bankruptcy practice

Bankruptcy Schedules Call For Payoff Balance

April 22, 2010 By Cathy Moran, Esq. Leave a Comment

Babel fish from Hitchhiker's Guide to the Galaxy

Bankruptcy debtors hear something different when their lawyer asks, “What do you owe on your mortgage”. It’s as though they speak a different language, Client, while we speak Bankruptcy. As bankruptcy lawyers, we need to be bilingual.

It shouldn’t be a trick question, but all too often the answer a bankruptcy lawyer gets back is the principal balance. Gone, somehow, are the arrears and corporate advances much less all the junk fees the homeowner knows nothing about.

It is the payoff balance that you want for the bankruptcy schedules: principal, interest, and everything else owed to the lender to obtain release of the lien. Knowing the arrears is important for the means test and for the plan, in Chapter 13.

But it’s also vital when you are considering a lien strip in Chapter 13. You may need every dollar owed to the senior lender to push the junior lien over the edge of the equity.

So, once again, don’t take the client’s input at face value. Probe to find out if the number you’re given for the mortgage debt includes any arrearages. Develop your linguistic skills in Client-speak.

Image courtesy of Wikipedia and Stuart Halliday.

Filed Under: Bankruptcy Practice Tagged With: bankruptcy practice, client intake, filing bankruptcy

Learn the Bankruptcy Lingo

April 13, 2010 By Cathy Moran, Esq. 5 Comments

While we’re learning to “walk the walk”, we might as well learn to “talk the (bankruptcy) talk”. Each profession has its shorthand for concepts that are encountered repeatedly. For bankruptcy lawyers, that includes the distinction between Chapter 13 “percentage plans” vs. “pot plans“.

These terms are alternative ways that the dividend to unsecured creditors in a Chapter 13 case is expressed in the plan. In a percentage plan, the debtor promises a payout of a certain percent to creditors: 1% or 15% or 100%.

In a pot plan, the debtor commits to paying a certain sum into the plan, to be shared by creditors pro rata. The exact fraction of each claim that is paid will be dependent on the sum of the claims actually filed. These are sometimes also referred to as “base” plans.

Chapter 13 is procedurally quite variable and some districts have either required plans or ingrained custom that favors one approach over the other.

I tend to favor pot plans, since it provides certainty to the debtor as to the size of the financial commitment and it frees the debtor from reviewing filed proofs of claim. The debtor in a pot plan is indifferent how large any one claim is, since the only parties affected by an inflated claim are other creditors, whose slice of the pie shrinks with the filing of larger claims.

A percentage plan might be advantageous if you had lots of very old claims where a large number of claims could be expected to go unfiled. If you had an unliquidated tort claim, you probably wouldn’t choose a percentage plan, where the debtor has a real stake in the size of the damages.

So, now you can add “pot plan” and “percentage plan” to your bankruptcy vocabulary.

Filed Under: Bankruptcy Practice Tagged With: bankruptcy practice, bankruptcy terms, Chapter 13

Bankruptcy Dollar Amounts Changed April 1

April 10, 2010 By Cathy Moran, Esq. 2 Comments

Bankruptcy Code sections that reference a dollar amount, such as the threshold for a presumption of abuse on the means test or the cap on Chapter 13 debts, were adjusted effective April 1, 2010. This change occurs every three years and is tied to the Consumer Price Index.

Here’s a table of the changes in amounts; new official bankruptcy forms reflecting the changes where they impact the schedules are published on the court’s web site.

If you are a California bankruptcy lawyer, note that the state exemption amounts were also adjusted on April 1. Links to the list of state law exemptions and the updated dollar amounts of those exemptions are found on my Bankruptcy Soapbox.

Filed Under: Bankruptcy Practice Tagged With: bankruptcy exemptions, bankruptcy practice, means test

Bankruptcy Exemption Mistakes Feed Trustee Coffers

April 8, 2010 By Cathy Moran, Esq. Leave a Comment

Bankruptcy lawyers who mess up claims of exemptions were the other target of the trustee’s attorney I spoke with earlier this week. He rubbed his hands over attorneys who hadn’t collected enough information to understand the asset or who simply didn’t know that the homestead exemption didn’t apply to property other than the debtor’s residence.

It’s not surprising that exemptions are a fundamental source of error: think about the pro per filings that you’ve seen. While they might get most of the rest of the filing correct, the exemptions are most often either blank or riddled with mistakes.

Tying back to my last post on newbie bankruptcy attorneys failings, remember that the debtor cannot generally exempt property that was not disclosed or property that was voluntarily transferred by the debtor.

My questionnaire for clients is headed by an admonition to “list it or lose it”. Your interview with the client and your written materials should reinforce this idea. Clients are full of misinformation that “allows” them to exclude certain of their assets from the schedules.

The claims of exemption are freely amendable, over the course of the case, so, as long as the asset is disclosed, you can readjust exemptions if new information comes to light. You just can’t exempt new assets that were knowingly excluded from the schedules.

Again, “Let’s be careful out there“.

Bankruptcy Contested Matters: Won by Showing Up

April 1, 2010 By Cathy Moran, Esq. 1 Comment

Sometimes bankruptcy litigation is won by simple persistence. As Woody Allen says “80% of success is showing up”. Two instances this week where being ready and willing to have a hearing on a disputed issue resulted in victory before the hearing.

In my case, I had a marginal set of facts in a non dischargeability action against my client. The law on the subject was ugly but I cooked up the best argument I could for the discharge of the debt. I had earlier suggested to opposing counsel that my client was unlikely to be able to pay the claim if it survived but she slogged on. On the afternoon our cross motions for summary judgment were due and mine was just ready to file when my opponent called and proposed to dismiss the case rather than prepare a motion! Yahoooooo!

The other instance was a young lawyer I know, facing a trustee’s objection to confirmation of a plan. Convinced her client was getting a raw deal, she set it for a hearing and served discovery on the trustee. Lo and behold, a settlement offer came back several hundred dollars a month better than the prior offer.

Goodness knows I am not advocating mindless litigation. Bankruptcy is all about limited resources and making deals that serve the parties better than a fight over crumbs. In general, our clients can’t afford to pay us even to win most disputes in bankruptcy.

But willingness to go the distance on well chosen issues and to prepare to argue the matter to a judge often gets you a better settlement than otherwise available. And if it doesn’t settle out, it gets you a little trial experience.

More on courtroom opportunities in bankruptcy

Filed Under: Bankruptcy Practice Tagged With: bankruptcy advocacy, bankruptcy contested matters, bankruptcy law, bankruptcy litigation, bankruptcy practice, courtroom procedure

Bankruptcy Exemptions: 10 Ways to Deal with Excess Cash

March 29, 2010 By Cathy Moran, Esq. 10 Comments

Bankruptcy lawyers occasionally are confronted with the client with more cash, or other marketable assets, worth more than the available exemptions to protect them.

Here are some things to spend that currently non exempt cash on that are exempt, or unappealing to a bankruptcy trustee:

Fund IRA’s
Obtain cash value life insurance up to exemption limit
Repay 401(k) loans
Prepay home or auto insurance
Catch up on tax under-withholding
Get needed medical or dental treatment
Repair the things the client has
Tune-up car
Stock pantry & freezer
Pay down student loans, delinquent support, priority taxes

Paying down the student loan will require that the client wait 90 days to file, putting the transfer beyond the preference period look back.

Look through the list of available exemptions where you practice and look for ways the debtor can increase the value of any asset currently worth less than the maximum exempt or acquire an asset that would be both useful and exempt going forward. ( I generally don’t advise maximizing the exemption for a mule or a plow for instance.)

Exemption planning is an issue that is exquisitely local: available exemptions vary from state to state and the local view of what is permissible exemption planning rather than actions to hinder delay or defraud creditors vary.

None of these suggestions, in my view, push the envelope. But read some cases in your jurisdiction for a look at the prevailing attitude. Talk to veteran practitioners.

It’s your job to help the client retain as much value as they can for their fresh start.

Image courtesy of Library of Congress

Filed Under: Bankruptcy Practice Tagged With: assets, bankruptcy exemptions, bankruptcy planning, bankruptcy practice, bankruptcy skills, filing bankruptcy

Bankruptcy’s Means Test Doesn’t Apply to All

March 25, 2010 By Cathy Moran, Esq. 4 Comments

New bankruptcy lawyers sometimes forget in the flurry over getting the means test right that it only applies when the debts are primarily consumer.

Primarily means over half in dollar amount.

The code defines consumer debts in §101(8) as debt incurred for a personal, family or household purpose.

You may be surprised by the kinds of debt that are not consumer debt:

Taxes
Business debts
Tort claims
Professional school loans

The last two are supported only by a few cases, but the thread of the decisions on the subject make the debtor’s election to incur the debt a deciding factor. One doesn’t “elect” to be subject to taxes, the courts reason, so they aren’t consumer debts. Likewise, auto accident liability.

Professional school loans perhaps come closer to being business debts rather than personal debts. The law isn’t clear, in my view.

Mortgage debt incurred to acquire a house is personal, but a refinancing to fund a business is probably business debt. Debt incurred to buy rental property is incurred with a profit motive, one of the courts’ favorite measures of whether a debt is or is not a consumer debt.

Then there is the business credit card. If actually used for business, it is not a consumer debt.

So, before you chug through the means test, make sure it applies to this client.