Blogs

The 8th Circuit Court of Appeals has ruled that the Additional Child Tax Credit is a protected asset in bankruptcy cases filed in Missouri.  In re Hardy, case number 14-1181 (2015).   Are such tax credits exempt in Nebraska bankruptcy cases?
Missouri law protects a person’s right to receive a “Social Security benefit, unemployment compensation or a public assistance benefit”  Mo. Rev. Stat. §513.430.1(10(a).  The term “public assistance benefit” is not defined under Missouri law, so the court reviewed the history of the Additional Child Tax Credit, especially the legislative history of recent amendments favoring lower income taxpayers.
In reversing the lower courts, the 8th Circuit found that the Additional Child Tax Credit was indeed a “public assistance benefit” even though some of the credits went to higher income families.
Whether Nebraska’s public assistance exemption applies to the Additional Child Tax Credit is less clear. Nebraska’s public assistance exemption law states the following:
 “No person shall have any vested right to any claim against the county or state for assistance of any kind by virtue of being or having been a recipient of assistance to the aged, blind or disabled, aid to dependent children, or medical assistance for the aged. No such assistance shall be alienable by assignment or transfer, or be subject to attachment, garnishment or any other legal process.”  Neb. Rev. Stat. §68-1013.
Is Nebraska’s protection of “aid to dependent children” the legal equivalent of Missouri’s protection of a “public assistance benefit?”  Does the Nebraska exemption only protect financial aid paid directly by state welfare offices or does it more broadly cover benefits received through a tax credits intended to benefit the elderly, disabled and minor children?
The Missouri public assistance benefit statute is located in the middle of a list of various property exempted in bankruptcy cases, whereas the Nebraska aid to dependent children law is contained in a chapter of laws describing public benefits paid by the state to its poorer citizens.  Does this distinction make a difference?  Just as Missouri’s public assistance benefit is a somewhat vague and undefined term, the Nebraska protection of aid to dependent children is equally vague and undefined.
Nebraska also protects aid to poor families in another statute:
§ 68-148. General assistance; not alienable; exception: 
No general assistance shall be alienable by assignment or transfer, or be subject to attachment, garnishment, or any other legal process, except that a county may pay general assistance directly to any person, corporation, or other legal entity providing goods or services, as described in section 68-133, to the poor person.
This time the Nebraska law speaks to a “general assistance” and not just aid to dependent children.  Did the Missouri and Nebraska legislatures anticipate their exemption laws being extended to protect Additional Child Tax Credits delivered through federal income tax refunds?  Probably not.  But what is clear that both states intended to protect government benefits specifically designed to alleviate the financial burdens of lower income families.
At this time it is unknown how the Nebraska bankruptcy court would rule on this issue.  It seems like the better argument is that such tax credits are protected, but debtors are better counseled to file their bankruptcy case after their tax refunds are received until a Nebraska ruling is issued.
 Image courtesy of Flickr.

In a chapter 7 or 13 bankruptcy case, a "creditors' meeting" is held three to seven weeks after the case is filed. The bankruptcy code requires this meeting to be held.  Although called a "creditors' meeting," in most cases no creditors attend.

A chapter 7 creditors' meeting is usually presided over by the chapter 7 trustee and a chapter 13 creditors' meeting by the standing chapter 13 trustee. The debtor is required to attend to creditors' meeting unless there are special circumstances to excuse attendance.

At the creditors' meeting the person who filed for bankruptcy - the debtor - is placed under oath and the case and bankruptcy schedules that were file are reviewed.Jordan E. Bublick - Miami Bankruptcy Lawyer - Kendall & Aventura Offices - (305) 891-4055 - www.bublicklaw.com

In a much awaited decision, the United States Supreme Court  ruled in favor of Bank of America and held that "underwater" mortgages are not avoidable in a chapter 7 liquidation case. Noteably, the ruling did not involve a chapter 13 situation.

This ruling reversed the decision of the 11th Circuit Court of Appeals located in Atlanta, which covers an area in the southeastern United States. Since many other Courts in other parts of the United States already held that "underwater" mortgages are not avoidable in chapter 7 cases for many years, this new decision does not change the practice in many parts of the country.

Underwater Mortgage

A mortgage is called "underwater" in a situation where the balance due on the first priority mortgage exceeds the value of the property. For example, if $150,000 is owed on the first mortgage and $50,000 is owed on the second mortgage, the second mortgage would be wholly "underwater" if the value of the home is $150,000 or less.

Lien Stripping in Chapter 13 

It should be noted though that the Supreme Court's decision was not directed at the avoidability ie. "lien stripping" of wholly underwater second or other junior mortgages or liens in a chapter 13 plan of reorganization.

Chapter 13 Plan

A chapter 13 case is often used to save a home from foreclosure. A typical plan would avoid or "lien strip" a second mortgage and provide for the first priority mortgage with a modification or reinstatement of the arrearages.Jordan E. Bublick - Miami Bankruptcy Lawyer - Kendall & Aventura Offices - (305) 891-4055 - www.bublicklaw.com

The filing of a chapter 13 bankruptcy case puts a stop to most foreclosure actions and gives a homeowner the opportunity to pursue a mortgage modification under the Bankruptcy Court's Mortgage Modification Mediation program ("MMM") . In addition, often second mortgages are avoidable in a chapter 13 plan

Mortgage Modification Mediation 

Within the chapter 13 case, a property owners may make use of the Bankruptcy Court's new Mortgage Modification Mediation (MMM).

This program is innovative in certain respects. Under this program, a Bankruptcy Court appoints a meditor to help the parties reach an agreement to modify the mortgage. A mediator is able to help the homeowner and mortgage company communicate and reach an agreement for modification.

This program also involves the use of an internet "portal" which allows the homeowner to upload all the documents needed for the mortgage company to consider for a modification. Through this portal the homeowner and mortgage company are also able to communicate.

Avoiding of Under Water Mortgages and Association Liens

If a second mortgage is "under water," the involved lien may be avoidable. To be avoidable as to residential property, there must not be any equity in the property to support the mortgage lien. That is, more is owed on the first mortgage than the value of the property. Association liens, including condominium association liens, may also be avoidable in whole or in part, to the extent that they are "under water."Jordan E. Bublick - Miami Bankruptcy Lawyer - Kendall & Aventura Offices - (305) 891-4055 - www.bublicklaw.com