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 example....you 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 bad...got 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.
Thursday, March 18, 2010
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.
http://www.kingsburylawoffice.com/
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.
http://www.kingsburylawoffice.com/
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 mortgages...an 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.
The last quarter of 2009 saw a record percentage of homeowners 60 days or more behind on their mortgages...an 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 property....it's got to be income producing and adding to your bottom line...it 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.
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
Friends
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 rate...an 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 (almost...as 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
www.kingsburylawoffice.com
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 rate...an 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 (almost...as 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
www.kingsburylawoffice.com
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.
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.
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