By Yael BizouatiNo one looks forward to having to file for bankruptcy. However, if you have filed and also own a home, you may be surprised to learn that you can, in fact, refinance an existing mortgage. Refinancing comes with plenty of advantages. By lowering the interest rate you pay, it can help reduce your monthly payment. By extending your loan term — from, say, 15 years to 30 years — you may also be able to reduce your current mortgage costs. Refinancing also offers a way to either consolidate other debt, or produce cash for home improvements or other large expenses. Still, It’s important to know that not every lender approaches post-bankruptcy refinancing the same way, and some have strict criteria, like long wait periods. At the same time, it’s worth noting that bankruptcy filers, as a group, pay considerably more for loans, according to a 2018 LendingTree study. The study found that the average lending terms offered to consumers three years after bankruptcy were $8,887 higher than those offered to consumers who had never had to file. What to know about refinancing after bankruptcyBankruptcy gets a bad rap, but it’s also a way for consumers who are overwhelmed by debt to receive federal protection while they work to pay off obligations. While filing for bankruptcy is a very serious decision — and the move can stay on your credit report for years — it might be a reasonable move for your financial future if you’ve exhausted every other option. There are several types of bankruptcy, and each might affect a potential refinancing differently, depending on factors like the discharge date. A discharge date is the time when a debtor who has filed for bankruptcy is no longer legally liable for — or required to pay back — certain types of debt. For Chapter 7 bankruptcies, a bankruptcy court will issue a discharge order relatively early — generally, 60 to 90 days after the date first set for creditors to meet. With a Chapter 7 bankruptcy, a debtor’s assets are liquidated, or sold, as a way to pay back creditors. In Chapter 13 bankruptcies, a debtor who has a regular income is allowed to keep assets but also has to agree to a debt repayment plan, usually over three to five years. The debt is technically discharged only after it’s been paid off under the plan. Even with a Chapter 7 bankruptcy filing, you may still be able to reaffirm, or pay off, certain debts with specific creditors. If you have a mortgage, this usually means re-entering a contract with your lender to affirm that you intend to repay part or all of your loan. As long as you follow through with mortgage payments, the lender is then legally obligated to refrain from repossessing your home and forcing a foreclosure. For homeowners, one advantage to reaffirming a debt is that your mortgage payments will keep showing up on your credit report because lenders will be obligated to report them to the credit bureaus. Also, by reaffirming your mortgage, you might be able to renegotiate the terms of the loan, including the total amount and the interest rate. According to federal court data, bankruptcy filings have been declining in recent years. Still, during the 12-month period that ended on June 30, 2018, 22,245 businesses and 753,333 non-businesses filed for bankruptcy, for a total of 775,578 filings. If you own a home and absolutely must file for bankruptcy, be sure you understand how bankruptcy conditions differ. “A Chapter 7 bankruptcy in essence is a liquidation and a fresh start, and people who don’t own highly appreciated assets are better off with this type of bankruptcy,” said James Shenwick, bankruptcy attorney at Shenwick & Associates in New York. “But if that person owns a highly appreciated house, or they want to keep a business, or they have an expensive piece of jewelry, then Chapter 13 is better.” Here are the ways bankruptcies affect mortgages in particular: Chapter 7 bankruptcy: Unlike a Chapter 13 bankruptcy, a Chapter 7 bankruptcy doesn’t have a repayment plan. Instead, an appointed trustee gathers and liquidates the debtor’s assets to pay off creditors which, in turn, lets the debtor start with a clean slate. Chapter 7 bankruptcies stay on credit reports for up to 10 years. With a Chapter 7 bankruptcy, you have to wait two years after the discharge date before you can become eligible for a government-backed residential mortgage like a Federal Housing Administration (FHA) loan. For conventional home loans, the wait period is four years. Certain types of debts — like child support payments and certain taxes — can’t be discharged, or basically forgiven, with a Chapter 7 bankruptcy filing. Mortgage debt can be discharged, but your lender will still have a lien on your home, which means you may lose it if the loan isn’t eventually repaid. Chapter 13 bankruptcy: A Chapter 13 bankruptcy requires debtors to restructure their debts in order to pay them off over a period of three to five years. Compared to Chapter 7 bankruptcies, Chapter 13 filings carry the advantage of allowing homeowners to stop foreclosure proceedings, as long as they keep up with all mortgage payments due during the repayment period. A Chapter 13 bankruptcy is often referred to as a “wage earner bankruptcy” because it offers a repayment plan to people who have regular income. You are eligible one year after the discharge of your bankruptcy for a government-backed home loan. With a conventional home loan, however, you’ll need to wait two years. Chapter 11 bankruptcy: Chapter 11 bankruptcies are for business owners. They allow a business to follow a plan of rehabilitation or reorganization so it may continue to function while repaying debt. FHA loans are subject to rules for after-bankruptcy refinancingIt’s entirely possible to get an affordable government-backed FHA loan for a refinance after declaring Chapter 7 bankruptcy, but you’ll need to do three things: Wait two years after your discharge, re-establish good credit during that time and avoid taking on more debt. It’s also possible to become eligible for an FHA loan after just 12 months. However, you’ll need to prove your bankruptcy occurred due to circumstances beyond your control, and you’ll also need documentation to show you’re now managing your finances responsibly. Your lender will have to vouch for you on paper that the bankruptcy is unlikely to happen again. To get an FHA loan after filing a Chapter 13 bankruptcy, you’ll need to show you made full, on-time mortgage payments for at least a year under your repayment plan, according to the U.S. Department of Housing and Urban Development. You’ll also need to get written permission from a bankruptcy court. Conventional loans have stricter terms for after-bankruptcy refinancingConventional loans are not government-insured, so interest rates and credit score requirements tend to be higher than those for a government-backed mortgage like an FHA loan. For example, you can get an FHA loan with a credit score of just 500 (assuming you’re willing to put down a 10% down payment, or 580 if you only want to put down 3.5%. By contrast, conventional mortgages usually require a minimum score of 620. According to Jeremy Schachter, branch manager at Fairway Independent Mortgage Corporation in Phoenix, Ariz., some lenders offer niche refinance loans that don’t require a waiting period, but these are adjustable-rate mortgages that come with higher fees. “The majority of people fall in the FHA or VA loan buckets,” he said. “It doesn’t make sense if you’ve been through a bankruptcy to go with a loan with higher rates and fees.” Tips on repairing credit after bankruptcyA bankruptcy typically takes a huge toll on your credit standing, cautioned Schachter, adding that the first thing any lender will look at is whether your credit has been re-established. “While most bankruptcies happen not out of laziness but because of personal situations such as high medical bills, the worst thing you can do after a bankruptcy is be late on your debt,” he said. “It’s a red flag for lenders who think you should have learned your lesson.” It’s usually easier to rehabilitate your credit if you file a Chapter 13 bankruptcy, rather than a Chapter 7 bankruptcy. “In a Chapter 13, creditors are repaid about 10 or 20 cents on the dollar, so the debt is not fully wiped and lenders see that as more of a positive and are more willing to lend to you,” said Shenwick. Still, he added it’s possible to generally rehabilitate your credit even with a Chapter 7 bankruptcy in a year or a year-and-a-half by doing two things: spending as little as possible and saving as much as possible. Shenwick’s best tip for a credit rebuild: Get a secured credit card, as repayments will show up on your credit history. Secured credit cards are “secured” by money you deposit, unlike regular credit cards, which require no deposits. Schachter also recommended secured credit cards; he suggested getting a card to pay for very small expenses like gas or groceries, and then making payments on time. “I see people who do it for six months and that dramatically increases their score,” he said. “It shows they repay debt. It’s a great way to establish or re-establish credit, even for people who don’t have a bankruptcy on file.” The bottom lineYes, you may be able to refinance your home after bankruptcy, although you may have a waiting period. And you’re more likely to get a government-sponsored FHA loan rather than a conventional loan. To boost your odds significantly, focus on repairing your credit, steering clear of piling on more debt and, if you filed a Chapter 13 bankruptcy, sticking to your repayment plan. Still, boosting your credit standing may be your biggest ally: According to the 2018 LendingTree study, five years after declaring bankruptcy, 75% of filers were able to boost their credit scores to a loan-eligible 640 or more.© Copyright 2012-2019 Student Loan Hero™, Inc., All Rights Reserved.

   A chapter 7 trustee sought the debtor's annual bonus under a Caterpillar employment contract in In re Brown, 2019 Bankr. LEXIS 1445, Case #18-81242 (Bankr. C.D. Ill, 9 May 2019).  The debtor had received such bonus each year she was so employed, and filed the bankruptcy 62.7% through the calendar year.  However, the contract provisions regarding the bonus show it is fully revocable, participants are not vested in the bonus until receipt fo the payment, and can be reduced or eliminated at any time.   The trustee argued that the bonus had sufficient roots in the prebankruptcy past to bring it into the bankruptcy estate.  11 U.S.C. §541(a)(1) provides that a bankruptcy estate includes all legal and equitable interests in the debtor as of the filing of the estate.  As is made clear in the legislative history of the provision, the provision does not expand the rights of the debtor; rather the trustee stands in the shoes of the debtor and succeeds to no greater rights than those held by the debtor on the petition date.1  The phrase 'as of the commencement of the case' is a temporal cutoff, limiting the interest (with certain exceptions stated in §541) to interests that exist and belong to a debtor as of the filing of the case.  Courts distinguish when a debtor's rights in property is created prepetition, even if subject to contingencies, from when the debtor has only potential rights that are not certain to arise and do not become enforceable until after the bankruptcy.  Courts have used the sufficiently rooted test first used by the Supreme Court in Segal v. Rochelle, 382 U.S. 375, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966) to assist in this determination.  In Segal the court determined that IRS loss carryback refund claims from a partnership were property within the definition of the Bankruptcy Act.  The court found that refund claims were sufficiently rooted in the prebankruptcy past and so little entangled with the bankrupt's ability to make an unencumbered fresh start it should be regarded as property in bankruptcy.  The debtors in Segal had the right to the refund subject solely to the contingency of determination of the loss by the partnership. Hence, while the amount of the refund was uncertain, the statutory right was unconditionally established as of the bankruptcy date.  While the second part of Segal, whether the property interest is so entangled by the debtor's fresh start that it should be excluded from the estate, is no longer relevant; many courts continue to apply the 'sufficiently rooted' test.  There is a question whether this is proper given the lack of reference to the sufficiently rooted test in the legislative history of §541, despite such history's reference to Segal2.  The courts rejecting the sufficiently rooted test point out that the fact that reasonable people can identify competing methods for calculating the prepetition share of the refunds shows the incompleteness of a rule that simply calls for identifying at what time an asset became rooted.  Nor does the seminal decision regarding property of the estate mention the rooting test.  In Butner v. U.S., 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) the court held that state law should determine the nature and extent of a debtor's property interest for property of the estate purposes.  The bankruptcy court in Brown agreed with the decisions that the sufficiently rooted test has been superseded by §541(a)(1)'s requirement of a legal or equitable interest as of the commencement of the case.  When such a property interest is a mere expectancy as of the filing of the case, it is excluded from property of the estate without regard to any rooted analysis.  Thus, the parties stipulation that 62.7% of the bonus is rooted in the prebankruptcy past is irrelevant to the analysis whether the debtor had a prepetition property interest in such bonus.  Under Illinois law a bonus revocable at the employer's discretion until paid is a mere expectancy rather than a property interest.  The Illinois cases are clear that where an employer reserved the absolute discretion not to award a future bonus, such right is not a present property interest.  As the debtor as of filing held only a bare expectancy interest, no part of such bonus became property of the chapter 7 estate. 1 U.S. v. Whiting Pools, Inc., 462 U.S. 198, n. 8, 103 S. Ct. 2309, 76 L. Ed. 2d 515 (1983); Sender v. Buchanan, 84 F.3d 1281, 1285 (10th Cir. 1996)↩2 In re Burgess, 438 F.3d 493, 498-99 (5th Cir. 2006); In re Meyers, 616 F.3d 626 (7th Cir. 2010).↩Michael BarnettMichael Barnett, PA506 N Armenia Ave.Tampa, FL 33609-1703https://tampabankruptcy.com

  In In re Rensin, 2019 Bankr. LEXIS 1417, Case #17-11834-EPK, Adv #17-01281-EPK (Bankr. S.D. Florida, 3 May 2019) the debtor Joseph Rensin, founder of BlueHippo Funding, LLC sought to protect various assets, including a trust (the Joren Trust) created in November 2001 in the Cook Islands.  The trust was funded with $9 million from the sale of his interest in a prior business.  The trust is irrevocable and includes a spendthrift provision, and has a trust protector and a corporate trustee, which cannot be removed by the debtor.      Several years later, in 2008 the FTC obtained a final judgment against BlueHippo not naming the Rensin, and in 2010 a judgment against Mr. Rensin in the amount of $609,000.  This was appealed, and remanded in August 2014 placing Resin on notice that the resulting judgment would likely exceed $14 million.  Such judgment was entered in April 2016 in the amount of $13.4 million plus post-judgment interest.    In December 2015 Rensin transferred $350,000 of non-exempt funds to his attorney to place into the trust, which then used the funds to purchase a deferred variable annuity issued by an entity in the Cayman Islands.  In December 2015 the Joren trustee used all remaining assets in the trust to purchase a fixed annuity in the amount of $1.7 million, issued by the same Cayman Island entity, to purchase a fixed annuity.  The only assets in the trust at the time of the bankruptcy are the rights under the annuity contracts.  Under these contracts Mr. Rensin is the annuitant with the right to receive monthly payments during his life.  The Joren Trust is the owner and beneficiary of the policy upon Mr. Rensin's death.  The variable annuity contract becomes irrevocable on the annuity starting date, which has not yet occurred, thus the Joren Trustee can cancel the variable annuity at any time.  The starting date for the fixed annuity has passed, and has become irrevocable.  The payments under the fixed annuity are being made directly to Mr. Rensin rather than to the trust.  In February 2014 Rensin purchased the 'Hunt Crossing' home in Maryland, but never resided in this property.  This home was sold in June 2014 for $1,154,000 net proceeds, which were used to purchase the Florida home now claimed as homestead.  Rensin filed for relief under chapter 7 in February 2017.  The court initially found that the debtor had violated 11 U.S.C. §522(o) by using non-exempt funds to purchase the Florida home with the intent to hider, delay, or defraud creditors.  As Mr. Rensin never resided in the property whose proceeds were used to purchase the Florida home, and had lived in the home only 3 years rather than the 10 year required to avoid application of §522(o).  The court rejected his assertion that because §522(p) would apply, §522(o) cannot.  As to the trust, the court initially determined that Florida law applied, despite the trust documents incorporating the law of Belize.  The court followed the diversity jurisdiction approach to choice-of-law rules finding that a bankruptcy court's jurisdiction arises from federal bankruptcy law, but state law governs the validity of most property rights.  Under Florida law, the choice of law provided in a contract is binding unless it offends Florida public policy.1  Florida courts will not enforce a spendthrift trust designed to permit a person to place his or her assets beyond the arms of creditors.2  Under Florida law Rensin's interest in the Joren Trust is liable for his debts to the same extent as his legal interest in the trust.  Under §736.0505, Florida's enactment of §505 of the Uniform Trust Code, a creditor may reach the maximum amount that can be distributed to or for the settlor's benefit.  §735.0505(1)(b) Fla. Stat.    Thus if the trustee of the trust has discretion to distribute the entire income and principal to the settlor, this places the settlor's creditors in the same position as if the trust had not been created.  As the Joren Trustee has discretion to distribute the entire trust corpus to Rensin, all assets of the trust are subject to administration in the bankruptcy case.  Looking to the trust assets, the trust has no interest in the fixed annuity payments, but only in the remainder interest.  Thus, only the remainder interest is subject to administration by the bankruptcy estate.  Since the starting date has not occurred in the variable annuity, Mr. Rensin has no present right to such payments.  However, as the Joren Trustee is not a party to the adversary, the plaintiff cannot obtain enforceable relief regarding the assets of the Joren Trust.   Rensin claimed the annuity interests as exempt under §222.14 of the Florida Statutes.  This section provides"The . . . proceeds of annuity contracts issued to citizens or residents of the state, upon whatever form, shall not in any case be liable to attachment, garnishment or legal process in favor of . . . any creditor of the person who is the beneficiary of such annuity contract, unless the . . . annuity contract was effected for the benefit of such creditor." Mr. Rensin is a beneficiary as defined in the statute, as he is entitled to the payments under the annuities.  It is irrelevant that the owner of the policy is a Belize trust.  The court rejected the bankruptcy trustee's argument that §222.30 negates the exemption of §222.14.  §222.30(2) provides"Any conversion by a debtor of an asset that results in the proceeds of the asset becoming exempt by law from the claims of a creditor of the debtor is a fraudulent asset conversion as to the creditor, whether the creditor's claim to the asset arose before or after the conversion of the asset, if the debtor made the conversion with the intent to hinder, delay, or defraud the creditor."While Mr. Rensin provided $350,000 of non-exempt funds to his counsel to deposit in the Joren Trust, it was the Joren Trustee that used the funds to purchase the variable annuity in an attempt to remove the funds from reach of Rensin's creditors.  As Rensin had no legal ability to require the Joren Trustee to use trust assets to purchase the annuities, the requirement under §222.30(2) of a conversion by a debtor is not satisfied.  Likewise, the deposit of the $350,000 into the Joren Trust does not satisfy §222.30 such deposit did not result in the funds become exempt from law from the claims of a creditor; as no provision of chapter 222 would protect the assets in the trust.  The court found that all of Mr. Rensin's rights under the annuities, both past and future, and the bank account in which they are deposited, are exempt from administration in the bankruptcy.  Nor can the court order the debtor to require the trust to turn over assets, as the debtor does not have such power under the trust documents.     The court declined to rule as to turnover of the trust assets, as the trustee was not made a party to the proceeding. 1 Se. Floating Docks v. Auto-Owners Ins. Co., 82 So. 3d 73, 80 (Fla. 2012); Mazzoni Farms, Inc.v. E.I. DuPont De Nemours & Co., 761 So. 2d 306, 311 (Fla. 2000). ↩2 See Fla. Stat. § 736.0107; In re Brown, 303 F.3d at 1266-67; Barbee v. Goldstein (In re Reliance Fin. & Inv. Group, Inc.), No. 05-80625, 2006 U.S. Dist. LEXIS 82945, at *19-20 (S.D. Fla. Nov. 14, 2006).↩ Michael BarnettMichael Barnett, PA506 N Armenia Ave.Tampa, FL 33609-1703www.hillsboroughbankruptcy.com

   The debtor in In re Fuelling, 2019 Bankr. LEXIS 1379, Case #18-00644 (Bankr. N.D. Iowa, May 1, 2019) was attempting to use cash collateral proceeds from sale of crops to start a cattle feeding operation.  The debtors had been small family farmers their entire married life, having at times milked dairy cows, raised row crops, and fed livestock.  At the time of filing their chapter 12 case they lived on 4 1/2 acres including their home, a machine shed, a bin site, and a small feedlot with an outbuilding.     Agrifund, LLC ("ARM") financed the 2017 crops, and held a lien on the crop proceeds.  Such proceeds were inadequate to repay ARM in full, and debtors were unable to obtain financing for the 2018 crop year, resulting in the filing of the chapter 12 bankruptcy in May 2018.  ARM filed for relief from stay in August 2018, and Debtors filed a motion to use cash collateral in September 2018. Debtors sought to use the remaining cash collateral from the sale of the 2017 crops to start a cattle feeding operation, and grant ARM a lien in the cattle and feed.  The court continued the hearing on the matter to the chapter 12 confirmation date in January 2019.  The chapter 12 plan proposed using profits from the cattle operation, as well as rental payments from the grain bins to make interest payments to ARM and their primary lender (Freedom Bank) for five years; with the balance then coming due as a balloon.  ARM objected to confirmation for failure to satisfy §1225(a)(5):  with respect to each allowed secured claim provided for by the plan—(A)  the holder of such claim has accepted the plan;(B)(i) the plan provides that the holder of such claim retain the lien securing such claim; and(ii) the value, as of the effective date of the plan, of property to be distributed by the trustee or the debtor under the plan on account of such claim is not less [*6]  than the allowed amount of such claim; or(C) the debtor surrenders the property securing such claim to such holder11 U.S.C. 1225(a)(5).     This section requires both subparts to be satisfied.  Under §1225(a)(5)(B)(i) the creditor must retain its lien.  Both parties looked to In re Hanna, 912 F.2d 945 (8th Cir. 1990) which allowed a substitute lien in replacement cattle for livestock farmer debtors.   The Hanna court concluded that in the case of livestock farmers, retention of the lien is satisfied by the lien in the livestock herd rather than the individual animals.  The Hanna court rejected an alternative proposal to give the creditor a second mortgage on real estate, noting that substitution of a lien in entirely new collateral calls for a construction of §1225(a)(5)(B)(i) which renders Congress' use of the words 'the lien' all but meaningless.   The Fuelling court found that a similar problem arose in substituting a lien in livestock for a lien in proceeds from crop sales.  The court also noted that even if the debtors had continued livestock operations, they would still be required to provide that the value of the herd would be maintained, taking into account the risk of fluctuations in livestock prices during the repayment term.  The court also found improper another provision in the plan using rents from grain bins and equipment covered by Freedom Bank's blanket lien (which included proceeds) to make payments to creditors other than Freedom Bank.   Freedom Bank also objected that the plan did not satisfy §1225(a)(5)(B)(ii), objecting both to the interest rate and the balance.  The court overruled the objection as to the interest rate, finding that the 4.88% proposed met the court's requirement to use the base rate of the U.S. treasury bond yield of the same maturity plus a 2% risk premium.   The court sustained the objection that the plan used an inaccurate figure for the balance of the secured claim.  The next issue considered was feasibility under §1225(a)(6).  As to objections to Mr. Fuelling's health, the court was satisfied that the testimony from Mrs. Fuelling and his son as to their willingness and ability to assist Mr. Fuelling satisfied those concerns.  The court did find the debtor's projected income from the grain bin rental and cattle operations were overly optimistic, ie by assuming that the grain bins will be leased out at full capacity for the entire plan period, and that the cattle will have a 98% survival rate, and that the price of cattle feed will remain steady throughout the plan period.    The court also found that the projections did not support a finding of funds available to pay the proposed balloon payment at the end of the five years.  The plan to find alternative financing or an attempt to sell to their son were not supported by the evidence that these were likely to occur.       The court rejected the creditors argument that the plan was not filed in good faith as required under §1225(a)(3).   The court found that the Debtors genuinely believe that they could make the plan work.     The court denied the cash collateral motion both due to the finding that the plan was not feasible and that use of the crop proceeds to fund a cattle operation would impermissibly modify ARM's lien.  For similar reasons the motion to lift stay was granted.  The parties admitted that the debtors have no equity in the proceeds.  While the debtors assert that the proceeds are necessary for an effective reorganization, the court had concluded that the reorganization proposed was not feasible, and it was unable to see any possible reorganization avoiding the problems cited.   The court denied confirmation, denied the use of cash collateral, and lifted the stay as to ARM.Michael Barnett506 N Armenia Ave.Tampa, FL 33609-1703813 870-3100hillsboroughbankruptcy.com

   In the case In re McCuan, 2019 Bankr.LEXIS 1335 (Bankr. M.D. Fla.  30 April 2019) the court found that prepetition payments totaling over $14 million by the debtor violated the Florida Uniform Fraudulent Transfer Act (FUFTA) and §544(b) of the Bankruptcy Code.   Prior to the 2014 chapter 7 bankruptcy filing, debtor William F. McCuan was an owner and president of K&M, which developed projects as the managing member of entities referred to as the MDG Companies.  Debtor had guaranteed debts to Regions bank, which defaulted resulting in $14,172,000 judgments by Regions against debtor between May and June 2011.           The court noted that in September 2008 Debtor's accountant knew that the Regions loans were maturing and that there were insufficient assets to pay it, and knew that tenancy by the entireties ownership would provide more protection for such account.  In July 2001 debtor opened accounts at Brown Investments in his individual name, funded with his individual assets.  As of October 31, 2007 debtor held a 100% ownership interest in cash and cash equivalents in these accounts valued at $4,481,178.00.  The account was pledged as security to SunTrust in March 2006, with documentation asserting that no one else had an interest in the account except SunTrust and him.  In August 2008 debtor again asserted he was the sole owner of the account in requesting an increase in the line of credit.   On 8 September 2008 debtor added his spouse Jill McCuan to this account, titling the accounts as tenancy by the entireties.    Debtor also owned an individual account at BB&T prior to September 2008, which was also transferred to a tenancy by the entireties account in September 2008.  This account held $364,500.95 as of the date of the transfer.  While Debtor's accountant testified that he recommended changing these accounts to joint because he just noticed they were in Debtor's individual name while discussing a business deal in August or September 2008, but the Court noted that the accountant had seen form 1099's for a number of years for these accounts, and thought is was much more likely the advise was based on protecting assets from the Regions debt likely to default.   On March 20, 2019 debtor transferred $700,000 from browns accounts to purchase three certificates of deposit at SunTrust: i) a $250,000 CD in his name 'or' his spouse's name and James Gaylor; ii) a $200,000 CD in the name of MJF Associates, LLP; and iii) a $250,000 CD in the name of  Jill McCuan POD to W Patrick McCuan' and the MDG companies.   Debtor was the general partner of MDF, and testified that the proceeds of that CD were used for business purposes.  His accountant testified that the proceeds of the other C Ds were later deposited in the the joint checking account of Debtor and his spouse.  On July 22, 2009 Debtor transferred $44,000 from the Brown account to a BB&T Account held by the McCuan Trust.  Conflicting testimony was given by debtor and the accountant as to the reason for this transfer.   Other transfers included his interest in an entity valued at $78,000 to McCuan LLC on 1 January 2010, a transfer of $971,535.55 from the Brown Accounts to a joint SunTrust account; another transfer of $1,085,970 from Brown to the SunTrust joint account on September 3, 2010, $100,000 from the joint SunTrust account to McCuan Trust on September 26, 2011, a transfer of $100,000 from SunTrust to K&M on January 13, 2012, and $750,257 from the joint SunTrust account to an account held by the McCuan Trust on 27 January 2012.  Debtor was unable to explain the reason for most of the transfers. Prior to the filing of the bankruptcy on 29 January 2014, the state court had entered an order allowing Regions to pursue a proceeding supplementary under §56.29 of the Florida Statutes.  This proceeding was removed to the bankruptcy court on May 8, 2014.  Under this section, the look-back period for the avoidance of a transfer is one year prior to the service of the summons and complaint on the transferor in the underlying action.  Given the service of that action on 13 April 2009, the look-back period under that section is 13 April 2008.  The chapter 7 trustee also sought to avoid the transfers under the §544(b) of the bankruptcy code and the Florida Fraudulent transfer act (FUFTA) asserting that any assertion of Tenancy by the Entireties (TBE) account protection would fail because the addition of Debtor's spouse to an account already owned by Debtor did not have the unity of of time and/or other unities required to establish TBE ownership.   This argument was made as the transfers were prior to the 4 year look-back under FUFTA.  The bankruptcy court initially ruled that the addition of a spouse to an existing account satisfied the the six unities required for TBE ownership, but was reversed on appeal finding that the record before the court at that time did not establish that the account had been converted to TBE ownership.  After trial, the bankruptcy court concluded that the Brown accounts were not funded with TBE assets.  Defendants asserted that the accounts were funded by K&M distributions and MDG Naples, which were both alleged to be held jointly as TBE property.   The Court rejected this finding that K&M was incorporated in 1977, and a stock certificate issued 15 January 1994 showing both names was insufficient to show ownership when the interest in the business was initially obtained, nor was K&M's stock book introduced in evidence to show how the stock was documented in the company records.  As to MDG Naples the stock certificate introduced resembles that of K&M and notes that MDG Naples is incorporated under the laws of Maryland, despite MDG Naples being a Florida entity, nor does the certificate include a notation as to the corporation's S status as required by the Articles of Incorporation.  Further, Debtor submitted financial statements to Regions for a number of years showing the corporations were not TBE assets.  The Brown accounts themselves did not possess the unities required by TBE property.  Florida requires six unities to qualify for TBE status.  1) The property must be jointly owned and controlled, 2) the interests in the property must be identical, 3) the interests must have originated from the same instrument, 4) the interests must have commenced simultaneously, 5) the parties must have right of survivorship, and 6) the parties must be married when they jointly acquired the property.   As Debtor opened the Brown accounts in his own name in 2001 and had sole control of the funds until his spouse was added in 2008.  Even if the 2008 re titling of the accounts effected TBE ownership, the re titling took place within the proceedings supplemental look-back period of §56.29 of the Florida Statutes.  Nor are the funds traceable to TBE assets.  A $100,000 'replacement check' deposited into the Brown accounts in October 2003 is traceable to an $893,000 deposit into an individual Merrill Lynch account from a purported Dobbin Square TBE asset, however such Merrill Lynch account already contained a balance of $600,000 thus preventing TBE tracing to the Brown account.   Failure of debtor to show all intervening bank statements for other deposits prevent tracing as to other deposits.  The court set the burden of proof on the proceedings supplementary under §56.29 Fla Stat on the Defendant.  Florida courts have consistently held that the section is to give a liberal construction to afford a judgment creditor the most relief possible 1, and place the burden on the judgment debtor to establish that such transfer or gift was not made to delay, hinder, or defraud creditors.  Given service by Regions in the state court proceeding on 13 April 2009, the three year look-back period under §56.29 applies to transfers occurring after 13 April 2008.  §726.105(1) of FUFTA identifies a non-exclusive list of 11 factors that are indicia of fraud:  1) whether the transfer was to an insider; 2) whether the debtor retained possession of control of the property after the transfer; 3) whether the transfer was concealed; 4) whether the debtor had been sued or threatened with suit prior to the transfer; 5) whether the transfer was of substantially all the debtor's assets; 6) whether the debtor absconded; 7) whether the debtor removed or concealed assets; 8) whether the value of consideration received by the debtor was reasonably equivalent to the amount transferred; 9) whether the debtor was or became insolvent shortly after the transfer; 10) whether the transfer occurred before or shortly after a substantial debt was incurred; and 11) whether the debtor transferred the essential assets of a business to a lienor  who transferred the assets to an insider of the debtor.  Such indicia create a rebuttable presumption that the transfer is void.  Finding a combination of badges, the court concluded that the evidence justified a finding of fraudulent intent.  The transfers were made to insiders of the debtor.  The debtor maintained control of the assets after the transfers.  The transfers were concealed.  The transfers divested Debtor of significant non-exempt assets.  The debtor was insolvent no later than May or June 2011, prior to a number of the transfers.  Debtor added his spouse to the Brown and BB&T accounts in September 2008, when default to Regions was imminent.   The court also found that the evidence supported a finding of constructive fraud under FUFTA.  This requires a showing that without receiving equivalent value in exchange for a transfer, the debtor was engaged or about to engage in a business or transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or the debtor intended to incur, or believed or reasonably should have believed that he or she would incur debts beyond his or her ability to pay as they became due.  The transfers were made as Regions was pursuing or had obtained judgments exceeding $14 million, and when debtor was in poor financial condition; and debtor did not receive reasonably equivalent value for the transfers.  The court declined to enter a judgment against Mrs. McCuan, as there was no evidence of fraudulent intent by her.  The sole fact of her becoming a legal owner of the accounts is insufficient to support such liability.  This is distinguished from cases finding a transfer of a tangible asset, where such transfers may be avoided.  Where an intangible asset (ie a bank account or investment account) is transferred, and the spouse did not take any control of the asset, even for necessities, the court should not enter a judgment against such spouse regardless of how ill-intentioned the debtor was.  §56.29 refers to principles of equity, which requires taking a flexible, pragmatic equitable approach looking at the transaction in its entirety rather than focusing on the particular transaction in question.  The court found it would be inequitable to enter judgment against Mrs. McCuan as to the value of the assets in the Brown or BB&T accounts as of September 2008.  Judgment was entered against MJF, McCuan Trust, and K&M, as such transfers were made with fraudulent intent and the transfers were constructively fraudulent.  Likewise, judgment was entered against McCuan LLC as such transfer was actually and constructively fraudulent. 1 Kearney Constr. Co. LLC v. Travelers Cas. & Sur. Co. of Am., No. 8:09-cv-1850-T-30TBM, 2017 U.S. Dist. LEXIS 34600, 2017 WL 942118, at *10 (M.D. Fla. Feb. 10, 2017), report and recommendation adopted, 2017 U.S. Dist. LEXIS 33716, 2017 WL 933569 (M.D. Fla. Mar. 9, 2017), aff'd, 712 F. App'x 907 (11th Cir. 2017).↩ Michael Barnett506 N Armenia Ave.Tampa, FL 33609-1703813 870-3100hillsboroughbankruptcy.com

When dealing with contentious litigation, I have occasionally had a client ask why we can't sue the opposing lawyer.  When I try to explain that the other lawyer is merely representing his client, I get a tirade about how evil the other attorney is.   The better answer, as shown by a recent Fifth Circuit opinion, is attorney immunity.    Case No. 17-11464, Troice v. Greenberg Traurig, LLP (5th Cir. 4/17/19). What Happened The R. Allen Stanford Ponzi Scheme was and is a big deal.   Allen Stanford was a bankrupt former gym owner who bought a bank in Antigua and peddled bogus C Ds, causing billions of dollars of losses over a period of twenty-one years.   For part of that time, Stanford was represented by a partner at Greenberg Traurig named Carlos Loumiet, who later moved his practice to Hunton & Williams.   In 2009, the SEC obtained a receivership over the Stanford entities and Ralph Janvey was named as Receiver.  In 2012, the Receiver brought suit against Greenberg Traurig and Hunton & Williams, among others, for their role in representing the Stanford Financial entities.   Three investors also brought a class action suit against the lawyers.    Hunton & Williams settled and was dismissed.   Greenberg Traurig moved to dismiss the investor suit based on attorney immunity.   The District Court granted judgment on the pleadings.   Attorney Immunity According to the Texas Supreme Court attorney immunity is a "comprehensive affirmative defense protecting attorneys from liability to non-clients.   Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 481 (Tex. 2015).   It applies where the "alleged conduct was within the scope of . . . legal representation."  Id. at 484.On appeal, the investors argued that three exceptions to attorney immunity applied.   This required the Fifth Circuit to predict what the Texas Supreme Court would do.   The investors urged the Fifth Circuit to certify the question to the Texas Supreme Court.  The Fifth Circuit did not take them up on this request.The first exception argued was that attorney immunity should only protect attorneys engaged in litigation.   The Fifth Circuit did not have any trouble dispatching this argument, since it relied on the dissent in Cantey Hanger and dissents are not winning arguments.Next, they argued that participation in a crime was not subject to immunity.   Criminal conduct can negate attorney immunity.  The Fifth Circuit held that "We conclude that criminal conduct does not automatically negate immunity, but in the usual case it will be outside the scope of representation."  Opinion, p. 8.    The Texas Supreme Court has stated that assaulting opposing counsel during trial would be an example of unimmunized conduct.   However, it would fall outside the protections of immunity "not because it could be criminal, but 'because it does not involve the provision of legal services and would thus fall outside the scope of client representation.'"   Opinion, p. 8.   The Court concluded that "Thus, immunity can apply even to criminal acts so long as the attorney was acting within the scope of representation."   Opinion, p. 9.  I will return to this later.Finally, the investors argued that Greenberg Traurig aided and abetted Stanford's violations of the Texas Securities Act and that the statute abrogated the common law attorney immunity.  However, the Fifth Circuit found that "The Act contains no explicit abrogation of immunity."   Opinion, p. 10.  The Court also noted that attorney immunity has been applied in under the Texas Deceptive Trade Practices Act.   The Court said, "We conclude that the Supreme Court of Texas would not consider itself sure that the Texas legislature intended to abrogate attorney immunity in the context of TSA claims."As a result, the Fifth Circuit affirmed the dismissal of claims against Greenberg Traurig.Greenberg Traurig's appellate victory is not the end of the story.  It is still being sued by Ralph Janvey, the Receiver.   An attorney does not have immunity when its client is suing for malpractice or similar theories.   When a third party is hurt by advice that an attorney gave his client, the proper procedure is that the third party can sue the client and the client can then sue the attorney.   This way the attorney is held responsible by the person to whom he owed the duty.When Can an Attorney Be Liable to a Non-Client?  While the attorneys in this case successfully urged attorney immunity, there are plenty of instances in which an attorney can be held liable to a non-party.   The most obvious examples are Fed.R.Civ.P. 11 and Fed.R.Bankr.P. 9011 and 28 U.S.C. Sec. 1927.   The rules specifically apply to actions of attorneys in litigation and allow attorney to be punished for actions in violation of the rules.   28 U.S.C. Sec. 1927 allows the Court to impose liability to an attorney who "multiplies the proceedings in any case unreasonably and vexatiously."Next, there are attorneys who commit a direct tort.   For example, if the attorneys in this case had made fraudulent representations directly to the investors to get them to invest, they could have been sued for fraud.   This was recognized in In re Educators Group Health Trust, 25 F.3d 1281, 1285 (5th Cir. 1994) where the Court stated: We do agree, however, with the plaintiff school districts' contention that some of the causes of action allege a direct injury to themselves, which is not derivative of any harm to the debtor. For example, the plaintiff school districts allege in paragraph XI of the complaint that the defendants intentionally misrepresented to them the financial situation of EGHT, and that they materially relied on such representations to their detriment. To the extent that this cause of action and others allege a direct injury to the plaintiff school districts, they belong to the plaintiff school districts and not the estate.      Then there is the question of what acts fall within the scope of the representation.    The Fifth Circuit said that assaulting opposing counsel would necessarily be outside of the scope of the representation.  However, what if opposing counsel was about to make a damaging point and the client said, "You need to shut him up?"  Would it be within the scope of the representation if the client asked the attorney to assault opposing counsel to help with his case?   What if a client tells an attorney to destroy incriminating evidence as part of the representation or worse, breaks into opposing counsel's office and sets fire to his filing cabinet?  I am tempted to say that only conduct which attorneys are permitted to take can fall within the scope of the representation.  However, the Fifth Circuit said that "immunity can apply even to criminal acts so long as the attorney was acting within the scope of representation."   Attorneys cannot ethically engage in criminal acts in the course of their representation.   Therefore I am at a loss at to what criminal activities an attorney could engage in within the scope of representing a client. 

In a lesson that the Uniform Commercial Code is not always uniform between various states, the Fifth Circuit resolved a lien priority dispute pertaining to a Texas debtor who brought agricultural products in Oregon, Michigan and Tennessee.    The opinion in a valuable primer in choice of law issues in UCC cases as well as how failure to strictly comply with state statutes can lead to loss of lien priority.   Fishback Nursey, Incorporated v. PNC Bank, National Association, Case No. 18-10090 (5th Circuit 4/10/19).What Happened BFN Operations, LLC was a wholesale grower of trees, shrubs, and other plants, with headquarters in Texas and offices in Michigan, Oregon and Tennessee.   PNC held a blanket lien in the debtor's assets which pre-dated the claims of two vendors to the debtor, Fishback and Surface.Fishback sold agricultural products to the debtor and filed UC Cs in Oregon, Michigan and Tennessee.   It listed the debtor as BFN Operations, LLC abn Zelenka Farms.  It also filed a notice of lien in Oregon.Surface filed a UCC in Michigan using the name "BFN Operations, LLC abn Zelenka Farms.When BFN filed chapter 11, PNC extended debtor-in-possession financing which would outrank other liens "subject and junior only to . . . valid, enforceable, properly perfected, and unavoidable pre-petition liens."Fishback and Surface filed suit against PNC in the U.S. District Court for the Northern District of Texas seeking a declaration that their liens were superior to those of PNC.The District Court ruled that applicable choice of law rules dictated that the law of the states where the agricultural products were shipped should govern the lien perfection and priority dispute.  It then found that PNC had the prior lien because Fishback and Surface had failed to properly perfect.The Court's RulingThe first thing that the Fifth Circuit had to do was decide whether the District Court correctly determined that the law of the states where the agricultural products were shipped would apply.  The Court noted that choice of law could be applied based upon either the law of the forum state or under federal choice-of-law rules.   This is an open question in the Fifth Circuit.  The District Court found that it did not have to pick a side because both answers pointed to the states where the ag products were shipped.   The Fifth Circuit agreed.   Under the Texas UCC, if farm products are located in a jurisdiction, the local law of that jurisdiction applies to perfection, the effect of perfection and the priority of an agricultural lien on farm products.   Tex.Bus.&Com. Code Sec. 9.302.   Federal law relies on the Restatement (Second) of Conflicts of Law Sec. 251(2) which provides that absent "effective choice of law by the parties" the court should give "greater weight . . . to the location of the chattel at the time that the security interest attached."Fishback argued that Oregon law should apply because its contracts contained a choice of law provision selecting Oregon law.  However, those provisions were included in a contract between the Debtor and Fishback.  As a result, they were not binding on PNC.Each of the laws of the forum states had some quirky provisions.   In  Michigan and Tennessee, a UCC must be filed based on the debtor's name exactly as it appears on the public documents creating the entity.  In this case, the company's legal name was BFN Operations, LLC, not BFN Operations, LLC abn Zelenka Farms.   This may seem like a trivial distinction given that the name given was correct but added extra verbiage.   However, the Court found that it was "undisputed that, under the strict search logics in these states, searching with BFN’s correct name would not uncover the incorrectly named liens."    While this seems foolish, the states set out their search logic in regulations adopted to implement the UCC and that search logic would not catch the longer name.Oregon was a different matter.  Agricultural liens in Oregon are automatically perfected until 45 days after the debt is due.  After that date, the party must file an extension supported by an affidavit.  Fishback did file an extension but it was not within the 45 day window so that PNC's lien jumped in front of its.  Fishback argued that its UCC filing met the requirement for the affidavit, but the Fifth Circuit found that it lacked the requisite information and would be misleading as an affidavit.TakeawaysAs bankruptcy lawyers, we are usually called in after the filings have been made and the lien perfection facts have been established.   Therefore, the biggest lesson for bankruptcy lawyers is that when dealing with multi-state perfection issues, there may be room to look for strategies to upset other parties' lien expectations.   When dealing with the front end of a transaction, it makes good sense to consult with a local lawyer to find out the quirks in local lien law, whether it is the UCC or mechanics liens or real property mortgages.  One consequence of our federal system is that despite the efforts to draft uniform laws, states are perfectly free to implement traps for the unwary.    

   In Bryan Scott Owens v Owens, 2019 Bankr.LEXIS 1193, Case #17-17628-WHD, Adv 18-1008-WHD (Bankr. N.D. Ga., April 15, 2019) the debtor, Bryan Owens, signed a contract on behalf of a sole proprietorship which owed money to the Georgia Lottery Corporation for proceeds of lottery tickets.  The 1995 contract with the lottery states that the debtor is a fiduciary, and is required to deposit the proceeds of the sales into a dedicated bank account, and that such proceeds shall constitute a trust fund in favor of the lottery corporation until paid to such corporation.   In 1996 Owens subsequently focused his efforts on the truck stop portion of the business, and left another person, Feltrinelli, in charge of the lottery operations.  Feltrinelli subsequently submitted her own application with the lottery asserting she was the owner of the business.  No notice had been given to the lottery, as was required by the contract, of a change of ownership.   In 1999 the lottery attempted to collect funds owed it from the associated bank account, but found there were insufficient funds in the account.  Upon investigation it discovered that the account, set up in Feltrinelli's name since 1993.  The lottery sued Owens in state court, obtaining a default judgment in the amount of $62,028.  Owens then filed for relief under chapter 7 bankruptcy.  This adversary under §523(a)(4) followed, with a motion for summary judgment by the lottery.  Section 523(a)(4) excepts from discharge any debt "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." 11 U.S.C. § 523(a)(4). To establish that a debt is non-dischargeable due to defalcation, a party must demonstrate that (1) the debtor held a position as a fiduciary; (2) the claim arose while acting in a fiduciary capacity; and (3) the conduct rose to the level of a defalcation.1  The first and second requirements are met here, as the lottery statute creates an express or technical trust as required under §523(a)(4) and therefore imposes a fiduciary duty on a retailer not only to account for the proceeds of the sales, but also to exercise control and supervision of employeees and be fully responsible for their conduct as to such sales.  The only remaining issue is what mental state is required to find a debt nondischargeable under §523(a)(4).  Defalcation under this section requires a showing either that the defendant intentionally acted wrongly or that he acted with criminal recklessness.2    As there is no evidence that Owens acted intentionally, the court focused on whether he acted with criminal recklessness.  This requires either that the debtor consciously disregarded or was willfully blind to a substantial and unjustifiable risk that his actions would breach a fiduciary duty.3  The plaintiff may show that the risks were so obvious that the Defendant must have recognized them, yet still went forward, acting in a way that his conduct constituted a gross deviation from the standards of conduct expected in his fiduciary role.4  The court found that Owen's absence from the business, the turnover of the business to Feltrinelli, who owed no duty to the lottery corporation, and allowing her to control the lottery sales and proceeds supports a finding of criminal recklessness.  The court found that there was no change in ownership, and that Feltrinelli was only a manager.  Owen, not Feltrinelli ultimately gave permission for the lottery to enter the premises and remove the lottery equipment.    The court also rejected Owen's argument that he was unaware of the specific terms of the contract, or that the contract was terminated or superceded by Feltrinelli's actions. The requirements in the contract for termination were not satisfied, and Owens should have been aware of the fiduciary duty under the agreement.  The court emphasized that the events giving rise to the debt occurred two years after Owen's decision to remove himself from the business.  His actions constituted a great deviation from the standard of conduct expected in his fiduciary role.  A fiduciary cannot simply walk away from an existing duty, creating a substantial risk that a breach of such duty may occur.   The court granted summary judgment to the lottery corporation.1 Caitlin Energy, Inc. v. Rachel (In re Rachel), 527 B.R. 529, 540 (Bankr. N.D. Ga. 2015).↩2 In re Rachel, 527 B.R. 529, 543 (Bankr. N.D. Ga. 2015) (discussing  Bullock v. BankChampaign, 569 US 267 (2013)↩3 In re Rachel, 527 B.R. at 543↩4 Ga. Lottery Corp. v.Thao Huynh (In re Thao Huynh, 549 B.R. 421, 426 (Bankr. N.D. Ga. 2016)↩Michael BarnettMichael Barnett, PA506 N Armenia Ave.Tampa, Fl 33609-1703www.hillsboroughbankruptcy.com

Many of our clients frequently ask if disability insurance payments are tax deductible and if that income is taxable when received. Here, the attorneys of Young, Marr, and Associates provide an overview of the general inner workings of disability insurance for tax purposes. Many of our clients ask accounting questions in order to understand the implications of their legal […] The post Is Disability Insurance Tax Deductible in PA and NJ? / Is Disability Insurance Taxable? appeared first on .

TheMarch 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 fell from February. In March, there were 38 unrestricted taxi medallion sales.2. 28 of the 38 sales were foreclosure sales (74%), which means that the medallion owner defaulted on the bank loan and the banks were foreclosing to obtain possession of the medallion. One sale was an individual to an LLC and two sales were an estate sale. 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 74%) is in our opinion evidence of the continued weakness in the taxi medallion market. 4. The seven regular sales for consideration ranged from a low of $135,000 to $310,000 (three medallions) to $340,000 (one medallion) and a high of $350,000 (two medallions).5.  The fact that 74% of all transfers in March 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.