About Me
“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Articles
Written by Craig D. Robins, Esq.Many High-income Debtors with Significant Income Can File Chapter 7 Bankruptcy and Still Pass the Means Test
During the past few years I’ve noticed a fascinating trend: I’m counseling more and more bankruptcy clients with high income and high debt.
During the past few years I’ve noticed a fascinating trend: I’m counseling more and more bankruptcy clients with high income and high debt.
Representing such debtors requires addressing certain special issues which I will focus on in this article which was originally published in the June 2010 Issue of the Suffolk Lawyer, a Bar Association periodical.
Blame the Recession
Perhaps the current drawn-out recession is affecting an increasing number of consumers beyond the low and middle-class – long the bastion of typical bankruptcy filers.
In addition, falling real estate values have wiped out the equity in many people’s homes. Many middle and upper-class Americans have thus lost their ultimate source of long-term savings.
Chapter 7 Bankruptcy Is Usually the Consumer’s Best Choice
Assuming that there’s no need to consider Chapter 13 to stop foreclosure, I always strive to file Chapter 7 bankruptcy petitions for all my clients – but doing so requires that they qualify under the means test. After all, if a Chapter 7 case goes smoothly, the debtor will discharge most or all debts and ideally keep all assets.
For high-income debtors, Chapter 7 eligibility has become rather challenging considering that under the 2005 Bankruptcy Amendment Act (BAPCPA), a consumer debtor will almost certainly face opposition to getting a discharge if he or she does not pass the means test. There is no salary cap for filing Chapter 7 Bankruptcy.
The U.S. Trustee is especially vigilant in reviewing any case that is deemed abusive, or that may even be close to being abusive.
Accordingly, analyzing the facts of a high-income debtor becomes critical and properly preparing the means test and other bankruptcy schedules becomes crucial.
How Much Income Is “High-income”?
Lately I’ve been regularly filing Chapter 7 bankruptcy petitions for families with incomes well over $100,000. I recently filed two Chapter 7 cases where the family income was over $200,000. I actually wrote a blog post a year ago entitled: Can You File Chapter 7 Bankruptcy on Long Island With a Family Income of $200,000 a Year?
Considering the perceived income limitations for seeking Chapter 7 relief under the new bankruptcy laws, such high-income filings seem difficult or impossible; yet in practice, they are not.
Generally, a high-income debtor is one who has income over $100,000 per year or $10,000 per month. In my bankruptcy practice, high-income debtors are often executives, doctors, assorted professionals, and families of double-income spouses.
General Principle for Filing High-income Cases
General Principle for Filing High-income Cases
A high-income debtor can file for Chapter 7 relief if the debtor a) passes the means test or conversely does not need to qualify for the means test; and b) passes a totality of circumstances test for filing in good faith – often meaning that all of their expenses are reasonable and necessary. See: If I Make Over $100,000 a Year, Can I Eliminate Credit Cards Debts in Bankruptcy?
Many high-income debtors also have relatively high levels of debt. A former executive previously earning several hundred thousand dollars per year can easily have as much credit card debt.
In such cases, the debt must have been incurred in good faith and must not be unreasonably high in relation to the debtor’s income at the time the debt was incurred. Counsel should devote extra time to reviewing the various debts in such cases.
The Business Debt Exception to the Means Test
Many high-income debtors have very substantial debt obligations from failed business ventures, often due to having signed a personal guarantee. A debtor is excused from preparing the means test if the debtor’s debts are not primarily “consumer debts”, and there is a box on the means test for this exclusion.
A “consumer debt” is defined as a debt incurred by an individual primarily for a personal, family or household purpose. On the other hand, some courts have defined “business debt” as debt that is incurred with a “profit motive.” I hope to devote a future column to a more involved discussion about how courts have defined debt as either business debt or consumer debt.
To see a more thorough discussion of this, please see my post: This Debtor Didn’t Have to Do the Bankruptcy Means Test .
Variables Making High-income Debtors More Eligible for Filing
Certain individuals are able to pass the means test much more easily than others. Those that have large families with multiple dependants, large mortgages, two car loans or leases, mortgage arrears and tax arrears are more likely to qualify under the means test because these items can all be used as means test deductions.
Since individuals with large famlies can benefit from increased means test deductions, consider issues in Determining Household Size for the Means Test .
Frequently, individuals with high income receive year-end bonuses. By timing the filing of the petition, the impact of year-end bonuses on the means test can be minimized or even reduced. See my prior post: Advance Planning: File Bankruptcy Before You Get a Year-End Bonus .
The Budget Must Be Reasonable
Even if the debtor passes the means test, that alone is not enough to demonstrate that the case is not abusive, and that it is filed in good faith. All budget items must be reasonable and necessary, based on the debtor’s actual income going forward. This requires a more subjective and equitable assessment of the debtor’s circumstances.
For example, the U.S. Trustee is likely to object to an expense of $2,000 per month for food for a family of four, but will not have any problem with an expense of $1,200, even though that is on the high side.
Some expenses will not pass muster. The U.S. Trustee will likely argue that an expensive summer camp is unreasonable, as sending the kids there is being done at the expense of the creditors.
Issues with Keeping Rental Property
Issues with Keeping Rental Property
High-income debtors are much more likely to have investment real estate in addition to their homes. In such cases, there is an issue as to whether keeping the rental property is reasonable. If the expenses of retaining the property exceed the amount of rental income, then keeping the property will result in a reduced amount of disposable income.
In such a case, the U.S. Trustee will argue that the debtor will have additional income each month to make payments to creditors if the investment property is abandoned.
In such a case, the U.S. Trustee will argue that the debtor will have additional income each month to make payments to creditors if the investment property is abandoned.
Maintaining a Luxury Residence
A high-income debtor is much more likely to have an expensive home. However, there are some cases across the country in which the U.S. Trustee argued that it is unreasonable for a debtor to keep a luxury home with a very high monthly mortgage at the expense of the creditors. This issue has not been addressed in our Circuit.
Alternatives If Debtor Isn’t Eligible for Chapter 7 Relief
If the debtor fails the means test or simply has too much disposable income, then there are still a number of options available. The debtor can file for Chapter 13 relief if his or her secured debts are less than $1,081,400 and unsecured debts are less than $360,475.
If the debt levels exceed these amounts, they can file for Chapter 11 relief. Debt Negotiation is also an option in which the attorney can negotiate settlements with the creditors. See my blog post: Options If You Fail the Bankruptcy Means Test .
————
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the JUNE 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Written by Craig D. Robins, Esq.
I am currently in San Francisco where I just attended the annual convention of the National Association of Consumer Bankruptcy Attorneys (NACBA). I write this report from there on May 1, 2010.
[Note: this article was previously published in the May 2010 edition of the Suffolk Lawyer].
[I will soon post a number of photos that I took at the NACBA convention}
Many years ago I discovered how exciting it is to travel across the country to interact with fellow bankruptcy practitioners and learn the latest about strategies for protecting consumer bankruptcy debtors, and tips for running a bankruptcy law office.
Over the course of three days, some of the country’s leading bankruptcy attorneys as well as a number of bankruptcy judges, provide valuable insight at daily programs and seminars.
What I find just as important is trading notes and war stories with other bankruptcy attorneys from across the country and learning about new products and services at the accompanying trade show.
Here Are Some Highlights of the Bankruptcy Convention
New Trend in Interpreting the Means Test
In a half-day program which addressed the means test, the speakers concluded that both the United States Trustee and our country’s bankruptcy judges have become more lenient in interpreting the means test in Chapter 7 cases. There are three reasons for this trend.
Apparently, the current recessionary climate and sentiment against large banking institutions is resulting in the U.S. Trustee bringing fewer Section 707 motions alleging that the debtor filed an abusive case.
In addition, more and more debtors are providing information to the U.S. Trustee’s office in cases where there are means test issues. This enables the U.S. Trustee to evaluate the issue of abuse and reach a conclusion that the U.S. Trustee should not object.
Finally, there seems to be a greater number of experienced bankruptcy attorneys who know what red flags to look out for and consequently these experienced attorneys refrain from filing abusive cases.
Wide-Spread Concern Over Bankruptcy Judge Salaries
Judicial salaries are relatively low. It appears that we are losing a large number of bankruptcy judges because the level of judicial pay is so low. When there is a vacancy on the bench, this causes the bankruptcy court’s entire case load to slow down, which means unhappiness and dissatisfaction to litigants and all others involved.
This was indeed the case just two three years ago here, in the Eastern District of New York. Our Chief Bankruptcy Judge for the district, Hon. Melanie L. Cyganowski, left the bench to pursue a much more profitable position as a partner in a leading bankruptcy firm.
I interviewed Judge Cyganowski at that time and she clearly indicated that her reason for leaving the bench was because of her unreasonably low judicial salary. See: Chief Bankruptcy Judge Melanie Cyganowski Stepping Down.
HAMP Bankruptcy Update
There was ample discussion about President Obama’s Home Affordable Modification Program (HAMP) which seems to be rife with problems as an unusually small percentage of homeowners actually get permanent relief.
Here’s why:
a) there is a major lack of communication on the part of the lender;
b) lenders are continuing to threaten homeowners with foreclosure even as the lender is evaluating the homeowner for a modification, and even if the homeowner has been approved for a trial term; and
c) lenders are arbitrary in granting relief.
On a positive note, however, a new law is going into effect on June 1, 2010 that, among other things, makes it illegal for a lender to discriminate against a bankruptcy debtor because he or she is in the HAMP program.
The new law will also provide certain protections to Chapter 13 debtors as mortgagees will be precluded from objecting to discharge.
Lower Prices for Credit Counseling
When the 2005 Bankruptcy Amendment Act first went into effect in 2005, there were only four approved credit counseling agencies in our jurisdiction (E.D.N.Y.), and they all charged the same rate – $50 per credit counseling session.
There must have been about 20 credit counseling companies exhibiting at the trade show and many now charge fees as low as $15 per session.
In addition, they gave out so much shwag that my ten-year-old son, Max, will be delighted to receive from me upon my return a large number of squeeze toys, flashlights, keychains, fancy chocolates, playing cards, puzzles, T-shirts and what-not that I picked up from these exhibitors.
My hard-working office staff will also be the recipient of a good deal of this booty.
Emerging Technologies for Consumer Bankruptcy Practices
One of the most crowded exhibitor booths belonged to a OTB, an company that created BK Express, a comprehensive practice management system which is designed for consumer bankruptcy attorneys.
I actually just set up my office to use this software which is basically a special shell designed to work on top of LexisNexis’s Time Matters system.
Problems with MERS Mortgages and Foreclosure Defenses
In a very dynamic session, we were told that 50% of all residential mortgages in this country are nominally owned by MERS, which is Mortgage Electronic Registration Systems, a privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States.
The problem with MERS-recorded mortgages is that MERS really does not own the mortgage, thereby creating an interesting argument that MERS does not have any standing in bankruptcy court.
I previously wrote about special defenses that a homeowner can assert to defend a foreclosure action involving a MERS mortgage. See: A New Powerful Mortgage Foreclosure Defense — Compliments of MERS.
If your client has a MERS mortgage, consider looking at the pooling and service agreement to make sure that there was a true and valid assignment at every link of the chain, including delivery and acceptance of assignment documents. If there was not, you may have a good objection to a MERS proof of claim or motion to lift the stay.
Few Bankruptcy Attorneys From New York
I was rather surprised the very small turn-out from our state. Out of about 1,600 bankruptcy attorneys who attended the convention, there must have been fewer than 20 from New York, and only one other member, I believe, from the Suffolk County Bar Association. That was Allison Shields, who was actually one of the speakers – she spoke on managing a successful bankruptcy practice.
Written by Craig D. Robins, Esq.
One Long Island Bankruptcy Judge Permits Cram-Down; Two Do Not
Several months ago I was excited to report that Central Islip Bankruptcy Judge Dorothy T. Eisenberg issued a decision permitting a Chapter 7 debtor to cram-down a second mortgage. (See my December Suffolk Lawyer article, “Chapter 7 Cram-Down of Second Mortgages”.)
That decision was very newsworthy, as it permitted homeowners whose homes were underwater to “strip-off” and remove a wholly-unsecured second mortgage.
However, we have since heard from our two other Long Island Bankruptcy Court judges.
Judge Eisenberg Permits Chapter 7 Cram-down
The decision granting this relief was In re Lavelle, No. 09-72389-478, 2009 WL 4043089 (E.D.N.Y. November 25, 2009). In that case, Judge Eisenberg determined that a Chapter 7 debtor may avoid a subordinate mortgage lien if that lien is wholly unsecured, based on an analysis of Bankruptcy Code section 506.
Judge Eisenberg, in her decision, also commented on the seminal Supreme Court case of Dewsnup v. Timm, 502 U.S. 410 (1992), stating that she found no authority in it that prevents a Chapter 7 debtor from cramming down a second mortgage in a Chapter 7 case.
The Distinction Between ‘Strip-Down” and “Strip-Off”
Judge Eisenberg focused a large part of her decision on Dewsnup which held that a Chapter 7 debtor may not “strip down” a first mortgage to the fair market value of the property. However, she pointed out that there is a difference between “stripping down” a mortgage and “stripping off” a mortgage.
Stripping-down refers to removing that portion of a mortgage that is unsecured, which is done pursuant to § 506. On the other hand, “stripping off” is essentially cramming down a mortgage, which means removing its lien status altogether. She determined that stripping-off was permissible in Chapter 7 cases.
Our Two Other Bankruptcy Judges Have Since Held Differently
Once Judge Eisenberg released the Lavelle decision, the Long Island bankruptcy bar was abuzz about the possibility of being able to cram-down undersecured second mortgages for their Chapter 7 debtor clients. However, there was no guarantee that our other two bankruptcy judges would follow Lavelle. Now we know that they will not.
Judge Grossman Denies Cram-down
Just last month, Judge Robert E. Grossman issued a decision in a case involving a somewhat similar set of facts and denied the debtor’s application to cram-down and strip-off the second mortgage – even though the mortgage lender defaulted and failed to file any response whatsoever. In re Pomilio, —B.R.—, No. 09-72389-reg, 2010 WL 681300 (E.D.N.Y. February 23, 2010).
Judge Grossman discussed Judge Eisenberg’s Lavelle decision, stating that she set forth a “well reasoned argument which finds support in a number of scholarly articles.” However, he felt constrained to apply her argument to the facts of his case.
In Pomilio, Judge Grossman began his analysis with Bankruptcy Code Sections 506(a) and (d), and the Supreme Court’s holding in Dewsnup, that a Chapter 7 debtor cannot bifurcate a secured creditor’s claim into a secured claim to the extent of the fair market value of the subject real property, and an unsecured claim for the remaining balance
He reached a different conclusion than Judge Eisenberg, determining that the “stripping down” process was simply not available to a Chapter 7 debtor.
Judge Trust Adopts Judge Grossman’s Position Denying Cram-down
Last week, Judge Alan S. Trust issued the Caliguri decision in which he expressed his position against Chapter 7 cram-downs. In re Caliguri, No. 09-75657-ast, slip op. (E.D.N.Y. March 16, 2010). In that decision, Judge Trust referred to both the Lavelle and Pomilio decisions and stated, “This Court adopts the analysis in Pomilio and concludes that a Chapter 7 debtor may not avoid the lien of a wholly undersecured, consensual mortgage lien holder.”
Judge Trust pointed out that post-Dewsnup courts have generally interpreted Dewsnup to prohibit Chapter 7 debtors from avoiding (stripping off) liens which are wholly undersecured for the same reasons that a Chapter 7 debtor may not reduce a secured mortgage claim to the fair market value of the property.
He further pointed out that such a reading of Dewsnup is a proper and consistent application of Section 506.
Practical Tips
Practical Tips
A debtor has a one in three chance of having his or her case land in Judge Eisenberg’s Court, in which event, the debtor will likely be able to successfully bring a Chapter 7 cram-down proceeding. If the case is pending before Judges Trust or Grossman, their position is clear that the debtor cannot.
However, at some point down the road, there will certainly be a higher court decision establishing the issue for sure, at which point all of our judges will be obligated to follow it.
Get Copies of Bankruptcy Decisions Reported in this Article
Check back to view this post in a few days and I will have copies of the Long Island Bankruptcy Court decisions that I cited in this post.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the APRIL 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Written by Craig D. Robins, Esq.
In my regular monthly column in the Suffolk Lawyer last month I discussed the difficulties that Congress created by enacting a means test statute that is poorly worded and confusing. (Deciphering the Plethora of Means Test Cases Across Many Bankruptcy Courts).
In this month’s column I will highlight some recent bankruptcy court decisions that shed light on interpreting what is “income” for means test purposes when a debtor receives bonuses, teachers’ salaries or unemployment insurance benefits.
Countering the Lopsided Results of the Means Test
The purpose of the means test is to create a projection of the debtor’s net income and expenses for a period of three to five years after the filing date to see if the debtor would have sufficient surplus funds to make some kind of payment to creditors. In doing so, the starting point is to ascertain what the debtor’s income was during the six-full-month pre-petition calendar period.
When you only look at a six-month period to project the next three to five years of income, you often get a lopsided result. For example, if the debtor received a bonus in the prior half-year, his means test would effectively double this income because the means test would assume that the bonus would be paid every six months.
Conversely, if the debtor waited more than six months after receiving the bonus, the debtor would not even have to count the bonus as income.
Because of this uneven result, bankruptcy attorneys would often have to engage in a strategy of timing the filing. However, it seems that some bankruptcy courts are becoming more logical in their approach to analyzing the statute to provide a more balanced result for all parties.
Annual Bonuses Shall be Pro-rated Over 12 Months for the Bankruptcy Means Test
A recent case from Virginia looked at a debtor who received an annual bonus in the six-month pre-petition means test period. The court held that the bonus should be pro-rated over a 12-month period to determine the amount necessary to calculate the debtor’s “current monthly income.” In re Meade, —— B.R. ——, 2009 WL 4456211 (Bankr. W.D. Va., Nov. 13, 2009).
The court concluded that the language “average monthly income,” which is found in Bankruptcy Code section 101(10A)(A) is susceptible to two interpretations. One of them is the mechanical example I gave above, which can result in either a harsh result to the debtor or a windfall.
However, the court adopted a different, more realistic “common sense” interpretation, which the court said was more in keeping with what appeared to be the overarching purpose of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, namely, to require debtors to make meaningful payments to their creditors if they have the funds to do so.
The court felt that Congress intended for there to be some connection between the compensation received and the period of time in which the applicable services for such compensation were rendered.
With regard to the concept that under any different interpretation, debtors’ attorneys would want to time the filing of their clients’ cases, the judge said, “It is difficult to believe that Congress intended such a result or desired to encourage such tactics.”
A Teacher’s Income Is Not Pro-rated for the Bankruptcy Means Test
The Meade case also addressed the wife’s income, who, as a public school teacher, received her annual salary over a ten-month period.
Here the court took a totally different approach by refusing to pro-rate the wife’s income. The court said that this situation was well within the framework provided by Congress of looking to the income actually received during the six month period prior to bankruptcy as the best measure of a debtor’s ability to pay creditors.
Unemployment Benefits Are Income for the Bankruptcy Means Test
The means test enables a debtor to exclude from income unemployment benefits that are received under the Social Security Act. A recent Illinois case held that unemployment benefits should not be included in this exception to income, and should thus be treated as income for the means test. In re Kucharz, 418 B.R. 635 (Bankr. C.D. Ill., Oct. 28, 2009).
To complicate matters, the court, after provided a highly detailed history of unemployment benefits in this country, cited two cases from 2007 that held to the contrary.
However, the court concluded that unemployment benefits are designed to replace wages, and since wages must be reported on the means test, then so to must unemployment benefits be reported. The court also highlighted the aim of the means test, which is to include income from all possible sources.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the MARCH 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Written by Craig D. Robins, Esq.When I sat down to write this month’s column for the Suffolk Lawyer, I was prepared to discuss several recent cases interpreting the means test. However, I could not get over the great number of splits of authority over almost every single issue.
The Means Test is the focal point of the drastic revisions that Congress made to the Bankruptcy Code in 2005. That was when the legislature thought it was necessary to tighten the existing bankruptcy law and make it more difficult for consumers to eliminate debt, especially for those who Congress thought could afford to pay something to their creditors.
Unfortunately for bench and bar, the statutory wording of the Code provisions underlying the means test is anything but clear and unambiguous.
Congress Failed in Drafting a Clear-Cut Means Test Statute
Ironically, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) was intended “to improve bankruptcy law and practice by restoring personal responsibility and integrity in the bankruptcy system and ensure that the system is fair for both debtors and creditors.”
Yet, when the new law was enacted in 2005, Bankruptcy scholars across the land declared that so many of the provisions of BAPCPA were so poorly worded that bankruptcy court judges would be perpetually perplexed as they tried to interpret them. They were right. The relatively new statute contains typos, sloppy choices of words, hanging paragraphs, and inconsistencies.
We now have bankruptcy courts, U.S. District Courts, and U.S. Courts of Appeal issuing decisions almost daily in an effort to make heads and tails over what Congress intended. The worst part? There are minority and majority views to almost every possible issue, and even a few hybrid views to boot.
Here’s more irony: BAPCPA was supposed to limit judicial discretion. Instead, the legislation, which leaves a great deal to be desired, actually requires significant judicial discretion simply to interpret the statute. Congress failed to create the “bright line” which it intended, a concept Long Island Bankruptcy Court Judge Robert E. Grossman cited in one of his recent opinions.
This confusion has led to a spate of law review articles with deriding, mocking and skewering titles such as “BAPCPA: Trying to Make Sense Out of Nonsense.” I can come up with some of my own: “BAPCPA is Bupkis” and “Mean Streets to the Means Test – An Ugly Road to Bankruptcy Court.”
The Ambiguity of the New Laws Makes Bankruptcy Challenging
The Ambiguity of the New Laws Makes Bankruptcy Challenging
What all this means is that if an issue has not yet been decided in your jurisdiction, counsel has little guidance as to how the local bankruptcy court will rule. So imagine the challenge of trying to advise clients when a judge in Connecticut has held one way, a judge in New Jersey has reached a decision that is totally opposite, and our jurisdiction has not even addressed the issue yet. And then, most issues are also finding their way up to the appellate courts.
BAPCPA has created a wide split among courts, not only upon the interpretation of whether a consumer has too much income to qualify for Chapter 7 relief, but upon the methodology used to calculate what income really is.
Courts seem to be debating endlessly concepts such as whether projected disposable income requires either an “anticipated” or “historical” calculation of income. In other words, do you use a backwards-looking approach or a forwards-looking approach? Judge Grossman has already written a number of decisions seeking to make this distinction. (FYI, he’s a forward-looker.)
The Strict Constructionist Verses the Logical Originalist in Bankruptcy Court
Inconsistencies in BAPCPA language have created two approaches to addressing conflicting interpretations. You have the strict constructionists who believe a statute should be interpreted on its face, regardless of the result, and those who believe that maintaining a logical outcome based on the legislature’s original intent is paramount.
We’ve come to learn that Judge Grossman is of the school of thought “supported by reason.” He recently wrote in one of his decisions interpreting the means test: “Absent clear binding authority in this Circuit, this Court will not adopt a reading of the statute which does not make any sense.”
As Judge Grossman wrote just last week in In re: Rabener, “this Court does not share the view that a rigid application. . . is required because the 2005 BAPCPA amendments were intended to blindly reduce judicial discretion. This Court does not believe that it is required to reach a decision that is absurd on its face merely to satisfy an unsupported argument that eliminating or reducing judicial discretion is more important than reaching a sound conclusion consistent with reason.” In re Rabener, No. 809-75719, slip op. (E.D.N.Y. January 21, 2010).
Do you look at the “plain meaning of the statute” or do you try to ascertain “what Congress originally intended?” Perhaps that depends on which side you’re on.
So what can the bankruptcy practitioner do when courts across the country are divided on issues? Hope for the best. Such uncertainty makes practicing bankruptcy law post-2005 daunting to say the least. But all those divergent decisions sure make for good reading.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the February 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Written by Craig D. Robins, Esq.Some debtors like bankruptcy so much, they come back for more, and more, and even more. . . sometimes using multiple bankruptcy filings to delay foreclosure proceedings for years. But when is enough, enough?
What Can Mortgagees and the Bankruptcy Court Do in Situations Involving Extreme Serial Filings?
In the past three months, Judge Alan S. Trust, sitting in the Central Islip Bankruptcy Court on Long Island, addressed this issue in several cases. The most recent one caught my eye based on the incredible number of related bankruptcy filings, as well as the unbelievable amount of time the debtors were able to thwart the system and delay foreclosure.
Serial Filings in Bankruptcy Cases
Some debtors file successive Chapter 13 petitions because each time they file, they get the benefit of the stay, which stops a foreclosure proceeding dead in its tracks.
Technically, Bankruptcy Code section 109(e) prohibits a debtor from refiling another case for 180 days, if the prior case was dismissed because the debtor neglected to make necessary payments or maintain other debtor responsibilities.
However the bankruptcy court has become rather liberal in permitting debtors to engage in repeated filings and will typically give the debtor the benefit of the doubt as long as the debtor can demonstrate a change of circumstances.
Nevertheless, some debtors clearly take advantage of the system, and by their sheer audacity (and desperation), give bankruptcy a bad name for those who file in good faith. The vast majority of bad faith serial filings are done by pro se debtors.
Any experienced bankruptcy attorney knows that judges will not hesitate to sanction counsel for filing a case in bad faith. The law is very clear that a case cannot be filed for the sole purpose of delay, without any good faith intent to follow through with a Chapter 13 plan.
Bankruptcy Amendment Act Made Serial Filings More Difficult
When Congress overhauled the bankruptcy laws in 2005 (BAPCPA), it imposed several new provisions designed to stop the problem of bad faith serial filers. I wrote about some of these changes in my Suffolk Lawyer column in November 2005: Consumer Bankruptcy Debtors Face New Limitations for Repeat Filings .
In particular, there are new exceptions to the automatic stay. For example, if a debtor had one pending bankruptcy case in the preceding year, then the automatic stay only lasts 30 days, effectively shifting the burden to the debtor to make an application to extend the stay. If there was more than one filing in the prior year, then the debtor is not entitled to any automatic stay at the time of filing.
Even with these provisions, debtors soon learned to game the system. After one spouse’s bankruptcy was dismissed, the other spouse would then file, and then this “tag team” filing approach would go on for years. Although this conduct was nothing new, Congress addressed this problem too, with an “in rem” provision in BAPCPA.
Debtors Filed 10 Cases to Delay Foreclosure
Debtors Filed 10 Cases to Delay Foreclosure
On December 21, 2009, Judge Trust issued companion decisions in two separate, but related cases, outlining the excessive measures taken by two Long Island debtors who filed a total of ten bankruptcy petitions over a 12-year period to stop foreclosure on their jointly-owned home. In re Janet Blair (Case No. 09-76150-ast) and In re Allen Gary Smith (Case No. 09-77562-ast).
The decision was precipitated by a motion brought by the mortgagee, seeking “in rem” relief against the premises. Most of these filings were Chapter 13 cases filed over a four-year period between 2005 and 2009. Almost all of them were filed on the eve of a scheduled foreclosure sale.
“In Rem” Relief in Bankruptcy Proceedings Stops Foreclosure Delaying Tactics
“In Rem” Relief in Bankruptcy Proceedings Stops Foreclosure Delaying Tactics
“In rem” relief is when the bankruptcy court grants an order indicating that a particular piece of property will not be affected by any future bankruptcy stays, effectively eliminating any benefit of the “tag-team” filing approach. “In rem” originates from the Latin phrase for a lawsuit directed against property, rather than a person.
In the Blair / Smith cases, the judge immediately lifted the stay and subsequently granted in rem relief, stating that the serial filings were evidence of the debtors’ bad faith, and also evidence of the fact that the debtors were abusing the bankruptcy process for several years.
Statutory Authority for In Rem Relief. In his decision, Judge Trust, delivered a well-written and detailed analysis behind the statutory authority providing for in rem relief. In doing so, the judge essentially reiterated his holding in a two-month-old similar decision, which has since been published. In re Montalvo (416 B.R. 381).
Statutory Authority for In Rem Relief. In his decision, Judge Trust, delivered a well-written and detailed analysis behind the statutory authority providing for in rem relief. In doing so, the judge essentially reiterated his holding in a two-month-old similar decision, which has since been published. In re Montalvo (416 B.R. 381).
One of BAPCPA’s amendments was the addition of Section 362(d)(4) which provides the statutory authority to grant in rem relief. Pursuant to Section 362(d)(4), the Court can grant in rem relief from the stay as to a mortagee’s interest in the property, such that any and all future filings by any person or entity with an interest in the property will not operate as an automatic stay against the owner and its successors and/or assigns for a period of two years after the date of the entry of such an order.
To obtain this relief, the mortgagee bears the burden of showing that the various petitions filed by debtors are part of a scheme to hinder, delay and defraud the mortgagee.
A key issue in such cases is whether the court can infer an intent to hinder, delay and defraud creditors when it appears that there have been multiple, strategically timed bankruptcy filings. Judge Trust took the established view that holds that the mere timing and filing of several bankruptcy cases is an adequate basis from which a court can draw a permissible inference.
However, Judge Trust also observed that the debtors demonstrated no intent to make the bankruptcy work. They did not make plan payments, show up in court, or provide the trustee with required documents.
Standard of Proof in In Rem Litigation
Judge Robert E. Grossman also addressed this issue just over a year ago, and wrote about the standard of proof necessary to obtain in rem relief. In re Lemma (394 B.B. 315 (Bank.E.D.N.Y. 2008).
In that case, which involved a third Chapter 13 filing (with debtor representation by my friend, Babylon bankruptcy attorney Michael A. Kinzer), the judge concluded that the mortgagee was not entitled to in rem relief (and not even entitled to dismiss the case).
The reason why Judge Grossman denied the mortgagee’s application was because the mortgagee, as the party seeking in rem relief, had the burden of proving that the current filing was part of a scheme; that the scheme involved the transfer of real property, or multiple bankruptcy filings; and that the object of the scheme was to hinder, delay and defraud the mortgagee.
The mortgagee in that case was unable to provide the court with any evidence other than the fact that the debtors filed three petitions.
Thus, multiple filings, alone, are not adequate to find intent to hinder, delay and defraud.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the January 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Suffolk County Supreme Court Judges Hon. Jeffrey Spinner, Hon. Peter Mayer, Hon. Ralph Costello, and Hon. Thomas Whelan
Written by Craig D. Robins, Esq.
Four Suffolk County Supreme Court judges presented a views-from-the-bench program on December 9, 2009 about Mortgage foreclosure. The well-attended seminar at the Suffolk County Bar Association had over 100 participants. Cheryl Mintz was the moderator.
The program enabled the judges to provide some important insight into the rapidly-growing area of foreclosure litigation, especially considering a flurry of new legislation dealing with foreclosure procedural law and practice.
Foreclosure Caseloads Putting Strain on Court
Judge Ralph F. Costello commented on the lack of a sufficient number of Supreme Court judges that are necessary to adjudicate the ever-increasing number of foreclosure cases. He acknowledged the difficulty that the Office of Court Administration would have to provide additional judgeships, but felt that it was entirely reasonable to find budgeting to enable each judge to hire a second full-time law clerk. Doing so, he believed, would enable each judge to double their caseload.
There was an in-depth discussion about Governor Patterson’s new comprehensive foreclosure legislation which was just passed last month. The bill will greatly strengthen protections for homeowners, tenants and even neighborhoods, which can be plagued by blight.
Issue of Mortgagee’s Standing Is Becoming Increasingly Litigated
Judge Peter H. Mayer discussed the concept of standing and assignment, which is becoming an increasing source of consternation for mortgage companies. Apparently, there are many problems resulting from the sale of mortgages on the secondary mortgage market. Many foreclosing plaintiffs lack standing to bring the foreclosure suit, which can result in the dismissal of the case.
What a Foreclosure Judge Looks For
Judge Thomas F. Whelan broke his discussion into two sections, dealing with how the Court responds to foreclosure matters if an answer is filed, and if no answer is filed. He discussed the importance of asserting affirmative defenses if available, and also addressed the new Request for Judicial Form that is now used in foreclosure actions.
He also discussed how the law clerks review cases to make sure that certain prerequisites have been met, such as adherence to the relatively-new 90-day foreclosure notice rule, whether parties appeared at mandatory settlement conferences, whether the subject property is owner-occupied (if so, special protections under the new statute exist), and whether additional default notices as required by the CPLR have been provided.
He also discussed how the law clerks review cases to make sure that certain prerequisites have been met, such as adherence to the relatively-new 90-day foreclosure notice rule, whether parties appeared at mandatory settlement conferences, whether the subject property is owner-occupied (if so, special protections under the new statute exist), and whether additional default notices as required by the CPLR have been provided.
Mandatory Foreclosure Settlement Conferences
Judge Jeffrey Arlen Spinner, who is in charge of the Mortgage Foreclosure Conference Part, discussed the relatively new requirement of mandatory settlement conferences for all foreclosure proceedings involving sub-prime mortgages.
“My role as a judge is to be impartial. I try to broker a settlement, if that’s at all possible,” said the judge. He commented on the high number of these conferences, now numbering between 100 and 120 each Tuesday, saying “we’re buried in cases; we’re buried in motions.”
Ray Vorhees, Law Secretary to Judge Mayer, also addressed the audience to highlight the fact that the legislative intent of these various statutes is to protect homeowners, and that the court must and will honor the import of such legislative intent.
Judge Spinner’s Controversial Horoski Decision Which Canceled Mortgage
Towards the end of the evening, Cheryl Mintz asked Judge Spinner to comment on the case everyone wanted to hear about – Horoski – and the audience expressed their excitement. This was the very recent case in which the Judge totally cancelled the mortgage in a foreclosure proceeding citing the bank’s egregious conduct. [See Judge Cancels Mortgage Due to Mortgagee’s Shocking Behavior in Long Island Foreclosure Action ].
Judge Spinner, however, mentioned a prohibition on commenting publicly on any case that is pending. He did mention that a new issue had arisen in the case which will result in the matter appearing before him on his calendar in the next few weeks.
Judge Spinner, however, mentioned a prohibition on commenting publicly on any case that is pending. He did mention that a new issue had arisen in the case which will result in the matter appearing before him on his calendar in the next few weeks.
In response to some pressing commentss about the case from one rather-insistent attendee, Judge Spinner did mention that his decision was one that is based in equity, rather than one based on law.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the December 2009 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Chapter 7 Cram-Down of Second Mortgages
Posted on
Written by Craig D. Robins, Esq.New Long Island case now permits lien-stripping that was previously impossible
One of the biggest problems that homeowners face in today’s recessionary economy is the loss in value to their homes. It is not uncommon to see houses that have dropped 50% in value over the past few years, leaving many to wonder if it is even worthwhile to keep their home.
One of the biggest problems that homeowners face in today’s recessionary economy is the loss in value to their homes. It is not uncommon to see houses that have dropped 50% in value over the past few years, leaving many to wonder if it is even worthwhile to keep their home.
As such, many homes are “under water” or “upside down” meaning that the homes are worth less than the balance due on the mortgage. In many cases, there are two mortgages and the home is worth less than the first mortgage, making the second mortgage totally unsecured.
Up until recently, there was little recourse available to consumer bankruptcy filers to eliminate mortgages that were underwater. However, a new decision released last month has now changed all that, permitting cram-down of second mortgages in Chapter 7 bankruptcy cases.
What is a Cram-down in Bankruptcy? Also known as a “strip-off”, a cram-down is when a debtor modifies the rights of a mortgagee, who is a secured creditor, by having the bankruptcy court strip off the secured status of the mortgage because there is insufficient value in the property to secure any part of it.
A cram-down removes the mortgage as a lien on the premises.
Cram-downs in Chapter 13 Bankruptcy Cases
The existing state of the law has been that only Chapter 13 debtors had the unique ability to cram-down mortgages, and then, only the second mortgage. Chapter 7 debtors did not have any ability to cram down any mortgage.
The reason for this is that the provision for cram-down is § 1322(b)(2), located in Chapter 13 of the Bankruptcy Code, which limits debtors from cramming down first mortgages.
The Lavelle Case Changes the Law
On November 25, 2009, Central Islip Bankruptcy Judge Dorothy T. Eisenberg issued a decision permitting Chapter 7 debtors to cram-down second mortgages. In re: Mark T. Lavelle, et. al (09-72389-478, Eastern District of New York).
An unusual aspect of this case is that the debtors did not even file an application seeking to cram-down their mortgage – it fell in their lap. The debtors are typical consumers residing in Levittown who sought Chapter 7 relief in April 2009. They were represented by Long Island bankruptcy attorney Norman M. Mendelson, Esq.
The home was in the name of the husband and it was worth $400,000. The balance owed on the first mortgage was $411,000 and the balance on the second mortgage was $9,900. Both mortgages were held by Bank of America.
In May 2009, the mortgagee, represented by Steven J. Baum, P.C. filed a motion seeking relief from the stay on the second mortgage based on the fact that the debtor had no equity in the property.
However, the debtor defended that motion by filing opposition in the form of a cross-motion seeking to avoid the mortgagee’s lien on the second mortgage under Bankruptcy Code § 506(a), arguing that the creditor only had a secured claim to the extent of the value of its collateral, and an unsecured claim for the balance.
However, the debtor defended that motion by filing opposition in the form of a cross-motion seeking to avoid the mortgagee’s lien on the second mortgage under Bankruptcy Code § 506(a), arguing that the creditor only had a secured claim to the extent of the value of its collateral, and an unsecured claim for the balance.
The debtor argued that even though this was a Chapter 7 case, the ability of the Court to modify wholly unsecured liens against a debtor’s residence in a Chapter 13 case under § 1322(b)(2) should be extended to Chapter 7 cases.
Judge Eisenberg, in a very complicated and complex, technically-worded decision which discussed two Supreme Court cases, first noted that the debtor’s motion should have been brought by adversary proceeding, but nevertheless permitted the debtor to proceed by motion, which she pointed out was “technically incorrect.”
The Distinction Between ‘Strip-Down” and “Strip-Off”
The Court addressed the 1992 Dewsnup Supreme Court decision which held that a Chapter 7 debtor may not “strip down” a first mortgage to the fair market value of the property. However, there is a difference between “stripping down” a mortgage and “stripping off” a mortgage.
Stripping-down refers to removing that portion of a mortgage that is unsecured, which is done pursuant to § 506. On the other hand, “stripping off” is essentially cramming down a mortgage, which means removing its lien status altogether.
The Judge observed that since Dewsnup, the issue of whether wholly unsecured liens may be “stripped off”, as opposed to “stripped down”, has been a contentious issue between various bankruptcy and district courts and their respective Courts of Appeals.
Judge Eisenberg then discussed the 1993 Supreme Court case of Nobelman which barred Chapter 13 debtors from relying on § 506 to bifurcate an undersecured mortgage to secured and unsecured components. (I wrote an article about Nobelman for the Suffolk Lawyer 16 years ago).
However, the Nobelman case only applies to situations where a portion of the mortgage remains secured, and the Supreme Court did not address situations where the mortgage is totally unsecured. Consequently, debtors have been able to cram-down totally unsecured second mortgages in Chapter 13 cases.
However, the Nobelman case only applies to situations where a portion of the mortgage remains secured, and the Supreme Court did not address situations where the mortgage is totally unsecured. Consequently, debtors have been able to cram-down totally unsecured second mortgages in Chapter 13 cases.
Cramming-Down Mortgages in Chapter 7 Cases
Judge Eisenberg, after utilizing a rather complex analysis, determined that the second mortgage was wholly unsecured (which means that § 506(a) does not apply), and that the plain meaning of § 506(d) required the lien to be voided. The Judge went on to say that there was no logical reason that this result should be any different in a Chapter 7 context as opposed to a Chapter 13 situation.
Thus, the Judge voided the lien on the second mortgage. Since this was a Chapter 7 case, the debt, now considered an unsecured debt, became totally discharged. A big win for the consumer.
What Does This Bankruptcy Decision Mean for Consumers and Society?
There is a record number of homeowners facing foreclosure, and there appears to be a groundswell of support by politicians, bankruptcy attorneys and consumer groups for a change to the Bankruptcy Code to deal with this. As such, perhaps some judges, like Judge Eisenberg, are taking a position rooted in public policy that recognizes the existing problem.
Many provisions in bankruptcy law have favored the mortgagee and secured lender over the past two decades. It now looks like the tides may be shifting in the other direction.
This case will likely result in a number of Chapter 7 cram-down proceedings being brought. As the Judge put it:
“Arguments that debtors will benefit from possible windfalls, are not persuasive. Markets are uncertain, and it is not certain such a scenario will ever occur. Secondly, the creditors’ right to foreclose will not result in any present monetary gain for the creditor since there is no value in the property for them.”
“Bankruptcy is not intended to benefit either the creditor in securing a potential increase in property value, or the debtor. However, where the future is unknown, bankruptcy principles of giving the debtor a fresh start should apply.”
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the December 2009 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
IMPORTANT UPDATE ABOUT CHAPTER 7 CRAM-DOWN (April 2009): Judge Eisenberg is one of three bankruptcy judges in the Central Islip Bankruptcy Court, in the Eastern District of New York. The other two judges, in the past month, have reached a different conclusion as to a debtor’s ability to cram-down a second mortgage in a Chapter 7 case. Please see this post for full info: Judges Differ with Chapter 7 Bankruptcy Cram-Down.
Written by Craig D. Robins, Esq.Same-sex couples have many more issues to contend with than heterosexual married ones — especially when it comes to filing bankruptcy in New York. Everything about the federal bankruptcy law is geared towards the conventional family.
Alas, nowhere in the bankruptcy statutes is there sufficient guidance for dealing with non-conventional family units, let alone same-sex couples who were married in other states.
That does not mean that gay or lesbian consumers in committed relationships can’t file for bankruptcy; it just means that they have to approach the bankruptcy petition and means test more carefully.
Having represented a number of gay and lesbian individuals and couples, the following issues routinely come up in providing bankruptcy advice. Unfortunately, some of the answers are not necessarily so clear.
Can a same-sex unmarried couple file a joint bankruptcy?
There is no difference between gay or straight non-married couples. Only married couples can file a joint bankruptcy petitions.
Can a same-sex couple that is legally married in another state file a joint bankruptcy petition in a New York Bankruptcy Court?
Recently, a handful of states adopted legislation recognizing same-sex marriage. They include Massachusetts, Connecticut, Iowa, Vermont, Maine, and for a short time, California.
Consequently, many New York residents in same-sex committed relationships eagerly went to these state to tie the knot. What if one of these gay or lesbian married couples now wants to file a joint bankruptcy petition in a New York bankruptcy court: can they?
Here we have a conundrum. According to the Defense against Marriage Act, a federal law dating back to 1996, a state is not required to recognize a same-sex marriage in their state even if the couple was legitimately married in another state. However, Governor Paterson did not feel that this produced a fair result and issued a directive in May 2009 requiring all state agencies to recognize same-sex marriages performed out-of-state.
Bankruptcy is a federal procedure based on federal laws. When these laws fail to address certain issues, such as legitimacy of marriage, then state law can be used to amplify the federal law. Since New York does not currently have any law that explicitly recognizes such marriages (Governor Paterson’s directive only applies to state agencies), then it appears that the a New York bankruptcy court would not be able to recognize an out-of-state same-sex marriage.
I have not yet had the opportunity to file a joint case involving a same-sex married couple, but given that opportunity, I certainly would give it a try. The Office of the United States Trustee would then have the difficult decision on whether they should seek to dismiss the case.
Even if they raised such objections, a sympathetic judge could nevertheless rule in favor of the debtors and come up with some legal justification for permitting the joint bankruptcy filing. It is just a question of time before we see such a filing in a New York bankruptcy court. Earlier this year I even placed a post on my bankruptcy blog offering to do such a filing on a pro bono basis, just to set a precedent.
How do you calculate the size of the household for means test purposes when you have a same-sex couple with a domestic partnerships?
The real issue here is essentially no different for any two partners or roommates living together, whether they may be straight or gay. Simply calculate all of the people who occupy the household, whether they are related or unrelated.
The real issue here is essentially no different for any two partners or roommates living together, whether they may be straight or gay. Simply calculate all of the people who occupy the household, whether they are related or unrelated.
Do you include a same-sex partner’s income on the means test?
The means test only requires a debtor to include the income of the spouse. If you are representing an individual debtor who is in a same-sex unmarried relationship in which the parties share their finances, the best approach is to come up with a specific monthly contribution amount from the non-filing partner.
If the individual debtor is in a same-sex marriage, the debtor can conceivably argue that the spouse’s income and finances should be included in the means test, or, alternatively, argue that the spouse is merely a roommate, considering that New York has yet to make the arrangement legal, and that the income does not need to be included.
Does the United States Trustee look any differently at bankruptcy petitions filed by debtors who have same-sex partners?
My experience has been that the United States Trustee’s office does not treat debtors in same-sex relationships any differently than debtors in straight relationships. However, I do get the feeling that they may want to avoid any politically-charged controversy involving gay rights issues.
My experience has been that the United States Trustee’s office does not treat debtors in same-sex relationships any differently than debtors in straight relationships. However, I do get the feeling that they may want to avoid any politically-charged controversy involving gay rights issues.
What’s down the road?
Eventually, Congress may recognize the existence of same-sex marriages and domestic civil unions in bankruptcy proceedings and provide statutory authority for dealing with such issues. Until that happens, we can only look towards the time when New York legalizes same-sex marriage.
Eventually, Congress may recognize the existence of same-sex marriages and domestic civil unions in bankruptcy proceedings and provide statutory authority for dealing with such issues. Until that happens, we can only look towards the time when New York legalizes same-sex marriage.
In October, Governor Patterson called same-sex marriage a civil right and announced that he wanted the legislature to take quick action and adopt such legislation.
.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the November 2009 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
By Craig D. Robins, Esq.
Husband Used Bankruptcy to Eliminate Debt Fraudulently Incurred by Deceased Wife
One of my most interesting Long Island Chapter 7 bankruptcy cases was a number of years ago. It involved an 80-year-old widower who learned some incredible, disturbing and unfortunate secrets about his wife’s finances while she was on her deathbed.
One of my most interesting Long Island Chapter 7 bankruptcy cases was a number of years ago. It involved an 80-year-old widower who learned some incredible, disturbing and unfortunate secrets about his wife’s finances while she was on her deathbed.
By using some creativity and the filing of a consumer bankruptcy case, I saved the day for my client.
Filing Bankruptcy Proved to Be the Ideal Solution to an Unusual Problem
Just a week after his wife had died, the widower, accompanied by his adult children, consulted with me about a very serious debt problem he had only discovered two weeks prior.
His deceased wife, also 80 years old, had been in the hospital, diagnosed with a terminal disease. When the widower walked into her hospital room to pay her a visit a week before she died, he caught her trying to shove some papers under her covers. These were credit card bills and lawsuit papers.
Wife, Unbeknownst to Husband, Incurs Substantial Debt in His Name
As it turned out, for years, the wife, who had handled all of the family’s finances, opened numerous credit card accounts in the husband’s name by forging his signature. She did not tell him about this. She had all the credit card bills sent to a post office box.
Just a week before she died, the husband learned that not only was he obligated to pay over $60,000 to credit card companies for debts he had absolutely nothing to do with, but several of the credit card companies had even commenced litigation against him. The widower wanted to know what to do.
Although we discussed disputing some 15 different accounts, or defending the various suits that had been brought in state court, I decided that the easiest and most efficient way to resolve the problem would be to file a Chapter 7 bankruptcy.
Using Bankruptcy to Resolve the Problem
The tricky aspect of this case was that the debtor-husband owned his entire Locust Valley home free and clear of all liens, far exceeding the homestead exemption. The unprotected home did not concern me because my strategy was to totally eliminate all creditors.
Just a week after his wife had died, the widower, accompanied by his adult children, consulted with me about a very serious debt problem he had only discovered two weeks prior.
His deceased wife, also 80 years old, had been in the hospital, diagnosed with a terminal disease. When the widower walked into her hospital room to pay her a visit a week before she died, he caught her trying to shove some papers under her covers. These were credit card bills and lawsuit papers.
Wife, Unbeknownst to Husband, Incurs Substantial Debt in His Name
As it turned out, for years, the wife, who had handled all of the family’s finances, opened numerous credit card accounts in the husband’s name by forging his signature. She did not tell him about this. She had all the credit card bills sent to a post office box.
Just a week before she died, the husband learned that not only was he obligated to pay over $60,000 to credit card companies for debts he had absolutely nothing to do with, but several of the credit card companies had even commenced litigation against him. The widower wanted to know what to do.
Although we discussed disputing some 15 different accounts, or defending the various suits that had been brought in state court, I decided that the easiest and most efficient way to resolve the problem would be to file a Chapter 7 bankruptcy.
Using Bankruptcy to Resolve the Problem
The tricky aspect of this case was that the debtor-husband owned his entire Locust Valley home free and clear of all liens, far exceeding the homestead exemption. The unprotected home did not concern me because my strategy was to totally eliminate all creditors.
I prepared the bankruptcy petition and listed the various credit card accounts totaling $60,000, but indicated that each and every credit card debt was disputed.
The bankruptcy court assigned the Chapter 7 case to Long Island bankruptcy trustee Kenneth Kirschenbaum. He almost fell off his chair at the meeting of creditors when he learned that there was a valuable house that was almost totally non-exempt. Keep in mind that at the time of filing, the homestead exemption was only $10,000 and the house was worth several hundred thousand dollars. The trustee immediately began salivating over the prospect of administering a nice asset case.
However, I told the trustee, “not so fast, Cowboy” (or words to that effect). I explained the situation and said that I would be filing an application for a “bar date” in which creditors would be notified that they have only so much time to file claims. I then told the trustee that I would be filing objections to every filed claim.
Trustee Can’t Administer Bankruptcy Estate and Debtor Gets Discharge
Well, it turned out that even though there were 15 creditors, only six of them filed claims. (Remember, this was many years ago when creditors often neglected to file claims). I then successfully objected to every claim, on the ground that the husband did not incur them.
That left a bankruptcy estate that contained a very significant non-exempt asset — the house — but with not one single claim that could be paid.
Trustee Kirschenbaum, who was not too happy, had no choice but to close the case as a “no asset” case because there were no creditors who he could pay. The debtor, meanwhile, received his Chapter 7 discharge, kept his home, and eliminated all of the headaches caused by his wife’s secret financial life.
By thinking out of the box, I utilized an unorthodox solution to an unusual debt problem and achieved a great result for my client.
The bankruptcy court assigned the Chapter 7 case to Long Island bankruptcy trustee Kenneth Kirschenbaum. He almost fell off his chair at the meeting of creditors when he learned that there was a valuable house that was almost totally non-exempt. Keep in mind that at the time of filing, the homestead exemption was only $10,000 and the house was worth several hundred thousand dollars. The trustee immediately began salivating over the prospect of administering a nice asset case.
However, I told the trustee, “not so fast, Cowboy” (or words to that effect). I explained the situation and said that I would be filing an application for a “bar date” in which creditors would be notified that they have only so much time to file claims. I then told the trustee that I would be filing objections to every filed claim.
Trustee Can’t Administer Bankruptcy Estate and Debtor Gets Discharge
Well, it turned out that even though there were 15 creditors, only six of them filed claims. (Remember, this was many years ago when creditors often neglected to file claims). I then successfully objected to every claim, on the ground that the husband did not incur them.
That left a bankruptcy estate that contained a very significant non-exempt asset — the house — but with not one single claim that could be paid.
Trustee Kirschenbaum, who was not too happy, had no choice but to close the case as a “no asset” case because there were no creditors who he could pay. The debtor, meanwhile, received his Chapter 7 discharge, kept his home, and eliminated all of the headaches caused by his wife’s secret financial life.
By thinking out of the box, I utilized an unorthodox solution to an unusual debt problem and achieved a great result for my client.
.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the October 2009 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.