Tuesday, February 25, 2014

Exemption of Keogh Plans in Florida

Congressman Eugene J. Keogh of New York
In 2009, the 11th Circuit Court of Appeals  issued its opinion in the case of In re Baker, ___ F.3rd ___, 2009 WL 4912122 (11th Cir. 2009) in which it held that the involved Keogh plan did not have to comply with ERISA in order to be exempt under § 222.21 (2)(a)(1), Florida Statutes. Keogh plan are a type of retirement plan for self-employed persons and small businesses. The Court held that the Florida exemption statute only required that the Keogh plan qualify under section 401 (a) of the Internal Revenue Code (the "IRC") and did not require the further compliance with the provisions of ERISA.

Section 222.21 (2)(a)(1), Florida Statutes generally provides for the exemption of assets payable to or an interest of an owner, participant, or beneficiary in a "fund or account" that is maintained in accordance with a plan that has been preapproved by the IRS as exempt from taxation under section 401 (a), et seq. of the IRC. Section 401 (a) of the IRC provides for the exemption from taxation of certain retirement plans maintained for the benefits of "employees", which includes "a self-employed individual."

The lower courts had held that the Keogh plan was not exempt on a contention that it was not maintained in accordance with the ERISA provisions (29 U.S.C. sections 1001-1461) in addition to having been "preapproved by the Internal Revenue Service" as required by § 222.21(2)(a)(1), Florida Statutes. The lower courts rejected the debtor's argument that § 222.21 (2)(a)(1), Florida Statutes only required the Keogh plan to qualify under section 401 (a) of the Internal Revenue Code and did not require the additional complaince with ERISA. The lower courts based their decision on the case of Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1, 124 S.Ct. 1330, 158 L.Ed.2d 40 (2004), which held that the sole shareholder and president of a professional corporation could qualify as a "participant" in an ERISA pension plan as long as the plan cover other employees other than himself or spouse.

The 11th Circuit Court of Appeals reversed the lower courts and held that § 222.21(2)(a)(1) only required the preapproval by the IRS under section 401(a) of the IRC and did not require the additional compliance with ERISA. The court stated that Fla. Stat. § 222.21(2)(b) specifically provides that for the fund to be exempt it need not necessarily be maintained in accordance with a "governing instrument that is covered by any part of [ERISA]...".

Friday, February 21, 2014

"Willful and Malicious Injury" - Exception from Chapter 7 Discharge

On February 22, 2012, the 11th Circuit Court of Appeals issued its decision in Jennings v. Jennings, 670 F.3d 1330 (11th Cir. 2012).  The case involved the issue of whether debt arising from the debtor's active participation with a co-conspirator in performing a fraudulent transfer of real property was excepted from discharge under 11 U.S.C. §§523(a)(6) which provides that a debt for "willful and malicious injury by the debtor to another entity or to the property of another entity" is non-dischargeble. The Court upheld the District Court's decision that the claim was non-dischargeable.  It should be noted that this was a chapter 7 bankruptcy case and that this exception from discharge of  section 523(a)(6) does not apply in a chapter 13 bankruptcy case, except when the debtor seeks a chapter 13 "hardship discharge." 

In the adversary proceeding to determine dischargeability, the debtor argued that the debt was not within this exception from discharge. She argued  that because the fraudulent transfer took place before the state court judgment arose, she could not have injured the creditor or his property. The Court rejected this argument and found that an injury to the property of another did take place as creditor did have a judgment that established his right to payment on the property interest at the time he initiated the adversary proceeding in this chapter 7 bankruptcy case to declare the claim non-dischargeable under section 523(a)(6). 

The Court found that the evidence showed that the injury was "willful and malicious" and therefore rejected the debtor's arguments. The Court explained that proof of willfulness requires a "showing of an intentional or deliberate action, which is not done merely in reckless disregard of the right of another. In re: Walker, 48 F.3d 1161, 1163 (11th Cir., 1995)  The Court further explained that a debtor is responsible for a willful injury when he or she commits an intentional act the purpose of which is to cause injury or which is substantially certain to cause injury. The Court explained that "malicious" means "wrongful and without just cause or excessive even in the absence of personal hatred, spite or ill-will."  In re: Walker, 48 F.3d at 1164. The Court noted that to establish malice, "a showing of specific intent to harm another is not necessary."  

The Court upheld the District Court's ruling that the debt was non-dischargeable under section 523(a)(6) as it found that the evidence showed that the transfer of the property to keep it out of the hands of this judgment creditor was "willful" as the debtor knew the purpose of the transfer and further held that the evidence showed that the transfer was malicious as the debtor had no just cause to effect the transfer.




Tuesday, February 11, 2014

Chapter 13 Bankruptcy


How Chapter 13 Works

Filing of Case. A chapter 13 bankruptcy case begins by filing a petition with the bankruptcy court serving the area where the debtor has a domicile or residence. Unless the court orders otherwise, the debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs.  The debtor must also file a certificate of credit counseling, evidence of payment from employers, if any, received 60 days before filing; and a statement of monthly net income and any anticipated increase in income or expenses after filing.

The debtor must provide the chapter 13 case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). A husband and wife may file a joint petition or individual petitions.

The courts must charge a $281.00 filing fee.  Normally the fees must be paid to the clerk of the court upon filing. If a joint petition is filed, only one filing fee and one administrative fee are charged. Debtors should be aware that failure to pay these fees may result in dismissal of the case.

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information:

  1. A list of all creditors and the amounts and nature of their claims;
  2. The source, amount, and frequency of the debtor's income;
  3. A list of all of the debtor's property; and
  4. A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household's financial position.


Appointment of Chapter 13 Trustee. When an individual files a chapter 13 petition, an impartial trustee is appointed to administer the case. The chapter 13 trustee both evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors.

Automatic Stay. Filing the petition under chapter 13 "automatically stays" (stops) most collection actions against the debtor or the debtor's property.  Filing the petition does not, however, stay certain types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.

Chapter 13 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a "consumer debt" from any individual who is liable along with the debtor. Consumer debts are those incurred by an individual primarily for a personal, family, or household purpose.

Saving Home from Foreclosure. Individuals may use a chapter 13 proceeding to save their home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as the individual files the chapter 13 petition. The individual may then bring the past-due payments current over a reasonable period of time. Nevertheless, the debtor may still lose the home if the mortgage company completes the foreclosure sale under state law before the debtor files the petition. The debtor may also lose the home if he or she fails to make the regular mortgage payments that come due after the chapter 13 filing.

Meeting of Creditors.  Between 21 and 50 days after the debtor files the chapter 13 petition, the chapter 13 trustee will hold a meeting of creditors. During this meeting, the trustee places the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding his or her financial affairs and the proposed terms of the plan. If a husband and wife file a joint petition, they both must attend the creditors' meeting and answer questions. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the creditors' meeting. The parties typically resolve problems with the plan either during or shortly after the creditors' meeting. Generally, the debtor can avoid problems by making sure that the petition and plan are complete and accurate, and by consulting with the trustee prior to the meeting.
After the meeting of creditors, the debtor, the chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on the debtor's chapter 13 repayment plan.

Creditors' Claims. In a chapter 13 case, to participate in distributions from the bankruptcy estate, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. A governmental unit, however, has 180 days from the date the case is filed file a proof of claim.