Archive for the ‘True Stories’ Category
Monday, February 28th, 2011
Your potential lawsuits against some else, such as personal injury suits or class action suits, are assets in your bankruptcy case. Many people innocently overlook a potential claim that has not yet been filed as a lawsuit; other people intentionally try to “play games” with their claim in order to justify, to themselves at least, omitting their claim and potential lawsuit from their bankruptcy case.
Today’s case in point comes from an exchange I heard in bankruptcy court while waiting for my own client’s case to be called. A man filed Chapter 7 bankruptcy pro-se, that is, without an attorney. After he filed his bankruptcy he initiated a lawsuit in Florida to recover money damages. The defendant settled and agreed to pay the debtor a significant amount of money. The defendant wrote a check to the trust account of the debtor’s attorney. By this time, the debtor’s bankruptcy case has been closed and a discharge entered.
Then the debtor’s civil attorney does something his debtor client did not expect. The attorney checks the public legal records, and he finds out about the bankruptcy filing. The attorney does not want to pay the debtor money which the attorney now knows, as a result of the search, may belong to the bankruptcy trustee. The attorney contacts the trustee. The trustee files a motion to reopen the bankruptcy case to intercept the damage award and distribute the money to the debtor’s creditors. The civil attorney will still get paid. The judge granted the trustee’s motion so the creditors will get the money.
The judge did not penalize the debtor. Maybe the judge felt that depriving the debtor of the money the debtor had expected was enough of a penalty. However, over the past years I have had a few cases where I found out fortuitously about a bankruptcy client’s lawsuit recoveries after their bankruptcy case was over. I think this issue is more common than most people realize. Maybe a court should deny someone’s discharge for not revealing a significant claim that existed before they filed. That kind of case would send a needed message to prospective bankruptcy filers who think they can hide plans to file future lawsuits.
Posted in Chapter 7, True Stories | Comments Off
Monday, January 24th, 2011
One of my clients files Chapter 7 bankruptcy. The client is an accounts manager for a one doctor medical practice. The doctor gave the client signature authority on the office account at Wells Fargo Bank so the client could easily pay the office bills. The account is titled in the name of the boss’s medical corporation. All the money in the account is from the medical practice receipts; the debtor deposits none of her personal money in the account. The account is set up under the business’s tax ID number.
After the client filed personal bankruptcy Wells Fargo froze the account because the debtor had signature authority. The doctor cannot pay his business bills with his own money. My office called a manager at Wells Fargo Bank and wrote emails to Wells Fargo demanding they release the account freeze, but the bank ignored our calls and letters. Next, we wrote an email to the Chapter 7 trustee in the hope that he would contact Wells Fargo and get them to correct their error. The Chapter 7 trustee has done nothing. Perhaps the trustee is not interested in my client’s boss’s problem because money in the business account is not part of the debtors bankruptcy estate.
It appears that my client will have to file a motion with the court to release the account freeze and request sanctions. Either my cliernt or her boss may have to incur additional expense to remedy a problem clearly not their fault. Even if the court orders the account freeze released it is not certain tht the court will award the full amount of legal fees incurred.
I have found cases where Wells Fargo Bank has done similar things to bank accounts in California, and that the bankruptcy courts there have imposed significant sanctions. Unless Wells Fargo has a good explanation for what it did to my client’s employer , courts in Florida will punish this tactic; being “sorry for the inconvenience” will not solve the problem.
Posted in Client Questions, True Stories | Comments Off
Sunday, November 28th, 2010
A man consulted with me about filing Chapter 7 bankruptcy. The client and his non-debtor spouse lived on their sailboat docketed at the marina. The boat’s motor was broken but the sails worked. The boat was registered on a national boat registry with a federal boat ownership certificate. The ownership was listed as: husband wife. Not husband and wife, not husband or wife, and there was not choice of specifying ownership as tenants by entireties, tenants in common, or even as joint tenants with rights of survivorship. The client wanted to know if his boat was exempt from creditors under Florida law.
There are two possible exempts applicable to this boat: homestead and tenancy by entireties. A boat can be a homestead so long as the boat is permanently docket and is not suitable for transportation. A seaworthy boat is more like a “boat” than a “home.” This client’s boat could sail. However, the client explained that the boat could not reach open water without navigating though the docks and other docked boats which it could only do with a working motor. The client stated his boat could not sail away from its docket location without a motor.
In my opinion, this sailboat is currently not seaworthy. The client is using the boat more as a “home” than as transportation. I think this boat would be exempt homestead. However, if the boat’s motor is easily repairable a court could find that the asset is primarily a “boat” which is only temporarily immobile.
Even if this sail boat is not considered this debtor’s homestead, the boat would still be exempt from the husband’s creditors if it is titled as tenant by entireties. Under Florida law assets owned by a husband and wife as joint tenants with survivorship are presumed to be owned as tenants by entireties. The boat title is not clear on its face. Simply listing the names of the husband and wife gives no indication of whether they own the boat with rights of survivorship.
If the boat’s title instrument was a Florida state document, similar to a car title, I think most courts would not find entireties ownership. There are Florida court cases which require that state boat or car titles list the married owners specifically as tenants by entireties or as husband and wife in order to claim an entireties exemption. I do not think the same Florida court decisions regarding cars or boats registered with a Florida title would apply to this client’s boat with a national registry. In this instance, the owners’ intent is unclear on the face of the document, and absent court decisions interpreting entireties requirements for such federal title certificates I think the general presumption favoring tenants by entireties ownership of jointly titled assets would apply.
Posted in Bankruptcy Questions, True Stories | Comments Off
Sunday, November 28th, 2010
A man consulted with me about filing Chapter 7 bankruptcy. The client and his non-debtor spouse lived on their sailboat docketed at the marina. The boat’s motor was broken but the sails worked. The boat was registered on a national boat registry with a federal boat ownership certificate. The ownership was listed as: husband wife. Not husband and wife, not husband or wife, and there was not choice of specifying ownership as tenants by entireties, tenants in common, or even as joint tenants with rights of survivorship. The client wanted to know if his boat was exempt from creditors under Florida law.
There are two possible exempts applicable to this boat: homestead and tenancy by entireties. A boat can be a homestead so long as the boat is permanently docket and is not suitable for transportation. A seaworthy boat is more like a “boat” than a “home.” This client’s boat could sail. However, the client explained that the boat could not reach open water without navigating though the docks and other docked boats which it could only do with a working motor. The client stated his boat could not sail away from its docket location without a motor.
In my opinion, this sailboat is currently not seaworthy. The client is using the boat more as a “home” than as transportation. I think this boat would be exempt homestead. However, if the boat’s motor is easily repairable a court could find that the asset is primarily a “boat” which is only temporarily immobile.
Even if this sail boat is not considered this debtor’s homestead, the boat would still be exempt from the husband’s creditors if it is titled as tenant by entireties. Under Florida law assets owned by a husband and wife as joint tenants with survivorship are presumed to be owned as tenants by entireties. The boat title is not clear on its face. Simply listing the names of the husband and wife gives no indication of whether they own the boat with rights of survivorship.
If the boat’s title instrument was a Florida state document, similar to a car title, I think most courts would not find entireties ownership. There are Florida court cases which require that state boat or car titles list the married owners specifically as tenants by entireties or as husband and wife in order to claim an entireties exemption. I do not think the same Florida court decisions regarding cars or boats registered with a Florida title would apply to this client’s boat with a national registry. In this instance, the owners’ intent is unclear on the face of the document, and absent court decisions interpreting entireties requirements for such federal title certificates I think the general presumption favoring tenants by entireties ownership of jointly titled assets would apply.
Posted in Bankruptcy Questions, True Stories | Comments Off
Sunday, September 19th, 2010
If you pay back debts owed to family members or business partners within one year prior to filing Chapter 7 bankruptcy the trustee can go after the people you paid to return the money to the bankruptcy estate. You cannot pay your family and partners first and leave your general unsecured creditors, such as credit cards, to “pound sand” in your Chapter 7 bankruptcy. It’s called a “preference”, and the trustee can get the money back.
One of my ongoing clients is considering filing bankruptcy. When I asked him whether he had repaid any loans to family members recently he said that over the past year he had paid his father over $50,000 during the year. I told him that these repayments would be a big issue in a bankruptcy. I asked how he paid so much money to his father when he had also told me he wasn’t making much money and had no assets.
The man had a business that rebuilt and sold old automobiles. The business was a separate LLC. He and his father had an ongoing loan arrangement in which his father would advance funds to buy old cars and the parts to rebuild the cars. The client would fix the car, sell the restored car, and then repay his father with interest from the sale proceeds. This was a revolving and ongoing arrangement. Without his father’s loans and his repayment of the loans from sales the client could not conduct his business because he was not credit worthy at banks, especially in today’s lending environment. The $50,000 loan repayment amount is the sum of all money repaid from the sale of the cars.
Bankruptcy preference law has several exceptions, and this client’s arrangement falls within the exceptions. The client’s repayments to his father as part of his ongoing business financing is not the type of family loan repayment which is the subject of preference law. There would be a reversible preference if, on the other hand, the client had an ongoing obligation to repay his father $50,000 from a prior loan, and the client used non-exempt money to repay his father’s old loan while paying little or nothing to the non-family creditors.
Posted in Chapter 7, True Stories | Comments Off
Thursday, August 12th, 2010
There is the well-known proverb that, to a carpenter everything in the world looks like a nail. Or, surgeons want to operate to cure any and all ailments. The same is applicable to some bankruptcy attorneys. I assisted a couple with asset protection last year. The couple faced joint liability from a failing business investment. They had $150,000 liquid cash, and they were expecting another $200,000 from the proceeds of a real estate sale. I explained that they would lose the cash in bankruptcy. I advised them to spend down the cash and possibly invest in a new homestead which would be exempt I they were sued.
Since my advice, the creditor sued and obtained a judgment against the couple. The couple too al their liquid cash remaining, about $310,000, about bought a $400,000 homestead with a small mortgage. The creditor began aggressive collection efforts. The collection fight made the couple nervous and fearful about their assets so they consulted a bankruptcy attorney with the hope of putting the problem behind them.
As the couple reports, the bankruptcy attorney told them that the money used to purchase the house was not exempt in a Chapter 7 bankruptcy first, because the amount of equity invested in the homestead exceeded the bankruptcy exemption(about $275,000) permitted within 40 months of purchase, and two, because the conversion of substantially all their cash to a homestead could be attacked as a fraudulent conversion in bankruptcy. He told these people to file a Chapter 13 bankruptcy so that their house would not be liquidated and they could pay only their available monthly cash flow to their creditors.
I think Chapter 13 bankruptcy would be a poor idea for these debtors. In a Chapter 13 bankruptcy the debtors have to pay through a five year plan not only what they clear each month after reasonable expenses but also all the money their creditors would have received in a Chapter 7 liquidation. If these people had filed Chapter 7 the trustee would have claimed as non-exempt part or all of the $310,000 they invested in their homestead. The non-exempt homestead equity (it could be all if seen as fraudulent conversion) would still have to be paid to the Chapter 13 trustee during a five year plan. In any bankruptcy, 7 or 13, their homestead equity is at risk.
If they simply stayed far away from bankruptcy as I had originally advised their creditor had no way to attack any of their homestead exemption in state court collection. I think their bankruptcy attorney pushed them to Chapter 13 because bankruptcy is the only tool in his legal toolbox- just like the carpenter or the surgeon only uses the tools he is comfortable with. The bankruptcy attorney failed to appreciate that these people had better legal protection tools outside of bankruptcy court.
For most people heavily in debt bankruptcy is the only tool to fix their situation. People with assets should get a second and even a third opinion before filing bankruptcy. Bankruptcy filings are usually irrevocable- once you go in you cannot get out.
Posted in Chapter 13, Chapter 7, True Stories | Comments Off
Wednesday, July 28th, 2010
I was involved in my first mortgage modification today under the Orlando bankruptcy court’s mortgage mediation program for Chapter 13 debtors. The scheduled mediation was a complete waste of time.
The bankruptcy court issued its newly adopted standard mediation order requiring attendance of a bank representative with full settlement authority. A mediation conference was scheduled at the office of the creditor’s attorneys. Before the scheduled mediation conference my office prepared a notebook containing all of the debtor’s relevant financial information such as pay stubs, bank statements etc. My client, I , and the mediator (a bankruptcy attorney himself) showed up on time at the designated location. The location was a 35 minute drive to and from my office and about the same distance from my client’s location.
When we all sat down to begin discussions the bank (Bank of America) representative announces he is unable to proceed with the mediation because he does not have escrow information from his own bankruptcy department. He says the bank will need a few days to acquire their own data and compute offers to present my client. The mediation is continued; the meeting adjourns with nothing accomplished. A total waste of two hours of time for my client and myself.
The mediation program is new. Some snafues will occur. What really ticked me off, however, was that the BOA representative did not even apologize for ruining a mediation conference scheduled mutually in advanced pursuant to a court order. Not one word of apology or regret for BOA's lack of preparation. Don't they teach their employees manners? Who do they expect is going to pay for my time and the time my client took off from work? I may address that issue later in this bankruptcy.
So, if you are getting ready for a Chapter 13 mortgage mediation do not assume the bank representative will be prepared at the scheduled conference. I will for all future mediation conferences confirm in writing prior to the meeting that the bank and their attorney have all the information they need from the debtor, and that they also have all the information from their own records which they need to proceed. Unless the bank attorney confirms their total and complete readiness to mediate with my client I am not getting up from my desk. I've wasted enough of my time.
Posted in Chapter 13, True Stories | Comments Off
Friday, July 9th, 2010
I had two trustee meetings today with clients who acquired new cars not long prior to filing bankruptcy. Both debtors got help from more affluent family members to get their cars, but the two debtors and their respective families chose different ways to title the car and structure the transaction. Debtor Number One was driving a new car paid for by his father when he filed bankruptcy.. His father purchased the car in his own name for cash and then gave the car to his son, the debtor, to use. Debtor Number Two borrowed money from his brother in law to purchase a new car before bankruptcy. Debtor Two purchased the car with the brother in law’s money prior to filing and shortly after filing bankruptcy he recorded a lien on the title in favor of his brother in law.
Debtor One keeps the car. Debtor Two loses the car. Because the lien on Debtor 2's car was recorded after the bankruptcy the trustee can avoid the lien and treat the car as owned free and clear by Debtor 2. Debtor One keeps his car because even though this debtor drives the car exclusively, pays for gas, repairs, and insurance, the car title was never in the debtor’s name and the debtor never had legal title.
The morale of this true story is that if a family member wants to help you out getting you a car before you file Chapter 7 bankruptcy have the family member title the car in their name. After you file the petition the same family member can gift the car title to you. Alternatively, if the family member does not want the liability of ownership he can loan you money for your car, but make sure the family member puts a lien on the car at the same time you buy the car (just like a bank would do).
Posted in True Stories | Comments Off
Monday, June 28th, 2010
I went to a trustee meeting last week with a single debtor who owned a car free and clear. The car blue book value was $10,000. The debtor said the car "needed work" and that she had a repair estimate of $3,000. I looked at the estimate and most of the items were normal maintenance- new plugs, new belts, brake job etc. There was a single scratch on the exterior. In the debtor’s best case, this car had approximately $6,000 non-exempt equity which amount the bankruptcy trustee could demand from the debtor.
Before the meeting, my client was very upset about her car. She was unemployed. She lived with a family member who also was unemployed. She had no money and no prospect of future employment to buy back the non-exempt car equity from the trustee. Without a car, she said she had no way to look for a job or to go to a job if she found one. Things looked bleak- I explained that the trustee is not a bad person who is only doing his job by going after the $6,000 car equity.
So, the debtor tells the trustee about why she filed bankruptcy. She had to quit her job because she was being stalked by a neighbor and because her mother was very ill. She moved in with a relative because she had no money. She used credit cards to survive. Employment prospect were bleak in her home town.
The trustee never mentioned the car issue. The debtor had previously given the original car title and a picture of the car to the trustee. The trustee handed the debtor the car title without comment. The trustee left the meeting and drove home in the car. The trustee is very experienced and competent; he knew about the car equity. This debtor who had suffered a series of personal misfortune got a big break at the trustee meeting, and I don’t know why. Sometimes in bankruptcy you just get lucky.
Posted in Chapter 7, True Stories | Comments Off
Thursday, June 10th, 2010
Here’s a real bankruptcy situation I dealt with last week; the issues resolved, so I can use the case for a blog post. I’ll simplify the facts. A creditor serves a wage garnishment on the debtor’s employer. The employer garnishes the next paycheck (" Paycheck One"). Then, the debtor files Chapter 7 bankruptcy. The Friday following the bankruptcy filing the employer garnishes a second paycheck ("Paycheck Two"). We serve a suggestion of bankruptcy to the creditor and the employer. The employer refuses to release to the debtor any part of Paycheck Two (post filing) until the bankruptcy trustee sends the employer a letter releasing any claim against the money as part of the bankruptcy estate.
The employer believed that wages due to the debtor’s employment prior to the bankruptcy filing are part of the bankruptcy estate (if not otherwise exempt). Therefore, the employer would not release any money until the bankruptcy trustee decided what portion of Paycheck Two was earned pre-petition. The issue is whether a debtor’s pay is earned when worked or earned at the end of the pay period when the paycheck is due.
I’m pretty sure the employer in this case is wrong, and that the garnishment of Paycheck Two after filing is a violation of the automatic stay by the creditor and maybe by the employer as well. There are bankruptcy court decisions which have held that wages are not subject to garnishment until the paycheck is due. Courts have sanctioned creditors for garnishing paychecks due after a bankruptcy is filed. Because Paycheck Two was due after the bankruptcy no part of the debtor’s earnings during the pay period preceding bankruptcy is subject to garnishment or is subject to the trustee. Otherwise, every employer will have to withhold the next paycheck due to any employee who files bankruptcy to see if any part of money earned prior to the bankruptcy filing date is part of the trustee's estate.
That the creditor served the wage garnishment prior to bankruptcy is no defense. Bankruptcy courts have held that failure to undo a garnishment after bankruptcy is filed is a willful violation of the stay; creditors must take affirmative action to dissolve a wage garnishment when a debtor files bankruptcy.
In fact, some attorney representing either the employer or the creditor eventually saw the light. My client sent my secretary an email stating that the issue is resolved, and that the employer sent the debtor all the garnished money including Paychecks One and Two.
Posted in True Stories | Comments Off
