Happy holidays to all our clients, friends and other loved ones! As we wrap up 2006, two changes of note we wanted to alert you to:
1. We now have a Spanish web site at http://jshenwickspanish.googlepages.com for personal bankruptcy.
2. We'll be relocating in early 2007. We'll let you know as soon as we have all the details.
This month, we'll continue with our coverage of "silent" lease issues that may be important to you as a tenant, but that standard lease forms from landlord's don't deal with.
I. Maintenance and Cleaning
a. Structural repairs-Require the landlord to maintain and repair the structural elements of the building (including the roof and foundation) and maintain and keep in good repair parking, common areas, as well as sidewalks. "Structural elements" should be a defined term in the lease, and defined as broadly as possible to cover everything except improvements that are specific to a particular tenant.
b. Building and Systems Maintenance-The landlord should maintain electrical, sewage, plumbing, HVAC and other building systems, at least to the point of entry. Inspect building systems, and consider whether to require the landlord to maintain service contracts.
c. Maintenance standards-The landlord should maintain the building (including empty retail spaces and all common areas) in a manner appropriate to the space. Services should include security, repainting and re-carpeting.
d. Cleaning standards-Specify standards for the landlord's services, both within the premises and in common areas. Limit the scope of, and try to define the price of "extras." If the standards say the landlord does not to clean any "computer areas," this will exclude a lot of space for modern offices.
e. Cleaning Hours-Specify the earliest time or latest time that cleaning may commence.
f. Garbage Removal-Specify locations, access, timing and other arrangements.
II. Quiet Enjoyment
a. Watch for "quiet enjoyment" being conditioned on no default. Instead, make it conditional upon the landlord not having terminated the lease.
b. If a sidewalk shed, fence or scaffolding for any construction project impairs access or visibility, you may want the right to reduce the rent.
For any such project: (1) try to set limits on the scope and duration of the obstruction; (2) seek the right to install advertising signs at the landlord's expense; (3) prohibit other advertising signs; and (4) require the landlord to promptly remove all unauthorized postings or graffiti.
c. Try to limit where dumpsters may be installed.
d. Damages for a breach of the covenant of quiet enjoyment is difficult to prove consider providing a liquidated damages clause instead.
Jim Shenwick
Shenwick & Associates
jhs7@att.net
Monday, December 18, 2006
Wednesday, November 22, 2006
Hidden Costs In Commercial Leases In NYC
November 21, 2006
Dear Friends & Clients:
HIDDEN COSTS IN COMMERCIAL LEASES
Happy Holiday! Last month's email on commercial lease negotiations was so popular that readers asked for another email on commercial leases.
Please be sure to checkout Shenwick & Associates website at http://jshenwick.googlepages.com and its blog at http://shenwick.blogspot.com/
Hidden costs in office leases are expenses that a landlord should be paying which are passed along to tenants. If the tenant pays these costs the result is that the landlord is making a profit instead of merely being made whole. Careful negotiation by a tenant can result in significant savings to "additional rent" items and minimize the possibility of the tenant receiving a surprise bill from the landlord during the lease term. Some issues to look for include:
1. Additional Rent clauses which are used to have the tenant pay for increases in real estate taxes and operating expenses. The tenant's proportionate share should from a tenant's perspective be the ratio between the square footage of the space the tenant occupies and the total square footage of the building. Some leases provide that this calculation be based on the rented or occupied space and not the total building area. If the landlord insists on using a calculation based on occupied square footage as opposed to total building space, the tenant should attempt to negotiate an agreed upon percentage to be used to determine the tenant's proportionate share of space.
2. Base Year, which is used to calculate when the tenant will have to pay the landlord additional building expenses and taxes. The Base Year for taxes and operating expenses are both subject to negotiation. From the tenant's perspective, these amounts should be as high as possible. Real estate taxes may be subject to adjustment years after the Base Year and a reduction in taxes could result in a windfall for the landlord that is unfair to the tenant. One possible strategy for a tenant is to have the base year consist of an average of 2 years.
3. Porter Rates are the most favorable way to calculate an increase in operating expenses from the perspective of the landlord. General operating expenses are day-to-day expenses of running the building, which are subject to increase. The tenant usually pays its proportionate share of the increases in operation expenses over the base amount. The Porter's Wage is calculated as the difference between the Porter Wage Rate as determined by the collective bargaining agreement and the wage rate determined by the collective bargaining agreement for the escalation year. Porter wages allow a landlord to make a profit on what should be a reimbursed expense.
Less onerous is an increase based on the Consumer Price Index. If the CPI is used some expenses should be carved out of this formula such as interest or penalties on taxes that the landlord is required to pay or the payment of interest or principal on the landlord's debt service.
4. Capital improvements enhance the building and allow the landlord to charge more rent, so the landlord should pay for these improvements, though it's less clear who should be responsible for payment when the improvement is required by law or obsolescence. For example, at what point should a long term tenant in the last year of a lease pay for an improvement with a useful life of 15 years past the lease term? The tenant should not pay more than its proportional share (in the example, 1/15th of the cost of the improvement in the last year of a 15 year lease).
Any person with questions regarding commercial lease issues should contact Jim Shenwick.
Dear Friends & Clients:
HIDDEN COSTS IN COMMERCIAL LEASES
Happy Holiday! Last month's email on commercial lease negotiations was so popular that readers asked for another email on commercial leases.
Please be sure to checkout Shenwick & Associates website at http://jshenwick.googlepages.com and its blog at http://shenwick.blogspot.com/
Hidden costs in office leases are expenses that a landlord should be paying which are passed along to tenants. If the tenant pays these costs the result is that the landlord is making a profit instead of merely being made whole. Careful negotiation by a tenant can result in significant savings to "additional rent" items and minimize the possibility of the tenant receiving a surprise bill from the landlord during the lease term. Some issues to look for include:
1. Additional Rent clauses which are used to have the tenant pay for increases in real estate taxes and operating expenses. The tenant's proportionate share should from a tenant's perspective be the ratio between the square footage of the space the tenant occupies and the total square footage of the building. Some leases provide that this calculation be based on the rented or occupied space and not the total building area. If the landlord insists on using a calculation based on occupied square footage as opposed to total building space, the tenant should attempt to negotiate an agreed upon percentage to be used to determine the tenant's proportionate share of space.
2. Base Year, which is used to calculate when the tenant will have to pay the landlord additional building expenses and taxes. The Base Year for taxes and operating expenses are both subject to negotiation. From the tenant's perspective, these amounts should be as high as possible. Real estate taxes may be subject to adjustment years after the Base Year and a reduction in taxes could result in a windfall for the landlord that is unfair to the tenant. One possible strategy for a tenant is to have the base year consist of an average of 2 years.
3. Porter Rates are the most favorable way to calculate an increase in operating expenses from the perspective of the landlord. General operating expenses are day-to-day expenses of running the building, which are subject to increase. The tenant usually pays its proportionate share of the increases in operation expenses over the base amount. The Porter's Wage is calculated as the difference between the Porter Wage Rate as determined by the collective bargaining agreement and the wage rate determined by the collective bargaining agreement for the escalation year. Porter wages allow a landlord to make a profit on what should be a reimbursed expense.
Less onerous is an increase based on the Consumer Price Index. If the CPI is used some expenses should be carved out of this formula such as interest or penalties on taxes that the landlord is required to pay or the payment of interest or principal on the landlord's debt service.
4. Capital improvements enhance the building and allow the landlord to charge more rent, so the landlord should pay for these improvements, though it's less clear who should be responsible for payment when the improvement is required by law or obsolescence. For example, at what point should a long term tenant in the last year of a lease pay for an improvement with a useful life of 15 years past the lease term? The tenant should not pay more than its proportional share (in the example, 1/15th of the cost of the improvement in the last year of a 15 year lease).
Any person with questions regarding commercial lease issues should contact Jim Shenwick.
Tuesday, November 21, 2006
Outline of Speech Given by James Shenwick at NYS Society of CPA regarding Personal Bankruptcy & BAPCPA on November 17, 2006
I. Introduction
A. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 (also known as the Bankruptcy Reform Act) went into effect on October 17, 2005.
B. October 17, 2005 will go down as a sad day in American History.
1. What is the purpose of bankruptcy law?
a. Is the purpose of bankruptcy law to give individuals a “fresh start”?
b. Do we have bankruptcy laws because we are a comparing and compassionate society?
c. Is bankruptcy a safety valve for society?
C. The name of the law is misleading. The title “Bankruptcy Abuse Prevention” suggests that the old system was abusive? Was it?-1.5 million Americans file for bankruptcy on average each year.
1. Why do people file for bankruptcy?
a. Credit card debt, medical bills, student loans, the cost of housing, business reversal, illness, job loss and divorce.
b. It is estimated that in October 2005 500,000 Americans filed for bankruptcy to beat the effective date of the new law.
i. According to an article in the New York Times business section, various banks and credit card companies said that they were surprised by the volume of the filings-should they have been?
2. There are about two provisions in this poorly drafted 500 page bill that are pro-consumer regarding personal bankruptcy. Those concern (a) Reaffirmation Agreements, which require extensive disclosures, and must outline the rights of the debtor and must specify the amount of the debt being reaffirmed, additional charged or costs imposed upon the debtor, the annual percentage rate, the simple interest rate and, if elected by the creditor, a statement of the repayment schedule. If secured, the disclosure must contain description of the property upon which the creditor’s lien attaches and the original purchase price of the items (if the security interest is not a purchase money interest, the disclosure must contain the amount of the original loan). The disclosure must include a statement that the debtor has the right to consult an attorney, that the reaffirmation agreement must be filed with the court before it becomes effective, and that the debtor has the right to rescind the reaffirmation within 60 days of its filing and (b) Reduction of dischargeable unsecured claims-the Court may reduce a dischargeable unsecured claim by up to 20% if the creditor unreasonably refused to negotiate an alternative payment schedule proposed by an approved credit-counseling agency. The repayment proposal must have offered at least 60% of the debt and must have been made at least 60 days prior to the petition §502(k)-Will this provision be of any use to consumers?
3. What do debtor’s attorneys, creditor attorneys, Judges and US
Trustee say about this law?
4. Will attorneys continue to do chapter 7 bankruptcy filings based on the increased personal exposure?
5. Legal fees for those attorneys who continue to do personal bankruptcy work are expected to double.
6. Malpractice rates are predicted to increase in the next year for those attorneys who do personal bankruptcy work and/or malpractice insurers will refuse to provide coverage for liability from BAPCPA-Is this what the banks and credit card companies expected or wanted to happen?
D. Why did President Bush sign the bill so that it takes effect on a Monday, rather than on a Tuesday, Wednesday, Thursday or Friday? The Bankruptcy Courts are closed on Saturday and Sunday therefore limiting the ability of people to file for bankruptcy -was this accidental or intentional?
E. Why did the bill increase the chapter 7 filing fee from $209 to $274?
1. This is a $65 increase or a 31% increase-this increase is unconscionable for people that need to file for bankruptcy protection.
F. Would a better name for the bill have been the “Bankruptcy Bill that Was Bought and Paid for by Credit Card Companies and Banks”?
1. The banks and credit companies have lobbied for this bill for about 8 years and it is said that they spent about $40 million dollars lobbying for this bill.
2. Who speaks for debtors or poor people in this country?
i. Professor Elizabeth Warren a professor at Harvard Law School and an expert on personal bankruptcy has been vehemently opposed to this bill.
G. In analyzing this bill there are 2 driving factors: (1) increase the cost and level of effort or aggravation to file for clients and attorneys and (2) decrease the number of people that file for chapter 7 bankruptcy protection.
H. How did the old system work? Was the old system broken?
1. Under the old system there were no restrictions on the ability of an individual or corporation to file for chapter 7 bankruptcy protection.
a. The only limitation was section 707(b) of the Bankruptcy Code dealing with “substantial abuse.” If a debtor’s after tax income was greater than there ordinary and necessary personal and business expenses then their case would be converted to chapter 13 of the Bankruptcy Code which was a 3-5 year payment plan creditors.
2. How does the new system work for national emergencies such as Hurricane Katrina?
a. U.S. Trustee’s Office has waived the pre-bankruptcy filing credit counseling requirement for victims of Hurricane Katrina-will this set a precedent for future national catastrophes?
II. New Definitions in the Bankruptcy Law:
A. Section 101(10A) defines a new term of art, “Current monthly income,” with reference to the 6 months preceding the petition month. Current monthly income is the platform for the new “means test” in § 707(b) and for calculating disposable income for median income debtors in § 1325(b) of the Bankruptcy Code.
B. Section 101(12A) defines a “debt relief agency” to include many bankruptcy practitioners.
C. Section 101(14A) broadly defines “domestic support obligation” to include alimony, maintenance and support accruing before or after the petition and owed to various individuals or entities. This new definition is used in many sections dealing with dischargeability, priorities, confirmation of plans, etc.
D. Section 101(39A) defines “median family income” by reference to census data, adjusted by the Consumer Price Index. Many sections of the new Code–including the means test in § 707(b) and the disposable income test in § 1325(b)–use median family income as a measuring stick to trigger important consequences.
III. New Bankruptcy Code Provisions:
A. Multiple bankruptcy filings-The minimum time between filing Chapter 7 cases has been raised from 6 years to 8 years.
1. If a discharge has been granted in a Chapter 7 case, a Chapter 13 case apparently may be filed, but before a discharge can be entered in the Chapter 13 case, the debtor’s Chapter 13 plan must continue until at least 4 years from the date of the Chapter 7 discharge.
B. Credit Counseling Requirement:
No individual may be a debtor under the Bankruptcy Code unless, within 180 days before filing the petition, the debtor received an individual or group briefing (including by phone or internet) from an approved non-profit entity that outlined opportunities for credit counseling and assisted the debtor in performing a personal budget analysis. The court may grant an exemption based on the debtor’s sworn statement but exemption expires 30 days after the petition. The briefing is not required if the court determines that debtor is incapacitated (mentally), disabled (physically), or is an active member of the military in a combat zone. § 109(h)(1)
C. Representation of Creditors:
The representation of a creditor holding a consumer debt at a Chapter 7 or Chapter 13 meeting of creditors need not be by counsel but may be through an employee or agent of the creditor, and that agent is permitted to represent multiple creditors. This authorization may not be limited by any local or state rule governing the unauthorized practice of law. § 341(c)
D. Notice of address of Creditors:
Any entity may file with any bankruptcy court a “notice of address” for all notices in all cases under Chapter 7 or Chapter 13 in all bankruptcy courts. This “notice of address” must be used for all noticing by a court 30 days after filing unless the entity files a (different) “notice of address” in a specific case. A notice of address filed in a specific case must be used by the court or by the debtor five days after filing. § 342(e) and (f)
E. Notice to a Creditor:
1. Notice provided to a creditor–by the debtor or by the court-inconsistent with the new rules in § 342 shall not be effective until the notice has been “brought to the attention” of the creditor. If the creditor “designates a person or organizational subdivision” to receive bankruptcy notices and has a reasonable procedure to deliver notices to such person or subdivision, then a notice has not been “brought to the attention” of the creditor until the designated person or subdivision receives the notice. § 342(g)(1)
2. Notice to be given by a debtor to creditors must be to the address designated by the creditor, either in communications to the debtor or by the creditors preferred address as provided to the court. Such notice to creditors must include account numbers.
F. Valuation of Personal Property. In individual Chapter 7 and 13 cases, the value of personal property securing an allowed claim shall be replacement value on the date of the petition without deduction for sale or marketing costs. For goods acquired for personal, family or household purposes, replacement value means the price a retail merchant would charge for property of that kind given its age and condition. §506(a)(2)
G. Payment Advices. Debtors must file copies of “all payment advices or other evidence of payment” received by the debtor from an employer in the 60 days prior to the filing. The failure to file payment advices is one of the grounds for “automatic dismissal” on the 46th day under §521(i). § 521(a)(1)(B)(iv)
H. Changes in Budget Must Be Filed With Court. Debtors must file a statement showing any “reasonably” anticipated increase in income or expenditures within the year after filing. §521(a)(1)(B)(vi)
I. Mandatory Pre-Petition Credit Counseling. Before a person can file bankruptcy a debtor(s) must receive and file a certificate from an APPROVED, non-profit budget and credit counseling agency that describes the services and opportunities for available credit counseling and assistance in performing an individual budget analysis provided to the debtor and the debtor must file a copy of the debt repayment plan, if any created prior to filing. §521(b).
1. What is the value of these services other than to increase the cost of bankruptcy filings and delay bankruptcy filings?
2. In September 2005, the Internal Revenue Service denied tax-exempt status to several credit counseling agencies, partly because they relied too heavily on banks and credit companies for their funding.
i. Are these credit counseling services more than shills for the credit card companies?
3. The US Trustee’s Office provides a list of Credit Counselors.
J. Tax Returns.
1. “Not later than 7 days before the date first set for the first meeting of creditors,” Chapter 7 and Chapter 13 debtors “shall provide” to the trustee a copy (or transcript) of the federal tax return for the tax year ending before the petition, for which a return was filed.
2. The debtor must provide a copy (or transcript) of the return to any creditor that timely requests it. The court “shall dismiss” the case if the debtor fails to comply. §521(e)(2)(A),(B) and (C)
3. New §1308 of the Bankruptcy Code contains many new tax return responsibilities for Chapter 13 debtors, including that all returns “required” for the 4 years ending on the petition date have been filed with the taxing authority by the day before the first scheduled meeting of creditors. The Chapter 13 trustee may “hold open” the meeting of creditors for limited periods to allow the debtor to file unfiled returns.
K. Possession of Property. Chapter 7 debtor shall not retain possession of personal property subject to a purchase money interest (collateral) unless within 45 days of the first meeting of creditors the debtor either reaffirms or redeems the property. §521(a)(6)
L. Asset Protection Trusts. Under new §548(e), a trustee can avoid the debtor’s transfer in an interest in property made within 10 years of the filing if the transfer as made to a self-settled trust or similar device by the debtor for the benefit of the debtor and the transfer was made with the actual intent to hinder, delay or defraud any creditor.
IV. Limitations on the Automatic Stay:
A. Serial Filing-no automatic stay arises if the debtor had two or more cases pending within the previous year, but were dismissed. Upon request of any party, the court shall enter an order confirming that no stay is in effect. Within 30 days of the filing of the petition, any party can request the court to impose a stay only if the party demonstrates that the later filing is in good faith.
B. Child and spousal support obligations must be brought current and kept current during the pendency of a bankruptcy. The automatic stay does not apply to the withholding of income that is property of the estate or property of the debtor for the payment of a domestic support obligation pursuant to a judicial or administrative order or statute.
C. Licenses. The automatic stay does not apply to the withholding suspension or restriction of a driver’s, professional, occupational or recreation license upon nonpayment of support. § 362(b)(2)(D)
D. Tax Refunds for Support Obligations. The automatic stay does not apply to the interception of tax refunds to collect support obligations. § 362(b)(2)(F)
E. Pension Plan Loan Repayments. The automatic stay does not apply to the consensual withholding of income from a debtor’s wages to repay a loan incurred by a debtor from a qualified pension, profit sharing, stock bonus or thrift savings plan.
F. Eviction. If a lessor obtained a judgment for possession (warrant of eviction) before the bankruptcy petition was filed, the automatic stay does not apply to the continuation of an eviction.
V. Exemptions
A. A debtor’s exemptions are determined by examining state law for the state where the debtor has been domiciled for 730 days prior to the filing of the petition. If the debtor has not been domiciled in a single state for 730 days, exemptions are determined by the debtor’s domicile for the majority of the 180 days that preceded the 730-day period. §522(b)(3)(A). If you’re living in a state for less than two years that has more favorable provisions than the one you previously lived in, you can’t use the more favorable provisions.
B. The maximum amount of a qualified IRA that may be exempted is $1,000,000. §522(n)
C. Homestead exemptions would be capped at $125,000 if the debtor acquired the property during the 1215-day period preceding the date of filing. Note that New York State recently increased the homestead exemption to $50,000 per debtor, so a married couple under New York law can exempt $100,000 of equity in a residence.
VI. Nondischargeability of Debts
A. The presumption of nondischargeability for unsecured debt is lowered to debts incurred within 90 days of the filing that aggregate at least $500 for luxury goods or services and cash advances aggregating more than $750 within 70 days. §523(a)(2)
B. The exception to discharge for student loans is expanded to encompass all student loans as defined by the IRC §221(e)(1), expanding nondischargeable student loans to for profit and nongovernmental entities. §523(a)(8)(B)
C. Loans to a pension fund are nondischargeable in Chapter 7. §523(a)(18)
D. The nondischargeability of a non-support domestic obligation under §523(a)(15) would no longer be dependent upon the initiation of a timely adversary complaint under §523(c). Under Chapter 7, the non-support domestic obligation would survive the discharge. The “greater hardship” exception to the exception has been eliminated. §523(c)
VII. Debt Relief Agencies
A. “Debt relief agencies” may include attorneys that provide bankruptcy assistance to persons with consumer debt and nonexempt assets worth less than $150,000. DRAs are required to do what they promise to do, are prohibited from making statements or counseling statements that are untrue (and that “upon the exercise of reasonable care, should have been known” by the agency), are prohibited from making misleading statements about the services offered by the agency and are prohibited from advising an assisted person to incur more debt if they are thinking of filing a bankruptcy. State consumer protection agencies are empowered to enforce these provisions and if a Debt Relief Agency violates these provisions, actual damages can be recovered on behalf of the assisted person. Attorneys’ fees can be awarded in actions brought against Debt Relief Agencies. §526
B. Debt relief agencies must disclose the costs of services, must provide to all clients a written notice of their rights and obligations (statements must be true, debtors must disclose all assets and liabilities, debtors must reveal their “Current Monthly Income,” and the cases are subject to audit), must provide a copy of the contract to the client, must disclose that an attorney may not be necessary to file a bankruptcy, and must maintain copies of disclosures given to any person for two years. §527
C. A Debt Relief Agency must disclose in advertising: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.” Advertising must not mislead a consumer to believe that credit counseling is offered rather than bankruptcy assistance. §528
D. However, on October 17, 2005, the date BAPCPA went into effect, the Chief United States Bankruptcy Judge for the United States Bankruptcy Court for the Southern District of Georgia ruled “that attorneys regularly admitted to the Bar of this Court or those admitted pro hac vice are not covered by the provisions of the Code regulating debt relief agencies, including without limitations §§ 101(12A), (4A) 526, 527 and 528, and are excused from compliance with any of these requirements or provisions, so long as their activities fall within the scope of the practice of law and do not constitute a separate commercial enterprise.”
VIII. The Median Income and Means Test
A. Using your state’s median income (in NY, $42,896 for 1 earner, $51,994 for 2 people, $62,815 for 3 people, $74,501 for 4 people (add $6,300 for each individual in excess of 4)), your attorney determines whether your income, determined by averaging the past 6 months is above or below that median.
B. If your income is above the state median income, you may be required to file a Chapter 13 repayment plan where you repay a percentage of your debts over a 36-60 month period, and not allowed to file a traditional Chapter 7 liquidating bankruptcy where your debts are eliminated, unless the Bankruptcy Court rules that your circumstances are extraordinary.
C. If you are required to file a Chapter 13 case under the Median Income or Means test, then your monthly expenses will be limited to the IRS National and Local Standard Expense guidelines, subject to limited adjustment. BAPCPA limits the amounts you can claim as expenses.
D. The person preparing a bankruptcy petition must give assurances about the accuracy of the contents of the petition. In the case of attorneys, they must make “reasonable inquiry to verify that the information contained in such documents is well grounded in fact.”- Debtor’s attorney may have to reimburse trustee’s and creditors prosecution costs, including attorney fees, if §707(b) motion is granted and attorney violated rule 9011 in filing the case under Chapter 7. Civil penalties may also be imposed. §707(b)(4)
1. This provision of the law may be unconstitutional and may be challenged by the American Bar Association.
E. Abuse is presumed if the debtor’s Current Monthly Income:
- less “scheduled” contract payments due to secured creditors over five years divided by 60,
-less arrearages or “any additional payments” which would be necessary in a Chapter 13 plan for the debtor to keep possession of a house, car or other necessary property, divided by 60,
-less priority debts divided by 60,
-less the expenses specified by the IRS in its financial analysis standards–National and Local and Other Necessary Expenses,
-less other actual expenses as permitted by the IRS, less health and disability insurance expenses and a health savings account,
-less “family violence” expenses,
-less up to 5% additional expenses for food,
-less up to 5% additional expense for clothing,
-less the actual monthly costs of caring for an elderly, chronically ill or disabled household or family member, even if not a dependent,
-less the actual expenses of administering a Chapter 13 case not to exceed 10% as determined by the U.S. Trustee,
-less up to $1500 per year actual expenses for each dependent child under 18 in school, divided by 12,
-less additional costs for home energy expenses
is equal to or greater than $100 and greater than 25% of the debtor’s non-priority, unsecured debts. §707(b)(2).
Stated differently, one must first calculate the debtors Current Monthly Income, deduct expenses permitted by the Statute, and multiply that amount by 60. That figure is the debtor’s “Net Monthly Income”. Then calculate what amount equals 25% of the debtor’s unsecured nonpriority debt. If this amount is less than $6,000, then the debtor’s Net Monthly Income cannot exceed $6,000. If this amount is greater than $6,000 but less than $10,000 the debtor’s Net Monthly Income can not exceed $10,000. If a debtor has $40,000 of unsecured debt then their Net Monthly Income cannot exceed $10,000 and any debtor with $24,000 or less of unsecured debt cannot have Net Monthly Income which exceeds $6,000.
1. This provision is so complex that it is unclear whether debtors will be able to file without the assistance of attorneys.
2. The U.S. Bankruptcy Court for the Middle District of Florida has created a means test calculator at: http://www.flmb.uscourts.gov/calculator.htm and the United States Trustee has means testing information at
http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm
3. All of the bankruptcy software programs now include a Means Test Calculator.
IX. Chapter 13
A. If a Chapter 13 debtor’s current monthly income combined with spouse’s current monthly income is greater than the applicable median income, the plan proposed by the debtor must be for at least five years. On the anniversary date of a confirmed plan, a debtor must file a new statement of income and expenses. §1322(d)(1)
B. Within 60 days of the filing of a petition, a Chapter 13 debtor must provide to lessors of personal property or purchase money secured creditors reasonable evidence of insurance on the property that the debtor retains. The debtor must continue to provide proof of such insurance for as long as the debtor retains possession of the property. §1326(a)(4)
C. Chapter 13 discharges
1. A debtor may not receive a discharge in Chapter 13 if the debtor received a discharge in a Chapter 7, 11 or 12 case filed within four years of the filing of the Chapter 13. §1328(f)(1)
2. A Chapter 13 debtor may not receive a discharge if the debtor received a discharge in a previous Chapter 13 case filed within two years of the filing of the current case. §1328(f)(2)
3. The court may not grant a Chapter 13 discharge unless the debtor has completed an educational course concerning personal financial management as approved by the U.S. Trustee. §1328(g)
4. The Chapter 13 “super-discharge” that is obtainable under current law is greatly reduced under the Bankruptcy Reform Act. Debts for trust fund taxes, taxes for which returns were never filed or filed late (within two years of the petition date), taxes for which the debtor made a fraudulent return or evaded taxes; fraud and false statements under §523(a)(2), unscheduled debt under §523(a0(3), defalcation by a fiduciary under §523(a)(4), domestic support payments, student loans, drunk driving injuries, criminal restitution and fines and civil restitutions or damages rewarded for willful or malicious personal actions causing personal injury or death are now excepted from discharge.
X. Dismissal for Failure to file Documents and Schedules
In addition to the list of creditors, schedules of assets, liabilities, income and expenses, debtors must provide:
a. certificate of credit counseling
b. evidence of payment from employers, if any, received 60 days before filing
c. statement of monthly net income and any anticipated increase in income of expenses after filing
d. tax returns or transcripts for the most recent tax year
e. tax returns filed during the case including tax returns for prior years that had not been filed when the cases began and
f. a photo ID, among other items.
Failure to provide the documents within 45 days after the petition has been filed (with a possibility of a 45-day extension) results in automatic dismissal of the case after the time period has passed.
XI. Where do we go from here?
A. There are 6 bills before Congress which are attempting to overrule or void various provisions of the bill.
B. Speak to your Congressman and voice your opinion to get this Bankruptcy Bill repealed or amended.
C. What will happen to chapter 7 bankruptcy?
1. It is estimated that filing volume will decrease by 20 to 25%
2. Will attorneys do chapter 7 filings?
3. Can individuals file without attorneys due to the complexities in the law?
D. Will this bankruptcy bill aid credit card companies and banks? See the attached article which indicates that credit card companies may make out work under this bill.
E. Will technology make it possible to continue to practice in this area of the law?
1. On line credit counseling services
2. On line websites that will enable attorneys to search for assets and liabilities for clients prior to filing-“due diligence”
F. The impact of the law will also depend on how the U.S. Trustee’s Office enforces the law and how bankruptcy judges interpret the law.
G. The Shenwick & Associates website has detailed information regarding personal bankruptcy under the Bankruptcy Abuse Prevention and Consumer Protection Act.
JHS
A. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 (also known as the Bankruptcy Reform Act) went into effect on October 17, 2005.
B. October 17, 2005 will go down as a sad day in American History.
1. What is the purpose of bankruptcy law?
a. Is the purpose of bankruptcy law to give individuals a “fresh start”?
b. Do we have bankruptcy laws because we are a comparing and compassionate society?
c. Is bankruptcy a safety valve for society?
C. The name of the law is misleading. The title “Bankruptcy Abuse Prevention” suggests that the old system was abusive? Was it?-1.5 million Americans file for bankruptcy on average each year.
1. Why do people file for bankruptcy?
a. Credit card debt, medical bills, student loans, the cost of housing, business reversal, illness, job loss and divorce.
b. It is estimated that in October 2005 500,000 Americans filed for bankruptcy to beat the effective date of the new law.
i. According to an article in the New York Times business section, various banks and credit card companies said that they were surprised by the volume of the filings-should they have been?
2. There are about two provisions in this poorly drafted 500 page bill that are pro-consumer regarding personal bankruptcy. Those concern (a) Reaffirmation Agreements, which require extensive disclosures, and must outline the rights of the debtor and must specify the amount of the debt being reaffirmed, additional charged or costs imposed upon the debtor, the annual percentage rate, the simple interest rate and, if elected by the creditor, a statement of the repayment schedule. If secured, the disclosure must contain description of the property upon which the creditor’s lien attaches and the original purchase price of the items (if the security interest is not a purchase money interest, the disclosure must contain the amount of the original loan). The disclosure must include a statement that the debtor has the right to consult an attorney, that the reaffirmation agreement must be filed with the court before it becomes effective, and that the debtor has the right to rescind the reaffirmation within 60 days of its filing and (b) Reduction of dischargeable unsecured claims-the Court may reduce a dischargeable unsecured claim by up to 20% if the creditor unreasonably refused to negotiate an alternative payment schedule proposed by an approved credit-counseling agency. The repayment proposal must have offered at least 60% of the debt and must have been made at least 60 days prior to the petition §502(k)-Will this provision be of any use to consumers?
3. What do debtor’s attorneys, creditor attorneys, Judges and US
Trustee say about this law?
4. Will attorneys continue to do chapter 7 bankruptcy filings based on the increased personal exposure?
5. Legal fees for those attorneys who continue to do personal bankruptcy work are expected to double.
6. Malpractice rates are predicted to increase in the next year for those attorneys who do personal bankruptcy work and/or malpractice insurers will refuse to provide coverage for liability from BAPCPA-Is this what the banks and credit card companies expected or wanted to happen?
D. Why did President Bush sign the bill so that it takes effect on a Monday, rather than on a Tuesday, Wednesday, Thursday or Friday? The Bankruptcy Courts are closed on Saturday and Sunday therefore limiting the ability of people to file for bankruptcy -was this accidental or intentional?
E. Why did the bill increase the chapter 7 filing fee from $209 to $274?
1. This is a $65 increase or a 31% increase-this increase is unconscionable for people that need to file for bankruptcy protection.
F. Would a better name for the bill have been the “Bankruptcy Bill that Was Bought and Paid for by Credit Card Companies and Banks”?
1. The banks and credit companies have lobbied for this bill for about 8 years and it is said that they spent about $40 million dollars lobbying for this bill.
2. Who speaks for debtors or poor people in this country?
i. Professor Elizabeth Warren a professor at Harvard Law School and an expert on personal bankruptcy has been vehemently opposed to this bill.
G. In analyzing this bill there are 2 driving factors: (1) increase the cost and level of effort or aggravation to file for clients and attorneys and (2) decrease the number of people that file for chapter 7 bankruptcy protection.
H. How did the old system work? Was the old system broken?
1. Under the old system there were no restrictions on the ability of an individual or corporation to file for chapter 7 bankruptcy protection.
a. The only limitation was section 707(b) of the Bankruptcy Code dealing with “substantial abuse.” If a debtor’s after tax income was greater than there ordinary and necessary personal and business expenses then their case would be converted to chapter 13 of the Bankruptcy Code which was a 3-5 year payment plan creditors.
2. How does the new system work for national emergencies such as Hurricane Katrina?
a. U.S. Trustee’s Office has waived the pre-bankruptcy filing credit counseling requirement for victims of Hurricane Katrina-will this set a precedent for future national catastrophes?
II. New Definitions in the Bankruptcy Law:
A. Section 101(10A) defines a new term of art, “Current monthly income,” with reference to the 6 months preceding the petition month. Current monthly income is the platform for the new “means test” in § 707(b) and for calculating disposable income for median income debtors in § 1325(b) of the Bankruptcy Code.
B. Section 101(12A) defines a “debt relief agency” to include many bankruptcy practitioners.
C. Section 101(14A) broadly defines “domestic support obligation” to include alimony, maintenance and support accruing before or after the petition and owed to various individuals or entities. This new definition is used in many sections dealing with dischargeability, priorities, confirmation of plans, etc.
D. Section 101(39A) defines “median family income” by reference to census data, adjusted by the Consumer Price Index. Many sections of the new Code–including the means test in § 707(b) and the disposable income test in § 1325(b)–use median family income as a measuring stick to trigger important consequences.
III. New Bankruptcy Code Provisions:
A. Multiple bankruptcy filings-The minimum time between filing Chapter 7 cases has been raised from 6 years to 8 years.
1. If a discharge has been granted in a Chapter 7 case, a Chapter 13 case apparently may be filed, but before a discharge can be entered in the Chapter 13 case, the debtor’s Chapter 13 plan must continue until at least 4 years from the date of the Chapter 7 discharge.
B. Credit Counseling Requirement:
No individual may be a debtor under the Bankruptcy Code unless, within 180 days before filing the petition, the debtor received an individual or group briefing (including by phone or internet) from an approved non-profit entity that outlined opportunities for credit counseling and assisted the debtor in performing a personal budget analysis. The court may grant an exemption based on the debtor’s sworn statement but exemption expires 30 days after the petition. The briefing is not required if the court determines that debtor is incapacitated (mentally), disabled (physically), or is an active member of the military in a combat zone. § 109(h)(1)
C. Representation of Creditors:
The representation of a creditor holding a consumer debt at a Chapter 7 or Chapter 13 meeting of creditors need not be by counsel but may be through an employee or agent of the creditor, and that agent is permitted to represent multiple creditors. This authorization may not be limited by any local or state rule governing the unauthorized practice of law. § 341(c)
D. Notice of address of Creditors:
Any entity may file with any bankruptcy court a “notice of address” for all notices in all cases under Chapter 7 or Chapter 13 in all bankruptcy courts. This “notice of address” must be used for all noticing by a court 30 days after filing unless the entity files a (different) “notice of address” in a specific case. A notice of address filed in a specific case must be used by the court or by the debtor five days after filing. § 342(e) and (f)
E. Notice to a Creditor:
1. Notice provided to a creditor–by the debtor or by the court-inconsistent with the new rules in § 342 shall not be effective until the notice has been “brought to the attention” of the creditor. If the creditor “designates a person or organizational subdivision” to receive bankruptcy notices and has a reasonable procedure to deliver notices to such person or subdivision, then a notice has not been “brought to the attention” of the creditor until the designated person or subdivision receives the notice. § 342(g)(1)
2. Notice to be given by a debtor to creditors must be to the address designated by the creditor, either in communications to the debtor or by the creditors preferred address as provided to the court. Such notice to creditors must include account numbers.
F. Valuation of Personal Property. In individual Chapter 7 and 13 cases, the value of personal property securing an allowed claim shall be replacement value on the date of the petition without deduction for sale or marketing costs. For goods acquired for personal, family or household purposes, replacement value means the price a retail merchant would charge for property of that kind given its age and condition. §506(a)(2)
G. Payment Advices. Debtors must file copies of “all payment advices or other evidence of payment” received by the debtor from an employer in the 60 days prior to the filing. The failure to file payment advices is one of the grounds for “automatic dismissal” on the 46th day under §521(i). § 521(a)(1)(B)(iv)
H. Changes in Budget Must Be Filed With Court. Debtors must file a statement showing any “reasonably” anticipated increase in income or expenditures within the year after filing. §521(a)(1)(B)(vi)
I. Mandatory Pre-Petition Credit Counseling. Before a person can file bankruptcy a debtor(s) must receive and file a certificate from an APPROVED, non-profit budget and credit counseling agency that describes the services and opportunities for available credit counseling and assistance in performing an individual budget analysis provided to the debtor and the debtor must file a copy of the debt repayment plan, if any created prior to filing. §521(b).
1. What is the value of these services other than to increase the cost of bankruptcy filings and delay bankruptcy filings?
2. In September 2005, the Internal Revenue Service denied tax-exempt status to several credit counseling agencies, partly because they relied too heavily on banks and credit companies for their funding.
i. Are these credit counseling services more than shills for the credit card companies?
3. The US Trustee’s Office provides a list of Credit Counselors.
J. Tax Returns.
1. “Not later than 7 days before the date first set for the first meeting of creditors,” Chapter 7 and Chapter 13 debtors “shall provide” to the trustee a copy (or transcript) of the federal tax return for the tax year ending before the petition, for which a return was filed.
2. The debtor must provide a copy (or transcript) of the return to any creditor that timely requests it. The court “shall dismiss” the case if the debtor fails to comply. §521(e)(2)(A),(B) and (C)
3. New §1308 of the Bankruptcy Code contains many new tax return responsibilities for Chapter 13 debtors, including that all returns “required” for the 4 years ending on the petition date have been filed with the taxing authority by the day before the first scheduled meeting of creditors. The Chapter 13 trustee may “hold open” the meeting of creditors for limited periods to allow the debtor to file unfiled returns.
K. Possession of Property. Chapter 7 debtor shall not retain possession of personal property subject to a purchase money interest (collateral) unless within 45 days of the first meeting of creditors the debtor either reaffirms or redeems the property. §521(a)(6)
L. Asset Protection Trusts. Under new §548(e), a trustee can avoid the debtor’s transfer in an interest in property made within 10 years of the filing if the transfer as made to a self-settled trust or similar device by the debtor for the benefit of the debtor and the transfer was made with the actual intent to hinder, delay or defraud any creditor.
IV. Limitations on the Automatic Stay:
A. Serial Filing-no automatic stay arises if the debtor had two or more cases pending within the previous year, but were dismissed. Upon request of any party, the court shall enter an order confirming that no stay is in effect. Within 30 days of the filing of the petition, any party can request the court to impose a stay only if the party demonstrates that the later filing is in good faith.
B. Child and spousal support obligations must be brought current and kept current during the pendency of a bankruptcy. The automatic stay does not apply to the withholding of income that is property of the estate or property of the debtor for the payment of a domestic support obligation pursuant to a judicial or administrative order or statute.
C. Licenses. The automatic stay does not apply to the withholding suspension or restriction of a driver’s, professional, occupational or recreation license upon nonpayment of support. § 362(b)(2)(D)
D. Tax Refunds for Support Obligations. The automatic stay does not apply to the interception of tax refunds to collect support obligations. § 362(b)(2)(F)
E. Pension Plan Loan Repayments. The automatic stay does not apply to the consensual withholding of income from a debtor’s wages to repay a loan incurred by a debtor from a qualified pension, profit sharing, stock bonus or thrift savings plan.
F. Eviction. If a lessor obtained a judgment for possession (warrant of eviction) before the bankruptcy petition was filed, the automatic stay does not apply to the continuation of an eviction.
V. Exemptions
A. A debtor’s exemptions are determined by examining state law for the state where the debtor has been domiciled for 730 days prior to the filing of the petition. If the debtor has not been domiciled in a single state for 730 days, exemptions are determined by the debtor’s domicile for the majority of the 180 days that preceded the 730-day period. §522(b)(3)(A). If you’re living in a state for less than two years that has more favorable provisions than the one you previously lived in, you can’t use the more favorable provisions.
B. The maximum amount of a qualified IRA that may be exempted is $1,000,000. §522(n)
C. Homestead exemptions would be capped at $125,000 if the debtor acquired the property during the 1215-day period preceding the date of filing. Note that New York State recently increased the homestead exemption to $50,000 per debtor, so a married couple under New York law can exempt $100,000 of equity in a residence.
VI. Nondischargeability of Debts
A. The presumption of nondischargeability for unsecured debt is lowered to debts incurred within 90 days of the filing that aggregate at least $500 for luxury goods or services and cash advances aggregating more than $750 within 70 days. §523(a)(2)
B. The exception to discharge for student loans is expanded to encompass all student loans as defined by the IRC §221(e)(1), expanding nondischargeable student loans to for profit and nongovernmental entities. §523(a)(8)(B)
C. Loans to a pension fund are nondischargeable in Chapter 7. §523(a)(18)
D. The nondischargeability of a non-support domestic obligation under §523(a)(15) would no longer be dependent upon the initiation of a timely adversary complaint under §523(c). Under Chapter 7, the non-support domestic obligation would survive the discharge. The “greater hardship” exception to the exception has been eliminated. §523(c)
VII. Debt Relief Agencies
A. “Debt relief agencies” may include attorneys that provide bankruptcy assistance to persons with consumer debt and nonexempt assets worth less than $150,000. DRAs are required to do what they promise to do, are prohibited from making statements or counseling statements that are untrue (and that “upon the exercise of reasonable care, should have been known” by the agency), are prohibited from making misleading statements about the services offered by the agency and are prohibited from advising an assisted person to incur more debt if they are thinking of filing a bankruptcy. State consumer protection agencies are empowered to enforce these provisions and if a Debt Relief Agency violates these provisions, actual damages can be recovered on behalf of the assisted person. Attorneys’ fees can be awarded in actions brought against Debt Relief Agencies. §526
B. Debt relief agencies must disclose the costs of services, must provide to all clients a written notice of their rights and obligations (statements must be true, debtors must disclose all assets and liabilities, debtors must reveal their “Current Monthly Income,” and the cases are subject to audit), must provide a copy of the contract to the client, must disclose that an attorney may not be necessary to file a bankruptcy, and must maintain copies of disclosures given to any person for two years. §527
C. A Debt Relief Agency must disclose in advertising: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.” Advertising must not mislead a consumer to believe that credit counseling is offered rather than bankruptcy assistance. §528
D. However, on October 17, 2005, the date BAPCPA went into effect, the Chief United States Bankruptcy Judge for the United States Bankruptcy Court for the Southern District of Georgia ruled “that attorneys regularly admitted to the Bar of this Court or those admitted pro hac vice are not covered by the provisions of the Code regulating debt relief agencies, including without limitations §§ 101(12A), (4A) 526, 527 and 528, and are excused from compliance with any of these requirements or provisions, so long as their activities fall within the scope of the practice of law and do not constitute a separate commercial enterprise.”
VIII. The Median Income and Means Test
A. Using your state’s median income (in NY, $42,896 for 1 earner, $51,994 for 2 people, $62,815 for 3 people, $74,501 for 4 people (add $6,300 for each individual in excess of 4)), your attorney determines whether your income, determined by averaging the past 6 months is above or below that median.
B. If your income is above the state median income, you may be required to file a Chapter 13 repayment plan where you repay a percentage of your debts over a 36-60 month period, and not allowed to file a traditional Chapter 7 liquidating bankruptcy where your debts are eliminated, unless the Bankruptcy Court rules that your circumstances are extraordinary.
C. If you are required to file a Chapter 13 case under the Median Income or Means test, then your monthly expenses will be limited to the IRS National and Local Standard Expense guidelines, subject to limited adjustment. BAPCPA limits the amounts you can claim as expenses.
D. The person preparing a bankruptcy petition must give assurances about the accuracy of the contents of the petition. In the case of attorneys, they must make “reasonable inquiry to verify that the information contained in such documents is well grounded in fact.”- Debtor’s attorney may have to reimburse trustee’s and creditors prosecution costs, including attorney fees, if §707(b) motion is granted and attorney violated rule 9011 in filing the case under Chapter 7. Civil penalties may also be imposed. §707(b)(4)
1. This provision of the law may be unconstitutional and may be challenged by the American Bar Association.
E. Abuse is presumed if the debtor’s Current Monthly Income:
- less “scheduled” contract payments due to secured creditors over five years divided by 60,
-less arrearages or “any additional payments” which would be necessary in a Chapter 13 plan for the debtor to keep possession of a house, car or other necessary property, divided by 60,
-less priority debts divided by 60,
-less the expenses specified by the IRS in its financial analysis standards–National and Local and Other Necessary Expenses,
-less other actual expenses as permitted by the IRS, less health and disability insurance expenses and a health savings account,
-less “family violence” expenses,
-less up to 5% additional expenses for food,
-less up to 5% additional expense for clothing,
-less the actual monthly costs of caring for an elderly, chronically ill or disabled household or family member, even if not a dependent,
-less the actual expenses of administering a Chapter 13 case not to exceed 10% as determined by the U.S. Trustee,
-less up to $1500 per year actual expenses for each dependent child under 18 in school, divided by 12,
-less additional costs for home energy expenses
is equal to or greater than $100 and greater than 25% of the debtor’s non-priority, unsecured debts. §707(b)(2).
Stated differently, one must first calculate the debtors Current Monthly Income, deduct expenses permitted by the Statute, and multiply that amount by 60. That figure is the debtor’s “Net Monthly Income”. Then calculate what amount equals 25% of the debtor’s unsecured nonpriority debt. If this amount is less than $6,000, then the debtor’s Net Monthly Income cannot exceed $6,000. If this amount is greater than $6,000 but less than $10,000 the debtor’s Net Monthly Income can not exceed $10,000. If a debtor has $40,000 of unsecured debt then their Net Monthly Income cannot exceed $10,000 and any debtor with $24,000 or less of unsecured debt cannot have Net Monthly Income which exceeds $6,000.
1. This provision is so complex that it is unclear whether debtors will be able to file without the assistance of attorneys.
2. The U.S. Bankruptcy Court for the Middle District of Florida has created a means test calculator at: http://www.flmb.uscourts.gov/calculator.htm and the United States Trustee has means testing information at
http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm
3. All of the bankruptcy software programs now include a Means Test Calculator.
IX. Chapter 13
A. If a Chapter 13 debtor’s current monthly income combined with spouse’s current monthly income is greater than the applicable median income, the plan proposed by the debtor must be for at least five years. On the anniversary date of a confirmed plan, a debtor must file a new statement of income and expenses. §1322(d)(1)
B. Within 60 days of the filing of a petition, a Chapter 13 debtor must provide to lessors of personal property or purchase money secured creditors reasonable evidence of insurance on the property that the debtor retains. The debtor must continue to provide proof of such insurance for as long as the debtor retains possession of the property. §1326(a)(4)
C. Chapter 13 discharges
1. A debtor may not receive a discharge in Chapter 13 if the debtor received a discharge in a Chapter 7, 11 or 12 case filed within four years of the filing of the Chapter 13. §1328(f)(1)
2. A Chapter 13 debtor may not receive a discharge if the debtor received a discharge in a previous Chapter 13 case filed within two years of the filing of the current case. §1328(f)(2)
3. The court may not grant a Chapter 13 discharge unless the debtor has completed an educational course concerning personal financial management as approved by the U.S. Trustee. §1328(g)
4. The Chapter 13 “super-discharge” that is obtainable under current law is greatly reduced under the Bankruptcy Reform Act. Debts for trust fund taxes, taxes for which returns were never filed or filed late (within two years of the petition date), taxes for which the debtor made a fraudulent return or evaded taxes; fraud and false statements under §523(a)(2), unscheduled debt under §523(a0(3), defalcation by a fiduciary under §523(a)(4), domestic support payments, student loans, drunk driving injuries, criminal restitution and fines and civil restitutions or damages rewarded for willful or malicious personal actions causing personal injury or death are now excepted from discharge.
X. Dismissal for Failure to file Documents and Schedules
In addition to the list of creditors, schedules of assets, liabilities, income and expenses, debtors must provide:
a. certificate of credit counseling
b. evidence of payment from employers, if any, received 60 days before filing
c. statement of monthly net income and any anticipated increase in income of expenses after filing
d. tax returns or transcripts for the most recent tax year
e. tax returns filed during the case including tax returns for prior years that had not been filed when the cases began and
f. a photo ID, among other items.
Failure to provide the documents within 45 days after the petition has been filed (with a possibility of a 45-day extension) results in automatic dismissal of the case after the time period has passed.
XI. Where do we go from here?
A. There are 6 bills before Congress which are attempting to overrule or void various provisions of the bill.
B. Speak to your Congressman and voice your opinion to get this Bankruptcy Bill repealed or amended.
C. What will happen to chapter 7 bankruptcy?
1. It is estimated that filing volume will decrease by 20 to 25%
2. Will attorneys do chapter 7 filings?
3. Can individuals file without attorneys due to the complexities in the law?
D. Will this bankruptcy bill aid credit card companies and banks? See the attached article which indicates that credit card companies may make out work under this bill.
E. Will technology make it possible to continue to practice in this area of the law?
1. On line credit counseling services
2. On line websites that will enable attorneys to search for assets and liabilities for clients prior to filing-“due diligence”
F. The impact of the law will also depend on how the U.S. Trustee’s Office enforces the law and how bankruptcy judges interpret the law.
G. The Shenwick & Associates website has detailed information regarding personal bankruptcy under the Bankruptcy Abuse Prevention and Consumer Protection Act.
JHS
James Shenwick Outline of Speech at NYS Society of CPA on S Corporations and Closely Held Corporations and BAPCPA on November 17, 2006
SHENWICK & ASSOCIATES
230 Park avenue
17th floor
New york, NY 10169
telephone: (212) 541-6224 Ext. 7592
telecopier: (646)-218-4600
Cell Phone: 917-363-3391
Email: jhs7@att.net
Website: http://jshenwick.googlepages.com
Blog: http://shenwick.blogspot.com/
November 17, 2006
New York State of CPA’s-S Corp and Closely Held Company Committee
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT (“BAPCPA”) AND “SMALL BUSINESS” CASES
I. Valuation of Small Businesses in Bankruptcy
A. S Corporations are a tax concept and not a bankruptcy concept.
B. Valuation of S Corporations and Closely Held Businesses are
important in bankruptcy-unlike publicly traded corporations where shares are traded daily valuation is more difficult
C. Bankruptcy Code section 541 creates a “hypothetical estate” when a person or entity files for bankruptcy and those interests must be valued
D. Types of Bankruptcy for Corporations. Corporations may only file for chapter 7 or chapter 11 bankruptcy
i. Chapter 7 is a “liquidation” and Chapter 11 can be a “liquidation” or reorganization.
E. When valuing closely held entities in bankruptcy attorneys look at the following assets:
i. Cash and checking account balances
ii. Accounts receivable (not more than 90 days past due)
iii. Inventory
iv. Real estate or under market leases
v. Furniture, Fixtures and Equipment
vi. Goodwill (do small businesses have good will?)
Less liabilities
F. Minority Discounts and Shareholder Agreements
i. What would a hypothetical investor pay to own 5% of the shares of the ABC Corp.?
ii. What happens if the ABC Corp. has a shareholder agreement or otherwise restricts the transfer of those shares?
iii. Who are the likely parties to buy shares in a closely held corporation? (existing shareholders?)
G. Personal Service Corporations for professionals, doctors, artists and others?
i. What is the value of this asset if the professional files for bankruptcy and then ceases to work for that corporation?
ii. Should professional service corporations liquidate or reorganize?
H. Confirmation Standards in Chapter 11. To confirm a chapter 11 bankruptcy plan one of the standards is that creditors must receive $1 more than they would get in a chapter 7 bankruptcy filing so valuation is an important issue.
I. Trustee Role in Closely Held Corporation Bankruptcy Case. If an individual files for chapter 7 bankruptcy and owns shares of stock in a closely held corporation the Bankruptcy Trustee is obligated to investigate the assets owned by the debtor and value those assets. If the assets have value the Trustee is required to sell those assets and distribute the proceeds to unsecured creditors and if the assets have no value they are abandoned back to the debtor when the case is closed.
II. Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) and Small Business Cases
A. BAPCPA which took effect on October 17, 2005 is the greatest change to bankruptcy law in the last 25 years and while most of those changes effected personal bankruptcy many changes also affected corporate bankruptcy and small business cases.
B. Small Business Cases-a “small business debtor” is a person or organization engaged in non-real estate commercial or business activities with an aggregate secured and unsecured debt of not more $2,000,000.
C. Types of Creditors in Bankruptcy. There are 3 types of creditors in bankruptcy cases: unsecured creditors (trade vendors, credit cards), secured creditors (mortgages and Uniform Commercial Code-1 and security interest creditors) and administrative and priority creditors (non-dischargeable taxes, claims incurred after the date of a bankruptcy filing, student loans, divorce obligations).
D. Filing and Reporting Requirements of BAPCPA. BAPCPA imposes new duties on small business debtors and on the United States Trustee in small business cases. The filing and reporting requirements include financial statements, federal income tax returns, profitability information, projected cash receipts and disbursements, a comparison of projections to actual results and certification of compliance with tax filings and payments. Small business debtors must maintain insurance appropriate to the industry and the debtor must allow the United States Trustee or representative to inspect the debtor’s business premises, books and records.
E.United States Trustee must conduct an initial debtor interview early in the case to begin to investigate the debtor’s viability, inquire about the debtor’s business plan, information the debtor of its obligations and develop an agreed scheduling order. The United States Trustee may inspect the debtor’s business books and records and is expected to monitor the debtor to determine if they can confirm a plan. If confirmation of a plan appears unlikely, the United States Trustee must make a motion in the Bankruptcy Court for conversion or dismissal of the case.
F. The Disclosure Statement and Plan process has been simplified by BAPCPA by permitting the small business debtor to make its required disclosures regarding the plan (a) in the plan itself, (b) in a prescribed form or (c) in a separate disclosure statement. The hearing on the disclosure statement can be combined with the plan. The small business case plan must be filed no later than 300 days after the date of the order for relief (the date the bankruptcy petition was filed). The Bankruptcy Court must confirm the plan no later than 45 days after a plan is filed. It is difficult to obtain extensions for any of these deadlines.
G. Judges Discretion pursuant to BAPCPA also removed some of a Bankruptcy Judge’s discretion in deciding whether a case should be converted or dismissed. The factors in deciding whether a case should be converted or dismissed are: substantial or continuing loss, the absence of a reasonable likelihood of rehabilitation, gross mismanagement of the estate, failure to maintain appropriate insurance, unauthorized use of cash collateral, failure to comply with an order of the court, unexcused failure to satisfy timely any filing or reporting requirement, failure to timely file or pay taxes owed after the date of the bankruptcy filing, failure to file a disclosure statement, or to file or confirm a plan within the time fixed by the Bankruptcy Code or Court Order.
H. Motion to Dismiss. The Court is also required to reach a decision on a motion to dismiss not later than 30 days after the motion is filed and to render a decision no later than 15 days after commencement of the hearing.
I. Multiple Filings and the Automatic Stay. If a debtor files a bankruptcy petition within 2 years of an order dismissing a prior small business case or within 2 years of the order confirming a plan in a prior small business case the automatic stay will not apply to the new case.
JHS
230 Park avenue
17th floor
New york, NY 10169
telephone: (212) 541-6224 Ext. 7592
telecopier: (646)-218-4600
Cell Phone: 917-363-3391
Email: jhs7@att.net
Website: http://jshenwick.googlepages.com
Blog: http://shenwick.blogspot.com/
November 17, 2006
New York State of CPA’s-S Corp and Closely Held Company Committee
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT (“BAPCPA”) AND “SMALL BUSINESS” CASES
I. Valuation of Small Businesses in Bankruptcy
A. S Corporations are a tax concept and not a bankruptcy concept.
B. Valuation of S Corporations and Closely Held Businesses are
important in bankruptcy-unlike publicly traded corporations where shares are traded daily valuation is more difficult
C. Bankruptcy Code section 541 creates a “hypothetical estate” when a person or entity files for bankruptcy and those interests must be valued
D. Types of Bankruptcy for Corporations. Corporations may only file for chapter 7 or chapter 11 bankruptcy
i. Chapter 7 is a “liquidation” and Chapter 11 can be a “liquidation” or reorganization.
E. When valuing closely held entities in bankruptcy attorneys look at the following assets:
i. Cash and checking account balances
ii. Accounts receivable (not more than 90 days past due)
iii. Inventory
iv. Real estate or under market leases
v. Furniture, Fixtures and Equipment
vi. Goodwill (do small businesses have good will?)
Less liabilities
F. Minority Discounts and Shareholder Agreements
i. What would a hypothetical investor pay to own 5% of the shares of the ABC Corp.?
ii. What happens if the ABC Corp. has a shareholder agreement or otherwise restricts the transfer of those shares?
iii. Who are the likely parties to buy shares in a closely held corporation? (existing shareholders?)
G. Personal Service Corporations for professionals, doctors, artists and others?
i. What is the value of this asset if the professional files for bankruptcy and then ceases to work for that corporation?
ii. Should professional service corporations liquidate or reorganize?
H. Confirmation Standards in Chapter 11. To confirm a chapter 11 bankruptcy plan one of the standards is that creditors must receive $1 more than they would get in a chapter 7 bankruptcy filing so valuation is an important issue.
I. Trustee Role in Closely Held Corporation Bankruptcy Case. If an individual files for chapter 7 bankruptcy and owns shares of stock in a closely held corporation the Bankruptcy Trustee is obligated to investigate the assets owned by the debtor and value those assets. If the assets have value the Trustee is required to sell those assets and distribute the proceeds to unsecured creditors and if the assets have no value they are abandoned back to the debtor when the case is closed.
II. Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) and Small Business Cases
A. BAPCPA which took effect on October 17, 2005 is the greatest change to bankruptcy law in the last 25 years and while most of those changes effected personal bankruptcy many changes also affected corporate bankruptcy and small business cases.
B. Small Business Cases-a “small business debtor” is a person or organization engaged in non-real estate commercial or business activities with an aggregate secured and unsecured debt of not more $2,000,000.
C. Types of Creditors in Bankruptcy. There are 3 types of creditors in bankruptcy cases: unsecured creditors (trade vendors, credit cards), secured creditors (mortgages and Uniform Commercial Code-1 and security interest creditors) and administrative and priority creditors (non-dischargeable taxes, claims incurred after the date of a bankruptcy filing, student loans, divorce obligations).
D. Filing and Reporting Requirements of BAPCPA. BAPCPA imposes new duties on small business debtors and on the United States Trustee in small business cases. The filing and reporting requirements include financial statements, federal income tax returns, profitability information, projected cash receipts and disbursements, a comparison of projections to actual results and certification of compliance with tax filings and payments. Small business debtors must maintain insurance appropriate to the industry and the debtor must allow the United States Trustee or representative to inspect the debtor’s business premises, books and records.
E.United States Trustee must conduct an initial debtor interview early in the case to begin to investigate the debtor’s viability, inquire about the debtor’s business plan, information the debtor of its obligations and develop an agreed scheduling order. The United States Trustee may inspect the debtor’s business books and records and is expected to monitor the debtor to determine if they can confirm a plan. If confirmation of a plan appears unlikely, the United States Trustee must make a motion in the Bankruptcy Court for conversion or dismissal of the case.
F. The Disclosure Statement and Plan process has been simplified by BAPCPA by permitting the small business debtor to make its required disclosures regarding the plan (a) in the plan itself, (b) in a prescribed form or (c) in a separate disclosure statement. The hearing on the disclosure statement can be combined with the plan. The small business case plan must be filed no later than 300 days after the date of the order for relief (the date the bankruptcy petition was filed). The Bankruptcy Court must confirm the plan no later than 45 days after a plan is filed. It is difficult to obtain extensions for any of these deadlines.
G. Judges Discretion pursuant to BAPCPA also removed some of a Bankruptcy Judge’s discretion in deciding whether a case should be converted or dismissed. The factors in deciding whether a case should be converted or dismissed are: substantial or continuing loss, the absence of a reasonable likelihood of rehabilitation, gross mismanagement of the estate, failure to maintain appropriate insurance, unauthorized use of cash collateral, failure to comply with an order of the court, unexcused failure to satisfy timely any filing or reporting requirement, failure to timely file or pay taxes owed after the date of the bankruptcy filing, failure to file a disclosure statement, or to file or confirm a plan within the time fixed by the Bankruptcy Code or Court Order.
H. Motion to Dismiss. The Court is also required to reach a decision on a motion to dismiss not later than 30 days after the motion is filed and to render a decision no later than 15 days after commencement of the hearing.
I. Multiple Filings and the Automatic Stay. If a debtor files a bankruptcy petition within 2 years of an order dismissing a prior small business case or within 2 years of the order confirming a plan in a prior small business case the automatic stay will not apply to the new case.
JHS
Tuesday, October 10, 2006
Commercial Lease Checklist
Shenwick & Associates has represented many tenants in commercial lease negotiations, provided below is a leasing checklist that we have developed. Any person with questions regarding lease negotiations should not hesitate to email or call Jim Shenwick.
1. Free rent-does the Lease reflect the deal between Landlord and Tenant?
2. Are the premises in a land-marked building?
3. Request a copy of the most recent tax bill-Tenant should only pay its pro rata share of taxes
4. Is the electricity direct meter, sub-meter or rent inclusion?
5. Assignment and sub-let should be allowed for (a) Tenant's sale of its business, (b) merger of its business, (c) Tenant goes public, (d) assignment of its lease to a related entity or division. In a sublet or an assignment, for a proposed deal, the Tenant should be required to provide Landlord a term sheet of the material terms and conditions and not a complete assignment or sublease.
- If the Lease allows Landlord recapture in an assignment or sublet situation, then the Lease should provide that if the Landlord elects to recapture space, the Tenant can withdraw it request for the right to an assignment or sublet.
6. Non-structural alterations should be allowed as a matter of right by Tenant
7. Security Deposit. Interest on security deposit should go to Tenant without request or notice once per year and returned to Tenant 30 days after lease ends. Security Deposit should decrease over time if no default by Tenant under Lease (“burn down”) and Landlord cannot apply security deposit without notice to Tenant.
8. Landlord consent to particular use and assistance in getting a liquor license if it is a restaurant deal
9. Sprinkler installation, monitoring, and maintenance who pays? (What %)
10. Electricity capacity of present wiring and watts per square foot
11. Signage in lobby (directory), elevator, floor and door (window signage, flag if retail)
12. Right to make deliveries to the premises at any time of the day for retail tenant.
13. Sidewalk maintenance is not the responsibility of retail tenant-other than snow removal
14. Landlord should pre-approve the private carter for retail tenant
15. Tenant not pay Landlord's expenses for initial renovation plan review
16. Renovation-pre-approval by Landlord of plans or not unreasonably withheld standard for Tenants alterations
17. Water bills by direct meter for use other than of sink and toilet by Tenant.
18. Heating should be provided even if Tenant is in default of lease obligations
19. Vault taxes should be the responsibility of Landlord
20. Get copy of certificate of occupancy from Landlord and make sure that Tenant's use is permitted
21. Insurance rider should be reviewed by Tenant’s insurance agent
22. Construction clause should be reviewed by Tenant’s architect
23. Brokerage clause indemnification language should be mutual
24. Real Estate tax clause should permit increases to be paid by Tenant over 12 months
25. Move in and Move out-no charge for use of elevator by Tenant or employees, independent contractors or agents of Tenant.
26. Condition of Space. Upon commencement of lease Landlord should be responsible for structure of premises- HVAC, plumbing, bathrooms, electrical and fire panels and sprinkler. Premises must be free of hazardous materials and asbestos.
27. Non-disturbance, Attornment and Recognition Agreement should be provided for in Lease for a large Tenant from Landlord’s mortgagee and/or ground lessor or superior tenant.
28. Landlord should take no more than 1 week to 10 days to review plans, specifications and contractors selected by Tenant.
29. Storage Space for Tenant-check if it is available in the building
30. Cleaning specifications should be referenced in Lease and attached to the lease
31. Sunset provision for escalations-any escalation bills from the Landlord should be void if they’re not sent to the Tenant 90 days after the end of the lease. Any escalation bill from the Landlord that’s two years beyond the applicable period should be null and void as well.
32. Discontinuance of electricity by Landlord –if the Landlord wants to discontinue electricity for the Tenant, then the Landlord must discontinue electricity for all Tenants in the building.
33. Holdover Provision-lease should provide for a partial holdover payment based on the number of days in the month, not solely for a full month’s holdover by Tenant.
34. Mitigation of Damages-if the Tenant vacates the space, Landlord should agree to use reasonable efforts to lease the space to a third party and minimize the damage to Tenant.
35. Confidentiality Clause-if the Landlord wants the lease terms to be kept confidential, then this condition should be reciprocal and the Landlord should agree that it will not disclose any information regarding the lease that pertains to Tenant.
1. Free rent-does the Lease reflect the deal between Landlord and Tenant?
2. Are the premises in a land-marked building?
3. Request a copy of the most recent tax bill-Tenant should only pay its pro rata share of taxes
4. Is the electricity direct meter, sub-meter or rent inclusion?
5. Assignment and sub-let should be allowed for (a) Tenant's sale of its business, (b) merger of its business, (c) Tenant goes public, (d) assignment of its lease to a related entity or division. In a sublet or an assignment, for a proposed deal, the Tenant should be required to provide Landlord a term sheet of the material terms and conditions and not a complete assignment or sublease.
- If the Lease allows Landlord recapture in an assignment or sublet situation, then the Lease should provide that if the Landlord elects to recapture space, the Tenant can withdraw it request for the right to an assignment or sublet.
6. Non-structural alterations should be allowed as a matter of right by Tenant
7. Security Deposit. Interest on security deposit should go to Tenant without request or notice once per year and returned to Tenant 30 days after lease ends. Security Deposit should decrease over time if no default by Tenant under Lease (“burn down”) and Landlord cannot apply security deposit without notice to Tenant.
8. Landlord consent to particular use and assistance in getting a liquor license if it is a restaurant deal
9. Sprinkler installation, monitoring, and maintenance who pays? (What %)
10. Electricity capacity of present wiring and watts per square foot
11. Signage in lobby (directory), elevator, floor and door (window signage, flag if retail)
12. Right to make deliveries to the premises at any time of the day for retail tenant.
13. Sidewalk maintenance is not the responsibility of retail tenant-other than snow removal
14. Landlord should pre-approve the private carter for retail tenant
15. Tenant not pay Landlord's expenses for initial renovation plan review
16. Renovation-pre-approval by Landlord of plans or not unreasonably withheld standard for Tenants alterations
17. Water bills by direct meter for use other than of sink and toilet by Tenant.
18. Heating should be provided even if Tenant is in default of lease obligations
19. Vault taxes should be the responsibility of Landlord
20. Get copy of certificate of occupancy from Landlord and make sure that Tenant's use is permitted
21. Insurance rider should be reviewed by Tenant’s insurance agent
22. Construction clause should be reviewed by Tenant’s architect
23. Brokerage clause indemnification language should be mutual
24. Real Estate tax clause should permit increases to be paid by Tenant over 12 months
25. Move in and Move out-no charge for use of elevator by Tenant or employees, independent contractors or agents of Tenant.
26. Condition of Space. Upon commencement of lease Landlord should be responsible for structure of premises- HVAC, plumbing, bathrooms, electrical and fire panels and sprinkler. Premises must be free of hazardous materials and asbestos.
27. Non-disturbance, Attornment and Recognition Agreement should be provided for in Lease for a large Tenant from Landlord’s mortgagee and/or ground lessor or superior tenant.
28. Landlord should take no more than 1 week to 10 days to review plans, specifications and contractors selected by Tenant.
29. Storage Space for Tenant-check if it is available in the building
30. Cleaning specifications should be referenced in Lease and attached to the lease
31. Sunset provision for escalations-any escalation bills from the Landlord should be void if they’re not sent to the Tenant 90 days after the end of the lease. Any escalation bill from the Landlord that’s two years beyond the applicable period should be null and void as well.
32. Discontinuance of electricity by Landlord –if the Landlord wants to discontinue electricity for the Tenant, then the Landlord must discontinue electricity for all Tenants in the building.
33. Holdover Provision-lease should provide for a partial holdover payment based on the number of days in the month, not solely for a full month’s holdover by Tenant.
34. Mitigation of Damages-if the Tenant vacates the space, Landlord should agree to use reasonable efforts to lease the space to a third party and minimize the damage to Tenant.
35. Confidentiality Clause-if the Landlord wants the lease terms to be kept confidential, then this condition should be reciprocal and the Landlord should agree that it will not disclose any information regarding the lease that pertains to Tenant.
Monday, September 25, 2006
ARE STUDENT LOANS DISCHARGEABLE IN BANKRUPTCY?
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
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
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
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
FAIR DEBT COLLECTION PRACTICES
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)
WHAT IS THE FAIR DEBT COLLECTION PRACTICES ACT?
The Fair Debt Collection Practices Act is federal law which regulates the activities of third parties who regularly collect debts from others.
HOW MAY A DEBT COLLECTOR CONTACT YOU?
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.
MAY A DEBT COLLECTOR CONTACT ANYONE ELSE ABOUT YOUR DEBT?
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.
WHAT MUST THE DEBT COLLECTOR TELL YOU ABOUT THE DEBT?
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.
MAY A DEBT COLLECTOR CONTINUE TO CONTACT YOU IF YOU BELIEVE YOU DO NOT OWE 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.
WHAT CAN YOU DO IF YOU BELIEVE A DEBT COLLECTOR VIOLATED THE LAW?
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.
WHERE CAN YOU REPORT A DEBT COLLECTOR FOR AN ALLEGED VIOLATION?
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
WHAT IS THE FAIR DEBT COLLECTION PRACTICES ACT?
The Fair Debt Collection Practices Act is federal law which regulates the activities of third parties who regularly collect debts from others.
HOW MAY A DEBT COLLECTOR CONTACT YOU?
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.
MAY A DEBT COLLECTOR CONTACT ANYONE ELSE ABOUT YOUR DEBT?
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.
WHAT MUST THE DEBT COLLECTOR TELL YOU ABOUT THE DEBT?
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.
MAY A DEBT COLLECTOR CONTINUE TO CONTACT YOU IF YOU BELIEVE YOU DO NOT OWE 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.
WHAT CAN YOU DO IF YOU BELIEVE A DEBT COLLECTOR VIOLATED THE LAW?
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.
WHERE CAN YOU REPORT A DEBT COLLECTOR FOR AN ALLEGED VIOLATION?
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.
Sincerely,
Jim Shenwick
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.
Sincerely,
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.
Sincerely,
Jim Shenwick
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.
Sincerely,
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.
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.
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.
JHS
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.
JHS
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.
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
6 REASONS WHY ONE SHOULD NOT FILE PRO SE
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.
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.
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.
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
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
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.
UPDATE:
Shenwick & Associates is proud to announce that we have updated our personal bankruptcy website, which can now be found at http://jshenwick.googlepages.com and we have started a legal blog on bankruptcy and real estate which can be found at http://shenwick.blogspot.com.
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: jhs7@att.net
Website: http://jshenwick.googlepages.com
Blog: http://shenwick.blogspot.com
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.
UPDATE:
Shenwick & Associates is proud to announce that we have updated our personal bankruptcy website, which can now be found at http://jshenwick.googlepages.com and we have started a legal blog on bankruptcy and real estate which can be found at http://shenwick.blogspot.com.
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: jhs7@att.net
Website: http://jshenwick.googlepages.com
Blog: http://shenwick.blogspot.com
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.
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 www.shenwick.netfirms.com 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 www.shenwick.netfirms.com (the Shenwick & Associates personal bankruptcy website) to learn more about that law.
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