The new Subchapter V was enacted on August 23, 2019 as part of the Small Business Reorganization Act (“SBRA”), which became effective on February 19, 2020.  Under SBRA the debt limit or cap for debtor eligibility for Subchapter V small business debtors was $2,725,625.  Under the CARES Act this has been increased to $7,500,000.  However, the CARES Act contains a sunset provision, and will expire one year after March 27, 2020.  So after March 27, 2021 the SBRA eligibility limits will go back down to $2,725,625.

Both individuals and business entities (such as corporations or LLCs) are eligible to file as small business debtors under SBRA (as modified by the CARES Act).  However, at least half of the debtor’s total debt must come from business activity.  So for an individual debtor who has a mix of business and consumer debt (i.e., non-business related debt for personal, family and household reasons), as last 50% of the total debt must be business related.

The SDNY and EDNY requirements for admission pro hac vice are discussed separately on a post on our website.

At Starr & Starr, PLLC we have an active local counsel practice.  We are experienced in assisting out-of-state counsel in a local counsel capacity in a variety of different types of cases.  The extent of our involvement depends on what out-of-state counsel and the client want us to do.  We cover all of the court locations for SDNY and EDNY (U.S. District Court SDNY, Manhattan and White Plains Courthouses; U.S. District Court EDNY, Brooklyn and Central Islip Courthouses).  Please feel free to contact us at 888-867-8165 or by email at info@starrandstarr.com for additional information.

Do you end up like the person in the image above struggling to try to carry a huge debt burden with no end in sight?   Thankfully, there is a solution.  As pointed out in an interesting article that appeared in ProPublica  by Paul Kiel, a challenge people face is they want to file bankruptcy but lack money to hire a bankruptcy attorney.  The article points out that in the southern part of U.S. more people file 13 bankruptcy than in other parts of the country because in chapter 13 bankruptcy they can pay the bankruptcy attorneys’ fees off over time out of their earnings.

Chapter 13 bankruptcy has been covered in previous blog posts here.  At Starr & Starr, PLLC we typically use chapter 13 bankruptcy to help people in New York City (Manhattan, Bronx, Queens, Brooklyn and Staten Island), Westchester, Nassau and Suffolk Counties save their homes, catch up on back rent, and/or catch up with car payments.  However, we have some clients who want and need to file bankruptcy but don’t have enough money to pay the fees and costs associated with a Chapter 7 bankruptcy, even if we give them a pre-filing installment plan with payments over time.  For those clients chapter 13 bankruptcy can be a way to allow them to file now and pay the attorneys’ fees over time out of their earnings through their chapter 13 plan.  This can be particularly useful for clients whose bank accounts are frozen or have a pending wage garnishment (which stops once the bankruptcy is filed).

VERY IMPORTANT INFORMATION REGARDING PLAN PAYMENTS:

1. Trustee will Accept Payment Electronically.   The new Chapter 13 Trustee will accept electronic payments through TFS Bill Pay.  You can sign up for this at https://www.tfsbillpay.com.  We strongly suggest that all our Chapter 13 bankruptcy clients sign up for this.  It will make their lives easier.

We are starting to receive calls and emails from concerned clients wondering what this is all about.  The SDNY Bankruptcy Court has not posted any information about this on its website.  For that reason I decided to make this post to address this issue for the benefit of our clients and public at large.  I have attached a redacted copy of the Amended Discharge of Debtor Order of Final Decree with the case specific information redacted: Amended Discharge of Debtor Order of Final Decree.

For all the hundreds of clients that Starr & Starr, PLLC has successfully represented in personal bankruptcy cases over the years, please be aware that you have nothing to worry about.  You may view this as a technical correction that the SDNY Bankruptcy Court is doing.  It does not change any of the advice we previously provided our clients.   For more information continue reading below.

The Amended Discharge Orders all say the same thing as follows:

It has been brought to the Court’s attention that the Discharge of Debtor Order of Final Decree entered in this case on January 15, 2010 was not in compliance with The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 due to a clerical error; and the Debtor having been required to comply with the Bankruptcy Code in effect at the time the discharge order was entered, see Commissioner of Administrative Services v. Spell (In re Spell), 650 F.2d 375, 377 (2d Cir. 1981); it is hereby 

                 ORDERED that pursuant to the power of this Court under 11 U.S.C. § 105(a) and Rule 60(a), which states that “[t]he court may correct a clerical mistake or mistake arising from  an oversight or omission whenever one is found in a judgment, order, or other part of the record. The court may do so on motion or on its own, with or without notice;” and is made applicable to bankruptcy cases under Federal Rule of Bankruptcy Procedure 9024, the order entered by the Court on January 15, 2010 is amended nunc pro tunc [means retroactively] to comply with the Bankruptcy Code in effect at the time the discharge order was entered

This is something the SDNY Bankruptcy Court is apparently doing sua sponte (i.e., of its own accord) in all of the personal bankruptcy cases in which discharge orders (i.e., orders wiping out debts at the conclusion of the case) were entered after the effective date of a 2005 amendment to the Bankruptcy Code known as The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA).

The reason for this is to clarify that the Discharge Orders that were previously entered after BAPCA’s effective date (which was of 4/20/05 for certain provisions and for other provisions later in 2005) were Discharge Orders that were entered based on the law then in effect which was BAPCA.

For that reason the last sentence of the Amended Discharge of Debtor Order of Final Decree reads: “the order entered by the Court on [date] is amended nunc pro tunc [i.e., retroactively] to comply with the Bankruptcy Code in effect at the time the discharge order was entered.

The case referred to in the Amended Discharge Order of Commissioner of Administrative Services v. Spell (In re Spell),  650 F.2d 375, 377 (2d Cir. 1981) involved the following issue on appeal: “whether the dischargeability of Spell’s debt to the State should be determined by the law in effect on August 9, 1978, when Spell was discharged in bankruptcy, or by the law in effect on March 4, 1980, when the bankruptcy judge ruled on the Commissioner’s complaint to determine dischargeability of the debt.” The Second Circuit held that the law in effect at time of discharge should control and reversed the District Court.

If personal bankruptcy is an option you would like to learn more about please contact us at 888-867-8165 or completing the “Contact Us” form above to schedule a free initial consultation.

By way of example, if the property was worth $300,000 and subject to a first mortgage of $305,000 and a second mortgage of $50,000, the debtor seeking stip off argued he should be able to strip off or void the second mortgage as being wholly unsecured. The debtor argued that based on section 506(d) of the Bankruptcy Code (that provides “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim such lien is void….”), the unsecured second mortgage could be stripped off with the result that the claim of the second mortgage lender would be treated as a wholly unsecured claim.

The Court held, however, that based on its prior ruling in the case of Dewsnup v. Timm, 502 U.S. 410 (1992), this interpretation of section 506(d) was not correct. The Supreme Court found that in the prior Dewsnup case it had already “defined the term ‘secured claim” in §506(d) to mean a claim supported by a security interest in property, regardless of whether the value of that property would be sufficient to cover the claim.”

The Wellness decision resolved an issue that remained undecided since the Court’s prior ruling in Stern v. Marshall, 564 U.S. _ , 131 S.Ct. 2594 (2011), as to whether litigants can consent to having a Bankruptcy Court decide a matter which otherwise would need to be decided by a U.S. District Court judge. The Stern Court had found that the Bankruptcy Court did not have authority to adjudicate counterclaims based on state law.

The Wellness Court distinguished the Stern decision as involving a case in which the parties did not consent to Bankruptcy Court jurisdiction.

It is important to note that the Court in Wellness found that consent does not have to be express and may be implied, but must still be knowing and voluntary, and that parties need to be notified of the right to refuse non-Article III adjudication. The Court indicated that it is a good practice to obtain express consent.

The Wellness decision is particularly relevant to defendants in fraudulent conveyance actions. Trustees and debtors-in-possession routinely file preference and fraudulent avoidance actions against recipients of pre-bankruptcy payments. The Bankruptcy Code gives trustees the right to avoid preferential transfers in section 548 and fraudulent transfers in 548. In addition, it gives trustees and debtors-in-possession the right to utilize state law fraudulent conveyance claims under section 544(b), which typically have a longer reach back period. When New York law applies such claims are brought under Article 10 of New York Debtor & Creditor Law § 270 et seq.

Based on the Wellness decision, the ability of Bankruptcy Courts to hear state law fraudulent conveyance claims when parties expressly consent will no longer be in doubt. Also, consent may be implied as long as it is deemed knowing and voluntary. For tactical and strategic reasons defendants may wish to have fraudulent conveyance claims adjudicated in jury trials in U.S. District Court rather than heard without a jury in the Bankruptcy Court.

The attorneys at Starr & Starr, PLLC, have extensive experience and success in obtaining withdraw of the reference from the Bankruptcy Court to the U.S. District Court in fraudulent conveyances actions.

If you are faced with fraudulent conveyance claims brought by trustees or debtor-in-possession in the U.S. Bankruptcy Court and would like to discuss your options, please contact us at 888-867-8165 or by email at info@starrandstarr.com to schedule a consultation.

© 2015

This is Part II of a two part series on this issue. In Part I we looked at the information we need to answer the question of whether a debtor will get to keep his or home in bankruptcy. In this Part II we will look at different bankruptcy strategies that can be used in different situations.

1. Chapter 7 to Wipe Out Unsecured Debt. For many people considering bankruptcy who own a home, the problem is not that they can’t pay the mortgage, but that all of their debts combined are too much for them to pay. They may have enough to pay their living expenses and the mortgage, but not also make credit card payments. In that situation, assuming that the debtor has equity less than his or her applicable homestead exemption (discussed in Part I), a chapter 7 personal bankruptcy filing may be used to wipe out the unsecured debt. There are specific requirements for chapter 7, and not everyone will necessarily will be eligible for chapter 7. However, even if you own a home there is a still a good chance that you are eligible for chapter 7.

2. Chapter 13 to Cure Mortgage Arrears. If you are behind on your mortgage, or are not eligible for chapter 7, chapter 13 bankruptcy may be another strategy to save your home. We have covered eligibility requirements for chapter 13
in a prior post. In essence, the debtor would keep paying the current mortgage payments as they become due each month after filing bankruptcy. The arrearages (past due payments) on the mortgage would need to be cured over time in a plan of 3-5 years. Whether or not anything would need to be paid to lower classes of debts, such as unsecured credit card debts, would depend on a variety of factors and is something we have examined in a number of prior posts.

At Starr & Starr, PLLC we are active in representing debtors in bankruptcy cases and have experience in helping people save their homes in bankruptcy Please feel free to contact us at 888-867-8165 or by e-mail at info@starrandstarr.com to schedule a consultation.

This is Part I of a two part series on this issue. In this Part I we will look at the information we need to answer the question of whether a debtor will get to keep his or home in bankruptcy. In Part II we will look at different bankruptcy strategies that can be used in different situations.

1. Value of the Home. This is the critical starting point question. It is always surprising how many people considering bankruptcy are not aware of the current fair market value (FMV) of their home (i.e., house, condo or cooperative apartment). Anyone considering a personal bankruptcy case needs to obtain current and accurate information regarding their home’s present value (FMV). Free online home value estimates (such as zillow.com) are not useful because they will not be a trustee or bankruptcy judge as evidence of value. A Broker’s Price Opinion is a good potential starting point However, the best evidence of current market value is a written appraisal report prepared by a licensed appraiser. In NY the current fee for an appraisal is about $350 – 550 depending on the whether the house is a single family, two family or three family house.

2. Debt on the Home. In addition to the current fair market value of the home anyone considering a personal bankruptcy filing needs to know how much secured debt there is on the home. Secured means that the loan has a mortgage on the property (such as a first mortgage, second mortgage, and/or home equity line of credit). A payoff demand from the lender is the best evidence of the current balance of a loan. In addition, any other liens or encumbrances, such as tax liens or judgment liens need to be considered. If the debtor isn’t sure whether or not there are other liens on his or her home a title report may be needed.

3. Homestead Exemption. To claim a homestead exemption in New York a debtor needs to reside in his or her home as a primary residence. A single debtor has a homestead exemption of $50,000 of equity and a married couple that holds title jointly has a $100,000 homestead exemption. The homestead exemption is the right to exempt equity in the amount of exemption.

In Part II of this series we will look at how the different strategies that a debtor can use based on these factors.

At Starr & Starr, PLLC we are active in representing debtors in bankruptcy cases and have experience in helping people save their homes in bankruptcy Please feel free to contact us at 888-867-8165 or by e-mail at info@starrandstarr.com to schedule a consultation.

Just to review, a creditor with a judgment can garnish the defendant/judgment debtor’s wages. The law permits up to 25% of a judgment debtor’s wages to be garnished in any pay period, not exceeding 10% per year,.

Immediately upon filing a personal bankruptcy petition the automatic stay goes into effect.

It is a violation of the Bankruptcy Code for a creditor to continue with a wage garnishment once a bankruptcy case has been filed. We can usually get a wage garnishment stopped within a day of two of bankruptcy filing. For someone who is paid every two weeks — depending on when the bankruptcy case is filed — we should be able to stop the wage garnishment before the next pay period. Note that there are exceptions for certain types of debts, such as child support.

At Starr & Starr, PLLC we can assist you with a personal bankruptcy cases in New York to stop a wage garnishment. Please feel free to contact us at 888-867-8165 or by e-mail at info@starrandstarr.com for further information or to schedule a consultation.