Monmouth County Bankruptcy and Consumer Lawyer Blog

What Happens to Inheritance and Life Insurance Proceeds in Bankruptcy?

Thu, 21 Jun 2012 15:01:17 -0500

If you are doing some research on this question you will most likely come across what is referred to as the "windfall provision" of the Bankruptcy Code. When an individual, business or married couple files bankruptcy, they create a bankruptcy estate. Section 541 of the bankruptcy code defines what is included and excluded from this estate. The "windfall provision" is section 541(a)(5) which holds that from 180 days after the bankruptcy filing date, the bankruptcy estate includes any bequest, devise, or inheritance; property distribution as a result of a property settlement from a divorce proceeding; and proceeds as a beneficiary of a life insurance policy or other death benefit.

This question gets more complex in the chapter 13 context. But in a chapter 7 , section 541(a)(5) is the only meaningful look forward provision as it relates to a client's chapter 7 bankruptcy and this section has narrow application.

For example, if a client files chapter 7 bankruptcy, and 5 months and 29 days later; the debtors mother dies and leaves the client a cool million as the result of a life insurance pay out; that million is subject to the bankruptcy estate under section 541(a)(5). However, Under the New Jersey state exemption scheme, any proceeds that a debtor receives from a term life policy of a deceased are deemed fully exempted from creditors of both the insured and the beneficiary of the policy. N.J.S.A. 17B:24-6. Under the federal exemption scheme, such a life insurance policy would be exempt only to the extent reasonably necessary for the continued support of the debtor and his or her dependents. 11 USC 522(d)(11)(c). However if the proceeds the mother left were from her last will and testament, this would be a game changer and the proceeds would be property of the bankruptcy estate in the amount that those proceeds were not protected by exemptions.

As a general rule, in chapter 7 bankruptcy, any earnings and income of the client that are earned after the bankruptcy is filed belong to the client. But, even this general rule can get complex. For example, you file bankruptcy and a friend who you lent money to for concert tickets, but never paid you back, suddenly knocks on your door with the money he owed you. The bankruptcy trustee will more than likely seize those funds.
Why? Because your right to repayment existed before you filed bankruptcy.

As with any asset of a bankruptcy client, there are 3 questions; (1) is the asset part of the bankruptcy estate, (2) if the asset is part of the bankruptcy estate, is there an exemption to protect it; and (3) if the asset is part of the bankruptcy estate, is there any unavoidable security interest in that asset from a lender?

Section 541(a)(5), mentioned above does not mention lottery winnings. In chapter 13 bankruptcy, the cases share the opinion that lottery winnings are subject to the chapter 13 bankruptcy. In the chapter 7 context, the issue will depend on when the ticket was purchased; if the ticket was purchased before filing bankruptcy, the bankruptcy estate gets the winnings; if the ticket was purchased after the client files bankruptcy, the client will at least have the funds to litigate the trustees attempt to seize the funds, but the client would win.

What happens to Condominium Association Fees in Bankruptcy?

Thu, 14 Jun 2012 16:05:32 -0500

Filing for bankruptcy allows consumers to discharge most of their debts. In 2005 when when the bankruptcy laws changed through BAPCPA, various homeowners associations (HOA's) lobbied Congress for special protection.Due to the efforts of those lobbyists not all homeowners' association fees can be eliminated through bankruptcy.

We often meet with consumers who are seeking to strategically default (walk away from) on their homes since the real estate is underwater (principal of the loan is more than the value of the home) and therefore is not an asset worth keeping. Filing a bankruptcy can enable a homeowner to eliminate any obligation on a mortgage -- even for an eventual deficiency judgment after a foreclosure.

New Jersey, being a very densely populated state has a large number of co-ops and condominiums. When dealing with these units they usually come with HOA and/or maintenance fees. These types of residences have to be dealt with a little bit differently than those properties without such fees.

Homeowner association (HOA) dues and fees, commonly known as maintenance, CAN be discharged in a bankruptcy proceeding. However there is a caveat; only those dues and fees owed up through the date the bankruptcy petition is filed can be discharged. Any homeowner association dues and fees that accrue AFTER the petition is filed CANNOT be discharged. This provision is set forth in 11 USC § 523 - EXCEPTIONS TO DISCHARGE which states that a consumer cannot discharge a debt:

(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a unit that has condominium ownership , in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case.

Therefore, if the consumer continues to own the co-op or condo, after the bankruptcy petition is filed, HOA fees will continue to accrue and the consumer will be responsible for those fees. This applies to any home, condo, or other residence owner with those properties in associated communities that have homeowners' association dues.

This section of the bankruptcy code can create a sticky situation if the consumer is seeking to walk away from the home and the mortgage lender is not moving along expeditiously with the foreclosure process. Since the consumer continues to own the home, whilst the lender forecloses, even if he or she does not reside there, the consumer is responsible for the post-petition HOA fees.

What does this all mean? It boils down to the fact that the homeowners association can pursue the homeowner for these post-petition monthly charges, and sometimes that does happen. However in most cases homeowners associations wait until the unit is sold at auction, at which time they deduct all outstanding HOA fees from the proceeds.

What will happen to my timeshare in Bankruptcy?

Thu, 07 Jun 2012 14:49:38 -0500

Many of debtors who contact us for a free consult have a timeshare condominium. They want to know what will happen to this asset upon filing bankruptcy. Many debtors just want to get rid of the timeshare because all too often the timeshare is more a liability than an asset. This can be seen in the open market, where timeshares are being sold on ebay or other sites for $1. However, with the $1 purchase price attached is monthly maintenance and annual fees in the thousands.

Even experts say that timeshares are a poor investment and even in better times, most sellers never saw a return on their investment. "Very few timeshares increase in value," says Alisa Stephens, executive producer at RedWeek.com. As values sink and desperation grows, the number of owners giving their timeshares away for $1 - or less -- has doubled in the past year, says Brian Rogers, of Timeshare Users Group, an owner advocacy group. "There's never been a worst time to try to sell a timeshare," he says.
Undoubtedly millions of Americans own timeshares. Putting aside the value of the asset there are usually three things that a debtor will want to do with the timeshare: get rid of it, keep it or transfer ownership to a family member or friend. The simple answer is that you can always get rid of the timeshare in bankruptcy. Keeping it or transferring ownership may be possible if there is an available exemption or the trustee is willing to work out a deal.

Perhaps you just want to use the unit for "the week" of the current year. The trustee may be open to rentng the unit back to you, a family member or friend, if the unit cannot be sold before "the week" for the current year is going to occur. Of course the Trustee would need to authorize the managing agent to rent the unit to anyone of those parties mentioned. The trustee can then use those to either offset the maintenance or annual fees in with future hopes of selling the timeshare with minimal debt.

The Trustee will have many options for selling the timeshare in the open market such as: listing them on the Internet, the NABT Website, ads in the paper, auctions, etc. The Trustee may make inquiry to the debtor of someone (a friend or family member) who would be interested in purchasing the unit. Many of times, because the timeshare is of little or no value, the Trustee will simply abandon their interest in the asset. When this happens the asset simply returns to your possession, at which point you could transfer ownership.

Where the debtor owns the timeshare free and clear the Trustee may propose that the debtor keep this asset by purchasing it back from the estate. The Trustee could reasonably sell the unit back to the debtors for no money down, no closing costs and workout a note with the debtor i.e. payments of approximately $75.00 per month on a 7-year note. Then the trustee could sell the note to an investor thus bringing money back into the estate for the benefit of the creditors and allowing the debtor to keep their timeshare. Bankruptcy with the right attorney can provide workouts for timeshares and other assets that the debtor might bring into the bankruptcy estate.

Will I lose my home if I File Bankruptcy?

Thu, 31 May 2012 05:23:18 -0500

Section 362 provides that the filing of a bankruptcy operates as a stay against all acts to acquire property of the debtor or to recover a claim against the debtor that arose prepetition. Therefore any foreclosure proceeding will stop immediately and if the bank were to continue foreclosure proceedings they would be violating federal law.

New Jersey is not a very friendly homestead state. Each state has a homestead exemption statute that sets forth how much equity the residents can keep in their homes in a bankruptcy or the collection efforts of creditors in general. In New Jersey, there are no statutes regarding a homestead exemption, except that a homestead interest is created by joint possession of real estate by a husband and wife which is used as their principal residence. New Jersey Code §3B-28-3. However, in New Jersey a $20,200 federal homestead exemption is available to New Jersey debtors. If a married couple is filing the husband and wife each get the $20,200 homestead exemption and therefore can protect a total of $40,400 worth of equity.

If your equity is greater than the exemptible amount Chapter 13 can still help.

Even if there is more than $20,200 of equity per person, then you can still keep you house if you file a Chapter 13 payment plan bankruptcy. With a Chapter 13, you can place the total sum of arrearages into a payment plan which can last up to 60 months. While you are in the plan and meeting that plans obligations the bank cannot proceed to foreclose on your home. For example let's say you have a $100,000 mortgage and your monthly payment is $1,000 per month. Lets also say that you have not paid your mortgage in 12 months thus you are in arrears of $12,000. In Chapter 13 you can place the $12,000 arrears in a plan and pay it over 60 months which would amount to 60 payments of $200. Thus this gives you time to catch up. However, keep in mind that you would also have to pay the normal $1,000 payment to the mortgage lender. So, in reality your total costs per month would be $1,200 for 60 months.

If you simply can't afford the home or it is underwater you can walk away from the home.

If you don't have the financial means to keep your home and you have little or no equity in the home, then you may want to file for Chapter 7 bankruptcy in which case you can walk away from your obligation without any financial recourse from the lender. When this is done the mortgage will still be able to foreclose on the home and take back the home, however with the banks' ever expanding portfolio of REO properties, foreclosure backlog and mediation tactics that can take an extended period of time during which you can continue to reside in the house without making any payments.
When the mortgage lender finally does take the property back, it cannot pursue you for any deficiency amount, because any such obligation will have been discharged in the bankruptcy.

If you have substantial equity in your home bankruptcy may not be your best remedy.

In the case that a debtor has substantial equity in the home, bankruptcy will most likely not be a good fit for that debtor. It would be more suitable for the debtor to try and sell the home with the interference of the bankruptcy court. There are rare occasions when a homeowner with substantial equity files for bankruptcy. Sometimes such is the case when a debtor wants the trustee to administer the sale of the property. The Chapter 7 trustee will seek to sell the home. However, the trustee must pay the debtor the amount of the homestead exemption from the proceeds, which would be $20,200 per person.

How Divorce affects Bankruptcy: Or should it be how Bankruptcy affects Divorce?

Wed, 16 May 2012 16:13:32 -0500

This is a very common question that is posed in our offices. Many of times our clients are recently divorced. Because of the divorce they need to file bankruptcy due to the lost income which the ex-spouse had brought to the relationship.
Although most matrimonial attorneys will be familiar with the basics of bankruptcy they really should consult with an experienced bankruptcy attorney so they can effectively plan for bankruptcy contingencies that may arise . Here are some of the important highlights of the bankruptcy code and its interplay with family law.

Alimony and Child Support are not dischargeable.

Section 523(a)(5) of the Bankruptcy Code excepts from the debtor's discharge, maintenance or support payments owed to a spouse, former spouse or child of the debtor, in relation with a separation agreement, divorce decree, court order, administrative determination, or property settlement agreement.

Equitable Distribution is not dischargeable.

Section 523(a)(15) of the code makes property settlements non-dischargeable. Property division debts continue to be dischargeable upon completion of a chapter 13 bankruptcy plan. Therefore, determining the nature of an obligation to be support or property division will still apply in the chapter 13 context. However it is safe to say that except in a chapter 13 case, all debts that arise in the domestic relations context are not discharged. See, e.g., In re Blackburn, 412 B.R. 710 (Bankr. W.D. Pa. 2009). Although a Chapter 13 is more lenient in discharging property division debts it is also requires under section 1325(a)(8) that a Chapter 13 debtor must be current with their domestic support obligations for plan confirmation.

The Automatic does not affect most family law matters, so family law matters can proceed uninterrupted.

Section 362 provides that the filing of a bankruptcy operates as a stay against all acts to acquire property of the debtor or to recover a claim against the debtor that arose prepetition. However under§ 362(b)(2) most family law matters are excepted from the stay to include actions to establish paternity, to establish or modify support, to collect domestic support obligations from property that is not property of the estate, concerning child custody and visitation, concerning domestic violence, to withhold income, including income that is property of the estate, for payment of a domestic support obligation, concerning certain licenses, and the reporting of overdue support for certain purposes.

If you owe a divorce support obligation be prepared.

When you file for bankruptcy the Trustee has an obligation to notify domestic support creditors and agencies whenever a debtor owes a domestic support obligation. As mentioned above all DSO's must be current to have a Chapter 13 plan confirmed, as well as, the trustee and /or the divorce support creditor have the right to seek dismissal or conversion of a Chapter 13 case if the debtor is not current with post-petition domestic support obligations.

Divorce support creditors can collect from exempt assets.

Under section 522(c)(1) a divorce support creditor can pursue the debtor's otherwise exempt assets to satisfy domestic support obligations (DSO's), notwithstanding any provision of applicable bankruptcy law to the contrary. Also, divorce support creditors can also pierce the homestead exemption under 522(f)(1)(a) which prohibits a debtor for avoiding a judicial lien for a domestic support obligation.

What questions can a Creditor ask at the Meeting of Creditors in Bankruptcy Court?

Tue, 15 May 2012 10:07:50 -0500

The chances that the credit cards or other creditors will show up at the meeting of creditors ( also known as the section 341 hearing) is very slim; Most of the time the only creditors that will show up are family members, ex spouses and/or ex business partners.

But by chance if one were to show up here is a few words on what questions the creditors can ask the debtor at the meeting of the creditors?

Creditors are allowed to ask the debtor questions about the debtor's assets and liabilities. They are not allowed to cross-examine the debtor.

In the event that creditors ask improper questions or become argumentative your experienced bankruptcy attorney from Riviere Cresci and Singer LLC will direct you not to answer the improper question and will object to the creditor's line of questioning as such. The trustee most likely would side with the debtor's attorney as to the scope of the questioning.

A creditor cannot use the meeting as a fishing expedition to ask the debtor a broad range of questions. A creditor does have the right to ask numerous relevant questions. During the meeting there is not enough time to ask many questions and the trustees will conduct the meeting with time constraints in mind.

If a creditor seeks to ask a broad range of questions, they are able to conduct an additional examination hearing called a "section 2004 exam" because it is done pursuant to Bankruptcy Rule 2004. Section 2004 exams are not often pursued by creditors and only take place in case where fraud suspected.
.
Should a section 2004 exam be requested by a creditor, it would either be held at the Bankruptcy Court where your case is filed, or more likely, at the attorney's office of the creditor or trustee requesting it.

What Should I Say at the Meeting of Creditors in Bankruptcy Court?

Thu, 03 May 2012 12:09:05 -0500

The most stressful part of the bankruptcy process for consumers seems to be their appearance before the trustee assigned to their case. Every consumer debtor who files for Chapter 7 or Chapter 13, will be examined by the trustee at a hearing called the meeting of creditors; Also commonly referred to as the section 341 hearing. The examination takes place at the bankruptcy court approximately 4 to 6 weeks after the bankruptcy petition is filed.

When filing in New Jersey your hearing will be at the Court it will be assigned by New Jersey Local Bankruptcy Rules. The debtor has a right to file a bankruptcy case in any of these vicinages however, the Court can transfer a case if it finds that the matter is more properly heard in another vicinage. Generally though, the assignment of a case is based on the county in which the debtor resides (if the debtor is an individual or married couple) or the address where a corporate debtor has its principal place of business in New Jersey. The Local Rules divide the assignment of cases as follows:

1. The Trenton vicinage consists of part of Burlington (except for the townships of Cinnaminson, Delran, Edgewater Park, Evesham (Marlton), Maple Shade, Moorestown, Mount Laurel, Palmyra, Riverside and Riverton), Hunterdon, Mercer, Middlesex, Monmouth, Ocean, Somerset and Warren counties.

2. The Newark vicinage consists of Bergen, Essex, Hudson, Morris, Passaic, Sussex and Union Counties.

3. 3. The Camden vicinage consists of Atlantic, part of Burlington (the townships of Cinnaminson, Delran, Edgewater Park, Evesham (Marlton), Maple Shade, Moorestown, Mount Laurel, Palmyra, Riverside and Riverton), Camden, Cape May, Cumberland, Gloucester and Salem counties.
Over the years, the Courts in the District have changed the assignment of cases by modifying the Local Rules.

The examination really does not differ if you are in Camden, Newark, or Trenton. And the examination does not necessarily take place at one of these courts; there are out of court locations where the examination are conducted. Generally the examination lasts just a matter of minutes and the trustee will question the debtor in the presence of their attorney. The trustee will ask questions about the debtor's assets and liabilities, and the reasons why the debtor sought bankruptcy relief.

A common question by our clients is: How much should I talk, when I am asked a question by the Trustee?

The simple answer is: As little as possible.

An abundance of the questions that the trustee will ask require a straight "yes" or "no" answer, and when asked one of these questions you should respond with: "yes" or "no". Volunteering additional information outside of a "yes" or "no" response can only get you into trouble by opening the flood gates for the trustee to ask even more questions.

When trustee asks an open ended question that requires more than a "yes" or "no" response and requires you to explain something, you should do so accurately and honestly, but LISTEN to the question carefully and keep your answers as short and sweet as possible. Most of all keep it HONEST!

You will have an experienced bankruptcy attorney from Riviere Cresci & Singer LLC there with you, who will have prepared you for the meeting of creditors and therefore you should not be surprised by the trustee's questions, as your attorney will have already reviewed them with you. If you want to hear the questions the Trustee may ask you before your examination show up to your meeting of creditors and listen in to other debtors' examinations. This may remove the fear of the unexpected and allow you a glimpse of what you can expect.

Below are some examples of questions:

QUESTIONS THE TRUSTEE IS REQUIRED TO ASK YOU AT YOUR BANKRUPTCY HEARING (341(a) MEETING OF CREDITORS)

1. State your name and current address for the record.
2. Please provide your picture ID and Social Security number card for review.
3. Did you sign the petition, schedules, statements, and related documents and is the signature your own? Did you read the petition, schedules, statements, and related documents before you signed them?
4. Are you personally familiar with the information contained in the petition, schedules, statements and related documents? To the best of your knowledge, is the information contained in the petition, schedules, statements, and related documents true and correct? Are there any errors or omissions to bring to my attention at this time?
5. Are all of your assets identified on the schedules? Have you listed all of your creditors on the schedules?
6. Have you previously filed bankruptcy? (provide trustee with case number and the discharge information to determine discharge eligibility in this case)
7. What is the address of your current employer?
8. Is the copy of the tax return you provided a true copy of the most recent tax return you filed?
9. Do you have a domestic support obligation? To whom? Please provide the claimant's address and telephone number, but do not state it on the record. Are you current on your post-petition domestic support obligations?
10. Have you filed all required tax returns for the past four years?

SAMPLE QUESTIONS THE TRUSTEE MAY ASK YOU

1. Do you own or have any interest whatsoever in any real estate? If owned: When did you purchase the property? How much did the property cost? What are the mortgages encumbering it? What do you estimate the present value of the property to be? Is that the whole value or your share? How did you arrive at that value? If renting: Have you ever owned the property in which you live and/or is its owner in any way related to you?
2. Have you made any transfers of any property or given any property away within the last one year period (or such longer period as applicable under state law)? If yes: What did you transfer? To whom was it transferred? What did you receive in exchange? What did you do with the funds?
3. Does anyone hold property belonging to you? If yes: Who holds the property and what is it? What is its value?
4. Do you have a claim against anyone or any business? If there are large medical debts, are the medical bills from injury? Are you the plaintiff in any lawsuit? What is the status of each case and who is representing you?
5. Are you entitled to life insurance proceeds or an inheritance as a result of someone's death? If yes: Please explain the details. If you become a beneficiary of any one's estate within six months of the date your bankruptcy petition was filed, the trustee must be advised within ten days through your counsel of the nature and extent of the property you will receive. FRBP 1007(h).
6. Does anyone owe you money? If yes: Is the money collectible? Why haven't you collected it? Who owes the money and where are they?
7. Have you made any large payments, over $600, to anyone in the past year?
8. Were federal income tax returns filed on a timely basis? When was the last return filed? Do you have copies of the federal income tax returns? At the time of the filing of your petition, were you entitled to a tax refund from the federal or state government ? If yes: Inquire as to amounts.
9. Do you have a bank account, either checking or savings? If yes: In what banks and what were the balances as of the date you filed your petition?
10. When you filed your petition, did you have:
a. any cash on hand?
b. any U.S. savings bonds?
c. any other stocks or bonds?
d. any certificates of deposit?
e. a safe deposit box in your name or in anyone else's name?
11. Do you own an automobile? If yes: What is the year, make, and value? Do you owe any money on it? Is it insured?
12. Are you the owner of any cash value life insurance policies? If yes: State the name of the company, face amount of the policy, cash surrender value, if any, and the beneficiaries.
13. Do you have any winning lottery tickets?
14. Do you anticipate that you might realize any property, cash or otherwise, as a result of a divorce or separation proceeding?
15. Have you been engaged in any business during the last six years? If yes: Where and when? What happened to the assets of the business?

HOMEOWNERS IN BANKRUPTCY MAY BE ELIGIBLE FOR RELIEF

Wed, 02 May 2012 16:54:44 -0500

On February 9,2012, the Attorney General announced that the federal government and 49 states had reached a settlement agreement with the nation's five largest mortgage servicers to address mortgage servicing, foreclosure, and bankruptcy abuses. On April 5, 2012, the settlement was approved by the U.S. District Court for the District of Columbia.

• The settlement covers home mortgages serviced by Bank of America, JPMorgan Chase & Co., Citigroup Inc., Ally Financial lnc./GMAC, and Wells Fargo & Company (the "Banks").

• Under the settlement, homeowners in bankruptcy may be eligible for relief.

• The Banks will be required to spend at least $17 billion on various forms of relief for homeowners. For example, homeowners in bankruptcy may be eligible for assistance in the form of a loan modification, forbearance or forgiveness of principal, short sale, waiver of deficiency in loan balance, or other relief.

• A fund will be established to provide payments to borrowers who lost their homes to foreclosure between January 2008 and December 2011. An administrator will send claim forms to eligible homeowners. Even if you are not contacted, if your loan is serviced by one of the Banks, you are encouraged to contact your Bank to see if you
are eligible.

• Participating in the settlement does not release claims you may have under state or federal law. You may pursue such claims and accept relief under the settlement.

• You may also be entitled to relief through the foreclosure review process being conducted by the Office of the Comptroller of the Currency (the "OCC"). The settlement does not impact your right to participate in this process. For more information about that process, please visit www.independentforeclosurereview.com or call 1-888-952-9105.

• A copy of this document containing the information listed above are available at:

http://www.njb.uscourts.gov/sites/default/files/downloads/USTSettlement.pdf

Getting sued in Bankruptcy Court: Adversarial Proceedings.

Mon, 30 Apr 2012 20:14:55 -0500

Cases can be deceiving and sometimes even what appears to be a straight forward Chapter 7 consumer bankruptcy filing results in what's called an adversarial proceeding. This is just a unique name given to a federal lawsuit filed within a pending bankruptcy proceeding. Bankruptcy Rule 7001 sets forth what is an adversarial proceeding and lays the framework for litigating such matters in the bankruptcy court. Examples of adversary proceedings include objections to discharge; determination of the validity, priority, or extent of a lien or interest in property of the estate; actions to recover property of the estate; and proceedings to sell property in which the debtor is only a part owner.

Section 523 complaint.

Many of times a creditor will file a complaint to contest the dischargeability of its debt by the debtor. This type of adversary proceedings is encountered when the credit card companies, banks and other lenders review the debtors' petitions and credit usage histories and determine that the debtor obtained and or used the debt by way of any fraudulent or improper means. When the creditor files an adversarial proceeding of this type it is commonly referred to as 523 complaint. A 523 complaint is simply legalese for a complaint filed under section 523 of the bankruptcy code. Under section 523 a creditor can contest the dischargeability of a particular debt that was incurred through false pretenses, fraud, use of false financial statements, embezzlement, or larceny. Section 523 adversarial proceedings are easier to settle because they do not require the court's approval of any potential settlements as do in a section 727.

Section 727 complaint.

Sometimes a creditor will file a complaint under section 727, which allows an interested party to contest the entire discharge for intentional concealment, transfer or destruction of property; unjustified failure to keep books and records; dishonesty in connection with the bankruptcy code; or failure to explain loss of assets. If a trustee has reason to believe that a debtor is concealing or hiding assets the trustee will bring an adversary proceeding under this section.

The lawsuit/adversary proceeding is initiated by a creditor or trustee drafting a complaint. That complaint will set forth the facts and allegations which the plaintiff believes are in violation of the bankruptcy code and which entitle the plaintiff to relief against the debtor. Once the court receives the adversary proceeding it will assign the complaint a case number which is different from the underlying bankruptcy case number. The party filing the adversary proceeding it called the plaintiff and the party defending the suit is called a "debtor" or "defendant."

Once your adversarial proceeding has been initiated the Federal Rules of Civil Procedure apply to adversary proceedings. Navigating these rules requires knowledge and experience with bankruptcy proceedings and Federal Bankruptcy Rules 9001 et. Seq

There is a point in your bankruptcy case where you can breathe easy! Creditors have a limited time in which to file objections in your bankruptcy case. This is commonly referred to as the "the bar date" which is 60 days from the date set for the first scheduled meeting of creditors. This is bar date is set out in Bankruptcy Rules 4004 and 4007. It is called the "bar date" because failure by a creditor to timely file a dischargeability adversary proceeding by the bar date will forever bar the creditor from objecting to discharge.

Getting Credit After Bankruptcy: How? Why? When?

Tue, 03 Apr 2012 15:52:06 -0500

When debtors have decided to file bankruptcy the looming question on their minds is commonly how long will it take before I have credit again? Unfortunately the answer is not in black and white and the answer fluctuates with the economic times.

As the Great Recession has set in it has affected us all. The meltdown of the housing market and banking institutions has caused the credit market to constrict. With the tightening of the credit market banks are not so quick to extend credit except to customers with exceptional credit.

Before the Great Recession the credit card companies and banks extended credit cards to customers very liberally, even to those consumers who recently had filed for Chapter 7 bankruptcy and Chapter 13 bankruptcy.

But credit may be easing up again. According to RTTnews.com, "Credit card companies are eager to take advantage of the resilient American shopper -- the number of new cards issued to consumers rose 14 percent in 2011 to about 42.3 million, according to TransUnion.In a sign of thawing credit conditions, more than 10 million cards were reportedly issued to consumers with dubious credit histories."

With these types of numbers being reported it appears that credit card companies believe the economy is improving, and they are shifting their focus away from only lending to non-prime consumers now offering new credit card accounts to prime consumers once again.

This type of news and economic indicators translate into more offers for those who have filed bankruptcy and are looking to rebuild their credit. Once more the offers in the mail start arriving offering new extensions of credit.

Although a bankruptcy filing is certainly a negative factor that creditors will consider in deciding whether to extend credit, this fact becomes less and less important over time.
Even though a bankruptcy can remain on one's credit report for up to 10 years, its effect diminishes on a regular basis each month that goes by after the bankruptcy cases is closed.

Liz Weston the author of "The 10 Commandments of Money: Survive and Thrive in the New Economy," offers a nice article on how to recover from a financial nightmare. After bankruptcy you may feel like you have been burned by your creditors and therefore feel that credit will no longer be part of your life. In fact you may swear off credit cards. However, you will need to deal with the creditors once more in rebuilding your credit worthiness after bankruptcy.

What's important after bankruptcy is getting a hold on the credit world and treating that credit with respect. Use your credit cautiously, pay on time and don't rely on credit to live. The Motley Fool has some nice online calculators to help you plan on doing just that. One of them shows how long it will take to pay off your balances.

You may ask why would I want credit ever again after it bankrupted me? Well the answer is that your credit scores will be determining factors if you ever want a mortgage or an auto loan. Aside from purchasing material things your credit score/information is also used by insurers, landlords and employers.

So what is the good news? The good news is that you do not have to take on mountains of debt to fill your credit reports with positive information and move your score and history in a positive direction.

Repairing your credit will require you having and responsibly using credit cards. If you don't have or can't get an unsecured credit card right away as Liz Weston suggests, "consider getting a secured credit card, where you make a deposit with the issuing bank -- usually $200 to $1,000 -- and get a card with a limit in the same amount. If you use the card lightly but regularly, charging no more than 30% of its limit and paying it off in full every month, your credit scores should slowly improve."

And for please DO NOT fall for credit-repair scams. There is nothing a credit repair company can do for you that you can't do for yourself, other than take your money.

Means Testing: Do I Qualify for Chapter 7 in New Jersey?

Wed, 21 Mar 2012 15:57:05 -0500

Since the Bankruptcy Reform package "BAPCA" was passed in 2005 we have been stuck with a bright line formula called the means test. This test compares your income from the previous 6 months with allowable expenses which are taken from an IRS tax table. The test is pass or fail. However and experienced bankruptcy attorney can help you pass the test by manipulating the timing of the receipt of your income in the previous 6 months or by knowing how to choose which deductions are applicable.

Among the expenses that debtors may deduct on the Chapter 7 means test are:
 Food and clothing
 Out-of-pocket health care expenses
 Non-mortgage housing expenses
 Mortgage or rent
 Utilities
 Vehicle operation or public transport
 Vehicle ownership
 Taxes
 Involuntary deductions for employment, such as union dues
 Life insurance
 Court-ordered payments
 Education for employment
 Health care
 Telecommunication

There are some exceptions to the means test. Meaning that what you may have thought was income really is not income for purposes of the means test.

Social Security income: Means testing does not consider social security as income.
Non-Consumer Debt: If a debtor has primarily non-consumer debt, then means testing does not apply. For example someone making more than the median income with primarily business debt, still qualifies for a Chapter 7.

401k distributions: 401k withdrawals are not income for the means test. The money was income at the time it was earned not when you decide to use it.

National Guard and Reservists Relief Debt Act of 2008: If you are a National Guard Member or Armed Forces Reserve, then you will be temporarily excluded from the means test for entire time you are on active duty and 540 days thereafter, provided you serve at least 90 days. If your duty is less than 90 days, you do not qualify

The number below are the Median Family Income Figures for New Jersey Effective Nov. 1, 2011
(Effective for cases filed after 1/01/11 these number as mentioned above are subject to change)

Family Size Amount
1 $60,322
2 $67,503
3 $84,896
4 $101,957

Add $7,500 for each individual in excess of 4.

How long does it take to file bankruptcy in New Jersey?

Sat, 10 Mar 2012 16:53:48 -0500

The good news is that the bankruptcy will stop the creditors as soon as the petition is filed. We always tell our clients that the time which will be necessary to get them filed is very dependent on how quickly the clients can get us the information that we need to prepare the bankruptcy petition. Prior to filing, the debtor must also take a mandatory 30-minute credit counseling session, which can be done by telephone or on-line. The petition is the first step in any bankruptcy case.
.
Typically upon being retained, it usually takes anywhere from a few days to a few weeks to gather the financial information and documents, prepare the petition and have it signed for filing. In emergent situations the process can be expedited.

We file the petition on Case Management Electronic Case Files (CM/ECF) which is the Bankruptcy Courts electronic filing system. Once we submit the petition via CM/ECF the protections of the bankruptcy stay go into effect, making it illegal for any creditor to contact the debtor.

About one month after filing, there will be a brief meeting in the Bankruptcy Court called the meeting of creditors otherwise known as a 341A meeting. This is when the trustee will ask the debtor questions.
.
With most of our Ocean County bankruptcy clients, attending the meeting of creditors is the last time the debtor will have to appear in front in the Trustee. Furthermore, the only requirement left in the bankruptcy process for the debtor will be the completion of a second, thirty-minute Financial Management Course, which is also done over the phone or done online.

The trustee will in some cases requires more information and request some additional documents to review, such as bank statements, tax returns or deeds.

After the Meeting of Creditors comes to a close, the creditors have 60 days from the date of the meeting of creditors to file objections to discharge. This happens rarely and occurs in less than one percent of all cases filed. The 60 day limit is referred to as the "bar date" because creditors are barred from filing any objections after that time.

Once the bar date passes, and assuming the debtor has taken the second course, then the bankruptcy court will process the final paperwork and issue the order of discharge and close the case.
.
In most instances, this usually occurs about four to six months after the date the bankruptcy petition was filed. At that point, all dischargeable debt has been forever eliminated and the debtor is on his or her way to being debt free.

Bankruptcy Pitfalls: Avoiding Trustees' Objections to your Discharge.

Mon, 05 Mar 2012 16:03:42 -0500

When filing for Bankruptcy a consumer debtor may choose to liquidate under Chapter 7 or reorganize under Chapter 11 or 13. See 11 U.S.C. § 109(e) Many debtors are ultimately seeking a discharge which is may be granted by order of the bankruptcy court. See 11 U.S.C. § 727(a)(1). A debtor who successfully obtains court approval of a reorganization plan, which is not a 100% plan, under Chapter 11 or 13, generally will also receive a discharge following successful completion (payments, etc.) of the plan. See 11 U.S.C. §§ 1328(a), 1141(d)(5).

Many debtors seek a discharge under the Code, because it releases the debtor(s) from all debts that arose before the bankruptcy petition, with the exception of certain debts that are "nondischargeable," regardless of whether a claim is filed. See 11 U.S.C. §§ 523, 727(b). The discharge is commonly referred to as a "fresh start." The discharge also acts as an automatic and permanent injunction against a creditor's attempts to recover those debts which were discharged as a result of the bankruptcy. See 11 U.S.C. § 524(a).

What may happen is that one of your creditors or party in interest may object to the entry of the discharge. See 11 U.S.C. § 727(c). Alternatively, a creditor may seek to establish that the debtor's obligation to that creditor should not be discharged. See 11 U.S.C. § 523(c)(1). Section 523(a) sets out the types of debts that are not dischargeable in bankruptcy. Section 523(c), however, provides that the debtor will be discharged from a debt of a kind specified in subsection (a)(2) (debts for false representations), (a)(4) (debts for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny), and (a)(6) (debts for willful and malicious injury) unless the court determines such debts to be nondischargeable.

A creditor objecting to discharge under § 727(a) or dischargeability under § 523(a)(2), (a)(4), or (a)(6) bears the burden of proof by a preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 286 (1991). "Intertwined with this burden is the basic principle of bankruptcy that exceptions to discharge must be strictly construed against a creditor and liberally construed in favor of a debtor so that the debtor may be afforded a fresh start." Hudson v. Raggio & Raggio, Inc. (In re Hudson), 107 F.3d 355, 356 (5th Cir. 1997).

There are several grounds for objecting to a debtor's discharge, including:
1. the debtor failed to keep and produce adequate financial records;
2. the debtor failed to explain satisfactorily a loss of assets;
3. the debtor made a materially false statement in his bankruptcy papers;
4. the debtor failed to obey a lawful order of the bankruptcy court; or
5. the debtor fraudulently transferred, concealed, or destroyed property of the bankruptcy estate.

When objecting to your discharge the Trustee of Creditor's complaint must be filed on or before 60 days from the first date set for the creditors meeting. Typically, a creditor has less than 90 days after receiving notice of the bankruptcy case to file a complaint. Most commonly I see people receiving a Complaint in their Bankruptcy Case for reason number three (3) listed above; the Trustee or a creditor will file a complaint under § 727(a)(3) or § 727(a)(4)(A). A complaint filed under these sections is commonly filed because the debtor(s) failed to disclose assets on the bankruptcy petition. Trustees are weary to play a game of hide and seek with debtors.

Full disclosure of all of your assets will avoid these pitfalls and allow your attorney to advise you if Bankruptcy is the right choice for you. It will also allow your attorney to advise you what assets can be protected via the many exemptions available under the Bankruptcy Court. Aside, from filing a complaint in the Bankruptcy Court, the Trustee could refer your case to U.S. Attorney's Office which may decide to prosecute you criminally for Bankruptcy Fraud Crimes. This was seen recently where the U.S. Attorney's Office, District of New Jersey filed a complaint in New Jersey District Court against a former NJ resident for Bankruptcy Fraud.

In his petition it is alleged that Young concealed personal assets, failing to disclose the existence financial accounts - or that any of these accounts were closed as of the date of the filing of his petition. Young allegedly failed to disclose the purchase of furniture or the sale of a Ford truck, within months of the filing. He allegedly failed to disclose income from an ebay business. Young also allegedly made numerous materially false statements under oath in relation to his bankruptcy petition.

A Bankruptcy fraud charge carries a maximum potential penalty of five years in prison and a $250,000 fine.

Bankruptcy: Borrowing for College Tuition 101

Thu, 09 Feb 2012 21:19:48 -0500

In most cases a bankruptcy should have no impact on eligibility for federal student aid.
Title IV grant or loan aid (including the Perkins loan program) will not be denied an applying student who has filed bankruptcy exclusively on the record of their past Bankruptcy. Financial aid administrators are not permitted to use a former bankruptcy to substantiate an unwillingness to repay student loans. Schools will however continue to consider the student's post-bankruptcy credit history in assessing an applicant's willingness to repay the loan.

If the applicant's have been fiscally responsible post-bankruptcy and there are no delinquencies or defaults on student loans currently in repayment, the student should be eligible for additional federal student loans. If the student federal student loans are in default and were not included in a bankruptcy, the student will not be able to get further federal student aid until he/ she resolves the problem. If the loan was discharged in bankruptcy after the borrower defaulted on the loan, it is no longer considered to be in default. Getting a student loan discharged in bankruptcy is no easy task. The party filing bankruptcy would have to meet the very high threshold of Bankruptcy law which only allows a discharge of a student loan if having to pay it will create an undue hardship. Unfortunately, that's a pretty tough standard to overcome. Courts have considered this to mean showing that you can't provide a minimum standard of living for yourself and your dependents if you have to repay the loan.

What about the Parents who apply for a PLUS loan (or graduate students applying for a Grad PLUS loan)? Here the rules are different. Parents can be denied a PLUS loan if they have an adverse credit history; adverse credit history includes having had debts discharged in bankruptcy within the past five years. If this is the case, the parents may still be eligible for a PLUS loan if they have a cosigner without an adverse credit history. All hope is not lost however, because if the parents are turned down for a PLUS loan because of an adverse credit history, the student may be eligible for an increased unsubsidized Stafford loan.

The anti-discrimination rules appear in 11 USC 525(c):

1. A governmental unit that operates a student grant or loan program and a person engaged in a business that includes the making of loans guaranteed or insured under a student loan program may not deny a student grant, loan, loan guarantee, or loan insurance to a person that is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, or another person with whom the debtor or bankrupt has been associated, because the debtor or bankrupt is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of a case under this title or during the pendency of the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.
2. In this section, "student loan program" means any program operated under title IV of the Higher Education Act of 1965 or a similar program operated under State or local law.

Private loans are not governed by the same set of rules. Most bankruptcies will have an impact on eligibility for private loan programs. Many private loan programs, including school loan programs, have credit criterion that disqualify people with a bankruptcy within the past 7 or 10 years from borrowing without a cosigner with better credit. If a parent went through bankruptcy, it generally will have zero no impact on their children's eligibility for private loans, unless of course the child needs the parents to cosign the loans. Remember bankruptcy, when used for the right purposes, is not about punishment it is about forgiveness.

Cash is King: Can I still spend it going bankrupt?

Sat, 21 Jan 2012 09:49:55 -0500

You owe thousands of dollars to various creditors, including credit card companies and healthcare providers. However, you have a decent stash of cash that cannot be protected via an exemption and you are afraid that the court will take your cash and distribute it to your creditors. Sound familiar? We all want to hold onto our ex presidents!

Obviously, you would rather benefit from this cash reserve than have the trustee take it from you and get nothing in return. The problem, however, is that generally you cannot make large purchases prior to filing your petition. Any such payments will be considered to be a preferential payment, fraudulent conveyance and/or attempting to hide your assets from your creditors. These large purchases can be rescinded by the trustee, forcing you to give back the goods or services purchased and your estate getting back the cash for the trustee to distribute to your existing creditors. So how can you benefit from this cash reserve before the trustee gets to it and leaves you with nothing?

There are some loopholes that enable to benefit from the cash before the trustee can get to it. Some things you can do with your cash, which will give you some benefits, are:

 Setting up an Individual Retirement Account or IRA and depositing the maximum amount allowed by law (see discussion below)
 Making prepayments on car or home insurance
 Bringing your auto and mortgage payments current--and then filing your bankruptcy petition after waiting 90 days
 Paying your bankruptcy case filing-fees and attorney fees
 Obtaining needed dental or medical treatment
 Paying for needed home and car repairs
 Catching up on delinquent child support or alimony payment
 Reducing income tax and student loans
 Purchasing household supplies, groceries and other non-"luxury" needed goods
 Fund a college savings plan N.J.S.A. 18A:71B-41.1.gives NJBEST cccounts protection; 11 USC 541(b)(5) of bankruptcy code protects college saving plan money if it has been in the plan for more two years.

Hopefully, by doing these things, your cash balance will be low enough to find an exemption for it and protect it from seizure by the trustee.
Some things that you cannot do with your cash are:
 Give the money to friends or family members as gifts
 Repay personal loans to family members, friends, or personal business associates if the repayment would bring the amount repaid to that creditor for that debt to $600 or more for the year prior to the filing of your bankruptcy petition
 Repay commercial debts if the repayment would bring the amount repaid to that creditor for that debt to $600 or more for the 90-day period prior to the filing of your bankruptcy petition
 Fraudulently transferring the money to someone else's bank account without accounting for it on your own bankruptcy petition

In order to for your money to be protected when funding an IRA, there are several conditions that must be met. First, you must have been making regular contributions to your retirement account prior to declaring bankruptcy. This means you cannot put all your cash into your IRA right before bankruptcy and expect it to be protected. IRA protection only extends insofar as you weren't intentionally trying to hide money from debtors.

Secondly, your IRA assets cannot total more than one million dollars. However, any amount that was rolled over from another account, like a 401(k), received unlimited protection. Thus, you still receive the benefit of up to $1,000,000 in protection in your IRA account plus unlimited protection for rollover funds.

As with any aspect of Bankruptcy knowledge, just like your beloved cash, is KING. Lawyer up when deciding whether Bankruptcy is right for you. Your wallet and those that depend on it will thank you.