Archive for the ‘Court Decisions’ Category
Monday, May 23rd, 2011
Kaufman, Englett and Lynd, PLLC (“KEL”) is a law firm that advertises mortgage foreclosure defense work, among other things. KEL decided to get into the bankruptcy business and is one of the largest volume filers of bankruptcy petitions in the Middle District of Florida. I assume that many of KEL’s clients who could not pay their mortgage are also good candidates for bankruptcy to both protect themselves from deficiency judgments and wipe out other debts related to their financial hardship. It seems good business for KEL to capture the bankruptcy business from their foreclosure defense clients.
There was much scuttlebutt around the bankruptcy court today about a court order which sanctioned KEL by banning them from practicing in bankruptcy court for the Middle District. No bankruptcy filings, no motions, no claims, no nothing. This is a very severe sanction. I have not heard of this court ever banning an attorney from future legal practice before the court.
The order does not describe in detail KEL’s bad behavior. Apparently, KEL, though its attorney William Sanchez, filed a motion in November, 2010, for sanctions against bankruptcy debtors. The court said that “because of numerous missteps and lack of diligence by Mr. Sanchez and his firm” the court has been unable to adjudicate the motion.
I have no personal experience with KEL problems or their practice. I know they have a high-volume bankruptcy operation A few other bankruptcy attorneys I spoke with today stated that KEL typically assigns inexperienced attorneys to bankruptcy cases, , and that these inexperienced attorneys are filing a large number of bankruptcy petitions each month. Inexperienced attorneys, generally, make mistakes in their petitions and in their bankruptcy practice. KEL attorneys must made some serious and repeated mistakes to incite a judge to the point where they have been banned from bankruptcy court.
There is a lesson here for new bankruptcy attorneys. Bankruptcy practice is not as easy as it seems, and certainly, its more difficult than it was before the 2005 bankruptcy law. Federal court judges and bankruptcy trustees do not have much patience with sloppy law practice. Every attorney is inexperienced when he does his first case. By starting with a small volume of cases, and by working initially with a more experience attorney, you can learn things about bankruptcy law which you cannot learn in a book or by reading the bankruptcy rules. Don’t attempt to handle a large volume of cases until you have learned the ropes of bankruptcy law and procedure. Case No. 10-15477
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Friday, April 15th, 2011
Many people who wanted to file Chapter 13 found that they were ineligible because their debts exceeded the Chapter 13 debt limits of approximately $1 million of secured debt or approximately $360,000 of unsecured debt. The debt limits have affected more people in the past few years because inflated real estate values during the boom resulted in many debtors having large mortgages which exceeded the secured debt ceiling. I have had several clients who could not qualify for Chapter 7 and who were willing to pay their creditors what they could afford in Chapter 13, but who were excluded from Chapter 13 by the debt ceilings. These people either had to file an expensive Chapter 11 case or forgo bankruptcy protection completely.
One unresolved question about Chapter 13 debt ceiling is whether joint married debtors could stack their ceilings. For example, if stacking were permitted, joint married debtors could have up to $2 million joint debt in a Chapter 13. Joint Chapter 7 debtors can stack their exemptions.
This past week one of the Orlando bankruptcy judges issued an opinion which hold that joint married debtors may in some cases stack the debt ceilings of Chapter 13 eligibility. The opinion explained that a joint bankruptcy is actually the combination of separate bankruptcy estates. In a joint Chapter 13 filing each of the joint debtors must individually meet Chapter 13 debt requirements.
The opinion’s effect on Chapter 13 depends upon whether joint bankruptcy debtors have separate debts or joint and several liability. For example, if the husband was individually liable for a $1.5 million mortgage and the wife individually liable for a $500,000 mortgage the couple could not file a joint Chapter 13 bankruptcy because the husband, individually, exceeded the applicable secured debt ceiling. If the husband is individually liable for a $900,000 mortgage and the wife is individually liable for a $900,000 mortgage they could file a joint Chapter 13 case even though their combined secured debts exceeded the secured debt ceiling.
It is unclear based on this opinion what happens if a husband and wife are jointly liable for a $1.8 million mortgage. If each spouse is allocated half of the $1.8 million mortgage then they could file a joint Chapter 13 case. If both spouses are accountable for the full $1.8 mortgage then neither spouse is eligible for Chapter 13 bankruptcy, and therefore, the joint petition fails.
Consider that in Chapter 7 bankruptcy married debtors as assumed each to own a 50% interest in personal property, and they can apply their full individual exemptions to their 50% property interest. Debtors who jointly own $2,000 of property each can exempt their $1,000 half ownership using their separate $1,000 personal property exemption. In re Scholz, 6:10-08446.
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Tuesday, April 12th, 2011
From time to time I receive inquiries from people seeking to discharge a student loan in Chapter 7 bankruptcy. Student loans can only be discharged for “undue hardship.” Undue hardship in this context means things are really, really bad. To illustrate just how bad things have to be before a student loan can get discharge you should read a blog post by Minnesota bankruptcy attorney Craig Andresen about an Ohio bankruptcy court decision.
This court denied the discharge of a student loan for a debtor who was legally blind and permanently disabled. Consider this guy’s situation before you think about discharging your student loans in Chapter 7 bankruptcy. Also, because of the difficulty discharging student loans be prepared to pay your bankruptcy attorney extra legal fees to file and prosecute your petition to have your student loans wiped out under the undue hardship exception.
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Friday, March 25th, 2011
Here is an interesting bankruptcy case which demonstrates the pitfalls in titling a car in the name of anyone other than the principal driver.
A grandfather wanted to buy a car for his grandchild. He purchased a car for all cash and put the title in the name of his son. The son put none of his own money toward the purchase, and the son did not drive the car or pay for its upkeep. The son let his child, the grandchild, use the car exclusively. Then, the son filed Chapter 7. The trustee claimed the car purchased by the grandfather but titled in the debtor’s name was part of the bankruptcy estate. The debtor son argued that he held title only for convenience purposes and that he had no equity in the car purchased by the grandfather and driven by his child.
The court held the car was non-exempt and had to be surrendered to the trustee. The court stated that in Florida car titles constitute presumptive legal ownership. If the grandfather wanted to give the car to this son as custodian for the granddaughter he should have titled the car in his son’s name as custodian under Florida Statute 710.111. The statue provides a way to record certificates of title in an adult’s name as custodian for a minor child.
If you need to take title to a car to be driven by a child you should hold title in your name as custodian for the child. The custodian notation is required to avoid having the car be subject to your own creditors or a bankruptcy trustee. In re DiStefano Case No. 10-19596
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Tuesday, March 22nd, 2011
I have rarely discussed bankruptcy attorneys fees in this blog even though I know that fees are an important consideration for readers who are considering filing bankruptcy. I do not want this blog to be interpreted as an advertisement for my own fees in relation to those charged by other attorneys. However, I recently read two general discussions about bankruptcy attorneys fees which should be very helpful to prospective bankruptcy debtors, and therefore, warrant discussion.
First, I saw a blog post by North Carolina attorney Susanne Robicsek titled, “How Much Does It Cost To File Bankruptcy?” Her article is an excellent guide to comparison of bankruptcy fees charged by different attorney attorneys in your geographical area. Ms. Robicsek explains clearly why an attorney may charge more or less for your bankruptcy than others, and why some bankruptcy attorneys charge higher fees than other attorneys. She also discusses the alternative of do-it-yourself bankruptcy petitions to save money.
Those considering Chapter 7 bankruptcy would be most interested in a recent Memorandum Opinion issued by a bankruptcy judge in the Orlando Division which order presents an accurate overview of the bankruptcy fee market in central Florida. (Case No. 6: 10-bk-12174). The court found that most bankruptcy attorneys charge in the range of $1,250 to $2,500 for a typical chapter 7 case plus filing fees and other costs. For these fees, the court noted, attorneys will spend some time with the client but the attorney delegates to their paralegal most of the client contact, pleadings, and detailed follow-up work. The court stated that an experienced and well-trained bankruptcy paralegal is capable of handling the much of the work involved in a standard chapter 7 case.
Some attorneys provide a more personalized service for higher fees. The bankruptcy judge stated that attorneys providing a “luxury” bankruptcy service do most of the work themselves and more available to “hold the hand” of their clients throughout the process. The court found that $3,600 was a reasonable fee for the luxury service provided in this particular case, although the reasonableness of luxury fees depends on each attorney-client relationship.
Finally, the U.S. Trustee office asked the judge to set a ceiling on Chapter 7 legal fees in the Orlando Division. The judge declined to cap attorneys fees stating the a bankruptcy court should not interfere with market forces, and that some debtors want to pay high fees for a more personalized service.
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Tuesday, February 22nd, 2011
When you file bankruptcy you are supposed to list any current lawsuits you have against anyone else, such as a medical malpractice suit, as well as any potential claim against a third party which claim may later result in you filing a lawsuit. Your lawsuits and claims are part of the bankruptcy estate. The trustee can either prosecute the lawsuit in your behalf or he can sell the claim or lawsuit and distribute proceeds to your creditors.
Frankly, some people do not list potential claims and possible future lawsuits. They figure they can file a lawsuit after the bankruptcy is over and that the trustee will not find out about it. One problem with this debtor strategy is that the person you later sue can dismiss the lawsuit because you did not list the claim in your bankruptcy.
I read a post in the Los Angeles Bankruptcy Law Monitor about a court which applied the theory of judicial estoppel to defend a lawsuit by a plaintiff who had recently filed bankruptcy and did not list the potential lawsuit as an asset. In laymen terms, judicial estoppel means you cannot take inconsistent positions in different judicial proceedings. You cannot tell the bankruptcy court you have no claims and then assert a claim in civil court soon thereafter. In this case, the court dismissed a lawsuit because the plaintiff’s recent bankruptcy asserted that the debtor had no claims or reasons to sue anyone.
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Thursday, February 3rd, 2011
The Florida Supreme Court has substantially expanded the amount of personal property Florida bankruptcy debtors can exempt in a Chapter 7 bankruptcy. At issue is the so-called “wildcard” exemption under Florida Statute 222.25 (4) which permits a $4,000 additional property exemption to debtors who do not receive the benefit of the Constitutional homestead exemption. I have not read the entire opinion (25 pages), but this is an initial summary.
Up to now, bankruptcy courts have narrowly construed this exemption. The courts have held that even debtor who do not claim their homestead as exempt on their bankruptcy schedules are ineligible for the $4,000 wildcard if they receive, or could receive, any legal benefit of a homestead exemption. Thus, for instance, a debtor with an upside down homestead with no equity to exempt still has been ineligible for the $4,000 wildcard exemption if that debtor had or could have had other legal benefits of homestead ownership. Another example of a narrow interpretation is a case where a man filed bankruptcy individually, and the man and his non-filing wife jointly owned a homestead. The man claimed the house exempt as a tenants by entireties asset but did not assert homestead exemption. A bankruptcy court held that because the debtor’s non-filing wife retained homestead rights the debtor could receive homestead benefits.
The Florida Supreme Court rejected bankruptcy judges strict and narrow reading of the wildcard exemption. The Court held that the wildcard exemption should be interpreted with the broadest possible reasonable application. The Court held,
Accordingly, we now answer the rephrased question in the negative and hold that where a debtor in bankruptcy elects not to claim the article X, section 4, homestead exemption and the trustee.s administration of the bankruptcy estate is not otherwise obstructed by the existence of the homestead exemption, the debtor does not receive the benefits of the homestead exemption and may claim the section 222.25(4) personal property exemption of $4000.
This case is important for bankruptcy debtors because Florida law has otherwise very low dollar exemptions, $1,000, for cars and $1,000 for all other personal property. Many additional debtors now can substantially increase the value of exempt personal property by using the liberalized wildcard exemption under Section 222.25(4). The case is Osborne, v. Dumoulin No. SC09-751
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Monday, January 31st, 2011
The U.S. Supreme Court issued a decision on January 11, 2011, making it more difficult for debtors to pass the Chapter 7 means test. The means test includes two car related deductions from income. Debtor's may be eligible to deduct from income an allowance for car-operating costs and a separate allowance for car-ownership costs. The amount of the debtor's allowances are based upon published table of National and Local Standard as well as their actual expenses.
The Supreme Court case involved the means test filed by a debtor who owned a car free and clear of any debt and liens. The issue in this case was whether such debtor can claim the car-ownership allowance when the debtor has no monthly car payment and his only car expenses are those related to car operations.
In the past, many attorneys, myself included, claimed both a car-operating and car-ownership allowance even through the debtor had paid off his car or leased a car. The car-ownership allowance (a bonus deduction for debtors without car payments) frequently was the deciding factor in the debtor's eligibility for Chapter 7 bankruptcy.
The U.S. Supreme court held that debtors who have no monthly car payment cannot use a car-ownership allowance in the means test. The Court decided that the means test allowed "applicable" expenses, and that debtor's without a car payment did not have an "applicable" ownership costs.
The decision encourages prospective bankruptcy debtors to buy a new car with a car loan prior to filing bankruptcy in order to pass the means test, and to this extent, the decision makes it more difficult for debtor's to get a "fresh start" after their bankruptcy case.
Ransom v. FIA Card Services et. al. Case No. 09-907
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Sunday, January 2nd, 2011
Most people who file bankruptcy are concerned about how bankruptcy might affect other aspects of their life. One of the most common concerns is bankruptcy’s effect on future employment. Many bankruptcy debtors are afraid their bosses will fire them if they learn about the bankruptcy; debtors also worry that a bankruptcy will hurt chances of getting a new job.
I have stated previously on this blog that bankruptcy law prohibits an employer from terminating someone because they filed bankruptcy. Section 525 of the Bankruptcy Code prohibits a private employer from discrimination against or termination of an individual who files bankruptcy, and the section prohibits a governmental unit from discrimination or denial of employment with respect to a bankruptcy debtor.
One bankruptcy debtor argued in an appellate court case that the Code’s prohibition against discrimination in employment by a private employer is broad enough to prohibit a private employer from denying employment on the basis of a prior bankruptcy. The appellate court denied the debtor’s appeal. The court said that the Code clearly stops a government employer from denying new employment because of a prior bankruptcy, and if Congress wanted the same rule applied to private firms it would have said so in the legislation. The court said that Section 525 is not broad enough to stop a private employer from denying employment because the job applicant previously filed bankruptcy. Third Circuit Court of Appeals No. 10-1440
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Friday, November 12th, 2010
It’s fun to read about cases where a bankruptcy debtor successfully challenged a mortgage lender’s attorney fee claims. In this Chapter 13 case GMAC mortgage filed a secured claim including $300 legal fees for work incurred by the bank’s bankruptcy attorney to protect the bank’s secured interest and rights in the debtor’s property during the Chapter 13 bankruptcy. The debtor’s first mortgage payments were current upon filing bankruptcy and the debtor proposed to pay the mortgage outside the bankruptcy proceeding.
The court denied GMAC its attorney fees. The court pointed out that the first mortgage was on the debtor’s principal residence and its terms or amount could not be modified in the Chapter 13 plan. The court found that the bankruptcy filing may have created some extra work for the mortgage lender, but that this work was administrative in nature and not legal work requiring a licensed attorney: in other words, its extra “paper work.” The court said that referring a matter to an attorneys office does not automatically create necessary legal work.
Look at the first mortgage lenders claim in your Chapter 13 bankruptcy, and if your facts are the same as in this case, consider filing an objection to the lender’s claim which includes automatic, standard legal fees. In re Jaramillo 09-33951, Southern District Florida.
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