Blogs
I still remember being in the bankruptcy meeting room waiting for my client’s turn to see the Chapter 7 Trustee. What I saw was a classic mistake made by young and inexperienced bankruptcy attorneys.
Trustee: So how long have you owned the painting supply business?
Debtor: About 8 years.
Trustee: I see that you rent the store space and that you value the business equipment at $5,000, is that right?
Debtor: Yes, that’s correct.
Trustee: Are you owed accounts receivables? Do customers owe you money today?
Debtor: Yes.
Trustee: How much do they owe? What is the total?
Debtor: About $15,000.
Trustee: And your inventory of paint, how much is that worth?
Debtor: About $10,000 to $15,000.
Trustee: Okay, and my understanding is that you are a sole proprietor. You are not incorporated. Is that correct?
Debtor: Yes, that is correct.
Trustee: Okay, well I’m going to claim your inventory and accounts. I want you to stop operating the store now and deliver the keys to my office.
And just like that, the business was over.
The tragic thing is, neither the bankruptcy attorney nor the client thought this would happen. They thought the business was safe because the business owed way more in debts than it had in assets. In truth, the business did owe a lot of debt for rent, supplies, utilities, taxes, etc, but none of that mattered.
When you are a sole proprietor there is no such thing as a business being separate from you. You are the business. The business assets are your assets. In your mind you think of the business as a separate creature, but it is not. The “business” is nothing more than a collection of assets and debts that is combined with your personal property and debts. There is no distinction.
Now consider how this case would have turned out had the business owner incorporated the business prior to bankruptcy. Instead of owing a painting supply business the debtor would have owned stock in a company that operated a painting supply business. The corporation would have owned the business property and the corporation would have owed the various debts. Since the debts of the company would have exceeded the value of the business assets, the stock of the company would have been worthless. The business would have been safe from the Chapter 7 Trustee since the company’s stock would have had a negative net worth. The trustee could not “cherry pick” the business assets.
There is a key difference between owning a business individually and owning stock of a company that operates a business.
SHOULD YOU INCORPORATE YOUR BUSINESS PRIOR TO FILING BANKRUPTCY?
Some businesses are so simple that there is no need to incorporate. A home daycare may not have very many assets to protect (but watch out for receivables). Some businesses are simple personal service businesses, so incorporation may not be necessary. But if the business owns significant assets or if substantial inventories or receivables exist, it is probably best to incorporate the business prior to bankruptcy.
Transferring assets to a new company on the eve of bankruptcy can be a dangerous activity. Chapter 7 trustees have special powers to undue property transfers, so incorporating a business is not a simple solution. It is best to hire a very seasoned corporate attorney to set up the new business. You may want to delay the bankruptcy filing until the current inventory and receivables are gone and new inventory and receivables are built up in the new corporation. You need to be counseled by an attorney who is familiar with the bankruptcy law of Fraudulent Conveyances and Insider Preferences.
If you own a business that supports your family and need to file bankruptcy, slow down. Make sure you don’t lose your business in the bankruptcy process. Consider the safer Chapter 13 alternative if you sense too much risk in the quick but dangerous Chapter 7 case.
Image courtesy of Flickr and Marius Watz.
Here at Shenwick & Associates, we specialize in bankruptcy and the unusual questions that arise in the course of bankruptcy cases. One of the great aspects of working in such a specialized area of the law is trying to figure out how courts will hold on an issue that isn't clear under current statutes and case law.
Sometimes, even the District Courts and Courts of Appeals disagree on a point of law. When Courts of Appeals disagree, there becomes a "circuit split" on an issue that only the Supreme Court can resolve.
A "circuit split" occurred regarding the question of what happens when a debtor (in good faith) converts a case to Chapter 7 after the confirmation of a Chapter 13 plan. Do the undistributed funds get distributed to creditors, or are they returned to the debtor?
The question turns upon how the courts interpret Section 348 of the Bankruptcy Code, which addresses the effect of conversion on cases. Subsection (f) provides that if the case is converted in good faith, "property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion."
In the case the Supreme Court decided to review, Harris v. Viegelahn, the petitioner was indebted to multiple creditors and $3,700 behind on his monthly payments to Chase, who held the mortgage on his home. He filed for Chapter 13 bankruptcy, and his plan provided that he would resume making monthly mortgage payments to Chase and $530 per month would be withheld from his post-petition wages and remitted to Viegelahn, the Chapter 13 trustee. Viegelahn would make monthly payments to Chase to pay down Harris' mortgage arrears, and distribute remaining funds to Harris' other creditors.
However, Harris again feel behind on his monthly mortgage payments, and Chase foreclosed on his home. After the foreclosure, Viegelahn stopped making the payments earmarked for Chase and funds began to accumulate in his possession. About a year after the foreclosure, Harris converted his case to Chapter 7. Ten days after the conversion, Viegelahn distributed $5,519.22 in Harris' withheld wages to creditors.
Arguing that Viegelahn lacked authority to disburse his post-petition wages to creditors after conversion, Harris sought an order from the Bankruptcy Court directing refund of the accumulated wages Viegelahn paid to his creditors. The Bankruptcy Court granted Harris' motion, and the District Court affirmed. However, the Fifth Circuit reversed, concluding that a former Chapter 13 trustee must distribute a debtor's accumulated post-petition wages to his creditors. The Supreme Court disagreed, concurring with the Third Circuit in In re Michael that a debtor who converts to Chapter 7 is entitled to the return of any post-petition wages not yet distributed by the Chapter 13 trustee
For these and other questions that require our bankruptcy expertise, please contact Jim Shenwick
I’ve had this nagging though rattling around in my head for the past few years – the thought that you’re not getting the right conversation when we talk about your personal financial situation.
Yes, you’re in debt. You’ve got student loans to pay, credit cards that are through the roof, and other bills that are piling up faster than snowflakes on the windshield in the middle of a Northeastern winter morning.
You’ve got debt collectors hounding you, and they’re not willing to cut you a break in spite of your best efforts. You’re worried about judgments and what they’ll mean for your paycheck if a garnishment hits just as the rent comes due.
We’ll talk about defending the collection lawsuits or filing for bankruptcy to give you the chance to start rebuilding your finances. During the course of my representation we’ll go through your budget, and if the numbers are completely unrealistic then we’ll go over them until it all makes sense.
And yet.
We’re Treating The Symptom, Not The Cause
You got into your financial situation as a result of an unforeseen problem. The problem wasn’t the unexpected medical bill or the fact that you lost your job and couldn’t find work for longer than you expected.
Your problem was the fact that your income didn’t exceed your expenses by enough to give you a cushion to ride out the tough times.
When we first meet, you’re going under for the final time. Your financial problems are so bad that you can’t swim to safety without a helping hand.
But once you’re out of debt, there’s no safety net in place to keep you from falling down again.
Your income still barely covers your expenses. And the next financial calamity is right around the corner.
The average American puts less than 5% of his or her disposable income toward savings, according to the Bureau of Economic Analysis. Not only that, but 43.9 percent of American households have less than three months worth of living expenses in their savings accounts.
We Need to Change the Conversation
When you’re in financial difficulties, the conversation needs to include a deep dive into how you’re spending your money. We need to focus on making improvements in your personal rate of savings, and talk about ways to cut your expenses while maximizing your income.
We need to start looking at ways to make sure you’re never going to need my help again in the future.
Getting out of debt is the start of a journey to financial security.Click To Tweet
Anything less is like a heart surgeon sending you on your way after a triple bypass without setting you up with a plan to lose weight, quit smoking, and start exercising. It’s a recipe for disaster, and a surefire way to all but guarantee that you’ll be back again with the same problem someday.
A Marathon, Not a Sprint
Budgeting, saving money and planning for retirement is a long-term commitment. It doesn’t happen overnight, and it’s not a “set it and forget it” sort of thing.
Life changes, and so do the ways in which you spend and save your money. You’ve got to adapt over time, making small changes to help keep you on track.
I can’t tell you it’s going to be easy, but it will be valuable. After all, do you really want to live on the finance precipice of disaster for the rest of your life? Do you relish the thought of being one paycheck away from being broke?
Or would you rather be able to sleep soundly each night, comfortable in the fact that you and your family are financially prepared for whatever life throws at you?
How I Fit In
My role needs to evolve as well, from being merely the guy who fixes the immediate problem to the one who functions more as a long-term guide.
As of this writing, I’m not sure what that means. Whether it’s a newsletter with tips on how to keep your money in line with your plans, a course or something else I’m not sure.
I’ll ask you for your input along the way so I can be sure to deliver what you need, in a way that makes the most sense to you.
One thing’s for sure – we’ll keep talking about this subject right here, as well as elsewhere.
The post We’ve Been Having the Wrong Conversation About Your Money appeared first on Bankruptcy and Student Loan Lawyers - 866.787.8078.
Please be aware that in recent weeks several current bankruptcy clients from multiple law firms in the Chicago area have been victimized or attempted to be victimized by a fraud scheme. This is how the fraudulent effort plays out in essence. There are two specific individuals that play a part in this scheme. The first+ Read More
The post Current Bankruptcy Clients Contacted By Fraudulent Creditor appeared first on David M. Siegel.
Attorney Christopher Jones has one again been selected by Super Lawyers as a Michigan Rising Star for 2015. Super Lawyers recognizes attorneys who have distinguished themselves in their legal practice. Their patented selection process is rigorous, involves peer nominations and results in a third-party validation of their professional accomplishments. Christopher W. Jones Attorney […]
The post Attorney Christopher Jones Recognized by Super Lawyers as 2015 Rising Star appeared first on Acclaim Legal Services, PLLC.
All is not lost when a debtor files Chapter 7 Bankruptcy. On September 22, attorneys Patricia Scott and Scott Chernich presented a webinar titled "Collect Your Money in Bankruptcy: Chapter 7." In addition to teaching the ins and outs of how to collect money and assets in a Chapter 7, they discussed the basics of a Chapter 7, motions for relief from stay, co-debtor stay, non-dischargeable claims, and other topics to efficiently and effectively obtain what is rightfully yours in a bankruptcy.
To watch this webinar view the recording on our YouTube channel here.
Are you interested in learning about collecting your money in a Chapter 11 or Chapter 13 bankruptcy? Sign up to attend these two webinars below.
Tags: Chapter 7
In Florida, generally the transfer of a mortgage note transfers with it the related mortgage. The mortgage note is regarded as the principal item with the mortgage being regarded as a mere accessory. Hence the adage "the mortgage follows the note."
The Restatement (Third) of Property provides in Mortgages section 5.4(a) (1997) that "[a] transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise." Florida law is apparently in accordance with the Restatement. The stated objective of the Restatement is to avoid economic waste to the lender and a windfall to the borrower if the note and mortgage are split rendering the mortgage note as a practical matter unsecured. The Restatement cites the United States Supreme Court decision in Carpenter v. Longan, 83 U.S. 271 (1827) which held that "[a]ll the authorities agree that the debt is the principal thing and the mortgage an accessory."
The Restatement's exception provides that a transfer of a mortgage note is possible without the transfer of the mortgage if the parties so agree, but the effect of such a transfer would be to make it impossible to foreclose the mortgage unless the transferor of the mortgage note is made the assignee's agent or trustee with authority to foreclose on the behalf of the assignee of the mortgage note.
Assignment of the Mortgage
The opposite situation is presented if a mortgage is transferred without the transfer of the mortgage note. The apparent rule in Florida is that an assignment of a mortgage without an assignment of the related mortgage note is deemed a nullity and creates no right in the assignee because a mortgage is a mere lien incidental to the obligation it secures. 37 Fla. Jur. 2nd, Mortgages, Section 511. See e.g., Sobel v. Mutual Development, Inc., 313 So.2d 77 (Fla. 1st DCA 1975). Vance v. Fields, 172 So.2d 613 (Fla. 1st DCA 1965).
Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
In Florida, generally the transfer of a mortgage note transfers with it the related mortgage. The mortgage note is regarded as the principal item with the mortgage being regarded as a mere accessory. Hence the adage "the mortgage follows the note."
The Restatement (Third) of Property provides in Mortgages section 5.4(a) (1997) that "[a] transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise." Florida law is apparently in accordance with the Restatement. The stated objective of the Restatement is to avoid economic waste to the lender and a windfall to the borrower if the note and mortgage are split rendering the mortgage note as a practical matter unsecured. The Restatement cites the United States Supreme Court decision in Carpenter v. Longan, 83 U.S. 271 (1827) which held that "[a]ll the authorities agree that the debt is the principal thing and the mortgage an accessory."
The Restatement's exception provides that a transfer of a mortgage note is possible without the transfer of the mortgage if the parties so agree, but the effect of such a transfer would be to make it impossible to foreclose the mortgage unless the transferor of the mortgage note is made the assignee's agent or trustee with authority to foreclose on the behalf of the assignee of the mortgage note.
Assignment of the Mortgage
The opposite situation is presented if a mortgage is transferred without the transfer of the mortgage note. The apparent rule in Florida is that an assignment of a mortgage without an assignment of the related mortgage note is deemed a nullity and creates no right in the assignee because a mortgage is a mere lien incidental to the obligation it secures. 37 Fla. Jur. 2nd, Mortgages, Section 511. See e.g., Sobel v. Mutual Development, Inc., 313 So.2d 77 (Fla. 1st DCA 1975). Vance v. Fields, 172 So.2d 613 (Fla. 1st DCA 1965).
Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
The Nebraska Court of Appeals has issued an important decision that clarifies the right to set aside default judgments, regardless of how old the judgment is, when the defendant had no actual service of the lawsuit papers. Well, the issue is now clear, except when it is not clear, which is to say I’m confused again.
In Capital One Bank vs. Lehmann, the defendant, Nelseena J. Lehman was sued in November of 2009 for $2,942.37 for an unpaid credit card account. The court summons was sent by Certified Mail and was signed by her estranged husband who did not inform her of the lawsuit. Since Lehmann did not respond to the lawsuit, a motion for default judgment was awarded in February 2010.
Lehmann claims that she had no actual notice of the lawsuit since she moved to Oklahoma in September of 2009 and did not return to Nebraska until June of 2011. Upon receiving a garnishment notice she motioned the court to set aside the default judgment in June 2014. That motion was denied and Lehmann filed her appeal.
The first half of the court ruling gives great assurance that default judgments obtained without notice to the defendant may be set aside at any time. “A judgment entered without personal jurisdiction is void.” The court cites the case of Ehlers vs. Grove, 147 Neb. 704 (1946) to underscore the basic rule that “every court possesses the inherent power to vacate void judgment, either during the term at which it was rendered or after its expiration.” The Ehlers case states declared that “. . . Nor is it necessary that a meritorious defense be shown on the part of the defendant . . .” The fact that no service was obtained is enough to set aside a default judgment at any time for any reason or no reason at all.
The second half of the opinion was not so great.
The Court of Appeals focused on Nebraska’s service of summons law, Neb. Rev. Stat. §25-505.01 which provides that “Certified mail service which shall be made by (i) within ten days of issuance, sending the summons to the defendant by certified mail with a return receipt requested showing to whom and where delivered and the date of delivery, and (ii) filing with the court proof of service with the signed receipt attached.”
Citing a prior case, the court declared that “due process requires notice to be reasonably calculated to apprise interested parties of the pendency of the action and to afford them the opportunity to present their objections.” Doe v. Board of Regents, 280 Neb. 492, 508 (2010).
The court noted that here was no record of Lehmann notifying the bank that she moved to Oklahoma or that she forwarded her mail. “It is unclear how Lehmann’s temporary marital or living status affects Capital Ones’ reasonable reliance on, presumably, an address provided to them by Lehmann for the purpose of her maintaining an account.” Unlike the Ehlers case where there was no service of summon at all, in this case due process was not violated because notice was reasonably calculated to apprise Lehmann of the lawsuit. So, the court ruled that Lehmann was properly served and her appeal was dismissed.
The court’s conclusion is difficult to comprehend. Why does it matter that Lehmann failed to provide a new address? Has it been determined that it was, in fact, her account? Was that fact admitted in the motion? Would it have made a difference if Lehmann was a battered spouse requiring an immediate exit from the family home? Would that make her failure to change the address more reasonable? If her estranged husband admitted that he purposely hid the lawsuit to get back at her would that have made a difference? If the certified mail receipt was signed by a subsequent tenant of the home instead of the estranged husband, would that make a difference? Of course it would. The court seems to be saying that it is Lehmann’s fault for not getting notice. The court talks about whether notice was reasonably calculated to apprise the interested parties, but then it goes on to attack Lehmann’s conduct as not being reasonable.
Is it the the plaintiff’s conduct that must be reasonable in serving notice or is it the defendant’s behavior that must be reasonable to be available for notice? Isn’t every notice sent by a creditor to the last know address of the customer reasonably calculated to provide notice?
The undisputed fact in this case is that the defendant never received notice until her paycheck was being garnished. That should have made a difference.
Image courtesy of Flickr and The U.S. National Archives.
Medical debts account for nearly 62% of all bankruptcy cases filed according to a Harvard study. The actual number may be even higher since medical debts turn into credit card debts and mortgage debts as people try to pay off debt collectors. Although some medical debts are incurred when a person is temporarily uninsured, many are a result of ongoing medical conditions that continue throughout the bankruptcy case.
It is amazing to see how much medical debt can be acquired even when a person has insurance. Some deductibles are high and it seems like most consumers do not know how to respond when the claim is denied. Many treatments are not fully covered and medical supplies for diabetes and other conditions are just not covered very well under most policies.
This problem is especially heightened when new medical debts are incurred during a bankruptcy case. Generally speaking, bankruptcy cases only cover those debts you owe on the day the case is filed. Although Chapter 7 cases are completed in about 100 days, a Chapter 13 case can last up to five years and it is common for debtors to incur substantial new medical debts during the case.
What can you do when new medical debts are incurred during a bankruptcy case?
- Convert the case to another bankruptcy chapter. Chapter 13 cases can be converted to Chapter 7 in most cases. Some special rules apply, but if you were eligible to file chapter 7 on the day the chapter 13 case was filed you probably can convert the case to chapter 7 now and add all the new medical debts.
- Dismiss & Refile. I have seen cases where a client suffered significant medical debt a few weeks after filing a case. You do have the right to dismiss the current case and start over.
- Negotiate the Debt. While you are in the middle of a bankruptcy case a creditor cannot garnish wages or bank accounts. Some chapter 13 cases last for up to five years. Since creditors prefer not to wait, request a discount on the amount owed in exchange for a payment now.
Converting a case from chapter 13 to chapter 7 can create problems if car and loans have not been paid in full or if the chapter 13 plan deeply discounted the interest rate of the car loan. It is common for chapter 13 plans to reduce interest rates from 18% down to 5.25%. (Secured auto debts in chapter 13 cases only pay the Prime Rate plus 2%). So, when a case converts to chapter 7 the benefits of the chapter 13 plan vanish and the auto lender may demand the loan be made current at the original contract rate. Be careful in assuming that the car is safe when you convert the case. Sometimes it is wise to call the auto lender before converting the case to see what the new payment will be or if a large cure payment must be made.
When chronic medical problems exist and health insurance coverage is spotty, it is generally wise to file chapter 13 to take advantage of the ongoing protection from medical creditors. If major surgeries are planned in the near future, perhaps it is best to start the bankruptcy as a chapter 13 case with the idea of converting to chapter 7 later just in case some of the medical bills are not covered by insurance.
Image courtesy of Flickr and Chuck Olson.
Updated daily, this blog will keep you informed on the latest bankruptcy news! 
Learn more about how Bankruptcy works and what you need to know.