About Me
“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Chapter 7 Bankruptcy
Written by Craig D. Robins, Esq.Bankruptcy fees practically doubled when Congress drastically changed the bankruptcy laws eight years ago, making bankruptcy more complex by creating a new means test and imposing a much greater burden on the attorney to verify information and prepare the bankruptcy petition correctly and accurately.
Most of our Long Island bankruptcy clients are able to pay the fees as they are working, but we are always asked if the fees can be paid over time.
With the most common type of bankruptcy, which is Chapter 7, the Bankruptcy Code requires the attorney’s fee to be paid in full before the petition is filed.
Otherwise, any balance owed on the fee is technically discharged and the attorney is prohibited from collecting it. In addition, if the client still owes any funds to his or her attorney, there is a conflict of interest, as the attorney is now a creditor of the debtor as well.
The bankruptcy laws were designed to give the debtor an absolute fresh, new financial start with no prior debts still outstanding, even those owed to bankruptcy counsel. Chapter 7 bankruptcy law does not contain any provision that provides for payment of part of the fee after the petition is filed.
Bankruptcy fees on Long Island — When we have a Chapter 7 bankruptcy client who doesn’t have the full bankruptcy legal fee easily available, we are very amenable to working out an informal payment plan over a reasonable period of time. We just need to make sure the full legal fee is paid before the petition is filed with the bankruptcy court.
With Chapter 13, a payment plan for legal fees can be entered into, as the essence of this type of case is having a payment plan to pay creditors. A Chapter 13 plan, in addition to providing for the distribution of payments to creditors, can also provide for the payment of part of the bankruptcy attorney’s legal fees.
Such payment plans are typically over a period of three to five years. One of the reasons such payments are permitted is that the court and trustee have the ability to review the balance owed for reasonableness.
Keep in mind that once you decide to seek bankruptcy relief, you will no longer be paying any of your credit card bills, so additional funds often become available.
Written by Craig D. Robins, Esq.
An Unusually Entertaining Decision from Several Years Back Teaches Valuable Lesson
Bankruptcy attorneys often get busy towards the end of January each year as consumers, having just finished their family holiday obligations, receive a new round of ever-increasing credit card bills, compelling them to seek bankruptcy advice.
Of course, many of these bills contain charges for holiday gift purchases made just weeks before. An interesting and most unusual opinion from 1992, which I found most entertaining for a bankruptcy court decision, addressed this very issue. In re Johannsen, 160 B.R. 328 (Bkrtcy. W.D.Wis. 1992).
However, as unusual as this decision is, its importance to us today really has nothing to do with the atypical subject matter. To me, the real lesson to be learned from this case is that no matter how sure you are of being successful with litigation, you can still end up losing what appears to be a slam-dunk case.
To further pique your interest, let me quote some of the wording from the published opinion:
“[s]he’s short and buxom with a tiny waist and remarkably long legs which — despite her age (34) — are cellulite free.”
This is not the typical verbiage we usually see in judicial decisions. But here, the judge is talking about Barbie, the iconic plastic doll manufactured by Mattel, and a perennially favorite gift to young girls everywhere.
Can You Discharge $1,100 of Barbie Dolls Purchased Just Before Filing for Bankruptcy?
The debtor in this case, a woman who filed Chapter 7 jointly with her husband even though they were in the process of divorce, bought some Barbie dolls from Sears for her seven-year-old daughter, intending them to be Christmas presents. Shortly thereafter, the debtor filed for Chapter 7 relief, seeking to discharge various debts including her Sears credit card debt.
The debtor had made several purchases including Barbie and Ken items, a Barbie case, a Barbie armoire, and an extensive wardrobe of Barbie clothes. The purchases totaled $1,100. That’s a lot of Barbie toys!
All of these purchases were made in the five weeks prior to filing the bankruptcy petition, including one purchase of $178 which was made a mere two days before the petition was filed.
Sears Brings Adversary Proceeding
Sears then filed an adversary proceeding pursuant to Bankruptcy Code § 523(a)(2)(C), claiming that the debt for these Barbie doll purchases, which the debtor charged on her Sears credit card, should be declared non-dischargeable.
An adversary proceeding contesting dischargeability is essentially a federal lawsuit brought within a bankruptcy. Sears commenced this with a federal summons and complaint, leading to a full-blown trial in which both the debtor and a Sears employee testified.
In bankruptcy proceedings, creditors have a few grounds to challenge the dischargeability of a debt, and they must do so by adversary proceeding.
Sears argued that the debts for these purchases should be non-dischargeable under several theories including § 523(a)(2)(A), which prevents discharging a debt if was incurred by false pretenses, and § 523(a)(2)(C), which prevents a debtor from discharging a debt of more than $500 for “luxury goods or services” incurred within 40 days prior to filing. (Note: the dollar amount and number of days in the statute has since changed.)
Sears contended that the Barbie dolls and accessories were not reasonably necessary for the debtor or her daughter’s support or maintenance. The Sears employee testified that the Barbie dolls of the type purchased were at the higher end of the price scale of toys sold by Sears.
The Parties Introduce Evidence at Adversary Proceeding Trial
The debtor testified that some of these purchases consisted of “collector” Barbie dolls. She even introduced the Sears Christmas Catalog as an exhibit. But on cross-examination, the debtor testified that she was just a waitress earning minimum wage and that she had been separated from her husband, and was receiving support and maintenance.
Sears brought to the court’s attention that the debtor could have purchased a much less-expensive Barbie doll for just $9.99, but the debtor responded that the collector Barbies were investments which would appreciate in value.
The debtor also testified that her daughter owned a collection of 25 Barbie dolls, to which Sears argued was proof that the additional Barbies were clearly luxury expenses, as they were not necessary for the daughter’s welfare. After all, how many Barbies does a seven-year-old need?
Just gleaning these facts would probably lead any bankruptcy attorney to conclude that the Barbie purchases would certainly be non-dischargeable. The judge even pointed out that these purchases may have been foolish and irresponsible in light of the debtor’s financial condition.
Bankruptcy Judge Issues Surprise Decision
However, the judge held that the debt was indeed dischargeable! He stated: “Although this case at first glance appeared to be a classic case for § 523(a)(2)(C)’s luxury goods exception, subsequent investigation and testimony revealed no evidence of such intent in making the relevant purchases.”
The judge pointed out that the discharge exception for luxury goods provided a presumption that the debt ought not to be discharged, basically a conclusion that the debtor did not have the intent to pay the debt. However that presumption can be rebutted and the debtor did just that.
Apparently, the debtor was only added to the petition at the last minute, and at the request of divorce counsel. In addition, the judge determined that the debtor, at the time she made the various purchases, had the intent to pay for them, despite her precarious financial circumstances.
Lessons to Be Learned from this Case
Imagine the surprise to Sears’ counsel of this highly unexpected result! But that’s the lesson. You never know how the court will rule, and being sure of the merits of your case is no guarantee for success.
Although we have some fine trustees in this district, I’ve found some of them to suffer from myopic vision when evaluating the cases they litigate against consumer debtors. A review of the written decisions from the Eastern District of New York shows numerous instances in which trustees have vigorously litigated, only to lose.
I would suggest a more pragmatic approach involving settlement would have better served both trustee and debtor, alike. This may be especially true when considering the extent that some bankruptcy courts will go, as is the case here, to favorably enable debtors to get a fresh financial start.
Hopefully all litigants will become more open-minded to pragmatic approaches towards case resolution.
Also please note that the Johannsen case does not necessarily mean that another judge would rule similarly or that another debtor today, who is in a similar situation, would fare as well as the debtor in this case. I think Mrs. Johannsen was incredibly lucky with the result she obtained.
Click here to see a full copy of the Johannsen decision.
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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 February 2013 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. Call (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 Recent Brooklyn Case, Attorney and His Paralegal Flaunted the Bankruptcy Petition Preparer Statute
Non-attorney bankruptcy petition preparers can get into a heap of trouble if they do not accurately follow certain Bankruptcy Code provisions designed to protect consumer debtors.
This was evident in a case just decided by Judge Carla E. Craig, the Chief Bankruptcy Judge of the Eastern District of New York, sitting in the Brooklyn Bankruptcy Court.
To make matters more interesting, the case also involves disgraced attorney, Peter J. Mollo, who was the subject of my column in May 2012: Two Bankruptcy Attorneys Get Into Serious Trouble Over E.C.F. Filings .
Mollo, despite having been suspended from practicing law earlier this year, continued to represent clients and tried to get away with it by forging another attorney’s name on several bankruptcy petitions which he then filed.
Judge Craig sanctioned him in a decision dated March 22, 2012. In re: Clyde Flowers, (01-12-40298-cec, Bankr. E.D.N.Y.)
It seems that Mollo didn’t learn his lesson and immediately embarked upon a new scheme to circumvent his suspension by having his paralegal, Anna Pevzner, continue to meet with debtors and prepare petitions.
When the Office of the United States Trustee learned about this conduct in four separate Chapter 7 consumer cases, it quickly brought proceedings against both of them, seeking sanctions and disgorgement of fees.
After several evidentiary hearings, Judge Craig issued a 31-page decision on September 28, 2012, in which she severely sanctioned both of them and in doing so discussed the various statutory requirements that bankruptcy petition preparers must adhere to. In re Edith L. Moore, et. al., (12-41111-cec, Bankr. E.D.N.Y.).
What is a “Bankruptcy Petition Preparer?”
A bankruptcy petition preparer (BPP) is essentially a non-attorney who prepares bankruptcy petition legal forms.
Congress was so concerned about vulnerable debtors who had been victimized by non-attorney petition preparers who rendered bad legal advice and charged unreasonable fees that in 1994 it implemented Bankruptcy Code section 110 which is devoted to regulating their services.
That section defines a BPP as a person, other than an attorney or an employee of an attorney, who prepares a bankruptcy court document for a fee.
Since BPPs are non-attorneys, they are not permitted to give legal advice and may only type documents and charge a reasonable fee for doing so.
That means that they cannot assist with determining what assets are exempt or what exemptions statutes to use, nor can they suggest what chapter to file. They cannot offer advice as to whether a debt is dischargeable or whether a car loan should be reaffirmed.
In addition, BPPs may not collect, receive, or handle the court filing fees in connection with a bankruptcy case. That means that BPPs cannot file petitions with the bankruptcy court.
BPPs may not us the word “legal” or any similar term in any advertising. This is to prevent them from misleading the public into thinking that they are authorized to practice or render legal advice.
If a BPP prepares a petition, the BPP must sign it (there is a special area of the petition form devoted to this) and print his or her name, address and Social Security number.
The BPP must also disclose, under penalty of perjury, any fee or compensation received for preparing the documents, and the BPP is obligated to file a declaration as to this within ten days of the filing of the petition.
Code section 110 also provides for the assessment of various penalties for BPPs who act negligently or with intentional disregard for the Bankruptcy Code and Rules, or if the BPP commits any fraud, or unfair or deceptive act.
In such instances the court can award actual damages, and the greater of $2,000 or twice the amount paid to the BPP, and reasonable attorneys fees and costs.
In addition, each failure to comply with a particular subsection of the statute, such as failing to sign the petition, include the Social Security number, disclose the fee, etc., is punishable by a fine of not more than $500.
The statute also requires the court to triple the fines if the BPP failed to disclose the identity of the BPP. As you will see, it was this provision that really socked Mollo and Pevzner big time.
Court Imposes $45,000 Sanction Against the Suspended Bankruptcy Attorney and His Paralegal
After Mollo was sanctioned in March, potential clients were still contacting him from his advertising, which he did not stop. Rather than turn them away, he had Pevzner, his paralegal of six years, meet with them, and in some instances, he met with the clients as well.
She then prepared the bankruptcy petitions, and rendered legal advice in doing so. She had the debtors sign a retainer agreement which contained the name of a different attorney who did not have anything to do with these cases.
At the hearing, Paralegal Pevzner admitted that she prepared the petitions and claimed that she was not an employee of Attorney Mollo and worked strictly as a “volunteer” for him without salary.
Pevzner testified that she was familiar with Bankruptcy Code section 110. Although Code section 110 required the BPP to sign the petition and provide a declaration as to legal fees, she did not do that either, claiming that this was an “honest mistake.”
Judge Craig stated that both Attorney Mollo and Paralegal Peyzner were not credible witnesses and concluded that Pevzner repeatedly violated a number of subsections of the statute and that they both engaged in the unauthorized practice of law.
The Judge pointed out that Mollo continued to hold himself out as a bankruptcy attorney, despite his suspension, and despite his representations to the Court in the earlier case.
It was clear to Judge Craig that Paralegal Peyzner was the BPP, as she prepared the petitions. However, the Judge applied an unusual theory and held that Attorney Mollo was vicariously liable for Peyzner’s violations.
The judge rejected Peyzner’s claim that she was a volunteer, and instead concluded that she continued to be an compensated employee under Mollo’s direction. Thus, the Court found that Mollo also violated the same provisions of section 110 under the doctrine of vicarious liability.
As for punishment, Judge Craig directed both of them to disgorge all fees received, being $3,100, and in addition, fined them jointly and severally $15,000. However, it did not stop there.
Because Paralegal Peyzner failed to disclose on the petitions that she was the BPP, Judge Craig stated that she was required to triple the fine to $45,000 as provided by the statute. Hopefully, this duo has finally learned their lesson.
As with many things, consumers get what they pay for. A BPP cannot give legal advice and at most, can only act as a data entry clerk. There are no requirements that a BPP take any courses or be certified. Yet, bankruptcy is a highly complex area of the law.
There are many horror stories about consumers who lost valuable assets, believing that they were exempt, because a bankruptcy petition preparer drafted the petition.
The Office of the U.S. Trustee takes BPP improprieties very seriously. Last year they brought 504 actions against BPPs across the country.
If you are a consumer looking for a bankruptcy attorney, make sure the attorney is legitimate and currently admitted and in good standing. If anything seems suspicious, think twice about using that attorney.
To see the decision in this case, click here: In re Edith L. Moore, et. al., (12-41111-cec, Bankr. E.D.N.Y.).
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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 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. Call (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.
Judge Rules That Debtor Engaged in Unfair Manipulation of Bankruptcy Code
Judge Alan S.Trust, sitting in the Long Island Bankruptcy Court in Central Islip, New York, just issued an interesting decision in a case which the Judge stated “tests the outer limits of how debtors may seek to utilize the Bankruptcy Code and Rules to obtain the maximum advantages of the process known as ‘Chapter 20′.” In re: Adam John Renz, No. 11-73471-ast, (Bankr. E.D.N.Y., Aug. 1, 2012).
What is a Chapter 20 Bankruptcy?
First, let’s discuss the concept of “Chapter 20.” There is no actual Chapter 20 of the Bankruptcy Code. Instead, this refers to the situation in which a consumer debtor files a Chapter 7 case and receives a discharge, and shortly thereafter files a Chapter 13 case.
There are several reasons why debtors may try to use a Chapter 20 strategy. The objective is to obtain more relief than filing for Chapter 7 or Chapter 13 alone.
One common reason why debtors will do so is to discharge their unsecured debts through the Chapter 7 filing and then cure mortgage arrears over an extended period of time with a Chapter 13 plan.
Chapter 20 also enables consumers who need Chapter 13 relief, but don’t qualify because they owe more unsecured debt than Chapter 13 jurisdictional requirements permit, to become eligible for Chapter 13 filing.
In the past several years, some savvy bankruptcy practitioners have utilized Chapter 20 in a more creative way – to cram down a second mortgage that they could not have done if the debtor only filed for Chapter 7 relief, as most judges do not permit debtors to strip off second mortgages in Chapter 7 cases.
This has become a controversial maneuver as some jurisdictions do not permit this, having concluded that a debtor cannot strip off a second mortgage that has already been discharged, or that the second filing was not done to further the purpose of Chapter 13 relief, which is to pay debts through a plan, but instead to seek cram-down relief.
It should be noted that once a debtor files for Chapter 7 relief and obtains a discharge, the debtor is not entitled to receive a Chapter 13 discharge unless more than four years have passed from the date of the first filing to the date of the second filing. Code section 1328(f)(1).
Thus, the objective in most Chapter 20 scenarios is not to discharge any debt, but instead, to use the payment plan features of Chapter 13 to cure mortgage arrears over a period of time.
Many debtors successfully cram down their second mortgages in Chapter 13 cases in this district and that has become a large part of consumer bankruptcy practice here during the past few years. To do so, the debtor brings an adversary proceeding against the mortgagee seeking to strip off the second mortgage.
The Renz Case – An unsuccessful Chapter 20 Bankruptcy
In the Renz case, the debtors filed for Chapter 7 relief in 2009 and received a discharge. Sixteen months later, they filed a Chapter 13 case.
Since less than four years passed from the date of the prior filing, they would not be entitled to a Chapter 13 discharge.
The debtor had a second mortgage on his home with with JPMorgan Chase for $100,000 that was clearly underwater. Chase did not file a proof of claim, so debtor’s counsel, before the bar date, filed one for them. (Bankruptcy Rule 3004 permits a debtor to file a proof of claim on behalf of a creditor). As it turned out, Chase failed to file any papers whatsoever in the entire case.
Bankruptcy counsel also filed a cram-down adversary proceeding against Chase seeking a determination that the second mortgage was wholly unsecured. Since Chase never responded to the adversary proceeding, the debtor obtained a default judgment.
The judgment specifically provided that “the claim held by Chase, secured by a mortgage lien on the Debtors’ real property . . . [shall] be deemed a wholly unsecured claim, and that the entire subordinate mortgage lien be declared null and void upon the filing by the Chapter 13 Trustee of a Certification of Completed Chapter 13 Plan.”
Here’s the kicker: two weeks later, debtor’s counsel filed a letter with the Court withdrawing the Chase claim. He also amended the Chapter 13 plan calling for a one hundred percent distribution to unsecured creditors. However, since the proof of claim had been withdrawn, Chase stood to receive no distribution whatsoever.
Chapter 13 Trustee Marianne DeRosa thereafter filed an objection to confirmation, arguing that the plan was not proposed in good faith, that the debtor did not have statutory authority to withdraw the proof of claim, and the debtor had sufficient income to satisfy the Chase claim in full.
Debtor’s counsel argued that the plan was proposed in good faith and that Chase’s failure to participate or file papers in any part of the proceedings was a tacit acceptance of debtor’s withdrawal of the Chase claim.
Judge Trust determined that the debtor’s actions here went too far and that the case “exemplifies an unfair manipulation of the Bankruptcy Code.”
The judge noted that while the debtor appeared to have sought bankruptcy protection in good faith, the circumstances concerning the Chase claim demonstrate an attempt to abuse the purpose and provisions of Chapter 13. As such, the Judge sustained the trustee’s objections to the plan.
Judge Trust held that the debtor did not have any cognizable basis for withdrawing the proof of claim and that it should be treated as an allowed unsecured claim. He also held that the debtor had the ability to pay the Chase claim in full.
Although debtor’s counsel argued that the Chase mortgage debt had been discharged by the prior Chapter 7 case, the Court held that the debtor was required to satisfy the terms of a proposed plan before the mortgage lien could be stripped off. Since the debtor’s gambit did not work, the case will likely be dismissed.
Here’s what I gleaned from this decision. In a Chapter 20 case before Judge Trust, the debtor must file it in good faith and for the purposes that Chapter 13 is intended for. In addition, the debtor can cram down the second mortgage, but should expect to pay it as an unsecured debt through the plan.
Creative lawyering and using novel theories to test the bounds of the law and to achieve extraordinary results is the mark of a smart attorney. Many great results have been obtained this way. After all, you don’t know where the limits are until you’ve exceeded them. However, counsel must be careful not to tread too far over the line, which may have been the case here.
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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 October 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. Call (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.
A Consumer Bankruptcy Debtor Can Lose Standing to Litigate if Lawsuits Are Left Out of the Petition
There is one question that Chapter 7 bankruptcy trustees like to ask debtors twice at the meeting of creditors: “Are you currently suing anyone or do you have the right to sue anyone?”
The reason trustees like to ask this question twice is because many debtors forget to tell their attorneys that they have a cause of action, which can be a valuable asset worth administering.
Causes of action are considered assets that must be disclosed in the bankruptcy petition. Because of their unusual nature (they’re intangible, unliquidated and contingent), many consumer debtors just don’t think about them like they would a more typical asset like a car or bank account.
Consequently, many debtors don’t tell their bankruptcy attorneys about them even when asked.
A debtor who neglects to list such an asset can end up in a heap of trouble – sometimes losing the possibility of exempting the asset or seeking recovery, or in extreme cases, losing the ability to obtain a bankruptcy discharge.
Judge Alan S. Trust, sitting in the Central Islip Bankruptcy Court, issued a decision a few years ago in which he denied a debtor’s application to re-open a case to pursue a P.I. cause of action. In this month’s column I will discuss non-disclosed causes of action which can be a P.I. case or any other right to sue.
Bankruptcy Code Provides for Duty of Disclosure
The debtor’s obligation to disclose a cause of action is based on Code section 521(a) which requires a debtor to schedule “contingent and unliquidated claims of every nature” and provide an estimated value of each one.
The trustee has the ability to step into the debtor’s shoes and pursue any litigation claims the debtor has. It is therefore essential that the debtor disclose all contingent and unliquidated claims so that the trustee can make a determination of whether to pursue those claims for the benefit of the debtor’s estate. In re: Costello, 255 B.R. 110 (Bankr. E.D.N.Y. 2000).
When a debtor inadvertently omits a cause of action or pending suit from the bankruptcy schedules in the petition, and the trustee catches this at the meeting of creditors, the resolution is usually simple. The trustee directs debtor’s counsel to amend the schedules and the trustee investigates the viability of pursuing the cause of action.
However, resolving a non-disclosed cause of action becomes much trickier once the bankruptcy case is closed, and that has a lot to do with the concept of standing.
There are Issues with Re-Opening a Bankruptcy Case to Amend Schedules to Include an Omitted Law Suit or Cause of Action
Here’s the typical scenario: Debtor had a cause of action stemming from injuries suffered in an accident. However, the debtor neglected to tell his or her bankruptcy attorney about it. Then, for whatever reason, when questioned by the trustee about the right to sue anyone, the debtor testified that he or she did not have the right to sue anyone. The case then was routinely closed and the debtor received a discharge.
Then, a year or two passes during which time the debtor’s personal injury attorney brings suit and is about to settle the case. However, defense counsel advises P.I. counsel that they did a bankruptcy search and discovered that the plaintiff filed for bankruptcy relief but failed to schedule the cause of action for the accident. They tell the surprised P.I. attorney, “Sorry, there’s no longer any settlement money on the table because your client lacks standing as a plaintiff in the P.I. case!”
That’s because even after a bankruptcy case is closed, non-disclosed causes of action and litigation remain the property of the bankruptcy estate, unless abandoned by the trustee. Case law provides that if the trustee never knew about the potential estate property, the trustee could not have abandoned it.
Thus, even though the bankruptcy case was closed, the cause of action is still the sole property of the trustee, and the debtor lacks standing to commence or continue a the suit. Upon learning of this, P.I. counsel will invariably make a frantic call to debtor’s former bankruptcy counsel.
So what can bankruptcy counsel do in this situation after getting the frantic call? Nationally, there are two schools of thought – estopping the trustee and estopping the debtor. In the Fifth, Seventh, Tenth, and Eleventh Circuits, the Courts have found that the trustee should not be estopped from commencing or continuing a suit, as the trustee is the real party in interest.
These Courts, however, punish the debtor, who they say should be estopped so that any excess proceeds, instead of going to the debtor, instead go back to the defendant.
These Courts, however, punish the debtor, who they say should be estopped so that any excess proceeds, instead of going to the debtor, instead go back to the defendant.
The reasoning here is to protect the integrity of the bankruptcy process while preserving assets of the estate for distribution to creditors. Doing so deters dishonest debtors who fail to disclose assets, while at the same time, protecting the rights of creditors.
However, there does not seem to be any appellate authority in the Second Circuit. My personal experience with these situations is that the court will permit trustees to reopen a case to administer a non-disclosed asset in most situations, provided that there is no egregious evidence of bad faith on the part of the debtor.
Keep in mind that if the asset was not disclosed, then the debtor did not avail him or herself of any applicable exemption, such as the personal injury exemption, now a minimum of $7,500.
If debtor’s counsel were to try to re-open the case and amend the schedule of exemptions, the trustee would likely object. The best case scenario may be to negotiate a disposition with the trustee in which the debtor gets half the exemption.
In one case before Judge Trust, the debtor sought to re-open the case to amend schedules to include a non-disclosed P.I suit against the Long Island Rail Road.
Even though the debtor had already retained separate P.I. counsel prior to the bankruptcy, the debtor did not tell his bankruptcy attorney about it and did not truthfully answer the trustee’s questions about pending lawsuits.
The District Court, where the P.I. case was pending, permitted the suit to be dismissed upon learning of the prior bankruptcy filing, stating that the debtor lacked standing. When the debtor sought to re-open the bankruptcy case to get standing, Judge Trust refused to permit the debtor to do so, citing the debtor’s lack of good faith.
In the March 2010 opinion, Judge Trust, using colorful football terminology, stated that debtor’s motion to re-open appeared to be “an effort to make an end run around the District Court’s dismissal order.” In re: Carlos Meneses (05-86811-ast, Bankr.E.D.N.Y.).
The practical tip here is to question your client and question again about possible causes of action or potential claims. Also, if you later discover an omitted asset, amend your schedules immediately.
Written by Craig D. Robins, Esq.There are many types of debts that can be discharged in a Chapter 7 bankruptcy filing. Most consumers seek to discharge credit cards debts, medical bills, loans, etc. Some consumers have the Social Security Administration (SSA) chasing them down as well.
This is because the SSA, after they paid benefits to a particular consumer, determined that they paid too much for one reason or another, and they demanded the consumer to pay the overpayment back. What happens most frequently is that the applicant, who was receiving Social Security benefits, goes back to work but the SSA continues to make payments.
When the SSA learns that there has been an overpayment, it makes a demand that the overpayment be repaid within 30 days. These overpayments can add up to a sizable amount. Can this type of obligation be discharged in a bankruptcy filing?
Yes. In general, Social Security overpayments can be eliminated by filing for Chapter 7 bankruptcy. They can be treated as typical unsecured debt in Chapter 13.
Although claims owed to some governmental entities are entitled to special treatment in a bankruptcy filing, the Social Security Administration is not. They are treated like any other general unsecured creditor. That means that a consumer seeking Chapter 7 relief can discharge a debt owed to the SSA.
However, all creditors have the ability to challenge discharge if it appears that the debtor incurred the debt through fraud or fraudulent pretenses. The SSA technically has the right to object to discharge if it appears that the debtor knew or should have known that he or she was not entitled to the Social Security benefits.
That being said, I have never seen an instance of the SSA challenging discharge in my 25+ years of practicing consumer bankruptcy on Long Island. Nevertheless, it would be wise to consult with an experience bankruptcy attorney if you owe Social Security debt.
Once a bankruptcy petition is filed, the SSA must immediately stop all proceedings to collect the overpayment. Not only is this statutory bankruptcy law, it is also SSA policy on bankruptcy filings.
Written by Craig D. Robins, Esq.Reaffirming a debt in bankruptcy means that you continue to be obligated on the debt as if you hadn’t sought bankruptcy protection. Debtors sometimes reaffirm their car loans because there are special bankruptcy code provisions that require them to do so.
However, this requirement does not apply to real estate. Debtors do not have to reaffirm a mortgage debt.
Most Debtors Should Not Re-affirm a Mortgage
Generally, there is no reason to reaffirm a mortgage obligation unless the mortgagee has agreed to modify one or more of the mortgage terms so that keeping the mortgage is much, much more beneficial.
Possible changes could include a lower interest rate, a lower monthly payment, placing arrears on the back end, deeming a default as cured, etc.
However, if your payments are current, there is usually no tangible benefit to reaffirm a mortgage loan. The only possible benefit is that the mortgage company will continue to report your stream of future on-time payments (assuming that you make them) to the credit reporting agencies.
Most lenders will stop such reporting to credit reporting agencies once a bankruptcy is filed, even if the homeowner continues to make monthly payments, a process commonly referred to as retain and pay. Of course, the downside to reporting payments is that if you are late, you will hurt your credit score.
Also remember that if you reaffirm the mortgage and can’t make the payments, the mortgage company can and likely will sue you for money. They cannot sue you for money if you refuse to reaffirm.
Reaffirming a mortgage debt requires a comprehensive multi-page reaffirmation agreement that must be filed with the court. The reaffirmation agreement also requires the debtor’s bankruptcy attorney to indicate that he or she has read the agreement and that it does not impose any undue hardship on the client.
Some attorneys, for good reason, will not sign this. In addition, some judges will not permit a debtor to reaffirm a mortgage loan unless the debtor is incurring some kind of valuable benefit for doing so.
There Are Benefits for Not Signing a Mortgage Reaffirmation Agreement
Keep in mind that Chapter 7 bankruptcy has the effect of discharging a debtor’s financial obligation to pay the mortgage. That means that if the debtor stops paying the mortgage, the most the mortgagee can do is foreclose on the home and take it back. If there is a bankruptcy discharge, then the mortgagee can never pursue the mortgagor for any money, even if there is a large deficiency.
Eliminating personal recourse on the mortgage is a very powerful tool that many of my clients can later fall back on if they no longer desire to keep their home. Having the ability to strategically default on a mortgage is very valuable.
In my practice, I rarely see mortgage lenders who are willing to change the terms of a first mortgage. Therefore, there are very few instances where reaffirming a mortgage is advisable.
Incidentally, I regularly receive “proposed” reaffirmation agreements from mortgage companies all the time. Some arrive by overnight mail; some by e-mail marked urgent. It upsets me when I see this because I think there are inexperienced bankruptcy attorneys out there who feel that the reaffirmation agreement, which just arrived by Federal Express, must be signed.
I have never seen an unsolicited reaffirmation that offers any benefit, and they all get quickly filed in my circular filing bin.
Written by Craig D. Robins, Esq.Lindsay has been getting into one mess after another and the drama continues this week for the young actress following her crash this past Friday on the Pacific Coast Highway.
One can’t help but wonder what liabilities she is getting into and how she will resolve them.
As a bankruptcy attorney, I thought it would be an interesting exercise to ponder the issues and obligations that have arisen from her recent foibles and see how she would resolve them in a Chapter 7 bankruptcy filing.
Lindsay Just Crashed her Porsche
On Friday Lindsay crashed her sports car on the Pacific Coast Highway, on her way to the set where she is filming the Elizabeth Taylor biography. Although no one was hurt, this became major news within hours.
The liability is damage to her expensive car, damage to the truck she collided with, and possible fines.
So far, the matter is being investigated. News just released today could mean Lindsay is in for more trouble as she initially told officers that she was a passenger, but today it was revealed that her assistant claimed that Lindsay was driving.
If is determined that alcohol was involved, her insurance carrier will likely deny coverage to her. She would also be fined. Fines are a type of debt that cannot be discharged in bankruptcy.
Also, any debt she incurs as a result of driving while intoxicated constitutes one of the more unusual exceptions to discharge. Thus, if she was drunk, any financial liability she incurs from the accident would be non-dischargeable. However, any creditor seeking a determination that the debt is nondischargeable will have to bring an adversary proceeding.
If Lindsay incurred any financial liability, and the car crash was accidental, and she was not drunk, then she would be able to discharge these obligations. That would include any balance due on the car loan or lease.
Lying to the Police About Who Was Driving
This twist will certainly be interesting to follow. It also reminds us of the importance of being truthful in bankruptcy proceedings. Lying to a bankruptcy court is a serious offense punishable as a felony under federal law, meaning the potential of more than a year in jail.
This twist will certainly be interesting to follow. It also reminds us of the importance of being truthful in bankruptcy proceedings. Lying to a bankruptcy court is a serious offense punishable as a felony under federal law, meaning the potential of more than a year in jail.
The Stolen Necklace
Lindsay is currently on probation for having shoplifted a necklace. Any debts from this caper cannot be eliminated in bankruptcy. Criminal fines are non-dischargeble. So is restitution.
The Two DUI Incidents from 2007
As indicated above, any traffic fines and restitution obligations are non-dischargeable.
Credit Card Debts
Lindsay surely built up a bunch of debt from being out of work, having stints in jail, and attending rehab. She also lost some movie deals. Several years ago, people said she was broke, owed over half a million dollars and also owed money to her landlord.
In general, credit card debts and other personal obligations are fully dischargeable in bankruptcy, even if bad behavior led to getting into debt. Thus, if Lindsay filed bankruptcy, she would be able to eliminate her credit card debts.
The Playboy Shoot Enables Lindsay to Avoid Bankruptcy
Some commentators have suggested that Lindsay avoided bankruptcy by posing for Playboy last year.
Doing so gave her a quick cash infusion of up to a million bucks that enabled her to resolve her debts for the time being.
Consumers can avoid a bankruptcy filing if they can come up with some cash resources that would enable them to negotiate their debts. We help consumers negotiate credit card debt on Long Island, which is a viable alternative to bankruptcy.
What Bankruptcy Court Would Lindsay File In?
Lindsay used to live here on Long Island, where my bankruptcy practice is, and where her mother still resides. If she had to file, she would probably want to do it where she could be comforted by her mother.
However, she would be required to file where she has regularly resided for the greater portion of the prior 180 days, which would be Los Angeles.
My Bankruptcy Firm’s (Indirect) Connection to Lindsay Lohan
As a Long Island bankruptcy lawyer, I previously represented one of the many ex-girlfriends of Lindsay’s father, Michael Lohan, with the filing of her bankruptcy. As a matter of fact, Michael Lohan paid the girlfriend’s legal fee and came to our office to do so.
As a Long Island bankruptcy lawyer, I previously represented one of the many ex-girlfriends of Lindsay’s father, Michael Lohan, with the filing of her bankruptcy. As a matter of fact, Michael Lohan paid the girlfriend’s legal fee and came to our office to do so.
However, a few weeks later, they broke up and he contacted us, demanding that we return the legal fee! Of course, we did not. We then filed the ex-girlfriends bankruptcy and she received her discharge.
My Girlfriend Is Thinking of Leaving Me
Posted on
Written by Craig D. Robins, Esq.“My girlfriend is thinking of leaving me.” This is a comment I hear repeatedly, in one form or another, quite regularly in my bankruptcy practice, when I counsel singles in serious relationships who suffer from debt problems.
After all, who wants to marry into debt? Sometimes the thought of marriage drives lovelorn, debt-laden consumers to see me. Their significant other has given my client an ultimatum: Either you clean up your finances or I will not marry you!
Those just starting to date will typically avoid broaching certain topics like how much money they owe on their credit cards. Of course, these facts tend to emerge as the relationship becomes serious — and then there are problems.
This is a concept I recently discussed with Jennifer Gargotto who blogs about dating issues in her blog, MsMorphosi.com. We talked about this phenomenon at BlogWorld this week, a large conference and tradeshow for us bloggers.
Fortunately, Chapter 7 bankruptcy often provides an escape from debt, and seeking bankruptcy relief when necessary can, and often should, be done before getting married. It is often easier to discharge debt while you are still single, and before you get married.
Here’s why: The bankruptcy means test requires married individuals to calculate the income of both spouses to determine Chapter 7 eligibility, but it does not necessarily require a single person who is filing to include the income of a significant other. In addition, the Chapter 7 trustee appointed to a case is entitled to ask to see a non-filing spouse’s financial information. In most cases, a trustee would not seek such information from a non-married significant other.
Determining family size for means test purposes can still be tricky, even for single consumers, and obtaining the advice of an experienced bankruptcy attorney is important. In any event, avoiding the additional burden and stress of debt when heading towards marriage can only make for a better, healthier and more stable relationship.
So if you have significant debt problems, consider consulting with a bankruptcy attorney now. And for those married couples with significant debt, Bankruptcy Can Save Your Marriage.
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.