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.
Wednesday, June 30, 2010
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 http://www.redstate.com/ ,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 mortgage.....is 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 http://www.kingsburylawoffice.com/. All manner of Chapter 7 and Chapter 13 bankruptcy cases in the state of Minnesota.
David Kingsbury
Bankruptcy Lawyer
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 mortgage.....is 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 http://www.kingsburylawoffice.com/. 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 http://www.kingsburylawoffice.com/
For other information regarding bankruptcy for consumers and small businesses please feel free to visit our website located at http://www.kingsburylawoffice.com/
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.
www.kingsburylawoffice.com
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.
www.kingsburylawoffice.com
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 www.kingsburylawoffice.com or feel free to email me at kingsdav@aol.com .
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 www.kingsburylawoffice.com or feel free to email me at kingsdav@aol.com .
Thursday, April 22, 2010
MN Supreme Court Decision on jointly held bank account garnishments
Friends,
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.
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's...free 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.
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's...free 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.
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