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Thursday, December 2, 2010

Debt buyers on a suing spree

I talk with a lot of people who presume that when a lender/bank/credit card company has informed them that the debt they owe has been "charged off" that they no longer owe the money and they, therefore, have nothing to worry about. Nothing could be further from the truth as there are collection firms that buy old debt for pennies on the dollar and hire outside counsel to collect and to sue on the debt. That practice has soared in the past 3 years as there has been a spate of bad loans and unpaid credit card accounts...which makes the debt for those accounts cheaper and cheaper to buy for those who specialize in this kind of market. It's estimated that outstanding debt on credit cards alone is in the neighborhood of $1.9 TRILLION dollars for 2007...back in the 90's it was in the neighborhood of $475 billion. Not an insubstantial figure in the 90's but an explosion of debt in most recent years. A consequence of the bad economy no doubt has lead to a plethora of loans and accounts gone bad. It's estimated that $3.2 trillion in consumer debt of all types has been written off since 9/07. For the debt buyers and debt collectors opportunity knocks! Most of the collection lawsuits are small claims or conciliation court matters where most defendants don't show and lose by default. Sometimes they aren't even aware of the lawsuit and many of the affidavits filed by the collectors aren't property verified as required by law.

The good news.......even if you've been sued and there are judgments against you is that if the debt was a debt that was dischargeable in nature in bankruptcy prior to acquiring judgment status we can still get rid of that debt for you in a bankruptcy case. There is a bit more to do after the bankruptcy case is discharged in order to remove the record of the judgment from the judgment roll in the court of record that had docketed the judgment. That's advisable because even if the debt is discharged the record of the judgment still survives and often appears on a person's credit report although the debt is now gone and truly uncollectible. Unfortunately anyone looking at your credit later will still see the judgment listed and can only assume it is left unpaid or unsatisfied. That, of course, is an impediment to acquiring new credit at reasonable rates, if at all. Most bankruptcy clients will hire us to perform the judgment removal service for them as well. Best case scenario is, of course, to come and see us before judgments are entered against you to avoid the additional expense and time involved in that process.

If you've got debt issues and think you may need to file a bankruptcy we've got answers.

David D. Kingsbury Attorney at Law-Bankruptcy Lawyer
Kingsbury Law Office
14827 Energy Way Apple Valley, MN 55124
Tel. (952) 432-4388 Fax. (952) 432-4969

Tuesday, September 28, 2010

Credit Counseling

A lot of people can benefit from credit counseling services. Hopefully you can ferret out which one is a good one from the vast array of credit counseling companies who purport they are there to help you but in reality are interested really in lining their own pockets. I found a good article on line on some questions you should ask when considering using one of these companies to help you.

Good luck and remember....if you have questions or a need for an experienced bankruptcy lawyer we are here to help.

Thursday, August 19, 2010

Consumer bankruptcy filings up...Again

Recent statistics reflect that consumer bankruptcy filings in the first 6 months of 2010 totaled 770,117. That is a 14 % increase over last year for the same period and as a matter of fact is the highest total since the Bankruptcy Abuse Prevention and Consumer Protection Act (so-called) was passed in 2005 in an attempt to decrease the amount of bankruptcy filings. Typical government reaction to a problem....try to put a bandaid on something to make it look good instead of making real attempts to resolve the problems that push people into bankruptcy like high unemployment, high medical costs and low rates of insurance, predatory lenders and credit card issuers, etc. Since then we've had some efforts at reigning in the mortgage companies and the credit card issuers.....hopefully it will help. Unfortunately the housing market collapse and the attendant high unemployment are factors that will be around and impacting the American economy for some time to come.

For information on consumer and small business bankruptcy in Minnesota please connect with us at

Thursday, July 22, 2010

Debt settlement vs Bankruptcy

I must have some spare time on my hands....been reading a few articles in various newspapers. A timely issue is that of debt settlement companies and are they really providing a bonafide benefit/service for a reasonable fee. Frankly....not so much. Let's face it...the economy is in the tank...people are in financial turmoil/stress...perfect environment for the vultures to come out to take advantage.

The debt settlement industry has gotten HUGE....everywhere you turn in print, TV, internet, name it...someone is hawking a debt settlement or debt "management" program. I actually had a guy connect with me a couple of months ago...personal referral from a lawyer I've done business with. He sent me an email saying that I could make "Tens of thousands of dollars a month for only an hour a day of my time"----I sent him an email back saying it sounded a hell of a lot like a late night television infomercial for flipping houses with a real estate scheme used to before the housing market blew up. He apparently was insulted....cried foul to the guy that referred him to me and that lawyer says he won't refer me bankruptcy cases anymore. Tell you what...if the price of doing business with that guy is acting in concert with his "buddy" to defraud and victimize people like my clients I don't want anything to do with him anyway. My sense was he was going to get a piece of whatever potential business was generated by the referral and he didn't like the fact that I turned his pal down.

Back the the article. Says the the Better Business Bureau of Minnesota and North Dakota is warning people about misleading debt settlement companies that claim to have a program that can easily either eliminate or reduce credit card debt. Since the recession started...which would be what...late 07' I guess...over 3,500 hundred complaints. 3,500...that's a big number and that is just in 2 states. Plus quite a number of state's attorney generals offices (including Minnesota's) have gone after numerous places like Credit Solutions, Debt Rx USA, Financial Freedom of America, Debt Settlement America, Clear Your Debt and Swift Rock Financial Solutions (never heard of that last one).

Most complaints to the Better Business Bureau allege that instead of having the debt settled as promised the debtors were often sued by their creditors and driven deeper in debt all the while thinking that whatever company they had hired where going to be "fixing" everything for them. Some of them ended up having their wages garnished.... WHILE they were in a program of debt settlement.

First is never an easy or a quick process that comes without any pain. Don't care how they advertise just ain't so. Plus...there is the significant impact on the debtor's credit score. The creditors don't always stop reporting late payments/missed payments to the credit bureaus...hardly...I think they usually do...debt management program or not. Plus, one thing that I've notice in my practice. They never tell people that if they settle a debt for less than what was owed that the debtor will be issued a 1099 at the end of the year. So guess what? It is an income earning event as far as the IRS is concerned and you have to pay taxes on that "income" at your regular tax rate. Why do they rarely tell people about this? Because 99% of the people looking into it would decide there is a small benefit to be had if they also have to pay taxes on any forgiven debt. Conveniently not part of the conversation I guess.

Frankly....I'm a bankruptcy attorney. If you've been reading my posts you know this already. Do I have any faith in debt management/settlement programs. Not much really. I read an article a number of years ago. The IRS had investigated something over 40 of these companies and decided to revoke the non-profit status of a number of them. How many? If you guessed ALL OF THEM---you'd be correct. Interesting eh? I think that sums it up right there. Considering the hit you take on your credit, the exposure to lawsuits, wage garnishments and bank account levy's (levys they can do w/o warning by the way...nothing like getting a notice from your bank telling you that a creditor cleaned out your account and now your checks are bouncing all over town) I'd suggest that bankruptcy....once you've gotten to that point makes a hell of a lot more sense. It's faster. It's cheaper. It protects you from lawsuits, levys and garnishments and discharges the debt giving you the relief you need to get a "fresh start" envisioned by the bankruptcy code and lets you move on with your life and start rebuilding your credit not weighted down by all that old debt. the time people come to me it is one of two things. Either their credit is bad...or it's real good but it's going to be really bad real soon. So---the things that have an adverse effect on your credit have already been set in motion long ago. I mention all of this because people often ask me how badly a bankruptcy filing is going to "hurt" their credit. Honestly it generally helps a heck of a lot more than it hurts. It's not the black kiss of death and it doesn't mean you'll never get credit again. It is scored as another event of your credit report and given a certain "weight"....just like a missed payment or something would be treated similarly. The real "penalty" for filing is that the cost of money goes up...probably for a year or two. Which means you'll pay higher interest for awhile. Most people...or a lot of them anyway are in that boat when they come to see me regardless. The difference is that the bankruptcy filing is a watershed event. Once it is filed you're no longer taking steps're actually going forward. Lots of variables work into a credit score. Longevity and stability of employment, income levels, current debt loads, regular payments, etc. Over the course of time the credit score generally goes up and as more time passes the bankruptcy filing itself isn't such a significant item....creditors you are wooing to give you a loan are more interested in how you are doing now, what kind of debt load you're carrying relative to your income and whether or not you've got some disposable income available to service new debt.

If you've got questions about bankruptcy we've got answers. Give me a call at 9952) 432-4388 or visit us at

Dave Kingsbury
Bankruptcy Lawyer/Attorney

Wednesday, July 21, 2010

Credit card debt--the true cost of paying the minimum

I was reading an article in the Dallas Morning News last week while there on a seminar for Chapter 13 Bankruptcy Trustees. It was sobering. Many personal stories of people trapped in a cycle of debt they are having a hard time escaping. One of the many points of the story was regarding how long it really takes you to get out of debt by just paying the minimum balance. Hypothetical situation was $10,000 in debt presuming a 14% interest rate (national average...many of my client's cards are much higher). Payment was set at interest due plus 1% of the balance to determine the minimum payment which apparently is standard as well. At that rate it takes 27 YEARS AND 9 MONTHS to pay off the $10K balance. That is phenomenal. The total payout is $21,166.00 which is more than 2x's the initial balance. Friends....obviously this is a good deal only for the bank. Do what you can to lower your interest rates and pay off your cards pronto!

If you've done what you can and still can't make it work consider bankruptcy as a viable option. A chapter 7 bankruptcy case can discharge or wipe out unsecured debt like this and if not available to you due to high income, too many non exempt assets, etc., a chapter 13 bankruptcy case will pay off all or part of the debt over a maximum 60 month period. A plan can often provide for payment of just pennies on the dollar for this kind of debt. Even if it was a full repayment plan due to the income available the interest stops dead as of the date of filing for credit card and other unsecured debt. There is hope and a way to manage all of this.

If you've got questions about bankruptcy we've got answers. Call us at 9952) 432-4388 or visit us on the web at

Dave Kingsbury
Bankruptcy Attorney

A penny saved may cost you a bundle! Bargain basement bankruptcy attorneys means poor results.

I was in court earlier this week. Witnessed a hearing where an inexperienced attorney was representing a chapter 7 client. First the trustee admonished the attorney for using the property tax id number instead of the legal description of the property as the documents call for. Had not the trustee brought this to his attention (he didn't have to) the net result of that would have been an issue clearing title to the property in a subsequent refinance or sale. Some lawyer would have had to bring a motion to re-open the bankruptcy case in order to properly amend the schedules to reflect the correct legal description so the Schedule C could then be filed against the property records. That cost of the motion and the subsequent amendment alone would have cost probably $1,500.00.

Besides that it appeared that the client was a realtor. New attorney didn't know enough to ask him about potential commissions from listings the client may have had at the time his chapter 7 case was filed. Sounds like he cost his client $5,000.00 for the value of the commission that could have been avoided had he known enough to ask about it and some pre-bankruptcy planning been implemented.

Long story short....maybe the client saved a few hundred bucks hiring this kid. Turned out it cost him thousands and could have cost him even more had not the trustee been gracious enough to clue him in on the legal description problems. Do you REALLY want to hire an attorney with little or no experience....even if they say they are highly rated (easy to get your friends and relatives with a computer to do ratings for you). Think about it. What you pay for an experienced attorney who charges reasonable fees commensurate with their experience is an investment in your bankruptcy case and your future. Look for the bargain basement attorneys and as the Chinese say....."be careful what you wish for"'ll get bargain basement results.

For help from experienced counsel in all manner of chapter 7 and chapter 13 bankruptcy issues please call my office at (952) 432-4388 and/or visit our website at

Monday, July 12, 2010

Possible relief for Student Loan debts

Back in 2005 when the Bankruptcy Code was amended it more broadly defined what was considered a non-dischargeable student loan debt. Going back even further....I can remember when student loans of all kinds were dischargeable in bankruptcy albeit they had to be of a certain age. That changed with a rider to the Higher Education bill of 1998 if my memory serves me correctly. (Note that there has always been an "undue hardship" exception and student loans could and can still always be discharged under that provision...but unfortunately proving that a debtor meets that high standard for that is nearly impossible to prove without some sort of severe disability factoring into the picture).

At any rate.....memory lane may be a tad bit interesting to those who track bankruptcy legislation but not much use for those who are wondering what is going on in the here and the now. Under the proposed legislation borrowers would still be stuck with the traditional federal loans which would be Perkins and Stafford loans but possibly could get some relief for private lender loans. Even Sallie Mae has indicated a willingness for lightening up on the standards for discharging student loan debt provided there has been a good faith effort to repay over a 5 - 7 year period. Under the old standard it was simply the ticking of the clock...7 years from the date they were first due in repayment or the date they were consolidated into a new loan and they were subject to discharge. Exactly what kind of good faith effort Sallie Mae is talking about here I'm not sure...that would get fleshed out if the legislation that Senator Durbin and Congressman Cohen if it gains a foothold and moves through the legislative process if indeed it would become part of the bill at all.

So....perhaps there is a little ray of hope. Quite a few of my clients have student loan debt issues and the relief I can offer them is small at this point. We can plug them into a chapter 13 repayment plan to keep their creditors off their backs for up to 5 years and hope that there are rosier financial days ahead where they can then manage them...or maybe we'll get lucky and some new legislation will render those kinds of debts dischargeable.

If we can help with any questions regarding chapter 7 or chapter 13 bankruptcy cases please feel free to visit our web site at

Thursday, July 1, 2010

Minnesota Bankruptcy Exemptions

New exemption limits have come into effect in the state of Minnesota effective July 1, 2010. These will apply in bankruptcy cases where the debtor elects to use the state exemptions rather than the ones found in the Federal Bankruptcy Code (which were also raised this past April 1, 21010). Which exemption scheme to use will be determined by your attorney as that which gives you the most benefit depending on your individual circumstances. Usually we will chose the state exemptions over the Federal ones where there is a great deal of homestead equity as the Federal exemption is only $21,625 or $43,250 in a joint case. However considering the state of the real estate market these days it is a problem we don't see too much any longer. Other issues might be a potential personal injury claim which can be protected under the state exemptions to a much larger degree, etc.

Homestead is now $360,000.00 (unless primarily used for agricultural purposes then it is $900K.)

Motor vehicles are exempt in value up to $4,400.00
Wedding Rings are exempt to the tune of $2,695.00---before last year they weren't exempt at all!
Personal goods (home furnishings, clothing, etc.) is now at $9,900.00 per person.

There have been raises in others as well but these are the ones of most common concern.

For more information on how bankruptcy either chapter 7 or chapter 13 can impact your property please visit our website which is located at or feel free to call our office at (952) 432-4388.

Wednesday, June 30, 2010

Means test decision

One of the strong reasons compelling someone to hire an attorney to draft and file their bankruptcy paperwork turns on the fact that means testing is sometimes complicated, often tricky and how you plug in the numbers, what numbers you can plug in and why is constantly being shaped by case law. You can't rely on just reading the statute. Case in point. Recently Judge Kishel here in MN made a decision in a case wherein the debtor was utilizing debt service on a property that he no longer owned but was responsible for paying (divorce situation). See the case synopsis below............

Even though a debtor in Chapter 7 bankruptcy remained liable with the ex-spouse on residential mortgages relative to real estate that had been awarded to his ex-spouse per the court's order in the final judgment and decree those loans as creditors whose claims were collateralized by real property in which the debtor no longer had any interest as of the commencement of his bankruptcy case cannot be considered "secured creditors for the purposes of means testing even though he was still personally liable for the debt. Therefore he could not take the "secured debt" deduction for his monthly payments on these mortgages when calculating the "means test" analysis to determine whether he could rebut the presumption of abuse in his chapter 7 bankruptcy case. In re Robrock, 2010 WL 2142999 (Bkrtcy.D.Minn., Judge Kishel).

That is unfortunately a bad result for debtors in this jurisdiction. I've in the past used similar deductions to qualify a few of my clients for chapter 7 cases whereas otherwise they would not have been entitled to relief under that chapter. Now it appears that if it all hangs on debts of this nature (which, of course, is not the usual case) Chapter 7 will not be available and those debtors will most likely be looking at filing a Chapter 13 bankruptcy to reorganize their debt and paying back all or part of it in a 3 - 5 year plan structured through the bankruptcy court.

Tuesday, June 22, 2010

Mortgage Cramdowns

In Minnesota the bankruptcy court has a history of not allowing cramdowns on mortgages that are totally unsecured by any value in the property. I think that's wrong...but until the 8th circuit or a higher court takes a case up and decides otherwise that is the way it is. I read a post the other day on ,a conservative Blog and News site that was written by Michele Bachmann, a republican Congresswoman from Minnesota who gained her fame by planting a big kiss on then President Bush on national television. The post was in regard to a recently proposed Cramdown Housing bill that proposes to allow bankruptcy judges to cramdown mortgages where and when appropriate wherein she argues against it with a number of points...some of them valid and some of them thought provoking....others the typical nonsense that conservatives throw out there. I invite you to visit and read it.

My thoughts are this; First...if the finance industry who has the majority of the members of the house and senate in their collective pockets would be willing to work with people in good faith to modify all of these toxic mortgages that they wrote for people in the first place then this kind of legislation, however flawed, wouldn't need to be written or proposed in the first place. Second, she also makes a comment about how people would run to the bankruptcy instead of working out loan modifications. My practice is entirely composed of filing Chapter 7 & Chapter 13 cases for people all day...every day. I can tell you with the utmost sincerity not a single one relishes the fact that they are in my office signing a bankruptcy petition and they would have dearly loved to work out some kind of modification on their home loans (which for many is the principle factor that drove them to my office...they can't afford their mortgages). For a large number of them a modification of their mortgage with a lender that was willing to work out reasonable terms with the new realities of the marketplace as it concerns real estate would have kept them out of bankruptcy. Every day I have consultations with people who say they've tried for months on end to work something out with their mortgage company and they simply get the run around or empty promises that never come to fruition. Thirdly, I take exception to the comment she makes about the need for requiring some proof that the borrower was truthful when he applied for the she serious....isn't this America? Aren't we innocent until proven guilty? Is the presumption that people lie.....especially when they were supposedly "vetted" by whoever gave them the mortgage in the first place? I think the critters are already out of the barn door on that one...too late to come back and complain that you weren't vigilant enough when you underwrote the loan...that's the lender's fault not the borrowers. I'm not saying that fraud isn't fraud and that it should be rewarded but I am saying that a presumption that borrowers acted fraudulently and they should have the burden to prove otherwise is a crock of horse manure.

For good and sound advice about bankruptcy please visit our web site at All manner of Chapter 7 and Chapter 13 bankruptcy cases in the state of Minnesota.

David Kingsbury
Bankruptcy Lawyer

Monday, June 14, 2010

May 2010 bankruptcy statistics and trends

At 137,000 cases filed nationwide in May 2010 bankruptcy filings declined ever so slightly compared to 145,000 cases that were filed in April. However, the numbers have remained fairly constant. For the first 5 months of 2010 we've seen an uptick of 15% compared to the first 5 months of 2009. Works out to about 1 in 175 per capita with the highest levels of personal bankruptcy cases being concentrated in the Southeast and the Southwest of the country. Further, Chapter 7 continues to be the chapter of choice with the data showing that 74% of the cases filed were Chapter 7 cases. It appears that the legislation promulgated in late 2005 by Congress with a strident push by the financial industry that encouraged (punished?) debtors in bankruptcy to move towards Chapter 13 case filings to reorganize their debt rather than discharge it completely has been an abject failure. In my practice doing bankruptcy cases here in Minnesota I've noted the change in the real estate market as one of the major factors that has led to the decline in Chapter 13 filings. Chapter 13 was once strongly "fed" by the need to retain and preserve equity in people's homes. Now that the real estate is most often worth far less than what is owed on it there is no incentive to stand on one's head to keep it and barring other circumstances such as being too "asset heavy" for a Chapter 7 case or simply earning too much income to qualify for a Chapter 7 there is little incentive for most people to file a Chapter 13 vice a Chapter 7.

For other information regarding bankruptcy for consumers and small businesses please feel free to visit our website located at

Monday, June 7, 2010

U.S. Supreme Court means test decision

Good news for consumer debtors in chapter 13 bankruptcy cases. The United States Supreme Court has taken the teeth out of one of the major components of the bankruptcy reform legislation that was enacted back in October of 2005. The case is Hamilton v. Lanning 560 U.S. ___ (2010) decided just today and distributed as a slip opinion.

Means testing is a fairly convoluted formula that took a look-back at the household income of a person filing bankruptcy to determine if they qualified for a chapter 7 bankruptcy case from an income standpoint or in a chapter 13 case where the debt was being reorganized it determined how much had to be paid in to the trustee on a monthly basis. Fundamentally it was a piece of flawed legislation from the start and it has taken this long for these piece of it to work it way through the judicial appellate process to be decided once and for all by the highest court in the nation.

The obvious problem was what number to use in putting a case together to propose the payment. Did we use the fairly mechanical means test formula? That was where we took the last six months income and divided by six...subtracted out those expenses that were allowed which were an amalgamation of certain IRS standard expenses for household expense and then certain expenses that were allowed by the statute that were different per the individual....such as taxes withheld, secured debt service, priority debt services (taxes mostly), medical expenses over the IRS standard limit, daycare, etc. Whatever was left over was termed disposable income. That, of course, flew in the face of the "real" numbers for what people were making currently...and what their actual reasonable and necessary living expenses were especially if there had been a change in the income since the applicable means testing period...the prior six months.

Thankfully, it appears now we've pretty much come back full circle to the old way of doing things. What do the debtors actually make? How much income is left over after considering the necessary and reasonable living expenses? That is what the payment is...this is called the "forward looking approach"--as opposed to the "mechanical approach" which was a cockamamie (not really a legal term) number we'd always end up with based on the non-sensical formula that the government and the finance/banking industry came up with.

Saturday, June 5, 2010

Collateral Estoppel & Bankruptcy Discharge

In Tri-State Ins. Co. v. JoAnn M. Stewart, et. al., an adversary proceeding brought in the underlying bankruptcy case filed by Ms. Stewart one of our local bankruptcy Judges, Dennis O'Brien, applied the rule of collateral estoppel to prevent the debtor from re-ligitigating issues that had already been argued and decided in a prior state court action when he was determining whether the debt in the instant bankruptcy case would be discharged in the bankruptcy case.

The facts in this case won't have much application in most consumer or small business cases but it is important to note that if you have an issue that you are sued on in state court or charged with in criminal court when in either there is a "finding" by the court that certain facts have been established you don't get a second shot at it in bankruptcy. In this case there was a judgment entered against the defendant in state court...she then proceeded to file bankruptcy in an attempt to discharge the debt. The creditor filed an action in the bankruptcy court to have a determination made to except the debt from the discharge....the debtor attempted to litigate the issue and the court, citing Eighth Circuit precedent stated that the concept of collateral estoppel applies in bankruptcy courts and did not allow litigants to argue issues either factual or legal that had been already determined in a prior state court action and that would also extend to proceedings in regard to dischargeability issues.

If you have questions on this or similar matters please visit our website at or feel free to email me at .

Thursday, April 22, 2010

MN Supreme Court Decision on jointly held bank account garnishments


The Minnesota Court just decided a case on a number of questions regarding a creditor's ability to garnish a jointly held bank account when one of the account holders is not liable on the judgment which underlies the collection effort. The case was a Certified Question from the United States District Court, District of Minnesota that went the Supreme Court of Minnesota to decide the following issues.

First: "May a judgment creditor serve a garnishment summons on a joint account to satisfy the debt of an account holder when not all of the account holders are judgment debtors"? Answer: The court found that Minn. Stat. Sec. 524.6-203(a) does not limit a judgment creditor from serving a garnishment summons on a garnishee (bank usually), and attaching funds in a joint account to satisfy the debt of an account holder, even though not all of the account holders are judgment debtors.

Second: If the answer to the first question is to the affirmative the next question is "Is it the judgment creditor or the account holders who bear the burden of establishing net contributions to the account during the garnishment proceedings"? This is a germane question as the Minnesota garnishment statute states that a garnishment summons only pertains to money that is "due" or "belonging" to a debtor. Obviously this is problematic when the debtor has co-mingled funds with a non-debtor and a garnishment summons is served and all the funds in an account are attached for the garnishment. Answer: The court found that the burden of establishing net ownership of contributions to a joint account holder in a garnishment lies with the account holders and NOT the garnishing creditor.

Third Question: What applicable presumptions regarding ownership, if any, apply in the absence of proof of net contributions? (good question) Answer: The court, unfortunately for our side...., decided that the presumption will be that the judgment debtor is initially, but rebuttably (meaning, of course, that presumptions can be argued against and overcome), presumed to own all the funds in the joint account.
The court didn't go into any great detail about what exactly the circumstances are for rebutting the presumption of ownership in the account funds by the judgment debtor would be but that should be a fairly easy exercise especially these days with the standard practice by banks imaging checks and whatnot that are deposited into accounts. Cash deposits though...tougher row to hoe with that one.

Moral of the story............if you owe people money don't merge your funds with anyone else's money in a joint account. Not even your kids for a minor custodial account...we've seen problems with those too. If you are not a judgment debtor...don't open an account with someone who is or you may get a nasty surprise when one of their judgment creditors executes on your funds and then you've got a battle on your hands to get it back.

Wednesday, April 7, 2010

Federal Reserve Board announces rules

The Federal Reserve Board has announced that it has adopted amendments to Reg. Z--Truth In Lending (12 CFR 226) to protect consumers from abusive practices perpetrated by credit card companies.

1) Limitations on raising interest rates. The rate cannot be increased in the first year and after that a new rate can only be applied to new transactions with 45 days notice.

2) New accounts cannot be opened or a credit line on an existing account can't be increased without considering the account holders ability to pay. (What exactly the standards are for that one has to wonder)

3) Young adults and college kids. If under the age of 21 no account can be issued unless the ability to pay is demonstrated on the application or there is a co-signer over the age of 21 with demonstarted ability to make the payments. There are also limits on marketing credit cards to students. (I remember credit card companies doing this on campus back in the 80' T-shirt for signing up....what a crock that was...ended up being the most expensive "free" T-shirt that anyone could have imagined).

4) Over limit fees. Issuers must obtain permission from the account holder before the impose any fee for a transaction exceeding the limit on the account. No more than one over limit fee per billing cycle. They also can't impose an over limit fee for the same over the limit purchase/transaction for more than a maximum of three billing cycles.

5) Payment allocation. Payments that exceed the minimum amount on an account balance on an account with more than a single balance must be applied to the balance with the higher rate.

6) Standard credit card agreements must be disclosed and posted on a credit company's own website and also must be provided to the Federal Reserve to post on it's website to be available to consumers.

7) Fees. Fees cannot be charged to an account (other than fees for credits on returned payments, late payment or exceeding the credit limit fees) totalling in excess of 25% of the credit limit established when the account was opened during the first year the account is active/open.

8) All periodic statements are required to disclose payment information regarding payoff of the account balances. They have to state the total cost and the actual amount of time that it would take pay off the balance in full by making only minimum payments. They are also required to disclose what it would take to pay the balance in full within 36 months.

9) Credit card issuers can't charge fees for making a payment unless it is a fee for expedited service by a representative of the credit card company.

10) Credit card issuers cannot "Double-Cycle" bill consumers. If a part of a balance is paid before a grace period expires the credit card company can't assess charges on that portion of the balance that has already been repaid.

Note that the amendments to the Credit Card Act are effective 2/22/10 but that some provisions are not mandatory and so may not be in effect until 7/1/10.

Thursday, March 18, 2010

Failure to schedule claims

There is a recent decision out of New York regarding the failure to schedule a claim as an asset of the bankruptcy estate. The unfortunate result of that is that the bankruptcy court has ruled that the debtors no longer have the capacity to sue due to the lack of disclosing that potential claim on their bankruptcy schedules. In this particular case it had to do with the bankruptcy trustee who was administering the debtor's estate that was determined could not "step into the debtor's shoes" to sue on behalf of the bankruptcy estate in order to attempt to recover assets to administer for the benefit of the debtor's creditors.

Although that particular set of circumstances might not be of particular concern for an individual debtor it does point out the fact that it is very important to disclose any potential claim that one might have on your bankruptcy schedule of assets. Even if you've haven't sued anyone, haven't talked to a lawyer about or even haven't talked to your mom about it you still need to list it on your bankruptcy schedules.

A potential claim is an interest in property that exists at the time the cause of action arises. So, for go to your local grocer and slip/fall because there were squishy grapes on the floor the kid in the produce department didn't get cleaned up. You didn't feel too up, dusted yourself off and went about your business. You got up the next day and your back was really stiff and achy...but you got over it. A number of months later your back is starting to hurt again. It gets worse...lots worse. You go to your doctor or chiropractor. The only thing that you can point to is that fall you took at the grocery store. You decide to sue the store. It also is a fact that you filed a bankruptcy case sometime after you took the tumble but before you determined that it was that fall that was the root cause of your injury. It doesn't register in your head what your attorney had said when he/she was eliciting information from you to put your bankruptcy case together that it was important to list any potential claim of that nature as one of your assets.

Two problems.

First, as the case out of New York held recently. You may now not be able to sue on the claim...period.

Second, lets say no one involved in this deal knows about the bankruptcy. The personal injury attorney you hired to pursue the claim doesn't ask about bankruptcy filings and you don't think to mention it. The store gets sued. They hire a top gun defense attorney (most likely their insurance company will). He's not a "top gun" insurance defense attorney for no reason. He sniffs around...a lot. He checks the public record and finds out you filed a bankruptcy case sometime after the slip/fall occurs. He then checks the bankruptcy schedules that are of record with the bankruptcy court. Finds that you failed to disclose the cause of action on the claim that you are suing his client on. Bingo! He's worth the big bucks that the insurance company is paying him and then some. He's now got evidence that you provided information in a federal court matter under the penalty of perjury that you swore in writing was correct as well as testified on the record at your bankruptcy hearing before the bankruptcy trustee that the schedules were accurate and indeed listed all of your assets. In the court case regarding your personal injury claim he can then enter those bankruptcy schedules into evidence. He'll put you on the stand and grill you....making you admit that you perjured yourself in the bankruptcy proceeding. He will then point out to the judge or jury that anything you say in this personal injury action cannot be taken as truthful considering you lied about the claim in the bankruptcy case. Your "veracity" or penchant for truthfulness is then completely destroyed and you, my friend, unfortunately will lose the personal injury action.

Best policy. List the claim. You can probably exempt (protect) most if not all of the potential recovery. Not listing is as a potential asset can be catastrophic. If, in the above example the debtor when he discovered he had a claim...which in that set of facts was after he filed the bankruptcy case there is an easy enough fix. Re-open the bankruptcy case to disclose the asset and put all parties on notice that it is "out there". Failure to list it in that situation was excusable...didn't really know he had the claim until later. Knowing you've got a claim and failing to list it either from the get go or neglecting to schedule by re-opening the bankruptcy case if you determined after you filed your bankruptcy that you did have a claim you want to pursue to get some compensation for your injuries will be fatal to your opportunity to recover on that claim.

Wednesday, March 3, 2010

Exempting tax refunds

It's a busy time of year for most bankruptcy attorneys. Especially in my region of the country where we aren't allowed to put our clients on a payment plan for the fees. Many will use their tax refunds to fund their bankruptcy case filing. But what about those who file bankruptcy but haven't received their tax refunds yet? Most folks are concerned whether or not the refund can be protected. The process by which assets are protected in bankruptcy is known as "exempting" it. Exemptions are the statutory rules of law that allow debtors to keep certain amounts and certain types of property. The answer to the question of "can I keep my refund?" is almost always yes with some certain exceptions.

To exempt an asset there has to be an exemption that covers it and the value of the property must not exceed the limitation of the exemptions. While there used to be unlimited exemptions for certain types of property they have, at least here in Minnesota, been declared unconstitutional by the courts for those exemptions found under the state statutes. Further, there are no exemptions available under the state statutes specifically for that kind of asset anyway. Not to worry though as we here in the great state of Minnesota have the option of using Federal exemptions found in the United States Bankruptcy Act which is under Title 11 of the United States Code. Under the federal exemptions there is a "wild card" exemption that can be applied to anticipated tax refunds (as well as other types of property where there is no specific exemption for that particular species of asset). It isn't unlimited but it is fairly generous and most folks will be able to protect the refund no problem.

Some debtors think that if they wait to file their tax returns that the refund does not factor into the bankruptcy case as an asset of the bankruptcy estate. Nothing could be further from the truth. It is an assets that while you may not have it in hand at the time your file your case you are entitled to once you file the appropriate return. Not filing the return does not extinguish your present day future possessory interest in the refund. So...when we file cases for our clients we get their best estimate from them so it can be fully disclosed on the schedules and properly exempted. If not, some trustees will take the position that the refund is property of the bankruptcy estate and theirs to administer for the benefit of creditors unless it is properly exempted. Therefore, it is always best to made an educated guess, disclose the asset and exempt it to the extent that there are exemptions available. In the odd case where all or part of the refunds may not be exempt the trustee is entitled to the refund (or that portion thereof that is not exempt) once the refunds have been received by the debtor. If the debtor fails to cooperate and turn over the funds the bankruptcy trustee would then bring a motion to require turnover of the funds. If the debtor still does not comply would then bring a motion to revoke the bankruptcy discharge. Neither is desirable, of course, and a revocation of discharge is a catastrophe. Debtors complaining that they received the money and spent it already is never a good defense in cases where the refunds were not exempt on the filing of the case. Remember..if you got the refunds prior to the case filing there is no problem although if it was a large refund the trustee may have questions regarding what you did with the refund which can open up a whole another can of worms if friends, family members were paid as preferred creditors soon before filing, etc. That though is another topic for another time.

If you'd like to learn more about us, how bankruptcy works and how we may be able to help you please click the link here for our website which contains much, much more information on the bankruptcy process.

Friday, February 19, 2010

Record Mortgage Delinquency Rates

From News Services as reported in the 2/17/10 edition of the Minneapolis Star Tribune

The last quarter of 2009 saw a record percentage of homeowners 60 days or more behind on their astonishing 6.89% according to credit reporting agency TransUnion. That is following on the heels of 6.25% for the third quarter of 2009. The year prior--which would be the last quarter of 2008 it stood at 4.58%. With large numbers of variable rate/adjustable mortgages still set to adjust in the coming 2 years one can only assume that the numbers will be climbing higher and higher.

Tuesday, February 16, 2010

Bankruptcy filings on the rise--AGAIN

The American Bankruptcy Institute (ABI) reported that January 2010 personal bankruptcy cases filed have increased by 15% over January of 2009. The number of cases filed in January 2010 was 102,254. Interestingly that was a decrease from the month before. However, as a practioner I recognize that December is always a slow month for bankrupcy filings and therefore that number is practically meaningless if we are just comparing December - January in sequence. The salient issue is that filings are definitely up and it is projected that consumer filings will exceed the 1.4 MILLION filings there were in 2009.

Tuesday, February 9, 2010

Bad Faith attempted reaffirmation on investment rela estate leads to dismissal

Friends...this is a recent case decided in Illinois. I've had more than a few clients over the past couple of years who've wanted to do the same thing. Bottom line is that there are more interested parties involved in a bankruptcy case than just the debtors who file the case. Plus, while they are somewhat limited...creditors have certain rights too. Trying to hang on to a real estate investment that isn't contributing to cash flow and is actually a detriment simply is not something that works in a bankruptcy situation. No reason why these folks should have thought they could subsidize an investment property on the backs of their creditors. That money should have gone into paying back the debt they accrued. I don't know if they had an attorney but if they had I don't know what he/she was thinking if they were involved in any proposed reaffirmation agreement of this sort. If you want to keep's got to be income producing and adding to your bottom can't be a drag on your resources.

In re Lorenca,(Bkrtcy.N.D.Ill.)

Debtors' attempt/intention to reaffirm debt on investment property on which they were losing money warranted dismissal of their Chapter 7 Bankruptcy case.

These folks were, as many others have found themselves of late...caught in a falling real estate market. The were unable to sell their old home profitably. As a consequence they rented it for $482 less than what they were paying as expenses associated with the mortgage(s) and other costs of maintaining the property. With the proposed reaffirmation they attempted to retain this old home at unsecured creditors' expense in the hopes that the real estate market would bounce back and that they could sell the property at profit should the market turn around. All the while they were also paying $5,132.79 per month as a mortgage, property taxes and insurance expense associated with their new home. Their failure to allow this former residence to go into foreclosure which would have allowed $482.00 monthly for payment to unsecured creditors led the court to dismiss their Chapter 7 case as abusive based on the totality of circumstances.

Sunday, February 7, 2010

Short sales, Foreclosures, income tax issues regarding the same


Generally speaking anytime there is a cancellation of debt it is viewed by the IRS as a taxable income event and most lenders will issue the 1099. Even sometimes in bankruptcy proceedings when it is definitely not correct. I had a client walk in with one from Chase the other day and Chase darn well knows how this works...sometimes I think that creditors do it just to be jerks. At any exception these days is short sales on primary residences....that has been the rule for some time now and was recently extended until I don't know when. I'm always a little leery of the application of that exception....I have lots of clients that are pressured by realtors to do the short sales and my take on it is if a person is going to file a bankruptcy regardless then just surrender the property. There are just too many little twists, turns and exceptions in the tax code and if for any reason the exception wouldn't apply to a short sale and that sale was done prior to the bankruptcy filing then it is a priority income tax debt that is not going to be dischargeable for at least 3 years.

Back to the topic ( you all aware I take a bankruptcy practitioner's slant on everything). Relative to foreclosures specifically and whether they will pursue a deficiency on a mortgage will depend on two things. The lender and how they want to proceed and also the law in the jurisdiction where the real estate is located as foreclosure is a creature of state law. In Minnesota a lender can foreclose by one of two methods. By "action" where a formal lawsuit is commenced by service of summons and complaint. Regular lawsuit and they will attempt to get an order of judgment for the deficiency to collect from the debtor. The other is by "publication" which is far and away the most common foreclosure method in this state. It is generally cheaper and is a faster for the lender to foreclosure. There are probably a half a dozen law firms in Minnesota that handle 95% of the home foreclosures...busy boys they are these days! If that method is used a deficiency is not allowed for the foreclosing lender...they get their security back and that is the extent of their recovery. Usually the chances of recovering from a homeowner if they are losing their home is quite small. Most properties these days though has second and sometimes third and fourth mortgages on them. They aren't going to step in and satisfy the first senior lender typically as the equity is just not there. Those junior lien holders will sue on the promissory notes signed by the debtors/homeowners that established the personal liability for those transactions as that is not wiped out by the foreclosure of the senior lien holders. We do a lot of bankruptcy cases to discharge that liability for those folks.

David D. Kingsbury
Attorney at Law-Bankruptcy Lawyer
Kingsbury Law Office
14827 Energy Way
Apple Valley, MN 55124
Tel. (952) 432-4388
Fax. (952) 432-4969

Friday, February 5, 2010

Exemptions in bankruptcy cases

Chapter 7 “Can I keep my property”

Exemptions are statutory provisions (rules) found in either the United States Bankruptcy Code or the Minnesota State Statutes. They are the real "work horses" in the array of rules that govern how bankruptcy works. Exemptions are the rules that allow people filing bankruptcy to keep their property. Most cases end up being what people involved in the bankruptcy business term a "no asset" case. Which means....all the property a debtor owns is protected and they don't lose anything...but debt. In the typical case you can protect your primary residence, tools of the trade, vehicles, your household goods and furnishings, your paycheck, money on deposit in bank accounts, pensions, tax refunds you may be entitled to but may not have received yet, potential personal injury claims (all up to a particular amount) plus other kinds of property that may not be specifically covered by a particular exemption depending on what you have an ownership interest at the time you file your case and what it's worth. For those assets that don't have a specific exemption that applies to it there's what is known as a "wild card" exemption under the Federal exemptions. How exemptions work and which ones to apply are part of the "art" of practicing bankruptcy law. There is a great deal of interplay between what assets you have and what exemptions should be applied and how to reap their maximum benefit. Everyone brings a little something different to the table and there are actually a lot of variables to consider in a bankruptcy case filing. We look at income, expenses and the household income and reasonable/necessary living expenses. We also do a thorough asset analysis. We'll make sure that we protect your property to the fullest extent of the law. Sometimes we'll go through some strategies to do some pre-bankruptcy filing exemption planning too if that makes sense. Back to the ultimate questions of "Can I keep my property"? Answer....usually not an issue as most people don't lose anything in a bankruptcy filing.

Friday, January 29, 2010

Bad faith purchase lead to dismissal of Chapter 7 case

Dismissals or denials of discharge in Chapter 7 cases for bad faith reasons are fairly rare so when there is a case where they come up they are fairly interesting as they turn on the particular facts of the case. Here's one below that makes good reading. It is a recent case from the Eastern District in the State of Washington.

In re Hageney

Debtors' bought a $20,000 motorcycle less than 3 months before filing a Chapter 7 case. The court determined that it was obviously not a practical means of year-round transportation in the climate in which they lived and that conduct warranted dismissal of their Chapter 7 case as abusive under the "bad faith" dismissal provision. The motorcycle, which represented the debtors' third vehicle for their family of two, occurred at a time when, while the debtor-husband had just obtained a significantly higher paying job, the debtors' mortgage was in default, and they had already consulted an attorney about the possibility of filing for bankruptcy. The court found that while the purchase may have been prompted by the euphoria surrounding the debtor-husband's acquisition of the new job, and while the debtors may have no intention of harming their creditors, such intent was not a prerequisite to finding the necessary bad faith and dismissed the case.

A little common sense here would have seem to have been in order. Why on earth they thought they could get away with this is beyond me. If you want the benefit of discharging your debt you have to keep in mind that there are other parties involved...namely the creditors who have also have rights in bankruptcy proceedings limited though they may be. Here the conduct was so aggregious that the court threw them out of the case and denied them their discharge.

Tuesday, January 19, 2010

4th Circuit Court of Appeals decision on failure to reaffirm is a recently published decision in the 4th Circuit Court of Appeals (Here in Minnesota we are in the 8th Circuit)regarding the failure to reaffirm the debt on an automobile. While this case is not authority in the 8th Circuit it may well be utilized for persuasive argument by attorneys representing lenders in similar matters litigated in this jurisdiction.

ý No. 08-2177 Plaintiff-Appellee,
Defendants-Appellants. þ
Appeal from the United States District Court
for the Southern District of West Virginia, at Charleston.
Joseph R. Goodwin, Chief District Judge.
(2:07-cv-00709; 2:06-bk-20296; 2:06-ap-02151)
Argued: September 23, 2009
Decided: January 11, 2010
Before NIEMEYER and SHEDD, Circuit Judges,
and Mark S. DAVIS, United States District Judge for the
Eastern District of Virginia, sitting by designation.
Affirmed by published opinion. Judge Shedd wrote the opinion,
in which Judge Niemeyer and Judge Davis joined.
ARGUED: Andrew Steven Nason, PEPPER & NASON,
Charleston, West Virginia, for Appellants. Stephen P. Hale,
HALE, DEWEY & KNIGHT, PLLC, Memphis, Tennessee,
for Appellee. ON BRIEF: Jacob C. Zweig, HALE, DEWEY
& KNIGHT, PLLC, Memphis, Tennessee, for Appellee.
SHEDD, Circuit Judge:
David Douglas Jones and Kirsten M. Jones appeal an order
of the district court which held that DaimlerChrysler Financial
Services Americas, LLC, had the right to repossess their vehicle
pursuant to 11 U.S.C. §§ 362(h) and 521(a)(2), and West
Virginia Code § 46A-2-106. For the following reasons, we
The Joneses purchased a vehicle under a Retail Installment
Contract with DaimlerChrysler that granted DaimlerChrysler
a security interest in the vehicle to secure payment; the security
interest was later perfected. The contract contains a clause
which provides that the Joneses will be in default if they file
a bankruptcy petition or if one is filed against them. Subsequently,
David Jones filed a petition for relief under Chapter
7 of the Bankruptcy Code. Kirsten M. Jones did not file for
bankruptcy but brought this adversary proceeding as the coowner
of the vehicle.
In filing for bankruptcy, Mr. Jones filed a statement of
intention with respect to the contract for purchase of the
Joneses’ vehicle that indicated that he would "Continue Payments"
on the vehicle but did not state whether he intended
2 In Re: JONES
to redeem the vehicle or reaffirm the debt as required by 11
U.S.C. §§ 362(h) and 521(a)(2).1 He also failed to redeem the
vehicle or enter into a reaffirmation agreement with Daimler-
Chrysler within 45 days of the first meeting of creditors held
on June 16, 2006. See 11 U.S.C. § 521(a)(6). Mr. Jones made
a payment on August 28, 2006, through DaimlerChrysler’s
automated telephone payment system. This was the only payment
made after the § 521(a)(6) 45-day period to either
redeem or reaffirm expired on July 31, 2006.
DaimlerChrysler thereafter moved to confirm termination
of the automatic stay2 so that it could enforce its security
interest by repossessing the vehicle pursuant to the defaultupon-
bankruptcy clause, also called an "ipso facto" clause.
See In re Husain, 364 B.R. 211, 217 n.7 (Bankr. E.D. Va.
2007). After a hearing, the bankruptcy court entered an agreed
order confirming that the automatic stay was terminated.
Thereafter, without providing written notice of default and
right to cure, DaimlerChrysler repossessed the vehicle pursuant
to the ipso facto clause. The Joneses then commenced this
adversary proceeding.
As part of the adversary proceeding, the bankruptcy court
enjoined the sale of the vehicle and required its return. The
bankruptcy court held that DaimlerChrysler did not have the
1These sections require a debtor intending to retain the collateral to file
a statement of intention which states the intent to either reaffirm the debt
in a reaffirmation agreement or redeem the property. Then, a creditor and
a debtor enter into a reaffirmation agreement prior to discharge, and the
consideration for the agreement is the debt which is dischargeable under
the Bankruptcy Code; the agreement must be filed with the court. 11
U.S.C. § 524(c). Alternatively, a debtor may redeem property from a
secured lien by paying the lienholder the full amount of the lien. 11 U.S.C.
§ 722. An individual debtor has 45 days after the first meeting of creditors
to either reaffirm or redeem. § 521(a)(6).
2When a bankruptcy petition is filed, it operates as an automatic stay of
"any act to obtain possession of property of the estate." 11 U.S.C.
§ 362(a)(3).
In Re: JONES 3
right under the Bankruptcy Code to repossess the Joneses’
vehicle even though Mr. Jones failed to indicate either his
intent to redeem the vehicle or reaffirm the debt on his statement
of intention. The bankruptcy court relied on the "ridethrough"
option recognized in Home Owners Funding Corp.
of Am. v. Belanger (In Re Belanger), 962 F.2d 345, 347-49
(4th Cir. 1992). The ride-through option permitted Chapter 7
debtors who were current on their installment payments to
continue making payments and retain collateral after discharge
without redeeming the collateral or reaffirming the
debt. Id. at 347. The bankruptcy court also held that West Virginia
Code § 46A-2-106 required DaimlerChrysler to first
give the Joneses notice of the right to cure default before
repossessing the vehicle.
On appeal, the district court reversed both rulings and held
that DaimlerChrysler had the right to repossess the vehicle. In
re Jones, 397 B.R. 775 (Bankr. S.D. W. Va. 2008). Specifically,
the court held that the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005 (BAPCPA), Pub. L.
No. 109-8, 119 Stat. 23, eliminated the ride-through option
recognized in In Re Belanger. In re Jones, 397 B.R. at 787.
The district court also held that § 46A-2-106 is inapplicable
here. Id. at 794-95. The Joneses now appeal the order of the
district court, challenging both of these rulings. For the following
reasons, we reject their contentions and affirm.
When reviewing a decision by a district court in its capacity
as a bankruptcy appellate court, we examine factual findings
of the bankruptcy court for clear error and review legal conclusions
de novo. See IRS v. White (In re White), 487 F.3d
199, 204 (4th Cir. 2007). Because the facts here are not in dispute,
we review the district court’s decision de novo.
We initially consider whether the district court erred in
holding that BAPCPA eliminated the ride-through option rec-
4 In Re: JONES
ognized in In Re Belanger, 962 F.2d at 347-49. In re Belanger
analyzed the language of former § 521(2)(A), which required
a debtor to file a statement of intention which, "if applicable,"
indicated the debtor’s intent to either redeem the collateral or
reaffirm the debt secured by the collateral. We interpreted the
language "if applicable" to mean that the options of redeeming
or reaffirming were not exclusive and, therefore, the property
could ride through the bankruptcy unaffected if the
debtor chose to retain the property and continue making payments.
962 F.2d at 347.
Although the text of the former § 521(2)(A) remains
largely the same under BAPCPA, former § 521(2)(C) has
been amended as follows: "nothing in subparagraphs (A) and
(B) of this paragraph shall alter the debtor’s or the trustee’s
rights with regard to such property under this title, except as
provided in section 362(h)." 11 U.S.C.
§ 521(a)(2)(C)(emphasis added). Section 362(h), which was
added to Title 11 by BAPCPA, provides in relevant part,
[T]he stay provided by subsection (a) is terminated
with respect to personal property of the estate . . .
and such personal property shall no longer be property
of the estate if the debtor fails within the applicable
time set by section 521(a)(2) —
(A) to file timely any statement of intention
required under section 521(a)(2) with respect to such
personal property or to indicate in such statement
that the debtor will either surrender such personal
property or retain it and, if retaining such personal
property, either redeem such personal property pursuant
to section 722, enter into an agreement of the
kind specified in section 524(c) applicable to the
debt secured by such personal property, or assume
such unexpired lease pursuant to section 365(p) if
the trustee does not do so, as applicable; and
In Re: JONES 5
(B) to take timely the action specified in such
statement . . . .
11 U.S.C. § 362(h)(1) (emphasis added). Sections
521(a)(2)(C) and 362(h) significantly alter the pre-BAPCPA
analysis by explicitly requiring a debtor to indicate on the
statement of intention an intent to either (1) redeem the property
or (2) reaffirm the debt, in order to retain the property.
If the debtor fails to so indicate, the stay terminates with
respect to the property, and the property will no longer be part
of the estate. See, e.g., In re Craker, 337 B.R. 549, 550-51
(Bankr. M.D.N.C. 2006).
Section 521(a)(6), added by BAPCPA, also evidences that
the ride-through option has been eliminated. That section provides
that a debtor may not retain possession of personal
property which is subject to a secured claim unless the debtor
either reaffirms the debt or redeems the property, according
to the debtor’s statement of intention required by §§ 521(a)(2)
and 362(h), within 45 days of the first meeting of creditors.
This section further provides that if the debtor fails to so act
within the 45-day period, the stay is terminated, the property
is no longer considered part of the estate, and "the creditor
may take whatever action as to such property as is permitted
by applicable nonbankruptcy law." § 521(a).
Therefore, BAPCPA amended Title 11 to eliminate the
ride-through option that we recognized in In re Belanger, at
least as applied to these facts.3 Although our holding is at
odds with In re Belanger, that decision has been superseded
by BAPCPA. See Santos v. United States, 461 F.3d 886, 891
3Because Mr. Jones did not take any action to reaffirm or redeem, we
have no occasion to address the "back door ride-through" option that some
courts have recognized where the debtor has substantially complied with
§§ 521(a)(2) and 362(h) but has been frustrated in his effort to fully comply.
See, e.g., In re Chim, 381 B.R. 191, 198 (Bankr. D. Md. 2008); In re
Husain, 364 B.R. 211, 218-19 (Bankr. E.D. Va. 2007).
6 In Re: JONES
(7th Cir. 2006) (holding that supervening developments, such
as a statutory overruling, justify deviation from prior decisions
of the same court).
When Mr. Jones failed to timely redeem the vehicle or reaffirm
the contract, the automatic stay was terminated and the
vehicle was no longer part of the bankruptcy estate. The
Joneses were not entitled to retain the vehicle pursuant to the
Bankruptcy Code, and DaimlerChrysler was free to take
whatever action was permitted under West Virginia law and
its contract.
We next turn to the question of whether DaimlerChrysler
had authority to repossess the vehicle pursuant to the contract’s
ipso facto clause without giving the Joneses prior
notice of a right to cure the default under state law. The general
rule is that an ipso facto clause in an installment loan contract
is unenforceable as a matter of law. See Riggs Nat. Bank
of Washington, D.C. v. Perry, 729 F.2d 982, 984-85 (4th Cir.
1984) (explaining that these clauses deprive a debtor of the
advantages of bankruptcy proceedings by causing him to
default immediately upon his filing a bankruptcy petition).
However, BAPCPA created an exception to this general prohibition
by adding § 521(d), which permits creditors to
enforce ipso facto clauses in consumer loan agreements
secured by personal property if the debtor fails to comply with
the provisions of §§ 521(a)(6) or 362(h). See In re Donald,
343 B.R. 524, 538-39 (Bankr. E.D.N.C. 2006). Specifically,
§ 521(d) provides that upon the debtor’s failure to comply
with these provisions,
nothing in this title shall prevent or limit the operation
of a provision in the underlying lease or agreement
that has the effect of placing the debtor in
default under such lease or agreement by reason of
the occurrence, pendency, or existence of a proceed-
In Re: JONES 7
ing under this title or the insolvency of the debtor.
Nothing in this subsection shall be deemed to justify
limiting such a provision in any other circumstance.
Therefore, the filing of the bankruptcy petition constituted
default, and Mr. Jones’s failure to redeem the vehicle or reaffirm
the debt permitted DaimlerChrysler to take action under
its contract and § 521(d) as permitted by West Virginia law.
§ 521(a)(6).
The Joneses argue that DaimlerChrysler waived any default
under the ipso facto clause based on the single payment made
through DaimlerChrysler’s automated telephone payment system
after the § 521(a)(6) 45-day period expired. However, at
the time that this payment was made, the bankruptcy court
had not yet issued its order confirming the termination of the
automatic stay. We find that the acceptance of a single automated
payment made prior to the bankruptcy court’s order did
not clearly waive default and did not estop DaimlerChrysler
from repossessing the vehicle. Potesta v. U.S. Fidelity &
Guar. Co., 504 S.E.2d 135, 142 (W. Va. 1998) ("[W]here the
alleged waiver is implied, there must be clear and convincing
evidence of the party’s intent to relinquish the known right.").
Finally, the Joneses challenge DaimlerChrysler’s right to
repossess the vehicle under state law based on DaimlerChrysler’s
failure to give notice pursuant to West Virginia Code
§ 46A-102-106. That section is entitled "Notice of Consumer’s
Right to Cure Default; Cure; Acceleration." (Emphasis
added). As the title of that section indicates, the section
directs when a creditor must give a debtor notice of the right
to cure default. The section’s operative language states:
[A] creditor may not . . . commence any action or
demand or take possession of collateral on account
of default until ten days after notice has been given
8 In Re: JONES
to the consumer of his or her right to cure such
§ 46A-102-106. That section also specifies that the notice
must clearly state the debtor’s "right to cure such default" and
requires certification by the creditor that this notice of right to
cure was provided in a specified manner. § 46A-2-106.
The requirement under § 46A-2-106 to inform a debtor of
his right to cure default is necessarily based on the premise
that the default can be cured.4 Here, however, both parties
agree that the event that triggered default, the filing of a bankruptcy
petition, cannot be cured. Therefore, we affirm the district
court’s holding that DaimlerChrysler was not required to
give the Joneses notice of default and right to cure before
repossessing the vehicle.
Accordingly, the judgment of the district court is affirmed.
4We are not required to apply statutory language when such an application
"‘results in an outcome that can truly be characterized as absurd’".
See Hillman v. IRS, 250 F.3d 228, 233 (4th Cir. 2001) (quoting Sigmon
Coal Co. v. Apfel, 226 F.3d 291, 304 (4th Cir. 2000). To require notice of
right to cure when there is no ability to cure would be an absurd result.

Wednesday, January 13, 2010

Attorney fees and costs in bankruptcy chapter 7 or chapter 13

Fees are always the 800lb gorilla in bankruptcy matters especially in chapter 7 cases as the United States Trustee's Office does not allow attorneys in this region (not just in this practice is in Minnesota and we are part of the 4th Region that the U.S. Trustee's Office administers)to take payments from our clients. So...that is a problem that a lot of people have and unfortunately there really isn't anything that the attorney can do about that as this certainly isn't something that we came up with. That rule has been in effect here since December 2003. Typically most people will save up for the fees, borrow the money from friends or relatives, take a loan on a 401K or a life insurance policy (or cash those out), sell something or a lot of people file after they get their tax refunds. In some certain circumstances we will take payments from third party guarantor. In that situation a third party (your friend or relative) would sign a fee guaranty agreement and give us post dated checks for all the payments.

Some folks will consider a chapter 13 bankruptcy for various reasons and sometimes ease in payment on the fees are one of those factors but certainly not always or even commonly. In a chapter 13 case you can usually get into it for less money and the rest of the fees are paid out the funds that the client is paying into the trustee as an administrative expense of the chapter 13 plan. However, you'd still be looking at coming up with probably at least $1,500.00 in my office and no one that I know one does them for just the filing fee down anymore. In Minnesota the "presumed" fee set by the court is $2,500 for the attorney fees if the debtor(s) are below the median income and $3,000.00 if they are above it. Some jurisdictions are much higher....California for instance. Often the fees can run higher than the presumed amount dependent on the issues in the case. We file a fee application with the court in that instance that itemizes line by line what our time was spent on plus and costs, fees or disbursements that were incurred in prosecuting the case. That is filed with a motion asking the court to review our application and issue an order directing the trustee to pay the balance of the fees requested if it is determined that it is appropriate relative to what went on in that case. Typcially we will file that fee application and the motion for hearing once the chapter 13 plan is confirmed (read "approved") by the court. far as what a case costs overall it is safe to say that fees are dependent on the nature of the case and it is hard to quote a fee for any particular case without doing the case analysis as there are a lot of variables that can determine what the fee would be. Things like is it a 7 or a 13? There are other factors as well. Is it joint or individual filing? Is it a business case or is there self employment involved? Is there a trust or a contingent remainder interest in real estate? Are there multiple pieces of real estate? Are the clients over the median income and do we need to do long form means testing to determine if they qualify for a chapter 7 case? Have they been in the jurisdiction long enough for us to use the local exemptions or do we need to apply those from another state? Are we going to use either the state or the federal exemptions? Is there any non-exempt property? Will we will be engaging in pre-bankruptcy exemption planning? ......the list goes on and as you can see there are a lot of things that factor into how a fee is quoted in a bankruptcy case. We do have fairly standard fees for what we would consider a "fairly standard" case....problem is that just quoting someone that standard fee means that in a lot of circumstances it wouldn't apply and then people get disappointed when they are quoted a different number after we've had a chance to do the case analysis to see what is actually going on with them and what it would take to do a case for them. Standard cases in Chapter 7 are what we refer to as the "mom and pop" cases....translate that as a married couple working for wages with a mortgage or two and probably a couple of car loans, some credit card debt and maybe some medical bills. Anything past that and then we get into more complications. If it helps at all fees roughly...emphasize "roughly" are currently as of the date of this writing usually between $2,000 and $2,500 (varies from place to place how much attorneys will charge...some places it is quite a bit less....others it is quite a bit more depending on the locale and what the going rate is for the debtor's bar there) including the filing fee for a joint chapter 7 case. Sometimes less and sometimes a whole lot more depending on the nature of the case and the circumstances presented. Everyone brings something different to the table. Little old ladies on social security and no assets to speak of don't pay that much...that's because their cases are pretty simple and dont take much time. More complicated equals more time for us which translates into higher fees for our clients. So...while I can't give anyone a specific quote when we're at the stage prior to the consult and I don't know much of anything about them...that is basically how the fee structure works. The fixed costs are nominal...those are the filing fee and the fee for the credit report we pull. The rest of it is what we've got into the case for time and that is the one thing that can't truly be determined unless we know what our prospective client has got going on and why we offer a free consultation and case analysis to figure that out.

Friday, January 8, 2010

Student loan appeal to U.S. Supreme Court

Friends....from Westlaw caselaw updates.. The United States Supreme Court is hearing a number of bankruptcy related cases this term. Of special interest to some may be this one regarding student loans.

The United States Supreme Court has granted certiorari in United Student Aid Funds, Inc. v. Espinosa (Docket No. 08-1134), 2009 WL 646192, a case in which the Ninth Circuit Court of Appeals held that a debtor could discharge student loan debt by including it in a Chapter 13 plan, without complying with the heightened notice requirements embodied in the Bankruptcy Code and the bankruptcy rules and without initiating an adversary proceeding in which the debtor would be required to show undue hardship. In this decision, Espinosa v. United Student Aid Funds, Inc., 545 F.3d 1113 (C.A.9-Ariz. 2008), op. amended and superseded, 553 F.3d 1193 (C.A.9-Ariz. 2008), the Ninth Circuit further held that the student loan creditor's due process rights were not violated because the creditor received actual notice of the debtor's Chapter 13 case and proposed plan.

Normally an adversarial proceeding (separate lawsuit) is required to establish the undue hardship standard by which student loans are (rarely) granted a discharge in bankruptcy. Here the debtor just made it a provision in his plan. It has gone up through the appeal process and has landed at the Supreme Court of the United States for a final determination. Ultimately it probably just means that student loan servicers will be more vigilant in regard to the plan provisions that may adversely effect them and object if this type of language is included so not all that much would change substantially as it does not change the standard for discharging student loans but only would allow for another way to do it if the U.S. Supreme Court determines that a plan provision is adequate enough notice and the lender would be bound by the terms of the plan without a timely objection.