Engaged in business for the purposes of the Statement of Financial Affairs/other forms

In every bankruptcy petition the debtor must complete a "Statement of Financial Affairs". Part of which is directed to those debtors who have been "engaged in a business". If so, then questions 19 - 25 must be answered. The requirement to furnish this info is if you have are currently or have been in the past 6 years a director, officer, partner, sole proprietor, self employed, are or were a managing executive or have had an ownership interest of more than 5% of the voting or equity securities of a corporation.

In my experience many clients often don't consider what they may have been doing as being engage in a business to a level sufficient for the requirement to report to kick in. For example...an adult with a paper route, someone selling handmade jewelry on ebay or craft shows, someone with a rental property collecting rents, etc., etc. All of these examples are considered businesses in the eyes of the bankruptcy court. In both Chapter 7 & Chapter 13 bankruptcy cases the interest in the business (if active) should be scheduled as a property interest (valuation for these purposes is another topic). The income or expense relative to the business should be noted on schedules I & J (the income and expense schedules). Plus the information regarding the business entered into the Statement of Financial Affairs (whether an on-going/active business or not). For the statement of financial affairs the interest should be identified as to the structure of the business...be it a corporation, LLC, partnership or sole proprietor. The tax id will be required (or the last 4 digits of the debtor's social security number). I plug in what the extent of the ownership interest is and who the other owners might be, if any. Plus a general description of what the business activity was....real estate development, remodeling, paper route, jewelry sales...what have you. Lastly, the starting and finishing dates if it is a business no longer operating and/or a start date for an on-going enterprise. There are also questions as to whether there have been any recent financial statements, who has keep the books, who is in possession of the business records, etc. Most of the time this is all fairly simple but it is important info to disclose and the trustee will make inquiries about the business at the creditor's meeting for sure. Basically they want to know if there are any assets there or have been transfers of assets to business creditors or other involved persons in order to determine if there is something there that the bankruptcy estate would be entitled to administer for the benefit of creditors.

Also, the local rules where I practice in Minnesota state that in chapter 13 cases any debtor with a business which generates $200 or more revenues is required to submit a "Business income and expense" form. This form indicates what the revenues were for the past 12 calendar months, what the expected monthly income will be going forward and what the anticipated expenses will be on a monthly basis. The expenses need to be broken down with particularity in terms of how much per month for what category of expense. I generally don't do a breakdown for this in chapter 7 although the trustee or U.S. Trustee could certainly request this information if desired.

So, at a minimum...if someone is generating at least $200 a month doing whatever it is they do and it isn't for wages (comissioned people are often running a business..anyone who is 1099'd is running a business) the we fill out these forms...and most often even if it is less. Best practice is to disclose all the information rather than to leave it out which could raise issues of bad faith due to the failure to disclose.

If you've got questions regarding personal or small business bankruptcy matters we'd be glad to help.

David D. Kingsbury, Atty.
Kingsbury Law Office
(952) 432-4388

http://www.kingsburylawoffice.com/

When can one modify a chapter 13 bankruptcy plan?

I recently had a chapter 13 client connect with me. They've been in their chapter 13 for awhile...6 or so. Their plan is confirmed. They've just been thrown a curve ball. His wife is a school teacher. She, in a year's time, will be taking a leave from work for a whole year....apparently unpaid. Obviously this will have an impact on their ability to continue making their plan payments so he's being proactive in contacting me to see how that will affect their bankruptcy case.

And the answer is....If in a chapter 13 case there is a change in income we can sometimes modify the chapter 13 plan to reduce the payments. That means drafting and filing a new plan, drafting and filing new income and expense schedules plus drafting, filing and scheduling a motion for the court to consider the modified plan based on the change in circumstances. That we do often enough...but, of course, there has to be enough income there to still fund a plan at minimum levels in order to meet statutory requisites and that can vary from one person's situation to the next depending on what they've got going on. If it doesn't work (not enough income)...then one can consider a chapter 7 case to see if that relief is available. The trustee cannot acquiesce to "hiatus" of payments for any duration be it long or short as the confirmed plan is set per court order and the trustee does not have that kind of authority...only the judge does. The thing to do is if there is a change that will impact your ability to make payments is connect with me when that event does occur or is certain in the relatively near future. At that point we can discuss your options to determine what the best way to handle that change in income will be..either a modified chapter 13 plan with an adjustment in the payment if possible or we'd also take a look at converting the case to that of chapter 7 if that makes more sense.

If you've got questions about chapter 7 or chapter 13 bankruptcy we'll be glad to help.

Attorney David D. Kingsbury

www.kingsburylawoffice.com

Individual or joint bankruptcy filing?

I have a lot of people who come in for consults with me and they are wondering if they have to file together or can one or the other file an individual bankruptcy case. If a joint case is filed there are actually two bankruptcy estates. Under 11 USC 302(a) an individual and his or her spouse may file a joint petition under Chapter 7. From a technical standpoint there are two separate bankruptcy cases/estates created. However, in almost every case the estates are consolidated under Bankruptcy Rule 1015(b) and administered as one case. The debtors will have their creditor's meeting scheduled for the same time and the same trustee will be appointed to administer both estates.

It usually makes sense to file a joint case when there are joint obligations on a significant portion of the debt. I've had some people fairly surprised to learn that they can't get rid of debt for their spouse if they file a bankruptcy on a creditor. Doesn't work that way...if the spouse has signed on the dotted line..then they are liable too and one person who is liable on an account is not going to get rid of the debt for the other because they've filed a bankruptcy case. On the other hand, if one spouse owes the lion's share of the debt and the other spouse is fairly debt free (meaning they haven't obligated themselves to pay on the debt)....then filing an individual case makes all kinds of sense. The court will always, as discussed in other posts, take the non-filing spouse's income into consideration when determining if the person that does file the bankruptcy case is eligible to file from an income standpoint. That's because the debtor and the non-filing spouse are seen by the court as an "economic unit". I usually get a "that's not fair", especially from people who may have just gotten married recently and where one has brought a lot of debt as baggage into the relationship. Whats "fair" hasn't got much to do with it. However, if the non-filing spouse has debt service of his or her own though that can be and should be factored in to the calculation so not all the income of the non-debtor always counts in an "ability to pay" analysis.

Only married persons can file a joint case. So boyfriend/girlfriend...even though it may feel like your married and you've got kids in common, have joint bank accounts or hold title to real estate together..plus any other trappings of a serious and permanent relationship without that marriage certificate you'd be looking at two separate bankruptcy filings as individuals...two filing fees, two attorney fees, two hearings and two separate discharge orders.

If you've got questions about chapter 7 or chapter 13 bankruptcy for personal or small business we've got the answers.

Kingsbury Law Office

www.kingsburylawoffice.com

Income for non filing spouse's count in Bankruptcy

I've had many, many clients come in for consults who aren't married but intend on filing an individual case. Perhaps they've been married for decades...maybe they just got married a couple of days ago. Sad news is...the spouse's income counts. That goes for no matter how long you've been married be it long or short...or even if all the debts are separate. "Whoa" they say...that's unfair...none of that debt is even his (or her's).....that's "not fair". Fairness my friends often has very little to do with how the law works.

Moral of the story...if you're single and thinking about getting married...and lots people determine they need to file a bankruptcy case so they aren't dragging a bunch of old debt into the relationship...talk to your bankruptcy attorney before you do anything about "tying the knot". Once you're married...then the income counts...no matter what.

If you've got questions about consumer or small business chapter 7 & chapter 13 bankruptcy we can help.

Kingsbury Law Office--Apple Valley and Rochester, MN
www.kingsburylawoffice.com
(952) 432-4388

Prohibited discriminatory treatment because of a bankruptcy filing

I got a message from a financial planner who often refers me clients. He had been speaking with someone who insisted he couldn't file a bankruptcy case because he had it (on "good" authority) that he would lose his state issued contractor's license. Sadly...another case of taking legal advice off of street corners...or worse, taking advice from an attorney poorly versed in the law.

11 U.S.C. 525 of the United States Bankruptcy Code which is entitled "Protection against discriminatory treatment" provides that a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate in respect to to employment against, a person that is or has been a debtor in bankruptcy. It provides the same protection if you are just related to someone who has filed bankruptcy....apparently a concern that the drafters of the statute wanted to address.

Another subsection of that provision also protects against discriminatory treatment in regard to student loans....any entity that grants student loans can't discriminate against someone because they've filed a bankruptcy or are related to someone that has done so. They could for some other legitimate reason, of course, but not because of a bankruptcy filing. That would go for the situation with the contractor who is worried about his license too. However...if everything else is good...then a bankruptcy won't be a detriment and the worry about losing his license (or a person worried about not getting a student loan) should not be a bona fide concern.

If you've got questions about chapter 7 or chapter 13 bankruptcy for consumers or small businesses we'd be glad to help.

www.kingsburylawoffice.com

Exceptions to the general rule for what property comprises a bankruptcy estate

For the most part property that a debtor acquires (or becomes entitled to acquire) after filing for bankruptcy is not something that is considered part of the bankruptcy estate administered by the trustee.

There are some exceptions though. Here's the deal....if the debtor receives or even has a right to receive property of a certain type within 180 days after filing for bankruptcy you must let your attorney know to make the assessment to determine if it can be exempted (protected) for you. Failing to do so could result in a revocation of discharge based on bad faith and non-disclosure of the asset. Not a good result for anyone. In pretty much every creditor's meeting I've ever attended (many thousands) the trustee will make an inquiry as to the potential for the debtor to acquire certain types of property within 180 days of filing their case and will also inform them that if they do...they need to let them know (the trustee assigned to the case) and also their attorney.

• an inheritance (applies if the person dies during the 180 days...as you have the right to inherit at that point...you don't actually have to have received the inheritance within the 180 days...could be years later.
• Life insurance proceeds.
• property received from a marital settlement agreement or divorce decree.

It's rare that these things crop up in an average case...but it does happen...it's happened in some of my cases over the years. It is more likely that the most or all of the types of assets listed above could be exempted in your bankruptcy depending on the value. Your attorney needs to make that analysis for you.

If you've got questions about chapter 7 or chapter 13 bankruptcy we'll be glad to help.

Attorney David D. Kingsbury

www.kingsburylawoffice.com

Failure to foreclose on real estate

I was just at a National Association of Consumer Bankruptcy Attorneys seminar in Colorado Springs this weekend. One of the conversations I had repeatedly over the course of the seminar was that bankruptcy attorneys all over the country are experiencing the same phenomenon…...lenders are taking forever to foreclose.

In a situation with homeowner association dues continuing to accrue that the debtor is still liable for that can be a real problem. Besides that problem specific to townhomes/condos there is also the issue of utility bills still in the homeowners name, issues with liability if someone was injured on the property, etc.

There can be a plus side…namely living there with no payment (with the exception of homeowners association dues) if a person is still living there and waiting out the foreclosure. That can be a good option but for those that want to move on in short order the reluctance of a lender to foreclose can be a real problem.

I was speaking with a bright attorney in Indiana who is now bringing suit against mortgage lenders for failure to foreclose...the theory being that the debtors are being denied the benefit of their bankruptcy discharge considering that they are saddled with what once was an asset but is now a liability and they can’t get rid of it even though they filed their bankruptcy and were issued a discharge because the lender refuses to cooperate. Novel argument…makes a lot of sense. I see enough of these situations in my practice from time to time that I will be contemplating the same type of suit for my clients caught in that predicament.

If you've got bankruptcy questions or need to file chapter 13 or chapter 7 for yourself or for your business we can help. Find us on the web at

www.kingsburylawoffice.com

HSBC to maintain its freeze on foreclosures in some areas for now

The nation's 12th largest mortgage servicer and 9th largest bank informed investors last Weds. that the moratorium on foreclosures that has been in place since sometime last autumn will continue for at least a number of months before it resumes foreclosing on defaulted loans. The moratorium came about due to government probes into illegal and faulty loan practices...such as "robo-signing" as it is popularly called when their employees would blindly sign many, many documents without checking the accuracy of the alleged defaults on the loans and other deceptive practices. In April it was one of 14 mortgage companies sanctioned by the Federal Reserve Bank and the Office of Comptroller of the Currency due to their erroneous and illegal procedures. More than 43 thousand home foreclosures were initiated in 2009 -2010. Considering the state of the economy and the housing market 2011 will be yet another banner year for this lender as well as others. The Obama administration and some state authorities are pushing for fines nearing the $30 billion mark in reaction to the past abuses to delinquent borrowers by HSBC and other lenders.

Exempting proceeds from personal injury settlements in Chapter 7 or Chapter 13 bankuptcy cases

Midland Credit Management vs. Chatman, MN Court of Appeals filed 3/22/2011 is a case that reaffirms earlier decisions regarding the ability to exempt (protect) proceeds from personal injury settlements as distinguished from being able to exempt the "right of action" in personal injury matters as it pertains to bankruptcy filings.

The court followed earlier court decisions wherein they took a "plain meaning" interpretation of the statutory language and also looked at other exemption statutes that sought to exempt proceeds and payments traceable to exempt sources. Those other statutes (as opposed to one under review here which was Minn Stat. Section 550.37, subd. 22) specifically stated that for example "all money arising from any claim on account of the destruction of, or damage to, exempt property", or in another section under the statutes providing for exemptions that the "right to receive present or future payments, or payments received by the debtor" would be exempt. (Minn Stats. Sections 550.37, subd. 9 and 550.37, subd. 25). So there...the language is inclusive and is plain on it's face. The court determined that had the legislature wanted to provide the same treatment for payments received on account of personal injury that it could have provided the same or similar language in the pertinent statute. Since the legislature could have but didn't include that language the court decided that the intent was not to protect the actual payments received on account of personal injury types of funds/payments to give them exempt status and therefore, they are not exempt.

Lesson to take from this decision...and which has also been my practice for many years is that all the circumstances have to be taken into account when contemplating a bankruptcy. Exemptions are one important part of the analysis. When a client has a personal injury matter and it is of a level whereas the potential damage award is higher than what we can protect under the federal exemptions found in the Bankruptcy Code then we will most likely consider filing under the state exemptions....but ONLY IF it is an unsettled claim at the point of filing. If not...then we have to reassess as this court of appeals decision confirms the prior cases which have held that only the claim or the right to the action is exempt and not the proceeds themselves. The question I always ask is....where is this at? Has it been settled? Has pen been put to paper yet? If not, then all things being equal and we don't have other types of concerns with other assets and the way we need to exempt those to weigh in...then we are good to go. If there has been a settlement...then the funds need to be spent down or converted to exempt assets within the limitations allowed by law.

Be advised that this analysis is pertinent to Minnesota bankruptcy cases and none other. If you are in another state other rules or case law may apply.

If you've got questions and need some answers regarding issues involved in a chapter 7 or chapter 13 bankruptcy filings for either personal or small business bankruptcy cases we'd be glad to help. Please feel free to connect with my office at your convenience.

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

Judgment removal

Just got off the telephone with a client of mine from 2002. She had just done a credit check and surprised to find a judgment on her record for a debt that was included in her bankruptcy filing. She called my office all bent out of shape and yelled at my receptionist telling her that this was something we should have taken care of for her. I touched on this topic in an earlier post but will take some time to go over it now. As for the problem....we'll take care of it. I pointed out to her that we informed her in writing at the time she hired us that judgments are not removed from the record or credit reports because someone files a bankruptcy case. Of course, she didn't remember that...but that is why we lawyers hang on to every scrap of paper that is generated in a case. She has decided to hire us to perform a judgment removal for her.

First off, a person has to understand that bankruptcy takes care of debts. Judgments are simply not debts. They may seem like debts to the lay person but rather they are a legal artifice that helps judgment creditors collect their money. Typically you need a judgment to do a bank levy, wage garnishment or any of the other less commonly used methods to execute on assets in order to satisfy a judgment. Judgments then, are court orders that state that the court has made a finding after a hearing on the matter and agrees that you owe someone some money. However, and as discussed above...in and of themselves they are not in the nature of debt. Since bankruptcy removes debts and not court orders a discharge of the debt in a bankruptcy case does not serve to remove the record of the judgment.

After the bankruptcy order has been issued and the debt has been discharged in Federal court (2 different court systems here) we can then file an action in state/district court where the order on the judgment was issued and request an order removing the record of the judgment. The argument is based on the fact that the underlying debt that supported the issuance of the order for judgment is now discharged. A certified copy of the bankruptcy discharge is attached to the application for judgment removal so there are a few steps to take in terms of paperwork, serving the appropriate parties in a timely manner and noticing them regarding a hearing on the matter. In the majority of cases there is no problem getting the judgment removed without any great difficulty.

If you have debt issues or questions about bankruptcy filing in regard to either Chapter 7 or Chapter 13 bankruptcy for either individuals or small business do not hesitate to contact us.

Offices Located in Apple Valley and Rochester, MN

Direct email for Dave Kingsbury is kingsdav@aol.com

Visit our web site at www.kingsburylawoffice.com for information to common questions regarding filing bankruptcy or to download our document package if you'd like to schedule a consultation

David Kingsbury, attorney
14827 Energy Way
Apple Valley, MN 55124
(952) 432-4388
(507) 281-5255

Denny Hecker Bankruptcy Fraud

In federal court Minneapolis, MN Denny Hecker, a one-time mover/shaker and auto dealer empire Mogul in the twin cities was sentenced to 10 years in prison on 2/11/11 for bankruptcy fraud and conspiracy to commit wire fraud. The sentencing judge threw the book at him sentencing him to the maximum called for under the guidelines telling Hecker that he did not deserve a break and called him a scoundrel. Harsh words and a harsh sentence. Bad for Hecker no doubt but others can benefit from his experience. I'm hoping that his outcome will serve as a deterrent for anybody coming into the bankruptcy process with less than a full commitment to total disclosure and candor with the court as well as with their attorney. Lately whenever I've got someone consulting with me about a bankruptcy case and they either outright come out and ask me how to "game" the system or I get the sense that they aren't being totally candid with me I've pulled out the example of Mr. Hecker as good reason for being "honor bright" and truthful with all things in regard to their bankruptcy filing. It isn't worth it to try and hoodwink the court. You can lose your discharge as Mr. Hecker did...plus he still has to pay all the debt and he's spending the next decade in federal prison. That's not a typical result but he's an example that people can and actually do go to jail for bankruptcy fraud. It appears that he was his own worst enemy as he couldn't process the fact that he wasn't fooling anyone anymore. That failure and his continued contempt for the bankruptcy process led to the harshness of his sentence. Word to the wise...full disclosure and play by the rules. There are many benefits in bankruptcy for debtors but some stiff penalties for dishonest debtors. For my own practice...if I get the sense that someone isn't coming completely clean with me about their circumstances I give them a pass. I don't want their case and I won't be involved in it. There are too many other honest people out there who need my help.

If you've got questions about the bankruptcy process in Chapter 7 or Chapter 13 for individuals or small business we'd be glad to help. Connect with us at www.kingburylawoffice.com

Dave Kingsbury