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.
Thursday, April 22, 2010
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.
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 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.
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.
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.
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