made so clear.billy brewer
When only one spouse files bankruptcy, current monthly income includes only that part of the non filer’s income contributed to household expenses.

Posted 3 days 22 hours ago

854788322_9f715316d3_zIn rem is nifty sounding Latin, the original language of lawyering.
It’s defined as an action “against a thing”.  It  concerns the property, rather than the person.
In bankruptcy we encounter it most often when a creditor seeks relief from stay in rem.  Generally, the creditor  seeks to make the ordered relief follow the “thing”.   It comes up when the property has been transferred from hand to hand, each new hand filing bankruptcy to get the stay.
But more generally, looking at the client’s holdings, in rem, reminds us that “creditor” includes entities with rights in the debtor’s property, even in the absence of personal liability.
Section 506 gets wordy as it describes a secured claim.  It is one where the creditor has rights in the debtor’s interest in property.  Note it doesn’t speak at all about personal liability.

Posted 2 weeks 4 days ago

288925731_b025652e66_zThe underwater second deed of trust was listed on Schedule F in the debtor’s prior Chapter 13 case as an unsecured claim.
Functionally, the lien was without value.
But, the debtor, now my client in a subsequent case, took a gentle tongue lashing from a bankruptcy judge about the classification of the claim on the schedules.
The debtor was complaining that the lien hadn’t been stripped in the previous case, as he expected.
The judge saw the scheduling choice as an indication that the debtor wasn’t paying attention in his prior case.
I saw it, more probably, as a case of a confused bankruptcy lawyer. The prior lawyer saw an absolutely underwater mortgage, and gave it the practical, rather than the formal, treatment it should have.
[I also saw the issue as the sort of question  that a layman cannot be expected to know.]
So, let’s walk through the differences between liens and allowed, secured claims.
We’re lucky:  ”lien” is defined in the code.
§101 (37) The term “lien” means charge against or interest in property to secure payment of a debt or performance of an obligation.

Posted 3 weeks 4 days ago

nailed-flickr heyhereSpacemanThe settlement agreement, fully executed, provided explicitly that the obligation was not dischargeable in bankruptcy.
So why did plaintiff’s counsel have to  prosecute the claim again when the defendant filed bankruptcy?
Because the terms of the  settlement agreement didn’t track the elements of  the bankruptcy code’s elements for non dischargeable debts.
Done properly, the agreement would have been entitled to collateral estoppel.  Little more than the filing of the nondischargeability complaint would have been required to preserve the claim from discharge.
But just reciting the result you want doesn’t get the job done in bankruptcy court.
Three exceptions to discharge
The bankruptcy code lists a long string of debts that simply can’t be wiped out in bankruptcy.
But in that list of debts that are not dischargeable in bankruptcy, three categories are called out for special treatment.

Posted 5 weeks 45 min ago

Our series on family law and  bankruptcy continues with an exploration of a mixed bag of exemption and property-of-the-estate questions colored by the fact the debtor has been married.
Non debtors claim exemptions
Section 522(b) opens with a provision that the debtor may exempt from the property of the estate property described in the section or in applicable state law and non bankruptcy law.
That seems unexceptional until you get to the associated rule, FRBP 4003.  If the debtor fails to claim exemptions or file Schedule C, a “dependent of the debtor” may file the list within 30 days of the due date.  For the purposes of §522, a spouse is a ”dependent” whether or not actually dependent.
Whether the debtor’s failure arises from inadvertence or deliberation, those dependent on him can step into the breach.

Posted 6 weeks 6 days ago

man with magnifying flickr anderscismoSometimes, issues that you’ve just skimmed over burst forth in bunches, demanding attention.
Lately, that issue has been insurance.
Because its treatment varies so, we need to be asking more pointed questions of clients about both insurance policies and the debtor as beneficiary.
Unmatured life insurance
Starting with exemptions, 522(d)(7) makes an unmatured life insurance policy exempt without limit.
So, the insurance element of a policy owned by the debtor is exempt whether it insures the life of the debtor or someone else.
Life insurance cash value exempt
The loan value, or accrued dividend, on a life insurance policy is exempt up to $X.
But here come qualifiers:  it has to be owned by the debtor. And it has to insure the life of the debtor or someone on whom the debtor is dependent.
If the client has insurance with cash value on a business partner, a parent, or their kids, it doesn’t fall into this exemption category.

Posted 8 weeks 3 hours ago

more arrows to my quiverThe sign on my office door should read:  Armed and Dangerous
Dangerous, anyway, if you are a mortgage servicer.
I have a bunch more arrows in my quiver thanks to new bankruptcy rules and new regulations.
Most of them relate to home ownership and mortgages.
FRBP 3002.1
Sitting on my desk is a notice of fees filed in one of my Chapter 13 cases pursuant to 3002.1.
About $500 in fees and charges have been added to the loan which was current at filing.
I had set it aside thinking that I need to tell the somewhat prickly client what I plan to do about the situation.  The attorney’s fees to fight about this will exceed the $500 in question.
But my plan is that the lender will pay them, in the long run.
Good facts for a hearing in court, and an example of our clients being exploited at every turn that the banks think they can pull it off.
There’s a one year window in which to challenge fees and charges disclosed under the rule.  Our office will need an addition to our calendaring procedures to see that we don’t let such opportunities sit too long.

Posted 8 weeks 4 days ago

hourglass-anotherAfter Friday, February 14, no one will care about your critique of the new bankruptcy forms.
Speak before then, and you may influence whether these forms, as written, are modified before adoption.
Text of the changes
Page for making comments
I’ve been told that putting one observation per comment is more effective than writing an extended analysis of an entire form.
This door closes soon. Don’t get shut out.
Note that officially, the comment period closes on Saturday, February 15th.  But a pop up notice on the site this morning says the site will be down for maintenance on Saturday.  Go figure.
Or, better yet, go forth and multiple the comments.

Posted 9 weeks 4 days ago

crayons Flickr Randy HeinintzThe classic bankruptcy family law conundrum is whether to file bankruptcy before or after a divorce.
We think about about bankruptcy addressing the claims of third parties against the spouses.
But consider the impact of a bankruptcy discharge granted to one spouse prior to the resolution of the divorce.
What are the options and alternatives for the non filing spouse?
Our local Inn of Court considered this question with a local family law judge, a room full of bankruptcy practitioners and the two lawyers who’d argued this question to a family judge.
The facts were these:  during the course of a divorce, Wife filed Chapter 7 and received a discharge.  A year and a half later, as the division of assets and debts was at issue, Husband sought an order that Wife indemnify him from a joint debt.
Query:  could the family court order the debtor to indemnify the ex spouse with respect to a debt for which she had discharged her liability?
Full disclosure:  I represented Wife in the bankruptcy case and argued this issue to the family court.
I analyzed an indemnity obligation as running afoul of the discharge.

Posted 10 weeks 4 days ago

rescuing a caseWe all get sucked in, at some time, to trying to rescue a Chapter 13 bankruptcy case gone bad.
Make sure that you don’t let a bad situation get worse.
Get your arms around §109(g).
When only a do-over will do, don’t wait around.
No payments for months
The debtor came to me for help when the trustee moved for dismissal of a long confirmed plan for feasibility issues.
The goal of the Chapter 13 had been to save his house.  It seemed clear from the outset of our discussions that dismissal and refiling was the only solution to reach that goal.
As we talked, it came out that he’d made no post petition mortgage payments for close to two years.
While I can’t explain why the secured creditor had taken no action, I was certain we couldn’t count on that continuing.
It became a post-petition race to the courthouse.  The debtor carried a motion to dismiss;  the secured creditor , a motion for relief from stay.
If the secured creditor got there first, §109(g) would bar a new filing quickly enough to prevent foreclosure.
Preventing serial bankruptcy cases
Here’s the troublesome text:

Posted 11 weeks 24 min ago