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How Far Can a Bankruptcy Judge Go To Assist Inept Counsel?

Craig Robins — Thu, 17 May 2012 03:00:28 +0000

Written by Craig D. Robins, Esq.

After I wrote about some bankruptcy court decisions last month which involved some quirky and unusual facts (Two bankruptcy attorneys got into trouble over E.C.F. filings), some of my colleagues requested that I continue to discuss similarly odd and interesting cases. Fortunately, we have one that is fresh off the docket.

On April 24, 2012, Judge Alan S. Trust, sitting in the Central Islip Bankruptcy Court, here in the Eastern District of New York, happened to issue a decision in just such a case, so we now have appropriate fodder for this month’s column.

The decision, which is just as interesting for what is says, as for what it does not, involves protecting a debtor’s entitlement to receive funds, trying to be creative with exemptions, and seeing how a client might suffer from attorney ineptitude for being unfamiliar with bankruptcy practice and procedure.

Perhaps most importantly, it also leaves one thinking about how far a judge can or should go to assist counsel who is clueless. In re Cho, no. 11-75595-ast, (Bankr. E.D. New York 2012).

In August 2011, Mr. and Mrs. Cho filed a typical Chapter 7 consumer bankruptcy petition here on Long Island. About a month before filing, the debtors’ car lender repossessed their Honda. Unbeknownst to the debtors at the time, a week before the filing date, the lender sold the vehicle at auction, and the sale resulted in a surplus of $5,000.

The debtor’s bankruptcy attorney, a lawyer from Queens who shall remain nameless, advised Chapter 7 Trustee Robert Pryor at the meeting of creditors, that the debtors’ vehicle had been repossessed pre-petition, resulting in a surplus, and that the debtors had received and deposited a check for the surplus post-petition.

Debtor’s Attorney Tries to Be Creative – Unsuccessfully

The trustee soon demanded that the debtors turn over the entire surplus amount. Instead of doing that, the debtors amended their Schedule of Assets to include an ownership interest in the vehicle (which they no longer owned).

They also amended their Schedule of Exemptions (which opted for New York State exemptions as opposed to the more liberal federal exemptions) to exempt the vehicle in the sum of $4,000 pursuant to C.P.L.R. § 5205(a)(8), and to also increase their cash exemption by $1,000 to cover the additional value of the surplus pursuant to C.P.L.R. § 5205(a)(9).

The trustee believed that he was nevertheless entitled to the full surplus amount, so, with the help of his able associate, Michael Farina, he brought a motion to compel the debtors to turn it over. The debtors responded, acknowledging that they no longer owned the vehicle, but argued that they were entitled to exempt the surplus as cash. The trustee responded and pointed out that the amended schedules were improperly done and therefore fatally defective.

The trustee’s observation was correct. Eastern District of New York Local Bankruptcy Rule 1009-1(iv) provides that in order for an amendment of exemptions to become effective, the debtor must first file and serve the amended exemptions on the U.S. Trustee, all creditors, and all other parties in interest, and then file proof of service with the court. Here, the debtors’ attorney both neglected to file, and neglected to serve.

One would think that the debtors’ attorney, after reading the trustee’s papers alleging this neglect, would take immediate corrective action. However, he did not. At the hearing, which was held in December 2011, Judge Trust generously gave debtors’ counsel a week to comply with the local rule requirement.

However, inexplicably, counsel then filed the amendments but neglected to serve them. This led the trustee to file supplemental objections. At a subsequent hearing, Judge Trust gave the debtors’ counsel one last opportunity to meet the procedural requirements, which he finally did. The matter was now marked for submission.

The issue before the court was whether the debtors could exempt the surplus cash under New York law, and whether the debtors could exempt the vehicle.

In his decision, the judge first pointed out that New York residents who file bankruptcy after June 21, 2011 have an option of selecting either the New York State or federal exemptions, and that the debtors here chose to claim the New York State exemptions.

Bankruptcy attorneys know that a debtor can exempt up to $5,000 of cash pursuant to the New York State cash exemption set forth in Debtor and Creditor Law sec. 283(2), provided that the debtor does not utilize the homestead exemption.

Judge Trust determined that, at the time of filing, the debtors did not own cash. Under DCL § 283(2), “cash means currency of the United States at face value, savings bonds of the United States at face value, the right to receive a refund of federal, state and local income taxes, and deposit accounts in any state or federally chartered depository institution.”

The judge, following the overwhelming majority of courts, determined that the debtors had a “pre-petition vested right to receive payment” of the surplus which did not constitute “cash.” A right to receive payment as evidenced by a check in transit is not “cash.”

In addition, since the debtors did not have an ownership interest in the vehicle on the date of filing, nor did they have a right of redemption, they could not exempt the vehicle.

However, Judge Trust indicated that the debtors could exempt $1,000 of the right to receive payment. This is because of the relatively new exemption under C.P.L.R. § 5205(a)(9) which permits debtors filing after January 21, 2011, to utilize a $1,000 wildcard exemption for any personal property, provided that the debtor does not claim a homestead exemption.

Since the car was only in one spouse’s name, and the debtors did not claim a homestead exemption, they were entitled to one, $1,000 wildcard exemption which could be applied to the surplus. The judge ordered them to turn over the balance of the surplus to the trustee.

Debtors’ Counsel Neglected to Use the Best Exemption to Protect His Clients – a Fact the Judge Did Not Point Out

Here’s why I found the decision especially interesting. First, the debtors’ counsel initially botched up amending the exemptions – not once – but twice. Judge Trust gave counsel two opportunities to correct the mistake. Counsel finally figured out what to do on the third try.

Of course, we will never know what Judge Trust was thinking, but one can’t help but wonder if his granting counsel an opportunity to remedy the defective filings was also an opportunity for counsel to reconsider the exemption scheme counsel had elected.

Had counsel opted for the much more generous $10,825 federal wildcard exemption provided in the federal exemptions by Bankruptcy Code § 522(5), he would have been able to protect 100% of the surplus. In essence, it appears that counsel chose the wrong exemption scheme to the detriment of his clients.

An Interesting Issue: How Far Can or Should a Judge Go to Educate Inept or Inexperienced Counsel?

However, a judge can and will only go so far in telling inept or inexperienced counsel what to do. Would it have been out of line for the judge to tell debtor’s counsel that counsel didn’t have a sufficient understanding of law and procedure, and was not following the best legal strategy? This is not a role that judges have. They cannot advocate for one party.

Just to be clear, we will never know if Judge Trust was aware that debtor’s counsel botched up the exemptions, but if Judge Trust was aware of this issue I would assume that he would take the position that it is not his place to point out that counsel could have protected the entire surplus if the federal exemptions were used.

Based on my experience watching cases in court over the past three decades, this seems to be the way almost all judges handle such issues – they will not tell counsel how to practice law, even if that ultimately hurts an innocent client.

Accordingly, the debtor-clients here suffered and will have to turn over many thousands of dollars that they could have kept had their attorney had a better understanding of bankruptcy law and selected the better exemption scheme. And that point is not in the decision.

Click this link to see a copy of the Cho decision in Case No. 11-75594-ast.

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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 2012 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 (516) 496-0800 (516) 496-0800 (516) 496-0800 . For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.

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Two Bankruptcy Attorneys Get Into Serious Trouble Over E.C.F. Filings

Craig Robins — Tue, 01 May 2012 02:15:29 +0000

by Craig D. Robins, Esq.

Flouting E.C.F. Filing Rules Has Grave Consequences

“The following is a cautionary tale of what occurs when the uninitiated attempt to practice before the bankruptcy court without a firm grasp of the Bankruptcy Code and Federal Rules of Bankruptcy Procedure.”

“Even the most well intentioned practitioners can inadvertently wreak havoc on unsuspecting clients by failing to appreciate the complexity of the bankruptcy process. It is also a prime example of how things can escalate when an attorney is less than candid with the Court about his or her mistakes.”

The preceding words were taken verbatim from a recent Massachusetts decision that severely castigated an attorney for messing up a consumer debtor’s bankruptcy filing and then lying about it to the court. This month I will discuss that case, and another from one of our own courts here in the Eastern District of New York, both of which lambasted attorneys who utterly failed to abide by the rules.

Inexperienced Attorney Makes Mess of Bankruptcy Filing

In the Massachusetts case, Bankruptcy attorney Georgia S. Curtis was authorized to use E.C.F., but was grossly unfamiliar with how to do so. “E.C.F.,” which stands for Electronic Case Filing System, is the computerized court website system through which attorneys file court documents such as bankruptcy petitions In Re: Jackquelyn D. Stallworth, 2012 Bankr. LEXIS 740 (Bankr. D. Mass 2/8/12).

Since 2003, every petition and other court document that I’ve filed with the court has been done through my office computer, while logged into the court’s E.C.F. website. For almost a decade, all bankruptcy attorneys are required to file their bankruptcy petitions, motion papers and other documents by E.C.F.

When Curtis filed her client’s petition, which was only the second petition that the attorney had ever filed, her inexperience got the best of her as she neglected to file the Creditor Matrix or the Statement of Social Security Number. These are mandatory requirements, and failure to abide by them, as Curtis soon learned, is fatal.

Nine days later the court dismissed the petition. Curtis also failed to file the Credit Counseling Certificate and page 3 of the petition, which is one of the petition pages that contains the attorney’s signature.

Curtis then thought she could file a motion to vacate the dismissal by e-mail (which is not the appropriate procedure for filing a motion). However, she messed this up as well, by attaching the wrong PDF document. The court ordered her to correct this mistake within two days.

Did Curtis do that? No. Instead of correcting the deficient filing, two weeks later she filed a second Chapter 7 case without her client’s knowledge.

The petition in the second case contained only the debtor’s name, which was spelled incorrectly, the last four digits of her Social Security number, and the county of her residence, omitting her street and mailing addresses, as well as reference to her prior filings.

Additionally, the schedules accompanying the Debtor’s petition were blank or were otherwise incomplete, which, if taken literally as pointed out by the judge, reflected that she had neither assets nor any creditors.

The judge then issued a sua sponte order to show cause directing Curtis to show cause why the court should not sanction her and suspend her E.C.F. filing privileges. Because this petition was basically a blank, it also caught the attention of the United States Trustee who brought a motion against Curtis seeking to have her disgorge the legal fee.

Over several order to show cause hearings, Curtis testified that she did indeed file all necessary documents when that was not true. She also offered conflicting and contradictory explanations of what had happened.

The judge wasn’t happy. He suspended Curtis’s E.C.F. privileges, but indicated that Curtis could purge her “civil contempt” by becoming re-certified with E.C.F. (All attorneys are required to participate in an E.C.F. training course as a prerequisite to obtaining authority to file by E.C.F.).

In addition, the judge stated that he had reasonable cause to believe that Curtis violated the Rules of Professional Conduct and referred the matter to the District Court for further disciplinary proceedings.

Curtis had a problem adhering to the court’s E.C.F. rules: she violated them. That led to a suspension of her E.C.F. privileges. But her problems increased exponentially when she lied to the court. That led to a most serious referral that might result in her losing her license to practice. For a legal practitioner, not knowing what you’re doing is bad enough; perjuring yourself in court: indefensible.

Suspended Attorney Files Petitions in Other Attorney’s Name

On March 22, 2012, Judge Carla E. Craig, sitting in the Brooklyn Bankruptcy Court, issued another interesting decision involving attorney ineptitude and impropriety with the E.C.F. system. In re: Clyde Flowers, (01-12-40298-cec, Bankr. E.D.N.Y.)

Peter J. Mollo was a Brooklyn bankruptcy attorney who had just been suspended from practicing law in this state in January 2012 by the Appellate Division for several reasons such as endorsing a check without permission.

That left him with a bunch of bankruptcy clients whose petitions he had not filed. What he should have done was transferred the files to another attorney after first consulting with his clients. Instead, he called another local attorney, Brian K. Payne, and asked him if he would take over representation. However, no final agreement was reached.

Mollo, nevertheless quite eager to get these four cases filed, revised the petitions to indicate that the debtors’ attorney was now Payne — even though Payne never agreed. Mollow then filed these four petitions under his own E.C.F. account and forged the electronic signature of Payne on each petition.

When the U.S. Trustee got wind of this after Payne sent a letter to the Chief Judge and others indicating that Mollo had filed petitions without his knowledge, consent, authority or signature, the UST immediately brought a motion to sanction Mollo, revoke his authorization to use the E.C.F. system, disgorge his fees, and compensate replacement counsel.

At the hearing, Mollo admitted that he “made terrible egregious, unbelievable errors.” The judge determined that Mollo violated Bankruptcy Rule 9011 by filing a forged document, an act that warranted sanctions.

Mollo agreed to disgorge all legal fees received, which was complicated by the fact that he kept such poor records that he was not sure how much he actually did receive. He also agreed to compensate each debtor’s replacement counsel. He lost his E.C.F. privileges, not that he would have been legally able to use them in light of his suspension.

Finally, the judge thought additional sanctions were warranted given the egregious nature of Mollo’s violations and their similarity to the conduct that got him suspended in the first place (forging signatures). Judge Craig sanctioned Mollo an additional $3,000, stating that Mollo’s conduct compromised the integrity of the court system and the electronic filing process.

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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 May 2012 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 (516) 496-0800 (516) 496-0800 (516) 496-0800 . For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.

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Some Abstract Companies Don’t Know Bankruptcy Law

Craig Robins — Sun, 01 Apr 2012 00:45:25 +0000

Sometimes dealing with abstract companies about bankruptcy issues is like an absurd circus experience in a Mark Ryden painting

Written by Craig D. Robins, Esq.

Non-lien Judgments Are Totally Discharged in Bankruptcy

Every other year or so I get a frantic phone call from a former bankruptcy client or their real estate attorney, saying that there is a crisis because they are about to go to closing on the purchase or sale of real estate, and a judgment search yielded an old judgment that must be satisfied, even though the judgment creditor was scheduled in the bankruptcy case.

I just got off the phone with the frantic real estate attorney for one such former Chapter 7 client. He said, “The client inherited some property over a year after the bankruptcy was concluded and we’ve scheduled a closing to sell it – but the abstract company won’t let us close until we remove the judgment of record.”

What’s wrong with this story?

As long as the debt was scheduled in the bankruptcy, no further work is necessary! Putting this situation into other words, here is the typical scenario. A consumer debtor files for bankruptcy. The debtor has a judgment against him which is properly scheduled in the bankruptcy petition. The debtor does not have any real estate at the time the bankruptcy is filed. The debtor receives a discharge. The debtor acquires property thereafter.

What happens to the judgment?

The obligation to pay the judgment is discharged. It is forever eliminated. The fact that the creditor obtained a judgment does not give the creditor any greater rights — even if they recorded the judgment with the County Clerk.

Bankruptcy Code § 524 provides that a discharge, “voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged…” (§ 524(a)(1)).

The judgment can never became a lien on property the debtor later acquires because the judgment can only become a lien if it attached to property prior to the bankruptcy. Here, the debtor did not own any property at the time the judgment was entered against her, and she did not own any property at the time she filed for bankruptcy. Thus, the judgment never attached to any real estate.

The judgment nevertheless remains on record with the County Clerk because it is a valid court document. However, it no longer has any effect after the bankruptcy court grants a discharge. Some non-bankruptcy attorneys erroneously believe that an additional step is necessary to remove the judgment from the judgment roll at the County Clerk.

I explained to the client’s real estate attorney (an old-timer who admitted he did not know anything about bankruptcy) that the abstract company was incorrect with their position that the judgment lien required attention.

It seems that a reader at the Abstract Company inexplicably did not know the law, and told the real estate attorney that the judgment had to be removed, This was grossly incorrect.

Since the debt that was the subject of the judgment was discharged at the time the debtor emerged from bankruptcy, the judgment could never attach to any subsequently obtained real estate. Thus, the judgment could not become a judgment lien when the debtor later inherited title to the property.

The real estate attorney, now knowing how bankruptcy law worked after I explained it to him, was able to resolve the problem, although the abstract company did call me to request a copy of the Schedule of Creditors to make sure the debt was listed.

The United States Supreme Court has recognized that judgments which have been discharged in bankruptcy may not be kept “alive for the purpose of permitting the creation of an enforceable lien upon a subject not existent when the bankruptcy became effective.“ Local Loan Co. v. Hunt, 292 U.S. 234, 343 (1934).

Put simply, judgment liens do not attach to a defendant’s after acquired real property. Bank of New York v. Nies, 96 A.D.2d 166; 468 N.Y.S.2d 278; 1983 N.Y.App.Div Lexis 20313.

Please note that dealing with judgment liens as indicated above only applies when the debtor did not own any real estate at the time the debtor filed for bankruptcy relief. If the debtor did own real estate, then the obligation to pay the judgment is discharged, but the lien remains.

Confusion With New York Debtor & Creditor Law § 150

Here’s why some practitioners are confused about judgments. New York Debtor & Creditor Law § 150 (1) states that “At any time after one year has elapsed since a debtor in bankruptcy was discharged from his debts, the debtor may apply, upon proof of the debtor’s discharge, to the court in which a judgment was rendered against him, for an order, directing that a discharge be marked upon the docket of the judgment.” [edited for clarity].

The Bankruptcy Discharge Takes Care of the Judgment Lien

Some attorneys think that since a debtor can have a judgment marked “discharged” by the County Clerk pursuant to D&C § 150, doing so is necessary. However, that is not true.

Federal bankruptcy law clearly discharges the obligation to pay the judgment. Although a debtor can go to the extraordinary length to have the County Clerk officially mark the judgment as “discharged,” this is not necessary, and I have never heard of this ever being done.

D&C § 150 is an antiquated and misunderstood statute that has relatively little application in state court proceedings and can often cause confusion. Any situation requiring removal of a judgment lien in a bankruptcy proceeding, when appropriate, is best done by bringing the application in bankruptcy court pursuant to the Bankruptcy Code, rather than state court, pursuant to D&C § 150. This is because bankruptcy judges are very familiar with the issues involved, and the Bankruptcy Code provisions are relatively straight forward in this area.

Even Judges are Confused by New York’s Debtor and Creditor Law

In taking a quick look at some New York cases that referenced D&C § 150, I was amazed to see a decision issued just last year from a respected Supreme Court judge who totally misunderstood the application of D&C § 150. In that case, the Supreme Court had issued a judgment against two individuals on a pre-petition debt half a year after they filed their bankruptcy petitions. Thus, the judgment was in violation of the automatic stay pursuant to Bankruptcy Code § 362(a).

The debtors’ state court attorney filed a motion to remove the judgment and the Court granted that motion citing D&C § 150. The outcome was sort of correct (the judgment should have been removed), but the judge incorrectly supported his decision with a statute that had nothing to do with the situation. Actually, a motion was not even necessary.

When the Supreme Court entered the judgment post-petition, it was an inadvertent violation of the automatic bankruptcy stay. It appears that none of the parties advised the court that the two individuals had sought bankruptcy relief.

It is well-settled law that any order entered in violation of the stay is void and not voidable. The attorneys who represented the plaintiff should have advised the court that the judgment was improperly issued against the debtors. No motion was necessary!

Practical Tips

Abstract companies often do not know bankruptcy law. However, the title policies that they prepare are underwritten by the major title insurance companies. These title insurance companies have law departments who do know the law. If you are dealing with an abstract company that is giving you a hard time, insist that they clear the matter with the title insurance company.

To demonstrate that a judgment has been discharged, you need only show a title company proof that the bankruptcy was filed after the judgment was entered and proof that the judgment creditor was scheduled in the petition.

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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 2012 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 (516) 496-0800 (516) 496-0800 (516) 496-0800 . For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.

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Protecting Frequent Flyer Miles If You Have to File Consumer Bankruptcy – The Complete Guide

Craig Robins — Thu, 23 Feb 2012 02:15:40 +0000

by Craig D. Robins, Esq.

Filing for Bankruptcy Usually Has No Effect on Frequent Flyer Miles and Rewards Points

Most consumers these days have an assortment of frequent flyer miles and credit card rewards points, whether they earn them from having flown on airlines, or acquired them from banks for credit card spending.

For consumers, these miles and rewards points can have a substantial value as they can be used to obtain expensive plane tickets or months of hotel lodging. They can also be used to purchase various goods, or gift certificates redeemable in a variety of retail stores.

I once represented an executive who previously earned six figures, but was now without a job. He had over 800,000 American Express Membership Rewards points – enough to redeem on airlines for several international first class trips, among other things. He could have also easily redeemed them for over $8,000 in retail gift certificates. What happens to these valuable points and miles when a consumer files for bankruptcy relief? Can they be protected?

You may have seen one of my favorite movies, Up In the Air, in which George Clooney, who had millions of air miles, flew around the country terminating executives and other employees. They probably had some air miles, too.

Frequent Flyer Miles and Rewards Points – Are They Even an Asset of Yours?

In deciding how to treat miles and points for bankruptcy purposes, we start by looking at what kind of assets they are.

A consumer who files for bankruptcy must list all assets in the bankruptcy petition. However, there is an issue as to whether frequent flyer miles are an asset that must be listed.

I would say that they do not have to be listed at all in a bankruptcy petition. Here’s why:

All frequent flyer programs have fairly comprehensive terms and conditions that uniformly indicate that the miles and award points have no monetary value whatsoever. These loyalty programs also state that miles are personal and cannot be assigned, traded, willed or otherwise transferred, except with consent of the program.

In addition, most programs state that membership terminates upon a member filing personal bankruptcy. Also, all airline programs vigorously prohibit the sale of award tickets.

Many frequent flyer loyalty programs and point programs, such as the popular American Express Membership Rewards program, expressly state that miles or points are not property of the member, and are not transferable by operation of law to any person or entity. Some actually state that the miles are owned by the program.

Although it can be argued that a consumer debtor has a legal or equitable interest in the miles or points, and that this interest must be reported in the bankruptcy schedules, that argument is defeated by the terms of the loyalty programs which state that the member does not have a property interest in them.

Thus, if a program states that the miles have no value and that they are not owned by the consumer, the reasonable conclusion is that the consumer does not have an asset that must be listed in the bankruptcy petition.

Even if, for the sake of argument, the miles and points were considered “assets of the bankruptcy estate,” most debtors would be able to exempt them under a wildcard exemption.

Bankruptcy Trustees Do Not Ask About Miles and Points

In my twenty-six years of practicing bankruptcy, and having attended many thousands of meetings of creditors in bankruptcy court, I have never once seen any case where a trustee has even asked about frequent flyer miles. There are two reasons for this:

First, trustees recognize that it would be very difficult to administer miles and points as an asset considering they are very illiquid, and secondly, even if they did have value, most consumers who file for bankruptcy, and who have frequent flyer miles, would have miles worth so little in relative terms, that it would not be viable for the trustee to administer them as an asset.

Can a Bankruptcy Trustee Compel a Consumer Debtor to Redeem Miles?

Let’s suppose a creative and aggressive Chapter 7 trustee did learn that a debtor had a substantial cache of miles. Keep in mind that a trustee certainly could not sell an airline ticket – every program clearly prohibits that. Could the trustee compel the debtor to redeem those miles for gift certificates, which the trustee could then try to sell?

I would argue that if the frequent flyer program stated that the miles were not the property of the debtor, then the miles never became an asset of the bankruptcy estate, and the trustee has no right to control that asset.

A trustee would also have great difficulty pursuing them because of the standard provision in most frequent flyer programs, that the debtor’s membership in the program terminates upon the filing of bankruptcy. Technically, upon filing bankruptcy, all miles would then be lost.

However, I believe the frequent flyer programs include this provision to protect the consumer from creditors, similar to a spendthrift provision, rather than punish a consumer for filing bankruptcy. Thus, it is unlikely that an airline’s frequent flyer program would terminate benefits to a consumer for filing bankruptcy, absent any meddling by a bankruptcy trustee. Frequent flyer programs have no incentive to become embroiled in a fight over miles.

Nevertheless, consumers should not be parading the fact that they filed for bankruptcy to the frequent flyer or loyalty program, nor do they have any obligation to do so.

Consumers should therefore be able to emerge from bankruptcy with their air miles in airline frequent flyer programs intact.

Advice for Protecting Rewards Points in a Credit Card Program If You Anticipate Filing for Bankruptcy

There is a major difference between airline or hotel loyalty programs and credit card rewards programs. With the credit card programs from banks such as American Express, Chase, Capital One and others, the likelihood is that the consumer owes the banks money. All such programs have provisions that freeze the points if the consumer falls behind with payments.

Let’s take a typical scenario where the consumer has points in a credit card program such as American Express Membership Rewards. The consumer cannot use those points if the account is in default. That would certainly be the case once the bankruptcy petition is filed if there is any balance owed on the account.

The issue in protecting the points is thus: If you think you need to file for bankruptcy, and you are current with your payments, should you quickly cash out the rewards points before you fall behind and the account goes into default?

The short answer is YES. Here’s why it should be OK to do so. Let’s first address the potential argument the credit card company can conceivably make. They can argue that if the debtor cashes in the points just prior to filing bankruptcy then they engaged in some kind of bad faith conduct.

However, the credit card company would have great difficulty proving this as the debtor should be able to argue successfully that the points were already earned, and that the debtor had the full right to use them regardless of any debt problems or future plans to file for bankruptcy.

When it comes to bankruptcy cases involving credit card debt, the real issue is not whether the consumer redeemed points, but whether the consumer incurred the underlying credit card debt at a time when the debtor knew or should have known that they would not be able to pay their debts.

Also, from a practical perspective, in my many thousands of consumer bankruptcy cases, I have never seen one instance of a credit card bank alleging an impropriety for redeeming rewards points. The value of points in relation to the amount of money that the consumer owes is so nominal, that banks will simply not go to any length at all to pursue a debtor who cashed them in.

Accordingly, I would feel comfortable advising a consumer debtor client to immediately redeem the points or transfer them to an airline’s frequent flyer program, assuming there was no larger issue that the consumer incurred the debt to the credit card company under fraudulent pretenses.

Another bit of advice: If you feel that you are about to fall behind with your minimum credit card payments, pull those rewards points out immediately. Otherwise, they will be frozen. You can transfer the points to airline or hotel loyalty programs, or redeem them for merchandise or gift certificates.

Keep in mind that if you redeem them for goods or gift certificates, you would now have assets that should be listed in your bankruptcy petition.

How One Savvy Consumer Lived on Miles and Points After Filing for Bankruptcy

Let me leave you with an anecdote. Jim Kennedy, a 46-year-old California man, lost his six-figure corporate development job. At the time, he had about a million frequent flyer miles and rewards points in various loyalty programs including 125,000 American Express Membership Rewards points, 85,000 Starwood Preferred Guest points, 400,000 Hilton Honors points, 100,000 Delta Sky Miles, 120,000 American AAdvantage miles, and 200,000 United Mileage Plus miles.

After running out of funds, losing his home to foreclosure, and having no luck finding a job, he filed for Chapter 7 bankruptcy. He emerged from bankruptcy with his miles intact. Thereafter, he lived for months in Holiday Inns and Motel 6’s by converting his frequent flyer miles into hotel points. This also helped his food budget because the motel provided free breakfast to its guests.

He regularly reported his plight on his blog and on Twitter. His story was publicized by a number of newspapers and TV stations on the West Coast. Last year, when he was down to just a month’s worth of free hotel nights, he found a job. The lesson is that frequent flyer miles can sometimes really help, even after bankruptcy.

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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. A version of this article appeared in the February 2012 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.

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What is a Bankruptcy Discharge?

Craig Robins — Sat, 07 Jan 2012 11:00:39 +0000

The bankruptcy discharge means freedom from debt. That's my son, Max.

Written by Craig D. Robins, Esq.

The general objective in filing a consumer bankruptcy is to eliminate debts. At the conclusion of a Chapter 7 or Chapter 13 bankruptcy case, the consumer receives a discharge.

The bankruptcy discharge releases the debtor from personal liability for most debts. That means the consumer is no longer legally required to pay these debts. Certain debts are non-dischargeable such as most taxes, student loans, alimony, child support and traffic tickets.

The discharge comes at the conclusion of the bankruptcy case. For Chapter 7 filers, that is typically about three and a half months after the bankruptcy petition is filed. For Chapter 13 filers, this typically occurs a month or two after the Chapter 13 payment plan is completed.

The actual discharge is in the form of a permanent court order, signed by the bankruptcy judge assigned to the case. The Bankruptcy Court sends a copy of it to the debtor and all creditors and parties listed in the petition.

The order of discharge prohibits creditors from taking any action to collect a debt. This means that it becomes forever illegal for creditors to phone the debtor, send collection letters, sue the debtor or take any other action to collect the debt.

If a creditor has a secured debt, such as a mortgage or car loan, the creditor is still prohibited from collecting the debt. However, the creditor has the right to recover the collateral.

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About the Photograph: This is one of my fine art shots of my son, Max.

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Filing Bankruptcy After Taking a Cash Advance — Beware

Craig Robins — Wed, 04 Jan 2012 19:00:32 +0000

Written by Craig D. Robins, Esq.

Most of my Chapter 7 bankruptcy clients have rather large amounts of credit card debt. This comes from making purchases, incurring services charges and interest, and taking cash advances. Almost all credit card debts are dischargeable in bankruptcy. However, there are a few exceptions.

When it comes to cash advances, those about to file for bankruptcy should be careful. The Bankruptcy Code provides that any cash advance, or combination of cash advances from one lender, totaling more than $875 obtained within 70 days of the bankruptcy filing date are presumed to be non-dischargeable. This is contained in Bankruptcy Code section 523(a)(2)(C)(i)(II).

Congress imposed this provision because it felt that consumers who obtained significant cash advances relatively close to time they filed for bankruptcy knew or should have known that they would be seeking bankruptcy relief, and should not be able to eliminate such debts. It was also designed to prevent consumers from running out and taking cash advances on the eve of a bankruptcy filing.

Even if a recent cash advance is presumed to be non-dischargeable because of the above provision, the credit card bank must still file objections in the bankruptcy court in the form of an adversary proceeding. Such proceedings are rare.

If you are considering filing for bankruptcy it is important to tell your bankruptcy attorney about any recent large cash advances to make sure that the petition is not filed too soon.

The dollar amount of the cash advance, as set forth in Bankruptcy Code section 523(a)(2)(C)(i)(II) changes every three years. It is scheduled to change again in April 2013 and will probably increase about $50.

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Unborn Children and the Bankruptcy Means Test: Can You Include Them?

Craig Robins — Tue, 03 Jan 2012 04:00:25 +0000

Written by Craig D. Robins, Esq.

In order to qualify for filing a Chapter 7 bankruptcy petition, you need to pass the means test, which is designed to prevent those individuals with relatively high incomes from easily eliminating their debts in a Chapter 7 proceeding..

The means test formula makes it easier for a larger family to be eligible for Chapter 7 relief than a smaller one. Each additional family member enables the debtors to take an additional, very significant deduction on the means test. These deductions are based on census tables and IRS charts of living expenses. See: New Changes to Means Test.

Most consumers will pass the means test and will not have any problem qualifying for Chapter 7 bankruptcy. However, some individuals, who are just barely failing the means test, can pass if they have the ability to add an additional family member to the calculation. The Means Test is Often the Key to a Successful Chapter 7 Bankruptcy Case .

Dealing with the Means Test If a Female Debtor is Expecting

If the wife is pregnant and expecting, can you include the unborn child as household member of the family to calculate family size for means test purposes? If you could, this might mean the difference between passing or not.

In at least one case, the United States Trustee has taken the position that an unborn child cannot be included as a family member for means test purposes. Some bankruptcy courts have adopted this position stating that a debtor may not rely on events which have not yet occurred.

That was the case in In re Pampas, 369 B.R. 290 (Bankr.M.D.La. 2007). In that case, the child had not been born as of the date of the bankruptcy filing, and the debtor was still carrying at the time the U.S. Trustee brought a motion do dismiss. The court dismissed the case, although the unborn child issue was just one of several concerns the court addressed.

However, this case and outcome does not necessarily spell doom for the debtor, and I do not think a similar result would have occurred if this situation had arisen here in New York.

Arguing “Special Circumstances” As a Way Around a Failing Means Test

A debtor who has filed with an unborn child, can argue “special circumstances” under Bankruptcy Code § 707(b)(2)(B).

This section enables a debtor to argue that a presumption of abuse, which is what happens if the debtor fails the means test, can be rebutted by demonstrating that there are special circumstances that justify additional expenses or adjustments to the current monthly income.

Generally, to support a claim of special circumstances, the debtor must itemize each additional expense or adjustment of income, and provide documentation and a detailed explanation of the special circumstances that make those expenses or income adjustments necessary and reasonable.

Perhaps the U.S. Trustee Would Be Reasonable

I would like to think that most local offices of the U.S. Trustee would be reasonable under such situations and keep the case in abeyance, pending the birth of the child. It would seem unlikely that a US Trustee would put much effort into seeking dismissal of a case, when shortly after the dismissal the debtor would qualify anyway because of the increased family size after the baby is born.

I personally represented a debtor last year where this became an issue. I did not include unborn children in the family size at the time of filing. However, the Chapter 7 trustee questioned the propriety of some of the other deductions on the means test and debated whether to refer the matter to the U.S. Trustee for further review as to whether the meanst test meant that this was an abusive filing.

My response to the Chapter 7 trustee was that it didn’t matter because the debtor was several months pregnant with twins, and even if the trustee was able to disallow some of the debtor’s means test deductions, the debtor would still quickly qualify in any event because of the increased family size. After some back-and-forth discussion, and proof that the debtor was pregnant, the trustee let the matter go, and the debtor received her discharge.

I also find that communicating in advance with the U.S. Trustee is very important. If I had to file a case in which the debtors had to rely on an unborn child to pass the means test, I would disclose the information early on.

If the U.S. Trustee believes that the debtor has filed in good faith, then it is much more likely that they will evaluate the case in a fair and equitable manner and give due consideration to the debtor’s special circumstances.

An Objection by the U.S. Trustee Can Be Politically Charged

In parts of the country, the U.S. Trustee might want to avoid raising controversy over the potential for politically-charged issues which can result in Roe v. Wade type arguments that are used in debates over the right to abortion.

There’s Always Waiting a Few Months so the Unborn Child Can Undisputedly Be Included in the Bankruptcy Means Test

If debtors want to play it safe, they can wait until the baby is born before filing. That way, there would not be any controversy of dispute over family size. However, sometimes debtors need immediate bankruptcy relief and simply cannot wait.

In a worse-case scenario, if the U.S. Trustee brought a motion to dismiss the case, refusing to accept the unborn child as a member of the household for means test purposes, the debtor could always let the case be dismissed, and then re-file after the child is born.

Also see my post: Options If You Fail the Bankruptcy Means Test .

Other Issues Concerning Family Size for Bankruptcy Means Test Purposes

Calculating family size for the means test can be tricky. This subject seems to be a never-ending source of issues and bankruptcy court decisions. See my post: Determining Household Size for the Means Test .

Unborn Children in Chapter 13 Bankruptcy Cases

In Chapter 13 cases, a debtor will often pay less into a monthly Chapter 13 plan if there is another member of the household. This savings is usually many hundreds of dollars a month. Therefore, an expected child could make a great impact as to the affordability of a Chapter 13 plan.

If the issue of an unborn child arose in the context of a Chapter 13 filing, I would argue that confirmation should be delayed until the child is born if the Chapter 13 trustee is not willing to count the unborn child right away. Then, assuming the child is indeed born, the baby should be included in the household size.

Most Bankruptcy judges, at least in New York, are forward-thinking judges who want the means test in Chapter 13 cases to be based on realistic events going forward, as opposed to looking backward. I explored this concept in my post: Deciphering the Plethora of Means Test Cases Across Many Bankruptcy Courts .

In one Colorado case, the bankruptcy court stated that a debtor had the right to amend schedules to show an increase or decrease to household size prior to plan confirmation, to reflect changed circumstances. In that case, the unborn child was delivered just days after the Chapter 13 trustee filed a pre-confirmation motion to dismiss. In re Baker, (Bankr. Court, ND Illinois 2009).

In the Baker case, the court interpreted Bankruptcy Code § 1325(b)(1) (which states that the applicable commitment period should be determined as of the plan’s effective date), as meaning the date when the plan is confirmed. Thus, the Baker court permitted the debtors to include the unborn child in the means test over the objections of the Chapter 13 trustee.

The Importance of Consulting with Experienced Bankruptcy Counsel When There Are Means Test Issues

When unusual issues arise that can mean the difference between qualifying or not for bankruptcy relief, it becomes that much more important to seek out experienced bankruptcy counsel.

The means test is rather complex and complicated. Retaining an experienced Long Island bankruptcy attorney is your best way to ascertain whether you qualify for Chapter 7 bankruptcy filing, and if not, to learn what your other options are.

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How American Airlines Sought Bankruptcy Court Approval to Continue its Frequent Flyer Programs in its Chapter 11 Filing

Craig Robins — Mon, 02 Jan 2012 04:45:10 +0000

Written by Craig D. Robins, Esq.

The recent bankruptcy filing of American Airlines on November 29, 2012 got me thinking in several ways about the interplay between airlines, consumers and bankruptcy.

How does an airline seeking bankruptcy protection continue its frequent flyer programs and honor tickets? I’ll answer this question in this column.

What happens when a consumer, who has a cache of frequent flyer miles, files a consumer bankruptcy — can the consumer keep those miles? I’ll answer that question next month.

As a regular flyer on American Airlines, I get e-mails from AA almost daily. Within hours of the Chapter 11 bankruptcy filing, which AA commenced in the Southern District of New York under AA’s parent company, AMR Corporation, AA sent me an urgent e-mail assuring me that all would be OK and that it would be“business as usual” during the course of the bankruptcy.

The e-mail stated that miles “you’ve earned are yours and will stay yours.”

AA’s spin doctors included verbiage that the bankruptcy proceeding was going to make the airline leaner and stronger, and better for its customers.

As a bankruptcy attorney, I wondered what procedural path they would take in bankruptcy court to continue its business practices.

American Airlines Files a First-Day Application Seeking Special Bankruptcy Court Approval to Continue Certain Business Practices

On my own, I tracked down one of the first-day applications that AA filed, which sought an immediate order permitting AA to continue its customer programs and practices in the ordinary course of business and honor existing obligations to its customers.

It is standard Chapter 11 practice for debtors to bring several “first day” applications seeking various types of immediate relief. This application was necessary because technically a Chapter 11 debtor is prohibited from honoring pre-existing debts and obligations.

The 23-page application, which was prepared by the Manhattan bankruptcy powerhouse firm of Weil, Gotshal & Manges, sought authorization pursuant to Bankruptcy Code sections 105(a) and 363(c), to continue a multitude of programs including the AAdvantage frequent flyer program, as well as seek permission to honor pre-petition tickets, refunds, access to Admirals Club lounges, gift cards, etc.

Bankruptcy Caselaw and Statutory Authority for the Application

Section 105(a) is the Bankruptcy Code’s general catch-all provision that grants bankruptcy judges broad equitable powers to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.”

The application discussed how the airline’s customers were the lifeblood of their business, which is highly competitive, and that customer satisfaction is the key to survival.

Airlines routinely offer travel to many of the same locations as their competitors. The application discussed the concept that this competition makes retaining loyal customers and attracting new customers critically important.

AA argued that the Chapter 11 filing would negatively affect customers’ attitudes unless AA was able to continue its customer practices. The airline also argued that continuation of its customer programs on an uninterrupted basis is critical to maintaining this support and loyalty.

Incidentally, AA created the first frequent flyer program in 1981, by rewarding its loyal customers with frequent flyer miles. The application stated that there were 69 million members of their AAdvantage frequent flyer program.

There is precedent for granting such relief, as Eastern Airlines requested similar relief about two decades ago when it filed for reorganization and sought authority to continue its pre-petition obligations.

It has become well-established that bankruptcy courts have the power to permit the post-petition payment of pre-petition obligations where necessary to preserve or enhance the value of a debtor’s estate for the benefit of all creditors.

This is sometimes referred to as the “doctrine of necessity.” See the Eastern Airlines case, which is: In re Ionosphere Clubs, Inc., 98 B.R. 174, 176 (Bankr. S.D.N.Y. 1989).

The airline argued that if they could not get the requested approval, the consequences would be draconian. Their customers would lose confidence, question the airline’s ability to survive, and likely take their business elsewhere. All of the loyalty and customer goodwill that AA had engendered over years would be lost.

It was therefore no surprise that the bankruptcy court granted the application, thus permitting AA to continue its customer programs on an uninterrupted basis.

Thus, the experience of flying on American will likely stay the same for the short-term, but as the airline tries to reorganize itself through bankruptcy, it will probably make significant changes down the road.

Incidentally, most financial commentators suggest that AA will successfully emerge from bankruptcy, as several of its legacy competitors have done this past decade, and that AA is in no danger of liquidation at this time.

One industry analyst quipped, “Airlines do a better job at filing bankruptcy than delivering luggage.”

I personally have a boatload of American Airlines Aadvantage miles, some of which I earned traveling to conventions and workshops of the National Association of Consumer Bankruptcy Attorneys. It is therefore a relief to know that they will be protected!

The Effect of Consumer Bankruptcy on Frequent Flyer Miles

These days, most consumers have an assortment of frequent flyer miles, whether they earn them from flying or credit card spending.

These miles can have a substantial value to the consumer as they can be used to obtain tickets worth thousands of dollars or purchase goods or store gift certificates.

What happens to these valuable miles when a consumer files for bankruptcy relief? Can they be protected? I will cover this question next month.

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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 2012 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.

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The Business Debt Loophole to the Bankruptcy Means Test

Craig Robins — Thu, 29 Dec 2011 05:00:57 +0000

Written by Craig D. Robins, Esq.

Some Debtors Who Have Primarily Business Debts Can Avoid Having to Do the Bankruptcy Means Test

The means test, which turned six-years old last month, was intended by Congress to create an objective standard for permitting only those consumers who are not “abusing” the privileges of bankruptcy to get Chapter 7 relief.

In general terms, if a consumer debtor has an income that is relatively high in relation to his or her expenses, the consumer will not pass the means test and will not be eligible to file Chapter 7 bankruptcy.

The Business Debt Exception to the Means Test

The means test only applies to individuals whose debts are “primarily” “consumer debts,” as opposed to business debts, as set forth in Bankruptcy Code §707(b).

A debtor can check a box on the first page of the means test to declare that his or her debts are primarily non-consumer debts, and then avoid the rest of the means test, also known as Form B22A. Click here to take a look at the actual Means Test form.

Congress could have told us what exactly “primarily” means, but they didn’t bother to, so we have to analyze this word. Webster’s Dictionary defines “primarily” as “for the most part.” Most courts have focused on this definition to mean “more than half.”

Thus, if more than 50% of the debtor’s debts are non-consumer debts, the debtor is automatically eligible for filing a Chapter 7 case without having to bother with the means test. There is no presumption of abuse for such cases.

Determining What “Consumer Debts” Are in Bankruptcy Cases

So what exactly is a consumer debt? The Bankruptcy Code defines “consumer debt” as “debt incurred by an individual primarily for a personal, family, or household purpose.”

In analyzing whether a debt is a consumer debt or not, bankruptcy courts have developed a “profit motive” test: if the debt was incurred with an eye towards making a profit, then the debt should be classified as a business debt.

Thus, the mortgage on an individual’s home would clearly be a consumer debt, and the mortgage on a vacation home would also be a consumer debt. However, if that vacation home was also purchased as an investment and rented out, then the mortgage would qualify as a business debt.

One bankruptcy court permitted a debtor to deem one of the three mortgages on his home to be a non-consumer debt because the proceeds were used to fund a business venture.

Most credit card debts are obviously consumer debts. However, if an individual used a credit card for business purposes, then it could be reasonably argued that the resulting liability is a business debt.

Other examples of business debts include personal guaranties on business obligations, investment losses, and motor vehicle accident liabilities. Domestic support obligations such as child support and maintenance are generally considered consumer debts.

Some Varieties of Debt Are Neither a Business Debt Nor a Consumer Debt

According to conflicting bankruptcy court decisions, some debts are in limbo. For example, although some courts have held that student loans are not consumer debts, the Second Circuit has held that they are.

Any liability as a responsible person for taxes on a business is clearly business debt. However, there is no clear-cut answer in this jurisdiction as to whether personal income tax obligations are consumer debts or not. Courts outside of New York and the Second Circuit have reached different conclusions on income tax debt.

In one case in the Sixth Circuit, the court rejected the application of the profit motive test, concluding that income taxes can be distinguished from consumer debts for several reasons. Tax debts are not incurred like consumer debts as they are not incurred voluntarily.

Tax debt is assessed for the benefit of the general public whereas consumer debt is incurred for personal and household purposes. Finally, tax debt arises from income and earning money whereas consumer debt results from consumption and spending money. In re Westberry, 215 F.3d 589 (6th Cir. 2000).

Most of the debtors that I have represented in my Long Island bankruptcy practice who were able to make a means test business debt declaration were victims of a failed business who owed substantial sums — either directly or through personal guaranties — to various trade creditors, taxing authorities or business partners.

Most individuals with a failed mom and pop business will not be able to take this shortcut as their mortgage debt alone will likely exceed their business debt.

The Business Debt Exception to the Means Test Has Limitations

Just because a debtor can by-pass the means test does not mean that a debtor can use it as a loophole to escape other good faith requirements.

In a Michigan decision from earlier this year, the bankruptcy court addressed a situation involving husband and wife debtors whose debts were genuinely primarily business debts. They had over six million dollars of unsecured debts from failed real estate investments.

However, both debtors were doctors whose budget showed that they were living on $42,000 of monthly expenses – what the court described as a very lavish and extravagant lifestyle. They each drove a Mercedes Benz and had a BMW in the garage.

The court commented that even though the debtors did not fail the means test, they nevertheless lacked good faith because they could have easily adjusted their budget while still maintaining a nice lifestyle, and paid their creditors a significant dividend through a Chapter 11 plan. In re Rahim and Abdulhussain, No.l 10-57557 (Bankr.E.D.Mich 12/16/10).

Practical Tips for Bankruptcy Attorneys to Help Their Clients

If the characterization of a particular debt that is not clear-cut in this jurisdiction, such as tax debt, enables your client to pass the means test, how should you tackle the situation?

That really depends on how aggressive you want to be. My recommendation is to take an aggressive position as long as it is reasonable and you have a good basis for taking your position.

You should be prepared for presenting your arguments to the U.S. Trustee as they have the initial burden of proof to support a dismissal motion under Bankruptcy Code § 707(b).

You would also want to review the matter with your client before filing the petition and prepare a letter that the client signs, acknowledging the aggressive position and the potential risk of defending a dreaded Bankruptcy Code §707(b) motion that the U.S. Trustee brings. Defending Bankruptcy Code §707(b) motions will certainly be a topic for a future column.

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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 2011 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.

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Bankruptcy Court Filing Fees Increase November 1, 2011

Craig Robins — Wed, 02 Nov 2011 01:00:16 +0000

Written by Craig D. Robins, Esq.

With relatively little notice, bankruptcy court filing fees have increased.

The Judicial Conference of the United States Bankruptcy Court voted to increase various bankruptcy court filing fees, including the fees to file bankruptcy petitions.

For most of us, the increase primarily affects the fees consumers pay to file their bankruptcy cases. They are increasing by $7.00.

Here are the New Filing Fees, Which Go Into Effect November 1, 2011:

Chapter 7 bankruptcy cases: The filing fee is increasing from $299 to $306.

Chapter 13 bankruptcy cases: The filing fee is increasing from $274 to $281.

Various Other Bankruptcy Filing Fees Are Increasing as Well:

Amending Schedules: Increase from $26 to $30

Filing Adversary Proceeding: Increase from $250 to $293

Filing Motion for Relief from Stay: Increase from $150 to $176

There are other miscellaneous fee increases as well: Full Schedule of Bankruptcy Court Fees and Charges Effective November 1, 2011.

When did the Bankruptcy Filing Fees Change Last?

In my Bankruptcy Update back in February 2006, I wrote that the filing fees were increasing again.

In February 1, 2006, the House of Representatives passed the Budget Reconciliation Act which included fee increases for various court filings, including bankruptcy filings. The Senate previously had approved the measure.

That fee increase, which went into affect on April 6, 2006, was strictly a revenue-raising measure.

The bill increased the Chapter 7 filing fee by $25 to $299, and increases the Chapter 13 filing fee by $85 to $274. The apparent purpose of the fee increases at that time was to balance the budget though payments from those who could least afford it.

Prior to that, on October 17, 2005, when the bankruptcy laws were reformed by BAPCPA, the filing fees increased for Chapter 7 cases from $209 to $274, and for Chapter 13 cases from $194 to $189.

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