Benefits of Bankruptcy

A Little Advice for Long Island Consumers Thinking of Wiping Out Debts with Bankruptcy

Written by Craig D. Robins, Esq.

 Many Long Island consumers are able to eliminate debts and get a fresh new financial start with bankruptcy. If you are thinking about filing, here are some important points.

 Do not wait too long

The purpose of bankruptcy is to help individuals and families protect their remaining assets in the face of overwhelming financial problems. If you think you may need bankruptcy protection, try to do so before you lose those precious assets.

 For example, I see too many consumers invade their pensions and individual retirement accounts before filing. However, if they sought our bankruptcy advice before doing so, they would have learned that these types of assets are totally protected in a New York bankruptcy proceeding.

Also, the sooner you file, the sooner you get debt relief. Once a bankruptcy petition is filed, it becomes against federal law for creditors to harass you any further.

Save a little money to file bankruptcy

Unfortunately for consumers, the 2005 Bankruptcy Amendment Act made the bankruptcy process much more complicated and consequently more expensive. In addition to the attorney’s fee, there is a court filing fee of $299, and costs for mandatory credit counseling of about $50 before filing.

Then, once your bankruptcy case is filed, you will no longer be responsible to your creditors and you will be in a position to start saving again.

Do not try to go it alone

The new bankruptcy laws are extremely complex and complicated. The prudent choice for the consumer is to retain an experienced Long Island bankruptcy lawyer. At my bankruptcy law firm, we provide a free, confidential bankruptcy consultation and explain how bankruptcy works.

Many consumers who try to file bankruptcy without an attorney are unsuccessful, and their cases get dismissed without a discharge. At every Chapter 13 Meeting of Creditors at the Central Islip Bankruptcy Court, I hear my colleague, Long Island Chapter 13 trustee Michael Macco, make an announcement that in his 26 years as a trustee, he has never seen a Chapter 13 debtor successfully get a case confirmed by the bankruptcy court.

Know your options about handling debt

If you are overwhelmed by debt, or think that you may be in the future, learn what your rights and options are now. In addition to three different chapters of bankruptcy, there is also debt negotiation, debt consolidation, credit counseling, and foreclosure defense.

An knowledgeable bankruptcy attorney can guide you towards the best choice. Many of these options are discussed on my website, www.BankruptcyCanHelp.com

Written by Craig D. Robins, Esq.

At least once or twice a year, for the past twenty years, I have represented, as clients, debt-laden fellow attorneys with the filing of bankruptcy petitions. All jokes aside, attorneys are like everyone else - some have serious debt problems.

Typically, attorneys as clients ask me a number of particular questions. Can attorneys file for bankruptcy relief? Is doing so a violation of professional ethics? Can an attorney continue to practice law after filing?

Although all of my 80+ columns to date have dealt with providing you with information to help you assist your clients with their bankruptcy needs, this month’s column is devoted to those of my brethren attorneys who may have their own overwhelming debt issues and are considering bankruptcy as an option.

It Is Not Unethical for an Attorney to File for Bankruptcy. A Nassau County Bar Association Ethics Opinion directly addressed this issue and concluded that it is not unethical for an attorney to file for bankruptcy, and anyone who does may certainly continue to practice before the courts of the State of New York. Opinion 95-8 (1995).

A Lawyer Has a Constitutional Right to File for Bankruptcy. Article I, Section 8 of the United States Constitution provides that Congress shall have the power to establish uniform laws on the subject of bankruptcies throughout the United States. The Bankruptcy Code clearly provides that any person may voluntarily file a petition in bankruptcy. This means that anyone, even an attorney, can file for bankruptcy relief.

Law Students Can File, but Should Be Cautious. I have also represented a number of law students. With them, the concern is whether a bankruptcy would impede their admission to the Bar as they must be screened by the Character and Fitness Committee. Generally speaking, a bankruptcy filing does not, in and of itself, prevent admission to the Bar.

The New York Court of Appeals has addressed the issue of filing a petition for bankruptcy, as it reflects on the moral character of an applicant to the Bar. Matter of Anonymous, 74 N.Y.2D 938, 549 N.E.2d 472, 550 N.Y.S.2d. 270 (1989) aff’d 79 N.Y.2d 782, 587 N.E.2d 286, 579 N.Y.S.2d 648 (1991). In Anonymous, the Court affirmed the denial of the applicant’s admission. However, the decision was not based solely on the fact that the applicant had previously filed for bankruptcy. The Court held that, “A determination of unfitness must rest not on the fact of bankruptcy, but on conduct reasonably viewed as incompatible with a lawyer’s duties and responsibilities as a member of the bar.” (the Court concluded that the applicant therein lacked the “character necessary to discipline himself to control his standard of living and the amount of his indebtedness, thus showing a lack of financial responsibility necessary for an attorney”) - Anonymous, 74 N.Y.2d 938 at 939, 550 N.Y.S. 270 at 272.

It should also be noted that Bankruptcy Code section 525 provides protection against discriminatory treatment to debtors. It follows that barring attendant circumstances surrounding a bankruptcy, it would be violative of the Bankruptcy Code to deny an applicant admission to the bar based solely on the fact that the applicant had filed a petition for bankruptcy. This section provides that a governmental unit may not refuse to grant a license solely because the applicant is or has been a debtor in bankruptcy.

Assets Unique to Attorneys that a Trustee Will Scrutinize. In Chapter 7 cases, trustees are motivated to look for non-exempt assets that can be liquidated and distributed to creditors. Chapter 13 trustees look for the same assets, but to determine the percentage a debtor must repay his unsecured creditors.

A trustee will therefore inquire about uncollected accounts receivable owed by clients, uncollected referral fees owed by other attorneys, and pending personal injury cases with potentially large recoveries. If an attorney-debtor has his own practice, the trustee may inquire about the value of office equipment and any assets owned by the practice. If the attorney is a partner, the trustee will look at the value of the partnership interest. Depending on the situation, the trustee might want to also examine the attorney-debtor’s financial books and records, which is something a trustee might do with any consumer filer who has his own business.

If the attorney-debtor is employed by a firm, the trustee might inquire about the likelihood of receiving bonuses.

Attorneys Who File for Bankruptcy Should Be Able to Continue Their Practices. Although a law practice is technically a non-exempt asset, it is a personal services business bound by ethics laws that a trustee could not realistically sell. Thus, sole practitioners filing for bankruptcy relief are usually able to continue their practices without any problem.

Unique Issues Attorney-Debtors May Encounter. Since attorneys have the potential for earning substantial income, both the case trustee and the Office of the United States Trustee, which is the governmental agency that oversees bankruptcies, may want to make sure that an attorney who files for Chapter 7 relief is doing so in good faith. In other words, they want to make sure the attorney-debtor will not be in a position to earn a hefty salary after filing that could have enabled him to make some payments to creditors. If that was the case, the attorney-debtor can still file for bankruptcy, but he would have to consider a case under Chapter 13 instead, which would involve a payment plan. Incidentally, almost all of the filings I have made representing other attorneys were cases under Chapter 7.

Attorney-Debtors Should Not File Pro-Se. One trustee suggested that although an attorney-debtor can obviously represent himself, it would be much more advisable to be represented by counsel. Knowledgeable and experienced bankruptcy counsel will know the laws, practices, procedures and customs and would be in the best position to facilitate the case to a beneficial conclusion.

Will Attorneys Who File for Bankruptcy Be Treated Any Differently in Court? In my experience, trustees treat attorney-debtors the same way as any other debtor. Attorney-debtors do not receive any special treatment, nor are they disparaged or made to feel embarrassed in any way. If anything, trustees are able to communicate better with attorney-debtors because they both understand concepts and terminology pertaining to the practice of law.

Conclusion: Attorneys in Dire Financial Condition Should Consider their Bankruptcy Options. As long as there are no issues of dishonesty, fraud or deceit in filing a bankruptcy petition, attorneys with debtor problems should consider bankruptcy as an option.

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 2008 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 Medford, 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.

On August 30, 2005, just weeks before the Bankruptcy Code was radically overhauled by the Bankruptcy Amendment Act, the New York Legislature, with absolutely no advance warning, boosted the homestead exemption from $10,000 to $50,000 per person.

This was a boon to debtors as it enabled a typical husband and wife filing for bankruptcy relief to protect $100,000 worth of equity in their home. However, It was the bane of judgment creditors, many of whom stood to lose the total value of their judgment liens.

How Judgment Liens Are Created. If a creditor obtains a judgment in a New York State Supreme Court proceeding, the judgment automatically becomes a lien on any property held by that judgment debtor in the county where the Supreme Court was located. If a creditor obtains a judgment in a District Court, then in order for that judgment to act as a lien, the creditor must file a transcript of judgment (and pay a filing fee) with the county clerk in the county where the real estate is located.

. If a judgment lien impairs a bankruptcy debtor’s homestead exemption, the debtor can bring a motion under Bankruptcy Code section 522 (f) to void that part of the judgment that impairs the homestead exemption. This is a motion commonly brought in bankruptcy proceedings. Usually, creditors do not even oppose such motions.

The Homestead Amendment Causes Judgment Creditors to Develop Novel Defenses. Last year I brought a typical motion to void a judgment lien, relying on the $50,000 per person homestead exemption created by the 2005 change to the New York Exemption statute. The judgment was about five years old and predated the exemption change.

I was surprised when the creditor sought to object to the motion, claiming that the debtor should only be entitled to use the old $10,000 exemption, rather than the newer $50,000 exemption. (If this was the permitted result, then the judgment would not have impaired the homestead exemption and the lien would have remained.)

The creditor argued an interesting theory that it had a vested property right which could not be altered by the amendment to the law. Fortunately for my client, the Court decided for the debtor and didn’t even address this novel defense because the creditor’s motion reply papers were improperly submitted.

The Recent Trudell Case Prevents Judgment Creditors from Subverting the Exemption Increase on Constitutional Grounds. Just last month, Judge Michael J. Kaplan, sitting in the Bankruptcy Court for the Western District of New York, entertained the exact same argument. In re Trudell, W.L. 141775 (Bankr. W.D.N.Y., Jan. 14, 2008.)

The Judge recognized that the increased homestead exemption retroactively applied to debts incurred prior to the 2005 change in the exemption statute. However, the Judge believed that there was still a valid issue to be resolved concerning whether the lien is a “vested property right” that cannot constitutionally be taken away by the August 30, 2005 amendment without addressing concerns under the “takings clause” of the Constitution.

The Judge discussed the concept of retroactivity and commented that “although retroactive statutes are not specifically prohibited by either the Federal or the New York State Constitution, a retroactive statute may nevertheless be held to violate constitutional provisions of general applicability, such as the proscription of legislation impairing vested rights without due process, or the obligation of contracts.”

The Judge continued with his discussion by suggesting that it was not necessary for him to even address such elusive concepts of when “rights” and “interests” become vested because New York’s highest Court addressed the question of when a “judgment lien” upon real estate becomes vested, citing a case from 1872.

The Judge concluded that “what the Legislature gave to holders of judgment liens, the Legislature may take away prior to sale or other satisfaction of the judgment lien.”

Accordingly, the Court held that the fact that the judgment lien was filed before the enactment of the increase in homestead exemption from $10,000 to $50,000 does not affect the Debtor’s right to claim the $50,000 exemption in order to accomplish the avoidance of the judgment lien. Victory for the debtor.

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 2008 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 Medford, 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.

Gambling has long been a culprit that drives people into bankruptcy. With Atlantic City and Indian casinos a mere bus ride away, Long Islanders are finding it ever so easy to gamble away their hard-earned incomes and get into a bad debt situation. Combine that with horse racing and OTB, lotteries, bookies and now, internet gambling, and we have plenty of opportunities for individuals to lose their shirts. Day trading with stocks is also considered by many to be an addictive form of gambling. It is no secret that compulsive gamblers incur devastating debts on their credit cards to fuel their obsessions.

Gamblers often get trapped in a vicious cycle of taking cash advances for gambling in the hope that future winnings will then satisfy ever-increasing debt. Left unchecked, this cycle will usually drive the gambler into a downward vortex, destroying the gambler and his family financially.

Gamblers may actually have some luck on their side if they can take advantage of the current bankruptcy laws, as the filing of a Chapter 7 bankruptcy will enable the gambler to discharge most gambling debts. It appears that with the surge in legalized gambling across the country, bankruptcy courts have become more liberal in permitting gamblers to discharge their gambling debts.

However, proposed legislation, if enacted, will certainly make it increasingly more difficult for gamblers to discharge their debts. Such legislation is currently pending and would adversely affect all consumer filings, not just those of gamblers. One commentator suggested that the legislature is suffering from apparent schizophrenia—they are constantly legalizing more gambling, yet condemning the ever-increasing amount of consumer debt and the “ease” of its discharge.

The following are points that the consumer bankruptcy practitioner should be aware of with regard to discharging gambling debts of their clients.

1. Gambling debts are generally dischargeable. There is no statutory authority that expressly states that gambling debts are non-dischargeable. Therefore, gambling debts are not per se non-dischargeable.

2. A creditor must prevail in an adversary proceeding for a gambling debt to be non-dischargeable. All gambling debts are dischargeable unless a creditor objects to them in an adversary proceeding. Adversary proceedings are federal law suits brought within a bankruptcy. They are involved and costly for all parties. Going back several years, casinos and credit card companies often sought to object to discharging extensions of credit given to debtors at the casino. However, such suits are much less common today.

3. Creditors rely on certain statutory provisions when they allege that gambling debts are non-dischargeable. There is one major Bankruptcy Code provision that creditors generally use in adversary proceedings to challenge dischargeability of gambling debts. This is Code section 523(a)(2)(A) which provides an exception to discharge for debts obtained by “false pretenses, a false representation, or actual fraud.”

4. Creditors have the burden of proof. Although there appear to be fewer creditors today bringing adversary proceedings objecting to gambling debts, some creditors continue to bring such suits. A creditor seeking to object to a debt bears the burden of proof by a preponderance of the evidence as stated by the U.S. Supreme Court in the 1991 Grogan case.

5. Creditors must establish four elements. In order for a creditor to prove false pretenses, false representations or fraud, the creditor must generally establish each of four separate elements: a) false representation (the creditor must prove that the gambler made a false representation through which the gambler obtained money, such as by lying on a credit application); b) knowledge (the creditor must prove that the gambler either knew the representation was false or made with such reckless disregard for the truth as to constitute willful misrepresentations — this is often the major element that is litigated); c) scienter (the creditor must prove that the debtor intended to deceive); and d) justifiable reliance (the creditor must show that it actually relied on the gambler’s false representation and that creditor’s reliance was justifiable).

6. The reasonableness standard: subjective ability to pay has become the general rule. Earlier cases concerning whether debtors believed that they would be able to repay gambling debts focused on whether the debtor’s belief was reasonable from an objective viewpoint. The creditor would argue that the debtor “knew or should have known” that the debtor could not possibly pay back his debt. A debtor will often assert that his only hope of repaying a gambling debt is to win it big in the future. Prior cases held that gambling debts in such situations should be non-dischargeable because the debtor’s belief was not reasonable.

However, the current trend has shifted to a more subjective determination. One case held that the debtor’s “honest but somewhat questionable belief that he would soon get lucky at gambling and pay off his debts” demonstrated intent to repay. Thus, a debtor may be able to defeat the creditor’s position if the debtor can persuade the court that based on his history, the debtor genuinely believed that he would be able to pay his debts and that he had the intent to pay his credit card debts at the time he incurred them.

7. The courts are mindful of public policy arguments. In recent years, this country’s policies toward gambling have also shifted for social policy reasons. One Court’s position is this: At one point in time, not so far in the past, gambling was against public policy and gambling debts were not enforceable in a court of law. But public policy changed. Certain forms of gambling are now legal … . They are hyped as a source of jobs (i.e., casinos), as a source of revenue for government (i.e. Lottery proceeds used for education), and as a form of entertainment (i.e., casinos and off-track betting).

8. The luxury goods and cash advance exceptions can make the debt non-dischargeable. Code section 523(a)(2)(C) makes a debt non-dischargeable if it is for a “luxury good or service” over $1,225 that is purchased within 60 days pre-petition, or if it is a cash advance over $1,225 obtained within 60 days pre-petition. Problems with these exceptions can be easily avoided by properly questioning your client about their pre-petition credit use and then waiting the requisite period of time.

9. Beware of pending bankruptcy reform legislation. In some versions of the pending legislation bill, there is language that provides that a debt incurred when the debtor had no reasonable expectation or ability to repay it is non-dischargeable. This would adversely slam the liberal trend in the case law mentioned above. If the bankruptcy laws change, it may become much harder to discharge gambling debts.

10. Gamblers need non-legal help also. Compulsive gamblers suffer from an addiction disorder and need professional help. Although the bankruptcy practitioner can certainly help by providing the opportunity for a fresh new financial start, you should urge the client to seek professional help. In addition to counseling, there are support groups such as Gamblers Anonymous.

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 2005 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 Medford, 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.