Source: http://shenwick.blogspot.com/2016/05/
Timestamp: 2019-04-25 20:08:53+00:00

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Here at Shenwick & Associates, we're devoted to helping our clients discharge as many of their debts as possible in bankruptcy. We also aggressively attempt to help our clients retain as much of their property as possible after their bankruptcy case is concluded.
However, with regard to property that's secured by a debt, whether a debtor can retain that property will often depend on whether he or she is willing to sign a reaffirmation agreement. We covered reaffirmation agreements in a recent e-mail, but have recently done some more investigation into the topic, which we wanted to share with you.
As a hypothetical, let's say we have a married couple, filing jointly, who own a house with a mortgage and are current on their mortgage payments. There is no equity in the house. They want to keep their house after their bankruptcy case is concluded and continue to pay their mortgage during the pendency of the bankruptcy case. Does this couple need to file a reaffirmation agreement with the secured creditor? Our answer, for cases filed in the Second Circuit (New York, Connecticut and Vermont) is no.
Prior to the enactment of BAPCPA in 2005, courts in several circuits (including the 2nd Circuit in Capital Communications Federal Credit Union v. Boodrow (In re Boodrow) and BankBoston, N.A. v. Sokolowski (In re Sokolowski) had held that debtors had the option (the "ride through option") to retain both real property and personal property collateral and maintain current performance on the loan. Furthermore, secured creditors could not foreclose based solely on the debtor's filing of a bankruptcy petition and failure to reaffirm.
When BAPCPA was enacted, 11 U.S.C. §§ 521(a)(6) (which governs the debtor's duties with respect to secured personal property) and 362(h) (which governs termination of the automatic stay with respect to secured personal property) specifically eliminated the ride through option for personal property. However, decisions in several circuits (including a decision from Connecticut, In re Caraballo) have held that Boodrow and Sokolowski remain binding authority that the ride through option is still in effect with respect to real property. Accordingly, in New York a mortgage on a house does not need to be reaffirmed, but a loan on secured personal property needs to be reaffirmed.
As with all of our opinions expressed in these e-mails, this is not legal advice–every bankruptcy case is different and we cannot render legal advice without being retained. To discuss your unique situation with respect to your personal and real property, reaffirmation of secured debts and whether bankruptcy is right for you, please contact Jim Shenwick.
Copyright 2016 Kinja. All rights reserved.
Personal Bankruptcy in 2016: What Can a Client Expect?
On May 18th, James Shenwick delivered a lecture on personal bankruptcy in 2016 to Deliberate Solos.
Why do people file for bankruptcy today?
III. What can a person with too much debt do?
● Save the legal fees in filing a bankruptcy petition and the Bankruptcy Court filing fees (usual minor in comparison to the amount of debt a debtor has).
● You negotiate one creditor at a time-what if you can’t reach an agreement with all creditors-do you do the work?
● The time and effort of drafting, revising and reviewing a Settlement Agreement, Release, Stipulation of Settlement or Stipulation of Discontinuance of litigation.
What debts are discharged in a Chapter 7 personal bankruptcy?
● Personal and “good guy” guaranties-“good guy” guaranties are guaranties created for the leasing of commercial space.
● Chapter 7 bankruptcy constitutes the vast majority of individual filings, and can be very helpful in dealing with many debtor/creditor problems that individuals have these days (90-95% of our bankruptcy filings are Chapter 7).
● Chapter 7 bankruptcy provides individuals who qualify to file under this chapter with a “discharge,” which can wipe out a significant amount of an individual’s debt.
● Over 819,000 individuals and corporations filed for bankruptcy in 2015.
● The filing fee for a Chapter 7 bankruptcy is $335.
B. Chapter 13- This type of personal bankruptcy provides for the reorganization of debts of an individual with regular income and allows them to retain real and personal property and business interests.
● Under BAPCPA, individuals must file for Chapter 13 bankruptcy if they earn too much and fail the means test.
● Corporations may not file Chapter 13 bankruptcy. Corporations may file Chapter 7 or Chapter 11 bankruptcy.
● If a debtor’s income is greater than the median income for their state and household size, they will have to file a five year plan (rather than a three year plan).
● If a debtor has too much debt under § 109(g) of the Bankruptcy Code (as of April 1, 2016, noncontingent, liquidated, unsecured debts of more than $394,725 and noncontingent, liquidated, secured debts of more than $1,184,200), they do not qualify for Chapter 13.
● Chapter 13 bankruptcy will have an intermediate impact on credit reports and FICO score compared with Chapter 7 bankruptcy and an “out of court” workout.
● Hire an attorney, provide data to attorney, bankruptcy petition and Plan is prepared, reviewed by client and filed with the Bankruptcy Court, Debtor attends one § 341 meeting with attorney and Chapter 13 Bankruptcy Trustee and attends hearing on Plan confirmation before the Bankruptcy Judge.
● The filing fee for a Chapter 13 bankruptcy is $310.
C. Chapter 11- Reorganization (for wealthy individuals or a corporation) or liquidation.
● The primary reason that individuals file for Chapter 11 is that they have too much income or assets or they have debts that fall outside the statutory limits for filing a Chapter 13 bankruptcy.
B. Median Income. The first test under the revised code is whether a debtor exceeds the median income for their family size based on their state of residence. Pursuant to the 2005 amendments, a case where the debtor makes less than the median is presumed to be a non-abusive filing, and a below-median debtor may file for Chapter 7 bankruptcy.
● Add $8,400 for each individual in excess of four.
● Median income figures are periodically revised by the Census Bureau.
C. Means Test-However, all is not lost for a debtor who exceeds his or her state median income threshold. If an individual’s income exceeds the median income for their respective state and family size, they may still be allowed to file for Chapter 7 bankruptcy if they pass the so-called “Means Test,” i.e. the results show that the bankruptcy filing is not a presumption of abuse under § 707(b)(7) of the Bankruptcy Code. The Means Test (officially known as Form 22A, “Chapter 7 Statement of Current Monthly Income and Means-Test Calculation”) is one of the most complicated calculations in the law.
● If an individual’s debts are primarily business debts, then the Means Test does not apply.
● The data that is used to calculate the Means Test is a six-month rolling look back at the debtor’s income and expenses. Accordingly, if a debtor is self-employed, an independent contractor or a salesperson, they may be able to earn less and therefore pass the Means Test.
● If a debtor is married and living with his or her spouse who is not filing for bankruptcy, the non-filing spouse’s income and expenses must be included in the Means Test.
● Failing the Means Test means that a Chapter 7 filing would be deemed presumptively abusive under § 707(b)(2)(A) of the Bankruptcy Code. However, a debtor can rebut the presumption of abuse by showing special circumstances.
● Similarly, if a debtor’s after tax income is greater then expenses, the debtor has monies to make some payment to creditors, and a Chapter 7 filing would be presumptively abusive under the “totality of the circumstances” test in §707(b)(3) of the Bankruptcy Code.
C. This is a difficult standard for debtors. They generally must have a severe physical or mental disability, they will need to hire an expert (doctor or psychologist who will testify at trial) and they will need to commence an adversary proceeding (bankruptcy litigation) at a cost in legal fees and expert witness fees in excess of $10,000.
E. There have been proposals to allow student loan defaults to be addressed in chapter 13 bankruptcy filings.

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