Source: http://longislandbankruptcyblog.com/category/articles/
Timestamp: 2019-04-24 18:41:35+00:00

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Long Island, New York | NY | Bankruptcy Lawyer | Attorney At Law on What is a Motion for Relief from Stay in Bankruptcy Court?
Written by Craig D. Robins, Esq.
The seminars were held on November 19, 2012 and January 14, 2013. At the first session, attendees learned about the intricacies behind mortgage transfers and assignments. The second session highlighted various defenses attorneys can assert on behalf of their homeowner-clients.
Pictured above during the January session (from left to right) are Hon. Peter Mayer, Hon. C. Randall Hinrichs, Charles Wallshein, Hon. Jeffrey A. Spinner and Richard L. Stern, who moderated both sessions. Hon. Dana Winslow and Hon Arthur Schack were additional panelists for the November session.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the March 2013 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. Call (516) 496-0800 . For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Bankruptcy attorneys often get busy towards the end of January each year as consumers, having just finished their family holiday obligations, receive a new round of ever-increasing credit card bills, compelling them to seek bankruptcy advice.
Of course, many of these bills contain charges for holiday gift purchases made just weeks before. An interesting and most unusual opinion from 1992, which I found most entertaining for a bankruptcy court decision, addressed this very issue. In re Johannsen, 160 B.R. 328 (Bkrtcy. W.D.Wis. 1992).
However, as unusual as this decision is, its importance to us today really has nothing to do with the atypical subject matter. To me, the real lesson to be learned from this case is that no matter how sure you are of being successful with litigation, you can still end up losing what appears to be a slam-dunk case.
This is not the typical verbiage we usually see in judicial decisions. But here, the judge is talking about Barbie, the iconic plastic doll manufactured by Mattel, and a perennially favorite gift to young girls everywhere.
Can You Discharge $1,100 of Barbie Dolls Purchased Just Before Filing for Bankruptcy?
The debtor in this case, a woman who filed Chapter 7 jointly with her husband even though they were in the process of divorce, bought some Barbie dolls from Sears for her seven-year-old daughter, intending them to be Christmas presents. Shortly thereafter, the debtor filed for Chapter 7 relief, seeking to discharge various debts including her Sears credit card debt.
The debtor had made several purchases including Barbie and Ken items, a Barbie case, a Barbie armoire, and an extensive wardrobe of Barbie clothes. The purchases totaled $1,100. That’s a lot of Barbie toys!
All of these purchases were made in the five weeks prior to filing the bankruptcy petition, including one purchase of $178 which was made a mere two days before the petition was filed.
Sears then filed an adversary proceeding pursuant to Bankruptcy Code § 523(a)(2)(C), claiming that the debt for these Barbie doll purchases, which the debtor charged on her Sears credit card, should be declared non-dischargeable.
An adversary proceeding contesting dischargeability is essentially a federal lawsuit brought within a bankruptcy. Sears commenced this with a federal summons and complaint, leading to a full-blown trial in which both the debtor and a Sears employee testified.
In bankruptcy proceedings, creditors have a few grounds to challenge the dischargeability of a debt, and they must do so by adversary proceeding.
Sears contended that the Barbie dolls and accessories were not reasonably necessary for the debtor or her daughter’s support or maintenance. The Sears employee testified that the Barbie dolls of the type purchased were at the higher end of the price scale of toys sold by Sears.
The debtor testified that some of these purchases consisted of “collector” Barbie dolls. She even introduced the Sears Christmas Catalog as an exhibit. But on cross-examination, the debtor testified that she was just a waitress earning minimum wage and that she had been separated from her husband, and was receiving support and maintenance.
Sears brought to the court’s attention that the debtor could have purchased a much less-expensive Barbie doll for just $9.99, but the debtor responded that the collector Barbies were investments which would appreciate in value.
The debtor also testified that her daughter owned a collection of 25 Barbie dolls, to which Sears argued was proof that the additional Barbies were clearly luxury expenses, as they were not necessary for the daughter’s welfare. After all, how many Barbies does a seven-year-old need?
Just gleaning these facts would probably lead any bankruptcy attorney to conclude that the Barbie purchases would certainly be non-dischargeable. The judge even pointed out that these purchases may have been foolish and irresponsible in light of the debtor’s financial condition.
The judge pointed out that the discharge exception for luxury goods provided a presumption that the debt ought not to be discharged, basically a conclusion that the debtor did not have the intent to pay the debt. However that presumption can be rebutted and the debtor did just that.
Apparently, the debtor was only added to the petition at the last minute, and at the request of divorce counsel. In addition, the judge determined that the debtor, at the time she made the various purchases, had the intent to pay for them, despite her precarious financial circumstances.
Imagine the surprise to Sears’ counsel of this highly unexpected result! But that’s the lesson. You never know how the court will rule, and being sure of the merits of your case is no guarantee for success.
Although we have some fine trustees in this district, I’ve found some of them to suffer from myopic vision when evaluating the cases they litigate against consumer debtors. A review of the written decisions from the Eastern District of New York shows numerous instances in which trustees have vigorously litigated, only to lose.
I would suggest a more pragmatic approach involving settlement would have better served both trustee and debtor, alike. This may be especially true when considering the extent that some bankruptcy courts will go, as is the case here, to favorably enable debtors to get a fresh financial start.
Hopefully all litigants will become more open-minded to pragmatic approaches towards case resolution.
Also please note that the Johannsen case does not necessarily mean that another judge would rule similarly or that another debtor today, who is in a similar situation, would fare as well as the debtor in this case. I think Mrs. Johannsen was incredibly lucky with the result she obtained.
Click here to see a full copy of the Johannsen decision.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the February 2013 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. Call (516) 496-0800 . For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
For eight years leading up to 2005, the banking and credit card industries lobbied Congress incessantly, urging them to believe that American consumers who sought bankruptcy relief were essentially deadbeats.
That year, Congress bought into this perception and promulgated a great number of strict changes to the Bankruptcy Code which made it much harder for the typical consumer to discharge debt obligations in bankruptcy. Consequently, Congress enacted BAPCPA — The Bankruptcy Abuse Prevention and Consumer Protection Act.
This bankruptcy reform was designed to pull every last dollar out of hard-working but suffering middle class families who appeared to have an extra dollar or two to spare — at least on paper, according to a series of controversial calculations called the bankruptcy Means Test — a new eligibility requirement for those seeking Chapter 7 relief.
This law was a major victory for the banks, and unfortunately, created an inequitable situation for many consumers.
A respected Harvard University bankruptcy law professor at the time, who I deemed a hero to the typical middle class families I usually represent in my Long Island bankruptcy practice, was a very outspoken critic of these proposed laws.
That was Elizabeth Warren, who was this country’s foremost authority on the sociology of Americans who file bankruptcy.
Ms. Warren became known for her critical opinions of the practices of the banking and credit card industries, and I have written about her previously in this column. In 2000 she co-authored a book, “The Fragile Middle Class,” and “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke,” in 2003.
Some commentators have said Ms. Warren has become the country’s most respected and resonant voice on consumer issues since Ralph Nadar’s zealous quest to protect consumers in the 1970s.
Now it looks like the Senate Banking Committee is about to get a serious dose of bankruptcy expertise from the protector of the middle class.
Ms. Warren defeated her Republican rival last month in one of the most expensive and most watched Senate campaigns of the year – for the Massachusetts seat previously held by the late Ted Kennedy.
It is expected that Ms. Warren will land a seat on the high-profile Senate Banking Committee.
More importantly, as a staunch advocate of protecting the consumer, an ardent critic of the banking industry and an outspoken critic of BAPCPA, there is a high likelihood that Ms. Warren, now as a lawmaker, will take the initiative to introduce legislation to reform the problems and inequities created by the Bankruptcy Reform Act of 2005.
Ms. Warren created the U.S. Consumer Protection Bureau – a federal agency established in 2010, not only to prevent risky mortgage practices, but also to stop credit card companies from continuing to engage in unfair and predatory business practices.
A great many bankruptcy judges across the country, including several in our own district, have officially and unofficially expressed their frustration with many aspects of the new bankruptcy laws and sometimes their personal opinion that many parts of the law are a disaster.
In addition to making it harder for the middle class to get bankruptcy relief, BAPCPA is flawed and poorly drafted.
This has resulted in many decisions which have caused judges to stray from a strict interpretation of its hastily-drafted words, which can result in an absurd result, and instead focus on a more common-sense analysis.
BAPCPA was drafted primarily by lobbyists, rather than bankruptcy professionals. A significant problem continues to be a lack of consistency among courts in different jurisdictions for enforcing its provisions.
Ms. Warren has pledged to stand up for the little guy against the financial forces of Wall Street. I predict that when Ms. Warren goes to Washington, the likelihood is that we will see her introduce some substantive pro-debtor legislation to amend the Bankruptcy Code, in which she will seek to reform some of the ill-conceived and poorly-drafted aspects of BAPCPA.
She will also likely address issues concerning student loan debt relief, mortgage debt relief, as well as the debt burden on consumers.
Ms. Warren’s election to the Senate is wonderful news for bankruptcy attorneys and middle-class Americans alike.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the January 2013 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. Call (516) 496-0800 (516) 496-0800 (516) 496-0800 (516) 496-0800 . For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Non-attorney bankruptcy petition preparers can get into a heap of trouble if they do not accurately follow certain Bankruptcy Code provisions designed to protect consumer debtors.
This was evident in a case just decided by Judge Carla E. Craig, the Chief Bankruptcy Judge of the Eastern District of New York, sitting in the Brooklyn Bankruptcy Court.
To make matters more interesting, the case also involves disgraced attorney, Peter J. Mollo, who was the subject of my column in May 2012: Two Bankruptcy Attorneys Get Into Serious Trouble Over E.C.F. Filings .
Mollo, despite having been suspended from practicing law earlier this year, continued to represent clients and tried to get away with it by forging another attorney’s name on several bankruptcy petitions which he then filed.
It seems that Mollo didn’t learn his lesson and immediately embarked upon a new scheme to circumvent his suspension by having his paralegal, Anna Pevzner, continue to meet with debtors and prepare petitions.
When the Office of the United States Trustee learned about this conduct in four separate Chapter 7 consumer cases, it quickly brought proceedings against both of them, seeking sanctions and disgorgement of fees.
After several evidentiary hearings, Judge Craig issued a 31-page decision on September 28, 2012, in which she severely sanctioned both of them and in doing so discussed the various statutory requirements that bankruptcy petition preparers must adhere to. In re Edith L. Moore, et. al., (12-41111-cec, Bankr. E.D.N.Y.).
A bankruptcy petition preparer (BPP) is essentially a non-attorney who prepares bankruptcy petition legal forms.
Congress was so concerned about vulnerable debtors who had been victimized by non-attorney petition preparers who rendered bad legal advice and charged unreasonable fees that in 1994 it implemented Bankruptcy Code section 110 which is devoted to regulating their services.
That section defines a BPP as a person, other than an attorney or an employee of an attorney, who prepares a bankruptcy court document for a fee.
Since BPPs are non-attorneys, they are not permitted to give legal advice and may only type documents and charge a reasonable fee for doing so.
That means that they cannot assist with determining what assets are exempt or what exemptions statutes to use, nor can they suggest what chapter to file. They cannot offer advice as to whether a debt is dischargeable or whether a car loan should be reaffirmed.
In addition, BPPs may not collect, receive, or handle the court filing fees in connection with a bankruptcy case. That means that BPPs cannot file petitions with the bankruptcy court.
BPPs may not us the word “legal” or any similar term in any advertising. This is to prevent them from misleading the public into thinking that they are authorized to practice or render legal advice.
If a BPP prepares a petition, the BPP must sign it (there is a special area of the petition form devoted to this) and print his or her name, address and Social Security number.
The BPP must also disclose, under penalty of perjury, any fee or compensation received for preparing the documents, and the BPP is obligated to file a declaration as to this within ten days of the filing of the petition.
Code section 110 also provides for the assessment of various penalties for BPPs who act negligently or with intentional disregard for the Bankruptcy Code and Rules, or if the BPP commits any fraud, or unfair or deceptive act.
In such instances the court can award actual damages, and the greater of $2,000 or twice the amount paid to the BPP, and reasonable attorneys fees and costs.
In addition, each failure to comply with a particular subsection of the statute, such as failing to sign the petition, include the Social Security number, disclose the fee, etc., is punishable by a fine of not more than $500.
The statute also requires the court to triple the fines if the BPP failed to disclose the identity of the BPP. As you will see, it was this provision that really socked Mollo and Pevzner big time.
After Mollo was sanctioned in March, potential clients were still contacting him from his advertising, which he did not stop. Rather than turn them away, he had Pevzner, his paralegal of six years, meet with them, and in some instances, he met with the clients as well.
She then prepared the bankruptcy petitions, and rendered legal advice in doing so. She had the debtors sign a retainer agreement which contained the name of a different attorney who did not have anything to do with these cases.
At the hearing, Paralegal Pevzner admitted that she prepared the petitions and claimed that she was not an employee of Attorney Mollo and worked strictly as a “volunteer” for him without salary.
Judge Craig stated that both Attorney Mollo and Paralegal Peyzner were not credible witnesses and concluded that Pevzner repeatedly violated a number of subsections of the statute and that they both engaged in the unauthorized practice of law.
The Judge pointed out that Mollo continued to hold himself out as a bankruptcy attorney, despite his suspension, and despite his representations to the Court in the earlier case.
It was clear to Judge Craig that Paralegal Peyzner was the BPP, as she prepared the petitions. However, the Judge applied an unusual theory and held that Attorney Mollo was vicariously liable for Peyzner’s violations.
The judge rejected Peyzner’s claim that she was a volunteer, and instead concluded that she continued to be an compensated employee under Mollo’s direction. Thus, the Court found that Mollo also violated the same provisions of section 110 under the doctrine of vicarious liability.
As for punishment, Judge Craig directed both of them to disgorge all fees received, being $3,100, and in addition, fined them jointly and severally $15,000. However, it did not stop there.
Because Paralegal Peyzner failed to disclose on the petitions that she was the BPP, Judge Craig stated that she was required to triple the fine to $45,000 as provided by the statute. Hopefully, this duo has finally learned their lesson.
As with many things, consumers get what they pay for. A BPP cannot give legal advice and at most, can only act as a data entry clerk. There are no requirements that a BPP take any courses or be certified. Yet, bankruptcy is a highly complex area of the law.
There are many horror stories about consumers who lost valuable assets, believing that they were exempt, because a bankruptcy petition preparer drafted the petition.
The Office of the U.S. Trustee takes BPP improprieties very seriously. Last year they brought 504 actions against BPPs across the country.
If you are a consumer looking for a bankruptcy attorney, make sure the attorney is legitimate and currently admitted and in good standing. If anything seems suspicious, think twice about using that attorney.
To see the decision in this case, click here: In re Edith L. Moore, et. al., (12-41111-cec, Bankr. E.D.N.Y.).
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the November 2012 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. Call (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
What is a reasonable legal fee for a typical Chapter 13 bankruptcy case? That issue was addressed in a decision just released by Judge Jerome Feller, a bankruptcy judge in the Eastern District of New York, sitting in the Brooklyn Bankruptcy Court.
In that case, Chapter 13 trustee Marianne DeRosa objected to a $7,500 flat legal fee that the debtor’s attorney had charged. She insisted that the debtor’s attorney, Paul Hollender, of New York City, bring a formal fee application to approve his fee. She then filed opposition to his fee, arguing that it was in excess of the fees customarily charged for routine cases in this district.
This is important news as Long Island bankruptcy attorneys have at times been at odds with the two Chapter 13 trustees in this district over what a reasonable fee is.
For a period of time, the other Chapter 13 trustee in our district, Michael J. Macco, insisted that every bankruptcy practitioner charging over $4,000 had to bring a fee application to seek approval of the fee. Now we have a current judicial determination indicating what is reasonable for routine Chapter 13 cases.
For those who are not familiar with Chapter 13 practice, these bankruptcy proceedings, which involve a payment plan, usually require several court appearances, and often involve at least twice as much work as a typical Chapter 7 case.
Judge Feller began the legal analysis in his decision by reviewing the elementary bankruptcy law concept that the Bankruptcy Court not only has the authority, but the duty, to determine the reasonableness of compensation paid or agreed to be paid for representing a debtor in a bankruptcy case regardless of whether a party in interest objects to it.
The Judge then determined that the following factors were necessary to assess the reasonableness of the legal fee: the necessity of the services rendered, the benefit to the debtor, the time expended, the customary fees and reasonable hourly rates for the services performed, and public policy concerns.
Judge Feller observed that the Moukazis case was unexceptional and uncomplicated. The debtors’ income was about $150,000 per year. They owed about $92,000 in unsecured debt. Their mortgage was current. The plan proposed a distribution of about 44% to unsecured creditors.
The debtors retained their attorney about seven weeks before the petition was filed. There was only one meeting of creditors. The Court confirmed the Chapter 13 plan less than six weeks after that. The attorney performed the legal work well.
The retainer agreement the attorney used provided for the $7,500 flat legal fee, and also indicated that this was for the bare minimum of possible legal services in a Chapter 13 case.
The attorney also indicated that he reserved the right to charge additional fees for services such as amendments, attendance at additional meetings of creditors or hearings, and routine motion practice.
Of the $7,500 fee, the debtors paid $2,000 prior to filing. In his fee application, the debtor’s attorney claimed he spent 12 hours devoted to the case, and that his paralegals expended a total of 23 hours.
The debtors were actually able to afford the higher fee; however, that did not sway the judge. He observed that they were paying a portion of the fee through the Chapter 13 plan, and that unless there is a 100% plan, unsecured creditors will effectively pay the fee while receiving a lower pro rata distribution.
The Judge also commented on the public policy considerations for ensuring that Chapter 13 legal fees are reasonable.
Empirical evidence shows that Chapter 13 cases are much more likely to succeed when debtors are represented by counsel. Accordingly, in order to ensure that debtors have access to counsel, they should not be overcharged.
Thus, a reasonable fee must be one which protects the debtor, while being generous enough to encourage lawyers to render the necessary and exacting services that bankruptcy cases often require.
Some districts in other parts of the country have “fee caps” in consumer cases which essentially permit bankruptcy counsel to charge any fee up to the cap without having to obtain court approval. Our district is not one of them.
Looking back to other decisions which addressed Chapter 13 legal fees in this district, in 2010, Judge Robert E. Grossman, sitting in the Central Islip Bankruptcy Court, addressed the propriety of a $15,000 fee charged by an attorney who apparently was less than competent in representing the debtor.
In his decision (which is now several years old), Judge Grossman pointed out that experienced counsel charged between $4,000 and $4,500 for cases in the district. He therefore reduced the fee to $4,000 for this attorney and ordered him to disgorge the rest. The attorney appealed to the District Court, which affirmed. In re Arebelo, 2011 U.S. Dist. LEXIS 37449, 2011 WL 1336676.
The takeaway here is that an experienced Chapter 13 bankruptcy attorney, who does a proper and professional job, can charge as much as $5,000 for a typical Chapter 13 case, and more if unusual or additional legal work is necessary.
In addition, if the trustee or court challenges the legal fee, the bankruptcy attorney bears the burden of demonstrating the reasonableness of the fee.
Incidentally, this relatively high legal fee is indicative of the large amount of work that a bankruptcy attorney must put into a typical Chapter 13 case, which was made somewhat more complex and complicated by the significant changes to the bankruptcy laws in 2005 (BAPCPA).
To see a copy of the Mouzakis decision, click this link: In re: Nicholas Moukazis, (01-12-42200-jf, Bankr. E.D.N.Y.).
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the December 2012 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. Call (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Judge Alan S.Trust, sitting in the Long Island Bankruptcy Court in Central Islip, New York, just issued an interesting decision in a case which the Judge stated “tests the outer limits of how debtors may seek to utilize the Bankruptcy Code and Rules to obtain the maximum advantages of the process known as ‘Chapter 20′.” In re: Adam John Renz, No. 11-73471-ast, (Bankr. E.D.N.Y., Aug. 1, 2012).
What is a Chapter 20 Bankruptcy?
First, let’s discuss the concept of “Chapter 20.” There is no actual Chapter 20 of the Bankruptcy Code. Instead, this refers to the situation in which a consumer debtor files a Chapter 7 case and receives a discharge, and shortly thereafter files a Chapter 13 case.
There are several reasons why debtors may try to use a Chapter 20 strategy. The objective is to obtain more relief than filing for Chapter 7 or Chapter 13 alone.
One common reason why debtors will do so is to discharge their unsecured debts through the Chapter 7 filing and then cure mortgage arrears over an extended period of time with a Chapter 13 plan.
Chapter 20 also enables consumers who need Chapter 13 relief, but don’t qualify because they owe more unsecured debt than Chapter 13 jurisdictional requirements permit, to become eligible for Chapter 13 filing.
In the past several years, some savvy bankruptcy practitioners have utilized Chapter 20 in a more creative way – to cram down a second mortgage that they could not have done if the debtor only filed for Chapter 7 relief, as most judges do not permit debtors to strip off second mortgages in Chapter 7 cases.
This has become a controversial maneuver as some jurisdictions do not permit this, having concluded that a debtor cannot strip off a second mortgage that has already been discharged, or that the second filing was not done to further the purpose of Chapter 13 relief, which is to pay debts through a plan, but instead to seek cram-down relief.
It should be noted that once a debtor files for Chapter 7 relief and obtains a discharge, the debtor is not entitled to receive a Chapter 13 discharge unless more than four years have passed from the date of the first filing to the date of the second filing. Code section 1328(f)(1).
Thus, the objective in most Chapter 20 scenarios is not to discharge any debt, but instead, to use the payment plan features of Chapter 13 to cure mortgage arrears over a period of time.
Many debtors successfully cram down their second mortgages in Chapter 13 cases in this district and that has become a large part of consumer bankruptcy practice here during the past few years. To do so, the debtor brings an adversary proceeding against the mortgagee seeking to strip off the second mortgage.
In the Renz case, the debtors filed for Chapter 7 relief in 2009 and received a discharge. Sixteen months later, they filed a Chapter 13 case.
Since less than four years passed from the date of the prior filing, they would not be entitled to a Chapter 13 discharge.
The debtor had a second mortgage on his home with with JPMorgan Chase for $100,000 that was clearly underwater. Chase did not file a proof of claim, so debtor’s counsel, before the bar date, filed one for them. (Bankruptcy Rule 3004 permits a debtor to file a proof of claim on behalf of a creditor). As it turned out, Chase failed to file any papers whatsoever in the entire case.
Bankruptcy counsel also filed a cram-down adversary proceeding against Chase seeking a determination that the second mortgage was wholly unsecured. Since Chase never responded to the adversary proceeding, the debtor obtained a default judgment.
Here’s the kicker: two weeks later, debtor’s counsel filed a letter with the Court withdrawing the Chase claim. He also amended the Chapter 13 plan calling for a one hundred percent distribution to unsecured creditors. However, since the proof of claim had been withdrawn, Chase stood to receive no distribution whatsoever.
Chapter 13 Trustee Marianne DeRosa thereafter filed an objection to confirmation, arguing that the plan was not proposed in good faith, that the debtor did not have statutory authority to withdraw the proof of claim, and the debtor had sufficient income to satisfy the Chase claim in full.
Debtor’s counsel argued that the plan was proposed in good faith and that Chase’s failure to participate or file papers in any part of the proceedings was a tacit acceptance of debtor’s withdrawal of the Chase claim.
The judge noted that while the debtor appeared to have sought bankruptcy protection in good faith, the circumstances concerning the Chase claim demonstrate an attempt to abuse the purpose and provisions of Chapter 13. As such, the Judge sustained the trustee’s objections to the plan.
Judge Trust held that the debtor did not have any cognizable basis for withdrawing the proof of claim and that it should be treated as an allowed unsecured claim. He also held that the debtor had the ability to pay the Chase claim in full.
Although debtor’s counsel argued that the Chase mortgage debt had been discharged by the prior Chapter 7 case, the Court held that the debtor was required to satisfy the terms of a proposed plan before the mortgage lien could be stripped off. Since the debtor’s gambit did not work, the case will likely be dismissed.
Here’s what I gleaned from this decision. In a Chapter 20 case before Judge Trust, the debtor must file it in good faith and for the purposes that Chapter 13 is intended for. In addition, the debtor can cram down the second mortgage, but should expect to pay it as an unsecured debt through the plan.
Creative lawyering and using novel theories to test the bounds of the law and to achieve extraordinary results is the mark of a smart attorney. Many great results have been obtained this way. After all, you don’t know where the limits are until you’ve exceeded them. However, counsel must be careful not to tread too far over the line, which may have been the case here.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the October 2012 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. Call (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
The reason trustees like to ask this question twice is because many debtors forget to tell their attorneys that they have a cause of action, which can be a valuable asset worth administering.
Causes of action are considered assets that must be disclosed in the bankruptcy petition. Because of their unusual nature (they’re intangible, unliquidated and contingent), many consumer debtors just don’t think about them like they would a more typical asset like a car or bank account.
Consequently, many debtors don’t tell their bankruptcy attorneys about them even when asked.
A debtor who neglects to list such an asset can end up in a heap of trouble – sometimes losing the possibility of exempting the asset or seeking recovery, or in extreme cases, losing the ability to obtain a bankruptcy discharge.
Judge Alan S. Trust, sitting in the Central Islip Bankruptcy Court, issued a decision a few years ago in which he denied a debtor’s application to re-open a case to pursue a P.I. cause of action. In this month’s column I will discuss non-disclosed causes of action which can be a P.I. case or any other right to sue.
The debtor’s obligation to disclose a cause of action is based on Code section 521(a) which requires a debtor to schedule “contingent and unliquidated claims of every nature” and provide an estimated value of each one.
The trustee has the ability to step into the debtor’s shoes and pursue any litigation claims the debtor has. It is therefore essential that the debtor disclose all contingent and unliquidated claims so that the trustee can make a determination of whether to pursue those claims for the benefit of the debtor’s estate. In re: Costello, 255 B.R. 110 (Bankr. E.D.N.Y. 2000).
When a debtor inadvertently omits a cause of action or pending suit from the bankruptcy schedules in the petition, and the trustee catches this at the meeting of creditors, the resolution is usually simple. The trustee directs debtor’s counsel to amend the schedules and the trustee investigates the viability of pursuing the cause of action.
However, resolving a non-disclosed cause of action becomes much trickier once the bankruptcy case is closed, and that has a lot to do with the concept of standing.
Here’s the typical scenario: Debtor had a cause of action stemming from injuries suffered in an accident. However, the debtor neglected to tell his or her bankruptcy attorney about it. Then, for whatever reason, when questioned by the trustee about the right to sue anyone, the debtor testified that he or she did not have the right to sue anyone. The case then was routinely closed and the debtor received a discharge.
That’s because even after a bankruptcy case is closed, non-disclosed causes of action and litigation remain the property of the bankruptcy estate, unless abandoned by the trustee. Case law provides that if the trustee never knew about the potential estate property, the trustee could not have abandoned it.
Thus, even though the bankruptcy case was closed, the cause of action is still the sole property of the trustee, and the debtor lacks standing to commence or continue a the suit. Upon learning of this, P.I. counsel will invariably make a frantic call to debtor’s former bankruptcy counsel.
So what can bankruptcy counsel do in this situation after getting the frantic call? Nationally, there are two schools of thought – estopping the trustee and estopping the debtor. In the Fifth, Seventh, Tenth, and Eleventh Circuits, the Courts have found that the trustee should not be estopped from commencing or continuing a suit, as the trustee is the real party in interest.
These Courts, however, punish the debtor, who they say should be estopped so that any excess proceeds, instead of going to the debtor, instead go back to the defendant.
The reasoning here is to protect the integrity of the bankruptcy process while preserving assets of the estate for distribution to creditors. Doing so deters dishonest debtors who fail to disclose assets, while at the same time, protecting the rights of creditors.
However, there does not seem to be any appellate authority in the Second Circuit. My personal experience with these situations is that the court will permit trustees to reopen a case to administer a non-disclosed asset in most situations, provided that there is no egregious evidence of bad faith on the part of the debtor.
Keep in mind that if the asset was not disclosed, then the debtor did not avail him or herself of any applicable exemption, such as the personal injury exemption, now a minimum of $7,500.
If debtor’s counsel were to try to re-open the case and amend the schedule of exemptions, the trustee would likely object. The best case scenario may be to negotiate a disposition with the trustee in which the debtor gets half the exemption.
In one case before Judge Trust, the debtor sought to re-open the case to amend schedules to include a non-disclosed P.I suit against the Long Island Rail Road.
Even though the debtor had already retained separate P.I. counsel prior to the bankruptcy, the debtor did not tell his bankruptcy attorney about it and did not truthfully answer the trustee’s questions about pending lawsuits.
The District Court, where the P.I. case was pending, permitted the suit to be dismissed upon learning of the prior bankruptcy filing, stating that the debtor lacked standing. When the debtor sought to re-open the bankruptcy case to get standing, Judge Trust refused to permit the debtor to do so, citing the debtor’s lack of good faith.
In the March 2010 opinion, Judge Trust, using colorful football terminology, stated that debtor’s motion to re-open appeared to be “an effort to make an end run around the District Court’s dismissal order.” In re: Carlos Meneses (05-86811-ast, Bankr.E.D.N.Y.).
The practical tip here is to question your client and question again about possible causes of action or potential claims. Also, if you later discover an omitted asset, amend your schedules immediately.
Many senior citizens, as part of an elder-law planning strategy, transfer title of their homes to their children while retaining a life estate.
Doing so, and waiting a requisite period of time, enables the seniors to qualify for certain Medicaid benefits, and further permits the house to pass without probate.
However, up until recently, there was a degree of uncertainty by some bankruptcy trustees as to whether the remainder interests were protected in bankruptcy.
In 2009, I was retained by a typical Long Island family, the Rasmussens – a husband and wife – to represent them in what appeared to be a typical Chapter 7 filing involving typical consumer debt.
The only fact that was out of the ordinary was that they lived with the husband’s mother, a widow, who had previously deeded a life estate in her house to herself, while granting the remainder interest to her son and daughter-in-law.
I assumed that the debtors would be able to protect their remainder interest by asserting the New York homestead exemption which permits debtors who own their homes and reside in them to protect a certain amount of equity.
After all, the debtors owned the remainder interest, which is an interest in real estate, and they resided in the house. They also contributed to the household expenses by paying rent to the husband’s mother pursuant to an oral lease.
I filed the Chapter 7 bankruptcy petition in March 2009 in the Central Islip Bankruptcy Court here on Long Island, and Chapter 7 Trustee Kenneth Silverman was appointed trustee. The trustee disagreed with our contention that the remainder interest was exempt as a homestead.
The trustee then brought a proceeding challenging the debtors’ claimed exemption, arguing that since the debtors did not have a present right to possession, they did not sufficiently “own” the property as required by the homestead statute.
Judge Alan S. Trust, in a decision in July 2010, ruled in favor of the debtors stating that they could exempt their remainder interest as a homestead. In re Rasmussen, No 09-72069-ast, (Bankr. E.D.N.Y., Jul. 20, 2010). See the decision here: Rasmussen Homestead Exemption Decision by Judge Trust.
The Judge commented that this was a case of first impression in the Second Circuit, and that there was no federal or New York case law in this jurisdiction addressing whether holders of either a life estate or a remainder interest can claim a homestead exemption under the New York homestead exemption statute, C.P.L.R. § 5206.
The Court determined that the debtors’ remainder interest qualified for the exemption because New York’s homestead exemption statute does not specify which types of ownership interests are exemptible, and hence does not preclude it.
The Court further concluded that since a future interest in real property is descendible, devisable, and alienable to the same degree as estates in possession, the debtors’ interest is therefore an ownership interest and thus exemptible.
Judge Trust further found this outcome was particularly apt in light of the Bankruptcy Court’s duty to construe the homestead exemption in the debtors’ favor to effectuate its purpose of protecting homeowners from seizure of their homes and to protect a debtor’s home in the event of bankruptcy.
Although the debtors and I were elated by this decision, within days the trustee appealed to the United States District Court for the Eastern District of New York.
In September 2011, Judge Joanna Seybert affirmed the Bankruptcy Court’s decision, commenting that Judge Trust’s decision was thoughtful and well-reasoned. In re Rasmussen, No. 10-CV-4173-js (E.D.N.Y., Sept. 14, 2011). See the decision here: U.S.D.C. Decision — Rasmussen Homestead Exemption.
There was no dispute that the debtors occupied the premises as principal residence. The only issue was therefore whether the debtors “own” the premises within the meaning of the homestead statute.
The District Court held, as did the court below, that a future interest is an ownership interest.
Although Judge Seybert applied her reasoning to the actual set of facts, which included the fact that the debtors paid rent to the husband’s mother pursuant to an oral lease, the decision is pretty clear that the debtors would have received the same result, even if they did not pay rent. The Judge did not address this distinction at all.
Thus, there should be no doubt in this jurisdiction – the Eastern District of New York, that absent a higher appellate court case down the road, future interests and remainder interests are exempt as homesteads in bankruptcy proceedings, as long as the debtor resides in the premises.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the November 2011 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. Call (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
How Far Can a Bankruptcy Judge Go To Assist Inept Counsel?
After I wrote about some bankruptcy court decisions last month which involved some quirky and unusual facts (Two bankruptcy attorneys got into trouble over E.C.F. filings), some of my colleagues requested that I continue to discuss similarly odd and interesting cases. Fortunately, we have one that is fresh off the docket.
On April 24, 2012, Judge Alan S. Trust, sitting in the Central Islip Bankruptcy Court, here in the Eastern District of New York, happened to issue a decision in just such a case, so we now have appropriate fodder for this month’s column.
The decision, which is just as interesting for what is says, as for what it does not, involves protecting a debtor’s entitlement to receive funds, trying to be creative with exemptions, and seeing how a client might suffer from attorney ineptitude for being unfamiliar with bankruptcy practice and procedure.
Perhaps most importantly, it also leaves one thinking about how far a judge can or should go to assist counsel who is clueless. In re Cho, no. 11-75595-ast, (Bankr. E.D. New York 2012).
In August 2011, Mr. and Mrs. Cho filed a typical Chapter 7 consumer bankruptcy petition here on Long Island. About a month before filing, the debtors’ car lender repossessed their Honda. Unbeknownst to the debtors at the time, a week before the filing date, the lender sold the vehicle at auction, and the sale resulted in a surplus of $5,000.
The debtor’s bankruptcy attorney, a lawyer from Queens who shall remain nameless, advised Chapter 7 Trustee Robert Pryor at the meeting of creditors, that the debtors’ vehicle had been repossessed pre-petition, resulting in a surplus, and that the debtors had received and deposited a check for the surplus post-petition.
The trustee soon demanded that the debtors turn over the entire surplus amount. Instead of doing that, the debtors amended their Schedule of Assets to include an ownership interest in the vehicle (which they no longer owned).
They also amended their Schedule of Exemptions (which opted for New York State exemptions as opposed to the more liberal federal exemptions) to exempt the vehicle in the sum of $4,000 pursuant to C.P.L.R. § 5205(a)(8), and to also increase their cash exemption by $1,000 to cover the additional value of the surplus pursuant to C.P.L.R. § 5205(a)(9).
The trustee believed that he was nevertheless entitled to the full surplus amount, so, with the help of his able associate, Michael Farina, he brought a motion to compel the debtors to turn it over. The debtors responded, acknowledging that they no longer owned the vehicle, but argued that they were entitled to exempt the surplus as cash. The trustee responded and pointed out that the amended schedules were improperly done and therefore fatally defective.
The trustee’s observation was correct. Eastern District of New York Local Bankruptcy Rule 1009-1(iv) provides that in order for an amendment of exemptions to become effective, the debtor must first file and serve the amended exemptions on the U.S. Trustee, all creditors, and all other parties in interest, and then file proof of service with the court. Here, the debtors’ attorney both neglected to file, and neglected to serve.
One would think that the debtors’ attorney, after reading the trustee’s papers alleging this neglect, would take immediate corrective action. However, he did not. At the hearing, which was held in December 2011, Judge Trust generously gave debtors’ counsel a week to comply with the local rule requirement.
However, inexplicably, counsel then filed the amendments but neglected to serve them. This led the trustee to file supplemental objections. At a subsequent hearing, Judge Trust gave the debtors’ counsel one last opportunity to meet the procedural requirements, which he finally did. The matter was now marked for submission.
The issue before the court was whether the debtors could exempt the surplus cash under New York law, and whether the debtors could exempt the vehicle.
In his decision, the judge first pointed out that New York residents who file bankruptcy after June 21, 2011 have an option of selecting either the New York State or federal exemptions, and that the debtors here chose to claim the New York State exemptions.
Bankruptcy attorneys know that a debtor can exempt up to $5,000 of cash pursuant to the New York State cash exemption set forth in Debtor and Creditor Law sec. 283(2), provided that the debtor does not utilize the homestead exemption.
In addition, since the debtors did not have an ownership interest in the vehicle on the date of filing, nor did they have a right of redemption, they could not exempt the vehicle.
However, Judge Trust indicated that the debtors could exempt $1,000 of the right to receive payment. This is because of the relatively new exemption under C.P.L.R. § 5205(a)(9) which permits debtors filing after January 21, 2011, to utilize a $1,000 wildcard exemption for any personal property, provided that the debtor does not claim a homestead exemption.
Since the car was only in one spouse’s name, and the debtors did not claim a homestead exemption, they were entitled to one, $1,000 wildcard exemption which could be applied to the surplus. The judge ordered them to turn over the balance of the surplus to the trustee.
Here’s why I found the decision especially interesting. First, the debtors’ counsel initially botched up amending the exemptions – not once – but twice. Judge Trust gave counsel two opportunities to correct the mistake. Counsel finally figured out what to do on the third try.
Of course, we will never know what Judge Trust was thinking, but one can’t help but wonder if his granting counsel an opportunity to remedy the defective filings was also an opportunity for counsel to reconsider the exemption scheme counsel had elected.
Had counsel opted for the much more generous $10,825 federal wildcard exemption provided in the federal exemptions by Bankruptcy Code § 522(5), he would have been able to protect 100% of the surplus. In essence, it appears that counsel chose the wrong exemption scheme to the detriment of his clients.
An Interesting Issue: How Far Can or Should a Judge Go to Educate Inept or Inexperienced Counsel?
However, a judge can and will only go so far in telling inept or inexperienced counsel what to do. Would it have been out of line for the judge to tell debtor’s counsel that counsel didn’t have a sufficient understanding of law and procedure, and was not following the best legal strategy? This is not a role that judges have. They cannot advocate for one party.
Just to be clear, we will never know if Judge Trust was aware that debtor’s counsel botched up the exemptions, but if Judge Trust was aware of this issue I would assume that he would take the position that it is not his place to point out that counsel could have protected the entire surplus if the federal exemptions were used.
Based on my experience watching cases in court over the past three decades, this seems to be the way almost all judges handle such issues – they will not tell counsel how to practice law, even if that ultimately hurts an innocent client.
Accordingly, the debtor-clients here suffered and will have to turn over many thousands of dollars that they could have kept had their attorney had a better understanding of bankruptcy law and selected the better exemption scheme. And that point is not in the decision.
Click this link to see a copy of the Cho decision in Case No. 11-75594-ast.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the June 2012 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800 (516) 496-0800 (516) 496-0800 (516) 496-0800 . For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
by Craig D. Robins, Esq.
The preceding words were taken verbatim from a recent Massachusetts decision that severely castigated an attorney for messing up a consumer debtor’s bankruptcy filing and then lying about it to the court. This month I will discuss that case, and another from one of our own courts here in the Eastern District of New York, both of which lambasted attorneys who utterly failed to abide by the rules.
In the Massachusetts case, Bankruptcy attorney Georgia S. Curtis was authorized to use E.C.F., but was grossly unfamiliar with how to do so. “E.C.F.,” which stands for Electronic Case Filing System, is the computerized court website system through which attorneys file court documents such as bankruptcy petitions In Re: Jackquelyn D. Stallworth, 2012 Bankr. LEXIS 740 (Bankr. D. Mass 2/8/12).
Since 2003, every petition and other court document that I’ve filed with the court has been done through my office computer, while logged into the court’s E.C.F. website. For almost a decade, all bankruptcy attorneys are required to file their bankruptcy petitions, motion papers and other documents by E.C.F.
When Curtis filed her client’s petition, which was only the second petition that the attorney had ever filed, her inexperience got the best of her as she neglected to file the Creditor Matrix or the Statement of Social Security Number. These are mandatory requirements, and failure to abide by them, as Curtis soon learned, is fatal.
Nine days later the court dismissed the petition. Curtis also failed to file the Credit Counseling Certificate and page 3 of the petition, which is one of the petition pages that contains the attorney’s signature.
Curtis then thought she could file a motion to vacate the dismissal by e-mail (which is not the appropriate procedure for filing a motion). However, she messed this up as well, by attaching the wrong PDF document. The court ordered her to correct this mistake within two days.
Did Curtis do that? No. Instead of correcting the deficient filing, two weeks later she filed a second Chapter 7 case without her client’s knowledge.
The petition in the second case contained only the debtor’s name, which was spelled incorrectly, the last four digits of her Social Security number, and the county of her residence, omitting her street and mailing addresses, as well as reference to her prior filings.
Additionally, the schedules accompanying the Debtor’s petition were blank or were otherwise incomplete, which, if taken literally as pointed out by the judge, reflected that she had neither assets nor any creditors.
The judge then issued a sua sponte order to show cause directing Curtis to show cause why the court should not sanction her and suspend her E.C.F. filing privileges. Because this petition was basically a blank, it also caught the attention of the United States Trustee who brought a motion against Curtis seeking to have her disgorge the legal fee.
Over several order to show cause hearings, Curtis testified that she did indeed file all necessary documents when that was not true. She also offered conflicting and contradictory explanations of what had happened.
The judge wasn’t happy. He suspended Curtis’s E.C.F. privileges, but indicated that Curtis could purge her “civil contempt” by becoming re-certified with E.C.F. (All attorneys are required to participate in an E.C.F. training course as a prerequisite to obtaining authority to file by E.C.F.).
In addition, the judge stated that he had reasonable cause to believe that Curtis violated the Rules of Professional Conduct and referred the matter to the District Court for further disciplinary proceedings.
Curtis had a problem adhering to the court’s E.C.F. rules: she violated them. That led to a suspension of her E.C.F. privileges. But her problems increased exponentially when she lied to the court. That led to a most serious referral that might result in her losing her license to practice. For a legal practitioner, not knowing what you’re doing is bad enough; perjuring yourself in court: indefensible.
Peter J. Mollo was a Brooklyn bankruptcy attorney who had just been suspended from practicing law in this state in January 2012 by the Appellate Division for several reasons such as endorsing a check without permission.
That left him with a bunch of bankruptcy clients whose petitions he had not filed. What he should have done was transferred the files to another attorney after first consulting with his clients. Instead, he called another local attorney, Brian K. Payne, and asked him if he would take over representation. However, no final agreement was reached.
Mollo, nevertheless quite eager to get these four cases filed, revised the petitions to indicate that the debtors’ attorney was now Payne — even though Payne never agreed. Mollow then filed these four petitions under his own E.C.F. account and forged the electronic signature of Payne on each petition.
When the U.S. Trustee got wind of this after Payne sent a letter to the Chief Judge and others indicating that Mollo had filed petitions without his knowledge, consent, authority or signature, the UST immediately brought a motion to sanction Mollo, revoke his authorization to use the E.C.F. system, disgorge his fees, and compensate replacement counsel.
At the hearing, Mollo admitted that he “made terrible egregious, unbelievable errors.” The judge determined that Mollo violated Bankruptcy Rule 9011 by filing a forged document, an act that warranted sanctions.
Mollo agreed to disgorge all legal fees received, which was complicated by the fact that he kept such poor records that he was not sure how much he actually did receive. He also agreed to compensate each debtor’s replacement counsel. He lost his E.C.F. privileges, not that he would have been legally able to use them in light of his suspension.
Finally, the judge thought additional sanctions were warranted given the egregious nature of Mollo’s violations and their similarity to the conduct that got him suspended in the first place (forging signatures). Judge Craig sanctioned Mollo an additional $3,000, stating that Mollo’s conduct compromised the integrity of the court system and the electronic filing process.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the May 2012 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800 (516) 496-0800 (516) 496-0800 (516) 496-0800 . For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
35 Pinelawn Road, Suite 218E, Melville, NY 11747.

References: § 523
 § 5206
 § 5205
 § 5205
 § 5205
 § 522