By Brian M. RosenthalThe New York attorney general’s office said Monday it had opened an inquiry into more than a decade of lending practices that left thousands of immigrant taxi drivers in crushing debt, while Mayor Bill de Blasio ordered a separate investigation into the brokers who helped arrange the loans. The efforts marked the government’s first steps toward addressing a crisis that has engulfed the city’s yellow cab industry. They came a day after The New York Times published a two-part investigation revealing that a handful of taxi industry leaders artificially inflated the price of a medallion — the coveted permit that allows a driver to own and operate a cab — and made hundreds of millions of dollars by issuing reckless loans to low-income buyers. The investigation also found that regulators at every level of government ignored warning signs, and the city fed the frenzy by selling medallions and promoting them in ads as being “better than the stock market.”The price of a medallion rose to more than $1 million before crashing in late 2014, which left borrowers with debt they had little hope of repaying. More than 950 medallion owners have filed for bankruptcy, and thousands more are struggling to stay afloat.The findings also drew a quick response from other elected officials. The chairman of the Assembly’s banking committee, Kenneth Zebrowski, a Democrat, said his committee would hold a hearing on the issue; the City Council speaker, Corey Johnson, said he was drafting legislation; and several other officials in New York and Albany called for the government to pressure lenders to soften loan terms.The biggest threat to the industry leaders appeared to be the inquiry by the attorney general, Letitia James, which will aim to determine if the lenders engaged in any illegal activity.“Our office is beginning an inquiry into the disturbing reports regarding the lending and business practices that may have created the taxi medallion crisis,” an office spokeswoman said in a statement. “These allegations are serious and must be thoroughly scrutinized.”Gov. Andrew M. Cuomo said through a spokesman that he supported the inquiry. “If any of these businesses or lenders did something wrong, they deserve to be held fully accountable,” the spokesman said in a statement.Lenders did not respond to requests for comment. Previously, they denied wrongdoing, saying regulators had approved all of their practices and some borrowers had made poor decisions and assumed too much debt. Lenders blamed the crisis on the city for allowing ride-hailing companies like Uber and Lyft to enter without regulation, which they said led medallion values to plummet. Mr. de Blasio said the city’s investigation will focus on the brokers who arranged the loans for drivers and sometimes lent money themselves.“The 45-day review will identify and penalize brokers who have taken advantage of buyers and misled city authorities,” the mayor said in a statement. “The review will set down strict new rules that prevent broker practices that hurt hard-working drivers.”Four of the city’s biggest taxi brokers did not respond to requests for comment. Bhairavi Desai, founder of the Taxi Workers Alliance, which represents drivers and independent owners, said the city should not get to investigate the business practices because it was complicit in many of them.The government has already closed or merged all of the nonprofit credit unions that were involved in the industry, saying they participated in “unsafe and unsound banking practices.” At least one credit union leader, Alan Kaufman, the former chief executive of Melrose Credit Union, a major medallion lender, is facing civil charges.The other lenders in the industry include Medallion Financial, a specialty finance company; some major banks, including Capital One and Signature Bank; and several loosely regulated taxi fleet owners and brokers who entered the lending business.At City Hall, officials said Monday they were focused on how to help the roughly 4,000 drivers who bought medallions during the bubble, as well as thousands of longtime owners who were encouraged to refinance their loans to take out more money during that period.One city councilman, Mark Levine, said he was drafting a bill that would allow the city to buy medallion loans from lenders and then forgive much of the debt owed by the borrowers. He said lenders likely would agree because they are eager to exit the business. But he added that his bill would force lenders to sell at discounted prices.“The city made hundreds of millions by pumping up sales of wildly overpriced medallions — as late as 2014 when it was clear that these assets were poised to decline,” said Mr. Levine, a Democrat. “We have an obligation now to find some way to offer relief to the driver-owners whose lives have been ruined.”Scott M. Stringer, the city comptroller, proposed a similar solution in a letter to the mayor. He said the city should convene the lenders and pressure them to partially forgive loans.“These lenders too often dealt in bad faith with a group of hard-working, unsuspecting workers who deserved much better and have yet to receive any measure of justice,” wrote Mr. Stringer, who added that the state should close a loophole that allowed the lenders to classify their loans as business deals, which have looser regulations.Last November, amid a spate of suicides by taxi drivers, including three medallion owners with overwhelming debt, the Council created a task force to study the taxi industry. On Monday, a spokesman for the speaker, Mr. Johnson, said that members of the task force would be appointed very soon. He also criticized the Taxi and Limousine Commission, the city agency that sold the medallions.“We will explore every tool we have to ensure that moving forward, the T.L.C. protects medallion owners and drivers from predatory actors including lenders, medallion brokers, and fleet managers,” Mr. Johnson said in a statement.Another councilman, Ritchie Torres, who heads the Council’s oversight committee, disclosed Monday for the first time that he had been trying to launch his own probe since last year, but had been stymied by the taxi commission. “The T.L.C. hasn’t just been asleep at the wheel, they have been actively stonewalling,” he said.A T.L.C. spokesman declined to comment.In Albany, several lawmakers also said they were researching potential bills.One of them, Assemblywoman Yuh-Line Niou of Manhattan, a member of the committee on banks, said she hoped to pass legislation before the end of the year. She said the state agencies involved in the crisis, including the Department of Financial Services, should be examined. “My world has been shaken right now, to be honest,” Ms. Niou said. Copyright 2019 The New York Times Company.  All rights reserved.

Yesterday, the New York Times published the first part of a devastating investigation into taxi medallion loans.  We highly recommend the article and will post further parts as soon as they become available.

5 Unforeseen Benefits of Filing for Bankruptcy Many people have negative beliefs about bankruptcy. They think it means that that’ve failed, that it will ruin their credit, and that it paints a picture of them as financially irresponsible. But anyone who has actually gone through a bankruptcy knows that none of these things is true. Many people get into financial trouble because of a series of bad luck, and filing for bankruptcy is just a matter of taking advantage of a legal benefit that’s made available to everyone. There are a lot of other myths out there that can prevent people who need bankruptcy from filing for it and getting the debt relief they need. It’s important that you know the truth – one of them being that bankruptcy actually has a lot of benefits. Here are five of the benefits of filing for bankruptcy you might not know: Creditors Stop Calling By the time you consider filing for bankruptcy, you are probably drowning in debt. Creditors are likely calling constantly, and you may even be afraid to answer your phone. You are constantly being harassed to pay bills, but you don’t have the money to satisfy the debts. When you file for bankruptcy, an automatic stay goes into effect that legally prohibits creditors from contacting you. At the very least, you get the mental space to determine a plan for going forward. Debt is Discharged If you are able to qualify for Chapter 7 bankruptcy, you can get all of your unsecured debt discharged, such as credit cards, medical bills, and personal loans. You could have thousands of dollars in debt that goes away instantly. That could clear up hundreds of dollars each month that you could put toward other bills, such as your mortgage or car payment. That can help you save your important assets, and it can help you get your finances under control quickly. You Learn Better Financial Management Whether you file Chapter 7 and get all your unsecured debt discharged or you file Chapter 13 and get your debt on a refinanced, repayment plan, you won’t have access to credit cards. You won’t be able to use the credit cards you ad, and you won’t be able to open any new lines of credit. You will have to learn how to live within your means, with access only to the money currently in your account. That can help you learn how to better manage your money so that you don’t get into financial trouble again in the future. You Get Credit Education A requirement of declaring bankruptcy is that you must go through credit counseling courses. Even if you got into debt through no fault of your own – such as because of losing your job or becoming seriously ill – it will only benefit you to learn how to better manage your credit. But if you did get into trouble because of misuse of credit, this education will help you make better choices that will keep you out of trouble in the future. You’ll have more financial stability and be able to use credit for your benefit. Credit is Improved The biggest fear that most people have about filing for bankruptcy is that their credit will be ruined. While it’s true that you won’t be able to get new credit right after filing, you will find that your credit improves quickly. Most people can easily get approved for new credit within two years of their filing. But you may be able to get credit even faster than that. Bankruptcy can clear up your finances so that you can get other accounts in better order, such as your student loan (which cannot be discharged) and your mortgage. You can start rebuilding your credit because you have the money to meet your responsibilities. Don’t let misconceptions about bankruptcy keep you from taking advantage of the benefits it offers. Bankruptcy is a useful tool that can help you get relief from your debt and take back control of your finances. Talk to a bankruptcy lawyer about whether bankruptcy would be right for your circumstances. My AZ Lawyers can help you if you are considering bankruptcy. Our experienced bankruptcy attorneys will help you understand the difference between Chapter 7 and Chapter 13 bankruptcy to know which might be better for you. If you decide to file for bankruptcy, one of our attorneys can file it for you to improve the chances of a successful discharge. Call our bankruptcy law office today to talk to a bankruptcy lawyer and learn about your debt relief options.   Published By: My AZ Lawyers Mesa Location: 1731 West Baseline Rd., Suite #100 Mesa, AZ 85202 Office: (480) 448-9800 Glendale Location: 20325 N 51st Avenue Suite #134, Building 5 Glendale, AZ 85308 Office: (602) 509-0955 Tucson Location: 2 East Congress St., Suite #900-6A Tucson, AZ 85701 Office: (520) 441-1450 Avondale Location: 12725 W. Indian School Rd., Ste E, #101 Avondale, AZ 85392 Office: (623) 399-4222 The post 5 Unforeseen Benefits of Filing for Bankruptcy appeared first on My AZ Lawyers.

If you suffer from severe hearing impairment or deafness, you may be eligible to receive Social Security disability. Here, Maryland Social Security attorney Jeffrey Scholnick of the Law Offices of Jeffrey Scholnick explains Social Security disability for hearing loss. Who is Eligible to Receive Social Security Disability for Hearing Loss? According to both the National Institute on Deafness and Other Communication Disorders (NIDCD) and the National Institutes of Health (NIH), approximately one quarter of adults aged 65 and over report experiencing hearing loss to some capacity. While individuals with minor hearing loss do not qualify for Social Security disability, individuals with significant hearing loss or even complete deafness may qualify to receive disability benefits. Social Security disability benefits for individuals with hearing loss often prove to be necessary forms of aid because of the expensive price of hearing aids, cochlear implants and other medical procedures. For instance, while individuals automatically receive disability benefits for one year after they receive cochlear implants, individuals who wish to have hearing aids often pay an average of $4,500 per pair—if an individual’s insurance does not cover hearing aids, they can end up inaccessible to those who require them. That is why Social Security disability benefits are available for those who fit the criteria. How Do I Apply For Social Security Disability for Hearing Loss? To apply for Social Security disability benefits for hearing loss, there are two routes you can take depending on whether you seek Social Security disability (SSDI) or supplemental security income (SSI). If you are applying for SSDI, you can either apply at your local Social Security office or online. If you would like to apply for SSI, it is required that you be interviewed by a Social Security Administration (SSA) representative. Interviews can take place over the phone or in person. In both the SSDI and SSI application processes, you will need certain paperwork containing necessary information such as your work history, current employment, contact information of your healthcare providers and more. What Tests Must I Take to Qualify for Disability Benefits? To receive Social Security disability benefits, you must pass either the audiometry test or the word recognition test. The audiometry test measures your hearing capabilities at 500 hertz, 1,000 hertz and 2,000 hertz. To pass the audiometry test you must have a bone conduction hearing threshold of 60 decibels or worse in your better ear, and your hearing threshold sensitivity for air conduction must be 90 decibels or worse in that ear. During the word recognition test, you must only be able to repeat 40% or less of words in a list of words spoken during the test. Word recognition tests are supervised by a licensed physician, audiologist or ENT who oversees your speech discrimination capability. These tests are performed without the use of hearing aids. Speak to Maryland Attorney Jeffrey Scholnick of The Law Offices of Jeffrey Scholnick Regarding Your Hearing Loss Hearing loss affects more than 37 million American adults and can impact your day-to-day life and ability to make a living. If you suffer from significant hearing loss and seek Social Security disability benefits to ease the strain of paying for hearing aids, cochlear implants and other treatments, dedicated Social Security disability attorney Jeffrey Scholnick of The Law Offices of Jeffrey Scholnick can help you determine whether you qualify to receive aid. If you would like more information on how you can receive Social Security benefits for your hearing loss, contact The Law Offices of Jeffrey Scholnick today.The post Filing for Social Security Disability for Hearing Loss first appeared on Scholnick Law.

By Helaine Olen Last month Sen. Elizabeth Warren (D-Mass.) debuted a proposal that would wipe away the majority of student debt through a generous forgiveness program. It may have been controversial among pundits, but it was popular with the public. Now there’s another plan out there that offers help too — and Warren, along with fellow presidential candidates Sens. Bernie Sanders (I-Vt.), Kamala Harris (D-Calif.), Amy Klobuchar (D-Minn.) and Rep. Eric Swallwell (D-Calif.) are all co-sponsoring it. Let’s talk about bankruptcy. Americans owe a collective $1.5 trillion in student loan debt, an amount that’s increased from $90 billion over the past two decades. In 2018, more than two-thirds of college graduates graduated with student loans. The average amount borrowed (from all sources) by a 2018 graduate is just under $30,000. The burden is impacting people from early adulthood to those in retirement: Some senior citizens are using their Social Security checks to pay back student loan bills. If all these people were facing unsupportable housing, credit card debt, medical or auto loan bills they could turn to a bankruptcy court for help. But short of something called “undue hardship,” an extremely difficult standard to meet, it’s essentially impossible to receive court-ordered relief from college loans. The legislation, which debuted last week, would seek to fix this. It’s bipartisan, attracting two Republican co-sponsors in the House, including Rep. John Katko (R-N.Y.), who introduced a similar bill in the last session of Congress. It would, as sponsor House Judiciary Chair Jerrold Nadler (D-N.Y.) put it in a statement, "ensure student loan debt is treated like almost every other form of consumer debt." The issue goes back to the 1970s, when the banks and media outlets began pushing the narrative there was an explosion in new graduates declaring bankruptcy to unload their student loans. The Government Accountability Office (then the General Accounting Office) found that such acts were extremely rare. But little matter: In 1976, Congress passed legislation that banned students from receiving relief for their student debts for a period of five years. Over the next several decades, they would extend that period to seven years, and then in 1998 they shut the door almost entirely on relief for federally issued loans. In 2005, as part of controversial “bankruptcy reform” legislation, that stricture was extended to privately issued loans as well. One man who supported all of this: Joe Biden, then a senator from Delaware. He championed the multiple changes that made it harder for people to declare bankruptcy and receive relief for their student debt. Over that same period, student loan debt ballooned. That’s likely not a coincidence. Many things factored into the rise of debt financing of education, including the decreasing rates at which many states supported their public colleges and, most prominently, the growth of for-profit colleges. But the usual risk associated with loaning money is that the person might not pay it back; common sense says banning that outcome would lead to an exploding student loan market. When you can get blood from a stone, someone — the government, a bank or a financial institution specializing in refinancing student debt — will lend the rock money. Restoring bankruptcy could protect borrowers in another way too, by potentially acting as a check on the careless treatment of debtors by the student loan servicers. In 2017, the Consumer Financial Protection Bureau sued Navient, claiming the student loan giant repeatedly did not tell borrowers experiencing financial difficulties about income-based repayment options, and instead pushed them into forbearance, a strategy that resulted in further interest charges and increased the amount borrowers owed. At the same time, Education Secretary Betsy DeVos is slow-walking promised debt forgiveness to students defrauded by sketchy and predatory for-profit colleges. Meaningful bankruptcy reform would give these victims another option, as well as expand the potential for relief to former debt-encumbered students who also need the help but are outside of the relatively narrow eligibility groups to apply for relief. Yes, there are other things we could do as well. A beefed up, income-based repayment program, with automatic enrollment and a more realistic assessment of the earned income needed for people to begin the process of paying back their loans, would make a significant difference. But that won’t help everyone, especially those whose loans did not originate with or are no longer held by the government. It’s also worth noting that the students most likely to fall into default — that is, cease paying their student loans entirely — are those who attend for-profit colleges, who are disproportionately likely to be older, and come from a more economically disadvantaged background,than the traditional college student. There is little evidence that people frivolously file for bankruptcy. If anything, it’s the opposite; many put off seeking help. There’s no reason to believe things would be different when it comes to student debt. Restoring the right to declare bankruptcy when one can’t financially handle paying for one’s education is a change that should be supported even by those who believe Warren’s debt forgiveness plan is too generous — or a giveaway to the wealthy. The right to declare bankruptcy is fundamental to a capitalist economic system. We believe that people who make economic mistakes deserve a second chance. Think about it this way: Donald Trump has taken his businesses to bankruptcy court and excised many of his debts a half a dozen times, while people whose only mistake was doing their best to get ahead find it almost impossible to receive similar relief. That’s not right. We should fix that.© 1996-2019 The Washington Post.  All rights reserved.

Here at Shenwick & Associates, one of the most difficult issues for our clients (especially younger ones) is student loan debt, which is now over $1.5 trillion (that’s not a typo), far eclipsing other types of consumer debt.  As we’ve discussed many times in our posts, most courts follow the “undue hardship” Brunner test,  which makes it almost impossible to discharge student loan debts in bankruptcy. However, relief may be on the horizon, as more opinion leaders and courts express opposition to the Brunner factors.  Earlier this month, members of Congress (including Sens. Elizabeth Warren (D-Mass.) and Dick Durbin (D-Ill.), along with Reps. Jerrold Nadler (D-N.Y.), John Katko (R-N.Y.) and Joe Neguse (D-Colo.)) introduced the Student Borrower Bankruptcy Relief Act of 2019, which would eliminate the section of the bankruptcy code (523(a)(8)) that makes private and federal student loans nondischargeable, allowing these loans to be treated like nearly all other forms of consumer debt. The bill should easily pass the House.  No bill text is available yet, but we’re sure we’ll be writing about this vexing issue again soon.  For trusted bankruptcy advice on all types of debt, please contact Jim Shenwick.

The April 2019 New York City Taxi & Limousine Commission (TLC) sales resultshave been released to the public. And as is our practice, provided below are Jim Shenwick’s comments about those sales results.1. The volume of transfers rose from March. In April, there were 75 unrestricted taxi medallion sales.2. 57 of the 75 sales were foreclosure sales (76%), which means that the medallion owner defaulted on the bank loan and the banks were foreclosing to obtain possession of the medallion. Four sales were estate sales for no consideration. We disregard these transfers in our analysis of the data, because we believe that they are outliers and not indicative of the true value of the medallion, which is a sale between a buyer and a seller under no pressure to sell (fair market value). 3. The large volume of foreclosure sales (approximately 76%) is in our opinion evidence of the continued weakness in the taxi medallion market. 4. The 14 regular sales for consideration ranged from a low of $125,000 (one medallion) to a high of $230,000 (one medallion), with a median sales value of $170,000.5.  The fact that 76% of all transfers in April 2019 were foreclosure sales shows continued weakness in the taxi medallion market and no sign of a correction. 6. At Shenwick & Associates we believe that the value of a medallion is approximately $160,000 and the value of medallions continues to weaken. Please continue to read our blog to see what happens to medallion pricing in the future. Any individuals or businesses with questions about taxi medallion valuations or workouts should contact Jim Shenwick at (212) 541-6224 or via email at jshenwick@gmail.com.

Last year, the Supreme Court ruled on a case involving a claim that a party was a non-statutory insider without ever deciding what legal test should apply.   U.S. Bank National Association v. The Village at Lakeridge, LLC, 138 S.Ct. 960 (2018).    Bankruptcy Judge Craig Gargotta was not able to dodge the issue and has written an opinion which is helpful in applying the non-statutory insider test.   Case No. 18-5238, Hornberger v. Davis Cedillo & Mendoza (Bankr. W.D. Tex. 4/16/19). Under 11 U.S.C. Sec. 547, a preferential transfer made to an ordinary vendor can be recovered if it was made during the 90 days prior to bankruptcy.   However, if made to an insider, the period expands to one year.   11 U.S.C. Sec. 101(31) has a list of persons who are automatically considered insiders, such as the officers of a company.  The statute uses the word "includes" prior to the list.  This means that the list is not exclusive.  Persons who who are not specifically defined to be insiders but have a sufficiently close relationship to the debtor are referred to as non-statutory insiders.   What HappenedLarry Struthoff was a majority shareholder of Olmos Equipment, Inc. ("OEI")..   He was also an officer, shareholder and director of SWL Enterprises, Inc.  ("SWL").   SWL had two other shareholders, Long and Weynand.   OEI acquired the assets of SWL.   Weynand became concerned that Struthoff had cheated him out of his share of the sales proceeds.   Weynand sued OEL, SWL, Struthoff, Long and another shareholder of OEI named Janecke for $6 million.As trial approached, OEI's longtime counsel became concerned that he did not have the bandwidth for a "bet the company" trial.   OEI hired Davis, Cedillo & Mendoza, Inc. ("DCM").   Where OEI and the insiders previously had separate counsel, DCM represented all of the defendants.   OEI paid the law firm $400,000.   Other parties paid the firm $225,000.DCM was not able to rescue the company.  After trial, judgment was entered against OEI for $5.3 million. (Judgment was also entered against Struthoff and Janecke). OEI filed chapter 11.  It confirmed a plan which which created a litigation trust.  Ronald Hornberger, the trustee of the litigation trust, sued DCM to recover $400,000 in payments made by the Debtor during the period which was more than 90 days before bankruptcy but less than one year.  The litigation trustee brought claims to recover preferential transfers and fraudulent transfers.   In order for the preferential transfer complaint to state a claim, the trustee needed to make plausible allegations that DCM was a non-statutory insider of the Debtor. This required Judge Gargotta to answer the question that the Supreme Court had dodged:  what is the test for a non-statutory insider?The Test Judge Gargotta looked to Browning Interests v. Allison (In re Holloway), 955 F.2d 1008 (5th Cir. 1992) to find the proper test.   Holloway was a case under the Texas Uniform Fraudulent Transfer Act.    The definition of an insider under TUFTA is identical to the one contained in the Bankruptcy Code.   Tex.Bus.&Com. Code Sec. 24.002(7).   Thus, the case involved a federal court interpreting a Texas statute which was based on a federal statute.  On top of that, it relied on precedents under the Bankruptcy Code.   The Court in Holloway said:The cases which have considered whether insider status exists generally have focused on two factors in making that determination: (1) the closeness of the relationship between the transferee and the debtor; and (2) whether the transactions between the transferee and the debtor were conducted at arm's length. Holloway at 1011.   Judge Gargotta also discussed the Tenth Circuit opinion in Austine v. Carl Zeiss Medical, Inc., 513 F.3d 1272 (10th Cir. 2008) which relied on similar reasoning.The Ruling The litigation trustee argued that DCM exercised control over the Debtor because it persuaded the Debtor to pay for the attorneys' fees of Struthoff and SWL in addition to the Debtor.   The Court rejected this argument, stating:The Court agrees with DCM that Plaintiff has not met the plausibility requirements of showing that DCM is a non-statutory insider of Debtor. Under the two-prong test of U.S. Medical, Inc, and Holloway, the Plaintiff has not shown that DCM had a sufficiently close relationship with OEI or that DCM exercised control or influence over the Debtor such that the transaction at issue was not done at arm’s length. The facts as deemed true only allege a contractual relationship between DCM and OEI and the course of dealing between the parties was that of an attorney-client. DCM represented OEI in complex civil lawsuit in state court that resulted in an adverse judgment. Plaintiff’s argument that Debtor’s By-Laws or other corporate documents precluded DCM from representing Debtor is unavailing—Struhoff had the requisite authority to engage DCM. Plaintiff has not cited with any specificity as to which corporate provisions were violated. Plaintiff’s assertion that DCM had access to OEI’s internal documents is insufficient to support a finding that DCM exercised control or influence over OEI. The fact that Debtor made payments to DCM for services performed is precisely what any other legal counsel would have requested in the allegations raised here. The payments, based on Plaintiff’s allegations, comport with what was required under DCM’s engagement letter. In sum, there are no facts to indicate that the transaction between the Parties’ was anything other than arm’s length.Opinion, pp. 21-22. An attorney representing a client in high-stakes litigation, whether it is a state court lawsuit or a chapter 11 proceeding, necessarily has a lot of influence over the client.  Because the client is counting on the attorney to guide it through legal peril, the attorney will have more impact on the client's decisions than say, the company's paper vendor.   The arms-length inquiry should focus, as the Court did here, on how the attorney's behavior comported with what attorneys normally do.   Because this case found that the transactions were done at arms-length, it did not answer the question of what "not arms-length" would look like.   I tried to think of exampleswhere an attorney could exercise sufficient control to take the relationship outside of arms-length status:1.  The attorney takes the wife of the Debtor's CEO hostage and threatens to kill her if payments are not timely made.  Admittedly, this would be a criminal violation as well.2.  The client gives the attorney the password to its accounting software and allows the attorney to approve which bills get paid and which bills do not.3.  The attorney requires that all funds belonging to the corporation be paid to a lockbox controlled by the attorney and the attorney only allows the client to use its funds after the attorney has deducted its fees.These were extreme examples.   Here is one that is a bit closer:The attorney and the company's CEO attend the same church and have gone on mission trips together.   The attorney and the CEO regularly dine at each other's home.   At one of these dinners, the attorney tells the CEO that the attorney's wife is receiving cancer treatment and that without the revenue coming in from the litigation, he would not be able to pay for her treatments.   Each week, the CEO asks the attorney how much money he needs and he pays that amount regardless of what the firm billed.     While the attorney in this hypothetical did not exercise improper influence over the generous CEO, the personal bond between the two men led the CEO to give the attorney treatment he would not provide to a third party vendor.  If you tweak the hypothetical slightly and the CEO paid each invoice the same day it was received, then it probably goes back to being arms-length.  While the relationship no doubt would influence the prompt payment, it is still within the range of ways that clients interact with their attorneys. 

  A common issue faced by debtor attorneys is when a client had obtained a lump sum of money in the recent past, and has some difficulty explaining what specifically happened to such funds.  A recent 11th Circuit case highlights the necessity of debtor's counsel getting the as many records as possible to detail the use of such funds prior to filing, and fully disclosing the same when the case is filed.  In In re Whigham, 2019 U.S.App.LEXIS 13996, Case #18-13790 (11th Cir. 10 May 2019) the appellate court affirmed the lower court's denial of discharge under §§727(a)(3), (a)(4), and (a)(5).  The Debtor, Ms. Whigham, filed a chapter 7 case on 16 June 2015.  In the statement of financial affairs she disclosed receipt of a 2013 lawsuit settlement of $245,000.   In a 2004 examination by a creditor and the trustee she testified that she received $200,000 net of attorneys fees, deposited $75,000 in a new account at PNC Bank, and obtained a $125,000 cashiers check payable to herself to pay various 'outstanding bills.'  She asserted that she took that cashier's check to Citibank which issued a series of cashier's checks payable to her various creditors.  She was unable at the 2004 examination to recall the specific creditors paid, but asserted that the total of such checks would have totaled the $125,000.  She agreed to produce copies of the cashiers checks within 10 days of the 2004 exam.  When no such production was forthcoming the creditor filed an adversary proceeding to deny the discharge.  They also subpoenaed Citibank which produced only $9,000 in cashier's checks, one of which was to Whigham's son.  Whigham subsequently filed an affidavit that she was 'reminded' of a Citibank account held in trust for her son (ITF account) in which she deposited $105,000 of the settlement proceeds, which was still open.  Following trial the bankruptcy court denied the discharge for 1) concealing and failing to maintain adequate records necessary to determine her financial condition, 2)  making a false oath or account that was fraudulent and material, and withholding recorded information related to her property or financial affairs; and 3) failure to satisfactorily explain her loss of assets.  The district court affirmed.    §727(a)(3) provides for denial of discharge when a debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all the circumstances of the case.  The bankruptcy court found that Whigham's concealment of the ITF account and failure to keep adequate records regarding the disbursement of the settlement proceeds satisfied this provision.  The circuit court rejected Whigham's argument that the failure to disclose was inadvertent, and that she was under no obligation to disclose the account because it was held in trust for her son and no longer contained settlement proceeds as of the bankruptcy filing.  The court accepted the bankruptcy court's factual finding that Whigham's assertion that she forgot about the account was not credible.  Similarly given the size of the settlement, the lower court's finding that it lacked sufficient information from which the debtor's financial condition might be ascertained was  supported, despite her subsequent production of an account after the filing of the adversary and discovery.  §727(a)(4) provides for denial of discharge when a debtor knowingly and fraudulently, in or in connection with a case, makes a false oath or account or withholds from an officer of the estate any recorded information related the the debtor's property or financial affairs.  Such false oath must be fraudulent and material.  The trial court found several false oaths regarding the ITF account, including failure to disclose the account on four separate court filings and two separate examinations.  As to intent, her assertion that she forgot about the account strains redulity in light of the large deposits made into the account, deposits that constituted a significant portion of the largest lump sum payment she ever received.  An appellate court will not reverse a trial court's choice between two permissible views of the evidence.   As to materiality Whigham's assertion that the account was not her asset is without merit.  Despite the account being held in trust for her son, she was the owner of the account and had immediate access to the funds.   This is the case even if none of the settlement funds remained in the account.  False oaths regarding worthless assets may still bar the discharge of debts.1  §727(a)(5) provides for denial of discharge when a debtor has failed to satisfactorily explain any loss of assets or deficiency of assets to meet their liabilities.  The trial court found that Whigham's concealment of the disposition of such funds, specifically as to the ITF account, satisfied this provision.  While her affidavit purports to provide a detailed accounting of the proceeds, it contracts her prior testimony and was itself contradicted by her verified response to the creditor's motion for summary judgment (showing $90,000 deposited into the account in the affidavit vs. $105,000 in the verified response).  Such discrepancies and the her shifting explanations regarding the disposition of the proceeds support the trial court's findings.1 Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 618 (11th Cir. 1984).↩Michael BarnettMichael Barnett, PA506 N Armenia Ave.Tampa, FL 33609-1703https://hillsboroughbankruptcy.com

Here at Shenwick & Associates, spring is in the air and the A/C isn’t on yet.  One of things that we love about the law is that it’s always changing, and we do our best to keep up with new developments in bankruptcy law. So we were excited to see that the American Bankruptcy Institute(one of the most respected institutions in bankruptcy law) issued the final report of its Commission on Consumer Bankruptcy earlier this month, which contains a plethora of recommendations to amend the Bankruptcy Code and Federal Rules of Bankruptcy Procedure.  In this e-mail, we’ll review its key recommendations. Student loans. As our readers know, it’s extremely difficult to discharge student loans in bankruptcy.  The Commission recommends that student loans that are: (a) made by nongovernmental entities; (b) incurred by a person other than the person receiving the education; (c) being paid through a five-year chapter 13 plan; or (d) first payable more than seven years before a chapter 7 bankruptcy is filed be made dischargeable in bankruptcy. Remedies for Violation of the Discharge Injunction.  Currently most violations of the discharge injunction can only be remedied by contempt proceedings.  The Commission recommends creating a statutory private right of action for violations of the discharge injunction, like the action for violations of the automatic stay, which would provide the full range of sanctions, including costs, attorney fees, and punitive damages. Credit Counseling and Financial Management Course.  The Commission recommends eliminating prepetition credit counseling and eliminating the requirement for a course in financial management in chapter 7, but retaining it in chapter 13, with further study of its effectiveness. Means Test Revisions & Interpretation.  The Commission recommends amending the means test to require reduced documentation from debtors with below-median income; to exclude from income public assistance, government retirement, and disability benefits, capped by the maximum allowed Social Security benefit; to remove the presumption of abuse if the debtor shows special circumstances, even if the circumstances arose voluntarily; and to allow certain statutory expense deductions from income only to the extent actually incurred by the debtor and necessary for the support of the debtor and debtor’s dependents. Chapter 13 Debt Limits. To reduce the need for individuals to file under chapter 11, the Commission recommends increasing the chapter 13 debt limit to $3 million, eliminating the distinction between secured and unsecured debts; and for married couples, applying the limit separately to each spouse and not aggregating the spousal debt, even in joint cases. All of the Commission’s recommendations would dramatically improve access to bankruptcy relief, but Congress would need to introduce bills to enact the Commission’s recommendations for statutory amendments.  For information on how bankruptcy relief could help you, please contact Jim Shenwick.