Tenants by Entireties, Not Allowed New $4000 Personal Property Exemption

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com


In the case of Luis Hernandez, 07-16379-BKC-RAM, the Bankruptcy Court disagreed with the Franzese court. It held that mere entitlement to claim homestead exemption does not mean the debtor receives the benefit of a homestead. Mere eligibility not sufficient. The Court read the exclusion narrowly. The Court agreed with the Court in In re Gatto, 380 B.R. 88 (Bankr. M.D. Fla. 2007), In re Shoopman, ___ B.R. ___, 2008 WL 817109, (Bankr.S.D.Fla. 2008).

It held that the new statutory personal property exemption not applicable to debtors who claim or receive the benefits of the constitutional homestead exemption. The benefits exception only applies to the debtor who is benefitting from the constitutional shield from execution by creditors outside of bankruptcy or trustees/creditors in bankruptcy.

In this case, the debtor is benefitting from constitutional protection as his wife's right to claim homestead protection would stop the trustee's right to sell home benefit of creditors.

HAMP and Mortgage Foreclosure Updates

Daniel Indiviglio wrote an article in the Atlantic, "Should the Government Scrap its Mortgage Modification Program?" He notes ranking Congressmen's letter to the U.S. Secretary of Treasury calling for the Obama administration to cancel HAMP. The Congressmen states that HAMP has only reached 346,816 borrowers with a permanent mortgage modification. They further noted hearing testimony that HAMP's taxpayer-funded incentives for mortgage modifications has had little impact on servicer practices.

The 2005 New Bankruptcy Laws

President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") on April 20, 2005. This 512 page Act made significant changes to the Bankruptcy Code. On October 17, 2005, the majority of the provisions of the new law went into effect although certain provisions became effective upon enactment and others have individualized effective dates.

The "Gridlock" of the Many Owners of the Securitized Mortgage

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com


It is well know to commercial attorneys that business or "commercial" trusts came to dominate many types of modern financial transactions. Trusts are widely used in the structuring of pensions, mutual funds and asset securitization trusts. See, Steven L. Schwarcz, Commercial Trusts as Business Organizations: Unraveling the Mystery, 58 BUS. LAW. 559 (2003), Steven L. Schwarcz, Alchemy of Asset Securitization, 1 STAN.J.L.BUS. & FIN. 133 (1994), John H. Langbein, The Secret Life of the Trust: The Trust as an Instrument of Commerce, 107 YALE L.J. 165 (1977). Now, due to the crisis with mortgages and the needs for mortgage modifications, even the average American citizen is aware of the commercial usage of the trust for the securitization of mortgages as well as the "gricklock" created thereby.

The "commercial" use of a trust is in contrast to the traditional "gratuitous trust" that a family member may set up as part of his estate planning. In a traditional gratuitous trust, the donor of the gift is the "settlor" of the trust and transfers assets to the trust to be managed by the trustee for the benefit of the beneficiaries. In contrast, with a commercial trust, such as an mortgage securitization trust, a settlor transfers financial assets in return for payment for the financial assets. With mortgage securitized trusts, mortgages are originated and then quickly assigned by the originators and brokers into large pools held by trusts. Christopher L. Peterson, Predatory Structured Finance, 28 CARDOZO L. REV. 5 (2007), Adam B. Ashcraft, Til Schuermann, Understanding the Securitization of Subprime Mortgage Credit, Federal Reserve Bank of New York Staff Report no. 318 (2008).

Trust certificates are then sold to investors to raise funds from the capital markets. "A trust certificate is simply a writing that evidences the holder's undivided interest, to the extent specified in the writing, in the trust assets." Schwarcz, Commercial Trusts, supra note 25. This is in accordance with basic trust law that the creation of a trust divides title to the trust property, placing legal title in the trustee and equitable title in the beneficiary. A beneficiary's interest in the trust property constitutes a vested interest in the property itself. 76 Am Jur., Trusts, Section 258, 259.

Certificates in securitized mortgage trusts are issued in various tranches with various ratings by the three national rating agencies, Standard and Poor's, Moody's, and Fitch Investment Company. One certificate may entitle an investor to receive all the interest income (an "interest-only tranche") while another may entitle an investor to receive all payments from loan principle (a "principle-only tranche"). The credit worthiness of some tranches is augmented by "credit enhancements", such as letters of credit, guaranties, insurances, and swaps.

Pursuant to a "pooling and servicing agreement", the mortgage held by the trust are serviced by one or more servicers, such as a master servicer, default servicer, and special servicer. Due to their limited authority, servicers have been unable to meet the needs of homeowners for "loss mitigation" or mortgage modification. Servicers are fearful of being sued by the trusts or certificate holder if they modify the mortgage. In fact, in a recent case, certificate holders have filed suit against Countrywide and Bank of America for agreeing to modify mortgage in their settlements with the various state's Attorney Generals. Underlying the servicers' lack of authority is the inherent structure of the trusts where interests of varying natures in the mortgage have been sold to the certificate holders which produces an inherent conflict of interest whereby a mortgage modification may be beneficial to one group of certificate holders but harmful to another. The result is gridlock.

Professor David Dana of Northwestern University School of Law recently explored in his article The Feudal Mistake the "excessive fragmentation" of ownership interests in securitized mortgages and the creation of a situation whereby it is nearly impossible to re-work a mortgage. This theme of excessive fragmentation of property interests, whether in land, intellectual property, or finance, is the subject of this year's "must read" (Business Week, December 25, 2008, page 82) The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives by Columbia University law Professor Michael Heller. In this work, Professor Heller explores the "free market paradox: usually, private ownership creates wealth, but too much ownership has the opposite effect – it creates gridlock. When too many people own pieces of one thing, cooperation breaks down, wealth disappears and everybody loses."

Which bring us to the today's American mortgage crisis and Chapter 13 of the Bankruptcy Code and its capability of cutting this Gordian knot of "gridlocked" securitized residential mortgages. Particularly, section 1322(b)(2) of the Bankruptcy Code provides that claims, such as mortgages, are not modifiable if they are secured only by an interest in real property that is the debtor's principal residence.

The first question presented is who is the claimant, ie. who owns the mortgage held by the securitized trust. Although legal title to the securitized mortgage is held by the trust's trusee, it would appear that the beneficial ownership of the securitized mortgages has been fragmented and diffused. Per basic trust law, although the securitized trust holds the legal title to the mortgage, the certificate holders hold the equitable title. In fact, with securitized trusts, the equitable title may be split among the hundreds or thousands of certificate holders who have competing interests per the various tranches in the mortgage. Hence the gridlock in modifying the securitized mortgages and the optimization of this "resource."

Perhaps deserving closer examination is the issue whether the claim in the mortgage as beneficially held by the hundreds or thousands of the certificate holders is secured only by an interest in real property? If not, apparently the mortgage would be modifiable under Chapter 13 of the Bankruptcy Code.Perhaps there have been "add-ons", such as the various credit enhancements, as the mortgage was passed along to the trust and certificate holders.

"Excessively Fragmented" Mortgages and Property Law

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com




Professor David Dana of Northwestern University School of Law made some interesting observations in his article The Feudal Mistake on the problem that the carving up of mortgages in securitized trusts has created whereby it is nearly impossible to re-work a mortgage. Professor Dana reviews how excessive fragmentation of ownership interests has been dealt with by English and American property law where judges created and used legal doctrines to "undo the excessive fragmentation of ownership interest in land" such as in feudal England and oil rights in nineteenth and early twentieth century. Professor Dana writes that "[o]ur property law and property rights tradition simply does not require, or even allow, our lawmakers to sit back while the ill-advised chopping up of property into competing interests creates a gridlock that undermines national prosperity. As Abraham Lincoln famously remarked, the Constitution is not a suicide pact."

Roundup of Bankruptcy Scholarship

"Divided Loyalties: The Attorney’s Role in Bankruptcy Reaffirmations" - Gregory M. Duhl, William Mitchell College of Law, American Bankruptcy Law Journal, Vol. 84, No. 4.

"The Rise in Elder Bankruptcy Filings and Failure of U.S. Bankruptcy Law" - John Pottow, University of Michigan Law School, University of Michigan Public Law Working Paper No. 210

"The Costs of BAPCPA: Report of the Pilot Study of Consumer Bankruptcy Cases" - Lois R. Lupica, University of Maine School of Law, American Bankruptcy Institute Law Review, Vol. 18, 2010

"Is Chapter 15 Universalist or Territorialist? Empirical Evidence from United States Bankruptcy Court Cases" - Jeremy Leong, Wisconsin International Law Journal, Forthcoming

"Committee Capture? An Empirical Analysis of the Role of Creditors' Committees in Business Reorganization" - Michelle M. Harner and Jamie Marincic, Vanderbilt Law Review, Vol. 64, 2011, U of Maryland Legal Studies Research Paper No. 2010-47

Miami-Dade Circuit Court Mandates Mediation of Homestead Mortgage Foreclosures

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com


In the year 2009, as reported in the media, (on April 9, 2009), Judge Joseph P. Farina, Chief Judge of the the Circuit Court of 11th Judicial Circuit in Miami-Dade County, Florida signed Administrative Order No. 09-08 establishing the "11th Circuit Homestead Access to Mediation Program ("Champ") and generally requiring mediation of residential homestead mortgage foreclosure cases filed on or after May 1, 2009. The mediation services though are available to mortgage foreclosures filed prior to May 1, 2009 on a case by case basis.

Pursuant to the administrative order and unless otherwise agreed, parties will be deemed to have agreed to referral of the foreclosure mediation to the "Collins Center for Public Policy" for mediation and assignment of a certified circuit civil mediator. No action will be taken by the Court to set a final hearing or enter summary judgment until certain requirements are met. The Collins Center's website provides and overview of the program, frequently asked questions, as well as a link to a video as to the establishment of its foreclosure mediation program.

Under the plan, the plaintiff mortgage lender is required to pay the fee of the Collins Center. Under the plan, the Collins Center is to contact the homeowner within 30 days and advise of the availability of financial counseling and mediation. The Collins Center may refer the homeowner to a HUD or National Foreclosure Mitigation Counseling Program agency which is to contact the homeowner within 21 days for counseling and to assist with the completion of financial documentation for use in renegotiating the loan. The lender and homeowner may register at the Collins Center's website and retrieve forms for financial documentation. Upon completion of the financial documentation, a mediation session is to be scheduled with the Collins Center to pay the certified mediators who have received additional training in foreclosure mediation. The mortgage holder's attorney and the homeowners are required to be physically present at the mediation with the mortgage lender's representative available with full authority to settle.

If the homeowner fails to appear at the mediation session or an impasse is reached, the mortgage foreclosure case may proceed to a final hearing. Within 10 days after completion of the mediation, the mediator is to file a report with the Court as to the lack of agreement or a signed written agreement. This mediation is available only once per case.

It is noted that Form "A" which includes the "Certificate of Plaintiff Regarding Status of Residential Property" and "Certificate of Plaintiff Regarding Representative at Mediation" requires that a copy of certain pooling or servicing agreements with investors (ie. as to securitized mortgages) are to filed with the foreclosure complaint and brought to the mediation session.

"The Honest But Unfortunate Creditor"

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com


In her law review article, Professor Juliet M. Moringielo of the Widener School of Law wrote an article entitled "Mortgage Modification, Equitable Subordination, and the Honest but Unfortunate Creditor" , Fordham Law Review, Forthcoming; Widener Law School Legal Studies Research Paper No. 10-10.

Professor Moringielo suggested that the Bankruptcy Court's power of "equitable subordination" under section 510(c) of the Bankruptcy Code may give the Bankruptcy Court to modify mortgages on principal residences in which the mortgage lender has engaged in abusive lending practices. It is noted that, otherwise, mortgages secured only by a principal residence are not modifiable, unless wholly unsecured (ie. "underwater").

Professor Moringielo reviewed that mortgage lending in recent years little resembles the traditional lending practices of thirty years ago when the Bankruptcy Code was enacted. Moringielo notes the 2% downpayment, introductory teaser rates of interest, the interest-only mortgage, the 80/20 loan, and the Option ARM that allowed for negative amortization and reduced or no documentation loans. Professor Moringielo suggests that it "strains belief to think that Congress and the [Supreme] Court intended that lenders that engage in abusive lending practices should be entitled to these protections."

Florida Home Exempt as Rhode Island Homestead Exemption Applies Extraterritorially

Chapter 13 Bankruptcy and Chapter 7 Bankruptcy - Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. He has filed over 8,000 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com



The Bankruptcy Court of the Southern District of Florida recently ruled that a Chapter 7 debtor, who was required to use the Rhode Island exemptions due to his previous domicile in Rhode Island, was allowed to exempt his Florida home under the Rhode Island homestead exemptions. In re Jevne, 2008 WL 906533 (Bankr.S.D.Fla. April 2, 2008)(Hyman, J.).

In this case, pursuant to section 522(b)(3)(A), the debtor was required to use the Rhode Island exemptions as he was not domiciled in Florida for the entire 730 day period prior to his bankruptcy filing and he was domiciled in Rhode Island for the great part of the 180 day period prior to the 730 day period. The court characterized the provisions of section 522(b)(3)(A) as a "choice of law" provision. The court stated that Rhode Island's statutory homestead exemption would apply if it applied extraterritorially. The court noted that while some states homestead statutes' plain language limit their application to property within the state, homestead statutes in other states are "silent" on the propriety of their extraterritorial application. The court concluded that if the language of a state's homestead statute restricts its application to property located within the state, the statute cannot be given extraterritorial effect, but if the homestead statute is silent as to its extraterritorial effect, the court will review that state's case law precedent to determine if the homestead statute can be applied to property outside of the state. See eg In re Dentrell, 403 F.3d 611 (8th Cir. 2005), In re Arrol, 170 F.3d 934 (9th Cir.1999). The court found that the Rhode Island homestead statute was silent as to its extraterritorial effect and that there was an absence of case law as to the issue of its extraterritorial application. Therefore, the court allowed the debtor to apply the $300,000 Rhode Island homestead exemption statute to exempt his Florida residence.

It should be noted that there is a distinction in the court's ruling from that of the Eight Circuit in Dentrell. Here the court held that when the prior state's homestead statute is silent, it would look to the state's case law, including apparently its principles of comity and choice of law, as to whether it may apply extraterritorially. It that sense, there would be a second choice of law consideration after the application of section 522(b)(3)(A)'s initial "choice of law" provision. In contrast, the Dentrell court held that the bankruptcy code incorporates applicable state law exemptions without incorporating the state's comity and choice of law principles.

In Dentrell, the trustee argued that while the prior state's statute was silent on the issue of extraterritoriality, it should not be applied to real property in the debtor's new state, as states traditionally do not give extraterritorial effect to statutes relating to the ownership of real property. The Dentrell court noted that this general rule is based on state interpretation of state law and that it may not apply with equal force in the context of a federal statute as "[t]raditional concerns respecting the dignity and sovereignty of other states and limiting jurisdiction to the state borders are simply inconsistent with the national effect and supremacy of federal law. In re Drentell, 403 F.3d 611, fn.1. The Dentrell court rejected the trustee's argument which was not based on the state's statutory language but rather on the state's comity and choice of law principles. The court noted that to adopt the trustee's argument, would require it to construe the phrase "the law that is applicable" as used in section 522(b)(2)(A) (now 522(b)(3)(A)) to refer to the whole of the state's law. Furthermoe, the court further noted that if the prior state's principles of comity and conflicts of law were applied, the bankruptcy court would have to consider whether the prior state would apply the new state's homestead exemption law to real property in the new state and in effect reverse the choice of law provision of 522(b)(2)(A).

The court was not persuaded that the phrase "the law that is applicable" of 522(b)(2)(A) invoked state choice of law rules. The court stated that "[r]eferences to state exemption statutes do not invoke the entire law of the state" and that "[c]ongress used state-defined exemptions as part of a federal bankruptcy scheme, while limiting the application of state policies that impair those exemptions." Owen v. Owen, 500 U.S. 305 (1991)(finding no inconsistency in the policy of permitting state-defined exemptions while disfavoring waiver of exemptions and impingement of liens on exemptions), Butner v. United States, 440 U.S. 48 (1979)(acknowledging that property interests normally governed by state law could be analyzed differently if some federal interest requires a different result). The Dentrell court held that the homestead statute of the prior state of domicile would be applied without regard to its choice of law rules and that its choice of law jurisprudence is irrelevant. See Collier on Bankruptcy, 15th Edition Revised, para 522.06 (2008). In short, there is a distinction between the holdings in Jevne and Drentell, as the court in Jevne would look to the state's principles of comity and conflicts of law as to whether a state's homestead statute that is silent on the issue would apply extraterritorially, while the court in Drentell would not apply the state's principles of comity and conflicts of law.

Ex-Spouse's Law Firm Not Able to Assert Basis for Non-Dischargeablity

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. His office is in Miami at 1221 Brickell Ave., 9th Fl., Miami and may be reached at (305) 891-4055. www.bublicklaw.com  


The Court's decision in In re Brooks, ___B.R. ___, 2007 WL 2083834 (Bkrtcy.N.D.Tex. July 19, 2007)(Lynn, J.) dealt with an adversary proceeding by the law firm of debtor's ex-spouse to determine a claim against the debtor for attorneys' fees as non-dischargeable pursuant to 523(a)(5) or (a)(15). The law firm held a judgment against the debtor for their legal services rendered to his ex-spouse, inter alia, in obtaining and enforcing spousal support. Notably, the ex-spouse was not liable for this amount nor was the debtor liable for a certain other amount owed to the law firm by the ex-spouse. The debtor contended that the law firm lacked "standing" to assert a claim under section 523(a)(5) or (15) and moved to dismiss for failure to state a cause of action. The Court granted the debtor's motion to dismiss as it found that the law firm could not assert a basis for its claim to be excepted from discharge under 523(a)(5) or (a)(15).

Section 523(a)(5) provides that a discharge under section 727 does not discharge an individual debtor for a domestic support obligation ("DSO"). Section 523(a)(15) provides that a debt to a spouse, former spouse, or child not of the kind described in (a)(5) incurred in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of court is not dischargeable. The law firm claimed that the firm's fee are non-dischargeable on the basis that they were so intertwined with support that they constitute a DSO pursuant to 523(a)(5) or in the alternative that they are a non-dischargeable divorce-related debt under section 523(a)(15). The court looked to the definition of DSO in section 101(14A) and found that the law firm's fee were not a DSO as they were not owed to a spouse, former spouse, or child of the debtor or such child's parent, legal guardian, or responsible relative or to a governmental unit. Furthermore, the court found that the law firm's debt was not non-dischargeable under section 523(a)(15) as it was not a debtor to a spouse, former spouse or child of the debtor.

The court rejected the argument to deem the legal fees as a DSO if the amounts were "recoverable" by a former spouse as it found that Congress did not intend to turn a debtor's family members into debt recovery associates. The court also noted the inapplicability of the cases cited by the law firm under the pre-BAPCPA version of section 523(a)(15). The court noted that it would read the exceptions to discharge narrowly in balancing the two public policies found in sections 523(a)(5) and (a)(15)--that of providing a fresh start to the deserving debtor and the importance of a debtor's obligations to his family. Marama v. Citizens Bank, ___ U.S. ___ (2007)("The principal purpose of the Bankruptcy Code is to grant a 'fresh start' to the 'honest but unfortunate debtor.') The court noted that Congress did not intend for sections 523(a)(5) or (15) to aid in a law firm's collection efforts but only for the other party to the divorce or separation.

Statutory Personal Property Exemption Allowed Despite Amendment

In the case of In re: Laura Martias, Case 07-20488-BKC-PGH, Bankruptcy Court adopted a permissive approach and allowed the debtor to amend  her schedule of exemptions in schedule c and her statement of intention.

The Court relied on the case of In re Shoopman, Case No. 07-19450-BKC-PGH which held that section 222.25(4) set forth a bright-line test to determine if a debtor is eligible to exempt up to $4000 worth of personal property. This statues allows a debtor to claim $4000 statutory personal property exemption if debtor does not claim constitutional homestead exemption or does not otherwise receive the benefits of the constitutional homestead exemption. The Court in adopting a permissive approach to allow amendments at any time before case closed held that it held no  iscretion to deny amendments to claim of exemptions unless there is a showing of bad faith or prejudice to creditor.

Florida Exemptions do not Apply Extraterritorially

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com


The court in In re Adams, 375 B.R. 532 (Bkrtcy.W.D.Mo. 2007) (Dow, J.) held that the Florida homestead exemption does not have extraterritorial effect. Although the debtors filed for chapter 7 bankruptcy in Missouri, they were required to apply the Florida exemptions as they had not been domiciled in Missouri for the entire 730 days prior to the bankruptcy filing and were domiciled in Florida for the greater part of the 180 days prior to such 180 day period 11 U.S.C. § 522(b)(3)(A).

The court noted that the Florida homestead exemption found in Florida's constitution at Art. X Section 4 does not specifically provide whether it has extraterritorial effect. The court found that the Florida courts agree with the courts that hold as a general proposition that where the homestead law is silent, it does not have extraterritorial effect. See, e.g., In re Sanders, 72 B.R. 124 (Bankr.M.D.Fla.1987)(mobile home located in Tennessee not exempt under Florida law as not located within the State of Florida), In re Schlackman, 2007 WL 1482011 (Bankr. S.D. Fla. Jan. 2007)(Florida courts construe the Florida constitutional homestead provision to require that the homestead be located within the State of Florida for the homestead exemption to be applicable).

The court refused to follow the case of In re Drenttel, 309 B.R. 320 (8th Cir.BAP2004) which allowed the application of the Minnesota homestead exemption to exempt the debtors' home in Arizona. The court distinguished Drenttel as being based on the interpretation of specific Minnesota exemption statutes and the state's public policy. Furthermore the court suggested that the Drenttel court reached its result in an effort to avoid the inequity of the debtors not being able to claim either state's exemptions. The court noted that BAPCPA added the right for a debtor to claim the federal exemptions if the effect of the domiciliary requirements of section 522 is to render them ineligible for any exemption.

Divestment of Joint Tenancy by Sole Contributor

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com


In the case of Burkholder, 2000 WL 987832 (Mo.App.S.D.), the Court dealt with the question of whether the sole contributor to funds has right to divest the other joint tenant of his ownership interest. The issue was whether the joint tenancy terminated before he died. The Court held that actual termination was required. 

Termination may take place by the presentation of the depositor's documents and withdrawing money or procuring physical changes in the documents and the institution's records, or a final judgment ordering termination before depositor's death.

The Chapter 13 Plan and Confirmation Hearing

Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed.  A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.

Types of Claims. There are three types of claims: priority, secured, and unsecured.

Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of bankruptcy proceeding. (3) Secured claims are those for which the creditor has collateral for the debt which allows the creditor to take the property if the debtor does not pay the underlying debt. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.

The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless the debtor contributes all "disposable income" - discussed below - to a five-year plan.

If the debtor wants to keep the collateral securing a particular claim, the plan must provide that the holder of the secured claim receive at least the value of the collateral. If the obligation underlying the secured claim was used to buy the collateral (e.g., a car loan), and the debt was incurred within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral (which may be less due to depreciation). Payments to certain secured creditors (i.e., the home mortgage lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as any arrearage is made up during the plan.

The plan need not pay unsecured claims in full as long it provides that the debtor will pay all projected "disposable income" over an "applicable commitment period," and as long as unsecured creditors receive at least as much under the plan as they would receive if the debtor's assets were liquidated under chapter 7. In chapter 13, "disposable income" is income (other than child support payments received by the debtor) less amounts reasonably necessary for the maintenance or support of the debtor or dependents and less charitable contributions up to 15% of the debtor's gross income. If the debtor operates a business, the definition of disposable income excludes those amounts which are necessary for ordinary operating expenses. The "applicable commitment period" depends on the debtor's current monthly income. The applicable commitment period must be three years if current monthly income is less than the state median for a family of the same size - and five years if the current monthly income is greater than a family of the same size.  The plan may be less than the applicable commitment period (three or five years) only if unsecured debt is paid in full over a shorter period.

Payments. Within 30 days after filing the bankruptcy case, even if the plan has not yet been approved by the court, the debtor must start making plan payments to the trustee. . If any secured loan payments or lease payments come due before the debtor's plan is confirmed (typically home and automobile payments), the debtor must make adequate protection payments directly to the secured lender or lessor - deducting the amount paid from the amount that would otherwise be paid to the trustee.

Confirimation Hearing. No later than 45 days after the meeting of creditors, the bankruptcy judge must hold a confirmation hearing and decide whether the plan is feasible and meets the standards for confirmation set forth in the Bankruptcy Code.  Creditors will receive 28 days' notice of the hearing and may object to confirmation. While a variety of objections may be made, the most frequent ones are that payments offered under the plan are less than creditors would receive if the debtor's assets were liquidated or that the debtor's plan does not commit all of the debtor's projected disposable income for the three or five year applicable commitment period.

If the court confirms the plan, the chapter 13 trustee will distribute funds received under the plan "as soon as is practicable."  If the court declines to confirm the plan, the debtor may file a modified plan.  The debtor may also convert the case to a liquidation case under chapter 7.  If the court declines to confirm the plan or the modified plan and instead dismisses the case, the court may authorize the trustee to keep some funds for costs, but the trustee must return all remaining funds to the debtor (other than funds already disbursed or due to creditors).

Plan Modification. Occasionally, a change in circumstances may compromise the debtor's ability to make plan payments. For example, a creditor may object or threaten to object to a plan, or the debtor may inadvertently have failed to list all creditors. In such instances, the plan may be modified either before or after confirmation.  Modification after confirmation is not limited to an initiative by the debtor, but may be at the request of the trustee or an unsecured creditor.

Unconfirmed Arbitration Award is "Debt Due" Subject to Garnishment

The Florida Third District Court of Appeals issued its decision in Capital Factors, Inc. v. Alba Rent-a-Car, Inc., et al., 32 Fla.L.Weekly D21070 (Fla. 3rd. DCA 2007) and held that an unconfirmed arbitration award qualifies as a "debt due" by the garnishee subject to garnishment under Section, 77.01, Florida Statutes. The Court held that an arbitration award does not require judicial confirmation to be collectible by garnishment.

The Court noted that Florida looks favorably upon agreements to arbitrate and that ordinarily a decision by arbitrators are as binding and conclusive as a judgment of a court. Am. Renaissance Lines, Inc. v. Saxis Steamship Co., 502 F.2d674,678(C.A.N.Y.1974). The Court also noted that the arbitrator's award represents a liquidated amount due by the garnishee and that the award on its face was final. The contracts in this case did not state that confirmation was necessary for finality and that confirmation is not mandatory to validate an award's finality. It was pointed out that frequently confirmation of an arbitration award is not sought, but is often only sought when the prevailing party fears that the losing party will not honor the award. An unconfirmed award is a contract right that may be used as the basis for a cause of action. The Court further noted that even a disputed debt due is still subject to garnishment. Ala. Hotel Co. v. J.L.Mott Iron Works, 98 So. 825, 827 (Fla.1924).

Avoided Preferential Transfer Repaid Prepetition not Recoverable

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Judge Hyman's recent decision in In re Sawran, __ B.R. ___, 2007 WL 101841 (Bkrtcy. S.D. Fla.) presents an analysis of the common fact pattern. If a debtor made a prepetition preferential payment to an initial transferee, but the initial transferee or immediate transferee repays the involved amount to the debtor prepetition, may the trustee in bankruptcy still recover the preference?

The Sawran case presented a situation where the trustee obtained a judgment to avoid a preferential transfer under section 547. The trustee then filed an action under section 550 to recover the amount of the avoided transfer from an immediate transferee of the initial transferee.

The Court began its analysis with a review of section 550(d) which provides that a trustee is only entitled to a single recovery under 550(a)--the single satisfaction rule. That is, the trustee cannot recover from the various transferees more than the actual amount avoided. The Court further pointed out that the avoidance of a voidable transfer and the recovery from the transferee are distinct from one another.

The Court held that a trustee is prohibited under section 550(d) from recovering the amount avoided from a transferee who has already returned to the estate that which was avoided. To allow the trustee to collect the amount would result in a windfall to the trustee that violates the single satisfaction rule of section 550(d).

The Court found an alternative basis for its holding pursuant to the use of the Court's equitable powers under section 105(a) by finding that it had the power to grant the initial transferees an "equitable credit" even if there was no defense available under the provisions of the Code. The initial transferees were innocent of wrongdoing and deserved protection to the extent that they repaid the involved amount. The equitable credit prevented the estate from receiving a windfall.
The Court noted that the Court's equitable powers under section 105(a) are also used in other contexts to prevent a trustee from being able to recover from a party who is innocent of wrongdoing and deserves protection, such as when the initial recipient is a "mere conduit" of funds and therefore not an "initial transferee" under section 550(a)(1).

Bankruptcy Lawyer - US Supreme Court Rules on Issue of Allocation of Attorneys Fees

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com



On March 20, 2007, the US Supreme Court issued its decision in Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co., ___ US ___ (2007) which was before the Court on a writ of certiorari from the 9th Circuit Court of Appeals. The issue before the Court was "whether federal bankruptcy law precludes an unsecured creditor from recovering attorney's fees authorized by a prepetition contract and incurred in postpetition litigation." The 9th Circuit Court of Appeals had held that such fees are categorically prohibited to the extent the litigation involves issues of federal bankruptcy law. The US Supreme Court disagreed and vacated the lower Court's decision.

In the bankruptcy case, Traveler's filed a proof of claim that included an amount to recover its attorney's fees incurred in connection with PG&E's bankruptcy proceedings. The Bankruptcy Court agreed with PG&E, that Traveler's was not entitled to recover attorney's fees incurred while litigating issues of bankruptcy law.

On appeal, the District Court agreed with the bankruptcy court relying on In re Fobian, 951 F.2d 1149 (9th Cir. 1991) which held that "where the litigated issues involve not basic contract enforcement questions, but issues peculiar to federal bankruptcy law, attorney's fees will not be awarded absent bad faith or harassment by the losing party." The 9th Circuit Court of Appeals affirmed the District Court's ruling.

In its decision, the US Supreme Court explained that under the American Rule, the prevailing litigant is ordinarily not entitled to collect attorney's fees from the loser, unless this rule is overcome by statute or by an enforceable contract allocating attorney's fees. The Court held that an otherwise enforceable contract is allowable in bankruptcy except where the Bankruptcy Code provides otherwise. The Court further held that the Bankruptcy Code does not disallow a contract-based claim for attorney's fees based solely on the fact that the fees in issue were incurred litigating issues of bankruptcy law. The Court stated that the Fobian rule has no support in the Bankruptcy Code either in section 502 (which is the section dealing with the allowance and disallowance of claims) or in any other code section.

The Court expressed no opinion whether following the demise of the Fobian rule, other principles of bankruptcy law may provide an independent basis for disallowing the involved attorney's fees claim. One such argument not addressed by the Court as it was not raised in the Courts below was whether section 506(b) by explicit negation disallows unsecured claims for contractual attorney's fees. In short, the Court's holding was a narrow repudiation of the Fobian rule, leaving open the broader question of whether unsecured creditors can collect post-petition attorney's fees.

Chapter 13 Antimodification Provision Despite Security Interest in Escrow Account

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. His office is in Miami at 1221 Brickell Ave., 9th Fl., Miami and may be reached at (305) 891-4055. www.bublicklaw.com  

By its opinion dated June 29, 2007, the court in In re Lunger, ___ B.R. ___, 2007 WL 1970807 (Bkrtcy.M.D.Pa.)(Thomas J.) held that the lien that the residential mortgage lender took on the tax escrow account which is an item of personal property under state law, did not affect its status as a creditor whose lien was secured "solely" by an interest in real property that was the chapter 13 debtor's principal residence under BAPCPA's expansive definition of "debtor's personal residence." Section 1322(b)(2)

The debtor argued that the mortgagee's taking of a lien on the escrow account allowed the mortgage to be modified as it was no longer secured solely by an interest in real property that was the debtor's principal residence. The court noted that it had previously held in In re Donadio, 269 B.R. 336 (Bankr.M.D.Pa.2001), that in Pennsylvania the escrow accounts represented separate property of the debtor independent of the debtor and independent of the real property.  The court explained that in 2005 while BAPCPA did not alter section 1322(b)(2), it did define the term "debtor's principal residence" which was not previously statutorily defined. Section 101(13A).

Residence Held in Revocable Trust May Qualify as Florida Homestead

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. His office is in Miami at 1221 Brickell Ave., 9th Fl., Miami and may be reached at (305) 891-4055. www.bublicklaw.com  


In the case of In re Alexander, 346 B.R. 546 (Bankr.M.D.Fla.2007)(Williamson, J.), the court addressed the issue of whether real property may qualify for Florida's homestead exemption when title to the property is held in a revocable trust of which the Debtor is the sole trustee and the sole primary beneficiary. As sole trustee, the Debtor maintained legal control of the trust and could revoke the trust at any time and as sole primary beneficiary, the Debtor retained an exclusive right of possession. The debtor had resided in the residence for about ten years.

The court rejected the trustee's argument that the Debtor was not entitled to the homestead exemption on the contention that the real property was not "property owned by a natural person" as required by Art. X, Section 4 of the Florida Constitution. The court held that the Debtor's beneficial interest was sufficient to entitle her to claim Florida's homestead exemption. The court explained that the Florida Constitution has been interpreted as applying to a variety of interests in real property and does not distinguish different types of ownership interest that qualify for the homestead exemption. The court discussed that an individual claiming the homestead exemption need not hold fee simple title to the property, but it is sufficient if the individual's legal or equitable interest gives the individual the legal right to use and possess the property as a residence. In re Ballato, 318 B.R. 205 (Bankr.M.D. Fla. 2004), Southern Walls, Inc. v. Stilwell Corp., 810 So.2d 566 (Fla. 5th DCA 2002), Callava v. Feinberg, 864 So.2d 4290 (Fla. 3d DCA 2004), Engelke v. Estate of Engelke, 921 So. 2d 693 (Fla. 4th DCA 2006). The court declined to follow the case of In re Bosonetto, 271 B.R. 403 (Bankr.M.D.Fla.2001)(Proctor, J.)(debtor could not claim homestead exemption in residential property that she owned as trustee of trust) which it found did not cite any Florida cases to support its ruling and whose reasoning has not been followed in subsequent cases.

Can I Leave Some of My Credit Cards Out of the Bankruptcy?

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com


One is required to list all his secured and unsecured debt in his bankruptcy schedules. The debtors discharge may be denied for omitting credit card debts in chapter 7 as it was in the case of In re Harris, 2008 WL 1732924 (1st Cir.BAP-Mass).

HOA Bylaws not Enforceable, Unreasonable Restraint on Alienation

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com

In the case of in re George Walker, 07-14794-BKC-LMI, 4/17/08, the Bankruptcy Court dealt with a motion to sell real property free and clear of HOA approval fee and process. Nothing in declaration of covenants conditions sale on approval. HOA argued that absence of a restriction legitimizes the bylaw which requires. Statute allowed to include in covenants.

The Court held that the bylaws were a restraint on aliention. Absolute restrains are unenforceable and against public policy. Reasonable restraints are enforceable and Florida statutes authorizes limited restrictions. The Court held that the involved bylaw restraint was  unreasonble.

Bankruptcy Options for Distressed South Florida Homeowners

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com




Principal Residences, Non-Principal Residences, Commercial Property, and Farms


Bankruptcy - Chapter 13, 11, or 12

Principal Residencesa. Second and other junior liens - avoidable if wholly "underwater" (in Southern District of Florida)(not in chapter 7)

b. First Mortgages - Modification Options

1. Litigation settlement (state court or bankruptcy court)(defenses, etc.)

• settlements have recently begun to be achieved due to economy

2. Proposed bankruptcy law amendments

• expected to be retroactive to pending cases

• principal reduction to value of property

• interest rate modification

3. Obama "Making Home Affordable Program"


4. Other Voluntary Modification


Non-Principal Residences
First and Second Mortgage, Other Liens -Modifiable under present Chapter 13, 11, and 12 (not subject to "anti-modification clause")

• reduction in mortgage principal to value of real estate

• modification of interest rate

Commercial Properties

First and Second Mortgage, Other Liens - modifiable under present Chapter 13, 11, and 12 (not subject to "anti-modification clause")

• reduction in mortgage principal to value of real estate

• modification of interest rate

Family Farmers

First and Second Mortgages, Other Liens - modifiable under present Chapter 13, 11, and 12 (not subject to "anti-modification clause")

• reduction in mortgage principal to value of real estate

• modification of interest rate

Chapter 13 Debtor has Standing To Sue

In the case of Smith v. Rockett, et al., (10th Cir. 2008) the Court held that standing is assessed as of the time the action is commenced. The four circuits who have considered this issue have concluded that chapter 13 debtors have standing to bring claims in their own name on behalf of the bankrupty estate. See Crosby v. Monroe County, 394 F.3d 1328, 1331 n. 2 (11th Cir. 2004). It would frustrate the purpose of section 1306 to prohibit the debtor rom pursuing the chose in action for the benefit of the estate.

In chapter 13 cases where the debtor is the party plaintiff, the courts recognize that the Chapter 13 debtor controls the litigation as well as the terms of the settlement. Crosby v. Monroe County, 394 F.3d 1328, 1331

Bankruptcy Lawyer - Standard for Entry of Summary Judgment

One can brush up on their French by reading the recent decision of the Florida 3rd District Court of Appeals in the case of Klein vs. Joel Robbins, 32 FLW 237 (3rd DCA 2007). At issue was whether the home involved was "substantially completed" on the January 1st of the year and thereby taxable per Fla. Stat. 192.042 (1).

The Trial Court entered a summary judgment in favor of the Property Appraiser. In arguing for the upholding its victory by summary judgment at the Trial Court level, the Property Appraiser's Counsel suggested that a more "modern" standard for summary judgment should be adopted. The 3rd DCA reversed on the Mc Queen case's standard for denial of a summary judgment which denies a summary judgment were "even the slightest doubt exists regarding the existence of material issues."

Resulting Trust

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com


In the case of In re Lezdey, 2007 WL 2238350 (Bkrtcy.M.D.Fla.)(May, J.) the Bankruptcy Court dealt with a situation involving a conveyance from the debtor to himself and his  brother. The Court held that this does not establish that debtor held a half interest.

The Court noted that under Florida law there are circumstances, such as that involving a resulting trust, where the record owner may be shown not to have any beneficial interest in property and that the presumption of equal ownership may be rebuttable by evidence to the contrary. But the  presumption of equal ownership may fail if there is no designation of each party's fractional interest. 

Miami Bankruptcy Lawyer Jordan E. Bublick - Bankruptcy Glossary

Miami bankruptcy lawyer Jordan E. Bublick has over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. He has filed over 8,000 bankruptcy cases.

Bankruptcy Glossary

A

adversary proceeding

A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A nonexclusive list of adversary proceedings is set forth in Fed. R. Bankr. P. 7001.

assume

An agreement to continue performing duties under a contract or lease.

automatic stay

An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.

B

bankruptcy
A legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of title 11 of the United States Code (the Bankruptcy Code).

 Bankruptcy Code
The informal name for title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal bankruptcy law.

bankruptcy court
The bankruptcy judges in regular active service in each district; a unit of the district court.

bankruptcy estate
All legal or equitable interests of the debtor in property at the time of the bankruptcy filing. (The estate includes all property in which the debtor has an interest, even if it is owned or held by another person.)

bankruptcy judge
A judicial officer of the United States district court who is the court official with decision-making power over federal bankruptcy cases.

bankruptcy petition
The document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) by which opens the bankruptcy case. (There are official forms for bankruptcy petitions.)

C

chapter 7
The chapter of the Bankruptcy Code providing for "liquidation,"(i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.)

chapter 9
The chapter of the Bankruptcy Code providing for reorganization of municipalities (which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts).

chapter 11
The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership. (A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.)

chapter 12
The chapter of the Bankruptcy Code providing for adjustment of debts of a "family farmer," or a "family fisherman" as those terms are defined in the Bankruptcy Code.

chapter 13
The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.)

chapter 15
The chapter of the Bankruptcy Code dealing with cases of cross-border insolvency.

claim
A creditor's assertion of a right to payment from the debtor or the debtor's property.

confirmation
Bankruptcy judges's approval of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13.

consumer debtor
A debtor whose debts are primarily consumer debts.

consumer debts
Debts incurred for personal, as opposed to business, needs.

contested matter
Those matters, other than objections to claims, that are disputed but are not within the definition of adversary proceeding contained in Rule 7001.

contingent claim
A claim that may be owed by the debtor under certain circumstances, e.g., where the debtor is a cosigner on another person's loan and that person fails to pay.

creditor
One to whom the debtor owes money or who claims to be owed money by the debtor.

credit counseling
Generally refers to two events in individual bankruptcy cases: (1) the "individual or group briefing" from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing under any chapter of the Bankruptcy Code; and (2) the "instructional course in personal financial management" in chapters 7 and 13 that an individual debtor must complete before a discharge is entered. There are exceptions to both requirements for certain categories of debtors, exigent circumstances, or if the U.S. trustee or bankruptcy administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.

creditors' meeting
see 341 meeting

current monthly income
The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and income from the debtor's spouse if the petition is a joint petition, but not including social security income and certain other payments made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A).

D

debtor
A person who has filed a petition for relief under the Bankruptcy Code.

debtor education
see credit counseling

defendant
An individual (or business) against whom a lawsuit is filed.

discharge
A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. (A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.)

dischargeable debt
A debt for which the Bankruptcy Code allows the debtor's personal liability to be eliminated.

disclosure statement
A written document prepared by the chapter 11 debtor or other plan proponent that is designed to provide "adequate information" to creditors to enable them to evaluate the chapter 11 plan of reorganization.

E

equity
The value of a debtor's interest in property that remains after liens and other creditors' interests are considered. (Example: If a house valued at $100,000 is subject to a $80,000 mortgage, there is $20,000 of equity.)

executory contract or lease
Generally includes contracts or leases under which both parties to the agreement have duties remaining to be performed. (If a contract or lease is executory, a debtor may assume it or reject it.)

exemptions, exempt property
Certain property owned by an individual debtor that the Bankruptcy Code or applicable state law permits the debtor to keep from unsecured creditors. For example, in some states the debtor may be able to exempt all or a portion of the equity in the debtor's primary residence (homestead exemption), or some or all "tools of the trade" used by the debtor to make a living (i.e., auto tools for an auto mechanic or dental tools for a dentist). The availability and amount of property the debtor may exempt depends on the state the debtor lives in.

I

insider (of individual debtor)
Any relative of the debtor or of a general partner of the debtor; partnership in which the debtor is a general partner; general partner of the debtor; or a corporation of which the debtor is a director, officer, or person in control.

insider (of corporate debtor)
A director, officer, or person in control of the debtor; a partnership in which the debtor is a general partner; a general partner of the debtor; or a relative of a general partner, director, officer, or person in control of the debtor.

J

joint administration
A court-approved mechanism under which two or more cases can be administered together. (Assuming no conflicts of interest, these separate businesses or individuals can pool their resources, hire the same professionals, etc.)

joint petition
One bankruptcy petition filed by a husband and wife together.

L

lien

The right to take and hold or sell the property of a debtor as security or payment for a debt or duty.
liquidation
A sale of a debtor's property with the proceeds to be used for the benefit of creditors.
liquidated claim
A creditor's claim for a fixed amount of money.

M

means test
Section 707(b)(2) of the Bankruptcy Code applies a "means test" to determine whether an individual debtor's chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor's aggregate current monthly income (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $10,950, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $6,575. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.

motion to lift the automatic stay
A request by a creditor to allow the creditor to take action against the debtor or the debtor's property that would otherwise be prohibited by the automatic stay.

N

no-asset case
A chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims.
nondischargeable debt
A debt that cannot be eliminated in bankruptcy. Examples include a home mortgage, debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor's conviction of a crime. Some debts, such as debts for money or property obtained by false pretenses and debts for fraud or defalcation while acting in a fiduciary capacity may be declared nondischargeable only if a creditor timely files and prevails in a nondischargeability action.

O

objection to dischargeability
A trustee's or creditor's objection to the debtor being released from personal liability for certain dischargeable debts. Common reasons include allegations that the debt to be discharged was incurred by false pretenses or that debt arose because of the debtor's fraud while acting as a fiduciary.

objection to exemptions
A trustee's or creditor's objection to the debtor's attempt to claim certain property as exempt from liquidation by the trustee to creditors.

P

party in interest

A party who has standing to be heard by the court in a matter to be decided in the bankruptcy case. The debtor, the U.S. trustee or bankruptcy administrator, the case trustee and creditors are parties in interest for most matters.

petition preparer
A business not authorized to practice law that prepares bankruptcy petitions.

plan
A debtor's detailed description of how the debtor proposes to pay creditors' claims over a fixed period of time.

plaintiff
A person or business that files a formal complaint with the court.

postpetition transfer
A transfer of the debtor's property made after the commencement of the case.

prebankruptcy planning
The arrangement (or rearrangement) of a debtor's property to allow the debtor to take maximum advantage of exemptions. (Prebankruptcy planning typically includes converting nonexempt assets into exempt assets.)

preference or preferential debt payment
A debt payment made to a creditor in the 90-day period before a debtor files bankruptcy (or within one year if the creditor was an insider) that gives the creditor more than the creditor would receive in the debtor's chapter 7 case.

presumption of abuse
see means test

priority
The Bankruptcy Code's statutory ranking of unsecured claims that determines the order in which unsecured claims will be paid if there is not enough money to pay all unsecured claims in full. For example, under the Bankruptcy Code's priority scheme, money owed to the case trustee or for prepetition alimony and/or child support must be paid in full before any general unsecured debt (i.e. trade debt or credit card debt) is paid.

priority claim
An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Priority refers to the order in which these unsecured claims are to be paid.

proof of claim
A written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money. (There is an official form for this purpose.)

property of the estate
All legal or equitable interests of the debtor in property as of the commencement of the case.

R

reaffirmation agreement
An agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car) that would otherwise be subject to repossession.

S

schedules
Detailed lists filed by the debtor along with (or shortly after filing) the petition showing the debtor's assets, liabilities, and other financial information. (There are official forms a debtor must use.)

secured creditor
A creditor holding a claim against the debtor who has the right to take and hold or sell certain property of the debtor in satisfaction of some or all of the claim.

secured debt
Debt backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default. Examples include home mortgages, auto loans and tax liens.

small business case
A special type of chapter 11 case in which there is no creditors' committee (or the creditors' committee is deemed inactive by the court) and in which the debtor is subject to more oversight by the U.S. trustee than other chapter 11 debtors. The Bankruptcy Code contains certain provisions designed to reduce the time a small business debtor is in bankruptcy.

statement of financial affairs
A series of questions the debtor must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc. (There is an official form a debtor must use.)

statement of intention
A declaration made by a chapter 7 debtor concerning plans for dealing with consumer debts that are secured by property of the estate.

substantive consolidation
Putting the assets and liabilities of two or more related debtors into a single pool to pay creditors. (Courts are reluctant to allow substantive consolidation since the action must not only justify the benefit that one set of creditors receives, but also the harm that other creditors suffer as a result.)

341 meeting
The meeting of creditors required by section 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs. Also called creditors' meeting.

T

transfer
Any mode or means by which a debtor disposes of or parts with his/her property.

trustee
The representative of the bankruptcy estate who exercises statutory powers, principally for the benefit of the unsecured creditors, under the general supervision of the court and the direct supervision of the U.S. trustee or bankruptcy administrator. The trustee is a private individual or corporation appointed in all chapter 7, chapter 12, and chapter 13 cases and some chapter 11 cases. The trustee's responsibilities include reviewing the debtor's petition and schedules and bringing actions against creditors or the debtor to recover property of the bankruptcy estate. In chapter 7, the trustee liquidates property of the estate, and makes distributions to creditors. Trustees in chapter 12 and 13 have similar duties to a chapter 7 trustee and the additional responsibilities of overseeing the debtor's plan, receiving payments from debtors, and disbursing plan payments to creditors.

U

U.S. trustee
An officer of the Justice Department responsible for supervising the administration of bankruptcy cases, estates, and trustees; monitoring plans and disclosure statements; monitoring creditors' committees; monitoring fee applications; and performing other statutory duties. Compare, bankruptcy
administrator.

undersecured claim
A debt secured by property that is worth less than the full amount of the debt.

unliquidated claim
A claim for which a specific value has not been determined.

unscheduled debt
A debt that should have been listed by the debtor in the schedules filed with the court but was not. (Depending on the circumstances, an unscheduled debt may or may not be discharged.)

unsecured claim
A claim or debt for which a creditor holds no special assurance of payment, such as a mortgage or lien; a debt for which credit was extended based solely upon the creditor's assessment of the debtor's future ability to pay.

V

Voluntary transfer
A transfer of a debtor's property with the debtor's consent.