Chapter 13 bankruptcy is a “reorganization” bankruptcy rather than a complete liquidation of debt as in a Chapter 7. A Chapter 13 is, basically, a payment plan enforced by the Federal Bankruptcy Court upon all of your creditors, whether the debt is a “dischargeable” debt like a credit card or “non-dischargeable” debt like a child support arrearage or recent income taxes owed. Contrary to popular belief, you are not required to pay back 100% of what you owe to your creditors in a Chapter 13.
The Chapter 13 Plan may be 36-60 months long. Although there is no income-based eligibility standard in a Chapter 13, the same income-based “means test” that determines Chapter 7 bankruptcy eligibility also determines whether you may have a 36-month Plan. The Chapter 13 Plan is devised by you and your attorneys and proposed to the court for its and for creditors’ approval. What you pay in a Chapter 13 Plan is whatever net income you have in your household each month, after basic household expenses, such as food and gas and utilities are taken into account. For instance, if you have $1500 in net household income each month and $1200 in household expenses, your Plan payment would be $300 every month.
The approval process for the Chapter 13 Plan is roughly 5-6 months long and will require you to attend, typically, at least two hearings at the Bankruptcy Court. Once the Plan is approved by the Trustee who is assigned to your case by the Court when it is filed, you are off and running, your only obligations being a timely monthly payment and good communication with your attorney, should your income decrease or expenses increase at any time.
Chapter 13 is the form of bankruptcy available to you if you are not qualified to file a Chapter 7 bankruptcy. However, there are many good reasons to file a Chapter 13 even if you are qualified for Chapter 7.
First, there is no liquidation of your personal assets in a Chapter 13. If you have property that would be seized and sold off in a Chapter 7, a Chapter 13 may be your best option if that property is important to you.
For this same reason, if you are running a small business, a Chapter 13 may be a wiser option so that you do not risk losing your business in a Chapter 7, where the Trustee has the right, under certain circumstances, to seize and wind down your business.
Second, in a Chapter 7 bankruptcy, you either keep or surrender your real estate as-is, with all mortgages intact. In a Chapter 13, we can pursue a mechanism called a “lien-strip,” which will remove and discharge your liability to make payments on a second mortgage, if your house is worth less in fair market value than you owe on a first mortgage.
We can also, under certain circumstances, cram down the payment you make for other secured debts, such as a car payment, so that you pay in full in the Chapter 13 plan only what the property security it as actually worth. If your car, for example, was purchased more than 3 years ago and has more than 75,000 miles on it, you will pay off your loan in a Chapter 13 only to the extent of the car’s real value.
Tax debts and other non-dischargeable debts, with the exception of student loans, can also be paid off through a Chapter 13 Plan at 0% interest—a few percent better than the IRS will give you in most of its repayment plans.
A Chapter 13 can also be dismissed at any time if it is no longer working for you, or it can be converted to a Chapter 7 later on, if your economic circumstances decline. It is a highly flexible process.
Chapter 13 Bankruptcy, best of all, requires virtually no negotiation with your creditors for it work. It is one of the most effective and most efficient processes for dealing with personal debt left in the American legal system. Debts discharged through bankruptcy carry no taxable penalty.
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Several states have enacted statutes which provide asset protection of a debtor’s interest in a trust which the debtor sets up for his own benefit and which the debtor capitalizes with his own non-exempt assets. These trusts are referred to as “domestic asset protection trusts” (DAPT). The trusts legislation attempts to create domestic trust with the same asset protection benefits of offshore asset protection trusts.
Many of my asset protection clients suggest using a DAPT as part of their asset protection program. Whether a DAPT is an effective asset protection tool depends mostly upon where the debtor lives and owns assets. Here is a good summary of DAPT options from Jay Adkisson’s asset protection blog published in Forbes Magazine. Jay provides an easy to understand chart which illustrates when a DAPT will, and will not, work, and he provides also legal citations for the application of DAPT law in different forums.
Jay’s chart shows why DAPT created in other states usually will not protect assets of Florida debtors in Florida courts.
TLC singer Tionne Watkins, or T-Boz, recently filed for personal bankruptcy. According to the filing, Watkins owes $768,643 to creditors.
In addition, the filing shows that the four-time Grammy award winner only receives about $1,200 a month in royalties from the music she produced with TLC. She currently has a monthly income of about $11,700, but spends about $8,821 a month.
The majority of the singer’s debt is related to a mortgage on a $1.2 million house. Watkins’s financial troubles are also related to about $250,000 in owed child support from her ex-husband, rapper Mack 10.
The singer first filed for bankruptcy in 1995 with the band. The Chapter 11 bankruptcy surprised many TLC fans because it came at about the same time as the peak of the group’s success.
To speak with an attorney about the bankruptcy process, contact the West Palm Beach bankruptcy lawyers of Eric N. Klein & Associates, P.A. by calling 561-353-2800 today.
As Fontana personal bankruptcy lawyers, we were pleased to see a recent bankruptcy appeals panel ruling that declined to hold bankrupt small businesspeople responsible for a loan guarantee made by their franchisor. In In re Unterreiner, bankruptcy filers Jeffrey and Lisa Unterreiner were once part of a business that co-owned three Dairy Queen restaurants in Missouri. When the business ran into financial difficulties, it took out a loan that, unbeknownst to them, was guaranteed by the franchisor, Dairy Queen of Greater St. Louis, Missouri Inc. (DQSTL). When they could not pay back the loan and the Unterreiners filed for bankruptcy, DQSTL’s owner, the Samuel J. Temperato Trust, successfully sued to have the loan declared not dischargeable. The Eighth Circuit’s BAP reversed in this decision.
Jeffrey Underreiner and a business partner, Edward Radetic, owned the three Dairy Queens through King William Management Inc., which franchised from and paid part of its earnings to DQSTL. In 2005, because of King William’s difficulties, an employee of the Temperato Trust arranged for a loan to King William. This was a no-document loan from a bank King William had never before done business with. The Unterreiners, Radetic and his wife all personally guaranteed the loan, and they also gave a security interest in the business assets of two of the Dairy Queens. Without the Unterreiners’ knowledge, the loan also fell under a preexisting blanket loan guarantee issued by the Trust. It was revealed that a separate business entity owned the majority of the business assets in the restaurants at issue, making the security interest problematic at best.
Unfortunately, King William was unable to repay the loan. The Unterreiners paid the bank $20,000 in exchange for a release of any claims related to the loan, and the bank went to the Trust, which ultimately paid $185,000. After the Unterreiners filed for bankruptcy, the Trust brought an adversary proceeding against them to collect that money, alleging they knowingly misrepresented the ownership of the assets, thus causing the loss to the Trust. The Unterreiners argued that they had no knowledge of the Trust’s blanket guarantee to the bank, and that their release of liability from the bank should release them from this debt. The bankruptcy court ultimately found the debt nondischargeable, and they appealed.
The bankruptcy court had found that Jeffrey Unterreiner knowingly made a false statement by pledging the collateral King William did not own, and that the Trust reasonably relied on it when it agreed to guarantee the loan. The Eighth Circuit BAP disagreed. To exempt the debt from discharge, it said, the Trust would have to show that it paid the money directly to Unterreiner at the time of the misrepresentation, which is not true. The Trust could argue that Underreiner did get the guarantee from DQSTL, a thing of value, at the time of the misrepresentation — but DQSTL is not the plaintiff in this case, the court noted; the Trust is. Furthermore, loan guarantee between the Trust and the bank preexisted the loan to King William, the court said. Thus, the Trust could not have relied on the security agreement by Unterreiner when it made the original guarantee. Thus, the Eighth sent back the case with instructions to reverse the determination of non-dischargeability.
Our Tustin consumer bankruptcy attorneys are pleased to see this decision go for the debtors, who undoubtedly cannot muster the high-priced legal representation of their former franchisor. In a sense, the decision breaks no new ground at all because it simply reiterates the rules for nondischargeability: the deception must have been made knowing that the party seeking nondischargeability would lose money. While it’s possible that Unterreiner did indeed intend to deceive, it does not appear to be disputed that he didn’t know about the preexisting blanket loan guarantee. Our Rancho Santa Margarita individual bankruptcy lawyers may be able to apply the ruling for other bankruptcy filers fighting a claim for nondischargeability, whether the dispute arises from business or another matter.
A personal injury settlement in Michigan may be protected in bankruptcy in a number of different ways depending upon the classification of the settlement funds.
Personal injury settlements may be awarded by Michigan district or circuit courts for different purposes: lost wage replacement, medical expense damages, caretaker or nursing services, and punitive damages, to name a few settlement categorizations. Depending upon which of these categorizations applies to a specific sum of settlement funds, the settlement may or may not be protectible in bankruptcy.
First, what does it mean to be “protected” in bankruptcy? I have discussed the process of exemption of personal assets in a number of different posts on this blog. To be “protected,” particularly in a Chapter 7 bankruptcy, means that the value of the asset is not so much that the “exemptions” provided for in the Bankruptcy Code are not insufficient to remove that value entirely from the legal “bankruptcy estate” that is created upon the filing of a bankruptcy petition so that the bankruptcy trustee assigned to the case by the Bankruptcy Court does not have jurisdiction to seize and liquidate it.
In other words, certain types of property up to certain dollar-amount values are protected from the seizure-and-liquidation power. Everything else in a Chapter 7 bankruptcy is subject to being seized and sold off by the bankruptcy trustee for the benefit of the creditors whose debts are to be discharged.
With regard to personal injury settlements, the Bankruptcy Code includes an exemption of $21, 625.00. This exemption may be used to protect any of the settlement categories described above—but only to a maximum of that amount. A $30,000.00 pain and suffering compensation settlement amount would thus be unprotected to the extent of $8,375.00.
Additional exemptions apply specifically to other categories and only to those categories. For example, there is a no-ceiling exemption that applies to compensation in replacement of lost future wages (also useful for the protection of worker’s compensation settlements). If an overall personal injury settlement of, for example, $100,000.00 included a lost wages replacement of $50,000.00 only, this exemption would protect only the $50,000.00.
In addition, successful application of these and other exemptions and protections may be significantly easier to execute if the bankruptcy is filed while the claim is still just that—a claim—rather than afterward, when it is a liquid lump sum of cash sitting in a bank account.
If you are a Michigan resident considering filing for bankruptcy and are expecting or hope to receive a personal injury settlement and would like to discuss the ramifications of each process, please feel free to give me a call at (248) 977-4182 or email me at jhilla@aronofflinnell.com to schedule a free, initial consultation.
Many asset protection clients own once-valuable properties which are currently upside down. If a creditor gets and records a judgment the creditor will establish a subordinate lien on the property. The judgment creditor is unlikely to foreclose the judgment when the property has no equity. However, if and when the real estate market recovers and the property’s value comes back the creditor’s lien eventually will be “in the money.” Even though an improved real estate market will enable the debtor to sell the property and payoff the mortgage all the money over and above the mortgage will go to the judgment creditor’s subordinated lien. The debtor will never see any money from this property.
If the debtor conveys title of the property to his spouse, a friend, or a newly formed LLC the judgment creditor’s lien will not attach, and and the new transferee can sell the property at some point free and clear of the judgment lien. The judgment creditor might try to reverse the debtor’s transfer as a fraudulent transfer intended to evade the creditor’s judgment even where there the debtor had no equity in the property at the time of the transfer. Can there be a fraudulent transfer of zero value?
Based upon the definitions in in the fraudulent transfer statutes (Section 726.102 ) I believe that the transfer of a property which is upside down at the time of the transfer cannot be reversed as a fraudulent transfer. The statutes define a “transfer” as the disposition or parting with “an asset.” The statute then defines “assets” as any property of the debtor but not including the debtor’s property to the extent encumbered by a valid lien. Therefore, real estate encumbered by a valid mortgage in excess of property value is not an “asset” for purposes of fraudulent transfer analysis.
Then there is property which as no value but is not encumbered by a lien. For instance, suppose a debtor transfers share of a new LLC which is just beginning business and has not made money. The debtor’s LLC shares are assets because they are not encumbered by a lien. The shares have no market value. Is the change of ownership of the LLC shares to, for example, the debtor and spouse a type of fraudulent transfer. This transfer is not excluded by statute definitions, but the debtor still has the argument that a transfer of zero value leaves the creditor in no worse position than before the transfer.
This week, Syms Corp., operator of discount department stores Syms and Filene’s Basement, filed for Chapter 11 bankruptcy court in Delaware. The company is based in New Jersey.
CEO Marcy Syms says that the economic recession and competition from similar retailers led them to bankruptcy. The company released a statement in the news which said, “Our board has conducted a rigorous assessment of all the strategic options and alternatives available and after careful consideration has come to the conclusion that a bankruptcy filing and liquidation is the best way of maximizing value for all stakeholders.”
There are 4 Syms stores in South Florida. Two are located in Miami, 1 in Fort Lauderdale, and 1 in West Palm Beach. The company expects to liquidate within the next couple of months.
As Moreno Valley foreclosure defense lawyers, we write occasionally about mortgage fraud because fraud at any level is part of what created the depressed real estate market every borrower must deal with today. A recent Ninth U.S. Circuit Court of Appeals decision was a good reminder that mortgage fraud frequently goes far beyond an individual lying on his or her loan application — the corruption often extends to several loan professionals who cooperate in their lies. This was the case in U.S. v. Rizk, the appeal of a home appraiser convicted of participating in a Los Angeles-area fraud scheme. The Ninth Circuit ultimately decided that the convictions of Lila Rizk were valid and not unfair, but overturned a restitution order awarding more money to victims than they actually lost.
Rizk appraised homes mostly in Orange County and Los Angeles County, sometimes working with mortgage broker Mark Abrams and his business partner, Charles Elliott Fitzgerald. Between 2000 and 2003, the men and some associates carried out a scheme to purchase high-end homes for more than they were worth and simply keep the difference between the marked value they paid and the much higher loans they took out. The total profits from this scheme were $40 million, at the expense of the lenders. To convince lenders to make the inflated loans, they created false contracts and also used inflated appraisal reports, many of which were provided by Rizk. At trial, prosecutors introduced charts that showed the difference between the actual and purported closing dates and prices and other evidence. Rizk and the others objected, arguing that the charts were overbroad because they included ten times as many properties as appeared on the indictment, but they were overruled. Rizk was eventually convicted of conspiracy, bank fraud and 13 counts of loan fraud.
On appeal, Rizk challenged the admission of the charts, saying they were prejudicial because they put evidence before the jury about acts for which she was not charged, and about which prosecutors never presented evidence. The court noted that the kind of charts in question must contain only admissible evidence, but the evidence must not necessarily be admitted. Thus, the Ninth Circuit dismissed Rizk’s first argument that it was prejudicial that prosecutors did not admit the evidence. It turned next to her arguments under federal rules permitting the exclusion of irrelevant evidence. Again, the Ninth Circuit found that the charts were admissible, under well-established caselaw allowing evidence of a conspiracy to be admitted even when not all the acts are in the indictment. On Rizk’s arguments that the evidence did not support her convictions, the court found this untrue, noting that she ignored certain evidence in her brief. A rational jury, using the evidence at hand, could find her guilty, the court said. However, it accepted her argument that the restitution order was erroneous. Because Rizk had an insurance carrier who has already paid the victims, it said, the court should have ordered Rizk to pay back the insurer and then pay roughly half that amount to the victims.
Our Placentia foreclosure defense attorneys would like to note that the victims in this case are the lending institutions that financed the fraudulent sales. As a general rule, however, mortgage fraud often victimizes the unlucky people who just happen to live near the fraudulently obtained property. Because mortgage fraud often means letting homes go into foreclosure very quickly after purchase, it depresses property values in the neighborhood with a foreclosure sale. The neighbors’ homes lose value, and they also often end up with an unsightly home in the area that is not being properly cared for. Observers of the housing bubble have likely seen this played out in a big way in communities hit hard by foreclosure. Many of those foreclosures were “organic,” in that the borrowers truly couldn’t afford to keep paying, but as Chino foreclosure defense lawyers, we are not fans of fraud that makes the situation worse for honest borrowers.