Source: https://dianedrain.com/category/consumer-issues/credit-report/page/6/
Timestamp: 2019-10-20 19:15:09
Document Index: 764018673

Matched Legal Cases: ['§ 101', '§ 523', '§548', '§ 362', '§ 506', '§ 506', '§ 1328', 'art 9']

Credit Report Archives | Page 6 of 6 | Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney
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Divorce (including DSO) and Bankruptcy
DIVORCE (including DSO) AND BANKRUPTCY (ARIZONA SPECIFIC)
HOLD HARMLESS & SUGGESTED LANGUAGE FOR DIVORCE DECREE
“The dissolution decree’s apportioning of the community debts is usually accompanied by a hold-harmless provision: the spouse to whom a particular debt is assigned will hold the other spouse harmless for that debt. The assigned spouse is obliged to pay the particular debt, and, in the event that the debt is not paid, the other spouse can pay that debt and seek recovery of that debt from the non-paying spouse. In a Chapter 7 bankruptcy, the non-paying former spouse can discharge that obligation to pay the creditor, but he or she cannot discharge the hold-harmless provision and the potential obligation to repay the other former spouse.” from Gary R. Stickell’s website
Gary R. Stickell, Attorney at Law, P.C
Possible language for divorce decree as related to bankruptcy:
Wife (Husband) intends to file bankruptcy. Therefore no debts are allocated to wife and therefore wife is not ordered to hold harmless husband (wife) regarding any debt. or
There is no division of debts. Each of the parties anticipate filing bankruptcy and discharging the unsecured debts of the marriage.
DISCHARGEABILITY OF PROPERTY SETTLEMENT AND DEFALCATION IN A MARRIAGE
DEBT INCURRED IN COURSE OR CONNECTION TO DIVORCE
WHAT IS AND IS NOT DISCHARGEABLE IN DIVORCE?
CASE STUDIES ON DOMESTIC SUPPORT OBLIGATIONS "DSO"
Over-payment for daycare assistance and food stamps – is that DSO?
In re Dennis and In re Halbert. No. 18-2988 & 18-2952 (7th Circuit 6/27/19). Debtor Dennis filed a Chapter 13. The Illinois Department of Human Services (DHS) filed a priority claim on the basis that the overpayment of daycare assistance was a DSO. Debtor Halbert filed a Chapter 7 and sought the turnover of an intercepted tax refund. DHS claimed that Debtor was illegible for food assistance and claimed in the defense to the turnover action that it was for a DSO. The definition of DSO under 101(14A)(B) includes “support” provided by a governmental unit. DHS claimed these benefits were for minor children and hence support. The Court found that the debts were not in the nature of support, but rather the money was for benefits paid to the Debtors to which the Debtors were not entitled. The Court referenced the cases were a parent overpays for support; those Court have held such an overpayment is not a DSO. The 7th found of the payment of these benefits to which the Debtors were not entitled were not DSOs.
Issue: is judgment for attorneys fees = DSO and not dischargeable in chapter 13?
In re Hurst 2:18-BK-03882-DPC, Adv 2:18-ap-00282-DPC (5/24/19) Before this Court are a Motion and Counter-Motion for Summary Judgment to determine whether a state court judgment for attorneys’ fees is a domestic support obligation (“DSO”). Kimberly Lauren Hurst (“Ms. Hurst”) holds a judgment (“Judgment”) against Aaron Joseph Hurst (“Debtor”) arising from a divorce case #FC2014-009478 (“Divorce Case”) in the Superior Court of Arizona, Maricopa County (“State Court”). Ms. Hurst contends the Judgment is a DSO. Debtor contends the Judgment should not be treated as a DSO and is therefore dischargeable.
This Court now finds that, under the facts of this case, the Judgment is a DSO within the meaning of 11 U.S.C. § 101(14A). The Judgment is non-dischargeable under § 523(a)(5).
Funds subject to constructive trust:
ARIZONA STATUTE RE MANAGEMENT AND CONTROL
FILING FOR ONE SPOUSE ONLY AND COMMUNITY DISCHARGE
Community Property & Community Discharge (specific to Arizona)
BIRT VS BIRT - DIVORCE AND BANKRUPTCY
PROPERTY DIVIDED PURSUANT TO DIVORCE AND FRAUDULENT TRANSFER ISSUE
In re Beverly , 374 B.R. 221 (9th Cir.BAP 2007) affirmed in part, dismissed in part by In re Beverly, 551 F.3d 1092 (9th Cir. 2008). BAP reversed the Bankruptcy Court by finding that Debtor and his former wife committed fraudulent transfers. Their divorce decree awarded the debt to the future Bankrupt while the former wife got all of the non-exempt property. The non-exempt property would have been enough to satisfy all of the debt. Contrast with In re Bledsoe, 569 F. 3d 1106 (9th Cir 2009) where the Court of Appeals found that the mere allegation that the property settlement of divorce decree did fairly divide property was insufficient under §548 without proof of actual fraud.
PROPERTY (INCLUDING DIVORCE ASSETS) RECEIVED BY DEBTOR WITHIN 180 DAYS AFTER FILING CHAPTER 7
The intersection of divorce and bankruptcy:
In re Kiley, 15-27838 (Bankr. D. Utah Dec. 4, 2018) Absent a rollover into an account that might be exempt, Section 541(a)(5)(B) came into play. That section brings property into the estate that the debtor receives within 180 days of bankruptcy as a result of a property settlement or divorce decree.
STUDENT LOANS & DIVORCE
Divorce decree does not control obligation to pay student loan
In re Carrion, Jr. (U.S. Department of Education v. Carlos Carrion, Jr.) 9th Cir BAP, No. SC-18-1234-FBKu (5/31/19) Debtor remained liable for the entire amount of his own educational loan debt even though he agreed to a 50-50 division of the debt with his ex-wife in their marital settlement agreement. Bankruptcy court misapplied California law, reverse and remand.
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Excerpt from Insolvency Insights, By Paul Hammer
Courts Split on Allowing Late Filed POC (10/2019):
Bankruptcy Judge Michelle M. Harner of Baltimore ruled that newly modified Bankruptcy Rule 3002(c)(6) did not give her discretion to allow a creditor to file a late claim when the creditor did not know there was a bankruptcy and the creditor had been omitted from the creditor matrix. Whereas, Bankruptcy Judge Elizabeth W. Brown of Denver who reached the opposite result and found discretion to allow the filing of a late claim under the same rule.
In re Vanderpol, 19-10072 (Bankr. D. Colo. Aug. 28, 2019 – 10th Cir.) Judge Brown said she “interpreted [the rule] more broadly to apply whenever a full and complete Creditor Matrix is not timely filed, such as when a creditor is omitted from the list or is listed incorrectly in such a way that the creditor does not receive notice.” (Emphasis in original.) She went on to say that both the creditor and the debtor can benefit by a more flexible reading of the rule.
Where the benefit to the creditor is obvious, a debtor can benefit because, for example, estate assets can be paid on account of priority or nondischargeable debts.
Allowing the creditor to file a claim beyond the bar date, Judge Brown said she “believes that the intent of Congress is best effectuated by reading this rule to apply whenever the debtor fails to timely file a full and complete Creditor Matrix.”
In re Somerville, 18-20807 (Bankr. D. Md. Oct. 4, 2019, 4th Cir) If the creditor list is timely filed, Judge Harner held that “Bankruptcy Rule 3002(c)(6) does not permit enlarging the time for a moving creditor to file a proof of claim.” Although the drafters of the rule “could have intended broader coverage,” she said that she was “uncomfortable making such inferences when the language of the rule is unambiguous.”
Because the debtor had filed schedules on time, Judge Harner held that “the plain language of the Bankruptcy Rules precludes any enlargement of the claims bar date under the facts of this matter.” Nonetheless, Judge Harner said the creditor “is not without a remedy,” because the claim will not be discharged.
CHAPTER 13 - LATE FILED PROOF OF CLAIMS
In re Barker, 9th Cir. Ct Appeals, BAP No. 13-1393, 10/27/16 The panel affirmed the Bankruptcy Appellate Panel’s affirmance of the bankruptcy court’s decision to disallow a creditor’s late-filed claims in a Chapter 13 proceeding.
Agreeing with the Seventh Circuit, the panel held that if a creditor wishes to participate in the distribution of a debtor’s assets under a Chapter 13 plan, it must file a timely proof of claim under Federal Rule of Bankruptcy Procedure 3002. The debtor’s acknowledgment of debt owed to the creditor in a bankruptcy schedule does not relieve the creditor of this affirmative duty.
CHAPTER 7 DISCHARGES JUNIOR MORTGAGE, LIEN STRIP IN 13 and POC
Effective December 1, 2017: certain amendments to the Bankruptcy Rules will become effective. Below are two of the changes: 1) the period for filing proofs of claim is shortened, and 2) secured creditors must timely file a claim to receive a distribution.
The time period for filing proofs of claim in most bankruptcy proceedings is shortened. Under the amendment to Rule 3002(c) of the Bankruptcy Rules, the deadline for filing a proof of claim, in voluntary cases under Chapters 7, 12, and 13, is now 70 days after the bankruptcy is filed, or if converted to 7 or 13 then from date of conversion. Claims by governmental units may be filed until 180 days after the order for relief.
Extension of deadline: Courts may grant an extension of the filing deadline based on a motion filed under amended Rule 3002(c)(6)(A), if the creditor did not receive notice in time to file a timely proof of claim because the debtor failed to timely file the list of creditors’ names and addresses required by Rule 1007(a). If the court grants such a motion for extension, the extension may be no more than sixty days from the date of the order granting the motion.
The second change affects secured creditors. Under the newly amended Rule 3002(a), secured creditors will be required to file a claim by the claims bar date in order to receive a distribution from the debtor’s estate. The new Rule 3002(a) also clarifies, in accordance with Section 506(d) of the Bankruptcy Code, that the failure to file a proof of claim does not affect the lien securing the debt. As a result, whether or not the secured creditor files a claim will not disturb the creditor’s lien rights.
The following are pre-December 1, 2017 cases:
Effective December 1, 2017: Amended Bankruptcy Rule 3007(a)(1) provides that an objection to a proof of claim and a notice of objection must be filed with the court and served at least thirty days prior to any scheduled hearing on the objection or any deadline for the claimant to request a hearing. The objection and notice must be served by first-class mail on the person designated on the original or amended proof of claim to receive notices, at the address listed for receipt of notices (except that the notice and objection must be served in accordance Rule 7004(b)(4) or (5) if the claimant is the United States and in accordance with Rule 7004(h) if the claimant is an insured depository institution).
Local courts may require claimants to request a hearing or file a response to the objection before a hearing will be scheduled or held on the objection.
December 1, 2011 (NOTE SEE NEW RULE CHANGES): rule changes related to proofs of claim: Pursuant to Rule 3001(c), proofs of claim must be made in writing. Official Form B-10 is the proof of claim form. Official Form B-10 has changed and the instructions for completing the proof of claim have changed. Creditors must now include information about the interest rate, each creditor must now sign off on a statement that it has attached documentation that is evidence of the creditor’s perfected security interest, and the signature block of Official Form B-10 has changed.
RECOURSE vs NON-RECOURSE and SECURED vs UNSECURED
CHAPTER 13 - POST-CONFIRMATION OBJECTIONS TO POC & RES JUDICATA
In LVNV Funding, LLC v. Harling, 852 F.3d 367 (4th Cir. 2017), as amended (Apr. 6, 2017), the Fourth Circuit addressed whether claim objections filed after a Chapter 13 plan had been confirmed are barred by the res judicata effect of the confirmed plan. Here, LVNV Funding filed unsecured proofs of claim that it conceded were barred by the statute of limitations. However, LVNV Funding argued that because the debtors’ Chapter 13 plans were confirmed before the debtors filed their claim objections, the Chapter 13 plans had a res judicata effect on all creditor claims filed prior to the issuance of the confirmation order.
CONCLUSION: post-confirmation claim objections to secured claims are barred by res judicata, while post-confirmation claim objections to unsecured claims are not barred by res judicata.
1099 - MORTGAGES, SHORT SALES or CREDIT CARDS
Question: Creditor (second mortgage) cancels debt several years ago and issues a 1099. Debtor takes the tax hit. Debtor now in a ch. 13 to address the first mortgage. Creditor who cancelled mortgage just filed a claim. Can a creditor claim it is owed money by filing a POC?
Answer?: According to IRS a 1099-C is just a required form so creditor can take loss but does not bar collection down the road (presumably would have to adjust the declared tax loss later if collected). Of course, this happens all the time in debt buying scenario. Most credit card debts are “charged off” and 1099-C may be issued then sold to debt buyer who collects from consumer down the road.
in chapter 13 cases there is a split of authority and fact dependent. For example, here is an interesting case to start with which (in my cursory review) held mortgage creditor could file/collect POC on principle (stating that as the minority view) but not (some) interest, collection costs, or attorneys’ fees alleged to be due: In re Reed, 492 B.R. 261, 273 (Bankr. E.D. Tenn. 2013).
SHORT SALES (law may be dictated by each state or federal): In some circumstances, ORS 86.157(2) will create a bar against an action for residual debt after a short sale: “If a lender reports to the Internal Revenue Service that as a consequence of or in conjunction with a short sale of residential property the lender has canceled all or a portion of a borrower’s obligation under a real estate loan agreement and the lender provides to the borrower written evidence of the lender’s report to the Internal Revenue Service, the lender or an assignee of the lender may not bring an action or otherwise seek payment for the residual debt following the short sale.” (Some terms are defined in the statute.)
In In re Woodbridge Grp. of Companies, LLC, No. BR 17-12560-BLS, 2019 WL 4305444 (D. Del. Sept. 11, 2019), the United States District Court for the District of Delaware affirmed an opinion by Bankruptcy Judge Kevin Carey, and held that a proof of claim will be expunged if the note and loan agreement underlying the claim prohibit assignment and provide that assignment without consent will be “null and void.” Read more…
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COMPARISON BETWEEN BANKRUPTCY CHAPTERS: 7, 11, 12 & 13
Comparison between bankruptcy chapters – 7, 11, 12 and 13
QUICK REFERENCE GUIDE TO 2017 FEDERAL RULE CHANGES FOR CHAPTER 13
Reference guide, by Beverly M. Burden, Chapter 13 trustee, EDKY, updated October 18, 2017.
FAILURE OF CHAPTER 13 CASES - WITHOUT AN ATTORNEY = ALMOST 98%
Success in a chapter 13 without an experienced attorney is “practically impossible” according to judge and court statistics.
Of all cases filed only 38.8% of chapter 13 debtors complete a plan and receive a discharge. At, 41.5%, the odds are slightly higher if represented by counsel. Completion of a plan that results in a discharge when the chapter 13 debtor is pro se (without an experienced chapter 13 attorney) is practically impossible – 2.3%.
(Statistics taken from Ed Flynn, Success Rates in Chapter 13, Am. Bankr. Inst. J., August 2017, at 38, 39).
INCOME IN CHAPTER 13, INCLUDING WHAT IS NOT DISPOSABLE INCOME
DEBT DISCHARGED IN 7 IS NOT COUNTED IN LATER 13 FOR ELIGIBILITY
Debtors can only file for Chapter 13 if their total unsecured and secured debts are less than certain statutory amounts (11 U.S.C 109(e)). The Bankruptcy Code provides for an increase of the Chapter 13 debt limits every three years. The new debt limits for Chapter 13 were published on February 12, 2019. Beginning April 1, 2019, the Chapter 13 debt limit increased to (a) $419,275 for a debtor’s noncontingent, liquidated unsecured debts, and (b) $1,257,850 for a debtor’s noncontingent, liquidated secured debts. This increase is about 6 percent, which is roughly double the increase in 2016.
EXCEPTIONS TO DISCHARGE - CHAPTER 13
DISCHARGE PROBLEMS IN "CHAPTER 20"
Defendant SEFCU, a lender, appeals from a judgment of the United States District Court for the Northern District of New York (Suddaby, J.) reversing an order of the United States Bankruptcy Court for the Northern District of New York (Littlefield, J.) and remanding the case to the Bankruptcy Court for further proceedings. The District Court concluded that SEFCU violated the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362, when, after lawfully repossessing a vehicle belonging to the debtor, plaintiff Christopher Weber, it failed to deliver the vehicle to him notwithstanding its knowledge of the debtor’s pending petition under Chapter 13 of the Bankruptcy Code. The District Court affirmed, holding that, by declining to surrender the vehicle absent a turnover order and protection SEFCU considered adequate, the lender wrongfully “exercised control” over the vehicle in contravention of section 362 and was liable for Weber’s related damages, attorneys’ fees, and costs. We AFFIRM the judgment of the District Court.
BAPCPA did not render Chapter 20 debtors ineligible to void liens permanently.
In re Blendheim D.C. No. 2:11-cv-02004-MJP Washington (9th Cir Ct Appeals, 10/1/15) Affirming in part and vacating in part the district court’s judgment, the panel held that an amendment to the
Bankruptcy Code¯barring debtors from receiving a discharge at the conclusion of their Chapter 13 reorganization if they received a Chapter 7 discharge within four years of filing for Chapter 13 relief¯does not render such “Chapter 20” debtors ineligible for Chapter 13’s lien-avoidance mechanism, which allows a debtor to void or modify certain creditor liens on the debtor’s property, permanently barring the creditor from foreclosing on that property.
The panel held that the bankruptcy court properly voided a creditor’s lien under § 506(d) of the Bankruptcy Code. The panel held that under § 506(d), if a creditor’s claim has not been “allowed” in the bankruptcy proceeding, then a lien securing the claim is void. The panel held that the voiding of the creditor’s lien was permanent such that the lien would not be resurrected upon the completion of the debtors’ Chapter 13 plan. Agreeing with the Fourth and Eleventh Circuits, the panel held that 11
U.S.C. § 1328(f), enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, did not render Chapter 20 debtors ineligible to void liens permanently.
VALUING PROPERTY IN CHAPTER 13
VEHICLE: OWNERSHIP vs OPERATIONAL EXPENSES
BUYING A VEHICLE WHILE IN A CHAPTER 13
POST-CONFIRMATION OBJECTION TO PROOF OF CLAIMS
CAN A CHAPTER 13 GO BEYOND 60 MONTHS?
IN RE: PAUL E. KLAAS; Nos. 15-3341 & 16-3482 (3rd Cir Court Appeals, W.D. PA. 6/1/17) The Bankruptcy Code sets certain limits on the amount of time that debtors may be required to remain in Chapter 13 proceedings and make payments on their debts. This case presents two questions of first impression among the Courts of Appeals: whether bankruptcy courts have discretion to grant a brief grace period and discharge debtors who cure an arrearage in their payment plan shortly after the expiration of the plan term, and if so, what factors are relevant for the bankruptcy court to consider when exercising that discretion. Because we conclude the Bankruptcy Code does permit a bankruptcy court to grant such a grace period and the Bankruptcy Court did not abuse its discretion in granting one here, we will affirm the rulings of the District Court, which in turn affirmed the relevant order and judgment of the Bankruptcy Court.
DEATH OF DEBTOR IN A CHAPTER 13 CASE
ATTORNEY FEES - CONVERTED or DISMISSED
In re Jessica Hayden, 4:15-BK-12619-BWM After Harris v Viegelahn (US Supreme Court, 2015): (6/26/18) Judge Whinery entered an order granting payment of attorney’s fees in a case that converted PRIOR to confirmation of a plan. So, in the narrow circumstance of a case converting prior to plan confirmation, Judge Whinery will enter orders allowing the payment of fees that may be on hand with the Trustee, rather than sending those funds back to the debtor as under the Harris case when a case dismisses or converts after a plan is confirmed.
Judge Gan’s initial reaction three years ago (but he has not been presented with the issue formally) was that he thought Harris would not allow the payment of fees under this circumstance.
BAD FAITH CHAPTER 13
In re Mangaoang, 9th Cir BAP, 8-13-19 Bankruptcy court (ND Cal.) denied chapter 13 debtor’s motion to extend automatic stay in her second chapter 13 case. Debtor appealed to BAP for 9th Circuit.Facts:Debtor filed chapter 13 case to stay foreclosure on home. Secured creditors and chapter 13 trustee opposed debtors proposed plans. Debtor’s unstable income was unable to fund a feasible plan. Bankruptcy court dismissed case. Creditors re-scheduled foreclosure.
Debtor filed second chapter 13 case on eve of foreclosure. Because second case was filed within one year of dismissal of prior case, the automatic stay was set to expire 30 days after filing. Debtor moved to extend stay. Secured creditor opposed, asserting presumption of bad faith, no change in income instability, and no feasible plan. Bankruptcy court denied extension of stay. Debtor timely appealed to BAP. While appeal was pending, secured creditor completed foreclosure sale. Bankruptcy court dismissed case five months later, while appeal was pending.
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WARNING: LAWS CHANGE CONSTANTLY. DO NOT RELY ON ANYTHING ON OR LINKED TO FROM THIS WEBSITE.
IT IS IMPORTANT THAT YOU DO YOUR OWN DUE DILIGENCE.
FACTS FOR THE CONSUMER (THAT IS YOU)
BORROWERS and CREDITORS BOTH HAVE RIGHTS
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Chapter-7-flow-chart 9-12-18.pdf	(427 downloads) Tab Content goes here
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WHAT IS A CREDIT SCORE & INFORMATION ABOUT CREDIT REPORT
If you have been denied credit you can get a free copy of the report the creditor used.
There are three major credit bureaus: CBI/Equifax, Experian and Trans Union, plus many smaller regional and local bureaus. In addition, once a year you can order a free credit report from each of the three credit reporting agencies: www.annualcreditreport.com. Otherwise, for a minimal amount (usually $8.00) you can obtain a copy of each credit report. To be very thorough order a report from all three credit bureaus. If possible get these as three separate reports, rather than one merged report. Sometimes it is more difficult to read the merged report.
Listing creditors in a bankruptcy.
The important point to understand is that failing to list a creditor/collection company/attorney can leave you exposed to that creditor even after your bankruptcy is completed. The best philosophy is to list everyone, no matter whether or not you remember ever owing that creditor. Also make certain to list all the debts of your ex-spouse that were incurred while you were married and debts which were business obligations.
When ordering your credit reports make sue to provide detailed information.
Credit Scoring – 850 is the top score.
FNMA has instructed that any score less than 620 dictates that the lender use extreme caution in making any loans. The odds are that those with a score of less than 500 will fail to make their first payment in one out of three loans. Knowledge is power.
MoneyGeek – this is a resource for more information about credit scores, but please note I have no idea about the accuracy of information on any website.
Also, be very careful about signing up for credit score companies that promise to “fix” your credit – they are scams.
Help My Credit Score Is Destroying My Life
Arizona Supreme Court decision – Collection on credit card debt.
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Planning before filing a bankruptcy can be complicated and NEVER a guaranty.
What is Pre-bankruptcy planning? It is the transferring of non-exempt assets into exempt assets.
Exempt property is normally property protected from seizure by unsecured creditors Download List Of Arizona Exemptions	(5727 downloads) Transferring non-exempt into exempt assets is a practice is not necessarily illegal or improper. The Bankruptcy Code legislative notes specifically permit this type of activity. But, this is not to say that the procedure is without risk. The 2005 changes in the bankruptcy laws challenge the constitutional right of every person to receive adequate legal advice from their attorney regarding pre-bankruptcy transfers or incurring new debt.
Before the bankruptcy law changed in 2005 our Arizona Bankruptcy judges declared they “would know pre-bankruptcy planning that had crossed the line when they saw it.”
Some Bankruptcy courts in other states have been very outspoken about such planning prior to filing a bankruptcy. At this time there is no single test which has been universally accepted by all the Bankruptcy Courts in determining how much pre-bankruptcy planning is too much. Generally, a number of criteria appear to have been considered in several of these court cases:
The best way to summarize whether or not pre-bankruptcy planning will succeed is to consider the old maxim, “pigs get fat and hogs get slaughtered”.
Other courts have considered additional circumstances in determining whether or not the pre-bankruptcy planning is acceptable. Whenever a law changes it takes years to determine how the new bankruptcy laws will change this pre-bankruptcy planning process.
Any attorney participating in pre-bankruptcy planning is incurring some risk if the planning progresses to a stage where it could be interpreted as fraud upon creditors.
Though normally the Bankruptcy Courts do not condemn the attorney for the planning, but rather punish the debtor, in past non-bankruptcy settings, the Arizona courts have sanctioned attorneys for overly zealous asset protection tactics. Of course, this may change under the new bankruptcy laws.
For instance: the 2005 bankruptcy laws 11 USC Section 526(a)(4) prohibit anyone helping a consumer in filing for bankruptcy from advising that person to incur more debt or to pay an attorney, or anyone else, for help in the a bankruptcy. Obviously, this is just ridiculous. Did Congress really intend on making it illegal to pay an attorney for help in filing for bankruptcy? Did Congress intend on the attorney not be able to advice the client to get rid of an old clunker car and buy a new one before filing for bankruptcy? The client fully intends on keeping the payments current on the new car, they just need dependable transportation. I think not. This is just another example of how poorly the 2005 law was written.
Debtors whose pre-bankruptcy planning has been successfully challenged face a variety of repercussions.
Oftentimes, the courts order that transfers shall be undone and the asset brought back into the bankruptcy estate. For example, a debtor pays $25,000 toward the debt secured by his residence, so as to maximize his allowed homestead exemption. The Court could second guess this payment and order the funds to be brought back into the bankruptcy estate. At times it is a gamble whether or not the Bankruptcy Court will find this type of pre-planning to be “piggish or hoggish”. Under the2005 law 11 USC Section 522(o) and (p) may expose any transfers made within 10 years or 3 years 4 months, respectively, into exempt property. This law does not specifically refer to homestead property and requires that the property be disposed of with the intent to hinder, delay or defraud a creditor and that the property disposed of was not already exempt
Given the uncertainty in this area it would be advisable for debtors and their counsel to tread very carefully.
In some situations, courts found the pre-bankruptcy planning to be so egregious that it justified the debtor losing his or her discharge and/or sanctioning of the debtor’s attorney. Under the prior law this result was rare, being deprived of a discharge defeats the entire reason behind bankruptcy and is disastrous for the debtor. The new law is so confusing that no one, judges includes, really understand how to deal with issues. My recommendation: do not be the first one to try aggressive pre-bankruptcy planning.
You need to make a decision whether your constitutional right and ethical duty to give your clients competent advice, is controlled by any attempt of the credit card industry to scare everyone, lawyers included, away from bankruptcy protection.
Transferring Assets Before Bankruptcy
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