Who Is the U.S. Trustee in the Bankruptcy Process?

Someone You Hope You Will Not Meet in Your Chapter 7 or Chapter 13 Case

The U.S. Trustee’s Office is a division of the U.S. Department of Justice tasked with overseeing the bankruptcy process in the United States. The Role of the U.S. Trustee encompasses a number of different tasks, but the primary focus tends to be on a couple of different areas of specific concern to you as a consumer considering filing for bankruptcy:

• “Safeguarding” Chapter 7 eligibility by scrutinizing the Means Tests and income and expenses of each Chapter 7 filed;
• Ensuring that the people who you pay to help you prepare your petition are doing so within the framework of the law;
• Appointing and supervising the Chapter 7 and Chapter 13 Trustees who you actually interface with in your bankruptcy proceedings; and
• Prosecuting criminal cases related to bankruptcy matters when required.

The U.S. Trustee is tasked with policing not only the behavior of the real human beings actually filing bankruptcies in the U.S. but also the creditors responding to and filing claims for the debts they are allegedly owed within bankruptcy cases, but, as with Chapter 7 and Chapter 13 Trustee, the scrutiny laid upon creditors is very cursory relative to the amount of energy they spend policing the Means Test and the fees paid to debtors’ attorneys and (quite rightly) non-attorney “petition preparers.”

Should I Worry About the U.S. Trustee?

The vast majority of Chapter 7 and Chapter 13 cases filed do not involve any interaction with the U.S. Trustee. Although the staff and trial attorneys employed by the U.S. Trustee do review the transcripts of every 341 Meeting of Creditors meeting and Means Test and other petition Schedules filed in Chapter 7 cases, the reason that their role stops there in most cases is  because the filing debtor has hired a good bankruptcy attorney to assist them.

If you have retained an experienced bankruptcy attorney to assist you with your Chapter 7 or Chapter 13 filing, you will in all likelihood have little reason to be concerned about the U.S. Trustee. Your attorney will guide you through the assembly of the documentation required to accurately, honestly, and fully disclose all of the assets, debts, income, expenses, and other past and expected future financial transactions that are required to be disclosed in the bankruptcy petition. If you are eligible for Chapter 7 and it is the best option for you relative to other non-income considerations, your attorney will so advise you and guide you through that process. If you are not or Chapter 13 is the better option for you for a variety of reasons, your attorney will expertly guide you through that process.

The guidance of a knowledgeable bankruptcy lawyer is what will keep the U.S. Trustee away from your case. Attempting to draft your petition yourself or to calculate your own Means Test or paying a non-attorney “petition preparer” a few hundred bucks to “fill in the blanks” on the “bankruptcy forms” is a good way to put yourself in the cross-hairs of the U.S. Trustee.  It is potentially a good way to encounter Federal criminal charges, depending upon what you decide you don’t have to disclose.

If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact  The Hilla Law Firm, PLLC at (866) 674-2317 or click the button below to schedule a free, initial consultation.

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If you enjoyed reading “Who or What Is the U.S. Trustee,” please browse Attorney Hilla’s other articles on his main Michigan Bankruptcy Blog.

Tax Refunds or Why Bankruptcy Flings Tend to Spike in the First Quarter of the Year

Here we are the the first business day of 2014. If this year is like the previous years, we will see an increase in filings from January through April. Why is that? Because it is tax refund season.

For a vast majority of people filing bankruptcy, every paycheck is already accounted for well before actually receiving the paycheck (first paycheck goes to rent, second goes to paying all the other bills). Thus coming up with the $2000 necessary to file a chapter 7 bankruptcy becomes a strain, even if paid in monthly installments. But once a year, during tax refund season, some people get back a a chunk of money that isn’t already accounted for. Due to tax credits like EIC and child tax credits, this refund can be quite large.

Say you got a $2000 tax refund check and you owe credit cards $40,000 and can’t really afford to pay the money minimums on the credit cards. What is going to be better for you, paying $2000 towards the credit cards (which after a few month, will be eaten up entirely by fees and interest) and continuing to make payments you can’t afford or paying it to your bankruptcy attorney and and eliminating the debt in its entirety?

Contact a bankruptcy attorney now so when you tax refunds come in, you can be ready to start the year on the right course. We can also advise you on what to do with any excess tax refunds you have to keep it out of the hands of your creditors.

Sinbad’s Bankruptcy or Why Consumer Debt vs. Business Debt is Important

As some of you may know by now, Comedian Sinbad recently filed chapter 7 bankruptcy. If you look at his bankruptcy schedules, you might wonder how a person making $16k per month file a chapter 7 bankruptcy.

On the first page of your bankruptcy petition, it asks if your debts are “primarily consumer debts” or “primarily business debts”. For this question, primarily means more than 50%.

If you can demonstrate that your debts are “primarily business debts”, things get easier in your chapter 7 bankruptcy. First off, you don’t need to complete Form 22A aka the Means Test. It also makes it very difficult for a party to dismiss your case for making too much money. Sinbad makes decent money and has multiple car leases that might be considered excessive, but that alone won’t be enough to sustain a 707a dismissal.

Independent Foreclosure Review Payments and my discharged Bankruptcy

For many of our clients, they have now received their checks from the Office of the Comptroller of Currency from the Independent Foreclosure Review but now they are asking, do I need to call my attorney? The general answer is yes because if you received your discharge in the last 18 months, the check is actually an asset from your case HOWEVER the majority of Chapter 7 Trustees and some chapter 13 Trustees have already notified debtor’s attorneys of their intention to administer the asset only if it exceeds a very high dollar amount.

Please call your attorney for more information and for the vast majority of those who received checks, you will get to keep them without any issue or worry.

Can I Discharge a Personal Injury Judgment in Bankruptcy?

By John Hilla, Michigan Bankruptcy Attorney

On Purpose or While Intoxicated—Or Neither?

A personal injury judgment is as dischargeable as any other unsecured debt, such as credit card or medical debt, so long as the judgment against you wasn’t for an “intentional tort” or for death or personal injury caused by your intoxication.

That is, if the judgment is based in an allegation of mere negligence, as is commonly the case with automobile, slip-and-fall, dog-bite, and other typical personal injury judgments, the judgment will be able to be fully discharged in either a Chapter 7 or Chapter 13 bankruptcy.

Non-Dischargeability for Intentional Torts

So what is an “intentional tort?” A tort is the name of an action one person may take which may allow another person some level of legal remedy against them under civil law. It is the part of the US legal system from which nearly all legal actions which are not criminal claims or breach of contract claims arise. The commission of a tort by one person against you would be the basis for a lawsuit you might file against them in civil court for which you might claim money or other damages as a remedy.

All personal injury lawsuits are lawsuits based upon the commission of a tort, or tortious act. The first question with regard to dischargeability in bankruptcy of a judgment received after the filing of a personal injury lawsuit is, “Was this an intentional tort?

An intentional tort is an act you committed on purpose, not by accident.

The vast majority of personal injury lawsuits are based on negligence or other non-intentional torts. You didn’t mean to let your dog get out of the yard and bite that guy, but you didn’t adequately lock your gate or post any warning signs. You were negligent in keeping a dog that might be prone to biting somebody … You didn’t mean to drive your car into that lady’s swimming pool, where she just 523to be floating in an inner tube. You were negligent in the operation of your vehicle.

Those sorts of negligent, non-intentional torts are dischargeable in bankruptcy.

An intentional tort is something you intended to do to someone else, actually did, and which caused damage: assault, battery, false imprisonment, and others. If you punch somebody in the face, and they end up with their jaw wired shut for a year, destroying their up-and-coming career as a nose model for sinus medication advertisements, you will be the proud owner of a judgment for an intentional tort if they sue you and win.

That judgment will not be dischargeable in bankruptcy.

Non-Dischargeability for Death or Injury Arising from Intoxication

Additionally, a personal injury judgment for injury or death which occurred because you were intoxicated from the use of alcohol or some other drug will also not be dischargeable in bankruptcy, regardless of whether you intended to be drunk or intended to cause damage while drunk or intoxicated.

This is because Section 523(a)(9) of the US Bankruptcy Code (the Federal statute governing the bankruptcy process in the US) says this is the case. This Section of the Code makes it clear that a debt originating from “death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance” is not dischargeable.

Chapter 13 Bankruptcy Can Help Even if the Debt Is Non-Dischargeable

Even if your personal injury judgment is not dischargeable in bankruptcy, you can still receive assistance from the bankruptcy process in dealing with it. A Chapter 13 “payment plan” or “reorganization” bankruptcy will allow you to repay the debt in full at 0% interest over 3-5 years.

Chapter 13 bankruptcy is, essentially, a payment plan in which you repay to your creditors what you can afford to repay over 36-60 months, after your necessary household expenses are taken into account. Debts that are dischargeable, such as credit card debt, receive whatever you are able to pay into the plan over that time-period, and then the unpaid balance is totally discharged just as it would be in a Chapter 7 bankruptcy.

Non-dischargeable debts must be paid 100% of what the creditors holding those debts are owed, in contrast. Thus, while your credit card creditors may only be paid 0.5% of what you owe them by the end of the plan, a non-dischargeable personal injury creditor will be paid 100% of what you owe—and in priority over the dischargeable creditors.

A Chapter 13 can be of great assistance in forcing even a creditor holding a non-dischargeable claim to accept a reasonable monthly payment that still allows you to keep food on your table.

Can You Discharge a Personal Injury Judgment in Bankruptcy? The Bottom-Line

The bottom-line is that, if you are being sued for a personal injury, particularly if the suit is for an amount of money above your insurance limits or if you had no insurance if there is an auto or homeowners insurance claim involved, you should contact an experienced bankruptcy attorney immediately to explore your options.

Do you have to pay condo fees after bankruptcy?

Many consumers file a Chapter 7 bankruptcy case for the purpose of walking away from their home due to their lack of any equity in the property, or as a result of being so far behind in mortgage payments and home owner association fees that they will never be able to catch up.  In some situations, the home is a condominium or home with community fees also known as condo or HOA fees.  In this case, there are not only fees to pay to the bank for a home, but also shared fees among several owners for common area debts, such as landscaping, snow removal, building maintenance and other similar costs.  So the question is if you discharge your debts in bankruptcy do you still have to pay the condo fee if you are surrendering the property?

Unfortunately, the answer to the above question is yes, you do still need to stay current on your condo fees, even if you don’t live in the home and it is in active foreclosure, but has not yet sold.  This requirement to pay the condo fees comes as a surprise to many Debtors, because many believe that they have surrendered the property back to the bank or the Chapter 7 Trustee.  However, the reality is until the ownership actually changes hands, the Debtor is still on the hook.

Due to the lack of equity and simply the sheer quantity of homes in mortgage default, the lending bank may not set a foreclosure sale date for several months if not years after a Debtor walks away from the property or ceases to make mortgage payments.  The mortgage debt and even prepetition condo fees are discharged.  However, if the lender does not foreclose or the title to the property is not transferred to a new owner, then the Debtor still owns the home, and is responsible for debts that arose after the date the bankruptcy was filed.

Even though the mortgage company can not sue the homeowner after they eventually foreclose on it for any difference in price between what they are owed and what they received from the sale, the condo association under most state laws, including those in Massachusetts, have a right to recover the unpaid post petition HOA fees.  Many consumers will take the approach that they don’t live there so they don’t owe the money.  Unfortunately this ignorance of the law will not go too far.  It is a far better idea to look at the condo fee as a very low rental fee.  Additionally, the home owner association fees are typically much lower then any rental fee a consumer may have to pay for an apartment, and paying this fee can keep you in the home for potentially months if not years at a very low price.  It should be noted though that just as the mortgage company can foreclose for failure to make payments, so can the condo association, and in many cases, the condo association can act quicker then the bank due to their smaller size.

For more information in Massachusetts or Rhode Ilsand, please contact Attorney Michael Goldstein. As with any article or general legal information you read online, you should first consult with a licensed lawyer practicing debt relief law in your state.

Preparing for a Small Business Bankruptcy – Who can you pay?

Your small business is not doing so well; in fact you have reached the point where you need to shut the doors and stop all business operations. Presuming that the company has some significant debts, which in all likelihood is one of the reasons you have decided to close shop, you decide that you will file a Chapter 7 bankruptcy to discharge all the obligations. Once you come to this realization, there are many considerations to ensure everything is done properly. I will discuss what I have found as a small businesses bankruptcy attorney to be the two most significant ones. First, you need to decide which of your vendors and suppliers you can pay before you file for bankruptcy. Second, you need to decide what you will do with your business assets, and where they go now that you will not be using them in commerce.

Let’s take a look at the first issue. You still want to make as much money as possible while winding up the business, so you decide certain vendors need to be paid something in order to either keep them off your back to stop a law suit, or because you need them to continue to provide services. The transfer or sale of inventory and paying one creditor over another is a preferential payment and a significant problem. The key to this is that, in the 90 days prior to filing for bankruptcy you can not pay an unsecured creditor for past services. In fact, unless the payments are in the ordinary course of businesses, it must be for services rendered in the 90 day period prior to filing. Essentially, you must be paying only for new bills not old ones. If you do pay them, then the Chapter 7 Trustee may sue your creditors forcing them to turn over the payment. The reason for this is that in the 90 days prior to filing bankruptcy, you can not choose to pay certain creditors in the same class as others who are not receiving funds on their invoices.

The second concern that many Debtors face is what to do with your office equipment, and other business tools. You may want to try to sell off some of these to raise capital to keep the business going for a little while longer, but you need to ensure that if you do sell anything, you get fair market value, in order to protect against a claim down the road for a fraudulent transfer. Additionally, you need to be exceptionally careful about transferring an asset to a family member, owner or even an employee of the business. These types of transfers to insiders will be especially scrutinized by the Trustee.

Many small business owners will say, so what, it’s not my problem, the Trustee is not going after me. While hold on there cowboy, you may be getting out of the business now, but your future is uncertain. What if you decide to step back into the entrepreneurial world again? You may need your old contacts, and if your actions caused someone to get into it with the Trustee or worse yet incur legal bills those vendors may not be too quick to work with you in the future.

Additionally, if you have already made one of these preferred transfers, and are intent on filing the bankruptcy before the period of time expires, then you must be sure to disclose it on your schedules. If you fail to do so, the Trustee could possibly object to your company’s discharge and claim that the filing was not done in good-faith. The bottom line is at this stage, you need to protect yourself by simply being as honest as possible.

This article about prepping your business for Chapter 7 bankruptcy was written by Attorney Michael Goldstein, of the Phillips Law Offices, who practices bankruptcy law in Massachusetts just north of Boston.

Does the Means Test Still Apply if I Convert a Chapter 13 Bankruptcy to a Chapter 7 Bankruptcy?

By John Hilla, a Michigan Bankruptcy Attorney

When you file either a Chapter 13 Bankruptcy or a Chapter 7 Bankruptcy, you must file also a “means test,” which is the income-based eligility test which determines, in a Chapter 7, whether you are eligible for the Chapter 7 or, in a Chapter 13, whether you are eligible for a Chapter 13 payment plan that is shorter than 60 months long. The “means test” is actually form which calculates your average household income over the six months prior to the month in which you filed your bankruptcy. The result of that calculation—a high or low result relative to the median income of a household of your size for the state in which you live—makes the above determinations.

When you file a Chapter 13 Bankruptcy, you file a means test based on the six months prior to that filing, and that means test very likely indicates that your household earns too much money for Chapter 7 eligibility, although there are many good reasons to file a Chapter 13 beyond basic Chapter 7 ineligibility. However, what happens if your household loses a source of income, such that remaining in the Chapter 13 payment plan is no longer feasible for you?

It is a simple matter to convert a Chapter 13 to a Chapter 7 under such circumstances. The US Bankrutpcy Code gives consumers a virtually absolute right to convert a Chapter 13 to a Chapter 7 bankruptcy (the opposite is not necessarily true!). But what do you do, then, with a means test dating back to the six months prior to the original filing that says you are not eligbile for a Chapter 7, despite the fact that that means test may have been filed years prior to the event causing the loss of income and the infeasibility of the Chapter 13?

The case-law is somewhat divided on the subject on the various details, but it is fairly well-accepted that the means test look-back income period that applies to the converted Chapter 7 is the six-month period of time prior to the filing of the original Chapter 13. From there, different Federal jurisdictions (bankruptcy is a Federal legal process) have different requirements for handling this and explaining the difference between the income then and the income NOW and the current need for a Chapter 7 bankruptcy where only a Chapter 13 was possible before.

In the Eastern District of Michigan where I practice, for example, we are required to file a new Chapter 7 means test upon conversion, however with the same period of time in the calculation. Along with that Chapter 7 means test (which varies in form, content, and intent a bit from the Chapter 13 version), we file a sworn affidavit from the debtor explaining the loss in income necessitating the conversion—and then email a whole lot of supporting documentation (letter of termination from debtor’s former employer, etc.) to the US Trustee. The court clerk will often file a “Presumption of Abuse” upon the filing of the new Chapter 7 means test (because the little box that says “presumption of abuse” on the actual form will still be checked, given that it is still calculating that old six-month period of income), but it is the job of the US Trustee, which is a division of the US Department of Justice, to decide whether there really is an any abuse. If they think that there is, they will file a motion to dismiss the case—which could, if filed with good reason, result in the case being converted back to a Chapter 13 (or just being dismissed).

However, short of that, the US Trustee and the Chapter 7 bankruptcy Trustee will usually agree, if the conversion is premised on a bona fide change of circumstances, that there is no abuse and allow the case to proceed to discharge.

Again, the variations on this process will be potentially extreme depending upon where you reside and have filed your case.

The take-away from all of this for you, the consumer, is that it is important to keep in mind that a Chapter 13 bankruptcy is not a prison-sentence. If it ceases to function for you on a practical level because you do suffer a change of circumstances, there is a path out to earlier discharge through Chapter 7 conversion. It is important to have, however, an experienced bankruptcy attorney working with you as none of these steps will be apparent to the pro se debtor filing a case on his or her own.

 

Post Discharge or Dismissal – Should I call my lawyer?

So I was sitting in a signing today with a client who had filed a Chapter 13 Bankruptcy a few years ago with another attorney and their case has dismissed because they could not make their payments. This js not an uncommon occurrence in any bankruptcy attorney’s practice however what was uncommon was the next thing we talked about: after dismissal, the client was contacted by a creditor who had been paid in full in the Chapter 13 who repossessed the car and forced the client to pay another payment to settle the account. The client never called his old lawyer and just made the payment.

This story is just one of a lot of stories we all see more and more rather it be from a dismissed Chapter 13 case or a discharged Chapter 7 or 13. Your bankruptcy may be over but you may still need your attorney’s help to protect you and know your rights.

Bankruptcy and Returned Checks

There are many types of unsecured debt that can be included in a bankruptcy, such as credit card debt, medical bills, payday loans, signature loans, deficiencies on repossessed cars and foreclosed homes, old utility bills, old cell phone bills, etc. Many debtors inquire whether returned check fees can be included in the bankruptcy and discharged. These fees can be included in the bankruptcy and are dischargeable. The bankruptcy will eliminate that debt, and the debtor’s credit report should reflect that the debt has been charged off. The creditor can no longer contact the client or try to pursue a claim against the debtor in circuit court, file a lawsuit, and/or obtain a judgment against the debtor.

Just because the returned check fee has been discharged through the bankruptcy does not prevent the prosecuting attorney from pursuing a criminal case against the debtor in state court. This type of action cannot be prevented by the bankruptcy attorney, and the debtor should seek representation from a criminal law attorney in the event they are contacted by the prosecuting attorney. Because these actions are in two separate courts, they are completely separate actions. The bankruptcy cannot discharge the prosecuting attorney’s ability to bring an action against the debtor in criminal court. There are many instances where the prosecuting attorney does not become involved, but sometimes they wish to pursue an action based on their discretion. They may institute fines the debtor will be required to pay. These fines are also not discharged through bankruptcy, and a debtor must work with the prosecuting attorney’s office to discuss these issues. Again, this would be a separate issue from the bankruptcy, and the debtor would most likely want to speak to a criminal law attorney to discuss the debtor’s options immediately.

If you have any questions, please contact a St. Louis or St. Charles, Missouri bankruptcy attorney.

Bankruptcy and Businesses

Sometimes debtors have businesses they wish to retain through a bankruptcy proceeding or are self-employed. There is additional information these debtors will need to complete in order for the trustee to evaluate their case. When a debtor is in a Chapter 7 or Chapter 13 bankruptcy and they are self-employed, the debtor will need to include their self-employment information in the Statement of Financial Affairs portion of the petition. They will also need to include their income in Schedule I and include any business expenses in Schedule J. They will need to account for any income in the last six months for the means test and deduct any expenses that are related to their self-employment.

A debtor who owns a business will have to complete the same information so the trustee can determine how much income they have received, as well as how much they have spent on business related expenses. The difference between these two is considered their income for purposes of the means test and will also be used in Schedule I, J, and the Statement of Financial Affairs. If a debtor owns a business, they will need to fill out a supplemental form in the petition titled “Business Income and Expenses” which itemizes the income for the last 12 months and the individual expenses, such as utilities, maintenance, etc. They will also need to fill out a Business Case Questionnaire and send it to the trustee. This form asks for the name of the business, the description of the business, whether it is incorporated, the federal ID number, bank accounts for the business, tax returns, monthly budget, employees of the business, inventory, whether the business is cyclical (i.e. landscaping, snow removal, etc.), whether the business owns or leases office space and/or equipment, the insurance policies for the business, and whether they have business licenses, etc. The debtor is required to fill out this information sheet and provide it at the creditor meeting. The trustee will generally not conduct the creditor meeting without this information sheet. Additionally, any debtor conducting business will generally need to be put on the business docket for the creditor meeting. The debtor’s attorney will need to call the court to arrange any cases for the business docket.

If you live in Missouri or Illinois and you have any questions about bankruptcy and business, please contact a St. Louis or St. Charles bankruptcy attorney.

Creditor Contact With Debtors

During the initial consultation and while in the process of filing bankruptcy, debtors often inquire whether creditors can continue to contact them. Some debtors receive 30 or 40 phone calls per day and wish for the contact to cease. Before debtors actually file their case, the creditors can continue to contact them. If the debtors have retained an attorney to file bankruptcy but have not yet filed, the creditors can continue to contact them. The case is filed once all the paperwork has been prepared by the attorney, reviewed by the client, and submitted to the court. At that point, the debtors will receive a case number and their creditors should receive notice that a bankruptcy has been filed. It is illegal for creditors to continue to contact debtors once a case number has been obtained.

Additionally, debt collection agencies sometimes use methods to attempt to collect a debt that may be in violation of the law. If this occurs, a debtor may be eligible to receive sanctions from the creditor. It is a violation for creditors to contact people about debts they do not owe, continue to contact creditors after they have received notice of the bankruptcy, call debtors at work if they have indicated that it is not acceptable to receive phone calls, leave messages for debtors without identifying the company they work for or without identifying they are attempting to collect a debt, call friends and/or family members and disclose to them that you owe a debt, call before 8 am or after 9 pm, or threaten legal action, such as warrants and/or arrest, etc.

If you have experienced this conduct with creditors or need additional information, do not hesitate to contact a St. Louis or St. Charles bankruptcy attorney.

Vehicle Ownership Expense in the Means Test

Vehicle Ownership Expense in the Means Test

In a bankruptcy, the means test must be completed with the debtor’s last six months of income. If the debtor is over median for their household size, additional information must be provided in the means test to see if the debtor is still eligible to file a Chapter 7 bankruptcy based on certain expenses. If they are under abuse, they can file a Chapter 7. Otherwise, they must file a Chapter 13 bankruptcy. There are certain expenses that are automatically imputed for the debtor, and then there are other expenses the debtor will receive a credit for in the means test, such as mortgage, car payments, taxes they pay, health insurance, life insurance, security expenses (security systems, etc.), and telecommunication expenses, etc.

The means test allows for a vehicle ownership expense for a vehicle in the debtor’s name. Line 22A of the means test asks for the number of vehicles the debtor operates. Lines 23 and 24 ask for the number of vehicles for which there is an operating/lease expense. For a single bankruptcy, the debtor can only claim operating/ownership expenses for one vehicle. If the debtors are filing jointly, they can claim two vehicles. The operating/lease expense can only be claimed if there is a secured lien on the vehicle that the debtor is paying. If the debtor does not have a loan on the vehicle, they are not entitled to the $517.00 operating/lease deduction. The debtor is entitled, however, to a deduction for actual expenses they incur for the vehicle. For example, if the debtor spends $200 per month on the vehicle for oil changes and repairs, that amount can be used as a deduction in the means test. If the debtor does not have regular monthly expenses for the vehicle, they are not entitled to a deduction for a vehicle with no loan against it.

If you have questions, please contact a St. Louis or St. Charles bankruptcy attorney.

Can i have too much debt to file a Chapter 7?

One of the biggest myths is can i have too much debt to file a Chapter 7? Contrary to what some might think the answer is no. The Bankruptcy Code does not impose a limit on Chapter 7 debts because Congress intended for Chapter 7 to be a fresh start.

One word of caution though: significant amounts of credit card debt i.e. over $100,000.00 or large balance transfers can raise a red flag with the Chapter 7 Trustee or the Court. It is very important that you disclose all of your debts and more importantly the amount of debt to your attorney to ensure your Chapter 7 goes through the process smoothly.

Debtor’s can now strip second mortgages in Chapter 7 bankruptcy

By Massachusetts bankruptcy lawyer, Michael Goldstein

For many years, it has been well settled law that a Debtor who owns real estate with more than one mortgage can file a Motion with the Bankruptcy Court to eliminate, or “strip,” the second mortgage or equity line from that property. More specifically, “[t]o the extent that a lien secures a claim against a debtor that is not an allowed secured claim, such lien is void.” 11 U.S.C. § 506(d). The caveat to this rule, however, it is that the law was just as well settled that only those consumers in a Chapter 13 case could take advantage of 506(d). Up until recently, a Debtor who filed a Chapter 7 bankruptcy case and wanted to discharge all unsecured debt was not allowed to strip a second lien. The reason for this rule was that, in a Chapter 13 case, the Trustee retains an interest in the property for the bankruptcy estate. Conversely, in a Chapter 7 case, presuming the Trustee abandons any exempt asset, there is no interest in the property by the estate and section 506(a) does not apply. As a result, the court cannot bifurcate the debt into secured and unsecured debt, and without this bifurcation there is no unsecured debt to discharge. Additionally, a Chapter 7 discharge does not extend to an in rem claim against property; the discharge is limited to a discharge of personal liability. Dewsnup v. Timm, 502 U.S. 410 (1992).

This week, however, the rule that lien strips cannot take place in Chapter 7 bankruptcy has been turned on its ear. In Re: McNeal, Case: 11-11352, Lorraine McNeal v. GMAC Mtg. held that, at least in the 11th Circuit, even though a Debtor still cannot cramdown the value of an investment property as clearly noted in Dewsnup, a Debtor can strip a junior lien from a primary residence. The Court reasoned that because the United States Supreme Court in Dewsnup disallowed only a “strip down” of a partially secured mortgage lien and did not address a “strip off” of a wholly unsecured lien, it is not “clearly on point” and as such, the issue was not intended to be addressed by that Court.

Upon a reading of this opinion, it seems that this case is ripe for appeal because the court essentially held that, where the Supreme Court only discussed a cramdown in a Chapter 7 case under 506, entirely stripping a junior lien was not addressed. As such, the 11th Circuit Court reasoned, there is no restriction on lien stripping. To me, this argument is a little thin. Under this ruling, a Debtor cannot reduce the principal owed to a Creditor, but that Debtor can completely eliminate it. If this holds up, though, it could be very helpful to many Debtors who meet all of the criteria for a Chapter 7, but find themselves in a Chapter 13 for no other reason then to file a Motion to Avoid a Lien.