Monday, September 25, 2006


Subject: Bankruptcy Update Are Student Loans dischargeable?

Many clients have asked if student loans are dischargeable. This is a difficult issue because generally they are not dischargeable. A few years back the rule used to be that if the debt was greater than 7 years old, they were dischargeable. That is no longer the case. Now, one must satisfy three criteria to prove hardship. A 1998 case, In re Lebovits v. Chase Manhattan 223 BR 265 (Bkrtcy E.D.N.Y. 1998) , held that the debtor has the burden of providing each prong of the three-prong test established in Brunner v. NY Higher Education Services Corp 831 BR 395.

For a student loan to be dischargeable the debtor must show:

1. Inability to maintain a minimum standard of living.

2. These circumstances will persist for a significant portion of the repayment period.

3. The debtor made a good faith effort to repay loan.

Briefly, we will review each of these requirements to determine ones eligibility:

1. A minimum standard of living is defined as more than a showing of tight finances, however, it does not require the debtor to prove that he/she lives at the poverty level. The Debtor must demonstrate that he/she will not be able to maintain a "minimum" standard of living if forced to repay the loans. For example, in Lebovits v. Chase Manhattan Bank, the Lebovits' were able to satisfy their burden of demonstrating that they could not afford to repay their student loans while maintaining even a minimal standard of living for themselves and their dependants.

2. To determine that ones circumstances will persist for a significant portion of the repayment period, one must satisfy their burden by demonstrating that additional circumstances exist indicating that the state of affairs is likely to persist for a significant period of time covering the loan repayment period. In Lebovits v. Chase Manhattan Bank, the Lebovits' were able to satisfy this criteria by demonstrating the ages of their children and that as their young children got older, their financial burden would most likely become even more onerous.

3. Lastly, to determine ones good faith effort, one must demonstrate they have made attempts to satisfy their loan commitment and have made payments to the lender, despite undue hardship. One must show how you have attempted to maximize income and minimize expenses. In the Lebovits case, the mere fact that the debtors had made only three payments on their loans prior to filing for bankruptcy relief, was enough to satisfy the good faith effort despite their financial hardship.

We would be happy to assist clients in determining whether their student loans are dischargeable. Jim

Friday, September 22, 2006

Real Estate Strategy and Personal Bankruptcy

Real Estate Strategy in Personal Bankruptcy

We live in environment of low interest rates, appreciated real estate and individuals or couples who have lost jobs and have accumulated a significant amount of debt. What are the options for these people?

Let's look at a recent example from a couple that consulted with Shenwick & Associates: The couple owns a house which has appreciated in value in the amount of $80,000.00 (this is determined by taking the fair market value of the house less outstanding mortgages, brokerage expenses, NYS and NYC transfer taxes and legal fees. Capital gains which may be due are beyond the scope of this email).

The couple owes $20,000 in taxes (which are non-dischargeable in bankruptcy), $30,000 in student loans (which are also non-dischargeable in bankruptcy) and $40,000 of credit card debt, which would be dischargeable in a chapter 7 bankruptcy filing by the couple. Recently the husband lost his job and they are living on the wife's salary. They have sufficient income to pay the mortgage and the student loans. What can this couple do?

Let's explore some options-

1. They can do nothing (the ostrich effect) and wait for a creditor to sue (usually the credit card companies) and creditors who obtain a judgment will docket the judgment against the house preventing the couple from selling or refinancing the house.

2. The couple can sell the house-providing that there are no judgments or liens against the house-but what do they do with the sales proceeds of $100,000? What creditors if any should they pay?

3. An optimal strategy may be to sell the house, pay the non-dischargeable debts and then file for chapter 7 personal bankruptcy protection. Let's explore this option in greater detail. The couple can sell the house, at the closing they can payoff the non-dischargeable taxes ($20,000.00), the non-dischargeable student loans ($30,000.00) and use the balance of the money $30,000.00 to pay living expenses, rent an apartment, buy life insurance or an annuity. When they have otherwise spent or used the balance of the money, they can then file for chapter 7 personal bankruptcy and discharge the $40,000.00 of credit card debt to obtain the benefit of a "fresh start" in bankruptcy (The Couple is allowed to exempt or keep $5,000.00 of cash in a chapter 7 bankruptcy filing.) CAVEATS THE COUPLE MUST PREFERENCE PROOF THE PAYMENTS TO THE STUDENT LOAN AND TAX AUTHORITIES BY WAITING A MINIMUM OF 90 DAYS FROM THE DATE THAT THE CHECKS TO THE STUDENT LOAN AND TAX AUTHORITIES CLEAR! CLIENTS SHOULD CONSULT WITH AN ATTORNEY PRIOR TO USING THIS STRATEGY!

4. A variation on the strategy in paragraph 3 would be to use the $30,000 proceeds from the sale of the house to negotiate a settlement with the credit card companies who are owed $40,000.

Jim Shenwick

Chapter 13 Questions and Answers Bankruptcy Pre-BAPCPA

Chapter 13 of the Bankruptcy Code
It is this author's experience that chapter 13 of the Bankruptcy Code is the least understood chapter of the Bankruptcy Code-provided below are 10 frequently asked questions about chapter 13.

10 Most FAQ (Frequently Asked Questions) About Chapter 13

1. Who can file under chapter 13 and what is the filing fee?
Any person or unincorporated entity may file under chapter 13 and the filing fee is $194.

2. What are the debt limitations for filing chapter 13?
Unsecured debts of less than $290,525 and secured debts of less than $871,550.

3. Why file a chapter 13?
To save a car, house or lease from foreclosure or sale.

4. What is the difference between chapter 7, chapter 11, and chapter 13?
A chapter 7 filing is a liquidation of the debtor's property to obtain a discharge for a debtor and give them a "fresh start"
-A chapter 11 filing is a full-blown reorganization which is expensive and time consuming
-A chapter 13 filing may be thought of as a blend between chapter 7 and 11

5. What is the most important document in a chapter 13 filing?
The plan! It is prepared by counsel for the Debtor and filed with the Court-it provides how much money the debtor will pay to the chapter 13 trustee, how long the debtor's payments will continue, which creditors will be paid inside the plan and which creditors will be paid outside of the plan.

6. Who is a chapter 13 trustee?
A chapter 13 trustee is an attorney appointed by the United States Trustee to collect payments from the debtor, make payments to creditors in the manner set forth in the debtor's plan, and administer the debtor's chapter 13 case until it is closed.

7. When must the debtor begin making payments to the chapter 13 trustee and how must they be made?
The debtor must begin making payments to the chapter 13 trustee within 30 days after the debtor's plan is filed with the Court, and the plan must be filed with the Court within 15 days after the case is filed. The payments are usually made on a monthly basis.

8. How long does a chapter 13 plan last?
Chapter 13 plans generally range from 3 years to a maximum of 5 years.

9. What is required for court approval of a chapter 13 plan?
The Court may confirm a chapter 13 plan if: (1) the plan complies with the legal requirements of chapter 13, (2) all required fees, charges and deposits have been paid, (3) the plan was proposed in good faith, (4) each unsecured creditor will receive under the plan at least as much as it would have received had the debtor filed under chapter 7, and (5) it appears that the debtor will be able to make the required payments and comply with the plan.

10. What if the court does not approve a debtor's chapter 13 plan?
If the Court will not approve the plan proposed be a debtor, the debtor may modify the plan and seek court approval of the modified plan. If the court does not approve a plan, it will usually give its reasons for refusing to do so, and the plan may then be appropriately modified so as become acceptable to the court. A debtor who does not wish to modify a proposed plan may either convert the case to chapter 7 or dismiss the case.

Shenwick & Associates is available to assist all clients with any personal bankruptcy or debtor/creditor issues.

Jim Shenwick


Many clients and attorneys have questions about what actions debt collectors can take in New York to collect a debt. The regulation of debt collectors (third parties who are attempting to collect a debt in New York) are governed by a federal law known as the Fair Debt Collection Practices Act (discussed below). The actions of creditors who are attempting to collect a debt in New York State are governed by the New York State Debt Collection Procedures Law (a discussion of that law is beyond the scope of this email)

The Fair Debt Collection Practices Act is federal law which regulates the activities of third parties who regularly collect debts from others.

A debt collector may contact you in person, by mail, telephone, telegram, or fax. However, a debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves of such contacts.

If you have an attorney, the debt collector must contact your attorney, rather than you. If you do not have an attorney, a debt collector may contact other people, but only to find out where you live, what your phone number is, and where you work. Debt collectors usually are prohibited from contacting such third parties more than once. In most cases, the debt collector may not tell anyone other than you and your attorney that you owe money.

Within 5 days after you are first contacted, the debt collector must send you a written notice telling you the amount of money you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money.

A debt collector may not contact you if, within 30 days after you receive the written notice, you send the collection agency a letter stating you do not owe money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed.

You have the right to sue a collector in a state or federal court within one year from the date the law was violated. If you win, you may recover money for the damages you suffered plus an additional amount up to $1,000. Court costs and attorney's fees also can be recovered. A group of people also may sue a debt collector and recover money for damages up to $500,000, or one percent of the collector's net worth, whichever is less.

If a debt collector violates the law, you may contact the Federal Trade Commission (you can find the address and telephone number in the front of the "white pages" of your local telephone directory under federal government listings). You can file a federal or state lawsuit against the debt collector for violation of the law.

Shenwick & Associates is available to assist all clients with any personal bankruptcy or debtor/creditor issues.

Jim Shenwick

Preference and Assumption or Rejection of Commercial Leases and BAPCPA

Dear Clients,

As you may be aware, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was signed into law on April 20, 2005. The bill is scheduled to take effect on or about October 17, 2005 and will apply only to cases commenced after that date. The purpose of this email is to discuss two noteworthy features of the bill that affect commercial bankruptcy cases. The first pertains to Preferences and the second pertains to the Assumption and Rejection of Commercial Leases in Chapter 11 Cases.

Preference Actions

• The Act modifies section 547(c) of the Bankruptcy Code which relates
to the "ordinary course of business defense" for preference avoidance actions.
(Creditors\Defendants often rely on this defense as a means of shielding a transfer from avoidance and recovery by a trustee or a debtor in bankruptcy.) Generally speaking under the old law, in order for a creditor to successfully assert this defense they needed to demonstrate that the transfer was made 1) in the "ordinary course of business" between the debtor and creditor, and 2) according to industry terms. Under the new law, creditors will only need to prove either that the transfer was made in the ordinary course of business according to the parties' past dealings with each other or that it was made according to relevant industry standards.

• Also under the new law, transfers of less than $5,000.00 are exempt from preference recovery.

The net result of these changes will be to aid creditors or suppliers who do business with a debtor close to the date of the bankruptcy filing and hurt unsecured creditors due to the fact that there will be less money available to the debtor to distribute to creditors upon plan confirmation.

Executory Contracts and Unexpired Commercial Leases:

• The new law curtails the time a debtor has to decide whether to assume or reject commercial real property lease(s). Under the old law, a debtor-lessee initially had 60 days after the bankruptcy filing to make this decision and the court had the power to indefinitely extend the deadline for cause. Under the new law, a debtor-lessee will have 120 days to assume or reject a non-residential lease but while the court can still grant a debtor's request for a 90-day extension, further extensions are prohibited without the written consent of the non-debtor lessor.

This change will aid landlords and possibly burden the bankruptcy estate with increased administrative expenses, leaving less money available for distribution to unsecured creditors.

If you have any questions regarding the new Bankruptcy Law and how it might affect you, please do not hesitate to contact us at the number provided below.


Jim Shenwick

Means Test and BAPCPA

On April 20, 2005 President Bush signed what has been termed the biggest rewrite of U.S. bankruptcy law in a quarter century. This bill, ("the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005") takes direct aim at the ability of consumers to discharge their debts through Chapter 7 Liquidation by making the process more difficult, more limited in scope, and more expensive for consumers. The intent of the new law is to force debtors to file under chapter 13 rather than chapter 7 of the Bankruptcy Code.

Means Test for Chapter 7 Eligibility

A means test will determine whether a debtor can file for Chapter 7 bankruptcy. Anyone with an income below the median income for families of the debtor's size (the median income for a single person in New York is approximately $42,000 to $44,000) will be exempt from this test and may automatically file under Chapter 7. For those debtors above the median income, however, a presumption of abuse on the part of the debtor is triggered; the debtor has the burden to rebut the presumption.

In applying the means test, the average income over the past 6 months is used, regardless of present actual income. From that income one then subtracts:
-the recognized local and and national IRS standard expenses for food, clothing, ultilities, car payments and housing
- also subtracted from this figure are all priority debts, any secured debt that will become due in 5 years, charitable contributions, education expenses, and the continued care of a sick or elderly relative.

The net amount after deducting these expenses is deemed "disposable income".

If the debtor does not have at least $100 disposable income per month, he or she may file Chapter 7.
If however, the debtor has at least $166.67 excess per month, he or she must file Chapter 13.

Please remember that the bill's provisions will become effective on or about October 17, 2005. If you have any questions regarding the above Means Test or any of the Bill's provisions, please do not hesitate to contact me.


Jim Shenwick

Median Income Test Under BAPCPA

As many of you are aware, a new bankruptcy bill took effect on October 17, 2005. This bill radically changed personal bankruptcy practice; however, economic conditions and the overwhelming amount of credit card debt that many individuals have continue to necessitate personal bankruptcy filings.

In order to file for chapter 7 bankruptcy protection, a person must (1) be current on their most recent federal tax return filing, (2) have taken a pre-bankruptcy filing credit counseling class and obtained a certificate of completion and (3) have passed the median income test. The balance of this email will be dedicated to the median income test.

If a single individual in New York State has gross income of less than $39,463, then they qualify for chapter 7 bankruptcy. As with many aspects of the bankruptcy bill, the "Median Income" calculation is complicated and is as follows:

1. Add up the persons gross income for the current month and the previous five months.
2. Subtract from this amount any Social Security payments and awards for being the victim of a crime or a terrorist act.
3. Take this total and divide it by 6 to obtain the Current Monthly Income (CMI).
4. Multiply the CMI by 12 to obtain the Annualized CMI.
5. If the Annualized CMI is less than the Median Income ($39,463.00 for a single individual), the individual qualifies for chapter 7 bankruptcy.
6. If the Annualized CMI is greater than the Median Income, then a "Means Test" is required to determine if the individual is eligible for Chapter 7 bankruptcy.

A future email will be dedicated the "Means Test". Additionally Shenwick & Associates revised website pertaining to personal bankruptcy under the new bankruptcy bill is under construction and will be finished shortly. Any person with questions regarding the new bankruptcy bill should call or email Jim Shenwick.

New York State Homestead Exemption Increase

This letter is to inform you of a recent change in the bankruptcy law that will have a substantial affect on the filing of Chapter 7 bankruptcy petitions. Just yesterday (September 8, 2005), the New York Law Journal reported that effective immediately, the New York State legislature has increased the NY State Homestead Exemption for a single person from $10,000 to $50,000.

The "Homestead Exemption" is the amount of equity that one can keep in a house, condominium or coop, if they file for Chapter 7 bankruptcy protection in New York State. This increase is of great benefit to people who appreciated real estate but desire to file for chapter 7 bankruptcy protection.

Due to the increase in the value of real estate over the past years, many people who wanted to file for Chapter 7 liquidation were unable to do so because they would lose the real estate that they owned and consequently had to file for Chapter 13 bankruptcy or do nothing.

However, due to the change of law, people who own appreciated real estate with $50,000 or less of equity can now do a Chapter 7 bankruptcy filing and will not have to worry about losing their co-op, condo, or town house. Equity is the difference between the fair market value of the property less the mortgage(s) which encumber the property.

Married debtors should now have a $100,000 homestead exemption.

Please note that any party who wishes to take advantage of the law change will need to file for Chapter 7 bankruptcy on or before October 17, 2005. Effective October 18, 2005 the new bankruptcy law takes effect which institutes a "means test" and as a result many individuals will not be able to file for chapter 7 bankruptcy protection due to their income level despite the increase in the homestead exemption.

If you have any questions regarding this strategy, please contact the undersigned.

Real Estate and Lease Provisions of BAPCPA

Real Estate and Lease Provisions of Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

Residential Leases

If a landlord has a judgment of possession against a debtor involving residential property, the automatic stay does not prevent the commencement or the continuation of an eviction or ejection proceeding. Section 362(b)(22). However, if non-bankruptcy law would permit the tenant to cure the default, the debtor may stop the landlord’s eviction/ejection proceeding by curing the default within 30 days of the bankruptcy filing. Section 362(1).

Plans and Payments in Single Asset Real Estate Cases

In order for the automatic stay to remain in place in a single asset real estate case, the debtor must, within 90 days of the bankruptcy filing, file a confirmable plan or commence making monthly payments to secured creditors (at the non-default contract rate of interest) based on the value of the collateral. Section 362(d)(3). The payments can be from cash collateral/rents that secure the creditor’s claim without court approval to use the cash collateral for this purpose. The Reform Act also modifies the definition of Single Asset Real Estate in section 101(51)(B) to delete the limitation to cases with no more than $4 million in secured debt.

Lease-Related Provisions

Deadline to Assume Commercial Realty Leases: A debtor must assume or reject unexpired commercial realty leases within 120 days of a bankruptcy filing, or within 210 days of a bankruptcy filing, if the Court permits that extension. The deadline under the prior law was an initial 60 days with potentially unlimited extensions to move to assume or reject leases. Under the new bankruptcy law no extension beyond 210 days is permitted, unless the lessor consents in writing. In addition, a debtor can no longer retain the ability to assume or reject a realty lease after a plan has been confirmed. Section 365(d)(4).

Changes Concerning Cure of Non-monetary Lease Defaults: A debtor is not required to cure certain types of non-monetary defaults if cure is impossible retroactively, and thus, the cure may be prospective only.

Lease-Related Provisions

Rejection of Assumed Leases: If a debtor subsequently rejects an assumed real property lease, the landlord’s administrative expense claim is limited to the monetary obligations that would have accrued over the two years following rejection; damages beyond the two year cap are entitled to unsecured claim status, capped by Section 502(b)(6). The landlord’s administrative claim against the estate will be reduced if the landlord can recover from another source. Section 503(b)(7).

Homestead Exemption

A debtor must live within a state for 730 days to claim that state’s exemptions. Section 522 (b)(3). A debtor may not exempt an interest acquired within 1,215 days of the bankruptcy filing that exceeds the aggregate amount of $125,000 in real or personal property that the debtor uses as a residence. Section 522(q). This provision applies to all cases filed on or after April 20, 2005.

Effective Dates of the Bankruptcy Reform Act

Generally, the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 take effect on October 17, 2005, unless noted above and the provisions do not apply to pending cases.


Chapter 13 and Discharge of Taxes and Offers in Compromise

Many readers are aware that the goal of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (which became effective on October 17, 2005) was to limit the ability of individuals to file for chapter 7 bankruptcy protection. However for individuals who owe taxes that would be non-dischargeable in chapter 7 (due to the fact that the tax returns were never filed, the taxes are too new, the taxes are trust fund taxes or payroll taxes, etc.) chapter 13 may instead be the better option. In a recent bankruptcy case, In the Matter of Charles Peterson 2004 Bankr Lexis 1765, the United States Bankruptcy Court for the District of Nebraska ruled that taxpayers who file chapter 13 can use the offer in compromise procedure to reduce the amount of taxes they owe.

The IRS initially refused to consider the offer in compromise based on the Internal Revenue Manual, however the Bankruptcy Court in Peterson required the IRS to process the offer in compromise. Readers should note that the Peterson case is not binding in the Southern and Eastern Districts of New York but in the appropriate case it is a strategy that should be considered. Readers interested in information regarding the Peterson case should contact the undersigned.

Pro Se Bankruptcy Filings


1. The new bankruptcy law is 500 pages long, extremely complex and adds a tremendous level of complexity to the filing of personal bankruptcy petitions.

2. There are certain pre-filing requirements that must be satisfied or else the bankruptcy petition will be dismissed. For example, the Bankruptcy Trustee must be provided with the debtor's prior year tax return as well as pay stubs for the 60 day period prior to the filing.

3. A debtor (or the debtor's attorney) must now calculate the debtor's median income. This calculation is complicated and consists of averaging the debtor's gross income for the 6 months prior to filing, less Social Security payments, less war-crime victims payments, less victims-of-crime payments and less victims-of-terrorist payments.

4. Certain debtors may need to prepare a "means test". This is a very complicated 6-page calculation, similar to preparing a complicated tax return.

5. If a bankruptcy petition is dismissed and re-filed, the automatic stay will remain in effect for only 30 days following dismissal. The debtor needs to make a motion to continue the automatic stay and this motion must be both filed and heard by a Judge within that 30 day period.

6. If a bankruptcy petition is dismissed twice then the automatic stay
will not be applicable following the second dismissal.

In light of all the above reasons, it is crucial that anyone who is contemplating filing for personal bankruptcy first consult with an experienced and knowledgeable bankruptcy attorney.

Small Business Debtors in Chapter 11 Bankruptcy

Dear Clients:

As you may know, the Bankruptcy Abuse Prevention and Consumer Act of 2005 ("BAPCPA") went into effect on October 17, 2005 and has changed bankruptcy law significantly. The new legislation impacts not only personal bankruptcies but chapter 11 filings as well, particularly in regard to the Small Business Debtor ("SBD").

1. Qualification as a "SBD": The law defines a "SBD" as one who is engaged in commercial or business activities other than owning or operating real estate and whose debt exceeds $2 million. Prior to BAPCPA, a chapter 11 debtor having such characteristics had the option of filing as either a SBD or as a regular chapter 11 debtor. Today, however, any chapter 11 that qualifies as a SBD will be subject to the new small business provisions.
2. Additional Duties/Reporting Requirements: A SBD now has to maintain appropriate insurance policies customary to the industry and, after prior written notice, a SBD must allow the US Trustee to inspect the business' premises, books & records. New reporting requirements under the BAPCPA no longer allow a SBD to merely submit its financial and other reports to the US Trustee but instead must file these reports with the clerk of the bankruptcy court.
3. Expanded Role of US Trustee: The US Trustee is now required to hold an initial interview of the SBD in which the Trustee will investigate the debtor's viability and its ability to confirm a business plan.
4. Plan & Disclosure Statement: Under the BAPCPA, a SBD has an exclusive right to file a plan for 180 days after the petition date. The deadline for filing a plan is 300 days after the petition date.
5. Exceptions to Automatic Stay: Under the new law, the automatic stay doesn't apply in certain instances, such as where the debtor was a small business debtor in a case that was dismissed within 2 years of the current filing.

6 Common Errors in Filing for Personal Bankruptcy

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") which went into effect last October imposes a variety of new and somewhat complicated burdens on a debtor wishing to file for personal bankruptcy. The process does not need to be painful however- as long as the debtor knows what is required under the new law, he or she can have a successful and simple bankruptcy filing. Below is a list of the 6 most common mistakes that a debtor should be careful to avoid when filing his or her bankruptcy petition:

1. Failing to receive credit counseling briefing: Prior to filing for
bankruptcy, a debtor must first receive a credit counseling briefing with an agency that has been approved by the U.S. Trustee's office.

2. Filing Too Soon: There are a number of new restrictions on repeat filings. A debtor cannot file for chapter 7 bankruptcy if he has received a chapter 7 discharge within 8 years of the current filing.

3. Failing to Take a Financial Education Course: Debtors filing
under chapter 7 or chapter 13 must complete an approved financial management course before they can obtain a discharge. This course must be taken after the petition is filed and not more than 45 days after the meeting of creditors.

4. Failing to Meet the Residency Requirements: The new law has lengthened the domicile requirement that a debtor must satisfy in order to be eligible for a state's exemption laws. These exemptions used to be based upon the law of the state where the debtor has been domiciled for the 180 days before filing. Now, a debtor must have lived in a state for 730 days prior to filing in order to avail himself of that state's exemption laws.

5. Failing to Provide Tax Returns: If either the court, the U.S.
trustee, or a party in interest requests that the debtor provide his past and/or current federal tax returns, than the debtor must comply with this request and file the returns with the court.

6. Failing to Meet Certain Income Requirements: Under the new law, the Bankruptcy Court can dismiss a debtor's chapter 7 petition if the debtor's income exceeds a certain dollar amount. A debtor whose income exceeds the median income for his living area must use a "means test" to calculate income and expenses. This "means test" must be applied before a bankruptcy case is accepted.

Filing Proofs of Claim in a Chapter 11 Bankruptcy Case

Procedures to File a Proof of Claim

Many attorneys who miss the bar date to file proofs of claim in a Chapter 7 or Chapter 11 bankruptcy often find themselves subject to claims for malpractice. In the context of a Chapter 11 case, if a creditor's claim is not timely filed then that creditor will not be able to collect on any of the monies due. The purpose of this e-mail is to review the proper procedures for filing a proof of claim in a Chapter 11 bankruptcy case.

1. Section 1111(a) of the Bankruptcy Code provides that a proof of claim is deemed "filed" for any claim that appears in the Schedules except if it is listed as disputed, contingent or un-liquidated. Therefore, to know whether to file a proof of claim, an unsecured creditor must examine the Debtor's bankruptcy schedules to determine how their client's claim was scheduled, i.e., whether it was listed as disputed, contingent or un-liquidated.

Therefore, unless a creditor's attorney or a creditor can obtain the schedules by going to court or through PACER, the better practice is to file a proof of claim as soon as possible in a bankruptcy case. In fact, the best procedure may be to file a notice of appearance and a proof of claim as soon as an attorney is retained to represent a creditor in a Chapter 11 case. If an attorney or a creditor does not file a proof of claim early in a case, then they must file the proof of claim when a bar date is set in a Chapter 11 case. The bar date is a date set by a Judge in a bankruptcy case which provides a firm or a fixed date by which proofs of claim must be filed. If the proof of claim is not filed by the bar date, then that creditor is barred from receiving a distribution in the case, unless of course the creditor was listed in the Debtor's Chapter 11 schedules as not having a claim that's disputed, contingent or un-liquidated.

2. When preparing the proof of claim, a question that is often asked is, "Is it necessary for the client to sign the proof of claim, or can the attorney for the creditor sign it?" In re Roberts, 20 B.R. 914 (E.D.N.Y. Bankruptcy 1982) holds that an attorney can sign a proof of claim on behalf of a client. This author, however, believes that the better procedure is to have the client sign the proof of claim. Once the proof of claim is signed and backup is attached to the proof of claim, the proof of claim should be mailed by Federal Express or overnight delivery to the bankruptcy court with a short letter of direction requesting that the clerk file the proof of claim. Remember to always send two copies of the proof of claim and a stamped self-addressed envelope and request that the Clerk file the original proof of claim, time stamp the copy of the proof of claim and return the copy to the attorney for the creditor so the creditor has proof of filing. By sending the proof of claim by Federal Express or other overnight courier service, the creditor or the attorney for the creditor can track the package to ensure that it was received by the court.

3. Always calendar the filing of the proof of claim so you can monitor whether the Court sends you back the filed proof of claim in the self-addressed stamped envelope to avoid a malpractice claim in the case.

4. This author's rule is that if the proof of claim is sent to the court and the copy and the self-addressed stamped envelope is not returned to the author within one week to ten days of the filing of the claim, the proper procedure is to call the court and talk with the clerk to determine if the claim was received by the court and if so, why it was not returned, and if was not received, to Federal Express another claim to ensure that it is received by the court.

5. Also, at the bottom of the claim, it is advisable to add language that indicates "Creditor reserves the right to further amend or modify this claim." That language may be helpful if the creditor discovers new information and desires to modify the amount of its proof of claim.

6. Always attach backup to the proof of claim, which will evidence the amount of the claim, invoices, a spreadsheet or collateral for the claim if the claim is secured, such as a mortgage.

7. The filing of the proof of claim should be done on the official Form 10, which can be obtained from the Bankruptcy Court's website. If the case is a megacase, and the Debtor's counsel has created a proof of claim for use in that case, it's preferable to use the proof of claim prepared by counsel for the Debtor.

Jim Shenwick

Thursday, September 21, 2006

BAPCPA Winners and Losers


As you many of you know, the new bankruptcy law, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") went into effect on October 17, 2005. We are closing in on the one year anniversary of the law and have taken a look back in an attempt to see who are the winners and the losers under the new legislation. The consensus among many practitioners and experts in the field is that the automobile finance industry is the major beneficiary of BAPCPA.

The benefit to auto lenders comes as a result of the final paragraph of BAPCPA's Section 1325(a). The consequence of this "hanging paragraph," as it is known, is that lenders who made loans for cars acquired by debtors within 910 days of their bankruptcy filings are entitled to receive the full amount of their claims via the Chapter 13 plans.

Holding on to collateral is a major objective of many individuals who file for bankruptcy. To the extent that Chapter 13 now requires higher repayment to retain cars and other personal property, fewer debtors will be able to afford to make those repayments for collateral and less money will be available to pay unsecured creditors.

Shenwick & Associates is proud to announce that we have updated our personal bankruptcy website, which can now be found at and we have started a legal blog on bankruptcy and real estate which can be found at

September 20, 2006

Jim Shenwick

Shenwick & Associates
230 Park Avenue
17th Floor
New York, N.Y. 10169
(W) 212-541-6224 ext. 7592
Cell Phone: 917-363-3391
Fax 646-218-4600
E Mail:

Sunday, September 17, 2006

Median Income and Means Test of BAPCPA Effective October 17, 2005

As of February 13, 2006 if a single person in New York State has income in excess of $40,801 then they fail the Median Income Test and they must take the “Means Test” to determine whether they qualify to file for chapter 7 bankruptcy (liquidation of debts). For a family of 2 the income threshold for the Median Income Test is $50,136, for a family of 3 it is $59,377 and for a family of 4 it is $69,854. To perform the Median Income Test, you need to determine your gross monthly income for the last 6 months, subtract from this figure Social Security payments, Victims of Terror payments and divide this figure by 6 and multiply the result by 12. This figure is your median income. Then compare your median income to the allowed Median Income figure based on your family size as provided above.

If you fail the Median Income Test provided above, then you must take the “Means Test”. The “Means Test” is an extremely complex test consisting of 6 pages of calculations! In its simplest form you take your gross monthly income and subtract certain expenses based on the IRS National Standards, Local Standards and other actual expenses to calculate your Monthly Disposable Income. The Monthly Disposable Income is multiplied by 60 and if that amount is less than $6,000 you can file for chapter 7 bankruptcy (liquidation of debts). If that amount is at least $6,000 but not more than $10,000 then you must perform yet another calculation. You must multiply their non-priority unsecured debt (generally credit card debt) and multiply that amount by 25% (the Threshold Debt Payment Amount). If your 60 Month Disposable Income is less than your Threshold Debt Payment Amount then you may file for chapter 7 bankruptcy. Shenwick & Associates will perform the Median Income and Means Test for clients. It is not suggested that individuals perform either of these tests-they should consult with an experienced bankruptcy attorney.

Types of Personal Bankruptcy for Individuals

There are 3 types of bankruptcy for individuals. Chapter 7 is a liquidation of debts. Chapter 13 is for individuals who own real estate, a car or have a lease that they want to keep or their income exceeds the Median Income for their state and they fail the Means Test. Corporations are not eligible to file for chapter 13 bankruptcy protection. For more information on the Median Income and Means Test visit Chapter 11 is a reorganization for individuals or business that own many assets or whose secured and unsecured debts exceed those allowed under chapter 13 of the Bankruptcy Code.

Personal Bankruptcy Under the New Bankruptcy Law

On October 17, 2006 the new personal bankruptcy law THE CONSUMER PROTECTION AND DEBT ABUSE PREVENTION ACT took effect. Visit (the Shenwick & Associates personal bankruptcy website) to learn more about that law.