How to Lose a Chapter 7 Discharge: Failure to Keep Adequate Records
By Mark Markus | February 5, 2010
A while back I wrote an article about the importance of keeping records and receipts, as they are necessary in a bankruptcy case (see http://bklaw.com/bankruptcy-blog/2008/11/receipts-and-documentation/). This requirement was recently revisited by the 9th Circuit Court of Appeals in In re Caneva, 550 F.3d 206 (9th Cir. 2008). In that case, the court held that a debtor filing bankruptcy would be denied his discharge because he failed to maintain or preserve adequate books and records from which the Trustee in bankruptcy (and creditors) could assess the debtor’s financial condition.
This is one of the prerequisites to obtaining a discharge in a Chapter 7 case. 11 U.S.C. 727(a)(3) states that one of the bases for denial of a discharge in a Chapter 7 case is where the debtor “has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor’s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all the circumstances of the case.”
The court in Caneva opined that this is particularly true where the debtor is self-employed or operating a business, but it is required in all cases.
Caneva
Topics: Bankruptcy Law, Discharge Issues, chapter 7 | No Comments »
Private Student Loans in Bankruptcy: Dischargeable?
By Mark Markus | December 29, 2009
My question of the week comes from a client who wanted to know if private student loans he owed on were discharged in a bankruptcy case he filed in 2002.
For bankruptcy cases filed PRIOR TO October 17, 2005, if the PROGRAM under which a student loan was issued, insured, administered was a FOR-profit, PRIVATE (non-government) entity, the loan/debt may have been discharged. However, if the program itself, such as LAL, GSL, etc. received nonprofit funding by participation of nonprofit entities, the loan is not dischargeable in bankruptcy.
To see a ninth circuit case which examines the private vs. government distinction on student loans in bankruptcy, see In re Pilcher
For bankruptcy cases filed after October 17, 2005, the only way a student loan is dischargeable is if the debtor can prove “undue hardship” as that term is interpreted by the courts in whatever district the case is filed in. It is a difficult standard to meet, and the vast majority of student loan debts are not dischargeable.
To see more on how the undue hardship test is applied in the ninth circuit, see http://www.bklaw.com/chapter7/student_loans.html
For cases filed prior to October 7, 1998, student loans were dischargeable if they were in repayment status for a certain period of time.
Topics: Student Loans | No Comments »
Congress Votes Against Bankruptcy Modification
By Mark Markus | December 11, 2009
Today the U.S. House of Representatives voted against legislation that would have allowed homeowners to modify their loans on a principal residence in a bankruptcy case (Chapter 13). This is at least the second time this amendment has come up for vote, and this time only 50 democrats voted in favor. Thus, the bankruptcy law remains unchanged on this issue. Loans against a principal residence cannot be modified in a bankruptcy case (except that in some circumstances–and only in some districts– a junior lien may be removed if and only if the value of the property is less than the amount owed to the 1st mortgage).
If you want to know how your Member of Congress voted today, go to http://clerk.house.gov/evs/2009/roll963.xml. If you want to compare your Representative’s vote today with that on H.R. 1106, go to http://clerk.house.gov/evs/2009/roll104.xml to see their earlier vote. Of course, there were a number of variables associated with today’s vote that were not a factor in the earlier vote, particularly given that Members also were being asked to vote against the banks by supporting the creation of a Consumer Financial Protection Agency (CFPA).
Topics: Bankruptcy Law, Legislation | No Comments »
Removing Judgment Liens in Bankruptcy
By Mark Markus | October 11, 2009
A major source of confusion among people who file for bankruptcy is whether debts on which there is a judgment or lien can be removed (discharged) in a bankruptcy case.
Whether a debt is dischargeable or not depends on the type of debt it is, and how it was incurred. For example, debts incurred through fraud are not dischargeable. Neither are certain tax debts or student loans. For more information on this, see http://www.bklaw.com/discharge.html
It is important to understand that a judgment and a lien are not the same thing. A judgment is a court order either fixing liability and an amount owed, or ordering someone to do something. A lien is the creation of a security interest against an asset or assets, giving the judgment creditor rights against that asset (such as real estate, or a bank account, or wage garnishment). How much of a right to collect depends on the equity in the asset and if any senior creditors (such as a mortgage holder on real estate) are present.
A judgment lien is not automatic. First, the creditor must obtain a judgment from the court. Then, to create a lien, it must be perfected under applicable non-bankruptcy law (usually the State or county in which the asset is located). For real estate, this usually involves obtaining a certified abstract of the judgment from the court that issued it, and recording it with the county recorder’s office wherever the property is located that the creditor wants the lien to attach.
So, can one get rid of (avoid) a judgment lien in a bankruptcy case? If certain requirements are met, yes. The bankruptcy code section that states this is 11 U.S.C. 522(f), which allows a lien to be removed to the extent that it impairs an exemption to which the debtor would have been entitled in the absence of the lien. This is basically a mathematical calculation, and depends of course on the value of the asset, the amount of any senior liens, and the amount of the available exemptions (usually governed by the laws of the State where the bankruptcy case is filed, but not always). To see more on exemptions, visit http://www.bklaw.com/exemptions.html.
The bottom line is that if you have a creditor who has obtained a judgment lien against you, be sure to tell your bankruptcy attorney so he/she can assess whether or not it can be removable in your case. This can also be done after your bankruptcy case is over, but there are limits and it requires additional legal fees to reopen your bankruptcy case.
Topics: Lien Avoidance, Uncategorized | No Comments »
What if you forget to list a creditor in your bankruptcy?
By Mark Markus | September 23, 2009
What happens if a debtor forgets to list one or more creditors on their bankruptcy papers? The answer varies depending on where your case is filed and what chapter of bankruptcy was filed, as well as some other factors.
In the 9th Circuit (which includes California, Oregon, Arizona, Washington and Nevada, Idaho, Alaska, Hawaii and Guam) if your case was a Chapter 7 bankruptcy in which no assets were liquidated and sold by the Trustee, and you receive your discharge, there is no consequence for unintentionally failing to list a creditor. Thus, if you get your discharge, you are discharged from ALL dischargeable debts regardless of whether they were listed or received notice of the bankruptcy. The two main cases on this are In re Neilsen, 383 F.2d 922 (9th Cir. 2004) and In re Beezley, 994 F.2d 1433 (9th Cir. 1993). (If the creditor in question has grounds to object to the discharge of the debt– for example, if the debt was incurred through fraud– they can still move to reopen the Chapter 7 case and litigate their nondischargeability claim if they received no notice of the original bankruptcy).
In a Chapter 11, Chapter 13 case or in a Chapter 7 case where assets are being distributed by the Trustee, the failure to list a creditor is more serious and can result in that debt not being discharged.
If your case is filed outside the 9th Circuit, you should consult with a bankruptcy attorney in your area regarding the law in your jurisdiction.
Topics: Bankruptcy Law, chapter 11, chapter 13, chapter 7 | 1 Comment »
Does Filing CH. 13 Bypass the Means Test?
By Mark Markus | September 16, 2009
- Our question of the week comes from a user who asks:
I have been unemployed for nearly a year now and will be running out of unemployment benefits in about 3 months which will leave me with no income at all and I am single. The prospects of finding a job in my line of work anytime soon is looking pretty grim so I am seriously considering launching another business of my own but that will take at least a year. I make about $960 a month on unemployment and have no residual savings other than my 401k and own no real property. My personal property is limited to my 13 year old car, my clothes and some minor furnishings which really aren’t worth anything. My dischargeable debts amount to about $35,000 and are comprised of strictly credit cards and medical expenses. I have never filed bankruptcy before and have spent the last 10 years rebuilding my credit after paying off debts from a business I was forced to close, so it’s heartbreaking for me to have to seriously consider bankruptcy now.
Here’s what I would like to know.
1. With little income which is on the verge of disappearing can I file directly for a Chapter 7 or do I need to file Chapter 13 first and complete the means test?
Answer: The “means test” must be completed if you are over the median income in your State, given your household size, in order to determine what you are eligible for. The so-called “means test form” must be completed in any bankruptcy case. You can file Chapter 13 first, but from the above facts it sounds like you would qualify for a Chapter 7 case, but you need to have a comprehensive consult with a bankruptcy attorney in your area to make that determination.
Topics: chapter 13, chapter 7, means test | 1 Comment »
Are Student Loans Counted as Part of Chapter 13 Debt Limits?
By Mark Markus | August 26, 2009
An individual can file a Chapter 13 case if they have noncontingent, liquidated unsecured debts LESS than $336,900 and noncontingent, liquidate secured debts of LESS than $1,010,650. (these amounts are adjusted every few years)
Student loan debt, as with ANY debt, factors into the debt limits for Chapter 13 under 11 USC 109(e).
A client asked me this question thinking that because student loans were non-dischargeable perhaps that affected whether the debt applies to the Chapter 13 debt limits.
The only way the student loan (or any) debt would not count towards the unsecured debt limit in a Chapter 13 is if one of the following occurred:
A. They already had a judgment against you (in the event of a default in payments) and created a lien against assets sufficient to cover the amount of the student loan. In this case, that amount would count towards the SECURED debt limit (which as stated above is just over $1 million);
B. The debt is contingent, meaning that you don’t owe it unless some pre-condition occurs; or
C. The debt is unliquidated, meaning that there is no way to readily determine the amount owed.
Topics: chapter 13 | 1 Comment »
Scholarship opportunity for Children of So Cal Bankruptcy Filers
By Mark Markus | August 3, 2009
I don’t normally blog as an advertisement to other sites, but since this could potentially assist those who have filed bankruptcy in southern california, I pass this along without any specific recommendations or representations, as a potential point of assistance for children of those who have filed bankruptcy.
The Suite Solutions Scholarship Program is providing $30,000 in college scholarships to the children of parents who have filed for bankruptcy in Southern California—15 students will be awarded with $1,000 scholarships and three others will be awarded with $5,000 scholarships. To qualify for the Suite Solutions Scholarship Program, candidates must be:
- a child whose parent(s) have filed for consumer bankruptcy in California.
- a Southern California resident.
- a high school senior graduating in the spring of 2009 or current undergraduate college student enrolled for the upcoming fall semester at a two-year or four-year accredited college.
- a student who demonstrates participation in his/her school or community through academic achievement, participation in extracurricular activities and/or community service.
The application deadline for the scholarship program is quickly approaching (Aug. 10, 2009). Candidates are encouraged to apply as soon as possible by visiting http://www.suitesolutions.info/scholarship.asp
Topics: Bankruptcy Law | No Comments »
Bankruptcy: Debtor’s Prison Abolished!
By Mark Markus | July 20, 2009
That’s right. Thanks to federally enacted law, one can no longer be sent to prison for failure to pay their debts. When did this become effective? In 1833. Yes, I said 1833. Andrew Jackson was president of the United States. Why do I bring this up now? Because not a week goes by in my bankruptcy practice that a potential client doesn’t ask me if they will go to jail because they owe money to creditors. You cannot go to jail because you owe money and can’t pay your debts.
There is always significant misinformation floating around regarding the bankruptcy laws and what they can or cannot accomplish (see for example the new bankruptcy laws enacted in 2005 as an example where people still think that one cannot file Chapter 7 on credit card debts–a complete falsehood propagated by the media). But the “new” bankruptcy laws are only 3-4 years old. Debtor’s prisons were abolished 176 years ago. I doubt any of my clients were born prior to then, and yet there is still a perception in our society that this law exists.
Prior to 1833 debtors were allowed out of prison if they gave up all of their assets. Presently, creditors can undertake collection activities allowed under applicable state law, such as garnishing wages, seizing bank accounts, placing liens against real estate and other property, etc. One can file a Chapter 7 or 13 bankruptcy case and get rid of most debts (i.e. discharge the debts) in return for giving up any NON-exempt assets they have (in Chapter 7) or paying out the equivalent value of said assets over time (in a Chapter 13). Every state has exemptions which protect the value in various assets, so one is always allowed to retain some (and frequently ALL) of the their assets when filing for bankruptcy relief.
Topics: Uncategorized | 2 Comments »
Credit Counseling Before Bankruptcy: When Must it Be Done?
By Mark Markus | June 12, 2009
I write this to clarify misconceptions regarding the required credit counseling prerequisite to filing a bankruptcy case.
One of the requirements of the new bankruptcy law that went into effect in October 2005 is that all individual debtors filing a bankruptcy case must complete a credit counseling course by a certified company within six months prior to filing their bankruptcy case.
Recently I have received a number of comments from potential clients telling me that they were informed that they had to complete the credit counseling course, then wait six months before they can file their bankruptcy case. This is completely untrue.
The certificate for a completed credit counseling course is valid for 6 months. If for some reason you obtain a certificate and do not file your bankruptcy case (Chapter 7, Chapter 13 or Chapter 11) within 6 months, then you need to take the course again and obtain another certificate.
The course itself probably takes about an hour or so to complete. Many credit counseling agencies allow this to be done online.
There is another financial management course which Congress requires debtors to take AFTER the bankruptcy case is filed. This is a prerequisite to obtaining a discharge of debts. This financial management course (also called a debt management course) takes a similar amount of time as the credit counseling course to complete and can also be done online in many instances.
Topics: credit counseling | No Comments »