It was one of those occasions when in retrospect, you’re certain there is no neural path between your brain and your mouth. And it happened in public, in a courtroom, with my client present. My creditor client filed an objection to confirmation of a Chapter 13 in pro per.  Opposing counsel filed a response.  The response tracked each of the wordy and ill focused complaints my client had voiced. In preparation for the hearing, I had formulated our objections in my head, tracking the code and those issues I thought essential to Chapter 13 confirmation. At the prehearing, the judge turned to me and asked me which of the numbered paragraphs in the eight page debtor’s response were still in play. Certainly before thinking, I blurted out “You expect me to speak to their pleading?” My  unspoken subtext was clearly, “You’ve got to be kidding, judge.” My position was organized better, in my head, and I had seen no point in furthering the rambling that came from the debtor’s response to an ill focused objection.  Better, I thought, to distill the remaining objections. But the judge wanted it differently. I repeat this painful story, which is quite recent, for a purpose.  Make it your practiced response, when caught off guard, to ask for time. In  this case, the judge saved me from further embarrassment by passing the matter to the end of the calendar.  That was enough time to come up with my list of objections, by numbered paragraph,  still in play. If the problem you confront is a matter of missing facts or a question of strategy or compromise, ask for an opportunity to confer with your client, either in the hallway or on the phone. If the issue that threatens your case is a legal one to which you don’t know the answer, ask for an opportunity to brief the question.  It’s OK to admit you don’t know, or that you think the answer is thus-and-such.  Offer to brief it for the court so that the basis for the decision you want is in the record. Too much bravura and too much courtroom television makes us think that we must have an answer for everything at the tip of our tongue.  It isn’t so. When flummoxed in the courtroom, take a deep breath, with your mouth closed, and then ask for time.  Image: Fotolia

Disclosure of Property in BankruptcyWhen filing a bankruptcy, clients are required to list and disclose their property in the bankruptcy petition when it is filed.  Debtors often wonder what needs to be disclosed and what does not.  If there is a doubt whether it should be included, it is probably a good idea to speak with your attorney about the matter, and they will be able to advise you more specifically where the property should be included in the petition.The bankruptcy schedules require Debtors to disclose personal property, such as vehicles, furniture, household goods, jewelry, wedding rings, bank accounts and the money in those accounts, cash on hand, retirements funds, annuities, stocks, tools and other equipment, clothing, books and pictures, electronic equipment, interest in insurance policies that are pending, and tax refunds, etc.  Schedule B specifically asks about each of these items, as well as other items, and Debtors have an obligation to disclose the applicable property with a value and description of the property.  If there are things that are not included in the bankruptcy petition and the Trustee finds out, they may assume the Debtor was trying to hide the assets, and the Debtor may be investigated for bankruptcy fraud.  Attorneys usually have no way of knowing what property Debtors have unless they are informed so it is very important for Debtors to inform their attorney of what property they have and how much the property is worth.It is also important for Debtors to list any real property they may have, including houses, timeshare units, and mobile homes, as well as the value of the property so the Trustee can determine if there is equity in the property.Listing one's property is essential for many reasons.  There can be situations where the property not be listing can negatively affect Debtors outside the bankruptcy proceedings.  One example is if a Debtor's house is robbed or if there is a fire in the residence.  Insurance companies will often check the bankruptcy schedules if the insured has filed a bankruptcy.  If the property the Debtor has included in the insurance claim is not listed in the bankruptcy paperwork, the insurance company can deny the claim and report the Debtor to the Trustee for not have accurate information in their bankruptcy schedules.  The same situation applies with one's car.  If the car is stolen or is in an accident and needs repairs, the insurance company can deny the claim if the property is not listed appropriately in the bankruptcy petition.  It is therefore essential for Debtors to list their property.  If you have any questions about this, please contact a St. Louis or St. Charles bankruptcy attorney.

What Issues Can Arise If I File Bankruptcy More Than Once?There are certain restrictions with regard to how often people can file bankruptcy petitions, and some issues can arise if a person files bankruptcy more than once.  As a general rule, a person can file a Chapter 7 bankruptcy eight years after they file another Chapter 7.  If a Chapter 13 is filed first, a person can file a Chapter 7 four years later.  If a person files a Chapter 7 first and then a Chapter 13, the waiting period is six years.  Going from a Chapter 13 to another Chapter 13 only requires a waiting period of two years.  If the case is dismissed for some reason, that bankruptcy does not count in these figures.If a Debtor is not eligible to receive a discharge under a Chapter 7 or 13 bankruptcy because of the time restraint, they will not be able to file a Chapter 7 bankruptcy, but the Debtor can file a Chapter 13 bankruptcy.  However, they will not be able to receive a discharge under the bankruptcy if six years have not passed since the filing of the Chapter 7 or 2 years since the filing of the Chapter 13.  They will ultimately have to dismiss and re-file when they are eligible for a discharge.There are other issues that can arise if people file several bankruptcies in a short period of time, even if they are dismissed and not discharged.  If a person files a Chapter 13 bankruptcy and has had another bankruptcy case pending in the last year, there is only a 30 day automatic stay, and a Motion to Extend the Automatic Stay will need to be filed.  If there has been two or more cases pending in the last year at the time of the filing of the Chapter 13, there is no automatic stay, and a Motion to Impose the Automatic Stay will need to be filed.  What that means is that there is no automatic stay protecting a Debtor's property until that motion is granted.  That means a vehicle can be repossessed or a house can be foreclosed until the time the Motion to Impose is granted.  A Debtor may want to speak to their attorney about filing for an expedited hearing to impose the stay in a timely manner, but it is up to the bankruptcy Judges about whether they will hear the manner expeditiously or whether it will need to be heard at the next docket.  It is important for attorneys to do a Pacer check on clients before filing using their social security number so they can determine if previous bankruptcy cases have been filed and file motions and advise accordingly.  If you have questions about this, please contact a St. Louis or St. Charles bankruptcy attorney.

By Sue Shellenbarger Between the ages of 18 and 22, Jodi Romine took out $74,000 in student loans to help finance her business-management degree at Kent State University in Ohio. What seemed like a good investment will delay her career, her marriage and decision to have children. Ms. Romine's $900-a-month loan payments eat up 60% of the paycheck she earns as a bank teller in Beaufort, S.C., the best job she could get after graduating in 2008. Her fiancé Dean Hawkins, 31, spends 40% of his paycheck on student loans. They each work more than 60 hours a week. He teaches as well as coaches high-school baseball and football teams, studies in a full-time master's degree program, and moonlights weekends as a server at a restaurant. Ms. Romine, now 26, also works a second job, as a waitress. She is making all her loan payments on time.They can't buy a house, visit their families in Ohio as often as they would like or spend money on dates. Plans to marry or have children are on hold, says Ms. Romine. "I'm just looking for some way to manage my finances."High school's Class of 2012 is getting ready for college, with students in their late teens and early 20s facing one of the biggest financial decisions they will ever make. Total U.S. student-loan debt outstanding topped $1 trillion last year, according to the federal Consumer Financial Protection Bureau, and it continues to rise as current students borrow more and past students fall behind on payments. Moody's Investors Service says borrowers with private student loans are defaulting or falling behind on payments at twice prerecession rates.Most students get little help from colleges in choosing loans or calculating payments. Most pre-loan counseling for government loans is done online, and many students pay only fleeting attention to documents from private lenders. Many borrowers "are very confused, and don't have a good sense of what they've taken on," says Deanne Loonin, an attorney for the National Consumer Law Center in Boston and head of its Student Loan Borrower Assistance Project.More than half of student borrowers fail to max out government loans before taking out riskier private loans, according to research by the nonprofit Project on Student Debt. In 2006, Barnard College, in New York, started one-on-one counseling for students applying for private loans. Students borrowing from private lenders dropped 74% the next year, says Nanette DiLauro, director of financial aid. In 2007, Mount Holyoke College started a similar program, and half the students who received counseling changed their borrowing plans, says Gail W. Holt, a financial-services official at the Massachusetts school. San Diego State University started counseling and tracking student borrowers in 2010 and has seen private loans decline. The implications last a lifetime. A recent survey by the National Association of Consumer Bankruptcy Attorneys says members are seeing a big increase in people whose student loans are forcing them to delay major purchases or starting families. Looking back, Ms. Romine wishes she had taken only "a bare minimum" of student loans. She paid some of her costs during college by working part time as a waitress. Now, she wishes she had worked even more. Given a second chance, "I would never have touched a private loan—ever," she says. Ms. Romine hopes to solve the problem by advancing her career. At the bank where she works, a former supervisor says she is a hard working, highly capable employee. "Jodi is doing the best she can," says Michael Matthews, a Beaufort, S.C., bankruptcy attorney who is familiar with Ms. Romine's situation. "But she will be behind the eight-ball for years." Private student loans often carry uncapped, variable interest rates and aren't required to include flexible repayment options. In contrast, government loans offer fixed interest rates and flexible options, such as income-based repayment and deferral for hardship or public service.Steep increases in college costs are to blame for the student-loan debt burden, and most student loans are now made by the government, says Richard Hunt, president of the Consumer Bankers Association, a private lenders' industry group. Many private lenders encourage students to plan ahead on how to finance college, so "your eyes are open on what it's going to cost you and how you will manage that," says a spokeswoman for Sallie Mae, a Reston, Va., student-loan concern. Federal rules implemented in 2009 require lenders to make a series of disclosures to borrowers, so that "you are made aware multiple times before the loan is disbursed" of various lending options, the spokeswoman says.Both private and government loans, however, lack "the most fundamental protections we take for granted with every other type of loan," says Alan Collinge, founder of StudentLoanJustice.org, an advocacy group. When borrowers default, collection agencies can hound them for life, because unlike other kinds of debt, there is no statute of limitations on collections. And while other kinds of debt can be discharged in bankruptcy, student loans must still be paid barring "undue hardship," a legal test that most courts have interpreted very narrowly. Deferring payments to avoid default is costly, too. Danielle Jokela of Chicago earned a two-year degree and worked for a while to build savings before deciding to pursue a dream by enrolling at age 25 at a private, for-profit college in Chicago to study interior design. The college's staff helped her fill out applications for $79,000 in government and private loans. "I had no clue" about likely future earnings or the size of future payments, which ballooned by her 2008 graduation to more than $100,000 after interest and fees.She couldn't find a job as an interior designer and twice had to ask lenders to defer payments for a few months. After interest plus forbearance fees that were added to the loans, she still owes $98,000, even after making payments for most of five years, says Ms. Jokela, 32, who is working as an independent contractor doing administrative tasks for a construction company.By the time she pays off the loans 25 years from now, she will have paid $211,000. In an attempt to build savings, she and her husband, Mike, 32, a customer-service specialist, are selling their condo. Renting an apartment will save $600 a month. Ms. Jokela has given up on her hopes of getting an M.B.A., starting her own interior-design firm or having children. "How could I consider having children if I can barely support myself?" she says. When Debt Takes Over Potential consequences of taking out too many student loans--Delays in buying a car or purchasing a home--Postponement of marriage and childbirth for financial reasons--Parents feel pressure to take out loans or otherwise help with payments--Risk for parents who co-sign loans of losing homes, cars and other assets--Little ability to discharge student loans in bankruptcy--Inability to get credit cards or home or car loans--Inability to rent a home because of high debt-to-income ratio--Being forced to deal with private collection agencies in the event of default--Having liens placed on bank accounts or property in a default*--Facing collection fees of 25% of amount owed in a default--No statute of limitations on collection efforts--Having wages garnisheed--Possible loss of state-issued professional licenses--Reduction of Social Security payments**--Seizure of tax refund***Used primarily by private lenders**Government loans onlyCopyright 2012 Dow Jones & Company, Inc.  All rights reserved.

“Objection: calls for a legal conclusion.” That’s a perfectly good courtroom objection to a question asked of a witness at trial.  The rules of evidence make the court, not the witness, the sole arbiter of the law. What does that have to do with filing bankruptcy schedules, you ask. I suggest you import this courtroom maxim into your routine for exploring assets, debts and transaction history with bankruptcy clients. Don’t ask a question that calls for a legal conclusion. Broaden your questioning routine beyond questions that are based on conclusions of law and you are less likely to be surprised by your client’s testimony at the 341 meeting. They are laymen for a reason Even in our present day of internet “research” and courtroom TV, laymen get the law wrong, time after time.  If you couch your question in terms of a legal result, your schedules will be no more accurate than your client’s understanding of the law. Ever asked a client if they own a car and gotten back the answer,”no, the bank owns it“? The answer reflects the layman’s understanding that the lender has an interest in the car by having lent money to acquire it.  But the legal conclusion that the interviewee drew is wrong.  As a matter of law,  the borrower owns the car, the lender has a security interest in it. If you ask only, “have you transferred anything in the past year“, you may miss the consensual lien granted to a family member, because your client doesn’t grasp that the grant of a lien is a transfer. (54) The term “transfer” means— (A) the creation of a lien; (B) the retention of title as a security interest; (C) the foreclosure of a debtor’s equity of redemption; or (D) each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with— (i) property; or (ii) an interest in property.  11 USC 101(54) Similarly, as a practitioner in a community property state, I see all the time the spouse who believes that the form of title defeats the presumption that assets acquired during marriage are community property.  The car may be titled to the spouse, but absent a pre nup or some very specific language in the title, the car is community property and is an asset of any bankruptcy estate, even if only one spouse files. Conclusion-neutral questions If you ask “who do you owe money to ?”, you risk getting only the creditors who send a monthly bill.  If you add, “anyone claim you owe them money?“, you may get the disputed claims and the unliquidated tort creditors. Unlike your questioning of a witness in a courtroom, you don’t need to avoid absolutely the question that subsumes a legal conclusion.  You can ask, “do you own any real estate ?”. But you must also ask, “is your name on title to any real estate?” and “have you taken your name off of any real estate?” and “is anyone holding title to an asset that is really yours?” Including questions that focus on facts, and acts, may reveal other assets that we as lawyers would recognize as assets to be scheduled, or transfers to be disclosed. Image courtesy of wikimedia.    

A business lease often looms as one of the biggest claims in a bankruptcy case and a big issue for a small business. For bankruptcy lawyers,  the lease raises, as most of these things do, both traps and opportunities Beyond the common subject matter,  today’s observations are probably otherwise without a theme. Pivotal issue is identity of  lessee More often than you might expect, the lease for business premises for small business corporations  or LLC stand in the name of the individual shareholders. A bankruptcy case for the shareholders might otherwise leave their corporation unaffected.  Bankruptcy for the individuals may even benefit the corporation by  eliminating debt service on cards used for business purposes, an entirely different outcome follows if the business lease is in the name of the individual. In a Chapter 7, the right to assume a lease and therefore preserve the right of the business to occupy the premises, vests in the trustee, not the debtor.  So, the lease may be rejected and lost to the debtor’s business if they are the lessee. Lease is assumable in Chapter 13. Which brings us to my second observation:  the right to assume a lease lodges in the debtor in a Chapter 13.  In Chapter 7, only the trustee can make this call. Whether the business is a proprietorship or a separate legal entity, when the debtors are the lessees, they have standing to bring a motion to assume the lease.  Failure to timely file a motion to assume the lease may be a mistake from which there is no recovery. When rejection is great Often a business finds itself with a premises lease that is too expensive or otherwise no longer suited to a business that is changing or struggling.  Bankruptcy for the lessee may allow the business to relocate to cheaper space or space better sized for its operations going forward.  The breach of lease damages are captured and discharged in the bankruptcy case. Takeaway?   You’ve got to know who is liable on the lease and engage in some planning with your client if you want to make the most of a bankruptcy filing rather than making a mess of it. Image courtesy of johnsnape  

When considering filing for bankruptcy, or if you are already in a bankruptcy, you have probably heard a lot about the Bankruptcy Trustee without knowing who that person is or what it means for your case.  A Bankruptcy Trustee is an attorney that oversees the bankruptcy court.  The trustee is not a judge.   Every debtor that files for bankruptcy will be assigned to a trustee.  The debtor will meet the trustee in person at the 341 meeting.  The 341 meeting is also known as a "Meeting of Creditors".  Here the trustee's responsibilities, among many others not listed here, are to swear you in, make sure you understand your filing, and make sure that everything has been disclosed. Prior to your 341 meeting the trustee will review your petition.  The trustee will also require your most recent pay stubs, your most recent tax refund, and bank statements.  The trustee is looking for an idea of your income and your assets, consisting of property and money.  Many of your assets are protected in bankruptcy, the trustee is simply looking to see if some are not.  The trustee has to weigh your interests with those interests of the creditors. As mentioned previously, the trustee will swear you in.  You will testify on the record.  He will ask you if you read the schedules you signed.  If you have omitted anything this would be the time to mention the omission to the trustee. For those in a Chapter 7 Bankruptcy, the trustee will review the case, and if there are no assets will close out the case in a matter of months.  For those in a Chapter 13 Bankruptcy, you will have the same 341 meeting, however, the trustee will stay active in your case for the entire term of your plan.  Each year, tax returns and refunds will need to be submitted to the trustee, as well as any change in income or inheritance.Though the trustee is not a judge, he or she is still a part of your bankruptcy. You have an obligation to provide any information or documents that the trustee requests from you at any point during your bankruptcy.  Even in a Chapter 7 bankruptcy, you may risk having your discharge revoked before your case is closed if you do not provide requested documentation.If you still have questions, or would like to set up a consultation, contact a St. Louis Bankruptcy Attorney today!  

Does Social Security Count as Income in Bankruptcy?In determining whether social security proceeds count as income in bankruptcy, the answer is both yes and no.  For purposes of the Means Test (also known as Form 22A - Statement of Current Monthly Income/Means Test in a Chapter 7 and Form 22C - Current Monthly Income/Disposable Income in a Chapter 13), social security income does not need to be listed and will not count as income.  The means test is what determines whether a person is eligible to file a Chapter 7 bankruptcy based on their income.  If a person is below median for their household size, they can file a Chapter 7 bankruptcy.  If they are over, they may have to file a Chapter 13 bankruptcy.  Therefore, social security income not counting as income for purposes of the means test is extremely helpful for people who may be close to being over median and may help them file a Chapter 7 bankruptcy.Even though social security income does not get included in the means test, it is still necessary to include social security income in Schedule I, which states the current income for debtors, along with any other forms of income the debtor may have.  When taking into account a debtor's income and expenses in Schedules I and J (expenses), if there is money left over every month not allocated to the debtor's monthly expenses, the Trustee may file a 707(b) objection.  This means the Trustee believes there is abuse occurring.  The United States Code, Title 11, Section 707(b)(1) states, "after notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee ... or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter." The trustee may file a motion to dismiss when the exclusion of social security income in the means test allows for a person to qualify for a Chapter 7 bankruptcy, but a positive excess in Schedule I would indicate abuse because the debtor has excess funds available to pay their unsecured creditors.  It is very important for debtors to list all their monthly expenses so Schedule I and J are accurate.  If you would like additional information, please contact a St. Louis or St. Charles bankruptcy attorney.

How Can a Chapter 13 Bankruptcy Be Reinstated?In a Chapter 13 bankruptcy, a necessary portion of the petition is a Chapter 13 plan.  The plan is what determines how much a person pays every month to the Chapter 13 Trustee.  The plan includes any unsecured debt to be paid, taxes, car loans, back child support, arrears on a debtor's mortgage, mortgage payments to be paid through the plan (if debtor chooses to do this), student loans, and attorney fees, etc.  After factoring in all things that need to be paid through the plan, a monthly amount to be paid to the Trustee is assessed by the debtor's attorney.  The first plan payment is due 30 days after filing the bankruptcy and is due every month thereafter for a period of 36 to 60 months, depending on the plan.The debtor is responsible for making the plan payment every month.  If the debtor falls behind on plan payments, the Trustee can file a Motion to Dismiss for failure to make plan payments.  The Trustee can also file a Motion to Dismiss for failing to produce necessary documents, pay filing fees, or appear at a 341 meeting. In order to be reinstated for failure to make plan payments, the debtor has 14 days to become current with the Trustee and file a Motion to Reinstate stating whether the case was dismissed and reinstated previously and declaring that the deficiency has been cured.  The Trustee can file a response, and the Court will submit an Order granting or denying the Motion.  (L.R. 1017-2)If a case has been dismissed for failure to submit necessary documents, pay court costs, or attend the 341 meeting, the Court generally will not reinstate the case.  If filing a Motion to Reinstate, the Motion must contain information about when the missing documents were filed, the special circumstances why the debtor could not attend the 341 meeting, or when the filing fees were paid in full.  The debtor or debtor's attorney must file this Motion within 14 days.  (L.R. 1017-3)  For more information, please contact a St. Louis or St. Charles bankruptcy attorney.

If you owe the government taxes, the new bill introduced to Congress might be important for you. The Senate Bill 1813 passed the Senate on March 14 and could allow the federal government to prevent Americans from leaving the country. The tax debt must be in excess of $50,000 to the IRS. If that is the case the State Department would be allowed to revoke, deny or limit your passport. The IRS must have filed a lien or levy against you, but this can be done quickly as the IRS does not have to go to court in order to put a lien on your property. If you have made arrangements to pay your debt and are current on your installment payments, you might be exempted from the provision. Some attorneys criticizes the provision as unconstitutional because it would allow the IRS to restrict your freedom through a simple determination by an IRS employee that you owe taxes. Considering the state of the economy for the last few years, there are many people who would be affected by the bill. Supporters if the bill say that people who owe more than $2,500 in child support cannot get a new passport either. Tax debt can be wiped out through bankruptcy if specific conditions are met.