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>
  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