Bankruptcy Ia

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Bankruptcy Ia

  1. 1. BANKRUPTCY Christy C. Jones, Esquire SHERPY & JONES, P.A. 803-356-3327 [email_address]
  2. 2. HISTORY <ul><li>Nelson Act of 1898 </li></ul><ul><li>Current Code dated 1978 </li></ul><ul><li>Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 </li></ul>
  3. 3. CURRENT TRENDS <ul><li>33% increase in bankruptcy filings from 2007 to 2008 </li></ul><ul><li>As unemployment continues to rise, more are expected (second wave) </li></ul><ul><li>As modifications under HAMP fail, expect more Chapter 13s </li></ul>
  4. 4. Famous Filers <ul><li>P.T. Barnum </li></ul><ul><li>Milton Hershey </li></ul><ul><li>Walt Disney </li></ul><ul><li>Kim Basinger </li></ul>
  5. 5. KEY CONCEPTS PROPERTY OF THE ESTATE
  6. 6. KEY CONCEPTS ADEQUATE PROTECTION
  7. 7. KEY CONCEPTS AUTOMATIC STAY
  8. 8. KEY CONCEPT PROOF OF CLAIM
  9. 9. KEY CONCEPTS Dismissal v. Discharge
  10. 10. Reaffirmation <ul><li>Agreement between Debtor and Creditor </li></ul><ul><li>Debt does not get discharged </li></ul><ul><li>Debt survives discharge </li></ul><ul><li>Allows creditor to get money judgment / deficiency judgment after discharge </li></ul>
  11. 11. Different Consumer Chapters <ul><li>Chapter 13 </li></ul><ul><li>Reorganization </li></ul><ul><li>Debtor must have income </li></ul><ul><li>Debtor pays trustee, trustee pays creditors </li></ul><ul><li>To prevent foreclosure </li></ul><ul><li>Chapter 7 </li></ul><ul><li>Liquidation </li></ul><ul><li>Debtor does not need income </li></ul><ul><li>Debtor pays secured creditors directly </li></ul><ul><li>Will not prevent foreclosure </li></ul>
  12. 12. Different Chapters <ul><li>Chapter 13 </li></ul><ul><li>Can’t collect from non-filing co-debtor </li></ul><ul><li>Lasts 5 years </li></ul><ul><li>Creditor must file POC </li></ul><ul><li>Debtor pays % of unsecured claims </li></ul><ul><li>Chapter 7 </li></ul><ul><li>Can collect from non-filing co-debtor </li></ul><ul><li>Lasts 5 months </li></ul><ul><li>Creditor usually does not file POC </li></ul><ul><li>Debtor does not pay unsecured claims </li></ul>
  13. 13. Different Chapters <ul><li>Chapter 13 </li></ul><ul><li>Trustee does not sell Debtor’s property </li></ul><ul><li>Plan is filed </li></ul><ul><li>Object 2 days before meeting of creditors </li></ul><ul><li>No reaffirmation </li></ul><ul><li>Plan determines treatment of creditor’s claim </li></ul><ul><li>Chapter 7 </li></ul><ul><li>Trustee may sell property </li></ul><ul><li>No plan </li></ul><ul><li>No plan, so no objection deadline </li></ul><ul><li>May reaffirm </li></ul><ul><li>Statement of Intention determines treatment of creditor’s claim </li></ul>
  14. 14. Bankruptcy Reform Act (BAPCPA) <ul><li>Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 </li></ul><ul><li>Effective October 17, 2005 </li></ul><ul><li>Slightly more difficult to file bankruptcy and some additional protections for Creditors </li></ul>
  15. 15. Cram Down <ul><li>Debtor pays only the value of the collateral </li></ul><ul><li>Debtor does not pay the balance of the secured loan </li></ul><ul><li>Only in a Chapter 13 </li></ul><ul><li>BAPCPA reduced the availability of cram down </li></ul>
  16. 16. New Way = No Cram Down, if: <ul><li>Vehicle for personal use </li></ul><ul><li>Loan was a purchase money loan </li></ul><ul><li>Loan was not older than 910 days when Debtor filed for bankruptcy </li></ul>
  17. 17. Purchase money loan <ul><li>Loan proceeds used to purchase the collateral </li></ul><ul><li>By definition, a refinance is not a purchase money loan </li></ul><ul><li>Means that Creditors should modify loans for troubled members vs. refinance </li></ul>
  18. 18. Chapter 7 “Ride Through” <ul><li>“Debtor will retain collateral and continue to pay current” </li></ul><ul><li>This is found in Statement of Intention </li></ul><ul><li>Secured creditor can object to this treatment (unless collateral is real estate) </li></ul>
  19. 19. Debtor’s options in Chapter 7 <ul><li>Surrender collateral </li></ul><ul><li>Redeem collateral </li></ul><ul><li>Reaffirm indebtedness secured by collateral </li></ul><ul><li>No more “Ride Through” (except real estate) </li></ul>
  20. 20. When Ride Through Proposed <ul><li>Wait 30 days from the date of filing </li></ul><ul><li>Have counsel file Request for Confirmation of Stay Termination </li></ul><ul><li>No filing fee and no hearing </li></ul><ul><li>Result is that Stay is Terminated </li></ul>
  21. 21. Debtor fails to perform intention <ul><li>Debtor has 30 days from 341 meeting of creditors to: </li></ul><ul><li>Actually surrender the collateral </li></ul><ul><li>Actually redeem the collateral </li></ul><ul><li>Actually file the reaffirmation agreement </li></ul>
  22. 22. When Debtor Fails to Perform Intention <ul><li>Wait 30 days from the meeting of creditors </li></ul><ul><li>Have counsel file Request for Confirmation of Stay Termination </li></ul><ul><li>No filing fee and no hearing </li></ul><ul><li>Result is that Stay is Terminated </li></ul>
  23. 23. BIG PICTURE <ul><li>If Debtor tries to ride through, or won’t reaffirm consider </li></ul><ul><ul><li>Value of Vehicle </li></ul></ul><ul><ul><li>Balance of Loan </li></ul></ul><ul><ul><li>Whether & to what extent Loan is Delinquent </li></ul></ul><ul><ul><li>Whether you would prefer to continue to accept payments v. sell vehicle and suffer loss </li></ul></ul>
  24. 24. Think Like a Debtor’s Attorney What is your advice to your client if his car loan is current?
  25. 25. LIENS PASS THROUGH CHAPTER 7s <ul><li>Most liens are not wiped out by a Chapter 7 discharge </li></ul><ul><li>Creditors may repossess vehicle AFTER the discharge </li></ul><ul><li>If Creditor repossesses vehicle DURING the Chapter 7 case (w/o lift of stay), that is a violation of stay </li></ul><ul><li>After discharge, no deficiency balance, collection of the debt, etc. </li></ul>
  26. 26. Reaffirmation Agreements <ul><li>Only in Chapter 7 cases </li></ul><ul><li>Reaffirmed debt survives bankruptcy discharge </li></ul><ul><li>Must be filed with court before discharge order is entered </li></ul><ul><li>Must use current form to be valid </li></ul><ul><li>If Creditor gets Reaff., Creditor can get deficiency judgment </li></ul>
  27. 27. Other options <ul><li>If insurance lapses during Chapter 7, file 362 motion. </li></ul><ul><li>If Debtor misses direct payment during Chapter 7, file 362 motion. </li></ul><ul><li>Will allow you to repo now instead of having to wait for discharge </li></ul>
  28. 28. OTHER OPTION?
  29. 29. Reaffirmation Disclosure Statement <ul><li>Amount reaffirmed </li></ul><ul><li>APR, using TIL formula </li></ul><ul><li>Explain whether open-end credit </li></ul><ul><li>Describe collateral </li></ul><ul><li>State purchase price or original balance </li></ul><ul><li>Describe repayment schedule </li></ul>
  30. 30. Instructions to Debtor <ul><li>Describe Debtor’s Right to Rescind </li></ul><ul><li>FAQs </li></ul>
  31. 31. Attorney’s Declaration <ul><li>Debtor’s attorney must sign </li></ul><ul><li>Reaffirmation is not an undue hardship </li></ul><ul><li>Debtor is fully informed </li></ul><ul><li>Debtor knows consequences of default </li></ul>
  32. 32. UNDUE HARDSHIP <ul><li>Schedule I = Debtor’s Income </li></ul><ul><li>Schedule J = Debtor’s Expenses </li></ul><ul><li>If I – J is less than loan payment, an undue hardship exists, b/c means that there is not enough in Debtor’s budget for payment </li></ul>
  33. 33. UNDUE HARDSHIP <ul><li>If there is an Undue Hardship, the Court will set a hearing and decide whether or not to approve the Reaffirmation Agreement. </li></ul><ul><li>If the Creditor is a Credit Union, the Court does not have to set a hearing. The Reaffirmation Agreement will be automatically approved. </li></ul>
  34. 34. Debtor’s Statement in Support <ul><li>If pro se, Debtor must describe income & expenses </li></ul><ul><li>If Creditor is a CU, Debtor only must say reaffirmation is in best interests & can afford payments. No details necessary. </li></ul>
  35. 35. Redemption <ul><li>Debtor makes lump sum payment to Creditor </li></ul><ul><li>Debtor keeps the collateral </li></ul><ul><li>Lump sum payment = Wholesale or Retail value? </li></ul>
  36. 36. REDEMPTION <ul><li>Debtor must file Motion to Redeem </li></ul><ul><li>Creditor has an opportunity to Object to the Motion to Redeem </li></ul><ul><li>Section 722 companies </li></ul>
  37. 37. Chapter 13 <ul><li>Direct payments to Creditors was changed in BAPCPA </li></ul><ul><li>Iowa courts are honoring change in law, but with a twist </li></ul><ul><li>Before plan confirmation, Trustees disburse to secured creditors </li></ul>
  38. 38. Ask yourself: <ul><li>Is loan secured? </li></ul><ul><li>Is the collateral personal property? </li></ul><ul><li>Does the plan propose to keep collateral? </li></ul><ul><li>Was the loan a purchase money loan? </li></ul><ul><li>Have I filed the POC? </li></ul><ul><li>Has there been no objection to POC? </li></ul><ul><li>Has it been 30 days since Debtor filed? </li></ul>
  39. 39. Iowa Form Plan specifically addresses payments made pre-confirmation
  40. 40. Motion to Extend Automatic Stay <ul><li>Applies when Debtor has filed multiple bankruptcies within one year </li></ul><ul><li>Second bankruptcy – Debtor must file motion to extend stay </li></ul><ul><li>Hearing on motion must be within 30 days of filing for bankruptcy </li></ul>
  41. 41. Multiple Filings <ul><li>Second case pending in one year </li></ul><ul><li>Date of dismissal of first case matters, not the date of filing of first case </li></ul>
  42. 42. EXAMPLE <ul><li>Debtor files Chapter 13 on October 23, 2009 </li></ul><ul><li>Debtor’s case is dismissed on August 18, 2010 </li></ul><ul><li>Debtor files another Chapter 13 on October 13, 2010 </li></ul><ul><li>Are there two cases pending within one year? </li></ul>
  43. 43. To get stay continued <ul><li>Debtor must prove good faith filing of second case </li></ul><ul><li>Shift in burden of proof from Creditor to Debtor </li></ul><ul><li>Substantial change in circumstances </li></ul>
  44. 44. EXAMPLES
  45. 45. Result <ul><li>If stay is not continued, Creditors can repossess/ foreclose on the 31 st day of the second bankruptcy, b/c no stay </li></ul><ul><li>Caveat: confirmed plan could still bind creditor to bankruptcy, so Creditor should also object to the plan </li></ul>
  46. 46. Ask Yourself: <ul><li>Has Debtor’s income changed? </li></ul><ul><li>Has Debtor’s expenses changed? </li></ul><ul><li>Debtor done anything in bad faith? </li></ul><ul><li>Lower value on your collateral in second case than in first case? </li></ul><ul><li>If so, Debtor made payments during that time? </li></ul><ul><li>Inconsistencies with schedules? </li></ul>
  47. 47. Objecting to Motion to Continue Stay <ul><li>Stay not continued </li></ul><ul><li>Stay not continued as to CU only </li></ul><ul><li>Settle = higher value for collateral </li></ul><ul><li>Settle = drop dead clause on payments </li></ul>
  48. 48. Multiple Filings <ul><li>8 years between discharge in one Chapter 7 and the filing of a new Chapter 7. </li></ul><ul><li>2 years between discharge in one Chapter 13 case and the filing of a new Chapter 13 case (no discharge in second case). </li></ul><ul><li>Debtor can file second 13 in two years; just won’t get discharge in second case </li></ul>
  49. 49. “Chapter 20” <ul><li>Not a real chapter under bankruptcy code </li></ul><ul><li>Debtor first files Chapter 7 </li></ul><ul><li>Then Debtor files Chapter 13 immediately after discharge in 7 </li></ul>
  50. 50. Conversion from 13 to 7 <ul><li>Terms of original contract apply </li></ul><ul><li>No more Chapter 13 interest rate </li></ul><ul><li>No more Chapter 13 cram down (if you were crammed down in the 13) </li></ul><ul><li>Important when reaffirming </li></ul>
  51. 51. EXAMPLE Bottom of Page 17
  52. 52. Set Off <ul><li>Can freeze shares after receive notice of bankruptcy </li></ul><ul><li>Must get stay lifted before you can set off shares </li></ul><ul><li>Can only freeze pre-petition money. Can only freeze money that was on deposit before the debtor filed. Use First In – First Out principle </li></ul>
  53. 53. First In = First Out <ul><li>Debtor has $1500 in account on Feb. 19 </li></ul><ul><li>Debtor files bankruptcy Feb. 20 </li></ul><ul><li>Debtor withdraws $800 on Feb. 22 </li></ul><ul><li>Debtor deposits $900 on Feb. 26 </li></ul>
  54. 54. Procedure <ul><li>Freeze pre-petition funds </li></ul><ul><li>Lift the automatic stay (by agreed order or by motion) </li></ul><ul><li>Set off the funds </li></ul><ul><li>Costs about $400 to lift the stay, so freeze accordingly </li></ul>
  55. 55. POCs and Cross Collateralization <ul><li>Useful if equity in vehicle and CU also has personal loan </li></ul><ul><li>Not useful if no equity in vehicle </li></ul><ul><li>Can assign equity in vehicle to personal loan, lessening loss on personal loan </li></ul>
  56. 56. Example <ul><li>Plan proposes to pay net balance of vehicle loan </li></ul><ul><li>$1500 equity in vehicle </li></ul><ul><li>CU has personal loan with $3500 balance </li></ul><ul><li>File POC for personal loan so that $1500 secured/ $2000 unsecured </li></ul>
  57. 57. Criminal Indictments <ul><li>Trustees, judges must report criminal activity to US Attorney </li></ul><ul><li>Perjury at Meeting of Creditors </li></ul><ul><li>Perjury contained in Schedules & Statements </li></ul>
  58. 58. New Privacy Rules <ul><li>Do not file POC with private information on it </li></ul><ul><li>Once POC filed, available on PACER and by going to clerk of court’s office </li></ul><ul><li>Debtor will file ex parte motion to disable access to POC </li></ul><ul><li>Creditor will have to file amended POC with private info redacted </li></ul>
  59. 59. Private Information: <ul><li>Social Security Number </li></ul><ul><li>Taxpayer ID Number </li></ul><ul><li>Names of Minor Children </li></ul><ul><li>Financial Account Numbers </li></ul><ul><li>Dates of Birth </li></ul><ul><li>Home Address of Defendant in Criminal Cases </li></ul>
  60. 60. SKIT
  61. 61. Problematic b/c: <ul><li>Violates discharge order </li></ul><ul><li>Attempts to collect payment on a discharged debt </li></ul><ul><li>If loan officer refuses to take application, must send adverse action notice </li></ul>
  62. 62. MANTRA <ul><li>We do not provide services for members who cause the Credit Union a loss </li></ul>
  63. 63. FLOW CHARTS
  64. 64. For the POC Examples: <ul><li>Assume that all loans are purchase money loans for Debtor’s personal use. </li></ul><ul><li>If equity in vehicle, apply that equity to unsecured loans. </li></ul><ul><li>Determine whether bankruptcy was filed within 910 days of the loan. </li></ul><ul><li>Determine if plan needs to be objected to. </li></ul><ul><li>File your POC as if you win your objection. </li></ul>
  65. 65. EXAMPLES

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