May 23, 2017

Case Closed without Discharge Creates Big Problem for Chapter 7 Debtor

bankruptcy case closed without dischargeDo you have an order of discharge following the completion of your Chapter 7 or Chapter 13 case? If not, you may want to fix this problem now before it bites you later.

Every Chapter 7 or Chapter 13 debtor must attend two credit counseling classes. The first, called the pre-bankruptcy credit counseling course, is required before you can file. Your certificate of completion is your ticket in to the bankruptcy process.

Once you have an active case, however, you must attend a second course called a financial management course, obtain a certificate of completion and have your lawyer file that certificate with the clerk of bankruptcy court.

This financial management course offers tips about how to set up a household budget and how to avoid financial mistakes that resulted in your need to file for bankruptcy in the first place.

If your lawyer does not file this financial management course certificate of completion you will not be eligible for a bankruptcy discharge. Instead, your case will be closed without discharge.

Why is a discharge order so important? It represents a formal order from the bankruptcy judge that all debts which can be eliminated or adjusted have been so modified. This order is binding on all state and federal courts and if a creditor attempts to collect on a discharged debt, you can sue that creditor for damages in a contempt proceeding. [Read more…]

Your Decision to File Bankruptcy Should Reflect Business Considerations Only

bankruptcy filing considerationsJust over three years ago, I received a phone call from an old acquaintance who seemed extremely stressed out.   This gentleman had previously been in sales and I had done business with him over 20 years ago.   During our dealings we had discovered that we shared several mutual friends and over the years I had run into him several times on social occasions.

Now, he needed advice about some significant debt problems.  His small business was failing and he owed tens of thousands of dollars to multiple creditors.   After reviewing his paperwork I suggested that Chapter 7 would work and should be considered.   My friend agreed but did not want to file because he felt very guilty about not paying back his debts.

For the next two and a half years, I would talk to my old friend on the phone about his debt problems.   He was sued by several creditors but because he was unemployed there were no wages to garnish.   He had no bank account so the judgments just sat there waiting for his financial situation to improve.

Finally, about two months ago, my friend called to say that he was ready to file.   It turned out that he had a new job and his prospects were improving.  I ran the means test numbers and….determined that he no longer qualified for Chapter 7 because he had too much disposable income.

My friend’s situation is, unfortunately, all too common.   He did not want to file bankruptcy and avoided it successfully for over two years.   His concerns were somewhat vaguely stated misgivings as opposed to a firm moral conviction.  When his financial situation changed for the better, it was too late.   Now, he is faced with the prospect of losing 25% of his take home pay to a wage garnishment and, given that he owes well over $200,000, he’ll be paying for a long time.

I would submit to you that my friend made a poor financial decision.   I also do not think that he made a particularly good moral decision as he never articulated a thought out moral objection to filing bankruptcy (a fact he has acknowledged to me).   From a purely business standpoint, my friend has subjected himself and his family to a great deal of hardship.

Everyone has heard of Donald Trump.   A business tycoon, reality TV star and sometimes politician, the Donald has filed bankruptcy on corporate debt dozens of times over the past few years.   Mr. Trump structured his business deals to avoid personal liability and I’m sure that the interest rates he paid on borrowed funds reflected that.  I am equally certain that for every bad deal, Trump was successful on ten others and paid back his loans in full.

Trump recognizes that bankruptcy functions as a financial tool.   The banks that loaned his corporations money also understood that not every deal works and that there is a risk of default.   Banks are in the business of evaluating risk and charging fees and interest to reflect that risk.

When you are in financial distress you should make your decision about whether or not to file bankruptcy in the context of a business decision.  When your creditor made the decision to loan you money that decision was based on business calculations and you should keep the transaction in this same arena.  If you allow personal feelings of guilt to creep into your decision making you will almost certainly not make the best business decision for yourself.

As a bankruptcy attorney I help my clients evaluate their bankruptcy options as a good or not so good business choice.   My friend allowed non-business considerations to influence his decision making and he will pay the consequences.   Don’t you make the same mistake.

 

Another Lottery Story with a Bankruptcy Angle

cash windfall and bankruptcyI ran across an interesting lottery story with an interesting bankruptcy twist.  This story took place in Syracuse, New York where a down and out maintenance worker named Robert Miles bought a scratch off lottery ticket in a quick mart in 2006.

Addicted to drugs at the time, Mr. Miles took his ticket to the proprietors of the Green Ale Market to find out if he had won.  The owners of the Market responded that yes, he had won $5,000.  In reality, the winning ticket was worth $5 million.  The store owners gave him $4,000, keeping $1,000 of the “winnings” for themselves as a fee(!).  The store owners then waited six years to submit the winning $5 million ticket.

Officials at the state lottery office launched an investigation because they were suspicious that the purported winner had waited six years to come forward and that the winner owned the store where the ticket was sold.

When he read about the store owners’ stroke of luck, Mr. Miles – now sober – came forward to say he had been ripped off.  The store owners ended up in jail and Mr. Miles was awarded his deserved $5 million.

The news story also reports that in 2008, Mr. Miles filed bankruptcy, “knowing that he should have been a millionaire five times over.” [Read more…]

Unusual Asset Arises in Casey Anthony Bankruptcy Case

Casey Anthony buys back life story from trusteeBack in 2011, the nation was fixated on the trial of Casey Anthony, the Florida woman who was accused of killing her daughter.  Ms. Anthony was, of course, acquitted of murder but her problems did not end there.

Earlier this year, Ms. Anthony filed Chapter 7 bankruptcy, claiming that she owed over $800,000 to around 80 creditors and that she has no income.  Among the creditors are her defense attorney – to whom she owes $500,000, and a defamation suit of an unknown amount filed by a former babysitter 1

No doubt Ms. Anthony’s bankruptcy case will continue for months and months as she is likely to face litigation in the form of challenges to dischargeability from creditors.  However, one issue has been resolved that is somewhat unusual for a bankruptcy case. [Read more…]

  1. A Chapter 7 debtor can and should include all creditors and potential creditors even if the exact amount of the debt is unknown or not yet determined.  If the Chapter 7 discharge goes through the pending claims will be extinguished.

Troublesome Transfers Disrupt Bankruptcy Planning

gift for no considerationOne of the more frustrating parts of bankruptcy practice occurs when I have to tell a prospective client that he cannot file because he recently transferred property out of his name in an attempt to protect that property from creditors.  Most of the time, the transfers are made by someone who owes money to a creditor that he cannot pay and he wants to protect assets from that creditors.

Recently, for example I spoke to a man who has well over $100,000 of equity in his home and over $150,000 in credit card debt.  Recognizing the risk to his house, this gentleman executed a quit claim deed to his wife, transferring all of his interest in the house to her.  Five months after the transfer he called me to say that he was ready to file bankruptcy.  Unfortunately, I had to advise him not to file now because Section 727 of the Bankruptcy Code says that a transfer of property for no purpose other than to frustrate the intent of creditors within a year prior to filing is considered a fraudulent transfer and would prevent such a filer from receiving a discharge.

Another type of troublesome transfer can arise when an elderly parent attempts to transfer assets to an adult child in an effort to qualify for Medicaid.   Usually the problem arises not for the transferor but for the transferee. [Read more…]

Chapter 13 Bankruptcy Fraud Case Reaches 11th Circuit Court of Appeals: Why You Should Care

conviction for bankruptcy fraudEarlier this week, the 11th Circuit Court of Appeals issued a ruling in the bankruptcy fraud case of United States v. Turner. Here are the relevant facts:

Mr. Turner owned a parcel of rental property that was destroyed by fire. His insurance carrier issued a check to him for $40,000. Two days after receiving this check, Mr. Turner filed Chapter 13. Three days after filing, Turner deposited the check, used $11,500 to pay off the mortgage on the destroyed property and kept the rest of the money.

Several weeks after these financial transactions, Mr. Turner filed his bankruptcy schedules. He did not list receipt of the $40,000 check. He also claimed that the balance on the rental property mortgage was $50,000, rather than $11,500.

The bankruptcy trustee discovered these inaccuracies and moved to convert Mr. Turner’s case to Chapter 7, which the court approved. Three years later the United States attorney filed an action against Turner for bankruptcy fraud for making false statements and he was convicted. The 11th Circuit agreed to consider Turner’s appeal. [Read more…]

Debts that Arise from Personal Disputes are Often Trouble in Bankruptcy Court

bankruptcy litigationWhen I meet with a new client, I am always on alert for certain types of debts that I know will be trouble.  Sometime the trouble factor is so great that I advise my client not to file.

One area that almost always results in expensive, drawn out bankruptcy litigation are cases where a potential bankruptcy debtor has been sued by another person over a debt and the underlying issues are personal and not just about money.

Broken business partnerships where one or both parties feel betrayed and use the courts to beat up on one another are always trouble.  I remember one such case in which I represented the party who had run out of money after several years of litigation and had turned to bankruptcy in what turned out to be a futile attempt to make the entire situation go away.  The former partner, who was objecting to just about everything in my client’s case turned to me at one point and said “I don’t care how much this costs, I just want to see your client and his family homeless.”

Not a good situation if you are the party in bankruptcy who will be writing checks to a bankruptcy lawyer to litigate endlessly in bankruptcy court.

I saw a writeup of another such case on the Clerk of Court’s website.  This case involved a dispute between two neighbors who did not like each other much.   After engaging in a verbal dispute one neighbor went to the police and accused the other neighbor of a variety of crimes.  The police arrested neighbor #2 based on these accusations and neighbor #2 spent 2 weeks in jail before her case was eventually dismissed for lack of probable cause.

[Read more…]

Can I Pay my Taxes with a Credit Card, then File Bankruptcy to Discharge the Debt?

no discharge of tax debt paid with credit cardWith April 15 just around the corner, many of us will be scrambling to come up with money to pay Uncle Sam.  For those who are self employed, estimated tax liability payments are due every quarter.  The IRS does allow you to pay your tax debt with a credit card, but you can expect to pay a “convenience fee” of around 2% of the amount charged. for this option.

Further, if you do use your credit cards to pay your tax debt, the Bankruptcy Code specifically disallows that part of your credit card debt to be discharged in a bankruptcy case, unless the tax you are paying is dischargeable as well.

The Bankruptcy Code is silent as to how long the non-dischargeability status remains associated with credit card debt when you continue to use and make payments on that credit card for several months prior to filing for bankruptcy, and that makes for some interesting conjecture. [Read more…]

Will Recent Use of Credit Cards for Necessities Like Food and Clothing Prevent me from Filing Bankruptcy?

expensive litigationThere is no perfect time to file for bankruptcy.  Ideally, you should wait to file at a point when you have not touched your credit cards for several months and your credit card charges over the past year have not taken a big jump.  Further there is less chance that you will face any objection if you have made at least the minimum payment over the past 6 months or longer.

Section 523 of the Bankruptcy Code sets out a number of situations in which credit card debt will not be discharged.  Section 523(a)(2)( c) makes non-dischargeable consumer debt totaling more than $500 for luxury goods and services owed to any one creditor that are incurred within 90 days of filing, or cash advances totaling $750 or more owed to any one creditor made within 70 days of filing.

Section 523(a)(2) makes non-dischargeable debt owed to a creditor that was incurred by false pretenses or by fraud.

Basically, then, Section 523 gives credit card lenders at least two arguments to challenge a debtor:

  1. recent credit card use (within 3 months) for anything but necessities like food, clothing and shelter
  2. any credit card use in the recent past (in my experience this can be up to a year prior to filing) if a debtor makes charges where there is no reasonable expectation of repayment.    [Read more…]

Can Facebook Ruin Your Bankruptcy?

social media and bankruptcySocial Media sites, and Facebook in particular, have changed the practice of law.  Divorce lawyers regularly review the opposing party’s Facebook profile for evidence of adultery or hidden assets.   Prosecutors present online photos to juries as evidence of guilty behavior.  Bill collectors troll social media sites looking for assets and debtors.

And don’t think that limiting access to your profile to “friends” only will help.  Facebook information can easily be subpoenaed – do not assume any right to privacy for your online materials.

How has Facebook and similar sites impacted the world of consumer bankruptcy.  In this guest post, Charlotte bankruptcy lawyer Damon Duncan, identifies three situations where your careless use of Facebook could have serious bankruptcy implications: [Read more…]

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