Posts Tagged ‘Chapter 7’

Can I Strip off a Second Mortgage in Chapter 7? Now you Can!

Friday, May 18th, 2012

By: Marshall G. Reissman, Attorney at the Reissman Law Group, P.A.

The 11th Circuit Court of Appeals recently held that debtors in Chapter 7 bankruptcy have the ability to strip off their second mortgage on their homestead property if the first mortgage is greater than the value of the home. The ability to wipe out a second mortgage in bankruptcy was previously only available to debtors in Chapter 13 bankruptcy.

Prior to this decision, many practitioners, myself included, would have counseled individuals who wanted to remain in their home, but wanted to strip off a second mortgage to file Chapter 13 bankruptcy. A United States Supreme Court decision in Dewsnup v. Timm, held that a Chapter 7 debtor could not “cram down” a partially secured debt. Cramming down a debt deals with valuing secured property to its actual value as opposed to what is owed on the collateral. This is another big reason folks file Chapter 13 bankruptcy. Many courts interpreted this decision into Chapter 7 debtors not being able to strip off wholly unsecured junior lien.

The 11th Circuit applied its “prior panel precedent rule,” which states that a later court may depart from an earlier court’s decision ONLY if an intervening Supreme Court decision is “clearly on point.” Because the decision in Dewsnup only dealt with cramming down partially secured liens and not stripping off wholly unsecured junior liens, then the 11th Circuit holding in Folendore v. United States Small Bus. Admin remains controlling precedent in the 11th Circuit.

Basically, if a junior lien is allowed under the Bankruptcy Code and is also totally unsecured under the Code, it is also voidable in Chapter 7 bankruptcy under the Code. Please call us today to see if you qualify for relief under Chapter 7 bankruptcy and if you can strip off a second mortgage.

McNeal v. GMAC Mortgage, LLC (In re McNeal) (11th Cir. 2012)

Dewsnup v. Timm, 502 U.S. 410 (1992).

Folendore v. United States Small Bus. Admin., 862 F.2d 1537 (11th Cir. 1989).

11 U.S.C. Sec. 502

11 U.S.C. Sec. 506(a)

11 U.S.C. Sec. 506(d)

The Test No One Discusses in Bankruptcy

Friday, May 4th, 2012

By: Marshall G. Reissman Bankruptcy Attorney in St. Petersburg, Florida at The Reissman Law Group, P.A.

The test that everyone wants to talk about when they come in for a consultation is the Means Test. Folks generally want to know if they qualify to file Chapter 7 by passing the Means Test. This test is pretty simple. If you are below the state median income you qualify. Everyone breathes a big sigh of relief that they won’t be forced into a repayment plan under Chapter 13. The problem with this is the Means Test is where the analysis begins, not where it ends. The actual income and expenses of the Debtor must be taken into account in order to pass the not much discussed “Totality of  Circumstances Test.”

Even if a Debtor is below the median income on the Means Test, if the Debtor has disposable income on the bankruptcy schedules, the Debtor may not qualify to receive a discharge under Chapter 7. This is called the Totality of Circumstances Test. If a Debtor has disposable income to pay back unsecured creditors, the Trustee can file a notice stating that receiving a discharge under Chapter 7 would be an abuse. Not many folks talk about the Totality of Circumstances Test, and the only test you can find on the internet is the Means Test. Inevitably, folks do some research on the internet, find out they are under their state’s median income, and automatically think they can receive a discharge under Chapter 7. Therein lies the mistake. Passing the Means Test just gets you to the starting line, a better analysis needs to be performed to see if you can finish the race.

I recently had the opportunity to review Warren Sapp’s bankruptcy petition when I was interviewed by a Tampa Bay Times reporter. Link to the story can be found here.  I previously wrote an article about the reason why I, and other bankruptcy attorneys, think that Mr. Sapp filed for bankruptcy. The garnishment. Another question folks had was how could a person with so much income file Chapter 7. Looking over the schedules, it did not appear Mr. Sapp had substantial income in the six months prior to filing the Chapter 7 Bankruptcy petition. What I believe will be problematic for Mr. Sapp is the amount of disposable income he shows on his schedules. While Mr. Sapp does not fail the Means Test, Mr. Sapp lists more than $4,500.00 in net monthly income on his schedules, which could  be viewed as an abuse is he receives a discharge under Chapter 7. I guess we will have to wait and see.

In the meantime, if you want to find out if you not only qualify to file Chapter 7 Bankruptcy, but will be able to receive a discharge under Chapter 7, call us for a free consultation. We have more than 30 years combined experience representing individuals in bankruptcy.

Professional Athletes Filing Bankruptcy

Thursday, April 12th, 2012

By: Marshall G. Reissman Bankruptcy Attorney in St. Petersburg, Florida at The Reissman Law Group, P.A.

Professional athletes filing bankruptcy have been in the news over the years including Mike Tyson, Sheryl Swoopes, and Lawrence Taylor. It may shock some people that professional athletes, who made millions during their careers, face the same kind of financial troubles that middle class Americans find themselves in. One of the latest professional athletes to file bankruptcy is Warren Sapp, formerly of the Tampa Bay Buccaneers.

Unfortunately, professional athletes are not immune from the problems regular people face, they just have a few more zeros at the end of their bills. Whether it is over-spending, bad investments, or a victim of the recent real estate bubble, professional athletes are subject to the same types of financial problems. Another possible reason for filing bankruptcy is to stop pending litigation or to stop a garnishment. Read a post about bankruptcy and garnishment here.

Recently, I had the opportunity to look over Warren Sapp’s bankruptcy petition and schedules at the request of a local reporter. The question the reporter had was the question most people had, why did Warren Sapp file Chapter 7 bankruptcy? At first look, it may be hard to understand. Many of the larger debts owed by Warren Sapp would appear to be non-dischargeable including taxes owed to the IRS and domestic support obligations to a former spouse and minor children. So why now? When I looked over the Statement of Financial Affairs “why now” become apparent to me.

One of Warren Sapp’s creditors, PNC Bank, who Mr. Sapp listed a debt totaling over $800,000.00, held a judgment against Warren Sapp and the creditor executed a Writ of Garnishment. Warren Sapp stated that PNC bank garnished more than $130,000.00, in December, 2011. One way to stop a garnishment is to file bankruptcy. Our clients face garnishment of their wages and bank accounts on a regular basis, and if appropriate, we will file bankruptcy on their behalf to stop the garnishment and discharge the underlying debt. Again, Warren Sapp just  had a few more zeros at the end of his garnishment than most of our clients, but it still has the same effect.

Please check back for information regarding Warren Sapp’s bankruptcy. I will be following his case and providing my thoughts on what happens.

You Can Still File Chapter 7 Bankruptcy

Saturday, March 31st, 2012

By: Marshall G. Reissman Bankruptcy Attorney in St. Petersburg, Florida at The Reissman Law Group, P.A.

There has been a lot of misinformation on the Internet about folks not being able to file Chapter 7 bankruptcy. Well I am here to tell you that people can and are filing Chapter 7.

One of the big changes that occurred when Congress amended the Bankruptcy Code in 2005, was requiring debtors seeking to file bankruptcy to file a Statement of Current Monthly Income and Means Test Calculation, commonly referred to as the Means Test. In order to qualify for filing Chapter 7, a debtor’s net income has to fall below the state median income. The Bankruptcy Code utilizes the IRS standards when determining what the state median income is. To determine if a debtor “passes” the Means Test, the starting point is to find the median income for the state the debtor resides in, determine the household size, and analyze the proper deductions that can be taken on the Means Test for a client or prospective debtor. There are many deductions that can be taken on the Means Test including healthcare costs, payments to your mortgage lender, and vehicle expenses. All vehicle deductions on the Means Test are not available to every debtor after a 2011 Supreme Court decision, that you can read about here. If you are considering filing for bankruptcy it is important to hire an experienced bankruptcy attorney who knows what deductions can be taken on the Means Test. Lawyers who are unfamiliar with deductions on the Means Test may mistakenly take deductions that are not allowed, file Chapter 7, and ultimately have the bankruptcy dismissed by the U.S. Trustee for being an above median income debtor.

People still qualify for Chapter 7 bankruptcy. The first step in finding out if you qualify is to have an experienced bankruptcy attorney “run” a means test for you. If you are thinking about filing bankruptcy and want to find out if you qualify for Chapter 7, contact us today. I can assist you and determine if you qualify to file Chapter 7, and also explore other options if bankruptcy is not right for you.

Trustee Questions in the Meeting of Creditors

Friday, March 30th, 2012

By: Marshall G. Reissman Bankruptcy Attorney in St. Petersburg, Florida at The Reissman Law Group, P.A.

Many clients want to know what happens at the Meeting of Creditors. Clients find this situation to be very stressful, basically because the client has no idea what the trustee will ask, what the meeting will be like, or how long the meeting will last. I will describe a basic Meeting of Creditors and then post questions directly from the Chapter 7 Trustee Handbook issued by the United States Department of Justice, which oversees the U.S. Trustee program.

A typical Meeting of Creditors will generally last around 10 minutes. The trustee will inquire about the debtor’s assets, income and expenses. The meeting, at least in Tampa, are held in one of three large rooms. The trustee will call debtors up individually, place them under oath, and record their statements. The trustee will ask questions about the information contained in the bankruptcy petition the debtor filed. A debtor should be aware that if there are any irregularities in the petition, the meeting can take much longer. If the trustee does not believe a debtor is being forthright, the trustee may have the debtor return for further inquiry. However, this is usually the exception, not the rule.

I am listing questions directly from the Handbook for Chapter 7 Trustees published by the U.S. Department of Justice, Executive Office for United States Trustees. While these questions are expansive, they are not meant to be exhaustive. The questions are provided for informational purposes only and to provide prospective debtors and debtors who have not attended a meeting of creditors an idea of what the Trustee might ask.

Required Statements/Questions

1. State your name and current address for the record.

2. Please provide your picture ID and social security number card for review.
a. If the documents are in agreement with the § 341(a) meeting notice, a suggested
statement for the record is:
“I have viewed the original state of ________ drivers license (or
other type of original photo ID) and original social security card
(or other original document used for proof) and they match the
name and social security number on the § 341 (a) meeting notice.”
b. If the documents are not in agreement with the 341(a) meeting notice, a suggested
statement for the record is:
“I have viewed the original social security card (or other original
document used for proof) and the number does not match the
number on the § 341(a) meeting notice. I have instructed the
debtor (or debtor’s counsel) to submit to the court an amended
verified statement by [date], with notice of the correct number to
all creditors, the United States Trustee, and the trustee, and to file
with the court a redacted copy of the notice, showing only the last
four digits of the social security number, and a certificate of
service.”
c. When the documents do not match the petition, the trustee shall attempt to
ascertain why, and shall report the matter to the United States Trustee.
d. If the debtor did not bring proof of identity and social security number, the trustee
shall determine why.

3. Did you sign the petition, schedules, statements, and related documents and is the
signature your own? Did you read the petition, schedules, statements, and related
documents before you signed them?

4. Are you personally familiar with the information contained in the petition, schedules,
statements and related documents? To the best of your knowledge, is the information
contained in the petition, schedules, statements, and related documents true and correct?
Are there any errors or omissions to bring to my attention at this time?

5. Are all of your assets identified on the schedules? Have you listed all of your creditors
on the schedules?

6. Have you previously filed bankruptcy? (If so, the trustee must obtain the case number
and the discharge information to determine the debtor(s) discharge eligibility.)

7. What is the address of your current employer?

8. Is the copy of the tax return you provided a true copy of the most recent tax return you
filed?

9. Do you have a domestic support obligation? To whom? Please provide to me the
claimant’s address and telephone number, but do not state it on the record.

10. Have you read the Bankruptcy Information Sheet provided by the United States
Trustee?

SAMPLE GENERAL QUESTIONS

(To be asked when deemed appropriate.)

1. Do you own or have any interest whatsoever in any real estate?
If owned: When did you purchase the property? How much did the property cost?
What are the mortgages encumbering it? What do you estimate the present value of the
property to be? Is that the whole value or your share? How did you arrive at that
value?
If renting: Have you ever owned the property in which you live and/or is its owner in
any way related to you?

2. Have you made any transfers of any property or given any property away within the last
one year period (or such longer period as applicable under state law)?
If yes: What did you transfer? To whom was it transferred? What did you receive in
exchange? What did you do with the funds?

3. Does anyone hold property belonging to you?
If yes: Who holds the property and what is it? What is its value?

4. Do you have a claim against anyone or any business?
If there are large medical debts, are the medical bills from injury?
Are you the plaintiff in any lawsuit?
What is the status of each case and who is representing you?

5. Are you entitled to life insurance proceeds or an inheritance as a result of someone’s
death?
If yes: Please explain the details.
If you become a beneficiary of anyone’s estate within six months of the date your
bankruptcy petition was filed, the trustee must be advised within ten days through your
counsel of the nature and extent of the property you will receive.

6. Does anyone owe you money?
If yes: Is the money collectible? Why haven’t you collected it? Who owes the money
and where are they?

7. Have you made any large payments, over $600, to anyone in the past year?

8. Were federal income tax returns filed on a timely basis? When was the last return
filed?
Do you have copies of the federal income tax returns? At the time of the filing of your
petition, were you entitled to a tax refund from the federal or state government ?
If yes: Inquire as to amounts.

9. Do you have a bank account, either checking or savings?
If yes: In what banks and what were the balances as of the date you filed your petition?

10. When you filed your petition, did you have:
a. any cash on hand?
b. any U.S. Savings Bonds?
c. any other stocks or bonds?
d. any Certificates of Deposit?
e. a safe deposit box in your name or in anyone else’s name?

11. Do you own an automobile?
If yes: What is the year, make, and value? Do you owe any money on it? Is it insured?

12. Are you the owner of any cash value life insurance policies?
If yes: State the name of the company, face amount of the policy, cash surrender value,
if any, and the beneficiaries.

13. Do you have any winning lottery tickets?

14. Do you anticipate that you might realize any property, cash or otherwise, as a result of a
divorce or separation proceeding?

15. Regarding any consumer debts secured by your property, have you filed the required
Statement of Intention with respect to the exemption, retention, or surrender of that
secured property? Please provide a copy of the statement to the trustee. Have you
performed that intention?

16. Have you been engaged in any business during the last six years?
If yes: Where and when? What happened to the assets of the business?

In cases where debtors are engaged in business, the following questions should be considered:
1. Who was responsible for maintaining financial records?

2. Which of the following records were maintained?
a. Cash receipts journal
b. Cash disbursements journal
c. General journal
d. Accounts receivable ledger
e. Accounts payable ledger
f. Payroll ledger
g. Fixed asset ledger
h. Inventory ledger
i. General ledger
j. Balance sheet, income statement, and cash flow statements

3. Where are each of the foregoing records now located?

4. Who was responsible for preparing financial statements?

5. How often were financial statements prepared?

6. For what periods are financial statements available?

7. Where are such financial statements now located?

8. Was the business on a calendar year or a fiscal year?

9. Were federal income tax returns filed on a timely basis? When was the last return
filed?

10. Do you have copies of the federal income tax returns? Who does have the copies?

11. What outside accountants were employed within the last three years?

12. Do you have copies of the reports of such accountants? Who does have copies?

13. What bank accounts were maintained within the last three years?

14. Where are the bank statements and canceled checks now located?

15. What insurance policies were in effect within the last year? What kind, and why?

16. From whom can copies of such insurance policies be obtained?

17. If the business is incorporated, where are the corporate minutes?

18. Is the debtor owed any outstanding accounts receivable? From whom? Are they
collectible?

19. Is there any inventory, property, or equipment remaining?