Archive for the ‘Filing Requirements’ Category

Friday, December 30th, 2011

Involuntary Bankruptcy: How It Works

Mamtek, a company based in Moberly, Missouri, is currently facing the potential of a forced Chapter 7 bankruptcy filing by five of its creditors. The situation involves Mamtek, which manufactures an artificial sweetener, and its plans to open a plant in Moberly.

According to sources, the case has unfolded like this:

  • Mamtek planned to build a factory in Moberly. To finance the construction, the city of Moberly issued bonds worth $39 million to the company.
  • Missouri-based UMB Bank reportedly agreed to serve as trustee for the bonds, meaning that it financed the city’s agreement with Mamtek.
  • This fall, Mamtek missed a payment to the city of Moberly, and indicated that it could not afford to complete the half-built factory.
  • Without payments from Mamtek, Moberly indicated that it would default on the bonds, leaving the bank on the hook for tens of millions of dollars.
  • The bank, along with other creditors (mainly construction-related companies) took the case to the court system, urging the bankruptcy judge to force Mamtek into bankruptcy so they could recover their money.

If the judge rules in favor of the creditors, Mamtek will have to sell its assets and distribute the profits among its creditors to compensate them for the money Mamtek owes them. If the judge does not rule for the involuntary Chapter 7 bankruptcy, Mamtek may be able to abandon its building and the creditors could lose a significant portion of their investment.

Involuntary Bankruptcy for Individuals

Involuntary bankruptcy is also possible for individuals – that is, a person’s creditors can theoretically get together and attempt to force a person into bankruptcy in order to recover some of their money.

However, in the case of individuals, forced bankruptcy is fairly rare. This is partly because it requires creditors to act together and agree to request a forced bankruptcy, and partly because most people who need bankruptcy protection often do not have sufficiently valuable assets to make a liquidation and creditor distribution worthwhile.

Further, in order for the involuntary bankruptcy of an individual to be legal, certain conditions must be met:

  • For a single creditor to force involuntary bankruptcy, creditors must be unsecured, fewer than 12 in number, and owed at least $5,000 by the debtor.
  • If a debtor has 12 or more creditors, at least three of them must join together to file the involuntary bankruptcy petition.
  • Creditors can force an individual into Chapter 7 bankruptcy (and possibly Chapter 11), but not into Chapter 13 bankruptcy.
  • Debtors have a chance to answer the involuntary bankruptcy petition in court.

It’s important to know that a creditor’s involuntary bankruptcy petition for a debtor does not guarantee that the court will agree to push the debtor into bankruptcy. If you have received notice that creditors are attempting to force you to file for bankruptcy, it’s a good idea to speak with a bankruptcy lawyer about your options.

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Tuesday, October 18th, 2011

New Bankruptcy Court Fee Schedules

Effective November 1, 2011, a new fee schedule will apply to all bankruptcy cases. The Judicial Conference of the United States agreed on the fee increases in mid-September and will use the proceeds generated to fund Judiciary needs.

Here’s a look at the new fees, the old fees, and what the changes might mean for you.

New Bankruptcy Fees

Most bankruptcy filers’ primary concern is the fee charged to file the bankruptcy petition with the court.

  • Chapter 13 bankruptcy: Formerly $274, the fee is now $281.
  • Chapter 11 bankruptcy: Formerly $1,039, the fee has been raised to $1,046.
  • Chapter 7 bankruptcy: Formerly $299, the fee has been raised to $306.

Luckily for most filers, the total increase in basic filing fees is not drastic; however, some critics of the bankruptcy system have complained that the fees were already prohibitively high for individuals truly struggling to make ends meet.

Other Bankruptcy-Related Fee Increases

In addition to the basic filing fee increases, the Judicial Conference also hiked fees associated with other parts of the bankruptcy process. The services whose fees have been altered include:

  • Certification: Formerly $9, now $11;
  • Exemplification: Formerly $18, now $21;
  • Audio Recording: Formerly $26, now $30;
  • Amended Bankruptcy Schedules: Formerly $26, now $30;
  • Record Search: Formerly $26, now $30;
  • Adversary Proceeding Fee: Formerly $250, now $293;
  • Document Filing/Indexing: Formerly $39, now $46;
  • Title 11 Administrative Fee: Formerly $39, now $46;
  • Record Retrieval Fee: Formerly $45, now $53;
  • Returned Check Fee: Formerly $45, now $53;
  • Notice of Appeal Fee: Formerly $250, now $293; and
  • Lift/Stay Fee: Formerly $150, now $176.

Which Fees Apply to My Case?

Because no two bankruptcy cases are exactly alike, it’s not easy to determine which of the fees listed might affect your bankruptcy case. As a bankruptcy lawyer can explain to you, the complexity and intricacy of your bankruptcy filing can affect the duration and costs of the case, which is affected not only by bankruptcy court fees but often by certain legal fees as well.

One way to keep bankruptcy fees to a minimum is to pay careful attention to the advice you receive from your lawyer. A lawyer may guide filers on what paperwork to prepare, how to complete bankruptcy forms, and otherwise how to proceed with a case.

Taking note of the rules and regulations that govern bankruptcy court early on in the proceedings may prevent you (and the bankruptcy judge, your trustee, or creditors) from having to return to the bankruptcy case to investigate or contest part of the information.

If you are truly unable to afford the fees associated with filing for bankruptcy, you may qualify for a bankruptcy fee waiver, about which a bankruptcy lawyer can tell you more.

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Recent court rulings may have significant impact on how bankruptcy courts handle escrow debts in some Chapter 13 bankruptcy cases. Here’s an overview of the issue and how escrow debts are likely to be handled in future bankruptcy cases.

What Are Escrow Accounts?

Escrow accounts are accounts set aside as part of a mortgage deal to hold money for expenses like property taxes and homeowner’s insurance. In many cases, the mortgage lender or servicer collects escrow money as part of monthly mortgage payments.

How Do Escrow Accounts Affect Chapter 13 Bankruptcy?

When a homeowner falls behind on mortgage payments, she likely also falls behind on escrow payments. This can lead to difficulties paying property taxes and other non-mortgage fees associated with homeownership.

This may become problematic if a person files for Chapter 13 bankruptcy to avert foreclosure, which is fairly common because of the foreclosure-halting powers of the automatic stay. In Chapter 13 bankruptcy cases, the following might happen to escrow accounts:

  • Mortgage debts can’t be modified in bankruptcy court. This provision was established decades ago as part of efforts to encourage homeownership among Americans. But for underwater homeowners today, it can mean bankruptcy filers have great difficulty keeping their homes, because it means that homeowners must continue making payments as they agreed in their loans.
  • Escrow arrearages are listed in the petition. Overdue escrow payments must be included on bankruptcy paperwork. The good news is that a recent court ruling (in the case In Re Beaudet) asserted that overdue escrow payments accrued before a bankruptcy filing can be considered non-mortgage debts. That means they can be included as part of the bankruptcy repayment plan and repaid over a three- to five-year period, possibly at a lowered interest rate.
  • Future escrow debts are undefined. The bankruptcy case did not establish, though, whether missed escrow payments in the period after a bankruptcy case is filed would be considered part of mortgage debts. In other words, those who continue to have difficulty making their mortgage payments after filing for Chapter 13 may or may not be required to make escrow payments in addition to regular loan payments.

For now, Chapter 13 filers may have to rely on case-by-case judge discretion when missed escrow payments are part of a bankruptcy estate. Considering the high number of struggling homeowners, though, it’s possible that bankruptcy court rulings will decide the issue definitively in the near future.

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The housing crisis has led to plenty of attention for homeowners who are underwater on their mortgages – that is, who owe more on their homes than the properties’ current value. Less press time has been devoted to other types of underwater loans, particularly those for cars.

The good news? Filing for bankruptcy may help you out of an underwater car loan (also sometimes called an “upside down” loan). Here’s a look at how things might work.

Underwater Car Loans in Chapter 7 Bankruptcy

Those who file Chapter 7 bankruptcy may handle an underwater car loan in one of three ways:

  • Surrender the car. This option means giving up the vehicle and eliminating the debt connected to it. While this isn’t a practical option for those who need a vehicle, it may be useful for folks who have other transportation options.
  • Redeem the car. This option lets filers repay creditors the remainder of the car’s fair market value in a lump sum. In other words, you pay your lender the car’s current value minus whatever amount you’ve already paid. This tends to benefit those with underwater loans and enough cash on hand.
  • Renew the loan. This choice may work for those who do not have the cash to redeem their cars and who need them for transportation. Loan renewal equals an agreement to continue making payments as outlined in the original loan papers. Chapter 7 bankruptcy may make these more manageable by discharging other debts and thus freeing up enough money to allow for car payments.

Underwater Car Loans in Chapter 13 Bankruptcy

The other common form of personal bankruptcy, Chapter 13 requires filers to make monthly payments to their creditors over a three- to five-year period. In Chapter 13, car loans:

  • Older than 910 days may be eligible for “cramming down.” This requires filers to continue making car payments, but only for the vehicle’s fair market value (not for the entire loan amount).
  • Less than 910 days old generally require full repayment. However, some Chapter 13 filers are able to repay their car loans at lower interest rates than those outlined in their original loan agreements.

Determining a Car’s Real Value

If you plan on including an underwater car loan in your bankruptcy filing, it’s important to make sure you understand how car values are assessed for the court’s purposes. You have to provide a value for your car as part of your bankruptcy petition and you must swear to the accuracy of that value as part of your case.

Misleading or blatantly false information could lead to charges of bankruptcy fraud, so you may want to do some research and/or consult with a bankruptcy attorney before settling on a value.

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Bankruptcy has been in the news a lot lately, and not just because individuals are seeking bankruptcy protection. Thanks largely to the economic strain in much of the country, municipalities are now considering bankruptcy in large numbers.

But what happens when a city, town or county files a bankruptcy petition? Here’s a look.

Chapter 9 Bankruptcy: For Municipalities Only

Most individuals can file for bankruptcy under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. When cities file, though, they must do so under Chapter 9, a type of bankruptcy designed during the Great Depression to help municipalities in distress.

Here’s a look at how Chapter 9 bankruptcy works.

  • Two main reasons cities file: According to insiders, municipalities that choose Chapter 9 protection tend to do so for one of two reasons. Either they’re faced with a one-time catastrophe that prevents them from repaying their creditors, or their financial structure is fundamentally unsound and unsustainable. Cities with the former problem may move into and out of bankruptcy more quickly than those with the latter problem, which may spend more time negotiating with creditors and considering bankruptcy alternatives.
  • Eligibility for bankruptcy: Not all municipalities are legally permitted to file for bankruptcy. Eligibility is regulated by state laws, and in some states no district can seek Chapter 9 protection. Elsewhere (as in California), any municipality has the bankruptcy option and in still other places, judges decide on a case-by-case basis whether or not a town can file.
  • Chapter 9 capabilities: Once a town enters bankruptcy protection, Chapter 9 gives it the ability to negotiate labor contracts that might otherwise have been off-limits because of union laws. In some cases, negotiating pension terms or other benefits allows the city to seriously cut costs in a way that it couldn’t have done without the protection of the bankruptcy court.
  • Pre-filing negotiations: In some cases, the mere threat of a Chapter 9 bankruptcy is enough to convince creditors and other groups to negotiate with a municipality. Because bankruptcy can mean that creditors lose a significant amount of the money they invested in a town, many are willing to accept a deal to prevent the town from filing a petition.
  • Chapter 9 frequency: Despite the threats of municipal bankruptcies that pepper newspapers, actual Chapter 9 filings are fairly rare. This is partly because once towns recognize bankruptcy as an option, they and their creditors have lots of non-bankruptcy alternatives available, including raising taxes, raising fees, cutting costs, negotiating payment terms and more. Plus, politicians are often reluctant to have a municipal bankruptcy on their record, which can look bad in future elections.
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Tuesday, July 5th, 2011

Joint Bank Accounts in Bankruptcy

In a world where a person’s credit score is one of the most important numbers in her life, it’s no wonder that some parents are eager to help children by naming them joint bank account holders.

This used to be common practice with credit cards: parents would make children “authorized users” to help them improve their credit rating. But the credit bureaus caught on and no longer consider “authorized user” status a boost to a credit score.

Having a child listed on a bank account certainly might still benefit him, but it could hurt you financially if he decides to file for bankruptcy.

Your Cash in Bankruptcy

So what happens to joint accounts when one person files for bankruptcy? It varies depending on state law, but here are some possibilities.

  • Presumption of joint ownership: Some states have laws that indicate that any jointly owned accounts are considered to belong to both people listed on the account. In these states, half of the money in a joint account would be considered the property of the filer and could be used to repay creditors.
  • Rebuttal of presumption: The good news, however, is that filers usually have a chance to rebut (that is, disprove) their actual ownership of the money. A filer might do this by demonstrating that the other joint account owner (who is not filing for bankruptcy) deposited most or all of the funds into that account. This requires some careful legal action, so a lawyer’s help is valuable.
  • Repayment plan: If the bankruptcy filer chooses Chapter 13, the value of the money in the joint account might be taken into consideration. That is, the filer might be expected to pay more than he can really afford to creditors because the court views half of the joint account money as his. (A lawyer can clarify whether rebuttal would be possible in your state.)

Avoiding Bankruptcy Fraud with Joint Accounts

One other consideration for joint account holders considering bankruptcy is bankruptcy fraud. This is a crime that can ruin a filer’s chances at a bankruptcy discharge, lead to a steep fine (up to $500,000) and even cause jail time.

One action that might be considered fraudulent in court is the improper transfer of property or assets before filing for bankruptcy. In other words, if a joint account holder takes himself off the account just before filing for bankruptcy, the court might be suspicious of the action and still consider the funds fair game for the bankruptcy case.

Waiting periods for transferring assets before bankruptcy vary by state. Asking a lawyer about what’s legal where you live is likely your best bet.

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Monday, June 13th, 2011

Inherited Money in Bankruptcy

One question that many potential bankruptcy filers have is how the bankruptcy court handles inherited money and money that bankruptcy filers expect to receive in the months after their filing. The answer depends on a few variables. Here’s a look at some of them.

  • The 180-day rule. One of the most important rules about bankruptcy and inheritance is that funds inherited within 180 days (or about six months) of the filing of a bankruptcy petition are generally considered to be part of the bankruptcy estate. This means that the bankruptcy court has the right to use those funds to repay creditors, pay court fees or do anything else it deems appropriate.
  • Date of death. In the case of money inherited from a deceased person’s estate, the date of death will be taken into consideration. If the person died within the 180-day window, then the funds generally go to the bankruptcy estate, even if the filer doesn’t receive them until some time later.
  • Type of inheritance. Another factor bankruptcy courts consider is how a person inherited money. Depending on laws in your state, the court might treat an actual will differently than another type of contract designating you as heir to certain money or property. A bankruptcy lawyer in your state can help you figure out how the court is likely to treat your expected inheritance.
  • Exemptions. In some states, inherited property might be protected by bankruptcy exemptions. In certain cases, even if an inheritance falls within 180 days of a bankruptcy filing, the filer may be able to keep the inherited property.
  • Bankruptcy fraud. It’s important to note that filers must report any expected inheritance on their bankruptcy petitions. If a filer tries to lie about or conceal inherited assets, the court could convict him of bankruptcy fraud, which is punishable by a serious fine and up to five years in jail.

Inherited Money & Debts

If you have reason to expect that you will inherit money or assets in the near future, it’s a good idea to start thinking now about how you plan to use that money. While debt repayment is one option, it’s not the only one.

Consider speaking with a financial adviser about your options for setting up an emergency fund, negotiating your debts, and taking money management or investment classes. If you have debt, taking advantage of an influx of cash to improve your overall financial system may be more effective than simply making a one-time debt repayment.

Alternately, if you’re expecting an inheritance and wondering whether or not filing bankruptcy makes sense for you (either now or later), you may want to seek the counsel of a bankruptcy attorney.

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Monday, October 11th, 2010

Supreme Court Considers Means Test Case

The Case Ransom v. MNBA appeared before the Supreme Court last week and raised interesting questions about the role of the means test bankruptcy filers must pass in order to qualify for protection under Chapter 7 of the U.S. Bankruptcy Code. Here's a look at what's involved in the case and what it might mean for future bankruptcy filers.

Car Payments and Income in the Means Test

The court case involves the bankruptcy petition of man named Jason Ransom.

  • No car loan: Sources note that Ransom has a car that he owns fully – that is, he is no longer making payments on the vehicle.
  • Ownership deduction: In his bankruptcy petition, Ransom reportedly claimed an ownership deduction of $471 per month for his vehicle.
  • Court rejection: Because he had no car payment, though, the bankruptcy court rejected this deduction in his initial case filing. An appellate court upheld the decision. The Supreme Court must make a final decision.
  • IRS definition: Apparently, both the district court and the appellate court denied Ransom's deduction claim based on the Internal Revenue Service's definition of an allowable deduction for car owners, which limits such deductions to people who are currently making payments on their vehicles.

So the issue at hand is whether or not a Chapter 13 filer (that is, a bankruptcy petitioner who has above-median-income levels and so does not pass the Chapter 7 means test) can keep money each month (instead of paying it to creditors) under the car ownership deduction if he or she is not currently making payments on a car.

Why It Matters: Your Money in Chapter 13 Bankruptcy

The issue may sound fuzzy, but the Supreme Court's decision could have real impact on future bankruptcy cases. Here's a look at why and how.

  • The language of the Bankruptcy Code: While the language of the U.S. tax code is clear that an ownership deduction is only available to those still making payments on a vehicle, the language of the U.S. Bankruptcy Code is a bit fuzzier.
  • The cost of owning a car: As Ransom's lawyers are reportedly arguing, the "ownership deduction" should be available to those who own their cars outright because such vehicles require maintenance and repairs – especially if they're older.
  • The expensive car loan argument: One of the reasons that this issue is so interesting is because it essentially rewards people who have expensive car loans and newer cars and punishes those who are (perhaps more fiscally responsibly) driving older vehicles they've already paid for.
  • The freedom of extra money: If the Supreme Court decides to grant the ownership deduction to people who own their cars outright, it could mean greater financial independence for car owners who file for bankruptcy. Because they'd be able to save more money each month, they could potentially catch up on other payments more easily and possibly even build savings, thus preparing themselves more fully for post-bankruptcy life.
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Bankruptcies come in all shapes and sizes. Some are relatively simple, while others pose particularly troublesome issues. While legal counsel can be beneficial for any type of bankruptcy, many people find experienced attorneys especially helpful during complex filings.

In response to a growing trend of bankruptcy in the Phoenix metropolitan area, which is on pace for around 30,000 filings this year, The Arizona Republic recently listed a few of the most vexing bankruptcy issues:

Divorces

During divorce proceedings, spouses will sometimes agree to shield each other from certain debts, which often include debts incurred during marriage. However, if one spouse later files for bankruptcy, creditors could go after the other spouse for payments on specific debts, despite the previous agreement between the divorced couple.

So, by shielding a spouse from debts during a divorce proceeding, an individual could prevent that debt from being dischargeable during bankruptcy. As a result, couples going through a divorce should tread carefully if one party expects to file for bankruptcy afterward. There may be options to protect both parties and discharge the debt, but these are sometimes best determined by experienced attorneys.

Homeowners Association Fees

Some filers for bankruptcy have recently learned that homeowners associations can still collect unpaid fees, even after those filers have given up their homes. While this scenario may sound implausible, The Arizona Republic offered a fairly common example.

If a homeowner buys a home using a mortgage and fails to make payments on time, that individual may simply leave the home while the lender begins foreclosure proceedings. During this lag, a homeowners association may continue to charge the former homeowner membership fees.

These fees may continue to be charged until the bank completes a foreclosure, which may take several months. If you are facing a foreclosure or a bankruptcy and fear a similar problem, you may wish to contact a bankruptcy attorney.

Faulty Deeds that Leave Loopholes for Trustees

Another complex issue can arise when a homeowner files for bankruptcy. Even if the homeowner makes his or her mortgage payments on time, court-appointed trustees may look for flaws in the mortgage paperwork in order to push their claim in front of a creditor’s.

While this scenario may seem far-fetched, it has occurred, and title companies that complete mortgage paperwork do make mistakes. If such a mistake occurs, and the mortgage lender can’t prove its claim, the trustee could simply sell the home. Again, this is not a terribly common problem, but seeking legal counsel can help avoid such a financial nightmare.

Additional Resources

To read in-depth analysis of further complex issues posed by personal bankruptcy, check out the American Bar Association.

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Sunday, November 1st, 2009

Bankruptcy Median Incomes Change Today

Debtors May Have 21 Days to File Under Old Income Levels

The U.S. Trustee Program and Department of Justice announced new bankruptcy median income numbers for the Chapter 7 means test, which affect bankruptcy petitioners who file on or after November 1.

For debtors who income now falls above the new median income, a 21-day grace period may be granted to file under the previous levels. For more information or to begin bankruptcy proceedings to meet the 21-day deadline, connect with a local bankruptcy attorney.

Median Income Tables

One part of the Chapter 7 means test, introduced in the 2005 bankruptcy reform laws, is to compare the income of the debtor with income levels for similar family sizes in the state. In each state (plus Washington, D.C., Puerto Rico and other territories), there is a set median for families of one-to-four people, plus additional increments for families of more than four.

The median income is the middle point of all incomes for each state and family size—half of families will fall above, and half below, the median income. The provision was introduced to help prevent abuse of Chapter 7 bankruptcy.

Perhaps a sign of the current recession, with unemployment rising and many workers working below full-time hours, median incomes levels in many cases have fallen. However, income levels have also risen in certain cases. For more information, compare the new median incomes with the previous incomes at the U.S. Trustee web site.

Window to File Bankruptcy Under old Incomes

Under the means test, a debtor compares his income to the median for his state and family size; if his income is below the median, he "passes" that part of the test. Debtors whose incomes are above must look at state exemptions to possibly continue under Chapter 7, or must file under a Chapter 13 debt reorganization plan.

In the rare cases where an income level has lowered (such as a single-earner in Maine, which fell from $40,618 to $38,812) and now excludes a debtor whose income falls in that range, the bankruptcy court allows for a brief 21-day window to "pass" the means test under the previous median income levels.

While most income levels only changed a small amount, for those close to the median, the change could be the difference between a debt discharge under Chapter 7 and a 3-to-5 year repayment plan under Chapter 13 bankruptcy.

For more information on the Chapter 7 means test, new median income levels, and if you need to file in the next 3 weeks to qualify for Chapter 7 bankruptcy, visit Total Bankruptcy and connect with an attorney about filing bankruptcy.

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