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In a recent decision, the United States Supreme Court provided guidance relating to the term “defalcation” of the Bankruptcy Code under Section 523(a)(4).1 In a unanimous decision, the Supreme Court held that the term “defalcation” of the Bankruptcy Code includes a “culpable state of mind requirement involving knowledge of, or gross recklessness in respect to, the improper nature of the fiduciary behavior.” Read More ›
Tags: U.S. Supreme Court
As victims across both Oregon and Washington can tell you, there are many forms of short term predatory lending. The defining characteristic is that in each instance a lender takes unfair advantage of a consumer’s financial situation by charging ridiculous interest rates and other unconscionable fees and charges.
Defenders of short term predatory lenders might say that no one is forcing any of the borrowers to the table which is something less than accurate. When you need money to eat until your next paycheck you don’t have a whole lot of choice. Regardless of whether the borrower has any choice, we know one thing for certain and that is that lender are preying on misery, taking advantage of Washington and Oregon consumers while they are down.
Examples of short term predatory lending include the following:
Tax Refund Anticipation Loans (RALs): These loans are short-term cash advances against a probable income tax refund. But the loans are offered at murderous rates from anywhere between about 39% to over 699% annual percentage rate (APR). Are you kidding me? Also, they speed up the refund process by as little as seven days. When you compare these rip off loans to what consumers can expect by filing online and having their refunds deposited directly into their banking accounts, it’s like throwing money away.
Payday Lending/Cash Advances: This is the practice of using a post-dated check or electronic checking account information as collateral for a short-term loan. For cash strapped consumers this process is all roo familier: For approval, borrowers need only an i.d., a checking account, and an income from a job or government benefits, like Social Security or disability payments. The interest rates cannot be discussed with a straight face.
Auto Title Loans: Like payday loans, car title loans are sold as small emergency loans, but in reality these loans have extremely high annual interest rates that trap borrowers in a cycle of debt. I have never seen a borrower pay one off quickly and honestly I don’t know that I have ever even see a borrower pay one off at all. A typical car title loan is made for far less than the value of the vehicle and has an annual interest rate over one hundred percent, mandating repayment within one month.
If you are contemplating any of the above short term predatory loans or are already stuck with one, it is a sure sign that you have more than a temporary problem that can be resolved with a short term cash infusion, call our firm today, get me on the phone or set up an appointment online for either of our Washington Law offices in both Seattle and Vancouver or either of our Oregon offices in both Portland and Salem. I look forward to hearing from you.
The original post is titled Avoid Short Term Loans , and it came from Oregon Bankruptcy Lawyer | Portland, Salem, and Vancouver, Wa .
Debtors often wonder what will happen to their car when they file bankruptcy. In most cases, you get to keep your vehicle during and after your case is closed. Even if you are behind on payments when you file you may be able to retain possession of your vehicle through exemptions offered. The outcome of [...]
When an individual files for Chapter 7 Bankruptcy one of the most important aspects of the case are the exemptions used to protect the individual’s property. This is because a Chapter 7 Bankruptcy is actually a liquidation of assets. The court appoints a Trustee to review your case and determine if you own any assets that are unprotected by exemptions under the code. If you do, the Trustee is tasked with selling those items and using the money to repay your creditors a portion of what they are owed. In most cases, however, the individuals who file do not have any unprotected assets. Currently the most common exemptions used in bankruptcy followings are:
$22,975.00 Equity in your home: This can be used for a house, mobile home or condominium.
$12,250.00 Household Goods and Furnishings: Includes appliances, furniture, pots, pans, pictures, clothing and accessories.
$3,675.00 Automobile Equity: Can only be used to protect one vehicle and cannot be split.
$1,550.00 Jewelry: All jewelry must be listed including wedding rings and costume jewelry.
$2,300.00 Professional Tools and Books: Tools, books and other items necessary for the Debtor to conduct business.
$12,250.00 Whole Life Insurance Policy: Whole life insurance policies build loan value and typically can be cashed out.
$1,225.00 Wild Card: This can be used to protect any property that the Debtor chooses.
$11,500.00 Additional Wild Card: If Debtors do not use all of their home equity exemption, they can add a limited amount to their wild card exemption.
Unlimited: Pensions are fully protected under the bankruptcy code.
Unlimited: 401k, 403b, and other retirement accounts.
Unlimited: Social Security Benefits
Written by: Robert DeMarco
Do Not Be Afraid to Be Creative – Nothing Ventured, Nothing Gained
What is a disclaimer of an inheritance and how does it interact with the Bankruptcy Code? The Texas Probate Code provides “[w]hen a person dies, leaving a lawful will, all of his estate devised or bequeathed by such will, and all powers of appointment granted in such will, shall vest immediately in the devisees or legatees of such estate and the donees of such powers….” Texas Probate Code § 37. However, no person is ever required or forced to accept such an inheritance.
Any person … who may be entitled to receive any property as a beneficiary and who intends to effect disclaimer irrevocably … of the whole or any part of such property shall evidence same as herein provided. A disclaimer evidenced as provided herein shall be effective as of the death of the decedent and shall relate back for all purposes to the death of the decedent….
Texas Probate Code § 37A; Dyer v. Eckols, 808 S.W.2d 531, 532 (Tex.Ct.App.1991). The effect of the foregoing is that a beneficiary never gains possession of disclaimed property. Dyer v. Eckols, 808 S.W.2d 531, 532 (Tex.Ct.App.1991).
From a bankruptcy perspective, a disclaimer can be a very useful tool in keeping family heirlooms and other assets from the reach of creditors. Section 541 of the Bankruptcy Code provides that inherited property is property of a bankruptcy estate for up to 180 days AFTER a bankruptcy petition is filed. As such, any inheritance a debtor becomes entitled to during that 180-day period, becomes, subject to any valid claim of exemption, property of the bankruptcy estate. A disclaimer of inheritance can be used to prevent this result.
There is, however, more than one way to skin a cat and one should not consider the matters discussed herein as an exclusive solution. For example, a debtor can always request the testator execute a new will during the pendency of the debtor’s bankruptcy case. Alternatively, a testator might setup a testamentary trust that contains a spendthrift trust provision thereby precluding any such inheritance from ever coming into a bankruptcy estate. These options, while effective, depend upon the testator to take the appropriate action. Moreover, they assume the testator is competent to execute a new will.
The execution and filing of a disclaimer, on the other hand, remains within the exclusive control of the debtor and not the testator. Timing, however, is everything. There is a world of difference between a disclaimer that is executed pre-petition versus one that is executed post-petition.
As a general rule, a disclaimer that is executed prior to the commencement of a bankruptcy case is valid and not subject to being set aside as a fraudulent conveyance. The Fifth Circuit Court of Appeals explained that because a beneficiary never possesses renounced or disclaimed property a disclaimer is not a fraudulent transfer. Matter of Simpson, 36 F.3d 450, 453 (5th Cir. 1994).
On the other hand, a disclaimer executed after the bankruptcy case is commenced is ineffective. In re Schmidt, 362 B.R. 318, 325 (Bankr. W.D. Tex. 2007). Judge Clark explained as follows:
Because, as of the filing of the petition, the interest here in question was indisputably property of the bankruptcy estate, the debtor’s execution of the disclaimer constituted an impermissible attempt on her part to exercise dominion and control over property of the estate, over which the chapter 7 trustee alone has exclusive dominion and control. If anyone had the authority to execute a disclaimer, it was the chapter 7 trustee. It was certainly not the debtor.
Id.
The issue concerning if and when to execute a disclaimer creates some challenges. First, disclaimers are traditionally executed and filed after the testator dies. Second, disclaimers, if property filed and served are irrevocable.
While it is clearly not the norm for a disclaimer to be executed prior to the death of a testator [an anticipatory disclaimer], such a disclaimer can still be valid. In re Estate of Boren, 268 S.W.3d 841, 849 (Tex. App.–Texarkana 2008, pet. denied). In Boren, the Texarkana Court of Appeals reversed a probate court’s ruling that a decedent’s relatives had validly disclaimed their inheritance via an unambiguous instrument that predated the testator’s death and met all of the substantive requirements of section 37A except that the disclaimer had not been filed with the probate court. Id. at 848-49.
There remains, however, this issue of irrevocability. Under Texas law a properly executed and filed disclaimer of inheritance is irrevocable. As such, if one were to execute, file and properly serve an anticipatory disclaimer, such disclaimer would remain in effect until the testator executes a new will.
The purpose of this article is to propose a procedure whereby the execution of a disclaimer is effective vis-à-vis a chapter 7 bankruptcy trustee, but remains revocable by the debtor. The Texas Probate Code is clear that a disclaimer is fully and freely revocable until it is filed in the appropriate court. A disclaimer that is not filed in accordance with section 37A may, in fact, be revoked. In re Estate of Boren, 268 S.W.3d at 850. The failure to properly file the disclaimer rendered it revocable. Id. at 849 (“until the disclaimers had been properly filed, they remained revocable.”).
Under the statute, once the proper filing and service of the disclaimer occurs, alea jacta est (“the die is cast”); it then becomes irrevocable. Because Richard and Jeanetta revoked their disclaimers before the disclaimers signed by them had been properly filed, they were effectively revoked. Accordingly, despite the fact that the form of the disclaimers was sufficient to satisfy the statute, irrespective of the intention they held to disclaim inheritance under Sarah at the time they were signed, and regardless of their expressed desires to heal the rift within the family, they were no longer operative after the revocation occurred.
Id. at 850 (footnote omitted).
As an unfiled or improperly filed disclaimer may be revoked, it is possible for a prospective debtor to execute and serve an anticipatory disclaimer prior to filing bankruptcy and simply not file the disclaimer. In so doing, the prospective debtor retains the right to revoke the disclaimer, but has effectively disclaimed any inheritance.
That is all well and good, but section 541 of the Bankruptcy Code is construed broadly and would likely encompass a debtor’s right to revoke the anticipatory disclaimer if the need should arise. As such, a prospective chapter 7 debtor must take certain additional steps to effectively prevent this right from passing into a future bankruptcy estate. A prospective debtor must do two things in order that this objective might be satisfied: 1) authorize the beneficiaries of the disclaimer to file the disclaimer with the appropriate court at a point in time after the testator’s death thereby making the disclaimer irrevocable; and 2) grant a power of attorney to the beneficiaries of the disclaimer, which power of attorney is effective upon the commencement of a bankruptcy case and terminates after the expiration of 180 days from the bankruptcy petition date.
By authorizing the beneficiaries of the disclaimer to file the disclaimer, the subject beneficiaries are shielding themselves from the possibility that a chapter 7 bankruptcy trustee would consider such act to be a post-petition transfer of bankruptcy estate property. The filing of the disclaimer should be construed as an act akin to the post-petition perfection of a security interest pursuant to section 546(b)(1) of the Bankruptcy Code. As such, the “perfection” of the disclaimed interest should be shielded from the trustee’s avoidance powers under section 549. While the filing of the disclaimer, makes the disclaimer irrevocable, the grant of such authority does not address the time period between the petition date and the testator’s death. The Debtor must, therefore, execute a power of attorney authorizing the disclaimer beneficiaries to revoke the disclaimer at any time prior to death of the testator. While a power of attorney may also be revocable at will, the revocability of the power of attorney ceases if coupled with an interest. Hemphill v. Junious, 372 S.W.2d 580, 581 (Tex. Civ. App. 1963). In this case that interest is the disclaimed inheritance and should therefore be irrevocable by a chapter 7 bankruptcy trustee.
In summary, the reader should note that the foregoing is little more than theory. There is no case law to support the artifice that is created. On the other hand, each component of the process, viewed separately, is independently supported by case law. Further, it is not the intent of the author to convey any opinion regarding the best methodology when faced with the issues discussed herein. As is more common than not, an individual debtor’s unique factual situation will dictate the appropriate path. The trust of the matter is, it will often be much simpler if the testator works with the debtor to revise the will. Where, however, it is not possible for a debtor to gain the cooperation of the testator [for whatever reasons] or the testator is no longer competent to execute a new will, the foregoing process may shield the inheritance from a bankruptcy estate.
DATED: June 14, 2013
By John Clark
A contentious relationship between musician Sly Stone and his former manager, Jerry Goldstein, has grown even more heated thanks to a recent bankruptcy filing, according to a report from the Wall Street Journal.
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Sources say Goldstein sent two of his music production companies into bankruptcy protection in order to block an effort by Stone’s lawyers to retake the rights to the musicians’ royalty payments.
And the ensuing legal battle promises to grow more interesting, as both parties seem determined to gain access to the music rights, according to reports.
Music Manager Files Bankruptcy to Thwart Former Client
According to reports, Goldstein helped Stone rise to prominence decades ago by co-writing songs like “My Boyfriend’s Back and “Hang on Sloopy.”
But after the two parties struck a management deal in 1989, Goldstein, through his company, Even Street Productions, assumed control over the rights to Stone’s royalties.
Stone’s attorneys, however, believe that Easy Street Productions, which was sent into bankruptcy protection this week along with Majoken, Inc., lacks “corporate formality,” and is merely a shell company designed to hold Goldstein’s assets.
Interestingly, after Goldstein filed for bankruptcy, Stone’s lawyers bought a $1.7 million judgment against the business manager from First California Bank, which won the judgment after Goldstein defaulted on a loan.
The purchase was a savvy move by Stone and his legal team, because it allows them to potentially file for foreclosure against Goldstein’s assets, including the royalties that Stone believes belong to him.
Sly Stone Tussles With Former Manager in Bankruptcy Court
But Goldstein’s attorneys have challenged the validity of Stone’s tactics, accusing the former singer and his attorneys of “attempting an end-run around the royalty litigation, to obtain by purported foreclosure that which they have not obtained in the royalty litigation.”
In response, Stone’s attorneys say the 70-year-old entertainer, who has launched several failed comebacks and has been homeless off and on for several years, is simply trying to recover rights he unwittingly relinquished in 1989.
Before this fight is resolved, however, Goldstein must take care of his bankruptcy, which includes his companies, Majoken and Even Street.
During the bankruptcy, though, Goldstein will also have to contend with a $50 million lawsuit filed by Stone against his former manager. In the lawsuit, Stone alleges that Goldstein stole royalties from him and hid the money in his bankrupt companies.
Goldstein, meanwhile, has filed a slander lawsuit against Stone, claiming that the singer defamed him by calling him a thief at a music festival in 2010.
New Whistleblower Describes How Bank of America Flagrantly Violates Dual Tracking, Single Point of Contact Requirements in State/Federal Mortgage Settlement « naked capitalism.
Bank of America trained its employees to outright lie to customers who have applied for mortgage modifications according to an eye-opening whistleblower account the above article recounts. Even more interesting is an affidavit of Simone Gordon, a former Bank of America Employee who states under oath the following:
“We were told to lie to customers and claim that Bank of America had not received documents it had requested, and that it had not received trial payments (when in fact it had). We were told that admitting that the Bank received documents would “open a can of worms” since the Bank was required to underwrite the loan modification within 30 days of receiving those documents, and it did not have sufficient underwriting staff to complete the underwriting in that time.”
I have heard these accounts for years from my clients who consistently complained that the mortgage company lost their paperwork, gave them different answers each time they called to check on the status of their loan modification and more or less jerked them around for months until their property was put into foreclosure. The affidavit goes on to state:
- BOA ordered their employees to hold financial documents submitted by borrowers for at least thirty days so that the documents could be considered “stale” and the homeowner would have to reapply for the modification;
- BOA rewarded employees with bonuses and gift cards when they placed accounts into foreclosure even if a modification was pending.
- BOA employees who were caught not carrying out the delay strategies or admitting the borrower was entitled to a modification were disciplined and sometimes fired without warning.
The sad thing is that BOA has gotten away with this corporate fraud. Litigation is pending now, however, I am not very confident or hopeful BOA will every be reprimanded harshly enough to change their harsh treatment of consumers. This is now the industry standard.
Bringing you the most up-to-date news, tips and blogs throughout the web. Here’s your Bankruptcy Update for June 13, 2013 Carbon Motors files for bankruptcy in Indianapolis How Detroit bankruptcy could unfold vNet founder files for bankruptcy
One of the most common reasons why people file bankruptcy is to stop harassment from debt collectors. Debtors who file for protection should be aware of their rights and how to protect them. With a large number of people struggling during these hard economic times, debt collectors will do whatever it takes to collect payment. [...]
Some religions forbid people from charging interest on money loaned. A New York bankruptcy court shows that it doesn’t need to stand in the way of commerce.
We don’t talk about Chapter 11 bankruptcy here because I don’t usually take on those sorts of cases. And we seldom discuss religion because it’s not often that matters of faith intersect with matters of money.
But the curious case of Arcapita caught my eye as an example of how faith and money collide in odd ways.
Bahrain’s Arcapita Bank took a rare and bold step of filing for bankruptcy in New York in March 2012, going against the common practice of Middle Eastern companies to engage in debt workouts relying solely on consensual talks.
The numbers aren’t important, but the company was faced with a difficult situation in fashioning a plan to repay creditors.
That problem was that Sharia, Islamic law, got in the way.
Interest-Free Lending?
Sharia prohibits the payment or acceptance of interest or fees in lending. So, too, is it forbidden to invest in a business that provides goods or services considered contrary to Islamic principles.
This is similar to the Old Testament, which encourages loans to people so as to enable the poor to regain their independence, but forbids the charging of interest on the loan as being exploitative.
I’m sure there are other faiths and denominations that speak to a prohibition against charging or paying interest. If you know of one, let me know in the comments section below.
Arcapita’s Chapter 11 Problem
Unfortunately, business turns on the ability of the lender to obtain a return on investment that makes it a good idea to lend money in the first place.
Under Chapter 11 bankruptcy, you’re putting together a plan to repay your creditors over the long run. Agreements are modified under court supervision, then the parties go off to perform accordingly.
But without the ability to pay interest to the largest secured creditor in the case, Arcapita was in a tight spot. If it didn’t agree to pay interest to the creditors, there’s no way a Chapter 11 Plan would get confirmed.
The Murabahah Solution
What if the loan would be repaid at a set price that already included a profit margin acceptable to Arcapita and the lender?
The lender is compensated for the time value of money in the form of a profit margin, the borrower can do the deal, and the Chapter 11 Plan can be confirmed.
That’s exactly what Arcapita did. It’s called Murabahah, a “rent-to-own” type of arrangement that allows business to move forward. This is also how mortgages are often handled under Islamic law, fixing the costs at the time of contract.
No late payment penalties are allowed, which is why Islamic banks apparently ask for higher down payments to offset the risks of nonpayment.
Bankruptcy Court As Problem Solver
The Arcapita solution, which is the first Sharia-compliant Chapter 11 Plan on record in this country, shows that the bankruptcy court isn’t always a strict place to be.
Rather, I’ve found that in difficult situations it’s the bankruptcy court that helps fashion a solution that works for everyone.
In New York bankruptcy courts, loss mitigation allows the parties to come together to modify a home mortgage in ways that are at times extraordinary.
Disputes are handled, assets divided, and creditors made whole without being unfair to those who look for help.
This is an exceptionally unusual situation, but Arcapita’s Sharia-compliant Chapter 11 underscores just how well bankruptcy can work.
Image credit: JohnConnell
Sharia And The Chapter 11 Bankruptcy Problem was originally published on Consumer Help Central. If you're seeing this message on another site, it has been stolen and is being used without permission. That's illegal, a violation of copyright, and just plain awful.
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