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“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
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Written by Craig D. Robins, Esq.There are a number of different documents that various parties may file with the bankruptcy court in a typical bankruptcy case. One of them is a “Notice of Appearance.”
This is basically a document, usually filed by an attorney for a creditor, indicating that the attorney is representing the creditor in the bankruptcy case, and that the attorney, on behalf of his client, would like to be served with copies of all documents that the debtor and other parties may be required to serve in the case. A notice of appearance usually contains language requesting service of papers.
A notice of appearance is a very standard and routine type of filing, and is very common in all bankruptcy cases. In consumer cases, they are most often filed by secured creditors, especially mortgagees, who have a vested interest to follow the events in a bankruptcy proceeding.
Bankruptcy Rule 2002 creates certain statutory requirements for how counsel should serve notice, and this section provides that creditors may designate certain addresses by providing notice.
Bankruptcy Rule 9010(b) provides that an attorney appearing for a party in a case shall file a notice of appearance with the attorney’s contact information unless the attorney previously filed a document containing that information.
A creditor will often file a notice of appearance at the same time it files a motion or proof of claim. Frequently, attorneys who file motions for relief from the bankruptcy stay will also contemporaneously file a notice of appearance if they didn’t do so previously.
Generally, if you are an individual consumer debtor in a Chapter 7 or Chapter 13 bankruptcy case, you do not need to take any action if a creditor files a notice of appearance in your case. However, if you serve a motion, you must serve it on all parties in interest (typically the trustee, U.S. Trustee, and all creditors listed in the petition) including those who filed a notice of appearance.
If you are a creditor, and you want to be assured of receiving notices in a bankruptcy case, you should file a notice of appearance and demand for service of papers.
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.
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.
Written by Craig D. Robins, Esq.
Businessman debtor denied bankruptcy discharge for failing to keep business records
As a consumer bankruptcy practitioner, I am often concerned with clients who fail to have sufficient paperwork to document their past finances. This often leads to the question: At what point can a consumer debtor be in jeopardy because he or she failed to keep financial documents?
I discussed this issue exactly four years ago in my monthly column in the Suffolk Lawyer when I reviewed an opinion by Judge Stong (sitting in the Brooklyn Bankruptcy Court in the Eastern District of New York), who held in that particular case that the debtor was entitled to a discharge even though she failed to keep a number of important financial documents. See: Recent Decision Summarizes Consumer Debtor’s Obligation to Retain Documents and Explain Pre-Petition Loss of Assets .
In that case the debtor had a good excuse for not being able to produce copies of bank and credit card statements.
However, a judge from the Bankruptcy Court for the Northern District of Ohio just addressed the same issue, although this time for a consumer with business debts, and determined that the debtor in that case was not entitled to a discharge.
In this month’s column I’ll discuss the recent Ohio decision and provide some insight as to when a consumer debtor can face difficulty for not having financial documents.
Businessman Fails to Keep Documents
In the Ohio case, In Re: Kim Wesley Michael, no. 09-3258, (Bankr. N.D.Ohio 2010), the debtor, a businessman, had been involved in at least a dozen different business enterprises over a thirty-year period, six of which he operated in the five-year pre-petition period.
Two of the businesses enabled the debtor to draw compensation in excess of $100,000 per year. The debtor had various roles in these business ventures including sales manager, freelance graphic designer, insurance salesman and concert promoter.
When the debtor ultimately defaulted on some business obligations, he sought Chapter 7 relief.
At the time the debtor filed for bankruptcy relief, he was not employed, no longer involved in any part of his business venture, and had no income.
One particular creditor, who the debtor borrowed $60,000 from for the purpose of financing his most recent business venture, filed an adversary proceeding objecting to discharge pursuant to Bankruptcy Code section 727(a)(3) for failure to keep adequate records.
As it turned out, the debtor failed to maintain any kind of records regarding his most recent business ventures, including the one for which the objecting creditor lent money. As such, the debtor had no check registers, accounting ledgers of any kind, or any other kind of financial records. In addition, the debtor hadn’t filed tax returns for several years.
The bankruptcy court held the debtor to a much higher standard than the average consumer debtor because of his business experience. Thus, the judge determined that the debtor’s inability to explain his financial affairs because he had not kept sufficient records warranted a denial of discharge.
In his decision, the judge explained some basic, but important principles. A bankruptcy discharge is an extraordinary remedy, and carries with it certain duties and obligations.
Only those debtors who are fully cooperative and honest are entitled to a discharge. In that way, a debtor who receives benefits under the Bankruptcy Code must also accept its burdens, and one of them is to be fully transparent with all matters regarding financial affairs.
The Bankruptcy Code Requires Debtors to Maintain Financial Documents
Bankruptcy Code Section 727(a)(3) provides that the court can deny a debtor his discharge if the debtor failed to keep or preserve any recorded information, including books, documents, records and papers. If a party objecting to discharge under this provision can establish that the debtor failed to keep or preserve the necessary information, and can also demonstrate that the lack of financial records makes it impossible to ascertain the debtor’s financial condition, then the objecting party has met its evidentiary burden.
The burden then shifts to the debtor who can still prevail and get a discharge if he can demonstrate that his failure to keep documents was justified under all circumstances of the case.
Some Debtors Are Held to Higher Standards than Others
The court pointed out that a debtor with primarily consumer debts should not generally be held to the same standard as a debtor with mostly business debts. As such, issues of this sort must be reviewed on a case-by-case basis
In this case, the court determined that it should examine the size, complexity and volume of a debtor’s business to ascertain the sufficiency of the debtor’s records. In addition, the court can consider the debtor’s expertise, experience, sophistication and any other circumstances.
Here, the court observed that the debtor had considerable business experience and earned substantial sums of money from the business. Thus, the court inferred that the debtor’s failure to produce any financial documents was because he was attempting to obfuscate his financial dealings.
The court also pointed out that the debtor’s intent to hide or conceal information was irrelevant, nor was it necessary to show that the debtor intended to defraud a particular creditor or the trustee. Instead, the test for determining whether a debtor has adequately justified the lack of financial records is an objective one, focusing on whether others in like circumstances would ordinarily keep financial records.
Practical Tips for Bankruptcy Attorneys When Their Clients Don’t Have Prior Financial Documents
If a client comes to you and presents a problematic scenario because of a lack of prior financial documents, does that mean you should turn down the case or advise against filing? Not necessarily.
As long as you have sufficient documents to enable you to do your BAPCPA due diligence, then no one can fault you for filing the case. However, if the debtor does not even have sufficient written information to enable you to answer the mandatory questions in the petition, then perhaps you should turn down the case.
If a debtor with deficient past financial documents does file, then he can only get into trouble if the trustee or a creditor makes an issue of it. Then, even in a worse-case scenario, if the debtor’s discharge is denied, he would likely be in the same position he was in prior to filing.
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 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Written by Craig D. Robins, Esq.
New Bankruptcy Means Test Criteria Goes Into Effect November 1, 2010
The figures that you need to use for the means test change periodically. The last change was on March 15, 2010. The recent changes actually make it slightly harder to qualify. However, the difference is relatively small so that it should hardly matter for most Long Island consumers.
In order to automtically pass the bankruptcy means test your income must be less than the median income in the state where you live. For New York residents, it will be slightly more difficult for some families to qualify for Chapter 7 bankruptcy than last year. For those seeking to file for Chapter 13 bankruptcy, some families will have to pay slightly more each month.
The figures used for the each state’s median income are based on United States Census data, and adopted by the Office of the United States Trustee. These figures routinely change once or twice a year.
Usually income rises each and every year because of inflation, the cost of living, etc. However, because we are currently in a recession, income has actually decreased slightly from the prior year. This started happening with just some family sizes last year.
The last time the median income figures were updated for the Means Test prior to the March 15, 2010 change was November 1, 2009.
To see the old and now obsolete median income data for each of the 50 states, go to the U.S. Trustee Census Bureau Median Income Means Test Chart for cases filed between November 1, 2009 to March 14, 2010.
To see the current median income data for each state, which is only good through the end of this week, go to Median Income Means Test Chart for cases filed between March 15, 2010 and October 31, 2010.
To see the new median income data going into effect next week, go to Income Means Test Chart for cases filed beginning November 1, 2010.
New Means Test Figures
Family Size of One: If you are a single individual, which means that you have a “family size of one”, the New York median income has decreased for the third time, from $46,320 earlier this year to $45,548. This is a minor but nevertheless significant change of $772 per year, or about $64 per month. However, chances are that very, very few potential Chapter 7 debtors will be adversely affected by such a small change.
Family Size of Two: For a family size of two, the new median income figure is $56,845.
Family Size of Three: For a family size of three, the new amount is $67,292.
Family Size of Four: For a family size of four, the new median income amount is $82,587.
The Bankruptcy Means Test
This is a comprehensive, very complex series of calculations that the federal government designed to ascertain whether someone qualifies for Chapter 7 filing.
Under the old bankruptcy law, almost anyone could seek to eliminate their debts by filing Chapter 7. The new laws changed that. Click here to take a look at the actual Means Test form.
The Means Test formula is designed to evaluate whether a debtor has the financial means to pay back a substantial portion of his or her debts. If the person does, then he or she may not be eligible to file Chapter 7 bankruptcy, and may instead have to file a payment plan bankruptcy under Chapter 13.
If debtor’s income is below the New York State median income for a family of that particular size, then passing the Means Test is virtually automatic. If not, the debtor must have a sufficient amount of acceptable deductions permitted by the Means Test.
Impact of New Means Test Figures on Consumers Filing Bankruptcy on Long Island
In my Long Island bankruptcy law practice, I estimate that at least 7 out of 8 clients now seeking to file for Chapter 7 bankruptcy relief do indeed qualify under the means test. However, the new numbers may just slightly hurt some couples or small families trying to qualify for Chapter 7 bankruptcy when the new criteria is used.
The new figures underscore the importance of meeting with an experienced New York bankruptcy attorney to ascertain eligibility for filing for bankruptcy relief.
New Median Family Income Figures for New York
(Effective for cases filed after 11/01/10)
Family Size Amount
1 $45,548
2 $56,845
3 $67,292
4 $82,587
Add $7,500 for each individual in excess of 4.
Written by Craig D. Robins, Esq.
This is a continuation of my previous article: Bankruptcy Issues Involving HAMP (Home Affordable Modification Program) — Part One , that I wrote after attending a seminar of the National Association of Chapter 13 Trustees.
WARNING: HAMP (Home Affordable Modification Program) Can Actually Drive Homeowners Into Bankruptcy
Here are two types of horror stories I’ve been hearing from some recent clients about their HAMP experiences.
First, the homeowner applies for HAMP relief but does not receive a timely response from their mortgage servicer. In the meantime, their debt situation becomes worse and worse as they struggle to remain current on their obligations. This then puts them into an untenable financial situation that they cannot get out of.
Second, some other homeowners have reported to me that they applied for HAMP relief and were granted a temporary modification. However, several months later, after the trial period ended, they were turned down for permanent relief, leaving them immediately on the hook for catching up with thousands and thousands of dollars in payments that they didn’t make (and now cannot afford to make).
Can I Seek HAMP If I am Defending a Mortgage Foreclosure Proceeding?
You cannot be turned down just because you are actively involved in foreclosure litigation.
What Happens to the Money Saved With Reduced HAMP Mortgage Payments?
There is no “cram-down” on the unpaid principal balance. In other words, the savings do not disappear.
Even though the homeowner will be saving money by having a reduced monthly mortgage payment, these savings are not forgiven. The amount of savings is actually set aside as a non-interest-bearing balloon that the homeowner must pay upon sale, refinance or the maturity of the loan.
Apparently, many homeowners are unaware of this aspect.
What Happens to Mortgage Arrears at the Time of a HAMP Modification?
All arrears up to the time the HAMP offer is made, are capitalized into the balance of the modified loan. They, too, are not eliminated.
How Long do HAMP Reduced Mortgage Payments Last?
The reduced monthly payments are only good for five years. For each year after that, the interest rate increases by one percent each year until it reaches a certain Freddie Mac cap rate.
New Documentation Program Starts June 1, 2010
One of the existing problems was that a homeowner would apply for a HAMP modification and quickly enter into a trial period of reduced monthly mortgage payments — before complying with all of the document requirements.
Many homeowners would then fail to fulfill the document requirements and, for that reason alone, be turned down for a permanent HAMP modification.
Accordingly, effective June 1, 2010, a HAMP trial modification cannot start until the document requirements have been totally satisfied.
What Are Some HAMP Alternatives?
I wrote about this recently. See my post: One-Fourth of All U.S. Homeowners Are Underwater. What Should These Homeowners Do?, for a discussion of alternatives.
Seeking Hamp Relief While In Bankruptcy — What Are the Issues?
This topic will be the final part of this series. I will post it later this week.
Chapter 11 Bankruptcy on Long Island
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Craig D. Robins, a Chapter 11 bankruptcy attorney on Long Island, provides summaries of all Chapter 11 bankruptcy cases filed in the Long Island Bankruptcy Court, on his Long Island Bankruptcy Blog.
Click here to access these summaries: Chapter 11 bankruptcy cases filed on Long Island.
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Click here to see information about filing Chapter 11 bankruptcy on Long Island.
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If you have a business that is considering Chapter 11, please feel free to contact my office to arrange a free, confidential consultation.
Nassau County Bankruptcy Attorneys
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We have two offices in Nassau County, New York, to help consumers resolve their debt problems with bankruptcy, debt negotiation or foreclosure defense — Woodbury and Valley Stream.
For over 20 years we have been helping consumers file bankruptcy on Long Island and get debt relief.
If you have serious debt issues, please consider giving our office a call to discuss how we can help you.
Please see our Long Island bankruptcy website for full information about setting an appointment to discuss eliminating debt or stopping foreclosure.
Long Island Bankruptcy Law, Practice and Procedure
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For the benefit of new readers, this blog contains numerous posts about Long Island bankruptcy practice, law and procedure. Consumers will be be most interested in some of the categories on the left, such as Bankruptcy Tips Consumers Should Know, Chapter 7 Bankruptcy, and Chapter 13 Bankruptcy.
Long Island bankruptcy attorneys will be interested in the practice-oriented articles that I’ve written for various Long Island bar associations, found in the Suffolk Lawyer, Nassau Lawyer and Attorney of Nassau.