Transfers Of Assets While Insolvent Considered Fraudulent-Image via Wikipedia

In a recent reversal of a bankruptcy judge’s decision on what he defined as “fraudulent transfers” the bankruptcy court found that judge was in error.

In October 2009 Judge John K. Olson of the U.S. Bankruptcy Court for the Southern District of Florida ruled that the payment to the lenders, which came from $500 million Tousa Inc. and its subsidiaries borrowed in July 2007, were fraudulent transfers made while the company was insolvent.

But U.S. District Judge Alan S. Gold of the U.S. District Court for the Southern District of New York reversed that decision on appeal by the lenders in an opinion that criticizes Judge Olson for making legally and factually unsupportable conclusions.

In particular, Judge Gold made repeated reference to Judge Olson’s having adopted in whole or in part 446 of the 448 proposed findings of fact and conclusions of law submitted by the debtors’ unsecured creditors.

Judge Gold said the practice of adopting one party’s proposed order almost verbatim “has been heavily criticized and discouraged by the U.S. Supreme Court and by the 11th Circuit.”

But what is a fraudulent transfer and why had the bankruptcy judge ordered the return of the money in the first place?  Well, the argument in this particular bankruptcy case was that Tousa (the debtor) was already insolvent and knew they were insolvent when they took out the loan and used it to make payments to their other lenders.  That is the key argument in why the transfers were designated as fraudulent.  If we were looking at a personal bankruptcy it would be the equivalent to a debtor taking out an unsecured personal loan to pay their mortgage without any intention of repaying that personal loan.  If the debtor then filed bankruptcy and attempted to discharge the personal loan, the lender could challenge the discharge and/or demand that the payments be returned if they could prove it was a fraudulent transfer and that the debtor was insolvent at the time they took out the loan and made the payments to the other lender.

(source: http://westlawnews.thomson.com/Bankruptcy/Insight/2011/03_-_March/Bankrupt_homebuilder%E2%80%99s_lenders_win_reversal_of_$400_million_award/)

Creditors Challenge To Bankruptcy Discharge Must Be Timely-Image via Wikipedia

In a recent Chapter 11 bankruptcy filing here in Texas a debtor’s bankruptcy discharge was challenged after the debtor failed to list a creditor on their bankruptcy petition.

Came on for consideration the motion of Kuldip Nijjar to late file a complaint under section 523(a)(2) against the debtor. Nijjar says that there is a lawsuit pending in Travis County, Texas, in which Nijjar is one of the defendants. In that suit, Nijjar has filed a counterclaim against the debtor. While the pendency of the lawsuit was noted in the debtor’s statement of financial affairs, the existence of Nijjar’s claim was neither listed nor acknowledged in the debtor’s schedules, nor was Nijjar even listed in the creditor matrix. As a result, says Nijjar, he was not even aware of the pendency of the bankruptcy case, much less aware of the deadlines that were then running on filing a complaint objecting to dischargeability.

In this bankruptcy case the creditor failed to file an objection to the bankruptcy discharge in a timely manner. According to the bankruptcy code, the creditor has 60 days from the meeting of the creditors to challenge the bankruptcy discharge.  The creditor in this bankruptcy case did not file their objection until after the 60 day time period had lapsed.  The bankruptcy court ruled that they would not deny the debtor a discharge because the creditor did not prove that the debt should be deemed nondischargeable and that the debtor’s simple act of failing to list the creditor is not enough to deny a discharge.

(source: http://www.leagle.com/xmlResult.aspx?xmldoc=In%20BCO%2020110304631.xml&docbase=CSLWAR3-2007-CURR

Chapter 9 Bankruptcy And Its Impact On You-Image via Wikipedia

Chapter 9 bankruptcy or what is commonly called municipal bankruptcy allows cities and towns to restructure its finances in much the same way that a Chapter 11 bankruptcy allows a business to restructure its debts. But what impact will a Chapter 9 bankruptcy have on individuals living in that town. Let’s take a look at a few:

1. A city in a Chapter 9 bankruptcy will be forced to work within a budget to pay down its debts.  This could mean that those living within a bankrupt city will face an increase of taxes while there is a decrease in services.  Cities in municipal bankruptcy may need to cut essential services such as reducing the number of firefighters and police officers on the street.  Or, reducing the hours of the library branches.  Other reductions could also include fewer trash pickups.
2. Chapter 9 bankruptcy will give a city the power to renegotiate collective bargaining agreements. For example, the city may be able to reduce the amount of pay that city workers receive or even reduce their benefits, something that would be nearly impossible outside of municipal bankruptcy. If you work for the city, you could face a pay freeze. Or, if you’re retired and receiving a pension, the maximum amount you can receive may be reduced if the city can convince the bankruptcy court that is necessary for the municipality to get into the black financially.
3. While there may be some initial hesitation by investors to buy the municipal bonds of a city in Chapter 9 bankruptcy, once the city creates a feasible plan to restructure its finances it will be better positioned to attract investors to the city.

(source: http://www.courierpostonline.com/article/20110227/OPINION01/102270331/1005/OPINION/Municipal-bankruptcy-should-last-resort)

How Could A Government Shut Down Impact My Bankruptcy Case-Image via Wikipedia

As federal budget negotiations continue, federal courts are developing contingency plans that could keep the bankruptcy courts and other courts funded for at least two weeks in case there is a government shutdown.

As contentious budget negotiations on Capitol Hill raise the specter of a possible government shutdown this month, federal court official say they are preparing contingency plans that include funding the courts only with collected fees and not congressional appropriations.

Bankruptcy courts, which collect substantial fees from both businesses and consumers filing for relief from creditors, could be a key funding source, said Judge Randall L. Dunn of the U.S. Bankruptcy Court in Portland, Ore.

Dunn, the president of the National Conference of Bankruptcy Judges, said in the shutdowns of the mid-1990s, bankruptcy fees funded the rest of the court system for about two weeks.

But if a government shutdown continued for longer than two weeks, bankruptcy debtors and their attorneys could experience the following:

1. A delay in bankruptcy petition processing. An extended shutdown of the government could cause furloughs of employees, thus creating a shortage of staff available to process bankruptcy petitions.
2. A delay in bankruptcy hearings, including the meeting of the creditors and adversary hearings. Once again, the furlough of employees could significantly delay bankruptcy hearings.
3. The shutdown of the electronic processing of bankruptcy petitions as the court system runs out of money.
4. Finally, some bankruptcy courts may be temporarily closed if a government shutdown goes on for longer than two weeks.  Bankruptcy debtors located in affected locales could see their cases severely delayed due to closures.

(source: http://blogs.wsj.com/bankruptcy/2011/03/01/bankruptcy-fees-could-fund-courts-during-government-shutdown/)

When Is A Creditor In Violation Of A Bankruptcy Discharge Order?-Image via Wikipedia

In a recent Chapter 7 bankruptcy, a debtor was hounded and pursued by a bank after their bankruptcy discharge. The creditor in this case never challenged the bankruptcy discharge; but instead pursued unavoided liens post-bankruptcy.  The creditor had a state court judgment that said the debtor must return property to the creditor. However, the debtor said that they did not have possession of the property.  Once the creditor was informed that the debtor did not have possession of the property, an arrest warrant was issued for the debtor. The debtor was arrested and agreed to pay $750 per month to the creditor so that they could be released from jail.  Is this a violation of the bankruptcy discharge order? Yes.  While a creditor has the right to pursue liens which are not avoided during bankruptcy, they cannot make the debtor involuntarily pay a debt which has been discharged. For example, if there is a lien against the home of a debtor who has received a bankruptcy discharge, the creditor can repossess the home; but they cannot sue the debtor in an effort to make them pay the mortgage.  The debtor can voluntarily pay if they choose; but they cannot be put under pressure to pay by the creditor. Here’s what the bankruptcy code has to say about the bankruptcy discharge order:

The effect of the discharge is not to extinguish the debt, but rather to release the debtor from personal liability. Hall v. National Gypsum Co., 105 F.3d 225 (5th Cir. 1997). Thus the discharge voids the in personam liability of the debtor, but it does not affect the creditor’s in rem rights with respect to property. Matter of Paeplow, 972 F.2d 730 (7th Cir. 1992); Matter of Hunter, 970 F.2d 299 (7th Cir. 1992). It has long been a fundamental principle that unavoided liens pass through bankruptcy unaffected by the debtor’s discharge.⁹ Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992). Thus, a bankruptcy discharge does not affect a security interest that a creditor may have in the debtor’s property. Important here, the creditor’s lien “sticks” with the asset not withstanding transfer of the asset by the debtor. Matter of CMC Heartland Partners, 966 F.2d 1143, 1147 (7th Cir. 1992).

Since the debtor in this bankruptcy case no longer had the property in question it would have been in the best interest of the creditor to file an adversary proceeding with the bankruptcy court charging the debtor with an illegal transfer of assets.  However, the creditor took no such action. The debtor in this case was granted damages due to the creditor’s actions.

(source: http://leagle.com/xmlResult.aspx?xmldoc=In%20BCO%2020110302827.xml&docbase=CSLWAR3-2007-CURR)

Image by dok1 via Flickr

Some have come out against the practice of cramming down vehicle loans which are more than the value of the automobile. But where is the justice in asking bankruptcy debtors to pay inflated debt when they are suppose to be getting a second chance financially through bankruptcy?

As is often the case with about one-third of new vehicle purchases, the debtor trades in their vehicle or “trades up.” Unfortunately the trade in often comes with a hefty price tag, as was the case with one debtor in a Chapter 13 bankruptcy.

Like millions of car purchasers every year, Marlene Penrod went into a dealership with an old car, a 1999 Ford Explorer, wanting to purchase a new car, a 2005 Ford Taurus. She held only registered, not legal, title to the Explorer. Her lender for the Explorer held legal title until she paid off the remainder of the loan. To get legal title to her Explorer, which she needed to trade it in for the Taurus, Penrod needed the entire debt on the Explorer paid off.

Penrod owed more on the Explorer than its agreed trade-in value, and this difference is known in the auto trade as “negative equity.” The bankruptcy court ruled that the negative equity portion of the loan could be treated as unsecured debt. The BAP affirmed this ruling, and the three-judge panel affirmed the BAP.

In this case, the debtor ended up with a loan for $31,000 on a vehicle which was only worth $25,000, and that was at the time of the sale. By the time the debtor filed bankruptcy, the vehicle’s value had depreciated so its worth was significantly less than the loan amount. Some say that the debtor should have been made to pay the full amount in their Chapter 13 bankruptcy, but we say that forcing the debtor to repay the full amount of that bloated loan would have defeated the purpose of the bankruptcy.

(source: http://www.leagle.com/xmlResult.aspx?xmldoc=In%20FCO%2020110228144.xml&docbase=CSLWAR3-2007-CURR)

Three Signs That You Need Bankruptcy Relief-Image via Wikipedia

In 2010, more than 1.5 million Americans filed bankruptcy, that’s an increase of 9 percent from 2009 and the highest number of bankruptcy filings since the controversial bankruptcy reform law was passed in 2005.  But surprisingly many experts believe that there are even more Americans out there who need to file bankruptcy but either are avoiding it or don’t understand that they have a real need for bankruptcy relief.  Does that sound like you?  Let’s take a look at three signs that you may need bankruptcy relief.

1. Your house is facing foreclosure and you can’t do anything about it because you’re money is tied up paying other debts.   Many debtors who file bankruptcy do so because they want to save their home for foreclosure.  Bankruptcy allows them to discharge other unsecured debts such as medical bills and credit card debts so that they can put more of their money towards paying the mortgage.
2. You are struggling to pay medical debts that you owe and which your insurance provider won’t cover.  It’s an unfortunate reality, but many Americans are being financially ruined by medical debt which they simply cannot pay.  Some of them don’t understand that bankruptcy can discharge all medical debt and give them a fresh financial start.
3. You are being sued by creditors and/or your wages are being garnished. Getting in a legal entanglement with creditors is a disaster which bankruptcy can handle. Once a debtor files bankruptcy, the automatic stay stops creditors’ legal proceedings against the debtor. This means that if a creditor is suing the debtor or garnishing their wages, after the bankruptcy is filed they must cease immediately.

(source: http://thedowneypatriot.com/bookmark/11594996-Choosing-the-right-type-of-bankruptcy-for-you)

Post-Bankruptcy Survival: Save For Retirement vs. Paying Off Debt-Image via Wikipedia

Many creditors would have you believe that retirement savings should be completely postponed if you have any outstanding debt. But this line of reasoning defies logic. Post-bankruptcy debtors who still have debts to pay after their discharge need to ask themselves a consider a few things so that they can both prepare for retirement, reduce and eventually eliminate their debt obligations.

1. Post-bankruptcy debtors should consider their age when deciding how much they should commit to retirement savings as opposed to debt repayment. Younger debtors have more time to save for retirement while older debtors will need to take an aggressive retirement savings approach after their bankruptcy discharge. Post-bankruptcy debtors don’t want to take the risk that they won’t have enough for retirement a situation that could force them to take on even more debt  in their elderly years.
2. Post-bankruptcy debtors need to make sure that they have a sufficient emergency fund.  We see what’s happening in this recession with long-term employment. Many debtors remaining jobless for a year or longer. That’s why post-bankruptcy debtors should create an emergency fund that’s able to cover at least 6 months of their living expenses before committing lots of money to retirement savings or to major debt repayment. Once again, failure to have a healthy emergency fund could be financial risky when the post-bankruptcy debtor is faced with a crisis.
3. Post-bankruptcy debtors should make sure that they are maximizing their employer’s matching plan for any 401k fund they have while simultaneously paying off debt.  It may be smarter to literally double your money in an employer matching plan than to spend all of your cash on paying down debt quickly as possible.

(source: http://moneywatch.bnet.com/retirement-planning/blog/money-life/should-you-save-for-retirement-or-pay-off-credit-card-debt/3063/?tag=content;col1)

Four Reasons Why Filing Pro Se In Bankruptcy Could Be Costly-Image by Nemo's great uncle via Flickr

As the recession drags on and more debtors turn to bankruptcy for help, many businesses are propping up offering bankruptcy “services” such as online “advice” and forms.  Some are suggesting that debtors skip the expense of working with a bankruptcy attorney and do a DIY bankruptcy filing Pro Se.  However, what they fail to mention that while these pro se debtors may save money in the short-term, the long-term costs of filing bankruptcy without a bankruptcy attorney can be costly. Let’s take a look at how a pro se bankruptcy filing could cost you:

1. Filing bankruptcy has always required the expertise of a professional but after the 2005 bankruptcy reform laws were passed, the process became even more complex.  Just filing the paperwork for bankruptcy is very involved and one mistake could put a debtor at risk for losing their automatic stay protection.
2. Creditors who are looking to squeeze every dime they can out of bankruptcy debtors see pro se filers as easy pickings.  A debtor without a bankruptcy attorney is more likely to have their bankruptcy case and discharge challenged.
3. Bankruptcy law is complex and often changes.  Different rulings by different judges could impact the debtor’s bankruptcy case in a way they cannot foresee unless they constantly stay on top of bankruptcy trends. This lack of knowledge increases the chances of a debtor’s bankruptcy case being dismissed due to debtor mistakes.
4. The bankruptcy trustee will not take responsibility for educating a pro se debtor.  The bankruptcy trustee is there to protect the interests of the creditors and the bankruptcy estate.  For example, if the debtor fails to claim an exemption, the trustee won’t remind them. Pro se debtors have no advocates when they step into bankruptcy without an attorney.

(source: http://www.mortgage11.com/2011/02/filing-bankruptcy-online-with-totally-free-bankruptcy-legal-advice/)

Five Bankruptcy “Discharge Denial” Triggers-Image via Wikipedia

In the recent Chapter 7 bankruptcy case of a relatively affluent couple, one of which is an attorney, the bankruptcy judge denied the discharge of the couple’s debts. What did the couple do to deserve a bankruptcy discharge denial? Let’s take a look at five things that triggered the bankruptcy discharge denial:

1. The couple engaged in improper transfers of estate assets. The couple had filed bankruptcy on several businesses they owned; plus personal bankruptcy.  But in their Chapter 11 bankruptcy cases, they used petty cash in a way that the bankruptcy court deemed improper.  In total they withdrew over $253,000 dollars from the bankruptcy estates of their personal and business cases.
2. The couple made false oaths in connection with their bankruptcy cases. The debtors failed to schedule two life-sized bronze horses, worth $20,000.00, and later hid the horses on the debtor-wife’s sister’s property in a attempt to hide them from the bankruptcy trustee.
3. The debtors refused to comply with lawful bankruptcy court orders. The debtors interfered with the sale of estate assets which had been authorized by the bankruptcy court. They also failed to comply with a bankruptcy court order to turn over non-exempt property.
4. The bankruptcy debtors failed to keep adequate records. The debtors admitted to the bankruptcy court that they made extensive transfers from the estate but failed to document these transfers.
5. The debtors withheld information from the bankruptcy trustee. The debtors failed to provide material documents to the bankruptcy trustee, including records of their extensive jewelry sales, information about their contingency fee interests, and records of their use of estate funds.

(source: http://www.leagle.com/xmlResult.aspx?xmldoc=In%20BCO%2020110217728.xml&docbase=CSLWAR3-2007-CURR)