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Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com

As reviewed in this blog previously, the present Chapter 13 bankruptcy laws allow a homeowner to avoid his second mortgage if it is not a "secured claim" - meaning that there is no equity to secure the second mortgage holder's lien. In other words, the second mortgagee is wholly underwater. Under section 506 of the bankruptcy code, the lien of the second mortgagee would be wholly avoided and deemed a wholly unsecured claim. In many or most cases in Miami homes, the second mortgage is wholly "underwater" as it was typically made in the amount of 20% of the value at the time of the loan and values have fallen so dramatically. Jordan E. Bublick is a Miami Personal Bankruptcy Lawyer with over 25 years of experience in filing chapter 13 and chapter 7 bankruptcies. Miami Personal Bankruptcy Lawyer Jordan E. Bublick has filed over 8,000 chapter 13 and chapter 7 cases.

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com

The U.S. Supreme Court previously issued its decision on an important issue of chapter 13 bankruptcy law in the case of Hamilton, Chapter 13 Trustee v. Lanning. Justice Samuel Alito authored the Court's decision in which only Justice Scalia dissented. The issue involved was how "a bankruptcy court should calculate a debtor's 'projected disposable income'" which is one of the factors upon which the amount of a chapter 13 debtor's monthly plan payment is based. The Court rejected the "mechanical approach" and adopted the "forward-looking approach" pursuant to which the Court may, in the "the most unusual cases," go beyond the statutory formula for determining "disposable income" and "take into account other known or virtually known certain information about the debtor's future income or expenses."

The Court first reviewed the pre-BAPCPA (which was enacted in 2005) situation in which the Bankruptcy Code only "loosely defined 'disposable income'" and did "not define term 'projected disposable income.'" The Court stated that "in most cases, bankruptcy courts used a 'mechanical approach' in calculating projected disposable income" pursuant to which monthly income was multiplied by the number of the months of the plan and then the portion of the result that was "excess" or "disposable" was determined for dedication to the chapter 13 plan. "In exceptional cases, the bankruptcy courts took into account foreseeable changes in a debtor's income or expenses."

The Court noted that the BAPCPA "left the term 'projected disposable income' undefined but specified in some detail" the manner in which it is to be calculated. In general "disposable income" is based upon "current monthly income" less certain "amounts reasonably necessary to be expended" for maintenance and support and other items. The term current monthly income is statutorily defined and generally based on the 6-month period prior to the date preceding the filing of the bankrkuptcy case. "Amounts reasonably necessary to be expended" is calculated in a different manner for those below and those above the State median income amount.

The Court adopted the "forward-looking approach" which would allow for the consideration of the debtor's actual projected income in addition to the historically based "current monthly income." The court held that this approach is supported by the "ordinary meaning of the term 'projected.'" The Court noted that the term "projected" is not defined in the statute and that in "ordinary usage future occurrences are not 'projected' based on the assumption that the past will necessarily repeat itself.

The Court also noted the usage of the word "projected" in other federal statutes and stated that "Congress rarely used it [the phrase "projected"] to mean simple multiplication." In contrast, the Court referred to certain provisions in the Bankruptcy Code and noted that when Congress wished to mandate "simple multiplication, it does so unambiguously-most commonly by using the term 'multiplied'".

The Court remarked that pre-BAPCPA case law favors the "forward-looking" approach in that the general rule was that "courts would multiply a debtor's current monthly income by the number of months" of the plan as the first step in determining projected disposable income. But the Court also observed that the courts also "had discretion to account for known or virtually certain changes in the debtor's income." The Court noted that pre-BAPCPA practice is telling based on the principal that it "will not read the Bankruptcy Code to erode past bankruptcy practice absent a clear indication that Congress intended such a departure."

The Court also observed that the mechanical approach "clashed" with the terms of 11 U.S.C. section 1325 in that it would read out of the statute the phrase "to be received in the applicable commitment period" and the direction to determine projected disposable income "as of the effective date of the plan" (as opposed to the filing date).

But the Court noted that the statutory formula for determining "disposable income" still plays an important function under the forward-looking approach in that in "most cases, nothing further is required" and that only "in the most unusual cases" may a court "go further and take into account other known or virtually certain information about the debtor's future income or expenses." In short, the Court adopted the Tenth Circuit's analysis that "a person making a projection uses past occurrences as a starting point."

The Court further noted that the mechanical approach would "produce senseless results that we do not think Congress intended" where the debtor's income has changed since the historical six month period.

Justice Scalia dissented and held that the Court's conclusion is "contrary the Code's text" and "refus[es] to hold that Congress meant what it said."Jordan E. Bublick is a Miami Personal Bankruptcy Lawyer with over 25 years of experience in filing chapter 13 and chapter 7 bankruptcies. Miami Personal Bankruptcy Lawyer Jordan E. Bublick has filed over 8,000 chapter 13 and chapter 7 cases.

There are times filing bankruptcy is necessary in order to maintain a level head and to keep from drowning in debt.  If you find yourself relating to any of the following reasons, you may want to discuss your situation further with an experienced bankruptcy attorney. Obtain a fresh start.  You don’t have to keep struggling [...]

As many readers of our e-mails and blog are aware, if an individual resides in an apartment with a rent controlled or rent stabilized lease and files for personal bankruptcy under Chapter 7 of the Bankruptcy Code, the trustee assigned to the case can assume, assign and transfer the bankruptcy estate's rights and interests in the lease to the landlord, pursuant to § 365 of the Bankruptcy Code. In other words, if an individual resides in an apartment with a rent controlled or rent stabilized lease and the fair market rent of the apartment is significantly greater than the rent paid by the rent controlled or rent stabilized tenant/debtor, a Chapter 7 bankruptcy trustee can sell the bankruptcy estate's rights and interests in the lease to the landlord and remove the debtor/tenant from the apartment.

A more complicated scenario occurs where a married couple are both signatories on a rent controlled or rent stabilized lease, but only one spouse files for Chapter 7 bankruptcy. Can the Chapter 7 bankruptcy trustee sell the bankruptcy estate's rights and interests in the rent controlled or rent stabilized to the landlord free and clear of the non-filing spouse to the landlord and remove the non-filing spouse from the apartment?

While there are no reported decisions on point in the Southern or Eastern Districts of New York, § 363(h) of the Bankruptcy Codeallows a bankruptcy trustee to sell a bankruptcy estate's interest in property and the interest of a non-debtor co-owner in the property as a joint tenant, a tenant in common or a tenant by the entirety, but only if:

1. Partition in kind of the property among the bankruptcy estate and the co-owners is impracticable;

2. The sale of the bankruptcy estate's undivided interest in the property would realize significantly less for the bankruptcy estate than the sale of the property free of the interests of the co-owners;

3. The benefit to the bankruptcy estate of a sale of the property free of the interests of co-owners outweighs the detriment, if any, to the co-owners; and

4. The property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.

If a Chapter 7 Trustee decided to analyze the assumption, assignment and sale of a rent controlled or rent stabilized lease to which a non-debtor spouse is a party using the §363(h) factors, the lease could be at risk. A better strategy for a couple in this situation, if they want to keep the apartment, is to do an out of court workout with creditorsor file for bankruptcy under Chapter 13 of the Bankruptcy Code.

Individuals or couples who are in debt and have a rent controlled or rent stabilized lease need to consult with an experienced personal bankruptcy attorney, such as Jim Shenwick.