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I had the pleasure of attending the Nebraska Association of Trial Attorneys seminar held at the Nebraska College of Law a week ago, and it got me thinking about how much trial attorneys need to understand about the bankruptcy process.  In a nutshell, here are seven things every trial attorney should understand about bankruptcy.
1. Injury Claims Must Be Listed as Asset on Bankruptcy Schedules.   A debtor must list all his or her property in the bankruptcy schedules.  The bankruptcy estate includes every interest of the debtor including causes of action owned by the debtor.  This is especially critical in Chapter 7 cases where all of the property of the debtor is temporarily vested in the Chapter 7 Trustee until the Trustee reviews the asset schedules and interviews the debtor.  If the injury claim is not listed as an asset, the claim remains in the possession of the bankruptcy trustee, and that means the debtor does not have standing to proceed with the injury claim after the bankruptcy case is completed.  Armed with that information, counsel for the defense may seek a motion to dismiss the injury claim if it was not listed in the bankruptcy schedules since the debtor lacks standing and such a dismissal, of course, may then cause the unpleasant topic of an expired statute of limitations on the injury claim to arise.
Do you know if your PI client filed bankruptcy?  Is that question on your client intake form?  Is that question asked again prior to trial?  If the claim was listed, how was it listed?  Have you reviewed a copy of the bankruptcy schedules?  Have you checked the federal PACER computer system for possible bankruptcy case filings?  How will you respond to a client whose case is dismissed after the statute of limitations has expired when they say “I thought you knew that I filed bankruptcy because of all those medical bills I was facing?”  
2. Personal Injury Claims are Exempt under Nebraska Law (but it may constitute Disposable Income).  Nebraska Statute 25-1563.02 provides that “all proceeds and benefits,   including interest earned thereon, which are paid either in a lump sum or are accruing under any structured settlement providing periodic payments, which lump-sum settlement or periodic payments are made as compensation for personal injuries or death, shall be exempt from attachment, garnishment, or other legal or equitable process and from all claims of creditors of the beneficiary or the beneficiary's surviving dependents unless a written assignment to the contrary has been obtained by the claimant.” Some Chapter 7 Trustees questioned whether this exemption protected compensation awarded for lost wages and medical expenses, however, the Nebraska Bankruptcy court ruled that the exemption expressly protects all proceeds and benefits including lost wages and medical expenses.  In re Rhea, BK 04-42427.
Although personal injury proceeds are exempt under Nebraska law, when a substantial settlement is received in the middle of a Chapter 13 payment plan this will open a discussion of whether the debtor is now able to pay a greater portion of their debts.  The Chapter 13 Trustee will need to be notified of the settlement and the trustee may inquire as to how the settlement will be spent.  The trustee cannot compel a turnover of the settlement, but they can seek to increase the bankruptcy payment or dismiss the case if it is apparent that not all of the funds received will be necessary to pay future medical bills or basic living expenses. 
3. Motion for Relief from bankruptcy stay required to allow litigation.   The filing of a bankruptcy petition causes a federal injunction to automatically come into existence that stays all collection efforts against the debtor, and this injunctive relief is commonly referred to as the “Automatic Stay.”    In a cause of action involving claims and counterclaims it may be necessary to obtain authority from the bankruptcy court to allow the personal injury claim to proceed.  Bankruptcy courts will commonly grant limited relief from the bankruptcy stay to allow the parties to an injury lawsuit to proceed with litigation under the provision that any settlement of the case be subject to future court approval.
4. Chapter 7 is Fast. Chapter 13 is Slow.  Which do you need?   Chapter 7 cases are completed in approximately 90 days whereas a Chapter 13 case is open for three to five years.  If a settlement of a claim is expected in the near future, most debtors are better off filing a Chapter 7 case so that they can be free of debt before they obtain possession of a large settlement.  A debtor who receives a large settlement before or during a Chapter 7 case may find that they are no longer eligible for the quick discharge if it is apparent that they have the ability to pay back some of their debt. Chapter 13 offers debtors the benefit of time.  It gives them the ability to reject low-ball settlement offers on their injury claim since they have the ability to hold off creditors while the case is pending.  Chapter 13 gives the debtor time to litigate their injury claim and to maximize their net recovery.  In addition, Chapter 13 offers flexibility in that a debtor may offer a minimal monthly payment to creditors at the beginning of the case while they are still healing from injuries or going through physical therapy and then increase the bankruptcy payment in the later years of the bankruptcy plan. 
5. Motion to Employ Counsel Required in Chapter 13 Cases.  In order to be able to be paid compensation for representing a debtor in a personal injury case it is necessary to request approval of the bankruptcy court to employ counsel.  Those lawyers who provide legal services to a debtor without seeking court approval risk having their request for compensation denied.  If you volunteer services there is no right to demand compensation.  Bankruptcy Code Section 327 provides that a debtor may, with the Court’s approval, employ one or more attorneys as long as they do not hold an interest adverse to the bankruptcy estate.  An affidavit of the personal injury attorney stating that they have no adverse interest to the estate should accompany the motion along with a copy of the legal service agreement.
6. Reaffirmation of Legal Services Agreement in Chapter 7.  What is the effect on a legal retainer agreement that is not reaffirmed in a Chapter 7 proceeding?  The simple answer is that the agreement is discharged and the compensation to be paid for services rendered to a debtor after the Chapter 7 case is filed is no longer determined by the agreement.  For this reason it is essential that the personal injury attorney either execute a reaffirmation of the original retainer agreement or sign a new retainer agreement following the completion of the Chapter 7 case. 
7. Motion to Approve Settlement:  A settlement that is reached during a Chapter 13 case must be approved by the bankruptcy court.  The claim is property of the bankruptcy estate, and a debtor is incapable to transferring or converting estate property without prior court approval.  In addition, the Chapter 13 trustee will be interested in seeing a copy of the settlement and a statement of the future medical or income needs of the debtor to determine if the debtor’s bankruptcy payment should be increased.
Image courtesy of Flickr and The May Firm.
 

I had the pleasure of attending the Nebraska Association of Trial Attorneys seminar held at the Nebraska College of Law a week ago, and it got me thinking about how much trial attorneys need to understand about the bankruptcy process.  In a nutshell, here are seven things every trial attorney should understand about bankruptcy.
1. Injury Claims Must Be Listed as Asset on Bankruptcy Schedules.   A debtor must list all his or her property in the bankruptcy schedules.  The bankruptcy estate includes every interest of the debtor including causes of action owned by the debtor.  This is especially critical in Chapter 7 cases where all of the property of the debtor is temporarily vested in the Chapter 7 Trustee until the Trustee reviews the asset schedules and interviews the debtor.  If the injury claim is not listed as an asset, the claim remains in the possession of the bankruptcy trustee, and that means the debtor does not have standing to proceed with the injury claim after the bankruptcy case is completed.  Armed with that information, counsel for the defense may seek a motion to dismiss the injury claim if it was not listed in the bankruptcy schedules since the debtor lacks standing and such a dismissal, of course, may then cause the unpleasant topic of an expired statute of limitations on the injury claim to arise.
Do you know if your PI client filed bankruptcy?  Is that question on your client intake form?  Is that question asked again prior to trial?  If the claim was listed, how was it listed?  Have you reviewed a copy of the bankruptcy schedules?  Have you checked the federal PACER computer system for possible bankruptcy case filings?  How will you respond to a client whose case is dismissed after the statute of limitations has expired when they say “I thought you knew that I filed bankruptcy because of all those medical bills I was facing?”  
2. Personal Injury Claims are Exempt under Nebraska Law (but it may constitute Disposable Income).  Nebraska Statute 25-1563.02 provides that “all proceeds and benefits,   including interest earned thereon, which are paid either in a lump sum or are accruing under any structured settlement providing periodic payments, which lump-sum settlement or periodic payments are made as compensation for personal injuries or death, shall be exempt from attachment, garnishment, or other legal or equitable process and from all claims of creditors of the beneficiary or the beneficiary’s surviving dependents unless a written assignment to the contrary has been obtained by the claimant.” Some Chapter 7 Trustees questioned whether this exemption protected compensation awarded for lost wages and medical expenses, however, the Nebraska Bankruptcy court ruled that the exemption expressly protects all proceeds and benefits including lost wages and medical expenses.  In re Rhea, BK 04-42427.
Although personal injury proceeds are exempt under Nebraska law, when a substantial settlement is received in the middle of a Chapter 13 payment plan this will open a discussion of whether the debtor is now able to pay a greater portion of their debts.  The Chapter 13 Trustee will need to be notified of the settlement and the trustee may inquire as to how the settlement will be spent.  The trustee cannot compel a turnover of the settlement, but they can seek to increase the bankruptcy payment or dismiss the case if it is apparent that not all of the funds received will be necessary to pay future medical bills or basic living expenses. 
3. Motion for Relief from bankruptcy stay required to allow litigation.   The filing of a bankruptcy petition causes a federal injunction to automatically come into existence that stays all collection efforts against the debtor, and this injunctive relief is commonly referred to as the “Automatic Stay.”    In a cause of action involving claims and counterclaims it may be necessary to obtain authority from the bankruptcy court to allow the personal injury claim to proceed.  Bankruptcy courts will commonly grant limited relief from the bankruptcy stay to allow the parties to an injury lawsuit to proceed with litigation under the provision that any settlement of the case be subject to future court approval.
4. Chapter 7 is Fast. Chapter 13 is Slow.  Which do you need?   Chapter 7 cases are completed in approximately 90 days whereas a Chapter 13 case is open for three to five years.  If a settlement of a claim is expected in the near future, most debtors are better off filing a Chapter 7 case so that they can be free of debt before they obtain possession of a large settlement.  A debtor who receives a large settlement before or during a Chapter 7 case may find that they are no longer eligible for the quick discharge if it is apparent that they have the ability to pay back some of their debt. Chapter 13 offers debtors the benefit of time.  It gives them the ability to reject low-ball settlement offers on their injury claim since they have the ability to hold off creditors while the case is pending.  Chapter 13 gives the debtor time to litigate their injury claim and to maximize their net recovery.  In addition, Chapter 13 offers flexibility in that a debtor may offer a minimal monthly payment to creditors at the beginning of the case while they are still healing from injuries or going through physical therapy and then increase the bankruptcy payment in the later years of the bankruptcy plan. 
5. Motion to Employ Counsel Required in Chapter 13 Cases.  In order to be able to be paid compensation for representing a debtor in a personal injury case it is necessary to request approval of the bankruptcy court to employ counsel.  Those lawyers who provide legal services to a debtor without seeking court approval risk having their request for compensation denied.  If you volunteer services there is no right to demand compensation.  Bankruptcy Code Section 327 provides that a debtor may, with the Court’s approval, employ one or more attorneys as long as they do not hold an interest adverse to the bankruptcy estate.  An affidavit of the personal injury attorney stating that they have no adverse interest to the estate should accompany the motion along with a copy of the legal service agreement.
6. Reaffirmation of Legal Services Agreement in Chapter 7.  What is the effect on a legal retainer agreement that is not reaffirmed in a Chapter 7 proceeding?  The simple answer is that the agreement is discharged and the compensation to be paid for services rendered to a debtor after the Chapter 7 case is filed is no longer determined by the agreement.  For this reason it is essential that the personal injury attorney either execute a reaffirmation of the original retainer agreement or sign a new retainer agreement following the completion of the Chapter 7 case. 
7. Motion to Approve Settlement:  A settlement that is reached during a Chapter 13 case must be approved by the bankruptcy court.  The claim is property of the bankruptcy estate, and a debtor is incapable to transferring or converting estate property without prior court approval.  In addition, the Chapter 13 trustee will be interested in seeing a copy of the settlement and a statement of the future medical or income needs of the debtor to determine if the debtor’s bankruptcy payment should be increased.
Image courtesy of Flickr and The May Firm.
 

On December 17, 2014,  the Florida Third District Court of Appeals in Miami, made an important ruling regarding mortgage foreclosures, including statute of limitation related issues.   It may be prudent for many Miami homeowners with mortgage foreclosure issues to review their situation in light of this decision.

Court's Apparent Framework and Ruling  

Action and Cause of Action

• an "action" for foreclosure must be commenced within five years after the accrual of the foreclosure "cause of action" upon which it is founded (section 95.11(2)(c))

• a foreclosure "cause of action" accrues, and the statute of limitations to bring it commences,  upon the default and optional acceleration of the installment mortgage note  

Declerated and Accelerated Mortgage Note

• an installment mortgage note remains accelerated unless the note is "decelerated" 

• while a mortgage note remains accelerated, there are no "new" installment payments coming due upon which a "new" foreclosure "cause of action" could possibly accrue 

• while a mortgage note is in a state of being decelerated, each new default creates a new cause of action and commences a new statute of limitations period installment payment 

Dismissal With or Without Prejudice

• dismissal of a foreclosure action without prejudice - does not "decelerate" the accelerated mortgage note 

• dismissal of a foreclosure action with prejudice - is an "adjudication on the merits" which includes the implication that "there was no valid default (and by extension, no valid or effective acceleration of the debt")" (i.e. a cause of action never arose in the first place) - the parties are placed back into the original mortgage note contractual relationship

Effect of Expiration of Statute of Limitations    

• Mortgage Note Debt Not Cancelled - the expiration of the statute of limitations to bring the action, does not render the mortgage note cancelled 

• Mortgage Lien Not Null and Void - the temporal validity of the mortgage lien is governed by the mortgage statute of repose of section 95.281, the expiration of the statute of limitations to bring a particular foreclosure action does not render the mortgage and its lien null and void

• No Quieting of Title - no quieting of title in favor of the homeowner as the mortgage note and mortgage continue valid 

  
Review of Situation May be Considered
Due to the Court's ruling, a homeowner may need to consider its implications for their particular factual situation. Perhaps some may be proceeding under the assumption that the statute of limitations to bring a foreclosure action on the mortgage note has expired, when it has not. Also some may have assumed that the statute of limitations did not expire, when it actually has. Some may have erroneously assumed that the expiration of the statute of limitations on the mortgage note means that the mortgage note is cancelled or mortgage lien is void. Some may have the false assumptions that they are entitled to a quieting of title. 

There may be other present alternatives that better serve the economic and personal benefits of the homeowner and their family. One alternative may be consider available mortgage modification programs, including HAMP and in-house modification programs. Many mortgage modifications are targeted at about 31% of gross wages. The targeted 31% amount would include coverage of principal, interest, property taxes, insurance, and association fees.   
A homeowner should also consider that the available mortgage modification programs are not permanently in place.  Other favorable factors for a mortgage modification also may not be present in the future. 

Jordan E. Bublick - Miami Bankruptcy Lawyer - Kendall & Aventura Offices - (305) 891-4055 - www.bublicklaw.com

Bankruptcy Courts Make It Tough To Rid Student Loans
Bankruptcy courts around the country toughened up on helping students discharge student loans beginning in 2006.  Many still do not realize the scope and extent of the lifelong financial burden they saddle themselves with when taking out student loans. Student loans are preventing thousands of college graduates from purchasing their first homes.  After all, living expenses are higher and salary levels are lower than anticipated, making student loan debt repayment difficult if not impossible.

If this is you, you might be wondering if you can turn to bankruptcy for relief and a fresh start. The chances of bankruptcy being the solution is slim.  That is because not all debt is not treated equally in bankruptcy. While bankruptcy is great for getting rid of medical bills and credit card bills it is terrible for getting rid of student loan debt.  Most chapter 7 and chapter 13 debtors accept that this debt will remain after filing for bankruptcy.

While Tough, It Is Still Possible Rid Student Loan Debt  
Bankruptcy courts will not discharge student loans except in one narrow circumstance. You have to show undue hardship.  This is a very tough standard to meet.  Some bankruptcy courts require showing not being able to maintain a minimal standard of living, with no hope of a positive change in financial circumstances for some time.  The bankruptcy judge will also look to see whether there was a good faith effort to repay student loans in the past.  

In short, this is what the bankruptcy court is looking for when determining whether is will discharge a student loan from a debtor:

• PRESENT INABILITY TO PAY

What kind of lifestyle is the debtor living?  A bankruptcy court will want to see that after living a frugal life, i.e. paying for apartment rent, food and other necessaries, a debtor does not have any money left over to pay his Lenders. 

• PERSISTENCE OF FINANCIAL CIRCUMSTANCES DURING THE REPAYMENT PERIOD

A bankruptcy court not only requires a present inability to pay, but also requires a prediction about future ability to pay. Factors to consider include a debtor's mental and physical health, dependent's needs, age and other conditions affecting earning capacity. Also considered are prospects for income in the debtor's profession. One bankruptcy court noted that the "most important factor" to satisfy this element is that the debtor's circumstances must "be beyond the debtor's control, not borne of free choice."

• GOOD FAITH EFFORT TO REPAY 

Finally, bankruptcy courts will analyze whether the debtor had made a good faith effort to repay the loans. One court found that even though a mother made over $18,000 in payments, the debtor failed to show good faith by only making one payments and not applying a tax refund he had received.  

In denying the debtor's attempt to discharge the student loans, the bankruptcy court wrote that Debtor and the Lenders "will have to live, uneasily it seems, with the consequences of the bargains they improvidently struck at the beginning of their relationship."

Ouch! present day students need to take heed and understand that today's student loans will have consequences that can effect their financial situations throughout their life.

Southeastern Seminary at Flickr