Source: http://shenwick.blogspot.com/2007/
Timestamp: 2019-04-25 20:08:58+00:00

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Last month, the Wall Street Journal published an article titled "Burned by Real Estate, Some Just Walk Away" on the rise in foreclosures that accompanied the collapse of the subprime mortgage market.
For more information on foreclosures and the relief bankruptcy protection can offer, contact Shenwick & Associates. Happy holidays!
This month is a month of transition for us and many of our clients-vacations are over, the seasons are changing and many of us have children who are going (albeit reluctantly) back to school. This month we’re going to look at educational expenses and bankruptcy.
Before 1976, debtors could discharge their student loans and other educational debt in bankruptcy. In 1976, Congress amended the Higher Education Act (“HEA”) to make federally insured and guaranteed student loans nondischargeable if the debt had first become due less than five years prior to the bankruptcy filing and its repayment would not impose an undue hardship on the debtor and his or her dependents. Despite efforts to repeal this provision of the HEA and make educational debt dischargeable again, Congress retained the conditional dischargeability of educational debt when it enacted the Bankruptcy Code in 1978. Since then, Congress has further limited the dischargeability of educational debt by both broadening the class of creditor that can take advantage of the exception to discharge and tightening the conditions under which educational debt may be discharged.
(1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.
Failure to by the debtor to prove any of these factors can result in denial of discharge of the educational debt.
For more information about how educational expenses and debts can impact a bankruptcy filing, please contact Shenwick & Associates.
We get a lot of questions about changes to the Bankruptcy Code under BAPCPA (which became effective on October 17, 2005). Based on inquiries we have received and an expected increase in Chapter 11 bankruptcy filings, here are updates on two issues: reclamation claims and defenses against claims of preferential transfers.
1. Reclamation Claims. Reclamation is a seller’s limited right to retrieve goods delivered to a buyer when the buyer is insolvent under the Uniform Commercial Code. Under Sections 546(c)(1)(A) and (b) of the Bankruptcy Code, the reclamation deadlines are now (1) not later than 45 days after the date of receipt of such goods by the debtor, or (2) not later than 20 days of the commencement of the case, if the 45-day period expires after the commencement of the case. Under the Bankruptcy Reform Act of 1978, the deadlines were before 10 days after receipt of such goods by the debtor, or before 20 days after receipt of such goods if the 10-day period expired after the commencement of the case.
2. Defenses against Claims of Preferential Transfers. A preferential transfer is a pre-bankruptcy transfer made by an insolvent debtor to or for the benefit of a creditor, thereby allowing the creditor to receive more than its proportionate share of the debtor's assets; specifically, an insolvent debtor's transfer of a property interest for the benefit of a creditor who is owed on an earlier debt, when the transfer occurs no more than 90 days before the date when the bankruptcy petition is filed or (if the creditor is an insider) within one year of the filing, so that the creditor receives more than it would otherwise receive through the distribution of the bankruptcy estate.
Section 547(c)(2) of the Bankruptcy Code, which provides a defense to claims of preferential transfers based on the ordinary course of business of the debtor or ordinary business terms of transaction, now states: "to the extent that such transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee, and such transfer was-(A) made in the ordinary course of business or financial affairs of the debtor and the transferee; or (B) made according to ordinary business terms." The previous standard under the Bankruptcy Reform Act of 1978 required that both (A) and (B) apply, but under BAPCPA, either clause may be raised as a defense, making it much easier for a creditor to defend against the claim of a preferential transfer.
Another defense new to BAPCPA is that in a case filed by a debtor whose debts are not primarily consumer debts (i.e. primarily business debts), the debtor can only pursue alleged preferential payments that exceed $5,000.
If you have questions about reclamation claims or preferential transfers, please contact Jim Shenwick.
- payment of expenditures necessary for the continuation, preservation and operation of a business.
These subsections also require these amounts to be determined in accordance with the Means Test of Section 707(b)(2) if the debtor's income exceeds the median income in the state. For cases filed after February 1, 2007, the median income in New York State for one earner is $42,869, for two people is $51,994, for three people is $62,815 and for four people is $74,501. For cases filed on April 1, 2007 or after, $6,900 is added for each individual in excess of four.
Pre-BAPCPA, this amount was determined by the difference between Schedules I (current income of individual debtor(s)) and J (current expenditures of individual debtor(s)).
This new formula is clearly stated in a recent case from the U.S. Bankruptcy Court for the District of New Jersey, In re Brady, 2007 Bankr. LEXIS 501 (Bankr. D. N.J.). In that case, the Court overruled the objections to confirming the debtors' proposed plan and assertion that the debtors' plan should be based on Schedules I and J of the trustee and one of the unsecured creditors. The Court explicitly stated that the disposable income figure determined by Form B22C (the Means Test form) is then projected over the applicable commitment period, which is 60 months if the debtors have positive disposable income.
In another case from the United States Bankruptcy Court for the District of Oregon, In re Cummings, 17 C.B.N. 527 (Bankr. D. Ore. 2007), the Court ruled that Chapter 13 debtors may deduct the full amount of the IRS standard home and car ownership expenses regardless of the amount of their actual payments, thereby not penalizing "frugal debtors." Frugal debtors thus benefit from BAPCPA's treatment of housing and transportation allowances over the pre-BAPCPA reliance on judicial interpretation of the reasonableness of Schedules I and J. This represents one of the few positive changes that BAPCPA wrought on the bankruptcy landscape. Anyone with questions about filing for Chapter 13 bankruptcy should contact Jim Shenwick.
I. What every Doctor should know before entering into an office lease.
2. What is a Term Sheet?-Is it binding?
3. Term of Lease- How many years? Option to Renew, Option on Adjacent Space? Option to Purchase?
4. Use Clause- Broad use clause favors Tenant.
6. Assignment & Sublet – The most important clause in the lease?-What’s the Difference? An exit strategy for Tenant. Recapture of Space by Landlord, profit split with Landlord on assignment or sublet of space.
Is Landlord consent needed? Pre-approval of alterations before lease is executed.
8. Security Deposit-Common Charge – How much? Who gets interest? Tenant Corporation? Personal guaranty, “Good Guy Guaranty” by principal of tenant.
9. Signage- How will your clients find your office? Sign on Building or Flag on Building. Door, Hallway, Elevator, Lobby- Who pays the cost?
10. Other Lease Provisions – Snow Removal, Garbage Disposal, Medical Waste Disposal? Insurance. How much?
2. Term- Enough time to amortize cost and develop practice?
3. Rent/Additional Rent Projections– Overhead that the practice must carry.
4. Use Clause – Lease allows for use you desire.
5. Sublet/Assignment – “Exit strategy” What is the difference? Procedure should be detailed in the Lease.
6. Alterations- Can you remodel space without the consent of the Landlord?
7. Background, Prior Experience, Net Worth, Balance Sheet.
8. Renewal Options- Generally favor the Tenant if they can be included in the lease.
III. Purchase of Real Estate.
1. For business use or personal use?
2. For business use professionals can mortgage (a) fee interest (such as a house or town house office and use for practice), co-op unit (maintenance) or a condominium unit (common charges). The cost is a set fee plus a percentage commission. No mortgage on building? There are fewer restrictions on the transfer of a condominium than on the transfer of a co-op unit.
3. For personal use choices are house, town house, co-op, or condominium.
4. Due diligence co-op-review of building financials, proprietary lease (in a co-op), board minutes, offering plan and amendments, house rules, building amenities, budget-are there any projected major repairs, pending litigation, asbestos issues, increase in maintenance/common charges, What percentage of financing allowed?
5. Closing Costs: Title insurance for fee, condominium or house purchase, transfer tax or flip tax for co-op, NYS and NYC Transfer Taxes, Mansion Tax?
§ 523. Exceptions to discharge (a) A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt—(8) unless excepting such debt from discharge under this paragraph would impose an “undue hardship” on the debtor and the debtor’s dependents, for—(A)(i) an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit or nonprofit institution; or (ii) an obligation to repay funds received as an educational benefit, scholarship or stipend; or (B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual.
Congratulations on completing the program and best of luck in your career.
So when we ask a client to fill out Schedule I (Current Income) and Schedule J (Current Expenditures), they need to keep these conditions in mind. This provision is one of the many changes enacted by BAPCPA to the bankruptcy process. Therefore, case law is still rather sparse, but one interesting case is In re Travis, 353 B.R. 520 (Bankr. E.D. Mich. 2006). The facts of the case are as follows: the debtor was married and filed for Chapter 7 bankruptcy separately from his wife. The debtor’s Statement of Current Monthly Income and Means Test Calculation (the “B-22 Form”) stated that a presumption of abuse did not arise. The United States Trustee filed a motion to dismiss the bankruptcy pursuant to §707(b)(2) and §707(b)(3). The UST argued that had the debtor completed the form correctly, a presumption of abuse arose. The primary disagreement was regarding line 17 of the B-22 Form. The debtor and his non-filing spouse both entered figures on this line, and the UST argued that the debtor’s spouse could not include in this figure any amounts for food, utilities, clothing and personal items because those expenses are already accounted for when the debtor calculated his deductions, and this would be “double dipping.” The UST also objected to several other expenses and deductions taken by the debtor.
The Court noted that the calculation of current monthly income is complicated, not clearly defined, fact specific and open to interpretation. The Court mentions that the issue of a non-filing spouse’s income is not limited to post-BAPCPA cases. In Chapter 13 cases, the issue arises under §1325(b)(1), which requires a determination of the debtor’s available disposable income and in Chapter 7 cases, the non-filing spouse’s income has been considered in conjunction with a §707 substantial abuse motion by the UST.
Thus, while §101(10A)(A) excludes a non-filing spouse’s income, a non-filing spouse’s income must be accounted for under §101(10A)(B) to the extent that the non-filing spouse contributes on a regular basis to the household expenses of the debtor and the debtor’s dependents.
In the instant case, the Court agreed with the UST that some of the expenses claimed by the debtor’s non-filing spouse as her own expenses were either counted twice or were a contribution to the household expenses of the debtor and debtor’s dependents, and therefore could not be included in the Line 17 marital adjustment. Specifically, the Court cited the contribution of the non-filing spouse for food and utilities and a deduction for taxes.
However, the court also found that it was appropriate, on the facts of this case, for the non-filing spouse to take marital adjustment for clothing and personal items. The Court contrasts the debtor’s expenses (which are fixed by the IRS national standards for allowable living expenses and the IRS local standards for housing and utility payments) with that of the non-filing spouse’s expenses, which are not fixed.
The Court recalculated the B-22 Form based on its rulings and still found a negative disposable income under §707(b)(2). Therefore there was no presumption of abuse under §707(b)(2). The Court also reviewed the totality of the circumstances to determine if the debtor’s petition was abuse under §707(b)(3) and concluded that it was not. Therefore, the Court denied the UST’s motion to dismiss.
Any persons having questions about the impact of spousal income on bankruptcy should contact Jim Shenwick.
A recent Supreme Court case, Marrama v. Citizens Bank of Massachusetts et al., is a cautionary tale for debtors who try to play fast and loose with their bankruptcy filing.
Mr. Marrama had initially filed a Chapter 7 case, in which he made a number of statements about his principal asset, a house in Maine, that were misleading or inaccurate. While he disclosed that he was the sole beneficiary of the trust that owned the property, he listed its value as zero. He also denied that he had transferred any property other than in the ordinary course of business during the year preceding the filing of his petition. In fact, the home had substantial value and Marrama had transferred it into the newly created trust for no consideration seven months prior to filing his petition.
After his 341 meeting, when the trustee told Marrama’s counsel that he intended to recover the property as an asset of the state, Marrama made a motion to convert his case to Chapter 13. The Trustee, however, objected to the conversion and the Court held that neither section 706 nor section 1307(c) of the Bankruptcy Code limits a Court’s authority to take appropriate action in response to fraudulent conduct by the atypical litigant who has demonstrated that he is not entitled to the relief available to the typical debtor. The Court’s authority was based on Section 105 of the Bankruptcy Code, which gives bankruptcy judges broad authority to take the necessary actions to prevent an abuse of process.
What do we learn as attorneys or clients from this Supreme Court decision? Bankruptcy Court is a court of equity and in order to obtain a discharge, one must follow the Bankruptcy Code, the Bankruptcy Rules and the Local Rules of the Bankruptcy Court and give full and fair disclosure to all creditors. When a debtor does not play by the rules, the Court will deny the debtor a right of conversion to in effect punish them for their failure to play fair with the Court. Any persons having questions about Marrama or bankruptcy should contact Jim Shenwick.

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