Posted on May 31, 2017 in Asset Protection

If you are expecting an inheritance, or even if you are not, the special rules about them are worth your attention to prevent bad surprises.

Most people thinking about filing bankruptcy aren’t expecting an inheritance.

But if you are, there are some very important timing rules that can affect whether and when you’ll file bankruptcy.

And even if you are not expecting an inheritance, these rules are helpful to know in case you unexpectedly do receive one.

Fixation on Property Owned at the Moment of Filing Bankruptcy

When we introduced “property of the estate” a week ago we emphasized that it’s comprised of everything you own at the “commencement of the case.”

The timing is crucial. Usually any property you acquire in the days and months after filing a Chapter 7 case is not “property of the estate.” It doesn’t fall within the jurisdiction of the bankruptcy court or the reach of the liquidating Chapter 7 trustee. You don’t have to protect that property with exemptions. It’s simply yours.

Continue Reading ››

 Posted on May 12, 2017 in Chapter 7

What happens when your bankruptcy trustee thinks you undervalued an asset? How does the trustee determine what you own and its value?

Last time, we got into what happens when your asset (“property) and exemption schedules show you have an unprotected asset. In that scenario you own something that is not covered by an allowed exemption. So it is not exempt from the Chapter 7 trustee’s reach.

We mentioned two other scenarios. What happens if:

• the trustee believes you may have undervalued an asset, or
• the trustee disputes that an exemption you claimed applies to your asset?

We’ll cover the first of these two today, and the second in our next blog post.

Your Valuation of Assets

The starting point for what your assets are worth is the value you give to them in your asset schedule. That form asks for the “current value” of the property.

Continue Reading ››

 Posted on April 24, 2017 in Bankruptcy Law

“Fraudulent transfers” have similarities to “preferences.” They are both worth understanding because they can cause unnecessary hassles.

Asset Timing in Bankruptcy

Your Chapter 7 trustee usually mostly focuses attention on determining whether any of your assets are not “exempt.” You get to keep all exempt assets. If there are any assets that are not exempt, the trustee has the right to take them, liquidate them, and pay the proceeds to your creditors. However, in most consumer Chapter 7 cases all the assets are exempt so the trustee takes nothing. The debtor gets to keep everything.

In this process, the trustee is only interested in what you own at the moment you file your bankruptcy case. This timing gets quite precise. For example, what counts is the amount of actual cash you have on hand at that moment of bankruptcy filing. Same thing with the balance in your checking account(s) at that moment, and all your other assets. The amount of cash or money in your accounts the day before or the day after usually doesn’t matter. What matters is what you had at the moment of filing, with these and all your other assets.

Continue Reading ››

 Posted on April 07, 2017 in Discharge of Debts

In our example of the adversary proceeding about whether a debt gets discharged, here is the bankruptcy court’s ruling on the matter.

This is the last of six blog posts in a series showing how a dischargeability dispute gets resolved in bankruptcy court. Check out the last five posts about all the steps in the “adversary proceeding” so far, including the trial itself. In the last one, lawyers for the creditor and the debtor gave their closing arguments. Today the judge announces and explains her ruling.

The Judge’s Opening Remarks

At issue in this adversary proceeding is whether the debtor, Marshall, can discharge his debt to the creditor, Heather. The loan was made five years ago for $35,000; its current balance is about $21,000. The purpose of the loan was for Marshall to start a car repair business. Heather is Marshall’s aunt. At Heather’s request, Marshall completed a loan application and signed a promissory note. As she instructed, after completing and signing these documents Marshall delivered them to Heather’s lawyer. The loan was not secured by any collateral.

Continue Reading ››

 Posted on March 22, 2017 in Bankruptcy Procedure

“Discovery” covers all the methods used to get at all the relevant facts in a dispute with a creditor about the discharge of a debt.

Our last blog post was about the beginning of the “adversary procedure” for deciding whether a disputed debt gets discharged. Like many other legal procedures, it starts with a formal summons and complaint, here usually filed by a creditor.

(Either a creditor or debtor can file a complaint. But since we are focusing on debts that get discharged unless a creditor objects, for our purposes we assume that it’s the creditor filing the complaint and the debtor responding to it.)

The debtor responds to the complaint with either a motion to dismiss or an answer. The motion to dismiss is appropriate when the creditor’s complaint does not make an argument clear enough to respond to. An answer states step by step what, if any, parts of the complaint the debtor agrees with and what parts the debtor does not.

Continue Reading ››

 Posted on March 13, 2017 in Discharge of Debts

A creditor or a bankruptcy trustee could potentially object to the discharge—legal write-off—of ALL your debts. Very rare, and preventable.

Challenging the Discharge of One Debt vs. All Debts

Ten days ago (on March 3, 2017) our blog post was about a creditor challenging the discharge of its debt. Certain special kinds of debts are never discharged—for example, child and spousal support. Other specific kinds are not discharged unless meeting certain conditions—for example, income taxes. But a creditor can challenge the discharge of virtually ANY debt if that debt was created through a debtor’s fraud or misrepresentation, or through “willful and malicious injury” to person or property. Those kinds of debt-discharge challenges are relatively rare. Most people incur debts honorably, and just can’t pay them back later.

If challenges to the discharge of a single debt are unusual, much rarer are challenges to the discharge of ALL debts. Under certain very limited circumstances a creditor or bankruptcy trustee can object to the discharge of all your debts. Usually such an objection is based on fraud or some other illegal activity by the debtor in connection with the bankruptcy case itself.

Continue Reading ››

 Posted on March 10, 2017 in Bankruptcy Law

Sue a creditor to confirm that a debt will be discharged, or to punish the creditor for violating the automatic stay or the discharge order.

Last time we got into the advantages of using bankruptcy court to sue your creditor. Some of the advantages are:

• The issues that can be raised by a debtor in bankruptcy court are narrow. This makes for simpler litigation, and a less expense way to resolve a dispute. That’s crucial when money’s tight.
• Bankruptcy court is usually much faster and more efficient than state courts. This saves you both aggravation and money.
• You already have your bankruptcy attorney in your corner, familiar with you and your circumstances, and likely very experienced in the narrow legal issue in dispute.

So what are the specific issues that you can sue a creditor for in bankruptcy court? We introduce three of the main ones today.

1) Discharging a Questionable Debt

Continue Reading ››

 Posted on March 03, 2017 in Bankruptcy Procedure

Disputes in bankruptcy court requiring the judge's resolution may be done so through an adversary proceeding.

What’s an Adversary Proceeding?

It’s simply a lawsuit that is part of a bankruptcy case. Like it sounds, it’s a way for adversaries to fight it out in bankruptcy court.

The main bankruptcy case involves a debtor and the creditors of that debtor. The bankruptcy court clerk assigns each case a case number.

In an adversary proceeding, as in most lawsuits, one or more plaintiffs file a complaint against one or more defendants. The debtor in the bankruptcy case can be either a plaintiff or a defendant in the adversary proceeding. The debtor is usually one or the other, but not necessarily. Disputes can arise in a bankruptcy case that don’t directly involve the debtor as a party.

An adversary proceeding gets its own case number distinct from the bankruptcy case number.

Continue Reading ››

 Posted on February 22, 2017 in Secured Debts

To determine whether a “lease” is actually a disguised secured purchase, the bankruptcy court looks at the deal’s economic substance.

In our last blog post we showed how in bankruptcy a lease isn’t always a lease. A transaction labeled as a lease of personal property may actually be a secured purchase for bankruptcy purposes. We showed that when a so-called “lease” is not a true lease, through “cramdown” you can often keep the property being “leased” for much less than you’d pay otherwise.

Today our blog post is about the factors that the bankruptcy courts look at in distinguishing a true lease from a disguised secured purchase.

Federal Bankruptcy Law or State Laws Govern?

Generally, under the U.S. Constitution federal law governs what happens in bankruptcy. (See Article I, Section 8.) However, the U.S. Bankruptcy Code does not define the term “lease.” It doesn’t say how to distinguish between a lease and secured purchase.

Continue Reading ››

 Posted on February 20, 2017 in Secured Debts

A "lease" of furniture or other consumer goods may actually be a disguised purchase. If so, through "cramdown" you can pay much less on it.

Our last blog post was about your bankruptcy options on leases of personal property—such as furniture or electronics. Your basic options are either to “accept” the lease or else “reject” it. When “accepting” the lease you keep possession of the property and must accept ALL of the lease’s terms and obligations. When “rejecting” the lease, you surrender the property and ALL of the remaining lease debt is discharged—legally written off. It’s all or nothing.

But what if that lease is really just a disguised purchase over time, with the “leased” property as collateral? If so, that may give you some major advantages. There can be a big difference in the bankruptcy consequences leasing something instead of buying it on time.

Continue Reading ››